-----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, FWCQkJIsGT8JdTaRFJiRhZrlWRT9G8VKIDj4Mfk7/o9x7qNvcVhgqfwhoLl4k1/6 g4LzMjwNcUe2jfhLSY4jDg== 0000950123-99-009250.txt : 19991018 0000950123-99-009250.hdr.sgml : 19991018 ACCESSION NUMBER: 0000950123-99-009250 CONFORMED SUBMISSION TYPE: SC 14D1/A PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19991012 GROUP MEMBERS: AAV CORPORATION GROUP MEMBERS: PHELPS DODGE CORP SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ASARCO INC CENTRAL INDEX KEY: 0000007649 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY SMELTING & REFINING OF NONFERROUS METALS [3330] IRS NUMBER: 134924440 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1/A SEC ACT: SEC FILE NUMBER: 005-31638 FILM NUMBER: 99727087 BUSINESS ADDRESS: STREET 1: 180 MAIDEN LN CITY: NEW YORK STATE: NY ZIP: 10038 BUSINESS PHONE: 2125102000 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN SMELTING & REFINING CO DATE OF NAME CHANGE: 19760607 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: 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: SC 14D1/A 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 SC 14D1/A 1 AMENDMENT #6 TO SCHEDULE 14D-1 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ SCHEDULE 14D-1 TENDER OFFER STATEMENT PURSUANT TO SECTION 14(D)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------------ (AMENDMENT NO. 6) ASARCO INCORPORATED (NAME OF SUBJECT COMPANY) AAV CORPORATION AND PHELPS DODGE CORPORATION (BIDDERS) COMMON STOCK, NO PAR VALUE (INCLUDING THE ASSOCIATED PREFERRED SHARE PURCHASE RIGHTS) (TITLE OF CLASSES OF SECURITIES) ------------------------ 04341310 (COMMON STOCK) (CUSIP NUMBER OF CLASS OF SECURITIES) ------------------------ S. DAVID COLTON, ESQ. VICE PRESIDENT AND GENERAL COUNSEL PHELPS DODGE CORPORATION 2600 NORTH CENTRAL AVENUE PHOENIX, ARIZONA 85004-3014 (602) 234-8100 ------------------------ COPIES TO: MICHAEL W. BLAIR, ESQ. STEPHEN R. VOLK, ESQ. DEBEVOISE & PLIMPTON DAVID W. HELENIAK, ESQ. 875 THIRD AVENUE SHEARMAN & STERLING NEW YORK, NY 10022 599 LEXINGTON AVENUE (212) 909-6000 NEW YORK, NEW YORK 10022 TELEPHONE: (212) 848-4000
CALCULATION OF FILING FEE
---------------------------------------------------- ---------------------------------------------------- TRANSACTION VALUATION AMOUNT OF FILING FEE ---------------------------------------------------- $852,856,552* $170,572** ---------------------------------------------------- ----------------------------------------------------
[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: $230,873 Form or Registration No.: 333-86063 Filing Party: Phelps Dodge Corporation Date Filed: August 27, 1999
* For purposes of calculating the filing fee only. This calculation assumes that 39,783,396 shares of common stock, no par value per share, of Asarco Incorporated will be exchanged for shares of common stock, $6.25 par value per share, of Phelps Dodge Corporation. Pursuant to Rules 0-11(d) and 0-11(a)(4) of the Securities Exchange Act of 1934, as amended, the filing fee was based upon the average of the high and low prices of Asarco Incorporated common stock on September 1, 1999, as reported on the New York Stock Exchange Composite Tape. ** The filing fee is calculated by taking 1/50 of 1% of the Transaction Valuation, pursuant to Rule 0-11(d) of the Exchange Act. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 - --------------------------------------------------------------------------- 1 NAME OF REPORTING PERSONS: Phelps Dodge Corporation S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON: 13-1808503 - --------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF GROUP (a) [ ] (b) [ ] - --------------------------------------------------------------------------- 3 SEC USE ONLY - --------------------------------------------------------------------------- 4 SOURCE OF FUNDS WC, BK - --------------------------------------------------------------------------- 5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(e) or 2(f) [ ] - --------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION New York - --------------------------------------------------------------------------- 7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON - --------------------------------------------------------------------------- 8 CHECK IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES [ ] - --------------------------------------------------------------------------- 9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) - --------------------------------------------------------------------------- 10 TYPE OF REPORTING PERSON CO - ---------------------------------------------------------------------------
3 - --------------------------------------------------------------------------- 1 NAME OF REPORTING PERSONS: AAV Corporation S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSON: N/A - --------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF GROUP (a) [ ] (b) [ ] - --------------------------------------------------------------------------- 3 SEC USE ONLY - --------------------------------------------------------------------------- 4 SOURCES OF FUNDS WC, BK - --------------------------------------------------------------------------- 5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(e) or 2(f) [ ] - --------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - --------------------------------------------------------------------------- 7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON - --------------------------------------------------------------------------- 8 CHECK IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES [ ] - --------------------------------------------------------------------------- 9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) - --------------------------------------------------------------------------- 10 TYPE OF REPORTING PERSON CO - ---------------------------------------------------------------------------
4 Phelps Dodge Corporation, a New York corporation ("Phelps Dodge"), and its wholly owned subsidiary, AAV Corporation, a Delaware corporation ("Purchaser"), hereby amend and supplement their Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1") filed with the Securities and Exchange Commission (the "Commission") on September 3, 1999 with respect to the Purchaser's exchange offer to acquire all outstanding shares of common stock, no par value per share, (including the associated preferred share purchase rights, the "Asarco Shares") of Asarco Incorporated, a New Jersey corporation, ("Asarco") by filing this Amendment No. 6 to the Schedule 14D-1 ("Amendment No. 6"), and an amended Prospectus dated October 12, 1999 (the "Prospectus") and the related Letter of Election and Transmittal which together constitute the Offer. Item 3 is hereby amended and supplemented as follows: ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY. (a)-(b) The information set forth under the captions "Summary -- The Offer," "Background of the Offer" and "Relationships with Asarco" in the Prospectus is incorporated herein by reference. 5 Item 10 is hereby amended and supplemented as follows: ITEM 10. ADDITIONAL INFORMATION. (a) None. (b)-(c) The information set forth under the captions "Background of the Offer" and "The Offer -- Conditions of Our Offer" in the Prospectus is incorporated herein by reference. (d) The information set forth under the caption "The Offer -- Effect of Offer on Market for Asarco Shares; Registration under the Exchange Act" in the Prospectus is incorporated herein by reference. (e) The information set forth under the caption "The Offer -- Litigation" in the Prospectus is incorporated herein by reference. (f) The information set forth in the Prospectus and the related Letter of Election and Transmittal, attached as Exhibits (a)(21) and (22) hereto, is incorporated herein by reference. 6 Item 11 is hereby amended and supplemented by the addition of the following Exhibits thereto: ITEM 11. MATERIAL TO BE FILED AS EXHIBITS. (a)(21) Prospectus of Phelps Dodge dated October 12, 1999. (a)(22) Form of Letter of Election and Transmittal. (a)(23) Form of Notice of Guaranteed Delivery. (a)(24) Form of Letter from Morgan Stanley & Co. Incorporated to Brokers, Dealers, Commercial Banks, Trust Companies and Nominees. (a)(25) Form of Letter from Brokers, Dealers, Commercial Banks, Trust Companies and Nominees to Clients. (a)(26) Form of Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (c)(1) Agreement and Plan of Merger dated as of October 5, 1999. (d)(3) Tax opinion of Shearman & Sterling. (e)(3) See exhibit (a)(21). (f)(5) Third Proxy Statement Supplement of Phelps Dodge dated October 8, 1999 (incorporated by reference).
7 After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Phelps Dodge Corporation By /s/ RAMIRO G. PERU ------------------------------------ Name: Ramiro G. Peru Title: Chief Financial Officer and Senior Vice President October 12, 1999 8 After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. AAV Corporation By /s/ RAMIRO G. PERU ------------------------------------ Name: Ramiro G. Peru Title: Vice President and Treasurer October 12, 1999 9 EXHIBIT INDEX
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGE - ------- ----------- ------------ (a)(21) Prospectus of Phelps Dodge dated October 12, 1999. (a)(22) Form of Letter of Election and Transmittal. (a)(23) Form of Notice of Guaranteed Delivery. (a)(24) Form of Letter from Morgan Stanley & Co. Incorporated to Brokers, Dealers, Commercial Banks, Trust Companies and Nominees. (a)(25) Form of Letter from Brokers, Dealers, Commercial Banks, Trust Companies and Nominees to Clients. (a)(26) Form of Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (c) Agreement and Plan & Merger dated as of October 5, 1999. (d)(3) Tax opinion of Shearman & Sterling. (e)(3) See exhibit (a)(21). (f)(5) Third Proxy Statement Supplement of Phelps Dodge dated October 8, 1999 (incorporated by reference).
EX-99.A.21 2 PROSPECTUS OF PHELPS DODGE 1 The information contained in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated October 12, 1999 [PHELPS DODGE LOGO] Phelps Dodge Corporation Amended Offer to Exchange Each Outstanding Share of Common Stock (Including Associated Preferred Share Purchase Rights) of ASARCO Incorporated For 0.50266 Shares of Common Stock of Phelps Dodge Corporation or $29.50 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 25, 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 OCTOBER 5, 1999, WE ENTERED INTO AN AGREEMENT AND PLAN OF MERGER WITH ASARCO PURSUANT TO WHICH WE AGREED TO AMEND OUR OFFER TO ASARCO SHAREHOLDERS. We are offering to exchange $14.75 net in cash plus 0.25133120 shares of Phelps Dodge common stock for each outstanding share of Asarco Incorporated common stock, on a fully prorated basis. You may elect to receive either $29.50 in cash or 0.50266 shares of Phelps Dodge common stock for each of your Asarco 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 $7.61176875 net in cash and 0.2203 shares of Phelps Dodge common stock for each outstanding common share of Cyprus Amax Minerals Company on a fully prorated basis and subject to the same election and proration procedures. Our obligation to exchange Phelps Dodge common stock and cash for Asarco common stock is subject to the conditions listed under "The Offer -- Conditions of Our Offer." Our offer to Asarco shareholders is not, however, conditioned on the success of our offer to Cyprus Amax shareholders, nor is our offer to Cyprus Amax shareholders conditioned on the success of our offer to Asarco 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 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 , 1999 2 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE PROPOSED COMBINATION........ iii WHERE YOU CAN FIND MORE INFORMATION......................... v 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..................................... 15 THE OFFER................................................... 45 Description of Election and Proration Procedures.......... 46 Timing of Our Offer....................................... 47 Litigation................................................ 47 Extension, Termination and Amendment...................... 48 Exchange of Asarco Shares; Delivery of Phelps Dodge Common Stock and Cash......................................... 49 Cash Instead of Fractional Shares of Phelps Dodge Common Stock.................................................. 50 Withdrawal Rights......................................... 51 Procedure for Tendering................................... 52 Material U.S. Federal Income Tax Considerations........... 53 Reorganization Treatment.................................. 53 Asarco Rights............................................. 55 Effect of Offer on Market for Asarco Shares; Registration Under the Exchange Act................................. 55 Purpose of Our Offer; the Phelps Dodge/Asarco Merger...... 56 Conditions of Our Offer................................... 57 Source and Amount of Funds................................ 59 Relationships with Asarco................................. 59 Fees and Expenses......................................... 60 Accounting Treatment...................................... 60 Stock Exchange Listings................................... 61 Regulatory Matters........................................ 61 THE COMPANIES............................................... 62 Phelps Dodge Corporation.................................. 62 ASARCO Incorporated....................................... 62 Cyprus Amax Minerals Company.............................. 63
i 3
PAGE ---- THE PHELPS DODGE/ASARCO MERGER AGREEMENT.................... 63 The Offer................................................. 63 Form of Merger............................................ 64 Consideration to be Received in the Merger................ 64 Exchange Agent; Procedures for Exchange of Certificates... 65 Surviving Corporation Following the Merger................ 65 Representations and Warranties in the Merger Agreement.... 66 Covenants in the Merger Agreement......................... 66 Stockholder Approvals and Other Cooperation............... 68 No Solicitation of Alternative Takeover Proposals......... 69 Stock Options and Other Stock-Based Awards................ 70 Benefits Matters.......................................... 70 Indemnification; Directors' and Officers' Insurance....... 71 Litigation................................................ 71 Conditions Precedent to the Merger........................ 71 Termination............................................... 71 Closing................................................... 72 Termination Fees.......................................... 72 Costs and Expenses........................................ 73 Amendment................................................. 73 Appraisal Rights.......................................... 73 Waiver.................................................... 73 MARKET PRICES AND DIVIDENDS................................. 74 PHELPS DODGE CORPORATION SELECTED HISTORICAL FINANCIAL DATA...................................................... 75 ASARCO INCORPORATED SELECTED HISTORICAL FINANCIAL DATA...... 76 CYPRUS AMAX MINERALS COMPANY SELECTED HISTORICAL FINANCIAL DATA...................................................... 78 PHELPS DODGE COMPARATIVE PER SHARE INFORMATION.............. 80 UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION.......... 82 DESCRIPTION OF PHELPS DODGE CAPITAL STOCK................... 101 Authorized Capital Stock.................................. 101 Phelps Dodge Common Stock................................. 101 Phelps Dodge Preferred Stock.............................. 101 Transfer and Dividend Paying Agent and Registrar.......... 101 COMPARISON OF RIGHTS OF HOLDERS OF PHELPS DODGE SHARES AND ASARCO SHARES............................................. 102 Comparison of Charter and By-law Provisions............... 102 Comparison of Certain Statutory Provisions................ 109 ASARCO AND CYPRUS AMAX INFORMATION.......................... 112 FORWARD-LOOKING INFORMATION................................. 112 LEGAL MATTERS............................................... 113 EXPERTS..................................................... 113
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 18, 1999. ii 4 QUESTIONS AND ANSWERS ABOUT THE PROPOSED COMBINATION Q: WHY IS PHELPS DODGE AMENDING ITS OFFER? A: Phelps Dodge and Asarco 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 59% above the last trading price of Asarco 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 Asarco common shares. Q: WHAT WOULD I RECEIVE IN EXCHANGE FOR MY SHARES? A: We are offering to exchange $14.75 net in cash plus 0.25133120 shares of Phelps Dodge common stock per Asarco common share, on a fully prorated basis. You may elect to receive either $29.50 in cash or 0.50266 shares of Phelps Dodge common stock for each of your Asarco 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 or 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/Asarco merger in exchange for your Asarco 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 Asarco 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 Asarco shares but will not recognize loss, if any. Q: HAS ASARCO RECEIVED A FAIRNESS OPINION IN CONNECTION WITH THE OFFER? A: Yes. Asarco has received an opinion from Credit Suisse First Boston Corporation dated October 5, 1999, substantially to the effect that, as of such date, the consideration to be received by Asarco stockholders in the offer and the Asarco/Phelps Dodge merger is fair from a financial point of view to the stockholders of Asarco. iii 5 Q: WHAT ARE THE CONDITIONS TO YOUR OFFER? A: Our offer is subject to several conditions, including: - tender of at least 80% Asarco'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: WHAT HAPPENED TO ASARCO'S AGREEMENT FOR A TWO-WAY COMBINATION WITH CYPRUS AMAX? A: Cyprus Amax terminated its merger agreement with Asarco in order to enter into a merger agreement with us. Q: HOW WOULD YOU GO ABOUT COMPLETING YOUR PROPOSED ACQUISITION? A: Once we acquire shares in the offer, our wholly owned subsidiary AAV Corporation will merge with Asarco, so that Asarco 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 Asarco early in the fourth quarter of this year. Q: WHERE CAN I FIND MORE INFORMATION ABOUT PHELPS DODGE, ASARCO AND CYPRUS AMAX? A: You can find more information about Phelps Dodge, Asarco and Cyprus Amax 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 Asarco 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. 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 change any cash or stock election you made. 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. iv 6 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 to furnish certain information about our offer. We filed an amended Schedule 14D-1 on September 22, 1999 and on October 7, 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 18, 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, August 26, 1999, September 3, 1999, September 22, 1999, September 30, 1999 and October 6, 1999; (vi) Phelps Dodge Definitive Proxy Statement for the special meeting of Asarco shareholders to be held on September 30, 1999; (vii) Phelps Dodge's Definitive Proxy Statement for the special meeting of Cyprus Amax stockholders to be held on September 30, 1999; and (viii) Phelps Dodge's Definitive Proxy Statement, dated September 13, 1999, for the special meeting of Phelps Dodge stockholders to be held on October 13, 1999, as supplemented on September 22, 1999, October 1, 1999 and October 8, 1999. v 7 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, September 28, 1999, October 6, 1999 and October 7, 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 February 24, 1999, July 14, 1999, July 21, 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. vi 8 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 ASARCO Incorporated (Asarco). Pursuant to our agreement with Asarco, we are offering to exchange $14.75 net in cash plus 0.25133120 shares of Phelps Dodge common stock per Asarco common share, on a fully prorated basis. You may elect to receive either $29.50 in cash or 0.50266 shares of Phelps Dodge common stock for each of your Asarco 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 $28.21, based on the closing price of Phelps Dodge common stock on October 5, 1999 of 53 9/16. If you receive all consideration in the form of stock, at the exchange ratio of 0.50266 Phelps Dodge common shares per Asarco share, your consideration would be worth $26.92, based on the same closing price. We are also making a separate offer to shareholders of Cyprus Amax to exchange $7.61176875 in cash and 0.2203 shares of Phelps Dodge common stock per Cyprus Amax 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 with Asarco and Cyprus Amax. Since then, we have reached separate agreements to combine with each of Cyprus Amax and Asarco. We are making our offers to the Asarco and Cyprus Amax shareholders pursuant to our merger agreements with each company. We expect to complete both acquisitions early in the fourth quarter of 1999. However, our offer to Asarco shareholders is not conditioned on the success of our offer to Cyprus Amax shareholders, nor is our offer to Cyprus Amax shareholders conditioned on the success of our offer to Asarco shareholders. See "The Offer" beginning on page 44. 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 59% for Asarco shareholders and 44% for Cyprus Amax shareholders based on the last trading prices of Phelps Dodge, Asarco and Cyprus Amax 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. - 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. 1 9 - 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 $28 million in annual savings from lower depreciation expenses, bringing the total annual savings to at least $228 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 10 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 0.50266 shares of Phelps Dodge common stock, or $29.50 in cash, for each outstanding share of common stock of Asarco 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, AAV Corporation, which is a Delaware corporation. The term "expiration date" means 12:00 midnight, New York City time, on October 25, 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 on which the offer, as so extended, expires. We are also making a separate offer 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, subject to the same election and proration procedures. CONDITIONS OF OUR OFFER Our obligation to exchange shares of Phelps Dodge common stock and cash for Asarco 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 25, 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 agreement with Asarco), 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 Asarco shares previously tendered and not withdrawn will remain subject to the offer, subject to your right to withdraw your Asarco shares. Subject to the SEC's applicable rules and regulations, we also reserve the right (subject to our merger agreement with Asarco), in our sole discretion, at any time or from time to time, (a) to delay our acceptance for exchange or our exchange of any Asarco shares pursuant to our offer, regardless of whether we previously accepted Asarco shares for exchange, or to terminate our offer and not accept for exchange or exchange any Asarco 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 minimum condition, 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 11 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 OF 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), 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 Asarco shares pursuant to the offer is irrevocable, except that Asarco 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 Asarco 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 Asarco shares must be received by the exchange agent at such address, or those Asarco 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 Asarco 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 Asarco shares through a broker, by asking your broker to make an election on your behalf. If you tendered your Asarco 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 12 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 Asarco and Cyprus Amax 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 Asarco 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 our offers to Asarco and Cyprus Amax shareholders are not conditioned on each other and if we don't complete business combinations with both Asarco and Cyprus Amax, the expected cost savings and other benefits would be reduced; - 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 13 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/Asarco/Cyprus Amax 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 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 $28 million in annual savings from lower depreciation, 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 Asarco, but not Cyprus Amax; - we will acquire Cyprus Amax, but not Asarco; 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 0.50266 shares of Phelps Dodge common stock, or $29.50 in cash, at your election, for each outstanding share of Asarco 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 allocation 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 14 increases in value of Asarco 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 $14.75 net in cash plus 0.25133120 shares of Phelps Dodge common stock per Asarco 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 stockholders. You can tell us your preference to receive either $29.50 cash or 0.50266 shares of Phelps Dodge common stock for each of your Asarco common shares, and you will receive either cash, Phelps Dodge common stock, or a combination of cash and Phelps Dodge common stock, based upon your stated preference and the preferences of other tendering shareholders. To the extent the demand for either the cash or 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." 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 October 5)....................... 0.83 0.61 0.70 ------
- --------------- SOURCE: COMEX On October 5, 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 15 would cause a variation in annual operating income before taxes of approximately $38 million at these production levels. If we combined with Asarco but not with Cyprus Amax, our combined annual production would be approximately 2.7 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 $27 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 16 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 17 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 18 - 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; - encountering unanticipated ground or water conditions; - metallurgical and other processing problems; - 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 19 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 20 THE PROPOSED COMBINATION We have agreed to combine the businesses of Phelps Dodge and Asarco in a transaction that we believe will create superior value for the shareholders of both companies. Pursuant to our agreement with Asarco, we are offering to exchange $14.75 net in cash plus 0.25133120 shares of Phelps Dodge common stock per Asarco common share, on a fully prorated basis. You may elect to receive either $29.50 in cash or 0.50266 shares of Phelps Dodge common stock for each of your Asarco 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 with Asarco and Cyprus Amax. Since then, we have reached separate agreements to combine with Cyprus Amax and Asarco. Under our merger agreement with Cyprus Amax, we are also making a separate offer to Cyprus Amax shareholders to exchange $7.61176875 in cash plus 0.2203 shares of Phelps Dodge common stock per Cyprus Amax common share, on a fully prorated basis and subject to the same election and proration procedures as are applicable to our offer to Asarco shareholders. We are making our offers to Asarco and Cyprus Amax shareholders pursuant to our merger agreements with each company. We expect to complete both acquisitions early in the fourth quarter of 1999. However, our offer to Asarco shareholders is not conditioned on the success of our offer to Cyprus Amax shareholders, nor is our offer to Cyprus Amax shareholders conditioned on the success of our offer to Asarco shareholders. See "The Offer" beginning on page 41. 13 21 REASONS FOR THE PROPOSED COMBINATION We believe the combination of Phelps Dodge, Asarco and Cyprus Amax 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, Asarco and Cyprus Amax 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 $28 million in annual savings from reduced depreciation expenses, bringing the total annual savings to at least $228 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. 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 Asarco. 14 22 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, Mr. Yearley 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 - ------------------------------------------ Milton H. Ward Chairman, Chief Executive Officer and President Cyprus Amax Minerals Company /s/ FRANCIS R. MCALLISTER - ------------------------------------------ Francis R. McAllister Chairman and Chief Executive Officer ASARCO Incorporated 15 23 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. 16 24 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. 17 25 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 - ------------------------------------------ Douglas C. Yearley Chairman and Chief Executive Officer /s/ J. STEVEN WHISLER - ------------------------------------------ J. Steven Whisler President and Chief 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 Asarco (and sent a substantially similar letter to the Board of Directors of Cyprus Amax): [LETTERHEAD OF PHELPS DODGE CORPORATION] August 12, 1999 Board of Directors of ASARCO Incorporated c/o Mr. Francis R. McAllister Chairman and Chief Executive Officer ASARCO Incorporated 180 Maiden Lane New York, NY 10038 Gentlemen: We would like to engage in discussions on our proposal to combine Asarco, Cyprus Amax 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 Cyprus Amax 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 Asarco 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, Asarco and Cyprus Amax shares, these ratios implied premiums of approximately 25% for each of Asarco and Cyprus Amax and preserved the relative economics of your proposed combination with Cyprus Amax. We would reiterate our intention on the basis of the current levels of Phelps Dodge, Asarco and Cyprus Amax share prices to pay premiums of approximately 25% for Asarco and Cyprus Amax. 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 18 26 outperformed the stock prices of Asarco and Cyprus Amax. As a result of Phelps Dodge's higher dividend, the level of outperformance is even greater when viewed on the basis of the total return to shareholders assuming reinvestment of dividends. Over the past 10 years Phelps Dodge's total return has been 161% as compared to -20% and -26% for Asarco and Cyprus Amax, respectively. Similarly, over the past five years, Phelps Dodge's total return has been 20% as compared to -27% for Asarco and -40% for Cyprus Amax. 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. McAllister and Ward 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. McAllister and Ward 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. McAllister and Ward 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 Cyprus Amax 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 Cyprus Amax. 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 - ------------------------------------------ Douglas C. Yearley Chairman and Chief Executive Officer /s/ J. STEVEN WHISLER - ------------------------------------------ J. Steven Whisler President and Chief Operating Officer 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 19 27 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. 20 28 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 21 29 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. 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." 22 30 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. 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 Asarco (and sent a substantially similar letter to the Board of Directors of Cyprus Amax): [LETTERHEAD OF PHELPS DODGE CORPORATION] August 20, 1999 Board of Directors of ASARCO Incorporated c/o Mr. Francis R. McAllister Chairman and Chief Executive Officer ASARCO Incorporated 180 Maiden Lane New York, NY 10038 Gentlemen: We are disappointed in your response to our proposed three-way combination of Asarco, Cyprus Amax and Phelps Dodge. As you know, we have on three recent occasions requested the opportunity to 23 31 discuss our proposal, which we believe would be far superior to your shareholders than your proposed combination with Cyprus Amax. We are particularly disappointed that instead of accepting our previous requests to meet to discuss our proposal to acquire Asarco for a substantial premium, you chose today to announce unilaterally our interest in acquiring Asarco and Cyprus Amax and to reject our proposal in favor of your no-premium merger proposal with Cyprus Amax. This appears consistent with the manner in which you have chosen to treat your own shareholders by announcing just today, at the same time you first disclosed the terms of your July 15 merger agreement, that the record date for your shareholder vote on the no-premium merger with Cyprus Amax would be August 25. Since trades after today will settle after August 25, this effectively precluded any significant trading in the market on an informed basis before the determination of shareholders eligible to vote at your meeting. In light of your unilateral announcement, we have no other choice than to publicly announce our proposal to enter into a business combination with Asarco and Cyprus Amax, so that share owners of all three companies are fully informed. Terms of our Proposal We propose a business combination of Phelps Dodge and Asarco pursuant to which all of the outstanding common stock of Asarco would be exchanged for Phelps Dodge common stock at an exchange ratio of 0.4098 Phelps Dodge common shares for each Asarco common share. We are also independently proposing to Cyprus Amax a business combination of Phelps Dodge and Cyprus Amax pursuant to which all of the outstanding common stock of Cyprus Amax would be exchanged for Phelps Dodge common stock at an exchange ratio of 0.3135 Phelps Dodge common shares for each Cyprus Amax common share. Based on share prices for the three companies' common shares before trading was halted this morning, these ratios imply a premium of approximately 30% for Asarco and a premium of approximately 29% for Cyprus Amax, while preserving the relative economics of the exchange ratio under your proposed combination with Cyprus Amax. Following the combination, we plan to continue the current $2.00 per share Phelps Dodge common dividend. This would result in a substantial dividend increase for Asarco shareholders to 4.1 times the dividend contemplated in your proposed merger with Cyprus Amax. Our proposed transaction would be tax-free for your shareholders. In addition, through their ownership of Phelps Dodge common stock, your shareholders would continue to participate in the ongoing value creation of the combined company. Although we prefer a transaction involving all three companies, we are prepared to enter into a negotiated business combination with either Asarco or Cyprus Amax, regardless of whether the other company is willing to proceed on a negotiated basis. We believe that consideration in the form of Phelps Dodge common stock should be particularly attractive to your shareholders. Over the past several years Phelps Dodge's stock price has significantly outperformed the stock prices of Asarco and Cyprus Amax. As a result of Phelps Dodge's higher dividend, the level of outperformance is even greater when viewed on the basis of the total return to shareholders assuming reinvestment of dividends. Over the past 10 years Phelps Dodge's total return has been 161% as compared to negative 20% and negative 26% for Asarco and Cyprus Amax, respectively. Similarly, over the past 15 years, Phelps Dodge's total return has been 1024% as compared to 25% for Asarco and 102% for Cyprus Amax. We are very proud of this strong management and operational track record over a difficult copper environment. 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 24 32 cycles. Our proposal would create a much stronger company than would your proposed merger with Cyprus Amax through: - the significantly stronger ability of the combined company, relative to the Asarco-Cyprus Amax combination, to integrate southwestern U.S. mining operations, administrative functions in the U.S., Chile and Peru, and worldwide exploration and development activities; - the financial strength of the combined company and ability to create a world class portfolio of cost-competitive mining assets; - a strong and deep management team, at both the operating and corporate levels, with strong credibility in the marketplace; - the ability to eliminate substantial overhead, exploration, purchasing and other expenses through the consolidation; - the tremendous operating leverage of the combined company, together with enough diversity in other businesses to mitigate cyclical downturns; - the immediate and substantial accretion to the cash flow of the combined company resulting from the transaction; - the significant accretion to earnings per share of the combined company beginning in the second year after closing, based on the current portfolio of the combined companies and analysts' estimates of copper prices of $0.80 to $0.85 per pound in 2001; - the total current annual copper production of the combined company of 3.8 billion pounds and 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 Asarco-Cyprus Amax combination. This does not include any cost savings from the rationalization of high-cost production during periods of low copper prices. Following the combination, we would expect to operate all properties in accordance with Phelps Dodge's disciplined management approach. This means that each property would be run on a basis intended to earn in excess of the cost of capital over a full copper price cycle. We believe that Phelps Dodge's management team has the credibility to make the tough decisions necessary to rapidly integrate all three businesses and to create value for shareholders. 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 25 33 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 - ------------------------------------------ Douglas C. Yearley Chairman and Chief Executive Officer /s/ J. STEVEN WHISLER - ------------------------------------------ J. Steven Whisler President and Chief Operating Officer 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 26 34 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
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." 27 35 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. 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. 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: "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 28 36 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." Phelps Dodge also today sent the following letter to the Chairmen of Asarco and Cyprus Amax: August 27, 1999 Mr. Francis R. McAllister Chairman and Chief Executive Officer ASARCO Incorporated 180 Maiden Lane New York, NY 10038 Mr. Milton H. Ward Chairman, Chief Executive 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. 29 37 Moreover, based on the information in your August 20 Form S-4 registration statement, it appears that the conclusions arrived at by your own investment bankers do not support your exchange ratio demand. The exchange ratios you have demanded would deliver nearly all of the incremental value to be derived from a three-way combination to your shareholders and very little to our shareholders. This is, as you no doubt anticipated, completely unacceptable to us. In addition, we don't believe that your shareholders will be fooled by the flawed measures you announced which purport to accommodate the possibility of a third party transaction during the 90 days following completion of your merger. None of your public statements address in any meaningful way all of the many steps that would be necessary to give your shareholders a realistic opportunity to benefit from an attractive third party proposal. Among the additional matters that would have to be addressed if you were serious about accommodating third party transactions would be to eliminate your staggered Board and the highly unusual management entrenchment arrangements built into your two-party merger agreement. Those unusual management-entrenchment provisions guarantee no change in the roles of the proposed four senior executives of the ASARCO-Cyprus combined company prior to the 2002 annual meeting except upon a vote of 75% of the Board. Since management will hold 25% of the Board seats, this effectively requires a unanimous vote of the non-management directors. Because your Board is divided into three classes, this means that a buyer of 100% of the outstanding stock of the ASARCO-Cyprus combined company would not be able to obtain management control for nearly three years. Indeed, even in the two aspects of your 90-day proposal for which you try to take credit, there is confusion, contradiction and unnecessary complexity. You propose an unspecified shareholder mechanism to redeem your poison pill which is inevitably more cumbersome than simple Board action. Secondly, we noted with interest the statement in your August 25 press release that "In addition, change in control provisions in any employment contracts entered into by the Company will be waived for that same 90 day period." We were therefore surprised to read the contradictory statement in the Form 8-K you filed yesterday that: "The rights and benefits under the existing [change of control] arrangements with the employees... of each of Cyprus Amax and ASARCO, however, will remain in full force and effect and will be unaffected during the 90 days following completion of the business combination, as will any rights under arrangements entered into with such employees in substitution for any existing arrangements." Frankly, we believe that all of your statements concerning the 90-day period are no more than a public relations gambit. There is no evidence in your conduct to date that you have any willingness to pursue transactions that are in the best interests of your shareholders. With regard to the three points in your August 25 letter other than the exchange ratio, we are pleased to confirm that: - We are prepared to enter into a merger agreement with substantially the same representations, warranties and covenants as those contained in your July 15 merger agreement. - This proposal is not subject to due diligence. - We have studied the regulatory issues carefully and are confident that all necessary regulatory approvals for our three-way combination will be obtained on a timely basis. We would be pleased to give you strong contractual assurances on this point. 30 38 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 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 31 39 - 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 Board 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. 32 40 - The special $5.00 per share cash payment to the stockholders of Asarco Cyprus immediately following the combination provides them with immediate and significant value. - A three-way combination raises substantial issues under the antitrust laws. The Boards noted that the Phelps Dodge exchange offers are conditioned on the expiration of the Hart-Scott antitrust waiting period but Phelps Dodge has not even filed the required notification yet. In contrast, the applicable waiting period for the Asarco Cyprus combination has already expired. - The highly conditional nature of the Phelps Dodge exchange offers, including with respect to antitrust regulatory approval and Phelps Dodge's own stockholder approval which is not being sought until after the Cyprus Amax and Asarco September 30 shareholder meeting date. Accordingly, each Board recommends to its shareholders that they do not tender their shares to Phelps Dodge and strongly urges them to vote in favor of the Asarco Cyprus combination on September 30. Milton H. Ward, Chairman and Chief Executive Officer of Cyprus Amax and Francis R. McAllister, Chairman and Chief Executive Officer of Asarco, speaking together said, "It is absolutely clear from Phelps Dodge's actions over the course of the last few weeks that it is trying to coerce Cyprus Amax and Asarco shareholders into a situation that is not in their best interests. First, Phelps Dodge's opportunistic and inadequate exchange offers do not give our shareholders their fair ownership interest in the combined entity. Second, a three-way combination with Phelps Dodge raises substantial antitrust issues that Phelps Dodge has not yet begun to address. Third, Phelps Dodge has never offered any persuasive reason why it would walk away if our shareholders approve our two-way combination, if in fact Phelps Dodge is sincere in wanting to merge with both companies." Messrs. Ward and McAllister went on to say that "The Boards of Cyprus Amax and Asarco are committed to achieving the best value for their shareholders and will not sacrifice their shareholders' interest for Phelps Dodge's own agenda, which is to maximize value for Phelps Dodge and its shareholders. It is for this reason that we strongly recommend shareholders vote for the Asarco Cyprus transaction on September 30." Cyprus Amax and Asarco also announced today that they were each filing with the Securities and Exchange Commission, and will mail to their shareholders, a Solicitation/Recommendation Statement on Schedule 14D-9 setting forth the Board's formal recommendation with respect to the Phelps Dodge exchange offer and the reasons for the recommendation. Additional information with respect to each Board's decision to recommend that shareholders reject the Phelps Dodge offer is contained in the Schedule 14D-9. Actual results may vary materially from any forward-looking statements the companies make. Refer to the cautionary statement risk factors contained in Cyprus Amax's and Asarco's 1998 Form 10K's. 33 41 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 COMPONENT 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 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." 34 42 On September 22, 1999, Phelps Dodge sent the following letter to Messrs. McAllister and Ward: [LETTERHEAD OF PHELPS DODGE CORPORATION] September 22, 1999 Mr. Francis R. McAllister Chairman and Chief Executive Officer ASARCO Incorporated 180 Maiden Lane New York, NY 10038 Mr. Milton H. Ward Chairman, Chief Executive 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 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. 35 43 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 36 44 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 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. ("Grupo Mexico") announced that it planned to commence a tender offer to acquire all outstanding Asarco shares at $26.00 per share. 37 45 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. 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. 38 46 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. The Phelps Dodge/ Cyprus Amax merger agreement was signed on September 30, 1999. Phelps Dodge and Cyprus Amax issued the following press release: PHELPS DODGE TO ACQUIRE CYPRUS AMAX ------------------------ PHOENIX, AZ and DENVER, CO, September 30, 1999 -- Phelps Dodge Corporation (NYSE: PD) and Cyprus Amax Minerals Company (NYSE: CYM) today announced they have signed a definitive merger agreement under which Phelps Dodge will acquire Cyprus Amax for $7.61 in cash and 0.2203 Phelps Dodge shares per Cyprus Amax share on a fully prorated basis. Phelps Dodge is amending its exchange offer for Cyprus Amax, which will now be scheduled to expire at midnight on October 15, 1999. Cyprus Amax shareholders will have the right to elect to receive cash or Phelps Dodge shares for each Cyprus Amax share. The all-cash election for Cyprus Amax shareholders is $20.54 per Cyprus Amax share and the all-stock election is 0.3500 Phelps Dodge shares per Cyprus Amax share, subject to proration to maintain the overall cash/stock allocation of approximately 63% stock and 37% cash. The stock portion of the consideration received will be tax-free to Cyprus Amax shareholders. Based on Phelps Dodge's closing share price yesterday, the agreement currently values Cyprus Amax at $19.80 per share, or a total equity value of approximately $1.8 billion, based on approximately 90.7 million Cyprus Amax shares outstanding. Phelps Dodge expects the transaction to be immediately and substantially accretive to its cash flow per share and accretive to its earnings per share beginning in 2001, based on the current portfolio of the combined companies and analysts' estimates of copper prices of $0.80 to $0.85 per pound in 2001. Based on its strong balance sheet, Phelps Dodge expects to finance the $690 million cash portion of the offer through existing credit facilities and cash on hand. Phelps Dodge has already received U.S. antitrust approval for the acquisition. Completion of the exchange offer is subject to a majority of Cyprus Amax's shares being tendered and not withdrawn, approval of Phelps Dodge shareholders at a special meeting on October 13, 1999, and customary closing conditions. Prior to entering into the agreement with Phelps Dodge, Cyprus Amax terminated its merger agreement with Asarco Incorporated (NYSE: AR) in accordance with the procedures agreed to with Asarco earlier this week. The combination of Phelps Dodge and Cyprus Amax will create a world-class, lower-cost global copper producer and provide significant opportunities to integrate operations in the southwestern United States, administrative functions, and exploration and development activities. Consistent with demonstrated Phelps Dodge standards, all properties will be operated to earn more than the cost of capital over the copper cycle. 39 47 "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." Phelps Dodge expects to achieve annual cash cost savings of at least $100 million from the combination, to be fully phased in by the end of 2001, through reductions in SG&A expenses, operating improvements and efficiencies in exploration. J. Steven Whisler, President and Chief Operating Officer of Phelps Dodge, said, "We have done a great deal of advance planning and, working closely with representatives of Cyprus Amax, our integration teams will move swiftly to realize the full benefits of this combination." Morgan Stanley Dean Witter served as financial advisor to Phelps Dodge and Merrill Lynch served as financial advisor to Cyprus Amax. Shearman & Sterling and Debevoise & Plimpton served as legal advisors to Phelps Dodge and Wachtell, Lipton, Rosen & Katz served as legal advisor to Cyprus Amax. On October 1, 1999, representatives of Phelps Dodge and Asarco began discussions relating to a possible Phelps Dodge/Asarco merger agreement. On October 4, 1999, representatives of Asarco informed Phelps Dodge that Asarco wished to receive Phelps Dodge's best offer for Asarco no later than 6:00 p.m., Eastern Daylight Time, on October 5, 1999. On the morning of October 5, 1999, Asarco announced that its board of directors recommended that Asarco stockholders reject both the then-current Phelps Dodge exchange offer and the cash tender offer by Grupo Mexico. Asarco said its board had authorized management to initiate a process designed to elicit the best possible transaction for shareholders. In the meantime, representatives of Phelps Dodge and Asarco continued discussions relating to a business combination between Phelps Dodge and Asarco. In the afternoon of October 5, 1999, Phelps Dodge extended its exchange offer for Asarco common shares until October 13, 1999. Also in the afternoon of October 5, 1999, the Phelps Dodge board of directors authorized the Phelps Dodge management to submit to Asarco an amended proposal for a business combination between Phelps Dodge and Asarco and approved the Phelps Dodge/Asarco merger agreement and an amended exchange offer to Asarco shareholders. 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 40 48 Dodge/Asarco merger agreement was fair from a financial point of view to Phelps Dodge. Later that afternoon, Messrs. Yearley and Whisler sent the following letter to the Asarco board of directors: [LETTERHEAD OF PHELPS DODGE CORPORATION] October 5, 1999 The Board of Directors ASARCO Incorporated c/o J. Michael Schell, Esq. Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, New York 10022 Dear Sirs: In response to your request for our bid to acquire ASARCO, Phelps Dodge is offering $14.75 in cash and 0.2513 Phelps Dodge shares per ASARCO share on a prorated basis. We are enclosing a mark-up of the draft merger agreement setting forth our offer. We are prepared to sign the merger agreement as submitted. Our Board has approved the transaction and we have full authority to execute it, subject only to the approval of our stockholders expected at a meeting scheduled to be held on October 13. We understand the terms of the merger agreement have already been negotiated with your lawyers. Our offer is irrevocable and will remain open until 10:00 a.m. New York City time on Thursday, October 7. Our bid represents a value of $29.50 per ASARCO share, or a premium of 59.5%, based on the unaffected share prices for ASARCO and Phelps Dodge as of August 20, the time our offers for ASARCO and Cyprus Amax were first disclosed publicly. We believe Phelps Dodge's stock price has been under short-term pressure since that time due to the uncertainty of the situation as well as technical factors. We would note that the value of our proposal based on the average of the closing prices for Phelps Dodge shares over the period from August 20 through October 4, is $29.10 per ASARCO share. We believe the cash/stock election feature of our offer adds to its attractiveness by giving stockholders a choice reflecting their tax posture and desire to participate in the upside of the combined companies. In addition to the very substantial premium we are offering, we believe a deal with Phelps Dodge will permit your shareholders to participate not only in the benefits of the deal your directors approved with Cyprus Amax, but also to participate in the substantial incremental benefits brought to the combination by Phelps Dodge. As you had articulated in advocating your two-way deal with Cyprus Amax, we agree that the opportunity for your shareholders to participate in a rationalization of the industry and to benefit from an upswing in the copper price cycle, is very attractive. We believe that your shareholders will understand the benefits of the combination of Phelps Dodge, Cyprus Amax and ASARCO, and we believe that the market will react favorably to a definitive merger agreement between Phelps Dodge and ASARCO based on the economic terms of our proposal. As you know, we already have cleared the Hart-Scott-Rodino waiting period. We could complete our exchange offer by October 20 if your Board accepts our offer this evening. You will note that our proposed merger agreement provides for a $30 million break-up fee, approximately 2.5% of the equity value of our offer. This fee is well within the accepted range for such offers and materially below the fees provided for in both your original Cyprus Amax merger agreement and in the amendment you agreed to last week. We believe this reduced fee is appropriate in the context of this offer. We have also enclosed a firm commitment letter from Citibank, N.A., part of the proceeds of which will be used to fund the cash portion of our offer. 41 49 Our offer is submitted in reliance upon the rules forwarded to us by ASARCO this morning, most particularly that our offer will not be disclosed to any other party. 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
