-----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, GL2tIfwK81Z2W8Ax+KQA9LOLMX/0H+MTPLXn+tLpQwnV55Vb27ZQjvLgPGBmExBB CEsgNhXBmCc0nmVY8buRgQ== 0000950123-99-009043.txt : 19991018 0000950123-99-009043.hdr.sgml : 19991018 ACCESSION NUMBER: 0000950123-99-009043 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19991004 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHELPS DODGE CORP CENTRAL INDEX KEY: 0000078066 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY SMELTING & REFINING OF NONFERROUS METALS [3330] IRS NUMBER: 131808503 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B3 SEC ACT: SEC FILE NUMBER: 333-86061 FILM NUMBER: 99722289 BUSINESS ADDRESS: STREET 1: 2600 NORTH CENTRAL AVE CITY: PHOENIX STATE: AZ ZIP: 85004 BUSINESS PHONE: 6022348100 MAIL ADDRESS: STREET 1: 2600 NORTH CENTRAL AVENUE CITY: PHOENIX STATE: AZ ZIP: 85004-3089 424B3 1 PHELPS DODGE CORPORATION 1 Filed pursuant to Rule 424(b)(3) Registration No. 333-86061 LOGO Phelps Dodge Corporation Amended Offer to Exchange Each Outstanding Share of Common Stock (Including Associated Preferred Share Purchase Rights) of Cyprus Amax Minerals Company For 0.3500 Shares of Common Stock of Phelps Dodge Corporation or $20.54 net to the seller in cash subject, in each case, to the election and proration procedures described in this prospectus and the related letter of election and transmittal. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON OCTOBER 15, 1999 UNLESS EXTENDED. SHARES TENDERED PURSUANT TO THIS OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION OF THE OFFER. THIS AMENDED PROSPECTUS AMENDS AND RESTATES OUR PROSPECTUS DATED SEPTEMBER 22, 1999. ON SEPTEMBER 30, 1999, WE ENTERED INTO AN AGREEMENT AND PLAN OF MERGER WITH CYPRUS AMAX PURSUANT TO WHICH WE AGREED TO AMEND OUR OFFER TO CYPRUS AMAX SHAREHOLDERS. We are offering to exchange $7.61176875 net in cash plus 0.2203 shares of Phelps Dodge common stock for each outstanding share of Cyprus Amax Minerals Company common stock, on a fully prorated basis. You may elect to receive either $20.54 in cash or 0.3500 shares of Phelps Dodge common stock for each of your Cyprus Amax common shares that are validly tendered and not properly withdrawn, subject, in each case, to the election and proration procedures described in this prospectus and the related letter of election and transmittal. We are also making a separate offer to exchange $9.00 net in cash and 0.2880 shares of Phelps Dodge common stock for each outstanding common share of Asarco Incorporated on a fully prorated basis and subject to the same election and proration procedures. THE BOARD OF DIRECTORS OF CYPRUS AMAX HAS APPROVED THE PHELPS DODGE/CYPRUS AMAX MERGER AGREEMENT, DETERMINED THAT THE OFFER IS FAIR TO, AND IN THE BEST INTERESTS OF, CYPRUS AMAX STOCKHOLDERS, AND RECOMMENDS THAT CYPRUS AMAX STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. Our obligation to exchange Phelps Dodge common stock and cash for Cyprus Amax common stock is subject to the conditions listed under "The Offer -- Conditions of Our Offer." Our offer to Cyprus Amax shareholders is not, however, conditioned on the success of our offer to Asarco shareholders, nor is our offer to Asarco shareholders conditioned on the success of our offer to Cyprus Amax shareholders. Phelps Dodge's common stock trades on the New York Stock Exchange under the symbol "PD." SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY. A solicitation of proxies will be unanimously made only pursuant to separate proxy solicitation materials complying with the requirements of Section 14(a) of the Securities Exchange Act of 1934. ------------------------- Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense. ------------------------- The Dealer Manager for the Offer is MORGAN STANLEY DEAN WITTER ------------------------- The date of this prospectus is October 1, 1999 2 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE PROPOSED COMBINATION........ iii WHERE YOU CAN FIND MORE INFORMATION......................... vi SUMMARY..................................................... 1 The Proposed Combination.................................. 1 Reasons for the Proposed Combination...................... 1 The Offer................................................. 3 The Companies............................................. 4 Risk Factors.............................................. 5 RISK FACTORS................................................ 6 Benefits of the Combination May Not Be Realized........... 6 Fixed Exchange Ratio of Our Offer Could Work to Your Disadvantage........................................... 6 You May Not Receive All Consideration in the Form that You have Elected........................................... 7 Copper Price Volatility May Reduce Income................. 7 Environmental and Regulatory Compliance May Impose Substantial Costs...................................... 8 Operations Outside the United States Are Subject to Risks.................................................. 10 Mining Is Subject to Risks................................ 11 Reserve Levels Are Subject To Uncertainty................. 11 Year 2000 Poses Potential Risks........................... 12 THE PROPOSED COMBINATION.................................... 13 REASONS FOR THE PROPOSED COMBINATION........................ 14 BACKGROUND OF THE OFFER..................................... 16 THE OFFER................................................... 41 Description of Election and Proration Procedures.......... 42 Timing of Our Offer....................................... 43 Litigation................................................ 43 Extension, Termination and Amendment...................... 44 Exchange of Cyprus Amax Shares; Delivery of Phelps Dodge Common Stock and Cash.................................. 45 Cash Instead of Fractional Shares of Phelps Dodge Common Stock.................................................. 46 Withdrawal Rights......................................... 46 Procedure for Tendering................................... 46 Material U.S. Federal Income Tax Considerations........... 48 Cyprus Amax Rights........................................ 51 Effect of Offer on Market for Cyprus Amax Shares; Registration Under the Exchange Act.................... 51 Purpose of Our Offer; the Phelps Dodge/Cyprus Amax Merger................................................. 52 Conditions of Our Offer................................... 54 Source and Amount of Funds................................ 55 Relationships with Cyprus Amax............................ 56 Fees and Expenses......................................... 56 Accounting Treatment...................................... 57 Stock Exchange Listings................................... 57 Regulatory Matters........................................ 57 THE COMPANIES............................................... 58 Phelps Dodge Corporation.................................. 58 ASARCO Incorporated....................................... 58 Cyprus Amax Minerals Company.............................. 59
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PAGE ---- THE PHELPS DODGE/CYPRUS AMAX MERGER AGREEMENT............... 59 The Offer................................................. 59 Form of Merger............................................ 60 Consideration to be Received in the Merger................ 60 Exchange Agent; Procedures for Exchange of Certificates... 61 Surviving Corporation following the Merger................ 62 Representations and Warranties in the Merger Agreement.... 62 Covenants in the Merger Agreement......................... 63 Stockholder Approvals and Other Cooperation............... 64 No Solicitation of Alternate Takeover Proposals........... 65 Stock Option and other Stock-Based Awards................. 66 Benefits Matters.......................................... 67 Indemnification; Directors' and Officers' Insurance....... 67 Litigation................................................ 67 Conditions Precedent to the Merger........................ 67 Termination............................................... 68 Closing................................................... 69 Termination Fees.......................................... 69 Costs and Expenses........................................ 69 Amendment................................................. 69 Waiver.................................................... 70 MARKET PRICES AND DIVIDENDS................................. 71 PHELPS DODGE CORPORATION SELECTED HISTORICAL FINANCIAL DATA...................................................... 72 ASARCO INCORPORATED SELECTED HISTORICAL FINANCIAL DATA...... 73 CYPRUS AMAX MINERALS COMPANY SELECTED HISTORICAL FINANCIAL DATA...................................................... 75 PHELPS DODGE COMPARATIVE PER SHARE INFORMATION.............. 77 UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION.......... 79 DESCRIPTION OF PHELPS DODGE CAPITAL STOCK................... 99 Authorized Capital Stock.................................. 99 Phelps Dodge Common Stock................................. 99 Phelps Dodge Preferred Stock.............................. 99 Transfer and Dividend Paying Agent and Registrar.......... 99 COMPARISON OF RIGHTS OF HOLDERS OF PHELPS DODGE SHARES AND CYPRUS AMAX SHARES........................................ 100 Comparison of Charter and By-law Provisions............... 100 Comparison of Certain Statutory Provisions................ 106 ASARCO AND CYPRUS AMAX INFORMATION.......................... 109 FORWARD-LOOKING INFORMATION................................. 109 LEGAL MATTERS............................................... 110 EXPERTS..................................................... 110 SCHEDULE A -- DIRECTORS AND EXECUTIVE OFFICERS.............. A-1 SCHEDULE B -- ADDITIONAL INFORMATION REGARDING PHELPS DODGE CORPORATION'S EXPLORATION AND MINING PROPERTIES........... B-1
THIS PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION ABOUT PHELPS DODGE THAT IS NOT INCLUDED IN OR DELIVERED WITH THE PROSPECTUS. THAT INFORMATION IS AVAILABLE WITHOUT CHARGE TO YOU UPON WRITTEN OR ORAL REQUEST. YOU MUST ADDRESS YOUR REQUEST TO CORPORATE SECRETARY, PHELPS DODGE CORPORATION, 2600 NORTH CENTRAL AVENUE, PHOENIX, ARIZONA 85004-3014, TELEPHONE (602) 234-8598. TO OBTAIN TIMELY DELIVERY, YOU MUST REQUEST THE INFORMATION NO LATER THAN OCTOBER 7, 1999. ii 4 QUESTIONS AND ANSWERS ABOUT THE PROPOSED COMBINATION Q: WHY IS PHELPS DODGE AMENDING ITS OFFER? A: Phelps Dodge and Cyprus Amax have reached an agreement to combine their businesses. Phelps Dodge has agreed to amend its exchange offer to increase the premium we are offering for your shares -- to approximately 44% above the last trading price of Cyprus Amax common shares just before trading was halted on August 20, 1999, the day we publicly announced our proposed business combination. In addition, we're still offering you a choice to receive Phelps Dodge common shares or cash for your Cyprus Amax common shares. Q: DOES CYPRUS AMAX NOW SUPPORT YOUR OFFER? A: Yes. Your Board of Directors has determined that the offer is fair to, and in the best interests of, Cyprus Amax stockholders, and recommends that Cyprus Amax stockholders accept the offer and tender their shares pursuant to the offer. Q: WHAT WOULD I RECEIVE IN EXCHANGE FOR MY SHARES? A: We are offering to exchange $7.61176875 net in cash plus 0.2203 shares of Phelps Dodge common stock per Cyprus Amax common share, on a fully prorated basis. You may elect to receive either $20.54 in cash or 0.3500 shares of Phelps Dodge common stock for each of your Cyprus Amax common shares that are validly tendered and not properly withdrawn. You will receive either cash, Phelps Dodge common stock, or a combination of cash and Phelps Dodge common stock. To the extent the demand for either the cash component or the stock component of our offer exceeds the aggregate amount of cash or stock in our offer, we will prorate the total cash or stock, as the case may be, proportionally among the shareholders who elect that component. Shareholders who do not make an election will be allocated whatever component is remaining (or a proportionate share of each component if neither is oversubscribed), after taking into account the preferences of the tendering shareholders who make elections. We describe our procedures for prorating cash and common stock under the caption "The Offer -- Description of Election and Proration Procedures." You will not receive any fractional Phelps Dodge shares. Instead, you will receive cash in an amount equal to the market value of any fractional Phelps Dodge shares you would otherwise have been entitled to receive. Q: WILL I BE TAXED ON THE PHELPS DODGE SHARES I RECEIVE? A: The tax treatment will depend on the extent to which you receive cash or our common stock pursuant to our offer and the Phelps Dodge/Cyprus Amax merger in exchange for your Cyprus Amax shares: - If you elect to receive solely our common stock and no proration of the number of shares of our common stock is required, we expect that the transaction will be tax-free to you. - If you elect to receive solely cash and no proration of cash is required, we expect that, in general, you will recognize gain or loss in respect of your Cyprus Amax shares. - If, because of proration, you receive some cash and some shares, we expect that, in general, you will recognize some or all of the gain, if any, in your Cyprus Amax shares but will not recognize loss, if any. Q: HAS CYPRUS AMAX RECEIVED A FAIRNESS OPINION IN CONNECTION WITH THE OFFER? A: Yes. Cyprus Amax has received an opinion from Merrill Lynch, Pierce, Fenner & Smith Incorporated dated September 30, 1999, substantially to the effect that, as of such date, the consideration to be received by Cyprus Amax stockholders in the offer and the Cyprus Amax/Phelps Dodge merger is fair from a financial point of view to the stockholders of Cyprus Amax. Cyprus Amax has included this opinion as an exhibit to Cyprus Amax's Solicitation/Recommendation Statement on Schedule 14D-9, which is being mailed to Cyprus Amax shareholders together with this prospectus. iii 5 Q: WHAT ARE THE CONDITIONS TO YOUR OFFER? A: Our offer is subject to several conditions, including: - tender of at least a majority of Cyprus Amax's shares; and - our stockholders having approved the issuance of our stock pursuant to our offer. These conditions and other conditions to our offer are discussed in this prospectus under "The Offer -- Conditions of Our Offer." Q: ARE YOU STILL TRYING TO INCLUDE ASARCO INCORPORATED IN A THREE-WAY COMBINATION WITH PHELPS DODGE AND CYPRUS AMAX? A: Yes. We are making a separate exchange offer to the shareholders of Asarco. However, we have not reached an agreement with Asarco, as we have with Cyprus Amax, and there can be no assurance that we will reach an agreement. Another company, Grupo Mexico S.A. de C.V., has also offered to acquire Asarco. Q: WHAT HAPPENED TO CYPRUS AMAX'S AGREEMENT FOR A TWO-WAY COMBINATION WITH ASARCO? A: Cyprus Amax has terminated its merger agreement with Asarco in order to enter into a merger agreement with us. Q: HOW IS YOUR CYPRUS AMAX OFFER RELATED TO YOUR ASARCO OFFER? A: While we would prefer to combine all three companies, the two offers are separate, and neither is conditioned on the other. Q: HOW WOULD YOU GO ABOUT COMPLETING YOUR PROPOSED ACQUISITION? A: Once we acquire shares in the offer, our wholly owned subsidiary CAV Corporation will merge with Cyprus Amax, so that Cyprus Amax will become a wholly owned subsidiary of Phelps Dodge. Q: HOW LONG WILL IT TAKE TO COMPLETE YOUR PROPOSED COMBINATION? A: We expect to complete our combination with Cyprus Amax early in the fourth quarter of this year. Q: WHERE CAN I FIND MORE INFORMATION ABOUT PHELPS DODGE, CYPRUS AMAX AND ASARCO? A: You can find more information about Phelps Dodge, Cyprus Amax and Asarco from various sources described under "Where You Can Find More Information" on page vi. Q: HOW DO I PARTICIPATE IN YOUR OFFER? A: To tender your shares, you should do the following: - If you hold your shares in your own name, complete and sign the enclosed letter of election and transmittal and return it with your share certificates to ChaseMellon Shareholder Services, L.L.C., the exchange agent for the offer, at one of its addresses on the back cover of this prospectus. - If you hold your shares in "street name" through a broker, ask your broker to tender your shares and make the election on your behalf. - If you have a preference for receiving cash or Phelps Dodge shares, express your preference on the enclosed letter of election and transmittal. You may change your election only by properly withdrawing your shares and tendering them again before our offer expires. Q: AM I REQUIRED TO MAKE AN ELECTION? A: No. If you do not make an election, you will still receive payment for your Cyprus Amax shares. However, if you have a preference for receiving either Phelps Dodge shares or cash and do not make an election, we will not take your preference into account and you will be allocated whatever component is remaining (or a proportionate share of each component if neither is oversubscribed) after taking into account the preferences of other tendering shareholders. iv 6 Q: IF I HAVE ALREADY TENDERED MY SHARES, DO I NEED TO TAKE FURTHER ACTION? A: No, but if you tendered pursuant to our initial offer (prospectus dated September 2, 1999), you must withdraw and re-tender your shares if you wish to make an election to receive cash or Phelps Dodge shares. If you tendered pursuant to our amended offer (prospectus dated September 22, 1999), you need not take any further action unless you wish to make or change any cash or stock election. Q: WHAT SHOULD I DO IF I HAVE QUESTIONS? A: If you have any questions about our offer, please call our information agent, Innisfree M&A Incorporated, toll-free at 1-877-750-5838. v 7 WHERE YOU CAN FIND MORE INFORMATION Phelps Dodge, Asarco and Cyprus Amax file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission (the SEC). You may read and copy any reports, statements or other information we file at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549, or at the SEC's public reference rooms in New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public from commercial document retrieval services and at the Internet world wide web site maintained by the SEC at www.sec.gov. Phelps Dodge filed a registration statement on Form S-4 to register with the SEC the Phelps Dodge common shares to be issued pursuant to our offer. This prospectus is a part of that registration statement. As allowed by SEC rules, this prospectus does not contain all the information you can find in the registration statement or the exhibits to the registration statement. When we commenced our offer, we filed with the SEC a statement on Schedule 14D-1 pursuant to rule 14d-3 under the Securities Exchange Act of 1934 furnishing certain information about our offer. We filed an amended Schedule 14D-1 on September 22, 1999. Today we are filing a further amended Schedule 14D-1. You may read and copy the Schedule 14D-1 (and any amendments to it) at the SEC's public reference room in Washington, D.C. referred to above. The SEC allows us to "incorporate by reference" information into this prospectus, which means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is deemed to be part of this prospectus, except for any information superseded by information contained directly in this prospectus. This prospectus incorporates by reference the documents set forth below that Phelps Dodge, Asarco or Cyprus Amax have previously filed with the SEC. These documents contain important information about Phelps Dodge, Asarco and Cyprus Amax and their financial condition. DOCUMENTS INCORPORATED BY REFERENCE ARE AVAILABLE WITHOUT CHARGE UPON REQUEST TO: CORPORATE SECRETARY, PHELPS DODGE CORPORATION, 2600 NORTH CENTRAL AVENUE, PHOENIX, AZ 85004-3014, TELEPHONE (602) 234-8598. IN ORDER TO ENSURE TIMELY DELIVERY, ANY REQUEST FOR DOCUMENTS SHOULD BE SUBMITTED NO LATER THAN OCTOBER 7, 1999. The following documents filed with the SEC by Phelps Dodge are incorporated herein by reference: (i) Phelps Dodge's Annual Report on Form 10-K for the year ended December 31, 1998 (revised information regarding Phelps Dodge's exploration and mining properties is set forth in Schedule B to this prospectus); (ii) Phelps Dodge's Proxy Statement for the Annual Meeting of Phelps Dodge Stockholders held on May 5, 1999; (iii) Phelps Dodge's Quarterly Reports on Form 10-Q for the periods ended March 31, 1999 and June 30, 1999; (iv) Phelps Dodge's Annual Report on Form 11-K for the fiscal year ended December 31, 1998; (v) Phelps Dodge's Current Reports on Form 8-K dated August 23, 1999 and August 26, 1999, September 3, 1999, September 22, 1999 and September 30, 1999; (vi) Phelps Dodge's Definitive Proxy Statement for the special meeting of Asarco shareholders to be held on September 30, 1999; (vii) Phelps Dodge's Definitive Proxy Statement for the special meeting of Cyprus Amax stockholders to be held on September 30, 1999; and (viii) Phelps Dodge's Definitive Proxy Statement for the special meeting of Phelps Dodge stockholders to be held on October 13, 1999. vi 8 The following documents filed with the SEC by Asarco are incorporated herein by reference: (i) Asarco's Annual Report on Form 10-K for the year ended December 31, 1998 (except for the report of Asarco's independent accountants contained therein which is not incorporated herein by reference because the consent of Asarco's independent accountants has not yet been obtained); (ii) Asarco's Proxy Statement for the Annual Meeting of Shareholders held on April 28, 1999; (iii) Asarco's Quarterly Reports on Form 10-Q for the periods ended March 31, 1999 and June 30, 1999; and (iv) Asarco's Current Reports on Form 8-K dated July 20, 1999, September 7, 1999, September 20, 1999 and September 28, 1999. The following documents filed with the SEC by Cyprus Amax are incorporated herein by reference: (i) Cyprus Amax's Annual Report on Form 10-K for the year ended December 31, 1998 (except for the report of Cyprus Amax's independent accountants contained therein which is not incorporated herein by reference because the consent of Cyprus Amax's independent accountants has not yet been obtained); (ii) Cyprus Amax's Proxy Statement for the Annual Meeting of Shareholders held on May 6, 1999; (iii) Cyprus Amax's Quarterly Reports on Form 10-Q for the periods ended March 31, 1999 and June 30, 1999; and (iv) Cyprus Amax's Current Reports on Form 8-K dated July 21, 1999, July 14, 1999, February 24, 1999 and September 28, 1999. All documents filed by Phelps Dodge, Asarco or Cyprus Amax pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 from the date of this prospectus to the date that shares are accepted for exchange pursuant to our offer (or the date that our offer is terminated) shall also be deemed to be incorporated herein by reference. vii 9 SUMMARY This summary highlights selected information from this prospectus, and may not contain all of the information that is important to you. To better understand the proposed Phelps Dodge/Asarco/Cyprus Amax combination and our separate offers to the shareholders of Asarco and Cyprus Amax, you should read this entire document carefully, as well as those additional documents to which we refer you. See "Where You Can Find More Information" on page vi. THE PROPOSED COMBINATION We have agreed to combine the businesses of Phelps Dodge Corporation (Phelps Dodge) and Cyprus Amax Minerals Company (Cyprus Amax). Pursuant to our agreement with Cyprus Amax, we are offering to exchange $7.61176875 net in cash plus 0.2203 shares of Phelps Dodge common stock per Cyprus Amax common share, on a fully prorated basis. You may elect to receive either $20.54 in cash or 0.3500 shares of Phelps Dodge common stock for each of your Cyprus Amax common shares that are validly tendered and not properly withdrawn, subject, in each case, to the election and proration procedures described in this prospectus under the caption "The Offer -- Description of Election and Proration Procedures." The consideration we are offering you has a value of $19.80, based on the closing price of Phelps Dodge common stock on September 29, 1999 of $55 5/16. If you receive all consideration in the form of stock, at the exchange ratio of 0.3500 Phelps Dodge common shares per Cyprus Amax share, your consideration would be worth $19.36, based on the same closing price. We are also making a separate offer to shareholders of ASARCO Incorporated (Asarco) to exchange $9.00 in cash and 0.2880 shares of Phelps Dodge common stock per Asarco common share, on a fully prorated basis and subject to the same election and proration procedures. In July 1999, Asarco and Cyprus Amax announced that they had agreed to combine their companies. In August 1999, we proposed a three-way combination that we believe would be much more valuable to shareholders of Asarco and Cyprus Amax than the proposed two-party Asarco/Cyprus Amax merger. Since then, we have reached an agreement to combine with Cyprus Amax. We are continuing our offer to Asarco shareholders. Another company, Grupo Mexico, has also offered to acquire Asarco. See "Background of the Offer" beginning on page 16. We continue to prefer to combine all three companies. However, our agreement with Cyprus Amax and our offer to Cyprus Amax shareholders are not conditioned on the success of our offer to Asarco shareholders, nor is our offer to Asarco shareholders conditioned on the success of our offer to Cyprus Amax shareholders. See "The Offer" beginning on page 41. REASONS FOR THE PROPOSED COMBINATION We believe that our proposed combination of Phelps Dodge, Asarco and Cyprus Amax 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. In addition to the substantial dividend increase for Asarco and Cyprus Amax shareholders, we believe that the combination of Phelps Dodge, Asarco and Cyprus Amax will produce the following benefits: - Substantial premium. The exchange ratios and cash that we are offering imply premiums of approximately 44% for Cyprus Amax shareholders and approximately 40% for Asarco shareholders based on the last trading prices of Phelps Dodge, Cyprus Amax and Asarco common stock just before trading was halted on August 20, 1999, the day we publicly announced our proposed business combination. - Accretion to cash flow and earnings. The combination would result in immediate and substantial accretion to the cash flow of the combined company. We expect the combination to result in significant accretion to earnings per share of the combined company beginning in the second year after closing, assuming copper prices of $0.80 -- $0.85 per pound in 2001. 1 10 - Ability to integrate operations. We expect the combined company to have significantly greater ability to integrate southwest U.S. mining operations, administrative functions in the U.S., Chile and Peru, and worldwide exploration and development activities. - Management strength. The combined company would have a strong and deep management team, at both the operating and corporate levels, with strong credibility in the marketplace. - Cost savings. We expect to achieve annual cash cost savings of at least $200 million by the end of the second year after closing, as a result of reductions in overhead, purchasing, exploration and other expenses. We also expect at least another $40 million in annual savings from lower depreciation expenses, bringing the total annual savings to at least $245 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 cash synergy figure of $125 million projected in the proposed Asarco-Cyprus Amax merger. This does not include any cost savings from the rationalization of high-cost production during periods of low copper prices. - Operating leverage. The combined company would have tremendous operating leverage, together with enough diversity in other businesses to mitigate cyclical downturns. - Superior production capability. The total annual copper production of the combined company would be approximately 3.8 billion pounds at current levels, with total attributable copper reserves of approximately 80 billion recoverable pounds. - Increased competitiveness. The combined company would have increased ability to compete for world-class projects. - Reduced capital expenditures. By combining their businesses, Phelps Dodge, Asarco and Cyprus Amax would be able to reduce capital expenditures. - Financial strength. The company would have a strong, liquid balance sheet, with excellent access to capital. See "Reasons for the Proposed Combination" beginning on page 14. 2 11 THE OFFER SUMMARY OF THE OFFER We are offering, upon the terms and subject to the conditions set forth in this prospectus and in the related letter of election and transmittal, to exchange 0.3500 shares of Phelps Dodge common stock, or $20.54 in cash, for each outstanding share of common stock of Cyprus Amax that is validly tendered on or prior to the expiration date and not properly withdrawn, subject, in each case, to the election and proration procedures described in this prospectus and the related letter of election and transmittal. We are making our offer through our wholly owned subsidiary, CAV Corporation, which is a Delaware corporation. The term "expiration date" means 12:00 midnight, New York City time, on October 15, 1999, unless we extend the period of time for which this offer is open, in which case the term "expiration date" means the latest time and date on which the offer, as so extended, expires. We are also making a separate offer to exchange 0.4413 shares of Phelps Dodge common stock, or $25.90 in cash, for each outstanding share of common stock of Asarco, subject to the same election and proration procedures. CONDITIONS OF THE OFFER Our obligation to exchange shares of Phelps Dodge common stock and cash for Cyprus Amax shares pursuant to the offer is subject to several conditions referred to below under "The Offer -- Conditions of Our Offer," including conditions as to the minimum number of shares tendered, approval by our stockholders, and other conditions that are discussed below. TIMING OF THE OFFER Our offer is currently scheduled to expire on October 15, 1999; however, we currently intend to extend our offer from time to time as necessary until all the conditions to the offer have been satisfied or waived. See "The Offer -- Extension, Termination and Amendment." EXTENSION, TERMINATION AND AMENDMENT We expressly reserve the right (subject to our merger agreement with Cyprus Amax), in our sole discretion, at any time or from time to time, to extend the period of time during which our offer remains open, and we can do so by giving oral or written notice of such extension to the exchange agent. If we decide to extend our offer, we will make an announcement to that effect no later than 9:00 A.M., New York City time, on the next business day after the previously scheduled expiration date. We are not making any assurance that we will exercise our right to extend our offer, although we currently intend to do so until all conditions have been satisfied or waived. During any such extension, all Cyprus Amax shares previously tendered and not withdrawn will remain subject to the offer, subject to your right to withdraw your Cyprus Amax shares. Subject to the SEC's applicable rules and regulations, we also reserve the right (subject to our merger agreement with Cyprus Amax), in our sole discretion, at any time or from time to time, (a) to delay our acceptance for exchange or our exchange of any Cyprus Amax shares pursuant to our offer, regardless of whether we previously accepted Cyprus Amax shares for exchange, or to terminate our offer and not accept for exchange or exchange any Cyprus Amax shares not previously accepted for exchange or exchanged, upon the failure of any of the conditions of the offer to be satisfied and (b) to waive any condition (other than the condition relating to the Phelps Dodge stockholder approval and the condition relating to the effectiveness of the registration statement for the Phelps Dodge shares to be issued in our offer) or otherwise to amend the offer in any respect, by giving oral or written notice of such delay, termination or amendment to the exchange agent and by making a public announcement. We will follow any extension, termination, amendment or delay, as promptly as practicable, with a public announcement. In the case of an extension, any such announcement will be issued no later than 9:00 A.M., New York City time, on the next business day after the previously scheduled expiration date. Subject to applicable law (including Rules 14d-4(c) and 14d-6(d) under the Securities Exchange Act of 1934, which require that any material change in the information published, sent or given to the stockholders in connection with the offer be promptly sent to stockholders in a manner reasonably designed to inform stockholders of such change) and without limiting the manner in which we may choose to 3 12 make any public announcement, we assume no obligation to publish, advertise or otherwise communicate any such public announcement other than by making a release to the Dow Jones News Service. EXCHANGE AND SHARES; DELIVERY OF PHELPS DODGE COMMON STOCK AND CASH Upon the terms and subject to the conditions of our offer (including, if our offer is extended or amended, the terms and conditions of any such extension or amendment), Phelps Dodge will accept for exchange, and will exchange, shares validly tendered and not properly withdrawn as promptly as practicable after the expiration date. WITHDRAWAL RIGHTS Your tender of Cyprus Amax shares pursuant to the offer is irrevocable, except that Cyprus Amax shares tendered pursuant to the offer may be withdrawn at any time prior to the expiration date, and, unless we previously accepted them pursuant to the offer, may also be withdrawn at any time after November 2, 1999. PROCEDURE FOR TENDERING SHARES For you to validly tender Cyprus Amax shares pursuant to our offer, (a) a properly completed and duly executed letter of election and transmittal (or manually executed facsimile of that document), along with any required signature guarantees, or an agent's message, which is explained below, in connection with a book-entry transfer, and any other required documents, must be transmitted to and received by the exchange agent at one of its addresses set forth on the back cover of this prospectus, and certificates for tendered Cyprus Amax shares must be received by the exchange agent at such address or those Cyprus Amax shares must be tendered pursuant to the procedures for book-entry tender set forth in "The Offer" (and a confirmation of receipt of such tender received), in each case before the expiration date, or (b) you must comply with the guaranteed delivery procedures set forth in "The Offer." ELECTION AND PRORATION PROCEDURES You will be able to elect to receive either cash or Phelps Dodge common shares in exchange for your Cyprus Amax common shares, subject to the election and proration procedures described under the caption "The Offer -- Description of Election and Proration Procedures." You can make this election by filling out the appropriate box in the letter of election and transmittal or, if you hold your Cyprus Amax shares through a broker, by asking your broker to make an election on your behalf. If you tendered your Cyprus Amax shares pursuant to our initial offer (prospectus dated September 2, 1999), you must withdraw and re-tender your shares if you wish to make an election. Otherwise, you will be treated as having made no election. If you tendered pursuant to our amended offer (prospectus dated September 22, 1999), you need not take any further action unless you wish to make or change any cash or stock election. THE COMPANIES PHELPS DODGE CORPORATION 2600 North Central Avenue Phoenix, AZ 85004-3014 (602) 234-8100 Phelps Dodge Corporation is among the world's largest producers of copper, carbon black and magnet wire, and is the world's largest producer of continuous-cast copper rod. Phelps Dodge comprises two divisions: - Phelps Dodge Mining Company, which includes our worldwide copper operations and worldwide mineral exploration and development programs; and - Phelps Dodge Industries, which includes our specialty chemicals segment and our wire and cable segment. As of June 30, 1999, Phelps Dodge and its subsidiaries had 13,193 employees. 4 13 ASARCO INCORPORATED 180 Maiden Lane New York, NY 10038 (212) 510-2000 Asarco Incorporated, a New Jersey corporation organized in 1899, is one of the world's leading producers of copper. Asarco also produces specialty chemicals and aggregates. Asarco's copper business includes integrated mining, smelting and refining operations in North America and in Peru through its 54.3% owned subsidiary, Southern Peru Copper Corporation. Enthone-OMI, Inc., a wholly owned subsidiary, operates a worldwide specialty chemicals business focused on functional and decorative coatings for the electronics and metal finishing industries. American Limestone Company, a wholly owned subsidiary, produces construction aggregates, ready-mixed concrete and agricultural limestone. Asarco also operates a custom lead smelting business, a zinc mining business and a specialty metals business. Asarco owns Encycle, Inc., which operates a waste recycling facility and Hydrometrics, an environmental consulting and construction firm. As of June 30, 1999, Asarco and its subsidiaries employed approximately 10,100 employees. CYPRUS AMAX MINERALS COMPANY 9100 East Mineral Circle Englewood, CO 80112 (303) 643-5000 Cyprus Amax Minerals Company, a Delaware corporation, is a major mining company engaged, directly or through its subsidiaries and affiliates, in the exploration for and extraction, processing, and marketing of mineral resources. Cyprus Amax is a leading copper producer, the world's largest producer of molybdenum and has a significant position in gold via its 30% interest in Kinross Gold Corporation. Cyprus Amax sold certain eastern and midwestern coal operations in June of 1998 and sold its lithium business in October of 1998. Cyprus Amax sold its remaining U.S. coal operations in June 1999. Cyprus Amax still holds its Australian coal properties. As of June 30, 1999, Cyprus Amax and its subsidiaries employed approximately 4,600 employees. RISK FACTORS In deciding whether to tender your shares pursuant to our offer, you should read carefully this prospectus and the documents to which we refer you. You should also carefully consider the following factors: - the risks associated with integrating Cyprus Amax and Asarco into our company, including the risk that the amount and timing of the cost savings and other expected benefits from the business combination may be different from what we expect; - the fixed exchange ratio of our offer, which may work to your disadvantage if you receive Phelps Dodge shares in our offer and Cyprus Amax stock increases in value or Phelps Dodge stock decreases in value; - the possibility that, due to the election and proration procedures, you may not receive all consideration in the form that you have elected; - the fact that we may not be able to complete business combinations with both Cyprus Amax and Asarco, which would reduce the expected cost savings and other benefits, and would likely cause additional transaction expenses; - the volatility of copper prices; - the extensive governmental regulations, including regulations relating to environmental matters, to which Phelps Dodge, Asarco and Cyprus Amax are subject; - the risks associated with conducting operations outside the United States, especially in less developed countries; - the risks associated with mining; - the fact that reserve levels are subject to uncertainties; and - potential risks associated with the Year 2000. See "Risk Factors" beginning on the following page for a more complete discussion of these factors. 5 14 RISK FACTORS In deciding whether to tender your shares pursuant to our offer, you should read carefully this prospectus and the documents to which we refer you. You should also carefully consider the following factors: BENEFITS OF THE COMBINATION MAY NOT BE REALIZED If we complete the proposed Phelps Dodge/Cyprus Amax/Asarco business combination, we will integrate three companies that have previously operated independently. This will involve integrating: - corporate headquarters and mining administration offices; - worldwide exploration and development activities; - mining operations, particularly in the southwestern United States; and - administrative functions in the U.S., Chile and Peru. We may not be able to integrate the operations of Asarco and Cyprus Amax and Asarco without encountering difficulties. The diversion of the attention of management to the integration effort and any difficulties encountered in combining operations could adversely affect the combined company's businesses. Although we expect at least $200 million in annual cash cost savings from the combination by the end of the second year (excluding any savings from rationalizations of high-cost production during periods of low copper prices), together with $40 million in annual savings from lower depreciation expenses, we cannot be sure that we will be able to achieve them in the amounts expected or as quickly as we now expect. Actual cost savings may be higher or lower than we currently expect, and may take a longer or shorter time to achieve than we currently expect. Our estimates concerning the amount and timing of cost savings have been developed by our management and reflect our best judgment based on publicly available information about Asarco and Cyprus Amax. More generally, our views about the expected benefits of our proposed combination are based on publicly available information about Asarco and Cyprus Amax. Those companies may have other information, not available to us, that would significantly affect our estimates or views. Because our offers to acquire Asarco and Cyprus Amax are separate, and neither offer is dependent on the success of the other, it is possible that one of the following scenarios will occur: - we will acquire Cyprus Amax, but not Asarco; - we will acquire Asarco, but not Cyprus Amax; or - we will acquire both Asarco and Cyprus Amax, but it will take us much longer to acquire one company than the other. In any of these cases, the cost savings we expect from the combination will be less than if all three companies combined promptly. If we acquire only one of Asarco or Cyprus Amax, we may still encounter difficulties in integrating its operations, and may not be able to achieve the cost savings we expect in the amounts or time periods anticipated. FIXED EXCHANGE RATIO OF OUR OFFER COULD WORK TO YOUR DISADVANTAGE We are offering to exchange 0.3500 shares of Phelps Dodge common stock, or $20.54 in cash, at your election, for each outstanding share of Cyprus Amax common stock, subject, in each case, to the election and proration procedures described in this prospectus and the related letter of election and transmittal. If you receive Phelps Dodge common stock (either because you have elected to receive Phelps Dodge shares or because of the proration procedures), once you have tendered your stock and your withdrawal rights have expired, you will be locked into that exchange ratio, and you will not be able to capture gains from possible 6 15 increases in value of Cyprus Amax common stock. While you may benefit from possible increases in value of Phelps Dodge common stock, you may incur losses from possible decreases in value of Phelps Dodge common stock. YOU MAY NOT RECEIVE ALL CONSIDERATION IN THE FORM THAT YOU HAVE ELECTED We are offering to exchange $7.61176875 net in cash plus 0.2203 shares of Phelps Dodge common stock per Cyprus Amax common share, on a fully prorated basis. At the time you tender your shares and make your election, you will not know exactly what combination of stock and/or cash you will receive because it will also depend upon the elections made by other tendering shareholders. You can tell us your preference to receive either $20.54 cash or 0.3500 shares of Phelps Dodge common stock for each of your Cyprus Amax common shares, and you will receive either cash, Phelps Dodge common stock, or a combination of cash and Phelps Dodge common stock. To the extent the demand for either the cash or the stock component of our offer exceeds the aggregate amount of cash or stock in our offer, we will prorate the total cash or stock, as the case may be, proportionally among the shareholders who elect that component. Shareholders who do not make an election will be allocated whatever component is remaining (or a proportionate share of each component if neither is oversubscribed), after taking into account the preferences at the tendering. We describe our procedures for prorating cash and common stock under the caption "The Offer -- Description of Election Proration Procedures." COPPER PRICE VOLATILITY MAY REDUCE INCOME Copper is an internationally traded commodity. Its prices are effectively determined on the two major metals exchanges -- New York Mercantile Exchange (COMEX) and London Metal Exchange (LME). The prices on these exchanges reflect the worldwide balance of copper demand and supply and various domestic and international macroeconomic and political conditions. Prices are also sometimes influenced significantly by numerous other factors, including speculative actions, the availability and cost of substitute materials, and currency exchange fluctuations. The copper market is volatile and cyclical, as illustrated by the following chart showing the high, low and average COMEX spot price per pound of copper cathode for the years indicated:
YEAR HIGH LOW AVERAGE - ---- ------ ------ ------- 1989........................................... $ 1.55 $ 1.03 $ 1.27 1990........................................... 1.38 0.96 1.19 1991........................................... 1.20 0.96 1.05 1992........................................... 1.16 0.93 1.03 1993........................................... 1.07 0.72 0.85 1994........................................... 1.40 0.78 1.07 1995........................................... 1.46 1.21 1.35 1996........................................... 1.31 0.86 1.06 1997........................................... 1.23 0.76 1.04 1998........................................... 0.86 0.64 0.75 1999 (through September 29).................... 0.83 0.61 0.69
