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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
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SOLICITATION/RECOMMENDATION STATEMENT
UNDER SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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HOWMET INTERNATIONAL INC.
(NAME OF SUBJECT COMPANY)
HOWMET INTERNATIONAL INC.
(NAME OF PERSON FILING STATEMENT)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
443208 103
(CUSIP NUMBER OF CLASS OF SECURITIES)
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ROLAND A. PAUL, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
HOWMET INTERNATIONAL INC.
475 STEAMBOAT ROAD
GREENWICH, CONNECTICUT 06836-1960
(203) 661-4600
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS
ON BEHALF OF THE PERSON FILING STATEMENT)
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WITH COPIES TO:
ERIC S. ROBINSON, ESQ. J. DAVID KIRKLAND, JR., ESQ.
WACHTELL, LIPTON, ROSEN & KATZ BAKER BOTTS L.L.P.
51 WEST 52ND STREET ONE SHELL PLAZA, 910 LOUISIANA
NEW YORK, NEW YORK 10019 HOUSTON, TEXAS 77002
(212) 403-1000 (713) 229-1101
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[ ] Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
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ITEM 1. SUBJECT COMPANY INFORMATION.
The name of the subject company is Howmet International Inc., a Delaware
corporation (the "Company"). The address of the principal executive offices of
the Company is 475 Steamboat Road, Greenwich, Connecticut 06830. The telephone
number of the Company at its principal executive offices is (203) 661-4600.
The title of the class of equity securities to which this
Solicitation/Recommendation Statement on Schedule 14D-9 (this "Statement")
relates is the Common Stock, par value $0.01 per share, of the Company (the
"Common Stock"). As of April 28, 2000, there were 100,033,307 shares of Common
Stock outstanding.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON.
The filing person is the subject company. The Company's name, business
address and business telephone number are set forth in Item 1 above.
This Statement relates to the tender offer by HMI Acquisition Corp. (the
"Purchaser"), a Delaware corporation and a wholly owned subsidiary of Alcoa
Inc., a Pennsylvania corporation ("Alcoa"), to purchase all of the outstanding
shares of Common Stock (the "Shares") at a purchase price of $20.00 per Share
(the "Offer Price"), net to the seller in cash, upon the terms and subject to
the conditions set forth in the Purchaser's Offer to Purchase, dated April 18,
2000, and in the related Letter of Transmittal (which, together with any
amendments or supplements thereto, collectively constitute the "Offer"). The
Offer is described in a Tender Offer Statement on Schedule TO (as amended or
supplemented from time to time, the "Schedule TO"), filed by Alcoa and the
Purchaser with the Securities and Exchange Commission (the "Commission") on
April 18, 2000. The Schedule TO states that, subject to the satisfaction or
waiver of certain conditions, following completion of the Offer, and in
accordance with the Delaware General Corporation Law (the "DGCL"), Alcoa intends
to cause the merger of the Purchaser with and into the Company (the "Merger"),
with the Company continuing as the surviving corporation in the Merger, in which
each Share outstanding immediately prior to the effective time of the Merger
(other than Shares owned by the Purchaser or any subsidiary of Alcoa or the
Purchaser, or as to which the holder has validly perfected dissenters' rights
under the DGCL) would be converted into the right to receive $20.00 in cash,
without interest. The Offer is conditioned upon, among other things, (i) there
being tendered and not withdrawn prior to the expiration date of the Offer not
less than a majority of the outstanding Publicly Held Company Shares (as defined
below) (the "Minimum Tender Condition") and (ii) Omega Acquisition Corp., a
Delaware corporation and wholly owned subsidiary of Alcoa ("Omega"), having
purchased shares of Cordant Common Stock (as defined below) in Omega's tender
offer for such shares commenced pursuant to the Cordant/Alcoa Merger Agreement
(as defined below).
The Schedule TO states that the principal offices of the Purchaser and
Alcoa are located at 201 Isabella Street, Alcoa Corporate Center, Pittsburgh,
Pennsylvania 15212.
ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
Certain contracts, agreements, arrangements or understandings between the
Company or its affiliates and certain of the Company's directors, executive
officers and affiliates are, except as noted below, described in Annex A
attached to this Statement and incorporated herein by reference. Except as
described in this Statement (including in the Exhibits hereto and in Annex A
hereto) or incorporated herein by reference, to the knowledge of the Company, as
of the date of this Statement there exists no material agreement, arrangement or
understanding or any actual or potential conflict of interest between the
Company or its affiliates and (1) the Company's executive officers, directors or
affiliates or (2) the Purchaser or the Purchaser's executive officers, directors
or affiliates.
THE CORDANT/ALCOA MERGER AGREEMENT. On March 14, 2000, Alcoa, Omega and
Cordant Technologies Inc., a Delaware corporation and the beneficial owner of
approximately 84.6% of the outstanding Shares ("Cordant"), entered into an
Agreement and Plan of Merger (the "Cordant/Alcoa Merger Agreement") pursuant to
which Alcoa agreed to acquire all of the outstanding shares of Common Stock, par
value $1.00 per
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share, of Cordant ("Cordant Common Stock"). A copy of the Cordant/Alcoa Merger
Agreement is filed as Exhibit (e)(1) to this Statement and incorporated herein
by reference.
The Cordant/Alcoa Merger Agreement provides that from and after the
purchase of shares of Cordant Common Stock ("Cordant Shares") in the tender
offer for all outstanding Cordant Shares made by Omega pursuant to the
Cordant/Alcoa Merger Agreement (the "Cordant Offer"), Alcoa will indemnify and
hold harmless each present and former director and officer of Cordant and its
subsidiaries (including the Company) against any costs or expenses (including
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, by
reason of the fact that such individual is or was a director, officer, employee
or agent of Cordant or any of its subsidiaries, or is or was serving at the
request of Cordant or any of its subsidiaries as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, arising out of or pertaining to matters existing or occurring at or
prior to the effective time of the merger of Omega with and into Cordant as
contemplated by the Cordant/Alcoa Merger Agreement (the "Cordant Merger"),
whether asserted or claimed prior to, at or after the purchase of Cordant Shares
in the Cordant Offer, to the fullest extent permitted under applicable law, and
Alcoa will also advance fees and expenses as incurred to the fullest extent
permitted under applicable law.
The Cordant/Alcoa Merger Agreement further provides that, for six years
from the effective time of the Cordant Merger, Alcoa will maintain in effect
Cordant's and its subsidiaries' directors and officers liability insurance
policies covering those persons who are currently covered by such policies;
provided, however, that in no event will Alcoa be required to expend in any one
year an amount in excess of the annual premiums currently paid by Cordant and
its subsidiaries for such insurance, and, provided, further, that if the annual
premiums of such insurance coverage exceed such amount, Alcoa will be obligated
to obtain policies with the greatest coverage available for a cost not exceeding
such amount; and provided, further, that Alcoa may meet its obligations by
covering the above persons under Alcoa's insurance policy on the terms described
above that expressly provide coverage for any acts that are covered by the
existing policies of Cordant and its subsidiaries.
THE CORPORATE AGREEMENT AMENDMENT. On March 13, 2000, Cordant, Cordant
Technologies Holding Company, a Delaware corporation and a wholly owned
subsidiary of Cordant ("Holding"), and the Company amended (the "Corporate
Agreement Amendment") the Corporate Agreement entered into by such parties in
connection with the initial public offering of Shares in December 1997. Under
the Corporate Agreement Amendment, Cordant and Holding agreed that neither they
nor any of their affiliates will acquire outstanding Shares not held by any of
them (the "Publicly Held Company Shares") if, after such acquisition, the number
of Publicly Held Company Shares would be less than 14% of the total number of
outstanding Shares, other than: (1) with the consent of a majority (but not less
than two) of the non-employee directors of the Company who are not directors or
employees of Cordant, Holding or their affiliates; or (2) the purchase of at
least a majority of the outstanding Publicly Held Company Shares pursuant to a
tender offer to acquire all of the Publicly Held Company Shares, which tender
offer (A) is conditioned upon there being tendered and not withdrawn prior to
the expiration of the offer not less than a majority of the outstanding Publicly
Held Company Shares (the "Minimum Tender Requirement"), and (B) provides a
commitment for a prompt merger or business combination following the purchase of
Shares in the tender offer as contemplated by clause (3) below; or (3) pursuant
to a merger or other business combination, within one year following the
completion of a tender offer described in clause (2) above that satisfied the
Minimum Tender Requirement, in which each Publicly Held Company Share
outstanding immediately prior to the effective time of such merger or business
combination is converted into the right to receive the same consideration paid
or issued in the tender offer; or (4) pursuant to a merger or other business
combination in which holders of all outstanding Publicly Held Company Shares are
treated the same which is approved by the holders of a majority of the
outstanding Publicly Held Company Shares. A copy of the Corporate Agreement
Amendment is filed as Exhibit (e)(2) to this Statement and incorporated herein
by reference.
LETTER AGREEMENT RELATING TO ALCOA'S COMPLIANCE WITH THE CORPORATE
AGREEMENT AMENDMENT. Alcoa and the Company entered into a letter agreement on
March 13, 2000 (the "Alcoa Letter Agreement"), pursuant to which Alcoa agreed
with the Company to be bound by the same limitations on purchasing
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Publicly Held Company Shares as bind Cordant under the Corporate Agreement
Amendment. A copy of the Alcoa Letter Agreement is filed as Exhibit (e)(3) to
this Statement and incorporated herein by reference.
EFFECTS OF THE OFFER AND THE MERGER UNDER COMPANY STOCK PLANS AND
AGREEMENTS BETWEEN THE COMPANY AND ITS EXECUTIVE OFFICERS. Alcoa and the
Purchaser state in the Offer that Alcoa intends to use its reasonable best
efforts to cause each option to purchase shares of Common Stock issued pursuant
to the Company's Amended and Restated 1997 Stock Awards Plan (such plan, the
"Company Stock Option Plan," and each option issued thereunder, an "Employee
Stock Option") to become exercisable immediately prior to the effective time of
the Merger (the "Effective Time"), as permitted pursuant to the terms and
conditions of the Company Stock Option Plan. Alcoa and the Purchaser also state
that Alcoa intends to offer to each holder of an Employee Stock Option that is
outstanding immediately prior to the Effective Time (whether or not then
presently exercisable or vested) to cancel such Employee Stock Option in
exchange for an amount in cash equal to the product of (x) the difference
between the Offer Price and the per share exercise price of such Employee Stock
Option and (y) the number of shares of Common Stock covered by such Employee
Stock Option. Alcoa and the Purchaser state that the Purchaser expects that all
payments in respect of such Employee Stock Options will be made as promptly as
practicable after the Effective Time, subject to the collection of all
applicable withholding taxes required by law to be collected by the Company and
that each Employee Stock Option, the holder of which does not accept such offer,
that remains outstanding immediately before the Effective Time will be assumed
by Alcoa and converted, effective as of the Effective Time, into an option with
respect to that number (the "New Share Number") of shares of common stock, par
value $1.00 per share, of Alcoa ("Alcoa Common Stock") that equals the number of
shares of Common Stock subject to such Employee Stock Option immediately before
the Effective Time, times an amount equal to the Offer Price divided by the
Alcoa Share Value (as defined below), rounded to the nearest whole number, with
a per-share exercise price equal to the aggregate exercise price of such option
immediately before the Effective Time, divided by the New Share Number, rounded
to the nearest whole cent; provided that in the case of any such option that was
granted as an "incentive stock option" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, and did not cease to qualify as such
as a result of any acceleration of vesting provided for above or otherwise, the
number of shares will be rounded down to the nearest whole number to determine
the New Share Number, and the new per-share exercise price will be determined by
rounding up to the nearest whole cent. The "Alcoa Share Value" means the average
of the daily high and low trading prices of the Alcoa Common Stock on the New
York Stock Exchange on each trading day during the period of 30 days ending the
second trading day prior to the Effective Time. Alcoa and the Purchaser also
state that Alcoa also intends to cause amounts payable to certain Company
employees pursuant to stock appreciation rights agreements to become vested as
of the Effective Time and for such amounts to be paid to such employees in
accordance with the terms of the stock appreciation right agreements.