In the evening of October 5, 1999, the board of directors of Asarco approved the business combination between Phelps Dodge and Asarco pursuant to Phelps Dodge's amended proposal. The Phelps Dodge/Asarco merger agreement was signed late that evening. Early in the morning of October 6, 1999, Phelps Dodge issued to following press release: PHELPS DODGE TO ACQUIRE ASARCO; THREE-WAY COMBINATION WITH CYPRUS AMAX WILL CREATE LEADING GLOBAL COPPER PRODUCER PHOENIX, October 6, 1999 -- Phelps Dodge Corporation (NYSE: PD) today announced it has signed a definitive merger agreement under which it will acquire Asarco Incorporated (NYSE: AR) for $14.75 cash and 0.2513 Phelps Dodge shares per Asarco share on a fully prorated basis. Phelps Dodge is amending its exchange offer for Asarco, which will now be scheduled to expire at midnight on October 21, 1999. Asarco shareholders will have the right to elect to receive cash or Phelps Dodge shares for each Asarco share. The all-cash election for Asarco shareholders is $29.50 per Asarco share and the all-stock election is 0.50266 Phelps Dodge shares per Asarco share, subject to proration to maintain the overall allocation of 50% stock and 50% cash. The stock portion of the consideration received will be tax-free to Asarco shareholders. Based on Phelps Dodge's closing share price yesterday, the agreement currently values Asarco at $28.21 per share, or a total equity value of approximately $1.1 billion, based on approximately 39.8 million Asarco shares outstanding. On September 30, 1999, Phelps Dodge announced that it had signed a definitive agreement to acquire Cyprus Amax Mineral Company (NYSE: CYM) for $7.61 in cash and 0.2203 Phelps Dodge shares per Cyprus Amax share on a fully prorated basis. Phelps Dodge expects the three-way combination with Asarco and Cyprus Amax 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 is 2001. Based on its strong balance sheet, Phelps Dodge expects to finance the approximately $590 million cash portion of the Asarco offer primarily through existing credit facilities and cash on hand. Phelps Dodge expects to achieve annual cash cost savings of at least $200 million from the three-way combination with Asarco and Cyprus Amax, to be fully phased in by the end of 2001, through reductions in SG&A expenses, operating improvements and efficiencies in exploration. Phelps Dodge has already received U.S. antitrust approval for the acquisition. Completion of the exchange offer is subject to at least 80% of Asarco's shares being tendered and not withdrawn, approval of Phelps Dodge shareholders at a special meeting on October 13, 1999, and customary closing conditions. The three-way combination 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. It will also 42 50 provide significant opportunities to integrate operations in the southwestern United States, administrative functions in the U.S., Chile and Peru, and worldwide 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. "This compelling three-way combination positions Phelps Dodge to become the leading global copper producer," said Douglas C. Yearley, Chairman and Chief Executive Officer of Phelps Dodge. "We look forward to quickly closing both transactions and beginning to realize the significant upside potential of combining Phelps Dodge, Asarco and Cyprus Amax." J. Stephen 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. We now have unique opportunities for regional integration and improved efficiencies. We will move swiftly to realize these benefits." Morgan Stanley Dean Witter served as financial advisor to Phelps Dodge. Shearman & Sterling and Debevoise & Plimpton served as legal advisors to Phelps Dodge. Also in the morning of October 6, 1999, Asarco issued the following press release: ASARCO BOARD APPROVES MERGER AGREEMENT WITH PHELPS DODGE NEW YORK -- October 6, 1999 -- The Board of Directors of ASARCO Incorporated (NYSE: AR) announced today that it has accepted an improved offer from Phelps Dodge Corporation (NYSE: PD) which values the Company at $1.1 billion or $28.21 per share. Pursuant to the merger agreement signed by the parties, Phelps Dodge will acquire Asarco for $14.75 in cash and 0.2513 Phelps Dodge share for each Asarco common share on a fully prorated basis. Francis R. McAllister, chairman and chief executive officer of Asarco, said, "From the beginning it has been our aim to maximize shareholder value. We believe this transaction represents good value for Asarco shareholders. We plan to work closely with Phelps Dodge to ensure a smooth transition." Under the agreement, Asarco shareholders can elect to receive cash or Phelps Dodge shares for each Asarco share, subject to proration to maintain the overall cash/stock allocation of approximately 50% stock and 50% cash. The stock portion of the consideration received will be tax-free to Asarco shareholders. Based on Phelps Dodge closing share price yesterday, the agreement currently values Asarco at $28.21 per share, or a total equity value of approximately $1.1 billion, based on approximately 40 million Asarco shares outstanding. Based on share prices at the time of Phelps Dodge's original offer on August 20, 1999, the agreement values Asarco at $29.50 per share or approximately a 60% premium. Completion of the exchange offer is subject to 80% of Asarco shares being tendered and not withdrawn, approval of Phelps Dodge shareholders at a special meeting on October 13th and customary closing conditions. The closing should be completed on October 22nd. On October 7, 1999, Grupo Mexico announced that it was increasing the price in its tender offer for Asarco shares to $29.50 per Asarco common share. On October 8, 1999, Phelps Dodge issued the following press release: PHELPS DODGE WILL NOT RAISE OFFER FOR ASARCO PHOENIX, AZ, October 8, 1999 -- Phelps Dodge Corporation (NYSE: PD) today issued the following statement in response to the revised Grupo Mexico, S.A. de C.V. offer to acquire Asarco Incorporated (NYSE: AR) for $29.50 per share in cash: "Phelps Dodge took seriously the Asarco Board of Directors' request to submit best and final offers -- and we did exactly that. Phelps Dodge will not raise its offer for Asarco, and we're confident that shareholders of Phelps Dodge and Cyprus Amax will understand and appreciate the financial discipline behind our decision. We remain committed to shareholder value." 43 51 Also on October 8, 1999, Asarco notified Phelps Dodge that it intended to enter into discussions with Grupo Mexico and issued the following press release: NEW YORK -- October 8, 1999 -- ASARCO Incorporated (NYSE: AR) announced that the Board of Directors of Asarco met to consider the revised proposal contained in a letter from Grupo Mexico of October 7, 1999. In its revised proposal, Grupo Mexico offered to acquire all of the outstanding shares of Asarco common stock at a price of $29.50 per share in cash. At the meeting, the Asarco Board of Directors considered, together with advice from its financial and legal advisors, the terms of Grupo Mexico's revised offer, Asarco's rights and obligations under the Phelps Dodge merger agreement and its fiduciary duties to stockholders of Asarco under applicable law. In accordance with the terms of its merger agreement with Phelps Dodge, the Board of Directors determined in good faith, after consultation with its legal and financial advisors, that it was necessary in order to comply with its fiduciary duties under the applicable law to modify its recommendation of the pending transaction with Phelps Dodge and, if necessary, to furnish information to Grupo Mexico pursuant to a customary confidentiality agreement and to participate in discussions or negotiations regarding the Grupo Mexico revised proposal. The Board has notified Phelps Dodge that it intends to participate in discussions with Grupo Mexico concerning the proposal. Accordingly, the Asarco Board recommends that stockholders not tender their shares in the Phelps Dodge Exchange Offer at this time. 44 52 THE OFFER We are offering to exchange $14.75 net in cash plus 0.25133120 shares of Phelps Dodge common stock for each outstanding share of Asarco Incorporated common stock, on a fully prorated basis. You may elect to receive either $29.50 in cash or 0.50266 shares of Phelps Dodge common stock for each of your Asarco 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 $28.21, based on the closing price of Phelps Dodge common stock on October 5, 1999 of $53 9/16. If your receive all consideration in the form of stock, at the exchange ratio of 0.50266 Phelps Dodge common shares per Asarco share, your consideration would be worth $26.92, based on the same closing price. We are making our offer through our wholly owned subsidiary, AAV Corporation, which is a Delaware corporation. The term "expiration date" means 12:00 midnight, New York City time, on October 25, 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 $7.61176875 net in cash plus 0.2203 shares of Phelps Dodge common stock for each outstanding common share of Cyprus Amax Minerals Company 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 Asarco 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, Asarco. Pursuant to the Phelps Dodge/Asarco merger agreement, as soon as possible after consummation of the offer, Asarco will consummate the Phelps Dodge/Asarco merger in which each outstanding share of Asarco common stock (except for Asarco common stock held by Asarco, us or any of our subsidiaries) would be converted into the right to receive 0.25133120 shares of Phelps Dodge common stock and $14.75 in cash, without interest, on a fully prorated basis. If we obtain all of the shares of Asarco pursuant to our offer to you, and all of the shares of Cyprus Amax pursuant to our separate offer to its shareholders, former shareholders in Asarco and Cyprus Amax would own approximately 11% and 23%, respectively, of the shares of common stock of Phelps Dodge Corporation, based upon the number of shares outstanding of Phelps Dodge, Asarco and Cyprus Amax on September 30, 1999, September 30, 1999 and September 28, 1999, respectively. If we obtain all of the common shares of Asarco pursuant to our offer and do not acquire any Cyprus Amax common shares, former shareholders of Asarco would own approximately 15% of the common stock of the Phelps Dodge/Asarco combined entity. Our obligation to exchange shares of Phelps Dodge common stock and cash for Asarco shares pursuant to the offer is conditioned upon several conditions referred to below under "Conditions of the Offer," including the Minimum Tender Condition, the Phelps Dodge Stockholder Approval Condition, and other conditions that are discussed below. Our offer to acquire Asarco common stock is also an offer to acquire Asarco preferred share purchase rights ("Asarco Rights"), and, when we refer to the shares of Asarco 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 Asarco rights agreement (the "Asarco Rights Agreement"), including the right to receive any payment due upon redemption of those rights. We have asked Asarco for its stockholder list and security position listings to communicate with you and to distribute our offer to you. We may send this prospectus, the 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 Asarco'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 Asarco shares after we receive these lists from Asarco. 45 53 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 Asarco shares making a cash election. This cash proration factor will equal (1) the total amount of cash available for payment, which will be $14.75 multiplied by the total number of Asarco 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 Asarco shares electing cash by $29.50. - Each Asarco share electing to receive Phelps Dodge shares will be exchanged for 0.50266 Phelps Dodge shares; - Each Asarco share as to which no election has been made will be exchanged for 0.50266 Phelps Dodge shares; and - Each Asarco share electing cash will be exchanged for: 1. $29.50 in cash multiplied by the cash proration factor; and 2. a number of Phelps Dodge shares equal to 0.50266 multiplied by 1 minus the cash proration factor. For example, if 38 million Asarco shares are outstanding immediately prior to closing of our offer and 70% of those shares elect cash, the cash proration factor would be 71.43%, calculated as follows: $560.5 million ($14.75 multiplied by 38 million), / $784.7 million ($29.50 multiplied by 26.6 million, the number of Asarco shares that elected to receive cash) Each of the Asarco shares electing to receive Phelps Dodge shares and each of the Asarco shares as to which no election has been made, would receive 0.50266 Phelps Dodge shares. Each of the Asarco shares electing to receive cash would receive $21.07 in cash, without interest, and 0.1436 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 Asarco 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 0.25133120 multiplied by the total number of Asarco 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 Asarco shares electing stock by 0.50266. - Each Asarco share electing to receive cash will be exchanged for $29.50 in cash, without interest; - Each Asarco share as to which no election has been made will be exchanged for $29.50 in cash, without interest; and - Each Asarco share electing stock will be exchanged for: 1. A number of Phelps Dodge shares equal to 0.50266 multiplied by the stock proration factor; and 2. Cash equal to $29.50 multiplied by 1 minus the stock proration factor. For example, if 38 million Asarco shares are outstanding immediately prior to closing of our offer and 70% of those shares elect stock, the stock proration factor would be 71.43%, calculated as follows: 9.55 million (0.25133120 multiplied by 38 million), / 13.37 million (0.50266 multiplied by 26.6 million, the number of Asarco shares that elected to receive stock). Each of the Asarco shares electing to receive cash and each of the Asarco shares as to which no election has been made, would receive $29.50 in cash, without interest. Each of the Asarco shares electing to receive stock would receive .3591 Phelps Dodge shares and $8.43 in cash, without interest. 46 54 CASE 3: THE NUMBER OF ASARCO 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 Asarco shares that must receive cash less the total number of Asarco 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 ($14.75 multiplied by the number of Asarco shares outstanding immediately prior to closing of our offer) by $29.50. - Each Asarco share electing cash will be exchanged for $29.50 in cash, without interest; - Each Asarco share electing stock will be exchanged for 0.50266 Phelps Dodge shares; and - Each Asarco share as to which no election has been made will be exchanged for: 1. $29.50 multiplied by the non electing proration factor; and 2. a number of Phelps Dodge shares equal to 0.50266 multiplied by 1 minus the non electing proration factor. For example, if 38 million Asarco 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 40% of those shares and no election is made with respect to 30% of those shares, the non electing proration factor would be 66.67%, calculated as follows: $560.5 million ($14.75 multiplied by 38 million) / $29.50 = $19 million 19 million - 11.4 million = 7.6 million 7.6 million / 11.4 million = 0.6667 Each of the Asarco shares electing to receive cash will be exchanged for $29.50 in cash, without interest and each Asarco share electing stock consideration will be exchanged for 0.50266 Phelps Dodge shares. Each of the Asarco shares as to which no election has been made will be exchanged for $19.67 in cash, without interest, and 0.1675 Phelps Dodge shares. TIMING OF OUR OFFER Our offer is scheduled to expire at 12:00 midnight, New York City time on October 21, 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 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 and 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. 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. Some of these materials were delivered to Phelps Dodge on September 1, 1999, and others have been delivered since then. 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 47 55 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 by 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 provisions are changed with the approval of 75% of the full board. The complaints also alleged that, in addition to their persistent refusals to negotiate with Phelps Dodge, Asarco and Cyprus Amax have 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 a 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. On October 4, 1999, Asarco filed an amended complaint that, among other things, dropped the tortious interference and unfair competition claims. Phelps Dodge believes this lawsuit is without merit. EXTENSION, TERMINATION AND AMENDMENT We expressly reserve the right (subject to our merger agreement with Asarco), 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 Asarco shares previously tendered and not withdrawn will remain subject to the offer, subject to your right to withdraw your Asarco 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 Asarco), 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 Asarco shares for exchange, exchange of any Asarco shares pursuant to our offer or to terminate our offer and not accept for exchange or exchange any Asarco 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 Minimum Condition, the Phelps Dodge 48 56 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 Asarco shares being sought or the consideration offered to you, that change will apply to all holders whose Asarco 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 ASARCO 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, Asarco 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 Asarco shares in order to comply with any applicable law. In all cases, exchange of Asarco 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 Asarco shares (or a confirmation of a book-entry transfer of those Asarco 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 Asarco shares validly tendered and not withdrawn as, if and when we notify the exchange agent of our acceptance of the tenders of those Asarco shares pursuant to the offer. The exchange agent will deliver cash and Phelps Dodge common stock in exchange for Asarco 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 Asarco shares for exchange pursuant to the terms and conditions of the offer for any reason, or if certificates are submitted for more Asarco shares than are tendered, we will return certificates for such unexchanged Asarco shares without expense to the tendering stockholder or, in the case of Asarco shares tendered by book-entry transfer of such Asarco shares into the exchange agent's account at DTC pursuant to the procedures set forth below under the discussion entitled "Procedure for Tendering," those Asarco shares will be credited to an account maintained within DTC, as soon as practicable following expiration or termination of the offer. 49 57 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 Asarco shares for exchange. WITHDRAWAL RIGHTS Your tender of Asarco shares pursuant to the offer is irrevocable, except that Asarco 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 Asarco shares to be withdrawn and the name of the registered holder, if it is different from that of the person who tendered those Asarco 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 Asarco shares have been tendered for the account of any Eligible Institution. If Asarco 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 Asarco 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 Asarco 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 Asarco shares properly withdrawn will be deemed not to have been validly tendered for purposes of our offer. However, you may retender withdrawn Asarco 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 Asarco shares, you automatically withdraw the associated Asarco Rights. You may not withdraw Asarco Rights unless you also withdraw the associated Asarco shares. PROCEDURE FOR TENDERING For you to validly tender Asarco 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 Asarco shares must be received by the exchange agent at such address or those Asarco 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 acknowledgment from the participant in DTC tendering the Asarco shares and, if applicable, Asarco Rights, 50 58 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 Asarco 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 Asarco shares by causing DTC to transfer such Asarco shares into the exchange agent's account in accordance with DTC's procedure for such transfer. However, although delivery of Asarco 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 Asarco Rights will be available. If book-entry delivery is not available, you must tender Asarco Rights by means of delivery of Asarco 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 Asarco shares are tendered either by a registered holder of Asarco 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 Asarco shares or Asarco 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 Asarco shares or Asarco 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 ASARCO 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 Asarco 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 Asarco 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 Asarco 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 51 59 the expiration date or cannot complete the procedure for book-entry transfer on a timely basis, your Asarco 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 (c) the certificates for all tendered Asarco 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 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 Asarco shares tendered and accepted for exchange pursuant to our offer only after timely receipt by the exchange agent of certificates for Asarco 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 Asarco 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 Asarco shares tendered and accepted for exchange by us and with respect to any and all other Asarco shares and other securities issued or issuable in respect of the Asarco 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 Asarco shares that you have tendered with the exchange agent. All such proxies shall be considered coupled with an interest in the tendered Asarco 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 Asarco 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 Asarco's stockholders or otherwise. We reserve the right to require that, in order for Asarco shares to be deemed validly tendered, immediately upon our exchange of those Asarco shares, we must be able to exercise full voting rights with respect to such Asarco shares. We will determine questions as to the validity, form, eligibility (including time of receipt) and acceptance for exchange of any tender of Asarco 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 Asarco 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 (subject to our merger agreement with Asarco) to waive any of the conditions of our offer (other than the Minimum Condition, 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 Asarco shares. No tender of Asarco shares will be deemed to have been validly made until all defects and irregularities in tenders of Asarco 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 Asarco 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 transmittal and instructions thereto) will be final and binding. 52 60 The tender of Asarco 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/Asarco merger contemplated by this prospectus. This discussion applies only to a "U.S. Holder," which is a term that we explain below. It applies only to shares of Asarco 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 Asarco common stock pursuant to an exercise of employee stock options or rights or otherwise as compensation, and - persons who hold shares of Asarco 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/ Asarco 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 Asarco 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 Asarco common stock for our common stock and/or cash pursuant to our offer and the Phelps Dodge/Asarco 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 Asarco, Phelps Dodge or any related party will acquire or redeem, in connection with the transaction, shares of Phelps Dodge issued to Asarco shareholders pursuant to our offer or the Phelps Dodge/Asarco merger or shares of Asarco, 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/Asarco merger will constitute more than 40% of the overall consideration furnished to Asarco shareholders in the transaction (including to Asarco shareholders who exercise dissenters' rights); (iii) Asarco will be merged into AAV Corporation; (iv) Asarco 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/Asarco merger will generally be consummated as provided by this prospectus. 53 61 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 Asarco common stock for our common stock pursuant to our offer and the Phelps Dodge/Asarco merger will be treated for U.S. federal income tax purposes as an exchange pursuant to a plan of reorganization within the meaning of Section 368(a) of the Code, as described above, Shearman & Sterling is further of the opinion that the following summarizes the material U.S. federal income tax consequences to a U.S. Holder of the exchange of Asarco shares for our common stock and/or cash pursuant to our offer and the Phelps Dodge/Asarco merger. Receipt only of cash In general, a U.S. Holder who receives only cash in exchange for Asarco shares pursuant to our offer and the Phelps Dodge/Asarco 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 Asarco 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 Phelps Dodge/Asarco merger, the holding period for such Asarco 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 Asarco shares pursuant to our offer and the Phelps Dodge/Asarco 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 Asarco shares surrendered therefor. The holding period of our common stock will include the holding period of such Asarco 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 Asarco shares pursuant to our offer and the Phelps Dodge/Asarco 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 Asarco 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 Asarco 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 Asarco 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/Asarco merger (except in connection with cash received in lieu of a fractional share, as discussed below). Each Asarco 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 Asarco'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 Asarco shares exchanged is more than one year. The adjusted tax basis of our common stock received by a U.S. Holder in exchange for Asarco shares pursuant to our offer and the Phelps Dodge/Asarco 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 54 62 recognized, if any. The holding period of our common stock received will include the holding period of the Asarco 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 owned by such U.S. Holder) immediately after the Phelps Dodge/Asarco 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 Asarco shares owned or constructively owned by the U.S. Holder before the Phelps Dodge/Asarco 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/Asarco merger (including shares owned and constructively owned), is minimal, the U.S. Holder exercises no control over corporate affairs of Asarco 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 Asarco shares owned or constructively owned by the U.S. Holder before the Phelps Dodge/Asarco 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 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 Asarco 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. ASARCO RIGHTS Because there is no specific binding authority dealing with securities such as the Asarco Rights, Shearman & Sterling expresses no view with respect to the U.S. federal income tax treatment of the Asarco Rights becoming separately transferable apart from the Asarco shares (the date on which such event occurs being the "Asarco Distribution Date"), the redemption of the Asarco Rights or the acquisition by us of the Asarco Rights. Stockholders should consult their tax advisors as to the tax consequences of transactions with respect to the Asarco 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. ASARCO STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL, STATE, LOCAL AND NON-UNION STATES TAX CONSEQUENCES OF THE OFFER AND THE MERGER TO THEM. EFFECT OF OFFER ON MARKET FOR ASARCO SHARES; REGISTRATION UNDER THE EXCHANGE ACT The exchange of Asarco shares pursuant to our offer will reduce the number of holders of Asarco shares and the number of Asarco shares that might otherwise trade publicly and could adversely affect the liquidity and market value of the remaining Asarco shares held by the public. Asarco shares are listed and principally traded on the NYSE and are also listed on the Boston, Cincinnati, Philadelphia, Pacific and Chicago Stock 55 63 Exchanges. Depending on the number of Asarco shares acquired pursuant to the offer, following consummation of the offer, Asarco 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 Asarco shares if, among other things, (i) the number of publicly held Asarco 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 100 or more Asarco 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 19, 1999, approximately 39.8 million Asarco common shares outstanding. If such exchanges were to delist the Asarco shares, the market for them could be adversely affected. It is possible that Asarco 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 Asarco shares and the availability of such quotations would, however, depend upon the number of holders and/or the aggregate market value of the Asarco shares remaining at such time, the interest in maintaining a market in the Asarco shares on the part of securities firms, the possible termination of registration of Asarco shares under the Exchange Act, as described below, and other factors. The Asarco 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 Asarco shares. Depending on the factors similar to those described above with respect to listing and market quotations, following consummations of the offer, the Asarco shares may no longer constitute "margin securities" for the purposes of the Federal Reserve Board's margin regulations, in which event the Asarco shares would be ineligible as collateral for margin loans made by brokers. For a description of the treatment of Asarco shares in the Merger, you should refer to "Purpose of Our Offer; the Phelps Dodge/Asarco Merger." Asarco shares are currently registered under the Exchange Act. Asarco 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 Asarco shares. Termination of registration of the Asarco shares under the Exchange Act would reduce the information that Asarco 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 Asarco shares. Furthermore, the ability of "affiliates" of Asarco and persons holding "restricted securities" of Asarco 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/ASARCO MERGER We are making the offer in order to acquire control of, and ultimately the entire common equity interest in, Asarco. The offer is the first step in our acquisition of Asarco, and is intended to facilitate the acquisition of all Asarco 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 Asarco with and into a wholly owned subsidiary. The purpose of the Phelps Dodge/Asarco merger is to acquire all Asarco shares not tendered and exchanged pursuant to the offer. In the Phelps Dodge/Asarco merger, each then outstanding Asarco share (except for Asarco shares held in Asarco's treasury and Asarco shares that we or one of our subsidiaries owns) would be converted into the right to receive 0.25133120 shares of Phelps Dodge common stock and $14.75 in cash, without interest, on a fully prorated basis. If the cash component of our offer is oversubscribed, each outstanding Asarco share will be converted in the merger into 0.50266 Phelps Dodge shares. If the stock component of our offer is oversubscribed, each outstanding Asarco share will be converted in the merger into $29.50 in cash, without interest. If neither the cash nor the stock component of our offer is oversubscribed, you 56 64 will receive in the merger a prorated portion, the cost consideration and the stock consideration based on the number of Asarco shares you own compared to the total number of Asarco shares covered in the merger. The Phelps Dodge/Asarco merger may be consummated pursuant to Section 14A:10-5.1 of the New Jersey Business Corporation Act (the NJBCA). Under Section 14A:10-5.1 of the NJBCA, 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/ Asarco merger under Section 14A:10-3 of the NJBCA without the vote of any other stockholder of Asarco. Rule 13e-3 of the General Rules and Regulations under the Exchange Act, which we do not believe would apply to the Phelps Dodge/Asarco merger if the Phelps Dodge/Asarco merger occurred within one year of consummation of our offer, would require, among other things, that some financial information concerning Asarco, and some information relating to the fairness of the proposed transaction and the consideration offered to stockholders of Asarco therein, be filed with the SEC and disclosed to you prior to consummation of the Phelps Dodge/Asarco merger. In addition, we reserve the right to acquire, following the consummation or termination of our offer, additional Asarco 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 Asarco shares acquired by us pursuant to the offer or otherwise, upon such terms and at such prices as we shall determine. 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, while we may consider sales of non-core assets, 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 Asarco or any of its subsidiaries, or any material changes in Asarco's corporate structure or business, or any change in its management. We have not had access to Asarco'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/Asarco 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 Asarco'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 Asarco shares which will constitute at least 80% of the total number of outstanding Asarco shares on a fully diluted basis (as though all options or other securities convertible into or exercisable or exchangeable for Asarco shares had been so converted, exercised or exchanged) as of the date that we accept the Asarco 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/Asarco 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 57 65 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 intend to seek this approval at a special stockholders meeting scheduled for 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 Asarco shares, may postpone the acceptance for exchange of or exchange for tendered Asarco shares, and may (subject to our merger agreement with Asarco), in our sole discretion, terminate or amend the offer as to any Asarco shares not then exchanged (a) if at the expiration date, either the Minimum Tender Condition or the Phelps Dodge Stockholder Approval Condition 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 Asarco stockholders in the offer and the Phelps Dodge/Asarco 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; (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, restricts 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 Asarco; (d) There shall not have been after the date of the Phelps Dodge/Asarco 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 memorandums or notices, or (iv) final decisions of a court of competent jurisdictions, in each case that would be inconsistent with the Phelps Dodge/Asarco merger qualifying as a reorganization under Section 368(a) of the Code; and (e) The representations and warranties of Asarco in the Phelps Dodge/Asarco 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 the merger agreement and as of the expiration date as though made on and as of the date of the merger agreement 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 Asarco; and Asarco shall have performed or complied in all material respects with all the material agreements and covenants required by the Phelps Dodge/Asarco 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 Minimum Condition, 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 58 66 properly tendered Asarco shares, we will either promptly exchange such Asarco shares or promptly return such Asarco 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 Asarco shares outstanding will be approximately $589 million. We expect to obtain these funds from cash on hand; 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; and from borrowing under a revolving credit facility that Citibank N.A. has committed to provide to us. Our existing 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 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. Citibank, N.A. has entered into a commitment letter with us dated October 5, 1999. Under that letter, Citibank has committed to provide us with a $1 billion revolving credit facility that we may use to pay cash consideration in connection with our offer. We expect that Salomon Smith Barney Inc., an affiliate of Citibank, will syndicate this credit facility to a group of banks. Citibank's commitment is subject to customary conditions, including: - each of us signing mutually acceptable loan documentation; - absence of any material adverse change to us since December 31, 1998; - absence of any material disruption or material adverse change in financial, banking or capital markets conditions generally since October 5, 1999 that would, in the reasonable judgment of Salomon Smith Barney, materially impair syndication of the credit facility; and - accuracy and completeness of representations and warranties we make and information we furnish, and our compliance with the terms of the commitment letter. Loans under the Citibank credit facility will be unsecured, and will bear interest, at our option, at either (a) Citibank's base rate, or (b) LIBOR plus a variable margin of between 0.40% and 2.00%, depending on our credit rating and the amount we have outstanding under the facility. The facility is scheduled to terminate 364 days after it is established. Although we have not made definitive plans for the repayment of borrowings under our existing revolving credit facility or our Citibank revolving credit facility, we expect to repay the borrowings using internally generated funds, including, if the Phelps Dodge/Asarco merger is completed, those of Asarco. 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 ASARCO 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 Asarco, including, but not limited to, any contract, arrangement, understand- 59 67 ing 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 Asarco 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 Asarco 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. Phelps Dodge Overseas Capital Corporation, a wholly owned subsidiary of Phelps Dodge, and Asarco are among the parties to an agreement among stockholders, dated as of January 2, 1996, regarding their respective stock holdings in Southern Peru Copper Corporation. The agreement gives each party the right to nominate a number of SPCC directors in proportion with the party's stock ownership, and requires each party to vote its stock to elect those directors. From 1995 through 1998, Phelps Dodge Sales Company Incorporated, a wholly owned subsidiary of Phelps Dodge, was party to a contract with SPCC to purchase 4,800 metric tons of copper from 1995-1997 and 2,400 metric tons of copper in 1998 for $14,095,465 in 1995, $10,993,828 in 1996, $10,925,043 in 1997 and $3,966,730 in 1998. 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 Asarco 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 Asarco 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. 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 Asarco shares pursuant to our offer. ACCOUNTING TREATMENT The merger of Asarco into Phelps Dodge would be accounted for under the purchase method of accounting under U.S. generally accepted accounting principles, which means that Asarco'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. 60 68 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/Asarco 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/Asarco 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 ("Antitrust Division") and the Federal Trade Commission (the "FTC") and some waiting period requirements have been satisfied. The acquisition of Asarco 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 Asarco shares pursuant to our offer. At any time before or after we acquire Asarco 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 Asarco shares pursuant to the offer or otherwise or seeking divestiture of Asarco shares acquired by us or divestiture of assets of Phelps Dodge and/or Asarco. Private parties may also bring legal action under the antitrust laws under some circumstances. 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 Asarco 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. 61 69 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., 62 70 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/ASARCO 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: - at least 80% of the outstanding shares of Asarco 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 Asarco, unless failure to be accurate would not reasonably be expected to have a material adverse effect on Asarco; and - compliance by Asarco in all material respects with material agreements and covenants in the merger agreement. We expressly reserve the right to waive any condition (other than the Minimum Condition, the Phelps Dodge Stockholder Approval Condition and the condition relating to the effectiveness of the Registration Statement) or to increase the consideration per share of Asarco common stock payable in our offer, provided however, that no charge may be made which decreases the consideration per share of Asarco common stock payable in our offer or which reduces the maximum number of shares of Asarco common stock to be acquired in our offer. 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 63 71 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 to extend the offer at any time up to March 31, 2000 for one or more periods of not more than 10 business days, if at the expiration date of the Asarco offer, or any extension thereof, any of the conditions to the offer is not satisfied or waived; provided, however, that if all the conditions to the offer are satisfied or waived but the number of Asarco shares tendered is 85% or more, but less than 90%, of the then outstanding number of Asarco shares, then we may extend the offer for an aggregate period of not more than three business days beyond the expiration date. FORM OF MERGER If all the conditions to the merger are satisfied or waived in accordance with the merger agreement, AAV Corporation, a wholly owned subsidiary of Phelps Dodge, will merge with Asarco, with AAV Corporation surviving (the "Surviving Corporation"). As a result of the merger, the identity and separate existence of Asarco shall cease. The merger will become effective when the applicable certificates of merger are filed with the Secretaries of State of the States of Delaware and New Jersey. 