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Phelps Dodge Corp – ‘DEF 14A’ for 5/6/98

As of:  Monday, 3/23/98   ·   For:  5/6/98   ·   Accession #:  950147-98-211   ·   File #:  1-00082

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 3/23/98  Phelps Dodge Corp                 DEF 14A     5/06/98    1:123K                                   Imperial Fin’l … Corp/FA

Definitive Proxy Solicitation Material   —   Schedule 14A
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: DEF 14A     Notice & Proxy                                        48    199K 


Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
15Option Grants in 1997
38Restricted Stock
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SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant [ ] 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 Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 Phelps Dodge Corporation -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] 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 transaction applies: -------------------------------------------------------------------------------- 2) Aggregate number of securities to which transaction 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 No. ---------------------------------------------------------------------------- 3) Filing party: ---------------------------------------------------------------------------- 4) Date filed: ----------------------------------------------------------------------------
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phelps dodge Corporation 2600 N. Central Avenue, Phoenix, AZ 85004-3014 * (602) 234-8100 Douglas C. Yearley Chairman and Chief Executive Officer April 1, 1998 Dear Shareholder: You are cordially invited to attend our annual meeting of shareholders to be held at 11:30 a.m. on Wednesday, May 6, 1998, at the Arizona Biltmore Hotel, 24th Street and Missouri Avenue, Phoenix, Arizona. Enclosed with this proxy statement are your voting card and the 1997 annual report. Your vote is important. Whether you plan to attend or not, please sign, date, and return the enclosed proxy card in the envelope provided, or you may access the automated telephone voting feature which is described on your proxy card. If you plan to attend the meeting you may vote in person. Last year, 83% of our outstanding shares were represented in person or by proxy. This year we would like even greater shareholder participation. I look forward to your participation at our annual meeting. Sincerely, /s/ D C Yearley
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS To the Shareholders of Phelps Dodge Corporation: The annual meeting of shareholders of Phelps Dodge Corporation will be held at the Arizona Biltmore Hotel, 24th Street and Missouri Avenue, Phoenix, Arizona, on Wednesday, May 6, 1998, at 11:30 a.m., to consider and take action on the following: 1. Elect four directors; 2. Adopt the Phelps Dodge 1998 Stock Option and Restricted Stock Plan; 3. Ratify the appointment of Price Waterhouse LLP as independent accountants for the Corporation for the year 1998; and 4. Transact any other business that may properly be brought before the annual meeting. Only holders of record of the Corporation's common shares at the close of business on March 20, 1998, will be entitled to vote at the meeting or at any adjournments of our annual meeting. Shareholders who do not expect to attend the meeting in person are asked to access the automated telephone voting feature described on the proxy card or 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. If you are attending in person and you have mailed your proxy card, you may revoke your proxy and vote in person at the meeting. By order of the Board of Directors, Robert C. Swan Vice President and Secretary Phoenix, Arizona April 1, 1998
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PHELPS DODGE CORPORATION ANNUAL SHAREHOLDERS MEETING PROXY STATEMENT Annual May 6, 1998 Arizona Biltmore Hotel Meeting 11:30 a.m. 24th Street and Missouri Avenue Phoenix, Arizona Record Date Close of business on March 20, 1998. If you were a shareholder at that time, you may vote at the meeting. Only holders of our common shares are entitled to vote and each share is entitled to one vote. On March 20, 1998, we had 58,660,563 common shares outstanding. If you participate in the Automatic Dividend Investment Service for Phelps Dodge Shareholders, administered by The Chase Manhattan Bank, all common shares held for your account under that service will be voted in accordance with your proxy. Proxies Solicited By The Board of Directors. Revoking You may revoke your proxy before it is voted at the Your Proxy meeting by delivering a signed revocation letter or new proxy, dated later than your first proxy, to Robert C. Swan, our Corporate Secretary. First Mailing This proxy statement and accompanying materials are Date being first sent to shareholders on April 1, 1998. 1
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1. ELECTION OF DIRECTORS Board The Corporation currently has eleven directors. Ten Structure directors are divided into three classes: three in Class I, four in Class II, and three in Class III. One director currently is unclassified and is a nominee for Class I. The terms of office of the three Class I directors expire at the 1998 annual meeting of shareholders. Class I The four nominees for election as Class I directors are Nominees listed below. If elected, the nominees will serve for a term of three years and until their successors are elected and qualify. Unless you instruct us on the proxy card to vote differently, we will vote signed, returned proxies FOR the election of such nominees. If for any reason any nominee cannot or will not serve as a director, we may vote such proxies for the election of a substitute nominee designated by the Board of Directors. Class I A nominee must receive a plurality of the votes cast at Election the annual meeting to be elected. Abstentions and broker non-votes therefore have no effect on the election of directors. [Download Table] Age, Principal Occupation, Business Experience Director Nominee and Other Directorships Held Since -------------------- -------------------------------------------------- --------- Paul Hazen Mr. Hazen has been Chairman and Chief 1988 (Class I) Executive Officer of Wells Fargo & Company (bank holding company) and of Wells Fargo Bank, N.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., AirTouch Communications, Inc. and Safeway, Inc. Age 56. Manuel J. Iraola Mr. Iraola has been President of Phelps Dodge 1997 (Class I) Industries, a division of the Corporation, since 1995, and a Senior Vice President of the Corporation since 1995. From 1992 until 1995 he was President of Phelps Dodge International Corporation. He was Senior Vice President and Chief Financial Officer of Columbian Chemicals Company, a subsidiary of the Corporation, from 1986 until 1992. Age 50. Marie L. Knowles Mrs. Knowles has been Executive Vice President 1994 (Class I) and Chief Financial Officer of Atlantic Richfield 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 ARCO Chemical Company and Vastar Resources, Inc. Age 51. 2
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[Enlarge/Download Table] Age, Principal Occupation, Business Experience Director Nominee and Other Directorships Held Since -------------------- ---------------------------------------------------- --------- Gordon R. Parker Mr. Parker was Chairman of Newmont Mining 1995 (Class I) Corporation and Newmont Gold Company (gold mining company) from 1986 until his retirement in 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. Age 62. Continuing The seven directors whose terms will continue after the Directors annual meeting and will expire at the 1999 annual meeting (Class II) or the 2000 annual meeting (Class III) are listed below. [Enlarge/Download Table] Age, Principal Occupation, Business Experience Director Director and Other Directorships Held Since --------------------- --------------------------------------------------- --------- Paul W. Douglas Mr. Douglas was Chairman and Chief Executive 1983 (Class II) Officer of The Pittston Company (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 U.S. Trust Corporation and a trustee of its subsidiary, United States Trust Company of New York. Age 71. William A. Franke Mr. Franke has been Chairman and Chief 1980 (Class II) Executive Officer of America West Holdings Corporation since February 1997 and Chairman of the Board of its principal subsidiary, America West Airlines, Inc. (airline carrier), since 1992. He was the subsidiary's Chief Executive Officer from 1993 until 1997, and its President from 1996 until 1997. He has been President of Franke & Company, Inc. (investment firm), since 1987, and is a managing partner of Newbridge Latin America, LLP (private equity investment fund). He is a director of America West Holdings Corporation, America West Airlines, Inc., Central Newspapers, Inc., Beringer Wine Estates and Mtel Latin America, Inc. He is also a director and Chairman of the Board of Airplanes Limited, and a controlling trustee and Chairman of Airplanes U.S. Trust (aircraft financing and leasing), and a director of the Air Transport Association of America. Age 61. 3
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[Download Table] Age, Principal Occupation, Business Experience Director Director and Other Directorships Held Since --------------------- ------------------------------------------------- --------- Southwood J. Mr. Morcott has been Chairman of the Board of 1991 Morcott Dana Corporation (manufacturer and distributor (Class II) of automotive and vehicular parts) since 1990. From 1987 to 1995, he served as Chairman of Hayes-Dana Inc. He was appointed Chief Executive Officer of Dana Corporation in 1989 and Chief Operating Officer in 1986. 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 60. J. Steven Whisler Mr. Whisler has been President and Chief 1995 (Class II) Operating Officer of the Corporation since December 1997, and President of Phelps Dodge Mining Company, a division of the Corporation, since 1991. He was a Senior Vice President of the Corporation from 1988 to December 1997 and a Vice President of the Corporation from 1987 until 1988. He was General Counsel of the Corporation from 1987 until 1991. He is a director of Burlington Northern Santa Fe Corporation and Southern Peru Copper Corporation. Age 43. Robert N. Burt Mr. Burt has been Chairman of the Board and 1993 (Class III) Chief Executive Officer of FMC Corporation (chemicals and machinery for industry, agriculture and government) since 1991. He was President of that company from 1990 to 1993 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 Warner-Lambert Company. Age 60. Robert D. Krebs Mr. Krebs has been Chairman of the Board of 1987 (Class III) Burlington Northern Santa Fe Corporation (transportation) since April 1997, and President and Chief Executive Officer from 1995 to 1997. From 1988 to January 1998 he was Chairman, President and Chief Executive Officer of Santa Fe Pacific Corporation. He is a director of Burlington Northern Santa Fe Corporation and Santa Fe Pacific Pipelines, Inc. Age 55. 4
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[Enlarge/Download Table] Age, Principal Occupation, Business Experience Director Director and Other Directorships Held Since ---------------------- -------------------------------------------------- --------- Douglas C. Yearley Mr. Yearley has been Chairman of the Board and 1986 (Class III) Chief Executive Officer of the Corporation since 1989 and was President of the Corporation from 1991 until December 1997. 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, USX Corporation and Southern Peru Copper Corporation. Age 62. Board The Board of Directors met eight times during 1997. Meetings Various committees of the Board also met during the year. Average attendance at all Board and committee meetings was 95%. Board The Audit Committee is comprised of Messrs. Douglas, Committees Franke, Hazen (Chairman), (Mrs.) Knowles, and Krebs. The Committee, which met four times during 1997, generally performs the following functions: * Recommends the appointment of the Corporation's independent accountants and reviews the scope and timing of their audit plans and the appropriateness of their fees; * Reviews the scope and results of internal audit activity; * Reviews internal audit policies and procedures and financial and accounting controls; * Reviews reports, recommendations, and opinions prepared or given by the independent accountants concerning the Corporation's financial statements, financial and accounting personnel, and internal controls, and implements such recommendations as appropriate; and * Reviews the Corporation's code of business ethics and policies. The Compensation and Management Development Committee, comprised of Messrs. Burt, Douglas, Hazen and Morcott (Chairman), met five times during 1997. The Committee performs the following functions: * Recommends to the Board the compensation for the Corporation's senior officers; * Reviews management recommendations concerning the compensation of other officers and key personnel; * Reviews the Corporation's program for management development; and * Reviews and recommends to the Board incentive compensation awards, stock option grants and restricted stock. 5
