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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities and Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (section) 240.14a-11(c) or (section)
240.14a-12
Allegheny Ludlum Corporation
------------------------------
(Name of Registrant as Specified In Its Charter)
Allegheny Ludlum Corporation
------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[x] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:/1/
4) Proposed maximum aggregate value of transaction:
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/1/ Set forth the amount on which the filing fee is calculated and state how it
was determined.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
MEM00668
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PRELIMINARY COPY
ALLEGHENY LUDLUM CORPORATION
1000 SIX PPG PLACE
PITTSBURGH, PENNSYLVANIA 15222-5479
NOTICE OF
1994 ANNUAL MEETING OF SHAREHOLDERS
AND PROXY STATEMENT
FRIDAY, MAY 20, 1994
11:00 A.M. PITTSBURGH TIME
ROOM 1000 AUDITORIUM, 10TH FLOOR
TWO MELLON BANK CENTER
(UNION TRUST BUILDING)
435 FIFTH AVENUE
PITTSBURGH, PENNSYLVANIA
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TABLE OF CONTENTS PAGE
Letter from the Chairman of the Board..........................................1
Notice of Annual Meeting of Shareholders.......................................2
Proxy Statement................................................................3
The Board of Directors....................................................4
Election of Directors.....................................................7
Increase in Authorized Common Stock......................................10
Approval of Stock Acquisition and Retention Plan.........................11
Ratification of Selection of Independent Auditors........................15
Other Information........................................................15
Exhibit A--Amendment of Restated Articles of Incorporation..............A-1
Exhibit B--Allegheny Ludlum Corporation Stock Acquisition
and Retention Plan..........................................B-1
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[RPS LETTERHEAD]
R. P. Simmons
Chairman of the Board
March , 1994
Dear Shareholder:
We are pleased to invite you to attend Allegheny Ludlum's 1994 Annual
Meeting to be held on Friday, May 20, in Pittsburgh, Pennsylvania. The meeting
will begin with a discussion and voting on the matters set forth in the
accompanying Notice of Annual Meeting and Proxy Statement followed by a report
on Company operations. I urge you to attend.
If you plan to attend the meeting, please complete and return the enclosed
postage-paid ticket request card. An admission ticket, which will expedite your
admission to the meeting, will be mailed to you prior to the meeting.
Whether you own few or many shares and whether or not you plan to attend
the meeting, it is important that you vote your shares. Please promptly read the
proxy statement and then complete, sign and return your proxy card in the
enclosed postage-paid envelope. If you sign and return your proxy card without
specifying your choices, it will be understood that you wish to have your shares
voted in accordance with the Directors' recommendations.
We look forward to seeing as many of you as possible at the 1994 Annual
Meeting.
Sincerely,
R. P. Simmons
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ALLEGHENY LUDLUM CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 20, 1994
------------------
The Annual Meeting of the Shareholders of Allegheny Ludlum Corporation will
be held on Friday, May 20, 1994 at 11:00 A.M., Pittsburgh Time, at the Room 1000
Auditorium, 10th Floor, Two Mellon Bank Center (Union Trust Building), 435 Fifth
Avenue, Pittsburgh, Pennsylvania, for the following purposes:
1. To elect five Class I directors to serve for a term of three years.
2. To approve and adopt an amendment of Article Fifth of the Company's
Restated Articles of Incorporation to increase the authorized Common Stock
of the Company from 100,000,000 shares to 250,000,000 shares.
3. To approve the Allegheny Ludlum Corporation Stock Acquisition and
Retention Plan.
4. To ratify the selection of Ernst & Young as independent auditors of
the Company for fiscal year 1994.
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Shareholders of record at the close of business on March 11, 1994 are
entitled to notice of and to vote at the meeting or any adjournment thereof.
By order of the Board of Directors
JON D. WALTON
Vice President-General
Counsel and Secretary
Dated: March , 1994
YOU ARE REQUESTED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN
THE ENCLOSED POSTAGE-PAID ENVELOPE. THE RETURN OF THE ENCLOSED PROXY CARD WILL
NOT AFFECT YOUR RIGHT TO REVOKE SUCH PROXY OR TO VOTE IN PERSON SHOULD YOU
ATTEND THE MEETING.
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ALLEGHENY LUDLUM CORPORATION
1000 SIX PPG PLACE
PITTSBURGH, PA 15222-5479
PROXY STATEMENT
This proxy statement and the accompanying proxy card are being mailed
beginning on or about March , 1994 to shareholders in connection with the
solicitation of proxies by the Board of Directors of Allegheny Ludlum
Corporation (the "Company") for use at the 1994 Annual Meeting of Shareholders
to be held on May 20, 1994.
Shareholders whose names appeared of record on the books of the Company at
the close of business on March 11, 1994 will be entitled to notice of and to
vote at the meeting. On the record date for the meeting, there were
shares of Common Stock of the Company outstanding and entitled to
vote. Each share of Common Stock is entitled to one vote per share on each
matter properly brought before the meeting. Shares can be voted at the meeting
only if the shareholder is present in person or is represented by proxy.
When your proxy card is returned properly signed, the shares represented
will be counted for quorum purposes and will be voted in accordance with your
instructions. You can specify your choices by marking the appropriate boxes on
the proxy card. Unless contrary instructions are indicated on your proxy card,
the shares will be voted as recommended by the Board of Directors. You may
revoke your proxy, by written notice to the Company's Secretary, at any time
before it is voted at the meeting.
Your vote is important; therefore, you are urged to sign and return the
accompanying proxy card whether or not you plan to attend the meeting. If you do
attend, you may still vote by ballot at the meeting which will automatically
cancel any previously given proxy card. If you are planning to attend the
meeting in person, please complete and return the enclosed postage-paid ticket
request card promptly so that we can mail your admission ticket. Shareholders
without admission tickets will be admitted upon verification of ownership.
Proxy cards, ballots and voting tabulations that identify individual
shareholders are normally available for examination only by the Judge of
Election, the Company's Secretary and certain employees associated with
processing proxy cards and tabulating the vote. The Company does not disclose
the vote of any shareholder except as may be necessary to meet legal
requirements.
The trustee of the Allegheny Ludlum Retirement Savings Plan, the Savings
and Security Plan of the Company's Tubular Products Division, the Savings and
Security Plan of the Company's Special Materials Division and the Personal
Retirement Account Plan (collectively, the "Company's Savings Plans") has the
sole right to exercise all rights relating to Common Stock held for participants
in such Plans. Participants have the right, however, to direct the trustee as to
the manner in which voting and other rights will be exercised with respect to
the full number of shares of Common Stock allocated to their accounts and shown
on the voting instruction cards which they will receive from the Plan
Administrator. The trustee will vote shares for which no participant
instructions are received in the same proportion as shares for which participant
instructions have been received. The trustee will exercise its sole discretion
in voting or not voting fractional shares.
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If a shareholder is a participant in the Company's Automatic Dividend
Reinvestment Service for Shareholders, the proxy card represents the number of
full shares in the participant's dividend reinvestment service account on the
record date, as well as shares registered in the participant's name.
The cost of this solicitation of proxies will be borne by the Company.
Solicitations will be made primarily by mail or by facsimile, but regular
employees of the Company may solicit proxies personally or by telephone.
Brokers, banks and other nominee holders will be requested to obtain voting
instructions of beneficial owners of stock registered in their names. Shares
represented by a duly completed proxy card submitted by a nominee holder on
behalf of beneficial owners will be counted for quorum purposes, and will be
voted to the extent instructed by the nominee holder on the proxy card. The
rules applicable to a nominee holder may preclude it from voting the shares that
it holds on certain kinds of proposals unless it receives voting instructions
from the beneficial owners of the shares (sometimes referred to as "broker
non-votes"). If a nominee holder fails to vote a beneficial owner's shares on a
particular proposal, the shares will not be counted as having been voted for or
against the proposal.
The Company's fiscal year ends on the Sunday nearest to December 31 in each
year. References in this proxy statement to fiscal years 1993, 1992 and 1991
mean, respectively, the fiscal years ended January 2, 1994, January 3, 1993 and
December 29, 1991.
All numbers of shares of Common Stock and per share amounts have been
adjusted to reflect the 2-for-1 stock split effected on July 1, 1993.
THE BOARD OF DIRECTORS
The business and affairs of the Company are managed under the direction of
the Board of Directors as provided in the By-Laws of the Company and the laws of
the Commonwealth of Pennsylvania. The Board is not, however, involved in
day-to-day operating details. Members of the Board are kept informed of the
Company's business through discussions with the Chairman of the Board, the
President and Chief Executive Officer and other members of senior management and
the other officers and managers of the Company, by reviewing analyses and
reports sent to them, and by participating in Board and committee meetings. In
fiscal year 1993, regular meetings of the Board were held seven times. Special
meetings are scheduled when required; one was held in 1993. Attendance by
directors at meetings of the Board and of committees averaged 95 percent; all
directors attended at least 75 percent of the meetings of the Board and of the
committees on which they served except James E. Rohr.
The Board of Directors presently consists of thirteen members, nine of whom
are neither officers nor employees of the Company or any of its subsidiaries.
Under the By-Laws of the Company, the Board has the power to fix the number of
directors and to fill vacancies from time to time by resolution, but there may
not be less than three directors. No person may be serve as a director of the
Company after he becomes seventy-one years of age, but a person who becomes
seventy-one years of age may complete the term for which he was elected before
he became seventy-one years of age.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established four standing committees: the
Executive Committee, the Audit and Finance Committee, the Personnel and
Compensation Committee, and the Technology and Information Systems Committee.
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EXECUTIVE COMMITTEE
The Executive Committee has broad powers to act on behalf of the full Board
of Directors, subject to certain limitations set forth in the By-Laws. In
practice, the Executive Committee acts when emergency issues or scheduling
problems make it difficult to convene a meeting of all directors and on specific
matters referred to the Committee by the Board of Directors. All actions taken
must be reported at the Board's next meeting. The Executive Committee acted four
times during fiscal year 1993. The members of the Executive Committee are
Richard P. Simmons, Robert P. Bozzone, C. Fred Fetterolf, Thomas Marshall and
Charles J. Queenan, Jr.
AUDIT AND FINANCE COMMITTEE
The Audit and Finance Committee is comprised of four directors, none of
whom is an employee of the Company.
Among its principal audit functions, the Committee:
- Recommends to the Board of Directors the appointment of the independent
accountants for the coming year.
- Reviews the scope, general extent and proposed fees of the annual audit
plan and other activities of the independent accountants and the audit
plan of the internal auditors.
- Reviews with management and the independent accountants, upon
completion of the annual audit, the financial statements and related
reports for their adequacy and compliance with generally accepted
accounting, reporting and disclosure principles.
- Evaluates the effectiveness of the Company's internal and external
audit efforts, accounting and financial controls, policies and
procedures and business ethics policies and practices through a review
of reports by, and at regular meetings with, the internal and external
auditors and with management, as appropriate.
Among its principal finance functions, the Committee:
- Reviews and evaluates proposed bank credit agreements and other major
financial proposals.
- Reviews and evaluates Company relationships with banks and other
financial institutions.
- Reviews and makes recommendations to the Board of Directors concerning
policies with respect to dividends, capital structure and authorized
stock.
The independent auditors have full and free access to the Committee and
meet with it, with or without management being present, to discuss all
appropriate matters. The present members of the Audit and Finance Committee are
Paul S. Brentlinger, C. Fred Fetterolf, W. Craig McClelland and James E. Rohr.
The Committee met three times in fiscal year 1993.
PERSONNEL AND COMPENSATION COMMITTEE
The Personnel and Compensation Committee is composed of Charles J. Queenan,
Jr., C. Fred Fetterolf, Thomas Marshall and W. Craig McClelland, none of whom is
an employee of the Company.
5
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See the "Board Compensation Committee Report on Executive Compensation" at
page . The Committee held five meetings during fiscal year 1993.