EFFECTS OF THE TRANSACTIONS CONTEMPLATED BY THE CORDANT/ALCOA MERGER
AGREEMENT UNDER AGREEMENTS BETWEEN CORDANT AND CERTAIN EXECUTIVE OFFICERS AND
DIRECTORS OF THE COMPANY. As set forth in Annex A hereto, certain executive
officers and directors of the Company hold options to purchase Cordant Shares
that were granted to such individuals under Cordant's stock option plans. The
Cordant/Alcoa Merger Agreement provides that each outstanding option to purchase
Cordant Shares granted under any stock option or compensation plan or
arrangement of Cordant or its subsidiaries (collectively, the "Cordant Option
Plans") (including options granted to current or former employees and directors
of the Company) (the "Cordant Stock Options") will become exercisable either
prior to the purchase of Cordant Shares pursuant to the Cordant Offer or
immediately prior to the effective time of the Cordant Merger, as permitted
pursuant to the terms and conditions of the applicable Cordant Option Plan. The
Cordant/Alcoa Merger Agreement provides that Cordant will offer to each holder
of a Cordant Stock Option that is outstanding immediately prior to the first
purchase of Cordant Shares pursuant to the Cordant Offer (whether or not then
presently exercisable or vested) to cancel such Cordant Stock Option in exchange
for an amount in cash equal to the product obtained by multiplying (1) the
difference between $57.00 and the per share exercise price of such Cordant Stock
Option, by (2) the number of Cordant Shares covered by such Cordant Stock
Option. Each Cordant Stock Option, the holder of which does not accept such
offer, that remains outstanding immediately before the effective time of the
Cordant Merger will be assumed by Alcoa and converted, effective as of the
effective time of the Cordant Merger, into an option with respect to that number
(the "New Number") of shares of
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Alcoa Common Stock that equals the number of Cordant Shares subject to such
Cordant Stock Option immediately before the effective time of the Cordant
Merger, multiplied by an amount equal to $57.00 divided by the Alcoa Value (as
defined below), rounded to the nearest whole number, with a per-share exercise
price equal to the aggregate exercise price of such option immediately before
the effective time of the Cordant Merger, divided by the New Number, rounded to
the nearest whole cent. The Alcoa Value means the average of the daily high and
low trading prices of the Alcoa Common Stock on the New York Stock Exchange on
each trading day during the period of 30 days ending the second trading day
prior to the effective time of the Cordant Merger.
Descriptions of certain agreements and arrangements between Cordant and
Company directors James R. Wilson, Richard L. Corbin, Edsel D. Dunford and D.
Larry Moore, who are directors and/or officers of Cordant, are set forth in
Annex A to this Statement and are incorporated herein by reference.
The purchase of Cordant Shares pursuant to the Cordant Offer will
constitute a "change of control" for purposes of the change-of-control
employment agreements that Cordant has entered into with Messrs. Wilson and
Corbin. Messrs. Wilson and Corbin will have "good reason" to terminate their
employment under their agreements as a result of the consummation of the
transactions contemplated by the Cordant/Alcoa Merger Agreement, and accordingly
Alcoa has agreed that Cordant will pay them all cash severance benefits to which
they are entitled under the above agreements immediately upon the consummation
of the Cordant Merger, regardless of whether their employment terminates at that
time. The cash severance payable to these individuals, assuming the Cordant
Merger occurs on June 1, 2000, would be: Mr. Wilson, $8,115,515; and Mr. Corbin,
$3,050,841. The executives' non-cash severance benefits will in all cases be
provided at the time their employment terminates. To the extent that any
payments to the executives with change-of-control employment agreements are
subject to the excise tax on excess parachute payments, Cordant will also be
required to make them whole for that tax.
In addition, Mr. Wilson currently meets the eligibility requirements for
retiree medical benefits under Cordant's retiree medical plan. Alcoa has
therefore agreed that Cordant will provide Mr. Wilson with lifetime retiree
medical benefits not less favorable than those currently in effect for eligible
retirees, beginning when the period of continuation of active employee medical
benefits as part of his severance package expires; provided, that Cordant may
satisfy this obligation in full by purchasing insurance coverage providing such
benefits at a cost to Cordant not to exceed $450,000 in the aggregate for Mr.
Wilson and eight other Cordant executives.
Under Cordant's Key Executive Long-Term Incentive Plan, all cycles that are
ongoing at the time of the first purchase of Cordant Shares pursuant to the
Cordant Offer are required to be paid out based upon target or actual
performance, whichever is better. Assuming that such purchase occurs before June
30, 2000, the payments under this plan to Mr. Wilson will be $2,033,358; and to
Mr. Corbin will be $760,434. Under the Cordant Key Executive Bonus Plan, the
awards for 2000 are required to be paid out upon the first purchase of Cordant
Shares pursuant to the Cordant Offer, without proration, based upon target or
actual performance, whichever is better. Assuming that such purchase occurs
before June 30, 2000, the payments under this plan to Mr. Wilson will be
$542,500; and to Mr. Corbin will be $176,000.
Under Cordant's Supplemental Executive Retirement Plan, participants will
be paid cash lump-sum benefits upon the first purchase of Cordant Shares
pursuant to the Cordant Offer, based upon their full benefit at normal
retirement age, without offsets except for benefits under Cordant's qualified
pension plan. In addition, participants are entitled to receive a gross-up for
all federal, state and local income taxes and excess parachute excise tax
imposed on the lump-sum payments. Assuming that these payments are made on June
1, 2000, the estimated payments (not including tax gross-ups) will be
$13,589,727 to Mr. Wilson and $5,584,860 to Mr. Corbin.
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ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation of the Independent Directors Committee.
THE INDEPENDENT DIRECTORS COMMITTEE (THE "INDEPENDENT DIRECTORS COMMITTEE")
OF THE BOARD OF DIRECTORS OF THE COMPANY (THE "COMPANY BOARD") HAS UNANIMOUSLY
DETERMINED THAT THE OFFER IS INADEQUATE AND NOT IN THE BEST INTERESTS OF THE
HOLDERS OF PUBLICLY HELD COMPANY SHARES (THE "PUBLIC STOCKHOLDERS").
ACCORDINGLY, THE INDEPENDENT DIRECTORS COMMITTEE UNANIMOUSLY RECOMMENDS THAT THE
PUBLIC STOCKHOLDERS REJECT THE OFFER AND NOT TENDER THEIR SHARES PURSUANT TO THE
OFFER.
The Independent Directors Committee has been delegated the responsibility
for responding to the original Cordant Acquisition Proposal (as defined below),
any modifications to that proposal, and any other proposal to acquire the
Publicly Held Company Shares. Accordingly, in light of the pending acquisition
of Cordant by Alcoa and the relationship between Alcoa's offer for Cordant and
Alcoa's offer for the Company and the potential conflict of interest that
Company directors who are also directors and/or officers of Cordant may have,
the Company Board did not make any recommendation with respect to the Offer, and
the Independent Directors Committee's recommendation with respect to the Offer
is made on behalf of the Company. The Independent Directors Committee's
recommendation, which was reached at meetings held on April 29 and 30, 2000, was
based on the Independent Directors Committee's review and consideration of the
interests of the Public Stockholders.
Copies of a letter to stockholders of the Company and a press release
communicating the recommendation are filed as exhibits (a)(1) and (a)(2) to this
Statement, respectively, and are incorporated by reference herein.
(b)(i) Background of the Offer; Contacts with Cordant and Alcoa.
In December 1995, Cordant and The Carlyle Group ("Carlyle"), a private
merchant bank, jointly formed Howmet International Inc. to purchase from
Pechiney SA, a French industrial company, the Howmet and Cercast businesses of
Pechiney. Cordant initially owned 49% of the Company's Common Stock, while
Carlyle owned the remaining 51%. In December 1997 and January 1998, Carlyle sold
15.35 million shares of Common Stock to the public at $15 per share in the
Company's initial public offering and sold an additional 13 million shares to
Cordant. As a result, Cordant increased its ownership of the outstanding Common
Stock to 62%, and Carlyle decreased its ownership to approximately 23%. The
shares sold in the initial public offering represented the balance of
approximately 15% of the outstanding Common Stock.
In connection with the Company's initial public offering, Cordant and the
Company entered into a Corporate Agreement dated as of December 2, 1997 (the
"Corporate Agreement"). Under the Corporate Agreement, Cordant agreed that,
without the consent of (i) the Carlyle representative on the Company Board, if
any, and (ii) a majority (but not less than two) of the non-employee directors
of the Company who are not directors or employees of Cordant, Carlyle or their
respective affiliates, neither Cordant nor any of its affiliates would acquire
Publicly Held Company Shares if, after such acquisition, the number of Publicly
Held Company Shares would be less than 14% of the total number of shares of
Common Stock outstanding, other than (A) pursuant to a tender offer to acquire
all of the outstanding shares not then beneficially owned by Cordant or (B)
pursuant to a merger or other business combination in which holders of all
outstanding Publicly Held Company Shares were treated the same.
On February 8, 1999, Cordant purchased the remaining 22.7 million shares
held by Carlyle for a purchase price of $385.1 million, or $17 per share.
Cordant held an option that was granted by Carlyle at the time of the Company's
initial public offering to acquire all of Carlyle's shares, which was to be
exercisable beginning in December 1999 at a market-based price. Cordant stated
that the acquisition by Cordant of Carlyle's shares was made in February 1999 to
eliminate the uncertainty regarding the price and timing of the option exercise.
The purchase increased Cordant's ownership of the outstanding shares of Common
Stock from 62% to 84.6%.
On September 22, 1999, the Company announced that it expected fourth
quarter 1999 earnings to be between $0.28 and $0.31 per diluted share, as
compared to a publicly available analyst consensus estimate of $0.31 per diluted
share. The closing price of the Common Stock on the New York Stock Exchange that
day
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was $15 3/8 per share, down $2 1/2 from the previous day's closing price of
$17 7/8. The weighted average closing price of the Common Stock for the 90-day
period immediately prior to the announcement was $18.44 per share.
