<PAGE>
1995
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [fee required] FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1995 OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [no fee required] FOR THE TRANSITION PERIOD
FROM _________________ TO _________________
COMMISSION FILE NUMBER 1-9498
ALLEGHENY LUDLUM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Pennsylvania 25-1364894
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
1000 Six PPG Place, Pittsburgh, Pennsylvania 15222-5479
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: 412 - 394-2800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
===============================================================================
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- -------------------------------------------------------------------------------
Common Stock, Par Value $0.10 Per share New York Stock Exchange, Inc.
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
----- -----
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [X]
AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT AS OF MARCH 6, 1996: $816,099,094. The amount shown is based on the
closing price of the registrant's common stock on the New York Stock Exchange
on that date. Shares of common stock known by the registrant to be beneficially
owned by executive officers or directors of the registrant are not included in
the computation. The registrant, however, has made no determination that such
persons are "affiliates" within the meaning of Rule 12b-2 under the Securities
Exchange Act of 1934.
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AT MARCH 6, 1996: 66,241,891
DOCUMENTS INCORPORATED BY REFERENCE:
Selected portions of the 1995 Annual Report--Part I, Part II and Part IV of
this Report.
Selected portions of the 1996 Proxy Statement--Part III of this Report.
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<PAGE>
INDEX
<TABLE>
<S> <C> <C>
PART I
THE COMPANY............................................................................................ 3
Item 1. BUSINESS.................................................................................... 3
Item 2. PROPERTIES.................................................................................. 8
Item 3. LEGAL PROCEEDINGS........................................................................... 10
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................................... 10
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS........................ 11
Item 6. SELECTED FINANCIAL DATA..................................................................... 11
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................. 11
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................................. 11
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.................................................... 11
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......................................... 11
Item 11. EXECUTIVE COMPENSATION...................................................................... 11
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT..................................................................... 11
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................................. 11
PART IV
Item 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE................................................... 12
SIGNATURES.................................................................................................. 13
</TABLE>
This is a refiling of the Form 10-K405 which was originally filed on
March 20, 1996 at accession number 0000950132-96-000151.
2
<PAGE>
PART I
THE COMPANY
The Company is a Pennsylvania corporation formed in 1979 with its principal
executive offices located at 1000 Six PPG Place, Pittsburgh, Pennsylvania
15222-5479, telephone (412)394-2800. References to the "Company" mean Allegheny
Ludlum Corporation and its subsidiaries and predecessors, unless the context
otherwise requires.
The Company is one of the world's leading manufacturers of specialty
materials and one of the largest domestic producers of stainless steel. The
Company manufactures stainless steel sheet, strip, plate, foil, welded tubing
and stampings; silicon electrical steel sheet and strip; and other specialty
steel and specialty metals alloys, including tool steels, magnetic, thermostatic
and electronic sheet and strip, and high-temperature alloys.
ITEM 1. BUSINESS
INDUSTRY OVERVIEW
The industry in which the Company operates is generally referred to as the
specialty steel industry, which represents a small but distinct segment of the
steel industry. The term "specialty steel" refers to stainless steels, high
speed and tool steels, high temperature alloys (super alloys), electronic and
thermostatic alloys and electrical steels. As compared with carbon steel,
stainless steel alloys contain elements such as chromium, nickel and molybdenum
to make them corrosion- and heat-resistant; electrical steel contains silicon to
minimize energy loss; and tool steel alloys, which contain more carbon than
stainless steel, include tungsten, molybdenum and other metals to make them both
hard and malleable. Most high temperature alloys, electronic alloys and
thermostatic alloys are not steel by definition and are more properly referred
to as specialty metals.
Unlike high-volume carbon steel producers, specialty steelmakers produce
smaller quantities with special equipment. Because of the need to meet more
exacting technical and metallurgical requirements, stainless and other specialty
steels are made with special processing techniques and generally utilize
different alloying elements such as nickel, ferrochromium, molybdenum, niobium,
titanium and cobalt.
Specialty steel is produced in a variety of forms (sheet, strip, plate,
wire, rod, bar and tubing) and is selected for use in environments that demand
materials having exceptional hardness, toughness, strength, resistance to heat,
corrosion or abrasion or a combination of these characteristics. Common end uses
of specialty steel include automobiles, appliances, communications and
electronics equipment, marine equipment, electric power generating and
distribution equipment, environmental equipment, home utensils and cutlery,
construction products, tools, dies, food and chemical processing equipment,
medical and health equipment and aircraft and defense equipment.
While other materials such as carbon steel, titanium, composites, ceramics,
aluminum and plastic compete in various applications with stainless steel, the
largest part of the specialty steel industry, the Company believes that the
domestic market for stainless steel has been growing over the past twenty years
as a result of the less rapid growth in the price of stainless steel relative to
competitive products and the increasing demand for higher quality products with
greater durability. The Company believes that when total life cycle costs are
fully evaluated, stainless steel is often the least expensive quality
alternative.
ACQUISITION
On November 10, 1993, the Company completed its acquisition of Athlone
Industries, Inc., a Delaware corporation ("Athlone"), by means of the merger of
a wholly owned subsidiary of the Company into Athlone. Athlone, through its
Jessop Steel Company ("Jessop" or "Jessop Steel") operations, was primarily a
manufacturer of specialty metals, primarily tool steel and stainless steel and
nickel alloy plate mill plate. See Note 11 of the Notes to the Consolidated
Financial Statements of the Company on page 34 of the 1995 Annual Report to
Shareholders which is incorporated herein by reference.
3
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JOINT VENTURE
In February, 1996, the Company announced that it had established a joint
venture company in the People's Republic of China with Shanghai No. 10 Iron and
Steel Works, for the production and sale of precision rolled stainless steel
strip. The Company, which owns 60% of the joint venture company, will provide
technology, engineering, technical and management services. The joint venture
will be known as Shanghai STAL Precision Stainless Steel Limited Company. The
new plant will be located in Shanghai to produce and sell up to 15,000 metric
tonnes of the Company's Precision Rolled Strip/TM/ products. It is expected to
be operational in late 1997.
GENERAL
The Company operates in a single business segment, specialty steel. The
Company has three principal product lines, consisting of stainless steel,
silicon electrical steel and other specialty steel alloys (including tool steels
and other specialty metals), which are produced at eleven facilities located in
five states. Stainless steel products are marketed principally in the form of
sheet, strip and plate as well as stampings and welded tubing. Silicon
electrical steel is marketed in the form of sheet and strip. Other specialty
steel alloys are marketed principally as sheet, strip and plate.
The following table sets forth certain information concerning sales of the
Company's principal product lines for the past five fiscal years.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(IN MILLIONS)
Stainless Steel......................................... $1,223.6 $ 834.0 $ 892.3 $ 831.4 $ 771.2
Silicon Electrical Steel................................ 147.2 141.5 156.0 161.1 172.2
Other Specialty Alloys.................................. 123.5 101.4 51.9 43.5 61.2
-------- -------- -------- -------- --------
Total Sales........................................ $1,494.3 $1,076.9 $1,100.2 $1,036.0 $1,004.6
======== ======== ======== ======== ========
</TABLE>
The table reflects the inclusion of the Company's Washington Plant (Jessop)
since the date of its acquisition in November 1993. In April 1994, the United
Steelworkers of America called a strike which lasted ten weeks.
Additional information concerning the Company's sales and operating profit
is set forth under the heading "Selected Financial Data" on page 37 of the
Company's 1995 Annual Report to Shareholders which is incorporated herein by
reference.
The Company's products are sold primarily to distributors and to other
customers within the United States who further process such materials into end
products for resale to others. The Company's backlog of firm orders at the end
of 1995 was $234.0 million (nearly all of which are expected to be filled within
the year), as compared to $301.0 million at the end of 1994.
STAINLESS STEEL
Stainless steel products have represented the largest share of the
Company's total sales. In 1995 stainless steel represented approximately 82% of
total sales.
Stainless steel sheet (24" and wider) accounts for the largest portion of
the Company's sales. It is used in a wide variety of consumer and industrial
applications that require easy cleaning and fabricability and corrosion
resistance. Approximately 75% of the Company's stainless steel sheet is sold to
service centers which have slitting, cutting and other processing facilities.
Stainless steel strip (less than 24" wide) is used in a variety of consumer
products and a wide range of automotive components. The Company's products
include its very thin Precision Rolled Strip/TM/ products which range in
thickness from 0.0015" up to 0.015". Approximately 75% of the Company's
stainless steel strip is sold directly to end-use customers, with the
remainder sold to service centers, including the Company's own distributor
outlet for stainless steel strip, ALstrip, Inc. ALstrip, Inc. is a 90% owned
subsidiary with locations in Skokie, Illinois; Exton, Pennsylvania; and
Springfield, Tennessee.
Stainless steel plate (at least .1875" thick and 10" wide) has a variety of
applications, primarily in industrial equipment that requires cleanliness or
corrosion-resistant capabilities such as pollution control scrubbers and
- ---------
/TM/Trademark of the Company.
4
<PAGE>
other equipment, food processing equipment, pulp and paper equipment, chemical
equipment and power generation equipment. The Company's plate products are sold
in both coil and cut-to-length ("plate mill plate") form. Coil plate is sold to
service center customers who further process the material by roller leveling and
cutting to length before final use or sale. The Company's Washington,
Pennsylvania Plant produces nearly all of the Company's plate mill plate.
However, a small amount of extra-wide plate product is processed by outside
converters. Approximately 95% of the Company's stainless steel plate is sold to
service centers.
SILICON ELECTRICAL STEEL
The Company's silicon electrical steel products, primarily grain oriented,
are used generally in applications in which electrical conductivity and magnetic
properties are important and are sold directly to end-use customers. Users of
the Company's silicon electrical steel products include manufacturers of
transformers and communications equipment.
OTHER SPECIALTY ALLOYS
The Company also produces tool steel, high temperature alloys, electronic
and thermostatic alloys, and other specialty alloys. These specialty alloys are
used primarily in applications that require high strength, hardness, heat
resistance and special magnetic, electronic or expansion characteristics. During
1994, other specialty alloy sales increased significantly due to the acquisition
of the Washington Plant.
RAW MATERIALS
The principal materials used by the Company in the production of its
specialty steel are scrap (including nickel-, chromium- and molybdenum-bearing
scrap), nickel and nickel alloys, ferrochromium, ferrosilicon, molybdenum and
molybdenum alloys, manganese and manganese alloys and other alloying materials.
Certain of these raw materials, such as ferrochromium and nickel, can be
acquired by the Company and its specialty steel industry competitors, in large
part, only from foreign sources. The Company purchases its nickel requirements
principally from producers in Australia, the Dominican Republic, Canada, Norway,
the Commonwealth of Independent States, Columbia, New Caledonia and South
Africa. Ferrochromium is purchased primarily from producers in South Africa,
Zimbabwe, Turkey and the Commonwealth of Independent States. Some of these
foreign sources are located in countries that may be subject to unstable
political and economic conditions which might disrupt supplies or affect the
price of these materials. More than 80% of the world's reserves of ferrochromium
are located in South Africa, Zimbabwe, Albania and Kazakhstan. The Company also
uses large amounts of electricity, particularly in the melt shop in the
Company's Brackenridge Works, and natural gas in the manufacture of its
products; energy costs currently represent approximately 5% of the Company's
revenue dollars.
RESEARCH, DEVELOPMENT AND TECHNICAL SERVICES
The Company's research, development and technical service activities are
closely interrelated and are directed toward cost reduction, process
improvement, process control, quality assurance and control, system development,
the development of new manufacturing methods, the improvement of existing
manufacturing methods, the improvement of existing products and the development
of new products where a proprietary position is possible. The Company conducts
its primary research activities at its Technical Center in Natrona Heights,
Pennsylvania.
Expenditures for research, development and technology totaled $46.2 million
in 1995, $36.5 million in 1994, and $41.9 million in 1993. Research and
development expenses related to activities conducted at the Technical Center
were $9.2 million, $8.2 million, and $9.2 million in 1995, 1994, and 1993,
respectively. The Company believes that its investment in technology, research
and development and technical services, as a percent of annual revenue, exceeds
the level of investment by other companies in the steel industry.
The Company owns approximately 170 United States patents, many of which are
also filed under the patent laws of other nations, but does not consider its
business to be materially dependent on any patent or patent rights.
COMPETITION AND IMPORTS OF SPECIALTY STEEL
The Company is a leading producer of specialty steel. There are at least
six domestic producers of stainless steel sheet, strip and plate. The Company's
principal domestic competitors are J&L Specialty Steel, Inc.
5
<PAGE>
("J&L"), whose principal stockholder is France's Ugine, S.A. ("Ugine"), a
subsidiary of Usinor Sacilor SA, which is Europe's largest steelmaker and 80% of
whose stock was owned by the French government prior to the reported
privatization of that company in 1995; Armco Inc. ("Armco"); Lukens Inc.
("Lukens"), which owns Washington Steel Company; and North American Stainless,
which is owned primarily by Acerinox, S.A. (a Spanish stainless steel producer),
and which in 1993 began shipments from a new finishing facility in Kentucky. In
1995, Swedish-based Avesta Sheffield AB, one of Europe's largest producers of
stainless steel, acquired the Eastern Stainless plate company from Armco, which
has given Avesta Sheffield a stainless melting source for its plate operations
in the United States. With respect to grain-oriented silicon electrical steel
(used in electrical transformers), the Company believes that it and Armco Inc.
are the only two U.S. producers. The Company believes that there are several
other domestic producers of other specialty alloys in flat-rolled form.
In the fourth quarter of 1993, Lukens' Washington Steel Group began to
manufacture and sell stainless steel plate mill products; previously, Washington
Steel produced stainless sheet, strip and coil plate products and Lukens
produced stainless plate mill plate only on a conversion basis. In the past two
years, J&L, Armco, Lukens, and North American Stainless have announced that they
are increasing their capacity to produce stainless steel products. In 1995,
Nucor Corp., a carbon steel minimill, entered the stainless steel market and
produced stainless steel products used primarily in automotive exhaust systems.
The Company faces active competition in the sale of all of its products
from both domestic and foreign competitors. A number of foreign competitors are
government owned and/or subsidized. The principal methods of competition in
specialty steel are price, service, product quality and delivery.
The level of stainless steel imports decreased in the 1995 fiscal year.
Import penetration in 1995 for stainless steel sheet and strip decreased 14% and
was 20% of the domestic market. Import penetration of stainless steel plate
decreased 3% to 15% of the domestic market in 1995.
Imports of silicon electrical steel increased to 23% in 1993, decreased to
20% in 1994 and increased to 21% of the domestic market in 1995. In August 1993,
the Company and others filed trade cases charging that dumping and unfairly
priced and subsidized silicon electrical steel imports are undermining the U.S.
market. In October 1993, the International Trade Commission ruled that imports
of grain-oriented silicon steel from Italy and Japan injure or threaten injury
to domestic producers. Beginning in 1994, importers from these nations were
required to post either cash or bonds of 85% and 31%, respectively, on the value
of imported silicon electrical steel products. Silicon electrical steel also
faces competition from amorphous metals, currently produced in the United States
only by AlliedSignal Inc. In 1994, the Company filed a patent infringement suit
against AlliedSignal in the United States District Court for the Western
District of Pennsylvania. The suit asks for an injunction prohibiting
AlliedSignal from making and selling amorphous electrical alloys in violation
of a patent granted to the Company which covers certain alloy compositions
which provide improved magnetic properties.
Multilateral steel consensus agreements which are aimed at eliminating
foreign subsidies and foreign market access barriers have not yet been reached.
The Company believes the U.S. government must take action to protect domestic
markets from unfair trade practices by any company or nation which does not have
to meet a profit or capital formation discipline. Therefore, the Company is
urging the U.S. government to reach agreements with foreign governments to
accomplish these objectives.
In addition to competition from other stainless steel producers, other
materials such as carbon steel, titanium, composites, ceramics, aluminum and
plastic compete in various applications with stainless steel.
EXPORTS
Revenues from export sales were $87 million, $73 million, and $79 million,
in fiscal years 1995, 1994, and 1993, respectively. Political unrest and the
economic environment in some important export markets and the volatility of
foreign exchange rates make it difficult to predict whether export sales will
continue at the levels reached in the last three years.
6
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers of the Company as of March 6, 1996:
<TABLE>
<CAPTION>
NAME AGE TITLE AND YEAR ELECTED TO PRESENT POSITION
- --- --- ------------------------------------------
<S> <C> <C>
Richard P. Simmons............................... 64 Chairman of the Board ........................... 1986
Robert P. Bozzone................................ 62 Vice Chairman of the Board ...................... 1994
Arthur H. Aronson................................ 60 President and Chief Executive Officer ........... 1994
James L. Murdy................................... 57 Senior Vice President-Finance and
Chief Financial Officer ....................... 1988
Robert W. Rutherford............................. 56 Senior Vice President-Commercial ................ 1994
Jack W. Shilling................................. 52 Senior Vice President-Technical ................. 1994
Harry R. Wagner.................................. 51 Senior Vice President-Operations ................ 1994
Douglas A. Kittenbrink........................... 40 Vice President-Engineering and Information
Technology .................................... 1992
Bruce A. McGillivray............................. 62 Vice President-Human Resources .................. 1986
Carl R. Moulton.................................. 48 Group Vice President ............................ 1993
Robert S. Park................................... 51 Vice President-Treasurer ........................ 1994
Richard R. Roeser................................ 49 Vice President-Controller ....................... 1994
David G. Vietmeier............................... 51 Vice President-Purchasing ....................... 1988
Jon D. Walton.................................... 53 Vice President-General Counsel
and Secretary ................................. 1990
</TABLE>
Prior to 1990, Mr. Simmons also served as Chief Executive Officer of the
Company. Prior to 1994, Mr. Bozzone served as President and Chief Executive
Officer and Mr. Aronson served as Executive Vice President and Chief Operating
Officer of the Company. Messrs. Rutherford, Shilling and Wagner had been Vice
President-Commercial, Vice President-Technical and Vice President-Production,
respectively, prior to 1994. Mr. Kittenbrink was employed in various high level
engineering management and professional positions for over 5 years with Inland
Steel Industries, Inc. before joining the Company in 1992. Mr. Moulton was
President of Jessop Steel Company until he joined the Company upon the Company's
acquisition of Jessop in 1993. Messrs. Park and Roeser had been Treasurer and
Controller, respectively, prior to 1994. Each of the other executive officers of
the Company has held high level managerial or professional positions with the
Company for more than the past five years.
EMPLOYEES
As of January 1, 1996, the Company had approximately 6,000 employees of
whom approximately 2,000 were salaried employees. The Company also has
approximately 5,700 retirees.
Approximately 400 employees at the Company's Washington Plant are covered
by a labor contract with the United Steelworkers of America ("USWA") which is
effective through September 30, 1999. Substantially all of the Company's other
production and maintenance employees are covered by a four-year labor contract
between the Company and the USWA which is effective through July 1, 1998.
7
<PAGE>
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
The Company (and the industry in which it competes) is subject to
environmental laws and regulations concerning emissions to the air, discharges
to waterways, and the generation, handling, storage, transportation, treatment
and disposal of waste materials, and is also subject to other federal and state
laws and regulations regarding health and safety matters. Each of the Company's
production facilities has permits and licenses allowing and regulating air
emissions and water discharges. The Company believes that it is in substantial
compliance with environmental laws and regulations. The Company estimates that
its capital expenditures for fiscal year 1996 will include $9.3 million for
additional or upgraded environmental control equipment and facilities.
The Company, like most corporations in the steel and metals-producing
industries, expects to spend additional funds to meet the lower levels of
emissions mandated by the Clean Air Act Amendments of 1990 (the "CAA
Amendments"). The Company continues to believe that it will be able to meet the
new requirements while continuing its commitment to attractive new capital
investments.
LIMITED PARTNERSHIP INVESTMENTS
The Company, through wholly owned subsidiaries, made commitments to invest
as a limited partner in two Code, Hennessy & Simmons limited partnership
leveraged buyout funds and in the entities that serve as the general partners of
the funds. Investors made commitments to invest approximately $82.5 million when
the first fund was formed in 1989, including $25 million invested or to be
invested by the Company's subsidiary. Investors made commitments to invest $155
million in the second fund, which was formed in December 1993, including $30
million to be invested by the Company. Both funds were formed to originate and
lead investments in middle market companies that are undergoing an ownership
transition. The funds' portfolios include companies that design, manufacture and
distribute consumer and industrial products for a variety of end use
applications.
At the end of the first quarter of 1994, the Company voluntarily
contributed its limited partnership interest in the first limited partnership
fund to an irrevocable trust established for the purpose of partially funding
the retiree medical benefit and insurance obligations the Company has to its
employees represented by the United Steelworkers of America. Subsequently
in 1994 and in 1995, the Company voluntarily contributed investments it had
made as a limited partner in the second limited partnership fund, in the amount
of $13.1 million, to the irrevocable trust. Returns from investments in this
trust are being recorded in accordance with Statement of Financial Accounting
Standards No. 106. The Company cannot predict the magnitude or timing of any
future gains or losses related to the investments.
ITEM 2. PROPERTIES
The name, location and area of each of the Company's principal
manufacturing plants together with the principal products which they are
equipped to produce as of December 31, 1995, are as follows:
<TABLE>
<CAPTION>
AREA IN
PLANT AND LOCATION SQUARE FEET PRINCIPAL PRODUCTS
- ------------------ ----------- ------------------
<S> <C> <C>
Brackenridge Works
Brackenridge and Natrona, 2,443,000 Stainless steel and specialty metals strip, sheet and plate,
Pennsylvania silicon electrical steel strip and sheet, and other specialty
steel strip and sheet.
West Leechburg Works 1,415,000 Stainless steel and specialty metals strip and sheet, silicon
West Leechburg and Bagdad, electrical steel strip and sheet, and other specialty steel
Pennsylvania strip and sheet.
Vandergrift Plant 966,000 Stainless steel strip and sheet.
Vandergrift, Pennsylvania
Washington Plant 615,000 Stainless steel and tool steel plate products.
Washington, Pennsylvania
Wallingford Plant 591,000 Stainless steel and specialty metals strip and sheet and other
Wallingford and specialty steel strip and sheet.
Waterbury, Connecticut
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
AREA IN
PLANT AND LOCATION SQUARE FEET PRINCIPAL PRODUCTS
- ------------------ ----------- ------------------
<S> <C> <C>
Lockport Plant 282,000 Stainless steel and other specialty metals products.
Lockport, New York
New Castle Plant 178,000 Stainless steel sheet.
New Castle, Indiana
Claremore Plant 135,000 Stainless steel welded tubular products.
Claremore, Oklahoma
</TABLE>
The Brackenridge Plant utilizes four electric furnaces, an argon-oxygen
decarburization (A.O.D.) unit, a continuous caster, annealing lines and rolling
mills in its production. The Natrona Plant has three coreless induction
furnaces, two basic oxygen furnace vessels and ingot casting facilities. The
Lockport Plant has three electric arc furnaces, an AOD vessel, a vacuum
induction melting furnace and electroslag as well as vacuum arc remelting
facilities.
The Vandergrift, Wallingford, West Leechburg, Bagdad and New Castle Plants
have annealing, rolling and slitting facilities. The Claremore Plant utilizes
electric welding facilities in producing tubular products.
The Washington Plant has rolling, annealing and finishing facilities
utilized in the production of plate products.
The Company owns all of the foregoing plants, each of which, with the
exception of the Wallingford and Washington Plants, is subject to mortgages or
similar encumbrances securing borrowings under certain industrial development
authority financings. See Note 4 of the Notes to the Consolidated Financial
Statements on page 27 of the 1995 Annual Report.
While the plants have been constructed at various times over a long period,
many of the buildings have been replaced, remodeled or expanded and additional
buildings have been constructed from time to time. Much of the equipment at the
various plants has likewise been replaced or remodeled and new equipment has
been added at various times. The Company believes that the plants have been
well-maintained and are technologically advanced.
The Brackenridge primary melting and continuous slab casting facilities
have operated at high levels for the past five years. The stainless steel
finishing plants have operated at approximately 85% to 95% of capacity for the
past five years. The Company has increased stainless steel finishing capacity
through process and equipment improvements, computer-assisted scheduling plans,
the installation of new equipment at the Vandergrift Plant and the upgrade and
expansion of the Waterbury Plant in 1993 and 1994. The Company's plants that
primarily produce silicon electrical steels have operated at approximately 50%
to 90% of capacity since 1980 and are currently operating at a rate of
approximately 70%.
The Company conducts its primary research activities at its Technical
Center in Natrona Heights, Pennsylvania. The facility contains state-of-the-art
equipment for a variety of testing and analytical activities relating to the
Company's products and processes. The Company owns this 139,000 sq. ft.
facility.
The Coatesville and Santa Fe Processing Centers, located near Philadelphia,
Pennsylvania and Los Angeles, California, respectively, are warehouses used in
additional processing and distribution of the Company's Jessop plate products.
The Coatesville facility is owned while the Santa Fe facility is leased from a
third party.
The Company's subsidiary, ALstrip, Inc., operates stainless steel strip
processing and distribution centers in Skokie, Illinois, Exton, Pennsylvania,
and Springfield, Tennessee. ALstrip owns all its slitting and cutting equipment
and the Skokie and Springfield facilities outright and leases its Exton facility
from a third party.
The Company's executive offices, located in Pittsburgh, Pennsylvania, and
Western Regional Sales Office, located in Schaumburg, Illinois, are leased from
third parties. The Eastern Regional Sales Office is located at the Wallingford
Plant. These facilities are modern and sufficient for the Company to carry on
its activities.
9
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
As previously announced, in June 1995, the U.S. Department of Justice
commenced an action against the Company in the United States District Court for
the Western District of Pennsylvania, asserting, in 64 claims, multiple
violations of the federal Clean Water Act occurring at various times since 1987.
