DEF 14A 1 NOTICE OF MEETING AND PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 (Amendment No. ) Filed by the Registrant /X/ Filed by a party other than the Registrant / / Check the appropriate box: / / Preliminary proxy statement / / Confidential, for use of the Commission only (as permitted by Rule 14a-6(e)(2)) /X/ Definitive proxy statment / / Definitive additional materials / / Soliciting material pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12 PHELPS DODGE CORPORATION ------------------------------------------------ (Name of Registrant as Specified in Its Charter) ------------------------------------------------------------------------ (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of filing fee (Check the appropriate box): /X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item 22(a)(2) or Schedule 14A / / $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). / / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transactions applies: ---------------------------------------------------------------------------- (2) Aggregate number of securities to which transactions applies: ---------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): ---------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: ---------------------------------------------------------------------------- (5) Total fee paid: ---------------------------------------------------------------------------- / / Fee paid previously with preliminary materials. / / Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount previously paid: ---------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: ---------------------------------------------------------------------------- (3) Filing party: ---------------------------------------------------------------------------- (4) Date filed: ---------------------------------------------------------------------------- -------------------------------------------------------------------------------- Phelps Dodge Corporation logo 2600 North Central Avenue, Phoenix, Arizona 85004-3014 ------------------------------------------------------------------------------ Douglas C. Yearley Chairman of the Board, President and Chief Executive Officer March 31, 1995 Dear Shareholder: You are cordially invited to attend the annual meeting of shareholders of Phelps Dodge Corporation to be held at 11:00 a.m. on Wednesday, May 3, 1995, at the Arizona Biltmore Hotel, 24th Street and Missouri Avenue, Phoenix, Arizona. We hope that you will be able to attend the meeting, at which the business and operations of the Corporation will be reviewed. The formal notice of annual meeting and proxy statement are attached to this letter. This material contains information concerning the business to be conducted at the meeting and the nominees for election as directors. Even if you are unable to attend the meeting in person, it is important that your shares be represented. Therefore, please complete, date, sign and return the enclosed proxy at your earliest convenience. Approximately 80.25% of the outstanding shares were represented at last year's meeting, and we would like even greater shareholder participation this year. If you choose to attend the annual meeting, you may, of course, revoke your proxy and cast your votes personally at the meeting. Sincerely, /s/ D C Yearley --------------- Phelps Dodge Corporation logo 2600 North Central Avenue, Phoenix, Arizona 85004-3014 ---------------------------------------------------------------------- Notice of Annual Meeting of Shareholders May 3, 1995 ---------------------------------------------------------------------- To the Shareholders of Phelps Dodge Corporation: The annual meeting of shareholders of Phelps Dodge Corporation (the "Corporation") will be held at the Arizona Biltmore Hotel, 24th Street and Missouri Avenue, Phoenix, Arizona, on Wednesday, May 3, 1995, at 11:00 a.m., for the following purposes: 1. To elect four directors; 2. To consider and act upon a proposal to ratify the appointment of Price Waterhouse LLP as independent accountants for the Corporation for the year 1995; and 3. To transact such other business as may properly be brought before the meeting or any adjournments thereof. Only holders of record of the Corporation's Common Shares at the close of business on March 16, 1995, will be entitled to vote at the meeting. Shareholders who do not expect to attend the meeting in person are asked to date, sign and complete the enclosed proxy and return it without delay in the enclosed envelope, which requires no postage stamp if mailed in the United States. By order of the Board of Directors, William C. Tubman Vice President and Secretary Phoenix, Arizona March 31, 1995 PHELPS DODGE CORPORATION 2600 NORTH CENTRAL AVENUE, PHOENIX, ARIZONA 85004-3014 PROXY STATEMENT The accompanying proxy is solicited on behalf of the Board of Directors of Phelps Dodge Corporation (the "Corporation") for use at the annual meeting of shareholders to be held on May 3, 1995, and any adjournments thereof. The shareholder giving the proxy may revoke it at any time before it is exercised at the meeting by delivering to the Secretary of the Corporation a written instrument of revocation or a duly executed proxy bearing a later date. The only securities of the Corporation entitled to vote at the 1995 annual meeting are its Common Shares, of which 70,357,067 shares were outstanding on March 16, 1995, each entitled to one vote. Only shareholders of record at the close of business on March 16, 1995, will be entitled to vote at the annual meeting. The proxy of any shareholder participating in the Automatic Dividend Investment Service for Phelps Dodge Common Shares, administered by Chemical Bank, will also serve as instructions for the voting of all shares held for the shareholder's account under that service. This proxy statement and the accompanying form of proxy are being first sent to shareholders on or about March 31, 1995. 1. ELECTION OF DIRECTORS The Board of Directors of the Corporation currently consists of twelve directors. The directors are divided into three classes, three in Class I, three in Class II and four in Class III. Two directors currently are unclassified and are nominees for Class I. The terms of office of the three Class I directors expire at the 1995 annual meeting of shareholders. Mr. George C. Dillon, a Class I director, and Mr. George L. Shinn, a Class III director, will retire on May 3, 1995 in accordance with the Corporation's Policy on Retirement of Directors. The directors have voted to decrease the size of the Board from 12 members to 10 members effective upon the election of directors at the annual meeting of shareholders to be held on May 3, 1995. The four nominees for election as Class I directors are listed below. The nominees will be elected to serve for a term of three years. The directors' terms will continue until their successors are elected and qualify. Unless otherwise instructed, the persons named in the accompanying proxy will vote FOR the election of such nominees. If for any reason any nominee should not be available for election or able to serve as a director, the accompanying proxy may be voted for the election of a substitute nominee designated by the Board of Directors. A plurality of the votes cast at the annual meeting is required for the election of directors. Abstentions and broker non-votes therefore have no effect on the election of directors. AGE, PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE NOMINEE AND OTHER DIRECTORSHIPS HELD ------- ------------------------------------------------- Edward L. Addison Mr. Addison, 65, was Chairman of the Board of The (Class I) Southern Company, Atlanta, Georgia, a holding company of an electric utility system, from January 1994 and was Chief Executive Officer from 1983, until his retirement on March 1, 1995. He was President of The Southern Company from 1983 to 1993. From 1978 to 1983 he was President and Chief Executive Officer of Gulf Power Company, an electric utility. He is a director of CSX Corporation, Protective Life Corporation and Wachovia Bank of Georgia, N.A. Mr. Addison has served as a Phelps Dodge director since 1985. Paul Hazen Mr. Hazen, 53, has been Chairman and Chief (Class I) Executive Officer of Wells Fargo & Company, San Francisco, California , a bank holding company, and of Wells Fargo Bank, N.A., a national banking association, since January 1, 1995. He was President of Wells Fargo & Company and of Wells Fargo, Bank N.A. from 1984 to 1994. He is a director of Wells Fargo & Company, Wells Fargo Bank, N.A., Air Touch Communications, Inc. and Safeway, Inc. Mr. Hazen has served as a Phelps Dodge director since 1988. Marie L. Knowles Mrs. Knowles, 48, has been Senior Vice President (Class I) of Atlantic Richfield Company, Los Angeles, California, a diversified petroleum products company, and President of ARCO Transportation Company, a company engaged in the operation of petroleum transportation and storage facilities, since 1993. From 1990 to 1993 she was Vice President and Controller of Atlantic Richfield Com pany. Mrs. Knowles is a director of ARCO Chemical Company. She has served as a Phelps Dodge director since 1994. Gordon R. Parker Mr. Parker, 59, was Chairman of Newmont Mining (Class I) Corporation and Newmont Gold Company, Denver, Colorado, a unified worldwide gold mining company, from 1986 until his retirement at year-end 1994. He was Chief Executive Officer of both companies from 1986 until 