-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GOx/Eh14aYiNV8z9IjFzoYaXEWy5N1x6TjPCv0vZ69uUbVLWH4gVYDCAUreI7iiP IX6zxeCt6UJfSMSuh+RRqA== 0000950128-99-001099.txt : 19991115 0000950128-99-001099.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950128-99-001099 CONFORMED SUBMISSION TYPE: 10-12B/A PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELEDYNE TECHNOLOGIES INC CENTRAL INDEX KEY: 0001094285 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING SERVICES [8711] IRS NUMBER: 251843385 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-12B/A SEC ACT: SEC FILE NUMBER: 001-15295 FILM NUMBER: 99746758 BUSINESS ADDRESS: STREET 1: 1000 SIX PPG PLACE CITY: PITTSBURGH STATE: PA ZIP: 15222-5479 BUSINESS PHONE: 4123942800 MAIL ADDRESS: STREET 1: 1000 SIX PPG PLACE CITY: PITTSBURGH STATE: PA ZIP: 15222-5479 10-12B/A 1 TELEDYNE TECHNOLOGIES INCORPORATED 1 FILE NO. 1-15295 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 10, 1999 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10/A-4 GENERAL FORM FOR REGISTRATION OF SECURITIES PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 TELEDYNE TECHNOLOGIES INCORPORATED (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 25-1843385 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION)
2049 CENTURY PARK EAST LOS ANGELES, CALIFORNIA 90067-3101 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 277-3311 SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON WHICH TITLE OF EACH CLASS TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED --------------------------------------- ------------------------------ COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE PREFERRED SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE ---------------- (TITLE OF CLASS)
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 TELEDYNE TECHNOLOGIES INCORPORATED INFORMATION INCLUDED IN INFORMATION STATEMENT AND INCORPORATED IN FORM 10 BY REFERENCE
ITEM NO. ITEM CAPTION LOCATION IN INFORMATION STATEMENT - ---- ------------ --------------------------------- 1 Business.............................. "Summary," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Our Business" 2 Financial Information................. "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Our Historical Selected Financial Data," "Our Unaudited Pro Forma Consolidated Financial Information," and "Index to Our Financial Statements" 3 Properties............................ "Our Business" 4 Security Ownership of Certain Beneficial Owners and Management...... "Security Ownership" 5 Directors and Officers................ "Management" and "Liability and Indemnification of Our Officers and Directors" 6 Executive Compensation................ "Management" 7 Certain Relationships and Related Transactions.......................... "Arrangements with ATI Relating to the Spin-Off" 8 Legal Proceedings..................... "Our Business" 9 Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters................... "The Spin-Off--Listing and Trading of our Common Stock," "Arrangements with ATI Relating to the Spin-Off" and "Index to Our Financial Statements" 10 Recent Sales of Unregistered Securities............................ Not Applicable 11 Description of Registrant's Securities to be Registered...................... "Description of Our Capital Stock" 12 Indemnification of Officers and Directors............................. "Liability and Indemnification of Our Officers and Directors" 13 Financial Statements and Supplementary Data.................... "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Our Historical Selected Financial Data," "Our Unaudited Pro Forma Consolidated Financial Information," and "Index to Our Financial Statements" 14 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................. Not Applicable 15 Financial Statements and Exhibits..... "Index to Our Financial Statements" and "Exhibit Index"
3 ALLEGHENY TELEDYNE LOGO , 1999 To Our Stockholders: These are exciting times at your company. In January we announced our plans to effect a major transformation of Allegheny Teledyne that included the spin-offs of certain businesses in two of our business segments into independent, publicly-traded companies. This transformation is now being implemented. Certain businesses formerly comprising our Aerospace and Electronics segment will now be a separate company known as Teledyne Technologies Incorporated. The businesses formerly comprising our Consumer segment will be a separate company known as Water Pik Technologies, Inc. The common stock of these companies will be traded on the New York Stock Exchange under the symbols "TDY" and "PIK," respectively. Concurrently with the spin-offs we will change our name to "Allegheny Technologies Incorporated." After the spin-offs, our common stock will be traded on the New York Stock Exchange under the symbol "ATI." We also intend to effect a one-for-two reverse split of our common stock immediately after the spin-offs. The spin-offs will allow Allegheny Technologies to focus exclusively on its strategic growth objectives as one of the largest and most diversified specialty metals companies in the world. ATI's strong base of companies provides an excellent foundation for enhanced operating synergies and for adding strategically complementary acquisitions. At the same time, the spin-offs provide each new company with a sharper focus, more efficient access to capital markets, and substantial growth opportunities in its respective areas of expertise. By creating these new companies, we believe that we will unlock greater value for their respective businesses and enhance their ability to thrive in today's competitive marketplace. Both of the spin-offs, which will be tax-free to U.S. stockholders and which do not require any action on your part, will be completed on , 1999. For every seven shares of ATI common stock that you own as of the close of business on , 1999, you will receive one share of Teledyne Technologies common stock. For every 20 shares of ATI common stock that you own as of the close of business on that date, you will receive one share of Water Pik Technologies common stock. The enclosed Information Statement contains information about the spin-off of Teledyne Technologies and about Teledyne Technologies' business, management and financial performance. Information about the Water Pik Technologies spin-off is being provided to you in a separate document. We encourage you to read all of these materials carefully. Very truly yours, Richard P. Simmons Chairman 4 Teledyne Technologies Logo , 1999 To Our Future Stockholders: Welcome to Teledyne Technologies Incorporated. On , 1999 you will become a stockholder of our company. Our common stock will be traded on the New York Stock Exchange under the symbol "TDY". We hope that you share our enthusiasm about our new company and its future. Teledyne Technologies has a strong foundation. We are a leading provider of sophisticated electronic and communication products, systems engineering solutions and information technology services, and aerospace engines and components. Our customers include aerospace prime contractors, general aviation companies, government agencies and major communications and other commercial companies. We serve high-value niche market segments where performance, precision and reliability are critical and where we are in several cases the leading supplier. Our businesses are interrelated by their use of advanced engineering and specialized technology to provide cost-effective and value-added solutions. The business operations of our company consist of a group of high technology businesses that have critical mass and shared core competencies, are strategically complementary and have the potential for profitable growth. Our products include avionics systems that collect and communicate information for airlines and business aircraft systems; broadband communications subsystems for wireless and satellite systems; engineering and information technology services for space, defense and industrial customers; and engines for general aviation aircraft and for cruise missiles. Our goal is to become the leading provider of specialized products, systems engineering solutions and information services for a broad range of high technology applications. We are fortunate to have a technically-sophisticated and well-educated workforce. I am excited to be working with a management team that will provide high-caliber, experienced leadership and that is committed to our new company. Please read the enclosed material for more information about our company. We look forward to your support and are pleased to have you share in this exciting opportunity. Very truly yours, Robert Mehrabian President and Chief Executive Officer 5 PRELIMINARY INFORMATION STATEMENT DATED NOVEMBER 10, 1999 -- FOR INFORMATION ONLY INFORMATION STATEMENT ------------------------- ALLEGHENY TELEDYNE INCORPORATED'S SPIN-OFF OF TELEDYNE TECHNOLOGIES INCORPORATED ------------------------- We are furnishing you with this Information Statement in connection with the spin-off by Allegheny Teledyne Incorporated ("ATI") of all of the outstanding common stock of Teledyne Technologies Incorporated to stockholders of ATI. We will own and operate the businesses formerly comprising the Teledyne Electronic Technologies, Teledyne Brown Engineering, Teledyne Continental Motors and Teledyne Cast Parts divisions of ATI's Aerospace and Electronics segment. ATI will accomplish the spin-off by distributing all issued and outstanding shares of our common stock to holders of record of ATI common stock. ATI will distribute one share of our common stock for every seven ATI shares held as of the close of business on , 1999. The actual number of our shares to be distributed will depend on the number of ATI shares outstanding on that date. Our common stock will be traded on the New York Stock Exchange under the symbol "TDY." Concurrently with the spin-off, ATI will change its name to "Allegheny Technologies Incorporated." After the spin-off, ATI's common stock will be traded on the New York Stock Exchange under the symbol "ATI." OWNING SHARES OF OUR COMMON STOCK WILL ENTAIL RISKS. PLEASE READ "RISK FACTORS" BEGINNING ON PAGE 16. NO VOTE OF STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THE SPIN-OFF. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE NOT REQUESTED TO SEND US A PROXY. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS INFORMATION STATEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES. ------------------------- The date of this Information Statement is , 1999. 6 TABLE OF CONTENTS
PAGE ---- Summary..................................................... 3 Risk Factors................................................ 16 Cautionary Statement as to Forward-Looking Statements....... 22 The Spin-Off................................................ 22 Reasons for the Spin-Off.................................. 22 Manner of Effecting the Spin-Off.......................... 23 Results of the Spin-Off................................... 23 Material Federal Income Tax Consequences of the Spin-Off............................................... 24 Listing and Trading of Our Common Stock................... 25 Our Historical Selected Financial Data...................... 27 Our Unaudited Pro Forma Consolidated Financial Information............................................... 28 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 34 Our Business................................................ 45 Overview.................................................. 45 Our Business and Growth Strategy.......................... 45 Our Business Segments..................................... 48 Sales and Marketing....................................... 55 Competition............................................... 56 Research and Development.................................. 56 Intellectual Property..................................... 56 Our Facilities............................................ 57 Legal Proceedings......................................... 58 Employees................................................. 58 Arrangements with ATI Relating to the Spin-Off.............. 58 Separation and Distribution Agreement..................... 58 Employee Benefits Agreement............................... 59 Tax Sharing and Indemnification Agreement................. 60 Interim Services Agreement................................ 61 Trademark License Agreement............................... 61 Management.................................................. 62 Security Ownership.......................................... 73 Description of Our Capital Stock............................ 75 Liability and Indemnification of Our Officers and Directors................................................. 81 Available Information....................................... 81 Index to Our Financial Statements........................... F-1
7 SUMMARY This summary highlights material information from this Information Statement, but does not contain all the details concerning the spin-off, including information that may be important to you. To better understand us and the spin-off, you should carefully review this entire document. References to "we," "us," "our," "Teledyne Technologies" or "the Company" mean Teledyne Technologies Incorporated and our subsidiaries and divisions. References to "ATI" mean Allegheny Teledyne Incorporated and its subsidiaries and divisions. WHO WE ARE Teledyne Technologies is a leading provider of sophisticated electronic and communication products, systems engineering solutions and information technology services, and aerospace engines and components. Our customers include aerospace prime contractors, general aviation companies, government agencies and major communications and other commercial companies. We serve high-value niche market segments where performance, precision and reliability are critical and where we are in several cases the leading supplier. Our businesses are interrelated by their use of advanced engineering and specialized technology to provide cost-effective and value-added solutions. Our products include avionics systems that collect and communicate information for airlines and business aircraft systems; broadband communications subsystems for wireless and satellite systems; engineering and information technology services for space, defense and industrial customers; and engines for general aviation aircraft and for cruise missiles. Total sales in 1998 were $780 million, compared to $757 million and $716 million in 1997 and 1996, respectively. Our operating profits were $89 million, $75 million and $75 million in 1998, 1997 and 1996, respectively. Approximately 60% of our total sales in 1998 were to commercial customers and the balance was to the U.S. Government. Approximately 69% of these U.S. Government sales were attributable to fixed price-type contracts and the balance to cost plus fee-type contracts. International sales accounted for approximately 22% of total sales in 1998. We have a total workforce of approximately 5,800, of whom approximately 1,400 individuals have engineering, physics, mathematics or computer science degrees. We believe that as several of the markets we serve experience consolidation, customers have tended to become increasingly dependent on technologically-sophisticated specialized suppliers, such as ourselves, to provide a more comprehensive range of products and services. With our history of product innovation, advanced research and development and highly sophisticated engineering and manufacturing capabilities, we believe that we are well- positioned to take advantage of opportunities to expand our business. OUR HISTORY The original Teledyne, Inc. was founded by Dr. Henry Singleton in 1960. Over the following two decades, Teledyne acquired over 100 high technology and specialty metals businesses. The original Teledyne ultimately focused on four major business segments: aviation and electronics, specialty metals, industrial and consumer. In 1996, Teledyne and Allegheny Ludlum Corporation combined to form ATI, one of the largest and most diversified specialty metals producers in the world. Subsequently, ATI integrated the Teledyne specialty 3 8 metals businesses with those of Allegheny Ludlum. ATI also established new management and a new management philosophy for our businesses, with an increased emphasis on manufacturing discipline and on strengthening cost management systems. After a strategic review initiated in 1998, ATI concluded that certain of its aerospace and electronics businesses, which will comprise our company, would be able to grow faster and be a stronger competitor as a separate company. As a separate company, Teledyne Technologies will be better able to focus on its own strategic priorities and will have more efficient access to the capital markets than it could as part of ATI. The operations included in Teledyne Technologies are a group of high technology businesses that have critical mass and shared core competencies, are strategically complementary and have the potential for profitable growth. Concurrently with the spin-off, ATI will change its name to "Allegheny Technologies Incorporated." OUR BUSINESS SEGMENTS Teledyne Technologies' three business segments, their respective operating companies and their contribution to our sales in 1998 are summarized in the following table.
PERCENTAGE OF SEGMENT OPERATING COMPANIES 1998 SALES - --------------------------- -------------------------------- ------------- Electronics and Teledyne Electronic Technologies 44% Communications Systems Engineering Teledyne Brown Engineering 29% Solutions Aerospace Engines and Teledyne Continental Motors 27% Components Teledyne Cast Parts
Electronics and Communications Our Electronics and Communications segment, through Teledyne Electronic Technologies, applies proprietary technology, advanced software and hardware design skills and manufacturing capabilities in three areas: Data Acquisition and Communications Products; Precision Electronic Devices; and Electronic Contract Manufacturing Services. - Data Acquisition and Communications Products. With over 200 commercial airline customers, we are one of the leading suppliers of systems that collect and communicate essential performance data for the commercial airline industry. We have provided these data acquisition systems for our airline customers for over one-half of Boeing aircraft currently in production. We were recently selected by Airbus Industrie's partner, DaimlerChrysler Aerospace-Airbus, to provide our systems for certain of its aircraft customers. Teledyne Technologies is also one of the largest suppliers of air-to-ground telephony and facsimile and data transmission products to the growing business and commuter aircraft market. We also supply microwave power amplifiers used in satellite uplink transmitters for corporate networking and mobile news gathering, and are developing new products to support the growing market for high data rate broadband communications, including Internet applications. - Precision Electronic Devices. We develop and manufacture specialized electronic components for demanding applications in the defense, commercial aerospace, 4 9 medical, instrumentation and industrial markets, where high performance and reliability are of paramount importance. Our miniature electromechanical relays are used to switch high-speed digital and microwave signals in wireless systems, communication satellites, semiconductor test equipment and other applications where maintenance of signal fidelity is essential. We provide custom microelectronic modules for high reliability applications ranging from fiber optic systems on the International Space Station to life-sustaining medical devices such as cardiac pacemakers. We also manufacture instruments designed to provide the precise data that are essential for control of critical processes in the semiconductor and petrochemical industries. - Electronic Contract Manufacturing Services. We operate turnkey manufacturing facilities in Tennessee, Mexico and Scotland for low-to-moderate volume, technically-sophisticated products, ranging from individual printed circuit board assemblies to complete electronic systems. We manufacture subsystems used in such diverse products as weapons release systems and medical magnetic resonance imaging systems. We also support our customers with our patented REGAL(R) rigid-flex technology, which combines rigid and flexible printed circuits into one assembly that eliminates board-to-board connectors, resulting in improved reliability and packaging density. Systems Engineering Solutions Our Systems Engineering Solutions segment, through Teledyne Brown Engineering, offers a wide range of engineering solutions and information services to government defense, aerospace and commercial customers. Our solutions and services are focused on five areas: Aerospace Solutions, Defense Solutions, Information Services, Environmental Solutions, and Enterprise Control and Energy Products. - Aerospace Solutions. We provide a broad range of highly-sophisticated engineering solutions and services to U.S. space programs, including mission planning, payload integration, launch and flight operations and astronaut crew training for the Space Shuttle. We also provide various solutions and services for the International Space Station. - Defense Solutions. For over 45 years, we have played a key role in the development of the U.S. defense systems. For ballistic missile defense programs, we have provided solutions in systems engineering, integration, and testing; real-time distributed testing and training; radar and optical systems design; command center development; and intelligence studies and threat analysis. We provide battle simulation software as part of our role for the U.S. Ballistic Missile Defense Organization's National Missile Defense program. - Information Services. Our software products, most of which are certified to ISO 9001, are used for highly diverse applications, such as high-fidelity simulations, multi-media training, Internet website development, distributed real-time testing, and command and control centers. - Environmental Solutions. We utilize our systems engineering solutions to assist the U.S. Government in complying with terms of the Chemical Weapons Convention Treaty. As the prime contractor for the U.S. Army's Non-Stockpile Chemical Materiel 5 10 Demilitarization program, we are designing, fabricating, integrating and testing equipment to destroy chemical munitions. - Enterprise Control and Energy Products. Our systems engineering capabilities are applied to energy problems through a variety of services and products. Our OpenVector(TM) supervisory control and data acquisition systems are used for managing over half of the gas transportation pipelines in the United States. We also manufacture low-power, continuously-operating electrical generators. Aerospace Engines and Components Our Aerospace Engines and Components segment, through Teledyne Continental Motors and Teledyne Cast Parts, focuses on the design, development and manufacture of piston engines, turbine engines, electronic engine controls, batteries and metal castings. - Piston Engines. We design, develop and manufacture piston engines and ignition systems for major general aviation airframe manufacturers and provide spare parts and engine rebuilding services. Teledyne Continental Motors piston engines have been powering airplanes for over 70 years. We have built approximately one-half of the general aviation piston engines currently in use in the United States. Our Aerosance unit has developed the first full authority digital electronic controls for piston engines to automate many functions, such as fuel flow, ignition and power management, that currently require manual control. These controls are currently undergoing FAA certification testing. - Turbine Engines. We design, develop and manufacture small turbine engines for missiles, unmanned air vehicles and military trainer aircraft. Since the late 1950s, we have delivered over 20,000 of these engines to defense contractors. Our engines power the HARPOON cruise missile and other missile systems. We have recently been selected as the sole source provider of engines to power the two new U.S. cruise missile systems, the Joint Air to Surface Standoff Missile (JASSM) and the Tactical Tomahawk Cruise Missile. - Battery Products. Our Gill(R) line of lead acid batteries is recognized as the premier dry-charged, starting and standby power source for general aviation. We are focused on providing highly engineered battery products in niche markets with favorable margins. - Cast Parts. Teledyne Cast Parts offers a wide range of complex aluminum and magnesium castings and nickel-based superalloy and stainless steel castings to the aerospace and defense industries. Many of our castings are used in specialized high pressure and high temperature applications where precision and product reliability are critical. 6 11 OUR COMPETITIVE STRENGTHS We have developed a number of competitive strengths as we have grown to become one of the leading developers of many of the high technology product applications for the industries we serve. We believe that our competitive strengths include the following: - Product Innovation and Advanced Research and Development - Highly Sophisticated Engineering Capabilities - Widely-Recognized Brand Names - Advanced Manufacturing Capabilities - Established Customer and Regulatory Relationships - Technically-Sophisticated Workforce and Extensive Intellectual Property - Financial and Operating Discipline OUR BUSINESS AND GROWTH STRATEGY Our goal is to become the leading provider of specialized products, systems engineering solutions and information services for a broad range of high technology applications. Our core strategies for achieving our goal and growth objectives are to: - Focus on Operating Discipline and Manufacturing Excellence - Leverage Niche Market Leadership and Technical Expertise to Increase Market Penetration - Accelerate Introduction of Innovative High-Margin Products and Services - Capitalize on Synergies to Enter New Markets - Enhance and Strengthen Customer and Regulatory Relationships - Expand Value-Added Information Services - Pursue Selected Acquisitions and Strategic Alliances QUESTIONS AND ANSWERS ABOUT THE SPIN-OFF Why are we being spun-off by ATI? After a strategic review initiated in 1998, ATI concluded that certain of its aerospace and electronics businesses, which will comprise our company, would be able to grow faster and more effectively as a separate company. As a separate company, we will be better able to focus on our own strategic priorities and have more efficient access to the capital markets than we could as part of ATI. The operations included in Teledyne Technologies are a group of high technology businesses that have critical mass and shared core competencies, are strategically complementary and have the potential for profitable growth. 7 12 We believe that the spin-off will enable our businesses to expand and grow more quickly and efficiently in the following ways: - Our high technology businesses have different fundamentals, growth characteristics and strategic priorities than the specialty metals businesses conducted by ATI. The separation of our businesses from those of ATI will enable us to focus on our own strategic priorities, which should increase our ability to capitalize on growth opportunities for our businesses and enhance our ability to respond more quickly to changes in the technically-sophisticated markets that we serve. - The spin-off will enable us to have direct access to the capital markets. We intend to raise our own equity capital that we will use: to expand our businesses by accelerating new higher-margin product introductions through increased research and development investment; to expand upon our extensive data acquisition and systems engineering capabilities to provide value-added information services to broaden and deepen our market penetration; to further develop our manufacturing capabilities; and to pursue selected acquisitions. - The spin-off will enable us to recruit, retain and motivate key employees by providing them with stock-based compensation incentives directly tied to the success of our businesses. What will I receive in the spin-off? ATI will distribute one share of our common stock for every seven shares of ATI common stock you owned as of , 1999. For example, if you own 100 shares of ATI common stock, you will receive 14 whole shares of our common stock and cash instead of the fractional share. You will continue to own your ATI stock. ATI intends to effect a one-for-two reverse split of its common stock immediately after the spin-off. The ATI reverse split will have no effect on Teledyne Technologies common stock or the distribution ratio for the spin-off. What do I have to do to participate in the spin-off? Nothing. No stockholder vote is required for the spin-off. How will ATI distribute Teledyne Technologies common stock to me? Prior to the spin-off, ATI will deliver all outstanding shares of Teledyne Technologies common stock to the distribution agent for distribution. As promptly as practicable after the spin-off, the distribution 8 13 agent will mail certificates for whole shares of Teledyne Technologies common stock to ATI stockholders of record on , 1999. What is the record date? The record date is , 1999. What if I hold my shares of ATI stock through my stockbroker, bank or other nominee? If you hold your shares of ATI stock through your stockbroker, bank or other nominee, you are probably not a stockholder of record and your receipt of Teledyne Technologies common stock depends on your arrangements with the nominee that holds your shares of ATI stock for you. We anticipate that stockbrokers, banks and other nominees generally will credit their customers' accounts with Teledyne Technologies common stock on or about , 1999, but you should check with your stockbroker, bank or other nominee. Following the spin-off you may instruct your stockbroker, bank or other nominee to transfer your shares of Teledyne Technologies common stock into your own name. How will you treat fractional shares? If you are otherwise entitled to receive a fractional share of Teledyne Technologies common stock you will receive cash instead of the fractional share. Fractional shares will be aggregated and sold by the distribution agent, which will distribute to you your portion of the cash proceeds promptly after the spin-off. No interest will be paid on any cash distributed instead of fractional shares. What is Teledyne Technologies' dividend policy? We currently anticipate that no cash dividends will be paid on Teledyne Technologies common stock in the foreseeable future in order to conserve cash for use in our businesses, including possible future acquisitions. Also, our current credit facility will limit our ability to pay dividends. Our board of directors will periodically re-evaluate this dividend policy taking into account our operating results, capital needs, the terms of our credit facility and other factors. How does Teledyne Technologies common stock differ from ATI common stock? Teledyne Technologies common stock and ATI common stock will be different securities and will not trade or be valued alike. Teledyne Technologies and ATI will be separate companies with different management, fundamentals, growth characteristics and strategic priorities. However, as with ATI common stock, Teledyne Technologies common stock will have the following characteristics: 9 14 - be fully paid and nonassessable; - have one vote per share, with no right to cumulate votes; - carry no preemptive rights; and - be accompanied by Preferred Share Purchase Rights. How will Teledyne Technologies common stock trade? Teledyne Technologies common stock will be listed on the New York Stock Exchange under the symbol "TDY." We expect that regular trading of our common stock will begin on , 1999. A temporary form of interim trading called "when-issued trading" may occur for our common stock on or before , 1999 and continue through , 1999. If when-issued trading occurs, the listing for Teledyne Technologies common stock will be accompanied by the letters "wi" on the New York Stock Exchange. If when-issued trading develops, you will be able to buy Teledyne Technologies common stock in advance of the , 1999 spin-off and you may sell Teledyne Technologies common stock in advance of such date on a when-issued basis. How will ATI common stock trade? ATI common stock will continue to trade on a "regular way" basis and may also trade on a when-issued or ex-distribution basis, reflecting an assumed value for ATI common stock after giving effect to the spin-offs of Teledyne Technologies and Water Pik Technologies, Inc. When-issued or ex-distribution trading in ATI common stock, if available, could last from on or before , 1999 through , 1999. Is the spin-off taxable for United States federal income tax purposes? No. ATI has received a tax ruling from the Internal Revenue Service stating that the spin-off will be tax-free to ATI and to ATI's stockholders. The continuing validity of the IRS tax ruling is subject to various factual representations and assumptions, including the completion of a public offering of our common stock within one year of the spin-off. See "Risk Factors" and "The Spin-Off -- Material Federal Income Tax Consequences of the Spin-Off." Will we be related to ATI in any way after the spin-off? ATI will not own any of our common stock after the spin-off. Until the third annual meeting of our stockholders held after the spin-off, at least a majority of the members of our Board of Directors will also be members of the Board of Directors of ATI. 10 15 We will enter into the following agreements with ATI prior to the spin-off: - A Separation and Distribution Agreement, which provides for the various corporate transactions required to separate our businesses from other businesses of ATI and governs various relationships and circumstances that may arise between us after the spin-off; - An Employee Benefits Agreement, which contains various agreements between ATI and us concerning employees, pension and employee benefit plans and other compensation arrangements for current and former employees of our businesses; - A Tax Sharing and Indemnification Agreement allocating certain federal, state, local and foreign tax responsibilities and liabilities between ATI and us; - An Interim Services Agreement under which ATI will provide various services to us for limited periods of time following the spin-off; and - A Trademark License Agreement under which an affiliate of ATI will grant Teledyne Technologies an exclusive license to use the "Teledyne" name and related logos, symbols and marks in connection with Teledyne Technologies operations after the spin-off, which license will include Teledyne Technologies' option to purchase, on the fifth anniversary of the spin-off, all rights and interests in the Teledyne name and related logos, symbols and marks. See "Arrangements with ATI Relating to the Spin-Off." Are there any risks entailed in owning our stock? Yes. Stockholders should consider carefully the matters discussed in the section of this Information Statement called "Risk Factors." How can I obtain information about the separate spin-off of ATI's Consumer segment? You will be provided with a separate Information Statement describing the spin-off of Water Pik Technologies, Inc. WHAT WE HAVE ALREADY DONE IN PREPARATION FOR THE SPIN-OFF Board Appointments As of the date of the spin-off, the Board of Directors will consist of at least eight members. Our initial directors will be Robert P. Bozzone, Paul S. 11 16 Brentlinger, Frank V. Cahouet, Thomas A. Corcoran, Diane C. Creel, C. Fred Fetterolf and Charles J. Queenan, Jr., all of whom are also directors of ATI, as well as Robert Mehrabian, our President and Chief Executive Officer. Until the third annual meeting of our stockholders held after the spin-off, at least a majority of our directors will also be members of the Board of Directors of ATI. Senior Management Appointments Dr. Robert Mehrabian is our President and Chief Executive Officer. He has been the President and Chief Executive Officer of ATI's Aerospace and Electronics segment since July 1999. Dr. Mehrabian has served ATI in various senior executive capacities since July 1997. Prior to that, he served as President of Carnegie Mellon University. Stefan C. Riesenfeld is our Executive Vice President and Chief Financial Officer. He joined ATI in August 1999 as Executive Vice President and Chief Financial Officer of ATI's Aerospace and Electronics segment in anticipation of the spin-off. From 1996 to May 1999 he was Chief Financial Officer of ICL, PLC, a global information systems and services company based in London, England. From 1983 to 1996, he was with Unisys Corporation where he served as Vice President and Corporate Treasurer from 1989. John T. Kuelbs is our Senior Vice President, General Counsel and Secretary. He joined ATI's Aerospace and Electronics segment in October 1999. Mr. Kuelbs was Senior Vice President -- Acquisition Policy for Raytheon Company from November 1998 to September 1999 and Senior Vice President -- Legal of Raytheon Systems Company from January 1998 to November 1998. Before Raytheon's acquisition of Hughes Aircraft Company, Mr. Kuelbs spent 17 years at Hughes Aircraft Company where he served as Senior Vice President, General Counsel and Secretary from 1994 to 1998. New Credit Facility ATI has established a five-year, $200 million revolving credit facility. Prior to the spin-off, ATI will use $100 million of borrowings under this credit facility to repay certain of its debt obligations and we will assume the repayment obligations for those borrowings. Following that assumption, we will have $100 million of borrowing availability remaining under the credit facility, subject to the terms of the facility. 12 17 WHO CAN HELP ANSWER YOUR QUESTIONS Stockholders of ATI with questions relating to the spin-off should contact: Richard J. Harshman Vice President, Investor Relations and Corporate Communications Allegheny Teledyne Incorporated 1000 Six PPG Place Pittsburgh, Pennsylvania 15222-5479 (412) 394-2861 The distribution agent for our common stock in the spin-off and the transfer agent and registrar for our common stock after the spin-off is: ChaseMellon Shareholder Services L.L.C. 85 Challenger Road Overpeck Centre Ridgefield Park, New Jersey 07660 1-888-540-9867 13 18 HISTORICAL SELECTED COMBINED FINANCIAL DATA The following table summarizes certain selected combined financial data for Teledyne Technologies. The income statement data for each of the three years ended December 31, 1998, 1997 and 1996 and the balance sheet data at December 31, 1998 and 1997 set forth below are derived from audited combined financial statements of Teledyne Technologies. The income statement data for the nine months ended September 30, 1999 and 1998, and the years ended December 31, 1995 and 1994 and the balance sheet data at September 30, 1999 and 1998 and December 31, 1996, 1995 and 1994 set forth below are derived from unaudited combined financial statements of Teledyne Technologies. The historical selected combined financial data are not necessarily indicative of the results of operations or financial position that would have occurred if Teledyne Technologies had been a separate, independent company during the periods presented, nor are they indicative of our future performance. Such historical data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our combined financial statements and related notes included in this Information Statement. Per share data has not been presented because Teledyne Technologies was not a publicly held company during the periods presented.
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31, ------------------- ---------------------------------------------------- 1999 1998 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS) Sales................ $602,978 $588,690 $780,393 $756,601 $716,400 $680,475 $667,663 Net income........... $ 35,835 $ 37,803 $ 48,717 $ 41,624 $ 40,695 $ 30,850 $ 36,398 Working capital...... $ 93,085 $ 83,591 $ 78,568 $ 87,653 $104,184 $ 92,814 $ 68,896 Total assets......... $277,497 $255,850 $250,819 $255,366 $252,961 $234,301 $217,610 Stockholder's equity............. $126,370 $109,057 $106,402 $109,365 $128,018 $115,168 $ 99,337
14 19 PRO FORMA SELECTED CONSOLIDATED FINANCIAL DATA The pro forma selected consolidated financial data set forth below are derived from the unaudited pro forma consolidated financial information included in this Information Statement. The pro forma data do not represent what our financial position or results of operation would have been had we operated as a separate, independent public company, nor do they give effect to any events other than those discussed in the related notes. The pro forma data also do not project our financial position or results of operations as of any future date or for any future period. The capital structure that existed when our businesses operated as a part of ATI is not relevant because it does not reflect our expected future capital structure as a separate, independent public company. The basic weighted average shares outstanding were calculated by applying the distribution ratio (one share of Teledyne Technologies common stock for every seven shares of ATI common stock) to ATI's basic weighted average shares outstanding during each period.
NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, 1999 DECEMBER 31, 1998 ------------------ ----------------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Sales...................................... $602,978 $780,393 Net income................................. $ 29,227 $ 39,768 Basic earnings per share................... $ 1.06 $ 1.41 Weighted average shares outstanding -- basic..................... 27,481 28,107 Diluted earnings per share................. $ 1.06 $ 1.41 Weighted average shares outstanding -- diluted................... 27,507 28,134 Working capital............................ $ 93,085 Total assets............................... $294,505 Long-term debt............................. $100,000 Stockholders' equity....................... $ 13,062
15 20 RISK FACTORS You should carefully consider all the information we have included in this Information Statement. In particular, you should carefully consider the risk factors described below. In addition, please read "Cautionary Statement as to Forward-Looking Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" where we describe additional uncertainties associated with our business and certain forward-looking statements included in this Information Statement. WE MAY BE UNABLE TO SUCCESSFULLY INTRODUCE NEW AND ENHANCED PRODUCTS IN A TIMELY AND COST-EFFECTIVE MANNER. Our operating results will depend in part on our ability to introduce new and enhanced products on a timely basis. Successful product development and introduction depends on numerous factors, including our ability to anticipate customer and market requirements, changes in technology and industry standards, our ability to differentiate our offerings from offerings of our competitors, and market acceptance. We may not be able to develop and introduce new or enhanced products in a timely and cost-effective manner or to develop and introduce products that satisfy customer requirements. Our new products also may not achieve market acceptance or correctly anticipate new industry standards and technological changes. TECHNOLOGICAL CHANGE COULD CAUSE CERTAIN OF OUR PRODUCTS OR SERVICES TO BECOME OBSOLETE OR NON-COMPETITIVE. The markets for a number of our products and services are generally characterized by rapid technological development, evolving industry standards, changes in customer requirements and new product introductions and enhancements. A faster than anticipated change in one or more of the technologies related to our products or services or in market demand for products or services based on a particular technology could result in faster than anticipated obsolescence of certain of our products or services and could have a material adverse effect on our business, results of operation and financial condition. Currently accepted industry standards are also subject to change, which may contribute to the obsolescence of our products or services. OUR DEPENDENCE ON REVENUE FROM GOVERNMENT CONTRACTS SUBJECTS US TO THE RISK THAT WE MAY NOT BE SUCCESSFUL IN BIDDING FOR FUTURE CONTRACTS AND THAT GOVERNMENT FUNDING FOR THESE CONTRACTS MAY BE DELAYED OR CONTINUE TO DECREASE. We perform work on a number of contracts with the Department of Defense and other agencies and departments of the U.S. Government. Sales under contracts with the U.S. Government as a whole, including sales under contracts with the Department of Defense, as prime or subcontractor, represented approximately 40% of our total revenue for 1998. Performance under government contracts has certain inherent risks that could have a material effect on our business, results of operations and financial condition. Government contracts are conditioned upon the continuing availability of Congressional appropriations. Congress typically appropriates funds for a given program on a fiscal-year basis even though contract performance may take more than one year. As a result, at the beginning of a major program, a contract is typically only partially funded, and additional monies are normally committed to the contract by the procuring agency only as appropriations are made by Congress for future fiscal years. The overall U.S. military budget declined in real dollars from the mid-1980's through the early 1990's. Although U.S. military budgets have stabilized in recent years, future levels of defense spending cannot be predicted. Delays or further declines in U.S. military expenditures could adversely affect our business, results of operations and financial condition, depending upon the programs affected, the timing and size of the changes and our ability to offset the impact with new business or cost reductions. Most of our U.S. Government contracts are subject to termination by the U.S. Government 16 21 either at its convenience or upon the default of the contractor. Termination-for-convenience provisions provide only for the recovery of costs incurred or committed, settlement expenses, and profit on work completed prior to termination. Termination-for-default imposes liability on the contractor for excess costs incurred by the U.S. Government in procuring undelivered items from another source. We obtain many U.S. Government prime and subcontracts through the process of competitive bidding. We may not be successful in having our bids accepted. In addition, contracts may not be profitable. A number of our U.S. Government prime and subcontracts are fixed price-type contracts (69% in 1998). Under these types of contracts, we bear the inherent risk that actual performance cost may exceed the fixed contract price. This is particularly true where the contract was awarded and the price finalized in advance of final completion of design. We believe that the U.S. Government is increasingly requesting proposals for fixed price-type contracts. We, like other government contractors, are subject to various audits, reviews and investigations (including private party "whistleblower" lawsuits) relating to our compliance with federal and state laws. In addition, we have a compliance program designed to surface issues that may lead to voluntary disclosures to the U.S. Government. Generally, claims arising out of these U.S. Government inquiries and voluntary disclosures can be resolved without resorting to litigation. However, should the business unit or division involved be charged with wrongdoing, or should the U.S. Government determine that the unit or division is not a "presently responsible contractor," that unit or division, and conceivably our company as a whole, could be temporarily suspended or, in the event of a conviction, could be debarred for up to three years from receiving new government contracts or government-approved subcontracts. In addition, we could expend substantial amounts in defending against such charges and in damages, fines and penalties if such charges are proven or result in negotiated settlements. WE MAY NOT HAVE SUFFICIENT RESOURCES TO FUND PLANNED OR NECESSARY RESEARCH AND DEVELOPMENT, CAPITAL EXPENDITURES AND POSSIBLE ACQUISITIONS. In order to remain competitive, we must make substantial investments in research and development to develop new and enhanced products and continuously upgrade our process technology and manufacturing capabilities. Although we believe that anticipated cash flows from operations and available borrowings under the Credit Facility will be sufficient to satisfy our working capital and normal operating requirements, we cannot fund our planned research and development, capital investment programs and possible acquisitions without additional financing. Our ability to raise additional capital will depend on a variety of factors, some of which will not be within our control, including investor perceptions of us, our businesses and the industries in which we operate, and general economic and market conditions. We may be unable to successfully raise needed capital and the amount of net proceeds that will be available to us may not be sufficient to meet our needs. Failure to successfully raise needed capital on a timely or cost-effective basis could have a material adverse effect on our business, results of operations and financial condition. IF WE FAIL TO UNDERTAKE A PUBLIC OFFERING OF OUR COMMON STOCK WITHIN ONE YEAR FOLLOWING THE SPIN-OFF, WE WILL BE IN BREACH OF OUR AGREEMENTS WITH ATI. ATI has received a tax ruling from the IRS stating in principle that the spin-off will be tax-free to ATI and to ATI's stockholders. One of the assumptions underlying the tax ruling is that we will undertake a public offering of our common stock within one year following the spin-off and use the anticipated gross proceeds of approximately $125 million (less associated costs) for research and development and related capital projects, for the further development of our manufacturing capabilities and for acquisitions and/or joint ventures. Pursuant to the Separation and Distribution Agreement and the Tax Sharing and Indemnification Agreement, we have also agreed with ATI to undertake such a public 17 22 offering. Our failure to do so would be a breach of those agreements and subject us to substantial liabilities. WE SELL PRODUCTS AND SERVICES TO CUSTOMERS IN INDUSTRIES WHICH ARE CYCLICAL AND SENSITIVE TO CHANGES IN GENERAL ECONOMIC ACTIVITY. We derive significant revenues from the commercial aerospace industry. Domestic and international commercial aerospace markets are cyclical in nature. Historic demand for new commercial aircraft has been related to the stability and health of domestic and international economies. Delays or changes in aircraft and component orders could impact the future demand for our products and have a material adverse effect on our business, results of operations and financial condition. In addition, we sell products and services to customers in industries that are sensitive to the level of general economic activity and in mature industries that are sensitive to capacity. Adverse economic conditions affecting these industries may reduce demand for our products and services, which may reduce our profits, or our production levels, or both. PRODUCT LIABILITY CLAIMS OR RECALLS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR REPUTATION, BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION. As a manufacturer and distributor of various products, our results of operations are susceptible to adverse publicity regarding the quality or safety of our products. In part, product liability claims challenging the safety of our products may result in a decline in sales for a particular product which could adversely affect our results of operations. This could be true even if the claims themselves are proven to not be true or settled for immaterial amounts. While we will have general liability and other insurance policies concerning product liabilities, we will have self-insured retentions or deductibles under such policies with respect to a portion of these liabilities. For example, our annual self-insured retention for general aviation aircraft liabilities incurred in connection with products manufactured by Teledyne Continental Motors is $10 million. Product recalls could also have a material adverse effect on our business, results of operations and financial condition. For example, in the second quarter of 1999, Teledyne Continental Motors engaged in a product recall of piston engines produced in 1998, which had an adverse effect on our recent financial performance. Product recalls have the potential for tarnishing a company's reputation and could have a material adverse effect on the sales of our products. We cannot assure you that we will not have additional product liability claims or that we will not recall any additional products. WE ARE SUBJECT TO THE RISKS ASSOCIATED WITH INTERNATIONAL SALES. During 1998, international sales accounted for approximately 22% of our total revenues. We anticipate that future international sales will continue to account for a significant percentage of our revenues. Risks associated with these sales include: - - political and economic instability; - - export controls; - - changes in legal and regulatory requirements; - - U.S. and foreign government policy changes affecting the markets for our products; - - changes in tax laws and tariffs; - - the impact of the transition to a common European currency; - - convertibility and transferability of international currencies; and - - exchange rate fluctuations (which may affect sales to international customers and the value of and profits earned on international sales when converted into dollars). Any of these factors could have a material adverse effect on our business, results of opera- 18 23 tions and financial condition. Recent weak conditions in Asian economies have affected our results of operations adversely. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." OUR INABILITY TO ATTRACT AND RETAIN KEY PERSONNEL COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FUTURE SUCCESS. Our future success depends to a significant extent upon the continued service of our executive officers and other key management and technical personnel and on our ability to continue to attract, retain and motivate qualified personnel. The loss of the services of one or more of our key employees or our failure to attract, retain and motivate qualified personnel could have a material adverse effect on our business, financial condition and results of operations. In particular, the loss of the services of Dr. Robert Mehrabian, our President and Chief Executive Officer, could materially and adversely affect us. ACQUISITIONS INVOLVE INHERENT RISKS THAT MAY ADVERSELY AFFECT OUR OPERATING RESULTS AND FINANCIAL CONDITION. Our growth strategy includes possible acquisitions. Acquisitions involve various inherent risks, such as: - - our ability to assess accurately the value, strengths, weaknesses, contingent and other liabilities and potential profitability of acquisition candidates; - - the potential loss of key personnel of an acquired business; - - our ability to integrate acquired businesses and to achieve identified financial and operating synergies anticipated to result from an acquisition; and - - unanticipated changes in business and economic conditions affecting an acquired business. PROVISIONS OF OUR GOVERNING DOCUMENTS, APPLICABLE LAW AND THE TAX SHARING AND INDEMNIFICATION AGREEMENT COULD MAKE AN ACQUISITION OF TELEDYNE TECHNOLOGIES MORE DIFFICULT. Our Certificate of Incorporation, Bylaws and Rights Agreement, and the General Corporation Law of the State of Delaware (the "DGCL") contain several provisions that could make the acquisition of control of Teledyne Technologies in a transaction not approved by our board of directors more difficult. See "Description of Our Capital Stock -- Rights Plan," "-- Certain Provisions of Our Governing Documents," and "-- Anti-takeover Legislation." Certain tax aspects of the spin-off could also discourage an acquisition of control of Teledyne Technologies for some period of time. For example, the acquisition of Teledyne Technologies by a third party during the two-year period following the spin-off could result in the spin-off not qualifying as a tax-free distribution within the meaning of Section 355 of the Internal Revenue Code and trigger indemnification obligations of Teledyne Technologies under the Tax Sharing and Indemnification Agreement. See "Arrangements with ATI Relating to the Spin-Off -- Tax Sharing and Indemnification Agreement." IF WE ARE UNABLE TO MANAGE THE YEAR 2000 TRANSITION, OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION WILL BE ADVERSELY AFFECTED. We are in the final stages of implementing plans to address issues related to the impact of the Year 2000 on our products, business systems, infrastructure, manufacturing systems and suppliers. The estimated costs associated with these efforts continue to be evaluated based on actual experience. While we believe, based on available information, that we will be able to manage the Year 2000 transition without any material adverse effect on our business, results of operations and financial condition, there can be no assurance that this will be the case. In addition, we may be adversely affected by the failure of suppliers, customers and federal, state, local and international governments to address Year 2000 issues affecting their systems. 19 24 See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Year 2000 Readiness Disclosure." COMPLIANCE WITH INCREASING ENVIRONMENTAL REGULATIONS AND THE EFFECTS OF POTENTIAL ENVIRONMENTAL LIABILITIES COULD HAVE A MATERIAL ADVERSE FINANCIAL EFFECT ON US. We, like other industry participants, are subject to various federal, state, local and international environmental laws and regulations. We may be subject to increasingly stringent environmental standards in the future. Future developments, administrative actions or liabilities relating to environmental matters could have a material adverse effect on our business, results of operations or financial condition. Some of our businesses work with highly dangerous substances which require heightened standards of care. For example, as the prime contractor for the U.S. Army's Non-Stockpile Chemical Materiel Demilitarization program, we are responsible for the destruction of small caches of chemical munitions and materiel located in over 30 states. The destruction of chemical weapons is an inherently dangerous activity. Although we have not experienced any accidents or other adverse consequences as a result of our participation in this program, we cannot assure you that we will not experience any problems in the future. INCREASING COMPETITION COULD REDUCE THE DEMAND FOR OUR PRODUCTS AND SERVICES. Although we have certain advantages that we believe help us compete in our markets, each of our markets is highly competitive. Many of our competitors have, and potential competitors could have, greater name recognition, a larger installed base of products, more extensive engineering, manufacturing, marketing and distribution capabilities and greater financial, technological and personnel resources than we do. New or existing competitors may also develop new technologies which could adversely affect the demand for our products and services. Industry consolidation trends, particularly among aerospace and defense contractors, could adversely affect demand for our products and services if prime contractors seek to control more aspects of vertically-integrated projects. HAVING NO OPERATING HISTORY AS AN INDEPENDENT COMPANY MAKES IT DIFFICULT TO PREDICT OUR PROFITABILITY AS A STAND-ALONE COMPANY. We do not have an operating history as an independent company. Our businesses have historically relied on ATI for various financial, managerial and administrative services and have been able to benefit from the earnings, financial resources, assets and cash flows of ATI's other businesses. After the spin-off, ATI will only be obligated to provide us with the assistance and services set forth in the Interim Services Agreement. See "Arrangements with ATI Relating to the Spin-Off." Following the spin-off, we will incur costs and expenses associated with the management of a public company that we expect will be greater than the amount reflected in our historical financial statements. We will also incur interest expense and be subject to the other requirements associated with our credit facility. While we have been profitable as part of ATI, there can be no assurance that, as a stand-alone company, our future profits will be comparable to historical operating results before the spin-off. We also will need to dedicate significant managerial and other resources at the corporate level to establish the infrastructure and systems necessary for us to operate as an independent public company. While we believe that we have sufficient management resources, we cannot assure you that this will be the case or that we will successfully implement our operating and growth initiatives. Failure to implement these initiatives successfully could have a material adverse effect on our business, results of operations and financial condition. 20 25 SINCE THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK IT IS IMPOSSIBLE TO PREDICT THE PRICES AT WHICH OUR COMMON STOCK WILL TRADE IN THE OPEN MARKET. There has been no prior trading market for our common stock, and we cannot predict the prices at which trading in our common stock will occur after the spin-off. The trading prices for our common stock could fluctuate significantly. SUBSTANTIAL SALES OF OUR COMMON STOCK FOLLOWING THE SPIN-OFF OR THE PROSPECT OF THE REQUIRED PUBLIC OFFERING COULD CAUSE A DECREASE IN THE MARKET PRICE OF OUR COMMON STOCK. Substantially all of the shares of our common stock distributed in the spin-off will be eligible for immediate resale in the public market. In transactions similar to the spin-off, it is not unusual for a significant redistribution of shares to occur during the first few weeks or even months following completion of the transaction because of the differing objectives and strategies of investors, including mutual funds, who acquire shares of our common stock in the transaction. In addition, the prospect of our being required to undertake a public offering of our common stock within one year following the spin-off may adversely affect the market price of our common stock. Sales of substantial amounts of our common stock in the public market following the spin-off, the perception that any redistribution has not been completed, or the prospect of our having to undertake a public offering of our common stock following the spin-off, could materially adversely affect the market price of our common stock. FAILURE OF REPRESENTATIONS AND ASSUMPTIONS UNDERLYING THE IRS TAX RULING COULD CAUSE THE SPIN-OFF NOT TO BE TAX-FREE TO ATI OR TO ATI'S STOCKHOLDERS AND MAY REQUIRE US TO INDEMNIFY ATI. While the tax ruling relating to the qualification of the spin-off as a tax-free distribution within the meaning of Section 355 of the Internal Revenue Code generally is binding on the IRS, the continuing validity of the tax ruling is subject to certain factual representations and assumptions, including the assumption that we will complete a required public offering of our common stock within one year following the spin-off, and use the anticipated gross proceeds of approximately $125 million (less associated costs) for research and development and related capital projects, for the further development of our manufacturing capabilities and for acquisitions and/or joint ventures. ATI and Teledyne Technologies are not aware of any facts or circumstances that would cause such representations and assumptions to become untrue. If the spin-off were not to qualify as a tax-free distribution within the meaning of Section 355 of the Code, ATI would recognize taxable gain generally equal to the amount by which the fair market value of the Teledyne Technologies common stock distributed to ATI's stockholders exceeded the tax basis in our assets. In addition, the distribution of our common stock to each ATI stockholder would generally be treated as taxable in an amount equal to the fair market value of the Teledyne Technologies common stock such stockholder receives. If the spin-off qualified as a distribution under Section 355 of the Code but failed to be tax-free to ATI because of certain post-spin-off circumstances (such as an acquisition of Teledyne Technologies) ATI would recognize taxable gain as described above, but the distribution of our common stock in the spin-off would generally be tax-free to each ATI stockholder. The Tax Sharing and Indemnification Agreement provides that we will be responsible for any taxes imposed on, or other amounts paid by, ATI, its agents and representatives and its stockholders as a result of the failure of the spin-off to qualify as a tax-free distribution within the meaning of Section 355 of the Code if the failure or disqualification is caused by certain post-spin-off actions by or with respect to us (including our subsidiaries) or our stockholders. For example, the acquisition of Teledyne Technologies by a third party during the two-year period following the spin-off could cause such a failure or disqualification. If any of the taxes or other 21 26 amounts described above were to become payable by us, the payment could have a material adverse effect on our financial condition, results of operations and cash flow and could exceed our net worth by a substantial amount. See "Arrangements with ATI Relating to the Spin-Off -- Tax Sharing and Indemnification Agreement." CAUTIONARY STATEMENT AS TO FORWARD-LOOKING STATEMENTS We caution you that this document contains disclosures which are forward-looking statements. All statements regarding ATI's or Teledyne Technologies' expected future financial position, results of operations, cash flows, dividends, financing plans, business strategy, budgets, projected costs or cost savings, capital expenditures, competitive positions, continuation or expansion of government programs, growth opportunities for existing products or products under development, benefits from new technology, plans and objectives of management for future operations and markets for stock are forward-looking statements. In addition, forward-looking statements include statements in which we use words such as "expect," "believe," "anticipate," "intend," or similar expressions. Although we believe the expectations reflected in such forward-looking statements are based on reasonable assumptions, we cannot assure you that these expectations will prove to have been correct, and actual results may differ materially from those reflected in the forward-looking statements. Factors that could cause our actual results to differ from the expectations reflected in the forward-looking statements in this document include those set forth in "Risk Factors." Neither Teledyne Technologies nor ATI has any intention of or obligation to update the forward-looking statements, even if new information, future events or other circumstances make them incorrect or misleading. THE SPIN-OFF REASONS FOR THE SPIN-OFF After a strategic review initiated in 1998, ATI concluded that certain of its aerospace and electronics businesses, which will comprise our company, would be able to grow faster and more effectively as a separate, independent company. As a separate, independent company, we will be better able to focus on our own strategic priorities and have more efficient access to the capital markets than we could as part of ATI. The operations included in Teledyne Technologies are a group of high technology businesses that have critical mass and shared core competencies, are strategically complementary and have the potential for profitable growth. This Information Statement relates only to distribution of the common stock of Teledyne Technologies. A separate Information Statement will be provided to you regarding the spin-off of Water Pik Technologies, Inc. We believe that the spin-off will enable our businesses to expand and grow more quickly and efficiently in the following ways: - - Our high technology businesses have different fundamentals, growth characteristics and strategic priorities than the specialty metals businesses conducted by ATI. The separation of our businesses from those of ATI will allow us to focus on our own strategic priorities, which should increase our ability to capitalize on growth opportunities for our businesses and enhance our ability to respond more quickly to changes in the technically-sophisticated markets that we serve. - - The spin-off will enable us to have direct access to the capital markets to finance the expansion of our businesses and support our future growth. More specifically, we intend to raise our own equity capital: - to accelerate new higher-margin product introductions through increased research and development investment 22 27 - to expand upon our extensive data acquisition and systems engineering capabilities to provide value-added information services to broaden and deepen our market penetration - to further develop our manufacturing capabilities - to pursue selected acquisitions - - The spin-off will enable us to recruit, retain and motivate key employees by providing them with stock-based compensation incentives directly tied to the success of our businesses. MANNER OF EFFECTING THE SPIN-OFF ATI will effect the spin-off by distributing all issued and outstanding shares of our common stock to holders of record of ATI common stock as of the close of business on , 1999. The spin-off will be made on the basis of one share of our common stock for every seven shares of ATI common stock held. Prior to the spin-off, ATI will deliver all outstanding shares of Teledyne Technologies common stock to the distribution agent for distribution. As promptly as practicable after the spin-off, the distribution agent will mail certificates for whole shares of Teledyne Technologies common stock to ATI stockholders of record on , 1999. If a stockholder is otherwise entitled to receive a fractional share of Teledyne Technologies common stock, that stockholder will instead receive cash for that fractional share. The distribution agent will, promptly after the date of the spin-off, aggregate all fractional share interests in Teledyne Technologies common stock with those of other similarly situated stockholders and sell such interests in Teledyne Technologies common stock in open market transactions at then-prevailing prices. The distribution agent will have sole discretion regarding when, how, through which broker (which will not be affiliated with ATI or Teledyne Technologies) and at what prices to make such sales. The distribution agent will distribute the cash proceeds to stockholders entitled to such proceeds pro rata based upon their fractional interests in Teledyne Technologies common stock. No interest will be paid on any cash distributed instead of fractional shares. The distribution agent is not affiliated with ATI or Teledyne Technologies. No owner of ATI common stock will be required to pay any cash or other consideration for shares of Teledyne Technologies common stock received in the spin-off or to surrender or exchange any shares of ATI common stock to receive shares of Teledyne Technologies common stock. The actual total number of shares of Teledyne Technologies common stock to be distributed will depend on the number of shares of ATI common stock outstanding on , 1999. Participants in the ATI Investor Services Program will be credited with the number of whole shares of Teledyne Technologies common stock distributed in the spin-off in respect of the ATI common stock held in their accounts. Since an Investor Services Program will not be established for our stockholders, participants in the ATI program will receive certificates for the whole shares of Teledyne Technologies common stock distributed to them in the spin-off and cash instead of any fractional shares. NO CONSIDERATION WILL BE PAID BY STOCKHOLDERS OF ATI FOR THE SHARES OF OUR COMMON STOCK TO BE RECEIVED BY THEM IN THE SPIN-OFF. ATI STOCKHOLDERS WILL NOT BE REQUIRED TO SURRENDER OR EXCHANGE SHARES OF ATI COMMON STOCK OR TAKE ANY OTHER ACTION IN ORDER TO RECEIVE OUR COMMON STOCK. RESULTS OF THE SPIN-OFF After the spin-off, we will be a separate, independent public company. Our management, fundamentals, growth characteristics and strategic priorities will be different from those of ATI. ATI will have no interest in Teledyne Technologies after the spin-off. Concurrently with the spin-off, ATI will change its name to "Allegheny Technologies Incorporated." 23 28 The number and identity of our stockholders immediately after the spin-off will be the same as the number and identity of ATI's stockholders at the close of business on , 1999. Immediately after the spin-off, we expect to have approximately 9,200 holders of record of our common stock and approximately 27,008,553 shares of our common stock outstanding, based on the number of record stockholders and issued and outstanding shares of ATI common stock as of the close of business on September 30, 1999 and on the distribution ratio of one share of our common stock for every seven shares of ATI common stock owned by ATI stockholders at that time. As with ATI common stock, the shares of Teledyne Technologies common stock will: - - be fully paid and nonassessable; - - have one vote per share, with no right to cumulate votes; - - carry no preemptive rights; and - - be accompanied by Preferred Share Purchase Rights. The Teledyne Technologies common stock and the ATI common stock, however, will be different securities and will not trade or be valued alike. See "Description of Our Capital Stock." Our common stock will be listed on the New York Stock Exchange under the trading symbol "TDY." The spin-off will not, in and of itself, affect the number of outstanding shares of ATI common stock or the rights associated with these shares. ATI intends to effect a one-for-two reverse split of its common stock immediately following the spin-off. The ATI reverse stock split will have no effect on Teledyne Technologies stock or the distribution ratio for the spin-off. MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE SPIN-OFF The following is a summary of the material United States Federal income tax consequences of the spin-off. It is not intended to address the tax consequences applicable to every stockholder. In particular, this summary does not cover state, local, or international income and other tax consequences. Accordingly, stockholders are strongly encouraged to consult their individual tax advisors for information on the tax consequences applicable to their individual situations. ATI has received a tax ruling from the IRS that states that the spin-off will qualify as a tax-free distribution under Section 355 of the Internal Revenue Code. In accordance with this tax ruling: - - No gain or loss will be recognized by ATI upon the distribution of Teledyne Technologies common stock to ATI's stockholders. - - No gain or loss will be recognized by ATI's stockholders as a result of your receipt of our common stock in the spin-off except to the extent that you receive cash instead of a fractional share. - - If you receive cash instead of a fractional share of our common stock in the spin-off, you will be treated as having received the fractional share in the spin-off and then having sold the fractional share. Accordingly, you will recognize gain or loss equal to the difference between the cash you receive and the amount of tax basis allocable (as described below) to the fractional share. The gain or loss will be capital gain or loss if you would have had the fractional share as a capital asset. - - Your tax basis in your ATI common stock will be apportioned among the ATI common stock and the common stock of Teledyne Technologies and common stock of Water Pik Technologies, Inc. you receive in the spin-offs on the basis of the relative fair market values of the shares at the time of the spin-offs. Promptly following the spin-off, ATI will send a letter to the holders of ATI common stock who receive our common stock in the spin-off that will 24 29 explain the allocation of tax basis among ATI common stock and the Teledyne Technologies common stock and Water Pik common stock you receive in the spin-offs. - - The holding period of Teledyne Technologies common stock that you receive in the spin-off will be the same as the holding period of ATI common stock with respect to which you received our common stock so long as you hold the ATI common stock as a capital asset on the date of the spin-off. The tax ruling relating to the qualification of the spin-off as a tax-free distribution within the meaning of Section 355 of the Internal Revenue Code generally is binding on the IRS. However, the continuing validity of the tax ruling is subject to certain factual representations and assumptions, including our completion of a public offering of our common stock within one year of the spin-off, and use of the anticipated gross proceeds of approximately $125 million (less associated costs) for research and development and related capital projects, for the further development of our manufacturing capabilities and for acquisitions and/or joint ventures, as well as the lack of a plan or intention on the part of ATI or Teledyne Technologies to merge with any other corporation or to sell assets otherwise than in the ordinary course of business, or (subject to certain exceptions) to purchase shares of its outstanding stock. If the spin-off were not to qualify as a tax-free distribution within the meaning of Section 355 of the Code, ATI would recognize taxable gain generally equal to the amount by which the fair market value of Teledyne Technologies common stock distributed to ATI's stockholders exceeds the tax basis in our assets. In addition, each ATI stockholder who receives our common stock in the spin-off would generally be treated as having received a taxable distribution in an amount equal to the fair market value of our common stock. If the spin-off qualified under Section 355 of the Code but failed to be tax-free to ATI because of certain post-spin-off circumstances, ATI would recognize taxable gain as described above but the spin-off would generally be tax-free to each ATI stockholder as described in the preceding paragraph. See "Risk Factors." THE FOREGOING SUMMARIZES THE MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE SPIN-OFF UNDER CURRENT LAW. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR CONSEQUENCES OF THE SPIN-OFF TO YOU, INCLUDING THE APPLICATION OF STATE, LOCAL AND INTERNATIONAL TAX LAWS, AND AS TO POSSIBLE CHANGES IN TAX LAW THAT MAY AFFECT THE TAX CONSEQUENCES DESCRIBED ABOVE. The Tax Sharing and Indemnification Agreement provides that we are not to take any action inconsistent with, nor fail to take any action required by, the request for the tax ruling or the tax ruling unless ATI has given its prior written consent or, in certain circumstances, a supplemental ruling that permits such action is obtained. The Tax Sharing and Indemnification Agreement also provides that we will be responsible for any taxes imposed on, or amounts paid by, ATI, its agents and representatives and its stockholders as a result of the failure of the spin-off to qualify as a tax-free distribution within the meaning of Section 355 of the Code if the failure or disqualification is attributable to certain post-spin-off actions or failures to act by or with respect to us (including our subsidiaries) or our stockholders, such as the acquisition of Teledyne Technologies by a third party at a time and in a manner that would cause such a failure or disqualification. See "Arrangements with ATI Relating to the Spin-Off -- Tax Sharing and Indemnification Agreement." LISTING AND TRADING OF OUR COMMON STOCK Currently, there is no public market for our common stock. Our common stock will be listed on the New York Stock Exchange under the trading symbol "TDY." A temporary form of interim trading called "when-issued trading" may occur for our common stock on or before , 1999 and continue through , 1999. If when-issued trading occurs, the listing for Teledyne Technologies common stock will be accompanied by the letters "wi" on the 25 30 New York Stock Exchange. If when-issued trading develops, you will be able to buy Teledyne Technologies common stock in advance of the , 1999 spin-off and you may sell Teledyne Technologies common stock in advance of such date on a when-issued basis. ATI common stock will continue to trade on a "regular way" basis and may also trade on a when-issued or ex-distribution basis, reflecting an assumed value for ATI common stock after giving effect to the spin-offs of Teledyne Technologies and Water Pik Technologies, Inc. When issued or ex-distribution trading in ATI common stock, if available, could last from on or before , 1999 through , 1999. Beginning on the first New York Stock Exchange trading day after the date of the spin-off, we expect that ATI common stock will trade "regular way" only, entitling the buyer to receive only ATI common stock. Until our common stock is fully distributed and an orderly market develops, the prices at which trading in our common stock occurs may fluctuate significantly and may be lower or higher than the price that would be expected for a fully-distributed issue. The prices at which our common stock will trade following the spin-off will be determined by the marketplace and may be influenced by many factors, including: - - the depth and liquidity of the market for our common stock; - - investor perceptions of us, our businesses and the industries in which we operate; - - our dividend policy; - - our financial results; and - - general economic and market conditions. Substantially all of the shares of our common stock that are distributed in the spin-off will be eligible for immediate resale. In transactions similar to the spin-off, it is not unusual for a significant redistribution of shares to occur during the first few weeks or even months following completion of the transaction because of the differing objectives and strategies of investors who acquire shares of our common stock in the transaction. We are not able to predict whether substantial amounts of our common stock will be sold in the open market following the spin-off or what effect these sales may have on prices at which our common stock may trade. Sales of substantial amounts of our common stock in the public market during this period, the perception that any redistribution has not been completed or the prospect of our having to undertake a public offering of our common stock following the spin-off could materially adversely affect the market price of our common stock. Generally, the shares of our common stock that are distributed in the spin-off will be freely transferable, except for securities received by persons deemed to be our "affiliates" under the Securities Act of 1933, as amended ("Securities Act"). Persons who may be deemed to be our affiliates after the spin-off generally include individuals or entities that control, are controlled by, or are in common control with us, including our directors. Persons who are our affiliates will be permitted to sell shares of our common stock they receive in the spin-off only pursuant to an effective registration statement under the Securities Act or an exemption from the registration requirements of the Securities Act, such as in accordance with the requirements of Rule 144 under the Securities Act. Under Rule 144, an affiliate is entitled to sell a number of shares within any three-month period that does not exceed the greater of 1% of the then outstanding shares of common stock (approximately 270,086 shares immediately after the spin-off based on the number of shares of ATI common stock outstanding on September 30, 1999) or the average weekly trading volume of the common stock on the New York Stock Exchange during the four calendar weeks preceding the sale. The holder may only sell such shares through unsolicited brokers' transactions. Sales under Rule 144 are also subject to certain requirements pertaining to the manner of such sales, notices of such sales and the availability of current public information concerning Teledyne Technologies. 26 31 OUR HISTORICAL SELECTED FINANCIAL DATA The following table summarizes certain selected combined financial data for Teledyne Technologies. The income statement data for each of the three years ended December 31, 1998, 1997 and 1996 and the balance sheet data at December 31, 1998 and 1997 set forth below are derived from audited combined financial statements of Teledyne Technologies. The income statement data for the nine months ended September 30, 1999 and 1998 and the years ended December 31, 1995 and 1994 and the balance sheet data at September 30, 1999 and 1998 and December 31, 1996, 1995 and 1994 set forth below are derived from unaudited combined financial statements of Teledyne Technologies. The historical selected combined financial data are not necessarily indicative of the results of operations or financial position that would have occurred if Teledyne Technologies had been a separate, independent company during the periods presented, nor are they indicative of our future performance. Such historical data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our combined financial statements and related notes included in this Information Statement. Per share data has not been presented because Teledyne Technologies was not a publicly held company during the periods presented.
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31, ------------------- ---------------------------------------------------- 1999 1998 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS) Sales......................... $602,978 $588,690 $780,393 $756,601 $716,400 $680,475 $667,663 Net income.................... $ 35,835 $ 37,803 $ 48,717 $ 41,624 $ 40,695 $ 30,850 $ 36,398 Working capital............... $ 93,085 $ 83,591 $ 78,568 $ 87,653 $104,184 $ 92,814 $ 68,896 Total assets.................. $277,497 $255,850 $250,819 $255,366 $252,961 $234,301 $217,610 Stockholder's equity.......... $126,370 $109,057 $106,402 $109,365 $128,018 $115,168 $ 99,337
27 32 OUR UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION The following unaudited pro forma consolidated income statements for the nine months ended September 30, 1999 and for the year ended December 31, 1998 and the unaudited pro forma consolidated balance sheet at September 30, 1999 present the combined results of operations and financial position of Teledyne Technologies assuming that the transactions contemplated by the spin-off had been completed as of the beginning of 1998 with respect to the pro forma consolidated income statements for the nine months ended September 30, 1999 and for the year ended December 31, 1998 and as of September 30, 1999 with respect to the pro forma consolidated balance sheet. In the opinion of management, they include all material adjustments necessary to reflect, on a pro forma basis, the impact of transactions contemplated by the spin-off on the historical financial information of Teledyne Technologies. The adjustments are described in the notes to pro forma consolidated financial information and are set forth in the "Pro Forma Adjustments" column. The unaudited pro forma consolidated financial information of Teledyne Technologies should be read in conjunction with the historical financial statements of Teledyne Technologies and the related notes. The pro forma financial information has been presented for informational purposes only and does not reflect the results of operations or financial position of Teledyne Technologies that would have occurred had Teledyne Technologies operated as a separate, independent company for the periods presented. Actual results might have differed from pro forma results if Teledyne Technologies had operated independently. The pro forma financial information should not be relied upon as being indicative of results Teledyne Technologies would have had or of future results after the spin-off. 28 33 TELEDYNE TECHNOLOGIES INCORPORATED UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1999
HISTORICAL PRO FORMA TELEDYNE TELEDYNE TECHNOLOGIES PRO FORMA TECHNOLOGIES INCORPORATED ADJUSTMENTS INCORPORATED ------------ ----------- ------------ (IN THOUSANDS) ASSETS Cash.................................... $ -- $ -- $ -- Accounts receivable................... 120,627 -- 120,627 Inventories........................... 53,852 -- 53,852 Deferred income taxes................. 18,855 -- 18,855 Prepaid expenses and other current assets............................. 2,157 -- 2,157 -------- --------- -------- TOTAL CURRENT ASSETS............... 195,491 -- 195,491 Property, plant and equipment......... 50,453 -- 50,453 Deferred income taxes................. 17,232 8,456 25,688 Cost in excess of net assets acquired........................... 9,201 -- 9,201 Other assets.......................... 5,120 8,552 13,672 -------- --------- -------- TOTAL ASSETS....................... $277,497 $ 17,008 $294,505 ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable...................... $ 51,224 $ -- $ 51,224 Accrued liabilities................... 51,182 -- 51,182 -------- --------- -------- TOTAL CURRENT LIABILITIES 102,406 -- 102,406 Long-term debt........................ -- 100,000 100,000 Net unrecognized actuarial gains on pension obligation................. -- 16,552 16,552 Accrued postretirement benefits....... 33,337 -- 33,337 Other long-term liabilities........... 15,384 13,764 29,148 -------- --------- -------- TOTAL LIABILITIES.................. 151,127 130,316 281,443 -------- --------- -------- STOCKHOLDERS' EQUITY: Preferred stock, par value $0.01: authorized -- 15,000,000 shares; issued and outstanding -- none..... -- -- -- Common stock, par value $0.01: authorized -- 125,000,000 shares; issued and outstanding -- 27,008,553 shares... -- 270 270 Additional paid-in capital............ -- 11,172 11,172 Net advances from (to) Allegheny Teledyne Incorporated.............. 124,750 (124,750) -- Foreign currency translation gains.... 1,620 -- 1,620 -------- --------- -------- TOTAL STOCKHOLDERS' EQUITY......... 126,370 (113,308) 13,062 -------- --------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................... $277,497 $ 17,008 $294,505 ======== ========= ========
See accompanying Notes to Unaudited Pro Forma Consolidated Financial Information. 29 34 TELEDYNE TECHNOLOGIES INCORPORATED UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
HISTORICAL TELEDYNE PRO FORMA TELEDYNE TECHNOLOGIES PRO FORMA TECHNOLOGIES INCORPORATED ADJUSTMENTS INCORPORATED ------------------- ----------- ------------------ (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) SALES.......................... $602,978 $ -- $602,978 Costs and expenses: Cost of sales................ 442,146 -- 442,146 Selling, general and administrative expenses... 100,500 5,220 105,720 Interest expense............. -- 6,038 6,038 -------- -------- -------- 542,646 11,258 553,904 -------- -------- -------- Earnings before other income... 60,332 (11,258) 49,074 Other income................... 716 -- 716 -------- -------- -------- INCOME BEFORE INCOME TAXES..... 61,048 (11,258) 49,790 Provision for income taxes..... 25,213 (4,650) 20,563 -------- -------- -------- NET INCOME..................... $ 35,835 $ (6,608) $ 29,227 ======== ======== ======== BASIC NET INCOME PER COMMON SHARE........................ $ 1.06 ======== DILUTED NET INCOME PER COMMON SHARE........................ $ 1.06 ========
See accompanying Notes to Unaudited Pro Forma Consolidated Financial Information. 30 35 TELEDYNE TECHNOLOGIES INCORPORATED UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1998
HISTORICAL TELEDYNE PRO FORMA TELEDYNE TECHNOLOGIES PRO FORMA TECHNOLOGIES INCORPORATED ADJUSTMENTS INCORPORATED ------------------- ----------- ------------------ (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) SALES.......................... $780,393 $ -- $780,393 Costs and expenses: Cost of sales................ 572,087 -- 572,087 Selling, general and administrative expenses... 126,875 7,196 134,071 Interest expense............. -- 8,050 8,050 -------- -------- -------- 698,962 15,246 714,208 -------- -------- -------- Earnings before other income... 81,431 (15,246) 66,185 Other income................... 1,562 -- 1,562 -------- -------- -------- INCOME BEFORE INCOME TAXES..... 82,993 (15,246) 67,747 Provision for income taxes..... 34,276 (6,297) 27,979 -------- -------- -------- NET INCOME..................... $ 48,717 $ (8,949) $ 39,768 ======== ======== ======== BASIC NET INCOME PER COMMON SHARE........................ $ 1.41 ======== DILUTED NET INCOME PER COMMON SHARE........................ $ 1.41 ========
See accompanying Notes to Unaudited Pro Forma Consolidated Financial Information. 31 36 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION NOTE 1. The historical financial statements of Teledyne Technologies reflect periods during which Teledyne Technologies did not operate as a separate, independent company. Certain estimates, assumptions and allocations were made in preparing such financial statements. Therefore, the historical financial statements do not necessarily reflect the results of operations or financial position that would have occurred had Teledyne Technologies been a separate, independent company during the periods presented, nor are they indicative of future performance. Management believes that the estimates, assumptions and allocations made in preparing the historical financial statements are reasonable. NOTE 2. The pro forma unaudited consolidated balance sheet was prepared assuming the distribution occurred on September 30, 1999 and includes "Pro Forma Adjustments" for transactions that occurred subsequent to September 30, 1999 as follows: (a) To record debt of $100,000,000 to be assumed by Teledyne Technologies at the date of the spin-off. (b) To record the transfer of net unrecognized actuarial gains on pension obligation of $16,552,000 as of September 30, 1999 and the related deferred tax effect of $6,419,000. The components of net unrecognized actuarial gains on pension obligation are as follows: Projected benefit obligation.... $361,593 Fair value of plan assets....... 420,352 -------- Funded status of plan -- plan assets in excess of projected benefit obligation............ 58,759 Unrecognized prior service cost.......................... 15,956 Unrecognized transition obligation.................... (12,744) Unrecognized actuarial gains.... (78,523) -------- Total net unrecognized actuarial gains on pension obligation... $(16,552) ========
(c) To record the transfer of worker's compensation and general liability insurance reserves of $5,253,000 and the related deferred taxes of $2,037,000. (d) To record the transfer of deferred compensation long-term assets of $8,552,000 and long-term liabilities of $8,511,000. (e) To record the planned liquidation of the remaining investment by ATI and the issuance of 27,008,553 shares of Teledyne Technologies common stock. The effect on income from the balance sheet transfers of the pension plan, insurance reserves and deferred compensation plan is reflected in the historical financial statements. See Note 7 of Notes to Combined Financial Statements. NOTE 3. Pro forma net income was adjusted to include interest expense and commitment fees on the ATI revolving debt we will assume in the amount of $6,038,000 before tax, or $3,544,000 after tax, for the nine months ended September 30, 1999 and $8,050,000 before tax, or $4,725,000 after tax, for the year ended December 31, 1998. Interest expense and commitment fees were calculated assuming the $100,000,000 of assumed debt had been outstanding for the entire period with an average interest rate of 7.7% based upon LIBOR plus 1.5% and commitment fees of 0.35% on the unused portion of the facility. A 0.125% increase in the assumed interest rate on the revolving debt would increase interest 32 37 expense by $94,000 ($55,000 after tax) for the nine months ended September 30, 1999 and by $125,000 ($73,000 after tax) for the year ended December 31, 1998. In addition, pro forma net income was adjusted to include additional corporate expenses of $5,220,000 and $7,196,000 before tax for the nine months ended September 30, 1999 and the year ended December 31, 1998, respectively. These expenses in combination with the corporate expenses allocated for historical purposes ($6,030,000 and $7,804,000 for the nine months ended September 30, 1999 and the year ended December 31, 1998, respectively), represent what management believes to be the reasonable corporate expenses of Teledyne Technologies had it operated as a separate stand alone company during the periods presented. We determined the additional corporate expenses for the periods presented by estimating the number, seniority and compensation levels of additional employees that would likely be required to fully carry out the finance, legal, tax, human resources, investor and public relations and other functions associated with being a stand alone public company. In addition, we included estimates of various corporate and related administrative expenses that can be expected to be incurred as a stand alone public company, such as board of directors fees and expenses and independent accounting and legal fees and expenses. In making these estimates, we also examined expenses historically incurred by ATI for these personnel and expenses. NOTE 4. The average number of shares of Teledyne Technologies common stock used in the computation of basic net income per share was 27,481,371 and 28,107,241 for the nine months ended September 30, 1999 and the year ended December 31, 1998, respectively, based on a distribution ratio of one share of Teledyne Technologies common stock for every seven shares of ATI common stock. The average number of shares of Teledyne Technologies common stock used in the computation of diluted net income per share was 27,506,953 and 28,133,879 for the nine months ended September 30, 1999 and the year ended December 31, 1998, respectively. A distribution ratio of one share of Teledyne Technologies common stock for every seven shares of ATI common stock was used to adjust the stock options. The actual stock option adjustment will be based upon the relation of the market price of ATI common stock prior to the spin-off to the market price of Teledyne Technologies after the spin-off and therefore cannot be determined at the present time. 33 38 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW After a strategic review initiated in 1998, ATI concluded that certain of its aerospace and electronics businesses, which comprise our Company, would be able to grow faster and be a stronger competitor as a separate company. The operations included in Teledyne Technologies are a group of high technology businesses that have critical mass and shared core competencies, are strategically complementary and have the potential for profitable growth. Teledyne Technologies is a leading provider of sophisticated electronic and communication products, systems engineering solutions and information technology services, and aerospace engines and components. Our customers include aerospace prime contractors, general aviation companies, government agencies and major communications and other commercial companies. We serve high-value niche market segments where performance, precision and reliability are critical and where we are in several cases the leading supplier. Our businesses are interrelated by their use of advanced engineering and specialized technology to provide cost-effective and value-added solutions. We operate in three business segments: Electronics and Communications; Systems Engineering Solutions; and Aerospace Engines and Components. Our products include avionics systems that collect and communicate information for airlines and business aircraft systems; broadband communications subsystems for wireless and satellite systems; engineering and information technology services for space, defense and industrial customers; and engines for general aviation aircraft and for cruise missiles. Our segments' respective contributions to total sales for the nine months ended September 30, 1999 and for 1998, 1997 and 1996 are summarized in the following table:
NINE MONTHS ENDED SEGMENT OPERATING COMPANIES SEPTEMBER 30, 1999 1998 1997 1996 - -------------------------------- -------------------------------- ------------------ ---- ---- ---- Electronics and Communications Teledyne Electronic Technologies 43% 44% 45% 44% Systems Engineering Solutions Teledyne Brown Engineering 28% 29% 28% 30% Aerospace Engines and Components Teledyne Continental Motors Teledyne Cast Parts 29% 27% 27% 26% ---- ---- ---- ---- 100% 100% 100% 100%
Our historical financial information is not necessarily indicative of the results of operations, financial position or cash flows that would have occurred if we had been a separate, independent company during the periods presented, nor is it indicative of our future performance. The historical financial statements do not reflect any changes that may occur in our capitalization or results of operations as a result of, or after, the spin-off. On an historical basis, the capital for our businesses was provided by ATI's net investment in our businesses. In addition, no ATI debt was allocated to us. Accordingly, our historical financial statements reflect no interest income or interest expense. In connection with the spin-off, we will assume repayment obligations for $100.0 million under a five-year revolving credit facility initially established by ATI. Our historical financial statements also do not fully reflect the corporate costs and expenses we expect to incur in connection with our being an independent public company. These financial statements reflect a $6.0 million allocation of part of ATI corporate expenses for the nine months ended September 30, 1999, and allocations of $7.8 million, $7.6 million and $7.2 million for 1998, 1997 and 1996, respectively. We do not believe that these recorded amounts are indicative of what our actual corpo- 34 39 rate expenses will be in the future. We expect that our actual corporate expenses will be approximately $15.0 million annually, significantly greater than those reflected in our historical financial statements, as we add significant managerial and other resources to complete the infrastructure and systems necessary for us to operate as an independent public company. Assuming the spin-off had occurred on January 1, 1998 and that the applicable interest rate under our credit facility was 7.7% and our commitment fees were 0.35% on the unused portion of the facility throughout all periods, we would have incurred interest expense of $6.0 million during the nine months ended September 30, 1999 and $8.1 million during 1998. If annual corporate expenses were approximately $15.0 million incurred ratably over the year, our net income would have been $29.2 million and $39.8 million during the 1999 nine-month period and 1998, respectively. RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1998 Our sales were $603.0 million in the first nine months of 1999, compared to $588.7 million in the same 1998 period. International sales represented approximately 18% and 22% of our sales in the 1999 and 1998 nine-month periods, respectively. Sales under contracts with the U.S. Government, which included contracts with the Department of Defense, represented approximately 43% and 39% of our total sales in the nine months ended September 30, 1999 and 1998, respectively. For the 1999 nine-month period, operating profit decreased 4% to $66.4 million from the 1998 period. Product recall costs at Teledyne Continental Motors and a continuing slow economic recovery in some of our Asian markets negatively impacted our performance. Net income for the 1999 nine-month period was $35.8 million, a decrease of 5.2% from the corresponding period of 1998. Net income for the 1999 nine-month period was positively impacted by net pension income of $2.8 million. For the 1998 nine-month period, net income was also positively impacted by net pension income of $0.8 million, as well as income of $0.4 million recognized as a result of favorable changes in our environmental obligations. Assuming that the spin-off had been completed as of January 1, 1998 and that the applicable interest rate under our credit facility was 7.7% and our commitment fees were 0.35% on the unused portion of the facility throughout all periods, our pro forma interest expense would have been approximately $6.0 million, our pro forma corporate expenses would have been approximately $11.3 million and our pro forma net income would have been approximately $29.2 million in the 1999 nine-month period. See "Our Unaudited Pro Forma Consolidated Financial Information." Sales and operating profit for our three segments for the nine months ended September 30, 1999 and 1998 are presented separately below and in Note 3 of the Notes to Interim Combined Financial Statements.
NINE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, 1999 % CHANGE SEPTEMBER 30, 1998 ELECTRONICS AND COMMUNICATIONS ------------------ -------- ------------------ (DOLLARS IN THOUSANDS) (UNAUDITED) Sales.......................................... $258,710 (1)% $261,950 Operating profit............................... $ 31,277 (5)% $ 33,081 Operating profit as a percentage of sales...... 12.1% 12.6% International sales as a percentage of sales... 17.7% 21.7% Government sales as a percentage of sales...... 29.4% 31.6%
35 40 Sales of our Electronics and Communications segment decreased 1% and operating profit decreased 5% in the nine months ended September 30, 1999 compared to the 1998 nine-month period. Sales decreased in the 1999 nine-month period primarily due to a $1.6 million decrease in sales of electronic contract manufacturing services and a $5.8 million decrease in sales of precision electronic devices, which was partially offset by a $4.1 million increase in sales of data acquisition and communication products. Operating profits for the period were also adversely affected by the reduced sales and were further affected by an additional $670,000 in costs related to a workforce reduction of 90 employees at Teledyne Electronic Technologies.
NINE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, 1999 % CHANGE SEPTEMBER 30, 1998 SYSTEMS ENGINEERING SOLUTIONS ------------------ -------- ------------------ (DOLLARS IN THOUSANDS) (UNAUDITED) Sales........................................... $166,535 1% $165,465 Operating profit................................ $ 13,308 (6)% $ 14,227 Operating profit as a percentage of sales....... 8.0% 8.6% International sales as a percentage of sales.... 13.1% 22.6% Government sales as a percentage of sales....... 82.4% 70.6%
Sales of our Systems Engineering Solutions segment increased 1% and operating profit decreased 6% in the nine months ended September 30, 1999 compared to the 1998 nine-month period. For the 1999 nine-month period, sales and operating profit included increases in defense energy systems and environmental programs of $12.6 million and $3.4 million, respectively, and lower sales and operating profit in marine instrumentation products of $16.1 million and $4.1 million, respectively. The decrease in sales and operating profit for marine instrumentation products was attributable, in large part, to adverse conditions in the oil industry. Sales in space programs increased by $3.8 million, while operating profit decreased by $474,000 due primarily to a development program for aircraft loaders.
NINE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, 1999 % CHANGE SEPTEMBER 30, 1998 AEROSPACE ENGINES AND COMPONENTS ------------------ -------- ------------------ (DOLLARS IN THOUSANDS) (UNAUDITED) Sales........................................... $177,733 10% $161,275 Operating profit................................ $ 21,777 (1)% $ 22,092 Operating profit as a percentage of sales....... 12.3% 13.7% International sales as a percentage of sales.... 23.4% 22.0% Government sales as a percentage of sales....... 26.5% 20.0%
Sales of our Aerospace Engines and Components increased 10% and operating profit decreased 1% in the nine months ended September 30, 1999 compared to the 1998 nine-month period. While sales improved in the 1999 nine-month period, sales and operating profit at Teledyne Continental Motors were negatively impacted by a recall of piston engines produced in 1998. Efforts associated with the recall resulted in a $3.0 million charge and impacted sales during the period. The decline in operating profit for this period was due in part to the recall charge as well as to a decline in operating profit at Teledyne Cast Parts. Operating results for Teledyne Continental Motors' turbine engines increased during the period. 36 41 COMPARISON OF ANNUAL PERIOD RESULTS Our sales were $780.4 million in 1998, compared to $756.6 million in 1997 and $716.4 million in 1996. International sales represented approximately 22%, 21% and 23% of our sales for 1998, 1997 and 1996, respectively. Sales under contracts with the U.S. Government, which included contracts with the Department of Defense, were approximately 40%, 40% and 44% of our total sales for 1998, 1997 and 1996, respectively. Defense sales represented approximately 27%, 26% and 27% of our total sales for 1998, 1997 and 1996, respectively. In 1998, our operating profit was $89.2 million, compared to $74.9 million in 1997 and $75.2 million in 1996. Net income for 1998 was $48.7 million, compared to $41.6 million in 1997 and $40.7 million in 1996. In 1998, 1997 and 1996, last-in, first-out inventory liquidations increased net income by $0.3 million, $2.2 million and $2.5 million, respectively. Net income for 1998 and 1996 was also positively impacted by net pension income of $1.0 million and $0.6 million, respectively, and favorable negotiations relating to environmental remediation costs that caused recognition of income of $0.3 million and $0.4 million, respectively. In 1997, net income was negatively impacted by net pension expense of $0.4 million and expenses of $0.5 million related to changes in our environmental obligations. Assuming that the spin-off had been completed as of January 1, 1998 and that the applicable interest rate under our credit facility was 7.7% and our commitment fees were 0.35% on the unused portion of the facility throughout all periods, our pro forma interest expense would have been approximately $8.1 million, our pro forma corporate expenses would have been approximately $15.0 million and our pro forma net income would have been approximately $39.8 million in 1998. See "Our Unaudited Pro Forma Consolidated Financial Information." Sales and operating profit for our three segments are presented separately below and in Note 11 of Notes to Combined Financial Statements.
1998 % CHANGE 1997 % CHANGE 1996 ELECTRONICS AND COMMUNICATIONS -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Sales................................... $342,110 1% $340,034 8% $313,488 Operating profit........................ $ 42,620 16% $ 36,787 (3)% $ 37,907 Operating profit as a percentage of sales................................. 12.5% 10.8% 12.1% International sales as a percentage of sales................................. 22.2% 23.0% 26.9% Government sales as a percentage of sales................................. 29.9% 30.2% 36.6%
1998 Compared to 1997. Sales of our Electronics and Communications segment increased 1% and operating profit increased 16% in 1998 compared to 1997. Improvements in sales and operating profit for the segment in 1998 were due primarily to increases in sales and operating profit of our data acquisition and communications products, which increased by $9.8 million and $11.8 million, respectively. These increases were attributable to expanded demand by commercial airlines as well as business and consumer aircraft. Improved sales and operating profit for electronic contract manufacturing services of $7.4 million and $2.6 million, respectively, reflected a continued strength in this market. These improvements offset declines in sales and operating profit with respect to precision electronic devices during the period, which decreased by $15.8 and $9.4 million, respectively, due to continuing economic difficulties in Asia and the continued weakness in the semiconductor equipment market. Results for 1998 included a loss of $1.4 million associated with the contract development of a low-level windshear alert system, which was terminated in 1998. 1997 Compared to 1996. Sales of our Electronics and Communications segment increased 8% and operating profit decreased 3% in 1997 compared to 1996. The increase in sales 37 42 during this period was primarily due to sales of our data acquisition and communications products, precision electronic devices and electronic contract manufacturing services, which increased by $9.4 million, $8.8 million and $8.3 million, respectively. Nonrecurring expenses, consisting primarily of research and development-related expenses for electronic components for aircraft, resulted in a decline in operating profit of $8.3 million for Teledyne Controls' data acquisition and communication products. Results for 1997 included a loss of $0.5 million associated with the contract development of a low-level windshear alert system.
1998 % CHANGE 1997 % CHANGE 1996 SYSTEMS ENGINEERING SOLUTIONS -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Sales................................... $223,185 6% $210,375 (3)% $216,090 Operating profit........................ $ 20,543 57% $ 13,117 (34)% $ 19,880 Operating profit as a percentage of sales................................. 9.2% 6.2% 9.2% International sales as a percentage of sales................................. 21.8% 17.4% 16.3% Government sales as a percentage of sales................................. 71.3% 75.1% 78.4%
1998 Compared to 1997. Sales of our Systems Engineering Solutions segment increased 6% and operating profit increased 57% in 1998 compared to 1997. The improvement in sales and operating profit was principally due to the increased sales and operating profit of $18.6 million and $5.2 million, respectively, of our marine instrumentation products due to favorable conditions in the oil industry, as well as our participation in defense programs, primarily ballistic missile defense activities. Aerospace program sales decreased by $6.9 million in 1998 as a result of the winding down of our NASA payload integration contract, but operating profit for aerospace programs increased by $800,000 due to increased deliveries of international aerospace hardware. 1997 Compared to 1996. Sales of our Systems Engineering Solutions segment decreased by 3% and operating profit decreased 34% in 1997 compared to 1996. Operating results declined in 1997 due to lower shipments and funding levels on defense and NASA contracts and costs totaling $2.4 million, consisting primarily of charges related to asset impairments for discontinued businesses.
