SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. 1 )
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(Name of Registrant as Specified In Its Charter)
TITANIUM METALS CORPORATION
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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[Logo]
TITANIUM METALS CORPORATION
1999 Broadway, Suite 4300
Denver, Colorado 80202
May__________, 2004
Dear Stockholder:
You are cordially invited to attend the 2004 Annual Meeting of Stockholders of
Titanium Metals Corporation ("TIMET" or the "Company"), which will be held on
__________, June ___, 2004, at ______. (local time), at TIMET's corporate
offices located at 1999 Broadway, Suite 4300, Denver, Colorado. In addition to
matters to be acted on at the meeting, which are described in detail in the
attached Notice of Annual Meeting of Stockholders and Proxy Statement, we will
update you on the Company. I hope that you will be able to attend.
Whether or not you plan to attend the meeting, please complete, date, sign and
return the enclosed proxy card or voting instruction form in the accompanying
envelope so that your shares are represented and voted in accordance with your
wishes. Your vote, whether given by proxy or in person at the meeting, will be
held in confidence by the Inspector of Election for the meeting in accordance
with TIMET's By-laws.
Sincerely,
J. Landis Martin
Chairman of the Board,
President and Chief Executive Officer
TITANIUM METALS CORPORATION
1999 Broadway, Suite 4300
Denver, Colorado 80202
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE ___, 2004
To the Stockholders of Titanium Metals Corporation:
NOTICE IS HEREBY GIVEN that the 2004 Annual Meeting of Stockholders (the "Annual
Meeting") of Titanium Metals Corporation, a Delaware corporation ("TIMET" or the
"Company"), will be held on __________, June ___, 2004, at _________ (local
time), at TIMET's corporate offices located at 1999 Broadway, Suite 4300,
Denver, Colorado, for the following purposes:
(1) To elect seven directors to serve until the 2005 Annual Meeting of
Stockholders and until their successors are duly elected and
qualified;
(2) To consider and vote on the Company's 2004 Senior Executive Cash
Incentive Plan;
(3) To consider and vote on an amendment to the Company's Amended and
Restated Certificate of Incorporation to increase the number of
authorized shares of the Company's capital stock from 10,000,000
shares (9,900,000 shares of common stock, $.01 par value, and 100,000
shares of preferred stock, $.01 par value) to 100,000,000 shares
(90,000,000 shares of common stock, $.01 par value, and 10,000,000
shares of preferred stock, $.01 par value);
(4) To consider and vote on an exchange offer pursuant to which the
Company would issue shares of newly created Series A Preferred Stock
in exchange for the 6.625% Convertible Preferred Securities,
Beneficial Unsecured Convertible Securities of TIMET Capital Trust I;
and
(5) To transact such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
The Board of Directors of the Company set the close of business on April 15,
2004 as the record date (the "Record Date") for the Annual Meeting. Only holders
of TIMET's common stock, $.01 par value per share, at the close of business on
the Record Date, are entitled to notice of, and to vote at, the Annual Meeting.
The stock transfer books of the Company will not be closed following the Record
Date. A complete list of stockholders entitled to vote at the Annual Meeting
will be available for examination during normal business hours by any TIMET
stockholder, for purposes related to the Annual Meeting, for a period of ten
days prior to the Annual Meeting, at TIMET's corporate offices located at 1999
Broadway, Suite 4300, Denver, Colorado.
You are cordially invited to attend the Annual Meeting. Whether or not you plan
to attend the Annual Meeting in person, please complete, date and sign the
accompanying proxy card or voting instruction form and return it promptly in the
enclosed envelope to ensure that your shares are represented and voted in
accordance with your wishes. You may revoke your proxy by following the
procedures set forth in the accompanying Proxy Statement. If you choose, you may
still vote in person at the Annual Meeting even though you previously submitted
your proxy.
In accordance with the Company's By-laws, your vote, whether given by proxy or
in person at the Annual Meeting, will be held in confidence by the Inspector of
Election for the Annual Meeting.
By order of the Board of Directors,
Joan H. Prusse
Vice President, General Counsel and Secretary
Denver, Colorado
May ___, 2004
TITANIUM METALS CORPORATION
1999 Broadway, Suite 4300
Denver, Colorado 80202
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PROXY STATEMENT
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GENERAL INFORMATION
This Proxy Statement and the accompanying proxy card or voting instruction form
are being furnished in connection with the solicitation of proxies by and on
behalf of the Board of Directors (referred to herein as the "Board of
Directors") of Titanium Metals Corporation, a Delaware corporation (referred to
herein as "TIMET" or the "Company"), for use at the 2004 Annual Meeting of
Stockholders of the Company to be held on _________, June ___, 2004, at
_________ (local time), at TIMET's corporate offices located at 1999 Broadway,
Suite 4300, Denver, Colorado, and at any adjournment or postponement thereof
(referred to herein as the "Annual Meeting"). This Proxy Statement and the
accompanying proxy card or voting instruction form will first be mailed to the
holders of TIMET's common stock, $.01 par value per share (referred to herein as
"TIMET Common Stock"), on or about May ___, 2004.
PURPOSE OF THE ANNUAL MEETING
Stockholders of the Company represented at the Annual Meeting will consider and
vote upon (i) the election of seven directors to serve until the 2005 Annual
Meeting of Stockholders of the Company and until their successors are duly
elected and qualified (See Proposal I); (ii) the Company's 2004 Senior Executive
Cash Incentive Plan (See Proposal II); (iii) an amendment (referred to herein as
"Certificate of Incorporation Amendment") to the Company's Amended and Restated
Certificate of Incorporation to increase the number of authorized shares of the
Company's capital stock from 10,000,000 shares (9,900,000 shares of common
stock, $.01 par value, and 100,000 shares of preferred stock, $.01 par value) to
100,000,000 shares (90,000,000 shares of common stock, $.01 par value, and
10,000,000 shares of preferred stock, $.01 par value) (See Proposal III); (iv)
an exchange offer (referred to herein as the "Exchange Offer") pursuant to which
the Company would issue shares of newly created Series A Convertible Preferred
Stock (referred to herein as "Series A Preferred Stock") in exchange for the
6.625% Convertible Preferred Securities, Beneficial Unsecured Convertible
Securities (referred to herein as "BUCS") of TIMET Capital Trust I (referred to
herein as the "Capital Trust") (See Proposal IV); and (v) such other business as
may properly come before the Annual Meeting.
VOTING RIGHTS AND QUORUM
The presence, in person or by proxy, of the holders of a majority of the shares
of TIMET Common Stock entitled to vote at the Annual Meeting is necessary to
constitute a quorum for the conduct of business at the Annual Meeting. Under
applicable rules of the New York Stock Exchange (referred to herein as the
"NYSE") and Securities and Exchange Commission (referred to herein as the
"SEC"), brokers or other nominees holding shares of record on behalf of a client
who is the actual beneficial owner of such shares are authorized to vote on
certain routine matters without receiving instructions from the beneficial owner
of the shares. If a broker/nominee who is entitled to vote on a routine matter
does not vote such shares, such shares are referred to herein as "broker/nominee
non-votes." Shares of TIMET Common Stock that are voted to abstain from any
business coming before the Annual Meeting and broker/nominee non-votes will be
counted as being in attendance at the Annual Meeting for purposes of determining
whether a quorum is present.
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At the Annual Meeting, directors of the Company will be elected by a plurality
of the affirmative vote of the outstanding shares of TIMET Common Stock present
(in person or by proxy) and entitled to vote. The accompanying proxy card or
voting instruction form provides space for a stockholder to withhold authority
to vote for any or all nominees for the Board of Directors. Neither shares as to
which authority to vote on the election of directors has been withheld nor
broker/nominee non-votes will be counted as affirmative votes to elect nominees
for the Board of Directors. However, since director nominees need only receive
the vote of a plurality of the shares represented (in person or by proxy) at the
Annual Meeting and entitled to vote, a vote withheld from a particular nominee
will not affect the election of such nominee.
Approval of the 2004 Senior Executive Cash Incentive Plan, the Certificate of
Incorporation Amendment and the Exchange Offer will require the affirmative vote
of a majority of the shares represented at the Annual Meeting (in person or by
proxy) and entitled to vote. Except as otherwise required by the Company's
Amended and Restated Certificate of Incorporation, any other matter that may be
submitted to a stockholder vote will also require the affirmative vote of a
majority of the shares represented at the Annual Meeting (in person or by proxy)
and entitled to vote. Shares of TIMET Common Stock that are voted to abstain
from any business coming before the Annual Meeting and broker/nominee non-votes
will not be counted as votes for or against the approval of the 2004 Senior
Executive Cash Incentive Plan, the Certificate of Incorporation Amendment, the
Exchange Offer or any other matter that may properly come before the Annual
Meeting.
American Stock Transfer and Trust Company (referred to herein as "AST"), the
transfer agent and registrar for TIMET Common Stock, has been appointed by the
Board of Directors to receive proxies and ballots, ascertain the number of
shares represented, tabulate the vote and serve as Inspector of Election at the
Annual Meeting. All proxies and ballots delivered to AST will be kept
confidential by AST in accordance with the Company's By-laws.
The record date set by the Board of Directors for the determination of
stockholders entitled to notice of, and to vote at, the Annual Meeting was the
close of business on April 15, 2004 (referred to herein as the "Record Date").
Only holders of shares of TIMET Common Stock at the close of business on the
Record Date are entitled to vote at the Annual Meeting. As of the Record Date,
there were 3,179,942 shares of TIMET Common Stock issued and outstanding, each
of which will be entitled to one vote on each matter that comes before the
Annual Meeting. See "Interests of Certain Persons" below.
On February 4, 2003, the stockholders of TIMET approved a one-for-ten reverse
split of the TIMET Common Stock. The reverse stock split was effective at 5:00
p.m. E.S.T. on February 14, 2003, at which time each ten shares of TIMET Common
Stock outstanding immediately prior to the reverse stock split were combined
into one share of TIMET Common Stock immediately after the reverse stock split.
All of the share numbers for TIMET Common Stock in this Proxy Statement reflect
this one-for-ten reverse split, even if the date as to which such share number
speaks to was prior to the effective date of the reverse stock split.
Prior to February 7, 2003, Tremont Corporation (referred to herein as "Tremont
Corporation") held approximately 39.7% of the shares of TIMET Common Stock
outstanding. On February 7, 2003, Valhi, Inc. (referred to herein as "Valhi")
completed a merger with Tremont Corporation whereby, in a series of
transactions, Tremont Corporation was merged into Tremont LLC (referred to
herein as "Tremont LLC"), a wholly owned subsidiary of Valhi, Inc. For ease of
reference, this series of transactions is called the Tremont Merger throughout
this Proxy Statement.
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INTERESTS OF CERTAIN PERSONS
Our principal stockholders and some of the TIMET's directors and officers have
interests in the Exchange Offer that are different from, or in addition to, or
that might conflict with, the interests of the holders of TIMET's securities.
These conflicts include the following.
o As of the Record Date, Harold C. Simmons may be deemed to beneficially own
1,614,700 BUCS, representing approximately 40.1% of the outstanding BUCS.
This is comprised of 1,600,000 BUCS directly owned by Mr. Simmons' spouse
and 14,700 BUCS directly owned by Valhi. Mr. Simmons' spouse and Valhi have
indicated that they intend to tender these BUCS in the Exchange Offer.
Assuming that these BUCS are so tendered, and depending upon how many other
BUCS are tendered, upon the consummation of the Exchange Offer, Mr. Simmons
could be deemed to beneficially own at least a majority of the outstanding
shares of Series A Preferred Stock. In such a case, Mr. Simmons would
control the voting rights of the holders of the Series A Preferred Stock
with respect to the election of an additional director in the event that
dividends on the Series A Preferred Stock are in arrears for 12 quarterly
periods. In addition, the affirmative vote of holders of at least
two-thirds of the outstanding shares of Series A Preferred Stock is
required to approve certain transactions that may adversely affect such
holders. If Mr. Simmons could be deemed to beneficially own in excess of
two-thirds of the outstanding shares of Series A Preferred Stock, he would
also control the voting rights of the holders of the Series A Preferred
Stock with respect to these matters, thereby limiting the value or
importance of the voting rights associated with the Series A Preferred
Stock.
o As of the Record Date, Valhi and a wholly owned subsidiary of Valhi,
Tremont LLC, owned approximately 40.8% of the outstanding TIMET Common
Stock, and The Combined Master Retirement Trust (referred to herein as the
"CMRT"), a trust formed by Valhi to permit the collective investment by
trusts that maintain the assets of certain employee benefit plans adopted
by Valhi and certain related companies, owned an additional 8.4% of the
outstanding TIMET Common Stock. TIMET's U.S. defined benefit pension plan
began investing in the CMRT in the second quarter of 2003; however, the
plan invests only in a portion of the CMRT that does not hold TIMET Common
Stock. Mr. Simmons' spouse and Valhi have indicated that they intend to
tender the BUCS held by them in the Exchange Offer. Assuming the conversion
of only the BUCS that Valhi and Mr. Simmons own or may be deemed to
beneficially own, Mr. Simmons may be deemed to beneficially own
approximately 52.6% of the outstanding shares of TIMET Common Stock.
o Mr. Simmons is the Chairman of the Board of Contran Corporation (referred
to herein as "Contran") and Valhi. Substantially, all of Contran's
outstanding voting stock is held by trusts established for the benefit of
certain children and grandchildren of Mr. Simmons, of which Mr. Simmons is
the sole trustee, or is held by Mr. Simmons or persons or other entities
related to Mr. Simmons. Mr. Simmons may be deemed to control each of
Contran, Valhi and TIMET. Mr. Simmons disclaims beneficial ownership of all
shares of TIMET Common Stock.
o As of the Record Date, J. Landis Martin, TIMET's Chairman of the Board,
President and Chief Executive Officer, beneficially owned 113,000 BUCS,
representing 2.8% of the outstanding BUCS. Mr. Martin has indicated that he
intends to tender these BUCS in the Exchange Offer. Assuming the conversion
of only the BUCS that Mr. Martin beneficially owns and the exercise of all
of his exercisable stock options, Mr. Martin may be deemed to beneficially
own approximately 4.6% of the outstanding shares of TIMET Common Stock, as
of the Record Date.
o Glenn R. Simmons, the brother of Harold C. Simmons, is Vice Chairman of the
Board of each of Contran and Valhi and is also a director of TIMET. Steven
L. Watson is President and a director of
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Contran and is also President, Chief Executive Officer and a director of
Valhi and a director of TIMET. Messrs. Simmons and Watson owe fiduciary
duties to these other entities and their security holders and these duties
may conflict with the fiduciary duties they owe to TIMET and the holders of
TIMET Common Stock. As a director of Valhi, each of Messrs. Simmons and
Watson may be deemed to beneficially own the 35,200 shares of TIMET Common
Stock and the 14,700 BUCS owned by Valhi, although each disclaims
beneficial ownership of such securities.
o AS OF THE RECORD DATE, TREMONT LLC, VALHI, THE CMRT, MR. SIMMONS' SPOUSE
AND A TRUST RELATED TO HAROLD C. SIMMONS HELD, IN THE AGGREGATE,
APPROXIMATELY 49.3% OF THE OUTSTANDING SHARES OF TIMET COMMON STOCK
ENTITLED TO VOTE AT THE ANNUAL MEETING, AND J. LANDIS MARTIN, TIMET'S
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, AND ENTITIES OR PERSONS
RELATED TO MR. MARTIN HELD, IN THE AGGREGATE, 3.5% OF THE OUTSTANDING
SHARES OF TIMET COMMON STOCK ENTITLED TO VOTE AT THE ANNUAL MEETING.
TREMONT LLC AND RELATED ENTITIES, AND MR. MARTIN AND RELATED ENTITIES OR
PERSONS, HAVE INDICATED THAT THEY INTEND TO HAVE SUCH SHARES REPRESENTED AT
THE ANNUAL MEETING AND TO VOTE SUCH SHARES "FOR" THE ELECTION OF ALL OF THE
NOMINEES FOR DIRECTOR SET FORTH IN THIS PROXY STATEMENT, "FOR" THE APPROVAL
OF THE 2004 SENIOR EXECUTIVE CASH INCENTIVE PLAN, "FOR" THE CERTIFICATE OF
INCORPORATION AMENDMENT AND "FOR" THE EXCHANGE OFFER. THEREFORE, IF ALL OF
SUCH SHARES ARE VOTED AS INDICATED, ALL OF THE DIRECTOR NOMINEES WILL BE
ELECTED AND ALL OF THE PROPOSALS WILL BE APPROVED.
Circumstances may exist in which the interest of these persons and those of the
other holders of the BUCS, the Series A Preferred Stock or the TIMET Common
Stock could be in conflict and in which decisions by these persons could
adversely affect the holders of such securities.
PROXY SOLICITATION
This proxy solicitation is being made by and on behalf of the Board of Directors
of the Company. The Company will pay all expenses of this proxy solicitation,
including charges for preparing, printing, assembling and distributing all
materials delivered to stockholders. In addition to solicitation by mail,
directors, officers and regular employees of the Company may solicit proxies by
telephone or personal contact for which such persons will receive no additional
compensation. Upon request, the Company will reimburse banking institutions,
brokerage firms, custodians, trustees, nominees and fiduciaries for their
reasonable out-of-pocket expenses incurred in distributing proxy materials and
voting instructions to the beneficial owners of TIMET Common Stock held of
record by such entities.
All shares of TIMET Common Stock represented by properly executed proxies will,
unless such proxies have previously been revoked, be voted in accordance with
the instructions indicated in such proxies. If no instructions are indicated,
such shares will be voted (a) "FOR" the election of each of the seven nominees
set forth below as directors and (b) to the extent allowed by federal securities
laws, in the discretion of the proxy holders on any other matter that may
properly come before the Annual Meeting. Each holder of record of TIMET Common
Stock giving the proxy enclosed with this Proxy Statement may revoke it at any
time, prior to the voting thereof at the Annual Meeting, by (i) delivering to
AST a written revocation of the proxy, (ii) delivering to AST a duly executed
proxy bearing a later date, or (iii) voting in person at the Annual Meeting.
Attendance by a stockholder at the Annual Meeting will not in itself constitute
the revocation of a proxy previously given.
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PROPOSAL I
ELECTION OF DIRECTORS
The By-laws of the Company currently provide that the Board of Directors shall
consist of a minimum of three and a maximum of seventeen persons, as determined
from time to time by the Board of Directors in its discretion. The number of
directors is currently set at seven. The seven directors elected at the Annual
Meeting will hold office until the 2005 Annual Meeting of Stockholders of the
Company and until their successors are duly elected and qualified.
All of the nominees are currently directors of TIMET whose terms will expire at
the Annual Meeting and who were nominated to stand for re-election to the Board
by the unanimous vote of the full Board of Directors. All nominees have agreed
to serve if elected. If any nominee is not available for election at the Annual
Meeting, the proxy will be voted for an alternate nominee to be selected by the
Board of Directors, unless the stockholder executing such proxy withholds
authority to vote for the election of directors. The Board of Directors believes
that all of its present nominees will be available for election at the Annual
Meeting and will serve if elected.
The Board of Directors recommends a vote "FOR" each of the nominees identified
below.
Nominees for Director
The following information has been provided by each respective nominee for
election to the Board of Directors.
Norman N. Green, 69, has been a director of TIMET since 2002. In 1997, Mr. Green
became an original director and one of the principal investors in Sage Telecom,
a private, full service local and long distance telecommunications company
operating in several southern states. Prior to this, Mr. Green was active in
commercial real estate investment, development and management for over 40 years.
Until 1995, Mr. Green was Chairman and sole owner of Stewart, Green Properties
Ltd., which owned a group of private companies specializing in the development
and management of major shopping centers in Canada and the U.S., operating
approximately 5 million square feet of commercial real estate. From 1979 until
1990, Mr. Green was a co-owner of the Atlanta Flames, a National Hockey League
franchise (the team later became the Calgary Flames). From 1990 until 1996, Mr.
Green was the sole owner of the Minnesota North Stars (the team later became the
Dallas Stars). He continues to serve as a consultant to the Dallas Stars
organization. Teams owned by Mr. Green went to the Stanley Cup Finals several
times during Mr. Green's tenure and won the Stanley Cup Championships in 1989
and 1999. Mr. Green was a member of the National Hockey League Board of
Governors from 1979 to 1996, serving on all of its strategic committees. He is a
member of the executive committee of the board for the Edwin L. Cox School of
Business at Southern Methodist University and has been active in philanthropic
and community service activities for over 30 years. Mr. Green is a member of
TIMET's Management Development and Compensation Committee (referred to herein as
the "Compensation Committee"), the Nominations Committee, and the Pension and
Employee Benefits Committee (referred to herein as the "Pension Committee").
Gary C. Hutchison, M.D., 68, has been a director of TIMET since October 2003.
Since 1968, Dr. Hutchison has practiced neurological surgery at Presbyterian
Hospital in Dallas. Dr. Hutchison is a graduate of the University of Texas
Southwestern Medical School in Dallas. He interned at the University of Oklahoma
and received his neurosurgical residency training at the University of Texas
Southwestern Medical School and Parkland Memorial Hospital, as well as the
National Hospital for Nervous Disease in London, England. Dr. Hutchison has been
board certified by the American Board of Neurological Surgery since 1969. Dr.
Hutchison has served on various health and medical boards and committees and is
currently a member of the Board of Trustees of Texas Health Resources, Inc.,
Chairman of the Strategic
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Planning and Development Committee of Texas Health Resources, Inc., member of
the Governance and Nominating Committee of Texas Health Resources, Inc., Vice
Chairman of the Board of Trustees Presbyterian Hospital of Dallas and Associate
Clinical Professor of Neurosurgery at the University of Texas Health Science
Center in Dallas. Dr. Hutchison serves as Chair of the Compensation Committee,
Chair of the Nominations Committee, and a member of the Audit Committee.
J. Landis Martin, 58, has been Chairman of the Board of TIMET since 1987, Chief
Executive Officer of TIMET since 1995 and President from 1995 to 1996 and since
2000. Mr. Martin served as Chairman of the Board of Tremont Corporation from
1990, as Chief Executive Officer and a director of Tremont Corporation from 1988
and as President of Tremont Corporation from 1987 (except for a period in 1990),
each until the Tremont Merger in 2003. Until his resignation in 2003, Mr. Martin
served from 1987 as President and Chief Executive Officer, and from 1986 as a
director of NL Industries, Inc. (referred to herein as "NL"), a manufacturer of
titanium dioxide pigments. NL may be deemed to be an affiliate of TIMET. Mr.
Martin is also a director of Halliburton Company, Apartment Investment and
Management Company, and Trico Marine Services Inc. and a director and
non-executive chairman of Crown Castle International Corporation.
Albert W. Niemi, Jr., Ph.D., 61, has been a director of TIMET since 2001. Dr.
Niemi is the Dean of the Edwin L. Cox School of Business at Southern Methodist
University, where he also holds the Tolleson Chair in Business Leadership.
Before joining SMU, Dr. Niemi served as Dean of the Terry College of Business at
the University of Georgia from 1982 to 1996. Dr. Niemi graduated cum laude from
Stonehill College with an A.B. in economics and earned an M.A. and Ph.D. in
economics from the University of Connecticut. Dr. Niemi is a member of the
Business Accreditation Committee of the American Assembly of Collegiate Schools
of Business and has chaired or served as a member on the accreditation review
teams to more than 20 universities. Dr. Niemi recently completed a term on the
Board of Governors of the American Association of University Administrators and
is currently on the Board of Beta Gamma Sigma. Dr. Niemi also serves on the
boards of Mayer Electric Supply Company and Bank of Texas, and on the Advisory
Board of TXU Dallas. Dr. Niemi is Chair of TIMET's Audit Committee and a member
of the Compensation Committee and the Pension Committee.
Glenn R. Simmons, 76, has been a director of TIMET since 1999. Mr. Simmons is
Chairman of the Board of Keystone Consolidated Industries, Inc. (referred to
herein as "Keystone"), a steel fabricated wire products, industrial wire and
carbon steel rod company (Keystone filed a petition under Chapter 11 of the U.S.
Bankruptcy Code in 2004), and CompX International Inc. (referred to herein as
"CompX"), a manufacturer of ergonomic computer support systems, precision ball
bearing slides and security products. CompX is a majority-owned, indirect
subsidiary of Valhi. Valhi is a diversified holding company, engaged in the
manufacture of titanium dioxide pigments (through its majority interest in
Kronos Worldwide, Inc. (referred to herein as "Kronos")) and component products
(through its majority interest in CompX) and also engaged in waste management.
Since 1987, Mr. Simmons has been Vice Chairman of the Board of Valhi and of
Contran, a diversified holding company. Mr. Simmons has been an executive
officer and/or director of various companies related to Valhi and Contran since
1969. Mr. Simmons is also a director of NL and Kronos, and served as a director
of Tremont Corporation until the Tremont Merger in 2003. Keystone, Valhi,
Tremont LLC, Kronos and CompX may be deemed to be affiliates of TIMET. See notes
(3) and (12) to Security Ownership of TIMET below. Mr. Simmons is Chair of
TIMET's Pension Committee. Mr. Simmons is a brother of Harold C. Simmons.
Steven L. Watson, 53, has been a director of TIMET since 2000. Mr. Watson has
been President and a director of Valhi and Contran since 1998 and has served as
an executive officer and/or director of Valhi, Contran and various companies
related to Valhi and Contran since 1980. Mr. Watson also serves
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on the board of directors of NL, CompX, Kronos and Keystone and served as a
director of Tremont Corporation until the Tremont Merger in 2003. See notes (3)
and (12) to Security Ownership of TIMET below.
Paul J. Zucconi, 63, has been a director of TIMET since 2002. In 2001, Mr.
Zucconi retired after 33 years at KPMG LLP where he was most recently an audit
partner. Mr. Zucconi is a member of the American Institute of Certified Public
Accountants ("AICPA") and is involved in developing the professional development
courses for the AICPA. Mr. Zucconi also serves on the Board of Directors and
Audit Committee of Torchmark Corporation, a major life and health insurance
company, and the Board of Directors of the National Kidney Foundation of North
Texas, Inc. Mr. Zucconi is a member of the Audit Committee.
For information concerning certain transactions to which certain director
nominees are parties and other matters, see "Certain Relationships and
Transactions" below.
Board Meetings
The Board of Directors held five meetings in 2003. Each of the directors
participated in at least 75% of the total number of such meetings and of the
committee meetings (for committees on which they served) held during their
period of service in 2003. The Board of Directors does not have a formal policy
regarding Board members' attendance at the Company's annual meetings. All of
TIMET's then-serving Board members attended the 2003 Annual Meeting of
Stockholders.
Board Committees
The Board of Directors has established the following standing committees:
Audit Committee. The responsibilities and authority of the Audit Committee
include, among other things, providing oversight with respect to the integrity
of the Company's financial statements, the Company's compliance with legal and
regulatory requirements, the independent auditor's qualifications and
independence and the performance of the Company's internal audit function;
retaining the Company's independent auditor, overseeing the external audit
function and approving all fees relating to the Company's independent auditor;
reviewing with the independent auditor the scope and results of the annual
auditing engagement and the system of internal accounting controls, reviewing
the Company's Annual Report on Form 10-K, including annual financial statements,
reviewing and discussing with management the Company's interim financial
statements and directing and supervising special audit inquiries. The Company's
Board of Directors has adopted a revised written charter for the Audit
Committee, a copy of which is attached as Appendix A to this Proxy Statement and
which will be posted on TIMET's website at www.timet.com prior to the 2004
Annual Meeting in accordance with applicable rules and regulations. The current
members of the Audit Committee are Dr. Niemi (Chair), Dr. Hutchison, and Mr.
Zucconi. Mr. Zucconi is the Audit Committee "financial expert" as such term is
defined in Item 401(b) of Regulation S-K. The Company believes that each of the
members of the Audit Committee is independent in accordance with applicable
rules and regulations. The Audit Committee held 10 meetings in 2003. See "Audit
Committee Report" and "Independent Auditor Matters" below.
Management Development and Compensation Committee. The principal
responsibilities and authority of the Compensation Committee are to review and
approve certain matters involving employee compensation (including executives),
including making recommendations to the Board of Directors regarding certain
compensation matters involving the Chief Executive Officer, to review and
approve grants of stock options, stock appreciation rights and awards of
restricted stock under the 1996 Long Term Performance Incentive Plan of Titanium
Metals Corporation adopted by the Company and approved by the Company's
stockholders (referred to herein as the "TIMET Stock Incentive Plan"), except as
otherwise delegated by the Board of Directors, to review and recommend adoption
of or revision to compensation plans and employee
7
benefit programs, to review and recommend compensation policies and practices
and to prepare such compensation committee disclosures as may be required, to
review and recommend any executive employment contract, and to provide counsel
on key personnel selection, organization strategies and such other matters as
the Board of Directors may from time to time direct. The current members of the
Compensation Committee are Dr. Hutchison (Chair), Dr. Niemi and Mr. Green. The
Company believes that each of the members of the Compensation Committee is
independent in accordance with applicable rules and regulations. The
Compensation Committee held one meeting and took action by written consent two
times in 2003.