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 Asarco Common Stock. Subject to no fractional shares being issued, each issued and outstanding share of Asarco common stock (other than shares to be canceled in accordance with the merger agreement) shall be converted into the Asarco Consideration, the Asarco 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 Asarco common stock will be converted in the merger into the right to receive 0.50266 Phelps Dodge common shares (the "Asarco Stock Consideration"). If there is an excess of stock elections with respect to the offer, each outstanding share of Asarco common stock will be converted in the merger into the right to receive $29.50 net in cash, without interest (the "Asarco Cash Consideration"). If there is not an excess of cash or stock elections, each outstanding share of Asarco common stock will be converted in the merger into (i) an amount of cash equal to the Asarco Merger Cash Amount (as hereinafter defined), without interest, and (ii) a number of shares of Phelps Dodge common stock equal to the Asarco Merger Stock Amount (as hereinafter defined). The Asarco Merger Cash Amount and the Asarco Merger Stock Amount will be determined as follows: 1. The aggregate amount of Asarco Cash Consideration actually paid in the Offer will be subtracted from the Total Asarco Available Cash (as hereinafter defined) to determine the amount of cash available to be paid in the merger (the "Aggregate Asarco Merger Cash Consideration"). "Total Asarco Available Cash" equals (i) the number of shares of Asarco common stock exchanged in the offer plus the number of shares of Asarco common stock to be converted in the Asarco Merger, multiplied by (ii) $14.75. 2. The Aggregate Asarco Merger Cash Consideration will be divided by the number of shares of Asarco common stock to be converted in the merger, to determine the amount of cash consideration to be paid in respect of each such share of Asarco common stock in the merger (the "Asarco Merger Cash Amount"). 3. The aggregate number of shares of Phelps Dodge common stock actually issued as Asarco Stock Consideration in the offer will be subtracted from the Total Asarco 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 Asarco Merger Stock Consideration"). "Total Asarco Available Stock" equals (i) the number of shares of Asarco common stock exchanged in the offer plus the number of shares of Asarco common stock to be converted in the merger, multiplied by (ii) 0.25133120. 64 72 4. The Aggregate Asarco Merger Stock Consideration will be divided by the number of shares of Asarco 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 Asarco common stock in the merger (the "Asarco Merger Stock Amount"). As of the effective time of the merger, all such shares of Asarco 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 Asarco 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. 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 Asarco, 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 Asarco common stock. Soon after the completion of the merger, we will send a letter to each person who was a Asarco stockholder at the time the merger became effective. The letter will contain instructions on how to surrender Asarco 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 Asarco common stock will not be entitled to receive any dividends or other distributions payable by Phelps Dodge until they exchange their Asarco stock certificates for certificates representing shares of Phelps Dodge common stock. Once they deliver their Asarco 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 Asarco 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 Asarco common stock otherwise entitled to fractional shares of Phelps Dodge common stock will receive a cash payment instead of such fractional shares. Following the effective time, the exchange agent will determine the excess of the number of whole shares of Phelps Dodge common stock delivered to the exchange agent by Phelps Dodge for distribution to Asarco stockholders over the aggregate number of whole shares of Phelps Dodge common stock to be distributed to Asarco stockholders. The exchange agent will then, on behalf of the former stockholders of Asarco, 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 Asarco common stock with respect to any fractional share interests, the exchange agent will make available such amounts to such holders of Asarco 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 "ASARCO Incorporated" until changed or amended in accordance with applicable Law. Charter Documents. At the effective time, the certificate of incorporation and the bylaws of AAV Corporation, as in effect immediately prior to the effective time, shall be the certificate of incorporation and bylaws, respectively, of the Surviving Corporation. 65 73 Directors and Officers. The directors of AAV Corporation 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 AAV Corporation 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 Asarco shareholder rights plan to the offer and 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; - the absence of undisclosed material liabilities; - labor relations; and - no prior activities conducted by AAV Corporation. All representations and warranties of Phelps Dodge and Asarco 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. 66 74 - 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 Asarco, 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 Asarco, 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. - 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. - 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 67 75 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 Asarco 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 Asarco 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 Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to Asarco, concerning certain tax matters. Each of us has also agreed: - that Phelps Dodge will cause an appropriate supplement to the Phelps Dodge proxy statement to be mailed to its stockholders as promptly as practicable after it is cleared by the SEC. - that Asarco 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; - 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 Asarco 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 and adoption of the merger agreement; and - that after AAV Corporation has purchased shares of Asarco common stock through the offer, Phelps Dodge will be entitled to designate a number of directors on the Asarco Board that will give Phelps Dodge a percentage of representation on the Asarco Board equal to the percentage of shares of Asarco common stock that it then owns. 68 76 - 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 Asarco 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 Asarco 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 Asarco 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 Asarco or any of its subsidiaries, or - any merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving Asarco or any of its subsidiaries. Except as provided in the next two paragraphs, neither the board of directors of Asarco 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 Phelps Dodge, the recommendation by the board of directors 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 Asarco to enter into any letter of intent, agreement in principle, acquisition agreement or other similar agreement related to any Takeover Proposal. However, if the board of directors of Asarco receives a Takeover Proposal and the board of directors of Asarco determines in good faith, after consultation with outside counsel, that it is necessary to do so in order to comply with its fiduciary duties to Asarco shareholders under applicable law, the board of directors of Asarco 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 Asarco 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 Asarco 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 Asarco to change such recommendation, the merger agreement shall be submitted to the stockholders of Asarco at the Asarco stockholder meeting for the purpose of obtaining the Asarco stockholder approval and nothing contained in the merger agreement shall be deemed to relieve Asarco of such obligation. 69 77 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. Asarco agreed to immediately notify us 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 us 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 Asarco common stock and each 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 Asarco 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 Asarco Stock Consideration. In the case of an option to purchase Asarco 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 Asarco Stock Consideration. Phelps Dodge will assume the obligations of Asarco with respect to such options. Phelps Dodge will assume the obligations of Asarco 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 Asarco 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. 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 Asarco 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 Asarco 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 Asarco. 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 for the benefit of Asarco employees following the completion of the business combination; 70 78 - provide employees of Asarco with credit for any co-payments and deductibles paid in the calendar year prior to the completion of the business combination; and - generally, treat all service by employees of Asarco prior to the completion of the business combination as service with Phelps Dodge under all compensation and benefit plans and policies maintained for the benefit of Asarco employees. CHANGE OF CONTROL PAYMENTS Asarco has entered into employment agreements with twelve of its executive officers that provide for the payment of certain benefits upon a termination of employment other than for "cause" or for "good reason" following a "change of control," as those terms are defined in those agreements. Pursuant to the terms of the merger agreement, a change of control for purposes of these employment agreements will be deemed to have occurred upon completion of the business combination. Phelps Dodge has agreed to take all appropriate steps necessary to give reasonable advance notice of its intention to offer employment (including the proposed terms of such offer), or not to offer employment, to each of these twelve executive officers, and to make any offers sufficiently in advance of the business combination to provide such offerees reasonable time prior to the business combination to decide upon the offers. 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 Asarco 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 Asarco. Phelps Dodge has also agreed that, for three years from the time the business combination becomes effective, it will maintain in effect Asarco'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 Asarco. 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 Asarco 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 Asarco have been obtained in accordance with applicable law. - Legality. No statute, rule, regulation, executive order, decree, ruling or injunction by any tribunal or governmental authority prohibits or makes illegal the consummation of the merger substantially on the terms contemplated by the merger agreement. - AAV Corporation shall have accepted for exchange all shares of Asarco common stock validly tendered and not withdrawn pursuant to the offer; provided, however, that this condition shall not be 71 79 applicable to the obligations of AAV Corporation if, in breach of the merger agreement, AAV Corporation 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 Asarco 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 Asarco 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 Asarco 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 any 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 or make illegal the consummation of the offer or the merger or would have a material adverse effect on Phelps Dodge or Asarco; - by the Phelps Dodge board of directors, at any time prior to the purchase of any shares of Asarco common stock pursuant to the offer, if (i) the board of directors of Asarco 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 Asarco board of directors shall have recommended another Takeover Proposal, (iii) there is a public disclosure of another Takeover Proposal and the Minimum Tender Condition is not satisfied but all other conditions to the offer are satisfied, or (iv) the representations and warranties of Asarco are not correct as of the date of the merger agreement and as of the expiration date of the offer as though made on and as of the date of the merger agreement 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 Asarco; and Asarco shall have performed or complied in all material respects with all the material agreements and covenants required by the merger agreement, and such condition is not satisfied within 30 days of notice; - by Asarco, at any time prior to the acceptance for payment shares of Asarco 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 Asarco in accordance with the provisions described under the caption "-- No Solicitation of Alternative Takeover Proposals"; provided that Asarco shall have complied with all provisions of such section and shall have paid the termination fee described below to Phelps Dodge. CLOSING The closing of the Merger will take place within two business days after the later of the Phelps Dodge shareholder meeting and the Asarco shareholder meeting. 72 80 TERMINATION FEES Asarco is liable to Phelps Dodge for a termination fee of $30 million if the merger agreement is terminated under certain circumstances. In general, the termination fee is payable by Asarco if: - prior to the date of the Asarco stockholder meeting a Takeover Proposal is made known to Asarco 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, Asarco 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 Asarco and its subsidiaries, or a business that constitutes twenty percent or more of the revenues, net income or assets of the Asarco, or otherwise consummates a Takeover Proposal. The merger agreement also provides that if Asarco fails to pay any termination fee which is judged to be due, Asarco must pay the costs and expenses of any action taken to collect payment, together with interest on the termination fee. 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; - the expenses incurred in connection with the printing and mailing of a joint proxy statement (including SEC filing fees); and - all transfer taxes. AMENDMENT At any time before or after approval of the matters presented in connection with the combination by our respective shareholders, the merger agreement may be amended or supplemented in writing by Phelps Dodge and Asarco with respect to any terms; provided, however, that following approval by Asarco stockholders there shall be no amendment or change to the provisions relating to the Merger Consideration or make any other change not permitted under applicable law without further approval by the Asarco stockholders. APPRAISAL RIGHTS Asarco shareholders will not have appraisal rights in connection with the combination. See "Comparison of Rights of Holders of Phelps Dodge Shares and Asarco Shares -- Comparison of Certain Statutory Provisions" on page 108. 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. 73 81 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.............. 66 3/4 55 1/16 0.50 27 7/16 17 1/2 0.05 Fourth Quarter (through October 6)............... 54 3/8 53 1/16 26 7/8 26 3/4 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.............. 19 5/8 12 7/8 0.05 Fourth Quarter (through October 6)............... 19 3/8 18 1/8
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 October 5, 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 $53 9/16, $26 3/4 and $19 3/16, 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 0.25133120 Phelps Dodge common shares plus $14.75 in cash for each Asarco common share and 0.2203 Phelps Dodge common shares plus $7.61176875 in cash for each Cyprus Amax common share) were as follows: Asarco...................................................... $29.47 Cyprus Amax................................................. $20.51
74 82 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 Stockholders' 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. 75 83 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. (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. (footnotes continued on next page) 76 84 (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. 77 85 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. (footnotes continued on next page) 78 86 (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 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. 79 87 PHELPS DODGE COMPARATIVE PER SHARE INFORMATION The following table presents historical per common share information for Phelps Dodge and Asarco, and the pro forma and equivalent pro forma per common share data giving effect to the combination of Phelps Dodge and Asarco and Phelps Dodge, Asarco and Cyprus Amax, for the six months ended June 30, 1999 and the year ended December 31, 1998. The pro forma combined per share information does not purport to represent what the combined financial position or results of operations would actually have been if the 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 incorporated by reference in this Registration Statement, the "Selected Historical Financial Data" of Phelps Dodge, Asarco and Cyprus Amax on pages 74 through 78, and the "Unaudited Pro Forma Combined Financial Information" on page 81.
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 Asarco Book value(1)..................................... 36.68 38.45 Net income(loss) Basic.......................................... (1.42) (3.29) Diluted........................................ (1.42) (3.29) Cash dividends.................................... 0.10 0.70 Pro forma: Combined Phelps Dodge and Asarco Book value(1)..................................... 44.97 49.07 Income(loss) from continuing operations Basic.......................................... (1.70) 0.86 Diluted........................................ (1.70) 0.86 Cash dividends(2)................................. 1.00 2.00 Asarco Equivalent(3) Book value(1)..................................... 22.60 24.67 Income(loss) from continuing operations--Basic and Diluted........................................ (0.85) 0.43 Cash dividends.................................... 0.50 1.01 Combined Phelps Dodge, Asarco and Cyprus Amax Book value(1)..................................... 47.28 51.63 Income(loss) from continuing operations--Basic and Diluted........................................ (2.15) (1.08) Cash dividends(2)................................. 1.00 2.00
(footnotes on next page) 80 88
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1999 DECEMBER 31, 1998 ------------- ----------------- Asarco Equivalent(3) Book value(1)..................................... 23.77 25.95 Income(loss) from continuing operations--Basic and Diluted........................................ (1.08) (0.54) Cash dividends.................................... 0.50 1.01 Cyprus Amax Equivalent(3) Book value(1)..................................... 16.55 18.07 Income(loss) from continuing operations--Basic and Diluted........................................ (0.75) (0.38) 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 0.50266 and 0.3500 shares of Phelps Dodge stock for each share of Asarco and Cyprus Amax, respectively. 81 89 UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION The Unaudited Pro Forma Combined Financial Information of Phelps Dodge presented following is derived from the historical consolidated financial statements of Phelps Dodge, Asarco and 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 Asarco; 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 44 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, the Form 8-K filing dated June 30, 1999 of Cyprus Amax, the merger agreement with Cyprus Amax dated September 30, 1999 ("Cyprus Merger Agreement") and the merger agreement with Asarco dated October 5, 1999 ("Asarco 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 Cyprus Merger Agreement. Phelps Dodge has agreed to combine its business with Asarco pursuant to the Asarco Merger Agreement. 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 and/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 $53.5625 for each Phelps Dodge common share, that being the closing market price at October 5, 1999. The final purchase price will be based largely upon the average market price of Phelps Dodge common stock at the earlier of the dates the 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. 82 90 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 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. 83 91 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 (21)(I) 300 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 (21) 2,949 ------ ----- --- ------ ----- Operating income (loss).......... (27) (49) (13) 21 (68) Interest expense............... (48) (38) (69) (13)(E) (4)(A) (3)(K) (175) 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) 10 (240) Provision for taxes on income...................... 19 25 14 (1)(A) (4)(F) 53 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) 1 (189) Preferred stock dividends...... -- -- (9) 9(E) -- ------ ----- --- ------ ----- Income (loss) from continuing operations applicable to common shares......................... $ (57) (56) (86) 10 (189) ====== ===== === ====== ===== Net earnings (loss) per share Basic.......................... $(0.98) (2.15) Diluted........................ $(0.98) (2.15) Weighted average shares outstanding Basic.......................... 57.8 87.8 Diluted........................ 57.8 87.8
- ------------ * See historical financial statements incorporated by reference in this prospectus for a description of non-recurring charges and provision for asset dispositions. 84 92 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) (43)(I) 642 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 (250) 6,351 ------ ----- ----- ------- ------ Operating income (loss)............ 423 (118) 51 32 388 Interest expense................. (97) (68) (157) (28)(E) (13)(A) (5)(K) (368) 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) (11) 82 Provision for taxes on income.... (134) 53 (11) (6)(F) (98) 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) (5) (95) Preferred stock dividends........ -- -- (19) 19(E) -- ------ ----- ----- ------- ------ Income (loss) from continuing operations applicable to common shares........................... $ 191 (131) (169) 14 (95) ====== ===== ===== ======= ====== Net earnings (loss) per share Basic............................ $ 3.28 (1.08) Diluted.......................... $ 3.26 (1.08) Weighted average shares outstanding Basic............................ 58.2 88.2 Diluted.......................... 58.5 88.2 ------
- ------------ * See historical financial statements incorporated by reference in this prospectus for a description of non-recurring charges and provision for asset dispositions. 85 93 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 (1,280)(B) 114(E) (41)(B) (30)(C) (7)(E) 300 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 (1,155) 2,493 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 (539)(D) 8,100 Other assets and deferred charges....... 339 226 160 (9)(A) 41(B) 7(E) 764 ------ ----- ----- ------ ------ Total Assets..................... $4,902 3,977 4,746 (1,630) 11,995 ====== ===== ===== ====== ====== 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 74(L) 1,350 Dividends payable....................... 29 -- 9 -- 38 Accrued income taxes.................... 11 90 81 -- 182 ------ ----- ----- ------ ------ Current liabilities..................... 772 633 742 74 2,221 Long-term debt.......................... 801 1,017 1,499 358(E) (95)(D) 3,580 Deferred income taxes................... 493 28 14 (141)(F) 394 Other liabilities and deferred credits............................... 376 306 412 52(D) 1,146 ------ ----- ----- ------ ------ 2,442 1,984 2,667 248 7,341 ------ ----- ----- ------ ------ Minority interests in consolidated subsidiaries............................ 86 534 20 (147)(J) 493 ------ ----- ----- ------ ------ Shareholders' equity Common shares........................... 362 525 1 (526)(H) 188(G) 550 Treasury shares......................... -- -- (86) 86(A) -- Preferred shares........................ -- -- 5 (5)(E) -- Capital in excess of par value.......... 5 -- 2,912 (86)(A) 43(B) (2,826)(H) 1,422(G) 1,470 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 (1,731) 4,161 ------ ----- ----- ------ ------ Total Liabilities and Shareholders' Equity........... $4,902 3,977 4,746 (1,630) 11,995 ====== ===== ===== ====== ======
86 94 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 67 of this prospectus. The assumptions and related pro forma adjustments described below have been developed from public historical information available to Phelps Dodge, the Asarco Merger Agreement and the Cyprus Merger Agreement. 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 38 of this prospectus. Phelps Dodge is offering to exchange $14.75 net in cash plus 0.25133120 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 $29.50 in cash or 0.50266 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 $7.611766875 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. The funds for the cash consideration in connection with the exchange of all Asarco and Cyprus Amax common shares outstanding are expected to be obtained from cash on hand, from borrowings under Phelps Dodge's existing revolving credit facility, and from a bridge financing revolving credit facility for which Phelps Dodge has obtained a letter of commitment from Citibank, N.A. The existing revolving credit facility allows borrowings up to $1 billion until its scheduled maturity on June 25, 2002 and allows for two, one-year renewals beyond the scheduled maturity with approvals of those lenders representing at least two-thirds of the commitments provided by the facility. The commitment for the bridge financing revolving credit facility provides for borrowings up to $1 billion and a termination 364 days after it is established. Both revolving credit facilities bear interest at variable rates which approximate 6.75 percent on October 5, 1999. Phelps Dodge expects to replace the borrowings under the bridge financing revolving credit facility with long-term financing after the acquisitions of Asarco and Cyprus Amax. 87 95 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 Cyprus Merger Agreement and the Asarco Merger Agreement)......................................... 39,921 90,867 Exchange offer ratio of Phelps Dodge common shares for each common share.............................. 0.25133120 0.2203 Phelps Dodge common shares to be issued.............. 10,032 20,018 30,050 Closing market price of each Phelps Dodge common share on October 5, 1999........................... $53.5625 ======== Fair value of Phelps Dodge common shares issued, comprising par value of $188 ($6.25 per share) and capital in excess of par of $1,422................. $ 1,610 Cash consideration of $14.75 for each Asarco common share and $7.61176875 for each Cyprus Amax common share.............................................. 1,280 Redemption of Cyprus Amax Series A Preferred Stock (Note 3E).......................................... 244 Estimated fair value of Cyprus Amax outstanding options (as reported in the Cyprus Merger Agreement)......................................... 30 Estimated fair value of Asarco outstanding options (as reported in the Asarco Merger Agreement)....... 13 Estimated transaction costs.......................... 30 -------- Purchase price....................................... $ 3,207 ========
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. 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, in 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 60 through 64 for a summary of non-recurring items and special charges). 88 96 COMBINATION OF PHELPS DODGE, ASARCO AND CYPRUS AMAX NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED) (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.
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 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 $1,280 million, the estimated fair value of outstanding stock options of $13 million and $30 million for 89 97 COMBINATION OF PHELPS DODGE, ASARCO AND CYPRUS AMAX NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED) Asarco and Cyprus Amax, respectively, 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 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).............. $ 141 Reduction in net property, plant and equipment (derived).... $ 539
(E) The pro forma adjustments reflect the issuance of $358 million of debt to finance the acquisition, provide operating cash, and finance the redemption of all 4,664,000 outstanding shares of 90 98 COMBINATION OF PHELPS DODGE, ASARCO AND CYPRUS AMAX NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED) Cyprus Amax's Series A Preferred Stock. Phelps Dodge has obtained bridge financing of $1 billion with a one-year term as described in Note 2. The bridge financing is expected to be replaced with long-term financing. Ten-year debt has been assumed for purposes of the pro forma adjustments. Interest is estimated to be fixed at 7.75% resulting in annual interest expense of $28 million. The interest rate estimate was based upon current ten-year treasury bill rates plus commercially indicative rate basis points. A change in the interest rate on the debt by 1/8 percent would impact annual interest expense by approximately $450,000. Debt issue costs associated with the debt are estimated to be approximately $7 million with annual amortization of approximately $700,000. (F) The estimated income tax effect of the pro forma adjustments have 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. 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 SPCC. 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 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 30,050,000 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 $188 million at $6.25 per share par value and capital in excess of par of $1,422 million. (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 Southern Peru Copper Corporation (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 91 99 COMBINATION OF PHELPS DODGE, ASARCO AND CYPRUS AMAX NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED) 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 Asarco, Cyprus Amax and Phelps Dodge. (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 pro forma potential common shares................................ -- -- -- (0.3) Phelps Dodge common shares to be issued in connection with the business combination (Note 2).................. 30.0 30.0 30.0 30.0 ----- ----- ----- ----- 87.8 87.8 88.2 88.2 ===== ===== ===== =====
The average number of common shares outstanding does not include Asarco's and Cyprus Amax's outstanding stock options or other common stock equivalents, which represent approximately 700,000 potential Phelps Dodge common shares, because the impact on unaudited pro forma net loss per share would be anti-dilutive. 92 100 PHELPS DODGE CORPORATION PRO FORMA COMBINED STATEMENT OF OPERATIONS PHELPS DODGE AND ASARCO 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 ADJUSTMENTS COMBINED ------------ ------ ----------- --------- Sales and other operating revenues.......................... $1,354 966 -- 2,320 ------ ----- --- ----- Operating costs and expenses Cost of products sold............. 1,073 855 -- 1,928 Depreciation, depletion and amortization................... 144 73 (22)(J) 195 Selling and general administrative expense........................ 60 72 -- 132 Exploration and research expense........................ 21 11 -- 32 Non-recurring charges and provision for asset dispositions*.................. 83 4 -- 87 ------ ----- --- ----- 1,381 1,015 (22) 2,374 ------ ----- --- ----- Operating income (loss)............. (27) (49) 22 (54) Interest expense.................. (48) (38) (3)(K) (23)(E) (4)(A) (116) Capitalized interest.............. -- -- 4(A) 4 Miscellaneous income and expense, net................... (7) 10 (1)(F) (2)(A) -- ------ ----- --- ----- Income (loss) before taxes, minority interests and equity in net earnings of affiliated companies......................... (82) (77) (7) (166) Provision for taxes on income..... 19 25 2(G) 46 Minority interests in consolidated subsidiaries................... 1 (4) 1(F) (2) Equity in net earnings (losses) of affiliated companies........... 5 -- 2(A) 7 ------ ----- --- ----- Income (loss) from continuing operations........................ $ (57) (56) (2) (115) ====== ===== === ===== Net earnings (loss) per share Basic............................. $(0.98) (1.70) Diluted........................... $(0.98) (1.70) Weighted average shares outstanding Basic............................. 57.8 67.8 Diluted........................... 57.8 67.8
- ------------ * See historical financial statements incorporated by reference in this prospectus for a description of non-recurring charges and provision for asset dispositions. 93 101 PHELPS DODGE CORPORATION PRO FORMA COMBINED STATEMENT OF OPERATIONS PHELPS DODGE AND ASARCO COMBINED FOR THE YEAR ENDED DECEMBER 31, 1998 (UNAUDITED) (AMOUNTS IN MILLIONS, EXCEPT PER SHARE INFORMATION)
HISTORICAL --------------------- PRO FORMA PRO FORMA PHELPS DODGE ASARCO ADJUSTMENTS COMBINED ------------ ------ ----------- --------- Sales and other operating revenues......... $3,064 2,233 -- 5,297 ------ ----- ---- ----- Operating costs and expenses Cost of products sold.................... 2,361 1,963 -- 4,324 Depreciation, depletion and amortization.......................... 293 145 (44)(J) 394 Selling and general administrative expense............................... 123 144 -- 267 Exploration and research expense......... 55 27 -- 82 Non-recurring charges and provision for asset dispositions*................... (191) 72 -- (119) ------ ----- ---- ----- 2,641 2,351 (44) 4,948 ------ ----- ---- ----- Operating income (loss).................... 423 (118) 44 349 Interest expense......................... (97) (68) (5)(K) (46)(E) (13)(A) (229) Capitalized interest..................... 2 -- 13(A) 15 Miscellaneous income and expense, net.... 9 29 (6)(F) (4)(A) 28 ------ ----- ---- ----- Income (loss) before taxes, minority interests and equity in net earnings of affiliated companies..................... 337 (157) (17) 163 Provision for taxes on income............ (134) 53 4(G) (77) Minority interests in consolidated subsidiaries.......................... (8) (27) 8(F) (27) Equity in net earnings (losses) of affiliated companies.................. (4) -- 4(A) -- ------ ----- ---- ----- Income (loss) from continuing operations... $ 191 (131) (1) 59 ====== ===== ==== ===== Net earnings (loss) per share Basic.................................... $ 3.28 0.86 Diluted.................................. $ 3.26 0.86 Weighted average shares outstanding Basic.................................... 58.2 68.3 Diluted.................................. 58.5 68.6
- ------------ * See historical financial statements incorporated by reference in this prospectus for a description of non-recurring charges and provision for asset dispositions. 94 102 PHELPS DODGE CORPORATION PRO FORMA COMBINED BALANCE SHEET PHELPS DODGE AND ASARCO COMBINED JUNE 30, 1999 (UNAUDITED) (AMOUNTS IN MILLIONS)
HISTORICAL --------------------- PRO FORMA PRO FORMA PHELPS DODGE ASARCO ADJUSTMENTS COMBINED ------------ ------ ----------- --------- ASSETS Cash and cash equivalents................. $ 144 125 (589)(B) 589(E) (12)(E) (20)(C) 237 Accounts receivable, net.................. 396 404 -- 800 Inventories............................... 263 305 (127)(A) 80(D) 521 Supplies.................................. 104 -- 127(A) 231 Prepaid expenses and other assets......... 15 135 10(D) (33)(A) 127 Deferred income taxes..................... 45 -- 33(A) 78 ------ ----- ---- ----- Current assets.......................... 967 969 58 1,994 Investments and long-term accounts receivable.............................. 95 190 29(D) (13)(F) 301 Property, plant and equipment, net........ 3,501 2,592 (559)(D) 5,534 Other assets and deferred charges......... 339 226 12(E) 577 ------ ----- ---- ----- Total Assets....................... $4,902 3,977 (473) 8,406 ====== ===== ==== ===== LIABILITIES Short-term debt........................... $ 214 16 -- 230 Current portion of long-term debt......... 62 31 -- 93 Accounts payable and accrued expenses..... 456 496 54(L) 1,006 Dividends payable......................... 29 -- -- 29 Accrued income taxes...................... 11 90 -- 101 ------ ----- ---- ----- Current liabilities..................... 772 633 54 1,459 Long-term debt............................ 801 1,017 (53)(D) 589(E) 2,354 Deferred income taxes..................... 493 28 (141)(G) 380 Other liabilities and deferred credits.... 376 306 -- 682 ------ ----- ---- ----- 2,442 1,984 449 4,875 ------ ----- ---- ----- Minority interests in consolidated subsidiaries.............................. 86 534 (147)(F) 473 ------ ----- ---- ----- Shareholders' equity Common shares........................... 362 525 (525)(I) 63(H) 425 Capital in excess of par value.......... 5 -- 474(H) 13(B) 492 Retained earnings....................... 2,198 949 (949)(I) 134(F) 2,332 Accumulated other comprehensive income (loss)............................... (183) (15) 15(I) (183) Other................................... (8) -- -- (8) ------ ----- ---- ----- Total Shareholders' Equity......... 2,374 1,459 (775) 3,058 ------ ----- ---- ----- Total Liabilities and Shareholders' Equity........................... $4,902 3,977 (473) 8,406 ====== ===== ==== =====
95 103 COMBINATION OF PHELPS DODGE AND ASARCO 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 Asarco incorporated by reference into this prospectus. See Phelps Dodge "Unaudited Pro Forma Combined Financial Information" on page 67 of this prospectus. The assumptions and related pro forma adjustments described below have been developed from public historical information available to Phelps Dodge and the Asarco Merger Agreement. 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. 2. THE OFFER Phelps Dodge is proposing a business combination with Asarco pursuant to the Asarco Merger Agreement through an offering to exchange all the issued and outstanding Asarco common shares for a combination of Phelps Dodge common shares and cash. Phelps Dodge is offering to exchange $14.75 net in cash plus 0.25133120 shares of Phelps Dodge common stock for each outstanding share of Asarco Incorporated common stock, on a fully prorated basis. Asarco shareholders may elect to receive either $29.50 in cash or 0.50266 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. The funds for the cash consideration in connection with the exchange of all Asarco common shares outstanding are expected to be obtained from cash on hand, from borrowings under Phelps Dodge's existing revolving credit facility, and from a bridge financing revolving credit facility for which Phelps Dodge has obtained a letter of commitment from Citibank, N.A. The existing revolving credit facility allows borrowings up to $1 billion until its scheduled maturity on June 25, 2002 and allows for two, one-year renewals beyond the scheduled maturity with approvals of those lenders representing at least two-thirds of the commitments provided by the facility. The commitment for the bridge financing revolving credit facility provides for borrowings up to $1 billion and a termination 364 days after it is established. Both revolving credit facilities bear interest at variable rates which approximate 6.75 percent on October 5, 1999. Phelps Dodge expects to replace the borrowings under the bridge financing revolving credit facility with long-term financing after the acquisition of Asarco. The transaction would be accounted for under the purchase method. The purchase price for the business combination is estimated as follows (dollars in millions and shares in thousands except per share data): 96 104 COMBINATION OF PHELPS DODGE AND ASARCO NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED)
ASARCO ------------ Common shares outstanding (as reported in the Asarco Merger Agreement)................................................ 39,921 Exchange offer ratio of Phelps Dodge common shares for each common share.............................................. 0.25133120 Phelps Dodge common shares to be issued..................... 10,032 Closing market price of each Phelps Dodge common share on October 5, 1999........................................... $ 53.5625 ============ Fair value of Phelps Dodge common shares issued, comprising par value of $63 ($6.25 per share) and capital in excess of par of $474............................................ $ 537 Cash consideration of $14.75 for each Asarco common share... 589 Estimated fair value of Asarco outstanding options (as reported in the Asarco Merger Agreement).................. 13 Estimated transaction costs................................. 20 ------------ Purchase price.............................................. $ 1,159 ============
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 common shares. 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 combination of Phelps Dodge and Asarco as if such combination occurred on January 1, 1998, in 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 Asarco 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 60 through 64 for a summary of non-recurring items and special charges). 97 105 COMBINATION OF PHELPS DODGE AND ASARCO NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED) (A) Reclassifications have been made to the Asarco historical consolidated financial information to conform to Phelps Dodge's presentation.
BALANCE SHEET AT SIX MONTHS ENDED YEAR ENDED JUNE 30, 1999 JUNE 30, 1999 DECEMBER 31, 1998 ---------------- ---------------- ----------------- (IN $ MILLIONS) 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 (losses) of affiliated companies........ 2 4 Interest expense.... 4 13 Capitalized interest......... (4) (13)
(B) This pro forma adjustment represents payment of the cash component of the purchase price of $589 million and the estimated fair value of Asarco outstanding stock options of $13 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 Asarco 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 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 Asarco. 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 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 Asarco. Phelps Dodge has not developed formal plans for combining the operations. Accordingly, additional liabilities may be incurred in connection with the business combination and any ultimate restructuring. These additional liabilities and costs have not been contemplated in the Unaudited Pro Forma Combined Financial Information because information necessary to reasonably estimate such costs and to formulate detailed restructuring plans is not 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. 98 106 COMBINATION OF PHELPS DODGE AND ASARCO NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED) The merger agreement by and between Asarco and Cyprus Amax has been terminated and Cyprus Amax has paid $45 million to Asarco upon such termination. Accordingly, no such fee is required to be paid upon consummation of Phelps Dodge's proposed acquisition of Asarco. The pro forma purchase price allocation adjustments are estimated as follows (in millions): Reduction of debt to fair value (as reported in the Form S-4 Registration Statement of Asarco Cyprus Incorporated filed August 20, 1999).......................................... $ 53 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)............ $ 80 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 G).............. $141 Reduction in net property, plant and equipment (derived).... $559
(E) The approximately $589 million cash consideration paid in connection with the exchange of all Asarco common shares outstanding is expected to be obtained from cash on hand and from borrowings under the Corporation's revolving credit facility and its bridge financing revolving credit facility as described in Note 2. Although the Corporation has not made any definitive plans for the final form of such borrowings, for pro forma purposes, future refinancing through the issuance of $589 million of ten-year debt has been assumed. Interest is estimated to be fixed at 7.75% resulting in annual interest expense of $46 million. The interest rate estimate is based upon the ten-year Treasury bill rates for September 1999, plus commercially indicative rate basis points. A change in interest rate on the debt by 1/8 percent would impact annual interest expense by approximately $740,000. Debt issue costs are estimated to be approximately $12 million with annual amortization of approximately $1.2 million. (F) Phelps Dodge holds a 14.0% equity interest in Southern Peru Copper Corporation (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. (G) The estimated income tax effect of the pro forma adjustments has been recorded based upon the estimated effective tax rate of approximately 32% for Asarco which rate has been derived from public quarterly and annual filings. The business combination is expected to be a tax-free transaction with Asarco'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. 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 fair market value of Asarco, with Asarco's value 99 107 COMBINATION OF PHELPS DODGE AND ASARCO NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED) potentially determined without SPCC. 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 Asarco's income tax reporting is not available to Phelps Dodge. (H) This pro forma adjustment reflects the issue of 10,032,000 shares of Phelps Dodge common stock in connection with the exchange offer for all the outstanding common shares of Asarco. The common stock of Phelps Dodge represents common shares of $63 million at $6.25 per share par value and capital in excess of par of $474 million. No common shares have been included for the potential share issues in connection with the outstanding stock options of Asarco. (I) These pro forma adjustments eliminate the historical shareholders' equity accounts of Asarco. (J) 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 property, plant and equipment is available to Phelps Dodge, actual adjustments to depreciation, depletion and amortization expense could differ substantially from these estimates. (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. (L) This pro forma adjustment recognizes certain change in control obligations arising from the merger of Asarco and Phelps Dodge. (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, 1999 DECEMBER 31, 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)...... 10.0 10.0 10.0 10.0 Pro forma potential common shares.................... -- -- 0.1 0.1 ---- ---- ---- ---- 67.8 67.8 68.3 68.6 ==== ==== ==== ====
The average number of common shares outstanding for the six months ended June 30, 1999 does not include Asarco's outstanding stock options or other common stock equivalents, which represent approximately 100,000 potential Phelps Dodge common shares, because the impact on unaudited pro forma net loss per share is anti-dilutive. 100 108 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 Asarco 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. 101 109 COMPARISON OF RIGHTS OF HOLDERS OF PHELPS DODGE SHARES AND ASARCO SHARES Upon completion of our proposed business combination, the shareholders of Asarco will become shareholders of Phelps Dodge, rather than shareholders of Asarco. As Phelps Dodge shareholders, the rights of former Asarco shareholders will be governed by Phelps Dodge's charter and by-laws, which differ in certain material respects from Asarco's charter and by-laws. In addition, New York is the jurisdiction of incorporation of Phelps Dodge, while New Jersey is the jurisdiction of incorporation of Asarco. As Phelps Dodge shareholders, the rights of former Asarco shareholders will therefore be governed by the New York Business Corporation Law (NYBCL) instead of the New Jersey Business Corporation Act (NJBCA). The following is a comparison of: - the current rights of Asarco shareholders under the NJBCA and the Asarco charter and by-laws; and - the rights Asarco 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 Asarco. The comparison summarizes the material differences but is not intended to list all differences and is qualified by reference to New York law, New Jersey law, the Phelps Dodge charter and by-laws and the Asarco charter and by-laws. The summary of the Asarco 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
ASARCO 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 A director may be removed A director may be removed by only for cause, and only by the stockholders only for the affirmative vote of a cause. majority of the votes cast by holders of the outstanding voting stock. Filling of Board Vacancies With some exceptions, Vacancies on the board of vacancies on the board may be directors may be filled only filled by majority vote of by vote of the directors. the remaining directors then in office. Size of Board Board must consist of not Board must consist of not less than 9 nor more than 15 less than 9 nor more than 12 directors, as fixed from time directors, as fixed from time to time by resolution of the to time by resolution of the board. The current number of board. The current number of directors is 12. directors is 11. STOCKHOLDER MEETINGS Annual Meeting Held on the last Wednesday in Held on the first Wednesday April (or, if that date is a in May, or on another date legal holiday, the next fixed by the board from time succeeding date that is not a to time. legal holiday).