- --------------- SOURCE: COMEX On September 29, 1999, the closing spot price of copper cathode on the COMEX was $0.80 per pound. Any material change in the price we receive for copper, or in our unit production costs, has a significant effect on our results. Our share of current annual production is approximately 1.6 billion pounds of copper. Accordingly, each 1 cent per pound change in the average annual copper price, or in average annual unit production costs, causes a variation in annual operating income before taxes of approximately $16 million. Following the completion of our proposed Phelps Dodge/Asarco/Cyprus Amax combination, the combined company's annual production would be approximately 3.8 billion pounds, based on current levels. We estimate that each 1 cent per pound change in the average annual copper price, or in average unit production costs, 7 16 would cause a variation in annual operating income before taxes of approximately $38 million at these production levels. If we combined with Cyprus Amax but not with Asarco, our combined annual production would be approximately 2.8 billion pounds, based on current levels. We estimate that each 1 cent per pound change in the average annual copper price, or in average unit production costs, would cause a variation in annual operating income before taxes of approximately $28 million at these production levels. While Phelps Dodge, Asarco and Cyprus Amax historically have used limited financial risk management techniques to reduce a portion of their exposure to the volatility of commodity market prices, there can be no assurance that the combined company will continue to be able to do so effectively in the future. In addition, depending upon the specific techniques employed, market conditions and other factors, these activities could reduce the earnings or cash flow that the combined company otherwise would realize or could result in losses. Cyprus Amax is the world's largest producer of molybdenum, which, like copper, is characterized by volatile and cyclical prices. Molybdenum consumption depends heavily on worldwide demand from the specialty steel industry and, to a lesser extent, on chemical applications. World molybdenum consumption remained at record levels in the first half of 1998, continuing the growth trend begun in 1994. Beginning in the second half of 1998, molybdenum consumption declined as a result of the economic downturn in Asia. Overall 1998 molybdenum worldwide consumption declined an estimated four percent primarily in metallurgical applications. The molybdenum market remained oversupplied during the second half of 1998, and production curtailments were announced in China and at three primary mines in North America during the fourth quarter. The molybdenum market continued to be oversupplied in the first half of 1999. Western World metallurgical grade molybdenum dealer oxide prices averaged about $2.65 per pound in the first half of 1999 compared with full-year averages of about $3.40 per pound in 1998 and about $4.30 per pound in 1997. Cyprus Amax molybdenum realizations averaged $4.11 per pound in the first half of 1999 compared with full-year averages of $4.95 per pound in 1998 and $5.50 per pound in 1997, with realizations positively impacted by higher-valued molybdenum chemical products. A substantial portion of world molybdenum production is a by-product of copper mining, which is relatively insensitive to molybdenum price levels. Exports to the Western World, especially from China, can also influence competitive conditions. ENVIRONMENTAL AND REGULATORY COMPLIANCE MAY IMPOSE SUBSTANTIAL COSTS The mining operations and exploration activities of Phelps Dodge, Asarco and Cyprus Amax, both inside and outside the United States, are subject to extensive laws and regulations governing prospecting, developing, production, exports, taxes, labor standards, occupational health, waste disposal, protection and remediation of the environment, protection of endangered and protected species, mine safety, toxic substances and other matters. Mining is also subject to risks and liabilities associated with pollution of the environment and the disposal of waste products occurring as a result of mineral exploration and production. Compliance with these laws and regulations could impose substantial costs and subject the combined company to significant potential liabilities. ENVIRONMENTAL MATTERS Our operations in the United States are subject to stringent federal, state and local laws and regulations relating to improving or maintaining environmental quality. Our global operations are also subject to many environmental protection laws. Environmental laws often require parties to pay for remedial action or to pay damages regardless of fault. Environmental laws also often impose liability with respect to divested or terminated operations, even if the operations were terminated or divested many years ago. The federal Clean Air Act has had a significant impact, particularly on our smelters. Costs associated with environmental compliance have increased over time, and we expect these costs to continue to rise in the future. We are subject to the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or Superfund), as amended by the Superfund Amendments and Reauthorization Act of 1986. Under Superfund, the Environmental Protection Agency (EPA) has identified on its CERCLIS database approximately 35,000 sites throughout the United States for review, ranking and possible inclusion on the 8 17 National Priorities List (NPL). The EPA has included 13 sites owned by us on the CERCLIS database. Even though we believe that most, if not all, of the sites identified do not qualify for listing on the NPL, we may be required to remove hazardous waste or remediate the alleged effects of hazardous substances on the environment. In many cases, this involves past disposal practices at sites not owned by us. We have received notice that we are a potentially responsible party from the EPA or individual states under CERCLA or an equivalent state law. We are participating in environmental assessment and remediation activity at 39 sites. At December 31, 1998, we had reserves of $106.0 million for remediation of some of the sites discussed above and other environmental costs. We record liabilities for environmental expenditures when it is probable that obligations have been incurred and the costs can be reasonably estimated. The amounts of these liabilities are very difficult to estimate. This is due to factors such as the unknown extent of the remedial actions that may be required. In the case of sites not owned by us, the extent of our probable liability in proportion to the probable liability of other parties is difficult to estimate. We have other possible environmental liabilities that in our judgment cannot be reasonably estimated. Losses attributable to remediation costs are reasonably possible at other sites. Based on the information available to us, the accruals, both individually and in the aggregate, from known environmental liabilities are not expected to result in a material additional loss beyond that already accrued. We cannot currently estimate the total additional loss we may incur for environmental liabilities resulting from such things as frequently changing environmental laws, regulations or agency interpretations, which are beyond our control, but that loss could be potentially material. The U.S. and non-U.S. operations of Asarco and Cyprus Amax are also subject to stringent environmental laws, including CERCLA. The following excerpts are from Asarco's quarterly report on Form 10-Q for the period ended June 30, 1999: Reserves for closed plants and environmental matters, including mine reclamation costs for active and closed properties, totaled $123.8 million at June 30, 1999. Asarco anticipates that expenditures relating to these reserves will be made over the next several years. Net cash expenditures against these reserves for the three months ended June 30, 1999 and 1998 were $12.6 million and $25.4 million, respectively. Expenditures for the six months ended June 30, 1999 and 1998 were $25.6 million and $40.2 million, respectively. . . . Asarco and certain of its subsidiaries have received notices from EPA and other federal and state agencies that they and in most cases numerous other parties are potentially responsible to remediate alleged hazardous substance releases at certain sites under CERCLA or similar state laws. In addition, Asarco and certain of its subsidiaries are defendants in lawsuits brought under CERCLA or state laws that seek substantial damages and remediation. Remedial action is being undertaken by Asarco at some of the sites. The following excerpt is from Cyprus Amax's quarterly report on Form 10-Q for the period ended June 30, 1999: At June 30, 1999, Cyprus Amax had accruals of approximately $252 million for expected future mine closure, reclamation, and environmental remediation liabilities. Total reclamation costs for Cyprus Amax at the end of current mine lives are estimated at about $253 million of which approximately $110 million was reserved at June 30, 1999. Additionally, the cost range of reasonably possible outcomes for sites where remediation costs are estimable is from $120 million to $450 million, of which approximately $142 million was accrued at June 30, 1999. Work on these sites is expected to be substantially completed in the next several years, subject to the inherent delays involved in the process. Remediation costs that could not be reasonably estimated at June 30, 1999, are not expected to have a material impact on the financial condition and ongoing operations of Cyprus Amax. 9 18 OTHER REGULATORY MATTERS In recent years, the U.S. Congress has considered a number of proposed amendments to the General Mining Law of 1872 which governs mining claims and related activities on federal lands. Although Congress has not adopted any such legislation, it could do so in the future. If ever adopted, such legislation could impose royalties on minerals extracted from federal lands, require payment of fair market value for patenting federal lands, and required that patented lands used for non-mining purposes revert to the federal government. Passage of mining law amendments or revisions to the hardrock mining surface management regulations could result in additional expenses in the development and operation of new mines on federal lands. Phelps Dodge, Asarco and Cyprus Amax are also subject to federal and state laws and regulations pertaining to plant and mine safety and health conditions. These laws include the Occupational Safety and Health Act of 1970 and the Mine Safety and Health Act of 1977. Present and proposed regulations govern worker exposure to a number of substances and conditions present in work environments. These include dust, mist, fumes, heat and noise. Compliance with these regulations may require significant expenditures. The global operations of Phelps Dodge, Asarco and Cyprus Amax are also subject to extensive laws and regulations governing mining operations and exploration, including laws and regulations pertaining to plant and mine safety and health conditions. These laws and regulations may impose substantial costs on our operations outside the United States. PRODUCT AND PERSONAL INJURY LITIGATION Asarco may also be subject to risks from product liability and personal injury lawsuits. The following excerpt is from Asarco's quarterly report on Form 10-Q for the period ended June 30, 1999: Asarco and two subsidiaries, as of June 30, 1999, are defendants in 1,169 lawsuits brought by 5,221 primary and 924 secondary plaintiffs seeking substantial actual and punitive damages for personal injury or death allegedly caused by exposure to asbestos. Three of these lawsuits are purported class actions, two of which are allegedly brought on behalf of persons who are not known to have asbestos-related injury. The third is purportedly brought on behalf of persons suing both tobacco-related and asbestos-related entities claiming damages for personal injury or death arising from exposure to asbestos and cigarette smoke. In addition, Asarco and certain subsidiaries are defendants in product liability lawsuits involving various other products, including metals. OPERATIONS OUTSIDE THE UNITED STATES ARE SUBJECT TO RISKS We are a global company with substantial operations outside the United States, including in Latin America, Asia and Europe. Both Asarco and Cyprus Amax also have significant operations located in countries outside the United States, including Chile, Peru and throughout Europe, Asia and Australia. Mining and other investments outside the United States are subject to the risks normally associated with conducting business in non-U.S. countries, particularly those that are less developed or have emerging economies: - uncertain political and economic environments; - risks of war and civil disturbances; - government restrictions on the movement of funds; - government actions to deprive us of our contract rights or to take our property without fair compensation; - adverse changes in laws or policies of particular countries; - increases in foreign taxation; - delays in obtaining or the inability to obtain necessary governmental permits; 10 19 - limitations on ownership and on repatriation of earnings; and - foreign exchange controls and currency fluctuations. Although we are not currently experiencing any significant problems in non-U.S. countries arising from these risks, problems could arise in the future. Investments made by Phelps Dodge, Asarco and Cyprus Amax outside the U.S. may also be adversely affected by U.S. government laws and policies affecting foreign trade, investment and taxation. MINING IS SUBJECT TO RISKS The business of mining is subject to a number of risks and hazards, including: - environmental hazards; - labor disputes; - encountering unusual or unexpected geologic formations or other geological or grade problems; - metallurgical and other processing problems; - encountering unanticipated ground or water conditions; - cave-ins, pit-wall failures and rock falls; and - periodic interruptions due to inclement or hazardous weather conditions or other unfavorable operating conditions. In addition to the foregoing items, in the case of development projects, the economic feasibility of any individual project is based upon, among other things: - the interpretation of geological data obtained from drill holes and other sampling techniques; - feasibility studies, which derive estimates of cash operating costs based upon anticipated tonnage and grade of ore to be mined and processed; - the configuration of the ore body; - expected recovery rates of metals from the ore; - comparable facility and equipment costs; - environmental and regulatory requirements; - anticipated climatic conditions; and - estimates of labor productivity. Such development projects also are subject to the successful completion of final feasibility studies, issuance of necessary permits, and receipt of adequate financing. Accordingly, uncertainties related to development projects are more significant than those pertaining to existing operations. The risks associated with mining described above could cause personal injury or death, environmental damage, delays in mining, monetary losses and possible legal liability. These risks could also cause mining projects to be more expensive to develop or operate than expected, or to produce less than expected, and could result in damage to mines or producing facilities. RESERVE LEVELS ARE SUBJECT TO UNCERTAINTY There are a number of uncertainties inherent in estimating quantities of reserves, including many factors beyond the control of Phelps Dodge, Asarco and Cyprus Amax. The reserve data incorporated by reference in this prospectus are in large part only estimates. We cannot assure you that the volume and grade of reserves recovered and rates of production will not be less than anticipated. Declines in the market price of a particular metal also may render reserves containing relatively lower grades of mineralization uneconomic to exploit. If 11 20 the price we realized for a particular commodity were to decline substantially below the price at which ore reserves were calculated for a sustained period of time, we potentially could experience reductions in reserves and asset write-downs. Under certain such circumstances, we may discontinue the development of a project or mining at one or more properties. Further, changes in operating and capital costs and other factors, including but not limited to short-term operating factors such as the need for sequential development of ore bodies and the processing of new or different ore grades, may materially and adversely affect reserves. YEAR 2000 POSES POTENTIAL RISKS We continue to review our "Year 2000" readiness. The Year 2000 issue stems from the predominant use in computer applications of a two-digit field to capture the year (e.g., "99" for 1999). Because the "19" is assumed in the date, when computers turn their clocks to the year 2000, the two-digit field will read "00" and some computer programs will assume the year is 1900. Programs that calculate, compare or sort on a date field may cause erroneous results and errors leading to the risk of business interruption or shutdown and other potential problems. The Year 2000 issue is a global issue that is very complex because of the many programs that may be impacted in any computer system. These computer systems are used to support the activities of our businesses including financial systems, process control technology and other computer-controlled equipment. The following is a list of representative types of risks that could result in the event of one or more major failures of our information systems, mining sites, or facilities to be Year 2000 ready, or similar major failures by one or more of our major third party suppliers or customers: - Information systems -- could include disruptions of business and transaction processing such as customer billing, payroll, accounts payable, purchasing, and other information processes until the systems can be remedied or replaced; - Mining facilities -- could include disruptions of mining processes and facilities resulting in delays in delivery of products until non-compliant components can be remedied; - Major suppliers -- could include disruptions in the provision of supplies and components and transportation that could cause subsequent interruptions of mining activities and delays in product deliveries; and - Major customers -- could include disruptions in sales, revenue, and cash inflow as a particular customer may not be Year 2000 compliant or one of their suppliers may experience failures that could impact the amount of copper, molybdenum, or coal they require. Failure to correct a material Year 2000 problem could materially and adversely affect our results of operations, liquidity and financial condition. Due to the general uncertainty inherent in the Year 2000 issue, resulting in part from the uncertainty of the readiness of suppliers and customers, we are unable to determine with any certainty the consequences of Year 2000 failures and the materiality of these potential failures. In addition, we cannot make any assurances about the Year 2000 readiness of Asarco or Cyprus Amax. 12 21 THE PROPOSED COMBINATION We have agreed to combine the businesses of Phelps Dodge and Cyprus Amax in a transaction that we believe will create superior value for the shareholders of both companies. Pursuant to our agreement with Cyprus Amax, we are offering to exchange $7.61176875 net in cash plus 0.2203 shares of Phelps Dodge common stock per Cyprus Amax common share, on a fully prorated basis. You may elect to receive either $20.54 in cash or 0.3500 shares of Phelps Dodge common stock for each of your Cyprus Amax common shares that are validly tendered and not properly withdrawn, subject, in each case, to the election and proration procedures described in this prospectus and the related letter of election and transmittal. We expect our proposed transaction to be tax-free to you except that gain, if any, generally will be recognized to the extent of cash received by you. In July 1999, Asarco and Cyprus Amax announced that they had agreed to combine their companies. In August 1999, we proposed a three-way combination that we believe would be much more valuable to shareholders of Asarco and Cyprus Amax than a two-party Asarco/Cyprus Amax merger. Since then, we have reached an agreement to combine with Cyprus Amax. We are also making a separate offer to Asarco shareholders to exchange $9.00 in cash and 0.2880 shares of Phelps Dodge common stock per Asarco common share, on a fully prorated basis and subject to the same election and proration procedures as are applicable to our offer to Cyprus Amax shareholders. Another company, Grupo Mexico, has also offered to acquire Asarco. We continue to prefer to combine all three companies. However, our agreement with Cyprus Amax and our offer to Cyprus Amax shareholders are not conditioned on the success of our offer to Asarco shareholders, nor is our offer to Asarco shareholders conditioned on the success of our offer to Cyprus Amax shareholders. See "The Offer" beginning on page 41. 13 22 REASONS FOR THE PROPOSED COMBINATION We believe the combination of Phelps Dodge, Cyprus Amax and Asarco represents a unique opportunity to create a large, resource-rich portfolio of lower-cost global copper assets with enhanced flexibility to excel through business cycles. We believe that the combination of Phelps Dodge, Cyprus Amax and Asarco will produce the following valuable benefits: - Ability to integrate operations. We expect the combined company to have significantly greater ability to integrate southwest U.S. mining operations, administrative functions in the U.S., Chile and Peru, and worldwide exploration and development activities. 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 the full copper price cycle. - Accretion to cash flow. The combination would result in immediate and substantial accretion to the cash flow of the combined company. - Accretion to earnings. We expect the combination to result in significant accretion to earnings per share of the combined company in the second year, assuming copper prices of $0.80 -- $0.85 per pound. - Superior production capability. The total annual worldwide copper production of the combined company would be approximately 3.8 billion pounds at current levels, with total attributable copper reserves of approximately 80 billion recoverable pounds. - Substantial cost savings. We expect the combined company to achieve annual cash cost savings of at least $200 million by the end of the second year after closing, as a result of reductions in overhead, purchasing, exploration and other expenses. We also expect at least another $40 million in annual savings from reduced depreciation expenses, bringing the total annual savings to at least $245 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 cash synergy figure of $125 million projected in the proposed Asarco-Cyprus Amax merger. This does not include any cost savings from the rationalization of high-cost production during periods of low copper prices. - Management strength. The combined company would have a strong and deep management team, at both the operating and corporate levels, with strong credibility in the marketplace. Phelps Dodge's management team would have the opportunity to implement value-based portfolio management. We believe that Phelps Dodge's management team has the credibility to make the tough decisions necessary to integrate all three businesses rapidly and to build sustainable long-term shareholder value. - Portfolio of world-class copper mines. The combined company would have a core portfolio of world-class copper mines, including Morenci, Southern Peru Copper Corporation, El Abra, Cerro Verde and Candelaria. This core portfolio would represent more than 50% of the combined company's current annual production. At current levels, these properties would produce approximately 2 billion pounds of copper annually, at an average cash cost of less than $0.50 per pound. - Operating leverage. The combined company would have tremendous operating leverage, together with enough diversity in other businesses to mitigate cyclical downturns. - Increased competitiveness. The combined company would have increased ability to compete for world-class projects. - Reduced capital expenditures. By combining their businesses, Phelps Dodge, Asarco and Cyprus Amax would be able to reduce maintenance and growth capital expenditures significantly. - Financial strength. The combined company would have a strong, liquid balance sheet, with excellent access to capital. The company's financial strength would give it the ability to create a world-class portfolio of cost-competitive mining assets. 14 23 We believe these factors will provide superior value creation opportunities, on an ongoing basis, for the shareholders of all three companies. While we would expect to maximize the benefits outlined above in a three-way combination involving Phelps Dodge, Asarco and Cyprus Amax, we believe similar benefits, though on a smaller scale, would result from a two-way combination with Cyprus Amax. 15 24 BACKGROUND OF THE OFFER In the autumn of 1996, Douglas C. Yearley, Chairman and CEO of Phelps Dodge, had an informal conversation with Richard de J. Osborne, then Chairman, Chief Executive Officer and President of Asarco, regarding a possible combination of the two companies. Mr. Osborne declined to hold discussions on this subject. On July 15, 1999, Asarco and Cyprus Amax announced that they had agreed to combine their companies into a new company to be called "Asarco Cyprus Incorporated." According to the press release issued by Asarco and Cyprus Amax, Cyprus Amax shareholders would receive 0.765 shares of the combined company for each of their Cyprus Amax shares, while Asarco shareholders would receive one share of the combined company for each of their Asarco shares. The combined company would have an initial dividend rate of $0.05 per share per quarter. The transaction was approved by the Boards of Directors of Asarco and Cyprus Amax, but remains subject to regulatory approvals and shareholder approvals. On August 10, 1999, Douglas C. Yearley, Phelps Dodge's Chairman and Chief Executive Officer, telephoned Milton H. Ward, Cyprus Amax's Chairman, Chief Executive Officer and President, and Francis R. McAllister, Asarco's Chairman and Chief Executive Officer, to propose a meeting to discuss the possibility of a three-way combination involving Phelps Dodge, Asarco and Cyprus Amax. Shortly thereafter, Messrs. Ward and McAllister sent the following letter to Mr. Yearley: August 10, 1999 Douglas C. Yearley Chairman, President and Chief Executive Officer Phelps Dodge Corporation 2600 North Central Avenue -- 16th Floor Phoenix, AZ 85004-3014 Dear Doug: We have discussed your request to meet with us jointly. We would like to advise you that Cyprus Amax and Asarco are pursuing a combination under a Merger Agreement dated July 15, 1999. Under the terms of that Agreement we are not at liberty to have a discussion of the nature you were suggesting earlier today. Best regards. /s/ MILTON H. WARD /s/ FRANCIS R. MCALLISTER - ------------------------------------- ------------------------------------- Milton H. Ward Francis R. McAllister Chairman, Chief Executive Officer Chairman and Chief Executive Officer and President ASARCO Incorporated Cyprus Amax Minerals Company 16 25 On August 11, 1999, during the late afternoon, Mr. Yearley and J. Steven Whisler, Phelps Dodge's President and Chief Operating Officer, sent the following letter to Messrs. McAllister and Ward: [LETTERHEAD OF PHELPS DODGE CORPORATION] August 11, 1999 Francis R. McAllister Chairman and Chief Executive Officer ASARCO Incorporated 180 Maiden Lane New York, NY 10038 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 should 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 an 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. 17 26 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. 18 27 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/ DOUGLAS C. YEARLEY /s/ J. STEVEN WHISLER - -------------------------------- ------------------------------------ Douglas C. Yearley J. Steven Whisler Chairman and President and Chief Chief Executive Officer Operating Officer On the morning of August 12, 1999, Messrs. McAllister and Ward telephoned Mr. Yearley and once again refused to meet to discuss Phelps Dodge's proposal. That afternoon, Phelps Dodge sent the following letter to the Board of Directors of Cyprus Amax (and sent a substantially similar letter to the Board of Directors of Asarco): [LETTERHEAD OF PHELPS DODGE CORPORATION] August 12, 1999 Board of Directors of Cyprus Amax Minerals Company c/o Mr. Milton H. Ward Chairman, Chief Executive Officer and President Cyprus Amax Minerals Company 9100 East Mineral Circle Englewood, CO 80112 Ladies and Gentlemen: We would like to engage in discussions on our proposal to combine Cyprus Amax, Asarco and Phelps Dodge in a negotiated transaction. Our proposal, described in more detail in the attached correspondence, is far better for the shareholders of your company than your pending merger with Asarco because of: - the sizeable premium we are offering which, in effect, represents an up-front payment to your shareholders for the substantial cost savings we expect to achieve; - our planned continuation of the current $2.00 per share Phelps Dodge common stock dividend resulting in a substantial dividend increase for Cyprus Amax shareholders to more than three times the level contemplated in your pending merger; and - their opportunity to participate in the ongoing value creation of the combined company through the ownership of Phelps Dodge common stock. In our attached letter of August 11, we proposed specific exchange ratios of Phelps Dodge shares for Asarco and Cyprus Amax shares. Based on the August 11 closing price of Phelps Dodge, Cyprus Amax and Asarco shares, these ratios implied premiums of approximately 25% for each of Cyprus Amax and Asarco and preserved the relative economics of your proposed combination with Asarco. We would reiterate our intention on the basis of the current levels of Phelps Dodge, Cyprus Amax and Asarco share prices to pay premiums of approximately 25% for Cyprus Amax and Asarco. 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 19 28 outperformed the stock prices of Cyprus Amax and Asarco. 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 -26% and -20% for Cyprus Amax and Asarco, respectively. Similarly, over the past five years, Phelps Dodge's total return has been 20% as compared to -40% for Cyprus Amax and -27% for Asarco. We are very proud of this strong management and operational track record over a difficult copper environment. Thus far, however, your management has refused to listen to, or consider, our proposal. On Tuesday afternoon, August 10, 1999, following a meeting of our board of directors, we spoke by telephone with Messrs. Ward and McAllister to request a meeting to discuss our proposal. Just a few hours later, we received from them the attached letter, dated August 10, 1999, advising that under the terms of a non-public July 15, 1999 Merger Agreement they were "not at liberty" to have such a discussion. Since Messrs. Ward and McAllister refused to meet with us, late yesterday we sent them the enclosed August 11 letter laying out the basic terms of our proposal and again requesting a meeting. This morning we received a telephone call from Messrs. Ward and McAllister again refusing to discuss our proposal. Although it would have been our preference to communicate through your CEO, his adamant refusal to meet with us, or even to give our written proposal any serious consideration, has required that we communicate with you directly. Since you and Asarco are the only parties to your merger agreement, and may amend it or waive its provisions at any time, for management of the two companies to state that their own agreement prevents such discussions seems a particularly weak basis for their refusal even to meet with us. We are making a similar proposal to Asarco. Our willingness to enter into discussions with each of you is not conditioned on the participation of the other (assuming this is consistent with any applicable, binding contracts). We are resolute in our determination to complete this transaction with both companies. We are confident that your shareholders will recognize the superior benefits of our proposal, and will accept nothing less. We still strongly prefer to consummate this transaction on a mutually satisfactory, negotiated basis. Accordingly, we do not plan to disclose our proposal publicly at this time. Because of the importance of this matter to your shareholders, we request that you make a commitment, by 5:00 p.m. Friday, August 20, 1999, to meet with us promptly to commence serious negotiations. Sincerely, /s/ DOUGLAS C. YEARLEY /s/ J. STEVEN WHISLER - ------------------------------- ----------------------------------- Douglas C. Yearley J. Steven Whisler Chairman and President and Chief Chief Executive Officer Operating Officer 20 29 On August 20, 1999, Asarco and Cyprus Amax filed a joint proxy statement/prospectus in connection with their proposed merger, and for the first time disclosed the terms of their merger agreement. In addition, Asarco and Cyprus Amax issued a press release announcing that they had set August 25, 1999 as the record date for determining shareholders entitled to vote at the shareholder meetings, scheduled for September 30, 1999, to consider approval of their proposed merger. Asarco and Cyprus Amax also disclosed Phelps Dodge's proposal for a three-way business combination and announced that they were rejecting it. Asarco and Cyprus Amax also revised upward their estimates of synergies resulting from their proposed two-party merger. The text of the press release was as follows: DENVER, CO. and NEW YORK, N.Y., 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. 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. 21 30 Also on August 20, 1999, Asarco and Cyprus Amax sent the following letter to Phelps Dodge: 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 Boards 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/ FRANCIS R. MCALLISTER /s/ MILTON H. WARD - ------------------------------- ---------------------------------- Francis R. McAllister Milton H. Ward Chairman and Chief Chairman, Chief Executive Executive Officer Officer and President Asarco Incorporated Cyprus Amax Minerals Company During the afternoon of August 20, 1999, Phelps Dodge made the following announcement by press release: PHELPS DODGE PROPOSES TO ACQUIRE ASARCO AND CYPRUS AMAX IN STOCK TRANSACTIONS AT APPROXIMATE 30% PREMIUMS UNIQUE OPPORTUNITY TO CREATE PORTFOLIO OF LOWER-COST GLOBAL COPPER ASSETS PHOENIX, AZ, August 20, 1999 -- Phelps Dodge Corporation (NYSE: PD) announced today that it is proposing to acquire both Asarco Incorporated (NYSE: AR) and Cyprus Amax Minerals Company (NYSE: CYM) in stock-for-stock mergers that would provide approximate 30% premiums to the shareholders of both companies. Neither proposal is conditioned upon acceptance of the other. On July 15, 1999, Asarco and Cyprus Amax announced a no-premium merger subject to shareholder approval. Phelps Dodge has since made numerous unsuccessful attempts to negotiate business combinations with both companies on terms that are greatly superior for Asarco and Cyprus Amax shareholders. Phelps Dodge would acquire Asarco in a tax-free merger in which each share of Asarco common stock would be converted into 0.4098 Phelps Dodge common shares. Based on the share prices of Phelps Dodge and Asarco before the stocks were halted this morning, the proposal values Asarco at $24.05 per share, or a total equity value of approximately $960 million, representing an approximate 30% premium for Asarco shareholders. Phelps Dodge would acquire Cyprus Amax in a tax-free merger in which each share of Cyprus Amax common stock would be converted into 0.3135 Phelps Dodge common shares. Based on share prices of Phelps Dodge and Cyprus Amax before the stocks were halted this morning, the proposal values Cyprus Amax at $18.40 per share, or a total of equity value of approximately $1.7 billion, representing an approximate 29% premium for Cyprus Amax shareholders. 22 31 The Phelps Dodge proposals represent a unique opportunity to create a large, resource-rich portfolio of lower-cost global copper assets with enhanced flexibility to excel through business cycles. This three-way combination would also provide significantly greater opportunities to integrate operations in the southwestern United States, administrative functions in the United States, Chile and Peru, and worldwide exploration and development activities than the proposed Asarco/Cyprus Amax merger. Consistent with demonstrated Phelps Dodge standards, all Asarco and Cyprus Amax properties would be operated to earn more than the cost of capital over the copper cycle. At current levels, annual worldwide copper production of the combined companies would be approximately 3.8 billion pounds, with attributable copper reserves of approximately 80 billion pounds, predominantly in the U.S., Chile and Peru. Phelps Dodge expects the three-way combination to be immediately and substantially accretive to its cash flow, with significant opportunities to improve return on capital at the combined entity. The transactions would be significantly accretive to Phelps Dodge's earnings per share 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. Phelps Dodge expects to achieve annual cash cost savings of at least $200 million, to be fully phased in by the end of the second year after closing, through reductions in SG&A expenses, operating improvements and efficiencies in exploration. Additional non-cash savings of approximately $65 million per year are expected to result from lower depreciation charges. These cost savings are based on public information and the Company's expectation that it can deliver at least $75 million in incremental savings above the new cash synergy figure of $125 million now projected in the proposed Asarco/Cyprus Amax combination. This does not include any cost savings for the rationalization of high-cost production during periods of low copper prices. The transactions would use purchase accounting. Phelps Dodge intends to continue its current annual cash dividend of $2.00 per share. This would provide a substantial dividend increase to shareholders of both Asarco and Cyprus Amax -- equal to 4.1 times the dividend they would receive in the proposed Asarco/Cyprus Amax merger. Douglas C. Yearley, Chairman and Chief Executive Officer of Phelps Dodge, said, "We are very disappointed that Asarco and Cyprus Amax have declined our repeated attempts to enter into negotiated agreements. Our proposed three-way combination provides superior value to shareholders of Asarco and Cyprus Amax, including substantial premiums, the opportunity to participate in the tremendous upside potential of the combined entity, and a cash dividend that is more than quadruple what they would receive in the proposed Asarco/Cyprus Amax transaction." Yearley continued, "This compelling combination would create a more cost-effective global copper producer with the operating expertise, broad resource base and financial strength to deliver enhanced value to shareholders of all three companies. The improved efficiencies of the combined companies would also benefit other stakeholders, including our customers, employees and communities. In the global copper market, efficient and low-cost operations are critical, and this transaction would enhance our ability to compete and give us greater ability to satisfy our customers' needs. Customers would continue to enjoy Phelps Dodge's high standard of on-time delivery and quality products and benefit from our combined lower cost structure; employees would become part of a stronger organization with enhanced ability to compete for large-scale projects; and communities would benefit from our corporate citizenship and philanthropy and continued commitment to responsible environmental practices." J. Steven Whisler, President and Chief Operating Officer of Phelps Dodge, said, "We are committed to optimizing the combined operations of the three companies and delivering superior returns on capital throughout the entire copper cycle. Phelps Dodge has generated much better shareholder returns than Asarco and Cyprus Amax through copper cycles -- greatly outperforming both companies over the past three, five, 10 and 15-year periods. For example, during the past 10 years on a total return basis with dividends reinvested Phelps Dodge has produced a positive shareholder return of 161% versus negative 20% for Asarco and negative 26% for Cyprus Amax. Over the 15-year period, Phelps Dodge has produced a positive shareholder return of 1024% versus 25% for Asarco and 102% for Cyprus Amax. 23 32 Phelps Dodge's strong and deep management and operating teams have a proven track record of active, value-based portfolio management and of taking decisive actions required to build sustainable long-term shareholder value. We intend to take advantage of the substantial opportunities to integrate the combined companies' mining assets and will ensure that every property in the portfolio provides an appropriate return on invested capital." Yearley concluded, "This innovative three-way combination fits well with our strategy of sustaining a strong and liquid balance sheet, achieving earnings and cash flow accretion and improving our resource base, while maintaining a cost-competitive profile. While we continue to prefer negotiated transactions, this three-way combination is so compelling, both strategically and financially, that we are determined to take all necessary steps to complete it expeditiously. We are confident we will obtain the necessary regulatory approvals to complete the transactions and believe shareholders of Asarco and Cyprus Amax will strongly support this unique opportunity to create value in the global copper market in which we compete." Phelps Dodge's financial advisor is Morgan Stanley Dean Witter and its legal advisors are Debevoise & Plimpton and Shearman & Sterling. Phelps Dodge Corporation is among the world's largest producers of copper. The company also is one of the world's largest producers of carbon black, one of the world's largest manufacturers of magnet wire, and has operations and investments in mines and wire and cable manufacturing facilities around the world. Phelps Dodge has operations in 28 countries. Statements in this press release include "forward-looking statements" that express expectations of future events or results. All statements based on future expectations rather than on historical facts are forward-looking statements that involve a number of risks and uncertainties, and the company cannot give assurance that such statements will prove to be correct. Please refer to the Management's Discussion and Analysis sections of the company's report on Form 10-K for the year ended December 31, 1998. Later that day, Phelps Dodge sent the following letter to the Board of Directors of Cyprus Amax (and sent a substantially similar letter to the Board of Directors of Asarco): [LETTERHEAD OF PHELPS DODGE CORPORATION] August 20, 1999 Board of Directors of Cyprus Amax Minerals Company c/o Mr. Milton H. Ward Chairman, Chief Executive Officer and President Cyprus Amax Minerals Company 9100 East Mineral Circle Englewood, CO 80112 Ladies and Gentlemen: We are disappointed in your response to our proposed three-way combination of Cyprus Amax, Asarco 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 Asarco. We are particularly disappointed that instead of accepting our previous requests to meet to discuss our proposal to acquire Cyprus Amax for a substantial premium, you chose today to announce unilaterally our interest in acquiring Cyprus Amax and Asarco and to reject our proposal in favor of your no-premium merger proposal with Asarco. 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 24 33 terms of your July 15 merger agreement, that the record date for your shareholder vote on the no-premium merger with Asarco 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 Cyprus Amax and Asarco, so that share owners of all three companies are fully informed. Terms of our Proposal We propose 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. We are also independently proposing to Asarco 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. Based on share prices for the three companies' common shares before trading was halted this morning, these ratios imply a premium of approximately 29% for Cyprus Amax and a premium of approximately 30% for Asarco, while preserving the relative economics of the exchange ratio under your proposed combination with Asarco. 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 Cyprus Amax shareholders to 4.1 times the dividend contemplated in your proposed merger with Asarco. 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 Cyprus Amax or Asarco, 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 Cyprus Amax and Asarco. 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 26% and negative 20% for Cyprus Amax and Asarco, respectively. Similarly, over the past 15 years, Phelps Dodge's total return has been 1024% as compared to 102% for Cyprus Amax and 25% for Asarco. We are very proud of this strong management and operational track record over a difficult copper environment. 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 Asarco through: - the significantly stronger ability of the combined company, relative to the Cyprus Amax-Asarco 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; 25 34 - 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 the total 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 Cyprus Amax-Asarco 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. 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/ DOUGLAS C. YEARLEY /s/ J. STEVEN WHISLER - ------------------------------------------ ------------------------------- Douglas C. Yearley J. Steven Whisler Chairman and Chief Executive Officer President and Chief Operating Officer 26 35 On August 25, 1999, Asarco and Cyprus Amax sent the following letter to Phelps Dodge: 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 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 Cyrus 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/ FRANCIS R. MCALLISTER /s/ MILTON H. WARD - ----------------------------------------- --------------------------------------------------- Francis R. McAllister Milton H. Ward Chairman and Chief Chairman, Chief Executive Executive Officer Officer and President ASARCO Incorporated Cyprus Amax Minerals Company
27 36 The text of the attached press release was as follows: 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. 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 would 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. In response, Phelps Dodge issued the following press release: PHELPS DODGE CONFIRMS RECEIPT OF LETTER FROM ASARCO AND CYPRUS AMAX 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: 28 37 "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. On August 27, 1999, Phelps Dodge issued the following press release: PHELPS DODGE FILES REGISTRATION STATEMENTS FOR EXCHANGE OFFERS FOR ASARCO AND CYPRUS AMAX ------------------------------------ FILES PRELIMINARY PROXY STATEMENTS TO OPPOSE ASARCO/CYPRUS AMAX MERGER; COMMENCES LITIGATION AGAINST BOTH COMPANIES PHELPS DODGE WILL WITHDRAW OFFER AND NOT BID FURTHER IF ASARCO AND CYPRUS AMAX SHAREHOLDERS APPROVE TWO-WAY MERGER AT SEPTEMBER 30 VOTE PHOENIX, AZ, 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." 29 38 Phelps Dodge also today sent the following letter to the Chairmen of Asarco and Cyprus Amax: August 27, 1999 Francis R. McAllister Chairman and Chief Executive Officer ASARCO Incorporated 180 Maiden Lane New York, NY 10038 Milton H. Ward Chairman, Chief Executive and President Cyprus Amax Minerals Company 9100 East Mineral Circle 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 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 30 39 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. Sincerely, /s/ DOUGLAS C. YEARLEY /s/ J. STEVEN WHISLER ------------------------------------------ ------------------------------------------ Douglas C. Yearley J. Steven Whisler Chairman and President and Chief Executive Officer Chief Operating Officer