Among its principal duties, the Committee:
- Makes recommendations to the Board of Directors concerning the
membership of committees of the Board and general executive management
organization matters.
- Makes recommendations to the Board of Directors concerning compensation
and benefits for employees who are also directors of the Company,
consults with the Chief Executive Officer on compensation and benefit
matters relating to other executive officers, and makes recommendations
to the Board of Directors concerning compensation policies and
procedures relating to executive officers generally.
- Makes recommendations to the Board concerning policy matters relating
to employee benefits and employee benefit plans.
- Administers the Company's formal incentive compensation plans,
including the Performance Share Plan for Key Employees and the 1987
Stock Option Incentive Plan, and the Director Share Incentive Plan.
TECHNOLOGY AND INFORMATION SYSTEMS COMMITTEE
The Technology and Information Systems Committee is composed of Richard K.
Pitler, Paul S. Brentlinger, George W. Tippins and Steven C. Wheelwright. It is
concerned with the impact of technologies which do or could materially affect
the success of the Company. The Committee is also responsible for assessing the
technical capabilities of the Company and making recommendations to the Board of
Directors concerning priorities, asset deployment or other matters relevant to
the technical activities of the Company. In 1993, the functions and
responsibilities of the Committee were expanded to include matters relevant to
the Company's information systems. The Committee held one meeting in fiscal year
1993.
COMPENSATION OF DIRECTORS
In 1993, directors who are not employees of the Company were paid an annual
fee of $22,000, $1,000 for attendance at each meeting of the Board of Directors
and $1,000 for attendance at each meeting of a committee of the Board on which
they served. The Chairman of each committee received an annual fee of $2,000.
Each non-employee director also participates automatically in the Director Share
Incentive Plan (the "Incentive Plan"). The Incentive Plan, which was approved by
the Company's shareholders at the 1993 Annual Meeting, is intended as an
incentive to encourage such directors to increase their stock ownership and
proprietary interest in the Company and to continue as directors of the Company,
as well as to attract individuals of outstanding ability to serve as
non-employee directors of the Company. Under the Incentive Plan, on May 21, 1993
and thereafter on the first business day of each calendar year, each
non-employee director becomes entitled to receive a number of shares of Common
Stock (rounded to the nearest whole share) with a fair market value on such date
equal to $5,000. Pursuant to this Plan, on May 21, 1993, each non-employee
director received 230 shares of Common Stock.
In order to continue to attract and retain outside directors of exceptional
ability, the Company maintains a Fee Continuation Plan for Non-Employee
Directors (the "Fee Continuation Plan").
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Under the Fee Continuation Plan, benefits will be payable to a person who serves
as a non-employee director for a period of five years or more after May 8, 1987
and who retires from service as a director because of the age limitation
established by the Company's By-Laws or because of death, disability or other
circumstances specified in the Plan. The benefit will be an amount equal to the
annual fee for directors in effect immediately prior to the participant's
cessation of service as a director and will continue at the rate of one year of
benefit for each year of the participant's credited service as a director (as
defined in the Fee Continuation Plan) up to a maximum of ten years.
ELECTION OF DIRECTORS
(ITEM A ON PROXY CARD)
Pursuant to the Company's Restated Articles of Incorporation, the members
of the Board of Directors are divided into three classes. Each class is to
consist, as nearly as may be possible, of one-third of the whole number of the
Board. The term of the Class I directors expires at the 1994 Annual Meeting of
Shareholders. The terms of the Class II and Class III directors will expire at
the 1995 and 1996 Annual Meetings of Shareholders, respectively. At each Annual
Meeting the directors elected to succeed those whose terms expire are identified
as being of the same class as the directors they succeed and are elected for a
term to expire at the third Annual Meeting of Shareholders after their election
and until their successors are duly elected and qualified. A director elected to
fill a vacancy is elected to the same class as the director he succeeds, and a
director elected to fill a newly created directorship holds office until the
next election of the class to which such director is elected.
The five incumbent Class I directors are nominees for election this year
for a three-year term expiring at the 1997 Annual Meeting. In the election, the
five persons who receive the highest number of votes actually cast will be
elected. Broker non-votes will not be treated as votes cast. The proxies named
in the proxy card intend to vote for the election of the five Class I nominees
listed below unless otherwise instructed. If you do not wish your shares to be
voted for a particular nominee, you must identify the exception in the
appropriate space provided on the proxy card, in which event your shares will be
voted for the other listed nominees. If any nominee becomes unable to serve, the
proxies may vote for another person designated by the Board of Directors or the
Board may reduce the number of directors. The Company has no reason to believe
that any nominee will be unable to serve.
Shareholders may vote cumulatively in the election of directors, meaning
that every shareholder has the right to multiply the number of votes to which
the shareholder is entitled by the total number of directors to be elected and
to cast the whole number of such votes for one nominee or distribute them among
any two or more nominees. The persons named in the proxy cards will allocate the
cumulated votes represented by the proxy cards in the manner they deem proper in
their best judgment. A shareholder wishing to allocate the shareholder's vote in
a particular manner must be present at the meeting and vote by ballot.
Of the thirteen incumbent directors, four are current officers of the
Company and the remaining nine have high level executive or professional
experience in a wide variety of businesses or professions. A brief statement of
the background of each nominee and each continuing Class II and Class III
director, including their principal occupations during the past five years, is
given on the following pages.
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NOMINEES FOR DIRECTOR--TERM EXPIRES 1997
CLASS I
<TABLE>
<S> <C>
ARTHUR H. ARONSON Arthur H. Aronson is Executive Vice President of the
Executive Vice President and Company. He has also served as Chief Operating Officer since
Chief Operating Officer of the Company 1990.
Director since 1990
Age: 58
W. CRAIG MCCLELLAND W. Craig McClelland is President and Chief Operating Officer
President and Chief Operating Officer, of Union Camp Corporation, a manufacturer of paper products.
Union Camp Corporation Prior to 1989, he was Executive Vice President of Union
Director since 1987 Camp. He is also a director of Union Camp Corporation,
Age: 59 Quaker State Corporation and PNC Bank Corp. Mr. McClelland
is a member of the Audit and Finance Committee and of the
Personnel and Compensation Committee.
RICHARD K. PITLER Richard K. Pitler performs private consulting work. At his
Former Senior Vice President and retirement in 1986, Dr. Pitler was Senior Vice President and
Technical Director of the Company Technical Director of the Company. He is Chairman of the
Director since 1981 Technology and Information Systems Committee.
Age: 66
JAMES E. ROHR James E. Rohr has been President of PNC Bank Corp. since
President, 1992. He also serves as President and Chief Executive
PNC Bank Corp. Officer of its Pennsylvania bank, PNC Bank, National
Director since 1988 Association. Previously, Mr. Rohr held other executive
Age: 45 positions with the bank and the holding company. Mr. Rohr
is also a director of PNC Bank Corp. and Sallie Mae (Student
Loan Marketing Association). He is a member of the Audit and
Finance Committee.
GEORGE W. TIPPINS George W. Tippins is Chairman of Tippins Incorporated, a
Chairman, privately owned company engaged primarily in the design,
Tippins Incorporated engineering and construction of rolling mills for the
Director since 1980 steel industry. Mr. Tippins is a member of the Technology
Age: 68 and Information Systems Committee.
</TABLE>
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CONTINUING DIRECTORS--TERM EXPIRES 1995
CLASS II
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PAUL S. BRENTLINGER Paul S. Brentlinger is a General Partner in Morgenthaler
General Partner, Ventures, a venture capital group headquartered in
Morgenthaler Ventures Cleveland, Ohio. He is also a director of Ferro Corporation.
Director since 1987 Mr. Brentlinger is Chairman of the Audit and Finance
Age: 66 Committee and a member of the Technology and Information
Systems Committee.
THOMAS MARSHALL Thomas Marshall is Chairman and Chief Executive Officer of
Chairman and Chief Executive Officer, Aristech Chemical Corporation, a privately owned company
Aristech Chemical Corporation engaged primarily in the manufacture of chemical and polymer
Director since 1988 products. He is also a director of PNC Bank Corp. Mr.
Age: 65 Marshall is a member of the Executive Committee and of the
Personnel and Compensation Committee.
JAMES L. MURDY James L. Murdy is Senior Vice President-Finance and Chief
Senior Vice President-Finance and Financial Officer of the Company. Mr. Murdy is also a
Chief Financial Officer of the Company director of United Meridian Corporation.
Director since 1988
Age: 55
CHARLES J. QUEENAN, JR. Charles J. Queenan, Jr. is a partner of Kirkpatrick &
Partner, Lockhart, outside attorneys for the Company. Mr. Queenan is
Kirkpatrick & Lockhart also a director of Crane Co., Fansteel, Inc. and Medusa
Director since 1980 Corporation. He is Chairman of the Personnel and
Age: 63 Compensation Committee and a member of the Executive
Committee.
CONTINUING DIRECTORS--TERM EXPIRES 1996
CLASS III
ROBERT P. BOZZONE Robert P. Bozzone is President of the Company.
President and Chief Executive Officer He has also served as Chief Executive Officer
of the Company since 1990. Previously, he served as Chief
Director since 1981 Operating Officer of the Company. Mr. Bozzone
Age: 60 is also a director of DQE Inc., whose principal
subsidiary is Duquesne Light Company, an electric
utility. Mr. Bozzone is a member of the
Executive Committee.
</TABLE>
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<TABLE>
<S> <C>
C. FRED FETTEROLF C. Fred Fetterolf was President and Chief
Former President and Chief Operating Officer, Operating Officer of Aluminum Company of America
Aluminum Company of America prior 1985 to 1991. He is also a director of
Director since 1987 Mellon Bank Corporation, Union Carbide
Age: 65 Corporation, Praxair, Inc. and Quaker State
Corporation. Mr. Fetterolf is a member of the
Audit and Finance Committee, of the Personnel
and Compensation Committee and of the Executive
Committee.
RICHARD P. SIMMONS Richard P. Simmons is Chairman of the
Chairman of the Board of the Company Board of the Company. He was also
Director since 1980 Chief Executive Officer of the Company
Age: 62 until 1990. Mr. Simmons is also a director of
PNC Bank Corp., USAir Group, Inc., and
Consolidated Natural Gas Co. Mr. Simmons is
Chairman of the Executive Committee.
STEVEN C. WHEELWRIGHT Steven C. Wheelwright is a Professor of
Professor of Business Administration, Business Administration at the Harvard
Harvard University University Graduate School of Business
Director since 1988 Administration. He is also a director of TJ
International Corporation and Quantum
Corporation. Mr. Wheelwright is a member of the
Technology and Information Systems Committee.
</TABLE>
PROPOSAL TO INCREASE AUTHORIZED SHARES OF COMMON STOCK
(ITEM B ON PROXY CARD)
The Board of Directors has proposed that the Company's Restated Articles of
Incorporation be amended to increase the number of authorized shares of Common
Stock, $0.10 par value per share, from 100,000,000 shares to 250,000,000 shares.
The proposed amendment is attached to this Proxy Statement as Exhibit A. The
Board of Directors believes that the increase in shares is necessary to ensure
that the Company has a sufficient number of authorized but unissued shares of
Common Stock available for corporate purposes, including stock dividends or
distributions, equity financing and possible acquisitions of businesses.
In 1993, the Board of Directors declared a two-for-one stock split,
distributed on July 1, 1993 in the form of a stock dividend, and completed its
acquisition of Jessop Steel Company. In connection with these transactions, the
Company issued 39,015,809 shares of Common Stock. Giving effect to these
transactions, as of the close of business on March , 1994, shares of
Common Stock were issued and outstanding. In addition, shares were
reserved for issuance for conversion of the Company's Convertible Subordinated
Debentures, or issuance pursuant to the Company's 1987 Stock Option Incentive
Plan. Performance Share Plan for Key Employees and Director Share Incentive
Plan, leaving a total of shares unreserved.