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The Committee on Directors is comprised of Messrs. Franke, Krebs (Chairman), Morcott, and Parker. The Committee, which met two times during 1997, performs the following functions: * Makes recommendations concerning the composition of the Board and its committees, and reviews Board and committee compensation; and * Reviews the qualifications of potential director candidates and recommends to the Board nominees for election as directors. The Committee on Directors will consider potential nominees recommended by shareholders. Recommendations should be sent to the Secretary of the Corporation and should include the address and a brief description of the qualifications of the individual recommended. The Environmental, Health and Safety Committee, comprised of Messrs. Burt (Chairman), Douglas, (Mrs.) Knowles, and Morcott, met three times in 1997. The Committee generally performs the following functions: * Reviews the Corporation's environmental, health, and safety policies; * Reviews management's implementation of these policies; and * Makes reports and recommendations to the Board concerning the results of its reviews. Directors The Board of Directors has adopted a policy that each Stock director shall own a total of not less than 2,000 Ownership common shares of the Corporation. Stock units granted Policy to a director under the Corporation's Directors Stock Unit Plan or the Deferred Compensation Plan apply toward attainment of the requirement. Board Compensation Retainer Directors that are not salaried employees of the and Fees Corporation ("Non-Employee Director") receive the following annual compensation for their Board service: Annual Retainer: $25,000 Attendance Fees: $1,000 for each Board meeting $1,000 for each Board Committee meeting Expenses related to attendance Committee Chair Stipend: $3,000 Stock Units: 450 units Directors In order to encourage increased stock ownership, the Stock Unit Board of Directors adopted the Directors Stock Unit Plan Plan. Pursuant to that Plan each Non-Employee Director receives an annual grant of 450 stock units (which includes the 150 units discussed in the following paragraph) having a value equal to 450 of the Corporation's common shares. While stock units do not confer on a director the right to vote, each stock unit is credited on each dividend payment date with stock units equal to the applicable dividend payable on the Corporation's common shares. Upon termination of service as a director, the director is entitled to payment of his or her accumulated stock units in an equivalent number of the Corporation's common shares or in cash. 6
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The Corporation's Directors Retirement Plan was terminated for active directors, effective December 31, 1997. Each Non-Employee Director continuing in office thereafter received a grant of stock units under the Directors Stock Unit Plan for that number of units having a value (at the time of grant) equal to the dollar value of the director's pension accruals. In addition, beginning in 1998, each Non-Employee Director also receives 150 stock units which are intended to replace the estimated average dollar value of future annual pension accruals that would have been made under the Plan. Directors Directors may defer payment of retainer and/or meeting Deferred fees to future years and may elect to have such Compensation deferred compensation (i) receive interest thereon at Plan prevailing market rates, (ii) deemed invested in the Corporation's common shares or (iii) invested in one of several mutual funds designated for that purpose. Expenses All directors are reimbursed for travel and other and Benefits related expenses incurred in attending shareholder, Board and committee meetings. The Corporation also provides Non-Employee Directors with life insurance benefits and allows them to participate in its Matching Gifts Program, whereby it will match gifts by directors to qualified organizations up to a total of $10,000 per year. Directors and On June 1, 1996, the Corporation purchased directors' Officers and officers' liability insurance policies from Liability National Union Fire Insurance Company of Pittsburgh, Insurance Pa., Aetna Casualty and Surety Company, Continental Casualty Company, Federal Insurance Company and XL Insurance Company, each for a three-year term ending June 1, 1999, at premiums of $1,230,636, $400,000, $347,500, $150,000 and $200,000, 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, and (iii) the Corporation for allegations related to securities claims. Compensation Committee Interlocks and Insider Participation The following directors served on the Compensation and Management Development Committee during all or part of 1997: Messrs. Burt, Douglas, Hazen and Morcott (Chairman). 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 under the applicable rules of the Securities and Exchange Commission. 7
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Share Ownership of Directors and Executive Officers The following table lists the common share ownership as of February 1, 1998 for our directors and executive officers. "Beneficial Ownership" includes shares a director or officer has the power to vote or transfer, and stock options that were exercisable on February 1, 1998 or within 60 days thereafter. On February 1, 1998, the directors and executive officers of Phelps Dodge owned, in the aggregate, 1,068,955 shares of Phelps Dodge common stock (approximately 1.8 percent of the shares outstanding). Phelps Dodge directors also have interests in stock-based units under Corporation plans. While these units may not be voted or transferred, they are listed in the table below because they represent a component of the total economic interest of our directors in Phelps Dodge stock. [Enlarge/Download Table] Options Shares Exercisable Name of Beneficially Within Stock Beneficial Owner Owned 60 Days Units(1) Total ------------------------------------- ----------------- ------------ ---------------- ------------ Robert N. Burt 2,140 2,295 1,181 5,616 Paul W. Douglas 2,000 8,035 3,349 13,384 William A. Franke 2,000 8,035 1,815 11,850 Paul Hazen 3,000 8,035 3,640 (2) 14,675 Manuel J. Iraola 44,534 (3) 85,597 0 130,131 Marie L. Knowles 1,000 1,147 961 3,108 Robert D. Krebs 1,894 6,887 1,470 10,251 Southwood J. Morcott 1,801 4,591 3,265 (2) 9,657 Gordon R. Parker 1,000 1,147 1,083 3,230 Ramiro G. Peru 5,616 18,040 0 23,656 Thomas M. St. Clair 20,606 100,050 0 120,656 J. Steven Whisler 83,994 (3) 160,098 0 244,092 Douglas C. Yearley 113,078 382,335 0 495,413 Directors and executive officers as a group 282,663 786,292 16,764 1,085,719 ------------------------------------- ------- ------- ------ --------- -------------- (1) Represents stock units awarded under the Directors Stock Unit Plan. (2) Includes stock units awarded under the Directors Deferred Compansation Plan. (3) Includes the following shares of restricted stock awarded under the 1993 Stock Option and Restricted Stock Plan: Mr. Iraola, 30,000 shares, and Mr. Whisler, 25,000 shares. 8
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Based on a review of reports filed by our directors, executive officers and beneficial holders of 10% or more of our outstanding shares, and upon representions from those persons, all reports required to be filed by our reporting persons during 1997 were filed on time. To the knowledge of the Corporation, the following entities beneficially owned in excess of five percent of the Corporation's common shares as of December 31, 1997: [Enlarge/Download Table] Number of Percent of Name and Address Shares Outstanding -------------------------------------------------------------- ----------- ------------ AMVESCAP PLC; AVZ, Inc.; AIM Management Group, Inc.; 4,784,030 8.1% AMVESCAP Group Services, Inc.; INVESCO, Inc.; INVESCO North American Holdings, Inc.; and INVESCO Capital Management, Inc.(a) 111 Devonshire Square London, EC2M 4YR England The Capital Group Companies, Inc. and 4,896,300 8.3% Capital Research and Management Company(b) 333 South Hope Street Los Angeles, CA 90071 Morgan Stanley, Dean Witter,(c) 4,322,259 7.35% Discover & Co. and Dean Witter InterCapital Inc. 1585 Broadway New York, NY 10036 Wellington Management Company, LLP(d) and 3,814,520 6.49% Vanguard Wellington Fund, Inc. 75 State Street Boston, MA 02109 -------------- (a) A report on Schedule 13G, dated February 9, 1998, disclosed that these entities, filing jointly as parent holding companies and as a registered investment advisor (INVESCO Capital Management, Inc.), had shared voting power over 4,784,030 shares and shared dispositive power over 4,784,030 shares. (b) An amended report on Schedule 13G, dated February 10, 1998, disclosed that these entities, filing jointly as parent holding companies and registered investment advisors, had sole dispositive power over 4,896,300 shares. (c) Morgan Stanley, Dean Witter, Discover & Co. ("MSDWD") filed a report on Schedule 13G, dated February 13, 1998, which disclosed that it had shared voting power over 4,142,682 shares and shared dispositive power over 4,322,259 shares (including the shares held by Dean Witter InterCapital Inc. ("DW InterCapital") described below). MSDWD is a registered investment advisor and the parent holding company of DW InterCapital, which also reported on such Schedule 13G having shared voting and shared dispositive power over 3,825,718 shares, which represented 6.51% of the outstanding common shares at December 31, 1997. The address of DW InterCapital is Two World Trade Center, New York, New York 10048. 9
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(d) Wellington Management Company LLP ("Wellington Management") filed an amended report on Schedule 13G, dated January 14, 1998, which disclosed that, as a registered investment advisor and a parent holding company, it had shared voting power over 307,770 shares and shared dispositive power over 3,814,520 shares (including the 3,304,900 shares held by Vanguard Wellington Fund (the "Wellington Fund") described below). On a separate Schedule 13G, dated February 9, 1998, the Wellington Fund disclosed that it had sole voting power and shared dispositive power over 3,304,900 shares, which represented 5.62% of the outstanding common shares at December 31, 1997. Wellington Management is the investment advisor for the Wellington Fund and shares dispositive power over the shares held by the Fund. The address of the Wellington Fund is 100 Vanguard Boulevard, Malvern, Pa. 19355. EXECUTIVE COMPENSATION AND OTHER INFORMATION The following table summarizes the compensation we paid our Chairman and Chief Executive Officer and each of the other most highly compensated executive officers in 1997, 1996 and 1995. Summary Compensation Table [Enlarge/Download Table] Long-Term Annual Compensation Compensation ------------------------------------------------------------------------- --------------------------------- Other All Name Annual Restricted Other and Base Compen- Stock Options Compen- Principal Salary Bonus sation(3) Awards(4) Granted sation(5) Position Year ($) ($)(1) ($) ($) (#) ($) -------------------------- ------ --------- --------- ----------- ------------ ------------------ ---------- Douglas C. Yearley 1997 750,000 860,300 152,248 -0- 242,660 (2) $125,765 Chairman of the Board, 1996 675,000 675,000 56,172 -0- 103,601 (2) 109,465 Chief Executive 1995 640,000 642,880 48,639 -0- 163,032 (2) 101,270 Officer and Director J. Steven Whisler 1997 400,000 309,900 18,349 -0- 121,960 (2) 43,602 President and Chief 1996 355,000 300,000 14,793 -0- 44,499 (2) 38,489 Operating Officer; 1995 340,000 267,200 6,149 1,684,375 63,010 (2) 36,684 President, PDMC and Director Manuel J. Iraola 1997 360,000 247,800 22,064 -0- 36,933 (2) 41,604 Senior Vice President; 1996 320,000 280,000 17,216 -0- 30,000 36,650 President, PDI 1995 275,000 227,600 17,208 1,684,375 50,000 31,094 and Director Thomas M. St. Clair 1997 300,000 239,400 7,993 -0- 39,516 (2) 53,968 Senior Vice 1996 290,000 188,900 12,589 -0- 53,572 (2) 50,915 President and 1995 280,000 186,200 3,631 -0- 40,630 (2) 47,901 Chief Financial Officer Ramiro G. Peru(6) Senior Vice President, Organization 1997 190,000 125,800 7,494 -0- 29,964 (2) 20,444 Development and Information Technology -------------------------- 10
