SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) 1000 Six PPG Place Pittsburgh, PA 15222-5479 March 20, 2000 To our Stockholders: We are pleased to invite you to attend the 2000 Annual Meeting of Stockholders. The meeting will be held on Thursday, May 11, 2000, in the Room 1000 Auditorium, 10th Floor, Two Mellon Bank Center, 435 Fifth Avenue, Pittsburgh, Pennsylvania. The location is accessible to disabled persons. This booklet includes the notice of meeting as well as the Company's proxy statement. Enclosed with this booklet are the following: - Proxy or voting instruction card (including instructions for telephone and internet voting) - Proxy or voting instruction card return envelope (postage paid if mailed in the U.S.) A copy of the Company's Annual Report for 1999 is also enclosed. If you are a stockholder of record, you will also receive an admission ticket request card. Please read the proxy statement and vote your shares as soon as possible. We encourage you to take advantage of voting by telephone or internet as explained on the enclosed proxy or voting instruction card. Or, you may vote by completing, signing and returning your proxy or voting instruction card in the enclosed postage-paid envelope. It is important that you vote, whether you own a few or many shares and whether or not you plan to attend the meeting. If you are a stockholder of record and plan to attend the meeting, please return the enclosed postage-paid admission ticket request card so that we can send your admission ticket to you before the meeting. We look forward to seeing as many of you as possible at the 2000 Annual Meeting. Sincerely, /s/ R.P. Simmons R.P. Simmons Chairman of the Board /s/ T.A. Corcoran T. A. Corcoran President and Chief Executive Officer 3 ALLEGHENY TECHNOLOGIES INCORPORATED NOTICE OF ANNUAL MEETING OF STOCKHOLDERS MEETING DATE: Thursday, May 11, 2000 TIME: 11:00 A. M., Pittsburgh Time PLACE: Room 1000 Auditorium, 10th Floor Two Mellon Bank Center (Union Trust Building) 435 Fifth Avenue Pittsburgh, Pennsylvania RECORD DATE: March 15, 2000 AGENDA 1) Election of a class of four directors for a three-year term; 2) Approval of a new Incentive Plan; 3) Ratification of the appointment of independent auditors for 2000; and 4) Transaction of any other business properly brought before the meeting. STOCKHOLDER LIST A list of stockholders entitled to vote will be available during business hours for ten days prior to the meeting at the Company's executive offices, 1000 Six PPG Place, Pittsburgh, Pennsylvania, for examination by any stockholder for any legally valid purpose. ADMISSION TO THE MEETING Holders of Allegheny Technologies stock or their authorized representatives by proxy may attend the meeting. If you are a stockholder of record and you plan to attend the meeting, please complete and promptly return the enclosed postage-paid ticket request card so an admission ticket can be mailed to you. If your shares are held through an intermediary such as a broker or a bank, you should present proof of your ownership at the meeting. Proof of ownership could include a proxy from your bank or broker or a copy of your account statement. On behalf of the Board of Directors: /s/ Jon D. Walton Jon D. Walton Senior Vice President, General Counsel and Secretary Dated: March 20, 2000 4 PROXY STATEMENT TABLE OF CONTENTS -------------------------------------------------------------------------------- PAGE ---- Voting Procedures........................................... 1 Board Composition and Practices............................. 2 Item A on Proxy Card--Election of Directors................. 3 Committees of the Board of Directors........................ 7 Director Compensation....................................... 8 Item B on Proxy Card--Approval of New Incentive Plan........ 9 Item C on Proxy Card--Ratification of Independent Auditors.................................................. 15 Other Business.............................................. 15 Stock Ownership Information................................. 16 Compliance with Section 16(a) Reporting................ 16 Five Percent Owners of Common Stock.................... 16 Stock Ownership of Management.......................... 17 Report on Executive Compensation............................ 18 Executive Compensation...................................... 22 Summary Compensation Table............................. 22 Stock Options.......................................... 24 Pension Plans.......................................... 25 Employment and Change in Control Agreements............ 26 Cumulative Total Stockholder Return......................... 28 Certain Transactions........................................ 29 Other Information........................................... 30 Annual Report on Form 10-K............................. 30 2001 Annual Meeting and Stockholder Proposals.......... 30 Proxy Solicitation..................................... 30 YOUR VOTE IS IMPORTANT PLEASE VOTE AS SOON AS POSSIBLE. YOU CAN HELP ALLEGHENY TECHNOLOGIES REDUCE EXPENSES BY VOTING YOUR SHARES BY TELEPHONE OR INTERNET; YOUR PROXY CARD CONTAINS THE INSTRUCTIONS. OR, COMPLETE, SIGN AND DATE YOUR PROXY CARD AND RETURN IT AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE. 5 PROXY STATEMENT FOR 2000 ANNUAL MEETING OF STOCKHOLDERS VOTING PROCEDURES -------------------------------------------------------------------------------- WHO MAY VOTE If you were a stockholder on the books of the Company at the close of business on March 15, 2000 you may vote at the annual meeting. On that day, 85,061,059 shares of our Common Stock were outstanding. Each share is entitled to one vote. In order to vote, you must either designate a proxy to vote on your behalf or attend the meeting and vote your shares in person. The Board of Directors requests your proxy so that your shares will count toward a quorum and be voted at the meeting. METHODS OF VOTING All stockholders may transmit their proxy votes by mail. Stockholders of record can also vote by telephone or internet. Stockholders who hold their shares through a bank or broker can vote by telephone or internet if their bank or broker offers those options. - BY MAIL. Stockholders may complete, sign, date and return their proxy cards in the postage-paid envelope provided. If you sign, date and return your proxy card without indicating how you want to vote, your proxy will be voted as recommended by the Board of Directors. - BY TELEPHONE OR INTERNET. Stockholders of record may vote by using the toll-free number or internet website address listed on the proxy card. Participants who hold stock in Company employee benefit plans also may vote by telephone or the internet. Your proxy card contains a Control Number that will identify you as a stockholder when you vote by telephone or internet. You may use the telephone and internet procedures to vote your shares and to confirm that your votes were properly recorded. Please see your proxy card for specific instructions. REVOKING YOUR PROXY You may change your mind and revoke your proxy at any time before it is voted at the meeting by: - sending a written notice to revoke your proxy to the Secretary of the Company; - transmitting a proxy at a later date than your prior proxy either by mail, telephone or internet; - attending the annual meeting and voting in person or by proxy (except for shares held in the employee plans described below). VOTING BY EMPLOYEE BENEFIT PLAN PARTICIPANTS Participants who hold Common Stock in one of the Company's defined contribution savings or retirement or stock ownership plans may tell the plan trustee how to vote the shares of Common Stock allocated to their accounts. You may either sign and return the voting instruction card provided by the plan or transmit your instructions by telephone or internet. If you do not transmit instructions, your shares will be voted as the plan administrator directs or as otherwise provided in the plan. VOTING SHARES HELD BY BROKERS, BANKS AND OTHER NOMINEES If you hold your shares in a broker, bank or other nominee account, you are a "beneficial owner" of Company Common Stock. In order to vote your shares, you must give voting instructions to your bank, broker or other intermediary who is the "nominee holder" of your shares. The Company asks brokers, banks and other nominee holders to obtain voting instructions from the beneficial owners of shares that are registered in the nominee's name. Proxies that are transmitted by nominee holders on behalf of beneficial owners will count toward a quorum and will be voted as instructed by the nominee holder. 1 6 QUORUM FOR MEETING A majority of the outstanding shares, present or represented by a proxy, constitutes a quorum. A quorum is necessary to conduct business at the annual meeting. You are part of the quorum if you have voted by proxy. Abstentions, broker non-votes and votes withheld from director nominees count as "shares present" at the meeting for purposes of determining a quorum. However, abstentions and broker non-votes do not count in the voting results. A broker non-vote occurs when a broker, bank or other nominee who holds shares for another does not vote on a particular item because the nominee does not have discretionary authority for that item and has not received instructions from the owner of the shares. The four director nominees who receive the highest number of votes cast will be elected. Approval of each other item being considered requires a majority of the votes cast. CONFIDENTIAL VOTING POLICY The Company maintains a policy of keeping stockholder votes confidential. TRANSFORMATION AND REVERSE STOCK SPLIT In November 1999, the Company completed a strategic transformation (the "Transformation"), which included the spin-offs of Teledyne Technologies Incorporated ("Teledyne Technologies"), which was comprised of certain businesses in the Company's former Aerospace and Electronics Segment, and Water Pik Technologies, Inc. ("Water Pik"), which was comprised of businesses in the Company's former Consumer Segment. Immediately following the spin-offs, the Company effected a one-for-two reverse stock split and changed its name from Allegheny Teledyne Incorporated to Allegheny Technologies Incorporated. References to Common Stock mean the common stock of Allegheny Technologies. References to the number of shares of Common Stock, including stock option data, have been restated to reflect these transactions. BOARD COMPOSITION AND PRACTICES -------------------------------------------------------------------------------- INFORMATION AND MEETINGS The Board of Directors directs the management of the business and affairs of the Company as provided in the by-laws of the Company and the laws of the State of Delaware. The Board is not involved in day-to-day operations. Members of the Board keep informed about the Company's business through discussions with the 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. Regular meetings of the Board were held seven times in 1999. Special meetings are scheduled when required; two were held in 1999. In 1999, average attendance at Board and committee meetings was over 98%. NUMBER OF DIRECTORS The Board of Directors determines the number of directors. The Board currently consists of 13 members. Richard P. Simmons, Chairman of the Board and Chairman of the Executive Committee, who began his career with the Company in 1953, has announced his intention to retire from the Board of Directors when his term expires at the 2000 Annual Meeting. Following the Annual Meeting, the Board of Directors will consist of 12 members. DIRECTOR TERMS The directors are divided into three classes and the directors in each class serve for a three-year term. The term of one class of directors expires each year at the annual meeting of stockholders. The Board may fill a vacancy by electing a new director to the same class as the director being replaced. The Board may also create a new director position in any class and elect a director to hold the newly created position until the term of the class expires. 2 7 ITEM A ON PROXY CARD -- ELECTION OF DIRECTORS -------------------------------------------------------------------------------- The Board of Directors has nominated for election this year the class of four incumbent directors whose terms expire at the 2000 Annual Meeting. The three-year term of the class of directors nominated this year will expire at the 2003 Annual Meeting. The four nominees who receive the highest number of votes cast will be elected. If you sign and return your proxy card, the individuals named as proxies in the card will vote your shares for the election of the four nominees named below, unless you provide other instructions. You may withhold authority for the proxies to vote your shares on any or all of the nominees by following the instructions on your proxy card. If a nominee becomes unable to serve, the proxies will vote for a Board-designated substitute or the Board may reduce the number of directors. Background information about the nominees and continuing directors follows. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE FOUR NOMINEES. NOMINEES - TERMS TO EXPIRE AT 2003 ANNUAL MEETING (CLASS I) THOMAS A. CORCORAN Age: 55 Director Since: 1999 ATI Board Committee: Executive Committee. Principal Occupation: President and Chief Executive Officer of the Company since October 1999. Mr. Corcoran has also been named Chairman, effective with the retirement of Richard P. Simmons on May 11, 2000. Recent Business Experience Mr. Corcoran previously served as the President and Chief Operating Officer of the Electronics Sector of Lockheed Martin Corporation from March 1995 through October 1998 and he was President and Chief Operating Officer of the Lockheed Martin Space Sector from October 1998 through September 1999. Previously, he was President of Martin Marietta Corporation's Electronics Group beginning in 1993. Other Directorships: In addition to serving as Chairman of Teledyne Technologies Incorporated, he is a director of L-3 Communications Holdings, Inc., Lincoln Electric Holdings, Inc. and REMEC, Inc. DIANE C. CREEL Age: 51 Director Since: 1996 ATI Board Committees: Committee on Governance, Personnel and Compensation Committee and Stock Incentive Award Subcommittee (Chair). Principal Occupation: Chief Executive Officer and President of Earth Tech, an international consulting engineering firm. Other Directorships: Board of the Corporations and Trusts which comprise the Fixed Income Funds of the American Funds Group, Teledyne Technologies Incorporated and The B.F. Goodrich Company. 3 8 C. FRED FETTEROLF Age: 71 Director Since: 1996 ATI Board Committees: Personnel and Compensation Committee, Stock Incentive Award Subcommittee and Technology Committee. Recent Business Experience: Mr. Fetterolf was President and Chief Operating Officer of Alcoa, Inc., prior to his retirement in 1991. Other Directorships: Commonwealth Industries, Inc., Dentsply International Inc., Teledyne Technologies Incorporated, Union Carbide Corporation and Praxair, Inc. JAMES E. ROHR Age: 51 Director Since: 1996 ATI Board Committees: Executive Committee, Audit and Finance Committee and Technology Committee. Principal Occupation: President and Chief Operating Officer, The PNC Financial Services Group, Inc. Mr. Rohr has been named President and Chief Executive Officer of The PNC Financial Services Group, Inc., effective May 1, 2000. Recent Business Experience: Mr. Rohr has been President of The PNC Financial Services Group, Inc., since 1992 and assumed the additional title of Chief Operating Officer in 1998. Other Directorships: The PNC Financial Services Group, Inc., Equitable Resources, Inc., Water Pik Technologies, Inc. and BlackRock, Inc. CONTINUING DIRECTORS -- TERMS EXPIRE AT 2001 ANNUAL MEETING (CLASS II) PAUL S. BRENTLINGER Age: 72 Director Since: 1996 ATI Board Committees: Audit and Finance Committee (Vice Chairman) and Technology Committee (Chairman). Principal Occupation: Partner in Morgenthaler, a venture capital group headquartered in Cleveland, Ohio and Menlo Park, California. Other Directorship: Teledyne Technologies Incorporated. 4 9 RAY J. GROVES Age: 64 Director Since: 1998 ATI Board Committees: Audit and Finance Committee and Committee on Governance. Principal Occupation: Chairman of Legg Mason Merchant Banking, Inc., a subsidiary of Legg Mason, Inc., based in Baltimore, Maryland. Recent Business Experience: Mr. Groves was Chairman and Chief Executive Officer of Ernst & Young until his retirement in 1994. Other Directorships: American Water Works Company, Inc., Boston Scientific Corporation, Dominion Resources, Inc., Electronic Data Systems Corporation, Marsh & McLennan Companies, Inc. and Nabisco Group Holdings, Inc. JAMES L. MURDY Age: 61 Director Since: 1999 ATI Board Committee: Technology Committee. Principal Occupation: Executive Vice President, Finance & Administration and Chief Financial Officer. Recent Business Experience: Mr. Murdy has been Chief Financial Officer since August 1996, and Executive Vice President, Finance and Administration since December 1996. He was a Senior Vice President of the Company from August 1996 to December 1996, having previously served as the Senior Vice President-Finance and Chief Financial Officer of Allegheny Ludlum Corporation. Other Directorship: Federated Investors, Inc. WILLIAM G. OUCHI Age: 56 Director Since: 1996 ATI Board Committees: Audit and Finance Committee, Personnel and Compensation Committee and Stock Incentive Award Subcommittee. Principal Occupation: Vice Dean and Faculty Director of Executive Education Programs and Sanford & Betty Sigoloff Professor in Corporate Renewal, Anderson Graduate School of Management, University of California at Los Angeles, since 1998. Recent Business Experience: Mr. Ouchi previously was a professor of management in the Anderson Graduate School of Management, University of California at Los Angeles Other Directorships: FirstFed Financial Corp., Sempra Energy and Water Pik Technologies, Inc. 5 10 CONTINUING DIRECTORS -- TERMS EXPIRE AT THE 2002 ANNUAL MEETING (CLASS III) ROBERT P. BOZZONE Age: 66 Director Since: 1996 ATI Board Committees: Executive Committee and Committee on Governance. Principal Occupation: Vice Chairman of the Board of the Company. Recent Business Experience: Mr. Bozzone served as Vice Chairman of Allegheny Ludlum Corporation from August 1994 to August 1996. Previously, he was President and Chief Executive Officer of Allegheny Ludlum. Other Directorships: In addition to serving as Chairman of Water Pik Technologies, Inc., he is a director of DQE, Inc. whose principal subsidiary is Duquesne Light Company, and Teledyne Technologies Incorporated. FRANK V. CAHOUET Age: 67 Director Since: 1996 ATI Board Committees: Audit and Finance Committee (Chairman), Committee on Governance and Technology Committee. Principal Occupation: Retired Chairman, President and Chief Executive Officer, Mellon Financial Corporation. Recent Business Experience: Mr. Cahouet was Chairman, President and Chief Executive Officer of Mellon Financial Corporation, a bank holding corporation, and Mellon Bank, N.A., a banking corporation, until his retirement in December 1998. Other Directorships: In addition to serving as Chairman of Saint-Gobain Corporation, he is a director of Avery Dennison Corporation, Korn/Ferry International, Mellon Financial Corporation and Teledyne Technologies Incorporated. W. CRAIG MCCLELLAND Age: 65 Director Since: 1996 ATI Board Committees: Committee on Governance (Chairman), Personnel and Compensation Committee and Stock Incentive Award Subcommittee. Recent Business Experience: Mr. McClelland was Chairman and Chief Executive Officer of Union Camp Corporation, a manufacturer of paper products, prior to his retirement in 1999. Other Directorships: International Paper Company, The PNC Financial Services Group, Inc. and Water Pik Technologies, Inc. 6 11 CHARLES J. QUEENAN, JR. Age: 69 Director Since: 1996 ATI Board Committees: Executive Committee and Personnel and Compensation Committee (Chairman). Principal Occupation: Senior Counsel of Kirkpatrick & Lockhart LLP, attorneys-at-law. Recent Business Experience: Prior to January 1996, Mr. Queenan was a partner of Kirkpatrick & Lockhart LLP. Other Directorships: Crane Co., Teledyne Technologies Incorporated and Water Pik Technologies, Inc. COMMITTEES OF THE BOARD OF DIRECTORS -------------------------------------------------------------------------------- STANDING COMMITTEES The Board of Directors has six standing committees--Executive, Audit and Finance, Governance, Personnel and Compensation, Stock Incentive Award Subcommittee of the Personnel and Compensation Committee, and Technology--each of which has a written charter. EXECUTIVE COMMITTEE The Executive Committee has broad powers to act on behalf of the 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. The Executive Committee reports all actions it takes at the next meeting of the Board. The Executive Committee met twice during 1999. AUDIT AND FINANCE COMMITTEE The primary audit-related functions of the Audit and Finance Committee are to: - Make recommendations to the Board of Directors regarding the appointment of the independent accountants; - Review the scope of the annual audit plan, proposed fees and other activities of the independent accountants and the audit plan of the internal auditors; - Review with management and the independent accountants, upon completion of the annual audit, the financial statements and related reports; and - Evaluate the Company's internal and external audit efforts, accounting and financial controls and business ethics policies and practices by reviewing reports by, and attending meetings with, the internal and external auditors and management. The primary finance-related functions of the Audit and Finance Committee relate to: - Company debt and credit arrangements and other major financial proposals; - Company relationships with banks and other financial institutions; and - Policies with respect to dividends, capital structure and authorized stock. The members of the Audit and Finance Committee are not officers or employees of the Company. The independent auditors and the internal auditors have full access to the Committee and meet with the Committee, with, and on a routine basis without, management being present, to discuss all appropriate matters. The Committee met five times in 1999. COMMITTEE ON GOVERNANCE The Committee on Governance administers the Company's compensation programs for directors. In addition, the Committee reviews, evaluates and makes recommendations to the Board of Directors regarding: - Candidates for nomination as new Board members and nomination of incumbent directors as continuing Board members when their terms expire; 7 12 - Assignments to Board committees and appointments of committee chairs; - The composition, organization and operations of the Board of Directors, including the orientation of new members and the flow of information; and - Policies on Board tenure and the retirement or resignation of incumbent directors. The Committee met five times in 1999. Recommendations by stockholders of potential nominees must be directed to the Corporate Secretary in the manner specified in the Company's certificate of incorporation. See "2001 Annual Meeting and Stockholder Proposals" on page 30. PERSONNEL AND COMPENSATION COMMITTEE The Personnel and Compensation Committee, together with the Stock Incentive Award Subcommittee, established, and annually reassesses, the executive compensation program. Their Report on Executive Compensation begins on page 18. The Committee administers the Company's incentive compensation plans, except to the extent the Stock Incentive Award Subcommittee administers the plans. The Committee also reviews, evaluates and makes recommendations to the Stock Incentive Award Subcommittee and/or the Board of Directors, and consults with the Chief Executive Officer, as appropriate, regarding: - Executive management organization matters; - Compensation and benefits for officers who also serve as directors of the Company; - Compensation and benefit policies and procedures relating to officers who are statutory insiders; and - Policy matters relating to employee benefits and employee benefit plans. None of the members of the Personnel and Compensation Committee is an employee of the Company and each member is an "outside director" for the purposes of the corporate compensation provisions contained in Section 162(m) of the Internal Revenue Code. The Committee met seven times in 1999. STOCK INCENTIVE AWARD SUBCOMMITTEE The Stock Incentive Award Subcommittee is responsible for administering and making awards under the Company's stock-based incentive compensation programs for officers, referred to as "statutory insiders," who are required to file reports under Section 16 of the Securities Exchange Act of 1934. None of the members of the Subcommittee is an employee of the Company. Each member 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 the compensation provisions of the Internal Revenue Code. See the "Report on Executive Compensation." The Subcommittee met four times in 1999. TECHNOLOGY COMMITTEE The Technology Committee assesses and makes recommendations to the Board of Directors regarding: - The impact of technologies that could materially affect the Company's success; - The Company's technical capabilities; and - Priorities, asset deployment and other matters related to the Company's technical activities. The Committee met once in 1999. DIRECTOR COMPENSATION -------------------------------------------------------------------------------- Directors who are not employees of the Company are paid an annual retainer fee of $28,000. Directors also are paid $1,500 for each Board meeting and $1,000 for each committee meeting attended. Each non-employee chair 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. The non-employee directors also participate in the 1996 Non-Employee Director Stock Compensation Plan ("Director Stock Plan"). The purpose of the Director Stock Plan is to provide 8 13 non-employee directors with an increased personal interest in the Company's performance. Under the Director Stock Plan, options to purchase 1,000 shares of Common Stock are granted to non-employee directors at the conclusion of each annual meeting of stockholders. The purchase price of the Common Stock covered by these annual options is the fair market value of the Common