-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A4mvJs7pQVTbyQ+7Av++atANQ9IDG3JjXJI9ZenUPsAxaSCxXkNa2FKQs86Zhz7F T9lO7O3cmdQFkpyp+EPgSw== 0000950128-97-000666.txt : 19970329 0000950128-97-000666.hdr.sgml : 19970329 ACCESSION NUMBER: 0000950128-97-000666 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLEGHENY TELEDYNE INC CENTRAL INDEX KEY: 0001018963 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 251792394 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 001-12001 FILM NUMBER: 97565951 BUSINESS ADDRESS: STREET 1: 1000 SIX PPG PLACE CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 4123942800 MAIL ADDRESS: STREET 1: 100 SIX PPG PLACE CITY: PITTSBURGH STATE: PA ZIP: 15222 DEF 14A 1 ALLEGHENY TELEDYNE INC. 1 SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) Filed by the Registrant [ X ] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (As permitted by Rule 14A-6(e)(2)) [ X ] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ALLEGHENY TELEDYNE INCORPORATED - -------------------------------------------------------------------------------- (NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) - -------------------------------------------------------------------------------- (NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT) Payment of filing fee (Check the appropriate box): [ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item 22(a)(2) of Schedule 14A. [ ] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: --------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: --------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): --------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: --------------- (5) Total fee paid: ------------------------------------------------ [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: ---------------------------------------- (2) Form, Schedule or Registration Statement No.: ------------------ (3) Filing Party: -------------------------------------------------- (4) Date Filed: ---------------------------------------------------- [ X ] No fee required 2 ALLEGHENY TELEDYNE INCORPORATED 1000 SIX PPG PLACE PITTSBURGH, PENNSYLVANIA 15222-5479 NOTICE OF 1997 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT THURSDAY, MAY 1, 1997 11:00 A.M. PITTSBURGH TIME ROOM 1000 AUDITORIUM, 10TH FLOOR TWO MELLON BANK CENTER (UNION TRUST BUILDING) 435 FIFTH AVENUE PITTSBURGH, PENNSYLVANIA - --------------------------------------------------------------------------------
TABLE OF CONTENTS PAGE Letter from the Chairman, President and Chief Executive Officer... 1 Notice of Annual Meeting of Stockholders.......................... 2 Proxy Statement................................................... 3 Election of Directors........................................ 4 Information About the Board of Directors..................... 9 Security Ownership........................................... 12 Ratification of Selection of Independent Auditors............ 15 Other Business to Come Before the Meeting.................... 15 Executive Compensation....................................... 16 Cumulative Total Stockholder Return.......................... 26 Certain Transactions......................................... 27 1998 Annual Meeting and Stockholder Proposals................ 29
- -------------------------------------------------------------------------------- 3 RICHARD P. SIMMONS Chairman, President and Chief Executive Officer Allegheny Teledyne Logo 1000 Six PPG Place Pittsburgh, PA 15222-5479 March 27, 1997 Dear Stockholder: We are pleased to invite you to attend the first annual meeting of the stockholders of Allegheny Teledyne Incorporated to be held on Thursday, May 1, 1997, in Pittsburgh, Pennsylvania. The meeting will begin with a discussion and voting on the matters set forth in the accompanying Notice of Annual Meeting and Proxy Statement followed by a report on Company operations. I urge you to attend. If you are a stockholder of record and you plan to attend the meeting, please complete and return the enclosed postage-paid ticket request card. An admission ticket, which will expedite your admission to the meeting, will be mailed to you prior to the meeting. Whether you own few or many shares and whether or not you plan to attend the meeting, it is important that you vote your shares. Please promptly read the Proxy Statement and then complete, sign and return your proxy card in the enclosed postage-paid envelope. If you sign and return your proxy card without specifying your choices, it will be understood that you wish to have your shares voted in accordance with the Directors' recommendations. We look forward to seeing as many of you as possible at the 1997 Annual Meeting. Sincerely, /s/ R. P. SIMMONS R. P. Simmons 1 4 ALLEGHENY TELEDYNE INCORPORATED NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 1, 1997 ------------------ The Annual Meeting of the Stockholders of Allegheny Teledyne Incorporated will be held on Thursday, May 1, 1997, at 11 A.M., Pittsburgh time, at the Room 1000 Auditorium, 10th Floor, Two Mellon Bank Center (Union Trust Building), 435 Fifth Avenue, Pittsburgh, Pennsylvania, for the following purposes: 1. To elect four Class I directors to serve for a term of three years. 2. To ratify the selection of Ernst & Young LLP as independent auditors of the Company for fiscal 1997. 3. To transact such other business as may properly come before the meeting or any adjournments thereof. Stockholders of record at the close of business on March 3, 1997 are entitled to notice of and to vote at the meeting or any adjournments thereof. A complete list of such stockholders will be open for examination by any stockholder for any purpose germane to the meeting, during ordinary business hours, at the offices of ChaseMellon Shareholder Services, Four Station Square, Pittsburgh, Pennsylvania, for a period of ten days prior to the meeting. By order of the Board of Directors /s/ JON D. WALTON Jon D. Walton Vice President, General Counsel and Secretary Dated: March 27, 1997 YOU ARE REQUESTED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. THE RETURN OF THE ENCLOSED PROXY CARD WILL NOT AFFECT YOUR RIGHT TO REVOKE SUCH PROXY OR TO VOTE IN PERSON IF YOU ATTEND THE MEETING. 2 5 ALLEGHENY TELEDYNE INCORPORATED 1000 SIX PPG PLACE PITTSBURGH, PENNSYLVANIA 15222-5479 PROXY STATEMENT This Proxy Statement and the accompanying proxy card are being mailed beginning on or about March 27, 1997 to stockholders in connection with the solicitation of proxies by the Board of Directors of Allegheny Teledyne Incorporated (the "Company") for use at the 1997 Annual Meeting of Stockholders to be held May 1, 1997. Stockholders whose names appeared of record on the books of the Company at the close of business on March 3, 1997 are entitled to notice and to vote at the meeting. On the record date for the meeting, there were 174,693,558 shares of Common Stock of the Company outstanding and entitled to vote. Each share of Common Stock is entitled to one vote per share on each matter properly brought before the meeting. Shares can be voted at the meeting only if the stockholder is present in person or is represented by proxy. When your proxy card is returned properly signed, the shares represented will be counted for quorum purposes and will be voted in accordance with your instructions. You can specify your choices by marking the appropriate boxes on the proxy card. Unless contrary instructions are indicated on your proxy card, the shares will be voted as recommended by the Board of Directors. You may revoke your proxy, by written notice to the Corporate Secretary of the Company, at any time before it is voted at the meeting. Your vote is important and you are urged to sign and return the accompanying proxy card whether or not you plan to attend the meeting. If you do attend, you may still vote by ballot at the meeting, which will automatically cancel any proxy voting authority previously given. If you are a stockholder of record and you are planning to attend the meeting in person, please complete and return the enclosed postage-paid ticket request card promptly so that we can mail your admission ticket. Stockholders without admission tickets will be admitted upon verification of ownership. Proxy cards, ballots and voting tabulations that identify individual stockholders are normally available for examination only by the inspector of elections, the Corporate Secretary and certain employees associated with processing proxy cards and tabulating the vote. The Company does not disclose the vote of any stockholder except as may be necessary to meet legal requirements. Each of the trustees of the Company's savings plans has the sole right to exercise all rights relating to Common Stock held for participants in such plans. Participants have the right, however, to direct the trustee as to the manner in which voting and other rights will be exercised with respect to the shares of Common Stock allocated to their accounts and shown on the voting instruction card which they will receive from the Plan Administrator. Each trustee will vote shares for which no participant's instructions are received in the same proportion as shares for which participant instructions have been received. Company stock held for the account of participants in the Teledyne Employee Stock Purchase Plan (also known as "The Stock Advantage") will be voted in accordance with the participant's signed voting instructions duly delivered to the Plan Administrator for such Plan or, in the case of shares of Common Stock for which instructions are not received, as the Plan Administrator determines in the exercise of its duties. 3 6 If a stockholder is a participant in the Company's Automatic Dividend Reinvestment Service for Stockholders, the proxy card represents authority to vote the number of full shares in the participant's dividend reinvestment service account on the record date, as well as shares registered in the participant's name. The cost of this solicitation of proxies will be borne by the Company. In addition to solicitation by use of the mails, proxies may be solicited by directors, officers and employees of the Company in person or by telephone, telegram or other means of communication. The Company has retained Morrow & Co., at an estimated cost of $8,000 plus reimbursement of expenses, to assist in the solicitation of proxies from brokers, nominees, institutions and individuals on behalf of the Company. Arrangements will also be made with custodians, nominees and fiduciaries for forwarding of proxy solicitation materials to beneficial owners of Common Stock held of record by such custodians, nominees and fiduciaries, and the Company will reimburse such custodians, nominees and fiduciaries for reasonable expenses incurred in connection therewith. Brokers, banks and other nominee holders will be requested to obtain voting instructions of beneficial owners of Common Stock registered in their names. Shares represented by a duly completed proxy card submitted by a nominee holder on behalf of beneficial owners will be counted for quorum purposes and will be voted to the extent instructed by the nominee holder on the proxy card. The rules applicable to a nominee holder may preclude it from voting the shares that it holds on certain kinds of proposals (sometimes referred to as "broker non-votes") unless it receives voting instructions from the beneficial owners of the shares. Broker non-votes on a particular proposal will not be counted as having been voted for or against the proposal. ELECTION OF DIRECTORS (ITEM A ON PROXY CARD) The business and affairs of the Company are managed under the direction of the Board of Directors as provided in the by-laws of the Company and the laws of the State of Delaware. The Board is not, however, involved in day-to-day operations. Members of the Board are kept informed of the Company's business through discussions with the Chairman, President and Chief Executive Officer, the Vice Chairman of the Board, other members of senior management and other officers and managers of the Company and its subsidiaries, by reviewing analyses and reports sent to them, and by participating in Board and committee meetings. After the consummation of the combination of the businesses of Allegheny Ludlum Corporation ("Allegheny Ludlum") and Teledyne, Inc. ("Teledyne") which resulted in the formation of the Company (the "Combination") on August 15, 1996, regular meetings of the Board were held three times in 1996. Special meetings are scheduled when required; none were held after the Combination in 1996. In 1996, the directors' attendance at meetings of the Board and its committees was over 95% except for William G. Ouchi who attended 63% of the meetings of the Board and the committees on which he serves. Under the Company's certificate of incorporation, the Board has the power to fix the number of directors. Following the resignation of William P. Rutledge as a director of the Company in March 1997, the Board of Directors currently consists of sixteen members, two of whom are employees of the Company. Dr. Henry E. Singleton, who co-founded Teledyne in 1960 and served as the Chairman of Teledyne's Board of Directors for over 30 years, has announced his intention to retire from the Company's Board of Directors. Thomas Marshall, who retired as Chairman of Aristech Chemical Corporation in 1995, and who served as a member of Allegheny Ludlum's Board of Directors beginning in 1988, has also announced his intention to retire from the Company's Board of Directors. The terms of each of these valued members of the Board of Directors will expire at the 1997 Annual Meeting. Following the Annual Meeting, the Board of Directors will consist of fourteen members. 4 7 Pursuant to the Company's certificate of incorporation, the members of the Board of Directors are divided into three classes. Each class is to consist, as nearly as may be possible, of one-third of the whole number of the Board. The term of the Class I directors expires at the 1997 Annual Meeting of Stockholders. The terms of the Class II and Class III directors will expire at the 1998 and 1999 Annual Meetings, respectively. At each annual meeting, the directors elected to succeed those whose terms expire are identified as being of the same class as the directors they succeed and are elected for a term to expire at the third annual meeting of stockholders after their election and until their successors are duly elected and qualified. A director elected to fill a vacancy is elected to the same class as the director such person succeeds, and a director elected to fill a newly created directorship holds office until the next election of the class to which such director is elected. Four incumbent Class I directors are nominees for election this year for a three-year term expiring at the annual meeting of stockholders to be held in the year 2000. In the election, the four persons who receive the highest number of votes actually cast will be elected. Broker non-votes will not be treated as votes cast. The proxies named in the proxy card intend to vote for the election of the four Class I nominees listed below unless otherwise instructed. If you do not wish your shares to be voted for a particular nominee, you must identify the exception in the appropriate space provided on the proxy card, in which case your shares will be voted for the other listed nominees. If any nominee becomes unable to serve, the proxies may vote for another person designated by the Board of Directors or the Board may reduce the number of directors. The Company has no reason to believe that any nominee will be unable to serve. A brief statement of the background of each nominee and each continuing Class II and Class III director, including their principal occupations during the past five years, is provided on the following pages. Each nominee and each continuing director was elected to serve as a director of the Company in connection with the Combination which was approved by the stockholders of Allegheny Ludlum and Teledyne on August 15, 1996 except for Robert Mehrabian who was elected as a director on September 12, 1996. Dr. Mehrabian filed a Form 3 under the Securities Exchange Act of 1934 to report that he had become a director of the Company on September 27, 1996. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE FOUR CLASS I NOMINEES. NOMINEES FOR DIRECTOR--TERM EXPIRES 2000 CLASS I DIANE C. CREEL Diane C. Creel is Chief Executive Officer and Chief Executive Officer and President of EarthTech, an environmental President, EarthTech consulting engineering firm. She served as the Age: 48 Chief Operating Officer of EarthTech from December 1987 until January 1993 and became its President in September 1988 and Chief Executive Officer in January 1993. Ms. Creel served as a director of Teledyne beginning in 1995. She is the Chair of the Stock Incentive Award Committee and a member of the Personnel and Compensation Committee. Ms. Creel is also a director of Glendale Federal Bank and the Boards of the Corporations and Trusts which comprise the Fixed Income Funds of the American Funds Group.