1993. Mr. Parker is a director of Caterpillar, Inc., Gold Fields of South Africa and The Williams Companies, Inc. He was elected a director of Phelps Dodge on February 1, 1995. The six directors whose terms will continue after the annual meeting and will expire at the 1996 annual meeting of shareholders (Class II) or the 1997 annual meeting of shareholders (Class III) are listed below. AGE, PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE DIRECTOR ---------------------------------------------- -------- AND OTHER DIRECTORSHIPS HELD Paul W. Douglas Mr. Douglas, 68, was Chairman and Chief Executive (Class II) Officer of The Pittston Company, Greenwich, Connecticut, a diversified firm engaged in coal mining and transportation services, from 1984 until his retirement in 1991. He was President, Chief Executive Officer and Chairman of the Executive Committee of Freeport-McMoRan Inc., from 1981 to 1983 and of Freeport Minerals Company from 1975 to 1981. Mr. Douglas is a director of Holmes Protection Group, Inc., New York Life Insurance Company, Philip Morris Incorporated, MacMillan Bloedel Limited and U.S. Trust Corporation and a trustee of U.S. Trust Corporation's subsidiary, United States Trust Company of New York. He has served as a Phelps Dodge director since 1983. William A. Franke Mr. Franke, 57, has been President of Franke & (Class II) Company, Inc., Phoenix, Arizona, an investment firm, since 1987. He has been Chairman of the Board of America West Airlines, Inc., an airline carrier, since 1992 and Chief Executive Officer since December 1993. He was Chairman of the Executive Committee of America West Airlines, Inc., from 1992 to 1993. During 1989 and 1990 he performed certain executive duties for Circle K Corporation, an international convenience store chain, as Chairman of its Executive Committee, and from 1990 to 1993 acted as Chairman of its Special Committee of Directors. He is a director of America West Airlines, Inc. and Central Newspapers, Inc. Mr. Franke has served as a Phelps Dodge director since 1980. Southwood J. Morcott Mr. Morcott, 56, has been Chairman of the Board (Class II) of Dana Corporation, Toledo, Ohio, a worldwide manufacturer and distributor of parts for the vehicular, industrial and mobile off-highway markets, since 1990. He was appointed Chief Executive Officer of Dana Corporation in 1989 and President and Chief Operating Officer in 1986. Since 1987 he has been Chairman of Hayes-Dana Inc. Mr. Morcott is a director of Dana Corporation, Hayes-Dana Inc., CSX Corporation and Johnson Controls, Inc. He has served as a Phelps Dodge director since 1991. Robert N. Burt Mr. Burt, 57, has been Chairman of the Board and (Class III) Chief Executive Officer of FMC Corporation, Chicago, Illinois, a producer of chemicals and machinery for industry, agriculture and government, since 1991. From 1990 to 1993 he was President of FMC Corporation and Executive Vice President from 1988 to 1990. From 1989 to 1991 he was Chairman and Chief Executive Officer of FMC Gold Company. He is a director of FMC Corporation and FMC Gold Company. Mr . Burt has served as a Phelps Dodge director since 1993. Robert D. Krebs Mr. Krebs, 52, has been Chairman, President and (Class III) Chief Executive Officer of Santa Fe Pacific Corporation, Schaumburg, Illinois, a holding company engaged in transportation, since 1988. He has been Chairman, President and Chief Executive Officer of The Atchison, Topeka and Santa Fe Railway Company, a transportation company, since 1991. He is a director of Santa Fe Pacific Corporation, Santa Fe Energy Resources, Inc., Santa Fe Pacific Gold Corporation, Santa Fe Pacific Pipelines, Inc., The Atchison, Topeka and Santa Fe Railway Company, Catellus Development Corporation and Northern Trust Corporation. Mr. Krebs has served as a Phelps Dodge director since 1987. Douglas C. Yearley Mr. Yearley, 59, has been Chairman of the Board (Class III) and Chief Executive Officer of the Corporation since 1989 and President of the Corporation since 1991. He was President of Phelps Dodge Industries, a division of the Corporation, from 1988 until 1990, Executive Vice President of the Corporation from 1987 until 1989 and Senior Vice President of the Corporation from 1982 through 1986. He is a director of J.P. Morgan & Co., Incorporated and its principal banking subsidiary, Morgan Guaranty Trust Company of New York, Lockheed Martin Corporation and USX Corporation. Mr. Yearley has served as a Phelps Dodge director since 1986. The Board of Directors met eight times during 1994. Various committees of the Board also met during the year, including the Audit Committee, four meetings; the Compensation and Management Development Committee, four meetings; the Committee on Directors (nominating committee), three meetings; and the Environmental, Health and Safety Committee, three meetings. Average attendance at all Board and committee meetings was 98%. Each incumbent director attended at least 90% of the meetings of the Board and the committees on which the director served. The Audit Committee of the Board of Directors, comprising Messrs. Addison, Douglas, Franke, Hazen (Chairman), (Mrs.) Knowles, Krebs and Shinn, among other functions: (i) reviews and recommends the engagement of the Corporation's independent accountants, including the approval of their fee and the scope and timing of their audit of the Corporation's financial statements; (ii) reviews, with the Corporation's Director of Corporate Audit, the scope and results of the Corporation's internal audit activity; (iii) reviews, with the independent accountants, the Director of Corporate Audit and the Corporation's management, policies and procedures with respect to internal auditing and financial and accounting controls; (iv) reviews, with the independent accountants, the accountants' report on the Corporation's financial statements, their perception of the Corporation's financial and accounting personnel, and their recommendations, if any, for improvements in the Corporation's internal controls and the implementation of such recommendations; and (v) reviews the adequacy and appropriateness of the Corporation's code of business ethics and policies. The Compensation and Management Development Committee of the Board of Directors, comprising Messrs. Burt, Dillon, Douglas, Hazen, Krebs (Chairman) and Morcott, recommends to the Board the compensation of the Corporation's senior officers, reviews recommendations by management as to the compensation of other officers and key personnel and reviews management's program for the development of individuals to assume positions of responsibility in the Corporation. In addition, the Committee reviews and recommends to the Board incentive compensation awards, administers the Phelps Dodge Long-Term Performance Plan, administers and grants options, which may be in tandem with stock appreciation rights, and restricted stock under the Corporation's 1993 Stock Option and Restricted Stock Plan (the "1993 Plan"), and administers the 1979 Stock Option Plan and the 1987 Stock Option and Restricted Stock Plan (the "1987 Plan"). The Committee on Directors of the Board of Directors, comprising Messrs. Dillon (Chairman), Franke, Krebs, Morcott, Parker and Yearley, studies, and makes recommendations concerning, the composition of the Board of Directors and the committees thereof and reviews the compensation of Board and committee members. The Committee also reviews the qualifications of potential candidates for director of the Corporation and recommends to the Board of Directors nominees for election as directors. The Committee will consider as nominees for director persons recommended by shareholders. Such recommendations should be sent to the Secretary of the Corporation and should include the address of the person and a brief description of his or her qualifications. The Environmental, Health and Safety Committee of the Board of Directors, comprising Messrs. Addison (Chairman), Burt, Dillon, Douglas, (Mrs.) Knowles and Morcott, reviews, among other things, the Corporation's policies with respect to environmental, health and safety matters and the adequacy of management's programs for implementing those policies and reports on such reviews and makes recommendations with respect to those policies to the Board of Directors. Directors who are not employees of the Corporation currently receive an annual retainer of $25,000 and a fee of $1,000 for each Board or committee meeting attended or, on a per diem basis, for rendering other special services to the Corporation. As an employee director, Mr. Yearley does not receive the annual retainer or any meeting fees. Under an unfunded plan, a director may elect to defer receipt of his retainer or meeting fees or both to future years and to receive interest thereon at prevailing market rates or to have such amounts deemed invested in the Corporation's Common Shares. Directors who have served for at least five years and who have not been employees of the Corporation or any of its subsidiaries are entitled to receive an annual retirement benefit beginning at age 65 (or at their later retirement from the Board) equal to 50% of the annual retainer paid from time to time to active directors and prorated for each year served in excess of five years up to 100% for retired directors who have served for at least ten years. The plan providing for these payments is unfunded, and payments under it are made directly by the Corporation. The Corporation provides life insurance for