<PAGE> 1
1999
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______
Commission file number 1-12001
ALLEGHENY TECHNOLOGIES INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 25-1792394
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
1000 Six PPG Place, Pittsburgh, Pennsylvania 15222-5479
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 394-2800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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Title of each class Name of each exchange on which registered
- --------------------------------------------------------------------------------
Common Stock, $0.10 Par Value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
At March 15, 2000, the Registrant had outstanding 85,061,059 shares of
its Common Stock. The aggregate market value of the Registrant's voting stock
held by non-affiliates at this date was approximately $1.3 billion, based on the
closing price per share of Common Stock on this date of $17-15/16 as reported on
the New York Stock Exchange. Shares of Common Stock known by the Registrant to
be beneficially owned by directors of the Registrant and officers of the
Registrant subject to the reporting and other requirements of Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), are not
included in the computation. The Registrant, however, has made no determination
that such persons are "affiliates" within the meaning of Rule 12b-2 under the
Securities Exchange Act of 1934.
Documents Incorporated By Reference
Selected portions of the 1999 Annual Report to Stockholders - Part I, Part II
and Part IV of this Report.
Selected portions of the Proxy Statement for 2000 Annual Meeting of Stockholders
- - Part III of this Report. The information included in the Proxy Statement as
required by paragraphs (k) and (l) of Item 402 of Regulation S-K is not
incorporated by reference in this Form 10-K.
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<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I.................................................................................................. 3
Item 1. Business.......................................................................... 3
Item 2. Properties........................................................................ 19
Item 3. Legal Proceedings................................................................. 21
Item 4. Submission of Matters to a Vote of Security Holders............................... 21
PART II ................................................................................................ 22
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.......................................................... 22
Item 6. Selected Financial Data........................................................... 22
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................... 22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................ 22
Item 8. Financial Statements and Supplementary Data....................................... 22
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.......................................... 22
PART III ............................................................................................... 22
Item 10. Directors and Executive Officers of the Registrant................................ 22
Item 11. Executive Compensation............................................................ 23
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................................... 23
Item 13. Certain Relationships and Related Transactions.................................... 23
PART IV ................................................................................................ 23
Item 14. Exhibits, Financial Statement Schedules, and Report on Form 8-K................... 23
SIGNATURES.............................................................................................. 25
EXHIBIT INDEX........................................................................................... 26
</TABLE>
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PART I
ITEM 1. BUSINESS
THE COMPANY
Allegheny Technologies is one of the largest and most diversified
producers of specialty materials in the world. We offer to global markets a wide
range of specialty materials which include stainless steel, nickel- and
cobalt-based alloys and superalloys, titanium and titanium alloys, specialty
steel alloys, zirconium and related alloys, and tungsten-based specialty
materials, as well as precision forgings and large grey and ductile iron
castings. The Company operates in the following three business segments, which
accounted for the following percentages of total revenues of $2.3 billion, $2.4
billion and $2.5 billion for each of the three years ended December 31, 1999:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Flat-Rolled Products 56% 49% 51%
High Performance Metals 32% 36% 35%
Industrial Products 12% 15% 14%
</TABLE>
Business segment information presented for 1998 and 1997 has been restated to
conform with the 1999 presentation. Additional financial information with
respect to the Company's business segments, including their contributions to
operating profit and their identifiable assets, for the three years ended
December 31, 1999, is presented under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations" on pages 20 through 23 of the 1999 Annual Report to Stockholders
(the "1999 Annual Report") and in Note 12 of Notes to Consolidated Financial
Statements on pages 46 through 47 of the 1999 Annual Report and is incorporated
herein by reference.
Allegheny Technologies Incorporated is a Delaware corporation with its
principal executive offices located at 1000 Six PPG Place, Pittsburgh,
Pennsylvania 15222-5479, telephone number (412) 394-2800. Allegheny
Technologies, which changed its name from Allegheny Teledyne Incorporated
effective November 29, 1999, was formed on August 15, 1996 in the combination of
Allegheny Ludlum Corporation ("Allegheny Ludlum") and Teledyne, Inc., which
became wholly owned subsidiaries of Allegheny Technologies. References to
"Allegheny Technologies," the "Company" or the "Registrant" mean Allegheny
Technologies Incorporated and its subsidiaries, unless the context otherwise
requires.
COMPLETION OF STRATEGIC TRANSFORMATION
In 1999, the Company completed a major transformation, announced in
January 1999, that included the spin-offs of Teledyne Technologies Incorporated
("Teledyne"), which was comprised of certain businesses in the Company's former
Aerospace and Electronics segment, and Water Pik Technologies, Inc. ("Water
Pik"), which was comprised of businesses in the Company's former Consumer
segment. The spin-offs were completed on November 29, 1999, when the Company
distributed all of the stock of Teledyne (NYSE:TDY) and Water Pik (NYSE:PIK) to
the Company's stockholders of record on November 22, 1999. Prior to the
spin-
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offs, the Company received a ruling from the Internal Revenue Service that the
spin-offs would be tax-free to the Company and its stockholders.
Immediately following the spin-offs, the Company effected a one-for-two
reverse split of its common stock and changed its name from Allegheny Teledyne
Incorporated to Allegheny Technologies Incorporated.
Additionally, as part of this strategic transformation, the Company
sold several businesses, including the following:
o Teledyne Specialty Equipment -- an assembler of hydraulic
attachments for mining and construction equipment, and a
manufacturer of transportable forklifts.
o Teledyne Fluid Systems -- a manufacturer of nitrogen gas springs,
pressure relief valves and vehicle control valves.
o Teledyne Ryan Aeronautical -- a manufacturer of unmanned aerial
vehicles and target drones.
o McCormick Selph Ordnance -- a manufacturer of advanced
controlled pyrotechnic components and systems for
the aerospace industry and automotive safety products.
ACQUISITIONS
The Company has recently made several strategic acquisitions:
Flat-Roll Finishing Facility. On December 22, 1999, the Company
acquired the Washington, Pennsylvania stainless steel sheet and strip finishing
plant of Bethlehem Steel Corporation ("Bethlehem") for $20.5 million in cash.
The plant's Sendzimir mills and anneal and pickle lines provide incremental
production capacity for our flat-rolled sheet and strip products. Company
production at this plant began in the first quarter of 2000.
Melting and Hot Rolling Facilities. In the fourth quarter of 1998, the
Company acquired melting and hot rolling facilities in Houston, Pennsylvania and
a wide anneal and pickle line in Massillon, Ohio from Bethlehem, and entered
into a 20-year conversion services agreement with Bethlehem to provide for the
melting, casting and rolling of the Company's wide stainless steel continuous
mill plate products and nickel-based alloys, for $105 million in cash and $70
million in a promissory note that was paid in 1999. These transactions provide
the Company with additional melting capacity and enable the Company to produce
wide continuous mill plate.
Titanium Production Facilities. In March 1998, the Company acquired the
stock of Oregon Metallurgical Corporation ("Oremet"), an integrated producer and
distributor of titanium sponge, ingot, mill products and castings, in exchange
for Company stock, which expanded the capabilities of our High Performance
Metals segment and also enabled Allegheny Ludlum to enter the titanium
flat-rolled business. Oremet's operations have been integrated into our High
Performance Metals segment.
United Kingdom Specialty Steel, Nickel-Based Alloy and Titanium
Production Facilities. In February 1998, the Company acquired assets in the
United Kingdom, for $110 million in cash, that provide significant support for
and additional capacities in the Company's High
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Performance Metals segment and enhance the sales and distribution network for
the Company's nickel-based alloy, specialty steel and titanium products in
Europe. The acquisition also provides additional vacuum melting, vacuum
consumable remelting, electroslag remelting, and forging capacity.
Strategic Capital Investments. During 1998 and 1999, the Company
completed the installation of and began production on a new vacuum induction
melt furnace capable of producing 50,000 pound heats. This state-of-the-art
furnace provides additional capacity to meet the growing demands for
nickel-based superalloys from several markets, including large land-based
turbines for power generation. The Company also installed and began production
on a new electron beam melt facility for titanium slabs. This new facility
contains one of the largest and most advanced electron beam melt furnaces in the
world and has enhanced the Company's position as a low cost producer of high
quality titanium ingots and slabs. During this same time frame, the Company
installed and began production on a new 60" Sendzimir mill which provides
additional capacity primarily for stainless steel sheet and strip products.
Additional Information. Additional information about recent
acquisitions is included in "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Strategic Acquisitions" on page 20 of the
1999 Annual Report and in Notes 3 and 11 to the Notes to Consolidated Financial
Statements on pages 37 and 45 of the 1999 Annual Report, which information is
incorporated herein by reference. Also see "Forward Looking and Other Statements
- - Uncertainties Relating to Synergies" herein.
OUR BUSINESS
Specialty materials play a significant role in our lives. Allegheny
Technologies is a world leader in the manufacture of specialty materials,
including stainless steel, nickel- and cobalt-based alloys and superalloys,
titanium and titanium alloys, specialty steel alloys, zirconium and related
alloys, and also produces tungsten-based specialty materials, precision forgings
and large grey and ductile iron castings. Specialty materials are produced in a
variety of forms, including sheet, strip, foil, plate, slab, ingot, billet, bar,
rod, wire, coil, tubing, and shapes, and are selected for use in environments
that demand materials having exceptional hardness, toughness, strength,
resistance to heat, corrosion or abrasion, or a combination of these
characteristics. Common end uses of our products include jet engines, air
frames, electrical energy, automotive, chemical processing, oil and gas,
construction and mining, machine and cutting tools, appliances and food
equipment, transportation and medical.
Flat-Rolled Products Segment
The Company produces, converts and distributes stainless steel,
nickel-based alloys and superalloys, titanium and titanium-based alloys in
sheet, strip, plate and foil, and Precision Rolled Strip(R) products, as well as
silicon electric steels and tool steels. Our Flat-Rolled Products segment
consists of Allegheny Ludlum and its 60% interest in the Chinese joint venture
company known as Shanghai Precision Stainless Steel Company Limited ("STAL"),
which began limited commercial production in 1999.
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As compared with carbon steel, stainless steel and nickel-based alloys
contain elements such as chromium, nickel and molybdenum to make them corrosion-
and heat-resistant; titanium and titanium-based alloys provide higher
strength-to-weight ratios and are corrosion-resistant; tool steel alloys, which
contain more carbon than stainless steel, include tungsten, molybdenum and other
metals to make them both hard and malleable; and electrical steel contains
silicon to minimize electrical energy loss when in use. We offer these
flat-rolled products in a broad selection of grades, sizes and finishes designed
to meet international specifications. Finishing capabilities include plasma arc
cutting, shearing, abrasive cutting, sawing and machining. We provide technical
support for material selection and our market basket of alloys and product forms
provides customers with choices to select the optimum alloy for their
application.
Sheet. Stainless steel, nickel-based alloy and titanium alloy sheet
products (24-inches and wider and less than 0.1875-inch thick) are used in a
wide variety of consumer and industrial applications such as food preparation,
appliance, automotive and medical applications that require cleanability,
fabricability and corrosion resistance. Approximately 60% of the Company's
flat-rolled sheet products are sold to service centers, which have slitting,
cutting or other processing facilities, with the remainder sold directly to
end-use customers.
Strip. Stainless steel, nickel-based alloy and titanium alloy strip
products (less than 24-inches wide and less than 0.1875-inch thick) are used in
a variety of consumer products and a wide range of automotive components. We
also offer very thin Precision Rolled Strip(R) products which range in thinness
from 0.015 inch to less than 0.0015 inch (0.038 - 0.003 mm). Our Precision
Rolled Strip(R) products include stainless steel, nickel-based alloys, titanium
and titanium alloys, and carbon and coated-carbon steel which are used by
customers to fabricate a variety of different products ranging from automobile
components to photographic, personal computer, building and construction and
consumer products. Approximately 50% of the Company's flat-rolled strip products
are sold directly to end-use customers, with the remainder sold to service
centers, including the Company's own distribution network for flat-rolled strip
materials which is known as the Allegheny Rodney Strip Service Center Division
of Allegheny Ludlum.
Plate. Stainless steel, nickel-based alloy and titanium alloy plate
products (0.1875-inch and thicker and 10-inches wide) are primarily used in
industrial equipment that requires cleanability or corrosion-resistant
capabilities such as pollution control scrubbers, food processing equipment,
pulp and paper equipment, chemical processing equipment and power generation
equipment. With our flat-roll capabilities, we process and distribute stainless
steel and nickel alloy plate and titanium and titanium alloy plate products in a
wide variety of grades and gauges. Approximately 80% of our flat-rolled plate
products are sold directly to service centers, with the remainder sold to
end-use customers.
Silicon Electric Steel. The Company's grain-oriented silicon electrical
steel products are used generally in applications in which electrical
conductivity and magnetic properties are important. These products are sold
directly to end-use customers, including manufacturers of transformers and
communications equipment.
STAL. In February 1996, the Company established a joint venture company
in the People's Republic of China with Shanghai No. 10 Steel Company Limited for
the production and
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sale of Precision Rolled Strip(R) products. The joint venture, 60% of which is
owned by Allegheny Ludlum, is known as STAL. In 1999, the joint venture began
limited commercial production. The new plant is a fully integrated finishing
facility equipped with two Sendzimir mills, a bright anneal line, slitters, a
tension leveler and roll grinders. It is expected to produce and sell up to
15,000 metric tonnes of Precision Rolled Strip(R) products. This venture is
expected to enhance Allegheny Technologies' participation in the Asian market
and other highly competitive global markets.
High Performance Metals
The Company's High Performance Metals segment produces, converts and
distributes a wide range of high performance alloys, including nickel- and
cobalt-based alloys and superalloys, titanium and titanium-based alloys,
zirconium and related alloys, hafnium, niobium, tantalum, and other specialty
materials, primarily in slab, ingot, billet, bar, rod, wire and coil forms, and
zirconium chemicals. Generally, high performance metals have high strength,
withstand high temperatures, are corrosion resistant or have a combination of
these properties. Our High Performance Metals segment consists of Allvac, Allvac
Ltd, Wah Chang, Titanium Industries, and Rome Metals. The Company is one of two
fully integrated U.S. producers of titanium.
Nickel-, Cobalt- and Titanium-Based Alloys and Superalloys. Our
nickel-, iron-, cobalt- and titanium-based alloys and superalloys are engineered
to retain exceptional strength and corrosion resistance at temperatures through
2,000 degrees Fahrenheit and are used in critical, high-stress applications.
These products are designed for the high performance requirements of aerospace,
oil and gas, chemical processing, transportation, power generation, biomedical,
marine and nuclear industries.
Two major capital investments were completed in 1998-1999 which
increase the production capabilities of the Company's High Performance Metals
businesses. A new vacuum induction furnace capable of producing 50,000-pound
heats provides additional capacity for our nickel-based superalloys capacity. A
new electron beam melt facility located in Richland, Washington produces
titanium ingots and slabs.
Zirconium and Hafnium. We are also a leading U.S. producer of
zirconium, a highly corrosion-resistant metal that is transparent to neutrons.
It is used for fuel tubes and structural parts in nuclear power reactors and for
corrosion-resistant chemical industry applications. Other users of zirconium
include the jewelry and personal hygiene industries. Hafnium, derived as a
by-product of zirconium, is used for control rods in nuclear reactors due to its
ability to absorb neutrons.
Niobium and Tantalum. The Company produces niobium, also known as
columbium, in various forms and alloys. Niobium, a high-technology metal, is
used as an alloying element in the manufacture of many steels. The higher
quality grades the Company produces are used as an alloying addition in
superalloys for jet engines and other specialty alloys for aerospace
applications such as rocket nozzles. When alloyed with titanium, niobium is used
in applications requiring superconducting characteristics for high-strength
magnets. Niobium-titanium alloys
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are also used in medical devices for body-scanning, accelerators for high-energy
physics, and fusion energy projects for the generation of electricity.
The Company also produces tantalum, one of the most corrosion-resistant
metals, for medical implants, chemical process equipment and aerospace engine
components.
Industrial Segment
The Industrial Products segment's principal business produces tungsten
powder, tungsten carbide materials and carbide cutting tools. The segment also
produces large grey and ductile iron castings and carbon, alloy steel and
non-ferrous forgings. The companies in this segment are Metalworking Products,
Casting Service and Portland Forge.
Cutting Tools and Tungsten Products. For the metalworking, mining and
other industries requiring tools with extra hardness, the Company produces a
line of sintered tungsten carbide products, made under heat, to produce a
material that approaches diamond hardness. Cemented carbide products, which may
be coated or uncoated, are used as super-hard cutters in the high-speed
machining and cutting of steel and other applications where hardness and wear
resistance are important. Technical developments related to ceramics, coatings,
and other disciplines are incorporated in these products.
The Company also produces tungsten for the worldwide market, starting
with numerous and varied tungsten-bearing raw materials and resulting in
tungsten and tungsten carbide powders. Previously used cemented carbide parts
are also recycled into tungsten carbide powder.
Molybdenum, a sister metal to tungsten, which also has a very high
melting point, is produced by Metalworking Products in powder form and then
shaped into solid forms through powder metallurgy techniques. It is an important
alloying element for steels and is used for plasma arc spraying of piston rings,
for electrodes in glass melting, and for structural parts in high temperature
furnaces.
Forgings and Castings. The Company forges carbon and alloy steel into
finished forms that are used in a diverse number of industries. With the latest
screw-type forging presses, Portland Forge produces carbon and alloy steel
forgings in sizes ranging from one pound to more than 200 pounds.
We also cast a variety of metals in sizes ranging from 1,000 pounds to
160,000 pounds and forms ranging from diesel locomotive engine blocks to
housings and parts for power generation equipment, tools, and automobiles.
COMPETITION
Markets for the Company's products and services in each of its
principal business segments are highly competitive. The Company competes with
many manufacturers which, depending on the product involved, range from large
diversified enterprises to smaller companies specializing in particular
products. Factors that affect the Company's competitive posture are the
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quality of its products, services and delivery capabilities, its research and
development efforts, its marketing strategies and price.
Our companies face competition from domestic and foreign competitors, a
number of which are government subsidized. By July 1999, the United States had
imposed antidumping and countervailing duties ranging up to 60% on dumped and
subsidized imports of stainless steel sheet and strip in coils and stainless
steel plate in coils from companies in ten foreign countries. Allegheny Ludlum
and other domestic producers of flat-rolled stainless steel sheet and strip
products in coils and stainless steel plate in coils and several unions had
filed petitions with the International Trade Commission and the Department of
Commerce in 1998 charging companies in these ten countries with violations of
U.S. trade laws.
RAW MATERIALS AND SUPPLIES
Substantially all parts and materials required in the manufacture of
the Company's products are available from more than one supplier and the sources
and availability of raw materials essential to its businesses are adequate.
The principal materials used by the Company in the production of its
specialty materials are scrap (including nickel-, chromium-, titanium- and
molybdenum-bearing scrap), nickel, titanium sponge, zirconium, ferrochromium,
ferrosilicon, molybdenum and molybdenum alloys, manganese and manganese alloys,
cobalt, niobium and other alloying materials.
Purchase prices of certain critical raw materials are volatile. As a
result, the Company's operating results could be subject to significant
fluctuation. For example, since the Company generally uses in excess of 47,500
tons of nickel each year, a hypothetical change of $1.00 per pound in nickel
prices would result in increased costs of approximately $95 million.
In addition, certain of these raw materials, such as nickel, cobalt and
ferrochromium, can be acquired by the Company and its specialty materials
industry competitors, in large part, only from foreign sources. Some of these
foreign sources are located in countries that may be subject to unstable
political and economic conditions, which might disrupt supplies or affect the
price of these materials.
The Company purchases its nickel requirements principally from
producers in Australia, Canada, Norway, Russia, and the Dominican Republic.
Zirconium sponge is purchased from a source in France, while zirconium sand is
purchased from both U.S. and Australian sources. Cobalt is purchased primarily
from producers in Canada. More than 80% of the world's reserves of ferrochromium
are located in South Africa, Zimbabwe, Albania, and Kazakhstan. Titanium
tetrachloride, the principal raw material required for the production of
titanium sponge, is supplied to the Company under a long-term contract with a
U.S. source. We also use large amounts of electricity and natural gas in the
manufacture of our products.
See "Forward Looking and Other Statements - Volatility of Prices of
Critical Raw Materials; Unavailability of Raw Materials."
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GOVERNMENT CONTRACTS
For the year ended December 31, 1999, approximately 2% of the Company's
total sales were attributable to sales under contracts with the U.S. Government.
Sales to the Department of Defense accounted for approximately 1% of total sales
in 1999. Most of the Company's contracts with the U.S. Government are terminable
at the convenience of the government.
See the discussion of related matters under the caption "Forward
Looking and Other Statements - Risks Associated with Government Contracts."
Additional related information is presented under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations - Other
Matters - Government Contracts" on page 26 of the 1999 Annual Report and in Note
15 of Notes to Consolidated Financial Statements on pages 49 to 50 of the 1999
Annual Report.
EXPORT SALES AND FOREIGN OPERATIONS
International sales represented approximately 20%, 19%, and 16% of the
Company's total sales in 1999, 1998, and 1997 respectively. These figures
include export sales by U.S. operations to customers in foreign countries, which
accounted for approximately 13%, 11%, and 12% of the Company's total sales in
each of 1999, 1998 and 1997, respectively. See "Forward Looking and Other
Statements - Risks of Export Sales." The Company's overseas sales, marketing and
distribution efforts are aided by international marketing offices or
representatives located in Europe, Asia, South America, and the Middle East.
In December 1995, the Company acquired the Stellram group,
manufacturers of high precision threading, milling, boring and drilling systems
for the European market. In 1998, the Company expanded its presence
internationally and expects to continue such expansion. In February 1998, the
Company acquired manufacturing capabilities in the United Kingdom. This
acquisition has enhanced service to customers by improving the sales and
distribution network for the Company's nickel-based alloys, specialty steel and
titanium in Europe. In 1999, the STAL joint venture in the People's Republic of
China, which was established in 1996, completed plant construction and began
limited commercial production of Precision Rolled Strip(R) products. This
venture should enable the Company to offer its Precision Rolled Strip(R)
products more effectively to the Asian markets.
BACKLOG, SEASONALITY AND CYCLICALITY
The Company's backlog of confirmed orders was approximately $595.8
million at December 31, 1999 and $697.2 million at December 31, 1998. During the
year ending December 31, 2000, it is anticipated that approximately 87% of
confirmed orders on hand at December 31, 1999 will be filled. Backlog of
confirmed orders of the Flat-Rolled Products segment was $138.4 million at
December 31, 1999 and $186.0 million at December 31, 1998. During the year
ending December 31, 2000, it is anticipated that approximately 100% of the
confirmed orders on hand at December 31, 1999 for this segment will be filled.
Backlog of confirmed orders of the High Performance Metals segment was $395.8
million at December 31, 1999 and $432.6 million at December 31, 1998. During the
year ending December 31, 2000, it is anticipated that approximately 80% of the
confirmed orders on hand at December 31, 1999 for this segment will be filled.
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Generally, sales and operations of the Company's businesses are not
seasonal. However, demand for products of the Company's businesses are cyclical
over longer periods because specialty materials customers operate in cyclical
industries and are subject to changes in general economic conditions. See
"Forward Looking and Other Statements - Cyclical Demand for Products."
RESEARCH, DEVELOPMENT AND TECHNICAL SERVICES
The Company's management believes that the Company's research and
development capabilities give it an edge in developing new products with
profitable growth potential on a long-term basis. The Company conducts research
and development at its various operating locations both for its own account and,
on a limited basis, for customers on a contract basis. Estimates of the
components of research and development for each of the Company's segments,
including bid and proposal costs, for the years ended December 31, 1999, 1998,
and 1997 included the following:
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Customer-Sponsored:
High Performance Metals $1.1 $ 0.8 $ 2.5
Company-Sponsored:
Flat-Rolled Products 7.3 7.4 8.3
High Performance Metals 5.7 8.3 9.2
Industrial Products 2.2 2.4 1.7
----- ----- -----
15.2 18.1 19.2
Total Research and Development $16.3 $18.9 $21.7
===== ===== =====
</TABLE>
With respect to the Flat-Rolled Products and High Performance Metals
segments, the Company's research, development and technical service activities
are closely interrelated and are directed toward cost reduction, process
improvement, process control, quality assurance and control, system development,
the development of new manufacturing methods, the improvement of existing
manufacturing methods, the improvement of existing products, and the development
of new products.
The Company owns several hundred United States patents, many of which
are also filed under the patent laws of other nations. Although these patents,
as well as the Company's numerous trademarks, technical information license
agreements, and other intellectual property, have been and are expected to be of
value, management believes that the loss of any single such item or technically
related group of such items would not materially affect the conduct of its
business.
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ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
The Company is subject to various domestic and international
environmental laws and regulations which require that it investigate and
remediate the effects of the release or disposal of materials at sites
associated with past and present operations, including sites at which the
Company has been identified as a potentially responsible party under the
Comprehensive Environmental Response, Compensation and Liability Act, commonly
known as Superfund, and comparable state laws. The Company is currently involved
in the investigation and remediation of a number of sites under these laws. The
Company's reserves for environmental remediation totaled approximately $58.1
million at December 31, 1999. Based on currently available information,
management does not believe that future environmental costs in excess of those
accrued with respect to sites with which the Company has been identified are
likely to have a material adverse effect on the Company's financial condition or
liquidity. The resolution in any reporting period of one or more of these
matters could have a material adverse effect on the Company's results of
operations for that period. In addition, there can be no assurance that
additional future developments, administrative actions or liabilities relating
to environmental matters will not have a material adverse effect on the
Company's financial condition or results of operation.
With respect to proceedings brought under the federal Superfund laws,
or similar state statutes, the Company has been identified as a potentially
responsible party at approximately 32 of such sites, excluding those at which it
believes it has no future liability. The Company's involvement is very limited
or de minimis at approximately 14 of these sites, and the potential loss
exposure with respect to any of the remaining 18 individual sites is not
considered to be material.
See the discussion of related matters herein under the caption "Forward
Looking and Other Statements - Risks Associated with Environmental Matters" and
in Item 3. Legal Proceedings. Additional related information is presented under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Other Matters -Environmental" on page 26 of the 1999
Annual Report and in Notes 1 and 15 of Notes to Consolidated Financial
Statements on pages 35 and 49-50 of the 1999 Annual Report.
EMPLOYEES
The Company has approximately 11,500 employees. Approximately 48% of
the Company's workforce is covered by various collective bargaining agreements,
principally with the United Steelworkers of America ("USWA"), including:
approximately 400 Oremet employees covered by a collective bargaining agreement
with the USWA, which is effective through July 31, 2000; approximately 600 Wah
Chang employees covered by a collective bargaining agreement with the USWA,
which is effective through October 1, 2000; and approximately 3,900 Allegheny
Ludlum production and maintenance employees covered by collective bargaining
agreements between Allegheny Ludlum and the USWA, which are effective through
June 30, 2001.
In 1994, following the expiration of a prior collective bargaining
agreement between Allegheny Ludlum and the USWA, the USWA authorized a strike by
its members that lasted
12
<PAGE> 13
10 weeks and materially adversely affected Allegheny Ludlum's operating results.
There can be no assurance that the Company will succeed in concluding collective
bargaining agreements with the USWA or other unions to replace those that
expire.
PRINCIPAL OFFICERS OF THE REGISTRANT
Principal officers of the Company as of March 15, 2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Thomas A. Corcoran 55 President and Chief Executive Officer*
James L. Murdy 61 Executive Vice President, Finance and Administration and Chief
Financial Officer*
Judd R. Cool 64 Senior Vice President, Human Relations*
Jon D. Walton 57 Senior Vice President, General Counsel & Secretary*
Terry L. Dunlap 40 Vice President, e-Business
Richard J. Harshman 43 Vice President, Investor Relations and Corporate Communications
Robert S. Park 55 Vice President, Treasurer
Dale G. Reid 44 Vice President, Controller and Chief Accounting Officer*
</TABLE>
Set forth below are descriptions of the business background for the
past five years of the principal officers of the Company.
Thomas A. Corcoran has been President and Chief Executive Officer since
October 1999. Mr. Corcoran also serves as a director of the Company. Prior to
joining the Company, Mr. Corcoran served as the President and Chief Operating
Officer of the Electronics Sector of Lockheed Martin Corporation from March 1995
through October 1998, and he was President and Chief Operating Officer of the
Lockheed Martin Space Sector from October 1998 through September 1999. Mr.
Corcoran will become Chairman of the Company's Board of Directors following the
retirement of Richard P. Simmons as Chairman on May 11, 2000.
James L. Murdy has been Chief Financial Officer and a Senior Vice
President of the Company since August 1996 and Executive Vice President, Finance
and Administration since December 1996. Mr. Murdy previously served as the
Senior Vice President-Finance and Chief Financial Officer of Allegheny Ludlum.
Mr. Murdy also serves as a director of the Company.
Judd R. Cool has been Senior Vice President, Human Resources since
September 1997. Prior to joining the Company, Mr. Cool served as Vice President
for Human Resources for Inland Steel Industries, Inc.
Jon D. Walton has been Senior Vice President, General Counsel and
Secretary of the Company since August 1997 and served as Vice President, General
Counsel and Secretary of the
- --------------
* Such officers are subject to the reporting and other requirements of
Section 16 of the Securities Exchange Act of 1934, as amended.
13
<PAGE> 14
Company from August 1996 to August 1997, having previously served in the same
capacity as an officer of Allegheny Ludlum.
Terry L. Dunlap will serve as Vice President, e-Business effective
April 1, 2000. He has served as General Manager, Sheet Products for Allegheny
Ludlum since 1998. Mr. Dunlap previously served in a number of management
positions with Allegheny Ludlum.
Richard J. Harshman has served as Vice President, Investor Relations
and Corporate Communications since July 1998. He had been Senior Vice President,
Finance and Administration, at Allvac since 1995. Prior thereto, he served in a
number of financial and management corporate and operating positions with
Teledyne, Inc.
Robert S. Park has served as Vice President, Treasurer of the Company
since August 1996. From May 1994 to August 1996, Mr. Park served as Vice
President, Treasurer of Allegheny Ludlum. Previously, he served as Treasurer of
Allegheny Ludlum.
Dale G. Reid has served as a Vice President of the Company since May
1997 and Controller since August 1996. Mr. Reid previously served as Chief
Accounting Officer and Controller of Teledyne.
Messrs. Corcoran, Murdy and Walton have employment agreements with the
Company. Copies of the employment agreements are filed as Exhibits 10.19, 10.17,
and 10.18 to this Form 10-K. Other employment related agreements with Mr.
Corcoran are filed as Exhibits 10.20 and 10.21 to this Form 10-K.
The Company has executed change in control agreements with certain key
employees, including all of our principal officers listed above, a form of which
is filed as Exhibit 10.22 to this Form 10-K.
FORWARD LOOKING AND OTHER STATEMENTS
From time to time, the Company has made and may continue to make
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. This annual report contains many forward looking
statements. These statements, which represent the Company's expectations or
beliefs concerning various future events, include statements concerning: product
demand, including projected growth in stainless steel consumption; prices; raw
material costs; anticipated effects of acquisitions on earnings, cost savings
and operations of the Company; cash flow; anticipated business and economic
conditions; aerospace industry trends; cost reductions; certain expected capital
expenditures; impact of Year 2000 issues; effects of the euro currency
conversion; the outcome of any government inquiries, litigation or other
proceedings related to government contracts or other matters; and future
environmental costs. These statements are based on current expectations that
involve a number of risks and uncertainties, including those described under the
captions "Management's Discussion and Analysis of Financial Condition and
Results of Operation - Other Matters - Environmental" and "Management's
Discussion and Analysis of Financial Condition and Results of Operation - Other
Matters - Government Contracts" on page 26 of the 1999 Annual Report. Actual
results
14
<PAGE> 15
may differ materially from results anticipated in forward looking statements.
The Company assumes no duty to update its forward-looking statements. Other
important factors that could cause actual results to differ from those in such
forward-looking statements include the following:
Cyclical Demand for Products. Demand for the Company's products is
cyclical because the industries in which customers of such businesses operate
are cyclical. Various changes in general economic conditions affect these
industries, including decreases in the rate of consumption or use of their
products due to economic recessions. Significant downturns in the domestic
economy are believed to have adversely affected the Company's results of
operations from time to time. Other factors causing fluctuation in market demand
and volatile pricing include national and international overcapacity, currency
fluctuations, lower priced imports and increases in use or decreases in prices
of substitute materials.
The current trend of price deflation for many commodity products may
also adversely affect prices for commodity grades of specialty materials and
industrial products. As a result of these factors, the Company's operating
results could be subject to significant fluctuation. For example, in recent
years, adverse pricing environments for commodity grades of stainless steel,
titanium and tungsten products have negatively affected the Company's sales and
operating profit.
Volatility of Prices of Critical Raw Materials; Unavailability of Raw
Materials. Purchase prices of certain critical raw materials are volatile. As a
result, the Company's operating results could be subject to significant
fluctuation. For example, since the Company generally uses in excess of 47,500
tons of nickel each year, a hypothetical change of $1.00 per pound in nickel
prices would result in increased costs of approximately $95 million. While
nickel surcharges are intended to offset the impact of increased nickel costs,
competitive factors in the marketplace can limit the Company's ability to
institute surcharges and there can be a delay between the increase in the price
of nickel and the realization of the benefit of the surcharges. The Company
enters into raw material future contracts from time to time to hedge its
exposure to price fluctuation. The Company believes that it has adequate
controls to monitor these contracts, which are not financially material.
Certain important raw materials used to produce specialty materials
must be acquired from foreign sources. Some of these sources operate in
countries that may be subject to unstable political and economic conditions.
These conditions may disrupt supplies or affect the prices of these materials.
Risks of Export Sales. The Company believes that export sales will
account for an increasing percentage of the Company's sales. Risks associated
with export sales include: political and economic instability, including weak
conditions in the world's economies; accounts receivable collection; export
controls; changes in legal and regulatory requirements; policy changes affecting
the markets for the Company's products; changes in tax laws and tariffs; and
exchange rate fluctuations (which may affect sales to international customers
and the value of and profits earned on export sales when converted into
dollars). Any of these factors could materially adversely effect the Company's
results.
15
<PAGE> 16
Risks Associated with Acquisition and Disposition Strategies. The
Company intends to continue to strategically position its businesses in order to
improve its ability to compete. The Company plans to do this by seeking
specialty niches, expanding its global presence, acquiring businesses
complementary to existing strengths and continually evaluating the performance
and strategic fit of existing business units. The Company regularly considers
acquisition and business combination opportunities as well as possible business
unit dispositions. Its management from time to time holds discussions with
management of other companies to explore such opportunities. As a result, the
relative makeup of the businesses comprising the Company is subject to change.
Acquisitions involve various inherent risks, such as: assessing accurately the
value, strengths, weaknesses, contingent and other liabilities and potential
profitability of acquisition candidates; the potential loss of key personnel of
an acquired business; the Company's ability to achieve identified financial and
operating synergies anticipated to result from an acquisition; and unanticipated
changes in business and economic conditions affecting an acquired business.
International acquisitions could be affected by export controls, exchange rate
fluctuations, the euro conversion, domestic and foreign political conditions and
a deterioration in domestic and foreign economic conditions.
Uncertainties Relating to Synergies. There can be no assurance that the
Company will be able to realize, or do so within any particular time frame, the
cost reductions, cash flow increases or other synergies expected to result from
acquisitions and other transactions the Company may undertake or be able to
generate additional revenue to offset any unanticipated inability to realize
such expected synergies. Realization of the anticipated benefits of acquisitions
and other transactions could take longer than expected and implementation
difficulties, market factors and a deterioration in domestic or global economic
conditions could alter the anticipated benefits.
Uncertainties Relating to Spin-Offs - General. In the spin-offs of
Teledyne and Water Pik, completed in November 1999, the new companies agreed to
assume and to defend and hold the Company harmless against all liabilities
(other than certain income tax liabilities) associated with the historical
operations of their businesses, including all government contracting,
environmental, product liability and other claims and demands, whenever any such
claims or demands might arise or be made. If the new companies were unable or
otherwise fail to satisfy these assumed liabilities, the Company could be
required to satisfy them, which could have a material adverse effect on the
Company's results of operations and financial condition.
Uncertainties Relating to Spin-Offs - Tax Ruling. While the tax ruling
relating to the qualification of the spin-offs of Teledyne and Water Pik as
tax-free distributions within the meaning of the Internal Revenue Code generally
is binding on the Internal Revenue Service, the continuing validity of the tax
ruling is subject to certain factual representations and uncertainties that,
among other things, require the new companies to take or refrain from taking
certain actions. If a spin-off were not to qualify as a tax-free distribution
within the meaning of the Internal Revenue Code, the Company would recognize
taxable gain generally equal to the amount by which the fair market value of the
common stock distributed to the Company's stockholders in the spin-off exceeded
the Company's basis in the new company's assets. In addition, the distribution
of the new company's common stock to Company stockholders would generally be
treated as taxable to the Company's stockholders in an amount equal to the fair
market value of the common stock they received. If a spin-off qualified as a
distribution within the meaning of the Internal Revenue Code but was
disqualified as tax-free to the Company
16
<PAGE> 17
because of certain post-spin-off circumstances, the Company would recognize
taxable gain as described in the preceding sentence, but the distribution of the
new company's common stock to the Company's stockholders in the spin-off would
generally be tax-free to each Company stockholder. In the spin-offs, the new
companies executed tax sharing and indemnification agreements in which each
agreed to be responsible for any taxes imposed on and other amounts paid by the
Company, its agents and representatives and its stockholders as a result of the
failure of the spin-off to qualify as a tax-free distribution within the meaning
of the Internal Revenue Code if the failure or disqualification is caused by
post-spin-off actions by or with respect to that company or its stockholders.
Potential liabilities under these agreements could exceed the respective new
company's net worth by a substantial amount. If either or both of the spin-offs
were not to qualify as tax-free distributions to the Company or its
stockholders, and either or both of the new companies were unable to or
otherwise failed to satisfy the liabilities they assumed under the tax sharing
and indemnification agreements, the Company could be required to satisfy them
without full recourse against the new companies. This could have a material
adverse effect on the Company's results of operations and financial condition.
Risks Associated with Environmental Matters. The Company is subject to
various domestic and international environmental laws and regulations. These
laws have changed in recent years, and the Company expects to face increasingly
stringent environmental standards in the future.
The Company believes that it operates its businesses in compliance in
all material respects with applicable environmental laws and regulations.
However, the Company is a party to lawsuits and other proceedings involving
alleged violations of environmental laws. When the Company's liability is
probable and it can reasonably estimate its costs, the Company records
environmental liabilities on its financial statements. However, some of these
environmental investigations are not at a stage where the Company has been able
to determine liability, or if liability is probable, to reasonably estimate the
loss or range of loss. Estimates of the Company's liability remain subject to
additional uncertainties regarding: the nature and extent of site contamination;
the range of remediation alternatives available; evolving remediation standards;
imprecise engineering evaluations and estimates of appropriate cleanup
technology, methodology and cost; the extent of corrective actions that may be
required; and the number and financial condition of other potentially
responsible parties, as well as the extent of their responsibility for the
remediation. Accordingly, as investigation and remediation of these sites
proceed and the Company receives new information, the Company expects that it
will adjust its accruals to reflect new information. Future adjustments could
have a material adverse effect on the Company's results of operations in a given
period, but the Company cannot reliably predict the amounts of such future
adjustments.
Based on currently available information, the Company's management does
not believe that future environmental costs, in excess of those already accrued,
will materially adversely affect the Company's financial condition or results of
operations. However, the Company cannot provide any assurance that additional
future developments, administrative actions or liabilities relating to
environmental matters will not have a material adverse effect on the Company's
financial condition or results of operations.
17
<PAGE> 18
Risks Associated with Government Contracts. One of the Company's
operating companies directly performs work on contracts with the U.S.
Government. Various claims (whether based on U.S. Government or Company audits
and investigations or otherwise) have been or may be asserted against the
Company related to its U.S. Government contract work, principally related to the
former operations of Teledyne, Inc., including claims based on business
practices and cost classifications and actions under the False Claims Act. Under
the False Claims Act, a person may assert the rights of the U.S. Government by
initiating a suit under seal against a contractor. For the claim to be
successful, the person must have information that the contractor falsely
submitted a claim to the U.S. Government for payment. The U.S. Government may
choose to intervene and assume control of the case.
Government contracting claims may be resolved by detailed fact-finding
and negotiation. When they are not resolved in that way, civil or criminal legal
or administrative proceedings may ensue. Depending on the circumstances and the
outcome, such proceedings could result in fines, penalties, compensatory and
treble damages or the cancellation or suspension of payments under one or more
U.S. Government contracts. Under government regulations, a company, or one or
more of its operating divisions or units, can also be suspended or debarred from
government contracts based on the results of investigations.
Given the limited extent of the Company's business with the U.S.
Government, the Company believes that a suspension or debarment of the Company
would not have a material adverse effect on the future operating results and
consolidated financial condition of the Company. Although the outcome of these
matters cannot be predicted with certainty, management does not believe there is
any audit, review or investigation currently pending against the Company of
which management is aware that is likely to have a material adverse effect on
the Company's financial condition or liquidity. The resolution in any reporting
period of one or more of these matters could have a material adverse effect on
the Company's results of operations for that period.
Risks Associated with the Year 2000. The Company did not experience any
significant malfunctions or errors in its operating or business systems when the
year changed from 1999 to 2000. Based on its operational experience since
January 1, 2000, the Company does not expect that Year 2000 matters will have a
significant adverse effect on its business in the future. The full impact of the
date change, which was of concern due to computer programs that use two digits
instead of four digits to define years, may, however, not yet be fully known.
For example, it is possible that Year 2000 or related problems such as those
possibly associated with the fact that 2000 is a leap year, could occur with
respect to billing, payroll or financial closings at month-, quarter- or
year-end. The Company believes that any such problems are not likely to be
material. In addition, Year 2000 or similar problems that adversely affect the
Company's customers or suppliers could have an impact on the Company. To date,
the Company has not experienced significant difficulties resulting from Year
2000 problems of its customers and suppliers.
The Company expended $16 million on Year 2000 readiness efforts in 1998
and 1999. These efforts included replacing outdated, noncompliant hardware and
noncompliant software as well as identifying and remediating other Year 2000
problems. Substantially all costs related to
18
<PAGE> 19
the Company's Year 2000 initiatives were expensed as incurred and funded through
operating cash flows.
ITEM 2. PROPERTIES
The Company's principal domestic facilities as of December 31, 1999 are
listed below by segment. Of those facilities listed below which are owned, three
are subject to mortgages or similar encumbrances securing borrowings under
certain industrial development authority financings. See Note 5 of the Notes to
Consolidated Financial Statements beginning on page 38 of the 1999 Annual
Report. Although the facilities vary in terms of age and condition, the
Company's management believes that these facilities have generally been
well-maintained.
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE FOOTAGE
FACILITY LOCATION PRINCIPAL USE (OWNED/LEASED)
----------------- ------------- --------------
<S> <C> <C>
FLAT-ROLLED PRODUCTS
Brackenridge Works Manufacturing of stainless steel and specialty 2,443,000 (owned)
Brackenridge and Natrona, PA material strip, sheet, and plate, silicon electrical
steel strip and sheet, and other specialty steel
strip and sheet.
West Leechburg Works Manufacturing of stainless steel and specialty 1,415,000 (owned)
West Leechburg and material strip and sheet, silicon electrical steel
Bagdad, PA strip and sheet, and other specialty steel strip and
sheet.
Vandergrift Plant Manufacturing of stainless steel strip and sheet. 966,000 (owned)
Vandergrift, PA
Washington Plant Manufacturing of stainless steel and tool steel plate 615,000 (owned)
Washington, PA products.
Washington Flat-Roll Plant Anneal, pickle, roll and finish stainless steel sheet 350,000 (owned)
Washington, PA products.
Wallingford Plant Manufacturing of stainless steel and specialty 591,000 (owned)
Wallingford and material strip and sheet and other specialty strip
Waterbury, CT and sheet.
Houston Plant Manufacturing of stainless steel and other specialty 298,000 (owned)
Houston, PA material products.
Lockport Plant Manufacturing of stainless steel and other specialty 282,000 (owned)
Lockport, NY material products.
New Castle Plant Manufacturing of stainless steel sheet. 178,000 (owned)
New Castle, IN
Massillon Plant 96-inch wide anneal and pickle line for manufacture 165,000 (owned)
Massillon, OH of stainless steel and other specialty material plate.
Allegheny Rodney Strip Plant Manufacturing of stainless steel precision rolled and 250,000 (owned)
New Bedford, MA coated thin sheet strip and foil, custom roll-formed
and stretch-formed shapes.
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE FOOTAGE
FACILITY LOCATION PRINCIPAL USE (OWNED/LEASED)
----------------- ------------- --------------
<S> <C> <C>
HIGH PERFORMANCE METALS
Monroe Plant Production of nickel and titanium products and other 640,000 (owned)
Monroe, NC specialty steel long products.
Latrobe Plant Production of nickel and titanium products, tool and 468,000 (owned)
Latrobe, PA high speed steel, and other specialty steel long
products.
Richburg Plant Production of nickel and titanium products, tool and 221,000 (owned)
Richburg, SC high speed steel, and other specialty steel long
products.
Bakers Plant Production of titanium ingot. 60,000 (owned)
Monroe, NC
Oremet Facility Production of titanium sponge, ingot, mill products 461,000 (owned)
Albany, OR and castings.
Wah Chang Facility Production of zirconium, hafnium, niobium, titanium 1,215,000 (owned)
Albany, OR and tantalum.
Richland Plant Production of titanium ingots, slabs and electrodes. 103,000 (owned)
Richland, WA
INDUSTRIAL PRODUCTS
Waynesboro, PA Production of thread-cutting and roll-forming 386,000 (owned)
equipment and perishable tools.
Huntsville, AL Production of molybdenum, tungsten, and tungsten 293,000 (owned)
carbide powders.
Grant, AL Production of primary tungsten sintered parts. 88,000 (leased)
Nashville, TN Production of tungsten carbide and cutting tools. 134,000 (leased)
La Porte, IN Manufacturing of large ductile and grey iron castings. 453,000 (owned)
Portland, IN Manufacturing of carbon and alloy steel forgings. 215,000 (owned)
Lebanon, KY Manufacturing of carbon and alloy steel forgings. 100,000 (owned)
</TABLE>
The Company also owns or leases facilities in a number of foreign
countries, including the United Kingdom, Germany, France, Italy, Spain, and
Switzerland. In connection with the Company's February 1998 acquisition of
assets in the United Kingdom, the Company acquired 625,000-square foot
facilities for melt and remelt, machining and bar mill operations, laboratories
and offices located on a 25-acre site in Sheffield, England, and 40,000-square
foot leased facility for computer numerically controlled milling and machine
operations.
20
<PAGE> 21
The Company's executive offices, located at PPG Place in Pittsburgh,
Pennsylvania are leased from third parties. These facilities are modern and
sufficient for the Company to carry on its current activities.
ITEM 3. LEGAL PROCEEDINGS
The Company becomes involved from time to time in various lawsuits,
claims and proceedings relating to the conduct of its business, including those
pertaining to environmental, government contracting, product liability, patent
infringement, commercial, employment, employee benefits, and stockholder
matters.
In June 1995, the U.S. Department of Justice commenced an action
against Allegheny Ludlum in the United States District Court for the Western
District of Pennsylvania, alleging multiple violations of the federal Clean
Water Act. The complaint seeks injunctive relief and assessment of penalties of
up to $25,000 per day of violation. Discovery has been completed. The Company
believes that a trial of the case would begin no earlier than the first quarter
of 2001.
As previously announced, the Company has received a subpoena from a
federal grand jury investigating possible violations of the federal antitrust
laws in the nickel alloys industry. The Company has cooperated with the
Department of Justice regarding their investigation. Sales of nickel-based
alloys represent less than ten percent of the Company's revenue. The Company has
a comprehensive program designed to ensure that the antitrust laws are complied
with. The Company believes that its program is effective and well understood by
its employees and that its employees would not violate the antitrust laws.
While the outcome of litigation, including the matters specified above,
cannot be predicted with certainty, and some lawsuits, claims or proceedings may
be determined adversely to the Company, management does not believe that the
disposition of any such pending matters is likely to have a material adverse
effect on the Company's financial condition or liquidity, although the
resolution in any reporting period of one or more of these matters could have a
material adverse effect on the Company's results of operations for that period.
See the discussion of related matters in Item 1 of Part I of this Form
10-K under the captions "Environmental, Health and Safety Matters."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 11, 1999, the Company held a special meeting of
stockholders. At that meeting, an amendment to the Company's Restated
Certificate of Incorporation was approved to effect a one-for-two reverse split
of the Company's common stock and to reduce the number of authorized shares of
common stock. The number of votes cast for the proposal was 144,370,015, against
was 19,160,802, and in abstention was 662,341, and there were no broker
non-votes.
21
<PAGE> 22
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information required by this item is incorporated by reference to Note
16 of the Notes to Consolidated Financial Statements on page 51 of the 1999
Annual Report and to "Common Stock Price" on page 52 of the 1999 Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this item is incorporated by reference to
"Selected Financial Data" on pages 53 and 54 of the 1999 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information required by this item is incorporated by reference to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 19 through 28 of the 1999 Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this item is incorporated by reference to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Other Matters -Hedging" on pages 25 and 26 of the 1999 Annual
Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Notes to Consolidated
Financial Statements listed in Item 14(a)(1) are incorporated by reference to
pages 29 through 51 of the 1999 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
In addition to the information set forth under the caption "Principal
Officers of the Registrant" in Part I of this report, the information concerning
the directors of the Company required by this item is incorporated by reference
to "Election of Directors" as set forth in the 2000 Proxy Statement filed by the
Registrant pursuant to Regulation 14A.
22
<PAGE> 23
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference to
"Directors Compensation," "Executive Compensation" and "Compensation Committee
Interlocks and Insider Participation" as set forth in the 2000 Proxy Statement
filed by the Registrant pursuant to Regulation 14A. The Registrant does not
incorporate by reference in this Form 10-K either the "Report on Executive
Compensation" or the "Cumulative Total Stockholder Return" section of the 2000
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated by reference to
"Stock Ownership Information" as set forth in the 2000 Proxy Statement filed by
the Registrant pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated by reference to
"Certain Transactions" as set forth in the 2000 Proxy Statement filed by the
Registrant pursuant to Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) EXHIBITS AND FINANCIAL STATEMENT SCHEDULES:
(1) FINANCIAL STATEMENTS
The following consolidated financial statements included on pages 29
through 51 of the 1999 Annual Report are incorporated by reference:
Consolidated Statements of Income - Years Ended December 31, 1999, 1998
and 1997
Consolidated Balance Sheets at December 31, 1999 and 1998
Consolidated Statements of Cash Flows - Years Ended December 31, 1999,
1998 and 1997
Consolidated Statements of Stockholders' Equity - Years Ended
December 31, 1999, 1998 and 1997
Report of Ernst & Young LLP, Independent Auditors
Notes to Consolidated Financial Statements
(2) FINANCIAL STATEMENT SCHEDULES
All schedules set forth in the applicable accounting regulations of the
Commission either are not required under the related instructions or are not
applicable and, therefore, have been omitted.
(3) EXHIBITS
A list of exhibits included in this Report or incorporated by reference
is found in the Exhibit Index beginning on page 26 of this Report and
incorporated by reference.
23
<PAGE> 24
(b) REPORT ON FORM 8-K FILED IN THE FOURTH QUARTER OF 1999:
The Company filed a current report on Form 8-K on November 29, 1999
regarding the completion of the spin-offs of Teledyne Technologies Incorporated
and Water Pik Technologies, Inc. The Company also reported unaudited pro forma
financial information to reflect the reclassification of sold and spun-off
companies as discontinued operations and to reflect the Company's Flat-Rolled
Products, High Performance Metals, and Industrial Products segments.
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ALLEGHENY TECHNOLOGIES INCORPORATED
Date: March 21, 2000 By /s/ Thomas A. Corcoran
-----------------------------------------
Thomas A. Corcoran
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and as of the 21st day of March, 2000.
<TABLE>
<S> <C>
/s/ Richard P. Simmons /s/ James L. Murdy
- -------------------------------------------------- ------------------------------------------------------
Richard P. Simmons James L. Murdy
Chairman of the Board Executive Vice President, Finance and Administration
and Chief Financial Officer and Director (Principal
Financial Officer)
/s/ Thomas A. Corcoran /s/ Dale G. Reid
- -------------------------------------------------- ------------------------------------------------------
Thomas A. Corcoran Dale G. Reid
President and Chief Executive Officer Vice President-Controller and
Chief Accounting Officer
(Principal Accounting Officer)
/s/ Robert P. Bozzone /s/ Paul S. Brentlinger
- -------------------------------------------------- ------------------------------------------------------
Robert P. Bozzone Paul S. Brentlinger
Vice Chairman of the Board and Director Director
/s/ Frank V. Cahouet /s/ Diane C. Creel
- -------------------------------------------------- ------------------------------------------------------
Frank V. Cahouet Diane C. Creel
Director Director
/s/ C. Fred Fetterolf /s/ Ray J. Groves
- -------------------------------------------------- ------------------------------------------------------
C. Fred Fetterolf Ray J. Groves
Director Director
/s/ William G. Ouchi /s/ W. Craig McClelland
- -------------------------------------------------- ------------------------------------------------------
William G. Ouchi W. Craig McClelland
Director Director
/s/ James E. Rohr /s/ Charles J. Queenan, Jr
- -------------------------------------------------- ------------------------------------------------------
James E. Rohr Charles J. Queenan, Jr.
Director Director
</TABLE>
25
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
2.1 Separation and Distribution Agreement dated November 29, 1999 among
Allegheny Teledyne Incorporated (now known as Allegheny Technologies
Incorporated), TDY Holdings, LLC, Teledyne Industries, Inc., and
Teledyne Technologies Incorporated (incorporated by reference to
Exhibit 2.1 to Registrant's Current Report on Form 8-K dated November
29, 1999 (File No. 1-12001)).
2.2 Separation and Distribution Agreement dated November 29, 1999 among
Allegheny Teledyne Incorporated (now known as Allegheny Technologies
Incorporated), TDY Holdings, LLC, Teledyne Industries, Inc., and Water
Pik Technologies, Inc. (incorporated by reference to Exhibit 2.2 to
Registrant's Current Report on Form 8-K dated November 29, 1999 (File
No. 1-12001)).
3.1 Certificate of Incorporation of Allegheny Technologies Incorporated, as
amended (filed herewith).
3.2 Amended and Restated Bylaws of Allegheny Technologies Incorporated
(incorporated by reference to Exhibit 3.2 to the Registrant's Report on
Form 10-K for the year ended December 31, 1998 (File No. 1-12001)).
4.1 Credit Agreement dated as of August 30, 1996 (incorporated by reference
to Exhibit 10 to the Registrant's Report on Form 10-Q for the quarter
ended September 30, 1996 (File No. 1-12001)), Assignment and Assumption
Agreements dated as of August 22, 1997 and First Amendment to Credit
Agreement dated as of August 31, 1996 (incorporated by reference to
Exhibit 4 to the Registrant's Report on Form 10-Q for the quarter ended
September 30, 1997 (File No. 1-12001)), and Second Amendment to Credit
Agreement dated as of March 24, 1998 to certain Credit Agreement dated
as of August 30, 1996, as amended by First Amendment to Credit
Agreement dated as of August 31, 1997 (incorporated by reference to
Exhibit 4 to the Registrant's Report on Form 10-K for the quarter ended
March 31, 1998 (File No. 1-12001), and Third Amendment to Credit
Agreement dated as of March 30, 1999 (incorporated by reference to
Exhibit 4 to the Registrant's Report on Form 10-Q for the quarter ended
March 31, 1999 (File No. 1-12001)) and Fourth Amendment to Credit
Agreement dated as of August 6, 1999 (incorporated by reference to
Exhibit 4 to the Registrant's Report on Form 10-Q for the quarter ended
June 30, 1999 (File No. 1-12001)).
4.2 Indenture dated as of December 15, 1995 between Allegheny Ludlum
Corporation and The Chase Manhattan Bank (National Association), as
trustee (relating to Allegheny Ludlum Corporation's 6.95% Debentures
due 2025) (incorporated by reference to Exhibit 4(a) to Allegheny
Ludlum Corporation's Report on Form 10-K for the year ended December
31, 1995 (File No. 1-9498)), and First Supplemental Indenture by and
among Allegheny Technologies Incorporated, Allegheny Ludlum Corporation
and The Chase Manhattan Bank (National Association), as Trustee, dated
as of August 15, 1996
</TABLE>
26
<PAGE> 27
<TABLE>
<S> <C>
(incorporated by reference to Exhibit 4.1 to Registrant's Current
Report on Form 8-K dated August 15, 1996 (File No. 1-12001)).
4.3 Rights Agreement dated March 12, 1998, including Certificate of
Designation for Series A Junior Participating Preferred Stock as filed
with the State of Delaware on March 13, 1998 (incorporated by reference
to Exhibit 1 to the Registrant's Current Report on Form 8-K dated March
12, 1998 (File No. 1-12001)).
10.1 Allegheny Technologies Incorporated 1996 Incentive Plan (incorporated
by reference to Exhibit 10.1 to the Registrant's Report on Form 10-K
for the year ended December 31, 1997 (File No. 1-12001)).*
10.2 Allegheny Technologies Incorporated Stock Acquisition and Retention
Plan effective January 1, 1997 (incorporated by reference to Exhibit
10.2 to the Registrant's Report on Form 10-K for the year ended
December 31, 1996 (File No. 1-12001)).*
10.3 Allegheny Technologies Incorporated Stock Acquisition and Retention
Program effective January 1, 1998, as amended and restated
(incorporated by reference to Exhibit 10.3 to the Registrant's Report
on Form 10-K for the year ended December 31, 1998 (File No. 1-12001)).*
10.4 Allegheny Technologies Incorporated Stock Acquisition Retention Program
effective January 1, 2000 (filed herewith).*
10.5 Allegheny Technologies Incorporated 1996 Non-Employee Director Stock
Compensation Plan, as amended December 17, 1998 (incorporated by
reference to Exhibit 10.4 to the Registrant's Report on Form 10-K for
the year ended December 31, 1998 (File No. 1-12001)).*
10.6 Allegheny Technologies Incorporated Fee Continuation Plan for
Non-Employee Directors (incorporated by reference to Exhibit 10.4 to
the Company's Report on Form 10-K for the year ended December 31, 1997
(File No. 1-12001)).*
10.7 Supplemental Pension Plan for Certain Key Employees of Allegheny
Technologies Incorporated and its subsidiaries (formerly known as the
Allegheny Ludlum Corporation Key Man Salary Continuation Plan)
(incorporated by reference to Exhibit 10.7 to the Company's Report on
Form 10-K for the year ended December 31, 1997 (File No. 1-12001)).*
10.8 Allegheny Technologies Incorporated Benefit Restoration Plan, as
amended (filed herewith).*
10.9 Allegheny Ludlum Corporation 1987 Stock Option Incentive Plan (as
amended and restated) (incorporated by reference to Exhibit 10(f) to
Allegheny Ludlum Corporation's Report on Form 10-K for the year ended
December 31, 1995 (File No. 1-9498)).*
</TABLE>
27
<PAGE> 28
<TABLE>
<S> <C>
10.10 Allegheny Ludlum Corporation Performance Share Plan (as amended and
restated) (incorporated by reference to the Registration Statement on
Form S-4 (No. 333-8235) of Allegheny Technologies Incorporated, appears
as Appendix F to the Joint Proxy Statement/Prospectus forming part of
the Registration Statement).*
10.11 Allegheny Ludlum Corporation Stock Acquisition and Retention Plan, as
restated effective as of August 15, 1996 (incorporated by reference to
Exhibit 10.10 to the Company's Report on Form 10-K for the year ended
December 31, 1997 (File No. 1-12001)).*
10.12 Teledyne, Inc. 1990 Stock Option Plan (incorporated by reference to
Exhibit 10 to Teledyne, Inc.'s Report on Form 10-K for the year ended
December 31, 1990 (File No. 1-5212)).*
10.13 Teledyne, Inc. 1994 Long-Term Incentive Plan (incorporated by reference
to Exhibit A to Teledyne, Inc.'s 1994 proxy statement (File No.
1-5212)).*
10.14 Teledyne, Inc. 1995 Non-Employee Director Stock Option Plan
(incorporated by reference to Exhibit A to Teledyne, Inc.'s 1995 proxy
statement (File No. 1-5212)).*
10.15 Summary of Teledyne, Inc. Executive Deferred Compensation Plan, as
restated effective September 1, 1994 (incorporated by reference to
Exhibit 10.2 to Teledyne, Inc.'s Report on Form 10-K for the year ended
December 31, 1994 (File No. 1-5212)).*
10.16 First Amendment dated as of August 14, 1995 and Second Amendment dated
as of December 4, 1995 to the Summary of Teledyne, Inc. Executive
Deferred Compensation Plan (incorporated by reference to Exhibit 10.2
to Teledyne, Inc.'s Report on Form 10-K for the year ended December 31,
1995 (File No. 1-5212)).*
10.17 Employment Agreement dated July 15, 1996 between Allegheny Technologies
Incorporated and James L. Murdy (incorporated by reference to Exhibit
10.4 to the Company's Registration Statement on Form S-4
(No. 333-8235)).*
10.18 Employment Agreement dated July 15, 1996 between Allegheny Technologies
Incorporated and Jon D. Walton (incorporated by reference to Exhibit
10.5 to the Company's Registration Statement on Form S-4
(No. 333-8235)).*
10.19 Employment Agreement dated August 17, 1999 between Allegheny
Technologies Incorporated and Thomas A. Corcoran (incorporated by
reference to Exhibit 10(a) of the Company's Report on Form 10-Q for the
period ending September 30, 1999 (File No. 1-12001)).*
10.20 Restricted Stock Agreement dated September 16, 1999 between Allegheny
Technologies Incorporated and Thomas A. Corcoran (incorporated by
reference to Exhibit 10(b) to the Company's Report on Form 10-Q for the
period ending September 30, 1999 (File No. 12001)).*
</TABLE>
28
<PAGE> 29
<TABLE>
<S> <C>
10.21 Supplemental Pension Plan Agreement dated September 16, 1999 between
Allegheny Technologies Incorporated and Thomas A. Corcoran
(incorporated by reference to Exhibit 10(c) to the Company's Report on
Form 10-Q for the period ending September 30, 1999 (File No.
1-12001)).*
10.22 Form of Change in Control Severance Agreement (filed herewith).*
10.23 Employee Benefits Agreement dated November 29, 1999 between Allegheny
Technologies Incorporated and Teledyne Technologies Incorporated (filed
herewith).*
10.24 Employee Benefits Agreement dated November 29, 1999 between Allegheny
Technologies Incorporated and Water Pik Technologies, Inc. (filed
herewith).*
10.25 Tax Sharing and Indemnification Agreement dated November 29, 1999
between Allegheny Technologies Incorporated and Teledyne Technologies
Incorporated (filed herewith).
10.26 Tax Sharing and Indemnification Agreement dated November 29, 1999
between Allegheny Technologies Incorporated and Teledyne Technologies
Incorporated (filed herewith).
10.27 Allegheny Technologies Incorporated Executive Deferred Compensation
Plan, as amended (filed herewith).*
10.28 Allegheny Technologies Incorporated Performance Share Program
(incorporated by reference to Exhibit 10.22 to the Registrant's Report
on Form 10-K for 1998 (File 1-12001)).
10.29 Allegheny Technologies Incorporated Annual Incentive Plan (incorporated
by reference to Exhibit 10.23 to the Registrant's Report on Form 10-K
for the year ended December 31, 1998 (File 1-12001)).
10.30 Allegheny Technologies Incorporated 2000 Incentive Plan (filed herewith).*
13.1 Pages 19 through 54 inclusive of the Annual Report of Allegheny
Technologies Incorporated for the year ended December 31, 1999 (filed
herewith).
21.1 Subsidiaries of the Registrant (filed herewith).
23.1 Consent of Ernst & Young LLP (filed herewith).
27.1 Financial Data Schedule for 1999 (filed herewith).
27.2 Restated Financial Data Schedule for 1998 (filed herewith).
27.3 Restated Financial Data Schedule for 1997 (filed herewith).
</TABLE>
29
<PAGE> 30
*Management contract or compensatory plan or arrangement required to be filed as
an Exhibit to this Report.
Certain instruments defining the rights of holders of long-term debt of the
Company and its subsidiaries have been omitted from the Exhibits in accordance
with Item 601(b)(4)(iii) of Regulation S-K. A copy of any omitted document will
be furnished to the Commission upon request.
30
<PAGE> 1
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
ALLEGHENY TECHNOLOGIES INCORPORATED
(as amended)
ONE: The name of the corporation is Allegheny Technologies Incorporated
(hereinafter referred to as the "Corporation").
TWO: The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle,
and the name of its registered agent at such address is The Corporation Trust
Company.
THREE: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the Delaware General
Corporation Law.
FOUR: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is Five Hundred Fifty Million
(550,000,000), consisting of Five Hundred Million (500,000.000) shares of Common
Stock, par value ten cents ($.l0) per share (the "Common Stock"), and Fifty
Million (50,000,000) shares of Preferred Stock, par value ten cents ($.10) per
share (the "Preferred Stock"). The term "Voting Stock" shall hereafter refer to
all shares of capital stock entitled to vote generally in the election of
directors.
A. Common Stock
1. Except where otherwise provided by law, by this Restated Certificate of
Incorporation, or by resolution of the Board of Directors pursuant to this
Article FOUR, the holders of the Common Stock issued and outstanding shall have
and possess the exclusive right to notice of stockholders' meetings and the
exclusive voting rights and powers of the capital stock.
2. Subject to any preferential rights of the Preferred Stock, dividends
may be paid on the Common Stock, as and when declared by the Board of Directors,
out of any funds of the Corporation legally available for the payment of such
dividends.
B. Preferred Stock
The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of shares of Preferred Stock in
series, and by filing a certificate pursuant to the applicable law of the State
of Delaware (such certificate being hereinafter referred to as a "Preferred
Stock Designation"), to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers (including but
not limited to voting powers, if any), preferences and rights of the shares of
each such series and any qualifications, limitations or restrictions thereof.
The number of authorized shares of Preferred Stock may be increased or decreased
(but not below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the Common Stock, without a vote of the
holders of the Preferred Stock, or of any series thereof, unless a vote of any
such holders is required pursuant to the terms of any Preferred Stock
Designation.
<PAGE> 2
FIVE: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
A. The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors. In addition to
the powers and authority expressly conferred upon them by statute or
by this Restated Certificate of Incorporation or the Bylaws of the
Corporation, the directors are hereby empowered to exercise all such
powers and do all such acts and things as may be exercised or done by
the Corporation.
B. The Board of Directors may adopt, amend or repeal the Bylaws
of the Corporation. The stockholders of the Corporation may not adopt,
amend or repeal the Bylaws of the Corporation other than by the
affirmative vote of 75% of the combined voting power of all
outstanding voting securities of the Corporation entitled to vote
generally in the election of directors of the Board of Directors of
the Corporation ("Voting Power"), voting together as a single class.
C. The directors of the Corporation need not be elected by
written ballot unless the Bylaws so provide.
SIX: The Corporation reserves the right to amend and repeal any provision
contained in this Restated Certificate of Incorporation in the manner from time
to time prescribed by the laws of the State of Delaware. All rights herein
conferred are granted subject to this reservation.
SEVEN: A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law or (iv) for any transaction from which such director derived any improper
personal benefit. No amendment to or repeal of this Article SEVEN shall apply to
or have any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal. If the Delaware General Corporation
Law is amended to authorize corporate action further eliminating the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as amended.
EIGHT: A. Right to Indemnification. Each person who was or is made a party
or is threatened to be made a party to or is otherwise involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she is or was a
director or an officer of the Corporation or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (hereinafter an "indemnitee"), whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the Delaware General
2
<PAGE> 3
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than such law permitted
the Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith; provided, however, that,
except as provided in Section C of this Article EIGHT with respect to
proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation.
B. Right to Advancement of Expenses. The right to indemnification
conferred in Section A of this Article EIGHT shall include the right to be paid
by the Corporation the expenses (including attorneys' fees) incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a director or officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section B or otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article EIGHT shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
C. Right of Indemnitee to Bring Suit. If a claim under Section A or B of
this Article EIGHT is not paid in full by the Corporation within sixty (60) days
after a written claim has been received by the Corporation, except in the case
of a claim for an advancement of expenses, in which case the applicable period
shall be twenty (20) days, the indemnitee may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim. If successful
in whole or in part in any such suit, or in a suit brought by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the indemnitee
to enforce a right to an advancement of expenses) it shall be a defense that,
and (ii) in any suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the Corporation shall be
entitled to recover such expenses upon a final adjudication that, the indemnitee
has not met any applicable standard for indemnification set forth in the
Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption
3
<PAGE> 4
that the indemnitee has not met the applicable standard of conduct or, in the
case of such a suit brought by the indemnitee, be a defense to such suit. In any
suit brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or brought by the Corporation to recover an
advancement or expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article EIGHT or otherwise shall be on the
Corporation.
D. Non-Exclusivity of Rights. The rights to indemnification and to the
advancement of expenses conferred in this Article EIGHT shall not be exclusive
of any other right which any person may have or hereafter acquire under any
statute, the Corporation's Restated Certificate of Incorporation, Bylaws,
agreement, vote of stockholders or disinterested directors or otherwise.
E. Insurance. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another Corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
F. Indemnification of Employees and Agents of the Corporation. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses to
any employee or agent of the Corporation to the fullest extent of the provisions
of this Article with respect to the indemnification and advancement of expenses
of directors and officers of the Corporation.
G. Amendment. Any repeal or modification of this Article EIGHT shall not
change the rights of any officer or director to indemnification with respect to
any action or omission occurring prior to such repeal or modification.
NINE: The following provisions are inserted for the definition, limitation
and regulation of actions of the stockholders of the Corporation:
A. Action to be Taken at Stockholder Meetings Only. Any action required or
permitted to be taken by the stockholders of the Corporation must be effected at
a duly called annual or special meeting of such stockholders and may not be
effected by the written consent of such stockholders.
B. Calling of Special Meetings. Special meetings of the stockholders,
other than those required by statute, may be called only by the Board of
Directors pursuant to a resolution approved by a majority of the directors then
in office, the Chairman of the Board or the Chief Executive Officer. The Board
of Directors may postpone, reschedule or cancel any previously scheduled special
meeting.
Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Nominations of persons for election to the
Board of Directors may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the Corporation's notice of meeting (a)
by or at the direction of the Board of Directors or (b) by any stockholder of
the Corporation who is a stockholder of record at the time of giving of notice
as provided in this Article NINE,
4
<PAGE> 5
Section B, who shall be entitled to vote at the meeting and who complies with
the notice procedures set forth in this Article NINE, Clause (B). Nominations by
stockholders of persons for election to the Board of Directors may be made at
such a special meeting of stockholders if the stockholder's notice required by
Article NINE, Section C shall be delivered to the Secretary of the Corporation
at the principal executive offices of the Corporation not earlier than the
ninetieth day prior to such special meeting and not later than the close of
business on the later of the seventy-fifth day prior to such special meeting or
the tenth day following the day on which a public announcement (as defined in
subparagraph (e) of Article NINE, Section C) is first made of the special
meeting and of the nominees proposed by the Board of Directors to be elected at
such meeting.
C. Notice of Nominations and Action to be Taken at an Annual Meeting.
(a) Nominations of persons for election to the board of directors of the
Corporation and the proposal of business to be considered by the stockholders
may be made at an annual meeting of stockholders (i) pursuant to the
Corporation's notice of meeting, (ii) by or at the direction of the Board of
Directors or (iii) by any stockholder of the Corporation who was a stockholder
of record at the time of giving of the notice provided for in this Article NINE,
Section C who is entitled to vote at the meeting and who complies with the
notice procedures set forth in this Article NINE, Section C.
(b) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (iii) of paragraph (a) of
this Article NINE, Section (C), the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation and such business must be
a proper matter for stockholder action under the Delaware General Corporation
Law. To be timely, a stockholder's notice shall be delivered to the Secretary at
the principal executive offices of the Corporation not less than seventy-five
days nor more than ninety days prior to the first anniversary of the preceding
year's annual meeting; provided, however, that in the event that the date of the
annual meeting is advanced by more than thirty days or delayed by more than
sixty days from such anniversary date, or in the case of the first annual
meeting of the Corporation's stockholders after the Corporation becomes subject
to the reporting requirements of Section 12 of the Securities Exchange Act of
1934, as amended, notice by the stockholder to be timely must be so delivered
not earlier than the ninetieth day prior to such annual meeting and not later
than the close of business on the later of the sixtieth day prior to such annual
meeting or the tenth day following the day on which public announcement of the
date of such meeting is first made. Such stockholder's notice shall set forth
(i) as to each person whom the stockholder proposes to nominate for election or
re-election as a director all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (including such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); (ii) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any financial or other interest in such
business of such stockholder and the beneficial owner, if any, on whose behalf
the proposal is made; and (iii) as to the stockholder giving the notice and the
beneficial owner, if any on whose behalf the nomination or proposal is made, (1)
the name and address of such stockholder, as they appear on the Corporation's
books, and of such beneficial owner and (2) the class and
5
<PAGE> 6
number of shares of the Corporation which are owned beneficially and of record
by such stockholder and such beneficial owner.
(c) Notwithstanding anything in the second sentence of paragraph (b) of
this Article NINE, Section C to the contrary, in the event that the number of
directors to be elected to the board of directors of the Corporation is
increased and there is no public announcement naming all of the nominees for
director or specifying the size of the increased board of directors made by the
Corporation at least eighty-five days prior to the first anniversary of the
preceding year's annual meeting, a stockholder's notice required by this Article
NINE, Section C shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary at the principal executive offices of the Corporation
not later than the close of business on the tenth day following the day on which
such public announcement is first made by the Corporation.