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(1) 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 Phelps Dodge Corporation Supplemental Savings Plan (the "Supplemental Savings Plan"), formerly known as the savings plan component of the Comprehensive Executive Nonqualified Retirement and Savings Plan of Phelps Dodge Corporation. (2) The option grants denoted by "(2)" include reload options, as well as normal compensatory options. (3) Amounts shown under "Other Annual Compensation" include tax payment reimbursements for all reported executives, and spousal travel expenses of $63,937 for one executive officer. (4) The 1995 awards reflect a special grant of restricted shares to Messrs. Iraola and Whisler. These grants require a five year post-grant service to vest, but are subject to earlier vesting as a result of the recipient's death, disability, retirement or a change in control of the Corporation. Dividends on restricted stock are paid to the holder. On December 31, 1997, the named executives held the following numbers of shares of restricted stock which had the following aggregate values as of such date; Mr. Whisler, 25,000 shares valued at $1,554,688; Mr. Iraola, 30,000 shares valued at $1,865,625. The reported values are based on the market value of unrestricted shares of the Corporation's stock, as of December 31, 1997 ($62.1875), and as such do not reflect any discount attributable to the restrictions on transferability and risk of forfeiture inherent in the restricted stock. (5) Amounts shown include the following contributions and accruals by the Corporation for 1997 to the Savings Plan and 1997 accruals under the Supplemental Savings Plan, and for premium payments for life insurance policies issued through the Executive Life Insurance Plan for the reported executives: Executive Employee Supplemental Life Savings Savings Insurance Plan Plan Plan -------- ------------ --------- Douglas C. Yearley 16,000 59,000 50,765 J. Steven Whisler 16,000 24,000 3,602 Manuel J. Iraola 16,000 20,000 5,604 Thomas M. St. Clair 16,000 14,000 23,968 Ramiro G. Peru 16,000 3,000 1,444 (6) Effective January 1, 1997, Mr. Peru was elected a Senior Vice President of the Corporation. Stock Each of the executives listed in the Summary Options Compensation Table was eligible to receive two types of option grants during 1997: 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 11
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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 1997 and the hypothetical value at the time of grant based on a variation of the Black-Scholes model (see footnote (3) on page 13). 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 1997 [Enlarge/Download Table] Normal % of Total and Reload Options Granted Options to Employees Expiration Grant Date Name Granted(1) In 1997(2) Price Date Present Value(3) ----------------------- ------------ ---------------- ------------- ------------ ----------------- Douglas C. Yearley 5,612 21.9% $ 72.3750 12/7/98 $ 40,000 9,763 72.3750 12/5/00 69,500 14,139 72.3750 12/2/97 100,700 2,774 72.3750 12/7/98 19,800 18,316 72.3750 12/1/03 130,400 47,523 81.1875 12/7/04 383,000 8,703 81.1875 2/7/00 70,100 7,119 85.8438 12/7/98 61,200 16,462 85.8438 12/5/00 141,400 16,460 85.8438 2/7/00 141,400 12,632 85.8438 12/4/01 108,500 3,157 85.8438 12/2/02 27,100 80,000 65.3750 12/3/07 920,800 J. Steven Whisler 20,601 11.0% 68.6250 12/2/02 138,400 2,160 68.6250 10/6/98 14,500 1,280 68.6250 12/7/98 8,600 5,076 81.5625 2/7/00 41,300 20,340 81.5625 12/7/04 165,600 19,503 81.5625 12/1/03 158,800 53,000 65.3750 12/3/07 610,000 Manuel J. Iraola 4,933 3.3% 82.1250 12/1/03 40,700 32,000 65.3750 12/3/07 368,300 Thomas M. St. Clair 3,848 3.6% 81.6250 12/2/02 31,500 931 81.6250 2/7/00 7,600 3,246 81.6250 12/5/00 26,600 4,110 81.6250 12/4/01 33,600 6,381 81.6250 12/7/04 52,200 21,000 65.3750 12/3/07 241,700 Ramiro G. Peru 306 2.7% 74.9375 12/2/02 2,300 982 74.9375 12/1/03 7,400 5,000 69.6250 2/5/07 62,200 2,676 84.1875 12/7/04 22,800 21,000 65.3750 12/3/07 241,700 -------------- (1) During 1997, normal options were granted in the following amounts to the named executive officers: Mr. Yearley, 80,000 Mr. Whisler, 53,000; Mr. Iraola, 32,000; Mr. St. Clair, 21,000; and Mr. Peru, 26,000. The remaining grants disclosed in the table are reload options. 12
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Normal 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 retires early under any pension or retirement plan maintained by the Corporation or any subsidiary, 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. Normal 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 (a) an employee's normal retirement date or death, (b) the date an employee ceases to be employed if his employment ceases within two years following a change of control of the Corporation, and (c) 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 (a) 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 (b) the total purchase price for that number of common shares under the terms of the option. Options 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. (2) Illustrates the total number of normal and reload options granted as a percent of the aggregate number of 1997 normal options (819,200 shares) and 1997 reload options (291,231 shares) granted to all employees. (3) 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, non-transferable 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 13
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assumptions the following financial factors which existed at or about the time that the options were granted: volatility of .2300, dividend yield of 3.02%, and interest rates of 5.80% for normal options and 5.70% 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 non-transferability of the options in question. Because the Black-Scholes model was not developed for executive options and requires the use of assumptions primarily based on conditions in effect at the time of grant (and not over the term of the option), it provides only a theoretical estimate of the value of these options. 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. 14
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Aggregated Option Exercises in 1997 and December 31, 1997 Option Values The following table provides information concerning options exercised in 1997 by the named executives and the options held by them at the end of 1997: [Enlarge/Download Table] Value of Number of Unexercised Unexercised In-the-Money Shares Options at Options at Acquired 12/31/97 12/31/97 on Value (Exercisable/ (Exercisable/ Name Exercise(1) Realized Unexercisable) Unexercisable)(2) ----------------------- ------------- ------------- ----------------- ------------------ Douglas C. Yearley 236,757 $5,596,122 382,335/160,001 $ 143,753/ 0 J. Steven Whisler 106,111 2,890,558 160,098/ 89,668 61,815/ 0 Manuel J. Iraola 9,169 347,849 80,597/ 68,667 430,552/45,313 Thomas M. St. Clair 24,867 518,199 100,050/ 42,668 38,813/ 0 Ramiro G. Peru 6,048 167,266 16,374/ 34,134 8,651/ 0 -------------- (1) 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 1997. Mr. Yearley exercised most of the options in 1997 in the above manner. He acquired 36,901 shares upon exercise of these options in excess of the shares used to pay the exercise price and associated taxes, and received reload options to purchase 162,660 shares. Options for 106,111, 9,169, 24,867 and 6,048 were exercised by Mr. Whisler, Mr. Iraola, Mr. St. Clair and Mr. Peru, respectively, in this manner. The number of common shares acquired upon exercise of these options in excess of the shares used to pay the exercise price and associated taxes was 19,766, 2,481, 3,392 and 1,123, respectively. (2) Value is based on the mean of the high and low prices of the common shares on the Consolidated Trading Tape on December 31, 1997 ($62.1875). Pension and Other Retirement Benefits Retirement The following pension table shows the estimated Plans 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 Phelps Dodge Corporation Supplemental Retirement Plan (previously known as the Comprehensive Executive Non-qualified Retirement and Savings Plan) that make up amounts limited by the Internal Revenue Code (the "Code") and (ii) under the supplementary retirement provisions of the Phelps Dodge Corporation Supplemental Retirement Plan based on incentive compensation under the Annual Incentive Compensation Plan. 15
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Pension Plan Table [Enlarge/Download 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 45 -------------- ----------- ----------- ---------- ----------- ----------- ----------- ------------- ------------- $ 290,000 $ 44,390 $ 66,580 $ 88,770 $110,970 $133,160 $155,350 $ 177,550 $ 199,740 $ 465,000 $ 72,390 $108,580 $144,770 $180,970 $217,160 $253,350 $ 289,550 $ 325,740 $ 660,000 $103,590 $155,380 $207,170 $258,970 $310,760 $362,550 $ 414,350 $ 466,140 $ 765,000 $120,390 $180,580 $240,770 $300,970 $361,160 $421,350 $ 481,550 $ 541,740 $ 850,000 $133,990 $200,980 $267,970 $334,970 $401,960 $468,950 $ 535,950 $ 602,940 $ 935,000 $147,590 $221,380 $295,170 $368,970 $442,760 $516,550 $ 590,350 $ 664,140 $ 1,020,000 $161,190 $241,780 $322,370 $402,970 $483,560 $564,150 $ 644,750 $ 725,340 $ 1,105,000 $174,790 $262,180 $349,570 $436,970 $524,360 $611,750 $ 699,150 $ 786,540 $ 1,190,000 $188,390 $282,580 $376,770 $470,970 $565,160 $659,350 $ 753,550 $ 847,740 $ 1,275,000 $201,990 $302,980 $403,970 $504,970 $605,960 $706,950 $ 807,950 $ 908,940 $ 1,360,000 $215,590 $323,380 $431,170 $538,970 $646,760 $754,550 $ 862,350 $ 970,140 $ 1,445,000 $229,190 $343,780 $458,370 $572,970 $687,560 $802,150 $ 916,750 $1,031,340 $ 1,530,000 $242,790 $364,180 $485,570 $606,970 $728,360 $849,750 $ 971,150 $1,092,540 $ 1,683,000 $267,270 $400,900 $534,530 $668,170 $801,800 $935,430 $1,069,070 $1,202,700 -------------- (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 highest 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 Phelps Dodge Corporation Supplemental Retirement 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 1997. (b) Amounts of annual incentive compensation have been estimated based on the five-year average annual incentive compensation awarded to participating employees for 1993 through 1997. 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 current named executive officers as of December 31, 1997 are as follows: Mr. Yearley, 41 years; Mr. Whisler, 43 years; Mr. Iraola, 30 years, Mr. St. Clair, 11 years; and Mr. Peru, 42 years. The years of service are based on normal retirement for all executive officers under the Retirement Plan and the applicable provisions of the Supplemental Retirement Plan. 16
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Severance and Change of Control Arrangements Severance The Corporation has severance agreements with each of Agreements its five executive officers under which the executive With Our would receive a lump sum payment equal to his annual Executives 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. Change of The Corporation also has agreements with such Control executives under which each executive would receive, in Agreements the event he ceases to be employed by the Corporation With Our within two years following a change of control of the Executives Corporation (for a reason other than death, disability, willful misconduct, normal retirement or under certain circumstances a voluntary termination of employment by the executive), a lump sum equal to (i) three times the executive's highest base salary during that year and the prior two years plus (ii) three times the executive's average bonus paid under the Annual Incentive Compensation Plan for the two calendar years preceding the year in which the change of control occurs, less (iii) any severance payable under his Severance Agreement. The amount of such payments, when combined with any other payments that are contingent upon a change of control, may be capped at the maximum amount that can be paid without triggering an excise tax under the Internal Revenue Code. This "Cap" on payments does not apply if the amount of such payments, calculated without the Cap, is at least 20% more than the amount of such payments calculated with the Cap. If the payments are not subject to the Cap, the Corporation will provide the executive with a tax gross-up payment to reimburse the executive for any excise taxes as well as the presumed income taxes on the gross-up. The terminated executive would also receive the cost of continued coverage for a limited period under the Corporation's group health, life insurance and disability plans. Except under certain circumstances, these change of control agreements expire on December 31, 2002. Other Change Although normal compensatory options granted by the of Control Corporation generally become exercisable in three Provisions substantially equal 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) for a period of 30 days beginning 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. 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. 17