Stock on the date the option is granted. The Director Stock Plan also provides that each non-employee director receives at least 25 percent of the annual retainer fee in the form of Common Stock and/or options to acquire Common Stock. Each director may elect a greater percentage. The directors also may elect to receive all or a percentage of their meeting fees in the form of Common Stock and/or options to acquire Common Stock. Options granted under this part of the Director Stock Plan are intended to provide each electing director with options having an exercise value on the date of grant equal to the foregone fees; that is, the difference between the exercise price and the market price of the underlying shares of Common Stock on the date of grant is intended to be equal to the foregone fees. In order to continue to attract and retain non-employee directors of exceptional ability and experience, the Company also maintains a Fee Continuation Plan for Non-Employee Directors. Under the plan, benefits are payable to a person who serves as a non-employee director for at least five years. The annual benefit equals the retainer fee in effect when the director retires from the Board. Benefits are paid for each year of the participant's credited service as a director (as defined in the plan) up to a maximum of ten years. ITEM B ON PROXY CARD -- APPROVAL OF NEW INCENTIVE PLAN -------------------------------------------------------------------------------- The Company's Board of Directors approved the Allegheny Technologies 2000 Incentive Plan (the "Plan"), effective January 1, 2000, subject to approval by stockholders at the 2000 Annual Meeting. Any awards made under the Plan prior to the Annual Meeting are subject to the approval of the stockholders at the Annual Meeting. The Board recommends that you vote FOR approval of the Plan. The following pages summarize the principal features of the Plan. For a copy of the Plan, please call 1-800-720-6393 (in the U.S. or Canada) or write to the Corporate Secretary at the address on the cover of this proxy statement. PURPOSE OF THE PLAN The Plan authorizes the Board of Directors or an authorized committee or subcommittee of the Board to make incentive awards, including stock-based awards, to Company employees. The purpose of the Plan is to motivate and reward key officers and executives who contribute to profitability and, in the case of stock-based awards, to give these individuals an ownership interest in the Company and a proprietary and vested interest in the Company's growth and financial success. The Board believes that the Plan will enhance the Company's ability to attract and retain individuals with exceptional managerial, technical and professional skills upon whom, in large measure, the sustained growth and profitability of the Company depend. COMPARISON WITH EXISTING PLAN The Plan is substantially identical to the existing 1996 Incentive Plan (the "1996 Incentive Plan"), and continues to provide that a variety of stock- and cash-based awards are available for grant under the Plan. The Plan does, however, eliminate the provisions of the prior plan that permitted the Company to reduce the price of options previously granted; the Company had not authorized the repricing of options under the prior plan. SHARES AUTHORIZED AND AWARD LIMITS The Plan authorizes the issuance of up to 10 percent of the shares of Common Stock outstanding on the effective date of the Plan. The Plan further authorizes the issuance of an additional 10 percent of any increase in the number of outstanding shares. Shares of Common Stock subject to awards under the Plan or the 1996 Incentive Plan that are forfeited, 9 14 terminated or otherwise surrendered by the participant (other than upon exercise or settlement of the award) will be available for subsequent awards under the Plan. The number of shares available for issuance under the Plan will be subject to anti-dilution adjustments on the occurrence of significant corporate events. Of the total number of shares authorized for grant under the Plan, the Company may issue no more than 1 million shares as awards of restricted stock. The Plan also contains annual limits on awards to individual participants. In any calendar year, no participant may be granted stock options, stock appreciation rights or other stock grants covering more than 1 million shares and more than $5 million in cash. ADMINISTRATION The Personnel and Compensation Committee or the Stock Incentive Award Subcommittee (either or both of which are referred to as the "ATI Committee") will administer the Plan. Members of the Committee or Subcommittee must be "non-employee directors" and "outside directors" to the extent required to meet applicable regulatory requirements. This means that they cannot be current or former Company officers or employees and may not receive compensation from the Company except in their capacity as directors. The Board may assume responsibilities otherwise assigned to the ATI Committee and may amend, alter or discontinue the Plan at any time. However, none of these actions may impair a participant's existing rights without the participant's consent. Also, the Board and the ATI Committee cannot amend the Plan without stockholder approval if that approval is required to qualify for or comply with applicable tax or regulatory requirements. The ATI Committee has the authority to select employees to whom it will grant awards, to determine the types of awards and the number of shares covered, to set the terms and conditions of the awards and to cancel or suspend awards. It also has the authority to interpret the Plan, establish and modify administrative rules, impose conditions and restrictions on awards and take such other action it considers necessary or appropriate. ELIGIBILITY All officers and key employees of the Company and its subsidiaries are eligible to be selected as participants. The ATI Committee may also grant awards, other than incentive stock options, to non-employees who, in its judgment, render significant services to the Company or any of its subsidiaries. The Company currently has approximately 400 officers and key employees who are potentially eligible to participate in the Plan. TERM The Plan has no fixed expiration date, but no incentive stock options may be granted after May 11, 2010 and the provisions of the Plan with respect to performance-based awards (as described below) expire May 11, 2005. STOCK OPTIONS The ATI Committee may grant incentive stock options under the Internal Revenue Code or nonqualified options that do not qualify as incentive stock options. The ATI Committee determines the option grant price and the term of the option, although the price and terms of incentive stock options must meet the requirements of the Internal Revenue Code. An option is exercisable at such times as the ATI Committee determines. The participant must pay the option exercise price in full on exercise. The participant may pay the price in cash, by surrendering shares of Common Stock with a value equal to the option price, or by a combination of cash, shares of Common Stock or other consideration approved by the ATI Committee. Options will terminate on the terms and conditions that the ATI Committee specifies in the grant agreement. Generally, when a participant's employment terminates for any reason other than death or disability or retirement (as defined), any stock options that were not then exercisable expire and options that were then exercisable expire 30 days after the date of termination. In general, when a participant's employment terminates due to death, all outstanding stock options vest and are exercisable for twelve months from the date of death. In the case of disability or retirement, 10 15 options continue to vest and are exercisable over their remaining term. The ATI Committee may permit participants to transfer stock option awards to immediate family members or family trusts. Otherwise, stock option awards are not transferable during the participant's lifetime. STOCK APPRECIATION RIGHTS A stock appreciation right ("SAR") entitles the holder to receive, on exercise, the excess of the fair market value of the shares on the exercise date over the SAR exercise price. The ATI Committee may grant SAR awards as stand- alone awards or in combination with a related option award under the Plan. The terms and conditions that govern the related stock option generally govern SARs granted in combination with options. The ATI Committee determines the exercise prices of SARs, which in the case of SARs granted in combination with stock options, will not be less than the exercise price of the related stock options. Payment upon exercise of SARs will be in cash or Common Stock, as determined by the ATI Committee. RESTRICTED SHARES Restricted shares are shares issued with conditions or contingencies. Until the conditions or contingencies are satisfied or lapse, the restricted stock is subject to forfeiture. The ATI Committee establishes the terms and conditions applicable to a restricted stock award. With respect to performance-based grants to covered employees (generally, the named officers in the proxy statement), performance targets will be specified levels of one or more of the performance goals specified in the Plan. See "Performance-Based Compensation" below. A recipient of restricted shares has the right to vote the shares and receive dividends on the shares unless the ATI Committee determines otherwise. If a participant ceases to be an employee before the end of the contingency period, the award is forfeited, subject to such exceptions as the ATI Committee may authorize. The ATI Committee, in its sole discretion, may waive all conditions or contingencies relating to a restricted share award under certain circumstances (including the death, disability, or retirement of a participant, or a material change in circumstances arising after the date of grant) and subject to such terms and conditions as it deems appropriate. PERFORMANCE AWARDS The ATI Committee may grant performance awards to participants on the terms and conditions specified by the Committee. Under a performance award, a participant receives a payment from the Company based on the extent to which predetermined performance targets are achieved over a specified award period. Performance awards may be denominated and/or paid in cash, Common Stock or a combination of both, as determined by the ATI Committee. The ATI Committee establishes the duration of an award period and the performance targets. It also decides whether the performance levels have been achieved, what amount of the award will be paid and the form of payment, which may be cash, stock or other property or any combination. In the case of awards to covered employees, the targets will generally consist of attaining specified levels of one or more of the performance goals specified in the Plan. See "Performance-Based Compensation" below. When circumstances occur which the ATI Committee determines to be extraordinary and to cause predetermined performance targets to be an inappropriate measure of achievement, the ATI Committee, in its discretion, may adjust the performance targets to the extent consistent with the provisions of the Internal Revenue Code. Generally, a participant will forfeit all rights to a performance award if the participant terminates employment before the end of the award period, unless the ATI Committee determines otherwise. On retirement, if the ATI Committee determines that an award should be paid, or in the case of death or disability, the award will be pro-rated based on the number of months the participant was employed during the award period. OTHER STOCK-BASED AWARDS The ATI Committee may make other awards of stock purchase rights (with or without loans to participants by the Company) or cash awards, Common Stock awards or other types of awards that are valued in whole or in part by reference to the value of the Common Stock. 