Nominations Committee. From January to May 2003, the Company had a Nominations
Committee comprised of Mr. Watson (Chair), Dr. Niemi and Mr. Green. From May
2003 until March 2004, the Company had no standing Nominations Committee and the
entire Board of Directors performed the duties of the Nominations Committee in
that time period. On March 24, 2004, the Board of Directors re-established the
Nominations Committee to comply with recently adopted NYSE corporate governance
standards. The principal responsibilities and authority of the Nominations
Committee are to review and make recommendations to the Board of Directors
regarding such matters as the size and composition of the Board of Directors,
criteria for director nominations, director candidates, the term of office for
directors, and make recommendations to the Board of Directors regarding
corporate governance principles, to oversee the evaluation of the Board and of
the Company's management and such other related matters as the Board of
Directors may request from time to time. The current members of the Nominations
Committee are Dr. Hutchison (Chair) and Mr. Green. The Company believes that
each of the members of the Nominations Committee is independent in accordance
with applicable rules and regulations. The Nominations Committee will consider
recommendations by stockholders of the Company with respect to the election of
directors if such recommendations are submitted in writing to the Secretary of
the Company and received not later than December 31 of the year prior to the
next annual meeting of stockholders. The Nominations Committee has not adopted
any formal policy regarding minimal qualifications of recommended nominees, but
considers the criteria approved by the Board of Directors from time to time. A
copy of the Nominations Committee charter will be posted on TIMET's website at
www.timet.com prior to the 2004 Annual Meeting in accordance with applicable
rules and regulations. The Nominations Committee held one meeting in 2003.
Pension and Employee Benefits Committee. The Pension Committee is established to
oversee the administration of the Company's pension and employee benefit plans
other than the TIMET Stock Incentive Plan. The Pension Committee is currently
composed of Mr. Simmons (Chair), Mr. Green and Dr. Niemi. The Pension Committee
held no meetings and took action by written consent four times during 2003.
Members of the standing committees will be appointed at the meeting of the Board
of Directors immediately following the Annual Meeting. The Board of Directors
has previously established, and from time to time may establish, other
committees to assist it in the discharge of its responsibilities. The Company
will post the charters for each of its committees on its website www.timet.com
prior to the 2004 Annual Meeting in accordance with applicable rules and
regulations. Security holders of the Company may send communications to the
Board of Directors by mailing such communications to: Titanium Metals
Corporation, 1999 Broadway, Suite 4300, Denver, CO 80202, Attention: Board of
Directors. The Company's management will forward all stockholder communications
requiring the attention of the Board of Directors to the Board members or the
relevant Board committee members.
Compensation of Directors
Under the compensation plan for non-employee directors adopted by the Company
and by the Company's stockholders (referred to herein as the "Director
Compensation Plan"), effective May 20, 2003, directors of
8
the Company who are not employees of the Company receive an annual cash retainer
of $20,000, paid in quarterly installments, plus an annual cash retainer of
$2,000, paid in quarterly installments, for each committee a member serves upon.
Directors also receive an annual stock retainer ranging between 500 shares (if
the closing price of TIMET Common Stock on the date of the grant is above $20
per share) and 2,000 shares (if the closing price is less than $5 per share). In
addition, non-employee directors receive an attendance fee of $1,000 per day for
meeting attendance. Directors are also reimbursed for reasonable expenses
incurred in attending Board of Directors' and committee meetings. Prior May 20,
2003, directors of the Company who were not employees of the Company received a
retainer at an annual rate of $15,000 in cash plus 100 shares of TIMET Common
Stock. In addition, non-employee directors received an attendance fee of $1,000
per meeting for each meeting of the Board of Directors or a committee of the
Board of Directors attended in person ($350 for telephonic participation).
Committee chairs received an additional attendance fee of $1,000 for each
committee meeting attended in person ($350 for telephonic participation).
Directors were also reimbursed for reasonable expenses incurred in attending
Board of Directors' and committee meetings.
EXECUTIVE OFFICERS
Set forth below is certain information relating to the current executive
officers of the Company. Biographical information with respect to J. Landis
Martin is set forth under "Election of Directors" above. See also "Certain
Relationships and Transactions" below.
Name Age Position(s)
J. Landis Martin 58 Chairman of the Board, President and Chief Executive Officer
Christian Leonhard 58 Chief Operating Officer - Europe
Robert E. Musgraves 49 Chief Operating Officer - North America
Christian Leonhard, 58, served as Executive Vice President-Operations of TIMET
from 2000 to 2002 when he became Chief Operating Officer - Europe. Mr. Leonhard
joined TIMET in 1988 as General Manager of TIMET France. He was promoted to
President of TIMET Savoie S.A. (referred to herein as "TIMET Savoie") in 1996
and President of European Operations in 1997.
Robert E. Musgraves, 49, has served as Chief Operating Officer - North America
since 2002. Mr. Musgraves served as Executive Vice President of TIMET from 2000
to 2002 and served as General Counsel from 1990 to 2002. Mr. Musgraves was Vice
President from 1990 to 2000 and Secretary of TIMET from 1991 to 2000. Mr.
Musgraves also served as General Counsel and Secretary of Tremont Corporation
from 1993 and as Vice President of Tremont Corporation from 1994 until the
Tremont Merger in 2003.
SECURITY OWNERSHIP
Ownership of TIMET Common Stock
The following table and accompanying notes set forth, as of the Record Date, the
beneficial ownership, as defined by the regulations of the SEC, of TIMET Common
Stock held by (i) each person or group of persons known to TIMET to beneficially
own more than 5% of the outstanding shares of any class of TIMET's securities
(including TIMET Common Stock), (ii) each director or nominee for director of
TIMET, (iii) each executive officer of TIMET listed in the Summary Compensation
Table below who is not a director or nominee for
9
director of TIMET and (iv) all executive officers and directors and nominees for
director of TIMET as a group. See notes (3) and (12) following the table
immediately below for information concerning individuals and entities that may
be deemed to indirectly beneficially own those shares of TIMET Common Stock
directly beneficially owned by Tremont LLC, the Combined Master Retirement Trust
and Annette Simmons, the spouse of Harold C. Simmons. All information has been
taken from or is based upon ownership filings made by such persons with the SEC
or upon information provided by such persons to TIMET.
Ownership of TIMET Common Stock
TIMET Common Stock
------------------------------------
Amount and Nature
of
Beneficial Percent of
Ownership (1) Class (2)
------------------- -------------
Name of Beneficial Owner
--------------------------
Greater than 5% Stockholders
Harold C. Simmons(3)(4)
Tremont LLC (3) 1,261,850 39.7%
The Combined Master Retirement Trust(3) 266,812 8.4%
Annette C. Simmons(3)(4) 214,240 6.3%
Valhi, Inc. (3) 37,168 1.2%
Annette Simmons' Grandchildren's Trust(4) 4,760 ---
-----
Total(3)(4) 1,784,830 52.6%
Royce & Associates, LLC (5) 229,329 7.2%
Dimensional Fund Advisors Inc. (6) 202,100 6.4%
State Street Research & Management Company (7) 174,179 5.5%
Directors and Nominees
Norman N. Green (8) 1,100 ---
Dr. Gary C. Hutchison 500 ---
J. Landis Martin (9) 175,771 5.4%
Dr. Albert W. Niemi, Jr. (10) 1,700 ---
Glenn R. Simmons (3)(11)(12) 1,000 ---
Steven L. Watson (3) (12)(13) 3,050 ---
Paul J. Zucconi(14) 1,100 ---
Other Executive Officers
Christian Leonhard (15) 4,800 ---
Robert E. Musgraves (16) 11,695 ---
All Directors and Nominees and Executive Officers of the
Company as a group (9 persons) 200,716 6.2%
(3)(7)(8)(9)(10)(11)(12)(13)(14)(15)(16)(17)
------------
(1) All beneficial ownership is sole and direct unless otherwise noted.
(2) No percent of class is shown for holdings of less than 1%. For purposes of
calculating individual and group percentages, the number of shares treated
as outstanding for each individual includes stock options exercisable by
such individual (or all individuals included in the group) within 60
10
days of the Record Date and shares each individual may acquire by
conversion of convertible securities.
(3) Tremont LLC, the CMRT, Mrs. Harold C. Simmons and Valhi are the direct
holders of approximately 39.7%, 8.4%, 6.3% and 1.2%, respectively, of the
outstanding shares of TIMET Common Stock. Mr. Simmons' spouse and Valhi
directly hold 1,600,000 and 14,700 BUCS, respectively, which are
convertible into 214,240 and 1,968 shares, respectively, of TIMET Common
Stock. The percentage ownership of TIMET Common Stock shown for Mr.
Simmons' spouse and Valhi assumes, in each case, the full conversion of
only each such holder's BUCS. BUCS are not entitled to vote on matters
submitted to the holders of TIMET Common Stock prior to the conversion of
BUCS into shares of TIMET Common Stock.
Substantially all of Contran's outstanding voting stock is held by trusts
established for the benefit of certain children and grandchildren of Harold
C. Simmons (referred to herein as the "Trusts"), of which Mr. Simmons is
the sole trustee, or is held by Mr. Simmons or persons or other entities
related to Mr. Simmons. As sole trustee of each of the Trusts, Mr. Simmons
has the power to vote and direct the disposition of the shares of Contran
stock held by each of the Trusts. Mr. Simmons, however, disclaims
beneficial ownership of any shares of Contran stock that the Trusts hold.
Valhi is the direct holder of 100% of the outstanding membership interests
of Tremont LLC. Valhi Group, Inc. (referred to herein as "VGI"), National
City Lines, Inc. (referred to herein as "National"), Contran, the Harold
Simmons Foundation, Inc. (referred to herein as the "Foundation"), the
Contran Deferred Compensation Trust No. 2 (referred to herein as the "CDCT
No. 2") and the CMRT are the direct holders of 77.6%, 9.1%, 3.1%, 0.9%,
0.4% and 0.1%, respectively, of the outstanding shares of Valhi's common
stock. National, NOA, Inc. (referred to herein as "NOA") and Dixie Holding
Company (referred to herein as "Dixie Holding") are the direct holders of
approximately 73.3%, 11.4% and 15.3%, respectively, of the outstanding
common stock of VGI. Contran and NOA are the direct holders of
approximately 85.7% and 14.3%, respectively, of the outstanding common
stock of National. Contran and Southwest Louisiana Land Company, Inc.
(referred to herein as "Southwest") are the direct holders of approximately
49.9% and 50.1%, respectively, of the outstanding common stock of NOA.
Dixie Rice Agricultural Corporation, Inc. (referred to herein as "Dixie
Rice") is the direct holder of 100% of the outstanding common stock of
Dixie Holding. Contran is the holder of 100% of the outstanding common
stock of Dixie Rice and approximately 88.9% of the outstanding common stock
of Southwest.
The CMRT directly holds approximately 8.4% of the outstanding shares of
TIMET Common Stock and 0.1% of the outstanding shares of Valhi's common
stock. Valhi established the CMRT as a trust to permit the collective
investment by master trusts that maintain the assets of certain employee
benefit plans Valhi and related companies, including TIMET, adopt. Mr.
Simmons is the sole trustee of the CMRT and a member of the trust
investment committee for the CMRT. Valhi's board of directors selects the
trustee and members of the trust investment committee for the CMRT. Mr.
Simmons, Glenn R. Simmons and Steven L. Watson are each members of Valhi's
board of directors and participants in one or more of the employee benefit
plans that invest through the CMRT. Each such person, however, disclaims
beneficial ownership of any shares the CMRT holds, except to the extent, if
any, of his individual, vested beneficial interest in the assets the CMRT
holds.
The Foundation directly holds approximately 0.9% of the outstanding shares
of Valhi's common stock. The Foundation is a tax-exempt foundation
organized for charitable purposes. Harold C.
11
Simmons is the Chairman of the Board of the Foundation and may be deemed to
control the Foundation. Mr. Simmons, however, disclaims beneficial
ownership of any shares of Valhi's common stock held by the Foundation.
The CDCT No. 2 directly holds approximately 0.4% of the outstanding shares
of Valhi's common stock. U.S. Bank National Association serves as the
trustee of the CDCT No. 2. Contran established the CDCT No. 2 as an
irrevocable "rabbi trust" to assist Contran in meeting certain deferred
compensation obligations that it owes to Harold C. Simmons. If the CDCT No.
2 assets are insufficient to satisfy such obligations, Contran is obligated
to satisfy the balance of such obligations as they come due. Pursuant to
the terms of the CDCT No. 2, Contran (i) retains the power to vote the
shares of Valhi's common stock held directly by the CDCT No. 2, (ii)
retains dispositive power over such shares and (iii) may be deemed the
indirect beneficial owner of such shares. Mr. Simmons, however, disclaims
beneficial ownership of the shares owned, directly or indirectly, by the
CDCT No. 2, except to the extent of his interest as a beneficiary of the
CDCT No. 2.
Valmont Insurance Company (referred to herein as "Valmont"), NL and a
subsidiary of NL directly own 1,000,000 shares, 3,522,967 shares and
1,186,200 shares, respectively, of Valhi's common stock. Valhi is the
direct holder of 100% of the outstanding common stock of Valmont. Valhi and
Tremont LLC are the direct holders of 62.3% and 21.1%, respectively, of the
outstanding shares of common stock of NL. Pursuant to Delaware law, Valhi
treats the shares of Valhi's common stock that Valmont, NL and the
subsidiary of NL own as treasury stock for voting purposes and for the
purposes of this note such shares are not deemed outstanding.
Harold C. Simmons is Chairman of the Board and Chief Executive Officer of
NL and Chairman of the Board of Tremont LLC, Valhi, VGI, National, NOA,
Dixie Holding, Dixie Rice, Southwest and Contran.
By virtue of the offices held, the stock ownership and his services as
trustee, all as described above, (a) Harold C. Simmons may be deemed to
control the entities described above and (b) Mr. Simmons and certain of
such entities may be deemed to possess indirect beneficial ownership of any
shares directly held by certain of such other entities. Mr. Simmons
disclaims beneficial ownership of the shares beneficially owned, directly
or indirectly, by any of such entities, except to the extent otherwise
expressly indicated in this note.
Harold C. Simmons may be deemed to share indirect beneficial ownership of
the 1,600,000 BUCS (which are convertible into 214,240 shares of TIMET
Common Stock) that Mrs. Simmons directly holds. Mr. Simmons disclaims all
such beneficial ownership.
Glenn R. Simmons and Steven L. Watson are directors and/or officers of
Tremont LLC, NL, Valhi, VGI, National, NOA, Dixie Holding, Dixie Rice,
Southwest and Contran. Each of such persons disclaims beneficial ownership
of any shares that any of such entities hold, whether directly or
indirectly.
The business address of Tremont LLC, Valhi, VGI, National, NOA, Dixie
Holding, Contran, the CMRT, the Foundation and Harold C. Simmons and his
spouse is Three Lincoln Centre, 5430 LBJ Freeway, Suite 1700, Dallas, Texas
75240-2697. The business address of Dixie Rice is 600 Pasquiere Street,
Gueydan, Louisiana 70542. The business address of Southwest is 402 Canal
Street, Houma, Louisiana 70360.
12
(4) The Annette Simmons' Grandchildren's Trust, for which Harold C. Simmons and
his spouse are co-trustees and of which the beneficiaries are the
grandchildren of Mrs. Simmons, is the direct holder of 4,760 shares of
TIMET Common Stock. Mr. Simmons and his spouse each disclaim beneficial
ownership of these shares.
(5) As reported in the Statement on Schedule 13G filed with the SEC dated
February 9, 2004. The address of Royce & Associates, LLC is 1414 Avenue of
the Americas, New York, NY 10019.
(6) As reported in an Amendment to Statement on Schedule 13G filed with the SEC
dated February 6, 2004. The address of Dimensional Fund Advisors Inc. is
1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401.
(7) As reported in the Statement on Schedule 13G filed with the SEC dated
February 17, 2004. The address of State Street Research & Management
Company is One Financial Center, 31st Floor, Boston, MA 02111-2690.
(8) The shares of TIMET Common Stock shown as beneficially owned by Norman N.
Green include 500 shares that Mr. Green has the right to acquire by the
exercise of stock options within 60 days of the Record Date under the
Director Compensation Plan.
(9) The shares of TIMET Common Stock shown as beneficially owned by J. Landis
Martin include (i) 50,000 shares that Mr. Martin may acquire upon exercise
of stock options within 60 days of the Record Date under the TIMET Stock
Incentive Plan (subject to the qualification described in this note below),
and (ii) 2,940 shares held by members of Mr. Martin's immediate family,
beneficial ownership of which is disclaimed by Mr. Martin. Under the TIMET
Stock Incentive Plan a grantee may not exercise out-of-the-money options.
Taking this limitation into account, Mr. Martin's total beneficial
ownership, as of the Record Date, would be 149,171 shares or 4.6%. Mr.
Martin is also the direct holder of 103,000 BUCS and an indirect holder of
10,000 BUCS. See "Ownership of BUCS" below. Such BUCS are convertible into
13,792 and 1,339 shares, respectively, of TIMET Common Stock, which amounts
are included in the TIMET Common Stock ownership number shown for Mr.
Martin. No other director, nominee for director or executive officer of
TIMET is known to hold any BUCS.
(10) The shares of TIMET Common Stock shown as beneficially owned by Albert W.
Niemi, Jr. include 1,000 shares that Dr. Niemi has the right to acquire
upon the exercise of stock options within 60 days of the Record Date under
the Director Compensation Plan.
(11) The shares of TIMET Common Stock shown as beneficially owned by Glenn R.
Simmons include 1,000 shares that Mr. Simmons has the right to acquire upon
the exercise of stock options within 60 days of the Record Date under the
Director Compensation Plan.
(12) Tremont LLC, Valhi and the CMRT each directly holds either TIMET Common
Stock or BUCS. Glenn R. Simmons and Steven L. Watson are directors and/or
officers of Tremont LLC and Valhi. By virtue of the offices of Tremont LLC
and Valhi held by Glenn R. Simmons and Steven L. Watson, each of such
persons may be deemed to possess indirect beneficial ownership of the TIMET
securities directly held by Tremont LLC and Valhi. However, each of Glenn
R. Simmons and Steven L. Watson disclaims beneficial ownership of any TIMET
securities that Tremont LLC or Valhi holds, whether directly or indirectly.
Valhi's board of directors selects the trustee and members of the trust
investment committee for the CMRT. Glenn R. Simmons and Steven L. Watson
are each members of Valhi's board of directors and participants in one or
more of the employee benefit plans that
13
invest through the CMRT. Each such person, however, disclaims beneficial
ownership of any shares the CMRT holds, except to the extent, if any, of
his individual, vested beneficial interest in the assets the CMRT holds.
(13) The shares of TIMET Common Stock shown as beneficially owned by Steven L.
Watson include 1,500 shares that Mr. Watson has the right to acquire upon
the exercise of stock options within 60 days of the Record Date under the
Director Compensation Plan.
(14) The shares of TIMET Common Stock shown as beneficially owned by Paul J.
Zucconi include 500 shares that Mr. Zucconi has the right to acquire upon
the exercise of stock options within 60 days of the Record Date under the
Director Compensation Plan.
(15) The shares of TIMET Common Stock shown as beneficially owned by Christian
Leonhard include 2,680 shares that Mr. Leonhard may acquire upon the
exercise of stock options within 60 days of the Record Date under the TIMET
Stock Incentive Plan.
(16) The shares of TIMET Common Stock shown as beneficially owned by Robert E.
Musgraves include (i) 6,660 shares that Mr. Musgraves may acquire upon the
exercise of stock options within 60 days of the Record Date under the TIMET
Stock Incentive Plan, (ii) 20 shares held by members of Mr. Musgraves'
immediate family, beneficial ownership of which is disclaimed by Mr.
Musgraves and (iii) 800 shares of TIMET Common Stock that represent
restricted shares under the terms of the TIMET Stock Incentive Plan with
respect to which shares Mr. Musgraves has the power to vote and receive
dividends. Of the shares of TIMET Common Stock shown as beneficially owned
by Mr. Musgraves, 1,440 shares are pledged to TIMET to secure repayment of
a loan from TIMET in 1998 used to purchase a portion of such shares. See
"Certain Relationships and Transactions--Contractual Relationships--TIMET
Executive Stock Ownership Loan Plan" below.
(17) The shares of TIMET Common Stock shown as beneficially owned by "All
Directors and Nominees and Executive Officers as a group" include 63,840
shares that members of this group have the right to acquire by the exercise
of stock options within 60 days of the Record Date under the TIMET Stock
Incentive Plan (subject to the qualification in note (9) above) or the
TIMET Director Compensation Plan, 15,131 shares that members of this group
have the right to acquire upon the conversion of BUCS and 800 shares of
TIMET Common Stock that are restricted shares with respect to which members
of the group have the power to vote and receive dividends.
TIMET understands that Tremont LLC and related entities may consider acquiring
or disposing of shares of TIMET Common Stock or BUCS through open-market or
privately negotiated transactions, depending upon future developments,
including, but not limited to, the availability and alternative uses of funds,
the performance of TIMET Common Stock or BUCS in the market, an assessment of
the business of and prospects for TIMET, financial and stock market conditions
and other factors. TIMET may similarly consider such acquisitions of shares of
TIMET Common Stock or BUCS and acquisition or disposition of securities issued
by related or unrelated parties. As of the Record Date, TIMET, through a wholly
owned subsidiary, owned 1,277,710 shares of CompX Class A common stock,
representing 24.9% of the total shares of CompX Class A common stock
outstanding. TIMET does not, and understands that Tremont LLC also does not,
presently intend to engage in any transaction or series of transactions that
would result in TIMET Common Stock becoming eligible for termination of
registration under the Securities Exchange Act of 1934, as amended (referred to
herein as the "Exchange Act") or ceasing to be traded on a national securities
exchange.
14
Ownership of Valhi Common Stock
By virtue of the share ownership described above, for purposes of the SEC's
regulations, Valhi may be deemed to be the parent of TIMET. The following table
and accompanying notes set forth the beneficial ownership, as of the Record
Date, of Valhi's common stock ($.01 par value per share) held by (i) each
director or nominee for director of TIMET, (ii) each executive officer listed in
the Summary Compensation Table who is not a director or nominee for director of
TIMET and (iii) all executive officers and all directors and nominees for
director of TIMET as a group. Except as set forth below and under the heading
"Ownership of BUCS" below, no securities of TIMET's subsidiaries or less than
majority owned affiliates are beneficially owned by any director, nominee for
director or executive officer of TIMET. All information has been taken from or
is based upon, ownership filings made by such persons with the SEC or upon
information provided by such persons to TIMET.
Ownership of Valhi Common Stock
Valhi Common Stock
---------------------------------------------
Amount and Nature
of Percent of
Name of Beneficial Owner Beneficial Ownership (1) Class (2)
------------------------ ------------------------------ --------------
Directors and Nominees
Norman N. Green -0- ---
Dr. Gary C. Hutchison -0-
J. Landis Martin 4 ---
Dr. Albert W. Niemi, Jr. -0- ---
Glenn R. Simmons (3) 13,247 ---
Steven L. Watson (4) 117,246 ---
Paul J. Zucconi -0- ---
Other Executive Officers
Christian Leonhard -0- ---
Robert E. Musgraves -0- ---
All Directors and Nominees and Executive Officers
of the Company as a group (9 persons) (3)(4)(5)
130,497 ---
-------------
(1) All beneficial ownership is sole and direct unless otherwise noted.
(2) No percent of class is shown for holdings of less than 1%. For purposes of
calculating individual and group percentages, the number of shares treated
as outstanding for each individual includes stock options exercisable by
such individual (or all individuals included in the group) within 60 days
of the Record Date.
(3) The shares of Valhi's common stock shown as beneficially owned by Glenn R.
Simmons include 2,383 shares held in an individual retirement account for
Mr. Simmons and 800 shares held in an individual retirement account for Mr.
Simmons' spouse. Mr. Simmons disclaims beneficial ownership of the shares
held in his spouse's retirement account.
15
(4) The shares of Valhi's common stock shown as beneficially owned by Steven L.
Watson include 100,000 shares that Mr. Watson has the right to acquire upon
the exercise of stock options within 60 days of the Record Date under stock
option plans adopted by Valhi and 2,035 shares held in an individual
retirement account for Mr. Watson.
(5) The shares of Valhi's common stock shown as beneficially owned by "All
Directors and Nominees and Executive Officers of the Company as a group"
include 100,000 shares that members of this group have the right to acquire
upon the exercise of stock options within 60 days of the Record Date as
described in note (4) above.
Ownership of BUCS
The Capital Trust is a statutory business trust formed under the laws of the
State of Delaware, all of whose common securities are owned by TIMET. The BUCS
represent undivided beneficial interests in the Capital Trust. The Capital Trust
exists for the sole purpose of issuing the BUCS and investing in an equivalent
amount of 6.625% Convertible Junior Subordinated Debentures due 2026 (referred
to herein as the "Subordinated Debentures") of TIMET. The BUCS are convertible,
at the option of the holder thereof, into an aggregate of approximately 540,000
shares of TIMET Common Stock at a conversion rate of 0.1339 share of TIMET
Common Stock for each BUCS. TIMET has, in effect, fully and unconditionally
guaranteed repayment of all amounts due on the BUCS.
The BUCS were issued pursuant to an offering exempt from registration under the
Securities Act of 1933, as amended (referred to herein as the "Securities Act").
Pursuant to an agreement with the original purchasers of the BUCS, TIMET has
filed a registration statement under the Securities Act to register, among other
things, the BUCS, the Subordinated Debentures, the TIMET Common Stock issuable
upon the conversion of the BUCS, and certain other shares of TIMET Common Stock
that are held by, or may be acquired by, Tremont LLC. See "Certain Relationships
and Transactions--Contractual Relationships--Registration Rights" below. Except
as set forth in notes (3), (9) and (12) to the table under the heading
"Ownership of TIMET Common Stock" above, no director, nominee for director or
executive officer of TIMET is known to hold any BUCS.
See also "Proposal IV - Exchange Offer and Issuance of Convertible Preferred
Securities."
16
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation of Executive Officers
The following table and accompanying notes set forth certain information
regarding the compensation earned, paid or accrued by TIMET to (i) TIMET's Chief
Executive Officer and (ii) TIMET's other executive officers serving as executive
officers at the end of the last completed fiscal year, in each case for services
rendered during each of the fiscal years 2001, 2002 and 2003 (regardless of the
year in which actually paid).
SUMMARY COMPENSATION TABLE (1)(2)
Annual Compensation
Other Annual
Compensation All Other
Name and Principal Position Year Salary ($)(3) Bonus($)(4) ($) (4) Compensation ($)(5)
--------------------------- ---- ------------- ---------- ------- -------------------
Executive Officers
J. Landis Martin 2003 250,000 -0- -0- 20,905
Chairman of the Board,
Chief Executive Officer and
President
2002 500,000 -0- 131 19,491
2001 500,000 1,000,000 -0- 20,493
Christian Leonhard (6)(7) 2003 250,446 -0- -0- 77,115
Chief Operating
Officer-Europe
2002 250,000 30,000 -0- 42,948
2001 250,000 135,000 -0- 47,745
Robert E. Musgraves(6) 2003 225,000 80,000(8) -0- 15,488
Chief Operating Officer-
North America
2002 250,000 110,000 -0- 15,521
2001 250,000 330,000 -0- 14,941
--------------
(1) Columns required by the regulations of the SEC that would contain no
entries have been omitted.
(2) J. Landis Martin and Robert E. Musgraves also served as executive officers
of Tremont Corporation for a portion of 2003 prior to the Tremont Merger
and during each of 2002 and 2001. The amounts shown as salary and bonus for
Mr. Martin and Mr. Musgraves represent the full amount paid by TIMET for
services rendered by such persons on behalf of both TIMET and Tremont
Corporation during 2003, 2002 and 2001. Pursuant to an intercorporate
services agreement, for that portion of 2003 that Mr. Martin and Mr.