(d) Only such persons who are nominated in accordance with the procedures
set forth in this Article NINE, Section C shall be eligible to serve as
directors and only such business shall be conducted at an annual meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Article NINE, Section C. The presiding officer
of the meeting shall have the power and duty to determine whether a nomination
or any business proposed to be brought before the meeting was made in accordance
with the procedures set forth in this Article NINE, Section C and, if any
proposed nomination or business is not in compliance with this Article NINE,
Section C, to declare that such defective proposed business or nomination shall
be disregarded.
(e) For purposes of this Article NINE, Section C, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or a comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(f) Notwithstanding the foregoing provisions of this Article NINE, Section
C, a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Article NINE, Section C. Nothing in this Article NINE,
Section C shall be deemed to affect any rights of stockholders to request
inclusion of proposals in the Corporation's proxy statement pursuant to Rule
14a-8 under the Exchange Act.
(g) The Bylaws of the Corporation may contain additional provisions not
inconsistent with this Article NINE, Section C regarding nominations of persons
for election to the Board of Directors of the Corporation and the proposal of
business to be transacted by the stockholders. Without limiting the category of
such provisions which would not be inconsistent with this Article NINE, Section
C, a provision in the bylaws of the Corporation which sets forth additional
information which must be provided by a stockholder in the notice required by
this Article NINE, Section C shall not be deemed to be so inconsistent.
D. Voting. The stockholders shall not have the right to cumulate their
votes in the election of directors.
TEN: (A) Except as otherwise fixed pursuant to the provisions of Article
FOUR hereof
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relating to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation to elect
additional directors under specified circumstances, the number of directors of
the Corporation shall be fixed from time to time by the affirmative vote of a
majority of the whole Board of Directors. The directors, other than those who
may be elected by the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation, shall be
classified, with respect to the time for which they severally hold office, into
three classes: Class I, Class II and Class III. The terms of office of the
initial classes of directors shall be as follows: the Class I Directors shall be
elected to hold office for a term to expire at the first annual meeting of
stockholders after the initial classification of directors; the Class II
Directors shall be elected to hold office for a term to expire at the second
annual meeting of stockholders after the initial classification of directors;
and the Class III Directors shall be elected to hold office for a term to expire
at the third annual meeting of stockholders after the initial classification of
directors; and in the case of each class, until their respective successors are
duly elected and qualified. At each annual meeting of stockholders the directors
elected to succeed those whose terms have expired shall be identified as being
of the same class as the directors they succeed and shall be elected to hold
office for a term to expire at the third annual meeting of stockholders after
their election, or until his or her earlier resignation or removal, and until
their respective successors are duly elected and qualified.
(B) Except as otherwise fixed pursuant to the provisions of Article FOUR
hereof relating to the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation to
elect directors:
(a) In case of any increase in the number of directors, the additional
director or directors, and in case of any vacancy in the Board of Directors due
to death, resignation, removal, disqualification or any other reason, the
successors to fill the vacancies, shall be elected only by a majority of the
directors then in office, even though less than a quorum, or by a sole remaining
director and not by the stockholders, unless otherwise provided by law or by
resolution adopted by a majority of the whole Board of Directors.
(b) Directors appointed in the manner provided in paragraph (a) to newly
created directorships resulting from any increase in the authorized number of
directors or any vacancies on the Board of Directors resulting from death,
resignation, removal, disqualification or any other cause shall hold office for
a term expiring at the next annual meeting of stockholders at which the term of
the class to which they have been elected expires.
(c) No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
(C) Except as otherwise fixed pursuant to the provisions of Article FOUR
hereof relating to the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation to
elect directors, any director or directors may be removed from office at any
time, but only for cause and only by the affirmative vote of 75% of the Voting
Power, voting together as a single class.
ELEVEN: In addition to any other considerations which the Board of
Directors, any committee thereof or any individual director lawfully may take
into account in determining
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whether to take or refrain from taking corporate action on any matter, including
making or declining to make any recommendations to the stockholders of the
Corporation, the Board of Directors, any committee thereof or any individual
director may in its, his or her discretion consider the long term as well as the
short term best interests of the Corporation (including the possibility that
these interests may best be served by the continued independence of the
Corporation), taking into account and weighing as deemed appropriate the effects
of such action on employees, suppliers, distributors and customers of the
Corporation and its subsidiaries and the effect upon communities in which the
offices or facilities of the Corporation and its subsidiaries are located and
any other factors considered pertinent. This Article ELEVEN shall be deemed to
grant discretionary authority to the Board of Directors, any committee thereof
and each individual director, and shall not be deemed to provide to any specific
constituency any right to be considered.
TWELVE: In addition to the requirements of (i) law and (ii) the other
provisions of this Restated Certificate of Incorporation, the affirmative vote
of the holders of at least two-thirds of the outstanding shares of Common Stock
of the Corporation entitled to vote shall be required for the adoption or
authorization of a Fundamental Change unless the Fundamental Change has been
approved at a meeting of the Board of Directors by the vote of more than
two-thirds of the incumbent members of the Board of Directors.
As used in this Article TWELVE, "Fundamental Change" shall mean (1) any
merger or consolidation of the Corporation with or into any other corporation,
(2) any sale, lease, exchange, transfer or other disposition, but excluding a
mortgage or any other security device, of all or substantially all of the assets
of the Corporation, (3) any merger or consolidation of a Significant Shareholder
with or into the Corporation or a direct or indirect subsidiary of the
Corporation, (4) any sale, lease, exchange, transfer or other disposition to the
Corporation or to a direct or indirect subsidiary of the Corporation of any
Common Stock of the Corporation held by a Significant Shareholder or any other
assets of a Significant Shareholder which, if included with all other
dispositions consummated during the same fiscal year of the Corporation by the
same Significant Shareholder, would result in dispositions of assets having an
aggregate fair value in excess of five percent of the total consolidated assets
of the Corporation as shown on its certified balance sheet as of the end of the
fiscal year preceding the proposed disposition, (5) any reclassification of
Common Stock of the Corporation, or any re-capitalization involving Common Stock
of the Corporation, consummated within five years after a Significant
Shareholder becomes a Significant Shareholder, whereby the number of outstanding
shares of Common Stock is reduced or any of such shares are converted into or
exchanged for cash or other securities, (6) any dissolution and (7) any
agreement, contract or other arrangement providing for any of the transactions
described in this definition of Fundamental Change but, notwithstanding anything
to the contrary herein, Fundamental Change shall not include any merger pursuant
to the Delaware General Corporation Law, as amended from time to time, which
does not require a vote of the Corporation's stockholders for approval.
As used in this Article TWELVE, "Significant Shareholder" shall mean any
person who or which beneficially owns a number of shares of Common Stock of the
Corporation, whether or not such number includes shares not then outstanding or
entitled to vote, which exceeds a number equal to fifteen percent of the
outstanding shares of Common Stock of the Corporation entitled to vote, any and
all affiliates of such person and any and all associates and family members of
such person or anv such affiliate.
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THIRTEEN: Notwithstanding any other provisions of this Restated
Certificate of Incorporation or any provision of law which might otherwise
permit a lesser vote or no vote, but in addition to any affirmative vote of the
holders of any particular class or series of Voting Stock required by law or
this Restated Certificate of Incorporation, the affirmative vote of the holders
or at least 75% of the Voting Power, voting together as a single class, shall be
required to alter, amend, supplement or repeal, or to adopt any provision
inconsistent with the purpose or intent of, paragraph B of Article FIVE and
Articles SEVEN, NINE, TEN, ELEVEN, TWELVE or THIRTEEN; provided, however, that
no amendment of Article TWELVE shall apply to any person who is a Significant
Shareholder at the time of the adoption of such amendment.
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<PAGE> 1
Exhibit 10.4
ALLEGHENY TECHNOLOGIES INCORPORATED
1996 INCENTIVE PLAN
ADMINISTRATIVE RULES FOR THE
ALLEGHENY TECHNOLOGIES INCORPORATED
STOCK ACQUISITION AND RETENTION PROGRAM
EFFECTIVE AS OF JANUARY 1, 2000
(AS AMENDED AND RESTATED)
ARTICLE I. ADOPTION AND PURPOSE OF THE PROGRAM
1.01 ADOPTION. These rules are adopted by the Personnel and
Compensation Committee and the Stock Incentive Award Subcommittee of
the Board of Directors pursuant to the authority reserved in Section
3.01 of the Allegheny Technologies Incorporated 1996 Incentive Plan
(the "Plan"). Capitalized terms used but not defined in these rules
shall have the same meanings as in the Plan.
1.02 PURPOSE. The purpose of the Allegheny Technologies
Incorporated Stock Acquisition and Retention Program (the "SARP") is to
assist the Corporation and its subsidiaries in retaining and motivating
selected key management employees who will contribute to the success of
the Corporation and its subsidiaries. The SARP encourages eligible
employees to hold a proprietary interest in the Corporation by offering
them an opportunity to receive grants of restricted shares of Stock
which, in accordance with the terms and conditions set forth below,
will vest only if the employees retain, for a specified period of time,
ownership of (i) shares of Stock purchased pursuant to the SARP or (ii)
already-owned shares of Stock which such employees identify as being
subject to the SARP. Awards under the SARP will act as an incentive to
participating employees to achieve long-term objectives which will
inure to the benefit of all stockholders of the Corporation.
ARTICLE II. DEFINITIONS
For purposes of these rules, the capitalized terms set forth below
shall have the following meanings:
2.01 AWARD AGREEMENT means a written agreement between the
Corporation and a Participant or a written acknowledgment from the
Corporation specifically setting forth the terms and conditions of an
award of Restricted Stock granted to a Participant pursuant to Article
VII of these rules.
2.02 BOARD means the Board of Directors of the Corporation.
2.03 BUSINESS DAY means any day on which the New York Stock
Exchange shall be open for trading.
2.04 CAUSE means a determination by the Committee that a
Participant has engaged in conduct that is dishonest or illegal,
involves moral turpitude or jeopardizes the Corporation's right to
operate its business in the manner in which it is now operated.
<PAGE> 2
2.05 CHANGE IN CONTROL means any of the events set forth
below:
(a) The acquisition in one or more transactions,
other than from the Corporation, by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Exchange Act) of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of a number
of Corporation Voting Securities in excess of 30% of the
Corporation Voting Securities unless such acquisition has been
approved by the Board; or
(b) Any election has occurred of persons to the Board
that causes two-thirds of the Board to consist of persons
other than (i) persons who were members of the Board on
January 1, 1998 and (ii) persons who were nominated for
election as members of the Board at a time when two-thirds of
the Board consisted of persons who were members of the Board
on January 1, 1998; provided, however, that any person
nominated for election by the Board at a time when at least
two-thirds of the members of the Board were persons described
in clauses (i) and/or (ii) or by persons who were themselves
nominated by such Board shall, for this purpose, be deemed to
have been nominated by a Board composed of persons described
in clause (i); or
(c) Approval by the stockholders of the Corporation
of a reorganization, merger or consolidation, unless,
following such reorganization, merger or consolidation, all or
substantially all of the individuals and entities who were the
respective beneficial owners of the Outstanding Stock and
Corporation Voting Securities immediately prior to such
reorganization, merger or consolidation, following such
reorganization, merger or consolidation beneficially own,
directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities
entitled to vote generally in the election of directors or
trustees, as the case may be, of the entity resulting from
such reorganization, merger or consolidation in substantially
the same proportion as their ownership of the Outstanding
Stock and Corporation Voting Securities immediately prior to
such reorganization, merger or consolidation, as the case may
be; or
(d) Approval by the stockholders of the Corporation
of (i) a complete liquidation or dissolution of the
Corporation or (ii) a sale or other disposition of all or
substantially all the assets of the Corporation.
2.06 COMMITTEE means the Stock Incentive Award Subcommittee of
the Board, in the case of individuals who are "officers" of the
Corporation as defined in Rule 16a-1(f) as promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended, as such Rule may be amended from time to time, and
the Personnel and Compensation Committee of the Board, in the case of
individuals who are not such officers of the Corporation.
2.07 CORPORATION means Allegheny Technologies Incorporated, a
Delaware corporation, and its successors.
2.08 CORPORATION VOTING SECURITIES means the combined voting
power of all outstanding voting securities of the Corporation entitled
to vote generally in the election of the Board.
2.09 DATE OF GRANT means the date as of which an award of
Restricted Stock is granted in accordance with Article VII of these
rules.
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2.10 DESIGNATED STOCK means shares of Stock already owned by a
Participant that the Participant identifies as being subject to the
SARP, thereby triggering the grant of Restricted Stock to such
Participant pursuant to Article VII of these rules.
2.11 DESIGNATION NOTICE means a written notice, in a form
acceptable to the Committee, by which a Participant designates
previously-acquired shares of Stock as Designated Stock.
2.12 DISABILITY means any physical or mental injury or disease
of a permanent nature which renders a Participant incapable of meeting
the requirements of the employment performed by such Participant
immediately prior to the commencement of such disability. The
determination of whether a Participant is disabled shall be made by the
Committee in its sole and absolute discretion. Notwithstanding the
foregoing, if a Participant's employment by the Corporation or an
applicable subsidiary terminates by reason of a disability, as defined
in an Employment Agreement between such Participant and the Corporation
or an applicable subsidiary, such Participant shall be deemed to be
disabled for purposes of the SARP.
2.13 EFFECTIVE DATE means January 1, 2000.
2.14 EXCHANGE ACT means the Securities Exchange Act of 1934,
as amended.
2.15 FAIR MARKET VALUE means, as of any given date, the
average of the high and low trading prices of the Stock on such date as
reported on the New York Stock Exchange or, if the Stock is not then
traded on the New York Stock Exchange, on such other national
securities exchange on which the Stock is admitted to trade, or, if
none, on the National Association of Securities Dealers Automated
Quotation System if the Stock is admitted for quotation thereon;
provided, however, if there were no sales reported as of such date,
Fair Market Value shall be computed as of the last date preceding such
date on which a sale was reported; provided, further, that if any such
exchange or quotation system is closed on any day on which Fair Market
Value is to be determined, Fair Market Value shall be determined as of
the first date immediately preceding such date on which such exchange
or quotation system was open for trading.
2.16 OUTSTANDING STOCK means, at any time, the issued and
outstanding Stock.
2.17 PARTICIPANT means any person selected by the Committee,
pursuant to Section 5.01 of these rules, as eligible to participate
under the SARP.
2.18 PERMITTED TRANSFEREE means a Participant's spouse, or (by
blood, adoption or marriage) parent, child, stepchild, descendant or
sibling, or the estate, any guardian, custodian, conservator or
committee of, or any trust for the benefit of, the Participant or any
of the foregoing persons.
2.19 PLAN means the Allegheny Technologies Incorporated 1996
Incentive Plan, as the same may be amended from time to time.
2.20 PURCHASE AMOUNT means the dollar amount that a
Participant specifies in a Purchase Notice with respect to a particular
Purchase Date.
2.21 PURCHASE DATE means, the date on which the Corporation
receives the Purchase Notice or, if such date is not a Business Day,
the Business Day immediately preceding the date on which such Notice is
received.
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2.22 PURCHASED STOCK means Stock purchased by a Participant
pursuant to Article VI of these rules, which triggers the grant of
Restricted Stock to such Participant pursuant to Article VII of these
rules.
2.23 PURCHASE LOAN means a loan provided to a Participant by
the Corporation to facilitate the Participant's purchase of Stock
pursuant hereto.
2.24 PURCHASE NOTICE means a written notice, in a form
acceptable to the Committee, by which a Participant may elect to
purchase Stock as of a Purchase Date in accordance with Section 6.01 of
these rules.
2.25 RELATED STOCK means, with respect to any three-quarters
of a share of Restricted Stock, the one share of Purchased Stock or
Designated Stock, as the case may be, which entitles such Participant
to receive such three-quarters of a share of Restricted Stock pursuant
to Article VII of these rules.
2.26 RESTRICTED STOCK means shares of Stock awarded to a
Participant subject to restrictions as described in Article VII of
these rules.
2.27 SARP means the Stock Acquisition and Retention Program,
as the same may be amended from time to time.
2.28 SARP YEAR means each of the calendar years during the
term the SARP remains in effect.
2.29 STOCK means the common stock, par value $0.10 per share,
of the Corporation.
ARTICLE III. ADMINISTRATION
The SARP shall be administered by the Committee, which shall have
exclusive and final authority and discretion in each determination,
interpretation or other action affecting the SARP and its Participants. The
Committee shall have the sole and absolute authority and discretion to interpret
the SARP, to modify these administrative rules for the SARP, to select, in
accordance with Section 5.01 of these rules, the persons who will be
Participants hereunder, to impose such conditions and restrictions as it
determines appropriate and to take such other actions and make such other
determinations in connection with the SARP as it may deem necessary or
advisable.
ARTICLE IV. STOCK ISSUABLE UNDER THE SARP
4.01 SHARES OF STOCK ISSUABLE. The Stock to be offered under
the SARP shall be authorized and unissued Stock, or Stock which shall
have been reacquired by the Corporation and held in its treasury.
4.02 SHARES SUBJECT TO TERMINATED AWARDS. Shares of Stock
forfeited as provided in Section 7.02 of these rules may again be
issued under the SARP.
ARTICLE V. PARTICIPATION
5.01 DESIGNATION OF PARTICIPANTS. Participants in the SARP
shall be such officers and senior executives of the Corporation and its
subsidiaries whose actions most directly affect the long-term success
of the Corporation as the Committee, in its sole discretion, after
consultation with the
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Chief Executive Officer, may designate as eligible to participate in
the SARP. The Committee shall designate the Participants who are
eligible to participate in the SARP during a SARP Year which
designation will generally be made prior to or within ninety days after
the commencement of such SARP Year. The Committee's designation of a
Participant with respect to any SARP Year shall not require the
Committee to designate such person as a Participant with respect to any
other SARP Year. The Committee shall consider such factors as it deems
pertinent in selecting Participants. The Committee shall promptly
provide to each person selected as a Participant written notice of such
selection. The designation of a person as a Participant with respect to
a SARP Year shall permit such person to elect to submit one or more
Purchase Notices and/or Designation Notices during such SARP Year.
5.02 PARTICIPANT ELECTIONS. A person who is designated as a
Participant in accordance with Section 5.01 of these rules shall be
entitled to purchase Stock by delivering one or more Purchase Notices
in accordance with Article VI of these rules, and such Stock purchases
shall result in the award of Restricted Stock to such Participant in
accordance with Article VII of these rules. In addition, a Participant
shall be entitled to designate as Designated Stock, in one or more
Designation Notices delivered to the Corporation at any time during a
SARP Year, any number of shares of Stock then owned by the Participant,
other than shares of Purchased Stock, shares of Stock credited to the
Participant's account under a company-sponsored defined contribution
plan and shares of Stock subject to outstanding and as yet unexercised
stock options, such that, in accordance with Section 7.01, a whole
number of Restricted Stock, and no fractions of a share of Restricted
Stock, shall be issuable with respect to such Designated Stock. Such
designation of shares as Designated Stock shall result in the award of
Restricted Stock to the Participant in accordance with Article VII of
these rules. The sum of (i) the aggregate Purchase Amounts elected by a
Participant pursuant to one or more Purchase Notices submitted within
any one SARP Year and (ii) the Fair Market Value of the Designated
Stock designated by the Participant pursuant to one or more Designation
Notices submitted within such SARP Year (such Fair Market Value being
determined as of the date the applicable Designation Notice is
delivered), shall not exceed such Participant's gross annual salary as
in effect on the first day of such SARP Year; provided, however, that,
for any SARP Year, the Committee may establish such greater or lesser
dollar limit as it deems appropriate.
ARTICLE VI. STOCK PURCHASES
6.01 STOCK PURCHASE ELECTIONS. A Participant shall have the
right to purchase Stock in accordance with the terms of this Article VI
of these rules. A Participant may elect to purchase Stock under this
SARP by delivering to the Corporation a Purchase Notice and cash and/or
a promissory note executed by the Participant in an amount equal to the
purchase price designated in such Participant's Purchase Notice. Such
Purchase Notice shall set forth, among other things, the Purchase
Amount elected by the Participant. Such promissory note which shall
evidence such Participant's Purchase Loan in accordance with Section
6.03 of these rules, shall be in a principal amount equal to the
Purchase Amount designated in such Participant's Purchase Notice and
shall by its terms become effective as of the applicable Purchase Date.
All elections under this Section 6.01 shall be irrevocable. Each
election shall take effect as of the Purchase Date.
6.02 ISSUANCE OF AND PAYMENT FOR STOCK. As of each Purchase
Date, the Corporation shall credit to each Participant the number of
shares of Purchased Stock purchased pursuant to the Purchase Notice
submitted by such Participant. The number of shares of Purchased Stock
to be so credited shall be determined by dividing the Purchase Amount
designated by such Participant in his or her Purchase Notice by a
purchase price per share equal to the Fair Market Value on the Purchase
Date. As of any Purchase Date, the number of shares that can be
purchased by a Participant shall be
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<PAGE> 6
a number that will result in the issuance of a whole number of shares
of Restricted Stock; in no event shall the Corporation be required to
issue fractional shares of Purchased Stock or fractional shares of
Restricted Stock. The Purchase Amount elected by a Participant, and the
principal amount of the related promissory note, shall be automatically
reduced (and if the entire Purchase Amount is paid in cash, cash shall
be returned to the Participant) to the minimum extent necessary so that
only a whole number of shares of Restricted Stock will be issued with
respect to the Related Stock. The purchase price for shares of
Purchased Stock credited to a Participant as of a Purchase Date shall
be paid in cash and/or by means of a Purchase Loan made by the
Corporation to the Participant in accordance with Section 6.03 of these
rules. The Participant shall have all of the rights of a stockholder
with respect to the shares of Purchased Stock credited to him under
this Section 6.02 including, but not limited to, the right to vote such
shares and the right to receive dividends (or dividend equivalents)
paid with respect to such shares.
6.03 TERMS OF PURCHASE LOAN.
(a) Purchase Loan. The promissory note delivered to
the Corporation by a Participant in accordance with Section
6.01 of these rules shall evidence a Purchase Loan in
principal amount equal to such Participant's Purchase Amount
reduced by the amount of cash paid, if any. Unless the
Committee shall otherwise determine prior to the applicable
Purchase Date, each Purchase Loan shall have a term not to
exceed ten years, and be secured by the shares of Purchased
Stock acquired with such Purchase Loan.
(b) Interest on Purchase Loan. Until the
Participant's Purchase Loan is paid in full, or otherwise
satisfied or discharged in full, interest on the outstanding
balance of the Purchase Loan shall accrue at a fixed rate per
annum equal to the minimum rate required to avoid imputed
interest under the applicable provisions of the Internal
Revenue Code of 1986.
(c) Repayment of Purchase Loan. No principal or
interest payments with respect to a Purchase Loan shall be
required prior to the fifth anniversary of the date such
Purchase Loan is made; provided, however, that prior to such
fifth anniversary, cash dividends on shares of Purchased Stock
held as security for such Purchase Loan, and on the related
shares of Restricted Stock, shall be applied to pay accrued
interest on the Purchase Loan (any non-cash dividends shall
remain as part of the collateral securing such Purchase Loan).
After such fifth anniversary, level monthly payments of
principal and accrued interest with respect to a Purchase Loan
shall be required for the remaining term thereof. Unless
otherwise determined by the committee, all outstanding
principal and interest on a Participant's Purchase Loan shall
be immediately due and payable in full upon termination of the
Participant's employment with the Corporation and its
affiliates. All or any portion of the principal and/or
interest with respect to a Purchase Loan may, at the election
of the Participant, be paid by the delivery to the Corporation
of whole shares of Stock, other than (i) shares of Stock
credited to the Participant's account under a
company-sponsored defined contribution plan or (ii) shares of
Stock subject to outstanding and as yet unexercised stock
options. For purposes of the immediately preceding sentence,
shares of Stock shall be valued at the Fair Market Value of
such shares on the Business Day immediately preceding the date
such shares are delivered to the Corporation.
(d) Other Terms. The promissory notes evidencing the
Purchase Loans shall contain such other terms and conditions
as the Committee may determine, including, without limitation,
any special terms relating to the retirement of a Participant
prior to the expiration of the term of one or more Purchase
Loans.
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6.04 STOCK CERTIFICATES. As promptly as administratively
feasible after each Purchase Date, the Corporation shall deliver to
each Participant one or more stock certificates for the number of
shares of Stock purchased by such Participant as of such Purchase Date
in accordance with this Article VI. The Participant shall then deliver
certificates representing a number of shares with a value equal to the
principal amount of the Purchase Loan to the Corporation in pledge for
the related Purchase Loan along with an executed security agreement in
such form as the Committee shall specify. Upon satisfaction in full of
the Purchase Loan, the certificates shall be delivered to the
Participant free and clear of any restrictions except for any
restrictions that may be imposed by law.
ARTICLE VII. RESTRICTED STOCK
7.01 RESTRICTED STOCK AWARDS. Beginning with the 2000 SARP
Year, as of each Purchase Date, there shall automatically be granted to
any Participant who purchases Purchased Stock as of such Purchase Date
pursuant to Article VI of these rules an award of three-fourths of a
share of Restricted Stock for each one share of Purchased Stock. The
Purchase Date shall be the Date of Grant of such Restricted Stock.
Beginning with the 2000 SARP Year, as of any date that a Participant
delivers a Designation Notice to the Corporation, in accordance with
Section 5.02 of these rules, designating shares of Stock as Designated
Stock, there shall automatically be granted to such Participant an
award of three-fourths of a share of Restricted Stock for each one
share of Designated Stock. The date of delivery of such Designation
Notice shall be the Date of Grant of such Restricted Stock. The terms
of all such Restricted Stock awards shall be set forth in an Award
Agreement between the Corporation and the Participant which shall
contain such forfeiture periods and conditions, restrictions and other
provisions, not inconsistent with these rules, as shall be determined
by the Committee.
(a) Issuance of Restricted Stock. As soon as
practicable after the Date of Grant of Restricted Stock, the
Corporation shall cause to be transferred on the books of the
Corporation shares of Stock, registered on behalf of the
Participant, evidencing such Restricted Stock, but subject to
forfeiture to the Corporation retroactive to the Date of Grant
if an Award Agreement delivered to the Participant by the
Corporation with respect to the Restricted Stock is not duly
executed by the Participant and timely returned to the
Corporation. Until the lapse or release of all restrictions
applicable to an award of Restricted Stock, the stock
certificates representing such Restricted Stock shall be held
in custody by the Corporation or its designee.
(b) Stockholder Rights. Beginning on the Date of
Grant of the Restricted Stock and subject to execution of the
Award Agreement as provided in Section 7.01(a) of these rules,
the Participant shall become a stockholder of the Corporation
with respect to all Stock subject to the Award Agreement and
shall have all of the rights of a stockholder, including, but
not limited to, the right to vote such Stock and the right to
receive dividends (or dividend equivalents) paid with respect
to such Stock; provided, however, that any Stock distributed
as a dividend or otherwise with respect to any Restricted
Stock as to which the restrictions have not yet lapsed shall
be subject to the same restrictions as such Restricted Stock
and shall be held as prescribed in Section 7.01(a) of these
rules.
(c) Restriction on Transferability. None of the
Restricted Stock may be assigned, transferred (other than by
will or the laws of descent and distribution), pledged, sold
or otherwise disposed of prior to lapse or release of the
restrictions applicable thereto.
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(d) Delivery of Stock Upon Release of Restrictions.
Upon expiration or earlier termination of the forfeiture
period without a forfeiture, the satisfaction of the Purchase
Loan, if any, for the Related Stock and the satisfaction of or
release from any other conditions prescribed by the Committee,
the restrictions applicable to the Restricted Stock shall
lapse. As promptly as administratively feasible thereafter,
subject to the requirements of Section 8.02 of these rules,
the Corporation shall deliver to the Participant, or, in case
of the Participant's death, to the Participant's legal
representatives, one or more stock certificates for the
appropriate number of shares of Stock, free of all such
restrictions, except for any restrictions that may be imposed
by law.
7.02 TERMS OF RESTRICTED STOCK.
(a) Forfeiture of Restricted Stock. Subject to
Section 7.02(b) of these rules, all Restricted Stock shall be
forfeited and returned to the Corporation and all rights of
the Participant with respect to such Restricted Stock shall
cease and terminate in their entirety if during the forfeiture
period (i) the Participant transfers, sells or otherwise
disposes of the Related Stock other than to a Permitted
Transferee or in a transaction constituting a Change in
Control or (ii) the employment of the Participant with the
Corporation and its affiliates terminates for any reason or
(iii) the Participant defaults on the Purchase Loan, if any,
for the Related Stock. Unless the Committee, in its sole
discretion, provides otherwise in the applicable Award
Agreement, the forfeiture period for any shares of Restricted
Stock shall be five years from the Date of Grant of such
Restricted Stock. Notwithstanding the foregoing, in the event
of the discharge by the Corporation and its subsidiaries of a
Participant without Cause or termination of a Participant's
employment by reason of death, Disability or retirement
pursuant to the retirement policy of the Corporation or its
applicable subsidiaries, all forfeiture restrictions imposed
on Restricted Stock shall immediately and fully lapse. In
addition, upon the occurrence of a Change in Control, all
forfeiture restrictions imposed on Restricted Stock shall
immediately and fully lapse.
(b) Waiver of Forfeiture Period. Notwithstanding
anything contained in this Article VII to the contrary, the
Committee may, in its sole discretion, waive the forfeiture
conditions set forth in any Award Agreement under appropriate
circumstances and subject to such terms and conditions
(including forfeiture of a proportionate number of the shares
of Restricted Stock) as the Committee may deem appropriate,
provided that the Participant shall at that time have
completed at least one year of employment after the Date of
Grant.
ARTICLE VIII. MISCELLANEOUS
8.01 LIMITATIONS ON TRANSFER. The rights and interest of a
Participant under the SARP may not be assigned or transferred other
than by will or the laws of descent and distribution. During the
lifetime of a Participant, only the Participant personally may exercise
rights under the SARP.
8.02 TAXES. The Corporation shall be entitled to withhold (or
secure payment from the Participant in lieu of withholding) the amount
of any withholding or other tax required by law to be withheld or paid
by the Corporation with respect to any Stock issuable under the SARP,
or with respect to any income recognized upon the lapse of restrictions
applicable to Restricted Stock, and the Corporation may defer issuance
of Stock hereunder until and unless indemnified to its satisfaction
against any liability for any such tax. The amount of such withholding
or tax payment shall be determined by the Committee or its delegate and
shall be payable by the Participant at such time as the Committee
determines. The Committee shall prescribe in each Award Agreement one
or more methods by which the Participant will be permitted to satisfy
his or her tax withholding
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obligation, which methods may include, without limitation, the payment
of cash by the Participant to the Corporation and the withholding, at
the appropriate time, of shares of Stock otherwise issuable to the
Participant in a number sufficient, based upon the Fair Market Value of
such Stock, to satisfy such tax withholding requirements.
8.03 LEGENDS. All certificates for Stock delivered under the
SARP shall be subject to such transfer restrictions set forth in these
rules and such other restrictions as the Committee may deem advisable
under the rules, regulations and other requirements of the Securities
and Exchange Commission, any stock exchange upon which the Stock is
then listed and any applicable federal or state securities law, and the
Committee may cause a legend or legends to be endorsed on any such
certificates making appropriate references to such restrictions.
8.04 AMENDMENT AND TERMINATION. The Committee shall have
complete power and authority to amend or terminate these rules at any
time it is deemed necessary or appropriate. No termination or amendment
of the SARP may, without the consent of the Participant to whom any
award shall theretofore have been granted under the SARP, adversely
affect the right of such individual under such award; provided,
however, that the Committee may, in its sole discretion, make such
provision in the Award Agreement for amendments which, in its sole
discretion, it deems appropriate.
####
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Exhibit 10.8
ALLEGHENY TECHNOLOGIES INCORPORATED
BENEFIT RESTORATION PLAN
<PAGE> 2
PURPOSE
The purpose of the Allegheny Technologies Incorporated Benefit
Restoration Plan is to provide certain corporate employees of Allegheny
Technologies Incorporated and salaried employees of its wholly owned subsidiary,
Allegheny Ludlum Corporation ("Allegheny Ludlum"), who participate in the RSP
(as defined below) with benefits and retirement income equal to that which they
would have received (i) but for the limitations imposed on plans which are
qualified within the meaning of Section 401(a) of the Code by Sections
401(a)(17), 401(k), 401(m), 402(g) or 415 of the Internal Revenue Code of 1986,
as amended, and (ii) but for participation in the Allegheny Technologies
Incorporated Executive Deferred Compensation Plan (the "Executive Deferred
Compensation Plan"), by supplementing, on an unfunded basis, amounts payable
under such qualified plans with amounts paid under this Plan.
Allegheny Ludlum sponsored this Benefit Restoration Plan for
several years with regard to its defined benefit plan and such arrangements are
set forth herein as the Defined Benefit Portion. However, in 1989, due to
changes in Allegheny Ludlum's benefit focus and, in light of the effects of then
recent federal legislation, Allegheny Ludlum amended this Plan by adding the
Defined Contribution Portion effective January 1, 1989.
In connection with the business combination between the
Allegheny Ludlum and Teledyne, Inc. to form Allegheny Technologies Incorporated,
formerly known as Allegheny Teledyne Incorporated ("Allegheny Technologies"),
certain employees of Allegheny Ludlum and Teledyne, Inc. were transferred to a
payroll of Allegheny Technologies to perform various management and corporate
staff functions. All former employees of Teledyne, Inc. who transferred to
Allegheny Technologies' payroll began to participate in the RSP and former
Teledyne, Inc. employees ceased to accrue benefits under any defined benefit
plan. Such transferred employees were made participants in this Plan effective
upon the business combination.
In addition, effective January 1, 1999, employees covered by
this Plan were included in a group of employees permitted to participate in the
Allegheny Technologies Incorporated Executive Deferred Compensation Plan under
which eligible employees may defer all or any portion (subject to certain income
and payroll tax limitations) of their compensation. Accordingly, effective
January 1, 1999 this Plan was amended to restore to employees making deferrals
under the Executive Deferred Compensation Plan amounts lost and/or foregone as
RSP contributions.
ARTICLE I. DEFINITIONS
1.01 "Administrator" shall mean the person or committee
appointed by the Board for such purpose under Article VI.
1.02 "ALPS" shall mean the Allegheny Ludlum Planned Savings
Plan and, except as otherwise noted to the contrary, the S and S Plan (in each
case predecessor plans to the RSP) as in effect prior to the merger of the ALPS
and the Allegheny Ludlum Corporation Retirement Security Plan.
1.03 "Code" shall mean the Internal Revenue Code of 1986, as
the same shall be amended from time to time.
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<PAGE> 3
1.04 "Corporation" shall mean Allegheny Technologies
Incorporated.
1.05 "DCP" shall mean the Allegheny Technologies Executive
Deferred Compensation Plan.
1.06 "Defined Contribution Portion" shall mean that portion of
this Plan which relates to the restoration of aggregate benefits under the RSP
or, for events prior to the merger of the ALPS and RSP, ALPS or an S and S Plan.
1.07 "Employee" shall mean any employee of the Corporation and
employees of Allegheny Ludlum Corporation and employees of Teledyne, Inc.
assigned to the corporate offices of Allegheny Technologies Incorporated.
1.08 "Limitations" shall mean any limitation, with respect to
a qualified plan, within the meaning of Section 401(a) of the Code, on the
amount of contributions or the accrual or payment of benefits to or on behalf of
a Participant as imposed under Section 401(a)(17), Section 401(k), Section
401(m), Section 402(g), Section 415 and/or under any other Section of the Code
hereinafter adopted which shall be the successor of any of them or have the
effect of any of them.
1.09 "Matching Contributions" shall mean the contributions
made by the Corporation under the Savings Portion (or its predecessor, ALPS)
based on a percentage of deferrals made by a Participant.
1.10 "Participant" shall mean any Employee who meets the
conditions for participation set forth in Article III.
1.11 "Pension Plan" shall mean the Allegheny Ludlum
Corporation Salaried Pension Plan and, from and after December 31, 1996, that
portion of the Allegheny Technologies Incorporated Pension Plan commonly
referred to as the Allegheny Ludlum Corporation Salaried Pension Plan.
1.12 "Plan" shall mean this Allegheny Technologies
Incorporated Benefit Restoration Plan, formerly known as the Allegheny Ludlum
Corporation Benefit Restoration Plan.
1.13 "Plans" shall mean, collectively, the applicable of ALPS,
an S and S Plan, the Pension Plan or the RSP.
1.14 "RSP" shall mean the Allegheny Technologies Incorporated
Retirement Savings Plan (including in such reference the Retirement Portion and
the Savings Portion).
1.15 "Retirement Portion" shall mean the portion of the RSP
under which the Corporation (or an affiliate which employs an Employee) makes
contributions to the Account of a Participant determined by multiplying the
amount of compensation earned by the rate of
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<PAGE> 4
corporate contributions then in effect and, for events prior to the merger of
the ALPS and the Allegheny Ludlum Retirement Savings Plan, the Allegheny Ludlum
Retirement Security Plan.
1.16 "S and S Plan" shall mean the applicable, if any, of the
Savings and Security Plan of the Special Materials Division or of the Tubular
Products Division.
1.17 "Savings Portion" shall mean the portion of the RSP under
which a Participant may defer compensation and the Corporation (or an affiliate
which employs the Employee) makes contributions based on a percentage of the
amount deferred by the Participant, and for events prior to the merger of the
ALPS and the Allegheny Ludlum Corporation Retirement Security Plan, the ALPS.
ARTICLE II. EFFECTIVE DATE
2.01 Effective Date. The Effective Date of this Plan with
respect to the Defined Benefit Portion is January 1, 1986 and with respect to
the Defined Contribution Portion (i) as it relates to the RSP and/or to the
Savings and Security Plan of the Tubular Products Division, is January 1, 1989;
(ii) as it relates to all other plans of Allegheny Ludlum Corporation, is
January 1, 1990; (iii) with regard to corporate employees of Allegheny
Technologies Incorporated (then known as Allegheny Teledyne), August 15, 1996;
and (iv) with regard to deferrals under the Allegheny Technologies Incorporated
Executive Deferred Compensation Plan (then Allegheny Teledyne), January 1, 1999.
ARTICLE III. PARTICIPATION
3.01 Group Eligible to Participate. Prior to January 1, 1998,
participation was limited to that group of highly compensated Employees who were
eligible to participate and were designated as participants in the Allegheny
Ludlum Corporation Additional Compensation Plan (or a successor plan as in
effect from time to time). Since January 1, 1998, participation is limited to
that group of highly compensated Employees eligible to participate in the Annual
Incentive Program (or a successor plan as in effect from time to time)
comparable to the Annual Incentive Plan or its successor.
3.02 Contributions by Participants. Participants shall not be
permitted to make contributions in any form to this Plan.
ARTICLE IV. DEFINED BENEFIT PORTION
4.01 Restoration of Pension Plan Benefits. In respect of each
Participant who participates or participated in the Pension Plan, the
Corporation agrees to pay to the Participant, without requirement for
Participant contribution upon his retirement, a retirement benefit equal to the
difference between (a) and (b):
(a) the maximum life annuity to which the participant would be
entitled under the Pension Plan upon his or her retirement without regard to the
Limitations; less
4
<PAGE> 5
(b) the life annuity which is actually paid to the participant
under the Pension Plan after giving effect to the Limitations.
4.02 Elections and Calculations. Any election made by a
Participant pursuant to the Pension Plan relating to his benefit thereunder
shall be deemed an election hereunder and the Participant shall be deemed to
have made the same election hereunder without requirement of additional
elections. All calculations pursuant to the Defined Benefit Portion shall be
consistent with those used in determining benefits under the Pension Plan,
including, but not limited to, calculation of actuarial equivalents for optional
forms of benefits and reductions for early payment.
4.03 Reports. The Corporation may, but shall not be required
to, send reports from time to time to each Participant regarding the amounts to
which he is entitled under this Plan.
4.04 Payment of Restored Defined Benefit Portion Benefits.
When a Participant retires within the meaning of the Pension Plan or dies, the
Corporation shall pay to the Participant or his or her beneficiary, as the case
may be, the amounts determined under this Article IV in the same manner, at the
same times and frequencies and subject to the same terms and conditions (except
as set forth herein) which the Participant's benefits are paid under the Pension
Plan.
4.05 Special Calculation of Grandfathered Amount under Pension
Plan. In calculating the amount restored under the Defined Benefit Portion for a
Participant who meets the grandfather provisions under the Pension Plan as of
December 31, 1988, the Administrator of the Plan shall calculate the amount set
forth in Section 4.01(a) using the formula in effect at any time on or after
January 1, 1986 which produces the greatest benefit without regard to any
Limitations.
ARTICLE V. DEFINED CONTRIBUTION PORTION
5.01 Restoration of Savings Portion. The applicable, if any,
of the following amounts shall be credited to a Participant's Defined
Contribution Portion in addition to amounts under Section 5.02:
(a) Restoration of Deferrals for Effect of Limitations. For
each calendar year beginning on or after January 1, 1990, in the event a
Participant is deferring or contributing the maximum amount then permitted under
the Limitations and such contributed amount is less than the amount which could
be deferred or contributed by the Participant as Basic Savings under the Savings
Portion without regard to the Limitations, the Participant's Defined
Contribution Portion shall be credited with an amount equal to the difference
between (i) the amount which would have been contributed as a Corporation
matching contribution under the Savings Portion of the RSP if the Participant
was permitted to contribute 100% of Basic Savings without regard to the
Limitations and (ii) the amount actually contributed on the Participant's behalf
as matching contributions under ALPS or the Savings portion of the RSP.
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<PAGE> 6
(b) Restoration of Matching Contributions for Participation in
the DCP. For each calendar year beginning on or after January 1, 1999, a
Participant's Defined Contribution Portion shall be credited with an amount
equal to the amount of Matching Contributions the Participant would have
received under the Savings Portion if his or her deferrals, if any, under the
DCP were compensation for purposes of the Savings Portion and the Participant
was permitted to contribute 100% of Basic Savings with respect to deferrals
under the DCP without regard to the Limitations.
5.02 Restoration of Retirement Portion of the RSP. The
applicable, if any, of the following amounts shall be credited to a
Participant's Defined Contribution Portion in addition to amounts under Section
5.01:
(a) Restoration of Corporation Contributions for Effect of the
Limitations. For each calendar year beginning on or after January 1, 1989, a
Participant's Defined Contribution Portion shall be credited with the amount
equal to the difference, if any, between (i) the amount which would have been
allocated to his or her account under the Retirement Portion (at the rate of
Corporation contributions to the Retirement Portion then in effect) without
regard to the Limitations and (ii) the amount actually allocated to his or her
Account under the Retirement Portion.
(b) Restoration of Corporation Contributions for Deferrals
under the DCP. For each calendar year beginning on or after January 1, 1999, a
Participant's Defined Contribution Portion shall be credited with an amount
equal to the difference, if any, between (i) the amount which would have been
allocated to his or her Account under the Retirement Portion (at the rate of
Corporation contributions to the Retirement Portion then in effect) if the
Participant's deferrals under the DCP, if any, were compensation for purposes of
the Retirement Portion and (ii) the amount actually allocated to his or her
Account under the Retirement Portion, provided, however, compensation amounts
taken into account under Section 5.02(a) shall not be taken into account a
second time under this Section 5.02(b).
5.03 Earnings. Balances in Participant's Defined Contribution
Portion shall be credited with earnings as of the last day of each calendar year
at the rate then in effect under the Fixed Income Fund under the RSP.
5.04 Accounting. The Administrator shall establish on its
records, for bookkeeping purposes, an account for each Participant receiving
credits under this Deferred Contribution Portion to record the amount credited
as contributions under Section 5.01 and/or 5.02 and earnings, if any, pursuant
to Section 5.03. The Administrator shall post any contributions to such
bookkeeping account within thirty (30) days of the date a contribution would
have been made to the appropriate of the Plans under this Article V. The
Administrator shall respond to any inquiry of any Participant concerning the
status of his account within thirty (30) days of receipt thereof.
5.05 No Withdrawals or Loans. No withdrawals of or loans
against any balance under the Plan may be made at any time by a Participant.
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<PAGE> 7
5.06 Payment of Restored Defined Contribution Portion Benefit.
(a) Death. In the event of a Participant's death, his then
balance in his or her Defined Contribution Portion (including any Corporation
contributions for such calendar year pursuant to Section 5.01 and/or Section
5.02, whether or not then actually made, net of withholding of applicable
federal, state and local taxes) shall be distributed in a single cash payment to
his beneficiary designated pursuant to the ALPS Plan or RSP, as applicable, as
soon as administratively feasible after the Administrator receives notice of
such death.
(b) Disability, Retirement or Other Severance from Service. In
the event of the Participant's Disability, Retirement or other severance from
service, his then balance in his or her Defined Contribution Portion (including
Corporation contributions for such calendar year pursuant to Section 5.01 and/or
Section 5.02, whether or not then actually made, net of withholding or
applicable federal, state and local income tax) shall be distributed in a single
cash payment to him as soon as administratively feasible after the Administrator
receives notice of such event; provided, however, with the consent of the
Administrator, the Participant may elect to receive such amount at a later time
and/or in a different form of payment.
ARTICLE VI. ADMINISTRATION
6.01 Administration. The Plan shall be administered by the
Administrator appointed for such purpose by the Board who shall have the power
and duty to interpret the Plan and to make such rules and regulations as the
Administrator, in its discretion, shall deem appropriate. The Administrator may
retain such experts, consultants, or advisors as it, in its discretion deems
necessary or appropriate to the administration of the Plan and/or may delegate
to Allegheny Technologies Incorporated or to employees of Allegheny Technologies
Incorporated such duties as it may deem necessary or appropriate. Any
determination of the Administrator shall be final, conclusive and binding for
all parties.
ARTICLE VII. AMENDMENT AND TERMINATION
7.01 Amendment and Termination. Allegheny Technologies
Incorporated shall have the right to amend or terminate this Plan at any time;
provided that no amendment shall be made which would have the effect of
decreasing the amount payable to any Participants hereunder.
ARTICLE VIII. ASSIGNMENT
8.01 Assignment. No benefit or other right under or created by
this Plan shall be assignable by any Participant or the Participant's
beneficiary by pledge or otherwise. Any attempt to assign, pledge or otherwise
dispose of or anticipate benefits under this Plan shall be void.
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<PAGE> 8
ARTICLE IX. BENEFITS UNFUNDED
9.01. Benefits Unfunded. The benefits provided under this Plan
shall be unfunded. All payments of benefits hereunder shall be made by the
Corporation from general assets and the Corporation will not be obligated to
establish any special or separate fund or make other segregation of assets to
assure the payment of any benefits hereunder. In the event the Corporation
establishes any fund or segregation, no party who is or becomes entitled to
receive amounts hereunder shall have any right to assert any claim, levy or lien
thereon or assert any right thereto unless such right is specifically set forth
in writing. The rights of any party to receive payments of any benefits
hereunder shall be no greater than the rights of an unsecured creditor of the
Corporation.
ARTICLE X. MISCELLANEOUS
10.01 Applicable Law. This Plan shall be governed by, and
construed in accordance with, the law of the Commonwealth of Pennsylvania,
except with regard to its principles of conflicts of laws or to the extent that
the law of the Commonwealth of Pennsylvania shall have been specifically
preempted by federal law.
10.02 Incapacity of Recipient of Benefits. If any person
entitled to receive benefits hereunder shall be physically or mentally incapable
of receiving or acknowledging receipt of any payment of benefits, the
Corporation, upon the receipt of satisfactory evidence that such incapacitated
person is so incapacitated and that another person or institution is maintaining
him or her and that no guardian or committee has been appointed for him or her,
may provide for such payment of benefits hereunder to such person or institution
maintaining him or her, and such payments so made shall be deemed for every
purpose to have been made to such incapacitated person.
10.03 Liability of Officers and Directors of the Corporation.
No past, present or future officer or director of the Corporation shall be
personally liable to any Participant, beneficiary or other person under any
provision of this Plan.
10.04 Assets Owned by the Corporation. Nothing contained
herein shall be deemed to give any Participant or his beneficiary any interest
in any specific property of the Corporation or any right except to receive such
distributions as are expressly provided for in this Plan.
10.05 Withholding. The payment of any benefits under this Plan
shall be net of any federal, state and local taxes which the Corporation is
required to withhold.
10.06 Meaning of Certain Words. As used herein any gender
shall include all other genders and the singular shall include the plural and
the plural shall include the singular in all cases where such meaning would be
appropriate. The terms "herein", "hereto", "hereunder", and the like shall be
deemed to refer to this Plan as a whole and not to any particular paragraph or
other subdivision of this Plan.
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Exhibit 10.22
FORM OF
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of
this 10th day of February, 2000 (the "Effective Date"), by and among Allegheny
Technologies Incorporated, a Delaware corporation (hereinafter referred to as
the "Company"), and the individual identified on the signature page of this
Agreement (the "Executive").
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company (the "Board")
has approved the Company entering into this agreement providing for certain
severance protection for the Executive following a Change in Control (as
hereinafter defined);
WHEREAS, the Board of the Company believes that, should the
possibility of a Change in Control arise, it is imperative that the Company be
able to receive and rely upon the Executive's advice, if requested, as to the
best interests of the Company and its stockholders without concern that the
Executive might be distracted by the personal uncertainties and risks created by
the possibility of a Change in Control; and
WHEREAS, in addition to the Executive's regular duties, the
Executive may be called upon to assist in the assessment of a possible Change in
Control, advise management and the Board of the Company as to whether such
Change in Control would be in the best interests of the Company and its
stockholders, and to take such other actions as the Board determines to be
appropriate;
NOW, THEREFORE, to assure the Company that it will have the
continued dedication of the Executive and the availability of Executive's advice
and counsel notwithstanding the possibility, threat, or occurrence of a Change
in Control, and to induce the Executive to remain in the employ of the Company,
and for good and valuable consideration and the mutual covenants set forth
herein, the Company and the Executive, intending to be legally bound, agree as
follows:
Article I. Definitions
1.1 Definitions. Whenever used in this Agreement, the following terms
shall have the meanings set forth below when the initial letter of the word or
abbreviation is capitalized:
(a) "Accrued Obligations" means, as of the Effective Date of Termination, the
sum of (i) the Executive's Base Compensation through and including the Effective
Date of Termination, (ii) the amount of any bonus, incentive compensation,
deferred compensation and other cash compensation accrued by the Executive as of
the Effective Date of Termination under the terms of any such arrangement and
not then paid, including, but not limited to, AIP accrued but not
<PAGE> 2
paid for a year ending prior to the year in which occur, the Effective Date of
Termination, (iii) unused vacation time monetized at the then rate of Base
Compensation, (iv) expense reimbursements or other cash entitlements, (v)
amounts accrued under any qualified, non-qualified or supplemental employee
benefit plan, payroll practice, policy or perquisite.
(b) "AIP" means the Company's Annual Incentive Plan as it exists on the date
hereof and as it may be amended, supplemented or modified from time to time or
any successor plan.
(c) "Base Compensation" shall mean (1) the highest annual rate of base salary of
the Executive within the time period consisting of two years prior to the date
of a Change in Control and the Effective Date of Termination and (2) the AIP
bonus target for performance in the calendar year that a Change in Control
occurs or the actual AIP payment for the year immediately preceding the Change
in Control, whichever is higher.
(d) "Beneficiary" shall mean the persons or entities designated or deemed
designated by the Executive pursuant to Section 7.2 herein.
(e) "Board" shall mean the Board of Directors of the Company.
(f) For purposes hereof, the term "Cause" shall mean the Executive's conviction
of a felony, breach of a fiduciary duty involving personal profit to the
Executive or intentional failure to perform stated duties reasonably associated
with the Executive's position; provided, however, an intentional failure to
perform stated duties shall not constitute Cause unless and until the Board
provides the Executive with written notice setting forth the specific duties
that, in the Board's view, the Executive has failed to perform and the Executive
is provided a period of thirty (30) days to cure such specific failure(s) to the
reasonable satisfaction of the Board.
(g) For the purposes of this Agreement, "Change in Control" shall mean, and
shall be deemed to have occurred upon the occurrence of, any of the following
events:
(1) The Company acquires actual knowledge that (x) any Person,
other than the Company, a subsidiary, any employee benefit
plan(s) sponsored by the Company or a subsidiary, has acquired
the Beneficial Ownership, directly or indirectly, of
securities of the Company entitling such Person to 20% or more
of the Voting Power of the Company, or (y) any Person or
Persons agree to act together for the purpose of acquiring,
holding, voting or disposing of securities of the Company or
to act in concert or otherwise with the purpose or effect of
changing or influencing control of the Company, or in
connection with or as Beneficial Ownership, directly or
indirectly, of securities of the Company entitling such
Person(s) to 20% or more of the Voting Power of the Company;
or
(2) The completion of a Tender Offer is made to acquire
securities of the Company entitling the holders thereof to 20%
or more of the Voting Power of the Company; or
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(3) The occurrence of a successful solicitation subject to
Rule 14a-11 under the Securities Exchange Act of 1934 as
amended (or any successor Rule) (the "1934 Act") relating to
the election or removal of 50% or more of the members of the
Board or any class of the Board shall be made by any person
other than the Company or less than 51% of the members of the
Board (excluding vacant seats) shall be Continuing Directors;
or
(4) The occurrence of a merger, consolidation, share exchange,
division or sale or other disposition of assets of the Company
as a result of which the stockholders of the Company
immediately prior to such transaction shall not hold, directly
or indirectly, immediately following such transaction a
majority of the Voting Power of (i) in the case of a merger or
consolidation, the surviving or resulting corporation, (ii) in
the case of a share exchange, the acquiring corporation or
(iii) in the case of a division or a sale or other disposition
of assets, each surviving, resulting or acquiring corporation
which, immediately following the transaction, holds more than
20% of the consolidated assets of the Company immediately
prior to the transaction;
provided, however that (A) if securities beneficially owned by Executive are
included in determining the Beneficial Ownership of a Person referred to in
Section (i), (B) if Executive is named pursuant to Item 2 of the Schedule 14D-1
(or any similar successor filing requirement) required to be filed by the bidder
making a Tender Offer referred to in Section (ii) or (C) if Executive is a
"participant" as defined in Instruction 3 to Item 4 of Schedule 14A under the
1934 Act in a solicitation referred to in Section (iii) then no Change of
Control with respect to Executive shall be deemed to have occurred by reason of
any such event.
For the purposes of Section 1(g), the following terms shall
have the following meanings:
(i) The term "Person" shall be used as that term is used in
Section 13(d) and 14(d) of the 1934 Act as in effect on the
Effective Date hereof.
(ii) "Beneficial Ownership" shall be determined as provided in
Rule 13d-3 under the 1934 Act as in effect on the Effective
Date hereof.
(iii) A specified percentage of "Voting Power" of a company
shall mean such number of the Voting Shares as shall enable
the holders thereof to cast such percentage of all the votes
which could be cast in an annual election of directors
(without consideration of the rights of any class of stock,
other than the common stock of the company, to elect directors
by a separate class vote); and "Voting Shares" shall mean all
securities of a company entitling the holders thereof to vote
in an annual election of directors (without consideration of
the rights of any class of stock, other than the common stock
of the company, to elect directors by a separate class vote).
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<PAGE> 4
(iv) "Tender Offer" shall mean a tender offer or exchange
offer to acquire securities of the Company (other than such an
offer made by the Company or any subsidiary), whether or not
such offer is approved or opposed by the Board.
(v) "Continuing Directors" shall mean a director of the
Company who either (x) was a director of the Company on the
date hereof or (y) is an individual whose election, or
nomination for election, as a director of the Company was
approved by a vote of at least two-thirds of the directors
then still in office who were Continuing Directors (other than
an individual whose initial assumption of office is in
connection with an actual or threatened election contest
relating to the election of directors of the Company which
would be subject to Rule 14a-11 under the 1934 Act, or any
successor Rule).
(h) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(i) "Effective Date of Termination" shall mean the date on which the Executive's
employment terminates in a circumstance in which Section 2.1 provides for
Severance Benefits (as defined in Section 2.1).
(j) "Good Reason" shall mean, without the Executive's express written consent,
the occurrence of any one or more of the following:
(1) A material diminution of the Executive's authorities, duties,
responsibilities, or status (including offices, titles, or reporting
relationships) as an employee of the Company from those in effect as of one
hundred eighty (180) days prior to the Change in Control or as of the date of
execution of this Agreement if a Change in Control occurs within one hundred
eighty (180) days of the execution of this Agreement (the "Reference Date") or
the assignment to the Executive of duties or responsibilities inconsistent with
his position as of the Reference Date, other than an insubstantial and
inadvertent act that is remedied by the Company promptly after receipt of notice
thereof given by the Executive, and other than any such alteration which is
consented to by the Executive in writing;
(2) The Company's requiring the Executive to be based at a location in
excess of thirty-five (35) miles from the location of the Executive's principal
job location or office immediately prior to the Change in Control, except for
required travel on the Company's business to an extent substantially consistent
with the Executive's present business obligations;
(3) A reduction in the Executive's annual salary or any material
reduction by the Company of the Executive's other compensation or benefits from
that in effect on the Reference Date or on the date of the Change in Control,
whichever is greater;
(4) The failure of the Company to obtain an agreement satisfactory to
the Executive from any successor to the Company to assume and agree to perform
the Company's obligations under this Agreement, as contemplated in Article 5
herein; and
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<PAGE> 5
(5) Any purported termination by the Company of the Executive's
employment that is not effected pursuant to a Notice of Termination satisfying
the requirements of Section 2.6 below, and for purposes of this Agreement, no
such purported termination shall be effective.
The Executive's right to terminate employment for Good Reason shall not be
affected by the Executive's (A) incapacity due to physical or mental illness or
(B) continued employment following the occurrence of any event constituting Good
Reason herein.
(k) "PSP" means the Company's Performance Share Program as it exists on the date
hereof and as it may be, amended, supplemented, or modified from time to time or
any successor plan.
(l) "SARP" means the Company's Stock Acquisition and Retention Program as it
exists on the date hereof and as it may be, amended, supplemented or modified
from time to time or any successor plan.
(m) "Severance Compensation" means ______ times Base Compensation.
Article II. Severance Benefits
2.1 Right to Severance Benefits. The Executive shall be entitled to
receive from the Company severance benefits described in Section 2.2 below
(collectively, the "Severance Benefits") if a Change in Control shall occur and
within twenty-four (24) months after the Change in Control either of the
following shall occur:
(a) an involuntary termination of the Executive's employment
with the Company without Cause; or
(b) a voluntary termination of the Executive's employment
with the Company for Good Reason.
2.2 Severance Benefits. In the event that the Executive becomes
entitled to receive Severance Benefits, as provided in Section 2.1, the Company
shall provide the Executive with total Severance Benefits as follows (but
subject to Sections 2.5 and 2.6):
(a) The Executive shall receive a single lump sum cash
Severance Compensation payment within thirty (30) days
of the Effective Date of Termination.
(b) The Executive shall receive the Accrued Obligations.
(c) The Executive shall receive as AIP for the year in which
the termination occurs a lump sum cash payment paid
within thirty (30) days of the Effective Date of
Termination equal to that which would have been paid if
corporate and personal performance had achieved 120% of
target
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<PAGE> 6
objectives established for the annual period in which
the Change in Control occurred, multiplied by a
fraction, the numerator of which is the number of days
elapsed in the current fiscal period to the Effective
Date of Termination, and the denominator of which is
365.
(d) The Executive shall receive a lump sum payment paid
within thirty (30) days of the Effective Date of
Termination (in accordance with the then current PSP;
provided that any portion of the PSP award which would
have been paid in stock under the PSP is to be paid in
cash based on the current market value of the stock)
which payment will be determined based upon actual
performance for the number of full years of completed
then current PSP measurement period(s) at the time of
the Effective Date of Termination and for years not yet
completed in the then current PSP measurement period(s)
Executive will be assumed to have met all applicable
goals at 120% of performance.
(e) All welfare benefits, including medical, dental, vision,
life and disability benefits pursuant to plans under
which the Executive and/or the Executive's family is
eligible to receive benefits and/or coverage shall be
continued for a period of thirty-six (36) months after
the Effective Date of Termination. Such benefits shall
be provided to the Executive at no less than the same
coverage level as in effect as of the date of the Change
in Control. The Company shall pay the full cost of such
continued benefits, except that the Executive shall bear
any portion of such cost as was required to be borne by
key executives of the Company generally at the date of
the Change in Control. Notwithstanding the foregoing,
the benefits described in this Section 2.2(e) may be
discontinued prior to the end of the periods provided in
this Section to the extent, but only to the extent, that
the Executive receives substantially similar benefits
from a subsequent employer. In the event any insurance
carrier shall refuse to provide coverage to a former
employee, the Company shall secure comparable coverage
or may self-insure the benefits if it pays such benefits
together with a payment to the Executive equal to the
federal income tax consequences of payments to a former
highly compensated employee from a discriminatory
self-insured plan.
(f) The Executive shall be entitled to reimbursement for
actual payments made for professional outplacement
services or job search not to exceed $_________ in the
aggregate.
(g) In determining the Executive's pension benefit following
entitlement to a Severance Benefit, the Executive shall
be deemed to have satisfied the age and service
requirements for full vesting under the Company's
qualified (within applicable legal parameters),
non-qualified and supplemental pension plans as of the
Effective Date of Termination such that the
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<PAGE> 7
Executive shall be entitled to receive the full accrued
benefit under all such plans in effect as of the date of
the Change in Control, without any actuarial reduction
for early payment.
2.3. Stock Options. All Company stock options previously granted to the
Executive shall be fully vested and exercisable immediately upon a Change in
Control. Such options shall be exercisable for the remainder of the term
established by the Company's stock option plan as if the options had vested in
accordance with the normal vesting schedule and the Executive had remained an
employee of the Company. Company stock acquired pursuant to any such exercise
may be sold by the Executive free of any Company restrictions, whatsoever (other
than those imposed by federal and state securities laws).
2.4. SARP. In the event of entitlement to a Severance Benefit, all
forfeiture restrictions on all Company stock purchased by or granted to the
Executive under the Company's SARP shall lapse and all shares of restricted
stock shall vest. All of the foregoing shares may be sold by the Executive free
of any Company restrictions whatsoever (other than those imposed by federal and
state securities laws). Any promissory notes of Executive under the SARP shall
be paid off by the Executive within ninety (90) days after Executive's receipt
of the Severance Benefits.
2.5. Termination for any Other Reason. If the Executive's employment
with the Company is terminated under any circumstances other than those set
forth in Section 2.1, including without limitation by reason of retirement,
death, disability, discharge for Cause or resignation without Good Reason, or
any termination, for any reason, that occurs prior to a Change in Control (other
than as provided below) or after twenty-four (24) months following a Change in
Control, the Executive shall have no right to receive the Severance Benefits
under this Agreement or to receive any payments in respect of this Agreement. In
such event Executive's benefits, if any, in respect of such termination shall be
determined in accordance with the Company's retirement, survivor's benefits,
insurance, and other applicable plans, programs, policies and practices then in
effect. Notwithstanding anything in this Agreement to the contrary, if the
Executive's employment with the Company is terminated at any time from three (3)
to eight (8) months prior to the date on which a Change in Control occurs either
(i) by the Company other than for Cause or (ii) by the Executive for Good
Reason, and it is reasonably demonstrated that termination of employment (a) was
at the request of an unrelated third party who has taken steps reasonably
calculated to effect a Change in Control, or (b) otherwise arose in connection
with or in anticipation of the Change in Control, then for all purposes of this
Agreement the termination shall be deemed to have occurred as if immediately
following a Change in Control for Good Reason and the Executive shall be
entitled to Severance Benefits as provided in Section 2.2 hereof.
Notwithstanding anything in this Agreement to the contrary, if the Executive's
employment with the Company is terminated at any time within three (3) months
prior to the date on which a Change in Control occurs either (i) by the Company
other than for Cause or (ii) by the Executive for Good Reason, such termination
shall conclusively be deemed to have occurred as if immediately following a
Change in Control for Good Reason and the Executive shall be entitled to
Severance Benefits as provided in Section 2.2. hereof.
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<PAGE> 8
2.6. Notice of Termination. Any termination by the Company for Cause or
by the Executive for Good Reason shall be communicated by Notice of Termination
to the other party. For purposes of this Agreement, a "Notice of Termination"
shall mean a written notice which shall indicate the specific termination
provision in this Agreement relied upon, and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated.
2.7. Withholding of Taxes. The Company shall withhold from any amounts
payable under this Agreement all Federal, state, local, or other taxes that are
legally required to be withheld.
2.8. Certain Additional Payments by the Company.
(a) Notwithstanding anything in this Agreement to the
contrary, in the event it shall be determined that any
economic benefit or payment or distribution by the
Company to or for the benefit of the Executive, whether
paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise (a
"Payment"), would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties
with respect to such excise tax (such excise tax,
together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise
Tax"), then the Executive shall be entitled to receive
an additional payment (a "Gross-Up-Payment") in an
amount such that after payment by the Executive of all
taxes (including any interest or penalties imposed with
respect to such taxes), including any Excise Tax imposed
upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 2.8(c), all
determinations required to be made under this Section
2.8, including whether a Gross-Up Payment is required
and the amount of such Gross-Up Payment, shall be made
by the Company's regular outside independent public
accounting firm (the "Accounting Firm") which shall
provide detailed supporting calculations both to the
Company and the Executive within fifteen (15) business
days of the Effective Date of Termination, if
applicable, or such earlier time as is requested by the
Company. The initial Gross-Up Payment, if any, as
determined pursuant to this Section 2.8(b), shall be
paid to the Executive within five (5) days of the
receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable
by the Executive, it shall furnish the Executive with an
opinion that the Executive has substantial authority not
to report any Excise Tax or excess parachute payments on
Executive's federal income tax return. Any determination
by the Accounting Firm shall be binding upon the Company
and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm
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<PAGE> 9
hereunder, it is possible that Gross-Up Payments which
will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 2.8(c)
and the Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of
the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten (10)
business days after the later of either (i) the date the
Executive has actual knowledge of such claim, or (ii)
ten (10) days after the Internal Revenue Service issues
to the Executive either a written report proposing
imposition of the Excise Tax or a statutory notice of
deficiency with respect thereto, and shall apprise the
Company of the nature of such claim and the date on
which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the
thirty-day period following the date on which he gives
such notice to the Company (or such shorter period
ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies
the Executive in writing prior to the expiration of such
period that the Company desires to contest such claim,
the Executive shall: (i) give the Company any
information reasonably requested by the Company relating
to such claim, (ii) take such action in connection with
contesting such claim as the Company shall reasonably
request in writing from time to time, including, without
limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the
Company, (iii) cooperate with the Company in good faith
in order effectively to contest such claim, (iv) permit
the Company to participate in any proceedings relating
to such claim; provided, however, that the Company shall
bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in
connection with such contest and shall indemnify and
hold the Executive harmless, on an after-tax basis, for
any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of
such representation and payment of costs and expenses.
Without limitation of the foregoing provisions of this
Section 2.8(c), the Company shall control all
proceedings taken in connection with such contest and,
at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such
claim and may, at its sole option, either direct the
Executive to request or accede to a request for an
extension of the statute of limitations with respect
only to the tax claimed, or pay the tax claimed and sue
for a refund or contest the claim in any
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<PAGE> 10
permissible manner, and the Executive agrees to
prosecute such contest to a determination before any
administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the
Company directs the Executive to pay such claim and sue
for a refund, the Company shall advance the amount of
such payment to the Executive, on an interest-free basis
and shall indemnify and hold the Executive harmless, on
an after-tax basis, from any Excise Tax or income tax,
including interest or penalties with respect thereto,
imposed with respect to such advance or with respect to
any imputed income with respect to such advance; and
provided further that any extension of the statute of
limitations requested or acceded to by the Executive at
the Company's request and relating to payment of taxes
for the taxable year of the Executive with respect to
which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore,
the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be
payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 2.8(c), the
Executive becomes entitled to receive any refund with
respect to such claim, the Executive shall (subject to
the Company's complying with the requirements of Section
2.8(c)) promptly pay to the Company the amount of such
refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the
Company pursuant to Section 2.8(c), a determination is
made that the Executive shall not be entitled to any
refund with respect to such claim and the Company does
not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of
thirty (30) days after such determination, then such
advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment
required to be paid.
(e) In the event that any state or municipality or
subdivision thereof shall subject any Payment to any
special tax which shall be in addition to the generally
applicable income tax imposed by such state,
municipality, or subdivision with respect to receipt of
such Payment, the foregoing provisions of this Section
2.8 shall apply, mutatis mutandis, with respect to such
special tax.
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Article III. The Company's Payment Obligation
3.1 Payment Obligations Absolute. Except as otherwise provided in the
last sentence of Section 2.2(e), the Company's obligation to make the payments
and the arrangements provided for in this Agreement shall be absolute and
unconditional, and shall not be affected by any circumstances, including,
without limitation, any offset, counterclaim, recoupment, defense, or other
right that the Company may have against the Executive or any other party. All
amounts payable by the Company under this Agreement shall be paid without notice
or demand. Each and every payment made hereunder by the Company shall be final,
and the Company shall not seek to recover all or any part of such payment from
the Executive or from whomsoever may be entitled thereto, for any reasons
whatsoever. Notwithstanding any other provisions of this Agreement to the
contrary, the Company shall have no obligation to make any payment to the
Executive hereunder to the extent, but only to the extent, that such payment is
prohibited by the terms of any final order of a Federal or state court or
regulatory agency of competent jurisdiction; provided, however, that such an
order shall not affect, impair, or invalidate any provision of this Agreement
not expressly subject to such order.
3.2 Contractual Rights to Payments and Benefits. This Agreement
establishes and vests in the Executive a contractual right to the payments and
benefits to which the Executive is entitled hereunder. Nothing herein contained
shall require or be deemed to require, or prohibit or be deemed to prohibit, the
Company to segregate, earmark, or otherwise set aside any funds or other assets,
in trust or otherwise, to provide for any payments to be made or required
hereunder. The Executive shall not be obligated to seek other employment in
mitigation of the amounts payable or arrangements made under any provision of
this Agreement, and the obtaining of any such other employment shall in no event
effect any reduction of the Company's obligations to make the payments and
arrangements required to be made under this Agreement, except to the extent
provided in the last sentence of Section 2.2(e).
Article IV. Enforcement and Legal Remedies
4.1. Consent to Jurisdiction. Each of the parties hereto irrevocably
consents to personal jurisdiction in any action brought in connection with this
Agreement in the United States District Court for the Western District of
Pennsylvania or any Pennsylvania court of competent jurisdiction. The parties
also consent to venue in the above forums and to the convenience of the above
forums. Any suit brought to enforce the provisions of this Agreement must be
brought in the aforementioned forums.
4.2 Cost of Enforcement. In the event that it shall be necessary or
desirable for the Executive to retain legal counsel in connection with the
enforcement of any or all of Executive's rights to Severance Benefits under
Section 2.2 of this Agreement, and provided that the Executive substantially
prevails in the enforcement of such rights, the Company, as applicable, shall
pay (or the Executive shall be entitled to recover from the Company, as the case
may be)
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<PAGE> 12
the Executive's reasonable attorneys' fees, costs and expenses in connection
with the enforcement of Executive's rights.
Article V. Binding Effect; Successors
The rights of the parties hereunder shall inure to the benefit of their
respective successors, assigns, nominees, or other legal representatives. The
Company shall require any successor (whether direct or indirect, by purchase,
merger, reorganization, consolidation, acquisition of property or stock,
liquidation, or otherwise) to all or a significant portion of the assets of the
Company, as the case may be, by agreement in form and substance reasonably
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company, as the
case may be, would be required to perform if no such succession had taken place.
Regardless of whether such agreement is executed, this Agreement shall be
binding upon any successor in accordance with the operation of law and such
successor shall be deemed the "Company", as the case may be, for purposes of
this Agreement.
Article VI. Term of Agreement
The term of this Agreement shall commence on the Effective Date and
shall continue in effect for three (3) full years (the "Term") unless further
extended as provided in this Article. The Term of this Agreement shall be
automatically and without action by either party extended for one additional
calendar month on the last business day of each calendar month so that at any
given time there are no fewer than 35 nor more than 36 months remaining unless
one party gives written notice to the other that it no longer wishes to extend
the Term of this Agreement, after which written notice, the Term shall not be
further extended except as may be provided in the following sentence. However,
in the event a Change in Control occurs during the Term, this Agreement will
remain in effect for the longer of: (i) thirty-six (36) months beyond the month
in which such Change in Control occurred; or (ii) until all obligations of the
Company hereunder have been fulfilled and all benefits required hereunder have
been paid to the Executive or other party entitled thereto.
Article VII. Miscellaneous
7.1 Employment Status. Neither this Agreement nor any provision hereof
shall be deemed to create or confer upon the Executive any right to be retained
in the employ of the Company or any subsidiary or other affiliate thereof.
7.2 Beneficiaries. The Executive may designate one or more persons or
entities as the primary and/or contingent Beneficiaries of any Severance
Benefits owing to the Executive under this Agreement. Such designation must be
in the form of a signed writing acceptable to the Board of Directors of the
Company. The Executive may make or change such designation at any time.
7.3 Entire Agreement. This Agreement contains the entire understanding
of the Company and the Executive with respect to the subject matter hereof. Any
payments actually made under this Agreement in the event of the Executive's
termination of employment shall be in
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lieu of any severance benefits payable under any severance plan, program, or
policy of the Company to which the Executive might otherwise be entitled.
7.4 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular, and the singular shall include the plural.
7.5 Notices. All notices, requests, demands, and other communications
hereunder must be in writing and shall be deemed to have been duly given if
delivered by hand or mailed within the continental United States by first-class
certified mail, return receipt requested, postage prepaid, to the other party,
addressed as follows:
(a) If to the Company:
Allegheny Technologies Incorporated
1000 Six PPG Place
Pittsburgh, PA 15222-5479
Attn: Senior Vice President, General Counsel and Secretary
(b) If to Executive, to the Executive's address set forth at the end of
this Agreement. Addresses may be changed by written notice sent to the other
party at the last recorded address of that party.
7.6 Execution in Counterparts. The parties hereto in counterparts may
execute this Agreement, each of which shall be deemed to be original, but all
such counterparts shall constitute one and the same instrument, and all
signatures need not appear on any one counterpart.