1998 % CHANGE 1997 % CHANGE 1996 AEROSPACE ENGINES AND COMPONENTS -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Sales.................................. $215,098 4% $206,192 10% $186,822 Operating profit....................... $ 26,072 4% $ 24,950 43% $ 17,444 Operating profit as a percentage of sales................................ 12.1% 12.1% 9.3% International sales as a percentage of sales................................ 22.5% 21.5% 23.9% Government sales as a percentage of sales................................ 21.8% 20.7% 17.4%
1998 Compared to 1997. Sales of our Aerospace Engines and Components segment increased 4% and operating profit increased 4% in 1998 compared to 1997. These sales and operating profit increases were due principally to a $10.6 million increase in sales and a $4.7 million increase in operating profit for new piston engine and turbine engine programs. These increases offset higher costs associated with manufacturing plant reconfiguration and the development of new products, including new digital electronic piston engine controls and a NASA-sponsored new piston engine program, as well as sales decreases of $1.7 million and a decrease in operating profit of $3.6 million as a result of production inefficiencies and delays in shipments experienced at Teledyne Cast Parts. 1997 Compared to 1996. Sales of our Aerospace Engines and Components segment increased 10% and operating profit increased 43% in 1997 compared to 1996. Improvements in 38 43 sales and operating profit were principally due to turbine engine programs, which had sales increases of $5.1 million and operating profit increases of $2.4 million during the period. These increases were partially offset by the termination of a program in the third quarter of 1997. A decline in sales of rebuilt engines and aftermarket new engines resulted in a decrease of $4.6 million in sales for piston engines. Sales and operating profit in this segment benefited, however, from increased orders for airframe and engine cast parts, which resulted in increases of $18.8 million in sales and $5.1 million in operating profit. These increases were attributable to the increased production of commercial aircraft and increased tooling sales associated with the JASSM cruise missile program. Results for 1997 and 1996 included a loss of $1.1 million and $1.9 million, respectively, associated with a joint contract to develop a hybrid electric and turbine powered vehicle that was terminated in 1997. FINANCIAL CONDITION AND LIQUIDITY Our principal capital requirements are to fund working capital needs and capital expenditures and to meet required debt payments. We anticipate that our operating cash flow, together with available borrowings under our credit facility described below, will be sufficient to meet our working capital requirements, capital expenditure requirements and interest service requirements on our debt obligations. Assuming that the transactions contemplated by the spin-off had been consummated on September 30, 1999, our pro forma long-term debt and stockholders' equity at September 30, 1999 would have been approximately $100.0 million and $13.1 million, respectively. Our pro forma interest expense would have been approximately $6.0 million for the nine months ended September 30, 1999 and approximately $8.1 million in 1998 had the spin- off occurred as of the beginning of 1998. See "Our Unaudited Pro Forma Consolidated Financial Information." For the nine months ended September 30, 1999 and 1998, cash generated from operations amounted to $31.6 million and $45.2 million. This decrease resulted from reduced income of $2.0 million, increased working capital of $16.0 million, and decreased long-term liabilities of $4.4 million, and was partially offset by an increase in depreciation and amortization and deferred taxes of $8.8 million. Cash generated from operations totaled $67.1 million, $72.9 million and $44.9 million in 1998, 1997 and 1996, respectively. Working capital increased to $93.1 million at September 30, 1999, compared to $78.6 million at December 31, 1998. The current ratio was 1.9 at September 30, 1999, compared to 1.8 at December 31, 1998. The increase in working capital was primarily due to the increase in accounts receivable and current deferred tax asset balances partially offset by an increase in the accounts payable balance. In connection with the spin-off, we will assume repayment obligations for $100.0 million under a five-year revolving credit facility initially established by ATI. As a result of the spin-off, we will have $100.0 million of borrowing availability remaining under the credit facility. Borrowings under the credit facility will bear interest at variable rates at, or at margins above, prevailing prime or Eurodollar rates (or, in certain circumstances, the prevailing federal funds rate) and will depend on the ratio of our consolidated total indebtedness to consolidated total capitalization from time to time. The credit facility will require us to comply with various financial covenants and restrictions, including covenants and restrictions relating to indebtedness, liens, investments, dividend payments, consolidated net worth, interest coverage and the relationship of our total consolidated indebtedness to our earnings before interest, taxes, depreciation and amortization. The credit agreement will prohibit us from declaring dividends or making other specified payments in amounts exceeding 25% of our cumulative net income after the effective date of the credit agreement. The stock of our wholly owned subsidiary, Teledyne Brown Engineering, Inc., will be pledged to the lenders under the credit agreement as collateral to secure our obligations under the credit agreement until our required public offering is completed. Capital expenditures for 1999 are expected to approximate $25.0 million, of which $16.1 39 44 million were spent during the first nine months of 1999. In connection with the spin-off, we will establish a new defined benefit pension plan and assume the existing pension obligations for all of our employees, both active and inactive, at our operations which perform government contract work and for our active employees at our operations which do not perform government contract work. ATI will transfer sufficient pension assets to fund our new defined benefit pension plan such that at the time of the transfer, pension assets will exceed pension obligations by approximately $50.0 million. As a result, we anticipate that we will not have to make contributions to the pension plan for the foreseeable future. Additionally, in accordance with Internal Revenue Code regulations, we would be able to recover from the excess pension assets amounts paid for retiree medical expenses. We currently anticipate that no cash dividends will be paid on Teledyne Technologies common stock in order to conserve cash for use in our business, including possible future acquisitions. Our Board of Directors will periodically re-evaluate this dividend policy taking into account operating results, capital needs, the terms of our credit facility and other factors. In connection with the spin-off, ATI received a tax ruling from the IRS stating in principle that the spin-off will be tax-free to ATI and to ATI's stockholders. The continuing validity of the IRS tax ruling is subject to certain factual representations and assumptions, including our completion of the required public offering of our common stock within one year following the spin-off and use of the anticipated gross proceeds of approximately $125 million (less associated costs) for research and development and related capital projects, for the further development of our manufacturing capabilities and for acquisitions and/or joint ventures. Pursuant to the Separation and Distribution Agreement, we have also agreed with ATI to undertake such a public offering. The Tax Sharing and Indemnification Agreement between ATI and Teledyne Technologies provides that we will indemnify ATI and its agents or representatives for taxes imposed on, and other amounts paid by, them or ATI's stockholders if we take actions or fail to take actions (such as completing the public offering) that result in the spin-off not qualifying as a tax-free distribution. If any of the taxes or other amounts described above were to become payable by us, the payment could have a material adverse effect on our financial condition, results of operations and cash flow and could exceed our net worth by a substantial amount. ACCOUNTING PRONOUNCEMENTS FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued in June 1998. This statement establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. In June 1999, FASB Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities: Deferral of the Effective Date of FASB Statement No. 133" was issued. This statement delays the effective date of FASB Statement No. 133 to all fiscal quarters of all fiscal years beginning after June 15, 2000. We are presently evaluating the effect of adopting this statement. OTHER MATTERS INCOME TAXES Our effective income tax rate was 41.3%, 39.4% and 41.8% in 1998, 1997 and 1996, respectively. We have determined, based on our history of operating earnings, expectations of future operating earnings and potential tax planning strategies, that it is more likely than not that the deferred income tax assets at December 31, 1998 will be realized. COSTS AND PRICING Inflationary trends in recent years have been moderate. We primarily use the last-in, first-out method of inventory accounting that reflects current costs in the costs of products sold. We 40 45 consider these costs, the increasing costs of equipment and other costs in establishing sales pricing policies. We emphasize cost containment in all aspects of our business. IMPACT OF THE EURO CONVERSION In 1998, ATI initiated an internal analysis to determine the effects of the January 1, 1999 conversion and related transition by 11 member states of the European Union to a common currency, the "euro." The United Kingdom, where all of our European operations are located, is not currently a participating country. We do not expect the euro conversion to have a material impact on our results of operation or financial condition. Like other companies with European sales and operations, we anticipate that we will face wage and product pricing transparency issues in participating countries; however, we do not expect the resolution of these issues to have a material adverse effect on us. Additionally, while we expect to encounter some technical challenges to adapt information technology and other systems to accommodate euro-denominated transactions, we do not anticipate associated costs to be material. Our computer software and hardware at our European operations have been modified and replaced due to evolving business needs and continuing technological advances. We believe that the euro conversion will not have a material adverse effect on our foreign currency activities described below. HEDGING We use derivative financial instruments from time to time to hedge ordinary business risks regarding foreign currencies on product sales. Foreign currency exchange contracts are used to limit transactional exposure to changes in currency exchange rates. We sometimes purchase foreign currency forward contracts that permit us to sell specified amounts of foreign currencies expected to be received from our export sales for pre-established U.S. dollar amounts at specified dates. The forward contracts are denominated in the same foreign currencies in which export sales are denominated. These contracts, which are not financially material, are designated as hedges of export sales transactions in which settlement will occur in future periods and which otherwise would expose us, on the basis of its aggregate net cash flows in respective currencies, to foreign currency risk. We believe that adequate controls are in place to monitor these hedging activities, which are not financially material. However, many factors, including those beyond our control such as changes in domestic and foreign political and economic conditions, as well as the magnitude and timing of interest rate changes, could adversely affect these activities. ENVIRONMENTAL We are subject to various federal, state, local and international environmental laws and regulations which require that we investigate and remediate the effects of the release or disposal of materials at sites associated with past and present operations. This includes sites at which we have been identified as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund, and comparable state laws. We are currently involved in the investigation and remediation of a number of sites. Our reserves for environmental investigation and remediation totaled approximately $1.3 million at September 30, 1999. As investigation and remediation of these sites proceed and we receive new information, we expect that we will adjust our accruals to reflect new information. Based on current information, we do not believe that future environmental costs, in excess of those already accrued, will materially and adversely affect our financial condition or liquidity. However, resolution of one or more of our environmental matters or future accrual adjustments in any one reporting period could have a material adverse effect on our results of operations for that period. With respect to proceeding brought under the federal Superfund laws, or similar state statutes, we have been identified as a potentially responsible party at approximately 17 such sites, excluding those sites at which we believe we 41 46 have no future liability. Our involvement is very limited or de minimis at approximately 10 of these sites, and the potential loss exposure with respect to any of the remaining seven sites is not considered to be material. For additional discussion of environmental matters, see Notes 2 and 12 to our Notes to Combined Financial Statements and "Risk Factors." GOVERNMENT CONTRACTS We perform work on a number of contracts with the Department of Defense and other agencies and departments of the U.S. Government. Sales under contracts with the U.S. Government, which included contracts with the Department of Defense, were approximately 40%, 40% and 44% of our total sales for 1998, 1997 and 1996, respectively. A breakdown of sales to the U.S. Government by segment appears in Note 11 to Notes to Combined Financial Statements. Defense sales represented approximately 27%, 26% and 27% of our total sales for 1998, 1997 and 1996, respectively. Performance under government contracts has certain inherent risks that could have a material adverse effect on our business, results of operations and financial condition. Government contracts are conditioned upon the continuing availability of Congressional appropriations, which usually occurs on a fiscal year basis even though contract performance may take more than one year. The U.S. defense budget has been declining since the mid-1980's, resulting in some delays in new program starts, program stretch-outs and program cancellations. Future levels of defense spending cannot be predicted. Of our U.S. Government contracts, 69%, 56% and 43% were fixed price-type contracts for the years 1998, 1997 and 1996, respectively. Fixed price-type contracts have the inherent risk that actual performance cost may exceed the fixed contract price. This is particularly true where the contract was awarded and the price finalized in advance of completion of design (which may result in unforeseen technological difficulties and/or cost overruns). We believe that the U.S. Government is increasingly requesting proposals for fixed price-type contracts. For additional discussion of government contract matters, see Note 12 to our Notes to Combined Financial Statements, Note 4 to our Notes to Interim Combined Financial Statements (Unaudited) and "Risk Factors." YEAR 2000 READINESS DISCLOSURE Year 2000 Task Forces. Over the past several years, ATI has put in place management task forces at its operating companies, including the companies that will comprise Teledyne Technologies, to identify whether its computer systems, which include business computers, mill equipment and process control computers and other devices using microprocessors, as well as telecommunication and payroll and employee benefit processing systems, would function properly with respect to dates in the Year 2000 and thereafter. These task forces have reported to ATI's Executive Resource Information Committee, a senior management committee of ATI charged with reviewing and establishing priorities for information technology-related matters, including Year 2000 issues, and which reports to the Audit and Finance Committee of ATI's Board of Directors. Through these efforts, Year 2000 identification, solution development, testing and implementation initiatives, and contingency planning initiatives have proceeded at Teledyne Technologies. Targeted Completion of Internal Solutions. In part as a result of ATI's Year 2000 initiatives, but mostly due to evolving business needs and continuing technological advancements, we have been modifying and replacing portions of our computer software and hardware systems. We estimate, based on dollars expended, that installation of solutions to identified Year 2000 issues relating to our information technology systems is nearly 100% complete. We estimate that based on dollars expended nearly 100% of solutions have been implemented for our non-information technology systems. We believe that a substantial portion of our internal solutions relating to Year 2000 functionality of our computer systems have been completed and implemented. Confirmatory testing of implemented solutions is ongoing. Other Year 2000 Areas of Focus. We have provided many customers and suppliers who we 42 47 believe to be material to our business with Year 2000 questionnaires. None of the responding customers and suppliers has identified for us any material Year 2000 issues. Efforts continue to be made to identify and resolve other customer- and supplier-based Year 2000 issues that could affect us and our operating and support systems. We believe that we have identified substantially all material customer- and supplier-based Year 2000 issues. Efforts also continue to be made to identify whether products we have produced and sold have Year 2000 issues. Various of our electronic products contain embedded microprocessors. We believe that we have identified substantially all products that have Year 2000 issues, primarily a limited number of products of Teledyne Electronic Technologies and Teledyne Brown Engineering, and we are working to resolve such issues. We believe that there are no significant product-related Year 2000 issues. Neither Teledyne Technologies nor ATI have conducted any extensive review of products manufactured and sold by discontinued businesses or businesses that they have sold. Year 2000 Expenditures. Excluding expenditures necessitated by ordinary business needs and continuing technological advancements in the computer industry, we spent approximately $2.0 million in 1998 and we anticipate spending another estimated $1.3 million in 1999 to address Year 2000 issues, of which over $1.0 million were spent during the first nine months of 1999. These expenditures do not include expenditures that may be required to address Year 2000 issues associated with some products. Substantially all costs related to our Year 2000 initiatives are expensed as incurred and funded through operating cash flows. Although we currently do not have any plans for additional expenditures, additional amounts may be spent in later years. Overall Assessment; Worst Case Scenario. Based upon internal assessments, formal communications with suppliers and customers with which we exchange electronic data, and work completed to date, we believe that Year 2000 issues should not pose significant operational problems or have a material impact on our business, results of operations, financial condition, or cash flow. A failure of third party vendors or customers to be Year 2000 ready, however, could adversely affect these beliefs and is not quantifiable at the present time. Such failure could have a material adverse effect on our business, results of operations, financial condition, or cash flow in a given period, but probably not over the long-term. The most reasonably likely worst case scenario of our failure (or the failure of our suppliers or customers) to resolve Year 2000 problems would be a temporary slowdown or cessation of manufacturing operations at one or more of our facilities and our temporary inability to timely process orders and to deliver finished products to customers. Delays in meeting customers' orders would affect the timing of billings to and payments received from customers with respect to orders and could result in other liabilities. Customers' Year 2000 problems could also delay the timing of payments to us for orders. Contingency Plans. We have been working to establish contingency plans with respect to our critical business and operating systems should unplanned situations arise on or after January 1, 2000, and expect such contingency plans to be in place prior to December 31, 1999. Most of our current contingency plans contemplate the use of current personnel to make certain manual adjustments to systems or to perform various tasks manually. Vacations for information technology professionals and other relevant personnel are expected to be limited toward the end of December 1999 and the early part of 2000 in order to have employees on hand to assist in avoiding and responding to adverse scenarios. We are considering establishing additional inventories and back-up procedures in the event suppliers are unable to deliver raw materials and services in a timely manner. Factors that May Affect Year 2000 Estimates. While we have been conducting a comprehensive Year 2000 review of our computer systems and products, there may be Year 2000-related matters that have not been identified. Actual dollar amounts spent by us to address Year 2000 issues could materially differ from the estimates for a number of reasons, including: - changes in the availability or costs of personnel trained in this area; - changes made to our remediation plans; 43 48 - the ability of our significant suppliers, customers and others with which we conduct business, including governmental agencies, to identify and resolve their own Year 2000 issues; or - identification of other Year 2000-related matters. 44 49 OUR BUSINESS OVERVIEW Teledyne Technologies provides sophisticated electronic and communication products, systems engineering solutions and information technology services, and aerospace engines and components. Our customers include aerospace prime contractors, general aviation companies, government agencies and major communications and other commercial companies. We serve high-value niche market segments where performance, precision and reliability are critical and where we are in several cases the leading supplier. Our businesses are interrelated by their use of advanced engineering and specialized technology to provide cost-effective and value-added solutions. Our products include avionics systems that collect and communicate information for airlines and business aircraft systems; broadband communications subsystems for wireless and satellite systems; engineering and information technology services for space, defense and industrial customers; and engines for general aviation aircraft and for cruise missiles. We have strong, established relationships with many of our customers which include: - - major commercial aerospace and electronics companies, and defense prime contractors; - - the U.S. Department of Defense; - - NASA; - - general aviation original equipment manufacturers and aftermarket suppliers and airlines; and - - other commercial customers in the communications, electronics, medical devices, and oil and gas industries. In 1998, approximately 60% of our total sales were to commercial customers with the balance to the U.S. Government: Commercial customers: Aerospace..................... 35% Electronics................. 16% Industrial.................. 9% --- 60% U.S. Government: Defense industry............ 36% NASA........................ 4% --- 40%
Approximately 69% of our U.S. Government sales in 1998 were attributable to fixed price-type contracts, with the remaining 31% to cost plus fee-type contracts. International sales accounted for approximately 22% of our total sales in 1998. Our three business segments, their respective operating companies, and their contribution to our sales in 1998 are summarized in the following table.
PERCENTAGE OF SEGMENT OPERATING COMPANIES 1998 SALES - -------------------------------- -------------------------------- ------------- Electronics and Communications Teledyne Electronic Technologies 44% Systems Engineering Solutions Teledyne Brown Engineering 29% Aerospace Engines and Components Teledyne Continental Motors 27% Teledyne Cast Parts
OUR BUSINESS AND GROWTH STRATEGY Building upon our competitive strengths and technological capabilities, our goal is to become the leading provider of specialized products, systems engineering solutions and information services for a broad range of high technology applications. With our history of product innovation, advanced research and development and highly sophisticated engineering and manufacturing capabilities, we believe that we are well-positioned to take advantage of opportunities 45 50 to expand our business by pursuing the following strategies: FOCUS ON OPERATING DISCIPLINE AND MANUFACTURING EXCELLENCE Measuring and controlling manufacturing costs has become a core discipline of Teledyne Technologies, and we are committed to a continuous improvement philosophy. Most of our key manufacturing operations are ISO 9000 certified, and meet the rigid military specification qualifications necessary in our markets, where required. We have adopted a comprehensive program of manufacturing excellence initiatives which focus on lean manufacturing cells, cost reduction programs and product redesign in order to minimize manufacturing costs and maximize product quality. We have also developed manufacturing technologies and rapid prototyping capabilities that in many cases have become the standards in their industries. Our efforts are intended to create additional cost reductions and increased efficiencies in management of our working capital. Our increasing emphasis on cost reduction programs yielded savings of $7.7 million in 1997 and $22.1 million in 1998. Through active management of our working capital, working capital as a percentage of sales decreased from 15% for 1996 to 10% for 1998. We believe that our financial discipline will enable us to maintain our competitive posture while continuing to provide leading edge products and services. LEVERAGE NICHE MARKET LEADERSHIP AND TECHNICAL EXPERTISE TO INCREASE MARKET PENETRATION We serve high-value niche market segments where performance, precision and reliability are critical and where we are in several cases the leading supplier. These market segments exist within very large, highly fragmented markets for electronic and communications equipment and devices, engineering and information systems and services, and aviation and aerospace components. We have a reputation for solving complex manufacturing and systems problems, and have sophisticated software, simulation and modeling capabilities. For example, Teledyne Technologies is recognized as a leader in the development of real-time simulations for weapons systems testing and training. These capabilities have led to our selection to play a key role in the U.S. Ballistic Missile Defense Organization's National Missile Defense program. The collective expertise and training of our employees foster a culture of innovation and a technology-driven focus. Out of a total workforce of approximately 5,800, approximately 1,400 individuals have engineering, physics, mathematics and computer science degrees. Our employees have developed over 700 patents. We believe that as several of the markets we serve experience consolidation, customers have tended to become increasingly dependent on technologically-sophisticated specialized suppliers, such as ourselves, to provide a more competitive range of products and services. With our history of product innovation, advanced research and development and highly sophisticated engineering and manufacturing capabilities, we believe that we are well-positioned to take advantage of opportunities to expand our niche market leadership positions to provide leading products and services in related markets. ACCELERATE INTRODUCTION OF INNOVATIVE HIGH-MARGIN PRODUCTS AND SERVICES We have a well-established history of developing innovative products and services to meet the exacting specifications of our customers' performance-critical applications. For example, building on our history as the manufacturer of the engine for the first turbine-powered cruise missile, we have developed advanced versions leading to our sole-source position with respect to each of two new U.S. cruise missile programs. We are also a leading supplier of traveling wave tubes for military applications. We have adapted this product to create our microwave power amplifiers, which were the first to permit operation in multiple frequency bands for mobile satellite news gathering systems. We are 46 51 extending our position in power amplifiers by developing and producing amplifiers for the emerging higher-frequency Ka band market for broadband wireless and satellite communications systems. New products that we are currently introducing for the emerging broadband communications market include high frequency relays for wireless and satellite systems, high data rate networks and high speed digital semiconductor test equipment. As an independent company we intend to increase our spending on research and development to accelerate the introduction of new products and services. CAPITALIZE ON SYNERGIES TO ENTER NEW MARKETS Our businesses are interrelated by their use of advanced engineering and specialized technology to provide cost-effective and value-added solutions. We believe that by better utilizing our extensive base of technical expertise that extends across our operating units, we will be able to provide superior products and services and to reduce product development and manufacturing costs. For example, we have benefited from our commercial aviation electronics experience in the development of new electronic controls for general aviation piston engines. We plan to use the expertise of Teledyne Electronic Technologies to provide data acquisition and communications products to the general aviation aircraft market served by Teledyne Continental Motors. In addition, both Teledyne Electronic Technologies and Teledyne Brown Engineering provide data acquisition and communication products in their current markets. We believe that we can draw on these and other capabilities to access additional markets for our products and services. ENHANCE AND STRENGTHEN CUSTOMER AND REGULATORY RELATIONSHIPS We are a long-term supplier to several government agencies and major manufacturers and integrators of systems and services. We believe that these close relationships are a key competitive advantage. We are often integrally involved early in our customers' product development efforts. Our knowledge of customers' requirements enables us to more rapidly develop products and services suited to meet those needs. This close relationship with our customers has led to a significant amount of repeat business. We plan to capitalize on our strong relationships to secure additional contracts as prime contractors expand their outsourcing initiatives. Government certification of products and facilities is required to participate in many of the markets we serve. We have extensive experience and established working relationships with the various federal regulatory agencies that certify our products. For example, we work proactively with the Federal Aviation Administration in the continuous certification processes applicable to our commercial aviation electronics and communications products, and general aviation engines. We are also regularly engaged in consultations with the FAA regarding new technologies and the development of new or changing standards applicable to our products and markets. In addition, we are able to serve the specialized needs of our customers with medical devices, such as pacemaker and defibrillator providers, by maintaining the registration of our medical electronics contract manufacturing facilities with the Federal Food and Drug Administration. EXPAND VALUE-ADDED INFORMATION SERVICES We believe that our extensive customer base has growing requirements for information services and that we have the capabilities to meet these needs. For example, our flight data acquisition systems have been purchased worldwide by over 200 airline customers. These customers are increasingly committed to obtaining additional operational and maintenance information to improve safety and increase efficiency. We are developing systems that will automatically transfer flight data to an airline's operations center soon after its aircraft lands. These systems are designed to translate data into useable reports and distribute the reports and raw data through the Internet. 47 52 We believe that our extensive technical, engineering and manufacturing capabilities will enable us to expand the development and sale of additional value-added engineering and information services. PURSUE SELECTED ACQUISITIONS AND STRATEGIC ALLIANCES We operate in many large, highly fragmented markets that provide opportunities for growth through complementary acquisitions. The basic criteria will be whether the particular acquisition: - - has strategic value - - achieves our financial return criteria - - enhances our ability to achieve a market leadership position - - provides the opportunity to grow profitability Specifically, we expect to target acquisitions that permit: - - a broader product offering - - entry into new markets - - access to product innovation and unique product design capabilities - - access to new manufacturing processes - - access to off-shore suppliers and increased procurement leverage - - new distribution channels OUR BUSINESS SEGMENTS ELECTRONICS AND COMMUNICATIONS SEGMENT Teledyne Electronic Technologies applies proprietary technology, advanced software and hardware design skills and manufacturing capabilities in three areas: Data Acquisition and Communications Products; Precision Electronic Devices; and Electronic Contract Manufacturing Services. Data Acquisition and Communications Products We are a leading supplier of systems and software for data acquisition and communications applications in commercial aviation, as well as critical components and subsystems for wireless and satellite communications terminals. We are focused on expanding our technology base to support the emerging needs for high data rate broadband communications technology. We also supply a range of specialized components, subsystems and equipment to domestic and international government aviation and aerospace customers. We participate in the markets for data acquisition and communications equipment and services for both air transport (including commercial passenger aircraft) and business and commuter aircraft. Air Transport Products. Our aircraft information management solutions are designed to increase the safety and efficiency of airline transportation throughout the world. With over 200 commercial airline customers, we are a leading supplier of digital flight data acquisition systems for the commercial airline industry. We have provided these systems for our airline customers for over one-half of Boeing aircraft currently in production. We were recently selected by Airbus Industrie's partner, DaimlerChrysler Aerospace-Airbus, to provide our systems for certain of its aircraft customers. These systems acquire both mandatory data for use by the aircraft's flight data recorder, and record additional data for the airline's use, such as performance and engine condition monitoring. The markets for data acquisition and communication systems include both new and retrofitted aircraft. Boeing estimates that the operational air transport fleet will grow from a current fleet of 12,600 to 19,100 aircraft by 2008. Our newest digital flight data acquisition units have the most advanced features in the industry. These systems conform with the required expansion of data recording capabilities, which were mandated by the FAA in 1997. At that time, the FAA increased the number of mandatory parameters to be monitored from 17 (prior to the rule change) to 88 by the year 2002. Our flight data units also perform additional, non-mandatory aircraft and engine condition monitoring for use by airline customers. 48 53 Business and Commuter Products. Communication capabilities for business and commuter aircraft are growing rapidly as these aircraft have begun to mirror air transport aircraft in data gathering and aircraft monitoring. We are one of the largest suppliers of air-to-ground telephony and facsimile and data transmission products to the growing business and commuter aircraft market. Bombardier Aerospace recently selected us to provide a suite of communications products for its new, ultra long-range Global Express business jet. These products include an air-to-ground telephone system and our TeleLink(TM) datalink system that link onboard avionics with ground service providers to facilitate air traffic management and flight operations. The business and commuter fleet is significantly larger than the air transport fleet, with approximately 27,000 aircraft currently operational. Forecast International, an industry consultant, projects that the business and commuter fleet will increase by approximately 40% during the next decade. We expect continued demand for both new installations and upgrades for these systems by business and commuter aircraft customers. Wireless Ground Link. In March 1999 we demonstrated a prototype of our new Wireless Ground Link that automates the transfer of in-flight data recorded by our data acquisition systems to an airline's operations center. Transmission of the data can occur anytime an aircraft is on the ground utilizing the existing digital wireless infrastructure. The raw data are then forwarded to the airline through the Internet, where they can be processed into useful formats by our Flight Data Replay and Analysis System. Such data can then be used by the airline in scheduling maintenance services and implementing safety procedures. Wireless and Satellite Communication Components. Our communications components and subsystems are used in satellite earth terminals, communications satellites, and base stations for Personal Communication Services (PCS) and wireless local loops. The technology that we apply to wireless and satellite communications originated in defense applications. We supply power amplifiers used in the L, C and Ku band satellite uplink transmitters. These products encompass both solid state monolithic microwave integrated circuits and high power helix traveling wave tubes. Applications include Very Small Aperture Terminals (VSATs) used for credit card verification, corporate networking, and mobile news gathering. The markets for both wireless and satellite systems are being driven by the growing need for high data rate (HDR) communications. In order to obtain sufficient bandwidth to support transmission of these data, wireless and satellite systems are moving to higher frequencies. We are extending our position in power amplifiers by developing and producing amplifiers for the emerging higher-frequency Ka band market for broadband wireless and satellite communications systems. According to Allied Business Intelligence and other independent market analysts, the market segment for high frequency solid state power amplifiers is projected to grow from approximately $47 million in 1999 to $118 million in 2003. We have developed a unique line of microwave filters that are manufactured with a patented injection molding technique. These metal-plated plastic filters are lighter in weight than competing metal filters, and can be used efficiently in the new lightweight microcell and picocell base stations for PCS systems. Our filters and our new VSAT transceivers have applications in wireless local loops, which are used to supply communications infrastructure in the developing world where the cost and time to deploy wireline communications can be excessive. Defense and Space Electronics. We are a leading supplier of high power traveling wave tubes for electronic warfare systems, radar systems, and military satellite communications systems for both domestic and international applications. Our tubes are used in airborne systems on many aircraft, including the B-52, B-1B, F-15 and E-A6B, and Global Hawk, and 49 54 on surface systems, such as AEGIS ships. We believe that there will be a continuing demand for our tubes in both new and existing systems. We believe that the use of traveling wave tubes for radar applications will grow as these systems are upgraded with advanced capabilities that cannot be achieved with current transmitter technologies. We have also supplied thousands of microprocessor-controlled ejection seat sequencers for U.S. Air Force and U.S. Navy tactical aircraft, such as the F-16, F-18 and the new F-22 fighter. Precision Electronic Devices We develop and manufacture microelectronic devices, high-performance relays, microelectromechanical systems (MEMS), high-density connectors and precision instruments that are engineered for demanding applications in the defense, commercial aerospace, medical, instrumentation and industrial markets where small size, high performance and reliability are of paramount importance. We also provide precision instruments to manufacturers in these industries. Microelectronic Devices. Our hybrid microcircuits are used in applications such as military (including F-18 and F-22 aircraft and the M1A2 tank), aerospace, medical and instrumentation systems. These compact and complex electronic building blocks combine multiple transistors and integrated circuits in multi-chip modules (MCMs). Our fiber optic transmitter and receiver modules are used for video distribution on the International Space Station. We have applied our MCM technology to the manufacture of life sustaining and life enhancing implantable medical devices, including cardiac pacemakers and defibrillators, neural stimulators and cochlear implant hearing aids. Newer products include biological signal sensors and ambulatory digital recorders for diagnosis and monitoring of epilepsy and sleep disorders. These products are distributed on a private label basis by our customers. Our medical manufacturing operations are FDA-registered, and like all of our electronics manufacturing facilities, are certified to ISO 9000. High-Performance Relays. Our Teledyne Relays miniature electromechanical relays are used where maintenance of signal fidelity is essential. Examples of applications include switching of high-speed digital and microwave signals in semiconductor and microwave test equipment, wireless systems and communications satellites. According to Venture Development, an industry consultant, the telecommunications and instrumentation relay market is approximately $870 million annually and is expected to grow at more than 5% per year. Growth in the transmission of broadband data via the Internet, increases in clock speeds of microprocessors, and the migration of wireless and satellite systems to higher frequency bands are all contributing to a need for switching devices that operate at higher frequencies. With the introduction of our new high-frequency relay in 1999, we more than tripled the range of frequencies that can be switched reliably and accurately by available technologies. Microelectromechanical Systems. We are leveraging our experience with precision electromechanical devices and microelectronics fabrication technology to develop new MEMS. The first product we are developing in this line is a microrelay based on an exclusively licensed patented electromagnetic actuation technique. The microrelay will be significantly smaller than current electromechanical relays, an important factor in modern, miniaturized electronic systems, and will provide us with access to a new market segment in which we do not currently compete. Venture Development estimates this market segment to be approximately $150 million. High-Density Connectors. We supply custom, low profile, surface mount connectors for applications in computer disk drives and consumer medical electronic devices. We have increased our development efforts for high-density microprocessor connectors, targeted for use in high-volume applications such as personal computers and workstations and personal communication systems handsets. Prismark Partners, an industry consultant, estimates that the 50 55 market for this type of connector will grow from 100 million units per year in 1999 to 200 million by 2003, with the price of a typical connector expected to be approximately $6. Precision Instruments. We design and manufacture precision instruments for process applications in semiconductor and petrochemical manufacturing with a broad line of analyzers for oxygen and other gases, vacuum gauges, and mass flow meters and controllers. These instruments are sold under the Teledyne Analytical Instruments and Teledyne Hastings brand names. Electronic Contract Manufacturing Services We operate turnkey manufacturing facilities in Tennessee, Mexico and Scotland for low-to-moderate volume, technically-sophisticated products, ranging from individual printed circuit board assemblies to complete electronic systems, used in the aerospace, medical and communications industries. We manufacture subsystems used in such diverse products as weapons release systems and medical magnetic resonance imaging systems. Our customers include major aerospace and electronics companies. Our production capabilities include through-hole, surface mount and multi-chip module assembly; and digital, analog, radio frequency and microwave testing. Our patented REGAL(R) rigid-flex technology combines rigid and flexible printed circuits into one assembly that eliminates board-to-board connectors, which results in improved reliability and packaging density. These rigid-flex circuit boards are used in military (such as the AMRAAM missiles, the Airborne Self Protection Jammer and the Apache Longbow Helicopter), commercial aerospace and medical applications. In late 1998 we added rapid prototyping capability for rigid-flex printed circuits to improve customer service. During 1998 we expanded our capacity for low-cost manufacturing in Mexico. Subject to prevailing labor conditions, we plan additional growth in Mexico and at our Scotland facility. According to Frost & Sullivan, an industry consultant, the market for military electronic contract manufacturing services was approximately $800 million in 1998 and is expected to grow at an 8% annual rate as major military systems companies increasingly focus more on integration of systems and rely on merchant suppliers for electronics manufacturing. SYSTEMS ENGINEERING SOLUTIONS SEGMENT Teledyne Brown Engineering offers a wide range of engineering solutions and information services to government defense, aerospace and commercial customers. Our software solutions center on the following five areas: - - Aerospace Solutions - - Defense Solutions - - Information Services - - Environmental Solutions - - Enterprise Control and Energy Products Aerospace Solutions We provide a broad range of highly sophisticated engineering solutions and services to U.S. space programs. U.S. Government budgeted expenditures in this market are approximately $10.3 billion in 1999. As the payload integration contractor for NASA's Marshall Space Flight Center, we have had major responsibilities in the numerous scientific missions of the Space Shuttle. This work has ranged from experiment planning, through designing and fabricating interface hardware, to manning the mission control center during flight operations. The centerpiece of our current space activities is the International Space Station. We are involved in both space-borne and ground-support hardware development and we participate in mission planning and operations. We have approximately 300 people working on International Space Station projects and realized sales associated with these projects of approximately $25 million in 1998. We expect to generate a similar level of revenue with respect to these projects in 1999. The development and integration of complex ground support equipment has long been one of 51 56 our specialties. Recognition of this is reflected in our selection by the U.S. Air Force to produce three prototype aircraft cargo loaders as a part of the Air Force's Next Generation Small Loader program. Defense Solutions For over 45 years, we have played a key role in the development of U.S. defense systems. The Department of Defense has budgeted $4.04 billion in expenditures in 1999 for various missile defense programs, which are projected to grow at a modest rate for the next five years. The current projected 2000 budget for the National Missile Defense program is approximately $800 million and is projected to grow to $1.8 billion in 2002. During the last 10 years alone, our systems engineering solutions in defense technologies have averaged over 1,000,000 man-hours per year. In ballistic missile defense programs, we have provided solutions in systems engineering, integration, and testing; real-time distributed testing and training; radar and optical systems design; command center development; and intelligence studies and threat analysis. We provide battle simulation software as part of our role for the U.S. Ballistic Missile Defense Organization's National Missile Defense program. We also provide an array of engineering solutions related to combat systems technologies, including research and development test support, operational test and evaluation, systems survivability analysis, and body armor development. Information Services One of our strongest capabilities is in information technology. The government sector of the information technology market is approximately $33.6 billion in 1999, and is expected to grow at an annual rate of between 4% and 10%. Approximately 30% of our contracts are in this sector. Our software products, most of which are certified to ISO 9001, are used for highly diverse applications, such as high-fidelity simulations, multi-media training, Internet website development, distributed real-time testing, and command and control centers. We have developed hundreds of simulation programs, including the Extended Air Defense Simulation, which is used by friendly governments worldwide and was combat-proven during Operation Desert Storm and more recent operations. We have recently upgraded the U.S. Army's land-combat model to include amphibious and tactical air operations. We are recognized as a leader in the development of real-time, vehicle-and weapons-integrated simulations for systems testing and training. Our Systems Exerciser is a simulation tool used to verify the inter-operational compatibility of geographically separated, complex defense systems. The Systems Exerciser "drives" actual weapons systems with a simulated environment including threats, weather and terrain, creating a robust virtual world in which real systems can operate and interact. We have been continuously involved in weapons signature management development efforts since 1989, with over 47 successful programs, of which 37 were sole source contracts. We are particularly well-known for systems that limit the detection of soldiers on the battlefield by radar or infrared sensors, as to which we hold several issued and pending patents. The Optical Signatures Code, which we developed and maintain, is the recognized standard in missile defense. We also developed the world's largest on-line database for optical signatures. Environmental Solutions We utilize our systems engineering solutions to assist the U.S. Government in complying with terms of the Chemical Weapons Convention Treaty. This Treaty requires the United States to destroy all chemical weapons and materiel by 2007. As a 50% participant in a joint venture, we are developing alternative technologies to incineration for the destruction of stockpile chemical munitions. We are presently the only contractor operating in the non-stockpile chemical munitions sector. As the prime contractor for the U.S. Army's Non-Stockpile Chemical Materiel Demil- 52 57 itarization program, we are designing, fabricating, integrating, and testing equipment to safely destroy small caches of chemical munitions and materiel located in over 30 states. We were recently selected by the Air Force to establish and operate a highly-specified analysis laboratory. This laboratory, used for performing nuclear forensic analysis of gas samples, has been operated for many years by military personnel at McClellan Air Force Base in California, and is now being transferred to contractor operation. Enterprise Control and Energy Products Our systems engineering capabilities are applied to energy problems through a variety of services and products. Our OpenVector(TM) supervisory control and data acquisition systems are used for managing over half of the gas transportation pipelines in the United States, and we have recently added new international customers in South Korea, Hungary and Brazil. While most of our Open Vector(TM) software sales have been in the United States, additional significant market opportunities exist in the international arena as well as in new applications such as satellite control. Applications of OpenVector(TM) software are expanding into water/waste water control and general enterprise consolidated information management. Frost & Sullivan has estimated that the international market for commercial system control and data acquisition applications would be approximately $2.6 billion in 1998 and will grow at approximately 15% per year. We manufacture and sell low-power, continuously-operating electrical generators utilized in energy remote locations. We market our line of low-power radioisotope thermoelectric generators under the SENTINEL(TM) brand name. One of our units aboard the Pioneer spacecraft has exited the solar system, after flawlessly providing power for more than two decades. Our TELAN(TM) thermoelectric systems provide up to 90 watts of constant, reliable power at remote locations throughout the world. Our recently announced 2.5-kilowatt Minotaur(TM) engine-generator system runs on natural gas and is designed for long-term, continuous, low-maintenance operation for the oil and gas production industry, and to provide prime power for applications in emerging countries that lack sophisticated infrastructures. AEROSPACE ENGINES AND COMPONENTS SEGMENT Our Aerospace Engines and Components segment, through Teledyne Continental Motors and Teledyne Cast Parts, focuses on the design, development and manufacture of piston engines, turbine engines, electronic engine controls, batteries and metal castings. Piston Engines We design, develop and manufacture piston engines and ignition systems for major general aviation airframe manufacturers and provide spare parts and engine rebuilding services. We are one of two primary worldwide producers of piston engines and after-market service providers for the general aviation marketplace. Over 300,000 piston-powered aircraft have been produced since the inception of the general aviation industry. The active fleet of single and twin-engine aircraft is estimated to be 165,000, with approximately 200,000 engines currently in service. We estimate that our engines power approximately one half of the active fleet. The average age of this fleet is approximately 30 years. Our share of the installed base is extremely important in a business in which repair and replacement parts can provide substantial ongoing revenue. Our product lines include engines powering the industry benchmark Raytheon Beech Bonanza and Baron aircraft, the Mooney Aircraft line of advanced single engine aircraft, and the popular New Piper Seneca V twin-engine aircraft. In addition to these long-standing products, all four new high-speed, composite aircraft currently entering production will be powered by our engines. These are the Cirrus SR20, Lancair Columbia, Diamond Katana C1, and the Extra 400. The market for piston powered general aviation aircraft has shown a strong resurgence in recent years. Following the passage of the 53 58 General Aviation Revitalization Act (GARA) of 1994, which limited manufacturers' product liability for aircraft over 18 years in age, the domestic production of new aircraft has increased from 444 new units in 1994 to over 1,500 units in 1998. Following the passage of GARA, the industry has introduced new and advanced airframes and avionics and increased the rate of spending for new product research and development. Additionally, NASA is sponsoring three new programs aimed at increasing the efficient commercial use of small general aviation aircraft. NASA is also co-sponsoring our development of a new engine that will use commonly available and less expensive Jet-A fuel. In addition to the sales of new aircraft engines to aircraft producers, we also actively support the aircraft engine aftermarket. Piston aircraft engines are produced with a finite utilization life generally expressed as time between overhaul (TBO). Rebuilding or overhauling of the engine is required at TBO, which can range between 1,600 and 2,000 hours for our aircraft engines. With an installed base of approximately 100,000 Teledyne Continental Motors engines and an average aircraft utilization of 133 hours per year, approximately 10,000 of our aircraft engines can be expected to be overhauled in the aftermarket each year. Our aftermarket support includes the rebuilding of nearly 3,000 of these units annually with our Gold Medallion Rebuilt Engine. We also provide a full complement of spare parts such as cylinders, crankcases, fuel systems, crankshafts, camshafts and ignition products. Our Aerosance unit has developed the first first full authority digital electronic controls for piston aircraft engines. These controls are designed to automate many functions that currently require manual control, such as fuel flow, ignition and power management. This system also saves fuel as a result of improved engine management. We believe that these control systems, which are in the process of FAA certification testing, will become standard equipment on new aircraft, and will be retrofitted on higher-end, piston-powered general aviation aircraft. In November 1999, we acquired certain assets of Long Island, New York-based Mattituck Aviation Corporation, a privately-owned aftermarket supplier and piston engine rebuilder and overhauler to the general aviation marketplace. This acquisition is expected to bring additional service capabilities to Teledyne Continental Motors. These service capabilities should enhance our investments in manufacturing excellence and the development of digital electronic controls for piston aircraft engines. Turbine Engines We design, develop and manufacture small turbine engines for missiles and unmanned aerial vehicles. We also produce engines that power military trainer aircraft. Since the late 1950s, we have delivered over 20,000 of these engines to defense contractors. We believe that the near-term demand for these engines will increase as a result of the depletion of cruise missiles in recent international conflicts. Our J402 engine powers the HARPOON missile system. Derivatives of this engine power the Standoff Land Attack Missile and the Standoff Land Attack Missile Expanded Response. Over 7,400 of these engines have been produced for these missile systems, which are deployed by the U.S. Navy and various NATO countries. A derivative of the J402 engine has been selected by Lockheed Martin to power the Joint Air to Surface Standoff Missile which is scheduled to be fielded in 2002. The U.S. Air Force and the U.S. Navy plan to purchase approximately 2,400 of these missiles by 2008. Another derivative has been selected by Raytheon to provide propulsion for the Tactical Tomahawk Cruise Missile, with over 1,300 missiles planned for field deployment beginning in 2003. We are the sole source provider of engines for the Joint Air to Surface Standoff and Tactical Tomahawk cruise missiles systems. Another of our engines provides the turbine power for the Improved Tactical Air Launched Decoy being built for the U.S. Navy. This system enhances stand-off capability by identifying the 54 59 enemy radar sources for lethal weapons. This low-cost turbine engine is the first of a family of lower-thrust engines to enter production. Another of our engines serves as the propulsion source for the T-37 aircraft, the primary jet trainer for the U.S. Air Force. This engine has been in service for over 40 years and will continue to power the T-37 well into the next decade. We are the sole source for major spare parts for this engine. Battery Products Our battery products operations specialize in the design, development and manufacture of engineered products for the lead acid battery markets. We are focused on providing engineered products in niche markets with more favorable margins than typical battery products. We design, develop and manufacture dry-charged batteries that can be stored for years without deterioration. Our maintenance-free, valve-regulated, recombinant batteries offer electrical performance and rechargeable characteristics that are superior to other types of maintenance-free batteries. Our Gill(TM) line of lead acid batteries is widely recognized as the premier dry-charged, starting and standby power source for general aviation. More companies manufacturing new general aviation aircraft choose the Gill(TM) product line than any other lead acid battery. The technical characteristics of our batteries offer the possibility of sales to growing non-aviation markets, such as the cable television and telecommunications industries backup. Cast Parts Teledyne Cast Parts offers a wide range of complex sand-cast aluminum and magnesium castings and nickel-based superalloy and stainless steel investment castings to the aerospace and defense industries. Premium quality castings are produced from various processes in accordance with military, aerospace and commercial customer specifications to exacting tolerances and mechanical strengths. Our major customers include airframe and turbine engine manufacturers, missile producers and other defense contractors. We supply castings to the U.S. Navy for use in its Phalanx weapons system, as well as castings used in Tomahawk Cruise Missiles, jet engines and armament systems for both airborne and land vehicles. Based on publicly-available sales data, we estimate that the market for aluminum and magnesium casting was approximately $1 billion in 1998 and the market for air melt steel and vacuum melt superalloys was approximately $2.6 billion. The metals casting industry has been highly fragmented and has experienced consolidation in recent years. We believe that this trend may provide us with additional growth opportunities. SALES AND MARKETING No commercial customer accounted for more than 10% of our total sales during 1998, 1997 or 1996. Approximately 40%, 40% and 44% of our total sales for 1998, 1997 and 1996 were derived from contracts with agencies of, and prime contractors to, the U.S. Government. We do not regard sales to the U.S. Government as constituting sales to a single customer, because various U.S. Government customers exercise independent purchasing decisions. Our principal U.S. Government customer is the U.S. Department of Defense. Our largest program with the U.S. Government, the Systems Engineering and Technical Assistance contract with the Space and Missiles Defense Command accounted for 7.3%, 7.1% and 8% of total sales for 1998, 1997 and 1996. No other program represented more than 4% of total sales for 1998, 1997 and 1996. Sales by our segments to agencies of and prime contractors to, the U.S. 55 60 Government in each of the past three years were as follows:
1998 1997 1996 ------ ------ ------ (IN MILLIONS) Electronics and Communications..... $102.4 $102.7 $114.8 Systems Engineering Solutions............ $159.2 $158.0 $169.4 Aerospace Engines and Components......... $ 46.8 $ 42.6 $ 32.5
Our sales and marketing approach varies by segment and by products within our segments. A shared fundamental tenet is the commitment to work closely with our customers to understand their needs, with an aim to secure preferred supplier and longer-term relationships. Our business segments use a combination of internal sales forces, distributors and commissioned sales representatives to market and sell our products and services. Products are also advertised in appropriate trade journals and by means of various Internet web sites. To promote our products and other capabilities, our personnel regularly participate in relevant trade shows and professional associations. Many of our government contracts are awarded after a competitive bidding process in which we seek to emphasize our ability to provide superior products and technical solutions in addition to competitive pricing. COMPETITION We believe that technological capabilities and innovation and the ability to invest in the development of new and enhanced products are critical to obtaining and maintaining leadership in our markets and the industries in which we compete generally. Although we have certain advantages that we believe help us compete in our markets effectively, each of our markets is highly competitive. Our businesses variously compete on the basis of quality, product performance and reliability, technical expertise, price and service. Many of our competitors have, and potential competitors could have, greater name recognition, a larger installed base of products, more extensive engineering, manufacturing, marketing and distribution capabilities and greater financial, technological and personnel resources than we do. RESEARCH AND DEVELOPMENT We spent a total of $160.5 million, $175.0 million, $188.8 million and $202.6 million on research and development for the nine months ended September 30, 1999 and for 1998, 1997, and 1996, respectively. Customer-funded research and development, most of which was attributable to work under contracts with the U.S. Government, represented approximately 87%, 86%, 85%, and 86% of total research and development costs for the nine months ended September 30, 1999 and for 1998, 1997, and 1996, respectively. INTELLECTUAL PROPERTY While we own and control various intellectual property rights, including patents, trade secrets, confidential information, trademarks, trade names, and copyrights, which, in the aggregate, are of material importance to our business, our management believes that our business as a whole is not materially dependent upon any one intellectual property or related group of such properties. We own over 700 active patents and are licensed to use certain patents, technology and other intellectual property rights owned and controlled by others. Similarly, other companies are licensed to use certain patents, technology and other intellectual property rights owned and controlled by us. Patents, patent applications and license agreements will expire or terminate over time by operation of law, in accordance with their terms or otherwise. We do not expect the expiration or termination of these patents, patent applications and license agreements to have a material adverse effect on our business, results of operations or financial condition. 56 61 OUR FACILITIES Our principal facilities as of September 30, 1999 are listed below. Although the facilities vary in terms of age and condition, our management believes that these facilities have generally been well-maintained.