Musgraves performed services for Tremont Corporation and for each of 2002
and 2001, Tremont Corporation was obligated to reimburse TIMET for a
portion (approximately 10% in 2002 and 2001) of the TIMET salary and
regular bonus of each of Mr. Martin and Mr. Musgraves, and a proportionate
share of applicable estimated fringe benefits and overhead expense for
each, as follows:
Year Martin Musgraves
---- ------ ---------
2003 $7,500 $ 9,150
2002 $60,000 $33,600
2001 $60,000 $45,600
17
(3) Effective January 1, 2003, Mr. Martin, Mr. Leonhard and Mr. Musgraves
voluntarily reduced their salaries (from $500,000 to $250,000 for Mr.
Martin and from $250,000 to $225,000 for Mr. Leonhard and Mr. Musgraves).
In February 2004, the Compensation Committee approved a proposal to restore
these salaries to their pre-reduction levels after the Company has reported
positive quarterly net income for two consecutive quarters commencing in
2004. Following his relocation to Europe in July 2003, Mr. Leonhard was
paid in euros at a rate of 236,250 euros per year. The amount included as
salary for Mr. Leonhard during this portion of 2003 was converted to
dollars at an exchange rate of (euro)1 = $1.17 (the average exchange rate
for such period).
(4) Under TIMET's variable incentive compensation plan (referred to herein as
the "Employee Cash Incentive Plan"), Mr. Leonhard and Mr. Musgraves are
entitled to receive annual awards based upon TIMET's financial performance
and the assessed performance of the individual. In 2003, Mr. Leonhard and
Mr. Musgraves were each eligible to receive individual performance awards
under the Employee Cash Incentive Plan. However, each officer elected to
forego such award because of the existence of a salary freeze applicable to
senior-level salaried employees and the unavailability of incentive
compensation for such employees. For 2002, Mr. Leonhard and Mr. Musgraves
were each awarded $30,000 under the individual performance portion of the
Employee Cash Incentive Plan but chose to defer payment of such award
(without interest). Under SEC rules, these earned amounts are required to
be shown in the "Bonus" column for 2002 even though not actually paid.
The amounts shown in the "Bonus" column for 2001 for Mr. Leonhard and
$130,000 of the amount shown in the "Bonus" column for Mr. Musgraves for
2001 were paid pursuant to a special discretionary bonus program approved
by the TIMET Board of Directors. This program was applicable to all U.S.
and certain European salaried employees.
In lieu of participating in the Employee Cash Incentive Program, Mr. Martin
participates in TIMET's Senior Executive Cash Incentive Plan (referred to
herein as the "Senior Executive Cash Incentive Plan") which provides for
payments based solely upon TIMET's financial performance. No payments were
made under this plan to Mr. Martin during 2001, 2002 or 2003. At the Annual
Meeting, stockholders are being asked to consider and vote upon a
replacement to the Senior Executive Cash Incentive Plan. See "Proposal
II-2004 Senior Executive Cash Incentive Plan".
In 2001, the TIMET Board of Directors made one-time bonus awards to a small
number of employees (including Mr. Martin and Mr. Musgraves) in recognition
of their special efforts in achieving a favorable settlement of certain
litigation on behalf of the Company. Of Mr. Martin's award of $1,000,000
(shown in the "Bonus" column for 2001), $550,000 was paid in 2001 and the
remainder was paid in 2002 with accrued interest at 7% per annum (the
above-market portion of such interest of $131 is reflected in the "All
Other Compensation" column for Mr. Martin in 2002). Tremont Corporation
also awarded Mr. Martin a $1,000,000 bonus in respect of the same
litigation settlement, which amount is not reflected in the Summary
Compensation Table. The Tremont Corporation bonus was paid $200,000 in 2002
and $800,000 in 2003, with interest on the unpaid portion at 7% per annum
($71,541 in 2002 and $37,146 in 2003). See note (8) below with respect to
Mr. Musgraves' bonus awarded in connection with the same litigation
settlement.
(5) Except as otherwise indicated in note (7) below, "All Other Compensation"
amounts represent (i) matching contributions made or accrued by TIMET
pursuant to the savings feature of TIMET's Retirement Savings Plan
(suspended in April 2003), (ii) retirement contributions made or accrued by
TIMET pursuant to the Retirement Savings Plan, (iii) life insurance
premiums paid by TIMET and (iv) long-term disability insurance premiums
paid by TIMET, as follows:
18
Year Martin Leonhard Musgraves
Savings Match ($) 2003 462 -0- 462
2002 2,468 -0- 2,000
2001 5,000 -0- 2,530
Retirement 2003 12,750 -0- 8,325
Contribution ($)
2002 10,200 -0- 7,400
2001 8,670 -0- 6,290
Life Insurance ($) 2003 -0- 2,124 1,600
2002 -0- 1,620 1,599
2001 -0- 1,620 1,599
Long-Term 2003 7,693 4,733 5,101
Disability
Insurance ($)
2002 6,923 -0- 4,522
2001 6,823 -0- 4,522
Under the terms of the TIMET universal life insurance plan, Mr. Musgraves
is entitled to the cash surrender value of his individual policy. As of the
Record Date, the policy for Mr. Musgraves had a cash surrender value of
$4,704. Mr. Leonhard's life insurance policy has no cash surrender value.
(6) In 2000, Mr. Musgraves and Mr. Leonhard each received an award of 4,000
shares of restricted TIMET Common Stock. The restrictions lapse as to 20%
of such shares on each of the first five anniversaries of such grant date.
Any shares as to which restrictions have not lapsed are subject to
forfeiture in the event of the termination of the individual's employment
with TIMET (for reasons other than death, disability or retirement).
Holders of restricted stock are entitled to vote and receive dividends with
respect to such shares prior to the date restrictions lapse thereon. As of
December 31, 2003, Mr. Musgraves held 1,600 shares of restricted TIMET
Common Stock (valued at $84,016 at the $52.51 per share closing price of
TIMET Common Stock on such date). In connection with his relocation to
Europe in 2003, Mr. Leonhard's remaining unvested grant of restricted stock
was cancelled and replaced with a grant of "phantom" restricted stock on
identical terms except payable in cash rather than shares of TIMET Common
Stock.
(7) The amounts shown as "All Other Compensation" for Mr. Leonhard include
$70,258 in 2003, $41,328 in 2002, and $46,125 in 2001 paid to or on behalf
of Mr. Leonhard in connection with his foreign assignments (including
housing and car allowance, tax equalization payments, relocation costs and
income taxes with respect to certain of such payments).
(8) In 2001, the TIMET Board of Directors awarded Mr. Musgraves a bonus of
$360,000 in recognition of his special efforts in achieving a favorable
settlement of certain litigation on behalf of the Company. Of this amount,
$200,000 was paid in 2001 at the time of the award (reflected in the
"Bonus" column for 2001). The balance would be earned and payable in two
equal installments of $80,000 each in 2002 and 2003, subject to Mr.
Musgraves' continued employment with TIMET. One such installment of $80,000
was earned and paid in May 2002 (reflected in the "Bonus" column for 2002),
and the other installment was earned in May 2003. However, Mr. Musgraves
elected to defer payment of the final installment of $80,000 (without
interest). Under
19
SEC rules, this earned amount is required to be shown in the "Bonus" column
for 2003 even though not paid.
Stock Option/SAR Grants in Last Fiscal Year
No stock options or stock appreciation rights (referred to herein as "SARs")
were granted under the TIMET Stock Incentive Plan in 2003.
Stock Option Exercises and Holdings
The following table and accompanying notes provide information, with respect to
the executive officers of TIMET listed in the "Summary Compensation Table"
above, concerning the exercise of TIMET stock options during the last fiscal
year and the value of unexercised TIMET stock options held as of December 31,
2003. No SARs have been granted under the TIMET Stock Incentive Plan.
Aggregated Option Exercises in 2003 and 12/31/03 Option Values
Value of
Number of Securities Unexercised
Underlying In-the-Money
Shares Unexercised Options Options at
at 12/31/03 (#) 12/31/03 ($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
---- ------------ ------------ ------------- -------------
J. Landis Martin -0- -0- 42,780/12,220 -0-/-0-
Christian Leonhard -0- -0- 2,320/360 -0-/-0-
Robert E. Musgraves -0- -0- 6,120/540 -0-/-0-
Severance Arrangements and Employment Agreements
In 1999, the Company adopted a policy applicable to certain executive officers
of the Company, including Mr. Martin, Mr. Musgraves and Mr. Leonhard, providing
that the following payments will be made to each such individual in the event
his employment is terminated by TIMET without cause (as defined in the policy)
or such individual terminates his employment with TIMET for good reason (as
defined in the policy): (i) one times such individual's annual TIMET base salary
paid in the form of salary continuation, (ii) prorated bonus for the year of
termination and (iii) certain other benefits. The base salary for purposes of
the executive severance policy would be no less than those salaries in effect
for each individual prior to their voluntary reduction in 2003.
Mr. Leonhard may be eligible for benefits under a statutory French indemnity
program, pursuant to which he would receive (at his option and in lieu of any
benefits under the foregoing executive severance policy) a severance payment
equal to one year's salary payable by TIMET Savoie (in addition to any
unemployment benefits he might be entitled to receive under the French
governmental program).
Mr. Leonhard is party to an Amendment to Employment Contract executed as of
November 25, 2003 with TIMET and its affiliate TIMET Savoie. Under this Contract
Mr. Leonhard is seconded or assigned by TIMET Savoie to TIMET in the capacity of
Director of European Operations and performs duties commensurate with that
position. This Contract provides that Mr. Leonhard's annual gross salary is
payable at a rate of 236,250 euros, and provides for certain other benefits
customary for executives of his position.
20
Equity Compensation Plan Information
The following table provides information, as of December 31, 2003, with respect
to compensation plans and arrangements under which equity securities of TIMET
are authorized for issuance. All of TIMET's current equity compensation plans
have been approved by TIMET's common stockholders.
Column (A) Column (B) Column (C)
Number of securities
remaining available for
Number of Securities to Weighted-average future issuance under
be issued upon exercise exercise price of equity compensation plans
of outstanding options, outstanding options, (excluding securities
Plan Category warrants, and rights warrants and rights reflected in Column (A))
-------------- -------------------- ------------------- ------------------------
Equity compensation plans
approved by security
holders 110,150 $179 174,508
Equity compensation plans
not approved by security
holders - - - - - - - - -
Total 110,150 $179 174,508
21
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Company's Board of Directors presents the
following report on executive compensation.
The Compensation Committee is composed of directors who are neither officers nor
employees of the Company, its subsidiaries or affiliates and who are not
eligible to participate in any of the employee benefit plans administered by it.
The Compensation Committee reviews and recommends compensation policies and is
responsible for approving all compensation paid directly by the Company to the
Company's executive officers other than compensation matters involving the Chief
Executive Officer (the "CEO"). Any action regarding compensation matters
involving the CEO is reviewed and approved by the Board after recommendation by
the Compensation Committee.
Compensation Program Objectives
The Compensation Committee believes that the Company's primary goal is to
increase stockholder value, as measured by dividends paid on and appreciation in
the value of the Company's equity securities. It is the Compensation Committee's
policy that compensation programs be designed to attract, retain, motivate and
reward employees, including executive officers, who can lead the Company in
accomplishing this goal. It is also the Compensation Committee's policy that
compensation programs tie a large component of cash compensation to the
Company's financial results, creating a performance-oriented environment that
rewards employees for achieving pre-set financial performance levels and
increasing stockholder value, thereby contributing to the long-term success of
the Company.
During 2003, the Company's compensation program with respect to its executive
officers, including the CEO, consisted of two primary components: base salary
and variable compensation based upon Company and, in certain cases, individual
performance.
Base Salaries
The Compensation Committee, in consultation with the CEO, reviews base salaries
for the executive officers other than the CEO generally no more frequently than
annually. The CEO's recommendation and the Compensation Committee's actions
regarding base salaries are generally based primarily upon a subjective
evaluation of past and potential future individual performance and
contributions, changes in individual responsibilities, and alternative
opportunities that might be available to the executives in question, as well as
compensation data from companies employing executives in positions similar to
those whose salaries were being reviewed, as well as market conditions for
executives in general with similar skills, background and performance, both
inside and outside of the metals industry (including companies contained in the
peer group index plotted on the Performance Graph following this report), and
other companies with similar financial and business characteristics as the
Company or where the executive in question has similar responsibilities. Based
upon the condition of the business and the outlook over the next few years, Mr.
Leonhard and Mr. Musgraves, the Company's two Chief Operating Officers,
voluntarily agreed to reduce their salaries from $250,000 to $225,000 beginning
in 2003. Mr. Leonhard's annual compensation rate was modified from $225,000 to
236,250 euros upon his return to Europe in mid-2003. The salaries of Mr.
Leonhard and Mr. Musgraves will remain at current levels until the Company
reports positive quarterly net income for two consecutive quarters commencing in
2004, at which time those salaries will automatically be restored to
pre-reduction levels at the beginning of the next quarter.
22
Cash Incentive Plans
Awards under TIMET's Employee Cash Incentive Plan represent a significant
portion of the potential annual cash compensation to employees of TIMET and
consist of a combination of awards based on the financial performance of TIMET
and, in some cases, on individual performance. All of the Company's executive
officers, other than Mr. Martin, were eligible to receive benefits under the
Employee Cash Incentive Plan for 2003.
Potential awards under the Employee Cash Incentive Plan attributable solely to
the performance of TIMET in 2003 were based on TIMET's achieving certain pre-set
return on equity (ROE) goals, which the Company believes should increase
stockholder value over time if they are met. Performance levels are tied to the
Company's corporate-wide ROE as follows:
Performance
ROE Level
-----------------------
less than 3% --
3%-6% A
6%-12% B
12%-24% C
over 24% D
In 2003, the Company achieved a return on equity of less than 3%, as calculated
under the Employee Cash Incentive Plan, resulting in no Company-performance
based payout.
Mr. Leonhard and Mr. Musgraves are eligible to receive individual performance
awards under the Employee Cash Incentive Plan if each such executive's
performance objectives were met during the prior fiscal year. Mr. Leonhard and
Mr. Musgraves were eligible for 2003 performance awards under this Plan, based
on individual performance without regard to Company performance. However, in
light of TIMET's freeze on the salaries of senior-level salaried employees and
the unavailability of any incentive compensation for senior-level salaried
employees, both executive officers voluntarily elected to forego the awarding
and payment of any such award until business conditions improve. Individual
performance awards of $30,000 each were made to Mr. Leonhard and Mr. Musgraves
for service in 2002 (reflected in the Summary Compensation Table), but each
previously agreed to defer payment of those awards (the deferrals bear no
interest).
In 1996, the Board established the Senior Executive Cash Incentive Plan, which
was approved by the Company's stockholders in 1997. This plan was applicable
only to Mr. Martin in 2003. The Senior Executive Cash Inventive Plan provided
for payments based solely upon Company performance ranging between 0% for
corporate returns on equity of less than 10% up to 150% of base salary for
corporate returns on equity at 30% or greater. No payments were made to Mr.
Martin for 2003 under this plan based upon the Company's return on equity of
less than 10%. In 2004, the Board approved the 2004 Senior Executive Cash
Incentive Plan which provides for payments based solely on Company performance
ranging between 0% for corporate returns on equity of less than 3% up to 150% of
base salary for corporate returns on equity at 30% or greater. This new plan is
included in this Proxy Statement for stockholder approval as Proposal II.
Apart from the foregoing plans, the Compensation Committee or the Board may from
time to time award such other bonuses as the Compensation Committee or Board
deems appropriate from time to time under its general authority or under a
separate discretionary plan. In 2001, the Board approved special bonuses of
$1,000,000 for Mr. Martin ($550,000 of which was paid in 2001 and $450,000 of
which was paid in 2002, together with interest on the unpaid balance) and
$360,000 for Mr. Musgraves ($200,000 of which was
23
paid in 2001 and $80,000 of which was paid in 2002) relating to the favorable
settlement of certain litigation involving the Company. These amounts are
reflected in the Summary Compensation Table. Mr. Musgraves voluntarily agreed to
defer (without interest) payment of his $80,000 installment that was otherwise
earned and payable in 2003.
Long-Term Incentive Compensation
The Compensation Committee recognizes the value of long-term incentive
compensation that provides a benefit over an extended period of time. The
Compensation Committee has, from time to time, used the TIMET Stock Incentive
Plan to provide long-term incentives in the form of grants of stock options and
restricted stock. No grants of stock options or restricted stock were made in
2003. In the future, the Compensation Committee may also consider using
long-term cash incentives tied to performance or other criteria.
Tax Code Limitation on Executive Compensation Deductions
In 1993, Congress amended the Internal Revenue Code to impose a $1 million
deduction limit on compensation paid to the CEO and the four other most highly
compensated executive officers of public companies, subject to certain
transition rules and exceptions for compensation received pursuant to
non-discretionary performance-based plans approved by such company's
stockholders. The Company's stockholders previously approved both the TIMET
Stock Incentive Plan and the Senior Executive Cash Incentive Plan in 1997. The
limitation on deductibility requires re-approval of only the Senior Executive
Cash Incentive Plan every five years. The Compensation Committee believes that
payments made pursuant to the TIMET Stock Incentive Plan qualify for exemption
from the deductibility limit as "performance-based compensation," but payments
made under the Senior Executive Cash Incentive Plan would not at the present
time because of the lack of current stockholder approval. Stockholders are being
asked to approve the 2004 Senior Executive Cash Incentive Plan at the Annual
Meeting. See Proposal II below. Approval of such plan at the Annual Meeting
would satisfy the deductibility requirements. The Compensation Committee does
not currently believe that any other existing compensation program of the
Company could give rise to a deductibility limitation at current executive
compensation levels. The Compensation Committee intends to periodically review
the compensation plans of the Company to determine whether further action in
respect of this limitation is warranted.
Chief Executive Officer Compensation
Based upon the condition of the business and the outlook over the next few
years, Mr. Martin voluntarily reduced his salary from $500,000 to $250,000
beginning in 2003. Mr. Martin's salary will remain at current levels until the
Company reports positive quarterly net income for two consecutive quarters
commencing in 2004, at which time his salary will automatically be restored to
its pre-reduction level at the beginning of the next quarter.
The foregoing report on executive compensation has been furnished by the
Company's Management Development and Compensation Committee of the Board of
Directors.
Management Development and Compensation Committee
Dr. Gary C. Hutchison, Chairman
Norman N. Green
Dr. Albert W. Niemi, Jr.
24
PERFORMANCE GRAPH
Set forth below is a line graph comparing, for the period December 31, 1998
through December 31, 2003, the cumulative total stockholder return on TIMET
Common Stock against the cumulative total return of (a) the S&P Composite 500
Stock Index and (b) a self-selected peer group, comprised solely of RTI
International Metals, Inc. (NYSE: RTI) (formerly RMI Titanium Company), the
principal U.S. competitor of TIMET in the titanium metals industry for which
meaningful, same-period stockholder return information is available. The graph
shows the value at December 31 of each year, assuming an original investment of
$100 in each and reinvestment of cash dividends and other distributions to
stockholders.
Comparison of Cumulative Return among Titanium Metals Corporation,
S&P Composite 500 Stock Index and Self-Selected Peer Group
[Chart]
Copyright(C)2002 Standard & Poor's, a division of
The McGraw-Hill Companies, Inc. All rights reserved.
25
AUDIT COMMITTEE REPORT
The information contained in this report shall not be deemed "soliciting
material" or "filed" with the SEC, or subject to the liabilities of Section 18
of the Exchange Act, except to the extent the Company specifically requests that
the material be treated as soliciting material or specifically incorporates this
report by reference into a document filed under the Securities Act or the
Exchange Act.
The Audit Committee of the Company's Board of Directors is comprised of three
directors and operates under a written charter adopted by TIMET's Board. All
members of the Audit Committee meet the independence standards established by
the Board, the NYSE and the Sarbanes-Oxley Act of 2002. The Board adopted
revisions to the Audit Committee's charter in February 2004. The revised Audit
Committee charter is included as Appendix A to this Proxy Statement and will be
posted on TIMET's website at www.timet.com prior to the 2004 Annual Meeting in
accordance with applicable rules and regulations.
TIMET's management is responsible for preparing TIMET's consolidated financial
statements in accordance with accounting principles generally accepted in the
United States of America ("GAAP"). TIMET's independent auditor is responsible
for auditing TIMET's consolidated financial statements in accordance with GAAP
and for expressing an opinion on the conformity of TIMET's financial statements
with GAAP. The Audit Committee assists TIMET's Board in fulfilling its
responsibility to oversee management's implementation of TIMET's financial
reporting process. In its oversight role, the Audit Committee reviewed and
discussed the audited financial statements with management and with
PricewaterhouseCoopers LLP ("PwC"), TIMET's independent auditor for 2003.
We have met privately with PwC and discussed any issues raised by PwC, including
the required matters to be discussed by Statement of Auditing Standards No. 61,
Communication With Audit Committee, as amended. PwC has provided to the Audit
Committee written disclosures and the letter required by Independence Standards
Board No. 1, Independence Discussions with Audit Committees, and the Audit
Committee discussed with PwC that firm's independence. The Audit Committee also
concluded that PwC's provision of non-audit services to TIMET and its
subsidiaries is compatible with PwC's independence.
Based upon the foregoing considerations, the Audit Committee recommended to
TIMET's Board that the audited financial statements be included in TIMET's
Annual Report on Form 10-K for 2003.
The foregoing report is submitted by members of the Audit Committee of the
Board.
Audit Committee
Dr. Albert W. Niemi, Jr., Chairman
Dr. Gary C. Hutchison
Paul J. Zucconi
26
INDEPENDENT AUDITOR MATTERS
Independent Auditors
PwC served as TIMET's independent auditor for the year ended December 31, 2003
and has been appointed to review TIMET's quarterly unaudited consolidated
financial statements to be included in its Quarterly Reports on Form 10-Q for
the first three quarters of 2004 and to audit TIMET's annual consolidated
financial statements for the year ending December 31, 2004. Representatives of
PwC are expected to attend the Annual Meeting. They will have the opportunity to
make a statement if they desire to do so and will be available to respond to
appropriate questions.
Audit Committee Pre-Approval Procedures
The Audit Committee has adopted policies and procedures for pre-approving all
work performed by the Company's outside auditor. The Audit Committee requires
specific pre-approval prior to the engagement of the outside auditor for the
following audit and audit-related services:
o Annual audits of the Company's consolidated financial statements,
attestation services associated with TIMET's system of internal
control over financial reporting and other services associated with
TIMET's Annual Report on Form 10-K;
o Quarterly review procedures associated with the Company's unaudited
interim consolidated financial statements and other services
associated with the Company's Quarterly Reports on Form 10-Q;
o Services associated with registration statements filed by TIMET with
the SEC, including responding to SEC comment letters and providing
comfort letters;
o Statutory audits or annual audits of the annual financial statements
of subsidiaries of the Company; o Quarterly review procedures of the
interim financial statements of subsidiaries of TIMET; o Services
associated with potential business acquisitions/dispositions involving
the Company; o Any other services provided to TIMET not specifically
described above or otherwise pre-approved by the Audit Committee; and
o Any material changes in terms, conditions or fees with respect to the
foregoing resulting from changes in audit scope, TIMET structure or
other applicable matters.
The Audit Committee must also pre-approve any of the specific types of services
included within the following categories of audit, audit-related, tax and
international corporate governance services:
o Audit Services:
o Consultations with TIMET's management as to the accounting and/or
disclosure treatment of transactions or events and/or the actual
or potential impact of final or proposed rules, standards or
interpretations of the SEC, the Financial Accounting Standards
Board (referred to herein as "FASB"), the Public Company
Accounting Oversight Board (referred to herein as "PCAOB") or
other applicable U.S. or international regulatory or
standard-setting bodies; and
o Assistance with responding to SEC comment letters received by
TIMET other than in connection with any registration statement
filed with the SEC.
o Audit-Related Services:
o Consultations with the Company's management as to the accounting
and/or disclosure treatment of transactions or events and/or the
actual or potential impact of final or proposed rules, standards
or interpretations of the SEC, FASB, PCAOB or other applicable
U.S. or international regulatory or standard-setting bodies.
o Financial statement audits of employee benefit plans of TIMET;
27
o Agreed-upon or expanded audit procedures related to the Company's
accounting records required to respond to or comply with
financial, accounting, legal, regulatory or contractual reporting
requirements; and
o Internal control reviews and assistance with internal control
reporting requirements of TIMET (to the extent permitted by
applicable rule or regulation).
o Tax Services:
o Consultations with TIMET's management as to the tax treatment of
transactions or events and/or the actual or potential tax impact
of final or proposed laws, rules and regulations in U.S.
(federal, state and local) and international jurisdictions;
o Consultations with the Company's management related to compliance
with existing or proposed tax laws, rules and regulations in U.S.
(federal, state and local) and international jurisdictions;
o Assistance in the preparation of and review of TIMET's U.S.
(federal, state and local) and international income, franchise
and other tax returns;
o Assistance with tax inquiries, audits and appeals of TIMET before
the U.S. Internal Revenue Service and similar state, local and
international agencies;
o Consultations with TIMET's management regarding domestic and
international statutory, regulatory or administrative tax
developments;
o Transfer pricing and cost segregation studies of the Company; and
o Expatriate tax assistance and compliance for TIMET and its
employees.
o Other Services:
o Assistance with corporate governance matters (including
preparation of board minutes and resolutions) and assistance with
the preparation and filing of documents (such as paperwork to
register new companies or to de-register existing companies)
involving the Company with non-U.S. governmental and regulatory
agencies; provided, however, that the non-U.S. jurisdiction in
which such services are provided does not require that the
individual providing such service be licensed, admitted or
otherwise qualified to practice law.
The Audit Committee reviews service proposals for proposed work to be performed
by the outside auditor and, if acceptable to the Audit Committee, would
pre-approve those services for a specified fee limit or range. For any general
categories of services for which the Audit Committee may determine to
pre-approve a specific fee amount or range in the absence of a specific proposal
for services, an officer of TIMET is required to report the Company's incurring
or payment of such fees to the full Audit Committee at the first meeting of the
Audit Committee held subsequent to the engagement of the independent auditor to
provide any of those services.
The Audit Committee requires the use of engagement letters prior to the
engagement of TIMET's outside auditor for many of the foregoing services. The
Audit Committee also prohibits the use of the outside auditor for the non-audit
related services described under the terms of the SEC's rules on auditor
independence.
Fees Paid to PriceWaterhouseCoopers LLP
The following table shows the aggregate fees PwC has billed or is expected to
bill to TIMET and its subsidiaries for services rendered for 2002 and 2003. Of
the services shown in the table below, approximately 98% were pre-approved by
the Audit Committee (although not pursuant to the previously described
pre-approval policies and procedures because those policies and procedures were
not adopted until February 2004). The percentage of audit-related services that
were not pre-approved by the Audit Committee does not adversely impact PwC's
independence from TIMET under applicable regulations.
28
None of the hours expended by PwC to complete the audit for the last fiscal year
were performed by persons other than PwC's full-time, permanent employees.
Type of Fees 2002 2003
------------------------------------- ---- ----
Audit Fees (1)............................ $397,000 $552,000
Audit-Related Fees (2).................... 5,000 24,600
Tax Fees (3)......................... 64,500 44,300
All Other Fees (4)........................ -0- -0-
------------- -------------
Total..................................... $466,500 $620,900
======== ========
--------------------
(1) Represents fees for the following services:
(a) audits of TIMET's consolidated year-end financial statements for each
year;
(b) reviews of the unaudited quarterly financial statements appearing in
TIMET's Forms 10-Q for each of the first three quarters of each year;
(c) consents filed with the SEC;
(d) normally provided statutory or regulatory filings or engagements for
each year; and
(e) the estimated out-of-pocket costs PwC incurs in providing all of such
services for which TIMET reimburses PwC.
(2) Represents fees for assurance and services reasonably related to the audit
or review of TIMET's financial statements for each year. These services may
include accounting consultations, attest services concerning financial
accounting and reporting standards, audits of employee benefit plans and
advice concerning internal controls.
(3) Represents fees for tax compliance, tax advice and tax planning services.
(4) The Company incurred no other fees from PwC in the last two fiscal years
for services not described in the other categories.
29
PROPOSAL II
2004 SENIOR EXECUTIVE CASH INCENTIVE PLAN
General
The Board believes that cash incentive compensation that is based upon the
Company's financial results is important both in order to attract and retain
high quality employees and also to provide incentives to such employees to
maximize the Company's financial performance and thereby increase stockholder
value. Consequently, in 1996, the Board established the Senior Executive Cash
Incentive Plan which has historically been applicable to a very small number of
executive officers of the Company. The stockholders of the Company approved the
1996 Senior Executive Cash Incentive Plan in 1997, which approval was effective
through 2002.
In 2004, the Compensation Committee, and subsequently the Board of Directors
(excluding Mr. Martin), unanimously approved an amendment to the 1996 Senior
Executive Cash Incentive Plan to modify the threshold return on equity level
that must be achieved (from 10% to 3%) before incentive compensation is earned
under the plan. The Board believed this change was appropriate since no
incentive compensation had been payable under the plan since 1998.