directors who are not and have not been employees of the Corporation or any of its subsidiaries. The amounts of such insurance are $50,000 for active directors and $25,000 for directors who have retired in accordance with the Corporation's Policy on Retirement of Directors. Directors who are not, and have not for one year been, employees of the Corporation or its subsidiaries or are not otherwise eligible to participate in any plan of the Corporation or its subsidiaries entitling participants to acquire stock, stock options or stock appreciation rights, are eligible for option grants under the Phelps Dodge 1989 Directors Stock Option Plan (the "Plan"). The number of such eligible directors currently is eleven. Up to 171,232 Common Shares may be sold pursuant to options under the Plan. On the first business day following each annual meeting of shareholders, and in no event later than the following June 1, each eligible director will be granted an option to purchase 1,148 Common Shares. The option price is the fair market value of the Common Shares on the day the option is granted and is payable in cash or in Common Shares having a market value equal to the option price or in a combination of cash and Common Shares. Options become exercisable in three equal annual installments beginning on the first anniversary of the date of grant. Exercisable options expire no later than three years after a director terminates his service, unless his service terminates as a result of removal by the shareholders for cause, in which case the options will be cancelled on the date of termination. Options that are not exercisable on the date a director terminates his service will be cancelled on that date unless his service terminates (i) at or after he reaches age 65, having served at least ten years, (ii) on account of his death or disability or (iii) in compliance with any applicable law or rule of the New York Stock Exchange. In the latter cases, all of a director's outstanding options are immediately and fully exercisable at the time of his termination of service. Each option outstanding at such time as the Corporation's shareholders approve a merger or similar transaction in which the Corporation will not survive as a publicly held corporation or the Corporation's Common Shares are first purchased pursuant to a third party tender offer will be cancelled in exchange for a cash payment equal to the excess of the fair market value of the Common Shares on such date over the exercise price of such option multiplied by the number of shares subject to such option. The Plan terminates on the third day following the annual meeting of shareholders to be held in the year 1999. The termination of the Plan will not affect options outstanding at that time. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The following directors served on the Compensation and Management Development Committee of the Board of Directors during all or part of 1994: Messrs. Burt, Dillon, Douglas, Hazen, Krebs (Chairman) and Morcott. None of these directors is or has been an officer or employee of the Corporation or any of its subsidiaries or has had any other relationship with the Corporation or any of its subsidiaries requiring disclosure herein under the applicable rules of the Securities and Exchange Commission. BENEFICIAL OWNERSHIP OF SECURITIES The following table discloses the number of the Corporation's Common Shares deemed beneficially owned as of February 1, 1995, by each director and each named executive officer of the Corporation and by all directors and current executive officers of the Corporation as a group(a): Number of Number of Shares Shares Name (b)(c) Name (b)(c) ---- --------- ---- --------- Edward L. Addison 5,591 Southwood J. Morcott 2,751 Robert N. Burt 1,007 Gordon R. Parker (e) 1,000 George C. Dillon 5,791 Bernard G. Rethore 60,172 Paul W. Douglas 6,591 Patrick J. Ryan 52,496 William A. Franke 6,591 George L. Shinn 5,591 Paul Hazen 7,591 Thomas M. St. Clair 77,476 Manuel J. Iraola (d) 47,144 J. Steven Whisler 132,887 Marie L. Knowles 1,000 Douglas C. Yearley 366,083 Robert D. Krebs 5,136 Directors and current executive officers as a group (16) 784,898 ------- (a) The percentage of Common Shares beneficially owned by any director and any named executive was less than one percent of the Common Shares outstanding on February 1, 1995; the percentage of Common Shares beneficially owned by all directors and current executive officers as a group was 1.11 percent of the Common Shares outstanding on February 1, 1995. (b) Shares shown as beneficially owned: (i) include restricted shares acquired under the 1993 Stock Option and Restricted Stock Plan as follows: Mr. Iraola, 7,863 shares; Mr. Rethore, 0 shares; Dr. Ryan, 2,895 shares; Mr. St. Clair, 2,652 shares; Mr. Whisler, 2,738 shares; and Mr. Yearley, 5,437 shares; all current executive officers as a group, 21,585 shares; and (ii) include shares which may be acquired within 60 days by exercise of stock options as follows: Mr. Burt, Mrs. Knowles and Mr. Parker, 0 shares; Mr. Krebs, 3,443 shares; Mr. Morcott, 1,147 shares; Mr. Iraola, 30,199 shares; Mr. Rethore, 45,909 shares; Dr. Ryan, 40,513 shares; Mr. St. Clair, 56,194 shares; Mr. Whisler, 107,139 shares; and Mr. Yearley, 249,101 shares; each nonemployee director (except Mrs. Knowles, Messrs. Burt, Krebs, Morcott and Parker), 4,591 shares; all directors and current executive officers as a group, 561,191 shares. In addition to the shares in the table shown as beneficially owned, which include shares which may be acquired within 60 days by exercise of stock options, the individuals and group hold additional stock options as follows: Mr. Burt, 1,148 shares; Mrs. Knowles and Mr. Parker, 0 shares; Mr. Iraola, 43,501 shares; Mr. Rethore, 0 shares; Dr. Ryan, 67,668 shares; Mr. St. Clair, 50,334 shares; Mr. Whisler, 89,594 shares; and Mr. Yearley, 184,100 shares; each outside director (except Mr. Burt, Mrs. Knowles and Mr. Parker), 2,297 shares; all directors and current executive officers as a group, 454,721 shares. (c) Each director and named executive officer has sole voting and investment power over the shares shown as beneficially owned except: (i) the restricted shares acquired under the 1993 Stock Option and Restricted Stock Plan as to which each holder has sole voting but no investment power; (ii) shares which may be acquired within 60 days by exercise of stock options as to which each holder has no voting or investment power; and (iii) 14,263 shares as to which Mr. Rethore has shared voting and investment power and 110,545 shares as to which Mr. Yearley has shared voting and investment power. (d) Effective January 6, 1995, Mr. Iraola was elected Senior Vice President of the Corporation and President of Phelps Dodge Industries, a division of the Corporation. (e) Mr. Parker was elected a director of the Corporation on February 1, 1995. EXECUTIVE COMPENSATION The following table summarizes the compensation paid by the Corporation for 1994, 1993 and 1992 to each of the five named individuals who were executive officers of the Corporation in 1994: SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION(b) LONG TERM COMPENSATION ----------------------------------------------------------------------------------------------------------------------------------- AWARDS PAYOUTS -------------------------- ------------- LONG OTHER TERM ALL NAME ANNUAL RESTRICTED PERFORMANCE OTHER AND BASE COMPEN- STOCK OPTIONS PLAN COMPEN- PRINCIPAL SALARY BONUS SATION(c) AWARDS(d) GRANTED(e) PAYOUTS SATION(g) POSITION YEAR ($) ($) ($) ($) (#) ($) ($) -------------------------------- ------ --------- --------- --------- ------------ ------------ ------------- --------- Douglas C. Yearley 1994 560,000 560,000 24,580 -0- 190,615(a) 203,651(f) 56,000 Chairman of the Board 1993 560,000 300,000 34,026 -0- 135,622(a) 207,000(f) 88,756 President, Chief Executive 1992 525,000 525,000 13,061 -0- 297,435(a) 225,000 62,076 Officer and Director J. Steven Whisler 1994 300,000 241,100 -0- -0- 55,594(a) 109,563(f) 30,000 Senior Vice President 1993 300,000 185,300 4,914 -0- 37,612(a) 93,150(f) 39,021 1992 285,000 222,700 4,852 -0- 33,202(a) 105,000 31,260 Patrick J. Ryan 1994 293,000 235,300 -0- -0- 44,426(a) 107,458(f) 29,300 Senior Vice President 1993 293,000 186,800 -0- -0- 32,000 111,780(f) 34,970 1992 282,000 211,800 513 -0- 27,000(a) 130,000 31,115 Bernard G. Rethore (h) 1994 290,000 213,400 2,155 -0- 11,909(a) 106,468(f) 29,000 Senior Vice President 1993 290,000 203,800 1,702 -0- 47,319(a) 109,710(f) 38,945 1992 280,000 179,000 1,538 -0- 31,348(a) 127,500 30,681 Thomas M. St. Clair 1994 270,000 187,200 213 -0- 56,987(a) 99,040(f) 27,000 Senior Vice President and 1993 270,000 101,000 1,196 -0- 47,304(a) 101,430(f) 37,802 Chief Financial Officer 1992 260,000 175,600 680 -0- 30,170(a) 117,500 28,120 ------- (a) The option grants denoted by "(a)" include reload options, as well as normal compensatory options (except that Mr. Rethore's 1994 grants are all reload options). (b) During October 1993, in response to falling copper prices at that time, all merit salary increases for the five named executive officers were suspended until January 1, 1995. Amounts shown under "Bonus" were paid under the Annual Incentive Compensation Plan. Amounts shown under "Base Salary" and "Bonus" include any salary or bonus deferred by the executive under the Phelps Dodge Employee Savings Plan (the "Savings Plan") and the Comprehensive Executive Nonqualified