The complaint seeks injunctive relief and assessment of penalties of up to
$25,000 per day of violation. While it is too early to predict the outcome of
the case, the Company believes that any costs or penalties should not be
material to the financial condition of the Company or its results of operation.
The Company is involved in various other lawsuits from time to time arising
in the ordinary course of business and otherwise. In management's opinion, the
outcome of these matters will not have a material adverse effect on the
Company's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the fourth quarter of 1995.
10
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Information required by this item is incorporated by reference from "Common
Stock Data" on page 38 of the 1995 Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this item is incorporated by reference from
"Selected Financial Data" on page 37 of the 1995 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information required by this item is incorporated by reference from
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 19 to 22 of the 1995 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Notes to Consolidated Financial
Statements listed in Item 14(a)(1) are incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
In addition to the information set forth under the caption "Executive
Officers of the Registrant" in Part I of this report, the information concerning
the directors of the Company required by this item is incorporated by reference
from "Nominees for Director" and "Continuing Directors" as set forth in the 1996
Proxy Statement filed by the registrant pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference from
"Compensation of Directors," "Executive Compensation," and "Cumulative Total
Shareholder Return," as set forth in the 1996 Proxy Statement filed by the
registrant pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated by reference from
"Security Ownership" as set forth in the 1996 Proxy Statement filed by the
registrant pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated by reference from "Certain
Transactions" as set forth in the 1996 Proxy Statement filed by the registrant
pursuant to Regulation 14A.
11
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(A) EXHIBITS AND FINANCIAL STATEMENT SCHEDULES:
(1) FINANCIAL STATEMENTS
The following consolidated financial statements included on pages 23
through 36 of the 1995 Annual Report are incorporated by reference:
Consolidated Statement of Income--Years Ended
December 31, 1995, January 1, 1995 and January 2, 1994
Consolidated Balance Sheets at December 31, 1995 and January 1, 1995
Consolidated Statement of Cash Flows--Years Ended
December 31, 1995, January 1, 1995 and January 2, 1994
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Accountants
The consent to incorporate the Auditors' Report is included herein on page
14.
(2) FINANCIAL STATEMENT SCHEDULES
The following Consolidated Statement Schedule for years ended December 31,
1995, January 1, 1995 and January 2, 1994 is included herein:
<TABLE>
<CAPTION>
PAGE NO.
--------
<C> <S> <C>
II. Valuation and Qualifying Accounts....................................................... 15
</TABLE>
All other schedules set forth in the applicable accounting regulations of
the Securities and Exchange Commission either are not required under the related
instructions or are not applicable and, therefore, have been omitted.
(3) EXHIBITS
A list of exhibits included in this Report or incorporated by reference is
found in the Exhibit Index beginning on page 16 of this Report and incorporated
by reference.
(B) REPORTS ON FORM 8-K FILED IN THE FOURTH FISCAL QUARTER OF 1995:
None.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the registrant has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ALLEGHENY LUDLUM CORPORATION
March 20, 1996 /s/ A. H. ARONSON
By....................................
A. H. Aronson
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the Company
and in the capacities and as of the 20th day of March, 1996.
/s/ ARTHUR H. ARONSON /s/ C. FRED FETTEROLF
By.............................. By..............................
Arthur H. Aronson C. Fred Fetterolf
President and Chief Executive Director
Officer and Director
/s/ THOMAS MARSHALL
/s/ JAMES L. MURDY By..............................
By.............................. Thomas Marshall
James L. Murdy Director
Senior Vice President-Finance
and Chief Financial Officer /s/ W. CRAIG MCCLELLAND
and Director By..............................
W. Craig McClelland
/s/ RICHARD R. ROESER Director
By..............................
Richard R. Roeser /s/ RICHARD K. PITLER
Vice President-Controller By..............................
Richard K. Pitler
/s/ ROBERT S. PARK Director
By..............................
Robert S. Park /s/ ANNE POL
Vice President-Treasurer By..............................
Anne Pol
RICHARD P. SIMMONS Director
By..............................
Richard P. Simmons /s/ CHARLES J. QUEENAN, JR.
Chairman of the Board By..............................
and Director Charles J. Queenan, Jr.
Director
/s/ ROBERT P. BOZZONE
By.............................. /s/ JAMES E. ROHR
Robert P. Bozzone By..............................
Vice Chairman of the Board James E. Rohr
and Director Director
/s/ PAUL S. BRENTLINGER /s/ GEORGE W. TIPPINS
By.............................. By..............................
Paul S. Brentlinger George W. Tippins
Director Director
/s/ STEVEN C. WHEELWRIGHT
By..............................
Steven C. Wheelwright
Director
13
<PAGE>
CONSENT TO INCORPORATE AUDITORS' REPORT ON FINANCIAL STATEMENTS
We consent to the incorporation by reference in this Form 10-K of Allegheny
Ludlum Corporation of our report dated January 30, 1996, included in the 1995
Annual Report to Shareholders of Allegheny Ludlum Corporation.
Our audits also included the financial statement schedule of Allegheny
Ludlum Corporation listed in item 14(a). This schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
January 30, 1996
14
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
(in thousands of dollars)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT -------------------------------------- BALANCE
BEGINNING CHARGED TO COSTS CHARGED TO OTHER AT END
DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS--DESCRIBE DEDUCTIONS--DESCRIBE OF PERIOD
----------- --------- ------------ ------------------ -------------------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED
DECEMBER 31, 1995:
Allowance for doubtful
accounts........................ $ 3,715 $ 95 -- $ 63(2) $ 3,873
========== ========= ========= =========
YEAR ENDED
JANUARY 1, 1995:
Allowance for doubtful
accounts........................ $ 3,791 $ 145 -- $ (221)(2) $ 3,715
========== ========= ========= =========
YEAR ENDED
JANUARY 2, 1994:
Allowance for doubtful
accounts........................ $ 3,235 $ 696 $ 300(1) $ (440)(2) $ 3,791
========== ========= ========= =========
</TABLE>
- ---------
(1) Balance acquired with the purchase of the Jessop Steel operations.
(2) Uncollectible accounts written off, net of recoveries.
15
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION REFERENCE
------ ----------- ---------
<S> <C> <C>
3(a) Restated and Amended Articles of Incorporation of the Company........................... (a)
3(b) By-Laws, as amended..................................................................... (b)
4(a) Indenture dated as of December 15, 1995, between Allegheny Ludlum Corporation and The
Chase Manhattan Bank (National Association), as Trustee (relating to $150,000,000
6.95% Debentures due December 15, 2025)............................................... (c)
4(b) Industrial Revenue Bonds/Capitalized Leases:
(i) Allegheny County Industrial Development Authority, 1977 Series A, 6-1/4%
Pollution Control Revenue Bonds, $13,000,000, due 2/1/07 (relating to plants
in West Leechburg, Brackenridge and Natrona, Pennsylvania);................... (d)
(ii) Allegheny County Industrial Development Authority, 1978 Series A, 7.20%
Pollution Control Revenue Bonds, $1,700,000, due 12/1/03 (relating to plants
in West Leechburg, Brackenridge and Natrona, Pennsylvania);................... (d)
(iii) Niagara County Industrial Development Agency, 1984, Variable Rate Industrial
Development Revenue Bonds, $10,000,000, due 10/1/02 (relating to plant in
Lockport, New York);.......................................................... (d)
(iv) Allegheny County Industrial Development Authority, 1973 Series A, 6%
Industrial Revenue Bonds, $2,700,000, due 2/1/98 (relating to plants in
Brackenridge, Natrona, West Leechburg and Bagdad, Pennsylvania);.............. (d)
(v) Allegheny County Industrial Development Authority, 1974 Series B, 6.5%
Industrial Revenue Bonds, $1,000,000, due 2/1/98 (relating to plants in
Brackenridge, Natrona and Bagdad, Pennsylvania);.............................. (d)
(vi) Allegheny Valley Development Corporation, 1976 Series A, 4% Industrial Revenue
Bonds, $2,024,000, due 5/1/97 (relating to plant in Brackenridge,
Pennsylvania);................................................................ (d)
(vii) Claremore Industrial Development Authority, 1977 Series A, 6.3%
Industrial Development Revenue Bonds, $4,150,000, due 11/1/07 (relating to
plant in Claremore, Oklahoma);................................................ (d)
(viii) Westmoreland County Industrial Development Authority, 1986, Variable Rate
Urban Development Action Grant, $775,000, due 1991 through 1996 (relating to
plant in West Leechburg, Pennsylvania);....................................... (d)
(ix) Pennsylvania Industrial Development Authority, 1988, 3% Loan, $2,000,000, due
1989 through 2004 (relating to plant in Vandergrift, Pennsylvania);........... (d)
(x) Pennsylvania Sunny Day Fund, 1989, 3% Loan, $3,750,000, due 1989 through 2004
(relating to plant in Vandergrift, Pennsylvania);............................. (d)
(xi) Westmoreland County Industrial Development Authority, 1989, 3% Loan,
$3,000,000, due 1989 through 1999 (relating to plant in Vandergrift,
Pennsylvania);................................................................ (d)
(xii) Financing Agreement dated as of December 20, 1988 between Green River Steel
Corporation and the Commonwealth of Kentucky, acting through the State
Property and Buildings Commission and the Economic Development Cabinet
(relating to Green River Steel Corporation Plant)............................. (d)
10(a) Credit Agreement dated June 30, 1995......................................................... (e)
10(b) Additional Compensation Plan (1)*............................................................ (f)
10(c) Key Man Salary Continuation Program (2)*..................................................... (f)
10(d) Benefit Restoration Plan*.................................................................... (g)
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION REFERENCE
------ ----------- ---------
<S> <C> <C>
10(f) 1987 Stock Option Incentive Plan (as amended and restated)*............................. (c)
10(g) Performance Share Plan (as amended and restated)*....................................... (h)
10(h) Employment Agreement between the Company and A. H. Aronson*............................. (i)
10(i) Fee Continuation Plan for Non-Employee Directors*....................................... (j)
10(j) Director Share Incentive Plan*.......................................................... (k)
10(k) Stock Acquisition and Retention Plan*................................................... (l)
13 Pages 19 through 38 inclusive of the Annual Report for the year ended
December 31, 1995 (3)................................................................. (c)
21 Subsidiaries of the Registrant.......................................................... (c)
23 Consent of Ernst & Young LLP............................................................ (c)
27 Financial Data Schedule................................................................. (c)
</TABLE>
- ---------
(a) A copy of this document, filed as an Exhibit to the Company's Quarterly
Report on Form 10-Q for the quarter ended July 3, 1994, is hereby
incorporated herein by reference.
(b) A copy of this document, filed as an Exhibit to the Company's Annual
Report on Form 10-K for the year ended January 1, 1995, is hereby
incorporated herein by reference.
(c) Filed herewith.
(d) Copies of these documents are not filed as an Exhibit to this Report
pursuant to Item 601(b)(4)(iii). The Company will furnish such copies to
the Commission upon request.
(e) A copy of this document, filed as an Exhibit to the Company's Quarterly
Report on Form 10-Q for the quarter ended July 2, 1995, is hereby
incorporated herein by reference.
(f) Copies of these documents, filed as Exhibits to the Company's
Registration Statement on Form S-1 Number 33-12940 as heretofore filed
with the Securities and Exchange Commission, are incorporated herein by
reference, the Additional Compensation Plan being filed as Exhibit 10(c)
to such Registration Statement, and the Key Man Salary Continuation Plan
being filed as Exhibit 10(e) to such Registration Statement.
(g) A copy of this document, filed as Exhibit 10(e) to the Company's Annual
Report on Form 10-K for the year ended December 30, 1990, is hereby
incorporated herein by reference.
(h) A copy of this document, filed as Exhibit 10(e) to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 3, 1994, is
hereby incorporated herein by reference.
(i) A copy of this document, filed as Exhibit 10(h) to the Company's Annual
Report on Form 10-K for the year ended January 2, 1994, is hereby
incorporated herein by reference.
(j) A copy of this document, filed as Exhibit 10(j) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1989, is hereby
incorporated herein by reference.
(k) A copy of this document, filed as Exhibit 10(b) to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 4, 1993, is
hereby incorporated herein by reference.
(l) A copy of this document, filed as Exhibit 10(b) to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 3, 1994, is
hereby incorporated herein by reference.
(1) Presently known as the Performance Management System Plan.
(2) Presently known as the Supplemental Pension Plan for certain key
employees of the Company.
(3) Except for those provisions specifically incorporated by reference in
this report, the 1995 Annual Report shall not be deemed to be "filed"
with the Securities and Exchange Commission.
*Management contract or compensatory plan or arrangement required to be filed as
an exhibit to this report.
17
<PAGE>
Exhibit 4(a)
Execution Version
----------------------------------------------------
ALLEGHENY LUDLUM CORPORATION
To
THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION),
as Trustee
----------------
INDENTURE
Dated as of December 15, 1995
----------------
$150,000,000
6.95% Debentures Due December 15, 2025
----------------------------------------------------
<PAGE>
TABLE OF CONTENTS/1/
----------
PAGE
Parties..................................................................... 1
Recitals of the Company..................................................... 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. Definitions.............................................. 1
Act...................................................... 2
Affiliate; control....................................... 2
Attributable Debt........................................ 2
Authenticating Agent..................................... 2
Board of Directors....................................... 2
Board Resolution......................................... 3
Business Day............................................. 3
Commission............................................... 3
Company.................................................. 3
Company Request or Company Order......................... 3
Consolidated Net Tangible Assets......................... 3
Corporate Trust Office................................... 4
corporation.............................................. 4
Debt..................................................... 4
Defaulted Interest....................................... 4
Depositary............................................... 4
Event of Default......................................... 4
Global Security.......................................... 4
Holder................................................... 4
Indenture................................................ 4
Interest Payment Date.................................... 4
Lien..................................................... 4
Maturity................................................. 4
Officers' Certificate.................................... 5
Opinion of Counsel....................................... 5
Outstanding.............................................. 5
Paying Agent............................................. 6
Person................................................... 6
Predecessor Security..................................... 6
Principal Property....................................... 6
Regular Record Date...................................... 6
Responsible Officer...................................... 6
Restricted Subsidiary.................................... 7
Sale and Leaseback Transaction........................... 7
- ------------------
/1/ This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
<PAGE>
PAGE
Securities............................................... 7
Security Register and Security Registrar................. 7
Special Record Date...................................... 7
Stated Maturity.......................................... 7
Subsidiary............................................... 7
Trust Indenture Act...................................... 7
Trustee.................................................. 7
Vice President........................................... 8
SECTION 102. Compliance Certificates and Opinions..................... 8
SECTION 103. Form of Documents Delivered to Trustee................... 8
SECTION 104. Acts of Holders; Record Dates............................ 9
SECTION 105. Notices, Etc., to Trustee and Company.................... 10
SECTION 106. Notice to Holders; Waiver................................ 11
SECTION 107. Conflict With Trust Indenture Act........................ 11
SECTION 108. Effect of Headings and Table of Contents................. 12
SECTION 109. Successors and Assigns................................... 12
SECTION 110. Separability Clause...................................... 12
SECTION 111. Benefits of Indenture.................................... 12
SECTION 112. Governing Law............................................ 12
SECTION 113. Legal Holidays........................................... 12
SECTION 114. No Security Interest Created............................. 13
SECTION 115. Limitation on Individual Liability....................... 13
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally.......................................... 13
SECTION 202. Form of Face of Security................................. 14
SECTION 203. Form of Reverse of Security.............................. 15
SECTION 204. Form of Trustee's Certificate of
Authentication......................................... 17
ARTICLE THREE
THE SECURITIES
SECTION 301. Title and Terms.......................................... 17
SECTION 302. Denominations............................................ 18
SECTION 303. Execution, Authentication, Delivery
and Dating............................................. 18
SECTION 304. Temporary Securities..................................... 19
SECTION 305. Registration; Registration of Transfer
and Exchange........................................... 20
SECTION 306. Mutilated, Destroyed, Lost and Stolen
Securities............................................. 23
- ii -
<PAGE>
PAGE
SECTION 307. Payment of Interest; Interest Rights
Preserved.............................................. 23
SECTION 308. Persons Deemed Owners.................................... 25
SECTION 309. Cancellation............................................. 25
SECTION 310. Computation of Interest.................................. 25
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of
Indenture.............................................. 26
SECTION 402. Application of Trust Money............................... 27
SECTION 403. Defeasance Upon Deposit of Moneys or
Government Obligations................................. 27
SECTION 404. Repayment To Company..................................... 29
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default........................................ 29
SECTION 502. Acceleration of Maturity; Rescission
and Annulment.......................................... 32
SECTION 503. Collection of Indebtedness and Suits
for Enforcement by Trustee............................. 33
SECTION 504. Trustee May File Proofs of Claim......................... 34
SECTION 505. Trustee May Enforce Claims Without
Possession of Securities............................... 34
SECTION 506. Application of Money Collected........................... 34
SECTION 507. Limitation on Suits...................................... 35
SECTION 508. Unconditional Right of Holders to
Receive Principal and Interest......................... 36
SECTION 509. Restoration of Rights and Remedies....................... 36
SECTION 510. Rights and Remedies Cumulative........................... 36
SECTION 511. Delay or Omission Not Waiver............................. 36
SECTION 512. Control by Holders....................................... 37
SECTION 513. Waiver of Defaults....................................... 37
SECTION 514. Undertaking for Costs.................................... 38
SECTION 515. Waiver of Stay or Extension Laws......................... 38
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities...................... 38
- iii -
<PAGE>
PAGE
SECTION 602. Notice of Defaults....................................... 39
SECTION 603. Certain Rights of Trustee................................ 39
SECTION 604. Not Responsible for Recitals or
Issuance of Securities................................. 41
SECTION 605. May Hold Securities...................................... 41
SECTION 606. Money Held in Trust...................................... 41
SECTION 607. Compensation and Reimbursement........................... 41
SECTION 608. Disqualification; Conflicting Interests.................. 42
SECTION 609. Corporate Trustee Required; Eligibility.................. 42
SECTION 610. Resignation and Removal; Appointment
of Successor........................................... 43
SECTION 611. Acceptance of Appointment by Successor................... 44
SECTION 612. Merger, Conversion, Consolidation or
Succession to Business................................. 45
SECTION 613. Preferential Collection of Claims
Against Company........................................ 45
SECTION 614. Authenticating Agents.................................... 45
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names
and Addresses of Holders............................... 47
SECTION 702. Preservation of Information;
Communications to Holders.............................. 48
SECTION 703. Reports by Trustee....................................... 48
SECTION 704. Reports by Company....................................... 49
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only
on Certain Terms........................................ 49
SECTION 802. Successor Substituted..................................... 50
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without
Consent of Holders..................................... 50
SECTION 902. Supplemental Indentures With Consent
of Holders............................................. 51
SECTION 903. Execution of Supplemental Indentures..................... 52
- iv -
<PAGE>
PAGE
SECTION 904. Effect of Supplemental Indentures........................ 52
SECTION 905. Conformity With Trust Indenture Act...................... 53
SECTION 906. Reference in Securities to Supplemental
Indentures............................................. 53
SECTION 907. Notice of Supplemental Indenture......................... 53
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal and Interest........................ 53
SECTION 1002. Maintenance of Office or Agency.......................... 53
SECTION 1003. Money for Payments to be
Held in Trust.......................................... 54
SECTION 1004. Limitation on Liens...................................... 55
SECTION 1005. Limitation on Sale and Leaseback
Transactions........................................... 58
SECTION 1006. Existence................................................ 59
SECTION 1007. Statement as to Compliance............................... 59
SECTION 1008. Waiver of Certain Covenants.............................. 60
TESTIMONIUM................................................................. 61
SIGNATURES AND SEALS........................................................ 61
ACKNOWLEDGMENTS............................................................. 62
- v -
<PAGE>
INDENTURE, dated as of December 15, 1995, between ALLEGHENY LUDLUM
CORPORATION, a corporation duly organized and existing under the laws of the
Commonwealth of Pennsylvania (herein called the "Company"), having its principal
executive offices at 1000 Six PPG Place, Pittsburgh, Pennsylvania 15222, and THE
CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), a national banking association, as
Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of its 6.95%
Debentures Due December 15, 2025 (herein called the "Securities") of
substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture.
All things necessary to make the Securities, when executed by the
Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
-----------
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with
<PAGE>
generally accepted accounting principles, and, except as otherwise herein
expressly provided, the term "generally accepted accounting principles"
with respect to any computation required or permitted hereunder shall mean
such accounting principles as are generally accepted at the date of this
Indenture; and
(4) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
Certain terms used principally in Article Four or Article Six are
defined in those Articles.
"Act", when used with respect to any Holder, has the meaning specified
in Section 104.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Attributable Debt" in respect of a Sale and Leaseback Transaction
means, as of any particular time, the present value (discounted at the rate of
interest implicit in the terms of the lease involved in such Sale and Leaseback
Transaction, as determined in good faith by the Company) of the obligation of
the lessee thereunder for net rental payments (excluding, however, any amounts
required to be paid by such lessee, whether or not designated as rent or
additional rent, on account of maintenance and repairs, services, insurance,
taxes, assessments, water rates or similar charges and any amounts required to
be paid by such lessee thereunder contingent upon monetary inflation or the
amount of sales, maintenance and repairs, insurance, taxes, assessments, water
rates or similar charges) during the remaining term of such lease (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Authenticating Agent" means any Person authorized by the Trustee
pursuant to Section 614 to act on behalf of the Trustee to authenticate
Securities.
"Board of Directors" means the board of directors of the Company or
the executive committee thereof or any other committee appointed by that board
to act in respect hereof.
- 2 -
<PAGE>
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification and delivered to the Trustee.
"Business Day", means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York, New York or
the city in which the Corporate Trust Office is located are authorized or
obligated to close by law or executive order.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, as
amended, or, if at any time after the execution of this instrument such
Commission is not existing and performing the duties now assigned to it under
the Trust Indenture Act, then the body performing such duties at such time.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its Vice
Chairman of the Board, if any, its President or any Vice President, and by its
Treasurer, any Assistant Treasurer, its Secretary or any Assistant Secretary,
and delivered to the Trustee.
"Consolidated Net Tangible Assets" means the aggregate amount of
assets of the Company and its consolidated subsidiaries (less applicable
reserves) after deducting therefrom (a) all goodwill, trade names, trademarks,
patents, unamortized debt discount and expense and other like intangibles and
(b) all current liabilities except for current maturities of long-term debt,
current maturities of capitalized lease obligations, indebtedness for borrowed
money having a maturity of less than 12 months from the date of the most recent
audited consolidated balance sheet of the Company, but which by its terms is
renewable or extendable beyond 12 months from such date at the option of the
borrower, and deferred income taxes which are classified as current liabilities,
all as reflected in the audited consolidated balance sheet contained in the
Company's most recent annual report to its shareholders under Rule 14a-3 of the
Securities Exchange Act of 1934, as amended, prior to the time as of which
"Consolidated Net Tangible Assets" is being determined.
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"Corporate Trust Office" means the principal office of the Trustee at
which at any particular time its corporate trust business shall be administered,
which office at the date of execution of this Indenture is located at 4 Chase
MetroTech Center, 3rd floor, Brooklyn, New York 11245.
"corporation" means a corporation, association, company, joint stock
company, limited liability company or business trust.
"Debt" means indebtedness for borrowed money.
"Defaulted Interest" has the meaning specified in Section 307.
"Depositary" means, with respect to Securities issuable in whole or in
part in the form of one or more Global Securities, the Person designated as
Depositary by the Company in Section 301 until a successor Depositary shall have
become such pursuant to the applicable provisions of this Indenture, and
thereafter "Depositary" shall mean or include each Person who is then a
Depositary hereunder.
"Event of Default" has the meaning specified in Section 501.
"Global Security" means a Security evidencing all or part of the
Securities and issued to the Depositary in accordance with Section 303 and
bearing the legend prescribed in the sixth paragraph of Section 303.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument and any such supplemental indenture,
respectively.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Lien" means any mortgage, pledge, security interest or lien.
"Maturity", when used with respect to any Security, means the date on
which the principal of such Security becomes due and payable as therein or
herein provided, whether at the
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Stated Maturity thereof or by declaration of acceleration or otherwise.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, a Vice Chairman of the Board, if any, the President or any Vice
President, and by the Treasurer, any Assistant Treasurer, the Secretary or any
Assistant Secretary of the Company and delivered to the Trustee. One of the
officers signing an Officers' Certificate given pursuant to Section 1007 shall
be the principal executive, financial or accounting officer of the Company.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for or an employee of the Company, and who shall be reasonably
acceptable to the Trustee.
"Outstanding", when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities for the payment of which moneys in the necessary
amount have been theretofore deposited with the Trustee or any Paying Agent
(other than the Company) in trust or set aside and segregated in trust by
the Company (if the Company shall act as its own Paying Agent) for the
Holders of such Securities or from its obligations with respect to which
the Company shall have been discharged; and
(iii) Securities which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands such Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which a Responsible Officer of the Trustee
actually knows to be so owned shall be so disregarded. Securities so
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owned which have been pledged in good faith may be regarded as Outstanding if
the pledgee establishes to the satisfaction of the Trustee the pledgee's right
so to act with respect to such Securities and that the pledgee is not the
Company or any other obligor upon the Securities or any Affiliate of the Company
or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of or any interest on any Securities on behalf of the Company.