Authorized but unissued shares of Common Stock are generally available for
future issuance at the discretion of the Board of Directors. No further
shareholder authorization will be required, except as provided under
Pennsylvania law or the rules of any national securities exchange on which
shares of
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Common Stock may be listed. At the present time, the Common Stock is
listed on the New York Stock Exchange. Holders of Common Stock have no
preemptive rights.
The Company currently has no plans to issue any additional shares of Common
Stock other than the shares of Common Stock that previously have been reserved
for issuance as described above and shares of Common Stock to be issued under
the Allegheny Ludlum Corporation Stock Acquisition and Retention Plan described
below.
The amendment to the Company's Restated Articles of Incorporation
increasing the number of authorized shares of Common Stock from 100,000,000 to
250,000,000, if adopted, would become effective upon the filing with the
Department of State of the Commonwealth of Pennsylvania of Articles of
Amendment, which filing is expected to take place shortly after the shareholders
approve the amendment. There will be no change in the number of authorized
shares of preferred stock, which is 50,000,000 shares.
The affirmative vote of the holders of a majority of the votes cast by all
shareholders entitled to vote at the meeting is required to authorize the
amendment. Abstentions and broker non-votes will not be counted as votes cast.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR
THE PROPOSED INCREASE IN THE AUTHORIZED SHARES OF COMMON STOCK.
PROPOSAL TO APPROVE THE ALLEGHENY LUDLUM CORPORATION
STOCK ACQUISITION AND RETENTION PLAN
(ITEM C ON PROXY CARD)
The Board of Directors has adopted the Allegheny Ludlum Corporation Stock
Acquisition and Retention Plan (the "Stock Plan"), attached to this Proxy
Statement as Exhibit B, subject to approval by the shareholders.
Overview. The Stock Plan is based on the Company's belief that ownership of
Common Stock by officers contributes to strong management by further aligning
the interests of management with those of the shareholders of the Company. The
Stock Plan is intended to provide participating officers with an opportunity to
purchase additional shares of Common Stock from the Company and an incentive to
retain ownership of such purchased shares and/or other shares already owned or
otherwise acquired by them. It provides the incentive by offering participants
an opportunity to receive grants of restricted shares of Common Stock which will
vest only if the participants retain the shares that are purchased under the
Plan and/or other shares already owned or otherwise acquired by the participants
that are designated by them as subject to the Plan.
The Stock Plan has two components:
(1) The stock acquisition feature of the Plan enables
participants to increase their proprietary interest in the Company by
purchasing additional shares of Common Stock directly from the
Company. Such purchases will be at the market price, and the price
will be paid in cash or by a promissory note. The participant will
not incur brokerage fees in the acquisition.
(2) The stock retention feature of the Stock Plan involves the
grant of restricted stock to participants. One share of restricted stock
will be granted for each two shares purchased under the Plan. In addition,
one restricted share will be granted for each two shares already owned
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by the participant that are designated as subject to the Plan. In general,
the restricted shares will vest only if the participant continues to hold
the underlying purchased or designated shares for a period of at least
five years. A maximum of 1 million shares will be available for issuance
under the Stock Plan.
Plan Provisions. Participation in the Stock Plan will be limited to
officers of the Company at the level of Vice President or higher. The Personnel
and Compensation Committee will have the sole discretion to determine which of
such officers will be eligible to participate in the Plan in any particular
year. Participation by eligible officers will be completely voluntary. It is
anticipated that employees who were shareholders of the Company before the
Company became publicly owned, including Messrs. Bozzone and Simmons, will not
be eligible to participate in the Stock Plan. Presently, the Company has ten
officers of the Company at the level of Vice President or higher, excluding
Messrs. Bozzone and Simmons. Among those included are Messrs. Aronson and Murdy,
both of whom are executive officers and directors of the Company.
If an officer is designated as eligible to participate in the Stock Plan
during a year, the officer may, at his discretion, file one or more elections
("purchase notices") during that year to purchase shares of Common Stock from
the Company. A purchase notice is irrevocable and must set forth the dollar
amount that the participant desires to apply toward the purchase price of the
shares.
Although purchase notices may be filed at any time, there will be only four
purchase dates each year. These dates will occur on the business day following
the close of each quarterly window period. The window periods are each of the
four 10-day periods each year which begin on the third business day following
the Company's release of its quarterly or annual summary statements of sales and
earnings and which end on the twelfth business day following that date.
The purchase price for each share will equal the average trading price of
the Common Stock during the window period that immediately precedes the purchase
date. To determine the number of shares a participant has elected to purchase,
the dollar amount set forth in the participant's purchase notice will be divided
by the applicable purchase price per share.
An officer that chooses to participate in the Stock Plan must deliver to
the Company cash and/or a full recourse promissory note as payment for the
purchase price of the purchased shares. The terms of the note will be as
follows:
(1) The principal amount of the note will equal the purchase
price for the shares the participant elected to purchase, reduced by
the amount of cash paid, if any.
(2) Each note will have a term of not more than 10 years and will
be secured by the shares of Common Stock being purchased with the
note.
(3) Interest will accrue on the note at a rate equal to the
lesser of the average borrowing rate of the Company ( % as of March
, 1994) and the prime lending rate of PNC Bank ( % as of March ,
1994), but will never be lower than the minimum rate necessary to
avoid imputed interest under the applicable federal income tax rules.
(4) No principal or interest will be due under the note during
the first five years of its term, except that cash dividends paid on
the purchased shares held as security for the note and on the related
shares of restricted stock (described below) will be applied to pay
accrued interest. Accrued but unpaid interest will be added to the
principal of the note. After the first
12
<PAGE>
five years, level monthly payments of principal and interest will be due
for the remaining term of the note. The note will be payable in full,
however, if the participant's employment with the Company terminates,
except, if the Personnel and Compensation Committee so provides, in the
case of retirement. The note can be prepaid without penalty.
(5) Principal and interest may be paid in cash or by the delivery
of shares of Common Stock of equivalent value.
In addition to, or in lieu of, purchasing shares from the Company, a
participant may designate shares of Common Stock acquired at any time outside
the Stock Plan as subject to the Plan. The aggregate value of the shares
purchased and designated by a participant under the Stock Plan in any year may
not exceed the participant's gross annual salary.
Under the Plan, one share of restricted stock will be granted for each two
shares of Common Stock purchased or designated by the participant under the
Stock Plan. From the date of issuance, the participant will be entitled to vote
the shares of restricted stock and receive all dividends paid on the shares
(subject, in the case of restricted stock issued with respect to shares
purchased with a promissory note, to the obligation to apply cash dividends to
pay interest on such promissory note). However, during the restriction period,
the certificates representing shares of restricted stock will be held in custody
by the Company.
Unless the Personnel and Compensation Committee establishes a different
period, the restriction period for restricted stock granted under the Stock Plan
will be five years from the date the restricted shares are granted. Shares of
restricted stock will not be transferable during the restriction period.
Further, a participant's restricted stock will be forfeited if, during the
restriction period, (1) the participant sells the related purchased shares or
designated shares (other than to certain permitted transferees, consisting
generally of certain members of the participant's family); (2) the participant's
employment with the Company terminates (except in the limited circumstances
described below); or (3) in the case of restricted stock issued with respect to
purchased shares, the participant defaults on the related promissory note.
Notwithstanding the foregoing, all forfeiture and transfer restrictions with
respect to a participant's shares of restricted stock will lapse (a) in full, if
the participant dies, becomes disabled, retires or is discharged without cause;
(b) in full, upon the occurrence of a "change of control" (as defined in the
Stock Plan); or (c) in full or in part, under appropriate circumstances, as may
be determined by the Personnel and Compensation Committee in its sole
discretion.
Federal Income Tax Consequences. There are no tax consequences to the
Company or the participant from (1) the filing by the participant of a purchase
notice under the Stock Plan; (2) the issuance of purchased shares in the name of
the participant; (3) the pledge of the purchased shares to the Company as
collateral for the promissory note used to purchase the shares; or (4) the
designation by a participant of shares already owned by the participant as being
subject to the Stock Plan. The participant may be able to take a tax deduction
for interest paid on the note.
Since the shares of restricted stock will be granted subject to transfer
and forfeiture restrictions, initially the grant of the restricted stock will
have no tax consequences to the Company or the participant. Except as discussed
below, the full fair market value of the restricted stock will be taxed as
ordinary income to the participant when the restrictions on the stock lapse,
with value being determined at the time of the lapse, and the Company will
receive a corresponding tax deduction. In addition, dividends received on the
restricted stock during the restriction period will be treated as compensation
income and will be taxed as ordinary income to the participant and will be
deductible
13
<PAGE>
by the Company. Upon a subsequent sale or exchange of the shares, the amount
realized by the participant in excess of the amount of ordinary income
previously recognized by the participant on the lapse of the restrictions on the
stock will be treated for tax purposes as capital gain or loss. This would be
long-term gain or loss if the shares are held by the participant for at least
one year after the restrictions lapse.
In lieu of the foregoing, the participant may make an election under the
federal income tax laws to report the fair market value of the restricted stock
as ordinary income in the year in which the award of restricted stock is made,
with such value being determined at the time of the award. In such a case, the
Company will receive an immediate tax deduction for such fair market value in
the year of the award, but will receive no deduction for any subsequent
appreciation during or after the restriction period. In addition, if such an
election is made, dividends paid during or after the restriction period would be
treated as dividends to the participant and would not be deductible by the
Company. Further, any appreciation in the value of the restricted shares after
the date of the award would not be recognized by the participant until the
participant disposes of the shares in a taxable transaction; any gain or loss
would then be treated as capital gain or loss. This would be long-term gain or
loss if the shares are held by the participant for at least one year after the
grant of the restricted stock. If the participant who has made the election
forfeits the restricted shares, because the requirements for the lapse of the
restrictions were not satisfied, the participant will receive no refund or
deduction on account of any taxes paid by the participant in the year of grant.
The foregoing discussion of tax deductions by the Company is subject to the
provisions of Section 162(m) of the Internal Revenue Code which limits
compensation deductions to $1 million per covered employee. The term "covered
employee" generally includes the Chief Executive Officer and the four other
highest paid employees of the Company. Certain types of compensation are exempt
from this deduction limit, but the restricted stock granted under the Stock Plan
may not qualify for such an exemption.
Effective Date and Term of Stock Plan. The Stock Plan will become effective
upon its approval by the shareholders at the 1994 Annual Meeting and will
automatically terminate on the fifth anniversary of its effective date. The
Board of Directors may, however, terminate the Stock Plan earlier, in its sole
discretion. The termination of the Stock Plan will not affect any award
outstanding at the time of the termination of the Stock Plan.
Vote by Shareholders. The Board of Directors has voted to approve the
Stock Plan; Messrs. Aronson and Murdy, who both serve as executive officers of
the Company, abstained from voting on the Plan. The affirmative vote of the
holders of a majority of the shares of Common Stock present in person or by
proxy at the Annual Meeting and entitled to vote is required to adopt the Stock
Plan. An abstention will have the same effect as a vote against the proposal.
Broker non-votes will be treated as shares that are not entitled to vote, for
this purpose.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE APPROVAL
OF THE ALLEGHENY LUDLUM CORPORATION STOCK ACQUISITION AND RETENTION PLAN.
14
<PAGE>
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
(ITEM D ON PROXY CARD)
Ernst & Young has served as independent auditors for the Company since
1980. The Board of Directors believes that Ernst & Young is knowledgeable about
the Company's operations and accounting practices and is well qualified to act
in the capacity of independent auditors; therefore, it has selected that firm as
independent auditors for fiscal year 1994. The proposal to ratify the selection
of Ernst & Young will be approved by the shareholders if it receives the
affirmative vote of a majority of the votes actually cast by shareholders
entitled to vote on the proposal. If your proxy card is specifically marked as
abstaining from voting on the proposal, your shares will not be counted as
having been voted for or against the proposal. If the shareholders do not ratify
the selection of Ernst & Young, the appointment of independent auditors will be
reconsidered by the Board. It is expected that representatives of Ernst & Young
will be present at the Annual Meeting and will have an opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THE
SELECTION OF ERNST & YOUNG AS INDEPENDENT AUDITORS.