Retirement and Savings Plan of Phelps Dodge Corporation (the "Comprehensive Nonqualified Plan"). (c) Tax payment reimbursements. (d) This column does not reflect restricted stock paid as Long-Term Performance Plan awards. See Note (f) below. On December 31, 1994, the named executives held the following numbers of shares of restricted stock which had the following aggregate values on such date: Mr. Yearley, 5,437 shares worth $334,715; Mr. Whisler, 2,738 shares worth $168,558; Dr. Ryan, 2,895 shares worth $178,223; Mr. Rethore, 1,128 shares worth $69,443; Mr. St. Clair, 2,652 shares worth $163,264. While shares of restricted stock generally require three years of post-grant service to vest, such shares may vest in less than three years in certain circumstances, such as on the holder's death, disability or normal retirement, upon the achievement of specified performance goals or otherwise in the discretion of the Compensation and Management Development Committee. Dividends on restricted stock are paid to the holder. (e) The numbers of shares covered by options granted prior to May 18, 1992, have been doubled to reflect the 2-for-1 stock split which became effective on that date. (f) The 1992-1994 Long-Term Performance Plan award was paid 100% in the Corporation's Common Shares restricted as to transferability for a period of two years following the end of the performance review period (with the exception of Mr. Rethore whose award was paid in cash). The 1991-1993 Long-Term Performance Plan award was paid one-half in cash and one-half in the Corporation's Common Shares restricted as to transferability for a period of two years following the end of the performance review period. (g) Amounts shown include the following contributions and accruals by the Corporation for 1994 to the Savings Plan and 1994 accruals under the savings portion of the Comprehensive Nonqualified Plan, respectively, for the benefit of the named executives: Mr. Yearley, $15,000 and $41,000; Mr. Whisler, $15,000 and $15,000; Dr. Ryan, $15,000 and $14,300; Mr. Rethore, $15,000 and $14,000; Mr. St. Clair, $15,000 and $12,000. For 1993 and 1992, the figures include earnings on certain amounts accrued for the named executives. Such earnings are not included for 1994. (h) Effective January 6, 1995, Mr. Rethore resigned his position as Senior Vice President of the Corporation and President of Phelps Dodge Industries, a division of the Corporation, and effective January 27, 1995, he resigned all officer and director positions he held with subsidiaries of the Corporation.
STOCK OPTIONS Each of the named executives was eligible to receive two types of option grants during 1994: normal option grants and reload option grants. The first type of grant is a compensatory award normally made on an annual basis which is intended to reward each named executive based on the Corporation's future performance. Normal option grants customarily include the right to receive reload options. A reload option is granted to an employee who exercises an option with already-owned shares. It replaces the opportunity for future appreciation that the employee would otherwise lose by exercising the original option, while encouraging the employee to increase his share ownership. Reload options provide only limited incremental value to the employee as compared to the options they replace. Reload option grants customarily include the right to receive additional reload options. The following table contains information with respect to the normal compensatory option grants and reload option grants made to each named executive during 1994 and the hypothetical value at the time of grant based on a variation of the Black-Scholes model (see footnote (c) on page 10). The Corporation is not aware of any option pricing model which can provide a true assessment of the value of the options. Over their lives, the options could have a greater or a lesser value than that shown in the table, and under some circumstances they could have zero value. OPTION GRANTS IN 1994
NORMAL % OF TOTAL AND RELOAD OPTIONS GRANTED OPTIONS TO EMPLOYEES EXERCISE EXPIRATION GRANT DATE NAME GRANTED(a) IN 1994(b) PRICE DATE PRESENT VALUE(c) ---- -------------- ------------------- ------------ -------------- -------------------- Douglas C. Yearley 100,000 20.1% $57.8750 12/7/04 $1,071,000 9,790 62.4375 12/7/98 57,000 22,632 62.4375 2/7/00 133,000 18,189 62.4375 12/2/02 107,000 22,634 62.4375 12/5/00 133,000 17,370 62.4375 12/4/01 102,000 J. Steven Whisler 43,000 5.9% 57.8750 12/7/04 460,000 12,594 62.4375 2/7/00 74,000 Patrick J. Ryan 38,000 4.7% 57.8750 12/7/04 407,000 4,965 62.4375 12/2/02 29,000 1,461 62.4375 12/5/00 9,000 Bernard G. Rethore 11,909 1.3% 61.8750 2/27/95 69,000 Thomas M. St. Clair 27,000 6.0% 57.8750 12/7/04 289,000 8,194 56.6250 12/5/00 44,000 5,926 56.6250 12/4/01 32,000 5,031 62.4375 12/2/02 30,000 1,218 62.4375 2/7/00 7,000 4,244 62.4375 12/5/00 25,000 5,374 62.4375 12/4/01 32,000 ------- (a) During 1994, normal options were granted in the following amounts to the named executive officers: Mr. Yearley, 100,000; Mr. Whisler, 43,000; Dr. Ryan, 38,000; and Mr. St. Clair, 27,000. The remaining grants disclosed in the table are reload options. Options expire no later than the tenth anniversary of the date of grant, plus one day. If an employee retires on his normal retirement date or dies, his exercisable options terminate no later than the fifth anniversary of his retirement or death. If an optionee's employment terminates for any reason other than retirement or death, his exercisable options terminate no later than 30 days following the termination of his employment. Options generally become exercisable in three substantially equal annual installments beginning on the first anniversary of the date of grant or earlier (but not earlier than six months from the date of grant except in the case of death) on (i) an employee's normal retirement date or death, (ii) the date an employee ceases to be employed if his employment ceases within two years following a change of control of the Corporation, and (iii) the date the Corporation's Common Shares are purchased pursuant to a third party tender offer or the Corporation's shareholders approve a merger or similar transaction which the Corporation will not survive as a publicly held corporation. Options include limited rights exercisable only in the event the Corporation's Common Shares are purchased pursuant to a third party tender offer or the Corporation's shareholders approve a merger or similar transaction which the Corporation will not survive as a publicly held corporation. Under these limited rights, an optionee may elect, in lieu of purchasing shares, to relinquish the option with respect to all or any of such shares and to receive a payment equal to (i) the price paid for a Common Share in such merger or similar transaction multiplied by the number of Common Shares the optionee could have purchased less (ii) the total purchase price for that number of Common Shares under the terms of the option. Options customarily include the right to receive reload options in the event the optionee exercises an option with already-owned shares. Reload options contain the same expiration dates and other terms as the options they replace except that they have an exercise price per share equal to the fair market value of a Common Share on the date the reload option is granted and become exercisable in full six months after they are granted. Reload options customarily include the right to receive additional reload options. (b) Illustrates the total number of normal and reload options granted as a percent of the aggregate number of 1994 normal options (746,150 shares) and 1994 reload options (204,605 shares) granted to all employees. (c) The hypothetical present value of the options at the date of grant was determined using a variation of the Black-Scholes option pricing model. The Black-Scholes model is a complicated mathematical formula which is widely used to value options traded on the stock exchanges. However, executive stock options differ from exchange-traded options in several key respects. Executive options are long-term, nontransferable and subject to vesting restrictions, whereas exchange-traded options are short-term and can be exercised or sold immediately in a liquid market. The model used here is adapted to estimate the present value of an executive option and considers a number of factors, including the grant price of the option, the volatility of the Corporation's Common Shares, the dividend rate, the term of the option, the time it is expected to be outstanding and interest rates. The Black-Scholes values were derived using as assumptions the following financial factors which existed at essentially the time that the options were granted: volatility of .2299, dividend yield of 3.64%, and interest rates of 7.64% for regular options and 5.16% for reload options. In view of the Corporation's historic exercise experience and the inherent motivation to exercise options early in their terms because of the reload option feature, normal options were assumed to be outstanding for three years at time of exercise and reload options for one year. No downward adjustments were made to the resulting grant-date option values to account for potential forfeiture or nontransferability of the options in question. Because the model is adapted to value executive options and is assumption-based, it only values the options in theory.