"Person" means, except as provided in Article Six, any individual,
corporation, partnership, joint venture, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Principal Property" means any manufacturing plant or other similar
facility located within the United States of America (other than its territories
and possessions) and owned by, or leased to, the Company or any Restricted
Subsidiary, the book value of the real property, plant and equipment of which
(as shown, without deduction of any depreciation reserves, on the books of the
owner or owners) is not less than 2% of Consolidated Net Tangible Assets as of
the date on which such plant or other facility is acquired or a leasehold
interest therein is acquired except (a) any such plant or facility which the
Board of Directors determines by Board Resolution in good faith is not of
material importance to the total business conducted, or assets owned, by the
Company and its Restricted Subsidiaries as an entirety, or (b) any portion of
any such plant or facility which the Board of Directors determines by Board
Resolution in good faith not to be of material importance to the use or
operation thereof.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the June 1st or the December 1st (whether or not a Business Day), as
the case may be, next preceding such Interest Payment Date.
"Responsible Officer", when used with respect to the Trustee, means
any vice president, the secretary, any assistant secretary, the treasurer, any
assistant treasurer, any trust officer or assistant trust officer, or any other
officer of the
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Trustee customarily performing functions similar to those performed by any of
the above designated officers and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his knowledge of and familiarity with the particular subject.
"Restricted Subsidiary" means any Subsidiary substantially all the
property of which is located, or substantially all the business of which is
carried on, within the United States of America (other than its territories and
possessions) which shall at the time, directly or indirectly, through one or
more Subsidiaries or in combination with one or more other Subsidiaries or the
Company, own or be a lessee of a Principal Property.
"Sale and Leaseback Transaction" has the meaning specified in Section
1005.
"Securities" has the meaning stated in the first recital of this
Indenture and more particularly means any Securities authenticated and delivered
under this Indenture.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 305.
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or any
interest thereon, means the date specified in such Security as the fixed date on
which the principal of such Security or such interest is due and payable.
"Subsidiary" means, with respect to the Company, a corporation of
which more than 50% of the total voting power of the capital stock entitled
(without regard to the occurrence of any contingency) to vote in the election of
its directors is owned, directly or indirectly, by the Company or by one or more
other Subsidiaries or by the Company and one or more other Subsidiaries.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended and in force at the date as of which this instrument was executed;
provided, however, that in the event the Trust Indenture Act of 1939 is amended
after such date, "Trust Indenture Act" means, to the extent required by such
amendment, the Trust Indenture Act of 1939 as so amended.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of
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this Indenture, and thereafter "Trustee" shall mean such successor Trustee.
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
SECTION 102. Compliance Certificates and Opinions.
------------------------------------
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee such certificates and opinions as may be required under the Trust
Indenture Act. Each such certificate or opinion shall be given in the form of
an Officers' Certificate, if to be given by an officer of the Company, or an
Opinion of Counsel, if to be given by counsel, and shall comply with the
requirements of the Trust Indenture Act and any other requirements set forth in
this Indenture.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
--------------------------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such
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<PAGE>
Person may certify or give an opinion as to such matters in one or several
documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders; Record Dates.
-----------------------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the
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authority of the Person executing the same, may also be proved in any other
manner which the Trustee deems sufficient.
(c) The Company may, in the circumstances permitted by the Trust
Indenture Act, fix any day as the record date for the purpose of determining the
Holders entitled to give or take any request, demand, authorization, direction,
notice, consent, waiver or other action, or to vote on any action, authorized or
permitted to be given or taken by Holders. If not set by the Company prior to
the first solicitation of a Holder made by any Person in respect of any such
action, or, in the case of any such vote, prior to such vote, the record date
for any such action or vote shall be the 3Oth day (or, if later, the date of the
most recent list of Holders required to be provided pursuant to Section 701)
prior to such first solicitation or vote, as the case may be. With regard to
any record date for action to be taken by the Holders, only the Holders on such
date (or their duly designated proxies) shall be entitled to give or take, or
vote on, the relevant action. Notwithstanding the foregoing, the Company shall
not set a record date for, and the provisions of this paragraph shall not apply
with respect to, any Act by the Holders pursuant to Section 501, 502 or 512.
(d) The ownership of Securities shall be proved by the Security
Register.
(e) Any Act of the Holder of any Security shall bind every future
Holder of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
any such Security.
(f) Without limiting the foregoing, a Holder entitled hereunder to
give or take any action hereunder with regard to any particular Security may do
so with regard to all or any part of the principal amount of such Security or by
one or more duly appointed agents each of which may do so pursuant to such
appointment with regard to all or any different part of such principal amount.
SECTION 105. Notices, Etc., to Trustee and Company.
-------------------------------------
Any Act of Holders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, Attention:
Institutional Trust
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Group, including via facsimile transmission to (718) 242-5886, or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company
addressed to it, Attention: Corporate Secretary, at the address of its
principal executive offices specified in the first paragraph of this
instrument or at any other address previously furnished in writing to the
Trustee by the Company or via facsimile transmission to (412) 394-3010.
SECTION 106. Notice to Holders; Waiver.
-------------------------
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Security Register, not later
than the latest date (if any), and not earlier than the earliest date (if any),
prescribed for the giving of such notice. In any case where notice to Holders
is given by mail, neither the failure to mail any notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. Where this Indenture provides for notice
in any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
SECTION 107. Conflict With Trust Indenture Act.
---------------------------------
If any provision hereof limits, qualifies or conflicts with a
provision of the Trust Indenture Act that is required under such Act to be a
part of and govern this Indenture, the latter provision shall control. If any
provision of this Indenture modifies or excludes any provision of the Trust
Indenture Act that may be so modified or excluded, the latter provision shall be
deemed to apply to this Indenture only as so modified or excluded, as the case
may be.
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SECTION 108. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 109. Successors and Assigns.
----------------------
All covenants and agreements in this Indenture by the Company shall
bind or inure to the benefit of its successors and assigns, whether so expressed
or not.
SECTION 110. Separability Clause.
-------------------
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 111. Benefits of Indenture.
---------------------
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder, any Security Registrar, any Paying Agent, any Authenticating Agent
and the Holders, any benefit or any legal or equitable right, remedy or claim
under this Indenture.
SECTION 112. Governing Law.
-------------
This Indenture and the Securities shall be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania, without regard
to the conflicts of law rules of said Commonwealth; provided, however, that the
rights, duties and obligations of, and the standard of care for, the Trustee
shall be governed by the laws of the State of New York, without regard to the
conflicts of law rules of said State.
SECTION 113. Legal Holidays.
--------------
In any case where any Interest Payment Date or Stated Maturity of any
Security shall not be a Business Day, then (notwithstanding any other provision
of this Indenture or of the Securities) payment of interest or principal need
not be made on such date, but may be made on the next succeeding Business Day
with the same force and effect as if made on the Interest Payment Date or at the
Stated Maturity; provided, that no interest shall accrue for the period from and
after such Interest Payment Date or Stated Maturity, as the case may be, to such
Business Day if such payment is made or duly provided for on such Business Day.
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SECTION 114. No Security Interest Created.
----------------------------
Nothing in this Indenture or in the Securities, express or implied,
shall be construed to constitute a security interest under the Uniform
Commercial Code or similar legislation, as now or hereafter enacted and in
effect in any jurisdiction where property of the Company or its Subsidiaries is
or may be located.
SECTION 115. Limitation on Individual Liability.
----------------------------------
No recourse under or upon any obligation, covenant or agreement
contained in this Indenture or in any Security, or for any claim based thereon
or otherwise in respect thereof, shall be had against any incorporator,
stockholder, officer or director, as such, past, present or future, of the
Company or any successor Person, either directly or through the Company, whether
by virtue of any constitution, statute or rule of law, or by the enforcement of
any assessment or penalty or otherwise; it being expressly understood that this
Indenture and the obligations issued hereunder are solely corporate obligations,
and that no such personal liability whatever shall attach to, or is or shall be
incurred by, the incorporators, shareholders, officers or directors, as such, of
the Company or any successor Person, or any of them, because of the creation of
the indebtedness hereby authorized, or under or by reason of the obligations,
covenants or agreements contained in this Indenture or in any Security or
implied therefrom; and that any and all such personal liability of every name
and nature, either at common law or in equity or by constitution or statute, of,
and any and all such rights and claims against, every such incorporator,
shareholder, officer or director, as such, because of the creation of the
indebtedness hereby authorized, or under or by reason of the obligations,
covenants or agreements contained in this Indenture or in any Security or
implied therefrom, are hereby expressly waived and released as a condition of,
and as a consideration for, the execution of this Indenture and the issuance of
such Security.
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally.
---------------
The Securities and the Trustee's certificates of authentication shall
be in substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with any law or with the rules of any securities exchange on
which the Securities are
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listed or as may, consistently herewith, be determined by the officers executing
such Securities, as evidenced by their execution of the Securities.
The definitive Securities shall be printed, lithographed or engraved
or produced by any combination of these methods on steel engraved borders or may
be produced in any other manner permitted by the rules of any securities
exchange on which the Securities may be listed, all as determined by the
officers executing such Securities, as evidenced by their execution of such
Securities.
SECTION 202. Form of Face of Security.
------------------------
ALLEGHENY LUDLUM CORPORATION
6.95% Debentures Due December 15, 2025
No. ....... $..............
Allegheny Ludlum Corporation, a corporation duly organized and
existing under the laws of the Commonwealth of Pennsylvania (herein called the
"Company", which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
.................................., or registered assigns, the principal sum of
....................... Dollars on December 15, 2025, and to pay interest
thereon from December 15, 1995 or from the most recent Interest Payment Date to
which interest has been paid or duly provided for, semi-annually on June 15 and
December 15 in each year, commencing June 15, 1996, at the rate of 6.95% per
annum, until the principal hereof is paid or made available for payment. The
interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date will, as provided in such Indenture, be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest, which shall be
the June 1 or December 1 (whether or not a Business Day), as the case may be,
next preceding such Interest Payment Date. Any such interest not so punctually
paid or duly provided for will forthwith cease to be payable to the Holder on
such Regular Record Date and may either be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice thereof having been given to Holders of
Securities not less than 10 days prior to such Special Record Date, or be paid
at any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, all as more fully provided in said
Indenture.
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<PAGE>
Payment of the principal of and interest on this Security will be made
at the office or agency of the Company maintained for that purpose pursuant to
Section 1002 of the Indenture in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that at the option of the Company payment of
interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Security Register if this Security
is not a Global Security.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:
Attest: ALLEGHENY LUDLUM CORPORATION
.............................. By...........................
SECTION 203. Form of Reverse of Security.
---------------------------
This Security is one of a duly authorized issue of securities of the
Company designated as its 6.95% Debentures Due December 15, 2025, (herein called
the "Securities"), limited in aggregate principal amount to $150,000,000, issued
and to be issued under an Indenture, dated as of December 15, 1995 (herein
called the "Indenture"), between the Company and The Chase Manhattan Bank
(National Association), as Trustee (herein called the "Trustee", which term
includes any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee and the Holders of the Securities and of the terms upon
which the Securities are, and are to be, authenticated and delivered.
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<PAGE>
If an Event of Default shall occur and be continuing, the principal of
all the Securities may be declared due and payable in the manner and with the
effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of not
less than a majority in aggregate principal amount of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Securities at the
time Outstanding, on behalf of the Holders of all Securities, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Security.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of and interest on this
Security at the times, place and rate, and in the coin or currency, herein
prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in any place where the principal of and interest
on this Security are payable, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar duly executed by, the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Securities, of authorized denominations
and for the same aggregate principal amount will be issued to the designated
transferee or transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Securities are
exchangeable for a like aggregate principal amount of Securities of a different
authorized denomination, as requested by the Holder surrendering the same.
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<PAGE>
No service charge shall be made for any such registration of transfer
or exchange except as provided in the Indenture, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
SECTION 204. Form of Trustee's Certificate of Authentication.
-----------------------------------------------
The Trustee's certificates of authentication shall be in substantially
the following form:
This is one of the Securities referred to in the within-mentioned
Indenture.
The Chase Manhattan Bank
(National Association),
as Trustee
By...........................
Authorized Officer
ARTICLE THREE
THE SECURITIES
SECTION 301. Title and Terms.
---------------
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $150,000,000,
except for Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities pursuant to Section 304,
305, 306 or 906.
The Securities shall be known and designated as the "6.95% Debentures
Due December 15, 2025" of the Company. Their Stated Maturity shall be December
15, 2025, and they shall bear interest at the rate of 6.95% per annum, from
December 15, 1995,
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<PAGE>
or from the most recent Interest Payment Date to which interest has been paid or
duly provided for, as the case may be, payable semi-annually on June 15 and
December 15, commencing June 15, 1996, until the principal thereof is paid or
made available for payment.
The principal of and interest on the Securities shall be payable at
the office or agency of the Company maintained for such purpose pursuant to
Section 1002; provided, however, that at the option of the Company payment of
interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Security Register so long as the
Securities are not represented by one or more Global Securities. The Depositary
for the Securities is The Depository Trust Company.
SECTION 302. Denominations.
-------------
The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
Securities shall be numbered, lettered or otherwise distinguished in such manner
or in accordance with such plan as the officers of the Company executing the
same may determine with the approval of the Trustee.
SECTION 303. Execution, Authentication, Delivery and Dating.
----------------------------------------------
The Securities shall be executed on behalf of the Company by its
Chairman of the Board, its Vice Chairman of the Board, if any, its President or
one of its Vice Presidents, under its corporate seal or a facsimile thereof
reproduced thereon attested by its Secretary or one of its Assistant
Secretaries. The signature of any of these officers on the Securities may be
manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with the Company Order shall either at one time or from time to time pursuant to
such instructions as may be described therein authenticate and deliver such
Securities as is in this Indenture provided and not otherwise.
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<PAGE>
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered hereunder and is entitled to the
benefits of this Indenture. Notwithstanding the foregoing, if any Security
shall have been authenticated and delivered hereunder but never issued and sold
by the Company, and the Company shall deliver such Security to the Trustee for
cancellation as provided in Section 309, for all purposes of this Indenture such
Security shall be deemed never to have been authenticated and delivered
hereunder and shall never be entitled to the benefits of this Indenture.
If the Securities are to be issued in whole or in part in the form of
one or more Global Securities, then the Company shall execute and the Trustee
shall authenticate and deliver one or more Global Securities that (i) shall
represent an aggregate amount equal to the aggregate principal amount of the
Outstanding Securities to be represented by one or more Global Securities, (ii)
shall be registered in the name of the Depositary for such Global Security or
Securities or the nominee of such Depositary, (iii) shall be delivered by the
Trustee to such Depositary or pursuant to such Depositary's instruction and (iv)
shall bear a legend substantially to the following effect (or in the form
required by such Depositary): "Unless and until it is exchanged in whole or in
part for the individual Securities represented hereby, this Global Security may
not be transferred except as a whole by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary."
Each Depositary for a Global Security must, at all times while it
serves as such Depositary, be a clearing agency registered under the Securities
Exchange Act of 1934, as amended, and any other applicable statute or
regulation.
SECTION 304. Temporary Securities.
--------------------
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other
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<PAGE>
variations as the officers executing such Securities may determine, as evidenced
by their execution of such Securities. Any such temporary Security may be in
global form, representing all or a portion of the Outstanding Securities. Every
such temporary Security shall be executed by the Company and shall be
authenticated and delivered by the Trustee upon the same conditions and in
substantially the same manner, and with the same effect, as the definitive
Security or Securities in lieu of which it is issued.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at the office
or agency of the Company designated pursuant to Section 1002, without charge to
the Holder. Upon surrender for cancellation of any one or more temporary
Securities, the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor one or more definitive Securities of a like
aggregate principal amount in authorized denominations. Until so exchanged the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities.
Upon any exchange of a portion of a temporary Global Security for a
definitive Global Security or for the individual Securities represented thereby
pursuant to this Section 304 or Section 305, the temporary Global Security shall
be endorsed by the Trustee to reflect the reduction of the principal amount
evidenced thereby, whereupon the principal amount of such temporary Global
Security shall be reduced for all purposes by the amount so exchanged and
endorsed.
SECTION 305. Registration; Registration
of Transfer and Exchange.
------------------------
(a) The Company shall cause to be kept at the Corporate Trust Office
of the Trustee a register (the register maintained in such office and in any
other office or agency designated pursuant to Section 1002 being herein
sometimes collectively referred to as the "Security Register") in which, subject
to such reasonable regulations as it may prescribe, the Company shall provide
for the registration of Securities and of transfers and exchanges of Securities.
The Trustee is hereby appointed "Security Registrar" for the purpose of
registering Securities and transfers and exchanges of Securities as herein
provided. At all reasonable times, upon reasonable notice, the Security
Register shall be open for inspection by the Company.
Upon surrender for registration of transfer of any Security at the
office or agency designated pursuant to Section
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<PAGE>
1002 for such purpose, the Company shall execute, and the Trustee shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Securities of any authorized denominations and of a
like aggregate principal amount.
Notwithstanding any other provision of this Section, unless and until
it is exchanged in whole or in part for the individual Securities represented
thereby, a Global Security representing all or a portion of the Securities may
not be transferred except as a whole by the Depositary to a nominee of such
Depositary or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary or by such Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at the office or agency
maintained for that purpose. Whenever any Securities are so surrendered for
exchange, the Company shall execute, and the Trustee shall authenticate and
deliver, the Securities which the Holder making the exchange is entitled to
receive.
(b) If at any time the Depositary for the Securities notifies the
Company that it is unwilling or unable to continue as Depositary for the
Securities or if at any time the Depositary for the Securities shall no longer
be eligible under Section 303, the Company shall appoint a successor Depositary.
If a successor Depositary for the Securities is not appointed by the Company
within 90 days after the Company receives such notice or becomes aware of such
ineligibility, the Company will execute, and the Trustee, upon receipt of a
Company Order for the authentication and delivery of individual Securities, will
authenticate and deliver, individual Securities in an aggregate principal amount
equal to the principal amount of the Global Security or Securities representing
the Securities in exchange for such Global Security or Securities.
The Company may at any time and in its sole discretion determine that
individual Securities issued in the form of one or more Global Securities shall
no longer be represented by such Global Security or Securities. In such event,
or if an Event of Default has occurred and is continuing, the Company will
execute, and the Trustee, upon receipt of a Company Order for the authentication
and delivery of individual Securities, will authenticate and deliver, individual
Securities in an aggregate principal amount equal to the principal amount of the
Global Security or Securities representing the Securities in exchange for such
Global Security or Securities.
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<PAGE>
The Depositary for the Securities may surrender a Global Security in
exchange in whole or in part for individual Securities on such terms as are
acceptable to the Company and such Depositary. Thereupon, the Company shall
execute, and the Trustee shall authenticate and deliver, without service charge,
(i) to each Person specified by the Depositary a new individual
Security or Securities of any authorized denomination as requested by such
Person in aggregate principal amount equal to and in exchange for such
Person's beneficial interest in the Global Security; and
(ii) to the Depositary a new Global Security in a denomination equal
to the difference, if any, between the principal amount of the surrendered
Global Security and the aggregate principal amount of individual Securities
delivered to Holders thereof.
Upon the exchange of a Global Security for individual Securities, such
Global Security shall be canceled by the Trustee. Individual Securities issued
in exchange for a Global Security pursuant to this Section shall be registered
in such names and in such authorized denominations as the Depositary for such
Global Security, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The Trustee shall
deliver such Securities to the Persons in whose names such Securities are so
registered.
(c) All Securities issued upon any registration of transfer or
exchange of Securities shall be the valid obligations of the Company, evidencing
the same debt, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities except as provided in Section 306. The Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer or
exchange of Securities, other than exchanges pursuant to Section 304 or 906 not
involving any transfer.
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<PAGE>
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
------------------------------------------------
If any mutilated Security is surrendered to the Trustee, the Company
shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any Security
and (ii) such security or indemnity as may be required by them to save each of
them and any agent of either of them harmless, then, in the absence of notice to
the Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and the Trustee shall authenticate and
deliver, in lieu of any such destroyed, lost or stolen Security, a new Security
of like tenor and principal amount and bearing a number not contemporaneously
outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including, without limitation, the fees and expenses of the Trustee)
connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest, Interest Rights Preserved.
----------------------------------------------
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest. At the
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<PAGE>
option of the Company, interest on the Securities may be paid by mailing checks
to the addresses of the Holders thereof as such addresses shall appear in the
Securities Register if such Securities are not represented by a Global Security
and interest on any Global Security may be paid by wire transfer of immediately
available funds to an account designated by the Depositary.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Holder on the
relevant Regular Record Date by virtue of having been such Holder, and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing as
to the amount of Defaulted Interest proposed to be paid on each Security
and the date of the proposed payment, and at the same time the Company
shall deposit with the Trustee an amount of money equal to the aggregate
amount proposed to be paid in respect of such Defaulted Interest or shall
make arrangements satisfactory to the Trustee for such deposit prior to the
date of the proposed payment, such money when deposited to be held in trust
for the benefit of the Persons entitled to such Defaulted Interest as in
this Clause provided. Thereupon the Trustee shall fix a Special Record
Date for the payment of such Defaulted Interest which shall be not more
than 15 days and not less than 10 days prior to the date of the proposed
payment and not less than 10 days after the receipt by the Trustee of the
notice of the proposed payment. The Trustee shall promptly notify the
Company of such Special Record Date and, in the name and at the expense of
the Company, shall cause notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor to be mailed, first-class
postage prepaid, to each Holder at his address as it appears in the
Security Register, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor having been so mailed, such Defaulted Interest shall
be paid to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on such
Special Record Date and shall no longer be payable pursuant to the
following Clause (2).
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<PAGE>
(2) The Company may make payment of any Defaulted Interest on the
Securities in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities may be
listed, and upon such notice as may be required by such exchange, if, after
notice given by the Company to the Trustee of the proposed payment pursuant
to this Clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 308. Persons Deemed Owners.
---------------------
Prior to due presentment of a Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name such Security is registered as the owner of such
Security for the purpose of receiving payment of principal of and (subject to
Section 307) interest on such Security and for all other purposes whatsoever,
whether or not such Security be overdue, and neither the Company, the Trustee
nor any agent of the Company or the Trustee shall be affected by notice to the
contrary.
SECTION 309. Cancellation.
------------
All Securities surrendered for payment or registration of transfer or
exchange shall, if surrendered to any Person other than the Trustee, be
delivered to the Trustee and shall be promptly canceled by it. The Company may
at any time deliver to the Trustee for cancellation any Securities previously
authenticated and delivered hereunder which the Company may have acquired in any
manner whatsoever, and may deliver to the Trustee (or to any other Person for
delivery to the Trustee) for cancellation any Securities previously
authenticated hereunder which the Company has not issued and sold and all
Securities so delivered shall be promptly canceled by the Trustee. No
Securities shall be authenticated in lieu of or in exchange for any Securities
canceled as provided in this Section, except as expressly permitted by this
Indenture. All canceled Securities held by the Trustee shall be disposed of as
directed by a Company Order.
SECTION 310. Computation of Interest.
-----------------------
Interest on the Securities shall be computed on the basis of a 360 day
year of twelve 30-day months.
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<PAGE>
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
---------------------------------------
This Indenture shall upon Company Request cease to be of further
effect (except as to any surviving rights of registration of transfer or
exchange of Securities herein expressly provided for), and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered (other than
(i) Securities which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 306 and (ii) Securities for
whose payment money has theretofore been deposited in trust or segregated
and held in trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in Section 1003) have been
delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within
one year,
and the Company, in the case of (i) or (ii) above, has deposited or caused
to be deposited with the Trustee as trust funds in trust for the purpose an
amount sufficient to pay and discharge the entire indebtedness on such
Securities not theretofore delivered to the Trustee for cancellation for
principal and interest to the date of such deposit (in the case of
Securities which have become due and payable) or to the Stated Maturity, as
the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
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<PAGE>
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607, the obligations of
the Trustee to any Authenticating Agent under Section 614 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
--------------------------
Subject to the provisions of the last paragraph of Section 1003, all
moneys and U.S. Government Obligations (as defined below) deposited with the
Trustee pursuant to Section 401 or 403 shall be held in trust and applied by it,
in accordance with the provisions of the Securities and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Persons
entitled thereto, of the principal and interest for whose payment such money has
been deposited with the Trustee.
SECTION 403. Defeasance Upon Deposit of
Moneys or Government Obligations.
--------------------------------
At the Company's option, either (a) the Company shall be deemed to
have been Discharged (as defined below) from its obligations in respect of the
Securities on the 123rd day after the applicable conditions set forth below have
been satisfied or (b) the Company shall cease to be under any obligation to
comply with any provision or condition set forth in Sections 801, 802, 1004 and
1005 and noncompliance with any such Section shall not result in a default in
the performance, or breach, of any covenant of the Company under this Indenture
at any time after the applicable conditions set forth below have been satisfied:
(1) the Company shall have deposited or caused to be deposited with
the Trustee or its agent as trust funds in trust, specifically pledged as
security for, and dedicated solely to, the benefit of the Holders: (i)
money in an amount, or (ii) U.S. Government Obligations which through the
payment of interest and principal in respect thereof in accordance with
their terms will provide, not later than the due date of any payment, money
in an amount, or (iii) a combination of (i) and (ii), sufficient, in the
opinion (with respect to (ii) and (iii)) of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay and discharge each installment of
principal of, and interest on, the Outstanding Securities on the dates such
installments of interest or principal are due;
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<PAGE>
(2) if the Securities are then listed on the New York Stock Exchange,
the Company shall have delivered to the Trustee an Opinion of Counsel to
the effect that the Company's exercise of the option under this Section 403
would not cause the Securities to be delisted;
(3) no Event of Default or event which with notice or lapse of time or
both would become an Event of Default shall have occurred and be continuing
on the date of such deposit;
(4) the Company shall have delivered to the Trustee an Opinion of
Counsel, which opinion and counsel are reasonably satisfactory to the
Trustee and its counsel, to the effect that Holders will not recognize
income, gain or loss for Federal income tax purposes as a result of the
Company's exercise of the option under this Section 403 and will be subject
to Federal income tax on the same amounts and in the same manner and at the
same times as would have been the case if such option had not been
exercised, and, in the case of Securities being Discharged, either a
private letter ruling to that effect received from the United States
Internal Revenue Service or a revenue ruling pertaining to a comparable
form of transaction to that effect published by the United States Internal
Revenue Service or evidence of a change in applicable Federal income tax
law occurring after the date of this Indenture; and
(5) if the Company is to be Discharged, no Event of Default or event
which with notice or lapse of time or both would become an Event of Default
under Section 501(5) or (6) with respect to the Securities shall have
occurred and be continuing at any time during the period ending on the
123rd day after the date of such deposit.