On October 21, 1999, the Company announced third quarter 1999 earnings of
$0.38 per diluted share. Excluding unusual stock-based compensation effects,
that quarter's earnings per share increased 13% over earnings per share for the
same period in 1998.
At a meeting of the Company Board held on November 12, 1999, Cordant
delivered a written proposal to the Company Board to acquire all of the Publicly
Held Company Shares for a price of $17.00 per share in cash (the "Cordant
Acquisition Proposal"). Cordant issued a press release disclosing the Cordant
Acquisition Proposal and stating that it had requested the Company Board to
refer the proposal to the Independent Directors Committee for its review and
consideration. The Independent Directors Committee consists of James D. Woods
and James R. Mellor, the only members of the Company Board who are neither
officers or directors of Cordant nor officers of the Company. Later that day,
the Company announced by press release that the Independent Directors Committee
would review the Cordant Acquisition Proposal and that the Independent Directors
Committee had been authorized to retain independent financial and legal advisors
to advise the Independent Directors Committee. The closing price of the
Company's Common Stock that day was $17.75, up $3 11/16 from the prior day's
closing price of $14 1/16.
Shortly after receipt of the Cordant Acquisition Proposal, the Independent
Directors Committee retained Baker Botts L.L.P. to act as its independent legal
advisors. With the assistance of its counsel, the Independent Directors
Committee solicited proposals from a number of investment banking firms. After
reviewing written submissions from a number of firms regarding their possible
engagement as financial advisor, the Independent Directors Committee
interviewed, with its counsel, representatives of certain of the investment
banking firms that submitted proposals. Based on this process, the Independent
Directors Committee retained Goldman, Sachs & Co. ("Goldman Sachs") to act as
independent financial advisors to the Independent Directors Committee in
connection with the Cordant Acquisition Proposal. On January 5, 2000, the
Company issued a press release announcing the selection of Goldman Sachs and
Baker Botts L.L.P. as the Independent Directors Committee's advisors.
Over the next month, the Independent Directors Committee and its legal and
financial advisors began their effort to respond to the Cordant Acquisition
Proposal. The first step of the effort was an intensive effort by the
Independent Directors Committee, supported by Goldman Sachs and with the
cooperation of senior management of the Company, to analyze and understand the
Company's businesses, markets and growth prospects and to understand the
Company's process for budgeting and developing financial projections.
On January 11, 2000, the financial and legal advisors of the Independent
Directors Committee met at length with management of the Company to discuss the
Company's past and current business operations, financial condition and future
prospects. At the meeting, management of the Company made presentations and
responded to questions regarding the Company's businesses, its historical
financial results and its management's fiscal year 2000 budget and long-range
plan. Management advised that a preliminary plan had been prepared for an early
October 1999 submission to Cordant management. This same preliminary plan,
unchanged, was presented by the Company's management to the Company Board on
November 12, 2000 (the "October Preliminary Plan"). Management indicated to the
financial and legal advisors of the Independent Directors Committee that,
because the October Preliminary Plan had been prepared prior to completion of
the normal planning process, the October Preliminary Plan had not been prepared
with the same level of detail and rigor typically incorporated in a final plan,
and did not have the benefit of the level of review usually applied prior to
finalizing the Company's plans. Management stated its view that the October
Preliminary Plan represented a conservative picture of likely results of
operations, which was consistent with already reduced analysts' expectations for
the year 2000 and the Company's practice of meeting or exceeding its internally
budgeted results. At the meeting, management presented to the financial and
legal advisors of the Independent Directors Committee its revised fiscal year
2000 budget and long-range plan (the "Revised Plan"). Management had presented
this plan to Cordant's management in late December 1999. The Revised Plan was
prepared with the customary rigor of a finalized plan and reflected management's
assessment of the
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Company's most probable future financial performance and the most recent
developments in the Company's key markets, including particularly the continued
strength of the industrial gas turbine market. On January 7, 2000, the Company's
management reviewed the Revised Plan with Cordant management, which expressed
differences with various elements of the Revised Plan. The Revised Plan was
reviewed by Company management with the Company Board on January 14, 2000, but
without requesting that any action be taken with respect to the Revised Plan at
that time. After the January 11 meeting, representatives of Goldman Sachs
conducted additional meetings and discussions with management to better
understand the Revised Plan.
On February 2, 2000, the Independent Directors Committee met with its
financial and legal advisors. At this meeting, representatives of Goldman Sachs
reviewed with the Independent Directors Committee the preliminary results of its
financial review and analysis of the Company. Goldman Sachs advised that it had
spent a significant amount of time seeking to understand management's planning
processes for budgeting and financial projections and discussed such processes
with the Independent Directors Committee. The Independent Directors Committee
then extensively discussed Goldman Sachs' preliminary financial analysis and the
Independent Directors Committee's views of the appropriate valuation of the
Company. Goldman Sachs' analyses prepared during its engagement with respect to
proposals from both Cordant and Alcoa included, among other analyses, premiums
paid in other selected minority transactions, as compared with the premium
provided by the proposals; analysis of valuation multiples of selected companies
in the public markets and in precedent takeover transactions, as compared with
multiples implicit in the proposals; analysis of valuation multiples paid in
prior purchases of Shares by Cordant, as compared with multiples implicit in the
proposals; stock price movements; analysis of present value of future stock
prices; discounted cash flow analysis; and analysis of the effects on the buyer
of the purchase of the Publicly Held Company Shares.
At this meeting, the Independent Directors Committee expressed its
preliminary view, supported by Goldman Sachs' preliminary financial analysis,
that the value of the Company was significantly in excess of $17 per share based
on the Revised Plan and other considerations. In light of the disparity between
the values supported by such analyses and the price offered in the Cordant
Acquisition Proposal, the Independent Directors Committee directed Goldman Sachs
to commence discussions with Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), Cordant's financial advisors, regarding the valuation of the Company.
Over the next month, representatives of Goldman Sachs and Morgan Stanley held
discussions on several occasions to discuss the valuation of the Company and the
projections that should be used in analyzing the Company's value.
On February 11, 2000, the Company reported its results for the quarter and
the year ended December 31, 1999. The Company reported earnings of $0.33 per
diluted share for the fourth quarter, which was higher than the consensus
estimate prior to the earnings warnings released by the Company in September
1999. Excluding unusual stock-based compensation effects and retroactive income
tax adjustments, that quarter's earnings per share increased 38% over earnings
per share for the same period in 1998.
The Revised Plan was discussed further at a meeting of the Company Board
held on February 22, 2000. In light of the pending Cordant Acquisition Proposal
and the differences between Cordant management and Company management regarding
the Company's projections, the Company Board did not act upon the Company's 2000
budget included in the Revised Plan. However, the Compensation Committee of the
Company Board, meeting earlier that day, did approve the Company's management
incentive program for the 2000 fiscal year on the basis of the operating income
projection for the year contained in the Revised Plan.
On March 8, 2000, representatives of Cordant advised representatives of the
Independent Directors Committee that Cordant was engaged in discussions with
Alcoa regarding the possible acquisition of Cordant by Alcoa. At that time
Cordant requested that the Independent Directors Committee consider recommending
to the Company Board that the Company Board approve Alcoa's becoming an
"interested stockholder" of the Company under Section 203 of the DGCL as a
result of Alcoa's entering into an acquisition agreement with Cordant, so that
Alcoa would not be restricted from entering into a business combination with the
Company for three years without an affirmative vote of two-thirds of the
disinterested Shares.
Over the next few days, representatives of the Independent Directors
Committee explored with representatives of Cordant the possibility of
negotiating a definitive acquisition agreement to acquire the
-7-
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Publicly Held Company Shares prior to the execution of an agreement for a
transaction between Alcoa and Cordant. During the course of these discussions,
Cordant made a proposal to the Independent Directors Committee to acquire all of
the Publicly Held Company Shares for $18.75 per share, but following further
discussions, no agreement was reached. Cordant's $18.75 per share proposal was
publicly disclosed on March 14, 2000.
After it appeared that agreement on price between Cordant and the
Independent Directors Committee could not be reached prior to the execution of
the Cordant/Alcoa Merger Agreement, the respective legal advisors of Cordant and
the Independent Directors Committee discussed the terms under which the
Independent Directors Committee would consider recommending that the Company
Board approve Alcoa's becoming an interested stockholder.
On March 13, 2000, the Independent Directors Committee recommended that the
Company Board approve, and the Company Board did approve, the terms of the
proposed Corporate Agreement Amendment described in Item 3 above, pursuant to
which Cordant would agree to certain additional restrictions on its acquiring
Publicly Held Company Shares, and Alcoa's separate agreement to be bound by the
same restrictions. In addition, following receipt of the recommendation of the
Independent Directors Committee for such approval, the Company Board approved,
for purposes of Section 203 of the DGCL, Alcoa's becoming an interested
stockholder of the Company as a result of its entering into the proposed
Cordant/Alcoa Merger Agreement. Later that day, the parties entered into the
Corporate Amendment Agreement and the Alcoa Letter Agreement.
On March 14, 2000, Alcoa and Cordant entered into the Cordant/Alcoa Merger
Agreement and issued a joint press release announcing the execution of the
agreement. Later that day, during an analyst call with respect to the
Cordant/Alcoa transaction, the Chief Executive Officer of Alcoa stated that the
acquisition of the Howmet business was a principal reason for the transaction
and that Alcoa intended promptly to enter into discussions with the Independent
Directors Committee to pursue the acquisition of the Publicly Held Company
Shares. On March 20, 2000, a subsidiary of Alcoa commenced the Cordant Offer in
accordance with the Cordant/Alcoa Merger Agreement.
On March 27, 2000, the legal advisors of the Independent Directors
Committee met with Alcoa's legal advisors to discuss the terms of a proposed
acquisition agreement to acquire the Publicly Held Company Shares if the parties
reached agreement on price. After that meeting, Mr. Woods met with Ms. Barbara
S. Jeremiah, Vice President -- Corporate Development of Alcoa. Ms. Jeremiah
stated that Alcoa proposed to acquire the Publicly Held Company Shares for $19
per share and was interested in closing the acquisition as promptly as possible
after the closing of the Cordant Offer. Mr. Woods stated that the Independent
Directors Committee would take the $19 offer under advisement and would discuss
the offer with its advisors.
Immediately after that meeting, the Independent Directors Committee met
with its financial and legal advisors to discuss the $19 offer. After discussion
of various factors, the Committee determined to reject the $19 per share offer.
After the meeting, representatives of the Independent Directors Committee
discussed with representatives of Alcoa the prior negotiations between the
Independent Directors Committee and Cordant.
On March 31, 2000, Mr. Woods spoke with Ms. Jeremiah to discuss further the
proposal by Alcoa to acquire the Publicly Held Company Shares. Mr. Woods stated
that the Independent Directors Committee considered the $19 per share offer to
be unacceptable. Ms. Jeremiah strongly urged Mr. Woods to propose to Alcoa a
price acceptable to the Independent Directors Committee.
After discussions among the Independent Directors Committee and its
advisors, Mr. Woods advised Ms. Jeremiah that Alcoa should consider proposing a
price as close to $23 per share as possible. Ms. Jeremiah noted that, although
Alcoa desired to negotiate a transaction with the Independent Directors
Committee, Alcoa would have to consider its options if an agreement was not
reached. After further discussion, Mr. Woods and Ms. Jeremiah arranged to have
their respective financial advisors meet to discuss valuation issues.