SQUARE FOOTAGE FACILITY LOCATION PRINCIPAL USE (OWNED/LEASED) - -------------------------------------- -------------------------------------- ------------------- ELECTRONICS AND COMMUNICATIONS SEGMENT Teledyne Electronic Technologies Los Angeles, California Development and production of 123,000 (leased) electronic components and subsystems. 17,000 (owned) Los Angeles, California Production of digital data acquisition 154,000 (leased) systems for monitoring commercial aircraft and engines. Lewisburg, Tennessee Development and production of 153,000 (owned) electronic components and subsystems. Mountain View, California Production of ferrite components, 100,000 (owned) switching devices, filters and monolithic microwave integrated circuits. Hawthorne, California Production of electronic components. 83,000 (owned) Rancho Cordova, California Development and production of 75,000 (owned) traveling wave tubes and power 16,000 (leased) supplies for use in commercial markets. SYSTEMS ENGINEERING SOLUTIONS SEGMENT Teledyne Brown Engineering Huntsville, Alabama Provision of engineered services and 475,000 (owned) products, including systems 123,000 (leased) engineering, optical engineering, software and hardware engineering, and instrumentation technology. AEROSPACE ENGINES AND COMPONENTS SEGMENT Teledyne Continental Motors Mobile, Alabama Design, development and production of 1,270,000 (leased) new and rebuilt piston engines, ignition systems and spare parts for the general aviation market. Redlands, California Manufacturing of batteries for the 91,000 (owned) general aviation market. Toledo, Ohio Design, development and production of 373,000 (leased) small turbine engines for aerospace and automotive markets. Teledyne Cast Parts Pomona, California Manufacturing of aluminum and 231,000 (owned) magnesium castings for air frames, turbine engines and missiles. City of Industry, California Manufacturing of nickel-based 70,000 (owned) superalloy and stainless steel investment castings.
We also own or lease facilities elsewhere in the U.S. and in countries outside the U.S., including Tijuana, Mexico, Gloucester, England and Cumbernauld, Scotland. Our executive offices are currently located at 2049 Century Park East, 57 62 Los Angeles, California 90067-3101 and will be subleased from a subsidiary of ATI. LEGAL PROCEEDINGS From time to time, we become involved in various lawsuits, claims and proceedings related to the conduct of our business. While we cannot predict the outcome of any lawsuits, claims or proceedings, our management does not believe that the disposition of any pending matters is likely to have a material adverse effect on our financial condition or liquidity. EMPLOYEES Out of a total workforce of 5,800, approximately 1,400 individuals have engineering, physics, mathematics or computer science degrees. Approximately 370 of our employees are represented by the International Union of United Automobile, Aerospace and Agricultural Implement Workers of America under a collective bargaining agreement that expires on December 16, 2000. We consider our relations with our employees to be good. ARRANGEMENTS WITH ATI RELATING TO THE SPIN-OFF For the purpose of governing certain of the relationships between ATI and Teledyne Technologies relating to the spin-off, to provide for an orderly transition and for other matters, ATI and Teledyne Technologies will enter into the agreements described below, copies of which have been filed as exhibits to the Registration Statement of which this Information Statement is a part. The following summaries of the material terms of these agreements are qualified by reference to the agreements as so filed. SEPARATION AND DISTRIBUTION AGREEMENT ATI and Teledyne Technologies and certain other companies affiliated with ATI will enter into a Separation and Distribution Agreement that will provide for the principal corporate transactions required to effect the separation of our businesses from those of ATI, the spin-off and certain other matters governing the relationship among us after the spin-off. To separate our businesses from other businesses of ATI, the subsidiary of ATI that has historically held most of the assets used in our businesses will transfer those assets to us and we will purchase the remaining assets used in our business from other subsidiaries of ATI, without representation or warranty and on an "as is," "where is" basis and "with all faults". We will assume all liabilities associated with our businesses, including those arising from the operation of our businesses both before and after the spin-off. Each of ATI and Teledyne Technologies will release the other from all other obligations and liabilities owed to such party existing on the date of the spin-off, other than liabilities and obligations arising under the Separation and Distribution Agreement and the other agreements entered into in connection with the spin-off. Likewise, each of ATI and Teledyne Technologies will indemnify the other for liabilities arising from a breach of these agreements or the failure to pay or discharge the liabilities assumed by such party under the Separation and Distribution Agreement. The Separation and Distribution Agreement requires that we initiate a public offering of our common stock within eight months following the spin-off, and complete the public offering within one year following the spin-off. It also requires that we use proceeds of the offering as contemplated by the tax ruling request. It was represented in the tax ruling request that we expected that gross proceeds of the public offering would be approximately $125 million, and that we intend to use the net proceeds of the offering for research and development and related capital projects, for further development of our manufacturing capabilities, and for acquisitions and/or joint ventures. We are currently an additional named insured under various ATI insurance policies. Under the Separation and Distribution Agreement, we will be entitled to the benefit of pre-spin-off historical coverage under ATI's property, liability and certain other insurance policies to the extent coverage is applicable or potentially 58 63 available and where limits of liability have not been exhausted, either on a per occurrence or aggregate basis. The terms and conditions of these policies, including limits of liability, will not be amended as a consequence of the spin-off. To the extent that these policies feature a deductible or self-insured retention, we will continue to be responsible for our allocable share of the deductibles and retentions, based on the same allocation formulas that applied prior to the spin-off and, in the case of aircraft product liability policies, to the full extent of the deductible or retention for each claim made against our Company under those policies. The Separation and Distribution Agreement provides that until the third annual meeting of our stockholders held following the spin-off, at least a majority of our directors will also be members of the Board of Directors of ATI. The initial members of our board of directors will be Thomas A. Corcoran, Diane C. Creel and C. Fred Fetterolf (Class I), Paul S. Brentlinger and Robert Mehrabian (Class II) and Robert P. Bozzone, Frank V. Cahouet and Charles J. Queenan, Jr. (Class III). The Separation and Distribution Agreement also provides that we will nominate Mr. Corcoran, Ms. Creel and Mr. Fetterolf (or, if any such director is unable or unwilling to serve, such other candidate as Messrs. Bozzone, Cahouet and Queenan or the survivor of them shall designate) for re-election as a Class I director at the first annual meeting of our stockholders following the spin-off. EMPLOYEE BENEFITS AGREEMENT Prior to the date of the spin-off, ATI and Teledyne Technologies will enter into an Employee Benefits Agreement to set forth the manner in which assets and liabilities under employee benefit plans and other employment-related liabilities will be divided between them, and to help ensure a smooth transition for employees' benefits in the spin-off. In general, we will be responsible for compensation and employee benefits relating to our employees. The Employee Benefits Agreement provides that we will establish a new defined benefit pension plan on terms substantially similar to the parts of ATI's Pension Plan applicable to all of our employees, both active and inactive at our operations which perform government contract work and for our active employees at our operations which do not perform government contract work. It is anticipated that we will receive pension assets equal to liabilities as well as approximately $50 million in surplus pension assets. With this transfer, it is anticipated that we will not have to make a pension contribution in the foreseeable future. In addition, we will assume certain retiree medical obligations and should be able to withdraw cash from our pension plan to pay our retiree medical costs. The Employee Benefits Agreement will also provide for the treatment of outstanding options to acquire ATI common stock issued under ATI benefit plans. At the time of the spin-off, ATI stock options held by our employees will be converted into options to purchase shares of Teledyne Technologies common stock. The number of shares the option holder would be able to purchase and the exercise price of the options would be adjusted in the conversion based on the relationship of the ATI stock price and the stock price of Teledyne Technologies, so that the "intrinsic value" of the options (that is, the difference between the market value of the stock acquired on the exercise and the exercise price of the options) before the spin-off would be equivalent to the intrinsic value of the options immediately after the spin-off. The determination of that value cannot be made until after the spin-off. The options would otherwise continue to be and become exercisable on the terms and conditions set forth in the original ATI benefit plans. Under the Employee Benefit Agreement, the current award period under the ATI Performance Share Program would be terminated when the spin-off occurs. ATI's compensation committee will determine the amount of the awards, if any, that have been earned, based on the achievement of plan goals through the spin-off date, and will make awards pro-rated for the shortened Program term. Pursuant to the Program, payments will be made in cash and stock. Stock payments to our employees will be paid in Teledyne Technologies common stock. Pursuant to the Program, we will 59 64 make the payments in three annual installments, with the first payment expected to be made early in the year 2000. The Employee Benefits Agreement also provides for the treatment of purchased, designated and restricted shares issued under the ATI Stock Acquisition and Retention Program prior to the spin-off. Under the Agreement, participants who have purchased or designated ATI shares will receive distributions of the common stock of Teledyne Technologies and Water Pik Technologies in the spin-offs on the purchased or designated ATI shares. The shares they receive in the spin-off, as well as the original ATI shares, will continue to be held as collateral for the loans for the purchased shares, all of which will be retained by ATI, until the loans are fully paid. Restricted shares issued under the Program to our employees will be converted into shares of Teledyne Technologies common stock. The new Teledyne Technologies shares will also be restricted shares until the restriction lapse on the terms and conditions set forth in the original ATI Program. The Employee Benefits Agreement provides, in general, that we will receive no assets with which to fund liabilities under non-qualified plans. An exception applies with respect to the Allegheny Teledyne Executive Deferred Compensation Plan under which employees with total annual compensation in excess of $100,000 may elect to defer a portion or all of their salary and/or bonus; it is anticipated that we will receive company-owned life insurance policies or other assets with a cash value equal to the amount of deferred compensation liabilities at the time of the spin-off. In addition, while we would assume liabilities for pension benefits in excess of qualified plan limits under the Teledyne, Inc. Pension Equalization Plan, ATI would guarantee to participants the payments of these obligations -- as of the spin-off date -- if we cannot pay such obligations. TAX SHARING AND INDEMNIFICATION AGREEMENT On or prior to the date of the spin-off, ATI and Teledyne Technologies will enter into a Tax Sharing and Indemnification Agreement that will set forth each party's rights and obligations regarding payment and refunds, if any, with respect to taxes for periods before and after the spin-off and related matters such as the filing of tax returns and the conduct of audits or other proceedings involving claims made by taxing authorities. In general, ATI will be responsible for filing consolidated U.S. federal and consolidated, combined or unified state income tax returns for periods through the date of the spin-off, and for paying the taxes relating to such returns including any subsequent adjustments resulting from the redetermination of such tax liability by the applicable taxing authorities. We will be responsible for other taxes attributable to our operations. The Tax Sharing and Indemnification Agreement provides that we will indemnify ATI and its directors, officers, employees, agents and representatives for any taxes imposed on, or other amounts paid by, them or ATI's stockholders, if we take actions or fail to take actions (such as completing the public offering) that result in the spin-off not qualifying as a tax-free distribution. For example, pursuant to the Tax Sharing and Indemnification Agreement, Teledyne Technologies will agree that for a two-year period following the date of the spin-off: (i) we will continue to engage in the Teledyne Technologies businesses; (ii) we will continue to own and manage at least 50% of the assets which we own directly or indirectly immediately after the spin-off; and (iii) we will not, unless we obtain the written consent of ATI, engage in a number of specified transactions. Transactions subject to these restrictions will include issuance of Teledyne Technologies common stock (or certain derivatives of our stock) in amounts which represent 40% or more of the Teledyne Technologies common stock, issuance of instruments other than Teledyne Technologies common stock (or derivatives of our stock) constituting equity for U.S. federal tax purposes, certain redemptions and other acquisitions of capital stock or equity securities of Teledyne Technologies, or the merger, dissolution or liquidation of our company. 60 65 If our obligations under the Tax Sharing and Indemnification Agreement were breached and the spin-off were to fail to qualify as tax-free for U.S. federal income tax purposes as a result of such breach, we would be required to satisfy the indemnification obligation described above. This indemnification obligation could exceed our net worth at that time. Though valid as between the parties thereto, the Tax Sharing and Indemnification Agreement is not binding on the IRS and does not affect the several liability of ATI, Teledyne Technologies and their respective subsidiaries to the IRS for all U.S. federal taxes of the consolidated group relating to periods prior to the spin-off. INTERIM SERVICES AGREEMENT On or prior to the date of the spin-off, ATI and Teledyne Technologies will enter into an Interim Services Agreement pursuant to which ATI will provide us with transitional administrative and support services for a period of time not expected to exceed 12 months. The Interim Services Agreement will provide that we will pay a fee to ATI intended to approximate ATI's cost for such services plus 10%. The Interim Services Agreement will provide that we will indemnify ATI for all claims, losses, damages, liabilities and costs incurred by ATI to a third party arising in connection with the provisions of a service under the agreement, other than those costs resulting from ATI's willful misconduct or gross negligence. In general, we can terminate an interim service after an agreed notice period. TRADEMARK LICENSE AGREEMENT On or prior to the date of the spin-off, an affiliate of ATI and Teledyne Technologies will enter into certain intellectual property related agreements, including a license agreement pursuant to which Teledyne Technologies will be granted a license to use the "Teledyne" name and related logos, symbols and marks (collectively, "Teledyne Marks") in connection with Teledyne Technologies operations after the spin-off. Under the terms of this license agreement, Teledyne Technologies will have the right to use the Teledyne Marks anywhere in the world in connection with the manufacture, distribution, marketing, advertising, promotion and sale of its products. We have agreed to pay an annual fee of $100,000 for this license and at the end of five years have an option to purchase all rights and interests in the Teledyne Marks for $412,000. 61 66 MANAGEMENT DIRECTORS Our Board of Directors is expected initially to consist of the individuals named below. Until the third annual meeting of our stockholders following the spin-off, at least a majority of the members of our Board of Directors will also be directors of ATI. See "Arrangements with ATI Relating to the Spin-Off -- Separation and Distribution Agreement" and "Description of Our Capital Stock." Our Certificate of Incorporation provides that we will have three classes of directors, the initial terms of office of which will expire, respectively, at the annual meeting of stockholders in 2000, 2001 and 2002. Successors to any directors whose terms are expiring are elected to three-year terms and hold office until their successors are elected and qualified. Also set forth below with respect to each director is the class of which such director will be a member. The business address for each person listed below is 2049 Century Park East, Los Angeles, California 90067-3101. Each individual listed below is a citizen of the United States. Our Bylaws contain provisions designed to ensure that at least a majority of our directors are also directors of ATI until the third annual meeting of our stockholders held after the spin-off. The Bylaws also provide that no quorum of the Board will be deemed present unless at least a majority of the directors present are also members of the Board of Directors of ATI. CLASS I DIRECTORS The Class I Directors will serve until the 2000 annual meeting of our stockholders and until their respective successors are elected and qualified. Our Class I Directors will be: Thomas A. Corcoran Age 55 Thomas A. Corcoran has been the President and Chief Executive Officer of ATI since October 1999. He previously served as the President and Chief Operating Officer of the Electronics Sector of Lockheed Martin Corporation from March 1995 through October 1998 and he was President and Chief Operating Officer of the Lockheed Martin Space Sector from October 1998 through September 1999. Previously, he was President of Martin Marietta Corporation's Electronics Group beginning in 1993. Mr. Corcoran is also a director of ATI, L-3 Communications Holdings, Inc., Lincoln Electric Holdings, Inc. and REMEC, Inc. He will serve as non-executive chairman of our Board of Directors. Diane C. Creel Age 50 Diane C. Creel is Chief Executive Officer and President of EarthTech, an international consulting engineering firm. Ms. Creel is also a director of ATI and The B.F. Goodrich Company and a member of the Boards of the Corporations and Trusts which comprise the Fixed Income funds of the American Funds Group. C. Fred Fetterolf Age 71 C. Fred Fetterolf was President and Chief Operating Officer of Alcoa, Inc. prior to his retirement in 1991. He is also a director of ATI, Commonwealth Industries, Dentsply International Inc., Union Carbide Corporation and Praxair, Inc. CLASS II DIRECTORS The Class II Directors will serve until the 2001 annual meeting of our stockholders and 62 67 until their respective successors are elected and qualified. Our Class II Directors will be: Paul S. Brentlinger Age 72 Paul S. Brentlinger is a Partner of Morgenthaler Ventures, a venture capital group headquartered in Cleveland, Ohio. He led Morgenthaler's investment in such companies as Microchip Technology, Inc. and Dispatch Communications (now part of Nextel Communications, Inc.). Prior to joining Morgenthaler, he was Senior Vice President--Finance of Harris Corporation, a manufacturer of communications equipment. Mr. Brentlinger is also a director of ATI. Robert Mehrabian Age 58 Robert Mehrabian has been the President and Chief Executive Officer of ATI's Aerospace and Electronics segment since July 1999 and has served ATI in various senior executive capacities since July 1997. Prior to that, Dr. Mehrabian served as President of Carnegie Mellon University. Dr. Mehrabian is a director of ATI, Mellon Bank Corporation, PPG Industries Inc. and BEI Technologies, Inc. CLASS III DIRECTORS Class III directors will serve until the 2002 annual meeting of our stockholders and until their respective successors are elected and qualified. Our Class III Directors will be: Robert P. Bozzone Age 66 Robert P. Bozzone has been Vice Chairman of the Board of ATI since August 1996. He had served as Vice Chairman of Allegheny Ludlum Corporation since August 1994 and previously was President and Chief Executive Officer of Allegheny Ludlum. He is also a director of ATI and of DQE, Inc., whose principal subsidiary is Duquesne Light Company. Frank V. Cahouet Age 67 Frank V. Cahouet served as the Chairman, President and Chief Executive Officer of Mellon Bank Corporation, a bank holding corporation, and Mellon Bank, N.A. prior to his retirement on December 31, 1998. Mr. Cahouet is also a director of ATI, Avery Dennison Corporation, Korn/Ferry International, Mellon Bank Corporation, Saint-Gobain Corporation and USEC, Inc. Charles J. Queenan, Jr. Age 69 Charles J. Queenan, Jr. is Senior Counsel to Kirkpatrick & Lockhart LLP, attorneys-at-law. Prior to January 1996, he was a partner of that firm. Mr. Queenan is also a director of ATI and Crane Co. Kirkpatrick & Lockhart LLP performs legal services for ATI, including in connection with the spin-off, and may in the future perform services for us. COMMITTEES OF OUR BOARD OF DIRECTORS In addition to other committees established by our Board of Directors from time to time, our board has established an Audit and Finance Committee, a Governance Committee, a Personnel and Compensation Committee and a Stock Incentive Award Subcommittee. AUDIT AND FINANCE COMMITTEE. The principal audit functions of the Audit and Finance Committee include: - - Making recommendations to the Board of Directors regarding the appointment of the independent accountants for the coming year. - - Reviewing the scope and general extent of, and proposed fees for, the annual audit plan and other activities of the independent accountants and the audit plan of the internal auditors. - - Reviewing with management and the independent accountants, upon completion of the annual audit, the financial statements and related reports for their adequacy and compliance with generally accepted accounting, reporting and disclosure standards. 63 68 - - Evaluating the effectiveness of our internal and external audit efforts, accounting and financial controls, policies and procedures and business ethics policies and practices through a review of reports by, and at regular meetings with, the internal and external auditors and with management, as appropriate. The principal finance functions of the Audit and Finance Committee include: - - Reviewing and evaluating proposed bank credit agreements and other major financial proposals. - - Reviewing and evaluating our relationships with banks and other financial institutions. - - Reviewing and making recommendations to the Board of Directors concerning policies with respect to dividends and capital structure. - - Meeting with the independent auditors and the internal auditors, with and without management being present, to discuss all appropriate matters. GOVERNANCE COMMITTEE. The Governance Committee will: - - Make recommendations to the Board of Directors with respect to candidates for nomination as new board members and with respect to incumbent directors for nomination as continuing board members. - - Make recommendations to the Board of Directors concerning the memberships of committees of the board and the chairpersons of the respective committees. - - Make recommendations to the Board of Directors with respect to the remuneration paid and benefits provided to members of the board in connection with their service on the board and its committees. - - Administer our formal compensation programs for directors, including the Teledyne Technologies Incorporated 1999 Non-Employee Director Stock Compensation Plan. - - Make recommendations to the Board of Directors concerning the composition, organization and operations of the board of directors, including the orientation of new members and the flow of information. - - Evaluate board tenure policies as well as policies covering the retirement or resignation of incumbent directors. PERSONNEL AND COMPENSATION COMMITTEE. The Personnel and Compensation Committee will: - - Make recommendations to the Board of Directors concerning general executive management organization matters. - - Make recommendations to the Board of Directors concerning compensation and benefits for employees who are also our directors, consult with our Chief Executive Officer on compensation and benefit matters relating to other executive officers who are required to file reports under Section 16 of the Securities Exchange Act of 1934, as amended (except to the extent such matters relate to the stock-based compensation of our executive officers, which are within the powers and authority of the Stock Incentive Award Subcommittee) and make recommendations to the board of directors concerning compensation policies and procedures relating to our executive officers. - - Make recommendations to the Board of Directors concerning policy matters relating to employee benefits and employee benefit plans. - - Administer our formal incentive compensation plans. STOCK INCENTIVE AWARD SUBCOMMITTEE. The Stock Incentive Award Subcommittee will be responsible for administering and making awards under our stock-based incentive compensation programs for our executive officers, who are required to file reports under Section 16 of the Securities Exchange Act of 1934, as amended. None of the subcommittee members will be an employee of Teledyne Technologies. Each member will be a "non-employee director" for the purposes of Rule 16b-3 of the Securities and Exchange Commission and an "outside director" 64 69 for the purposes of the compensation provisions of the Internal Revenue Code. COMPENSATION OF OUR DIRECTORS Directors who are not our employees will be paid an annual retainer fee of $24,000. The non-executive chairman of the Board of Directors will be paid an annual retainer fee of $25,000. Directors will also be paid $1,200 for each board meeting and $1,000 for each committee meeting attended, although the non-executive chairman of the Board of Directors will not receive any compensation for attending board meetings. Each non-employee chair of a committee will be paid an annual fee of $2,500. Directors who are our employees will not receive any compensation for their services on our board or its committees. The non-employee directors will also participate in the 1999 Non-Employee Director Stock Compensation Plan (the "Director Stock Plan"). The purpose of the Director Stock Plan is to provide non-employee directors with an increased personal interest in our performance. Under the Director Stock Plan, options to purchase 2,000 shares of our common stock will be granted to non-employee directors on the date of the distribution of our common stock to ATI stockholders and at the conclusion of each annual meeting of stockholders. If, after the spin-off, a non-employee director first becomes a director on a date other than an annual meeting date, an option covering 2,000 shares of our common stock will be granted to such non-employee director on his or her first date of board service. The purchase price of our common stock covered by these options will be the fair market value of our common stock on the date the option is granted. The Director Stock Plan also provides that each non-employee director will receive at least 25% of the annual retainer fee in the form of our common stock and/or options to acquire our common stock. Each director may elect a greater percentage. Options granted under this part of the Director Stock Plan are intended to provide each electing director with options having an exercise value on the date of grant equal to the foregone fees; that is, the difference between the exercise price and the market price of the underlying shares of common stock on the date of grant is intended to be equal to the foregone fees. In order to continue to attract and retain non-employee directors of exceptional ability and experience, we will also maintain a Fee Continuation Plan for Non-Employee Directors. Under the plan, benefits will be payable to a person who serves as a non-employee director for at least five years. The annual benefit will equal the retainer fee in effect when the director retires from the board. Benefits will be paid for each year of the participant's credited service as a director up to a maximum of ten years. EXECUTIVE OFFICERS Set forth below are the name, age, position and office to be held with us, and principal occupations and employment during the past five years, of those individuals who are expected to serve as our executive officers immediately following the spin-off. Those individuals named below who are currently officers or employees of ATI will resign from all such positions prior to the spin-off. Our executive officers will be elected to serve until they resign or are removed, or are otherwise disqualified to serve, or until their successors are elected and qualified. Robert Mehrabian Age 58 President and Chief Executive Officer Robert Mehrabian has been the President and Chief Executive Officer of ATI's Aerospace and Electronics segment since July 1999 and has served ATI in various senior executive capacities since July 1997. Prior to that, Dr. Mehrabian served as President of Carnegie Mellon University. Dr. Mehrabian is a director of ATI, Mellon Bank Corporation, PPG Industries, Inc. and BEI Technologies, Inc. 65 70 Stefan C. Riesenfeld Age 51 Executive Vice President and Chief Financial Officer Stefan Riesenfeld has been the Executive Vice President and Chief Financial Officer of ATI's Aerospace and Electronics segment since August 1999. From 1996 to May 1999, Mr. Riesenfeld was Chief Financial Officer of ICL, PLC, a global information systems and services company based in London, England. From 1983 to 1996, he was with Unisys Corporation where he served as Vice President and Corporate Treasurer from 1989. John T. Kuelbs Age 57 Senior Vice President, General Counsel and Secretary John Kuelbs is the Senior Vice President, General Counsel and Secretary of Teledyne Technologies, having joined ATI's Aerospace and Electronics segment in October 1999. Mr. Kuelbs was Senior Vice President -- Acquisition Policy for Raytheon Company from November 1998 to September 1999 and Senior Vice President -- Legal of Raytheon Systems Company from January 1998 to November 1998. Before Raytheon's acquisition of Hughes Aircraft Company, Mr. Kuelbs spent 17 years at Hughes Aircraft Company where he served as Senior Vice President, General Counsel and Secretary from 1994 to 1998. From 1976 to 1981, Mr. Kuelbs was Division Counsel for Ford Aerospace and Communications Company, Newport Beach, California. Mr. Kuelbs began his legal career in 1973 with the Office of the Army Chief Trial Counsel. SEGMENT MANAGEMENT Marvin H. Fink Age 63 President, Teledyne Electronic Technologies Marvin Fink has been the President of Teledyne Electronic Technologies since 1993. From 1986 to 1993, he was President of Teledyne Microelectronics. Mr. Fink has held various management positions with several of Teledyne's aerospace and electronics companies for over 36 years. Prior to joining Teledyne, Mr. Fink was a manager and engineer with Litton Industries and Hughes Aircraft Company. Mr. Fink is a director of Gul Technologies Singapore Ltd, an electronics components company headquartered in Singapore. Richard A. Holloway Age 57 President, Teledyne Brown Engineering Richard Holloway has been the President of Teledyne Brown Engineering since February 1998. From 1986 until joining Teledyne Brown Engineering, Mr. Holloway was Senior Vice President, Government Division of SCI Systems, Inc., a provider of manufacturing and design services to commercial companies, the U.S. military and foreign governments. From 1964 to 1986, he held various positions with The Boeing Company, including General Manager, Director of High-Technology Products. 66 71 Bryan L. Lewis Age 50 President, Teledyne Continental Motors Bryan Lewis has been the President of Teledyne Continental Motors since 1992. Mr. Lewis first joined Teledyne 18 years ago as a project engineer for its turbine engine business. Mr. Lewis began his industry career in 1972 at the Pratt & Whitney Aircraft Division of United Technologies in Hartford, Connecticut. Charles E. McGill Age 64 President, Teledyne Cast Parts Charles McGill has been President of Teledyne Cast Parts since March 1999. Prior to that, he was Vice President of ATI's Aerospace and Electronics segment and from 1993 through 1997 he was Vice President, Finance and Administration of Teledyne Electronics Technologies. Mr. McGill has held various management and financial positions with several of Teledyne's aerospace and electronics companies for over 34 years. Prior to joining Teledyne, Mr. McGill worked for the Ford Motor Company. EMPLOYMENT ARRANGEMENTS Messrs. Riesenfeld and Kuelbs were retained at an annual base salary of $300,000 and $275,000, respectively, and are entitled to certain additional payments. Each of them is also entitled to participate in Teledyne Technologies' annual incentive bonus plan. In addition, at the spin-off date, Messrs. Riesenfeld and Kuelbs will receive options to purchase approximately 75,000 shares and 70,000 shares, respectively, of Teledyne Technologies common stock. The stock option price will be the average price of our common stock over the first 20 days of trading following the spin-off. Options to purchase 10% of the shares will become exercisable one year after the grant date, options to purchase an additional 20% of the shares will become exercisable two years after the grant date, and options to purchase the remaining 70% of the shares will become exercisable three years after the grant date. 67 72 HISTORICAL COMPENSATION OF EXECUTIVE OFFICERS Shown below is information concerning the annual and long-term compensation for services rendered in all capacities to ATI and its subsidiaries for the years ended December 31, 1997 and 1998 of the individual who will serve as our Chief Executive Officer and who was the only executive officer employed by ATI or an affiliate of ATI at December 31, 1998. The compensation described in this table was paid by ATI or an affiliate of ATI. The table does not reflect the compensation to be paid to our executive officers in the future.
LONG-TERM COMPENSATION ANNUAL COMPENSATION --------------------- ----------------------------------- RESTRICTED OPTIONS FISCAL OTHER ANNUAL STOCK (SHARES) ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS(1) (2) COMPENSATION - --------------------------- ---------- -------- -------- ------------- ---------- -------- ---------------- Robert Mehrabian............. 1998 $370,833 $501,120 $6,171 170,991 40,000 $226,492(3) 1997 145,833 160,000 0 0 0 9,696 (5 months)
- ------------------------- (1) Represents the closing market price on the award date of ATI restricted stock awarded to Dr. Mehrabian under ATI's Stock Acquisition and Retention Program. ATI has paid dividends on the restricted shares. On December 31, 1998, the number of shares (and closing price of such shares, if unrestricted) held by Dr. Mehrabian under the Program were: 6,847 shares ($140,487). Prior to 1998, Dr. Mehrabian was not eligible to participate in the Program. (2) Reflects options granted under ATI's Incentive Plan. Does not include options awarded to Dr. Mehrabian under ATI's Non-Employee Director Stock Compensation Plan for his service as a director of ATI before becoming as employee of ATI. (3) Includes annual accruals for possible future payments to Dr. Mehrabian under the ATI Supplemental Pension Plan in the amount of $182,068, company contributions pursuant to the retirement portion of the ATI Retirement Savings Plan in the amount of $10,920, company contributions to the ATI Benefit Restoration Plan in the amount of $24,104, and the dollar value of the benefit to Dr. Mehrabian of the remainder of company-paid premiums for split-dollar life insurance in the amount of $9,400. OPTION GRANTS IN LAST FISCAL YEAR Shown below is information on grants to Dr. Mehrabian of options to purchase shares of ATI common stock pursuant to the ATI Incentive Plan during the year ended December 31, 1998, which are reflected in the Summary Compensation Table above.
POTENTIAL REALIZABLE VALUE AT ASSUMED RATES OF STOCK NUMBER OF % OF TOTAL PRICE APPRECIATION FOR SECURITIES OPTIONS EXERCISE OPTION TERM(1) UNDERLYING GRANTED TO OR BASE -------------------------- OPTIONS EMPLOYEES IN PRICE EXPIRATION 0% 5% 10% NAME GRANTED FISCAL YEAR ($/SHARE) DATE $ $ $ - ---- ---------- ------------ --------- ---------- ---- -------- -------- Robert Mehrabian................. 20,000 * 25.88 2/11/2008 0 325,600 825,000 20,000 * 20.375 12/17/2008 0 256,300 649,500
- ------------------------- * Less than 1%. (1) No gain to the optionee is possible without stock price appreciation, which will benefit all stockholders commensurately. The assumed "potential realizable values" are mathematically derived from certain prescribed rates of stock price appreciation. The actual value of these option grants depends on the future performance of ATI common stock and overall stock market condition. There is no assurance that the values reflected in this table will be realized. 68 73 Under the Employee Benefits Agreement, options to purchase shares of ATI common stock that are held by Dr. Mehrabian will be converted into options to purchase shares of Teledyne Technologies common stock. The number of our shares that Dr. Mehrabian will be able to purchase and the exercise price of the options will be adjusted in the conversion based on the relationship of the ATI stock price and the stock price of Teledyne Technologies over a fixed period of time. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
NUMBER OF VALUE OF UNEXERCISED SECURITIES UNDERLYING IN-THE-MONEY SHARES UNEXERCISED OPTIONS AT OPTIONS AT FISCAL ACQUIRED ON VALUE FISCAL YEAR END(#) YEAR END($)(2) NAME AND PRINCIPAL POSITION EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE - --------------------------- ------------- ----------- ----------------------------- ------------------------- Robert Mehrabian(1)............ 0 0 8,660/40,000 31,364/0
- ------------------------- (1) Includes options to purchase shares of ATI common stock granted to Dr. Mehrabian under ATI's Non-Employee Director Stock Compensation Plan with respect to his service as a non-employee director. (2) The "value of unexercised in-the-money options" is calculated by subtracting the exercise price per share from $20.21875 which was the average of the high and low sales prices of a share of ATI common stock on the New York Stock Exchange on December 31, 1998. ATI PERFORMANCE SHARE PROGRAM AWARDS The following table sets forth information about awards for the 1998-2000 award period made in 1998 under the ATI Performance Share Program. The amounts included in the Estimated Future Payouts columns represent the potential payment of ATI common stock and cash to the named officers depending on the level of achievement (i.e., threshold, target or maximum) of the performance goals for the three-year award period. Participants will not receive any payment of ATI common stock or cash under the program if ATI and/or designated business unit does not achieve the threshold level of performance objectives during the award period.
ESTIMATED NUMBER OF FUTURE PAYOUTS UNDER SHARES, PERFORMANCE NON-STOCK PRICE-BASED PLANS UNITS OR OR OTHER PERIOD -------------------------------------------- OTHER UNTIL MATURATION THRESHOLD TARGET MAXIMUM NAME RIGHTS(#) OR PAYOUT ($ OR #) ($ OR #) ($ OR #) - ---- -------------- ------------------------- ------------ ------------- ------------- Robert Mehrabian........... * 1998-2000 award period 3,284 shs. 13,134 shs. 26,268 shs. (2001-2003 payout period) $41,667 $166,667 $333,334
- ------------------------- * The amount of the award is based on base salary at the beginning of the award period. Two-thirds of the award is to be paid in ATI common stock, with the number of shares based on the average price of a share of ATI common stock on the New York Stock Exchange for the last 30 trading days in 1997. One-third of the award is to be paid in cash. Under the Employee Benefits Agreement, the current award period under the ATI Performance Share Program would be terminated when the spin-off occurs and ATI's compensation committee will determine the amount of awards, if any, that have been earned. Stock awards 69 74 payable under the Program to our employees will be payable in shares of our common stock. See "Arrangements with ATI Relating to the Spin-Off--Employee Benefits Agreement." BENEFIT PLANS FOLLOWING THE SPIN-OFF Our Incentive Plans On or prior to the date of the spin-off, our Board of Directors will adopt, and ATI as our sole stockholder will approve, the following incentive compensation plans. Long-Term Incentive Plan Our long-term incentive plan is expected to provide for the grant of various types of long-term incentive awards to selected employees, consistent with the objectives and restrictions of the plan. Although these awards may include non-qualified stock options, incentive stock options under the Internal Revenue Code, stock appreciation rights, and restricted and unrestricted share awards, it is expected that only stock options and restricted stock awards under a stock acquisition and retention program will be granted under the plan initially. A total of 2,650,000 shares of our common stock will be available for issuance under our long-term incentive plan. The term of the plan is expected to be ten years. The plan will vest broad powers in the Personnel and Compensation Committee of our Board of Directors to administer and interpret the plan. This power will include the authority to select the persons to be granted awards, to determine the terms, goals and conditions of awards, and to determine whether such goals and conditions have been met. While the precise number of shares is yet to be determined, it is anticipated that we will grant options for up to 500,000 shares of our Common Stock to our senior management following the spin-off in addition to those options granted in connection with the conversion of options to purchase ATI common stock under the Employee Benefits Agreement. We also expect to establish a stock acquisition and retention program ("SARP") under our incentive plan with terms that are similar to the SARP established by ATI. Under this program, each year, key executives will be given the opportunity to purchase shares of our stock, or designate shares of our stock previously acquired by them, with a value equal to their base salary at the beginning of the year. Under the SARP, executives who purchase shares can deliver a promissory note, payable to Teledyne Technologies, as payment of the purchase price. Executives will receive an award of one restricted share of our common stock for each two shares they purchase or designate. In general, the restricted shares will vest only if the participant retains the shares purchased or designated by the participant as subject to the SARP for a period of five years. Annual Incentive Plan Our annual incentive plan is expected to give the Personnel and Compensation Committee of our Board of Directors the discretion to determine the aggregate amount of money to be used for awards based upon competitive compensation practices and such measures of our performance as the Committee selects from time to time. Individual awards will be determined annually by the Personnel and Compensation Committee in accordance with performance goals established by the Committee at the beginning of the year. Deferred Compensation Plan It is anticipated that we will implement a deferred compensation plan that will allow certain of our executives to defer all or a portion of their annual salary and annual incentive plan awards, as well as amounts due under certain of our other compensation programs. A participant's deferred benefit will be credited with earnings based on one or more hypothetical investments available under the plan. The plan is not funded. We expect, however, to hold insurance policies on the lives of participants in the plan, to the extent insurance is reasonably available, to provide a possible source of cash for payments that become due under the plan. Pension and Other Plans Pension Plans Many of our employees will have been participants in various parts of the ATI Pension 70 75 Plan. On or prior to the date of the spin-off, we intend to adopt the Teledyne Technologies Pension Plan on terms substantially similar to the parts of the ATI Pension Plan applicable to all of our employees, both active and inactive at our operations which perform government contract work and for our active employees at our operations which do not perform government contract work. The annual benefits payable under these parts of the pension plans to participating salaried employees retiring at or after age 65 will be calculated under a formula which takes into account the participant's compensation and years of service. The Code limits the amounts payable to participants under a qualified pension plan. We intend to adopt a Pension Equalization Plan which is designed to restore benefits which would be payable under the pension plan provisions but for the limits imposed by the Code, to the levels calculated pursuant to the formulas contained in the pension plan provisions. The following table illustrates the approximate annual pension that may become payable to a Teledyne Technologies employee in the higher salary classifications under our regular and supplemental pension plans.
ESTIMATED ANNUAL PENSIONS(1) AVERAGE PAY IN HIGHEST YEARS OF SERVICE(3) 60 MONTHS OF LAST 120 ------------------------------ MONTHS OF EMPLOYMENT(2) 15 20 30 - ----------------------- -------- -------- -------- $ 200,000 $ 46,277 $ 61,702 $ 92,553 300,000 71,027 94,702 142,053 400,000 95,777 127,702 191,553 500,000 120,527 160,702 241,053 600,000 145,277 193,702 290,553 700,000 170,027 226,702 340,053 800,000 194,777 259,702 389,553 1,000,000 244,277 325,702 488,553
- --------------- (1) The estimated amounts assume retirement at age 65 (normal retirement age) with a straight-life annuity without reduction for a survivor annuity or for optional benefits. They are not subject to deduction for Social Security benefits. (2) For the period through December 31, 1994, for Teledyne employees who are in the higher salary classifications, compensation for the purposes of the plan was limited to an individual's base salary. Thereafter, plan compensation for those employees includes base salary and up to five annual incentive compensation received on and after January 1, 1995. (3) The maximum amount of service credited under the pension provisions applicable to our employees is 30 years of credited service. Savings Plan We plan to establish a defined contribution 401(k) program for our employees on terms substantially similar to the Teledyne, Inc. 401(k) Plan prior to April 1, 2000 and transfer account balances of affected employees under the Teledyne, Inc. 401(k) Plan directly to our new plan. Until we establish our new plan, our employees will continue to participate in a part of the Teledyne, Inc. 401(k) Plan that is maintained for the benefit of our employees. After the spin-off and until we establish our new savings plan, our part of the Teledyne, Inc. 401(k) Plan will offer along with other funds, three common stock funds as investment alternatives: (i) our common stock fund, (ii) a Water Pik Technologies, Inc. common stock fund and (iii) an ATI common stock fund. Our plan participants will be able to increase their holdings in our stock fund. They will not, however, be able to increase their holdings in the Water Pik Technologies or ATI stock funds. To the extent that the plan fiduciaries have not already done so, on December 31, 2002, all remaining investments in 71 76 the Water Pik Technologies and ATI stock funds under our part of the Teledyne, Inc. 401(k) Plan or our new savings plan will be liquidated and the proceeds transferred to the Teledyne Technologies common stock fund under the applicable plan. Similar investment restrictions and automatic liquidations will apply to our stock fund available under the ATI and Water Pik Technologies savings plans. Employee Stock Purchase Plan We expect to adopt an employee stock purchase plan similar to ATI's Stock Advantage Plan, under which our employees will be permitted to purchase shares of our common stock through payroll deductions supplemented by company contributions. Other Benefit Plans It is expected that we will adopt a number of plans to provide certain employee welfare benefits to our active employees as well as our retirees after the spin-off, including medical, short and long-term disability, life insurance, severance and other benefits, and our Board of Directors will reserve the right to amend, suspend or terminate any of these welfare plans. 72 77 SECURITY OWNERSHIP The following table sets forth the number of shares of our common stock expected to be beneficially owned following the spin-off, directly or indirectly, by each person known to us who is expected to own beneficially more than five percent of our outstanding common stock, each director, each of our executive officers and such persons as a group, in each case based upon the beneficial ownership of such persons of ATI common stock reported to ATI as of October 15, 1999, and the distribution ratio of one share of our common stock for every seven shares of ATI common stock owned by the named persons, including shares as to which a right to acquire ownership within 60 days of October 15, 1999 exists (for example, through the exercise of stock options) within the meaning of Rule 13d-3(d)(1) under the Securities Exchange Act of 1934. Each person has sole voting and investment power with respect to the shares listed unless otherwise indicated.