102 110
ASARCO PHELPS DODGE ----------------------------- ----------------------------- Calling a Special Meeting Only the Chairman of the Only the board of directors Board, the President or a or the Chairman of the Board majority of the board of may call a special meeting. directors may call a special meeting, except that holders of at least 10% of the voting stock may apply to the New Jersey Superior Court for an order directing, for good cause shown, a special meeting to be called. Quorum Requirements The presence, in person or by Generally, the presence, in proxy, of the holder of person or by proxy, of the record of shares entitled to holders of a majority of the cast a majority of the votes shares entitled to vote at at any meeting constitutes a the meeting constitutes a quorum at such meeting. quorum for that meeting. Certain Voting Requirements Stockholder action generally Phelps Dodge's charter and requires the affirmative vote by- laws contain no of a majority of votes cast, comparable supermajority except for election of voting requirements. Under directors and certain voting the NYBCL, the consummation requirements applicable to by Phelps Dodge of a merger, certain amendments of consolidation or disposition organizational documents and of substantially all of its certain transactions with the assets requires the approval beneficial owner of more than of two- thirds of all the 10% of any class of capital shares of Phelps Dodge stock of Asarco. Abstentions entitled to vote on the have the effect of a vote proposal including, in against a proposed matter certain situations, the only if the affirmative vote affirmative vote by the required is that of the holders of a majority of all majority of the total votes outstanding shares of each represented by the class or series of shares. outstanding voting stock. Abstentions have the effect of a vote against a proposed Asarco's charter requires the matter only if the vote of four-fifths of the affirmative vote required is outstanding shares of voting that of the majority of the stock entitled to vote for total votes represented by the adoption of any plan or the outstanding voting stock. agreement of merger or consolidation (other than a merger, meeting certain conditions, with any Asarco subsidiary), to authorize any disposition of all or any material part of Asarco's or any of its subsidiaries' assets, or to authorize any issuance or transfer of Asarco's securities upon conversion of or in exchange for the securities or
103 111
ASARCO PHELPS DODGE ----------------------------- ----------------------------- assets of any other person or entity, if (as of the date of any action taken by the board of directors with respect to such transaction or as of any record date for the determination of shareholders entitled to notice and to vote with respect thereto or immediately prior to the consummation of such transaction) the other party to the transaction is the beneficial owner, directly or indirectly, of more than 10% of any class of capital stock. In addition, pursuant to Asarco's charter, no arrangement with or for the benefit of a person who is or has announced or publicly disclosed a plan or intention to become the beneficial owner of 10% or more of Asarco's voting stock, where such arrangement involves aggregate commitments of $10 million or more or constitutes more than 1% of the book value of Asarco's total consolidated assets or pursuant to which such person has control over or responsibility for the management of any aspect of the business or affairs of Asarco, may be effected unless approved by a majority of directors not affiliated or associated with such person. The same restrictions apply to any transaction that has the effect of increasing the proportionate share of any class or series of capital stock, among other things, that is beneficially owned by a person as described in the preceding sentence. 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, except that the consent, except that the NJBCA permits stockholder NYBCL permits stockholder action by unanimous written action by unanimous written consent. consent.
104 112
ASARCO PHELPS DODGE ----------------------------- ----------------------------- Advance Notice for Stockholders may nominate one Generally, to bring a matter Stockholder Nominations and or more persons for election (including the nomination of Other Business as directors at an annual directors) before an annual meeting if they deliver meeting, a stockholder must written notice 90 days prior give notice not less than 60 to the anniversary of the days nor more than 90 days prior year's annual meeting, prior to the meeting, but if or at a special meeting if the meeting is scheduled for they deliver written notice a day other than the first by the tenth day following Wednesday in May and less the day that notice of the than 70 days' notice is given special meeting is given to or prior public announcement stockholders. Asarco's is made to stockholders, a by-laws contain requirements stockholder must give notice as to the form and content of by the tenth day following the notice. the date at which notice of the annual meeting was mailed or announcement thereof made. 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. AMENDMENTS TO ORGANIZATIONAL DOCUMENTS Certificate of Incorporation Generally may be amended by Under the NYBCL, subject to the affirmative vote of the limited exceptions, majority of votes cast by the amendments to Phelps Dodge's holders of outstanding voting charter must be approved by stock, except that (1) vote of a majority of all affirmative vote of 80% of outstanding shares entitled the outstanding to vote on the proposed
105 113
ASARCO PHELPS DODGE ----------------------------- ----------------------------- voting stock is required for amendment, except that amendment or deletion of charter provisions requiring certain provisions relating a greater or class vote may to certain transactions only be amended by such vote. involving the beneficial In addition, an amendment owner of more than 10% of any that negatively affects in class of capital stock, and certain ways holders of (2) affirmative vote of the shares of a class or series holders of 80% of the requires authorization by a outstanding voting stock majority of the votes of all (including affirmative vote outstanding shares of the of the majority of class or series. outstanding voting stock not owned by the 10% or greater holder) required for the amendment or repeal of certain provisions regarding affiliated transactions with 10% or greater holders (generally unless the amendment is declared advisable by the affirmative vote of 66 2/3% of the board and submitted to stockholders for their consideration). In addition, some charter provisions relating to the composition and classification of the board of directors, procedures for stockholder action and the modification of Asarco's by-laws may only be modified by the affirmative vote of 80% of the outstanding voting stock. By-laws Generally may be amended by Phelps Dodge's by-laws permit the affirmative vote of a the amendment of the by-laws majority of the board, except by a vote of a majority of that (1) generally may also all the directors at any be amended by the affirmative regular or special meeting of vote of the holders of a the board, except that majority of the outstanding provisions relating to the voting stock entitled to vote repurchase of stock by Phelps and present or represented at Dodge may only be amended by a stockholder meeting, (2) majority vote of the amendments of certain stockholders. Generally, by-laws, including provisions under the NYBCL, the by-laws relating to special may also be amended by a stockholder meetings, charter majority of the votes cast by amendments, directorship the shares entitled to vote vacancies, removal of in the election of any directors, and the number, directors. election and qualification of directors, require the affirmative vote of the holders of 80% of the outstanding voting stock, and (3) generally, provisions relating to
106 114
ASARCO PHELPS DODGE ----------------------------- ----------------------------- indemnification of corporate agents may be amended only by action of the board approved by the affirmative vote of the votes cast by stockholders entitled to vote at a meeting of stockholders for which proxies are solicited in accordance with applicable requirements of the SEC. CAPITALIZATION Authorized Stock Common stock: 80 million Common stock: 200 million shares; preferred stock: 10 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 Asarco has a rights Phelps Dodge has a rights agreement, dated as of agreement, dated as of January 28, 1998. 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 Asarco's of 20% of Phelps Dodge's outstanding common stock. The outstanding common stock. The board may redeem rights at board may redeem rights at any time prior to the end of any time prior to the time the tenth business day such an acquisition takes following the date at which place. time such an acquisition takes place. Share Repurchases Asarco may generally The NYBCL prohibits Phelps repurchase its own shares. Dodge from repurchasing more than 10% of its stock for more than market value from a stockholder who has held the stock for less than two years, unless the repurchase is approved by the board and 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 Asarco's charter provides Phelps Dodge's charter INDEMNIFICATION OF that no director will be provides that the personal DIRECTORS, OFFICERS AND personally liable for damages liability of Phelps Dodge's EMPLOYEES for breach of fiduciary duty, directors for any breach of except in cases where the duty in such capacity is director's acts or omissions eliminated to the fullest breached his duty of loyalty extent permitted by the to the corporation or its NYBCL. The NYBCL permits Phelps Dodge
107 115
ASARCO PHELPS DODGE ----------------------------- ----------------------------- stockholders, were not in to eliminate or limit the good faith or involved a personal liability of knowing violation of law, or directors to Phelps Dodge or provided an improper personal its shareholders for damages benefit to the director. The for any breach of duty in Asarco charter provides that such capacity except protection against personal liability (i) of a director liability to officers as well (a) whose acts or omissions as to directors. were in bad faith, involved intentional misconduct or a Asarco's by-laws provide that knowing violation of law, (b) the corporation will who personally gained a indemnify any director, financial profit or other officer or employee to the advantage to which he or she fullest extent permitted by was not legally entitled or law if such director, officer (c) whose acts violated or employee is involved in certain provisions of New litigation by reason of the York law or (ii) for acts or fact that he is (or was) a omissions prior to the director, officer or adoption in 1988 of Phelps employee. Dodge's charter amendment. Phelps Dodge's by-laws provide that Phelps Dodge 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 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.
108 116 COMPARISON OF CERTAIN STATUTORY PROVISIONS APPRAISAL RIGHTS ASARCO STOCKHOLDER RIGHTS Under New Jersey law, appraisal rights, or rights of a stockholder to receive the fair value of his stock, are available in connection with a merger or consolidation or any sale, lease or exchange or other disposition of all or substantially all of a corporation's assets other than in the usual and regular course of business, unless an exception applies or the corporate charter provides otherwise. Asarco's charter does not provide otherwise. Appraisal rights are not available under New Jersey law to stockholders of a surviving corporation with respect to a merger if the merger did not require stockholder approval. In addition, unless provided for in the corporation's certificate of incorporation, no appraisal rights are available in a merger or consolidation with respect to shares: - which are listed on a national securities exchange or are held of record by at least 1,000 holders; or - for which, pursuant to the merger or consolidation, the stockholder will receive cash, shares, obligations or other securities of the kind described by the previous bulleted item or cash and such securities. Furthermore, unless provided in the corporation's certificate of incorporation, no appraisal rights are available in a sale, lease, exchange or other disposition of all or substantially all of a corporation's assets: - with respect to shares which are listed on a national securities exchange or are held of record by at least 1,000 holders; or - from a dissolution transaction in which substantially all of a corporation's net assets are to be distributed to its stockholders within one year after the date of the transaction, so long as the transaction is wholly for cash, shares, obligations or other securities which will be listed on a national securities exchange or held of record by not less than 1,000 holders or cash and such securities. Since Asarco shares of common stock are listed on the New York Stock Exchange, Asarco common stockholders will not be entitled to appraisal rights under the NJBCA. 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 - 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. 109 117 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 ASARCO STOCKHOLDER RIGHTS New Jersey law restricts the ability of certain persons to acquire control of a New Jersey corporation. In general, a New Jersey corporation with its principal executive offices or significant operations in New Jersey may not engage in a business combination with an interested stockholder for a period of five years following the interested stockholder's becoming such. Such a business combination would be permitted where it is approved by the board of directors prior to the interested stockholder's becoming such. Covered business combinations include certain mergers, dispositions of assets or shares and recapitalizations. An interested stockholder is generally a stockholder owning at least 10% of the voting power of a corporation's outstanding shares. In addition, New Jersey corporations may not engage at any time with any interested shareholder in a business combination other than: - a business combination approved by the board of directors of such corporation prior to the stock acquisition, - a business combination approved by the affirmative vote of the holders of 66 2/3% of the voting stock not beneficially owned by such interested shareholder at a meeting for such purpose, or - a business combination in which the interested shareholder pays a formula price designed to ensure that all other shareholders receive at least the highest price per share paid by such interested shareholder. A New Jersey corporation may not opt out of the foregoing provisions. The Asarco board of directors has taken the necessary action to make the foregoing provisions of New Jersey law inapplicable to the proposed business combination with Phelps Dodge. The Asarco charter provides that certain transactions, including a merger, significant asset sales and certain issuances or transfers of securities, with the beneficial owner of more than 10% of any class of capital stock of Asarco generally require the affirmative vote of the holders of 80% of the outstanding shares of all classes of stock, voting together as a single class. The Asarco charter also provides that certain affiliated transactions with an interested stockholder or any affiliate of an interested shareholder of Asarco require, in addition to any vote required by law or in the Asarco charter or by-laws, approval by a majority of the continuing directors. Affiliated transactions as defined in Asarco's charter generally include significant transactions involving aggregate fair market value or commitments of more than $10 million or more than 1% of Asarco's consolidated assets, and certain other material arrangements. Interested stockholder, as defined in the Asarco charter, generally means a beneficial owner of voting stock representing 10% or more of the votes entitled to be cast by the holders of all then outstanding shares of voting stock of Asarco. Continuing director, as defined in 110 118 the Asarco charter, generally means a director who is not affiliated with the interested stockholder and who was a director before the stockholder became an interested stockholder. The Asarco board of directors has taken the necessary action to make the foregoing provisions of the Asarco charter inapplicable to the proposed business combination with Phelps Dodge. 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. 111 119 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, 112 120 - 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. 113 121 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.
A-1 122
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.
A-2 123
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 53. 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.
A-3 124
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. Prior to that time, 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 Morenci, Inc.
DIRECTORS AND EXECUTIVE OFFICERS OF AAV CORPORATION The present directors and executive officers of AAV Corporation are set forth below, along with their respective positions with AAV. 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-4 125 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-1 126 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-2 127 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-3 128 The letter of transmittal, certificates for Asarco shares and any other required documents should be sent or delivered by each Asarco 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 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 EX-99.A.22 3 FORM OF LETTER OF ELECTION AND TRANSMITTAL 1 LETTER OF ELECTION AND TRANSMITTAL TO EXCHANGE EACH OUTSTANDING SHARE OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED SHARE PURCHASE RIGHTS) OF ASARCO INCORPORATED FOR 0.50266 SHARES OF COMMON STOCK OF PHELPS DODGE CORPORATION OR $29.50 NET TO THE SELLER IN CASH SUBJECT, IN EACH CASE, TO THE ELECTION AND PRORATION PROCEDURES DESCRIBED IN THE PROSPECTUS AND THIS LETTER OF ELECTION AND TRANSMITTAL THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON OCTOBER 21, 1999, UNLESS THE OFFER IS EXTENDED. The Exchange Agent for the Offer is: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. 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 Transmission: (for Eligible Institutions only) Fax: (201) 296-4293 Confirm by Telephone: (201) 296-4860
DELIVERY OF THIS LETTER OF ELECTION AND TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN THIS LETTER OF ELECTION AND TRANSMITTAL WHERE INDICATED BELOW AND COMPLETE THE SUBSTITUTE FORM W-9 PROVIDED BELOW. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF ELECTION AND TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF ELECTION AND TRANSMITTAL IS COMPLETED. This Letter of Election and Transmittal is to be completed by shareholders if certificates for Asarco Shares (including the Asarco Rights) (as each is defined herein) are to be forwarded herewith or, unless an Agent's Message is utilized, if delivery of Asarco Shares are to be made by book-entry transfer to the account maintained by the Exchange Agent at The Depository Trust Company (the "Book-Entry Transfer Facility"), pursuant to the procedures set forth under "The Offer -- Procedure for Tendering" in the Prospectus. SHAREHOLDERS WILL BE REQUIRED TO TENDER ONE ASARCO RIGHT FOR EACH ASARCO SHARE TENDERED IN ORDER TO EFFECT A VALID TENDER OF ASARCO SHARES. UNLESS THE ASARCO DISTRIBUTION DATE (AS DEFINED IN THE PROSPECTUS) OCCURS, A TENDER OF ASARCO SHARES WILL CONSTITUTE A TENDER OF THE ASSOCIATED ASARCO RIGHTS. Shareholders who tender Asarco Shares by book-entry transfer are referred to herein as "Book-Entry Shareholders" and other shareholders are referred to herein as "Certificate Shareholders." Shareholders whose certificates are not immediately available or who cannot deliver their certificates and all other documents required hereby to the Exchange Agent on or prior to the Expiration Date (as defined in the Prospectus), or who cannot comply with the book-entry transfer procedures on a timely basis, may nevertheless tender their Asarco Shares according to the guaranteed delivery procedures set forth under "The Offer -- Procedure for Tendering" in the Prospectus. See Instruction 2. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT FOR THIS OFFER (AS DEFINED HEREIN). 2 BOX A: ELECTION (SEE GENERAL INSTRUCTIONS 2, 12 AND 13) Please list the number of Asarco Shares for which you wish to make the following elections: - --------------- Number of Asarco Shares for which you are electing to receive cash: - --------------- Number of Asarco Shares for which you are electing to receive Phelps Dodge Common Stock: - --------------- *Number of Asarco Shares for which you are not making any election: - --------------- Total Number of Asarco Shares held by you: - --------------- * If you previously tendered your 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 tendered your shares 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. [ ] CHECK HERE IF ASARCO SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s) ----------------------------------------------------------------------------- Date of Execution of Notice of Guaranteed Delivery ---------------------------------------------------------------------- Name of Institution which Guaranteed Delivery --------------------------------------------------------------------------- [ ] CHECK HERE IF ASARCO SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE ACT WITH A BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: DTC Account Number ----------------------------------------------------------------------------- Transaction Code Number -----------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------ DESCRIPTION OF ASARCO SHARES TENDERED - ------------------------------------------------------------------------------------------------------------------------ NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (PLEASE FILL IN EXACTLY AS NAME(S) ASARCO SHARES TENDERED APPEAR(S) ON CERTIFICATE(S) (ATTACH ADDITIONAL LIST IF NECESSARY) - ------------------------------------------------------------------------------------------------------------------------ NUMBER OF ASARCO SHARES CERTIFICATE EVIDENCED BY ASARCO SHARES NUMBER(S)* CERTIFICATE(S)* TENDERED** ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ Total Asarco Shares - ------------------------------------------------------------------------------------------------------------------------ * Need not be completed by shareholders delivering by book-entry transfer. ** Unless otherwise indicated, it will be assumed that all Asarco Shares evidenced by a certificate(s) delivered to the Exchange Agent are being tendered. See Instruction 4. - ------------------------------------------------------------------------------------------------------------------------
3 NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: The undersigned hereby delivers to AAV Corporation, a Delaware corporation, and a wholly owned subsidiary of Phelps Dodge Corporation, a New York corporation ("Phelps Dodge"), the above-described shares of common stock, no par value (each, an "Asarco Share" and, collectively, the "Asarco Shares"), of ASARCO Incorporated, a New Jersey corporation ("Asarco"), including the associated preferred share purchase rights (each, an "Asarco Right" and, collectively, the "Asarco Rights") issued pursuant to the Rights Agreement, dated as of January 28, 1998, as amended, between Asarco and The Bank of New York, as Rights Agent, pursuant to Phelps Dodge's offer to exchange 0.25133120 shares of common stock, par value $6.25 per share, of Phelps Dodge (the "Phelps Dodge Common Shares") plus $14.75 net to the seller in cash for each outstanding Asarco Share, on a fully prorated basis, subject, in each case to the election and allocation procedures and upon the terms and subject to the conditions set forth in the Prospectus dated October 7, 1999 (the "Prospectus"), receipt of which is hereby acknowledged, and in this Letter of Election and Transmittal (which together with the Prospectus constitutes the "Offer"). The undersigned elects to have each such Asarco Shares converted pursuant to one or more of the following three election options, in the manner indicated in Box A above: (A) CASH ELECTION: The right to receive cash equal to $29.50; (B) STOCK ELECTION: The right to receive 0.50266 Phelps Dodge shares; or (C) NO ELECTION: The right not to make any election. Unless the context otherwise requires and unless and until the Asarco Rights are redeemed, all references to Asarco Shares shall include the associated Asarco Rights. Upon the terms and subject to the conditions of the Offer, subject to, and effective upon, acceptance of the Asarco Shares tendered herewith in accordance with the terms of the Offer, the undersigned hereby sells, assigns and transfers to, or upon the order of, Phelps Dodge, all right, title and interest in and to all of the Asarco Shares that are being tendered hereby and any and all Asarco Shares and other securities issued or issuable in respect thereof on or after September 2, 1999 (collectively, "Distributions"), and appoints the Exchange Agent the true and lawful agent and attorney-in-fact of the undersigned with respect to such Asarco Shares (and any Distributions), (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (a) deliver such Asarco Share Certificates (as defined herein) (and any Distributions) or transfer ownership of such Asarco Shares (and any Distributions) on the account books maintained by a Book-Entry Transfer Facility, together in either such case with all accompanying evidences of transfer and authenticity, to or upon the order of Phelps Dodge, (b) present such Asarco Shares (and any Distributions) for transfer on the books of Asarco and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Asarco Shares (and any Distributions), all in accordance with the terms and the conditions of the Offer. THE UNDERSIGNED UNDERSTANDS THAT STOCKHOLDERS WILL BE REQUIRED TO TENDER ONE ASARCO RIGHT FOR EACH ASARCO SHARE TENDERED IN ORDER TO EFFECT A VALID TENDER OF ASARCO SHARES. UNLESS THE ASARCO DISTRIBUTION DATE (AS DEFINED IN THE PROSPECTUS) OCCURS, A TENDER OF ASARCO SHARES WILL CONSTITUTE A TENDER OF THE ASSOCIATED ASARCO RIGHTS. SEE INSTRUCTION 10. The undersigned hereby irrevocably appoints the designees of Phelps Dodge, and each of them, the attorneys-in-fact and proxies of the undersigned, each with full power of substitution, to vote in such manner as each such attorney and proxy or any substitute thereof shall deem proper in the sole discretion of such attorney-in-fact and proxy or such substitute, and otherwise act (including pursuant to written consent) with respect to all of the Asarco Shares tendered hereby (and any Distributions) which have been accepted by Phelps Dodge prior to the time of such vote or action, which the undersigned is entitled to vote at any meeting of shareholders (whether annual or special and whether or not an adjourned meeting), of Asarco or otherwise. This proxy and power of attorney is coupled with an interest in the Asarco Shares and is irrevocable and is granted in consideration of, and is effective upon, the acceptance of such Asarco Shares (and any Distributions) by Phelps Dodge in accordance with the terms of the Offer. Such acceptance for exchange shall revoke any other proxy granted by the undersigned at any time with respect to such Asarco Shares (and any Distributions) and no subsequent proxies will be given (or, if given, will not be deemed effective) with respect thereto by the undersigned. The undersigned understands that, in order for Asarco Shares to be deemed validly tendered immediately upon Phelps Dodge's acceptance of such Asarco Shares (and any Distributions) for exchange, Phelps Dodge or its designee must be able to exercise full voting rights with respect to such Asarco Shares (and any Distributions). The undersigned understands that each election is subject to certain terms, conditions and limitations that have been set forth in the Prospectus. 4 The undersigned acknowledges that the Offer provides for proration if, as a result of elections made by Asarco shareholders, either the fixed amount of cash or aggregate number of Phelps Dodge Common Shares would otherwise be exceeded. In such a case, the undersigned understands that the undersigned may receive a combination of cash and Phelps Dodge Common Shares that differs from the election(s) made in Box A. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Asarco Shares (and any Distributions) tendered hereby and that when the same are accepted for exchange by Phelps Dodge, Phelps Dodge will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances, and the same will not be subject to any adverse claim. The undersigned will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or Phelps Dodge to be necessary or desirable to complete the sale, assignment and transfer of the Asarco Shares (and any Distributions) tendered hereby. In addition, the undersigned shall promptly remit and transfer to the Exchange Agent for the account of Phelps Dodge any and all Distributions in respect of the Asarco Shares tendered hereby, accompanied by appropriate documentation of transfer. All authority herein conferred or agreed to be conferred shall not be affected by and shall survive the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successor and assigns of the undersigned. Subject to the withdrawal rights set forth under "The Offer -- Withdrawal Rights" in the Prospectus, the tender of Asarco Shares hereby made is irrevocable. The undersigned understands that tenders of Asarco Shares pursuant to any one of the procedures described under "The Offer -- Procedure for Tendering" in the Prospectus and in the instructions hereto and acceptance of such Asarco Shares will constitute a binding agreement between the undersigned and Phelps Dodge upon the terms and subject to the conditions set forth in the Offer. Unless otherwise indicated herein under "Special Issuance Instructions," please issue the shares of Phelps Dodge Common Shares and/or a check for cash, and/or return any certificates for Asarco Shares not tendered or not accepted for exchange in the name(s) of the registered holder(s) appearing above under "Description of Asarco Shares Tendered." Similarly, unless otherwise indicated under "Special Delivery Instructions," please mail the Phelps Dodge Common Shares and/or a check for cash and cash in lieu of fractional Phelps Dodge Common Shares and/or return any certificates for Asarco Shares not tendered or not accepted for exchange (and accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing above under "Description of Asarco Shares Tendered." In the event that both the Special Delivery Instructions and the Special Issuance Instructions are completed, please issue the Phelps Dodge Common Shares and/or a check for cash, and/or issue any certificates for Asarco Shares not so tendered or accepted in the name of, and deliver said certificates and/or return such certificates to, the person or persons so indicated. The undersigned recognizes that Phelps Dodge has no obligation to transfer any Asarco Shares from the name of the registered holder thereof if Phelps Dodge does not accept any of the Asarco Shares so tendered. 5 ------------------------------------------------------------ SPECIAL ISSUANCE INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if certificate(s) for Asarco Shares not tendered or not accepted and/or the Phelps Dodge Common Shares, cash, or a combination of cash and Phelps Dodge Common Shares are to be issued in the name of someone other than the undersigned. Issue Phelps Dodge Common Shares, cash, or a combination of cash and Phelps Dodge Common Shares and/or certificate(s) to: Name ---------------------------------------------------- (PLEASE TYPE OR PRINT) Address -------------------------------------------------- ------------------------------------------------------------ (INCLUDE ZIP CODE) ------------------------------------------------------------ (TAX IDENTIFICATION OR SOCIAL SECURITY NO.) SEE SUBSTITUTE FORM W-9 ON REVERSE SIDE ------------------------------------------------------------ ------------------------------------------------------------ SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if certificate(s) for Asarco Shares not tendered or not accepted and/or the Phelps Dodge Common Shares, cash, or a combination of cash and Phelps Dodge Common Shares are to be sent to someone other than the undersigned, or to the undersigned at an address other than that shown above. Mail Phelps Dodge Common Shares, cash, or a combination of cash and Phelps Dodge Common Shares and/or certificate(s) to: Name ---------------------------------------------------- (PLEASE TYPE OR PRINT) Address -------------------------------------------------- ------------------------------------------------------------ (INCLUDE ZIP CODE) ------------------------------------------------------------ (TAX IDENTIFICATION OR SOCIAL SECURITY NO.) SEE SUBSTITUTE FORM W-9 ON REVERSE SIDE ------------------------------------------------------------ 6 IMPORTANT SHAREHOLDERS SIGN HERE (PLEASE COMPLETE SUBSTITUTE FORM W-9 ON REVERSE SIDE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SIGNATURE(S) OF STOCKHOLDER(S) Dated: , 1999 (Must be signed by registered holder(s) exactly as name(s) appear(s) on stock certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificate(s) and documents transmitted herewith. If signature is by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, please set forth full title and see Instruction 5.) Name(s): ---------------------------------------------------------------------- ---------------------------------------------------------------------- (PLEASE PRINT) Capacity (full title): -------------------------------------------------------- Address: ---------------------------------------------------------------------- ---------------------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone Number: ----------------------------------------------- Tax Identification or Social Security No.: ------------------------------------- GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5) FOR USE BY ELIGIBLE INSTITUTIONS ONLY, PLACE MEDALLION GUARANTEE IN SPACE BELOW Authorized Signature: ---------------------------------------------------------- Name: ------------------------------------------------------------------------- ------------------------------------------------------------------------- (PLEASE TYPE OR PRINT) Address: ---------------------------------------------------------------------- ---------------------------------------------------------------------- (INCLUDE ZIP CODE) Name of Firm: ----------------------------------------------------------------- Area Code and Telephone Number: ----------------------------------------------- Dated: --------------------------- , 1999 7 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all signatures on this Letter of Election and Transmittal must be guaranteed by a financial institution (including most banks, savings and loan associations and brokerage houses) which is a participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or the Stock Exchange Medallion Program (an "Eligible Institution"). Signatures on this Letter of Election and Transmittal need not be guaranteed (i) if this Letter of Election and Transmittal is signed by the registered holder(s) of the Asarco Shares (which term, for purposes of this document, shall include any participant in the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Asarco Shares) tendered herewith and such holder(s) have not completed the instruction entitled "Special Issuance Instructions" on this Letter of Election and Transmittal or (ii) if such Asarco Shares are tendered for the account of an Eligible Institution. See Instruction 5. 2. DELIVERY OF LETTER OF ELECTION AND TRANSMITTAL AND CERTIFICATES OR BOOK-ENTRY CONFIRMATIONS. This Letter of Election and Transmittal is to be used either if certificates are to be forwarded herewith or, unless an Agent's Message is utilized, if tenders are to be made pursuant to the procedures for tender by book-entry transfer set forth in "The Offer -- Procedure for Tendering" in the Prospectus. Certificates for all physically tendered Asarco Shares ("Asarco Share Certificates"), or confirmation of any book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility of Asarco Shares tendered by book-entry transfer ("Book-Entry Confirmation"), as well as this Letter of Election and Transmittal or facsimile thereof, properly completed and duly executed with any required signature guarantees, and any other documents required by this Letter of Election and Transmittal, must be received by the Exchange Agent at one of its addresses set forth herein on or prior to the Expiration Date (as defined in the Prospectus). Shareholders whose certificates are not immediately available or who cannot deliver their certificates and all other required documents to the Exchange Agent on or prior to the Expiration Date or who cannot complete the procedures for book-entry transfer on a timely basis may nevertheless tender their Asarco Shares by properly completing and duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth under "The Offer -- Procedure for Tendering" in the Prospectus. Pursuant to such procedures: (i) such tender must be made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form made available by Phelps Dodge must be received by the Exchange Agent on or prior to the Expiration Date; and (iii) the Asarco Share Certificates for all tendered Asarco Shares (or a Book-Entry Confirmation), 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 delivery, an Agent's Message) and all other documents required by this Letter of Election and Transmittal, must be received by the Exchange Agent within three New York Stock Exchange, Inc. trading days after the date of execution of such Notice of Guaranteed Delivery. IF ASARCO SHARE CERTIFICATES ARE FORWARDED SEPARATELY TO THE EXCHANGE AGENT, A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF ELECTION AND TRANSMITTAL MUST ACCOMPANY EACH SUCH DELIVERY. THE METHOD OF DELIVERY OF ASARCO SHARE CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING SHAREHOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. No alternative, condition or contingent tenders will be accepted and no fractional Asarco Shares will be accepted. All tendering shareholders, by execution of this Letter of Election and Transmittal (or facsimile thereof), waive any right to receive any notice of the acceptance of their Asarco Shares for exchange. 3. INADEQUATE SPACE. If the space provided herein is inadequate, the certificate numbers and/or the number of Asarco Shares should be listed on a separate schedule attached hereto. 4. PARTIAL TENDERS (NOT APPLICABLE TO STOCKHOLDERS WHO TENDER BY BOOK-ENTRY TRANSFER). If fewer than all the Asarco Shares evidenced by any certificate submitted are to be tendered, fill in the number of Asarco Shares which are to be tendered in the box entitled "Number of Asarco Shares Tendered." In such cases, new certificate(s) for the remainder of the Asarco Shares that were evidenced by your old certificate(s) will be sent to you, unless otherwise provided in the appropriate box on this Letter of Election and Transmittal, as soon as practicable after the Expiration Date. All Asarco Shares represented by certificates delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. 8 5. SIGNATURES ON LETTER OF ELECTION AND TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If this Letter of Election and Transmittal is signed by the registered holder(s) of the Asarco Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificates without alteration, enlargement or any change whatsoever. If any of the Asarco Shares tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Election and Transmittal. If any of the tendered Asarco Shares are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate Letters of Election and Transmittal as there are different registrations of certificates. If this Letter of Election and Transmittal or any certificates or stock powers are signed by trustees, executors, administrators, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and proper evidence satisfactory to Phelps Dodge of their authority so to act must be submitted. If this Letter of Election and Transmittal is signed by the registered holder(s) of the Asarco Shares listed and transmitted hereby, no endorsements of certificates or separate stock powers are required unless Phelps Dodge Common Share or certificates for Asarco Shares not tendered or accepted are to be issued in the name of a person other than the registered holder(s). Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Election and Transmittal is signed by a person other than the registered holder of the certificate(s) listed, the certificate(s) must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered holder or holders appear on the certificate(s). Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution. 6. STOCK TRANSFER TAXES. Phelps Dodge will pay or cause to be paid any stock transfer taxes with respect to the transfer and sale of Asarco Shares to it or its order pursuant to the Offer. If, however, delivery of the consideration in respect of the Offer is to be made to, or (in the circumstances permitted hereby) if certificates for Asarco Shares not tendered or accepted are to be registered in the name of, any person other than the registered holder, or if tendered certificates are registered in the name of any person other than the person(s) signing this Letter of Election and Transmittal, the tendering holder must provide satisfactory evidence of the payment of any applicable transfer taxes (whether imposed on the registered holder or such person) payable on account of the transfer to such person prior to the delivery of the consideration pursuant to the Offer. Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the certificates listed in this Letter of Election and Transmittal. 7. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If certificates for Phelps Dodge Common Shares and/or a check for cash, and/or certificates for Asarco Shares not tendered or not accepted for exchange are to be issued in the name of a person other than the person(s) signing this Letter of Election and Transmittal or if certificates for Phelps Dodge Common Shares and/or a check for cash, and cash in lieu of fractional Phelps Dodge Common Shares and/or certificates for Asarco Shares not tendered or not accepted for exchange are to be mailed to someone other than the person(s) signing this Letter of Election and Transmittal or to an address other than that shown above, the appropriate boxes on this Letter of Election and Transmittal should be completed. Shareholders tendering Asarco Shares by book-entry transfer may request that Asarco Shares not accepted pursuant to the Offer be credited to such account maintained at a Book-Entry Transfer Facility as such stockholder may designate hereon. If no such instructions are given, such Asarco Shares not accepted will be returned by crediting the account at the Book-Entry Transfer Facility designated herein. 8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions or requests for assistance may be directed to, or additional copies of the Prospectus, this Letter of Election and Transmittal, the Notice of Guaranteed Delivery and other exchange offer materials may be obtained from, the Information Agent or the Dealer Manager at their respective addresses set forth below or from your broker, dealer, commercial bank or trust company. 9 9. SUBSTITUTE FORM W-9. Each tendering shareholder is required to provide the Exchange Agent with a correct Taxpayer Identification Number ("TIN"), generally the stockholder's social security or federal employer identification number, on Substitute Form W-9 below. In addition, payments of cash in lieu of fractional shares of Phelps Dodge Common Shares that are made to such shareholder with respect to Asarco Shares accepted pursuant to the Offer may be subject to backup withholding of 31%. The box in Part 3 of the form may be checked if the tendering shareholder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future. If the box in Part 3 is checked and the Exchange Agent is not provided with a TIN within 60 days, the Exchange Agent must withhold 31% of all payments of cash thereafter until a TIN is provided to the Exchange Agent. In addition, the Exchange Agent may backup withhold during the 60 day period under certain circumstances. The shareholder is required to give the Exchange Agent the social security number or employer identification number of the record owner of the Asarco Shares or of the last transferee appearing on the stock powers attached to, or endorsed on, the Asarco Shares. If the Asarco Shares are in more than one name or are not in the name of the actual owner, consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidance on which number to report. 10. TENDER OF ASARCO RIGHTS AFTER ASARCO DISTRIBUTION DATE. If the Asarco Distribution Date occurs and separate certificates representing the Asarco Rights are distributed by Asarco or the Rights Agent to holders of Asarco Shares prior to the time a holder's Asarco Shares are tendered pursuant to the Offer, certificates representing a number of Asarco Rights equal to the number of Asarco Shares tendered must be delivered to the Exchange Agent, or, if available, a Book-Entry Confirmation received by the Exchange Agent with respect thereto, in order for such Asarco Shares to be validly tendered. If the Asarco Distribution Date occurs and separate certificates representing the Asarco Rights are not distributed prior to the time Asarco Shares are tendered pursuant to the Offer, Asarco Rights may be tendered prior to a stockholder receiving the certificates for Asarco Rights by use of the guaranteed delivery procedures described under "The Offer -- Procedure for Tendering" in the Prospectus. If Asarco Rights certificates are distributed but are not available to a shareholder prior to the time Asarco Shares are tendered pursuant to the Offer, a tender of Asarco Shares constitutes an agreement by the tendering shareholder to deliver to the Exchange Agent pursuant to such guaranteed delivery procedures, prior to the expiration of the period to be specified in the Notice of Guaranteed Delivery and the related Letter of Election and Transmittal for delivery of Asarco Rights certificates or a Book-Entry Confirmation for Asarco Rights (the "Asarco Rights Delivery Period"), Asarco Rights certificates representing a number of Asarco Rights equal to the number of Asarco Shares tendered. Phelps Dodge reserves the right to require that it receive such Asarco Rights certificates (or a Book-Entry Confirmation with respect to such Asarco Rights) prior to accepting Asarco Shares for exchange. Nevertheless, Phelps Dodge will be entitled to accept for exchange Asarco Shares tendered by a stockholder prior to receipt of the Asarco Rights certificates required to be tendered with such Asarco Shares or a Book-Entry Confirmation with respect to such Asarco Rights and either (i) subject to complying with applicable rules and regulations of the Securities and Exchange Commission, withhold payment for such Asarco Shares pending receipt of the Asarco Rights certificates or a Book-Entry Confirmation for such Asarco Rights or (ii) exchange Asarco Shares accepted for exchange pending receipt of the Asarco Rights certificates or a Book-Entry Confirmation for such Asarco Rights in reliance upon the guaranteed delivery procedures. In addition, after expiration of the Asarco Rights Delivery Period, Phelps Dodge may instead elect to reject as invalid a tender of Asarco Shares with respect to which Asarco Rights certificates or a Book-Entry Confirmation for an equal number of Asarco Rights have not been received by the Exchange Agent. Any determination by Phelps Dodge to make payment for Asarco Shares in reliance upon such guaranteed delivery procedure or, after expiration of the Asarco Rights Delivery Period, to reject a tender as invalid, shall be made, subject to applicable law, in the sole and absolute discretion of Phelps Dodge. 