11 16 The ATI Committee will determine the conditions and terms that apply to these awards. SHORT-TERM CASH AWARDS The ATI Committee may make performance-based annual cash incentive awards to any covered employees, as follows: - The class of persons covered consists of those senior executives who the ATI Committee determines to be subject to Section 162(m) of the Internal Revenue Code. - The targets for annual incentive payments to covered employees will consist only of specified levels of the performance goals specified in the Plan. See "Performance-Based Compensation" below. - In administering the incentive program and determining incentive awards, the ATI Committee will not have the flexibility to pay a covered executive more than the incentive amount indicated by the executive's attainment under the applicable payment schedule. The ATI Committee will have the flexibility, based on its business judgment, to reduce this amount. CHANGE IN CONTROL In order to preserve the value of outstanding awards for participants in the event of a change in control of the Company, unless the ATI Committee determines otherwise at the time of the grant of a particular award: - stock options and SARs immediately become exercisable; - the restrictions on all restricted shares lapse; - all performance awards become immediately payable; and - all other awards under the Plan vest and become nonforfeitable. A change in control of the Company means any of the following events: - the acquisition of 25% or more of the Common Stock by a person or group, other than an acquisition approved by the Board of Directors; - a change in the composition of the Company's Board of Directors such that the individuals who constitute the Board of Directors as of the effective date of the Plan no longer constitute at least two-thirds of the Company's Board of Directors (unless the change is made by persons nominated by a Board at least two-thirds of whom were incumbent Board members); - stockholder approval of certain mergers, reorganizations or consolidations; or - stockholder approval of a complete liquidation or dissolution of the Company or a sale or other disposition of substantially all of the Company's assets. PERFORMANCE-BASED COMPENSATION Section 162(m) of the Internal Revenue Code limits the amount of the deduction that a company may take on its U.S. federal tax return for compensation paid to any covered employees (as previously noted, the Code refers to the named officers in the proxy statement as "covered employees.") The limit is $1 million per covered employee per year, with certain exceptions. This deductibility cap does not apply to "performance-based compensation," if approved by the stockholders. The Company believes that certain awards under the Plan will qualify as performance-based compensation, if stockholders approve the Plan and it is otherwise administered in compliance with Code Section 162(m). The Plan contains a number of measurement criteria that the ATI Committee may use to determine whether and to what extent a covered employee has earned a restricted stock award, performance award, other stock-based award or a short-term cash award. The measurement criteria that the ATI Committee may use to establish specific levels of performance goals include any one or a combination of the following: operating income, operating profit (earnings from continuing operations before interest and taxes), earnings per share, return on investment or working capital, return on stockholders' equity, economic value added (the amount, if any, by which net operating profit after tax exceeds a reference cost of capital), balanced scorecard, reductions in inventory, inventory turns and on-time delivery performance. The ATI Committee may set performance goals based on the achievement of specified levels of corporate-wide performance 12 17 or performance of the Company subsidiary or business unit in which the participant works and safety measures, and other quantifiable, objective measures of individual performance relevant to the particular individual's job responsibilities. The Committee may make downward adjustments in the amounts payable under a performance-based compensation award, but it may not increase the award amounts or waive the achievement of a particular goal. TAX ASPECTS OF THE PLAN The grant of a nonqualified stock option or SAR under the Plan has no U.S. federal income tax consequences for the participant or the Company. Upon exercise of a stock option or SAR, the Company may take a tax deduction and the participant realizes ordinary income. The amount of this deduction and income is equal to the difference between the fair market value of the shares on the date of exercise and the exercise price of the stock option or SAR. The ATI Committee may permit participants to surrender Common Stock or have Common Stock withheld from the shares otherwise issuable in connection with the award to satisfy the required withholding tax obligation. In the case of incentive stock options, the participant does not recognize income on the grant or the exercise and the Company is not entitled to a deduction. However, the amount by which the fair market value of the Common Stock on the date of exercise exceeds the exercise price is counted in determining the participant's alternative minimum taxable income. When the participant disposes of the shares acquired on the exercise of an incentive stock option, the gain or loss recognized is treated as long-term capital gain or loss unless the disposition occurs within one year after the exercise or within two years after the grant of the incentive stock option; if the participant makes an earlier disposition of these shares, the participant may recognize ordinary income, to the extent the fair market value of the Common Stock on the date of exercise exceeds the exercise price (but not in excess of the amount the participant realizes in connection with the disposition) and the Company may take a deduction at the same time and for the same amount. The participant will also recognize capital gain, to the extent the amount realized on the sale of the Common Stock exceeds the participant's basis in the Common Stock, which gain will be long-term or short-term, depending on how long the participant has held the Common Stock. Regarding Plan awards (other than options or SARs) that are settled either in Common Stock or other property that is either transferable or not subject to substantial risk of forfeiture, the participant must recognize ordinary income equal to the cash or the fair market value of the Common Stock or other property received. The Company may take a deduction for the same amount. Regarding Plan awards (other than options or SARs) that are settled either in cash or in Common Stock or other property that is subject to contingencies restricting transfer and to a substantial risk of forfeiture, the participant must recognize ordinary income equal to the cash or the fair market value of the Common Stock or other property received (less any amount paid by the participant) when the Common Stock or other property first becomes transferable or not subject to substantial risk of forfeiture, whichever occurs first. The Company may take a deduction at the same time and for the same amount. The ATI Committee has discretion as to any award under the Plan to grant a participant a separate cash amount at exercise, vesting or lapse of restrictions to meet mandatory tax withholding obligations or to reimburse for any individual taxes paid. The deductibility under the Internal Revenue Code of compensation payable under the Plan to covered employees is subject to the requirements of Section 162(m). The Incentive Plan is intended, with the approval of stockholders, to meet such requirements to the extent the awards are performance-based. RECENT SHARE PRICE On March 15, 2000 (the record date for the Annual Meeting), the closing market price for the Common Stock was $17.9375 per share. 13 18 CONTINGENT PERFORMANCE AWARDS The ATI Committee has authorized an award for the 2000-2002 award period under a new performance share program to further link the interests of the Company's management to enhanced stockholder value. These awards are subject to stockholder approval of the Plan. See page 18 of the Report on Executive Compensation for a description of this program. If the Plan is approved by the stockholders, of the total shares reserved for issuance under the Plan, the maximum number of shares issuable with respect to this award period, if the maximum award payable for such award period is earned, is as follows: Maximum Number Name and Position of Shares* ----------------- --------------- T. A. Corcoran, President and Chief Executive Officer up to 143,820 J. L. Murdy, Executive Vice President-Finance and Administration and Chief Financial Officer up to 61,424 J. R. Cool, Senior Vice President, Human Resources up to 46,422 J. D. Walton, Senior Vice President, General Counsel and Secretary up to 41,198 D. G. Reid, Vice President-Controller and Chief Accounting Officer up to 22,772 Executive Group up to 315,636 Non-Executive Director Group 0 Non-Executive Officer Employee Group up to 708,364 * The dollar value of the shares will be determined when the award is paid; under the terms of the award, payments of the award, if earned, will be made in three annual installments, beginning in 2003. While the ATI Committee has established general guidelines with respect to its compensation programs which are described in the Report on Executive Compensation, the designation of specific participants and the amount of any other award that may be made under the Plan will be determined in the discretion of the ATI Committee. REPURCHASES TO PREVENT DILUTION To prevent or minimize the dilution effect of stock-based compensation plans, the Company's current practice is to repurchase shares in the open market in amounts at least equal to the number of shares that may be issued under employee stock option and other stock incentive plans. The Company intends to use the proceeds of stock option award exercises under the Plan for this purpose as well as other funds available from time to time. The continuation of this practice is subject to the Company's capital needs and resources and compliance with corporate, securities and regulatory requirements that apply to share repurchases. VOTE REQUIRED FOR APPROVAL For this proposal to be adopted, a majority of the votes cast by the stockholders must be voted for approval. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE PLAN. 14 19 ITEM C ON PROXY CARD -- RATIFICATION OF INDEPENDENT AUDITORS -------------------------------------------------------------------------------- Ernst & Young LLP has served as independent auditors for the Company since August 15, 1996 and served as independent auditors for Allegheny Ludlum Corporation 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. For this proposal to be adopted, a majority of the votes cast must be voted for approval. If the stockholders do not ratify the selection of Ernst & Young, the Board will reconsider the appointment of independent auditors. It is expected that representatives of Ernst & Young will be present at the meeting and will have an opportunity to make a statement and respond to appropriate questions. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF THE SELECTION OF THE INDEPENDENT AUDITORS. OTHER BUSINESS -------------------------------------------------------------------------------- The Company knows of no business that may be presented for consideration at the meeting other than the three action items indicated in the Notice of Annual Meeting. If other matters are properly presented at the meeting, the persons designated as proxies in your proxy card may vote at their discretion. Following adjournment of the formal business meeting, Richard P. Simmons, Chairman of the Board, and Thomas A. Corcoran, President and Chief Executive Officer, will address the meeting and will hold a general discussion period during which the stockholders will have an opportunity to ask questions about the Company and its business. 15 20 STOCK OWNERSHIP INFORMATION -------------------------------------------------------------------------------- COMPLIANCE WITH SECTION 16(A) REPORTING The rules of the Securities and Exchange Commission require the Company to disclose late filings of reports of stock ownership (and changes in stock ownership) by its directors and statutory insiders. To the best of the Company's knowledge, all filings by these individuals were made on a timely basis in 1999. FIVE PERCENT OWNERS OF COMMON STOCK As of March 12, 2000, the Company had received notice that the individuals and entities listed in the following table are beneficial owners of five percent or more of Company Common Stock. In general, "beneficial ownership" includes those shares a person has the power to vote or transfer, and options to acquire Common Stock that are exercisable currently or within 60 days. Amount and Nature of Beneficial Percent of Name and Address of Beneficial Owner Ownership Class -------------------------------------------------------------------------------------------- Richard P. Simmons.......................................... 8,257,600(a) 9.7% 1000 Six PPG Place Pittsburgh, PA 15222 Caroline W. Singleton....................................... 6,999,660(b) 8.2% 335 North Maple Drive Beverly Hills, CA 90210 J. P. Morgan & Co. Incorporated............................. 9,925,247(c) 11.7% 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 4,157,329 of these shares. Mrs. Richard P. Simmons has the sole power to direct the disposition of 4,040,696 of these shares. The amount shown includes shares held for Mr. Simmons as of February 29, 2000 under the Company's Retirement Savings Plan and options to acquire 52,362 shares which Mr. Simmons may exercise within 60 days of March 12, 2000 under Company incentive stock plans. Mr. Simmons disclaims beneficial ownership of shares owned by the R. P. Simmons Family Foundation; and exercisable options to acquire 113,368 shares which he transferred as gifts to family members which are not shown in the table. (b) Caroline W. Singleton filed a Schedule 13G, under the Securities and Exchange Act of 1934 indicating that as of February 11, 2000, she held sole voting and dispositive power with respect to 6,999,660 shares, as the sole trustee of the Singleton Family Trust. (c) J. P. Morgan & Co. Incorporated filed a Schedule 13G, as amended, under the Securities Exchange Act of 1934 indicating that as of December 31, 1999, it beneficially owned 9,925,247 shares of Common Stock, including 7,709,108 shares as to which it had sole voting power; 25,109 shares as to which it had shared voting power; 9,731,138 shares as to which it had sole dispositive power; and 121,559 shares as to which it had shared dispositive power. 