On April 4, 2000, Ms. Jeremiah telephoned Mr. Woods to indicate that Alcoa
could increase its price to $20 per share but that there was little, if any,
room for further improvement. Ms. Jeremiah asked that the
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Independent Directors Committee take time to analyze this proposal and noted
that if the proposal were not acceptable, Alcoa would have to pursue its other
alternatives.
On April 6, 2000, the Independent Directors Committee again met with its
financial and legal advisors to discuss the status of discussions with Alcoa,
valuation issues and negotiating strategy. At that meeting, Goldman Sachs
presented an analysis regarding the valuation of the Company implied by the $57
per Cordant share price in the Cordant Offer by Alcoa, based on the reported
results of Cordant's operating segments, including the Company, and various
assumptions and limitations.
On April 10, 2000, representatives of Salomon Smith Barney Inc., Alcoa's
financial advisors ("SSB"), and Goldman Sachs met to review the status of
discussions between the Independent Directors Committee and Alcoa. On April 11,
2000, the Independent Directors Committee met to review with its advisors the
meeting between Goldman Sachs and SSB and to further discuss the status of
discussions with Alcoa. The Independent Directors Committee believed that the
principal source of the differing views of the Independent Directors Committee
and Alcoa on valuation was disagreement about the underlying projected operating
results for the Company. Over the next two days, Mr. Woods spoke with Ms.
Jeremiah several times to discuss Alcoa's offer. Mr. Woods reiterated that Alcoa
should make an offer as close to $23 as possible. Mr. Woods suggested to Ms.
Jeremiah that she or appropriate Alcoa personnel meet with Company management to
better understand the Company's financial planning process, the Revised Plan,
year-to-date performance and the current business environment. During the course
of the discussions, Mr. Woods inquired whether Alcoa would be willing to agree
to a $22 per share price in order to reach agreement that day, but Ms. Jeremiah
indicated that too large a gap existed for the parties to reach any agreement.
Ms. Jeremiah reiterated that Alcoa would consider pursuing its other
alternatives.
On April 13, 2000, Alcoa publicly announced that it intended to commence a
cash tender offer to purchase the Publicly Held Company Shares at a price of $20
per share. On April 18, 2000, the Purchaser commenced the Offer.
In its materials relating to the Offer, Alcoa referred to three sets of
projections provided to Alcoa by Cordant: (i) the projections included in the
October Preliminary Plan, (ii) the projections included in the Revised Plan and
(iii) revisions to the projections included in the Revised Plan reflecting
adjustments by Cordant management to reflect Cordant management's views of the
Company's projected financial performance for the years ended 2000 through 2004.
After commencement of the Offer, Ms. Jeremiah contacted Mr. Woods and
indicated that Alcoa still wished to reach a negotiated transaction that would
be recommended by the Independent Directors Committee.
On April 19 and 20, 2000, Ms. Jeremiah and other representatives of Alcoa
met with Company management to review the Revised Plan and to tour Company
manufacturing and research facilities.
On April 20, 2000, the Company announced first quarter 2000 earnings before
unusual items of $0.36 per diluted share, which represented a 13% increase over
earnings before unusual items per share for the same period in 1999. Operating
results and earnings per share for the first quarter of 2000 announced by the
Company were greater than the projections included in the Revised Plan (after
eliminating charges resulting from the Cordant Acquisition Proposal and changes
in the price of Cordant Common Stock).
On April 27, 2000, Ms. Jeremiah advised Mr. Woods that Alcoa would be
unable to propose a price that it thought the Independent Directors Committee
would find acceptable and that, as a result, Alcoa was not prepared to propose a
price for a negotiated transaction higher than the $20 per share price reflected
in the Offer.
On April 29, 2000, the Independent Directors Committee met with its
financial and legal advisors. At that meeting, Goldman Sachs reviewed and
updated its financial analyses and rendered its oral opinion to the Independent
Directors Committee that the Offer Price is inadequate.
On April 30, 2000, the Independent Directors Committee again met with its
financial and legal advisors. After full discussion, the Independent Directors
Committee unanimously determined that the Offer is
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inadequate and not in the best interests of the Public Stockholders and
unanimously recommended that such holders reject the Offer and not tender their
shares in the Offer.
At a Company Board meeting held immediately after the Independent Directors
Committee meeting, the Independent Directors Committee advised the Company Board
of its determination and recommendation. In light of the pending acquisition of
Cordant by Alcoa and the relationship between Alcoa's offer for Cordant and
Alcoa's offer for the Company and the potential conflict of interest that
Company directors who are also directors or officers of Cordant may have, the
Company Board did not make any recommendation with respect to the Offer, and the
Independent Directors Committee's recommendation with respect to the Offer is
made on behalf of the Company.
(ii) Reasons for the Recommendation of the Independent Directors Committee.
In addition to the factors described above under "Background of the Offer;
Contacts with Cordant and Alcoa," in reaching its determination that the Offer
is not in the best interests of the Public Stockholders and recommending that
the Offer be rejected, the Independent Directors Committee considered the
following material factors:
(1) The Independent Directors Committee's belief that the Offer Price does
not reflect the inherent value of the Company. The Independent
Directors Committee believes that Alcoa's $20 per share Offer Price
does not reflect the inherent value of the Company. The Independent
Directors Committee bases this belief on its familiarity with, and
management's review of, the Company's business, financial condition,
results of operations, business strategy and future prospects and with
the nature of the markets in which the Company operates. In this
connection, the Independent Directors Committee particularly
considered:
- The financial projections contained in the Revised Plan, which the
Independent Directors Committee believes capture the Company's
strength more accurately than the other projections referred to by
Alcoa in the Offer. The Independent Directors Committee notes that
Company management has a strong historical record of consistently
achieving or exceeding its financial plans, that the Independent
Directors Committee views management's planning process as rigorous
and that the Company's net income for the quarter ended March 31, 2000
was above that contained in the Revised Plan (after eliminating
charges resulting from the Cordant Acquisition Proposal and changes in
the price of Cordant Common Stock).
- Presentations by the Company's management as to the Company's
prospects for future growth and profitability.
- The recent and projected growth of the Company's industrial gas
turbine business, which accounted for approximately 46% of the
Company's revenues in 1999.
- The Company's other strengths and growth opportunities including, but
not limited to, its superior technology and leading market positions;
long-term growth opportunities in its replacement parts business;
further growth opportunities such as aeroengine structural components,
airframe structures and new innovative products; strong cash flow
generation; and reduced effective tax rates.
(2) Offer Price below current market price. The closing price of the
Common Stock on the New York Stock Exchange on April 28, 2000, the last
trading day prior to the date of this Schedule 14D-9, was $21 3/16 per
share, which is higher than Alcoa's $20 Offer Price.
(3) Opinion of Goldman Sachs that the Offer Price is inadequate. The
Independent Directors Committee has received the oral opinion of
Goldman Sachs, the financial advisor to the Independent Directors
Committee, that the Offer Price is inadequate. This opinion was
expressed after reviewing with the Independent Directors Committee many
of the factors referred to herein and various financial criteria used
in assessing an offer, and were based on various assumptions and
subject to various limitations discussed with the Independent Directors
Committee.
-10-
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(4) Certain Public Stockholders have expressed to the Independent Directors
Committee their belief that the Offer Price is inadequate. A number of
Public Stockholders have advised representatives of the Independent
Directors Committee they believe that the $20 price offered by Alcoa in
the Offer is inadequate.
(5) Terms of Alcoa acquisition of Cordant. Alcoa is paying a significant
premium in its pending acquisition of Cordant, and has stated that the
acquisition of the Howmet business was a principal reason for its
acquisition of Cordant. In this connection, the Independent Directors
Committee reviewed the effects of a combination of the Company with
Alcoa after Alcoa's purchase of Cordant and the terms of Alcoa's
pending acquisition of Cordant.
(6) Alcoa's inability to consummate its acquisition of the Company if the
Minimum Tender Condition is not satisfied. The Independent Directors
Committee considered that, if there are tendered and not validly
withdrawn less than a majority of the outstanding Publicly Held Company
Shares in the Offer so that the Minimum Tender Condition is not
satisfied, Alcoa and the Purchaser will not be able to consummate the
Offer. In that case, the Independent Directors Committee believes that,
if Alcoa wishes to acquire the Publicly Held Company Shares, Alcoa will
take steps, which could include Alcoa's increasing the per share price
offered in the Offer, to cause sufficient Publicly Held Company Shares
to be tendered to satisfy the Minimum Tender Condition. The Independent
Directors Committee also considered that the failure to satisfy the
Minimum Tender Condition could cause Alcoa to terminate the Offer and
not seek otherwise to acquire the Publicly Held Company Shares at this
time, and the negative effect such action could have on the trading
prices for the Common Stock.
(7) The Independent Directors Committee's belief that the trading price of
the Common Stock was undervalued prior to the Cordant Acquisition
Proposal as a result of the September earnings announcement. The
Independent Directors Committee believes that the September earnings
announcement resulted in a market price of the Common Stock prior to
the public announcement of the Cordant Acquisition Proposal that did
not represent an adequate valuation of the Common Stock. The actual
fourth quarter earnings announced on February 11, 2000 exceeded the
consensus analysts' estimates prior to the September announcement. The
Independent Directors Committee also believes that the inherent value
in the Company's industrial gas turbines business was not fully
reflected in the price of the Common Stock prior to the announcement of
the Cordant Acquisition Proposal. Although the Independent Directors
Committee recognizes that the Alcoa $20 offer price represents a
significant premium to the market price of the Common Stock immediately
prior to the public announcement of the original Cordant Acquisition
Proposal, the Independent Directors Committee considers this premium
not to be significant with respect to the "unaffected" stock price
prior to the earnings warning.
The description set forth above of the factors considered by the
Independent Directors Committee is not intended to be exhaustive, but summarizes
the material factors considered. The members of the Independent Directors
Committee evaluated the Offer in light of their knowledge of the business,
financial condition and prospects of the Company, and based upon the advice of
financial and legal advisors. In light of the number and variety of factors that
the Independent Directors Committee considered in connection with their
evaluation of the Offer, the Independent Directors Committee found it
impracticable to assign relative or specific weights to the foregoing factors,
and, accordingly, the Independent Directors Committee did not do so. Individual
members of the Independent Directors Committee may have given differing weights
to different factors and may have viewed certain factors more positively or
negatively than others.
(c) Intent to Tender. Except as set forth below, to the best knowledge of
the Company, each executive officer, director, affiliate or subsidiary of the
Company who or which owns Shares presently intends to hold any Shares that they
own of record or beneficially and does not intend to tender any such Shares in
the Offer.
Each of Messrs. Corbin, Dunford, Moore and Wilson, directors of the Company
who are also directors and/or officers of Cordant, has advised the Company that
he intends to tender in the Offer all Shares that he owns of record or
beneficially, other than Shares that contain transfer restrictions.