NUMBER OF BENEFICIAL OWNER SHARES PERCENT OF CLASS - ---------------- --------- ---------------- J. P. Morgan & Co. Incorporated(1).......................... 3,080,600 11.5% 60 Wall Street New York, NY 10260 Richard P. Simmons(2)....................................... 2,345,920 8.7% 1000 Six PPG Place Pittsburgh, PA 15222 Caroline W. Singleton(3).................................... 1,999,902 7.4% Sole Trustee of the Singleton Family Trust 335 North Maple Drive, Suite 177 Beverly Hills, CA 90210 Scudder Kemper Investments, Inc.(4)......................... 1,575,311 5.9% 345 Park Avenue New York, NY 10154 Capital Research and Management Company(5).................. 1,450,057 5.4% 333 South Hope Street Los Angeles, CA 90071 Robert Mehrabian............................................ 9,409 * Stefan C. Riesenfeld........................................ 0 * John T. Kuelbs.............................................. 0 * Robert P. Bozzone(6)........................................ 758,784 2.8% Paul S. Brentlinger......................................... 1,289 * Frank V. Cahouet............................................ 27 * Thomas A. Corcoran.......................................... 0 * Diane C. Creel.............................................. 177 * C. Fred Fetterolf(6)........................................ 1,356 * Charles J. Queenan, Jr.(6).................................. 101,374 * All directors and executive officers as a group (10 persons).................................................. 872,414 3.2%
- ------------------------- * Less than one percent of the outstanding shares. (1) J.P. Morgan & Co. Incorporated filed a Form 13F under the Securities Exchange Act of 1934 indicating that as of June 30, 1999, it beneficially owned 21,564,205 shares of ATI common stock, 73 78 including 15,924,890 shares as to which it had sole voting power and 158,369 shares as to which it had shared voting power. (2) Mr. Simmons will have the sole power to direct the voting of all 2,345,920 shares, and sole power to direct the disposition of 1,191,436 of these shares. Mrs. Richard P. Simmons will have the sole power to direct the disposition of 1,154,484 of these shares. The amount shown reflects shares held for Mr. Simmons as of September 30, 1999 under the ATI Retirement Savings Plan. Mr. Simmons disclaims beneficial ownership of 33,985 shares, shown in the table, that will be owned by R.P. Simmons Family Foundation, a private charitable foundation with respect to which Mr. Simmons serves as trustee. (3) Caroline W. Singleton filed a Schedule 13D dated August 25, 1999, indicating that as of July 26, 1999, she beneficially owned 13,999,320 shares of ATI common stock, which had been held by Dr. Henry E. Singleton. The shares had been transferred to the Singleton Family Trust, of which she is the sole trustee. (4) Scudder Kemper Investments, Inc. filed a Schedule 13G dated February 12, 1999 indicating that as of December 31, 1998, it beneficially owned ATI common stock as follows: 2,326,862 sole voting power; 7,974,265 shared voting power; 10,928,613 sole dispositive power; and 98,569 shared dispositive power. (5) Capital Research and Management Company filed a Schedule 13G dated February 8, 1999 indicating that as of December 31, 1998, it held sole dispositive power, and no voting power, with respect to 10,150,400 shares of ATI common stock as a result of acting as investment adviser to various registered investment companies. (6) The amounts shown include shares to which beneficial ownership will be disclaimed as follows: 34,285 shares that will be owned by Mr. Bozzone's wife; 371 shares that will be owned by the Fetterolf Family Foundation and 7,728 shares that will be owned by Mr. Queenan's wife. 74 79 DESCRIPTION OF OUR CAPITAL STOCK Our Restated Certificate of Incorporation ("Certificate") provides that our authorized capital consists of (i) 125,000,000 shares of common stock, $.01 par value, of which (based on the number of shares of ATI common stock outstanding as of September 30, 1999) 27,008,553 shares of our common stock will be issued to stockholders of ATI in the spin-off, and (ii) 15,000,000 shares of preferred stock, par value $.01 per share, of which 1,250,000 shares have been designated as Series A Junior Participating Preferred Stock for issuance in connection with the exercise of Teledyne Technologies Rights. See "-- Rights Plan." COMMON STOCK Each share of our common stock will entitle its holder of record to one vote for the election of directors and all other matters to be voted on by the stockholders. Holders of our common stock will not have cumulative voting rights. As a result, the holders of a majority of the shares of our common stock voting for the election of directors may elect all nominees standing for election as our directors. Subject to the rights of holders of preferred stock, holders of our common stock will be entitled to receive such dividends, if any, as may be declared from time to time by our Board of Directors in its discretion from funds legally available for that use. Subject to the rights of holders of preferred stock, holders of our common stock will be entitled to share on a pro rata basis in any distribution to stockholders upon our liquidation, dissolution or winding up. No holder of our common stock will have any preemptive right to subscribe for any of our stock or other security. PREFERRED STOCK Our Board of Directors, without further action by the stockholders, may from time to time authorize the issuance of shares of our preferred stock in one or more series and, within certain limitations, fix the powers, preferences and rights and the qualifications, limitations or restrictions thereof and the number of shares constituting any series or designations of such series. Satisfaction of any dividend preferences of our outstanding preferred stock would reduce the amount of funds available for the payment of dividends on our common stock. Holders of our preferred stock would normally be entitled to receive a preference payment in the event of our liquidation, dissolution or winding up before any payment is made to the holders of our common stock. Under certain circumstances, the issuance of our preferred stock may render more difficult or tend to discourage our change in control. Although we currently have no plans to issue shares of our preferred stock, our Board of Directors, without stockholder approval, may issue our preferred stock with voting and conversion rights which could adversely affect the rights of holders of shares of our common stock. For a description of the terms of our Series A Junior Participating Preferred Stock. See "-- Rights Plan." RIGHTS PLAN Our Board of Directors has, subject to completion of the spin-off, declared a dividend of one preferred share purchase Right for each outstanding share of our common stock. Each Right entitles the registered holder to purchase from us one one-hundredth of a share of Series A Junior Participating Preferred Stock (the "Preferred Shares") of Teledyne Technologies at a price of $60 per one one-hundredth of a Preferred Share (the "Purchase Price"), subject to adjustment. The description and terms of the Rights are set forth in a Rights Agreement between us and ChaseMellon Shareholder Services, L.L.C., as Rights Agent. Until the earlier to occur of: - a public announcement that a person or group of affiliated or associated persons (an "Acquiring Person"), has acquired beneficial ownership of 15% or more of our outstanding shares of common stock; or 75 80 - 10 business days (or such later date as may be determined by our board of directors) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group of 15% or more of our outstanding common stock (the earlier of such dates being the "Distribution Date"), the Rights will be evidenced by the common stock certificate with a copy of the Summary of Rights attached to it. The Rights Agreement provides that, until the Distribution Date (or earlier redemption or expiration of the Rights), the Rights will be transferred with and only with our common stock. Until the Distribution Date (or earlier redemption or expiration of the Rights), new certificates of our common stock issued upon transfer or new issuance of our common stock will contain a notation incorporating the Rights Agreement by reference. Until the Distribution Date (or earlier redemption or expiration of the Rights), the surrender for transfer of any certificates for our common stock, even without such notation or a copy of the Summary of Rights being attached thereto, will also constitute the transfer of the Rights associated with our common stock represented by such certificate. As soon as practicable following the Distribution Date, separate Rights Certificates will be mailed to holders of record of our common stock as of the close of business on the Distribution Date and such separate Right Certificates alone will evidence the Rights. The Rights are not exercisable until the Distribution Date. The final expiration date for the Rights will occur at the close of business on the tenth anniversary of the date of the Rights Agreement, unless this date is extended or unless the Rights are earlier redeemed or exchanged by us, in each case, as described below. The Purchase Price payable, and the number of Preferred Shares or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution: - in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Preferred Shares; - upon the grant to holders of the Preferred Shares of certain rights or warrants to subscribe for or purchase Preferred Shares at a price, or securities convertible into Preferred Shares with a conversion price, less than the then-current market price of the Preferred Shares; or - upon the distribution to holders of the Preferred Shares of evidence of indebtedness or assets (excluding regular periodic cash dividends paid out of earnings or retained earnings or dividends payable in Preferred Shares) or of subscription rights or warrants (other than those referred to above). The number of outstanding Rights and the number of one one-hundredths of a Preferred Share issuable upon exercise of each Right are also subject to adjustment in the event of a stock split of our common stock or a stock dividend on our common stock payable in shares of our common stock or subdivisions, consolidations or combinations of our common stock occurring, in any such case, prior to the Distribution Date. Preferred Shares purchasable upon exercise of the Rights will not be redeemable. Each Preferred Share will be entitled to a minimum preferential quarterly dividend payment of $1.00 per share but will be entitled to an aggregate dividend of 100 times the dividend declared per share of our common stock. If we are liquidated, the holders of the Preferred Shares will be entitled to a minimum preferential liquidation payment of $100 per share but will be entitled to an aggregate payment of 100 times the payment made per share of our common stock. Each Preferred Share will have 100 votes, voting together with our common stock. Finally, if we engage in a merger, consolidation, or any other transaction in which shares of our common stock are exchanged, each Preferred Share will be entitled to receive 100 times the amount received 76 81 per share of our common stock. These rights are protected by customary antidilution provisions. The dividend, liquidation and voting rights attendant to one one-hundredth of a Preferred Share purchasable upon exercise of each Right are designed to be the approximate economic equivalent of one share of our common stock. In the event that we are acquired in a merger or other business combination transaction or 50% or more of our consolidated assets or earning power are sold after a person or group has become an Acquiring Person, proper provision will be made so that each holder of a Right will thereafter have the right to receive, upon the exercise thereof at the then current exercise price of the Right, that number of shares of common stock of the acquiring company which at the time of such transaction will have a market value of two times the exercise price of the Right. If any person or group of affiliated or associated persons becomes an Acquiring Person, proper provision shall be made so that each holder of a Right, other than Rights beneficially owned by the Acquiring Person (which will thereafter be void), will thereafter have the right to receive upon exercise that number of shares of our common stock having a market value of two times the exercise price of the Right. At any time after any person or group becomes an Acquiring Person and prior to the acquisition by such person or group of 50% or more of the outstanding shares of our common stock, our board of directors may exchange the Rights (other than Rights owned by such person or group which will have become void), in whole or in part, at an exchange ratio of one share of our common stock, or one one-hundredth of a Preferred Share, per Right. With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments require an adjustment of at least 1% in such Purchase Price. No fractional Preferred Shares will be issued (other than fractions which are integral multiples of one one-hundredth of a Preferred Share, which may, at our election, be evidenced by depository receipts) and, in lieu thereof, an adjustment in cash will be made based on the market price of the Preferred Shares on the last trading day prior to the date of exercise. At any time prior to the acquisition by a person or group of affiliated or associated persons of beneficial ownership of 15% or more of the outstanding shares of our common stock, our Board of Directors may redeem the Rights in whole, but not in part, at a price of $.01 per Right. The redemption of the Rights may be made effective at such time on such basis with such conditions as our the Board of Directors in its sole discretion may establish. Immediately upon any redemption of the Rights, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the redemption price. The terms of the Rights may be amended by our Board of Directors without the consent of the holders of the Rights, except that from and after such time as any person or group of affiliated or associated persons becomes an Acquiring Person, no such amendment may adversely affect the interests of the holders of the Rights. Until a Right is exercised, the holder of the Right will have no rights as our stockholder, including, without limitation, the right to vote or to receive dividends. CERTAIN PROVISIONS OF OUR GOVERNING DOCUMENTS The following is a description of certain provisions of our Certificate and Bylaws. The description is qualified in its entirety by reference to the full texts of the Certificate and Bylaws. Certain provisions of our Certificate and Bylaws could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of us, without the approval of our Board of Directors. Charter Provisions Affecting Control and Other Transactions. Our Certificate requires the affirmative vote of the holders of at least two-thirds of the outstanding shares of our common stock to approve certain fundamental changes such as a merger, consolidation, sale of substantially all of our assets, dissolution, certain 77 82 purchases by us or one of our subsidiaries of shares of our common stock or other assets from a "significant shareholder," any merger of a "significant shareholder" into us or one of our subsidiaries, or any reclassification or recapitalization of us consummated within five years after a "significant shareholder" becomes such, if the result of such reclassification or recapitalization is to reduce the number of outstanding shares of our common stock or convert any such shares into cash or other securities. This supermajority voting requirement is not applicable if the fundamental change has been approved at a meeting of our board of directors by the vote of more than two-thirds of the incumbent directors. A "significant shareholder" is defined as any person who owns beneficially a number of shares of our common stock that is greater than 15% of the outstanding shares of our common stock, and any and all associates and affiliates of such person. Classification of Directors. Our Certificate provides that our Board of Directors will consist of three classes of directors. The initial members of our Board of Directors will be divided into three classes to serve as follows: the Class I Directors will initially hold office for a term to expire at the first annual meeting of stockholders after their initial election; the Class II Directors will initially hold office for a term to expire at the second annual meeting of stockholders after their initial election; and the Class III Directors will initially hold office for a term to expire at the third annual meeting of stockholders after their initial election. At each annual meeting of our stockholders, only the election of directors of the class whose term is expiring will be voted upon, and upon election each director will serve a three-year term. See "Management -- Directors." Right to Call a Special Meeting. Our Certificate provides that special meetings of the stockholders may only be called by the Chairman of our Board of Directors or the Chief Executive Officer or by our Board of Directors pursuant to a resolution passed by a majority of the directors then in office. Accordingly, our stockholders will not have the right to call a special meeting of the stockholders. Our Certificate further provides that only such business will be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to our notice of the special meeting. Nominations of persons for election to our Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to our notice of meeting (i) by or at the direction of our board of directors or (ii) by any stockholder of record at the time of the giving of notice of such meeting. Nominations by a stockholder of persons for election to our Board of Directors may be made if the stockholder's notice is delivered to our Secretary not earlier than the 90th day prior to the special meeting and not later than the 75th day prior to the special meeting or the 10th day following the day on which a public announcement is first made of the special meeting and of the nominees proposed by the Board of Directors to be elected at the meeting. Procedures to Bring Business Before a Meeting; No Action by Consent. Our Certificate provides that in order for nominations or other business to be properly brought before an annual meeting by a stockholder, the stockholder must give timely notice thereof in writing to our Secretary. To be timely, a stockholder's notice must be delivered to our Secretary not less than 60 days nor more than 90 days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from the anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the 90th day prior to such annual meeting and not later than the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. Our Certificate also provides that any action required to be taken by our stockholders must be effected at a duly called annual or special meeting of our stockholders and may not be effected by the written consent of our stockholders. 78 83 Fiduciary Duties of Directors. Our Certificate provides that our directors may take into account the effects of their actions on our employees, suppliers, distributors and customers and the effect upon communities in which our offices or facilities are located or any other factors considered pertinent. As permitted by the DGCL, our Certificate includes a provision eliminating the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director except for liability: - for any breach of the director's duty of loyalty to the corporation or its stockholders; - for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; - for unlawful payment of a dividend or an unlawful stock purchase or redemption, and - for any transaction from which the director derives an improper personal benefit. Our Certificate further provides that, if the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of our directors shall be eliminated or limited to the fullest extent so permitted. Our Certificate also specifies that no amendment to or repeal of the provision shall apply to or have any effect on the liability or alleged liability of any of our directors for or with respect to any acts or omissions of such director occurring prior to the amendment or repeal. Charter Amendments. Our Certificate provides that the affirmative vote of the holders of at least 75% of the combined voting power of the outstanding shares of our capital stock is required to amend or rescind, or adopt any provision inconsistent with the purpose or intent of the provisions of our Certificate relating to the adoption, amendment and repeal of our Bylaws, limitations of certain liabilities of directors, actions of stockholders, classification of directors, certain factors permitted to be considered by the directors, approval of certain fundamental changes, and amendments to our Certificate. Bylaw Provisions Regarding ATI Directors. Our Bylaws contain provisions designed to ensure that at least a majority of our directors are also directors of ATI until the third annual meeting of our stockholders held after the spin-off. The Bylaws also provide that no quorum of the board will be deemed present unless at least a majority of the directors present are also members of the Board of Directors of ATI. Bylaw Amendments. Our Certificate authorizes our Board of Directors to adopt, amend or repeal our Bylaws. Our Certificate also provides that our stockholders may not adopt, amend or repeal our Bylaws other than by the same affirmative vote that is required to amend certain provisions of our Certificate See "-- Charter Amendments") ANTI-TAKEOVER LEGISLATION Since neither our Certificate nor our Bylaws contain a provision expressly electing not to be governed by Section 203 of the DGCL, we are subject to this statutory anti-takeover provision. Section 203 provides that any person who acquires 15% or more of a corporation's voting stock (thereby becoming an "interested stockholder") may not engage in a "business combination" with the corporation for a period of three years following the time the person became an interested stockholder, unless: - the board of directors of the corporation approved, prior to such time, either the business combination or the transaction that resulted in the person becoming an interested stockholder; - upon consummation of the transaction that resulted in that person becoming an interested stockholder, that person owns at least 85% of the corporation's voting stock outstanding at the time the transaction commenced (excluding shares owned by persons who are directors and officers of that corporation and shares owned by 79 84 employee stock plans in which participants do not have the right to determine confidentially whether shares will be tendered in a tender or exchange offer); or - the business combination is approved by the board of directors and authorized by the affirmative vote (at an annual or special meeting and not by written consent) of at least 66 2/3% of the outstanding shares of voting stock not owned by the interested stockholder. In determining whether a stockholder is the "owner" of 15% or more of a corporation's voting stock for purposes of Section 203, ownership is defined to include the right, directly or indirectly, to acquire stock or to control the voting or disposition of stock. A "business combination" is defined to include: - mergers or consolidations of a corporation with an interested stockholder; - sales or other dispositions of ten percent or more of the assets of a corporation with or to an interested stockholder; - certain transactions resulting in the issuance or transfer to an interested stockholder of any stock of a corporation or its subsidiaries; - certain transactions which would result in increasing the proportionate share of the stock of a corporation or its subsidiaries owned by an interested stockholder, and - receipt by an interested stockholder of the benefit (except proportionately as a stockholder) of any loans, advances, guarantees, pledges or other financial benefits from, by or to a corporation or any of its majority-owned subsidiaries. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for our common stock is ChaseMellon Shareholder Services, L.L.C. 80 85 LIABILITY AND INDEMNIFICATION OF OUR OFFICERS AND DIRECTORS ELIMINATION OF LIABILITY As permitted by the DGCL, our Certificate eliminates, subject to certain statutory limitations, the liability of directors to Teledyne Technologies or its stockholders for monetary damages for breaches of fiduciary duty, except for liability - for any breach of the director's duty of loyalty to the corporation or its stockholders, - for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, - under Section 174 of the DGCL, or - for any transaction from which the director derived an improper personal benefit. INDEMNIFICATION OF OFFICERS AND DIRECTORS Under Section 145 of the DGCL, a corporation has the power to indemnify directors and officers under certain prescribed circumstances and, subject to certain limitations, against certain costs and expenses, including attorney's fees actually and reasonably incurred in connection with any action, suit or proceeding, whether civil, criminal, administrative or investigative, to which any of them is a party by reason of his or her being a director or officer of the corporation if it is determined that he or she acted in accordance with the applicable standard of conduct set forth in such statutory provision. Our Certificate provides that we will indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that he or she is or was one of our directors or officers, or is or was serving at our request as a director, officer, employee or agent of another entity, against certain liabilities, costs and expenses. We are also authorized to maintain, and do maintain, insurance on behalf of any person who is or was one of our directors or officers, or is or was serving at our request as a director, officer, employee or agent of another entity against any liability asserted against such person and incurred by such person in any such capacity or arising out of his or her status as such, whether or not we would have the power to indemnify such person against such liability under the DGCL. AVAILABLE INFORMATION We have filed a Registration Statement on Form 10 with the Securities and Exchange Commission with respect to our common stock. The Registration Statement and the exhibits to it contain some information not appearing in this Information Statement. This Information Statement provides a summary of some of the agreements and contracts appearing as exhibits to the Registration Statement. You are encouraged to see the exhibits to the Registration Statement for a more complete description of the contracts and agreements summarized in this Information Statement. You may access and read the Registration Statement and all of the exhibits to it through the SEC's Internet site at www.sec.gov. This site contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. You may also read and copy any document we file at the SEC's public reference room located at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. After the spin-off, we will be required to file annual, quarterly and special reports and other information with the SEC. We will also be subject to proxy solicitation requirements. Once filed, you can access this information from the SEC in the manner set forth in the preceding paragraph. Following the spin-off, our filings will also be available at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. 81 86 INDEX TO OUR FINANCIAL STATEMENTS
PAGE ---- Report of Ernst & Young LLP, Independent Auditors........... F-2 Combined Statements of Income for the Years Ended December 31, 1998, 1997 and 1996..................................... F-3 Combined Balance Sheets for December 31, 1998 and 1997...... F-4 Combined Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996.......................... F-5 Combined Statements of Stockholder's Equity for the Years Ended December 31, 1998, 1997 and 1996.................... F-6 Notes to Combined Financial Statements...................... F-7 Combined Statements of Income (Unaudited) for the Nine Months Ended September 30, 1999 and 1998.................. F-25 Combined Balance Sheets for September 30, 1999 (Unaudited) and December 31, 1998 (Audited)........................... F-26 Combined Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 1999 and 1998.................. F-27 Combined Statements of Stockholder's Equity (Unaudited) for the Nine Months Ended September 30, 1999 and 1998......... F-28 Notes to Interim Combined Financial Statements (Unaudited)............................................... F-29
F-1 87 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Board of Directors Teledyne Technologies Incorporated We have audited the accompanying combined balance sheets of Teledyne Technologies Incorporated as of December 31, 1998 and 1997 and the related combined statements of income, stockholder's equity, and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of Teledyne Technologies Incorporated at December 31, 1998 and 1997, and the combined results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Pittsburgh, Pennsylvania April 30, 1999 F-2 88 TELEDYNE TECHNOLOGIES INCORPORATED COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1998 1997 1996 -------- -------- -------- (IN THOUSANDS) SALES......................................... $780,393 $756,601 $716,400 Costs and expenses: Cost of sales............................... 572,087 551,064 511,772 Selling, general and administrative expenses................................. 126,875 138,249 136,561 -------- -------- -------- 698,962 689,313 648,333 -------- -------- -------- Earnings before other income.................. 81,431 67,288 68,067 Other income.................................. 1,562 1,399 1,855 -------- -------- -------- INCOME BEFORE INCOME TAXES.................... 82,993 68,687 69,922 Provision for income taxes.................... 34,276 27,063 29,227 -------- -------- -------- NET INCOME.................................... $ 48,717 $ 41,624 $ 40,695 ======== ======== ======== BASIC NET INCOME PER COMMON SHARE............. $1.73 $1.48 $1.49 ======== ======== ======== DILUTED NET INCOME PER COMMON SHARE........... $1.73 $1.48 $1.49 ======== ======== ========
The accompanying notes are an integral part of these statements. F-3 89 TELEDYNE TECHNOLOGIES INCORPORATED COMBINED BALANCE SHEETS
DECEMBER 31, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS) ASSETS Cash................................................ $ -- $ -- Accounts receivable............................... 103,198 120,953 Inventories....................................... 53,186 47,072 Deferred income taxes............................. 12,913 16,216 Prepaid expenses and other current assets......... 1,751 543 -------- -------- TOTAL CURRENT ASSETS........................... $171,048 $184,784 -------- -------- Property, plant and equipment..................... 43,022 36,913 Deferred income taxes............................. 22,121 18,377 Cost in excess of net assets acquired............. 9,370 9,378 Other assets...................................... 5,258 5,914 -------- -------- TOTAL ASSETS................................... $250,819 $255,366 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Accounts payable.................................. $ 43,344 $ 42,507 Accrued liabilities............................... 49,136 54,624 -------- -------- TOTAL CURRENT LIABILITIES...................... 92,480 97,131 Accrued postretirement benefits................... 32,953 32,797 Other long-term liabilities....................... 18,984 16,073 -------- -------- TOTAL LIABILITIES.............................. 144,417 146,001 -------- -------- STOCKHOLDER'S EQUITY: Net advances from Allegheny Teledyne.............. 104,682 107,451 Foreign currency translation gains................ 1,720 1,914 -------- -------- TOTAL STOCKHOLDER'S EQUITY..................... 106,402 109,365 -------- -------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY..... $250,819 $255,366 ======== ========
The accompanying notes are an integral part of these statements. F-4 90 TELEDYNE TECHNOLOGIES INCORPORATED COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1998 1997 1996 -------- -------- -------- (IN THOUSANDS) OPERATING ACTIVITIES: Net income..................................... $ 48,717 $ 41,624 $ 40,695 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............. 11,132 11,285 11,160 Deferred income taxes..................... (441) 255 (279) Gain on sale of property, plant and equipment............................... (427) (21) (13) Change in operating assets and liabilities: Accounts receivable....................... 17,755 200 (13,246) Inventories............................... (6,114) (2,897) 669 Accrued liabilities....................... (5,488) 2,762 (5,146) Other long-term liabilities............... 2,911 3,140 7,600 Accounts payable.......................... 837 14,319 2,229 Accrued postretirement.................... 156 423 352 Other........................................ (1,976) 1,782 856 -------- -------- -------- CASH PROVIDED BY OPERATING ACTIVITIES..... 67,062 72,872 44,877 -------- -------- -------- INVESTING ACTIVITIES: Purchases of property, plant and equipment... (18,065) (15,822) (15,839) Disposals of property, plant and equipment... 740 111 77 Other........................................ 1,749 2,915 (689) -------- -------- -------- CASH USED IN INVESTING ACTIVITIES......... (15,576) (12,796) (16,451) -------- -------- -------- FINANCING ACTIVITIES: Net advances to Allegheny Teledyne........... (51,486) (60,232) (28,450) -------- -------- -------- CASH USED IN FINANCING ACTIVITIES......... (51,486) (60,232) (28,450) -------- -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................. -- (156) (24) Cash and cash equivalents at beginning of year......................................... -- 156 180 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR....... $ -- $ -- $ 156 ======== ======== ========
The accompanying notes are an integral part of these statements. F-5 91 TELEDYNE TECHNOLOGIES INCORPORATED COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
ADVANCES ACCUMULATED OTHER (TO) FROM COMPREHENSIVE STOCKHOLDER'S ALLEGHENY TELEDYNE INCOME EQUITY ------------------ ----------------- ------------- (IN THOUSANDS) BALANCE, DECEMBER 31, 1995................ $113,814 $1,354 $115,168 ======== ====== ======== Net income................................ 40,695 -- 40,695 Other comprehensive income, net of tax: Foreign currency translation gains...... -- 605 605 -------- ------ -------- Comprehensive income...................... 40,695 605 41,300 Net transactions with Allegheny Teledyne................................ (28,450) -- (28,450) -------- ------ -------- BALANCE DECEMBER 31, 1996................. 126,059 1,959 128,018 ======== ====== ======== Net income................................ 41,624 -- 41,624 Other comprehensive income, net of tax: Foreign currency translation losses..... -- (45) (45) -------- ------ -------- Comprehensive income...................... 41,624 (45) 41,579 Net transactions with Allegheny Teledyne................................ (60,232) -- (60,232) -------- ------ -------- BALANCE DECEMBER 31, 1997................. 107,451 1,914 109,365 ======== ====== ======== Net income................................ 48,717 -- 48,717 Other comprehensive income, net of tax: Foreign currency translation losses..... -- (194) (194) -------- ------ -------- Comprehensive income...................... 48,717 (194) 48,523 Net transactions with Allegheny Teledyne................................ (51,486) -- (51,486) -------- ------ -------- BALANCE, DECEMBER 31, 1998................ $104,682 $1,720 $106,402 ======== ====== ========
The accompanying notes are an integral part of these statements. F-6 92 NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 1. ALLEGHENY TELEDYNE INCORPORATED'S SPIN-OFF OF TELEDYNE TECHNOLOGIES INCORPORATED In 1999, Allegheny Teledyne Incorporated ("Allegheny Teledyne") announced that it would pursue a course of action that would result in a transformation of Allegheny Teledyne, which was expected to include the spin-off of certain of the businesses of its Aerospace and Electronics segment to Allegheny Teledyne stockholders as an independent, publicly-traded company (the "spin-off"). In August 1999, Allegheny Teledyne received a favorable ruling from the Internal Revenue Service that the proposed spin-off would be treated as a tax-free distribution for federal income tax purposes. In September 1999, Allegheny Teledyne's Board of Directors approved the various transactions pertaining to the spin-off, including the transfer of certain of the businesses of Allegheny Teledyne's Aerospace and Electronics segment to a new corporation, Teledyne Technologies Incorporated ("Teledyne Technologies" or the "Company"), immediately prior to the spin-off, and delegated to its Executive Committee the authority to set the record date and distribution date for the spin-off. Immediately following the spin-off, Allegheny Teledyne will no longer have a financial investment in Teledyne Technologies. Teledyne Technologies consists of the operations of the Teledyne Electronic Technologies and the Teledyne Brown Engineering divisions, both with operations in the United States and United Kingdom, and the Teledyne Continental Motors and the Teledyne Cast Parts divisions, both with operations in the United States. Prior to the spin-off, these operations were divisions of wholly-owned subsidiaries of Allegheny Teledyne. The decision to spin-off certain businesses, and sell others, of Allegheny Teledyne's Aerospace and Electronics segment was reached by the management of Allegheny Teledyne, not of Teledyne Technologies. Teledyne Technologies is a new corporation formed in connection with the spin-off. The assets of the four businesses that comprise Teledyne Technologies will be transferred to Teledyne Technologies immediately prior to the spin-off. The businesses of Allegheny Teledyne's Aerospace and Electronics segment sold and not included as part of Teledyne Technologies were Ryan Aeronautical and the McCormick Selph Ordnance Unit. Ryan Aeronautical was engaged primarily in the business of developing unmanned aerial vehicles and performance aerial target systems, while McCormick Selph was engaged primarily in the business of supplying a wide range of pyrotechnical components. The companies comprising Teledyne Technologies are not engaged in either of these businesses. These sold businesses were managed by a company president who will not be employed Teledyne Technologies. Assets and liabilities relating to the sold businesses that were not transferred in the sale will be retained by Allegheny Teledyne. Production facilities of the sold businesses were not shared with any of the businesses of Teledyne Technologies, nor were there any financial commitments or contingent liabilities between the sold businesses and the businesses comprising Teledyne Technologies. During significant portions of his tenure as Segment Executive for the Aerospace and Electronics segment, Robert Mehrabian also served as the Segment Executive for Allegheny Teledyne's Industrial segment; he was also the Segment Executive for Allegheny Teledyne's Consumer segment from May through September 1998. The executive officers of Teledyne Technologies, other than Robert Mehrabian, joined Teledyne Technologies after the sold businesses were sold and were not involved in the management of either sold business. Accordingly, the results of operations of the sold businesses are not included in the results of operations of Teledyne Technologies. F-7 93 NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) A five-year $200,000,000 revolving credit facility has been established by Allegheny Teledyne, and $100,000,000 of borrowings under the facility will be used by Allegheny Teledyne prior to the spin-off to repay certain of Allegheny Teledyne's debt obligations. Teledyne Technologies will assume this credit facility, including the repayment obligations for Allegheny Teledyne's $100,000,000 of borrowings, in connection with the spin-off. Following the spin-off, Teledyne Technologies will have $100,000,000 of borrowing availability remaining. In addition, prior to and in connection with the spin-off, Teledyne Technologies and Allegheny Teledyne will enter into agreements providing for the separation of the companies and governing various relationships for separating employee benefits and tax obligations, indemnification and transition services. The financial statements of Teledyne Technologies include the combined financial position, results of operations and cash flows of the businesses described above. Allegheny Teledyne's historical cost basis of assets and liabilities has been reflected in the Teledyne Technologies financial statements. The financial information in these financial statements is not necessarily indicative of results of operations, financial position and cash flows that would have occurred if Teledyne Technologies had been a separate stand-alone entity during the periods presented or of future results. The combined financial statements included herein do not reflect any changes that may occur in the capitalization and operations of Teledyne Technologies as a result of, or after, the spin-off. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF COMBINATION The combined financial statements of Teledyne Technologies include the accounts of the businesses distributed by Allegheny Teledyne and its subsidiaries as described in Note 1. Significant intercompany accounts and transactions have been eliminated. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. Management believes that the estimates are reasonable. REVENUE RECOGNITION Commercial sales and revenue from U.S. Government fixed-price type contracts are generally recorded as deliveries are made or as services are rendered. Occasionally, for certain fixed-price type contracts that require substantial performance over a long time period (one or more years) before deliveries begin, sales may be recorded based upon attainment of scheduled performance milestones which could be time, event or expense driven. In these few instances, invoices are submitted to the customer under a contractual agreement and payments are made by the customer. As of December 31, 1998, the average length of our long-term contracts was approximately two years. Sales under cost-reimbursement contracts are recorded as costs are incurred and fees are earned. Since certain contracts extend over a long period of time, all revisions in cost and funding estimates during the progress of work have the effect of adjusting the current period F-8 94 NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) earnings on a cumulative catch-up basis. When the current contract estimate indicates a loss, provision is made for the total anticipated loss. RESEARCH AND DEVELOPMENT Company-funded research and development costs ($24,728,000 in 1998, $28,116,000 in 1997 and $28,933,000 in 1996), which include bid and proposal costs, are expensed as incurred. Costs related to customer-funded research and development contracts ($150,254,000 in 1998, $160,675,000 in 1997 and $173,693,000 in 1996) are charged to costs and expenses as the related sales are recorded. A portion of the costs incurred for Company-funded research and development is recoverable through overhead cost allowances on government contracts. INCOME TAXES Provision for income taxes includes deferred taxes resulting from temporary differences in income for financial and tax purposes using the liability method. Such temporary differences result primarily from differences in the carrying value of assets and liabilities. NET INCOME PER COMMON SHARE The average number of shares of Teledyne Technologies common stock used in the computation of basic net income per common share was 28,107,241, 28,085,823 and 27,317,318 for the years ended December 31, 1998, 1997 and 1996, respectively, based on a distribution ratio of one share of Teledyne Technologies common stock for every seven shares of Allegheny Teledyne common stock. The average number of shares of Teledyne Technologies common stock used in the computation of diluted net income per common share was 28,133,879, 28,120,380 and 27,341,594 for the years ended December 31, 1998, 1997 and 1996, respectively. A distribution ratio of one share of Teledyne Technologies common stock for every seven shares of Allegheny Teledyne common stock was used to adjust the stock options. The actual stock option adjustment will be based upon the relation of the market price of Allegheny Teledyne common stock prior to the spin-off to the market price of Teledyne Technologies after the spin-off and therefore cannot be determined at the present time. ACCOUNTS RECEIVABLE Receivables are presented net of a reserve for doubtful accounts of $2,890,000 at December 31, 1998 and $3,205,000 at December 31, 1997. Expense recorded for the reserve for doubtful accounts was $1,432,000, $1,257,000 and $1,199,000 for the years ended December 31, 1998, 1997, and 1996, respectively. Write-offs of doubtful accounts were $1,747,000, $76,000 and $1,092,000 for the years ended December 31, 1998, 1997 and 1996, respectively. The Company markets its products and services principally throughout the United States, Europe, Japan and Canada to commercial customers and agencies of, and prime contractors to, the U.S. Government. Trade credit is extended based upon evaluations of each customer's ability to perform its obligations, which are updated periodically. F-9 95 NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) INVENTORIES Inventories are stated at the lower of cost (last-in, first-out; first-in, first-out; and average cost methods) or market, less progress payments. Costs include direct material, direct labor and applicable manufacturing and engineering overhead, and other direct costs. PROPERTY AND EQUIPMENT Property, plant and equipment are carried at cost. The method of depreciation adopted for all property placed into service after July 1, 1996 is the straight-line method. For buildings and equipment acquired prior to July 1, 1996, depreciation is computed using a combination of accelerated and straight-line methods. The Company believes the straight-line method more appropriately reflects its financial results by better allocating costs of new property over the useful lives of these assets. The effect of this change on net income in 1996 was not material. COST IN EXCESS OF NET ASSETS ACQUIRED Cost in excess of net assets acquired related to businesses purchased after November 1970 is being amortized on a straight-line basis over periods not exceeding 10 years. Goodwill amortization expense was $582,000, $510,000 and $125,000 in 1998, 1997 and 1996, respectively. OTHER LONG-LIVED ASSETS The carrying value of long-lived assets is periodically evaluated in relation to the operating performance and future undiscounted cash flows of the underlying businesses. Adjustments are made if the sum of expected future net cash flows is less than book value. In 1997, the Company recorded an impairment loss of approximately $1,800,000 in general and administrative expenses primarily to write-off its investment in a limited liability corporation that was determined to have no value. This determination was made as a result of programs that were discontinued in the Systems Engineering Solutions business segment in 1997. ENVIRONMENTAL Costs that mitigate or prevent future environmental contamination or extend the life, increase the capacity or improve the safety or efficiency of property utilized in current operations are capitalized. Other costs that relate to current operations or an existing condition caused by past operations are expensed. Environmental liabilities are recorded when the Company's liability is probable and the costs are reasonably estimable, but generally not later than the completion of the feasibility study or the Company's recommendation of a remedy or commitment to an appropriate plan of action. The accruals are reviewed periodically and, as investigations and remediations proceed, adjustments are made as necessary. Accruals for losses from environmental remediation obligations do not consider the effects of inflation, and anticipated expenditures are not discounted to their present value. The accruals are not reduced by possible recoveries from insurance carriers or other third parties, but do reflect anticipated allocations among potentially responsible parties at federal Superfund sites or similar state-managed sites and an assessment of the likelihood that such parties will fulfill their obligations at such sites. The measurement of environmental liabilities by the Company is based on currently available facts, present laws and regulations, and F-10 96 NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) current technology. Such estimates take into consideration the Company's prior experience in site investigation and remediation, the data concerning cleanup costs available from other companies and regulatory authorities, and the professional judgment of the Company's environmental experts in consultation with outside environmental specialists, when necessary. FOREIGN CURRENCY TRANSLATION The Company's foreign entities' accounts are measured using local currency as the functional currency. Assets and liabilities are translated at the exchange rate in effect at year-end. Revenues and expenses are translated at the rates of exchange prevailing during the year. Translation adjustments arising from differences in exchange rates from period to period are included in the cumulative foreign currency translation account in stockholder's equity. ACCOUNTING PRONOUNCEMENTS FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued in June 1998. This statement establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. In June 1999, FASB Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities: Deferral of the Effective Date of FASB Statement No. 133" was issued. This statement delays the effective date of FASB Statement No. 133 to all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company is presently evaluating the effect of adopting these statements. NOTE 3. ACCOUNTS RECEIVABLE Accounts receivable are summarized as follows:
DECEMBER 31, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS) U.S. Government and prime contractors contract receivables: Billed receivables.......................... $ 18,117 $ 26,339 Unbilled receivables...................... 21,260 18,830 Other receivables, primarily commercial..... 66,711 78,989 Reserve for doubtful accounts............... (2,890) (3,205) -------- -------- Total accounts receivable................... $103,198 $120,953 ======== ========
The billed contract receivables from the U.S. Government and prime contractors contain $5,901,000 and $13,426,000 at December 31, 1998 and 1997, respectively, due to long-term contracts. The unbilled contract receivables from the U.S. Government and prime contractors contain $21,260,000 and $17,980,000 at December 31, 1998 and 1997, respectively, due to long-term contracts. Unbilled contract receivables represent accumulated costs and profits earned but not yet billed to customers. The Company believes that substantially all such amounts will be billed and collected within one year. F-11 97 NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE 4. INVENTORIES
DECEMBER 31, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS) Raw materials and supplies.................. $ 23,296 $ 18,488 Work-in-process............................. 65,296 67,613 Finished goods.............................. 10,385 7,404 -------- -------- Total inventories at current cost........... 98,977 93,505 Less allowances to reduce current cost values to LIFO basis...................... (39,043) (38,761) Progress payments........................... (6,748) (7,672) -------- -------- Total inventories........................... $ 53,186 $ 47,072 ======== ========
Inventories, before progress payments, determined on the last-in, first-out method were $56,326,000 at December 31, 1998 and $50,801,000 at December 31, 1997. The remainder of the inventory was determined using the first-in, first-out and average cost methods. These inventory values do not differ materially from current cost. During 1998, 1997 and 1996, inventory usage resulted in liquidations of last-in, first-out inventory quantities. These inventories were carried at the lower costs prevailing in prior years as compared with the cost of current purchases. The effect of these last-in, first-out liquidations was to increase net income by $264,000 in 1998, $2,200,000 in 1997 and $2,464,000 in 1996. Inventories, before progress payments, related to long-term contracts were $2,035,000 and $2,292,000 at December 31, 1998 and 1997, respectively. Progress payments related to long-term contracts were $125,000 and $75,000 at December 31, 1998 and 1997, respectively. Under the contractual arrangements by which progress payments are received, the U.S. Government has a security interest in the inventories associated with specific contracts. NOTE 5. SUPPLEMENTAL BALANCE SHEET INFORMATION Property, plant and equipment were as follows:
DECEMBER 31, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS) Land........................................ $ 5,549 $ 5,573 Buildings................................... 36,734 35,868 Equipment and leasehold improvements........ 135,493 124,667 --------- --------- 177,776 166,108 Accumulated depreciation and amortization... (134,754) (129,195) --------- --------- Total property, plant and equipment......... $ 43,022 $ 36,913 ========= =========
F-12 98 NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) Accrued liabilities included salaries and wages of $22,605,000 and $24,400,000 in 1998 and 1997, respectively. Other long-term liabilities consisted of reserves for self-insurance. NOTE 6. STOCKHOLDER'S EQUITY Allegheny Teledyne sponsors an incentive plan that provides for stock option awards to officers and key employees. Teledyne Technologies has officers and key employees that have participated in this plan. Teledyne Technologies accounts for its stock option plans in accordance with APB Opinion 25, "Accounting for Stock Issued to Employees," and related Interpretations. Under APB Opinion 25, no compensation expense is recognized because the exercise price of the Company's employee stock options equals the market price of the underlying stock at the date of the grant. If compensation cost for these options had been determined using the fair-value method prescribed by FASB Statement No. 123, "Accounting for Stock-based Compensation," net income would have been reduced by $673,000, $154,000, and $131,000 for the years ended December 31, 1998, 1997 and 1996, respectively. Under FASB Statement No. 123, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions (there were no option grants in 1997):
1998 1997 1996 ----- ---- ----- Expected dividend yield................................. 2.8% --% 3.9% Expected volatility..................................... 31% --% 31% Risk-free interest rate................................. 5.0% --% 6.3% Expected lives.......................................... 8.0 -- 8.0 Weighted-average fair value of options granted during year.................................................. $7.25 $-- $4.53
The pro forma amounts above are not necessarily representative of the effects of awards on future pro forma earnings because future grants of employee stock options by Teledyne Technologies management will not be comparable to awards made to employees while Teledyne Technologies was part of Allegheny Teledyne. The assumptions used to compute the fair value of any stock option awards will be specific to Teledyne Technologies and therefore may not be comparable to the Allegheny Teledyne assumptions used. F-13 99 NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) Stock option transactions in Allegheny Teledyne common stock under Allegheny Teledyne's incentive plan for Teledyne Technologies employees are summarized as follows:
1998 1997 1996 --------------------- --------------------- --------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE --------- --------- --------- --------- --------- --------- Outstanding beginning of year............. 398,842 $11.47 441,308 $11.38 346,501 $10.39 Granted............... 722,000 $22.89 -- $ -- 102,025 $14.61 Exercised............. (8,000) $10.14 (42,466) $10.48 (7,218) $ 9.96 --------- ------ ------- ------ ------- ------ Outstanding end of year................ 1,112,842 $18.89 398,842 $11.47 441,308 $11.38 ========= ====== ======= ====== ======= ====== Exercisable at end of year................ 308,456 $10.85 257,113 $10.20 198,878 $ 9.32 ========= ====== ======= ====== ======= ======
Further information about stock options outstanding and exercisable at December 31, 1998 is as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------ ------------------- WEIGHTED- AVERAGE WEIGHTED- WEIGHTED- RANGE OF REMAINING AVERAGE AVERAGE EXERCISE CONTRACTUAL EXERCISE EXERCISE PRICES SHARES LIFE PRICE SHARES PRICE - ------------- --------- ------------ --------- ------- --------- $ 8.51-$14.61 390,842 6.5 $11.50 308,456 $10.85 $20.38-$25.88 722,000 9.6 $22.89 -- -- --------- ------- 1,112,842 308,456 ========= =======
In connection with the spin-off of Teledyne Technologies from Allegheny Teledyne, outstanding stock options held by Teledyne Technologies employees will be converted into options to purchase Teledyne Technologies common stock. The number of shares and the exercise price of each Allegheny Teledyne option that is converted to a Teledyne Technologies option will be converted based upon a formula designed to preserve the inherent economic value, vesting and term provisions of such Allegheny Teledyne options as of the distribution date. The exchange ratio and fair market value of the Teledyne Technologies common stock, upon active trading, will also impact the number of options issued to Teledyne Technologies employees. The ultimate number and exercise price of the Teledyne Technologies stock options to be issued, subject to the above calculation, cannot be determined until after the spin-off. Teledyne Technologies intends to establish its own long-term incentive plan which will provide its Board of Directors the flexibility to grant restricted stock, incentive stock options, stock appreciation rights and non-qualified stock options to officers and employees of Teledyne Technologies. F-14 100 NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE 7. RELATED PARTY TRANSACTIONS The accompanying financial statements include transactions with Allegheny Teledyne as follows:
1998 1997 1996 --------- --------- -------- (IN THOUSANDS) Net advances from Allegheny Teledyne, beginning of the year................................... $ 107,451 $ 126,059 $113,814 Net cash transactions with Allegheny Teledyne: Current provision for income taxes............ 34,717 26,808 29,506 Insurance expense............................. 17,196 18,637 19,977 Pension expense (income)...................... (1,719) 722 (965) Corporate general and administrative expense.................................... 7,804 7,566 7,164 Other net cash to Allegheny Teledyne.......... (109,484) (113,965) (84,132) --------- --------- -------- Net cash transactions with Allegheny Teledyne................................... (51,486) (60,232) (28,450) Net income...................................... 48,717 41,624 40,695 --------- --------- -------- Net advances from Allegheny Teledyne, end of the year.......................................... $ 104,682 $ 107,451 $126,059 ========= ========= ========
The average net advances from Allegheny Teledyne were $106,067,000, $116,755,000 and $119,937,000 for the years ended December 31, 1998, 1997 and 1996, respectively. Teledyne Technologies participates in Allegheny Teledyne's centralized cash management system. Cash receipts in excess of cash requirements are transferred to Allegheny Teledyne. These transactions with Allegheny Teledyne are non-interest bearing and the net advances fluctuate on a daily basis. Corporate general and administrative expenses represent allocations for expenses incurred by Allegheny Teledyne on the Company's behalf including costs for finance, legal, tax and human resources functions. Amounts above were allocated based on net sales, which management believes to be reasonable. Teledyne Technologies participates in the defined benefit pension plan sponsored by Allegheny Teledyne. The expense for the plan was allocated to Teledyne Technologies based upon actuarially-determined amounts for the pension obligation and assets intended to be transferred from Allegheny Teledyne to Teledyne Technologies at the time of the spin-off. Teledyne Technologies also participates in casualty, medical and life insurance programs sponsored by Allegheny Teledyne. Insurance expense was allocated to Teledyne Technologies based upon actual losses incurred plus a share of pooled catastrophic losses under the Allegheny Teledyne self-insurance program. In the opinion of management, the allocations of these expenses are reasonable. The expenses allocated for these services and programs are not necessarily indicative of the expenses that would have been incurred if Teledyne Technologies had been a separate, independent entity and had managed these functions. Had Teledyne Technologies been a separate standalone company and managed these functions during the periods presented, management estimates that corporate general and administrative expenses would have been approximately $15,000,000 for each of the years ended December 31, 1998, 1997 and 1996. The Company determined the additional corporate expenses for the periods presented by estimating the number, seniority and compensation levels of additional employees that would likely be F-15 101 NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) required to fully carry out the finance, legal, tax, human resources, investor and public relations and other functions associated with being a stand alone public company. In addition, the Company included estimates of various corporate and related administrative expenses that can be expected to be incurred as a stand alone public company, such as board of directors fees and expenses and independent accounting and legal fees and expenses. In making these estimates, the Company also examined expenses historically incurred by Allegheny Teledyne for these personnel and expenses. The Company may incur additional general and administrative expenses, pension and insurance costs as a result of operating independently of Allegheny Teledyne. In addition, prior to and in connection with the spin-off, Teledyne Technologies and Allegheny Teledyne will enter into agreements providing for the separation of the companies and governing various relationships for separating employee benefits and tax obligations, indemnification and transition services. Net sales include $1,074,000, $293,000 and $1,548,000 of sales to other Allegheny Teledyne subsidiaries for the years ended December 31, 1998, 1997 and 1996, respectively. There was a receivable of $532,000 at December 31, 1998 and $220,000 at December 31, 1997 from other Allegheny Teledyne subsidiaries. NOTE 8. INCOME TAXES Teledyne Technologies is included in the consolidated federal and certain state income tax returns of Allegheny Teledyne. Any required tax payments were made by Allegheny Teledyne as part of its consolidated returns. Provision for income taxes was calculated as if Teledyne Technologies had filed separate income tax returns. Provision for income taxes was as follows:
1998 1997 1996 ------- ------- ------- (IN THOUSANDS) Current Federal.......................................... $29,614 $22,729 $25,016 State.......................................... 5,103 4,079 4,490 ------- ------- ------- Total....................................... 34,717 26,808 29,506 ------- ------- ------- Deferred Federal........................................ (396) 235 (237) State.......................................... (45) 20 (42) ------- ------- ------- Total....................................... (441) 255 (279) ------- ------- ------- Provision for income taxes....................... $34,276 $27,063 $29,227 ======= ======= =======
F-16 102 NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) The following is a reconciliation of the statutory federal income tax rate to the actual effective income tax rate:
1998 1997 1996 ---- ---- ---- Federal tax rate.......................................... 35.0% 35.0% 35.0% State and local income taxes, net of federal tax benefit................................................... 4.5% 3.8% 3.3% Other..................................................... 1.8% 0.6% 3.5% ---- ---- ---- Effective income tax rate................................. 41.3% 39.4% 41.8% ==== ==== ====
Deferred income taxes result from temporary differences in the recognition of income and expense for financial and income tax reporting purposes, and differences between the fair value of assets acquired in business combinations accounted for as purchases for financial reporting purposes and their corresponding tax bases. Deferred income taxes represent future tax benefits or costs to be recognized when those temporary differences reverse. The categories of assets and liabilities that have resulted in differences in the timing of the recognition of income and expense were as follows:
1998 1997 ------- ------- (IN THOUSANDS) Deferred income tax assets: Postretirement benefits other than pensions........ $12,878 $12,751 Reserves......................................... 10,005 9,596 Inventory valuation.............................. 5,352 5,409 Accrued vacation................................. 4,200 4,279 Other items...................................... 4,218 2,806 ------- ------- Total deferred income tax assets................... 36,653 34,841 ------- ------- Deferred income tax liabilities: Bases of property, plant and equipment........... 1,619 248 ------- ------- Total deferred income tax liabilities.............. 1,619 248 ------- ------- Net deferred income tax asset...................... $35,034 $34,593 ======= =======
NOTE 9. PENSION PLANS Certain Teledyne Technologies employees participate in the noncontributory defined benefit plan sponsored by Allegheny Teledyne. Benefits under the defined benefit plan are generally based on years of service and/or final average pay. Allegheny Teledyne funds the pension plan in accordance with the requirements of the Employee Retirement Income Security Act of 1974, as amended, and the Internal Revenue Code. Net periodic pension income or expense allocated to Teledyne Technologies was $1,719,000 income, $722,000 expense and $965,000 income in the years ended December 31, 1998, 1997 and 1996, respectively. It is intended that as of the spin-off date, Teledyne Technologies will assume the existing defined benefit plan obligations for all of Teledyne Technologies' employees, both F-17 103 NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) active and inactive, at its companies that perform government contract work and for Teledyne Technologies' active employees at its companies that do not perform government contract work. Allegheny Teledyne will transfer sufficient pension assets to fund the new Teledyne Technologies defined benefit pension plan such that at the time of the transfer, pension assets will exceed pension obligations by approximately $50,000,000. As a result, it is anticipated that Teledyne Technologies will not have to make contributions to the pension plan for the foreseeable future. Additionally, in accordance with Internal Revenue Code regulations, the Company would be able to recover from the excess pension assets amounts paid for retiree medical expenses. Teledyne Technologies also participates in a defined contribution plan sponsored by Allegheny Teledyne maintained for substantially all of its employees. The costs associated with this plan were $3,323,000, $1,209,000 and $1,266,000 in 1998, 1997 and 1996, respectively. It is intended that Teledyne Technologies will establish its own defined contribution plan subsequent to the distribution. NOTE 10. POSTRETIREMENT BENEFITS The Company sponsors several postretirement defined benefit plans covering certain salaried and hourly employees. The plans provide health care and life insurance benefits for eligible retirees. Components of postretirement benefit expense included the following:
EXPENSE (INCOME) ----------------------------- OTHER POSTRETIREMENT BENEFITS ----------------------------- 1998 1997 1996 ------- ------- ------- (IN THOUSANDS) Service cost -- benefits earned during the year..... $ 341 $ 356 $ 326 Interest cost on benefits earned in prior years..... 1,647 1,761 1,779 Amortization of prior service cost.................. (381) (381) (381) Amortization of net actuarial gain.................. (128) -- -- ------ ------ ------ Total benefit expense............................... $1,479 $1,736 $1,724 ====== ====== ======
Discount rates of 7.0%, 7.25% and 7.5% were used to develop postretirement benefit expense for the years ended December 31, 1998, 1997 and 1996, respectively. Discount rates of 7.0% at December 31, 1998 and 1997 were used for the valuation of postretirement obligations. F-18 104 NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) The accrued benefit cost at December 31, 1998 and 1997 was as follows:
OTHER POSTRETIREMENT BENEFITS -------------------- 1998 1997 -------- -------- (IN THOUSANDS) Change in benefit obligation: Benefit obligation at beginning of year............ $26,634 $25,577 Service cost....................................... 341 356 Interest cost...................................... 1,647 1,761 Benefits paid...................................... (1,322) (1,314) Net actuarial (gains) and losses................... (2,230) 254 ------- ------- Benefit obligation at end of year.................. 25,070 26,634 ------- ------- Funded status of the plan.......................... 25,070 26,634 Unrecognized net actuarial gain.................... 6,399 4,298 Unrecognized prior service cost.................... 1,484 1,865 ------- ------- Accrued benefit cost............................... $32,953 $32,797 ======= =======
The annual assumed rate of increase in the per capita cost of covered benefits (the health care cost trend rate) for health care plans was 8.16 percent in 1999 and was assumed to decrease to 5.0 percent in the year 2002 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one percentage point change in assumed health care cost trend rates would have the following effects:
ONE PERCENTAGE ONE PERCENTAGE POINT INCREASE POINT INCREASE -------------- -------------- (IN THOUSANDS) Effect on total of service and interest cost components for the year ended December 31, 1998...................... $ 296 $ (253) Effect on postretirement benefit obligation at December 31, 1998.......... $3,042 $(2,658)
NOTE 11. BUSINESS SEGMENTS Teledyne Technologies is a leading provider of sophisticated electronic and communications products, systems engineering solutions and information technology services, and aerospace engines and components. Its customers include aerospace prime contractors, general aviation companies, government agencies and major communications and other commercial companies. Teledyne Technologies operates in three business segments: Electronics and Communications, Systems Engineering Solutions and Aerospace Engines and Components. F-19 105 NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) Information on the Company's business segments was as follows:
1998 1997 1996 -------- -------- -------- (IN THOUSANDS) Sales: Electronics and Communications................ $342,110 $340,034 $313,488 Systems Engineering Solutions............... 223,185 210,375 216,090 Aerospace Engines and Components............ 215,098 206,192 186,822 -------- -------- -------- Total sales................................... $780,393 $756,601 $716,400 ======== ======== ========
The Company's backlog of confirmed orders was approximately $401,778,000 at December 31, 1998 and $388,804,000 at December 31, 1997.