In order that payments under the 2004 Senior Executive Cash Incentive Plan
qualify as "performance-based compensation" under the Internal Revenue Code
(referred to herein as the "Tax Code"), among other criteria, the 2004 Senior
Executive Cash Incentive Plan must be approved by stockholders of the Company.
The effect of such approval is that annual aggregate compensation amounts paid
to eligible plan participants in excess of $1 million would qualify for
deductibility by the Company as compensation expense. Consequently, the 2004
Senior Executive Cash Incentive Plan is being presented to stockholders for
their consideration at the Annual Meeting.
The following summary of the 2004 Senior Executive Cash Incentive Plan is
qualified in its entirety by reference to the full text of the plan, a copy of
which is attached to this Proxy Statement as Appendix B.
Summary Description of Plan
The individuals eligible to participate in the 2004 Senior Executive Cash
Incentive Plan will be those executive officers of the Company determined by the
Compensation Committee from time to time. Currently, only the Company's Chief
Executive Officer, J. Landis Martin, is eligible to participate in the 2004
Senior Executive Cash Incentive Plan. The 2004 Senior Executive Cash Incentive
Plan provides that participants in such plan are not also eligible to
participate in TIMET's Employee Cash Incentive Plan.
The Compensation Committee (or such other committee as is designated by the
Board from time to time which consists of two or more independent members who
meet the requirements of Section 162(m) of the Tax Code) shall be responsible
for administration of the 2004 Senior Executive Cash Incentive Plan. Except as
may otherwise be required in the future by Section 162(m) of the Tax Code from
time to time, the Compensation Committee, acting in its sole discretion and
without the need for any notice, at any time and from time to time, may modify
or amend the 2004 Senior Executive Cash Incentive Plan or suspend or terminate
such plan in its entirety, except any amendment that changes the material terms
of the performance goals (or as otherwise required by Section 162(m) of the Tax
Code) will be subject to further approval of the Company's stockholders.
Cash awards under the 2004 Senior Executive Cash Incentive Plan are based solely
upon the Company's financial performance in a given fiscal year and not on any
individual performance criteria. Under the plan, the financial performance of
the Company is determined based upon corporate-wide return on equity (as
calculated under the 2004 Senior Executive Cash Incentive Plan). At a return on
equity of less than 3%, no
30
award is payable. At returns on equity of more than 3% and up to 10%, awards
range from 10% to 50% of the participant's eligible earnings, with specific
awards fully prorated based upon the proportional increase in return on equity
from 3% to 10% (e.g., a return on equity of 6.5% results in an award equal to
30% of eligible earnings). At returns on equity of more than 10% and up to 30%,
awards range from 50% to 150% of eligible earnings, again with specific awards
being fully prorated based upon the proportional increase in return on equity
from 10% to 30% (e.g., a return on equity of 25% results in an award equal to
125% of eligible earnings). Awards are capped at 150% of eligible earnings, and
no participant may receive performance-based awards under the 2004 Senior
Executive Cash Incentive Plan in excess of $2 million annually. The amount that
any participant in the 2004 Senior Executive Cash Incentive Plan will receive
under the plan is not determinable in advance prior to the completion of the
Company's fiscal year and the certification by the Compensation Committee of the
actual performance level achieved by the Company for such year.
Within 90 days of the end of each fiscal year, the Compensation Committee
determines and certifies the performance level achieved by the Company for such
fiscal year. Awards are paid in cash as soon as practicable thereafter. Except
in the case of death or disability (as determined under the plan) or except as
otherwise determined by the Compensation Committee, a participant must be
employed by the Company on the last day of the fiscal year to be eligible to
receive any award under the 2004 Senior Executive Cash Incentive Plan with
respect to such fiscal year.
Nothing in the 2004 Senior Executive Cash Incentive Plan shall interfere with or
limit in any way the right of the Company to terminate or change a participant's
employment at any time or confer on any participant any right to continue in the
employ of the Company for any period of time or to continue such participant's
present or any other rate of compensation. No participant shall have any right
to future continued participation in the 2004 Senior Executive Cash Incentive
Plan. No right or interest of any participant in the 2004 Senior Executive Cash
Incentive Plan shall be assignable or transferable, or subject to any lien,
directly, by operation of law or otherwise, including execution, levy,
garnishment, attachment, pledge, or bankruptcy.
The affirmative vote of the holders of a majority of the shares of TIMET Common
Stock present (in person or by proxy) and entitled to vote at the meeting is
necessary to constitute approval of the 2004 Senior Executive Cash Incentive
Plan by the stockholders. Persons and entities related to Harold C. Simmons and
J. Landis Martin have expressed their intent to vote the shares of TIMET Common
Stock that they hold, representing approximately 52.8% of the shares of TIMET
Common Stock entitled to vote at the Annual Meeting, in favor of the 2004 Senior
Executive Cash Incentive Plan. Therefore, if all of such shares are voted as
indicated, the 2004 Senior Executive Cash Incentive Plan will be approved. The
Board of Directors recommends a vote FOR the 2004 Senior Executive Cash
Incentive Plan.
PROPOSAL III
AMENDMENT TO AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION TO INCREASE AUTHORIZED SHARES
The Board of Directors is requesting that stockholders authorize the amendment
of the Company's Amended and Restated Certificate of Incorporation to increase
the number of authorized shares of the Company' s capital stock from 10,000,000
shares (9,900,000 shares of common stock, $.01 par value, and 100,000 shares of
preferred stock, $.01 par value) to 100,000,000 shares (90,000,000 shares of
common stock, $.01 par value, and 10,000,000 shares of preferred stock, $.01 par
value) (referred to herein as the "Certificate of Incorporation Amendment"). One
of the purposes of the proposed increase is to permit a five-for-one split of
the TIMET Common Stock, to be effected in the form of a stock dividend. Another
31
purpose is to facilitate the Exchange Offer, as described in Proposal IV. The
Certificate of Incorporation Amendment will also permit the Company additional
flexibility to meet future stock needs. The Board of Directors approved the
proposed stock split and the Certificate of Incorporation Amendment on March 24,
2004. The Certificate of Incorporation Amendment, in substantially its final
form, is attached to this Proxy Statement as Appendix C.
Under Delaware law, in order for the Company to amend its Certificate of
Incorporation, the Board of Directors must first approve the amendment.
Following approval by the Board of Directors, the stockholders must approve the
proposed amendment. Approval of the Certificate of Incorporation Amendment
requires the affirmative vote of a majority of the outstanding stock entitled to
vote on the Certificate of Incorporation Amendment. Under Delaware law,
stockholders are not entitled to dissenter's rights with respect to the proposed
Certificate of Incorporation Amendment, and the Company is not independently
providing stockholders with any such right.
The Board believes that the proposed five-for-one split in the common stock
would result in a market price that should be more attractive to a broader
spectrum of investors and improve trading market volume and result in greater
liquidity of the TIMET Common Stock and therefore should benefit both the
Company and its stockholders.
The increase in the authorized common shares will increase the ratio of
authorized but unissued stock to issued stock above the current ratio, thus
increasing the Company's flexibility in meeting future stock needs. As of the
Record Date, of the 100,000,000 shares of TIMET Common Stock that would be
authorized by the Certificate of Incorporation Amendment, 15,899,710 shares
would be issued as of the effectiveness of the stock split. In addition, as a
result of the stock split, the number of shares issuable under the Company's
stock compensation programs and the TIMET Common Stock reserved for conversion
of the BUCS will also be adjusted proportionally.
Unless deemed advisable by the Board or otherwise required by law or regulation,
no stockholder authorization would be sought for the issuance of authorized but
unissued shares. Such shares could be used for general corporate purposes,
including future financings or acquisitions. The Board of Directors may consider
from time to time offers and plans from third parties, related parties or
management that could lead to the issuance of additional shares of authorized
but unissued shares of capital stock. Since the ratio of authorized but unissued
stock to issued stock will increase, approval of the Certificate of
Incorporation Amendment will increase the risk of dilution of current
stockholders if the Company were to issue additional shares of the authorized
stock.
As of the Record Date, there were 3,179,942 shares of issued and outstanding
TIMET Common Stock, excluding 9,000 shares of treasury stock. None of the
authorized shares of the Company's preferred stock has been issued as of the
Record Date. Neither the common stock nor the preferred stock provides
preemptive rights to purchase newly issued shares.
If the proposed Certificate of Incorporation Amendment is approved by
stockholders at the Annual Meeting, the Company will file a Certificate of
Amendment to its Amended and Restated Certificate of Incorporation with the
Delaware Secretary of State and apply to the NYSE, on which TIMET Common Stock
is listed, for the listing of additional shares of TIMET Common Stock to be
issued in the stock split. The stock split will become effective on the business
day following the later of: (i) the date on which the Certificate of Amendment
to the Company's Amended and Restated Certificate of Incorporation is accepted
for filing by the Secretary of State of Delaware and (ii) the date on which the
supplemental listing application authorizing the listing of the additional
shares resulting from the split is approved by the NYSE. This effective date
will occur sometime after the Annual Meeting. Holders of record of TIMET Common
32
Stock at the close of business on the effective date will be entitled to receive
four additional shares of TIMET Common Stock for each share then held.
The stock split would be accomplished by mailing to each stockholder of record,
as soon as practicable following the effective date, a certificate or account
statement (for those with accounts with our transfer agent, AST) representing
the new shares. The new certificate or account statement will represent four
additional shares of TIMET Common Stock for each share held as of the close of
business on the effective date of the split.
Each currently outstanding stock certificate will continue to represent the same
number of shares shown on its face. Current certificates will not be exchanged
for new certificates. Do not destroy your current certificates or return them to
the Company or its transfer agent.
The Company has been advised by its tax counsel that, under U.S. federal income
tax laws the receipt of additional shares of TIMET Common Stock in the stock
split will not constitute taxable income to stockholders, the cost or other tax
basis to a stockholder of each existing share held immediately prior to the
split will be divided equally among the corresponding five shares held
immediately after the split, and the holding period for each of the five shares
will include the period for which the corresponding existing share was held. The
laws of jurisdictions other than the United States may impose income taxes on
the receipt by a stockholder of additional shares of TIMET Common Stock
resulting from the split. Stockholders are urged to consult their own tax
advisors.
The par value per share of TIMET Common Stock will remain unchanged at $.01 per
share after the stock split. As a result, on the effective date of the stock
split, the stated capital account on our balance sheet attributable to the
common stock will be increased proportionally from its present amount, based on
the four additional shares to be issued for each share of TIMET Common Stock,
and the additional paid-in capital account will be debited with the amount by
which the stated capital account is increased. The per share common stock net
income or loss and net book value will be decreased proportionately because
there will be more shares of TIMET Common Stock outstanding following the stock
split. We do not anticipate that any other accounting consequences would arise
as a result of either the stock split or the increase in the number of shares of
capital stock the Company is authorized to issue.
Assuming transactions of an equivalent dollar amount, brokerage commissions on
stockholders' purchases and sales of TIMET Common Stock after the split and
transfer taxes, if any, may be somewhat higher than before the split, depending
on the specific number of shares involved.
The affirmative vote of the holders of a majority of the shares of TIMET Common
Stock present (in person or by proxy) and entitled to vote at the meeting is
necessary to constitute approval of the Certificate of Incorporation Amendment.
Persons and entities related to Harold C. Simmons and J. Landis Martin have
expressed their intent to vote the shares of TIMET Common Stock that they hold,
representing approximately 52.8% of the shares of TIMET Common Stock entitled to
vote at the Annual Meeting, in favor of the Certificate of Incorporation
Amendment. Therefore, if all of such shares are voted as indicated, the
Certificate of Incorporation Amendment will be approved. The Board of Directors
recommends a vote FOR the Amendment to the Company's Amended and Restated
Certificate of Incorporation, as previously amended, as set forth in Appendix C.
33
PROPOSAL IV
EXCHANGE OFFER AND ISSUANCE OF CONVERTIBLE PREFERRED SECURITIES
The Exchange Offer
TIMET proposes to offer to exchange 4,024,820 shares of Series A Preferred Stock
issued by TIMET for all of the 4,024,820 outstanding BUCS on the terms generally
described below. Under the rules of the NYSE, approval of the issuance of the
Series A Preferred Stock and the listing on the NYSE of the TIMET Common Stock
into which the Series A Preferred Stock is convertible by the holders of TIMET
Common Stock is required. The discussion contained in this Proxy Statement is
not intended as an offer of securities or an offer to exchange securities. The
Exchange Offer will only be made pursuant to a separate exchange offer
prospectus, a copy of which will be mailed or delivered to each holder of BUCS
of record in connection with the Exchange Offer.
The BUCS are not listed on any securities exchange or included in any automated
quotation system. The BUCS are traded in the over-the-counter market under the
symbol "TMCXP," and trades are generally reported on the Over The Counter
Bulletin Board or the Pink Sheets. According to NASDAQ's website, the last
reported sales price for the BUCS was $40.00 per BUCS on May 4, 2004. The
closing price of TIMET Common Stock was $_____ per share on May ___, 2004. TIMET
does not intend to apply to list the Series A Preferred Stock on any securities
exchange or for the inclusion of the Series A Preferred Stock in any automated
quotation system.
Summary Comparison of BUCS to Series A Preferred Stock
The following comparison of the terms of the BUCS and the Series A Preferred
Stock is only a summary. For a more detailed discussion of the BUCS, please see
"Description of the BUCS." For a more detailed description of the terms of the
Series A Preferred Stock, please see "Description of the Series A Preferred
Stock."
BUCS Series A Preferred Stock
---------------------------------- --------------------------------------
Issuer TIMET Capital Trust I Titanium Metals Corporation
Securities Offered 4,024,820 6?% Convertible Preferred 4,024,820 shares of 6 3/4% Series A
Securities, Beneficial Unsecured Convertible Preferred Stock
Convertible Securities
Liquidation Preference $50 per BUCS. $50 per share.
Distributions/ Dividends Payable quarterly in arrears at the Accumulate from the initial issuance date
annual rate of 6?% of the liquidation and payable quarterly in arrears when, as
preference (equivalent to $3.3125 per and if declared by the Company's Board of
BUCS per year) on each March 1, June 1, Directors, at the rate of 6 3/4% of the
September 1 and December 1, subject to liquidation preference (equivalent to
the extension of the payment periods $3.375 per share per year). The Company's
described below. The Capital Trust's ability to pay dividends on the Series A
ability to make payments on the BUCS Preferred Stock may be restricted.
may be restricted.
34
BUCS Series A Preferred Stock
------------------------------------- ----------------------------------------------
Option to Extend Payment of distributions may be None, however dividends will be paid only
Distribution Payment deferred for successive periods not when, as and if declared by the Company's
Periods exceeding 20 consecutive quarters. Board of Directors. Dividends will accrue
Deferred distributions will continue to whether or not declared. No interest will
accumulate, compounded quarterly at the be payable in respect of any dividend
distribution rate. If BUCS are payment that may be in arrears.
converted into common stock during an
extension period, the holder will not
generally be entitled to receive any
accumulated and unpaid distributions
with respect to such BUCS.
Taxation of As a result of the Capital Trust's Dividends are taxable only when paid.
Distributions/ Dividends right to defer distribution payments, Dividends that are qualified dividends
holders must include original interest paid to persons or entities that are taxed
discount (which will continue to accrue as individuals through 2008 will generally
during extension periods) as income on be taxed at the long-term capital gains
an accrual basis before the receipt of rate, which currently is a maximum of 15%,
cash. subject to certain limitations. Corporate
holders are entitled to a dividends-received
deduction for dividends recieved
Because income accruing constitutes
interest for federal income tax purposes,
corporate holders thereof will
not be entitled to a dividends-received
deduction for any distributions received.
Conversion Convertible into .1339 of a share of Convertible into .2 shares of TIMET Common
TIMET Common Stock (at a conversion Stock (at a conversion price of $250.00
price of $373.40 per share.) Assuming per share.) Assuming the consummation of
the consummation of the proposed the proposed five-for-one stock split,
five-for-one stock split, convertible convertible into one share of TIMET Common
into .6695 of a share of TIMET Common Stock (at a conversion price of $50.00 per
Stock (at a conversion price of $74.68 share), subject to adjustment.
per share), subject to adjustment.
35
BUCS Series A Preferred Stock
-------------------------------------- ------------------------------------------
Ranking On parity, and payments will be made on With respect to dividend rights and rights
a pro rata basis, with the common upon the Company's liquidation,
securities of the Capital Trust, except dissolution or winding up:
that upon the occurrence of an event of
default under the declaration of trust o senior to all classes or series of the
of the Capital Trust, the rights of the Company's common stock, and to any
holders of BUCS to receive payment of other class or series of the Company's
periodic distributions and payments capital stock issued by the Company
upon liquidation, redemption and not referred to in the second and
otherwise will be senior to the rights third bullet points of this paragraph;
of the holders of such common
securities. o on parity with all equity securities
issued by the Company in the future
the terms of which specifically
provide that such equity securities
rank on a parity with the Series A
Preferred Stock with respect to
dividend rights or rights upon the
Company's liquidation, dissolution
or winding up; and
o junior to all equity securities issued
by the Company in the future the terms
of which specifically provide that
such equity securities rank senior to
the Series A Preferred Stock with
respect to dividend rights or rights
upon the Company's liquidation,
dissolution or winding up.
Voting Rights None prior to conversion. Generally none. However, if dividends are
in arrears for twelve or more quarterly
periods, holders will be entitled to vote
for the election of one additional
director until all dividend arrearages and
the dividend for the then current period
have been paid or declared and a sum
sufficient for the payment thereof set
aside for payment. In addition, some
changes that would be materially adverse
to the rights of holders of the Series A
Preferred Stock cannot be made without the
affirmative vote of the holders of at
least two-thirds of the shares of Series A
Preferred Stock, voting as a single class.
36
BUCS Series A Preferred Stock
Optional Redemption at the option of the Company The Company may not redeem any shares
at the following prices (expressed as of Series A Preferred Stock at any time
percentages of the principal amount of the before the third anniversary of the issuance
Subordinated Debentures held by the of such shares. At any time and from time to
Capital Trust) for redemption during the time on or after such date, the Company may
12 month period beginning December 1: redeem all or part of the Series A Preferred
Stock for cash at a redemption price equal
Year Redemption Prices to 100% of the liquidation preference, plus
---- ----------------- accumulated but unpaid dividends, if any,
2003 101.9875% to the redemption date, but only if, prior
2004 101.3250% to the date the Company gives notice of such
2005 100.6625% redemption, the closing sale price of TIMET
Common Stock has exceeded the conversion price
in effect for 30consecutive trading days, subject to
adjustment. The terms of our U.S. bank
and 100% on or after December 1, 2006. credit facility currently prohibit us from
redeeming shares of Series A Preferred
The terms of the Company's U.S. bank Stock. If dividends on the Series A Preferred Stock
credit facility currently prohibit any are in arrears, the Company may not redeem any
redemption of the Subordinated shares of Series A Preferred Stock. None.
Debentures.
Mandatory Redemption The Capital Trust must redeem the BUCS None.
on December 1, 2026, upon acceleration
of the Subordinated Debentures or upon
early redemption of the Subordinated
Debentures.
Guarantee TIMET has irrevocably guaranteed, on a None.
subordinated and unsecured basis,
certain payments of distribution,
redemption and liquidation preferences
with respect to the BUCS.
Description of the BUCS
General
The Capital Trust is a grantor trust of TIMET. In November 1996, the Capital
Trust issued and sold 4,025,000 BUCS for $201.3 million in an offering exempt
from registration under the Securities Act. The Capital Trust also sold 100% of
the Capital Trust common securities to TIMET for $6.2 million. The Capital Trust
used the proceeds from the issuance of the BUCS and the trust common securities
to purchase from TIMET $207.5 million principal amount of TIMET's 6.625%
Convertible Junior Subordinated Debentures due 2026 (referred to herein as
"Subordinated Debentures"). The Subordinated Debentures, and any accrued and
unpaid interest thereon, are the sole assets of the Capital Trust. The following
is a summary of certain of the material terms and conditions of the BUCS. A more
complete description of the BUCS is available in the Amended and Restated
Declaration of Trust filed as an exhibit to the registration statement (No.
333-18829) dated December 26, 1996, as amended, filed by TIMET with the SEC.
Distributions
Distributions on the BUCS are payable at the annual rate of 6.625% of the
liquidation amount of $50 per BUCS. Subject to the deferral of distribution
payments described below, distributions are payable quarterly in arrears on each
March 1, June 1, September 1 and December 1.
37
Option to Extend Distribution Payment Periods
The Capital Trust can pay distributions on the BUCS only after its receipt of
interest payments on the Subordinated Debentures from TIMET. TIMET has the right
to defer interest payments on the Subordinated Debentures at any time and from
time to time for successive periods not exceeding 20 consecutive quarters (each,
referred to herein as an "Extension Period"). During an Extension Period,
interest compounds quarterly but is not due and payable. No Extension Period may
extend beyond the maturity date of the Subordinated Debentures. As a
consequence, during any Extension Period, quarterly distributions on the BUCS
are not made by the Capital Trust (but continue to accumulate, compounded
quarterly at 6.625%). Any holder of BUCS who converts BUCS into shares of TIMET
Common Stock during an Extension Period is not entitled to receive (subject to
certain exceptions) any accumulated and unpaid distributions with respect to the
converted BUCS.
In 2002, TIMET commenced an Extension Period beginning with the distribution
scheduled to be made on December 1, 2002. On March 24, 2004, TIMET announced
that it was terminating this Extension Period and resuming payment of interest
on the Subordinated Debentures. On April 15, 2004, TIMET paid all such
previously-deferred interest on the Subordinated Debentures which relate to the
BUCS, which aggregated approximately $21 million, and concurrently the Capital
Trust paid all previously-deferred distributions on the BUCS in an equivalent
amount. TIMET had previously commenced an Extension Period which began with the
distribution scheduled to be made on June 1, 2000 and which was terminated with
the payment of all previously deferred distributions on the BUCS (and interest
thereon) on June 1, 2001.
Limitations During an Extension Period
During an Extension Period, TIMET may not (a) declare or pay dividends on, or
make a distribution with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of TIMET's capital stock (other than
(i) purchases or acquisitions of shares of TIMET Common Stock in connection with
the satisfaction of TIMET's obligations under any employee benefit plans or
under any contract or security requiring TIMET to purchase shares of TIMET
Common Stock, (ii) as a result of a reclassification of TIMET's capital stock or
the exchange or conversion of one class or series of TIMET's capital stock for
another class or series of TIMET's capital stock or (iii) the purchase of
fractional interests in shares of TIMET's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged), (b) make any payment of interest, principal or premium,
if any, on or repay, repurchase or redeem any debt securities (including
guarantees) issued by TIMET that rank pari passu with or junior to the
Subordinated Debentures or (c) make any guarantee payments with respect to the
foregoing (other than pursuant to the guarantee described below).
Conversion
Each of the BUCS is currently convertible at the option of the holder into
shares of TIMET Common Stock at a conversion rate of .1339 of a share of TIMET
Common Stock for each BUCS (or .6695 of a share of TIMET Common Stock following
TIMET's proposed five-for-one stock split, described above in Proposal III),
subject to further adjustment in certain circumstances. No fractional shares
will be issued as a result of conversion; instead, TIMET will pay such
fractional interest in cash. In addition, upon conversion of the BUCS, no
additional shares of TIMET Common Stock will be issued with respect to any
accumulated and unpaid distributions on the BUCS at the time of conversion;
provided, however, that any holder of BUCS who delivers such BUCS for conversion
after receiving a notice of redemption from the applicable trustee during an
Extension Period is entitled to receive all accumulated and unpaid distributions
to the date of conversion.
38
Liquidation Amount
In the event of the liquidation of the Capital Trust, BUCS holders are entitled
to receive the liquidation amount of $50 per BUCS plus an amount equal to any
accumulated and unpaid distributions thereon to the date of payment, unless
Subordinated Debentures are distributed to such holders as a liquidating
distribution upon dissolution.
Redemption
TIMET may redeem the Subordinated Debentures for cash, in whole or in part, from
time to time. Upon any redemption of the Subordinated Debentures, BUCS having an
aggregate liquidation amount equal to the aggregate principal amount of the
Subordinated Debentures being redeemed will likewise be redeemed on a pro rata
basis at a redemption price corresponding to the redemption price of the
Subordinated Debentures plus accrued and unpaid interest thereon (referred to
herein as the "Redemption Price"). The BUCS do not have a stated maturity date,
although they are subject to mandatory redemption upon the repayment of the
Subordinated Debentures at their stated maturity of December 1, 2026, upon
acceleration of the Subordinated Debentures, or upon early redemption of the
Subordinated Debentures.
The Subordinated Debentures are redeemable by TIMET at the following Redemption
Prices (expressed as a percentage of the principal amount of the Subordinated
Debentures):
12-Month Period Commencing
December 1 of Year Shown Redemption Price
2003 101.9875%
2004 101.3250%
2005 100.6625%
2006 and thereafter 100%
Guarantee
TIMET has irrevocably guaranteed, on a subordinated basis and to the extent set
forth herein, the payment in full of (i) any accumulated and unpaid
distributions on the BUCS to the extent of funds of the Capital Trust available
therefor, (ii) the amount payable upon redemption of the BUCS to the extent of
funds of the Capital Trust available therefor and (iii) generally, the
liquidation amount of the BUCS to the extent of the assets of the Capital Trust
available for distribution to holders of BUCS. This guarantee is unsecured and
is (a) subordinate and junior in right of payment to all other liabilities of
TIMET except any liabilities that may be pari passu expressly by their terms,
(b) pari passu with the most senior preferred stock, if any, issued from time to
time by TIMET and with any guarantee now or hereafter entered into by TIMET in
respect of any preferred or preference stock or preferred securities of any
affiliate of TIMET, (c) senior to the shares of TIMET Common Stock and (d)
effectively subordinated to all existing and future indebtedness and
liabilities, including trade payables, of TIMET's subsidiaries. Upon TIMET's
liquidation, dissolution or winding up, TIMET's obligations under the guarantee
would rank junior to all of TIMET's other liabilities, except as described
above, and, as a result, funds may not be available for payment under the
guarantee.
Voting Rights
Prior to conversion into shares of TIMET Common Stock, holders of the BUCS have
no voting rights.
Description of the Series A Preferred Stock
The following is a summary of the material terms and conditions of the Series A
Preferred Stock. A more complete description of the Series A Preferred Stock is
available in the Certificate of Designations creating
39
the Series A Preferred Stock, a copy of which, in substantially its final form,
is attached hereto as Appendix D.
General
Under TIMET's Amended and Restated Certificate of Incorporation, TIMET's Board
of Directors is authorized, without further stockholder action, to establish and
issue up to 100,000 shares of TIMET's preferred stock, in one or more series,
with such dividend, liquidation, redemption, conversions and voting rights as
stated in the Board of Directors' resolution providing for the issue of a series
of such stock. As set forth in Proposal III above, TIMET's Board of Directors
has approved the Certificate of Incorporation Amendment to increase the number
of shares that TIMET is authorized to issue from 10,000,000 shares (9,900,000
shares of common stock and 100,000 shares of preferred stock) to 100,000,000
shares (90,000,000 shares of common stock and 10,000,000 shares of preferred
stock), subject to the approval of TIMET's common stockholders.
Rank
With respect to dividend rights and rights upon TIMET's liquidation, dissolution
or winding up, the Series A Preferred Stock ranks senior to all classes or
series of TIMET Common Stock, and to any other class or series of TIMET's
capital stock except as follows: the Series A Preferred Stock ranks on a parity
with all TIMET equity securities that are specifically designated as ranking on
a parity with the Series A Preferred Stock with respect to dividend rights or
rights upon TIMET's liquidation, dissolution or winding up; and the Series A
Preferred Stock ranks junior to all TIMET equity securities that are
specifically designated as ranking senior to the Series A Preferred Stock with
respect to dividend rights or rights upon TIMET's liquidation, dissolution or
winding up.
The term "capital stock" does not include convertible debt securities, which
rank senior to the Series A Preferred Stock.
Dividends
Subject to the preferential rights of the holders of any class or series of
TIMET's capital stock ranking senior to the Series A Preferred Stock as to
dividends, the holders of shares of the Series A Preferred Stock are entitled to
receive, when, as, and if declared by TIMET's Board of Directors out of Company
funds legally available for the payment of dividends, cumulative cash dividends
at the rate of 6.75% of the liquidation preference per annum per share
(equivalent to $3.375 per annum per share). Dividends on the Series A Preferred
Stock will be computed on the basis of a 360-day year consisting of twelve
30-day months, are cumulative from the date of original issue and, if and when
declared, are payable quarterly in arrears to holders of record on the
applicable record date for such dividend. Dividends on the Series A Preferred
Stock will accrue whether or not the terms of any of TIMET's agreements,
including any credit agreements, or any law prohibits the payment of a dividend,
whether or not TIMET has earnings, whether or not there are "surplus" funds
legally available for the payment of those dividends and whether or not those
dividends are declared.