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The Supplemental Retirement Plan provides 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. The Supplemental Retirement Plan also provides an additional 36 months of service credit to an executive who, due to his termination of employment within two years following a change of control of the Corporation, becomes entitled to receive payments under his change of control agreement with the Corporation. The Supplemental Savings Plan obligates the Corporation to transfer an amount equal to the deficiency in the assets of the Plan's trust fund, if any, prior to the day on which a change of control occurs. 18
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Compensation and Management Development Committee Report on Executive Compensation The The Committee is composed solely of directors Committee (currently four) 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. Corporate The Corporation's goal is to be the leader in each of Goals the domestic and international mining and manufacturing activities in which it competes. It also 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 goals, the Corporation employs high caliber, dedicated senior 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 senior managers participating in these programs by: o 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. o Assuring that the elements of variable compensation are linked as directly as practicable to measurable financial, operational and other forms of performance. o Encouraging stock ownership by executives. o Tying pay for performance as closely as possible to success in maximizing the value of the Corporation's stock over the long term. Elements of The executive officers are compensated by salaries, Executive annual incentive awards and long-term incentive Compensation compensation. Each element focuses on performance in a different but complementary way. Salaries focus on individual performance as well as competence, length of service and the Corporation's performance during the officer's tenure. Annual incentives relate to individual, corporate and, where appropriate, unit performance. Long-term incentive awards, which are paid in the form of stock options, and, from time to time, in restricted stock, 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 the compensation for the top five executives, at least annually, to the compensation paid to executives holding similar positions at sixteen publicly held industrial corporations of an average size, measured by revenues and market capital, similar to that of the Corporation (referred 19
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to below as the "comparison group"). For other executives, comparisons to similar positions are based on a much larger group of companies of similar size to the Corporation measured by revenues. The Committee believes that the competitive data used is generally representative of the competitive level of compensation paid to executive officers in companies the size of Phelps Dodge. Thus, the companies used for comparison purposes in connection with the compensation paid to the Corporation's executive officers are different from the companies included in the peer group used in the performance graphs on pages 23 and 24 and to compare shareholder returns. Executive Individual salaries for executive officers are Salaries generally established by the Board of Directors, on the recommendation of the Committee, to reflect the officer's performance, competence, and length of service and the Corporation's performance during the executive officer's tenure. Generally, salary adjustments are targeted to move salaries to median levels over time for sustained and expected performance and competence. The salaries of executive officers who have performed exceptionally well over sustained periods of time may be adjusted to exceed median levels. Based on available information, the Committee believes salaries in 1997 for the executive officers were at or near the median when compared to employees in similar positions in the comparison group of companies. The Committee determined that, based on the fact that over the last decade Phelps Dodge stock has significantly outperformed the S&P Metals Mining index and the executives named in the Summary Compensation Table have sustained excellent performance, salaries for these executives should be adjusted upward in 1998. Annual The Annual Incentive Compensation Plan provides the Incentives 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 operating cash flow return on invested capital, both of which are fundamental indicators of the Corporation's performance. The goals are equally weighted and determine 70% of the CEO's and COO's total annual incentive compensation, and 60% and 15% of the corporate executives' and operation executives' awards, respectively. In 1997, the Corporation's performance with respect to return on equity was approximately midway between target and maximum goals. The Corporation's 1997 performance with respect to net operating cash flow return on invested capital was approximately three-fourths of the way between target and maximum goals. In the last four years, the Corporation's operating cash flow has increased 99 percent resulting in top quartile performance against the peer group companies during the period. Based on these results and the Committee's evaluation of performance relative to individual and, where appropriate, unit goals, the Committee recommended, and the Board approved, Annual Incentive Compensation awards for 1997 above the targeted amounts for the listed executives. Long-term The Committee uses stock options as the principal Incentive method of providing long-term incentive compensation 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. 20
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The Committee has 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. Of the stock options granted to executive officers in 1997, three were above the targeted levels, one was at the targeted level and one was slightly below the targeted level. All of the Committee's option grants for 1997 were approved by the Board. Grants of The Committee also made grants of restricted stock to a Restricted limited number of other key employees under the Stock Corporation's 1993 Stock Option and Restricted Stock Plan. The principal purpose of these grants was to retain the services of key executive personnel through a means that also provides a meaningful economic incentive to increase the value of the Corporation's common shares. The size of each award was determined based on the Committee's subjective determination of the recipient's expected contribution to the Corporation over the stated vesting period, the significance of the recipient's position with the Corporation and the importance of maintaining continuity of management in the recipient's function. Stock To underscore the connection between the interests of Ownership management and stockholders, the Corporation, several Guidelines years ago, established informal stock ownership guidelines for its executive officers. In 1996, the Corporation formalized this program and established stock ownership targets for officers of the Corporation who hold the position of Vice President and above and certain senior executives within the Phelps Dodge Mining Company and Phelps Dodge Industries divisions. The targets are expressed in terms of the value of the Corporation's common shares held by the executive as a multiple of salary grade midpoint. The targets range from one and one-half times salary midpoint up to five times salary midpoint for the CEO. Many Vice Presidents and other executives already hold a substantial amount of common shares, but those who do not hold sufficient shares have five years to reach their personal ownership targets. Tax Section 162(m) of the Internal Revenue Code generally Code places a $1 million per person limit on the deduction a Issues 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. In 1997, the Corporation obtained shareholder approval of an amendment to its 1993 Stock Option and Restricted Stock Plan to continue to exclude the compensation from stock options from the $1 million deductibility limit. Other elements of the compensation payable to executive officers, such as salary, annual incentive compensation and restricted stock, are not excludable from such limit. Mr. Yearley deferred $240,000 of his salary in 1997, however, as a result of the Corporation's performance in 1997 and the related above-target incentive compensation award to Mr. Yearley, his compensation subject to Section 162(m) exceeded one million dollars resulting in the loss of a Federal income tax deduction with respect to approximately $372,000 of his compensation. 21
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CEO Douglas C. Yearley, the Chief Executive Officer of the Compensation Corporation, received a base salary of $750,000 in 1997, an Annual Incentive Compensation Plan award of $860,300 for 1997 performance compared to stated corporate and individual performance goals, and a compensatory option grant in 1997 to purchase 80,000 common shares. Mr. Yearley also received in 1997, under a program available to all optionees, 162,660 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 an employee is equivalent to the number of shares that the employee transfers to the Corporation to exercise outstanding options. The first 70% of Mr. Yearley's Annual Incentive Compensation Plan award was equally determined on the basis of the Corporation's actual return on equity and net operating cash flow return on invested capital as compared to goals set at the beginning of the year. The Corporation's performance was approximately midway between the target and the maximum goals for return on equity and approximately three-fourths of the way between target and maximum for net operating cash flow return on invested capital. The remaining 30% of Mr. Yearley's award was based on the Committee's subjective evaluation of his performance with regard to individual goals pertaining to the organization's culture, shareholder value, and the growth of Phelps Dodge Mining Company and Phelps Dodge Industries. 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 at the targeted level, was based on the policy discussed above. The Committee believes that Mr. Yearley's 1997 salary was at or near the 1997 median paid by comparable companies to their CEOs. With the payment of an above target annual incentive award and a stock option grant at the target level, the total value of the compensation package provided to Mr. Yearley for 1997 was above the median, which was well in line with the company's comparative performance during 1997. The Committee believes that adjustments to base salaries in 1998 will position Mr. Yearley's total compensation at the appropriate level for his sustained excellent performance in the future. 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 Southwood J. Morcott, Chairman Robert N. Burt Paul W. Douglas Paul Hazen 22
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COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN* AMONG PHELPS DODGE CORPORATION, THE S & P 500 INDEX AND THE S & P METALS MINING INDEX * The chart above reflects $100 invested at 12/31/92 in Phelps Dodge common stock, the S&P 500, and in a peer group represented by the S&P Metals Mining index, comprised of Phelps Dodge, ASARCO Incorporated, Cyprus Amax Minerals Co., Freeport-McMoRan Copper & Gold Inc., and Inco Ltd. [Enlarge/Download Table] Cumulative Total Return ---------------------------------------------------------------------------- 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 Phelps Dodge Corp. 100.00 104.01 135.98 140.95 157.52 149.12 S & P 500 100.00 110.08 111.53 153.45 188.68 251.64 S & P METALS MINING 100.00 111.40 130.08 143.88 146.80 98.68 23
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COMPARISON OF TEN YEAR CUMULATIVE TOTAL RETURN* AMONG PHELPS DODGE CORPORATION, THE S & P 500 INDEX AND THE S & P METALS MINING INDEX * The chart above reflects $100 invested at 12/31/87 in Phelps Dodge common stock, the S&P 500, and in a peer group represented by the S&P Metals Mining index, comprised of Phelps Dodge, ASARCO Incorporated, Cyprus Amax Minerals Co., Freeport-McMoRan Copper & Gold Inc., and Inco Ltd. This 10-year graph illustrates the relative stock performances over a period that more closely represents the longer business cycle generally associated with the industry of the Corporation and is especially meaningful because the business focus and growth strategies of the Corporation have been and continue to be long term. [Enlarge/Download Table] Cumulative Total Return ------------------------------------------------------------------------------------------------------------- 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 Phelps Dodge Corp. 100.00 115.43 155.10 156.72 193.74 290.90 302.55 395.56 410.03 458.24 433.78 S & P 500 100.00 116.61 153.56 148.79 194.12 208.91 229.97 233.00 320.58 394.18 525.69 S & P METALS MINING 100.00 131.81 151.70 144.10 162.58 174.43 194.32 226.89 250.98 256.07 172.13 24