"Discharged" means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by, and obligations under, the
Securities and to have satisfied all the obligations under this Indenture
relating to the Securities (and the Trustee, at the expense of the Company,
shall execute proper instruments acknowledging the same), except (A) the rights
of Holders of Securities to receive, from the trust fund described in
subparagraph (1) above, payment of the principal of and interest on the
Securities when such payments are due; (B) the Company's obligations with
respect to the Securities under Sections 305, 306, 1002 and 1003; and (C) the
rights, powers, trusts, duties and immunities of the Trustee hereunder.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
- 28 -
<PAGE>
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which in either case under
clause (i) or (ii) are not callable or redeemable at the option of the issuer
thereof, and shall also include a depository receipt issued by a bank or trust
company as custodian with respect to any such U.S. Government Obligation or a
specific payment of interest on or principal of any such U.S. Government
Obligation held by such custodian for the account of the holder of a depository
receipt; provided, that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
U.S. Government Obligation or the specific payment of interest on or principal
of the U.S. Government Obligation evidenced by such depository receipt.
Section 404. Repayment to Company.
--------------------
The Trustee and any Paying Agent shall promptly pay or return to the
Company upon Company Request any moneys or U.S. Government Obligations held by
them at any time that are not required for the payment of the principal of and
interest on the Securities for which money or U.S. Government Obligations have
been deposited pursuant to Section 403.
The provisions of the last paragraph of Section 1003 shall apply to
any money held by the Trustee or any Paying Agent under this Article that
remains unclaimed for two years after the Maturity of the Securities for which
money or U.S. Government Obligations have been deposited pursuant to Section
403.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
-----------------
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(1) default in the payment of any interest upon any Security when it
becomes due and payable, and continuance of such default for a period of 30
days; or
(2) default in the payment of the principal of any Security at its
Maturity; or
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<PAGE>
(3) default in the performance, or breach, of any covenant of the
Company in this Indenture (other than a default in performance or breach of
a covenant which is elsewhere in this Section specifically dealt with), and
continuance of such default or breach for a period of 60 days after there
has been given, by registered or certified mail, to the Company by the
Trustee or to the Company and the Trustee by the Holders of at least 25% in
principal amount of the Outstanding Securities a written notice specifying
such default or breach and requiring it to be remedied and stating that
such notice is a "Notice of Default" hereunder; or
(4) default under any bond, debenture, note or other evidence of
indebtedness for money borrowed by the Company or any Restricted Subsidiary
in an aggregate principal amount of at least $10,000,000 or under any
mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any indebtedness for money borrowed
by the Company or any Restricted Subsidiary in an aggregate principal
amount of at least $10,000,000, whether such indebtedness now exists or
shall hereafter be created, which default shall constitute a failure to pay
any portion of the principal of such indebtedness when due and payable
after the expiration of any applicable grace period with respect thereto or
shall have resulted in such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise have become due and
payable, without such indebtedness having been discharged, or such
acceleration having been rescinded or annulled, within a period of 30 days
after there has been given, by registered or certified mail, to the Company
by the Trustee or to the Company and the Trustee by the Holders of at least
25% in principal amount of the Outstanding Securities a written notice
specifying such default and requiring the Company to cause such
indebtedness to be discharged or cause such acceleration to be rescinded or
annulled and stating that such notice is a "Notice of Default" hereunder;
provided, however, that, subject to the provisions of Sections 601 and 602,
the Trustee shall not be deemed to have knowledge of such default unless
either (A) a Responsible Officer of the Trustee shall have actual knowledge
of such default or (B) the Trustee shall have received written notice
thereof from the Company, from any Holder, from the holder of any such
indebtedness or from the trustee under any such mortgage, indenture or
other instrument; or
(5) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company in an involuntary case
or proceeding under any applicable Federal or state bankruptcy, insolvency,
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<PAGE>
reorganization or other similar law or (B) a decree or order adjudging the
Company a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in
respect of the Company under any applicable Federal or state law, or
appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or of any substantial
part of its property, or ordering the winding up or liquidation of its
affairs, and the continuance of any such decree or order for relief or any
such other decree or order unstayed and in effect for a period of 90
consecutive days; or
(6) the commencement by the Company of a voluntary case or proceeding
under any applicable Federal or state bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to
be adjudicated a bankrupt or insolvent, or the consent by it to the entry
of a decree or order for relief in respect of the Company in an involuntary
case or proceeding under any applicable Federal or state bankruptcy,
insolvency, reorganization or other similar law or to the commencement of
any bankruptcy or insolvency case or proceeding against it, or the filing
by it of a petition or answer or consent seeking reorganization or relief
under any applicable Federal or state law, or the consent by it to the
filing of such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or of any substantial part of its property,
or the making by it of an assignment for the benefit of creditors, or the
admission by it in writing of its inability to pay its debts generally as
they become due, or the taking of corporate action by the Company in
furtherance of any such action.
To the extent applicable, upon receipt by the Trustee of any Notice of
Default executed by a Holder pursuant to this Section 501, a record date shall
automatically and without any other action by any Person be set for the purpose
of determining the Holders of Outstanding Securities entitled to join in such
Notice of Default, which record date shall be the close of business on the day
the Trustee receives such Notice of Default. The Holders of Outstanding
Securities on such record date (or their duly appointed agents), and only such
Persons, shall be entitled to join in such Notice of Default, whether or not
such Holders remain Holders after such record date; provided, that unless such
Notice of Default shall have become effective by virtue of Holders of the
requisite principal amount of Outstanding Securities on such record date (or
their duly appointed agents) having joined therein on or prior to the 90th day
after such record date, such Notice of Default shall
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automatically and without any action by any Person be canceled and of no further
force or effect.
SECTION 502. Acceleration of Maturity;
Rescission and Annulment.
------------------------
If an Event of Default occurs and is continuing, then in every such
case the Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities may declare the principal amount of (and all accrued and
unpaid interest on) all the Securities to be due and payable immediately, by a
notice in writing to the Company (and to the Trustee if given by Holders), and
upon any such declaration such principal amount and interest shall become
immediately due and payable. Upon payment of all such amounts (including
interest accruing through the date of payment), all obligations of the Company
in respect of the Securities shall terminate.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in principal amount of the Outstanding Securities, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest on all Securities,
(B) the principal of any Securities which have become due
otherwise than by such declaration of acceleration and interest
thereon at the rate prescribed therefor in the Securities, and
(C) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(2) all Events of Default, other than the nonpayment of the principal
of and interest on the Securities which has become due solely by such
declaration of acceleration, have been cured or waived as provided in
Section 513.
No such rescission and waiver shall affect any subsequent default or impair any
right consequent thereon.
Upon receipt by the Trustee of any declaration of acceleration, or any
rescission and annulment of any such acceleration, pursuant to this Section 502,
a record date shall
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automatically and without any other action by any Person be set for the purpose
of determining the Holders of Outstanding Securities entitled to join in such
declaration, or rescission and annulment, as the case may be, which record date
shall be the close of business on the day the Trustee receives such declaration,
or rescission and annulment, as the case may be. The Holders of Outstanding
Securities on such record date (or their duly appointed agents), and only such
Persons, shall be entitled to join in such declaration, or rescission and
annulment, as the case may be, whether or not such Holders remain Holders after
such record date; provided, that unless such declaration, or rescission and
annulment, as the case may be, shall have become effective by virtue of Holders
of the requisite principal amount of Outstanding Securities on such record date
(or their duly appointed agents) having joined therein on or prior to the 90th
day after such record date, such declaration. or rescission and annulment, as
the case may be, shall automatically and without any action by any Person be
canceled and of no further force or effect.
SECTION 503. Collection of Indebtedness and
Suits for Enforcement by Trustee.
--------------------------------
The Company covenants that if
(1) default is made in the payment of any interest on any Security
when such interest becomes due and payable and such default continues for a
period of 30 days, or
(2) default is made in the payment of the principal of any Security at
the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal and interest and, to the extent that payment of such
interest shall be legally enforceable, interest on any overdue principal at the
rate prescribed therefor in the Securities, and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
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SECTION 504. Trustee May File Proofs of Claim.
--------------------------------
In case of any judicial proceeding relative to the Company or any
other obligor upon the Securities or the property of the Company or of such
other obligor or their creditors, the Trustee shall be entitled and empowered,
by intervention in such proceeding or otherwise, to take any and all actions
authorized under the Trust Indenture Act in order to have the claims of the
Trustee and the Holders allowed in any such proceeding. In particular, the
Trustee shall be authorized to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same; and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.
No provision of this Indenture shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims
Without Possession of Securities.
--------------------------------
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name,
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 506. Application of Money Collected.
------------------------------
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal or interest,
upon presentation of the Securities and the notation thereon of the payment if
only partially paid and upon surrender thereof if fully paid:
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FIRST: To the payment of all amounts due the Trustee under Section
607; and
SECOND: To the payment of the amounts then due and unpaid for
principal of and interest on the Securities in respect of which or for the
benefit of which such money has been collected, ratably, without preference
or priority of any kind, according to the amounts due and payable on such
Securities for principal and interest, respectively.
SECTION 507. Limitation on Suits.
-------------------
No Holder of any Security shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatsoever by virtue of, or by availing of, any provision of
this Indenture (including without limitation the provisions of Section 512) to
affect, disturb or prejudice the rights of any other Holders or to obtain or to
seek to obtain priority or preference over any other Holders or to enforce any
right under this Indenture, except in the manner herein provided and for the
equal and ratable benefit of all of the Holders.
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<PAGE>
SECTION 508. Unconditional Right of Holders
to Receive Principal and Interest.
---------------------------------
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of and (subject to Section 307) interest on
such Security on the Stated Maturity or Maturities expressed in such Security
and to institute suit for the enforcement of any such payment, and such rights
shall not be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in Section 306, no
right or remedy herein conferred upon or reserved to the Trustee or to the
Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
----------------------------
No delay or omission of the Trustee or of any Holder of any Security
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
any acquiescence therein. Every right and remedy given by this Article or by
law to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
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<PAGE>
SECTION 512. Control by Holders.
------------------
The Holders of a majority in principal amount of the Outstanding
Securities shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee; provided, that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture;
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction; and
(3) subject to the provisions of Section 601, the Trustee shall have
the right to decline to follow any such direction if the Trustee in good
faith shall, by Responsible Officer or Officers of the Trustee, determine
that the action so directed would involve the Trustee in personal liability
for which it has not been adequately indemnified or would be unduly
prejudicial to Holders not joining in such direction.
Upon receipt by the Trustee of any such direction, pursuant to this
Section 512, a record date shall automatically and without any other action by
any Person be set for the purpose of determining the Holders of Outstanding
Securities entitled to join in such direction, which record date shall be the
close of business on the day the Trustee receives such direction. The Holders
of Outstanding Securities on such record date (or their duly appointed agents),
and only such Persons, shall be entitled to join in such direction, whether or
not such Holders remain Holders after such record date; provided, that unless
such direction shall have become effective by virtue of Holders of the requisite
principal amount of Outstanding Securities on such record date (or their duly
appointed agents) having joined therein on or prior to the 90th day after such
record date, such direction shall automatically and without any action by any
Person be canceled and of no further force or effect.
SECTION 513. Waiver of Defaults.
------------------
The Holders of not less than a majority in principal amount of the
Outstanding Securities may on behalf of the Holders of all the Securities waive
any default hereunder and its consequences, except a default
(1) in the payment of the principal of or interest on any Security, or
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(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 514. Undertaking for Costs.
---------------------
In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit to
file an undertaking to pay the costs of such suit, and may assess costs against
any such party litigant, in the manner and to the extent provided in the Trust
Indenture Act; provided, that neither this Section nor the Trust Indenture Act
shall be deemed to authorize any court to require such an undertaking or to make
such an assessment in any suit instituted by the Company, the Trustee or the
Holders of 10% or more in principal amount of the Outstanding Securities.
SECTION 515. Waiver of Stay or Extension Laws.
--------------------------------
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities.
-----------------------------------
The duties and responsibilities of the Trustee shall be as provided by
the Trust Indenture Act. Notwithstanding the foregoing, no provision of this
Indenture shall require the Trustee to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of
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<PAGE>
such funds or adequate indemnity against such risk or liability is not
reasonably assured to it. Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the liability
of or affording protection to the Trustee shall be subject to the provisions of
this Section.
SECTION 602. Notice of Defaults.
------------------
The Trustee shall give the Holders notice of any default hereunder as
and to the extent provided by the Trust Indenture Act; provided, however, that
in the case of any default of the character specified in Section 501(3), no such
notice to Holders shall be given until at least 30 days after the occurrence
thereof. For the purpose of this Section, the term "default" means any event
which is, or after notice or lapse of time or both would become, an Event of
Default.
SECTION 603. Certain Rights of Trustee.
-------------------------
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors shall be sufficiently evidenced by a
Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad
faith on its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders
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<PAGE>
pursuant to this Indenture, unless such Holders shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request
or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder;
(h) the Trustee shall not be liable for any losses on investments;
(i) the Trustee shall not be liable for any error or judgment made in
good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
(j) the Trustee shall not be liable with respect to any action taken,
suffered or omitted to be taken by it in good faith in accordance with the
direction of the Holders of a majority in principal amount of the
Outstanding Securities relating to the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising any
trust or power conferred upon the Trustee, under this Indenture with
respect to the Securities; and
(k) in the event that the Trustee is also acting as Paying Agent,
Authenticating Agent or Security Registrar hereunder, the rights and
protections afforded to the Trustee pursuant to this Article Six shall also
be afforded to it as such Paying Agent, Authenticating Agent or Security
Registrar.
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<PAGE>
SECTION 604. Not Responsible for Recitals
or Issuance of Securities.
-------------------------
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee or any Authenticating Agent assumes no
responsibility for their correctness. The Trustee makes no representations as
to the validity or sufficiency of this Indenture or of the Securities. The
Trustee or any Authenticating Agent shall not be accountable for the use or
application by the Company of Securities or the proceeds thereof.
SECTION 605. May Hold Securities.
-------------------
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
608 and 613, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Authenticating Agent, Paying Agent, Security
Registrar or such other agent.
SECTION 606. Money Held in Trust.
-------------------
Money held by the Trustee or any Paying Agent (except the Company) in
trust hereunder need not be segregated from other funds except to the extent
required by law. The Trustee or any Paying Agent shall be under no liability
for interest on any money received by it hereunder except as otherwise agreed
with the Company.
SECTION 607. Compensation and Reimbursement.
------------------------------
The Company agrees
(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder as may be mutually agreed upon in
writing by the Company and the Trustee (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except to the extent any such
expense, disbursement or advance may be attributable to its negligence or
bad faith; and
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<PAGE>
(3) to indemnify the Trustee and its directors, officers and employees
for, and to hold each of them harmless against, any loss, liability or
expense incurred without negligence or bad faith on its, his or her part,
arising out of or in connection with the acceptance or administration of
this trust, including the costs and expenses of defending itself, himself
or herself against any claim or liability in connection with the exercise
or performance of any of the Trustee's powers or duties hereunder.
As security for the performance of the obligations of the Company
under this Section the Trustee shall have a lien prior to the Securities upon
all property and funds held or collected by the Trustee as such, except funds
held in trust for the payment of principal of or interest on particular
Securities.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 501, the expenses (including the
reasonable fees and expenses of its counsel) and the compensation for the
services are intended to constitute expenses of administration under any
applicable bankruptcy, insolvency or other similar law.
The obligations of the Company set forth in this Section 607 and any
lien arising hereunder shall survive the resignation or removal of any Trustee,
the discharge of the Company's obligations pursuant to Article Four, the
termination of this Indenture and the repayment of the Securities whether at
Stated Maturity or otherwise.
SECTION 608. Disqualification; Conflicting Interests.
---------------------------------------
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
SECTION 609. Corporate Trustee Required; Eligibility.
---------------------------------------
There shall at all times be a Trustee hereunder which shall be a
Person that is eligible pursuant to the Trust Indenture Act to act as such,
having a combined capital and surplus of at least $100,000,000 and an office or
agency in New York, New York at which its corporate trust business is
administered. If such Person publishes reports of condition at least annually,
pursuant to law or to the requirements of a Federal or state supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such Person shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so
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<PAGE>
published. If at any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section, it shall resign immediately in the manner
and with the effect hereinafter specified in this Article.
SECTION 610. Resignation and Removal; Appointment of Successor.
-------------------------------------------------
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 611.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If the instrument of acceptance by a successor Trustee
shall not have been delivered to the resigning Trustee within 30 days after the
giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Securities delivered to the
Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 after written
request therefor by the Company or by any Holder who has been a bona fide
Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609 and shall
fail to resign after written request therefor by the Company or by any such
Holder, or
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
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<PAGE>
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee and
such successor Trustee shall comply with the applicable requirements of Section
611. If, within one year after such resignation, removal or incapability, or
the occurrence of such vacancy, a successor Trustee shall be appointed by Act of
the Holders of a majority in principal amount of the Outstanding Securities
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment in accordance
with the applicable requirements of Section 611, become the successor Trustee
and supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders and accepted
appointment in the manner required by Section 611, any Holder who has been a
bona fide Holder of a Security for at least six months may, on behalf of himself
and all others similarly situated, petition any court of competent jurisdiction
for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to all Holders of
Securities in the manner provided in Section 106. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 611. Acceptance of Appointment by Successor.
--------------------------------------
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on the request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. All moneys due and owing to a retiring Trustee
shall be paid by the Company upon resignation or removal of the retiring
Trustee. Upon request of any such successor Trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and confirming
to such successor Trustee all such rights, powers and trusts. No successor
Trustee shall accept its appointment unless at the time of such acceptance such
successor Trustee shall be qualified and eligible under this Article.
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<PAGE>
SECTION 612. Merger, Conversion, Consolidation
or Succession to Business.
-------------------------
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder; provided, that
such corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
SECTION 613. Preferential Collection of Claims Against Company.
-------------------------------------------------
If and when the Trustee shall be or become a creditor of the Company
(or any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
SECTION 614. Authenticating Agents.
---------------------
The Trustee may appoint an Authenticating Agent or Agents which shall
be authorized to act on behalf of the Trustee to authenticate Securities issued
upon exchange, registration of transfer or pursuant to Section 306, and
Securities so authenticated shall be entitled to the benefits of this Indenture
and shall be valid and obligatory for all purposes as if authenticated by the
Trustee hereunder. Wherever reference is made in this Indenture to the
authentication and delivery of Securities by the Trustee or the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent
and a certificate of authentication executed on behalf of the Trustee by an
Authenticating Agent. Any such Authenticating Agent shall be acceptable to the
Company and shall at all times be a corporation organized and doing business
under the laws of the United States of America, any state thereof or the
District of Columbia, authorized under such laws to act as Authenticating Agent,
having a combined capital and surplus of at least $50,000,000 and subject to
supervision or examination by Federal, state or District of Columbia authority.
If such Authenticating Agent publishes reports of its condition at least
annually, pursuant to law or the requirements of said supervising
- 45 -
<PAGE>
or examining authority, then for the purposes of this Section, the combined
capital and surplus of such Authenticating Agent shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time an Authenticating Agent shall cease to be eligible
to act as such in accordance with the provisions of this Section, such
Authenticating Agent shall resign immediately in the manner and with the effect
specified in this Section.
Any corporation into which any Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which any Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of any Authenticating Agent, shall continue to be
Authenticating Agent hereunder; provided, that such successor corporation shall
be otherwise eligible under this Section, without the execution or filing of any
paper or any further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written
notice of resignation to the Trustee and to the Company. The Trustee may at any
time terminate the agency of any Authenticating Agent by giving written notice
of termination to such Authenticating Agent and to the Company. Upon receiving
such a notice of resignation or upon such a termination, or in case at any time
any Authenticating Agent shall cease to be eligible to act as such in accordance
with the provisions of this Section, the Trustee may appoint a successor
Authenticating Agent which shall be acceptable to the Company and shall mail
notice of such appointment by first-class mail, postage prepaid, to all Holders
as their names and addresses appear in the Security Register. Any successor
Authenticating Agent upon acceptance of its appointment under this Section shall
become vested with all the rights, powers, duties and obligations of its
predecessor hereunder, with like effect as if initially named as an
Authenticating Agent. No successor Authenticating Agent shall be appointed
unless eligible to act as such in accordance with the provisions of this
Section.
Any Authenticating Agent by the acceptance of its appointment shall be
deemed to have represented to the Trustee that it is eligible for appointment as
Authenticating Agent under this Section and to have agreed with the Trustee
that: it will perform and carry out the duties of an Authenticating Agent as
herein set forth, including among other things the duties to authenticate
Securities when presented to it in connection with exchanges, registrations of
transfer thereof or pursuant to Section 306; it will keep and maintain, and
furnish to the Trustee from time to time as requested by the Trustee,
appropriate records of all transactions carried out by it as
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Authenticating Agent and will furnish the Trustee such other information and
reports as the Trustee may reasonably require; and it will notify the Trustee
promptly if it shall cease to be eligible to act as Authenticating Agent in
accordance with the provisions of this Section. Any Authenticating Agent by the
acceptance of its appointment shall be deemed to have agreed with the Trustee to
indemnify the Trustee against any loss, liability or expense incurred by the
Trustee and to defend any claim asserted against the Trustee by reason of any
acts or failures to act of such Authenticating Agent, but such Authenticating
Agent shall have no liability for any action taken by it in accordance with the
specific written direction of the Trustee.
The Trustee agrees to pay to each Authenticating Agent from time to
time reasonable compensation and expenses for its services under this Section,
and the Trustee shall be entitled to be reimbursed for such payments, subject to
the provisions of Section 607.
If an appointment is made pursuant to this Section, the Securities may
have endorsed thereon, in addition to the Trustee's certification of
authentication, an alternative certificate of authentication in the following
form:
This is one of the Securities designated in the within-mentioned
Indenture.
The Chase Manhattan Bank
(National Association),
As Trustee
By..........................
As Authenticating Agent
By..........................
Authorized Officer
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee
Names and Addresses of Holders.
------------------------------
The Company will furnish or cause to be furnished to the Trustee:
(a) semi-annually, not later than June 15 and December 15 in each
year, a list, in such form as the Trustee may
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reasonably require, of the names and addresses of the Holders as of the
immediately preceding June 1 or December 1, and
(b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of similar
form and content, such list to be dated as of a date not more than 15 days prior
to the time such list is furnished;
notwithstanding the foregoing, so long as the Trustee is the Security Registrar,
no such list shall be required to be furnished.
SECTION 702. Preservation of Information;
Communications to Holders.
-------------------------
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities, and the
corresponding rights and duties of the Trustee, shall be as provided by the
Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
nor any agent of either of them shall be held accountable by reason of any
disclosure of information as to names and addresses of Holders made pursuant to
the Trust Indenture Act.
SECTION 703. Reports by Trustee.
------------------
(a) The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act at the times and in the manner provided pursuant thereto.
(b) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Trustee with each stock exchange upon which the
Securities are listed, with the Commission and with the Company. The Company
will notify the Trustee when the Securities are listed on any stock exchange.
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SECTION 704. Reports by Company.
------------------
The Company shall file with the Trustee and the Commission, and
transmit to Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided pursuant to such Act; provided, that any such
information, documents or reports required to be filed with the Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, shall be filed with the Trustee within 15 days after the same is so
required to be filed with the Commission.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc.,
Only on Certain Terms.
---------------------
The Company shall not consolidate with or merge into any other Person
or convey, transfer or lease its properties and assets substantially as an
entirety to any Person and the Company shall not permit any Person to
consolidate with or merge into the Company, unless:
(1) in case the Company shall consolidate with or merge into another
Person or convey, transfer or lease its properties and assets substantially
as an entirety to any Person, the Person formed by such consolidation or
into which the Company is merged or the Person which acquires by conveyance
or transfer, or which leases, the properties and assets of the Company
substantially as an entirety shall be a corporation, partnership or trust,
shall be organized and validly existing under the laws of the United States
of America, any state thereof or the District of Columbia and shall
expressly assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form satisfactory to the Trustee, the due and
punctual payment of the principal of and interest on all the Securities and
the performance or observance of every covenant of this Indenture on the
part of the Company to be performed or observed;
(2) immediately after giving effect to such transaction and treating
any indebtedness which is an obligation of the successor Person or becomes
an obligation of the Company or a Subsidiary as a result of such
transaction as having been incurred by the Company or such Subsidiary at
the time of such transaction, no Event of Default, and no event which,
after notice or lapse of time
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or both, would become an Event of Default, shall have happened and be
continuing;
(3) if, as a result of any such consolidation or merger or such
conveyance, transfer or lease, properties or assets of the Company would
become subject to a Lien which would not be permitted by this Indenture,
the Company or such successor Person, as the case may be, shall take such
steps as shall be necessary effectively to secure the Securities equally
and ratably with (or prior to) all indebtedness secured thereby; and
(4) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and, if a supplemental
indenture is required in connection with the transaction, such supplemental
indenture comply with this Article and that all conditions precedent herein
provided for relating to such transaction have been complied with.