TIMET's U.S. bank credit facility currently limits TIMET's ability to pay
dividends on its capital stock. TIMET is amending this credit facility to permit
payment of dividends on the Series A Preferred Stock. TIMET's ability to pay
these dividends under the terms of TIMET's current credit facility, or
otherwise, cannot be guaranteed. In addition, even if the terms of TIMET's
credit facility allow the payment of dividends on the Series A Preferred Stock,
under Delaware law TIMET generally can make payments of cash dividends only from
TIMET's "surplus" (the excess of TIMET's total assets over the sum of TIMET's
total liabilities plus the amount of TIMET's capital, as determined by TIMET's
Board of Directors) or profits from the year in which the dividend is paid or
the prior year. Subject to the foregoing limitations,
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TIMET currently intends to pay dividends on the Series A Preferred Stock after
consummation of the exchange offer.
In addition, if there are BUCS outstanding after the consummation of the
exchange offer and TIMET exercises its right to commence a new Extension Period
and thereby defer distributions on the Subordinated Debentures resulting in a
deferral of BUCS distributions, TIMET will be prohibited from paying dividends
on the Series A Preferred Stock under the terms of the BUCS documents. If full
cumulative dividends on the Series A Preferred Stock have not been declared and
paid in cash (or declared, and a sum sufficient set aside for payment of current
and cumulative but unpaid dividends) TIMET may not: declare or pay dividends or
distributions on TIMET Common Stock or any other stock ranking on a parity with
or junior to the Series A Preferred Stock as to dividends or liquidation rights;
redeem or purchase TIMET Common Stock or any other stock ranking on a parity
with or junior to the Series A Preferred Stock as to dividends or liquidation
rights; or declare or pay any dividends on any other class or series of TIMET's
capital stock ranking, as to dividends, on a parity with the Series A Preferred
Stock, except proportionately. No interest, or sum of money in lieu of interest,
will be payable in respect of any dividend payment on the Series A Preferred
Stock that may be in arrears. See the Certificate of Designations attached
hereto, in substantially its final form, as Appendix D for a full discussion of
these limitations.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
TIMET's affairs, the holders of shares of Series A Preferred Stock are entitled
to be paid, out of TIMET's assets legally available for distribution to TIMET's
stockholders, a liquidation preference of $50 per share, plus an amount equal to
any accrued and unpaid dividends (whether or not declared) to the date of
payment, before any distribution or payment may be made to holders of shares of
TIMET Common Stock or any other class or series of TIMET's capital stock
ranking, as to liquidation rights, junior to the Series A Preferred Stock. If
TIMET's available assets are insufficient to pay the full amount of such
liquidating distributions, then the holders of the Series A Preferred Stock, and
each other class or series of capital stock ranking on a parity with the Series
A Preferred Stock as to liquidation rights, will share proportionately in any
liquidating distribution.
Optional Redemption
TIMET may not redeem any shares of Series A Preferred Stock before the third
anniversary of the date of issuance. At any time and from time to time on or
after the third anniversary of the date of issuance, TIMET will have the option
to redeem all or part of the shares of Series A Preferred Stock for cash at a
redemption price equal to 100% of the liquidation preference, plus accumulated
but unpaid dividends, if any, to the redemption date, but only if, prior to the
date of notice of the redemption, the closing sale price of TIMET Common Stock
has exceeded the conversion price in effect for 30 consecutive trading days,
subject to adjustment. If any dividends on the Series A Preferred Stock are in
arrears, TIMET may not redeem the Series A Preferred Stock.
If the redemption date falls after a dividend payment record date and before the
related dividend payment date, holders of the shares of Series A Preferred Stock
at the close of business on that dividend payment record date will be entitled
to receive the dividend payable on those shares on the corresponding dividend
payment date. The redemption price payable on such redemption date will include
only an amount equal to the liquidation preference, but will not include any
amount in respect of dividends declared and payable on such corresponding
dividend payment date.
In the case of any partial redemption, TIMET will select the shares of Series A
Preferred Stock to be redeemed, whether on a pro rata basis, by lot or any other
method that the Board of Directors, in its discretion, deems fair and
appropriate.
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The terms of TIMET's U.S. bank credit facility currently prohibit TIMET from
redeeming shares of the Series A Preferred Stock. TIMET is amending this credit
facility to permit redemption of Series A Preferred Stock.
No Maturity or Sinking Fund
The Series A Preferred Stock has no maturity date, and TIMET is not required to
redeem the Series A Preferred Stock at any time. Accordingly, the Series A
Preferred Stock may remain outstanding indefinitely. The Series A Preferred
Stock is not subject to any sinking fund.
Voting Rights
Holders of the Series A Preferred Stock generally do not have any voting rights.
However, if dividends on the Series A Preferred Stock are in arrears for 12 or
more quarters, the holders of the Series A Preferred Stock will have the right
to elect one additional member to serve on TIMET's Board of Directors until all
accumulated dividends are paid, at which time the term of office of the
additional director so elected shall terminate and the number of directors on
the Board shall decrease by one. The holders of record of a majority of the
outstanding shares of the Series A Preferred Stock have the right to remove or
fill any vacancy in the office of such director.
So long as any shares of Series A Preferred Stock remain outstanding, TIMET will
not, without the affirmative vote of holders of at least two-thirds of the
outstanding shares of the Series A Preferred Stock voting as a single class,
alter, repeal or amend, whether by merger, consolidation, combination,
reclassification or otherwise, any provisions of TIMET's Amended and Restated
Certificate of Incorporation if the amendment would amend, alter or affect the
powers, preferences or rights of the Series A Preferred Stock so as to adversely
affect the holders thereof. These voting provisions will not apply if, at or
prior to the time when the act with respect to which such vote would otherwise
be required is effected, all outstanding shares of Series A Preferred Stock have
been redeemed or called for redemption upon proper notice and sufficient funds
shall have been deposited in trust to effect such redemption.
In any matter in which the Series A Preferred Stock may vote (as expressly
provided in TIMET's Certificate of Designations or as may be required by law),
each share of Series A Preferred Stock shall be entitled to one vote.
Conversion Rights
Each share of Series A Preferred Stock will be convertible, in whole or in part,
at any time, at the option of the holder thereof, into authorized but previously
unissued shares of TIMET Common Stock at a conversion ratio of 0.2 share of
TIMET Common Stock for each share of Series A Preferred Stock, subject to
adjustment as described below in this paragraph. Assuming the consummation of
the proposed five-for-one stock split described in Proposal III of this Proxy
Statement, each share of Series A Preferred Stock will be convertible, in whole
or in part, at any time, at the option of the holder thereof, into authorized
but previously unissued shares of TIMET Common Stock at a conversion ratio of
one share of TIMET Common Stock for each share of Series A Preferred Stock,
subject to adjustment in the event: (i) any dividends or distributions on shares
of TIMET Common Stock are paid in shares of TIMET Common Stock; (ii) of any
subdivisions, combinations or certain reclassifications of shares of TIMET
Common Stock; (iii) any distributions are made to all holders of shares of TIMET
Common Stock of rights or warrants entitling them to purchase TIMET Common Stock
at less than the average closing sale price for the 10 trading days preceding
the declaration date for such distribution; (iv) any distributions are made to
holders of TIMET Common Stock consisting of TIMET's capital stock, evidences of
indebtedness or assets, including certain securities; (v) certain distributions
of cash are made in a twelve-month period to all holders of shares of TIMET
Common Stock, excluding any dividend or distribution in connection with TIMET's
liquidation, dissolution or winding up in excess of certain limits; or (vi)
TIMET or one of its
42
subsidiaries makes a payment in excess of certain limits in respect of a tender
offer or exchange offer for TIMET Common Stock.
Holders of Series A Preferred Stock at the close of business on a dividend
record date will be entitled to receive the dividend payable on such shares on
the corresponding dividend payment date even if they have converted such shares
following the dividend record date but prior to the dividend payment date.
Except as is expressly provided in the Certificate of Designations, TIMET will
make no payment or allowance for unpaid dividends, whether or not in arrears, on
converted shares or for dividends on shares of TIMET Common Stock issued upon
such conversion.
Fractional shares of Common Stock will not be issued upon conversion; instead,
TIMET will pay an amount in cash based on the closing market price of TIMET
Common Stock on the day prior to the conversion date.
In the event of any reclassification of TIMET Common Stock, a consolidation,
merger or combination involving TIMET, or a sale or conveyance to another person
or entity of all or substantially all of TIMET's property and assets, in any
such case in which holders of TIMET Common Stock would be entitled to receive
stock, other securities, other property, assets or cash for their TIMET Common
Stock, upon conversion of the Series A Preferred Stock a holder will be entitled
to receive the same type of consideration that the holder would have been
entitled to receive had the holder converted the Series A Preferred Stock into
TIMET Common Stock immediately prior to any of these events.
TIMET may, from time to time, increase the conversion rate if TIMET's Board of
Directors makes a determination that this increase would be in TIMET's best
interests. Any such determination by TIMET's Board will be conclusive. In
addition, TIMET may increase the conversion rate if TIMET's Board of Directors
deems it advisable to avoid or diminish any income tax to holders of TIMET
Common Stock resulting from any stock or rights distribution.
TIMET will not be required to make an adjustment in the conversion rate unless
the adjustment would require a change of at least 1% in the conversion rate.
However, TIMET will carry forward any adjustments that are less than 1% of the
conversion rate. Except as described above in this section, TIMET will not
adjust the conversion rate for any issuance of TIMET Common Stock or convertible
or exchangeable securities or rights to purchase TIMET Common Stock or
convertible or exchangeable securities.
Background and Purposes of the Exchange Offer
TIMET's long-term strategy is to maximize the value of its core commercial
aerospace business while also developing new markets, applications and products
to help reduce its traditional dependence on the commercial aerospace industry.
In the near-term, TIMET continues to focus on, among other things, reducing its
cost structure and taking other actions to continue to generate positive cash
flow and return to profitability.
In early 2004, TIMET evaluated alternatives to the BUCS that would (i) allow
TIMET to reduce outstanding indebtedness and increase TIMET's stockholders'
equity and (ii) provide holders of the BUCS with a reasonable alternative
security to exchange for their BUCS. TIMET's Board of Directors also believed
that the Exchange Offer would be in TIMET's and its common stockholders' best
interests because it would both preserve the Company's current liquidity and
would also improve future liquidity by the elimination of the mandatory
redemption provision of the BUCS. TIMET's Board of Directors determined that
offering to exchange the outstanding BUCS for a new series of preferred stock
would allow TIMET to achieve these objectives.
43
The Exchange Offer has been unanimously approved by the outside members of
TIMET's Board of Directors and unanimously approved by TIMET's entire Board of
Directors with J. Landis Martin (who beneficially owns 113,000 BUCS) abstaining.
None of the other members of TIMET's Board abstained from such vote. Two of the
members of TIMET's Board, Glen R. Simmons and Steven L. Watson, also serve as
directors of Valhi and, as such, may be deemed to beneficially own the 14,700
BUCS owned by Valhi, although they disclaim beneficial ownership of such BUCS.
The factors considered by the Board in their deliberations with respect to the
Exchange Offer include those enumerated below. While all of these factors were
considered by the Board, the Board of Directors did not make determinations with
respect to each of these factors. Rather, the Board made its judgment with
respect to the Exchange Offer based on the total mix of information available to
it, and the judgments of individual directors may have been influenced to a
greater or lesser degree by their individual views with respect to different
factors.
In making its decision to approve the Exchange Offer, the Board considered the
following factors that supported the Exchange Offer:
o The exchange of BUCS for shares of the Series A Preferred Stock will
improve TIMET's consolidated balance sheet by reducing its outstanding
indebtedness and increasing stockholders' equity. In November 1996, the
Capital Trust issued $201.3 million BUCS and $6.2 million of its 6.625%
common securities. The Capital Trust used the proceeds from the issuance of
BUCS and the common securities to purchase $207.5 million principal amount
of its Subordinated Debentures. The Subordinated Debentures and accrued
interest receivable are the only assets of the Capital Trust. TIMET owns
all of the outstanding common securities of the Capital Trust, and the
Capital Trust is a wholly-owned subsidiary and grantor trust of TIMET.
Prior to December 31, 2003, the Company consolidated the Capital Trust. As
a result of recently-issued accounting pronouncements the Company adopted
as of December 31, 2003, retroactive to January 1, 1999, TIMET determined
that the Capital Trust was both a special purpose entity and a variable
interest entity (as those terms are defined in Financial Accounting
Standards Board Interpretation No. 46R, Consolidation of Variable Interest
Entities). As a result, TIMET no longer consolidates the Capital Trust, and
TIMET's investment in the common securities of the Capital Trust is
reflected as an asset on the Company's consolidated balance sheet accounted
for by the equity method, and the Subordinated Debentures are reflected as
long-term debt on TIMET's consolidated balance sheet. All of the BUCS
accepted for exchange in the Exchange Offer will be cancelled.
Consequently, a portion of the Subordinated Debentures related to the BUCS
accepted for exchange will be eliminated from the Company's consolidated
balance sheet, and the Series A Preferred Stock issued in exchange for the
BUCS will be reflected as part of equity on TIMET's consolidated balance
sheet. If all BUCS are accepted for exchange in the Exchange Offer, all of
the BUCS will be cancelled, the Capital Trust will be terminated, and
TIMET's investment in the common securities of the Capital Trust, as well
as the portion of the Subordinated Debentures related to such common
securities, will be eliminated from the consolidated balance sheet.
o The BUCS must be redeemed in 2026, and this date may be accelerated under
certain circumstances. The Series A Preferred Stock is not mandatorily
redeemable at any time. Elimination of the mandatory redemption obligation
relating to the BUCS should increase TIMET's future liquidity.
o For financial reporting purposes, interest expense on the Subordinated
Debentures is included in the determination of TIMET's consolidated net
income (loss). Dividends on the Series A Preferred Stock would not be
included in the determination of consolidated net income (loss), although
dividends on the Series A Preferred Stock would be included in the
determination of net income (loss) available for common stockholders.
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o While distributions on the BUCS may be deferred for up to 20 successive
quarters. TIMET will pay dividends on the Series A Preferred Stock only
when, as and if declared by the Board of Directors, thereby providing TIMET
with greater flexibility in terms of payment. However, if dividends on the
Series A Preferred Stock are in arrears for 12 or more quarters, the
holders of the Series A Preferred Stock will have the right to elect one
additional member of the Board of Directors until all accumulated dividends
are paid.
o TIMET believes that a public offering of preferred stock to generate the
funds necessary to retire the BUCS would be on terms less favorable to the
Company and involve significant investment banking and other offering
costs.
o Under current federal tax law, dividends paid on the Series A Preferred
Stock through 2008 that are qualified dividends will generally be taxed at
the rate applicable to long-term capital gains, which currently is a
maximum of 15% for persons or entities taxed as individuals, while
distributions on the BUCS are taxed as ordinary income. Corporate holders
of BUCS are not entitled to a dividends-received deduction for any
distributions received on the BUCS, but corporate holders of Series A
Preferred Stock are entitled to a dividends-received deduction for
dividends received with respect to the Series A Preferred Stock.
o While distributions associated with the BUCS are taxable to the holder
whether or not they are currently paid, dividends on the Series A Preferred
Stock are taxable to the holder only when paid.
The Board of Directors also considered the following additional factors in
evaluating the Exchange Offer:
o The existence of potential or actual conflicts of interest of certain of
TIMET's directors, officers and principal stockholder, in connection with
the Exchange Offer. See "Interests of Certain Persons" above.
o While TIMET may deduct the interest paid on the Subordinated Debentures
associated with the BUCS for federal tax purposes, the dividends paid on
the Series A Preferred Stock are not deductible. However, the increase in
income resulting from the non-deductible preferred stock dividend would
generally be offset against our existing net operating loss carryforward
($114 million at December 31, 2003) and therefore TIMET does not expect any
significant tax liability in the near term as a consequence of the Exchange
Offer.
o The coupon rate on the Series A Preferred Stock of 6.75% is higher than the
6.625% dividend rate on the BUCS.
o Holders of Series A Preferred Stock will be able to convert their shares at
a conversion price of $50 per share, rather than the conversion price of
the BUCS of $74.68 per share (assuming, in each case, the consummation of
the proposed five-for-one stock split). If all of the BUCS are exchanged
for Series A Preferred Stock and all such shares of Series A Preferred
Stock are subsequently converted into shares of TIMET Common Stock, TIMET
would issue approximately 1.3 million more shares of TIMET Common Stock
(equivalent to approximately 5.6% of the total that would then be
outstanding) than it would issue simply upon conversion of all of the BUCS
in the absence of the Exchange Offer. If the five-for-one split is not
consummated, then the conversion price of the Series A Preferred Stock will
be $250 per share as compared to the $373.40 per share conversion price of
the BUCS.
o If all of the BUCS are not exchanged, TIMET will not achieve all of the
benefits of the Exchange Offer.
45
Conditions to the Exchange Offer
The consummation of the Exchange Offer is subject to certain conditions,
including, without limitation, the following:
o approval by the holders of at least a majority of the outstanding shares of
TIMET Common Stock;
o approval by the holders of at least a majority of the outstanding shares of
TIMET Common Stock of the Certificate of Incorporation Amendment to
increase the number of shares of capital stock that TIMET is authorized to
issue;
o an amendment to TIMET's U.S. bank credit facility on terms acceptable to
TIMET that are sufficient to enable TIMET to consummate the Exchange Offer
on the terms described herein;
o receipt of any required consent, authorization, approval or exemption of or
from any governmental authority that may be required or advisable in
connection with the completion of the Exchange offer, including that the
registration statement shall have been declared, and shall continue to be,
effective; and
o other conditions customary to transactions of this type.
Certain Financial Information
TIMET incorporates by reference into this Proxy Statement the financial
information contained in TIMET's Annual Report on Form 10-K filed with the SEC
on March 4, 2004, a copy of which has previously been delivered to stockholders,
and on its Form 10-Q filed with the SEC on May 5, 2004.
The affirmative vote of the holders of a majority of the shares of TIMET Common
Stock present (in person or by proxy) and entitled to vote at the meeting is
necessary to constitute approval of the Exchange Offer and the issuance of the
Series A Convertible Preferred Securities. Persons and entities related to
Harold C. Simmons and J. Landis Martin have expressed their intent to vote the
shares of TIMET Common Stock that they hold, representing approximately 52.8% of
the shares of TIMET Common Stock entitled to vote at the Annual Meeting, in
favor of the Exchange Offer and the issuance of the Series A Preferred Stock.
Therefore, if all of such shares are voted as indicated, the Exchange Offer and
the issuance of the Series A Preferred Stock will be approved. The Exchange
Offer and the issuance of the Series A Preferred Stock have been unanimously
approved by the outside members of TIMET's Board of Directors and unanimously
approved by the entire Board of Directors with J. Landis Martin abstaining. The
Board of Directors recommends a vote FOR the Exchange Offer and the issuance of
the Series A Convertible Preferred Securities.
CORPORATE GOVERNANCE
Since the passage of the Sarbanes-Oxley Act of 2002 and the adoption of new
corporate governance standards by the NYSE, TIMET has developed and continues to
evaluate new policies and procedures regarding corporate governance. TIMET's
Code of Business Conduct and Ethics will be adopted and become effective prior
to the 2004 Annual Meeting and will be applicable to its principal executive
officer, principal financial officer and principal accounting officer or
controller. TIMET is currently updating its website, www.timet.com, to add a
corporate governance section (within the investor information section of the
website) detailing many of its new policies. TIMET expects the website to be
complete prior to the 2004 Annual Meeting. The corporate governance section of
TIMET's website will include TIMET's Corporate Governance Policies, Code of
Business Conduct and Ethics applicable to all of TIMET's officers and employees,
including those officers identified above, and charters for the committees of
the Board of Directors.
TIMET's policies and practices will reflect governance initiatives that are
compliant with the corporate governance requirements of the NYSE and the SEC and
are currently expected to include the following:
46
o The Board of Directors has adopted clear corporate governance policies;
o A majority of the Board of Directors is independent from TIMET and its
management;
o All members of the Audit Committee, Compensation Committee, and the
Nominations Committee are independent from TIMET and its management;
o Independent members of the Board have the opportunity to meet regularly
without the presence of management, either through committee meetings or
otherwise;
o TIMET has an anonymous hotline available to all employees to submit
complaints on accounting, internal control or auditing matters to the Audit
Committee; and
o All officers and employees of TIMET are required to act ethically at all
times and in accordance with the policies comprising TIMET's Code of
Business Conduct and Ethics.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Relationships with Related Parties
As set forth under the heading "Security Ownership" above, TIMET may be deemed
to be controlled by Harold C. Simmons. Other entities that may be deemed to be
controlled by or related to Mr. Simmons including, without limitation, CompX,
Contran, Dixie Holding, Dixie Rice, Keystone, Kronos, National, NL, NOA,
Southwest, Tremont LLC, Valhi, Valmont and VGI, sometimes engage in (a)
intercorporate transactions with related companies such as guarantees,
management and expense sharing arrangements, shared fee arrangements, tax
sharing agreements, joint ventures, partnerships, loans, options, advances of
funds on open account, and sales, leases and exchanges of assets, including
securities issued by both related and unrelated parties, and (b) common
investment and acquisition strategies, business combinations, reorganizations,
recapitalizations, securities repurchases, and purchases and sales (and other
acquisitions and dispositions) of subsidiaries, divisions or other business
units, which transactions have involved both related and unrelated parties and
have included transactions that resulted in the acquisition by one related party
of a publicly held, minority equity interest in another related party. For
example, as of the Record Date, TIMET, through a wholly owned subsidiary, had
acquired 1,277,710 shares of CompX Class A common stock, representing 24.9% of
the shares of CompX Class A common stock outstanding, in open market or
privately negotiated transactions with unaffiliated parties. Valhi owns 374,000
shares of CompX Class A common stock, Harold C. Simmons owns 82,300 shares of
CompX Class A common stock, Mr. Simmons' spouse owns 20,000 shares of CompX
Class A common stock, and Valcor, Inc., a wholly owned subsidiary of Valhi, owns
100% of the CompX Class B common stock. Glenn R. Simmons is Chairman of the
Board of CompX and Steven L. Watson serves on CompX's board of directors. TIMET
considers, reviews and evaluates, and understands that Contran, Valhi, Keystone,
NL, Kronos, CompX, Tremont LLC and related entities also consider, review and
evaluate, such transactions. Depending upon the business, tax and other
objectives then relevant, it is possible that TIMET might be a party to one or
more of such transactions in the future. It is the policy of TIMET to engage in
transactions with related parties on terms that are, in the opinion of TIMET, no
less favorable to TIMET than could be obtained from unrelated parties.
J. Landis Martin is Chairman of the Board, President and Chief Executive Officer
of TIMET. Mr. Martin also served as a director and President and Chief Executive
Officer of NL until his resignation in July 2003. Glenn R. Simmons, a director
of TIMET, is also Chairman of the Board of Keystone and CompX, Vice Chairman of
the Board of Contran and Valhi, Vice Chairman of Tremont LLC and a director of
NL and Kronos. Steven L. Watson, a director of TIMET, is also an executive
officer of Contran, Valhi and Tremont LLC, and a director of Contran, CompX,
Keystone, Kronos, Valhi, and NL. A. Andrew R. Louis is Assistant Secretary of
TIMET and Secretary and Associate General Counsel of Contran, Valhi and Tremont
LLC. Robert D. Graham is Assistant Secretary of TIMET, Vice President, General
Counsel and Secretary of NL and Kronos and Vice President of Contran, Valhi and
Tremont LLC. Joan H. Prusse is
47
Vice President, General Counsel and Secretary of TIMET and Vice President of
Tremont LLC. TIMET understands that all such persons are expected to continue to
serve in such capacities in 2004. Such individuals divide their time among the
companies for which they serve as officers. Such management interrelationships
and intercorporate relationships may lead to possible conflicts of interest.
These possible conflicts of interest may arise from the duties of loyalty owed
by persons acting as corporate fiduciaries to two or more companies under
circumstances in which such companies may have conflicts of interest. Prior to
the Tremont Merger in 2003, certain directors and officers of TIMET served as
directors and officers of Tremont Corporation.
Although no specific procedures are in place that govern the treatment of
transactions among TIMET, Contran, Valhi, CompX, Keystone, Kronos, Tremont LLC
and NL, the board of directors of each of these companies (with the exception of
Contran and Tremont LLC, which are not public companies) includes one or more
members who are not officers or directors of any entity that may be deemed to be
related to TIMET. Additionally, under applicable principles of law, in the
absence of stockholder ratification or approval by directors who may be deemed
disinterested, transactions involving contracts among companies under common
control must be fair to all companies involved. Furthermore, directors and
officers owe fiduciary duties of good faith and fair dealing to stockholders of
all the companies for which they serve.
Contractual Relationships
Incorporate Services Agreements
Under the terms of various intercorporate services agreements (referred to
herein as "ISAs") that TIMET has historically entered into with various related
parties, employees of one company provide certain management, tax planning,
financial, risk management, environmental, administrative, facility or other
services to the other company on a fee basis. Such charges are based upon
estimates of the time devoted by the employees of the provider of the services
to the affairs of the recipient and the compensation of such persons and the
cost of facilities, equipment or supplies provided. These ISAs are reviewed and
approved by the independent directors of the companies that are parties to the
agreements.
The Company and Tremont LLC were parties to an ISA effective January 1, 2003 to
provide certain management, financial, environmental, human resources and other
services to Tremont LLC under which Tremont LLC paid the Company approximately
$0.2 million. The Company and Tremont Corporation, Tremont LLC's predecessor,
were parties to a similar ISA effective January 1, 2002 through March 31, 2003,
and the amount reported as paid by Tremont LLC in 2003 includes the amount paid
to TIMET in 2003 under the ISA with Tremont Corporation.
The Company and NL were parties to an ISA effective January 1, 2003 whereby NL
provided certain financial and other services to TIMET. During 2003, TIMET paid
NL approximately $15,000 under this agreement.
The Company and Contran were parties to an ISA effective January 1, 2003 whereby
Contran provided certain business, financial and other services to TIMET. During
2003, TIMET paid Contran approximately $0.3 million under this agreement.
The Company, Tremont LLC and Contran are parties to a combined ISA effective
January 1, 2004 covering the provision of services by Contran to TIMET and the
provision of services by TIMET to Tremont LLC. Under the 2004 combined ISA,
TIMET will pay Contran approximately $1.2 million, representing the net cost of
the Contran services to TIMET ($1.3 million) less the TIMET services to Tremont
LLC ($0.1 million).
48
Utility Services
In connection with the operations of TIMET's Henderson, Nevada facility, TIMET
purchases certain utility services from Basic Management, Inc. and its
subsidiaries (referred to collectively herein as "BMI") pursuant to various
agreements. A wholly owned subsidiary of Tremont LLC owns approximately 32% of
the outstanding equity securities of BMI (representing 26% of the voting
securities of BMI). During 2003, fees for such utility services provided by BMI
to TIMET were approximately $3.0 million.
Titanium Dioxide Purchases
From time to time, TIMET purchases titanium dioxide from Kronos. Such purchases
are made at prevailing market prices for titanium dioxide and on an individual
purchase order basis. During 2003, TIMET's purchases of titanium dioxide from
Kronos were approximately $104,000.
Environmental Service Agreement
In May of 2004, TIMET entered into an environmental services agreement with
Waste Control Specialists, LLC (referred to herein as "WCS"). A wholly owned
subsidiary of Valhi owns 90% of the membership interests in WCS. Under the
environmental services agreement, WCS will provide transportation and disposal
services for soil and sludge removed from portions of TIMET's Henderson, Nevada
facility. Payments under the agreement are based upon the amount in tons of soil
and sludge removed, which is difficult to estimate at this time. Based upon
current estimates, the parties expect TIMET will pay WCS between approximately
$700,000 to $1,100,000 for services to be performed under this agreement which
are expected to occur over the next two years.