11. LOST OR DESTROYED CERTIFICATES. If any Asarco Share certificate(s) representing Asarco Shares has been lost or destroyed, the holders should promptly notify Asarco's Transfer Agent. The holders will then be instructed as to the procedure to be followed in order to replace the Asarco Share certificates. This Letter of Election and Transmittal and related documents cannot be processed until the procedures for replacing lost or destroyed Asarco Share certificates have been followed. 12. REVOCATION OR CHANGE OF ELECTION. An election is irrevocable, except that Asarco Shares tendered pursuant to the Offer may be withdrawn at anytime prior to the Expiration Date and, unless previously accepted pursuant to the Offer, may also be withdrawn at any time after November 2, 1999. After an effective withdrawal you may change your election by submitting to the Exchange Agent a completed replacement of this document and any other documents required by the Offer for properly tendering Asarco Shares prior to the Expiration Date. 10 13. ELECTION AND PRORATION PROCEDURES. To properly complete Box A you must indicate the number of your Asarco Shares for which you are electing to receive cash, stock, or for which you are not making any election and your name and address must be set forth in the column under the heading "Name and Address of Registered Holder(s)" and either (i) the number of each Asarco Share certificate that you are surrendering with this document must be written in the column under the heading "Certificate Number" or (ii) if you are using the guarantee of delivery procedures, the number of shares represented by your stock certificates to be delivered pursuant to such procedures must be written in the column under the heading "Number of Shares Represented by Certificate." If the elections by Asarco shareholders result in an oversubscription of either the cash consideration or the stock consideration, the procedure for proration set forth in the Prospectus will be followed by the Exchange Agent. Accordingly, there can be no assurance that your election will result in your receipt of your desired form or mix of consideration. However, in all events, the desired form and mix of consideration you receive will be closer to your desired choice than if you had made no election. If the elections by Asarco shareholders result in an oversubscription of either the cash consideration or the stock consideration and you do not make any election, you will receive whatever consideration is not oversubscribed. IMPORTANT: THIS LETTER OF ELECTION AND TRANSMITTAL OR A FACSIMILE COPY HEREOF (TOGETHER WITH ASARCO SHARE CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE. IMPORTANT TAX INFORMATION Certain shareholders (including, among others, corporations and certain foreign individuals) are not subject to backup withholding. In order for a foreign individual to qualify as an exempt recipient, that stockholder must submit a Form W-8 or successor form, signed under penalties of perjury, attesting to that individual's exempt status. A Form W-8 can be obtained from the Exchange Agent. See the enclosed Guidelines for Certificate of Taxpayer Identification Number on Substitute Form W-9 for additional instructions. Backup withholding is not an additional tax. Rather, the tax liability of person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. 11 TO BE COMPLETED BY ALL TENDERING SHAREHOLDERS (SEE INSTRUCTION 9) - -------------------------------------------------------------------------------- PAYER'S NAME: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. - ------------------------------------------------------------------------------------------------------------------------------ SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT -------------------------- FORMW-9 AND CERTIFY BY SIGNING AND DATED BELOW. SOCIAL SECURITY NUMBER(S) OR ------------------------------ EMPLOYER IDENTIFICATION NUMBER(S) ---------------------------------------------------------------------------------------------- DEPARTMENT OF THE TREASURY PART 2 -- CERTIFICATION -- UNDER PENALTIES OF PERJURY, I PART 3 INTERNAL REVENUE CERTIFY THAT: SERVICE AWAITING TIN [ ] PAYER'S REQUEST FOR TAXPAYER (1) The number shown on this form is my correct Taxpayer IDENTIFICATION Identification Number (or I am waiting for a number NUMBER ("TIN") to be issued to me); and (2) I am not subject to backup withholding either because (i) I am exempt from backup withholding, (ii) I have not been notified by the Internal Reve- nue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (iii) the IRS has noti- fied me that I am no longer subject to backup withholding. - ------------------------------------------------------------------------------------------------------------------------------ Certificate Instructions -- You must cross out item (2) in Part 2 if you have been notified by the IRS that you are currently subject to backup withholding because of under-reporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS stating that you are no longer subject to backup withholding, do not cross out item (2). - ------------------------------------------------------------------------------------------------------------------------------ SIGNATURE: -------------------------------------------------- DATE: -------------- NAME (PLEASE PRINT): ------------------------------------------------------------ ADDRESS: ------------------------------------------------------------------------ CITY, STATE AND ZIP CODE: ------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN A PENALTY IMPOSED BY THE INTERNAL REVENUE SERVICE AND IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATIONS OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9 12 CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a Taxpayer Identification Number has not been issued to me, and either (i) I have mailed or delivered an application to receive a Taxpayer Identification Number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (ii) I intend to mail or deliver an application in the near future. I understand that if I do not provide a Taxpayer Identification Number within 60 days, 31% of all reportable payments made to me thereafter will be withheld until I provide a Taxpayer Identification Number. - ------------------------------------------------------------ -------------------------------- Signature Date - ------------------------------------------------------------------------------------------------ Name (Please Print)
The Information Agent for the Offer is: Innisfree M&A Incorporated 501 Madison Ave., 20th Floor New York, New York 10022 Bankers and Brokers Call Collect (212) 750-5833 All Others Call Toll Free 1-877-750-5838 The Dealer Manager for the Offer is: MORGAN STANLEY & CO. INCORPORATED 1585 Broadway New York, NY 10036 (212) 761-4000 EX-99.A.23 4 FORM OF NOTICE OF GUARANTEED DELIVERY 1 NOTICE OF GUARANTEED DELIVERY FOR TENDER OF SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED SHARE PURCHASE RIGHTS) OF ASARCO INCORPORATED TO PHELPS DODGE CORPORATION (NOT TO BE USED FOR SIGNATURE GUARANTEE) As set forth under "The Offer -- Procedure for Tendering" in the Prospectus dated October 7, 1999 (the "Prospectus"), this form or one substantially equivalent hereto must be used to accept the Offer (as defined herein) if certificates for shares of common stock, no par value (each, an "Asarco Share" and, collectively, the "Asarco Shares"), of ASARCO Incorporated, a New Jersey corporation ("Asarco"), including the associated preferred share purchase rights (each, an "Asarco Right" and, collectively, the "Asarco Rights") issued pursuant to the Asarco Rights Agreement, dated as of January 28, 1998, as amended, between Asarco and The Bank of New York, as Rights Agent, are not immediately available, if the certificates and all other required documents cannot be delivered to the Exchange Agent prior to the Expiration Date (as defined in the Prospectus), or if the procedure for book-entry transfer cannot be completed on a timely basis. Such form may be delivered by hand or transmitted by telegram, facsimile transmission or mail to the Exchange Agent, and must include a guarantee by an Eligible Institution (as defined in the Prospectus). See "The Offer -- Procedure for Tendering" in the Prospectus. The Exchange Agent for the Offer is: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. 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 Transmission: (for Eligible Institutions only) Fax: (201) 296-4293 Confirm by Telephone: (201) 296-4860
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. This form is not to be used to guarantee signatures. If a signature on a Letter of Election and Transmittal is required to be guaranteed by an Eligible Institution under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Election and Transmittal. 2 LADIES AND GENTLEMEN: The undersigned hereby tenders to AAV Corporation, a Delaware corporation and a wholly owned subsidiary of Phelps Dodge Corporation, upon the terms and subject to the conditions set forth in the Prospectus dated October 7, 1999 and in the related Letter of Election and Transmittal (which together constitute the "Offer"), receipt of which is hereby acknowledged, the number of Asarco Shares shown below pursuant to the guaranteed delivery procedures set forth under "The Offer -- Procedure for Tendering" in the Prospectus. ------------------------------------------------------------ Number of Asarco Shares: ------------------------------------------------------------ Number of Asarco Shares for which you are electing to receive cash: ------------------------------------------------------------ Number of Asarco Shares for which you are electing to receive Phelps Dodge Common Shares: ------------------------------------------------------------ Number of Asarco Shares for which you are not making any election: ------------------------------------------------------------ Account Number: ------------------------------------------------------------ Certificate No(s). (if available): ------------------------------------------------------------ ------------------------------------------------------------ If Asarco Share(s) will be tendered by book-entry transfer: Name of Tendering Institution: ------------------------------------------------------------ Account Number: ---------------------------------------- at The Depository Trust Company Date: ----------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------ Name(s) of Record Holder(s): ------------------------------------------------------------ ------------------------------------------------------------ Address(es): ------------------------------------------------------------ ------------------------------------------------------------ Area Code and Telephone Number(s): ------------------------------------------------------------ Signature(s): ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ 2 3 THE GUARANTEE BELOW MUST BE COMPLETED GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a financial institution that is a participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or the Stock Exchange Medallion Program, guarantees (a) that the above-named person(s) "own(s)" the Asarco Shares tendered hereby within the meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as amended, (b) represents that such tender complies with Rule 14e-4 and (c) guarantees to deliver to the Exchange Agent, at one of its addresses set forth above, certificates representing the Asarco Shares tendered hereby, in proper form for transfer, or confirmation of book-entry transfer of such Asarco Shares into the Exchange Agent's accounts at The Depository Trust Company, in each case with delivery of a properly completed and duly executed Letter of Election and Transmittal (or a facsimile copy thereof), or an Agent's Message (as defined in the Prospectus) in the case of book-entry transfer, and any other documents required by the Letter of Election and Transmittal, within three New York Stock Exchange, Inc. trading days of the date hereof. Name of Firm: -------------------------------- ----------------------------------------------- AUTHORIZED SIGNATURE Address: Title: -------------------------------------- ---------------------------------------- Name: -------------------------------------- ---------------------------------------- Zip Code Please Print or Type Area Code and Tel. No.: ----------------------- Dated: --------------------------------- , 1999
NOTE: DO NOT SEND CERTIFICATES FOR ASARCO SHARES WITH THIS NOTICE. ASARCO SHARE CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF ELECTION AND TRANSMITTAL. 3 EX-99.A.24 5 FORM OF LETTER TO BROKERS 1 MORGAN STANLEY & CO. INCORPORATED 1585 BROADWAY NEW YORK, NEW YORK 10036 AMENDED OFFER TO EXCHANGE EACH OUTSTANDING SHARE OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED SHARE PURCHASE RIGHTS) OF ASARCO INCORPORATED FOR 0.50266 SHARES OF COMMON STOCK OF PHELPS DODGE CORPORATION OR $29.50 NET TO THE SELLER IN CASH SUBJECT, IN EACH CASE, TO THE ELECTION AND PRORATION PROCEDURES DESCRIBED IN THE 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 21, 1999, UNLESS THE OFFER IS EXTENDED. ASARCO SHARES THAT ARE TENDERED PURSUANT TO THE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION OF THE OFFER. October 7, 1999 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We have been appointed by Phelps Dodge Corporation, a New York corporation ("Phelps Dodge"), to act as Dealer Manager in connection with Phelps Dodge's offer to exchange 0.25133120 shares of common stock, par value $6.25 per share, of Phelps Dodge (the "Phelps Dodge Common Shares") plus $14.75 net to the seller in cash for each outstanding share of common stock, no par value (each, an Asarco Share" and, collectively, the "Asarco Shares"), of Asarco Incorporated, a New Jersey corporation ("Asarco"), on a fully prorated basis, including the associated preferred share purchase rights (each, an "Asarco Right" and, collectively, the "Asarco Rights") issued pursuant to the Asarco Rights Agreement, dated as of January 28, 1998, as amended, between Asarco and The Bank of New York, as Rights Agent, upon the terms and subject to the conditions set forth in the Prospectus, dated October 7, 1999 (the "Prospectus"), and in the related Letter of Election and Transmittal (which together constitute the "Offer"), enclosed herewith. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THE MINIMUM TENDER CONDITION AND THE PHELPS DODGE STOCKHOLDER APPROVAL CONDITION (IN EACH CASE AS DEFINED IN THE PROSPECTUS). SEE "THE OFFER -- CONDITIONS OF THE OFFER" IN THE PROSPECTUS. Phelps Dodge expressly reserves the right to (i) extend, amend or modify the terms of the Offer in any manner and (ii) withdraw or terminate the Offer and not accept for exchange any Asarco Shares if any of the conditions to the Offer are not satisfied. Shareholders will be required to tender one Asarco Right for each Asarco Share tendered, in order to effect a valid tender of Asarco Shares. Unless the Asarco Distribution Date (as defined in the Prospectus) occurs, a tender of Asarco Shares will constitute a tender of the associated Asarco Rights. See "The Offer -- Procedure for Tendering" in the Prospectus. 2 For your information and for forwarding to your clients for whom you hold Asarco Shares registered in your name or in the name of your nominee(s), or who hold Asarco Shares registered in their own names, we are enclosing the following documents: 1. Prospectus dated October 7, 1999; 2. Letter of Election and Transmittal (together with accompanying Substitute Form W-9) to be used by holders of Asarco Shares in accepting the Offer and tendering Asarco Shares; 3. Notice of Guaranteed Delivery to be used to accept the Offer if certificates for Asarco Shares are not immediately available, if time will not permit all required documents to reach the Exchange Agent prior to the Expiration Date (as defined in the Prospectus) or if the procedure for book-entry transfer cannot be completed on a timely basis; 4. A letter that may be sent to your clients for whose accounts you hold Asarco Shares registered in your name or in the name of your nominee(s), with space provided for obtaining such clients' instructions with regard to the Offer; and 5. Guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number on Substitute Form W-9. Phelps Dodge will not pay any fees or commissions to any broker or dealer or any other person (other than the fees of the Dealer Manager and the Information Agent as described in the Prospectus) in connection with the solicitation of tenders of Asarco Shares and Asarco Rights pursuant to the Offer. Phelps Dodge will, however, upon request, reimburse you for customary mailing and handling expenses incurred by you in forwarding the enclosed materials to your clients. Phelps Dodge will pay or cause to be paid any stock transfer taxes with respect to the transfer and sale of Asarco Shares to it or its order pursuant to the Offer, except as otherwise provided in Instruction 6 of the Letter of Election and Transmittal. YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON OCTOBER 21, 1999, UNLESS THE OFFER IS EXTENDED. In order to take advantage of the Offer, a duly executed and properly completed Letter of Election and Transmittal (or facsimile thereof), with any required signature guarantees, or an Agent's Message (as defined in the Prospectus) in connection with a book-entry transfer, and any other required documents, should be sent to the Exchange Agent, and certificates evidencing the tendered Asarco Shares should be delivered or such Asarco Shares should be tendered by book-entry transfer, all in accordance with the instructions set forth in the Letter of Election and Transmittal and the Prospectus. If holders of Asarco Shares wish to tender Asarco Shares, but it is impracticable for them to forward their certificates or other required documents prior to the Expiration Date, a tender may be effected by following the guaranteed delivery procedures specified under "The Offer -- Procedure for Tendering" in the Prospectus. Any inquiries you may have with respect to the Offer should be addressed to the Dealer Manager or the Information Agent at their respective addresses and telephone numbers set forth on the back cover page of the Prospectus. Additional copies of the enclosed materials may be obtained from the Information Agent, Innisfree M&A Incorporated, by calling 1-877-750-5838 (Toll Free). Very truly yours, Morgan Stanley & Co. Incorporated NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON AS AN AGENT OF PHELPS DODGE, THE DEALER MANAGER, THE EXCHANGE AGENT OR THE INFORMATION AGENT, OR ANY AFFILIATE OF ANY OF THE FOREGOING, OR AUTHORIZE YOU OR ANY OTHER PERSON TO GIVE ANY INFORMATION OR USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN. EX-99.A.25 6 FORM OF LETTER TO CLIENTS 1 AMENDED OFFER TO EXCHANGE EACH OUTSTANDING SHARE OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED SHARE PURCHASE RIGHTS) OF ASARCO INCORPORATED FOR 0.50266 SHARES OF COMMON STOCK OF PHELPS DODGE CORPORATION OR $29.50 NET TO THE SELLER IN CASH SUBJECT, IN EACH CASE, TO THE ELECTION AND PRORATION PROCEDURES DESCRIBED IN THE 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 21, 1999, UNLESS THE OFFER IS EXTENDED. ASARCO SHARES WHICH ARE TENDERED PURSUANT TO THE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION OF THE OFFER. To Our Clients: Enclosed for your consideration are the Prospectus dated October 7, 1999 (the "Prospectus") and the related Letter of Election and Transmittal (which together constitute the "Offer") in connection with the Offer by Phelps Dodge Corporation, a New York corporation ("Phelps Dodge"), to exchange 0.25133120 shares of common stock, par value $6.25 per share, of Phelps Dodge (the "Phelps Dodge Common Shares") plus $14.75 net to the seller in cash for each outstanding share of common stock, no par value (each, an "Asarco Share" and, collectively, the "Asarco Shares"), of ASARCO Incorporated, a New Jersey corporation ("Asarco"), on a fully prorated basis, including the associated preferred share purchase rights (each an "Asarco Right" and, collectively, the "Asarco Rights") issued pursuant to the Asarco Rights Agreement, dated as of January 28, 1998, as amended, between Asarco and The Bank of New York, as Rights Agent, upon the terms and subject to the conditions set forth in the Offer. Shareholders whose certificates evidencing Asarco Shares ("Asarco Share Certificates") are not immediately available or who cannot deliver their Asarco Share Certificates and all other documents required by the Letter of Election and Transmittal to the Exchange Agent prior to the Expiration Date (as defined in the Prospectus) or who cannot complete the procedure for delivery by book-entry transfer to the Exchange Agent's account at a Book-Entry Transfer Facility (as defined in "The Offer -- Exchange of Asarco Shares; Delivery of Phelps Dodge Common Shares and Cash" in the Prospectus) on a timely basis and who wish to tender their Asarco Shares must do so pursuant to the guaranteed delivery procedure described in "The Offer -- Procedure for Tendering" in the Prospectus. See Instruction 2 of the Letter of Election and Transmittal. Delivery of documents to a Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility's procedures does not constitute delivery to the Exchange Agent. THIS MATERIAL IS BEING FORWARDED TO YOU AS THE BENEFICIAL OWNER OF ASARCO SHARES HELD BY US FOR YOUR ACCOUNT BUT NOT REGISTERED IN YOUR NAME. WE ARE THE HOLDER OF RECORD OF ASARCO SHARES HELD BY US FOR YOUR ACCOUNT. A TENDER OF SUCH ASARCO SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF ELECTION AND TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER ASARCO SHARES HELD BY US FOR YOUR ACCOUNT. Accordingly, we request instructions as to (a) whether you wish to have us tender on your behalf any or all of the Asarco Shares held by us for your account, upon the terms and subject to the conditions set forth in the Offer, and (b) what election you would like us to make in your behalf in respect of any tendered Asarco Shares held by us for your account. Please note the following: 1. Phelps Dodge is offering to acquire each outstanding Asarco Share in exchange for 0.25133120 Phelps Dodge Common Shares plus $14.75 net to seller in cash, on a fully prorated basis. 2 2. The Offer is being made for all of the outstanding Asarco Shares. 3. The Offer and withdrawal rights will expire at 12:00 Midnight, New York City time, on October 21, 1999, unless the Offer is extended. 4. The Offer is conditioned upon, among other things, the Minimum Tender Condition and the Phelps Dodge Stockholder Approval Condition (in each case as defined in the Prospectus). See "The Offer -- Conditions of the Offer" in the Prospectus. 5. Tendering shareholders will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Election and Transmittal, stock transfer taxes on the transfer of Asarco Shares pursuant to the Offer. The Offer is made solely by the Prospectus dated October 7, 1999 and the related Letter of Election and Transmittal and any amendments or supplements thereto and is being made to all holders of Asarco Shares. The Offer is not being made to, nor will tenders be accepted from or on behalf of, holders of Asarco Shares in any jurisdiction in which the making or acceptance thereof would not be in compliance with the laws of such jurisdiction. However, Phelps Dodge may, in its sole discretion, take such action as it may deem necessary to make the Offer in any such jurisdiction and extend the Offer to holders of Asarco Shares in such jurisdiction. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of Phelps Dodge by Morgan Stanley & Co. Incorporated, as Dealer Manager, or one or more registered brokers or dealers licensed under the laws of such jurisdiction. If you wish to have us tender any or all of your Asarco Shares, please so instruct us by completing, executing, detaching and returning to us the instruction form contained in this letter. An envelope in which to return your instructions to us is enclosed. If you authorize the tender of your Asarco Shares, all such Asarco Shares will be tendered unless otherwise indicated in such instruction form. PLEASE FORWARD YOUR INSTRUCTIONS TO US AS SOON AS POSSIBLE TO ALLOW US AMPLE TIME TO TENDER ASARCO SHARES ON YOUR BEHALF PRIOR TO THE EXPIRATION OF THE OFFER. 3 INSTRUCTIONS WITH RESPECT TO THE AMENDED OFFER TO EXCHANGE EACH OUTSTANDING SHARE OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED SHARE PURCHASE RIGHTS) OF ASARCO INCORPORATED FOR 0.50266 SHARES OF COMMON STOCK OF PHELPS DODGE CORPORATION OR $29.50 NET TO THE SELLER IN CASH SUBJECT, IN EACH CASE, TO THE ELECTION AND PRORATION PROCEDURES DESCRIBED IN THE PROSPECTUS AND THE RELATED LETTER OF ELECTION AND TRANSMITTAL. The undersigned acknowledge(s) receipt of your letter and the enclosed Prospectus dated October 7, 1999 (the "Prospectus") and the related Letter of Election and Transmittal (which together constitute the "Offer") relating to the offer by Phelps Dodge Corporation, a New York corporation ("Phelps Dodge"), to exchange 0.25133120 shares of common stock, par value $6.25 per share, of Phelps Dodge plus $14.75 net to the seller in cash for each outstanding share of common stock, no par value (each, an "Asarco Share" and, collectively, the "Asarco Shares"), of ASARCO Incorporated, a New Jersey corporation ("Asarco"), on a fully prorated basis, including the associated preferred share purchase rights (each, an "Asarco Right" and, collectively, the "Asarco Rights"). You are instructed to tender to AAV Corporation, a Delaware corporation and a wholly owned subsidiary of Phelps Dodge, the number of Asarco Shares indicated below (or, if no number is indicated below, all Asarco Shares) that are held by you for the account of the undersigned and to make the following elections in respect of such Asarco Shares, upon the terms and subject to the conditions set forth in the Offer. Number of Asarco Shares to be Tendered: - -------------------------------------------------------------------------- Number of Asarco Shares for which you are electing to receive cash: - -------------------------------------------------------------------------------- Number of Asarco Shares for which you are electing to receive Phelps Dodge Common Stock: - -------------------------------------------------------------------------------- Number of Asarco Shares for which you are not making any election: - --------------------------------------------- Total Number of Asarco Shares held by you: - ---------------------------------------------------------------------- Date: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SIGN HERE Signature(s): - -------------------------------------------------------------------------------- (Print Name(s)): - -------------------------------------------------------------------------------- (Print Address(es)): - -------------------------------------------------------------------------------- (Area Code and Telephone Number(s)): - --------------------------------------------------------------------------- (Taxpayer Identification or Social Security Number(s)): - ---------------------------------------------- Unless otherwise indicated, it will be assumed that all of your Asarco Shares held by us for your account are to be tendered and that you are not making any election in respect of such Asarco Shares. EX-99.A.26 7 FORM OF GUIDELINES 1 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER--Social Security numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the number to give the payer. - ------------------------------------------------------------ GIVE THE FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY NUMBER OF-- - ------------------------------------------------------------ 1. An individual's account The individual 2. TWO or more individuals (Joint The actual owner of account) the account or, if combined funds, any one of the individuals(1) 3. Husband and wife (joint account) The actual owner of the account or, if joint funds, either person(1) 4. Custodian account of a minor The minor(2) (Uniform Gift to Minors Act) 5. a. The usual revocable savings The grantor- trust account (grantor is also trustee(1) trustee) b. So-called trust account that is The actual owner(1) not a legal or valid trust under state law 6. Sole proprietorship account The owner(4) - ------------------------------------------------------------ - ------------------------------------------------------------ GIVE THE EMPLOYER FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER OF-- - ------------------------------------------------------------ 7. A valid trust, estate or pension The legal entity trust (Do not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5) 8. Corporate The corporation 9. Partnership The partnership 10. Association, club, religious, The organization charitable, or educational, or other tax-exempt organization 11. A broker or registered nominee The broker or nominee 12. Account with the Department of The public entity Agriculture in the name of a public entity (such as a state or local government, school district or prison) that receives agricultural program payments - ------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Show the name of the owner. (4) List first and circle the name of the legal trust, estate or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. 2 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card, Form W-7, Application for IRS Individual Taxpayer Identification Number or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEE EXEMPT FROM BACKUP WITHHOLDING Payees that may be exempt from backup withholding include the following: - A corporation. - A financial institution. PAYEES THAT ARE EXEMPT FROM BACKUP WITHHOLDING INCLUDE THE FOLLOWING: - An organization exempt from tax under Section 501(a) or an individual retirement plan. - The United States or any agency or instrumentality thereof. - A state, the District of Columbia, a possession of the United States or any subdivision or instrumentality thereof. - A foreign government, a political subdivision of a foreign government or any agency or instrumentality thereof. - An international organization or any agency or instrumentality thereof. - A registered dealer in securities or commodities registered in the U.S., the District of Columbia, or a possession of the U.S. - A real estate investment trust. - A common trust fund operated by a bank under Section 584(a). - A trust exempt from tax under Section 664 or described in Section 4947. - An entity registered at all times under the Investment Company Act of 1940. - A foreign central bank of issue. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: - Payments to nonresident aliens subject to withholding under section 1441. - Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident alien partner. - Payments of patronage dividends where the amount received is not paid in money. - Payments made by certain foreign organizations. Payments of interest not generally subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. NOTE: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. - Payments of tax-exempt interest (including exempt interest dividends under section 852). - Payments described in section 6049(b)(5) to non-resident aliens. - Payments on tax-free covenant bonds under section 1451. - Payments made by certain foreign organizations. JOINT FOREIGN PAYEES Backup withholding applies unless: 1. Every joint payee provides the statement regarding foreign status; or 2. Anyone of the joint payees who has not established foreign status supplies a TIN. If anyone of the joint payees who has not established foreign status supplies a TIN, that number is the TIN that must be used for purposes of backup withholding and information reporting. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, ENTER YOUR CORRECT TAXPAYER IDENTIFICATION NUMBER IN PART I, WRITE "EXEMPT" IN PART II AND SIGN AND DATE THE FORM. Certain payments other than interest, dividends and patronage dividends that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041(a), 6045 and 6050A. PRIVACY ACT NOTICE.--Section 6109 of the Internal Revenue Code requires most recipients of dividend, interest or other payments to give taxpayer identification numbers to payers who must report the payments to the IRS. The IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 31% of taxable interest, dividend and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. EX-99.C 8 AGREEMENT AND PLAN OF MERGER 1 Exhibit 2.2 AGREEMENT AND PLAN OF MERGER among PHELPS DODGE CORPORATION AAV CORPORATION and ASARCO INCORPORATED Dated as of October 5, 1999 2 TABLE OF CONTENTS Page ---- ARTICLE I THE ASARCO OFFER .................................................... 2 Section 1.1 The ASARCO Offer.................................... 2 Section 1.2 ASARCO Elections.................................... 3 Section 1.3 ASARCO Action....................................... 5 Section 1.4 Directors........................................... 6 ARTICLE II THE ASARCO MERGER; CLOSING............................................. 7 Section 2.1 The ASARCO Merger................................... 7 Section 2.2 Closing............................................. 7 Section 2.3 Effective Time...................................... 8 Section 2.4 Effects of the ASARCO Merger........................ 8 Section 2.5 Directors and Officers.............................. 8 ARTICLE III EFFECT OF THE ASARCO MERGER ON THE STOCK OF ASARCO; EXCHANGE OF CERTIFICATES...................................... 9 Section 3.1 Effect on ASARCO Stock and SubA Stock............... 9 Section 3.2 Exchange of Certificates............................ 11 ARTICLE IV REPRESENTATIONS AND WARRANTIES......................................... 15 Section 4.1 Organization, Qualification, Etc.................... 15 Section 4.2 Capital Stock....................................... 17 Section 4.3 Corporate Authority Relative to this Agreement...... 18 Section 4.4 Non-Contravention; Consents and Approvals........... 19 Section 4.5 Reports and Financial Statements.................... 20 Section 4.6 Environmental Matters............................... 21 Section 4.7 Employee Benefit Plans; ERISA....................... 23 Section 4.8 Information Statement; Registration Statement; Other Information........... 27 i 3 Section 4.9 ASARCO Rights Plan.................................. 27 Section 4.10 Tax Matters......................................... 28 Section 4.11 Opinion of Financial Advisors....................... 29 Section 4.12 Required Vote....................................... 30 Section 4.13 Absence of Certain Changes.......................... 30 Section 4.14 No Undisclosed Material Liabilities................. 32 Section 4.15 Labor Relations..................................... 32 Section 4.16 No Prior Activities................................. 32 ARTICLE V COVENANTS AND AGREEMENTS .............................................. 33 Section 5.1 Conduct of Business Pending the Effective Time...... 33 Section 5.2 Investigation....................................... 35 Section 5.3 Shareholder Approvals and Other Cooperation......... 36 Section 5.4 Affiliate Agreements................................ 39 Section 5.5 ASARCO Employee Stock Options, Incentive and Benefit Plans.............................................. 39 Section 5.6 Filings; Other Action............................... 41 Section 5.7 Further Assurances.................................. 43 Section 5.8 Takeover Statute.................................... 43 Section 5.9 No Solicitation by ASARCO........................... 43 Section 5.10 Public Announcements................................ 45 Section 5.11 Indemnification and Insurance....................... 45 Section 5.12 Accountants' "Comfort" Letters...................... 46 Section 5.13 Additional Reports.................................. 46 Section 5.14 Disclosure Schedule Supplements..................... 47 Section 5.15 Certain Litigation.................................. 47 Section 5.16 Shareholder Litigation.............................. 47 Section 5.17 Section 16(b)....................................... 47 Section 5.18 Change of Control Agreements........................ 48 ARTICLE VI CONDITIONS TO THE ASARCO MERGER ....................................... 48 Section 6.1 Conditions to Each Party's Obligation to Effect the ASARCO Merger............................ 48 ii 4 ARTICLE VII TERMINATION, WAIVER AND AMENDMENT ..................................... 49 Section 7.1 Termination or Abandonment.......................... 49 Section 7.2 Termination by Parent............................... 50 Section 7.3 Termination by ASARCO............................... 50 Section 7.4 Effect of Termination............................... 50 Section 7.5 Termination Fee. ................................... 51 Section 7.6 Amendment or Supplement............................. 51 Section 7.7 Extension of Time, Waiver, Etc...................... 52 ARTICLE VIII MISCELLANEOUS .................................................... 52 Section 8.1 No Survival of Representations and Warranties....... 52 Section 8.2 Expenses............................................ 52 Section 8.3 Counterparts; Effectiveness......................... 53 Section 8.4 Governing Law....................................... 53 Section 8.5 Notices............................................. 53 Section 8.6 Assignment; Binding Effect.......................... 54 Section 8.7 Severability........................................ 54 Section 8.8 Enforcement of Agreement............................ 54 Section 8.9 Entire Agreement; Third-Party Beneficiaries......... 55 Section 8.10 Headings............................................ 55 Section 8.11 Definitions......................................... 55 Section 8.12 Finders or Brokers.................................. 55 iii 5 LIST OF EXHIBITS Exhibit A - Form of ASARCO Affiliate Letter iv 6 INDEX OF DEFINED TERMS Defined Term Section affiliates.................................................... 8.11 Aggregate ASARCO Merger Cash Consideration.................... 3.1(b)(i) Aggregate ASARCO Merger Stock Consideration................... 3.1(b)(iii) Agreement..................................................... Introduction Antitrust Laws................................................ 5.6(b)(i) ASARCO........................................................ Introduction ASARCO Acquisition Agreement.................................. 5.9(b) ASARCO Award.................................................. 5.5(b) ASARCO Cash Consideration..................................... Introduction ASARCO Cash Election Shares................................... 1.2(a) ASARCO Cash Proration Factor.................................. 1.2(b)(i) ASARCO Certificates........................................... 3.1(b) ASARCO Common Stock........................................... 1.1(a) ASARCO Designees.............................................. 1.4(a) ASARCO Disclosure Schedule.................................... Article IV ASARCO Employees.............................................. 5.5(e) ASARCO Indemnified Parties.................................... 5.11(a) ASARCO Maximum Cash Consideration............................. 1.2(b) ASARCO Maximum Stock Consideration............................ 1.2(c) ASARCO Merger................................................. 2.1(a) ASARCO Merger Cash Amount..................................... 3.1(b)(ii) ASARCO Merger Consideration................................... 3.1(b) ASARCO Merger Exchange Ratio.................................. 3.1(b) ASARCO Merger Stock Amount.................................... 3.1(b)(iv) ASARCO Non Electing Proration Factor.......................... 1.2(d)(iii) ASARCO Non Electing Shares.................................... 1.2(a) ASARCO Notice................................................. 5.9(a) ASARCO Offer.................................................. Introduction ASARCO Option Plans........................................... 5.5(a) ASARCO Policy................................................. 5.11(b) ASARCO SAR.................................................... 5.5(a) ASARCO Shareholder Approval................................... 4.12(b) ASARCO Shareholders Meeting................................... 5.3(c)(iii) ASARCO Stock Consideration.................................... Introduction ASARCO Stock Election Shares.................................. 1.2(a) ASARCO Stock Options.......................................... 5.5(a) v 7 ASARCO Stock Proration Factor.......................... 1.2(c)(i) ASARCO Surviving Corporation........................... 2.1(a) ASARCO Takeover Proposal............................... 5.9(a) CERCLA................................................. 4.6(d) Certificates........................................... 2.2(c) Closing................................................ 2.2 Closing Date........................................... 2.2 Code................................................... Introduction Combination............................................ Introduction Common Shares Trust.................................... 3.2(e)(iii) control................................................ 8.11 Current Representing Party Group....................... 4.10(a) DGCL................................................... 2.1(a) Effective Time......................................... 2.3 Employee Benefit Plan.................................. 4.7(g)(i) Encumbrance............................................ 4.1(c) Environmental Claim.................................... 4.6(d)(i) Environmental Law...................................... 4.6(d)(ii) Environmental Permits.................................. 4.6(a) ERISA.................................................. 4.7(g)(iii) ERISA Affiliate........................................ 4.7(g)(iv) Excess Shares.......................................... 3.2(e)(ii) Exchange Act........................................... 1.3(b) Exchange Agent......................................... 3.2(a) Exchange Fund.......................................... 3.2(a) Expiration Date........................................ 1.1(a) Foreign Plan........................................... 4.7(g)(ii) GAAP................................................... Introduction Governmental Entity.................................... 4.4(a) Hazardous Materials.................................... 4.6(d)(iii) HSR Act................................................ 5.6(b)(i) IRS.................................................... 4.7(b) Joint Proxy Statement.................................. 4.8 Law.................................................... 4.4(a) Material Adverse Effect................................ 4.1(a) Minimum Condition...................................... 1.1(a) Multiemployer Plan..................................... 4.7(a) NJBCA.................................................. 2.1(a) NYSE................................................... 3.2(e)(ii) Offer Documents........................................ 1.1(a) vi 8 Option Agreements Introduction Parent.............................................. Introduction Parent Certificates................................. 3.2(a) Parent Common Stock................................. 1.1(a) Parent Disclosure Schedule.......................... Article IV Parent Shareholder Approval......................... 4.12(a) Parent Shareholders Meeting......................... 5.3(c)(ii) Past Representing Party Group....................... 4.10(a) person.............................................. 8.11 Phelps Dodge Proxy Statement........................ 5.3(c)(ii) Plan................................................ 4.7(g)(iii) Registration Statement.............................. 5.3(a)(i) Representing Party.................................. Article IV Representing Party Affiliated Group................. 4.10(a) Representing Party Agreements....................... 4.4(a) Representing Party's Disclosure Schedule............ Article IV Required Statutory Approvals........................ 4.4(b) Required Third Party Consents....................... 4.4(b) Schedule 14d-1...................................... 4.8 Schedule 14d-9...................................... 1.3(b) SEC................................................. 4.5(a) SEC Reports......................................... 4.5 Securities Act...................................... 4.5 Share Issuance...................................... 4.3(a) Significant Subsidiaries............................ 8.11 SubA................................................ Introduction Subsidiaries........................................ 8.11 Tax Certificates.................................... 5.3(a)(v) Tax Return.......................................... 4.10 Taxes............................................... 