7.7. Severability. In the event any provision of this Agreement shall
be held illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining parts of the Agreement, and the Agreement shall be
construed and enforced as if the illegal or invalid provision had not been
included. Further, the captions of this Agreement are for convenience of
reference and not part of the provisions hereof and shall have no force and
effect.
7.8. Modification. No provision of this Agreement may be modified,
waived, or discharged unless such modification, waiver, or discharge is agreed
to in writing and signed by the Executive and on behalf of the Company.
7.9. Applicable Law. To the extent not preempted by the laws of the
United States, the laws of the Commonwealth of Pennsylvania, other than the
conflict of law provisions thereof, shall be the controlling laws in all matters
relating to this Agreement.
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<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
ALLEGHENY TECHNOLOGIES INCORPORATED
By: ____________________________________
Title: Senior Vice President, General
Counsel and Secretary
EXECUTIVE:
________________________________________
Name:
Address:
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<PAGE> 1
Exhibit 10.23
EMPLOYEE BENEFITS AGREEMENT
BETWEEN
ALLEGHENY TELEDYNE INCORPORATED
AND
TELEDYNE TECHNOLOGIES INCORPORATED
DATED AS OF NOVEMBER 29, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS...........................................................................1
ARTICLE II GENERAL PRINCIPLES...................................................................6
2.1 ASSUMPTION OF LIABILITIES...............................................................6
2.2 ESTABLISHMENT OF TELEDYNE TECHNOLOGIES PLANS............................................6
2.3 TERMS OF PARTICIPATION BY TELEDYNE TECHNOLOGIES INDIVIDUALS IN TELEDYNE
TECHNOLOGIES PLANS.....................................................................7
ARTICLE III DEFINED BENEFIT PLANS...............................................................8
3.1 ESTABLISHMENT OF TELEDYNE TECHNOLOGIES PENSION PLAN AND TRUST...........................8
3.2 ASSUMPTION OF PENSION PLAN LIABILITIES AND ALLOCATION OF INTERESTS IN THE ATI
MASTER PENSION TRUST...................................................................8
3.3 FREEZING OF PENSION PLAN BENEFITS.......................................................9
3.4 CREDITING SERVICE UNDER ATI'S PENSION PLAN..............................................9
ARTICLE IV DEFINED CONTRIBUTION PLANS...........................................................9
4.1 401(k) PLAN.............................................................................9
4.2 PACIFIC AVIONICS CORPORATION PROFIT SHARING PLAN.......................................11
ARTICLE V HEALTH AND WELFARE PLANS.............................................................11
5.1 ASSUMPTION OF HEALTH AND WELFARE PLAN LIABILITIES......................................11
5.2 VENDOR CONTRACTS.......................................................................11
5.3 PROCEDURES FOR AMENDMENTS TO PLANS, PLAN DESIGNS, ADMINISTRATIVE PRACTICES,
AND VENDOR CONTRACTS..................................................................13
5.4 ATI SICKNESS AND ACCIDENT, LONG TERM DISABILITY AND PENSION DISABILITY
BENEFITS..............................................................................14
5.5 POST-RETIREMENT HEALTH AND LIFE INSURANCE BENEFITS.....................................15
5.6 COBRA AND DIRECT PAY...................................................................15
5.7 POST-DISTRIBUTION TRANSITIONAL ARRANGEMENTS............................................15
5.8 APPLICATION OF ARTICLE V TO TELEDYNE TECHNOLOGIES ENTITIES.............................16
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VI EXECUTIVE BENEFITS AND NON-EMPLOYEE DIRECTOR BENEFITS...............................17
6.1 ASSUMPTION OF OBLIGATIONS..............................................................17
6.2 CONSENTS AND NOTIFICATIONS.............................................................17
6.3 ATI 1999 BONUS PLAN....................................................................17
6.4 ATI INCENTIVE PLANS....................................................................18
6.5 ATI NONQUALIFIED DEFERRED COMPENSATION PROGRAMS........................................20
6.6 NON-EMPLOYEE DIRECTOR BENEFITS.........................................................21
6.7 CONFIDENTIALITY AND PROPRIETARY INFORMATION............................................21
ARTICLE VII GENERAL AND ADMINISTRATIVE.........................................................21
7.1 INTERIM SERVICES AGREEMENT.............................................................21
7.2 PAYMENT OF LIABILITIES, PLAN EXPENSES AND RELATED MATTERS..............................21
7.3 SHARING OF PARTICIPANT INFORMATION.....................................................22
7.4 REPORTING AND DISCLOSURE AND COMMUNICATIONS TO PARTICIPANTS............................22
7.5 NON-TERMINATION OF EMPLOYMENT; NO THIRD-PARTY BENEFICIARIES............................23
7.6 BENEFICIARY DESIGNATIONS...............................................................23
7.7 REQUESTS FOR IRS RULINGS AND DOL OPINIONS..............................................23
7.8 FIDUCIARY MATTERS......................................................................23
7.9 COLLECTIVE BARGAINING..................................................................23
7.10 CONSENT OF THIRD PARTIES..............................................................24
7.11 INDEMNIFICATION OF ATI................................................................24
ARTICLE VIII MISCELLANEOUS.....................................................................24
8.1 FOREIGN PLANS..........................................................................24
8.2 EFFECT IF DISTRIBUTION DOES NOT OCCUR..................................................24
8.3 RELATIONSHIP OF PARTIES................................................................24
8.4 AFFILIATES.............................................................................24
8.5 COUNTERPARTS; ENTIRE AGREEMENT; CORPORATE POWER........................................24
8.6 GOVERNING LAW; CONSENT TO JURISDICTION.................................................25
8.7 ASSIGNABILITY..........................................................................26
8.8 THIRD PARTY BENEFICIARIES..............................................................26
8.9 NOTICES................................................................................26
8.10 SEVERABILITY..........................................................................26
8.12 HEADINGS..............................................................................27
8.13 WAIVERS OF DEFAULT....................................................................27
8.15 AMENDMENTS............................................................................27
8.16 INTERPRETATION........................................................................27
8.17 DISPUTES..............................................................................27
</TABLE>
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<PAGE> 4
EMPLOYEE BENEFITS AGREEMENT
November 29, 1999
The parties to this Employee Benefits Agreement, dated as of the date
written above, are Allegheny Teledyne Incorporated, a Delaware corporation
("ATI"), and Teledyne Technologies Incorporated, a Delaware corporation
("Teledyne Technologies"). Capitalized terms used herein (other than the formal
names of ATI Plans (as defined below) and related trusts of ATI) and not
otherwise defined shall have the respective meanings assigned to them in Article
I hereof or as assigned to them in the Separation and Distribution Agreement (as
defined below).
WHEREAS, the Board of Directors of ATI has determined that it is in the
best interests of ATI and its stockholders to separate ATI's aerospace and
electronics businesses into an independent business entity;
WHEREAS, in furtherance of the foregoing, ATI and Teledyne Technologies
have entered into a Separation and Distribution Agreement, dated as of the date
hereof (the "Separation and Distribution Agreement"), and certain other
agreements that will govern certain matters relating to the Separation, the
Distribution and the relationship of ATI and Teledyne Technologies, and their
respective Subsidiaries following the Distribution; and
WHEREAS, pursuant to the Separation and Distribution Agreement, ATI and
Teledyne Technologies have agreed to enter into this agreement allocating
assets, liabilities and responsibilities with respect to certain employee
compensation and benefit plans and programs between them.
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement the following terms shall have the
following meanings:
1.1 Agreement means this Employee Benefits Agreement,
including all the Schedules and Exhibits hereto.
1.2 ASO Contract is defined in Section 5.2(a)(i).
1.3 ATI Entity means any entity that is, at the relevant time,
an Affiliate of ATI, except that, for periods beginning Immediately After the
Distribution Date, the term "ATI Entity" shall not include Teledyne Technologies
or a Teledyne Technologies Entity.
1.4 ATI Executive means an employee or former employee of ATI,
an ATI Entity, Teledyne Technologies or a Teledyne Technologies Entity, who
immediately before the
<PAGE> 5
Close of the Distribution Date is eligible to participate in or receive a
benefit under any ATI Executive Benefit Plan.
1.5 ATI Master Pension Trust means the master trust under
which the assets of the ATI Pension Plan are held.
1.6 ATI Pension Plan means the Allegheny Teledyne Incorporated
Pension Plan.
1.7 ATI Stock Value means the closing price per share of ATI
Common Stock (regular way) on the NYSE on November 22, 1999.
1.8 Award means an award under the Incentive Plan, including
Performance Awards and SARP Awards. When immediately preceded by "ATI," the term
Award (including the term Performance Award or SARP Award) means an award under
the ATI Incentive Plan. When immediately preceded by "Teledyne Technologies,"
the term Award (including the term Performance Award or SARP Award) means an
award under the Teledyne Technologies Incentive Plan.
1.9 Benefit Liabilities means any Liabilities (as defined in
the Separation and Distribution Agreement) relating to any contributions,
compensation or other benefits accrued or payable under any profit sharing,
pension, savings, deferred compensation, fringe benefit, insurance, medical,
medical reimbursement, life, disability, accident, post-retirement health or
welfare benefit, stock option, stock purchase, sick pay, vacation, employment,
severance, termination or other compensation or benefit plan, agreement,
contract, policy, trust fund or arrangement.
1.10 Change is defined in Section 5.3(b)(i).
1.11 Close of the Distribution Date means 5:00 P.M., Eastern
Standard Time or Eastern Daylight Time (whichever shall then be in effect), on
the Distribution Date.
1.12 COBRA means the continuation coverage requirements for
"group health plans" under Title X of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, and as codified in Code Section 4980B
and ERISA Sections 601 through 608.
1.13 Code means the Internal Revenue Code of 1986, as amended.
Reference to a specific Code provision also includes any proposed, temporary, or
final regulation in force under that provision.
1.14 Corporate-Owned Life Insurance Policies means the life
insurance policies owned by ATI insuring the lives of certain ATI Executives and
certain other highly compensated employees of ATI or an ATI Entity.
1.15 DOL means the United States Department of Labor.
2
<PAGE> 6
1.16 ERISA means the Employee Retirement Income Security Act
of 1974, as amended. Reference to a specific provision of ERISA also includes
any proposed, temporary, or final regulation in force under that provision.
1.17 Executive Benefit Plans, when immediately preceded by
"ATI," means the executive benefit plans, programs, and arrangements
established, maintained, agreed upon, or assumed by ATI or an ATI Entity for the
benefit of employees and former employees of ATI or an ATI Entity before the
Close of the Distribution Date as listed in Schedule 1.17. When immediately
preceded by "Teledyne Technologies," Executive Benefit Plans means the executive
benefit plans and programs to be established by Teledyne Technologies pursuant
to Section 2.2 that correspond to the respective ATI Executive Benefit Plans.
1.18 Foreign Plan means a Plan maintained by ATI, an ATI
Entity, Teledyne Technologies, or a Teledyne Technologies Entity for the benefit
of employees outside the U.S.
1.19 Group Insurance Policies is defined in Section 5.2(b)(i).
1.20 HCRA Plan, when immediately preceded by "ATI," means the
ATI Health Care Reimbursement Account Plan. When immediately preceded by
"Teledyne Technologies," HCRA Plan means the Health Care Reimbursement Account
Plan to be established by Teledyne Technologies pursuant to Section 2.2.
1.21 Health and Welfare Plans, when immediately preceded by
"ATI," means the health and welfare plans listed on Schedule 1.21 established
and maintained by ATI for the benefit of employees and retirees of ATI and
certain ATI Entities, and such other welfare plans or programs as may apply to
such employees and retirees of ATI or an ATI Entity before the Close of the
Distribution Date. When immediately preceded by "Teledyne Technologies," Health
and Welfare Plans means the health and welfare plans to be established by
Teledyne Technologies pursuant to Section 2.2 that correspond to the respective
ATI Health and Welfare Plans.
1.22 HMO means a health maintenance organization that provides
benefits under one or more of the ATI Health and Welfare Plans or the Teledyne
Technologies Health and Welfare Plans.
1.23 HMO Agreements is defined in Section 5.2(c)(i).
1.24 Immediately After the Distribution Date means 5:01 P.M.,
Eastern Standard Time or Eastern Daylight Time (whichever shall then be in
effect), on the Distribution Date.
1.25 Incentive Plan, when immediately preceded by "ATI," means
any of the Allegheny Teledyne Incorporated 1996 Incentive Plan, any predecessor
Incentive Plan thereto and any other stock-based incentive plans assumed by ATI
by reason of merger, combination, acquisition or otherwise. When immediately
preceded by "Teledyne Technologies," Incentive Plan means the Incentive Plan to
be established by Teledyne Technologies pursuant to Section 2.2.
3
<PAGE> 7
1.26 IRS means the Internal Revenue Service.
1.27 Material Feature means any feature of a Plan that could
reasonably be expected to be of material importance to the sponsoring employer
or the participants and beneficiaries of the Plan, which could include,
depending on the type and purpose of the particular Plan, the class or classes
of employees eligible to participate in such Plan, the nature, type, form,
source, and level of benefits provided by the employer under such Plan and the
amount or level of contributions, if any, required to be made by participants
(or their dependents or beneficiaries) to or under such Plan.
1.28 Non-Employee Director, when immediately preceded by
"ATI," means a member of ATI's Board of Directors who is not an employee of ATI
or an ATI Entity. When immediately preceded by "Teledyne Technologies,"
Non-Employee Director means a member of Teledyne Technologies' Board of
Directors who is not an employee of Teledyne Technologies or a Teledyne
Technologies Entity.
1.29 Non-Employee Director Plans, when immediately preceded by
"ATI," means the Allegheny Teledyne Incorporated 1996 Non-Employee Director
Stock Compensation Plan and the Allegheny Teledyne Incorporated Fee Continuation
Plan for Non-Employee Directors. When immediately preceded by "Teledyne
Technologies," Non-Employee Director Plans means the plans and programs to be
established by Teledyne Technologies pursuant to Section 2.2 that correspond to
the ATI Non-Employee Director Plans.
1.30 Nonqualified Deferred Compensation Programs, when
immediately preceded by "ATI," means the Allegheny Teledyne Incorporated
Executive Deferred Compensation Plan, the Allegheny Teledyne Incorporated
Supplemental Pension Plan and the Teledyne, Inc. Pension Equalization Plan. When
immediately preceded by "Teledyne Technologies," Deferral Plan means the
Executive Deferred Compensation Plan to be established by Teledyne Technologies
pursuant to Section 2.2.
1.31 Option, when immediately preceded by "ATI," means an
option to purchase ATI Common Stock and, when immediately preceded by "Teledyne
Technologies," Option means an option to purchase Teledyne Technologies Common
Stock, in each case pursuant to an Incentive Plan.
1.32 PBGC means the Pension Benefit Guaranty Corporation.
1.33 Performance Award means any Award granted pursuant to the
terms of the Performance Share Program.
1.34 Performance Share Program means the Allegheny Teledyne
Incorporated Performance Share Program adopted pursuant to Administrative Rules
under the ATI Incentive Plan.
1.35 Plan, when immediately preceded by "ATI" or "Teledyne
Technologies," means any plan, policy, program, payroll practice, on-going
arrangement, contract, trust, insurance policy or other agreement or funding
vehicle providing benefits to employees, former
4
<PAGE> 8
employees or Non-Employee Directors of ATI or an ATI Entity, or Teledyne
Technologies or a Teledyne Technologies Entity, as applicable.
1.36 Ratio means the amount obtained by dividing the ATI Stock
Value by the Teledyne Technologies Stock Value.
1.37 Reasonable Efforts means such acts or actions that, in
the reasonable good faith opinion of the party taking such acts or actions, are
calculated to achieve, or otherwise further, the applicable provisions to which
the term applies; provided, however, to the extent any costs, fees or other
expenditures (the "Expenses") occur as a result of a party's use of Reasonable
Efforts and such expenses are not expressly allocated under the terms of this
Agreement or any Ancillary Agreement, such Expenses shall be borne by the party
for whose benefit such Expenses are incurred and such party shall indemnify and
hold harmless the other party with respect to such Expenses.
1.38 SARP, when immediately preceded by "ATI," means the
Allegheny Teledyne Incorporated Stock Acquisition and Retention Program.
1.39 SARP Award means any Award granted pursuant to the terms
of the SARP.
1.40 Section 414(l) Amount is defined in the last sentence of
Section 3.2(a).
1.41 Separation and Distribution Agreement is defined in the
third paragraph of the preamble of this Agreement.
1.42 Stock Purchase Plan when immediately preceded by "ATI,"
means the Allegheny Teledyne Incorporated Employee Stock Purchase Plan. When
immediately preceded by "Teledyne Technologies," Stock Purchase Plan means the
employee stock purchase plan to be established by Teledyne Technologies pursuant
to Section 2.2.
1.43 Teledyne means Teledyne, Inc., a Delaware corporation, or
its successors or assigns.
1.44 Teledyne 401(k) Plan means the Teledyne, Inc. 401(k)
Plan.
1.45 Teledyne Technologies Entity means any Person that is, at
the relevant time, a Subsidiary of Teledyne Technologies or is otherwise
controlled, directly or indirectly, by Teledyne Technologies.
1.46 Teledyne Technologies 401(k) Plan means, for the period
between the Close of the Distribution Date and April 1, 2000, that portion of
the Teledyne 401(k) Plan amended as described in Section 4.1(a) and, for the
period on and after April 1, 2000, the separate 401(k) plan established by
Teledyne Technologies effective no later than April 1, 2000.
1.47 Teledyne Technologies Individual means any individual
who, Immediately After the Distribution Date, (i) is an active hourly or
salaried employee of one of the Teledyne
5
<PAGE> 9
Technologies Entities or (ii) is a former hourly or salaried employee who is in
pay status or deferred vested status under the ATI Pension Plan of one of the
Teledyne Technologies Entities listed in Schedule 1.47.
1.48 Teledyne Technologies Pension Plan means the pension plan
established by Teledyne Technologies pursuant to Article III and Section 2.2.
1.49 Teledyne Technologies Pension Plan Participants means,
collectively, the Teledyne Technologies Individuals who are eligible to
participate and/or receive benefits under the terms of the Teledyne Technologies
Pension Plan.
1.50 Teledyne Technologies Stock Value means the opening price
per share of Teledyne Technologies Common Stock on the NYSE on the day following
the Distribution Date.
ARTICLE II
GENERAL PRINCIPLES
2.1 ASSUMPTION OF LIABILITIES. Except as otherwise expressly provided
in Article III and Article VI, Teledyne Technologies hereby assumes and agrees
to pay, perform, fulfill and discharge, in accordance with their respective
terms, all of the following (regardless of when or where such Benefit
Liabilities arose or arise or were or are incurred): (i) all Benefit Liabilities
to or relating to Teledyne Technologies Individuals, and their respective
dependents and beneficiaries, in each case relating to, arising out of or
resulting from employment by ATI or an ATI Entity before the Distribution Date
(including Benefit Liabilities under ATI Plans and Teledyne Technologies Plans);
(ii) all other Benefit Liabilities to or relating to Teledyne Technologies
Individuals and other employees of Teledyne Technologies or a Teledyne
Technologies Entity, and their dependents and beneficiaries, to the extent
relating to, arising out of or resulting from future, present or former
employment with Teledyne Technologies or a Teledyne Technologies Entity
(including Benefit Liabilities under ATI Plans and Teledyne Technologies Plans);
(iii) all Benefit Liabilities relating to, arising out of or resulting from any
other actual or alleged employment relationship with Teledyne Technologies or a
Teledyne Technologies Entity; (iv) all Benefit Liabilities relating to, arising
out of or resulting from the imposition of withdrawal liability under Subtitle E
of Title IV of ERISA as a result of a complete or partial withdrawal of any ATI
Entity from a "multiemployer plan" within the meaning of ERISA Section 4021
which occurs solely as a result of the Separation or the Distribution; and (v)
all other Benefit Liabilities relating to, arising out of or resulting from
obligations, liabilities and responsibilities expressly assumed or retained by
Teledyne Technologies, a Teledyne Technologies Entity, or a Teledyne
Technologies Plan pursuant to this Agreement. Notwithstanding the generality of
the foregoing, Teledyne Technologies does not assume or agree to pay, perform,
fulfill or discharge any Benefit Liabilities relating to, arising out of or
resulting from the Teledyne Savings and Retirement Supplemental Plan.
2.2 ESTABLISHMENT OF TELEDYNE TECHNOLOGIES PLANS. Effective prior
to the Distribution Date, Teledyne Technologies shall adopt, or cause to be
adopted, the
6
<PAGE> 10
Teledyne Technologies Pension Plan and its related trust, the amended Teledyne
401(k) Plan for the period between the Distribution Date and April 1, 2000, the
Teledyne Technologies Stock Purchase Plan, the Teledyne Technologies Health and
Welfare Plans, and the Teledyne Technologies Executive Benefit Plans for the
benefit of the Teledyne Technologies Individuals and other current and future
employees of Teledyne Technologies and the Teledyne Technologies Entities;
provided, however, that Teledyne Technologies may, in its sole discretion, elect
not to adopt or establish the Plan or Plans listed in Schedule 2.2(a). Subject
to the provisions of Section 4.1 regarding the Teledyne Technologies 401(k)
Plan, or as otherwise may be set forth in Schedule 2.2(b), the foregoing
Teledyne Technologies Plans shall be substantially identical in all Material
Features to the corresponding ATI Plans as in effect as of the Close of the
Distribution Date. Effective prior to or within a reasonable time after the
Distribution Date, Teledyne Technologies shall adopt, or cause to be adopted,
the Teledyne Technologies Non-Employee Director Plans, for the benefit of
Teledyne Technologies Non-Employee Directors. The Teledyne Technologies
Non-Employee Director Plans shall be substantially similar in all Material
Features to the corresponding ATI Non-Employee Director Plans as in effect on
the Distribution Date. Effective no later than April 1, 2000, Teledyne
Technologies shall adopt the Teledyne Technologies 401(k) Plan and its related
trust.
2.3 TERMS OF PARTICIPATION BY TELEDYNE TECHNOLOGIES INDIVIDUALS IN
TELEDYNE TECHNOLOGIES PLANS. The Teledyne Technologies Plans shall be, with
respect to Teledyne Technologies Individuals, in all respects the successors in
interest to, and shall not provide benefits that duplicate benefits provided by,
the corresponding ATI Plans. ATI and Teledyne Technologies shall agree on
methods and procedures, including amending the respective Plan documents and/or
requesting approvals or consents of Teledyne Technologies Individuals where the
parties deem appropriate, to prevent Teledyne Technologies Individuals from
receiving duplicative benefits from the ATI Plans and the Teledyne Technologies
Plans. With respect to Teledyne Technologies Individuals, each Teledyne
Technologies Plan shall provide that all service, all compensation and all other
benefit-affecting determinations that, as of the Close of the Distribution Date,
were recognized under the corresponding ATI Plan shall, as of Immediately After
the Distribution Date, receive full recognition, credit, and validity and be
taken into account under such Teledyne Technologies Plan to the same extent as
if such items occurred under such Teledyne Technologies Plan, except to the
extent that duplication of benefits would result. The provisions of this
Agreement for the transfer of assets from certain trusts relating to ATI Plans
(including Foreign Plans) to the corresponding trusts relating to Teledyne
Technologies Plans (including Foreign Plans) are based upon the understanding of
the parties that each such Teledyne Technologies Plan will assume all Benefit
Liabilities of the corresponding ATI Plan to or relating to Teledyne
Technologies Individuals, as provided for herein. If any such Benefit
Liabilities are not effectively assumed by the appropriate Teledyne Technologies
Plan, then the amount of assets transferred to the trust relating to such
Teledyne Technologies Plan from the trust relating to the corresponding ATI Plan
shall be recomputed as set forth below, but taking into account the retention of
such Benefit Liabilities by such ATI Plan, and assets shall be transferred by
the trust relating to such Teledyne Technologies Plan to the trust relating to
such ATI Plan so as to place each such trust in the position it would have been
in, had the initial asset transfer been made in accordance with such recomputed
amount of assets.
7
<PAGE> 11
ARTICLE III
DEFINED BENEFIT PLANS
3.1 ESTABLISHMENT OF TELEDYNE TECHNOLOGIES PENSION PLAN AND TRUST. The
Teledyne Technologies Pension Plan, established by Teledyne Technologies
pursuant to Section 2.2, (i) shall be a qualified defined benefit pension plan
within the meaning of Code Section 401(a), (ii) shall contain provisions, terms
and conditions substantially similar to the provisions, terms and conditions of
the ATI Pension Plan, (iii) shall provide coverage to and assume the benefit
payment obligations of the ATI Pension Plan with respect to the Teledyne
Technologies Pension Plan Participants, (iv) shall provide a benefit formula
which shall accrue benefits for eligible Teledyne Technologies Individuals at a
rate substantially similar to the rate at which benefits are accrued under the
ATI Pension Plan and (v) shall provide that the Teledyne Technologies Pension
Plan cannot be amended to increase the rate of benefit accrual until January 1,
2001 without the prior written consent of ATI. The trust related to the Teledyne
Technologies Pension Plan, established by Teledyne Technologies pursuant to
Section 2.2, is intended to be exempt from taxation under Code Section 501(a)
and Teledyne Technologies shall take all steps necessary or appropriate to cause
such trust to meet the requirements for tax exemption under Code Section 501(a).
3.2 ASSUMPTION OF PENSION PLAN LIABILITIES AND ALLOCATION OF INTERESTS
IN THE ATI MASTER PENSION TRUST.
(a) CALCULATION OF ASSET ALLOCATION. A nationally-recognized
actuarial firm, selected by ATI in its sole and absolute discretion (the
"Actuary"), shall determine the Section 414(l) Amount effective as of the
Distribution Date. As soon as practicable after the Distribution Date, the
Actuary shall deliver to ATI and Teledyne Technologies a written report, with
the necessary supporting data, setting forth the calculations by the Actuary of
the Section 414(l) Amount and a certification that such amount complies with
Section 414(l) of the Code. The Actuary's determination of the Section 414(l)
Amount shall be final and binding on all parties hereto and for all purposes
hereunder. The costs of the Actuary with respect to the determination of the
Section 414(l) Amount under this Section 3.2(a) shall be borne equally by ATI
and Teledyne Technologies. The "Section 414(l) Amount" means the minimum amount
required to be transferred from the ATI Pension Plan to the Teledyne
Technologies Pension Plan with respect to the Teledyne Technologies Pension Plan
Participants pursuant to Section 208 of ERISA and Section 414(l) of the Code and
the applicable rulings and regulations thereunder using actuarial assumptions
deemed reasonable in the aggregate by the Actuary within the meaning of Treasury
Regulation Section 1.414(l)-1(b)(9) with respect to plan terminations occurring
as of the Distribution Date.
(b) TRANSFER OF ASSETS. As soon as practicable after
determination of the Section 414(l) Amount in accordance with the procedures set
forth in Section 3.2(a) but in no event earlier than two (2) business days after
the Distribution Date or more than sixty (60) days after the Distribution Date,
ATI shall cause to be transferred from the ATI Master Pension Trust to the
Teledyne Technologies Master Pension Trust assets in a form determined by ATI in
its sole
8
<PAGE> 12
discretion with a market value then equal to the sum of (i) the Section 414(l)
Amount and (ii) up to $50,000,000, together with interest on such Section 414(l)
Amount for the period from the Distribution Date to the date of transfer at a
rate equal to the rate of interest on 90-day U.S. Treasury bills as of the
Distribution Date, reduced by the amount of any benefit payments due and made to
or on behalf of any of the Teledyne Technologies Individuals from the ATI Master
Pension Trust during such period and not taken into account in determining the
Section 414(l) Amount. As of the date of such transfer of assets, Teledyne
Technologies shall assume all Benefit Liabilities to or relating to Teledyne
Technologies Pension Plan Participants under ATI's Pension Plan and ATI's
Pension Plan shall retain no liability for such benefits.
3.3 FREEZING OF PENSION PLAN BENEFITS. Effective Immediately After the
Distribution Date, the accrued benefits with respect to Teledyne Technologies
Individuals who, as of the Distribution Date, were participants under the ATI
Pension Plan shall be frozen and such Individuals shall not accrue any
additional benefits from and after the Distribution Date under the ATI Pension
Plan. The assets and Benefit Liabilities with respect to such Individuals,
determined as of the Distribution Date, shall be retained by the ATI Pension
Plan and its related trust and paid therefrom when due under the terms of the
ATI Pension Plan.
3.4 CREDITING SERVICE UNDER ATI'S PENSION PLAN. Teledyne Technologies
Individuals other than Teledyne Technologies Pension Plan Participants who, as
of the Distribution Date, were participants in the ATI Pension Plan will
continue to receive service credit for vesting and retirement benefit
eligibility purposes under the ATI Pension Plan for service with Teledyne
Technologies after the Distribution Date.
ARTICLE IV
DEFINED CONTRIBUTION PLANS
4.1 401(k) PLAN.
(a) ADOPTION BY TELEDYNE TECHNOLOGIES OF TELEDYNE 401(k) PLAN
AMENDED TO BE A MULTIPLE EMPLOYER PLAN. On or before the Distribution Date, the
Teledyne 401(k) Plan will be amended by Teledyne to be and become a multiple
employer plan under which Teledyne Technologies may elect to be a contributing
sponsor and to provide participation to Teledyne Technologies Individuals under
the terms and conditions set forth in the Teledyne 401(k) Plan for a period
ending on the earlier of (i) adoption by Teledyne Technologies of the Teledyne
Technologies 401(k) Plan or (ii) April 1, 2000. The right to amend the Teledyne
401(k) Plan in any respect shall be exclusively within the power of Teledyne at
all relevant times. As amended, the Teledyne 401(k) Plan shall provide that (A)
Teledyne Technologies Individuals shall not be permitted to direct investments
after the Distribution Date in shares of common stock of ATI ("ATI Common
Stock") or in the common stock of any corporation spun off by ATI on the
Distribution Date other than Teledyne Technologies and (B) that each Teledyne
Technologies Individual shall have the right to direct the administrator of the
Teledyne 401(k) Plan to liquidate such Teledyne Technologies Individual's
interest in shares of ATI Common Stock, Teledyne Technologies Common Stock or
the common
9
<PAGE> 13
stock of any other previously related corporation and direct the method of
reinvestment of the proceeds of such sale from among the options then available
under the Teledyne 401(k) Plan.
(b) ESTABLISHMENT OF TELEDYNE TECHNOLOGIES 401(k) PLAN AND
TRUST. The Teledyne Technologies 401(k) Plan, established by Teledyne
Technologies no later than April 1, 2000 pursuant to Section 2.2, (i) shall be a
qualified defined contribution plan within the meaning of Code Section 401(a),
(ii) except as provided under Section 4.1(c), shall contain provisions, terms
and conditions substantially similar to the provisions, terms and conditions of
the Teledyne 401(k) Plan, including provisions with respect to the ATI Common
Stock and the common stock of Teledyne Technologies and any other corporation
spun off by ATI on the Distribution Date, and shall further provide that
Teledyne Technologies Individuals may maintain investments in ATI Common Stock,
Teledyne Technologies Common Stock and/or stock of any previously related
corporation until December 31, 2002 and, if ATI Common Stock and/or common stock
of any previously related corporation other than Teledyne Technologies is held
in accounts of Teledyne Technologies Individuals in the Teledyne 401(k) Plan as
of December 31, 2002, interests of Teledyne Technologies Individuals in such
stock shall be liquidated by the Plan administrator and the proceeds reinvested
in Teledyne Technologies Common Stock, and (iii) shall provide coverage from and
after the earlier of (i) its adoption by Teledyne Technologies or (ii) April 1,
2000 with respect to Teledyne Technologies Individuals who, as of the later of
the dates above, were participants in the Teledyne 401(k) Plan, as amended as
described in Section 4.1(a). The trust related to the Teledyne Technologies
401(k) Plan, established by Teledyne Technologies pursuant to Section 2.2, shall
be exempt from taxation under Code Section 501(a).
(c) ASSUMPTION OF LIABILITIES AND TRANSFER OF ASSETS.
(i) Effective Immediately After the Distribution Date
and until the earlier of (i) the date of adoption by Teledyne Technologies of
the Teledyne Technologies 401(k) Plan or (ii) April 1, 2000, ATI shall
administer or cause the administration of the assets and Benefit Liabilities of
the Teledyne 401(k) Plan with respect to both Teledyne employees and Teledyne
Technologies Individuals. Teledyne Technologies shall pay to ATI, within thirty
days of presentment of an invoice therefor, an amount equal to the actual cost
incurred by ATI for administration of the assets and Benefit Liabilities in the
Teledyne 401(k) Plan relating to Teledyne Technologies Individuals. Teledyne
Technologies Individuals shall continue to accrue service credit under the
Teledyne 401(k) Plan for vesting and benefit eligibility purposes until the
earlier of (i) the date of adoption by Teledyne Technologies of the Teledyne
Technologies 401(k) Plan or (ii) April 1, 2000. Effective as of the earlier of
(i) adoption by Teledyne Technologies of the Teledyne Technologies 401(k) Plan
or (ii) April 1, 2000: (A) the Teledyne Technologies 401(k) Plan shall assume
and be solely responsible for all Benefit Liabilities to or relating to Teledyne
Technologies Individuals under the Teledyne Technologies 401(k) Plan, and (B)
ATI shall cause an amount equal to the aggregate account balances of the
Teledyne Technologies Individuals participating under the Teledyne 401(k) Plan,
whether such amounts are vested or unvested under the terms of the Teledyne
401(k) Plan, which are held by the related trust as of the applicable of (i) the
date of adoption by Teledyne Technologies of the Teledyne Technologies 401(k)
Plan or (ii) April 1, 2000 (or such other date as may be agreed by ATI and
Teledyne Technologies) to be transferred to the Teledyne Technologies 401(k)
Plan, and its related trust,
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and Teledyne Technologies shall cause such transferred accounts to be accepted
by such plan and trust. In ATI's sole and absolute discretion, the amount so
transferred may be in cash or in kind or a combination thereof; provided,
however, that the following shall be transferred in kind: (A) shares of ATI
Common Stock, shares of Teledyne Technologies Common Stock allocated to
participants' accounts as a result of the Distribution and shares of Water Pik
Technologies, Inc. Common Stock allocated to participants' accounts as a result
of the spin-off of ATI's consumer business; and (B) all promissory notes
reflecting participant loans to Teledyne Technologies Individuals under the
Teledyne 401(k) Plan outstanding as of the time of transfer.
(ii) If any benefit with respect to a Teledyne
Technologies Individual under the Teledyne 401(k) Plan is subject to a qualified
domestic relations order at the time of transfer, all documentation concerning
such qualified domestic relations order shall be assigned to the Teledyne
Technologies 401(k) Plan.
4.2 PACIFIC AVIONICS CORPORATION PROFIT SHARING PLAN. Effective
Immediately After the Distribution Date, Teledyne Technologies will assume
sponsorship of and all liabilities and responsibilities for the Pacific Avionics
Corporation Profit Sharing Plan.
ARTICLE V
HEALTH AND WELFARE PLANS
5.1 ASSUMPTION OF HEALTH AND WELFARE PLAN LIABILITIES.
(a) Immediately After the Distribution Date, all Benefit
Liabilities to or relating to Teledyne Technologies Individuals under the ATI
Health and Welfare Plans shall cease to be Benefit Liabilities of the ATI Health
and Welfare Plans and shall be assumed by the corresponding Teledyne
Technologies Health and Welfare Plans.
(b) Notwithstanding Section 5.1(a), all treatments which have
been pre-certified for or are being provided to a Teledyne Technologies
Individual as of the Close of the Distribution Date shall be provided without
interruption under the appropriate ATI Health and Welfare Plan until such
treatment is concluded or discontinued pursuant to applicable plan rules and
limitations, but Teledyne Technologies shall continue to be responsible for all
Benefit Liabilities relating to, arising out of or resulting from such ongoing
treatments as of the Close of the Distribution Date.
5.2 VENDOR CONTRACTS.
(a) THIRD-PARTY ASO CONTRACTS.
(i) ATI shall use its Reasonable Efforts to amend
each administrative services only contract with a third-party administrator that
relates to any of the ATI Health and Welfare Plans (an "ASO Contract") in
existence as of the date of this Agreement to permit Teledyne Technologies to
participate in the terms and conditions of such ASO Contract from
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Immediately After the Distribution Date until December 31, 2000. ATI shall use
its Reasonable Efforts to cause all ASO Contracts into which ATI enters after
the date of this Agreement but before the Close of the Distribution Date to
allow Teledyne Technologies to participate in the terms and conditions thereof
effective Immediately After the Distribution Date on the same basis as ATI.
(ii) ATI shall have the right to determine, and shall
promptly notify Teledyne Technologies of, the manner in which Teledyne
Technologies' participation in the terms and conditions of ASO Contracts as set
forth above shall be effectuated. The permissible ways in which Teledyne
Technologies' participation may be effectuated include automatically making
Teledyne Technologies a party to the ASO Contracts or obligating the third party
to enter into a separate ASO Contract with Teledyne Technologies providing for
the same terms and conditions as are contained in the ASO Contracts to which ATI
is a party (or such other arrangement as to which ATI and Teledyne Technologies
shall mutually agree). Such terms and conditions shall include the financial and
termination provisions, performance standards, methodology, auditing policies,
quality measures, reporting requirements and target claims. Teledyne
Technologies hereby authorizes ATI to act on its behalf to extend to Teledyne
Technologies the terms and conditions of the ASO Contracts. Teledyne
Technologies shall fully cooperate with ATI in such efforts, and Teledyne
Technologies shall not perform any act, including discussing any alternative
arrangements with any third party, that would prejudice ATI's efforts.
(b) GROUP INSURANCE POLICIES.
(i) This Section 5.2(b) applies to group insurance
policies not subject to allocation or transfer pursuant to the foregoing
provisions of this Article V ("Group Insurance Policies").
(ii) ATI shall use its Reasonable Efforts to amend
each Group Insurance Policy in existence as of the date of this Agreement for
the provision or administration of benefits under the ATI Health and Welfare
Plans to permit Teledyne Technologies to participate in the terms and conditions
of such policy from Immediately After the Distribution Date until December 31,
2000. ATI shall use its Reasonable Efforts to cause all Group Insurance Policies
into which ATI enters or which ATI renews after the date of this Agreement but
before the Close of the Distribution Date to allow Teledyne Technologies to
participate in the terms and conditions thereof effective Immediately After the
Distribution Date on the same basis as ATI.
(iii) Teledyne Technologies' participation in the
terms and conditions of each such Group Insurance Policy shall be effectuated by
obligating the insurance company that issued such insurance policy to ATI to
issue one or more separate policies to Teledyne Technologies. Such terms and
conditions shall include the financial and termination provisions, performance
standards and target claims. Teledyne Technologies hereby unconditionally and
irrevocably authorizes ATI to act on its behalf to extend to Teledyne
Technologies the terms and conditions of such Group Insurance Policies. Teledyne
Technologies shall fully cooperate with ATI in such efforts, and Teledyne
Technologies shall not perform any act, including discussing any alternative
arrangements with third parties, that would prejudice ATI's efforts.
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(c) HMO AGREEMENTS.
(i) Before the Distribution Date, ATI shall use its
Reasonable Efforts to amend all letter agreements with HMOs that provide medical
services under the ATI Medical Plans for 1999 ("HMO Agreements") in existence as
of the date of this Agreement to permit Teledyne Technologies to participate in
the terms and conditions of such HMO Agreements, in each case, from Immediately
After the Distribution Date until December 31, 2000. ATI shall use its
Reasonable Efforts to cause all HMO Agreements into which ATI enters after the
date of this Agreement but before the Close of the Distribution Date to allow
Teledyne Technologies to participate in the terms and conditions of such HMO
Agreements from Immediately After the Distribution Date until December 31, 2000
on the same basis as ATI.
(ii) ATI shall have the right to determine, and shall
promptly notify Teledyne Technologies of, the manner in which Teledyne
Technologies' participation in the terms and conditions of all HMO Agreements as
set forth above shall be effectuated. The permissible ways in which Teledyne
Technologies' participation may be effectuated include automatically making
Teledyne Technologies a party to the HMO Agreements or obligating the HMOs to
enter into letter agreements with Teledyne Technologies which are identical to
the HMO Agreements (or such other arrangement as to which ATI and Teledyne
Technologies shall mutually agree). Such terms and conditions shall include the
financial and termination provisions of the HMO Agreements. Teledyne
Technologies hereby authorizes ATI to act on its behalf to extend to Teledyne
Technologies the terms and conditions of the HMO Agreements. Teledyne
Technologies shall fully cooperate with ATI in such efforts, and Teledyne
Technologies shall not perform any act, including discussing any alternative
arrangements with any third-party, that would prejudice ATI's efforts.
(iii) Notwithstanding anything in this Article V to
the contrary, Teledyne Technologies shall have the sole discretion to determine
which HMOs to offer to the participants in the Teledyne Technologies Health and
Welfare Plans for 2001 and subsequent years, and all HMO Agreements in which
Teledyne Technologies participates pursuant to this Section 5.2(c) shall provide
Teledyne Technologies with the right to discontinue its participation effective
January 1, 2001.
5.3 PROCEDURES FOR AMENDMENTS TO PLANS, PLAN DESIGNS, ADMINISTRATIVE
PRACTICES, AND VENDOR CONTRACTS.
(a) AMENDMENTS TO PLAN DOCUMENTS. From Immediately After the
Distribution Date through December 31, 2000, Teledyne Technologies shall not
amend any Teledyne Technologies Health and Welfare Plan or Plans, and Teledyne
Technologies shall have no rights or privileges with respect to such Plans other
than those rights and privileges contained in any policy, contract or other
written arrangement governing such Plans. During any period in which ATI is
providing Interim Services with respect to any Teledyne Technologies Health and
Welfare Plan pursuant to Section 7.1, ATI shall have the right to amend any
applicable Teledyne Technologies Health and Welfare Plan; provided that, in
ATI's reasonable good faith opinion, such amendment will have no material
adverse impact on the Teledyne Technologies Health and Welfare Plan or its
participants or, to the extent a material adverse impact would occur, such
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impact would affect both the applicable Teledyne Technologies Health and Welfare
Plan and any corresponding ATI Health and Welfare Plan and any costs incurred as
a result of such amendment shall be borne by ATI and Teledyne Technologies in
the same proportion that Teledyne Technologies and ATI employees, respectively,
participate.
(b) CHANGES IN VENDOR CONTRACTS, GROUP INSURANCE POLICIES,
PLAN DESIGN, AND ADMINISTRATION PRACTICES AND PROCEDURES.
(i) From Immediately After the Distribution Date
until December 31, 2000, Teledyne Technologies shall not materially modify, or
take other action which would have a material effect on, any of the following
items (each such modification, a "Change"): (A) the termination date,
administration, or operation of (1) an ASO contract between ATI or Teledyne
Technologies and a third-party administrator, (2) a Group Insurance Policy
issued to ATI or Teledyne Technologies, or (3) an HMO Agreement with ATI or
Teledyne Technologies, in each case, the material terms and conditions of which
contracts and policies are extended to Teledyne Technologies or to which
Teledyne Technologies becomes a party pursuant to Section 5.2; (B) the design of
either an ATI Health and Welfare Plan or a Teledyne Technologies Health and
Welfare Plan; or (C) the financing, operation, administration or delivery of
benefits under either an ATI Health and Welfare Plan or a Teledyne Technologies
Health and Welfare Plan.
(ii) During any period in which ATI is providing
Interim Services with respect to any Teledyne Technologies Health and Welfare
Plan pursuant to Section 7.1, ATI shall be permitted to make any Change to such
Teledyne Technologies Plan; provided that, in ATI's reasonable good faith
opinion, such Change would affect both the applicable Teledyne Technologies
Health and Welfare Plan and any corresponding ATI Health and Welfare Plan and
any costs incurred as a result of such amendment shall be borne by ATI and
Teledyne Technologies in the same proportion that Teledyne Technologies and ATI
employees, respectively, participate.
(c) EMPLOYEE CONTRIBUTIONS. Except as otherwise expressly
provided in Sections 5.3(a) and 5.3(b), as of January 1, 2001, Teledyne
Technologies shall have the right, in its sole and absolute discretion and
without compliance with Sections 5.3(a) and 5.3(b), to increase or decrease the
amount of employee contributions under their respective Health and Welfare
Plans.
5.4 ATI SICKNESS AND ACCIDENT, LONG TERM DISABILITY AND PENSION
DISABILITY BENEFITS. ATI shall transfer to Teledyne Technologies, effective
Immediately After the Distribution Date, responsibility for administering all
claims incurred by Teledyne Technologies Individuals and other employees and
former employees of Teledyne Technologies and the Teledyne Technologies Entities
before the Close of the Distribution Date that are administered by ATI as of the
Close of the Distribution Date. Teledyne Technologies shall administer such
claims in the same manner, and using the same methods and procedures, as ATI
used in administering such claims. Teledyne Technologies shall have sole
discretionary authority to make any necessary determinations with respect to
such claims, including entering into settlements with respect to such claims.
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5.5 POST-RETIREMENT HEALTH AND LIFE INSURANCE BENEFITS. As soon as
practicable after the Distribution Date, Teledyne Technologies shall provide ATI
with a list of all Teledyne Technologies Individuals who are, to the best
knowledge of Teledyne Technologies, eligible to receive retiree medical or
dental coverage under the ATI Health and Welfare Plans from and after the
Distribution Date and/or post-retirement life insurance coverage under the ATI
Group Life Program, and the type of retiree medical or dental coverage and the
level of life insurance coverage for which they are eligible, as applicable.
5.6 COBRA AND DIRECT PAY. Effective Immediately After the
Distribution Date, Teledyne Technologies shall solely be responsible for
administering compliance with the health care continuation coverage requirements
of COBRA and the Teledyne Technologies Health and Welfare plans, and, with
respect to Teledyne Technologies Individuals, the ATI Health and Welfare Plans.
5.7 POST-DISTRIBUTION TRANSITIONAL ARRANGEMENTS.
(a) CONTINUANCE OF ELECTIONS, CO-PAYMENTS AND MAXIMUM
BENEFITS.
(i) Teledyne Technologies shall cause the Teledyne
Technologies Health and Welfare Plans to recognize and maintain all coverage and
contribution elections made by Teledyne Technologies Individuals under the ATI
Health and Welfare Plans and apply such elections under the Teledyne
Technologies Health and Welfare Plans for the remainder of the period or periods
for which such elections are by their terms applicable. The transfer or other
movement of employment from ATI to Teledyne Technologies at any time before the
Close of the Distribution Date shall neither constitute nor be treated as a
"status change" under the ATI Health and Welfare Plans or the Teledyne
Technologies Health and Welfare Plans.
(ii) Teledyne Technologies shall cause the Teledyne
Technologies Health and Welfare Plans to recognize and give credit for (A) all
amounts applied to deductibles, out-of-pocket maximums, and other applicable
benefit coverage limits with respect to which such expenses have been incurred
by Teledyne Technologies Individuals under the ATI Health and Welfare Plans for
the remainder of the year in which the Distribution occurs, and (B) all benefits
paid to Teledyne Technologies Individuals under the ATI Health and Welfare Plans
for purposes of determining when such persons have reached their lifetime
maximum benefits under the Teledyne Technologies Health and Welfare Plans.
(iii) Teledyne Technologies shall recognize and
maintain through December 31, 1999 all eligible populations covered by the ATI
Health and Welfare Plans (as defined in the applicable ATI Health and Welfare
Plan documents), including Class I and Class II dependents, term and temporary
employees, alternate benefit plan employees, and all categories of part-time
employees (which are fully and non-fully eligible for company contributions).
(iv) Teledyne Technologies shall (A) provide coverage
to Teledyne Technologies Individuals under the Teledyne Technologies Group Life
Program without the need to undergo a physical examination or otherwise provide
evidence of insurability, and (B)
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recognize and maintain all irrevocable assignments and accelerated benefit
option elections made by Teledyne Technologies Individuals under the ATI Group
Life Program.
(b) OTHER POST-DISTRIBUTION TRANSITIONAL RULES.
(i) ATI HCRA PLAN. To the extent any Teledyne
Technologies Individual contributed to an account under the ATI HCRA Plan during
the calendar year that includes the Distribution Date, effective as of the Close
of the Distribution Date, ATI shall transfer to the Teledyne Technologies HCRA
Plan the account balances of Teledyne Technologies Individuals for such calendar
year under the ATI HCRA Plan, regardless of whether the account balance is
positive or negative.
(ii) ATI CHILD/ELDER CARE REIMBURSEMENT ACCOUNT PLAN.
To the extent any Teledyne Technologies Individual contributed to the ATI CECRA
Plan during the calendar year that includes the Distribution Date, ATI shall
transfer the account balances of Teledyne Technologies Individuals for such
calendar year in the ATI CECRA Plan to the Teledyne Technologies CECRA Plan.
(iii) POST-RETIREMENT MEDICAL PLAN. For a period
ending on December 31st of the calendar year which is five calendar years after
the Distribution Date, Teledyne Technologies shall comply with all cost
maintenance period requirements and benefit maintenance period requirements
under Code Section 401(h) or 420 that are applicable to post-retirement health
benefits under the Teledyne Technologies Health Plans for any pension asset
transfers pursuant to Code Section 420 by or on behalf of ATI for qualified
current retiree health liabilities (as defined under Code Section 420). With
respect to any pension asset transfers pursuant to Code Section 420, Teledyne
Technologies shall obtain ATI's prior written approval before amending any
Teledyne Technologies Health Plan with respect to the provision of
post-retirement health benefits during the cost maintenance or benefit
maintenance periods to which the ATI Health Plans are subject pursuant to Code
Section 420 and no such amendment shall be effective in any respect until ATI's
prior written approval is obtained. No pension asset transfer pursuant to Code
Section 420 shall be made by Teledyne Technologies after the date hereof and
before the Close of the Distribution Date unless Teledyne Technologies and ATI
so agree.
(iv) HEALTH AND WELFARE PLANS SUBROGATION RECOVERY.
After the Close of the Distribution Date, ATI shall pay to Teledyne Technologies
any amounts ATI recovers from time to time through subrogation or otherwise for
claims incurred by or reimbursed to any Teledyne Technologies Individual. If
Teledyne Technologies recovers any amounts through subrogation or otherwise for
claims incurred by or reimbursed to employees and former employees of ATI or an
ATI Entity and their respective beneficiaries and dependents (other than
Teledyne Technologies Individuals), Teledyne Technologies shall pay such amounts
to ATI.
5.8 APPLICATION OF ARTICLE V TO TELEDYNE TECHNOLOGIES ENTITIES. Any
reference in this Article V to "Teledyne Technologies" shall include a reference
to a Teledyne Technologies Entity when and to the extent ATI or Teledyne
Technologies has caused the Teledyne Technologies Entity to (a) become a party
to a vendor contract, group
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insurance contract, or HMO letter agreement associated with a Teledyne
Technologies Health and Welfare Plan, (b) become a self-insured entity for the
purposes of one or more Teledyne Technologies Health and Welfare Plans, (c)
assume all or a portion of the liabilities or administrative responsibilities
for benefits which arose before the Close of the Distribution Date under an ATI
Health and Welfare Plan and which were expressly assumed by Teledyne
Technologies pursuant to the terms of this Agreement, or (d) take any other
action, extend any coverage, assume any other liability or fulfill any other
responsibility that Teledyne Technologies would otherwise be required to take
under the terms of this Article V, unless it is clear from the context that the
particular reference is not intended to include a Teledyne Technologies Entity.
In all such instances in which a reference in this Article V to "Teledyne
Technologies" includes a reference to a Teledyne Technologies Entity, Teledyne
Technologies shall be responsible to ATI for ensuring that the Teledyne
Technologies Entity complies with the applicable terms of this Agreement and the
Teledyne Technologies Individuals allocated to such Teledyne Technologies Entity
shall have the same rights and entitlements to benefits under the applicable
Teledyne Technologies Health and Welfare Plans that the Teledyne Technologies
Individual would have had if he or she had instead been allocated to Teledyne
Technologies. Further, each such Teledyne Technologies Entity, unless otherwise
expressly provided under the terms of this Agreement or any Ancillary Agreement,
shall defend, indemnify and hold harmless ATI for any costs incurred by ATI
pursuant to the provisions of Article V on behalf of or related to such Teledyne
Technologies Entity.
ARTICLE VI
EXECUTIVE BENEFITS AND NON-EMPLOYEE DIRECTOR BENEFITS
6.1 ASSUMPTION OF OBLIGATIONS. Except as otherwise expressly provided
in this Article VI, effective Immediately After the Distribution Date, Teledyne
Technologies and the Teledyne Technologies Entities shall assume and be solely
responsible for all Benefit Liabilities to or relating to Teledyne Technologies
Individuals under all ATI Executive Benefit Plans.
6.2 CONSENTS AND NOTIFICATIONS. ATI and Teledyne Technologies shall use
their Reasonable Efforts to obtain, or cause to be obtained, to the extent
necessary, the written consent of each Teledyne Technologies Individual who is a
party to a separate agreement between the Individual and ATI and/or a
participant in any ATI Executive Benefit Plan, to the treatment of such
individual agreement and/or Executive Benefit Plan, as applicable, in accordance
with this Article VI, including the assumption by Teledyne Technologies and the
Teledyne Technologies Entities, of sole responsibility for, and the release of
ATI and the ATI Entities from, all Benefit Liabilities thereunder; provided,
that no failure to seek or to obtain any such consent shall have any effect upon
the obligations of Teledyne Technologies and the Teledyne Technologies Entities
with respect to such Benefit Liabilities.
6.3 ATI 1999 BONUS PLAN. Subject to the provisions of Section
6.4(a)(ii)(B), Teledyne Technologies shall be responsible for determining, with
respect to all Awards that would otherwise be payable under any bonus Plan or
arrangement to Teledyne Technologies Individuals for the 1999 performance year,
(a) the extent to which established performance criteria (as
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interpreted by Teledyne Technologies, in its sole discretion, after taking into
account the effects of the Distribution) have been met and (b) the payment level
for each Teledyne Technologies Individual.
6.4 ATI INCENTIVE PLANS. ATI and Teledyne Technologies shall use their
Reasonable Efforts to take all actions necessary or appropriate so that each
outstanding Award granted under any ATI Incentive Plan held by any Teledyne
Technologies Individual shall be determined, converted or replaced, as the case
may be, as set forth in this Section 6.4 with an Award under the Teledyne
Technologies Incentive Plan.
(a) TELEDYNE TECHNOLOGIES INDIVIDUALS WHO ARE ACTIVE EMPLOYEES
OF TELEDYNE TECHNOLOGIES.
(i) STOCK OPTIONS. Teledyne Technologies shall cause
each ATI Option that is outstanding as of the Close of the Distribution Date and
is held by a Teledyne Technologies Individual to be converted, effective
Immediately After the Distribution Date, to a Teledyne Technologies Option (a
"Converted Option"). Such Converted Option shall provide for the option to
purchase a number of shares of Teledyne Technologies Common Stock equal to the
number of shares of ATI Common Stock subject to such ATI Option as of the Close
of the Distribution Date, multiplied by the Ratio, and then rounded up to the
nearest whole share. The per-share exercise price of such Converted Option shall
equal the per-share exercise price of such ATI Option as of the Close of the
Distribution Date divided by the Ratio. Each such Converted Option shall
otherwise have the same terms and conditions as were applicable to the
corresponding ATI Option as of the Close of the Distribution Date, except that
references to ATI and its Affiliates shall be amended to refer to Teledyne
Technologies and its Affiliates.
(ii) PERFORMANCE AWARDS.
(A) The current performance period under the
ATI Performance Share Program is the three-year period commencing on January 1,
1998. Either prior to or within a reasonable time after the Distribution Date,
in accordance with the provisions of Section 6.4(a)(ii)(B), the applicable ATI
Performance Award under the ATI Performance Share Program shall be determined by
ATI with respect to each Teledyne Technologies Individual for the period from
January 1, 1998 through the Distribution Date. Effective Immediately After the
Distribution Date, Teledyne Technologies and the Teledyne Technologies Entities
shall assume and be solely responsible for all Benefit Liabilities to or
relating to Teledyne Technologies Individuals with respect to the administration
and distribution of Performance Awards to such Teledyne Technologies
Individuals.
(B) Notwithstanding the provisions of
Section 6.3, the ATI Personnel and Compensation Committee or the Stock Incentive
Award Subcommittee, as the case may be, shall determine, in its sole and
absolute discretion, with respect to each Teledyne Technologies Individual, the
extent to which, as of the Distribution Date, such Individual has achieved
target performance levels established under the ATI Performance Share Program
and the appropriate Performance Award for such Individual based upon such
performance. The Performance Award so determined shall be pro-rated by
multiplying the Performance Award
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determined under the preceding sentence by a fraction, the numerator of which
shall be equal to the number of months from and including January 1, 1998 to the
month in which the Distribution Date occurs and the denominator of which shall
be 36. The Performance Award as determined hereunder shall be distributed by
Teledyne Technologies and the Teledyne Technologies Entities to the applicable
Teledyne Technologies Individual as provided under the terms of the Performance
Share Program; provided, however, that any ATI Common Stock allocated or
otherwise awarded to a Teledyne Technologies Individual as part of a Performance
Award under the provisions of this Section 6.4(a)(ii) shall, prior to any
distribution to such Individual and, in any event, no later than Immediately
After the Distribution Date, be converted into Teledyne Technologies Common
Stock by multiplying the number of shares of ATI Common Stock subject to such
Performance Award by an appropriate ratio, as determined by ATI's Board of
Directors or an applicable Committee thereof and then rounding the product up to
the nearest whole share. Teledyne Technologies shall pay to the holder of such
Performance Award, at the time of such conversion, cash in lieu of any
fractional share based on the Teledyne Technologies Stock Value.
(iii) SARP. As of the Distribution Date, all shares
of ATI Common Stock issued and outstanding held by a Teledyne Technologies
Individual under the ATI SARP as Designated Stock or Purchased Stock (as those
terms are defined in the ATI SARP) shall continue to be so held, and the shares
of Teledyne Technologies Common Stock received by Teledyne Technologies
Individuals in respect of their Purchased Stock and Designated Stock pursuant to
the distribution terms of Article III of the Separation and Distribution
Agreement and the shares of Water Pik Technologies, Inc. Common Stock received
by Teledyne Technologies Individuals in respect of their Purchased Stock and
Designated Stock as a result of the spin-off of Water Pik Technologies, Inc. by
ATI to ATI's stockholders shall also be considered Designated Stock or Purchased
Stock, as the case may be, subject to the terms of the ATI SARP. Effective
Immediately After the Distribution Date, Teledyne Technologies shall assume all
Benefit Liabilities to or relating to Teledyne Technologies Individuals under
the ATI SARP relating to the Restricted Stock (as that term is defined in the
ATI SARP), but ATI shall retain all promissory notes payable by participants
into the ATI SARP, including Teledyne Technologies Individuals, to the order of
ATI, and the collateral with respect to such notes shall include all shares of
ATI Common Stock that were pledged as collateral for purposes of the ATI SARP
immediately prior to the Distribution Date as well as the shares of Teledyne
Technologies Common Stock and Water Pik Technologies, Inc. Common Stock issued
in respect of such shares of ATI Common Stock held as collateral. Effective
Immediately After the Distribution Date, pursuant to the terms of the ATI SARP,
all Teledyne Technologies Individuals holding awards of Restricted Stock under
the ATI SARP as of the Distribution Date shall receive, without any further
action on their part and in substitution for all shares of Restricted Stock held
immediately prior to the Distribution Date by such Teledyne Technologies
Individuals under the ATI SARP, a number of shares of Teledyne Technologies
Common Stock determined by multiplying the number of shares of ATI Common Stock
that are held immediately prior to the Distribution Date as Restricted Stock
under the ATI SARP by an appropriate ratio, as determined by ATI's Board of
Directors or an applicable Committee thereof then rounding the product up to the
nearest whole share, and such shares of Teledyne Technologies Common Stock shall
be subject to the same restrictions as the shares of ATI Common Stock prior to
the conversion.
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(b) TELEDYNE TECHNOLOGIES INDIVIDUALS WHO ARE NOT ACTIVE
EMPLOYEES OF TELEDYNE TECHNOLOGIES. Each outstanding Award that is held by an
individual who, as of the Close of the Distribution Date, would otherwise be a
Teledyne Technologies Individual but is not an active employee of or on leave of
absence from Teledyne Technologies or a Teledyne Technologies Entity shall
remain outstanding Immediately After the Distribution Date in accordance with
its terms as applicable as of the Close of the Distribution Date, subject to
such adjustments as may be applicable to outstanding Awards held by individuals
who remain active employees of or on leave of absence from ATI or an ATI Entity
after the Distribution Date.
6.5 ATI NONQUALIFIED DEFERRED COMPENSATION PROGRAMS.
(a) ASSUMPTION OF LIABILITIES AND TRANSFER OF ASSETS.
Effective Immediately After the Distribution Date, Teledyne Technologies shall
assume all Benefit Liabilities to or relating to Teledyne Technologies
Individuals under the ATI Nonqualified Deferred Compensation Programs. Effective
Immediately After the Distribution Date, to the extent ATI has acquired
Corporate-Owned Life Insurance Policies as a source of payment of liabilities
which are or may be payable under the Allegheny Teledyne Incorporated Executive
Deferred Compensation Plan with respect to Teledyne Technologies Individuals,
ATI shall cause the transfer, either by assignment or any other reasonable
means, to Teledyne Technologies of Policies on the lives of Teledyne
Technologies Individuals and such other employees or former employees of ATI or
its subsidiaries as ATI may, in its sole and absolute discretion select, or any
portion thereof, having in the aggregate a cash surrender value equal to the
amount of any Benefit Liabilities for Teledyne Technologies Individuals under
the Allegheny Teledyne Incorporated Executive Deferred Compensation Plan.
(b) GUARANTEE OF CERTAIN OBLIGATIONS. ATI shall guarantee to
Teledyne Technologies Individuals who are participants in the Teledyne, Inc.
Pension Equalization Plan payment of the Benefit Liabilities of Teledyne under
such plan to such participants as of the Distribution Date to the extent
Teledyne Technologies is unable to satisfy such Benefit Liabilities.
(c) CORPORATE-OWNED LIFE INSURANCE. ATI and Teledyne
Technologies shall take all actions necessary to replicate the manner in which
ATI has heretofore held Corporate-Owned Life Insurance Policies, and executing
or accepting delivery of any assignments reasonably requested by either party or
any insurance company insuring one or more lives under the Corporate-Owned Life
Insurance Policies, as may be necessary or appropriate in order to assign those
Policies insuring Teledyne Technologies Individuals to Teledyne Technologies,
effective Immediately After the Distribution Date. If a Corporate-Owned Life
Insurance Policy is so assigned to Teledyne Technologies, Teledyne Technologies
shall assume and be solely responsible for all Benefit Liabilities, and shall be
entitled to all benefits, thereunder, effective as of the earlier of (i) the
Close of the Distribution Date and (ii) the date of such assignment. ATI and
Teledyne Technologies shall continue, liquidate and/or administer such
Corporate-Owned Life Insurance Policies on terms and conditions agreed to by ATI
and Teledyne Technologies. ATI and Teledyne Technologies shall share all
information that may be necessary
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to identify the individuals insured by the Corporate-Owned Life Insurance
Policies owned by ATI and/or Teledyne Technologies and to determine when and
whether such individuals are deceased.
6.6 NON-EMPLOYEE DIRECTOR BENEFITS. The parties intend that all
Teledyne Technologies Non-Employee Directors who were ATI Non-Employee Directors
prior to the Distribution Date may continue to serve as ATI Non-Employee
Directors. In furtherance of such intention, ATI shall retain all Benefit
Liabilities with respect to the services of its Non-Employee Directors under the
ATI Non-Employee Director Plans accrued as of the Distribution Date. Teledyne
Technologies assumes no Benefit Liabilities under the ATI Non-Employee Director
Plans.
6.7 CONFIDENTIALITY AND PROPRIETARY INFORMATION. No provision of this
Agreement shall be deemed to release any individual for a violation of any
agreement or policy pertaining to confidential or proprietary information of ATI
or any of its Affiliates, or otherwise relieve any individual of his or her
obligations under any such agreement or policy.
ARTICLE VII
GENERAL AND ADMINISTRATIVE
7.1 INTERIM SERVICES AGREEMENT. Effective on or before the Distribution
Date, ATI and Teledyne Technologies shall enter into an agreement relating to
the coordination of and payment for interim services to be provided by ATI
regarding the establishment and administration of the Teledyne Technologies
Plans (the "Interim Services Agreement"). The provisions of the Interim Services
Agreement shall be incorporated by reference in this Agreement and shall become
a part of this Agreement.
7.2 PAYMENT OF LIABILITIES, PLAN EXPENSES AND RELATED MATTERS.
(a) ACTUARIAL AND ACCOUNTING METHODOLOGIES AND ASSUMPTIONS.
For purposes of this Agreement, unless specifically indicated otherwise: (i) all
actuarial methodologies and assumptions used for a particular Plan shall (except
to the extent otherwise determined by ATI and Teledyne Technologies to be
reasonable or necessary) be substantially the same as those used in the
actuarial valuation of that Plan used to determine minimum funding requirements
under ERISA Section 302 and Code Section 412(c) for 1999, or, if such Plan is
not subject to such minimum funding requirements, the assumptions used to
prepare ATI's audited financial statements for 1999, as the case may be; and
(ii) the value of plan assets shall be the value established by ATI for purposes
of audited financial statements of the relevant plan or trust for the period
ending on the date as of which the valuation is to be made. Except as otherwise
contemplated by this Agreement or as required by law, all determinations as to
the amount or valuation of any assets of or relating to any ATI Plan (whether or
not such assets are being transferred to a Teledyne Technologies Plan) shall be
made by ATI in its sole and absolute discretion and such determination shall be
final and binding on all parties.
21
<PAGE> 25
(b) PAYMENT OF LIABILITIES; DETERMINATION OF EMPLOYEE STATUS.
Teledyne Technologies shall pay directly, or reimburse ATI promptly for, all
Benefit Liabilities assumed by it pursuant to this Agreement, including all
compensation payable to Teledyne Technologies Individuals for services rendered
while in the employ of ATI or an ATI Entity before becoming a Teledyne
Technologies Individual (to the extent not charged for pursuant to Section 7.1
or another Ancillary Agreement). To the extent the amount of such Benefit
Liabilities is not yet determinable because the status of individuals as
Teledyne Technologies Individuals is not yet determined, except as otherwise
specified herein or in another Ancillary Agreement with respect to particular
Benefit Liabilities, Teledyne Technologies shall make such payments or
reimbursements based upon ATI's reasonable estimates of the amounts thereof, and
when such status is determined, Teledyne Technologies shall make additional
reimbursements or payments, or ATI shall reimburse Teledyne Technologies, to the
extent necessary to reflect the actual amount of such Benefit Liabilities. In
determining the number of individuals in any particular group of employees
described in this Agreement (such as "Teledyne Technologies Individuals"), no
individual shall be counted twice. Determinations of what entity employs or
employed a particular individual shall be made by reference to the applicable
legal entity and/or other appropriate accounting code, to the extent possible.
7.3 SHARING OF PARTICIPANT INFORMATION. ATI and Teledyne Technologies
shall share, ATI shall cause each applicable ATI Entity to share, and Teledyne
Technologies shall cause each applicable Teledyne Technologies Entity to share,
with each other and their respective agents and vendors (without obtaining
releases) all participant information necessary for the efficient and accurate
administration of each of the ATI Plans and the Teledyne Technologies Plans. ATI
and Teledyne Technologies and their respective authorized agents shall, subject
to applicable laws on confidentiality, be given reasonable and timely access to,
and may make copies of, all information relating to the subjects of this
Agreement in the custody of the other party, to the extent necessary for such
administration. Until December 31, 2000, all participant information shall be
provided in a manner and medium that is compatible with the data processing
systems of ATI as in effect on the Close of the Distribution Date, unless
otherwise agreed to by ATI and Teledyne Technologies.
7.4 REPORTING AND DISCLOSURE AND COMMUNICATIONS TO PARTICIPANTS.
Teledyne Technologies shall take, and shall cause each other applicable Teledyne
Technologies Entity to take, all actions necessary or appropriate to facilitate
the distribution of all applicable ATI Plan-related communications and materials
to Teledyne Technologies Individuals and their beneficiaries, including summary
plan descriptions and related summaries of material modification, summary annual
reports, investment information, prospectuses, notices and enrollment material
related to the Teledyne Technologies Plans. Teledyne Technologies shall pay ATI
the cost relating to the copies of all such documents provided to Teledyne
Technologies, except to the extent such costs are charged pursuant to Section
7.1 or pursuant to an Ancillary Agreement. Teledyne Technologies shall assist,
and Teledyne Technologies shall cause each other applicable Teledyne
Technologies Entity to assist, ATI in complying with all reporting and
disclosure requirements of ERISA, including the preparation of Form 5500 annual
reports for the ATI Plans, where applicable.
22
<PAGE> 26
7.5 NON-TERMINATION OF EMPLOYMENT; NO THIRD-PARTY BENEFICIARIES. No
provision of this Agreement or the Separation and Distribution Agreement shall
be construed to create any right, or accelerate entitlement, to any compensation
or benefit whatsoever on the part of any Teledyne Technologies Individual or
other future, present or former employee of ATI, an ATI Entity, Teledyne
Technologies, or a Teledyne Technologies Entity under any ATI Plan or Teledyne
Technologies Plan or otherwise. Without limiting the generality of the
foregoing: (i) the Distribution shall not cause any employee to be deemed to
have incurred a termination of employment which entitles such individual to the
commencement of benefits under any of the ATI Plans, any of the Teledyne
Technologies Plans, or any individual agreements; and (ii) except as expressly
provided in this Agreement, nothing in this Agreement shall preclude Teledyne
Technologies, at any time after the Close of the Distribution Date, from
amending, merging, modifying, terminating, eliminating, reducing, or otherwise
altering in any respect any Teledyne Technologies Plan, any benefit under any
Plan or any trust, insurance policy or funding vehicle related to any Teledyne
Technologies Plan unless such change could or will increase the obligations of
ATI or any ATI Entity under any plan or arrangement.
7.6 BENEFICIARY DESIGNATIONS. All beneficiary designations made by
Teledyne Technologies Individuals for ATI Plans shall be transferred to and be
in full force and effect under the corresponding Teledyne Technologies Plans
until such beneficiary designations are replaced or revoked by the Teledyne
Technologies Individual who made the beneficiary designation.
7.7 REQUESTS FOR IRS RULINGS AND DOL OPINIONS. Teledyne Technologies
shall cooperate fully with ATI on any issue relating to the transactions
contemplated by this Agreement for which ATI elects to seek a determination
letter or private letter ruling from the IRS or an advisory opinion from the
DOL. ATI shall cooperate fully with Teledyne Technologies with respect to any
request for a determination letter or private letter ruling from the IRS or
advisory opinion from the DOL with respect to any of the Teledyne Technologies
Plans relating to the transactions contemplated by this Agreement.
7.8 FIDUCIARY MATTERS. ATI and Teledyne Technologies each acknowledges
that actions required to be taken pursuant to this Agreement may be subject to
fiduciary duties or standards of conduct under ERISA or other applicable law,
and no party shall be deemed to be in violation of this Agreement if it fails to
comply with any provisions hereof based upon its good faith determination that
to do so would violate such a fiduciary duty or standard.
7.9 COLLECTIVE BARGAINING. To the extent any provision of this
Agreement is contrary to the provisions of any collective bargaining agreement
to which ATI or any Affiliate of ATI is a party, the terms of such collective
bargaining agreement shall prevail. Should any provisions of this Agreement be
deemed to relate to a topic determined by an appropriate authority to be a
mandatory subject of collective bargaining, ATI or Teledyne Technologies may be
obligated to bargain with the union representing affected employees concerning
those subjects. Neither party will agree to a modification of any collective
bargaining agreement without the consent of the other.
23
<PAGE> 27
7.10 CONSENT OF THIRD PARTIES. If any provision of this Agreement is
dependent on the consent of any third party (such as a vendor or a union) and
such consent is withheld, ATI and Teledyne Technologies shall use their
Reasonable Efforts to implement the applicable provisions of this Agreement to
the full extent practicable. If any provision of this Agreement cannot be
implemented due to the failure of such third party to consent, ATI and Teledyne
Technologies shall negotiate in good faith to implement the provision in a
mutually satisfactory manner.
7.11 INDEMNIFICATION OF ATI. Teledyne Technologies shall indemnify,
defend and hold harmless ATI, each ATI Entity and each of their respective
directors, officers and employees, and each of the heirs, executors, successors
and assigns of any of the foregoing (collectively, the "ATI Indemnitees") from
and against (i) any and all Benefit Liabilities of the ATI Indemnitees to the
extent any such Benefit Liabilities are assumed by Teledyne Technologies or a
Teledyne Technologies Entity under this Agreement and (ii) any and all changes
or modifications to any rights, privileges or benefits of or relating to any
Teledyne Technologies Individual as provided in or otherwise contemplated by
this Agreement.
ARTICLE VIII
MISCELLANEOUS
8.1 FOREIGN PLANS. To the extent that Teledyne Technologies has or
assumes any responsibility for sponsorship, maintenance or administration of any
Foreign Plan, ATI shall have no responsibility or liability with respect to such
Plan and Teledyne Technologies shall indemnify and hold harmless ATI from any
liability under such Plan.
8.2 EFFECT IF DISTRIBUTION DOES NOT OCCUR. If the Distribution does not
occur, then all actions and events that are, under this Agreement, to be taken
or occur effective as of the Close of the Distribution Date, Immediately After
the Distribution Date, or otherwise in connection with the Distribution, shall
not be taken or occur except to the extent specifically agreed by Teledyne
Technologies and ATI.
8.3 RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be deemed
or construed by the parties or any third party as creating the relationship of
principal and agent, partnership or joint venture between the parties, it being
understood and agreed that no provision contained herein, and no act of the
parties, shall be deemed to create any relationship between the parties other
than the relationship set forth herein.
8.4 AFFILIATES. Each of ATI and Teledyne Technologies shall cause to be
performed, and hereby guarantees the performance of, all actions, agreements and
obligations set forth in this Agreement to be performed by an ATI Entity or a
Teledyne Technologies Entity, respectively.