OTHER BUSINESS TO COME BEFORE THE MEETING
In addition to the matters described above, there will be an address by
Richard P. Simmons, Chairman of the Board of the Company, and by Robert P.
Bozzone, President and Chief Executive Officer of the Company, and a general
discussion period during which the shareholders will have an opportunity to ask
questions about the Company and its business.
The Company knows of no business which may be presented for consideration
at the Annual Meeting other than as indicated in the Notice of Annual Meeting.
If any other business should properly come before the meeting, the persons
designated as proxies in the proxy cards have discretionary authority to vote in
accordance with their best judgment.
SECURITY OWNERSHIP
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
To the knowledge of the Company, as of , 1994, no person or
group owned beneficially more than five percent of the outstanding Common Stock
of the Company except:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE PERCENT OF
BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP CLASS
---------------- ----------------------- ----------
<S> <C> <C>
Mr. and Mrs. Richard P. Simmons 17,249,791(a)(b)(c) %
1000 Six PPG Place
Pittsburgh, PA 15222
Robert P. Bozzone 6,048,494(a)(d)
1000 Six PPG Place
Pittsburgh, PA 15222
</TABLE>
15
<PAGE>
<TABLE>
<S> <C> <C>
Pioneering Management Corporation 3,619,500(e)
60 State Street
Boston, MA 02114
</TABLE>
(a) Includes shares held by the trustee under the savings part of the
Retirement Savings Plan (described on page ) for the account of the named
person as of December 31, 1993.
(b) Mr. and Mrs. Simmons own 17,193,251 shares jointly; Mr. Simmons has the
sole power to direct the voting of the jointly-owned shares, and Mr. and
Mrs. Simmons share the power to direct the disposition of such shares. In
addition, Mr. Simmons owns 14,000 shares; Mrs. Simmons disclaims any
beneficial ownership of such shares. Mrs. Simmons also owns 15,000 shares;
Mr. Simmons disclaims any beneficial ownership of such shares. At various
times between 1989 and 1992, Mr. and Mrs. Simmons made a series of seven
charitable gifts of jointly-owned shares of Common Stock of the Company.
All of the gifts were timely reported by Mr. Simmons pursuant to the
Securities and Exchange Commission rules under section 16(a) of the
Securities Exchange Act of 1934, reflecting Mrs. Simmons' joint ownership
interest. The Company began filing separate reports for Mrs. Simmons in
1993.
(c) Does not include shares owned by the R.P. Simmons Family
Foundation. Mr. and Mrs. Simmons disclaim any beneficial ownership of such
shares.
(d) Does not include 240,000 shares owned by Mrs. Robert P. Bozzone and
shares owned by the Bozzone Family Foundation. Mr. Bozzone disclaims any
beneficial ownership of such shares.
(e) Pioneering Management Corporation has filed a Schedule 13G under the
Securities Exchange Act of 1934, as amended, stating that it is a
registered investment advisor and holds sole voting power and shared
dispositive power with respect to 3,619,500 shares ofCommon Stock.
16
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows the number of shares of Common Stock of the
Company reported to the Company as of , 1994, to be beneficially
owned by each nominee for director, each continuing director, the Chief
Executive Officer and the four other most highly compensated executive officers,
and all of such persons and the other executive officers of the Company as a
group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME OWNERSHIP(1) CLASS
---- -------------------------- ----------
<S> <C> <C>
Arthur H. Aronson 48,177(2)(3) *
Robert P. Bozzone 6,048,494(4) %
Paul S. Brentlinger 5,439(5) *
C. Fred Fetterolf 1,523(6) *
Thomas Marshall 5,963 *
W. Craig McClelland 3,439 *
James L. Murdy 46,779(3)(7) *
Richard K. Pitler 3,439 *
Charles J. Queenan, Jr. 1,214,989(8) %
James E. Rohr 2,615 *
Robert W. Rutherford 33,401(3)(9) *
Richard P. Simmons 17,234,791(10) %
George W. Tippins 30,439 *
Steven C. Wheelwright 3,939 *
All directors and executive 24,943,696(3)(11) %
officers as a group (23
persons)
</TABLE>
*Less than one percent of the outstanding shares.
(1) Each person has sole voting and investment power with respect to the shares
listed, unless otherwise indicated. Of the shares listed, 3,000 shares are
held jointly by Mr. McClelland and his wife, 3,439 shares are held jointly
by Dr. Pitler and his wife, 4,000 shares are held jointly by Mr. Rutherford
and his wife, 209 shares are held jointly by Mr. Tippins and his wife and
3,730 shares are held jointly by Mr. Wheelwright and his wife.
(2) Does not include 13,500 shares owned by Mrs. Arthur H. Aronson. Mr. Aronson
disclaims any beneficial ownership of such shares. Includes 39,000 shares
which may be acquired within 60 days pursuant to a stock option plan.
(3) Includes shares held by the trustee under the savings part of the
Retirement Savings Plan (described on page ) for the account of the named
person as of December 31, 1993.
(4) See notes (a) and (d) on pages and .
(5) Does not include 200 shares owned by Mrs. Paul S. Brentlinger. Mr.
Brentlinger disclaims any beneficial ownership of such shares.
17
<PAGE>
(6) Does not include 1,600 shares owned by the Fetterolf Family Foundation. Mr.
Fetterolf disclaims any beneficial ownership of such shares.
(7) Includes 36,333 shares which may be acquired within 60 days pursuant to a
stock option plan.
(8) Does not include 154,100 shares owned by Mrs. Charles J. Queenan, Jr. Mr.
Queenan disclaims any beneficial ownership of such shares. Mr. Queenan owns
1,200,209 of the shares jointly with his wife.
(9) Includes 20,526 shares which may be acquired within 60 days pursuant to a
stock option plan.
(10) See notes (a), (b) and (c) on pages and .
(11) Includes 243,508 shares which may be acquired within 60 days pursuant to a
stock option plan.
CUMULATIVE TOTAL SHAREHOLDER RETURN
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total shareholder return on the Company's Common Stock against
the cumulative total return of the Standard & Poor's Composite--500 Stock Index
and the S&P Steel Index (measured in accordance with the rules of the Securities
and Exchange Commission) for the period of five calendar years commencing
December 31, 1988 and ending December 31, 1993.1 In accordance with the rules of
the Securities and Exchange Commission, this presentation shall not be
incorporated by reference into any of the Company's Registration Statements
under the Securities Act of 1933.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
BASE
______________________ PERIOD RETURN RETURN RETURN RETURN RETURN
| Company/Index Name | 1988 1989 1990 1991 1992 1993
- ---------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
ALLEGHENY LUDLUM CORP. 100 138.98 125.61 152.88 197.52 277.40
S&P 500 Comp-Ltd 100 131.69 127.60 166.47 179.15 197.21
Steel 100 96.73 81.40 100.02 130.87 172.20
</TABLE>
- ---------
1 As noted on page 4, the Company's fiscal year ends on the Sunday nearest
to December 31 in each year.
18
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for fiscal years 1991, 1992 and 1993, the cash
compensation paid by the Company and its subsidiaries to the Company's President
and Chief Executive Officer and to each of the four other most highly
compensated executive officers of the Company in all capacities in which they
served, as well as certain other compensation information relating to those
years.
Employees who became shareholders of the Company before the Company became
publicly-held, including Messrs. Bozzone and Simmons and others, do not
participate in the Company's long-term incentive programs. Mr. Simmons'
participation in the Company's annual incentive compensation programs terminated
when he stepped down as Chief Executive Officer of the Company in May 1990.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
| LONG TERM COMPENSATION |
|-------------|------------- |
ANNUAL COMPENSATION | AWARDS | PAYOUTS |
-------------------------------|-------------|------------- |
|SECURITIES | |
| UNDERLYING | | ALL OTHER
|OPTIONS/SARS | LTIP PAYOUTS | COMPENSATION
NAME AND PRINCIPAL POSITIONS YEAR SALARY ($)(2) BONUS ($)(3) | (#)(4) | ($)(5) | ($)(6)
- ---------------------------- ---- ------------- ------------ |------------ | -------------| ------------
<S> <C> <C> <C> | <C> | <C> | <C>
Robert P. Bozzone 1993 $ 360,000 $ 465,000 | * | * | $ 306,702
President and Chief 1992 310,000 372,875 | * | * | 157,949
Executive Officer (1) 1991 310,000 126,430 | * | * | 120,477
| |
Richard P. Simmons 1993 $ 300,000 * | * | * | $ 244,822
Chairman of the 1992 300,000 * | * | * | 219,927
Board (1) 1991 341,667 * | * | * | 200,428
| | |
Arthur H. Aronson 1993 $ 250,000 $ 188,100 | 36,000 shs | $ 151,625 | $ 121,310
Executive Vice 1992 235,417 177,217 | 0 | 126,125 | 129,466
President and Chief 1991 225,000 86,515 | 0 | 124,063 | 79,438
Operating Officer (1) | | |
| | |
James L. Murdy 1993 $ 215,050 $ 143,827 | 28,000 shs.| $ 164,188 | $ 72,123
Senior Vice President- 1992 209,287 135,776 | 0 | 126,125 | 79,185
Financial and Chief 1991 192,000 69,474 | 0 | 124,063 | 46,637
Financial Officer | | |
| | |
Robert W. Rutherford 1993 $ 152,000 $ 79,253 | 25,200 shs.| $ 151,625 | $ 42,890
Vice President- 1992 147,625 74,606 | 0 | 126,125 | 47,973
Commercial 1991 134,500 34,685 | 0 | 124,063 | 28,848
</TABLE>
* The named executive officer did not participate in this plan or program.
(1) For a description of the employment agreements between the Company and
Messrs. Bozzone, Simmons and Aronson, see page .
(2) Includes cash compensation deferred pursuant to the savings part of the
Company's Retirement Savings Plan, described in note (6) below.
19
<PAGE>
(3) Includes payments under the Company's Performance Management System Plan
and for 1991 and 1992, under the salaried employees profit-sharing plan,
described in the "Board Compensation Committee Report on Executive
Compensation." The amount that is payable under the salaried employees
profit sharing plan for 1993 is not yet calculable and, in accordance with
the regulations of the Securities and Exchange Commission, will be reported
in the proxy statement for the 1995 Annual Meeting of Shareholders.
(4) Reflects options awarded under the Company's 1987 Stock Option Incentive
Plan. The amount represents the number of shares which the executive
officer could purchase by exercising the options. See "Stock Options."
(5) Payments in 1993, 1992 and 1991 reflect the achievement of performance
objectives for the 1988-1990 award period under the Company's Performance
Share Plan for Key Employees. Payment of the awards to the 47 participating
key employees over a three-year period in one-third increments began in
February 1991. The last two annual payments were made in January 1992 and
January 1993, respectively. The amount represents the cash and the market
value of the shares of Common Stock distributed under the Plan on the
relevant valuation dates.
(6) These amounts include the annual accruals made by the Company with respect
to possible future payments to the named executive officers under the
Company's Supplemental Pension Plan described at page . The amounts
accrued were as follows: Mr. Bozzone, $255,776; Mr. Simmons, $217,354; Mr.
Aronson, $92,687; Mr. Murdy, $47,797; and Mr. Rutherford, $24,779. Also
included are contributions by the Company of $12,031 to the account of Mr.
Rutherford and $12,260 to the account of each of the other named executive
officers pursuant to the retirement security part of the Company's
Retirement Savings Plan and contributions by the Company for the accounts
of the named executive officers pursuant to the savings part of the
Company's Retirement Savings Plan, as follows: Mr. Bozzone, $4,050; Mr.
Simmons, $4,250; Mr. Aronson, $3,750; Mr. Murdy, $4,480; and Mr.