On September 3, 1999, Phelps Dodge commenced its exchange offers for Asarco and Cyprus Amax common shares and issued the following press release: PHELPS DODGE COMMENCES EXCHANGE OFFERS FOR ASARCO AND CYPRUS AMAX PHOENIX, AZ, September 3, 1999 -- Phelps Dodge Corporation (NYSE: PD) announced today that it has formally commenced exchange offers for all outstanding Asarco Incorporated (NYSE: AR) and Cyprus Amax Minerals Company (NYSE: CYM) common shares. Phelps Dodge's registration statements for its previously announced exchange offers to acquire Asarco and Cyprus Amax were declared effective by the Securities and Exchange Commission yesterday. Under the terms of the Phelps Dodge exchange offers, Asarco shareholders would receive 0.4098 Phelps Dodge shares for each share of Asarco stock tendered and Cyprus Amax shareholders would receive 31 40 0.3135 Phelps Dodge shares for each share of Cyprus Amax stock tendered. The expiration date of the exchange offers will be 12:00 midnight, New York City time, on Friday, October 1, 1999 and may be extended from time to time by Phelps Dodge until the various conditions of the exchange offers have been satisfied or waived. "We are pleased to formally commence our exchange offers for Asarco and Cyprus Amax," said Douglas C. Yearley, Chairman and CEO of Phelps Dodge. "We look forward to a swift completion of these transactions." On September 7, 1999, Asarco and Cyprus Amax issued the following press release: DENVER, CO. AND NEW YORK, N.Y., SEPTEMBER 7, 1999 -- Cyprus Amax Minerals Company (NYSE: CYM) and ASARCO Incorporated (NYSE: AR) today announced that they were urging the shareholders of Cyprus Amax and Asarco to vote for the proposed Cyprus Amax and Asarco merger on September 30th. Cyprus Amax and Asarco emphasized that their boards view the Asarco Cyprus merger as the only transaction which is assured of completion on September 30th and the only transaction which will give their shareholders a fair share of the value created by combining their two companies. Speaking jointly, Milton H. Ward, Chairman and Chief Executive Officer of Cyprus Amax, and Francis R. McAllister, Chairman and Chief Executive Officer of Asarco, emphasized that the benefits to shareholders of the Asarco Cyprus merger, include: - A special cash payment of $5 per share immediately after the merger; - Ownership in the largest publicly traded copper company in the world, producing 2.0 billion pounds annually; - 100% share in $275 million of annual cost savings which should enhance earnings and cash flow substantially; and - Ownership in a company with a strong balance sheet and the operational advantages of a 50 cent per pound cash cost and a net earnings break-even price at 65 cents per pound of copper. Cyprus Amax and Asarco warned stockholders that Phelps Dodge's unsolicited, hostile attempt to break up the fully negotiated Asarco Cyprus merger seeks to leave Asarco and Cyprus Amax stockholders with only 43% of a three-way enterprise. The companies stated, "We believe this percentage ownership is inequitable, as evidenced by the stark contrast of the much greater contributions Asarco and Cyprus Amax stockholders are being asked to make to such a three-way enterprise. Specifically: - 57% of the production - 61% of the ore reserves - 4 of the 5 lowest cost mines - 60% of the copper margin - 92% of the synergies - 91% of the cash - Lower cash costs Cyprus Amax and Asarco also warned shareholders: "The Phelps Dodge proposal is subject to numerous conditions which cannot be fulfilled by September 30, including Phelps Dodge's own stockholder approval. We urge our stockholders to beware this effort to break up our value-creating merger, beware Phelps Dodge's 'spin campaign' of letters, lawsuits and public relations and beware that Phelps Dodge cannot guarantee when or if either of its hostile transactions will close. In contrast, our 32 41 Boards of Directors are committed to creating the premier public copper investment in the world on September 30, and will do so with the approval of our stockholders -- which we are vigorously seeking." Cyprus Amax and Asarco urged their stockholders to vote for the merger by signing, dating and mailing the white proxy card sent to them by Asarco or Cyprus Amax. Actual results may vary materially from any forward-looking statement the Company makes. Refer to the Cautionary Statement and Risk Factors contained in Cyprus Amax's and Asarco's 1998 Form 10Ks. On September 8, 1999, Asarco and Cyprus Amax issued the following press release: 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." 33 42 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 statements the companies make. Refer to the cautionary statement risk factors contained in Cyprus Amax's and Asarco's 1998 Form 10K's. On September 22, 1999, Phelps Dodge amended its exchange offers for Asarco and Cyprus Amax common shares and issued the following press release: PHELPS DODGE INCREASES OFFERS TO ACQUIRE ASARCO AND CYPRUS AMAX; ADDS SUBSTANTIAL CASH COMPONENTS TO BOTH OFFERS OFFERS PROVIDE 40% PREMIUMS TO ASARCO, CYPRUS AMAX SHAREHOLDERS PHOENIX, AZ, September 22, 1999 -- Phelps Dodge Corporation (NYSE: PD) announced today that it has increased its offers to acquire Asarco Incorporated (NYSE: AR) and Cyprus Amax Minerals Company (NYSE: CYM) and added a substantial cash component to both offers. The revised offers would provide approximately 40% premiums to the shareholders of both Asarco and Cyprus Amax, based on the unaffected stock prices of all three companies. Phelps Dodge is now offering to acquire all shares of Asarco for $9.00 in cash and 0.2880 Phelps Dodge shares per Asarco share on a fully prorated basis. Based on Phelps Dodge's closing share price yesterday, the revised offer currently values Asarco at $25.47 per share, or a total equity value of $1.01 billion, based on approximately 39.8 million Asarco shares outstanding. Phelps Dodge is now offering to acquire all shares of Cyprus Amax for $6.89 in cash and 0.2203 Phelps Dodge shares per Cyprus Amax share on a fully prorated basis, maintaining the Asarco/Cyprus Amax announced exchange ratio of 0.765. Based on Phelps Dodge's closing share price yesterday, the revised offer currently values Cyprus Amax at $19.49 per share, or a total equity value of $1.76 billion, based on approximately 90.5 million Cyprus Amax shares outstanding. In the revised offers, shareholders of Asarco and Cyprus Amax will have the right to elect to receive all cash or all Phelps Dodge shares. The all-cash election for Asarco shareholders is $25.90 per Asarco share and the all-stock election is 0.4413 Phelps Dodge shares per Asarco share, subject to proration to maintain the overall cash/stock allocation. The all-cash election for Cyprus Amax shareholders is $19.81 per Cyprus Amax share and the all-stock election is 0.3376 Phelps Dodge shares per Cyprus Amax share, subject to proration to maintain the overall cash/stock allocation. The stock portion of the consideration received will be tax-free to shareholders of both companies. Phelps Dodge expects the revised three-way merger to remain immediately and substantially accretive to its cash flow and significantly accretive to its earnings per share 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. Based on its strong balance sheet, Phelps Dodge expects to finance the approximately $1 billion cash portion of the offers primarily through existing credit facilities and cash on hand. "With these substantial increases, there can be no question that our offers provide clearly superior value to Asarco and Cyprus Amax shareholders compared to the no-premium two-way merger," said 34 43 Douglas C Yearley, Chairman and Chief Executive Officer of Phelps Dodge. "It is now time for Asarco and Cyprus Amax to come to the table. With their cooperation, we will be in a position to close this compelling three-way merger immediately following the October 13 Phelps Dodge shareholder meeting." Yearley added: "The Asarco and Cyprus Amax shareholder votes on September 30 will be a clear-cut referendum. If shareholders approve the two-way no-premium merger, we will immediately withdraw our clearly superior offers and will not bid further." On September 22, 1999, Phelps Dodge sent the following letter to Messrs. McAllister and Ward: [LETTERHEAD OF PHELPS DODGE CORPORATION] September 22, 1999 Francis R. McAllister Chairman and Chief Executive Officer ASARCO Incorporated 180 Maiden Lane New York, NY 10038 Milton H. Ward Chairman, Chief Executive and President Cyprus Amax Minerals Company 9100 East Mineral Circle Englewood, CO 80112 Dear Frank and Milt: In an effort to reach a definitive agreement now to combine our three companies, Phelps Dodge is significantly enhancing its proposal to you and the shareholders of Asarco and Cyprus Amax. Under our revised proposal, shareholders would, subject to the election feature described below, receive in the case of (i) each Asarco share, $9.00 in cash and 0.2880 Phelps Dodge shares and (ii) each Cyprus Amax share, $6.89 in cash and 0.2203 Phelps Dodge shares. This revised offer reflects premiums of approximately 40% for Asarco and Cyprus Amax shareholders over the price of their shares immediately prior to the announcement of our initial proposal. The stock portion of our transaction would be tax-free for your shareholders. Our revised proposal allocates the additional value we are offering proportionately between the shareholders of your two companies and preserves the value ratio between the companies that you have set in your proposed no-premium merger transaction. It remains our intention to continue the current $2.00 per share annual dividend for Phelps Dodge common stock. Our proposal is compelling. It pays a full and highly attractive premium to your shareholders. And, most importantly, it creates a world-class global copper company in which your shareholders can maintain a continuing interest and participate in its upside potential. We know our proposal is consistent with what we have been hearing from your shareholders and ours. Now is the time for each of you to meet with us to conclude a merger agreement in the interests of all. We remain prepared to meet with you or your management at any time. Should you decide not to meet with us, we assume your Boards will review and revise their recommendations to your shareholders with respect to your existing Asarco/Cyprus Amax no-premium offer and allow your shareholders to decide what is in their own best interests at your September 30 meetings. We believe that this proposal is clearly a superior offer for your shareholders. You will note that in the exchange offer material we send you concerning our revised proposals that we offer an election feature that will allow individual shareholders to express a preference for receipt of 35 44 cash or Phelps Dodge shares, subject to proration in the event of over subscription of either. We are certain your shareholders will find such an election to be appealing. While our strong preference is to do a three-way merger, we remain ready to complete a transaction with either company separately. Very truly yours, /s/ DOUGLAS C. YEARLEY /s/ J. STEVEN WHISLER ------------------------------------------ ------------------------------------------ Douglas C. Yearley J. Steven Whisler Chairman and President and Chief Executive Officer Chief Operating Officer
cc: Boards of Directors of Asarco and Cyprus Amax On September 24, 1999, the Federal Trade Commission granted Phelps Dodge early termination of the waiting periods under the Hart-Scott-Rodino Act for its offers to acquire Asarco and Cyprus Amax. Also on September 24, 1999, at the request of Asarco and Cyprus Amax, Messrs. Yearley and Whisler, of Phelps Dodge, Messrs. McAllister and Morano, of Asarco, and Mr. Ward and Gerald J. Malys, of Cyprus Amax, met in New York City. At the meeting, Asarco and Cyprus Amax indicated that they were unwilling to negotiate a three way business combination unless Phelps Dodge offered a price reflecting a premium of 55% above their unaffected share prices prior to the August 20 public announcement of Phelps Dodge's initial proposal. Phelps Dodge rejected this proposal and reiterated its willingness to proceed at prices representing premiums of 40% to the unaffected share prices of Asarco and Cyprus Amax. Later on September 24, 1999, Messrs. Yearley and Whisler sent a proposed form of merger agreement to Messrs. McAllister and Ward, together with the following letter: [LETTERHEAD OF PHELPS DODGE CORPORATION] September 24, 1999 Francis R. McAllister Chairman and Chief Executive Officer ASARCO Incorporated 180 Maiden Lane New York, New York 10038 Milton H. Ward Chairman, Chief Executive Officer and President Cyprus Amax Minerals Company 9100 East Mineral Circle Englewood, Colorado 80112 Dear Frank and Milt: In order to avoid any further misunderstandings concerning the terms of our proposal, we are enclosing a form of merger agreement we would be prepared to sign immediately. You will note that the agreement is a mark-up of your existing merger agreement and maintains the same representations, warranties and closing conditions as your existing merger agreement. The draft agreement contains the economic terms that we previously discussed and that are contained in our exchange offers to your 36 45 respective shareholders. It also contains a "hell or high water" covenant with respect to regulatory matters, honors the provisions of Sections 5.5 and 5.6 of your existing merger agreement, contains a "no shop" covenant with a fiduciary out and provides for break-up fees of 2% of each of ASARCO and Cyprus Amax's respective market capitalization. Sincerely, /s/ DOUGLAS C. YEARLEY /s/ J. STEVEN WHISLER - ------------------------------ ------------------------------ Douglas C. Yearley J. Steven Whisler Chairman and President and Chief Executive Officer Chief Operating Officer
On the evening of September 24, 1999, Grupo Mexico, S.A. de C.V. announced that it planned to commence a tender offer to acquire all outstanding Asarco shares at $26.00 per share. On September 27, 1999, Asarco announced that it would explore strategic alternatives to maximize shareholder value. Separately, Cyprus Amax announced that it would explore alternatives to the Asarco/ Cyprus Amax merger. On September 27, 1999, Grupo Mexico commenced a tender offer to acquire all outstanding Asarco shares at $26.00 per share. Also on September 27, 1999, the Chancery Court in Delaware, while denying Phelps Dodge's motion for injunctive relief, stated that it was troubled by the termination fee and "no-talk" provisions of the Asarco/Cyprus Amax Merger Agreement (see "The Offer -- Litigation"). Thereafter, Phelps Dodge sent the following letter to Asarco: [LETTERHEAD OF PHELPS DODGE CORPORATION] September 27, 1999 Mr. Francis R. McAllister Chairman and Chief Executive Officer Board of Directors c/o Francis R. McAllister ASARCO Incorporated 180 Maiden Lane New York, New York 10038 Dear Frank and Members of the Board: In light of the ruling of the Chancery Court in Delaware regarding the exercise of your fiduciary duties (a copy of the transcript is enclosed) and the disclosure by Grupo Mexico in its Schedule 14D-1 (a copy of the relevant portion also enclosed) that their all cash bid was a direct response to your specific price guidance, we believe you are required to treat us fairly in the auction process in which you are now engaged. We remain determined to acquire ASARCO and are prepared to meet with you to discuss a revised proposal superior to those you are now considering. We expect that in those discussions you will share with us any information shared with any other bidder, including identical guidance as to price or any other terms. As you know, we have responded fully and favorably to each of your contract requests previously. 37 46 We look forward to meeting with you at your earliest convenience. Very truly yours, /s/ DOUGLAS C. YEARLEY /s/ J. STEVEN WHISLER - ------------------------------------ ------------------------------------ Douglas C. Yearley J. Steven Whisler Chairman and President and Chief Executive Officer Chief Operating Officer
On September 28, 1999, Asarco and Cyprus Amax announced that they had amended the Asarco/ Cyprus Amax Merger Agreement to allow them, for a period ending on October 5, 1999, to negotiate with other parties and to unilaterally terminate the Asarco/Cyprus Amax Merger Agreement for any reason, subject to payment of a termination fee of $45 million, in the case of termination by Cyprus Amax, and $40 million, in the case of termination by Asarco. Also on September 28, 1999, representatives of Phelps Dodge and Cyprus Amax began negotiating the Phelps Dodge/Cyprus Amax Merger Agreement. On September 29, 1999, the Board of Directors of Phelps Dodge approved the Phelps Dodge/Cyprus Amax Merger Agreement. At the Board meeting, Morgan Stanley & Co. Incorporated rendered its oral opinion, subsequently confirmed in writing, that as of the date of its opinion, and based upon and subject to the various considerations in its opinion, the consideration to be paid by Phelps Dodge pursuant to the Phelps Dodge/Cyprus Amax Merger Agreement was fair from a financial point of view to Phelps Dodge. On September 30, 1999, the Board of Directors of Cyprus Amax approved the Phelps Dodge/Cyprus Amax Merger Agreement and Cyprus Amax terminated its merger agreement with Asarco. Cyprus Amax received an opinion from Merrill Lynch, Pierce, Fenner & Smith Incorporated dated September 30, 1999, substantially to the effect that, as of such date, the consideration to be received by Cyprus Amax stockholders in the offer and the Cyprus Amax/Phelps Dodge merger is fair from a financial point of view to the stockholders of Cyprus Amax. The Phelps Dodge/Cyprus Amax Merger Agreement was signed on September 30, 1999. Phelps Dodge and Cyprus Amax issued the following press release: 38 47 PHELPS DODGE TO ACQUIRE CYPRUS AMAX ------------------------ PHOENIX, AZ and DENVER, CO, September 30, 1999 -- Phelps Dodge Corporation (NYSE: PD) and Cyprus Amax Minerals Company (NYSE: CYM) today announced they have signed a definitive merger agreement under which Phelps Dodge will acquire Cyprus Amax for $7.61 in cash and 0.2203 Phelps Dodge shares per Cyprus Amax share on a fully prorated basis. Phelps Dodge is amending its exchange offer for Cyprus Amax, which will now be scheduled to expire at midnight on October 15, 1999. Cyprus Amax shareholders will have the right to elect to receive cash or Phelps Dodge shares for each Cyprus Amax share. The all-cash election for Cyprus Amax shareholders is $20.54 per Cyprus Amax share and the all-stock election is 0.3500 Phelps Dodge shares per Cyprus Amax share, subject to proration to maintain the overall cash/stock allocation of approximately 63% stock and 37% cash. The stock portion of the consideration received will be tax-free to Cyprus Amax shareholders. Based on Phelps Dodge's closing share price yesterday, the agreement currently values Cyprus Amax at $19.80 per share, or a total equity value of approximately $1.8 billion, based on approximately 90.7 million Cyprus Amax shares outstanding. Phelps Dodge expects the transaction to be immediately and substantially accretive to its cash flow per share and accretive to its earnings per share beginning in 2001, based on the current portfolio of the combined companies and analysts' estimates of copper prices of $0.80 to $0.85 per pound in 2001. Based on its strong balance sheet, Phelps Dodge expects to finance the $690 million cash portion of the offer through existing credit facilities and cash on hand. Phelps Dodge has already received U.S. antitrust approval for the acquisition. Completion of the exchange offer is subject to a majority of Cyprus Amax's shares being tendered and not withdrawn, approval of Phelps Dodge shareholders at a special meeting on October 13, 1999, and customary closing conditions. Prior to entering into the agreement with Phelps Dodge, Cyprus Amax terminated its merger agreement with Asarco Incorporated (NYSE: AR) in accordance with the procedures agreed to with Asarco earlier this week. The combination of Phelps Dodge and Cyprus Amax will create a world-class, lower-cost global copper producer and provide significant opportunities to integrate operations in the southwestern United States, administrative functions, and exploration and development activities. Consistent with demonstrated Phelps Dodge standards, all properties will be operated to earn more than the cost of capital over the copper cycle. "We are extremely pleased that we were able to reach a negotiated agreement with Cyprus Amax that is clearly in the best interest of both companies," said Douglas C. Yearley, Chairman and Chief Executive Officer of Phelps Dodge. "We will move quickly to close this compelling transaction and to begin realizing the strategic and financial benefits of the combination." Yearley added, "Phelps Dodge remains interested in acquiring Asarco to realize the additional benefits of a three-way combination -- if we can do so on terms that make economic sense for our shareholders. Our 40% premium exchange offer remains on the table, and we hope to have further discussions with Asarco." Milton H. Ward, Chairman, President and Chief Executive Officer of Cyprus Amax, said, "This premium transaction provides significant current value to Cyprus Amax shareholders as well as the opportunity to participate in what we believe is the substantial upside potential of the combination. We are confident that Cyprus Amax customers will be well served, and our shareholders and employees will benefit from being part of a world-class global copper producer." 39 48 Phelps Dodge expects to achieve annual cash cost savings of at least $100 million from the combination, to be fully phased in by the end of 2001, through reductions in SG&A expenses, operating improvements and efficiencies in exploration. J. Steven Whisler, President and Chief Operating Officer of Phelps Dodge, said, "We have done a great deal of advance planning and, working closely with representatives of Cyprus Amax, our integration teams will move swiftly to realize the full benefits of this combination." Morgan Stanley Dean Witter served as financial advisor to Phelps Dodge and Merrill Lynch served as financial advisor to Cyprus Amax. Shearman & Sterling and Debevoise & Plimpton served as legal advisors to Phelps Dodge and Wachtell, Lipton, Rosen & Katz served as legal advisor to Cyprus Amax. 40 49 THE OFFER We are offering to exchange $7.61176875 net in cash plus 0.2203 shares of Phelps Dodge common stock for each outstanding share of Cyprus Amax Minerals Company common stock, on a fully prorated basis. You may elect to receive either $20.54 in cash or 0.3500 shares of Phelps Dodge common stock for each of your Cyprus Amax common shares that are validly tendered and not properly withdrawn, subject, in each case, to the election and proration procedures described in this prospectus and the related letter of election and transmittal. This consideration has a value of $19.80, based on the closing price of Phelps Dodge common stock on September 29, 1999 of $55 5/16. If you receive all consideration in the form of stock, at the exchange ratio of 0.3500 Phelps Dodge common shares per Cyprus Amax share, your consideration would be worth $19.36, based on the same closing price. We are making our offer through our wholly owned subsidiary, CAV Corporation, which is a Delaware corporation. The term "expiration date" means 12:00 midnight, New York City time, on October 15, 1999, unless we extend the period of time for which this offer is open, in which case the term "expiration date" means the latest time and date on which the offer, as so extended, expires. We are also making a separate offer to exchange $9.00 net in cash and 0.2880 shares of Phelps Dodge common stock for each outstanding common share of Asarco Incorporated on a fully prorated basis and subject to the same election and proration procedures. If you tender your shares, you will not be obligated to pay any charges or expenses of the exchange agent or any brokerage commissions. Except as set forth in the instructions to the letter of election and transmittal, transfer taxes on the exchange of Cyprus Amax common stock pursuant to our offer will be paid by us or on our behalf. We are making this offer in order to acquire control of, and ultimately the entire common equity interest in, Cyprus Amax. Pursuant to the Phelps Dodge/Cyprus Amex merger agreement, as soon as possible after consummation of the offer, Cyprus Amax will consummate the Phelps Dodge/Cyprus Amax merger with us in which each outstanding share of Cyprus Amax common stock (except for Cyprus Amax common stock held by Cyprus Amax, us or any of our subsidiaries) would be converted into the right to receive 0.2203 shares of Phelps Dodge common stock and $7.61176875 in cash, without interest, on a fully prorated basis. If we obtain all of the shares of Cyprus Amax pursuant to our offer to you, and all of the shares of Asarco pursuant to our separate offer to its shareholders, former shareholders in Cyprus Amax and Asarco would own approximately 22% and 13%, respectively, of the shares of common stock of Phelps Dodge Corporation, based upon the number of shares outstanding of Phelps Dodge, Cyprus Amax and Asarco on August 13, 1999, August 3, 1999 and July 31, 1999, respectively. If we obtain all of the common shares of Cyprus Amax pursuant to our offer and do not acquire any Asarco common shares, former shareholders in Cyprus Amax would own approximately 26% of the common stock of the Phelps Dodge/Cyprus Amax combined entity. Our obligation to exchange shares of Phelps Dodge common stock and cash for Cyprus Amax shares pursuant to the offer is conditioned upon several conditions referred to below under "Conditions of Our Offer," including the Minimum Tender Condition, the Phelps Dodge Stockholder Approval Condition, and other conditions that are discussed below. Our offer to acquire Cyprus Amax common stock is also an offer to acquire Cyprus Amex preferred share purchase rights ("Cyprus Amax Rights"), and, when we refer to the shares of Cyprus Amax common stock, we are also referring to the associated rights, unless we indicate otherwise. In addition, all references to the rights include the benefits to holders of those rights pursuant to the Cyprus Amax rights agreement (the "Cyprus Amax Rights Agreement"), including the right to receive any payment due upon redemption of those rights. We have asked Cyprus Amax for its stockholder list and security position listings to communicate with you and to distribute our offer to you. We may send this prospectus, related letter of election and transmittal and other relevant materials to you and to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on Cyprus Amax's stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing so that we can later send these materials to beneficial owners of Cyprus Amax shares after we receive these lists from Cyprus Amax. 41 50 DESCRIPTION OF ELECTION AND PRORATION PROCEDURES These are the rules that will govern the allocation of the cash and stock consideration in our offer. CASE 1: MORE CASH CONSIDERATION IS ELECTED THAN THE AMOUNT OF CASH AVAILABLE FOR PAYMENT In this case, Phelps Dodge will calculate a proration factor for the Cyprus Amax shares making a cash election. This cash proration factor will equal (1) the total amount of cash available for payment, which will be $7.61176875 multiplied by the total number of Cyprus Amax shares outstanding immediately prior to closing of our offer, divided by (2) the total amount of cash that would have to be paid if all cash elections were honored in full, which is determined by multiplying the number of Cyprus Amax shares electing cash by $20.54. - Each Cyprus Amax share electing to receive Phelps Dodge shares will be exchanged for 0.3500 Phelps Dodge shares; - Each Cyprus Amax share as to which no election has been made will be exchanged for 0.3500 Phelps Dodge shares; and - Each Cyprus Amax share electing cash will be exchanged for: 1. $20.54 in cash multiplied by the cash proration factor; and 2. a number of Phelps Dodge shares equal to 0.3500 multiplied by 1 minus the cash proration factor. For example, if 90 million Cyprus Amax shares are outstanding immediately prior to closing of our offer and 70% of those shares elect cash, the cash proration factor would be 52.94%, calculated as follows: $685.1 million ($7.61176875 multiplied by 90 million), / $1,294 million ($20.54 multiplied by 63 million, the number of Cyprus Amax shares that elected to receive cash) Each of the Cyprus Amax shares electing to receive Phelps Dodge shares and each of the Cyprus Amax shares as to which no election has been made, would receive 0.3500 Phelps Dodge shares. Each of the Cyprus Amax shares electing to receive cash would receive $10.87 in cash, without interest, and 0.1647 Phelps Dodge shares. CASE 2: MORE STOCK CONSIDERATION IS ELECTED THAN THE NUMBER OF PHELPS DODGE SHARES AVAILABLE FOR ISSUANCE UNDER OUR OFFER In this case, Phelps Dodge will calculate a proration factor for the Cyprus Amax shares making a stock election. This stock proration factor will equal (1) the total number of Phelps Dodge shares available for issuance in our offer, which will be 0.2203 multiplied by the total number of Cyprus Amax shares outstanding immediately prior to closing of our offer, divided by (2) the total number of Phelps Dodge shares that would have to be issued if all stock elections were honored in full, which is determined by multiplying the number of Cyprus Amax shares electing stock by 0.3500. - Each Cyprus Amax share electing to receive cash will be exchanged for $20.54 in cash, without interest; - Each Cyprus Amax share as to which no election has been made will be exchanged for $20.54 in cash, without interest; and - Each Cyprus Amax share electing stock will be exchanged for: 1. A number of Phelps Dodge shares equal to 0.3500 multiplied by the stock proration factor; and 2. Cash equal to $20.54 multiplied by 1 minus the stock proration factor. For example, if 90 million Cyprus Amax shares are outstanding immediately prior to closing of our offer and 70% of those shares elect stock, the stock proration factor would be 89.93%, calculated as follows: 19.83 million (0.2203 multiplied by 90 million), / 22.05 million (0.3500 multiplied by 63 million, the number of Cyprus Amax shares that elected to receive stock) 42 51 Each of the Cyprus Amax shares electing to receive cash and each of the Cyprus Amax shares as to which no election has been made, would receive $20.54 in cash, without interest. Each of the Cyprus Amax shares electing to receive stock would receive 0.3148 Phelps Dodge shares and $2.07 in cash, without interest. CASE 3: THE NUMBER OF CYPRUS AMAX SHARES AS TO WHICH NO ELECTION IS MADE IS SUFFICIENTLY LARGE SO THAT CASH CONSIDERATION ELECTED IS LESS THAN THE CASH AVAILABLE FOR PAYMENT AND THE STOCK CONSIDERATION ELECTED IS LESS THAN THE NUMBER OF PHELPS DODGE COMMON SHARES AVAILABLE FOR DELIVERY In this case, Phelps Dodge will calculate a proration factor for the shares that make no election. This non electing proration factor will equal (1) the difference between the total number of Cyprus Amax shares that must receive cash less the total number of Cyprus Amax shares that have elected cash, divided by (2) the total number of shares as to which no election has been made. The total number of shares that must receive cash is determined by dividing the total cash consideration ($7.61176875 multiplied by the number of Cyprus Amax shares outstanding immediately prior to closing of our offer) by $20.54. - Each Cyprus Amax share electing cash will be exchanged for $20.54 in cash, without interest; - Each Cyprus Amax share electing stock will be exchanged for 0.3500 Phelps Dodge shares, and - Each Cyprus Amax share as to which no election has been made will be exchanged for: 1. $20.54 in cash multiplied by the non electing proration factor; and 2. a number of Phelps Dodge shares equal to 0.3529 multiplied by 1 minus the non electing proration factor. For example, if 90 million Cyprus Amax shares are outstanding immediately prior to the closing of our offer and cash is elected with respect to 30% of those shares, stock is elected with respect to 50% of those shares and no election is made with respect to 20% of those shares, the non electing proration factor would be 35.29%, calculated as follows: $685.1 million ($7.61176875 multiplied by 90 million) / $20.54 = $33.35 million 33.35 million - 27 million = 6.35 million 6.35 million / 18 million = 0.3529 Each of the Cyprus Amax shares electing to receive cash will be exchanged for $20.54 in cash, without interest and each Cyprus Amax share electing stock consideration will be exchanged for 0.3500 Phelps Dodge shares. Each of the Cyprus Amax as to which no election has been made will be exchanged for $7.25 in cash, without interest, and 0.2265 Phelps Dodge shares. TIMING OF OUR OFFER Our offer is scheduled to expire at 12:00 midnight, New York City time on October 15, 1999. For more information, you should read the discussion under the caption "Extension, Termination and Amendment." We have called a special meeting of our stockholders to be held on October 13, 1999 so that we can obtain the approvals necessary to satisfy the Phelps Dodge Stockholder Approval Condition. LITIGATION On August 23, 1999, Phelps Dodge, through its directly owned subsidiary CAV Corporation, sent a written demand to Cyprus Amax for records of its shareholders, pursuant to Section 220 of the Delaware General Corporation Law. On August 24, 1999, Phelps Dodge and its directly owned subsidiary AAV Corporation commenced an action by order to show cause in the Superior Court of the State of New Jersey, Chancery Division, Mercer County, pursuant to N.J.S.A. 14A:5-28 to seek shareholder records from Asarco. This action is captioned Phelps Dodge Corp. and AAV Corp. v. ASARCO Inc., Docket No. MER-C-81-99. In connection with this action, Phelps Dodge made an application for summary injunctive relief. Asarco opposed the application and argument was heard before Judge Judith Yaskin on August 26, 1999. At the hearing, the court ruled that shareholder lists and related documents must be made available to Phelps Dodge and AAV within forty-eight hours after the filing of their preliminary proxy materials with the SEC. Some of these materials were delivered to Phelps Dodge on August 29, 1999, and others have been delivered since then. 43 52 In addition, Phelps Dodge commenced actions in the Superior Court of the State of New Jersey and in the Court of Chancery of the State of Delaware against Asarco and Cyprus Amax and their respective Boards of Directors for their breach of fiduciary duties including their refusals to consider and to allow the shareholders of both companies to consider the Phelps Dodge proposal. In particular, Phelps Dodge alleges that Cyprus Amax and Asarco have entered into an illegal merger agreement that purports to prohibit the companies from taking any action or entering into any discussions relating to a takeover proposal. In light of these provisions of the Asarco/Cyprus Amax Merger Agreement, Asarco and Cyprus Amax are incapable of evaluating meaningfully the Phelps Dodge proposal and cannot make informed recommendations to their shareholders. Phelps Dodge also challenged the termination or "break up" fee payable to Asarco in certain circumstances as grossly excessive; that fee amounts to more than 6% of Asarco's equity value as of July 15, 1999, the date of the Asarco/Cyprus Amax merger agreement. Furthermore, the Asarco/Cyprus Amax merger agreement includes corporate governance provisions that disenfranchise shareholders by guaranteeing until 2002 the management positions of the chief executive officers of Asarco and Cyprus Amax unless the positions are changed with the approval of 75% of the full board. The complaints also allege that, in addition to their persistent refusals to negotiate with Phelps Dodge, Asarco and Cyprus Amax set their shareholder meetings and record dates to favor their own merger and have rewarded management with lavish compensation and benefit packages. These and other efforts undertaken by the companies amount to an attempt to favor and entrench management at the expense of shareholders. Phelps Dodge sought injunctive relief to remedy these breaches of duty, including court orders declaring that the boards of Asarco and Cyprus Amax failed to make good faith efforts to obtain information about and adequately consider the Phelps Dodge proposal and compelling the boards of those two companies to consider the proposal and remove impediments preventing consideration of the proposal. On September 7, 1999, the Superior Court of the State of New Jersey stayed the New Jersey action, and Phelps Dodge thereafter filed an amended complaint in the Delaware Chancery Court, naming Asarco and its directors as defendants and seeking the same relief as that sought in the New Jersey action. The Delaware Chancery Court ordered expedited discovery, and scheduled a hearing on Phelps Dodge's motion for a preliminary injunction, in Wilmington, Delaware, on September 27, 1999. At the hearing on September 27, 1999, the Chancery Court denied Phelps Dodge's motion for a preliminary injunction, finding that Phelps Dodge had not demonstrated that irreparable injury would ensue in the absence of injunctive relief. On September 20, 1999, Asarco filed suit against Phelps Dodge in the U.S. District Court for the Southern District of New York, alleging that Phelps Dodge's proposed acquisition of Asarco and Cyprus Amax would violate the U.S. antitrust laws, tortiously interferes with the proposed merger between Asarco and Cyprus Amax and constitutes unfair competition. Although the complaint makes reference to preliminary injunctive relief, no request for such relief has yet been made to the court. Phelps Dodge believes this lawsuit is without merit. EXTENSION, TERMINATION AND AMENDMENT We expressly reserve the right (subject to our merger agreement with Cyprus Amax), in our sole discretion, at any time or from time to time, to extend the period of time during which our offer remains open, and we can do so by giving oral or written notice of such extension to the exchange agent. If we decide to so extend our offer, we will make an announcement to that effect no later than 9:00 A.M., New York City time, on the next business day after the previously scheduled Expiration Date. We are not making any assurance that we will exercise our right to extend our offer, although we currently intend to do so until all conditions have been satisfied or waived. During any such extension, all Cyprus Amax shares previously tendered and not withdrawn will remain subject to the offer, subject to your right to withdraw your Cyprus Amax shares. You should read the discussion under the caption "Withdrawal Rights" for more details. Subject to the SEC's applicable rules and regulations, we also reserve the right (subject to our merger agreement with Cyprus Amax), in our sole discretion, at any time or from time to time, (a) to delay acceptance for exchange of or, regardless of whether we previously accepted Cyprus Amax shares for exchange, exchange of any Cyprus Amax shares pursuant to our offer or to terminate our offer and not accept for exchange or exchange any Cyprus Amax Shares not previously accepted for exchange, or exchanged, upon 44 53 the failure of any of the conditions of the offer to be satisfied and (b) to waive any condition (other than the Phelps Dodge Stockholder Approval Condition and the condition relating to the effectiveness of the Registration Statement) or otherwise amend the offer in any respect, by giving oral or written notice of such delay, termination or amendment to the exchange agent and by making a public announcement. We will follow any extension, termination, amendment or delay, as promptly as practicable, with a public announcement. In the case of an extension, any such announcement will be issued no later than 9:00 A.M., New York City time, on the next business day after the previously scheduled Expiration Date. Subject to applicable law (including Rules 14d-4(c) and 14d-6(d) under the Exchange Act, which require that any material change in the information published, sent or given to stockholders in connection with the offer be promptly sent to stockholders in a manner reasonably designed to inform stockholders of such change) and without limiting the manner in which we may choose to make any public announcement, we assume no obligation to publish, advertise or otherwise communicate any such public announcement other than by making a release to the Dow Jones News Service. We confirm to you that if we make a material change in the terms of our offer or the information concerning the offer, or if we waive a material condition of the offer, we will extend the offer to the extent required under the Exchange Act. If, prior to the Expiration Date, we change the percentage of Cyprus Amax shares being sought or the consideration offered to you, that change will apply to all holders whose Cyprus Amax shares are accepted for exchange pursuant to our offer. If at the time notice of that change is first published, sent or given to you, the offer is scheduled to expire at any time earlier than the tenth business day from and including the date that such notice is first so published, sent or given, we will extend the offer until the expiration of that ten business-day period. For purposes of our offer, a "business day" means any day other than a Saturday, Sunday or federal holiday and consists of the time period from 12:01 A.M. through 12:00 midnight, New York City time. EXCHANGE OF CYPRUS AMAX SHARES; DELIVERY OF PHELPS DODGE COMMON STOCK AND CASH Upon the terms and subject to the conditions of our offer (including, if the offer is extended or amended, the terms and conditions of any such extension or amendment), we will accept for exchange, and will exchange, Cyprus Amax shares validly tendered and not withdrawn as promptly as practicable after the Expiration Date. In addition, subject to applicable rules of the SEC, we expressly reserve the right to delay acceptance for exchange or the exchange of Cyprus Amax shares in order to comply with any applicable law. In all cases, exchange of Cyprus Amax shares tendered and accepted for exchange pursuant to the offer will be made only after timely receipt by the exchange agent of certificates for those Cyprus Amax shares (or a confirmation of a book-entry transfer of those Cyprus Amax shares in the exchange agent's account at The Depository Trust Company (which we refer to as the "DTC")) a properly completed and duly executed letter of election and transmittal (or a facsimile of that document) and any other required documents. For purposes of the offer, we will be deemed to have accepted for exchange Cyprus Amax shares validly tendered and not withdrawn as, if and when we notify the exchange agent of our acceptance of the tenders of those Cyprus Amax shares pursuant to the offer. The exchange agent will deliver cash and Phelps Dodge common stock in exchange for Cyprus Amax shares pursuant to the offer and cash instead of fractional shares of Phelps Dodge common stock as soon as practicable after receipt of such notice. The exchange agent will act as agent for tendering stockholders for the purpose of receiving Phelps Dodge common stock and cash (including cash to be paid instead of fractional shares of Phelps Dodge common stock) from us and transmitting such stock and cash to you. You will not receive any interest on any cash that we pay you, even if there is a delay in making the exchange. If we do not accept any tendered Cyprus Amax shares for exchange pursuant to the terms and conditions of the offer for any reason, or if certificates are submitted for more Cyprus Amax shares than are tendered, we will return certificates for such unexchanged Cyprus Amax shares without expense to the tendering stockholder or, in the case of Cyprus Amax shares tendered by book-entry transfer of such Cyprus Amax shares into the exchange agent's account at DTC pursuant to the procedures set forth below under the discussion entitled "Procedure for Tendering," those Cyprus Amax shares will be credited to an account maintained within DTC, as soon as practicable following expiration or termination of the offer. 