5 8 C. FRED FETTEROLF C. Fred Fetterolf was President and Chief Former President and Chief Operating Operating Officer of Aluminum Company of America Officer, Aluminum Company prior to 1991. He served as a director of of America Allegheny Ludlum beginning in 1987. Mr. Fetterolf Age: 68 is a member of the Personnel and Compensation Committee and a member of the Stock Incentive Award Committee. He is also a director of Commonwealth Aluminum Corp., Dentsply International Inc., Mellon Bank Corporation, Union Carbide Corporation, Praxair, Inc. and Quaker State Corporation. RICHARD P. SIMMONS Richard P. Simmons has been Chairman of the Chairman, President and Chief Executive Company since August 1996 and President and Chief Officer of the Company Executive Officer since February 1997. Age: 65 Previously, he was Chairman of the Board of Allegheny Ludlum, having begun his service on that Board in 1980. He also served as Chief Executive Officer of Allegheny Ludlum until 1990. Mr. Simmons is Chairman of the Executive Committee and a member of the Committee on Governance. He is a also a director of PNC Bank Corp. and Consolidated Natural Gas Co. ROBERT MEHRABIAN Robert Mehrabian is the President of Carnegie President, Carnegie Mellon University Mellon University. He is the Chairman of the Age: 55 Technology Committee and a member of the Committee on Governance. Dr. Mehrabian is also a director of Mellon Bank Corporation, PPG Industries, Inc. and DQE, Inc., whose principal subsidiary is Duquesne Light Company. CONTINUING DIRECTORS--TERM EXPIRES 1998 CLASS II ARTHUR H. ARONSON Arthur H. Aronson has been Executive Vice Executive Vice President President of the Company since August 1996 and is of the Company responsible for the Company's Specialty Metals Age: 61 business segment. He has been President of Allegheny Ludlum since August 1994 and has served as a director of Allegheny Ludlum since 1990. Mr. Aronson was the Chief Executive Officer of Allegheny Ludlum from August 1994 to August 1996. Previously, he served as Executive Vice President and Chief Operating Officer of Allegheny Ludlum. Mr. Aronson is a member of the Technology Committee. He is also a director of Cooper Tire & Rubber Company.
6 9 PAUL S. BRENTLINGER Paul S. Brentlinger is a Partner in Morgenthaler Partner, Morgenthaler Ventures Ventures, a venture capital group headquartered Age: 69 in Cleveland, Ohio. He served as a director of Allegheny Ludlum beginning in 1987. Mr. Brentlinger is a member of the Audit and Finance Committee and a member of the Technology Committee. He is also a director of Ferro Corporation. WILLIAM G. OUCHI William G. Ouchi is a professor of management at Professor of Management, Anderson the Anderson Graduate School of Management, Graduate School of Management, University of California at Los Angeles. He University of California at Los Angeles became a director of Teledyne in 1996. Dr. Ouchi Age: 53 is a member of the Audit and Finance Committee, a member of the Personnel and Compensation Committee and a member of the Stock Incentive Award Committee. He is also a director of FirstFed Financial Corp. GEORGE A. ROBERTS George A. Roberts is a private investor. He was Former President and Chief Executive President of Teledyne from 1966 to 1990 and Chief Officer, Teledyne, Inc. Executive Officer from April 1968 to January Age: 78 1991. Dr. Roberts served as a director of Teledyne beginning in 1966 and served as Chairman of the Board of Directors of Teledyne from January 1991 through March 1993. Dr. Roberts is a member of the Committee on Governance and a member of the Technology Committee. He is also a director of Argonaut Group, Inc. and Unitrin, Inc. JAMES E. ROHR James E. Rohr has been President of PNC Bank President, PNC Bank Corp. Corp. since 1992. He also serves as President and Age: 48 Chief Executive Officer of its Pennsylvania bank, PNC Bank, National Association. Previously, Mr. Rohr held other executive positions with the bank and the holding company. Mr. Rohr served as a director of Allegheny Ludlum beginning in 1988. He is a member of the Audit and Finance Committee and a member of the Technology Committee. He is also a director of PNC Bank Corp., Equitable Resources, Inc. and Sallie Mae (Student Loan Marketing Association). FAYEZ SAROFIM Fayez Sarofim is the Chairman of the Board and Chairman of the Board and President, President of Fayez Sarofim & Co., a registered Fayez Sarofim & Co. investment advisor. He served as a director of Age: 68 Teledyne beginning in 1986. Mr. Sarofim is a member of the Audit and Finance Committee. He is also a director of Argonaut Group, Inc., Imperial Holly Corp. and Unitrin, Inc.
7 10 CONTINUING DIRECTORS--TERM EXPIRES 1999 CLASS III ROBERT P. BOZZONE Robert P. Bozzone has been Vice Chairman of the Vice Chairman of the Board Company since August 1996. He had served as Vice of the Company Chairman of Allegheny Ludlum since August 1994, Age: 63 and previously was President and Chief Executive Officer of Allegheny Ludlum. Mr. Bozzone served as a director of Allegheny Ludlum beginning in 1981. Mr. Bozzone is a member of the Executive Committee and a member of the Committee on Governance. He is a director of DQE, Inc., whose principal subsidiary is Duquesne Light Company. FRANK V. CAHOUET Frank V. Cahouet is the Chairman, President and Chairman, President and Chief Executive Chief Executive Officer of Mellon Bank Officer, Mellon Bank Corporation Corporation, a bank holding corporation, and Age: 64 Mellon Bank, N.A., a banking corporation. He served as a director of Teledyne beginning in 1994. Mr. Cahouet is Chairman of the Audit and Finance Committee and a member of the Committee on Governance. He is also a director of Avery Dennison Corporation, and Saint-Gobain Corporation. W. CRAIG MCCLELLAND W. Craig McClelland has been Chairman and Chief Chairman and Chief Executive Officer, Executive Officer of Union Camp Corporation, a Union Camp Corporation manufacturer of paper products, since July 1994. Age: 62 Prior to that time, he served as President and Chief Operating Officer of Union Camp. Mr. McClelland served as a director of Allegheny Ludlum beginning in 1987. He is Chairman of the Committee on Governance. He is also a director of Union Camp Corporation and PNC Bank Corp. CHARLES J. QUEENAN, JR. Charles J. Queenan, Jr. is Senior Counsel to Senior Counsel, Kirkpatrick & Lockhart LLP, attorneys-at-law. Kirkpatrick & Lockhart LLP Prior to January 1996, he was a partner of that Age: 66 firm. Mr. Queenan served as a director of Allegheny Ludlum beginning in 1980. He is the Chairman of the Personnel and Compensation Committee and a member of the Executive Committee. Mr. Queenan is also a director of Crane Co. and Medusa Corporation.