Rutherford, $4,370. The amounts also include contributions by the Company
to the plan accounts of the named executive officers under the Company's
Benefit Restoration Plan, as follows: Mr. Bozzone, $34,616; Mr. Simmons,
$10,958; Mr. Aronson, $12,613; Mr. Murdy, $7,586; and Mr. Rutherford,
$1,710.
The Retirement Savings Plan is a qualified defined contribution plan within
the meaning of Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). The Plan has two components, the retirement security
part and the savings part. Employees eligible for the retirement security
part of the Company's Retirement Savings Plan include salaried non-union
employees. In 1993, a total of 1,672 employees participated in the
retirement security part of the Plan. The savings part of the Retirement
Savings Plan is designed to encourage eligible employees to save for the
future and accumulate a fund to supplement retirement income through
tax-deferred contributions. All contributions by the Company or by
participants are subject to the applicable limits of the Code. The Company
matches participants' Basic Savings contributions on the terms set forth in
the Plan. Company contributions and earnings are invested only in a fund
invested solely in Common Stock of the Company, but may be transferred to
any other fund available under the Plan monthly following due notice. In
1993, a total of 1,475 employees participated in the savings part of the
Plan.
The Benefit Restoration Plan provides that the Company will supplement the
payments received by participants in the Company's Pension Plan for
Salaried Employees (see "Pension Plans"
20
<PAGE>
below) and the retirement security and savings parts of the Retirement
Savings Plan by making payments to or accruing benefits on behalf of such
participants in amounts which are the equivalent of the portion of the
payments or benefits which cannot be paid or accrued under such plans by
reason of the limitations imposed by the Code.
Compensation and benefits paid or furnished by the Company in the fiscal
years set forth in the above table to the executive officers, other than as set
forth in the table, were less than established reporting threshholds.
STOCK OPTIONS
The following table sets forth information regarding the grant of stock
options during 1993 under the Company's 1987 Stock Option Incentive Plan (the
"Option Incentive Plan") to each of the executive officers named in the Summary
Compensation Table and to all optionees as a group:
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
-----------------------------------------------
%
NUMBER OF OF TOTAL POTENTIAL REALIZABLE
SECURITIES OPTIONS/ VALUE AT ASSUMED ANNUAL
UNDERLYING SARS RATES OF STOCK PRICE
OPTIONS/ GRANTED TO EXERCISE APPRECIATION FOR OPTION TERM(2)
SARS EMPLOYEES OR BASE -------------------------------------------
GRANTED IN FISCAL PRICE EXPIRATION 0% 5% 10%
NAME (#) YEAR ($/SHARE) DATE ($)(3) ($) ($)
- ---- --- ---- --------- ---- ------ --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
R. P. Bozzone.......... * N/A N/A N/A N/A N/A N/A
R. P. Simmons.......... * N/A N/A N/A N/A N/A N/A
A. H. Aronson.......... 36,000 5.8% $ 22.9375 12/8/03 0 $ 519,311 $ 1,316,038
J. L. Murdy............ 28,000 4.5% 22.9375 12/8/03 0 403,908 1,023,585
R. W. Rutherford....... 25,200 4.1% 22.9375 12/8/03 0 363,518 921,226
All Shareholders....... N/A N/A N/A N/A 0 [$1,024,684,755](4) [$2,596,756,443](4)
All Optionees.......... 620,400 100% 22.9375 12/8/03 0 $ 8,949,456 $ 22,679,714
As a % of all share-
holders gain......... N/A N/A N/A N/A N/A [.87%] [.87%]
</TABLE>
* Employees who were shareholders of the Company before the Company became
publicly owned, including Messrs. Bozzone and Simmons and others, do not
participate in the Company's Option Incentive Plan.
(1) All options are granted at the fair market value of the Common Stock on the
grant date and generally expire 10 years from the grant date. The options
become exercisable in 1/3 increments, on June 1, 1996, June 1, 1997 and
June 1, 1998, respectively. Options include the right to pay the exercise
price in cash or in previously-acquired Common Stock and the right to have
shares withheld by the Company to pay withholding tax obligations due in
conjunction with the exercise.
(2) These assumed potential values are mathematically derived from certain
prescribed rates of stock price appreciation. The actual value of these
option grants is dependent on future performance of the Common Stock and
overall stock market conditions. There is no assurance that the values
reflected in this table will be achieved. The Company did not use an
alternative formula for a
21
<PAGE>
grant date valuation, as it is not aware of any formula which will
determine with reasonable accuracy a present value based on future unknown
or volatile factors.
(3) No gain to the optionees is possible without stock price appreciation,
which will benefit all shareholders commensurately. Zero percent stock
price appreciation will result in zero dollars for the optionee.
(4) "All shareholders" value is calculated from $22.9375, the exercise price
for all options awarded in fiscal 1993, based on the outstanding shares of
Common Stock on , 1994.
The following table sets forth information regarding the exercise of stock
options during 1993 and the unexercised options held as of the end of the 1993
fiscal year by the executive officers named in the Summary Compensation Table.
No stock appreciation rights ("SARs") were granted to any of the named executive
officers and none of the named executive officers held any unexercised SARs at
the end of the fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/
SHARES OPTIONS/SARS AT FY-END (#) SARS AT FY-END ($)(1)
ACQUIRED -------------------------- ----------------------
NAME ON EXERCISE (#) VALUE REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- ------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert P. Bozzone * * * * * *
Richard P. Simmons * * * * * *
Arthur H. Aronson 0 0 39,000 shs. 60,000 shs. $ 540,210 $ 341,250
James L. Murdy 0 0 36,333 46,667 537,669 265,421
Robert W. Rutherford 16,000 shs. $ 198,166 20,526 42,000 296,183 238,875
</TABLE>
* Employees who were shareholders of the Company before the Company became
publicly-owned, including Messrs. Bozzone and Simmons and others, do not
participate in the Company's 1987 Stock Option Incentive Plan.
(1) The value of unexercised in-the-money options is calculated by subtracting
the exercise price from $23.75, which is the mean between the high and low
sales prices of a share of Allegheny Ludlum Corporation Common Stock on the
New York Stock Exchange on December 31, 1993 which was the last trading day
in the Company's 1993 fiscal year.
PENSION PLANS
In 1988, the Company adopted the retirement security part of the Retirement
Savings Plan (formerly known as the Retirement Security Program) referred to in
note (6) on page , and amended the Company's Pension Plan for Salaried
Employees (the "Pension Plan") to provide that no additional benefits would
accrue thereunder from and after December 31, 1988 except for those employees
who were grandfathered under the Pension Plan. Benefits accrued prior to January
1, 1989 will be paid at the time, in the form and in the amount determined under
the Pension Plan.
The following table shows the estimated annual benefits calculated on a
straight life annuity basis payable under the Pension Plan and the defined
benefit portion of the Benefit Restoration Plan
22
<PAGE>
described at note (6) on page to participants in specified compensation and
years of service classifications upon attainment of age 65.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
AVERAGE ANNUAL ELIGIBLE EARNINGS FOR
HIGHEST FIVE CONSECUTIVE YEARS IN ESTIMATED ANNUAL PENSION BENEFITS FOR
TEN-YEAR PERIOD PRECEDING RETIREMENT REPRESENTATIVE YEARS OF CONTINUOUS SERVICE
- ------------------------------------ ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
15 20 25 30 35 40
-- -- -- -- -- --
$ 200,000 $ 48,000 $ 64,000 $ 80,000 $ 96,000 $ 112,000 $ 128,000
300,000 72,000 96,000 120,000 144,000 168,000 192,000
400,000 96,000 128,000 60,000 192,000 224,000 256,000
500,000 120,000 160,000 200,000 240,000 280,000 320,000
600,000 144,000 192,000 240,000 288,000 336,000 384,000
800,000 192,000 256,000 320,000 384,000 448,000 512,000
1,000,000 240,000 320,000 400,000 480,000 560,000 640,000
</TABLE>
The formula used to determine retirement benefits under the Pension Plan
considers the participant's average annual eligible earnings in the highest five
consecutive years of the last ten years prior to retirement and the number of
the participant's years of service. Eligible earnings are base salary, including
tax-deferred contributions by the employee under the Company's savings plans,
and awards when received under the Performance Management System Plan. Eligible
earnings for the purposes of the Pension Plan and the defined benefit portion of
the Benefit Restoration Plan for the 1993 calendar year for the named executives
who are participants under the Pension Plan are as follows: Mr. Bozzone,
$721,152; Mr. Simmons, $300,000; and Mr. Rutherford, $152,000. Messrs. Aronson
and Murdy were not active participants in the Pension Plan during 1993.
In certain circumstances, pension benefits are subject to integration with
Social Security and reduction for other payments made to the participant or his
or her spouse. The benefits payable from a qualified defined benefit plan are
also limited by Section 415 of the Code to an annual benefit of $118,800 payable
at age 65 with actuarial reduction for earlier commencement. The amounts shown
in the table indicate the aggregate of payments under the Pension Plan and the
defined benefit portion of the Benefit Restoration Plan described at note (6) on
page .
As of December 31, 1993, Messrs. Bozzone, Simmons, Aronson, Murdy and
Rutherford had 38, 40, 0.08, 0.58 and 30 credited years of service for purposes
of the Pension Plan. For vesting purposes, Messrs. Aronson and Murdy each had 5
years of service and are now fully vested in the Pension Plan. Mr. Simmons'
credited years of service has been calculated as described in the discussion of
his employment agreement at page .
In addition, the Company has established a Supplemental Pension Plan which
provides certain key employees of the Company (or their beneficiaries in the
event of death) with monthly payments in the event of retirement, disability or
death, equal to 50 percent of monthly base salary as shown in the Summary
Compensation Table on page as of the date or retirement, disability or death.
Monthly retirement benefits start two months following the later of (i) age 62,
if actual retirement occurs prior to age 62 but after age 58 with the approval
of the Board of Directors, or (ii) the date actual retirement occurs, and
continue for a 118-month period. The Plan describes the events which will
terminate an employee's participation in the Plan. Since the payment of
benefits is contingent on future events, the 23
<PAGE>
amount to be paid in the future with respect to any named executive officer
cannot be determined at this time.
EMPLOYMENT AGREEMENTS WITH CERTAIN EXECUTIVE OFFICERS
The Company is a party to employment agreements with Messrs. Simmons,
Bozzone and Aronson. Mr. Simmons is employed pursuant to an Employment Agreement
with the Company dated January 1, 1981, as amended, which expires on May 3, 1996
and provides for an annual salary of not less than $240,000, exclusive of any
other compensation he may receive pursuant to any bonus, profit sharing or
additional compensation plan of the Company or which may be otherwise authorized
by the Board of Directors. The agreement provides that Mr. Simmons will be
entitled to the benefits provided by the Supplemental Pension Plan and that his
base salary for purposes of the Supplemental Pension Plan will be an amount not
less than $400,000 per year. The agreement also provides that he is entitled to
a supplemental pension, payable from the general assets of the Company, based on
15 years of service in addition to those he has served as a Company employee,
and that for purposes of the Benefit Restoration Plan his annual benefit under
the Pension Plan will be calculated based on such 15 years of additional
service.
Mr. Bozzone is employed pursuant to an Employment Agreement with the
Company dated July 13, 1990 which expires on the date of the Annual Meeting of
Shareholders in 1994 and provides for a base salary of at least $310,000
annually exclusive of any other compensation he may receive pursuant to any
other plan of the Company or which may be otherwise authorized by the Board of
Directors. The agreement also provides for his participation in any bonus plan
of the Company and in the various benefit plans maintained by the Company,
including its various pension, supplemental pension, disability, medical,
insurance, sick leave and other similar benefit and retirement arrangements. Mr.
Bozzone has announced that he is retiring from his positions as President and
Chief Executive Officer in June 1994.
Mr. Aronson has been employed pursuant to an Employment Agreement effective
December 1, 1988 with a term of five years, providing for a base salary of at
least $200,000 annually exclusive of any other compensation he may receive
pursuant to any other plan of the Company or which may be otherwise authorized
by the Board of Directors. The agreement has also provided for his participation
in the Company's 1987 Stock Option Incentive Plan, Performance Share Plan and
Supplemental Pension Plan. Under the agreement, if the Company terminated Mr.