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2. 1998 STOCK OPTION AND RESTRICTED STOCK PLAN On March 4, 1998, the Board of Directors adopted the 1998 Stock Option and Restricted Stock Plan (the "1998 Plan"), subject to approval by a majority of the Corporation's shareholders voting on the proposal at the 1998 annual meeting. To simplify the administration of the Corporation's option plans, if the 1998 Plan is approved by shareholders, outstanding awards under the Phelps Dodge Corporation 1993 Stock Option and Restricted Stock Plan (the "1993 Plan") and the Phelps Dodge Corporation 1987 Stock Option and Restricted Stock Plan (the "1987 Plan") will be incorporated into and governed by the terms of the 1998 Plan and the terms and conditions of such outstanding awards may be amended pursuant to the 1998 Plan. The principal features of the 1998 Plan are summarized below, but such summary is qualified in its entirety by reference to the full text of the 1998 Plan, which is attached as Exhibit A. The 1998 Plan is substantially similar in its terms to the 1993 Plan, with three significant exceptions: Principal 1. Option Repricing. Repricing of options is Differences prohibited in the 1998 Plan. from the 1993 Plan 2. Stock Appreciation Rights. Grants of Stock Appreciation Rights are not permitted in the 1998 Plan. 3. Restricted Stock. Grants of Restricted Stock generally will not vest before the fifth, but not sooner than the third, anniversary from the date of grant. Awards of Restricted Stock which are based upon the achievement of specific performance criteria will not vest before the first anniversary of the grant date. General Under the 1998 Plan, the Compensation and Management Development Committee (the "Committee") may grant to executives and other key employees of the Corporation and its subsidiaries without any payment therefor (i) incentive stock options ("ISOs") and non-qualified stock options ("NQOs") to purchase the Corporation's common shares at a per share exercise price equal to or greater than their fair market value on the day of grant and (ii) common shares which are subject to certain restrictions ("Restricted Stock"). As of March 4, 1998, there were five executive officers and approximately 216 key employees eligible to participate in the 1998 Plan. Participants are selected by the Committee based upon their past and potential future contribution to the long-term financial success of the Corporation. As of March 20, 1998, the fair market value of a common share was $65.5313. Shares The total number of common shares available for option Available for grants and Restricted Stock awards under the 1998 Plan Issuance is the sum of (A) 4,000,000; (B) the number of common shares received by the Corporation in payment of the exercise price under any option granted under the 1998 Plan, the 1993 Plan and the 1987 Plan and (C) the number of shares remaining available for issuance under the 1993 Plan. No option grants or Restricted Stock awards may be made under the 1998 Plan after March 4, 2008. As of March 4, 1998, 1,323,450 shares remained available for issuance under the 1993 Plan and, of this amount, up to 742,308 shares were available for Restricted Stock awards. 25
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Upon the exercise of an option, payment may be made in cash (including cash paid pursuant to a so-called cashless exercise program with an authorized broker) or, in the discretion of the Committee, in common shares having a market value equal to such exercise price or in a combination of cash and common shares. Options expire no later than the tenth anniversary of the date of grant, plus, in the case of NQOs, one day. If the optionee dies, becomes disabled, retires on his or her normal retirement date or retires early pursuant to the early retirement provisions of a pension or retirement plan of the Corporation or one of its subsidiaries (a "Retirement") his or her exercisable or unexercisable options, held for at least six months, terminate no later than the fifth anniversary of the death, disability or retirement. Exercise of Options generally become exercisable in three or four Options substantially equal installments beginning on the first anniversary of the date of grant. Any unexercisable options held by an employee who dies become exercisable upon the employee's death. The Committee may provide for early vesting of option installments, including without limitation the vesting of installments: (1) not later than an employee's normal or early retirement date, (2) not later than the date an employee ceases to be employed if he ceases to be employed within two years following a change of control of the Corporation (as defined in the 1998 Plan), (3) in the event that either 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 in which the Corporation will not survive as a publicly held corporation. If an employee is terminated for cause all of his or her options will immediately expire. Reload options may be granted under the 1998 Plan with respect to the exercise, with already owned shares, of options granted under the 1998 Plan, 1993 Plan or the 1987 Plan. Reload options are granted on terms similar to the original option (including having a term equal to the remaining term of the original option), except that they have an exercise price per share equal to the fair market value of a common share on the date the reload options are granted and are not exercisable for six months after the date they are granted. Restricted Under the 1998 Plan, the Committee may award shares of Stock Grants Restricted Stock to executives and key employees without any payment therefor subject to certain restrictions. Shares of Restricted Stock are subject to restrictions on transfer and risk of forfeiture generally for a period of (i) five, but not less than three, years from the date of the award in the case of an award of Restricted Stock that will vest, if at all, upon the passage of time and the performance of continuous service as an employee or (ii) one year, in the case of awards that will vest, if at all, upon the achievement of specified performance objectives. Restricted Stock awards will also generally vest if the employee's employment terminated due to death, disability or normal retirement. The Committee may, in its discretion, provide for earlier lapse of the transfer and forfeiture restrictions, including, without limitation, upon the achievement of performance goals specified by the Committee. Unless the Committee otherwise determines, if an executive or key employee terminates employment (other than due to death or disability or normal retirement) prior to the lapse of the transfer and forfeiture restrictions, his or her Restricted Stock will be forfeited. Amendments The Board of Directors may amend the 1998 Plan at any time, except that the approval of the holders of a majority of common shares voting on the amendment at the annual meeting would be required for any amendment (i) increasing the total 26
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number of common shares that may be sold, issued or transferred under the 1998 Plan (except by adjustments to reflect stock or extraordinary cash dividends, stock splits or share combinations or recapitalizations of the Corporation), (ii) modifying provisions regarding eligibility, (iii) reducing the purchase price for common shares offered pursuant to options (except by adjustments to reflect stock or extraordinary cash dividends, stock splits, share combinations or recapitalizations), or (iv) extending the 1998 Plan's expiration date. Federal No taxable income is recognized to the employee upon Income Tax the grant of an NQO. Upon the exercise of an NQO, the Treatment of employee generally recognizes ordinary income for Options Federal income tax purposes in an amount equal to the excess of (i) the fair market value of the common shares issued on the date of exercise over (ii) the exercise price for such common shares. The Corporation generally receives a deduction at the time of exercise in an amount equal to the income realized as ordinary income by the employee. Upon the sale of common shares acquired by exercise of an NQO, the employee will realize a long-term or short-term capital gain or loss depending upon his holding period for such stock. To qualify for long-term capital gain treatment, the common shares must be held for more than one year after exercise. If the employee holds a common share for more than eighteen months after exercise, the rate of tax applicable to his long-term capital gain will be lower. No taxable income is realized by the employee either upon the grant or exercise of an ISO. The tax is deferred until the common shares acquired upon the exercise of the ISO are sold, provided that the shares are held for at least one year after the date of exercise and not sold until the second anniversary of the date of grant. Upon a subsequent sale or exchange of the common shares received upon exercise of an ISO, any profit will be a long-term capital gain and any loss will be a long-term capital loss. If the common shares acquired upon the exercise of an ISO are transferred before the expiration of either of the required holding periods, the employee is taxed at ordinary income tax rates in the year the common shares are sold. The amount subject to ordinary income tax will generally be the difference between the fair market value of the common shares at the date of exercise and the exercise price. No income tax deduction is available to the Corporation upon the exercise or sale of the common shares received upon exercise of an ISO, unless the employee incurs a disqualifying disposition prior to meeting the requisite holding periods and realizes ordinary income upon any such sale. 27
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New Plan Benefits The following table sets forth the number of common Table shares subject to option grants which would have been awarded to the named executives and the non-executive officer employee group under the 1998 Plan during 1997 if the 1998 Plan had been in effect in 1997: Phelps Dodge 1998 Stock Option And Restricted Stock Plan [Enlarge/Download Table] Number of Number of Name and Position Option Shares(a) Restricted Shares ------------------------------------------------------------- ------------------ ------------------ Douglas C. Yearley Chairman of the Board, Chief Executive Officer and Director 80,000 0 J. Steven Whisler President and Chief Operating Officer; President, PDMC and Director 53,000 0 Manuel J. Iraola Senior Vice President; President, PDI and Director 32,000 0 Thomas M. St. Clair Senior Vice President and Chief Financial Officer 21,000 0 Ramiro G. Peru Senior Vice President, Organization Development and Information Technology 26,000 0 Executive officer group 212,000 0 Non-executive officer employee group 607,200 15,250 -------------- (a) The option grants shown reflect the normal options granted in 1997 under the 1993 Plan, which is substantially similar to the 1998 Plan. These grants to the named executives are also disclosed in the table entitled "Option Grants in 1997" on page 12. Normal option grants under the 1993 Plan were made in accordance with the Corporation's compensation practices and are generally likely to be indicative of future awards granted under the 1998 Plan, subject to changes in the market price of the Corporation's common shares and in the performance, career potential, critical skills and compensation history of the individual grantees. The option grants shown in the table above do not include the reload options granted in 1997 under the 1993 Plan. Reload options are granted in accordance with the individual's exercise decisions. Individual decisions are based on numerous varying factors and, therefore, 1997 exercises are not likely to be indicative of future exercises. Thus, the Corporation believes the number of reload option grants that are likely to be made under the 1998 Plan are not determinable. Reload options granted to the named executives in 1997 are also set forth in the table entitled "Option Grants in 1997" on page 12. No grants of shares of Restricted Stock were made to executive officers in 1997 under the 1993 Plan. 28