4.10 Termination Date.................................... 5.1 vii 9 THIS AGREEMENT AND PLAN OF MERGER, dated as of October 5, 1999 (the "Agreement"), among PHELPS DODGE CORPORATION, a New York corporation ("Parent"), AAV CORPORATION, a Delaware corporation ("SubA") and ASARCO INCORPORATED, a New Jersey corporation ("ASARCO"); WHEREAS, Parent and ASARCO desire to combine their respective businesses upon the terms and subject to the conditions in this Agreement (the "Combination"); WHEREAS, (i) Parent is a corporation organized and existing under the laws of the State of New York; and (ii) ASARCO is a corporation organized and existing under the laws of the State of New Jersey; WHEREAS, Parent has formed SubA, a wholly owned subsidiary of Parent, and all the outstanding capital stock of SubA is owned by Parent; WHEREAS, the Board of Directors of each of Parent and ASARCO deems it advisable and in the best interests of their shareholders to effect the Combination by causing ASARCO to become a subsidiary of Parent pursuant to the ASARCO Merger as provided for in this Agreement; WHEREAS, in furtherance of the Combination, Parent has caused SubA to commence an exchange offer, which Parent shall cause SubA to amend in accordance with the terms of this Agreement (as so amended, the "ASARCO Offer") to acquire all of the issued and outstanding shares of ASARCO Common Stock, for either $29.50 per share, net to the seller in cash, without interest (the "ASARCO Cash Consideration") or 0.50266 of a share of Parent Common Stock (the "ASARCO Stock Consideration"), subject to the election and proration provisions of this Agreement and to the terms and conditions of this Agreement and the ASARCO Offer; WHEREAS, the parties desire to make certain representations, warranties, covenants and agreements in connection with the Combination and also to prescribe various conditions to the Combination; WHEREAS, for U.S. federal income tax purposes, it is intended that the ASARCO Merger will qualify as a transaction described in Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"); 10 WHEREAS, for financial accounting purposes, it is intended that the transactions contemplated by this Agreement will be accounted for as a purchase transaction in accordance with United States generally accepted accounting principles ("GAAP"); and WHEREAS, the Agreement and Plan of Merger, dated as of July 15, 1999, as amended as of September 27, 1999, among Asarco Cyprus Incorporated, a Delaware corporation, ACO Acquisition Corp., a New Jersey corporation, CAM Acquisition Corp., a Delaware corporation, ASARCO and Cyprus Amax Minerals Company, a Delaware corporation, has been terminated. NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained in this Agreement, and fully intending to be legally bound hereby, the parties agree as follows: ARTICLE I THE ASARCO OFFER Section 1.1 The ASARCO Offer. (a) As promptly as practicable (but in no event later than five business days after the public announcement of the transactions contemplated by this Agreement), Parent shall amend the ASARCO Offer to reflect the existence of this Agreement and amend the conditions to the ASARCO Offer in accordance herewith. The expiration date of the ASARCO Offer shall be either (i) the initial expiration date of the ASARCO Offer as set forth in the Schedule 14D-1 or (ii) the tenth business day from and after the date the ASARCO Offer is amended to provide for the purchase of all of the outstanding shares of ASARCO Common Stock in accordance with the terms hereof (the "Expiration Date"), as soon as it is legally permitted under applicable Law. The ASARCO Offer shall be made pursuant to a supplement to Parent's Offer to Purchase dated September 22, 1999 and related letter of transmittal (together with any supplements or amendments thereto, collectively the "Offer Documents") containing the terms and conditions set forth in this Agreement and in form reasonably satisfactory to ASARCO. The obligation of Parent to accept for payment and pay for the shares of common stock, no par value, of ASARCO (the "ASARCO Common Stock") tendered pursuant to the ASARCO Offer shall be subject to the condition (the "Minimum Condition") that at least the number of shares of ASARCO Common Stock that when added to the ASARCO Common Stock already owned by Parent shall constitute 80% of then outstanding ASARCO Common Stock on a fully diluted basis shall have been validly tendered and not withdrawn prior to the 2 11 expiration of the ASARCO Offer and also shall be subject to the satisfaction of the other conditions set forth in Annex A hereto. Parent expressly reserves the right to waive any such condition (other than the Minimum Condition, the Phelps Dodge Stockholder Approval Condition and the condition relating to the effectiveness of the Registration Statement), to increase the consideration per share of ASARCO Common Stock payable in the ASARCO Offer, and to make any other changes in the terms and conditions of the ASARCO Offer, provided however, that no change may be made which decreases the consideration per share of ASARCO Common Stock payable in the ASARCO Offer or which reduces the maximum number of shares of ASARCO Common Stock to be acquired in the ASARCO Offer or which imposes conditions to the ASARCO Offer in addition to those set forth in Annex A hereto. Notwithstanding the foregoing, Parent shall extend the ASARCO Offer at any time up to March 31, 2000 for one or more periods of not more than 10 business days, if at the Expiration Date of the ASARCO Offer, or any extension thereof, any of the conditions on Annex A is not satisfied or waived; provided, however, if all of the conditions to the ASARCO Offer are satisfied or waived but the number of shares of ASARCO Common Stock tendered is 85% or more, but less than 90%, of the then outstanding number of shares of ASARCO Common Stock then Parent may extend the ASARCO Offer for an aggregate period of not more than three business days beyond the Expiration Date. The ASARCO Cash Consideration shall, subject to applicable withholding of taxes, be net to the seller in cash, upon the terms and subject to the conditions of the ASARCO Offer. Subject to the terms and conditions of the ASARCO Offer, Parent shall accept for payment and pay the ASARCO Cash Consideration and issue shares of common stock, par value $6.25 per share, of Parent (the "Parent Common Stock") in payment of the ASARCO Stock Consideration, as promptly as practicable after expiration of the ASARCO Offer, for all shares of ASARCO Common Stock validly tendered and not withdrawn. Section 1.2 ASARCO Elections. (a) Subject to Sections 1.2(b), (c) and (d) below, each holder of ASARCO Common Stock shall be entitled, with respect to each share of ASARCO Common Stock held by such holder, to elect to receive either the ASARCO Cash Consideration or the ASARCO Stock Consideration. Shares of ASARCO Common Stock that are validly tendered and not withdrawn and (i) covered by elections to receive the ASARCO Cash Consideration are referred to herein as "ASARCO Cash Election Shares", (ii) covered by elections to receive the ASARCO Stock Consideration are referred to herein as "ASARCO Stock Election Shares", and (iii) not covered by a valid election to receive either the ASARCO Cash Consideration or the ASARCO Stock Consideration are referred to herein as "ASARCO Non Electing Shares". 3 12 (b) Excess of Cash Elections. If the aggregate ASARCO Cash Consideration elected in respect of all ASARCO Cash Election Shares exceeds $14.75 multiplied by the total number of shares of ASARCO Common Stock outstanding immediately prior to closing of the ASARCO Offer (the "ASARCO Maximum Cash Consideration"), the following will occur: (i) Each ASARCO Cash Election Share will be exchanged in the ASARCO Offer for (A) $29.50 multiplied by a fraction (the "ASARCO Cash Proration Factor"), the numerator of which is the ASARCO Maximum Cash Consideration and the denominator of which is the number of ASARCO Cash Election Shares multiplied by $29.50, and (B) a number of shares of Parent Common Stock equal to 0.50266 multiplied by l minus the ASARCO Cash Proration Factor. (ii) Each ASARCO Stock Election Share and each ASARCO Non Electing Share will be exchanged for 0.50266 of a share of Parent Common Stock. (c) Excess of Stock Elections. If the aggregate ASARCO Stock Consideration elected in respect of all ASARCO Stock Election Shares exceeds 0.25133120 multiplied by the total number of shares of ASARCO Common Stock outstanding immediately prior to closing of the ASARCO Offer (the "ASARCO Maximum Stock Consideration"), the following will occur: (i) Each ASARCO Stock Election Share will be exchanged in the ASARCO Offer for (A) a number of shares of Parent Common Stock equal to 0.50266 multiplied by a fraction (the "ASARCO Stock Proration Factor"), the numerator of which is the ASARCO Maximum Stock Consideration and the denominator of which is the number of ASARCO Stock Election Shares multiplied by 0.50266, and (B) cash in an amount equal to $29.50 multiplied by 1 minus the ASARCO Stock Proration Factor. (ii) Each ASARCO Cash Election Share and each ASARCO Non Electing Share will be exchanged for $29.50, without interest. (d) No Excess of Cash or Stock Elections. In the event that neither Section 1.2(b) or 1.2(c) above is applicable, the following will occur: (i) Each ASARCO Cash Election Share will be exchanged for $29.50 in cash without interest. 4 13 (ii) Each ASARCO Stock Election Share will be exchanged for 0.50266 of a share of Parent Common Stock. (iii) Each ASARCO Non Electing Share will be exchanged for (A) an amount in cash without interest equal to $29.50 multiplied by a fraction (the "ASARCO Non Electing Proration Factor"), the numerator of which is the difference between the ASARCO Cash Number less the number of ASARCO Cash Election Shares and the denominator of which is the number of ASARCO Non Electing Shares; and (B) a number of shares of Parent Common Stock equal to 0.50266 multiplied by 1 minus the ASARCO Non Electing Proration Factor. For purposes of this Section 1.2(d), the ASARCO Cash Number is determined by dividing the ASARCO Maximum Cash Consideration by $29.50. Section 1.3 ASARCO Action. (a) ASARCO hereby approves of and consents to the ASARCO Offer and represents that (i) the Board of Directors of ASARCO (the "ASARCO Board"), at a meeting duly called and held on October 5, 1999, has unanimously (A) determined that this Agreement and the transactions contemplated hereby, including each of the ASARCO Offer and the ASARCO Merger, are fair to and in the best interests of the holders of ASARCO Common Stock, (B) approved and adopted this Agreement and the transactions contemplated hereby and (C) recommended that the shareholders of ASARCO accept the ASARCO Offer and approve and adopt this Agreement and the transactions contemplated hereby, and (ii) Credit Suisse First Boston Corporation has delivered to the Board an opinion that the consideration to be received by the holders of ASARCO Common Stock pursuant to each of the ASARCO Offer and the ASARCO Merger is fair to the holders of ASARCO Common Stock from a financial point of view. ASARCO hereby consents to the inclusion in the Offer Documents of the recommendation of the ASARCO Board described in the immediately preceding sentence, subject to Section 5.9(b). ASARCO has been advised by each of its directors and executive officers that they intend either to tender all shares of ASARCO Common Stock beneficially owned by them to Parent pursuant to the ASARCO Offer or to vote such shares of ASARCO Common Stock in favor of the approval and adoption by the stockholders of ASARCO of this Agreement and the transactions contemplated hereby. (b) As soon as reasonably practicable after the date hereof, ASARCO shall file with the SEC an amendment to its Solicitation/Recommendation Statement on Schedule 14D-9 (together with all amendments and supplements thereto, the "Schedule 5 14 14D-9") containing, subject to Section 5.9, the recommendation of the ASARCO Board described in Section 1.3(a) and shall disseminate the Schedule 14D-9 to the extent required by Rule 14D-9 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and any other applicable federal securities laws. ASARCO and Parent agree to correct promptly any information provided by either of them for use in the Schedule 14D-9 which shall have become false or misleading, and ASARCO further agrees to take all steps necessary to cause the Schedule 14D-9 as so corrected to be filed with the SEC and disseminated to holders of ASARCO Common Stock, in each case as and to the extent required by applicable federal securities laws. Section 1.4 Directors. (a) Promptly upon the purchase of and payment for shares of ASARCO by Parent or any of its Subsidiaries which represent at least a majority of the outstanding shares of ASARCO Common Stock (on a fully diluted basis) pursuant to the ASARCO Offer, Parent shall be entitled to designate such number of directors, rounded up to the next whole number, on the ASARCO Board as is equal to the product of the total number of directors on such Board (giving effect to the directors designated by Parent pursuant to this sentence) multiplied by the percentage that the aggregate number of shares of ASARCO Common Stock beneficially owned by SubA, Parent and any other wholly-owned subsidiary of Parent bears to the total number of shares of ASARCO Common Stock then outstanding. ASARCO shall, upon request of SubA, use all reasonable efforts promptly either to increase the size of its Board of Directors or, at ASARCO's election, secure the resignations of such number of its incumbent directors as is necessary to enable Parent's designees to be so elected to the ASARCO Board, and shall cause Parent's designees to be so elected. Notwithstanding the foregoing, until the Effective Time, ASARCO shall retain as members of its Board of Directors at least two directors who are directors of ASARCO on the date hereof (the "ASARCO Designees"); provided, that subsequent to the purchase of and payment for shares of ASARCO Common Stock pursuant to the ASARCO Offer, Parent shall always have its designees represent at least a majority of the entire Board of Directors. ASARCO's obligations under this Section 1.4(a) shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. ASARCO shall promptly take all actions required pursuant to such Section 14(f) and Rule 14f-1 in order to fulfill its obligations under this Section 1.4(a), including mailing to shareholders the information required by such Section 14(f) and Rule 14f-1 as is necessary to enable Parent's designees to be elected to the ASARCO Board of Directors. Parent or SubA will supply ASARCO any information with respect to either of them and their nominees, officers, directors and affiliates required by such Section 14(f) and Rule 14f-1. 6 15 (b) From and after the time, if any, that Parent's designees constitute a majority of the ASARCO Board, any amendment of this Agreement, any termination of this Agreement by ASARCO, any extension of time for performance of any of the obligations of Parent or SubA hereunder, any waiver of any condition or any of ASARCO's rights hereunder or other action by ASARCO hereunder may be effected only by the action of a majority of the directors of ASARCO then in office who were directors of ASARCO on the date hereof, which action shall be deemed to constitute the action of the full Board of Directors; provided, that if there shall be no such directors, such actions may be effected by majority vote of the entire ASARCO Board. ARTICLE II THE ASARCO MERGER; CLOSING Section 2.1 The ASARCO Merger. (a) Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the New Jersey Business Corporation Act (the "NJBCA") and the Delaware General Corporation Law ("DGCL"), SubA shall merge with ASARCO (the "ASARCO Merger") at the Effective Time. SubA shall be the surviving corporation in the ASARCO Merger (the "ASARCO Surviving Corporation"). From and after the Effective Time, the identity and separate existence of ASARCO shall cease. (b) In connection with the ASARCO Merger, Parent shall reserve a sufficient number of shares of Parent Common Stock prior to the ASARCO Merger, to permit the issuance of shares of Parent Common Stock (i) to the holders of ASARCO Common Stock, as of the Effective Time in accordance with the terms of this Agreement, and (ii) upon the exercise of ASARCO Stock Options being assumed by Parent in accordance with Section 5.5 hereof. Section 2.2 Closing. The closing of the ASARCO Merger (the "Closing") will take place at 10:00 a.m. local time on the day following the later of the Parent Shareholders Meeting and the ASARCO Shareholders Meeting (the "Closing Date"), but shall in no event be later than the second business day after satisfaction or waiver of the conditions set forth in Article VI unless another time or date is agreed to by the parties hereto. The Closing will be held at the offices of Shearman & Sterling, 7 16 599 Lexington Avenue, New York, NY, unless another place is agreed to by the parties hereto. Section 2.3 Effective Time. Subject to the provisions of this Agreement, as soon as practicable on or after the Closing Date, (i) SubA and ASARCO shall file with the Secretary of State of the State of New Jersey a certificate of merger duly completed and executed in accordance with the relevant provisions of the NJBCA and shall make all other filings or recordings required under the NJBCA in order to effect the ASARCO Merger and (ii) SubA shall file with the Secretary of State of the State of Delaware a certificate of merger duly completed and executed in accordance with the relevant provisions of the DGCL in order to effect the ASARCO Merger. The ASARCO Merger shall become effective at the actual time of the filing of both such certificates of merger, or of the later to be filed of such certificates of merger, or at such other later time as is reasonably specified in the certificates of merger (the time at which ASARCO Merger has become fully effective being hereinafter referred to as the "Effective Time"). Section 2.4 Effects of the ASARCO Merger. (a) NJBCA and DGCL. The ASARCO Merger shall have the effects set forth in Section 14A:10-6 of the NJBCA and Section 259 of the DGCL. (b) Name of Surviving Corporation. The name of the ASARCO Surviving Corporation from and after the Effective Time shall be "ASARCO Incorporated" until changed or amended in accordance with applicable Law. (c) Charter Documents. At the Effective Time the Certificate of Incorporation and the Bylaws of SubA, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation and Bylaws, respectively, of the ASARCO Surviving Corporation. Section 2.5 Directors and Officers. The directors of SubA at the Effective Time shall be the directors of the ASARCO Surviving Corporation until the next annual meeting of shareholders of ASARCO (or their earlier resignation or removal) and until their respective successors are duly elected and qualified, as the case may be. The officers of SubA at the Effective Time shall be the officers of the ASARCO Surviving Corporation, until their respective successors are duly appointed. 8 17 ARTICLE III EFFECT OF THE ASARCO MERGER ON THE STOCK OF ASARCO; EXCHANGE OF CERTIFICATES Section 3.1 Effect on ASARCO Stock and SubA Stock. As of the Effective Time, by virtue of the ASARCO Merger and without any action on the part of SubA, ASARCO or the holders of any securities of SubA or ASARCO: (a) Cancellation of Treasury Stock and Parent Owned Stock. Each share of ASARCO Common Stock that is owned directly by ASARCO or any of its Subsidiaries or by Parent or any of its Subsidiaries (but not including any such shares owned by employees or employee benefit or pension plans) shall automatically be cancelled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor. (b) Conversion of ASARCO Common Stock. Each issued and outstanding share of ASARCO Common Stock (other than shares to be cancelled in accordance with Section 3.1(a)) shall be converted into the ASARCO Stock Consideration, the ASARCO Cash Consideration or a combination thereof, in each case determined pursuant to this Section 3.1(b) (such consideration being referred to herein as the "ASARCO Merger Consideration"). If Section 1.2(b) is applicable to the ASARCO Offer, each outstanding share of ASARCO Common Stock will be converted in the ASARCO Merger into the right to receive the ASARCO Stock Consideration. If Section 1.2(c) is applicable to the ASARCO Offer, each outstanding share of ASARCO Common Stock will be converted in the ASARCO Merger into the right to receive the ASARCO Cash Consideration. If neither Section 1.2(b) nor Section 1.2(c) is applicable, each outstanding share of ASARCO Common Stock will be converted in the ASARCO Merger into (A) an amount of cash equal to the ASARCO Merger Cash Amount, without interest, and (B) a number of shares of Parent Common Stock equal to the ASARCO Merger Stock Amount. The ASARCO Merger Cash Amount and the ASARCO Merger Stock Amount will be determined as follows: (i) The aggregate amount of ASARCO Cash Consideration actually paid in the ASARCO Offer will be subtracted from the Total ASARCO Available Cash to determine the amount of cash available to be paid in the ASARCO Merger (the "Aggregate ASARCO Merger Cash Consideration"). For purposes of this Section, Total ASARCO Available Cash equals (A) the number of shares exchanged in the ASARCO Offer plus the number of shares of ASARCO 9 18 Common Stock to be converted in the ASARCO Merger, multiplied by (B) $14.75. (ii) The Aggregate ASARCO Merger Cash Consideration will be divided by the number of shares of ASARCO Common Stock to be converted in the ASARCO Merger, to determine the amount of cash consideration to be paid in respect of each such share of ASARCO Common Stock in the ASARCO Merger (the "ASARCO Merger Cash Amount"). (iii) The aggregate number of shares of Parent Common Stock actually issued as ASARCO Stock Consideration in the ASARCO Offer will be subtracted from the Total ASARCO Available Stock to determine the number of shares of Parent Common Stock available to be paid in the ASARCO Merger (the "Aggregate ASARCO Merger Stock Consideration"). For purposes of this Section, Total ASARCO Available Stock equals (A) the number of shares of ASARCO Common Stock exchanged in the ASARCO Offer plus the number of shares of ASARCO Common Stock to be converted in the ASARCO Merger, multiplied by (B) 0.25133120. (iv) The Aggregate ASARCO Merger Stock Consideration will be divided by the number of shares of ASARCO Common Stock to be converted in the ASARCO Merger, to determine the number of shares of Parent Common Stock to be issued in respect of each such share of ASARCO Common Stock in the ASARCO Merger (the "ASARCO Merger Stock Amount"). As of the Effective Time, all such shares of ASARCO Common Stock shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate or certificates which immediately prior to the Effective Time represented outstanding shares of ASARCO Common Stock (the "ASARCO Certificates") shall cease to have any rights with respect thereto, except the right to receive (x) the ASARCO Merger Consideration, (y) certain dividends and other distributions in accordance with Section 3.2(c), and (z) cash in lieu of fractional shares of Parent Common Stock in accordance with Section 3.2(e), without interest. (c) Conversion of Common Stock of SubA. Each issued and outstanding share of common stock, par value $.01 per share, of SubA shall be converted into one fully paid and nonassessable share of common stock of the ASARCO Surviving Corporation. 10 19 Section 3.2 Exchange of Certificates. (a) Exchange Agent. As of the Effective Time, Parent shall enter into an agreement with a bank or trust company designated by it and reasonably satisfactory to ASARCO (the "Exchange Agent"), which shall provide that Parent shall deposit with the Exchange Agent as of the Effective Time, for the benefit of the holders of shares of ASARCO Common Stock for exchange in accordance with this Article III, through the Exchange Agent, (i) cash in the amount required to be exchanged for ASARCO Common Stock pursuant to Section 3.1(b) and (ii) certificates ("Parent Certificates") representing the number of whole shares of Parent Common Stock issuable pursuant to Section 3.1(b) in exchange for outstanding shares of ASARCO Common Stock (such cash and shares of Parent Common Stock, together with any dividends or distributions with respect thereto with a record date after the Effective Time, any Excess Shares and any cash (including cash proceeds from the sale of the Excess Shares) payable in lieu of any fractional shares of Parent Common Stock being hereinafter referred to as the "Exchange Fund"). (b) Exchange Procedures. As soon as reasonably practicable after the Effective Time, the Exchange Agent shall mail to each holder of record of an ASARCO Certificate whose shares were converted into the ASARCO Merger Consideration pursuant to Section 3.1(b), (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the ASARCO Certificates shall pass, only upon delivery of the ASARCO Certificates to the Exchange Agent and shall be in such form and have such other provisions as ASARCO and Parent may reasonably specify), and (ii) instructions for use in effecting the surrender of the ASARCO Certificates in exchange for the ASARCO Merger Consideration. Upon surrender of an ASARCO Certificate for cancellation to the Exchange Agent, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required by the Exchange Agent, the holder of such ASARCO Certificate shall be entitled to receive in exchange therefor (i) a check in the amount equal to the cash, if any, which such holder has the right to receive pursuant to the provisions of this Article III and (ii) a Parent Certificate representing that number of whole shares of Parent Common Stock, if any, which such holder has the right to receive pursuant to the provisions of this Article III, certain dividends or other distributions in accordance with Section 3.2(c) and cash in lieu of any fractional share in accordance with Section 3.2(e). The ASARCO Certificate so surrendered shall forthwith be cancelled. In the event of a transfer of ownership of ASARCO Common Stock not registered in the transfer records of ASARCO, the applicable ASARCO Merger Consideration may be issued or paid to a person other than the person in whose name the ASARCO Certificate so surrendered is 11 20 registered if such ASARCO Certificate shall be properly endorsed or otherwise be in proper form for transfer, and the person requesting such issuance shall pay all transfer or other non-income Taxes required by reason of the issuance of ASARCO Merger Consideration to a person other than the registered holder of such ASARCO Certificate or establish to the satisfaction of Parent that such Tax has been paid or is not applicable. Until surrendered as contemplated by this Section 3.2, each ASARCO Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the applicable ASARCO Merger Consideration into which the shares of ASARCO Common Stock formerly represented by such ASARCO Certificate have been converted, certain dividends or other distributions in accordance with Section 3.2(c) and cash in lieu of any fractional share in accordance with Section 3.2(e). No interest will be paid or will accrue on any cash payable to holders of ASARCO Certificates pursuant to the provisions of this Article III. (c) Distributions with Respect to Unexchanged Shares. No dividends or other distributions with respect to Parent Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered ASARCO Certificate with respect to the shares of Parent Common Stock represented thereby, and no cash payment in lieu of fractional shares shall be paid to any such holder pursuant to Section 3.2(e), and all such dividends, other distributions and cash in lieu of fractional shares of Parent Common Stock shall be paid by Parent to the Exchange Agent and shall be included in the Exchange Fund, in each case until the surrender of such ASARCO Certificate in accordance with this Article III. Subject to the effect of applicable escheat or similar Laws, following surrender of any such ASARCO Certificate there shall be paid to the holder of the Parent Certificate representing whole shares of Parent Common Stock issued in exchange therefor, without interest, (i) at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such whole shares of Parent Common Stock and the amount of any cash payable in lieu of a fractional share of Parent Common Stock to which such holder is entitled pursuant to Section 3.2(e), and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to such surrender and with a payment date subsequent to such surrender payable with respect to such whole shares of Parent Common Stock. Parent shall make available to the Exchange Agent cash for these purposes. (d) No Further Ownership Rights in ASARCO Common Stock. All ASARCO Merger Consideration issued or paid upon the surrender for exchange of ASARCO Certificates in accordance with the terms of this Article III shall be deemed to have been issued and paid in full satisfaction of all rights pertaining to the shares of 12 21 ASARCO Common Stock theretofore represented by such ASARCO Certificates, subject, however, to the ASARCO Surviving Corporation's obligation to pay any dividends or make any other distributions with a record date prior to the Effective Time which may have been authorized or made by ASARCO on such shares of ASARCO Common Stock which remain unpaid at the Effective Time, and there shall be no further registration of transfers on the stock transfer books of the ASARCO Surviving Corporation of the shares of ASARCO Common Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, ASARCO Certificates are presented to the ASARCO Surviving Corporation or the Exchange Agent for any reason, they shall be cancelled and exchanged as provided in this Article III, except as otherwise provided by Law. (e) No Fractional Shares. (i) No Parent Certificates or scrip representing fractional shares of Parent Common Stock shall be issued upon the surrender for exchange of ASARCO Certificates, no dividend or distribution of Parent shall relate to such fractional share interests, and such fractional share interests will not entitle the owner thereof to vote or to any rights of a shareholder of Parent. (ii) As promptly as practicable following the Effective Time, the Exchange Agent will determine the excess of (A) the number of whole shares of Parent Common Stock delivered to the Exchange Agent by Parent pursuant to Section 3.2(a) for exchange pursuant to Section 3.1 for outstanding shares of ASARCO Common Stock over (B) the aggregate number of whole shares of Parent Common Stock to be distributed to holders of ASARCO Common Stock pursuant to Section 3.2(b) (such excess being herein called the "Excess Shares"). Following the Effective Time, the Exchange Agent will, on behalf of former shareholders of ASARCO, sell the Excess Shares at then-prevailing prices on the New York Stock Exchange, Inc. (the "NYSE"), all in the manner provided in Section 3.2(e)(iii). (iii) The sale of the Excess Shares by the Exchange Agent will be executed on the NYSE through one or more member firms of the NYSE and will be executed in round lots to the extent practicable. The Exchange Agent will use reasonable efforts to complete the sale of the Excess Shares as promptly following the Effective Time as, in the Exchange Agent's sole judgment, is practicable consistent with obtaining the best execution of such sales in light of prevailing market conditions. Until the net proceeds of such sale or sales have been distributed to the holders of ASARCO Common 13 22 Stock, the Exchange Agent will hold such proceeds in trust for the holders of ASARCO Common Stock (the "Common Shares Trust"). The Parent will pay all commissions, transfer Taxes and other out-of-pocket transaction costs, including the expenses and compensation of the Exchange Agent incurred in connection with such sale of the Excess Shares. The Exchange Agent will determine the portion of the Common Shares Trust to which each holder of ASARCO Common Stock is entitled, if any, by multiplying the amount of the aggregate net proceeds comprising the Common Shares Trust by a fraction, the numerator of which is the amount of the fractional share interest to which such holder of ASARCO Common Stock is entitled (after taking into account all shares of ASARCO Common Stock held at the Effective Time by such holder) and the denominator of which is the aggregate amount of fractional share interests to which all holders of ASARCO Common Stock are entitled. (iv) As soon as practicable after the determination of the amount of cash, if any, to be paid to holders of ASARCO Common Stock with respect to any fractional share interests, the Exchange Agent will make available such amounts to such holders of ASARCO Common Stock subject to and in accordance with the terms of Section 3.2(c). (f) Termination of Exchange Fund. Any portion of the Exchange Fund which remains undistributed to the holders of the ASARCO Certificates six months after the Effective Time shall be delivered to Parent upon demand, and any holders of the ASARCO Certificates who have not theretofore complied with this Article III shall thereafter look only to Parent for payment of their claim for ASARCO Merger Consideration, any cash in lieu of fractional shares of Parent Common Stock and any dividends or distributions with respect to Parent Common Stock. (g) No Liability. None of Parent, ASARCO or the Exchange Agent shall be liable to any person in respect of any shares of Parent Common Stock (or dividends or distributions with respect thereto) or cash from the Exchange Fund in each case delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law. If any ASARCO Certificate shall not have been surrendered prior to seven years after the Effective Time (or immediately prior to such earlier date on which any ASARCO Merger Consideration, any cash payable to the holder of such ASARCO Certificate pursuant to this Article III or any dividends or distributions payable to the holder of such ASARCO Certificate would otherwise escheat to or become the property of any governmental body or authority) any such ASARCO Merger Consideration or cash, dividends or distributions in respect of such ASARCO Certificate shall, to the extent permitted by applicable Law, become the property of the ASARCO 14 23 Surviving Corporation, free and clear of all claims or interest of any person previously entitled thereto. (h) Lost Certificates. If any ASARCO Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such ASARCO Certificate to be lost, stolen or destroyed and, if required by the ASARCO Surviving Corporation, the posting by such person of a bond in such reasonable amount as the ASARCO Surviving Corporation may direct as indemnity against any claim that may be made against it with respect to such ASARCO Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed ASARCO Certificate the ASARCO Merger Consideration and, if applicable, any cash in lieu of fractional shares, and unpaid dividends and distributions on shares of Parent Common Stock as may be deliverable in respect thereof pursuant to this Agreement. ARTICLE IV REPRESENTATIONS AND WARRANTIES Except as set forth in the disclosure schedule delivered by Parent to ASARCO prior to the execution of this Agreement (the "Parent Disclosure Schedule"), Parent hereby represents and warrants to ASARCO, and, except as set forth in the disclosure schedule delivered by ASARCO to Parent prior to the execution of this Agreement (the "ASARCO Disclosure Schedule"), ASARCO hereby represents and warrants to Parent, in each case as set forth in this Article IV, with the party making such representations and warranties being referred to as the "Representing Party" and such Representing Party's Disclosure Schedule as the "Representing Party's Disclosure Schedule." Notwithstanding the foregoing, any representation or warranty which expressly refers to ASARCO or Parent is being made solely by ASARCO or Parent, as the case may be. Section 4.1 Organization, Qualification, Etc. (a) The Representing Party is a corporation duly organized, validly existing and in good standing (or other equivalent status) under the laws of the jurisdiction of its incorporation and has the corporate power and authority to own, operate and lease all of its properties and assets and to carry on its business as it is now being conducted or presently proposed to be conducted and is duly qualified to do business and is in good standing (or other equivalent status) in each jurisdiction in which 15 24 the ownership, operation or leasing of its properties or assets or the conduct of its business requires such qualification, except for jurisdictions in which the failure to be so qualified or in good standing (or other equivalent status) would not, individually or in the aggregate, have a Material Adverse Effect on the Representing Party and its Subsidiaries, taken as a whole. As used in this Agreement, any reference to any state of facts, event, change or effect having a "Material Adverse Effect" on or with respect to a Representing Party, means such state of facts, event, change or effect that has had or would reasonably be expected to have a material adverse effect on the business, results of operations or financial condition of the Representing Party and its Subsidiaries, taken as a whole; provided, however, that any adverse effect that copper prices have had or may have on the business, results of operations or financial condition of the Representing Party and its Subsidiaries, taken as a whole, shall not be deemed a Material Adverse Effect for purposes of this Agreement. The copies of each Representing Party's Certificate of Incorporation and Bylaws which have been delivered to the other Representing Party are complete and correct and in full force and effect. (b) Each of the Representing Party's Significant Subsidiaries is a corporation duly organized, validly existing and in good standing (or other equivalent status) under the laws of its jurisdiction of incorporation or organization, has the power and authority to own, operate and lease its properties and to carry on its business as it is now being conducted or presently proposed to be conducted, and is duly qualified to do business and is in good standing (or equivalent status) in each jurisdiction in which the ownership, operation or leasing of its properties or assets or the conduct of its business requires such qualification, except for jurisdictions in which the failure to be so qualified or in good standing (or other equivalent status) would not, individually or in the aggregate, have a Material Adverse Effect on the Representing Party. Each Representing Party has made available to the other Representing Party complete and correct copies of the certificate of incorporation, bylaws or other similar governing documents which are in full force and effect for each of such Representing Party's Significant Subsidiaries that are not directly or indirectly wholly owned. (c) All the outstanding shares of capital stock of, or other ownership interests in, the Representing Party's Subsidiaries are validly issued, fully paid and non-assessable and are owned of record and beneficially by such Representing Party, directly or indirectly, free and clear of all Encumbrances. As used in this Agreement, the term "Encumbrance" means any mortgage, pledge, lien, charge, encumbrance, defect, security interest, claim, option or restriction of any kind. There are no (i) securities of the Representing Party or any of its Subsidiaries convertible into or exchangeable or exercisable for shares of capital stock or other voting securities or ownership interests 16 25 in any of the Representing Party's Subsidiaries, (ii) warrants, calls, options or other rights to acquire from the Representing Party or any of its Subsidiaries, or any obligations of the Representing Party or any of its Subsidiaries to issue, any capital stock, voting securities or other ownership interests in, or any securities convertible into or exchangeable or exercisable for, any capital stock, voting securities or ownership interests in any of the Representing Party's Subsidiaries, or (iii) obligations of the Representing Party or any of its Subsidiaries to repurchase, redeem or otherwise acquire any outstanding securities of the Representing Party's Subsidiaries or to issue, deliver or sell, or cause to be issued, delivered or sold, any such securities. (d) Except for the Representing Party's Subsidiaries, as set forth in Section 4.1(d) of the Representing Party's Disclosure Schedule or the Representing Party's (or any of its Subsidiaries') SEC Reports, and in respect of minerals exploration or development agreements in the ordinary course of business, the Representing Party (excluding employee pension or benefit plans) does not own any securities of, or have any debt or equity investment in, or loans outstanding to, any corporation, partnership, joint venture, limited liability company or other entity. The Representing Party is not subject to any contractual obligation under which it may be required to advance or contribute capital to any entity, except in respect of minerals exploration or development agreements in the ordinary course of business. Section 4.2 Capital Stock. (a) Section 4.2(a) of the Representing Party's Disclosure Schedule sets forth as of September 30, 1999: (i) the number of authorized shares of each class or series of capital stock of the Representing Party; (ii) the number of shares of each class or series of capital stock of the Representing Party which are issued and outstanding; (iii) the number of shares of each class or series of capital stock which are held in the treasury of such Representing Party; (iv) the number of shares of each class or series of capital stock of the Representing Party which are reserved for issuance, indicating each specific reservation; and 17 26 (v) the number of shares of each class or series of capital stock of such Representing Party which are subject to employee stock options or other rights to purchase or receive capital stock granted under such Representing Party's stock option or other stock based employee or non-employee director benefit plans, indicating the name of the plan, the date of grant, the number of shares and the exercise price thereof. (b) All of the issued and outstanding shares of capital stock of the Representing Party have been validly issued and are fully paid and nonassessable. Except as set forth in Section 4.2(a) of the Representing Party's Disclosure Schedule, there are no authorized, issued, reserved for issuance or outstanding (i) shares of capital stock or voting securities of the Representing Party, (ii) securities convertible into or exchangeable for shares of capital stock or voting securities of the Representing Party, (iii) warrants, calls, options or other rights to acquire from the Representing Party or any of its Subsidiaries, or any obligation of the Representing Party or any of its Subsidiaries to issue, any shares of capital stock or voting securities or securities convertible into or exchangeable or exercisable for capital stock or voting securities of the Representing Party, and (iv) there are no outstanding obligations of the Representing Party to repurchase, redeem or otherwise acquire any such securities or to issue, deliver or sell, or cause to be issued, delivered or sold, any such securities. Section 4.3 Corporate Authority Relative to this Agreement. (a) Parent has the corporate power and authority to enter into this Agreement and to carry out its obligations hereunder. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by the Board of Directors of Parent, and, except for the approval of the issuance of the Parent Common Stock in the ASARCO Merger (the"Share Issuance") by its shareholders, no other corporate proceedings on the part of Parent are necessary to authorize the consummation of the transactions contemplated hereby. The Board of Directors of Parent has determined that the transactions contemplated by this Agreement are in the best interests of Parent and its shareholders and to recommend to such shareholders that they approve the Share Issuance. This Agreement has been duly and validly executed and delivered by Parent and, assuming this Agreement constitutes a valid and binding agreement of the other parties hereto, this Agreement constitutes a valid and binding agreement of Parent, enforceable against Parent in accordance with its terms (except insofar as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or 18 27 similar laws affecting creditors' rights generally, or by principles governing the availability of equitable remedies). (b) ASARCO has the corporate power and authority to enter into this Agreement and to carry out its obligations hereunder. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by the Board of Directors of ASARCO, and, except for the approval of this Agreement by its shareholders, no other corporate proceedings on the part of ASARCO are necessary to authorize the consummation of the transactions contemplated hereby. The Board of Directors of ASARCO has taken all appropriate action so that none of Parent or SubA will be (i) an "interested stockholder" within the meaning of Section 14A:10A-3 of the NJBCA or (ii) an "interested shareholder" within the meaning of the Certificate of Incorporation of ASARCO by virtue of Parent and SubA entering into this Agreement and consummating the transactions contemplated hereby. The Board of Directors of ASARCO has determined that the transactions contemplated by this Agreement are in the best interests of ASARCO and its shareholders and to recommend to such shareholders that they approve this Agreement. This Agreement has been duly and validly executed and delivered by ASARCO and, assuming this Agreement constitutes a valid and binding agreement of the other parties hereto, this Agreement constitutes a valid and binding agreement of ASARCO, enforceable against ASARCO in accordance with its terms (except insofar as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally, or by principles governing the availability of equitable remedies). Section 4.4 Non-Contravention; Consents and Approvals. (a) None of the execution, delivery or performance of this Agreement by the Representing Party or the consummation by such Representing Party of the transactions contemplated hereby will (i) violate the certificate of incorporation or the bylaws or other similar governing documents of the Representing Party or any of its Subsidiaries, (ii) except for the Required Third Party Consents, result in the violation or breach of or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation, vesting, payment, exercise, acceleration, suspension or revocation) under any of the provisions of any note, bond, mortgage, deed of trust, security interest, indenture, license, contract, agreement, plan or other instrument or obligation to which the Representing Party or any of its Subsidiaries is a party or by which any of them or any of their properties or assets may be bound (the "Representing Party Agreements"), (iii) except for the Required Statutory 19 28 Approvals, violate any order, writ, injunction, decree, judgment, permit, license, statute, law, ordinance, policy, rule or regulation ("Law") of any court, tribunal or administrative, governmental or regulatory body, agency, commission, division, department, public body or other authority, whether federal, state, local or foreign (individually, a "Governmental Entity") applicable to the Representing Party or any of its Subsidiaries or any of their respective property or assets, or (iv) result in the creation or imposition of any Encumbrance on any asset of the Representing Party or any of its Subsidiaries, except in the case of clauses (ii), (iii) and (iv) for violations, breaches, defaults, terminations, cancellations, accelerations or creations which would not in the aggregate have a Material Adverse Effect on the Representing Party and its Subsidiaries, taken as a whole, or prevent or delay the consummation of the transactions contemplated hereby. (b) Section 4.4(b)(i) of the Representing Party's Disclosure Schedule sets forth a list of all third party consents and approvals required to be obtained under the Representing Party Agreements prior to the consummation of the transactions contemplated by this Agreement the failure of which to obtain would have, individually or in the aggregate, a Material Adverse Effect on the Representing Party and its Subsidiaries, taken as a whole (the "Required Third Party Consents"). Section 4.4(b)(ii) of the Representing Party's Disclosure Schedule sets forth a list of all notices to, filings and registrations with, and permits, authorizations, consents and approvals of, Governmental Entities required to be made or obtained from Governmental Entities prior to the consummation of the transactions contemplated by this Agreement the failure of which to obtain would have, individually or in the aggregate, a Material Adverse Effect on the Representing Party and its Subsidiaries, taken as a whole (the "Required Statutory Approvals"). Section 4.5 Reports and Financial Statements. The Representing Party has previously furnished or made available to the other Representing Party complete and correct copies of: (a) such Representing Party's (and any of its Subsidiaries') Annual Reports on Form 10-K filed with the Securities and Exchange Commission (the "SEC") for each of the years ended December 31, 1996 through 1998; (b) such Representing Party's (and any of its Subsidiaries') Quarterly Reports on Form 10-Q filed with the SEC for each of the fiscal quarters ended following such Representing Party's last fiscal year end; 20 29 (c) each definitive proxy statement filed by such Representing Party or any of its Subsidiaries with the SEC since March 1, 1996; (d) each final prospectus filed by such Representing Party with the SEC since December 31, 1995; and (e) all Current Reports on Form 8-K filed by such Representing Party with the SEC since January 1, 1998. As of their respective dates, such reports, proxy statements and prospectuses (collectively, with any amendments, supplements and exhibits thereto, the "SEC Reports") (i) complied as to form in all material respects with the applicable requirements of the Securities Act of 1933, as amended (the "Securities Act"), the Exchange Act, and the rules and regulations promulgated thereunder, and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Except to the extent that information contained in any SEC Report of the Representing Party has been revised or superseded by an SEC Report subsequently filed by the Representing Party, none of the Representing Party's SEC Reports contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The audited consolidated financial statements and unaudited consolidated interim financial statements included in the Representing Party's SEC Reports (including any related notes and schedules) fairly present the financial position of the Representing Party and its consolidated Subsidiaries as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end adjustments), in each case in accordance with past practice and GAAP consistently applied during the periods involved (except as otherwise disclosed in the notes thereto). Since January 1, 1998, the Representing Party has timely filed all reports, registration statements and other filings required to be filed by it with the SEC under the rules and regulations of the SEC. Section 4.6 Environmental Matters. (a) Except for Environmental Claims disclosed in or referred to in Section 4.6(b) of the Disclosure Schedule, as of the date of this Agreement, each of the Representing Party and its Subsidiaries has obtained all licenses, permits, authorizations, approvals and consents from Governmental Entities which are required under any 21 30 applicable Environmental Law in respect of its business, properties, assets and operations ("Environmental Permits"), except (i) for such permits as to which due and proper application is pending, and (ii) for such failures to have Environmental Permits which, individually or in the aggregate, are not reasonably expected to have a Material Adverse Effect on the Representing Party and its Subsidiaries, taken as a whole. Each of such Environmental Permits is in full force and effect, and each of the Representing Party and its Subsidiaries is in compliance with the terms and conditions of all such Environmental Permits and with all applicable Environmental Laws, except for such exceptions as would not, individually or in the aggregate, have a Material Adverse Effect on the Representing Party and its Subsidiaries, taken as a whole. (b) Except for Environmental Claims disclosed in or referred to in Section 4.6(b) of the Disclosure Schedule, as of the date of this Agreement, there is no Environmental Claim filed, pending, or to the best knowledge of the Representing Party threatened or in process, against the Representing Party or any of its Subsidiaries or any person whose liability for such Environmental Claim the Representing Party or any of its Subsidiaries has or may have retained or assumed either contractually or by operation of Law, that would, individually or in the aggregate, have a Material Adverse Effect on the Representing Party and its Subsidiaries, taken as a whole. (c) Except as disclosed or referred to in Section 4.6(c) of the Disclosure Schedule, no Encumbrances have arisen under or pursuant to any Environmental Law on any property, site or facility owned, operated or leased by the Representing Party or any of its Subsidiaries, except for such Encumbrances which would not, individually or in the aggregate, have a Material Adverse Effect on the Representing Party and its Subsidiaries, taken as a whole, and no action of any Governmental Entity has been taken or, to the best knowledge of the Representing Party, is threatened or in process which could subject any of such properties to such Encumbrances, except for such action which would not, individually or in the aggregate, have a Material Adverse Effect on the Representing Party and its Subsidiaries, taken as a whole. (d) As used in this Agreement: (i) "Environmental Claim" means any claim, action, cause of action, order, investigation or notice (written or oral) by any person alleging potential or actual liability (including, without limitation, potential or actual liability for investigation, evaluation, cleanup, removal actions, remedial actions, response actions, natural resources damages, property damages, personal injuries or penalties) 22 31 arising out of, based on or resulting from any Environmental Law, including any claim under CERCLA, and shall include any request for information under CERCLA or any comparable state or local Law. (ii) "Environmental Law" means any Law relating to (a) the environment or pollution, environmental matters, the protection of the environment, or the protection of human health and safety from environmental concerns, (b) actual or threatened emissions, discharges, or releases of pollutants, contaminants, chemicals or solid, industrial, toxic or hazardous substances, wastes or constituents into the environment, and (c) the presence, manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials. (iii) "Hazardous Materials" mean (a) any petroleum or petroleum products and radioactive materials, (b) any chemicals, constituents, materials, or substances defined or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "extremely hazardous substances," "toxic substances " and related materials, as such materials are defined in any Environmental Law, and (c) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any Governmental Entity. Section 4.7 Employee Benefit Plans; ERISA. (a) Except as set forth in the Representing Party's SEC Reports or as would not have a Material Adverse Effect on the Representing Party and its Subsidiaries, taken as a whole, (i) all Employee Benefit Plans (other than any Employee Benefit Plan that is a "multiemployer plan" within the meaning of Section 3(37) of ERISA (a "Multiemployer Plan")) of the Representing Party are in material compliance with all applicable requirements of Law, including ERISA and the Code, and (ii) neither the Representing Party nor any of its Subsidiaries nor any ERISA Affiliate has any liabilities or obligations with respect to any such Employee Benefit Plans, whether accrued, contingent or otherwise, that are not otherwise reflected on the Representing Party's financial statements, nor to the best knowledge of the Representing Party, are any such liabilities or obligations expected to be incurred. Except as described in the Representing Party's (or any of its Subsidiaries') SEC Reports or as set forth in Section 4.7(a) of the Representing Party's Disclosure Schedule, the execution and delivery of, and performance of the transactions contemplated by this Agreement will not (either alone or upon the occurrence of any additional or subsequent events) constitute an event under any Employee Benefit Plan of the Representing Party that will or may result in 23 32 acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any employee. The only severance agreements or severance policies applicable to the Representing Party or any of its Subsidiaries are the agreements and policies specifically described in Section 4.7(a) of the Representing Party's Disclosure Schedule. (b) With respect to each of its Plans, the Representing Party has heretofore made available to the other Representing Party complete and correct copies of each of the following documents, as applicable: (i) a copy of the Plan and any amendments thereto; (ii) a copy of the most recent annual report; (iii) a copy of the most recent actuarial report; (iv) a copy of the most recent Summary Plan Description and all material modifications; (v) a copy of the trust or other funding agreement and any amendments thereto; and (vi) the most recent determination letter received from the Internal Revenue Service (the "IRS") with respect to each Plan that is intended to be qualified under Section 401 of the Code and all notices of reportable events received following receipt of such letter. Each Representing Party will deliver to the other Representing Party a copy of each Foreign Plan within thirty days following the date hereof. (c) Section 4.7(c) of the Representing Party's Disclosure Schedule sets forth a list of each employee of the Representing Party (or any Subsidiary) who is a party to any agreement (whether written or oral) with respect to such person's employment by the Representing Party or a Subsidiary, other than offer letters which do not have guaranteed periods of employment and statutory employment agreements under foreign Laws, and which provide for annual compensation in excess of $100,000. The Representing Party has made available to the other Representing Party a complete and correct copy of each such written employment agreement and a complete and correct summary of each such oral agreement. (d) No liability under Title IV of ERISA has been incurred by the Representing Party or any ERISA Affiliate within the past six years that has not been satisfied in full. To the best knowledge of the Representing Party, no condition exists that presents a material risk to the Representing Party, any of its Subsidiaries or any ERISA Affiliate of incurring a liability under such Title that is reasonably likely to have a Material Adverse Effect on the Representing Party. The Pension Benefit Guaranty Corporation has not instituted proceedings to terminate any of the Employee Benefit Plans, and, to the knowledge of the Representing Party, no condition exists that presents a material risk that such proceedings will be instituted. Except as would not have a Material Adverse Effect on the Representing Party, with respect to each of the Employee 24 33 Benefit Plans that is subject to Title IV of ERISA, the present value of accrued benefits under such Employee Benefit Plan, based upon the actuarial assumptions used for funding purposes in the most recent actuarial report prepared by such Employee Benefit Plan's actuary with respect to such Employee Benefit Plan, did not, as of its latest valuation date, exceed the then current value of the assets of such Employee Benefit Plan allocable to such accrued benefits, and there have been no changes since such latest valuation date which would cause the present value of such accrued benefits to exceed the current value of such assets. None of the Employee Benefit Plans or any trust established thereunder has incurred any "accumulated funding deficiency" (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, as of the last day of the most recent fiscal year of each of the Employee Benefit Plans ended prior to the date of this Agreement. None of the Employee Benefit Plans is a Multiemployer Plan. To the knowledge of the Representing Party each of the Employee Benefit Plans that is intended to be "qualified" within the meaning of Section 401(a) of the Code is so qualified and the trusts maintained thereunder are exempt from taxation under Section 501(a) of the Code. Except as set forth in Section 4.7(d) of the ASARCO Disclosure Schedule, no Employee Benefit Plan provides benefits, including without limitation death or medical benefits (whether or not insured), with respect to current or former employees after retirement or other termination of service (other than coverage mandated by applicable Law or benefits, the full cost of which is borne by the current or former employee). There are no material pending or threatened claims by or on behalf of any Employee Benefit Plan, by any employee or beneficiary covered under any such Employee Benefit Plan, or otherwise involving any such Employee Benefit Plan (other than routine claims for benefits). No prohibited transaction has occurred with respect to any Employee Benefit Plan that would result, directly or indirectly, in the imposition of an excise Tax or other liability under the Code or ERISA, except for such a Tax or other liability that would not have a Material Adverse Effect. Except as would not have a Material Adverse Effect on the Representing Party, with respect to each Foreign Plan: (i) all amounts required to be reserved on account of each Foreign Plan have been so reserved in accordance with reasonable accounting practices prevailing in the country where such Foreign Plan is established, and (ii) each Foreign Plan required to be registered with a Governmental Entity has been registered, has been maintained in good standing with the appropriate Governmental Entities, and has been maintained and operated in accordance with its terms and applicable Law. (e) Except as set forth in Section 4.7(a) and (d) of the ASARCO Disclosure Schedule no director or officer or other employee of such Representing Party will become entitled to any termination, retirement, severance or similar payment, benefit or enhanced or accelerated benefit (including any acceleration of vesting or lapse 25 34 of restrictions, repurchase rights or obligations with respect to any employee stock option or other benefit under any stock option plan or incentive or compensation plan or arrangement) as a result of the transactions contemplated by this Agreement (either standing alone or in conjunction with any additional or subsequent events). (f) Except as set forth in Section 4.7(f) of the ASARCO Disclosure Schedule, any amount or other entitlement that could be received (whether in cash or property or the vesting of property) as a result of any of the transactions contemplated by this Agreement by any employee, officer or director of the Representing Party or any of its affiliates who is a "disqualified individual" (as such term is defined in proposed Treasury Regulation Section 1.280G-1) under any employee benefit plan or other compensation arrangement currently in effect would not be characterized as an "excess parachute payment" or a "parachute payment" (as such terms are defined in Section 280G(b)(1) of the Code). (g) As used in this Agreement (i) "Employee Benefit Plan" means any material Plan entered into, established, maintained, sponsored, contributed to or required to be contributed to by the Representing Party, any of its Subsidiaries or ERISA Affiliates for the benefit of the current or former employees or directors of the Representing Party or any of its Subsidiaries and existing on the date of this Agreement or at any time subsequent thereto and on or prior to the Effective Time; (ii) "Foreign Plan" shall refer to each material plan, program or contract that is subject to or governed by the Laws of any jurisdiction other than the United States, and which would have been treated as an Employee Benefit Plan had it been a United States plan, program or contract; (iii) "Plan" means any employment, bonus, incentive compensation, deferred compensation, pension, profit sharing, retirement, stock purchase, stock option, stock ownership, stock appreciation rights, phantom stock, leave of absence, layoff, vacation, day or dependent care, legal services, cafeteria, life, health, medical, accident, disability, worker's compensation or other insurance, severance, separation, termination, change of control or other benefit plan, agreement, practice policy, program or arrangement of any kind, whether written or oral, other than a Foreign Plan, including, but not limited to any "employee benefit plan" within the meaning of Section 3(3) of the Employee Retirement 26 35 Income Security Act of 1974, as amended, and the rules and regulations thereunder ("ERISA"); and (iv) "ERISA Affiliate" means, with respect to any Representing Party, any entity, trade or business that is a member of the same controlled group as such Representing Party (within the meaning of Sections 414(b), (c), (m) or (o) of the Code). Section 4.8 Information Statement; Registration Statement; Other Information. None of the information with respect to the Representing Party or its Subsidiaries to be included in the Schedule 14D-9, the Tender Offer Statement on Schedule 14D-1 (together with all amendments and supplements thereto, the "Schedule 14D-1"), the Information Statement or the Registration Statement will, in the case of the Information Statement, the Schedule 14D-9, Schedule 14D-1, or any amendments or supplements thereto at the time that such document is mailed, and at the time of the Parent Shareholders Meeting and the ASARCO Shareholders Meeting, or, in the case of the Registration Statement, at the time it becomes effective, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no representation is made by the Representing Party with respect to information supplied in writing by the other Representing Party or any of its affiliates specifically for inclusion in the Information Statement. The Information Statement will comply as to form in all material respects with the provisions of the Exchange Act and the rules and regulations promulgated thereunder. The letters to shareholders, notices of meeting, information statement and forms of proxies to be distributed to shareholders in connection with the ASARCO Merger and any schedules required to be filed with the SEC in connection therewith are collectively referred to herein as the "Information Statement." Section 4.9 ASARCO Rights Plan. ASARCO represents and warrants that the Board of Directors of ASARCO has taken all necessary action to render the Rights Agreement dated as of July 26, 1989, as amended, between ASARCO and First Chicago Trust Company of New York and the Rights Agreement between ASARCO and The Bank of New York, dated as of January 28, 1998, inapplicable to the transactions contemplated by this Agreement. 27 36 Section 4.10 Tax Matters. (a) All federal, state, local and foreign Tax Returns required to be filed by or on behalf of the Representing Party, each of its Subsidiaries, and each affiliated, combined, consolidated or unitary group of which the Representing Party or any of its Subsidiaries (i) is a member (a "Current Representing Party Group") or (ii) was a member during six years prior to the date hereof but is not currently a member, but only insofar as any such Tax Return relates to a taxable period ending on a date within the last six years (a "Past Representing Party Group," together with Current Representing Party Groups, a "Representing Party Affiliated Group") have been timely filed, and all such Tax Returns filed are complete and accurate except to the extent any failure to file or any inaccuracies in filed Tax Returns would not, individually or in the aggregate, have a Material Adverse Effect on such Representing Party (it being understood that the representations made in this Section, to the extent that they relate to Past Representing Party Groups, are made to the knowledge of the Representing Party). All Taxes due and owing by the Representing Party, any Subsidiary of the Representing Party or any Representing Party Affiliated Group have been paid, or adequately reserved for, except to the extent any failure to pay or reserve would not, individually or in the aggregate, have a Material Adverse Effect on the Representing Party. There is no audit examination, deficiency, refund litigation, proposed adjustment or matter in controversy with respect to any Taxes due and owing by the Representing Party, any Subsidiary of the Representing Party or any Representing Party Affiliated Group which would, individually or in the aggregate, have a Material Adverse Effect on the Representing Party. All assessments for Taxes due and owing by the Representing Party, any Subsidiary of the Representing Party or any Representing Party Affiliated Group with respect to completed and settled examinations or concluded litigation have been paid. As soon as practicable after the public announcement of the execution of the Merger Agreement, the Representing Party will provide the other party with written schedules of (i) the taxable years of the Representing Party for which the statutes of limitations with respect to federal income Taxes have not expired, and (ii) with respect to federal income Taxes, those years for which examinations have been completed, those years for which examinations are presently being conducted, and those years for which examinations have not yet been initiated. The Representing Party and each of its Subsidiaries have complied in all material respects with all rules and regulations relating to the withholding of Taxes, except to the extent any such failure to comply would not, individually or in the aggregate, have a Material Adverse Effect on the Representing Party. 37 (b) Neither the Representing Party nor any of its Subsidiaries has (i) entered into a closing agreement or similar agreement with a taxing authority relating to Taxes of the Representing Party or any of its Subsidiaries with respect to a taxable period for which the statute of limitations is still open, or (ii) with respect to U.S. federal income Taxes, granted any waiver of any statute of limitations with respect to, or any extension of a period for the assessment of, any such income Tax, in either case, that is still outstanding. There are no Encumbrances relating to Taxes upon the assets of the Representing Party other than Encumbrances relating to Taxes not yet due, except as would not have a Material Adverse Effect on the Representing Party. Neither the Representing Party nor any of its Subsidiaries is a party to any agreement relating to the allocating or sharing of Taxes, other than an agreement with each other. (c) Neither the Representing Party nor any of its Subsidiaries knows of any fact or has taken any action that could reasonably be expected to prevent the ASARCO Merger from constituting a transaction described in Section 368(a) of the Code. For purposes of this Agreement: (i) "Taxes" means any and all federal, state, local, foreign or other taxes of any kind (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any taxing authority, including, without limitation, taxes or other charges on or with respect to income, franchise, windfall or other profits, gross receipts, property, sales, use, severance, capital stock, payroll, employment, social security, workers' compensation, unemployment compensation, or net worth, and taxes or other charges in the nature of excise, withholding, ad valorem or value added, and (ii) "Tax Return" means any return, report or similar statement (including the attached schedules) required to be filed with respect to any Tax, including, without limitation, any information return, claim for refund, amended return or declaration of estimated Tax. Section 4.11 Opinion of Financial Advisors. (a) The Board of Directors of ASARCO has received the opinion of Credit Suisse First Boston Corporation, dated the date of this Agreement, substantially to the effect that, as of such date, the consideration to be received by holders of ASARCO Common Stock in the ASARCO Offer and the ASARCO Merger, is fair to the holders of ASARCO Common Stock from a financial point of view. (b) The Board of Directors of Parent has received the opinion of Morgan Stanley & Co. Incorporated., dated the date of this Agreement, substantially to 29 38 the effect that, as of such date, the consideration to be paid by Parent pursuant to this Agreement is fair to Parent from a financial point of view. Section 4.12 Required Vote. (a) The affirmative vote of the holders of shares of Parent Common Stock representing a majority of the shares voting at the Parent Shareholders Meeting, provided that at least 50% of the outstanding Parent Common Stock that is entitled to vote, votes at the Parent Shareholders Meeting (the "Parent Shareholder Approval"), is required to approve the Share Issuance. No other vote of the shareholders of Parent is required by Law, the Certificate of Incorporation or the Bylaws of Parent or otherwise in order for Parent to consummate the ASARCO Merger and the transactions contemplated hereby. (b) The affirmative vote of the holders of 80% of the outstanding shares of ASARCO Common Stock entitled to vote at the ASARCO Shareholders Meeting (the "ASARCO Shareholder Approval") is required to approve this Agreement. No other vote of the shareholders of ASARCO is required by Law, the Certificate of Incorporation or the Bylaws of ASARCO or otherwise in order for ASARCO to consummate the ASARCO Merger and the transactions contemplated hereby. Section 4.13 Absence of Certain Changes. Except as set forth in Section 4.13 of the ASARCO Disclosure Schedule, since December 31, 1998, and, other than with respect to clause (a) below, prior to the date hereof, except as set forth in the Representing Party's (or any of its Subsidiaries') SEC Reports filed prior to the date hereof, the Representing Party and its Subsidiaries have conducted their respective businesses in the ordinary course, consistent with past practice and there has not been: (a) any event, occurrence or development (including the discovery of new or additional information concerning an existing environmental condition) which, individually or in the aggregate, would have a Material Adverse Effect on the Representing Party; (b) any declaration, setting aside or payment of any dividend or other distribution with respect to any shares of capital stock of the Representing Party (other than regular quarterly cash dividends payable by the Representing Party in respect of shares of its capital stock consistent with past practice) or any repurchase, redemption or other acquisition by the Representing Party or any of its Subsidiaries of any outstanding shares of its capital stock (except (x) as required by the terms of any 30 39 employee or stock option plan or compensation plan or arrangement, (y) in accordance with any dividend reinvestment plan as in effect as of the date of this Agreement in the ordinary course of operation of such plan consistent with past practice, and/or (z) as otherwise permitted by Section 5.1); (c) any amendment of any material term of any outstanding security of the Representing Party or any of its Subsidiaries; (d) any transaction or commitment made, or any contract, agreement or settlement entered into, by (or judgment, order or decree affecting) the Representing Party or any of its Subsidiaries relating to its assets or business (including the acquisition or disposition of any material amount of assets) or any relinquishment by the Representing Party or any of its Subsidiaries of any contract or other right, in either case, material to the Representing Party and its Subsidiaries taken as a whole, other than transactions, commitments, contracts, agreements or settlements (including without limitation settlements of litigation and tax proceedings) in the ordinary course of business consistent with past practice and those contemplated by this Agreement; (e) any change prior to the date hereof in any method of accounting or accounting practice by the Representing Party or any of its Subsidiaries, except for any such change which is not material or which is required by reason of a concurrent change in GAAP; (f) any (i) grant of any severance or termination pay to (or amendment to any such existing arrangement with) any director, officer or employee of the Representing Party or any of its Subsidiaries, (ii) entering into of any employment, deferred compensation, supplemental retirement or other similar agreement (or any amendment to any such existing agreement) with any director, officer or employee of the Representing Party or any of its Subsidiaries, (iii) increase in, or accelerated vesting and/or payment of, benefits under any existing severance or termination pay policies or employment agreements or (iv) increase in or enhancement of any rights or features related to compensation, bonus or other benefits payable to directors, officers or employees of the Representing Party or any of its Subsidiaries, in each case, other than in the ordinary course of business consistent with past practice or as permitted by this Agreement; or (g) any material Tax election made or changed, any material audit settled or any material amended Tax Returns filed. 31 40 Section 4.14 No Undisclosed Material Liabilities. There are no liabilities of the Representing Party or any Subsidiary of the Representing Party of any kind whatsoever, whether accrued, contingent, absolute, determined or determinable, other than: (a) liabilities which, individually or in the aggregate, would not have a Material Adverse Effect on the Representing Party; (b) liabilities disclosed in the SEC Reports of the Representing Party or except as disclosed pursuant to Section 4.6 hereof; and (c) liabilities under or arising as a result of this Agreement. Section 4.15 Labor Relations. As of the date of this Agreement: (i) Section 4.15 of the Representing Party's Disclosure Schedule sets forth a complete list of each collective bargaining agreement to which the Representing Party or any of its Subsidiaries is a party, (ii) no labor organization or group of employees of the Representing Party (or any of its Subsidiaries) has made a pending demand for recognition or certification, and there are no representation or certification proceedings or petitions seeking a representation proceeding presently pending or, to the knowledge of the Representing Party, threatened to be brought or filed, with the National Labor Relations Board or any other labor relations tribunal or authority, and (iii) there are no organizing activities, strikes, work stoppages, slowdowns, lockouts, material arbitrations or material grievances, or other material labor disputes pending or, to the knowledge of the Representing Party, threatened against or involving the Representing Party or any of its Subsidiaries. Section 4.16 No Prior Activities. SubA was formed for the purpose of effecting a business combination with ASARCO, and does not have any Subsidiaries and has not undertaken any business or other activities other than in connection with pursuing such business combination and entering into this Agreement and engaging in the transactions contemplated hereby. 32 41 ARTICLE V COVENANTS AND AGREEMENTS Section 5.1 Conduct of Business Pending the Effective Time. From and after the date hereof and prior to the Effective Time or the date, if any, on which this Agreement is earlier terminated pursuant to Section 7.1 (the "Termination Date"), and except as may be agreed in writing by the other parties hereto or as may be provided for or permitted pursuant to this Agreement: (a) each of the parties shall, and shall cause each of its Subsidiaries to, conduct its operations according to their ordinary and usual course of business in substantially the same manner as heretofore conducted; (b) each of the parties shall use its reasonable best efforts, and cause each of its Subsidiaries to use its reasonable best efforts, to preserve intact its business organizations and goodwill, keep available the services of its current officers and other key employees and preserve its relationships with those persons having business dealings with it (including its relationships with customers, suppliers, employees and business partners); (c) each of the parties shall confer at such times as any of the other parties may reasonably request with one or more representatives of such requesting party to report material operational matters and the general status of ongoing operations (to the extent such requesting party reasonably requires such information); (d) each of the parties shall notify the other parties of any emergency or other change in the normal course of its or its Subsidiaries' respective businesses or in the operation of its or its Subsidiaries, respective properties and of any complaints or hearings (or communications indicating that the same may be contemplated) of any Governmental Entity if such emergency, change, complaint, investigation or hearing would have a Material Adverse Effect on such party; (e) none of the parties shall, and none of the parties shall permit any of its Subsidiaries to, (i) declare, set aside, authorize or pay any dividends on or make any distribution with respect to its outstanding shares of stock, except in the case of Parent for regular quarterly cash dividends on the outstanding shares of Parent Common Stock and in the case of ASARCO and its majority owned subsidiary Southern Peru Copper Corporation for regular quarterly cash dividends on the outstanding shares of 33 42 their common stock and except for cash dividends by a wholly owned Subsidiary to a parent, or (ii) split, combine or reclassify any of its shares of capital stock; (f) none of the parties shall, and none of the parties shall permit any of its Subsidiaries to, except (i) in the ordinary course of business consistent with past practice, (ii) as otherwise provided in this Agreement or (iii) as required by applicable Law, adopt or amend any Employee Benefit Plan; (g) none of the parties shall, and none of the parties shall permit any of its Subsidiaries to, authorize, propose or announce an intention to authorize or propose, or enter into an agreement with respect to, any merger, consolidation or business combination (other than the ASARCO Offer and the ASARCO Merger and for Parent's Offer to purchase all of the outstanding shares of common stock of Cyprus Amax Minerals Company and the related merger of Cyprus Amax Minerals Company with a Subsidiary of Parent), any acquisition of a material amount of assets or securities, any disposition of a material amount of assets or securities or any release or relinquishment of any material contract rights, in each case not in the ordinary course of business; (h) none of the parties shall, and none of the parties shall permit its Subsidiaries to, propose or adopt any amendments to its certificate of incorporation or by-laws or other similar governing documents; (i) none of the parties shall, and none of the parties shall permit any of its Subsidiaries to, issue or authorize the issuance of, or agree to issue or sell any shares of their capital stock of any class (whether through the issuance or granting of options, warrants, commitments, subscriptions, rights to purchase or otherwise), except for the issuance of shares of Parent Common Stock by Parent and ASARCO Common Stock by ASARCO upon the exercise of stock options or other rights to acquire such party's capital stock, in each case which securities, options and rights are outstanding as of the date of this Agreement and such issuance is made in accordance with the terms of such securities, options and rights in effect on the date of this Agreement; (j) none of the parties shall, and none of the parties shall permit any of its Subsidiaries to, except in the ordinary course of business in connection with employee incentive and benefit plans, programs or arrangements in existence on the date hereof, purchase or redeem any shares of its stock or any rights, warrants or options to acquire any such shares; 34 43 (k) none of the parties shall, and none of the parties shall permit any of its Subsidiaries to, incur, assume or prepay any indebtedness or any other material liabilities, other than indebtedness between such party and a wholly owned Subsidiary or between wholly owned Subsidiaries, provided, in either such case, such wholly owned Subsidiaries remain wholly owned Subsidiaries, and other than in the ordinary course of business consistent with past practice; (l) none of the parties shall, and none of the parties shall permit any of its Subsidiaries to, sell, lease, license, mortgage or otherwise encumber or subject to any Encumbrance or otherwise dispose of any of its properties or assets (including securitizations), other than in the ordinary course of business consistent with past practice and other than the consummation of contracts of sale executed and delivered prior to the date hereof; (m) none of the parties shall, and none of the parties shall permit any of its Subsidiaries to, take any action that would reasonably be expected to cause the ASARCO Merger not to constitute a transaction described in Section 368(a) of the Code; (n) none of the parties shall, and none of the parties shall permit any of its Subsidiaries to make any material Tax election or settle or compromise any material Tax liability, other than in the ordinary course of business consistent with past practice; and (o) none of the parties shall, and none of the parties shall permit any of its Subsidiaries to, agree, in writing or otherwise, to take any of the foregoing actions or take any action which would (i) make any representation or warranty made by such party in Article IV hereof untrue or incorrect or (ii) result in any of the conditions to the ASARCO Merger set forth in Article VI not being satisfied. Section 5.2 Investigation. (a) Each of Parent and ASARCO shall (and shall cause its respective Subsidiaries to) afford to one another and to one another's officers, employees, accountants, counsel and other authorized representatives full and complete access on reasonable prior notice during normal business hours, throughout the period prior to the earlier of the Effective Time or the Termination Date, to its and its Subsidiaries' properties, contracts, commitments, books, and records (including but not limited to Tax Returns) and any report, schedule or other document filed or received by it or any of its 35 44 Subsidiaries pursuant to the requirements of federal or state securities laws or filed with or sent to the SEC, the Department of Justice, the Federal Trade Commission or any other Governmental Entity and shall use their reasonable best efforts to cause their respective representatives and Subsidiaries to furnish promptly to one another such additional financial and operating data and other information as to its and its Subsidiaries' respective businesses and properties as the other or its duly authorized representatives may from time to time reasonably request; provided, that nothing herein shall require either Parent or ASARCO or any of their respective Subsidiaries to disclose any information to the other that would cause significant competitive harm to such disclosing party or its affiliates if the transactions contemplated by this Agreement are not consummated. Notwithstanding any provision of this Agreement to the contrary, no party shall be obligated to make any disclosure in violation of applicable Laws. (b) Parent and ASARCO will not, and will cause their respective officers, employees, accountants, counsel and representatives not to, use any information obtained pursuant to this Section 5.2 for any purpose unrelated to the consummation of the transactions contemplated by this Agreement. Pending consummation of the transactions herein contemplated, each of Parent and ASARCO will keep confidential, and will cause their respective officers, employees, accountants, counsel and representatives to keep confidential, all information and documents obtained pursuant to this Section 5.2 unless such information (i) was already known to it, (ii) becomes available to it from other sources not known by it to be bound by a confidentiality obligation, (iii) is independently acquired by it as a result of work carried out by any of its employees or representatives to whom no disclosure of such information has been made, (iv) is disclosed with the prior written approval of the other party or (v) is or becomes readily ascertainable from published information or trade sources. Upon any termination of this Agreement, each party will, upon request, collect and deliver to the other party all documents obtained by it or any of its officers, employees, accountants, counsel and representatives then in their possession and any copies thereof. Section 5.3 Shareholder Approvals and Other Cooperation. (a) If required by applicable Law, as soon as practicable following consummation of the ASARCO Offer, Parent and ASARCO shall together, or pursuant to any reasonable allocation of responsibility between them: (i) prepare and file confidentially with the SEC as soon as is reasonably practicable the Information Statement in preliminary form and promptly prepare and cause Parent to file with the SEC a registration statement on Form S-4 under 36 45 the Securities Act with respect to the Parent Common Stock issuable in the ASARCO Merger (or, to the extent practicable, to amend as necessary the Registration Statement of Parent on Form S-4 (Reg. No. 333-86063), which was declared effective by the SEC on September 2, 1999 with respect to the Parent Common Stock) (the "Registration Statement"), and shall use their reasonable best efforts to have the Information Statement cleared by the SEC under the Exchange Act and the Registration Statement declared effective by the SEC under the Securities Act; (ii) as soon as is reasonably practicable cause Parent to take all such action as may be required under state blue sky or securities laws in connection with the issuance of shares of Parent Common Stock in the ASARCO Merger and as contemplated by this Agreement; (iii) promptly prepare and file with the NYSE and such other stock exchanges as shall be agreed upon listing applications covering the shares of Parent Common Stock issuable in the ASARCO Merger, upon exercise of ASARCO stock options, warrants, conversion rights or other rights or vesting or payment of other ASARCO equity-based awards and use its reasonable best efforts to obtain, prior to the Effective Time, approval for the listing of such Parent Common Stock, subject only to official notice of issuance; (iv) cooperate with one another in order to lift any injunctions or remove any other impediment to the consummation of the transactions contemplated herein; and (v) cooperate with one another in obtaining (i) an opinion of Shearman & Sterling, special counsel to Parent, dated as of the date of the Effective Time, to the effect that the ASARCO Merger will qualify as a transaction described in Section 368(a) of the Code, and (ii) an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to ASARCO, dated as of the date of the Effective Time, to the effect that the ASARCO Merger will qualify as a transaction described in Section 368(a) of the Code. In connection therewith, each of ASARCO and Parent shall deliver to Shearman & Sterling and Skadden, Arps, Slate, Meagher & Flom LLP customary representation letters in form and substance reasonably satisfactory to such special counsel and Parent and ASARCO shall use their reasonable best efforts to obtain any representation letters drafted by their special counsel from their respective appropriate shareholders and shall deliver any such letters obtained to Shearman & Sterling 37 46 and Skadden, Arps, Slate, Meagher & Flom LLP (the representation letters referred to in this sentence are collectively, the "Tax Certificates"). (b) Subject to the limitations contained in Section 5.2, Parent and ASARCO shall each furnish to one another and to one another's counsel all such information as may be required in order to effect the foregoing actions and each represents and warrants to the other that no information furnished by it in connection with such actions or otherwise in connection with the consummation of the transactions contemplated by this Agreement will contain any untrue statement of a material fact or omit to state a material fact required to be stated in order to make any information so furnished, in light of the circumstances under which it is so furnished, not misleading. (c) (i) Parent shall cause an appropriate supplement to the Phelps Dodge Proxy Statement to be mailed to Parent's shareholders, and ASARCO shall cause the Information Statement to be mailed to ASARCO's shareholders, in each case as promptly as practicable after the Registration Statement is declared effective under the Securities Act. (ii) Parent shall hold a meeting of its stockholders (the "Parent Shareholder Meeting") as provided in the Phelps Dodge Proxy Statement dated September 13, 1999 as supplemented by the Proxy Statement Supplement dated September 22, 1999 (as the same may be further amended or supplemented, the "Phelps Dodge Proxy Statement") for the purpose of obtaining the Parent Shareholder Approval. Parent shall, through its Board of Directors, recommend to its shareholders the approval of the Share Issuance and the other transactions contemplated hereby unless the Board of Directors of Parent determines in good faith, after consultation with outside counsel, that to do so would be inconsistent with its fiduciary duties under applicable Law. Notwithstanding anything herein to the contrary, in the event that Parent, SubA or any other subsidiary of Parent shall acquire at least 90% of the outstanding shares of each class of capital stock of ASARCO, pursuant to the ASARCO Offer or otherwise, the parties hereto agree to take all necessary and appropriate action to cause the ASARCO Merger to become effective as soon as practicable after such acquisition, without a meeting of ASARCO shareholders, in accordance with Section 14A:10-5.1 of the NJBCA and Section 253 of the DGCL. (iii) ASARCO shall, as soon as practicable following the date of this Agreement, duly call, give notice of, convene and hold a meeting of its shareholders (the "ASARCO Shareholders Meeting") for the purpose of 38 47 obtaining the ASARCO Shareholder Approval. ASARCO shall, through its Board of Directors, subject to the last sentence of Section 5.9(b), recommend to its shareholders the adoption of this Agreement, the ASARCO Merger and the other transactions contemplated hereby. (iv) Each of Parent and ASARCO will use their best efforts to hold the Parent Shareholders Meeting and the ASARCO Shareholders Meeting as soon as practicable after the date hereof. (d) Parent shall vote, or cause to be voted, all of the shares of ASARCO Common Stock then owned by it or any of its Subsidiaries in favor of the approval and adoption of this Agreement. Section 5.4 Affiliate Agreements. ASARCO shall, as soon as practicable, deliver to Parent a list (reasonably satisfactory to counsel for Parent) setting forth the names and addresses of all persons who will be, at the time of the ASARCO Shareholders Meeting, in ASARCO's reasonable judgment, "affiliates" of ASARCO for purposes of Rule 145 under the Securities Act. ASARCO shall furnish such information and documents as Parent may reasonably request for the purpose of reviewing such list. ASARCO shall use its reasonable best efforts to cause each person who is identified as an "affiliate" in the list furnished pursuant to this Section 5.4 to execute a written agreement on or prior to the mailing of the Joint Proxy Statement, in substantially the form of Exhibit A hereto. Section 5.5 ASARCO Employee Stock Options, Incentive and Benefit Plans. (a) Simultaneously with the ASARCO Merger, (i) each outstanding option ("ASARCO Stock Options") and related stock appreciation right ("ASARCO SAR"), if any, to purchase or acquire a share of ASARCO Common Stock under employee incentive or benefit plans, programs or arrangements and non-employee director plans presently maintained by ASARCO ("ASARCO Option Plans") shall be converted into an option (together with a related stock appreciation right of ASARCO, if applicable) to purchase the number of shares of Parent Common Stock equal to 0.50266, times the number of shares of ASARCO Common Stock which could have been obtained prior to the Effective Time upon the exercise of each such option, at an exercise price per share equal to the exercise price for each such share of ASARCO 39 48 Common Stock subject to an option (and related ASARCO SAR, if any) under the ASARCO Option Plans divided by 0.50266, and all references in each such option (and related ASARCO SAR, if any) to ASARCO shall be deemed to refer to Parent, where appropriate, and (ii) Parent shall assume the obligations of ASARCO under the ASARCO Option Plans. The other terms of each such ASARCO Stock Option and ASARCO SAR, and the plans under which they were issued, shall continue to apply in accordance with their terms, including any provisions providing for acceleration of vesting or payment. (b) Simultaneously with the ASARCO Merger, each outstanding award including restricted stock and phantom stock or common stock equivalents ("ASARCO Award") under any employee incentive or benefit plans, programs or arrangements and non-employee director plans presently maintained by ASARCO which provide for grants of equity-based awards shall be amended or converted into a similar instrument of Parent, in each case with such adjustments to the terms of such ASARCO Awards as are appropriate to preserve the value inherent in such ASARCO Awards with no detrimental effects on the holders thereof. The other terms of each ASARCO Award, and the plans or agreements under which they were issued, shall continue to apply in accordance with their terms, including any provisions providing for acceleration of vesting or payment. With respect to any restricted stock awards as to which the restrictions shall have lapsed on or prior to the Effective Time in accordance with the terms of the applicable plans or award agreements, shares of such previously restricted stock shall be converted in accordance with the provisions of Section 3.1(b). (c) Prior to the Effective Time, ASARCO shall amend each of its employee incentive or benefit plans, programs and arrangements and non-employee director plans, to the extent necessary and appropriate, to reflect the transactions contemplated by this Agreement, including, but not limited to the conversion of shares of ASARCO Common Stock held or to be awarded or paid pursuant to such benefit plans, programs or arrangements into shares of Parent Common Stock on a basis consistent with the transactions contemplated by this Agreement. At or prior to the Effective Time, Parent shall take all corporate action necessary to reserve for issuance a sufficient number of shares of Parent Common Stock for delivery upon exercise of the ASARCO Stock Options. As soon as practicable after the Effective Time, Parent shall file a registration statement on Form S-3 or Form S-8, as the case may be (or any successor or other appropriate forms), with respect to the Parent Common Stock subject to such ASARCO Stock Options, and shall maintain the effectiveness of such registration statement and the current status of the prospectus or prospectuses contained therein, for so long as such ASARCO Stock Options remain outstanding. 