8 11 INFORMATION ABOUT THE BOARD OF DIRECTORS COMMITTEES OF THE BOARD OF DIRECTORS The Board of Directors has established six standing committees: the Executive Committee, the Audit and Finance Committee, the Committee on Governance, the Personnel and Compensation Committee, the Stock Incentive Award Committee and the Technology Committee. The Committee meetings mentioned in the following paragraphs are meetings that were held after the consummation of the Combination on August 15, 1996. EXECUTIVE COMMITTEE The Executive Committee has broad powers to act on behalf of the full Board of Directors. In practice, the Executive Committee acts when emergency issues or scheduling problems make it difficult to convene a meeting of all directors and on specific matters referred to the Committee by the Board of Directors. All actions must be reported at the Board's next meeting. The Executive Committee met once during 1996. The members of the Executive Committee are Richard P. Simmons, Chairman, Robert P. Bozzone, Charles J. Queenan, Jr. and Henry E. Singleton. AUDIT AND FINANCE COMMITTEE The Audit and Finance Committee is comprised of five directors, none of whom is an officer or employee of the Company. Among its principal audit functions, the Committee: - Makes recommendations to the Board of Directors regarding the appointment of the independent accountants for the coming year. - Reviews the scope, general extent and proposed fees of the annual audit plan and other activities of the independent accountants and the audit plan of the internal auditors. - Reviews with management and the independent accountants, upon completion of the annual audit, the financial statements and related reports for their adequacy and compliance with generally accepted accounting, reporting and disclosure standards. - Evaluates the effectiveness of the Company's internal and external audit efforts, accounting and financial controls, policies and procedures and business ethics policies and practices through a review of reports by, and at regular meetings with, the internal and external auditors and with management, as appropriate. Among its principal finance functions, the Committee: - Reviews and evaluates proposed bank credit agreements and other major financial proposals. - Reviews and evaluates Company relationships with banks and other financial institutions. - Reviews and makes recommendations to the Board of Directors concerning policies with respect to dividends, capital structure and authorized stock. The independent auditors and the internal auditors have full and free access to the Committee and meet with it, with and without management being present, to discuss all appropriate matters. The present members 9 12 of the Audit and Finance Committee are Frank V. Cahouet, Chairman, Paul S. Brentlinger, Vice Chairman, William G. Ouchi, James E. Rohr and Fayez Sarofim. The Committee met twice in 1996. COMMITTEE ON GOVERNANCE The Committee on Governance is comprised of W. Craig McClelland, Chairman, Robert P. Bozzone, Frank V. Cahouet, Robert Mehrabian, George A. Roberts and Richard P. Simmons. The Committee held one meeting in 1996. The principal responsibilities of the Committee are to: - Make recommendations to the Board of Directors with respect to candidates for nomination as new Board members and with respect to incumbent directors for nomination as continuing Board members. - Make recommendations to the Board of Directors concerning the memberships of committees of the Board and the chairpersons of the respective committees. - Make recommendations to the Board of Directors with respect to the remuneration paid and benefits provided to members of the Board in connection with their service on the Board or on its committees. - Administer the Company's formal compensation programs for directors, including the 1996 Non-Employee Director Stock Compensation Plan. - Make recommendations to the Board of Directors concerning the composition, organization and operations of the Board of Directors, including the orientation of new members and the flow of information. - Evaluate Board tenure policies as well as policies covering the retirement or resignation of incumbent directors. Under the Company's certificate of incorporation, recommendations by stockholders of potential nominees must be directed to the Corporate Secretary in the manner specified in the certificate of incorporation. See "1998 Annual Meeting and Stockholder Proposals" below. PERSONNEL AND COMPENSATION COMMITTEE The Personnel and Compensation Committee is comprised of Charles J. Queenan, Jr., Chairman, Diane C. Creel, Vice Chair, C. Fred Fetterolf, Thomas Marshall and William G. Ouchi, none of whom is an employee of the Company and each of whom is an "outside director" for the purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). See the "Board Compensation Committees Report on Executive Compensation" below. The Committee held one meeting in 1996. Among its principal duties, the Committee: - Makes recommendations to the Board of Directors concerning general executive management organization matters. - Makes recommendations to the Board of Directors concerning compensation and benefits for employees who are also directors of the Company, consults with the Chief Executive Officer on compensation and benefit matters relating to other executive officers and makes recommendations to the Board of Directors concerning compensation policies and procedures relating to executive officers generally. 10 13 - Makes recommendations to the Board of Directors concerning policy matters relating to employee benefits and employee benefit plans. - Makes recommendations to the Stock Incentive Award Committee of the Board of Directors with respect to awards of stock-based compensation to executive officers of the Company. - Administers the Company's formal incentive compensation plans, except to the extent that such plans are administered by the Stock Incentive Award Committee. STOCK INCENTIVE AWARD COMMITTEE The Stock Incentive Award Committee is comprised of Diane C. Creel, Chair, C. Fred Fetterolf, Thomas Marshall and William G. Ouchi, none of whom is an employee of the Company and each of whom is a "non-employee director" for the purposes of Rule 16b-3 of the Securities and Exchange Commission and an "outside director" for the purposes of Section 162(m) of the Code. See the "Board Compensation Committees Report on Executive Compensation" below. The Committee held one meeting in 1996. The Stock Incentive Award Committee is responsible for administering the Company's stock-based incentive compensation programs, as they apply to executive officers of the Company. TECHNOLOGY COMMITTEE The Technology Committee is comprised of Robert Mehrabian, Chairman, Arthur H. Aronson, Paul S. Brentlinger, George A. Roberts and James E. Rohr. It is concerned with the impact of technologies which do or could materially affect the success of the Company. The Committee is also responsible for assessing the technical capabilities of the Company and making recommendations to the Board of Directors concerning priorities, asset deployment and other matters relevant to the technical activities of the Company. The Committee did not meet in 1996. COMPENSATION OF DIRECTORS Directors who are not employees of the Company are paid an annual fee of $28,000, $1,500 for attendance at each meeting of the Board of Directors and $1,000 for attendance at each meeting of a committee of the Board on which they serve. In addition, each non-employee chairman of a committee is paid an annual fee of $3,000. Directors who are employees of the Company do not receive any compensation for their services on the Board or its committees. Each non-employee director also participates in the 1996 Non-Employee Director Stock Compensation Plan ("Director Stock Plan"). The purpose of the Director Stock Plan is to promote the interests of the Company and its stockholders by attracting, retaining and providing an incentive to non-employee directors through the acquisition of an equity interest in the Company and an increased personal interest in its performance. Under the Director Stock Plan, options to purchase 1,000 shares of Common Stock are generally granted to each non-employee director at the conclusion of each annual meeting of stockholders; in 1996, these options were granted to each existing director on the first trading date after the Combination became effective and, in the case of Dr. Mehrabian, on his first date of Board service. The purchase price of the Common Stock covered by the options is the fair market value of the Common Stock (as defined in the Director Stock Plan) on the date the option is granted. The Director Stock Plan also provides that each director will receive at least one-fourth of the annual retainer fee payment in the form of Common Stock and/or options to purchase Common Stock. Each director 11 14 may elect to receive additional amounts of the annual retainer fee payment, and may elect to receive all or any portion of such director's meeting fees, in the form of Common Stock and/or options to purchase Common Stock. Options granted under this part of the Director Stock Plan are intended to provide each electing director with options at an exercise value on the date of grant equal to the foregone fees; that is, if the options were exercised immediately after they were granted, and the underlying shares of Common Stock were sold immediately, the gain to be realized by the director would be equal to the foregone fees. In order to continue to attract and retain outside directors of exceptional quality, the Company also maintains a Fee Continuation Plan for Non-Employee Directors (the "Fee Continuation Plan"). Under the Fee Continuation Plan, benefits will be payable to a person who serves as a non-employee director for a period of five years or more (including service as a non-employee director of Allegheny Ludlum or Teledyne, as the case may be, prior to the Combination). The benefit will be an amount equal to the annual fee for directors in effect immediately prior to the participant's cessation of service as a director and will continue at a rate of one year of benefit for each year of the participant's credited service as a director (as defined in the Fee Continuation Plan) up to a maximum of ten years. SECURITY OWNERSHIP SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The following table sets forth information regarding the beneficial ownership of the Company's Common Stock by each person known by the Company to own beneficially own more than five percent of the outstanding Common Stock of the Company as of March 15, 1997.
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS - ---------------------------------------- ---------------------- ---------------------- Mr. and Mrs. Richard P. Simmons 16,283,357 (a) 9.2% 1000 Six PPG Place Pittsburgh, PA 15222 Henry E. Singleton 13,999,257 8.0% 335 North Maple Drive Beverly Hills, CA 90210 J. P. Morgan & Co. Incorporated 16,629,858 (b) 9.4% 60 Wall Street New York, NY 10260
(a) Mr. Simmons has the sole power to direct the voting of all of these shares, and sole power to direct the disposition of 8,157,005 of such shares. Mrs. Simmons has the sole power to direct the disposition of 8,126,392 of such shares. The amount shown includes shares held by the trustee under the Retirement Savings Plan, which is described in note (12) to the Summary Compensation Table below, for the account of Mr. Simmons as of January 31, 1997 and options to acquire 855 shares which may be acquired by Mr. Simmons within 60 days of March 15, 1997 pursuant to a Company stock plan. The foregoing does not include 140,500 shares owned by the R. P. Simmons Family Foundation; Mr. and Mrs. Simmons disclaim any beneficial ownership of such shares. (b) J. P. Morgan & Co. Incorporated has filed an amended Schedule 13G under the Securities Exchange Act of 1934, as amended, dated December 31, 1996, stating that as of that date it held sole voting power with 12 15 respect to 10,698,137 shares of Common Stock, shared voting power with respect to 244,981 shares of Common Stock, sole dispositive power with respect to 16,258,778 shares of Common Stock and shared dispositive power with respect to 363,920 shares of Common Stock. SECURITY OWNERSHIP OF MANAGEMENT The following table shows the number of shares of Common Stock of the Company reported to the Company as of March 15, 1997, as being beneficially owned by each nominee for director, each continuing director, each executive officer named in the Summary Compensation Table, and all of such persons as a group.