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Voting on An affirmative vote of a majority of the common shares the New present and voting on the 1998 Plan at the annual Plan meeting of shareholders is required for adoption. Therefore, the effect of a broker non-vote is the same as an abstention. The Board of Directors recommends a vote FOR adoption of the 1998 Stock Option and Restricted Stock Plan. 3. 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 1998. 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 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 BUSINESS 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 of the matter or the proposed action. VOTING PROCEDURES All shares represented by the accompanying proxy, if the proxy is duly executed and received by the Corporation at or prior to the annual meeting, will be voted at the meeting in accordance with any instructions specified on such proxy. Where no instruction is specified, the shares may be voted according to the instructions on the 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 $17,500 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. 29
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Proposals For 1999 The Corporation will review for inclusion in next year's proxy statement shareholder proposals received by December 1, 1998. Proposals should be sent to the Secretary of the Corporation, 2600 North Central Avenue, Phoenix, Arizona 85004-3014. Annual Report For 1997 The annual report of the Corporation for the year 1997, including financial statements, is being furnished concurrently with this proxy statement to persons who were shareholders of record as of March 20, 1998, 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, Robert C. Swan Vice President and Secretary Phoenix, Arizona April 1, 1998 30
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Exhibit A PHELPS DODGE 1998 STOCK OPTION AND RESTRICTED STOCK PLAN SECTION 1 PURPOSE The purpose of the Plan is to foster and promote the long-term financial success of the Corporation and materially increase shareholder value by (a) motivating superior performance by means of performance-related incentives, (b) encouraging and providing for the acquisition of an ownership interest in the Corporation by Employees, and (c) enabling the Corporation to attract and retain the services of an outstanding team upon whose judgment, interest and special effort the successful conduct of its operations is largely dependent. SECTION 2 DEFINITIONS 2.1 Definitions. Whenever used herein, the following terms shall have the respective meanings set forth below: (a) "Act" shall mean the Securities Exchange Act of 1934, as amended. (b) "Adjustment Event" shall mean any stock dividend, stock split or share combination of, or extraordinary cash dividend on, the common shares or recapitalization of the Corporation. (c) "Board" shall mean the Board of Directors of the Corporation. (d) "common shares" shall mean the common shares of the Corporation. (e) "Cause" shall mean (i) the willful failure by the Participant to perform substantially his duties as an Employee (other than due to physical or mental illness) after reasonable notice to the Participant of such failure, (ii) serious misconduct on the part of the Participant that is injurious to the Corporation or any Subsidiary in any way, including, without limitation, by way of damage to any of their respective reputations or standings in their respective industries, (iii) the conviction of, or entrance of a plea of nolo contendere by, the Participant with respect to a crime that constitutes a felony or (iv) the breach by the Participant of any written covenant or agreement with the Corporation or any Subsidiary not to disclose any information pertaining to the Corporation or any Subsidiary or not to compete or interfere with the Corporation or any Subsidiary. (f) A "Change of Control" shall be deemed to have taken place at the time (i) when any "person" or "group" of persons (as such terms are used in Section 13 of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than the Corporation or any employee benefit plan sponsored by the Corporation, becomes the "beneficial owner" (as such term is used in Section 13 of the Exchange Act) of 25% or more of the total number of common shares at the time outstanding; (ii) of the approval by the vote of the Corporation's stockholders holding at least 50% (or such greater percentage as may be required by the Certificate of Incorporation or By-Laws of the Corporation or by law) of the voting stock of the Corporation of any merger, consolidation, sale of assets, liquidation or reorganization in which the Corporation will not survive as a publicly owned corporation; or (iii) when the individuals who, at the beginning of any period of two years or less, constituted the Board cease, for any reason, to constitute at least a majority thereof, unless the election or nomination for election of each new director was approved by the vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period. (g) "Code" shall mean the Internal Revenue Code of 1986, as amended. (h) "Committee" shall mean a Committee of the Board, which shall consist of two or more members. Each member of the Committee shall be a "Non-Employee Director" within the meaning of Rule 16b-3 as promulgated under the Act, or meet any other applicable standard for administrators under that or any similar rule which may be in effect from time to time. Each member of the Committee shall serve at the pleasure of the Board. (i) "Corporation" shall mean Phelps Dodge Corporation, a New York corporation, and any successor thereto. 31
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(j) "Disability" means the inability of a Participant to perform his duties for a period of at least 180 days due to mental or physical infirmity, as determined pursuant to the Corporation's policies. (k) "Employee" shall mean any executive or other key employee of the Corporation or any Subsidiary (as determined by the Committee in its sole discretion). (l) "Fair Market Value" shall mean the mean of the high and low prices of the common shares on the Consolidated Trading Tape on the date of determination or, if no sale of common shares is recorded on the Tape on such date, then on the next preceding day on which there was such a sale. (m) "Immediate Family Member" shall mean with respect to a Participant, the Participant's spouse, ancestors (including parents and grandparents), siblings (including half-brothers and sisters), and descendants (including children, grandchildren and great grandchildren), as well as any entity, such as a limited liability company, partnership or trust, in which all of the beneficial ownership interests are held directly or indirectly by the Participant or a natural person who is an Immediate Family Member. For purposes of this definition, individuals who have the legal relationship described herein through legal adoption and the children of the Participant's spouse or the spouse of one of the Participant's children or grandchildren shall be treated as Immediate Family Members. (n) "Option" shall mean the right to purchase common shares at a stated price for a specified period of time. For purposes of the Plan, an Option may be either (i) an "Incentive Stock Option" within the meaning of section 422 of the Code or (ii) an Option which is not an Incentive Stock Option (a "Non-qualified Stock Option"). (o) "Participant" shall mean any Employee designated by the Committee to receive an Option or share of Restricted Stock under the Plan. (p) "Plan" shall mean the 1998 Stock Option and Restricted Stock Plan, as set forth herein and as the same may be amended from time to time. (q) "Predecessor Plans" shall mean the Phelps Dodge 1987 Stock Option and Restricted Stock Plan and the Phelps Dodge 1993 Stock Option and Restricted Stock Plan. (r) "Restricted Period" shall mean the period during which shares of Restricted Stock are subject to forfeiture and restrictions on transferability pursuant to Section 6.2 of the Plan. (s) "Restricted Stock" shall mean common shares granted to a Participant pursuant to the Plan which is subject to forfeiture and restrictions on transferability in accordance with Section 6 of the Plan. (t) "Retirement" shall mean termination of a Participant's employment on or after the Participant's normal retirement date or early retirement under any pension or retirement plan of the Corporation or a Subsidiary. (u) "Subsidiary" shall mean any company in which the Corporation and/or another Subsidiary owns 50% or more of the total combined voting power of all classes of stock. 2.2 Gender and Number. Except when otherwise indicated by the context, words in the masculine gender used in the Plan shall include the feminine gender, the singular shall include the plural and the plural shall include the singular. SECTION 3 ADMINISTRATION 3.1 Power to Grant and Establish Terms of Awards. The Committee shall have authority, subject to the terms of the Plan, to determine the Employees eligible for Options and awards of Restricted Stock and those to whom Options or Restricted Stock shall be granted, the number of common shares to be covered by each Option or award of Restricted Stock, any conditions that may be imposed upon the grant of an Option, the time or times at which Options or Restricted Stock shall be granted, and the terms and provisions of the instruments by which Options or Restricted Stock shall be evidenced; to designate Options as Incentive Stock Options or Non-qualified Stock Options; to permit Participants to elect to defer the issuance of common shares otherwise deliverable upon the exercise of an Option on such terms and subject to such conditions as the Committee shall determine; and to determine the period of time during which restrictions on Restricted Stock shall remain in effect. The grant of any Option to any Employee or an award of Restricted Stock shall neither entitle such Employee to, nor disqualify him from, participation in any other grant of Options or award of Restricted Stock. Notwithstanding anything else contained in the preceding sentence to 32
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the contrary, in no event may the number of common shares subject to Options granted to any single Participant within any 12-month period exceed 350,000 common shares, as such number may be adjusted pursuant to Section 4.3. 3.2 Administration. Any Option grant or award of Restricted Stock made by the Committee may be subject to such conditions, not inconsistent with the terms of the Plan, as the Committee shall determine. The Committee, by majority action thereof, is authorized to prescribe, amend and rescind rules and regulations relating to the Plan, to provide for conditions deemed necessary or advisable to protect the interests of the Corporation, to interpret the Plan and to make all other determinations necessary or advisable for the administration and interpretation of the Plan to carry out its provisions and purposes. Determinations, interpretations or other actions made or taken by the Committee pursuant to the provisions of the Plan shall be final, binding and conclusive for all purposes and upon all persons. The Committee may consult with legal counsel, who may be counsel to the Corporation, and shall not incur any liability for any action taken in good faith in reliance upon the advice of counsel. Without limiting the generality of the foregoing, the Committee may delegate to any officer of the Corporation or any committee comprised of officers of the Corporation the authority to take any and all actions permitted or required to be taken by the Committee hereunder; provided that such delegation shall not be permitted with respect to Options or other awards granted or to be granted to any officer of the Corporation and that, to the extent the Committee delegates authority to grant Options and other awards hereunder, such delegation shall specify the aggregate number of common shares that may be awarded pursuant to such delegation and may establish the maximum number of common shares that may be subject to any award made pursuant to such delegation and any other limitations thereon that the Committee may choose to impose. SECTION 4 STOCK SUBJECT TO PLAN 4.1 Number. The stock as to which Options and awards of Restricted Stock may be granted shall be common shares. When Options are exercised or Restricted Stock is awarded, the Corporation may either issue unissued common shares or transfer issued shares held in its treasury. Subject to adjustment as provided in Section 4.3 below, the total number of common shares (i) which may be sold to Employees under the Plan pursuant to Options, and (ii) that may be transferred or issued as Restricted Stock pursuant to Section 6 shall not exceed the sum of (A) 4,000,000 common shares, (B) the number of common shares received by the Corporation on or after the date this Plan is adopted by the Board (the "Effective Date") in payment of the exercise price under any Option, whether issued under the Plan or a Predecessor Plan, and (C) the number of common shares remaining available for issuance under the Phelps Dodge 1993 Stock Option and Restricted Stock Plan on the Effective Date. Notwithstanding the foregoing, the total number of common shares that may be transferred or issued hereunder as awards of Restricted Stock pursuant to Section 6 shall not exceed 400,000 common shares, plus that number of the common shares referred to in subclause (C) of the immediately preceding sentence that on the Effective Date were available for awards of Restricted Stock under the Phelps Dodge 1993 Stock Option and Restricted Stock Plan. Any option settled in cash shall reduce the number of common shares under the Plan by the number of shares that would have been issued had the Option been exercised for common shares. 