45 54 CASH INSTEAD OF FRACTIONAL SHARES OF PHELPS DODGE COMMON STOCK We will not issue certificates representing fractional shares of our common stock pursuant to the offer. Instead, each tendering stockholder who would otherwise be entitled to a fractional share of our common stock will receive cash in an amount equal to such fraction (expressed as a decimal and rounded to the nearest 0.01 of a share) multiplied by the closing price for shares of our common stock on the NYSE Composite Tape on the date that we accept those Cyprus Amax shares for exchange. WITHDRAWAL RIGHTS Your tender of Cyprus Amax shares pursuant to the offer is irrevocable, except that Cyprus Amax shares tendered pursuant to the offer may be withdrawn at any time prior to the Expiration Date, and, unless we previously accepted them pursuant to the offer, may also be withdrawn at any time after November 2, 1999. For your withdrawal to be effective, the exchange agent must receive from you a written, telegraphic, telex or facsimile transmission notice of withdrawal at one of its addresses set forth on the back cover of this prospectus, and your notice must include your name, the number of Cyprus Amax shares to be withdrawn and the name of the registered holder, if it is different from that of the person who tendered those Cyprus Amax shares. A financial institution must guarantee all signatures on the notice of withdrawal. Most banks, savings and loan associations and brokerage houses are able to effect these signature guarantees for you. The financial institution must be a participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or the Stock Exchange Medallion Program, any of which are an "eligible institution," unless those Cyprus Amax shares have been tendered for the account of any eligible institution. If Cyprus Amax shares have been tendered pursuant to the procedures for book-entry tender discussed under the caption entitled "Procedure for Tendering," any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn Cyprus Amax shares and must otherwise comply with DTC's procedures. If certificates have been delivered or otherwise identified to the exchange agent, the name of the registered holder and the serial numbers of the particular certificates evidencing the Cyprus Amax shares withdrawn must also be furnished to the exchange agent, as stated above, prior to the physical release of such certificates. We will decide all questions as to the form and validity (including time of receipt) of any notice of withdrawal, in our sole discretion, and our decision shall be final and binding. Neither we, the exchange agent, the Information Agent, the Dealer Manager nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or will incur any liability for failure to give any such notification. Any Cyprus Amax shares properly withdrawn will be deemed not to have been validly tendered for purposes of our offer. However, you may retender withdrawn Cyprus Amax shares by following one of the procedures discussed under the caption entitled "Procedure for Tendering" at any time prior to the expiration date. If you withdraw any of your Cyprus Amax shares, you automatically withdraw the associated Cyprus Amax Rights. You may not withdraw Cyprus Amax Rights unless you also withdraw the associated Cyprus Amax shares. PROCEDURE FOR TENDERING For you to validly tender Cyprus Amax shares pursuant to the offer, (a) a properly completed and duly executed letter of election and transmittal (or manually executed facsimile of that document), along with any required signature guarantees, or an agent's message in connection with a book-entry transfer, and any other required documents, must be transmitted to and received by the exchange agent at one of its addresses set forth on the back cover of this prospectus, and certificates for tendered Cyprus Amax shares must be received by the exchange agent at such address or those Cyprus Amax shares must be tendered pursuant to the procedures for book-entry tender set forth below (and a confirmation of receipt of such tender received (we refer to this confirmation below as a "Book-Entry Confirmation")), in each case before the Expiration Date, or (b) you must comply with the guaranteed delivery procedures set forth below. The term "agent's message" means a message, transmitted by DTC to, and received by, the exchange agent and forming a part of a Book-Entry Confirmation, which states that DTC has received an express 46 55 acknowledgment from the participant in DTC tendering the Cyprus Amax shares and, if applicable, Cyprus Amax Rights, which are the subject of such Book-Entry Confirmation, that such participant has received and agrees to be bound by the terms of the letter of election and transmittal and that we may enforce that agreement against such participant. The exchange agent will establish accounts with respect to the Cyprus Amax shares at DTC for purposes of the offer within two business days after the date of this prospectus, and any financial institution that is a participant in DTC may make book-entry delivery of the Cyprus Amax shares by causing DTC to transfer such Cyprus Amax shares into the exchange agent's account in accordance with DTC's procedure for such transfer. However, although delivery of Cyprus Amax shares may be effected through book-entry at DTC, the letter of election and transmittal (or facsimile thereof), with any required signature guarantees, or an agent's message in connection with a book-entry transfer, and any other required documents, must, in any case, be transmitted to and received by the exchange agent at one or more of its addresses set forth on the back cover of this prospectus prior to the Expiration Date, or the guaranteed delivery procedures described below. We cannot assure you, however, that book-entry delivery of Cyprus Amax Rights will be available. If book-entry delivery is not available, you must tender Cyprus Amax Rights by means of delivery of Cyprus Amax Rights certificates or pursuant to the guaranteed delivery procedure set forth below. Signatures on all letters of election and transmittal must be guaranteed by an eligible institution, except in cases in which Cyprus Amax shares are tendered either by a registered holder of Cyprus Amax shares who has not completed either the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on the letter of election and transmittal or for the account of an eligible institution. If the certificates for Cyprus Amax shares or Cyprus Amax Rights (if any) are registered in the name of a person other than the person who signs the letter of election and transmittal, or if certificates for unexchanged Cyprus Amax shares or Cyprus Amax Rights (if any) are to be issued to a person other than the registered holder(s), the certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered owner or owners appear on the certificates, with the signature(s) on the certificates or stock powers guaranteed in the manner we have described above. THE METHOD OF DELIVERY OF CYPRUS AMAX SHARE CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH DTC, IS AT YOUR OPTION AND RISK, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, WE RECOMMEND REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ENSURE TIMELY DELIVERY. TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO CASH RECEIVED PURSUANT TO OUR OFFER, YOU MUST PROVIDE THE EXCHANGE AGENT WITH YOUR CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY WHETHER YOU ARE SUBJECT TO BACKUP WITHHOLDING OF FEDERAL INCOME TAX BY COMPLETING THE SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER OF ELECTION AND TRANSMITTAL. SOME STOCKHOLDERS (INCLUDING, AMONG OTHERS, ALL CORPORATIONS AND SOME FOREIGN INDIVIDUALS) ARE NOT SUBJECT TO THESE BACKUP WITHHOLDING AND REPORTING REQUIREMENTS. IN ORDER FOR A FOREIGN INDIVIDUAL TO QUALIFY AS AN EXEMPT RECIPIENT, THE STOCKHOLDER MUST SUBMIT A FORM W-8, SIGNED UNDER PENALTIES OF PERJURY, ATTESTING TO THAT INDIVIDUAL'S EXEMPT STATUS. If you have previously tendered Cyprus Amax shares pursuant to the prospectus dated September 2, 1999, you will be deemed not to have made an election. Such shareholders must properly withdraw and re-tender their shares in order to make an election. If you have previously tendered Cyprus Amax shares pursuant to the prospectus dated September 22, 1999, you need not take any action unless you wish to make or change any cash or stock election. If you wish to tender Cyprus Amax shares pursuant to our offer and your certificates are not immediately available or you cannot deliver the certificates and all other required documents to the exchange agent prior to the expiration date or cannot complete the procedure for book-entry transfer on a timely basis, your Cyprus Amax shares may nevertheless be tendered, so long as all of the following conditions are satisfied: (a) you make your tender by or through an eligible institution; (b) a properly completed and duly executed notice of guaranteed delivery, substantially in the form made available by us, is received by the exchange agent as provided below on or prior to the expiration date; and 47 56 (c) the certificates for all tendered Cyprus Amax shares (or a confirmation of a book-entry transfer of such securities into the exchange agent's account at DTC as described above), in proper form for transfer, together with a properly completed and duly executed letter of election and transmittal (or facsimile thereof), with any required signature guarantees (or, in the case of a book-entry transfer, an agent's message) and all other documents required by the letter of election and transmittal are received by the exchange agent within three NYSE trading days after the date of execution of such notice of guaranteed delivery. You may deliver the notice of guaranteed delivery by hand or transmit it by telegram, telex, facsimile transmission or mail to the exchange agent and you must include a guarantee by an eligible institution in the form set forth in that notice. In all cases, we will exchange Cyprus Amax shares tendered and accepted for exchange pursuant to our offer only after timely receipt by the exchange agent of certificates for Cyprus Amax shares (or timely confirmation of a book-entry transfer of such securities into the exchange agent's account at DTC as described above), properly completed and duly executed letter(s) of election and transmittal (or facsimile(s) thereof), or an agent's message in connection with a book-entry transfer, and any other required documents. Accordingly, you may be paid at different times depending upon when the exchange agent actually receives certificates for Cyprus Amax shares or confirmations of book-entry transfers of those shares. By executing a letter of election and transmittal as set forth above, you irrevocably appoint our designees as your attorneys-in-fact and proxies, each with full power of substitution, to the full extent of your rights with respect to your Cyprus Amax shares tendered and accepted for exchange by us and with respect to any and all other Cyprus Amax shares and other securities issued or issuable in respect of the Cyprus Amax shares on or after September 2, 1999. That appointment is effective, and voting rights will be affected, when and only to the extent that we deposit the shares of our common stock for Cyprus Amax shares that you have tendered with the exchange agent. All such proxies shall be considered coupled with an interest in the tendered Cyprus Amax shares and therefore shall not be revocable. Upon the effectiveness of such appointment, all prior proxies that you have given will be revoked, and you may not give any subsequent proxies (and, if given, they will not be deemed effective). Our designees will, with respect to the Cyprus Amax shares for which the appointment is effective, be empowered, among other things, to exercise all of your voting and other rights as they, in their sole discretion, deem proper at any annual, special or adjourned meeting of Cyprus Amax's stockholders or otherwise. We reserve the right to require that, in order for Cyprus Amax shares to be deemed validly tendered, immediately upon our exchange of those Cyprus Amax shares, we must be able to exercise full voting rights with respect to such Cyprus Amax shares. We will determine questions as to the validity, form, eligibility (including time of receipt) and acceptance for exchange of any tender of Cyprus Amax shares, in our sole discretion, and our determination shall be final and binding. We reserve the absolute right to reject any and all tenders of Cyprus Amax shares that we determine are not in proper form or the acceptance of or exchange for which may, in the opinion of our counsel, be unlawful. We also reserve the absolute right to waive any of the conditions of our offer (other than the Phelps Dodge Stockholder Approval Condition and the condition relating to the effectiveness of the Registration Statement) or any defect or irregularity in the tender of any Cyprus Amax shares. No tender of Cyprus Amax shares will be deemed to have been validly made until all defects and irregularities in tenders of Cyprus Amax shares have been cured or waived. Neither we, the exchange agent, the Information Agent, the Dealer Manager nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any Cyprus Amax shares or will incur any liability for failure to give any such notification. Our interpretation of the terms and conditions of our offer (including the letter of election and transmittal and instructions thereto) will be final and binding. The tender of Cyprus Amax shares pursuant to any of the procedures described above will constitute a binding agreement between us and you upon the terms and subject to the conditions of the offer. MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS The following summarizes the anticipated material U.S. federal income tax consequences of the acquisition of our common stock and/or cash by you, pursuant to our offer and the Phelps Dodge/Cyprus 48 57 Amax merger contemplated by this prospectus. This discussion applies only to a "U.S. Holder," which is a term that we explain below. This summary does not address any tax consequences of our offer or the Phelps Dodge/Cyprus Amax merger to U.S. Holders who exercise dissenters' rights, if any. It applies only to shares of Cyprus Amax common stock held as capital assets and does not address aspects of U.S. federal income tax that may apply to holders that are subject to special tax rules, including: - insurance companies, - tax-exempt organizations, - financial institutions, - dealers in securities, - traders in securities who elect to apply a mark-to-market method of accounting, - foreign persons, - persons who acquired shares of Cyprus Amax common stock pursuant to an exercise of employee stock options or rights or otherwise as compensation, and - persons who hold shares of Cyprus Amax common stock as part of a straddle, conversion transaction, or constructive sale. Also, this summary does not address state, local or foreign tax consequences of our offer or the Phelps Dodge/ Cyprus Amax merger. This summary is based on current law, and future legislative, judicial or administrative changes or interpretations, which may be retroactive, could affect the accuracy of this discussion. For purposes of this discussion, a "U.S. Holder" means a holder of Cyprus Amax shares that is - a citizen or resident of the United States, - a corporation organized in or under the laws of the United States or any political subdivision thereof or therein, - an estate the income of which is subject to U.S. federal income taxation regardless of its source, or - a trust if a U.S. court can exercise primary supervision over the administration of such trust and one or more U.S. persons has the authority to control all of the substantial decisions of such trust. Reorganization Treatment In the opinion of Shearman & Sterling, special counsel to us, while not entirely free from doubt, the exchange of Cyprus Amax common stock for our common stock and/or cash pursuant to our offer and the Phelps Dodge/Cyprus Amax merger will be treated as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code (the "Code"). This opinion is based on certain factual assumptions and representations including that (i) none of Cyprus Amax, Phelps Dodge or any related party will acquire or redeem, in connection with the transaction, shares of Phelps Dodge issued to Cyprus Amax shareholders pursuant to our offer or the Phelps Dodge/Cyprus Amax merger or shares of Cyprus Amax, to the extent inconsistent with the continuity of shareholder interest requirements for corporate reorganizations; (ii) the value of our common stock issued pursuant to our offer and the Phelps Dodge/Cyprus Amax merger will constitute more than 40% of the overall consideration furnished to Cyprus Amax shareholders in the transaction (including to Cyprus Amax shareholders who exercise dissenters' rights and to holders of Cyprus Amax Series A convertible preferred stock); (iii) Cyprus Amax will be merged into CAV Corporation; (iv) Cyprus Amax and its successor will continue its historic business or will use a significant portion of its historic business assets in a business, and will continue to hold substantially all of its pre-merger assets; and (v) our offer and the Phelps Dodge/Cyprus Amax merger will generally be consummated as provided by this prospectus. The tax opinions referred to in this summary will not be binding on the Internal Revenue Service (the "IRS") or the courts, and the parties do not intend to request a ruling from the IRS with respect to the merger. Accordingly, we cannot be certain that the IRS will not challenge the conclusions reflected in those opinions or that a court will not sustain such challenge. Assuming that the exchange of Cyprus Amax common stock for our common stock pursuant to our offer and the Phelps Dodge/Cyprus Amax merger will be treated for U.S. federal income tax purposes as an 49 58 exchange pursuant to a plan of reorganization within the meaning of Section 368(a) of the Code, as described above, Shearman & Sterling is further of the opinion that the following summarizes the material U.S. federal income tax consequences will result to a U.S. Holder of the exchange of Cyprus Amax shares for our common stock and/or cash pursuant to our offer and the Phelps Dodge/Cyprus Amax merger. Receipt only of cash In general, a U.S. Holder who receives only cash in exchange for Cyprus Amax shares pursuant to our offer and the Phelps Dodge/Cyprus Amax merger will recognize capital gain or loss equal to the difference between the amount of cash received and such U.S. Holder's adjusted tax basis in the Cyprus Amax shares surrendered (unless the U.S. Holder actually or constructively owns our common stock and the receipt of cash has the effect of the distribution of a dividend for U.S. federal income tax purposes as discussed below under "-- Receipt of Phelps Dodge common stock and cash"). Such gain or loss will be long-term capital gain or loss if, as of the effective date of the Phelps Dodge/Cyprus Amax merger, the holding period for such Cyprus Amax shares is more than one year. Receipt only of Phelps Dodge common stock A U.S. Holder who receives only our common stock in exchange for Cyprus Amax shares pursuant to our offer and the Phelps Dodge/Cyprus Amax merger will not recognize any gain or loss upon such exchange (except to the extent cash is received in lieu of a fractional share of our common stock, which will be taxed as discussed below). The aggregate adjusted tax basis of our common stock received in such exchange, including any fractional interest in our common stock for which cash is received, will be equal to the aggregate adjusted tax basis of the Cyprus Amax shares surrendered therefor. The holding period of our common stock will include the holding period of such Cyprus Amax shares. Receipt of Phelps Dodge common stock and cash A U.S. Holder who receives a combination of cash and our common stock in exchange for Cyprus Amax shares pursuant to our offer and the Phelps Dodge/Cyprus Amax merger will recognize gain, if any, with respect to the shares so exchanged but only to the extent of the lesser of (a) the amount of gain realized with respect to the Cyprus Amax shares and (b) the amount of cash received (other than cash received in lieu of a fractional share of our common stock, which will be taxed as discussed below). The amount of gain realized with respect to the Cyprus Amax shares exchanged will equal the excess, if any, of the sum of the cash (including cash received in lieu of a fractional share) and the fair market value of our common stock received over the U.S. Holder's adjusted tax basis in such Cyprus Amax shares. No loss will be recognized by a U.S. Holder who receives a combination of cash and our common stock pursuant to our offer and the Phelps Dodge/Cyprus Amax merger (except in connection with cash received in lieu of a fractional share, as discussed below). Each Cyprus Amax share, or block of shares acquired at the same price, will be treated as exchanged for a pro rata portion of cash and our common stock. Any gain recognized will be treated as capital gain unless, as discussed below, the receipt of the cash has the effect of the distribution of a dividend for U.S. federal income tax purposes, in which case such gain will be treated as ordinary dividend income to the extent of the U.S. Holder's ratable share of Cyprus Amax's accumulated earnings and profits. Any capital gain will be long-term capital gain if, as of the date of the exchange, the holding period for the Cyprus Amax shares exchanged is more than one year. The adjusted tax basis of our common stock received by a U.S. Holder in exchange for Cyprus Amax shares pursuant to our offer and the Phelps Dodge/Cyprus Amax merger, including any fractional interest in a share of our common stock for which cash is received, generally will be equal to the tax basis of the shares surrendered therefor, decreased by the amount of cash received and increased by the amount of gain or dividend income recognized, if any. The holding period of our common stock received with include the holding period of the Cyprus Amax shares, exchanged therefor. The exchange will not have the effect of a dividend with respect to a U.S. Holder if either the exchange is substantially disproportionate with respect to the U.S. Holder or the exchange results in a meaningful reduction in the U.S. Holder's interest in our stock. The exchange would be substantially disproportionate with respect to the U.S. Holder if the U.S. Holder's percentage interest in our stock (including stock constructively 50 59 owned by such U.S. Holder) immediately after the Phelps Dodge/Cyprus Amax merger is less than 80 percent of what the percentage interest would have been if, hypothetically, the U.S. Holder had elected to receive solely our common stock in exchange for all Cyprus Amax shares owned or constructively owned by the U.S. Holder before the Phelps Dodge/Cyprus Amax merger and no consideration other than shares of our common stock were received. Whether an exchange would result in a meaningful reduction depends on the particular U.S. Holder's facts and circumstances. However, the exchange should generally result in a meaningful reduction if the U.S. Holder's percentage interest in our stock, immediately after the Phelps Dodge/Cyprus Amax merger (including shares owned and constructively owned), is minimal, the U.S. Holder exercises no control over corporate affairs of Cyprus Amax or Phelps Dodge, and the U.S. Holder's percentage interest in our common stock is actually reduced from what the interest would have been if, hypothetically, the U.S. Holder had elected to receive solely our common stock in exchange for all Cyprus Amax shares owned or constructively owned by the U.S. Holder before the Phelps Dodge/Cyprus Amax merger. In determining a U.S. Holder's interest in our stock, the U.S. Holder would be deemed to own any shares of our common stock owned, or constructively owned, by certain persons related to such U.S. Holder or that are subject to an option held by the U.S. Holder or a related person. U.S. Holders should consult their own tax advisors as to the possibility that all or a portion of any cash received in exchange for their Cyprus Amax common stock will be treated as a dividend and with respect to the consequences thereof, including the eligibility of U.S. Holders that are corporations for a dividends received deduction and treatment of the dividend as an "extraordinary dividend" under section 1059 of the Code. Cash received in lieu of a fractional Phelps Dodge common share A U.S. Holder who receives cash in lieu of a fractional share of our common stock and who does not otherwise hold shares of our common stock generally will recognize gain or loss equal to the difference between the amount of cash received and the U.S. Holder's tax basis in such fractional share. Such gain or loss will be long-term capital gain or loss if, as of the date of the exchange, the holding period for such shares is more than one year. U.S. Holders who separately hold shares of our common stock should consult their own tax advisors concerning the treatment of cash received for a fractional share. CYPRUS AMAX RIGHTS Because there is no specific binding authority dealing with securities such as the Cyprus Amax Rights, Shearman & Sterling expresses no view with respect to the U.S. federal income tax treatment of the Cyprus Amax Rights becoming separately transferable apart from the Cyprus Amax shares (the date on which such event occurs being a "Cyprus Amax Distribution Date"), the redemption of the Cyprus Amax Rights or the acquisition by us of the Cyprus Amax Rights. Stockholders should consult their tax advisors as to the tax consequences of transactions with respect to the Cyprus Amax Rights. THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY AND DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR LISTING OF ALL POTENTIAL TAX EFFECTS OF THE TRANSACTION. CYPRUS AMAX STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL, STATE, LOCAL AND NON-UNITED STATES TAX CONSEQUENCES OF THE OFFER AND THE MERGER TO THEM. EFFECT OF OFFER ON MARKET FOR CYPRUS AMAX SHARES; REGISTRATION UNDER THE EXCHANGE ACT The exchange of Cyprus Amax shares pursuant to our offer will reduce the number of holders of Cyprus Amax shares and the number of Cyprus Amax shares that might otherwise trade publicly and could adversely affect the liquidity and market value of the remaining Cyprus Amax shares held by the public. Cyprus Amax shares are listed and principally traded on the NYSE and are also listed on the Philadelphia and Pacific Stock Exchanges. Depending on the number of Cyprus Amax shares acquired pursuant to the offer, following consummation of the offer, Cyprus Amax shares may no longer meet the requirements of such exchanges for continued listing. For example, published guidelines of the NYSE indicate that the NYSE would consider delisting the outstanding Cyprus Amax shares if, among other things, (i) the number of publicly held Cyprus Amax shares (exclusive of holdings of officers, directors and members of their immediate families and other concentrated holdings of 10 percent or more) should fall below 600,000, (ii) the number of record holders of 51 60 100 or more Cyprus Amax shares should fall below 1,200 or (iii) the aggregate market value of publicly held shares should fall below $5 million. According to publicly available information, there were, as of August 18, 1999, approximately 90.5 million Cyprus Amax common shares outstanding. If such exchanges were to delist the Cyprus Amax shares, the market for them could be adversely affected. It is possible that Cyprus Amax shares would be traded on other securities exchanges or in the over-the-counter market, and that price quotations would be reported by such exchanges, or through the National Association of Securities Dealers, Inc., Automated Quotations System ("Nasdaq") or by other sources. The extent of the public market for the Cyprus Amax shares and the availability of such quotations would, however, depend upon the number of holders and/or the aggregate market value of the Cyprus Amax shares remaining at such time, the interest in maintaining a market in the Cyprus Amax shares on the part of securities firms, the possible termination of registration of Cyprus Amax shares under the Exchange Act, as described below, and other factors. The Cyprus Amax shares are presently "margin securities" under the regulations of the Federal Reserve Board, which has the effect, among other things, of allowing brokers to extend credit on the collateral of Cyprus Amax shares. Depending on the factors similar to those described above with respect to listing and market quotations, following consummations of the offer, the Shares may no longer constitute "margin securities" for the purposes of the Federal Reserve Board's margin regulations, in which event the Cyprus Amax Shares would be ineligible as collateral for margin loans made by brokers. For a description of the treatment of Shares in the Merger, you should refer to "Purpose of Our Offer; the Phelps Dodge/Cyprus Amax Merger." Cyprus Amax shares are currently registered under the Exchange Act. Cyprus Amax can terminate that registration upon application to the SEC if the outstanding shares are not listed on a national securities exchange and if there are fewer than 300 holders of record of Cyprus Amax shares. Termination of registration of the Cyprus Amax shares under the Exchange Act would reduce the information that Cyprus Amax must furnish to its shareholders and to the SEC and would make certain provisions of the Exchange Act, such as the short-swing profit recovery provisions of Section 16(b) and the requirement of furnishing a proxy statement in connection with shareholders meetings pursuant to Section 14(a) and the related requirement of furnishing an annual report to shareholders, no longer applicable with respect to Cyprus Amax shares. Furthermore, the ability of "affiliates" of Cyprus Amax and persons holding "restricted securities" of Cyprus Amax to dispose of such securities pursuant to Rule 144 under the Securities Act may be impaired or eliminated. If registration of the shares under the Exchange Act were terminated, they would no longer be eligible for Nasdaq reporting or for continued inclusion on the Federal Reserve Board's list of "margin securities." PURPOSE OF OUR OFFER; THE PHELPS DODGE/CYPRUS AMAX MERGER We are making the offer in order to acquire control of, and ultimately the entire common equity interest in, Cyprus Amax. The offer is the first step in our acquisition of Cyprus Amax, and is intended to facilitate the acquisition of all Cyprus Amax shares. You will not have appraisal rights as a result of consummation of our offer. We intend, as soon as practicable after consummation of the offer, to seek to merge Cyprus Amax with and into a wholly owned subsidiary. The purpose of the Phelps Dodge/Cyprus Amax merger is to acquire all Cyprus Amax shares not tendered and exchanged pursuant to the offer. In the Phelps Dodge/Cyprus Amax merger, each then outstanding Cyprus Amax share (except for Cyprus Amax shares held in Cyprus Amax's treasury and Cyprus Amax shares that we or one of our subsidiaries owns) would be converted into the right to receive 0.2203 shares of Phelps Dodge common stock and $7.61176875 in cash, without interest, on a fully prorated basis. If the cash component of our offer is oversubscribed, each outstanding Cyprus Amax share will be converted in the merger into 0.3500 Phelps Dodge shares. If the stock component of our offer is oversubscribed, each outstanding Cyprus Amax share will be converted in the merger into $20.54 in cash, without interest. If neither the cash nor the stock component of our offer is oversubscribed, you will receive in the merger a pro rata portion of the cash consideration and the stock consideration based on the number of Cyprus Amax shares you own compared to the total number of Cyprus Amax shares converted in the merger. 52 61 The Phelps Dodge/Cyprus Amax merger may be consummated pursuant to Section 253 of the DGCL. Under Section 253 of the DGCL, a parent corporation owning at least 90% of the outstanding shares of each class of a subsidiary corporation may merge the subsidiary corporation into itself without the approval of the stockholders of the parent corporation or of the board of directors or stockholders of the subsidiary corporation. Assuming the Minimum Tender Condition is satisfied and we consummate the offer, we would have sufficient voting power to effect the Phelps Dodge/Cyprus Amax merger under Section 251 of the DGCL without the vote of any other stockholder of Cyprus Amax. Although stockholders do not have appraisal rights as a result of the offer, if the Phelps Dodge/Cyprus Amax merger is consummated pursuant to Section 253 of the DGCL, Cyprus Amax stockholders at the time of the Phelps Dodge/Cyprus Amax merger who do not vote in favor of the Phelps Dodge/Cyprus Amax merger will have the right under the DGCL to dissent and demand appraisal of their Cyprus Amax shares in accordance with Section 262 of the DGCL. Under Section 262, dissenting stockholders who comply with the applicable statutory procedures will be entitled to receive a judicial determination of the fair value of their Cyprus Amax shares (exclusive of any element of value arising from the accomplishment or expectation of the Phelps Dodge/Cyprus Amax merger) and to receive payment of such fair value in cash, together with a fair rate of interest, if any. In Cede & Co. and Cinerama, Inc. v. Technicolor, Inc., the Supreme Court of the State of Delaware construed Section 262 of the DGCL and held that the "accomplishment or expectation" exclusion from the calculation of fair value set forth in the preceding sentence is narrow and is designed to eliminate use of pro forma data and projections of a speculative variety relating to the completion of a merger. The court held that it is appropriate to include in the calculation of fair value any known elements of value, including those elements of value which exist on the date of the merger because of a majority acquiror's interim action in a two-step cash-out transaction. We cannot assure you as to the methodology a court would use to determine fair value or how a court would select which of the elements of value are to be included in such a determination. Any such judicial determination of the fair value of Cyprus Amax shares could be based upon factors other than, or in addition to, the price per Cyprus Amax share to be paid in the Phelps Dodge/ Cyprus Amax merger or the market value of the Cyprus Amax shares. The value so determined could be more or less than the price per Cyprus Amax share to be paid in the Phelps Dodge/Cyprus Amax merger. Even if the Minimum Tender Condition is satisfied and the offer is consummated, we reserve the right to effect the Phelps Dodge/Cyprus Amax merger pursuant to Section 251 of the DGCL. Assuming the Cyprus Amax shares remain listed on a national securities exchange or are then quoted through NASDAQ or held of record by more than 2,000 holders, the holders of Cyprus Amax shares will not have appraisal rights if the Phelps Dodge/Cyprus Amax merger is consummated pursuant to Section 251 of the DGCL. However, if the Phelps Dodge/Cyprus Amax merger is so consummated, and if, on the date fixed to determine stockholders entitled to vote on the Phelps Dodge/Cyprus Amax merger, the Cyprus Amax shares are not listed on a national securities exchange or quoted through NASDAQ or held of record by more than 2,000 holders, you may have appraisal rights pursuant to the provisions of Section 262 of the DGCL as described above. Rule 13e-3 of the General Rules and Regulations under the Exchange Act, which we do not believe would apply to the Phelps Dodge/Cyprus Amax merger if the Phelps Dodge/Cyprus Amax merger occurred within one year of consummation of our offer, would require, among other things, that some financial information concerning Cyprus Amax, and some information relating to the fairness of the proposed transaction and the consideration offered to stockholders of Cyprus Amax therein, be filed with the SEC and disclosed to you prior to consummation of the Phelps Dodge/Cyprus Amax merger. In addition, we reserve the right to acquire, following the consummation or termination of our offer, additional Cyprus Amax shares through open market purchases, privately negotiated transactions, a tender offer or exchange offer, or otherwise, upon such terms and at such prices as we decide, which may be more or less favorable than those of the offer. We and our affiliates also reserve the right to dispose of any or all Cyprus Amax shares acquired by us pursuant to the offer or otherwise, upon such terms and at such prices as we shall determine. It is our current intention that, following consummation of our offer, we would cause Cyprus Amax to redeem all 4,664,000 shares of its Series A Convertible Preferred Stock, which are redeemable at Cyprus 53 62 Amax's option. Any final decision as to whether to redeem those shares will be made in light of circumstances existing at that time. Upon consummation of our offer, we intend to take appropriate actions to optimize and rationalize the combined entities' assets, operations, exploration activities, management, personnel general and administrative functions and corporate structure. Except as we have otherwise discussed elsewhere in this prospectus, we do not have any plans or proposals right now that would result in an extraordinary corporate transaction, such as a merger, reorganization or liquidation, or sale of a material amount of assets, involving Cyprus Amax or any of its subsidiaries, or any material changes in Cyprus Amax's corporate structure or business, or any change in its management. We have not had access to Cyprus Amax's books and records, however, so we might decide upon such changes once we complete such a review. As described under the caption entitled "Reasons for the Proposed Combination," upon consummation of the Phelps Dodge/Cyprus Amax merger, we expect to realize substantial cost savings in both administrative and operational areas. Upon consummation of our offer, we may also elect or seek the election of nominees of our choice to Cyprus Amax's Board of Directors. CONDITIONS OF OUR OFFER Our offer is subject to a number of conditions, which are described below: MINIMUM TENDER CONDITION There must be validly tendered, prior to the expiration of the offer and not withdrawn, a number of Cyprus Amax shares which will constitute at least a majority of the total number of outstanding Cyprus Amax shares on a fully diluted basis (as though all options or other securities convertible into or exercisable or exchangeable for Cyprus Amax shares had been so converted, exercised or exchanged) as of the date that we accept the Cyprus Amax shares for exchange pursuant to our offer. PHELPS DODGE STOCKHOLDER APPROVAL CONDITION Pursuant to the rules of the NYSE (on which our common stock is listed), the issuance of our common stock pursuant to the offer and the Phelps Dodge/Cyprus Amax merger must be approved by the holders of a majority of the shares voted at a meeting of such holders at which the total number of votes cast represents over 50% in interest of all shares of our common stock entitled to vote on the proposal, because the number of shares of our common stock to be issued will be equal to or in excess of 20% of the shares outstanding prior to such issuance. We will seek this approval at a special stockholders meeting scheduled to be held on October 13, 1999. OTHER CONDITIONS OF OUR OFFER Notwithstanding any other provision of our offer, we shall not be required to accept for exchange or exchange any Cyprus Amax shares, may postpone the acceptance for exchange of or exchange for tendered Cyprus Amax shares, and may (subject to our merger agreement with Cyprus Amax), in our sole discretion, terminate or amend the offer as to any Cyprus Amax shares not then exchanged (a) if at the expiration date, either the Minimum Tender Condition or the Phelps Dodge Stockholder Approval has not been satisfied or, with respect to the Minimum Tender Condition, waived, or (b) if on or after the date of this prospectus and at or prior to the expiration date, any of our other conditions are not satisfied. Those conditions are as follows: (a) The shares of our common stock which shall be issued to Cyprus Amax stockholders in the offer and the Phelps Dodge/Cyprus Amax merger have been authorized for listing on the NYSE, subject to official notice of issuance; (b) The Registration Statement and any post-effective amendments thereto shall be effective under the Securities Act, and no stop order suspending the effectiveness of the Registration Statement shall have been issued nor shall there have been proceedings for that purpose initiated or threatened by the SEC and we shall have received all necessary state securities law or "blue sky" authorizations; 54 63 (c) No temporary restraining order, preliminary or permanent injunction or other order or decree issued by any court or agency of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the offer or any of the other transactions contemplated by this prospectus shall be in effect; no statute, rule, regulation, order, injunction or decree shall have been enacted, entered, promulgated or enforced by any court, administrative agency or commission or other governmental authority or instrumentality which prohibits, or makes illegal the consummation of our offer; nor shall there have been a failure to obtain any required consent or approval under foreign laws or regulations which would prohibit the consummation of the offer or would have a material adverse effect on us or on Cyprus Amax; (d) There shall not have been after the date of the Phelps Dodge/Cyprus Amax merger agreement any (i) amendment of the Code, (ii) amendment or adoption of final or temporary Treasury Regulations under the Code, (iii) Internal Revenue Service revenue ruling, revenue procedures, technical advice memorandum or notices, or (iv) final decision of a court of competent jurisdiction, in each case that would be inconsistent with the Phelps Dodge/Cyprus Amax merger qualifying as a reorganization under Section 368(a) of the Code; and (e) The representations and warranties of Cyprus Amax in the Phelps Dodge/Cyprus Amax merger agreement shall be true and correct (without giving effect to any qualification as to "materiality" or "Material Adverse Effect" set forth therein) as of the date of this prospectus and as of the expiration date as though made on and as of the date of this prospectus and the expiration date except where the failure of such representations and warranties to be so true and correct would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect (as defined therein) on Cyprus Amax; and Cyprus Amax shall have performed or complied in all material respects with all the material agreements and covenants required by the Phelps Dodge/Cyprus Amax merger agreement. The foregoing conditions are solely for our benefit and we may assert them regardless of the circumstances giving rise to any such conditions (including any action or inaction by us). We may waive these conditions in whole or in part (other than the Phelps Dodge Stockholder Approval Condition and the condition relating to effectiveness of the Registration Statement). The determination as to whether any condition has been satisfied shall be in our judgment and will be final and binding on all parties. The failure by us at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed a continuing right which may be asserted at any time and from time to time. Notwithstanding the fact that we reserve the right to assert the failure of a condition following acceptance for exchange but prior to exchange in order to delay exchange or cancel its obligation to exchange properly tendered Cyprus Amax shares, we will either promptly exchange such Cyprus Amax shares or promptly return such Cyprus Amax shares. SOURCE AND AMOUNT OF FUNDS We estimate that the total amount of funds required pursuant to our offer to pay the cash consideration in connection with the exchange of all Cyprus Amax and Asarco shares outstanding will be approximately $1,049 million. We expect to obtain these funds from cash on hand and from borrowing under our amended and restated revolving credit facility with The Chase Manhattan Bank, Bank of Nova Scotia, Bank of Tokyo-Mitsubishi Trust Co., Citibank, N.A., Morgan Guaranty Trust Co., Bank of America, Barclays Bank, Canadian Imperial Bank of Commerce, Deutsche Bank, First Union National Bank, Wells Fargo, Industrial Bank of Japan and Royal Bank of Canada & Mercantile Bank. Our revolving credit facility allows us to borrow up to $1 billion from time to time until its scheduled maturity on June 25, 2002. The agreement allows for two, one-year renewals beyond the scheduled maturity date if we request and receive approval from those lenders representing at least two-thirds of the commitments provided by the facility. In the event of such approval, total commitments under the facility would depend upon the willingness of other lenders to assume the commitments of those lenders electing not to participate in the renewal. Interest is payable at a fluctuating rate based on the agent bank's prime rate, or a fixed rate, based on the LIBOR, or at fixed rates offered independently by the several lenders, for maturities of between seven and 360 days. This agreement provides for a facility fee of six and one-half basis points (0.065 percent) on 55 64 total commitments. The agreement requires us to maintain a minimum consolidated tangible net worth of $1.1 billion and limits indebtedness to 50 percent of total consolidated capitalization. Although we have not made definitive plans for the repayment of borrowings under our revolving credit facility, we expect to repay the borrowings using internally generated funds, including, if the Phelps Dodge/Cyprus Amax merger is completed, those of Cyprus Amax. We may also use funds obtained from other sources, including future issuances of debt securities and/or bank refinancings. Our decision as to how to repay the borrowings will be based on our review of circumstances existing at that time, including prevailing interest rates, financial and other economic conditions and other factors that we consider appropriate. RELATIONSHIPS WITH CYPRUS AMAX Except as set forth herein, neither we nor, to the best of our knowledge, any of our directors, executive officers or other affiliates has any contract, arrangement, understanding or relationship with any other person with respect to any securities of Cyprus Amax, including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any such securities, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies. Except as described herein, there have been no contacts, negotiations or transactions since January 1, 1996, between us or, to the best of our knowledge, any of our directors, executive officers or other affiliates on the one hand, and Cyprus Amax or its affiliates, on the other hand, concerning a merger, consolidation or acquisition, a tender offer or other acquisition of securities, an election of directors, or a sale or other transfer of a material amount of assets. Except as set forth herein, neither we, nor, to the best of our knowledge, any of our directors, executive officers or other affiliates has since January 1, 1996 had any transaction with Cyprus Amax or any of its executive officers, directors or affiliates that would require disclosure under the rules and regulations of the SEC applicable to the offer. Shares of Apache Nitrogen Products, Inc. are held 49.2% by Phelps Dodge, and 11.42% by Cyprus Miami Corporation and 0.66% by Cyprus Mines Corporation, both subsidiaries of Cyprus Amax. Apache Nitrogen has contracts with several affiliates of Cyprus Amax, including the shareholders of Apache Nitrogen and Cyprus Sierrita Corporation, Cyprus Bagdad Copper Corporation, Cyprus Tohono Corporation and Cyprus Mineral Park Corporation, for the sale of ANFO, an explosive mixture. Sales to Phelps Dodge annually range from $16-17 million, and sales to Cyprus Amax annually range from $6-8 million. FEES AND EXPENSES We have retained Innisfree M&A Incorporated to act as the information agent in connection with our offer. The information agent may contact holders of Cyprus Amax shares by mail, telephone, telex, telegraph and personal interviews and may request brokers, dealers and other nominee stockholders to forward our offer materials to beneficial owners of Cyprus Amax shares. The information agent will be paid a customary fee for such services, plus reimbursement of out-of-pocket expenses, and we will indemnify the information agent against certain liabilities and expenses in connection with our offer, including liabilities under federal securities laws. Pursuant to a letter agreement dated August 16, 1999 (the "Letter Agreement"), Morgan Stanley & Co. Incorporated ("Morgan Stanley") is providing certain financial advisory services to Phelps Dodge in connection with our offer. Under the terms of the Letter Agreement, Phelps Dodge has agreed to pay Morgan Stanley for its financial advisory services, including its services as Dealer Manager, in connection with our offer a financial advisory fee of (i) $11.0 million per acquired company if Phelps Dodge acquires control, as defined in the Letter Agreement, of Asarco or Cyprus Amax, with certain amounts payable upon the announcement of defined events, and (ii) an additional $2.0 million if Phelps Dodge acquires either Asarco or Cyprus Amax within two years of acquiring the other. Phelps Dodge has also agreed to reimburse Morgan Stanley for its out-of-pocket expenses, including the fees and expenses of its legal counsel incurred in connection with this engagement, and has agreed to indemnify each of Morgan Stanley and certain related persons and entities against certain liabilities and expenses in connection with Morgan Stanley's engagement, including certain liabilities under federal securities laws. 56 65 In addition to the fees to be received by Morgan Stanley in connection with its engagement as financial advisor to Phelps Dodge, Morgan Stanley has in the past rendered various investment banking and financial advisory services for Phelps Dodge for which it has received customary compensation. We will not pay any fees or commissions to any broker, dealer or other persons (other than the dealer manager and the information agent) for soliciting tenders of Cyprus Amax shares pursuant to our offer. ACCOUNTING TREATMENT The merger of Cyprus Amax into Phelps Dodge would be accounted for under the purchase method of accounting under U.S. generally accepted accounting principles, which means that Cyprus Amax's results of operations will be included with ours from the closing date and its consolidated assets and liabilities will be recorded at their fair values at the same date. STOCK EXCHANGE LISTINGS Our common stock is listed on the NYSE, as well as on the Boston, Cincinnati, Philadelphia, Pacific and Chicago Stock Exchanges. We will make an application to list on the NYSE the common stock that we will issue pursuant to our offer and the subsequent Phelps Dodge/Cyprus Amax merger. As described above under "The Offer -- Conditions of Our Offer -- Phelps Dodge Stockholder Approval Condition," pursuant to the rules of the NYSE, the issuance of our common stock in the offer and the subsequent Phelps Dodge/Cyprus Amax merger must be approved by the holders of a majority of the Phelps Dodge common stock voting at a meeting at which the total number of votes cast represents over 50% in interest of all shares of our common stock entitled to vote on the proposal. REGULATORY MATTERS Under the HSR Act, and the rules that have been promulgated thereunder (the "Rules"), some acquisitions may not be consummated unless information has been furnished to the Antitrust Division of the Department of Justice (the "Antitrust Division") and the Federal Trade Commission (the "FTC") and some waiting period requirements have been satisfied. The acquisition of Cyprus Amax shares pursuant to our offer is subject to the HSR Act. On September 10, 1999 we filed with the Antitrust Division and the FTC Hart-Scott-Rodino Notification and Report Forms with respect to our offers. On September 24, 1999, the FTC granted Phelps Dodge early termination of the waiting period under the HSR Act for Phelps Dodge's offers to acquire Asarco and Cyprus Amax. Federal and state antitrust enforcement agencies frequently scrutinize under the antitrust laws transactions such as our acquisition of Cyprus Amax shares pursuant to our offer. At any time before or after we acquire Cyprus Amax shares, any such agency could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the acquisition of Cyprus Amax shares pursuant to the offer or otherwise or seeking divestiture of Cyprus Amax shares acquired by us or divestiture of assets of Phelps Dodge and/or Cyprus Amax. Private parties may also bring legal action under the antitrust laws under some circumstances. On September 20, 1999, Asarco initiated such an action against Phelps Dodge, which is discussed above under " -- Litigation." Phelps Dodge, Asarco and Cyprus Amax conduct operations in a number of jurisdictions where other regulatory filings or approvals may be required or advisable in connection with the completion of our offer. See "-- Other Conditions of Our Offer." Some large Cyprus Amax stockholders (those that would receive more than $15 million in Phelps Dodge shares or, in certain cases, more than 10% of Phelps Dodge's shares) may be required to make separate filings with the FTC and Antitrust Division under the HSR Act and the Rules in conjunction with the receipt of shares of our common stock. If you must make such a filing, you will then be required to observe applicable waiting periods under the HSR Act and the Rules before receiving shares of Phelps Dodge common stock. If you are obligated to make such a filing, we will hold in escrow the shares of our common stock to be exchanged, pursuant to the Rules, pending expiration or early termination of the waiting period. 