AMOUNT AND NATURE OF PERCENT OF NAME BENEFICIAL OWNERSHIP(1) CLASS - --------------------------------- ---------------------- ---------- Arthur H. Aronson 124,438(2)(3) * Robert P. Bozzone 5,169,605(3)(4) 2.9% Paul S. Brentlinger 6,430(5) * Frank V. Cahouet 32,315(6) * Diane C. Creel 11,766(7) * C. Fred Fetterolf 3,351(8) * Douglas J. Grant 345,537(9) * Thomas Marshall 9,309 * W. Craig McClelland 4,492(10) * Robert Mehrabian 1,526(11) * James L. Murdy 82,846(3)(12) * William G. Ouchi 2,887(13) * Charles J. Queenan, Jr. 673,063(10)(14) * George A. Roberts 808,314(15) * James E. Rohr 7,800 * William P. Rutledge 303,187(16) * Fayez Sarofim 2,534,691(17) 1.4% Richard P. Simmons 16,283,357(3)(18) 9.2% Henry E. Singleton 13,999,257 8.0% Jon D. Walton 92,174(3)(10)(19) * All directors and executive officers as a group (20 persons) 40,496,345(20) 22.9%
* Less than one percent of the outstanding shares. (1) Each person has sole voting and investment power with respect to the shares listed, unless otherwise indicated. 13 16 (2) Does not include 13,500 shares owned by Mrs. Arthur H. Aronson. Mr. Aronson disclaims beneficial ownership of such shares. Includes 48,000 shares which may be acquired within 60 days of March 15, 1997 pursuant to a Company stock incentive plan. (3) Includes shares held by the trustee under the Allegheny Ludlum Corporation Retirement Savings Plan for the account of the named person as of January 31, 1997. (4) Does not include 240,000 shares owned by Mrs. Robert P. Bozzone and 71,700 shares owned by the Bozzone Family Foundation. Mr. Bozzone disclaims beneficial ownership of such shares. (5) Does not include 200 shares owned by Mrs. Paul S. Brentlinger. Mr. Brentlinger disclaims beneficial ownership of such shares. (6) Includes 32,123 shares which may be acquired within 60 days of March 15, 1997 pursuant to a Company stock incentive plan. (7) Includes 11,385 shares which may be acquired within 60 days of March 15, 1997 pursuant to a Company stock incentive plan. (8) Does not include 2,600 shares owned by the Fetterolf Family Foundation. Mr. Fetterolf disclaims any beneficial ownership of such shares. (9) Includes 341,687 shares which may be acquired within 60 days of March 15, 1997 pursuant to a Company stock incentive plan. (10) Includes shares held jointly with the named individual's spouse. (11) Includes 526 shares which may be acquired within 60 days of March 15, 1997 pursuant to a Company stock incentive plan. (12) Includes 9,333 shares which may be acquired within 60 days of March 15, 1997 pursuant to a Company stock incentive plan. (13) Includes 1,925 shares which may be acquired within 60 days of March 15, 1997 pursuant to a Company stock incentive plan. (14) Does not include 54,100 shares owned by Mrs. Charles J. Queenan, Jr. Mr. Queenan disclaims beneficial ownership of such shares. (15) Shares are owned of record by a trust of which Dr. Roberts is sole trustee with sole voting and dispositive power. Excludes 16,541 shares owned by a trust of which Mrs. George A. Roberts is sole trustee with sole voting and dispositive power. Dr. Roberts disclaims beneficial ownership of such shares. (16) Includes 288,750 shares which may be acquired within 60 days of March 15, 1997 pursuant to a Company stock incentive plan. (17) Mr. Sarofim may be deemed to be the beneficial owner of 2,534,691 shares of Common Stock. Of such shares, Mr. Sarofim has sole voting and dispositive power as to 1,836,860 shares of Common Stock of which 50,829 are held by the Pension and Profit Sharing Trusts of Fayez Sarofim & Co. (of which Mr. Sarofim if ths trustee). Mr. Sarofim has shared voting and dispositive power with respect to 697,831 shares of Common Stock owned by Sarofim International Management Company (a wholly owned subsidiary of Fayez Sarofim & Co.). Does not include 104,169 shares of Common Stock held in investment advisory accounts managed by Fayez Sarofim & Co. for numerous clients. Pursuant to its 14 17 investment advisory contract with its clients, Fayez Sarofim & Co. has full investment discretion with respect to such investment advisory accounts; however, the clients are entitled to the economic benefits of ownership of such shares. (18) See note (a) to the table regarding "Security Ownership of Certain Beneficial Owners" above. (19) Includes 30,666 shares which may be acquired within 60 days of March 15, 1997 pursuant to Company stock incentive plan. Does not include 7,400 shares owned by Mrs. Jon D. Walton. Mr. Walton disclaims beneficial ownership of such shares. (20) Includes an aggregate of 765,250 shares which may be acquired within 60 days of March 15, 1997 pursuant to Company stock incentive plans. Does not include an aggregate of 650,710 shares with respect to which beneficial ownership is disclaimed as described above. RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS (ITEM B ON PROXY CARD) Ernst & Young LLP ("Ernst & Young") has served as independent auditors for the Company since the Combination on August 15, 1996 and served as independent auditors for Allegheny Ludlum since 1980. The Board of Directors believes that Ernst & Young is knowledgeable about the Company's operations and accounting practices and is well qualified to act in the capacity of independent auditors. Therefore, the Board of Directors has selected Ernst & Young as the Company's independent auditors for 1997. The proposal to ratify the selection of Ernst & Young will be approved by the stockholders if it receives the affirmative vote of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the proposal. If your proxy card is specifically marked as abstaining from voting on the proposal, your shares will, in effect, be voted against the proposal. Broker non-votes will not be counted as being entitled to vote on the proposal and will not affect the outcome of the vote. If the stockholders do not ratify the selection of Ernst & Young, the appointment of independent auditors will be reconsidered by the Board. It is expected that representatives of Ernst &Young LLP will be present at the Annual Meeting and will have an opportunity to make a statement if they desire to do so and will be available to respect to appropriate questions. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THE SELECTION OF ERNST & YOUNG AS INDEPENDENT AUDITORS. OTHER BUSINESS TO COME BEFORE THE MEETING In addition to the matters described above, there will be an address by Richard P. Simmons, Chairman, President and Chief Executive Officer of the Company, and a general discussion period during which the stockholders will have an opportunity to ask questions about the Company and its business. The Company knows of no business which may be presented for consideration at the Annual Meeting other than as indicated in the Notice of Annual Meeting. If any other business should properly come before the meeting, the persons designated as proxies in the proxy cards have discretionary authority to vote in accordance with their best judgment. 15 18 EXECUTIVE COMPENSATION BOARD COMPENSATION COMMITTEES REPORT ON EXECUTIVE COMPENSATION This report on executive compensation is furnished by the Personnel and Compensation Committee and the Stock Incentive Award Committee of the Board of Directors of the Company (sometimes referred to as the "Committees"). In accordance with the rules of the Securities and Exchange Commission, this report shall not be incorporated by reference into any of the Company's registration statements under the Securities Act of 1933. After the Combination of Allegheny Ludlum and Teledyne was consummated, the Committees began the development of a comprehensive compensation program for the executives of the new company. The Committees have retained the services of Hewitt Associates, a nationally recognized executive compensation and benefits consulting firm, to assist in this effort. It is contemplated that the program will cover the four components of executive compensation: base compensation, short-term incentive awards, long-term incentive programs, and benefits related to employment security and health and welfare. The amounts paid to the named executive officers as reported in the Summary Compensation Table were paid pursuant to the executive compensation policies and plans of Allegheny Ludlum and Teledyne in effect prior to the Combination. On February 12, 1997, Mr. Rutledge announced that he was resigning as President and Chief Executive Officer of the Company for personal and family reasons effective immediately. Richard P. Simmons, the Chairman of the Board and Chairman of the Executive Committee, was elected to serve as the Company's President and Chief Executive Officer. In March of 1997, the Committees took action regarding the compensation of Mr. Simmons. Their action was based on their review, in consultation with Hewitt Associates, of compensation packages for chief executive officers of comparable companies. Mr. Simmons' compensation will be paid entirely in the equity of the Company. Base salary and any short-term incentive compensation earned will be paid in Common Stock. Longer-term incentives will be in the form of options and performance units. It is contemplated that base salary and short-term incentive payments at target levels of performance will represent approximately 50% of Mr. Simmons' total compensation package. It is also contemplated that the value of the options granted to Mr. Simmons will represent approximately 60% of the value of the longer-term incentives. The amount of Mr. Simmons' base salary for 1997 will be paid by the issuance of 30,000 shares of Common Stock; based on the closing price of a share of Common Stock on the New York Stock Exchange on February 12, 1997, the date Mr. Simmons was elected to serve as the Company's President and Chief Executive Officer, Mr. Simmons' base salary can be valued at $705,000. For his 1997 incentive bonus, at the target level of performance, Mr. Simmons will receive 24,000 shares of Common Stock, or approximately 80% of his base salary. Compensation of the Company's Former Chief Executive Officer. Mr. Rutledge's base salary for 1996 was $710,000. That base salary was set by Teledyne in 1995. Mr. Rutledge's bonus for 1996 service was established under the Teledyne, Inc. Senior Executive Performance Plan (the "Teledyne SEP Plan") which was approved by stockholders in 1996 in connection with the Combination. Bonuses under the Teledyne SEP Plan were awarded to individuals who served as executive officers of Teledyne in 1996, out of a pool based on Teledyne's economic value added ("EVA") criteria for the year. For 1996, the Compensation and Stock Option Committee of Teledyne's Board of 16 19 Directors established Teledyne's EVA target at an adjusted net operating profit after tax of approximately $16.8 million in excess of the cost of capital used by Teledyne, assuming a cost of capital equal to 10%. Under the Teledyne SEP Plan, if the target were reached, Mr. Rutledge's EVA-based bonus would have been 60% of his 1996 base salary. That bonus was subject to a proportionate increase for EVA in excess of $16.8 million and a proportionate decrease for EVA below $16.8 million. Because Teledyne achieved actual EVA of approximately $47.3 million, or approximately $30.5 million in excess of the target, the Personnel and Compensation Committee determined that Mr. Rutledge be paid a bonus equal to 1.683 times 74% of his salary (14% of which was attributable to the level of personal goals achieved by Mr. Rutledge in 1996). Consistent with the prior practice established by Teledyne, the Personnel and Compensation Committee required that a portion of that bonus be carried to 1997 and 1998 and put at risk against any 1997 or 1998 "negative bonus" or added to any 1997 or 1998 "positive bonus." As a result, Mr. Rutledge was paid $794,768 and $227,498 was carried to 1997 and 1998. In 1996, Teledyne's Compensation and Stock Option Committee granted Mr. Rutledge options to purchase 288,750 shares of Company Common Stock at an exercise price (after giving effect to the Combination) of $14.61 per share. In determining the number of stock options to be granted, the Compensation and Stock Option Committee made a subjective determination based, among other things, on Mr. Rutledge's stock holdings and