4.2 Canceled, Terminated or Forfeited Awards. If, after the Effective Date, an Option granted hereunder or an Option granted under a Predecessor Plan which is outstanding on the date hereof expires, or is terminated, canceled or otherwise surrendered by a Participant prior to its exercise, or if shares of Restricted Stock are returned to the Corporation pursuant to the terms of the Plan, or if shares of Restricted Stock awarded under a Predecessor Plan which are still restricted on the date hereof are returned to the Corporation prior to the time at which a Participant's rights become non-forfeitable, the common shares covered by such Option immediately prior to such expiration or other termination or the common shares affected by such return of Restricted Stock shall again be available for future grants under the Plan. 4.3 Adjustment in Capitalization. The number and price of common shares covered by each Option, the maximum number of common shares that may be awarded as Options under Section 3.1 and the total number of common shares that may be sold, issued or transferred under the Plan shall be proportionately adjusted to reflect, as deemed equitable and appropriate by the Committee, an Adjustment Event. To the extent deemed equitable and appropriate by the Committee, subject to any required action by stockholders, in any merger, consolidation, reorganization, liquidation, dissolution, or other similar transaction, any Option granted under the Plan shall pertain to the securities and other property to which a holder of the number of common shares covered by the Option would have been entitled to receive in connection with such event. 33
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Any shares of stock (whether common shares, shares of stock into which common shares are converted or for which common shares are exchanged or shares of stock distributed with respect to common shares) or cash or other property received with respect to any award of Restricted Stock granted under the Plan as a result of any Adjustment Event, any distribution of property or any merger, consolidation, reorganization, liquidation, dissolution or other similar transaction shall, except as provided in Section 6.4 or as otherwise provided by the Committee at or after the date an award of Restricted Stock is made by the Committee, be subject to the same terms and conditions, including restrictions on transfer, as are applicable to such shares of Restricted Stock and any stock certificate(s) representing or evidencing any shares of stock so received shall be legended in substantially the same manner as provided in Section 6.5 hereof. SECTION 5 STOCK OPTIONS 5.1 Grant of Options. The date of grant of an Option under the Plan will be the date on which the Option is awarded by the Committee or, if so determined by the Committee, the date on which occurs any event the occurrence of which is an express condition precedent to the grant of the Option. The Committee may provide, at or after the date of grant of an Option, that, upon the exercise of such Option and payment of the exercise price therefor with already owned common shares, an additional Option will be granted for the number of shares so delivered in payment of the exercise price, having such other terms and conditions not inconsistent with the Plan as the Committee may determine, including the feature described in this second sentence of this Section 5.1. The aggregate Fair Market Value of the common shares with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year under the Plan and any other stock option plan of the Corporation or any Subsidiary shall not exceed $100,000 or such other amount as may be subsequently specified by the Internal Revenue Code of 1986, as amended. Options shall be evidenced by instruments in such form or forms as the Committee may from time to time approve. 5.2 Option Price. The Option price per share shall be at or above the Fair Market Value of the optioned shares on the day the Option is granted (as determined under Section 5.1). 5.3 Payment. Upon exercise, the Option price shall be paid (i) in cash, including an assignment of the right to receive cash proceeds of the sale of common shares subject to the Option; (ii) in the discretion of the Committee, in already owned common shares of the Corporation having a Fair Market Value on the date of exercise equal to such Option price or in a combination of cash and common shares or (iii) in accordance with such procedures or in such other form as the Committee shall from time to time determine. 5.4 Term and Exercise of Options. Each Incentive Stock Option shall expire not later than the tenth anniversary of the date of its grant, and each Non-qualified Stock Option shall expire not later than the day after the tenth anniversary of the date of its grant. Options shall become exercisable in three or four substantially equal annual installments commencing on the first anniversary of the date of grant, as the Committee in its discretion shall determine, or at such other times and upon the occurrence of such other events or conditions as the Committee may determine at or after the grant of such Option. Notwithstanding the foregoing, the Committee may include in any Option instrument, initially or by amendment at any time, a provision making any installment or installments exercisable at such earlier or later date, or upon the occurrence of such earlier or later event, as may be specified by such provision. Without limiting the generality of the foregoing, the Committee may approve, pursuant to the foregoing sentence, provisions making installments exercisable (i) upon a Participant's Retirement, (ii) six months (or such greater or lesser period as the Committee shall in its discretion determine) from the date on which an Option is granted if such Option is granted in conjunction with the Participant's exercise of another Option (whether such Option is issued under this Plan or a Predecessor Plan) with common shares already owned by the Participant, (iii) not later than the date the Participant ceases to be employed by the Corporation if he ceases to be so employed within two years following a Change of Control of the Corporation, and (iv) at such time and for such period as the Committee deems appropriate, in the event of a Change of Control. Except as may be provided in any provision approved by the Committee pursuant to this Section 5.4, after becoming exercisable each installment shall remain exercisable until expiration, termination or cancellation of the Option. An Option may be exercised from time to time, in whole or in part, up to the total number of common shares with respect to which it is then exercisable. 5.5 Termination of Employment. If the Participant ceases to be employed by the Corporation or a Subsidiary other than by reason of death, Disability, Retirement or the Participant's termination for Cause, all Options granted to 34
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him and exercisable on the date of his termination of employment shall terminate on the earlier of such Options' expiration or one month (or such greater period of time, not to exceed one year, determined by the Committee in its sole discretion) after the day his employment ends. If the Participant ceases to be employed on account of Disability or Retirement, all Options granted to him and exercisable on the date of his termination of employment due to Disability or his Retirement shall terminate on the earlier of such Options' expiration or the fifth anniversary of the day of such termination or Retirement. If the Participant's employment is terminated for Cause, all Options granted to such Participant which are then outstanding shall be forfeited. Except as otherwise determined by the Committee at or after grant of any Option, any installment which has not become exercisable prior to the time the Participant ceases to be employed by the Corporation or a Subsidiary other than by reason of death shall lapse and be thenceforth unexercisable. Whether authorized leave of absence or absence in military or governmental service may constitute employment for the purposes of the Plan shall be conclusively determined by the Committee. 5.6 Exercise upon Death of Participant. If the Participant dies while he is employed by the Corporation or a Subsidiary, his Options may be exercised, for the full number of common shares covered thereby for which such Options were not previously exercised, by his estate, personal representative or beneficiary who acquires the Options by will or by the laws of descent and distribution, at any time prior to the earlier of the Options' expiration or the fifth anniversary of the Participant's death. Such Options shall terminate upon the earlier of such Options' expiration or the fifth anniversary of such Participant's death. If the Participant dies while he is no longer employed by the Corporation, his Options may be exercised, for the number of common shares as to which he could have exercised them on the date of his death, by his estate, personal representative or beneficiary who acquires the Options by will or by the laws of descent and distribution, at any time prior to the termination date provided by Section 5.5. SECTION 6 RESTRICTED STOCK 6.1 Grant of Restricted Stock. Any award made hereunder of Restricted Stock shall be subject to the terms and conditions of the Plan and to any other terms and conditions not inconsistent with the Plan (including, but not limited to, requiring the Employee to pay the Corporation an amount equal to the par value per share for each share of Restricted Stock awarded) as shall be prescribed by the Committee in its sole discretion. The Committee may require that, as a condition to any award of Restricted Stock under the Plan, the Employee shall have entered into an agreement with the Corporation setting forth the terms and conditions of such award and such other matters as the Committee, in its sole discretion, shall have determined. As determined by the Committee, the Corporation shall either (i) transfer or issue to each Participant to whom an award of Restricted Stock has been made the number of shares of Restricted Stock specified by the Committee or (ii) hold such shares of Restricted Stock for the benefit of the Participant for the Restricted Period. 6.2 Restrictions on Transferability. Shares of Restricted Stock may not be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered by the Participant during the Restricted Period, except as hereinafter provided. 6.3 Rights as a Shareholder. Except for the restrictions set forth herein and unless otherwise determined by the Committee, the Participant shall have all the rights of a shareholder with respect to such shares of Restricted Stock, including, but not limited to, the right to vote and the right to receive dividends. 6.4 Lapse of Restricted Period. Unless the Committee shall otherwise determine at or after the date an award of Restricted Stock is made to the Participant by the Committee, the Restricted Period shall commence upon the date of grant and shall lapse with respect to the shares of Restricted Stock on the earlier of: (a) the fifth, but not sooner than the third, anniversary of the date of grant in the case of an award of Restricted Stock that vests based on the passage of time and the performance of continuous service as an employee, (b) the first anniversary of the date of grant, in the case of a Restricted Stock award that vests based on the achievement of specified performance criteria or (c) the date of a Change of Control, unless sooner terminated as otherwise provided herein. Without limiting the generality of the foregoing, the Committee may provide for termination of the Restricted Period upon the achievement by the Participant of performance goals specified by the Committee at the date of grant. The determination of whether the Participant has achieved such performance goals shall be made by the Committee in its sole discretion. 35