8.5 COUNTERPARTS; ENTIRE AGREEMENT; CORPORATE POWER. (a) This Agreement
may be executed in one or more counterparts, all of which shall be considered
one and
24
<PAGE> 28
the same agreement, and shall become effective when one or more counterparts
have been signed by each of the parties and delivered to the other party.
(b) This Agreement, and the Exhibits, Schedules and Appendices hereto
and thereto contain the entire agreement between the parties with respect to the
subject matter hereof, supersede all previous agreements, negotiations,
discussions, writings, understandings, commitments and conversations with
respect to such subject matter and there are no agreements or understandings
between the parties other than those set forth or referred to herein or therein.
(c) ATI represents on behalf of itself and each ATI Entity, and
Teledyne Technologies represents on behalf of itself and each Teledyne
Technologies Entity, as follows:
(i) each such Person has the requisite corporate or other
power and authority and has taken all corporate or other action necessary in
order to execute, deliver and perform each of this Agreement and to consummate
the transactions contemplated hereby; and
(ii) this Agreement has been duly executed and delivered by it
and constitutes a valid and binding agreement of it enforceable in accordance
with the terms thereof.
(d) Each party hereto acknowledges that it and each other party hereto
may be executing this Agreement by facsimile, stamp or mechanical signature.
Each party hereto expressly adopts and confirms each such facsimile, stamp or
mechanical signature made in its respective name as if it were a manual
signature, agrees that it will not assert that any such signature is not
adequate to bind such party to the same extent as if it were signed manually and
agrees that at the reasonable request of any other party hereto at any time it
will as promptly as reasonably practicable cause this Agreement to be manually
executed (any such execution to be as of the date of the initial date thereof).
8.6 GOVERNING LAW; CONSENT TO JURISDICTION.
(a) This Agreement shall be governed by and construed and interpreted
in accordance with the laws of the Commonwealth of Pennsylvania as to all
matters, including matters of validity, construction, effect, enforceability,
performance and remedies, irrespective of the choice of laws principles of the
Commonwealth of Pennsylvania.
(b) Each of the parties hereto irrevocably submits to the exclusive
jurisdiction of (i) the Court of Common Pleas of Allegheny County, Pennsylvania
and (ii) the United States District Court for the Western District of
Pennsylvania, for the purposes of any suit, action or other proceeding arising
out of this Agreement or any transaction contemplated hereby (and agrees not to
commence any action, suit or proceeding relating thereto except in such courts).
Each of the parties hereto further agrees that service of any process, summons,
notice or document hand delivered or sent by U.S. registered mail to such
party's respective address set forth in Section 8.9 will be effective service of
process for any action, suit or proceeding in Pennsylvania with respect to any
matters to which it has submitted to jurisdiction as set forth in the
immediately preceding sentence. Each of the parties hereto irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the transactions
25
<PAGE> 29
contemplated hereby in (i) the Court of Common Pleas of Allegheny County,
Pennsylvania or (ii) the United States District Court for the Western District
of Pennsylvania, and hereby further irrevocably and unconditionally waives and
agrees not to plead or claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in an inconvenient forum.
8.7 ASSIGNABILITY. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns;
provided, however, that no party hereto may assign its respective rights or
delegate its respective obligations under this Agreement without the express
prior written consent of the other party hereto.
8.8 THIRD PARTY BENEFICIARIES. Except as otherwise expressly provided
herein, (a) the provisions of this Agreement are solely for the benefit of the
parties and are not intended to confer upon any Person except the parties any
rights or remedies hereunder, (b) there are no third party beneficiaries of this
Agreement, and (c) this Agreement shall not provide any third person with any
remedy, claim, liability, reimbursement, claim of action or other right in
excess of those existing without reference to this Agreement. No party shall be
required to deliver any notice under this Agreement to any other party with
respect to any matter in which such other party has no right, remedy or claim.
8.9 NOTICES. All notices or other communications under this Agreement
shall be in writing and shall be deemed to be duly given when (a) delivered in
person or (b) deposited in the United States mail or private express mail,
postage prepaid, addressed as follows:
If to ATI, to: Allegheny Teledyne Incorporated
1000 Six PPG Place
Pittsburgh, Pennsylvania 15222-5479
Attn: Senior Vice President, General Counsel
and Secretary
If to Teledyne
Technologies, to: Teledyne Technologies Incorporated
2049 Century Park East
Los Angeles, California 90067-3101
Attn: Senior Vice President, General Counsel
and Secretary
Any party may, by notice to the other party, change the address to which such
notices are to be given.
8.10 SEVERABILITY. If any provision of this Agreement or the
application thereof to any Person or circumstance is determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof or thereof, or the application of such provision to Persons or
circumstances or in jurisdictions other than those as to which it has been held
invalid or unenforceable, shall remain in full force and effect and shall in no
way be affected, impaired or invalidated thereby, so long as the economic or
legal substance of the transactions contemplated hereby or thereby, as the case
may be, is not affected in any manner adverse to any party. Upon
26
<PAGE> 30
such determination, the parties shall negotiate in good faith in an effort to
agree upon such a suitable and equitable provision to effect the original intent
of the parties.
8.11 HEADINGS. The article, section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
8.12 WAIVERS OF DEFAULT. Waiver by any party of any default by the
other party of any provision of this Agreement shall not be deemed a waiver by
the waiving party of any subsequent or other default, nor shall it prejudice the
rights of the other party.
8.13 AMENDMENTS. No provisions of this Agreement shall be deemed
waived, amended, supplemented or modified by any party, unless such waiver,
amendment, supplement or modification is in writing and signed by the authorized
representative of the party against whom it is sought to enforce such waiver,
amendment, supplement or modification.
8.14 INTERPRETATION. Words in the singular shall be held to include the
plural and vice versa and words of one gender shall be held to include the other
genders as the context requires. The terms "hereof," "herein," and "herewith"
and words of similar import shall, unless otherwise stated, be construed to
refer to this Agreement as a whole (including all of the Schedules, Exhibits and
Appendices hereto) and not to any particular provision of this Agreement.
Article, Section, Exhibit, Schedule and Appendix references are to the Articles,
Sections, Exhibits, Schedules and Appendices to this Agreement unless otherwise
specified. The word "including" and words of similar import when used in this
Agreement shall mean "including, without limitation," unless the context
otherwise requires or unless otherwise specified. The word "or" shall not be
exclusive. Unless expressly stated to the contrary in this Agreement, all
references to "the date hereof," "the date of this Agreement," "hereby" and
"hereupon" and words of similar import shall all be references to November 29,
1999, regardless of any amendment or restatement hereof.
8.15 DISPUTES.
(a) Resolution of any and all disputes arising from or in connection
with this Agreement, whether based on contract, tort, statute or otherwise,
including, but not limited to, disputes in connection with claims by third
parties (collectively, "Disputes"), shall be subject to the provisions of this
Section 8.15; provided, however, that nothing contained herein shall preclude
any party from seeking or obtaining (i) injunctive relief or (ii) equitable or
other judicial relief to enforce the provisions hereof or to preserve the status
quo pending resolution of Disputes hereunder.
(b) Any party may give the other parties written notice of any Dispute
not resolved in the normal course of business. The parties shall attempt in good
faith to resolve any Dispute promptly by negotiation between executives of the
parties who have authority to settle the controversy. Within 15 days after
delivery of the notice, the foregoing executives of both parties shall meet at a
mutually acceptable time and place, and thereafter as often as they reasonably
deem necessary for a period not to exceed five days, to attempt to resolve the
Dispute. All reasonable requests for information made by one party to the other
will be honored. If the parties
27
<PAGE> 31
do not resolve the Dispute within such 20 day period (the "Initial Mediation
Period"), the parties shall attempt in good faith to resolve the Dispute by
negotiation between or among the Designated Officers (as defined in the
Separation and Distribution Agreement). The Designated Officers shall meet at a
mutually acceptable time and place (but in no event no later than 15 days
following the expiration of the Initial Mediation Period) and thereafter as
often as they reasonably deem necessary for a period not to exceed 15 days, to
attempt to resolve the Dispute.
(c) If the Dispute has not been resolved by negotiation within 50 days
of the first party's notice, or if the parties failed to meet within 15 days of
the first party's notice, or if the Designated Officers failed to meet within 35
days of the first party's notice, any party may commence any litigation or other
procedure allowed by law.
IN WITNESS WHEREOF, the parties have caused this Employee Benefits
Agreement to be duly executed as of the day and year first above written.
ALLEGHENY TELEDYNE INCORPORATED
By /s/ James L. Murdy
-----------------------------------
Title
--------------------------------
TELEDYNE TECHNOLOGIES
INCORPORATED
By /s/ Robert Mehrabian
-----------------------------------
Title
--------------------------------
28
<PAGE> 1
Exhibit 10.24
EMPLOYEE BENEFITS AGREEMENT
BETWEEN
ALLEGHENY TELEDYNE INCORPORATED
AND
WATER PIK TECHNOLOGIES, INC.
DATED AS OF NOVEMBER 29, 1999
<PAGE> 2
INDEX
PAGE
----
ARTICLE I DEFINITIONS ........................................................1
ARTICLE II GENERAL PRINCIPLES.................................................5
2.1 ASSUMPTION OF LIABILITIES........................................5
2.2 ESTABLISHMENT OF WATER PIK PLANS.................................6
2.3 TERMS OF PARTICIPATION BY WATER PIK INDIVIDUALS IN WATER PIK
PLANS.........................................................6
ARTICLE III DEFINED BENEFIT PLANS.............................................7
3.1 FREEZING OF PENSION PLAN BENEFITS................................7
3.2 CREDITING SERVICE UNDER ATI'S PENSION PLAN.......................7
ARTICLE IV DEFINED CONTRIBUTION PLANS.........................................8
4.1 401(k) PLAN......................................................8
4.2 ASSUMPTION OF JANDY INDUSTRIES, INC. EMPLOYEE SAVINGS PLAN.......9
ARTICLE V HEALTH AND WELFARE PLANS............................................9
5.1 ASSUMPTION OF HEALTH AND WELFARE PLAN LIABILITIES................9
5.2 VENDOR CONTRACTS................................................10
5.3 PROCEDURES FOR AMENDMENTS TO PLANS, PLAN DESIGNS,
ADMINISTRATIVE PRACTICES, AND VENDOR CONTRACTS...............12
5.4 ATI SICKNESS AND ACCIDENT, LONG TERM DISABILITY AND PENSION
DISABILITY BENEFITS..........................................13
5.5 POST-RETIREMENT HEALTH AND LIFE INSURANCE BENEFITS..............13
5.6 COBRA AND DIRECT PAY............................................13
5.7 POST-DISTRIBUTION TRANSITIONAL ARRANGEMENTS.....................13
5.8 APPLICATION OF ARTICLE V TO WATER PIK ENTITIES..................15
ARTICLE VI EXECUTIVE BENEFITS AND NON-EMPLOYEE DIRECTOR BENEFITS.............15
6.1 ASSUMPTION OF OBLIGATIONS.......................................15
6.2 CONSENTS AND NOTIFICATIONS......................................15
6.3 ATI 1999 BONUS PLAN.............................................16
6.4 ATI INCENTIVE PLANS.............................................16
6.5 ATI NONQUALIFIED DEFERRED COMPENSATION PROGRAMS.................18
6.6 NON-EMPLOYEE DIRECTOR BENEFITS..................................19
6.7 CONFIDENTIALITY AND PROPRIETARY INFORMATION.....................19
ARTICLE VII GENERAL AND ADMINISTRATIVE.......................................19
7.1 INTERIM SERVICES AGREEMENT......................................19
<PAGE> 3
7.2 PAYMENT OF LIABILITIES, PLAN EXPENSES AND RELATED MATTERS........19
7.3 SHARING OF PARTICIPANT INFORMATION...............................20
7.4 REPORTING AND DISCLOSURE AND COMMUNICATIONS TO
PARTICIPANTS..................................................20
7.5 NON-TERMINATION OF EMPLOYMENT; NO THIRD-PARTY
BENEFICIARIES.................................................20
7.6 BENEFICIARY DESIGNATIONS.........................................21
7.7 REQUESTS FOR IRS RULINGS AND DOL OPINIONS........................21
7.8 FIDUCIARY MATTERS................................................21
7.9 COLLECTIVE BARGAINING............................................21
7.10 CONSENT OF THIRD PARTIES........................................21
7.11 INDEMNIFICATION OF ATI..........................................21
ARTICLE VIII MISCELLANEOUS....................................................22
8.1 FOREIGN PLANS....................................................22
8.2 EFFECT IF DISTRIBUTION DOES NOT OCCUR............................22
8.3 RELATIONSHIP OF PARTIES..........................................22
8.4 AFFILIATES.......................................................22
8.5 COUNTERPARTS; ENTIRE AGREEMENT; CORPORATE POWER..................22
8.6 GOVERNING LAW; CONSENT TO JURISDICTION...........................23
8.7 ASSIGNABILITY....................................................23
8.8 THIRD PARTY BENEFICIARIES........................................24
8.9 NOTICES..........................................................24
8.10 SEVERABILITY....................................................24
8.11 HEADINGS........................................................24
8.12 WAIVERS OF DEFAULT..............................................24
8.13 AMENDMENTS......................................................24
8.14 INTERPRETATION..................................................25
8.15 DISPUTES........................................................25
ii
<PAGE> 4
EMPLOYEE BENEFITS AGREEMENT
November 29 , 1999
The parties to this Employee Benefits Agreement, dated as of the date
written above, are Allegheny Teledyne Incorporated, a Delaware corporation
("ATI"), and Water Pik Technologies, Inc., a Delaware corporation ("Water Pik").
Capitalized terms used herein (other than the formal names of ATI Plans (as
defined below) and related trusts of ATI) and not otherwise defined shall have
the respective meanings assigned to them in Article I hereof or as assigned to
them in the Separation and Distribution Agreement (as defined below).
WHEREAS, the Board of Directors of ATI has determined that it is in the
best interests of ATI and its stockholders to separate ATI's consumer products
businesses into an independent business entity;
WHEREAS, in furtherance of the foregoing, ATI and Water Pik have
entered into a Separation and Distribution Agreement, dated as of the date
hereof (the "Separation and Distribution Agreement"), and certain other
agreements that will govern certain matters relating to the Separation, the
Distribution and the relationship of ATI and Water Pik, and their respective
Subsidiaries following the Distribution; and
WHEREAS, pursuant to the Separation and Distribution Agreement, ATI and
Water Pik have agreed to enter into this agreement allocating assets,
liabilities and responsibilities with respect to certain employee compensation
and benefit plans and programs between them.
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement the following terms shall have the
following meanings:
1.1 Agreement means this Employee Benefits Agreement, including all the
Schedules and Exhibits hereto.
1.2 ASO Contract is defined in Section 5.2(a)(i).
1.3 ATI Entity means any entity that is, at the relevant time, an
Affiliate of ATI, except that, for periods beginning Immediately After the
Distribution Date, the term "ATI Entity" shall not include Water Pik or a Water
Pik Entity.
1.4 ATI Executive means an employee or former employee of ATI, an ATI
Entity, Water Pik or a Water Pik Entity, who immediately before the Close of the
Distribution Date is eligible to participate in or receive a benefit under any
ATI Executive Benefit Plan.
<PAGE> 5
1.5 ATI Master Pension Trust means the master trust under which the
assets of the ATI Pension Plan are held.
1.6 ATI Pension Plan means the Allegheny Teledyne Incorporated Pension
Plan.
1.7 ATI Stock Value means the closing price per share of ATI Common
Stock (regular way) on the NYSE on November 22, 1999.
1.8 Award means an award under the Incentive Plan, including
Performance Awards and SARP Awards. When immediately preceded by "ATI," the term
Award (including the term Performance Award or SARP Award) means an award under
the ATI Incentive Plan. When immediately preceded by "Water Pik," the term Award
(including the term Performance Award or SARP Award) means an award under the
Water Pik Incentive Plan.
1.9 Benefit Liabilities means any Liabilities (as defined in the
Separation and Distribution Agreement) relating to any contributions,
compensation or other benefits accrued or payable under any profit sharing,
pension, savings, deferred compensation, fringe benefit, insurance, medical,
medical reimbursement, life, disability, accident, post-retirement health or
welfare benefit, stock option, stock purchase, sick pay, vacation, employment,
severance, termination or other compensation or benefit plan, agreement,
contract, policy, trust fund or arrangement.
1.10 Change is defined in Section 5.3(b)(i).
1.11 Close of the Distribution Date means 5:00 P.M., Eastern Standard
Time or Eastern Daylight Time (whichever shall then be in effect), on the
Distribution Date.
1.12 COBRA means the continuation coverage requirements for "group
health plans" under Title X of the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended, and as codified in Code Section 4980B and ERISA
Sections 601 through 608.
1.13 Code means the Internal Revenue Code of 1986, as amended.
Reference to a specific Code provision also includes any proposed, temporary, or
final regulation in force under that provision.
1.14 Corporate-Owned Life Insurance Policies means the life insurance
policies owned by ATI insuring the lives of certain ATI Executives and certain
other highly compensated employees of ATI or an ATI Entity.
1.15 DOL means the United States Department of Labor.
1.16 ERISA means the Employee Retirement Income Security Act of 1974,
as amended. Reference to a specific provision of ERISA also includes any
proposed, temporary, or final regulation in force under that provision.
1.17 Executive Benefit Plans, when immediately preceded by "ATI," means
the executive benefit plans, programs, and arrangements established, maintained,
agreed upon, or
2
<PAGE> 6
assumed by ATI or an ATI Entity for the benefit of employees and former
employees of ATI or an ATI Entity before the Close of the Distribution Date as
listed in Schedule 1.17. When immediately preceded by "Water Pik," Executive
Benefit Plans means the executive benefit plans and programs to be established
by Water Pik pursuant to Section 2.2 that correspond to the respective ATI
Executive Benefit Plans.
1.18 Foreign Plan means a Plan maintained by ATI, an ATI Entity, Water
Pik, or a Water Pik Entity for the benefit of employees outside the U.S.
1.19 Group Insurance Policies is defined in Section 5.2(b)(i).
1.20 HCRA Plan, when immediately preceded by "ATI," means the ATI
Health Care Reimbursement Account Plan. When immediately preceded by "Water
Pik," HCRA Plan means the Health Care Reimbursement Account Plan to be
established by Water Pik pursuant to Section 2.2.
1.21 Health and Welfare Plans, when immediately preceded by "ATI,"
means the health and welfare plans listed on Schedule 1.21 established and
maintained by ATI for the benefit of employees and retirees of ATI and certain
ATI Entities, and such other welfare plans or programs as may apply to such
employees and retirees of ATI or an ATI Entity before the Close of the
Distribution Date. When immediately preceded by "Water Pik," Health and Welfare
Plans means the health and welfare plans to be established by Water Pik pursuant
to Section 2.2 that correspond to the respective ATI Health and Welfare Plans.
1.22 HMO means a health maintenance organization that provides benefits
under one or more of the ATI Health and Welfare Plans or the Water Pik Health
and Welfare Plans.
1.23 HMO Agreements is defined in Section 5.2(c)(i).
1.24 Immediately After the Distribution Date means 5:01 P.M., Eastern
Standard Time or Eastern Daylight Time (whichever shall then be in effect), on
the Distribution Date.
1.25 Incentive Plan, when immediately preceded by "ATI," means any of
the Allegheny Teledyne Incorporated 1996 Incentive Plan, any predecessor
Incentive Plan thereto and any other stock-based incentive plans assumed by ATI
by reason of merger, combination, acquisition or otherwise. When immediately
preceded by "Water Pik," Incentive Plan means the Incentive Plan to be
established by Water Pik pursuant to Section 2.2.
1.26 IRS means the Internal Revenue Service.
1.27 Material Feature means any feature of a Plan that could reasonably
be expected to be of material importance to the sponsoring employer or the
participants and beneficiaries of the Plan, which could include, depending on
the type and purpose of the particular Plan, the class or classes of employees
eligible to participate in such Plan, the nature, type, form, source, and level
of benefits provided by the employer under such Plan and the amount or level of
contributions, if any, required to be made by participants (or their dependents
or beneficiaries) to or under such Plan.
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1.28 Non-Employee Director, when immediately preceded by "ATI," means a
member of ATI's Board of Directors who is not an employee of ATI or an ATI
Entity. When immediately preceded by "Water Pik," Non-Employee Director means a
member of Water Pik's Board of Directors who is not an employee of ATI, an ATI
Entity, Water Pik or a Water Pik Entity.
1.29 Non-Employee Director Plans, when immediately preceded by "ATI,"
means the Allegheny Teledyne Incorporated 1996 Non-Employee Director Stock
Compensation Plan and the Allegheny Teledyne Incorporated Fee Continuation Plan
for Non-Employee Directors. When immediately preceded by "Water Pik,"
Non-Employee Director Plans means the plans and programs to be established by
Water Pik pursuant to Section 2.2 that correspond to the ATI Non-Employee
Director Plans.
1.30 Nonqualified Deferred Compensation Programs, when immediately
preceded by "ATI," means the Allegheny Teledyne Incorporated Executive Deferred
Compensation Plan, the Allegheny Teledyne Incorporated Supplemental Pension Plan
and the Teledyne, Inc. Pension Equalization Plan. When immediately preceded by
"Water Pik," Deferral Plan means the Executive Deferred Compensation Plan to be
established by Water Pik pursuant to Section 2.2.
1.31 Option, when immediately preceded by "ATI," means an option to
purchase ATI Common Stock and, when immediately preceded by "Water Pik," Option
means an option to purchase Water Pik Common Stock, in each case pursuant to an
Incentive Plan.
1.32 PBGC means the Pension Benefit Guaranty Corporation.
1.33 Performance Award means any Award granted pursuant to the terms of
the Performance Share Program.
1.34 Performance Share Program means the Allegheny Teledyne
Incorporated Performance Share Program adopted pursuant to Administrative Rules
under the ATI Incentive Plan.
1.35 Plan, when immediately preceded by "ATI" or "Water Pik," means any
plan, policy, program, payroll practice, on-going arrangement, contract, trust,
insurance policy or other agreement or funding vehicle providing benefits to
employees, former employees or Non-Employee Directors of ATI or an ATI Entity,
or Water Pik or a Water Pik Entity, as applicable.
1.36 Ratio means the amount obtained by dividing the ATI Stock Value by
the Water Pik Stock Value.
1.37 Reasonable Efforts means such acts or actions that, in the
reasonable good faith opinion of the party taking such acts or actions, are
calculated to achieve, or otherwise further, the applicable provisions to which
the term applies; provided, however, to the extent any costs, fees or other
expenditures (the "Expenses") occur as a result of a party's use of Reasonable
Efforts and such expenses are not expressly allocated under the terms of this
Agreement or any Ancillary Agreement, such Expenses shall be borne by the party
for whose benefit such Expenses are incurred and such party shall indemnify and
hold harmless the other party with respect to such Expenses.
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1.38 SARP, when immediately preceded by "ATI," means the Allegheny
Teledyne Incorporated Stock Acquisition and Retention Program.
1.39 SARP Award means any Award granted pursuant to the terms of the
SARP.
1.40 Separation and Distribution Agreement is defined in the third
paragraph of the preamble of this Agreement.
1.41 Stock Purchase Plan, when immediately preceded by "ATI," means the
Allegheny Teledyne Incorporated Employee Stock Purchase Plan. When immediately
preceded by "Water Pik," Stock Purchase Plan means the employee stock purchase
plan to be established by Water Pik pursuant to Section 2.2.
1.42 Teledyne means Teledyne, Inc., a Delaware corporation, or its
successors and assigns.
1.43 Teledyne 401(k) Plan means the Teledyne, Inc. 401(k) Plan.
1.44 Water Pik Entity means any Person that is, at the relevant time, a
Subsidiary of Water Pik or is otherwise controlled, directly or indirectly, by
Water Pik.
1.45 Water Pik 401(k) Plan means the 401(k) plan established by Water
Pik effective no later than April 1, 2000 pursuant to Section 2.2.
1.46 Water Pik Individual means any individual who, Immediately After
the Distribution Date is an active hourly or salaried employee of Water Pik or a
Water Pik Entity.
1.47 Water Pik Stock Value means the opening price per share of Water
Pik Common Stock on the day following the Distribution Date.
ARTICLE II
GENERAL PRINCIPLES
2.1 ASSUMPTION OF LIABILITIES. Except as otherwise expressly
provided in Section 3.1 or Article VI, Water Pik hereby assumes and agrees to
pay, perform, fulfill and discharge, in accordance with their respective terms,
all of the following (regardless of when or where such Benefit Liabilities arose
or arise or were or are incurred): (i) all Benefit Liabilities to or relating to
Water Pik Individuals, and their respective dependents and beneficiaries, in
each case relating to, arising out of or resulting from employment by ATI or an
ATI Entity before the Distribution Date (including Benefit Liabilities under ATI
Plans and Water Pik Plans); (ii) all other Benefit Liabilities to or relating to
Water Pik Individuals and other employees of Water Pik or a Water Pik Entity,
and their dependents and beneficiaries, to the extent relating to, arising out
of or resulting from future, present or former employment with Water Pik or a
Water Pik Entity (including Benefit Liabilities under ATI Plans and Water Pik
Plans); (iii) all Benefit Liabilities relating to, arising out of or resulting
from any other actual or alleged employment relationship with Water Pik or a
Water Pik Entity; (iv) all Benefit Liabilities relating to, arising out of or
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resulting from the imposition of withdrawal liability under Subtitle E of Title
IV of ERISA as a result of a complete or partial withdrawal of any ATI Entity
from a "multiemployer plan" within the meaning of ERISA Section 4021 which
occurs solely as a result of the Separation or the Distribution; and (v) all
other Benefit Liabilities relating to, arising out of or resulting from
obligations, liabilities and responsibilities expressly assumed or retained by
Water Pik, a Water Pik Entity, or a Water Pik Plan pursuant to this Agreement.
Notwithstanding the generality of the foregoing, Water Pik does not assume or
agree to pay, perform, fulfill or discharge any Benefit Liabilities relating to,
arising out of or resulting from the Teledyne Savings and Retirement Supplement
Plan.
2.2 ESTABLISHMENT OF WATER PIK PLANS. Effective prior to or within a
reasonable time after the Distribution Date, Water Pik shall adopt, or cause to
be adopted, the amended Teledyne 401(k) Plan for the period between the
Distribution Date and April 1, 2000, the Water Pik Stock Purchase Plan, the
Water Pik Health and Welfare Plans, and the Water Pik Executive Benefit Plans
for the benefit of the Water Pik Individuals and other current and future
employees of Water Pik and the Water Pik Entities; provided, however, that Water
Pik may, in its sole discretion, elect not to adopt or establish the Plan or
Plans listed in Schedule 2.2(a). Subject to the provisions of Section 4.1
regarding the Water Pik 401(k) Plan, or as otherwise may be set forth in
Schedule 2.2(b), the foregoing Water Pik Plans shall be substantially identical
in all Material Features to the corresponding ATI Plans as in effect as of the
Close of the Distribution Date. Effective prior to or within a reasonable time
after the Distribution Date, Water Pik shall adopt, or cause to be adopted, the
Water Pik Non-Employee Director Plans, for the benefit of Water Pik Non-Employee
Directors. The Water Pik Non-Employee Director Plans shall be substantially
similar in all Material Features to the corresponding ATI Non-Employee Director
Plans as in effect on the Distribution Date. No later than April 1, 2000, Water
Pik shall adopt the Water Pik 401(k) Plan and its related trust, which Water Pik
401(k) Plan shall provide for employer contributions, independent of employee
contributions and expressed as a rate of participant compensation, determined
appropriate by Water Pik in its sole discretion in light of Water Pik's choice
not to sponsor a defined benefit plan.
2.3 TERMS OF PARTICIPATION BY WATER PIK INDIVIDUALS IN WATER PIK PLANS.
The Water Pik Plans shall be, with respect to Water Pik Individuals, in all
respects the successors in interest to, and shall not provide benefits that
duplicate benefits provided by, the corresponding ATI Plans. ATI and Water Pik
shall agree on methods and procedures, including amending the respective Plan
documents and/or requesting approvals or consents of Water Pik Individuals where
the parties deem appropriate, to prevent Water Pik Individuals from receiving
duplicative benefits from the ATI Plans and the Water Pik Plans. With respect to
Water Pik Individuals, each Water Pik Plan shall provide that all service, all
compensation and all other benefit-affecting determinations that, as of the
Close of the Distribution Date, were recognized under the corresponding ATI Plan
shall, as of Immediately After the Distribution Date, receive full recognition,
credit, and validity and be taken into account under such Water Pik Plan to the
same extent as if such items occurred under such Water Pik Plan, except to the
extent that duplication of benefits would result. The provisions of this
Agreement for the transfer of assets from certain trusts relating to ATI Plans
(including Foreign Plans) to the corresponding trusts relating to Water Pik
Plans (including Foreign Plans) are based upon the understanding of the parties
that each such Water Pik Plan will assume all Benefit Liabilities of the
corresponding ATI
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Plan to or relating to Water Pik Individuals, as provided for herein. If any
such Benefit Liabilities are not effectively assumed by the appropriate Water
Pik Plan, then the amount of assets transferred to the trust relating to such
Water Pik Plan from the trust relating to the corresponding ATI Plan shall be
recomputed as set forth below, but taking into account the retention of such
Benefit Liabilities by such ATI Plan, and assets shall be transferred by the
trust relating to such Water Pik Plan to the trust relating to such ATI Plan so
as to place each such trust in the position it would have been in, had the
initial asset transfer been made in accordance with such recomputed amount of
assets.
ARTICLE III
DEFINED BENEFIT PLANS
3.1 FREEZING OF PENSION PLAN BENEFITS. Effective upon the applicable of
the dates under Section 3.2, the accrued benefits with respect to Water Pik
Individuals who, as of the Distribution Date, were participants under the ATI
Pension Plan shall be frozen and such Individuals shall not accrue any
additional benefits from and after the Distribution Date under the ATI Pension
Plan. The assets and Benefit Liabilities with respect to such Individuals,
determined as of the Distribution Date, shall be retained by the ATI Pension
Plan and its related trust and paid therefrom when due under the terms of the
ATI Pension Plan.
3.2 CREDITING SERVICE UNDER ATI'S PENSION PLAN.
(a) VESTING. Water Pik Individuals who, as of the Distribution Date,
were participants in the ATI Pension Plan will continue to receive service
credit for vesting and retirement benefit eligibility purposes under the ATI
Pension Plan for service actually rendered to Water Pik during the period
commencing on the Distribution Date and ending April 1, 2000.
(b) BENEFIT ACCRUAL. Water Pik Individuals who, as of the Distribution
Date, were participants in the ATI Pension Plan will continue to receive service
credit for benefit accrual purposes under the ATI Pension Plan for service
actually rendered to Water Pik during the period commencing on the Distribution
Date and ending April 2, 2000. Benefits accrued with respect to service credited
pursuant to this Section 3.2 shall be paid by the ATI Pension Plan at the same
times and under the same terms and conditions as applicable to benefits accrued
under the ATI Pension Plan.
(c) DISTRIBUTION OF BENEFITS FROM ATI PENSION PLAN TO WATER PIK
INDIVIDUALS. For purposes of the ATI Pension Plan, the date which is the earlier
of the applicable of (i) a Water Pik's Individual's actual separation from
service with Water Pik or (ii) April 1, 2000 shall be for each Water Pik
Individual a separation from service with the employer and Water Pik Individuals
who are eligible to commence receipt of benefits under the ATI Pension Plan may,
in their respective discretion, apply at any time after the applicable date
described above to commence benefits to the extent then payable and subject to
the terms and conditions of the ATI Pension Plan. The Distribution Date does
not, however, constitute and shall not be treated under the ATI Pension Plan as
a sale or otherwise as an event permitting Water Pik Individuals to elect to
receive a lump sum form of distribution under the ATI Pension Plan.
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ARTICLE IV
DEFINED CONTRIBUTION PLANS
4.1 401(k) PLAN.
(a) ADOPTION BY WATER PIK OF TELEDYNE 401(k) PLAN AMENDED TO BE A
MULTIPLE EMPLOYER PLAN. On or before the Distribution Date, the Teledyne 401(k)
Plan will be amended by Teledyne to be and become a multiple employer plan under
which Water Pik may elect to be a contributing sponsor and to provide
participation to Water Pik Individuals under the terms and conditions set forth
in the Teledyne 401(k) Plan for a period ending on the earlier of (i) adoption
by Water Pik of the Water Pik 401(k) Plan or (ii) April 1, 2000. The right to
amend the Teledyne 401(k) Plan in any respect shall be exclusively within the
power of Teledyne at all relevant times. As amended, the Teledyne 401(k) Plan
shall provide that (A) Water Pik Individuals shall not be permitted to direct
investments after the Distribution Date in shares of common stock of ATI ("ATI
Common Stock") or in the common stock of any corporation spun off by ATI on the
Distribution Date other than Water Pik and (B) that each Water Pik Individual
shall have the right to direct the administrator of the Teledyne 401(k) Plan to
liquidate the interests of Water Pik Individuals in the ATI Common Stock, Water
Pik Common Stock or the common stock of any other previously related corporation
and direct the method of reinvestment of the proceeds of such sale from among
the options then available under the Teledyne 401(k) Plan.
(b) ESTABLISHMENT OF WATER PIK 401(k) PLAN AND TRUST. The Water Pik
401(k) Plan, established by Water Pik pursuant to Section 2.2 no later than
April 1, 2000, (i) shall be a qualified defined contribution plan within the
meaning of Code Section 401(a), (ii) except as provided under Section 4.1(c),
shall contain provisions, terms and conditions substantially similar to the
provisions, terms and conditions of the Teledyne 401(k) Plan, including
provisions with respect to ATI Common Stock and the common stock of Water Pik
and any other corporation spun off by ATI on the Distribution Date, and shall
further provide that Water Pik Individuals may maintain investments in ATI
Common Stock, Water Pik Common Stock and/or stock of any previously related
corporation until December 31, 2002 and, if ATI Common Stock and/or common stock
of any previously related corporation other than Water Pik is held in accounts
of Water Pik Individuals in the Teledyne 401(k) Plan as of December 31, 2002,
the interests of Water Pik Individuals shall be liquidated by the Plan
administrator and the proceeds reinvested in Water Pik Common Stock, and (iii)
shall provide coverage from and after the earlier of (i) its adoption by Water
Pik or (ii) April 1, 2000 with respect to Water Pik Individuals who, as of the
later of the dates above, were participants in the Teledyne 401(k) Plan as
amended as described in Section 4.1(a). The trust related to the Water Pik
401(k) Plan, established by Water Pik pursuant to Section 2.2, shall be exempt
from taxation under Code Section 501(a).
(c) ASSUMPTION OF LIABILITIES AND TRANSFER OF ASSETS.
(i) Effective Immediately After the Distribution Date and
until the earlier of (i) the date of adoption by Water Pik of the Water
Pik 401(k) Plan or (ii) April 1, 2000, ATI shall administer or cause
the administration of the assets and Benefit Liabilities of the
Teledyne 401(k) Plan with respect to both Teledyne employees and Water
Pik Individuals.
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Water Pik shall pay to ATI, within thirty (30) days of presentment of
an invoice therefor, an amount equal to the actual cost incurred by ATI
for administration of the assets and Benefit Liabilities in the
Teledyne 401(k) Plan relating to Water Pik Individuals. Water Pik
Individuals shall continue to accrue service credit under the Teledyne
401(k) Plan for vesting and benefit eligibility purposes until the
earlier of (i) the date of adoption by Water Pik of the Water Pik
401(k) Plan or (ii) April 1, 2000. Effective as of the earlier of (i)
the adoption by Water Pik of the Water Pik 401(k) Plan or (ii) April 1,
2000: (A) the Water Pik 401(k) Plan shall assume and be solely
responsible for all Benefit Liabilities to or relating to Water Pik
Individuals under the Water Pik 401(k) Plan, and (B) ATI shall cause an
amount equal to the aggregate account balances of the Water Pik
Individuals participating under the Teledyne 401(k) Plan, whether such
amounts are vested or unvested under the terms of the Teledyne 401(k)
Plan, which are held by the related trust as of the applicable of (i)
the date of adoption by Water Pik of the Water Pik 401(k) Plan or (ii)
April 1, 2000 to be transferred to the Water Pik 401(k) Plan, and its
related trust, and Water Pik shall cause such transferred accounts to
be accepted by such plan and trust. In ATI's sole and absolute
discretion, the amount so transferred may be in cash or in kind or a
combination thereof; provided, however, that the following shall be
transferred in kind: (A) shares of ATI Common Stock, shares of Water
Pik Common Stock allocated to participants' accounts as a result of the
Distribution and shares of Teledyne Technologies Incorporated Common
Stock allocated to participants' accounts as a result of the spin-off
of ATI's aerospace and electronics businesses; and (B) all promissory
notes reflecting participant loans to Water Pik Individuals under the
Teledyne 401(k) Plan outstanding as of the time of transfer.
(ii) If any benefit with respect to a Water Pik Individual
under the Teledyne 401(k) Plan is subject to a qualified domestic
relations order at the time of transfer, all documentation concerning
such qualified domestic relations order shall be assigned to the Water
Pik 401(k) Plan.
4.2 ASSUMPTION OF JANDY INDUSTRIES, INC. EMPLOYEES SAVINGS PLAN.
Effective Immediately After the Effective Date, Water Pik will assume
sponsorship of and liability and responsibility for the Jandy Industries, Inc.
Employees Savings Plan.
ARTICLE V
HEALTH AND WELFARE PLANS
5.1 ASSUMPTION OF HEALTH AND WELFARE PLAN LIABILITIES.
(a) Immediately After the Distribution Date, all Benefit Liabilities to
or relating to Water Pik Individuals under the ATI Health and Welfare Plans
shall cease to be Benefit Liabilities of the ATI Health and Welfare Plans and
shall be assumed by the corresponding Water Pik Health and Welfare Plans.
(b) Notwithstanding Section 5.1(a), all treatments which have been
pre-certified for or are being provided to a Water Pik Individual as of the
Close of the Distribution Date shall be provided without interruption under the
appropriate ATI Health and Welfare Plan until such
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treatment is concluded or discontinued pursuant to applicable plan rules and
limitations, but Water Pik shall continue to be responsible for all Benefit
Liabilities relating to, arising out of or resulting from such ongoing
treatments as of the Close of the Distribution Date.
5.2 VENDOR CONTRACTS.
(a) THIRD-PARTY ASO CONTRACTS.
(i) ATI shall use its Reasonable Efforts to amend each
administrative services only contract with a third-party administrator
that relates to any of the ATI Health and Welfare Plans (an "ASO
Contract") in existence as of the date of this Agreement to permit
Water Pik to participate in the terms and conditions of such ASO
Contract from Immediately After the Distribution Date until December
31, 2000. ATI shall use its Reasonable Efforts to cause all ASO
Contracts into which ATI enters after the date of this Agreement but
before the Close of the Distribution Date to allow Water Pik to
participate in the terms and conditions thereof effective Immediately
After the Distribution Date on the same basis as ATI.
(ii) ATI shall have the right to determine, and shall promptly
notify Water Pik of, the manner in which Water Pik's participation in
the terms and conditions of ASO Contracts as set forth above shall be
effectuated. The permissible ways in which Water Pik's participation
may be effectuated include automatically making Water Pik a party to
the ASO Contracts or obligating the third party to enter into a
separate ASO Contract with Water Pik providing for the same terms and
conditions as are contained in the ASO Contracts to which ATI is a
party (or such other arrangement as to which ATI and Water Pik shall
mutually agree). Such terms and conditions shall include the financial
and termination provisions, performance standards, methodology,
auditing policies, quality measures, reporting requirements and target
claims. Water Pik hereby authorizes ATI to act on its behalf to extend
to Water Pik the terms and conditions of the ASO Contracts. Water Pik
shall fully cooperate with ATI in such efforts, and Water Pik shall not
perform any act, including discussing any alternative arrangements with
any third party, that would prejudice ATI's efforts.
(b) GROUP INSURANCE POLICIES.
(i) This Section 5.2(b) applies to group insurance policies
not subject to allocation or transfer pursuant to the foregoing
provisions of this Article V ("Group Insurance Policies").
(ii) ATI shall use its Reasonable Efforts to amend each Group
Insurance Policy in existence as of the date of this Agreement for the
provision or administration of benefits under the ATI Health and
Welfare Plans to permit Water Pik to participate in the terms and
conditions of such policy from Immediately After the Distribution Date
until December 31, 2000. ATI shall use its Reasonable Efforts to cause
all Group Insurance Policies into which ATI enters or which ATI renews
after the date of this Agreement but before the Close of the
Distribution Date to allow Water Pik to participate in the terms
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and conditions thereof effective Immediately After the Distribution
Date on the same basis as ATI.
(iii) Water Pik's participation in the terms and conditions of
each such Group Insurance Policy shall be effectuated by obligating the
insurance company that issued such insurance policy to ATI to issue one
or more separate policies to Water Pik. Such terms and conditions shall
include the financial and termination provisions, performance standards
and target claims. Water Pik hereby unconditionally and irrevocably
authorizes ATI to act on its behalf to extend to Water Pik the terms
and conditions of such Group Insurance Policies. Water Pik shall fully
cooperate with ATI in such efforts, and Water Pik shall not perform any
act, including discussing any alternative arrangements with third
parties, that would prejudice ATI's efforts.
(c) HMO AGREEMENTS.
(i) Before the Distribution Date, ATI shall use its Reasonable
Efforts to amend all letter agreements with HMOs that provide medical
services under the ATI Medical Plans for 1999 ("HMO Agreements") in
existence as of the date of this Agreement to permit Water Pik to
participate in the terms and conditions of such HMO Agreements, in each
case, from Immediately After the Distribution Date until December 31,
2000. ATI shall use its Reasonable Efforts to cause all HMO Agreements
into which ATI enters after the date of this Agreement but before the
Close of the Distribution Date to allow Water Pik to participate in the
terms and conditions of such HMO Agreements from Immediately After the
Distribution Date until December 31, 2000 on the same basis as ATI.
(ii) ATI shall have the right to determine, and shall promptly
notify Water Pik of, the manner in which Water Pik's participation in
the terms and conditions of all HMO Agreements as set forth above shall
be effectuated. The permissible ways in which Water Pik's participation
may be effectuated include automatically making Water Pik a party to
the HMO Agreements or obligating the HMOs to enter into letter
agreements with Water Pik which are identical to the HMO Agreements (or
such other arrangements as to which ATI and Water Pik shall mutually
agree). Such terms and conditions shall include the financial and
termination provisions of the HMO Agreements. Water Pik hereby
authorizes ATI to act on its behalf to extend to Water Pik the terms
and conditions of the HMO Agreements. Water Pik shall fully cooperate
with ATI in such efforts, and Water Pik shall not perform any act,
including discussing any alternative arrangements with any third-party,
that would prejudice ATI's efforts.
(iii) Notwithstanding anything in this Article V to the
contrary, Water Pik shall have the sole discretion to determine which
HMOs to offer to the participants in the Water Pik Health and Welfare
Plans for 2001 and subsequent years, and all HMO Agreements in which
Water Pik participates pursuant to this Section 5.2(c) shall provide
Water Pik with the right to discontinue its participation effective
January 1, 2001.
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5.3 PROCEDURES FOR AMENDMENTS TO PLANS, PLAN DESIGNS, ADMINISTRATIVE
PRACTICES, AND VENDOR CONTRACTS.
(a) AMENDMENTS TO PLAN DOCUMENTS. From Immediately After the
Distribution Date through December 31, 2000, Water Pik shall not amend any Water
Pik Health and Welfare Plan or Plans, and Water Pik shall have no rights or
privileges with respect to such Plans other than those rights and privileges
contained in any policy, contract or other written arrangement governing such
Plans. During any period in which ATI is providing Interim Services with respect
to any Water Pik Health and Welfare Plan pursuant to Section 7.1, ATI shall have
the right to amend any applicable Water Pik Health and Welfare Plan; provided
that, in ATI's reasonable good faith opinion, such amendment will have no
material adverse impact on the Water Pik Health and Welfare Plan or its
participants or, to the extent a material adverse impact would occur, such
impact would affect both the applicable Water Pik Health and Welfare Plan and
any corresponding ATI Health and Welfare Plan and any costs incurred as a result
of such amendment shall be borne by ATI and Water Pik in the same proportion
that Water Pik and ATI employees, respectively, participate.
(b) CHANGES IN VENDOR CONTRACTS, GROUP INSURANCE POLICIES, PLAN DESIGN,
AND ADMINISTRATION PRACTICES AND PROCEDURES.
(i) From Immediately After the Distribution Date until
December 31, 2000, Water Pik shall not materially modify, or take other
action which would have a material effect on, any of the following
items (each such modification, a "Change"): (A) the termination date,
administration, or operation of (1) an ASO contract between ATI or
Water Pik and a third-party administrator, (2) a Group Insurance Policy
issued to ATI or Water Pik, or (3) an HMO Agreement with ATI or Water
Pik, in each case, the material terms and conditions of which contracts
and policies are extended to Water Pik or to which Water Pik becomes a
party pursuant to Section 5.2; (B) the design of either an ATI Health
and Welfare Plan or a Water Pik Health and Welfare Plan; or (C) the
financing, operation, administration or delivery of benefits under
either an ATI Health and Welfare Plan or a Water Pik Health and Welfare
Plan.
(ii) During any period in which ATI is providing Interim
Services with respect to any Water Pik Health and Welfare Plan pursuant
to Section 7.1, ATI shall be permitted to make any Change to such Water
Pik Plan; provided that, in ATI's reasonable good faith opinion, such
Change would affect both the applicable Water Pik Health and Welfare
Plan and any corresponding ATI Health and Welfare Plan and any costs
incurred as a result of such amendment shall be borne proportionally by
ATI and Water Pik in the same proportion that Water Pik and ATI
employees, respectively, participate.
(c) EMPLOYEE CONTRIBUTIONS. Except as otherwise expressly provided in
Sections 5.3(a) and 5.3(b), as of January 1, 2001, Water Pik shall have the
right, in its sole and absolute discretion and without compliance with Sections
5.3(a) and 5.3(b), to increase or decrease the amount of employee contributions
under their respective Health and Welfare Plans.
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5.4 ATI SICKNESS AND ACCIDENT, LONG TERM DISABILITY AND PENSION
DISABILITY BENEFITS. ATI shall transfer to Water Pik, effective Immediately
After the Distribution Date, responsibility for administering all claims
incurred by Water Pik Individuals and other employees and former employees of
Water Pik and the Water Pik Entities before the Close of the Distribution Date
that are administered by ATI as of the Close of the Distribution Date. Water Pik
shall administer such claims in the same manner, and using the same methods and
procedures, as ATI used in administering such claims. Water Pik shall have sole
discretionary authority to make any necessary determinations with respect to
such claims, including entering into settlements with respect to such claims.
5.5 POST-RETIREMENT HEALTH AND LIFE INSURANCE BENEFITS. As soon as
practicable after the Distribution Date, Water Pik shall provide ATI with a list
of all Water Pik Individuals who are, to the best knowledge of Water Pik,
eligible to receive retiree medical or dental coverage under the ATI Health and
Welfare Plans from and after the Distribution Date and/or post-retirement life
insurance coverage under the ATI Group Life Program, and the type of retiree
medical or dental coverage and the level of life insurance coverage for which
they are eligible, as applicable.
5.6 COBRA AND DIRECT PAY. Effective Immediately After the Distribution
Date, Water Pik shall solely be responsible for administering compliance with
the health care continuation coverage requirements of COBRA and the Water Pik
Health and Welfare plans, and, with respect to Water Pik Individuals, the ATI
Health and Welfare Plans.
5.7 POST-DISTRIBUTION TRANSITIONAL ARRANGEMENTS.
(a) CONTINUANCE OF ELECTIONS, CO-PAYMENTS AND MAXIMUM BENEFITS.
(i) Water Pik shall cause the Water Pik Health and Welfare
Plans to recognize and maintain all coverage and contribution elections
made by Water Pik Individuals under the ATI Health and Welfare Plans
and apply such elections under the Water Pik Health and Welfare Plans
for the remainder of the period or periods for which such elections are
by their terms applicable. The transfer or other movement of employment
from ATI to Water Pik at any time before the Close of the Distribution
Date shall neither constitute nor be treated as a "status change" under
the ATI Health and Welfare Plans or the Water Pik Health and Welfare
Plans.
(ii) Water Pik shall cause the Water Pik Health and Welfare
Plans to recognize and give credit for (A) all amounts applied to
deductibles, out-of-pocket maximums, and other applicable benefit
coverage limits with respect to which such expenses have been incurred
by Water Pik Individuals under the ATI Health and Welfare Plans for the
remainder of the year in which the Distribution occurs, and (B) all
benefits paid to Water Pik Individuals under the ATI Health and Welfare
Plans for purposes of determining when such persons have reached their
lifetime maximum benefits under the Water Pik Health and Welfare Plans.
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(iii) Water Pik shall recognize and maintain through December
31, 1999 all eligible populations covered by the ATI Health and Welfare
Plans (as defined in the applicable ATI Health and Welfare Plan
documents), including Class I and Class II dependents, term and
temporary employees, alternate benefit plan employees, and all
categories of part-time employees (which are fully and non-fully
eligible for company contributions).
(iv) Water Pik shall (A) provide coverage to Water Pik
Individuals under the Water Pik Group Life Program without the need to
undergo a physical examination or otherwise provide evidence of
insurability, and (B) recognize and maintain all irrevocable
assignments and accelerated benefit option elections made by Water Pik
Individuals under the ATI Group Life Program.
(b) OTHER POST-DISTRIBUTION TRANSITIONAL RULES.
(i) ATI HCRA PLAN. To the extent any Water Pik Individual
contributed to an account under the ATI HCRA Plan during the calendar
year that includes the Distribution Date, effective as of the Close of
the Distribution Date, ATI shall transfer to the Water Pik HCRA Plan
the account balances of Water Pik Individuals for such calendar year
under the ATI HCRA Plan, regardless of whether the account balance is
positive or negative.
(ii) ATI CHILD/ELDER CARE REIMBURSEMENT ACCOUNT PLAN. To the
extent any Water Pik Individual contributed to the ATI CECRA Plan
during the calendar year that includes the Distribution Date, ATI shall
transfer the account balances of Water Pik Individuals for such
calendar year in the ATI CECRA Plan to the Water Pik CECRA Plan.
(iii) POST-RETIREMENT MEDICAL PLAN. For the period ending on
December 31st of the calendar year which is five calendar years after
the Distribution Date, Water Pik shall comply with all cost maintenance
period requirements and benefit maintenance period requirements under
Code Sections 401(h) or 420 that are applicable to post-retirement
health benefits under the Water Pik Health Plans for any pension asset
transfers pursuant to Code Section 420 by or on behalf of ATI for
qualified current retiree health liabilities (as defined under Code
Section 420). With respect to any pension asset transfers pursuant to
Code Section 420, Water Pik shall obtain ATI's prior written approval
before amending any Water Pik Health Plan with respect to the provision
of post-retirement health benefits during the cost maintenance or
benefit maintenance periods to which the ATI Health Plans are subject
pursuant to Code Section 420 and no such amendment shall be effective
in any respect until ATI's prior written approval is obtained. No
pension asset transfer pursuant to Code Section 420 shall be made by
Water Pik after the date hereof and before the Close of the
Distribution Date unless Water Pik and ATI so agree.
(iv) HEALTH AND WELFARE PLANS SUBROGATION RECOVERY. After the
Close of the Distribution Date, ATI shall pay to Water Pik any amounts
ATI
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recovers from time to time through subrogation or otherwise for claims
incurred by or reimbursed to any Water Pik Individual. If Water Pik
recovers any amounts through subrogation or otherwise for claims
incurred by or reimbursed to employees and former employees of ATI or
an ATI Entity and their respective beneficiaries and dependents (other
than Water Pik Individuals), Water Pik shall pay such amounts to ATI.
5.8 APPLICATION OF ARTICLE V TO WATER PIK ENTITIES. Any reference
in this Article V to "Water Pik" shall include a reference to a Water Pik Entity
when and to the extent ATI or Water Pik has caused the Water Pik Entity to (a)
become a party to a vendor contract, group insurance contract, or HMO letter
agreement associated with a Water Pik Health and Welfare Plan, (b) become a
self-insured entity for the purposes of one or more Water Pik Health and Welfare
Plans, (c) assume all or a portion of the liabilities or administrative
responsibilities for benefits which arose before the Close of the Distribution
Date under an ATI Health and Welfare Plan and which were expressly assumed by
Water Pik pursuant to the terms of this Agreement, or (d) take any other action,
extend any coverage, assume any other liability or fulfill any other
responsibility that Water Pik would otherwise be required to take under the
terms of this Article V, unless it is clear from the context that the particular
reference is not intended to include a Water Pik Entity. In all such instances
in which a reference in this Article V to "Water Pik" includes a reference to a
Water Pik Entity, Water Pik shall be responsible to ATI for ensuring that the
Water Pik Entity complies with the applicable terms of this Agreement and the
Water Pik Individuals allocated to such Water Pik Entity shall have the same
rights and entitlements to benefits under the applicable Water Pik Health and
Welfare Plans that the Water Pik Individual would have had if he or she had
instead been allocated to Water Pik. Further, each such Water Pik Entity, unless
otherwise expressly provided under the terms of this Agreement or any Ancillary
Agreement, shall defend, indemnify and hold harmless ATI for any costs incurred
by ATI pursuant to the provisions of Article V on behalf of or related to such
Water Pik Entity.
ARTICLE VI
EXECUTIVE BENEFITS AND NON-EMPLOYEE DIRECTOR BENEFITS
6.1 ASSUMPTION OF OBLIGATIONS. Except (i) for Benefit Liabilities
arising under the Teledyne Pension Equalization Plan and (ii) as otherwise
expressly provided in this Article VI, effective Immediately After the
Distribution Date, Water Pik and the Water Pik Entities shall assume and be
solely responsible for all Benefit Liabilities to or relating to Water Pik
Individuals under all ATI Executive Benefit Plans.
6.2 CONSENTS AND NOTIFICATIONS. ATI and Water Pik shall use their
Reasonable Efforts to obtain, or cause to be obtained, to the extent necessary,
the written consent of each Water Pik Individual who is a party to a separate
agreement between the Individual and ATI and/or a participant in any ATI
Executive Benefit Plan, to the treatment of such individual agreement and/or
Executive Benefit Plan, as applicable, in accordance with this Article VI,
including the assumption by Water Pik and the Water Pik Entities, of sole
responsibility for, and the release of ATI and the ATI Entities from, all
Benefit Liabilities thereunder; provided, that no failure to seek or to obtain
any such consent shall have any effect upon the obligations of Water Pik and the
Water Pik Entities with respect to such Benefit Liabilities.
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6.3 ATI 1999 BONUS PLAN. Subject to the provisions of Section
6.4(a)(ii)(B), Water Pik shall be responsible for determining, with respect to
all Awards that would otherwise be payable under any bonus Plan or arrangement
to Water Pik Individuals for the 1999 performance year, (a) the extent to which
established performance criteria (as interpreted by Water Pik, in its sole
discretion, after taking into account the effects of the Distribution) have been
met and (b) the payment level for each Water Pik Individual.
6.4 ATI INCENTIVE PLANS. ATI and Water Pik shall use their Reasonable
Efforts to take all actions necessary or appropriate so that each outstanding
Award granted under any ATI Incentive Plan held by any Water Pik Individual
shall be determined, converted or replaced, as the case may be, as set forth in
this Section 6.4 with an Award under the Water Pik Incentive Plan.
(a) WATER PIK INDIVIDUALS WHO ARE ACTIVE EMPLOYEES OF WATER PIK.
(i) STOCK OPTIONS. Water Pik shall cause each ATI Option that
is outstanding as of the Close of the Distribution Date and is held by
a Water Pik Individual to be converted, effective Immediately After the
Distribution Date, to a Water Pik Option (a "Converted Option"). Such
Converted Option shall provide for the option to purchase a number of
shares of Water Pik Common Stock equal to the number of shares of ATI
Common Stock subject to such ATI Option as of the Close of the
Distribution Date, multiplied by the Ratio, and then rounded up to the
nearest whole share. The per-share exercise price of such Converted
Option shall equal the per-share exercise price of such ATI Option as
of the Close of the Distribution Date divided by the Ratio. Each such
Converted Option shall otherwise have the same terms and conditions as
were applicable to the corresponding ATI Option as of the Close of the
Distribution Date, except that references to ATI and its Affiliates
shall be amended to refer to Water Pik and its Affiliates.
(ii) PERFORMANCE AWARDS.
(A) The current performance period under the ATI
Performance Share Program is the three-year period commencing
on January 1, 1998. Either prior to or within a reasonable
time after the Distribution Date, in accordance with the
provisions of Section 6.4(a)(ii)(B), the applicable ATI
Performance Award under the ATI Performance Share Program
shall be determined by ATI with respect to each Water Pik
Individual for the period from January 1, 1998 through the
Distribution Date. Effective Immediately After the
Distribution Date, Water Pik and the Water Pik Entities shall
assume and be solely responsible for all Benefit Liabilities
to or relating to Water Pik Individuals with respect to the
administration and distribution of Performance Awards to such
Water Pik Individuals.
(B) Notwithstanding the provisions of Section 6.3,
the ATI Personnel and Compensation Committee or the Stock
Incentive Award Subcommittee, as the case may be, shall
determine, in its sole and absolute discretion, with respect
to
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each Water Pik Individual, the extent to which, as of the
Distribution Date, such Individual has achieved target
performance levels established under the ATI Performance Share
Program and the appropriate Performance Award for such
Individual based upon such performance. The Performance Award
so determined shall be pro-rated by multiplying the
Performance Award determined under the preceding sentence by a
fraction, the numerator of which shall be equal to the number
of months from and including January 1, 1998 to the month in
which the Distribution Date occurs and the denominator of
which shall be 36. The Performance Award as determined
hereunder shall be distributed by Water Pik and the Water Pik
Entities to the applicable Water Pik Individual as provided
under the terms of the Performance Share Program; provided,
however, that any ATI Common Stock allocated or otherwise
awarded to a Water Pik Individual as part of a Performance
Award under the provisions of this Section 6.4(a)(ii) shall,
prior to any distribution to such Individual and, in any
event, no later than Immediately After the Distribution Date,
be converted into Water Pik Common Stock by multiplying the
number of shares of ATI Common Stock subject to such
Performance Award by an appropriate ratio, as determined by
ATI's Board of Directors or an applicable Committee thereof
and then rounding up the product to the nearest whole share.
(iii) SARP. As of the Distribution Date, all shares of ATI
Common Stock issued and outstanding held by a Water Pik Individual
under the ATI SARP as Designated Stock or Purchased Stock (as those
terms are defined in the ATI SARP) shall continue to be so held, and
the shares of Water Pik Common Stock received by Water Pik Individuals
in respect of their Purchased Stock and Designated Stock pursuant to
the distribution terms of Article III of the Separation and
Distribution Agreement and the shares of Teledyne Technologies
Incorporated Common Stock received by Water Pik Individuals in respect
of their Purchased Stock and Designated Stock as a result of the
spin-off of Teledyne Technologies Incorporated by ATI to ATI's
stockholders shall also be considered Designated Stock or Purchased
Stock, as the case may be, subject to the terms of the ATI SARP.
Effective Immediately After the Distribution Date, Water Pik shall
assume all Benefit Liabilities to or relating to Water Pik Individuals
under the ATI SARP relating to the Restricted Stock (as that term is
defined in the ATI SARP), but ATI shall retain all promissory notes
payable by participants into the ATI SARP, including Water Pik
Individuals, to the order of ATI, and the collateral with respect to
such notes shall include all shares of ATI Common Stock that were
pledged as collateral for purposes of the ATI SARP immediately prior to
the Distribution Date as well as the shares of Water Pik Common Stock
and Teledyne Technologies Incorporated Common Stock issued in respect
of such shares of ATI Common Stock held as collateral. Effective
Immediately After the Distribution Date, pursuant to the terms of the
ATI SARP, all Water Pik Individuals holding awards of Restricted Stock
under the ATI SARP as of the Distribution Date shall receive, without
any further action on their part and in substitution for all shares of
Restricted Stock held immediately prior to the Distribution Date by
such Water Pik Individuals under the ATI SARP, a number of shares of
Water Pik Common Stock determined by multiplying the number of shares
of ATI Common Stock that are held
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immediately prior to the Distribution Date as Restricted Stock under
the ATI SARP by an appropriate ratio, as determined by ATI's Board of
Directors or an applicable Committee thereof then rounding the product
up to the nearest whole share, and such shares of Water Pik Common
Stock shall be subject to the same restrictions as the shares of ATI
Common Stock prior to the conversion.
(b) WATER PIK INDIVIDUALS WHO ARE NOT ACTIVE EMPLOYEES OF WATER PIK.
Each outstanding Award that is held by an individual who, as of the Close of the
Distribution Date, would otherwise be a Water Pik Individual but is not an
active employee of or on leave of absence from Water Pik or a Water Pik Entity
shall remain outstanding Immediately After the Distribution Date in accordance
with its terms as applicable as of the Close of the Distribution Date, subject
to such adjustments as may be applicable to outstanding Awards held by
individuals who remain active employees of or on leave of absence from ATI or an
ATI Entity after the Distribution Date.
6.5 ATI NONQUALIFIED DEFERRED COMPENSATION PROGRAMS.
(a) ASSUMPTION OF LIABILITIES AND TRANSFER OF ASSETS. Subject to the
provisions of Section 6.1, effective Immediately After the Distribution Date,
Water Pik shall assume all Benefit Liabilities to or relating to Water Pik
Individuals under the ATI Nonqualified Deferred Compensation Programs. Effective
Immediately After the Distribution Date, to the extent ATI has acquired
Corporate-Owned Life Insurance Policies as a source of payment of liabilities
which are or may be payable under the Allegheny Teledyne Incorporated Executive
Deferred Compensation Plan with respect to Water Pik Individuals, ATI shall, in
ATI's sole discretion, (i) transfer an amount in cash equal to the cash
surrender value of such policies or (ii) cause the transfer, either by
assignment or any other reasonable means, to Water Pik of Corporate-Owned Life
Insurance Policies on the lives of such Water Pik Individuals and such other
employees or former employees of ATI or its subsidiaries as ATI may, in its sole
discretion select, or any portion thereof, having in the aggregate a cash
surrender value equal to the amount of any Benefit Liabilities for Water Pik
Individuals under the Allegheny Teledyne Incorporated Executive Deferred
Compensation Plan.
(b) CORPORATE-OWNED LIFE INSURANCE. ATI and Water Pik shall take all
actions necessary to replicate the manner in which ATI has heretofore held
Corporate-Owned Life Insurance Policies, and executing or accepting delivery of
any assignments reasonably requested by either party or any insurance company
insuring one or more lives under the Corporate-Owned Life Insurance Policies, as
may be necessary or appropriate in order to assign those Policies insuring Water
Pik Individuals to Water Pik, effective Immediately After the Distribution Date.
If a Corporate-Owned Life Insurance Policy is so assigned to Water Pik, Water
Pik shall assume and be solely responsible for all Benefit Liabilities, and
shall be entitled to all benefits, thereunder, effective as of the earlier of
(i) the Close of the Distribution Date and (ii) the date of such assignment. ATI
and Water Pik shall continue, liquidate and/or administer such Corporate-Owned
Life Insurance Policies on terms and conditions agreed to by ATI and
Water Pik. ATI and Water Pik shall share all information that may be necessary
to identify the individuals insured by
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the Corporate-Owned Life Insurance Policies owned by ATI and/or Water Pik and to
determine when and whether such individuals are deceased.
6.6 NON-EMPLOYEE DIRECTOR BENEFITS. The parties intend that all Water
Pik Non-Employee Directors who were ATI Non-Employee Directors prior to the
Distribution Date may continue to serve as ATI Non-Employee Directors. In
furtherance of such intention, ATI shall retain all Benefit Liabilities with
respect to the services of its Non-Employee Directors under the ATI Non-Employee
Director Plans accrued as of the Distribution Date. Water Pik assumes no Benefit
Liabilities under the ATI Non-Employee Director Plans.
6.7 CONFIDENTIALITY AND PROPRIETARY INFORMATION. No provision of this
Agreement shall be deemed to release any individual for a violation of any
agreement or policy pertaining to confidential or proprietary information of ATI
or any of its Affiliates, or otherwise relieve any individual of his or her
obligations under any such agreement or policy.
ARTICLE VII
GENERAL AND ADMINISTRATIVE
7.1 INTERIM SERVICES AGREEMENT. Effective on or before the Distribution
Date, ATI and Water Pik shall enter into an agreement relating to the
coordination of and payment for transition services to be provided by ATI
regarding the establishment and administration of the Water Pik Plans (the
"Interim Services Agreement"). The provisions of the Interim Services Agreement
shall be incorporated by reference in this Agreement and shall become a part of
this Agreement.
7.2 PAYMENT OF LIABILITIES, PLAN EXPENSES AND RELATED MATTERS.
(a) ACTUARIAL AND ACCOUNTING METHODOLOGIES AND ASSUMPTIONS. For
purposes of this Agreement, unless specifically indicated otherwise: (i) all
actuarial methodologies and assumptions used for a particular Plan shall (except
to the extent otherwise determined by ATI and Water Pik to be reasonable or
necessary) be substantially the same as those used in the actuarial valuation of
that Plan used to determine minimum funding requirements under ERISA Section 302
and Code Section 412(c) for 1999, or, if such Plan is not subject to such
minimum funding requirements, the assumptions used to prepare ATI's audited
financial statements for 1999, as the case may be; and (ii) the value of plan
assets shall be the value established by ATI for purposes of audited financial
statements of the relevant plan or trust for the period ending on the date as of
which the valuation is to be made. Except as otherwise contemplated by this
Agreement or as required by law, all determinations as to the amount or
valuation of any assets of or relating to any ATI Plan (whether or not such
assets are being transferred to a Water Pik Plan) shall be made by ATI in its
sole and absolute discretion and such determination shall be final and binding
on all parties.
(b) PAYMENT OF LIABILITIES; DETERMINATION OF EMPLOYEE STATUS. Water Pik
shall pay directly, or reimburse ATI promptly for, all Benefit Liabilities
assumed by it
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pursuant to this Agreement, including all compensation payable to Water Pik
Individuals for services rendered while in the employ of ATI or an ATI Entity
before becoming a Water Pik Individual (to the extent not charged for pursuant
to Section 7.1 or another Ancillary Agreement). To the extent the amount of such
Benefit Liabilities is not yet determinable because the status of individuals as
Water Pik Individuals is not yet determined, except as otherwise specified
herein or in another Ancillary Agreement with respect to particular Benefit
Liabilities, Water Pik shall make such payments or reimbursements based upon
ATI's reasonable estimates of the amounts thereof, and when such status is
determined, Water Pik shall make additional reimbursements or payments, or ATI
shall reimburse Water Pik, to the extent necessary to reflect the actual amount
of such Benefit Liabilities. In determining the number of individuals in any
particular group of employees described in this Agreement (such as "Water Pik
Individuals"), no individual shall be counted twice. Determinations of what
entity employs or employed a particular individual shall be made by reference to
the applicable legal entity and/or other appropriate accounting code, to the
extent possible.
7.3 SHARING OF PARTICIPANT INFORMATION. ATI and Water Pik shall share,
ATI shall cause each applicable ATI Entity to share, and Water Pik shall cause
each applicable Water Pik Entity to share, with each other and their respective
agents and vendors (without obtaining releases) all participant information
necessary for the efficient and accurate administration of each of the ATI Plans
and the Water Pik Plans. ATI and Water Pik and their respective authorized
agents shall, subject to applicable laws on confidentiality, be given reasonable
and timely access to, and may make copies of, all information relating to the
subjects of this Agreement in the custody of the other party, to the extent
necessary for such administration. Until December 31, 2000, all participant
information shall be provided in a manner and medium that is compatible with the
data processing systems of ATI as in effect on the Close of the Distribution
Date, unless otherwise agreed to by ATI and Water Pik.
7.4 REPORTING AND DISCLOSURE AND COMMUNICATIONS TO PARTICIPANTS. Water
Pik shall take, and shall cause each other applicable Water Pik Entity to take,
all actions necessary or appropriate to facilitate the distribution of all
applicable ATI Plan-related communications and materials to Water Pik
Individuals and their beneficiaries, including summary plan descriptions and
related summaries of material modification, summary annual reports, investment
information, prospectuses, notices and enrollment material related to the Water
Pik Plans. Water Pik shall pay ATI the cost relating to the copies of all such
documents provided to Water Pik, except to the extent such costs are charged
pursuant to Section 7.1 or pursuant to an Ancillary Agreement. Water Pik shall
assist, and Water Pik shall cause each other applicable Water Pik Entity to
assist, ATI in complying with all reporting and disclosure requirements of
ERISA, including the preparation of Form 5500 annual reports for the ATI Plans,
where applicable.
7.5 NON-TERMINATION OF EMPLOYMENT; NO THIRD-PARTY BENEFICIARIES. No
provision of this Agreement or the Separation and Distribution Agreement shall
be construed to create any right, or accelerate entitlement, to any compensation
or benefit whatsoever on the part of any Water Pik Individual or other future,
present or former employee of ATI, an ATI Entity, Water Pik, or a Water Pik
Entity under any ATI Plan or Water Pik Plan or otherwise. Without limiting the
generality of the foregoing: (i) the Distribution shall
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not cause any employee to be deemed to have incurred a termination of employment
which entitles such individual to the commencement of benefits under any of the
ATI Plans, any of the Water Pik Plans, or any individual agreements; and (ii)
except as expressly provided in this Agreement, nothing in this Agreement shall
preclude Water Pik, at any time after the Close of the Distribution Date, from
amending, merging, modifying, terminating, eliminating, reducing, or otherwise
altering in any respect any Water Pik Plan, any benefit under any Plan or any
trust, insurance policy or funding vehicle related to any Water Pik Plan unless
such change could or will increase the obligations of ATI or any ATI Entity
under any Plan or agreement.
7.6 BENEFICIARY DESIGNATIONS. All beneficiary designations made by
Water Pik Individuals for ATI Plans shall be transferred to and be in full force
and effect under the corresponding Water Pik Plans until such beneficiary
designations are replaced or revoked by the Water Pik Individual who made the
beneficiary designation.
7.7 REQUESTS FOR IRS RULINGS AND DOL OPINIONS. Water Pik shall
cooperate fully with ATI on any issue relating to the transactions contemplated
by this Agreement for which ATI elects to seek a determination letter or private
letter ruling from the IRS or an advisory opinion from the DOL. ATI shall
cooperate fully with Water Pik with respect to any request for a determination
letter or private letter ruling from the IRS or advisory opinion from the DOL
with respect to any of the Water Pik Plans relating to the transactions
contemplated by this Agreement.
7.8 FIDUCIARY MATTERS. ATI and Water Pik each acknowledges that actions
required to be taken pursuant to this Agreement may be subject to fiduciary
duties or standards of conduct under ERISA or other applicable law, and no party
shall be deemed to be in violation of this Agreement if it fails to comply with
any provisions hereof based upon its good faith determination that to do so
would violate such a fiduciary duty or standard.
7.9 COLLECTIVE BARGAINING. To the extent any provision of this
Agreement is contrary to the provisions of any collective bargaining agreement
to which ATI or any Affiliate of ATI is a party, the terms of such collective
bargaining agreement shall prevail. Should any provisions of this Agreement be
deemed to relate to a topic determined by an appropriate authority to be a
mandatory subject of collective bargaining, ATI or Water Pik may be obligated to
bargain with the union representing affected employees concerning those
subjects. Neither party will agree to a modification of any collective
bargaining agreement without the consent of the other.
7.10 CONSENT OF THIRD PARTIES. If any provision of this Agreement is
dependent on the consent of any third party (such as a vendor or a union) and
such consent is withheld, ATI and Water Pik shall use their Reasonable Efforts
to implement the applicable provisions of this Agreement to the full extent
practicable. If any provision of this Agreement cannot be implemented due to the
failure of such third party to consent, ATI and Water Pik shall negotiate in
good faith to implement the provision in a mutually satisfactory manner.
7.11 INDEMNIFICATION OF ATI. Water Pik shall indemnify, defend and hold
harmless ATI, each ATI Entity and each of their respective directors, officers
and employees, and
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each of the heirs, executors, successors and assigns of any of the foregoing
(collectively, the "ATI Indemnitees") from and against (i) any and all Benefit
Liabilities of the ATI Indemnitees to the extent any such Benefit Liabilities
are assumed by Water Pik or a Water Pik Entity under this Agreement and (ii) any
and all changes or modifications to any rights, privileges or benefits of or
relating to any Water Pik Individual as provided in or otherwise contemplated by
this Agreement.
ARTICLE VIII
MISCELLANEOUS
8.1 FOREIGN PLANS. To the extent that Water Pik has or assumes any
responsibility for sponsorship, maintenance or administration of any Foreign
Plan, ATI shall have no responsibility or liability with respect to such Plan
and Water Pik shall indemnify and hold harmless ATI from any liability under
such Plan.
8.2 EFFECT IF DISTRIBUTION DOES NOT OCCUR. If the Distribution does not
occur, then all actions and events that are, under this Agreement, to be taken
or occur effective as of the Close of the Distribution Date, Immediately After
the Distribution Date, or otherwise in connection with the Distribution, shall
not be taken or occur except to the extent specifically agreed by Water Pik and
ATI.
8.3 RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be deemed
or construed by the parties or any third party as creating the relationship of
principal and agent, partnership or joint venture between the parties, it being
understood and agreed that no provision contained herein, and no act of the
parties, shall be deemed to create any relationship between the parties other
than the relationship set forth herein.
8.4 AFFILIATES. Each of ATI and Water Pik shall cause to be performed,
and hereby guarantees the performance of, all actions, agreements and
obligations set forth in this Agreement to be performed by an ATI Entity or a
Water Pik Entity, respectively.
8.5 COUNTERPARTS; ENTIRE AGREEMENT; CORPORATE POWER.
(a) This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more counterparts have been signed by each of the parties and
delivered to the other party.