Aronson's employment for any reason other than "cause" (as defined in the
agreement), he was entitled to a continuation of his base salary and benefits
for the remainder of the five year term of the agreement. The agreement also
provided that Mr. Aronson could terminate his employment following a change in
control of the Company if after such change in control his office was changed to
a different geographic location or if he determined in good faith that as a
result of the change in control and a change in circumstances thereafter
affecting his position he was unable to exercise the authorities, powers,
functions or duties commensurate with the positions for which he was employed
pursuant to the agreement, and such situation was not remedied within thirty
days after receipt by the Company of written notification from Mr. Aronson of
such determination. If he exercised his right to terminate upon a change in
control, he was also entitled to a continuation of his base salary and benefits
for the remainder of the five year term of the agreement. The Company expects to
extend Mr. Aronson's agreement.
24
<PAGE>
BOARD COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
The principal duties of the Personnel and Compensation Committee of the
Board of Directors (the "Committee") are described on page . These duties
include the making of recommendations to the Board concerning the compensation
and benefits of officers who are also directors of the Company (currently,
Messrs. Bozzone, Simmons, Aronson and Murdy). The Committee also consults
periodically with the Company's Chief Executive Officer concerning the
compensation and benefits of other executive officers of the Company.
The following is the Committee's report to the shareholders with respect to
the Company's executive compensation policies and with respect to the
compensation of the Chief Executive Officer for fiscal year 1993. In accordance
with the rules of the Securities and Exchange Commission, this report shall not
be incorporated by reference into any of the Company's Registration Statements
under the Securities Act of 1933.
EXECUTIVE OFFICERS' COMPENSATION POLICY
The Company's executive compensation program is strongly oriented toward
incentives designed to achieve specific corporate performance objectives so that
the interests of management will be further aligned with the interests of the
Company's shareholders. The twin goals of the program are to reward the
Company's key employees appropriately for their contributions in years in which
the Company has had significant success, and conversely to impact their
compensation negatively when the Company has been less successful. A meaningful
and substantial portion of an executive's total cash compensation is at risk due
to the variable nature of the incentives.
The Committee shares management's view that the Company's executive
compensation program is an important component in the implementation of the
Company's overall business plans and management philosophy. The Company believes
that its annual and long-term strategic plans should reflect
difficult-to-achieve standards and objectives and that the performance
objectives of its key employees, including its executive officers, should be
linked directly to the Company's plans. The Company also believes that effective
management requires the timely measurement of performance.
BASE SALARY
The base salary component of the Company's compensation program for all
salaried employees, including executive officers, represents the basic rate of
pay provided to an employee for carrying out the overall responsibilities of the
job. Base salary is determined on the basis of performance, experience and other
factors as may be appropriately considered. The base salary for each individual
employee is within an established salary range which is intended to approximate
the ranges of base pay for positions of comparable responsibility in other
companies in the steel industry about which appropriate compensation information
is available to the Company, including certain of the companies in the S&P Steel
Index. The Company believes that the base salaries of its executive officers has
generally been at or below the median of the base salaries for executive
officers of those steel companies.
The base salary of each executive officer is reviewed on a periodic basis.
Merit increases reflect the officer's individual performance and are based on an
evaluation of (1) the officer's performance in relation to standards which
describe, in measurable terms, the results needed to satisfy the general
25
<PAGE>
responsibilities of the job and (2) personal traits and characteristics. The
merit program is designed to reward better performers with larger percentage
increases as well as to recognize employment market conditions. Other increases
in base salary are made to reflect changes in the officer's responsibilities.
INCENTIVE PROGRAMS
It is intended that the incentive payments made to the Company's executive
officers and other key employees, in the form of cash and/or securities, may
vary significantly from year to year, depending upon the results that have been
achieved for the benefit of the Company's shareholders. Short-term incentive
payments represent specific payments for the achievement of measurable
short-term objectives and recognize both the overall performance of the Company
and the performance of individual officers in a given year. Long-term incentives
are designed to reward the accomplishment of specified long-term objectives and
further align management's goals with those of the shareholders through Company
stock ownership. Also see the discussion of the proposed Allegheny Ludlum Stock
Acquisition and Retention Plan at pages above.
Profit-Sharing Plan. Incentives to maximize the annual profits of the
Company are provided by the Profit Sharing Plan for all salaried and hourly
employees, including executive officers. Under this plan, bonuses are paid from
a profit-sharing pool which is based on specified percentages of the Company's
pre-tax income in excess of $60 million. Each year, each participant receives a
cash bonus equal to a percentage of his or her participating wages as defined in
the plan.
Performance Management System Plan. The Company's Performance Management
System Plan is designed to provide additional incentives to executive officers
and other key employees to maximize the Company's annual performance. Funds are
accrued for this plan if the adjusted earnings of the Company are greater than
$10 million.
The plan is administered according to the Company's Performance Management
System, which provides a corporate-wide system for planning and measuring the
performance of all participating employees, including Messrs. Bozzone, Murdy,
Aronson and Rutherford.1 (Approximately 100 employees participated in the plan
in 1993.) Under this system, incentive compensation awards are to be based on
the achievement of specific, measurable objectives. Objectives are to be linked
specifically and directly to operating plans and budgets. It is the Company's
view that if the executives fulfill their commitments, the Company will achieve
its overall strategic objectives.
Guideline incentives are established under the plan to reflect the size of
the award that can be expected when performance meets the objectives. Guideline
incentives have been established for each position included in the plan and are
expressed as a percentage of salary. Incentive opportunities are designed to be
large enough to provide a meaningful award. Because executive officers have a
greater impact on performance, they have a greater incentive opportunity as a
percentage of salary. All participants in the plan can earn up to twice the
guideline amount, depending upon corporate and individual performance.
Each year, performance objectives are set under the Performance Management
System Plan for each eligible employee in three basic areas: operating profit,
return on investment or working capital, and individual performance. Other
financial measurement objectives may also be included when
- ---------
1 Mr. Simmons' participation in the Company's annual incentive compensation
programs terminated when he stepped down as Chief Executive Officer of the
Company in May 1990.
26
<PAGE>
determined to be appropriate. Individual performance objectives are tailored to
the individual position. Operating profit, return on investment or working
capital, and other financial measurement objectives are set at the corporate
level. The Committee shares management's view that every effort should be made
to formulate corporate as well as individual performance objectives in
quantitative terms to provide a basis for more accurate performance evaluation.
The weight given to each performance goal varies depending on the nature
and level of the position and the strategic importance of the objective. The
relative weights are intended to identify the priority given to any given
objective. To emphasize the direction of the Company's strategic plans, 75
percent of the weight given to the performance goals is given to current overall
corporate financial objectives, while 25 percent of the weight is given to
measurable individual performance objectives.
The actual amount of an award under the Performance Management System Plan
is determined through a quantitative assessment of the employee's performance as
measured against the specific objectives for the employee's position. The
Compensation Committee can modify individual awards to recognize outstanding
performance even where individual objectives were not met due to changing
business priorities. The Committee can also modify awards in instances where a
participant performs at less than satisfactory levels even though the individual
may have achieved the pre-determined objectives.
Long-Term Incentives. Awards under the Company's Performance Share Plan for
Key Employees (the "Performance Share Plan") and stock grants under the 1987
Stock Option Incentive Plan (the "Stock Option Plan") are designed to provide
additional incentives to achieve long-term corporate objectives. Employees who
were shareholders of the Company before it became publicly owned (including
Messrs. Bozzone and Simmons and others) are not participants in these plans, in
view of their existing substantial interest in maximizing the value of the
Company's Common Stock.
Under the Performance Share Plan, base value award amounts for each
executive officer and other key employees are established at the beginning of
each award period. For example, in March 1991, the Board of Directors
established fiscal years 1991-1993 as an award period. The Committee granted
awards to key employee participants in the plan, which established as the
performance objective for the 1991-1993 award period a specified amount of
operating income to be achieved by the Company over the three-year award period.
The base value of the award for each unit awarded, assuming targeted operating
income is achieved, is $50 and 4 shares of Company Common Stock (as adjusted for
the 2-for-1 stock split distributed July 1993). The amount of the award
generally depends on the executive's salary grade, which is based on the degree
of responsibility associated with the executive's position in the Company. The
amount of the award for each salary grade was established in 1987, upon the
adoption of the Performance Share Plan. In February 1994, after the end of the
award period, the Committee determined the actual awards, which were 92.5
percent of the base value award amount because 97 percent of the targeted income
level was achieved. Actual award amounts will be paid in three annual payments
beginning in 1994.
Awards under the Performance Share Plan, which are earned during three-year
award periods and which provide for payment of the stock and cash award in
three annual payments after the completion of the award period, are designed to
give participants an ongoing incentive to achieve long-term corporate
objectives and to continue the alignment of the interests of participants with
the interests of Company shareholders in enhancing the value of Company Common
Stock, even after the award has been earned. The three-year award period and
the subsequent three annual payments are also designed
27
<PAGE>
to assist in the retention of executive officers and other key employees, since
unpaid installments are forfeited if a participant's employment with the Company
terminates, unless the participant dies, is disabled, or retires with the
consent of the Chief Executive Officer.
Awards under the Company's Stock Option Plan are also designed to promote
the identity of the long-term interests between Company executives and its
shareholders and assist in the retention of executives. Historically, the
Committee has granted options to key employee participants in the Stock Option
Plan, including executive officers, at three-year intervals. The amount of the
award generally depends on the executive's salary grade, which is based on the
degree of responsibility associated with the executive's position. The amount of
the award for each salary grade was determined in 1987, upon the adoption of the
Stock Option Plan. From time to time, interim awards have been made in the case
of a new employee, promotion or a significant increase in responsibilities.
Options granted at the three-year intervals have been made exercisable in three
equal annual installments beginning after the third year anniversary date of the
grant. The last regular grant of options was made in 1993. The first one-third
of these options will become exercisable on June 1, 1996.
Shares awarded under the Performance Share Plan and stock options are
intended to mature and grow in value over time. In the Committee's view, awards
under the Performance Share Plan represent compensation which is attributable to
service over the three-year award and three-year payout period under this Plan
and awards under the Stock Option Plan represent compensation which is
attributable to the three- to six-year vesting period and from vesting to the
time of exercise.
COMPENSATION OF THE COMPANY'S CHIEF EXECUTIVE OFFICER
As previously noted, the base salaries of Company employees fall within
established salary ranges which reflect the ranges of base pay for positions of
compable responsibility in other companies in the steel industry. The specific
amount of base salary is determined on the basis of performance, experience and
other factors as may be considered appropriate. The current minimum of the
salary range for the position of President and Chief Executive Officer is
$358,000.
In March 1993, Mr. Bozzone's base salary was increased from $310,000 to
$360,000. The amount of the increase was based on an evaluation of the abilities
of Mr. Bozzone and the responsibilities assumed by him, and the difficulties
involved and the success achieved by him in the performance of his duties as
President and Chief Executive Officer. This review involved an analysis of the
Company's financial performance since 1990, with an emphasis on the improvements
in sales, earnings and return on equity throughout this period, as well as the
significant improvements made in the Company's delivery performance and quality
in the 1992 and 1993 fiscal years. The strong performance of the Company's
common stock in 1992 and 1993 was also noted. Available data regarding the
compensation paid to the chief executive officers of other companies in the
steel industry during 1990 and 1991 including certain of the companies in the
S&P Steel Index as well as survey data regarding the base salary for chief
executive officers for U. S. industry, northeast industry and manufacturing
only, were reviewed. In making its recommendation to the Board of Directors
regarding the increase in Mr. Bozzone's base salary, it was noted that, in the
view of the Committee, Mr. Bozzone's base salary remains at or below the median
of the base salaries for chief executive officers reviewed in the above-
mentioned surveys, and that the amount of the base salary paid to Mr. Bozzone
continues to be less than it would be if he did not own a substantial amount of
the Company's common stock.