57 66 THE COMPANIES PHELPS DODGE CORPORATION Phelps Dodge Corporation is among the world's largest producers of copper, carbon black and magnet wire, and is the world's largest producer of continuous-cast copper rod. Phelps Dodge comprises two divisions: (i) Phelps Dodge Mining Company and (ii) Phelps Dodge Industries. - Phelps Dodge Mining Company is a business segment that includes our worldwide copper operations from mining through rod production, marketing and sales, other mining operations and investments, and worldwide mineral exploration and development programs. - Phelps Dodge Industries includes our specialty chemicals segment, our wire and cable segment, and, until they were sold in 1998, our wheel and rim operations. In 1998, Phelps Dodge Mining Company produced 874,000 tons of copper for our account from worldwide mining operations, and an additional 178,700 tons of copper for the accounts of our minority interest partners. Gold, silver, molybdenum, copper chemicals and sulfuric acid are by-products of our copper operations. Production of copper for our own account from our U.S. operations constituted approximately 33 percent of the copper mined in the United States in 1998. Much of our U.S. cathode copper production, together with additional copper purchased from others, is used to produce continuous-cast copper rod, the basic feed for the electrical wire and cable industry. Our international mining interests include Candelaria, a major copper mine in Chile, and other operations and investments in Chile and Peru. These operations produce a variety of metals and minerals including copper, gold, silver, and zinc. We also explore for metals and minerals throughout the world. In addition to our mining interests, we produce engineered products principally for the global energy, telecommunications, transportation and specialty chemicals sectors through Phelps Dodge Industries. Specialty chemicals are produced at Columbian Chemicals Company which is among the world's largest producers of carbon black. Carbon black is a reinforcing agent in natural and synthetic rubber that increases the service life of tires, hoses, belting and other products for the rubber industry. We also produce specialty carbon black for other industrial applications such as pigments for printing, coatings, plastics and other non-rubber applications. Our wire and cable segment comprises Phelps Dodge Magnet Wire Company and its subsidiaries and Phelps Dodge International Corporation and its affiliates. This segment produces wire and cable products and specialty conductors at U.S. and international operations. Phelps Dodge Magnet Wire Company produces magnet wire and other copper products for sale principally to original equipment manufacturers for use in electrical motors, generators, transformers and other products. Phelps Dodge International Corporation manufactures telecommunication and energy cables and specialty conductors. Our company employed 13,193 people on June 30, 1999. We have our principal executive offices at 2600 North Central Avenue, Phoenix, Arizona 85004-3014 (telephone number (602) 234-8100). ASARCO INCORPORATED Asarco, a New Jersey corporation organized in 1899, is one of the world's leading producers of copper. Asarco also produces specialty chemicals and aggregates. Asarco's copper business includes integrated mining, smelting and refining operations in North America and in Peru through its 54.3% owned subsidiary, Southern Peru Copper Corporation. Enthone-OMI, Inc., a wholly owned subsidiary, operates a worldwide specialty chemicals business focused on functional and decorative coatings for the electronics and metal finishing industries. American Limestone Company, a wholly owned subsidiary, produces construction aggregates, ready-mixed concrete and agricultural limestone. Asarco also operates a custom lead smelting business, a silver mining business, a zinc mining business and a specialty metals business. Asarco owns Encycle, Inc., 58 67 which operates a waste recycling facility and Hydrometrics, an environmental consulting and construction firm. As of June 30, 1999, Asarco and its subsidiaries employed approximately 10,100 employees. Asarco has its principal executive offices at 180 Maiden Lane, New York, New York 10038 (telephone number (212) 510-2000). CYPRUS AMAX MINERALS COMPANY Cyprus Amax, a Delaware corporation organized in 1969, is a major mining company engaged, directly or through its subsidiaries and affiliates, in the exploration for and extraction, processing, and marketing of mineral resources. Cyprus Amax is a leading copper producer, the world's largest producer of molybdenum, and has a significant position in gold via its 30% interest in Kinross Gold Corporation. Cyprus Amax sold certain eastern and midwestern coal operations in June of 1998 and sold its lithium business in October of 1998. Cyprus Amax sold its remaining U.S. coal operations in June of 1999. Cyprus Amax still holds its Australian coal properties. As of June 30, 1999, Cyprus Amax and its subsidiaries employed approximately 4,600 employees. Cyprus Amax has its principal executive offices at 9100 East Mineral Circle, Englewood, Colorado 80112 (telephone number (212) 643-500). THE PHELPS DODGE/CYPRUS AMAX MERGER AGREEMENT We believe this summary describes the material terms of the merger agreement. However, we recommend that you read carefully the complete agreement for the precise legal terms of the merger agreement and other information that may be important to you. THE OFFER Conditions. Our obligation to complete the offer is subject to the following conditions: - a majority of the outstanding shares of Cyprus Amax shall have been tendered and not withdrawn (the "Minimum Condition"); - the approval by our stockholders of the issuance of our common stock in the offer and the merger; - such shares of our common stock shall have been authorized for listing on the NYSE, subject to official notice of issuance; - the effectiveness of the registration statement for such common stock; - no legal restraint such as an injunction shall be in effect that would prevent consummation of the offer; - no change in tax law that would be inconsistent with the merger qualifying as a reorganization under Section 368(a) of the Code; - accuracy of representations and warranties of Cyprus Amax, unless failure to be accurate would not reasonably be expected to have a material adverse effect on Cyprus Amax; and - compliance by Cyprus Amax in all material respects with material agreements and covenants in the merger agreement. We have agreed that, without the prior written consent of Cyprus Amax, no change may be made to the Minimum Condition or which decreases the price per share of Cyprus Amax common stock payable in the offer, which changes the form of consideration payable in the offer, which reduces the maximum number of shares of Cyprus Amax common stock to be acquired in the offer, which imposes conditions to the offer in addition to those set forth in the merger agreement, or which amends any other term of the offer in any manner adverse to the holders of the Cyprus common stock. Without the prior written consent of Cyprus, we will not waive the Minimum Condition if, as a result, SubC (as defined below) would acquire less than a majority of the Cyprus Amax common stock outstanding. 59 68 Consideration and Election Procedure. The merger agreement provides for the consideration that we will pay in the offer, including the election and proration procedures. For a description of those matters, refer to the discussion under "The Offer," including under the caption "-- Description of Election and Proration Procedures." Expiration or Termination of Amended Offer. We have agreed that, without the prior written consent of Cyprus Amax, we shall not terminate or withdraw the offer or extend the expiration date of the offer unless at the expiration date of the offer the conditions to the offer shall not have been satisfied or earlier waived. If, at the expiration date of the offer, the conditions to the offer shall not have been satisfied or earlier waived but there is a reasonable possibility that such conditions may be satisfied prior to March 31, 2000, we shall extend the expiration date of the offer for an additional period or periods of time, each of which being no longer than five business days, until, the date such conditions are satisfied or earlier waived and we become obligated to accept for payment and pay for shares of Cyprus Amax common stock tendered pursuant to the offer; provided, however, that if the condition to the offer relating to a material breach by Cyprus Amax has not been satisfied at the expiration date and we have given notice of the breach that has caused such condition not to be satisfied, we shall have no further obligation to extend the expiration date of the offer if such breach has not been cured within 30 days of such notice. FORM OF MERGER If all the conditions to the merger are satisfied or waived in accordance with the merger agreement, CAV Corporation ("SubC"), a wholly owned subsidiary of Phelps Dodge, will merge with Cyprus Amax, with SubC surviving (the "Surviving Corporation"). As a result of the merger, the identity and separate existence of Cyprus Amax shall cease. The merger will become effective when the applicable certificate of merger is filed with the Secretary of State of the State of Delaware. It is currently anticipated that the merger will become effective during the fourth quarter of 1999. CONSIDERATION TO BE RECEIVED IN THE MERGER At the time the merger becomes effective, Conversion of Cyprus Amax Common Stock. Subject to no fractional shares being issued, each issued and outstanding share of Cyprus Amax common stock (other than shares to be canceled in accordance with the merger agreement) shall be converted into the Cyprus Stock Consideration, the Cyprus Cash Consideration or a combination thereof, determined pursuant to provisions of the merger agreement (such consideration is referred to herein as the "Merger Consideration"). If there is an excess of cash elections with respect to the offer, each outstanding share of Cyprus Amax common stock will be converted in the merger into the right to receive 0.3500 Phelps Dodge common shares (the "Cyprus Amax Stock Consideration"). If there is an excess of stock elections with respect to the offer, each outstanding share of Cyprus Amax common stock will be converted in the merger into the right to receive $20.54 net in cash, without interest (the "Cyprus Amax Cash Consideration"). If there is not an excess of cash or stock elections, each outstanding share of Cyprus Amax common stock will be converted in the merger into (i) an amount of cash equal to the Cyprus Amax Merger Cash Amount (as hereinafter defined), without interest, and (ii) a number of shares of Phelps Dodge common stock equal to the Cyprus Amax Merger Stock Amount (as hereinafter defined). The Cyprus Amax Merger Cash Amount and the Cyprus Amax Merger Stock Amount will be determined as follows: 1. The aggregate amount of Cyprus Amax Cash Consideration actually paid in the Offer will be subtracted from the Total Cyprus Amax Available Cash (as hereinafter defined) to determine the amount of cash available to be paid in the merger (the "Aggregate Cyprus Amax Merger Cash Consideration"). "Total Cyprus Amax Available Cash" equals (i) the number of shares of Cyprus Amax common stock exchanged in the offer plus the number of shares of Cyprus Amax common stock to be converted in the Cyprus Amax Merger, multiplied by (ii) $7.61176875. 2. The Aggregate Cyprus Amax Merger Cash Consideration will be divided by the number of shares of Cyprus Amax common stock to be converted in the merger, to determine the amount of cash 60 69 consideration to be paid in respect of each such share of Cyprus Amax common stock in the merger (the "Cyprus Amax Merger Cash Amount"). 3. The aggregate number of shares of Phelps Dodge common stock actually issued as Cyprus Amax Stock Consideration in the offer will be subtracted from the Total Cyprus Amax Available Stock (as hereinafter defined) to determine the number of shares of Phelps Dodge common stock available to be paid in the merger (the "Aggregate Cyprus Amax Merger Stock Consideration"). "Total Cyprus Amax Available Stock" equals (i) the number of shares of Cyprus Amax common stock exchanged in the offer plus the number of shares of Cyprus Amax common stock to be converted in the merger, multiplied by (ii) 0.2203. 4. The Aggregate Cyprus Amax Merger Stock Consideration will be divided by the number of shares of Cyprus Amax common stock to be converted in the merger, to determine the number of shares of Phelps Dodge common stock to be issued in respect of each such share of Cyprus Amax common stock in the merger (the "Cyprus Amax Merger Stock Amount"). As of the effective time of the merger, all such shares of Cyprus Amax common stock shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate or certificates which immediately prior to the effective time represented outstanding shares of Cyprus Amax common stock shall cease to have any rights with respect thereto, except the right to receive (x) if the Merger Consideration includes Phelps Dodge common stock, (i) Phelps Dodge certificates, (ii) certain dividends and other distributions in accordance with the merger agreement, and (iii) cash instead of fractional shares of Phelps Dodge common stock in accordance with the merger agreement, without interest, and (y) if the Merger Consideration includes cash, the appropriate cash amounts. Dissenting Shares. Shares of Cyprus Amax common stock that are outstanding immediately prior to the time the merger becomes effective and which are held by persons who have properly demanded appraisal for their shares in accordance with Section 262 of the Delaware General Corporation Law shall not be converted into the right to receive the Merger Consideration. Such persons shall be entitled to receive payment of the appraised value of such shares. EXCHANGE AGENT; PROCEDURES FOR EXCHANGE OF CERTIFICATES Exchange Agent. At the time the merger becomes effective, Phelps Dodge shall enter into an agreement with a bank or trust company that is reasonably satisfactory to Cyprus Amax, with which Phelps Dodge shall deposit cash and certificates representing the number of whole shares of Phelps Dodge common stock issuable pursuant to the merger agreement in exchange for outstanding shares of Cyprus Amax common stock. Soon after the completion of the merger, we will send a letter to each person who was a Cyprus Amax stockholder at the time the merger became effective. The letter will contain instructions on how to surrender Cyprus Amax stock certificates to the exchange agent and receive shares of Phelps Dodge and cash. See "-- Consideration to be Received in the Merger." Dividends. Holders of Cyprus Amax common stock will not be entitled to receive any dividends or other distributions payable by Phelps Dodge until they exchange their Cyprus Amax stock certificates for certificates representing shares of Phelps Dodge common stock. Once they deliver their Cyprus Amax stock certificates to the exchange agent, those stockholders will receive, subject to applicable laws, accumulated dividends and distributions, without interest. Fractional Shares. No fractional shares of Phelps Dodge common stock will be issued upon the surrender of certificates representing shares of Cyprus Amax common stock. No dividend or other distribution of Phelps Dodge will relate to any such fractional shares and no such fractional shares will entitle the owner thereof to any voting or other rights of a stockholder of Phelps Dodge. Holders of Cyprus Amax common stock otherwise entitled to fractional shares of Phelps Dodge common stock will receive a cash payment instead of such fractional shares. Following the effective time, the exchange agent will determine the excess of the number of whole shares of Phelps Dodge common stock delivered to the 61 70 exchange agent by Phelps Dodge for distribution to Cyprus Amax stockholders over the aggregate number of whole shares of Phelps Dodge common stock to be distributed to Cyprus Amax stockholders. The exchange agent will then, on behalf of the former stockholders of Cyprus Amax, sell the excess shares at then prevailing prices on the New York Stock Exchange, all in the manner provided in the merger agreement. As soon as practicable after the determination of the amount of cash to be paid to holders of Cyprus Amax common stock with respect to any fractional share interests, the exchange agent will make available such amounts to such holders of Cyprus Amax stock subject to and in accordance with the terms of the merger agreement. SURVIVING CORPORATION FOLLOWING THE MERGER Name of Surviving Corporation. The name of the Surviving Corporation from and after the effective time of the merger (the "effective time") shall be "Cyprus Amax Minerals Company" until changed or amended in accordance with applicable Law. Charter Documents. At the effective time, the certificate of incorporation and the bylaws of SubC, as in effect immediately prior to the effective time, shall be the certificate of incorporation and bylaws, respectively, of the Surviving Corporation. Directors and Officers. The directors of SubC at the effective time shall be the directors of the Surviving Corporation until their respective successors are duly elected and qualified, as the case may be. The officers of SubC at the effective time shall be the officers of the Surviving Corporation until their respective successors are duly appointed. REPRESENTATIONS AND WARRANTIES IN THE MERGER AGREEMENT In the merger agreement both parties make representations and warranties to each other about their companies with respect to, among other things: - their organization, existence, good standing, corporate power, subsidiaries and similar corporate matters; - their capitalization; - their authorization, execution, delivery and performance and the enforceability of the merger agreement and related matters; - the recommendation by their boards of directors to their shareholders of the merger agreement and the transactions contemplated thereby; - the absence of conflicts, defaults or violations under their certificates of incorporation and bylaws, certain other agreements and laws as a result of the contemplated transactions, and related matters; - filings with the SEC and the accuracy and completeness of the information contained in such filings; - environmental matters; - employee benefit matters; - this prospectus, the Phelps Dodge proxy statement, the registration statement and other SEC filings and the accuracy of the information contained therein; - the inapplicability of the Cyprus Amax shareholder rights plan to the merger; - tax matters; - the receipt of fairness opinions from our financial advisors; - required stockholder approvals with respect to the contemplated transactions; - the absence of certain material changes in our businesses since December 31, 1998; 62 71 - the absence of undisclosed material liabilities; - labor relations; and - no prior activities conducted by SubC. All representations and warranties of Phelps Dodge and Cyprus Amax expire at the time the merger becomes effective. COVENANTS IN THE MERGER AGREEMENT The merger agreement provides that, until the merger has been completed, neither of us will take certain actions without the consent of the other party or as otherwise permitted by the merger agreement. More specifically, we have agreed to the following with respect to ourselves and, where applicable, our subsidiaries, except as otherwise permitted by the merger agreement: - Conduct of Operations. We will conduct our business operations according to their ordinary and usual course of business in substantially the same manner as conducted prior to the merger agreement. - Preserve Organizations. We will use our reasonable best efforts to preserve intact our business organizations and goodwill, keep available the services of our current officers and other key employees, and preserve our business relationships. - Parties to Confer. We will confer with each other and report on material operational matters and the general status of ongoing operations. - Notice of Certain Events. We will notify each other of certain changes or events which would have a material adverse effect on Phelps Dodge or Cyprus Amax, as the case may be. - Dividends and Reclassifications. We will not declare or pay any dividends on or make any distribution with respect to our outstanding shares of stock other than regular quarterly dividends on, in the case of Phelps Dodge, its common stock, and, in the case of Cyprus Amax, its common stock and preferred stock, and we will not split, combine or reclassify any shares of our capital stock. - Amendments to Plans. We will not enter into or amend our employee benefit plans or employment agreements, except in the ordinary course of business consistent with past practice, as otherwise provided in the merger agreement or as required by law. - Business Combinations; Assets. We will not enter into any business combinations, acquisitions or dispositions of material amounts of assets or securities, or release any material contract rights, in each case not in the ordinary course of business. - Governing Documents. We will not propose or adopt any amendments to our corporate charters or by-laws. - Issuance of Capital Stock. We will not issue or authorize the issuance of any shares of our capital stock of any class, except that each of us is permitted to issue shares of our common stock upon the exercise of stock options or other rights outstanding on the date of the merger agreement and in accordance with the terms of such options or other rights in effect on the date of the merger agreement. - Repurchase of Stock. We will not purchase or redeem any shares of our stock or any rights, warrants or options to acquire any such shares, except in the ordinary course of business in connection with employee incentive and benefit plans or arrangements in existence on the date of the merger agreement. - Indebtedness. We will not incur, assume or prepay any indebtedness or other material liabilities, other than indebtedness with a wholly owned subsidiary or between wholly owned subsidiaries. - Properties and Assets. We will not sell, lease, mortgage or otherwise encumber or subject to any lien or otherwise dispose of any of our properties or assets (including securitizations), other than in the ordinary course of business consistent with past practice. 63 72 - Tax Treatment. We will not take any actions that would reasonably be expected to cause the merger not to constitute transactions described in Section 368(a) of the Internal Revenue Code. - Tax Election. We will not make any material tax election or settle or compromise any material tax liability, other than in the ordinary course of business consistent with past practice. Cyprus Amax may make an election under Section 338(h)(10) of the tax code relating to the completed sale of Cyprus Amax Coal Company. - Agree to Take Actions. We agree not to take any of the foregoing actions or take any action which would: - make any of our representations or warranties contained in the merger agreement untrue or incorrect, or - result in any of the conditions to the merger set forth in the merger agreement not being satisfied. - Investigation. We have agreed that, subject to applicable laws or regulations, prior to the time the merger becomes effective we will afford one another's authorized representatives full and complete access to our properties, books, contracts, commitments and records and any document filed or received by us pursuant to applicable securities laws. Also, we will each use our reasonable best efforts to cause our representatives to furnish promptly to one another any additional information about our respective businesses and properties as the other or its duly authorized representatives may reasonably request. However, neither of us will be required to disclose information to the other that would cause significant competitive harm to the disclosing party or its affiliates if the merger is not completed. All confidential information obtained by Phelps Dodge or Cyprus Amax will be kept confidential. Confidential information will be used only in connection with consummating the transactions contemplated by the merger agreement. STOCKHOLDER APPROVALS AND OTHER COOPERATION We have agreed that we will together: - prepare and file with the SEC, as soon as is reasonably practicable, an information statement to be sent to Cyprus Amex after the offer; - use our reasonable best efforts to have the information statement cleared by the SEC; - amend as necessary the registration statement of which this prospectus is a part; - as soon as is reasonably practicable, take all actions required under state blue sky or securities laws in connection with the issuance of shares of Phelps Dodge common stock in the merger; - promptly prepare and file stock exchange listing applications covering the shares of Phelps Dodge common stock issuable under the merger agreement and use our reasonable best efforts to obtain, prior to the time the merger becomes effective, approval for the listing of Phelps Dodge common stock, subject only to official notice of issuance; - cooperate with one another in order to lift any injunctions or remove any other impediment to the consummation of the contemplated transactions; and - cooperate with one another in obtaining opinions of Shearman & Sterling, special counsel to Phelps Dodge, and Wachtell, Lipton, Rosen & Katz, special counsel to Cyprus Amax, concerning certain tax matters. Each of us has also agreed: - that Cyprus Amax will cause the information statement to be mailed to its stockholders as promptly as practicable after it is cleared by the SEC; - as soon as practicable following the date of the merger agreement, to duly call and hold a meeting of our respective stockholders to obtain approval of the merger and the other contemplated transactions; 64 73 - subject to our ability to change our recommendation as described under "--No Solicitation of Alternative Takeover Proposals" below, through our boards of directors, to recommend to our respective stockholders that they approve the merger and the other contemplated transactions; - to use our best efforts to hold our stockholders meetings as soon as practicable after the date of the merger agreement; - that Phelps Dodge shall vote, or cause to be voted, all of the Cyprus Amax common stock then owned by it or any of its subsidiaries or over which it has direct or indirect voting authority in favor of the approval of the Phelps Dodge Merger and of the approval and adoption of the merger agreement; and - that after SubC has purchased shares of Cyprus Amax common stock through the offer, Phelps Dodge will be entitled to designate a number of directors on the Cyprus Amax Board that will give Phelps Dodge a percentage of representation on the Cyprus Amax Board equal to the percentage of shares of Cyprus Amax common stock that it then owns. - that the obligation of Phelps Dodge to obtain approvals under antitrust laws is unconditional and not qualified by best efforts. In addition, the merger agreement contains general covenants requiring each of us to take any further action necessary or desirable to carry out the purposes of the merger agreement and to use reasonable efforts to take all actions necessary, proper or advisable to consummate the contemplated transactions. These general requirements are limited so that neither of us will be required to undertake divestitures which would have material adverse effects on our companies. NO SOLICITATION OF ALTERNATIVE TAKEOVER PROPOSALS Cyprus Amax agreed that it will not, nor will it permit any of its subsidiaries to, authorize or permit any of their respective directors, officers, employees or any representative retained by Cyprus Amax or any of its subsidiaries to, directly or indirectly through another person: - solicit, initiate or encourage (whether by furnishing information or otherwise), or take any other action designed to facilitate, any inquiries or the making of any proposal which constitutes or reasonably could be expected to lead to any Takeover Proposal (as defined below), or - participate in any discussions or negotiations regarding any Takeover Proposal. A "Takeover Proposal" means, other than the transactions contemplated by the merger agreement, - any inquiry, proposal or offer, or any improvement, restatement, amendment, renewal or reiteration of any such inquiry, proposal or offer, from any person relating to any direct or indirect acquisition of a business or equity securities of a Cyprus Amax or any of its subsidiaries, - any tender offer or exchange offer that if consummated would result in any person beneficially owning any class of equity securities of Cyprus Amax or any of its subsidiaries or - any merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving Cyprus Amax or any of its subsidiaries, Except as provided in the next two paragraphs, neither the board of directors of Cyprus Amax nor any committee of such board will do any of the following: - withdraw or modify, or propose publicly to withdraw or modify, in a manner adverse to the other party, the approval or recommendation by the board of director or any committee, of the merger or the merger agreement, - approve or recommend, or propose publicly to approve or recommend, any Takeover Proposal, or - cause Cyprus Amax to enter into any letter of intent, agreement in principle, acquisition agreement or other similar agreement related to any Takeover Proposal. 65 74 However, if the board of directors of Cyprus Amax receives a Takeover Proposal and the board of directors of Cyprus Amax determines in good faith, after consultation with outside counsel and its financial advisor that such Takeover Proposal is reasonably capable of being completed, taking into account all legal, financial, regulatory and other aspects of the proposal and would, if consummated, result in a transaction more favorable to Cyprus Amax shareholders than the transaction contemplated by the merger agreement, the board of directors of Cyprus Amax may (x) take any of the actions described above or (y) terminate the merger agreement (and concurrently with or after such termination, if it so chooses, cause Cyprus Amax to enter into any acquisition agreement with respect to any Takeover Proposal) but only after the fifth business day following Phelps Dodge's receipt of written notice advising Phelps Dodge that the board of directors of Cyprus Amax is prepared to accept a Takeover Proposal, specifying the material terms and conditions of such Takeover Proposal and identifying the person making such Takeover Proposal. Notwithstanding any subsequent determination by the Board of Directors of Cyprus Amax to change such recommendation, the merger agreement shall be submitted to the stockholders of Cyprus Amax at the Cyprus Amax stockholder meeting for the purpose of obtaining the Cyprus Amax stockholder approval and nothing contained in the merger agreement shall be deemed to relieve Cyprus Amax of such obligation. The merger agreement does not prohibit us - from taking and disclosing to our respective shareholders a position with respect to a tender offer required by law, or - from making any disclosure to our respective shareholders if, in the good faith judgment of the board of directors, after consultation with outside counsel, failure to disclose would be inconsistent with its obligations under applicable law. Each of us has agreed to notify promptly the other party orally and in writing of any request for information or of any Takeover Proposal, the material terms and conditions of such request or proposal and the identity of the person making such request or proposal, and will keep the other party reasonably informed of the status and details of any such request or proposal. STOCK OPTIONS AND OTHER STOCK-BASED AWARDS Simultaneously with the merger, each outstanding option to purchase Cyprus Amax common stock and related stock appreciation right (SAR), if any, will be converted into an option (together with an SAR, if applicable) to acquire the number of shares of Phelps Dodge common stock equal to the number of shares of Cyprus Amax common stock which could have been obtained upon the exercise of the option immediately prior to the time the merger becomes effective multiplied by the Cyprus Amax Stock Consideration. In the case of an option to purchase Cyprus Amax common stock, the exercise price per share of Phelps Dodge common stock will be adjusted to equal the exercise price for such option as in effect immediately prior to the time the merger becomes effective divided by the Cyprus Amax Stock Consideration. Phelps Dodge will assume the obligations of Cyprus Amax with respect to such options. Phelps Dodge will assume the obligations of Cyprus Amax under their respective option plans and, except as described above, the terms of such options (and SARs) shall continue to apply in accordance with the terms of the plans and agreements under which they were issued, including any provisions for acceleration. Simultaneously with the merger, each outstanding award (including restricted stock, performance units, shares units and performance shares) under any employee incentive or benefit plan or arrangement and non-employee director plan presently maintained by Cyprus Amax will be converted into a similar instrument of Phelps Dodge, with appropriate adjustments to preserve the inherent value of the awards with no detrimental effects on the holders. The other terms of each award will continue to apply, including any provisions which the restrictions will have lapsed on or prior to the time the merger becomes effective, shares of such previously restricted stock will be converted in accordance with the conversion provisions applicable to other shares of common stock. 66 75 Following the completion of the business combination, Phelps Dodge will reserve for issuance and delivery a sufficient number of shares of Phelps Dodge common stock upon the exercise of any Cyprus Amax stock options. BENEFITS MATTERS It is the intention of the parties that for a period of one year following the completion of the business combination, Phelps Dodge will maintain the employee benefit plans of Cyprus Amax generally in accordance with its terms in effect at the completion of the business combination, with only amendments that are required by applicable law or permitted by the terms of that agreement, and which do not adversely affect the rights of participants under such agreement. In addition, following the completion of the business combination, Phelps Dodge will guarantee the performance of certain existing employment agreements and benefit plans of Cyprus Amax. Phelps Dodge has also agreed that it will - waive any limitations regarding pre-existing conditions and eligibility waiting periods under any welfare or employee benefit plan maintained by Cyprus Amax following the completion of the business combination; - provide employees of Cyprus Amax with credit for any co-payments and deductibles paid in the calendar year prior to the completion of the business combination; and - generally, treat all service by employees of Cyprus Amax prior to the completion of the business combination as service with Phelps Dodge under all compensation and benefit plans and policies of Cyprus Amax. INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE Phelps Dodge has agreed that all exculpation and indemnification provisions now existing in favor of the current or former directors or officers of Cyprus Amax as provided in its charter or bylaws or in any agreement will survive the business combination. Phelps Dodge has agreed that, for six years from the time the business combination becomes effective, it will indemnify such indemnified parties to the same extent as they were entitled while working on behalf of Cyprus Amax. Phelps Dodge has also agreed that, for three years from the time the business combination becomes effective, it will maintain in effect Cyprus Amax's current directors' and officers' liability insurance policies for those persons who are currently covered by the policies. However, Phelps Dodge will not be required to expend in any one year more than 150% of the annual premiums currently paid by Cyprus Amax. If the annual premiums of such insurance coverage exceed the 150% limit, Phelps Dodge only will be obligated to obtain a policy with the greatest coverage available for a cost not exceeding the limit. Phelps Dodge is entitled to meet its obligations under this paragraph by covering the relevant persons under its own insurance policies. LITIGATION Prior to the effective time of the merger, each of the parties will terminate all litigation commenced against the other in connection with the business combination and the Phelps Dodge exchange offer for Cyprus Amax shares. Each party will also use its reasonable best efforts to have lawsuits commenced by third parties in connection with those transactions to be dismissed with prejudice. CONDITIONS PRECEDENT TO THE MERGER The merger agreement contains certain conditions to both parties, obligations to complete the merger. Neither party will be obligated to complete the business combination unless at or prior to the time the business combination becomes effective: - Stockholder Approval. The approval of the stockholders of Phelps Dodge and Cyprus Amax have been obtained in accordance with applicable law. 67 76 - Legality. No statute, rule, regulation, executive order, decree, ruling or injunction by any tribunal or governmental authority prohibits the consummation of the merger substantially on the terms contemplated by the merger agreement. - SubC shall have accepted for exchange all shares of Cyprus Amax common stock validly tendered and not withdrawn pursuant to the offer; provided, however, that this condition shall not be applicable to the obligations of SubC if, in breach of the merger agreement, SubC fails to accept for exchange and exchange any such shares validly tendered and not withdrawn pursuant to such offer. TERMINATION The merger agreement may be terminated at any time prior to the time the merger becomes effective, in any of the following circumstances: - by our mutual written consent; - by either of us if, without fault of either terminating party, the purchase of Cyprus Amax common stock pursuant to the offer has not occurred on or before March 31, 2000, which date can be extended by mutual written consent; - by either of us if the offer expires or is terminated or withdrawn without any Cyprus Amax common stock being purchased; or - by either of us if a court or governmental body has issued an order (other than a temporary restraining order) enjoining or prohibiting the purchase of Cyprus Amax common stock pursuant to the offer or the merger, if such order has become final and nonappealable, so long as the party seeking to terminate has used its reasonable best efforts to remove or lift such order; or a statute, rule, regulation, order, injunction or decree has been enacted, entered or promulgated which prohibits or makes illegal the consummation of the merger substantially on the terms contemplated by the merger agreement, and which order, injunction, or decree has become final and nonappealable; or there shall have been a failure to obtain any required consent or approval under foreign laws or regulations which would prohibit consummation of the offer or the merger or would have a material adverse effect on Phelps Dodge or Cyprus Amax; - by the Phelps Dodge board of directors, at any time prior to the purchase of any shares of Cyprus Amax common stock pursuant to the offer, if (i) the Board of Cyprus Amax or any committee thereof shall have withdrawn or modified in a manner which is adverse to Phelps Dodge its approval or recommendation of the offer or the merger agreement, (ii) the Cyprus Amax board shall have recommended another Takeover Proposal, (iii) there is a public disclosure of another Takeover Proposal and the Minimum Tender Condition is not satisfied, or (iv) the representations and warranties of Cyprus Amax are not correct as of the date of this prospectus and as of the expiration date of the offer as though made on and as of the date of this prospectus and the expiration date of the offer except where the failure of such representations and warranties to be so true and correct would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Cyprus; and Cyprus shall have performed or complied in all material respects with all the material agreements and covenants required by this Agreement and such condition is not satisfied within 30 days of notice; - by Cyprus Amax, at any time prior to the acceptance for payment shares of Cyprus Amax common stock under the offer if there is a material breach of any of Phelps Dodge's representations, warranties or covenants contained in the agreement which is not cured within 10 days of notice; and - by Cyprus Amax in accordance with the provisions described under the caption "-- No Solicitation of Alternative Takeover Proposals"; provided that Cyprus Amax shall have complied with all provision of such section and shall have paid the termination fee described below to Phelps Dodge. 68 77 CLOSING The closing of the Merger will take place within two business days after the later of the Phelps Dodge shareholder meeting and the Cyprus Amax shareholder meeting. TERMINATION FEES Cyprus Amax is liable to Phelps Dodge for a termination fee of $45 million if the merger agreement is terminated under certain circumstances. In general, the termination fee is payable by Cyprus Amax if: - prior to the date of the Cyprus Amax stockholder meeting a Takeover Proposal is made known to Cyprus Amax or is made directly to its stockholders generally or any person has publicly announced an intention (whether or not conditional) to make a Takeover Proposal and thereafter the merger agreement is terminated by either party pursuant to certain specified provisions of the merger agreement. However, no termination fee is payable unless within eighteen months of the termination, Cyprus Amax or any of its subsidiaries enters into an agreement for or consummates a transaction whereby a third party acquires twenty percent of any class of stock of Cyprus Amax and its subsidiaries, or a business that constitutes twenty percent or more of the revenues, net income or assets of the Cyprus Amax, or otherwise consummates a Takeover Proposal. The merger agreement also provides that if Cyprus Amax fails to pay any termination fee which is judged to be due, Cyprus must pay the costs and expenses of any action taken to collect payment, together with interest on the termination fee. In addition, in the event the merger agreement is terminated under certain circumstances, Phelps Dodge will reimburse Cyprus Amax for the termination fee that has been paid to Asarco Incorporated pursuant to an agreement and plan of merger between Cyprus Amax, Asarco Incorporated and other parties, dated as of July 15, 1999, or under the amendment to such merger agreement, dated September 27, 1999. There will be no reimbursement if the termination is a result of a breach by Cyprus Amax or if the termination is in connection with a Takeover Proposal for Cyprus Amax other than by Phelps Dodge. COSTS AND EXPENSES Each of us will pay our own costs and expenses in connection with the merger agreement and the contemplated transactions whether or not the merger is completed, except that we will equally share - the filing fee in connection with any HSR Act filing or any other required statutory approval; - the commissions and other out-of-pocket transaction costs, including the expenses and compensation of the exchange agent, incurred in connection with the sale of shares of Phelps Dodge common stock to generate cash to pay in lieu of fractional shares; - all transfer taxes. AMENDMENT At any time prior to the time the merger becomes effective, we may amend or supplement any of the terms of the merger agreement in writing by both of us, provided that, following the purchase of Cyprus Amax common stock pursuant to the offer, the merger agreement shall not be supplemented or amended unless such supplement or amendment is approved by a vote of the majority of "continuing directors" of Cyprus Amax, and provided further that following approval by our respective stockholders we may not amend or change any provision relating to the Merger Consideration or make any other change not permitted under applicable law without further approval by the Cyprus Amax stockholders. 69 78 WAIVER At any time prior to the effective time, the merger agreement permits either of us in writing to: - extend the time for the performance of any of the obligations or other acts of the other party; - waive any inaccuracies in the representations and warranties of the other party; and - waive compliance with any of the agreements or conditions of the other party contained in the merger agreement. 70 79 MARKET PRICES AND DIVIDENDS The Phelps Dodge common shares are listed and principally traded on the NYSE under the symbol "PD". The Asarco common shares are listed and principally traded on the NYSE under the symbol "AR". The Cyprus Amax common shares are listed and principally traded on the NYSE under the symbol "CYM". The following table sets forth, for the periods indicated, (1) the high and low last reported prices per Phelps Dodge share, Asarco share and Cyprus Amax share, in each case as reported on the New York Stock Exchange Composite Transaction Tape; and (2) the cash dividends per Phelps Dodge share, Asarco share and Cyprus Amax share.