(b) This Agreement, and the Exhibits, Schedules and Appendices hereto
and thereto contain the entire agreement between the parties with respect to the
subject matter hereof, supersede all previous agreements, negotiations,
discussions, writings, understandings, commitments and conversations with
respect to such subject matter and there are no agreements or understandings
between the parties other than those set forth or referred to herein or therein.
(c) ATI represents on behalf of itself and each ATI Entity, and Water
Pik represents on behalf of itself and each Water Pik Entity, as follows:
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(i) each such Person has the requisite corporate or other
power and authority and has taken all corporate or other action necessary in
order to execute, deliver and perform each of this Agreement and to consummate
the transactions contemplated hereby; and
(ii) this Agreement has been duly executed and delivered by it
and constitutes a valid and binding agreement of it enforceable in accordance
with the terms thereof.
(d) Each party hereto acknowledges that it and each other party hereto
may be executing this Agreement by facsimile, stamp or mechanical signature.
Each party hereto expressly adopts and confirms each such facsimile, stamp or
mechanical signature made in its respective name as if it were a manual
signature, agrees that it will not assert that any such signature is not
adequate to bind such party to the same extent as if it were signed manually and
agrees that at the reasonable request of any other party hereto at any time it
will as promptly as reasonably practicable cause this Agreement to be manually
executed (any such execution to be as of the date of the initial date thereof).
8.6 GOVERNING LAW; CONSENT TO JURISDICTION.
(a) This Agreement shall be governed by and construed and interpreted
in accordance with the laws of the Commonwealth of Pennsylvania as to all
matters, including matters of validity, construction, effect, enforceability,
performance and remedies, irrespective of the choice of laws principles of the
Commonwealth of Pennsylvania.
(b) Each of the parties hereto irrevocably submits to the exclusive
jurisdiction of (i) the Court of Common Pleas of Allegheny County, Pennsylvania
and (ii) the United States District Court for the Western District of
Pennsylvania, for the purposes of any suit, action or other proceeding arising
out of this Agreement or any transaction contemplated hereby (and agrees not to
commence any action, suit or proceeding relating thereto except in such courts).
Each of the parties hereto further agrees that service of any process, summons,
notice or document hand delivered or sent by U.S. registered mail to such
party's respective address set forth in Section 8.9 will be effective service of
process for any action, suit or proceeding in Pennsylvania with respect to any
matters to which it has submitted to jurisdiction as set forth in the
immediately preceding sentence. Each of the parties hereto irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the transactions contemplated
hereby in (i) the Court of Common Pleas of Allegheny County, Pennsylvania or
(ii) the United States District Court for the Western District of Pennsylvania,
and hereby further irrevocably and unconditionally waives and agrees not to
plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum.
8.7 ASSIGNABILITY. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns;
provided, however, that no party hereto may assign its respective rights or
delegate its respective obligations under this Agreement without the express
prior written consent of the other party hereto.
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8.8 THIRD PARTY BENEFICIARIES. Except as otherwise expressly provided
herein, (a) the provisions of this Agreement are solely for the benefit of the
parties and are not intended to confer upon any Person except the parties any
rights or remedies hereunder, (b) there are no third party beneficiaries of this
Agreement, and (c) this Agreement shall not provide any third person with any
remedy, claim, liability, reimbursement, claim of action or other right in
excess of those existing without reference to this Agreement. No party shall be
required to deliver any notice under this Agreement to any other party with
respect to any matter in which such other party has no right, remedy or claim.
8.9 NOTICES. All notices or other communications under this Agreement
shall be in writing and shall be deemed to be duly given when (a) delivered in
person or (b) deposited in the United States mail or private express mail,
postage prepaid, addressed as follows:
If to ATI, to: Allegheny Teledyne Incorporated
1000 Six PPG Place
Pittsburgh, Pennsylvania 15222-5479
Attn: Senior Vice President, General Counsel
and Secretary
If to Water Pik, to: Water Pik Technologies, Inc.
600 Newport Center Drive, Suite 470
Newport Beach, California 92660
Attn: President
Any party may, by notice to the other party, change the address to which such
notices are to be given.
8.10 SEVERABILITY. If any provision of this Agreement or the
application thereof to any Person or circumstance is determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof or thereof, or the application of such provision to Persons or
circumstances or in jurisdictions other than those as to which it has been held
invalid or unenforceable, shall remain in full force and effect and shall in no
way be affected, impaired or invalidated thereby, so long as the economic or
legal substance of the transactions contemplated hereby or thereby, as the case
may be, is not affected in any manner adverse to any party. Upon such
determination, the parties shall negotiate in good faith in an effort to agree
upon such a suitable and equitable provision to effect the original intent of
the parties.
8.11 HEADINGS. The article, section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
8.12 WAIVERS OF DEFAULT. Waiver by any party of any default by the
other party of any provision of this Agreement shall not be deemed a waiver by
the waiving party of any subsequent or other default, nor shall it prejudice the
rights of the other party.
8.13 AMENDMENTS. No provisions of this Agreement shall be deemed
waived, amended, supplemented or modified by any party, unless such waiver,
amendment, supplement or
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<PAGE> 28
modification is in writing and signed by the authorized representative of the
party against whom it is sought to enforce such waiver, amendment, supplement or
modification.
8.14 INTERPRETATION. Words in the singular shall be held to include the
plural and vice versa and words of one gender shall be held to include the other
genders as the context requires. The terms "hereof," "herein," and "herewith"
and words of similar import shall, unless otherwise stated, be construed to
refer to this Agreement as a whole (including all of the Schedules, Exhibits and
Appendices hereto) and not to any particular provision of this Agreement.
Article, Section, Exhibit, Schedule and Appendix references are to the Articles,
Sections, Exhibits, Schedules and Appendices to this Agreement unless otherwise
specified. The word "including" and words of similar import when used in this
Agreement shall mean "including, without limitation," unless the context
otherwise requires or unless otherwise specified. The word "or" shall not be
exclusive. Unless expressly stated to the contrary in this Agreement, all
references to "the date hereof," "the date of this Agreement," "hereby" and
"hereupon" and words of similar input shall all be references to November 29,
1999, regardless of any amendment or restatement hereof.
8.15 DISPUTES. (a) Resolution of any and all disputes arising from or
in connection with this Agreement, whether based on contract, tort, statute or
otherwise, including, but not limited to, disputes in connection with claims by
third parties (collectively, "Disputes"), shall be subject to the provisions of
this Section 8.15; provided, however, that nothing contained herein shall
preclude any party from seeking or obtaining (i) injunctive relief or (ii)
equitable or other judicial relief to enforce the provisions hereof or to
preserve the status quo pending resolution of Disputes hereunder.
(b) Any party may give the other parties written notice of any Dispute
not resolved in the normal course of business. The parties shall attempt in good
faith to resolve any Dispute promptly by negotiation between executives of the
parties who have authority to settle the controversy. Within 15 days after
delivery of the notice, the foregoing executives of both parties shall meet at a
mutually acceptable time and place, and thereafter as often as they reasonably
deem necessary for a period not to exceed five days, to attempt to resolve the
Dispute. All reasonable requests for information made by one party to the other
will be honored. If the parties do not resolve the Dispute within such 20 day
period (the "Initial Mediation Period"), the parties shall attempt in good faith
to resolve the Dispute by negotiation between or among the Designated Officers
(as defined in the Separation and Distribution Agreement). The Designated
Officers shall meet at a mutually acceptable time and place (but in no event no
later than 15 days following the expiration of the Initial Mediation Period) and
thereafter as often as they reasonably deem necessary for a period not to exceed
15 days, to attempt to resolve the Dispute.
(c) If the Dispute has not been resolved by negotiation within 50 days
of the first party's notice, or if the parties failed to meet within 15 days of
the first party's notice, or if the Designated Officers failed to meet within 35
days of the first party's notice, any party may commence any litigation or other
procedure allowed by law.
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<PAGE> 29
IN WITNESS WHEREOF, the parties have caused this Employee Benefits
Agreement to be duly executed as of the day and year first above written.
ALLEGHENY TELEDYNE INCORPORATED
By: /s/ Jon D. Walton
----------------------------
Title:_________________________
WATER PIK TECHNOLOGIES, INC.
By: /s/ Michael Hoopis
----------------------------
Title:_________________________
26
<PAGE> 1
Exhibit 10.25
TAX SHARING AND INDEMNIFICATION AGREEMENT
THIS TAX SHARING AND INDEMNIFICATION AGREEMENT (the "Agreement"), dated
as of November 29, 1999, is made by and between Allegheny Teledyne Incorporated,
a Delaware corporation ("ATI") on behalf of itself and each member of the ATI
Consolidated Group, and Teledyne Technologies Incorporated, a Delaware
corporation ("SPINCO"), on behalf of itself and each member of the SPINCO Group
and their respective successors.
Witnesseth:
WHEREAS, ATI has determined to effect the Distribution pursuant to the
Distribution Agreement;
WHEREAS, the IRS has issued the IRS Ruling which states the tax
treatment of the Distribution and the Other Transactions;
WHEREAS, the parties are entering into this Agreement to ensure the
continuing effectiveness of the IRS Ruling, to provide for certain indemnities,
and to provide for various administrative matters relating to Taxes, including:
1. the preparation and filing of Tax Returns along with the payment of
Taxes shown due and payable thereon;
2. the retention and maintenance of relevant records necessary to
prepare and file appropriate Tax Returns, as well as providing for appropriate
access to those records by the parties to this Agreement;
3. the conduct of audits, examinations, and proceedings by appropriate
government entities which could result in a redetermination of Taxes; and
4. the cooperation of all parties with one another in order to fulfill
their duties and responsibilities under this Agreement and under the Code and
other applicable law; and
WHEREAS, it is the intent of the parties that SPINCO or the appropriate
member of the SPINCO Group shall economically bear the burden of all Taxes
otherwise imposed upon or attributable to the Operations of members of the
SPINCO Group occurring after the Effective Date, and that SPINCO will be
responsible for and reimburse ATI for any Incremental Tax Assessment.
NOW, THEREFORE, in consideration of the mutual promises, covenants, and
conditions contained in this Agreement, and intending to be legally bound
hereby, the parties hereto agree as follows:
<PAGE> 2
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. For the purposes of this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural of the terms involved):
ADJUSTMENT means any final change in the Tax Liability of a taxpayer.
AFFILIATE means, when used with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries, controls
or is controlled by or is under common control with such Person.
AFFILIATED PERSON has the meaning ascribed to such term in the
Investment Company Act of 1940, as amended, and the rules and regulations
promulgated thereunder.
AGREEMENT means this Tax Sharing and Indemnification Agreement.
ASSOCIATES has the meaning ascribed to such term in the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.
ATI CONSOLIDATED RETURN means any Tax Return that includes any member
of the ATI Consolidated Group.
ATI CONSOLIDATED GROUP means, as of any relevant date, ATI and its
Subsidiaries, determined as of such date.
BENEFICIAL OWNERSHIP has the meaning ascribed to such term in the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
BUSINESS TAXES means any Tax (except for federal income, state income
or franchise, and local and foreign gross or net income) including interest,
penalties, and other assessments thereon that is attributable to Operations of
SPINCO or members of the SPINCO Group for a tax period ending prior to or
including the Effective Date.
BUSINESS TAX RETURNS means all reports, estimates, declarations of
estimated tax, information statements and returns relating to or required to be
filed in connection with any Business Taxes, including information returns or
reports with respect to backup withholding and other payments to third parties.
CODE means the Internal Revenue Code of 1986, as amended, and the
Treasury regulations promulgated thereunder.
COMBINED RETURN shall mean all state income tax returns which ATI files
on a combined or unitary basis with respect to some or all of its Subsidiaries.
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<PAGE> 3
DISQUALIFIED SPINCO STOCK is defined at Section 5.2.
DISTRIBUTION means the distribution of SPINCO common stock to the
stockholders of ATI pursuant to the Distribution Agreement.
DISTRIBUTION AGREEMENT means the Separation and Distribution Agreement
among ATI, SPINCO and certain other parties dated as of November 29, 1999.
EFFECTIVE DATE means the date on which the Distribution occurs.
EFFECTIVE TIME means 5 p.m., Eastern Standard Time or Eastern Daylight
Time (whichever shall then be in effect), on the Effective Date.
FINAL DETERMINATION means the final resolution of any Tax matter. A
Final Determination shall result from the first to occur of:
1. the expiration of 30 days after the IRS's acceptance of a
Waiver of Restrictions on Assessment and Collection of Deficiency in
Tax and Acceptance of Overassessment on Form 870 or 870-AD (or any
successor comparable form) (the "Waiver"), except as to reserved
matters specified therein, or the expiration of 30 days after
acceptance by any other taxing authority of a comparable agreement or
form under the laws of any other jurisdiction, including state, local,
and foreign jurisdictions; unless, within such period, the taxpayer
gives notice to the other party to this Agreement of the taxpayer's
intention to attempt to recover all or part of any amount paid pursuant
to the Waiver by the filing of a timely claim for refund;
2. a decision, judgment, decree, or other order by a court of
competent jurisdiction that is not subject to further judicial review
(by appeal or otherwise) and has become final;
3. the execution of a closing agreement under Code Section
7121, or the acceptance by the IRS of an offer in compromise under Code
Section 7122, or comparable agreements under the laws of any other
jurisdiction, including state, local, and foreign jurisdictions, except
as to reserved matters specified therein;
4. the expiration of the time for filing a claim for refund or
for instituting suit in respect of a claim for refund that was
disallowed in whole or in part by the IRS or any other taxing
authority;
5. the expiration of the applicable statute of limitations; or
6. an agreement by the parties hereto that a Final
Determination has been made.
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<PAGE> 4
GROSS ASSET VALUE means, when used with respect to a specified Person,
the fair market value of such Person's assets unencumbered by any liabilities.
GROUP has the meaning ascribed to such term in the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder.
INCREMENTAL TAX ASSESSMENT means any increase in Business Taxes imposed
upon ATI after the date hereof.
INDEMNIFIED LIABILITY is defined at Section 7.1.
INDEMNIFIED PARTY is defined at Section 6.1.
INDEMNIFYING PARTIES is defined at Section 6.1.
INTERNAL DISTRIBUTIONS means the distributions of SPINCO common stock
by Teledyne Industries, Inc. to TDY Holdings, LLC, a Delaware limited liability
company wholly owned by ATI, and by TDY Holdings, LLC to ATI.
IRS means the U.S. Internal Revenue Service.
IRS INTEREST RATE means the rate of interest imposed from time to time
on underpayments of income tax pursuant to Code Section 6621(a)(2).
IRS RULING means the private letter ruling (together with any
supplements) issued by the IRS in respect of the Ruling Request.
OPERATIONS means any business activity of any SPINCO business unit, as
described in the Ruling Request.
OTHER TRANSACTIONS means the Internal Distributions and all other
transactions related to the Distribution and described in the Ruling Request,
including all modifications to such transactions reflected in supplements to the
Ruling Request.
PERSON means any natural person, corporation, limited liability
company, business trust, joint venture, association, company, partnership or
government, or any agency or political subdivision thereof.
POST-DISTRIBUTION PERIOD means any taxable period that begins after the
Effective Date.
PRE-DISTRIBUTION PERIOD means any taxable period that ends on or before
the Effective Date.
PROCEEDING is defined at Section 8.2(a).
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<PAGE> 5
PUBLIC OFFERING means the first public offering of SPINCO common stock
following the Distribution. The gross proceeds of such Public Offering shall be
approximately $125 million or such other amount as ATI, in its sole discretion,
may approve.
RESTRICTED PERIOD means the two year period following the Effective
Date.
RESTRICTED REDEMPTION PERIOD means the two year period beginning on the
Effective Date and ending two years following the Public Offering.
RULING REQUEST means the request for ruling (including all exhibits),
under Section 355, and other provisions of the Code, as originally filed on
behalf of ATI on April 6, 1999, as amended and supplemented, in respect of the
Distribution.
SPINCO GROUP means: (i) as of any relevant date after the Effective
Date, SPINCO and its Subsidiaries determined as of such date; and (ii) as of any
relevant date on or before the Effective Date, SPINCO and those businesses which
become part of SPINCO or its Subsidiaries as contemplated by the Distribution
Agreement, whether or not such Persons or businesses were Subsidiaries of SPINCO
before the Distribution.
STRADDLE PERIOD means any taxable period with respect to a Tax Return,
that begins on or before the Effective Date and ends after the Effective Date.
SUBSIDIARY means with respect to ATI or SPINCO, any Person of which ATI
or SPINCO, respectively, controls or owns, directly or indirectly, more than 50%
of the stock or other equity interest entitled to vote on the election of
members to the board of directors or similar governing body.
TAXES means all federal, state, local and foreign gross or net income,
gross receipts, withholding, payroll, franchise, transfer, sales, use, value
added, estimated or other taxes of any kind whatsoever or similar charges and
assessments, such as customs, duties and the like, or other amounts paid in
respect thereof, including all interest, penalties and additions imposed with
respect to such amounts.
TAX LIABILITY means the net amount of Taxes due and paid or payable for
any taxable period, determined after applying all tax credits and all applicable
carrybacks or carryovers for net operating losses, net capital losses, unused
general business tax credits, or any other Tax items arising from a prior or
subsequent taxable period, and all other relevant adjustments.
TAX RETURNS means all reports, estimates, declarations of estimated
tax, information statements and returns relating to or required to be filed in
connection with any Taxes, other than Business Taxes, including information
returns or reports with respect to backup withholding and other payments to
third parties.
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<PAGE> 6
ARTICLE II
FILING OF TAX RETURNS AND PAYMENT OF TAXES
SECTION 2.1. TAX RETURNS REQUIRED TO BE FILED PRIOR TO DISTRIBUTION
DATE. ATI shall file or cause to be filed all Tax Returns of ATI and any member
of the ATI Consolidated Group required to be filed (after giving effect to any
valid extension of time in which to make such filings) prior to the Effective
Date and shall pay or cause to be paid any Tax Liability due with respect to
such Tax Returns.
SECTION 2.2. TAX RETURNS FOR PRE-DISTRIBUTION PERIODS.
(a) SPINCO shall prepare or cause to be prepared, consistent with past
practice, Business Tax Returns for the Pre-Distribution Period and shall pay or
cause to be paid any Tax Liability due with respect to such Business Tax
Returns. ATI will promptly notify SPINCO of any audit, assessment, notice, levy,
or questionnaire with respect to Business Taxes. SPINCO shall control all
matters relating to such Business Taxes and shall pay or cause to be paid and/or
indemnify ATI or cause ATI to be indemnified, whatever the case may be, for and
defend and hold ATI harmless against any Incremental Tax Assessment set forth in
a Final Determination of Business Taxes. Payment to ATI with respect to such
Incremental Tax Assessment shall be made in the same manner as if SPINCO were an
Indemnifying Party as set forth in Section 8.3.
(b) Except as provided in Section 2.2(a), ATI shall prepare or cause to
be prepared, for Pre-Distribution Periods, all (1) Combined Returns and (2) Tax
Returns required to be filed on a separate return basis by any member of the ATI
Consolidated Group, in each case, which Tax Returns are not required to be
(after giving effect to any valid extensions), and are not, filed on or prior to
the Effective Date and shall pay or cause to be paid any Tax Liability due with
respect to such Tax Returns. With respect to Tax Returns described in this
Section 2.2(b), ATI shall prepare the returns in a manner, absent any
intervening law change, consistent with ATI's preparation of Tax Returns covered
by Section 2.1. With respect to any Tax Returns described in part (2) of the
first sentence of this Section 2.2(b) relating to a member of the SPINCO Group,
ATI shall file such Tax Returns with the appropriate tax authority, pursuant to
a power of attorney executed and delivered to ATI by SPINCO pursuant to Section
10.15 hereof and shall pay or cause to be paid any Tax Liability due with
respect to such Tax Returns.
(c) Notwithstanding Section 2.2(a), ATI will be responsible for paying
Business Taxes that arise directly from the Distribution and Other Transactions.
For this Section 2.2(c) to apply, ATI must consent in writing, which consent
shall not be unreasonably withheld, that the amount of such Business Taxes has
been correctly determined. In addition, ATI shall have the right to control any
audit, litigation or proceeding regarding such Business Taxes.
SECTION 2.3. TAX RETURNS FOR POST-DISTRIBUTION PERIODS. SPINCO shall
(a) prepare and file or cause to be prepared and filed all Tax Returns required
to be filed by any member of the SPINCO Group for any Post-Distribution Period
and (b) pay or cause to be paid any Tax Liability due with respect to such Tax
Returns.
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<PAGE> 7
SECTION 2.4. TAX RETURNS FOR STRADDLE PERIOD. ATI shall prepare all Tax
Returns of or which include any member of the SPINCO Group for a Straddle
Period. ATI shall pay or cause to be paid and shall defend, indemnify and hold
SPINCO and members of the SPINCO Group harmless against the Tax Liabilities
attributable to the affected member or members of the SPINCO Group for the
portion of the Straddle Period ending on the Effective Date and SPINCO shall pay
or cause to be paid and shall defend, indemnify, and hold ATI and members of the
ATI Consolidated Group harmless against the Tax Liabilities attributable to the
affected member or members of the SPINCO Group for the remainder of the Straddle
Period beginning with the day after the Effective Date. ATI's determination of
Tax Liabilities up to and following the Effective Date shall be based on ATI's
interim closing of the books, determined as of the Effective Time, of the
affected member or members of the SPINCO Group.
SECTION 2.5. TAX-BASIS BALANCE SHEETS. In the case of any business that
was conducted prior to the Effective Date as a division of ATI, its Subsidiaries
or a member of the ATI Consolidated Group and which will be conducted after the
Effective Date by a member of the SPINCO Group, ATI shall prepare and furnish to
SPINCO, within 120 days after the Effective Date, a tax-basis balance sheet,
prepared consistent with past practices, relating to such business as of the
Effective Date.
ARTICLE III
COOPERATION AND EXCHANGE OF INFORMATION; AUDITS AND ADJUSTMENTS;
SECTION 3.1. TAX RETURN INFORMATION
(a) SPINCO shall, and shall cause each appropriate member of the SPINCO
Group to, provide ATI with all information and other assistance reasonably
requested by ATI to enable the members of the ATI Consolidated Group to prepare
and file ATI Consolidated Returns required to be filed by the ATI Consolidated
Group pursuant to this Agreement.
(b) ATI shall, and shall cause each appropriate member of the ATI
Consolidated Group to, provide SPINCO with all information and other assistance
reasonably requested by SPINCO to enable the members of the SPINCO Group to
prepare and file SPINCO Returns required to be filed by the SPINCO Group
pursuant to this Agreement.
(c) Within 60 days of the Effective Date, SPINCO shall provide and
cause each appropriate member of the SPINCO Group to provide to ATI customary
tax packages prepared consistent with past practice for any Pre-Distribution
Period or Straddle Period.
SECTION 3.2. AUDITS AND ADJUSTMENTS
(a) Except as provided for in Section 3.3, ATI shall have full control
over and absolute discretion with respect to all matters relating to any Tax
Return covered by Section 2.1, Section 2.2 or Section 2.4.
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<PAGE> 8
(b) SPINCO shall have full control over and absolute discretion with
respect to all Tax Returns covered by Section 2.3.
(c) SPINCO agrees to cooperate with ATI in the negotiation, settlement,
and litigation of or other proceeding regarding any liability for or refund of
Taxes of any member paid or payable by the ATI Consolidated Group.
(d) ATI agrees to cooperate with SPINCO in the negotiation, settlement,
and litigation of or other proceeding regarding any liability for Taxes paid or
payable by any member of the SPINCO Group.
(e) ATI will promptly notify SPINCO in writing of any Adjustment
involving a change in the tax basis of any asset of SPINCO, specifying the
nature of the change so that the SPINCO Group will be able to reflect the
revised basis in its tax books and records for periods beginning on or after the
Effective Date.
(f) In the event of a conflict between the operation of this Section
3.2 and Articles VI, VII, or VIII, those Articles will take precedence over this
Section 3.2.
SECTION 3.3. CARRYBACKS. SPINCO shall make an election under Section
172(b)(3) of the Code to relinquish the entire carryback period with respect to
any net operating loss attributable to SPINCO or any of its Subsidiaries in any
taxable period beginning after or including the Effective Date that could be
carried back to a taxable year of SPINCO or any Subsidiaries ending on or before
the Effective Date. Neither ATI nor any member of the ATI Consolidated Group
shall be required to pay to SPINCO or its Subsidiaries any refund or credit of
Taxes that results from the carryback to any taxable period ending on or before
the Effective Date of any net operating loss, capital loss, or tax credit
attributable to SPINCO or any of its Subsidiaries in any taxable period
beginning after or including the Effective Date.
ARTICLE IV
RETENTION OF RECORDS; STATUTES OF LIMITATIONS
SECTION 4.1. RETENTION OF RECORDS. ATI and SPINCO agree to retain the
appropriate records which may affect the determination of the liability for
Taxes of any member of the ATI Consolidated Group or the SPINCO Group,
respectively, until such time as there has been a Final Determination with
respect to such liability for Taxes. A party may satisfy its obligations under
the preceding sentence by allowing the other party to duplicate records at such
second party's expense.
SECTION 4.2. DESTRUCTION OF RECORDS. Any member of the SPINCO Group
intending to destroy any materials, records, or documents relating to Taxes
shall provide ATI 90 days advance notice and the reasonable opportunity to copy
or take possession of such materials, records, or documents.
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<PAGE> 9
SECTION 4.3. STATUTE OF LIMITATIONS. ATI and SPINCO will notify each
other in writing of any waivers or extensions of the applicable statute of
limitations that may affect the period for which any materials, records, or
documents must be retained.
ARTICLE V
REPRESENTATIONS AND COVENANTS
SECTION 5.1. COMPLIANCE WITH IRS RULING. SPINCO shall, and shall cause
each member of the SPINCO Group to, comply with each representation and
statement concerning SPINCO and the SPINCO Group made in the Ruling Request and
in the materials submitted to the IRS in connection with the Ruling Request,
including, without limitation, statements relating to actions regarding the
Public Offering and the use of Public Offering proceeds by the SPINCO Group.
SPINCO has reviewed the materials submitted to the IRS in connection with the
Ruling Request and represents to ATI that these materials, including without
limitation, any statements and representations concerning SPINCO, its business
operations, capital structure and/or organization, are complete and accurate.
During the Restricted Period, neither SPINCO nor any member of the SPINCO Group
shall take any action, refrain from taking any action or enter into any
transaction or series of transactions or agree to take any action, refrain from
taking any action or enter into any transaction or series of transactions that
could jeopardize the tax-free status of the Distribution, including any action,
inaction or transaction that would be inconsistent with any representation or
statement made to the IRS in connection with the Ruling Request, unless prior
thereto SPINCO obtains the express written consent of ATI which consent will be
granted, if at all, in the sole discretion of ATI. SPINCO hereby represents and
warrants to ATI that SPINCO has no intention to undertake or allow to be
undertaken any of the transactions set forth in Section 5.2(a)(iii), nor does
SPINCO or any member of the SPINCO Group have any intention to cease to engage
in the active conduct of its trade or business (within the meaning of Section
355(b)(2) of the Code).
SECTION 5.2. COVENANTS.
(a) Without limiting the generality of Section 5.1, SPINCO and each
member of the SPINCO Group jointly and severally covenant and agree with ATI
that during the Restricted Period or, in the case of a transaction described in
Section 5.2(a)(iii)(4), the Restricted Redemption Period:
(i) SPINCO and the members of the SPINCO Group will continue
to engage in its business, and will continue to maintain a substantial
portion of their respective assets and business operations, as they
existed immediately prior to the Distribution; provided that the
foregoing shall not be deemed to prohibit SPINCO and the members of the
SPINCO Group from entering into or acquiring other businesses or
operations or from disposing of or shutting down segments of such
Businesses so long as SPINCO and the members of the SPINCO Group
continue to engage in such businesses and continue to so maintain such
substantial portion of their assets and business operations;
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<PAGE> 10
(ii) SPINCO will continue to manage and to own (A) directly,
assets which represent at least 50% of the Gross Asset Value which
SPINCO managed and owned directly immediately after the Distribution,
and (B) directly or indirectly, through one or more entities, assets
which represent at least 50% of the Gross Asset Value which SPINCO
owned indirectly through one or more entities immediately after the
Distribution;
(iii) Except as provided in Section 5.2(c), neither SPINCO nor
any of its Affiliates nor any of its or their respective directors,
officers or other representatives (acting in their capacity as
directors, officers, or representatives) will undertake, authorize,
approve, recommend, permit, facilitate, or enter into any contract, or
consummate any transaction with respect to:
(1) the issuance of SPINCO common stock (including
options, warrants, rights or securities exercisable for, or
convertible into, SPINCO common stock) in a single transaction
or in a series of related or unrelated transactions (including
the Public Offering) which represents (treating any such
options, warrants, rights, or securities as exercised or
converted) 40% or more of the outstanding shares of SPINCO
common stock;
(2) the issuance of any class or series of capital
stock or any other instrument (other than SPINCO common stock
and options, warrants, rights or securities exercisable for,
or convertible into, SPINCO common stock) that would
constitute equity for federal tax purposes (such classes or
series of capital stock and other instruments being referred
to herein as "Disqualified SPINCO Stock");
(3) the issuance of any options, rights, warrants,
securities or similar arrangements exercisable for, or
convertible into, Disqualified SPINCO Stock;
(4) any redemptions, repurchases or other
acquisitions of capital stock or other equity interests in
SPINCO by SPINCO; and/or
(5) the dissolution, merger, or complete or partial
liquidation of SPINCO or any announcement of such action.
(b) In addition to the other representations, warranties, covenants and
agreements set forth in this Agreement, SPINCO and each member of the SPINCO
Group will take, or refrain from taking, as the case may be, such actions as ATI
may request to ensure that the Distributions and the Other Transactions qualify
for the tax-free treatment stated in the IRS Ruling, including, without
limitation, such actions as ATI determines may be necessary to preserve the
validity of the IRS Ruling. Without limiting the generality of the foregoing,
SPINCO and the SPINCO Group shall cooperate with ATI if ATI, in its sole
discretion, determines to obtain additional or supplemental IRS rulings
pertaining to whether any actual or proposed change in facts and circumstances
affects the tax-free status of the Distribution or the Other Transactions.
Regardless of the fact that ATI shall control matters set forth in the preceding
sentence of this Section 5.2(b), the ATI Consolidated Group, on one hand, and
SPINCO and the SPINCO Group, on the other
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hand, shall equally bear responsibility for all expenses associated with any
such additional or supplemental IRS rulings; provided, however, that any
expenses associated with any additional or supplemental IRS Rulings based on a
proposed action or omission by SPINCO or a member of the SPINCO Group will be
borne solely by SPINCO.
(c) Following the Effective Date, SPINCO and its Affiliates shall not
take any action or engage in conduct otherwise prohibited by Section 5.2 unless
prior to such action or conduct, as the case may be, SPINCO receives express
written consent from ATI which consent will be granted, if at all, in the sole
discretion of ATI.
(d) SPINCO will consummate the Public Offering within one year after
the Effective Date and will use the Public Offering proceeds in the manner and
during time periods set forth in the Ruling Request.
(e) If, within two years after the Public Offering, SPINCO disposes of
any assets, other than inventory, SPINCO will use the proceeds (net of tax and
transaction costs) from such disposition in a manner that is, in ATI's sole
discretion, consistent with the business purpose of expanding SPINCO's business
as set forth in the Ruling Request.
ARTICLE VI
SPINCO INDEMNITY OBLIGATIONS
SECTION 6.1. SPINCO INDEMNITY. If SPINCO, or another member (or former
member) of the SPINCO Group (collectively, the "Indemnifying Parties") takes or
fails to take any action whether or not prohibited or required by Article V or
violates a representation or covenant in Article V or in the Ruling Request, and
the Distribution or any of the Other Transactions fail to or otherwise do not
qualify for the tax treatment stated in the IRS Ruling as a result of such
action, failure to take action, or violation, then the Indemnifying Parties
shall jointly and severally defend, indemnify and hold harmless ATI and each
member of the ATI Consolidated Group and each of their respective directors,
officers, employees, agents or other representatives (collectively, and/or
individually, as the case may be, the "Indemnified Party") against any liability
for such Taxes which the Indemnified Party may assume or otherwise incur and any
and all Taxes or other liabilities directly or indirectly imposed upon or
incurred by the Indemnified Party as a result of such failure or lack of
qualification, including, without limitation, any liability of the Indemnified
Party arising from Taxes imposed on stockholders of ATI whether or not any
stockholder or stockholders of ATI, or the IRS or other taxing authority,
successfully seeks recourse against the Indemnified Party on account of any such
failure.
SECTION 6.2. TENDER OFFER OR PURCHASE OFFER. Notwithstanding anything
to the contrary set forth in this Agreement, if, during the Restricted Period,
any Person or Group of Affiliated Persons or Associates acquires Beneficial
Ownership of SPINCO common stock (or any other class of outstanding SPINCO
stock) or commences a tender or other purchase offer for the capital stock of
SPINCO or initiates any other form of transaction to acquire directly or
indirectly SPINCO capital stock, upon consummation of which such Person or Group
of Affiliated Persons or Associates would acquire Beneficial Ownership of SPINCO
common stock
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(or any other class of outstanding SPINCO stock or equity) and as a result
thereof the Distribution or any of the Other Transactions shall fail to or
otherwise do not qualify for the tax treatment stated in the IRS Ruling then the
Indemnifying Parties shall defend, indemnify and hold harmless the Indemnified
Party against any liability for Taxes which the Indemnified Party may assume or
otherwise incur and any and all Taxes or other liabilities directly or
indirectly imposed upon or incurred by any Indemnified Party and/or its
stockholders as a result of such failure.
SECTION 6.3. EFFECT OF EXPRESS WRITTEN CONSENT OF ATI. The Indemnified
Party shall be defended, indemnified and held harmless under Section 6.1 without
regard to the fact that the Indemnifying Party may have received the express
written consent of ATI as contemplated by Article V. The Indemnified Party shall
be defended, indemnified and held harmless under Section 6.2 whether or not the
acquisition of Beneficial Ownership results from a transaction which is not
prohibited under Article V.
ARTICLE VII
CALCULATION OF SPINCO INDEMNITY AMOUNTS
SECTION 7.1. AMOUNT OF INDEMNITY. The amount indemnified against under
Article VI ("Indemnified Liability") for a Tax based on or determined with
reference to income shall be deemed to be, for each applicable taxing
jurisdiction, an amount determined by multiplying (i) the taxing jurisdiction's
highest marginal corporate income or tax rate for the taxable period in which
the Distribution or Other Transaction occurs, times (ii) the gain or income of
the Indemnified Party which is subject to such Tax. In the case of other
Indemnified Liabilities, the amount of the Indemnified Liability shall be equal
to the amount so owed. In addition, the amount of any Indemnified Liability
shall be increased by any interest, costs, legal and professional fees,
additions, expenses and penalties incurred by the Indemnified Party. All amounts
payable under this Article VII shall, to the extent that such amounts constitute
taxable income, be grossed-up, based on the tax rate referred to in clause (i)
of the first sentence of this Section 7.1.
ARTICLE VIII
PROCEDURAL ASPECTS OF SPINCO INDEMNITY
SECTION 8.1. GENERAL.
(a) If either the Indemnified Party or any of the Indemnifying Parties
receives any written notice of deficiency, claim or adjustment or any other
written communication from a taxing authority or any other Person that may
result in an Indemnified Liability, the party receiving such notice or
communication shall promptly give written notice thereof to the other parties,
provided that any delay by the Indemnified Party in so notifying an Indemnifying
Party shall not relieve the Indemnifying Party of any liability hereunder,
except to the extent the Indemnifying Party is materially and adversely
prejudiced by such delay.
(b) Each party hereto undertakes and agrees that from and after such
time as it obtains knowledge that any representative of a taxing authority has
begun to investigate or inquire into the Distribution or any of the Other
Transactions (whether or not such investigation or inquiry is a
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formal or informal investigation or inquiry), such party shall (i) notify the
other parties thereof, provided that any delay by the Indemnified Party in so
notifying the Indemnifying Party shall not relieve the Indemnifying Party of any
liability hereunder (except to the extent the Indemnifying Party is materially
and adversely prejudiced by such delay), (ii) consult with the other parties
from time to time as to the conduct of such investigation or inquiry, (iii)
provide the other parties with copies of all correspondence with such taxing
authority or any representative thereof or other Person pertaining to such
investigation or inquiry, and (iv) arrange for a representative of the other
parties to be present at all meetings with such taxing authority or any
representative thereof pertaining to such investigation or inquiry.
(c) SPINCO undertakes and agrees to give full cooperation and support
to ATI, including without limitation, attestations and/or access to Information,
as requested by ATI, to document and verify the use of the Public Offering
proceeds in the manner and during the time period set forth in the Ruling
Request. SPINCO will submit a quarterly accounting to ATI, due within 30 days
after the end of each calendar quarter, which sets forth in detail the use of
Public Offering proceeds. This information will be submitted to ATI in a format
substantially similar to the chart attached hereto as Appendix I.
SECTION 8.2. CONTESTS.
(a) If (i) the Indemnifying Party furnishes the Indemnified Party with
evidence satisfactory to the Indemnified Party of its ability to pay the full
amount of the Indemnified Liability and (ii) such Indemnifying Party
acknowledges in writing that the asserted liability is an Indemnified Liability,
such Indemnifying Party may assume and direct the tax examination,
administrative appeal, hearing, arbitration, suit or other proceeding (each a
"Proceeding") commenced, filed or otherwise initiated or convened to investigate
or resolve the existence and extent of such Indemnified Liability.
(b) Notwithstanding the foregoing, if at any time during a Proceeding
controlled by the Indemnifying Party pursuant to Section 8.2(a), such
Indemnifying Party fails to provide evidence satisfactory to the Indemnified
Party of its continuing ability to pay the full amount of the Indemnified
Liability or the Indemnified Party determines that such Indemnifying Party may
be unable to pay the full amount of the Indemnified Liability, then the
Indemnified Party may immediately assume control of and direct the Proceedings.
(c) During the period in which the Indemnifying Party assumes and
directs the Proceeding, if the Indemnified Liability is grouped with other
unrelated asserted liabilities or issues in the Proceeding, the parties shall
use their respective best efforts to cause the Indemnified Liability to be the
subject of a separate proceeding. If such severance is not possible, the
Indemnifying Party shall assume and direct and be responsible only for the
matters relating to the Indemnified Liability.
(d) In addition to the amounts referred to in Section 6.1, an
Indemnifying Party shall pay all out-of-pocket expenses and other costs related
to the Indemnified Liability, including but not limited to fees for attorneys,
accountants, expert witnesses or other consultants retained by
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such Indemnifying Party and/or the Indemnified Party with respect to a claim
pursuant to this Agreement. To the extent that any such expenses and other costs
have been or are paid by an Indemnified Party, the Indemnifying Party shall
promptly upon written request reimburse the Indemnified Party therefor.
(e) An Indemnifying Party shall not pay (unless otherwise required by a
proper notice of levy and after prompt written notification to the Indemnified
Party of receipt of notice and demand for payment), settle, compromise or
concede any portion of the Indemnified Liability without the express written
consent of the Indemnified Party. An Indemnifying Party shall, on a timely
basis, keep the Indemnified Party informed of all developments in the Proceeding
and provide the Indemnified Party with copies of all pleadings, briefs, orders,
and other written papers; provided that in the event that the Indemnifying Party
determines that the providing of a written paper could waive an attorney-client
privilege, the parties shall take all reasonable measures to permit the
compliance with such obligation in a manner that avoids such consequence.
(f) Any Proceeding which is not controlled or which is no longer
controlled by an Indemnifying Party pursuant to Section 8.2 shall be controlled
and directed exclusively by the Indemnified Party, and any related out-of-pocket
expenses and other costs incurred by the Indemnified Party, including but not
limited to, fees for attorneys, accountants, expert witnesses or other
consultants, with respect to a claim pursuant to this Agreement, shall be
reimbursed by such Indemnifying Party. An Indemnified Party will not be required
to pursue the claim in federal district court, the Court of Federal Claims or
any state or foreign court if as a prerequisite to such court's jurisdiction,
the Indemnified Party is required to pay the asserted liability unless the funds
necessary to invoke such jurisdiction are provided by such Indemnifying Party.
SECTION 8.3. TIME AND MANNER OF PAYMENT. Upon receipt of notice of a
Final Determination, an Indemnifying Party shall pay, within seven (7) business
days of such receipt, to the Indemnified Party the amount of the Indemnified
Liability and any expenses or other costs indemnified against (less, in the case
of an Indemnified Liability for Taxes, any amount of such Taxes paid directly by
an Indemnifying Party to the taxing authority). With respect to payments of an
Indemnified Liability for amounts other than Taxes including any and all
Liabilities with respect to ATI stockholders, the Indemnifying Party shall pay
to the Indemnified Party the amount of this Indemnified Liability within seven
(7) days of a final determination of the amount of such Liability and, in the
case of Liabilities with respect to ATI stockholders, no less than seven (7)
days prior to the date that payment is required to be made to such stockholders.
Such payment shall be paid by wire transfer of immediately available funds to an
account designated by the Indemnified Party by written notice to an Indemnifying
Party at the address specified in Section 10.11 prior to the due date of such
payment. If an Indemnifying Party delays making payment beyond the due date
hereunder, such party shall pay interest on the amount unpaid at the IRS
Interest Rate for each day and the actual number of days for which any amount
due hereunder is unpaid.
SECTION 8.4. COOPERATION. The parties shall cooperate with one another
in a timely manner in any administrative or judicial Proceeding involving any
matter that may result in an Indemnified Liability.
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SECTION 8.5. ADMINISTRATION. ATI's and SPINCO's Chief Tax Officer or
other designated tax representative shall have primary responsibility for the
day-to-day administration of the provisions of this Agreement.
ARTICLE IX
DISPUTES
SECTION 9.1. DISPUTES.
(a) Resolution of any and all disputes arising from or in connection
with this Agreement, whether based on contract, tort, statute or otherwise,
including, but not limited to, unreasonable withholding of consent and disputes
in connection with claims by third parties (collectively, "Disputes"), shall be
subject to the provisions of this Section 9.1; provided, however, that nothing
contained herein shall preclude either party from seeking or obtaining (i)
injunctive relief or (ii) equitable or other judicial relief to enforce the
provisions hereof or to preserve the status quo pending the final resolution of
Disputes hereunder.
(b) Either party may give the other party written notice of any Dispute
not resolved in the normal course of business. The parties shall attempt in good
faith to resolve any Dispute promptly by negotiation between executives of the
parties who have authority to settle the controversy. Within 15 days after
delivery of the notice, the foregoing executives of both parties shall meet at a
mutually acceptable time and place, and thereafter as often as they reasonably
deem necessary for a period not to exceed 5 days, to attempt to resolve the
Dispute. All reasonable requests for information made by one party to the other
will be honored. If the parties do not resolve the Dispute within such 20 day
period (the "Initial Mediation Period"), the parties shall attempt in good faith
to resolve the Dispute by negotiation between (a) in the case of ATI, the Chief
Financial Officer and General Counsel, and (b) in the case of SPINCO, the Chief
Financial Officer and General Counsel (collectively, the "Designated Officers").
Such officers shall meet at a mutually acceptable time and place (but in any
event no later than 20 days following the expiration of the Initial Mediation
Period) and thereafter as often as they reasonably deem necessary for a period
not to exceed 20 days, to attempt to resolve the Dispute.
(c) If the Dispute has not been resolved by negotiation within 50 days
of the first party's notice, or if the parties failed to meet within 15 days of
the first party's notice, or if the Designated Officers failed to meet within 35
days of the first party's notice, either party may commence any litigation or
other procedure allowed by law.
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ARTICLE X
GENERAL
SECTION 10.1. ELECTIONS UNDER CODE SECTION 1552. Nothing in this
Agreement is intended to change or otherwise affect any election made by or on
behalf of the ATI Consolidated Group with respect to the calculation of earnings
and profits under Code Section 1552.
SECTION 10.2. PRE-DISTRIBUTION EARNINGS AND PROFITS. ATI and SPINCO
agree to allocate pre-Distribution earnings and profits in accordance with
Treasury Regulation Sections 1.312-10 and 1.1502-33.
SECTION 10.3. REMEDIES. SPINCO acknowledges that its obligations under
Article V of this Agreement are of a special, unique, unusual and extraordinary
character. Because the failure of SPINCO to perform its obligations set forth in
Article V of this Agreement could cause unique and extraordinary injury to ATI,
ATI shall, notwithstanding anything to the contrary herein, have the right in
addition to any other remedies available, at law or in equity, to seek an
injunction in a court of equity to compel SPINCO to perform such obligations.
SPINCO hereby waives any and all defenses it may have on the ground of lack of
jurisdiction or competence of the court to grant an injunction or other
equitable relief, or otherwise, and agrees that it will not assert any such
defense or any defense to a request by ATI for injunctive relief based on the
alleged existence of an adequate remedy at law or for money damages. Without
limiting the foregoing, SPINCO hereby waives the right to require ATI to post
any bond or other security with respect to any proceeding to enforce any
provisions of this Agreement. The existence of the rights of ATI set forth in
this Section 10.3 shall not preclude any other rights and remedies at law or in
equity which ATI may have.
SECTION 10.4. ASSIGNMENT. Neither of the parties may assign or delegate
any of its rights or duties under this Agreement without the prior written
consent of the other party. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto and their respective successors and
permitted assigns, by merger, acquisition of assets or otherwise.
SECTION 10.5. FURTHER ASSURANCES. Subject to the provisions hereof, the
parties hereto shall make, execute, acknowledge, and deliver such other
instruments and documents, and take all such other actions, as may be reasonably
required in order to effectuate the purposes of this Agreement and to consummate
the transactions contemplated hereby. Subject to the provisions hereof, each of
the parties shall, in connection with entering into this Agreement, performing
its obligations hereunder and taking any and all actions relating hereto, comply
with all applicable laws, regulations, orders, and decrees, and promptly provide
the other parties with all such information as they may reasonably request in
order to be able to comply with the provisions of this Agreement.
SECTION 10.6. WAIVERS. No failure or delay on the part of the parties
in exercising any power or right hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce
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such right or power, preclude any other or further exercise thereof or the
exercise of any other right or power. No modification or waiver of any provision
of this Agreement nor consent to any departure by the parties therefrom shall in
any event be effective unless the same shall be in writing, and then such waiver
or consent shall be effective only in the specific instance and for the purpose
for which given.
SECTION 10.7. CHANGE OF LAW. If, due to any change in applicable law or
regulations or their interpretation by any court of law or other governing body
having jurisdiction subsequent to the date of this Agreement, performance of any
provision of this Agreement or any transaction contemplated thereby shall become
impracticable or impossible, the parties hereto shall use their best efforts to
find and employ an alternative means to achieve the same or substantially the
same result as that contemplated by such provision.
SECTION 10.8. CONFIDENTIALITY. Subject to any contrary requirement of
law and the right of each party to enforce its rights hereunder in any legal
action, each party agrees that it shall keep strictly confidential, and shall
cause its employees and agents to keep strictly confidential, any information
which it or any of its employees or agents may acquire pursuant to, or in the
course of performing its obligations under, any provision of this Agreement.
SECTION 10.9. HEADINGS. Descriptive headings are for convenience only
and shall not control or affect the meaning or construction of any provision of
this Agreement.
SECTION 10.10. COUNTERPARTS. For the convenience of the parties, any
number of counterparts of this Agreement may be executed by the parties hereto,
and each such executed counterpart shall be, and shall be deemed to be, an
original instrument.
SECTION 10.11. NOTICES. All notices, requests, claims and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery by
hand, by reputable overnight courier service, by facsimile transmission, or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties at the addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 10.11)
listed below:
Allegheny Teledyne Incorporated
1000 Six PPG Place
Pittsburgh, Pennsylvania 15222-5479
Attn: Jon D. Walton
Senior Vice President, General Counsel
and Secretary
Fax No.: 412-394-2837
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Teledyne Technologies Incorporated
2049 Century Park East
Los Angeles, California 90067-3101
Attn: John T. Kuelbs
Senior Vice President, General Counsel
and Secretary
Attn: Fax No.: 310-551-4366
or to such other address as any party may, from time to time, designate in a
written notice given in a like manner. Notice given by hand shall be deemed
delivered when received by the recipient. Notice given by mail as set out above
shall be deemed delivered five (5) calendar days after the date the same is
mailed. Notice given by reputable overnight courier shall be deemed delivered on
the next following business day after the same is sent. Notice given by
facsimile transmission shall be deemed delivered on the day of transmission
provided telephone confirmation of receipt is obtained promptly after completion
of transmission.
SECTION 10.12. COSTS AND EXPENSES. Unless otherwise specifically
provided herein, each party agrees to pay its own costs and expenses resulting
from the fulfillment of its respective obligations hereunder.
SECTION 10.13. CANCELLATION OF PRIOR TAX ALLOCATION OR TAX-SHARING
AGREEMENTS. On or prior to the Effective Date, ATI shall cancel or cause to be
canceled all agreements (other than this Agreement) providing for the allocation
or sharing of Taxes to which any member of the SPINCO Group would otherwise be
bound following the Distribution.
SECTION 10.14. INTEREST ON LATE PAYMENTS. If a party makes any payment
beyond the due date hereunder, such party shall pay interest on the amount
unpaid at the IRS Interest Rate for each day and the actual number of days for
which any amount due hereunder is unpaid.
SECTION 10.15. POWER OF ATTORNEY. Each member of the SPINCO Group shall
execute and deliver to ATI any power of attorney or other document reasonably
requested by ATI in connection with the filing of the Tax Returns and payment of
Taxes described in Article II hereof, or any Proceeding described in Article
VIII hereof. Each member of the ATI Consolidated Group shall execute and deliver
to SPINCO a power of attorney in connection with any matters controlled by
SPINCO under Section 2.2.
SECTION 10.16. GENERAL. This Agreement, including the attachments,
shall constitute the entire agreement between the parties hereto with respect to
the subject matter hereof and shall supersede all prior agreements and
undertakings, both written and oral, between the parties with respect to the
subject matter hereof and thereof. This Agreement may not be amended or modified
except (a) by an instrument in writing signed by, or on behalf of, the parties
or (b) by a waiver in accordance with Section 10.6. This Agreement shall be
binding upon and inure solely to the benefit of the parties hereto and their
respective present and future Subsidiaries, and nothing
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herein, express or implied, is intended to or shall confer upon any third
parties any legal or equitable right, benefit or remedy of any nature whatsoever
under or by reason of this Agreement.
SECTION 10.17. GOVERNING LAW: CONSENT TO JURISDICTION.
(a) This Agreement shall be governed by and construed and interpreted
in accordance with the laws of the Commonwealth of Pennsylvania as to all
matters, including matters of validity, construction, effect, enforceability,
performance and remedies, irrespective of the choice of laws and principles of
the laws of the Commonwealth of Pennsylvania.
(b) Each of the parties hereto irrevocably submits to the exclusive
jurisdiction of (i) the Court of Common Pleas of Allegheny County, Pennsylvania
and (ii) the United States District Court for the Western District of
Pennsylvania, for the purposes of any suit, action or other proceeding arising
out of this Agreement or any transaction contemplated hereby or thereby (and
agrees not to commence any action, suit or proceeding relating thereto except in
such courts). Each of the parties hereto further agrees that service of any
process, summons, notice or document hand delivered or sent by U.S. registered
mail to such parties respective address set forth in Section 10.11 will be
effective service of process for any action, suit or proceeding in Pennsylvania
with respect to any matters to which it has submitted to jurisdiction as set
forth in the immediately preceding sentence. Each of the parties hereto
irrevocably and unconditionally waives any objection to the laying of venue of
any action, suit or proceeding arising out of this Agreement or the transactions
contemplated hereby or thereby (i) the Court of Common Pleas of Allegheny
County, Pennsylvania or (ii) the United States District Court for the Western
District of Pennsylvania, and hereby further irrevocably and unconditionally
waives and agrees not to plead or claim in any such court that any such action,
suit or proceeding brought in any such court has been brought in an inconvenient
forum.
SECTION 10.18. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed by their respective officers, each of whom is duly authorized, all
as of the Effective Date.
ALLEGHENY TELEDYNE
INCORPORATED
By: /s/ James L. Murdy
-------------------------------------------
James L. Murdy
Executive Vice President-Finance and
Administration and Chief Financial Officer
TELEDYNE TECHNOLOGIES
INCORPORATED
By: /s/ Robert Mehrabian
-------------------------------------------
Robert Mehrabian
President and Chief Executive Officer
TELEDYNE BROWN ENGINEERING,
INC.
By: /s/ Robert Mehrabian
-------------------------------------------
Robert Mehrabian
President and Chief Executive Officer
20
<PAGE> 1
Exhibit 10.26
TAX SHARING AND INDEMNIFICATION AGREEMENT
THIS TAX SHARING AND INDEMNIFICATION AGREEMENT (the "Agreement"), dated
as of November 29, 1999, is made by and between Allegheny Teledyne Incorporated,
a Delaware corporation ("ATI") on behalf of itself and each member of the ATI
Consolidated Group, and Water Pik Technologies, Inc., a Delaware corporation
("SPINCO"), on behalf of itself and each member of the SPINCO Group and their
respective successors.
Witnesseth:
WHEREAS, ATI has determined to effect the Distribution pursuant to the
Distribution Agreement;
WHEREAS, the IRS has issued the IRS Ruling which states the tax
treatment of the Distribution and the Other Transactions;
WHEREAS, the parties are entering into this Agreement to ensure the
continuing effectiveness of the IRS Ruling, to provide for certain indemnities,
and to provide for various administrative matters relating to Taxes, including:
1. the preparation and filing of Tax Returns along with the payment of
Taxes shown due and payable thereon;
2. the retention and maintenance of relevant records necessary to
prepare and file appropriate Tax Returns, as well as providing for appropriate
access to those records by the parties to this Agreement;
3. the conduct of audits, examinations, and proceedings by appropriate
government entities which could result in a redetermination of Taxes; and
4. the cooperation of all parties with one another in order to fulfill
their duties and responsibilities under this Agreement and under the Code and
other applicable law; and
WHEREAS, it is the intent of the parties that SPINCO or the appropriate
member of the SPINCO Group shall economically bear the burden of all Taxes
otherwise imposed upon or attributable to the Operations of members of the
SPINCO Group occurring after the Effective Date, and that SPINCO will be
responsible for and reimburse ATI for any Incremental Tax Assessment.
NOW, THEREFORE, in consideration of the mutual promises, covenants, and
conditions contained in this Agreement, and intending to be legally bound
hereby, the parties hereto agree as follows:
<PAGE> 2
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. For the purposes of this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural of the terms involved):
ADJUSTMENT means any final change in the Tax Liability of a taxpayer.
AFFILIATE means, when used with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries, controls
or is controlled by or is under common control with such Person.
AFFILIATED PERSON has the meaning ascribed to such term in the
Investment Company Act of 1940, as amended, and the rules and regulations
promulgated thereunder.
AGREEMENT means this Tax Sharing and Indemnification Agreement.
ASSOCIATES has the meaning ascribed to such term in the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.
ATI CONSOLIDATED RETURN means any Tax Return that includes any member
of the ATI Consolidated Group.
ATI CONSOLIDATED GROUP means, as of any relevant date, ATI and its
Subsidiaries, determined as of such date.
BENEFICIAL OWNERSHIP has the meaning ascribed to such term in the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
BUSINESS TAXES means any Tax (except for federal income, state income
or franchise, and local and foreign gross or net income) including interest,
penalties, and other assessments thereon that is attributable to Operations of
SPINCO or members of the SPINCO Group for a tax period ending prior to or
including the Effective Date.
BUSINESS TAX RETURNS means all reports, estimates, declarations of
estimated tax, information statements and returns relating to or required to be
filed in connection with any Business Taxes, including information returns or
reports with respect to backup withholding and other payments to third parties.
CODE means the Internal Revenue Code of 1986, as amended, and the
Treasury regulations promulgated thereunder.
COMBINED RETURN shall mean all state income tax returns which ATI files
on a combined or unitary basis with respect to some or all of its Subsidiaries.
DISQUALIFIED SPINCO STOCK is defined at Section 5.2.
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DISTRIBUTION means the distribution of SPINCO common stock to the
stockholders of ATI pursuant to the Distribution Agreement.
DISTRIBUTION AGREEMENT means the Separation and Distribution Agreement
among ATI, SPINCO and certain other parties dated as of November 29, 1999.
EFFECTIVE DATE means the date on which the Distribution occurs.
EFFECTIVE TIME means 5 p.m., Eastern Standard Time or Eastern Daylight
Time (whichever shall then be in effect), on the Effective Date.
FINAL DETERMINATION means the final resolution of any Tax matter. A
Final Determination shall result from the first to occur of:
1. the expiration of 30 days after the IRS's acceptance of a
Waiver of Restrictions on Assessment and Collection of Deficiency in
Tax and Acceptance of Overassessment on Form 870 or 870-AD (or any
successor comparable form) (the "Waiver"), except as to reserved
matters specified therein, or the expiration of 30 days after
acceptance by any other taxing authority of a comparable agreement or
form under the laws of any other jurisdiction, including state, local,
and foreign jurisdictions; unless, within such period, the taxpayer
gives notice to the other party to this Agreement of the taxpayer's
intention to attempt to recover all or part of any amount paid pursuant
to the Waiver by the filing of a timely claim for refund;
2. a decision, judgment, decree, or other order by a court of
competent jurisdiction that is not subject to further judicial review
(by appeal or otherwise) and has become final;
3. the execution of a closing agreement under Code Section
7121, or the acceptance by the IRS of an offer in compromise under Code
Section 7122, or comparable agreements under the laws of any other
jurisdiction, including state, local, and foreign jurisdictions, except
as to reserved matters specified therein;
4. the expiration of the time for filing a claim for refund or
for instituting suit in respect of a claim for refund that was
disallowed in whole or in part by the IRS or any other taxing
authority;
5. the expiration of the applicable statute of limitations; or
6. an agreement by the parties hereto that a Final
Determination has been made.
GROSS ASSET VALUE means, when used with respect to a specified Person,
the fair market value of such Person's assets unencumbered by any liabilities.
GROUP has the meaning ascribed to such term in the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder.
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INCREMENTAL TAX ASSESSMENT means any increase in Business Taxes imposed
upon ATI after the date hereof.
INDEMNIFIED LIABILITY is defined at Section 7.1.
INDEMNIFIED PARTY is defined at Section 6.1.
INDEMNIFYING PARTIES is defined at Section 6.1.
INTERNAL DISTRIBUTIONS means the distributions of SPINCO common stock
by Teledyne Industries, Inc. to TDY Holdings, LLC, a Delaware limited liability
company wholly owned by ATI, and by TDY Holdings, LLC to ATI.
IRS means the U.S. Internal Revenue Service.
IRS INTEREST RATE means the rate of interest imposed from time to time
on underpayments of income tax pursuant to Code Section 6621(a)(2).
IRS RULING means the private letter ruling (together with any
supplements) issued by the IRS in respect of the Ruling Request.
OPERATIONS means any business activity of any SPINCO business unit, as
described in the Ruling Request.
OTHER TRANSACTIONS means the Internal Distributions and all other
transactions related to the Distribution and described in the Ruling Request,
including all modifications to such transactions reflected in supplements to the
Ruling Request.
PERSON means any natural person, corporation, limited liability
company, business trust, joint venture, association, company, partnership or
government, or any agency or political subdivision thereof.
POST-DISTRIBUTION PERIOD means any taxable period that begins after the
Effective Date.
PRE-DISTRIBUTION PERIOD means any taxable period that ends on or before
the Effective Date.
PROCEEDING is defined at Section 8.2(a).
PUBLIC OFFERING means the first public offering of SPINCO common stock
following the Distribution. The gross proceeds of such Public Offering shall be
approximately $50 million or such other amount as ATI, in its sole discretion,
may approve.
RESTRICTED PERIOD means the two year period following the Effective
Date.
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RESTRICTED REDEMPTION PERIOD means the two year period beginning on the
Effective Date and ending two years following the Public Offering.
RULING REQUEST means the request for ruling (including all exhibits),
under Section 355, and other provisions of the Code, as originally filed on
behalf of ATI on April 6, 1999, as amended and supplemented, in respect of the
Distribution.
SPINCO GROUP means: (i) as of any relevant date after the Effective
Date, SPINCO and its Subsidiaries determined as of such date; and (ii) as of any
relevant date on or before the Effective Date, SPINCO and those businesses which
become part of SPINCO or its Subsidiaries as contemplated by the Distribution
Agreement, whether or not such Persons or businesses were Subsidiaries of SPINCO
before the Distribution.
STRADDLE PERIOD means any taxable period with respect to a Tax Return,
that begins on or before the Effective Date and ends after the Effective Date.
SUBSIDIARY means with respect to ATI or SPINCO, any Person of which ATI
or SPINCO, respectively, controls or owns, directly or indirectly, more than 50%
of the stock or other equity interest entitled to vote on the election of
members to the board of directors or similar governing body.
TAXES means all federal, state, local and foreign gross or net income,
gross receipts, withholding, payroll, franchise, transfer, sales, use, value
added, estimated or other taxes of any kind whatsoever or similar charges and
assessments, such as customs, duties and the like, or other amounts paid in
respect thereof, including all interest, penalties and additions imposed with
respect to such amounts.
TAX LIABILITY means the net amount of Taxes due and paid or payable for
any taxable period, determined after applying all tax credits and all applicable
carrybacks or carryovers for net operating losses, net capital losses, unused
general business tax credits, or any other Tax items arising from a prior or
subsequent taxable period, and all other relevant adjustments.
TAX RETURNS means all reports, estimates, declarations of estimated
tax, information statements and returns relating to or required to be filed in
connection with any Taxes, other than Business Taxes, including information
returns or reports with respect to backup withholding and other payments to
third parties.
ARTICLE II
FILING OF TAX RETURNS AND PAYMENT OF TAXES
SECTION 2.1. TAX RETURNS REQUIRED TO BE FILED PRIOR TO DISTRIBUTION
DATE. ATI shall file or cause to be filed all Tax Returns of ATI and any member
of the ATI Consolidated Group required to be filed (after giving effect to any
valid extension of time in which to make such filings) prior to the Effective
Date and shall pay or cause to be paid any Tax Liability due with respect to
such Tax Returns.
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SECTION 2.2. TAX RETURNS FOR PRE-DISTRIBUTION PERIODS.
(a) SPINCO shall prepare or cause to be prepared, consistent with past
practice, Business Tax Returns for the Pre-Distribution Period and shall pay or
cause to be paid any Tax Liability due with respect to such Business Tax
Returns. ATI will promptly notify SPINCO of any audit, assessment, notice, levy,
or questionnaire with respect to Business Taxes. SPINCO shall control all
matters relating to such Business Taxes and shall pay or cause to be paid and/or
indemnify ATI or cause ATI to be indemnified, whatever the case may be, for and
defend and hold ATI harmless against any Incremental Tax Assessment set forth in
a Final Determination of Business Taxes. Payment to ATI with respect to such
Incremental Tax Assessment shall be made in the same manner as if SPINCO were an
Indemnifying Party as set forth in Section 8.3.
(b) Except as provided in Section 2.2(a), ATI shall prepare or cause to
be prepared, for Pre-Distribution Periods, all (1) Combined Returns and (2) Tax
Returns required to be filed on a separate return basis by any member of the ATI
Consolidated Group, in each case, which Tax Returns are not required to be
(after giving effect to any valid extensions), and are not, filed on or prior to
the Effective Date and shall pay or cause to be paid any Tax Liability due with
respect to such Tax Returns. With respect to Tax Returns described in this
Section 2.2(b), ATI shall prepare the returns in a manner, absent any
intervening law change, consistent with ATI's preparation of Tax Returns covered
by Section 2.1. With respect to any Tax Returns described in part (2) of the
first sentence of this Section 2.2(b) relating to a member of the SPINCO Group,
ATI shall file such Tax Returns with the appropriate tax authority, pursuant to
a power of attorney executed and delivered to ATI by SPINCO pursuant to Section
10.15 hereof and shall pay or cause to be paid any Tax Liability due with
respect to such Tax Returns.
(c) Notwithstanding Section 2.2(a), ATI will be responsible for paying
Business Taxes that arise directly from the Distribution and Other Transactions.
For this Section 2.2(c) to apply, ATI must consent in writing, which consent
shall not be unreasonably withheld, that the amount of such Business Taxes has
been correctly determined. In addition, ATI shall have the right to control any
audit, litigation or proceeding regarding such Business Taxes.
SECTION 2.3. TAX RETURNS FOR POST-DISTRIBUTION PERIODS. SPINCO shall
(a) prepare and file or cause to be prepared and filed all Tax Returns required
to be filed by any member of the SPINCO Group for any Post-Distribution Period
and (b) pay or cause to be paid any Tax Liability due with respect to such Tax
Returns.
SECTION 2.4. TAX RETURNS FOR STRADDLE PERIOD. ATI shall prepare all Tax
Returns of or which include any member of the SPINCO Group for a Straddle
Period. ATI shall pay or cause to be paid and shall defend, indemnify and hold
SPINCO and members of the SPINCO Group harmless against the Tax Liabilities
attributable to the affected member or members of the SPINCO Group for the
portion of the Straddle Period ending on the Effective Date and SPINCO shall pay
or cause to be paid and shall defend, indemnify, and hold ATI and members of the
ATI Consolidated Group harmless against the Tax Liabilities attributable to the
affected member or members of the SPINCO Group for the remainder of the Straddle
Period beginning with the day after the Effective Date. ATI's determination of
Tax Liabilities up to and
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following the Effective Date shall be based on ATI's interim closing of the
books, determined as of the Effective Time, of the affected member or members of
the SPINCO Group.
SECTION 2.5. TAX-BASIS BALANCE SHEETS. In the case of any business that
was conducted prior to the Effective Date as a division of ATI, its Subsidiaries
or a member of the ATI Consolidated Group and which will be conducted after the
Effective Date by a member of the SPINCO Group, ATI shall prepare and furnish to
SPINCO, within 120 days after the Effective Date, a tax-basis balance sheet,
prepared consistent with past practices, relating to such business as of the
Effective Date.
ARTICLE III
COOPERATION AND EXCHANGE OF INFORMATION; AUDITS AND ADJUSTMENTS
SECTION 3.1. TAX RETURN INFORMATION.
(a) SPINCO shall, and shall cause each appropriate member of the SPINCO
Group to, provide ATI with all information and other assistance reasonably
requested by ATI to enable the members of the ATI Consolidated Group to prepare
and file ATI Consolidated Returns required to be filed by the ATI Consolidated
Group pursuant to this Agreement.
(b) ATI shall, and shall cause each appropriate member of the ATI
Consolidated Group to, provide SPINCO with all information and other assistance
reasonably requested by SPINCO to enable the members of the SPINCO Group to
prepare and file SPINCO Returns required to be filed by the SPINCO Group
pursuant to this Agreement.
(c) Within 60 days of the Effective Date, SPINCO shall provide and
cause each appropriate member of the SPINCO Group to provide to ATI customary
tax packages prepared consistent with past practice for any Pre-Distribution
Period or Straddle Period.
SECTION 3.2. AUDITS AND ADJUSTMENTS.
(a) Except as provided for in Section 3.3, ATI shall have full control
over and absolute discretion with respect to all matters relating to any Tax
Return covered by Section 2.1, Section 2.2 or Section 2.4.
(b) SPINCO shall have full control over and absolute discretion with
respect to all Tax Returns covered by Section 2.3.
(c) SPINCO agrees to cooperate with ATI in the negotiation, settlement,
and litigation of or other proceeding regarding any liability for or refund of
Taxes of any member paid or payable by the ATI Consolidated Group.
(d) ATI agrees to cooperate with SPINCO in the negotiation, settlement,
and litigation of or other proceeding regarding any liability for Taxes paid or
payable by any member of the SPINCO Group.
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(e) ATI will promptly notify SPINCO in writing of any Adjustment
involving a change in the tax basis of any asset of SPINCO, specifying the
nature of the change so that the SPINCO Group will be able to reflect the
revised basis in its tax books and records for periods beginning on or after the
Effective Date.
(f) In the event of a conflict between the operation of this Section
3.2 and Articles VI, VII, or VIII, those Articles will take precedence over this
Section 3.2.
SECTION 3.3. CARRYBACKS. SPINCO shall make an election under Section
172(b)(3) of the Code to relinquish the entire carryback period with respect to
any net operating loss attributable to SPINCO or any of its Subsidiaries in any
taxable period beginning after or including the Effective Date that could be
carried back to a taxable year of SPINCO or any Subsidiaries ending on or before
the Effective Date. Neither ATI nor any member of the ATI Consolidated Group
shall be required to pay to SPINCO or its Subsidiaries any refund or credit of
Taxes that results from the carryback to any taxable period ending on or before
the Effective Date of any net operating loss, capital loss, or tax credit
attributable to SPINCO or any of its Subsidiaries in any taxable period
beginning after or including the Effective Date.
ARTICLE IV
RETENTION OF RECORDS; STATUTES OF LIMITATIONS
SECTION 4.1. RETENTION OF RECORDS. ATI and SPINCO agree to retain the
appropriate records which may affect the determination of the liability for
Taxes of any member of the ATI Consolidated Group or the SPINCO Group,
respectively, until such time as there has been a Final Determination with
respect to such liability for Taxes. A party may satisfy its obligations under
the preceding sentence by allowing the other party to duplicate records at such
second party's expense.
SECTION 4.2. DESTRUCTION OF RECORDS. Any member of the SPINCO Group
intending to destroy any materials, records, or documents relating to Taxes
shall provide ATI 90 days advance notice and the reasonable opportunity to copy
or take possession of such materials, records, or documents.
SECTION 4.3. STATUTE OF LIMITATIONS. ATI and SPINCO will notify each
other in writing of any waivers or extensions of the applicable statute of
limitations that may affect the period for which any materials, records, or
documents must be retained.
ARTICLE V
REPRESENTATIONS AND COVENANTS
SECTION 5.1. COMPLIANCE WITH IRS RULING. SPINCO shall, and shall cause
each member of the SPINCO Group to, comply with each representation and
statement concerning SPINCO and the SPINCO Group made in the Ruling Request and
in the materials submitted to the IRS in connection with the Ruling Request,
including, without limitation, statements relating to actions regarding the
Public Offering and the use of Public Offering proceeds by the SPINCO Group.
SPINCO has reviewed the materials submitted to the IRS in
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connection with the Ruling Request and represents to ATI that these materials,
including without limitation, any statements and representations concerning
SPINCO, its business operations, capital structure and/or organization, are
complete and accurate. During the Restricted Period, neither SPINCO nor any
member of the SPINCO Group shall take any action, refrain from taking any action
or enter into any transaction or series of transactions or agree to take any
action, refrain from taking any action or enter into any transaction or series
of transactions that could jeopardize the tax-free status of the Distribution,
including any action, inaction or transaction that would be inconsistent with
any representation or statement made to the IRS in connection with the Ruling
Request, unless prior thereto SPINCO obtains the express written consent of ATI
which consent will be granted, if at all, in the sole discretion of ATI. SPINCO
hereby represents and warrants to ATI that SPINCO has no intention to undertake
or allow to be undertaken any of the transactions set forth in Section
5.2(a)(iii), nor does SPINCO or any member of the SPINCO Group have any
intention to cease to engage in the active conduct of its trade or business
(within the meaning of Section 355(b)(2) of the Code).
SECTION 5.2. COVENANTS.
(a) Without limiting the generality of Section 5.1, SPINCO and each
member of the SPINCO Group jointly and severally covenant and agree with ATI
that during the Restricted Period or, in the case of a transaction described in
Section 5.2(a)(iii)(4), the Restricted Redemption Period:
(i) SPINCO and the members of the SPINCO Group will continue
to engage in its business, and will continue to maintain a substantial
portion of their respective assets and business operations, as they
existed immediately prior to the Distribution; provided that the
foregoing shall not be deemed to prohibit SPINCO and the members of the
SPINCO Group from entering into or acquiring other businesses or
operations or from disposing of or shutting down segments of such
Businesses so long as SPINCO and the members of the SPINCO Group
continue to engage in such businesses and continue to so maintain such
substantial portion of their assets and business operations;
(ii) SPINCO will continue to manage and to own (A) directly,
assets which represent at least 50% of the Gross Asset Value which
SPINCO managed and owned directly immediately after the Distribution,
and (B) directly or indirectly, through one or more entities, assets
which represent at least 50% of the Gross Asset Value which SPINCO
owned indirectly through one or more entities immediately after the
Distribution;
(iii) xcept as provided in Section 5.2(c), neither SPINCO nor
any of its Affiliates nor any of its or their respective directors,
officers or other representatives (acting in their capacity as
directors, officers, or representatives) will undertake, authorize,
approve, recommend, permit, facilitate, or enter into any contract, or
consummate any transaction with respect to:
(1) the issuance of SPINCO common stock (including
options, warrants, rights or securities exercisable for, or
convertible into, SPINCO
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common stock) in a single transaction or in a series of
related or unrelated transactions (including the Public
Offering) which represents (treating any such options,
warrants, rights, or securities as exercised or converted) 40%
or more of the outstanding shares of SPINCO common stock;
(2) the issuance of any class or series of capital
stock or any other instrument (other than SPINCO common stock
and options, warrants, rights or securities exercisable for,
or convertible into, SPINCO common stock) that would
constitute equity for federal tax purposes (such classes or
series of capital stock and other instruments being referred
to herein as "Disqualified SPINCO Stock");
(3) the issuance of any options, rights, warrants,
securities or similar arrangements exercisable for, or
convertible into, Disqualified SPINCO Stock;
(4) any redemptions, repurchases or other
acquisitions of capital stock or other equity interests in
SPINCO by SPINCO; and/or
(5) the dissolution, merger, or complete or partial
liquidation of SPINCO or any announcement of such action.
(b) In addition to the other representations, warranties, covenants and
agreements set forth in this Agreement, SPINCO and each member of the SPINCO
Group will take, or refrain from taking, as the case may be, such actions as ATI
may request to ensure that the Distributions and the Other Transactions qualify
for the tax-free treatment stated in the IRS Ruling, including, without
limitation, such actions as ATI determines may be necessary to preserve the
validity of the IRS Ruling. Without limiting the generality of the foregoing,
SPINCO and the SPINCO Group shall cooperate with ATI if ATI, in its sole
discretion, determines to obtain additional or supplemental IRS rulings
pertaining to whether any actual or proposed change in facts and circumstances
affects the tax-free status of the Distribution or the Other Transactions.