SECTION 802. Successor Substituted.
---------------------
Upon any consolidation of the Company with, or merger by the Company
into, any other Person or any conveyance, transfer or lease of the properties
and assets of the Company substantially as an entirety in accordance with
Section 801, the successor Person formed by such consolidation or into which the
Company is merged or to which such conveyance, transfer or lease is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Indenture with the same effect as if such successor
Person had been named as the Company herein, and thereafter, except in the case
of a lease, the predecessor Person (if still in existence) shall be relieved of
all obligations and covenants under this Indenture and the Securities.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures
Without Consent of Holders.
--------------------------
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
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(1) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company herein
and in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the
Company; or
(3) to add any additional Event of Default; or
(4) to add to or change any of the provisions of this Indenture to
such extent as shall be necessary to permit or facilitate the issuance of
Securities in bearer form, registrable or not registrable as to principal,
and with or without interest coupons, or to permit or facilitate the
issuance of Securities in uncertificated form; or
(5) to secure the Securities pursuant to the requirements of Section
1004 or 1005 or otherwise; or
(6) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities; or
(7) to cure any ambiguity, to correct or supplement any provision
herein which may be defective or inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture; provided, that such action pursuant
to this clause (7) shall not adversely affect the interests of the Holders
of Outstanding Securities in any material respect.
SECTION 902. Supplemental Indentures With Consent of Holders.
-----------------------------------------------
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities, by Act of said Holders delivered
to the Company and the Trustee, the Company, when authorized by a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or any interest
on, any Security, or reduce the principal amount thereof or the rate of
interest thereon, or change the place of payment where, or the coin or
currency in which, any Security or interest thereon is payable, or
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impair the right to institute suit for the enforcement of any such payment
on or after the Stated Maturity thereof; or
(2) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences provided for in this Indenture;
or
(3) modify any of the provisions of this Section or Section 513 or
Section 1008, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Security affected
thereby; provided, however, that this clause shall not be deemed to require
the consent of any Holder with respect to changes in the references to "the
Trustee" and concomitant changes in this Section and Section 1008, or the
deletion of this proviso, in accordance with the requirements of Section
901(6).
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
------------------------------------
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Officer's Certificate and an Opinion of Counsel stating that the execution of
such supplemental indenture is authorized or permitted by this Indenture. The
Trustee may, but shall not be obligated to, enter into any such supplemental
indenture which adversely affects the Trustee's own rights, duties, immunities
or liabilities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
---------------------------------
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
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<PAGE>
SECTION 905. Conformity With Trust Indenture Act.
-----------------------------------
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act.
SECTION 906. Reference in Securities
to Supplemental Indentures.
--------------------------
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
SECTION 907. Notice of Supplemental Indenture.
--------------------------------
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to Section 902, the Company shall transmit to
the Holders a notice setting forth the substance of such supplemental indenture.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal and Interest.
---------------------------------
The Company will duly and punctually pay the principal of and interest
on the Securities in accordance with the terms of the Securities and this
Indenture.
SECTION 1002. Maintenance of Office or Agency.
-------------------------------
The Company will maintain in New York, New York an office or agency
where Securities may be presented or surrendered for payment, where Securities
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Company will give prompt written notice to the
Trustee of the location, and of any change in the location, of such office or
agency. If at any time the Company shall fail to maintain such required office
or agency or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Company hereby
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appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in New
York, New York for such purposes. The Company will give prompt written notice
to the Trustee of any such designation or rescission and of any change in the
location of any such other office or agency.
Section 1003. Money for Payments to be Held in Trust.
--------------------------------------
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of or interest on any of the
Securities, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal or interest so becoming due until
such sums shall be paid to such Persons or otherwise disposed of as herein
provided, and will promptly notify the Trustee of its action or failure so to
act.
Whenever the Company shall have one or more Paying Agents, it will,
prior to each due date of the principal of or interest on any Securities,
deposit with any such Paying Agent a sum sufficient to pay the principal or
interest so becoming due, such sum to be held as provided by the Trust Indenture
Act, and (unless such Paying Agent is the Trustee) the Company will promptly
notify the Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) comply with the provisions of the Trust Indenture Act applicable
to it as a Paying Agent and hold all sums held by it for the payment of
principal of or interest on the Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided; and
(2) at any time during the continuance of any default by the Company
(or any other obligor upon the Securities) in the making of any payment in
respect of the Securities, upon the written request of the Trustee,
forthwith pay to the Trustee all sums so held in trust by such Paying Agent
for payment in respect of the Securities.
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<PAGE>
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of or interest on any
Security and remaining unclaimed for two years after such principal or interest
has become due and payable shall be paid to the Company on Company Request, or
(if then held by the Company) shall be discharged from such trust; and the
Holder of such Security shall thereafter, as an unsecured general creditor, look
only to the Company for payment thereof, and all liability of the Trustee or
such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Company cause to be published once, in a newspaper of
general circulation in The City of New York, Borough of Manhattan, printed in
the English language and customarily published on each Business Day, whether or
not published on Saturdays, Sundays or holidays, notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such publication, any unclaimed balance of such money
then remaining will be repaid to the Company.
SECTION 1004. Limitation on Liens.
-------------------
(a) Except as otherwise provided in clauses (1) through (8) below or
in subsection (b) of this Section, the Company shall not, and shall not permit
any Restricted Subsidiary to, issue, assume or guarantee any Debt secured by a
Lien upon any Principal Property of the Company or of any Restricted Subsidiary
or upon any shares of stock or Debt issued by any Restricted Subsidiary (whether
such Principal Property, shares of stock or Debt are now owned or hereafter
acquired) without in any such case effectively providing concurrently with the
issuance, assumption or guaranty of any such Debt that the Securities (together
with, if the Company shall so determine, any other indebtedness of or guaranty
by the Company or such Restricted Subsidiary then existing or thereafter created
which is not subordinated to the Securities) shall be secured equally and
ratably with (or, at the option of the Company, prior to) such Debt, so long as
such Debt shall be so secured; provided, however, that nothing in this Section
1004 shall prevent,
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<PAGE>
restrict or apply to (and there shall be excluded from secured Debt in any
computation under this Section 1004) Debt secured by:
(1) Liens on property of, or shares of stock or Debt issued by, any
Subsidiary existing at the time it becomes a Restricted Subsidiary;
provided, that such Lien shall not have been incurred in connection with
the transfer by the Company or a Restricted Subsidiary of a Principal
Property to such Subsidiary unless the Company, within 180 days of the
effective date of such transfer, applies or causes a Restricted Subsidiary
to apply an amount equal to the fair value, as determined by the Board of
Directors, of such Principal Property at the time of such transfer, to the
retirement of Securities or other Debt of the Company (other than Debt
subordinated to the Securities), or Debt of any Restricted Subsidiary
(other than Debt owed to the Company or any Restricted Subsidiary), having
a stated maturity (i) more than 12 months from the date of such application
or (ii) which is extendable at the option of the obligor thereon to a date
more than 12 months from the date of such application;
(2) Liens on any property, shares of stock or Debt existing at the
time of acquisition thereof (including acquisition through merger or
consolidation) or securing the payment of all or any part of the purchase
price or construction cost thereof or securing any Debt incurred prior to,
at the time of, or within 180 days after, the acquisition of such property,
shares of stock or Debt or the completion of any such construction,
whichever is later, for the purpose of financing all or any part of the
purchase price or construction cost thereof;
(3) Liens on any property to secure all or any part of the cost of
development, construction, alteration, repair or improvement of all or any
part of such property, or to secure Debt incurred prior to, at the time of,
or within 180 days after, the completion of such development, construction,
alteration, repair or improvement, whichever is later, for the purpose of
financing all or any part of such cost;
(4) Liens which secure Debt owing by a Restricted Subsidiary to the
Company or to another Restricted Subsidiary or by the Company to a
Restricted Subsidiary so long as the Debt is held by the Company or a
Restricted Subsidiary;
(5) Liens securing indebtedness of a corporation or other Person which
becomes a successor of the Company in accordance with the provisions of
Article Eight other than Debt incurred by such corporation or other Person
in
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connection with a consolidation, merger or sale of assets in accordance
with such Article;
(6) Liens on property of the Company or a Restricted Subsidiary in
favor of the United States of America or any state thereof, or any
department, agency or instrumentality or political subdivision of the
United States of America or any state thereof, or in favor of any other
country or any political subdivision thereof, to secure partial, progress,
advance or other payments pursuant to any contract or statute or to secure
any indebtedness incurred or guaranteed for the purpose of financing all or
any part of the purchase price or the cost of construction, alteration,
repair or improvement of the property subject to such Liens (including but
not limited to Liens incurred in connection with pollution control,
industrial revenue or similar financing), or in favor of any trustee or
mortgagee for the benefit of holders of indebtedness of any such entity
incurred for any such purpose;
(7) Liens existing at December 15, 1995 including Liens to the extent
such Liens attach to property acquired after such date pursuant to the
terms of the instrument creating such Liens as in effect on such date; and
(8) any extension, renewal or replacement (or successive extensions,
renewals or replacements), in whole or in part, of any Lien referred to in
the foregoing clauses (1) to (7), inclusive, or of any Debt secured
thereby; provided, that such extension, renewal or replacement Lien shall
be limited to all or any part of the same property that secured the Lien
extended, renewed or replaced (plus any improvements and construction on
such property) and shall secure no larger amount of Debt than that which
had been so secured at the time of such extension, renewal or replacement
and, in the case of clause (iv), that the Debt being secured thereby is
being secured for the same type of Person as the Debt being replaced.
(b) Notwithstanding the foregoing provisions of this Section 1004, the
Company and any one or more Restricted Subsidiaries may issue, assume or
guarantee Debt secured by a Lien which would otherwise be subject to the
foregoing restrictions if at the time it does so (the "Incurrence Time") the
aggregate amount of such Debt plus all other Debt of the Company and its
Restricted Subsidiaries secured by Liens which would otherwise be subject to the
foregoing restrictions after giving effect to the retirement of any Debt which
is currently being retired (not including Debt permitted to be secured under
clauses (1) through (8) above), plus the aggregate Attributable Debt (determined
as of the Incurrence Time) of Sale and Leaseback Transactions (other than Sale
and Leaseback Transactions
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<PAGE>
permitted by Subsections (a) and (b) of Section 1005) entered into after
December 15, 1995 and in existence at the Incurrence Time (less the aggregate
amount of proceeds of such Sale and Leaseback Transactions which shall have been
applied in accordance with Subsection (c) of Section 1005), does not exceed 10%
of Consolidated Net Tangible Assets.
SECTION 1005. Limitation on Sale and Leaseback Transactions.
---------------------------------------------
The Company shall not itself, and shall not permit any Restricted
Subsidiary to, enter into any arrangements after December 15, 1995 with any
bank, insurance company or other lender or investor (other than the Company or
another Restricted Subsidiary) providing for the leasing as lessee by the
Company or by any such Restricted Subsidiary of any Principal Property (except a
lease for a temporary period not to exceed three years by the end of which it is
intended the use of such Principal Property by the lessee will be discontinued
and a lease which secures or relates to industrial revenue or pollution control
bonds or similar financing), which was or is owned by the Company or a
Restricted Subsidiary and which has been or is to be sold or transferred by the
Company or a Restricted Subsidiary, more than 180 days after the completion of
construction and commencement of full operation thereof by the Company or such
Restricted Subsidiary, to such lender or investor or to any Person to whom funds
have been or are to be advanced by such lender or investor on the security of
such Principal Property (herein called a "Sale and Leaseback Transaction")
unless:
(a) the Company or such Restricted Subsidiary would (at the time of
entering into such arrangement) be entitled pursuant to clauses (1) through
(8) of Subsection (a) of Section 1004, without equally and ratably securing
the Securities, to issue, assume or guarantee Debt secured by a Lien on
such Principal Property in the amount of Attributable Debt arising from
such Sale and Leaseback Transaction; or
(b) the Attributable Debt of the Company and its Restricted
Subsidiaries in respect of such Sale and Leaseback Transaction and all
other Sale and Leaseback Transactions entered into after December 15, 1995
(other than such Sale and Leaseback Transactions as are permitted by
subsection (a) or (c) of this Section 1005), plus the aggregate principal
amount of Debt secured by Liens on Principal Properties then outstanding
(not including any such Debt secured by Liens described in clauses (1)
through (8) of subsection (a) of Section 1004) which do not equally and
ratably secure the Securities, would not exceed 10% of Consolidated Net
Tangible Assets; or
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(c) the Company, within 180 days after the sale or transfer, applies
or causes a Restricted Subsidiary to apply an amount equal to the greater
of the net proceeds of such sale or transfer or the fair value, as
determined by the Board of Directors, of the Principal Property so sold and
leased back at the time of entering into such Sale and Leaseback
Transaction to the retirement of Securities or other Debt of the Company
(other than Debt subordinated to the Securities), or Debt of any Restricted
Subsidiary (other than Debt owed to the Company or any Restricted
Subsidiary), having a stated maturity (i) more than 12 months from the date
of such application or (ii) which is extendable at the option of the
obligor thereon to a date more than 12 months from the date of such
application; provided, that the amount to be so applied shall be reduced by
(x) the principal amount of Securities delivered to the Trustee for
retirement and cancellation within 180 days after such sale or transfer,
and (y) the principal amount of any such Debt of the Company or a
Restricted Subsidiary other than Securities voluntarily retired by the
Company or a Restricted Subsidiary within 180 days after such sale or
transfer. Notwithstanding the foregoing, no retirement referred to in this
subdivision (c) may be effected by payment at Maturity.
Notwithstanding the foregoing, where the Company or any Restricted Subsidiary is
the lessee in any Sale and Leaseback Transaction, Attributable Debt shall not
include any Debt resulting from the guarantee by the Company or any other
Restricted Subsidiary of the lessee's obligation thereunder.
SECTION 1006. Existence.
---------
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights (charter and statutory) and franchises; provided, however, that the
Company shall not be required to preserve any such right or franchise if the
Board or Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 1007. Statement as to Compliance.
--------------------------
The Company will deliver to the Trustee, within 120 days after the end
of each fiscal year of the Company ending after the date hereof, an Officer's
Certificate stating whether or not to the best knowledge of the signers thereof
the Company is in default in the performance and observance of any of the
provisions and conditions of this Indenture and, if the Company shall be in
default, specifying all such defaults and the nature and status thereof of which
they may have knowledge.
- 59 -
<PAGE>
SECTION 1008. Waiver of Certain Covenants.
---------------------------
The Company may omit in any particular instance to comply with any
provision or condition set forth in Sections 1004 and 1005, if before the time
for such compliance the Holders of at least a majority in principal amount of
the Outstanding Securities shall, by Act of such Holders, either waive such
compliance in such instance or generally waive compliance with such provision or
condition, but no such waiver shall extend to or affect such provision or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company and the duties of the Trustee
in respect of any such provision or condition shall remain in full force and
effect.
- 60 -
<PAGE>
* * *
This instrument may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
ATTEST: ALLEGHENY LUDLUM CORPORATION
/s/ J. D. Walton By: /s/ James L. Murdy
- ---------------------------- --------------------------
Name: Jon D. Walton Name: James L. Murdy
Title: Vice President--General Title: Senior Vice Presient--Finance
Counsel and Secretary and Chief Financial Officer
(Corporate Seal)
ATTEST: THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
AS TRUSTEE
/s/ Gemmel Richards By: /s/ J. D. Heaney
- ---------------------------- --------------------------
Name: Gemmel Richards Name: J. D. Heaney
Title: Assistant Secretary Title: Vice President
(Corporate Seal)
- 61 -
<PAGE>
ACKNOWLEDGMENTS
THE COMMONWEALTH OF PENNSYLVANIA)
)
COUNTY OF ALLEGHENY )
BEFORE ME, the undersigned authority, on this day personally appeared,
James L. Murdy, the Senior Vice President--Finance and Chief Financial Officer
- -------------- ----------------------------------------------------------
of ALLEGHENY LUDLUM CORPORATION, known to me to be the person whose name is
subscribed to the above and foregoing instrument of writing, and acknowledged to
me that he executed the same for the purposes and consideration therein
expressed, in the capacity therein stated, and as the act and deed of said
corporation; and, being by me duly sworn, did depose and say that he resides at
Upper St. Clair, Pennsylvania, that he is the Senior Vice President--Finance
- ----------------------------- ------------------------------
and Chief Financial Officer of said corporation, that he knows the seal of
- ---------------------------
said corporation, that the seal affixed to said instrument is such corporate
seal, that it was so affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like authority.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 18th day of
----
December 1995.
- --------
/s/ Mary Beth Luksik
----------------------------
My commission expires on:
Notarial Seal
Mary Beth Luksik, Notary Public
Pittsburgh, Allegheny County
My Commission Expires June 8, 1998
- 62 -
<PAGE>
THE STATE OF NEW YORK)
)
COUNTY OF KINGS )
BEFORE ME, the undersigned authority, on this day personally appeared
J. D. HEANEY, the Vice President of THE CHASE MANHATTAN BANK (NATIONAL
- ------------ --------------
ASSOCIATION), known to me to be the person whose name is subscribed to the above
and foregoing instrument of writing, and acknowledged to me that he executed the
same for the purposes and consideration therein expressed, in the capacity
therein stated, and as the act and deed of said corporation; and, being by me
duly sworn, did depose and say that he resides at Langhorne, PA 19047, that he
-------------------
is a Vice President of said corporation, that he knows the seal of said
--------------
corporation, that the seal affixed to said instrument is such corporate seal,
that it was so affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like authority.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 19th day of December
---- --------
1995.
/s/ Margaret M. Price
----------------------------
Notary Public in and for
My commission expires on:
Margaret M. Price
Notary Public, State of New York
No. 24-4980599
Qualified in Kings County
Commission Expires April 22, 1997
- 63 -
<PAGE>
Exhibit 10(f)
ALLEGHENY LUDLUM CORPORATION
1987 STOCK OPTION INCENTIVE PLAN
--------------------------------
(Amended and Restated)
Article I. Purposes of the Plan
The purposes of the Allegheny Ludlum Corporation 1987 Stock Option
Incentive Plan are to promote the growth and profitability of Allegheny Ludlum
Corporation, to provide key employees of Allegheny Ludlum Corporation and of any
corporation the majority of the voting stock of which is owned by Allegheny
Ludlum Corporation with an incentive to achieve long-term corporate objectives,
to attract and retain key employees of outstanding competence and to provide key
employees with an opportunity to acquire an equity interest in Allegheny Ludlum
Corporation.
Article II. Definitions
As used herein, the following terms shall have the meanings set forth:
2.01 "Award" shall mean the grant of a Stock Option and/or a Stock
Appreciation Right under the Plan.
2.02 "Award Agreement" shall mean the agreement between the Optionee
and the Company evidencing the grant of Stock Options and/or Stock Appreciation
Rights under the Plan, which Award Agreement shall contain such terms,
conditions and restrictions as the Committee may deem advisable; provided,
however, Award Agreements entered into at different times or with different
Optionees need not contain similar provisions.
2.03 "Board" shall mean the Board of Directors of the Company.
2.04 "CEO" shall mean the Chief Executive Officer of the Company.
2.05 "Committee" shall mean the Personnel and Compensation Committee
of the Board, subject to the provisions of Section 3.4(a) hereof.
2.06 "Common Stock" shall mean common stock, $0.10 par value per
share, of the Company.
2.07 "Company" shall mean Allegheny Ludlum Corporation.
<PAGE>
2.08 "Eligible Participants" shall mean (i) those officers and key
employees of the Company, or of any corporation the majority of the voting stock
of which is owned by the Company, designated by the Board in accordance with the
procedures set forth in Article III hereof as eligible to receive an Award under
the Plan, and (ii) subject to the following sentence, all Executive Officers of
the Company. Directors of the Company who are not otherwise officers or
employees of the Company and Directors who are members of the Committee may not
be designated as Eligible Participants.
2.09 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
2.10 "Executive Officer" shall mean an "officer" of the Company as
defined in Rule 16a-1(f) as promulgated by the Securities and Exchange
Commission under the Exchange Act, as such Rule may be amended from time to
time.
2.11 "Fair Market Value" shall mean the fair market value of shares
of Common Stock, as determined by the Committee in its discretion. The
Committee may change from time to time any method or formula by which it
determines Fair Market Value.
2.12 "Optionee" shall mean an Eligible Participant who has received a
grant of Stock Options and/or Stock Appreciation Rights under the Plan.
Whenever the word "Optionee" is used in any provision of the Plan in
circumstances where the provision should logically be construed to apply to
executors, administrators or the person or persons to whom the Stock Options
and/or Stock Appreciation Rights may be transferred by will or the laws of
descent or distribution, the word "Optionee" shall be deemed to include such
executors, administrators or person or persons.
2.13 "Option Period" shall mean the period or periods beginning on
the date on which a Stock Option or Stock Appreciation Right is granted and
ending on the last day on which such Stock Option or Stock Appreciation Right
may be exercised by an Optionee, as determined by the Committee upon
recommendation of the CEO and as set forth in the Award Agreement; provided,
however, no Option Period may extend beyond the tenth anniversary of the date of
granting the related Stock Option or Stock Appreciation Right.
2.14 "Option Price" shall mean (i) with respect to Stock Options, the
price at which a share of Common Stock may be purchased pursuant to Stock
Options granted under the Plan upon exercise thereof, and (ii) with respect to
Stock Appreciation Rights, the price at which a Stock Appreciation Right may be
exercised, as such Option Price may be adjusted from time to time in accordance
with the provisions of Article V and Section 9.8 hereof and the terms of the
Award Agreement.
- 2 -
<PAGE>
2.15 "Plan" shall mean the Allegheny Ludlum Corporation 1987 Stock
Option Incentive Plan, as amended from time to time pursuant to Section 9.10
hereof.
2.16 "Rule 16b-3" shall mean Rule 16b-3 as promulgated by the
Securities and Exchange Commission under the Exchange Act, as in effect prior to
May 1, 1991 until the Committee elects otherwise and thereafter as such Rule may
be amended from time to time.
2.17 "Stock Appreciation Right" shall mean a right which upon
exercise shall entitle the Optionee to receive for each share of Common Stock
subject to such Stock Appreciation Right the excess, if any, of the Fair Market
Value of a share of Common Stock as of the date of such exercise over the Option
Price.
2.18 "Stock Option" shall mean the right and option of an Optionee to
purchase the aggregate number of shares of Common Stock as is set forth in the
Award Agreement.
2.19 "Termination Date" shall mean the date upon which this Plan
terminates, which shall be January 1, 1997.
Article III. Operation of the Plan
3.1 Designation of Eligible Participants
------------------------------------
(a) Designation by Board
The Board, upon recommendation made in accordance with Section 3.1(b)
hereof, shall determine and designate those officers and key employees of the
Company or of any corporation the majority of the voting stock of which is owned
by the Company, in addition to the Executive Officers, who shall be eligible to
participate in the Plan. The Board shall make such determination and
designation only from those individuals, job classifications or other
descriptions of officers and key employees recommended to the Board in
accordance with Section 3.1(b) hereof.
(b) Procedure for Recommendation to the Board
(i) Recommendation by CEO
Any and all recommendations concerning eligibility to participate in
the Plan shall be initiated by the CEO. The CEO may, at such times and from
time to time as he may determine in his discretion, recommend to the Committee
those officers and key employees, by naming such individuals, by describing job
classifications or otherwise describing the persons or classes of
- 3 -
<PAGE>
employees, whom the CEO in his discretion considers to be officers or key
employees eligible to participate in the Plan. The CEO may, from time to time,
as he may determine in his discretion, recommend the addition of such
individuals, job classifications or other descriptions of employees to those
previously designated as Eligible Participants or the deletion of Eligible
Participants from those previously designated as eligible to participate.
(ii) Review by Committee
The Committee shall review each recommendation of the CEO as soon as
practicable after presentation of such recommendation by the CEO. Upon such
review, the Committee shall recommend to the Board those individuals, job
classifications or other descriptions of employees from among those recommended
by the CEO which the Committee, in its discretion, considers to be officers or
key employees eligible to participate in the Plan.
(c) Designation of Eligibility Does Not Require Grant of Options
Designation of an officer or key employee as an Eligible Participant
shall not require the CEO to recommend the grant of an Award or the Committee to
grant an Award to such Eligible Participant, either upon initial designation or
from time to time thereafter.
3.2 Grant of Stock Options and/or Stock Appreciation
------------------------------------------------
Rights
------
(a) Grant by Committee
The Committee, upon recommendation made in accordance with Section
3.2(b) hereof, may grant Stock Options and/or Stock Appreciation Rights under
the Plan to any Eligible Participant recommended to receive an Award whether or
not such Eligible Participant has previously received an Award under the Plan,
in respect to an amount of shares and subject to such restrictions as the
Committee may deem appropriate, in its discretion but only upon the
recommendation of the CEO in accordance with Section 3.2(b) hereof.
(b) Procedure for Recommendation
Any and all recommendations concerning the grant of an Award under the
Plan, including but not limited to the identity of the Eligible Participant, the
form of the Award and the number of shares subject to Stock Options or Stock
Appreciation Rights in an Award granted to an Eligible Participant, shall be
initiated by the CEO. The CEO may, at such times and from time to time as he
may determine, recommend to the
- 4 -
<PAGE>
Committee the identity of the Eligible Participant(s) to whom an Award should be
granted together with (i) the number of shares subject to Stock Options and/or
Stock Appreciation Rights to be granted to each Eligible Participant so
recommended, (ii) the respective Option Periods applicable thereto and (iii) any
restrictions or other terms and conditions applicable to Stock Options and/or
Stock Appreciation Rights. The Committee shall review each recommendation of
the CEO as soon as practicable after presentation of such recommendation by the
CEO.