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Cordant and Holding have advised the Company that they do not intend to
tender or cause to be tendered in the Offer any of the Shares owned by Holding
in light of (1) the fact that the Offer is conditioned on the consummation of
the Cordant Offer, following which Alcoa would be required, subject to the
conditions set forth in the Cordant/Alcoa Merger Agreement, to effect the
Cordant Merger and as of such Cordant Merger would indirectly own all of such
Shares and (2) the provisions of the Cordant/Alcoa Merger Agreement that do not
permit Cordant to, and require Cordant not to permit Holding to, without the
consent of Alcoa, dispose of any assets or securities (including Shares), except
in an amount that is not material to Cordant and its subsidiaries taken as a
whole. The Offer is not conditioned upon the tender of any Shares owned by
Holding but is conditioned upon the tender of a majority of the Publicly Held
Company Shares.
ITEM 5. PERSONS/ASSETS RETAINED, EMPLOYED, COMPENSATED OR USED.
Pursuant to a letter agreement dated January 4, 2000, as amended (the
"Engagement Letter"), the Company formally retained Goldman Sachs to act as
independent financial advisor to the Independent Directors Committee in
connection with the Cordant Acquisition Proposal. The Independent Directors
Committee retained Goldman Sachs based upon Goldman Sachs' qualifications,
experience and expertise. Goldman Sachs, as part of its investment banking
business, is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes.
Pursuant to the Engagement Letter, the Company has agreed to pay Goldman
Sachs a fee totaling $2.3 million for its opinion and role as financial advisor
to the Independent Directors Committee in connection with the Cordant
Acquisition Proposal and any proposal by Alcoa or its affiliates to purchase
Publicly Held Company Shares. $500,000 of the fee was payable upon execution of
the Engagement Letter, with the balance payable upon delivery of Goldman Sachs
of its opinion. In addition, the Company has agreed to reimburse Goldman Sachs
for its reasonable out-of-pocket expenses, including the fees and expenses of
Goldman Sachs' attorneys, and to indemnify Goldman Sachs and certain related
persons against certain liabilities, including certain liabilities under the
federal securities laws, arising out of its engagement.
Except as described above, neither the Company nor any person acting on its
behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to stockholders on its behalf concerning
the Offer.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
Except as set forth below, no transactions in Shares have been effected
during the past 60 days by the Company or, to the knowledge of the Company, by
any executive officer, director, affiliate or subsidiary of the Company.
On April 17, 2000, Nicholas J. Iuanow, Treasurer of the Company, sold 4,000
Shares at a price of $20.8751 per Share, in a brokerage transaction.
ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
Except as set forth in this Statement, the Company is not currently
undertaking or engaged in any negotiations in response to the Offer that relate
to (1) a tender offer for or other acquisition of the Company's securities by
the Company, any subsidiary of the Company or any other person; (2) an
extraordinary transaction, such as a merger, reorganization or liquidation,
involving the Company or any subsidiary of the Company; (3) a purchase, sale or
transfer of a material amount of assets of the Company or any subsidiary of the
Company; or (4) any material change in the present dividend rate or policy, or
indebtedness or capitalization of the Company.
Except as set forth in this Statement, there are no transactions,
resolutions of the Company Board, agreements in principle, or signed contracts
in response to the Offer that relate to one or more of the events referred to in
the preceding paragraph.
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ITEM 8. ADDITIONAL INFORMATION.
(a) Shareholder Litigation. Shortly after the November 12, 1999 public
announcement by Cordant of the Cordant Acquisition Proposal, several purported
class actions were filed in the Delaware Court of Chancery against Cordant, the
Company and the directors of the Company challenging the fairness of the
proposed transaction to the Company's minority stockholders: Peters v. Wilson,
et al. (Civ. Act. No. 17575 NC), Chmelev v. Wilson, et al. (Civ. Act. No. 17576
NC), McMullen v. Howmet International Inc., et al. (Civ. Act. No. 17577 NC),
Guido v. Howmet International Inc., et al.(Civ. Act. No. 17578 NC), Brickell
Partners v. Wilson, et al. (Civ. Act. No. 17579 NC), Berkowitz v. Wilson, et al.
(Civ. Act. No. 17580 NC), Kaplan v. Howmet International Inc., et al. (Civ. Act.
No. 17581 NC) and Abbot v. Wilson, et al. (Civ. Act. No. 17584 NC). These
actions have been consolidated for all purposes under the caption In re Howmet
International Shareholders Litigation (Consolidated Civ. Act. No. 17575-NC) (the
"Consolidated Action"). In substance, the complaints generally allege that the
directors of the Company breached their fiduciary duties to the public
stockholders of the Company in connection with their consideration of the
Cordant Acquisition Proposal. The actions generally allege that the
consideration offered by Cordant was inadequate. The relief sought by the
plaintiffs includes an injunction against the acquisition of Shares by Cordant;
a declaration that each of the defendants has breached his fiduciary duties;
damages; costs, disbursements and attorneys' and experts' fees in unspecified
amounts.
(b) Delaware General Corporation Law. As a Delaware corporation, the
Company is subject to Section 203 of the DGCL. In general, Section 203 would
prevent an "interested stockholder" (generally defined as a person beneficially
owning 15% or more of a corporation's voting stock) from engaging in a "business
combination" (as defined in Section 203) with a Delaware corporation for three
years following the date such person became an interested stockholder unless:
(1) before such person became an interested stockholder, the board of directors
of the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination, (2) upon
consummation of the transaction which resulted in the interested stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding, for purposes of determining the number of
shares of outstanding stock, shares held by directors who are also officers and
by employee stock plans that do not allow plan participants to determine
confidentially whether to tender shares), or (3) following the transaction in
which such person became an interested stockholder, the business combination is
(x) approved by the board of directors of the corporation and (y) authorized at
a meeting of stockholders by the affirmative vote of the holders of at least
66 2/3% of the outstanding voting stock of the corporation not owned by the
interested stockholder. In connection with entering into the Alcoa Letter
Agreement, the Company Board approved, for purposes of Section 203, Alcoa's
becoming an interested stockholder of the Company as a result of its entering
into the Cordant/Alcoa Merger Agreement, as described in Item 4 above, and,
therefore, the restrictions of Section 203 are inapplicable to the Merger.
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ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
The following Exhibits are filed herewith:
EXHIBIT NO. DESCRIPTION
- ----------- -----------
(a)(1) Letter to Stockholders of the Company, dated May 1, 2000.*
(a)(2) Press Release of the Company issued on May 1, 2000.
(e)(1) Agreement and Plan of Merger, dated as of March 14, 2000,
among Alcoa, Omega and Cordant (incorporated by reference to
Exhibit 7 to Amendment No. 2 to Schedule 13D with respect to
the Shares, filed by Cordant and Holding on March 15, 2000).
(e)(2) Amendment, dated as of March 13, 2000, to Corporate
Agreement, among the Company, Cordant and Holding
(incorporated by reference to Exhibit 6 to Amendment No. 2
to the Statement on Schedule 13D with respect to the Shares,
filed by Cordant and Holding on March 15, 2000).
(e)(3) Letter Agreement, dated March 13, 2000, between Alcoa and
the Company (incorporated by reference to Exhibit (d)(3) to
the Schedule TO of Alcoa and Omega in connection with the
Cordant Offer, filed on March 20, 2000).
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* Included with the Statement mailed to stockholders.
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SIGNATURE
After due inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated: May 1, 2000
HOWMET INTERNATIONAL INC.
By /s/ ROLAND A. PAUL
------------------------------------
Name: Roland A. Paul
Title: Vice President and
General Counsel
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ANNEX A
AGREEMENTS AND ARRANGEMENTS BETWEEN THE COMPANY
AND ITS EXECUTIVE DIRECTORS, OFFICERS AND AFFILIATES
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The Summary Compensation Table below sets forth the compensation for the
three fiscal years ended December 31, 1999, 1998 and 1997, both long-term and
short-term, for services in all capacities earned by those individuals who were
as of December 31, 1999, either (i) the Chief Executive Officer or (ii) one of
the other four most highly compensated executive officers of Howmet
International, Inc. (the "Company") and its subsidiaries (the "Named Executive
Officers"). All of these officers are employees of the Company's subsidiary,
Howmet Corporation, which pays all of their compensation.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ---------------
COMPENSATION(1) SECURITIES
------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(2) OPTIONS/SARS(#) COMPENSATION(3)
- ------------------------------------ ---- -------- -------- --------------- ---------------
David L. Squier..................... 1999 $410,000 $425,000 $48,780
President and 1998 390,000 375,000 44,844
Chief Executive Officer 1997 370,000 388,500 1,000,000 42,668
James R. Stanley.................... 1999 266,019 184,000 21,301
Senior Vice President -- 1998 251,000 160,000 20,650
North American Operations 1997 231,333 162,000 375,000 20,166
John C. Ritter...................... 1999 243,972 168,000 19,452
Senior Vice President and 1998 230,670 150,000 18,758
Chief Financial Officer 1997 206,250 144,500 250,000 16,373
Marklin Lasker...................... 1999 227,873 130,000 20,787
Senior Vice President -- 1998 216,384 125,500 18,152
International Operations 1997 211,112 146,600 200,000 16,944
B. Dennis Albrechtsen............... 1999 199,221 104,600 15,128
Vice President -- Manufacturing 1998 186,000 103,750 15,500
Howmet Corporation 1997 177,084 124,000 150,000 16,484
- ---------------
(1) The column headed "Other Annual Compensation" is omitted because such
compensation included only perquisites in amounts not exceeding the
threshold for disclosure required by Regulation S-K under the federal
securities laws.
(2) Amounts are reported in the year during which they were accrued, although
they were paid in the following year.
(3) Howmet Corporation makes matching contributions for the first five percent
of each salaried employee's compensation paid into its basic savings plan.
Matching contributions of $8,000 made for each of the Named Executive
Officers in 1999 are included in this column.
Prior to 1999 Howmet Corporation maintained excess non-qualified employee
benefit plans providing for payment of amounts in the form of taxable
compensation equal to the amounts that would have been otherwise paid to
employees under its basic savings plan absent the benefit limitations of
the Internal Revenue Code. Such payments were included in this column for
1997 and 1998. This excess plan was terminated on December 31, 1998. Final
payments under it in the following amounts made with respect
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18
to 1998 bonuses are included in this column: John C. Ritter, $7,253;
Marklin Lasker, $9,393; and B. Dennis Albrechtsen, $2,380.
Beginning in January 1999 the Company established its new Executive
Deferred Savings Plan (a 401(k) Restoration Plan). Once pre-tax limits are
reached under the 401(k) feature of the basic savings plan, further pre-tax
contributions and company match are paid into the Executive Deferred
Savings Plan for the benefit of the executive if he elects to participate.
Company matching payments made into this plan for 1999 in the following
amounts are included in this column: David L. Squier, $31,329; James R.
Stanley, $13,301; John C. Ritter, $4,199; Marklin Lasker, $3,394; and B.
Dennis Albrechtsen, $4,748.
Howmet Corporation permitted certain key employees to defer a portion of
their compensation earned in 1986-89 until retirement or termination; the
deferred compensation earned interest generally at the seasoned corporate
bond yield published by Moody's Investors Service plus 3 percentage points.