28
<PAGE>
Incentive compensation is provided to Mr. Bozzone principally through his
participation in the Performance Management System Plan described on page .
Mr. Bozzone became a shareholder of the Company before the Company became
publicly-owned and does not participate in the Company's Performance Share Plan
or Stock Option Plan, in view of his already existing substantial interest in
maximizing the value of the Company's Common Stock.
Incentives under the Company's Performance Management System Plan represent
specific payments for achievement of measurable results that move the Company
toward current financial goals and strategic objectives, as agreed upon in the
performance planning process. Guideline incentives, which reflect the size of
award that can be made when performance meets objectives, have been developed
for the Chief Executive Officer as well as for all other positions included in
the Plan. Because of the impact that the Chief Executive Officer has on the
performance of the Company, a significant percentage of Mr. Bozzone's total
compensation is at risk. All participants under the Plan, including Mr. Bozzone,
can earn up to twice the guideline amount, depending upon individual and total
corporate performance. As previously noted, under the Plan, the Committee can
increase individual awards to recognize outstanding performance or decrease
individual awards when a participant performs at less than satisfactory levels.
Corporate and individual performance objectives for the 1993 fiscal year
were set for Mr. Bozzone in the early part of 1993. Corporate goals were based
on the achievement of specified levels of operating profit and inventory
reductions. Mr. Bozzone's corporate performance objectives are based on the
overall performance of the Company in meeting its financial goals. Mr. Bozzone's
individual performance objective was based on the individual performance of the
officers who report directly to him. To emphasize the direction of the Company's
strategic plans, 75 percent of the weight given to the performance goals is
given to corporate financial objectives, while 25 percent of the weight is given
to individual performance objectives.
In evaluating the amount to be paid to Mr. Bozzone under the Performance
Management System Plan, it was noted that the Company had surpassed its
operating targets for operating income, inventory reductions and delivery
performance in the 1993 fiscal year and that, in the view of the Committee, Mr.
Bozzone's leadership had been a critical factor in the achievement of these
results. The Company's strong overall financial performance was also discussed.
The Committee also considered Mr. Bozzone's job performance throughout his years
in the executive management of the Company and expressed its views that the
Company's financial performance compared favorably with other companies in the
industry in the United States including the companies in the S&P Steel Index and
in other parts of the world. Taking the foregoing and other appropriate factors
into account, the Committee determined that Mr. Bozzone should be paid an award
of $465,000 for fiscal year 1993. The Board of Directors approved the
Committee's decision.
The foregoing report has been furnished by the members of the Personnel and
Compensation Committee:
<TABLE>
<S> <C> <C>
Charles J. Queenan, Jr. 1 C. Fred Fetterolf 2 Richard K. Pitler 3
Thomas Marshall 1 W. Craig McClelland 2 George W. Tippins 3
</TABLE>
- ---------
1 Member throughout 1993 fiscal year
2 Member since May 1993
3 Member prior to May 1993
29
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Personnel and Compensation Committee during fiscal years
1993 was an officer or employee of the Company. The Company retained the law
firm of which Mr. Queenan is a member to perform services for the Company during
fiscal years 1993 and 1994. Mr. Tippins served as Chairman of the Company's
Board of Directors from 1981 to 1986, and Dr. Pitler retired as a senior
executive of the Company in 1986. Other than as indicated in the preceding two
sentences no member of the Committee during fiscal year 1993 had a current or
prior relationship to the Company, and no executive officer of the Company had a
relationship to any other company, required to be described under the proxy
rules relating to executive compensation.
CERTAIN TRANSACTIONS
On December 28, 1990, the Company entered into a revised credit agreement
with a group of banks, including PNC Bank ("PNB"), which amends and restates a
prior credit agreement dated June 30, 1987. The revised credit agreement, as
amended, provides for unsecured borrowings up to $100 million on a revolving
credit basis. No borrowings were outstanding under the credit agreement during
the 1993 fiscal year. PNB's proportionate amount of commitment fees during
fiscal year 1993 was $199,861. James E. Rohr, a member of the Company's Board of
Directors, is President of PNC Bank Corp., an affiliate of PNB, and President
and Chief Executive Officer of PNB.
Subsidiaries of the Company have engaged in investment transactions with
two limited partnership funds: Code, Hennessy and Simmons Limited Partnership
("Fund I"), and Code, Hennessy & Simmons II L. P. ("Fund II"). The objective of
both funds is to seek maximum return by investing in leveraged buyouts of
operating companies. Profits and losses of Fund I and of Fund II are allocated
80 percent to the limited partners and 20 percent to the general partner. The
general partner of Fund I is CHS Management Limited Partnership ("CHS I"), and
the general partner of Fund II is CHS Management II, L. P. ("CHS II"). The
general partners of CHS I and the shareholders of the general partner of CHS II
are Andrew W. Code, Daniel J. Hennessy and Brian P. Simmons, each of whom has an
equal interest in each of such firms. Brian P. Simmons is the son of Richard P.
Simmons, Chairman of the Board of the Company.
In 1989, the limited partners of Fund I made commitments to invest a total
of $82,105,000 over a period of three to five years, including $25 million
invested or to be invested by a Company subsidiary. Cumulatively, the limited
partners (46) and general partner have invested $73,073,450 and $356,000,
respectively, and have received distributions of $75,982,880 and $9,437,607,
respectively, through January 2, 1994. Fund I has acquired eleven operating
companies in various industries. As of January 2, 1994, Fund I had disposed of
its interests in five of these companies and continued to hold interests in six
of these companies.
CHS I is responsible for managing the selection and structuring of Fund I's
investments, and receives an annual management fee of 2.356 percent of Fund I's
total capital commitments. The management fee is offset by any fees which CHS I
charges to companies it acquires. The net annual management fee for Fund I has
averaged 1.29 percent. Another subsidiary of the Company is a limited partner
in CHS I and receives 10% of CHS I's 20 percent share of Fund I's net profits
and losses (i.e., 2 percent of Fund I's net profits and losses).
During fiscal year 1993, the Company subsidiary that is a limited partner in
Fund I invested $5,437,500 in Fund I. The Company's subsidiaries have invested
a total of $22,290,000 in the fund
30
<PAGE>
through January 2, 1994. The subsidiaries received $22,821,826 in cash
distributions from their investments in Fund I in fiscal year 1993, resulting
in total cash distributions of $24,087,257 through January 2, 1994. The
subsidiaries' remaining investments in Fund I, representing their proportionate
ownership of the Fund's six company holdings, had a valuation of $22,764,418 on
the Company's January 2, 1994 balance sheet.
In addition to the investment by the Company, Richard P. Simmons, Chairman of
the Board of the Company, Robert P. Bozzone, President and Chief Executive
Officer of the Company, and a subsidiary of PNC Bank Corp. have invested or
will invest $4,473,360, $1,250,000 and $5,000,000, respectively, in Fund I.
James E. Rohr, President of PNC Bank Corp., is a member of the Company's Board
of Directors.
During fiscal year 1993, another subsidiary of the Company agreed to make an
investment as a limited partner in Fund II. The fund was organized in December
1993. As of December 1993, the limited partners of the Fund (a total of 29
investors) had made commitments to invest a total of $107,075,000 over a period
of three to five years, including $30 million to be invested by the Company's
subsidiary.
Another subsidiary of the Company has made a commitment to invest as a limited
partner in CHS II, in exchange for which that subsidiary will receive five
percent of CHS II's 20 percent of Fund II's profits and losses (i.e., one
percent of Fund II's net profits and losses).
In addition to the investment by the Company, Richard P. Simmons, Chairman of
the Board of the Company, Robert P. Bozzone, President and Chief Executive
Officer of the Company and a subsidiary of PNC Bank Corp. will invest
$5 million, $2.5 million and $7.5 million, respectively in Fund II. James E.
Rohr, President of PNC Bank Corp., is a member of the Company's Board of
Directors.
Pursuant to a written agreement with another subsidiary, the Company furnishes
consulting services which the subsidiary in turn furnishes to CHS I on
arm's-length terms and conditions, except that no fee is paid for the services
of Richard P. Simmons, who is primarily responsible for such consultations, or
James L. Murdy, the Company's Senior Vice President-Finance and Chief Financial
Officer. A similar agreement is expected to be made with respect to CHS II.
Messrs. Simmons and Murdy continue to perform their existing duties as officers
and directors of the Company, except that Mr. Simmons may spend up to 20
percent of his time advising the general partners of Fund I and Fund II.
Richard P. Simmons also serves as a member of an Advisory Boards of Fund I and
Fund II.
The Company retained the law firm of Kirkpatrick & Lockhart to perform
services for the Company during fiscal years 1993 and 1994. Charles J. Queenan,
Jr., a member of the Company's Board of Directors, is a member of that law firm.
See ``Compensation Committee Interlocks and Insider Participation.''
FINANCIAL STATEMENTS
Consolidated financial statements of the Company are included in its Annual
Report to Shareholders for fiscal year 1993. ADDITIONAL COPIES OF THE FINANCIAL
STATEMENTS AND OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K, WITHOUT EXHIBITS, MAY BE OBTAINED WITHOUT CHARGE FROM
THE SECRETARY AT 1000 SIX PPG PLACE, PITTSBURGH, PENNSYLVANIA 15222-5479.
Financial statements are also on file with the Securities and Exchange
Commission, Washington, D.C., and the New York Stock Exchange.
31
<PAGE>
1995 ANNUAL MEETING AND SHAREHOLDER PROPOSALS
The 1995 Annual Meeting of Shareholders is tentatively scheduled for May 19,
1995. Proposals of shareholders intended to be presented at the 1995 Annual
Meeting of Shareholders must be received no later than November , 1994 for
inclusion in the Proxy Statement and proxy card for that meeting.
By order of the Board of Directors
JON D. WALTON
Vice President-General Counsel
and Secretary
Dated: March , 1994
32
<PAGE>
EXHIBIT A
PROPOSED AMENDMENT OF RESTATED ARTICLES OF INCORPORATION
The first paragraph and Section A of Article Fifth of the Company's Restated
Articles of Incorporation shall be amended to read as follows:
FIFTH: The aggregate number of shares which the Corporation shall have
the authority to issue is Three Hundred Million (300,000,000) shares,
as follows:
A. Two Hundred Fifty Million (250,000,000) shares of Common Stock,
of the par value of 10 cents ($0.10) per share.
Except for and subject to those rights as may be expressly
granted to the holders of Preferred Stock pursuant to the authority
vested by these Articles of Incorporation in the Board of Directors
of the Corporation, or except as may be provided by the laws of the
Commonwealth of Pennsylvania, the holders of Common Stock shall have
exclusively all rights of shareholders.
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EXHIBIT B
ALLEGHENY LUDLUM CORPORATION
STOCK ACQUISITION AND RETENTION PLAN
ARTICLE I. PURPOSE AND ADOPTION OF THE PLAN
1.01 PURPOSE. The purpose of the Allegheny Ludlum Corporation Stock
Acquisition and Retention Plan is to assist the Corporation (as hereinafter
defined) in retaining and motivating selected key management employees who
will contribute to the Corporation's success. The Plan encourages eligible
employees to hold a proprietary interest in the Corporation by offering
them an opportunity to receive grants of restricted shares of Stock (as
hereinafter defined) 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 this Plan
or (ii) already-owned shares of Stock which such employees identify as
being subject to this Plan. Awards under the Plan will act as an incentive
to participating employees to achieve long-term objectives which will inure
to the benefit of all shareholders of the Corporation.
1.02 ADOPTION AND EFFECTIVE DATE. The Plan has been approved by the
Board subject to the approval of the Corporation's shareholders at the 1994
annual meeting of shareholders. The Plan will be approved and become
effective if at such meeting a quorum is present and the votes of the
holders of a majority of the securities of the Corporation present or
represented at such meeting and entitled to vote with respect to the Plan
shall be cast in favor of its approval.