Regardless of the fact that ATI shall control matters set forth in the preceding
sentence of this Section 5.2(b), the ATI Consolidated Group, on one hand, and
SPINCO and the SPINCO Group, on the other hand, shall equally bear
responsibility for all expenses associated with any such additional or
supplemental IRS rulings; provided, however, that any expenses associated with
any additional or supplemental IRS Rulings based on a proposed action or
omission by SPINCO or a member of the SPINCO Group will be borne solely by
SPINCO.
(c) Following the Effective Date, SPINCO and its Affiliates shall not
take any action or engage in conduct otherwise prohibited by Section 5.2 unless
prior to such action or conduct, as the case may be, SPINCO receives express
written consent from ATI which consent will be granted, if at all, in the sole
discretion of ATI.
(d) SPINCO will consummate the Public Offering within one year after
the Effective Date and will use the Public Offering proceeds in the manner and
during time periods set forth in the Ruling Request.
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(e) If, within two years after the Public Offering, SPINCO disposes of
any assets, other than inventory, SPINCO will use the proceeds (net of tax and
transaction costs) from such disposition in a manner that is, in ATI's sole
discretion, consistent with the business purpose of expanding SPINCO's business
as set forth in the Ruling Request.
ARTICLE VI
SPINCO INDEMNITY OBLIGATIONS
SECTION 6.1. SPINCO INDEMNITY. If SPINCO, or another member (or former
member) of the SPINCO Group (collectively, the "Indemnifying Parties") takes or
fails to take any action whether or not prohibited or required by Article V or
violates a representation or covenant in Article V or in the Ruling Request, and
the Distribution or any of the Other Transactions fail to or otherwise do not
qualify for the tax treatment stated in the IRS Ruling as a result of such
action, failure to take action, or violation, then the Indemnifying Parties
shall jointly and severally defend, indemnify and hold harmless ATI and each
member of the ATI Consolidated Group and each of their respective directors,
officers, employees, agents or other representatives (collectively, and/or
individually, as the case may be, the "Indemnified Party") against any liability
for such Taxes which the Indemnified Party may assume or otherwise incur and any
and all Taxes or other liabilities directly or indirectly imposed upon or
incurred by the Indemnified Party as a result of such failure or lack of
qualification, including, without limitation, any liability of the Indemnified
Party arising from Taxes imposed on stockholders of ATI whether or not any
stockholder or stockholders of ATI, or the IRS or other taxing authority,
successfully seeks recourse against the Indemnified Party on account of any such
failure.
SECTION 6.2. TENDER OFFER OR PURCHASE OFFER. Notwithstanding anything
to the contrary set forth in this Agreement, if, during the Restricted Period,
any Person or Group of Affiliated Persons or Associates acquires Beneficial
Ownership of SPINCO common stock (or any other class of outstanding SPINCO
stock) or commences a tender or other purchase offer for the capital stock of
SPINCO or initiates any other form of transaction to acquire directly or
indirectly SPINCO capital stock, upon consummation of which such Person or Group
of Affiliated Persons or Associates would acquire Beneficial Ownership of SPINCO
common stock (or any other class of outstanding SPINCO stock or equity) and as a
result thereof the Distribution or any of the Other Transactions shall fail to
or otherwise do not qualify for the tax treatment stated in the IRS Ruling then
the Indemnifying Parties shall defend, indemnify and hold harmless the
Indemnified Party against any liability for Taxes which the Indemnified Party
may assume or otherwise incur and any and all Taxes or other liabilities
directly or indirectly imposed upon or incurred by any Indemnified Party and/or
its stockholders as a result of such failure.
SECTION 6.3. EFFECT OF EXPRESS WRITTEN CONSENT OF ATI. The Indemnified
Party shall be defended, indemnified and held harmless under Section 6.1 without
regard to the fact that the Indemnifying Party may have received the express
written consent of ATI as contemplated by Article V. The Indemnified Party shall
be defended, indemnified and held harmless under Section 6.2 whether or not the
acquisition of Beneficial Ownership results from a transaction which is not
prohibited under Article V.
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ARTICLE VII
CALCULATION OF SPINCO INDEMNITY AMOUNTS
SECTION 7.1. AMOUNT OF INDEMNITY. The amount indemnified against under
Article VI ("Indemnified Liability") for a Tax based on or determined with
reference to income shall be deemed to be, for each applicable taxing
jurisdiction, an amount determined by multiplying (i) the taxing jurisdiction's
highest marginal corporate income or tax rate for the taxable period in which
the Distribution or Other Transaction occurs, times (ii) the gain or income of
the Indemnified Party which is subject to such Tax. In the case of other
Indemnified Liabilities, the amount of the Indemnified Liability shall be equal
to the amount so owed. In addition, the amount of any Indemnified Liability
shall be increased by any interest, costs, legal and professional fees,
additions, expenses and penalties incurred by the Indemnified Party. All amounts
payable under this Article VII shall, to the extent that such amounts constitute
taxable income, be grossed-up, based on the tax rate referred to in clause (i)
of the first sentence of this Section 7.1.
ARTICLE VIII
PROCEDURAL ASPECTS OF SPINCO INDEMNITY
SECTION 8.1. GENERAL.
(a) If either the Indemnified Party or any of the Indemnifying Parties
receives any written notice of deficiency, claim or adjustment or any other
written communication from a taxing authority or any other Person that may
result in an Indemnified Liability, the party receiving such notice or
communication shall promptly give written notice thereof to the other parties,
provided that any delay by the Indemnified Party in so notifying an Indemnifying
Party shall not relieve the Indemnifying Party of any liability hereunder,
except to the extent the Indemnifying Party is materially and adversely
prejudiced by such delay.
(b) Each party hereto undertakes and agrees that from and after such
time as it obtains knowledge that any representative of a taxing authority has
begun to investigate or inquire into the Distribution or any of the Other
Transactions (whether or not such investigation or inquiry is a formal or
informal investigation or inquiry), such party shall (i) notify the other
parties thereof, provided that any delay by the Indemnified Party in so
notifying the Indemnifying Party shall not relieve the Indemnifying Party of any
liability hereunder (except to the extent the Indemnifying Party is materially
and adversely prejudiced by such delay), (ii) consult with the other parties
from time to time as to the conduct of such investigation or inquiry, (iii)
provide the other parties with copies of all correspondence with such taxing
authority or any representative thereof or other Person pertaining to such
investigation or inquiry, and (iv) arrange for a representative of the other
parties to be present at all meetings with such taxing authority or any
representative thereof pertaining to such investigation or inquiry.
(c) SPINCO undertakes and agrees to give full cooperation and support
to ATI, including without limitation, attestations and/or access to Information,
as requested by ATI, to document and verify the use of the Public Offering
proceeds in the manner and during the time period set forth in the Ruling
Request. SPINCO will submit a quarterly accounting to ATI, due
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within 30 days after the end of each calendar quarter, which sets forth in
detail the use of Public Offering proceeds. This information will be submitted
to ATI in a format substantially similar to the chart attached hereto as
Appendix I.
SECTION 8.2. CONTESTS.
(a) If (i) the Indemnifying Party furnishes the Indemnified Party with
evidence satisfactory to the Indemnified Party of its ability to pay the full
amount of the Indemnified Liability and (ii) such Indemnifying Party
acknowledges in writing that the asserted liability is an Indemnified Liability,
such Indemnifying Party may assume and direct the tax examination,
administrative appeal, hearing, arbitration, suit or other proceeding (each a
"Proceeding") commenced, filed or otherwise initiated or convened to investigate
or resolve the existence and extent of such Indemnified Liability.
(b) Notwithstanding the foregoing, if at any time during a Proceeding
controlled by the Indemnifying Party pursuant to Section 8.2(a), such
Indemnifying Party fails to provide evidence satisfactory to the Indemnified
Party of its continuing ability to pay the full amount of the Indemnified
Liability or the Indemnified Party determines that such Indemnifying Party may
be unable to pay the full amount of the Indemnified Liability, then the
Indemnified Party may immediately assume control of and direct the Proceedings.
(c) During the period in which the Indemnifying Party assumes and
directs the Proceeding, if the Indemnified Liability is grouped with other
unrelated asserted liabilities or issues in the Proceeding, the parties shall
use their respective best efforts to cause the Indemnified Liability to be the
subject of a separate proceeding. If such severance is not possible, the
Indemnifying Party shall assume and direct and be responsible only for the
matters relating to the Indemnified Liability.
(d) In addition to the amounts referred to in Section 6.1, an
Indemnifying Party shall pay all out-of-pocket expenses and other costs related
to the Indemnified Liability, including but not limited to fees for attorneys,
accountants, expert witnesses or other consultants retained by such Indemnifying
Party and/or the Indemnified Party with respect to a claim pursuant to this
Agreement. To the extent that any such expenses and other costs have been or are
paid by an Indemnified Party, the Indemnifying Party shall promptly upon written
request reimburse the Indemnified Party therefor.
(e) An Indemnifying Party shall not pay (unless otherwise required by a
proper notice of levy and after prompt written notification to the Indemnified
Party of receipt of notice and demand for payment), settle, compromise or
concede any portion of the Indemnified Liability without the express written
consent of the Indemnified Party. An Indemnifying Party shall, on a timely
basis, keep the Indemnified Party informed of all developments in the Proceeding
and provide the Indemnified Party with copies of all pleadings, briefs, orders,
and other written papers; provided that in the event that the Indemnifying Party
determines that the providing of a written paper could waive an attorney-client
privilege, the parties shall take all reasonable measures to permit the
compliance with such obligation in a manner that avoids such consequence.
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(f) Any Proceeding which is not controlled or which is no longer
controlled by an Indemnifying Party pursuant to Section 8.2 shall be controlled
and directed exclusively by the Indemnified Party, and any related out-of-pocket
expenses and other costs incurred by the Indemnified Party, including but not
limited to, fees for attorneys, accountants, expert witnesses or other
consultants, with respect to a claim pursuant to this Agreement, shall be
reimbursed by such Indemnifying Party. An Indemnified Party will not be required
to pursue the claim in federal district court, the Court of Federal Claims or
any state or foreign court if as a prerequisite to such court's jurisdiction,
the Indemnified Party is required to pay the asserted liability unless the funds
necessary to invoke such jurisdiction are provided by such Indemnifying Party.
SECTION 8.3. TIME AND MANNER OF PAYMENT. Upon receipt of notice of a
Final Determination, an Indemnifying Party shall pay, within seven (7) business
days of such receipt, to the Indemnified Party the amount of the Indemnified
Liability and any expenses or other costs indemnified against (less, in the case
of an Indemnified Liability for Taxes, any amount of such Taxes paid directly by
an Indemnifying Party to the taxing authority). With respect to payments of an
Indemnified Liability for amounts other than Taxes including any and all
Liabilities with respect to ATI stockholders, the Indemnifying Party shall pay
to the Indemnified Party the amount of this Indemnified Liability within seven
(7) days of a final determination of the amount of such Liability and, in the
case of Liabilities with respect to ATI stockholders, no less than seven (7)
days prior to the date that payment is required to be made to such stockholders.
Such payment shall be paid by wire transfer of immediately available funds to an
account designated by the Indemnified Party by written notice to an Indemnifying
Party at the address specified in Section 10.11 prior to the due date of such
payment. If an Indemnifying Party delays making payment beyond the due date
hereunder, such party shall pay interest on the amount unpaid at the IRS
Interest Rate for each day and the actual number of days for which any amount
due hereunder is unpaid.
SECTION 8.4. COOPERATION. The parties shall cooperate with one another
in a timely manner in any administrative or judicial Proceeding involving any
matter that may result in an Indemnified Liability.
SECTION 8.5. ADMINISTRATION. ATI's and SPINCO's Chief Tax Officer or
other designated tax representative shall have primary responsibility for the
day-to-day administration of the provisions of this Agreement.
ARTICLE IX
DISPUTES
SECTION 9.1. DISPUTES.
(a) Resolution of any and all disputes arising from or in connection
with this Agreement, whether based on contract, tort, statute or otherwise,
including, but not limited to, unreasonable withholding of consent and disputes
in connection with claims by third parties (collectively, "Disputes"), shall be
subject to the provisions of this Section 9.1; provided, however, that nothing
contained herein shall preclude either party from seeking or obtaining (i)
14
<PAGE> 15
injunctive relief or (ii) equitable or other judicial relief to enforce the
provisions hereof or to preserve the status quo pending the final resolution of
Disputes hereunder.
(b) Either party may give the other party written notice of any Dispute
not resolved in the normal course of business. The parties shall attempt in good
faith to resolve any Dispute promptly by negotiation between executives of the
parties who have authority to settle the controversy. Within 15 days after
delivery of the notice, the foregoing executives of both parties shall meet at a
mutually acceptable time and place, and thereafter as often as they reasonably
deem necessary for a period not to exceed 5 days, to attempt to resolve the
Dispute. All reasonable requests for information made by one party to the other
will be honored. If the parties do not resolve the Dispute within such 20 day
period (the "Initial Mediation Period"), the parties shall attempt in good faith
to resolve the Dispute by negotiation between (a) in the case of ATI, the Chief
Financial Officer and General Counsel, and (b) in the case of SPINCO, the Chief
Financial Officer and General Counsel (collectively, the "Designated Officers").
Such officers shall meet at a mutually acceptable time and place (but in any
event no later than 20 days following the expiration of the Initial Mediation
Period) and thereafter as often as they reasonably deem necessary for a period
not to exceed 20 days, to attempt to resolve the Dispute.
(c) If the Dispute has not been resolved by negotiation within 50 days
of the first party's notice, or if the parties failed to meet within 15 days of
the first party's notice, or if the Designated Officers failed to meet within 35
days of the first party's notice, either party may commence any litigation or
other procedure allowed by law.
ARTICLE X
GENERAL
SECTION 10.1. ELECTIONS UNDER CODE SECTION 1552. Nothing in this
Agreement is intended to change or otherwise affect any election made by or on
behalf of the ATI Consolidated Group with respect to the calculation of earnings
and profits under Code Section 1552.
SECTION 10.2. PRE-DISTRIBUTION EARNINGS AND PROFITS. ATI and SPINCO
agree to allocate pre-Distribution earnings and profits in accordance with
Treasury Regulation Sections 1.312-10 and 1.1502-33.
SECTION 10.3. REMEDIES. SPINCO acknowledges that its obligations under
Article V of this Agreement are of a special, unique, unusual and extraordinary
character. Because the failure of SPINCO to perform its obligations set forth in
Article V of this Agreement could cause unique and extraordinary injury to ATI,
ATI shall, notwithstanding anything to the contrary herein, have the right in
addition to any other remedies available, at law or in equity, to seek an
injunction in a court of equity to compel SPINCO to perform such obligations.
SPINCO hereby waives any and all defenses it may have on the ground of lack of
jurisdiction or competence of the court to grant an injunction or other
equitable relief, or otherwise, and agrees that it will not assert any such
defense or any defense to a request by ATI for injunctive relief based on the
alleged existence of an adequate remedy at law or for money damages. Without
limiting the foregoing, SPINCO hereby waives the right to require ATI to post
any bond or other security
15
<PAGE> 16
with respect to any proceeding to enforce any provisions of this Agreement. The
existence of the rights of ATI set forth in this Section 10.3 shall not preclude
any other rights and remedies at law or in equity which ATI may have.
SECTION 10.4. ASSIGNMENT. Neither of the parties may assign or delegate
any of its rights or duties under this Agreement without the prior written
consent of the other party. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto and their respective successors and
permitted assigns, by merger, acquisition of assets or otherwise.
SECTION 10.5. FURTHER ASSURANCES. Subject to the provisions hereof, the
parties hereto shall make, execute, acknowledge, and deliver such other
instruments and documents, and take all such other actions, as may be reasonably
required in order to effectuate the purposes of this Agreement and to consummate
the transactions contemplated hereby. Subject to the provisions hereof, each of
the parties shall, in connection with entering into this Agreement, performing
its obligations hereunder and taking any and all actions relating hereto, comply
with all applicable laws, regulations, orders, and decrees, and promptly provide
the other parties with all such information as they may reasonably request in
order to be able to comply with the provisions of this Agreement.
SECTION 10.6. WAIVERS. No failure or delay on the part of the parties
in exercising any power or right hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such right or power, preclude
any other or further exercise thereof or the exercise of any other right or
power. No modification or waiver of any provision of this Agreement nor consent
to any departure by the parties therefrom shall in any event be effective unless
the same shall be in writing, and then such waiver or consent shall be effective
only in the specific instance and for the purpose for which given.
SECTION 10.7. CHANGE OF LAW. If, due to any change in applicable law or
regulations or their interpretation by any court of law or other governing body
having jurisdiction subsequent to the date of this Agreement, performance of any
provision of this Agreement or any transaction contemplated thereby shall become
impracticable or impossible, the parties hereto shall use their best efforts to
find and employ an alternative means to achieve the same or substantially the
same result as that contemplated by such provision.
SECTION 10.8. CONFIDENTIALITY. Subject to any contrary requirement of
law and the right of each party to enforce its rights hereunder in any legal
action, each party agrees that it shall keep strictly confidential, and shall
cause its employees and agents to keep strictly confidential, any information
which it or any of its employees or agents may acquire pursuant to, or in the
course of performing its obligations under, any provision of this Agreement.
SECTION 10.9. HEADINGS. Descriptive headings are for convenience only
and shall not control or affect the meaning or construction of any provision of
this Agreement.
16
<PAGE> 17
SECTION 10.10. COUNTERPARTS. For the convenience of the parties, any
number of counterparts of this Agreement may be executed by the parties hereto,
and each such executed counterpart shall be, and shall be deemed to be, an
original instrument.
SECTION 10.11. NOTICES. All notices, requests, claims and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery by
hand, by reputable overnight courier service, by facsimile transmission, or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties at the addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 10.11)
listed below:
Allegheny Teledyne Incorporated
1000 Six PPG Place
Pittsburgh, Pennsylvania 15222-5479
Attn: Jon D. Walton, Senior Vice President, General Counsel
and Secretary
Fax No.: 412-394-2837
Water Pik Technologies, Inc.
660 Newport Center Drive
Suite 470
Newport Beach, California 92660
Attn: Michael P. Hoopis, President and Chief Executive Officer
Fax No.: 949-719-6472
or to such other address as any party may, from time to time, designate in a
written notice given in a like manner. Notice given by hand shall be deemed
delivered when received by the recipient. Notice given by mail as set out above
shall be deemed delivered five (5) calendar days after the date the same is
mailed. Notice given by reputable overnight courier shall be deemed delivered on
the next following business day after the same is sent. Notice given by
facsimile transmission shall be deemed delivered on the day of transmission
provided telephone confirmation of receipt is obtained promptly after completion
of transmission.
SECTION 10.12. COSTS AND EXPENSES. Unless otherwise specifically
provided herein, each party agrees to pay its own costs and expenses resulting
from the fulfillment of its respective obligations hereunder.
SECTION 10.13. CANCELLATION OF PRIOR TAX ALLOCATION OR TAX-SHARING
AGREEMENTS. On or prior to the Effective Date, ATI shall cancel or cause to be
canceled all agreements (other than this Agreement) providing for the allocation
or sharing of Taxes to which any member of the SPINCO Group would otherwise be
bound following the Distribution.
SECTION 10.14. INTEREST ON LATE PAYMENTS. If a party makes any payment
beyond the due date hereunder, such party shall pay interest on the amount
unpaid at the IRS
17
<PAGE> 18
Interest Rate for each day and the actual number of days for which any amount
due hereunder is unpaid.
SECTION 10.15. POWER OF ATTORNEY. Each member of the SPINCO Group shall
execute and deliver to ATI any power of attorney or other document reasonably
requested by ATI in connection with the filing of the Tax Returns and payment of
Taxes described in Article II hereof, or any Proceeding described in Article
VIII hereof. Each member of the ATI Consolidated Group shall execute and deliver
to SPINCO a power of attorney in connection with any matters controlled by
SPINCO under Section 2.2.
SECTION 10.16. GENERAL. This Agreement, including the attachments,
shall constitute the entire agreement between the parties hereto with respect to
the subject matter hereof and shall supersede all prior agreements and
undertakings, both written and oral, between the parties with respect to the
subject matter hereof and thereof. This Agreement may not be amended or modified
except (a) by an instrument in writing signed by, or on behalf of, the parties
or (b) by a waiver in accordance with Section 10.6. This Agreement shall be
binding upon and inure solely to the benefit of the parties hereto and their
respective present and future Subsidiaries, and nothing herein, express or
implied, is intended to or shall confer upon any third parties any legal or
equitable right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.
SECTION 10.17. GOVERNING LAW: CONSENT TO JURISDICTION.
(a) This Agreement shall be governed by and construed and interpreted
in accordance with the laws of the Commonwealth of Pennsylvania as to all
matters, including matters of validity, construction, effect, enforceability,
performance and remedies, irrespective of the choice of laws and principles of
the laws of the Commonwealth of Pennsylvania.
(b) Each of the parties hereto irrevocably submits to the exclusive
jurisdiction of (i) the Court of Common Pleas of Allegheny County, Pennsylvania
and (ii) the United States District Court for the Western District of
Pennsylvania, for the purposes of any suit, action or other proceeding arising
out of this Agreement or any transaction contemplated hereby or thereby (and
agrees not to commence any action, suit or proceeding relating thereto except in
such courts). Each of the parties hereto further agrees that service of any
process, summons, notice or document hand delivered or sent by U.S. registered
mail to such parties respective address set forth in Section 10.11 will be
effective service of process for any action, suit or proceeding in Pennsylvania
with respect to any matters to which it has submitted to jurisdiction as set
forth in the immediately preceding sentence. Each of the parties hereto
irrevocably and unconditionally waives any objection to the laying of venue of
any action, suit or proceeding arising out of this Agreement or the transactions
contemplated hereby or thereby (i) the Court of Common Pleas of Allegheny
County, Pennsylvania or (ii) the United States District Court for the Western
District of Pennsylvania, and hereby further irrevocably and unconditionally
waives and agrees not to plead or claim in any such court that any such action,
suit or proceeding brought in any such court has been brought in an inconvenient
forum.
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<PAGE> 19
SECTION 10.18. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed by their respective officers, each of whom is duly authorized, all
as of the Effective Date.
ALLEGHENY TELEDYNE INCORPORATED
By: /s/ Jon D. Walton
-----------------------------------
(Name)
(Title)
WATER PIK TECHNOLOGIES, INC.
By: /s/ Michael Hoopis
-----------------------------------
(Name)
(Title)
WATER PIK, INC.
By: /s/ Michael Hoopis
-----------------------------------
(Name)
(Title)
LAARS, INC.
By: /s/ Michael Hoopis
-----------------------------------
(Name)
(Title)
<PAGE> 1
Exhibit 10.27
ALLEGHENY TECHNOLOGIES INCORPORATED
EXECUTIVE DEFERRED COMPENSATION PLAN
as amended and restated as of July 9, 1994,
further amended and restated as of December 31, 1998 and
further amended and restated as of December 7, 1999
<PAGE> 2
1 Purpose. The Allegheny Technologies Incorporated Executive Deferred
Compensation Plan, formerly known as the Allegheny Teledyne Incorporated
Executive Deferred Compensation Plan which in turn was the successor to the
Teledyne, Inc. Executive Deferred Compensation Plan, is an unfunded plan
maintained for the purpose of providing deferred compensation for a select group
of management or highly compensated employees, within the meaning of Sections
201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA").
2 Definitions.
2.1 "Account" shall mean the bookkeeping account maintained by the
Committee for each Participant that is credited with (1) the portion of the
Participant's Salary that he elects to defer, (2) the portion of the
Participant's Bonus that he elects to defer, (3) portions of the Participant's
account balance under the Prior Plan and (4) earnings on such amounts.
2.2 "Beneficiary" shall mean the Participant's spouse or, if the
Participant has no spouse or the spouse consents in writing in the presence of a
notary public, the person or persons, trustee, or other legal entity or entities
last designated by the Participant on a form substantially as set forth in
Exhibit "A" attached hereto to receive the benefits specified hereunder in the
event of the Participant's death. If the Participant has not designated a
beneficiary or if no person designated as a beneficiary survives the
Participant, the payment of the Participant's benefits under this Plan following
his death shall be made (a) to the Participant's spouse, if living, (b) if his
spouse is not then living, to his then living issue by right of representation,
(c) if neither his spouse nor his issue are then living, to his then living
parents, or (d) if none of the above are then living, to his estate.
Notwithstanding the foregoing, the Beneficiary of an Insurable Participant under
the Plan must be the same as the beneficiary designated with respect to the
benefit provided under Article 8 hereof if the Insurable Participant dies prior
to his Payment Eligibility Date.
2.3 "Bonus" shall mean the award or awards payable (i) under the
Allegheny Technologies Incorporated Annual Incentive Plan (or the comparable
annual incentive plan of a subsidiary, if applicable, and any predecessor or
successor program to any such annual incentive plan) or (ii) as a special bonus
under a written employment agreement between the Company or a subsidiary and a
Participant.
2.4 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.5 "Committee" shall mean the administrative committee appointed
pursuant to Section 9.1 of the Plan.
2.6 "Company" shall mean Allegheny Technologies Incorporated, a
Delaware corporation, and any corporation which is a subsidiary of the
corporation (within the meaning of
<PAGE> 3
Code Section 424(f)) of Allegheny Technologies Incorporated, unless the context
requires otherwise.
2.7 "Compensation" shall mean the Salary and Bonus paid by the Company
to a Participant.
2.8 "Director of Human Resources" shall mean the Director, Human
Resources Administration - Pension and Benefits of Allegheny Technologies
Incorporated located at 1000 Six PPG Place, Pittsburgh, Pennsylvania 15222-5479
or such other person as the Committee may from time to time designate.
2.09 "Effective Date" shall mean September 1, 1994.
2.10 "Eligible Employee" shall mean:
2.10.1 For a Plan Year other than the Plan Years described in
Sections 2.10.2, 2.10.3 and 2.10.4, each employee of the Company who:
(a) as of December 1 of the preceding Plan Year holds the title of
president of an operating company; or (b) received Compensation during
the preceding Plan Year at least equal to $100,000.
2.10.2 For the first Plan Year of the Plan, each employee of
the Company who: (a) as of the Effective Date holds the title of
president of an operating company; or (b) for employees of Teledyne,
Inc. who were participants in the Plan prior to July 9, 1998, received
or is expected to receive Compensation during the applicable calendar
year at least equal to the amount specified in Section 4.14(q)(1)(B) of
the Code, as such amount is adjusted for such calendar year by the
Secretary of the Treasury for increases in the cost of living.
2.10.3 For the first Plan Year in which employees of Allegheny
Teledyne Incorporated and Allegheny Ludlum Corporation could have
participated in the Plan, each employee of the Company who: (a) as of
July 9, 1998 holds the title of president of an operating company; or
(b) received or is expected to receive Compensation during calendar
year 1998 at least equal to the amount specified in Section
4.14(q)(1)(B) of the Code, as such amount is adjusted for such calendar
year by the Secretary of the Treasury for increases in the cost of
living.
2.10.4 For any Plan Year beginning after December 1, 1998
which includes an employee's date of hire, each employee of the Company
who: (a) as of the employee's date of hire holds the title of president
of an operating company; or (b) receives Compensation during such Plan
Year at least equal to $100,000. For purposes of this Section 2.10.4
only, Compensation shall include Salary that would be paid if the
employee's Salary were paid for the full Plan Year, and shall include a
Bonus, if any, that would have been paid at 100% of the target bonus
amount for performance during said Plan Year.
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<PAGE> 4
2.11 "Fund" or "Funds" shall mean one or more of the mutual funds,
investment portfolios or contracts selected by the Committee pursuant to Section
4.2.2.
2.12 "Initial Election Period" shall mean the first thirty days of the
first Plan Year during which an employee of the Company is an Eligible Employee
or, in the case of an employee who is an Eligible Employee on his date of hire
after the Effective Date, the first thirty days after such date of hire;
provided, however, that the Initial Election Period for employees of Allegheny
Teledyne Incorporated and Allegheny Ludlum Corporation on July 9, 1998 shall
mean the period from July 9, 1998 through July 31, 1998, unless the Committee
shall determine to extend such Initial Election Period to a date no later than
August 30, 1998.
2.13 "Insurable Participant" shall mean a Participant who satisfies
underwriting standards for the issuance of life insurance determined by the
insurance company selected by the Company to provide the pre-distribution death
benefit described in Article 8.
2.14 "Interest Rate" shall mean, for each Fund, an amount equal to the
net rate, expressed as a percent, of gain or loss on the assets of such Fund
during a month, reduced for calendar years beginning before December 31, 1998,
with respect to Funds selected by Insurable Participants, by .0833 percent. If a
Participant satisfied the definition of an Insurable Participant (as set forth
in Section 2.14) prior to December 31, 1998 but at the time he becomes a
Participant, but fails to satisfy such definition thereafter, the .0833 percent
reduction described in the preceding sentence shall apply only to that portion
of the net rate of gain or loss credited to the Participant's Account as:
(1) the Participant's Account balance on the last of the
month in which such failure occurs bears to
(2) the Participant's Account balance on the last day of
the month preceding the month for which such gain or
loss is allocated.
Effective January 1, 1999, the Interest Rate shall be, for
each Fund, the net rate, expressed as a percent, of gain or loss on the assets
of such Fund for the applicable period.
2.15 "Participant" shall mean any Eligible Employee who, prior to the
Effective Date, has not announced his intention to retire and who (a) elects to
defer Compensation in accordance with Section 4.1, or (b) has an account balance
under the Prior Plan.
2.16 "Payment Eligibility Date" shall mean the date selected by an
Eligible Employee on his or her Deferred Election form with respect to
compensation deferred for a given Plan Year, provided, however, (i) if a
distribution is elected for after the applicable of the Participant's
termination of employment or death, the Participant may choose only from the
first day of the month following the end of the calendar quarter in which said
termination occurs or in which occurs the fifth, tenth or fifteenth anniversary
of such event and (ii) if a distribution is elected for prior to the applicable
of the Participant's termination of employment or death, such election may not
be made for a date before the end of the Plan Year which is three calendar years
after the end
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<PAGE> 5
of the Plan Year for which such election is made. In the event no election is
made, the Payment Eligibility Date shall be the first day of the month following
the end of the calendar quarter in which a Participant terminates employment or
dies. A Participant receiving benefits under the Company's short-term disability
plan or on an approved leave of absence shall not be deemed to have terminated
employment for purposes of the Plan.
2.17 "Plan" shall mean the Allegheny Technologies Incorporated
Executive Deferred Compensation Plan as set forth herein, or as amended from
time to time. The Plan was formerly known as the Allegheny Teledyne Incorporated
Executive Deferred Compensation Plan which in turn was the successor plan to the
Teledyne, Inc. Executive Deferred Compensation Plan.
2.18 "Plan Year" shall mean the calendar year, except that the initial
Plan Year shall be the period from the Effective Date through December 31, 1994
for employees of Teledyne, Inc. and its subsidiaries, and the initial Plan Year
shall be the period from August 1, 1998 through December 31, 1998 for employees
of Allegheny Teledyne Incorporated and Allegheny Ludlum Corporation.
2.19 "Prior Plan" shall mean the nonqualified plan or arrangement
maintained by the Company for deferral of bonuses prior to the Effective Date.
2.20 "Retirement" shall mean the date as of which a Participant
commences to receive a benefit under a pension plan maintained by the Company,
the date as of which a Participant commences to receive disability benefits
under the Company's long-term disability plan or, in the case of a Participant
who is not entitled to benefits under the Company's long-term disability plan,
the date the Committee determines is the first date the Participant satisfies
the definition of disability set forth in that plan.
2.21 "Salary" shall mean the base rate of pay that an employee is
entitled to receive for services rendered to the Company.
3 Participation. An Eligible Employee who, prior to the Effective Date, has
not announced his intention to retire shall become a Participant in the Plan on
(a) the first day of the first pay period for which he elects to defer a portion
of his Compensation in accordance with Section 4.1, or (b) the Effective Date if
he has an account balance under the Prior Plan.
4 Deferral Elections.
4.1 Elections to Defer Compensation. For calendar years beginning on or
after January 1, 1999, an Eligible Employee may elect to defer, in increments of
1% and subject to the limitation set forth herein, a portion of his or her
Salary and, separately, a portion of his or her Bonus for the calendar year
following the calendar year in which a written election, on a form approved by
the Director of Human Resources or his or her designee, to defer Salary and/or
Bonus is delivered to the Director of Human Resources or his or her designee.
Each election to defer Salary and/or Bonus shall be effective for only the next
succeeding calendar, shall expire on the last day of the calendar year next
following its delivery and shall specify the Participant's
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<PAGE> 6
elections as to distribution time and form from among those then permitted under
the Plan. No election may be for less than 5% of the Salary or Bonus payment,
respectively, and no election shall exceed an amount which would prevent the
Eligible Employee from making required or elected contributions under employee
benefit plans or to have required federal, state and local income or payroll tax
payments made or such other amounts as determined appropriate by the Committee.
An election to defer Salary or Bonus with respect to services rendered during a
calendar year must be filed with the Director of Human Resources or his or her
designee on or before December 1 of the preceding calendar year. For calendar
years ending before January 1, 1999, deferrals shall be governed by the Plan as
in effect as of that date.
4.1.2 Initial Election Period. Each Eligible Employee
may elect to defer Compensation by filing with the Director of Human
Resources or his or her designee an election, on a form provided by the
Committee, no later than the last day of his or her Initial Election
Period. An election to defer Compensation during the Initial Election
Period shall be effective with respect to the Participant's Salary
earned during the first pay period beginning after the election and
with respect to the portion of the Participant's Bonus attributable to
the portion of the calendar year following the election.
4.1.3 Elections other than Elections during the
Initial Election Period. Subject to the limitations of Section 4.1.2.1
above, any Eligible Employee who fails to elect to defer Compensation
during his or her Initial Election Period may subsequently elect to
defer Compensation, and any Eligible Employee who has terminated a
prior Salary deferral election may elect to again defer Salary, by
filing with the Director of Human Resources or his or her designee an
election, on a form provided by the Committee, to defer Compensation as
described in Section 4.1.2.1 above. An election to defer Salary payable
during a calendar year must be filed with the Director of Human
Resources or his or her designee on or before December 1 of the
preceding calendar year. An election to defer Bonus payable with
respect to services rendered during a calendar year must be filed with
the Director of Human Resources or his or her designee on or before
December 1 of the preceding calendar year.
4.2 Duration of Elections.
4.2.1 Duration of Salary Deferral Election. Any Salary Deferral
Election made under Section 4.1.2 or Section 4.1.3 shall remain in
effect, notwithstanding any change in the Participant's Salary, until
changed or terminated in accordance with the terms of this Section 4.2;
provided, however, that such election shall terminate for any Plan Year
for which the Participant is not an Eligible Employee. A Participant
may increase, decrease or terminate his or her Salary deferral election
with respect to Salary earned during a calendar year by filing a new
election, in accordance with the terms of this Section 4.2, with the
Director of Human Resources or his or her designee on or before
December 1 of the preceding calendar year.
4.2.2 Duration of Bonus Deferral Election. Any Bonus deferral election
made under Section 4.1.2 or Section 4.1.3 shall be irrevocable and
shall apply only to the Bonus
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<PAGE> 7
payable with respect to services performed during the calendar year for
which the election is made. For each subsequent calendar year, an
Eligible Employee must make a new election, subject to the limitations
set forth in this Section 4.1, to defer a percentage of his or her
Bonus. Such election shall be on forms provided by the Committee and
shall be filed with the Director of Human Resources or his or her
designee on or before December 1 of the calendar year preceding the
calendar year in which the services that are to result in the Bonus are
performed.
4.2.3 Extension of Election Deadline. Notwithstanding the foregoing
provisions of this Section 4.2, the Committee may extend the deadline
for filing elections set forth herein from December 1 of a particular
calendar year as the Committee shall determine. The Committee shall
give notice of such extension to all Eligible Employees.
4.3 Investment Elections.
4.3.1 Investment Options. The Committee shall select
from time to time the types of mutual funds, investment portfolios
underlying universal life products or contracts in which Participants'
Accounts shall be deemed to be invested. At the time an Eligible
Employee first becomes a Participant, the Participant shall file with
the Director of Human Resources or his or her designee a form provided
by the Committee designating which of such types of mutual funds,
investment portfolios or contracts the Participant's Account shall be
deemed to be invested in for purposes of determining the amount of
earnings to be credited to such Account. In making the designation
pursuant to this Section 4.2.1, the Participant may specify that all or
any portion of his Account, designated in whole percentages, be deemed
to be invested in one or more of the types of mutual funds, investment
portfolios or contracts selected by the Committee. A Participant may
change monthly the designation made under this Section 4.2.1 by filing
with the Director of Human Resources or his or her designee an
election, on a form provided by the Committee, at any time during a
month, with such change to be effective as of the first day of the
month immediately succeeding the date on which such form is filed. If a
Participant fails to elect a type of fund under this Section 4.2.1, any
prior election shall remain in effect or, if there is no prior election
of types of funds, any deferral election made by the Participant shall
be void. If a Participant who receives allocations to his Account only
pursuant to Sections 5.3 and 5.4 fails to elect a type of fund under
this Section 4.2.1, he shall be deemed to have elected the fund or
contract designated by the Committee as the default fund.
4.3.2 Committee Selection of Funds. Although the
Participant may designate the type of mutual funds, investment
portfolios or contracts pursuant to Section 4.2.1, the Committee shall
select from time to time, in its sole discretion, a commercially
available fund, portfolio or contract of each of the types selected
pursuant to Section 4.2.1 to be the Funds. The Interest Rate of each
such Fund shall be used to determine the amount of earnings to be
credited to Participants' Accounts under Section 5.4.
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<PAGE> 8
5 Participant Accounts. The Committee shall establish and maintain an Account
for each Participant under the Plan. Each Participant's Account shall be further
divided into separate subaccounts ("subaccounts"), each of which corresponds to
a mutual fund, investment portfolio or contract elected by the Participant in
accordance with Section 4.2. A Participant's Account shall be credited as
follows:
5.1 Salary Credits. As of the last day of each month, the Committee
shall credit the subaccounts of the Participant's Account with an amount equal
to Salary deferred by the Participant during each pay period ending in that
month in accordance with the Participant's election under Section 4.2; that is,
the portion of the Participant's deferred Salary that the Participant has
elected to be deemed to be invested in a certain type of Fund shall be credited
to the subaccount corresponding to that Fund.
5.2 Bonus Credits. As of the last day of the month in which the Bonus
is payable, the Committee shall credit the subaccounts of the Participant's
Account with an amount equal to the portion of the Bonus deferred by the
Participant in accordance with the Participant's election under Section 4.2;
that is, the portion of the Participant's deferred Bonus that the Participant
has elected to be deemed to be invested in a particular type of Fund shall be
credited to the subaccount corresponding to that Fund.
5.3 Prior Plan Credits. As of the Effective Date, the Committee shall
credit the subaccounts of the Participant's Account with an amount equal to 25
percent of the Participant's account balance under the Prior Plan as of the
Effective Date. As of September 1 of each of the following years, the Committee
shall credit the subaccounts of the Participant's Account with an amount equal
to the percentage set forth below of the Participant's account balance under the
Prior Plan as of such date:
1995 33-1/3
1996 50
1997 100
Notwithstanding the foregoing, as of a Participant's Payment Eligibility Date
prior to September 1, 1997, the Committee shall credit the subaccounts of the
Participant's Account with an amount equal to any unpaid balance then remaining
in the Participant's account under the Prior Plan.
5.4 Earnings Credits. As of the last day of each month in which any
amount remains credited to a Participant's Account, each subaccount of a
Participant's Account shall be credited with earnings in an amount equal to that
determined by multiplying the balance credited to such subaccount as of the last
day of the preceding month by the Interest Rate for that month for the
corresponding Fund selected by the Company pursuant to Section 4.2.2.
6 Vesting. A Participant's Account shall be 100 percent vested at all times.
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<PAGE> 9
7 Distributions.
7.1 Amount and Time of Distribution.
7.1.1 Payment as of Payment Eligibility Date. Each
Participant (or, in the case of his death, his Beneficiary) shall be
entitled to receive a distribution of benefits under this Plan as soon
as practicable following his Payment Eligibility Date. The amount
payable to a Participant shall be the amount credited to the
Participant's Account as of his Payment Eligibility Date.
7.1.2 Payment Prior to Payment Eligibility Date. A
Participant may elect by filing with the Director of Human Resources or
his or her designee a form substantially as set forth in Exhibit "B"
attached hereto to receive an amount equal to ninety percent of his
Account balance at any time prior to his Payment Eligibility Date. If
the Participant makes an election described in this Section 7.1.2: the
balance of the Participant's Account not distributed to the Participant
shall be forfeited to the Company; the amount to which he is entitled
under this Section 7.1.2 shall be distributed to the Participant in a
single lump sum within thirty days following such election; the
Participant shall be prohibited from participating in the Plan for the
balance of the Plan Year in which this distribution is made and the
following Plan Year; and any elections previously made pursuant to
Article 4 of this Plan shall cease to be effective.
7.2 Form of Distribution.
7.2.1 Pre-Retirement Distributions. If a
Participant's Payment Eligibility Date occurs prior to the date of his
termination of employment or Retirement, the Participant's Account
shall be paid to such Participant in the form of a single lump sum.
7.2.2 Post-Retirement Distributions. If a
Participant's Payment Eligibility Date occurs on or after the date of
his termination of employment or Retirement, the Participant's Account
shall be paid to such Participant or, in the event of the Participant's
death on or after his Payment Eligibility Date, his Beneficiary in the
form of sixty quarterly installments. Such installment payments shall
commence on the Participant's Payment Eligibility Date or as soon
thereafter as is practicable and shall continue on the first day of
each of the 59 calendar quarters thereafter.
7.2.3 Election of Optional Form of Distributions.
Notwithstanding the provisions of Section 7.2.2, a Participant whose
Payment Eligibility Date occurs on or after the date of his termination
of employment or Retirement may elect to receive distribution of his
Account balance in a single lump sum, twenty quarterly installments,
forty quarterly installments or sixty quarterly installments provided
that at least one year prior to his Payment Eligibility Date, the
Director of Human Resources or his or her
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<PAGE> 10
designee receives from the Participant a notice, in substantially the
form of Exhibit "C" attached hereto, that the Participant elects to
receive payment in one of such optional forms. Any such payment shall
be made or commence to be made as of the Participant's Payment
Eligibility Date. Any election made pursuant to this Section 7.2.3 may
be revoked by filing notice of such revocation with the Director of
Human Resources or his or her designee on or before the date which is
one year prior to the Participant's Payment Eligibility Date.
7.2.4 Method for Calculating Installments. If a
Participant or Beneficiary receives payment of his Account balance in
installments pursuant to Section 7.2.2 or 7.2.3, the amount of each
quarterly installment payable during the Plan Year which includes the
Participant's Payment Eligibility Date shall equal the Participant's
Account balance on the Payment Eligibility Date divided by the total
number of installments the Participant or Beneficiary is scheduled to
receive. The amount of each quarterly installment payable during each
succeeding Plan Year, other than the last Plan Year in which the
Participant or Beneficiary receives installment payments under the
Plan, shall equal the Participant's Account balance on September 30 of
the preceding Plan Year divided by the number of installments remaining
to be paid after the last day of such preceding Plan Year. The amount
of each quarterly installment payable during the last Plan Year in
which the Participant or Beneficiary receives installment payments
under the Plan shall equal the Participant's Account balance on the
last day of the second preceding calendar quarter divided by the number
of installments remaining to be paid after the last day of the
preceding calendar quarter, except that the final quarterly installment
shall be equal to the remaining balance in the Participant's Account.
7.2.5 Small Account Balances. Notwithstanding any
other provision of this Section 7.2, if a Participant's Account balance
on his Payment Eligibility Date is $10,000 or less, such Account
balance shall be paid in a single lump sum. For calendar years
beginning on or after January 1, 1999, $30,000 shall be substituted for
$10,000 in the preceding sentence.
8 Pre-Distribution Death Benefit.
8.1 Amount of Benefit. The Company shall own and maintain one or more
life insurance policies on the life of each Insurable Participant (collectively,
the "Policy") each with a death benefit no less than the death benefit payable
under this Section 8.1. Until an employee of the Company (other than a
Participant who has already been determined not to be an Insurable Participant)
completes an application for the Policy, any deferral elections made by the
employee pursuant to Article 4 hereof shall be void. If an Insurable Participant
shall die at least sixty days following the first day of the month in which
allocations pursuant to Article 5 of the Plan are first made to his Account and
prior to his Payment Eligibility Date, his Beneficiary shall receive directly
from the insurance company issuing the Policy in a single lump sum an amount
equal the lesser of (a) or (b), where (a) equals the greatest of (i) the amount
of insurance coverage in effect on December 31, 1998, (ii) the Participant's
Account balance as of a relevant time or (iii) $1,000,000 and (b) equals the
greater of: (i) ten times the amounts allocated to the Insurable
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<PAGE> 11
Participant's Account pursuant to Sections 5.1 and/or 5.2 during the first
twelve months in which the Insurable Participant receives allocations to his
Account; or (ii) two times the Insurable Participant's Account balance as of his
date of death if the Insurable Participant has not attained age 56 at the date
of death or, if the Insurable Participant is age 56 or older at death, 1.5 times
the Insurable Participant's Account balance as of his date of death.
8.2 Other Rules.
8.2.1 Reduction of Account Balance. Notwithstanding anything
contained herein to the contrary, any benefits otherwise payable with respect to
an Insurable Participant under this Plan shall be reduced by the value of
benefits received by the Insurable Participant's Beneficiary under the Policy.
8.2.2 Death on or After Payment Eligibility Date. If an
Insurable Participant shall die on or after his Payment Eligibility Date, his
Beneficiary shall receive no benefits under the Policy and any death benefits
thereunder shall be paid to the Company.
8.2.3 Effect of Account Distribution Prior to Payment
Eligibility Date. If an Insurable Participant receives a distribution pursuant
to Section 7.1.2, for purposes of Section 8.1.1, the first twelve months in
which he receives allocations to his Account shall be deemed to be the first
Plan Year after such distribution in which he receives allocations under Section
5.1 or 5.2 and, for purposes of Section 8.1.2, the Insurable Participant's
Account shall include only amounts allocated to the Insurable Participant's
Account following such distribution and prior to his date of death.
8.2.4 Death Prior to Eligibility for Pre-Distribution Death
Benefit. If a Participant should die before completing the sixty-day eligibility
period for the pre-distribution death benefit set forth in Section 8.1, his
Beneficiary shall receive only the balance in the Participant's Account as of
the Participant's Payment Eligibility Date.
8.2.5 Failure to Remain Insurable. Notwithstanding the
foregoing provisions of this Article 8, if a Participant satisfies the
definition of an Insurable Participant (as set forth in Section 2.14) at the
time he becomes a Participant, but fails to satisfy such definition thereafter,
the pre-distribution death benefit payable to the Participant's Beneficiary
shall equal the lesser of:
(1) the pre-distribution death benefit determined under the
foregoing provisions of this Article 8; or
(2) the death benefit under the Policy payable to the
Participant's Beneficiary at the time the Participant fails to satisfy the
definition of an Insurable Participant.
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<PAGE> 12
9 Administration.
9.1 Committee Action. The Plan shall be administered by the Committee,
consisting of at least three members, appointed by and holding office at the
pleasure of the Personnel and Compensation Committee of the Board of Directors
of the Company or, in the absence of a specific designation by the Personnel and
Compensation Committee of the Board of Directors of the Company, the Plan
Administrative Committee of the Company as then constituted. The Committee shall
act at meetings by an affirmative vote of a majority of the members of the
Committee. Any action permitted to be taken at a meeting may be taken without a
meeting if a written consent to the action is signed by all members of the
Committee and such written consent is filed with the minutes of the proceedings
of the Committee. A member of the Committee shall not vote or act upon any
matter which relates solely to himself as a Participant. The Chairman or any
other member or members of the Committee designated by the Chairman may execute
any certificate or other written direction on behalf of the Committee.
9.2 Powers and Duties of the Committee. The Committee, on behalf of the
Participants and their Beneficiaries, shall enforce the Plan in accordance with
its terms, shall be charged with the general administration of the Plan, and
shall have all powers necessary to accomplish its purposes, including, but not
by way of limitation, the following:
9.2.1 To determine all questions relating to the eligibility
of employees to participate;
9.2.2 To construe and interpret the terms and provisions of
this Plan;
9.2.3 To compute and certify to the amount and kind of
benefits payable to Participants and their Beneficiaries;
9.2.4 To maintain all records that may be necessary for the
administration of the Plan;
9.2.5 To provide for the disclosure of all information and
the filing or provision of all reports and statements to Participants,
Beneficiaries or governmental agencies as shall be required by law;
9.2.6 To make and publish such rules for the regulation of
the Plan and procedures for the administration of the Plan as are not
inconsistent with the terms hereof; and
9.2.7 To appoint a plan administrator or, any other agent,
and to delegate to such person such powers and duties in connection with the
administration of the Plan as the Committee may from time to time prescribe.
9.3 Construction and Interpretation. The Committee shall have full
discretion to construe and interpret the terms and provisions of this Plan,
which interpretation or construction
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<PAGE> 13
shall be final and binding on all parties, including but not limited to the
Company and any Participant or Beneficiary. The Committee shall administer such
terms and provisions in a uniform and nondiscriminatory manner and in full
accordance with any and all laws applicable to the Plan.
9.4 Information. To enable the Committee to perform its functions, the
Company shall supply full and timely information to the Committee on all matters
relating to the Compensation of all Participants, their death or other cause of
termination, and such other pertinent facts as the Committee may require.
9.5 Compensation, Expenses and Indemnity.
9.5.1 The members of the Committee shall serve without
compensation for their services hereunder.
9.5.2 The Committee is authorized at the expense of the
Company to employ such legal counsel as it may deem advisable to assist in the
performance of its duties hereunder. Expenses and fees in connection with the
administration of the Plan shall be paid by the Company.
9.5.3 The Company shall indemnify and save harmless the
Committee and each member thereof, and the Chief Financial Officer, the Director
of Human Resources or his or her designee, and any delegate of the Committee who
is an employee of the Company against any and all expenses, liabilities and
claims, including legal fees to defend against such liabilities and claims,
arising out of their discharge of responsibilities under or incident to the
Plan, other than expenses and liabilities arising out of willful misconduct.
This indemnity shall not preclude such further indemnities as may be available
under insurance purchased by the Company or provided by the Company under any
bylaw, agreement or otherwise, as such indemnities are permitted under
applicable law.
9.6 Quarterly Statements. Under procedures established by the
Committee, a Participant shall receive quarterly statements with respect to such
Participant's Account.
10 Miscellaneous.
10.1 Unsecured General Creditor. Participants and their Beneficiaries,
heirs, successors, and assigns shall have no legal or equitable rights, claims,
or interest in any specific property or assets of the Company. No assets of the
Company shall be held in any way as collateral security for the fulfilling of
the obligations of the Company under this Plan. The Company's obligation under
the Plan shall be merely that of an unfunded and unsecured promise of the
Company to pay money in the future, and the rights of the Participants and
Beneficiaries shall be no greater than those of unsecured general creditors. The
Plan is intended to be unfunded for tax purposes and for purposes of Title I of
ERISA.
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<PAGE> 14
10.2 Restriction Against Assignment. The Company shall pay all amounts
payable hereunder only to the person or persons designated by the Plan and not
to any other person or corporation. No part of a Participant's Account shall be
liable for the debts, contracts, or engagements of any Participant, his
Beneficiary, or successors in interest, nor shall a Participant's Account be
subject to execution by levy, attachment, or garnishment or by any other legal
or equitable proceeding, nor shall any such person have any right to alienate,
anticipate, commute, pledge, encumber, or assign any benefits or payments
hereunder in any manner whatsoever.
10.3 No Right to Continued Employment. Neither an employee's
participation in the Plan, nor his rights to his Account shall confer upon such
employee any right with respect to continuance of employment by or receipt of
Bonuses from the Company, nor shall such items interfere in any way with the
right of the Company to terminate such employee's employment or alter such
employee's Compensation at any time.
10.4 Withholding. There shall be deducted from each payment made under
the Plan or, if such payment is not large enough, from any other funds payable
to the Participant, all taxes which the Company determines are required to be
withheld with respect to such payment under the Plan. The Company shall have the
right to reduce any payment by the amount of cash sufficient to provide the
amount of said taxes.
10.5 Amendment, Modification, Suspension or Termination. The Committee
may at any time amend, modify, suspend or terminate the Plan in whole or in
part, subject to ratification by the Personnel and Compensation Committee of the
Company's Board of Directors, except that no amendment, modification, suspension
or termination shall reduce any amounts then credited to a Participant's
Account. The Company shall provide notice of such action to all Participants and
Beneficiaries of deceased Participants. In the event that one or more
subsidiaries of the Company are spun off to shareholders of the Company and a
spun off company agrees to sponsor a plan substantially similar to this Plan,
the Company may, in its discretion, cause a transfer of all, but not less than
all, liabilities with respect to employees of such new company to the new plan
adopted by that new company and, upon such transfer, the Company shall be
released of liability with respect to employees of the new company with respect
to whom liabilities have been transferred.
10.6 Governing Law. Except to the extent that it is preempted by
federal law, this Plan shall be construed, governed and administered in
accordance with the laws of the State of Delaware.
10.7 Receipt or Release. Any payment to a Participant or the
Participant's Beneficiary in accordance with the provisions of the Plan,
including but not limited to any payment from an insurance company, shall, to
the extent thereof, be in full satisfaction of all claims under the Plan against
the Committee and the Company. Any payment, whether by the Company or an
insurance company, to a Participant or the Participant's Beneficiary of an
amount described in Section 5.3 shall, to the extent thereof, be in full
satisfaction of all claims to such amount which the Participant or his
Beneficiary or any beneficiary designated in accordance with the Prior Plan
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<PAGE> 15
may have against the Company or any other person under the Prior Plan. The
Committee may require such Participant or Beneficiary, as a condition precedent
to such payment, to execute a receipt and release to such effect.
10.8 Payments on Behalf of Minors. In the event that any amount becomes
payable under the Plan to a minor or a person who, in the sole judgment of the
Committee, is considered by reason of physical or mental condition to be unable
to give a valid receipt therefore, the Committee may direct that such payment be
made only to the conservator or the guardian of the estate of such person
appointed by a court of competent jurisdiction or such other person or in such
other manner as the Committee determines is necessary to assure that the payment
will legally discharge the Plan's obligation to such person. Any payment made
pursuant to such determination shall constitute a full release and discharge of
the Committee and the Company.
10.9 Miscellaneous. All pronouns and any variations thereof contained
herein shall be deemed to refer to masculine or feminine, singular or plural, as
the identity of the person or persons may require. The headings used in this
Plan are for convenience only and shall not be construed in interpreting this
Plan.
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<PAGE> 16
EXHIBIT A
BENEFICIARY DESIGNATION
I hereby designate the following individual or entity to receive any
benefits to which I am entitled under the Allegheny Technologies Incorporated
Executive Deferred Compensation Plan if such benefits become payable after my
death:
Name:
Address:
Relationship:
Social Security or Tax Identification Number:
I understand and acknowledge that if I am married on the date of my death and I
have designated above someone other than the individual who is my spouse on the
date of my death, such designation shall not be effective unless my spouse
consents in writing as set forth on the following page in the presence of a
notary.
Date Signature
Printed Name
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<PAGE> 17
SPOUSAL CONSENT TO BENEFICIARY DESIGNATION
I am the spouse of _____________________. I hereby consent to the
designation made by my spouse of ____________________ as the beneficiary under
the Allegheny Technologies Incorporated Executive Deferred Compensation Plan. I
understand that this consent is valid only with respect to the naming of the
beneficiary indicated on the prior page and that the designation of any other
beneficiary will not be valid unless I consent in writing to such designation.
This consent is being voluntarily given, and no undue influence or
coercion has been exercised in connection with my consent to the designation
made by my spouse of the beneficiary named on the prior page rather than myself
as the beneficiary under the Allegheny Technologies Incorporated Executive
Deferred Compensation Plan.
Date Spouse's Signature
Print Spouse's Name
State of __________________
County of__________________
On __________ (date) before me _______________(name, title) personally
appeared ___________________________ (name of spouse)
personally known to me (or)
proved to me on the basis of
satisfactory evidence
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized capacity,
and that by his/her signature on the instrument the person executed the
instrument.
WITNESS my hand and official seal.
Signature of Notary
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<PAGE> 18
EXHIBIT B
DISTRIBUTION PRIOR TO PAYMENT ELIGIBILITY DATE
Pursuant to Section 7.1.2 of the Allegheny Technologies Incorporated
Executive Deferred Compensation Plan (the "Plan"), I hereby elect to receive
distribution of ninety percent (90%) of my account balance under the Plan within
thirty days of the receipt of this election by the Director of Human Resources
or his or her designee of Allegheny Technologies Incorporated.
I understand and acknowledge that as a result of this election:
1. The balance of my account under the Plan not distributed to me shall
be forfeited to Allegheny Technologies Incorporated;
2. I shall be prohibited from participating in the Plan for the balance
of the Plan Year in which this distribution is made and the following Plan Year;
3. Any deferral elections previously made pursuant to Article 4 of the
Plan shall cease to be effective; and
4. The pre-distribution death benefit provided under the Plan shall
cease to be available to my beneficiary following this distribution. If I resume
participation in the Plan to the extent permitted by the Plan in accordance with
paragraph 2 above, my beneficiary may again be eligible to receive a death
benefit under the Plan but such death benefit shall be computed only with
respect to allocations to my account under the Plan following such distribution
and prior to my date of death.
Date Signature
Printed Name
Received by Allegheny Technologies
Incorporated
on
by
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<PAGE> 19
EXHIBIT C
ELECTION OF FORM OF DISTRIBUTION
Pursuant to Section 7.2.3 of the Allegheny Technologies Incorporated
Executive Deferred Compensation Plan (the "Plan"), I hereby notify Allegheny
Technologies Incorporated that instead of receiving distribution of my Account
balance under the Plan in sixty quarterly installments, I hereby elect that my
Account balance under the Plan be paid to me in one of the following forms:
forty quarterly installments;
twenty quarterly installments; or
a single lump sum.
I understand that in order for this election to be effective:
1. This notice must be received by Allegheny Technologies Incorporated,
c/o the Director of Human Resources or his or her designee, 1000 Six PPG Place,
Pittsburgh, Pennsylvania 15222-5479, at least one year prior to my Payment
Eligibility Date; and
2. My Payment Eligibility Date, as that term is defined in the Plan,
must occur on or after the date as of which I commence to receive a benefit
under a pension plan maintained by Allegheny Technologies Incorporated or a
subsidiary, the date as of which I commence to receive disability benefits under
the long-term disability plan of Allegheny Technologies Incorporated or a
subsidiary, or, if I am not entitled to benefits under the long-term disability
plan of Allegheny Technologies Incorporated or a subsidiary, the date the
Administrative Committee of the Plan determines is the first date I satisfy the
definition of disability set forth in such disability plan.
Date Signature
Printed Name
Received by Allegheny Technologies
Incorporated
on
by
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<PAGE> 1
Exhibit 10.30
ALLEGHENY TECHNOLOGIES INCORPORATED
2000 INCENTIVE PLAN
ARTICLE I.
PURPOSE AND ADOPTION OF THE PLAN
1.1. PURPOSE. The purpose of the Allegheny Technologies Incorporated
2000 Incentive Plan (hereinafter referred to as the "Plan") is to assist in
attracting and retaining highly competent employees, to act as an incentive in
motivating selected officers and other key employees of Allegheny Technologies
Incorporated and its Subsidiaries to achieve long-term corporate objectives and
to enable cash incentive awards to qualify as performance-based for purposes of
the tax deduction limitations under Section 162(m) of the Code.
1.2. ADOPTION AND TERM. The Plan has been approved by the Board of
Directors of Allegheny Technologies Incorporated, to be effective as of January
1, 2000 (the "Effective Date"), but is subject to the approval of the
stockholders of the Company. The Plan shall remain in effect until terminated by
action of the Board; provided, however, that no Incentive Stock Option may be
granted hereunder after the tenth anniversary of the date the stockholders of
the Company approve the Plan and the provisions of Articles VII, VIII, IX and X
with respect to performance-based awards to "covered employees" under Section
162(m) of the Code shall expire as of the fifth anniversary of the date the
stockholders of the Company approve the Plan.
1.3. THE PRIOR PLAN. The Company previously adopted the Allegheny
Teledyne Incorporated 1996 Incentive Plan (the "Prior Plan"). Awards granted
under the Prior Plan prior to the date the stockholders of the Company approve
the Plan shall not be affected by the adoption of this Plan, and the Prior Plan
shall remain the effect following the date the stockholders of the Company
approve the Plan to the extent necessary to administer such awards, but no new
Awards shall be granted under the Prior Plan after the date the stockholders of
the Company approve the Plan.
ARTICLE II.
DEFINITIONS
For the purpose of this Plan, capitalized terms shall have the
following meanings:
<PAGE> 2
2.1. AWARD means any one or a combination of Non-Qualified Stock
Options or Incentive Stock Options described in Article VI, Stock Appreciation
Rights described in Article VI, Restricted Shares described in Article VII,
Performance Awards described in Article VIII, Awards of cash or any other Award
made under the terms of the Plan.
2.2. AWARD AGREEMENT means a written agreement between the Company and
a Participant or a written acknowledgment from the Company to a Participant
specifically setting forth the terms and conditions of an Award granted under
the Plan.
2.3. AWARD PERIOD means, with respect to an Award, the period of time
set forth in the Award Agreement during which specified target performance goals
must be achieved or other conditions set forth in the Award Agreement must be
satisfied.
2.4. BENEFICIARY means an individual, trust or estate who or which, by
a written designation of the Participant filed with the Company or by operation
of law, succeeds to the rights and obligations of the Participant under the Plan
and the Award Agreement upon the Participant's death.
2.5. BOARD means the Board of Directors of the Company.
2.6. CHANGE IN CONTROL means, and shall be deemed to have occurred upon
the occurrence of, any one of the following events:
(a) The acquisition in one or more transactions, other than
from the Company, by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of a number of Company Voting Securities in
excess of 25% of the Company Voting Securities unless such acquisition
has been approved by the Board;
(b) Any election has occurred of persons to the Board that
causes two-thirds of the Board to consist of persons other than (i)
persons who were members of the Board on the Effective Date and (ii)
persons who were nominated for elections as members of the Board at a
time when two-thirds of the Board consisted of persons who were members
of the Board on the Effective Date; provided, however, that any person
nominated for election by a Board at least two-thirds of whom
constituted persons described in
2
<PAGE> 3
clauses (i) and/or (ii) or by persons who were themselves nominated by
such Board shall, for this purpose, be deemed to have been nominated by
a Board composed of persons described in clause (i);
(c) Approval by the stockholders of the Company of a
reorganization, merger or consolidation, unless, following such
reorganization, merger or consolidation, all or substantially all of
the individuals and entities who were the respective beneficial owners
of the Outstanding Common Stock and Company Voting Securities
immediately prior to such reorganization, merger or consolidation,
following such reorganization, merger or consolidation beneficially
own, directly or indirectly, more than seventy five (75%) of,
respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors or trustees, as
the case may be, of the entity resulting from such reorganization,
merger or consolidation in substantially the same proportion as their
ownership of the Outstanding Common Stock and Company Voting Securities
immediately prior to such reorganization, merger or consolidation, as
the case may be; or
(d) Approval by the stockholders of the Company of (i) a
complete liquidation or dissolution of the Company or (ii) a sale or
other disposition of all or substantially all the assets of the
Company.
2.7. CODE means the Internal Revenue Code of 1986, as amended.
References to a section of the Code shall include that section and any
comparable section or sections of any future legislation that amends,
supplements or supersedes said section.
2.8. COMMITTEE means the Committee defined in Section 3.1.
2.9. COMPANY or CORPORATION means Allegheny Technologies Incorporated,
a Delaware corporation, and its successors.
2.10. COMMON STOCK means Common Stock of the Company, par value $.10
per share.
2.11. COMPANY VOTING SECURITIES means the combined voting power of all
outstanding voting securities of the Company entitled to vote generally in the
election of directors to the Board.
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2.12. DATE OF GRANT means the date designated by the Committee as the
date as of which it grants an Award, which shall not be earlier than the date on
which the Committee approves the granting of such Award.
2.13. EFFECTIVE DATE shall have the meaning given to such term in
Section 1.2.
2.14. EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended.
2.15. EXERCISE PRICE means, with respect to a Stock Appreciation Right,
the amount established by the Committee in the Award Agreement which is to be
subtracted from the Fair Market Value on the date of exercise in order to
determine the amount of the payment to be made to the Participant, as further
described in Section 6.2(b).
2.16. FAIR MARKET VALUE means, on any date, the average of the high and
low quoted sales prices of a share of Common Stock, as reported on the Composite
Tape for New York Stock Exchange Listed Companies, on such date or, if there
were no sales on such date, on the last date preceding such date on which a sale
was reported.
2.17. INCENTIVE STOCK OPTION means a stock option within the meaning of
Section 422 of the Code.
2.18. MERGER means any merger, reorganization, consolidation, exchange,
transfer of assets or other transaction having similar effect involving the
Company.
2.19. NON-QUALIFIED STOCK OPTION means a stock option which is not an
Incentive Stock Option.
2.20. OPTIONS means all Non-Qualified Stock Options and Incentive Stock
Options granted at any time under the Plan.
2.21. OUTSTANDING COMMON STOCK means, at any time, the issued and
outstanding shares of Common Stock.
2.22. PARTICIPANT means a person designated to receive an Award under
the Plan in accordance with Section 5.1.
2.23. PERFORMANCE AWARDS means Awards granted in accordance with
Article VIII.
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2.24. PERFORMANCE GOALS means operating income, operating profit
(earnings from continuing operations before interest and taxes), earnings per
share, return on investment or working capital, return on stockholders' equity,
economic value added (the amount, if any, by which net operating profit after
tax exceeds a reference cost of capital), balanced scorecard, reductions in
inventory, inventory turns and on-time delivery performance, any one of which
may be measured with respect to the Company or any one or more of its
Subsidiaries or business units and either in absolute terms or as compared to
another company or companies, and safety measures and other quantifiable,
objective measures of individual performance relevant to the particular
individual's job responsibilities.
2.25. PLAN means the Allegheny Technologies Incorporated 2000 Incentive
Plan as described herein, as the same may be amended from time to time.
2.26. PRIOR PLAN shall have the meaning given to such term in Section
1.3.
2.27. PURCHASE PRICE, with respect to Options, shall have the meaning
set forth in Section 6.1(b).
2.28. RESTORATION OPTION means a Non-Qualified Stock Option granted
pursuant to Section 6.1(f).
2.29. RESTRICTED SHARES means Common Stock subject to restrictions
imposed in connection with Awards granted under Article VII.
2.30. RETIREMENT means early or normal retirement under a pension plan
or arrangement of the Company or one of its Subsidiaries in which the
Participant participates.
2.31. RULE 16B-3 means Rule 16b-3 promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act, as the same may be
amended from time to time, and any successor rule.
2.32. STOCK APPRECIATION RIGHTS means Awards granted in accordance with
Article VI.
2.33. SUBSIDIARY means a subsidiary of the Company within the meaning
of Section 424(f) of the Code.
2.34. TERMINATION OF EMPLOYMENT means the voluntary or involuntary
termination of a Participant's employment with the Company or a Subsidiary for
any reason, including death, disability, retirement or as the result of the
divestiture
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of the Participant's employer or any similar transaction in which the
Participant's employer ceases to be the Company or one of its Subsidiaries.
Whether entering military or other government service shall constitute
Termination of Employment, or whether a Termination of Employment shall occur as
a result of disability, shall be determined in each case by the Committee in its
sole discretion.
ARTICLE III.
ADMINISTRATION
3.1. COMMITTEE. The Plan shall be administered by a committee of the
Board ("Committee") comprised of at least two persons. The Committee shall have
exclusive and final authority in each determination, interpretation or other
action affecting the Plan and its Participants. The Committee shall have the
sole discretionary authority to interpret the Plan, to establish and modify
administrative rules for the Plan, to impose such conditions and restrictions on
Awards as it determines appropriate and to cancel Awards (including those made
pursuant to other plans of the Company), and to take such steps in connection
with the Plan and Awards granted hereunder as it may deem necessary or
advisable. The Committee shall not, however, have or exercise any discretion
that would disqualify amounts payable under Article X as performance-based
compensation for purposes of Section 162(m) of the Code. The Committee may
delegate such of its powers and authority under the Plan as it deems appropriate
to designated officers or employees of the Company. In addition, the full Board
may exercise any of the powers and authority of the Committee under the Plan. In
the event of such delegation of authority or exercise of authority by the Board,
references in the Plan to the Committee shall be deemed to refer, as
appropriate, to the delegate of the Committee or the Board. The selection of
members of the Committee or any subcommittee thereof, and any delegation by the
Committee to designated officers or employees, under this Section 3.1 shall
comply with Section 16(b) of the Exchange Act, the performance-based provisions
of Section 162(m) of the Code, and the regulations promulgated under each of
such statutory provisions, or the respective successors to such statutory
provisions or regulations, as in effect from time to time, except to the extent
that the Board determines that such compliance is not necessary or desirable.
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ARTICLE IV.
SHARES
4.1. NUMBER OF SHARES ISSUABLE. The total number of shares authorized
to be issued under the Plan shall equal 10% of the outstanding shares of the
Common Stock as of the Effective Date. If the number of outstanding shares of
Common Stock is increased after the Effective Date, the total number of shares
available under the Plan will be increased by 10% of such increase. The number
of shares available for issuance under the Plan shall be further subject to
adjustment in accordance with Section 11.7. The shares to be offered under the
Plan shall be authorized and unissued Common Stock, or issued Common Stock which
shall have been reacquired by the Company. Of the total number of shares
authorized for grant under the Plan, the Company may issue no more than one
million shares as awards of restricted stock, subject to adjustment in
accordance with Section 11.7.
4.2. SHARES SUBJECT TO TERMINATED AWARDS. Common Stock covered by any
unexercised portions of terminated Options (including canceled Options) granted
under Article VI, Common Stock forfeited as provided in Section 7.2(a) and
Common Stock subject to any Awards which are otherwise surrendered by the
Participant may again be subject to new Awards under the Plan. Common Stock
subject to Options, or portions thereof, which have been surrendered in
connection with the exercise of Stock Appreciation Rights shall not be available
for subsequent Awards under the Plan, but Common Stock issued in payment of such
Stock Appreciation Rights shall not be charged against the number of shares of
Common Stock available for the grant of Awards hereunder. Common Stock covered
by awards granted under the Prior Plan that after the Effective Date are
terminated unexercised, forfeited or otherwise surrendered shall be available
for subsequent Awards under this Plan.
ARTICLE V.
PARTICIPATION
5.1. ELIGIBLE PARTICIPANTS. Participants in the Plan shall be such
officers and other key employees of the Company and its Subsidiaries, whether or
not members of the Board, as the Committee, in its sole discretion, may
designate from time to time. The Committee's designation of a Participant in any
year shall not require the Committee to designate such person to receive Awards
or grants in any other year. The designation of a Participant to receive awards
or grants under one portion of the Plan does not require the Committee to
include such Participant under other portions of the Plan. The Committee shall
consider such factors as it
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deems pertinent in selecting Participants and in determining the type and amount
of their respective Awards. Notwithstanding any provision herein to the
contrary, the Committee may grant Awards under the Plan, other than Incentive
Stock Options, to non-employees who, in the judgment of the Committee, render
significant services to the Company or any of its Subsidiaries, on such terms
and conditions as the Committee deems appropriate and consistent with the intent
of the Plan. Subject to adjustment in accordance with Section 11.7, in any
calendar year, no Participant shall be granted Awards in respect of more than 1
million shares of Common Stock (whether through grants of Options or Stock
Appreciation Rights or other grants of Common Stock or rights with respect
thereto) and $5 million in cash; provided, however, that any Award payable over
a period of more than one year shall be pro-rated over the applicable period in
determining the amount of the Award granted in any calendar year.
ARTICLE VI.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
6.1. OPTION AWARDS.
(a) GRANT OF OPTIONS. The Committee may grant, to such
Participants as the Committee may select, Options entitling the
Participant to purchase shares of Common Stock from the Company in such
number, at such price, and on such terms and subject to such
conditions, not inconsistent with the terms of this Plan, as may be
established by the Committee. The terms of any Option granted under
this Plan shall be set forth in an Award Agreement.
(b) PURCHASE PRICE OF OPTIONS. The Purchase Price of each
share of Common Stock which may be purchased upon exercise of any
Option granted under the Plan shall be determined by the Committee;
provided, however, that the Purchase Price of the Common Stock
purchased pursuant to Options designated by the Committee as Incentive
Stock Options shall be equal to or greater than the Fair Market Value
on the Date of Grant as required under Section 422 of the Code.
(c) DESIGNATION OF OPTIONS. Except as otherwise expressly
provided in the Plan, the Committee may designate, at the time of the
grant of each Option, the Option as an Incentive Stock Option or a
Non-Qualified Stock Option.
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(d) INCENTIVE STOCK OPTION SHARE LIMITATION. No Participant
may be granted Incentive Stock Options under the Plan (or any other
plans of the Company and its Subsidiaries) which would result in shares
with an aggregate Fair Market Value (measured on the Date of Grant) of
more than $100,000 first becoming exercisable in any one calendar year.
(e) RIGHTS AS A STOCKHOLDER. A Participant or a transferee of
an Option pursuant to Section 11.4 shall have no rights as a
stockholder with respect to Common Stock covered by an Option until the
Participant or transferee shall have become the holder of record of any
such shares, and no adjustment shall be made for dividends in cash or
other property or distributions or other rights with respect to any
such Common Stock for which the record date is prior to the date on
which the Participant or a transferee of the Option shall have become
the holder of record of any such shares covered by the Option;
provided, however, that Participants are entitled to share adjustments
to reflect capital changes under Section 11.7.