The above-market portion of this interest in 1999 with respect to Mr.
Squier's deferred compensation was $9,451 and is included in this column.
STOCK APPRECIATION RIGHTS; STOCK OPTIONS
In May 1996, the Company introduced a Stock Appreciation Rights ("SARs")
plan for key employees. Under the plan, SARs representing approximately 5
percent of the Company's equity value were issued to certain members of the
Company's management. The SARs, similar to phantom stock options, are generally
payable on the earliest to occur of the following: (i) March 31, 2001; (ii) a
merger, sale of substantially all of the assets, or liquidation of the Company
or Howmet Corporation, the Company's wholly owned operating subsidiary; (iii)
the acquisition by an unaffiliated entity of more than 50% of the Company's or
Howmet Corporation's Common Stock; or (iv) a public offering of more than 50% of
the Company's or Howmet Corporation's Common Stock. The SARs are valued based on
appreciation in value of the Company's Common Stock, as defined in the plan,
from the date of adoption of the plan to the earliest of the foregoing dates.
The SARs vest in equal annual installments over a five-year period, ending March
31, 2001, based upon the passage of time and the operating performance of Howmet
Corporation, with acceleration in the event of one of the earlier triggering
events referred to above.
On December 2, 1997, in connection with the public offering of the
Company's Common Stock (the "IPO"), the Company amended its SARs plan (the
"Amended SARs Program") and granted stock options to participants in the plan,
including the Company's executive officers, pursuant to a newly adopted stock-
based awards plan (the "Stock Awards Plan"). Pursuant to the Amended SARs
Program, the maximum per share value of the outstanding SARs has been limited to
the difference between the initial public offering price and the base price per
share (generally $2) of the SARs and, in exchange for accepting such limitation,
each holder of SARs was granted a non-qualified stock option (an "NQSO") to
purchase, at the initial public offering price of $15 per share, a number of
shares of Common Stock equal to the number of shares with respect to which such
employee has SARs. The NQSOs vest and become exercisable in 25% increments on
January 1 of each year beginning in 1999, until fully vested, and will expire on
the eighth anniversary of their granting. The Stock Awards Plan provides that in
the event of a change of control or similar transaction, the plan committee,
comprised of independent directors, may in its discretion take certain actions
in order to prevent dilution or enlargement of the benefit or potential benefit
of the options. Such actions could include: adjusting the options, accelerating
their benefit, permitting them to be cashed out as if fully vested and
exercisable, or substituted for by equivalent options in a successor company's
stock. In addition, pursuant to the Amended SARs Program, the Company offered
holders of SARs the opportunity to cash out 20% of their SARs (which represented
the vested portion of the SARs) at the initial public offering price. Employees
making this election, including Mr. Lasker, received their cash payment in
January 1998, and received NQSOs representing 80% of the number of shares of
Common Stock with respect to which such employees had SARs immediately prior to
making such election.
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STOCK OPTIONS EXERCISED DURING FISCAL YEAR 1999
The following table presents information regarding the exercise during 1999
of SARs or options to purchase shares of the Company's or Cordant's Common Stock
by the Named Executive Officers and information regarding unexercised SARs and
options to purchase shares of the Company's and Cordant's Common Stock held by
the Named Executive Officers on December 31, 1999.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR(1)
AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNEXERCISED UNDERLYING IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT YEAR-END(#)(2) AT YEAR-END($)(3)
---------------------- --------------------
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
---- ---------------------- --------------------
David L Squier.................... SARs 0/1,000,000 $0/$13,000,000
Company Options 250,000/75,000 765,625/2,296,875
Cordant Options 0/200,000(4) 0/3,050,000
James R. Stanley.................. SARs 0/375,000 0/4,875,000
Company Options 93,750/281,250 287,109/861,328
Cordant Options 0/50,000(4) 0/762,500
John C. Ritter.................... SARs 0/250,000 0/3,250,000
Company Options 62,500/187,500 191,406/574,219
Cordant Options 0/40,000(4) 0/501,250
Marklin Lasker.................... SARs 0/200,000 0/2,600,000
Company Options 50,000/150,000 153,125/459,375
Cordant Options 0/40,000(4) 0/610,000
B. Dennis Albrechtsen............. SARs 0/150,000(4) 0/1,950,000
Company Options 37,500/112,500 114,844/344,531
- ---------------
(1) None of the Named Executive Officers exercised any stock options or SARs in
1999.
(2) See "Stock Appreciation Rights; Stock Options" for a summary of the terms of
the SARs and Company Options, including vesting and exercise. See "Cordant
Stock Options" for a summary of the terms of these options, including
vesting and exercise, and the Revised Plan of Cordant with respect to these
options.
(3) Values of Company stock options and SARs are calculated based on the closing
New York Stock Exchange price of the Company's Common Stock as of December
31, 1999 ($18.0625), minus the option exercise price ($15.00) or the SAR
base price ($2.00 for the Named Executive Officers), subject to a maximum
value for the SARs of $15 per share minus the base price. The Company stock
options vest and become exercisable in 25% increments on January 1 of each
year beginning in 1999. Value of Cordant options is calculated based on the
closing New York Stock Exchange price of Cordant's Common Stock as of
December 31, 1999 ($33), minus the option exercise price ($17.75 except for
John Ritter ($20.46875)), after giving effect to a two-for-one stock split
in Cordant stock paid as a stock dividend on March 13, 1998. On March 14,
2000, Alcoa Inc. ("Alcoa") and Cordant announced an agreement pursuant to
which Alcoa would acquire the outstanding Cordant shares at $57 per share in
a tender offer and second-step merger. All outstanding options to purchase
Cordant shares would become exercisable upon completion of Alcoa's tender
offer.
(4) Adjusted for the two-for-one stock split in Cordant stock paid on March 13,
1998.
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RETIREMENT PLANS
Howmet Corporation, the Company's wholly owned operating subsidiary,
maintains defined benefit pension plans for substantially all of its employees.
Effective January 2, 1996, Howmet adopted the Howmet Salaried Employees Pension
Plan (the "SEPP"), a defined benefit plan that covers most salaried employees,
and provides for continuing benefits that had been provided under another
defined benefit plan (the "Pechiney Plan") prior to the acquisition of Howmet's
parent company, Pechiney Corporation (now Howmet Holdings Corporation), by Blade
Acquisition Corp. (now the Company) from Pechiney International, a French
company, on December 13, 1995 (the "Acquisition"). The following table shows the
estimated annual pension benefits for salaried employees, including the Named
Executive Officers, payable upon retirement (including amounts attributable to
the SEPP, the Excess Benefit Plans and the Supplemental Executive Retirement
Plans, as described below, and including any benefit payable under the Pechiney
Plan) for the specified compensation and years of service.
PENSION PLAN TABLE
YEARS OF SERVICE
---------------------------------------------------------------
REMUNERATION 15 20 25 30 35 40
------------ -------- -------- -------- -------- -------- --------
$ 200,000....................... $ 43,164 $ 57,552 $ 71,940 $ 86,328 $100,716 $111,716
400,000...................... 88,164 117,552 146,940 176,328 205,716 227,716
600,000...................... 133,164 177,552 221,940 266,328 310,716 343,716
800,000...................... 178,164 237,552 296,940 356,328 415,715 459,716
1,000,000...................... 223,164 297,552 371,940 446,328 520,716 595,104
As of December 31,1999, the Named Executive Officers had the following
credited service for determining pension benefits: David L. Squier, 28 years;
James R. Stanley, 7 years; John C. Ritter, 3 years; Marklin F. Lasker, 7 years;
B. Dennis Albrechtsen, 25 years.
All the Named Executive Officers participate in the SEPP. For employees who
retired before 1997, pension benefits were based on the average earnings for the
highest five consecutive years of their final ten years of service. Compensation
included in the final average earnings for the pension benefit computation
included base annual salary and annual bonuses but excluded payments for all
other compensation. The plan in effect prior to 1997 provided an increased
benefit for employees with final average pay above one-half of the social
security wage base. The SEPP benefit prior to 1997 took into account the service
and compensation earned prior to the Acquisition and was reduced by any benefit
payable under the Pechiney Plan.
Effective January 1, 1997, the SEPP's design was changed to that of a cash
balance plan. The cash balance plan maintains hypothetical individual accounts
for participants. The annual amount credited to a participant's account consists
of the sum of age-based compensation credits (7 percent for employees age 50 or
older) and interest credits, with an additional age-based annual credit for the
years 1997-2006 for employees age 45 years and older on January 1, 1997 (being
an additional 7 percent for employees age 50 or older on that date). The
interest credit rate, set once annually, is equal to the one year U.S. Treasury
constant maturities rate plus one percent. Benefits earned before 1997 under the
final average earnings formula mentioned above have been converted to opening
account balances.
SEPP benefits are payable at retirement or termination, at the
participant's election. Benefits may be payable as a single life annuity, a
joint and survivor annuity, a ten year certain option, or a lump sum.
Because the SEPP is subject to the benefit and compensation limits under
the Internal Revenue Code (the "Code"), the Company has established two unfunded
Excess Benefit Plans that provide for payment of amounts that would have been
paid to employees under the pension formula absent the benefit and compensation
limits of the Code.
The Company also maintains several Supplemental Executive Retirement Plans
("SERPs") designed to provide unfunded supplemental retirement benefits to
certain employees of the Company. The first is designed
A-4
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to provide the selected employees a benefit at retirement equal to that which
they would have earned under the SEPP and the Excess Benefit Plans, had the SEPP
not been converted to a cash balance plan. Benefits under this SERP are offset
by benefits received under the SEPP and the Excess Benefit Plans. Currently,
Messrs. Squier, Stanley, Lasker, and Albrechtsen participate in this SERP.
The second SERP is designed to provide each selected employee a benefit at
retirement equal to the excess of 50% of the participant's average base pay
during his final three years of employment over amounts the participant receives
from certain other plans and social security. Currently, Mr. Squier is the only
employee participating in this SERP (see "Employment Agreements" below).
CORDANT STOCK OPTIONS
Since December 31, 1995, Cordant has granted to certain Howmet employees,
including certain of the Named Executive Officers, 460,000 contingent stock
options for Cordant Common Stock, of which 360,000 are still outstanding
(adjusted for the two-for-one stock split in Cordant stock on March 13, 1998)
(the "Cordant Stock Options"). The options granted to the Named Executive
Officers have exercise prices of either $17.75 or $20.46875 per option, the
market price of Cordant stock on the date of the grant and adjusted to give
effect to the two-for-one stock split in Cordant stock. The options will vest
only if Cordant acquires 100% of the Company prior to December 13, 2001 unless
otherwise modified by the Compensation Committee of the Board of Directors of
Cordant. The options vest, and are exercisable, 50% on the date of such
acquisition and 25% each year thereafter. The options expire not later than ten
years after the date of the grant. The agreement by which Alcoa would acquire
Cordant provides for all Cordant stock options to become exercisable upon
completion of Alcoa's tender offer and to be either cashed out at the $57 tender
offer price less the option exercise price or, at the holder's election,
converted into Alcoa Common Stock options of equivalent value to the Cordant
options.