Shareholders' Agreement
Prior to TIMET's initial public offering in 1996, TIMET, Tremont Corporation,
IMI, Plc and two of its affiliates, IMI Kynoch Ltd. and IMI Americas Inc. who
were the stockholders of TIMET at that time, entered into a shareholders'
agreement dated February 15, 1996, as amended March 29, 1996 (referred to herein
as the "Shareholders' Agreement"). Only TIMET and Tremont LLC, as successor to
Tremont Corporation, remain parties to the Shareholders' Agreement. This
agreement provides, among other things, that so long as Tremont LLC continues to
hold at least 10% of the outstanding shares of TIMET Common Stock, TIMET will
not, without the approval of Tremont LLC, cause or permit the dissolution or
liquidation of itself or any of its subsidiaries or the filing by itself of a
petition in bankruptcy, or the commencement by TIMET of any other proceeding
seeking relief from its creditors. TIMET also agreed to provide certain periodic
information about TIMET and its subsidiaries to Tremont LLC, which right is
subject to confidentiality restrictions.
Registration Rights
Under the Shareholders' Agreement, Tremont LLC (as successor to Tremont
Corporation and the only remaining shareholder party) is entitled to certain
rights with respect to the registration under the Securities Act of the shares
of TIMET Common Stock that Tremont LLC holds. The Shareholders' Agreement
generally provides, subject to certain limitations, that (i) Tremont LLC has two
rights, only one of which can be on Form S-1, to require TIMET to register under
the Securities Act an amount of not less than $25 million of registrable
securities, and (ii) if TIMET proposes to register any securities under the
Securities Act (other than a registration on Form S-4 or Form S-8, or any
successor or similar form), whether or not pursuant to registration rights
granted to other holders of its securities and whether or not for sale for its
own account, Tremont LLC has the right to require TIMET to include in such
registration the registrable securities held by Tremont LLC or its permitted
transferees so long as Tremont LLC holds in excess of 5% of the outstanding
shares of TIMET Common Stock (or to sell the entire balance of any such
registrable securities even though less than 5%). TIMET is obligated to pay all
registration expenses in connection with a registration under the Shareholders'
Agreement. Under certain circumstances, the number of shares included in such a
registration may be limited. TIMET has agreed to indemnify the holders of any
49
registrable securities to be covered by a registration statement pursuant to the
Shareholders' Agreement, as well as the holders' directors and officers and any
underwriters and selling agents, against certain liabilities, including
liabilities under the Securities Act.
Insurance Matters
TIMET participates in a combined risk management program with Contran and
certain of its subsidiaries and affiliates. Pursuant to the program, Contran and
certain of its subsidiaries and affiliates, including TIMET, purchase certain of
their insurance policies as a group, with the costs of the jointly owned
policies being apportioned among the participating companies. Tall Pines
Insurance Company ("Tall Pines"), Valmont and EWI RE, Inc. ("EWI") provide for
or broker these insurance policies. Tall Pines and Valmont are captive insurance
companies wholly owned by Valhi, and EWI is a reinsurance brokerage wholly owned
by NL. A son-in-law of Harold C. Simmons serves as EWI's chairman of the board
and chief marketing officer and is compensated as an employee of EWI. Consistent
with insurance industry practices, Tall Pines, Valmont and EWI receive
commissions from insurance and reinsurance underwriters for the policies that
they provide or broker.
During 2003, Contran and its related parties paid premiums of approximately
$16.7 million for policies Tall Pines or Valmont provided or EWI brokered,
including approximately $3.8 million TIMET and its subsidiaries paid. This
amount principally included payments for reinsurance and insurance premiums paid
to unrelated third parties, but also included commissions paid to Tall Pines,
Valmont and EWI. In TIMET's opinion, the amount that TIMET paid for these
insurance policies and the allocation among Contran and certain of its
subsidiaries and affiliates, including TIMET, of relative insurance premiums are
reasonable and at least as favorable to those they could have obtained through
unrelated insurance companies and/or brokers. TIMET expects that these
relationships with Tall Pines, Valmont and EWI will continue in 2004.
With respect to certain of such jointly owned insurance policies, it is possible
that unusually large losses incurred by one or more insureds during a given
policy period could leave the other participating companies without adequate
coverage under that policy for the balance of the policy period. As a result,
Contran, CompX, Keystone, Kronos, NL, Valhi and TIMET, have entered into a loss
sharing agreement entitled Agreement Regarding Shared Insurance, dated October
30, 2003, under which any uninsured loss is shared by those entities who have
submitted claims under the relevant policy. TIMET believes the benefits in the
form of reduced premiums and broader coverage associated with the group coverage
for such policies justify the risks associated with the potential for any
uninsured loss.
50
TIMET Executive Stock Ownership Loan Plan
Under TIMET's Executive Stock Ownership Loan Plan, approved by the TIMET Board
of Directors in 1998 and the TIMET stockholders in 2000, TIMET's executive
officers were entitled to borrow funds to purchase TIMET Common Stock or to pay
taxes payable with respect to vesting shares of restricted stock. Each executive
could borrow up to 50% of his or her base salary per calendar year and 200% of
such base salary in the aggregate. Interest accrues at a rate equal to .0625%
per annum above TIMET's effective borrowing rate at the time of the loan,
subject to annual adjustment, and is payable quarterly. The effective interest
rate in 2003 was 3.4425% (3.2825% for 2004). Principal is repayable in five
equal annual installments commencing on the sixth anniversary of the loan.
Repayment of the loans is secured by the stock purchased with the loan proceeds
or the stock for which loan proceeds were used to pay taxes. The loans are "full
recourse" to the executive personally, except that in the case of a sale of all
of the collateral by TIMET upon an event of default or upon the termination of
the executive's employment, whether for cause or otherwise, the borrower's
personal liability for repayment of the loan is limited to 70% of the principal
amount remaining after sale and application of the proceeds from the sale of the
stock. TIMET terminated this program effective July 30, 2002, subject to
continuing only those loans outstanding at that time in accordance with their
then-current terms. The following table identifies the executive officers of
TIMET who were indebted to TIMET under this program during 2003 and as of the
Record Date:
Maximum Principal Amount Principal Outstanding as of
Name Outstanding during 2003 ($) April 15, 2004($)
---- -------------------------- -----------------
Robert E. Musgraves 113,708 87,461
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires TIMET's executive officers,
directors, and persons who own beneficially more than 10% of a registered class
of TIMET's equity securities to file reports of ownership and changes in
ownership with the SEC and TIMET. Based solely on a review of copies of the
Section 16(a) reports furnished to TIMET and written representations by certain
reporting persons, TIMET believes that all of TIMET's executive officers,
directors and greater than 10% beneficial owners filed on a timely basis all
reports required during and with respect to the fiscal year ended December 31,
2003.
STOCKHOLDER PROPOSALS FOR 2005 ANNUAL MEETING
Stockholders may submit proposals on matters appropriate for stockholder action
at TIMET's annual stockholder meetings, consistent with rules adopted by the
SEC. Such proposals must be received by TIMET no later than December 4, 2004 to
be considered for inclusion in the proxy statement and form of proxy relating to
the 2005 Annual Meeting of Stockholders. Any such proposals should be addressed
to: Corporate Secretary, Titanium Metals Corporation, 1999 Broadway, Suite 4300,
Denver, Colorado 80202.
OTHER MATTERS
The Board of Directors knows of no other business to be presented for
consideration at the Annual Meeting. If any other matters properly come before
the Annual Meeting, the persons designated as agents in the enclosed proxy card
or voting instruction form will vote on such matters in accordance with their
best judgment.
51
2003 ANNUAL REPORT ON FORM 10-K; HOUSEHOLDING
TIMET's 2003 Annual Report on Form 10-K, as filed with the SEC, is included as a
part of TIMET's 2003 Annual Report which accompanies this Proxy Statement.
Additional copies of such documents are available to stockholders without charge
upon request by telephone (303-296-5600) or in writing (Investor Relations
Department, Titanium Metals Corporation, 1999 Broadway, Suite 4300, Denver,
Colorado 80202).
The SEC has adopted rules that permit companies and intermediaries such as
brokers to satisfy the delivery requirements for proxy statements with respect
to two or more security holders sharing the same address by delivering a single
proxy statement addressed to those security holders. This process, which is
commonly referred to as "householding," potentially means extra convenience for
stockholders and cost savings for companies.
This year, a number of brokers with account holders who are TIMET stockholders
will be "householding" TIMET's proxy materials. A single Proxy Statement will be
delivered to multiple stockholders sharing an address unless contrary
instructions have been received from the affected stockholders. Once you have
received notice from your broker or from TIMET that either will be
"householding" communications to your address, "householding" will continue
until you are notified otherwise or until you revoke your consent. If at any
time, you no longer wish to participate in "householding" and would prefer to
receive a separate Proxy Statement, or if you currently receive multiple copies
of the Proxy Statement at your address and would like to request "householding"
of Company communications, please notify your broker if your shares are not held
directly in your name. If you own your shares directly rather than through a
brokerage account, you should direct your written request to the Corporate
Secretary, Titanium Metals Corporation, 1999 Broadway, Suite 4300, Denver,
Colorado 80202 or contact the Corporate Secretary by phone at 303-296-5600 or by
fax at 303-291-2990.
MATERIALS INCORPORATED BY REFERENCE
The financial information contained in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 2003 (filed with the SEC on March 4,
2004) and its quarterly report on Form 10-Q for the quarter ended March 31, 2004
(filed with the SEC on May 5, 2004) is incorporated herein by reference. Copies
of the Form 10-K were previously mailed to stockholders of record.
TITANIUM METALS CORPORATION
Denver, Colorado
May ___, 2004
52
APPENDIX A
TITANIUM METALS CORPORATION
AUDIT COMMITTEE CHARTER
FEBRUARY 17, 2004
----------------
ARTICLE I.
PURPOSE
The audit committee assists the board of directors' oversight
responsibilities relating to the financial accounting and reporting processes
and auditing processes of the corporation. The audit committee shall assist in
the oversight of:
o the integrity of the corporation's financial statements;
o the corporation's compliance with legal and regulatory requirements;
o the independent auditor's qualifications and independence; and
o the performance of the corporation's internal audit function and
independent auditor.
ARTICLE II.
RELATIONSHIP WITH MANAGEMENT AND THE INDEPENDENT AUDITOR
Management is responsible for preparing the corporation's financial
statements. The corporation's independent auditor is responsible for auditing
the financial statements. The activities of the audit committee are in no way
designed to supersede or alter these traditional responsibilities. The
corporation's independent auditor and management have more time, knowledge and
detailed information about the corporation than do the audit committee members.
Accordingly, the audit committee's role does not provide any special assurances
with regard to the corporation's financial statements. Each member of the audit
committee, in the performance of such member's duties, will be entitled to rely
in good faith upon the information, opinions, reports or statements presented to
the audit committee by any of the corporation's officers or employees or by any
other person as to matters such member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the corporation.
ARTICLE III.
AUTHORITY AND RESOURCES
The audit committee shall have the authority and resources necessary or
appropriate to discharge its responsibilities. The audit committee shall be
provided with full access to all books, records, facilities and personnel of the
corporation in carrying out its duties. The audit committee shall have the
authority to engage independent counsel and other advisors, as it determines is
necessary to carry out its duties. The corporation shall provide appropriate
funding, as the audit committee determines is necessary or appropriate in
carrying out its duties, for the committee to engage and compensate the
independent auditor or legal counsel or other advisors to the committee, and to
pay the committee's ordinary administrative expenses.
A-1
ARTICLE IV.
COMPOSITION AND MEETINGS
The board of directors shall set the number of directors comprising the
audit committee from time to time. The board of directors shall designate a
chairperson of the audit committee. The number of directors comprising the audit
committee and the qualifications and independence of each member of the audit
committee shall at all times satisfy all applicable requirements, regulations or
laws, including, without limitation, the rules of any exchange or national
securities association on which the corporation's securities trade. The board of
directors shall determine, in its business judgment, whether the members of the
audit committee satisfy all such requirements, regulations or laws.
The audit committee shall meet at least quarterly and as circumstances
dictate. Regular meetings of the audit committee may be held with or without
prior notice at such time and at such place as shall from time to time be
determined by the chairperson of the audit committee, any of the corporation's
executive officers or the secretary of the corporation. Special meetings of the
audit committee may be called by or at the request of any member of the audit
committee, any of the corporation's executive officers, the secretary of the
corporation or the independent auditor, in each case on at least twenty-four
hours notice to each member.
A majority of the audit committee members shall constitute a quorum for the
transaction of the audit committee's business. The audit committee shall act
upon the vote of a majority of its members at a duly called meeting at which a
quorum is present. Any action of the audit committee may be taken by a written
instrument signed by all of the members of the audit committee. Meetings of the
audit committee may be held at such place or places as the audit committee shall
determine or as may be specified or fixed in the respective notice or waiver of
notice for a meeting. Members of the audit committee may participate in audit
committee proceedings by means of conference telephone or similar communications
equipment by means of which all persons participating in the proceedings can
hear each other, and such participation shall constitute presence in person at
such proceedings.
ARTICLE V.
RESPONSIBILITIES
To fulfill its responsibilities, the audit committee shall perform the
following activities.
Financial Disclosure
o Review and discuss the corporation's annual audited financial
statements and quarterly financial statements with management and the
independent auditor, and the corporation's related disclosure under
"Management's Discussion and Analysis of Financial Condition and
Results of Operations."
o Recommend to the board of directors, if appropriate, that the audited
financial statements be included in the corporation's Annual Report on
Form 10-K to be filed with the U.S. Securities and Exchange
Commission.
o Discuss with management and the independent auditor, as appropriate,
earnings press releases and financial information and earnings
guidance provided to analysts and rating agencies.
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o Prepare such reports of the audit committee for the corporation's
public disclosure documents as applicable requirements, regulations or
laws may require from time to time.
o Review significant accounting and reporting issues, including recent
professional and regulatory pronouncements or proposed pronouncements,
and understand their impact on the corporation's financial statements.
Independent Auditor
o Appoint, compensate, retain and oversee (including the resolution of
disagreements between management and the independent auditor regarding
financial reporting) the work of any independent auditor engaged for
the purpose of preparing or issuing an audit report or performing
other audit, review or attest services for the corporation.
o Provide that the independent auditor report directly to the audit
committee.
o Annually review the qualifications, independence and performance of
the independent auditor.
o Receive such reports and communications from the independent auditor
and take such actions as are required by auditing standards generally
accepted in the United States of America or applicable requirements,
regulations or laws, including, to the extent so required, the
following:
o prior to the annual audit, review with management and the
independent auditor the scope and approach of the annual audit;
o after the annual audit, review with management and the
independent auditor the independent auditor's reports on the
results of the annual audit;
o review with the independent auditor any audit problems or
difficulties and management's response;
o review with the independent auditor the matters required to be
discussed by the Statement on Accounting Standards 61, as
amended, supplemented or superseded; and
o at least annually, obtain and review a report by the independent
auditor describing:
A-3
o the independent auditor's internal quality control
procedures;
o any material issues raised by the most recent internal
quality control review, or peer review, of the independent
auditor or by any inquiry or investigation by governmental
or professional authorities, within the preceding five
years, with respect to one or more independent audits
carried out by the independent auditor, and any steps taken
to deal with any such issues; and
o all relationships between the independent auditor and the
corporation in order to assess the auditor's independence,
including the written disclosures required by Independence
Standards Board Standard No. 1, Independence Discussions
with Audit Committees, as amended, supplemented or
superseded.
o Establish preapproval policies and procedures for audit and
permissible non-audit services provided by the independent auditor.
The audit committee shall be responsible for the preapproval of all of
the independent auditor's engagement fees and terms, as well as all
permissible non-audit engagements of the independent auditor, as
required by applicable requirements, regulations or laws. The audit
committee may delegate to one or more of its members who are
independent directors the authority to grant such preapprovals,
provided the decisions of any such member to whom authority is
delegated shall be presented to the full audit committee at its next
scheduled meeting.
o Set clear hiring policies for employees or former employees of the
independent auditor.
o Ensure that significant findings and recommendations made by the
independent auditor are received and discussed on a timely basis with
the audit committee and management.
Other Responsibilities
o Discuss periodically with management the corporation's policies
regarding risk assessment and risk management.
o Meet separately, periodically, with management, the internal auditors
(or other personnel responsible for the internal audit function) and
the independent auditor.
o Establish procedures for the receipt, retention and treatment of
complaints received by the corporation regarding accounting, internal
accounting controls or auditing matters, including procedures for the
confidential, anonymous submission by employees of concerns regarding
questionable accounting or auditing matters.
o Review periodically the reports and activities of the internal audit
function and the coordination of the internal audit function with the
independent auditor.
o Conduct an annual evaluation of its own performance.
o Report regularly to the board of directors.
o Review and reassess this charter periodically. Report to the board of
directors any suggested changes to this charter.
A-4
o Meet periodically with officers of the corporation responsible for
legal and regulatory compliance by the corporation.
ARTICLE VI.
MISCELLANEOUS
The audit committee may from time to time perform any other activities
consistent with this charter, the corporation's charter and bylaws and governing
law, as the audit committee or the board of directors deems necessary or
appropriate.
ADOPTED BY THE BOARD OF DIRECTORS
OF TITANIUM METALS CORPORATION EFFECTIVE
FEBRUARY 17, 2004
/s/ Joan H. Prusse
-----------------------------------------------
Joan H. Prusse, Secretary
A-5
APPENDIX B
2004 TITANIUM METALS CORPORATION
SENIOR EXECUTIVE CASH INCENTIVE PLAN
I. PURPOSE
The purpose of the Titanium Metals Corporation Senior Executive Cash Incentive
Plan is to attract and retain high quality senior executives and to provide
incentives to such executives to maximize the annual financial performance of
Titanium Metals Corporation and its related entities and thereby increase
shareholder value. The Titanium Metals Corporation Senior Executive Cash
Incentive Plan is intended to qualify for the exception to the deduction limit
under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), for qualified "performance-based compensation."
II. EFFECTIVE DATE OF PLAN
The effective date of the Plan shall be January 1, 2004.
III. DEFINITIONS
(a) "Compensation Committee" shall mean the committee comprised solely of two
or more independent directors of the Company which shall have the authority
to administer the Plan. No member of the Compensation Committee shall be a
current employee of the Company, a former employee who is currently
receiving compensation from the Company for prior services (other than
benefits under a tax-qualified retirement plan), a current or former
officer of the Company, or shall receive or have received remuneration from
the Company within the meaning of Treas. Reg. Sec. 1.62-27(e)(3), either
directly or indirectly, in any capacity other than as a director.
(b) "Company" shall mean Titanium Metals Corporation.
(c) "Disability" shall mean disability by bodily injury or disease, either
occupational or nonoccupational in cause, permanently preventing the
Participant, on the basis of medical evidence satisfactory to the
Compensation Committee, from engaging in any occupation or employment with
the Company.
(d) "Eligible Earnings" shall mean the aggregate base salary actually paid to a
Participant with respect to a given Plan Year; provided, however, that any
amount of base salary that a Participant would have received in a given
Plan Year but for a voluntary reduction in base salary shall be included in
the determination of Eligible Earnings for such year.
(e) "Participant" for a particular Plan Year shall mean those individuals
designated by the Compensation Committee to be eligible to receive
Performance-Based Compensation Awards under Section V for that Plan Year.
The Compensation Committee shall determine the individuals who shall be
Participants for a particular Plan Year by January 1 of that Plan Year .
(f) "Performance-Based Compensation Award" shall mean the cash award as
determined by the application of Section V of the Plan.
B-1
(g) "Plan" shall mean the Titanium Metals Corporation Senior Executive Cash
Incentive Plan, as amended and restated from time to time.
(h) "Plan Year" shall mean the 12 consecutive month period coinciding with the
Company's fiscal year.
(i) "Return on Equity" shall mean the ratio expressed as a percentage rounded
to the nearest tenth of the Company's Net Income for the Plan Year to its
Average Equity for such Plan Year. "Net Income" shall mean the Company's
net income for the Plan Year, determined in accordance with generally
accepted accounting principles and as reported in the Company's annual
audited consolidated financial statements. "Average Equity" shall mean the
arithmetic average of the Company's stockholders' equity at the end of the
Plan Year and the end of the immediately preceding Plan Year. Stockholders'
equity shall be determined in accordance with generally accepted accounting
principles, and as reported in the Company's annual audited consolidated
financial statements.
IV. ELIGIBILITY
Employees who are Participants for a Plan Year are not eligible for payments
under the Titanium Metals Corporation Employee Cash Incentive Plan for the same
Plan Year.
Except in the case of the Participant's death or disability, a Participant must
be employed by the Company on the last day of the Plan Year in order to be
eligible to receive a Performance-Based Compensation Award under the Plan.
However, in the event a Participant is not employed on the last day of the Plan
Year because of the Participant's death or disability, any payment of a
Performance-Based Compensation Award made in accordance with Section V shall be
paid to the Participant's estate or to the disabled Participant at the time the
other Performance-Based Compensation Awards are paid to Participants under the
Plan.
V. CALCULATION OF PERFORMANCE-BASED COMPENSATION AWARD
Initially, calculation of Performance-Based Compensation Awards is based solely
upon the Company's Return on Equity during each Plan Year. Currently, no
Performance-Based Compensation Award shall be payable if the Company's Return on
Equity is less than 3%, and no award shall be made under this Section in an
amount exceeding 150% of any Participant's Eligible Earnings. Performance-Based
Compensation Awards shall be payable solely in accordance with the following
schedule, except that no Performance-Based Compensation Award for a Participant
shall exceed $2,000,000 for a Plan Year:
Return on Equity Award As Percentage of Eligible Earning
------------------------------------------------------------------------
less than 3% 0%
3% or more but less than 10% 10% to 50%
10% or more and up to 30% 50% to 150%
For a Return on Equity of 3% or more but less than 10%, the "Award as a
Percentage of Eligible Earnings" would be fully prorated from 10% up to 50%. For
example, for a Return on Equity of 6.5%, the "Award as a Percentage of Eligible
Earnings" is equal to 30%. Similarly for a Return on Equity of 10% and up to
30%, the "Award as a Percentage of Eligible Earnings" would also be fully
prorated from 50% up to 150%.
B-2
The above schedule for any Plan Year may be set or changed by the Compensation
Committee during the first ninety days of such Plan Year. In the event the
Compensation Committee takes no action prior to the ninetieth day of such Plan
Year to change, amend, or rescind the above schedule in effect for the
immediately preceding Plan Year, the Return on Equity schedule for such Plan
Year shall be deemed to be the above schedule for such immediately preceding
Plan Year.
After that period, the Compensation Committee shall have no discretion to make
Performance-Based Compensation Awards except in accordance with the above or any
revised schedule, except that the Compensation Committee has discretion to award
a lesser Performance-Based Compensation Award to a Participant than that set
forth in the above schedule. Any Performance-Based Compensation Award shall be
paid in a single cash payment as soon as practicable following the completion of
the Company's audit for a given Plan Year and certification by the Compensation
Committee as set forth in Section VI below.
VI. CERTIFICATION BY COMPENSATION COMMITTEE
Notwithstanding any other provision of the Plan to the contrary, no
Performance-Based Compensation Award may be paid to a Participant under the Plan
until the Compensation Committee certifies in writing that the Company has
achieved a Return on Equity of more than 3%, that the award corresponds to the
Return on Equity achieved by the Company for the applicable Plan Year in
accordance with the schedule in Section V or any revision thereof (unless, in
its discretion, the Compensation Committee chooses to make a lower award to a
Participant), and that all of the other conditions under the Plan for payment of
the award have been met. For the purposes of this Section, the approved minutes
of the Compensation Committee meeting in which the certification is made shall
be treated as written certification.
VII. ADMINISTRATION
The Plan shall be administered by the Compensation Committee. The Compensation
Committee shall have full authority to construe and interpret this Plan within
the established rules for its administration which are contained in this Plan.
The Compensation Committee shall act by the unanimous consent of all of its
members.
The Compensation Committee shall have the authority to amend the Plan at any
time without notice, provided that any amendment which changes the material
terms of the performance goals shall be subject to the approval of the Company's
shareholders. The Compensation Committee may revise the terms of the performance
goals set forth in Section V which must be met before Performance-Based
Compensation Awards may be paid under the Plan; however the revised performance
goals must be approved by the shareholders of the Company before the amendment
is effective. The material terms of a performance goal are approved by
shareholders if, in a separate vote, a majority of the shares present (in person
or by proxy) and entitled to vote on the issue are cast in favor of approval.
The Compensation Committee shall have the authority to suspend or terminate the
Plan at any time without notice.
VIII. MISCELLANEOUS
The Plan is not a contract of employment. No term of the Plan shall be construed
to restrict the right of the Company to terminate or change the terms of any
Participant's employment with the Company at any time or to confer on any
Participant the right to continue in the employ of the Company for any period of
time or to continue any Participant's present or any other rate of compensation.
No Participant
B-3
shall have any right to future participation in the Plan.
No right or interest of any Participant in the Plan shall be assignable or
transferable or be subject to any lien, directly, by operation of law, or
otherwise, including by execution, levy, garnishment, attachment, pledge, or
bankruptcy.
The Company shall have the right to deduct from all payments under the Plan any
foreign, federal, state or local taxes required by law to be withheld with
respect to any such payments.
This instrument contains the entire understanding between the Company and the
employees participating in the Plan relating to the Plan, and supersedes any
prior agreement between the parties, whether written or oral. Neither this Plan
nor any provision of the Plan may be waived, modified, amended, changed,
discharged or terminated without action by the Compensation Committee.
This Plan shall be construed in accordance with, and shall be governed by the
laws of the State of Colorado.
To the extent that any one or more of the provisions of the Plan shall be
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired.
The section headings are for convenience only and shall not be used in
interpreting or construing the Plan.
The Company hereby agrees to the provisions of this Plan, and in witness of its
agreement, the Company by its duly authorized officer has executed this Plan, on
the date written below.
B-4
APPENDIX C
CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
TITANIUM METALS CORPORATION
Titanium Metals Corporation (the "Corporation"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify:
FIRST: The name of the Corporation is Titanium Metals Corporation.
SECOND: The date on which the Corporation's original Certificate of
Incorporation was filed with the Delaware Secretary of State is December 13,
1955.
THIRD: The Board of Directors of the Corporation, acting in accordance with
the provision of Sections 141 and 242 of the General Corporation Law of the
State of Delaware adopted resolutions to amend Section 4.1 of the Amended and
Restated Certificate of Incorporation of the Corporation to read in its entirety
as follows:
"4.1 Capital Stock. The total number of shares which the
Corporation shall have authority to issue is 100,000,000 shares,
consisting of (a) 10,000,000 shares of preferred stock, with a
par value of $.01 per share ("Preferred Stock"); and (b)
90,000,000 shares of common stock, with a par value of $.01 per
share ("Common Stock")."
FOURTH: This Certificate of Amendment of Amended and Restated Certificate
of Incorporation was submitted to the stockholders of the Corporation and was
duly approved by the required vote of stockholders of the Corporation in
accordance with Sections 222 and 242 of the Delaware General Corporation Law.
The total number of outstanding shares entitled to vote or consent to this
Amendment was 3,179,942 shares of Common Stock. A majority of the outstanding
shares of Common Stock, voting together as a single class, voted in favor of
this Certificate of Amendment of Amended and Restated Certificate of
Incorporation. The vote required was a majority of the outstanding shares of
Common Stock, voting together as a single class.
IN WITNESS WHEREOF, Titanium Metals Corporation has caused this Certificate
of Amendment to be signed by its _______________ as of _________________ ___,
2004.
TITANIUM METALS CORPORATION
By: ________________________
Name: ______________________
Title: _______________________
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APPENDIX D
FORM OF CERTIFICATE OF DESIGNATIONS, RIGHTS AND PREFERENCES OF
6 3/4% SERIES A CONVERTIBLE PREFERRED STOCK
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
TITANIUM METALS CORPORATION, a Delaware corporation (the "Corporation"),
certifies as follows:
FIRST: The Amended and Restated Certificate of Incorporation of the
Corporation, as amended, authorizes the issuance of 10,000,000 shares of
Preferred Stock, par value $.01 per share, and, further, authorizes the Board of
Directors of the Corporation, subject to the limitations prescribed by law and
the provisions of such Amended and Restated Certificate of Incorporation, to
provide for the issuance of shares of the Preferred Stock or to provide for the
issuance of shares of the Preferred Stock in one or more series, to establish
from time to time the number of shares to be included in each such series and to
fix the designations, voting powers, preference rights and qualifications,
limitations or restrictions of the shares of the Preferred Stock of each such
series.