16 21 STOCK OWNERSHIP OF MANAGEMENT The following table shows the shares of Common Stock reported to the Company as beneficially owned as of March 12, 2000 by the nominees for director, the continuing directors and other statutory insiders of the Company. Shares Shares That Total Shares-Percentage Beneficially May Be Acquired if 1% or more of Beneficial Owner Owned Within 60 Days Shares Outstanding ------------------------------------------------------------------------------------------------------ Robert P. Bozzone.................... 2,656,102 13,605 2,669,707 3.1% Paul S. Brentlinger.................. 5,452 2,268 7,720 Frank V. Cahouet..................... 96 33,753 33,849 Judd R. Cool......................... 21,392 11,337 32,729 Thomas A. Corcoran................... 90,000 0 90,000 Diane C. Creel....................... 811 14,438 15,249 C. Fred Fetterolf.................... 5,424 2,268 7,692 Ray J. Groves........................ 2,686 7,550 10,235 W. Craig McClelland.................. 4,718 2,268 6,986 James L. Murdy....................... 66,395 49,506 115,901 William G. Ouchi..................... 10,481 9,396 19,877 Charles J. Queenan, Jr............... 355,002 2,268 357,270 Dale G. Reid......................... 15,940 31,857 47,797 James E. Rohr........................ 5,470 2,268 7,738 Richard P. Simmons................... 8,214,424 43,176 8,257,600 9.7% Jon D. Walton........................ 54,842 41,948 96,790 ---------- ------- ---------- All 16 nominees, continuing directors and other statutory insiders as a group.............................. 11,509,235 267,906 11,777,141 13.8% ------------------------------------------------------------------------------------------------------ Mr. Simmons' beneficial ownership is described in note (a) to the table under Five Percent Owners of Common Stock" on page 16. The table includes shares held as of February 29, 2000 in the Company's 401(k) plans for the accounts of Messrs. Bozzone, Murdy, Reid, Simmons and Walton and shares held jointly with the named individual's spouse. The table also includes the following shares where beneficial ownership is disclaimed: 120,000 shares owned by Mr. Bozzone's wife; 100 shares owned by Mr. Brentlinger's wife; 1,300 shares owned by the Fetterolf Family Foundation; 27,050 shares owned by Mr. Queenan's wife; and 3,700 shares owned by Mr. Walton's wife. 17 22 REPORT ON EXECUTIVE COMPENSATION -------------------------------------------------------------------------------- This report on executive compensation is furnished by the Personnel and Compensation Committee and Stock Incentive Award Subcommittee (together referred to as the "Committee"). In some discussions of stock awards to the named officers in the Summary Compensation Table and other statutory insiders, the term "Committee" refers to the Stock Incentive Award Subcommittee. EXECUTIVE COMPENSATION CHARACTERISTICS At Allegheny Technologies, total executive compensation has the following characteristics: - It will be competitive in the aggregate, using a set of business and labor market competitors, including data supplied by Hewitt Associates, a nationally recognized executive compensation consulting firm, to gauge the competitive marketplace. Competitive for these purposes is a target base compensation at the 50th percentile (median) for comparable positions. - It will be performance oriented, with a substantial portion of total compensation tied to internal and external measures of Company performance. Superior performance should increase total compensation opportunities to well above the 50th percentile level. - It will promote long-term careers with Allegheny Technologies. COMPENSATION POLICIES AND PROGRAMS Consistent with the characteristics outlined above, the Committee has adopted the following policies and programs: Base salary for all management positions will be at the industry or market median for comparable positions unless there are sound reasons for significant variations. Judgment is the guiding factor in base salary determinations, as well as other compensation issues. Short-term incentives under the Annual Incentive Program ("AIP") are designed to provide a competitive (50th percentile) award, based on the achievement of predefined performance measures. Under the general provisions of the AIP, up to 200 percent of the target award is paid in the case of significant overachievement. The majority of the award is based on financial performance achievement, with a smaller portion tied to the achievement of pre-established individual goals. Discretionary adjustments of plus or minus 20 percent are allowed, so long as aggregate adjustments do not exceed plus five percent. Awards are paid from a pool that generally will not exceed five percent of operating profit. For 1999, 40 percent of the award for AIP participants was based on the achievement of predetermined levels of operating income, 40 percent was based on the achievement of predetermined levels of return on capital employed and 20 percent was tied to the achievement of specific individual objectives. For 1999, awards under the program ranged from zero to 90% percent of the target incentives because the targets and levels of achievement varied by business unit and at the Company level. The bonus column of the Summary Compensation Table contains the annual incentive award for 1999 for each of the named officers. Long-term incentives at the Company consist of the following three components: (1) Stock Options -- Stock options are awarded annually to key employees approved by the Committee. The amount of the award generally depends on the employee's salary grade and are at levels generally perceived to be competitive. (2) Performance Share Program -- The Performance Share Program ("PSP") provides grants of performance share units which can be earned if specified performance objectives are met over a multi-year cycle, which generally lasts three years. At the beginning of each cycle, the Committee selects the eligible participants and approves the performance objectives. For statutory insiders and other corporate executives, performance is generally measured at the Company level. The amount of the award opportunity generally depends on the executive's salary grade at the beginning of the award period. Awards are denominated two-thirds in shares of Common Stock (based on the value of 18 23 the shares immediately prior to the beginning of the award period) and one-third in cash. Awards under the PSP may range from zero to 200 percent of the target incentive opportunity depending on the extent to which the performance goals are achieved. Awards are generally paid to participants in three annual installments after the conclusion of the performance cycle so long as they remain Company employees (with exceptions for retirement, disability and death). The target award for the period that began January 1, 1998 was based on the achievement of specified levels of revenue, earnings and return on capital employed by the end of the award period. In 1999, the Committee decided to shorten the award period due to the substantial changes in the Company since the target levels of performance had originally been established, and to adjust and revise the targets to reflect the impact of the Transformation. As a result, the award period that began January 1, 1998 ended November 29, 1999, the date on which the spin-offs of Teledyne Technologies and Water Pik were completed, and the target award opportunity was reduced to two-thirds of the initial amount. The Committee made awards of 90 percent of the targeted award, based on the adjusted and revised targets. This award is payable over three years to the 59 participants in the PSP for the 1998-1999 award period, with the first third paid in January 2000. (3) Stock Acquisition and Retention Program -- The Stock Acquisition and Retention Program ("SARP") is designed to encourage key executives to acquire and retain Common Stock. Under the SARP, key executives selected by the Committee may purchase shares or designate already-owned shares of Common Stock which the Company matches with a grant of restricted Common Stock equal to 50 percent of the number of shares purchased or designated by the participant (for years beginning after January 1, 2000, the restricted shares equal 75% of the number of purchased or designated shares). The restricted shares generally vest only if the participant holds the purchased or designated shares for five years; the restrictions will lapse if there is a change in control of the Company or the participant retires or dies. For each plan year, participants may purchase or designate a maximum number of shares having a market price equal to the participant's base salary. The Company will loan a participant the funds to purchase shares under the SARP at an interest rate equal to the minimum rate necessary to avoid imputed interest income under the federal income tax rules. The purchased shares are pledged and held as security for these loans. Dividends paid on the purchased and related restricted shares are applied to loan payments. The loan has a maximum term of ten years. Stock Ownership Guidelines. In January 2000, the Company adopted stock ownership guidelines for its key executives. The guidelines, which call for a minimum level of stock ownership based on the executive's base salary, are designed to further link these executives' interests to increased stockholder value. The guidelines are as follows: CEO 4 times salary Executive and Senior Vice Presidents, Presidents of Allegheny Ludlum, Allvac and the High Performance Metals Segment 3 times salary Other Presidents/Officers (35%-45% AIP Target) 2 times salary Other Officers/Key Employees (25% AIP Target) 1 times salary The executives will have up to five years to reach the targeted ownership levels. 19 24 COMPENSATION OF CHIEF EXECUTIVE OFFICER -- THOMAS A. CORCORAN Thomas A. Corcoran became the Company's President and Chief Executive Officer on October 1, 1999. Under the terms of his employment agreement, Mr. Corcoran is paid an annual base salary of at least $800,000. The Committee considered the advice of consulting firms in determining this amount, which the Committee believes is competitive. Other terms of his employment, including a signing bonus, three special payments paid over three years of continued employment, options to purchase 113,367 shares of Company stock and the award of 75,000 shares of restricted shares of Common Stock, were intended to equalize Mr. Corcoran's position with respect to arrangements he had with his former employer which were forfeited when he agreed to become the Company's President and Chief Executive Officer. The awards of stock options and restricted stock were also designed to provide a strong linkage of Mr. Corcoran's interests to increased stockholder value. In December 1999, Mr. Corcoran received options to purchase 120,000 shares of Company common stock. The amount of the stock option awards for all participants was two times the target amount in prior years. This award was made to enhance the management team's focus on the newly transformed company. Under the terms of his employment agreement, Mr. Corcoran will participate in the Company's executive compensation programs, including the AIP, SARP and PSP, at the same target level as Richard P. Simmons had participated as President and Chief Executive Officer, beginning in the year 2000. COMPENSATION OF FORMER CHIEF EXECUTIVE OFFICER -- RICHARD P. SIMMONS Richard P. Simmons retired as the Company's President and Chief Executive Officer effective September 30, 1999. In February 1999, the Subcommittee determined that Mr. Simmons' annual base salary would be 22,500 shares of Common Stock. Compared to 1998 and based on the number of shares of Common Stock, Mr. Simmons' annual base salary increased 12.5 percent. The increase was intended to provide Mr. Simmons with a base salary that the Subcommittee believed reflected his special level of responsibility and unique skills and the additional responsibilities that he was expected to assume in connection with the strategic transformation of the Company that was announced in January 1999. The increase also reflected the fact the Mr. Simmons had announced that he intended to step down as the Company's President and Chief Executive Officer; the Subcommittee believed that the amount of Mr. Simmons' base salary should be set with a view to attracting an outstanding successor to him. Mr. Simmons' entire pro-rated salary was paid in Common Stock issued to him in October 1999. Based on the closing price of a share of Common Stock on the New York Stock Exchange on September 30, 1999, the last day of his employment as President and Chief Executive Officer, Mr. Simmons received a pro-rated base salary of 16,875 shares or $569,531 for 1999. In March 1999, the Subcommittee