(c) General
The CEO, in recommending, and the Committee, in granting, such Awards
and determining their form and amount, shall give consideration to the functions
and responsibilities of the Eligible Participant, his or her contributions to
profitability and sound growth of the Company and such other factors as the CEO
and the Committee, as the case may be, may deem appropriate. An Optionee, upon
receipt of a grant of an Award, shall state his or her good faith intention to
continue as an employee of the Company for such period (but not less than six
months) from the date of the grant of the Award as shall be provided in the
Award Agreement, subject to the right of the Company to terminate the employment
of the Optionee at any time. No Award may be granted to an Eligible Participant
within six months of the Eligible Participant's expected retirement date. No
Stock Option or Stock Appreciation Right may be granted under the Plan after
December 31, 1996, or such earlier date as may be determined by the Board.
3.3 Vesting of Stock Options and/or Stock Appreciation
--------------------------------------------------
Rights
------
Stock Options and Stock Appreciation Rights granted under the Plan
shall not be immediately exercisable but shall become exercisable in accordance
with a vesting schedule set forth in the Award Agreement evidencing such grant.
Except as permitted by the Committee upon recommendation of the CEO, no Award
Agreement may set forth a vesting schedule which provides for vesting more rapid
than the rate of one third of the number of shares subject to such Award
Agreement on each of the third, fourth and fifth anniversaries of the grant of
such Award. Stock Options and Stock Appreciation Rights, to the extent vested
under the schedule set forth in the Award Agreement, shall be separately
exercisable in whole or in part.
3.4 General Administration
----------------------
(a) The Plan shall be administered by the Committee. A person who is
not a disinterested person for the purposes of Rule 16b-3 or, effective as of
the 1995 annual meeting of shareholders, who is not an "outside director" for
the
- 5 -
<PAGE>
purposes of Section 162(m) of the Internal Revenue Code of 1986 and the
regulations promulgated thereunder, shall not be a member of the Committee, and
shall not participate in the administration of the Plan, for any purpose
relating to any Executive Officer participant or participants in the Plan. Such
disqualification shall be effective immediately prior to the occurrence of any
event or circumstance that causes the person to lose the status of disinterested
person or outside director, as the case may be.
(b) The Committee shall have the authority in its sole discretion
from time to time: (i) upon recommendation of the CEO, to grant Awards provided
for in the Plan; (ii) to prescribe such limitations, restrictions and conditions
upon any such Stock Options and/or Stock Appreciation Rights as the Committee,
upon recommendation of the CEO, shall deem appropriate; and (iii) to interpret
the Plan, to adopt, amend and rescind rules and regulations relating to the
Plan, and to make all other determinations and to take all other actions
necessary or advisable for the implementation and administration of the Plan. A
majority of the Committee shall constitute a quorum, and the action of a
majority of members of the Committee present at any meeting at which a quorum is
present, or acts unanimously adopted in writing without the holding of a
meeting, shall be the acts of the Committee.
(c) All such actions of the Committee shall be final, conclusive and
binding upon Eligible Participants and Optionees. No member of the Committee
shall be liable for any action taken or decision made in good faith relating to
the Plan or any grant hereunder.
Article IV. Aggregate Limitation on Shares Subject to Plan
Shares of Common Stock which may be issued pursuant to Stock Options
or Stock Appreciation Rights granted under the Plan may be either authorized and
unissued shares or authorized and issued shares of Common Stock held by the
Company as treasury shares. The number of shares of Common Stock reserved for
issuance under the Plan shall not exceed 2,700,000 shares, as adjusted to
reflect the 3-for-2 stock split effective July 2, 1990 and the 2-for-1 stock
split effective July 1, 1993, subject to further adjustment pursuant to Section
9.8 hereof; provided, however, if any Stock Option or Stock Appreciation Right
shall expire or be cancelled prior to its exercise in full for any reason, the
shares subject to such Stock Option or Stock Appreciation Right shall be
thereafter available under the Plan.
- 6 -
<PAGE>
Article V. Option Price
5.1 Option Price on Date of Grant
-----------------------------
The Option Price on the date of grant of Stock Options or Stock
Appreciation Right under the Plan shall be determined by the Committee upon
recommendation of the CEO and shall be an amount not less than the Fair Market
Value of a share of Common Stock at the time such Stock Option or Stock
Appreciation Right is granted.
5.2 Adjustments to Option Price
---------------------------
In addition to the adjustments provided in Section 9.8, upon
recommendation by the CEO the Committee may grant Stock Options and/or Stock
Appreciation Rights which provide that the Option Price on the date of exercise
shall be determined by subtracting from the Option Price on the date of grant,
as determined under Section 5.1 and set forth in the Award Agreement, a
percentage of the excess, if any, of (i) the Fair Market Value of a share of
Common Stock as of the date of exercise over (ii) the Option Price on the date
of grant, provided, however, that in no event may the Option Price, as adjusted,
be less than $1.00.
Article VI. Option Periods; Rights Upon Retirement, Death or
Disability
6.1 Option Period
-------------
Each Award Agreement shall state the period or periods within which a
Stock Option or Stock Appreciation Right may, to the extent then vested, be
exercised or surrendered by the Optionee, in whole or in part, which period
shall be as determined by the Committee upon recommendation of the CEO;
provided, however, except as otherwise determined by the Committee upon
recommendation of the CEO, each Option Period shall cease upon termination of an
Optionee's employment with the Company. Except as so determined by the
Committee upon recommendation of the CEO, an Optionee may not exercise a Stock
Option or Stock Appreciation Right, in whole or in part, after such termination
of employment.
6.2 Rights in the Event of Retirement
---------------------------------
Notwithstanding Section 6.1 hereof, if an Optionee retires with the
consent of the Company without having fully exercised or surrendered the then
vested portion of a Stock Option or Stock Appreciation Right, no additional
shares shall vest after the date of such retirement unless otherwise provided by
the Committee but the Optionee shall have the right to
- 7 -
<PAGE>
exercise the outstanding and then exercisable portion of such Stock Option
and/or Stock Appreciation Rights, or to surrender the outstanding and then
exercisable portion of such Stock Option and/or Stock Appreciation Right
pursuant to Article VII hereof at any time prior to the earlier of (i) the end
of the Option Period set forth in the Award Agreement or (ii) the third
anniversary of the date of such retirement.
6.3 Rights in the Event of Death or Disability
------------------------------------------
Notwithstanding Section 6.1 hereof, if an Optionee dies or becomes
disabled without having fully exercised or surrendered the then vested portion
of a Stock Option and/or Stock Appreciation Right, no additional shares shall
vest after the date of such death or disability unless otherwise provided by the
Committee but the Optionee and the executors, administrators, legatees or
distributees of the Optionee shall have the right, to the extent of their
respective custody and control, to exercise the outstanding and then exercisable
portion of such Stock Option and/or Stock Appreciation Right, or to surrender
the outstanding and then exercisable portion of the Stock Option and/or Stock
Appreciation Right, pursuant to Article VII hereof, at any time prior to the
earlier of (i) the end of the Option Period set forth in the Award Agreement or
(ii) the third anniversary of the date of death or disability. Disability shall
mean full, permanent disability as determined by the Committee. The date of
disability shall be determined by the Committee.
Article VII. Surrender of Options and Stock Appreciation Rights
In addition to the rights to surrender Stock Options and/or Stock
Appreciation Rights, to the extent then exercisable, as provided in Section 6.2
hereof and Section 6.3 hereof, the Committee may authorize, upon such conditions
and restrictions as it deems advisable, the surrender, to the extent then
exercisable, of the right to exercise a Stock Option and/or Stock Appreciation
Right, or any portion thereof, and the payment by the Company in exchange
therefor of an amount, after withholding for taxes as provided in Section 8.4
hereof, equal to the excess of the Fair Market Value of the shares of Common
Stock covered by the Stock Option and/or Stock Appreciation Right, or portion
thereof, surrendered over the aggregate Option Price of such shares. Such
payment may be made in shares of Common Stock valued at Fair Market Value or in
cash or partly in cash and partly in shares of Common Stock, as the Committee
deems advisable. The shares of Common Stock covered by any Stock Option or
Stock Appreciation Right, or portion of either, as to which the right to
exercise shall have been so surrendered shall not again be available for
purposes of the Plan. Any shares of Common Stock delivered upon any such
surrender may be authorized unissued or reacquired Common Stock and shall not be
charged
- 8 -
<PAGE>
against the number of shares of Common Stock available for grant of Stock
Options under the Plan.
Article VIII. Manner of Exercise, Payment of Purchase Price and
Withholding
8.1 Exercise of Options
-------------------
A Stock Option may be exercised by an Optionee from time to time, in
whole or in part, independent of any Stock Appreciation Right to the extent then
exercisable by delivering an irrevocable written notice to the Committee of his
or her intent to exercise the Stock Option with respect to a specified number of
shares. The specified number of shares will be issued and transferred to the
Optionee upon receipt by the Committee of (i) such notice and (ii) payment,
including applicable taxes, for such shares.
8.2 Payment of Purchase Price
-------------------------
The purchase price of the shares for which a Stock Option may be
exercised shall be paid to the Company, prior to the delivery of the shares
being purchased in the form of, at the discretion of the Optionee, (i) cash,
(ii) whole shares of Common Stock already owned by the Optionee, valued at their
Fair Market Value as of the day immediately preceding the date of exercise or
(iii) a combination of cash and Common Stock equal in value to the purchase
price.
8.3 Exercise of Stock Appreciation Rights
-------------------------------------
A Stock Appreciation Right may be exercised independently of any Stock
Option by an Optionee from time to time, in whole or in part, to the extent then
exercisable by delivering written notice to the Committee of his or her intent
to exercise the Stock Appreciation Right with respect to a specified number of
shares. Upon exercise of a Stock Appreciation Right, the amount realized by the
Optionee may be payable, in the discretion of the Committee, in the form of
shares of Common Stock valued at their then Fair Market Value or cash or a
combination of Common Stock and cash. The amount of cash or number of shares
payable upon exercise of a Stock Appreciation Right, as determined by the
Committee, will be delivered to the Optionee upon receipt of such notice and
receipt of payment for, or withholding of, applicable taxes.
8.4 Withholding
-----------
In each case where an Optionee shall exercise a Stock Option and/or
Stock Appreciation Right, in whole or in part, the Company shall notify the
Optionee of the amount of
- 9 -
<PAGE>
withholding tax, if any, which must be paid under federal, state and local law.
The Company shall, in the discretion of the Company, but with the consent of the
Committee, arrange for payment for such withholding taxes in any one or
combination of the following ways: (i) acceptance of an amount in cash paid by
the Optionee, (ii) deduction of amounts for withholding taxes from Optionee's
regular salary payments, (iii) deduction of amounts for withholding taxes from
amounts of cash payable to Optionee upon exercise, (iv) reduction in the number
of shares to be issued pursuant to such exercise by that number of shares having
a Fair Market Value equal to the amount the Company is required to withhold
and/or (v) acceptance of whole shares of Common Stock already owned by the
Optionee having a Fair Market Value equal to the amount the Company is required
to withhold. If the full amount of the withholding tax is not recovered in the
above manner, the Optionee shall, forthwith upon receipt of notice, remit the
deficiency to the Company. No shares acquired pursuant to exercise of a Stock
Option or Stock Appreciation Right shall be issued or delivered to an Optionee
until all applicable withholding taxes shall have been satisfied in full.
8.5 Delivery of Shares and/or Cash
------------------------------
As soon as practicable after each exercise and upon compliance by an
Optionee with all applicable conditions, the Company will issue and deliver by
mail, or cause delivery by mail to the Optionee at the address specified, the
number of shares of Common Stock and/or the Company's check for the amount of
cash which the Optionee is entitled to receive (subject to reduction for
withholding tax as provided in Section 8.4 hereof) under the provisions of the
Plan and the Award Agreement. Such shares, and any certificates issued to
evidence such shares, shall be registered in the name of the Optionee or such
other person or entity as the Optionee shall specify in writing at the time such
options are exercised.
8.6. Authorization of Other Procedures
---------------------------------
The Committee is authorized to establish procedures in order to
facilitate the sale by an Optionee of a sufficient number of shares of Common
Stock purchased under the Plan to pay the purchase price of such shares and to
facilitate the delivery of shares of Common Stock purchased hereunder.
Article IX. Miscellaneous
9.1 General Restriction
-------------------
Any Award granted under the Plan shall be subject to the requirement
that, if at any time the Committee shall determine that any listing or
registration of the shares of
- 10 -
<PAGE>
Common Stock or any consent or approval of any governmental body, or any other
agreement or consent is necessary or desirable as a condition of the granting of
a Stock Option or issuance of shares of Common Stock or cash in satisfaction of
the exercise of an Award, such grant of a Stock Option or issuance of shares of
Common Stock may not be consummated unless such requirement is satisfied in a
manner acceptable to the Committee.
9.2 Awards to Executive Officers
----------------------------
For the purposes of the Plan, and notwithstanding any provision of the
Plan to the contrary, the selection of Executive Officers to receive Awards, and
decisions concerning the timing, pricing, and amount of Awards to Executive
Officers, shall be made solely by the Committee in its discretion. The
Committee shall receive and review recommendations of the CEO relating to
Executive Officers under the Plan, but shall not be bound by such
recommendations and may initiate action under the Plan with respect to Executive
Officers although not initiated by the CEO.
9.3 Non-Assignability
-----------------
No Stock Option or Stock Appreciation Right granted under the Plan
shall be assignable or transferable by the recipient thereof, except by will or
by the laws of descent and distribution. During the life of the recipient, any
Stock Option or Stock Appreciation Right shall be exercisable only by such
individual. No assignment or transfer of a Stock Option or Stock Appreciation
Right, or of the rights represented thereby, whether voluntary or involuntary,
by operation of law or otherwise (except by will or the laws of descent and
distribution), shall vest in the assignee or transferee any interest or right
herein whatsoever, but immediately upon such assignment or transfer the Stock
Option or Stock Appreciation Right shall terminate and become of no further
effect.
9.4 Investment Representation
-------------------------
Each Award Agreement may provide that the Optionee or recipient shall
deliver to the Committee, upon demand by the Committee, at the time of any
exercise of any Stock Option or Stock Appreciation Right for which the Committee
elects to issue shares of Common Stock a written representation that the shares
to be acquired are to be acquired for investment and not for resale or with a
view to the distribution thereof. Upon such demand, delivery of such
representation prior to delivery of any shares shall be a condition precedent to
the right of the Optionee or such other person to acquire any shares.
- 11 -
<PAGE>
9.5 No Right to Employment
----------------------
Nothing in the Plan or in any agreement entered into pursuant to it
shall confer upon any Optionee or Eligible Participant the right to continue in
the employment of the Company or affect any right which the Company may have to
terminate the employment of such Participant.
9.6 Non-Uniform Determinations
--------------------------
The recommendations of the CEO and the Committee and the
determinations of the Board and the Committee under the Plan (including without
limitation the respective determinations or recommendations of the persons to
receive an Award, the form, amount and timing of such Awards and the terms and
provisions of such Awards) need not be uniform and may be made selectively among
persons who receive, or are eligible to receive, an Award under the Plan,
whether or not such persons are similarly situated.
9.7 No Rights as Shareholders
-------------------------
Recipients of Stock Options and/or Stock Appreciation Rights under the
Plan shall have no rights as shareholders of the Company with respect thereto
unless and until shares of Common Stock are issued to them.
9.8 Adjustments of Stock Options and Stock Appreciation Rights
----------------------------------------------------------
In the event of any change or changes in the outstanding Common Stock
of the Company by reason of any stock dividend, recapitalization,
reorganization, merger, consolidation, split-up, combination or exchange of
shares or any rights offering to purchase a substantial amount of Common Stock
at below Fair Market Value or of any similar change affecting the Common Stock,
any of which takes effect after the first grant of an Award under the Plan, the
Committee may, in its discretion, appropriately adjust the number of shares of
Common Stock which may be issued under the Plan, the number of shares of Common
Stock subject to Stock Options and/or Stock Appreciation Rights theretofore
granted under the Plan, the Option Price of such Stock Options or Stock
Appreciation Rights, and any and all other adjustments deemed appropriate by the
Committee to prevent substantial dilution or enlargement of the rights granted
to an employee in such manner as the Committee shall deem appropriate.
9.9 Options and/or Stock Appreciation Rights Not A Bar
---------------------------------------------------
to Corporate Event
------------------
The existence of the Stock Options and/or Stock Appreciation Rights
granted hereunder shall not affect in any way
- 12 -
<PAGE>
the right or the power of the Company or its shareholders to make or authorize
any or all adjustments, recapitalizations, reorganizations or other changes in
the Company's capital structure or its business, or any merger or consolidation
of the Company, or any issue of bonds, debentures, preferred or prior preference
stocks ahead of or affecting the Common Stock or the rights thereof, or the
dissolution or liquidation of the Company, or any sale or transfer of all or any
part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
9.10 Amendment or Termination of the Plan
------------------------------------
The Board may at any time terminate the Plan or any part thereof and
may from time to time amend the Plan as it may deem advisable; provided,
however, that without shareholder approval, the Board may not (i) increase the
aggregate number of shares of Common Stock which may be issued under the Plan
(other than increases permitted under Paragraph 9.8 hereof), (ii) extend the
term of the Plan, or (iii) extend the period during which Stock Options or Stock
Appreciation Rights may be exercised. The termination or amendment of the Plan
shall not, without the consent of an Optionee, affect such Optionee's rights
under a previous grant of Stock Options or Stock Appreciation Rights.
Article X. Effective Date of the Plan; Contingent Effectiveness
The effective date of the Plan shall be the date upon which the latter
of the following occurs: (i) the closing on an initial public offering by the
Company of shares of Common Stock in a transaction registered under the
Securities Act of 1933 on Form S-1 and (ii) the approval, at a regular or
special meeting, by the shareholders of the Company holding not less than a
majority of the issued and outstanding shares of Common Stock. Notwithstanding
the foregoing, if the Plan shall have been approved by the Board prior to such
shareholder approval, Stock Options and/or Stock Appreciation Rights may be
granted hereunder subject to subsequent shareholder approval. Notwithstanding
approval by the Board and the shareholders, in the event that no such offering
takes place prior to January 1, 1988, the Plan, together with all actions taken
and agreements executed in relation thereto, shall be null and void and without
further effect.
Article XI. Termination of Plan
The Plan shall expire on January 1, 1997.
- 13 -
<PAGE>
Article XII. Rule 16b-3 Compliance.
It is intended that the Plan comply with Rule 16b-3 and that all
interpretations of the Plan relating to Executive Officers shall be consistent
with such Rule and the Exchange Act. In order to maintain compliance with such
Rule and the Exchange Act and to facilitate and promote the conformity of the
transactions of Executive Officer participants under the Plan with such Rule,
the Committee may adopt such rules and policies as it deems advisable,
including, but not limited to, rules and policies restricting the timing of a
surrender of a Stock Option for cash or of an exercise of a Stock Appreciation
Right for cash or of the reduction in the number of shares to be issued pursuant
to the exercise of a Stock Option pursuant to Section 8.4 hereof and elections
with respect thereto.
PAT00462
- 14 -
<PAGE>
Exhibit 13
Management's Discussion and Analysis of Financial
Condition and Results of Operations
FINANCIAL OVERVIEW
1995 was a significant year for strengthening the Company's financial condition:
. Sales revenues reached a new record.
. Strong earnings of $111.9 million were attained.
. Operating cash flow reached $155.0 million.
. New 30-year senior debt in the amount of $150 million was issued at a
fixed interest rate of 6.95%.
. Convertible subordinated debt of $100 million was extinguished prior to
its maturity date, eliminating approximately 7.5% of potential
dilution in common shareholder equity.
. Excess liquidity was used to repurchase 3.8 million shares of common
stock, or 6% of those outstanding, for $75.6 million.
. At December 31, 1995, invested cash plus unused bank credit lines totaled
$170.9 million, providing excellent financial liquidity.
This financial review covers certain developments during the past three years
relating to the results of operations and financial condition of the Company.
RESULTS OF OPERATIONS
Net sales by product line were as follows:
<TABLE>
<CAPTION>
Fiscal Year (dollars in millions) 1995 % 1994 % 1993 %
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stainless Steel $1,223.6 81.9 $ 834.0 77.5 $ 892.3 81.1
Silicon Electrical Steel 147.2 9.9 141.5 13.1 156.0 14.2
Other Specialty Alloys 123.5 8.2 101.4 9.4 51.9 4.7
- -----------------------------------------------------------------------------------------------------------------------
Total Net Sales $1,494.3 100.0 $1,076.9 100.0 $1,100.2 100.0
=======================================================================================================================
</TABLE>
Fiscal Year 1995 compared with Fiscal Year 1994
Net Sales
Net sales dollars increased 39% in 1995, while shipments increased 16% from
490,400 tons in 1994 to 566,500 tons in 1995. The results of the 1995 period
reflected strong market demand for most of the Company's products and were
favorably affected by improved prices, selling price surcharges to cover
increased raw material costs, higher volume and improved product mix. The
results of the 1994 period were adversely affected by the ten-week strike called
by the United Steelworkers of America (USWA) in April 1994.
Stainless steel sales increased 47% in 1995 as a result of increased
shipments, higher prices, surcharges and improved product mix, including reduced
shipments of lower priced commodity stainless steel for automotive exhaust
systems. The increase in sales reflected an increase in demand for stainless
steel products. In addition, the labor strike had an adverse effect on stainless
steel sales in 1994 which was only partially offset by the inclusion of sales of
plate mill plate products from the Washington Plant which was acquired in
November 1993.
Silicon electrical steel sales increased 4% in 1995 but shipments did not
return to pre-strike levels. While prices for most silicon products increased in
1995, silicon sales continued to be depressed due to low demand and increased
imports.
Other specialty alloy sales increased 22% in 1995 due to higher prices,
surcharges and increased shipments of most specialty alloy products.
Export sales increased to $87 million in 1995 compared to $73 million in
1994.
Other Events
The Company has announced price increases of approximately 5% for stainless
sheet, strip and plate effective with shipments on May 6, 1996. Raw material
selling price surcharges continue to apply but the amount of the surcharges has
declined consistent with reductions in raw material prices since the peak levels
of 1995.
Unplanned equipment outages in January 1996 caused the Company to lose
approximately 11 days of production at its hot strip mill and approximately 10
days of production at its continuous caster. While finishing operations and
shipments were not significantly affected by the outages, operating expenses
were adversely affected in the early weeks of the first quarter of 1996.
19 1995 Annual Report
<PAGE>
Cost and Expenses
Cost of products sold includes raw material costs, labor costs, energy costs
(primarily electricity and natural gas), and other operating and support costs
related to the manufacturing process. Cost of products sold as a percentage of
sales decreased 6 percentage points in 1995 compared to 1994. The improvement in
1995 reflects higher sales levels and continued efforts to contain costs. Also,
1994 was adversely affected by the strike which resulted in lower sales without
a corresponding reduction in fixed costs and the further negative cost effect of
the hourly signing bonus under the new labor agreement and the related bonus for
salaried employees.
Raw material costs are the major component of cost of products sold and
include expenditures for carbon and stainless steel scrap, nickel and nickel
alloys, ferrochromium, ferrosilicon, molybdenum and molybdenum alloys, manganese
and manganese alloys and other alloying materials. Raw material costs increased
32% in 1995 compared to 1994 on a per ton shipped basis, primarily due to higher
scrap and nickel, ferrochromium and molybdenum prices, as well as a mix of
higher alloy steels. Raw material costs in 1996 have declined from the peak
levels of 1995.
Labor costs per net ton shipped increased 3% in 1995 compared to 1994
primarily due to contractual increases resulting from the July 1994 labor
contract and a shift in mix to higher cost products. In 1995, a new 4-year labor
contract was signed which covers employees at the Washington Plant. The Company
believes that the economic terms of this contract are comparable to those the
USWA has negotiated with other steel companies.
Energy costs per net ton shipped decreased 3.4% in 1995 compared to 1994
primarily due to lower unit rates for electricity and gas. The lower electricity
rates are attributable to operating efficiencies at the Company's plants and the
lower gas rates resulted from the Company's ability to negotiate favorable
terms.
Depreciation and amortization increased as a result of capital additions.
Research, development and technology costs relate to efforts to develop new
products and product applications, improved or new manufacturing methods,
process improvements, quality assurance methods and cost reductions. The
increase in 1995 reflected higher technical support of manufacturing processes
due to increased production levels and higher expenses for incentive
compensation plans based on Company financial results and common stock values.
The Company believes that its investment in technology, research and development
and technical services, as a percent of annual sales revenue, exceeds the level
of investment by other companies in the steel industry.
Commercial and administrative expenses include salaries and benefits of
sales, executive and other non-manufacturing administrative personnel and
related corporate support expenditures. The increase in 1995 was primarily due
to higher expenses for incentive compensation plans based on Company financial
results and common stock values. The Company's continued control over
spending and realized synergies in the operation of the Washington Plant
partially offset the increase in the 1995 fiscal year.
Operating earnings from assets held for sale are attributable primarily to
two non-specialty steel companies that were acquired in 1993 in connection with
the acquisition of the Washington Plant. The results of these businesses have
been included as a separate line item in the results of the Company's operations
in 1995. These results reflect the Company's successful efforts to improve the
productivity and reduce the costs of these businesses as well as strong market
conditions. See "Financial Condition."
Interest expense - net decreased in 1995 primarily due to increased interest
income earned on higher cash balances in 1995.
The income tax rate of 39.8% for 1995 compares to 44.7% for 1994. The lower
1995 rate reflects a reduction in Pennsylvania's effective tax rate. Also, the
1994 rate temporarily increased as a result of the low earnings caused by the
effects of the strike coupled with the fixed amortization of cost in excess of
net assets acquired which is not tax deductible.