Cordant has informed holders of the Cordant Stock Options of its intention
to adopt a plan that would allow such holders to benefit from such options even
if Cordant does not acquire 100% of the Company prior to December 13, 2001 (the
"Revised Plan"). Under the Revised Plan, in the event that Cordant does not
acquire 100% of the Company prior to December 13, 2001, then, with respect to
each holder, the difference as of December 13, 2001 between the aggregate market
value of all of the shares of Cordant Common Stock represented by such holder's
Cordant Stock Options and the aggregate exercise price of all such options shall
become vested and contributed to a deferred payment plan, pursuant to which 25%
of the vested amount would be paid out immediately, if the participant so
elected prior to vesting, and the balance of which would be paid out over a
period (not less than five years) elected by the participant. Deferred balances
would accrue investment earnings equal to those of Cordant stock over such
period or, at the participant's election, in part those of Cordant stock over
such period and in part the interest on five year U.S. Treasury notes. Pursuant
to the Revised Plan, a holder of Cordant Stock Options who retires before
December 13, 2001 would receive a pro rata portion of the benefits described in
the foregoing sentences based on the portion of time during the period from
December 13, 1995 to December 13, 2001 in which such holder was employed by the
Company.
EMPLOYMENT AGREEMENTS
In October 1995 Howmet Corporation entered into employment agreements (the
"Employment Agreements") with thirteen management employees, including Messrs.
Squier, Stanley and Lasker. The Employment Agreements set base salary levels and
provide a specified percentage (generally from 30-60%) of base salary as a
target annual bonus amount. The Employment Agreements also generally provide
each such Named Executive Officer (the "Executive") with the use of a
Howmet-owned automobile and participation in benefit plans and programs
available to Howmet management employees generally. In the event of the
Executive's death or disability, the Employment Agreements generally provide for
the payment of prorated annual bonus and long-term incentive plan awards, but
not other severance amounts.
Mr. Squier's Employment Agreement also provides that in the event his
employment is terminated by Howmet other than for "cause" or by him with "good
reason" (each as defined therein) prior to his 62nd birthday, he will be
entitled to (i) the amount of his base pay and target bonus for 36 months, (ii)
a prorated
A-5
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portion of the annual bonus and any long-term incentive awards that would have
been payable in the year of termination, (iii) company-paid outplacement
services, (iv) transfer to him of the company-owned car he was using, (v)
accelerated vesting under certain of Howmet's retirement plans, and (vi) the
right to continue to participate in Howmet's medical benefits plan for up to two
years at the rates in effect for active employees, and the right to be treated
as a retiree for purposes of continued coverage thereafter. These severance
benefits are conditioned on his agreement not to compete with Howmet for a
period of twelve months following his termination of employment. Mr. Squier's
agreement also provides that he is entitled to a supplemental annual pension
payment equal to the excess of 50% of his average base pay during his final
three years of employment over the amounts provided to him under certain of
Howmet's retirement plans and under social security.
In February 1996 Howmet Corporation entered into an employment agreement
with Mr. Ritter that sets a base salary and an annual bonus targeted at 40% of
that amount. Half of the bonus is based on achievement of personal objectives
and half is based on Howmet Corporation's performance. The agreement also
provides for Mr. Ritter to receive stock appreciation rights from the Company,
stock options in Cordant stock and the opportunity to purchase an interest in
Howmet. Mr. Ritter is also entitled to use of a company car.
Mr. Albrechtsen has an employment agreement that sets a base salary and 35%
of that amount as an annual bonus target. It is generally effective until his
62nd birthday (in 2008). In the event that Mr. Albrechtsen's employment is
terminated by Howmet Corporation without "cause" or by Mr. Albrechtsen with
"good reason" (each as defined therein), Mr. Albrechtsen is generally entitled
to the amount of his base salary and annual bonus for a period of 36 months.
AGREEMENTS AND ARRANGEMENTS BETWEEN THE COMPANY AND CORDANT
SERVICES AGREEMENT.
Upon consummation of the IPO, to control administrative costs and avoid
duplication of administrative functions, the Company and Cordant entered into an
intercompany services agreement (the "Services Agreement") with respect to the
services to be provided by Cordant to the Company. The Services Agreement
provides that Cordant will furnish to the Company administrative services for
which the Company will generally pay Cordant its costs plus a fee, both amounts
to be determined by Cordant from time to time on a basis consistent with its
past practices. The Company paid Cordant $1,875,000, to cover both its costs and
fee, for the year ended December 31, 1999.
The services provided by Cordant include but are not limited to tax;
control and audit; risk management and insurance advice and purchasing; health,
safety and environmental; treasury and cash management; human resources and
employee relations; employee benefit plans; in-house legal; investor relations
and public affairs; and executive department services.
The services also include or involve some services provided by third
parties, such as insurance brokers and carriers, actuaries and financial
printers. Generally, Cordant bills such third party services directly to the
Company with no "mark up". However, the cost of Cordant's arranging for third
parties' services is billed to the Company along with a fee, as described above.
As discussed herein, four Directors of the Company are officers and/or directors
of Cordant.
CORPORATE AGREEMENT.
Upon consummation of the IPO, the Company and Cordant entered into a
corporate agreement (the "Corporate Agreement"). Under this agreement, the
Company granted preemptive rights to Cordant, which give Cordant the right, upon
any issuance or sale by the Company of its shares of capital stock, to acquire a
number of such shares sufficient to maintain Cordant's percentage ownership of
the Company's outstanding voting power and equity immediately prior to such
issuance or sale. The purchase of shares of Common Stock pursuant to the
exercise of a preemptive right will be at market price, or, in the case of a
public offering by the Company for cash, at a price per share equal to the net
proceeds per share to the Company in such offering. The preemptive rights expire
in the event Cordant reduces its ownership interest to less than 20%. See Item 3
A-6
23
of the Statement for a description of the amendment to the Corporate Agreement
entered into on March 13, 2000.
PREFERRED STOCK REDEMPTION.
On February 17, 1999, the Company redeemed all of the outstanding shares of
its 9.0% Series A Senior Cumulative Preferred Stock, all of which was held by
Cordant, for an aggregate redemption price of $66,379,991.
DIRECTORS' COMPENSATION
Directors who are employees of the Company or its subsidiary Howmet
Corporation or of Cordant, receive no compensation for their service as
Directors. James R. Wilson and Richard L. Corbin are officers and employees of
Cordant, and David L. Squier is an officer and employee of the Company, serving
as Directors. Other Directors are paid an annual retainer of $40,000, plus
out-of-pocket expenses. James R. Mellor and James D. Woods serve as independent
Directors of the Company on committees of the Board of Directors, and
accordingly each receives an additional annual retainer of $5,000. In January
2000, Mr. Mellor and Mr. Woods each received an additional $50,000 in cash for
services on the Independent Directors Committee in connection with their duties
relating to the Cordant Acquisition Proposal (as defined in the Statement). D.
Larry Moore and Edsel D. Dunford also serve as Directors of Cordant.
The Company maintains a Deferred Compensation Plan for Directors, under
which each Director who is entitled to a Director's fee from the Company may
elect to have payment of part or all of his Director's compensation deferred
until such time as he ceases to be a Director. With respect to all but $20,000
of each Director's compensation, the Plan permits each Director to elect to
defer his Director's fees into a cash or phantom stock credit account. Amounts
credited to the cash account are credited with increments equivalent to interest
at the prime rate, and amounts credited to the phantom stock account are
credited or debited with amounts reflecting the change in the price of the
Company's Common Stock and payment of dividends, if any. All distributions of a
Director's cash or phantom stock account are made only in cash.
Also under the Company's Amended and Restated 1997 Stock Awards Plan, each
such Director receives the number of shares of restricted stock of the Company
as of each January 1, beginning January 1, 1998, which $20,000 would purchase at
the average of the high and low trading prices for the Company's Common Stock on
the New York Stock Exchange on the last trading day of the previous year. The
Director may not sell this stock until his service as a Director terminates.
Dividends, if any, on such stock are credited to the Director in the form of
phantom stock. The Board of Directors may from time to time change the amount or
proportion of his compensation that will thereafter be distributed in the form
of stock awards. Each of these Directors received 1,288 shares of restricted
stock in 1999, and 1,106 shares in 2000.
AGREEMENTS AND ARRANGEMENTS BETWEEN CORDANT
AND CERTAIN DIRECTORS OF THE COMPANY
DIRECTOR COMPENSATION
James R. Wilson, Edsel D. Dunford and D. Larry Moore, who serve on the
Board of Directors of the Company, also serve as directors on the Cordant Board
of Directors. The Cordant Board's compensation program is designed to provide
compensation at levels to meet competitive conditions for the retention and
recruitment of qualified individuals to serve as directors on the Cordant Board
of Directors. The compensation program consists of an annual $30,000 cash
retainer and an annual retainer of $20,000 paid in the form of restricted stock
designed to align a portion of a director's compensation with the performance of
Cordant's common stock. A fee of $1,000 and travel expenses are paid for each
Board meeting attended. Each Committee chairman also receives an annual retainer
of $3,000. Directors who are employees of Cordant receive no compensation for
their services as directors. Mr. Wilson is the only Cordant employee serving as
a Cordant director.
A-7
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Cordant maintains a Deferred Fees Plan under which non-employee directors
may elect to defer all or part of the payment of their directors' compensation
until such time as they cease to be a director. Directors may elect to have
their deferred account credited with amounts in cash (similar to interest) or
with amounts reflecting the change in the price of Cordant's common stock and
payment of dividends. All distributions of a director's account are made in
cash. Messrs. Dunford and Moore participate in the Plan.
Cordant's director restricted stock grants are made contingent upon a
director remaining a member of the Cordant Board of Directors. The shares do not
vest until the director's retirement or in the event of disability or death or
change in control of Cordant. In the event a director resigns from the Cordant
Board or otherwise elects not to stand for election as a director, the
restricted shares granted to such director are forfeited unless 80 percent of
the directors then in office, with the affected director abstaining, otherwise
take formal action to waive such forfeiture. During the tenure of such
director's service on the Cordant Board, the shares are restricted with respect
to transferability, assignability or encumbrance, and such restrictions are only
released upon the director's retirement, death or disability unless otherwise
waived by formal action by the Cordant Board of Directors, as described above.
During such time as the restrictions apply to Cordant's common stock granted to
the director, the director has voting rights and receives dividends and other
distributions or adjustments on such common stock. The number of shares of
director restricted stock granted to each non-employee director is calculated by
dividing the average of the high and low New York Stock Exchange price on the
first trading day of July into the $20,000 stock retainer with each fractional
share rounded up to the next whole share.
EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The Summary Compensation Table below sets forth the compensation for both
long-term and short-term, for services in all capacities earned by Messrs.
Wilson and Corbin. The Summary Compensation Table also sets forth the
compensation for the six-month transition period July 1 to December 31, 1998
(1998T) reflecting the change in Cordant's fiscal year end and for the fiscal
years ended June 30, 1998 and 1997.