option holdings in Teledyne, overall compensation levels (including options) compared to certain other public companies, as well as Teledyne's performance and Mr. Rutledge's individual performance during the several preceding years and his years of service. The Compensation and Stock Option Committee did not assign specific weights to any of the factors in considered in awarding stock options to Mr. Rutledge, and did not set specific long-term target levels of share ownership for Mr. Rutledge. For a discussion of Mr. Rutledge's separation agreement with the Company, see "Separation and Severance Agreements" below. Deductibility of Executive Compensation. Under Section 162(m) of the Code, compensation paid to the Company's Chief Executive Officer and certain executive officers of the Company in excess of $1 million in any year may be non-deductible for Federal income tax purposes unless the compensation qualifies as "performance-based" compensation or is otherwise exempt under the law. The Company's 1996 Incentive Plan is intended to meet the deductibility requirements of the regulations promulgated under Section 162(m). The Committees may determine in any year that it would be in the best interests of the Company for an award or awards to be paid under the 1996 Incentive Plan or otherwise in a manner that would not satisfy the requirements of Section 162(m) and its regulations for deductibility. MEMBERS OF THE PERSONNEL AND COMPENSATION COMMITTEE Charles J. Queenan, Jr., Chairman Diane C. Creel C. Fred Fetterolf Thomas Marshall William G. Ouchi MEMBERS OF THE STOCK INCENTIVE AWARD COMMITTEE Diane C. Creel, Chair C. Fred Fetterolf Thomas Marshall William G. Ouchi 17 20 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION No member of the Personnel and Compensation Committee or Stock Incentive Award Committee during 1996 was an officer or employee of the Company. The law firm to which Mr. Queenan serves as senior counsel provided services to the Company during 1996 and 1997; Mr. Queenan does not participate in the earnings or profits of, and does not receive compensation for any services that he may provide to, such firm. Other than as indicated in the preceding sentence, no member of the Committees during 1996 had a current or prior relationship, and no executive officer of the Company had a relationship to any other company, required to be described under the Securities and Exchange Commission rules relating to disclosure of executive compensation. SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION The following Summary Compensation Table sets forth, for fiscal years 1994, 1995 and 1996, information about the compensation paid by the Company, Allegheny Ludlum and Teledyne to the Chief Executive Officer of the Company and to each of the other four most highly compensated executive officers who were serving as executive officers of the Company as of December 31, 1996 (the "named executive officers"). SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION --------------------------------------- ANNUAL COMPENSATION AWARDS PAYOUTS - ---------------------------------------------------------------------------------------------------------------------------- OTHER ANNUAL RESTRICTED SECURITIES NAME AND COMPEN- STOCK UNDERLYING LTIP ALL OTHER PRINCIPAL SALARY BONUS SATION AWARD OPTIONS/SARS PAYOUTS COMPENSATION POSITIONS(1) YEAR ($)(2) ($)(3) ($)(4) ($)(5) (#)(6) ($)(7) ($) - ---------------------------------------------------------------------------------------------------------------------------- William P. Rutledge 1996 $710,000 $794,768 -- 0 288,750 shs. 0 $ 3,000(10) President and Chief 1995 710,000 715,385 -- 0 0 0 300(10) Executive Officer(8) 1994 630,000 424,778 $329,268(9) 0 577,500 0 1,452(10) Arthur H. Aronson 1996 $400,000 $257,560 $12,216 $201,759 36,000 shs. $197,626 $553,711(12) Executive Vice 1995 300,000 374,870 28,955 87,341 0 204,021 206,496(12) President(11) 1994 260,417 0 5,676 125,356 0 205,624 248,492(12) James L. Murdy 1996 $258,399 $179,884 $10,543 $126,947 34,000 shs. $172,235 $564,571(12) Executive Vice 1995 238,706 203,114 10,574 223,576 0 164,791 118,027(12) President, Finance 1994 219,889 0 10,937 0 0 166,086 122,865(12) and Administration and Chief Financial Officer(11) Jon D. Walton 1996 $155,104 $177,931 $ 9,284 $ 74,889 24,000 shs. $114,008 $291,429(12) Vice President, 1995 140,415 85,594 9,313 134,344 0 117,708 48,770(12) General Counsel and 1994 129,778 0 9,351 0 0 118,633 51,854(12) Secretary(11) Douglas J. Grant 1996 $271,250 $222,839 -- 0 57,750 shs. 0 $ 300(10) Vice President, 1995 252,455 181,529 -- 0 38,500 0 1,079(10) Finance and 1994 222,500 106,950 -- 0 192,500 0 300(10) Deputy Chief Financial Officer
18 21 (1) Prior to the consummation of the Combination, Mr. Rutledge was Chairman of the Board of Directors and Chief Executive Officer of Teledyne, Mr. Aronson was President and Chief Executive Officer of Allegheny Ludlum, Mr. Murdy was Senior Vice President, Finance and Chief Financial Officer of Allegheny Ludlum, Mr. Walton was Vice President, General Counsel and Secretary of Allegheny Ludlum and Mr. Grant was Treasurer of Teledyne. As described below, in 1996, Messrs. Rutledge and Grant received benefits under the applicable Teledyne plans and Messrs. Aronson, Murdy and Walton received benefits under the applicable Allegheny Ludlum plans. On February 12, 1997, Mr. Rutledge resigned as President and Chief Executive Officer of the Company and Richard P. Simmons was elected as the Company's President and Chief Executive Officer. In March 1996, Mr. Grant resigned as the Vice President, Finance and Deputy Chief Financial Officer; he continues to serve as the vice president-finance for the Company's Teledyne subsidiaries. (2) In the case of Messrs. Rutledge and Grant, includes cash compensation deferred under the Teledyne, Inc. 401(k) Plan and under the Teledyne, Inc. Executive Deferred Compensation Plan. In the case of Messrs. Aronson, Murdy and Walton, includes cash compensation deferred pursuant to the savings part of Allegheny Ludlum's Retirement Savings Plan. The Teledyne 401(k) Plan and the Allegheny Ludlum Retirement Savings Plan are qualified defined contribution plans within the meaning of Section 401(a) of the Code. For Messrs. Aronson, Murdy and Walton, 1994 amounts reflect reductions in salary during the 10-week labor strike called at Allegheny Ludlum by the United Steelworkers of America on April 1, 1994; for the months of April and May, 1994, the base salary of each such individual was reduced 25%. (3) In the case of Messrs. Rutledge and Grant, includes payments under the Teledyne SEP Plan. In the case of Messrs. Aronson, Murdy and Walton, includes payments under Allegheny Ludlum's Performance Management System Plan and salaried employees' profit-sharing plan. In 1994, as a result of the 10-week labor strike called by the United Steelworkers of America on April 1, 1994, Allegheny Ludlum did not achieve the threshold level of earnings under either of these plans and, as a result, no awards were paid under the plans. (4) In accordance with applicable regulations, the amounts set forth in this column do not include perquisites and other personal benefits received by the named executive officer unless the aggregate value of such perquisites and other benefits exceeded the lesser of $50,000 or 10% of the total salary and bonus reported for the named executive officer. (5) Represents the closing market price on the New York Stock Exchange, on the award date, of a number of shares of Common Stock equal to the number of shares of restricted stock awarded to the named executive under the Allegheny Ludlum Stock Acquisition and Retention Plan. The market price does not take into account any diminution in value attributable to the restrictions applicable to the shares awarded under 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 a period of five years. The approval by the Allegheny Ludlum shareholders of the Combination of Allegheny Ludlum and Teledyne constituted a "change of control" as defined in the plan which caused the forfeiture restrictions on the restricted shares held by Messrs. Murdy and Walton to lapse. Prior to the Combination, Mr. Aronson agreed that the restrictions on his restricted shares would not lapse as a result of the Combination. See note (12) below. On December 31, 1996, Mr. Aronson held 19,852 restricted shares of Common Stock under the plan; the closing market price of that number of shares on the New York Stock Exchange on December 31, 1996 was $456,596. Messrs. Murdy and Walton held no restricted shares of Common Stock under the plan at December 31, 1996. 19 22 (6) Reflects options awarded under an employee stock option plan of Teledyne or Allegheny Ludlum, as the case may be. The amount represents the number of shares the executive officer could purchase by exercising the options. (7) For Messrs. Aronson, Murdy and Walton, payments reflect the achievement of 97% of the performance objectives for the 1991-1993 award period under the Allegheny Ludlum Performance Share Plan for Key Employees. Payment of the awards to the 43 participants over a three-year period began in 1994. The amount represents the cash and the market value of the shares of Common Stock distributed under the plan on the relevant valuation dates. (8) For a description of Mr. Rutledge's separation agreement, see "Separation and Severance Agreements" below. (9) In connection with the refinancing of his mortgage obligations, in 1994, Teledyne made a special payment to Mr. Rutledge of $300,000, the after-tax proceeds of which were used to reduce substantially the Teledyne-guaranteed loan balance. (10) The amounts include the contribution of $300 made for each of Messrs. Rutledge and Grant under the Teledyne, Inc. 401(k) plan. The amounts also include payments made on behalf of the named executive officer for additional group term life insurance premiums not generally paid on behalf of all salaried employees under Teledyne life insurance plans, as follows: Mr. Rutledge, $2,700 ; Mr. Grant, $0. (11) For a description of the Company's employment agreements with Messrs. Aronson, Murdy and Walton, see "Employment Agreements" below. (12) The amounts include the annual accruals made by Allegheny Ludlum with respect to possible future payments to the named executive officers under the Allegheny Ludlum Supplemental Pension Plan described at "Pension Plans--Provisions Applicable to Former Employees of Allegheny Ludlum" below. For 1996, the amounts accrued were as follows: Mr. Aronson, $456,592; Mr. Murdy, $126,817; and Mr. Walton, $43,381. Also included are Allegheny Ludlum's contributions to each of the accounts of Messrs. Aronson, Murdy and Walton pursuant to the Retirement portion of the Allegheny Ludlum Retirement Savings Plan in the amount of $10,270 for 1996 as well as Allegheny Ludlum's contributions to the accounts of the following executive officers pursuant to the Savings portion of the Allegheny Ludlum Retirement Savings Plan, which in 1996 were as follows: Mr. Aronson, $4,667; Mr. Murdy, $4,661; and Mr. Walton, $4,486. The amounts also include contributions by Allegheny Ludlum to the Allegheny Ludlum Benefit Restoration Plan which, in 1996, were as follows: Mr. Aronson, $56,903; Mr. Murdy, $28,816; and Mr. Walton, $7,189. Under the Benefit Restoration Plan, Allegheny Ludlum supplements the payments received by participants under the Allegheny Ludlum Pension Provisions described at "Pension Plans" below and the Retirement and Savings parts of the Retirement Savings Plan by making payments to or accruing benefits on behalf of such participants in amounts which are the equivalent of the portion of the payments or benefits which cannot be paid or accrued under such plans as a result of the limitations imposed by the Code. For 1996, also included are the dollar values of the benefits to the following executive officers of the remainder of Allegheny Ludlum-paid premiums for "split dollar" life insurance, as follows: Mr. Aronson, $6,429; Mr. Murdy, $5,177; and Mr. Walton, $3,669. For 1996, the amount also includes the final of three annual installments of cash awards made by Allegheny Ludlum to a total of 43 management personnel, including the following executive officers, in order to