Reload option grants are part of the Corporation's overall program to increase the number of Common Shares owned by its executive officers and other key employees. Traditional option programs generally do not encourage optionees to exercise options prior to the end of their term or to hold the shares received upon such exercise. The Compensation and Management Development Committee adopted the reload option program, with shareholder approval, to encourage option exercises and stock retention by permitting an optionee to exercise an option with already-owned Common Shares and to be restored to the same economic opportunity available immediately prior to such exercise. Under the reload program, an employee who exercises an option (the "Original Option") with already-owned shares prior to the end of the option term will receive an additional option (the "Reload Option") covering a number of shares equal to the number used to exercise the Original Option. The Reload Option will be exercisable, beginning six months after grant and continuing for the remaining term of the Original Option, at a price equal to the fair market value of the shares on the date the Original Option is exercised. As a result of the exercise of the Original Option with already-owned shares, the net number of Common Shares held by the employee will increase by the number of shares that has an aggregate market value equal to the "spread" on the option (the "spread" equals the aggregate market price of the option shares on the day of exercise less the aggregate exercise price). Thus, the number of shares covered by the Reload Option plus the number of additional shares received on the exercise of the Original Option will equal the number of shares covered by the Original Option. The program thereby serves to replace the opportunity for future appreciation that an optionee would otherwise lose by exercising an option using already-owned shares. In addition, by inducing option exercises and stock retention, the reload feature offers optionees the opportunity to receive dividends on a greater number of shares than would be the case without such a feature. An employee will also benefit from the use of the reload feature if the market price of the underlying shares declines between the date he exercises the Original Option and the expiration date of that option. By encouraging an employee to exercise options with shares, the reload feature enables an employee to protect against a decline in the market price of the Common Shares without losing the potential benefit of a price increase. The following table provides information concerning options exercised in 1994 by the named executives and the options held by them at the end of 1994: AGGREGATED OPTION EXERCISES IN 1994 AND DECEMBER 31, 1994 OPTION VALUES
Value of Number of Unexercised Unexercised In-the-Money Options at Options at 12/31/94 12/31/94 Shares Acquired Value (Exercisable/ (Exercisable/ Name on Exercise(a) Realized Unexercisable) Unexercisable)(b) ---- ------------------- -------------- ------------------- ------------------------ Douglas C. Yearley 122,042 $1,961,995 158,486/274,715 $2,397,532/1,759,194 J. Steven Whisler 29,675 1,066,445 107,139/89,594 2,740,736/719,937 Patrick J. Ryan 8,579 134,366 34,087/74,094 704,305/631,125 Bernard G. Rethore 15,419 217,101 42,582/45,909 808,550/561,375 Thomas M. St. Clair 37,933 475,635 40,327/66,201 599,132/485,406 ------- (a) All of the named executives, used shares already owned by them to pay the exercise price of some or all of the options they exercised in 1994. Mr. Yearley exercised all of the options he exercised in 1994 in this manner. He acquired 31,427 shares on exercise of these options in excess of the shares used to pay the exercise price and received reload options to purchase 90,615 shares. Options for 29,675, 8,579, 15,419 and 37,933 were exercised by Mr. Whisler, Dr. Ryan, Mr. Rethore and Mr. St. Clair, respectively, in this manner. The numbers of Common Shares acquired on exercise of these options in excess of the shares used to pay the exercise price were 17,081, 2,153, 3,510 and 7,946, respectively. (b) Value is based on the mean of the high and low prices of the Common Shares on the Consolidated Trading Tape on December 30, 1994 ($61.5625).
LONG-TERM PERFORMANCE PLAN Prior to 1993, the Board of Directors had for several years adopted Long-Term Performance Plans covering three-year cycles. Plan participants were selected in the first year of the cycle. Payments were based primarily on the achievement of corporate objectives over the three-year period. A Long-Term Performance Plan was not implemented in 1993 or 1994. PENSION AND OTHER RETIREMENT BENEFITS The following pension table shows the estimated aggregate annual benefits payable in the form of a straight life annuity commencing at age 65 (i) under the Phelps Dodge Retirement Plan for Salaried Employees (the "Retirement Plan") as supplemented by the supplementary retirement provisions of the Comprehensive Nonqualified Plan that make up amounts limited by the Internal Revenue Code (the "Code") and (ii) under the supplementary retirement provisions of the Comprehensive Nonqualified Plan based on incentive compensation under the Annual Incentive Compensation Plan: PENSION PLAN TABLE
Final Average Salary and Incentive Estimated Annual Benefits for Years of Benefit Service Indicated(c) Compensation ------------------------------------------------------------------------------------------------ (a)(b) 10 15 20 25 30 35 40 -------------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 316,750 $ 48,880 $ 73,320 $ 97,760 $122,200 $146,640 $171,090 $195,530 $ 526,000 $ 82,360 $123,540 $164,720 $205,900 $247,080 $288,270 $329,450 $ 722,000 $113,720 $170,580 $227,440 $284,300 $341,160 $398,030 $454,890 $ 819,000 $129,240 $193,860 $258,480 $323,100 $387,720 $452,350 $516,970 $ 910,000 $143,800 $215,700 $287,600 $359,500 $431,400 $503,310 $575,210 $1,001,000 $158,360 $237,540 $316,720 $395,900 $475,080 $554,270 $633,450 $1,092,000 $172,920 $259,380 $345,840 $432,300 $518,760 $605,230 $691,690 $1,163,000 $184,280 $276,420 $368,560 $460,700 $552,840 $644,990 $737,130 $1,234,000 $195,640 $293,460 $391,280 $489,100 $586,920 $684,750 $782,570 $1,376,000 $218,360 $327,540 $436,720 $545,900 $655,080 $764,270 $873,450 ------- (a) The Retirement Plan provides a member upon retirement at age 65 with a pension for life in a defined amount based upon final average salary and length of benefit service. Under the Retirement Plan, final average salary ("Final Average Salary") is the highest average annual base salary for any consecutive 36-month period plus the average annual incentive compensation for any consecutive 60-month period during a member's last 120 months of employment. Benefit service includes all periods of employment with the Corporation or its participating subsidiaries. Benefits under the Retirement Plan are subject to certain limitations under the Code, and to the extent the result of such limitations would be a benefit less than would otherwise be paid under such Plan, the difference is provided under the supplementary retirement provisions of the Comprehensive Nonqualified Plan. The formula for determining benefits payable under the Retirement Plan takes into account estimated social security benefits payable. The amounts set forth in the table assume maximum social security benefits payable in 1995. (b) Amounts of annual incentive compensation have been estimated based on the five-year average annual incentive compensation awarded to participating employees for 1990 through 1994. The actual amount of incentive compensation for an individual at any level of Final Average Salary could vary. (c) The expected credited years of benefit service at normal retirement for the Corporation's five executive officers are as follows: Mr. Yearley, 41 years; Mr. Whisler, 43 years; Dr. Ryan, 31 years; Mr. Iraola, 30 years and Mr. St. Clair, 11 years. For Dr. Ryan, the years of service include years of benefit service credit under an agreement between him and the Corporation. The years of service are based on normal retirement for all executive officers under the Retirement Plan and the applicable provisions of the Comprehensive Nonqualified Plan.