(f) RESTORATION OPTIONS UPON THE EXERCISE OF A NON-QUALIFIED
STOCK OPTION. In the event that any Participant delivers to the
Company, or has withheld from the shares otherwise issuable upon the
exercise of a Non-Qualified Stock Option, shares of Common Stock in
payment of the Purchase Price of any Non-Qualified Stock Option granted
hereunder in accordance with Section 6.4, the Committee shall have the
authority to grant or provide for the automatic grant of a Restoration
Option to such Participant. The grant of a Restoration Option shall be
subject to the satisfaction of such conditions or criteria as the
Committee in its sole discretion shall establish from time to time. A
Restoration Option shall entitle the holder thereof to purchase a
number of shares of Common Stock equal to the number of such shares so
delivered or withheld upon exercise of the original Option and, in the
discretion of the Committee, the number of shares, if any, delivered or
withheld to the Company to satisfy any withholding tax liability
arising in connection with the exercise of the original Option. A
Restoration Option shall have a per share Purchase Price of not less
than 100% of the per share Fair Market Value of the Common Stock on the
date of grant of such Restoration Option, a term not longer than the
remaining term of the original Option at the time of exercise thereof,
and such other terms and conditions as the Committee in its sole
discretion shall determine.
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6.2. STOCK APPRECIATION RIGHTS.
(a) STOCK APPRECIATION RIGHT AWARDS. The Committee is
authorized to grant to any Participant one or more Stock Appreciation
Rights. Such Stock Appreciation Rights may be granted either
independent of or in tandem with Options granted to the same
Participant. Stock Appreciation Rights granted in tandem with Options
may be granted simultaneously with, or, in the case of Non-Qualified
Stock Options, subsequent to, the grant to such Participant of the
related Option; provided, however, that: (i) any Option covering any
share of Common Stock shall expire and not be exercisable upon the
exercise of any Stock Appreciation Right with respect to the same
share, (ii) any Stock Appreciation Right covering any share of Common
Stock shall expire and not be exercisable upon the exercise of any
related Option with respect to the same share, and (iii) an Option and
Stock Appreciation Right covering the same share of Common Stock may
not be exercised simultaneously. Upon exercise of a Stock Appreciation
Right with respect to a share of Common Stock, the Participant shall be
entitled to receive an amount equal to the excess, if any, of (A) the
Fair Market Value of a share of Common Stock on the date of exercise
over (B) the Exercise Price of such Stock Appreciation Right
established in the Award Agreement, which amount shall be payable as
provided in Section 6.2(c).
(b) EXERCISE PRICE. The Exercise Price established under any
Stock Appreciation Right granted under this Plan shall be determined by
the Committee, but in the case of Stock Appreciation Rights granted in
tandem with Options shall not be less than the Purchase Price of the
related Option. Upon exercise of Stock Appreciation Rights granted in
tandem with Options, the number of shares subject to exercise under any
related Option shall automatically be reduced by the number of shares
of Common Stock represented by the Option or portion thereof which are
surrendered as a result of the exercise of such Stock Appreciation
Rights.
(c) PAYMENT OF INCREMENTAL VALUE. Any payment which may become
due from the Company by reason of a Participant's exercise of a Stock
Appreciation Right may be paid to the Participant as determined by the
Committee (i) all in cash, (ii) all in Common Stock, or (iii) in any
combination of cash and Common Stock. In the event that all or a
portion of the payment is made in Common Stock, the number of shares of
Common
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Stock delivered in satisfaction of such payment shall be determined by
dividing the amount of such payment or portion thereof by the Fair
Market Value on the Exercise Date. No fractional share of Common Stock
shall be issued to make any payment in respect of Stock Appreciation
Rights; if any fractional share would be issuable, the combination of
cash and Common Stock payable to the Participant shall be adjusted as
directed by the Committee to avoid the issuance of any fractional
share.
6.3. TERMS OF STOCK OPTIONS AND STOCK APPRECIATION RIGHTS.
(a) CONDITIONS ON EXERCISE. An Award Agreement with respect to
Options and/or Stock Appreciation Rights may contain such waiting
periods, exercise dates and restrictions on exercise (including, but
not limited to, periodic installments) as may be determined by the
Committee at the time of grant.
(b) DURATION OF OPTIONS AND STOCK APPRECIATION RIGHTS. Options
and Stock Appreciation Rights shall terminate after the first to occur
of the following events:
(i) Expiration of the Option or Stock Appreciation
Right as provided in the Award Agreement; or
(ii) Termination of the Award following the
Participant's disability, Retirement, death or other
Termination of Employment as provided in the Award Agreement;
or
(iii) In the case of an Incentive Stock Option, ten
years from the Date of Grant; or
(iv) Solely in the case of a Stock Appreciation Right
granted in tandem with an Option, upon the expiration of the
related Option.
(c) ACCELERATION OR EXTENSION OF EXERCISE TIME. The Committee
may (but shall not be obligated to) permit the exercise of an Option or
Stock Appreciation Right (i) prior to the time such Option or Stock
Appreciation Right would become exercisable under the terms of the
Award Agreement, (ii) after the termination of the Option or Stock
Appreciation Right under the terms of the Award Agreement, or (iii)
after the expiration of the Option or Stock Appreciation Right.
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6.4. EXERCISE PROCEDURES. Each Option and Stock Appreciation Right
granted under the Plan shall be exercised by written or electronic notice to the
Company or by such other exercise procedures as may be provided in the Award
Agreement which notice or other form of exercise must be received by the officer
or employee of the Company designated in the Award Agreement on or before the
close of business on the expiration date of the Award. The Purchase Price of
shares purchased upon exercise of an Option granted under the Plan shall be paid
in full in cash by the Participant pursuant to the Award Agreement; provided,
however, that the Committee may (but shall not be required to) permit payment to
be made by delivery to the Company of either (a) Common Stock (which may, in the
sole discretion of the Committee, include Restricted Shares or shares otherwise
issuable in connection with the exercise of the Option, subject to such rules as
the Committee deems appropriate) or (b) any combination of cash and Common
Stock, or (c) such other consideration as the Committee deems appropriate and in
compliance with applicable law (including payment in accordance with a cashless
exercise program under which, if so instructed by the Participant, Common Stock
may be issued directly to the Participant's broker or dealer upon receipt of an
irrevocable written or electronic notice of exercise from the Participant). In
the event that any Common Stock shall be transferred to the Company to satisfy
all or any part of the Purchase Price, the part of the Purchase Price deemed to
have been satisfied by such transfer of Common Stock shall be equal to the
product derived by multiplying the Fair Market Value as of the date of exercise
times the number of shares of Common Stock transferred to the Company. The
Participant may not transfer to the Company in satisfaction of the Purchase
Price any fractional share of Common Stock. Any part of the Purchase Price paid
in cash upon the exercise of any Option shall be added to the general funds of
the Company and may be used for any proper corporate purpose. Unless the
Committee shall otherwise determine, any Common Stock transferred to the Company
as payment of all or part of the Purchase Price upon the exercise of any Option
shall be held as treasury shares.
6.5. CHANGE IN CONTROL. Unless otherwise provided by the Committee in
the applicable Award Agreement, in the event of a Change in Control, all Options
outstanding on the date of such Change in Control, and all Stock Appreciation
Rights shall become immediately and fully exercisable. The provisions of this
Section 6.5 shall not be applicable to any Options or Stock Appreciation Rights
granted to a Participant if any Change in Control results from such
Participant's beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act) of Common Stock or Company Voting Securities.
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ARTICLE VII.
RESTRICTED SHARES
7.1. RESTRICTED SHARE AWARDS. The Committee may grant to any
Participant an Award of Common Stock in such number of shares, and on such
terms, conditions and restrictions, whether based on performance standards,
periods of service, retention by the Participant of ownership of purchased or
designated shares of Common Stock or other criteria, as the Committee shall
establish. With respect to performance-based Awards of Restricted Shares to
"covered employees" (as defined in Section 162(m) of the Code), performance
targets will be limited to specified levels of one or more of the Performance
Goals. The terms of any Restricted Share Award granted under this Plan shall be
set forth in an Award Agreement which shall contain provisions determined by the
Committee and not inconsistent with this Plan.
(a) ISSUANCE OF RESTRICTED SHARES. As soon as practicable
after the Date of Grant of a Restricted Share Award by the Committee,
the Company shall cause to be transferred on the books of the Company,
or its agent, Common Stock, registered on behalf of the Participant,
evidencing the Restricted Shares covered by the Award, but subject to
forfeiture to the Company as of the Date of Grant if an Award Agreement
with respect to the Restricted Shares covered by the Award is not duly
executed by the Participant and timely returned to the Company. All
Common Stock covered by Awards under this Article VII shall be subject
to the restrictions, terms and conditions contained in the Plan and the
Award Agreement entered into by the Participant. Until the lapse or
release of all restrictions applicable to an Award of Restricted Shares
the share certificates, if any, representing such Restricted Shares may
be held in custody by the Company, its designee, or, if the
certificates bear a restrictive legend, by the Participant; provided,
however, that if the Restricted Shares are uncertificated, other
arrangements may be made, in the discretion of the Committee, to ensure
the enforcement of the restrictions on such Restricted Shares. Upon the
lapse or release of all restrictions with respect to an Award as
described in Section 7.1(d), one or more share certificates, registered
in the name of the Participant, for an appropriate number of shares as
provided in Section 7.1(d), free of any restrictions set forth in the
Plan and the Award Agreement shall be delivered to the Participant.
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(b) STOCKHOLDER RIGHTS. Beginning on the Date of Grant of the
Restricted Share Award and subject to execution of the Award Agreement
as provided in Section 7.1(a), the Participant shall become a
stockholder of the Company with respect to all shares subject to the
Award Agreement and shall have all of the rights of a stockholder,
including, but not limited to, the right to vote such shares and the
right to receive dividends; provided, however, that any Common Stock
distributed as a dividend or otherwise with respect to any Restricted
Shares as to which the restrictions have not yet lapsed, shall be
subject to the same restrictions as such Restricted Shares and held or
restricted as provided in Section 7.1(a).
(c) RESTRICTION ON TRANSFERABILITY. None of the Restricted
Shares may be assigned or transferred (other than by will or the laws
of descent and distribution, or to an inter vivos trust with respect to
which the Participant is treated as the owner under Sections 671
through 677 of the Code), pledged or sold prior to lapse of the
restrictions applicable thereto.
(d) DELIVERY OF SHARES UPON VESTING. Upon expiration or
earlier termination of the forfeiture period without a forfeiture and
the satisfaction of or release from any other conditions prescribed by
the Committee, or at such earlier time as provided under the provisions
of Section 7.3, the restrictions applicable to the Restricted Shares
shall lapse. As promptly as administratively feasible thereafter,
subject to the requirements of Section 11.5, the Company shall deliver
to the Participant or, in case of the Participant's death, to the
Participant's Beneficiary, one or more share certificates for the
appropriate number of shares of Common Stock, free of all such
restrictions, except for any restrictions that may be imposed by law.
7.2. TERMS OF RESTRICTED SHARES.
(a) FORFEITURE OF RESTRICTED SHARES. Subject to Sections
7.2(b) and 7.3, all Restricted Shares shall be forfeited and returned
to the Company and all rights of the Participant with respect to such
Restricted Shares shall terminate unless the Participant continues in
the service of the Company or a Subsidiary as an employee until the
expiration of the forfeiture period for such Restricted Shares and
satisfies any and all other conditions set forth in the Award
Agreement. The Committee shall determine the forfeiture period (which
may, but need not, lapse in installments) and any other terms and
conditions applicable with respect to any Restricted Share Award.
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(b) WAIVER OF FORFEITURE PERIOD. Notwithstanding anything
contained in this Article VII to the contrary, the Committee may, in
its sole discretion, waive the forfeiture period and any other
conditions set forth in any Award Agreement under appropriate
circumstances (including the death, disability or Retirement of the
Participant or a material change in circumstances arising after the
date of an Award) and subject to such terms and conditions (including
forfeiture of a proportionate number of the Restricted Shares) as the
Committee shall deem appropriate.
7.3. CHANGE IN CONTROL. Unless otherwise provided by the Committee in
the applicable Award Agreement, in the event of a Change in Control, all
restrictions applicable to the Restricted Share Award shall terminate fully and
the Participant shall immediately have the right to the delivery of share
certificate or certificates for such shares in accordance with Section 7.1(d).
ARTICLE VIII.
PERFORMANCE AWARDS
8.1. PERFORMANCE AWARDS.
(a) AWARD PERIODS AND CALCULATIONS OF POTENTIAL INCENTIVE
AMOUNTS. The Committee may grant Performance Awards to Participants. A
Performance Award shall consist of the right to receive a payment
(measured by the Fair Market Value of a specified number of shares of
Common Stock, increases in such Fair Market Value during the Award
Period and/or a fixed cash amount) contingent upon the extent to which
certain predetermined performance targets have been met during an Award
Period. Performance Awards may be made in conjunction with, or in
addition to, Restricted Share Awards made under Article VII. The Award
Period shall be two or more fiscal or calendar years as determined by
the Committee. The Committee, in its discretion and under such terms as
it deems appropriate, may permit newly eligible employees, such as
those who are promoted or newly hired, to receive Performance Awards
after an Award Period has commenced.
(b) PERFORMANCE TARGETS. The performance targets may include
such goals related to the performance of the Company or, where
relevant, any one or more of its Subsidiaries or divisions and/or the
performance of a Participant as may be established by the Committee in
its discretion. In the case of Performance Awards to "covered
employees" (as defined in Section 162(m) of the Code), the targets will
be limited to specified levels of
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one or more of the Performance Goals. The performance targets
established by the Committee may vary for different Award Periods and
need not be the same for each Participant receiving a Performance Award
in an Award Period. Except to the extent inconsistent with the
performance-based compensation exception under Section 162(m) of the
Code, in the case of Performance Awards granted to employees to whom
such section is applicable, the Committee, in its discretion, but only
under extraordinary circumstances as determined by the Committee, may
change any prior determination of performance targets for any Award
Period at any time prior to the final determination of the Award when
events or transactions occur to cause the performance targets to be an
inappropriate measure of achievement.
(c) EARNING PERFORMANCE AWARDS. The Committee, at or as soon
as practicable after the Date of Grant, shall prescribe a formula to
determine the percentage of the Performance Award to be earned based
upon the degree of attainment of performance targets.
(d) PAYMENT OF EARNED PERFORMANCE AWARDS. Subject to the
requirements of Section 11.5, payments of earned Performance Awards
shall be made in cash or Common Stock, or a combination of cash and
Common Stock, in the discretion of the Committee. The Committee, in its
sole discretion, may define such terms and conditions with respect to
the payment of earned Performance Awards as it may deem desirable.
8.2. TERMS OF PERFORMANCE AWARDS.
(a) TERMINATION OF EMPLOYMENT. Unless otherwise provided below
or in Section 8.3, in the case of a Participant's Termination of
Employment prior to the end of an Award Period, the Participant will
not have earned any Performance Awards.
(b) RETIREMENT. If a Participant's Termination of Employment
is because of Retirement prior to the end of an Award Period, the
Participant will not be paid any Performance Awards, unless the
Committee, in its sole and exclusive discretion, determines that an
Award should be paid. In such a case, the Participant shall be entitled
to receive a pro-rata portion of his or her Award as determined under
Subsection (d).
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(c) DEATH OR DISABILITY. If a Participant's Termination of
Employment is due to death or disability (as determined in the sole and
exclusive discretion of the Committee) prior to the end of an Award
Period, the Participant or the Participant's personal representative
shall be entitled to receive a pro-rata share of his or her Award as
determined under Subsection (d).
(d) PRO-RATA PAYMENT. The amount of any payment made to a
Participant whose employment is terminated by Retirement, death or
disability (under circumstances described in Subsections (b) and (c))
will be the amount determined by multiplying the amount of the
Performance Award which would have been earned, determined at the end
of the Award Period, had such employment not been terminated, by a
fraction, the numerator of which is the number of whole months such
Participant was employed during the Award Period, and the denominator
of which is the total number of months of the Award Period. Any such
payment made to a Participant whose employment is terminated prior to
the end of an Award Period under this Section 8.2 shall be made at the
end of the respective Award Period, unless otherwise determined by the
Committee in its sole discretion. Any partial payment previously made
or credited to a deferred account for the benefit of a Participant as
provided under Section 8.1(d) of the Plan shall be subtracted from the
amount otherwise determined as payable as provided in this Section.
(e) OTHER EVENTS. Notwithstanding anything to the contrary in
this Article VIII, the Committee may, in its sole and exclusive
discretion, determine to pay all or any portion of a Performance Award
to a Participant who has terminated employment prior to the end of an
Award Period under certain circumstances (including the death,
disability or Retirement of the Participant or a material change in
circumstances arising after the Date of Grant) and subject to such
terms and conditions as the Committee shall deem appropriate.
8.3. CHANGE IN CONTROL. Unless otherwise provided by the Committee in
the applicable Award Agreement, in the event of a Change in Control, all
Performance Awards for all Award Periods shall immediately become fully payable
to all Participants and shall be paid to Participants in accordance with Section
8.2(d) within 30 days after such Change in Control.
17
<PAGE> 18
ARTICLE IX.
OTHER STOCK-BASED AWARDS
8.4. GRANT OF OTHER STOCK-BASED AWARDS. Other stock-based awards,
consisting of stock purchase rights (with or without loans to Participants by
the Company containing such terms as the Committee shall determine), Awards of
cash, Awards of Common Stock, or Awards valued in whole or in part by reference
to, or otherwise based on, Common Stock, may be granted either alone or in
addition to or in conjunction with other Awards under the Plan. Subject to the
provisions of the Plan, the Committee shall have sole and complete authority to
determine the persons to whom and the time or times at which such Awards shall
be made, the number of shares of Common Stock to be granted pursuant to such
Awards, and all other conditions of the Awards. Any such Award shall be
confirmed by an Award Agreement executed by the Company and the Participant,
which Award Agreement shall contain such provisions as the Committee determines
to be necessary or appropriate to carry out the intent of this Plan with respect
to such Award.
8.5. TERMS OF OTHER STOCK-BASED AWARDS. In addition to the terms and
conditions specified in the Award Agreement, Awards made pursuant to this
Article 10 shall be subject to the following:
(a) Any Common Stock subject to Awards made under this Article
IX may not be sold, assigned, transferred, pledged or otherwise
encumbered prior to the date on which the shares are issued, or, if
later, the date on which any applicable restriction, performance or
deferral period lapses; and
(b) If specified by the Committee in the Award Agreement, the
recipient of an Award under this Article IX shall be entitled to
receive, currently or on a deferred basis, interest or dividends or
dividend equivalents with respect to the Common Stock or other
securities covered by the Award; and
(c) The Award Agreement with respect to any Award shall
contain provisions dealing with the disposition of such Award in the
event of a Termination of Employment prior to the exercise, realization
or payment of such Award, whether such termination occurs because of
Retirement, disability, death or other reason, with such provisions to
take account of the specific nature and purpose of the Award.
18
<PAGE> 19
8.6. FOREIGN QUALIFIED AWARDS. Awards under the Plan may be granted to
such employees of the Company and its Subsidiaries who are residing in foreign
jurisdictions as the Committee in its sole discretion may determine from time to
time. The Committee may adopt such supplements to the Plan as may be necessary
or appropriate to comply with the applicable laws of such foreign jurisdictions
and to afford Participants favorable treatment under such laws; provided,
however, that no Award shall be granted under any such supplement with terms or
conditions inconsistent with the provision set forth in the Plan.
ARTICLE IX.
SHORT-TERM CASH INCENTIVE AWARDS
9.1. ELIGIBILITY. Executive officers of the Company who are from time
to time determined by the Committee to be "covered employees" for purposes of
Section 162(m) of the Code will be eligible to receive short-term cash incentive
awards under this Article X.
9.2. AWARDS.
(a) PERFORMANCE TARGETS. For each fiscal year of the Company,
the Committee shall establish objective performance targets based on
specified levels of one or more of the Performance Goals. Such
performance targets shall be established by the Committee on a timely
basis to ensure that the targets are considered "preestablished" for
purposes of Section 162(m) of the Code.
(b) AMOUNTS OF AWARDS. In conjunction with the establishment
of performance targets for a fiscal year, the Committee shall adopt an
objective formula (on the basis of percentages of Participants'
salaries, shares in a bonus pool or otherwise) for computing the
respective amounts payable under the Plan to Participants if and to the
extent that the performance targets are attained. Such formula shall
comply with the requirements applicable to performance-based
compensation plans under Section 162(m) of the Code and, to the extent
based on percentages of a bonus pool, such percentages shall not exceed
100% in the aggregate.
(c) PAYMENT OF AWARDS. Awards will be payable to Participants
in cash each year upon prior written certification by the Committee of
attainment of the specified performance targets for the preceding
fiscal year.
19
<PAGE> 20
(d) NEGATIVE DISCRETION. Notwithstanding the attainment by the
Company of the specified performance targets, the Committee shall have
the discretion, which need not be exercised uniformly among the
Participants, to reduce or eliminate the award that would be otherwise
paid.
(e) GUIDELINES. The Committee may adopt from time to time
written policies for its implementation of this Article X. Such
guidelines shall reflect the intention of the Company that all payments
hereunder qualify as performance-based compensation under Section
162(m) of the Code.
(f) NON-EXCLUSIVE ARRANGEMENT. The adoption and operation of
this Article X shall not preclude the Board or the Committee from
approving other short-term incentive compensation arrangements for the
benefit of individuals who are Participants hereunder as the Board or
Committee, as the case may be, deems appropriate and in the best
interests of the Company.
ARTICLE X.
TERMS APPLICABLE GENERALLY TO AWARDS
GRANTED UNDER THE PLAN
10.1. PLAN PROVISIONS CONTROL AWARD TERMS. The terms of the Plan shall
govern all Awards granted under the Plan, and in no event shall the Committee
have the power to grant any Award under the Plan which is contrary to any of the
provisions of the Plan. In the event any provision of any Award granted under
the Plan shall conflict with any term in the Plan as constituted on the Date of
Grant of such Award, the term in the Plan as constituted on the Date of Grant of
such Award shall control. Except as provided in Section 11.3 and Section 11.7,
the terms of any Award granted under the Plan may not be changed after the Date
of Grant of such Award so as to materially decrease the value of the Award
without the express written approval of the holder.
10.2. AWARD AGREEMENT. No person shall have any rights under any Award
granted under the Plan unless and until the Company and the Participant to whom
such Award shall have been granted shall have executed and delivered an Award
Agreement or received any other Award acknowledgment authorized by the Committee
expressly granting the Award to such person and containing provisions setting
forth the terms of the Award.
20
<PAGE> 21
10.3. MODIFICATION OF AWARD AFTER GRANT. No Award granted under the
Plan to a Participant may be modified (unless such modification does not
materially decrease the value of the Award) after the Date of Grant except by
express written agreement between the Company and the Participant, provided that
any such change (a) shall not be inconsistent with the terms of the Plan, and
(b) shall be approved by the Committee.
10.4. LIMITATION ON TRANSFER. Except as provided in Section 7.1(c) in
the case of Restricted Shares, a Participant's rights and interest under the
Plan may not be assigned or transferred other than by will or the laws of
descent and distribution, and during the lifetime of a Participant, only the
Participant personally (or the Participant's personal representative) may
exercise rights under the Plan. The Participant's Beneficiary may exercise the
Participant's rights to the extent they are exercisable under the Plan following
the death of the Participant. Notwithstanding the foregoing, the Committee may
grant Non-Qualified Stock Options that are transferable, without payment of
consideration, to immediate family members of the Participant or to trusts or
partnerships for such family members, and the Committee may also amend
outstanding Non-Qualified Stock Options to provide for such transferability.
10.5. TAXES. The Company shall be entitled, if the Committee deems it
necessary or desirable, to withhold (or secure payment from the Participant in
lieu of withholding) the amount of any withholding or other tax required by law
to be withheld or paid by the Company with respect to any amount payable and/or
shares issuable under such Participant's Award, or with respect to any income
recognized upon a disqualifying disposition of shares received pursuant to the
exercise of an Incentive Stock Option, and the Company may defer payment or
issuance of the cash or shares upon exercise or vesting of an Award unless
indemnified to its satisfaction against any liability for any such tax. The
amount of such withholding or tax payment shall be determined by the Committee
and shall be payable by the Participant at such time as the Committee determines
in accordance with the following rules:
(a) The Participant shall have the right to elect to meet his
or her withholding requirement (i) by having withheld from such Award
at the appropriate time that number of shares of Common Stock, rounded
up to the next whole share, whose Fair Market Value is equal to the
amount of withholding taxes due, (ii) by direct payment to the Company
in cash of the amount of any taxes required to be withheld with respect
to such Award or (iii) by a combination of shares and cash.
21
<PAGE> 22
(b) The Committee shall have the discretion as to any Award,
to cause the Company to pay to tax authorities for the benefit of any
Participant, or to reimburse such Participant for the individual taxes
which are due on the grant, exercise or vesting of any share Award, or
the lapse of any restriction on any share Award (whether by reason of a
Participant's filing of an election under Section 83(b) of the Code or
otherwise), including, but not limited to, Federal income tax, state
income tax, local income tax and excise tax under Section 4999 of the
Code, as well as for any such taxes as may be imposed upon such tax
payment or reimbursement.
(c) In the case of Participants who are subject to Section 16
of the Exchange Act, the Committee may impose such limitations and
restrictions as it deems necessary or appropriate with respect to the
delivery or withholding of shares of Common Stock to meet tax
withholding obligations.
10.6. SURRENDER OF AWARDS. Any Award granted under the Plan may be
surrendered to the Company for cancellation on such terms as the Committee and
the holder approve.
10.7. ADJUSTMENTS TO REFLECT CAPITAL CHANGES.
(a) RECAPITALIZATION. The number and kind of shares subject to
outstanding Awards, the Purchase Price or Exercise Price for such
shares, the number and kind of shares available for Awards subsequently
granted under the Plan and the maximum number of shares in respect of
which Awards can be made to any Participant in any calendar year shall
be appropriately adjusted to reflect any stock dividend, stock split,
combination or exchange of shares, merger, consolidation or other
change in capitalization with a similar substantive effect upon the
Plan or the Awards granted under the Plan. The Committee shall have the
power and sole discretion to determine the amount of the adjustment to
be made in each case.
(b) MERGER. After any Merger in which the Company is the
surviving corporation, each Participant shall, at no additional cost,
be entitled upon any exercise of all Options or receipt of other Award
to receive (subject to any required action by stockholders), in lieu of
the number of shares of Common Stock receivable or exercisable pursuant
to such Award, the number and class of shares or other securities to
which such Participant would have been entitled pursuant to the terms
of the Merger if, at the time
22
<PAGE> 23
of the Merger, such Participant had been the holder of record of a
number of shares equal to the number of shares receivable or
exercisable pursuant to such Award. Comparable rights shall accrue to
each Participant in the event of successive Mergers of the character
described above. In the event of a Merger in which the Company is not
the surviving corporation, the surviving, continuing, successor, or
purchasing corporation, as the case may be (the "Acquiring
Corporation"), shall either assume the Company's rights and obligations
under outstanding Award Agreements or substitute awards in respect of
the Acquiring Corporation's stock for such outstanding Awards. In the
event the Acquiring Corporation fails to assume or substitute for such
outstanding Awards, the Board shall provide that any unexercisable
and/or unvested portion of the outstanding Awards shall be immediately
exercisable and vested as of a date prior to such Merger, as the Board
so determines. The exercise and/or vesting of any Award that was
permissible solely by reason of this Section 11.7(b) shall be
conditioned upon the consummation of the Merger. Any Options which are
neither assumed by the Acquiring Corporation nor exercised as of the
date of the Merger shall terminate effective as of the effective date
of the Merger.
(c) OPTIONS TO PURCHASE SHARES OR STOCK OF ACQUIRED COMPANIES.
After any Merger in which the Company or a Subsidiary shall be a
surviving corporation, the Committee may grant substituted options
under the provisions of the Plan, pursuant to Section 424 of the Code,
replacing old options granted under a plan of another party to the
Merger whose shares or stock subject to the old options may no longer
be issued following the Merger. The foregoing adjustments and manner of
application of the foregoing provisions shall be determined by the
Committee in its sole discretion. Any such adjustments may provide for
the elimination of any fractional shares which might otherwise become
subject to any Options.
10.8. NO RIGHT TO EMPLOYMENT. No employee or other person shall have
any claim of right to be granted an Award under this Plan. Neither the Plan nor
any action taken hereunder shall be construed as giving any employee any right
to be retained in the employ of the Company or any of its Subsidiaries.
10.9. AWARDS NOT INCLUDABLE FOR BENEFIT PURPOSES. Payments received by
a Participant pursuant to the provisions of the Plan shall not be included in
the determination of benefits under any pension, group insurance or other
benefit plan applicable to the Participant which is maintained by the Company or
any of its Subsidiaries, except as may be provided under the terms of such plans
or determined by the Board.
23
<PAGE> 24
10.10. GOVERNING LAW. All determinations made and actions taken
pursuant to the Plan shall be governed by the laws of the State of Delaware and
construed in accordance therewith.
10.11. NO STRICT CONSTRUCTION. No rule of strict construction shall be
implied against the Company, the Committee, or any other person in the
interpretation of any of the terms of the Plan, any Award granted under the Plan
or any rule or procedure established by the Committee.
10.12. COMPLIANCE WITH RULE 16B-3. It is intended that unless the
Committee determines otherwise, Awards under the Plan be eligible for exemption
under Rule 16b-3. The Board is authorized to amend the Plan and to make any such
modifications to Award Agreements to comply with Rule 16b-3, as it may be
amended from time to time, and to make any other such amendments or
modifications as it deems necessary or appropriate to better accomplish the
purposes of the Plan in light of any amendments made to Rule 16b-3.
10.13. CAPTIONS. The captions (i.e., all Section headings) used in the
Plan are for convenience only, do not constitute a part of the Plan, and shall
not be deemed to limit, characterize or affect in any way any provisions of the
Plan, and all provisions of the Plan shall be construed as if no captions have
been used in the Plan.
10.14. SEVERABILITY. Whenever possible, each provision in the Plan and
every Award at any time granted under the Plan shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of the Plan or any Award at any time granted under the Plan shall be held to be
prohibited by or invalid under applicable law, then (a) such provision shall be
deemed amended to accomplish the objectives of the provision as originally
written to the fullest extent permitted by law and (b) all other provisions of
the Plan and every other Award at any time granted under the Plan shall remain
in full force and effect.
10.15. AMENDMENT AND TERMINATION.
(a) AMENDMENT. The Board shall have complete power and
authority to amend the Plan at any time; provided, however, that the
Board shall not, without the requisite affirmative approval of
stockholders of the Company, make any amendment which requires
stockholder approval under the Code, unless such compliance is no
longer desired under the Code, or under any other applicable law or
rule of any stock exchange which lists
24
<PAGE> 25
Common Stock or Company Voting Securities. No termination or amendment
of the Plan may, without the consent of the Participant to whom any
Award shall theretofore have been granted under the Plan, adversely
affect the right of such individual under such Award.
(b) TERMINATION. The Board shall have the right and the power
to terminate the Plan at any time. No Award shall be granted under the
Plan after the termination of the Plan, but the termination of the Plan
shall not have any other effect and any Award outstanding at the time
of the termination of the Plan may be exercised after termination of
the Plan at any time prior to the expiration date of such Award to the
same extent such Award would have been exercisable had the Plan not
terminated.
* * * * * *
<PAGE> 1
Exhibit 13.1
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Allegheny Technologies Incorporated is one of the largest and most diversified
producers of specialty materials in the world. Allegheny Technologies
Incorporated and its subsidiaries and operating companies are sometimes referred
to as "Allegheny Technologies" or the "Company".
Certain statements contained in this Management's Discussion and Analysis
of Financial Condition and Results of Operations are forward-looking statements.
Actual results could differ materially from those encompassed within such
forward-looking statements as a result of various factors, including those
described below.
FINANCIAL OVERVIEW
During 1999, the Company continued to build upon its operational and financial
strengths.
o Financial condition remained strong. Net debt as a percentage of total
capitalization decreased to 20.1 percent at December 31, 1999 from
24.1 percent at December 31, 1998.
o The Company continued to achieve strong cash flow. Cash flow from
operating activities before taxes paid on gains on sales of operations
was $182.8 million in 1999.
o The Company's emphasis on cost reductions continued. It achieved total
cost savings of approximately $67 million in 1999. Further aggressive
cost reduction initiatives across Allegheny Technologies have been
implemented in 2000, with targeted cost reductions of at least $90
million, which would be twice the rate of inflation.
o The Company shipped a new record of 648,100 tons of flat-rolled
products in 1999. These record shipments were made possible by the
utilization and capabilities of new strategic assets.
o Imports of unfairly traded stainless steel declined following the
successful conclusion of trade cases initiated by the Company and
other domestic producers of stainless steel sheet and strip in coils
and stainless steel plate in coils.
o With rising nickel costs, increased demand and lower imports,
beginning in the second half of 1999, the Company announced price
increases on most of its flat-rolled stainless steel products and
reduced the base level at which raw material surcharges would apply.
Due to existing contracts, the full benefits of these changes were not
realized until the 2000 first quarter.
o The Company used free cash flow to repurchase 7.9 million shares of
its common stock at a cost of $257.6 million. In December 1999, the
Company's Board of Directors increased the number of shares authorized
for purchase in the stock repurchase program by 10 million shares.
o Pension income improved and exceeded other postemployment benefits
expense by $60.4 million in 1999 as a result of favorable investment
results.
o The Company utilized $37.3 million of excess pension assets in 1999 to
pay for retiree medical expenses. The Company's defined benefit
pension plan is fully funded with assets significantly in excess of
the projected benefit obligation.
The Company expects free cash flow to be consistently strong. This should
provide sufficient financial resources for the Company to capitalize on new
profitable growth opportunities while keeping its strong credit rating and
access to cost efficient capital markets.
STRATEGIC TRANSFORMATION OVERVIEW
In 1999, the Company completed a major transformation, announced in January
1999, that included the spin-offs of Teledyne Technologies Incorporated
("Teledyne"), which was comprised of certain businesses in the Company's former
Aerospace and Electronics segment, and Water Pik Technologies, Inc. ("Water
Pik"), which was comprised of businesses in the Company's former Consumer
segment. The spin-offs were completed on November 29, 1999, when the Company
distributed all of the stock of Teledyne (NYSE:TDY) and Water Pik (NYSE:PIK) to
the Company's stockholders of record on November 22, 1999. Prior to the
spin-offs, the Company received a ruling from the Internal Revenue Service that
the spin-offs would be tax-free to the Company and its stockholders.
Immediately following the spin-offs, the Company effected a one-for-two
reverse split of its common stock and changed its name from Allegheny Teledyne
Incorporated to Allegheny Technologies Incorporated.
Additionally, as part of this strategic transformation, the Company sold
several of its businesses. During 1999, the Company completed the sale of its
unmanned aerial vehicle and its pyrotechnic components and systems businesses,
known as Ryan Aeronautical and McCormick Selph Ordnance Unit, respectively. In
addition, the Company sold its pressure relief valve, vehicle control valve,
nitrogen gas springs, consumer drinkware, construction and mining equipment and
material handling businesses.
<PAGE> 2
20
STRATEGIC ACQUISITIONS
The Company made several strategic acquisitions in the past two years:
o 1999 fourth quarter-Acquired Washington, PA stainless steel sheet and
strip finishing plant from Bethlehem Steel Corporation ("Bethlehem")
for $20.5 million in cash. The plant's Sendzimir mills and anneal and
pickle lines provide incremental stainless steel sheet and strip
production capacity. Company production at this plant began in the
2000 first quarter.
o 1998 fourth quarter-Acquired melting and hot rolling facilities in
Houston, PA and a wide anneal and pickle line in Massillon, OH from
Bethlehem and entered into a 20-year conversion services agreement
with Bethlehem to provide for the melting, casting and rolling of the
Company's wide stainless steel continuous mill plate products and
nickel-based alloys, for $105 million in cash and $70 million in a
promissory note that was paid in 1999. These transactions provide the
Company with additional melting capacity and enable the Company to
produce wide continuous mill plate.
o 1998-1999-Completed major strategic capital projects including a
vacuum induction melt furnace, electron beam melt facility and 60-inch
wide Sendzimir mill which add new cost-efficient capabilities. The
Sendzimir mill, together with a modified anneal and pickle line and
temper mill completed in the second quarter of 1999, enable the
Company to participate in a growing market for wide stainless steel
sheet.
o March 1998-Acquired stock of Oregon Metallurgical Corporation
("Oremet"), an integrated producer and distributor of titanium sponge,
ingot, mill products and castings, in exchange for Company stock,
which expanded the capabilities of the High Performance Metals segment
and enabled Allegheny Ludlum to enter the titanium flat-rolled
business.
o February 1998-Acquired assets in the United Kingdom, for $110 million
in cash, that provide significant support for and additional
capacities in the Company's High Performance Metals segment and
enhance the sales and distribution network for the Company's
nickel-based alloys, specialty steel and titanium alloys in Europe.
RESULTS OF OPERATIONS
The Company's sales were $2.3 billion in 1999, $2.4 billion in 1998 and $2.5
billion in 1997. International sales represented approximately 20 percent of
sales in 1999, 19 percent of sales in 1998 and 16 percent of sales in 1997. The
Company recognized extraordinary gains of $129.6 million, net of $79.9 million
in taxes, in connection with the sales of businesses in 1999. The results of
companies spun-off and sold are reflected as discontinued operations for all
periods presented.
Allegheny Technologies operates in three business segments: Flat-Rolled
Products, High Performance Metals and Industrial Products.
Intersegment sales are generally recorded at full cost or market. Common
services are allocated on the basis of estimated utilization.
Information with respect to the Company's business segments is presented
separately below and in Note 12 of the Notes to Consolidated Financial
Statements. Certain amounts for 1998 and 1997 have been reclassified to conform
with the 1999 presentation.
<TABLE>
<CAPTION>
FLAT-ROLLED PRODUCTS
(In millions) 1999 % Change 1998 % Change 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to external customers $1,288.8 9% $1,184.3 (8)% $1,285.5
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit 80.4 (34)% 121.5 (13)% 139.6
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit as a percentage of sales 6.2% 10.3% 10.9%
- ------------------------------------------------------------------------------------------------------------------------------------
International sales as a percentage of sales 7.7% 6.0% 7.0%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ALLEGHENY-TECHNOLOGIES
FLAT-ROLLED PRODUCTS SHIPPED
(THOUSANDS OF TONS)
At the bottom left-hand corner of the page appears a bar graph with the title
of "Allegheny Technologies Flat-Rolled Products Shipped (Thousands of Tons)".
The bar graph provides the following data:
Year Shipments (Thousands of Tons)
----- -----------------------------
1995 589
1996 536
1997 542
1998 542
1999 648
The Flat-Rolled Products segment produces, converts and distributes
stainless steel, nickel-based alloys and superalloys, and titanium and
titanium-based alloys in sheet, strip, plate and Precision Rolled Strip(R)
products as well as silicon electrical steels and tool steels. The companies in
this segment include Allegheny Ludlum and the Company's 60% interest in the
Chinese joint venture company known as Shanghai Precision Stainless Steel
Company Limited ("STAL"), which began limited commercial production in 1999.
<PAGE> 3
21
1999 COMPARED TO 1998
Sales and operating profit for the Flat-Rolled Products segment increased 9
percent and decreased 34 percent, respectively, in 1999 compared to 1998.
Sales improved in 1999 compared to 1998 as a result of higher demand for
stainless steel products combined with the utilization of new strategic assets
acquired in 1998 and 1999. Shipments were a record 648,100 tons in 1999 compared
to 542,200 tons in 1998.
The average selling prices of flat-rolled products declined to $1,988 per
ton in 1999 from $2,184 per ton in 1998 due primarily to product mix, including
an increase in sales of semi-finished stainless steel products.
Operating profit declined due primarily to the impact of the rapid and
substantial increase in nickel costs, a key raw material in the manufacture of
certain grades of stainless steel. Tight operating cost controls and cost
reduction efforts continued throughout the Flat-Rolled Products segment.
CONTINUED GROWTH IS PROJECTED...
STAINLESS STEEL CONSUMPTION BY REGION:
SHEET, STRIP, AND PLATE
(THOUSANDS OF TONS)
At the left-hand corner of the page appears a bar graph with the title
"Continued Growth is Projected... Stainless Steel Consumption By Region: Sheet,
Strip and Plate (Thousands of Tons)". Text also appears describing projected
growth drivers for 2000-2004 as the Asian recovery and strong demand in North
America and Western Europe. The bar graph provides the following data:
(Thousands of Tons)
1994 1999 2004
---- ---- ----
North America 1,791 2,150 2,913
Western Europe 2,688 3,990 5,278
Japan 1,584 1,195 1,421
China 590 1,590 2,350
Other Asia 1,655 2,079 2,701
Source: CRU International Ltd.
U.S. PER CAPITA
CONSUMPTION OF STAINLESS STEEL
At the right-hand side of the middle of the page appears a bar graph with the
title: "U.S. Per Capita Consumption of Stainless Steel". The bar graph provides
the following data:
Year Per Capita Stainless Consumption (Pounds)
----- -----------------------------------------
1995 16.7
1996 17.1
1997 18.2
1998 18.4
1999 18.4
Source: Specialty Steel Industry of North America.
By July 1999, the United States had imposed antidumping and
countervailing duties ranging up to 60% on dumped and subsidized imports of
stainless steel sheet and strip in coils and stainless steel plate in coils from
companies in ten foreign countries. Allegheny Ludlum and other domestic
producers of flat-rolled stainless steel sheet and strip in coils and stainless
steel plate in coils and several unions had filed petitions with the
International Trade Commission and the Department of Commerce in 1998 charging
companies in these ten countries with violations of U.S. trade laws.
With rising nickel costs, increased demand and lower imports reflecting
the impact of the favorable trade cases, in the 1999 third quarter the Company
announced two price increases totaling approximately 12 to 14 percent for most
stainless steel sheet, strip and coiled plate products. The Company also reduced
the price at which a surcharge is charged to customers for nickel to $2.75 per
pound from $3.50 per pound effective with shipments beginning October 4, 1999.
Due to existing contracts, the full benefits of these changes were not realized
until the 2000 first quarter. During the 1999 fourth quarter, the Company
announced that it had lowered the raw material surcharge base level for nickel
to $2.00 per pound from $2.75 per pound and for chromium to $0.35 per pound from
$0.40 per pound effective with shipments beginning January 3, 2000.
Subsequently, as a result of continuing strong demand, on January 24, 2000, the
Company announced an additional price increase on stainless steel sheet, strip
and coiled plate of 4 to 6 percent effective with shipments beginning February
7, 2000. The ability to maintain price increases depends on market conditions,
including pricing by foreign producers.
NICKEL PRICE PER POUND
(BASED ON LME CASH AVERAGE FOR MONTH)
At the left-hand side of the bottom of the page a bar graph appears with the
title "Nickel Price Per Pound (Based on LME Cash Average For Month)". The bar
graph provides the following data:
Quarter Price ($ Per Pound)
------- -------------------
3Q 1998 $1.89
4Q 1998 $1.80
1Q 1999 $2.10
2Q 1999 $2.38
3Q 1999 $2.90
4Q 1999 $3.53
The STAL joint venture in Shanghai, China completed plant construction
and began limited commercial production of precision rolled stainless steel
strip in 1999. The 1999 results include start-up costs associated with this
venture.
In the 1999 fourth quarter, the Company purchased the Washington, PA
plant of Lukens' Washington Steel Division from Bethlehem for $20.5 million in
cash. The plant's Sendzimir mills and anneal and pickle lines provide
incremental stainless steel sheet and strip production capacity. Company
production at this plant began in the 2000 first quarter.
<PAGE> 4
22
1998 COMPARED TO 1997
Sales and operating profit for the Flat-Rolled Products segment decreased 8
percent and 13 percent, respectively, in 1998 compared to 1997.
Tons shipped remained level at 542,200 tons compared to 1997, but sales
and operating profit declined primarily due to the impact on pricing of imports
of commodity stainless steel products into the U.S. market from Europe and Asia,
which had led to the filing of trade cases in 1998. Average selling prices of
flat-rolled specialty materials declined to $2,184 per ton in 1998 from $2,371
in 1997.
Raw material costs were lower for flat-rolled products in 1998 as
compared to 1997. Costs of nickel declined during 1998 as compared to 1997.
Tight operating cost controls and cost reduction efforts continued throughout
the segment.
In February 1998, an early settlement was reached on a new three-year
labor agreement covering United Steelworkers of America union members working at
Allegheny Ludlum plants in Pennsylvania, New York, Indiana, and Connecticut. The
collective bargaining agreement is effective through June 30, 2001.
<TABLE>
<CAPTION>
HIGH PERFORMANCE METALS
(In millions) 1999 % Change 1998 % Change 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to external customers $730.6 (16)% $869.1 --% $865.5
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit 91.8 (43)% 160.8 (11)% 181.2
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit as a percentage of sales 12.6% 18.5% 20.9%
- ------------------------------------------------------------------------------------------------------------------------------------
International sales as a percentage of sales 36.3% 31.6% 22.8%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The High Performance Metals segment produces, converts and distributes nickel-
and cobalt-based alloys and superalloys, titanium and titanium-based alloys,
zirconium, hafnium, niobium, tantalum and other specialty materials, primarily
in slab, ingot, billet, bar, rod, wire and coil forms and zirconium chemicals.
The companies in this segment include Allvac, Allvac Ltd, Wah Chang, Titanium
Industries and Rome Metals.
ALLEGHENY TECHNOLOGIES
ZIRCONIUM AND RELATED ALLOYS SHIPPED
(THOUSANDS OF LBS.)
At the right-hand side of the middle of the page appears a bar graph with the
title "Allegheny Technologies Zirconium and Related Alloys Shipped (Thousands of
LBS.)". The bar graph provides the following data:
Year Shipments (Thousands of Pounds)
----- -------------------------------
1995 4,226
1996 3,607
1997 5,317
1998 5,265
1999 4,389
ALLEGHENY TECHNOLOGIES
NICKEL-BASED AND SPECIALTY STEEL ALLOYS SHIPPED
(THOUSANDS OF LBS.)
At the left-hand side of the middle of the page appears a bar graph with the
title "Allegheny Technologies Nickel-Based and Specialty Steel Alloys Shipped
(Thousands of LBS.)". The bar graph provides the following data:
Year Shipments (Thousands of Pounds)
----- -------------------------------
1995 27,045
1996 28,731
1997 28,546
1998 44,182
1999 44,723
1999 COMPARED TO 1998
Sales and operating profit for the High Performance Metals segment decreased 16
percent and 43 percent, respectively, in 1999 compared to 1998. The decline in
sales and operating profit resulted primarily from the continuation of lower
prices and lower volume for nickel-based alloys and superalloys and titanium
products due to continuing weak demand in aerospace and oil and gas markets.
This weakness was partially offset by strong demand for nickel-based superalloys
for large land-based power generation turbines and, in the 1999 fourth quarter,
stronger demand for niobium for the medical industry and energy research
initiatives. The 1999 results also reflect start-up costs associated with the
segment's new electron beam melt facility and new vacuum induction melt furnace.
Cost reduction efforts continued throughout the High Performance Metals segment,
including a workforce reduction at Allvac's operations in the United Kingdom.
1998 COMPARED TO 1997
Sales for the High Performance Metals segment in 1998 remained consistent with
1997, while operating profit decreased 11 percent in 1998 compared to 1997.
The decline in operating results occurred primarily in titanium products
as aircraft and jet engine manufacturers continued to adjust inventory and level
off production rates. Titanium sales were also negatively impacted by the
Boeing-Timet supply agreements, and reduced demand from chemical processing and
recreational markets. In addition, start-up costs associated with the new
electron beam melt facility and vacuum induction melt furnace negatively
impacted operating margins in the second half of 1998. These items were
partially offset by lower raw material costs and continuing cost reduction
efforts.
Operating results for High Performance Metals include the results of
operations resulting from assets acquired in the United Kingdom for $110 million
in an all-cash transaction in February 1998. The operations of Oremet, acquired
in 1998, which have been integrated into the segment, have been included in all
periods presented under the pooling of interests accounting method.
ALLEGHENY TECHNOLOGIES
TITANIUM MILL PRODUCTS SHIPPED
(THOUSANDS OF LBS.)
At the right-hand corner of the bottom of the page appears a bar graph with the
title "Allegheny Technologies Titanium Mill Products Shipped (Thousands of
LBS.)". The graph provides the following information:
Year Shipments (Thousands of Pounds)
----- -------------------------------
1995 20,795
1996 27,113
1997 29,872
1998 24,739
1999 22,565
<PAGE> 5
23
<TABLE>
<CAPTION>
INDUSTRIAL PRODUCTS
(In millions) 1999 % Change 1998 % Change 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to external customers $276.7 (21)% $349.0 -- % $349.9
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit 12.2 (66)% 35.8 (17)% 42.9
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit as a percentage of sales 4.4% 10.3% 12.3%
- ------------------------------------------------------------------------------------------------------------------------------------
International sales as a percentage of sales 30.3% 29.2% 29.6%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Industrial Products segment's principal business produces tungsten powder,
tungsten carbide materials and carbide cutting tools. The segment also produces
large grey and ductile iron castings and carbon, alloy steel and non-ferrous
forgings. The companies in this segment are Metalworking Products, Casting
Service and Portland Forge.
1999 COMPARED TO 1998
Sales and operating profit for the Industrial Products segment decreased 21
percent and 66 percent in 1999 compared to 1998.
Continued reduced demand for tungsten, tungsten carbide and carbide
cutting tools due to weak conditions in global metalworking, mining and machine
tool markets resulted in a decrease in sales and operating profit in 1999. The
1999 results also include costs related to a workforce reduction, primarily in
Europe, as part of an initiative to centralize and streamline distribution. The
segment's forgings and castings businesses experienced a decrease in sales and
operating profit in 1999 due primarily to weak conditions in the transportation,
farm equipment and wind power generation markets. The Company plans to exit the
molybdenum and tungsten mill products business, which had 1999 sales of
approximately $15 million, in the second quarter of 2000.
1998 COMPARED TO 1997
Sales for the Industrial Products segment remained level and operating profit
decreased 17 percent in 1998 compared to 1997. Decreased sales and operating
profit for the Company's tungsten, tungsten carbide and carbide cutting tools
primarily resulted from reduced demand and lower prices due to weaker global
economic conditions. Metalworking Products was also negatively impacted by
facility rationalization and related start-up costs, increased marketing costs
for business expansion, and, in the first half of 1998, by the General Motors
strike. These negative developments were partially offset by improvement in
results at the Company's forgings and castings businesses.
TRANSFORMATION, MERGER AND RESTRUCTURING COSTS, GAINS ON SALES OF ASSETS AND
OTHER
TRANSFORMATION, MERGER AND RESTRUCTURING COSTS
Transformation, merger and restructuring costs were $5.6 million, $67.8 million
and $12.0 million in 1999, 1998 and 1997, respectively. The 1999 net charge of
$5.6 million includes costs associated with adjusting employee benefit plans as
a result of the spin-offs which were partially offset by a $7.2 million reversal
of restructuring costs accrued in 1998 related to workforce reductions which
were implemented at less than expected costs. Charges of $19.1 million in 1998
and $12.0 million in 1997 reflected severance, financial advisory, legal,
accounting, and other costs associated with the acquisition of Oremet in 1998
and the combination of Allegheny Ludlum Corporation and Teledyne, Inc. in 1996.
The Company also recorded charges of $19.3 million in 1998 resulting primarily
from special termination benefits granted to approximately 300 Allegheny Ludlum
employees who were part of a planned salaried workforce reduction completed in
1998. Costs associated with exiting certain product lines and asset impairments
resulting from new capital expenditure programs coming on-line resulted in a
charge of $29.4 million in 1998.
GAINS ON SALES OF ASSETS AND OTHER
Gains on sales of assets and other included a net charge of $0.2 million in 1999
and a net gain of $11.6 million in 1998. These amounts included pretax gains on
the sale of real estate and certain investments, which are included in other
income on the income statement, as well as charges for certain closed company
expenses.
Gains on sales of assets and other of $51.2 million in 1997 included
pretax gains on the sale of the Company's investment in Semtech Corporation
common stock, the Company's investment in Nitinol Development Corporation and
real estate and certain other investments. These gains are included in other
income on the income statement. These gains were partially offset by charges to
write off the Company's investment in a research and development venture and to
settle certain U.S. Government contracting matters relating to former business
units.
Gains on sales of assets and other does not include extraordinary gains
on sales of operations of $129.6 million in 1999. These extraordinary gains are
presented separately on the income statement.
<PAGE> 6
24
CORPORATE EXPENSES
Corporate expenses were $38.9 million in 1999 as compared to $36.5 million in
1998 and $40.4 million in 1997. The increase in corporate expenses in 1999
consisted primarily of one-time costs associated with executive management
transition. The decline in 1998 corporate expenses from 1997 resulted primarily
from the continued focus on cost controls.
INCOME TAXES
The Company's effective income tax rate from continuing operations was 36.3
percent, 38.0 percent and 36.8 percent in 1999, 1998 and 1997, respectively. The
1999 rate reflects the favorable effects of tax planning initiatives. The 1997
rate includes the effect of favorable adjustments to prior years' tax
liabilities.
The Company has determined, based on its history of operating earnings,
expectations of future operating earnings and potential tax planning strategies,
that it is more likely than not that the deferred income tax assets at
December 31, 1999 will be realized.
FINANCIAL CONDITION AND LIQUIDITY
In 1999, cash generated from operations of $102.9 million, proceeds from sales
of businesses and investments and disposals of assets of $398.9 million and
proceeds from the spin-offs of Teledyne and Water Pik of $134.0 million were
used to purchase treasury stock for $257.6 million, pay down short-term and
long-term debt of $153.9 million, pay dividends of $122.1 million and invest
$98.0 million in capital equipment and business expansion. In addition, the
Company invested $30.7 million in the operations spun-off for enhanced capital
expenditure programs and increased working capital needs. Cash transactions plus
cash on hand at the beginning of the year resulted in a cash position of $50.7
million at December 31, 1999.
Working capital decreased to $493.5 million at December 31, 1999 compared
to $574.9 million at the end of 1998. The current ratio decreased to 1.9 in 1999
from 2.3 in 1998. The decrease in working capital was primarily due to increases
in accounts payable and short-term debt and reductions in cash, partially offset
by increases in accounts receivable and current deferred income tax assets.
The Company's debt to capitalization ratio decreased to 22.7 percent in
1999 from 27.1 percent in 1998. The Company's net debt to total capitalization
ratio decreased to 20.1 percent in 1999 from 24.1 percent in 1998. These
decreases resulted from the utilization of cash proceeds from asset sales and
cash generated from operations to repay debt in 1999.
NET DEBT TO TOTAL CAPITALIZATION
At the left-hand side of the middle of the page appears a bar graph with the
title "Net Debt to Total Capitalization". The bar graph provides the following
information:
Year Ratio of Net Debt to Capitalization
---- -----------------------------------
1995 35%
1996 26%
1997 18%
1998 24%
1999 20%
Total capital expenditures for 2000 are expected to approximate $95
million.
The Company's defined benefit pension plan is fully funded with assets
significantly in excess of the projected benefit obligations. As a result, for
the indefinite future, the Company does not anticipate that it will have to
contribute to its defined benefit pension plan. Under current Internal Revenue
Code provisions, certain amounts the Company pays for retiree medical expenses
may be reimbursed annually from the excess pension plan assets. In 1999, the
Company recovered the pre-tax amount of $37.3 million under these provisions.
While not affecting reported operating profit, cash flow increased by the
after-tax effect of the recovered amount.
In October 1998, the Company's Board of Directors authorized a stock
repurchase program to acquire up to 10 million shares of Allegheny Technologies
common stock. In December 1999, the Company's Board of Directors increased the
number of shares authorized for purchase in the stock repurchase program by 10
million shares. The shares may be purchased from time-to-time in the open market
or in negotiated transactions. During 1999, the Company repurchased 7.9 million
shares at a cost of $257.6 million. From the inception of the share repurchase
program through March 7, 2000, the Company repurchased 14.2 million shares on
the open market for a cost of $407.4 million.
In 1997, the Company repurchased 1.9 million shares of its common stock
at a cost of $107.7 million. The six million share repurchase program initiated
in 1997 was terminated on October 31, 1997 in connection with the announced
acquisition of Oremet, which was accounted for as a pooling of interests.
At a stockholders' meeting held on November 11, 1999, the Company's
stockholders approved a one-for-two reverse split of the Company's stock. The
reverse split was effective immediately following the spin-offs of Teledyne and
Water Pik on November 29, 1999. Share and per share amounts have been adjusted
for all periods presented to reflect this one-for-two reverse stock split.
STOCK REPURCHASE PROGRAM
(MILLIONS OF SHARES)
At the right-hand margin of the middle of the page appears a bar graph with the
title "Stock Repurchase Program ($ Millions)". The bar graph provides the
following information:
Year Stock Repurchased ($ Millions)
---- ------------------------------
1997 107.7
1998 49.4
1999 257.6
STOCK REPURCHASE PROGRAM
($ MILLIONS)
At the left-hand side of the bottom of the page is a bar graph with the title
"Stock Repurchase Program (Millions of Shares)". The bar graph provides the
following information:
Year Shares (Millions)
---- -----------------
1997 1.9
1998 1.3
1999 7.9
<PAGE> 7
25
On February 10, 2000, the Board of Directors declared a regular quarterly
dividend of $0.20 per share of common stock. The dividend was paid on March 14,
2000 to stockholders of record at the close of business on February 28, 2000.
The Company believes that internally generated funds, current cash on
hand and borrowings from existing credit lines will be adequate to meet
foreseeable needs. The Company may choose, however, to issue additional debt
depending on market conditions.
NEW ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards Board ("FASB") Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities," was issued in June 1998. This
statement establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. In June 1999, FASB
Statement No. 137, "Accounting for Derivative Instruments and Hedging
Activities: Deferral of the Effective Date of FASB Statement No. 133" was
issued. This statement delays the effective date of FASB Statement No. 133 to
all fiscal quarters of all fiscal years beginning after June 15, 2000. The
Company is presently evaluating the effect of adopting this statement.
OTHER MATTERS
EXECUTIVE MANAGEMENT TRANSITION
In October 1999, Thomas A. Corcoran became the Company's President and Chief
Executive Officer. Richard P. Simmons, Chairman, has announced that he will
retire from the Company's Board of Directors when his term as a director expires
at the 2000 Annual Stockholder's Meeting. In March 2000, the Company announced
that the Board of Directors had elected Mr. Corcoran as Chairman effective with
Mr. Simmons' retirement.
COSTS AND PRICING
Although inflationary trends in recent years have been moderate, during the same
period certain critical raw material costs, including nickel, have been
volatile. The Company primarily uses the last-in, first-out method of inventory
accounting which reflects current costs in the cost of products sold. The
Company considers these costs, the increasing costs of equipment and other costs
in establishing its sales pricing policies and has instituted raw material
surcharges on certain of its products to the extent permitted by competitive
factors in the marketplace. The Company continues to emphasize cost containment
in all aspects of its business.
IMPACT OF THE INTRODUCTION OF THE EURODOLLAR
The Company does not expect the transition by 11 member states of the European
Union to a common currency, the "euro," to have a material impact on the
Company's results of operations or financial condition. Like other companies
with European sales and operations, the Company anticipates that it will face
wage and product pricing transparency issues in participating countries;
however, the Company does not expect the resolution of these issues to have a
material adverse effect on the Company.
HEDGING
The Company uses derivative financial instruments from time to time to hedge
ordinary business risks regarding foreign currencies on product sales and to
partially hedge against volatile raw material cost fluctuations in the
Flat-Rolled Products and High Performance Metals segments.
Foreign currency exchange contracts are used to limit transactional
exposure to changes in currency exchange rates. The Company sometimes purchases
foreign currency forward contracts that permit it to sell specified amounts of
foreign currencies expected to be received from its export sales for
pre-established U.S. dollar amounts at specified dates. The forward contracts
are denominated in the same foreign currencies in which export sales are
denominated. These contracts, which are not financially material, are designated
as hedges of export sales transactions in which settlement will occur in future
periods and which otherwise would expose the Company, on the basis of its
aggregate net cash flows in respective currencies, to foreign currency risk.
A portion of the Company's operations consists of investments in foreign
subsidiaries. As a result, the Company's financial results could be affected by
changes in foreign currency exchange rates. To mitigate this foreign currency
translation risk, the Company has a practice of recapitalizing operations using
local foreign currency debt to replace direct equity investment. The average
interest rate to service this foreign debt is favorable to current U.S. interest
rates.
<PAGE> 8
26
As part of its risk management strategy, from time to time, the Company
purchases exchange-traded futures contracts to manage exposure to changes in
nickel prices, a component of raw material cost for some of its flat-rolled and
high performance metals products. The nickel futures contracts obligate the
Company to make or receive a payment equal to the net change in value of the
contract at its maturity. Some of these contracts can be designated as hedges of
the Company's firm sales commitments and are short-term in nature to correspond
to the commitment period. The gains and losses on these contracts are deferred
and recognized in earnings when realized as an adjustment to cost of goods sold.
Historically, the Company has not closed any significant contracts prior to the
execution of the underlying sale transaction, nor have any of the underlying
sales transactions for such significant contracts failed to occur which resulted
in a material adverse effect on the Company.
Allegheny Technologies has guaranteed the outstanding Allegheny Ludlum
fixed rate 6.95 percent debentures due in 2025. In a period of declining
interest rates, the Company faces the risk of required interest payments
exceeding those based on the then current market rate. To mitigate interest rate
risk, the Company attempts to maintain a reasonable balance between fixed and
variable rate debt to keep financing costs as low as possible.
The Company believes that adequate controls are in place to monitor these
hedging activities, which are not financially material. However, many factors,
including those beyond the control of the Company such as changes in domestic
and foreign political and economic conditions, as well as the magnitude and
timing of interest rate changes, could adversely affect these activities.
ENVIRONMENTAL
The Company is subject to various domestic and international environmental laws
and regulations which require that it investigate and remediate the effects of
the release or disposal of materials at sites associated with past and present
operations, including sites at which the Company has been identified as a
potentially responsible party under the Comprehensive Environmental Response,
Compensation and Liability Act, commonly known as Superfund, and comparable
state laws. The Company is currently involved in the investigation and
remediation of a number of sites under these laws. The Company's reserves for
environmental remediation totaled approximately $58.1 million at December 31,
1999. Based on currently available information, management does not believe that
future environmental costs in excess of those accrued with respect to sites with
which the Company has been identified are likely to have a material adverse
effect on the Company's financial condition or liquidity. The resolution in any
reporting period of one or more of these matters could have a material adverse
effect on the Company's results of operations for that period.
With respect to proceedings brought under the federal Superfund laws, or
similar state statutes, the Company has been identified as a potentially
responsible party at approximately 32 of such sites, excluding those at which it
believes it has no future liability. The Company's involvement is very limited
or de minimis at approximately 14 of these sites, and the potential loss
exposure with respect to any of the remaining 18 individual sites is not
considered to be material.
For additional discussion of environmental matters, see Notes 1 and 15 of
the Notes to Consolidated Financial Statements.
GOVERNMENT CONTRACTS
One of the Company's operating companies directly performs work on contracts
with the U.S. Government. Various claims (whether based on U.S. Government or
Company audits and investigations or otherwise) have been or may be asserted
against the Company related to its U.S. Government contract work, including
claims based on business practices and cost classifications and actions under
the False Claims Act. Under the False Claims Act, a person may assert the rights
of the U.S. Government by initiating a suit under seal against a contractor. For
the claim to be successful, the person must have information that the contractor
falsely submitted a claim to the U.S. Government for payment. The U.S.
Government may choose to intervene and assume control of the case.
Government contracting claims may be resolved by detailed fact-finding
and negotiation. When they are not resolved in that way, civil or criminal legal
or administrative proceedings may ensue. Depending on the circumstances and the
outcome, such proceedings could result in fines, penalties, compensatory and
treble damages or the cancellation or suspension of payments under one or more
U.S. Government contracts. Under government regulations, a company, or one or
more of its operating divisions or units, can also be suspended or debarred from
government contracts based on the results of investigations.
Given the limited extent of the Company's business with the U.S.
Government, the Company believes that a suspension or debarment of the Company
would not have a material adverse effect on the future operating results and
consolidated financial condition of the Company. Although the outcome of these
matters cannot be predicted with certainty, management does not believe there is
any audit, review or investigation currently pending against the Company of
which management is aware that is likely to have a material adverse effect on
the Company's financial condition or liquidity. The resolution in any reporting
period of one or more of these matters could have a material adverse effect on
the Company's results of operations for that period.
For additional discussion of government contract matters, see Note 15 of
the Notes to Consolidated Financial Statements.
<PAGE> 9
27
YEAR 2000
The Company did not experience any significant malfunctions or errors in its
operating or business systems when the year changed from 1999 to 2000. Based on
its operational experience since January 1, 2000, the Company does not expect
that Year 2000 matters will have a significant adverse effect on its business in
the future. The full impact of the date change, which was of concern due to
computer programs that use two digits instead of four digits to define years,
may, however, not yet be fully known. For example, it is possible that Year 2000
or related problems such as those possibly associated with the fact that 2000 is
a leap year, could occur with respect to billing, payroll or financial closings
at month-, quarter- or year-end. The Company believes that any such problems are
not likely to be material. In addition, Year 2000 or similar problems that
adversely affect the Company's customers or suppliers could have an impact on
the Company. To date, the Company has not experienced significant difficulties
resulting from Year 2000 problems of its customers and suppliers.
The Company expended $16 million on Year 2000 readiness efforts in 1998
and 1999. These efforts included replacing outdated, noncompliant hardware and
noncompliant software as well as identifying and remediating other Year 2000
problems. Substantially all costs related to the Company's Year 2000 initiatives
were expensed as incurred and funded through operating cash flows.
FORWARD LOOKING AND OTHER STATEMENTS
From time to time, the Company has made and may continue to make "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. This annual report contains many forward looking statements.
These statements, which represent the Company's expectations or beliefs
concerning various future events, include statements concerning: product demand,
including projected growth in stainless steel consumption; prices; raw material
costs; anticipated effects of acquisitions on earnings, cost savings and
operations of the Company; cash flow; anticipated business and economic
conditions; aerospace industry trends; cost reductions; expected capital
expenditures; impact of Year 2000 issues; effects of the euro currency
conversion; the outcome of any government inquiries, litigation or other
proceedings related to government contracts or other matters; and future
environmental costs. These statements are based on current expectations that
involve a number of risks and uncertainties, including those described under the
captions "Other Matters - Environmental" and "Other Matters - Government
Contracts." Actual results may differ materially from results anticipated in
forward looking statements. The Company assumes no duty to update its forward
looking statements. Other important factors that could cause actual results to
differ from those in such forward looking statements include the following:
Cyclical Demand for Products. Demand for the Company's products is
cyclical because the industries in which customers of such businesses operate
are cyclical. Various changes in general economic conditions affect these
industries, including decreases in the rate of consumption or use of their
products due to economic recessions. Significant downturns in the domestic
economy are believed to have adversely affected the Company's results of
operations from time to time. Other factors causing fluctuation in market demand
and volatile pricing include national and international overcapacity, currency
fluctuations, lower priced imports and increases in use or decreases in prices
of substitute materials.
The current trend of price deflation for many commodity products may also
adversely affect prices for commodity grades of specialty materials and
industrial products. As a result of these factors, the Company's operating
results could be subject to significant fluctuation. For example, in recent
years, adverse pricing environments for commodity grades of stainless steel,
titanium products and tungsten products have negatively affected the Company's
sales and operating profit.
Volatility of Prices of Critical Raw Materials; Unavailability of Raw
Materials. Purchase prices of certain critical raw materials are volatile. As a
result, the Company's operating results could be subject to significant
fluctuation. For example, since the Company generally uses in excess of 47,500
tons of nickel each year, a hypothetical change of $1.00 per pound in nickel
prices would result in increased costs of approximately $95 million. While
nickel surcharges are intended to offset the impact of increased nickel costs,
competitive factors in the marketplace can limit the Company's ability to
institute surcharges and there can be a delay between the increase in the price
of nickel and the realization of the benefit of the surcharges. The Company
enters into raw material future contracts from time to time to hedge its
exposure to price fluctuation. The Company believes that it has adequate
controls to monitor these contracts which are not financially material.
Certain important raw materials used to produce specialty materials must
be acquired from foreign sources. Some of these sources operate in countries
that may be subject to unstable political and economic conditions. These
conditions may disrupt supplies or affect the prices of these materials.
Risks of Export Sales. The Company believes that export sales will
account for an increasing percentage of the Company's sales. Risks associated
with export sales include: political and economic instability, including weak
conditions in the world's economies; accounts receivable collection; export
controls; changes in legal and regulatory requirements; policy changes affecting
the markets for the Company's products; changes in tax laws and tariffs; and
exchange rate fluctuations (which may affect sales to international customers
and the value of and profits earned on export sales when converted into
dollars). Any of these factors could materially adversely effect the Company's
results.
<PAGE> 10
28
Risks Associated with Acquisition and Disposition Strategies. The Company
intends to continue to strategically position its businesses in order to improve
its ability to compete. The Company plans to do this by seeking specialty
niches, expanding its global presence, acquiring businesses complementary to
existing strengths and continually evaluating the performance and strategic fit
of existing business units. The Company regularly considers acquisition and
business combination opportunities as well as possible business unit
dispositions. Its management from time to time holds discussions with management
of other companies to explore such opportunities. As a result, the relative
makeup of the businesses comprising the Company is subject to change.
Acquisitions involve various inherent risks, such as: assessing accurately the
value, strengths, weaknesses, contingent and other liabilities and potential
profitability of acquisition candidates; the potential loss of key personnel of
an acquired business; the Company's ability to achieve identified financial and
operating synergies anticipated to result from an acquisition; and unanticipated
changes in business and economic conditions affecting an acquired business.
International acquisitions could be affected by export controls, exchange rate
fluctuations, the euro conversion, domestic and foreign political conditions and
a deterioration in domestic and foreign economic conditions.
Uncertainties Relating to Synergies. There can be no assurance that the
Company will be able to realize, or do so within any particular time frame, the
cost reductions, cash flow increases or other synergies expected to result from
acquisitions and other transactions the Company may undertake or be able to
generate additional revenue to offset any unanticipated inability to realize
such expected synergies. Realization of the anticipated benefits of acquisitions
and other transactions could take longer than expected and implementation
difficulties, market factors and a deterioration in domestic or global economic
conditions could alter the anticipated benefits.
Uncertainties Relating to Spin-Offs-General. In the spin-offs of Teledyne
and Water Pik, completed in November 1999, the new companies agreed to assume
and to defend and hold the Company harmless against all liabilities (other than
certain income tax liabilities) associated with the historical operations of
their businesses, including all government contracting, environmental, product
liability and other claims and demands, whenever any such claims or demands
might arise or be made. If the new companies were unable or otherwise fail to
satisfy these assumed liabilities, the Company could be required to satisfy
them, which could have a material adverse effect on the Company's results of
operations and financial condition.
Uncertainties Relating to Spin-Offs-Tax Ruling. While the tax ruling
relating to the qualification of the spin-offs of Teledyne and Water Pik as
tax-free distributions within the meaning of the Internal Revenue Code generally
is binding on the Internal Revenue Service, the continuing validity of the tax
ruling is subject to certain factual representations and uncertainties that,
among other things, require the new companies to take or refrain from taking
certain actions. If a spin-off were not to qualify as a tax-free distribution
within the meaning of the Internal Revenue Code, the Company would recognize
taxable gain generally equal to the amount by which the fair market value of the
common stock distributed to the Company's stockholders in the spin-off exceeded
the Company's basis in the new company's assets. In addition, the distribution
of the new company's common stock to Company stockholders would generally be
treated as taxable to the Company's stockholders in an amount equal to the fair
market value of the common stock they received. If a spin-off qualified as a
distribution within the meaning of the Internal Revenue Code but was
disqualified as tax-free to the Company because of certain post-spin-off
circumstances, the Company would recognize taxable gain as described in the
preceding sentence, but the distribution of the new company's common stock to
the Company's stockholders in the spin-off would generally be tax-free to each
Company stockholder. In the spin-offs, the new companies executed tax sharing
and indemnification agreements in which each agreed to be responsible for any
taxes imposed on and other amounts paid by the Company, its agents and
representatives and its stockholders as a result of the failure of the spin-off
to qualify as a tax-free distribution within the meaning of the Internal Revenue
Code if the failure or disqualification is caused by post-spin-off actions by or
with respect to that company or its stockholders. Potential liabilities under
these agreements could exceed the respective new company's net worth by a
substantial amount. If either or both of the spin-offs were not to qualify as
tax-free distributions to the Company or its stockholders, and either or both of
the new companies were unable or otherwise failed to satisfy the liabilities
they assumed under the tax sharing and indemnification agreements, the Company
could be required to satisfy them without full recourse against the new
companies. This could have a material adverse effect on the Company's results of
operations and financial condition.
Labor Matters. The Company has approximately 11,500 employees.
Approximately 48 percent of the Company's workforce is covered by various
collective bargaining agreements, principally with the United Steelworkers of
America ("USWA"), including: approximately 400 Oremet employees covered by a
collective bargaining agreement with the USWA which is effective through July
31, 2000; approximately 600 Wah Chang employees covered by a collective
bargaining agreement with the USWA which is effective through October 1, 2000;
and approximately 3,900 Allegheny Ludlum production and maintenance employees
covered by collective bargaining agreements between Allegheny Ludlum and the
USWA, which are effective through June 30, 2001.
In 1994, following the expiration of a prior collective bargaining
agreement between Allegheny Ludlum and the USWA, the USWA authorized a strike by
its members that lasted 10 weeks and materially adversely affected Allegheny
Ludlum's operating results. There can be no assurance that the Company will
succeed in concluding collective bargaining agreements with the USWA or other
unions to replace those that expire.
Additional factors are described from time to time in the Company's
filings with the Securities and Exchange Commission.