SECOND: The Board of Directors of the Corporation, acting at a meeting held
on March 24, 2004, duly adopted the following resolutions, subject to approval
by our common stockholders of an amendment to our certificate of incorporation,
authorizing the creation and issuance of a series of said Preferred Stock to be
known as 6 3/4% Series A Convertible Preferred Stock:
RESOLVED, the Board of Directors, pursuant to the authority
vested in it by the provisions of the Amended and Restated
Certificate of Incorporation of the Corporation, as amended,
hereby authorizes the issuance of a series of the Corporation's
Preferred Stock, par value $.01 per share, 4,024,820 shares of
which are authorized to be issued under the Corporation's Amended
and Restated Certificate of Incorporation, as amended (such
4,024,820 shares being hereinafter referred to as the "Series A
Preferred Stock"), of the Corporation and hereby fixes the
number, designations, preferences, rights and limitations thereof
in addition to those set forth in said Amended and Restated
Certificate of Incorporation as follows:
1. Certain Definitions. As used in this Certificate, the following terms
shall have the following meanings, unless the context otherwise requires:
"Board of Directors" means either the board of directors of the Corporation
or any duly authorized committee of such board.
"Business Day" means any day other than a Saturday, Sunday or a day on
which state or U.S. federally chartered banking institutions in New York, New
York are not required to be open.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents however designated of corporate stock or
other equity participations, including partnership
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interests, whether general or limited, of such Person and any rights (other than
debt securities convertible or exchangeable into an equity interest), warrants
or options to acquire an equity interest in such Person.
"Certificate" means this Certificate of Designations.
"Certificate of Incorporation" means the Amended and Restated Certificate
of Incorporation of the Corporation, as amended.
"Closing Sale Price" of the shares of Common Stock or other Capital Stock
or similar equity interests on any date means the closing sale price per share
(or, if no closing sale price is reported, the average of the closing bid and
ask prices or, if more than one in either case, the average of the average
closing bid and the average closing ask prices) on such date as reported on the
principal United States securities exchange on which shares of Common Stock or
such other Capital Stock or similar equity interests are traded or, if the
shares of Common Stock or such other Capital Stock or similar equity interests
are not listed on a United States national or regional securities exchange, as
reported by Nasdaq or by the National Quotation Bureau Incorporated. In the
absence of such quotations, the Corporation shall be entitled to determine the
Closing Sale Price on the basis it considers appropriate. The Closing Sale Price
shall be determined without reference to extended or after hours trading.
"Common Stock" means any stock of any class of the Corporation that has no
preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation and that is not subject to redemption by the Corporation. Subject to
the provisions of Section 9, however, shares issuable on conversion of the
Series A Preferred Stock shall include only shares of the class designated as
common stock of the Corporation at the date of this Certificate (namely, the
Common Stock, par value $.01 per share) or shares of any class or classes
resulting from any reclassification or reclassifications thereof and that have
no preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation and which are not subject to redemption by the Corporation; provided
that if at any time there shall be more than one such resulting class, the
shares of each such class then so issuable on conversion shall be substantially
in the proportion that the total number of shares of such class resulting from
all such reclassifications bears to the total number of shares of all such
classes resulting from all such reclassifications.
"Conversion Agent" has the meaning assigned to such term in Section 12.
"Conversion Date" has the meaning assigned to such term in Section 7(b).
"Conversion Price" per share of Series A Preferred Stock means, on any
date, the Liquidation Preference divided by the Conversion Rate in effect on
such date.
"Conversion Rate" per share of Series A Preferred Stock means one share of
Common Stock, subject to adjustment pursuant to Section 8 hereof.
"Corporation" means Titanium Metals Corporation, a Delaware corporation,
and it successors.
"Current Market Price" means the average of the daily Closing Sale Prices
per share of Common Stock for the ten consecutive Trading Days selected by the
Corporation commencing no more than 30 Trading Days before and ending not later
than the earlier of such date of determination and the day before the "ex" date
with respect to the issuance, distribution, subdivision or combination requiring
such computation immediately prior to the date in question. For purpose of this
paragraph, the term "ex" date, (1) when used with respect to any issuance or
distribution, means the first date on which the Common
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Stock trades, regular way, on the relevant exchange or in the relevant market
from which the Closing Sale Price was obtained without the right to receive such
issuance or distribution, and (2) when used with respect to any subdivision or
combination of shares of Common Stock, means the first date on which the Common
Stock trades, regular way, on such exchange or in such market after the time at
which such subdivision or combination becomes effective. If another issuance,
distribution, subdivision or combination to which Section 8(d) applies occurs
during the period applicable for calculating "Current Market Price" pursuant to
this definition, the "Current Market Price" shall be calculated for such period
in a manner determined by the Board of Directors to reflect the impact of such
issuance, distribution, subdivision or combination on the Closing Sale Price of
the Common Stock during such period.
"Depositary" means DTC or its successor depositary.
"Distributed Property" has the meaning assigned to such term in Section
8(d).
"Dividend Payment Date" means __________15, __________ 15, __________ 15
and ____________ 15 each year, or if any such date is not a Business Day, on the
next succeeding Business Day.
"Dividend Period" means the period beginning on, and including, a Dividend
Payment Date and ending on, and excluding, the immediately succeeding Dividend
Payment Date.
"DTC" means The Depository Trust Corporation, New York, New York.
"Ex-Dividend Date" has the meaning assigned to such term in Section 8(g).
"Expiration Time" has the meaning assigned to such term in Section 8(f).
"Fair Market Value" means the amount, which a willing buyer would pay a
willing seller in an arm's-length transaction.
"Liquidation Preference" has the meaning assigned to such term in Section
4(a).
"Non-Electing Shares" has the meaning assigned to such term in Section
9(a).
"Original Issue Date" has the meaning assigned to such term in Section
3(a).
"Outstanding" means, when used with respect to Series A Preferred Stock, as
of any date of determination, all shares of Series A Preferred Stock outstanding
as of such date; provided, however, that, if such Series A Preferred Stock is to
be redeemed, notice of such redemption has been duly given pursuant to this
Certificate and the Paying Agent holds, in accordance with this Certificate,
money sufficient to pay the Redemption Price for the shares of Series A
Preferred Stock to be redeemed, then immediately after such Redemption Date such
shares of Series A Preferred Stock shall cease to be outstanding; provided
further that, in determining whether the holders of Series A Preferred Stock
have given any request, demand, authorization, direction, notice, consent or
waiver or taken any other action hereunder, Series A Preferred Stock owned by
the Corporation shall be deemed not to be outstanding, except that, in
determining whether the Transfer Agent shall be protected in relying upon any
such request, demand, authorization, direction, notice, consent, waiver or other
action, only Series A Preferred Stock which the Transfer Agent has actual
knowledge of being so owned shall be deemed not to be outstanding.
"Parity Stock" has the meaning assigned to such term in Section 2.
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"Paying Agent" has the meaning assigned to such term in Section 12.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Preferred Dividend Voting Event" has the meaning assigned to such term in
Section 6(b).
"Purchased Shares" has the meaning assigned to such term in Section 8(f).
"Record Date" means (i) with respect to the dividends payable on
___________ 15, ___________ 15, _____________ 15 and ____________ 15 of each
year, ____________ 1, _______ 1, ___________ 1 and ___________ 1 of each year,
respectively, or such other record date, not more than 60 days and not less than
10 days preceding the applicable Dividend Payment Date, as shall be fixed by the
Board of Directors and (ii) solely for the purpose of adjustments to the
Conversion Rate pursuant to Section 8, with respect to any dividend,
distribution or other transaction or event in which the holders of Common Stock
have the right to receive any cash, securities or other property or in which the
Common Stock (or other applicable security) is exchanged for or converted into
any combination of cash, securities or other property, the date fixed for
determination of stockholders entitled to receive such cash, securities or other
property (whether such date is fixed by the Board of Directors or by statute,
contract or otherwise).
"Redemption Date" means a date that is fixed for redemption of the Series A
Preferred Stock by the Corporation in accordance with Section 5 hereof.
"Redemption Price" means an amount equal to the Liquidation Preference per
share of Series A Preferred Stock being redeemed, plus an amount equal to all
accumulated and unpaid dividends (whether or not earned or declared) thereon,
to, but excluding, the Redemption Date, without interest; subject to adjustment
as provided in Section 5(f).
"Senior Stock" has the meaning assigned to such term in Section 2.
"Series A Preferred Stock" has the meaning assigned to such term in the
Preamble hereto.
"Series A Preferred Stock Director" has the meaning assigned to such term
in Section 6(b).
"Subsidiary" means, with respect to any Person, (a) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of capital stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (b) any partnership (i) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (ii)
the only general partners of which are such Person or one or more Subsidiaries
of such Person (or any combination thereof).
"Trading Day" means a day during which trading in securities generally
occurs on the New York Stock Exchange or, if the Common Stock is not listed on
the New York Stock Exchange, on the principal other national or regional
securities exchange on which the Common Stock is then listed or, if the Common
Stock is not listed on a national or regional securities exchange, on Nasdaq or,
if the Common Stock is not quoted on Nasdaq, on the principal other market on
which the Common Stock is then traded.
"Transfer Agent" has the meaning assigned to such term in Section 11.
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"Trigger Event" has the meaning assigned to such term in Section 8(d).
2. Rank. The Series A Preferred Stock shall, with respect to dividend
rights and rights upon liquidation, dissolution or winding up of the
Corporation, rank (a) senior to all classes or series of Common Stock and to any
other class or series of Capital Stock issued by the Corporation not referred to
in clauses (b) or (c) of this paragraph, (b) on a parity with all equity
securities issued by the Corporation in the future the terms of which
specifically provide that such equity securities rank on a parity with the
Series A Preferred Stock with respect to dividend rights or rights upon the
liquidation, dissolution or winding up of the Corporation ("Parity Stock") and
(c) junior to all equity securities issued by the Corporation in the future the
terms of which specifically provide that such equity securities rank senior to
the Series A Preferred Stock with respect to dividend rights or rights upon the
liquidation, dissolution or winding up of the Corporation ("Senior Stock"). The
term "equity securities" shall not include convertible debt securities.
3. Dividends.
(a) Holders of the then Outstanding shares of Series A Preferred Stock
shall be entitled to receive, when and as authorized by the Board of Directors,
out of funds legally available for the payment of dividends, cumulative
preferential cash dividends at the rate of 6.75% of the $50.00 liquidation
preference per annum (equivalent to a fixed annual amount of $3.375 per share).
Such dividends shall be cumulative from the first date on which any Series A
Preferred Stock is issued (the "Original Issue Date") and shall be payable
quarterly in arrears on each Dividend Payment Date. Any dividend payable on the
Series A Preferred Stock for any partial dividend period will be computed on the
basis of a 360-day year consisting of twelve 30-day months (it being understood
that the dividend payable on ________________, 2004 will be for a different
amount than the full quarterly dividend period). Dividends will be payable to
holders of record as they appear in the stock records of the Corporation at the
close of business on the applicable Record Date.
(b) No dividends on shares of Series A Preferred Stock shall be declared by
the Corporation or paid or set apart for payment by the Corporation at such time
as the terms and provisions of any agreement of the Corporation, including any
agreement relating to its indebtedness, prohibit such declaration, payment or
setting apart for payment or provide that such declaration, payment or setting
apart for payment would constitute a breach thereof or a default thereunder, or
if such declaration or payment shall be restricted or prohibited by law.
(c) Notwithstanding the foregoing, dividends on the Series A Preferred
Stock shall accrue whether or not the terms and provisions set forth in Section
3(b) hereof at any time prohibit the current payment of dividends, whether or
not the Corporation has earnings, whether or not there are funds legally
available for the payment of such dividends and whether or not such dividends
are declared. Accrued but unpaid dividends on the Series A Preferred Stock will
accumulate as of the Dividend Payment Date on which they first become payable,
but interest will not accrue on any amount of accrued but unpaid dividends on
the Series A Preferred Stock.
(d) Except as provided in Section 3(e) below, unless full cumulative
dividends on the Series A Preferred Stock have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof is
set apart for payment for all past dividend periods and the then current
dividend period, no dividends (other than in shares of Common Stock or in shares
of any series of Capital Stock ranking junior to the Series A Preferred Stock as
to dividends and upon liquidation) shall be declared or paid or set aside for
payment nor shall any other distribution of cash or other property be, directly
or indirectly, declared or set aside on or with respect to any shares of the
Common Stock, or shares of any other class or series of Capital Stock ranking
junior to or on a parity with the Series A Preferred Stock as to dividends or
upon liquidation, nor shall any shares of Common Stock, or any shares
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of Capital Stock ranking junior to or on a parity with the Series A Preferred
Stock as to dividends or upon liquidation be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made available for a
sinking fund for the redemption of any such shares) by the Corporation (except
(i) by conversion into or exchange for other capital stock of the Corporation
ranking junior to the Series A Preferred Stock as to dividends, (ii) purchases
or acquisitions of shares of Common Stock in connection with the satisfaction by
the Corporation of its obligations under any employee benefit plan or the
satisfaction by the Corporation of its obligations pursuant to any contract or
security requiring the Corporation to purchase shares of Common Stock, (iii) as
a result of a reclassification of the Capital Stock or the exchange or
conversion of one class or series of the Capital Stock for another class or
series of Capital Stock or (iv) the purchase of fractional interests in shares
of Capital Stock pursuant to the conversion or exchange provisions of such
Capital Stock or the security being converted or exchanged).
(e) When dividends are not paid in full (or a sum sufficient for such full
payment is not so set apart) on the Series A Preferred Stock and the shares of
any other class or series of Capital Stock ranking on a parity as to dividends
with the Series A Preferred Stock, all dividends declared upon the Series A
Preferred Stock and any other class or series of such Capital Stock ranking on a
parity as to dividends with the Series A Preferred Stock shall be declared pro
rata so that the amount of dividends declared per share of Series A Preferred
Stock and such other class or series of such Capital Stock shall in all cases
bear to each other the same ratio that accrued dividends per share on the Series
A Preferred Stock and such other class or series of such Capital Stock (which
shall not include any accrual in respect of unpaid dividends for prior dividend
periods if such other class or series of Capital Stock does not have a
cumulative dividend) bear to each other. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on
Series A Preferred Stock which may be in arrears.
(f) Any dividend payment made on shares of the Series A Preferred Stock
shall be credited against the accrued but unpaid dividends due as designated by
the Corporation. Holders of the Series A Preferred Stock shall not be entitled
to any dividend, whether payable in cash, property or shares of Capital Stock in
excess of full cumulative dividends on the Series A Preferred Stock as described
above.
4. Liquidation Preference.
(a) Upon any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Corporation, the holders of shares of Series A
Preferred Stock then Outstanding are entitled to be paid out of the assets of
the Corporation, legally available for distribution to its stockholders, a
liquidation preference of $50.00 per share of Series A Preferred Stock (the
"Liquidation Preference"), plus an amount equal to any accrued and unpaid
dividends (whether or not declared) to the date of payment, before any
distribution of assets is made to holders of Common Stock or any other class or
series of Capital Stock that ranks junior to the Series A Preferred Stock as to
liquidation rights.
(b) In the event that, upon any such voluntary or involuntary liquidation,
dissolution or winding up, the available assets of the Corporation are
insufficient to pay the amount of the liquidating distributions on all
Outstanding shares of Series A Preferred Stock and the corresponding amounts
payable on all shares of each other class or series of Capital Stock ranking on
a parity with the Series A Preferred Stock as to liquidation rights, then the
holders of the Series A Preferred Stock and each such other class or series of
Capital Stock shall share proportionately in any such distribution of assets in
proportion to the full liquidating distributions to which they would otherwise
be respectively entitled.
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(c) After payment of the full amount of the liquidating distributions to
which they are entitled, the holders of Series A Preferred Stock will have no
right or claim to any of the remaining assets of the Corporation.
(d) Written notice of any such liquidation, dissolution or winding up of
the Corporation, stating the payment date or dates when, and the place or places
where, the amounts distributable in such circumstances shall be payable, shall
be given by first class mail, postage pre-paid, not less than 30 nor more than
60 days prior to the payment date stated therein, to each record holder of the
Series A Preferred Stock at the respective addresses of such holders as the same
shall appear on the stock transfer records of the Corporation.
(e) The consolidation or merger of the Corporation with or into any other
corporation, trust or entity or of any other corporation with or into the
Corporation, or the sale, lease or conveyance of all or substantially all of the
property or business of the Corporation, shall not be deemed to constitute a
liquidation, dissolution or winding up of the Corporation.
5. Optional Redemption.
(a) The Corporation may not redeem any shares of Series A Preferred Stock
before ___________, 2007. At any time and from time to time on or after
___________, 2007, the Corporation shall have the option to redeem in cash,
subject to Section 5(i) hereof, all or part of the shares of Series A Preferred
Stock at the Redemption Price, but only if, prior to the date the Corporation
gives notice of such redemption pursuant to this Section 5, the Closing Sale
Price of the Common Stock has exceeded the Conversion Price in effect for 30
consecutive Trading Days.
(b) In the event the Corporation elects to redeem shares of Series A
Preferred Stock in accordance with Section 5(a) above, the Corporation shall:
(i) send a written notice to the Transfer Agent of the Redemption Date,
stating the number of shares to be redeemed and the Redemption Price, at least
35 days before the Redemption Date (unless a shorter period shall be
satisfactory to the Transfer Agent);
(ii) send a written notice by first class mail to each holder of record of
the Series A Preferred Stock at such holder's registered address, not fewer than
30 nor more than 90 days prior to the Redemption Date stating:
(A) the Redemption Date;
(B) the Redemption Price;
(C) the Conversion Price and the Conversion Ratio;
(D) the name and address of the Paying Agent and Conversion Agent;
(E) that shares of Series A Preferred Stock called for redemption may be
converted at any time before 5:00 p.m., New York City time on the Business
Day immediately preceding the Redemption Date;
(F) that holders who want to convert shares of the Series A Preferred Stock
must satisfy the requirements set forth in Section 7;
(G) that shares of the Series A Preferred Stock called for redemption must
be surrendered to the Paying Agent to collect the Redemption Price;
(H) if fewer than all the Outstanding shares of the Series A Preferred
Stock are to be redeemed by the Corporation, the number of shares to be
redeemed;
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(I) that, unless the Corporation defaults in making payment of such
Redemption Price, dividends in respect of the shares of Series A Preferred
Stock called for redemption will cease to accumulate on and after the
Redemption Date;
(J) the CUSIP number of the Series A Preferred Stock; and (K) any other
information the Corporation wishes to present.
(c) If the Corporation gives notice of redemption, then, by 12:00
p.m., New York City time, on the Redemption Date, to the extent sufficient
funds are legally available, the Corporation shall, with respect to:
(i) shares of the Series A Preferred Stock held by DTC or its
nominees, deposit or cause to be deposited, irrevocably with DTC cash
sufficient to pay the Redemption Price and give DTC irrevocable
instructions and authority to pay the Redemption Price to holders of
such shares of the Series A Preferred Stock; and
(ii) shares of the Series A Preferred Stock held in certificated
form, deposit or cause to be deposited, irrevocably with the Paying
Agent cash sufficient to pay the Redemption Price and give the Paying
Agent irrevocable instructions and authority to pay the Redemption
Price to holders of such shares of the Series A Preferred Stock upon
surrender of their certificates evidencing their shares of the Series
A Preferred Stock.
(d) If on the Redemption Date, DTC and/or the Paying Agent holds or hold
cash sufficient to pay the Redemption Price for the shares of Series A Preferred
Stock delivered for redemption as set forth herein, dividends shall cease to
accumulate as of the Redemption Date on those shares of the Series A Preferred
Stock called for redemption and all rights of holders of such shares shall
terminate, except for the right to receive the Redemption Price pursuant to this
Section 5.
(e) Payment of the Redemption Price for shares of the Series A Preferred
Stock is conditioned upon book-entry transfer or physical delivery of
certificates representing the Series A Preferred Stock, together with necessary
endorsements, to the Paying Agent at any time after delivery of the notice of
redemption.
(f) If the Redemption Date falls after a Record Date and before the related
Dividend Payment Date, holders of the shares of Series A Preferred Stock at the
close of business on that Record Date shall be entitled to receive the dividend
payable on those shares on the corresponding Dividend Payment Date
notwithstanding the redemption of such shares before such Dividend Payment Date.
(g) If fewer than all the Outstanding shares of Series A Preferred Stock
are to be redeemed, the number of shares to be redeemed shall be determined by
the Board of Directors and the shares to be redeemed shall be selected by lot or
pro rata (with any fractional shares being rounded to the nearest whole share)
as may be determined by the Board of Directors.
(h) Upon surrender of a certificate or certificates representing shares of
the Series A Preferred Stock that are redeemed in part, the Corporation shall
execute and the Transfer Agent shall authenticate and deliver to the holder, a
new certificate or certificates representing shares of the Series A Preferred
Stock in an amount equal to the unredeemed portion of the shares of Series A
Preferred Stock surrendered for partial redemption.
(i) Notwithstanding the foregoing provisions of this Section 5, unless full
cumulative dividends (whether or not declared) on all Outstanding shares of
Series A Preferred Stock have been paid or contemporaneously are declared and
paid or set apart for payment for all Dividend Periods terminating on or before
the Redemption Date, none of the shares of Series A Preferred Stock shall be
redeemed, and no sum shall be set aside for such redemption.
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(j) Any shares of Series A Preferred Stock that shall at any time have been
redeemed or otherwise acquired by the Corporation shall, after such redemption
or acquisition, have the status of authorized but unissued Preferred Stock,
without designation as to series until such shares are once more classified and
designated as part of a particular series by the Board of Directors.
6. Voting Rights.
(a) Holders of the Series A Preferred Stock will not have any voting
rights, except as set forth below or as otherwise provided in the Certificate of
Incorporation or by law.
(b) Whenever dividends on any shares of Series A Preferred Stock shall be
in arrears for 12 or more quarterly periods (a "Preferred Dividend Voting
Event"), the holders of such shares of Series A Preferred Stock (voting
separately as a class with any other series of Parity Stock upon which like
voting rights have been conferred and are exercisable), will be entitled to vote
for the election of one additional director of the Corporation (the "Series A
Preferred Stock Director"), and the number of directors on the Board of
Directors shall increase by one, at a special meeting called by the holders of
record of at least 20% of the Series A Preferred Stock or the holders of at
least 20% of any other series of Parity Stock so in arrears (unless such request
is received less than 90 days before the date fixed for the next annual or
special meeting of stockholders) or at the next annual meeting of stockholders,
and at each subsequent annual meeting until all dividends accumulated on such
shares of Series A Preferred Stock for the past dividend periods and the
dividend for the then current dividend period shall have been fully paid or
declared and a sum sufficient for the payment thereof set aside for payment.
(c) If and when all accumulated dividends and the dividend for the then
current dividend period on the Series A Preferred Stock shall have been paid in
full or set aside for payment in full, the holders of shares of Series A
Preferred Stock shall be divested of the voting rights set forth in Section 6(b)
hereof (subject to revesting in the event of each and every subsequent Preferred
Dividend Voting Event) and, if all accumulated dividends and the dividend for
the current dividend period have been paid in full or set aside for payment in
full on all other series of Parity Stock upon which like voting rights have been
conferred and are exercisable, the term of office of each Preferred Stock
Director so elected shall terminate and the number of directors on the Board of
Directors shall decrease by one. Any Preferred Stock Director may be removed at
any time with or without cause by the vote of, and shall not be removed
otherwise than by the vote of, the holders of record of a majority of the
Outstanding shares of the Series A Preferred Stock when they have the voting
rights set forth in Section 6(b) (voting separately as a class with the Parity
Stock upon which like voting rights have been conferred and are exercisable). So
long as a Preferred Dividend Voting Event shall continue, any vacancy in the
office of the Series A Preferred Stock Director may be filled by a vote of the
holders of record of a majority of the Outstanding shares of Series A Preferred
Stock when they have the voting rights set forth in Section 6(b) (voting
separately as a class with all other series of Parity Stock upon which like
voting rights have been conferred and are exercisable).
(d) The affirmative vote of holders of at least two-thirds of the
Outstanding shares of the Series A Preferred Stock and all other Parity Stock
with like voting rights, voting as a single class, in person or by proxy, at a
special meeting called for the purpose, or by written consent in lieu of
meeting, shall be required to alter, repeal or amend, whether by merger,
consolidation, combination, reclassification or otherwise, any provisions of the
Certificate of Incorporation if the amendment would amend, alter or affect the
powers, preferences or rights of the Series A Preferred Stock, so as to
adversely affect the holders thereof; provided, however, that any increase in
the amount of the authorized common stock
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or authorized preferred stock or the creation and issuance of other series
of common stock or preferred stock will not be deemed to materially and
adversely affect such powers, preferences or special rights.
(e) The foregoing voting provisions will not apply if, at or prior to the
time when the act with respect to which such vote would otherwise be required
shall be effected, all Outstanding shares of Series A Preferred Stock shall have
been redeemed or called for redemption upon proper notice and sufficient funds
shall have been deposited in trust to effect such redemption.
7. Conversion.
(a) Each holder of Series A Preferred Stock shall have the right, at its
option, exercisable at any time and from time to time from the Original Issue
Date to convert, subject to the terms and provisions of this Section 7, any or
all of such holder's shares of Series A Preferred Stock. In such case, the
shares of Series A Preferred Stock shall be converted into such whole number of
fully paid and nonassessable shares of Common Stock as is equal to the
Conversion Rate then in effect.
(b) The conversion right of a holder of Series A Preferred Stock shall be
exercised by the holder by the surrender to the Corporation of the certificates
representing shares to be converted at any time during usual business hours at
its principal place of business or the offices of its duly appointed Transfer
Agent to be maintained by it, accompanied by written notice in form reasonably
satisfactory to the Corporation or its duly appointed Transfer Agent that the
holder elects to convert all or a portion of the shares of Series A Preferred
Stock represented by such certificate and specifying the name or names (with
address) in which a certificate or certificates for shares of Common Stock are
to be issued and (if so required by the Corporation or its duly appointed
Transfer Agent) by a written instrument or instruments of transfer in form
reasonably satisfactory to the Corporation or its duly appointed Transfer Agent
duly executed by the holder or its duly authorized legal representative and
transfer tax stamps or funds therefor, if required by the Transfer Agent. In
case a notice of conversion shall specify a name or names other than that of
such holder, such notice shall be accompanied by payment of all transfer taxes
payable upon the issuance of shares of Common Stock in such name or names. Other
than such taxes, the Corporation shall pay any documentary, stamp or similar
issue or transfer taxes that may be payable in respect of any issuance or
delivery of shares of Common Stock upon conversion of shares of the Series A
Preferred Stock pursuant hereto. Immediately prior to the close of business on
the date of receipt by the Corporation or its duly appointed Transfer Agent of
notice of conversion of shares of Series A Preferred Stock (the "Conversion
Date"), each converting holder of Series A Preferred Stock shall be deemed to be
the holder of record of Common Stock issuable upon conversion of such holder's
Preferred Stock notwithstanding that the share register of the Corporation shall
then be closed or that certificates representing such Common Stock shall not
then be actually delivered to such holder. Upon notice from the Corporation,
each holder of Series A Preferred Stock so converted shall promptly surrender to
the Corporation, at any place where the Corporation shall maintain a Transfer
Agent, certificates representing the shares so converted, duly endorsed in blank
or accompanied by proper instruments of transfer. On the date of any conversion,
all rights with respect to the shares of Series A Preferred Stock so converted,
including the rights, if any, to receive notices, will terminate, except only
the rights of holders thereof to (A) receive certificates for the number of
whole shares of Common Stock into which such shares of Preferred Stock have been
converted and cash in lieu of any fractional shares as provided in Section 7(c);
and (B) exercise the rights to which they are entitled as holders of Common
Stock. Anything herein to the contrary notwithstanding, in the case of shares of
Series A Preferred Stock evidenced as global securities, notices of conversion
may be delivered and shares of the Series A Preferred Stock representing
beneficial interests in respect of such global securities may be surrendered for
conversion in accordance with the applicable procedures of the Depositary as in
effect from time to time.
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(c) In connection with the conversion of any shares of the Series A
Preferred Stock, no fractions of shares of Common Stock shall be issued, but the
Corporation shall pay a cash adjustment in respect of any fractional interest in
an amount equal to the fractional interest multiplied by the Closing Sale Price
of the Common Stock on the Conversion Date, rounded to the nearest whole cent.
(d) If more than one share of the Series A Preferred Stock shall be
surrendered for conversion by the same holder at the same time, the number of
full shares of Common Stock issuable on conversion of those shares shall be
computed on the basis of the total number of shares of the Series A Preferred
Stock so surrendered.