SUMMARY COMPENSATION TABLE(1)
LONG-TERM COMPENSATION
----------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION --------------------- ----------
NAME AND --------------------- SECURITIES UNDERLYING LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(2) OPTIONS/SARS # PAYOUTS(3) COMPENSATION(4)
------------------ ----- -------- ---------- --------------------- ---------- ---------------
James R. Wilson.......... 1999 $735,000 $1,029,000 330,450 $1,000,000 $49,100
Chairman of the Board, 1998T 350,000 490,000 50,000 0 0
President and Chief 1998 575,000 792,750 40,000 425,000 4,525
Executive Officer 1997 540,000 583,000 70,000 850,000 4,800
Richard L. Corbin........ 1999 331,000 331,000 99,272 360,000 19,860
Executive Vice
President 1998T 157,500 157,500 16,100 0 1,494
and Chief Financial
Officer 1998 255,000 250,000 8,000 168,000 4,006
1997 235,000 209,250 15,000 336,000 4,650
- ---------------
(1) During 1998, Cordant changed its fiscal year-end from June 30 to December
31. Executive compensation for the six-month transition period July 1 to
December 31, 1998 is shown as 1998T.
(2) Bonuses accrued under Cordant's Key Executive Bonus Plan are paid after the
fiscal year in which they are accrued.
(3) The fiscal 1999 LTIP payouts were made in July 1999 Cordant's Key Executive
Long-Term Incentive Plan for the plan period July 1, 1996 through June 30,
1999. The fiscal 1998 and 1997 LTIP Payouts were made, respectively, in
August of the subsequent fiscal year, with regard to the three-year Plan
periods
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ending June 30, 1998 and June 30, 1997. LTIP payments are made 50 percent in
cash and 50 percent in Cordant common stock valued at market on June 30.
Messrs. Wilson and Corbin received 5,791 and 2,084 shares, respectively, in
1999; 2,209 and 1,172 shares, respectively, in 1998; and 7,548 and 3,078
shares, respectively, in 1997.
(4) The amounts shown are Cordant's matching contributions on behalf of each
named individual under Cordant's Employee Retirement Savings and Investment
Plan, a 401(k) plan, and Cordant's 401(k) restoration plan, a non-tax
qualified deferred compensation plan. Amounts deferred to the 401(k) plan
are included in salary compensation.
OPTION/SAR GRANTS IN 1999
INDIVIDUAL GRANTS(1)
------------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED ANNUAL
NUMBER OF TOTAL EXERCISE OR RATES OF STOCK PRICE
SECURITIES OPTIONS/SARS BASE PRICE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO PER TERM(2)
OPTIONS/SARS EMPLOYEES IN SHARE EXPIRATION ------------------------
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
---- ------------ ------------ ------------ ---------- ---------- -----------
James R. Wilson........ 180,450 17.87 $37.40 3/18/09 $4,253,206 $10,732,361
150,000 14.85 30.53 9/10/09 2,885,207 7,281,715
Richard L. Corbin...... 54,150 5.36 37.40 3/18/09 1,276,315 3,220,600
45,125 4.47 30.53 9/10/09 867,966 2,190,582
- ---------------
(1) All stock option grants are issued at market value on the date of grant.
Options issued during 1999 are exercisable in an increment of one-fourth
each year of a four-year vesting period. Options issued during 1998 are
exercisable in an increment of one-third each year of a three-year vesting
period. Options issued prior to August 21, 1997 became exercisable one year
after the date of grant. All options have a ten-year term. Options lapse
three months after the date of termination of employment except for
retirement, death or disability. For Executive Officers named in the table
and other key employees, the stock option grants prior to October 1993
contain limited stock appreciation rights exercisable immediately only upon
the change of control of the Company as defined under the section
"Termination of Employment and Change of Control Agreements."
(2) No gain will be realized by an optionee without an increase in the price of
Cordant's common stock that will correspondingly increase the value of the
common stock outstanding held by all stockholders. At December 31, 1999, a 5
percent and a 10 percent gain over the ten-year option period would increase
the total value of Cordant's outstanding common stock by $763.3 million and
$1,926.4 million, respectively. There can be no assurance that the gains
shown in the table will be realized since any gain is dependent on the
performance of Cordant's common stock price which is attributable to many
factors including but not limited to Cordant performance and stock market
conditions. The value of realized gains shown in this table is provided
solely for illustrative purposes only in compliance with rules promulgated
by the Securities and Exchange Commission. On March 14, 2000, Alcoa and
Cordant announced an agreement pursuant to which Alcoa would acquire the
outstanding Cordant shares at $57 per share in a tender offer and
second-step merger. All outstanding options to purchase Cordant shares would
become exercisable upon completion of Alcoa's tender offer for Cordant.
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AGGREGATED OPTION/SAR EXERCISES IN 1999 AND YEAR-END OPTION/SAR VALUES
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
YEAR END (#) YEAR END(1) ($)
SHARES ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- ------------------ ------------ --------------- ------------------
James R. Wilson.............. 0 0 354,633/377,117 $5,700,130/370,313
Richard L. Corbin............ 0 0 74,900/112,675 1,155,975/111,402
- ---------------
(1) Value is calculated based on the average closing New York Stock Exchange
price of Cordant's common stock as of December 31, 1999, minus the option
exercise price.
LONG-TERM COMPENSATION
During 1999, the Cordant Compensation and Management Development Committee
discontinued Cordant's Key Executive Long-Term Incentive Plan ("LTIP") and
replaced it with stock option grants for Messrs. Wilson, Corbin and certain
other Cordant executives. Messrs. Wilson and Corbin participate in the LTIP for
the 2.5 year Plan performance period beginning July 1, 1998 and ending December
31, 2000 and the three-year Plan performance period beginning July 1, 1997 and
ending June 30, 2000.
The Plan provides a target bonus opportunity based on a percentage of each
participant's base annual compensation determined by the participant's salary
grade. The opportunity ranges from 65 percent of base annual compensation for
the lowest salary grade covered by the Plan to 100 percent of base annual
compensation for the highest salary grade covered by the Plan. The amount of the
bonus award paid will vary from 25 percent of the target bonus opportunity being
paid if the threshold bonus opportunity goals are achieved; 100 percent of the
target bonus opportunity if the target bonus goals are achieved; and a maximum
bonus of 200 percent of the target bonus opportunity if the maximum bonus
targets are achieved. The bonus earned is paid 50 percent in cash and 50 percent
in Cordant common stock.
RETIREMENT PLAN
Cordant maintains a defined benefit Pension Plan for non-bargaining unit
employees and funds its entire cost. The following table shows the estimated
annual benefits payable upon retirement (including amounts attributable to the
defined benefit excess plan) for the specified compensation and years of
service.
PENSION PLAN TABLE
YEARS OF SERVICE
-------------------------------------------------------------------
REMUNERATION 15 20 25 30 35 40
------------ -------- -------- -------- -------- ---------- ----------
$ 200,000.................... $ 55,451 $ 75,435 $ 96,419 $117,403 $ 138,386 $ 153,186
400,000................... 114,851 156,135 199,419 242,703 285,986 315,586
600,000................... 174,251 236,835 302,419 368,003 433,586 477,986
800,000................... 233,651 317,535 405,419 493,303 581,186 640,386
1,000,000................... 293,051 398,235 508,603 618,603 728,786 802,786
1,500,000................... 441,551 599,985 765,919 931,853 1,097,786 1,208,786
Messrs. Wilson and Corbin both participate in the Cordant Pension Plan. As
of December 31, 1999, Mr. Wilson had 10.6 years credited service for determining
pension benefits and Mr. Corbin had 5.8 years credited service.
Cordant Pension benefits are based on the average earnings for the highest
five consecutive years of the final ten years of service. Compensation included
in the final average earnings for pension benefit computation includes base
annual salary and annual bonuses but excludes payments from Cordant's Executive
Long-Term
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Incentive Plan and all other annual compensation shown in the Cordant Summary
Compensation Table. Unreduced pension benefits are calculated pursuant to the
Plan's benefit formula as a straight life annuity payable at age 67. Executive
Officers of Cordant retire at age 65. Benefits may be payable in the form of a
joint and survivor or a ten-year certain option.
Because the Cordant Pension Plan is subject to the benefit and compensation
limits under the Code, Cordant has established an unfunded Excess Benefit Plan
that provides for payment of amounts that would have been paid to employees
under the pension formula absent the benefit limitations of the Code.
Cordant also maintains a Supplemental Executive Retirement Plan (the
"Cordant SERP") designed to provide unfunded supplemental retirement benefits to
certain Executive Officers and key employees of Cordant. The Cordant SERP is
designed to provide such selected employees a benefit at retirement equal to 60
percent of the participant's average five highest consecutive years of
compensation during the last ten years. The Cordant SERP also pays the benefit
that would otherwise be payable from the Cordant Excess Benefit Plan. Plan
benefits are offset by amounts the participant receives from Cordant's
Retirement Plan and any pension benefits received from other employer plans
including military pensions. A reduced early retirement benefit is available
only at the discretion of the Chairman of the Board or President of Cordant. The
Cordant SERP provides accelerated benefit accrual, vesting, payment and tax
gross up in the event of a change of control of Cordant as defined by the
Cordant Board of Directors. Messrs. Wilson and Corbin participate in the Cordant
SERP.
Cordant may elect to fund and secure all or a part of the Excess Benefit
Plan and SERP benefits through the use of a "Rabbi" Trust meeting the Code
requirements. All such funding is subject to the claims of Cordant's creditors.
TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
Cordant has entered into change of control employment agreements with
Messrs. Wilson and Corbin, each of whom serve as executive officers of Cordant
as well as directors of the Company. These agreements are intended to provide
for continuity of employment in the event of a change of control as defined by
the agreements, including the following events: (i) acquisition by any person of
20 percent or more of the voting securities of Cordant; (ii) changes of the
"Incumbent Board" as defined in the agreements; (iii) reorganization, merger or
consolidation of Cordant; or (iv) liquidation or sale of Cordant. Each of the
agreements requires continued employment of the executive following a change of
control on a basis equivalent to his employment immediately before such change.
In the event that during the three-year period following a change of control,
the executive terminates his employment for "good reason" (as defined in the
agreements) or for any reason during the 30-day period commencing one year after
the change of control or Cordant terminates the executive's employment "without
cause" (as defined in the agreements), the executive would be entitled to
receive a lump sum payment equal to three times the sum of the executive's
salary, average long-term bonus and highest annual bonus plus service and
earnings credits under any Cordant retirement plan which would have been earned
during the employment period and the continuance of fringe benefits during the
three years after such termination. The agreements provide that payments from
Cordant which (a) constitute "parachute payments" as defined in Section 280G of
the Code and (b) would subject the executive to the 20 percent excise tax (the
"Excise Tax") contained in Section 4999 of the Code, will be "grossed up" by an
additional payment in an amount defined by the agreements which takes into
account the Excise Tax, tax penalties and interest, as the case may be, with
respect to any such "parachute payments." The amounts of such parachute
payments, pursuant to the terms described above, are only determinable with
specificity on the date such payment obligations, if any, are triggered. See
Item 3 of the Statement for information regarding estimated payments in respect
of the change of control employment agreements between Cordant and Messrs.
Wilson and Corbin in connection with the transactions contemplated by the
Cordant/Alcoa Merger Agreement.
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