set the target opportunity for Mr. Simmons' annual incentive at 80 percent of his base salary. Under the AIP, this was the amount of the award if the Company and Mr. Simmons achieved 100 percent of the financial and individual performance objectives. In December 1999, the Committee determined the annual incentive awards under the AIP for 1999. The Committee considered the fact that the corporate group achieved 180% of target after appropriate adjustments in accordance with generally accepted accounting principles for certain special items associated with the Transformation. While it was agreed that the operating performance of the Company had been disappointing, the Committee recognized the outstanding performance of the corporate staff in accomplishing the transformation initiatives announced in January 1999 and agreed that the bonus payout percentage for Mr. Simmons and other members of the corporate staff would be 90% of target. In 1998, Mr. Simmons became eligible to participate in the PSP for the award period that 20 25 began January 1, 1998. Under the PSP, Mr. Simmons, as President and Chief Executive Officer, received an award with a target opportunity of 150 percent of his base salary. Based on the Subcommittee's determination that the target award would be two-thirds of the initial award, to reflect the shortened award period resulting from the Transformation, and the adjusted and revised targets, the Subcommittee determined that Mr. Simmons was entitled to receive 9,446 shares of Common Stock and $211,500 in cash, representing 90 percent of the targeted award. This amount is payable over three years, with the first third paid in January 2000. In 1999, Mr. Simmons designated 22,500 shares of Common Stock previously owned by him under the Stock Acquisition and Retention Program. As a result of this designation, the Company awarded Mr. Simmons 11,250 restricted shares of Common Stock. Under the program, the restricted shares vested on September 30, 1999, when Mr. Simmons retired as the Company's President and Chief Executive Officer. For 1999, Mr. Simmons' compensation also includes a cash payment of $814,463 in respect of shares he designated under the SARP and $700,253 as a one-time tax reimbursement relating to the SARP. DEDUCTIBILITY OF EXECUTIVE COMPENSATION Section 162(a) of the Internal Revenue Code imposes limits on tax deductions for annual compensation paid to a chief executive officer and other highly compensated officers unless the compensation qualifies as "performance-based" or is otherwise exempt under the law. The Company's Incentive Plan is intended to meet the deductibility requirements of the regulations promulgated under Section 162(m). However, the Committee has determined that it would be in the best interests of the Company for certain awards to be paid under the Incentive Plan that would not satisfy the requirements of Section 162(m) for deductibility. SUBMITTED BY: PERSONNEL AND COMPENSATION STOCK INCENTIVE AWARD COMMITTEE, whose members are: SUBCOMMITTEE, whose members are: Charles J. Queenan, Jr., Chair Diane C. Creel, Chair Diane C. Creel, Vice Chair C. Fred Fetterolf C. Fred Fetterolf W. Craig McClelland W. Craig McClelland William G. Ouchi William G. Ouchi COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION No member of the Personnel and Compensation Committee or Stock Incentive Award Subcommittee is an officer or employee of the Company. Mr. Queenan serves as senior counsel to a law firm that provided services to the Company during 1999 and 2000. The firm does not compensate Mr. Queenan and he does not participate in its earnings or profits. No other member of the Committee has a current or prior relationship, and no officer who is a statutory insider of the Company has a relationship to any other company, required to be described under the Securities and Exchange Commission rules relating to disclosure of executive compensation. 21 26 EXECUTIVE COMPENSATION -------------------------------------------------------------------------------- SUMMARY COMPENSATION TABLE The following Summary Compensation Table sets forth information for the last three years about the compensation paid by the Company to the Chief Executive Officer and to each of the other four most highly compensated officers required to file reports under Section 16 of the Securities Exchange Act of 1934, as of December 31, 1999, and to Richard P. Simmons who served as President and Chief Executive Officer prior to his retirement on September 30, 1999 (the "named officers"). Annual Compensation Long Term Compensation ----------------------------------- -------------------------------------- Awards Payouts ------ ------- Other Securities Annual Under- Name and Compen- Restricted lying LTIP All Other Principal Salary Bonus sation Stock Options Payouts Compensation Positions(1) Year ($)(2) ($)(4) ($)(5) Award($)(6) (Shares)(7) ($)(8) ($)(9) ------------------------------------------------------------------------------------------------------------------------------ Thomas A. Corcoran 1999 233,331 0 360 2,568,750 233,367 0 2,215,106 President and Chief Executive Officer Richard P. Simmons 1999 569,531(3) 531,563 712,595 440,781 0 0 2,480,689 Chairman, Former President 1998 715,312(3) 1,000,000 11,632 467,031 113,368 0 838,988 and Chief Executive Officer 1997 623,879(3) 1,000,000 7,525 0 51,015 0 223,961 James L. Murdy 1999 370,000 229,770 631,027 122,079 40,000 220,920 942,540 Executive Vice President, 1998 346,666 325,222 12,251 209,098 22,674 252,420 375,370 Finance and Administration 1997 335,000 240,000 10,677 160,313 0 239,400 302,582 and Chief Financial Officer Jon D. Walton 1999 275,000 170,775 473,028 97,687 40,000 157,800 777,025 Senior Vice President, 1998 258,333 231,026 9,711 144,068 22,674 180,300 195,493 General Counsel and Secretary 1997 250,000 200,000 9,491 123,168 0 171,000 182,026 Judd R. Cool 1999 260,000 163,944 151,751 0 40,000 0 407,136 Senior Vice President- Human Resources Dale G. Reid 1999 190,004 88,494 191,043 90,925 20,000 0 201,648 Vice President-Controller 1998 170,004 103,069 77,840 11,338 0 52,947 and Chief Accounting Officer 1997 158,750 127,000 0 0 0 293,962 (1) Mr. Corcoran became President and Chief Executive Officer on October 1, 1999. Mr. Simmons served as President and Chief Executive Officer from February 1997 until he retired on September 30, 1999. Mr. Cool became Senior Vice President-Human Resources on September 1, 1997 and became a statutory insider of the Company on November 29, 1999. See "Employment and Change of Control Agreements" on page 26. (2) Includes cash compensation deferred pursuant to the Savings portion of the Company's Retirement Savings Plan, a qualified defined contribution plan under Section 401(a) of the Internal Revenue Code. (3) Mr. Simmons' base salary was paid in Common Stock, as follows: for 1999, 16,875 shares issued on September 30, 1999; for 1998, 17,500 shares issued on January 4, 1999; for 1997, 13,274 shares issued on January 12, 1998. The values reflected in the table are based on the closing prices of a share of the Common Stock on the New York Stock Exchange on the applicable date. (4) Includes payments under the Company's Incentive Plan. Mr. Corcoran will be eligible to participate in the Program beginning in 2000. For 1998 and 1997 sixty percent of the amount paid to Mr. Simmons was paid in Common Stock. (5) Includes a one-time tax reimbursement relating to the Company's stock acquisition and retention programs. In accordance with applicable regulations, except with respect to Mr. Reid in 1999 (which included initiation fees of $38,376), the amounts do not include perquisites and other personal benefits received by the named officers because the aggregate value of such benefits did not exceed the lesser of $50,000 or 10 percent of the total salary and bonus for the named officers. 22 27 (6) Represents the closing market price on the award date of shares of restricted Common Stock awarded to the named officers, including restricted shares awarded under the Company's stock acquisition and retention programs ("SARP"). Dividends are paid on the restricted shares. On December 31, 1999, the number of restricted shares and closing market price of such shares (if unrestricted) held by the named officers were: Mr. Corcoran, 75,000 shares ($1,682,813); Mr. Murdy, 13,851 shares ($310,782); Mr. Walton, 9,604 shares ($215,490); Mr. Cool, 5,529 shares ($124,057); and Mr. Reid, 4,453 shares ($99,914). Prior to 1998, Messrs. Simmons and Reid were not eligible to participate in the SARP. Mr. Corcoran will be eligible to participate in the SARP beginning in 2000. (7) Reflects options granted under the Company's Incentive Plan. The amount shown represents the number of shares the officer could purchase by exercising the options. Does not include options awarded to Mr. Simmons under the Non-Employee Director Stock Compensation Plan for his service as a director of the Company before becoming an employee or after his retirement as President and Chief Executive Officer. (8) The amounts shown include cash and the closing market price of Common Stock distributed under Allegheny Ludlum's Performance Share Program. Distributions reflected the achievement of 120 percent of the performance objectives for the 1995-1996 award period. The awards were paid over a three-year period beginning in the year following the end of the award period. (9) For Mr. Corcoran, includes $2,000,000 signing bonus and relocation costs of $146,837. Also includes annual accruals by the Company for possible future payments to the named officers under the Supplemental Pension Plan described under "Pension Plans" on page 26. For 1999, the amounts accrued were: Mr. Corcoran, $52,929; Mr. Simmons, $1,599,221; Mr. Murdy, $50,815; Mr. Walton, $110,225; and Mr. Cool $110,149. Includes 1999 Company contributions pursuant to the Retirement portion of the Company's Retirement Savings Plan to the accounts of each named officer in the amount of approximately $11,000 each. Includes 1999 Company contributions pursuant to the Savings portion of the Retirement Savings Plan to the accounts of Messrs. Murdy, Walton, Cool and Reid in the approximate amount of $5,000 each. Includes 1999 Company contributions to the Benefit Restoration Plan, as follows: Mr. Corcoran, $4,767; Mr. Simmons, $37,020; Mr. Murdy, $42,806; Mr. Walton, $27,247; Mr. Cool, $20,771; and Mr. Reid, $11,262. Under the Benefit Restoration Plan, the Company supplements the payments received by participants under the pension provisions described under "Pension Plans" on page 25 and the Retirement Savings Plan by making payments to or accruing benefits on behalf of the participants in amounts which are equivalent to the portion of the payments or benefits which cannot be paid or accrued under such plans due to limitations imposed by the Internal Revenue Code. Also included are the dollar value of the benefit to the named officers of the remainder of Company-paid premiums for "split dollar" life insurance; for 1999, such amounts were as follows: Mr. Simmons, $19,195; Mr. Murdy, $5,289; Mr. Walton, $6,468; Mr. Cool, $5,677; and Mr. Reid, $3,512. Also includes one-time, non-cash imputed income of $729,138, $593,390, $130,092 and $170,966 for Messrs. Murdy, Walton, Cool and Reid, respectively, arising in connection with the Company's Stock Acquisition and Retention Program and cash payments of $814,463, $98,639, $23,905, and $58,175 for Messrs. Simmons, Murdy, Walton and Cool, respectively, in respect of designated stock under that Program. For Mr. Cool, also includes a signing bonus of $66,667. 23 28 STOCK OPTIONS The first table sets forth information regarding options granted during 1999 under the Allegheny Technologies Incentive Plan. The second table indicates that none of the named officers exercised stock options during 1999 and sets forth the unexercised options held at December 31, 1999. OPTION GRANTS IN LAST FISCAL YEAR -------------------------------------------------------------------------------- Potential Realizable Value at Assumed Annual Rates of Stock Individual Grants(1) Price Appreciation for Option Term(3) -------------------------------------------------------------------------------------- ---------------------------------------- Number of % of Total Securities Options Underlying Granted to Options Employees Exercise or Granted in Fiscal Base Price 0% 5% 10% Name (#) Year ($/Share) Expiration Date ($)(2) ($) ($) ---- ------------ ------------ ------------- ----------------- ------ ---------- ---------- T. A. Corcoran....... 113,367 5.0% 30.87 9/16/09 0 2,200,453 5,577,656 120,000 5.3% 21.53 12/20/09 0 1,624,800 4,117,200 R. P. Simmons........ 0 N/A N/A N/A N/A N/A N/A J. L. Murdy.......... 40,000 1.8% 21.53 12/20/09 0 541,600 1,372,400 J. D. Walton......... 40,000 1.8% 21.53 12/20/09 0 541,600 1,372,400 J. R. Cool........... 40,000 1.8% 21.53 12/20/09 0 541,600 1,372,400 D. G. Reid........... 20,000 * 21.53 12/20/09 0 270,800 686,200 All Optionees........ 