<PAGE> 11
29
ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions except per share amounts)
<TABLE>
<CAPTION>
For the Years Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES $2,296.1 $2,402.4 $2,500.9
- ------------------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 1,877.9 1,831.7 1,929.4
Selling and administrative expenses 229.1 244.4 228.2
Transformation, merger and restructuring costs 5.6 67.8 12.0
Interest expense, net 25.9 19.4 16.9
- ------------------------------------------------------------------------------------------------------------------------------------
2,138.5 2,163.3 2,186.5
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings before other income 157.6 239.1 314.4
Other income 16.6 10.7 50.1
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES AND EXTRAORDINARY GAINS 174.2 249.8 364.5
Provision for income taxes 63.2 94.8 134.1
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY GAINS 111.0 155.0 230.4
Income from discontinued operations, net of income taxes 59.6 86.2 98.4
Extraordinary gains on sales of operations, net of income taxes 129.6 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 300.2 $ 241.2 $ 328.8
- ------------------------------------------------------------------------------------------------------------------------------------
Basic net income per common share:
Income from continuing operations before
extraordinary gains $ 1.17 $ 1.57 $ 2.34
Income from discontinued operations 0.62 0.88 1.00
Extraordinary gains on sales of operations 1.36 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
BASIC NET INCOME PER COMMON SHARE $3.15 $ 2.45 $ 3.34
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted net income per common share:
Income from continuing operations before
extraordinary gains $ 1.16 $ 1.56 $ 2.30
Income from discontinued operations 0.62 0.87 0.98
Extraordinary gains on sales of operations 1.35 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
DILUTED NET INCOME PER COMMON SHARE $ 3.13 $ 2.43 $ 3.28
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 12
30
ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions except share and per share amounts)
<TABLE>
<CAPTION>
DECEMBER 31, December 31,
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 50.7 $ 74.2
Accounts receivable 341.2 314.0
Inventories 558.3 555.3
Deferred income taxes 62.6 39.2
Prepaid expenses and other current assets 20.7 24.6
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,033.5 1,007.3
Property, plant and equipment 912.4 887.6
Prepaid pension cost 503.7 436.8
Cost in excess of net assets acquired 204.2 208.6
Net assets of discontinued operations -- 298.5
Other assets 96.8 104.7
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $2,750.6 $2,943.5
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 172.9 $ 140.9
Accrued liabilities 214.4 223.3
Short-term debt and current portion of long-term debt 152.7 68.2
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 540.0 432.4
Long-term debt 200.3 430.6
Accrued postretirement benefits 544.8 549.6
Other 265.3 191.0
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,550.4 1,603.6
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Preferred stock, par value $0.10: authorized - 50,000,000 shares; issued - none -- --
Common stock, par value $0.10: authorized - 500,000,000 shares; issued -
98,951,490 in 1999 and 98,968,832 in 1998; outstanding - 90,368,196
shares in 1999 and 97,436,576 shares in 1998 9.9 9.9
Additional paid-in capital 481.0 477.2
Retained earnings 994.5 923.9
Treasury stock: 8,583,294 shares in 1999 and 1,532,256 shares in 1998 (288.7) (67.6)
Foreign currency translation losses (3.7) (5.9)
Unrealized gains on securities 7.2 2.4
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 1,200.2 1,339.9
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,750.6 $2,943.5
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 13
31
ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
<TABLE>
<CAPTION>
For the Years Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 300.2 $ 241.2 $ 328.8
Adjustments to reconcile net income to
net cash provided by operating activities:
Extraordinary gains on sales of operations, net of tax (129.6) -- --
Depreciation and amortization 95.3 82.1 84.3
Income from discontinued operations, net of tax (59.6) (86.2) (98.4)
Deferred income taxes (11.3) (6.7) (4.9)
Non-cash restructuring costs -- 50.9 --
Gains on sales of investments and businesses -- -- (68.5)
Change in operating assets and liabilities:
Accrued income taxes (69.4) (0.3) 38.6
Prepaid pension cost (66.9) (47.4) (25.0)
Accounts payable 31.9 (54.7) (16.0)
Accrued liabilities 28.0 1.2 (42.4)
Accounts receivable (26.5) 59.2 (24.5)
Tax refund 2.4 6.1 37.7
Inventories (0.5) 49.6 (52.3)
Other 8.9 (2.7) (0.9)
- ------------------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATING ACTIVITIES 102.9 292.3 156.5
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from sales of businesses and investments 370.4 -- 112.1
Proceeds from spin-offs of Teledyne and Water Pik 134.0 -- --
Purchases of property, plant and equipment (74.1) (138.9) (91.4)
Disposals of property, plant and equipment 28.5 19.6 30.4
Purchases of businesses and investment in ventures (23.9) (218.9) (37.8)
Short-term investments - sales -- 34.4 28.9
Other (5.2) (3.4) (3.7)
- ------------------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 429.7 (307.2) 38.5
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Purchases of common stock (257.6) (49.4) (107.7)
Dividends paid (122.1) (122.3) (112.2)
Net borrowings (repayments) under credit agreements (82.2) 121.5 (90.9)
Payments on short-term debt (70.0) -- --
Exercises of stock options 8.2 8.3 35.5
Payments on long-term debt and capital leases (1.7) (6.9) (24.7)
- ------------------------------------------------------------------------------------------------------------------------------------
CASH USED IN FINANCING ACTIVITIES (525.4) (48.8) (300.0)
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS (30.7) 84.6 95.6
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (23.5) 20.9 (9.4)
Cash and cash equivalents at beginning of year 74.2 53.3 62.7
- ------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 50.7 $ 74.2 $ 53.3
- ------------------------------------------------------------------------------------------------------------------------------------
NON-CASH TRANSACTIONS:
Assets acquired under promissory note $ -- $ 65.9 $ --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Amounts presented on the Consolidated Statements of Cash Flows may not agree to
the corresponding changes in balance sheet items due to the accounting for
purchases and sales of businesses and the effects of foreign currency
translation. Cash provided by operating activities in 1999 is net of payments of
taxes on gains on sales of operations of $79.9 million. Excluding these tax
payments, cash provided by operating activities was $182.8 million.
The accompanying notes are an integral part of these statements.
<PAGE> 14
32
ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In millions except per share amounts)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-In Retained Treasury Comprehensive Stockholders'
Stock Capital Earnings Stock Income Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 $9.8 $418.9 $635.5 $-- $11.2 $1,075.4
- -----------------------------------------------------------------------------------------------------------------------------------
Net income -- -- 328.8 -- -- 328.8
Other comprehensive income, net of tax:
Foreign currency translation losses -- -- -- -- (5.0) (5.0)
Unrealized losses on securities:
Unrealized holding gains arising
during period -- -- -- -- 9.7 9.7
Less: realized gain included
in net income -- -- -- -- 17.0 17.0
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income -- -- 328.8 -- (12.3) 316.5
Cash dividends on common stock
($1.28 per share) -- -- (112.2) -- -- (112.2)
Purchase of common stock -- -- -- (107.7) -- (107.7)
Employee stock plans 0.1 54.5 (29.5) 47.5 -- 72.6
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 9.9 473.4 822.6 (60.2) (1.1) 1,244.6
- -----------------------------------------------------------------------------------------------------------------------------------
Net income -- -- 241.2 -- -- 241.2
Other comprehensive income, net of tax:
Foreign currency translation losses -- -- -- -- (3.5) (3.5)
Unrealized gains on securities:
Unrealized holding gains arising
during period -- -- -- -- 2.2 2.2
Less: realized gain included
in net income -- -- -- -- 1.1 1.1
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income -- -- 241.2 -- (2.4) 238.8
Cash dividends on common stock
($1.28 per share) -- -- (122.3) -- -- (122.3)
Purchase of common stock -- -- -- (49.4) -- (49.4)
Employee stock plans -- 3.8 (17.6) 42.0 -- 28.2
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 9.9 477.2 923.9 (67.6) (3.5) 1,339.9
- -----------------------------------------------------------------------------------------------------------------------------------
Net income -- -- 300.2 -- -- 300.2
Other comprehensive income, net of tax:
Foreign currency translation gains (losses):
Foreign currency translation
losses arising during period -- -- -- -- (2.5) (2.5)
Less: foreign currency translation
losses due to sale of foreign entities -- -- -- -- (5.2) (5.2)
Unrealized gains on securities:
Unrealized holding gains arising
during period -- -- -- -- 5.8 5.8
Less: realized gain included
in net income -- -- -- -- 1.0 1.0
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income -- -- 300.2 -- 7.5 307.7
Purchase of common stock -- -- -- (257.6) -- (257.6)
Cash dividends on common stock
($1.28 per share) -- -- (122.1) -- -- (122.1)
Spin-off of Water Pik Technologies, Inc. -- -- (54.6) -- 0.3 (54.3)
Spin-off of Teledyne Technologies
Incorporated -- -- (41.6) -- (0.8) (42.4)
Employee stock plans -- 3.8 (11.3) 36.5 -- 29.0
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 $9.9 $481.0 $994.5 $(288.7) $3.5 $1,200.2
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 15
33
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
BOARD OF DIRECTORS
ALLEGHENY TECHNOLOGIES INCORPORATED
We have audited the accompanying consolidated balance sheets of Allegheny
Technologies Incorporated and subsidiaries as of December 31, 1999 and 1998 and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, based on our audits, the financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Allegheny Technologies Incorporated at December 31, 1999 and 1998,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
January 24, 2000
<PAGE> 16
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Allegheny
Technologies Incorporated and its subsidiaries. As described in Note 3, on March
24, 1998, Allegheny Technologies acquired the stock of Oregon Metallurgical
Corporation ("Oremet") in a merger transaction. This combination was accounted
for under the pooling of interests method of accounting and the consolidated
financial statements reflect the combined financial position, operating results
and cash flows of Allegheny Technologies and Oremet as if they had been combined
for all periods presented. Significant intercompany accounts and transactions
have been eliminated. Unless the context requires otherwise, "Allegheny
Technologies" and the "Company" refer to Allegheny Technologies Incorporated and
its subsidiaries.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts and related disclosures. Actual results could differ
from those estimates. Management believes that the estimates are reasonable.
CASH EQUIVALENTS
Marketable securities with original maturities of three months or less are
included in cash equivalents. The carrying amounts approximate market.
ACCOUNTS RECEIVABLE
Receivables are presented net of a reserve for doubtful accounts of $10.0
million at December 31, 1999 and $7.9 million at December 31, 1998. The Company
markets its products to a diverse customer base, principally throughout the
United States. Trade credit is extended based upon evaluations of each
customer's ability to perform its obligations, which are updated periodically.
INVENTORIES
Inventories are stated at the lower of cost (last-in, first-out; first-in,
first-out and average cost methods) or market, less progress payments. Costs
include direct material, direct labor and applicable manufacturing and
engineering overhead, and other direct costs.
PROPERTY AND EQUIPMENT
Property, plant and equipment are carried at cost. The principal method of
depreciation adopted for all property placed into service after July 1, 1996 is
the straight-line method. For buildings and equipment acquired prior to July 1,
1996, depreciation is computed using a combination of accelerated and
straight-line methods.
COST IN EXCESS OF NET ASSETS ACQUIRED
Cost in excess of net assets acquired related to businesses purchased after
November 1970 is being amortized on a straight-line basis over periods not
exceeding 40 years. Goodwill amortization expense was $5.8 million, $5.4 million
and $4.7 million in 1999, 1998 and 1997, respectively. The carrying value of
goodwill relative to the operating performance and future undiscounted cash
flows of the underlying businesses is evaluated periodically. Adjustments are
made if the sum of the expected future net cash flows is less than book value.
FINANCIAL INSTRUMENTS
The fair values of financial instruments approximated their carrying values at
December 31, 1999. Fair values have been determined through information obtained
from quoted market sources and management estimates.
The Company's investments in debt and equity securities are classified as
available-for-sale and are reported at fair values, with net unrealized
appreciation and depreciation on investments reported as a component of
accumulated other comprehensive income.
<PAGE> 17
35
ENVIRONMENTAL
Costs that mitigate or prevent future environmental contamination or extend the
life, increase the capacity or improve the safety or efficiency of property
utilized in current operations are capitalized. Other costs that relate to
current operations or an existing condition caused by past operations are
expensed. Environmental liabilities are recorded when the Company's liability is
probable and the costs are reasonably estimable, but generally not later than
the completion of the feasibility study or the Company's recommendation of a
remedy or commitment to an appropriate plan of action. The accruals are reviewed
periodically and, as investigations and remediations proceed, adjustments are
made as necessary. Accruals for losses from environmental remediation
obligations do not consider the effects of inflation, and anticipated
expenditures are not discounted to their present value. The accruals are not
reduced by possible recoveries from insurance carriers or other third parties,
but do reflect anticipated allocations among potentially responsible parties at
federal Superfund sites or similar state-managed sites and an assessment of the
likelihood that such parties will fulfill their obligations at such sites. The
measurement of environmental liabilities by the Company is based on currently
available facts, present laws and regulations, and current technology. Such
estimates take into consideration the Company's prior experience in site
investigation and remediation, the data concerning cleanup costs available from
other companies and regulatory authorities, and the professional judgment of the
Company's environmental experts in consultation with outside environmental
specialists, when necessary.
REVENUE RECOGNITION
Revenue is generally recorded as deliveries are made or as services are
rendered.
RESEARCH AND DEVELOPMENT
Company-funded research and development costs ($15.2 million in 1999, $18.1
million in 1998 and $19.2 million in 1997) are expensed as incurred.
INCOME TAXES
Provision for income taxes includes deferred taxes resulting from temporary
differences in income for financial and tax purposes using the liability method.
Such temporary differences result primarily from differences in the carrying
value of assets and liabilities.
REVERSE STOCK SPLIT
At a stockholders' meeting held on November 11, 1999, the Company's stockholders
approved a reduction in the authorized number of shares of the Company's common
stock and a one-for-two reverse stock split of the common stock. The reverse
stock split was effective immediately following the spin-offs of Teledyne
Technologies Incorporated and Water Pik Technologies, Inc. on November 29, 1999.
Stockholders' equity has been restated to give retroactive recognition to the
reverse stock split for all periods presented by reclassifying from common stock
to additional paid-in capital the par value of the number of shares that were
eliminated as a result of the reverse stock split. In addition, all references
in the financial statements and notes to the number of shares and per share
amounts, stock option data and market prices have been restated to reflect this
reverse stock split.
NET INCOME PER COMMON SHARE
Basic earnings per share is calculated by dividing net income available to
common stockholders by the weighted average of common shares outstanding during
the year. Diluted earnings per share is calculated by using the weighted average
of common shares outstanding adjusted to include the potentially dilutive effect
of outstanding stock options.
NEW ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards Board ("FASB") Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities," was issued in June 1998. This
statement establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. In June 1999, FASB
Statement No. 137, "Accounting for Derivative Instruments and Hedging
Activities: Deferral of the Effective Date of FASB Statement No. 133" was
issued. This statement delays the effective date of FASB Statement No. 133 to
all fiscal quarters of all fiscal years beginning after June 15, 2000. The
Company is presently evaluating the effect of adopting this statement.
RECLASSIFICATIONS
Certain amounts from prior years have been reclassified to conform with the 1999
presentation, including classification of the companies spun-off and sold as
discontinued operations.
<PAGE> 18
36
NOTE 2.
DISCONTINUED OPERATIONS--
On January 19, 1999, the Company announced its plans to effect a major
transformation of the Company that included the sales of several of the
Company's businesses and the spin-offs of certain businesses in two of the
Company's former business segments into independent, publicly-traded companies
(the "spin-offs"). Teledyne Technologies Incorporated ("Teledyne") is comprised
of certain businesses in the Company's former Aerospace and Electronics segment.
Water Pik Technologies, Inc. ("Water Pik") is comprised of the Company's former
Consumer segment.
Prior to the spin-offs, the Company received a tax ruling from the
Internal Revenue Service that the spin-offs would be tax-free to the Company and
to the Company's stockholders.
On November 29, 1999, the Company distributed all of the common stock of
Teledyne and Water Pik to the Company's stockholders of record as of November
22, 1999. Stockholders of record received one share of Teledyne common stock for
every seven shares of Allegheny Technologies common stock and one share of Water
Pik common stock for every twenty shares of Allegheny Technologies common stock,
based on the number of shares of Allegheny Technologies common stock they held
prior to the reverse split. Immediately following the spin-offs, the Company
effected a one-for-two reverse split of its common stock and changed its name
from Allegheny Teledyne Incorporated to Allegheny Technologies Incorporated.
In 1999, the Company sold its unmanned aerial vehicle and its pyrotechnic
components and systems businesses, known as Ryan Aeronautical and McCormick
Selph Ordnance Unit, respectively, as well as the pressure relief valve, vehicle
control valve, nitrogen gas springs, consumer drinkware, construction and mining
equipment and material handling businesses. The Company recognized extraordinary
gains of $129.6 million, net of $79.9 million in taxes, in connection with the
sales of these businesses.
Discontinued operations include all companies that were spun-off or have
been sold.
Results of discontinued operations for the years ended December 31, 1999,
1998 and 1997 were as follows:
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,175.7 $1,521.0 $1,529.2
- -----------------------------------------------------------------------------------------------------------------------------
Income before taxes 87.4 141.4 159.7
Provision for income taxes 27.8 55.2 61.3
- -----------------------------------------------------------------------------------------------------------------------------
Income from discontinued operations $ 59.6 $ 86.2 $ 98.4
</TABLE>
For Teledyne and Water Pik, the 1999 column represents the eleven month
period ended November 29, 1999. The income statements of sold companies are
reflected in the above table through the date of sale.
Income from discontinued operations also includes non-deductible spin-off
and transformation costs that primarily consist of legal and advisory services
incurred in connection with these transactions.
The net assets of companies sold or spun-off are reflected as net assets
of discontinued operations in the consolidated balance sheet as of December 31,
1998, and are comprised of the following:
<TABLE>
<CAPTION>
(In millions)
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Current assets $357.2
Property, plant and equipment 116.0
Other noncurrent assets 57.3
Current liabilities (189.9)
Noncurrent liabilities (42.1)
- ----------------------------------------------------------------------------------------------------------
Total net assets of discontinued operations $298.5
</TABLE>
In connection with the sales of businesses, certain liabilities were
retained by the Company. These retained liabilities are not included in net
assets of discontinued operations.
<PAGE> 19
37
NOTE 3.
ACQUISITION OF OREMET--
On March 24, 1998, Allegheny Technologies completed its acquisition of the stock
of Oremet, an integrated producer and distributor of titanium sponge, ingot,
mill products and castings. Under the terms of the merger agreement, Oremet
shareholders received 0.648 shares of Allegheny Technologies common stock in a
tax-free exchange for each share of Oremet common stock. A total of 10.8 million
shares of Allegheny Technologies stock were issued in the merger. The merger was
accounted for under the pooling of interests accounting method. Intercompany
transactions prior to the merger were not material. The effect of conforming
accounting policies was not material. Oremet's operations have been integrated
into the High Performance Metals segment.
The Company recorded merger and restructuring charges of $19.1 million
($15.7 million net of tax) in 1998 for financial advisory, legal, accounting,
severance and other costs associated with the merger.
NOTE 4.
INVENTORIES--
<TABLE>
<CAPTION>
DECEMBER 31, December 31,
(In millions) 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials and supplies $108.1 $145.8
Work-in-process 437.8 394.6
Finished goods 113.1 100.5
- ------------------------------------------------------------------------------------------------------------------------------
Total inventories at current cost 659.0 640.9
Less allowances to reduce current cost values to LIFO basis (95.0) (80.3)
Progress payments (5.7) (5.3)
- ------------------------------------------------------------------------------------------------------------------------------
Total inventories $558.3 $555.3
</TABLE>
Inventories, before progress payments, determined on the last-in,
first-out method were $445.1 million at December 31, 1999 and $383.7 million at
December 31, 1998. The remainder of the inventory was determined using the
first-in, first-out and average cost methods. These inventory values do not
differ materially from current cost.
The Company enters into raw material (principally nickel) future
contracts from time to time to hedge its exposure to price fluctuations. Gains
and losses on hedged contracts are deferred and recognized in cost of sales upon
expiration of the contract period. These contracts are not significant to the
Company's total raw material purchases and are not material to the Company from
a financial point of view.
<PAGE> 20
38
NOTE 5.
LONG-TERM DEBT--
CREDIT AGREEMENTS
The Company has entered into a credit agreement with a group of banks that
provides for borrowings of up to $500 million on a revolving credit basis. The
agreement, as extended, is scheduled to expire in August 2002. Interest is
payable at prime or other alternative interest rate bases, at the Company's
option. The agreement provides for an annual facility fee of 0.075 percent. The
agreement has various covenants that limit the Company's ability to dispose of
properties and merge with another corporation. The Company is also required to
maintain certain financial ratios as defined in the agreement that can limit the
amount of dividend payments and share repurchases. Under the most restrictive
requirement, approximately 56 percent of the Company's retained earnings is
currently free of restrictions pertaining to cash dividend distributions and
share repurchases.
In the 1998 fourth quarter, the Company entered into three short-term
credit agreements that provide for borrowings totaling up to $185.0 million on a
revolving credit basis. One of these agreements is a committed line of $75.0
million with an annual facility fee of 0.07 percent. The remaining two credit
agreements are uncommitted lines with no annual facility fees. The agreements,
as extended, are scheduled to expire during 2000. Interest rates are determined
at the time of borrowing based on current market conditions. At December 31,
1999, borrowings under the agreements were $149.0 million at a weighted average
annual interest rate of 6.6 percent.
The Company's subsidiaries also maintain credit agreements with various
foreign banks which provide for additional borrowings of up to $51.1 million.
These agreements provide for annual facility fees of up to 0.20 percent.
Borrowings outstanding under the credit agreements are unsecured.
Commitments under separate standby letters of credit outstanding were
$51.2 million at December 31, 1999 and $46.1 million at December 31, 1998.
PROMISSORY NOTE
In November 1998, Allegheny Ludlum Corporation issued a $70.0 million
non-interest bearing promissory note to Bethlehem Steel Corporation in
conjunction with the acquisition of certain of its stainless steel assets. This
note was repaid in December 1999.
<TABLE>
<CAPTION>
Debt at December 31, 1999 and 1998 was as follows:
(In millions) 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Credit agreements $ 173.3 $255.7
Allegheny Ludlum 6.95% debentures, due 2025 150.0 150.0
Industrial revenue bonds, due 2000 through 2007 12.7 14.0
Allegheny Ludlum promissory note -- 65.9
Capitalized leases and other 17.0 13.2
- ------------------------------------------------------------------------------------------------------------------------------------
353.0 498.8
Short-term debt and current portion of long-term debt (152.7) (68.2)
- ------------------------------------------------------------------------------------------------------------------------------------
Total long-term debt $ 200.3 $430.6
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average interest rate of borrowings outstanding under the
credit agreements was 6.2 percent at December 31, 1999 and 5.3 percent at
December 31, 1998.
Scheduled maturities of borrowings during the next five years are $1.3
million in 2000, $1.4 million in 2001, $15.6 million in 2002, $4.2 million in
2003 and $1.1 million in 2004. Scheduled repayments under revolving credit
agreements are $151.4 million in 2000 and $21.9 million in 2002.
Interest expense was $30.7 million in 1999, $29.9 million in 1998 and
$29.4 million in 1997. Interest and commitment fees paid were $31.5 million in
1999, $30.0 million in 1998 and $30.9 million in 1997.
<PAGE> 21
39
NOTE 6.
SUPPLEMENTAL BALANCE SHEET INFORMATION--
<TABLE>
<CAPTION>
Cash and cash equivalents at December 31, 1999 and 1998 were as follows:
(In millions) 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash $49.6 $54.2
Other short-term investments, at cost which approximates market 1.1 20.0
- ------------------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents $50.7 $74.2
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Accounts payable included $8.8 million at December 31, 1999 and $5.9
million at December 31, 1998 for checks outstanding in excess of cash balances.
Property, plant and equipment at December 31, 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
(In millions) 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $29.9 $32.4
Buildings 208.8 217.7
Equipment and leasehold improvements 1,519.2 1,423.6
- ------------------------------------------------------------------------------------------------------------------------------------
1,757.9 1,673.7
Accumulated depreciation and amortization (845.5) (786.1)
- ------------------------------------------------------------------------------------------------------------------------------------
Total property, plant and equipment $912.4 $887.6
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Accrued liabilities included salaries and wages of $42.2 million and
$51.4 million in 1999 and 1998, respectively.
NOTE 7.
COMPREHENSIVE INCOME--
The components of comprehensive income, net of tax, for the years ended December
31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (net of taxes of $170.9, $150.0 and $195.4, respectively) $300.2 $241.2 $328.8
Foreign currency translation gains (losses):
Foreign currency translation losses arising during period (2.5) (3.5) (5.0)
Less: foreign currency translation losses due to sale of foreign entities (5.2) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
2.7 (3.5) (5.0)
Unrealized gains (losses) on securities:
Unrealized holding gains arising during period
(net of taxes of $3.6, $1.4 and $6.0, respectively) 5.8 2.2 9.7
Less: realized gains included in net income
(net of taxes of $0.5, $0.7 and $10.6, respectively) 1.0 1.1 17.0
- ------------------------------------------------------------------------------------------------------------------------------------
4.8 1.1 (7.3)
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income $307.7 $238.8 $316.5
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 22
40
NOTE 8.
STOCKHOLDERS' EQUITY--
PREFERRED STOCK
Authorized preferred stock may be issued in one or more series, with
designations, powers and preferences as shall be designated by the Board of
Directors. At December 31, 1999, there were no shares of preferred stock issued.
COMMON STOCK
At a stockholders' meeting held on November 11, 1999, the Company's stockholders
approved a reduction in the authorized number of shares of the Company's common
stock and a one-for-two reverse stock split of the common stock. The reverse
stock split was effective immediately following the spin-offs of Teledyne and
Water Pik on November 29, 1999. Stockholders' equity has been restated to give
retroactive recognition to the reverse stock split for all periods presented by
reclassifying from common stock to additional paid-in capital the par value of
the number of shares that were eliminated as a result of the reverse stock
split. In addition, all references in the financial statements and notes to the
number of shares and per share amounts, stock option data and market prices have
been restated to reflect this reverse stock split.
Stock options granted under the Company's 1996 Incentive Plan and
predecessor plans have been and may be granted generally at not less than market
prices on the dates of grant. Options granted under the Incentive Plan have a
maximum term of 10 years. Vesting of stock options granted under the Incentive
Plan generally occurs in three annual increments, beginning on the first
anniversary of the grant date. As of December 31, 1999, approximately 770,000
shares of common stock were reserved for future awards under the Incentive Plan.
The Company accounts for its stock option plans in accordance with APB
Opinion 25, "Accounting for Stock Issued to Employees," and related
Interpretations. Under APB Opinion 25, no compensation expense is recognized
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock at the date of the grant. If compensation
cost for these plans had been determined using the fair-value method prescribed
by FASB Statement No. 123, "Accounting for Stock-based Compensation," net income
would have been reduced by $5.8 million (or $0.06 per diluted share), $3.8
million (or $0.04 per diluted share) and $3.0 million (or $0.03 per diluted
share) for the years ended December 31, 1999, 1998 and 1997, respectively.
Income from continuing operations, net of tax, would have been reduced by
approximately $3.0 million (or $0.03 per diluted share) for the year ended
December 31, 1999 had the fair-value method of determining compensation expense
been used.
Under FASB Statement No. 123, the fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected dividend yield 3.7% 2.8% 2.5%
Expected volatility 35% 31% 31%
Risk-free interest rate 6.5% 5.0% 6.4%
Expected lives 8.0 8.0 8.0
Weighted-average fair value of options granted during year $7.33 $14.53 $16.52
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Stock option transactions under the Company's employee plans are
summarized as follows:
<TABLE>
<CAPTION>
(shares in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
NUMBER OF AVERAGE NUMBER OF AVERAGE NUMBER OF AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 3,578 $38.46 2,366 $30.36 4,435 $25.62
Granted 2,256 $22.00 1,721 $45.86 87 $46.06
Exercised (408) $17.90 (350) $21.34 (1,813) $20.42
Cancelled (301) $33.69 (159) $35.12 (343) $25.66
Teledyne and Water
Pik spin-offs (646) $39.19 -- $ -- -- $ --
Spin-off modification 391 $ -- -- $ -- -- $ --
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding, end of year 4,870 $29.66 3,578 $38.46 2,366 $30.36
- ------------------------------------------------------------------------------------------------------------------------------------
Exercisable at end of year 1,396 $33.57 1,229 $29.14 994 $24.94
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 23
41
In the spin-offs of Teledyne and Water Pik, options to purchase Company
stock that were held by employees of those two companies were converted into
options to purchase Teledyne or Water Pik common stock, respectively. The number
and exercise price of the other outstanding Company options were adjusted so
that the "intrinsic value" of the options (that is, the difference between the
market value of the stock that would be acquired on exercise of the options and
the exercise price of the options) before the spin-offs would be equivalent to
the intrinsic value of the options immediately after the spin-offs.
Exercise prices for options outstanding as of December 31, 1999, as
adjusted, ranged from $15.01 to $49.84. The weighted-average remaining
contractual life of those options is 8.3 years.
Compensation expense related to the various stock-based plans was $23.1
million in 1999, $10.6 million in 1998 and $13.2 million in 1997.
STOCKHOLDERS' RIGHTS PLAN
On March 12, 1998, the Company's Board of Directors unanimously adopted a
stockholder rights plan under which preferred share purchase rights were
distributed as a dividend on shares of Allegheny Technologies common stock.
The rights will be exercisable only if a person or group acquires 15
percent or more of the Company's common stock or announces a tender offer, the
consummation of which would result in ownership by a person or group of 15
percent or more of the common stock. Each right will entitle stockholders to
then buy two one-hundredths of a share of a series of junior participating
preferred stock at an exercise price of $100.
The dividend distribution was made on March 23, 1998, payable to
stockholders of record on that date. The rights will expire on March 12, 2008,
subject to earlier redemption or exchange by Allegheny Technologies as described
in the plan.
NOTE 9.
INCOME TAXES--
Provision for income taxes from continuing operations was as follows:
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $24.1 $72.1 $100.1
State 4.3 8.6 17.9
Foreign 9.3 10.2 9.7
- --------------------------------------------------------------------------------------------------------------------------------
Total 37.7 90.9 127.7
- --------------------------------------------------------------------------------------------------------------------------------
Deferred:
Federal 24.1 2.5 1.5
State 1.4 0.4 4.5
Foreign -- 1.0 0.4
- --------------------------------------------------------------------------------------------------------------------------------
Total 25.5 3.9 6.4
- --------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes $63.2 $94.8 $134.1
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In general, the Company is responsible for filing consolidated U.S.
federal and consolidated, combined, unitary or separate state income tax
returns, which would include the results of operations from the spun-off
companies through the date of the spin-offs, and for paying the taxes relating
to such returns including any subsequent adjustments resulting from the
redetermination of such tax liability by the applicable taxing authorities.
Income taxes paid for continuing and discontinued operations were $136.3
million, $142.3 million and $131.1 million in 1999, 1998 and 1997, respectively.
Income from continuing operations before income taxes and extraordinary
gains included income from domestic operations of $153.5 million in 1999, $220.4
million in 1998 and $361.2 million in 1997.
<PAGE> 24
42
The following is a reconciliation of the statutory federal income tax
rate to the actual effective income tax rate for continuing operations:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal tax rate 35.0% 35.0% 35.0%
State and local income taxes, net of federal tax benefit 2.8% 3.2% 4.3%
Capitalization of merger and restructuring costs --% 1.1% --%
Other (1.5)% (1.3)% (2.5)%
- ------------------------------------------------------------------------------------------------------------------------------------
Effective income tax rate 36.3% 38.0% 36.8%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Deferred income taxes result from temporary differences in the
recognition of income and expense for financial and income tax reporting
purposes, and differences between the fair value of assets acquired in business
combinations accounted for as purchases for financial reporting purposes and
their corresponding tax bases. Deferred income taxes represent future tax
benefits or costs to be recognized when those temporary differences reverse. The
categories of assets and liabilities that have resulted in differences in the
timing of the recognition of income and expense were as follows:
<TABLE>
<CAPTION>
(In millions) 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Postretirement benefits other than pensions $213.0 $215.1
Deferred compensation and other benefit plans 27.3 30.3
Environmental reserves 16.4 15.2
Vacation accruals 12.8 13.3
Self-insurance reserves 12.0 6.5
Other items 74.2 64.1
- -------------------------------------------------------------------------------------------------------------------------------
Total deferred income tax assets 355.7 344.5
- -------------------------------------------------------------------------------------------------------------------------------
Deferred income tax liabilities:
Pension asset 187.7 169.7
Bases of property, plant and equipment 142.1 119.8
Inventory valuation 11.2 2.1
Other items 55.2 57.5
- -------------------------------------------------------------------------------------------------------------------------------
Total deferred income tax liabilities 396.2 349.1
- -------------------------------------------------------------------------------------------------------------------------------
Net deferred income tax liability $ 40.5 $ 4.6
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 25
43
NOTE 10.
PENSION PLANS AND OTHER POSTEMPLOYMENT BENEFITS--
The Company has defined benefit pension plans and defined contribution plans
covering substantially all employees. Benefits under the defined benefit pension
plans are generally based on years of service and/or final average pay. The
Company funds the pension plans in accordance with the requirements of the
Employee Retirement Income Security Act of 1974, as amended, and the Internal
Revenue Code.
The Company also sponsors several defined benefit postretirement plans
covering certain salaried and hourly employees. The plans provide health care
and life insurance benefits for eligible retirees. In certain plans, Company
contributions towards premiums are capped based on the cost as of a certain
date, thereby creating a defined contribution.
Certain pension plan assets and projected benefit obligations for pension
and other postretirement benefits were transferred to Teledyne as part of the
spin-off transaction. Income and expense amounts and accrued benefit costs
pertaining to Teledyne have been excluded from all periods presented in this
footnote.
Components of pension expense (income) for the Company's defined benefit
plans and components of postretirement benefit expense included the following:
<TABLE>
<CAPTION>
EXPENSE (INCOME)
- ------------------------------------------------------------------------------------------------------------------------------------
PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS
- ------------------------------------------------------------------------------------------------------------------------------------
(In millions) 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost - benefits earned during the year $ (23.6) $ 24.6 $ (23.8) $ 8.2 $ 8.5 $ 7.5
Interest cost on benefits earned in prior years 114.2 109.6 110.9 44.7 42.8 41.8
Expected return on plan assets (212.3) (198.4) (179.3) (15.3) (12.8) (8.4)
Amortization of prior service cost 13.7 10.3 9.0 (3.2) (1.9) (2.0)
Amortization of unrecognized transition asset (24.1) (24.1) (24.1) -- -- --
Amortization of net actuarial (gain) loss (11.7) (1.6) 0.3 1.8 1.6 1.6
Recognition of curtailment gain -- -- -- -- (2.4) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total benefit (income) expense $ (96.6) $ (79.6) $ (59.4) $ 36.2 $ 35.8 $40.5
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In addition, the Company recorded a $1.8 million curtailment gain in 1999
as part of the extraordinary gains on sales of operations resulting from the
sale of Ryan Aeronautical. The Company also recorded charges of $17.0 million in
1998 resulting from special termination benefits granted to approximately 300
Allegheny Ludlum employees who were part of a planned salaried workforce
reduction completed in the 1998 third quarter.
Actuarial assumptions used to develop the components of pension expense
(income) and postretirement benefit expense were as follows:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.0% 7.0% 7.25% 7.0% 7.0% 7.25%
Rate of increase in future compensation levels 3%-4.5% 3%-4.5% 3%-4.5% --% --% --%
Expected long-term rate of return on assets 9.0% 9.0% 9.0% 9%-15% 9%-15% 9%-15%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A discount rate of 7.0% at both December 31, 1999 and 1998 was used for
the valuation of pension and postretirement obligations.
<PAGE> 26
44
The prepaid (accrued) benefit cost at December 31, 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
(In millions) PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $1,664.9 $1,611.0 $ 675.7 $ 643.2
Service cost 23.6 24.6 8.2 8.5
Interest cost 114.2 109.6 44.7 42.8
Benefits paid (149.5) (205.0) (39.4) (39.7)
Special termination benefits -- 15.0 -- 2.0
Net actuarial (gains) losses (25.9) 109.7 (27.0) 18.9
- ------------------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year 1,627.3 1,664.9 662.2 675.7
- ------------------------------------------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year 2,418.1 2,264.8 104.6 79.6
Actual return on plan assets 370.2 394.4 19.1 25.0
Section 420 transfer (37.3) (37.4) -- --
Benefits paid (148.1) (203.7) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year 2,602.9 2,418.1 123.7 104.6
- ------------------------------------------------------------------------------------------------------------------------------------
Funded status of the plan 975.6 753.2 (538.5) (571.1)
Unrecognized net actuarial (gain) loss (543.8) (323.0) 33.6 33.1
Unrecognized transition asset (59.0) (83.1) -- --
Unrecognized prior service cost 101.0 73.3 (39.9) (11.6)
- ------------------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $ 473.8 $ 420.4 $(544.8) $(549.6)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Amounts recognized in the balance sheet consist of:
<TABLE>
<CAPTION>
(In millions) PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999) 1998)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prepaid pension cost $503.7 $436.8 $ -- $ --
Accrued postretirement benefits -- -- (544.8) (549.6)
Other long-term liabilities (29.9) (16.4) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net amount recognized $473.8 $420.4 $(544.8) $(549.6)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The plan assets for the pension plan at December 31, 1999 and 1998
included 1.3 million and 0.8 million shares, respectively, of Allegheny
Technologies common stock with a fair value of $29.2 million and $33.8 million,
respectively. Dividends of $1.3 million and $0.2 million were received by the
plan in 1999 and 1998, respectively, on the Allegheny Technologies common shares
held by the plan. In addition, the plan assets for the pension plan at December
31, 1999 included 0.3 million shares of Teledyne common stock with a fair value
of $3.5 million and 0.1 million shares of Water Pik common stock with a fair
value of $1.2 million. There were no dividends received by the plan on either
Teledyne or Water Pik common stock in 1999.
At the end of 1999, approximately 76 percent of the plan assets for the
postretirement benefit plans were invested in marketable securities and 24
percent in limited partnership funds. The Company's Chairman serves on the
advisory boards of certain of the limited partnership funds.
Any reversion of pension plan assets to the Company would be subject to
federal and state income taxes, substantial excise tax and other possible
claims.
Pension costs for defined contribution plans were $15.1 million in 1999,
$15.9 million in 1998 and $14.0 million in 1997.
Oremet contributes on behalf of its union employees to a pension plan
which is administered by the USWA and funded pursuant to a collective bargaining
agreement. Pension expense and contributions to this plan were $1.3 million in
1999, $1.4 million in 1998 and $1.5 million in 1997.
<PAGE> 27
45
The annual assumed rate of increase in the per capita cost of covered
benefits (the health care cost trend rate) for health care plans was 7.5 percent
in 2000 and was assumed to decrease to 5.0 percent in the year 2005 and remain
at that level thereafter. Assumed health care cost trend rates have a
significant effect on the amounts reported for the health care plans. A one
percentage point change in assumed health care cost trend rates would have the
following effects:
<TABLE>
<CAPTION>
One Percentage One Percentage
(In millions) Point Increase Point Decrease
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and interest cost components for the year
ended December 31, 1999 $ 7.9 $ (1.8)
Effect on postretirement benefit obligation at December 31, 1999 $81.8 $(68.3)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Cash from excess pension assets of $37.3 million in 1999, $37.4 million
in 1998 and $31.9 million in 1997 was transferred pre-tax under Section 420 of
the Internal Revenue Code from the Company's defined benefit pension plans to
the Company. The Internal Revenue Code permits transfers annually of an amount
not to exceed the Company's actual expenditures on retiree health care benefits.
While not affecting reported operating profit, cash flow increased by the
after-tax effect of the transferred amount.
The Company intends to make transfers of excess pension assets to the
extent and for each year permitted under Section 420 of the Internal Revenue
Code. Under the assumptions set forth above and assuming that the expiration
date of Section 420 of the Internal Revenue Code, which currently is 2005, is
deferred, the present value of excess pension assets available for transfer
under Section 420 is sufficient to fund more than 75 percent of the present
value of the accumulated postretirement benefit cost of the Company as a whole
including those attributable to each of its subsidiaries.
NOTE 11.
ACQUISITIONS AND DIVESTITURES--
In the 1999 fourth quarter, the Company acquired the Washington, PA plant of
Lukens' Washington Steel Division from Bethlehem Steel Corporation ("Bethlehem")
for $20.5 million in cash. The plant had been idle since April 1999 and was
formerly used to cold roll and finish stainless steel sheet and strip. The
plant's Sendzimir mills and anneal and pickle lines provide incremental capacity
to help the Company meet strong demand for stainless steel sheet and strip.
Production at this plant began in the 2000 first quarter.
In the 1998 fourth quarter, the Company acquired melting and hot rolling
facilities in Houston, PA and a wide anneal and pickle line in Massillon, OH
from Bethlehem and entered into a 20-year conversion agreement with Bethlehem to
provide for melting, casting and rolling of the Company's wide stainless steel
plate products and nickel-based alloys for $175 million, which included $105
million in cash and $70 million in a promissory note which was subsequently paid
in 1999.
In March 1998, the Company acquired the stock of Oremet, an integrated
producer and distributor of titanium sponge, ingot, mill products and castings
in exchange for Company stock. See also Note 3.
In February 1998, the Company acquired assets in the United Kingdom, for
approximately $110 million in an all-cash transaction, that provide significant
support to the Company's high performance metals businesses, and enhance service
to customers by improving the sales and distribution network for the Company's
nickel-based alloys, specialty steels and titanium products in Europe. The
acquisition also provides additional vacuum melting, vacuum consumable
remelting, electroslag remelting, and forging capacity.
During 1999, as part of its strategic transformation, the Company
completed the sale of its unmanned aerial vehicle and its pyrotechnic components
and systems businesses, known as Ryan Aeronautical and McCormick Selph Ordnance
Unit, respectively. In addition, the Company sold its pressure relief valve,
vehicle control valve, nitrogen gas springs, consumer drinkware, construction
and mining equipment and material handling businesses. The Company recognized
extraordinary gains of $129.6 million, net of $79.9 million in taxes, in
connection with the sales of these businesses. The pretax proceeds from these
sales totaled approximately $370 million.
In 1997, the Company sold businesses which manufactured collapsible metal
and laminate packaging tubes, thread cutting and rolling machines, electric
heating elements, metal dies and plastic compression molds and welded stainless
steel tubular products, and operated job training centers for the U.S.
government. In addition, the Company sold its equity interest in Nitinol
Development Corporation. The pretax gain recognized on the sales of these
non-strategic businesses was $35.4 million. The pretax proceeds from these sales
totaled approximately $77 million in 1997.
All sold businesses have been classified as discontinued operations.
<PAGE> 28
46
NOTE 12.
BUSINESS SEGMENTS--
Allegheny Technologies is one of the largest and most diversified producers of
specialty materials in the world. It operates in three business segments:
Flat-Rolled Products, High Performance Metals and Industrial Products.
The Flat-Rolled Products segment produces, converts and distributes
stainless steel, nickel-based alloys and super-alloys, and titanium and
titanium-based alloys in sheet, strip, plate and Precision Rolled Strip(R)
products as well as silicon electrical steels and tool steels. The companies in
this segment include Allegheny Ludlum and the Company's 60% interest in the
Chinese joint venture company known as Shanghai Precision Stainless Steel
Company Limited, which began limited commercial production in 1999.
The High Performance Metals segment produces, converts and distributes
nickel- and cobalt-based alloys and superalloys, titanium and titanium-based
alloys, zirconium, hafnium, niobium, tantalum and other specialty materials,
primarily in slab, ingot, billet, bar, rod, wire and coil forms and zirconium
chemicals. The companies in this segment include Allvac, Allvac Ltd, Wah Chang,
Titanium Industries and Rome Metals.
The Industrial Products segment's principal business produces tungsten
powder, tungsten carbide materials and carbide cutting tools. The segment also
produces large grey and ductile iron castings and carbon, alloy steel and
non-ferrous forgings. The companies in this segment are Metalworking Products,
Casting Service and Portland Forge.
Intersegment sales are generally recorded at full cost or market. Common
services are allocated on the basis of estimated utilization.
Information on the Company's business segments was as follows:
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total sales:
Flat-Rolled Products $1,314.5 $1,226.0 $1,322.9
High Performance Metals 805.9 913.7 926.3
Industrial Products 276.7 349.0 349.9
- ------------------------------------------------------------------------------------------------------------------------------------
Total sales 2,397.1 2,488.7 2,599.1
Intersegment sales:
Flat-Rolled Products 25.7 41.7 37.4
High Performance Metals 75.3 44.6 60.8
- ------------------------------------------------------------------------------------------------------------------------------------
Total intersegment sales 101.0 86.3 98.2
Sales to external customers:
Flat-Rolled Products 1,288.8 1,184.3 1,285.5
High Performance Metals 730.6 869.1 865.5
Industrial Products 276.7 349.0 349.9
- ------------------------------------------------------------------------------------------------------------------------------------
Total sales to external customers $2,296.1 $2,402.4 $2,500.9
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's backlog of confirmed orders was approximately $595.8
million at December 31, 1999 and $697.2 million at December 31, 1998.
Total international sales were $448.2 million in 1999, $447.1 million in
1998 and $391.6 million in 1997. Of these amounts, sales by operations in the
United States to customers in other countries were $294.7 million in 1999,
$273.7 million in 1998 and $294.9 million in 1997.
<PAGE> 29
47
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating profit:
Flat-Rolled Products $ 80.4 $121.5 $139.6
High Performance Metals 91.8 160.8 181.2
Industrial Products 12.2 35.8 42.9
- ------------------------------------------------------------------------------------------------------------------------------------
Total operating profit 184.4 318.1 363.7
Corporate expenses (38.9) (36.5) (40.4)
Interest expense, net (25.9) (19.4) (16.9)
Transformation, merger and restructuring costs, gains on asset
sales and other (5.8) (56.2) 39.2
Excess pension income 60.4 43.8 18.9
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before
income taxes and extraordinary gains $174.2 $249.8 $364.5
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Included in transformation, merger and restructuring costs, gains on
asset sales and other are charges in 1999 associated with adjusting employee
benefit plans as a result of the spin-offs in 1999 partially offset by a $7.2
million reversal of restructuring costs accrued in 1998 related to workforce
reductions which were implemented at less than expected costs; and charges of
$19.1 million in 1998 and $12.0 million in 1997 for severance, financial
advisory, legal, accounting, and other costs associated with the acquisition of
Oremet in 1998 and the combination of Allegheny Ludlum and Teledyne, Inc. in
1996. The Company also recorded charges of $19.3 million in 1998 resulting
primarily from special termination benefits granted to approximately 300
Allegheny Ludlum employees who were part of a planned salaried workforce
reduction completed in the 1998 third quarter. Costs associated with exiting
certain product lines in the 1998 third quarter and asset impairments resulting
from new capital expenditure programs coming on-line resulted in a charge of
$29.4 million. Sales and operating results for the exited product lines were not
financially material.
In addition, gains were recognized in 1997 of $27.6 million on the sale
of the Company's investment in Semtech Corporation common stock and $17.3
million on the sale of the Company's investment in Nitinol Development
Corporation. Charges in 1997 included $5.3 million to write off the Company's
investment in a research and development venture and $6.8 million to settle
certain U.S. Government contracting matters relating to former business units.
Excess pension income represents the amount of pension income in excess
of amounts allocated to business segments to offset pension and other
postretirement benefit expenses.
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation and amortization:
Flat-Rolled Products $ 60.5 $ 49.9 $ 52.8
High Performance Metals 24.5 22.1 16.7
Industrial Products 8.3 7.6 9.1
Corporate 2.0 2.5 5.7
- ------------------------------------------------------------------------------------------------------------------------------------
$ 95.3 $ 82.1 $ 84.3
- ------------------------------------------------------------------------------------------------------------------------------------
Capital expenditures:
Flat-Rolled Products $ 42.7 $ 58.7 $ 30.5
High Performance Metals 12.1 61.0 43.3
Industrial Products 18.8 18.8 15.1
Corporate 0.5 0.4 2.5
- ------------------------------------------------------------------------------------------------------------------------------------
$ 74.1 $ 138.9 $ 91.4
- ------------------------------------------------------------------------------------------------------------------------------------
Identifiable assets:
Flat-Rolled Products $1,270.9 $1,159.2 $1,024.6
High Performance Metals 594.3 646.8 563.3
Industrial Products 160.7 160.2 163.2
Corporate:
Pension asset 503.7 436.8 400.7
Other 221.0 242.0 189.2
Net assets of discontinued operations -- 298.5 297.5
- ------------------------------------------------------------------------------------------------------------------------------------
$2,750.6 $2,943.5 $2,638.5
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 30
48
NOTE 13.
SUMMARIZED FINANCIAL INFORMATION OF ALLEGHENY LUDLUM CORPORATION--
Summarized financial information for Allegheny Ludlum Corporation, a
Pennsylvania corporation, is presented below:
<TABLE>
<CAPTION>
BALANCE SHEETS:
December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(In millions) 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 530.3 $ 403.2
Non-current assets 1,178.8 1,220.7
Current liabilities 180.7 164.4
Non-current liabilities 892.7 599.6
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS:
(In millions) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $1,162.3 $1,072.2 $1,194.9
Gross profit 102.8 145.7 168.9
Net income 37.2 52.0 77.7
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In 1996, the underfunded defined benefit pension plans of Allegheny
Ludlum Corporation were merged with the overfunded defined benefit pension plans
of Teledyne, Inc. and Allegheny Technologies became the plan sponsor. As a
result, the summarized balance sheet information presented for Allegheny Ludlum
Corporation does not include the Allegheny Technologies net prepaid pension
asset or the related deferred taxes. Solely for purposes of this presentation,
pension income has been allocated to Allegheny Ludlum Corporation to offset
pension and postretirement expenses which may be funded with pension assets.
This allocated pension income has not been recorded in the financial statements
of Allegheny Ludlum Corporation. Additionally, management and royalty fees
charged to Allegheny Ludlum Corporation by other Allegheny Technologies
companies have been excluded above solely for purposes of this presentation.
NOTE 14.
EARNINGS PER SHARE--
The following table sets forth the computation of basic and diluted net income
per common share:
<TABLE>
<CAPTION>
(In millions except per share amounts)
Years ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Income from continuing operations before extraordinary gains $111.0 $155.0 $230.4
Income from discontinued operations 59.6 86.2 98.4
Extraordinary gains on sales of operations 129.6 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Numerator for basic and diluted net income per common share -
Net income $300.2 $241.2 $328.8
- ------------------------------------------------------------------------------------------------------------------------------------
Denominator:
Weighted average shares 95.3 98.2 98.2
Contingent issuable stock 0.1 0.2 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Denominator for basic net income per common share 95.4 98.4 98.3
Effect of dilutive securities:
Employee stock options 0.5 0.8 1.8
- ------------------------------------------------------------------------------------------------------------------------------------
Dilutive potential common shares 0.5 0.8 1.8
Denominator for diluted net income per
common share - adjusted weighted
average shares and assumed conversions 95.9 99.2 100.1
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 31
49
<TABLE>
<CAPTION>
Years ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic net income per common share:
Income from continuing operations before extraordinary gains $1.17 $1.57 $2.34
Income from discontinued operations 0.62 0.88 1.00
Extraordinary gains on sales of operations 1.36 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Basic net income per common share $3.15 $2.45 $3.34
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted net income per common share:
Income from continuing operations before extraordinary gains $1.16 $1.56 $2.30
Income from discontinued operations 0.62 0.87 0.98
Extraordinary gains on sales of operations 1.35 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted net income per common share $3.13 $2.43 $3.28
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
For additional disclosures regarding the employee stock options, see
Note 8.
Weighted average shares issuable upon the exercise of stock options which
were not included in the calculation were 2.3 million in 1999 and 1.2 million in
1998 because they were antidilutive.
NOTE 15.
COMMITMENTS AND CONTINGENCIES--
Rental expense under operating leases was $24.1 million in 1999, $22.0 million
in 1998 and $16.5 million in 1997. Future minimum rental commitments under
operating leases with non-cancelable terms of more than one year as of December
31, 1999, were as follows: $7.5 million in 2000, $6.2 million in 2001, $4.9
million in 2002, $4.5 million in 2003, $3.9 million in 2004 and $12.9 million
thereafter.
The Company is subject to various domestic and international
environmental laws and regulations which require that it investigate and
remediate the effects of the release or disposal of materials at sites
associated with past and present operations, including sites at which the
Company has been identified as a potentially responsible party under the federal
Superfund laws and comparable state laws. The Company is currently involved in
the investigation and remediation of a number of sites under these laws.
In accordance with the Company's accounting policy disclosed in Note 1,
environmental liabilities are recorded when the Company's liability is probable
and the costs are reasonably estimable. In many cases, however, investigations
are not yet at a stage where the Company has been able to determine whether it
is liable or, if liability is probable, to reasonably estimate the loss or range
of loss, or certain components thereof. Estimates of the Company's liability are
further subject to uncertainties regarding the nature and extent of site
contamination, the range of remediation alternatives available, evolving
remediation standards, imprecise engineering evaluations and estimates of
appropriate cleanup technology, methodology and cost, the extent of corrective
actions that may be required, and the number and financial condition of other
potentially responsible parties, as well as the extent of their responsibility
for the remediation. Accordingly, as investigation and remediation of these
sites proceeds, it is likely that adjustments in the Company's accruals will be
necessary to reflect new information. The amounts of any such adjustments could
have a material adverse effect on the Company's results of operations in a given
period, but the amounts, and the possible range of loss in excess of the amounts
accrued, are not reasonably estimable. Based on currently available information,
however, management does not believe that future environmental costs in excess
of those accrued with respect to sites with which the Company has been
identified are likely to have a material adverse effect on the Company's
financial condition or results of operation. The resolution in any reporting
period of one or more of these matters could have a material adverse effect on
the Company's results of operations for that period. In addition, there can be
no assurance that additional future developments, administrative actions or
liabilities relating to environmental matters will not have a material adverse
effect on the Company's financial condition or results of operations.
At December 31, 1999, the Company's reserves for environmental
remediation obligations totaled approximately $58.1 million, of which
approximately $15.6 million were included in other current liabilities. The
reserve includes estimated probable future costs of $22.8 million for federal
Superfund and comparable state-managed sites; $3.9 million for formerly owned or
operated sites for which the Company has remediation or indemnification
obligations; $18.4 million for owned or controlled sites at which Company
operations have been discontinued; and $13.0 million for sites utilized by the
Company in its ongoing operations. The Company is evaluating whether it may be
able to recover a portion of future costs for environmental liabilities from its
insurance carriers and from third parties other than participating potentially
responsible parties.
The timing of expenditures depends on a number of factors that vary by
site, including the nature and extent of contamination, the number of
potentially responsible parties, the timing of regulatory approvals, the
complexity of the investigation and remediation, and the standards for
remediation. The Company expects that it will expend present accruals over many
years, and will complete remediation of all sites with which it has been
identified in up to thirty years.
<PAGE> 32
50
Various claims (whether based on U.S. Government or Company audits and
investigations or otherwise) have been or may be asserted against the Company
related to its U.S. Government contract work, principally related to the former
operations of Teledyne, Inc., including claims based on business practices and
cost classifications and actions under the False Claims Act. Although such
claims are generally resolved by detailed fact-finding and negotiation, on those
occasions when they are not so resolved, civil or criminal legal or
administrative proceedings may ensue. Depending on the circumstances and the
outcome, such proceedings could result in fines, penalties, compensatory and
treble damages or the cancellation or suspension of payments under one or more
U.S. Government contracts. Under government regulations, a company, or one or
more of its operating divisions or units, can also be suspended or debarred from
government contracts based on the results of investigations. Given the limited
extent of the Company's business with the U.S. Government, the Company believes
that a suspension or debarment of the Company would not have a material adverse
effect on the future operating results and consolidated financial condition of
the Company. Although the outcome of these matters cannot be predicted with
certainty, management does not believe there is any audit, review or
investigation currently pending against the Company of which management is aware
that is likely to have a material adverse effect on the Company's financial
condition or liquidity, although the resolution in any reporting period of one
or more of these matters could have a material adverse effect on the Company's
results of operations for that period.
The Company learns from time to time that it has been named as a
defendant in civil actions filed under seal pursuant to the False Claims Act,
principally related to the former operations of Teledyne, Inc. Generally, since
such cases are under seal, the Company does not in all cases possess sufficient
information to determine whether the Company could sustain a material loss in
connection with such cases, or to reasonably estimate the amount of any loss
attributable to such cases.
In the spin-offs of Teledyne and Water Pik, completed in November 1999,
the new companies agreed to assume and to defend and hold the Company harmless
against all liabilities (other than certain income tax liabilities) associated
with the historical operations of their businesses, including all government
contracting, environmental, product liability and other claims and demands,
whenever any such claims or demands might arise or be made. If the new companies
were unable or otherwise fail to satisfy these assumed liabilities, the Company
could be required to satisfy them, which could have a material adverse effect on
the Company's results of operations and financial condition.
In connection with the spin-offs of Teledyne and Water Pik, the Company
received a tax ruling from the Internal Revenue Service stating that the
spin-offs will be tax-free to the Company and the Company's stockholders. While
the tax ruling relating to the qualification of the spin-offs as tax-free
distributions within the meaning of the Internal Revenue Code generally is
binding on the Internal Revenue Service, the continuing validity of the tax
ruling is subject to certain factual representations and uncertainties that,
among other things, require the new companies to take or refrain from taking
certain actions. If a spin-off were not to qualify as a tax-free distribution
within the meaning of the Internal Revenue Code, the Company would recognize
taxable gain generally equal to the amount by which the fair market value of the
common stock distributed to the Company's stockholders in the spin-off exceeded
the Company's basis in the new company's assets. In addition, the distribution
of the new company's common stock to Company stockholders would generally be
treated as taxable to the Company's stockholders in an amount equal to the fair
market value of the common stock they received. If a spin-off qualified as a
distribution within the meaning of the Internal Revenue Code but was
disqualified as tax-free to the Company because of certain post-spin-off
circumstances, the Company would recognize taxable gain as described in the
preceding sentence, but the distribution of the new company's common stock to
the Company's stockholders in the spin-off would generally be tax-free to each
Company stockholder. In the spin-offs, the new companies executed tax sharing
and indemnification agreements in which each agreed to be responsible for any
taxes imposed on and other amounts paid by the Company, its agents and
representatives and its stockholders as a result of the failure of the spin-off
to qualify as a tax-free distribution within the meaning of the Internal Revenue
Code if the failure or disqualification is caused by post-spin-off actions by or
with respect to that company or its stockholders. Potential liabilities under
these agreements could exceed the respective new company's net worth by a
substantial amount. If either or both of the spin-offs were not to qualify as
tax-free distributions to the Company or its stockholders, and either or both of
the new companies were unable or otherwise failed to satisfy the liabilities
they assumed under the tax sharing and indemnification agreements, the Company
could be required to satisfy them without full recourse against the new
companies. This could have a material adverse effect on the Company's results of
operations and financial condition.
A number of other lawsuits, claims and proceedings have been or may be
asserted against the Company relating to the conduct of its business, including
those pertaining to product liability, patent infringement, commercial,
employment, employee benefits and stockholder matters. While the outcome of
litigation cannot be predicted with certainty, and some of these lawsuits,
claims or proceedings may be determined adversely to the Company, management
does not believe that the disposition of any such pending matters is likely to
have a material adverse effect on the Company's financial condition or
liquidity, although the resolution in any reporting period of one or more of
these matters could have a material adverse effect on the Company's results of
operations for that period.
<PAGE> 33
51
NOTE 16.
QUARTERLY DATA (UNAUDITED)--
<TABLE>
<CAPTION>
Quarter Ended
- ------------------------------------------------------------------------------------------------------------------------------------
(In millions except share and per share amounts) March 31 June 30 September 30 December 31
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 -
Sales $585.5 $572.7 $562.5 $575.4
Gross profit 122.6 114.3 91.2 90.1
Income from continuing operations before
extraordinary gain 40.4 36.6 20.9 13.1
Income from discontinued operations 20.2 20.7 17.1 1.6
Extraordinary gains on sales of operations -- -- 129.6 --
Net income 60.6 57.3 167.6 14.7
- ------------------------------------------------------------------------------------------------------------------------------------
Basic net income per common share:
Income from continuing operations before
extraordinary gains $ 0.41 $ 0.38 $ 0.22 $ 0.14
Income from discontinued operations 0.21 0.22 0.18 0.02
Extraordinary gains on sales of operations -- -- 1.36 --
Basic net income per common share $ 0.62 $ 0.60 $ 1.76 $ 0.16
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted net income per common share:
Income from continuing operations before
extraordinary gains $ 0.41 $ 0.38 $ 0.21 $ 0.14
Income from discontinued operations 0.21 0.21 0.18 0.02
Extraordinary gains on sales of operations -- -- 1.36 --
Diluted net income per common share $ 0.62 $ 0.59 $ 1.75 $ 0.16
- ------------------------------------------------------------------------------------------------------------------------------------
Average shares outstanding 97,117,966 96,062,774 95,160,827 92,848,915
- ------------------------------------------------------------------------------------------------------------------------------------
1998 -
Sales $636.7 $621.6 $567.8 $576.3
Gross profit 137.8 150.2 124.3 158.4
Income from continuing operations 12.0 52.7 45.5 44.8
Income from discontinued operations 14.9 22.8 20.0 28.5
Net income 26.9 75.5 65.5 73.3
- ------------------------------------------------------------------------------------------------------------------------------------
Basic net income per common share:
Income from continuing operations $ 0.12 $ 0.54 $ 0.46 $ 0.46
Income from discontinued operations 0.15 0.23 0.20 0.29
Basic net income per common share $ 0.27 $ 0.77 $ 0.66 $ 0.75
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted net income per common share:
Income from continuing operations $ 0.12 $ 0.53 $ 0.46 $ 0.45
Income from discontinued operations 0.15 0.23 0.20 0.29
Diluted net income per common share $ 0.27 $ 0.76 $ 0.66 $ 0.74
- ------------------------------------------------------------------------------------------------------------------------------------
Average shares outstanding 98,060,221 98,342,692 98,508,992 98,018,157
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
At a stockholders' meeting held on November 11, 1999, the Company's
stockholders approved a one-for-two reverse stock split of the Company's stock.
The reverse stock split was effective immediately following the spin-offs of
Teledyne and Water Pik on November 29, 1999. All references to number of shares
and per share amounts have been restated to reflect the reverse stock split.
The 1999 first quarter included after-tax costs of $2.2 million
associated with facilities start-up costs.
The 1999 second and third quarters included $2.1 million and $2.2
million, respectively, in after-tax costs related to workforce reductions and
facilities start-up costs.
The 1999 fourth quarter included $7.8 million in after-tax costs
associated with adjusting employee benefit plans as a result of the spin-offs
and facilities start-up costs. These items were partially offset by the reversal
of restructuring costs accrued in 1998 related to workforce reductions at less
than expected costs and by a net gain from the sale of surplus real estate.
The 1998 first quarter included after-tax costs of $40.9 million related
to the acquisition of Oremet, salaried workforce reductions, costs associated
with exiting certain product lines and asset impairments resulting from new
capital expenditure programs coming on-line.
The 1998 second quarter included an after-tax charge of $4.9 million
primarily attributable to the planned salaried workforce reduction at Allegheny
Ludlum.
The Company paid a cash dividend of $0.32 per share on its common stock
in each of the 1999 and 1998 quarters.
<PAGE> 34
52
COMMON STOCK PRICE
<TABLE>
<CAPTION>
(Per quarter)
1999 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allegheny Technologies
High $46 3/8 $48 3/8 $47 3/4 $34 7/8
Low $37 $36 3/4 $31 3/4 $20 1/4
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1998 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allegheny Technologies
High $59 1/8 $56 $45 7/8 $45 1/4
Low $45 1/4 $38 $28 $33 3/8
Oremet (through March 24)
High $37 7/8 -- -- --
Low $28 1/2 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
On November 29, 1999, the Company distributed all of the common stock of
Teledyne and Water Pik to Company stockholders of record as of November 22,
1999. As a result of the spin-offs, Teledyne and Water Pik became separate
publicly-traded companies and the common stock of both companies trade on the
New York Stock Exchange under the symbols "TDY" and "PIK", respectively. Stock
prices on or before November 29, 1999 are not adjusted to reflect the spin-offs.
Immediately following the spin-offs, the Company effected a one-for-two
reverse split of its common stock and changed its name from Allegheny Teledyne
Incorporated to Allegheny Technologies Incorporated and its symbol on the New
York Stock Exchange from "ALT" to "ATI." Stock prices have been adjusted for all
periods presented to reflect the one-for-two reverse stock split.
On March 24, 1998, the Company acquired the stock of Oregon Metallurgical
Corporation ("Oremet"). Oremet shareholders received 0.648 shares of Allegheny
Technologies common stock for each of their Oremet common shares.
As of December 31, 1999, there were approximately 7,200 record holders of
Allegheny Technologies common stock.
MANAGEMENT'S REPORT
The accompanying consolidated financial statements of Allegheny Technologies
Incorporated and subsidiaries have been prepared in accordance with generally
accepted accounting principles and include some amounts that are based upon
Management's best estimates and judgments. Management has the primary
responsibility for the information contained in the financial statements and in
other sections of this Annual Report and for their integrity and objectivity.
The Company has a system of internal controls designed to provide
reasonable assurance that assets are safeguarded and transactions are properly
executed and recorded for the preparation of financial information. The concept
of reasonable assurance is based on the recognition that there are inherent
limitations in all systems of internal accounting control and that the cost of
such systems should not exceed the benefits to be derived.
The Company maintains a staff of professional internal auditors, who
assist in audit coverage with the independent accountants and conduct
operational and special audits. The independent accountants express their
opinion on the Company's financial statements based on procedures, including an
evaluation of internal controls, which they consider to be sufficient to form
their opinion.
The Audit and Finance Committee of the Board of Directors is composed of
five non-employee members. Among its principal duties, the Committee is
responsible for recommending the independent accountants to conduct the annual
audit of the Company's financial statements and for reviewing the financial
reporting and accounting practices.
/s/ T.A. Corcoran
- -------------------------------------
T.A. Corcoran
President
and Chief Executive Officer
/s/ J. L. Murdy
- -------------------------------------
J. L. Murdy
Executive Vice President,
Finance and Administration
and Chief Financial Officer
/s/ D. G. Reid
- -------------------------------------
D. G. Reid
Vice President
Controller
and Chief Accounting Officer
<PAGE> 35
53
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
For the Years Ended December 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Volume:
Flat-Rolled Products (tons) 648,100 542,200 542,200 535,500 588,900
High Performance Metals - nickel-based
and specialty steel alloys (000's lbs.) 44,723 44,182 28,546 28,731 27,045
High Performance Metals - titanium
mill products (000's lbs.) 22,565 24,739 29,872 27,113 20,795
High Performance Metals - zirconium
and related alloys (000's lbs.) 4,389 5,265 5,317 3,607 4,226
- ------------------------------------------------------------------------------------------------------------------------------------
Average Prices:
Flat-Rolled Products (per ton) $ 1,988 $ 2,184 $ 2,371 $ 2,524 $ 2,671
High Performance Metals - nickel-based
and specialty steel alloys (per lb.) $ 5.90 $ 7.33 $ 8.45 $ 7.28 $ 6.52
High Performance Metals - titanium
mill products (per lb.) $ 11.80 $ 14.03 $ 14.03 $ 12.45 $ 10.15
High Performance Metals - zirconium
and related alloys (per lb.) $ 31.28 $ 27.71 $ 25.18 $ 30.04 $ 27.23
- ------------------------------------------------------------------------------------------------------------------------------------
(In millions except per share amounts)
Sales:
Flat-Rolled Products $1,288.8 $1,184.3 $1,285.5 $1,351.5 $1,572.7
High Performance Metals 730.6 869.1 865.5 722.1 555.7
Industrial Products 276.7 349.0 349.9 344.7 297.4
Sales $2,296.1 $2,402.4 $2,500.9 $2,418.3 $2,425.8
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit:
Flat-Rolled Products $ 80.4 $ 121.5 $ 139.6 $ 175.8 $ 245.6
High Performance Metals 91.8 160.8 181.2 121.8 24.3
Industrial Products 12.2 35.8 42.9 29.0 24.1
Operating profit $ 184.4 $ 318.1 $ 363.7 $ 326.6 $ 294.0
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before extraordinary items $ 111.0 $ 155.0 $ 230.4 $ 135.3 $ 142.1
Income from discontinued operations 59.6 86.2 98.4 113.5 132.2
Extraordinary gains on sales of operations 129.6 -- -- -- --
Extraordinary loss on redemption of debt -- -- -- (13.5) (2.9)
Net income $ 300.2 $ 241.2 $ 328.8 $ 235.3 $ 271.4
- ------------------------------------------------------------------------------------------------------------------------------------
Basic net income per common share:
Income from continuing operations
before extraordinary items $ 1.17 $ 1.57 $ 2.34 $ 1.39 $ 1.47
Income from discontinued operations 0.62 0.88 1.00 1.19 1.39
Extraordinary gains on sales of operations 1.36 -- -- -- --
Extraordinary loss on redemption of debt -- -- -- (0.14) (0.03)
Basic net income per common share $ 3.15 $ 2.45 $ 3.34 $ 2.44 $ 2.83
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted net income per common share:
Income from continuing operations
before extraordinary items $ 1.16 $ 1.56 $ 2.30 $ 1.37 $ 1.42
Income from discontinued operations 0.62 0.87 0.98 1.16 1.34
Extraordinary gains on sales of operations 1.35 -- -- -- --
Extraordinary loss on redemption of debt -- -- -- (0.14) (0.03)
Diluted net income per common share $ 3.13 $ 2.43 $ 3.28 $ 2.39 $ 2.73
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 36
54
<TABLE>
<CAPTION>
(In millions except per share amounts)
For the Years Ended December 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dividends declared:
Allegheny Technologies $ 1.28 $ 1.28 $ 1.28 $ 0.32 $ --
Allegheny Ludlum Corporation $ -- $ -- $ -- $ 0.84 $ 0.98
Teledyne, Inc. $ -- $ -- $ -- $ 1.04 $ 1.04
- ------------------------------------------------------------------------------------------------------------------------------------
Working capital $ 493.5 $ 574.9 $ 679.1 $ 612.9 $ 516.5
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $2,750.6 $2,943.5 $2,638.5 $2,648.2 $2,509.9
- ------------------------------------------------------------------------------------------------------------------------------------
Long-term debt $ 200.3 $ 430.6 $ 313.6 $ 429.2 $ 569.4
- ------------------------------------------------------------------------------------------------------------------------------------
Redeemable preferred stock $ -- $ -- $ -- $ -- $ 33.1
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity $1,200.2 $1,339.9 $1,244.6 $1,075.4 $ 851.7
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
At a stockholders' meeting held on November 11, 1999, the Company's stockholders
approved a one-for-two reverse stock split of the Company's stock. The reverse
stock split was effective immediately following the spin-offs of Teledyne and
Water Pik on November 29, 1999. All references to number of shares and per share
amounts have been restated to reflect the reverse stock split.
The historical selected financial data reflects the results of Allegheny
Technologies and Oremet as if they had been combined for all periods presented.
In 1999, the Company completed a strategic transformation in which it
spun-off Teledyne and Water Pik and sold certain businesses. The results of the
companies spun-off and companies sold are reflected as discontinued operations
for all periods presented. The Company recognized extraordinary gains of $129.6
million, net of $79.9 million in taxes, in connection with the sales of
businesses in 1999.
Net income included after-tax gains of $34.1 million on the divestitures
of certain non-strategic businesses and the sale of investments in 1997, $37.6
million on the sale of Teledyne, Inc.'s defense vehicle business and surplus
California real estate in 1996 and $30.3 million on the sale of Teledyne, Inc.'s
defense electronic systems business in 1995.
Net income was adversely affected by after-tax merger and restructuring
charges of $45.8 million in 1998, $7.6 million in 1997, $42.9 million in 1996
and $3.9 million in 1995. The 1996 and 1995 amounts also include Teledyne,
Inc.'s proxy contest charges.
Results of operations included after-tax charges of $4.1 million in 1997
and $4.7 million in 1996 related to the settlement by Teledyne, Inc. of certain
legal matters with the U.S. Government.
Teledyne, Inc. dividends declared included $0.16 per equivalent share in
1996 and $0.62 per equivalent share in 1995 paid in face amount of Teledyne,
Inc.'s Series E Cumulative Preferred Stock. The Teledyne, Inc. Series E
Cumulative Preferred Stock was redeemed for cash in 1996.
In August 1996, Allegheny Ludlum Corporation and Teledyne, Inc. combined
to form Allegheny Technologies, which was formerly known as Allegheny Teledyne
Incorporated.
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
The following lists the subsidiaries of Allegheny Technologies
Incorporated, excluding those subsidiaries which, considered in the aggregate as
a single subsidiary, do not constitute a significant subsidiary. The
subsidiaries listed are all wholly owned, either directly or indirectly.
Name of Subsidiary State of Incorporation
------------------ ----------------------
ATI Funding Corporation Delaware
Allegheny Ludlum Corporation Pennsylvania
TDY Holdings LLC Delaware
TDY Industries, Inc. California
Jessop Steel Company Pennsylvania
AII Acquisition Corp. Delaware
ALC Funding Corporation Delaware
Oregon Metallurgical Corporation Oregon
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in this Form 10-K of Allegheny
Technologies Incorporated of our report dated January 24, 2000, included in the
1999 Annual Report to Stockholders of Allegheny Technologies Incorporated.
We also consent to the incorporation by reference in Registration Statements (as
may be amended) Nos. 333-08235, 333-10225, 333-10227, 333-10229, 333-10245,
333-46695, 333-45965, 333-48649 and 333-59161 of Allegheny Technologies
Incorporated of our report dated January 24, 2000, with respect to the
consolidated financial statements incorporated herein by reference.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
March 20, 2000
<TABLE> <S> <C>
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THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31,
1999 AND CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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