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6.5 Legend. Each certificate issued to a Participant with respect to shares of Restricted Stock awarded under the Plan shall be registered in the name of the Participant and shall bear the following (or similar) legend: "The shares of stock represented by this certificate are subject to the terms and conditions contained in the Phelps Dodge 1998 Stock Option and Restricted Stock Plan and may not be sold, pledged, transferred, assigned, hypothecated, or otherwise encumbered in any manner until ." 6.6 Death, Disability or Retirement. Unless the Committee shall otherwise determine at the date of grant, if a Participant ceases to be employed by the Corporation or any Subsidiary by reason of death, Disability or Retirement, the Restricted Period covering all shares of Restricted Stock transferred or issued to such Participant under the Plan shall immediately lapse. 6.7 Termination of Employment. Unless the Committee shall otherwise determine at or after the date of grant, if a Participant ceases to be employed by the Corporation or any Subsidiary for any reason other than those specified in Section 6.6 at any time prior to the date when the Restricted Period lapses, all shares of Restricted Stock owned by such Participant shall revert back to the Corporation upon the Participant's termination of employment. Whether authorized leave of absence or absence in military or government service may constitute employment for the purposes of the Plan shall be conclusively determined by the Committee. 6.8 Issuance of New Certificates. Upon the lapse of the Restricted Period with respect to any shares of Restricted Stock, such shares shall no longer be subject to the restrictions imposed under Section 6.2 and the Corporation shall issue or have issued new stock certificates without the legend described in Section 6.5 in exchange for those previously issued. SECTION 7 TERMINATION AND AMENDMENT OF PLAN The Board may terminate or amend the Plan in any respect at any time, except that without the approval of the holders of a majority of common shares present and voting on the proposal at an annual meeting of shareholders, the total number of shares that may be sold, issued or transferred under the Plan may not be increased (except by adjustment pursuant to Section 4.3), the category of persons eligible to receive Options and shares of Restricted Stock may not be changed, the purchase price at which shares may be offered pursuant to Options may not be reduced (except by adjustment pursuant to Section 4.3) and the expiration date of the Plan may not be extended. No action of the Board or shareholders, however, may, without the consent of a Participant alter or impair his rights under any Option or award of Restricted Stock previously granted. SECTION 8 APPLICABILITY OF PLAN TO GRANTS UNDER PREDECESSOR PLANS The provisions of the Plan relating to Options and Restricted Stock grants shall apply to, and govern, existing Option and Restricted Stock grants made under the Predecessor Plans as if such awards were granted hereunder (except that no such awards shall count against the share limit set forth in Section 4.1) and such Options and Restricted Stock grants shall, where appropriate, be deemed to have been amended to provide any additional rights, subject in the case of Options and Restricted Stock grants outstanding as of the date of adoption of this Plan by the Board, to the right of an affected Participant to consent to the application of such amendments to such grants as provided in Section 7. SECTION 9 MISCELLANEOUS PROVISIONS 9.1 Nontransferability of Awards. Unless the Committee otherwise determines at or after grant to permit any award made hereunder to be transferable to the Immediate Family Members of a Participant, an award granted under the Plan may not be sold, transferred, pledged, assigned or otherwise encumbered or hypothecated, other than by will or by the laws of descent and distribution. All rights with respect to awards granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant. 36
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9.2 Securities Law Compliance. Instruments evidencing Options may contain such other provisions, not inconsistent with the Plan, as the Committee deems advisable. common shares received pursuant to the Plan shall be transferable only if the proposed transfer will be in compliance with applicable securities laws. 9.3 Tax Withholding. The Corporation shall have the power to withhold, or require a Participant to remit to the Corporation promptly upon notification of the amount due, an amount sufficient to satisfy Federal, State and local withholding tax requirements on any award under the Plan and payment for any partial shares that result from an option exercise, and the Corporation may defer payment of cash or issuance or delivery of common shares until such requirements are satisfied. The Committee may, in its discretion, permit a Participant to elect, subject to such conditions as the Committee shall impose, (i) to have common shares otherwise issuable or deliverable under the Plan withheld by the Corporation or (ii) to deliver to the Corporation previously acquired shares of Stock, in each case, having a Fair Market Value sufficient to satisfy all or part of the Participant's estimated total Federal, State and local tax obligation associated with the transaction. 9.4 Term of Plan. This Plan shall be effective as of March 4, 1998, subject to approval by the holders of a majority of common shares present and voting on the Plan at the 1998 annual meeting of shareholders. This Plan shall expire on March 4, 2008 (except as to Options and Restricted Stock outstanding on that date), unless sooner terminated pursuant to Section 7 of the Plan. 9.5 Governing Law. The Plan, and all Agreements hereunder, shall be construed in accordance with and governed by the laws of the State of New York. 37
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Notice of Annual Meeting of Shareholders and Proxy Statement May 6, 1998
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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 ROBERT N. BURT, ROBERT D. KREBS 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 Wednesday, May 6, 1998 at 11:30 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 The Chase Manhattan Bank. THIS PROXY IS CONTINUED ON THE REVERSE SIDE PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY --------------------------------------------------------------------------------
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CONFIDENTIAL PROXY PHELPS DODGE EMPLOYEE SAVINGS PLAN THE PHELPS DODGE CORPORATION SUPPLEMENTAL 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 6, 1998, 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 and/or the Phelps Dodge Corporation Supplemental Savings Plan as indicated on the reverse of this card, and in your or your proxies' discretion on all other matters. You are instructed to vote the shares credited to my account as directed by automated telephone vote or on the reverse side. UNLESS WE RECEIVE INSTRUCTIONS FROM YOU THE NUMBER OF SHARES CREDITED TO YOUR ACCOUNT AS OF THE RECORD DATE, MARCH 20, 1998, WILL NOT BE VOTED AT THE MEETING. THIS PROXY IS CONTINUED ON THE REVERSE SIDE PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY --------------------------------------------------------------------------------
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CONFIDENTIAL PROXY ACCURIDE 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 6, 1998, 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 Accuride Employee Savings Plan as indicated on the reverse of this card, and in your or your proxies' discretion on all other matters. You are instructed to vote the shares credited to my account as directed by automated telephone vote or on the reverse side. UNLESS WE RECEIVE INSTRUCTIONS FROM YOU THE NUMBER OF SHARES CREDITED TO YOUR ACCOUNT AS OF THE RECORD DATE, MARCH 20, 1998, WILL NOT BE VOTED AT THE MEETING THIS PROXY IS CONTINUED ON THE REVERSE SIDE PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY --------------------------------------------------------------------------------
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[Enlarge/Download Table] Please mark your votes as [ X ] indicated in this example FOR WITHHELD ALL FOR ALL FOR AGAINST ABSTAIN PROPOSAL 1: Election of [ ] [ ] PROPOSAL 2: Approval of [ ] [ ] [ ] The Board of Directors Directors for the term the Phelps Dodge 1998 recommends you vote specified in the proxy Stock Option and Restricted FOR MANAGEMENT Statement: Stock Plan PROPOSALS 1, 2, AND 3. 01 P. Hazen 02 M. Iraola The proxies are 03 M. Knowles instructed to vote as 04 G. Parker FOR AGAINST ABSTAIN directed above, and in their discretion on all WITHHELD FOR: (Write PROPOSAL 3: Ratification [ ] [ ] [ ] other matters. Where no name(s) of nominee(s) of Independent Public direction is specified, below). Accountants this proxy will be ________________________ voted FOR Management ________________________ Proposals 1, 2, and 3 as recommended by the Board of Directors Signature(s)_______________________________________________________________________________ Date_________________________ NOTE: Please sign name exactly as it appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such.
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................................................................................ ^ FOLD AND DETACH HERE ^ PLEASE FOLD AND DETACH HERE AND READ THE REVERSE SIDE HELP US SAVE MONEY - VOTE BY TELEPHONE [GRAPHIC] IF YOU WISH TO VOTE BY TELEPHONE, PLEASE READ THE INSTRUCTIONS BELOW Have your proxy in hand. Decide how you wish to vote. o On a Touch Tone Telephone call Toll Free 1-800-840-1208 24 hours per day - 7 days a week. o You will be asked to enter a Personal Identification number OPTION #1 To vote as the Board of Directors recommends on ALL proposals: Press 1 now. If you wish to vote on each proposal separately, press 0 now. When you Press 1, your vote will be confirmed and cast as you directed. END OF CALL OPTION #2 If you selected to vote on each proposal separately, you will hear these instructions Proposal 1: To vote FOR ALL nominees, press 1; to WITHHOLD FOR ALL nominees, press 9; To WITHHOLD FOR AN INDIVIDUAL nominee, press 0. Please make your selection now. To withhold for individual nominees please enter the two digit number that appears next to the nominee you DO NOT wish to vote for. Once you have completed voting for Directors, press 0. Proposal 2: You may make your selection any time: To vote for, press 1; Against press 9; Abstain press 0. The instructios are the same for all remaining proposal(s). When asked, please confirm your vote by pressing 1. Your vote selection will be repeated and you will have an opportunity to confirm it. Please do not return the above proxy card if you voted by phone. Thank you for voting.
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PHELPS DODGE CORPORATION SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PHELPS DODGE CORPORATION The undersigned shareholder of Phelps Dodge Corporation hereby appoints ROBERT N. BURT, ROBERT D. KREBS 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 Wednesday, May 6, 1998 at 11:30 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 The Chase Manhattan 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, 2 and 3 as recommended by the Board of Directors. Management Proposals: The Board of Directors recommends you vote FOR Management Proposals 1, 2 and 3. Proposal 1: Election of Directors for the respective terms specified in the Proxy Statement; Messrs. Hazen, Iraola, (Mrs.) Knowles and Parker. FOR all WITHHELD WITHHELD for the following only nominees for all nominees (write name(s) of nominee(s) below) [ ] [ ] ____________________________________ PLEASE SIGN ON REVERSE SIDE AND RETURN PROMPTLY
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[Enlarge/Download Table] PROXY Proposal 2: Approval of the Phelps Dodge 1998 FOR [ ] AGAINST [ ] ABSTAIN [ ] Stock Option and Restricted Stock Plan Proposal 3: 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.

Dates Referenced Herein   and   Documents Incorporated by Reference

Referenced-On Page
This ‘DEF 14A’ Filing    Date First  Last      Other Filings
3/4/082840
12/31/022010-K,  10-K/A,  11-K,  NT 10-K
6/1/9910
12/1/9833
For Period End:5/6/98247
4/1/98233
Filed on:3/23/98
3/20/98344
3/4/982840
2/13/9812
2/10/9812SC 13G/A
2/9/981213SC 13G
2/1/9811
1/14/9813
12/31/97101910-K405,  11-K
1/1/9714
6/1/9610
1/1/955
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