2,256,367 100% 21.53-30.87 9/16/09-12/20/09 0 31,216,673 79,103,986 --------------------------------------------------------------------------------------------------------------------------------- * Less than one percent (1) In general, except for limited instances, including estate planning purposes, and at the discretion of the Committee, stock options become exercisable in three annual installments beginning one year after the date of grant. Options include the right to pay the exercise price in cash, Common Stock or a combination, and the right to have shares withheld by the Company to pay withholding tax obligations due on the exercise. (2) No gain to the optionees is possible without stock price appreciation, which will benefit all stockholders commensurately. (3) These assumed "potential realizable values" are mathematically derived from certain prescribed rates of stock price appreciation. The actual value of these option grants depends on the future performance of the Common Stock and overall stock market conditions. There is no assurance that the values reflected in this table will be achieved. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES -------------------------------------------------------------------------------- Number of Securities Value of Unexercised Underlying Unexercised In-The-Money Options at Shares Options at FY-End(#) FY-End($)(2) Acquired Value --------------------------- --------------------------- Name on Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable ---- -------------- ----------- ----------- ------------- ----------- ------------- T. A. Corcoran...................... 0 0 0 233,367 0 86,400 R. P. Simmons(1).................... 0 0 143,050 25,508 0 0 J. L. Murdy......................... 0 0 29,855 67,964 0 28,800 J. D. Walton........................ 0 0 38,169 64,185 42,765 28,800 J. R. Cool.......................... 0 0 7,558 55,116 0 28,800 D. G. Reid.......................... 0 0 27,239 30,228 31,603 14,400 (1) Includes exercisable options to acquire 113,368 shares that Mr. Simmons transferred as gifts to family members in 1998 and options granted to Mr. Simmons under the Non-Employee Director Stock Compensation Plan with respect to his service as a non-employee director. (2) The "value of unexercised in-the-money options" is calculated by subtracting the exercise price per share from $22.25, which was the average of the high and low sales prices of a share of Company Common Stock on the New York Stock Exchange on December 31, 1999. 24 29 PENSION PLANS The Company maintains a defined benefit pension plan, called the Allegheny Technologies Incorporated Pension Plan ("ATI Pension Plan"), which has a number of benefit formulas that apply separately to various groups of employees and retirees. One formula applies to individuals who were employees of Allegheny Ludlum Corporation ("Allegheny Ludlum") in 1988 when that company established a defined contribution program and ceased accruals under the ATI Pension Plan except for those employees who met certain age and service criteria in 1988. Another part applies to individuals who are or were employed by operating companies that were part of Teledyne, Inc. ("Teledyne") when it combined with Allegheny Ludlum in 1996, including individuals who became Allegheny Technologies corporate employees. The benefits payable from a qualified defined benefit plan are limited by the Internal Revenue Code. The Company has established a non-qualified plan to restore benefits to employees affected by those limitations. The following tables show the estimated annual benefits calculated on a straight life annuity basis payable under the ATI Pension Plan and the defined benefit portion of the benefit restoration plan to salaried participants in specified compensation and years of service classifications upon attainment of age 65: PENSION PLAN TABLE--ALLEGHENY LUDLUM PROVISIONS* -------------------------------------------------------------------------------- Estimated Annual Pension Benefits for Representative Years of Continuous Service ------------------------------------------------------------------------- Remuneration 20 25 30 35 40 45 ---------------------------------------------------------------------------------------- $ 200,000 $ 64,000 $ 80,000 $ 96,000 $ 112,000 $ 128,000 $ 144,000 300,000 96,000 120,000 144,000 168,000 192,000 216,000 400,000 128,000 160,000 192,000 224,000 256,000 288,000 500,000 160,000 200,000 240,000 280,000 320,000 360,000 600,000 192,000 240,000 288,000 336,000 384,000 432,000 800,000 256,000 320,000 384,000 448,000 512,000 576,000 1,000,000 320,000 400,000 480,000 560,000 640,000 720,000 1,500,000 480,000 600,000 720,000 840,000 960,000 1,080,000 2,000,000 640,000 800,000 960,000 1,120,000 1,280,000 1,440,000 2,500,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 1,800,000 * The formula used to determine retirement benefits under the pension provisions applicable to employees of Allegheny Ludlum in 1988 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 the Company's savings plans, and awards, when received, under the Company's short-term incentive plans. PENSION PLAN TABLE--TELEDYNE PROVISIONS** -------------------------------------------------------------------------------- Average Pay in Highest Years of Service 60 Months of Last 120 ------------------------------ Months of Employment 15 20 30 ------------------------------------------------------- $ 200,000 $ 46,078 $ 61,437 $ 92,156 300,000 70,828 94,437 141,656 400,000 95,578 127,437 191,156 500,000 120,328 160,437 240,656 600,000 145,078 193,437 290,156 700,000 169,828 226,437 339,656 800,000 194,578 259,437 389,156 1,000,000 244,078 325,437 488,156 25 30 ** The formula used to determine retirement benefits under the pension provisions applicable to employees of Teledyne considers the participant's average pay in the highest 60 months of the last 120 months. For the period through December 31, 1994, for employees in the higher salary classifications, compensation for purposes of the plan was limited to an individual's base salary. Thereafter, plan compensation for those employees includes base salary and up to five annual incentive compensation payments received on and after January 1, 1995. The maximum amount of service credited under these pension plan provisions is 30 years. Mr. Simmons retired on September 30, 1999 with 45 years of credited service under the Allegheny Ludlum plan provisions. As of December 31, 1999, Messrs. Murdy and Walton had 0.58 and 2.83 credited years of service under the Allegheny Ludlum provisions, respectively, and Mr. Reid had 18.58 credited years of service under the Teledyne provisions. Mr. Simmons' credited years of service were calculated under the employment agreement he had with Allegheny Ludlum prior to his retirement from Allegheny Ludlum, which provided that he was entitled to a supplemental pension, payable from the general assets of Allegheny Ludlum, based on 15 years of service in addition to those he served as an Allegheny Ludlum employee. Messrs. Murdy, Reid and Walton are fully vested in the pension provisions. In addition, the Company has established a Supplemental Pension Plan which provides certain key employees of the Company and its subsidiaries, including Messrs. Corcoran, Simmons, Murdy, Walton and Cool (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, or, in the case of Mr. Cool, continue for a period of six months for each twelve months of service, up to a maximum of 118 months. Provisions applicable to Mr. Corcoran are described at "Employment and Change of Control Agreements" below. The Plan describes the events that will terminate an employee's participation in the Plan. Since the payment of benefits to the participants is contingent on future events, the amount to be paid in the future with respect to such officers cannot be determined at this time. EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS Mr. Corcoran entered into an employment agreement with the Company, dated September 16, 1999, in connection with his employment as the Company's President and Chief Executive Officer. The agreement has an initial term of five years; the term changes to a continuing 13-month period beginning in July 2003. The terms of his employment agreement were intended to equalize Mr. Corcoran's position with respect to arrangements he had with his former employer which were forfeited when he agreed to become the Company's President and Chief Executive Officer. The agreement provides for a signing bonus of $2 million; an annual base salary of at least $800,000; special bonuses of $600,000 on February 1, 2000 and $375,000 each on January 31, 2001 and 2002 so long as Mr. Corcoran's employment with the Company continues (unless the Company terminates his employment without cause, as defined in the agreement); an initial grant of options to purchase 113,367 shares of Common Stock at market with a three-year vesting period; an immediate grant of 75,000 restricted shares of Common Stock which are forfeited if Mr. Corcoran resigns from employment for any reason (other than death) prior to July 16, 2004; participation in the Company's executive compensation programs, including the AIP, PSP and SARP, at the same target award levels as Mr. Simmons had participated, beginning in the year 2000; participation in the Supplemental Pension Plan with a special early retirement benefit so that if Mr. Corcoran retires (and does not become an employee of a for profit corporation) before age 58, he will be paid 50 percent of the benefit earned for the time he actually worked for the Company and if he retires after age 58, he will receive a benefit 26 31 under the Supplemental Pension Plan on the basis that he worked for the Company for the greater of his actual years of service or five. If Mr. Corcoran is terminated during the contract term without cause or resigns for good reason (as defined in the agreement), he will be paid his base salary for the balance of the term (or two years, if greater), the amount of his bonus for the prior year times the number of years remaining in the term (or two, if greater), the special bonuses described above that remain unpaid and any benefits or accruals under any of the plans and arrangements in which he then participates. The agreement also contains non-compete, trade secret and confidentiality provisions. The Company also entered employment agreements with Messrs. Murdy and Walton in connection with the combination of Allegheny Ludlum and Teledyne in 1996. 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. By their terms, the agreements renew automatically each month absent notice from one party to the other, so that the then remaining term is 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 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 one year, including certain supplemental pension benefits. In February 2000, the Company entered into change in control severance agreements with the named officers and other key employees to assure the Company that it will have the continued support of the executive and the availability of the executive's advice and counsel notwithstanding the possibility, threat or occurrence of a change in control (as defined in the agreement). In general, the agreements provide for the payment of severance benefits if a change in control occurs and within 24 months after the change in control either the Company terminates the executive's employment with the Company without cause (as defined) or the executive terminates employment with the Company for good reason (as defined). Severance compensation includes a multiple of base salary (3 for Messrs. Corcoran, Murdy, Walton and Cool, and 2 for Mr. Reid), certain accrued benefits, a pro-rated payment of an incentive bonus equal to that which would have been paid had the Company achieved 120% of target, a lump sum payment under the Performance Share Program based on the Company's performance for completed years and for future years assuming that the Company would have achieved 120% of target, the continuation of welfare benefits for 36 months and reimbursement for outplacement services. The agreements also provide for the vesting of outstanding options and the lifting of restrictions on stock awarded under the stock acquisition and retention programs. The agreements have a term of three years, which three year term shall continue to be extended until either party gives written notice that it no longer wants to continue to extend the term. If a change of control occurs during the term, the agreement will remain in effect for the longer of three years or until all obligations of the Company under the agreements have been fulfilled. 27 32 CUMULATIVE TOTAL STOCKHOLDER RETURN -------------------------------------------------------------------------------- The graph set forth below shows the cumulative total stockholder return (i.e., price change plus reinvestment of dividends) on the Common Stock from the first day of trading in the Common Stock following the formation of the Company in the combination of Allegheny Ludlum and Teledyne on August 15, 1996 through December 31, 1999 as compared to the S&P 500 Index and the S&P Iron & Steel Index. The graph assumes that $100 was invested on August 16, 1996. ALLEGHENY TECHNOLOGIES INC S&P 500 INDEX IRON & STEEL-500 ---------------------- ------------- ---------------- 16 Aug-96 100.00 100.00 100.00 Dec-96 110.93 112.16 106.30 Dec-97 127.80 149.58 108.15 Dec-98 104.13 192.33 93.74 Dec-99 67.29 232.80 103.13 On November 29, 1999, the Company completed the Transformation, which included the spin-offs of Teledyne Technologies and Water Pik. In the spin-offs, holders of record on November 22, 1999 received one Teledyne Technologies share for each seven shares of Company Common Stock and one Water Pik share for each twenty shares of Company Common Stock, based on the number of shares of Company Common Stock they held prior to the one-for-two reverse stock split. 