recognize their contributions on behalf of Allegheny Ludlum during 1991-1993: Mr. Aronson, $18,850; Mr. Murdy, $15,225; and Mr. Walton, $10,875. Also included is the dollar value of the shares of restricted stock acquired by the following executive officers under the Allegheny Ludlum Stock 20 23 Acquisition and Retention Plan which vested upon the approval by the Allegheny Ludlum shareholders of the Combination of Allegheny Ludlum and Teledyne, which constituted a "change of control" of Allegheny Ludlum, as defined in the plan: Mr. Murdy, $373,605; and Mr. Walton, $211,559. The dollar value represents the average of the high and low sales prices of a share of Allegheny Ludlum Common Stock on the New York Stock Exchange on the date the change of control occurred. Prior to the Combination, Mr. Aronson agreed that the restrictions on his restricted shares would not lapse as a result of the Combination. STOCK OPTIONS The following table sets forth information regarding the grant of stock options during 1996 under the employee stock option plans of Allegheny Ludlum and Teledyne, as the case may be, to each of the executive officers named in the Summary Compensation Table and to all optionees as a group, in each case adjusted to reflect the Combination. OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS (1) -------------------------------------------------------------------- % NUMBER OF OF TOTAL POTENTIAL REALIZABLE SECURITIES OPTIONS/ VALUE AT ASSUMED ANNUAL UNDERLYING SARS RATES OF STOCK PRICE OPTIONS/ GRANTED TO EXERCISE APPRECIATION FOR OPTION TERM (2) SARS EMPLOYEES OR BASE ------------------------------------ GRANTED IN FISCAL PRICE EXPIRATION 0% 5% 10% NAME (#) YEAR ($/ SHARE) DATE ($)(3) ($) ($) - -------------- --------- ---------- --------------- ----------------- ------ ---------- ---------- William P. Rutledge 288,750 shs. 14% $14.61 3/27/07 $ 0 $2,996,619 $7,817,704 Arthur A. Aronson 36,000 2% $21.125 5/16/06 0 478,282 1,212,041 James L. Murdy 34,000 2% $21.125 5/16/06 0 451,710 1,144,705 Jon D. Walton 24,000 1% $21.125 5/16/06 0 318,854 808,027 Douglas J. Grant 57,750 3% $14.61 3/27/07 0 599,324 1,563,541 All Optionees 2,058,200 100% $13.77-$21.125 5/16/06-4/23/07 0 23,168,531 59,821,889
(1) Options under the Teledyne employee stock option plan, which were granted to Messrs. Rutledge and Grant, are exercisable at the rate of 25% per year, commencing on the first anniversary date of the grant. Options granted under the Allegheny Ludlum plan become exercisable in one-third increments, after May 31, 1999, May 31, 2000 and May 31, 2001. Under each plan, options include the right to pay the exercise price in cash or in previously acquired Company Common Stock, and the right to have shares withheld by the Company to pay withholding tax obligations due in conjunction with the exercise. (2) These assumed "potential realizable values" are mathematically derived from certain prescribed rates of stock price appreciation. The actual value of these option grants is dependent on the future performance of Company Common Stock and overall stock market conditions. There is no assurance that the values reflected in this table will be achieved. (3) No gain to the optionees is possible without stock price appreciation, which will benefit all stockholders commensurately. Zero percent stock price appreciation will result in zero dollars for the optionee. The following table sets forth information regarding the exercise of stock options during 1996 and the unexercised options held as of the end of 1996 by the named executive officers, as adjusted to reflect the Combination. 21 24 AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS/SARS AT FY-END (#) IN-THE MONEY OPTIONS/ SHARES SARS AT FY-END ($) (2) ACQUIRED VALUE REALIZED ------------------------------ ------------------------------ NAME ON EXERCISE (#) ($) (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------ ---------------- -------------- ----------- ------------- ----------- ------------- William P. Rutledge 0shs. $ 0 789,250shs. 649,688shs. $10,878,652 $ 7,507,506 Arthur H. Aronson 27,000 306,585 48,000 60,000 441,750 69,000 James L. Murdy 9,334 86,340 9,333 52,667 583 64,917 Jon D. Walton 4,500 44,078 30,666 39,334 282,229 45,958 Douglas J. Grant 0 0 264,687 197,313 3,402,239 2,352,164
(1) The amount shown as "value realized" is calculated by subtracting the exercise price paid by an optionee upon exercise of an option from the mean between the high and low sales prices of a share of Company Common Stock on the New York Stock Exchange on the date the option was exercised. (2) The "value of unexercised in-the-money options" is calculated by subtracting the exercise price from $23.00, which was the mean between the high and low sales prices of a share of Company Common Stock on the New York Stock Exchange on December 31, 1996. PENSION PLANS In 1996, the underfunded defined benefit pension plans of Allegheny Ludlum and subsidiaries were merged with overfunded defined benefit pension plans of Teledyne. The plan mergers created the Allegheny Teledyne Incorporated Pension Plan (the "Allegheny Teledyne Pension Plan"), which is a single defined benefit plan, qualified under the Code. The benefit formulas and distribution provisions applicable to the employee participants of Teledyne prior to the Combination and the provisions applicable to the employee participants of Allegheny Ludlum prior to the Combination did not change as a result of the Combination or plan mergers. The benefits payable from a qualified defined benefit plan are limited by Section 415 of the Code to an annual benefit of $120,000 payable at age 65 with an actuarial reduction for earlier commencement. In addition, the Code imposes an annual limit upon the amount of compensation which may be included in the calculation of a benefit from a tax-qualified plan; in 1996, the maximum includable compensation was $150,000. The amounts shown in the table below indicate the aggregate of payments under the Allegheny Teledyne Pension Plan and, in the case of Messrs. Rutledge and Grant, Teledyne's Pension Equalization Plan described below and, in the case of Messrs. Aronson, Murdy and Walton, the defined benefit portion of Allegheny Ludlum's Benefit Restoration Plan described in note (12) to the Summary Compensation Table. Provisions Applicable to Former Employees of Allegheny Ludlum. In 1988, Allegheny Ludlum adopted the Retirement part of its Retirement Savings Plan referred to in note (12) to the Summary Compensation Table, and amended its pension plan for salaried employees, which is now a part of the Allegheny Teledyne Pension Plan (the "Allegheny Ludlum Pension Provisions"), to provide that no additional benefits would accrue thereunder from and after December 31, 1988, except for those employees who were grandfathered under the Allegheny Ludlum Pension Provisions. Benefits accrued prior to January 1, 1989 will be paid at the time, in the form and in the amount determined under the Allegheny Ludlum Pension Provisions. 22 25 The following table shows the estimated annual benefits calculated on a straight life annuity basis payable under the Allegheny Ludlum Pension Provisions and the defined benefit portion of the Allegheny Ludlum Benefit Restoration Plan described at note (12) to the Summary Compensation Table to participants in specified compensation and years of service classifications upon attainment of age 65. ALLEGHENY LUDLUM PENSION PLAN TABLE
ESTIMATED ANNUAL PENSION BENEFITS FOR REMUNERATION REPRESENTATIVE YEARS OF CONTINUOUS SERVICE - ------------------------------------------------------------------------------------------------------- 15 20 25 30 35 40 $ 200,000 $ 48,000 $ 64,000 $ 80,000 $ 96,000 $112,000 $128,000 300,000 72,000 96,000 120,000 144,000 168,000 192,000 400,000 96,000 128,000 160,000 192,000 224,000 256,000 500,000 120,000 160,000 200,000 240,000 280,000 320,000 600,000 144,000 192,000 240,000 288,000 336,000 384,000 800,000 192,000 256,000 320,000 384,000 448,000 512,000 1,000,000 240,000 320,000 400,000 480,000 560,000 640,000
The formula used to determine retirement benefits under the Allegheny Ludlum Pension Provisions considers the participant's annual eligible earnings in the highest five consecutive years of the last ten years prior to retirement or, in the case of Allegheny Ludlum employees with frozen benefits, prior to 1988, and the number of the participant's years of service. Eligible earnings include base salary, including tax-deferred contributions by the employee under Allegheny Ludlum's savings plans, and awards, when received, under the Allegheny Ludlum Performance Management System Plan. In certain circumstances, pension benefits are subject to integration with Social Security and reduction for other payments made to the participant and his or her spouse. As of December 31, 1996, Messrs. Aronson, Murdy and Walton had 0.08, 0.58 and 2.83 credited years of service, respectively. For vesting purposes, Messrs. Aronson and Murdy each had 8 years of service and Mr. Walton had 10 years of service and each such individual is fully vested in the Allegheny Ludlum Pension Provisions. In addition, Allegheny Ludlum has established a Supplemental Pension Plan which provides certain key employees of the company (or their beneficiaries in the event of death) with monthly payments in the event of retirement, disability or death, equal to 50 percent of monthly base salary as of the date of retirement, disability or death. Monthly retirement benefits start two months following the later of (1) age 62, if actual retirement occurs prior to age 62 but after age 58 with the approval of the Board of Directors, or (2) the date actual retirement occurs, and continue for a 118-month period. The plan describes the events that will terminate an employee's participation in the plan. Since the payment of benefits to Messrs. Aronson, Murdy and Walton is contingent on future events, the amount to be paid in the future with respect to such officers cannot be determined at this time. 23 26 Provisions Applicable to Former Employees of Teledyne. The following table shows the estimated annual benefits calculated on a straight life annuity basis payable under the part of the Allegheny Teledyne Pension Plan applicable to employees of Teledyne (the "Teledyne Pension Provisions") and Teledyne's Pension Equalization Plan to participants in specified compensation and years of service classifications upon attainment of age 65. The Pension Equalization Plan is designed to restore benefits which would be payable under the Teledyne Pension Plan Provisions but for the limits imposed by the Code, to the levels set forth in the Provisions, calculated pursuant to the formula in the Provisions. TELEDYNE PENSION PLAN TABLE
ESTIMATED ANNUAL PENSION BENEFITS FOR REMUNERATION(1) REPRESENTATIVE YEARS OF CREDITED SERVICE(2) - ------------------------------------------------------------------------------------------------- 15 20 25 30 $ 200,000 $ 46,643 $ 62,190 $ 77,738 $ 93,286 300,000 71,393 95,190 118,988 142,786 400,000 96,143 128,190 160,238 192,286 500,000 120,893 161,190 201,488 241,786 600,000 145,643 194,190 242,738 291,286 700,000 170,393 227,190 283,988 340,786 800,000 195,143 260,190 325,238 390,286 1,000,000 244,643 326,190 407,738 489,286