ARTICLE II. DEFINITIONS
For purposes of this Plan, 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 the
Plan.
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.
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 August 1, 1993
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and (ii) persons who were nominated for election as members of the Board
at a time when two-thirds of the of Board consisted of persons who were
members of the Board on August 1, 1993; 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 shareholders 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 of
consolidation, as the case may be; or
(d) Approval by the shareholders 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 Personnel and Compensation Committee of the
Board.
2.07 CORPORATION means Allegheny Ludlum Corporation, a Pennsylvania
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.
2.10 DESIGNATED STOCK means shares of Stock already owned by a
Participant that the Participant identifies as being subject to the Plan,
thereby triggering the grant of Restricted Stock to such Participant
pursuant to Article VII.
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 terminates by reason of a disability, as
defined in an Employment Agreement between such Participant and the
Corporation, such Participant shall be deemed to be disabled for purposes
of the Plan.
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2.13 EFFECTIVE DATE means the date as of which the Plan shall become
effective, as determined in accordance with Section 1.02.
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, as eligible to participate under the Plan.
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 Ludlum Corporation Stock Acquisition and
Retention Plan, as the same may be amended from time to time.
2.20 PLAN YEAR means each of the one-year periods commencing on the
Effective Date and the first four anniversaries thereof.
2.21 PURCHASE AMOUNT means the dollar amount that a Participant
specifies in a Purchase Notice with respect to a particular Purchase Date.
2.22 PURCHASE DATE means, with respect to any Window Period, the
Business Day immediately following the last day of the Window Period.
2.23 PURCHASED STOCK means Stock purchased by a Participant pursuant
to Article VI, which triggers the grant of Restricted Stock to such
Participant pursuant to Article VII.
2.24 PURCHASE LOAN means a loan provided to a Participant by the
Corporation to facilitate the Participant's purchase of Stock pursuant
hereto.
2.25 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.
2.26 RELATED STOCK means, with respect to any share of Restricted
Stock, the two shares of Purchased Stock or Designated Stock, as the case
may be, which entitle such Participant to receive such share of Restricted
Stock pursuant to Article VII.
2.27 RESTRICTED STOCK means shares of Stock awarded to a Participant
subject to restrictions as described in Article VII.
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2.28 STOCK means the common stock, par value $0.10 per share, of the
Corporation.
2.29 WINDOW PERIOD means each of the four (4) periods in each year
consisting of the ten (10) consecutive Business Days beginning on the third
(3rd) Business Day following the release by the Corporation of its
quarterly or annual summary statements of sales and earnings and ending on
the twelfth (12th) Business Day following such date.
ARTICLE III. ADMINISTRATION
The Plan shall be administered by the Committee which shall have exclusive
and final authority and discretion in each determination, interpretation or
other action affecting the Plan and its Participants. The Committee shall have
the sole and absolute authority and discretion to interpret the Plan, to
establish and modify administrative rules for the Plan, to select, in accordance
with Section 5.01, the persons who will be Participants hereunder, to impose
such conditions and restrictions as it determines appropriate and to take such
other actions and makes such other determinations in connection with the Plan as
it may deem necessary or advisable.
ARTICLE IV. STOCK ISSUABLE UNDER THE PLAN
4.01 NUMBER OF SHARES OF STOCK ISSUABLE. Subject to adjustments as
provided in Section 8.03, the maximum number of shares of Stock available
for issuance under the Plan shall be 1 million. The Stock to be offered
under the Plan 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 may again be issued under the Plan.
ARTICLE V. PARTICIPATION
5.01 DESIGNATION OF PARTICIPANTS. Participants in the Plan shall be
such officers of the Corporation at the level of Vice President or higher
as the Committee, in its sole discretion, may designate as eligible to
participate in the Plan. Prior to the commencement of each Plan Year during
the term of this Plan, the Committee shall designate the Participants who
are eligible to participate in the Plan during such Plan Year; provided,
however, that with respect to the initial Plan Year of the Plan, such
designations shall be made no later than thirty (30) days following the
Effective Date. The Committee's designation of a Participant with respect
to any Plan Year shall not require the Committee to designate such person
as a Participant with respect to any other Plan 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 Plan Year shall permit such person to elect
to to submit one or more Purchase Notices and/or Designation Notices during
such Plan Year irrespective of whether, in the case of Purchase Notices,
the applicable Purchase Date(s) fall within such Plan Year.
5.02 PARTICIPANT ELECTIONS. A person who is designated as a
Participant in accordance with Section 5.01 shall be entitled to purchase
Stock by delivering one or more Purchase Notices in accordance with Article
VI, and such Stock purchases shall result in the award of Restricted Stock
to such Participant in accordance with Article VII. In addition, a
Participant shall be entitled to designate as Designated Stock, in one or
more Designation Notices delivered to the Corporation
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at any time during a Plan Year, any even 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 the Allegheny Ludlum
Corporation Retirement Savings Plan (RSP) and shares of Stock subject to
outstanding and as yet unexercised stock options. Such designation of
shares as Designated Stock shall result in the award of Restricted Stock to
the Participant in accordance with Article VII. The sum of (i) the
aggregate Purchase Amounts elected by a Participant pursuant to one or more
Purchase Notices submitted within any one Plan 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 Plan 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 Plan Year.
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. A
Participant may elect to purchase Stock under this Plan by delivering to
the Corporation a Purchase Notice and cash and/or a promissory note
executed by the participant in an amount equal to 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, 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. If an election is submitted during a Window Period, such
election shall take effect as of the Purchase Date immediately following
the close of such Window Period. If an election is not submitted during
a Window Period, such election shall take effect as of the first Purchase
Date which occurs at least six (6) months after the date the election is
submitted.
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 average Fair Market Value during the Window Period. As of any
Purchase Date, only an even number of shares of Purchased Stock can be
purchased by a Participant and in no event shall the Corporation be
required to issue fractional shares. 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 in order that an even number of whole shares of Purchased Stock
is credited to such Participant as of the Purchase Date. 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. The
Participant shall have all of the rights of a shareholder 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.
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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 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 lesser of the following rates,
determined as of the applicable Purchase Date, as certified by the
Treasurer of the Corporation: (i) the average annual borrowing rate of
the Corporation and (ii) the prime lending rate of PNC Bank, National
Association; provided, however, that in no event shall such interest
rate be less than 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 due under a Purchase Loan
may, at the election of the Participant, be paid by the delivery to the
Corporation by the Participant of whole shares of Stock, other than
shares of Designated Stock and Purchased Stock, shares of Stock credited
to the Participant's account under the Allegheny Ludlum Corporation
Retirement Savings Plan (RSP) and 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.
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
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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. 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 an award of one share of
Restricted Stock for each two shares of Purchased Stock. The Purchase Date
shall be the Date of Grant of such Restricted Stock. As of any date that a
Participant delivers a Designation Notice to the Corporation, in accordance
with Section 5.02, designating shares of Stock as Designated Stock, there
shall automatically be granted to such Participant an award of one share of
Restricted Stock for each two shares 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 this Plan, 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) Shareholder 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), the Participant shall become a shareholder
of the Corporation with respect to all Stock subject to the Award
Agreement and shall have all of the rights of a shareholder, 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).
(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.
(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, the Corporation shall deliver to the
Participant or, in case of the Participant's death, to the Participant's
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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), 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 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, 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 Plan 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 Plan.
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 this Plan, 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
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. The Committee shall be
authorized, in its sole discretion, to establish such rules and procedures
relating to any such withholding methods
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as it deems necessary or appropriate, including, without limitation, rules
and procedures relating to elections by Participants who are subject to the
provisions of Section 16 of the Exchange Act to have Stock withheld to meet
such tax withholding obligations.
8.03 ADJUSTMENTS TO REFLECT CAPITAL CHANGES. The amount and kind of
Stock available for issuance under the Plan 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. The Committee shall have the
power and sole discretion to determine the nature and amount of the
adjustment, if any, to be made pursuant to this Section 8.02.
8.04 NO RIGHT TO AWARD; NO RIGHT TO EMPLOYMENT. No employee or other
person shall have any claim of right to be permitted to participate or 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 Corporation.
8.05 AWARDS NOT INCLUDABLE FOR BENEFIT PURPOSES. Income recognized by
a Participant pursuant to the provisions of the Plan shall not be included
in the determination of benefits under any employee pension benefit plan
(as such term is defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974) or group insurance or other benefit plans applicable
to the Participant which are maintained by the Corporation, except as may
be provided under the terms of such plans or determined by resolution of
the Board.
8.06 GOVERNING LAW. The Plan and all determinations made and actions
taken pursuant to the Plan shall be governed by the laws of the
Commonwealth of Pennsylvania other than the conflict of laws provisions of
such laws, and shall be construed in accordance therewith.
8.07 NO STRICT CONSTRUCTION. No rule of strict construction shall be
implied against the Corporation, 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.
8.08 CAPTIONS. The captions (i.e., all Section and subsection
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 had been used in the Plan.
8.09 SEVERABILITY. Whenever possible, each provision in the Plan and
every Award Agreement 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 Agreement 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 Award Agreement at shall remain in full force and effect.
8.10 LEGENDS. All certificates for Stock delivered under the Plan
shall be subject to such transfer restrictions set forth in the Plan 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.
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8.11 AMENDMENT AND TERMINATION.
(a) Amendment. The Board shall have complete power and authority to
amend the Plan at any time it is deemed necessary or appropriate. 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; 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.
(b) Termination. The Board shall have the right and the power to
terminate the Plan at any time. Unless sooner terminated by action of
the Board, the Plan shall automatically terminate, without further
action of the Board or the Corporation's shareholders, on the fifth
anniversary of the date the Plan is approved by the shareholders and
becomes effective. No Designation Notice shall be effective, no Purchase
Notice shall be valid for a Purchase Date that will occur, and 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.
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ALLEGHENY LUDLUM CORPORATION
PROXY FOR 1994 ANNUAL MEETING
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF ALLEGHENY LUDLUM CORPORATION
The undersigned hereby appoints James L. Murdy, Jon D. Walton and Mary W.
Snyder or any of them, each with power of substitution and revocation, proxies
or proxy to vote all shares of Common Stock which the undersigned is entitled
to vote with all powers which the undersigned would possess if personally
present, at the Annual Meeting of Shareholders of Allegheny Ludlum Corporation
on May 20, 1994, and any adjournments thereof, upon the matters set forth on
the reverse of this card, and, in their discretion, upon such other matters as
may properly come before such meeting.
SHAREHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THIS PROXY CARD AND TO
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED.
THIS PROXY CARD, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION TO THE CONTRARY IS INDICATED, IT WILL BE VOTED "FOR"
ALL PROPOSALS.
PLEASE VOTE, DATE AND SIGN ON THE REVERSE SIDE.
<PAGE>
(Continued from reverse side)
ALLEGHENY LUDLUM CORPORATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR:
A. ELECTION OF DIRECTORS.
FOR all nominees WITHHELD from
(except as indicated) all nominees
[ ] [ ]
A. Election of Arthur H. Aronson, W. Craig McClelland, Richard K. Pitler, James
E. Rohr and George W. Tippins as Class I directors.
(To withhold authority to vote for any nominee(s), write the name(s) of the
nominee(s) in the space that follows:
______________________________________________________.)
B. APPROVAL OF ARTICLES AMENDMENT
Approval of amendment to Restated Articles of Incorporation to increase
authorized shares of Common Stock.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
C. APPROVAL OF PLAN
Approval of Allegheny Ludlum Corporation Stock Acquisition and Retention Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
D. SELECTION OF AUDITORS
Ratification of selection of Ernst & Young as independent auditors.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
DATE: ____________________________________________________________________, 1994
________________________________________________________________________________
________________________________________________________________________________
(Signature or Signatures)
Please sign EXACTLY as your name appears at the left. When signing as a
fiduciary or corporate officer, give full title. For joint accounts, please
furnish both signatures.