1998 1997 1996 -------- -------- -------- (IN THOUSANDS) Sales to the U.S. Government including direct sales as prime contractor and indirect sales as subcontractor: Electronics and Communications................ $102,448 $102,714 $114,806 Systems Engineering Solutions............... 159,206 157,958 169,372 Aerospace Engines and Components............ 46,787 42,608 32,539 -------- -------- -------- Total sales to U.S. Government................ $308,441 $303,280 $316,717 ======== ======== ========
Sales to the U.S. Government included sales to the Department of Defense of $214,093,000 in 1998, $198,522,000 in 1997 and $193,450,000 in 1996. Total international sales were $172,920,000 in 1998, $159,212,000 in 1997 and $164,213,000 in 1996. Of these amounts, sales by operations in the United States to customers in other countries were $159,308,000 in 1998, $143,981,000 in 1997 and $144,362,000 in 1996. There were no sales to individual countries outside of the United States in excess of 10 percent of the Company's net sales. Sales between business segments, which were not material, generally were priced at prevailing market prices. F-20 106 NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1998 1997 1996 -------- -------- -------- (IN THOUSANDS) Operating profit: Electronics and Communications................ $ 42,620 $ 36,787 $ 37,907 Systems Engineering Solutions............... 20,543 13,117 19,880 Aerospace Engines and Components............ 26,072 24,950 17,444 -------- -------- -------- Total operating profit........................ 89,235 74,854 75,231 Corporate expense............................. (7,804) (7,566) (7,164) Other income.................................. 1,562 1,399 1,855 -------- -------- -------- Income before income taxes.................... $ 82,993 $ 68,687 $ 69,922 ======== ======== ======== Depreciation and amortization: Electronics and Communications.............. $ 5,731 $ 5,735 $ 5,079 Systems Engineering Solutions............... 2,857 3,047 2,977 Aerospace Engines and Components............ 2,544 2,503 3,104 -------- -------- -------- $ 11,132 $ 11,285 $ 11,160 ======== ======== ======== Capital expenditures: Electronics and Communications.............. $ 10,300 $ 10,793 $ 9,425 Systems Engineering Solutions............... 2,612 2,343 3,004 Aerospace Engines and Components............ 5,153 2,686 3,410 -------- -------- -------- $ 18,065 $ 15,822 $ 15,839 ======== ======== ======== Identifiable assets: Electronics and Communications.............. $ 96,152 $ 93,048 $ 95,993 Systems Engineering Solutions............... 63,438 70,745 68,784 Aerospace Engines and Components............ 56,195 56,980 53,336 Corporate................................... 35,034 34,593 34,848 -------- -------- -------- $250,819 $255,366 $252,961 ======== ======== ========
NOTE 12. COMMITMENTS AND CONTINGENCIES Rental expense under operating leases was $10,424,000 in 1998, $10,179,000 in 1997 and $11,800,000 in 1996. Future minimum rental commitments under operating leases with non-cancelable terms of more than one year as of December 31, 1998, were as follows: $9,017,000 in 1999, $5,393,000 in 2000, $5,051,000 in 2001, $4,812,000 in 2002, $2,418,000 in 2003 and $6,869,000 thereafter. The Company is subject to federal, state and local environmental laws and regulations which require that it investigate and remediate the effects of the release or disposal of materials at sites associated with past and present operations, including sites at which the Company has been identified as a potentially responsible party under the federal Superfund laws and comparable state laws. The Company has been identified as a potentially F-21 107 NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) responsible party at approximately 17 such sites, excluding those at which the Company believes it has no future liability. The Company recognized income of $469,000 in 1998 and $708,000 in 1996 as a result of favorable negotiations with other potentially responsible parties related to their level of financial responsibility for environmental remediation costs. In 1997, the Company recognized expense of $765,000 related to changes in environmental obligations. In accordance with the Company's accounting policy disclosed in Note 2, environmental liabilities are recorded when the Company's liability is probable and the costs are reasonably estimable. In many cases, however, investigations are not yet at a stage where the Company has been able to determine whether it is liable or, if liability is probable, to reasonably estimate the loss or range of loss, or certain components thereof. Estimates of the Company's liability are further subject to uncertainties regarding the nature and extent of site contamination, the range of remediation alternatives available, evolving remediation standards, imprecise engineering evaluations and estimates of appropriate cleanup technology, methodology and cost, the extent of corrective actions that may be required, and the number and financial condition of other potentially responsible parties, as well as the extent of their responsibility for the remediation. Accordingly, as investigation and remediation of these sites proceeds, it is likely that adjustments in the Company's accruals will be necessary to reflect new information. The amounts of any such adjustments could have a material adverse effect on the Company's results of operations in a given period, but the amounts, and the possible range of loss in excess of the amounts accrued, are not reasonably estimable. Based on currently available information, however, management does not believe that future environmental costs in excess of those accrued with respect to sites with which the Company has been identified are likely to have a material adverse effect on the Company's financial condition or liquidity. However, there can be no assurance that additional future developments, administrative actions or liabilities relating to environmental matters will not have a material adverse effect on the Company's financial condition or results of operations. At December 31, 1998, the Company's reserves for environmental remediation obligations totaled approximately $1,600,000, of which approximately $823,000 were included in other current liabilities. The reserve includes estimated probable future costs of $1,022,000 for federal Superfund and comparable state-managed sites; $359,000 for formerly owned or operated sites for which the Company has remediation or indemnification obligations; and $219,000 for sites utilized by the Company in its ongoing operations. The Company is evaluating whether it may be able to recover a portion of future costs for environmental liabilities from its insurance carriers and from third parties other than participating potentially responsible parties. The timing of expenditures depends on a number of factors that vary by site, including the nature and extent of contamination, the number of potentially responsible parties, the timing of regulatory approvals, the complexity of the investigation and remediation, and the standards for remediation. The Company expects that it will expend present accruals over many years, and will complete remediation of all sites with which it has been identified in up to thirty years. Various claims (whether based on U.S. Government or Company audits and investigations or otherwise) have been or may be asserted against the Company related to its U.S. Government contract work, including claims based on business practices and cost classifications and actions under the False Claims Act. Although such claims are generally F-22 108 NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) resolved by detailed fact-finding and negotiation, on those occasions when they are not so resolved, civil or criminal legal or administrative proceedings may ensue. Depending on the circumstances and the outcome, such proceedings could result in fines, penalties, compensatory and treble damages or the cancellation or suspension of payments under one or more U.S. Government contracts. Under government regulations, a company, or one or more of its operating divisions or units, can also be suspended or debarred from government contracts based on the results of investigations. However, although the outcome of these matters cannot be predicted with certainty, management does not believe there is any audit, review or investigation currently pending against the Company of which management is aware that is likely to result in suspension or debarment of the Company, or that is otherwise likely to have a material adverse effect on the Company's financial condition or liquidity, although the resolution in any reporting period of one or more of these matters could have a material adverse effect on the Company's results of operations for that period. The Company learns from time to time that it has been named as a defendant in civil actions filed under seal pursuant to the False Claims Act. Generally, since such cases are under seal, the Company does not in all cases possess sufficient information to determine whether the Company could sustain a material loss in connection with such cases, or to reasonably estimate the amount of any loss attributable to such cases. In connection with the spin-off, Allegheny Teledyne received a tax ruling from the Internal Revenue Service stating that the spin-off will be tax-free to Allegheny Teledyne and to Allegheny Teledyne's stockholders. The continuing validity of the Internal Revenue Service tax ruling is subject to certain factual representations and assumptions, including the Company's completion of a public offering of the Company's common stock within one year following the spin-off and use of the anticipated gross proceeds of approximately $125 million (less associated costs) for research and development and related capital projects, for the further development of the Company's manufacturing capabilities and for acquisitions and/or joint ventures. Pursuant to the Separation and Distribution Agreement that Teledyne Technologies will sign prior to the spin-off, the Company will agree with Allegheny Teledyne to undertake such a public offering. The Tax Sharing and Indemnification Agreement between Allegheny Teledyne and Teledyne Technologies provides that the Company will indemnify Allegheny Teledyne and its agents and representatives for taxes imposed on, and other amounts paid by, them or ATI's stockholders if the Company takes actions or fails to take actions (such as completing the public offering) that result in the spin-off not qualifying as a tax-free distribution. If the Company were required to so indemnify Allegheny Teledyne, such an obligation could have a material adverse effect on its financial condition, results of operations and cash flow and the amount the Company could be required to pay could exceed its net worth by a substantial amount. A number of other lawsuits, claims and proceedings have been or may be asserted against the Company relating to the conduct of its business, including those pertaining to product liability, patent infringement, commercial, employment and employee benefits. While the outcome of litigation cannot be predicted with certainty, and some of these lawsuits, claims or proceedings may be determined adversely to the Company, management does not believe that the disposition of any such pending matters is likely to have a material adverse effect on the Company's financial condition or liquidity, although the resolution in any F-23 109 NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) reporting period of one or more of these matters could have a material adverse effect on the Company's results of operations for that period. NOTE 13. QUARTERLY DATA (UNAUDITED)
QUARTER ENDED ------------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------- -------- -------------- ------------- (IN THOUSANDS) 1998 -- Sales........................ $198,760 $200,468 $189,462 $191,703 Gross profit................. $ 52,742 $ 55,066 $ 48,616 $ 51,882 Net income................... $ 11,300 $ 13,918 $ 12,585 $ 10,914 1997 -- Sales........................ $182,126 $192,757 $188,388 $193,330 Gross profit................. $ 49,176 $ 49,496 $ 51,859 $ 55,006 Net income................... $ 10,126 $ 8,181 $ 10,854 $ 12,463
In the 1998 third quarter, results reflect the favorable impact of an adjustment to product liability self-insurance reserves as a result of favorable experience. In the 1997 second quarter, nonrecurring expenses, primarily research and development-related expenses for electronic components for aircraft, resulted in declines in operating profit for Teledyne Controls' data acquisition and communication products. F-24 110 TELEDYNE TECHNOLOGIES INCORPORATED COMBINED STATEMENTS OF INCOME (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, -------------------- 1999 1998 -------- -------- (IN THOUSANDS) SALES.................................................... $602,978 $588,690 Costs and expenses: Cost of sales.......................................... 442,146 432,266 Selling, general and administrative expenses........... 100,500 92,911 -------- -------- 542,646 525,177 -------- -------- Earnings before other income............................. 60,332 63,513 Other income............................................. 716 887 -------- -------- INCOME BEFORE INCOME TAXES............................... 61,048 64,400 Provision for income taxes............................... 25,213 26,597 -------- -------- NET INCOME............................................... $ 35,835 $ 37,803 ======== ======== BASIC NET INCOME PER COMMON SHARE........................ $1.30 $1.34 ======== ======== DILUTED NET INCOME PER COMMON SHARE...................... $1.30 $1.34 ======== ========
The accompanying notes are an integral part of these statements. F-25 111 TELEDYNE TECHNOLOGIES INCORPORATED COMBINED BALANCE SHEETS
PRO FORMA CAPITALIZATION HISTORICAL -------------- ---------------------------- SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, 1999 1999 1998 -------------- ------------- ------------ (UNAUDITED) (UNAUDITED) (AUDITED) (IN THOUSANDS) ASSETS Cash.......................................... $ -- $ -- Accounts receivable........................... 120,627 103,198 Inventories................................... 53,852 53,186 Deferred income taxes......................... 18,855 12,913 Prepaid expenses and other current assets..... 2,157 1,751 --------- --------- TOTAL CURRENT ASSETS...................... 195,491 171,048 Property, plant and equipment................. 50,453 43,022 Deferred income taxes......................... 17,232 22,121 Cost in excess of net assets acquired......... 9,201 9,370 Other assets.................................. 5,120 5,258 --------- --------- TOTAL ASSETS.............................. $ 277,497 $ 250,819 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY Accounts payable.............................. $ 51,224 $ 43,344 Accrued liabilities........................... 51,182 49,136 --------- --------- TOTAL CURRENT LIABILITIES................. 102,406 92,480 Long-term debt................................ $ 100,000 -- -- Accrued postretirement benefits............... 33,337 32,953 Other long-term liabilities................... 15,384 18,984 --------- --------- TOTAL LIABILITIES......................... 151,127 144,417 --------- --------- STOCKHOLDER'S EQUITY: Preferred stock, par value $0.01: authorized -- 15,000,000 shares; issued and outstanding -- none................... -- -- -- Common stock, par value $0.01: authorized -- 125,000,000 shares; issued and outstanding -- 27,008,553 shares...... 270 -- -- Additional paid-in capital.................. 11,172 -- -- Net advances from Allegheny Teledyne........ -- 124,750 104,682 Foreign currency translation gains.......... 1,620 1,620 1,720 --------- --------- --------- TOTAL STOCKHOLDER'S EQUITY................ 13,062 126,370 106,402 --------- --------- --------- TOTAL CAPITALIZATION...................... $ 113,062 ========= TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY................................. $ 277,497 $ 250,819 ========= =========
The accompanying notes are an integral part of these statements. F-26 112 TELEDYNE TECHNOLOGIES INCORPORATED COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, -------------------- 1999 1998 -------- -------- (IN THOUSANDS) OPERATING ACTIVITIES: Net income................................................ $ 35,835 $ 37,803 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........................ 9,044 8,358 Deferred income taxes................................ (1,053) (8,766) Gain on sale of property, plant and equipment........ -- (427) Change in operating assets and liabilities: Accounts receivable.................................. (17,429) 14,215 Accounts payable..................................... 7,880 (350) Other long-term liabilities.......................... (3,600) 1,350 Accrued liabilities.................................. 2,046 (104) Inventories.......................................... (666) (5,477) Accrued postretirement............................... 384 (104) Other................................................... (846) (1,260) -------- -------- CASH PROVIDED BY OPERATING ACTIVITIES................ 31,595 45,238 -------- -------- INVESTING ACTIVITIES: Purchases of property, plant and equipment.............. (16,089) (9,503) Disposals of property, plant and equipment.............. -- 719 Other................................................... 261 1,415 -------- -------- CASH USED IN INVESTING ACTIVITIES.................... (15,828) (7,369) -------- -------- FINANCING ACTIVITIES: Net advances to Allegheny Teledyne...................... (15,767) (37,869) -------- -------- CASH USED IN FINANCING ACTIVITIES.................... (15,767) (37,869) -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......... -- -- Cash and cash equivalents at beginning of year............ -- -- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................ $ -- $ -- ======== ========
The accompanying notes are an integral part of these statements. F-27 113 TELEDYNE TECHNOLOGIES INCORPORATED COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY (UNAUDITED)
ADVANCES ACCUMULATED (TO) FROM OTHER ALLEGHENY COMPREHENSIVE STOCKHOLDER'S TELEDYNE INCOME EQUITY --------- ------------- ------------- (IN THOUSANDS) BALANCE, DECEMBER 31, 1997............. $107,451 $1,914 $109,365 ======== ====== ======== Net income............................. 37,803 -- 37,803 Other comprehensive income, net of tax: Foreign currency translation losses.... -- (242) (242) -------- ------ -------- Comprehensive income................... 37,803 (242) 37,561 Net transactions with Allegheny Teledyne............................. (37,869) -- (37,869) -------- ------ -------- BALANCE, SEPTEMBER 30, 1998............ $107,385 $1,672 $109,057 ======== ====== ======== BALANCE, DECEMBER 31, 1998............. $104,682 $1,720 $106,402 ======== ====== ======== Net income............................. 35,835 -- 35,835 Other comprehensive income, net of tax: Foreign currency translation losses.... -- (100) (100) -------- ------ -------- Comprehensive income................... 35,835 (100) 35,735 Net transactions with Allegheny Teledyne............................. (15,767) -- (15,767) -------- ------ -------- BALANCE, SEPTEMBER 30, 1999............ $124,750 $1,620 $126,370 ======== ====== ========
The accompanying notes are an integral part of these statements. F-28 114 NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. BASIS OF PRESENTATION These interim combined financial statements include the accounts of Teledyne Technologies Incorporated and its subsidiaries ("Teledyne Technologies" or the "Company"). These unaudited combined financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and note disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of the Company, all adjustments (which include only normal recurring adjustments) considered necessary for a fair presentation have been included. These unaudited combined financial statements should be read in conjunction with the annual combined historical financial statements and notes thereto included in this Information Statement. The results of operations for these interim periods are not necessarily indicative of the operating results for a full year. The average number of shares of Teledyne Technologies common stock used in the computation of basic net income per common share was 27,481,371 and 28,126,024 for the nine months ended September 30, 1999 and 1998, respectively, based on a distribution ratio of one share of Teledyne Technologies common stock for every seven shares of Allegheny Teledyne common stock. The average number of shares of Teledyne Technologies common stock used in the computation of diluted net income per common share was 27,506,953 and 28,154,010 for the nine months ended September 30 1999 and 1998, respectively. A distribution ratio of one share of Teledyne Technologies common stock for every seven shares of Allegheny Teledyne common stock was used to adjust the stock options. The actual stock option adjustment will be based upon the relation of the market price of Allegheny Teledyne common stock prior to the spin-off to the market price of Teledyne Technologies after the spin-off and therefore cannot be determined at the present time. FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued in June 1998. This statement establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. In June 1999, FASB Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities: Deferral of the Effective Date of FASB Statement No. 133" was issued. This statement delays the effective date of FASB Statement No. 133 to all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company is presently evaluating the effect of adopting these statements. F-29 115 NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE 2. INVENTORIES
SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ------------ (IN THOUSANDS) Raw materials and supplies................. $ 25,177 $ 23,296 Work-in-process............................ 65,684 65,296 Finished goods............................. 9,398 10,385 -------- -------- Total inventories at current cost.......... 100,259 98,977 Less allowances to reduce current cost values to LIFO basis..................... (39,364) (39,043) Progress payments.......................... (7,043) (6,748) -------- -------- Total inventories.......................... $ 53,852 $ 53,186 ======== ========
NOTE 3. BUSINESS SEGMENTS Information on the Company's business segments for the nine months ended September 30, 1999 and 1998 was as follows:
1999 1998 -------- -------- (IN THOUSANDS) Sales: Electronics and Communications................... $258,710 $261,950 Systems Engineering Solutions.................. 166,535 165,465 Aerospace Engines and Components............... 177,733 161,275 -------- -------- Total sales................................. $602,978 $588,690 ======== ======== Operating profit: Electronics and Communications................. $ 31,277 $ 33,081 Systems Engineering Solutions.................. 13,308 14,227 Aerospace Engines and Components............... 21,777 22,092 -------- -------- Total operating profit........................... 66,362 69,400 Corporate expense................................ (6,030) (5,887) Other income..................................... 716 887 -------- -------- Income before income taxes....................... $ 61,048 $ 64,400 ======== ========
NOTE 4. COMMITMENTS AND CONTINGENCIES The Company is subject to federal, state and local environmental laws and regulations which require that it investigate and remediate the effects of the release or disposal of materials at sites associated with past and present operations, including sites at which the Company has been identified as a potentially responsible party under the federal Superfund laws and comparable state laws. The Company is currently involved in the investigation and remediation of a number of sites under these laws. The Company recognized expense related F-30 116 NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED) to changes in environmental obligations of $60,000 for the nine months ended September 30, 1999 and income of $681,000 for the nine months ended September 30, 1998. In accordance with the Company's accounting policy, environmental liabilities are recorded when the Company's liability is probable and the costs are reasonably estimable. In many cases, however, investigations are not yet at a stage where the Company has been able to determine whether it is liable or, if liability is probable, to reasonably estimate the loss or range of loss, or certain components thereof. Estimates of the Company's liability are further subject to uncertainties regarding the nature and extent of site contamination, the range of remediation alternatives available, evolving remediation standards, imprecise engineering evaluations and estimates of appropriate cleanup technology, methodology and cost, the extent of corrective actions that may be required, and the number and financial condition of other potentially responsible parties, as well as the extent of their responsibility for the remediation. Accordingly, as investigation and remediation of these sites proceeds, it is likely that adjustments in the Company's accruals will be necessary to reflect new information. The amounts of any such adjustments could have a material adverse effect on the Company's results of operations in a given period, but the amounts, and the possible range of loss in excess of the amounts accrued, are not reasonably estimable. Based on currently available information, however, management does not believe that future environmental costs in excess of those accrued with respect to sites with which the Company has been identified are likely to have a material adverse effect on the Company's financial condition or liquidity. However, there can be no assurance that additional future developments, administrative actions or liabilities relating to environmental matters will not have a material adverse effect on the Company's financial condition or results of operations. At September 30, 1999, the Company's reserves for environmental remediation obligations totaled approximately $1,334,000, of which approximately $922,100 were included in other current liabilities. The reserve includes estimated probable future costs of $782,400 for federal Superfund and comparable state-managed sites; $292,000 for formerly owned or operated sites for which the Company has remediation or indemnification obligations; and $259,600 for sites utilized by the Company in its ongoing operations. The Company is evaluating whether it may be able to recover a portion of future costs for environmental liabilities from its insurance carriers and from third parties other than participating potentially responsible parties. The timing of expenditures depends on a number of factors that vary by site, including the nature and extent of contamination, the number of potentially responsible parties, the timing of regulatory approvals, the complexity of the investigation and remediation, and the standards for remediation. The Company expects that it will expend present accruals over many years, and will complete remediation of all sites with which it has been identified in up to thirty years. Various claims (whether based on U.S. Government or Company audits and investigations or otherwise) have been or may be asserted against the Company related to its U.S. Government contract work, including claims based on business practices and cost classifications and actions under the False Claims Act. Although such claims are generally resolved by detailed fact-finding and negotiation, on those occasions when they are not so resolved, civil or criminal legal or administrative proceedings may ensue. Depending on the circumstances and the outcome, such proceedings could result in fines, penalties, compensatory and treble damages or the cancellation or suspension of payments under one or more F-31 117 NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED) U.S. Government contracts. Under government regulations, a company, or one or more of its operating divisions or units, can also be suspended or debarred from government contracts based on the results of investigations. However, although the outcome of these matters cannot be predicted with certainty, management does not believe there is any audit, review or investigation currently pending against the Company of which management is aware that is likely to result in suspension or debarment of the Company, or that is otherwise likely to have a material adverse effect on the Company's financial condition or liquidity, although the resolution in any reporting period of one or more of these matters could have a material adverse effect on the Company's results of operations for that period. The Company learns from time to time that it has been named as a defendant in civil actions filed under seal pursuant to the False Claims Act. Generally, since such cases are under seal, the Company does not in all cases possess sufficient information to determine whether the Company could sustain a material loss in connection with such cases, or to reasonably estimate the amount of any loss attributable to such cases. In connection with the spin-off, Allegheny Teledyne received a tax ruling from the Internal Revenue Service stating that the spin-off will be tax-free to Allegheny Teledyne and to Allegheny Teledyne's stockholders. The continuing validity of the Internal Revenue Service tax ruling is subject to certain factual representations and assumptions, including completion of a public offering of the Company's common stock within one year following the spin-off and use of the anticipated gross proceeds of approximately $125 million (less associated costs) for research and development and related capital projects, for the further development of the Company's manufacturing capabilities and for acquisitions and/or joint ventures. Pursuant to the Separation and Distribution Agreement that Teledyne Technologies will sign prior to the spin-off, the Company will agree with Allegheny Teledyne to undertake such a public offering. The Tax Sharing and Indemnification Agreement between Allegheny Teledyne and Teledyne Technologies will provide that the Company will indemnify Allegheny Teledyne and its agents and representatives for taxes imposed on, and other amounts paid by, them or ATI's stockholders if the Company takes actions or fails to take actions (such as completing the public offering) that result in the spin-off not qualifying as a tax-free distribution. If the Company were required to so indemnify Allegheny Teledyne, such an obligation could have a material adverse effect on its financial condition, results of operations and cash flow and the amount the Company could be required to pay could exceed its net worth by a substantial amount. A number of other lawsuits, claims and proceedings have been or may be asserted against the Company relating to the conduct of its business, including those pertaining to product liability, patent infringement, commercial, employment and employee benefits. While the outcome of litigation cannot be predicted with certainty, and some of these lawsuits, claims or proceedings may be determined adversely to the Company, management does not believe that the disposition of any such pending matters is likely to have a material adverse effect on the Company's financial condition or liquidity, although the resolution in any reporting period of one or more of these matters could have a material adverse effect on the Company's results of operations for that period. F-32 118 NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE 5. UNAUDITED PRO FORMA CAPITALIZATION The unaudited pro forma capitalization at September 30, 1999 presented on the balance sheet was prepared assuming the distribution occurred on September 30, 1999 and includes the following transactions that occurred subsequent to September 30, 1999: (a) Recording debt of $100,000,000 to be assumed by Teledyne Technologies at the date of the spin-off. (b) Recording the transfer of net unrecognized actuarial gains on pension obligation, insurance reserves, deferred compensation long-term assets and liabilities and deferred taxes. (c) Recording the planned liquidation of the remaining investment by Allegheny Teledyne and the issuance of 27,008,553 shares of Teledyne Technologies common stock. F-33 119 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ------- ----------- 2.1 Form of Separation and Distribution Agreement by and among Allegheny Teledyne Incorporated, TDY Holdings, LLC, Teledyne Industries, Inc. and Teledyne Technologies Incorporated 3.1 Form of Restated Certificate of Incorporation of Teledyne Technologies Incorporated 3.2 Form of Amended and Restated Bylaws of Teledyne Technologies Incorporated 4.1 Specimen Certificate for Common Stock of Teledyne Technologies Incorporated* 4.2 Form of Rights Agreement between Teledyne Technologies Incorporated and ChaseMellon Shareholder Services, L.L.C. 4.3 Form of Credit Agreement among Allegheny Teledyne Incorporated, Teledyne Technologies Incorporated, Bank of America, N.A., as Administrative Agent, Swing Line Lender and Issuing Lender, and the other financial institutions party thereto* 10.1 Form of Tax Sharing and Indemnification Agreement between Allegheny Teledyne Incorporated and Teledyne Technologies Incorporated 10.2 Form of Interim Services Agreement between Allegheny Teledyne Incorporated and Teledyne Technologies Incorporated* 10.3 Form of Employee Benefits Agreement between Allegheny Teledyne Incorporated and Teledyne Technologies Incorporated 10.4 Form of Trademark License Agreement between Allegheny Teledyne Incorporated and Teledyne Technologies Incorporated* 10.5 Form of Teledyne Technologies Incorporated 1999 Incentive Plan* 10.6 Form of Teledyne Technologies Incorporated 1999 Non-Employee Director Stock Compensation Plan* 10.7 Form of Fee Continuation Plan for Non-Employee Directors* 21 Significant Subsidiary of Teledyne Technologies Incorporated* 27 Financial Data Schedule*
- --------------- * Previously filed. EX-2.1 2 SEPARATION AND DISTRIBUTION AGREEMENT 1 Exhibit 2.1 SEPARATION AND DISTRIBUTION AGREEMENT BY AND AMONG ALLEGHENY TELEDYNE INCORPORATED, TDY HOLDINGS, LLC, TELEDYNE INDUSTRIES, INC. AND TELEDYNE TECHNOLOGIES INCORPORATED DATED AS OF NOVEMBER __, 1999 2 TABLE OF CONTENTS ARTICLE I DEFINITIONS............................................................................................2 ARTICLE II THE SEPARATION.......................................................................................13 2.01. Transfer of Assets and Assumption of Liabilities.....................................13 2.02. Teledyne Technologies Assets.........................................................14 2.03. Teledyne Technologies Liabilities....................................................14 2.04. Termination of Agreements............................................................16 2.05. Documents Relating to Transfer of Real Property Interests and Tangible Property Located Thereon.............................................16 2.06. Documents Further Evidencing Transfers of Assets and Assumption of Liabilities.........................................................17 2.07. Other Ancillary Agreements...........................................................17 2.08. Disclaimer of Representations and Warranties.........................................17 2.09. Financing Arrangements...............................................................18 2.10. Governmental Approvals and Consents..................................................18 2.11. Novation of Assumed Teledyne Technologies Liabilities................................19 2.12. Transfer of Brown Assets and Assumption of Brown Liabilities.........................20 2.13. Consummation of Purchase and Sale Agreements; Interim Contribution..............................................................20 2.14. TI Contribution And Liquidation......................................................20 2.15. Interim Distributions................................................................20 ARTICLE III THE DISTRIBUTION....................................................................................20 3.01. The Distribution.....................................................................20 3.02. Actions Prior to the Distribution....................................................20 3.03. Fractional Shares....................................................................21 ARTICLE IV THE PUBLIC OFFERING..................................................................................22 4.01. The Public Offering..................................................................22 4.02. Proceeds of the Public Offering......................................................22 4.03. Remedies.............................................................................23 ARTICLE V MUTUAL RELEASES; INDEMNIFICATION......................................................................23 5.01. Release of Pre-Distribution Claims...................................................23 5.02. Indemnification by Teledyne Technologies.............................................25 5.03. Indemnification by ATI...............................................................26 5.04. Indemnification Obligations Net of Insurance Proceeds and Other Amounts..............27 5.05. Procedures for Indemnification of Third Party Claims.................................27 5.06. Additional Matters...................................................................28 5.07. Remedies Cumulative..................................................................29 5.08. Survival of Indemnities..............................................................29
i 3 ARTICLE VI CERTAIN OTHER MATTERS................................................................................29 6.01. Insurance Matters....................................................................29 6.02. Certain Business Matters.............................................................32 6.03. Late Payments........................................................................32 6.04. Certain Governance Matters...........................................................32 ARTICLE VII EXCHANGE OF INFORMATION; CONFIDENTIALITY............................................................33 7.01. Agreement for Exchange of Information; Archives......................................33 7.02. Ownership of Information.............................................................33 7.03. Compensation For Providing Information...............................................33 7.04. Record Retention.....................................................................34 7.05. Other Agreements Providing for Exchange of Information...............................34 7.06. Production of Witnesses; Records; Cooperation........................................34 7.07. Confidentiality......................................................................35 7.08. Protective Arrangements..............................................................36 ARTICLE VIII FURTHER ASSURANCES..................................................................................36 8.01. Further Assurances...................................................................36 ARTICLE IX TERMINATION..........................................................................................37 9.01. Termination..........................................................................37 9.02. Effect of Termination................................................................37 ARTICLE X MISCELLANEOUS.........................................................................................37 10.01. Counterparts; Entire Agreement; Corporate Power.....................................37 10.02. Governing Law; Consent to Jurisdiction..............................................38 10.03. Assignability.......................................................................38 10.04. Third Party Beneficiaries...........................................................39 10.05. Notices.............................................................................39 10.06. Severability........................................................................39 10.07. Force Majeure.......................................................................40 10.08. Headings............................................................................40 10.09. Survival of Covenants...............................................................40 10.10. Waivers of Default..................................................................40 10.11. Specific Performance................................................................40 10.12. Amendments..........................................................................40 10.13. Interpretation......................................................................41 10.14. Disputes............................................................................41 10.15. Exclusivity of Tax Sharing Agreement................................................42
ii 4 SEPARATION AND DISTRIBUTION AGREEMENT THIS SEPARATION AND DISTRIBUTION AGREEMENT, dated as of November __, 1999, is by and among Allegheny Teledyne Incorporated, a Delaware corporation ("ATI"), TDY Holdings, LLC, a Delaware limited liability company the sole member of which is ATI ("Holdings"), Teledyne Industries, Inc., a California corporation and an indirect wholly owned subsidiary of ATI ("TII"), and Teledyne Technologies Incorporated, a Delaware corporation and wholly owned subsidiary of TII ("Teledyne Technologies"). Capitalized terms used herein and not otherwise defined shall have the respective meanings assigned to them in Article I hereof. WHEREAS, the Board of Directors of ATI has determined that it is in the best interests of ATI and its stockholders to separate ATI's existing businesses into three independent businesses; and WHEREAS, in furtherance of the foregoing, it is appropriate and desirable to transfer the Teledyne Technologies Assets to Teledyne Technologies and to cause Teledyne Technologies to assume the Teledyne Technologies Liabilities, all as more fully described in this Agreement and the Ancillary Agreements; and WHEREAS, ATI intends, subject to completion of the transactions contemplated hereby (including the foregoing transfer of Teledyne Technologies Assets and assumption of Teledyne Technologies Liabilities) and to the other terms of this Agreement and to further action by its Board of Directors, to effect the Distribution; and WHEREAS, the Form 10 Registration Statement has become effective under the Exchange Act; and WHEREAS, ATI has received a private letter ruling from the Internal Revenue Service to the effect that, among other things, the Distribution will qualify as a tax-free distribution for federal income tax purposes under Section 355 of the Code; and WHEREAS, the Distribution is to be followed by the Public Offering; and WHEREAS, it is expected that, following certain transfers of other Assets and assignments and assumptions of other Liabilities, ATI will distribute to its stockholders all of the capital stock of Water Pik Technologies, Inc. ("Water Pik") held directly or indirectly by ATI and that, in connection therewith, ATI and Water Pik have entered into agreements, including the Water Pik Separation and Distribution Agreement, to address matters relating to the Water Pik Distribution; and WHEREAS, it is appropriate and desirable to set forth the principal corporate transactions required to effect the Separation, the Distribution and the Public Offering and certain other agreements that will govern certain matters relating to the Separation, the Distribution and the Public Offering and the relationships of ATI and Teledyne Technologies and their respective Subsidiaries following the Separation and the Distribution; 5 NOW, THEREFORE, the parties, intending to be legally bound, agree as follows: ARTICLE I DEFINITIONS For the purpose of this Agreement the following terms shall have the following meanings: 1.01 ACTION means any demand, action, suit, countersuit, arbitration, inquiry, proceeding or investigation by or before any federal, state, local, foreign or international Governmental Authority or any arbitration or mediation tribunal. 1.02 AFFILIATE of any Person means a Person that controls, is controlled by, or is under common control with such Person. As used herein, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such entity, whether through ownership of voting securities or other interests, by contract or otherwise. 1.03 AGENT means the distribution agent to be appointed by ATI to distribute to the stockholders of ATI the shares of Teledyne Technologies Common Stock held by ATI pursuant to the Distribution. 1.04 AGREEMENT means this Separation and Distribution Agreement, including all of the Schedules hereto. 1.05 ANCILLARY AGREEMENTS means the deeds, lease assignments and assumptions, leases, subleases and sub-subleases, subscription or contribution agreements, stock powers, and the supplemental and other agreements and instruments related thereto contemplated by Article II, including the Brown Transfer and Assumption Agreement, the Purchase and Sale Agreements, the Employee Benefits Agreement, the Interim Services Agreement, the Trademark License Agreement, the Patent Assignments and related agreements regarding powers of attorney and the Tax Sharing Agreement. 1.06 ASSETS means assets, properties and rights (including goodwill), wherever located (including in the possession of vendors or other third parties or elsewhere), whether real, personal or mixed, tangible, intangible or contingent, in each case whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any Person, including the following: (a) all accounting and other books, records and files whether in paper, microfilm, microfiche, computer tape or disc, magnetic tape or any other form; (b) all apparatus, computers and other electronic data processing equipment, fixtures, machinery, equipment, furniture, office equipment, automobiles, trucks, rolling stock, vessels, motor vehicles and other transportation equipment, special and general tools, test devices, prototypes and models and other tangible personal property; 2 6 (c) all inventories of materials, parts, raw materials, supplies, work-in-process and finished goods and products; (d) all interests in real property of whatever nature, including easements, whether as owner, lessor, sublessor, lessee, sublessee or otherwise; (e) all interests in any capital stock or other equity interests of any Subsidiary or any other Person, all bonds, notes, debentures or other securities issued by any Subsidiary or any other Person, all loans, advances or other extensions of credit or capital contributions to any Subsidiary or any other Person and all other investments in securities of any Person; (f) all license agreements, leases of personal property, open purchase orders for raw materials, supplies, parts or services, unfilled orders for the manufacture and sale of products and other contracts, agreements or commitments; (g) all deposits, letters of credit and performance and surety bonds; (h) Information, including that prepared by consultants and other parties; (i) all domestic and foreign patents, copyrights, trade names, domain names, trademarks, service marks and registrations and applications for any of the foregoing, mask works, trade secrets, inventions, other proprietary information and licenses from third Persons granting the right to use any of the foregoing ("Intellectual Property"); (j) all computer applications, programs and other software, including operating software, network software, firmware, middleware, internet web pages, design software, design tools, systems documentation and instructions; (k) all cost information, sales and pricing data, customer prospect lists, supplier records, customer and supplier lists, customer and vendor data, correspondence and lists, product literature, artwork, design, development and manufacturing files, vendor and customer drawings, formulations and specifications, quality records and reports and other books, records, studies, surveys, reports, plans and documents; (l) all prepaid expenses, trade accounts and other accounts and notes receivables; (m) all rights under contracts or agreements, all claims or rights against any Person arising from the ownership of any Asset, all rights in connection with any bids or offers and all related claims, choses in action or similar rights, whether accrued or contingent, including any claims of infringement of Intellectual Property against third parties; (n) all rights as a named insured under insurance policies and all rights in the nature of insurance, indemnification or contribution; (o) all licenses, permits, approvals and authorizations which have been issued by any Governmental Authority; 3 7 (p) cash or cash equivalents, bank accounts, lock boxes and other deposit agreements; and (q) interest rate, currency, commodity or other swap, collar, cap or other hedging or similar agreements or arrangements. 1.07 ATI AUTOMOBILE POLICIES means those ATI Policies that (i) insure Teledyne Technologies or any other member of the Teledyne Technologies Group, and (ii) provide automobile insurance. 1.08 ATI COMMON STOCK means the Common Stock, par value $0.10 per share, of ATI. 1.09 ATI GENERAL LIABILITY POLICIES means those ATI Policies that (i) insure Teledyne Technologies or any other member of the Teledyne Technologies Group, and (ii) provide general liability, public liability, or comprehensive general liability insurance. 1.10 ATI GROUP means ATI and each Person (other than any member of the Teledyne Technologies Group or the Water Pik Group) that is an Affiliate of ATI immediately after the Effective Time. 1.11 ATI INDEMNITEES has the meaning set forth in Section 5.02. 1.12 ATI LIABILITIES means all Liabilities of ATI other than Teledyne Technologies Liabilities and Water Pik Liabilities. 1.13 ATI POLICIES means policies of insurance that have been issued to, or in favor of, ATI or Subsidiaries of ATI. 1.14 ATI PRODUCT LIABILITY POLICIES means those ATI Policies that (i) insure Teledyne Technologies or any other member of the Teledyne Technologies Group, and (ii) provide product liability insurance, other than aircraft products liability insurance. 1.15 ATI WORKERS COMPENSATION POLICIES means those ATI Policies that (i) insure Teledyne Technologies or any other member of the Teledyne Technologies Group, and (ii) provide workers compensation insurance. 1.16 BROWN means Teledyne Brown Engineering, Inc., a Delaware corporation and wholly owned subsidiary of Teledyne Technologies. 1.17 BROWN ASSETS means those Teledyne Technologies Assets described in the Brown Transfer and Assumption Agreement. 1.18 BROWN LIABILITIES means those Teledyne Technologies Liabilities described in the Brown Transfer and Assumption Agreement. 4 8 1.19 BROWN TRANSFER AND ASSUMPTION AGREEMENT means the Asset Transfer and Liabilities Assumption Agreement, dated as of the date hereof, between Teledyne Technologies and Brown. 1.20 CODE means the Internal Revenue Code of 1986, as amended. 1.21 COMMISSION means the Securities and Exchange Commission. 1.22 CONSENTS means any consents, waivers or approvals from, or notification requirements to, any third parties. 1.23 DESIGNATED OFFICERS means, (i) in the case of ATI, the Senior Vice President, General Counsel and Secretary of ATI or his successor, and (ii) in the case of Teledyne Technologies, the Senior Vice President, General Counsel and Secretary of Teledyne Technologies or his successor. 1.24 DGCL means the Delaware General Corporation Law, as amended. 