(1) For periods through December 31, 1994, plan compensation was limited to an individual's base salary. Effective January 1, 1995, plan compensation includes base salary and incentive compensation received on and after January 1, 1996. (2) Maximum benefits payable under the Teledyne Pension Provisions are reached after 30 years of credited service. The Teledyne Pension Provisions cover employees, except nonsupervisory production or maintenance employees, with at least one year of service to Teledyne or those of its divisions or subsidiaries that have adopted the Provisions. Participants vest in their accrued benefits under the Teledyne Pension Provisions after five years of service to Teledyne or its divisions or subsidiaries. The formula used to determine retirement benefits under the Teledyne Pension Provisions depends upon an individual's average compensation (as described below) over the 60 highest consecutive months during the 120 months preceding termination of employment and the number of years the individual has participated in the Teledyne Pension Provisions. Compensation under the provisions of the Teledyne Pension Provisions and the Teledyne Pension Equalization Plan for 1996 for Messrs. Rutledge and Grant was $868,033 and $280,696, respectively. Benefits payable under the Teledyne Pension Provisions are not subject to any deduction for Social Security or other offset amounts. As of December 31, 1996, Messrs. Rutledge and Grant had 11 and 19.2 credited years of service, respectively, for purposes of the Teledyne Pension Provisions. 24 27 SEPARATION AND SEVERANCE AGREEMENTS In 1995, Teledyne entered into individual severance agreements with each of the individuals who then served as executive officers of Teledyne, including Messrs. Rutledge and Grant. On February 26, 1996, Teledyne's board of Directors approved amendments to these agreements extending their terms for one year. Separation Agreement. As previously reported, Mr. Rutledge has resigned as a director, officer and employee of the Company and its subsidiaries. Under a separation agreement dated as of March 6, 1997 between the Company and Mr. Rutledge (which supersedes Mr. Rutledge's severance agreement with Teledyne, under which he would have been entitled to payments under certain circumstances), Mr. Rutledge received from the Company a cash payment of $3.13 million on the effective date of the agreement. The agreement also provides that Mr. Rutledge will serve as a consultant to the Chairman of the Company until April 1, 2000 for which he will receive a monthly retainer of $23,000 plus $500 per hour in addition to 40 hours in any month and continue to receive health and life insurance benefits (except to the extent provided through other employment). Mr. Rutledge will also serve as a director of Teledyne Industries International, Inc. ("TII"), a subsidiary of Teledyne, Inc. Under the agreement, Mr. Rutledge will also receive a pro rata portion of his 1997 performance-based bonus, payable under the same criteria and at the same time as 1997 performance-based bonuses are paid to other Company executives, as well as amounts carried to 1997 under Teledyne's EVA-based plans. In addition, Mr. Rutledge will continue to have all rights and benefits under his stock option agreements in accordance with their terms so long as he continues to be a director of TII and will continue to be entitled to benefits under Teledyne retirement plans to the extent accrued on the date he resigned as an officer of the Company Severance Agreement. The severance agreement between Teledyne and Mr. Grant provides various severance benefits to Mr. Grant in the event his employment is terminated involuntarily (other than for cause, disability or death) or voluntarily, in either case within one year of the occurrence of a change of control of Teledyne. The combination of Teledyne and Allegheny Ludlum constituted a change of control of Teledyne for purposes of the agreement. The severance agreement provides for the following severance benefits to Mr. Grant: (1) a lump sum payment based on a multiple of his annualized compensation, including performance bonuses, (2) continuation for up to two years of the life and health insurance benefits that were being provided by Teledyne to him and his family immediately prior to termination, (3) personal financial and estate planning services, and (4) outplacement services for up to 52 weeks at Teledyne's expense (up to a maximum of $15,000). The severance compensation multiple for Mr. Grant is 2.25. All severance benefits payable under the severance agreement will be reduced to the extent necessary to prevent Mr. Grant from being subject to the excise tax provisions of Section 4999 of the Code applicable to any "excess parachute payment" (as defined in Section 280G of the Code) and to preserve the ability of the Company to deduct the severance benefits paid; provided, that the severance benefits payable to Mr. Grant may not exceed the highest amount payable to Teledyne's Chairman and Chief Executive Officer. EMPLOYMENT AGREEMENTS The Company is a party to employment agreements, which became effective at the effective time of the Combination, with Messrs. Aronson, Murdy and Walton. The agreements provide for the payment of base salary as well as for eligibility to participate in incentive compensation, equity, employee and fringe benefit plans offered to senior executives of the Company. The term of the agreement with Mr. Aronson ends on his sixty-fifth birthday. The term of the agreements with Messrs. Murdy and Walton are for an initial three-year 25 28 term which, absent notice from one party to the other, renews automatically each month on and after the second anniversary of its effective date so that the then remaining term will be no less than one year. The agreements generally terminate prior to the expiration date without breach by any party in the event of the death, disability or voluntary resignation of the employee. The Company may also terminate the agreement for cause without breach by it. An employee may resign for good reason (which is defined to include demotion, reduction in base pay, or movement of corporate headquarters and, in the case of the agreements with Messrs. Murdy and Walton, resignation within one year after the effective time of the Combination) and receive severance payments equal to the base pay and bonus, determined based on actual financial results, as well as continued participation in certain compensation and employee benefit plans for the then remaining term, including certain supplemental pension benefits. Under the agreements with Messrs. Murdy and Walton, they would not be entitled to such supplemental pension benefits if they were to voluntarily resign within one year after the effective time of the Combination. CUMULATIVE TOTAL STOCKHOLDER RETURN The graph set forth below shows the cumulative total stockholder return (i.e., price change plus reinvestment of dividends) on Company Common Stock from the first day of trading in the Common Stock following the Combination through December 31, 1996 as compared to the S&P 500 Index, the S&P Iron & Steel Index and a peer group index consisting of Allied Signal, Inc., Crane Co., Tenneco, Inc. and Textron Inc. The graph assumes that $100 was invested on August 16, 1996. In accordance with the rules of the Securities and Exchange Commission, this presentation shall not be incorporated by reference into any of the Company's registration statements under the Securities Act of 1933. TOTAL STOCKHOLDER RETURNS
MEASUREMENT PERIOD ALLEGHENY S&P 500 S&P IRON & (FISCAL YEAR COVERED) TELEDYNE INDEX STEEL INDEX PEER GROUP AUGUST 16 1996 100 100 100 100 SEPTEMBER 1996 108.38 103.53 105.03 102.51 DECEMBER 1996 110.93 112.16 106.30 107.29
26 29 CERTAIN TRANSACTIONS Argonaut Group, Inc. Three of the Company's directors, George A. Roberts, Fayez Sarofim and Henry E. Singleton, also are directors of Argonaut Group, Inc. ("Argonaut Group"), a former subsidiary of Teledyne. In addition, as of February 15, 1997, directors of the Company beneficially owned in the aggregate more than 28% of the outstanding stock of Argonaut Group. Teledyne has provided Argonaut Group with certain investment trade execution services. During 1996, Argonaut Group paid Teledyne approximately $116,911 for these services. During 1996, Argonaut Insurance Company ("Argonaut Insurance"), a subsidiary of Argonaut Group, paid Teledyne approximately $1,052,212 pursuant to certain retrospective rating provisions of insurance policies previously written by Argonaut Group for Teledyne. Future payments to or from Argonaut Insurance may be required under the retrospective rating provisions and reinsurance provisions of such policies. In 1996, the Company paid approximately $1,284,502 to AGI Properties, Inc. ("AGI), a non-insurance subsidiary of Argonaut Insurance, pursuant to a real property leases in Los Angeles, California. The Company believes that the transactions described above have been entered into on terms no less favorable than could have been negotiated with non-affiliated third parties. Unitrin, Inc. Three of the Company's directors, George A. Roberts, Fayez Sarofim and Henry E. Singleton, also are directors of Unitrin, Inc. ("Unitrin"), a former subsidiary of Teledyne. In addition, as of December 31, 1996, directors of the Company beneficially owned in the aggregate more than 29% of the outstanding stock of Unitrin. Teledyne has provided Unitrin with certain investment trade execution and other professional services, as well as the use of company aircraft. During 1996, Unitrin paid Teledyne approximately $458,345 for these services. Unitrin provided data processing services to Teledyne for which Teledyne paid approximately $972,396 in 1996. In addition, during 1996, Unitrin earned premiums of approximately $6.1 million for group life insurance coverages on Teledyne employees and their dependents. In prior years, pursuant to certain contractual arrangements with Teledyne, Unitrin insured Teledyne and its subsidiaries for certain coverages, including workers' compensation, general liability and automobile liability. These insurance arrangements contained retrospective rating and reinsurance provisions which reduce Unitrin's financial exposure by giving it recourse against Teledyne and its subsidiaries. The Company believes that the transactions described above have been entered into on terms no less favorable than could have been negotiated with non-affiliated third parties. In addition, Teledyne and Unitrin have certain indemnities with respect to certain tax matters and the operation of Teledyne prior to the 1990 distribution of Unitrin stock to Teledyne's stockholders. Code, Hennessy & Simmons Funds. Allegheny Ludlum and subsidiaries of Allegheny Ludlum have engaged in investment transactions with two limited partnership funds: Code, Hennessy and Simmons Limited Partnership ("Fund I"), and Code, Hennessy & Simmons II L. P. ("Fund II"). The objective of both funds is to seek maximum return by investing in leveraged buyouts of operating companies. Profits and losses of Fund I and of Fund II are allocated 80 percent to the limited partners and 20 percent to the general partner. The general partner of Fund I is CHS Management Limited Partnership ("CHS I"), and the general partner of Fund II is CHS Management II, L. P. ("CHS II"). The general partners of CHS I and the stockholders of the general partner of CHS II are Andrew W. Code, Daniel J. Hennessy, and Brian P. Simmons, each of whom has an equal interest in each of such firms. Brian P. Simmons is the son of Richard P. Simmons, Chairman, President and Chief Executive Officer of the Company. 