Extraordinary Loss on Early Retirement of Debt resulted from the
extinguishment of $100 million of convertible subordinated debentures prior to
maturity.
Fiscal Year 1994 compared with Fiscal Year 1993
Net Sales
Net sales dollars decreased 2% in 1994, while shipments decreased 5% to 490,400
tons compared to 518,000 tons in 1993. The labor strike called by the USWA
caused the decrease in sales which was partially offset by the inclusion of
sales from the Washington Plant which was acquired in the fourth quarter of
1993. The Washington Plant, which has a separate USWA labor agreement, continued
to produce and ship plate mill plate products during the 1994 strike.
Stainless steel sales decreased 6% in 1994. The decreases caused by the
strike were only partially offset by sales from the Washington Plant. Sales also
benefited from price increases that became effective on September 5, 1994. The
United States domestic stainless steel industry experienced a record performance
in shipments in 1994. Total shipments of U.S. domestic stainless sheet and
strip, the Company's principal product lines, increased approximately 15% to
1,240,000 tons. The Company believes that the record U.S. consumption of
stainless steel sheet, strip and plate products was the principal cause of this
increase.
Allegheny Ludlum Corporation 20
<PAGE>
Silicon electrical steel sales decreased 9% in 1994 as a direct result of the
strike. Over the past four years, silicon sales have declined due to lower
demand and increased imports.
Other specialty alloy sales increased 95% in 1994 due to the inclusion of
tool steels and other alloy sales from the Washington Plant for the full year,
as compared to the inclusion of such sales for only two months in 1993. Other
specialty alloy sales also benefited from price increases that became effective
in the fourth quarter of 1994.
Export sales decreased to $73 million in 1994 from $79 million in 1993. The
sales decline was primarily due to lower shipments caused by the strike and was
partially offset by increased sales of higher priced Precision Rolled Strip/TM/
stainless steel and plate mill plate products.
Cost and Expenses
Cost of products sold as a percentage of sales increased 5 percentage points in
1994 compared to 1993. The increase was primarily caused by raw material price
increases, reduced sales due to the strike and continuing fixed costs, the
expense of the hourly signing bonus resulting from the new labor contract with
the USWA and a bonus for salaried employees.
Raw material costs increased 23% in 1994 compared to 1993 on a per net ton
shipped basis, primarily due to higher scrap and nickel prices.
Labor costs per net ton shipped increased 11% in 1994 compared to 1993
primarily as a result of the hourly signing bonus and contractual increases
resulting from the July 1, 1994 labor contract and a shift in mix to higher cost
products.
Energy costs per net ton shipped increased 4.5% in 1994 compared to
1993 primarily as a result of higher unit prices for electricity.
Depreciation and amortization increased due to capital additions and the
inclusion of the assets of the Washington Plant and a full year's amortization
expense for cost in excess of net assets acquired in the 1993 acquisition.
Research, development and technology costs decreased in 1994 primarily due to
the strike which resulted in lower technical support of manufacturing processes
and lower expense for profit-related compensation plans. The Company's continued
control over spending also contributed to the decrease in the 1994 fiscal year.
Commercial and administrative expenses remained flat in 1994 compared to 1993
as the additional costs of the Washington Plant were offset by lower expense for
profit-related compensation plans and the Company's continued control over
spending during the 1994 fiscal year.
Interest expense-net increased in 1994 as a result of lower interest income
due to lower cash balances available resulting from the use of cash reserves
during the strike.
Loss or gain from the limited partnership investment reflected the recording
of equity valuation decreases or increases for the partnership investment in a
Code, Hennessey & Simmons limited partnership fund. At the end of the first
quarter of 1994, the Company voluntarily contributed an investment in the
limited partnership fund to an irrevocable trust established for the purpose of
partially funding the retiree medical and insurance obligations the Company has
to its employees represented by the USWA. The Company also contributed $5
million in cash and investments it had made in a second limited partnership
fund, in the amount of $5.6 million, to the trust.
Other income-net was particularly significant in 1993 due to the inclusion of
a cash payment the Company received in 1993 in settlement of a lawsuit for
patent infringement against Nippon Steel.
The effective tax rate of 44.7% for 1994 compares to 40.5% for 1993. The
increase was primarily a result of a decrease in the Pennsylvania corporate net
income tax rate and the full year's amortization of cost in excess of net assets
acquired which is not tax deductible. Since the Company has a deferred tax
asset, the change in rate reduced the previously recorded deferred tax benefits
and required the Company to record a one-time charge for additional tax expense
of approximately $1 million in the second quarter of 1994.
Financial Condition
Cash generated from operations of $155.0 million and cash on hand of $11.2
million were used to repurchase $75.6 million of common stock, pay dividends of
$33.9 million, invest $30.9 million in capital equipment and make $2.0 million
in scheduled debt payments. In December 1995, the Company issued $150 million of
6.95% debentures due in 2025. A portion of the proceeds of the offering was used
to extinguish $100 million of 5 7/8% convertible subordinated debentures due in
2002 and pay the related prepayment premium of $4.1 million. The Company ended
the year with a cash balance of $70.9 million.
Working capital of $270.8 million at December 31, 1995 compares to $225.4
million at the end of 1994. The current ratios for 1995 and 1994 were 2.5 and
2.3, respectively. The debt to capitalization ratio was 33% in 1995 compared to
27% in 1994. This change reflects the issuance of the new debentures and the
extinguishment of the old debentures.
In 1995, the Company entered into a new credit agreement with a group of
banks which replaced the Company's 1990 credit agreement. The new credit
agreement provides for unsecured borrowings of up to $100 million on a revolving
credit basis and extends total maturities to three years. The Company believes
that the new credit agreement provides more favorable and more flexible
covenants and conditions than the 1990 agreement.
21 1995 Annual Report
<PAGE>
Capital expenditures for 1996 are expected to approximate $35 million
including $9.3 million for environmental control equipment and facilities. The
Company continues to believe that it will be able to meet the requirements of
applicable environmental law while continuing its commitment to attractive new
capital investments.
In addition to the capital expenditure program, in 1994 the Company committed
to invest $30 million in a second Code, Hennessy and Simmons limited partnership
fund over a five year period. At December 31, 1995, $13.1 million of this
commitment has been invested. All of this investment has been contributed to an
irrevocable trust of the Company established for the purpose of partially
funding certain retiree medical and insurance obligations. Returns from
investments held in this trust are being recorded in accordance with FAS No.
106.
Internally generated funds, the availability of borrowings from existing
credit arrangements and current cash on hand should be adequate to meet
foreseeable needs.
The Company expects its deferred tax assets to be realized in future periods
due to the reversal of other offsetting temporary tax differences and the
favorable profitability outlook.
Assets held for sale include assets net of liabilities and valuation reserves
of Green River Steel Corporation and Reynolds Fasteners, Inc. which were
acquired in 1993 in connection with the acquisition of the Washington Plant.
Since these businesses do not meet the Company's strategic objectives, they have
been held for sale. See "Operating earnings from assets held for sale" on page
20. In the first quarter of 1996 Reynolds Fasteners, Inc. was sold for $25
million in cash and the assumption of debt. The transaction did not have a
significant impact on earnings.
In 1995, the Company decreased the discount rates used in the estimates of
its liabilities related to pensions and postretirement benefits from 8.0% to
7.0%. This change did not affect the cash flow of the Company and is not
expected to have a material effect on operating results.
Other Matters
Although inflationary trends in recent years have been moderate, during the same
period certain critical raw material costs have been volatile. The Company uses
the last-in, first-out method of inventory accounting which reflects current
costs in the cost of products sold. The Company considers these costs, the
increasing costs of equipment and other costs in establishing its sales pricing
policies and has instituted raw material surcharges to the extent permitted by
competitive factors in the marketplace. The Company continues to emphasize cost
containment in all aspects of its business.
Hedging
The Company uses derivative financial instruments from time-to-time to hedge
ordinary business risks regarding foreign currencies on product sales and to
partially hedge against volatile raw material cost fluctuations. The Company
believes that adequate controls are in place to monitor these activities which
are not financially material.
Accounting Pronouncements
FAS No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-
lived Assets to be Disposed of" and FAS No. 123, "Accounting for Stock-based
Compensation" were issued in 1995. The statements are not expected to have a
material impact on the Company. The Company intends to continue to account for
stock-based compensation under Accounting Principles Board Opinion No. 25 as
allowed by FAS No. 123.
Joint Venture
In February 1996, the Company announced the formation of a joint venture company
in the People's Republic of China with Shanghai No. 10 Iron and Steel Works, for
the production and sale of precision rolled stainless steel strip. The Company,
which owns 60% of the joint venture, will provide technology, engineering,
technical and management services. The joint venture company will be known as
Shanghai STAL Precision Stainless Steel Limited Company. The new plant will be
located in Shanghai to produce and sell up to 15,000 metric tonnes of the
Company's Precision Rolled Strip/TM/ products. It is expected to be operational
in late 1997.
Allegheny Ludlum Corporation 22
<PAGE>
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
(In thousands of dollars except per share amounts)
- ---------------------------------------------------------------------------------------------------------------------------
December 31, January 1, January 2,
1995 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $1,494,302 $1,076,871 $1,100,187
Costs and expenses:
Cost of products sold 1,173,374 915,039 877,662
Research, development and technology 46,180 36,545 41,901
Commercial and administrative 55,290 45,752 46,048
Depreciation and amortization 40,525 38,167 30,708
- ---------------------------------------------------------------------------------------------------------------------------
1,315,369 1,035,503 996,319
- ---------------------------------------------------------------------------------------------------------------------------
Income from Steel Operations 178,933 41,368 103,868
Operating earnings from assets held for sale 11,536 _ _
Other income (expense):
Interest expense - net (1,516) (6,003) (2,638)
(Loss) gain from limited partnership _ (2,590) 15,740
Other income - net 1,794 167 1,996
- ---------------------------------------------------------------------------------------------------------------------------
11,814 (8,426) 15,098
- ---------------------------------------------------------------------------------------------------------------------------
Income before Income Taxes and Extraordinary Loss 190,747 32,942 118,966
Income Taxes 75,952 14,730 48,206
- ---------------------------------------------------------------------------------------------------------------------------
Income before Extraordinary Loss 114,795 18,212 70,760
Extraordinary Loss on Early Retirement of Debt,
Net of Income Tax Benefit of $1,950 (2,924) _ _
- ---------------------------------------------------------------------------------------------------------------------------
Net Income $ 111,871 $ 18,212 $ 70,760
- ---------------------------------------------------------------------------------------------------------------------------
Per Common Share:
Income before extraordinary loss $ 1.66 $ .26 $ 1.06
Extraordinary loss (.04) _ _
- ---------------------------------------------------------------------------------------------------------------------------
Net Income $ 1.62 $ .26 $ 1.06
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
23 1995 Annual Report
<PAGE>
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands of dollars)
- ---------------------------------------------------------------------------------------------------------------------------
December 31, January 1,
1995 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 70,913 $ 11,185
Trade receivables, less allowances for doubtful accounts of $3,873 and $3,715 137,016 141,042
Inventories 236,459 232,379
Prepaid expenses and other current assets 9,886 11,035
- ---------------------------------------------------------------------------------------------------------------------------
Total Current Assets 454,274 395,641
Properties, plants and equipment - net 451,623 464,977
Cost in excess of net assets acquired 130,103 133,862
Deferred income taxes 44,670 49,027
Assets held for sale 46,477 37,738
Other assets 17,125 13,453
- ---------------------------------------------------------------------------------------------------------------------------
Total Assets $1,144,272 $1,094,698
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,941 $ 1,993
Accounts payable 93,464 96,417
Accrued compensation and benefits 60,892 46,115
Deferred income taxes 8,962 5,527
Income taxes 3,935 1,596
Other accrued expenses 14,293 18,632
- ---------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 183,487 170,280
Long-term debt, less current portion 181,157 133,097
Pensions 105,699 135,758
Postretirement benefit liability 265,559 267,136
Other 32,922 26,721
- ---------------------------------------------------------------------------------------------------------------------------
Total Liabilities 768,824 732,992
- ---------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity:
Preferred stock, par value $1: authorized--50,000,000 shares; issued--none
Common stock, par value $.10: authorized--250,000,000 shares;
issued--72,878,242 shares (outstanding--67,106,871 and 70,650,571 shares) 7,288 7,288
Additional capital 271,473 270,571
Retained earnings 214,128 136,027
Equity adjustment related to minimum liability for pension plans (14,727) (20,682)
Common stock in treasury at cost--5,771,371 and 2,227,671 shares (102,714) (31,498)
- ---------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 375,448 361,706
- ---------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $1,144,272 $1,094,698
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
Allegheny Ludlum Corporation 24
<PAGE>
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands of dollars)
- ---------------------------------------------------------------------------------------------------------------------------
December 31, January 1, January 2,
Fiscal Year Ended 1995 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 111,871 $ 18,212 $ 70,760
Adjustments to reconcile net income to cash flow from
operating activities:
Depreciation and amortization 40,525 38,167 30,708
Loss (gain) from limited partnership _ 2,590 (15,740)
Deferred taxes 3,485 3,141 (3,143)
Net reinvested earnings of assets held for sale (8,739) _ _
Extraordinary loss on early retirement of debt 2,924 _ _
Change in operating assets and liabilities:
Long-term pension liability (19,330) (13,385) (10,840)
Long-term postretirement liability (1,577) 2,876) 18,236
Deferred employee benefits 6,611 (3,118) 4,185
Trade receivables 4,026 (30,080) 359
Inventories (4,080) 22,385 15,441
Trade payables (2,953) 12,665 1,047
Income taxes payable 3,525 (5,566) (5,191)
Net change in other current assets and current liabilities 19,493 (14,036) (541)
Other changes (738) 7,343 529
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities 155,043 41,194 105,810
Cash flows from investing activities:
Purchases of properties, plants and equipment (30,863) (52,738) (50,446)
Disposals of properties, plants and equipment 1,148 235 242
Sales of short-term investments _ 50,466 21,649
Increase in limited partnership investment _ _ (5,437)
Limited partnership distribution 346 _ 22,822
Increase in notes receivable (1,175) (160) (892)
Payments related to the 1993 acquisition primarily debt payment _ (25,000) (57,800)
- ---------------------------------------------------------------------------------------------------------------------------
Cash Used by Investing Activities (30,544) (27,197) (69,862)
Cash flows from financing activities:
Issuance of debentures 150,000 _ _
Payments on long-term debt (101,992) (6,938) (7,495)
Dividends paid (33,893) (33,993) (31,571)
Purchases of treasury stock (75,562) (10,910) (1,307)
Debt prepayment premium (4,110) _ _
Employee stock plans 786 922 1,095
- ---------------------------------------------------------------------------------------------------------------------------
Cash Used by Financing Activities (64,771) (50,919) (39,278)
- ---------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 59,728 (36,922) (3,330)
Balance of cash and cash equivalents at beginning of year 11,185 48,107 51,437
- ---------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 70,913 $ 11,185 $ 48,107
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
25 1995 Annual Report
<PAGE>
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Nature of Business
The Company is one of the world's leading manufacturers of specialty materials
and one of the largest domestic producers of stainless steel. The Company
manufactures stainless steel sheet, strip, plate, foil, welded tubing and
stampings; silicon electrical steel sheet and strip; and other specialty steel
and specialty metals alloys, including tool steels, magnetic, thermostatic and
electronic sheet and strip, and high-temperature alloys. Common end uses of
specialty steel include automobiles, appliances, communications and electronics
equipment, marine equipment, electric power generating and distribution
equipment, environmental equipment, home utensils and cutlery, construction
products, tools, dies, food and chemical processing equipment, medical and
health equipment and aircraft and defense equipment. The Company's products are
sold worldwide.
Estimates
The use of estimates is inherent in the preparation of financial statements in
conformity with generally accepted accounting principles.
Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Significant intercompany accounts and transactions have been
eliminated.
Business Segment
The Company operates in a single business segment, specialty steel.
Cash and Cash Equivalents
Cash includes currency on hand and demand deposits with financial institutions.
Cash equivalents are short-term, highly liquid investments both readily
convertible to known amounts of cash and so near maturity, three months or less,
that there is insignificant risk of fluctuations in value because of changes in
interest rates and thus the carrying amounts approximate market.
Accounts Receivable
The Company markets its products to a diverse customer base, principally
throughout the United States. Trade credit is extended based upon evaluations of
each customer's ability to perform its obligations, which are updated
periodically. Credit losses are provided for in the financial statements and
have been within management's expectations.
Inventories
Inventories are valued at the lower of cost or market. Cost for most inventories
is determined by the last-in, first-out (LIFO) method. Inventories not on LIFO
(1995 - $24,588,000; 1994 - $25,031,000) are determined using the average cost
method.
Properties, Plants and Equipment
Properties, plants and equipment are carried at cost. Depreciation is computed
using the straight-line method at rates considered sufficient to amortize the
costs over the estimated service lives. Depreciation for income tax purposes is
computed principally using accelerated methods.
Taxes on Income
Provisions for income taxes include deferred taxes resulting from temporary
differences in income for financial and tax purposes using the liability method.
Such temporary differences result primarily from differences in the carrying
value of assets and liabilities.
Fiscal Year-End
The Company's fiscal year ends on the Sunday nearest to December 31.
Reclassifications
Certain amounts in the prior year financial statements have been reclassified to
conform to the 1995 presentation.
Net Income per Share of Common Stock
Net income per share is based upon the weighted average number of shares of
common stock outstanding. The weighted average number of shares was 69,246,949
for the fiscal year ended December 31, 1995, 70,827,362 for the fiscal year
ended January 1, 1995 and 66,614,353 for the fiscal year ended January 2, 1994.
Accounting Pronouncements
FAS No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-
lived Assets to be Disposed of" and FAS No. 123, "Accounting for Stock-based
Compensation" were issued in 1995. The statements are not expected to have a
material impact on the Company. The Company intends to continue to acount for
stock-based compensation under Accounting Principles Board Opinion No. 25 as
allowed by FAS No. 123.
Allegheny Ludlum Corporation 26
<PAGE>
Note 2 - Inventories
<TABLE>
<CAPTION>
(In thousands of dollars)
December 31, January 1,
1995 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 63,994 $ 52,332
Work-in-process and finished products 249,139 213,282
Supplies 16,515 16,048
- ---------------------------------------------------------------------------------------------------------------------------
Total inventories at current cost 329,648 281,662
Less allowance to reduce current cost values to LIFO basis 93,189 49,283
- ---------------------------------------------------------------------------------------------------------------------------
Total Inventories $ 236,459 $ 232,379
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Certain LIFO inventory quantities were reduced, resulting in a liquidation of
items carried at costs that prevailed in prior years. The effect of the
liquidations was to increase net income by approximately $32,000, $543,000 and
$1,531,000 in 1995, 1994 and 1993, respectively.
The Company enters into raw material (principally nickel) future contracts
from time to time to hedge its exposure to price fluctuations. Gains and losses
on hedged contracts are deferred and recognized in cost of sales upon
expiration of the hedged period. These contracts are not significant to the
Company's total raw material purchases and are not material from a financial
point of view.
Note 3 - Properties, Plants and Equipment
<TABLE>
<CAPTION>
(In thousands of dollars)
December 31, January 1,
1995 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 8,267 $ 8,220
Buildings 65,174 64,679
Machinery and equipment 612,729 591,277
- ---------------------------------------------------------------------------------------------------------------------------
686,170 664,176
Less allowance for depreciation and amortization 234,547 199,199
- ---------------------------------------------------------------------------------------------------------------------------
Total Properties, Plants and Equipment $ 451,623 $ 464,977
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 4 - Credit Agreement and Long-Term Debt
Credit Agreement
The Company's credit agreement with a group of banks provides for borrowings of
up to $100,000,000 on a revolving credit basis. Interest is payable at prime or
other alternative interest rate bases, at the Company's option. The annual
facility fee is 1/8%. The revolving credit facility was not used in 1995.
The credit agreement has various covenants which limit the Company's ability
to dispose of properties and merge with another corporation. The Company is also
required to maintain certain financial ratios as defined in the agreement which
can also limit the amount of dividend payments and share repurchases. Under the
most restrictive requirement, 100% of retained earnings are currently free of
restrictions pertaining to cash dividend distributions and share repurchases.
Borrowings outstanding under the credit agreement are unsecured.
Debentures
In December of 1995, the Company issued $150 million of 6.95% debentures due
December 15, 2025. In December of 1995, a portion of the proceeds from this
issue was used to extinguish the Company's $100 million of 5 7/8% convertible
subordinated debentures, which were scheduled to mature in 2002, at a call price
of 104.11%. This transaction resulted in an extraordinary loss on early
retirement of debt of $2,924,000 net of income tax benefit of $1,950,000.
Other
The industrial revenue bonds and capital lease obligations consist of 11
separate issues at December 31, 1995. Nine issues (aggregating $23,046,000) have
an average interest rate of 4.8%, and two issues ($10,052,000) have variable
interest rates, ranging from 2.50% to 6.3%. The average interest rate for all
outstanding issues was 4.8% in 1995, 4.8% in 1994 and 4.6% in 1993. The
variable rate obligations are subject to remarketing agreements, which provide
that the bondholder may present the bonds to a remarketing agent for purchase
prior to the stated maturity date. Bonds presented to the remarketing agent are
then resold in the bond market.
27 1995 Annual Report
<PAGE>
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, January 1,
(In thousands of dollars) 1995 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
6.95% debentures due 2025 $ 150,000 $ _
5 7/8% convertible subordinated debentures due 2002 _ 100,000
Industrial revenue bonds due 1996 through 2007 17,963 19,425
Capital lease obligations under industrial revenue bonds
due 1996 through 2007 15,135 15,665
- ---------------------------------------------------------------------------------------------------------------------------
183,098 135,090
Less current portion 1,941 1,993
- ---------------------------------------------------------------------------------------------------------------------------
Total long-term debt $ 181,157 $ 133,097
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Properties, plants and equipment include the following amounts for leases
that have been capitalized:
<TABLE>
<CAPTION>
December 31, January 1,
(In thousands of dollars) 1995 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land and buildings $ 2,693 $ 2,693
Machinery 18,054 18,054
- ---------------------------------------------------------------------------------------------------------------------------
20,747 20,747
Less allowance for amortization 10,368 9,218
- ---------------------------------------------------------------------------------------------------------------------------
Total leases $ 10,379 $ 11,529
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Amortization of leased assets is included in depreciation and amortization
expense.
Scheduled maturities of all long-term obligations for the five years
succeeding December 31, 1995 are $1,941,000 in 1996, $1,914,000 in 1997,
$1,974,000 in 1998, $1,499,000 in 1999 and $1,320,000 in 2000.
Interest expense was $8,260,000 in 1995, $8,515,000 in 1994 and $8,668,000 in
1993. Interest and commitment fees paid amounted to $9,630,000 in 1995,
$8,448,000 in 1994 and $8,149,000 in 1993.
Note 5 - Pension Plans and Other Postemployment Benefits
The Company and its subsidiaries have several defined benefit pension plans and
several defined contribution plans, which cover substantially all of their
employees. Benefits under the defined benefit pension plans are generally based
on years of service and the employee's average annual compensation in the five
consecutive years of the ten years prior to retirement in which such earnings
were the highest. The Company funds at least the amount necessary to meet the
minimum funding requirements of ERISA and the Internal Revenue Code.
The following table sets forth the funded status and amount recognized for the
defined benefit pension plans in the consolidated balance sheets:
<TABLE>
<CAPTION>
December 31, January 1,
(In thousands of dollars) 1995 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of accumulated benefit obligations, including
vested benefits of $570,243 in 1995 and $507,565 in 1994 $ 608,300 $ 535,057
- ---------------------------------------------------------------------------------------------------------------------------
Actuarial present value of projected benefit obligations for services
rendered to date 673,824 600,668
Less plan assets at fair value, primarily listed stocks, government
securities and pooled investment funds 504,519 393,048
- ---------------------------------------------------------------------------------------------------------------------------
Projected Benefit Obligations in Excess of Plan Assets 169,305 207,620
Unrecognized net loss from past experience different from assumed (49,666) (60,651)
Unrecognized prior service costs (47,972) (48,518)
Additional minimal liability 34,032 44,761
- ---------------------------------------------------------------------------------------------------------------------------
Pension Liabilities $ 105,699 $143,212
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Allegheny Ludlum Corporation 28
<PAGE>
Pension liabilities are included in the balance sheets as follows:
<TABLE>
<CAPTION>
December 31, January 1,
(In thousands of dollars) 1995 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accrued compensation and benefits $ - $ 7,454
Pensions 105,699 135,758
- ---------------------------------------------------------------------------------------------------------------------------
Total Pension Liabilities $ 105,699 $ 143,212
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
A summary of the net pension cost for the defined benefit pension plans is as
follows:
<TABLE>
<CAPTION>
(In thousands of dollars) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 6,506 $ 7,520 $ 4,751
Interest cost on projected benefit obligations 46,101 40,150 33,916
Actual return on plan assets (111,014) 3,674 (28,935)
Net amortization and deferral 82,377 (35,803) 1,058
- ---------------------------------------------------------------------------------------------------------------------------
Net Pension Cost $ 23,970 $ 15,541 $ 10,790
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The average discount rate used in determining the actuarial present value of
the projected benefit obligations was 7.0% in 1995 and 8.0% in 1994. The rates
of increase of future years' compensation levels ranged from 3% to 4% in 1995,
1994 and 1993. The expected long-term rate of return on plan assets was 9% in
1995, 1994 and 1993.