1.25 DISPUTES has the meaning set forth in Section 10.14. 1.26 DISTRIBUTION means the distribution by ATI on a pro rata basis to holders of ATI Common Stock of all of the outstanding shares of Teledyne Technologies Common Stock. 1.27 DISTRIBUTION DATE means the date on which the Distribution occurs. 1.28 EFFECTIVE TIME means 5:00 p.m., Eastern Standard Time or Eastern Daylight Time (whichever shall be then in effect), on the Distribution Date. 1.29 EMPLOYEE BENEFITS AGREEMENT means the Employee Benefits Agreement, dated as of the date hereof, by and between ATI and Teledyne Technologies. 1.30 ENVIRONMENTAL LAW means any federal, state, local, foreign or international statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, common law (including tort and environmental nuisance law), legal doctrine, order, judgment, decree, injunction, requirement or agreement with any Governmental Authority, now or hereafter in effect relating to health, safety, pollution or the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or to emissions, discharges, releases or threatened releases of any substance currently or at any time hereafter listed, defined, designated or classified as hazardous, toxic, waste, radioactive or dangerous, or otherwise regulated, under any of the foregoing, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of any such substances, including the Comprehensive Environmental Response, Compensation and Liability Act, the Superfund Amendments and Reauthorization Act and the Resource Conservation and Recovery Act and comparable provisions in state, local, foreign or international law. 1.31 ENVIRONMENTAL LIABILITIES means all Liabilities relating to, arising out of or resulting from any Environmental Law or contract or agreement relating to environmental, 5 9 health or safety matters (including all removal, remediation or cleanup costs, investigatory costs, governmental response costs, natural resources damages, property damages, personal injury damages, costs of compliance with any settlement, judgment or other determination of Liability and indemnity, contribution or similar obligations) and all costs and expenses (including allocated costs of in-house counsel and other personnel), interest, fines, penalties or other monetary sanctions in connection therewith. 1.32 EXCHANGE ACT means the Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder. 1.33 EXCLUDED ASSETS has the meaning set forth in Section 2.02(b). 1.34 EXPENSE FACTORS means expense factors or similar factors or multipliers set forth in policies of insurance or related agreements applicable to liabilities, losses or defense costs insured thereunder that are subject to a Self-Insurance Obligation. 1.35 FINANCING FACILITY means the Credit Agreement, dated October 29, 1999, among ATI, Teledyne Technologies, Bank of America, N.A., as Administrative Agent, Swing Line Lender and Issuing Lender, and the other financial institutions party thereto, and any substitute or successor credit facility. 1.36 FORM 10 REGISTRATION STATEMENT means the registration statement on Form 10 filed under the Exchange Act, pursuant to which Teledyne Technologies Common Stock will be registered under the Exchange Act following the Distribution, together with all amendments thereto. 1.37 GOVERNMENTAL APPROVALS means any notices, reports or other filings to be made, or any consents, registrations, approvals, permits or authorizations to be obtained from, any Governmental Authority. 1.38 GOVERNMENTAL AUTHORITY shall mean any federal, state, local, foreign or international court, government, department, commission, board, bureau, agency, official or other regulatory, administrative or governmental authority. 1.39 GROUP means the ATI Group, the Teledyne Technologies Group or the Water Pik Group, as the context requires. 1.40 INCURRED LOSSES means the sum of paid losses (indemnity and loss adjustment expenses) and reserves for unpaid losses. 1.41 INDEMNIFYING PARTY has the meaning set forth in Section 5.04(a). 1.42 INDEMNITEE has the meaning set forth in Section 5.04(a). 1.43 INDEMNITY PAYMENT has the meaning set forth in Section 5.04(a). 6 10 1.44 INDUSTRIES INTERNATIONAL means Teledyne Industries International, Inc., a California corporation. 1.45 INDUSTRIES STOCK INTERESTS means an 83% common stock interest in Ensambles de Precision, S.A. de C.V. 1.46 INFORMATION means information, whether or not patentable or copyrightable, in written, oral, electronic or other tangible or intangible forms, stored in any medium, including studies, reports, records, books, contracts, instruments, surveys, discoveries, ideas, concepts, know-how, analyses, techniques, designs, specifications, drawings, blueprints, diagrams, models, operating and maintenance manuals, prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes, computer programs or other software, marketing plans, customer names, communications by or to attorneys (including attorney-client privileged communications), memos and other materials prepared by attorneys or under their direction (including attorney work product), and other technical, financial, employee or business information or data, whether prepared by or for any affected party. 1.47 INFORMATION STATEMENT means the Information Statement forming a part of the Form 10 Registration Statement to be mailed to holders of ATI Common Stock in connection with the Distribution. 1.48 INITIAL MEDIATION PERIOD has the meaning set forth in Section 10.14. 1.49 INSURANCE POLICIES means the insurance policies written by insurance carriers unaffiliated with ATI pursuant to which Teledyne Technologies or one or more of its Subsidiaries (or their respective officers or directors) will be insured parties after the Effective Time. 1.50 INSURANCE PROCEEDS means those monies: (a) received by an insured from an insurance carrier; (b) paid by an insurance carrier on behalf of the insured; or (c) received (including by way of set off) from any third party in the nature of insurance, contribution or indemnification in respect of any Liability; in any such case net of any applicable premium adjustments (including reserves and retrospectively rated premium adjustments) and net of any costs or expenses (including allocated costs of in-house counsel and other personnel) incurred in the collection thereof. 1.51 INTERIM SERVICES AGREEMENT means the Interim Services Agreement, dated as of the date hereof, by and between ATI and Teledyne Technologies. 1.52 LIABILITIES means any and all losses, claims, charges, debts, demands, actions, causes of action, suits, damages, obligations, payments, costs and expenses, sums of money, accounts, reckonings, bonds, specialties, indemnities and similar obligations, exonerations, 7 11 covenants, contracts, controversies, agreements, promises, doings, omissions, variances, guarantees, make whole agreements and similar obligations, and other liabilities, including all contractual obligations, whether absolute or contingent, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising, and including those arising under any law, rule, regulation, Action, threatened or contemplated Action (including the costs and expenses of demands, assessments, judgments, settlements and compromises relating thereto and reasonable attorneys' fees and any and all costs and expenses (including allocated costs of in-house counsel and other personnel), whatsoever incurred in investigating, preparing or defending against any such Actions or threatened or contemplated Actions), order or consent decree of any Governmental Authority or any award of any arbitrator or mediator of any kind, and those arising under any contract, commitment or undertaking, including those arising under this Agreement or any Ancillary Agreement, in each case, whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any Person. 1.53 LICENSE AGREEMENT means the License Agreement, dated as of the date hereof, by and between TII and Teledyne Technologies. 1.54 NYSE means The New York Stock Exchange, Inc. 1.55 NON-TELEDYNE TECHNOLOGIES ASSETS means any Assets of ATI or any of its Affiliates (including any member of the Water Pik Group) other than the Teledyne Technologies Assets. 1.56 PATENT ASSIGNMENTS means the Patent Assignments, effective as of the Distribution, executed and delivered by TTI to Teledyne Technologies. 1.57 PER CASE MAXIMUM means (i) with respect to any single occurrence covered under ATI General Liability Policies, ATI Product Liability Policies, and ATI Automobile Policies, $100,000 (inclusive of indemnity and loss adjustment expenses multiplied by applicable Expense Factors) and (ii) with respect to any single occurrence covered by ATI Workers Compensation policies, $150,000 (inclusive of indemnity and loss adjustment expenses multiplied by applicable Expense Factors). 1.58 PERSON means an individual, a general or limited partnership, a corporation, a trust, a joint venture, an unincorporated organization, a limited liability entity, any other entity and any Governmental Authority. 1.59 POOLED LOSS COSTS ALLOCABLE TO TELEDYNE TECHNOLOGIES means the share allocated to Teledyne Technologies by virtue of its participation in a pooling arrangement among ATI divisions applicable to claims that (i) are covered under ATI General Liability Policies, ATI Product Liability Policies, ATI Automobile Policies, and ATI Workers Compensation Policies; (ii) exceed the Per Case Maximum; and (iii) are within a policy's deductible or other form of self-insurance, which allocation to Teledyne Technologies will be based upon the same or substantially similar to those factors as have been applied immediately before the Distribution Date. 8 12 1.60 PRIME RATE means the rate which PNC Bank, N.A., Pittsburgh, Pennsylvania (or any successor thereto or other commercial bank agreed to by the parties hereto) announces from time to time as its prime lending rate, as in effect from time to time. 1.61 PUBLIC OFFERING means the underwritten public offering by Teledyne Technologies of shares of Teledyne Technologies Common Stock pursuant to the Public Offering Registration Statement and as contemplated by the Tax Sharing Agreement. 1.62 PUBLIC OFFERING REGISTRATION STATEMENT means the registration statement to be filed by Teledyne Technologies under the Securities Act of 1933, as amended, pursuant to which the offering and sale of shares of Teledyne Technologies Common Stock to be issued in the Public Offering will be registered, together with all amendments thereto. 1.63 PURCHASE AND SALE AGREEMENTS means (i) the Purchase and Sale Agreement, dated as of the date hereof, between Brown and Teledyne Environmental, (ii) the Purchase and Sale Agreement, dated as of the date hereof, between Teledyne Ltd. and Teledyne Limited, (iii) the Purchase and Sale Agreement, dated as of the date hereof, between Teledyne Technologies and Industries International, and (iv) the Purchase and Sale Agreement, dated as of the date hereof, between Industries International and Teledyne Investment. 1.64 RECORD DATE means the close of business on the date determined by the ATI Board of Directors as the record date for determining stockholders of ATI entitled to receive shares of Teledyne Technologies Common Stock in the Distribution. 1.65 RIGHTS means the Rights to be distributed by Teledyne Technologies in respect of Teledyne Technologies Common Stock in accordance with Section 3.02 hereof and pursuant to the Rights Agreement between Teledyne Technologies and ChaseMellon Shareholder Services, L.L.C. 1.66 RULING REQUEST means the request for ruling (including all exhibits), as amended and supplemented, under Section 355 and other provisions of the Code, originally filed on behalf of ATI on April 6, 1999 in respect of the Distribution. 1.67 SECURITY INTEREST means any mortgage, security interest, pledge, lien, charge, claim, option, right to acquire, voting or other restriction, right-of-way, covenant, condition, easement, encroachment, restriction on transfer, or other encumbrance of any nature whatsoever. 1.68 SELF INSURANCE OBLIGATION means an obligation by one or more insureds to pay or reimburse to the issuers of an insurance policy (whether by way of deductible, retrospective premium, premium adjustment, self-insured retention or other form of self-insurance), indemnity, allocated loss expense, and other proceeds multiplied by Expense Factors, if any. 1.69 SEPARATION means the transfer of the Teledyne Technologies Assets to Teledyne Technologies and its Subsidiaries and the assumption by Teledyne Technologies and its 9 13 Subsidiaries of the Teledyne Technologies Liabilities, all as more fully described in this Agreement and the Ancillary Agreements. 1.70 SUBSIDIARY of any Person means any corporation or other organization whether incorporated or unincorporated of which at least a majority of the securities or interests having by the terms thereof ordinary voting power to elect at least a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such Person or by any one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries; provided, however that no Person that is not directly or indirectly wholly owned by any other Person shall be a Subsidiary of such other Person unless such other Person controls, or has the right, power or ability to control, that Person. 1.71 TAX SHARING AGREEMENT means the Tax Sharing and Indemnification Agreement, dated as of the date hereof, as the same may be amended, by and between ATI and Teledyne Technologies. 1.72 TAXES has the meaning set forth in the Tax Sharing Agreement. 1.73 TELEDYNE ENVIRONMENTAL means Teledyne Environmental, Inc., a California corporation wholly owned by TI. 1.74 TELEDYNE ENVIRONMENTAL ASSETS means those certain assets of Teledyne Environmental described in the Purchase and Sale Agreement, dated as of the date hereof, between Brown and Teledyne Environmental. 1.75 TELEDYNE INVESTMENT means Teledyne Investment, Inc., a Delaware corporation. 1.76 TELEDYNE LIMITED means Teledyne Limited, a company organized under the laws of the United Kingdom and an indirect wholly owned subsidiary of TI. 1.77 TELEDYNE LIMITED ASSETS means those certain assets of Teledyne Limited described in the Purchase and Sale Agreement, dated as of the date hereof, between TDY Limited and Teledyne Limited. 1.78 TELEDYNE LTD means Teledyne Ltd., a corporation organized under the laws of the United Kingdom and wholly owned by Teledyne Technologies. 1.79 TELEDYNE TECHNOLOGIES ASSETS has the meaning set forth in Section 2.02(a). 1.80 TELEDYNE TECHNOLOGIES BALANCE SHEET means the consolidated balance sheet of Teledyne Technologies, including the notes thereto, as of September 30, 1999. 1.81 TELEDYNE TECHNOLOGIES BUSINESS means the business and operations of the divisions and Subsidiaries of TI or TII comprising Teledyne Electronic Technologies, 10 14 Teledyne Brown Engineering, Teledyne Continental Motors and Teledyne Cast Parts and any business or operation conducted by Teledyne Technologies or any Affiliate of Teledyne Technologies at any time on or after the Distribution Date. 1.82 TELEDYNE TECHNOLOGIES COMMON STOCK means the Common Stock, $.01 par value per share, of Teledyne Technologies and, after the distribution of Rights referred to in Section 3.02, shall include the associated Rights. 1.83 TELEDYNE TECHNOLOGIES CONTRACTS means the following contracts and agreements to which TII or any of its Affiliates is a party or by it or any of its Affiliates or any of their respective Assets is bound, whether as of the date hereof or prior to or at the Effective Time, and whether or not in writing, except for any such contract or agreement that is expressly contemplated to be retained by any member of the ATI Group pursuant to any provision of this Agreement or any Ancillary Agreement: (a) any contract or agreement entered into in the name of, or expressly on behalf of, any division, business unit or member of the Teledyne Technologies Group; (b) any contract or agreement that relates exclusively to the Teledyne Technologies Business; (c) federal, state and local government and other contracts and agreements that relate exclusively to the Teledyne Technologies Business; (d) any contract or agreement representing capital or operating equipment lease obligations reflected on the Teledyne Technologies Balance Sheet, including obligations as lessee under those contracts or agreements listed on Schedule 1.83(d) (as such Schedule may be supplemented after the date hereof and prior to the Effective Time to assign capital and operating equipment lease obligations that relate exclusively to the Teledyne Technologies Business and that were, are or may be executed and delivered after the date of the Teledyne Technologies Balance Sheet); (e) any contract or agreement that is otherwise expressly contemplated pursuant to this Agreement or any of the Ancillary Agreements to be assigned to Teledyne Technologies or any member of the Teledyne Technologies Group; (f) any guarantee, indemnity, representation, warranty or other Liability of any member of the Teledyne Technologies Group or the ATI Group in respect of any other Teledyne Technologies Contract, any Teledyne Technologies Liability or the Teledyne Technologies Business (including guarantees of financing incurred by customers or other third parties in connection with purchases of products or services from the Teledyne Technologies Business); and (g) the contracts, agreements and other documents listed or described on Schedule 1.83(g). 11 15 1.84 TELEDYNE TECHNOLOGIES GROUP means Teledyne Technologies, each Subsidiary of Teledyne Technologies and each other Person that is contemplated to be controlled directly or indirectly by Teledyne Technologies as of the Effective Time. 1.85 TELEDYNE TECHNOLOGIES INDEMNITEES has the meaning set forth in Section 5.03(a). 1.86 TELEDYNE TECHNOLOGIES LIABILITIES has the meaning set forth in Section 2.03. 1.87 THIRD PARTY CLAIM has the meaning set forth in Section 5.05(a). 1.88 TI means Teledyne, Inc., a Delaware corporation. 1.89 TI LIQUIDATION means the dissolution and liquidation of TI in accordance with applicable provisions of the DGCL and Section 332 of the Code, as a result of which Holdings will own all of the outstanding capital stock of TII. 1.90 TRADEMARK, SERVICE MARK AND TRADE DRESS ASSIGNMENT means the Trademark, Service Mark and Trade Dress Assignment, dated as of the date hereof, by TII to Teledyne Technologies. 1.91 UNDERWRITERS means the managing underwriters for the Public Offering. 1.92 UNDERWRITING AGREEMENT means an underwriting agreement in customary form to be entered into among Teledyne Technologies and the Underwriters with respect to the Public Offering. 1.93 UNPAID LOSSES means liabilities and losses, including indemnity payments and allocated loss expenses, that are subject to a Self Insurance Obligation and that, as of the Distribution Date have not been paid by Teledyne Technologies or a member of Teledyne Technologies Group and that do not appear on Schedule 1.93. 1.94 WATER PIK COMMON STOCK means the Common Stock, par value $.01 per share, of Water Pik. 1.95 WATER PIK DISTRIBUTION means the distribution by ATI on a pro rata basis to holders of ATI Common Stock of all of the outstanding shares of Water Pik Common Stock owned by ATI. 1.96 WATER PIK GROUP means Water Pik, each Subsidiary of Water Pik and each other Person that is contemplated to be controlled directly or indirectly by Water Pik at the time of the Water Pik Distribution. 1.97 WATER PIK LIABILITIES has the meaning assigned to that term in the Water Pik Separation and Distribution Agreement. 12 16 1.98 WATER PIK SEPARATION AND DISTRIBUTION AGREEMENT means the Separation and Distribution Agreement, dated as of the date hereof, among ATI, Holdings, TII and Water Pik. 1.99 YEAR 2000 COMPLIANT means, with respect to an Asset, that such Asset will (i) accurately process date/time data (including, but not limited to, calculating, comparing, sorting, sequencing and calendar generation), including single century formulas and multi-century formulas, from, into and between the twentieth and twenty-first centuries and the years 1999 and 2000, including leap year calculations, and will not malfunction or generate incorrect values or invalid results involving such dates/times; (ii) accurately interface with other systems, as appropriate, in order to supply, receive or process dates/times and other data, to the extent that other information technology properly exchanges data with it; (iii) provide that date/time-related functionalities, date/time fields and any user input interfaces include a four digit year format and/or other indication of century, as applicable; and (iv) not cause any other Asset that is otherwise Year 2000 Compliant to fail to be Year 2000 Compliant. ARTICLE II THE SEPARATION 2.01 TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES. (a) TII hereby assigns, transfers, conveys and delivers to Teledyne Technologies, and agrees to cause its applicable Subsidiaries to assign, transfer, convey and deliver to Teledyne Technologies, and Teledyne Technologies hereby accepts from TII and its Subsidiaries, in each case effective immediately prior to the transactions contemplated by Section 2.15 and on the Distribution Date, all of TII's and its applicable Subsidiaries' respective right, title and interest in all Teledyne Technologies Assets. (b) Effective immediately prior to the transactions contemplated by Section 2.15 and on the Distribution Date, Teledyne Technologies hereby assumes and agrees faithfully to perform, satisfy, discharge and fulfill all the Teledyne Technologies Liabilities in accordance with their respective terms. Teledyne Technologies shall be responsible for all Teledyne Technologies Liabilities, regardless of when or where such Liabilities arose or arise or whether the facts on which they are based occurred prior to or subsequent to the date hereof, regardless of where or against whom such Liabilities are asserted or determined or whether asserted or determined prior to the date hereof, and regardless of whether arising from or alleged to arise from negligence, recklessness, violation of law, fraud or misrepresentation (whether based on tort, contract, statute or otherwise) by any member of the ATI Group or the Teledyne Technologies Group or any of their respective directors, officers, employees, agents, Subsidiaries or Affiliates. (c) In the event that at any time or from time to time after the Distribution Date any party hereto (or any member of such party's respective Group), shall receive or otherwise possess any Asset that is allocated to any other Person pursuant to this Agreement or any Ancillary Agreement, such party or member shall promptly transfer, or cause to be transferred, such Asset 13 17 to the Person so entitled thereto. Prior to any such transfer, the Person receiving or possessing such Asset shall hold such Asset in trust for any such other Person. 2.02 TELEDYNE TECHNOLOGIES ASSETS. (a) For purposes of this Agreement, "Teledyne Technologies Assets" shall mean (without duplication): (i) all Assets reflected in the Teledyne Technologies Balance Sheet as Assets of Teledyne Technologies and its Subsidiaries, subject to any dispositions of any such Assets subsequent to the date of the Teledyne Technologies Balance Sheet; (ii) all Assets acquired by or for the exclusive benefit of Teledyne Technologies subsequent to the date of the Teledyne Technologies Balance Sheet and prior to the Effective Time that would have been reflected in the Teledyne Technologies Balance Sheet as Assets of Teledyne Technologies had they been owned on the date of the Teledyne Technologies Balance Sheet; (iii) subject to Section 6.01, any rights of any member of the Teledyne Technologies Group under any of the Insurance Policies, including any rights thereunder arising after the Distribution Date in respect of any Insurance Policies that are occurrence policies; and (iv) (A) any Assets that any Ancillary Agreement contemplates will be transferred to any member of the Teledyne Technologies Group, (B) any Teledyne Technologies Contracts and (C) all issued and outstanding capital stock of the Subsidiaries, the partnership interests and other Assets of TII listed on Schedule 2.02(a)(iv). Notwithstanding the foregoing, the Teledyne Technologies Assets shall not in any event include the Excluded Assets referred to in Section 2.02(b) below. (b) For the purposes of this Agreement, "Excluded Assets" shall mean: (i) the Assets listed or described on Schedule 2.02(b)(i); and (ii) any and all Assets that are expressly contemplated by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) as Assets to be retained by ATI or any other member of the ATI Group (including the Water Pik Group). (c) Teledyne Technologies acknowledges and agrees that the Assets reflected as Teledyne Technologies Assets in the Teledyne Technologies Balance Sheet are so reflected based on the books and records maintained, and other information supplied, by Teledyne Technologies personnel, and that the Teledyne Technologies Assets constitute all of the Assets necessary to operate the Teledyne Technologies Business as presently conducted. 14 18 2.03 TELEDYNE TECHNOLOGIES LIABILITIES. For the purposes of this Agreement, "Teledyne Technologies Liabilities" shall mean (without duplication): (i) any and all Liabilities that are expressly contemplated by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) as Liabilities to be assumed by Teledyne Technologies or any member of the Teledyne Technologies Group, and all agreements, obligations and Liabilities of any member of the Teledyne Technologies Group under this Agreement or any of the Ancillary Agreements; (ii) all Liabilities, including any employee-related Liabilities and Environmental Liabilities, relating to, arising out of or resulting from: (A) the operation of the Teledyne Technologies Business as conducted at any time prior to, at or after the Effective Time (including any Liability relating to, arising out of or resulting from the design, manufacture and sale of products or services of the Teledyne Technologies Business or from any act or failure to act by any director, officer, employee, agent or representative of any Person (whether or not such act or failure to act is or was within such Person's authority)); (B) the operation of any business conducted by any member of the Teledyne Technologies Group at any time after the Effective Time (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative of any Person (whether or not such act or failure to act is or was within such Person's authority)); or (C) any Teledyne Technologies Assets (including any Teledyne Technologies Contracts and any real property and leasehold interests) or ownership of any Teledyne Technologies Assets at any time prior to, at or after the Effective Time; in any such case whether arising before, on or after the Effective Time; (iii) all Liabilities relating to, arising out of or resulting from the Financing Facility; (iv) all Liabilities relating to, arising out of or resulting from any of the terminated, divested or discontinued businesses and operations listed or described on Schedule 2.03(a)(iv); (v) all Liabilities reflected as liabilities or obligations of Teledyne Technologies in the Teledyne Technologies Balance Sheet, subject to any discharge of such Liabilities subsequent to the date of the Teledyne Technologies Balance Sheet, and all liabilities or obligations of Teledyne Technologies incurred subsequent to the date of the Teledyne Technologies Balance Sheet that would have been reflected in the Teledyne Technologies Balance Sheet had they been incurred as of the date of the Teledyne Technologies Balance Sheet; (vi) any Liabilities relating to, arising out of or resulting from any infringement of any intellectual property of any third party, including but not limited to patent rights, trademark and service mark rights (registered and common law), trade dress rights, copyrights, misappropriation of trade secret, based upon or resulting from the operation of the Teledyne Technologies 15 19 Business and regardless of whether said infringement occurred prior to, on or after the Distribution Date; (vii) all obligations of ATI or Teledyne Technologies under the advance agreement made and entered into the 15th day of July, 1999, by and between the United States Department of Defense on behalf of the United States of America and ATI and any other advance agreements that such parties may enter into prior to the Distribution Date; (viii) any and all guarantees by ATI or any member of the ATI Group of obligations to assure payment or performance by or other Liabilities of the Teledyne Technologies Group or the Teledyne Technologies Business; and (ix) any Liabilities relating to, arising out of, or resulting from any of the Teledyne Technologies Assets that are not Year 2000 Compliant. 2.04 TERMINATION OF AGREEMENTS. (a) Except as set forth in Section 2.04(b), in furtherance of the releases and other provisions of Section 5.01 hereof, effective as of the Distribution Date, Teledyne Technologies and each member of the Teledyne Technologies Group, on the one hand, and each of ATI and the respective members of the ATI Group, on the other hand, hereby terminate any and all agreements, arrangements, commitments or understandings, whether or not in writing, between or among Teledyne Technologies and/or any member of the Teledyne Technologies Group, on the one hand, and ATI or any member of the ATI Group, on the other hand, effective as of the Effective Time, including (except as set forth in Schedule 2.04(a)) any intercompany accounts payable or accounts receivable accrued as of the Effective Time that are reflected in the books and records of the parties or otherwise documented in writing in accordance with past practices; provided, however, to the extent that the termination of any such agreement, arrangement, commitment or understanding is inconsistent with any Ancillary Agreement, such termination shall be effective as of the date of effectiveness of the applicable Ancillary Agreement. No such terminated agreement, arrangement, commitment or understanding (including any provision thereof which purports to survive termination) shall be of any further force or effect after the Effective Time (or, to the extent contemplated by the proviso to the immediately preceding sentence, after the effective time of the applicable Ancillary Agreement). Each party shall, at the reasonable request of any other party, take, or cause to be taken, such other actions as may be necessary to effect the foregoing. (b) The provisions of Section 2.04(a) shall not apply to any of the following agreements, arrangements, commitments or understandings (or to any of the provisions thereof): (i) this Agreement and the Ancillary Agreements (and each other agreement or instrument expressly contemplated by this Agreement or any Ancillary Agreement to be entered into by any of the parties hereto or any of the members of their respective Groups); (ii) any agreements, arrangements, commitments or understandings listed or described on Schedule 2.04(b)(ii); (iii) any agreements, arrangements, commitments or understandings to which any Person other than the parties hereto and their respective Affiliates is a party (it being understood that to the extent that the rights and obligations of the parties and the members of their respective Groups under any such agreements, arrangements, commitments or understandings constitute Teledyne Technologies Assets or Teledyne Technologies Liabilities, they shall be assigned and assumed 16 20 pursuant to Section 2.01); and (iv) any other agreements, arrangements, commitments or understandings that this Agreement or any Ancillary Agreement expressly contemplates will survive the Effective Time. 2.05 DOCUMENTS RELATING TO TRANSFER OF REAL PROPERTY INTERESTS AND TANGIBLE PROPERTY LOCATED THEREON. In furtherance of the assignment, transfer and conveyance of Teledyne Technologies Assets and the assumption of Teledyne Technologies Liabilities set forth in Section 2.01(a) and (b), simultaneously with the execution and delivery hereof or as promptly as practicable thereafter, each of TII and Teledyne Technologies or their applicable Subsidiaries is executing and delivering or will execute and deliver such deeds, lease assignments and assumptions, leases, subleases and sub-subleases as may be necessary to effectively transfer any real property and leasehold interests forming part of the Teledyne Technologies Assets and conform to any laws, regulations or usage applicable in the jurisdiction in which the relevant real property is located. 2.06 DOCUMENTS FURTHER EVIDENCING TRANSFERS OF ASSETS AND ASSUMPTION OF LIABILITIES. In furtherance of the assignment, transfer and conveyance of Teledyne Technologies Assets and the assumption of Teledyne Technologies Liabilities set forth in Section 2.01(a) and (b), (i) TII shall execute and deliver, and shall cause its Subsidiaries to execute and deliver, such further bills of sale, stock powers, certificates of title, assignments of contracts and other instruments of transfer, conveyance and assignment as and to the extent necessary to fully evidence the transfer, conveyance and assignment of all of TII's and its respective Subsidiaries' right, title and interest in and to the Teledyne Technologies Assets to Teledyne Technologies and (ii) Teledyne Technologies shall execute and deliver to TII and its Subsidiaries such further bills of sale, stock powers, certificates of title, assumptions of contracts and other instruments of assumption as and to the extent necessary to fully evidence the valid and effective assumption of the Teledyne Technologies Liabilities by Teledyne Technologies. 2.07 OTHER ANCILLARY AGREEMENTS. Effective as of the date hereof each of ATI, TII and Teledyne Technologies will execute and deliver, and cause any of their respective Subsidiaries that are parties thereto to execute and deliver all Ancillary Agreements to which it is a party. 2.08 DISCLAIMER OF REPRESENTATIONS AND WARRANTIES. Each of ATI (on behalf of itself and each member of ATI, including TII) and Teledyne Technologies (on behalf of itself and each member of the Teledyne Technologies Group) understands and agrees that, except as expressly set forth herein or in any Ancillary Agreement, no party to this Agreement, any Ancillary Agreement or any other agreement or document contemplated by this Agreement, any Ancillary Agreement or otherwise, is representing or warranting in any way as to the Assets, businesses or Liabilities transferred or assumed as contemplated hereby or thereby (including whether an Asset is Year 2000 Compliant), as to any consents or approvals required in connection therewith, as to the value or freedom from any Security Interests of, or any other matter concerning, any Assets of such party, or as to the absence of any defenses or rights of setoff or freedom from counterclaims with respect to any claim or other Asset, including any accounts receivable, of any party, or as to the legal sufficiency of any assignment, document or instrument delivered hereunder to convey title to any Asset or thing of value upon the execution, 17 21 delivery and filing hereof or thereof. Without limiting the scope of the foregoing, no party makes any representations or warranties as to the Intellectual Property sought to be transferred herein, including, without limitation, whether such Intellectual Property or any portion thereof is valid, enforceable, freely transferable, free and clear of liens (except permitted liens) or sufficient and complete in order to conduct the Teledyne Technologies Business, whether any party herein owns, has the exclusive right to use or has the ability to practice such Intellectual Property or any portion thereof, or whether such Intellectual Property or the operation of any aspect of the Teledyne Technologies Business infringes or conflicts in any way with any Intellectual Property right of any third party. Except as may expressly be set forth herein or in any Ancillary Agreement, all such Assets are being transferred on an "as is," "where is," "with all faults" basis (and, in the case of any real property, by means of a quitclaim or similar form deed or conveyance) and the respective transferees shall bear the economic and legal risks that any conveyance shall prove to be insufficient to vest in the transferee good and marketable title, free and clear of any Security Interest. Without limiting the foregoing, neither ATI nor any other party hereto (excluding Teledyne Technologies), or to any Ancillary Agreement, is making any representation or warranty to Teledyne Technologies or any other Person in respect of the Teledyne Technologies Balance Sheet, including in respect of the accuracy or presentation thereof, or the adequacy of accruals, reserves and other amounts reflected thereon. 2.09 FINANCING ARRANGEMENTS. Each of the parties hereto acknowledges that (a) ATI has arranged availability for up to $200 million in senior secured financing pursuant to the Financing Facility, (b) that ATI has, prior to the date hereof, incurred $100 million in indebtedness pursuant to such Financing Facility; and (c) that ATI has used, or will use prior to the Distribution Date, such indebtedness to refinance other outstanding indebtedness of ATI. Teledyne Technologies agrees that, following the Distribution Date, Teledyne Technologies will indemnify ATI (and all the other members of the ATI Group) and defend and hold such parties harmless from and against all the obligations of ATI (or Teledyne Technologies) arising under the Financing Facility (including the obligation to repay such $100 million in outstanding borrowings), with the effect that ATI (and all other members of the ATI Group) shall have no further liability or obligation under the Financing Facility. 2.10 GOVERNMENTAL APPROVALS AND CONSENTS. (a) To the extent that the Separation requires any Governmental Approvals or Consents, the parties will use all reasonable efforts to obtain any such Governmental Approvals and Consents. (b) If and to the extent that the valid, complete and perfected transfer or assignment (or novation of any federal government contract) to the Teledyne Technologies Group of any Teledyne Technologies Assets (or from the Teledyne Technologies Group of any Non-Teledyne Technologies Assets) would be a violation of applicable laws or require any Consent or Governmental Approval in connection with the Separation, then, unless ATI shall otherwise determine, the transfer or assignment to or from the Teledyne Technologies Group, as the case may be, of such Teledyne Technologies Assets or Non-Teledyne Technologies Assets, respectively, shall be automatically deemed deferred and any such purported transfer or assignment shall be null and void until such time as all legal impediments are removed and/or such Consents or Governmental Approvals have been obtained. Notwithstanding the foregoing, 18 22 such Asset shall be deemed a Teledyne Technologies Asset for purposes of determining whether any Liability is a Teledyne Technologies Liability. (c) If the transfer or assignment of any Assets intended to be transferred or assigned hereunder is not consummated prior to or at the Effective Time, whether as a result of the provisions of Section 2.10(b) or for any other reason, then the Person retaining such Asset shall thereafter hold such Asset for the use and benefit, insofar as reasonably possible, of the Person entitled thereto (at the expense of the Person entitled thereto). In addition, the Person retaining such Asset shall take such other actions as may be reasonably requested by the Person to whom such Asset is to be transferred in order to place such Person, insofar as reasonably possible, in the same position as if such Asset had been transferred as contemplated hereby and so that all the benefits and burdens relating to such Teledyne Technologies Assets (or such Non-Teledyne Technologies Assets, as the case may be), including possession, use, risk of loss, potential for gain, and dominion, control and command over such Assets, are to inure from and after the Effective Time to the Teledyne Technologies Group (or the ATI Group, as the case may be). (d) If and when the Consents and/or Governmental Approvals, the absence of which caused the deferral of transfer of any Asset pursuant to Section 2.10(b), are obtained, the transfer of the applicable Asset shall be effected in accordance with the terms of this Agreement and/or the applicable Ancillary Agreement. (e) The Person retaining an Asset due to the deferral of the transfer of such Asset shall not be obligated, in connection with the foregoing, to expend any money unless the necessary funds are advanced by the Person entitled to the Asset, other than reasonable out-of-pocket expenses, attorneys' fees and recording or similar fees, all of which shall be promptly reimbursed by the Person entitled to such Asset. 2.11 NOVATION OF ASSUMED TELEDYNE TECHNOLOGIES LIABILITIES. (a) Each of ATI, TII and Teledyne Technologies at the request of any of the others, shall use all reasonable efforts to obtain, or to cause to be obtained, any consent, substitution, approval or amendment required to novate (including with respect to any federal government contract) or assign all obligations under agreements, leases, licenses and other obligations or Liabilities, or to obtain in writing the unconditional release of all parties to such arrangements other than any member of the Teledyne Technologies Group, so that, in any such case, Teledyne Technologies and its Subsidiaries will be solely responsible for such Liabilities; provided, however, that no member of the ATI Group shall be obligated to pay any consideration therefor to any third party from whom such consents, approvals, substitutions and amendments are requested. (b) If ATI, TII or Teledyne Technologies is unable to obtain, or to cause to be obtained, any such required consent, approval, release, substitution or amendment, the applicable member of the ATI Group shall continue to be bound by such agreements, leases, licenses and other obligations and, unless not permitted by law or the terms thereof, Teledyne Technologies shall, as agent or subcontractor for ATI, TII or such other Person, as the case may be, pay, perform and discharge fully all the obligations or other Liabilities of ATI, TII or such other Person, as the case may be, thereunder from and after the date hereof. Teledyne Technologies shall indemnify and defend each ATI Indemnitee and hold each of them harmless against any 19 23 Liabilities arising in connection therewith. Each of ATI and TII, as the case may be, shall, without further consideration, pay and remit, or cause to be paid or remitted, to Teledyne Technologies promptly all money, rights and other consideration received by it or any member of its respective Group in respect of such performance (unless any such consideration is an Excluded Asset). If and when any such consent, approval, release, substitution or amendment shall be obtained or such agreement, lease, license or other rights or obligations shall otherwise become assignable or able to be novated, each of ATI and TII, as the case may be, shall thereafter assign, or cause to be assigned, all its rights, obligations and other Liabilities thereunder or any rights or obligations of any member of its respective Group to Teledyne Technologies without payment of further consideration and Teledyne Technologies shall, without the payment of any further consideration, assume such rights and obligations. 2.12 TRANSFER OF BROWN ASSETS AND ASSUMPTION OF BROWN LIABILITIES. Immediately following the transfer of Teledyne Technologies Assets and assumption of Teledyne Technologies Liabilities contemplated by Section 2.01, Teledyne Technologies shall contribute to Brown approximately $6,800,000 in cash and the Brown Assets and cause Brown to assume the Brown Liabilities, all in accordance with the Brown Transfer and Assumption Agreement. 2.13 CONSUMMATION OF PURCHASE AND SALE AGREEMENTS; INTERIM CONTRIBUTION. Immediately following the transfer of Assets and assumption of Liabilities contemplated by Section 2.12, the parties hereto will cause the transactions contemplated by the Purchase and Sale Agreements to be consummated, pursuant to which (i) Brown will purchase the Teledyne Environmental Assets from Teledyne Environmental for approximately $6,800,000 in cash, (ii) Teledyne Technologies Ltd. will purchase the Teledyne Limited Assets from Teledyne Limited for approximately $5,700,000 in cash, (iii) Teledyne Technologies will purchase the Industries Stock Interests from Industries International for approximately $200,000 in cash, and (iv) Teledyne Investment will purchase a 1% common stock interest in Ensambles de Precision, S.A. de C.V. from Industries International for approximately $2,000 in cash. 2.14 TI CONTRIBUTION AND LIQUIDATION. Prior to consummation of the transactions contemplated by Section 2.15, ATI will contribute to Holdings all of the outstanding capital stock of TI and the TI Liquidation will be effected. 2.15 INTERIM DISTRIBUTIONS. Following the TI Liquidation, TII will distribute to Holdings and Holdings will distribute to ATI all of the outstanding Teledyne Technologies Common Stock. ARTICLE III THE DISTRIBUTION 3.01 THE DISTRIBUTION. The ATI Board shall have the sole and absolute discretion to determine whether and when to effect the Distribution. If the ATI Board declares the Distribution, on or prior to the Distribution Date, ATI will deliver to the Agent for the benefit of holders of record of ATI Common Stock on the Record Date, a single stock certificate, 20 24 endorsed by ATI in blank, representing all of the outstanding shares of Teledyne Technologies Common Stock then owned by ATI or any member of the ATI Group, and will instruct the Agent to distribute, or make book-entry credits for, one share of Teledyne Technologies Common Stock in respect of every seven shares of ATI Common Stock held by holders of record of ATI Common Stock on the Record Date, subject to Section 3.03. 3.02 ACTIONS PRIOR TO THE DISTRIBUTION. Prior to the Distribution: (a) On such date as ATI shall determine, Teledyne Technologies shall mail to the holders of ATI Common Stock the Information Statement. (b) ATI and Teledyne Technologies shall cooperate in preparing, filing with the Commission under the Securities Act and causing to become effective any registration statements or amendments thereto that are appropriate to reflect the establishment of or amendments to any employee benefit plan contemplated by the Employee Benefits Agreement. (c) ATI and Teledyne Technologies shall by means of a reclassification, stock split or stock distribution or other means cause the number of outstanding shares of Teledyne Technologies Common Stock held by ATI to be equal to the number of shares to be distributed in the Distribution (as determined by ATI). (d) ATI and Teledyne Technologies shall take all such action as may be necessary or appropriate under the securities or blue sky laws of states or other political subdivisions of the United States in connection with the transactions contemplated by this Agreement or any Ancillary Agreement. (e) Teledyne Technologies shall use all efforts to have approved an application to permit listing of the Teledyne Technologies Common Stock on the NYSE or another mutually agreeable stock exchange or quotation system. (f) ATI and Teledyne Technologies shall take all actions which may be required to elect or otherwise appoint as directors of Teledyne Technologies, on or prior to the Distribution Date, the persons named in the Form 10 Registration Statement to constitute the Board of Directors of Teledyne Technologies on the Distribution Date. (g) ATI shall cause a Certificate of Amendment and Restatement of the Teledyne Technologies Certificate of Incorporation substantially in the form filed with the Form 10 Registration Statement, to be filed for record with the Secretary of State of Delaware and to be in effect on the Distribution Date, and the Board of Directors of Teledyne Technologies shall amend the Bylaws of Teledyne Technologies so that the Teledyne Technologies Bylaws are substantially in the form filed with the Form 10 Registration Statement. (h) Teledyne Technologies shall declare a distribution of, and distribute, one Right with respect to each share of Teledyne Technologies Common Stock to be distributed in the Distribution. 21 25 (i) ATI and Teledyne Technologies shall take all actions as may be necessary to approve the stock-based employee benefit plans of Teledyne Technologies in order to satisfy the requirements of Section 162(m) and other applicable provisions of the Code and any requirements of the NYSE (or any other stock exchange or quotations system on which Teledyne Technologies Common Stock is to be listed or traded). 3.03 FRACTIONAL SHARES. No certificates or scrip representing fractional shares of Teledyne Technologies Common Stock will be distributed to holders of ATI Common Stock in the Distribution. The Agent will, as soon as practicable after the Distribution Date, (a) determine the number of whole shares and fractional shares of Teledyne Technologies Common Stock allocable to each holder of record of ATI Common Stock as of the Record Date, (b) aggregate all fractional shares held by such holders, and (c) sell the whole shares attributable to the aggregate of such fractional shares, in open market transactions, in each case at the then prevailing trading prices, and to cause to be distributed to each such holder, in lieu of any fractional share, without interest, such holder's ratable share of the proceeds of such sale, after making appropriate deductions of the amount required, if any, to be withheld for U.S. federal income tax purposes. ARTICLE IV THE PUBLIC OFFERING 4.01 THE PUBLIC OFFERING. (a) Teledyne Technologies shall consummate the Public Offering not later than one year following the Distribution Date. Actions required in order to so consummate the Public Offering shall include, but not necessarily be limited to, those specified in this Section 4.01. (b) Teledyne Technologies shall file the Public Offering Registration Statement not later than at the end of the eighth month following the month in which the Distribution Date occurs, and shall file such amendments or supplements thereto, as may be necessary in order to cause the same to become and remain effective as required by law or by the Underwriters, including, but not limited to, filing such amendments to the Public Offering Registration Statement as may be required by the Underwriting Agreement, the Commission or federal, state or foreign securities laws. (c) Teledyne Technologies shall enter into the Underwriting Agreement and shall comply with its obligations thereunder. (d) Teledyne Technologies shall take all such action as may be necessary or appropriate under state securities and blue sky laws of the United States (and any comparable laws under any foreign jurisdictions) in connection with the Public Offering. (e) Teledyne Technologies shall prepare, file and take all actions necessary to make effective an application for listing of the Teledyne Technologies Common Stock issued in the Public Offering on the NYSE, subject to official notice of issuance. 22 26 (f) Teledyne Technologies shall participate in the preparation of materials and presentations as the Underwriters shall deem necessary or desirable. (g) Teledyne Technologies shall pay all third party costs, fees and expenses relating to the Public Offering, all of the reimbursable expenses of the Underwriters pursuant to the Underwriting Agreement, all of the costs of producing, printing, mailing and otherwise distributing the Prospectus, as well as the Underwriters' discount as provided in the Underwriting Agreement. 4.02 PROCEEDS OF THE PUBLIC OFFERING. The Public Offering will be a primary offering of Teledyne Technologies Common Stock and the net proceeds of the Public Offering will be retained by Teledyne Technologies. Teledyne Technologies will use such net proceeds as provided in the Tax Sharing Agreement and the Ruling Request. 