40 49 (d) Parent and its Subsidiaries and affiliates agree to honor in accordance with their terms the ASARCO Employee Benefit Plans, including, without limitation, any rights or benefits arising thereunder as a result of the transactions contemplated by this Agreement (either alone or in combination with any other event). It is the intention of the parties hereto that, for a period of one year from the Effective Time, Parent and its Subsidiaries continue to maintain the ASARCO Employee Benefit Plans, in each case in accordance with their terms as in effect at the Effective Time, with only such amendments as are required by applicable Law or permitted by the terms thereof as in effect at the Effective Time, and which do not adversely affect the rights of participants (or their beneficiaries) thereunder. (e) Parent shall take, and shall cause the ASARCO Surviving Corporation and its Subsidiaries and all other affiliates of Parent to take, the following actions: (i) waive any limitations regarding pre-existing conditions and eligibility waiting periods under any welfare or other employee benefit plan maintained by any of them for the benefit of employees of ASARCO or any of its Subsidiaries immediately prior to the Effective Time (the "ASARCO Employees") or in which ASARCO Employees participate after the Effective Time, (ii) provide each ASARCO Employee with credit for any co-payments and deductibles paid prior to the Effective Time for the calendar year in which the Effective Time occurs, in satisfying any applicable deductible or out-of-pocket requirements under any welfare plans that such employees are eligible to participate in after the Effective Time, and (iii) for all purposes under all compensation and benefit plans and policies applicable to ASARCO Employees, treat all service by ASARCO Employees with ASARCO or any of its Subsidiaries or affiliates before the Effective Time as service with Parent and its Subsidiaries and affiliates. (f) As of the Effective Time, Parent shall guarantee the performance of the employment contracts and ASARCO Employee Benefit Plans in accordance with their respective terms and the terms of this Agreement. (g) The parties hereto agree that the transactions contemplated by this Agreement shall constitute a "change of control" for purposes of the ASARCO Employee Benefit Plans. Section 5.6 Filings; Other Action. (a) Subject to the terms and conditions herein provided, Parent and ASARCO shall (i) promptly make all filings necessary in connection with their 41 50 respective Required Statutory Approvals and (ii) use reasonable best efforts to cooperate with one another in (y) determining whether any filings are required to be made with, or consents, permits, authorizations or approvals are required to be obtained from, any third party or other governmental or regulatory bodies or authorities of federal, state, local and foreign jurisdictions in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and thereby and (z) timely making all such filings and timely seeking all such consents, permits, authorizations or approvals, including such party's Required Third Party Consents. The parties shall cooperate with one another in connection with the making of all such filings, including providing copies of all such documents to the non-filing or non-submitting party and its advisors prior to filing or otherwise submitting. (b) (i) Without limiting the generality of the undertakings of Parent and ASARCO pursuant to Section 5.6(a), Parent agrees to obtain the expiration or termination of the applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") (which approval has already been obtained), and applicable foreign Laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization, restraint of trade or limitation of competition (collectively, "Antitrust Laws"), which obligation shall be unconditional and shall be not be qualified by best efforts (regardless of whether fulfillment of such obligation would have a Material Adverse Effect on Parent or ASARCO). The existence of the conditions set forth in Sections 6.1(a) shall not limit or diminish Parent's obligations pursuant to the foregoing sentence or relieve Parent of any liability or damages that may result from its breach of its obligations under this Section 5.6(b)(i) (nor limit the obligations of ASARCO pursuant to the following sentence or relieve ASARCO of any liability or damages that may result from its breach of obligations under this Section 5.6(b)(i)). In connection with the foregoing, ASARCO will cooperate with and assist Parent, and, with respect to matters that are within its power or control will use its reasonable best efforts to promptly (i) take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable Antitrust Laws to consummate the transactions contemplated by this Agreement as soon as practicable, including, without limitation, preparing and filing as promptly as practicable all documentation to effect all necessary filings, notices, petitions, statements, registrations, submissions of information, applications and other documents and (ii) obtain and maintain all approvals, consents, registrations, permits, authorizations and other confirmations required to be obtained from any third party that are necessary, proper or advisable to consummate the ASARCO Merger and the other transactions contemplated by this Agreement. At Parent's request, ASARCO will commit to and implement any divestiture, hold separate or similar transaction or action 42 51 with respect to any asset or business of ASARCO, which commitment and implementation may, at ASARCO's option, be conditioned upon and effective as of the Effective Time. Subject to applicable Laws relating to the exchange of information, the Parent and ASARCO shall have the right to review in advance, and to the extent practicable each will consult with the other on, all the information relating to their respective Subsidiaries, that appears in any filing made with, or written materials submitted to, any third party and/or any Governmental Entity in connection with the ASARCO Merger and the other transactions contemplated by this Agreement. (ii) In furtherance and not in limitation of the foregoing, and to the extent that any such action has not heretofore been taken or completed, each of Parent and ASARCO agrees to (i) make an appropriate filing of a Notification and Report Form pursuant to the HSR Act with respect to the transactions contemplated hereby as promptly as practicable and in any event within ten business days of the date hereof, (ii) supply as promptly as practicable any additional information and documentary material that may be requested pursuant to the HSR Act and (iii) complete the review process under the HSR Act to permit the consummation of the ASARCO Merger including, but not limited to, causing the expiration of termination of the applicable waiting periods under the HSR Act as soon as practicable. Section 5.7 Further Assurances. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and directors of each of the parties to this Agreement shall take all such necessary action. Section 5.8 Takeover Statute. If any "fair price," "moratorium," "control share acquisition" or other form of antitakeover statute or regulation shall become applicable to the transactions contemplated hereby, ASARCO and the members of its Board of Directors shall grant such approvals and take such actions as are reasonably necessary so that the transactions contemplated hereby may be consummated as promptly as practicable on the terms contemplated hereby and otherwise act to eliminate or minimize the effects of such statute or regulation on the transactions contemplated hereby. Section 5.9 No Solicitation by ASARCO. (a) ASARCO shall not, nor shall it permit any of its Subsidiaries to, nor shall it authorize or permit any of its directors, officers or employees or any investment banker, financial advisor, attorney, accountant or other representative 43 52 retained by it or any of its Subsidiaries to, directly or indirectly through another person, (i) solicit, initiate or encourage (including by way of furnishing information), or take any other action designed to facilitate, any inquiries or the making of any proposal which constitutes any ASARCO Takeover Proposal (or reasonably could be expected to lead to a ASARCO Takeover Proposal) or (ii) participate in any discussions or negotiations regarding any ASARCO Takeover Proposal; provided, however, that if the Board of Directors of ASARCO determines in good faith, after consultation with outside counsel, that it is necessary to do so in order to comply with its fiduciary duties to ASARCO's shareholders under applicable Law, ASARCO may, in response to an ASARCO Takeover Proposal which was not solicited by it or which did not otherwise result from a breach of this Section 5.9(a), and subject to providing prior written notice of its decision to take such action to Parent (the "ASARCO Notice") (x) furnish information with respect to ASARCO and its Subsidiaries to any person making an ASARCO Takeover Proposal pursuant to a customary confidentiality agreement (as determined by ASARCO after consultation with its outside counsel) and (y) participate in discussions or negotiations regarding such ASARCO Takeover Proposal. For purposes of this Agreement, "ASARCO Takeover Proposal" means any inquiry, proposal or offer (or any improvement, restatement, amendment, renewal or reiteration thereof) from any person relating to any direct or indirect acquisition or purchase of a business or shares of any class of equity securities of ASARCO 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 ASARCO or any of its Subsidiaries, or any merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving ASARCO or any of its subsidiaries, other than the transactions contemplated by this Agreement. (b) Except as expressly permitted by this Section 5.9, neither the Board of Directors of ASARCO nor any committee thereof shall (i) withdraw or modify, or propose publicly to withdraw or modify, in a manner adverse to Parent, the recommendation by such Board of Directors or such committee of the ASARCO Merger or this Agreement, (ii) approve or recommend, or propose publicly to approve or recommend, any ASARCO Takeover Proposal, or (iii) cause ASARCO to enter into any letter of intent, agreement in principle, acquisition agreement or other similar agreement (each, a "ASARCO Acquisition Agreement") related to any ASARCO Takeover Proposal. Notwithstanding the foregoing, in the event that the Board of Directors of ASARCO receives an ASARCO Takeover Proposal and the Board of Directors of ASARCO determines in good faith, after consultation with outside counsel, that it is necessary to do so in order to comply with its fiduciary duties to ASARCO's shareholders under applicable Law, the Board of Directors of ASARCO may (x) take any of the 44 53 actions described in clauses (i), (ii) or (iii) above or (y) terminate this Agreement (and concurrently with or after such termination, if it so chooses, cause ASARCO to enter into any ASARCO Acquisition Agreement with respect to any ASARCO Takeover Proposal) but only after the fifth business day following Parent's receipt of written notice advising Parent that the Board of Directors of ASARCO is prepared to accept an ASARCO Takeover Proposal, specifying the material terms and conditions of such ASARCO Takeover Proposal and identifying the person making such ASARCO Takeover Proposal. (c) In addition to the obligations of ASARCO set forth in paragraphs (a) and (b) of this Section 5.9, ASARCO shall immediately advise Parent orally and in writing of any request for information or of any ASARCO Takeover Proposal, the material terms and conditions of such request or ASARCO Takeover Proposal and the identity of the person making such request or ASARCO Takeover Proposal. ASARCO will keep Parent reasonably informed of the status and details (including amendments or proposed amendments) of any such request or ASARCO Takeover Proposal. (d) Nothing contained in this Section 5.9 shall prohibit ASARCO from taking and disclosing to its shareholders a position contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from making any disclosure to ASARCO's shareholders if, in the good faith judgement of the Board of Directors of ASARCO, after consultation with outside counsel, failure so to disclose would be inconsistent with its obligations under applicable Law. At the meeting of the ASARCO Board at which this Agreement was considered, authorized and approved, held October 5, 1999, the ASARCO Board unanimously declared it advisable that ASARCO's shareholders adopt and approve this Agreement. Notwithstanding any subsequent determination by the ASARCO Board to change such recommendation, this Agreement shall be submitted to the shareholders of ASARCO at the ASARCO Shareholder Meeting for the purpose of obtaining the ASARCO Shareholder Approval and nothing contained herein shall be deemed to relieve ASARCO of such obligation. Section 5.10 Public Announcements. Parent and ASARCO will consult with and provide each other the reasonable opportunity to review and comment upon any press release prior to the issuance of any press release relating to this Agreement or the transactions contemplated herein and shall not issue any such press release prior to such consultation except as may be required by Law or by obligations pursuant to any listing agreement with any national securities exchange. Section 5.11 Indemnification and Insurance. 45 54 (a) Parent agrees that all rights to exculpation and indemnification for acts or omissions occurring prior to the Effective Time now existing in favor of the current or former directors or officers (the "ASARCO Indemnified Parties") of ASARCO as provided in its charter or by-laws or in any agreement shall survive the ASARCO Merger and shall continue in full force and effect in accordance with their terms. For six years from the Effective Time, Parent shall indemnify the ASARCO Indemnified Parties to the same extent as such ASARCO Indemnified Parties are entitled to indemnification pursuant to the preceding sentence. (b) For three years from the Effective Time, Parent shall maintain in effect ASARCO's current directors' and officers' liability insurance policy (the "ASARCO Policy"), covering those persons who are covered by the ASARCO Policy (a copy of which has been heretofore delivered to Parent); provided, however, that in no event shall Parent be required to expend in any one year an amount in excess of 150% of the annual premiums to be paid by ASARCO for such insurance, and, provided, further, that if the annual premiums of such insurance coverage exceed such amount, Parent shall be obligated to obtain a policy with the greatest coverage available for a cost not exceeding such amount; and provided, further, that Parent may meet its obligations under this paragraph by covering the above people under Parent's insurance policy or policies on the terms described above. Section 5.12 Accountants' "Comfort" Letters. Parent and ASARCO will each use reasonable best efforts to cause to be delivered to each other two letters from their respective independent accountants, one dated a date within two business days before the date of the Registration Statement and one dated a date within two business days before the Effective Time, in form and substance reasonably satisfactory to the recipient and customary in scope for comfort letters delivered by independent accountants in connection with registration statements similar to the Registration Statement. Section 5.13 Additional Reports. Parent and ASARCO shall each furnish to the other copies of any reports of the type referred to in Section 4.5 which it files with the SEC on or after the date hereof, and each of Parent and ASARCO, as the case may be, represents and warrants that as of the respective dates thereof, such reports will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statement therein, in light of the circumstances under which they were made, not misleading. Any unaudited consolidated interim financial statements included in such reports (including any related notes 46 55 and schedules) will fairly present the financial position of Parent and its consolidated Subsidiaries or ASARCO and its consolidated Subsidiaries, as the case may be, as of the dates thereof and the results of operations and changes in financial position or other information included therein for the periods or as of the date then ended (subject, where appropriate, to normal year-end adjustments), in each case in accordance with past practice and GAAP consistently applied during the periods involved (except as otherwise disclosed in the notes thereto). Section 5.14 Disclosure Schedule Supplements. From time to time after the date of this Agreement and prior to the Effective Time, Parent will promptly supplement or amend the Parent Disclosure Schedule with respect to any matter hereafter arising which, if existing or occurring at or prior to the date of this Agreement, would have been required to be set forth or described in the Parent Disclosure Schedule or which is necessary to correct any information in a schedule or in any representation and warranty of Parent which has been rendered inaccurate thereby. From time to time after the date of this Agreement and prior to the Effective Time, ASARCO will promptly supplement or amend the ASARCO Disclosure Schedule with respect to any matter hereafter arising which, if existing or occurring at or prior to the date of this Agreement, would have been required to be set forth or described in the ASARCO Disclosure Schedule or which is necessary to correct any information in a schedule or in any representation and warranty of ASARCO which has been rendered inaccurate thereby. Section 5.15 Certain Litigation. Each of the parties shall prior to or at the Effective Time cease, terminate and dismiss, with prejudice, any and all actions, proceedings or lawsuits initiated, commenced or filed by such party in connection with (i) the Combination and (ii) Parent's exchange offer dated as of September 3, 1999, as amended, for ASARCO and each of the parties shall use their reasonable best efforts to cause any and all actions, proceedings or lawsuits initiated, commenced or filed by third parties in connection with the transactions in the above (i) and (ii) to cease, terminate or be dismissed, with prejudice. Section 5.16 Shareholder Litigation. Each of Parent and ASARCO shall give the other the reasonable opportunity to participate in the defense of any shareholder litigation against ASARCO or Parent, as applicable, and its directors relating to the transactions contemplated by this Agreement. Section 5.17 Section 16(b). Parent and ASARCO shall take all steps reasonably necessary to cause the transactions contemplated hereby and any other 47 56 dispositions of equity securities of ASARCO (including derivative securities) or acquisitions of Parent equity securities (including derivative securities) in connection with this Agreement by each individual who is a director or officer of ASARCO to be exempt under Rule 16b-3 promulgated under the Exchange Act. Section 5.18 Change of Control Agreements. ASARCO has change of control employment agreements with the 12 people listed in Section 5.18(a) of the ASARCO Disclosure Schedule which provide certain benefits upon a termination of employment other than for "cause" or for "good reason" following the Effective Time. Parent shall take all appropriate steps necessary to, and will, give reasonable advance notice of its intention to offer employment (including the proposed terms thereof), or not to offer employment, to each of the aforementioned 12 people and will make such offers in the former case, all sufficiently in advance of the Effective Time to afford such offerees reasonable time prior to the Effective Time to decide whether or not to accept the employment offered prior to the Effective Time. ASARCO has previously made written disclosure to Parent for each of such 12 people and for all such people in the aggregate of the total estimated amount payable to such people for all obligations owed to them by ASARCO under all contractual and plan arrangements with such people, assuming that the employment of each such person was terminated effective as of December 31, 1999 (except that specific benefits are calculated as of specified dates set forth in the written disclosure). The parties hereto agree that the transactions contemplated by the Agreement shall constitute a "change of control" for purposes of the change of control employment agreements referred to in this Section 5.18. ARTICLE VI CONDITIONS TO THE ASARCO MERGER Section 6.1 Conditions to Each Party's Obligation to Effect the ASARCO Merger. The respective obligations of each party to effect the ASARCO Merger shall be subject to the fulfillment at or prior to the Effective Time of the following conditions: (a) The Parent Shareholder Approval and the ASARCO Shareholder Approval shall have been obtained, all in accordance with applicable Law. 48 57 (b) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or enforced by any court or other tribunal or governmental body or authority which prohibits or makes illegal the consummation of the ASARCO Merger substantially on the terms contemplated hereby. In the event any order, decree or injunction shall have been issued, each party shall use its reasonable efforts to remove any such order, decree or injunction. (c) SubA shall have accepted for exchange all shares of ASARCO Common Stock validly tendered and not withdrawn pursuant to the ASARCO Offer; provided, however, that this condition shall not be applicable to the obligations of SubA if, in breach of this Agreement, SubA fails to accept for exchange and exchange any such shares validly tendered and not withdrawn pursuant to the ASARCO Offer. ARTICLE VII TERMINATION, WAIVER AND AMENDMENT Section 7.1 Termination or Abandonment. This Agreement may be terminated at any time prior to the Effective Time, whether before or after any approval of the matters presented in connection with the ASARCO Merger by the respective shareholders of Parent and ASARCO: (a) by the mutual consent of the Board of Directors of Parent and ASARCO; (b) by either Parent or ASARCO if, without fault of such terminating party, the purchase of ASARCO Common Stock pursuant to the ASARCO Offer shall not have occurred on or before March 31, 2000, which date may be extended by mutual written consent of the parties hereto; or (c) by either Parent or ASARCO if any court of competent jurisdiction or other governmental body shall have issued an order (other than a temporary restraining order), decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the purchase of ASARCO Common Stock pursuant to the ASARCO Offer or the ASARCO Merger, and such order, decree, ruling or other action shall have become final and nonappealable; provided that the party seeking to terminate this Agreement shall have used its reasonable best efforts, subject to Section 5.6, to remove or lift such order, decree or ruling; or any statute, rule, regulation, order, injunction or decree shall have been enacted, entered, promulgated or enforced by any 49 58 court, administrative agency or commission or other governmental authority or instrumentality which prohibits or makes illegal the consummation of the ASARCO Offer or the ASARCO Merger and which, in the case of any such order, injunction or decree, shall have become final and nonappealable; or there shall have been a failure to obtain any required consent or approval under foreign laws or regulations which would prohibit or make the consummation of the ASARCO Offer or the ASARCO Merger illegal or would have a Material Adverse Effect on Parent or on ASARCO. Section 7.2 Termination by Parent. This Agreement may be terminated and the ASARCO Offer and the ASARCO Merger may be abandoned by action of the Board of Directors of Parent, at any time prior to the purchase of ASARCO Common Stock pursuant to the ASARCO Offer, if (a) the ASARCO Board shall withdraw, modify or change its recommendation or approval in respect of this Agreement or the ASARCO Offer in a manner adverse to Parent, (b) the ASARCO Board shall have recommended any proposal other than by Parent in respect of an ASARCO Takeover Proposal, (c) an ASARCO Takeover Proposal other than by Parent shall be publicly disclosed and at the scheduled expiration of the ASARCO Offer the Minimum Tender Condition shall not have been satisfied; provided, that all other conditions to the ASARCO Offer are satisfied, or (d) the condition to the ASARCO Offer described in clause (e) of Annex A hereto shall not have been satisfied within 30 days of notice that such condition has not been satisfied. Section 7.3 Termination by ASARCO. This Agreement may be terminated and the ASARCO Merger may be abandoned by action of the ASARCO Board, at any time prior to the acceptance for payment of shares under the ASARCO Offer, (a) if there shall be a material breach of any of Parent's representations, warranties or covenants hereunder, which breach shall not be cured within ten days of notice thereof, or (b) provided ASARCO is not in breach of any obligation under this Agreement, to allow ASARCO to enter into an agreement in respect of an ASARCO Takeover Proposal (provided that such termination pursuant to this clause (b) shall not be effective unless and until ASARCO shall have paid to Parent the fee described in Section 7.5 hereof and shall have complied with Section 5.9(c) and the notice provisions of Section 5.9(b)). Section 7.4 Effect of Termination. In the event of termination of this Agreement pursuant to Section 7.1, all rights and obligations under this Agreement shall terminate (except for the provisions of Sections 5.2(b) and 8.2), and there shall be no other liability on the part of Parent or ASARCO to the other except liability arising out of a willful and material breach of this Agreement. 50 59 Section 7.5 Termination Fee. In the event that (i) after the date hereof and prior to the ASARCO Shareholder Meeting an ASARCO Takeover Proposal shall have been made known to ASARCO or any of its Subsidiaries or shall have been made directly to its shareholders generally or any person shall have publicly announced an intention (whether or not conditional) to make an ASARCO Takeover Proposal and thereafter this Agreement is terminated by either Parent or ASARCO pursuant to Section 7.1(b) or (ii) this Agreement is terminated by ASARCO pursuant to Section 7.3(b), then ASARCO shall promptly pay Parent a fee equal to $30 million (the "ASARCO Termination Fee"), payable by wire transfer of same day funds; provided, however, that no ASARCO Termination Fee shall be payable to Parent pursuant to this paragraph unless and until within 18 months of such termination ASARCO or any of its Subsidiaries enters into any ASARCO Acquisition Agreement or consummates any ASARCO Takeover Proposal (for the purposes of the foregoing proviso the terms "ASARCO Acquisition Agreement" and "ASARCO Takeover Proposal" shall have the meanings assigned to such terms in Section 5.9 (except that the reference to the "acquisition or purchase of a business or shares of any class of equity securities of ASARCO or any of its Subsidiaries" in the definition of "ASARCO Takeover Proposal" in Section 5.9 shall be deemed to be a reference to the "acquisition or purchase of a business that constitutes 20% or more of the net revenues, net income or the assets of ASARCO and its Subsidiaries, taken as a whole, or 20% of any class of equity securities of ASARCO or any of its Subsidiaries," in which event the Termination Fee shall be payable upon the first to occur of such events. ASARCO acknowledges that the agreements contained in this Section 7.5(a) are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, Parent would not enter into this Agreement; accordingly, if ASARCO fails promptly to pay the ASARCO Termination Fee, and, in order to obtain such payment, Parent commences a suit which results in a judgement against ASARCO for the ASARCO Termination Fee, ASARCO shall pay to Parent its costs and expenses (including attorneys' fees and expenses) in connection with such suit, together with interest on the amount of the ASARCO Termination Fee and the prime rate of Citibank N.A. in effect on the date such payment was required to be made. Section 7.6 Amendment or Supplement. At any time before or after approval of the matters presented in connection with the Combination by the respective shareholders of Parent and ASARCO and prior to the Effective Time, this Agreement may be amended or supplemented in writing by Parent and ASARCO with respect to any of the terms contained in this Agreement; provided, however, that following approval by the shareholders of ASARCO there shall be no amendment or change to the 51 60 provisions hereof with respect to the ASARCO Merger Consideration as provided herein nor any amendment or change not permitted under applicable Law, without further approval by the shareholders of ASARCO. Section 7.7 Extension of Time, Waiver, Etc. At any time prior to the Effective Time, any party may: (a) extend the time for the performance of any of the obligations or acts of the other party; (b) waive any inaccuracies in the representations and warranties of the other party contained herein or in any document delivered pursuant hereto; or (c) subject to the proviso of Section 7.3 waive compliance with any of the agreements or conditions of the other party contained herein. Notwithstanding the foregoing no failure or delay by any party in exercising any right hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right hereunder. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. ARTICLE VIII MISCELLANEOUS Section 8.1 No Survival of Representations and Warranties. None of the representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the ASARCO Merger. Section 8.2 Expenses. Whether or not the ASARCO Merger is consummated, all costs and expenses incurred in connection with the ASARCO Merger, this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses, except that (a)(i) the filing fee in connection with any HSR Act filing or any other Required Statutory Approval, (ii) the commissions and other out-of-pocket transaction costs, including the expenses and compensation of the Exchange Agent, incurred in connection with the sale of Excess Shares, (iii) the expenses incurred 52 61 in connection with the printing and mailing of the Joint Proxy Statement (including SEC filing fees), and (iv) all transfer Taxes, shall be shared equally by Parent and ASARCO. Section 8.3 Counterparts; Effectiveness. This Agreement may be executed in two or more consecutive counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument, and shall become effective when one or more counterparts have been signed by each of the parties and delivered (by telecopy or otherwise) to the other parties. Section 8.4 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to the principles of conflicts of laws thereof, except to the extent the provisions of this Agreement are expressly governed by or derive their authority from the NJBCA. Section 8.5 Notices. All notices and other communications hereunder shall be in writing (including telecopy or similar writing) and shall be effective (a) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Section 8.5 and the appropriate telecopy confirmation is received or (b) if given by any other means, when delivered at the address specified in this Section 8.5: To Parent or SubA: Phelps Dodge Corporation 2600 North Central Avenue Phoenix, Arizona 85004-3014 copies to: Shearman & Sterling 599 Lexington Avenue New York, New York 10022 Attention: David W. Heleniak Telecopy: (212) 848-7179 and Debevoise & Plimpton 875 Third Avenue New York, New York 10022 Attention: Michael W. Blair 53 62 Telecopy: (212) 909-6836 To ASARCO: ASARCO Incorporated 180 Maiden Lane New York, New York 10038 Attention: Augustus B. Kinsolving, Esq. Telecopy: (212) 510-1910 copy to: Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, New York 10022 Attention: J. Michael Schell Margaret L. Wolff Telecopy: (212) 735-2000 Section 8.6 Assignment; Binding Effect. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of Law or otherwise) without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Section 8.7 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, such provision shall be interpreted to be only so broad as is enforceable. Section 8.8 Enforcement of Agreement. The parties hereto agree that money damages or other remedy at law would not be sufficient or adequate remedy for any breach or violation of, or a default under, this Agreement by them and that in addition to all other remedies available to them, each of them shall be entitled to the fullest extent permitted by Law to an injunction restraining such breach, violation or default or threatened breach, violation or default and to any other equitable relief, 54 63 including, without limitation, specific performance, without bond or other security being required. Section 8.9 Entire Agreement; Third-Party Beneficiaries. This Agreement and the Confidentiality Agreement constitute the entire agreement, and supersede all other prior agreements and understandings, both written and oral, between the parties, or any of them, with respect to the subject matter hereof and thereof and, except for the provisions of Section 5.11 hereof, is not intended to and shall not confer upon any person other than the parties hereto any rights or remedies hereunder. Section 8.10 Headings. Headings of the Articles and Sections of this Agreement are for convenience of the parties only, and shall be given no substantive or interpretive effect whatsoever. Section 8.11 Definitions. References in this Agreement to "Subsidiaries" of any person shall mean any corporation or other form of legal entity of which more than 50% of the outstanding voting securities are on the date hereof directly or indirectly owned by such person. References in this Agreement to "Significant Subsidiaries" shall mean Subsidiaries which constitute "significant subsidiaries" under Rule 405 promulgated by the SEC under the Securities Act. References in this Agreement (except as specifically otherwise defined) to "affiliates" shall mean, as to any person, any other person which, directly or indirectly, controls, or is controlled by, or is under common control with, such person. As used in this definition, "control" (including, with its correlative meanings, "controlled by" and "under common control with") shall mean the possession, directly or indirectly, of the power to direct or cause the direction of management or policies of a person, whether through the ownership of securities or partnership of other ownership interests, by contract or otherwise. References in the Agreement to "person" shall mean an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including, without limitation, a governmental body or authority. Notwithstanding the foregoing, Parent shall not be deemed to be an "affiliate" or a "Subsidiary" of ASARCO. Section 8.12 Finders or Brokers. Except for Morgan Stanley & Co. Incorporated with respect to Parent, a copy of whose engagement agreement has been or will be provided to ASARCO, and Credit Suisse First Boston Corporation with respect to ASARCO, a copy of whose engagement agreement has been or will be provided to Parent, neither Parent nor ASARCO nor any of their respective Subsidiaries has employed any investment banker, broker, finder or intermediary in connection with the transactions contemplated hereby who might be entitled to any fee or any commission in connection with or upon consummation of the ASARCO Merger. 55 64 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first above written. PHELPS DODGE CORPORATION By: /s/ D. C. Yearley ------------------------------- Name: Douglas C. Yearley Title: Chairman & CEO AAV ACQUISITION CORP. By: /s/ D. C. Yearley ------------------------------- Name: Douglas C. Yearley Title: Chairman ASARCO INCORPORATED By: /s/ Francis R. McAllister ------------------------------- Name: Francis R. McAllister Title: Chairman of the Board 65 ANNEX A Conditions to the ASARCO Offer Notwithstanding any other provision of the ASARCO Offer, Parent and the Purchaser shall not be required to accept for exchange or exchange any ASARCO Common Stock, may postpone the acceptance for exchange of or exchange for tendered ASARCO Common Stock, and, subject to the terms of the Merger Agreement, may, terminate or amend the Offer as to any ASARCO Common Stock not then exchanged (a) if at the Expiration Date, any of the Minimum Condition or the Phelps Dodge Stockholder Approval Condition (as defined in the Prospectus dated September 22, 1999 relating to the Offer by Phelps Dodge for shares of ASARCO Common Stock) has not been satisfied or (b) if on or after October 5, 1999 and at or prior to the Expiration Date, any of our other conditions are not satisfied. The conditions are as follows: (a) The shares of our common stock which shall be issued to ASARCO stockholders in the ASARCO Offer and the ASARCO Merger have been authorized for listing on the NYSE, subject to official notice of issuance; (b) Registration Statement No. 333-86063 and any post-effective amendments thereto shall be effective under the Securities Act, and no stop order suspending the effectiveness of the Registration Statement shall have been issued nor shall there have been proceedings for that purpose initiated or threatened by the SEC and we shall have received all necessary state securities law or "blue sky" authorizations; (c) No temporary restraining order, preliminary or permanent injunction or other order or decree issued by any court or agency of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Offer or any of the other transactions contemplated by the Prospectus dated September 22, 1999 (the "Prospectus") shall be in effect; no statute, rule, regulation, order, injunction or decree shall have been enacted, entered, promulgated or enforced by any court, administrative agency or commission or other governmental authority or instrumentality which prohibits, or makes illegal the consummation of our Offer; nor shall there have been a failure to obtain any required consent or approval under foreign laws or regulations which prohibit or would make the consummation of the ASARCO Offer illegal or would have a Material Adverse Effect on Parent or on ASARCO; (d) There shall not have been after the date of this Agreement any (i) amendment of the Code, (ii) amendment or adoption of final or temporary Treasury Regulations under the Code, (iii) Internal Revenue Service revenue ruling, revenue procedures, technical advice memorandum or notices, or (iv) final decision of a court A-1 66 of competent jurisdiction, in each case that would be inconsistent with the ASARCO Merger qualifying as a reorganization under Section 368(a) of the Code; and (e) The representations and warranties of ASARCO in this Agreement shall be true and correct (without giving effect to any qualification as to "materiality" or "Material Adverse Effect" set forth therein) as of the date of the Agreement and as of the expiration date as though made on and as of the date of the Agreement 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 on ASARCO; and ASARCO shall have performed or complied in all material respects with all the material agreements and covenants required by this Agreement. The foregoing conditions are solely for benefit of Parent and the Purchaser and Parent and the Purchaser may assert them regardless of the circumstances giving rise to any such conditions (including any action or inaction by Parent and the Purchaser). The determination as to whether any condition has been satisfied shall be deemed a continuing right which may be asserted at any time and from time to time. Notwithstanding the fact that Parent and the Purchaser 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 ASARCO Common Stock, Parent and the Purchaser will either promptly exchange such ASARCO Common Stock or promptly return such ASARCO Common Stock. A-2 EX-99.D.3 9 TAX OPINION OF SHEARMAN & STERLING 1 EXHIBIT (D)(3) October 7, 1999 Phelps Dodge Corporation 2600 North Central Avenue Phoenix, AZ 85004-3014 Offer to Exchange Common Stock of Phelps Dodge Corporation for Common Stock of ASARCO Incorporated Ladies and Gentlemen: You have requested our opinion as to certain United States federal income tax consequences of your offer to exchange shares of your common stock for shares of common stock of ASARCO Incorporated, a New Jersey corporation and of the merger of AAV Corporation, a Delaware subsidiary wholly owned by you, with ASARCO Incorporated. We hereby confirm our opinion as set forth under the heading "Material U.S. Federal Income Tax Considerations" in the Prospectus dated October 7, 1999. We hereby consent to the reference to us under the heading "Material U.S. Federal Income Tax Considerations" in the Prospectus and to the filing of this opinion as an exhibit to the related Registration Statement on Form S-4 filed with the Securities and Exchange Commission. In giving this consent, we do not hereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, or the rules and regulations of the Securities and Exchange Commission promulgated thereunder. Very truly yours, SHEARMAN & STERLING PHB/PMM -----END PRIVACY-ENHANCED MESSAGE-----