28 33 CERTAIN TRANSACTIONS -------------------------------------------------------------------------------- Code, Hennessy & Simmons Funds. Allegheny Ludlum and subsidiaries of Allegheny Ludlum have invested in 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 has been to seek maximum return by investing in leveraged buyouts of operating companies. The investment in Fund I has essentially been liquidated and no further information is provided in this statement regarding that Fund. Profits and losses of Fund II are allocated 80 percent to the limited partners and 20 percent to the general partner. The general partner of Fund II is CHS Management II, L.P. ("CHS II"), whose stockholders are Andrew W. Code, Daniel J. Hennessy, and Brian P. Simmons, each of whom has an equal interest in that firm. Brian P. Simmons is the son of Richard P. Simmons, Chairman of the Board of the Company. A subsidiary of Allegheny Ludlum 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). This subsidiary received cash distributions of approximately $1,275,190 in 1999 and invested $14,652 pursuant to a capital call from its investments in Fund II and CHS II. CHS II is responsible for managing the selection and structuring of their respective fund's investments. In 1999, the annual base management fee for CHS II was 1.45 percent of the fund's total capital commitments. These fees were offset by fees that the general partner charges to companies the fund acquires. After the offset for fees, the net amounts received by CHS II was zero percent. In addition to the investment by the Company, Richard P. Simmons, Chairman of the Board of the Company, Robert P. Bozzone, Vice Chairman of the Board of the Company, and a subsidiary of The PNC Financial Services Group, Inc. ("PNC") 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 and Chief Operating Officer of PNC, is a member of the Company's Board of Directors. Kirkpatrick & Lockhart LLP. The Company retained the law firm of Kirkpatrick & Lockhart LLP to perform services for the Company during 1999 and 2000. 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" on page 21. Loans under Stock Acquisition and Retention Programs. Under the terms of the Company's stock acquisition and retention programs, eligible participants may deliver a promissory note, payable to the Company, as payment for the purchase price of shares of Common Stock purchased under the programs. 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 the Company or the prime lending rate of PNC Bank, but not lower than the minimum rate necessary to avoid imputed interest under applicable federal income tax laws. During the 1999 fiscal year, James L. Murdy, Jon D. Walton, Judd R. Cool, and Dale G. Reid delivered promissory notes to the Company to pay the purchase price of Common Stock purchased under the program. The largest amount of indebtedness outstanding under the programs during the 1999 fiscal year and the amount of indebtedness outstanding under the programs as of December 31, 1999 were $1,529,437 and $795,705 for Mr. Murdy; $1,223,845 and $626,087 for Mr. Walton; $248,082 and $116,843 for Mr. Cool; and $366,967 and $193,914 for Mr. Reid. 29 34 OTHER INFORMATION -------------------------------------------------------------------------------- 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 SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY AT 1000 SIX PPG PLACE, PITTSBURGH, PENNSYLVANIA 15222-5479 OR (412) 394-2800. 2001 ANNUAL MEETING AND STOCKHOLDER PROPOSALS Under Rule 14a-8 of the Securities and Exchange Commission, proposals of stockholders intended to be presented at the 2001 Annual Meeting of Stockholders must be received no later than November 20, 2000 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 Corporate Secretary. To be timely, a stockholder's notice must be delivered to the Secretary not less than 75 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 2001 Annual Meeting of Stockholders, would be no earlier than February 10, 2001 and no later than February 25, 2001. 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 Senior Vice President, General Counsel and Secretary. PROXY SOLICITATION The Company pays the cost of preparing, assembling and mailing this proxy-soliciting material. We will reimburse banks, brokers and other nominee holders for reasonable expenses they incur in sending these proxy materials to our beneficial stockholders whose stock is registered in the nominee's name. The Company has engaged Morrow & Co. to help solicit proxies from brokers, banks and other nominee holders of the Common Stock at a cost of $8,000 plus expenses. Our employees may also solicit proxies for no additional compensation. On behalf of the Board of Directors: /s/ Jon D. Walton Jon D. Walton Senior Vice President, General Counsel and Secretary Dated: March 20, 2000 30 35 Appendix ALLEGHENY TECHNOLOGIES INCORPORATED 2000 INCENTIVE PLAN ARTICLE I. PURPOSE AND ADOPTION OF THE PLAN 1.1. PURPOSE. The purpose of the Allegheny Technologies Incorporated 2000 Incentive Plan (hereinafter referred to as the "Plan") is to assist in attracting and retaining highly competent employees, to act as an incentive in motivating selected officers and other key employees of Allegheny Technologies Incorporated and its Subsidiaries to achieve long-term corporate objectives and to enable cash incentive awards to qualify as performance-based for purposes of the tax deduction limitations under Section 162(m) of the Code. 1.2. ADOPTION AND TERM. The Plan has been approved by the Board of Directors of Allegheny Technologies Incorporated, to be effective as of January 1, 2000 (the "Effective Date"), but is subject to the approval of the stockholders of the Company. The Plan shall remain in effect until terminated by action of the Board; provided, however, that no Incentive Stock Option may be granted hereunder after the tenth anniversary of the date the stockholders of the Company approve the Plan and the provisions of Articles VII, VIII, IX and X with respect to performance-based awards to "covered employees" under Section 162(m) of the Code shall expire as of the fifth anniversary of the date the stockholders of the Company approve the Plan. 1.3. THE PRIOR PLAN. The Company previously adopted the Allegheny Teledyne Incorporated 1996 Incentive Plan (the "Prior Plan"). Awards granted under the Prior Plan prior to the date the stockholders of the Company approve the Plan shall not be affected by the adoption of this Plan, and the Prior Plan shall remain the effect following the date the stockholders of the Company approve the Plan to the extent necessary to administer such awards, but no new Awards shall be granted under the Prior Plan after the date the stockholders of the Company approve the Plan. ARTICLE II. DEFINITIONS For the purpose of this Plan, capitalized terms shall have the following meanings: 36 2.1. AWARD means any one or a combination of Non-Qualified Stock Options or Incentive Stock Options described in Article VI, Stock Appreciation Rights described in Article VI, Restricted Shares described in Article VII, Performance Awards described in Article VIII, Awards of cash or any other Award made under the terms of the Plan. 2.2. AWARD AGREEMENT means a written agreement between the Company and a Participant or a written acknowledgment from the Company to a Participant specifically setting forth the terms and conditions of an Award granted under the Plan. 2.3. AWARD PERIOD means, with respect to an Award, the period of time set forth in the Award Agreement during which specified target performance goals must be achieved or other conditions set forth in the Award Agreement must be satisfied. 2.4. BENEFICIARY means an individual, trust or estate who or which, by a written designation of the Participant filed with the Company or by operation of law, succeeds to the rights and obligations of the Participant under the Plan and the Award Agreement upon the Participant's death. 2.5. BOARD means the Board of Directors of the Company. 2.6. CHANGE IN CONTROL means, and shall be deemed to have occurred upon the occurrence of, any one of the following events: (a) The acquisition in one or more transactions, other than from the Company, by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of a number of Company Voting Securities in excess of 25% of the Company Voting Securities unless such acquisition has been approved by the Board; (b) Any election has occurred of persons to the Board that causes two-thirds of the Board to consist of persons other than (i) persons who were members of the Board on the Effective Date and (ii) persons who were nominated for elections as members of the Board at a time when two-thirds of the Board consisted of persons who were members of the Board on the Effective Date; provided, however, that any person nominated for election by a Board at least two-thirds of whom constituted persons described in 2 37 clauses (i) and/or (ii) or by persons who were themselves nominated by such Board shall, for this purpose, be deemed to have been nominated by a Board composed of persons described in clause (i); (c) Approval by the stockholders of the Company of a reorganization, merger or consolidation, unless, following such reorganization, merger or consolidation, all or substantially all of the individuals and entities who were the respective beneficial owners of the Outstanding Common Stock and Company Voting Securities immediately prior to such reorganization, merger or consolidation, following such reorganization, merger or consolidation beneficially own, directly or indirectly, more than seventy five (75%) of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors or trustees, as the case may be, of the entity resulting from such reorganization, merger or consolidation in substantially the same proportion as their ownership of the Outstanding Common Stock and Company Voting Securities immediately prior to such reorganization, merger or consolidation, as the case may be; or (d) Approval by the stockholders of the Company of (i) a complete liquidation or dissolution of the Company or (ii) a sale or other disposition of all or substantially all the assets of the Company. 2.7. CODE means the Internal Revenue Code of 1986, as amended. References to a section of the Code shall include that section and any comparable section or sections of any future legislation that amends, supplements or supersedes said section. 2.8. COMMITTEE means the Committee defined in Section 3.1. 2.9. COMPANY or CORPORATION means Allegheny Technologies Incorporated, a Delaware corporation, and its successors. 2.10. COMMON STOCK means Common Stock of the Company, par value $.10 per share. 2.11. COMPANY VOTING SECURITIES means the combined voting power of all outstanding voting securities of the Company entitled to vote generally in the election of directors to the Board. 3 38 2.12. DATE OF GRANT means the date designated by the Committee as the date as of which it grants an Award, which shall not be earlier than the date on which the Committee approves the granting of such Award. 2.13. EFFECTIVE DATE shall have the meaning given to such term in Section 1.2. 2.14. EXCHANGE ACT means the Securities Exchange Act of 1934, as amended. 2.15. EXERCISE PRICE means, with respect to a Stock Appreciation Right, the amount established by the Committee in the Award Agreement which is to be subtracted from the Fair Market Value on the date of exercise in order to determine the amount of the payment to be made to the Participant, as further described in Section 6.2(b). 2.16. FAIR MARKET VALUE means, on any date, the average of the high and low quoted sales prices of a share of Common Stock, as reported on the Composite Tape for New York Stock Exchange Listed Companies, on such date or, if there were no sales on such date, on the last date preceding such date on which a sale was reported. 2.17. INCENTIVE STOCK OPTION means a stock option within the meaning of Section 422 of the Code. 2.18. MERGER means any merger, reorganization, consolidation, exchange, transfer of assets or other transaction having similar effect involving the Company. 2.19. NON-QUALIFIED STOCK OPTION means a stock option which is not an Incentive Stock Option. 2.20. OPTIONS means all Non-Qualified Stock Options and Incentive Stock Options granted at any time under the Plan. 2.21. OUTSTANDING COMMON STOCK means, at any time, the issued and outstanding shares of Common Stock. 2.22. PARTICIPANT means a person designated to receive an Award under the Plan in accordance with Section 5.1. 2.23. PERFORMANCE AWARDS means Awards granted in accordance with Article VIII. 4 39 2.24. PERFORMANCE GOALS means operating income, operating profit (earnings from continu