PHELPS DODGE COMMON STOCK ASARCO COMMON STOCK ---------------------------------- ----------------------------------- HIGH LOW DIVIDEND HIGH LOW DIVIDEND ---- --- -------- ---- --- -------- 1997 First Quarter.............. $79 $68 $0.50 $32 1/2 $25 1/8 $0.20 Second Quarter............. 89 5/8 70 1/4 0.50 32 1/2 26 1/8 0.20 Third Quarter.............. 87 15/16 75 1/16 0.50 34 30 0.20 Fourth Quarter............. 79 13/16 59 7/8 0.50 31 7/8 21 3/4 0.20 1998 First Quarter.............. $69 1/4 $58 1/16 $0.50 $26 3/4 $20 1/2 $0.20 Second Quarter............. 71 3/4 56 1/8 0.50 27 13/16 21 3/8 0.20 Third Quarter.............. 62 9/16 43 7/8 0.50 24 15 7/16 0.20 Fourth Quarter............. 61 3/4 49 9/16 0.50 23 14 7/8 0.10 1999 First Quarter.............. $61 5/16 $41 7/8 $0.50 $18 3/8 $13 11/16 $0.05 Second Quarter............. 70 5/8 48 7/8 0.50 19 1/4 13 7/16 0.05 Third Quarter (through September 29)............ 66 3/4 54 9/16 0.50 27 7/16 17 1/2 0.05 CYPRUS AMAX COMMON STOCK ----------------------------------- HIGH LOW DIVIDEND ---- --- -------- 1997 First Quarter.............. $24 7/8 $21 1/4 $0.20 Second Quarter............. 26 3/8 21 5/8 0.20 Third Quarter.............. 26 13/16 22 3/8 0.20 Fourth Quarter............. 25 14 7/16 0.20 1998 First Quarter.............. $17 7/8 $14 $0.20 Second Quarter............. 17 7/8 13 0.20 Third Quarter.............. 13 13/16 9 3/16 0.20 Fourth Quarter............. 14 3/8 9 0.20 1999 First Quarter.............. $13 1/8 $ 9 3/8 $0.20 Second Quarter............. 16 1/16 11 3/8 0.05 Third Quarter (through September 29)............ 19 9/16 12 7/8 0.05
On August 19, 1999, the last full trading day before Phelps Dodge publicly announced its proposal to combine with Asarco and Cyprus Amax, the last reported closing prices per Phelps Dodge common share, Asarco common share and Cyprus Amax common share were $58 9/16, $18 7/16 and $14 1/2, respectively. On September 29, 1999, the most recent practicable date prior to the filing of this prospectus, the last reported closing prices per Phelps Dodge common share, Asarco common share and Cyprus Amax common share were $55 5/16, $27 7/16 and $19 1/4, respectively. We urge you to obtain current market quotations before making any decision with respect to our offer. On August 19, 1999, the last full trading day before Phelps Dodge publicly announced its proposal to combine with Asarco and Cyprus Amax, the closing prices per Asarco common share and Cyprus Amax common share on an equivalent share basis (based on 0.2203 Phelps Dodge common shares plus $7.61176875 in cash for each Cyprus Amax common share and 0.2880 Phelps Dodge common shares plus $9.00 in cash for each Asarco common share) were as follows: Asarco...................................................... $24.48 Cyprus Amax................................................. $20.51
71 80 PHELPS DODGE CORPORATION SELECTED HISTORICAL FINANCIAL DATA The following is a summary of selected consolidated financial data of Phelps Dodge for each of the years in the five-year period ended December 31, 1998 and the six-month periods ended June 30, 1999 and 1998. This information is derived from the selected audited financial data of Phelps Dodge contained in Phelps Dodge's Annual Report on Form 10-K for the year ended December 31, 1998 and from the unaudited financial statements of Phelps Dodge contained in Phelps Dodge's Quarterly Report on Form 10-Q for the period ended June 30, 1999, which are incorporated by reference herein, and from Phelps Dodge's Quarterly Report on Form 10-Q for the period ended June 30, 1998. See "Where You Can Find More Information" on page vi. You should read this summary together with these financial statements and their accompanying notes.
AT OR FOR THE SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, ----------------- -------------------------------------------------- 1999 1998 1998 1997 1996 1995 1994 ------ ------ ------ ------ ------ ------ ------ (IN MILLIONS EXCEPT PER SHARE AMOUNTS) INCOME STATEMENT DATA Sales........................ $1,354 $1,593 $3,063 $3,914 $3,787 $4,185 $3,289 Operating income (loss)...... (27)(a) 348(b) 423(c) 611(d) 713(e) 1,101(f) 400(g) Earnings (loss) before minority interests......... (61) 208 199 414 478 760 279 Minority interests........... -- (4) (8) (5) (16) (13) (8) Net earnings (loss).......... (61) 204 191 409 462 747 271 Net earnings (loss) per Common Share: -- Basic................... $(1.04) $ 3.49 $ 3.28 $ 6.68 $ 7.02 $10.72 $ 3.84 -- Diluted................. $(1.04) $ 3.48 $ 3.26 $ 6.63 $ 6.98 $10.66 $ 3.82 Cash dividend per Common Share...................... $ 1.00 $ 1.00 $ 2.00 $ 2.00 $ 1.95 $ 1.80 $ 1.69 BALANCE SHEET DATA Cash and marketable securities................. $ 144 $ 336 $ 222 $ 158 $ 470 $ 609 $ 287 Working capital.............. 196 516 329 350 736 950 558 Total assets................. 4,902 5,061 5,037 4,965 4,816 4,646 4,134 Stockholder's Equity......... 2,373 2,621 2,587 2,510 2,756 2,678 2,188 OTHER FINANCIAL DATA Book value per common share...................... $40.91 $44.66 $44.68 $42.81 $42.59 $39.04 $30.95 Debt as a % of capitalization(h).......... 30.5% 26.6% 27.6% 27.7% 18.8% 20.2% 23.6% Cash provided from operating activities................. $ 46 $ 109 $ 378 $ 765 $ 838 $ 959 $ 543
- --------------- (a) Includes non-recurring restructuring charges of $83.0. (b) Includes before-tax gain of $186.1 from the disposition of a 90 percent interest in Accuride Corporation. (c) Includes before-tax gain of $198.7 from the disposition of the 100 percent interest in Accuride Corporation and a non-recurring, before-tax provision of $7.8 for curtailments and indefinite closures primarily at Phelps Dodge Mining Company. (d) Includes $45.9 charge primarily for additional provisions of $23.0 for estimated future costs associated with environmental matters and $19.1 for a voluntary early retirement program. (e) Includes reclamation reserves of $10.0 for the court-ordered rescission of a 1986 sale of property in Maspeth, New York, by the Corporation to the United States Postal Service. (f) Includes before-tax gain of $26.8 from the disposition of a Phelps Dodge Industries' operating facility. (g) Includes $98.7 charge for environmental costs and a before-tax loss of $59.0 for the disposition of certain operating facilities and mining properties. (h) Total capitalization includes Debt, Minority Interest and Stockholders' Equity. 72 81 ASARCO INCORPORATED SELECTED HISTORICAL FINANCIAL DATA The following is a summary of selected consolidated financial data of Asarco for each of the years in the five-year period ended December 31, 1998 and the six-month periods ended June 30, 1999 and 1998. This information is derived from the Form S-4 Registration Statement filed by Asarco Cyprus Incorporated in connection with the proposed Asarco-Cyprus Amax merger. This information is only a summary and should be read together with the financial statements and accompanying notes contained in Asarco's Annual Report on Form 10-K for the year ended December 31, 1998, Asarco's Quarterly Report on Form 10-Q for the period ended June 30, 1999 and Asarco's Quarterly Report on Form 10-Q for the period ended June 30, 1998. See "Where You Can Find More Information" on page vi.
AT OR FOR THE SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, ---------------- ----------------------------------------------- 1999 1998 1998 1997 1996 1995(F) 1994 ------ ------ ------ ------ ------ ------- ------ (IN MILLIONS EXCEPT PER SHARE AMOUNTS) INCOME STATEMENT DATA Sales............................... $ 966 $1,186 $2,233 $2,721 $2,717 $3,198 $2,032 Operating income (loss)............. (49) (33) (118)(a) 275(b) 303(d) 487(g) 18(h) Earnings (loss) before minority interests......................... (52) (31) (104) 234 226 299 65 Minority interests.................. (4) (15) (27) (91) (88) (130) (1) Net earnings (loss)................. (56) (46) (131) 143(c) 138(e) 169 64(i) Earnings (loss) per Common Share: Net earnings (loss) -- Basic............................. $(1.42) $(1.17) $(3.29) $ 3.42 $ 3.24 $ 4.00 $ 1.53 Net earnings (loss) -- Diluted........................... $(1.42) $(1.17) $(3.29) $ 3.42 $ 3.23 $ 3.98 $ 1.52 Cash Dividend per Common Share...... $ 0.10 $ 0.40 $ 0.70 $ 0.80 $ 0.80 $ 0.70 $ 0.40 BALANCE SHEET DATA Cash and marketable securities...... $ 156 $ 285 $ 216 $ 416 $ 193 $ 281 $ 18 Working capital..................... 335 502 502 726 511 565 282 Total assets........................ 3,977 4,020 4,024 4,110 4,120 4,327 3,291 Inventories -- replacement cost in excess of LIFO inventory costs.... 80 78 74 86 115 137 143 Stockholders' Equity................ 1,459 1,623 1,525 1,694 1,737 1,707 1,517 OTHER FINANCIAL DATA Book value per common share......... $36.68 $40.92 $38.45 $42.71 $40.56 $40.11 $36.04 Debt as a % of capitalization(j).... 34.8% 30.0% 33.7% 28.3% 26.7% 34.1% 38.1% Debt as a % of capitalization, net of excess cash(j)................. 32.4% 24.3% 30.0% 20.2% 24.1% 32.1% 38.1% Cash provided from (used for) operating activities.............. $ 74 $ 65 $ 62 $ 321 $ 267 $ 489 $ (10)
- ------------ (a) Includes charges of $20.0 to reflect the effect of the sale of Asarco's Missouri Lead Division and $10.0 related to Southern Peru Copper Corporation's $30.0 cost reduction program. Includes charges of $9.5 for the three year suspension of operations at Asarco's copper smelter in El Paso, Texas, $9.8 to write down the book value and provide for the closure costs of Asarco's Black Cloud lead-zinc mine in Leadville, Colorado, $10.9 for the transfer of Southern Peru Copper Corporation's ownership of the Ilo townsite to its worker occupants and the city of Ilo, Peru and $7.7 to increase reserves for certain employee benefit plans and for severance and other costs related to Asarco's cost reduction program. Includes a charge of $33.2 ($54 in charges offset by $20.8 in anticipated insurance and other recoveries) to increase reserves for closed plants and environmental matters. (b) Environmental charges of $22.1 in 1997, include charges of $30.0 offset entirely by anticipated insurance recoveries. (c) Includes a $47.6 after-tax gain ($73.3 pre-tax) from the sale of shares of Grupo Mexico, S.A. de C.V. (footnotes continued on next page) 73 82 (d) Includes a $15.0 charge ($67.7 in charges offset by $52.7 in insurance settlements and other recoveries) for closed plant and environmental matters. (e) Includes a $39.0 after-tax gain ($60.1 pre-tax) from the sale of Asarco's remaining interest in MIM and a $7.2 after-tax gain ($11.1 pre-tax) from the sale of a 25% interest in Asarco's Silver Bell project. (f) On April 5, 1995, ASARCO acquired an additional 10.7% interest in Southern Peru Copper Corporation for $116.4 increasing its ownership from 52.3% to 63%. The additional shares acquired enabled Asarco to elect a majority of the directors of Southern Peru Copper Corporation. As a result, Asarco has consolidated Southern Peru Copper Corporation in its financial statements based on its 52.3% ownership, effective January 1, 1995, and 63% ownership, effective April 5, 1995. Asarco previously accounted for its investment in Southern Peru Copper Corporation by the equity method. As of June 30, 1999, Asarco's ownership interest in Southern Peru Copper Corporation was 54.3%. (g) Includes a $139.4 charge to add to Asarco's reserve for closed plant and environmental matters, to provide for asset impairments and plant closures and to write down certain in-process inventory to net realizable value. (h) Includes a $65.5 pre-tax charge to add to Asarco's reserve for closed plant and environmental matters. (i) Includes a $31.9 after-tax gain ($58.5 pre-tax) from the sale of Asarco's remaining interest in Asarco Australia Limited. (j) Total capitalization includes Debt, Minority Interest and Stockholders' Equity. 74 83 CYPRUS AMAX MINERALS COMPANY SELECTED HISTORICAL FINANCIAL DATA The following is a summary of selected consolidated financial data of Cyprus Amax for each of the years in the five-year period ended December 31, 1998 and the six-month periods ended June 30, 1999 and 1998. This information is derived from the Form S-4 Registration Statement filed by Asarco Cyprus Incorporated in connection with the proposed Asarco-Cyprus Amax merger. This information is only a summary and should be read together with the financial statements and accompanying notes contained in Cyprus Amax's Annual Report on Form 10-K for the year ended December 31, 1998, Cyprus Amax's Quarterly Report on Form 10-Q for the period ended June 30, 1999 and Cyprus Amax's Quarterly Report on Form 10-Q for the period ended June 30, 1998. See "Where You Can Find More Information" on page vi.
AT OR FOR THE SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, ---------------- ---------------------------------------------- 1999 1998 1998 1997 1996 1995 1994 ------ ------ ------ ------ ------ ------ ------ (IN MILLIONS EXCEPT PER SHARE AMOUNTS) INCOME STATEMENT DATA(a) Revenue.............................. $ 561 $ 870 $1,661 $1,978 $1,584 $1,908 $1,540 Operating income (loss).............. (13) 18 52 249 63 485 202 Income (loss) from Continuing Operations(b)...................... (77) (53) (134) 89 15 367 104 Net Income (loss)(c)................. (74) (32) (75) 69 77 124 175 Earnings (loss) per Common Share: Income (loss) from Continuing Operations(b).................... $(0.95) $(0.67) $(1.65) $ 0.76 $(0.04) $ 3.75 $ 0.92 Net earnings (loss)(c)............. $(0.92) $(0.44) $(1.02) $ .54 $ 0.62 $ 1.13 $ 1.69 Cash Dividend per Common Share....... $ 0.25 $ 0.40 $ 0.80 $ 0.80 $ 0.80 $ 0.80 $ 0.90 BALANCE SHEET DATA Cash and Cash Equivalents............ $1,275 $ 180 $ 353 $ 250 $ 193 $ 191 $ 139 Working capital...................... 970 232 250 297 304 292 423 Total assets......................... 4,746 5,441 5,341 6,459 6,786 6,196 5,407 Long-Term Debt and Capital Lease Obligations........................ 1,525 1,791 1,718 2,202 2,554 1,877 1,391 Stockholders' Equity................. 2,059 2,264 2,157 2,330 2,360 2,365 2,329 OTHER FINANCIAL DATA Book Value Per Common Share.......... $20.17 $22.21 $21.32 $22.99 $23.43 $23.62 $23.39 Long-Term Debt/Total Capitalization(d).................. 42.3% 43.8% 43.9% 46.9% 50.4% 42.6% 37.4% Net Long-Term Debt/Total Capitalization(d)(e)............... 10.7% 41.2% 38.4% 44.0% 48.4% 40.0% 34.9% Cash Provided by Operating Activities......................... $ 47 $ 129 $ 237 $ 481 $ 440 $ 675 $ 110
- --------------- (a) The Cyprus Amax historical consolidated income statement data has been restated to reflect the Domestic Coal Division as a Discontinued Operation due to its sale effective June 30, 1999. (b) Income (loss) from Continuing Operations reflects net after-tax copper charges of $94 for environmental remediation liabilities and write-downs, net after-tax gains of $123 from the sale of the lithium business, an Oakbridge coal mine in Australia, and real estate, a net after-tax charge of $22 for legal settlements, a net after-tax charge of $37 for Cyprus Amax's share of the Kinross asset impairment and the sale by Kinross of the pre-merger Amax Gold hedging portfolio, and an after-tax charge of $4 for various special items in 1998; an after-tax charge of $13 for the write- down of Oakbridge's Clarence mine in Australia, favorable tax adjustments of $38, an after-tax gain of $19 on the sale of Kubaka to Amax Gold, and an after-tax charge of $5 for the costs of redeeming the 9 7/8% Notes in 1997; an after-tax charge of $74 for environmental remediation liabilities, costs to temporarily close a copper mine, the write-down of the net assets of the Guanaco gold mine, and an unrelated favorable tax adjustment for Amax Gold in 1996; an after-tax charge of $4 to write-down assets of an Oakbridge mine in Australia in 1995; and an after-tax gain of $21 for various special items in 1994. (c) Discontinued Operations for the six months ended June 30, 1999 included earnings from the domestic coal business of $16 after-tax and a $13 after-tax loss on the sale of the coal assets. In addition, for the six months ended June 30, 1998 and for the years 1994 through 1998, the results have been restated to reflect the Domestic Coal Division as a discontinued operation. Discontinued (footnotes continued on next page) 75 84 Operations included for the six months ended 1998 after-tax earnings of $21; after-tax earnings of $59 that reflects a loss on the sale of certain eastern and midwestern coal properties of $12 and favorable legal settlements of $5 for 1998; after-tax loss of $20 that reflects charges of $66 for write-downs for 1997; after-tax earnings of $62 for 1996; after-tax loss of $243 that reflects a charge of $334 for the write-down of certain coal assets and provisions for associated liabilities for 1995; and after-tax earnings of $62 that reflects a write-down of $8 for the Orchard Valley mine for 1994. Also in 1994 Discontinued Operations included income from the Oil and Gas business for the first quarter of 1994 of $7 after-tax and a $2 after-tax gain on the sale of Cyprus Amax-owned oil and gas assets. (d) Total Capitalization includes Debt, Minority Interest and Stockholders' Equity. (e) Net Long-Term Debt includes Long-term debt less Cash and Cash Equivalents. 76 85 PHELPS DODGE COMPARATIVE PER SHARE INFORMATION The following table presents historical per common share information for Phelps Dodge and Cyprus Amax, and the pro forma and equivalent pro forma per common share data giving effect to the combination of Phelps Dodge and Cyprus Amax and Phelps Dodge, Cyprus Amax and Asarco, for the six months ended June 30, 1999 and the year ended December 31, 1998. The pro forma combined per share information does not purport to represent what the combined financial position or results of operations would actually have been if the combinations had occurred at January 1, 1998, nor are they necessarily indicative of Phelps Dodge's future consolidated results of operations or financial position. The information tabled below should be read in conjunction with the historical financial statements of the combining corporations and the "Selected Historical Financial Data" of Phelps Dodge, Asarco and Cyprus Amax on pages 72 through 76, and the "Unaudited Pro Forma Combined Financial Information" on page 79.
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1999 DECEMBER 31, 1998 ------------- ----------------- Per common share Historical: Phelps Dodge Book value(1)..................................... $40.91 $44.68 Net income(loss) Basic.......................................... (0.98) 3.28 Diluted........................................ (0.98) 3.26 Cash dividends.................................... 1.00 2.00 Cyprus Amax Book value(1)..................................... 20.17 21.32 Net income(loss) Basic.......................................... (0.95) (1.65) Diluted........................................ (0.95) (1.65) Cash dividends.................................... 0.25 0.80 Pro forma: Combined Phelps Dodge and Cyprus Amax Book value(1)..................................... 44.92 49.06 Income(loss) from continuing operations--Basic and Diluted........................................ (1.88) 0.10 Cash dividends(2)................................. 1.00 2.00 Cyprus Amax Equivalent(3) Book value(1)..................................... 15.72 17.17 Income(loss) from continuing operations--Basic and Diluted........................................ (0.66) 0.04 Cash dividends.................................... 0.35 0.70 Combined Phelps Dodge, Asarco and Cyprus Amax Book value(1)..................................... 48.01 52.37 Income(loss) from continuing operations--Basic and Diluted........................................ (2.00) (0.84) Cash dividends(2)................................. 1.00 2.00
(footnotes on next page) 77 86
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1999 DECEMBER 31, 1998 ------------- ----------------- Asarco Equivalent(3) Book value(1)..................................... 21.19 23.11 Income(loss) from continuing operations--Basic and Diluted........................................ (0.88) (0.37) Cash dividends.................................... 0.44 0.88 Cyprus Amax Equivalent(3) Book value(1)..................................... 16.80 18.33 Income(loss) from continuing operations--Basic and Diluted........................................ (0.70) (0.29) Cash dividends.................................... 0.35 0.70
- --------------- (1) Book value per share is determined as at June 30, 1999 and December 31, 1998. (2) Pro forma combined cash dividends per share of Phelps Dodge common stock reflect Phelps Dodge's historical dividend rate per share declared in the periods presented. (3) Pro forma combined equivalent per share of Asarco and Cyprus Amax common stocks reflects the pro forma combined per share of Phelps Dodge's common stock amount multiplied by the exchange ratio of 0.4413 and 0.3500 shares of Phelps Dodge stock for each share of Asarco and Cyprus Amax, respectively. 78 87 UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION The Unaudited Pro Forma Combined Financial Information of Phelps Dodge Corporation (Phelps Dodge) presented following is derived from the historical consolidated financial statements of Phelps Dodge, ASARCO Incorporated (Asarco) and Cyprus Amax Minerals Company (Cyprus Amax). The Unaudited Pro Forma Combined Financial Information is presented under two separate scenarios (collectively the "Transactions"): (i) the acquisition by Phelps Dodge of Cyprus Amax; and (ii) the acquisition by Phelps Dodge of Asarco and Cyprus Amax. The acquisitions of Asarco and Cyprus Amax are not dependent upon each other. Under each of the scenarios, the Unaudited Pro Forma Combined Financial Information is prepared using the purchase method of accounting, with Phelps Dodge treated as the acquirer and as if the transactions had been completed as of January 1, 1998, for statement of operations purposes and on June 30, 1999, for balance sheet purposes. For a summary of the proposed business combinations, see "The Offer" beginning on page 41 of this prospectus. The Unaudited Pro Forma Combined Financial Information is based upon the historical financial statements of Phelps Dodge, Asarco and Cyprus Amax adjusted to give effect to the proposed business combinations. The pro forma assumptions and adjustments for each transaction scenario are described in the accompanying notes presented on the following pages. The assumptions and related pro forma adjustments have been developed from information available to Phelps Dodge from the December 31, 1998, Form 10-K filings and June 30, 1999, Form 10-Q filings of Asarco and Cyprus Amax and the Form 8-K filing dated June 30, 1999, of Cyprus Amax and the merger agreement with Cyprus Amax dated September 30, 1999 (the "Merger Agreement"). Such pro forma adjustments have been included only to the extent known and reasonably available to Phelps Dodge. Phelps Dodge also has reviewed the Form S-4 Registration Statement of Asarco Cyprus Incorporated filed on August 20, 1999, in connection with the proposed merger of Asarco and Cyprus Amax. Their filing included unaudited pro forma combined financial information for Asarco and Cyprus Amax as if the merger had occurred at specific assumed dates. Certain pro forma adjustments that Phelps Dodge noted in reviewing this unaudited pro forma combined financial information have not been incorporated in the accompanying Unaudited Pro Forma Combined Financial Information because information necessary to make or assess such adjustments is not available to Phelps Dodge. Phelps Dodge has agreed to combine its business with Cyprus Amax pursuant to the Merger Agreement. Phelps Dodge is also making a separate offer to shareholders of Asarco to acquire all the issued and outstanding common shares of Asarco. As a consequence of the nature of the Asarco transaction, there may be, and likely will be, actions and other events or changes initiated by Asarco that would significantly change purchase prices and purchase price allocations. Also, Phelps Dodge has not had access to additional proprietary and confidential corporate financial and other information of Asarco and Cyprus Amax and has not had an opportunity to undertake any due diligence procedures. Such information and procedures may provide Phelps Dodge with additional information that could materially affect the purchase price paid for the acquisition of Asarco or Cyprus Amax, the purchase price allocation and, accordingly, the assumptions and pro forma adjustments. Identified factors which may have a significant impact on the basis and results of the combinations are described in Note 2 of the accompanying notes to the Unaudited Pro Forma Combined Balance Sheet and Combined Statements of Operations for each scenario. Furthermore, the ultimate determination of the purchase price paid for the acquisition of Cyprus Amax and Asarco may change significantly from the current estimate. For the purpose of this Unaudited Pro Forma Combined Financial Information, the purchase price has been estimated based upon the market price of $55.3125 for each Phelps Dodge common share, that being the closing market price at September 29, 1999. The final purchase price will be based largely upon the average market price of Phelps Dodge common stock at the earlier of the dates the combinations are announced or consummated between Phelps Dodge, Asarco and Cyprus Amax. As a result of these uncertainties, the final determination and allocation of purchase price may differ from the amounts assumed in this Unaudited Pro Forma Combined Financial Information and those differences may be material. 79 88 The Unaudited Pro Forma Combined Financial Information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations or the consolidated financial positions of Phelps Dodge would have been had the acquisitions of Asarco and/or Cyprus Amax occurred on the respective dates assumed, nor is it necessarily indicative of future consolidated operating results or financial position. The Unaudited Pro Forma Combined Financial Information does not include the realization of cost savings from operating efficiencies, synergies or other restructurings resulting from the Transactions and does not contemplate the liabilities that may be incurred in any related restructurings. Phelps Dodge estimated consolidated annual cash cost savings of at least $200 million as a result of synergies, reduced overhead costs and other actions resulting from the combination of all three companies. Phelps Dodge believes that the Transactions and the resulting activities would yield substantial cash cost savings of at least $75 million beyond those that can be realized by Asarco Cyprus Incorporated which were estimated to be $125 million in the Form S-4 Registration Statement of Asarco Cyprus Incorporated filed on August 20, 1999. There is no assurance that these cost savings can or will be realized. Also, the Unaudited Pro Forma Combined Financial Information does not reflect the impact of any potential sale of acquired assets. This Unaudited Pro Forma Combined Financial Information should be read in conjunction with the separate historical consolidated financial statements and accompanying notes of Phelps Dodge, Asarco and Cyprus Amax that are incorporated by reference in this Registration Statement. You should not rely on the Unaudited Pro Forma Combined Financial Information as an indication of the consolidated results of operations or financial position that would have been achieved if the business combinations had taken place earlier or of the consolidated results of operations or financial position of Phelps Dodge after the completion of such transactions. 80 89 PHELPS DODGE CORPORATION PRO FORMA COMBINED STATEMENT OF OPERATIONS PHELPS DODGE, ASARCO AND CYPRUS AMAX COMBINED FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE INFORMATION)
HISTORICAL ----------------------------------- PRO FORMA PRO FORMA PHELPS DODGE ASARCO CYPRUS AMAX ADJUSTMENTS COMBINED ------------ ------ ----------- ----------- --------- Sales and other operating revenues....................... $1,354 966 561 -- 2,881 ------ ----- --- ------ ----- Operating costs and expenses Cost of products sold.......... 1,073 855 428 -- 2,356 Depreciation, depletion and amortization................ 144 73 104 (31)(I) 290 Selling and general administrative expense...... 60 72 34 -- 166 Exploration and research expense..................... 21 11 8 -- 40 Non-recurring charges and provision for asset dispositions*............... 83 4 -- -- 87 ------ ----- --- ------ ----- 1,381 1,015 574 (31) 2,939 ------ ----- --- ------ ----- Operating income (loss).......... (27) (49) (13) 31 (58) Interest expense............... (48) (38) (69) (9)(E) (4)(A) (3)(K) (171) Capitalized interest........... -- -- 2 4(A) 6 Miscellaneous income and expense, net................ (7) 10 (11) (1)(J) 6(A) (3) ------ ----- --- ------ ----- Income (loss) before taxes, minority interests and equity in net earnings of affiliated companies...................... (82) (77) (91) 24 (226) Provision for taxes on income...................... 19 25 14 (1)(A) (8)(F) 49 Minority interests in consolidated subsidiaries... 1 (4) -- 1(J) (2) Equity in net earnings (losses) of affiliated companies..... 5 -- -- (5)(A) -- ------ ----- --- ------ ----- Income (loss) from continuing operations..................... (57) (56) (77) 11 (179) Preferred stock dividends...... -- -- (9) 9(E) -- ------ ----- --- ------ ----- Income (loss) from continuing operations applicable to common shares......................... $ (57) (56) (86) 20 (179) ====== ===== === ====== ===== Net earnings (loss) per share Basic.......................... $(0.98) (2.00) Diluted........................ $(0.98) (2.00) Weighted average shares outstanding Basic.......................... 57.8 89.3 Diluted........................ 57.8 89.3
- ------------ * See historical financial statements incorporated by reference in this prospectus for a description of non-recurring charges and provision for asset dispositions. 81 90 PHELPS DODGE CORPORATION PRO FORMA COMBINED STATEMENT OF OPERATIONS PHELPS DODGE, ASARCO AND CYPRUS AMAX COMBINED YEAR ENDED DECEMBER 31, 1998 (UNAUDITED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE INFORMATION)
HISTORICAL ----------------------------------- PRO FORMA PRO FORMA PHELPS DODGE ASARCO CYPRUS AMAX ADJUSTMENTS COMBINED ------------ ------ ----------- ----------- --------- Sales and other operating revenues......................... $3,064 2,233 1,660 (218)(A) 6,739 ------ ----- ----- ------- ------ Operating costs and expenses Cost of products sold............ 2,361 1,963 1,087 (200)(A) 5,211 Depreciation, depletion and amortization................... 293 145 254 (7)(A) (61)(I) 624 Selling and general administrative expense......... 123 144 105 -- 372 Exploration and research expense........................ 55 27 45 -- 127 Non-recurring charges and provision for asset dispositions*.................. (191) 72 118 -- (1) ------ ----- ----- ------- ------ 2,641 2,351 1,609 (268) 6,333 ------ ----- ----- ------- ------ Operating income (loss)............ 423 (118) 51 50 406 Interest expense................. (97) (68) (157) (19)(E) (13)(A) (5)(K) (359) Capitalized interest............. 2 -- 2 13(A) 17 Miscellaneous income and expense, net............................ 9 29 17 (6)(J) (4)(A) 45 ------ ----- ----- ------- ------ Income (loss) before taxes, minority interests and equity in net earnings of affiliated companies........................ 337 (157) (87) 16 109 Provision for taxes on income.... (134) 53 (11) (13)(F) (105) Minority interests in consolidated subsidiaries...... (8) (27) 1 8(J) (26) Equity in net earnings (losses) of affiliated companies........ (4) -- (53) 4(A) (53) ------ ----- ----- ------- ------ Income (loss) from continuing operations....................... 191 (131) (150) 15 (75) Preferred stock dividends........ -- -- (19) 19(E) -- ------ ----- ----- ------- ------ Income (loss) from continuing operations applicable to common shares........................... $ 191 (131) (169) 34 $ (75) ====== ===== ===== ======= ====== Net earnings (loss) per share Basic............................ $ 3.28 (0.84) Diluted.......................... $ 3.26 (0.84) Weighted average shares outstanding Basic............................ 58.2 89.7 Diluted.......................... 58.5 89.7
- ------------ * See historical financial statements incorporated by reference in this prospectus for a description of non-recurring charges and provision for asset dispositions. 82 91 PHELPS DODGE CORPORATION PRO FORMA COMBINED BALANCE SHEET PHELPS DODGE, ASARCO AND CYPRUS AMAX COMBINED JUNE 30, 1999 (UNAUDITED) (AMOUNTS IN MILLIONS)
HISTORICAL ----------------------------------- PRO FORMA PRO FORMA PHELPS DODGE ASARCO CYPRUS AMAX ADJUSTMENTS COMBINED ------------ ------ ----------- ----------- --------- ASSETS Cash and cash equivalents......... $ 144 125 1,275 (1,049)(B) (30)(C) (5)(E) (41)(B) 419 Accounts receivable, net.......... 396 404 37 -- 837 Inventories....................... 263 305 239 (127)(A) 84(D) 764 Supplies.......................... 104 -- 55 127(A) 286 Prepaid expenses and other assets.......................... 15 135 74 5(D) (33)(A) 196 Deferred income taxes............. 45 -- 32 33(A) 110 ------ ----- ----- ------ ------ Current assets.................. 967 969 1,712 (1,036) 2,612 Investments and long-term accounts receivable...................... 95 190 328 29(D) (13) (J) 9(A) 638 Property, plant and equipment, net............................. 3,501 2,592 2,546 (769)(D) 7,870 Other assets and deferred charges......................... 339 226 160 (9)(A) 41(B) 5(E) 762 ------ ----- ----- ------ ------ Total Assets............... $4,902 3,977 4,746 (1,743) 11,882 ====== ===== ===== ====== ====== LIABILITIES Short-term debt................... $ 214 16 249 -- 479 Current portion of long-term debt............................ 62 31 79 -- 172 Accounts payable and accrued expenses........................ 456 496 324 20(L) 1,296 Dividends payable................. 29 -- 9 -- 38 Accrued income taxes.............. 11 90 81 -- 182 ------ ----- ----- ------ ------ Current liabilities............. 772 633 742 20 2,167 Long-term debt.................... 801 1,017 1,499 244(E) (95)(D) 3,466 Deferred income taxes............. 493 28 14 (204)(F) 331 Other liabilities and deferred credits......................... 376 306 412 52(D) 1,146 ------ ----- ----- ------ ------ 2,442 1,984 2,667 17 7,110 ------ ----- ----- ------ ------ Minority interests in consolidated subsidiaries...................... 86 534 20 (147)(J) 493 ------ ----- ----- ------ ------ Shareholders' equity Common shares..................... 362 525 1 (526)(H) 197(G) 559 Treasury shares................... -- -- (86) 86(A) -- Preferred shares.................. -- -- 5 (5)(E) -- Capital in excess of par value.... 5 -- 2,912 (86)(A) (2,826)(H) 1,544(G) 30(B) 1,579 Retained earnings................. 2,198 949 (768) 134(J) (181)(H) 2,332 Accumulated other comprehensive income (loss)................... (183) (15) (5) 20(H) (183) Other............................. (8) -- -- -- (8) ------ ----- ----- ------ ------ Total Shareholders' Equity................... 2,374 1,459 2,059 (1,613) 4,279 ------ ----- ----- ------ ------ Total Liabilities and Shareholders' Equity..... $4,902 3,977 4,746 (1,743) 11,882 ====== ===== ===== ====== ======
83 92 COMBINATION OF PHELPS DODGE, ASARCO AND CYPRUS AMAX NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION 1. BASIS OF PRESENTATION The Unaudited Pro Forma Combined Financial Information has been derived from historical consolidated financial statements of Phelps Dodge, Asarco and Cyprus Amax incorporated by reference into this prospectus. See Phelps Dodge "Unaudited Pro Forma Combined Financial Information" on page 79 of this prospectus. The assumptions and related pro forma adjustments described below have been developed from public historical information available to Phelps Dodge. Pro forma adjustments have been included only to the extent known and reasonably available to Phelps Dodge. Additional information may exist that could materially affect the assumptions and related pro forma adjustments. Such information is not available to Phelps Dodge because it is within the particular and singular knowledge of Asarco and Cyprus Amax. 2. THE OFFER Phelps Dodge is proposing a three-way business combination of Phelps Dodge, Asarco and Cyprus Amax through separate offerings to exchange all the issued and outstanding Asarco and Cyprus Amax common shares for a combination of Phelps Dodge common shares and cash. See "The Offer" on page 41 of this prospectus. Phelps Dodge is offering to exchange $9.00 net in cash plus 0.2880 shares of Phelps Dodge common stock for each outstanding share of Asarco common stock, on a fully prorated basis. Asarco shareholders may elect to receive either $25.90 in cash or 0.4413 shares of Phelps Dodge common stock for each Asarco common share that is validly tendered and not properly withdrawn, subject to proration if the stock portion or the cash portion of the offer is oversubscribed. Separately, Phelps Dodge is offering to exchange $7.61176875 net in cash plus 0.2203 shares of Phelps Dodge common stock for each outstanding common share of Cyprus Amax, on a fully prorated basis. Cyprus Amax shareholders may elect to receive either $20.54 in cash or 0.3500 shares of Phelps Dodge common stock for each Cyprus Amax common share that is validly tendered and not properly withdrawn, subject to proration. Debt will be incurred to finance the cash component of the acquisitions. An equivalent amount of debt is expected to be repaid upon consummation of the acquisitions. 84 93 COMBINATION OF PHELPS DODGE, ASARCO AND CYPRUS AMAX NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED) The transactions would be accounted for under the purchase method. The purchase price for the business combinations is estimated as follows (dollars in millions and shares in thousands except per share data):
ASARCO CYPRUS AMAX COMBINED ------ ----------- -------- Common shares outstanding (as reported in Asarco's June 30, 1999, Form 10-Q and the Merger Agreement with Cyprus Amax).......................................... 39,783 90,867 Exchange offer ratio of Phelps Dodge common shares for each common share..................................... 0.2880 0.2203 Phelps Dodge common shares to be issued................. 11,458 20,018 31,476 Closing market price of each Phelps Dodge common share on September 29, 1999................................. $55.3125 ======== Fair value of Phelps Dodge common shares issued, comprising par value of $197 ($6.25 per share) and capital in excess of par of $1,544.................... $ 1,741 Cash consideration of $9.00 for each Asarco common share and $7.61176875 for each Cyprus Amax common share..... 1,049 Redemption of Cyprus Amax Series A Preferred Stock (Note 3E)................................................... 244 Estimated fair value of Cyprus Amax outstanding stock options (as reported in the Merger Agreement)......... 30 Estimated transaction costs............................. 30 -------- Purchase price.......................................... $ 3,094 ========
The final purchase price could change materially from the purchase price estimated above as a result of changes in the market price of common shares of Phelps Dodge and/or the relative market price of Asarco and Cyprus Amax common shares. There are arrangements in place at Asarco and Cyprus Amax that could impact the purchase price including employment agreements, change of control agreements, severance agreements, restricted stock awards, stock appreciation rights, and certain pension and other employee benefit plans. In addition, actions may be taken by the management of Asarco in a defensive posture or for other reasons, that could impact the purchase price including amending existing agreements or issuing stock options and other similar bonus awards. The potential impact of these factors cannot be estimated but could be material. The estimated purchase price does not give effect to outstanding Asarco stock options which could impact the number of Phelps Dodge shares issued and/or the purchase price either by their exercise or their conversion to outstanding stock options of Phelps Dodge. Such effects prior to completion of the business combination cannot be reasonably estimated from available public information. As reported in their December 31, 1998 Form 10-K, Asarco had 1,721,249 stock options outstanding, with an average exercise price of $26.12, more than the per share equivalent value of Asarco's common stock as determined by the exchange offer. If all of Asarco's outstanding stock options were exercised prior to consummation of the business combinations, the estimated purchase price would be increased by approximately $43 million which would be substantially offset by cash and cash equivalents received as proceeds from such exercises. Although it is Phelps Dodge's desire that all outstanding Asarco stock options be converted to Phelps Dodge stock options at the exchange offering bases, it is not assured whether such conversion can be achieved in whole or in part nor, consequently, the potential effect on the purchase price. The estimated purchase price does not include any effect of Asarco's Shareholder Rights Plan. As described in Asarco's December 31, 1998, Form 10-K, Asarco adopted a new Shareholder Rights Plan in 85 94 COMBINATION OF PHELPS DODGE, ASARCO AND CYPRUS AMAX NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED) January 1998 that provides certain common stock purchase rights if a person or group becomes the beneficial owner of 15% or more of Asarco's common stock, with certain exceptions. The final determination of the purchase price may differ from the amount assumed in the Unaudited Pro Forma Combined Financial Information and that difference may be material. 3. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS The following assumptions and related pro forma adjustments give effect to the proposed business combinations of Phelps Dodge, Asarco and Cyprus Amax as if such combinations occurred on January 1, 1998, for the Unaudited Pro Forma Combined Statements of Operations for the six-month interim period ended June 30, 1999, and for the year ended December 31, 1998, respectively, and on June 30, 1999, for the Unaudited Pro Forma Combined Balance Sheet. The Unaudited Pro Forma Combined Financial Information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations or the consolidated financial position of Phelps Dodge would have been had the business combinations with Asarco and Cyprus Amax occurred on the respective dates assumed, nor is it necessarily indicative of future consolidated operating results or financial position. Future cash cost savings, which Phelps Dodge estimated will be at least $200 million annually, are not recognized in this Unaudited Pro Forma Combined Financial Information. Non-recurring items related to 1998 and the six-month interim period ended June 30, 1999, are included (see "Selected Historical Financial Data" at pages 61 through 65 for a summary of non-recurring items and special charges) and (A) Reclassifications have been made to the Asarco and Cyprus Amax historical consolidated financial information to conform to Phelps Dodge's presentation. The historical financial information of Cyprus Amax excludes the results of operations and assets of its discontinued Coal segment as reported for 1998 operations in Cyprus Amax's Form 8-K dated June 30, 1999, and as reported as of and for the six months ended June 30, 1999, in its Form 10-Q filing for such period. Cyprus Amax's historical financial information for the year ended December 31, 1998, also has been adjusted to exclude the identifiable results of recurring operations of its Lithium segment which was sold in October 1998. 86 95 COMBINATION OF PHELPS DODGE, ASARCO AND CYPRUS AMAX NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