On November 10, 1988, the Board of Directors amended the salaried defined
benefit pension plan to provide that no benefits would accrue thereunder on or
after January 1, 1989. At the same time, the Board also adopted, effective
January 1, 1989, a defined contribution plan. Pension costs for this plan were
$5,780,000 in 1995, $5,165,000 in 1994 and $4,746,000 in 1993.
The Company has guaranteed employees who meet certain age and service criteria
that at retirement their aggregate benefit from the salaried defined benefit
pension plan and the defined contribution plan will not be less than the benefit
which would have been payable from the salaried defined benefit pension plan if
such plan had not been amended.
Other Postretirement Benefit Plans
The Company sponsors several defined benefit postretirement plans covering most
salaried and hourly employees. The plans provide health care and life insurance
benefits for eligible retirees. The basic health care plans are noncontributory,
and the major medical options are contributory, with retiree contributions
adjusted periodically. The life insurance plans are generally noncontributory.
The Company funds postretirement benefit obligations for hourly employees
represented by the USWA based on the available funds and amounts allowable by
the Internal Revenue Code.
The following table sets forth the postretirement benefit plans' combined
funded status reconciled with the amounts recognized in the balance sheet:
<TABLE>
<CAPTION>
Health Life
(In thousands of dollars) December 31, 1995 Care Insurance Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees $ 186,932 $ 15,486 $ 202,418
Fully eligible active participants 61,481 3,906 65,387
Other active participants 115,027 4,561 119,588
- ---------------------------------------------------------------------------------------------------------------------------
363,440 23,953 387,393
Less plan assets at fair value, primarily investment
in limited partnership funds 45,645 - 45,645
- ---------------------------------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligations
in excess of plan assets 317,795 23,953 341,748
Unrecognized net gain (52,853) (2,149) (55,002)
Unrecognized prior service cost (21,167) (20) (21,187)
- ---------------------------------------------------------------------------------------------------------------------------
Accrued postretirement benefit cost $ 243,775 $ 21,784 $ 265,559
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
29 1995 Annual Report
<PAGE>
<TABLE>
<CAPTION>
Health Life
(In thousands of dollars) January 1, 1995 Care Insurance Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees $ 159,089 $ 13,731 $ 172,820
Fully eligible active participants 44,560 3,106 7,666
Other active participants 88,613 3,686 92,299
- ---------------------------------------------------------------------------------------------------------------------------
292,262 20,523 312,785
Less plan assets at fair value, primarily investment
in limited partnership funds 31,834 - 31,834
- ---------------------------------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligations
in excess of plan assets 260,428 20,523 280,951
Unrecognized net gain 4,511 295 4,806
Unrecognized prior service cost (18,742) 121 (18,621)
- ---------------------------------------------------------------------------------------------------------------------------
Accrued postretirement benefit cost $ 246,197 $ 20,939 $ 267,136
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's Chairman serves on the advisory boards of the limited
partnership funds.
The discount rate used in determining the APBO was 7.0% at December 31, 1995
and 8.0% at January 1, 1995. The expected long-term rate of return on plan
assets ranged from 9% to 15% in 1995 and 15% in 1994.
Net postretirement benefit expenses included the following components:
<TABLE>
<CAPTION>
Health Life
(In thousands of dollars) 1995 Care Insurance Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 5,857 $ 256 $ 6,113
Interest cost 22,124 1,509 23,633
Actual return on plan assets (419) - (419)
Net amortization and deferral (1,751) 12 (1,739)
- ---------------------------------------------------------------------------------------------------------------------------
Net periodic postretirement benefit expense $ 25,811 $ 1,777 $ 27,588
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Health Life
(In thousands of dollars) 1994 Care Insurance Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 6,230 $ 263 $ 6,493
Interest cost 19,390 1,498 20,888
Actual return on plan assets (1,516) - (1,516)
Net amortization and deferral 47 77 124
- ---------------------------------------------------------------------------------------------------------------------------
Net periodic postretirement benefit expense $ 24,151 $ 1,838 $ 25,989
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Health Life
(In thousands of dollars) 1993 Care Insurance Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 4,700 $ 206 $ 4,906
Interest cost 18,679 1,424 20,103
- ---------------------------------------------------------------------------------------------------------------------------
Net periodic postretirement benefit expense $ 23,379 $ 1,630 $ 25,009
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The annual assumed rate of increase in the per capita cost of covered benefits
(the health care cost trend rate) for health care plans is 10.3% for 1996 and is
assumed to decrease to 5.25% by 2002 and remain at that level thereafter. The
health care cost trend rate assumption has a significant effect on the amounts
reported. If the assumed health care cost trend rates were increased by one
percentage point in each year, this would increase the APBO for health care
plans as of December 31, 1995 by $54,976,000 and the aggregate of service and
interest cost components of net periodic postretirement benefit expense for 1995
by $4,416,000.
The actual cash payments of retiree health care and life insurance benefits
totaled approximately $15,870,000 in 1995, $13,064,000 in 1994 and $9,295,000 in
1993.
Allegheny Ludlum Corporation 30
<PAGE>
Note 6 - Shareholders' Equity
<TABLE>
<CAPTION>
Common Additional Retained Treasury
(In thousands of dollars except per share amounts) Stock Capital Earnings Shares
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 3, 1993 $ 6,772 $ 160,876 $ 113,169 $ (23,873)
- ---------------------------------------------------------------------------------------------------------------------------
Net income 70,760
Dividends on common stock at $.47 per share (31,571)
Common stock issued 516 107,746
Employee stock plans 490 (100) 2,297
Purchase of 65,500 treasury shares at cost (1,307)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at January 2, 1994 7,288 269,112 152,258 (22,883)
- ---------------------------------------------------------------------------------------------------------------------------
Net income 18,212
Dividends on common stock at $.48 per share (33,993)
Employee stock plans 1,459 (450) 2,295
Purchase of 571,300 shares at cost (10,910)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1995 7,288 270,571 136,027 (31,498)
- ---------------------------------------------------------------------------------------------------------------------------
Net income 111,871
Dividends on common stock at $.49 per share (33,893)
Employee stock plans 902 123 4,346
Purchase of 3,826,900 treasury shares at cost (75,562)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $ 7,288 $ 271,473 $ 214,128 $ (102,714)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Preferred Stock
The authorized preferred stock may be issued in one or more series, with
designations, powers and preferences as shall be designated by the Board of
Directors. At December 31, 1995, there were no shares of preferred stock issued.
Common Stock
The Board of Directors adopted and the shareholders approved the 1987 Stock
Option Incentive Plan ("Plan") in March, 1987. The Plan, which expires January
1, 1997, provides for the granting of stock options and stock appreciation
rights ("Awards") of up to 2,700,000 shares of common stock to key employees.
Awards may be granted under the Plan at a price not less than the fair market
value of the stock as determined by the Personnel and Compensation Committee
("Committee") on the date the Awards are granted. Awards will not be immediately
exercisable and vesting of the Awards will be established at the date of each
grant but generally will not be more rapid than the rate of one-third of the
number of shares in the third, fourth, and fifth years following the date of the
Award.
Transactions under the Plan are summarized as follows:
<TABLE>
<CAPTION>
Stock
Appreciation
Stock Options Rights Price Range
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 3, 1993 999,152 11,250
Granted 620,400 - $ 22.94
Exercised (153,489) (11,250) 8.33-11.08
Cancelled (14,601) - 10.75
- ---------------------------------------------------------------------------------------------------------------------------
Balance at January 2, 1994 1,451,462 -
Granted 33,068 - 19.88
Exercised (119,731) - 8.33-11.88
Cancelled (44,935) - 10.75-22.94
- ---------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1995 1,319,864 -
Granted 13,801 - 17.00
Exercised (109,025) - 8.33-11.08
Cancelled (23,067) - 10.75-22.94
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 1,201,573 - $ 8.33-22.94
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1995 there were 579,704 options for shares exercisable under
the Plan.
31 1995 Annual Report
<PAGE>
In March 1987, the Board of Directors adopted and the shareholders approved a
Performance Share Plan for Key Employees, which provides that the Chief
Executive Officer may establish certain performance objectives for a period
established by the Board. The Committee, with the advice of the Chief Executive
Officer, may grant performance units payable in common stock and/or cash to key
employees. Up to 900,000 shares of common stock were reserved for the Plan. Upon
full or partial achievement of the performance objectives for the period, the
full or partial dollar amount and/or number of shares of common stock credited
to an employee's account will be distributed to the employee in three equal
annual installments.
A three-year award period under the Performance Share Plan began in 1991 and
97% of the performance objectives to be achieved during this award period were
achieved. Payments equal to 92.5% of the base value of awarded units began in
1994 and ended in February 1996. Forty-three participants held an aggregate of
69,050 performance units. The base value of each unit consisted of $50 in cash
and four shares of common stock.
In November 1994, the Board of Directors established the 1995-1996 award
period under the Performance Share Plan and the performance objectives to be
achieved during the 1995-1996 award period were set. Forty-five employees hold
an aggregate of 76,000 performance units for the 1995-1996 award period. The
base value of each unit consists of $50 in cash and four shares of common stock.
In 1994, the Board of Directors adopted and the shareholders approved a Stock
Acquisition and Retention Plan. The plan provides participating officers with an
opportunity to purchase additional shares of common stock directly from the
Company and provides for the grant of one share of restricted stock for each two
shares purchased under the plan and one share of restricted stock for each two
shares of common stock already owned by a participant that are designated as
subject to the plan. In general, the restricted shares will vest only if the
participant retains the shares that are purchased and/or designated by the
participant as subject to the plan for five years. The expense related to the
plan is being recognized over the vesting period. A maximum of 1,000,000 shares
is available for issuance under the plan. In 1995, 60,238 restricted shares of
common stock were issued under the plan and in 1994 17,681 restricted shares
were issued under the plan.
In 1993, the Board of Directors adopted and the shareholders approved a
Director Share Incentive Plan, which provides for the annual delivery to
non-employee directors of the Company of shares of common stock (rounded to the
nearest whole share) with a fair market value equal to $5,000. A total of
200,000 shares have been reserved for the plan. Pursuant to the plan, on January
3, 1995, each of the Company's eleven non-employee directors received 268 shares
of common stock and on January 2, 1996, each of the Company's twelve
non-employee directors received 267 shares of common stock.
Note 7 - Fair Values of Financial Instruments
Fair Values of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
financial instruments.
Cash and cash equivalents
The carrying amount approximates fair value because of the short maturity of
those instruments.
Debentures
The fair values of the 6.95% debentures and 5 7/8% convertible subordinated
debentures are based on quoted market prices.
Long-term debt
The fair values of long-term debt obligations are established from the market
value of each issue if available or from market values of similar issues.
Allegheny Ludlum Corporation 32
<PAGE>
The carrying amounts and fair values of the Company's financial instruments
are as follows:
<TABLE>
<CAPTION>
December 31, 1995 January 1, 1995
(In thousands of dollars) Carrying Amount Fair Value Carrying Amount Fair Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 70,913 $ 70,913 $ 11,185 $ 11,185
6.95% debentures in 1995 and 5 7/8% convertible subordinated
debentures in 1994 150,000 150,000 100,000 100,050
Long-term debt 33,098 33,110 35,090 34,133
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 8 - Taxes on Income
Income taxes (credits) consist of the following:
<TABLE>
<CAPTION>
(In thousands of dollars) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 60,143 $ 9,411 $ 40,653
State 12,324 2,178 10,696
- ---------------------------------------------------------------------------------------------------------------------------
Subtotal current expense 72,467 11,589 51,349
- ---------------------------------------------------------------------------------------------------------------------------
Deferred:
Federal 1,390 571 (1,828)
State 2,095 2,570 (1,315)
- ---------------------------------------------------------------------------------------------------------------------------
Subtotal deferred expense 3,485 3,141 (3,143)
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax expense $ 75,952 $ 14,730 $ 48,206
- ---------------------------------------------------------------------------------------------------------------------------
Income taxes paid $ 69,642 $ 14,385 $ 56,649
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following is a reconciliation of the statutory federal income tax rate to
the actual effective income tax rate:
<TABLE>
<CAPTION>
Percent of pretax income 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal tax rate 35.0% 35.0% 35.0%
State and local income taxes, net of federal tax benefit 4.9 9.4 5.1
Amortization of cost in excess of net assets acquired .6 3.8 -
Other (.7) (3.5) 0.4
- ---------------------------------------------------------------------------------------------------------------------------
Total effective income tax rate 39.8% 44.7% 40.5%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Deferred tax assets and/or liabilities result from temporary differences in
the recognition of income and expense for financial and income tax reporting
purposes, and differences between the fair value of assets acquired in business
combinations accounted for as purchases for financial reporting purposes and
their corresponding tax bases. They represent future tax benefits or costs to be
recognized when those temporary differences reverse.
33 1995 Annual Report
<PAGE>
The categories of assets and liabilities which have resulted in differences in
the timing of the recognition of income and/or expense are as follows:
<TABLE>
<CAPTION>
Deferred Tax Assets
(In thousands of dollars) 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Postretirement benefits other than pensions $104,553 $107,284
Deferred compensation and other benefit plans 60,238 71,604
Other items 19,733 18,524
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 184,524 197,412
Deferred Tax Liabilities
- ---------------------------------------------------------------------------------------------------------------------------
Basis of property, plant and equipment - net 109,046 113,212
Inventory valuation - net 28,153 28,175
Other items 11,617 12,525
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 148,816 153,912
- ---------------------------------------------------------------------------------------------------------------------------
Net deferred tax asset $ 35,708 $ 43,500
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 9 - Supplemental Operating Information
Export sales were $87,000,000 in 1995, $73,000,000 in 1994 and $79,000,000 in
1993.
Direct research and development expenditures aggregated $9,171,000 in 1995,
$8,238,000 in 1994 and $9,170,000 in 1993. "Research, development and
technology" in the income statement covers a broad range of activities
throughout the Company.
Approximately 70% of the Company's workforce are covered by various union
contracts. None of the contracts expire within one year.
Note 10 - Litigation
As previously disclosed, the Company is a defendant in a case filed in 1989 by
Allegheny International, Inc. in the United States District Court for the
Western District of Pennsylvania which is being pursued by Sunbeam Corporation.
The case involves a claim to recover a $5.5 million refund received by the
Company in 1989 with respect to a federal income tax overpayment, plus interest.
Immediately prior to the commencement of the trial of the case, Sunbeam withdrew
with prejudice its related claims for reimbursement of various alleged insurance
coverage costs in the amount of $.5 million plus interest. In August 1995, a
jury verdict in favor of the Company was entered in this case which Sunbeam has
appealed. The Company is vigorously defending the favorable decision.
As previously announced, in June 1995, the U.S. Department of Justice
commenced an action against the Company in the United States District Court for
the Western District of Pennsylvania, asserting, in 64 claims, multiple
violations of the federal Clean Water Act occurring at various times since 1987.
The complaint seeks injunctive relief and assessment of penalties of up to
$25,000 per day of violation. While it is too early to predict the outcome of
the case, the Company believes that any costs or penalties should not be
material to the financial condition of the Company or its results of operation.
In addition, the Company is involved in various lawsuits from time to time
arising in the ordinary course of business and otherwise. In management's
opinion, the outcome of these matters will not have a material adverse affect on
the Company's financial statements.
Note 11 - Acquisition
On November 10, 1993, the Company completed the acquisition of the stock of
Athlone Industries, Inc. Athlone, through its subsidiary, Jessop Steel Company,
was primarily a manufacturer of specialty steels in plate form. The Company
issued 5,153,376 shares of common stock in the transaction. The transaction is
being accounted for as a purchase. The excess of the purchase price paid over
the value of net assets acquired is being amortized over 40 years on a straight-
line basis. Accumulated amortization was $7,656,000 and $4,224,000 at December
31, 1995 and January 1, 1995, respectively.
Allegheny Ludlum Corporation 34
<PAGE>
Pro forma results, as if the transaction were completed at the beginning of
1993, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Sales $1,215,039,000
Net income 77,126,000
Earnings per share $ 1.09
</TABLE>
The pro forma presentation is not necessarily indicative of either the results
of operations that would have occurred had the acquisition taken place at the
beginning of 1993 or of future results of the combined companies.
In addition to Jessop Steel, the Company acquired Green River Steel
Corporation and Reynolds Fasteners, Inc., as part of the Athlone acquisition.
The Company has determined that these businesses do not meet its strategic
objectives and decided that they would be held for sale. The recorded value for
assets held for sale represents management's estimate of net realizable value
and includes a reserve for estimated losses until disposition which is not
material in relation to the Company's results of operations. Net income for
these companies in the amount of $3,603,000, which resulted from the Company's
successful efforts to improve the productivity and reduce the costs of these
businesses, was excluded from the Company's 1994 results. In 1996, Reynolds
Fasteners, Inc. was sold. The sale will not have a significant effect on the
Company's results of operation.
Cash flows for 1994 and 1993 do not include non-cash items related to the
acquisition.
Note 12 - Quarterly Data (Unaudited)
<TABLE>
<CAPTION>
(In thousands of dollars except per share amounts) Fiscal Quarter Ended
- -------------------------------------------------------------------------------------------------------------------------------
Fiscal 1995 April 2 July 2 October 1 December 31
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 395,332 $ 390,468 $ 373,631 $ 334,871
Cost of products sold 313,742 301,306 288,985 269,341
Operating income 46,474 53,142 48,461 30,856
Income before extraordinary loss 28,854 34,470 30,119 21,352
Extraordinary loss on early retirement of debt - - - (2,924)
Net income 28,854 34,470 30,119 18,428
Net income per share:
Primary
Income before extraordinary loss $ .41 $ .49 $ .44 $ .32
Extraordinary loss - - - (.04)
Net income $ .41 $ .49 $ .44 $ .28
Fully diluted $ .39 $ .47 $ .42 $ .28
Weighted average common shares
outstanding 70,567,973 69,959,030 68,963,949 67,495,993
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
(In thousands of dollars except per share amounts) Fiscal Quarter Ended
- -------------------------------------------------------------------------------------------------------------------------------
Fiscal 1994 April 3 July 3 (1) October 2 January 1
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 313,932 $ 172,187 $ 262,255 $ 328,497
Cost of products sold 245,717 191,283 211,720 266,319
Operating income (loss) 35,747 (49,413) 20,913 34,121
Net income (loss) 18,118 (29,179) 10,328 18,945
Net income (loss) per share:
Primary $ .26 $ (.41) $ .14 $ .27
Fully diluted $ .25 $ (.41) $ .14 $ .26
Weighted average common shares
outstanding 70,938,937 70,792,035 70,787,897 70,790,579
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The USWA called a strike in the second quarter which lasted 10 weeks.
35 1995 Annual Report
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Allegheny Ludlum Corporation
We have audited the accompanying consolidated balance sheets of Allegheny Ludlum
Corporation and subsidiaries as of December 31, 1995 and January 1, 1995, and
the related consolidated statements of income and cash flows for each of the
three fiscal years in the period ended December 31, 1995. These financial
statements are the responsibility of Allegheny Ludlum Corporation's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Allegheny Ludlum Corporation and subsidiaries at December 31, 1995
and January 1, 1995, and the consolidated results of their operations and their
cash flows for each of the three fiscal years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
January 30, 1996
Allegheny Ludlum Corporation 36
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(In millions of dollars except
per share amounts) 1995 (1) 1994 (2) 1993 (3) 1992 1991* 1990* 1989* 1988*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For Fiscal Year
Income statement data:
Net sales $1,494.3 $1,076.9 $1,100.2 $1,036.0 $1,004.6 $1,084.9 $1,180.2 $1,207.5
Operating income 178.9 41.4 103.9 76.4 73.7 111.0 208.9 175.0
Income before
cumulative effect of
accounting change
and extraordinary loss 114.8 18.2 70.8 46.9 41.1 68.9 133.8 108.6
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative effect of
accounting change - - - (125.2) - - - -
Extraordinary loss on
early retirement
of debt (2.9) - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 111.9 $ 18.2 $ 70.8 $ (78.3) $ 41.1 $ 68.9 $ 133.8 $ 108.6
- ------------------------------------------------------------------------------------------------------------------------------------
Per common share:
Income before
cumulative effect of
accounting change and
extraordinary loss $ 1.66 $ .26 $ 1.06 $ .71 $ .62 $ 1.04 $ 1.98 $ 1.60
Cumulative effect of
accounting change - - - (1.90) - - - -
Extraordinary loss (.04) - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 1.62 $ .26 $ 1.06 $ (1.19) $ .62 $ 1.04 $ 1.98 $ 1.60
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends declared $ .49 $ .48 $ .47 $ .44 $ .44 $ .43 $ .35 $ 1.37
- ------------------------------------------------------------------------------------------------------------------------------------
At Year End
Balance sheet data:
Working capital $ 270.8 $ 225.4 $ 258.9 $ 299.4 $ 192.9 $ 198.2 $ 237.3 $ 163.0
Total assets 1,144.3 1,094.7 1,174.0 871.2 764.5 793.2 784.6 703.9
Long-term debt
due after one year 181.2 133.1 138.9 138.1 48.5 52.8 67.8 76.0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Amounts related to postretirement benefits are not comparable.
Per share amounts have been adjusted for the 3-for-2 stock split effected in
July of 1990 and for the 2-for-1 stock split effected in July of 1993.
(1) Includes income from assets held for sale beginning January 2, 1995.
(2) The USWA called a strike in the second quarter which lasted 10 weeks.
(3) Beginning November 10, 1993, results include acquisition of Jessop Steel
Company.
37 1995 Annual Report
<PAGE>
COMMON STOCK DATA
<TABLE>
<CAPTION>
Fiscal Quarter Ended
- ----------------------------------------------------------------------------------------------------
Fiscal 1995 April 2 July 2 October 1 December 31
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Price range of common stock:
High $21.375 $23.00 $22.625 $20.50
Low 18.375 18.75 19.75 16.375
Dividends declared .12 .12 .12 .13
- ----------------------------------------------------------------------------------------------------
<CAPTION>
Fiscal Quarter Ended
- ----------------------------------------------------------------------------------------------------
Fiscal 1994 April 3 July 3 October 2 January 1
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Price range of common stock:
High $24.875 $21.25 $22.375 $21.875
Low 18.125 17.00 18.375 18.00
Dividends declared .12 .12 .12 .12
- ----------------------------------------------------------------------------------------------------
</TABLE>
The principal market on which the Company's common stock is traded is the New
York Stock Exchange, using the symbol ALS. As of March 6, 1996, there were
66,241,891 shares of common stock outstanding held by 2,859 shareholders of
record.
MANAGEMENT'S REPORT
The accompanying consolidated financial statements of Allegheny Ludlum
Corporation and subsidiaries have been prepared in accordance with generally
accepted accounting principles and include some amounts that are based upon
Management's best estimates and judgments. Management has the primary
responsibility for the information contained in the financial statements and in
other sections of this Annual Report and for their integrity and objectivity.
The Company has a system of internal controls designed to provide reasonable
assurance that assets are safeguarded and transactions are properly executed and
recorded for the preparation of financial information. The concept of reasonable
assurance is based on the recognition that there are inherent limitations in all
systems of internal accounting control and that the cost of such systems should
not exceed the benefits to be derived.
The Company maintains a staff of professional internal auditors, who assist in
audit coverage with the independent accountants and conduct operational and
special audits. The independent accountants express their opinion on the
Company's financial statements based on procedures, including an evaluation of
internal controls, which they consider to be sufficient to form their opinion.
The Audit and Finance Committee of the Board of Directors is composed of five
non-employee members. Among its principal duties, the Committee is responsible
for recommending the independent accountants to conduct the annual audit of the
Company's financial statements and for reviewing the financial reporting and
accounting practices.
/s/ A. H. Aronson
A. H. Aronson
President and
Chief Executive Officer
/s/ J. L. Murdy
J. L. Murdy
Senior Vice President--
Finance and
Chief Financial Officer
/s/ R. R. Roeser
R. R. Roeser
Vice President, Controller
Allegheny Ludlum Corporation 38
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
Name of Subsidiary State of Incorporation
- ------------------ ----------------------
AII Acquisition Corp. Delaware
Jessop Steel Company Pennsylvania
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement
Number 33-18510 on Form S-8 dated November 13, 1987, Registration Statement
Number 33-20884 on Form S-8 dated April 4, 1988, Registration Statement Number
33-27921 on Form S-8 dated April 10, 1989, Registration Statement Number
33-54061 on Form S-8 dated June 10, 1994 and Registration Statement Number
33-54787 on Form S-8 dated July 28, 1994 of our reports dated January 30, 1996,
with respect to the consolidated financial statements and schedule included in
the Annual Report on Form 10-K of Allegheny Ludlum Corporation for the year
ended December 31, 1995.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
March 20, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-02-1995
<PERIOD-END> DEC-31-1995
<CASH> 70,913
<SECURITIES> 0
<RECEIVABLES> 140,889
<ALLOWANCES> 3,873
<INVENTORY> 236,459
<CURRENT-ASSETS> 454,274
<PP&E> 686,170
<DEPRECIATION> 234,547
<TOTAL-ASSETS> 1,144,272
<CURRENT-LIABILITIES> 183,487
<BONDS> 181,157
0
0
<COMMON> 7,288
<OTHER-SE> 368,160
<TOTAL-LIABILITY-AND-EQUITY> 1,144,272
<SALES> 1,494,302
<TOTAL-REVENUES> 1,494,302
<CGS> 1,173,374
<TOTAL-COSTS> 1,173,374
<OTHER-EXPENSES> 128,665
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,516
<INCOME-PRETAX> 190,747
<INCOME-TAX> 75,952
<INCOME-CONTINUING> 114,795
<DISCONTINUED> 0
<EXTRAORDINARY> (2,924)
<CHANGES> 0
<NET-INCOME> 111,871
<EPS-PRIMARY> 1.62
<EPS-DILUTED> 1.62
</TABLE>