SEVERANCE AND CHANGE OF CONTROL ARRANGEMENTS The Corporation has severance agreements with each of its five executive officers under which the executive would receive a lump sum payment equal to his annual base salary in the event the Corporation terminates his employment, other than for cause or mandatory retirement, or the executive voluntarily terminates his employment because of material reductions in his salary or his position, duties and responsibilities. The terminated executive would also receive (i) outplacement services at a cost up to 15% of his base salary and (ii) the cost of continued coverage for a limited period under the Corporation's group health, life insurance and disability plans. The Corporation also has agreements with such executives under which each executive would receive, in the event he ceases to be employed by the Corporation (for a reason other than death, disability, willful misconduct, normal retirement or under certain circumstances a voluntary termination of employment by the executive) within two years following a change of control of the Corporation, a lump sum equal to two times (i) the executive's highest base salary during that year and the prior two years and (ii) the executive's target bonus under the Annual Incentive Compensation Plan for the year in which the change of control occurs. The amount of such payment is subject to reduction if the date an executive ceases to be employed by the Corporation is within 24 months of his normal retirement date or if such amount, plus any other payments that are contingent on such change of control, constitutes an "excess parachute payment" as defined in the Code and the reduction results in a greater net after-tax benefit to the executive. Except under certain circumstances, these change of control agreements expire on November 3, 1997. Although normal compensatory options granted by the Corporation generally become exercisable in three substantially equally annual installments beginning on the first anniversary of the date of grant, they also become exercisable in certain change of control situations. Specifically, such options are exercisable (but not earlier than six months from the date of grant) on the date the Corporation's Common Shares are purchased pursuant to a third party tender offer or the Corporation's shareholders approve a merger or similar transaction which the Corporation will not survive as a publicly held corporation or, in the case of the five executive officers and certain other employees, the date the employee ceases to be employed if he ceases to be employed within two years following a change of control of the Corporation. In addition, such options include limited rights exercisable only in the event the Corporation's Common Shares are purchased pursuant to a third party tender offer or the Corporation's shareholders approve a merger or similar transaction which the Corporation will not survive as a publicly held corporation. Under these limited rights, an optionee may elect, in lieu of purchasing shares, to relinquish the option with respect to all or any of such shares and to receive a payment equal to (i) the price paid for a Common Share in such merger or similar transaction multiplied by the number of Common Shares the optionee could have purchased less (ii) the total purchase price for that number of Common Shares under the terms of the option. The Retirement Plan and the Comprehensive Nonqualified Plan provide for the payment of unreduced benefits to employees who meet liberalized age and length of service requirements and whose employment is terminated by the Corporation or any of its subsidiaries within two years following a change of control of the Corporation. COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Corporation's goal is to be the leader in each of the domestic and international mining and manufacturing activities in which it competes. It thereby seeks to achieve and sustain progressive increases in value for its shareholders, while balancing appropriately the short- and long-term opportunities for the Corporation. To meet these objectives, the Corporation employs high caliber, dedicated managers who are well trained and results oriented. The Board of Directors established the Compensation and Management Development Committee to provide oversight of the Corporation's compensation and management development programs and to ensure that these programs maximize the Corporation's ability to attract, retain and motivate employees to meet these stated objectives. The Committee believes it can motivate managers participating in these programs by: * Emphasizing the relationship between pay and performance by rewarding managers who bring about solid achievement with regard to key business strategies and specific operational objectives and by increasing the relative amount of compensation at risk as management responsibilities increase. * Assuring that the elements of variable compensation are linked as directly as practicable to measurable financial and other forms of performance achievement. * Encouraging stock ownership by executives. * Tying pay for performance as closely as possible to success in maximizing the value of the Corporation's stock over the long term. The Committee is composed of directors (currently six) who are not employees of the Corporation. It has periodically retained respected independent compensation consultants to advise and assist it in connection with various compensation matters. EXECUTIVE OFFICER COMPENSATION The executive officers are compensated by salaries, annual incentive awards and long-term incentive compensation. Each element focuses on performance in a different but complementary way. Salaries focus on individual performance as well as competence. Annual incentives relate to individual, corporate and, if appropriate, unit performance. Long-term incentive awards, which are now paid in the form of stock options, create a long-term identity of interest with the shareholders based on the Corporation's performance and related growth of shareholder value. The Committee believes that the Corporation competes for its executive talent primarily with similarly sized industrial companies located in the United States. Accordingly, where possible, the Committee compares executive officer compensation to the compensation paid to executives holding similar positions at other publicly-held industrial corporations of a size, measured by revenues, similar to that of the Corporation (referred to below as the "comparison group"). Information concerning a significant number of such companies is provided by independent consultants and, based on the consultants' advice, is believed by the Committee to be generally representative of the compensation paid by all such companies in the United States. Thus, the companies used for comparison purposes in connection with the compensation paid to the Corporation's executive officers are different from, and substantially more numerous than, the three nonferrous metals companies included in the Peer Group used in the performance graph on page 19 to compare shareholder returns. Salaries. Individual salaries for executive officers are generally established by the Board of Directors, on the recommendation of the Committee, to reflect the officer's performance and competence, which is generally defined as his progress in responsibilities, experience and length of service in the position. Salaries are targeted at the median levels for sustained and expected performance and competence. Salary targets are set above and below the median level for performance and competency levels above and below those expected for each position. These general practices were not, however, followed during 1994; in response to falling copper prices late in 1993, all merit salary increases for executive officers were suspended until January 1, 1995. Based on available information, the Committee believes salaries in 1994 for the executive officers were at or slightly below the averages of the companies in the comparison group for employees holding similar positions. Annual Incentive Compensation. The Annual Incentive Compensation Plan provides the executive officers and certain other officers and managers with compensation based on success in achieving annual individual, corporate and, where appropriate, unit goals. For each executive officer, a target award is determined approximating the median of the annual incentive compensation paid by the comparison group to individuals holding comparable positions. Lower threshold awards and higher maximum awards are also established. Corporate goals are set using return on equity and net cash flow return on investment, both of which are fundamental indicators of the Corporation's performance. The goals are equally weighted and determine 70% of the CEO's total annual incentive compensation, and 60% and 15% of the CFO's and operation executives' awards, respectively. In 1994, return on equity and net cash flow return on investment were both near the maximum goals. Based on these results and the Committee's evaluation of performance to individual and, where appropriate, unit goals, the Committee recommended, and the Board approved, Annual Incentive Compensation awards for 1994 above the targeted amounts for the listed executives. Stock Options. The Committee uses stock options to provide long-term incentive compensation primarily because employees benefit from options, if at all, only to the extent of increases in the value of the Corporation's Common Shares. To further the identity of interest with the shareholders, the executive officers are expected to acquire and own significant numbers of the Corporation's shares. The Board of Directors and the Committee have determined that to focus the executives' attention to an appropriate extent on the long-term growth of shareholder value, the targeted compensation levels