BALANCE SHEET SIX MONTHS YEAR ENDED AT JUNE 30, ENDED JUNE 30, DECEMBER 31, (IN $ MILLIONS): 1999 1999 1998 - ---------------------------------- ------------- -------------- ------------ Asarco reclassification adjustments: Inventories..................... (127) Supplies........................ 127 Deferred income taxes (current asset)....................... 33 Prepaid expenses and other assets....................... (33) Miscellaneous income and expense, net................. (2) (4) Equity in net earnings of affiliated companies......... 2 4 Interest expense................ 4 13 Capitalized interest............ (4) (13) Cyprus Amax reclassification adjustments: Investments and notes receivable................... 9 Other assets and deferred charges...................... (9) Treasury shares................. 86 Capital in excess of par value........................ (86) Miscellaneous income and expense, net................. 8 Provision for taxes on income... (1) Equity in net earnings (losses) of affiliated companies...... (7) Elimination of recurring results from the disposed Cyprus Amax Lithium segment: Sales and other operating revenues..................... (218) Cost of products sold (derived).................... (200) Depreciation, depletion and amortization expense......... (7)
(B) This pro forma adjustment represents payment of the cash component of the purchase price of $1,049 million, the estimated fair value of Cyprus Amax outstanding stock options of $30 million and the funding of certain Cyprus Amax employee benefits of $41 million. (C) Phelps Dodge estimates it will incur approximately $30 million of transaction costs, consisting primarily of investment bankers, attorneys and accountant fees, and financial printing and other charges. These estimates are preliminary and therefore are subject to change. (D) If the business combinations are consummated, they will be accounted for using the purchase method of accounting in accordance with generally accepted accounting principles. Accordingly, the assets and liabilities of Asarco and Cyprus Amax would be recorded at their estimated fair values. Phelps Dodge has not had access to information that is within the peculiar knowledge of Asarco and Cyprus Amax and has not performed its due diligence necessary to determine the fair value of their assets or liabilities or to identify unknown liabilities or obligations. Pro forma adjustments to allocate the 87 96 COMBINATION OF PHELPS DODGE, ASARCO AND CYPRUS AMAX NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED) purchase price have been recorded in the Unaudited Pro Forma Combined Financial Information on the basis of fair values reported for certain assets and liabilities in public information of Asarco and Cyprus Amax. Because fair value information for the remaining assets and liabilities and any possible identifiable intangible assets are not reasonably available to Phelps Dodge, the excess of the historical net book values of Asarco's and Cyprus Amax's assets acquired over the estimated purchase price has been allocated as a reduction of their combined net property, plant and equipment. Additionally, Phelps Dodge believes that cost savings will be realized upon the consolidation and integration of the three companies. Phelps Dodge has not developed formal plans for combining the three operations. Accordingly, additional liabilities may be incurred in connection with the business combinations and any ultimate restructuring. These additional liabilities and costs have not been contemplated in the Unaudited Pro Forma Combined Financial Information because information necessary to reasonably estimate such costs and to formulate detailed restructuring plans is not available to Phelps Dodge. Accordingly, the allocation of the purchase price cannot be estimated with a reasonable degree of accuracy and may differ materially from the amounts assumed in the Unaudited Pro Forma Combined Financial Information. The pro forma purchase price allocation adjustments are estimated as follows (in millions): Reduction of debt to fair value (as reported in Cyprus Amax's June 30, 1999, Form 10-Q and the Form S-4 Registration Statement of Asarco Cyprus Incorporated filed August 20, 1999).......................................... $ 95 Restricted investment in Grupo Mexico (as reported in Asarco's December 31, 1998, Form 10-K).................... $ 29 Increase in LIFO based inventory to replacement cost (as reported in Asarco's June 30, 1999, Form 10-Q and in Cyprus Amax's December 31, 1998, Form 10-K)............... $ 84 Excess projected benefit obligation over the fair value of pension plan assets (as reported in Cyprus Amax's December 31, 1998, Form 10-K, comprising a $5 million reduction of prepaid expenses and other assets and a $52 million increase in other liabilities and deferred credits)....... $ 57 Excess fair value of pension plan assets over the projected benefit obligation (as reported in Asarco's December 31, 1998, Form 10-K).......................................... $ 10 Reduction in deferred tax liabilities (Note F).............. $204 Reduction in net property, plant and equipment (derived).... $769
(E) The pro forma adjustments reflect the redemption of all 4,664,000 outstanding shares of Cyprus Amax's Series A Preferred Stock which are redeemable at Cyprus Amax's option at $52.40 per share and the issuance of $244 million of ten-year debt to finance the redemption. Interest is estimated to be fixed at 7.75% resulting in annual interest expense of $19 million. The interest rate estimate was based upon ten-year treasury bill rates for September 1999, plus commercially indicative rate basis points. A change in the interest rate on the debt by 1/8 percent would impact annual interest expense by approximately $300,000. Debt issue costs associated with the debt are estimated to be approximately $5 million with annual amortization of approximately $500,000. (F) The estimated income tax effect of the pro forma adjustments has been recorded based upon the estimated effective tax rates of approximately 32% for Asarco and 15% for Cyprus Amax which rates have been derived from public quarterly and annual filings of Asarco and Cyprus Amax. The business combinations are expected to be tax-free transactions with Asarco's and Cyprus Amax's historical tax bases surviving for income tax reporting purposes. 88 97 COMBINATION OF PHELPS DODGE, ASARCO AND CYPRUS AMAX NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED) Provisions for pro forma income tax expense have been recorded for pro forma adjustments to the Pro Forma Combined Statements of Operations resulting from pro forma purchase price allocation adjustments and other items. Cyprus Amax has reported $176 million of U.S. net operating loss carryforwards through 1998, expiring from 1999 to 2012, which along with other deferred tax assets are subject to an existing valuation allowance. Asarco has reported $573.7 million of net loss carryforwards, which expire if unused from 2008 through 2018. The net operating loss carryforwards may be subject to annual limitations after the acquisitions because of the change in ownership rules. The annual limits will be calculated as the long-term tax exempt rate (currently 5.18%) times the separate fair market values of Cyprus Amax and Asarco, with Asarco's value potentially determined without Southern Peru Copper Corporation ("SPCC"). Once all facts are known, the annual limits may necessitate an increase in the consolidated valuation allowance for deferred tax assets. Income tax expense and deferred tax allocations recorded upon consummation of the business combinations could vary significantly from the pro forma estimates because information regarding Asarco's and Cyprus Amax's income tax reporting is not available to Phelps Dodge. (G) This pro forma adjustment reflects the issue of 31,476,000 shares of Phelps Dodge common stock in connection with the exchange offers for all the outstanding common shares of Asarco and Cyprus Amax. The common stock of Phelps Dodge represents common shares of $197 million at $6.25 per share par value and capital in excess of par of $1,544 million. No common shares have been included for the potential share issues in connection with the outstanding stock options of Asarco. (H) These pro forma adjustments eliminate the historical shareholders' equity accounts of Asarco and Cyprus Amax. (I) This pro forma adjustment records the estimated reduction in depreciation, depletion and amortization expense related to the pro forma reduction in property, plant and equipment recorded in connection with the business combination purchase price allocation. Because neither fair value nor book value information regarding the composition of Asarco's or Cyprus Amax's property, plant and equipment is available to Phelps Dodge, actual adjustments to depreciation, depletion and amortization expense could differ substantially from these estimates. (J) Phelps Dodge holds a 14.0% equity interest in SPCC which is accounted for as a cost basis investment with a book value of $13.2 million at June 30, 1999. Asarco reports a 54.3% equity interest in SPCC which it consolidated in both its June 30, 1999, Form 10-Q and December 31, 1998, Form 10-K. As a result of Phelps Dodge's increased ownership in SPCC that would arise through the acquisition of Asarco, Phelps Dodge would qualify for use of the consolidation method of reporting for its investment in SPCC. Accordingly, a pro forma adjustment is recorded to consolidate Phelps Dodge's interest in SPCC including the elimination of Phelps Dodge's cost basis investment in SPCC and its recognition of dividend income from SPCC, the reduction of minority interests in consolidated subsidiaries representing Phelps Dodge's 14.0% interest, and the retroactive restatement of Phelps Dodge's retained earnings. (K) This pro forma adjustment recognizes imputed interest expense resulting from the fair value adjustment of Asarco's long-term debt as reported in the Form S-4 Registration Statement of Asarco Cyprus Incorporated filed August 20, 1999. A pro forma adjustment to recognize imputed interest resulting from the $42 million fair value adjustment of Cyprus Amax's debt has not been provided because information necessary to calculate such adjustment is not reasonably available to Phelps Dodge. (L) This pro forma adjustment recognizes certain change of control obligations arising from the merger of Cyprus Amax and Phelps Dodge. 89 98 COMBINATION OF PHELPS DODGE, ASARCO AND CYPRUS AMAX NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED) (M) Pro forma weighted average common stock and common stock equivalents outstanding are estimated as follows (in millions):
SIX MONTHS YEAR ENDED ENDED JUNE 30, DECEMBER 31, 1999 1998 ---------------- ---------------- BASIC DILUTED BASIC DILUTED ----- ------- ----- ------- Average number of Phelps Dodge common shares outstanding.................... 57.8 57.8 58.2 58.5 Anti dilutive Phelps Dodge potential common shares on pro forma net loss... (0.3) Phelps Dodge common shares to be issued in connection with the business combination (Note 2).................. 31.5 31.5 31.5 31.5 ---- ---- ---- ---- 89.3 89.3 89.7 89.7 ==== ==== ==== ====
The average number of common shares outstanding does not give effect to Asarco's and Cyprus Amax's outstanding stock options or other common stock equivalents, which cannot be estimated because information for Asarco is not available to Phelps Dodge. Based upon public information reported and the current exchange offer bases, Phelps Dodge estimates that the incremental number of Phelps Dodge shares issueable upon the exercise of all Cyprus Amax and Asarco outstanding stock options is approximately 3 million. 90 99 PHELPS DODGE CORPORATION PRO FORMA COMBINED STATEMENT OF OPERATIONS PHELPS DODGE AND CYPRUS AMAX COMBINED FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE INFORMATION)
HISTORICAL -------------------------- PRO FORMA PRO FORMA PHELPS DODGE CYPRUS AMAX ADJUSTMENTS COMBINED ------------ ----------- ----------- --------- Sales and other operating revenues... $1,354 561 -- 1,915 ------ --- ---- ----- Operating costs and expenses Cost of products sold.............. 1,073 428 -- 1,501 Depreciation, depletion and amortization................ 144 104 5(I) 253 Selling and general administrative expense......................... 60 34 -- 94 Exploration and research expense... 21 8 -- 29 Non-recurring charges and provision for asset dispositions*......... 83 -- -- 83 ------ --- ---- ----- 1,381 574 5 1,960 ------ --- ---- ----- Operating income (loss).............. (27) (13) (5) (45) Interest expense................... (48) (69) (9)(E) (126) Capitalized interest............... -- 2 -- 2 Miscellaneous income and expense, net.................... (7) (11) 8(A) (10) ------ --- ---- ----- Income (loss) before taxes, minority interests and equity in net earnings of affiliated companies... (82) (91) (6) (179) Provision for taxes on income...... 19 14 2(F) (1)(A) 34 Minority interests in consolidated subsidiaries.................... 1 -- -- 1 Equity in net earnings (losses) of affiliated companies............ 5 -- (7)(A) (2) ------ --- ---- ----- Income (loss) from continuing operations......................... (57) (77) (12) (146) Preferred stock dividends.......... -- (9) 9(E) -- ------ --- ---- ----- Income (loss) from continuing operations applicable to common shares............................. $ (57) (86) (3) (146) ====== === ==== ===== Net earnings (loss) per share Basic.............................. $(0.98) (1.88) Diluted............................ $(0.98) (1.88) Weighted average shares outstanding Basic.............................. 57.8 77.8 Diluted............................ 57.8 77.8
- ------------ * See historical financial statements incorporated by reference in this prospectus for a description of non-recurring charges and provision for asset dispositions. 91 100 PHELPS DODGE CORPORATION PRO FORMA COMBINED STATEMENT OF OPERATIONS PHELPS DODGE AND CYPRUS AMAX COMBINED FOR THE YEAR ENDED DECEMBER 31, 1998 (UNAUDITED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE INFORMATION)
HISTORICAL --------------------------- PRO FORMA PRO FORMA PHELPS DODGE CYPRUS AMAX ADJUSTMENTS COMBINED ------------ ----------- ----------- --------- Sales and other operating revenues........................ $3,064 1,660 (218)(A) 4,506 ------ ----- ---- ----- Operating costs and expenses Cost of products sold............. 2,361 1,087 (200)(A) 3,248 Depreciation, depletion and amortization................. 293 254 (7)(A) 9(I) 549 Selling and general administrative expense....... 123 105 -- 228 Exploration and research expense...................... 55 45 -- 100 Non-recurring charges and provision for asset dispositions*................ (191) 118 -- (73) ------ ----- ---- ----- 2,641 1,609 (198) 4,052 ------ ----- ---- ----- Operating income (loss)........... 423 51 (20) 454 Interest expense................ (97) (157) (19)(E) (273) Capitalized interest............ 2 2 -- 4 Miscellaneous income and expense, net................. 9 17 -- 26 ------ ----- ---- ----- Income (loss) before taxes, minority interests and equity in net earnings of affiliated companies....................... 337 (87) (39) 211 Provision for taxes on income... (134) (11) 6(F) (139) Minority interests in consolidated subsidiaries.... (8) 1 -- (7) Equity in net earnings (losses) of affiliated companies...... (4) (53) -- (57) ------ ----- ---- ----- Income (loss) from continuing operations...................... 191 (150) (33) 8 Preferred stock dividends....... -- (19) 19(E) -- ------ ----- ---- ----- Income (loss) from continuing operations applicable to common shares.......................... $ 191 (169) (14) 8 ====== ===== ==== ===== Net earnings (loss) per share Basic........................... $ 3.28 0.10 Diluted......................... $ 3.26 0.10 Weighted average shares outstanding Basic........................... 58.2 78.2 Diluted......................... 58.5 78.5
- ------------ * See historical financial statements incorporated by reference in this prospectus for a description of non-recurring charges and provision for asset dispositions. 92 101 PHELPS DODGE CORPORATION PRO FORMA COMBINED BALANCE SHEET PHELPS DODGE AND CYPRUS AMAX COMBINED JUNE 30, 1999 (UNAUDITED) (AMOUNTS IN MILLIONS)
HISTORICAL -------------------------- PRO FORMA PRO FORMA PHELPS DODGE CYPRUS AMAX ADJUSTMENTS COMBINED ------------ ----------- ----------- --------- ASSETS Cash and cash equivalents................... $ 144 1,275 (691)(B) (20)(C) (45)(D) (41)(B) (5)(E) 617 Accounts receivable, net.................... 396 37 -- 433 Inventories................................. 263 239 4(D) 506 Supplies.................................... 104 55 -- 159 Prepaid expenses............................ 15 74 (5)(D) 84 Deferred income taxes....................... 45 32 -- 77 ------ ----- ------ ----- Current assets............................ 967 1,712 (803) 1,876 Investments and long-term accounts receivable................................ 95 328 9(A) 432 Property, plant and equipment, net.......... 3,501 2,546 127(D) 6,174 Other assets and deferred charges........... 339 160 (9)(A) 41(B) 5(E) 536 ------ ----- ------ ----- Total Assets......................... $4,902 4,746 (630) 9,018 ====== ===== ====== ===== LIABILITIES Short-term debt............................. $ 214 249 -- 463 Current portion of long-term debt........... 62 79 -- 141 Accounts payable and accrued expenses....... 456 324 20(K) 800 Dividends payable........................... 29 9 -- 38 Accrued income taxes........................ 11 81 -- 92 ------ ----- ------ ----- Current liabilities....................... 772 742 20 1,534 Long-term debt.............................. 801 1,499 244(E) (42)(D) 2,502 Deferred income taxes....................... 493 14 18(F) 525 Other liabilities and deferred credits...... 376 412 52(D) 840 ------ ----- ------ ----- 2,442 2,667 292 5,401 ------ ----- ------ ----- Minority interests in consolidated subsidiaries................................ 86 20 -- 106 ------ ----- ------ ----- Shareholders' equity Common shares............................... 362 1 (1)(H) 125(G) 487 Treasury shares............................. -- (86) 86(A) -- Preferred shares............................ -- 5 (5)(E) -- Capital in excess of par value.............. 5 2,912 (86)(A) (2,826)(H) 30(B) 982(G) 1,017 Retained earnings........................... 2,198 (768) 768(H) 2,198 Accumulated other comprehensive income (loss).................................... (183) (5) 5(H) (183) Other....................................... (8) -- -- (8) ------ ----- ------ ----- Total Shareholders' Equity........... 2,374 2,059 (922) 3,511 ------ ----- ------ ----- Total Liabilities and Shareholders' Equity............................. $4,902 4,746 (630) 9,018 ====== ===== ====== =====
93 102 COMBINATION OF PHELPS DODGE AND CYPRUS AMAX NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION 1. BASIS OF PRESENTATION The Unaudited Pro Forma Combined Financial Information has been derived from historical consolidated financial statements of Phelps Dodge and Cyprus Amax incorporated by reference into this prospectus. See Phelps Dodge "Unaudited Pro Forma Combined Financial Information" on page 79 of this prospectus. The assumptions and related pro forma adjustments described below have been developed from public historical information available to Phelps Dodge. Pro forma adjustments have been included only to the extent known and reasonably available to Phelps Dodge. Additional information may exist that could materially affect the assumptions and related pro forma adjustments. Such information is not available to Phelps Dodge because it is within the particular and singular knowledge of Cyprus Amax. 2. THE OFFER Phelps Dodge has agreed to a business combination with Cyprus Amax pursuant to the Merger Agreement through an offering to exchange all the issued and outstanding Cyprus Amax common shares for a combination of Phelps Dodge common shares and cash. See "The Offer" on page 41 of this prospectus. Phelps Dodge is offering to exchange $7.61176875 net in cash plus 0.2203 shares of Phelps Dodge common stock for each outstanding share of Cyprus Amax common stock, on a fully prorated basis. Cyprus Amax shareholders may elect to receive either $20.54 in cash or 0.3500 shares of Phelps Dodge common stock for each Cyprus Amax common share that is validly tendered and not properly withdrawn, subject to proration if the stock portion or the cash portion of the offer is oversubscribed. Debt will be incurred to finance the cash component of the acquisition. An equivalent amount of debt is expected to be repaid upon consummation of the acquisition. The transaction would be accounted for under the purchase method. The purchase price for the business combinations is estimated as follows (dollars in millions and shares in thousands except per share data):
CYPRUS AMAX -------- Common shares outstanding (as reported in the Merger Agreement)................................................ 90,867 Exchange offer ratio of Phelps Dodge common shares for each common share.............................................. 0.2203 Phelps Dodge common shares to be issued..................... 20,018 Closing market price of each Phelps Dodge common share on September 29, 1999........................................ $55.3125 ======== Fair value of Phelps Dodge common shares issued, comprising par value of $125 ($6.25 per share) and capital in excess of par of $982............................................ $ 1,107 Cash Consideration at $7.61176875 for each Cyprus Amax common share.............................................. 691 Redemption of Cyprus Amax Series A Preferred Stock (Note 3E)....................................................... 244 Estimated fair value of Cyprus Amax outstanding options (as reported in the Merger Agreement)......................... 30 Estimated transaction costs................................. 20 -------- Purchase price.............................................. $ 2,092 ========
The final purchase price could change materially from the purchase price estimated above as a result of changes in the market price of common shares of Phelps Dodge and/or the relative market price of Cyprus Amax common shares. There are arrangements in place at Cyprus Amax that could impact the purchase price including employment agreements, change of control severance agreements, stock appreciation rights, and 94 103 COMBINATION OF PHELPS DODGE AND CYPRUS AMAX NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED) certain pension and other employee benefit plans. The potential impact of these factors cannot be estimated but could be material. 3. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS The following assumptions and related pro forma adjustments give effect to the proposed business combination of Phelps Dodge and Cyprus Amax as if such combination occurred on January 1, 1998, for the Unaudited Pro Forma Combined Statements of Operations for the six-month interim period ended June 30, 1999, and for the year ended December 31, 1998, respectively, and on June 30, 1999, for the Unaudited Pro Forma Combined Balance Sheet. The Unaudited Pro Forma Combined Financial Information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations or the consolidated financial position of Phelps Dodge would have been had the business combination with Cyprus Amax occurred on the respective dates assumed, nor is it necessarily indicative of future consolidated operating results or financial position. Future cash cost savings are not recognized in this Unaudited Pro Forma Combined Financial Information. Non-recurring items related to 1998 and the six-month interim period ended June 30, 1999 are included (see "Selected Historical Financial Data" at pages 61 through 65 for a summary of non-recurring items and special charges). (A) Reclassifications have been made to the Cyprus Amax historical consolidated financial information to conform to Phelps Dodge's presentation. The historical financial information of Cyprus Amax excludes the results of operations and assets of its discontinued Coal segment as reported for 1998 operations in Cyprus Amax's Form 8-K dated June 30, 1999, and as reported as of and for the six months ended June 30, 1999, in its Form 10-Q filing for such period. Cyprus Amax's historical financial information for the year ended December 31, 1998, also has been adjusted to exclude the identifiable results of recurring operations of its Lithium segment which was sold in October 1998. 95 104 COMBINATION OF PHELPS DODGE AND CYPRUS AMAX NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED)
BALANCE SHEET SIX MONTHS YEAR ENDED AT JUNE 30, ENDED DECEMBER 31, 1999 JUNE 30, 1999 1998 ------------- ------------- ------------ (IN $ MILLIONS) Reclassification adjustments: Investments and notes receivable............... 9 Other assets and deferred charges.................. (9) Treasury shares............. 86 Capital in excess of par value.................... (86) Miscellaneous income and expense, net............. 8 Provision for taxes on income................... (1) Equity in net earnings (losses) of affiliated companies................ (7) Elimination of recurring results from sold Lithium segment: Sales and other operating revenues................. (218) Cost of products sold (derived)................ (200) Depreciation, depletion and amortization expense..... (7)
(B) This pro forma adjustment represents payment of the cash component of the purchase price of $691 million, the estimated fair value of Cyprus Amax outstanding stock options of $30 million and the funding of certain Cyprus Amax benefits of $41 million. (C) Phelps Dodge estimates it will incur approximately $20 million of transaction costs, consisting primarily of investment bankers, attorneys and accountant fees, and financial printing and other charges. These estimates are preliminary and therefore are subject to change. (D) If the business combination is consummated, it will be accounted for using the purchase method of accounting in accordance with generally accepted accounting principles. Accordingly, the assets and liabilities of Cyprus Amax would be recorded at their estimated fair values. Phelps Dodge has not had access to information that is within the peculiar knowledge of Cyprus Amax and has not performed its due diligence necessary to determine the fair value of its assets or liabilities or to identify unknown liabilities or obligations. Pro forma adjustments to allocate the purchase price have been recorded in the Unaudited Pro Forma Combined Financial Information on the basis of fair values reported for certain assets and liabilities in public information of Cyprus Amax. Because fair value information for the remaining assets and liabilities and any possible identifiable intangible assets are not reasonably available to Phelps Dodge, the excess of the historical net book values of Cyprus Amax's assets acquired over the estimated purchase price has been allocated as a reduction of its combined net property, plant and equipment. Additionally, Phelps Dodge believes that cost savings will be realized upon the consolidation and integration of Cyprus Amax. Phelps Dodge has not developed formal plans for combining the operations. Accordingly, additional liabilities may be incurred in connection with the business combination and any ultimate restructuring. These additional liabilities and costs have not been contemplated in the Unaudited Pro Forma Combined Financial Information because information necessary to reasonably estimate such 96 105 COMBINATION OF PHELPS DODGE AND CYPRUS AMAX NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED) costs and to formulate detailed restructuring plans is not available to Phelps Dodge. Accordingly, the allocation of the purchase price cannot be estimated with a reasonable degree of accuracy and may differ materially from the amounts assumed in the Unaudited Pro Forma Combined Financial Information. The merger agreement by and between Asarco and Cyprus Amax has a $40 million termination fee for Asarco and $45 million for Cyprus Amax under certain circumstances. If such fee is required to be paid upon consummation of Phelps Dodge's proposed acquisition of Cyprus Amax, cash and cash equivalents of Cyprus Amax would be decreased by the fee payment which in turn would impact the purchase price allocation. The Unaudited Pro Forma Combined Financial Information has been adjusted to give effect to payment of the termination fee. The pro forma purchase price allocation adjustments are estimated as follows (in millions): Reduction of debt to fair value (as reported in Cyprus Amax's June 30, 1999, Form 10-Q).......................... $ 42 Increase in LIFO based inventory to replacement cost (as reported in Cyprus Amax's December 31, 1998, Form 10-K)... $ 4 Excess projected benefit obligation over the fair value of pension plan assets (as reported in Cyprus Amax's December 31, 1998, Form 10-K, comprising a $5 million reduction of prepaid expenses and other assets and a $52 million increase in other liabilities and deferred credits)....... $ 57 Increase in deferred tax liabilities (Note F)............... $ 18 Increase in net property, plant and equipment (derived)..... $127
(E) The pro forma adjustments reflect the redemption of all 4,664,000 outstanding shares of Cyprus Amax's Series A Preferred Stock which are redeemable at Cyprus Amax's option at $52.40 per share and the issuance of $244 million of ten-year debt to finance the redemption. Interest is estimated to be fixed at 7.75% resulting in annual interest expense of $19 million. The interest rate estimate was based upon ten-year treasury bill rates for September 1999, plus commercially indicative rate basis points. A change in the interest rate on the debt by 1/8 percent would impact annual interest expense by approximately $300,000. Debt issue costs associated with the debt are estimated to be approximately $5 million with annual amortization of approximately $500,000. (F) The estimated income tax effect of the pro forma adjustments has been recorded based upon the estimated effective tax rate of approximately 15% for Cyprus Amax which rate has been derived from public quarterly and annual filings. The business combination is expected to be a tax-free transaction with Cyprus Amax's historical tax bases surviving for income tax reporting purposes. A provision for pro forma income tax expense has been recorded for pro forma adjustments to the Pro Forma Combined Statements of Operations resulting from pro forma purchase price allocation adjustments and other items. Cyprus Amax has reported $176 million of U.S. net operating loss carryforwards through 1998, expiring from 1999 to 2012, which along with other deferred tax assets are subject to an existing valuation allowance. The net operating loss carryforwards may be subject to annual limitations after the acquisition because of the change in ownership rules. The annual limits will be calculated as the long-term tax exempt rate (currently 5.18%) times the fair market value of Cyprus Amax. Once all facts are known, the annual limits may necessitate an increase in the consolidated valuation allowance for deferred tax assets. Pro forma income tax expense and deferred tax allocations recorded upon consummation of the business combination could vary significantly from the pro forma estimates because information regarding Cyprus Amax's income tax reporting is not available to Phelps Dodge. 97 106 COMBINATION OF PHELPS DODGE AND CYPRUS AMAX NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED) (G) This pro forma adjustment reflects the issue of 20,018,000 shares of Phelps Dodge common stock in connection with the exchange offers for all the outstanding common shares of Cyprus Amax. The common stock of Phelps Dodge represents common shares of $125 million at $6.25 per share par value and capital in excess of par of $982 million. (H) These pro forma adjustments eliminate the historical shareholders' equity accounts of Cyprus Amax. (I) This pro forma adjustment records the estimated increase in depreciation, depletion and amortization expense related to the pro forma increase in property, plant and equipment recorded in connection with the business combination purchase price allocation. Because neither fair value nor book value information regarding the composition of Cyprus Amax's property, plant and equipment is available to Phelps Dodge, actual adjustments to depreciation, depletion and amortization expense could differ substantially from these estimates. (J) A pro forma adjustment to recognize imputed interest resulting from the $42 million fair value adjustment of Cyprus Amax's debt has not been provided because information necessary to calculate such adjustment is not reasonably available to Phelps Dodge. (K) This pro forma adjustment recognizes certain change of control obligation arising from the merger of Cyprus Amax and Phelps Dodge. (L) Pro forma weighted average common stock and common stock equivalents outstanding are estimated as follows (in millions):
SIX MONTHS YEAR ENDED ENDED JUNE 30, DECEMBER 31, 1999 1998 ---------------- ---------------- BASIC DILUTED BASIC DILUTED ----- ------- ----- ------- Average number of Phelps Dodge common shares outstanding......... 57.8 57.8 58.2 58.5 Phelps Dodge common shares to be issued in connection with the business combination (Note 2)..... 20.0 20.0 20.0 20.0 ---- ---- ---- ---- 77.8 77.8 78.2 78.5 ==== ==== ==== ====
The average number of common shares outstanding does not give effect to Cyprus Amax's outstanding stock options or other common stock equivalents. Based upon public information reported and the current exchange offer basis, Phelps Dodge estimates that the potential dilutive effect would be approximately 0.6 million shares. 98 107 DESCRIPTION OF PHELPS DODGE CAPITAL STOCK The following description of the terms of the capital stock of Phelps Dodge is not meant to be complete and is qualified by reference to Phelps Dodge's Restated Certificate of Incorporation (the Phelps Dodge charter), which is incorporated herein by reference. See "Where You Can Find Additional Information." AUTHORIZED CAPITAL STOCK Under the Phelps Dodge charter, Phelps Dodge's authorized capital stock consists of 200,000,000 shares of Phelps Dodge common stock, par value $6.25 per share, and 6,000,000 shares of Phelps Dodge preferred stock, par value $1.00 per share. PHELPS DODGE COMMON STOCK Phelps Dodge Common Stock Outstanding. The outstanding shares of Phelps Dodge common stock are, and the shares of Phelps Dodge common stock issued pursuant to the exchange offers will be, duly authorized, validly issued, fully paid and nonassessable. Voting Rights. Each holder of Phelps Dodge common stock is entitled to one vote for each share of Phelps Dodge common stock held of record on the applicable record date on all matters submitted to a vote of shareholders. Dividend Rights; Rights upon Liquidation. The holders of Phelps Dodge common stock are entitled to receive, from funds legally available for the payment thereof, dividends when and as declared by resolution of the Phelps Dodge Board of Directors, subject to any preferential dividend rights granted to the holders of any outstanding Phelps Dodge preferred stock. In the event of liquidation, each share of Phelps Dodge common stock is entitled to share pro rata in any distribution of Phelps Dodge's assets after payment or providing for the payment of liabilities and the liquidation preference of any outstanding Phelps Dodge preferred stock. Preemptive Rights. Holders of Phelps Dodge common stock have no preemptive rights to purchase, subscribe for or otherwise acquire any unissued or treasury shares or other securities. PHELPS DODGE PREFERRED STOCK Phelps Dodge Preferred Stock Outstanding. As of the date of this prospectus, no shares of Phelps Dodge preferred stock were issued and outstanding. Authorized Preferred Stock. Under Phelps Dodge's charter, the Phelps Dodge Board of Directors has the authority, without shareholder approval, to create one or more classes or series within a class of preferred stock, to issue shares of preferred stock in such class or series up to the maximum number of shares of the relevant class or series of preferred stock authorized, and to determine the preferences, rights, privileges and restrictions of any such class or series, including the dividend rights, voting rights, the rights and terms of redemption, the rights and terms of conversion, liquidation preferences, the number of shares constituting any such class or series and the designation of such class or series. The Phelps Dodge Board of Directors has designated a series of preferred stock as Junior Participating Cumulative Preferred Shares, and has issued rights to purchase those shares which are exercisable only upon the occurrence of certain events described below under "Comparison of Rights of Holders of Phelps Dodge Shares and Cyprus Amax Shares -- Comparison of Charter and By-law Provisions -- Capitalization." TRANSFER AND DIVIDEND PAYING AGENT AND REGISTRAR ChaseMellon Shareholder Services, L.L.C. is the transfer and dividend paying agent and registrar for the Phelps Dodge common stock. 99 108 COMPARISON OF RIGHTS OF HOLDERS OF PHELPS DODGE SHARES AND CYPRUS AMAX SHARES Upon completion of our proposed business combination, the shareholders of Cyprus Amax will become shareholders of Phelps Dodge, rather than shareholders of Asarco Amax. As Phelps Dodge shareholders, the rights of former Cyprus Amax shareholders will be governed by Phelps Dodge's charter and by-laws, which differ in certain material respects from Cyprus Amax's charter and by-laws. In addition, New York is the jurisdiction of incorporation of Phelps Dodge, while Delaware is the jurisdiction of incorporation of Cyprus Amax. As Phelps Dodge shareholders, the rights of former Cyprus Amax shareholders will therefore be governed by the New York Business Corporation Law (NYBCL) instead of the Delaware General Corporation Law (DGCL). The following is a comparison of: - the current rights of Cyprus Amax shareholders under the DGCL and the Cyprus Amax charter and by-laws; and - the rights Cyprus Amax shareholders would have as Phelps Dodge shareholders under the NYBCL and the Phelps Dodge charter and by-laws upon the consummation of a business combination between Phelps Dodge and Cyprus Amax. The comparison summarizes the material differences but is not intended to list all differences and is qualified by reference to New York law, Delaware law, the Phelps Dodge charter and by-laws and the Cyprus Amax charter and by-laws. The summary of the Cyprus Amax charter and by-laws is derived from the disclosure in the Form S-4 filed by Asarco Cyprus Incorporated on August 20, 1999. COMPARISON OF CHARTER AND BY-LAW PROVISIONS
CYPRUS AMAX PHELPS DODGE ----------------------------- ----------------------------- BOARD OF DIRECTORS Classified Board Divided into three classes, Divided into three classes, as nearly equal in number as as nearly equal in number as possible, with each class possible, with each class serving a staggered serving a staggered three-year term. three-year term. Removal of Directors Under Cyprus Amax's charter A director may be removed by and by-laws, a director may the stockholders only for be removed only for cause, cause. and only by the affirmative vote of holders of 75% of the outstanding voting stock. The DGCL generally provides that directors may be removed, with or without cause, by stockholder majority vote. An exception applies to corporations with classified boards like Cyprus Amax. Unless the charter provides otherwise, stockholders of such a corporation may remove directors only for cause. Filling of Board Vacancies With some exceptions, Vacancies on the board of vacancies on the board may be directors may be filled only filled by majority vote of by vote of the directors. the remaining directors then in office.