27 30 At the end of the first quarter of 1994, Allegheny Ludlum voluntarily contributed its limited partnership interest in Fund I to an irrevocable trust established for the purpose of partially funding the retiree medical and insurance benefit obligations Allegheny Ludlum has to its employees represented by the United Steelworkers of America. Later in the 1994 and 1995 fiscal years and in the first quarter of 1996, Allegheny Ludlum voluntarily contributed investments it had made in Fund II, in the amounts of $5.6 million, $7.5 million and $1.5 million, respectively, to the irrevocable trust. In February 1997, Allegheny Ludlum contributed investments it had made in Fund II in the amount of $6 million to a subsidiary of Allegheny Ludlum. Subsequently, Allegheny Ludlum voluntarily contributed its remaining investment in Fund II to the irrevocable trust. Investors had made commitments to invest approximately $155 million in Fund II, which was formed in 1993, including $30 million to be invested by Allegheny Ludlum. A subsidiary of Allegheny Ludlum continues to be the limited partner in CHS I and CHS II and to receive 10 percent of CHS I's 20 percent share of Fund I's net profits and losses (i.e., two percent of Fund I's net profits and losses). The same subsidiary is a limited partner in CHS II and receives 5 percent of CHS II's 20 percent share of Fund II's net profits and losses (i.e., one percent of Fund II's net profits and losses). During 1996, the Allegheny Ludlum subsidiary that invested in CHS I made no investments in, and received no distributions, from CHS I. The same subsidiary made investments of $116,822 in, and received distributions of $16,629 from, CHS II. CHS I and CHS II are responsible for managing the selection and structuring of their respective fund's investments. In 1996, the annual base management fee for each fund was 1.8% of the fund's total capital commitments. In each case, the management fees were offset by fees which the general partner charges to companies its fund acquires. After the offset for fees, the net amounts received by CHS I and CHS II were 0.8% and 0%, respectively. In addition to the investment by the Company, Richard P. Simmons, Chairman, President and Chief Executive Officer of the Company, Robert P. Bozzone, Vice Chairman of the Board of the Company, and a subsidiary of PNC Bank Corp. have invested or will invest $4,473,360, $1,250,000, and $5,000,000, respectively, in Fund I. In addition to the investment by the Company, Messrs. Simmons and Bozzone, and a subsidiary of PNC Bank Corp., directly or indirectly, have invested or will invest $5.2 million, $2.5 million, and $7.5 million, respectively, in Fund II. James E. Rohr, President of PNC Bank Corp., is a member of the Company's Board of Directors. Pursuant to a written agreement with another subsidiary, Allegheny Ludlum agreed to furnish consulting services which the subsidiary in turn has agreed to furnish to CHS I. Under this agreement, no fee is to be paid for the services of Richard P. Simmons, who is primarily responsible for such consultations, or James L. Murdy, the Executive Vice President, Finance and Administration and Chief Financial Officer, for up to one day per week each. A similar arrangement may be made with respect to CHS II. In 1995 and 1996, no substantial services were provided to CHS I which required the payment of compensation. Richard P. Simmons also serves as a member of Advisory Boards of Fund I and Fund II. Kirkpatrick & Lockhart LLP. The Company retained the law firm of Kirkpatrick & Lockhart LLP to perform services for the Company during 1996 and 1997. Charles J. Queenan, Jr., a member of the Company's Board of Directors, is senior counsel to that law firm. See "Compensation Committee Interlocks and Insider Participation." Loan Guarantee. Teledyne has guaranteed repayment to an unaffiliated banking institution of $464,000 of Mr. Rutledge's loan obligations with respect to his residence in Los Angeles. As of March 1, 1997, Mr. Rutledge was current in this obligation. 28 31 Loans under Stock Acquisition and Retention Plan. Under the terms of the Allegheny Ludlum Stock Acquisition and Retention Plan, persons who served as executive officers of Allegheny Ludlum could deliver a promissory note, payable to Allegheny Ludlum, as payment for the purchase price of the shares of Common Stock purchased under the plan. Each note has a term of not more than 10 years and is secured by the shares of Common Stock being purchased with the note. Interest accrues on the notes at a rate, as determined on the applicable purchase date, equal to the lesser of the average borrowing rate of Allegheny Ludlum or the prime lending rate of PNC Bank, but not lower than the minimum rate necessary to avoid imputed interest under the applicable federal income tax laws. During the 1996 fiscal year, James L. Murdy, Executive Vice President, Finance and Administration and Chief Financial Officer, and Jon D. Walton, Vice President, General Counsel and Secretary, delivered promissory notes to Allegheny Ludlum to pay the purchase price of Common Stock purchased under the plan. The largest amount of indebtedness outstanding under the plan during the 1996 fiscal year and the amount of indebtedness outstanding under the plan as of March 3, 1997 were $714,191 and $712,905 for Mr. Murdy and $428,020 and $427,051 for Mr. Walton, respectively. ANNUAL REPORT ON FORM 10-K COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K, WITHOUT EXHIBITS, CAN BE OBTAINED WITHOUT CHARGE FROM THE CORPORATE SECRETARY AT 1000 SIX PPG PLACE, PITTSBURGH, PENNSYLVANIA 15222-5479. 1998 ANNUAL MEETING AND STOCKHOLDER PROPOSALS Under Rule 14a-8 of the Securities and Exchange Commission, proposals of stockholders intended to be presented at the 1998 Annual Meeting of Stockholders must be received no later than November 28, 1997 for inclusion in the Proxy Statement and proxy card for that meeting. In addition, the Company's certificate of incorporation provides that in order for nominations or other business to be properly brought before an annual meeting by a stockholder, the stockholder must give timely notice thereof in writing to the Secretary of the Company. To be timely, a stockholder's notice must be delivered to the Secretary not less than 60 days and not more than 90 days prior to the first anniversary of the preceding year's annual meeting which, in the case of the 1998 Annual Meeting of Stockholders, would be no earlier than January 31, 1998 and no later than February 15, 1998. If, however, the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, to be timely, notice by the stockholder must be so delivered not earlier than the 90th day prior to such annual meeting and not later than the later of the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. The Company's certificate of incorporation also requires that such notice contain certain additional information. Copies of the certificate of incorporation can be obtained without charge from the Corporate Secretary. By order of the Board of Directors /s/ JON D. WALTON Jon D. Walton Vice President, General Counsel and Secretary Dated: March 27, 1997 29 32 ALLEGHENY TELEDYNE INCORPORATED PROXY FOR 1997 ANNUAL MEETING Solicited on Behalf of the Board of Directors of Allegheny Teledyne Incorporated The undersigned hereby appoints James L. Murdy, Mary W. Snyder and Jon D. Walton or any of them, each with power of substitution and revocation, proxies or proxy to vote all shares of Common Stock which the undersigned is entitled to vote with all powers which the undersigned would possess if personally present, at the Annual Meeting of Stockholders of Allegheny Teledyne Incorporated on May 1, 1997, and any adjournments thereof, upon the matters set forth on the reverse of this card, and, in their discretion, upon such other matters as may properly come before such meeting. STOCKHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THIS PROXY CARD AND TO RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED. THIS PROXY CARD, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO DIRECTION TO THE CONTRARY IS INDICATED, IT WILL BE VOTED FOR ALL PROPOSALS. PLEASE VOTE, DATE AND SIGN ON THE REVERSE SIDE. FOLD AND DETACH HERE Please mark your vote as indicated in this example [ X ] THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING ITEMS: A. ELECTION OF DIRECTORS. FOR WITHHELD all nominees (except from all nominees as indicated) [ ] [ ] A. Election of Diane C. Creel, C. Fred Fetterolf, Robert Mehrabian and Richard P. Simmons as Class I directors. (To withhold authority to vote for any nominee(s), write the name(s) of the nominee(s) in the space that follows: - ---------------------------------------------------------------------------- B. SELECTION OF AUDITORS. FOR AGAINST ABSTAIN [ ] [ ] [ ] DATE: , 1997 -------------------------- ------------------------------------- ------------------------------------- (Signature or Signatures) Please sign EXACTLY as your name appears at the left. When signing as a fiduciary or corporate officer, give full title. For joint accounts, please furnish both signatures. FOLD AND DETACH HERE [LOGO] ALLEGHENY TELEDYNE INCORPORATED 1000 Six PPG Place Pittsburgh, PA 15222-5479 Dear Stockholder: Enclosed are materials relating to Allegheny Teledyne Incorporated's 1997 Annual Meeting of Stockholders. The Notice of the Meeting and Proxy Statement describe the formal business to be transacted at the meeting. Your vote is important. Please complete sign and promptly return the attached proxy card in the accompanying postage-paid envelope whether or not you expect to attend the meeting. /s/ JON D. WALTON --------------------------------- Jon D. Walton Vice President, General Counsel and Secretary 33 ALLEGHENY TELEDYNE INCORPORATED VOTING INSTRUCTION CARD FOR 1997 ANNUAL MEETING Personal Retirement and 401(k) Savings Account Plan Retirement Savings Plan Savings and Security Plan of the Lockport and Waterbury Facilities Savings and Security Plan of the Tubular Products and Plate Products Divisions The 401(k) Savings Account Plan of Allegheny Ludlum Corporation SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF ALLEGHENY TELEDYNE INCORPORATED The undersigned hereby directs the Trustee of the above Plans to vote the shares of Common Stock allocated to the account of the undersigned under the Plans, at the Annual Meeting of Stockholders of Allegheny Teledyne Incorporated on May 1, 1997, and any adjournments thereof, upon the matters set forth on the reverse of this card, and, in its discretion, upon such matters as may properly come before such meeting. PLAN PARTICIPANTS ARE REQUESTED TO COMPLETE, DATE AND SIGN THIS CARD AND TO RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED. THIS VOTING INSTRUCTION CARD, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO DIRECTION TO THE CONTRARY IS INDICATED, IT WILL BE VOTED "FOR" ALL PROPOSALS. PLEASE VOTE, DATE AND SIGN ON THE REVERSE SIDE. FOLD AND DETACH HERE Please mark your vote as indicated in this example [ X ] THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING ITEMS: A. ELECTION OF DIRECTORS. FOR WITHHELD all nominees (except from all nominees as indicated) [ ] [ ] A. Election of Diane C. Creel, C. Fred Fetterolf, Robert Mehrabian and Richard P. Simmons as Class I directors. (To withhold authority to vote for any nominee(s), write the name(s) of the nominee(s) in the space that follows: - ---------------------------------------------------------------------------- B. SELECTION OF AUDITORS. FOR AGAINST ABSTAIN [ ] [ ] [ ] DATE: , 1997 ------------------------------ ----------------------------------------- ----------------------------------------- (Signature) Please sign EXACTLY as your name appears at the left. FOLD AND DETACH HERE ALLEGHENY TELEDYNE INCORPORATED Personal Retirement and 401(k) Savings Account Plan Retirement Savings Plan Savings and Security Plan of the Lockport and Waterbury Divisions Savings and Security Plan of the Tubular Products and Plate Products Divisions The 401(k) Savings Account Plan of Allegheny Ludlum Corporation March 27, 1997 Enclosed you will find a copy of the Allegheny Teledyne Incorporated 1996 Annual Report, a Notice of the 1997 Annual Meeting of Stockholders and Proxy Statement, a voting instruction card (above), a postage-paid return envelope addressed to Mellon Bank, N.A., as Trustee of each of the above-named Plans, and a postage-paid ticket request card. As a participant in one of the Plans, you have the right to direct the Trustee as to the manner in which voting rights will be exercised at the meeting with respect to the shares of Common Stock of the Company allocated to your Plan account and shown on the above voting instruction card. Your directions to the Trustee will be held in complete confidence by the Trustee except as may be necessary to meet legal requirements. The Trustee will vote shares for which no participant instructions are received in the same proportion as shares for which participant instructions have been received. The enclosed Proxy Statement contains detailed information concerning voting at the Annual Meeting and the matters that will be acted upon. You are encouraged to read the enclosed materials carefully and to exercise your right to direct the Trustee how to vote your Plan shares. You must complete and sign the above voting instruction card, and it must be received by the Trustee by April 28, 1997 in order to have your shares under the Plan voted at the meeting. You will also receive proxy solicitation materials, including a proxy card, from the Company if you own shares of Common Stock that are not held by the Trustee under the Plan. In order to vote your non-Plan shares, you should complete and sign the proxy card and return it to the Company. -----END PRIVACY-ENHANCED MESSAGE-----