(e) The Corporation shall:
(i) at all times reserve and keep available, free from
preemptive rights, for issuance upon the conversion of shares of
the Series A Preferred Stock such number of its authorized but
unissued shares of Common Stock as shall from time to time be
sufficient to permit the conversion of all Outstanding shares of
the Series A Preferred Stock;
(ii) prior to the delivery of any securities that the
Corporation shall be obligated to deliver upon conversion of the
Series A Preferred Stock, comply with all applicable federal and
state laws and regulations that require action to be taken by the
Corporation (including, without limitation, the registration or
approval, if required, of any shares of Common Stock to be
provided for the purpose of conversion of the Series A Preferred
Stock hereunder); and
(iii) ensure that all shares of Common Stock delivered upon
conversion of the Series A Preferred Stock, upon delivery, be
duly and validly issued and fully paid and nonassessable, free of
all liens and charges and not subject to any preemptive rights.
(f) With respect to dividends and other payments upon conversion:
(i) If a holder of shares of Series A Preferred Stock exercises
conversion rights, such shares will cease to accumulate dividends as of the
end of the day immediately preceding the Conversion Date. On conversion of
the Series A Preferred Stock, except for conversion during the period from
the close of business on any Record Date corresponding to a Dividend
Payment Date to the close of business on the Business Day immediately
preceding such Dividend Payment Date, in which case the holder on such
Dividend Record Date shall receive the dividends payable on such Dividend
Payment Date, accumulated and unpaid dividends on the converted share of
Series A Preferred Stock shall not be cancelled, extinguished or forfeited,
but rather shall be deemed to be paid in full to the holder thereof through
delivery of the Common Stock (together with the cash payment, if any, in
lieu of fractional shares) in exchange for the Series A Preferred Stock
being converted pursuant to the provisions hereof. Shares of the Series A
Preferred Stock surrendered for conversion after the close of business on
any Record Date for the payment of dividends declared and before the
opening of business on the Dividend Payment Date corresponding to that
Record Date must be accompanied by a payment to the Corporation in cash of
an amount equal to the dividend payable in respect of those shares on such
Dividend Payment Date; provided that a holder of shares of the Series A
Preferred Stock on a Record Date who converts such shares into shares of
Common Stock on the corresponding Dividend Payment Date shall be entitled
to receive the dividend payable on such shares of the Series A Preferred
Stock on such Dividend Payment Date, and such holder need not include
payment to the Corporation of the amount of such dividend upon surrender of
shares of the Series A Preferred Stock for conversion.
(ii) Notwithstanding the foregoing, if shares of the Series A
Preferred Stock are converted during the period between the close of
business on any Record Date and the opening of business on the
corresponding Dividend Payment Date and the Corporation has called such
shares of the Series A
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Preferred Stock for redemption during such period, then the holder who
tenders such shares for conversion shall receive the dividend payable on
such Dividend Payment Date and need not include payment of the amount of
such dividend upon surrender of shares of the Series A Preferred Stock for
conversion. (iii) Except as set forth above in this Section 7(f), the
Corporation shall make no payment or allowance for unpaid dividends,
whether or not in arrears, on converted shares of Series A Preferred Stock
or for dividends on shares of Common Stock issued upon such conversion.
8. Adjustment of Conversion Rate. The Conversion Rate shall be adjusted
from time to time by the Corporation in accordance with the provisions of this
Section 8.
(a) If the Corporation shall hereafter pay a dividend or make a
distribution to all holders of the Outstanding Common Stock in shares of
Common Stock, the Conversion Rate shall be increased so that the same shall
equal the rate determined by multiplying the Conversion Rate in effect at
the opening of business on the date following the date fixed for the
determination of stockholders entitled to receive such dividend or other
distribution by a fraction,
(i) the numerator of which shall be the sum of the number of
shares of Common Stock Outstanding at the close of business on the
date fixed for the determination of stockholders entitled to receive
such dividend or other distribution plus the total number of shares of
Common Stock constituting such dividend or other distribution; and
(ii) the denominator of which shall be the number of shares of
Common Stock Outstanding at the close of business on the date fixed
for such determination,
such increase to become effective immediately after the opening of business on
the day following the date fixed for such determination. If any dividend or
distribution of the type described in this Section 8(a) is declared but not so
paid or made, the Conversion Rate shall again be adjusted to the Conversion Rate
that would then be in effect if such dividend or distribution had not been
declared.
(b) If the Corporation shall issue rights or warrants to all holders of any
class of Common Stock entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the average of the Closing Sale
Prices of the Common Stock for the ten Trading Days preceding the declaration
date for such distribution, the Conversion Rate shall be increased so that the
same shall equal the rate determined by multiplying the Conversion Rate in
effect immediately prior to the date fixed for determination of stockholders
entitled to receive such rights or warrants by a fraction,
(i) the numerator of which shall be the number of shares of
Common Stock Outstanding on the date fixed for the determination of
stockholders entitled to receive such rights or warrants plus the
total number of additional shares of Common Stock offered for
subscription or purchase; and
(ii) the denominator of which shall be the sum of the number of
shares of Common Stock Outstanding at the close of business on the
date fixed for the determination of stockholders entitled to receive
such rights or warrants plus the number of shares that the aggregate
offering price of the total number of shares so offered would purchase
at a price equal to the average of the Closing Sale Prices of the
Common Stock for the ten Trading Days preceding the declaration date
for such distribution.
Such adjustment shall be successively made whenever any such rights or warrants
are issued, and shall become effective immediately after the opening of business
on the day following the date fixed for the determination of stockholders
entitled to receive such rights or warrants. To the extent that shares of
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Common Stock are not delivered after the expiration of such rights or warrants,
the Conversion Rate shall be readjusted to the Conversion Rate that would then
be in effect had the adjustments made upon the issuance of such rights or
warrants been made on the basis of delivery of only the number of shares of
Common Stock actually delivered. If such rights or warrants are not so issued,
the Conversion Rate shall again be adjusted to be the Conversion Rate that would
then be in effect if such date fixed for the determination of stockholders
entitled to receive such rights or warrants had not been fixed. In determining
whether any rights or warrants entitle the holders to subscribe for or purchase
shares of Common Stock at a price less than the average of the Closing Sale
Prices of the Common Stock for the ten Trading Days preceding the declaration
date for such distribution, and in determining the aggregate offering price of
such shares of Common Stock, there shall be taken into account any consideration
received by the Corporation for such rights or warrants and any amount payable
on exercise or conversion thereof, the value of such consideration, if other
than cash, to be determined by the Board of Directors.
(c) If the Outstanding shares of Common Stock shall be subdivided into a
greater number of shares of Common Stock, the Conversion Rate in effect at the
opening of business on the day following the day upon which such subdivision
becomes effective shall be proportionately increased, and conversely, in case
Outstanding shares of Common Stock shall be combined into a smaller number of
shares of Common Stock, the Conversion Rate in effect at the opening of business
on the day following the day upon which such combination becomes effective shall
be proportionately reduced, such increase or reduction, as the case may be, to
become effective immediately after the opening of business on the day following
the day upon which such subdivision or combination becomes effective.
(d) If the Corporation shall, by dividend or otherwise, distribute to all
holders of its Common Stock shares of any class of Capital Stock or evidences of
its indebtedness or other assets (including securities, but excluding (x) any
rights or warrants referred to in Section 8(b) and (y) any dividend or
distribution (I) paid exclusively in cash or (II) referred to in Section 8(a))
(any of the foregoing, the "Distributed Property"), then, in each such case, the
Conversion Rate shall be increased so that the same shall be equal to the rate
determined by multiplying the Conversion Rate in effect on the record date with
respect to such distribution by a fraction,
(i) the numerator of which shall be the Current Market Price on such
record date; and
(ii) the denominator of which shall be the Current Market Price on
such record date less the Fair Market Value (as determined by the Board of
Directors, whose determination shall be conclusive, and described in a
resolution of the Board of Directors) on such record date of the portion of
the Distributed Property so distributed applicable to one share of Common
Stock,
such adjustment to become effective immediately prior to the opening of business
on the day following such Dividend Record Date; provided that if the then Fair
Market Value (as so determined) of the portion of the Distributed Property so
distributed applicable to one share of Common Stock is equal to or greater than
the Current Market Price on the Record Date, in lieu of the foregoing
adjustment, adequate provision shall be made so that each holder of Series A
Preferred Stock shall have the right to receive upon conversion the amount of
Distributed Property such holder would have received had such holder converted
each share Series A Preferred Stock on the Record Date. If such dividend or
distribution is not so paid or made, the Conversion Rate shall again be adjusted
to be the Conversion Rate that would then be in effect if such dividend or
distribution had not been declared. If the Board of Directors determines the
Fair Market Value of any distribution for purposes of this Section 8(d) by
reference to the actual or when issued trading market for any securities, it
must in doing so consider the prices in such market over the same period used in
computing the Current Market Price on the applicable Record Date.
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Rights or warrants distributed by the Corporation to all holders of Common
Stock entitling the holders thereof to subscribe for or purchase shares of
Capital Stock (either initially or under certain circumstances), which rights or
warrants, until the occurrence of a specified event or events ("Trigger Event"):
(i) are deemed to be transferred with such shares of Common Stock; (ii) are not
exercisable; and (iii) are also issued in respect of future issuances of Common
Stock, shall be deemed not to have been distributed for purposes of this 8(d)
(and no adjustment to the Conversion Rate under this 8(d) will be required)
until the occurrence of the earliest Trigger Event, whereupon such rights and
warrants shall be deemed to have been distributed and an appropriate adjustment
(if any is required) to the Conversion Rate shall be made under this Section
8(d). If any such right or warrant, including any such existing rights or
warrants distributed prior to the date of this Certificate, are subject to
events, upon the occurrence of which such rights or warrants become exercisable
to purchase different securities, evidences of indebtedness or other assets,
then the date of the occurrence of any and each such event shall be deemed to be
the date of distribution and record date with respect to new rights or warrants
with such rights (and a termination or expiration of the existing rights or
warrants without exercise by any of the holders thereof). In addition, in the
event of any distribution (or deemed distribution) of rights or warrants, or any
Trigger Event or other event (of the type described in the preceding sentence)
with respect thereto that was counted for purposes of calculating a distribution
amount for which an adjustment to the Conversion Rate under this 8(d) was made,
(1) in the case of any such rights or warrants that shall all have been redeemed
or repurchased without exercise by any holders thereof, the Conversion Rate
shall be readjusted upon such final redemption or repurchase to give effect to
such distribution or Trigger Event, as the case may be, as though it were a cash
distribution, equal to the per share redemption or repurchase price received by
a holder or holders of Common Stock with respect to such rights or warrants
(assuming such holder had retained such rights or warrants), made to all holders
of Common Stock as of the date of such redemption or repurchase, and (2) in the
case of such rights or warrants that shall have expired or been terminated
without exercise thereof, the Conversion Rate shall be readjusted as if such
expired or terminated rights and warrants had not been issued.
For purposes of this Section 8(d), Section 8(a) and Section 8(b), any
dividend or distribution to which this Section 8(d) is applicable that also
includes shares of Common Stock, or rights or warrants to subscribe for or
purchase shares of Common Stock (or both), shall be deemed instead to be (1) a
dividend or distribution of the evidences of indebtedness, assets or shares of
Capital Stock other than such shares of Common Stock or rights or warrants (and
any Conversion Rate adjustment required by this Section 8(d) with respect to
such dividend or distribution shall then be made) immediately followed by (2) a
dividend or distribution of such shares of Common Stock or such rights or
warrants (and any further Conversion Rate adjustment required by Sections 8(a)
and 8(b) with respect to such dividend or distribution shall then be made),
except (A) the record date of such dividend or distribution shall be substituted
as "the date fixed for the determination of stockholders entitled to receive
such dividend or other distribution," "the date fixed for the determination of
stockholders entitled to receive such rights or warrants" and "the date fixed
for such determination" within the meaning of Sections 8(a) and 8(b) and (B) any
shares of Common Stock included in such dividend or distribution shall not be
deemed "Outstanding at the close of business on the date fixed for such
determination" within the meaning of Section 8(a).
(e) If the Corporation shall, by dividend or otherwise, distribute to all
holders of its Common Stock cash (excluding any dividend or distribution in
connection with the liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary), then if the sum of the amount of such cash
distributions per share of Common Stock plus the aggregate amount of cash
distributions per share of Common Stock in the immediately preceding 12-month
period exceeds the greater of (x) the annualized amount per share of Common
Stock of the next preceding quarterly cash dividend on the Common Stock to the
extent that such preceding quarterly dividend did not require any adjustment to
the Conversion Rate pursuant to this Section 8(e) (as adjusted to reflect
subdivisions, or combinations of the Common Stock),
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and (y) 15% of the average of the Closing Sale Price during the five Trading
Days immediately prior to the date of declaration of such dividend, the
Conversion Rate shall be increased so that the same shall equal the rate
determined by multiplying the Conversion Rate in effect immediately prior to the
close of business on such record date by a fraction,
(i) the numerator of which shall be the Current Market Price on such
record date; and
(ii) the denominator of which shall be the Current Market Price on
such record date less the amount of cash so distributed (including only the
amount of cash distributed in excess of the threshold set forth above)
applicable to one share of Common Stock,
such adjustment to be effective immediately prior to the opening of business on
the day following the record date; provided that if the portion of the cash so
distributed applicable to one share of Common Stock is equal to or greater than
the Current Market Price on the record date, in lieu of the foregoing
adjustment, adequate provision shall be made so that each holder of Series A
Preferred Stock shall have the right to receive upon conversion the amount of
cash such holder would have received had such holder converted each share of
Series A Preferred Stock on the Record Date. If such dividend or distribution is
not so paid or made, the Conversion Rate shall again be adjusted to be the
Conversion Rate that would then be in effect if such dividend or distribution
had not been declared. If any adjustment is required to be made as set forth in
this Section 8(e) as a result of a distribution that is a quarterly dividend,
such adjustment shall be based upon the amount by which such distribution
exceeds the amount of the quarterly cash dividend permitted to be excluded
pursuant hereto. If an adjustment is required to be made as set forth in this
Section 8(e) above as a result of a distribution that is not a quarterly
dividend, such adjustment shall be based upon the full amount of the
distribution.
(f) If a tender or exchange offer made by the Corporation or any Subsidiary
for all or any portion of the Common Stock shall expire and such tender or
exchange offer (as amended upon the expiration thereof) shall require the
payment to stockholders of consideration per share of Common Stock having a Fair
Market Value (as determined by the Board of Directors, whose determination shall
be conclusive and described in a resolution of the Board of Directors) that as
of the last time (the "Expiration Time") tenders or exchanges may be made
pursuant to such tender or exchange offer (as it may be amended) exceeds the
average of the daily Closing Sale Prices of a share of Common Stock for the five
consecutive Trading Days selected by the Corporation commencing not more than 20
Trading Days before, and ending not later than, the Trading Day next succeeding
the Expiration Time, the Conversion Rate shall be increased so that the same
shall equal the rate determined by multiplying the Conversion Rate in effect
immediately prior to the Expiration Time by a fraction,
(i) the numerator of which shall be the sum of (x) the Fair Market
Value (determined as aforesaid) of the aggregate consideration payable to
stockholders based on the acceptance (up to any maximum specified in the
terms of the tender or exchange offer) of all shares validly tendered or
exchanged and not withdrawn as of the Expiration Time (the shares deemed so
accepted up to any such maximum, the "Purchased Shares") and (y) the
product of the number of shares of Common Stock Outstanding (less any
Purchased Shares) at the Expiration Time and the Closing Sale Price of a
share of Common Stock on the Trading Day next succeeding the Expiration
Time, and
(ii) the denominator of which shall be the number of shares of Common
Stock Outstanding (including any tendered or exchanged shares) at the
Expiration Time multiplied by the Closing Sale Price of a share of Common
Stock on the Trading Day next succeeding the Expiration Time,
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such adjustment to become effective immediately prior to the opening of business
on the day following the Expiration Time. If the Corporation is obligated to
purchase shares pursuant to any such tender or exchange offer, but the
Corporation is permanently prevented by applicable law from effecting any such
purchases or all such purchases are rescinded, the Conversion Rate shall again
be adjusted to be the Conversion Rate that would then be in effect if such
tender or exchange offer had not been made.
(g) If the Corporation pays a dividend or makes a distribution to all
holders of its Common Stock consisting of Capital Stock of any class or series,
or similar equity interests, of or relating to a Subsidiary or other business
unit of the Corporation, the Conversion Rate shall be increased so that the same
shall be equal to the rate determined by multiplying the Conversion Rate in
effect on the Record Date with respect to such distribution by a fraction,
(i) the numerator of which shall be the sum of (A) the average of the
Closing Sale Prices of the Common Stock for the ten Trading Days commencing
on and including the fifth Trading Day after the date on which "ex-dividend
trading" commences for such dividend or distribution on The New York Stock
Exchange or such other national or regional exchange or market which such
securities are then listed or quoted (the "Ex-Dividend Date") plus (B) the
Fair Market Value of the securities distributed in respect of each share of
Common Stock for which this Section 8(g) applies, which shall equal the
number of securities distributed in respect of each share of Common Stock
multiplied by the average of the Closing Sale Prices of those distributed
securities for the ten Trading Days commencing on and including the fifth
Trading Day after the Ex-Dividend Date; and
(ii) the denominator of which shall be the average of the Closing Sale
Prices of the Common Stock for the ten Trading Days commencing on and
including the fifth Trading Day after the Ex-Dividend Date,
such adjustment to become effective immediately prior to the opening of business
on the day following the fifteenth Trading Day after the Ex-Dividend Date;
provided that if (x) the average of the Closing Sale Prices of the Common Stock
for the ten Trading Days commencing on and including the fifth Trading Day after
the Ex-Dividend Date minus (y) the Fair Market Value of the securities
distributed in respect of each share of Common Stock for which this Section 8(g)
applies (as calculated in Section 8(g)(i) above) is less than $1.00, then the
adjustment provided by for by this Section 8(g) shall not be made and in lieu
thereof the provisions of Section 9 shall apply to such distribution.
(h) The Corporation may make such increases in the Conversion Rate in
addition to those required by Sections 8(a), (b), (c), (d), (e), (f) and (g) as
the Board of Directors considers to be advisable to avoid or diminish any income
tax to holders of Common Stock or rights to purchase Common Stock resulting from
any dividend or distribution of stock (or rights to acquire stock) or from any
event treated as such for income tax purposes. To the extent permitted by
applicable law, the Corporation from time to time may increase the Conversion
Rate by any amount for any period of time if the Board of Directors shall have
made a determination that such increase would be in the best interests of the
Corporation, which determination shall be conclusive. Whenever the Conversion
Rate is increased pursuant to the preceding sentence, the Corporation shall mail
to holders of the Series A Preferred Stock a notice of the increase prior to the
date the increased Conversion Rate takes effect, and such notice shall state the
increased Conversion Rate and the period during which it will be in effect.
(i) No adjustment in the Conversion Rate shall be required unless such
adjustment would require an increase or decrease of at least 1% in such rate;
provided that any adjustments that by reason of this Section 8(i) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 8 shall
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be made by the Corporation and shall be made to the nearest cent or to the
nearest one-ten thousandth of a share, as the case may be. No adjustment need be
made for rights to purchase Common Stock pursuant to a Corporation plan for
reinvestment of dividends or interest or, except as set forth in this Section 8,
for any issuance of Common Stock or convertible or exchangeable securities or
rights to purchase Common Stock or convertible or exchangeable securities. To
the extent the securities become convertible into cash, assets, property or
securities (other than Capital Stock of the Corporation), subject to Section 9,
no adjustment need be made thereafter as to the cash, assets, property or such
securities.
(j) Whenever the Conversion Rate is adjusted as herein provided, the
Corporation shall promptly file with the Transfer Agent an officer's certificate
setting forth the Conversion Rate after such adjustment and setting forth a
brief statement of the facts requiring such adjustment. Unless and until a
responsible officer of the Transfer Agent shall have received such officer's
certificate, the Transfer Agent shall not be deemed to have knowledge of any
adjustment of the Conversion Rate and may assume that the last Conversion Rate
of which it has knowledge is still in effect. Promptly after delivery of such
certificate, the Corporation shall prepare a notice of such adjustment of the
Conversion Rate setting forth the adjusted Conversion Rate and the date on which
each adjustment becomes effective and shall mail such notice of such adjustment
of the Conversion Rate to the each holder of Series A Preferred Stock at such
holder's last address appearing on the register within 20 days after execution
thereof. Failure to deliver such notice shall not affect the legality or
validity of any such adjustment.
(k) For purposes of this Section 8, the number of shares of Common Stock at
any time Outstanding shall not include shares held in the treasury of the
Corporation, unless such treasury shares participate in any distribution or
dividend that requires an adjustment pursuant to this Section 8, but shall
include shares issuable in respect of scrip certificates issued in lieu of
fractions of shares of Common Stock.
9. Effect of Reclassification, Consolidation, Merger or Sale on Conversion
Privilege.
(a) If any of the following events occur:
(i) any reclassification or change of the Outstanding shares of
Common Stock (other than a subdivision or combination to which Section
8(c) applies);
(ii) any consolidation, merger or combination of the Corporation
with another Person as a result of which holders of Common Stock shall
be entitled to receive stock, other securities or other property or
assets (including cash) with respect to or in exchange for such Common
Stock; or
(iii) any sale or conveyance of all or substantially all of the
properties and assets of the Corporation to any other Person as a
result of which holders of Common Stock shall be entitled to receive
stock, other securities or other property or assets (including cash)
with respect to or in exchange for such Common Stock,
then each share of Series A Preferred Stock shall be convertible, on and after
the effective date of such reclassification, change, consolidation, merger,
combination, sale or conveyance, into the kind and amount of shares of stock,
other securities or other property or assets (including cash) receivable upon
such reclassification, change, consolidation, merger, combination, sale or
conveyance by a holder of the number of shares of Common Stock issuable upon
conversion of such Series A Preferred Stock (assuming, for such purposes, a
sufficient number of authorized shares of Common Stock are available to convert
all such Series A Preferred Stock) immediately prior to such reclassification,
change, consolidation, merger, combination, sale or conveyance assuming such
holder of Common Stock did not exercise its rights of election, if any, as to
the kind or amount of stock, other securities or other property or assets
(including cash) receivable upon such reclassification, change, consolidation,
merger, combination, sale or conveyance (provided that, if the kind or amount of
stock, other securities or other property or assets (including cash) receivable
upon such reclassification, change, consolidation, merger, combination, sale or
conveyance is not the same for each share of Common Stock in respect of which
such rights of
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election shall not have been exercised ("Non-Electing Share"), then for the
purposes of this Section 9 the kind and amount of stock, other securities or
other property or assets (including cash) receivable upon such reclassification,
change, consolidation, merger, combination, sale or conveyance for each
non-electing share shall be deemed to be the kind and amount so receivable per
share by a plurality of the Non-Electing Shares).
(b) The Corporation shall cause notice of the application of this Section 9
within 20 days after the occurrence of the events specified in Section 9(a) by
the issuance of a press release containing such information. Failure to deliver
such notice shall not affect the legality or validity of the modification to the
conversion rights of the Series A Preferred Stock effected by this Section 9.
(c) The above provisions of this Section 9 shall similarly apply to
successive reclassifications, changes, consolidations, mergers, combinations,
sales and conveyances, and the provisions of Section 8 shall apply to any shares
of Capital Stock received by the holders of Common Stock in any such
reclassification, change, consolidation, merger, combination, sale or
conveyance.
(d) If this Section 9 applies to any event or occurrence, Section 8 shall
not apply.
10. Consolidation, Merger and Sale of Assets. The Corporation, without the
consent of the holders of any of the Outstanding Series A Preferred Stock, may
consolidate with or merge into any other Person or convey, transfer or lease all
or substantially all of its assets to any Person or may permit any Person to
consolidate with or merge into, or transfer or lease all or substantially all
its properties to the Corporation.
11. Transfer Agent and Registrar. The transfer agent and registrar (the
"Transfer Agent") for shares of Series A Preferred Stock shall initially be
American Stock Transfer and Trust Company. The Corporation may, in its sole
discretion, remove the Transfer Agent in accordance with the agreement between
the Corporation and the Transfer Agent; provided that the Corporation shall
appoint a successor transfer agent who shall accept such appointment prior to
the effectiveness of such removal.
12. Paying Agent and Conversion Agent. The Transfer Agent shall act as the
office where Series A Preferred Stock may be presented for payment (the "Paying
Agent") and where the Series A Preferred Stock may be presented for conversion
(the "Conversion Agent"), unless another Paying Agent or Conversion Agent is
appointed by the Corporation. The Corporation may appoint the Transfer Agent,
the Paying Agent and the Conversion Agent and may appoint one or more additional
paying agents and one or more additional conversion agents in such other
locations as it shall determine. The term "Paying Agent" includes any additional
paying agent and the term "Conversion Agent" includes any additional conversion
agent. The Corporation may change any Paying Agent or Conversion Agent without
prior notice to any holder. The Corporation shall notify the Transfer Agent of
the name and address of any Paying Agent or Conversion Agent appointed by the
Corporation. If the Corporation fails to appoint or maintain another entity as
Paying Agent or Conversion Agent, the Transfer Agent shall act as such. The
Corporation or any of its affiliates may act as Paying Agent, Transfer Agent,
registrar, coregistrar or Conversion Agent.
13. Headings. The headings of the Sections of this Certificate are for
convenience of reference only and shall not define, limit or affect any of the
provisions hereof.
[SIGNATURE PAGE FOLLOWS]
D-18
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed in its name and on its behalf on this __ day of ______________, 2004.
TITANIUM METALS CORPORATION
By:
---------------------------
Name:
Title:
ATTEST:
By:
--------------------------------------------
Name:
Title:
D-20
[Logo]
TITANIUM METALS CORPORATION
1999 Broadway, Suite 4300
Denver, Colorado 80202
PROXY
TITANIUM METALS CORPORATION
1999 Broadway, Suite 4300
Denver, Colorado 80202
Proxy for Annual Meeting of Stockholders
_______, 2004
The undersigned hereby appoints Joan H. Prusse and Matthew O'Leary, and each of
them, proxy and attorney-in-fact for the undersigned, with full power of
substitution, to vote on behalf of the undersigned at the 2004 Annual Meeting of
Stockholders (the "Annual Meeting") of Titanium Metals Corporation, a Delaware
corporation ("TIMET"), to be held at TIMET's corporate offices, 1999 Broadway,
Suite 4300, Denver, Colorado on _______, ____ __, 2004, at _____ local time, and
at any adjournment or postponement of said Annual Meeting, all of the shares of
Common Stock ($.01 par value) of TIMET standing in the name of the undersigned
or which the undersigned may be entitled to vote on the matters described on the
reverse side of this card.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF TITANIUM METALS
CORPORATION. PLEASE COMPLETE, SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY USING
THE ENCLOSED ENVELOPE.
(Continued and to be signed on the reverse side)
SEE REVERSE SIDE
[X] Please mark your votes as in this example.
This proxy, if properly executed, will be voted in the manner directed herein.
If no direction is made, this proxy will be voted "FOR" all nominees named in
Item 1 below and "FOR" approval of each of the proposals set forth in Item 2,
Item 3 and Item 4 below.
The Board of Directors recommends a vote "FOR" each of the director nominees
named in Item 1 below, and "FOR" each of the proposals set forth in Item 2, Item
3 and Item 4 below.
1. Election of Seven Directors FOR ALL WITHHELD AS TO ALL
(except as marked below)
[ ] [ ]
Nominees:
Norman N. Green Dr. Gary Hutchison
J. Landis Martin Dr. Albert W. Niemi, Jr.
Glenn R. Simmons Steven L. Watson
Paul J. Zucconi
Vote withheld as to the following nominee(s):_________________________________
2. Approval of TIMET's 2004 Senior Executive Cash Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of an amendment to the Company's Amended and Restated Certificate
of Incorporation to increase the number of authorized shares of the
Company's capital stock from 10,000,000 shares (9,900,000 shares of common
stock, $.01 par value, and 100,000 shares of preferred stock, $.01 par
value) to 100,000,000 shares (90,000,000 shares of common stock, $.01 par
value, and 10,000,000 shares of preferred stock, $.01 par value).
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Approval of an exchange offer pursuant to which the Company would issue
shares of newly created Series A Convertible Preferred Stock in exchange
for the 6.625% Convertible Preferred Securities, Beneficial Unsecured
Convertible Securities (BUCS) of TIMET Capital Trust I.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting and any adjournment or
postponement thereof.
--------------------------------------------------------------------------------
[ ] Check this box if you consent to delivery of all future corporate
communications, including proxy statements and annual reports to
stockholders, electronically through TIMET's Internet Website.
Please sign exactly as your name appears on this card. Joint owners
should each sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation,
please show full corporate name and sign authorized officer's name and
title. If a partnership, please show full partnership name and sign
authorized person's name and title.
The undersigned hereby revokes all proxies heretofore given by the
undersigned to vote at such meeting and any adjournment or
postponements thereof.
------------------------------------
2004
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SIGNATURE(S) DATE