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CYPRUS AMAX PHELPS DODGE ----------------------------- ----------------------------- Size of Board Board must consist of not Board must consist of not less than three directors, as less than 9 nor more than 12 fixed from time to time by directors, as fixed from time resolution of the board. The to time by resolution of the current number of directors board. The current number of is 10. directors is 11. STOCKHOLDER MEETINGS Annual Meeting Held on date fixed by board. Held on the first Wednesday in May, or on another date fixed by the board from time to time. Calling a Special Meeting Only the Chairman of the Only the board of directors Board, the President, the or the Chairman of the Board board of directors or the may call a special meeting. holders of a majority of the voting stock may call a special meeting. Quorum Requirements The presence, in person or by Generally, the presence, in proxy, of the holders of person or by proxy, of the 33 1/3% of the outstanding holders of a majority of the voting stock constitutes a shares entitled to vote at quorum at the meeting. the meeting constitutes a quorum for that meeting. Certain Voting Requirements Stockholder action approving Phelps Dodge's charter and a merger or consolidation or by- laws contain no a sale of all or comparable supermajority substantially all of Cyprus voting requirements. Under Amax's assets requires the the NYBCL, the consummation affirmative vote by the by Phelps Dodge of a merger, holders of the majority of consolidation or disposition outstanding voting stock; of substantially all of its stockholder action on other assets requires the approval matters, except for elections of two- thirds of all the of directors, certain shares of Phelps Dodge amendments of organizational entitled to vote on the documents and certain proposal including, in transactions with the certain situations, the beneficial owner of more than affirmative vote by the 10% of any class of capital holders of a majority of all stock of Cyprus Amax, outstanding shares of each requires affirmative vote of class or series of shares. the majority of votes cast at Abstentions have the effect a meeting. Abstentions have of a vote against a proposed the effect of a vote against matter only if the a proposed matter only if the affirmative vote required is affirmative vote required is that of the majority of the that of the majority of the total votes represented by total votes represented by the outstanding voting stock. the outstanding voting stock. Cyprus Amax's charter requires the vote of 75% of the outstanding shares of Cyprus Amax's voting stock, voting together as a single class, for the
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CYPRUS AMAX PHELPS DODGE ----------------------------- ----------------------------- approval of business combinations specified in the charter, including certain transactions involving beneficial owners of 10% or more of Cyprus Amax's outstanding voting stock. Business combinations include any merger or consolidation of Cyprus Amax with any interested stockholder, any sale, lease or other disposition of Cyprus Amax assets having a fair market value of $50 million or more to an interested stockholder, the issuance or transfer of Cyprus Amax securities to an interested stockholder for consideration having a fair market value of $50 million or more, the adoption of any plan or proposal by or on behalf of an interested stockholder for the liquidation or dissolution of Cyprus Amax in which the interested stockholder receives anything other than cash, or any transaction which has the effect of increasing the proportionate share of any class of Cyprus Amax's stock owned by the interested stockholder. The charter's supermajority requirements do not apply if a majority of Cyprus Amax's disinterested directors approve the transaction and certain other conditions are met. Separately, Cyprus Amax's charter precludes Cyprus Amax, among other things, from repurchasing its stock, securities convertible into its stock, or similar securities from an interested stockholder who has beneficially owned such securities for less than two years before the repurchase, without the affirmative vote of a majority of Cyprus Amax's voting stock (excluding voting stock owned by the interested stockholder),
102 111
CYPRUS AMAX PHELPS DODGE ----------------------------- ----------------------------- voting as a single class, subject to some exceptions. Stockholder Action by Written Stockholder action must be Stockholder action must be Consent taken at an annual or special taken at an annual or special meeting and not by written meeting and not by written consent. consent, except that the NYBCL permits stockholder action by unanimous written consent. Advance Notice for To bring a matter (including Generally, to bring a matter Stockholder Nominations and the nomination of directors) (including the nomination of Other Business before an annual meeting, a directors) before an annual stockholder generally must meeting, a stockholder must give notice of a proposed give notice not less than 60 matter not less than 90 days days nor more than 90 days prior to the anniversary of prior to the meeting, but if the previous year's meeting, the meeting is scheduled for but if less than 70 days a day other than the first notice of the annual meeting Wednesday in May and less is given to stockholders, a than 70 days' notice is given stockholder must give notice or prior public announcement of a proposed matter by the is made to stockholders, a tenth day following the date stockholder must give notice at which notice of the annual by the tenth day following meeting was mailed. Cyprus the date at which notice of Amax's by-laws contain the annual meeting was mailed requirements as to the form or announcement thereof made. and content of the notice. If the number of directors to be elected at the election meeting is increased or there is a vacancy to be filled at the election meeting in a class of directors whose terms do not expire at the election meeting and there is no public announcement at least 70 days prior to the election meeting naming all of the nominees for director or specifying the size of the increased board of directors or the number of directors to be elected, a nominating stockholder's notice is timely if given by the tenth day following the date on which the public announcement is first made, but only with respect to nominees for any positions created by the increase or vacancy. Phelps Dodge's by-laws contain requirements as to the form and content of the stockholder's notice.
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CYPRUS AMAX PHELPS DODGE ----------------------------- ----------------------------- AMENDMENTS TO ORGANIZATIONAL DOCUMENTS Certificate of Incorporation Generally may be amended by Under the NYBCL, subject to board resolutions and the limited exceptions, affirmative vote by the amendments to Phelps Dodge's holders of a majority of the charter must be approved by outstanding voting stock, vote of a majority of all except that amendments to outstanding shares entitled provisions relating to the to vote on the proposed directors, stockholder amendment, except that nominations and action, charter provisions requiring by-law amendments, and a greater or class vote may certain transactions with only be amended by such vote. beneficial owners of 10% or In addition, an amendment more of the outstanding that negatively affects in common stock require the certain ways holders of affirmative vote of the shares of a class or series holders of 75% of the requires authorization by a outstanding voting stock. majority of the votes of all outstanding shares of the class or series. By-laws Generally may be amended by Phelps Dodge's by-laws permit the affirmative vote of the the amendment of the by-laws holders of a majority of the by a vote of a majority of voting stock at the relevant all the directors at any meeting, or by the regular or special meeting of affirmative vote of a the board, except that majority of the board. provisions relating to the Amendments to certain repurchase of stock by Phelps provisions of Cyprus Amax's Dodge may only be amended by charter governing the majority vote of the by-laws, including those stockholders. Generally, relating to stockholder under the NYBCL, the by-laws meetings and action, and the may also be amended by a number, election and removal majority of the votes cast by of directors, require the the shares entitled to vote affirmative vote of the in the election of any holders of 75% of the directors. outstanding voting stock. CAPITALIZATION Authorized Stock Common stock: 150 million Common stock: 200 million shares; preferred stock: 20 shares; preferred stock: 6 million shares. million shares. Preferred Stock The board is authorized to The board is authorized to issue preferred stock from issue preferred stock from time to time in one or more time to time in one or more series, with terms to be series, with terms to be fixed by the board. fixed by the board. Rights Plans Cyprus Amax has a rights Phelps Dodge has a rights agreement, dated as of agreement, dated as of February 28, 1999. The rights February 5, 1998. The rights agreement triggers upon the agreement triggers upon the acquisition by a third party acquisition by a third party of 15% of Cyprus Amax's of 20% of Phelps Dodge's
104 113
CYPRUS AMAX PHELPS DODGE ----------------------------- ----------------------------- outstanding common stock. The outstanding common stock. The board may redeem rights at board may redeem rights at any time prior to the time any time prior to the time such an acquisition takes such an acquisition takes place. place. Share Repurchases Cyprus Amax may generally The NYBCL prohibits Phelps repurchase its own shares, Dodge from repurchasing more although there are specific than 10% of its stock for restrictions on such more than market value from a repurchases when the seller stockholder who has held the is a beneficial owner of 10% stock for less than two or more of the voting power years, unless the repurchase of the outstanding voting is approved by the board and stock. by majority vote of the outstanding voting stock. Phelps Dodge's by-laws provide that Phelps Dodge may repurchase its stock only in the regular course of legitimate business or for the purpose of retiring the stock. EXCULPATION AND Cyprus Amax's charter Phelps Dodge's charter INDEMNIFICATION OF provides that no director provides that the personal DIRECTORS, OFFICERS AND will be personally liable for liability of Phelps Dodge's EMPLOYEES damages for breach of directors for any breach of fiduciary duty, except in duty in such capacity is cases where the director's eliminated to the fullest acts or omissions breached extent permitted by the his duty of loyalty to the NYBCL. The NYBCL permits corporation or its Phelps Dodge to eliminate or stockholders, were not in limit the personal liability good faith or involved of directors to Phelps Dodge intentional misconduct or a or its shareholders for knowing violation of law, or damages for any breach of provided an improper personal duty in such capacity except benefit to the director. liability (i) of a director (a) whose acts or omissions The Cyprus Amax by-laws were in bad faith, involved provide that Cyprus Amax will intentional misconduct or a indemnify any director or knowing violation of law, (b) officer to the fullest extent who personally gained a permitted by law if such financial profit or other director or officer is advantage to which he or she involved in litigation by was not legally entitled or reason of the fact that he is (c) whose acts violated (or was) a director or certain provisions of New officer, and provide in York law or (ii) for acts or addition that Cyprus Amax may omissions prior to the indemnify any person, other adoption in 1988 of Phelps than a director or officer, Dodge's charter amendment. if such person is involved in litigation by reason of the Phelps Dodge's by-laws fact that he is (or was) an provide that Phelps Dodge employee. will indemnify any person involved in litigation by reason of the fact that he is or was a director or officer of Phelps Dodge, unless
105 114
CYPRUS AMAX PHELPS DODGE ----------------------------- ----------------------------- the director's or officer's acts were committed in bad faith or were the result of his active and deliberate dishonesty and were material to the proceeding or the director or officer personally gained in fact a financial profit or other advantage to which he was not legally entitled. Further, Phelps Dodge's directors and officers are covered by insurance policies maintained against certain liabilities, including liabilities arising under the Securities Act of 1933.
COMPARISON OF CERTAIN STATUTORY PROVISIONS APPRAISAL RIGHTS CYPRUS AMAX STOCKHOLDER RIGHTS Under Delaware law, appraisal rights, or rights of a stockholder to receive the fair value of his stock in connection with a merger or consolidation, may be available in connection with a merger or consolidation in certain specific situations. Appraisal rights are not available to a corporation's stockholders under Delaware law where the corporation is to be the surviving corporation and no vote of its stockholders is required to approve the merger. In addition, unless otherwise provided in the certificate of incorporation, no appraisal rights are available under Delaware law to holders of shares of any class of stock which is either (1) listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by NASD or (2) held of record by more than 2,000 stockholders, unless such stockholders are required by the terms of the merger to accept anything other than: - shares of stock of the surviving corporation; - shares of stock of another corporation which, as of the effective date of the merger or consolidation, are the kind described in clauses (1) and (2) above; - cash instead of fractional shares of such stock; or - any combination of the consideration described in the three bullet items above. In addition, appraisal rights are not available under Delaware law in the event of the sale of all or substantially all of a corporation's assets or the adoption of an amendment to its certificate of incorporation, unless such rights are granted in the corporate charter. The Cyprus Amax charter does not grant such rights. PHELPS DODGE STOCKHOLDER RIGHTS Under New York law, appraisal rights are generally available in connection with a merger or consolidation, except that no appraisal rights are available: - to the stockholder of a parent corporation merging with its subsidiary where the parent owns at least 90% of the subsidiary's outstanding stock and certain additional requirements are met; - to the stockholder of the surviving corporation in a merger (other than a merger described in the previous bullet item) unless the merger adversely affects rights of the shares held by the stockholder in a certain way; or 106 115 - to a shareholder of shares of any class or series of stock listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers. Under the statutory provisions described above, since shares of Phelps Dodge common stock are listed on the New York Stock Exchange, Phelps Dodge common stockholders are not entitled to appraisal rights in connection with a merger or consolidation. Appraisal rights are also available under the NYBCL in connection with the sale, lease, exchange or other disposition of all or substantially all of a corporation's assets other than a transaction wholly for cash where shareholder approval is conditioned upon the corporation's dissolution and the distribution of all of the corporation's net assets within one year after the transaction. Further, appraisal rights are available in connection with a share exchange between two corporation as authorized by the NYBCL, except with respect to shares of a subject corporation that are not acquired in the exchange or that are listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers. In addition, appraisal rights are available to a shareholder of a subsidiary corporation that merges with its parent corporation, or is acquired by it in a share exchange, where the parent owns at least 90% of the subsidiary's outstanding stock and certain additional requirements are met. Appraisal rights are also available to a shareholder who is not entitled to vote with respect to a plan of merger or consolidation and whose shares will be canceled or exchanged in the merger or consolidation for cash or other consideration other than shares of the surviving or consolidated corporation or another corporation. CERTAIN BUSINESS COMBINATIONS CYPRUS AMAX STOCKHOLDER RIGHTS Delaware law restricts the ability of certain persons to acquire control of a Delaware corporation. Under the DGGL, if a person acquires 15% or more of the stock of a Delaware corporation without the approval of the board of directors of that corporation, thereby becoming an interested stockholder, that person generally may not engage in certain transactions with the corporation for a period of three years unless one of the following three exceptions applies: - the board of directors approved the acquisition of stock or the transaction prior to the time that the person became an interested stockholder; - upon consummation of the transaction in which the person became an interested stockholder, the interested stockholder became an 85% owner of the voting stock of the corporation in the transaction, excluding voting stock owned by directors who are also officers and certain employee stock plans; or - the transaction is approved by the board of directors and by the affirmative vote of 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. The Cyprus Amax charter provides that certain transactions with the beneficial owner of 10% of the voting power of the outstanding voting stock, including a merger, significant dispositions of assets, certain issuances or transfers of securities, certain plans of liquidation and dissolution, and certain reclassifications of securities, generally require the affirmative vote of 75% of the voting power of the outstanding shares of stock entitled to vote in the election of directors, unless Cyprus Amax's disinterested directors approve the transaction and certain other conditions are met. 107 116 PHELPS DODGE STOCKHOLDER RIGHTS New York law restricts the ability of certain persons to acquire control of a Delaware corporation. In general, a New York corporation may not engage in a business combination with an interested stockholder for a period of five years following the interested stockholder's becoming such. Such a business combination would be permitted where it is approved by the board of directors prior to the interested stockholder's becoming such, or within 30 days thereafter, if a good faith proposal regarding a business combination is made in writing. Covered business combinations include certain mergers and consolidations, dispositions of assets or stock, plans for liquidation or dissolution, reclassifications of securities, recapitalizations and similar transactions. An interested stockholder is generally a stockholder owning at least 20% of a corporation's outstanding voting stock. In addition, New York corporations may not engage at any time with any interested stockholder in a business combination other than: - a business combination approved by the board of directors prior to the stock acquisition, or where the acquisition of the stock had been approved by the board of directors prior to the stock acquisition, - a business combination approved by the affirmative vote of the holders of a majority of the outstanding voting stock not beneficially owned by the interested stockholder at a meeting for that purpose no earlier than five years after the stock acquisition, or - a business combination in which the interested stockholder pays a formula price designed to ensure that all other stockholders receive at least the highest price per share paid by the interested stockholder and that meets certain other requirements. Phelps Dodge is governed by the NYBCL, as described above. Phelps Dodge's charter does not contain a provision regarding transactions with interested stockholders. 108 117 ASARCO AND CYPRUS AMAX INFORMATION While we have included in this prospectus information concerning Asarco and Cyprus Amax that is known to us based on publicly available information (primarily filings by Asarco and Cyprus Amax with the SEC), we are not affiliated with Asarco or Cyprus Amax and neither Asarco nor Cyprus Amax has permitted us to have access to their books and records. Therefore, non-public information concerning Asarco or Cyprus Amax was not available to us for the purpose of preparing this prospectus. Although we have no knowledge that would indicate that statements relating to Asarco or Cyprus Amax contained or incorporated by reference in this prospectus are inaccurate or incomplete, we were not involved in the preparation of those statements and cannot verify them. Pursuant to rule 409 under the Securities Act of 1933 and rule 12b-21 under the Securities Exchange Act of 1934, we are requesting that Asarco and Cyprus Amax provide us with information required for complete disclosure regarding the businesses, operations, financial condition and management of Asarco and Cyprus Amax. We will amend or supplement this prospectus to provide any and all information we receive from Asarco or Cyprus Amax, if we receive the information before our offer expires and we consider it to be material, reliable and appropriate. In addition, pursuant to rule 439 under the Securities Act, we are requesting that PricewaterhouseCoopers LLP, the independent accountants of both Asarco and Cyprus Amax, provide us with the consents required for us to incorporate by reference into this prospectus the PricewaterhouseCoopers audit reports included in Asarco's and Cyprus Amax's Annual Reports on Form 10-K for the year ended December 31, 1998. If we receive those consents, we will promptly file them as exhibits to our registration statement. FORWARD-LOOKING INFORMATION The U.S. securities laws provide a "safe harbor" for certain forward-looking statements. This prospectus contains forward-looking statements, including statements concerning the business, future financial position, results of operations, business strategy, estimated cost savings and other benefits of our proposed business combination, plans as to dividends and plans and objectives of management for future operations of Phelps Dodge, Asarco and Cyprus Amax. Forward-looking statements can be found, among other places, under "The Proposed Combination," "Reasons for the Proposed Combination," "Background of the Offer" and "Unaudited Pro Forma Combined Financial Information." Generally, the words "will," "may," "should," "continue," "believes," "expects," "anticipates" or similar expressions identify forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected. Statements regarding the expected benefits of our proposed business combination with Asarco and Cyprus Amax, the expected commencement dates of operations, projected quantities of future production, capital costs, production rates and other operating and financial data are based on expectations that Phelps Dodge believes are reasonable, but we can give no assurance that such expectations will prove to have been correct. Factors that could cause actual results to differ materially include, among others: - risks and uncertainties relating to the timing of completion of the proposed Phelps Dodge/Asarco/ Cyprus Amax business combination; - the possibility that we will be unable to realize the expected cost savings and other benefits from the combination, - difficulties related to the integration of the businesses of Phelps Dodge, Asarco and Cyprus Amax, - the possibility that Phelps Dodge will not be able to combine with both Asarco and Cyprus Amax, - general U.S. and international economic, financial market and political conditions, - political and economic risks associated with operations outside the U.S., - the cyclical and volatile price of copper and other metals, 109 118 - unanticipated ground, water, weather or operating conditions or force majeure events, - unanticipated ore grade and geological problems or metallurgical and other processing problems, - delays in the receipt of or failure to receive necessary government permits, - changes in laws or regulations or the interpretation and enforcement thereof, - labor relations and accidents, and - environmental risks. These and other risk factors are discussed in more detail in this prospectus. See "Risk Factors" beginning on page 6. Many such factors are beyond our ability to control or predict. Readers are cautioned not to put undue reliance on forward-looking statements. We disclaim any intent or obligation to update these forward-looking statements, whether as a result of new information, future events or otherwise. LEGAL MATTERS The validity of the Phelps Dodge common shares offered hereby will be passed upon for Phelps Dodge by Debevoise & Plimpton, 875 Third Avenue, New York, New York. EXPERTS The audited consolidated financial statements of Phelps Dodge incorporated by reference in this Prospectus have been audited by PricewaterhouseCoopers LLP, independent public accountants, and are incorporated by reference herein in reliance upon the authority of said firm as experts in auditing and accounting. 110 119 SCHEDULE A DIRECTORS AND EXECUTIVE OFFICERS OF PHELPS DODGE CORPORATION The name, business address, present principal occupation or employment and five-year employment history of each of the directors and executive officers of Phelps Dodge Corporation are set forth below. Unless otherwise indicated, each occupation set forth opposite an individual's name refers to employment with Phelps Dodge and each individual has held such occupation for at least the last five years. Each director and executive officer listed below is a citizen of the United States.
POSITION WITH PHELPS DODGE; PRINCIPAL OCCUPATION OR EMPLOYMENT; 5-YEAR NAME AND BUSINESS ADDRESS EMPLOYMENT HISTORY - --------------------------------------------- --------------------------------------------------- Archie W. Dunham Mr. Dunham has been a Phelps Dodge director since Conoco, Inc. 1998. He has been Chairman of the Board of Conoco, 600 North Dairy Hartford Road Inc. (integrated energy company) since 1999 and Houston, TX 77079-1175 President and Chief Executive Officer since January 1996. He was an Executive Vice President of E.I. duPont de Nemours and Company (chemical materials and energy company), Conoco's former parent, from 1995 to October 1998. He was a Senior Vice President -- DuPont Polymers and DuPont Chemicals and Pigments from 1987 to 1992, and an Executive Vice President -- Exploration Production of Conoco from 1992 to 1995. Mr. Dunham is a director of Conoco Inc. and Louisiana Pacific Corporation. Age 60. William A. Franke Mr. Franke has been a Phelps Dodge director since Franke & Company, Inc. 1980. He has been Chairman and Chief Executive 2525 E. Camelback Road Officer of America West Holdings Corporation since Suite 800 February 1997 and Chairman of the Board of its Phoenix, AZ 85016 principal subsidiary, America West Airlines, Inc. (airline carrier), since 1992. He was the subsidiary's Chief Executive Officer from December 1993 until February 1997, and its President from May 1996 until February 1997. He has been President of Franke & Company, Inc., Phoenix, Arizona, an investment firm, since 1987. He is a director of America West Holdings Corporation, America West Airlines, Inc., Central Newspapers, Inc., Beringer Wine Estates, Mtel Latin America, Inc., AerFi Group Plc, and the Air Transport Association of America. Age 62. Southwood J. Morcott Mr. Morcott has been a Phelps Dodge director since Dana Corporation 1991. He has been Chairman of the Board of Dana 4500 Dort St. Corporation (manufacturer and distributor of Toledo, OH 43615 automotive and vehicular parts) since 1990. From 1987 to 1995, he served as Chairman of Hayes-Dana Inc. He was Chief Executive Officer of Dana Corporation from 1989 until February 1999, and Chief Operating Officer from 1986 until January 1997. He was President of Dana Corporation from 1986 to 1995. Mr. Morcott is a director of Dana Corporation, CSX Corporation and Johnson Controls, Inc. Age 61.
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POSITION WITH PHELPS DODGE; PRINCIPAL OCCUPATION OR EMPLOYMENT; 5-YEAR NAME AND BUSINESS ADDRESS EMPLOYMENT HISTORY - --------------------------------------------- --------------------------------------------------- J. Steven Whisler Mr. Whisler has been a Phelps Dodge director since Phelps Dodge Corporation 1995 and has been Phelps Dodge's President and 2600 North Central Avenue Chief Operating Officer since December 1997, and Phoenix, AZ 85004-3104 President of Phelps Dodge Mining Company, a division of Phelps Dodge, from 1991 to October 1998. He was a Senior Vice President of Phelps Dodge from 1988 to December 1997 and Vice President of Phelps Dodge from 1987 until 1988. He was General Counsel of Phelps Dodge from 1987 until 1991. He is a director of Burlington Northern Santa Fe Corporation and Southern Peru Copper Corporation. Age 44. Robert N. Burt Mr. Burt has been a Phelps Dodge director since FMC Corporation 1993. He has been Chairman of the Board and Chief 200 East Randolph Drive Executive Officer of FMC Corporation (chemicals and Chicago, IL 60601 machinery for industry, agriculture and government) since 1991. He is a director of FMC Corporation and Warner-Lambert Company. Age 61. Robert D. Krebs Mr. Krebs has been a Phelps Dodge director since Burlington Northern Santa Fe Corporation 1987. He has been Chairman and Chief Executive 2650 Lou Menk Drive Officer of Burlington Northern Santa Fe Corporation Fort Worth, TX 76131-2830 (transportation) since June 1, 1999. From April 1997 to May 31, 1999, he was Chairman, President and Chief Executive Officer of Burlington Northern Santa Fe Corporation. From September 1995 to April 1997, he was President and Chief Executive Officer of Burlington Northern Santa Fe Corporation. From June 1988 to January 1998, he was Chairman, President and CEO of Santa Fe Pacific Corporation. He is a director of Burlington Northern Santa Fe Corporation. Age 57. Douglas C. Yearley Mr. Yearley has been a Phelps Dodge director since Phelps Dodge Corporation 1986 and has been Phelps Dodge's Chairman of the 2600 North Central Avenue Board and Chief Executive Officer since 1989. He Phoenix, AZ 85004-3014 was President of Phelps Dodge from 1991 until December 1997. He was President of Phelps Dodge Industries, a division of Phelps Dodge, from 1988 until 1990, Executive Vice President of Phelps Dodge from 1987 until 1989 and Senior Vice President of Phelps Dodge from 1982 through 1986. He is a director of J. P. Morgan & Co., Incorporated and its principal banking subsidiary, Morgan Guaranty Trust Company of New York, Lockheed Martin Corporation, USX Corporation and Southern Peru Copper Corporation. Age 63.
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POSITION WITH PHELPS DODGE; PRINCIPAL OCCUPATION OR EMPLOYMENT; 5-YEAR NAME AND BUSINESS ADDRESS EMPLOYMENT HISTORY - --------------------------------------------- --------------------------------------------------- Paul Hazen Mr. Hazen has been a Phelps Dodge director since Wells Fargo Bank 1988. He has been Chairman of Wells Fargo & Co. 420 Montgomery Street since November 1998. He was Chairman and Chief San Francisco, CA 94104 Executive Officer of Wells Fargo & Co., San Francisco (bank holding company) and of Wells Fargo Bank, N.A. (national banking association) from January 1995 until November 1998. He was President of Wells Fargo & Co. and of Wells Fargo Bank, N.A. from 1984 to 1994. He is a director of Wells Fargo & Co., Safeway, Inc., Shanghai Commercial Bank Ltd., Vodaphone AirTouch Plc and E.piphany, Inc. Age 57. Manuel J. Iraola Mr. Iraola has been a Phelps Dodge director since Phelps Dodge Corporation 1997 and has been President of Phelps Dodge 2600 North Central Avenue Industries, a division of Phelps Dodge, since 1995, Phoenix, AZ 85004-3014 and a Senior Vice President of Phelps Dodge since 1995. From 1992 until 1995 he was President of Phelps Dodge International Corporation. Age 51. Marie L. Knowles Mrs. Knowles has been a Phelps Dodge director since ARCO 1994. She has been Executive Vice President and 333 South Hope Street Chief Financial Officer of Atlantic Richfield Los Angeles, CA 90071 Company (diversified energy company) since 1996. From 1993 until 1996 she was Senior Vice President of Atlantic Richfield Company, and President of ARCO Transportation Company, a former subsidiary of Atlantic Richfield Company. From 1990 to 1993 she was Vice President and Controller of Atlantic Richfield Company. Mrs. Knowles is a director of Vastar Resources, Inc., URS Corporation and America West Holdings Corporation. Age 52. Gordon R. Parker Mr. Parker has been a Phelps Dodge director since 10101 East Dry Creek Road 1995. He was Chairman of Newmont Mining Corporation Englewood, CO 80112 from 1986 until his retirement in 1994. He was Chief Executive Officer from 1985 until 1993. Mr. Parker is a director of Caterpillar, Inc., Gold Fields of South Africa, Gold Fields Limited and The Williams Companies, Inc. Age 63. Ramiro G. Peru Mr. Peru has been Chief Financial Officer of Phelps Phelps Dodge Corporation Dodge since May 1999 and has been a Senior Vice 2600 North Central Avenue President since 1997. He previously was appointed Phoenix, AZ 85004-3014 Vice President of Phelps Dodge Mining Company in 1993 and Vice President and Treasurer of Phelps Dodge in 1995.
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POSITION WITH PHELPS DODGE; PRINCIPAL OCCUPATION OR EMPLOYMENT; 5-YEAR NAME AND BUSINESS ADDRESS EMPLOYMENT HISTORY - --------------------------------------------- --------------------------------------------------- Timothy R. Snider Mr. Snider has been a Senior Vice President of Phelps Dodge Corporation Phelps Dodge since 1998. He is also President of 2600 North Central Avenue Phelps Dodge Mining Company. Before becoming Senior Phoenix, AZ 85004-3014 Vice President, he was a Vice President of Phelps Dodge, a position he held since 1997. He was Vice President, Arizona operations, of Phelps Dodge Mining Company. He previously served as President of Phelps Dodge Morenci, Inc. David L. Pulatie Mr. Pulatie joined Phelps Dodge as Senior Vice Phelps Dodge Corporation President -- Human Resources in March 1999. Before 2600 North Central Avenue that, he was a Senior Vice President of Motorola Phoenix, AZ 85004-3014 Inc. S. David Colton Mr. Colton has been Vice President and General Phelps Dodge Corporation Counsel of Phelps Dodge since April 1998. Before 2600 North Central Avenue that, he was Vice President and Counsel for Phelps Phoenix, AZ 85004-3014 Dodge Exploration, a position he held since 1995. Prior to that time, he was Senior Exploration Counsel for the exploration and development group of Phelps Dodge Mining Company.
DIRECTORS AND EXECUTIVE OFFICERS OF CAV CORPORATION The present directors and executive officers of CAV Corporation are set forth below, along with their respective positions with CAV. Each of these individuals is an executive officer of Phelps Dodge Corporation. Further information concerning each of them is set forth above. Douglas C. Yearley Director and Chairman J. Steven Whisler Director and President Ramiro G. Peru Director, Vice President and Treasurer S. David Colton Director, Vice President and Secretary
A-4 123 SCHEDULE B ADDITIONAL INFORMATION REGARDING PHELPS DODGE CORPORATION'S EXPLORATION AND MINING PROPERTIES PD MINING -- EXPLORATION & DEVELOPMENT Our exploration group's primary objectives are to increase copper reserves through discoveries, acquisitions and joint ventures and, where appropriate, to diversify into other metals, minerals and geographic areas. This group operates in more than 30 countries and maintains offices in Australia, Austria, Brazil, Canada, Chile, Eritrea, India, Indonesia, Madagascar, Mexico, Peru, the Philippines, South Africa, the United States and Zambia. The 1998 exploration program continued to place emphasis on the search for and delineation of large scale copper, gold and other base metal deposits. We expended $42.0 million on worldwide exploration during 1998, compared with $74.1 million in 1997 and $70.7 million in 1996. Approximately 26 percent of the 1998 expenditures occurred in the United States with 19 percent being spent at our mine sites. This compares with 33 percent in 1997 (23 percent at mine sites) and 47 percent in 1996 (33 percent at mine sites). The balance of exploration expenditures was spent principally in Australasia, Brazil, Canada, Chile, Mexico, Peru and Madagascar. During 1998, exploration efforts continued at our existing copper operations. In New Mexico, additional mine-for-leach reserves were delineated in the Tyrone area. On May 7, 1997, we announced plans to resume production at our Ajo copper mine in southern Arizona where mining operations have been suspended since 1984. Environmental permitting is continuing while the project is on hold pending an improvement in market conditions. Environmental permitting is in progress to advance the development of our Dos Pobres and San Juan deposits in the Safford District in eastern Arizona. The Dos Pobres deposit contains a total of 286 million tons of leach material with a grade of 0.39 percent copper. The San Juan deposit contains 272 million tons of leach material with a grade of 0.28 percent copper. Additionally, the Dos Pobres deposit contains 330 million tons of concentrator material with a grade of 0.65 percent copper. Internationally, our explorations group completed a feasibility study on the Ambatovy nickel/cobalt deposit in central Madagascar. Detailed drilling in the district, which is located 80 kilometers east of the capital city of Antananarivo, defined mineralized material of 210 million tons at 1.1 percent nickel and 0.1 percent cobalt. Acid consumption by the ore is low, and the ore is amenable to high pressure acid leach extraction for nickel and cobalt. The feasibility study indicated there was a need for the price of nickel to increase to make the project economical. We completed a pre-feasibility study on our 70 percent-owned Piedras Verdes property in Sonora, Mexico, in 1998. Results indicated leachable mineralized material of 310 million tons at 0.37 percent copper. Metallurgical testwork is continuing. In 1998, we formed a Brazilian joint venture company with Companhia Vale do Rio Doce (CVRD) under the name Mineracao Serra do Sossego S.A. (Sossego). The venture agreement required us to spend approximately $4.5 million on exploration and related activities in order to earn a 50 percent share in the venture. Having completed our earn-in, the mineral rights and all initial investments were transferred into the new company in December 1998. The deposit contains an estimated 200 million tons at 1.2 percent copper with 0.31 grams of gold per ton. Sossego is starting the necessary work to develop a pre-feasibility study to further define the mineralized material and determine the viability of the project. B-1 124 ORE RESERVES Ore reserves at each of our active copper operations and at Safford, Ajo, Ojos del Salado and Cobre have been estimated as follows: - --------------------------------------------------------------------------------
ESTIMATED AT DECEMBER 31, 1998 ESTIMATED AT DECEMBER 31, 1997 ---------------------------------------------- ----------------------------------------------- MILLING LEACHING MILLING LEACHING RESERVES RESERVES PHELPS RESERVES RESERVES PHELPS ---------------- ---------------- DODGE ---------------- ----------------- DODGE MILLION % MILLION % INTEREST MILLION % MILLION % INTEREST TONS COPPER TONS COPPER (%) TONS COPPER TONS COPPER (%) ------- ------ ------- ------ -------- ------- ------ -------- ------ -------- Morenci.................. 475.8 0.63 2,076.9 0.22 85.0 543.3 0.68 1,628.1 0.26 85.0 Chino.................... 350.3 0.62 483.0 0.30 66.7 368.9 0.62 520.8 0.30 66.7 Tyrone................... - - 466.3 0.32 100.0 - - 455.0 0.34 100.0 Cobre.................... 133.6 0.73 98.0 0.35 100.0 N/A N/A N/A N/A - Candelaria*.............. 456.1 0.85 - - 80.0 475.8 0.88 - - 80.0 Safford**................ 330.0 0.65 558.2 0.34 100.0 330.0 0.65 285.0 0.39 100.0 Ajo...................... 150.0 0.56 - - 100.0 150.0 0.56 - - 100.0 Ojos del Salado*......... 18.7 1.32 - - 100.0 19.7 1.32 - - 100.0
- --------------- * The Candelaria and Ojos del Salado deposits also contained, respectively, 0.006 ounces and 0.008 ounces of gold per ton in 1998 and 1997. ** Safford deposit includes Dos Pobres and San Juan reserves in 1998 and Dos Pobres reserves in 1997. - -------------------------------------------------------------------------------- Our estimated share of aggregate ore reserves at the above named properties at December 31 is as follows: - --------------------------------------------------------------------------------
1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Milling reserves (billion tons)............................. 1.6 1.6 1.3 1.2 1.0 Leaching reserves (billion tons)............................ 3.2 2.5 2.2 1.8 1.7 Commercially recoverable copper (million tons).............. 14.5 13.7 12.1 12.3 10.6
- -------------------------------------------------------------------------------- Ore reserves are those estimated quantities of ore that may be profitably mined and processed for extraction of their constituent values. Estimates of our reserves are based upon our engineering evaluations of assay values derived from samplings of drill holes and other openings. In our opinion, the sites for such samplings are spaced sufficiently close and the geologic characteristics of the deposits are sufficiently well defined to render the estimates reliable. Stated tonnages and grades of ore do not reflect waste dilution in mining or losses in processing. Leaching reserves include copper estimated to be recoverable from leach reserves remaining to be mined at Morenci, Chino, Tyrone, Cobre and Safford. Commercially recoverable copper includes copper estimated to be recoverable from milling and leaching reserves and from existing stockpiles of leach material at Morenci, Chino, Tyrone, Cobre and Safford after taking into consideration waste dilution and losses in processing. B-2 125 Ore reserves at each of our other mining operations and investments at year-end 1998 are estimated as follows: - --------------------------------------------------------------------------------
ORE PHELPS RESERVES % DODGE MILLION % CALCIUM INTEREST TONS COPPER FLUORIDE (%) -------- ------ -------- -------- Southern Peru Copper Corporation*........................... 1.695.9 0.67 -- 13.9 Phelps Dodge Mining Limited................................. 27.9 -- 16.45 100.0
- --------------- * Southern Peru Copper Corporation deposits also contain approximately 790 million tons of leach material at a grade of 0.22 percent copper. - -------------------------------------------------------------------------------- We hold various other properties containing mineral deposits that we believe could be brought into production should market conditions warrant. Permitting and significant capital expenditures would be required before operations could commence at these properties. The deposits are estimated to contain the following mineralized material as of December 31, 1998: - --------------------------------------------------------------------------------
SULFIDE MATERIAL LEACH MATERIAL PHELPS ---------------- ------------------------- DODGE MILLION % MILLION % % INTEREST LOCATION TONS COPPER TONS COPPER NICKEL (%) ---------- ------- ------ ------- ------ ------ -------- American Mountain........................ Arizona -- -- 140 0.25 -- 85.0 Cochise.................................. Arizona -- -- 210 0.40 -- 100.0 Copper Basin............................. Arizona 70 0.53 -- -- -- 100.0 Garfield................................. Arizona -- -- 1,000 0.27 -- 85.0 Lone Star................................ Arizona -- -- 1,600 0.38 -- 100.0 Sanchez.................................. Arizona -- -- 230 0.29 -- 100.0 Western Copper........................... Arizona 530 0.55 500 0.31 -- 85.0 Piedras Verdes........................... Mexico -- -- 310 0.37 -- 70.0 Southern Peru Copper Corporation......... Peru 370 0.62 -- -- -- 13.9 Ambatovy*................................ Madagascar -- -- 210 -- 1.10 100.0
- --------------- * Ambatovy deposit also contains 0.10 percent cobalt. ** Mineralized deposit or mineralized material is a mineralized body which has been delineated by appropriately spaced drilling and/or underground sampling to support a sufficient tonnage and average grade of metal(s). Such a deposit does not qualify as a reserve, until comprehensive evaluation based upon unit cost, grade, recoveries, and other material factors conclude legal and economic feasibility. - -------------------------------------------------------------------------------- B-3 126 The letter of election and transmittal, certificates for Cyprus Amax shares and any other required documents should be sent or delivered by each Cyprus Amax shareholder or his or her broker, dealer, commercial bank, trust company or other nominee to the Exchange Agent at one of its addresses set forth below. The Exchange Agent for the Offer is: CHASEMELLON SHAREHOLDER SERVICES By Mail: By Hand: By Overnight Delivery: Reorganization Department Reorganization Department Reorganization Department PO Box 3301 120 Broadway, 13 (th) Floor 85 Challenger Road South Hackensack, NJ 07606 New York, NY 10271 Mail Stop-Reorg Ridgefield Park, NJ 07660 By Facsimile: (for eligible institutions only) Fax: (201) 296-4293
Confirm Facsimile by Telephone ONLY: (201) 296-4860 Any questions or requests for assistance or additional copies of the prospectus, the letter of election and transmittal and the notice of guaranteed delivery may be directed to the Information Agent or the Dealer Manager at their respective telephone numbers and locations listed below. You may also contact your local broker, commercial bank, trust company or nominee for assistance concerning the offer. The Information Agent for the Offer is: INNISFREE M&A INCORPORATED 501 Madison Avenue, 20(th) Floor New York, NY 10022 CALL TOLL-FREE: 1-877-750-5838 Banks and Brokers Call Collect: (212) 750-5833 The Dealer Manager for the Offer is: MORGAN STANLEY DEAN WITTER 1585 Broadway New York, NY 10036 (212) 761-4000 -----END PRIVACY-ENHANCED MESSAGE-----