with respect to the present value of stock options should be approximately midway between the fiftieth and seventy-fifth percentiles of the long-term incentive awards made to executives holding similar positions in companies in the comparison group. Adjustments are made from these levels based on the performance, career potential, critical skills and prior grant history of the executive officer. Stock options granted to executive officers in 1994 were at or above the targeted levels. All of the Committee's option grants for 1994 were approved by the Board. Long-Term Performance Awards. In years prior to 1993, executive officers and other senior officers who were identified as having the potential to have a significant impact on overall corporate results were eligible to participate in long-term performance plans. Plan awards were based upon specified corporate performance objectives over three-year performance cycles. The award for the plan ending in 1994 was stated as a variable percentage, from 0% to 50%, of the officer's average base salary during the three-year period, depending on the Corporation's actual performance compared to targeted objectives, and was paid in Common Shares restricted as to transferability for a period of two years following the end of the performance cycle. The performance objective for this plan was cash flow return on capital. The three-year average cash flow return on capital was approximately equal to target and produced awards equal to approximately 37.1% of each participant's average base salary. The Committee determined not to implement a long-term performance plan in 1993 or subsequent years in part because the fluctuations in copper prices make it difficult, in advance, to establish corporate financial performance objectives which reflect objectively the results of the performance of senior management. In addition, the Committee believes that over time an expanded stock option program may best align the long-term interests of stockholders with those of management. Thus, payments made with respect to the 1992-94 cycle will be the last payments under this program. Restricted Stock. In past years, the Committee also has made grants of restricted stock to executive officers and a limited number of other key employees under the Corporation's Stock Option and Restricted Stock Plan. Consistent with its intention to use stock options as the customary form of long-term incentive compensation, the Committee made no such grants to executive officers for 1994, except for grants made in payment of part of the Long-Term Performance Plan award for the 1992-1994 cycle. IRS Limit on Deductibility of Compensation. The Committee has decided that, for 1995, it is not necessary to amend any of the Corporation's existing compensation plans in light of Section 162(m) of the Internal Revenue Code. Section 162(m) generally places a $1 million per person limit on the deduction a publicly-held corporation may take for compensation paid to its chief executive officer and its four other highest compensated "covered employees," excluding for this purpose deferred compensation and, in general, compensation constituting "performance-based" compensation. The Corporation understands that stock options and Long-Term Performance Plan payments will not be included in the compensation subject to the $1 million deductibility limit. The Corporation's 1995 salaries and incentive compensation subject to Section 162(m), not including any deferred compensation, are not expected to exceed $1 million for any individual employee. The Committee intends to review this matter during 1995. CEO COMPENSATION Douglas C. Yearley, the Chief Executive Officer of the Corporation, received a base salary of $560,000 in 1994, an Annual Incentive Compensation Plan award of $560,000 for 1994 performance to stated goals, a Long-Term Performance Plan grant for the 1992-94 cycle of 3,308 shares of common stock restricted from sale for two years, and a compensatory option grant in 1994 to purchase 100,000 Common Shares. As discussed above under "Stock Options," Mr. Yearley also received in 1994, under a program available to all optionees, 90,615 reload options in connection with his use of already-owned shares to pay the exercise price of other options. The number of reload options granted to employees is equivalent to the number of shares that they turn in to the Corporation, i.e., exchange to exercise their existing options. All executive merit salary increases were suspended during 1994 (for reasons stated under "Salaries") and therefore Mr. Yearley's salary was unchanged from the amount paid to him in 1993. The Committee believes that Mr. Yearley's 1994 salary is below the 1994 median paid by comparable companies to their CEOs. The first 70% of Mr. Yearley's Annual Incentive Compensation Plan award was determined on the basis of the actual return on average equity and net operating cash flow return on average capital as compared to goals set at the beginning of the year. The Corporation's performance was near the maximum goals for return on average equity and for net operating cash flow return on average capital. The remaining 30% of Mr. Yearley's award was based on the Committee's judgment as to his performance with regard to individual goals pertaining to the positioning of Phelps Dodge Mining Company for future growth, the growth and enhancement of Phelps Dodge Industries' assets and the overall management of Phelps Dodge Corporation during an anticipated difficult earnings year. Based on its judgment as to Mr. Yearley's performance in these respects, the Committee made an above-target award to him as to this part of his incentive compensation. Mr. Yearley's compensatory stock option grant, which was above the targeted level, was based on the policy discussed above under "Stock Options," including the Committee's evaluation of Mr. Yearley's overall performance during 1994, his potential and critical skills, and the number of stock options and the number of shares of restricted stock that had been previously granted to him. CONCLUSION The Committee will continue to evaluate the Corporation's compensation programs to best enable the Corporation to employ and motivate high caliber, dedicated people. Such employees, properly motivated, are believed to be key to achievement of the Corporation's goal to be the international leader in the mining and manufacturing activities in which it competes and the related enhancement of shareholder value over the long term. THE COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE Robert D. Krebs, Chairman Robert N. Burt George C. Dillon Paul W. Douglas Paul Hazen Southwood J. Morcott (The following descriptive data is supplied in accordance with Rule 304(d) of Regulation S-T) COMPARATIVE FIVE-YEAR TOTAL RETURNS INCLUDING REINVESTMENT OF DIVIDENDS 1989 1990 1991 1992 1993 1994 ---- ---- ---- ---- ---- ---- Phelps Dodge 100 101 125 188 195 255 S&P 500 100 97 126 136 150 152 Peer Group 100 91 103 148 145 187 ---------- Assumes $100 invested at 12/31/89 in Phelps Dodge common stock, the S&P 500 and a Peer Group represented by the Dow Jones "Other Nonferrous Metals." (This published index includes Phelps Dodge, Asarco Incorporated, Brush Wellman Inc., and Magma Copper Company.) 2. RATIFICATION OF APPOINTMENT OF ACCOUNTANTS On the recommendation of the Audit Committee, the Board of Directors has appointed Price Waterhouse LLP as independent accountants for the Corporation for the year 1995, subject to ratification by the shareholders at the annual meeting. Price Waterhouse LLP or a predecessor firm has been the independent accountants for the Corporation since 1915. A representative of Price Waterhouse LLP will be present at the annual meeting of shareholders with the opportunity to make a statement if he so desires and to respond to appropriate questions. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS. OTHER MATTERS The Board of Directors is not aware of any other matters to be presented at the annual meeting. If any other matter proper for action at the meeting should be presented, the holders of the accompanying proxy will vote the shares represented by the proxy on such matter in accordance with their best judgment. If any matter not proper for action at the meeting should be presented, the holders of the proxy will vote against consideration thereof or action thereon. All shares represented by the accompanying proxy, if the proxy is duly executed and received by the Corporation at or prior to the meeting, will be voted at the meeting in accordance with any instructions specified on such proxy and, where no instruction is specified, as indicated on such proxy. It is the policy of the Corporation that, except under limited circumstances, each shareholder proxy card, ballot and voting tabulation that identifies any shareholder will be kept confidential and that the receipt and tabulation of such votes will be conducted by independent third parties, including the Corporation's transfer agent and its proxy solicitation firm, and not by employees of the Corporation. The cost of soliciting proxies for the meeting will be borne by the Corporation. The Corporation has retained Morrow & Co., Inc., 909 Third Avenue, New York, N.Y. 10022-4799 to assist in soliciting proxies for a fee estimated at $12,500 plus reasonable expenses. Morrow & Co., Inc. and some officers and other employees of the Corporation may solicit proxies in person and by telephone or otherwise. The Corporation may also reimburse brokers and others who are record holders of the Corporation's shares for their reasonable expenses incurred in obtaining voting instructions from beneficial owners of such shares. On June 1, 1994, the Corporation purchased directors' and officers' liability insurance policies from National Union Fire Insurance Company of Pittsburgh, Pa., Aetna Casualty and Surety Company, Continental Casualty Company, Federal Insurance Company and XL Insurance Company, each for a one-year term ending June 1, 1995, at premiums of $569,596, $174,095, $58,425, $65,300 and $50,000, respectively. The policies insure (i) directors, officers, division presidents and vice presidents of the Corporation and its subsidiaries, and employees who are fiduciaries of employee benefit plans of the Corporation and its subsidiaries, against certain liabilities they may incur in the performance of their duties and (ii) the Corporation against any obligation to indemnify such persons against such liabilities. PROPOSALS FOR 1995 The Corporation will review for inclusion in next year's proxy statement shareholder proposals received by December 1, 1995. Proposals should be sent to the Secretary of the Corporation, 2600 North Central Avenue, Phoenix, Arizona 85004-3014. ANNUAL REPORT FOR 1994 The annual report of the Corporation for the year 1994, including financial statements, is being furnished concurrently with this proxy statement to persons who were shareholders of record as of March 16, 1995, the record date for the annual meeting. The annual report does not form part of the material for the solicitation of proxies. By order of the Board of Directors, William C. Tubman Vice President and Secretary Phoenix, Arizona March 31, 1995 phelps dodge corporation Notice of Annual Meeting of Shareholders and Proxy Statement May 3, 1995 CONFIDENTIAL PROXY PHELPS DODGE EMPLOYEE SAVINGS PLAN SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PHELPS DODGE CORPORATION To M & I Marshall & Ilsley Trust Company of Arizona, Trustee: I hereby acknowledge receipt of the Notice of Annual Meeting of Shareholders of Phelps Dodge Corporation to be held on Wednesday, May 3, 1995, and accompanying Proxy Statement. I hereby instruct you to vote in person or by proxy, at such meeting and at any adjournments thereof all the Phelps Dodge Corporation Common Shares credited to my account under the Phelps Dodge Employee Savings Plan ("SP") as indicated below, and in your or your proxies' discretion on all other matters. You are instructed to vote the shares credited to my account as directed on the reverse side. UNLESS WE RECEIVE INSTRUCTIONS FROM YOU THE NUMBER OF SHARES CREDITED TO YOUR ACCOUNT AS OF THE RECORD DATE, MARCH 16, 1995, WILL NOT BE VOTED AT THE MEETING. THIS PROXY IS CONTINUED ON THE REVERSE SIDE PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY ------------ Please mark SP SHARES /X/ your votes as this The Board of Directors recommends you vote FOR Management Proposals 1 and 2. Proposal 1: Election of Directors for the term specified in the Proxy Statement: Messrs. Addison, Hazen, (Mrs.) Knowles and Parker FOR all WITHHELD WITHHELD for the following nominees / / for all nominees / / only (write name(s) of nominees(s) below) ---------------------------- Proposal 2: Ratification of independent public accountants / / FOR / / AGAINST / / ABSTAIN The proxies are instructed to vote as directed above, and in their discretion on all other matters. Where no direction is specified, this proxy will be voted FOR Management Proposals 1 and 2 as recommended by the Board of Directors. Signature(s) Date ------------------------------ ------------------- NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. PROXY PHELPS DODGE CORPORATION Solicited on Behalf of the Board of Directors of Phelps Dodge Corporation The undersigned shareholder of PHELPS DODGE CORPORATION hereby appoints EDWARD L. ADDISON, PAUL W. DOUGLAS, WILLIAM A. FRANKE and DOUGLAS C. YEARLEY, or any of them, proxies of the undersigned, each with power of substitution, at the meeting of shareholders of the Corporation to be held at the Arizona Biltmore Hotel, 24th Street and Missouri Avenue, Phoenix, Arizona, on Wednesday, May 3, 1995 at 11:00 a.m., and at any adjournments thereof, to vote all Common Shares of the Corporation held or owned by the undersigned, including any which may be held for the undersigned's account under the Automatic Dividend Investment Service for Phelps Dodge Common Shares administered by Chemical Bank. THIS PROXY IS CONTINUED ON THE REVERSE SIDE PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY ------------- ---------------------------------- Please mark COMMON SHARES DIVIDEND INVESTMENT SERVICE SHARES /X/ your votes as this The Board of Directors recommends you vote FOR Management Proposals 1 and 2. Proposal 1: Election of Directors for the term specified in the Proxy Statement: Messrs. Addison, Hazen, (Mrs.) Knowles and Parker FOR all WITHHELD WITHHELD for the following nominees / / for all nominees / / only (write name(s) of nominees(s) below) ---------------------------- Proposal 2: Ratification of independent public accountants / / FOR / / AGAINST / / ABSTAIN The proxies are instructed to vote as directed above, and in their discretion on all other matters. Where no direction is specified, this proxy will be voted FOR Management Proposals 1 and 2 as recommended by the Board of Directors. Signature(s) Date ----------------------------- --------------- NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. PHELPS DODGE CORPORATION SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PHELPS DODGE CORPORATION The undersigned shareholder of Phelps Dodge Corporation hereby appoints Edward L. Addison, Paul W. Douglas, William A. Franke and Douglas C. Yearley, or any of them, proxies of the undersigned, each with power of substitution, at the annual meeting of shareholders of the Corporation to be held at the Arizona Biltmore Hotel, 24th Street and Missouri Avenue, Phoenix, Arizona, on May 3, 1995, at 11:00 a.m., and at any adjournments thereof, to vote all Common Shares of the Corporation held or owned by the undersigned, including any which may be held for the undersigned's account under the Automatic Dividend Investment Service for Phelps Dodge Common Shares administered by Chemical Bank. The proxies are instructed to vote as directed below, and in their discretion on all other matters. Where no direction is specified, this proxy will be voted FOR Management Proposals 1 and 2 as recommended by the Board of Directors. Management Proposals: The Board of Directors recommends you vote FOR Management Proposals 1 and 2. Proposal 1: Election of Directors for the respective terms specified in the Proxy Statement: Messrs. Addison, Hazen, (Mrs.) Knowles and Parker FOR all WITHHELD WITHHELD for the following only nominees for all nominees (write name(s) of nominees(s) below) / / / / ----------------------------------- PLEASE SIGN ON REVERSE SIDE AND RETURN PROMPTLY P R O X Y Proposal 2: Ratification of independent public accountants. FOR / / AGAINST / / ABSTAIN / / Dated: ---------------------------------- Signature ------------------------------- Signature ------------------------------- Please sign exactly as name appears above. When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person. PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PHELPS DODGE CORPORATION The undersigned shareholder of PHELPS DODGE CORPORATION hereby appoints EDWARD L. ADDISON, PAUL W. DOUGLAS, WILLIAM A. FRANKE and DOUGLAS C. YEARLEY, or any of them, proxies of the undersigned, each with power of substitution, at the annual meeting of shareholders of the Corporation to be held at the Arizona Biltmore Hotel, 24th Street and Missouri Avenue, Phoenix, Arizona, on May 3, 1995, at 11:00 a.m., and at any adjournments thereof, to vote all Restricted Common Shares of the Corporation held or owned by the undersigned. The proxies are instructed to vote as directed below, and in their discretion on all other matters. Where no direction is specified, the proxy will be voted FOR Management Proposals 1 and 2. The Board of Directors recommends you vote FOR Management Proposals 1 and 2. Proposal 1: Election of Directors for the respective terms specified in the Proxy Statement: Messrs. Addison, Hazen, (Mrs.) Knowles and Parker. FOR all WITHHELD WITHHELD for the following only nominees for all nominees (write name(s) of nominee(s) below) / / / / ---------------------------------- Proposal 2: Ratification of independent public accountants. FOR / / AGAINST / / ABSTAIN / / Dated: ---------------------------- Signature: ---------------------------- PHELPS DODGE CORPORATION 2600 North Central Avenue Phoenix, Arizona 85004-3014 March 31, 1995 TO MEMBERS OF THE PHELPS DODGE EMPLOYEE SAVINGS PLAN Enclosed for your information are copies of Phelps Dodge Corporation's 1994 Annual Report to Shareholders and 1995 Proxy Statement. Very truly yours, John C. Replogle Chairman Benefits Administration Committee PHELPS DODGE CORPORATION 2600 North Central Avenue Phoenix, Arizona 85004-3014 March 31, 1995 TO MEMBERS OF THE PHELPS DODGE EMPLOYEE SAVINGS PLAN In connection with the annual meeting of shareholders of Phelps Dodge Corporation to be held on May 3, 1995, we enclose: (a) Notice of Annual Meeting of Shareholders and Proxy Statement dated March 31, 1995. (b) Card entitled "Confidential Proxy." Because it is important that the shares in your account under the Plan be represented at the annual meeting, please complete and sign the enclosed card and return it in the enclosed stamped addressed envelope before April 21, 1995. Very truly yours, William C. Tubman Vice President and Secretary March 31, 1995 TO HOLDERS OF RESTRICTED COMMON SHARES ISSUED UNDER THE PHELPS DODGE 1993 STOCK OPTION AND RESTRICTED STOCK PLAN In connection with the annual meeting of shareholders of Phelps Dodge Corporation to be held on May 3, 1995, we enclose: (a) Notice of Annual Meeting of Shareholders and Proxy Statement dated March 31, 1995. (b) Proxy Because it is important that your restricted shares issued under the Plan be represented at the annual meeting, please complete and sign the enclosed proxy and return it in the enclosed stamped addressed envelope before April 21, 1995. Very truly yours, William C. Tubman Vice President and Secretary