4.03 REMEDIES. Teledyne Technologies acknowledges that its agreements in this Article IV are of a special, unique, unusual and extraordinary character. Because the failure of Teledyne Technologies to perform its obligations set forth in the provisions of this Article IV could cause unique and extraordinary injury to ATI, ATI shall, notwithstanding anything to the contrary herein, have the right in addition to any other remedies available, at law or in equity, to seek an injunction in a court of equity to compel Teledyne Technologies to perform such obligations. Teledyne Technologies hereby waives any and all defenses it may have on the ground of lack of jurisdiction or competence of the court to grant an injunction or other equitable relief, or otherwise, and agrees that it will not assert any such defense or any defense to a request by ATI for injunctive relief based on the alleged existence of an adequate remedy at law or for money damages. Without limiting the foregoing, Teledyne Technologies hereby waives the right to require ATI to post any bond or other security with respect to any proceeding to enforce the provisions of this Article IV. The existence of the rights of ATI set forth in this Section 4.03 shall not preclude any other rights and remedies at law or in equity which ATI may have. ARTICLE V MUTUAL RELEASES; INDEMNIFICATION 5.01 RELEASE OF PRE-DISTRIBUTION CLAIMS. (a) Except as provided in Section 5.01(c), effective as of the Effective Time, Teledyne Technologies does hereby, for itself and each other member of the Teledyne Technologies Group, their respective Affiliates (other than any member of the ATI Group), successors and assigns, and all Persons who at any time prior to the Effective Time have been stockholders, directors, officers, agents or employees of any member of the Teledyne Technologies Group (in each case, in their respective capacities as such), remise, release and forever discharge each of ATI and Water Pik, the respective members of the ATI Group and the Water Pik Group, their respective Affiliates (other than any member of the Teledyne Technologies Group), successors and assigns, and all Persons who at any time prior to the Effective Time have been stockholders, directors, officers, agents or employees of any member of ATI or the Water Pik Group (in each case, in their respective capacities as such), and their respective heirs, executors, administrators, successors and assigns, from any and all Liabilities whatsoever, whether at law or in equity (including any right of contribution), whether 23 27 arising under any contract or agreement, by operation of law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the Effective Time, including in connection with the transactions and all other activities undertaken to implement the Separation or the Distribution. (b) Except as provided in Section 5.01(c), effective as of the Effective Time, ATI does hereby, for itself and each other member of the ATI Group and its Affiliates (other than any member of the Teledyne Technologies Group), successors and assigns, and all Persons who at any time prior to the Effective Time have been stockholders, directors, officers, agents or employees of any member of the ATI Group (in each case, in their respective capacities as such), remise, release and forever discharge Teledyne Technologies, the respective members of the Teledyne Technologies Group, their respective Affiliates (other than any member of the ATI Group), successors and assigns, and all Persons who at any time prior to the Effective Time have been stockholders, directors, officers, agents or employees of any member of the Teledyne Technologies Group (in each case, in their respective capacities as such), and their respective heirs, executors, administrators, successors and assigns, from any and all Liabilities whatsoever, whether at law or in equity (including any right of contribution), whether arising under any contract or agreement, by operation of law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the Effective Time, including in connection with the transactions and all other activities undertaken to implement the Separation or the Distribution. (c) Nothing contained in Section 5.01(a) or (b) shall impair any right of any Person to enforce this Agreement, any Ancillary Agreement or any agreements, arrangements, commitments or understandings that are specified in Section 2.04(b) or the applicable Schedules thereto not to terminate as of the Effective Time, in each case in accordance with its terms. Nothing contained in Section 5.01(a) or (b) shall release any Person from: (i) any Liability provided in or resulting from any agreement among any members of the ATI Group or the Teledyne Technologies Group that is specified in Section 2.04(b) or the applicable Schedules thereto as not to terminate as of the Effective Time, or any other Liability specified in such Section 2.04(b) as not to terminate as of the Effective Time; (ii) any Liability, contingent or otherwise, assumed, transferred, assigned or allocated to the Group of which such Person is a member in accordance with, or any other Liability of any member of any Group under, this Agreement or any Ancillary Agreement; (iii) any Liability for the sale, lease, construction or receipt of goods, property or services purchased, obtained or used in the ordinary course of business by a member of one Group from a member of any other Group prior to the Effective Time; 24 28 (iv) any Liability for unpaid amounts for products or services or refunds owing on products or services due on a value-received basis for work done by a member of one Group at the request or on behalf of a member of another Group; (v) any Liability that the parties may have with respect to indemnification or contribution pursuant to this Agreement for claims brought against the parties by third Persons, which Liability shall be governed by the provisions of this Article V and, if applicable, the appropriate provisions of the Ancillary Agreements; or (vi) any Liability the release of which would result in the release of any Person other than a Person released pursuant to this Section 5.01; provided that the parties agree not to bring suit or permit any of their Subsidiaries to bring suit against any Person with respect to any Liability to the extent that such Person would be released with respect to such Liability by this Section 5.01 but for the provisions of this clause (vi). (d) Teledyne Technologies shall not make, and shall not permit any member of the Teledyne Technologies Group to make, any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or indemnification, against ATI, Water Pik or any member of the ATI Group or Water Pik Group, or any other Person released pursuant to Section 5.01(a), with respect to any Liabilities released pursuant to Section 5.01(a). Without limiting the generality of the foregoing, Teledyne Technologies shall not make, and shall not permit any other member of the Teledyne Technologies Group to make, any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or indemnification, against ATI, Water Pik or any member of the ATI Group or the Water Pik Group, or any other Person released pursuant to Section 5.01(a), with respect to whether any Asset should or should not have been classified as a Teledyne Technologies Asset or whether any Liability should or should not have been classified as a Teledyne Technologies Liability or with respect to the Teledyne Technologies Balance Sheet, including in respect of the accuracy or presentation thereof, or the adequacy of accruals, reserves and other amounts reflected thereon. ATI shall not, and shall not permit any member of the ATI Group, to make any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against Teledyne Technologies or any member of the Teledyne Technologies Group, or any other Person released pursuant to Section 5.01(b), with respect to any Liabilities released pursuant to Section 5.01(b). (e) It is the intent of each of ATI and Teledyne Technologies by virtue of the provisions of this Section 5.01 to provide for a full and complete release and discharge of all Liabilities existing or arising from all acts and events occurring or failing to occur or alleged to have occurred or to have failed to occur and all conditions existing or alleged to have existed on or before the Effective Time, between or among Teledyne Technologies or any member of the Teledyne Technologies Group, on the one hand, and ATI, Water Pik or any member of the ATI Group or the Water Pik Group, on the other hand (including any contractual agreements or arrangements existing or alleged to exist between or among any such members on or before the Effective Time), except as expressly set forth in Section 5.01(c) or otherwise in this Agreement. At any time, at the request of any other party, each party shall cause each member of its respective Group to execute and deliver releases reflecting the provisions hereof. 25 29 5.02 INDEMNIFICATION BY TELEDYNE TECHNOLOGIES. Except as provided in Section 5.04, Teledyne Technologies shall indemnify, defend and hold harmless ATI, each member of the ATI Group and each of their respective directors, officers, employees, agents and representatives, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the "ATI Indemnitees"), and Water Pik, each member of the Water Pik Group and each of their respective directors, officers and employees, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the "Water Pik Indemnitees"), from and against any and all Liabilities of the ATI Indemnitees and the Water Pik Indemnitees, respectively, relating to, arising out of or resulting from any of the following items (without duplication): (a) the failure of Teledyne Technologies or any other member of the Teledyne Technologies Group or any other Person to pay, perform or otherwise promptly discharge any Teledyne Technologies Liabilities or Teledyne Technologies Contract in accordance with their respective terms, whether prior to or after the Effective Time or the date hereof; (b) the Teledyne Technologies Business, any Teledyne Technologies Liability or any Teledyne Technologies Contract; (c) any breach by Teledyne Technologies or any member of the Teledyne Technologies Group of this Agreement or any of the Ancillary Agreements; (d) the operation of the Teledyne Technologies Business, as conducted at any time prior to, on or after the Distribution Date (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Person's authority)); (e) any infringement of any Intellectual Property right of any third party, including, but not limited to, patent rights, trademark and service mark rights (registered and common law), trade dress rights, copyrights, misappropriation of trade secret, based upon or resulting from the operation of the Teledyne Technologies Business and regardless of whether said alleged infringement occurred prior to, on or after the Distribution Date or any claim based on the actual or alleged invalidity, unenforceability or transferability or ownership of Intellectual Property to be transferred hereby or pursuant to any Ancillary Agreement; (f) Liabilities assumed by any member of the Teledyne Technologies Group under any Ancillary Agreement; (g) any guarantee, indemnity, representation, warranty or other Liability of or made by any member of the ATI Group in respect of any Liability or alleged Liability of any member of the Teledyne Technologies Group; and (h) any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, with respect to all information contained in the Form 10 Registration Statement or the Information Statement. 26 30 5.03 INDEMNIFICATION BY ATI. (a) ATI shall indemnify, defend and hold harmless Teledyne Technologies, each member of the Teledyne Technologies Group and each of their respective directors, officers, employees, agents and representatives, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the "Teledyne Technologies Indemnitees"), from and against any and all Liabilities of the Teledyne Technologies Indemnitees relating to, arising out of or resulting from any of the following items (without duplication): (i) the failure of ATI or any other member of the ATI Group to pay, perform or otherwise promptly discharge any ATI Liabilities; and (ii) any breach by ATI of this Agreement or any of the Ancillary Agreements. 5.04 INDEMNIFICATION OBLIGATIONS NET OF INSURANCE PROCEEDS AND OTHER AMOUNTS. (a) The parties intend that any Liability subject to indemnification or reimbursement pursuant to this Article V will be net of Insurance Proceeds that actually reduce the amount of the Liability. Accordingly, the amount which any party (an "Indemnifying Party") is required to pay to any Person entitled to indemnification hereunder (an "Indemnitee") will be reduced by any Insurance Proceeds theretofore actually recovered by or on behalf of the Indemnitee in reduction of the related Liability. If an Indemnitee receives a payment (an "Indemnity Payment") required by this Agreement from an Indemnifying Party in respect of any Liability and subsequently receives Insurance Proceeds, then the Indemnitee will pay to the Indemnifying Party an amount equal to the excess of the Indemnity Payment received over the amount of the Indemnity Payment that would have been due if the Insurance Proceeds had been received, realized or recovered before the Indemnity Payment was made. (b) An insurer who would otherwise be obligated to pay any claim shall not be relieved of the responsibility with respect thereto or, solely by virtue of the indemnification provisions hereof, have any subrogation rights with respect thereto, it being expressly understood and agreed that no insurer or any other third party shall be entitled to a "windfall" (i.e., a benefit they would not be entitled to receive in the absence of the indemnification provisions) by virtue of the indemnification provisions hereof. Nothing contained in this Agreement or any Ancillary Agreement shall obligate any member of any Group to seek to collect or recover any Insurance Proceeds. 5.05 PROCEDURES FOR INDEMNIFICATION OF THIRD PARTY CLAIMS. (a) If an Indemnitee shall receive notice or otherwise learn of the assertion by a Person (including any Governmental Authority) who is not a member of the ATI Group or the Teledyne Technologies Group of any claim or of the commencement by any such Person of any Action (collectively, a "Third Party Claim") with respect to which an Indemnifying Party may be obligated to provide indemnification to such Indemnitee pursuant to Section 5.02 or 5.03, or any other Section of this Agreement or any Ancillary Agreement, such Indemnitee shall give such Indemnifying Party and, if ATI is not the Indemnifying Party, ATI written notice thereof as soon as practicable but in any event not less than 20 days after becoming aware of such Third Party Claim. Any such notice shall describe the Third Party Claim in reasonable detail. Notwithstanding the foregoing, the failure of any Indemnitee or other Person to give notice as 27 31 provided in this Section 5.05(a) shall not relieve the related Indemnifying Party of its obligations under this Article V, except to the extent that such Indemnifying Party is actually prejudiced by such failure to give notice. (b) An Indemnifying Party may elect to defend (and, unless the Indemnifying Party has specified any reservations or exceptions, to seek to settle or compromise), at such Indemnifying Party's own expense and by such Indemnifying Party's own counsel, any Third Party Claim. Within 30 days after the receipt of notice from an Indemnitee in accordance with Section 5.05(a) (or sooner, if the nature of such Third Party Claim so requires), the Indemnifying Party shall notify the Indemnitee of its election whether the Indemnifying Party will assume responsibility for defending such Third Party Claim, which election shall specify any reservations or exceptions. After notice from an Indemnifying Party to an Indemnitee of its election to assume the defense of a Third Party Claim, such Indemnitee shall have the right to employ separate counsel and to participate in (but not control) the defense, compromise, or settlement thereof, but the fees and expenses of such counsel shall be the expense of such Indemnitee except as set forth in the next sentence. In the event that the Indemnifying Party has elected to assume the defense of the Third Party Claim but has specified, and continues to assert, any reservations or exceptions in such notice, then, in any such case, the reasonable fees and expenses of one separate counsel for all Indemnitees shall be borne by the Indemnifying Party. (c) If an Indemnifying Party elects not to assume responsibility for defending a Third Party Claim, or fails to notify an Indemnitee of its election as provided in Section 5.05(b), such Indemnitee may defend such Third Party Claim at the cost and expense (including allocated costs of in-house counsel and other personnel) of the Indemnifying Party. (d) Unless the Indemnifying Party has failed to assume the defense of the Third Party Claim in accordance with the terms of this Agreement, no Indemnitee may settle or compromise any Third Party Claim without the consent of the Indemnifying Party. (e) No Indemnifying Party shall consent to entry of any judgment or enter into any settlement of the Third Party Claim without the consent of the Indemnitee if the effect thereof is to permit any injunction, declaratory judgment, other order or other nonmonetary relief to be entered, directly or indirectly, against any Indemnitee. 5.06 ADDITIONAL MATTERS. (a) Any claim on account of a Liability which does not result from a Third Party Claim shall be asserted by written notice given by the Indemnitee to the related Indemnifying Party. Such Indemnifying Party shall have a period of 30 days after the receipt of such notice within which to respond thereto. If such Indemnifying Party does not respond within such 30-day period, such Indemnifying Party shall be deemed to have refused to accept responsibility to make payment. If such Indemnifying Party does not respond within such 30-day period or rejects such claim in whole or in part, such Indemnitee shall be free to pursue such remedies as may be available to such party as contemplated by this Agreement and the Ancillary Agreements. (b) In the event of payment by or on behalf of any Indemnifying Party to any Indemnitee in connection with any Third Party Claim, such Indemnifying Party shall be 28 32 subrogated to and shall stand in the place of such Indemnitee as to any events or circumstances in respect of which such Indemnitee may have any right, defense or claim relating to such Third Party Claim against any claimant or plaintiff asserting such Third Party Claim or against any other person. Such Indemnitee shall cooperate with such Indemnifying Party in a reasonable manner, and at the cost and expense (including allocated costs of in-house counsel and other personnel) of such Indemnifying Party, in prosecuting any subrogated right, defense or claim. (c) In the event of an Action in which the Indemnifying Party is not a named defendant, if either the Indemnified Party or Indemnifying Party shall so request, the parties shall endeavor to substitute the Indemnifying Party for the named defendant. If such substitution or addition cannot be achieved for any reason or is not requested, the named defendant shall allow the Indemnifying Party to manage the Action as set forth in this Section and the Indemnifying Party shall fully indemnify the named defendant against all costs of defending the Action (including court costs, sanctions imposed by a court, attorneys' fees, experts' fees and all other external expenses, and the allocated costs of in-house counsel and other personnel), the costs of any judgment or settlement, and the cost of any interest or penalties relating to any judgment or settlement. 5.07 REMEDIES CUMULATIVE. The remedies provided in this Article V shall be cumulative and shall not preclude assertion by any Indemnitee of any other rights or the seeking of any and all other remedies against any Indemnifying Party. 5.08 SURVIVAL OF INDEMNITIES. The rights and obligations of each of the Indemnitees under this Article V shall survive the sale or other transfer by any party of any Assets or businesses or the assignment by it of any Liabilities. ARTICLE VI CERTAIN OTHER MATTERS 6.01 INSURANCE MATTERS. (a) In no event shall ATI, any other member of the ATI Group or any ATI Indemnitee have any liability or obligation whatsoever to any member of the Teledyne Technologies Group in the event that any Insurance Policy or other contract or policy of insurance shall be terminated or otherwise cease to be in effect for any reason, shall be unavailable or inadequate to cover any Liability of any member of the Teledyne Technologies Group for any reason whatsoever or shall not be renewed or extended beyond the current expiration date. (b) (i) Except as otherwise provided in any Ancillary Agreement, the parties intend by this Agreement that Teledyne Technologies and each other member of the Teledyne Technologies Group be successors-in-interest to all rights that any member of the Teledyne Technologies Group may have as of the Distribution Date as a subsidiary, affiliate, division or department of ATI prior to the Distribution Date under any policy of insurance issued to ATI and intended to insure the Teledyne Technologies Group by any insurance carrier unaffiliated with ATI or under any agreements related to such policies executed and delivered prior to the Distribution Date, including any rights such member of the Teledyne Technologies Group may 29 33 have, as an insured or additional named insured, subsidiary, affiliate, division or department, to avail itself of any such policy of insurance or any such agreements related to such policies as in effect prior to the Distribution Date. At the request of Teledyne Technologies, ATI shall take all reasonable steps, including the execution and delivery of any instruments, to effect the foregoing; provided however that ATI shall not be required to pay any amounts, waive any rights or incur any Liabilities in connection therewith. (ii) Except as otherwise contemplated by any Ancillary Agreement, after the Distribution Date, neither ATI nor Teledyne Technologies or any member of their respective Groups shall, without the consent of the other, provide any such insurance carrier with a release, or amend, modify or waive any rights under any such policy or agreement, if such release, amendment, modification or waiver would adversely affect any rights or potential rights of any member of the other Group thereunder; provided however that the foregoing shall not (A) preclude any member of any Group from presenting any claim or from exhausting any policy limit, (B) require any member of any Group to pay any premium or other amount or to incur any Liability, or (C) require any member of any Group to renew, extend or continue any policy in force. Each of Teledyne Technologies and ATI will, and will cause its respective Group to, share such information as is reasonably necessary in order to permit the other to manage and conduct its insurance matters in an orderly fashion. (c) This Agreement shall not be considered as an attempted assignment of any policy of insurance or as a contract of insurance and shall not be construed to waive any right or remedy of any member of the ATI Group in respect of any Insurance Policy or any other contract or policy of insurance. (d) Teledyne Technologies does hereby, for itself and each other member of the Teledyne Technologies Group, agree that no member of the ATI Group or any ATI Indemnitee shall have any Liability whatsoever as a result of the insurance policies and practices of ATI and its Affiliates as in effect at any time prior to the Distribution Date, including as a result of the level or scope of any such insurance, the creditworthiness of any insurance carrier, the terms and conditions of any policy, the adequacy or timeliness of any notice to any insurance carrier with respect to any claim or potential claim or otherwise. (e) Nothing in this Agreement shall be deemed to restrict any member of the Teledyne Technologies Group from acquiring at its own expense any other insurance policy in respect of any Liabilities or covering any period. (f) With respect to policy periods prior to the Distribution Date: (i) Teledyne Technologies shall be responsible for: (A) all Unpaid Losses (but not to exceed the applicable Per Case Maximum) as of the Distribution Date attributable to Teledyne Technologies Liabilities covered under ATI General Liability Policies, ATI Automobile Policies, ATI Workers Compensation Policies and ATI Product Liability Policies for policies in effect prior to the Distribution Date; and (B) Pooled Loss Costs Allocable to Teledyne Technologies. 30 34 (ii) On or before June 1, 2000 and on a quarterly basis thereafter, ATI shall provide Teledyne Technologies with a calculation of amounts due ATI or refunds due Teledyne Technologies for Teledyne Technologies' obligations incurred under ATI General Liability Policies, ATI Automobile Policies, ATI Workers Compensation Policies and ATI Product Liability Policies for policies under subparagraph (i) immediately above. The initial calculations shall be based on (A) the change in total Incurred Losses between the Distribution Date and March 31, 2000 for all such policies in effect prior to the Distribution Date multiplied by the Expense Factors set forth in such policies and applicable to such Incurred Losses, but only with respect to that portion of Incurred Losses attributable to Teledyne Technologies Liabilities not exceeding the applicable Per Case Maximum; and (B) the change in Pooled Loss Costs Allocable to Teledyne Technologies for the period between the Distribution Date and March 31, 2000 for all such policies in effect prior to the Distribution Date. Subsequent calculations shall be based on (A) the change in total Incurred Losses for the subsequent quarterly periods multiplied by the Expense Factors set forth in such policies and applicable to such losses; but only with respect to that portion of losses attributable to Teledyne Technologies Liabilities not exceeding the applicable Per Case Maximum, and (B) the change in Pooled Loss Costs Allocable to Teledyne Technologies for the subsequent quarterly period. (iii) Within 30 days after receipt by Teledyne Technologies of ATI's calculations referred to in subparagraph (ii) immediately above, Teledyne Technologies on the one hand and ATI on the other hand shall pay to the other the net amount owed after taking into account the combined amounts reflected on the calculations. (g) At its sole option, ATI shall have the right to handle, defend, resolve, and administer any and all claims in its sole discretion, with respect to Teledyne Technologies Liabilities covered, in whole or in part, by ATI Policies, including, without limitation, the reporting of claims to the issuers of such ATI Policies, as well as the management, defense and settlement of claims. ATI will not enter into any such settlement of a claim without the consent of Teledyne Technologies (which will not be unreasonably withheld) if the effect thereof is to render Teledyne Technologies liable for a monetary obligation with respect to such claim. Teledyne Technologies agrees to cooperate, at its own expense, with ATI in the reporting, handling, defense, resolution and administration of such claims. Alternatively, ATI, at its sole option shall have the right to require, at any time and from time to time, that Teledyne Technologies and any member of the Teledyne Technologies Group, at their sole expense, defend, resolve and administer any one or more or all claims with respect to Teledyne Technologies Liabilities covered in whole, or in part, by ATI Policies, including without limitation, the reporting of claims to the issuers of such ATI Policies, as well as the management, defense and settlement of such claims and, if ATI exercises such option, Teledyne Technologies and members of the Teledyne Technologies Group, at ATI's request, shall at their expense provide ATI with any and all information concerning, and permit ATI to monitor, the foregoing management, defense, settlement and insurance handling of such claims. Except with the express written consent of ATI, neither Teledyne Technologies nor any member of the Teledyne Technologies Group shall provide any issuer of ATI Policies with a release, nor shall they amend, modify, or waive any rights under such ATI Policies, if such release, amendment, modification or waiver would adversely affect rights or potential rights of ATI or any other member of the ATI Group. 31 35 (h) With respect to policies procured by or for the Teledyne Technologies Group subsequent to January 1999 and to policy years commencing on or after the Distribution Date, Teledyne Technologies shall be responsible for all aspects of claims administration with respect to Teledyne Technologies Liabilities, and ATI shall have no responsibility therefor whatsoever. (i) With respect to any Teledyne Technologies Liabilities or Teledyne Technologies losses covered under ATI Policies, other than ATI General Liability Policies, ATI Automobile Policies, ATI Workers Compensation Policies and ATI Product Liability Policies, Teledyne Technologies shall be responsible for all Unpaid Losses and all costs and expenses that give rise to a Self-Insurance Obligation. In the event that ATI pays any such costs and expenses, Teledyne Technologies shall reimburse ATI within thirty days of receipt of a billing for any such costs and expenses. 6.02 CERTAIN BUSINESS MATTERS. No member of any Group shall have any duty to refrain from (i) engaging in the same or similar activities or lines of business as any member of any other Group, (ii) doing business with any potential or actual supplier or customer of any member of any other Group, or (iii) engaging in, or refraining from, any other activities whatsoever relating to any of the potential or actual suppliers or customers of any member of any other Group. 6.03 LATE PAYMENTS. Except as expressly provided to the contrary in this Agreement or in any Ancillary Agreement, any amount not paid when due pursuant to this Agreement or any Ancillary Agreement (and any amounts billed or otherwise invoiced or demanded and properly payable that are not paid within 30 days of such bill, invoice or other demand) shall accrue interest at a rate per annum equal to the Prime Rate plus 2%. 6.04 CERTAIN GOVERNANCE MATTERS. (a) Teledyne Technologies and ATI intend that until the third annual meeting of stockholders of Teledyne Technologies held following the Distribution Date, at least a majority of the members of the Board of Directors of Teledyne Technologies will at all times consist of persons who are also members of the Board of Directors of ATI. The initial members of the Board of Directors of Teledyne Technologies and the respective initial Classes of the Board in which they will serve are as follows: Class I: Thomas A. Corcoran (Chairman) Diane C. Creel C. Fred Fetterolf Class II: Paul S. Brentlinger Robert Mehrabian Class III: Robert P. Bozzone Frank V. Cahouet Charles J. Queenan, Jr. (b) Teledyne Technologies will, with respect to the first annual meeting of stockholders of Teledyne Technologies held following the Distribution Date, nominate for election and recommend to stockholders the election of Thomas A. Corcoran, Diane C. Creel and C. Fred Fetterolf (or, if any such candidate unable or unwilling to serve, such other candidate as 32 36 Messrs. Bozzone, Cahouet and Queenan or the survivor of them shall designate) to serve as a continuing Class I director of Teledyne Technologies. (c) Teledyne Technologies shall take such action from time to time as ATI requests in order to assure that, until the third annual meeting of stockholders of Teledyne Technologies following the Distribution Date, at least a majority of the members of the Board of Directors of Teledyne Technologies will at all times consist of persons who are also members of the Board of Directors of ATI. Without limiting the generality of the foregoing, if for any reason (including death, resignation or disqualification) there are no directors of Teledyne Technologies who are also directors of ATI, Teledyne Technologies will immediately take all action requested by ATI to appoint to the Board of Directors of Teledyne Technologies such members of the Board of Directors of ATI as ATI shall designate. ARTICLE VII EXCHANGE OF INFORMATION; CONFIDENTIALITY 7.01 AGREEMENT FOR EXCHANGE OF INFORMATION; ARCHIVES. (a) Each of ATI and Teledyne Technologies, on behalf of itself and its respective Group, agrees to provide, or cause to be provided, to each other Group, at any time before or after the Distribution Date, as soon as reasonably practicable after written request therefor, any Information in the possession or under the control of such respective Group which the requesting party reasonably requires (i) to comply with reporting, disclosure, filing or other requirements imposed on the requesting party (including under applicable securities or tax laws) by a Governmental Authority having jurisdiction over the requesting party, (ii) for use in any other judicial, regulatory, administrative, tax or other proceeding or in order to satisfy audit, accounting, claims, regulatory, litigation, tax or other similar requirements, or (iii) to comply with its obligations under this Agreement or any Ancillary Agreement; provided, however, that in the event that any party determines that any such provision of Information could be commercially detrimental, violate any law or agreement, or waive any attorney-client privilege, the parties shall take all reasonable measures to permit the compliance with such obligations in a manner that avoids any such harm or consequence. (b) After the Distribution Date, each of ATI and Teledyne Technologies shall have access during regular business hours (as in effect from time to time) to the documents and objects of historic significance that relate to the their respective Businesses that are in the possession of any other of such parties or members of their respective Groups. Any party seeking such access may, at its cost, obtain copies (but not originals) of documents for bona fide business purposes and may obtain objects for exhibition purposes for commercially reasonable periods of time if required for bona fide business purposes, provided that such party shall cause any such objects to be returned promptly in the same condition in which they were delivered and shall comply with any rules, procedures or other requirements, and shall be subject to any restrictions (including prohibitions on removal of specified objects), that are then applicable to the possessing party. (c) After the Distribution Date, (i) Teledyne Technologies shall maintain in effect adequate systems and controls to the extent necessary to enable the members of the ATI Group to 33 37 satisfy their respective reporting, accounting, audit and other obligations, and (ii) Teledyne Technologies shall provide, or cause to be provided, to ATI, all financial and other data and information as ATI determines necessary or advisable in order to prepare ATI financial statements and reports or filings with any Governmental Authority. 7.02 OWNERSHIP OF INFORMATION. Any Information owned by one Group that is provided to a requesting party pursuant to Section 7.01 shall be deemed to remain the property of the providing party. Unless specifically set forth herein, nothing contained in this Agreement shall be construed as granting or conferring rights of license or otherwise in any such Information. 7.03 COMPENSATION FOR PROVIDING INFORMATION. The party requesting such Information agrees to reimburse the other party for the reasonable costs, if any, of creating, gathering and copying such Information, to the extent that such costs are incurred for the benefit of the requesting party. Except as may be otherwise specifically provided elsewhere in this Agreement or in any other agreement between the parties, such costs shall be computed in accordance with the providing party's standard methodology and procedures. 7.04 RECORD RETENTION. To facilitate the possible exchange of Information pursuant to this Article VII and other provisions of this Agreement after the Distribution Date, the parties agree to use their reasonable best efforts to retain all Information in their respective possession or control on the Distribution Date in accordance with the policies of ATI as in effect on the Distribution Date. No party will destroy, or permit any of its Subsidiaries to destroy, any Information which the other party may have the right to obtain pursuant to this Agreement prior to the seventh anniversary of the date hereof without first using its reasonable best efforts to notify the other party of the proposed destruction and giving the other party the opportunity to take possession of such information prior to such destruction; provided, however, that in the case of any Information relating to Taxes or to Environmental Liabilities, such period shall be extended to the expiration of the applicable statute of limitations (giving effect to any extensions thereof). 7.05 OTHER AGREEMENTS PROVIDING FOR EXCHANGE OF INFORMATION. The rights and obligations granted under this Article VII are subject to any specific limitations, qualifications or additional provisions on the sharing, exchange or confidential treatment of Information set forth in any Ancillary Agreement. 7.06 PRODUCTION OF WITNESSES; RECORDS; COOPERATION. (a) After the Distribution Date, except in the case of an adversarial Action by one party against another party, each party hereto shall use its reasonable efforts to make available to each other party, upon written request, the former, current and future directors, officers, employees, other personnel and agents of the members of its respective Group as witnesses and any books, records or other documents within its control or which it otherwise has the ability to make available, to the extent that any such person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with any Action in which the requesting party may from time to time be involved, regardless of whether such Action is a matter with respect to which indemnification 34 38 may be sought hereunder. The requesting party shall bear all costs and expenses (including allocated costs of in-house counsel and other personnel) in connection therewith. (b) If an Indemnifying Party chooses to defend or to seek to compromise or settle any Third Party Claim, the other parties shall make available to such Indemnifying Party, upon written request, the former, current and future directors, officers, employees, other personnel and agents of the members of its respective Group as witnesses and any books, records or other documents within its control or which it otherwise has the ability to make available, to the extent that any such person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with such defense, settlement or compromise, or such prosecution, evaluation or pursuit, as the case may be, and shall otherwise cooperate in such defense, settlement or compromise, or such prosecution, evaluation or pursuit, as the case may be. (c) Without limiting any provision of this Section, the parties shall cooperate and consult to the extent reasonably necessary with respect to any Action, and each of the parties agrees to cooperate, and to cause each member of its respective Group to cooperate, with each other in the defense of any infringement or similar claim with respect to any intellectual property and shall not claim to acknowledge, or permit any member of its respective Group to claim to acknowledge, the validity or infringing use of any intellectual property of a third Person in a manner that would hamper or undermine the defense of such infringement or similar claim. (d) The obligation of the parties to provide witnesses pursuant to this Section 7.06 is intended to be interpreted in a manner so as to facilitate cooperation and shall include the obligation to provide as witnesses inventors and other officers without regard to whether the witness or the employer of the witness could assert a possible business conflict (subject to the qualifications set forth in the first sentence of Section 7.06(a)). (e) In connection with any matter contemplated by this Section 7.06, the parties will enter into a mutually acceptable joint defense agreement so as to maintain to the extent practicable any applicable attorney-client privilege or work product immunity of any member of any Group. 7.07 CONFIDENTIALITY. (a) Subject to Section 7.08, each of ATI and Teledyne Technologies, on behalf of itself and each member of its respective Group, agrees to hold, and to cause its respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives to hold, in strict confidence, with at least the same degree of care that applies to ATI's confidential and proprietary information pursuant to policies in effect as of the Distribution Date, all Information concerning each such other Group that is either in its possession or furnished by any such other Group or its respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives at any time pursuant to this Agreement, any Ancillary Agreement or otherwise, and shall not use any such Information other than for such purposes as shall be expressly permitted hereunder or thereunder, except, in each case, to the extent that such Information has been (i) in the public domain through no fault of such party or any member of such Group or any of their respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives, (ii) later lawfully acquired 35 39 from other sources by such party (or any member of such party's Group) which sources are not themselves bound by a confidentiality obligation), or (iii) independently generated without reference to any proprietary or confidential Information of the other party. (b) Each party agrees not to release or disclose, or permit to be released or disclosed, any such Information to any other Person, except its directors, officers, employees, agents, accountants, counsel and other advisors and representatives who need to know such Information (who shall be advised of their obligations hereunder with respect to such Information), except in compliance with Section 7.08. Without limiting the foregoing, when any Information is no longer needed for the purposes contemplated by this Agreement or any Ancillary Agreement, each party will promptly after request of the other party either return to the other party all Information in a tangible form (including all copies thereof and all notes, extracts or summaries based thereon) or certify to the other party that it has destroyed such Information (and such copies thereof and such notes, extracts or summaries based thereon). 7.08 PROTECTIVE ARRANGEMENTS. In the event that any party or any member of its Group either determines on the advice of its counsel that it is required to disclose any Information pursuant to applicable law or receives any demand under lawful process or from any Governmental Authority to disclose or provide Information of any other party (or any member of any other party's Group) that is subject to the confidentiality provisions hereof, such party shall notify the other party prior to disclosing or providing such Information and shall cooperate at the expense of the requesting party in seeking any reasonable protective arrangements requested by such other party. Subject to the foregoing, the Person that received such request may thereafter disclose or provide Information to the extent required by such law (as so advised by counsel) or by lawful process or such Governmental Authority. ARTICLE VIII FURTHER ASSURANCES 8.01 FURTHER ASSURANCES. (a) In addition to the actions specifically provided for elsewhere in this Agreement, each of the parties hereto shall use its reasonable efforts, prior to, on and after the Distribution Date, to take, or cause to be taken, all actions, and to do, or cause to be done, all things, reasonably necessary, proper or advisable under applicable laws, regulations and agreements to consummate and make effective the transactions contemplated by this Agreement and the Ancillary Agreements. (b) Without limiting the foregoing, prior to, on and after the date hereof, each party hereto shall cooperate with the other parties, and without any further consideration, but at the expense of the requesting party, to execute and deliver, or use its reasonable efforts to cause to be executed and delivered, all instruments, including instruments of conveyance, assignment and transfer, and to make all filings with, and to obtain all consents, approvals or authorizations of, any Governmental Authority or any other Person under any permit, license, agreement, indenture or other instrument (including any Consents or Governmental Approvals), and to take all such other actions as such party may reasonably be requested to take by any other party hereto from time to time, consistent with the terms of this Agreement and the Ancillary Agreements, in order 36 40 to effectuate the provisions and purposes of this Agreement and the Ancillary Agreements and the transfers of the Teledyne Technologies Assets and the assignment and assumption of the Teledyne Technologies Liabilities and the other transactions contemplated hereby and thereby. Without limiting the foregoing, each party will, at the reasonable request, cost and expense of any other party, take such other actions as may be reasonably necessary to vest in such other party good and marketable title, free and clear of any Security Interest, if and to the extent it is practicable to do so. (c) On or prior to the Distribution Date, ATI and Teledyne Technologies in their respective capacities as direct and indirect stockholders of their respective Subsidiaries, shall each ratify any actions which are reasonably necessary or desirable to be taken by ATI or Teledyne Technologies or any other Subsidiary of ATI, as the case may be, to effectuate the transactions contemplated by this Agreement. (d) ATI and Teledyne Technologies, on behalf of itself and each member of its respective Group, waive (and agree not to assert against any of the others) any claim or demand that any of them may have against any of the others for any Liabilities or other claims relating to or arising out of: (i) the failure of Teledyne Technologies or any member of the Teledyne Technologies Group, on the one hand, or of ATI or any member of the ATI Group, on the other hand, to provide any notification or disclosure required under any state Environmental Law in connection with the Separation or the other transactions contemplated by this Agreement, including the transfer by any member of any Group to any member of any other Group of ownership or operational control of any Assets not previously owned or operated by such transferee; or (ii) any inadequate, incorrect or incomplete notification or disclosure under any such state Environmental Law by the applicable transferor. To the extent any Liability to any Governmental Authority or any third Person arises out of any action or inaction described in clause (i) or (ii) above, the transferee of the applicable Asset hereby assumes and agrees to pay any such Liability. ARTICLE IX TERMINATION 9.01 TERMINATION. This Agreement may be terminated by ATI at any time prior to the Distribution. 9.02 EFFECT OF TERMINATION. In the event of any termination of this Agreement pursuant to Section 9.01, no party to this Agreement (or any of its directors or officers) shall have any Liability or further obligation to any other party. ARTICLE X MISCELLANEOUS 10.01. COUNTERPARTS; ENTIRE AGREEMENT; CORPORATE POWER. (a) This Agreement and each Ancillary Agreement may be executed in one or more counterparts, all of 37 41 which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party. (b) This Agreement, and the Ancillary Agreements and the Exhibits, Schedules and Appendices hereto and thereto contain the entire agreement between the parties with respect to the subject matter hereof, supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter and there are no agreements or understandings between the parties other than those set forth or referred to herein or therein. (c) ATI represents on behalf of itself and each other member of the ATI Group, and Teledyne Technologies represents on behalf of itself and each other member of the Teledyne Technologies Group, as follows: (i) each such Person has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute, deliver and perform each of this Agreement and each other Ancillary Agreements to which it is a party and to consummate the transactions contemplated hereby and thereby; and (ii) this Agreement and each Ancillary Agreement to which it is a party has been duly executed and delivered by it and constitutes a valid and binding agreement of it enforceable in accordance with the terms thereof. (d) Each party hereto acknowledges that it and each other party hereto may be executing certain of the Ancillary Agreements by facsimile, stamp or mechanical signature. Each party hereto expressly adopts and confirms each such facsimile, stamp or mechanical signature made in its respective name as if it were a manual signature, agrees that it will not assert that any such signature is not adequate to bind such party to the same extent as if it were signed manually and agrees that at the reasonable request of any other party hereto at any time it will as promptly as reasonably practicable cause each such Ancillary Agreement to be manually executed (any such execution to be as of the date of the initial date thereof). 10.02 GOVERNING LAW; CONSENT TO JURISDICTION. (a) This Agreement and, unless expressly provided therein, each Ancillary Agreement, shall be governed by and construed and interpreted in accordance with the laws of the Commonwealth of Pennsylvania as to all matters, including matters of validity, construction, effect, enforceability, performance and remedies, irrespective of the choice of laws principles of the Commonwealth of Pennsylvania. (b) Each of the parties hereto irrevocably submits to the exclusive jurisdiction of (i) the Court of Common Pleas of Allegheny County, Pennsylvania and (ii) the United States District Court for the Western District of Pennsylvania, for the purposes of any suit, action or other proceeding arising out of this Agreement or any Ancillary Agreement or any transaction contemplated hereby or thereby (and agrees not to commence any action, suit or proceeding relating thereto except in such courts). Each of the parties hereto further agrees that service of any process, summons, notice or document hand delivered or sent by U.S. registered mail to such party's respective address set forth in Section 10.05 will be effective service of process for any 38 42 action, suit or proceeding in Pennsylvania with respect to any matters to which it has submitted to jurisdiction as set forth in the immediately preceding sentence. Each of the parties hereto irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or any Ancillary Agreement or the transactions contemplated hereby or thereby in (i) the Court of Common Pleas of Allegheny County, Pennsylvania or (ii) the United States District Court for the Western District of Pennsylvania, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. 10.03 ASSIGNABILITY. Except as set forth in any Ancillary Agreement, this Agreement and each Ancillary Agreement shall be binding upon and inure to the benefit of the parties hereto and thereto, respectively, and their respective successors and assigns (including any direct or indirect assignee of any of the Teledyne Technologies Assets); provided, however, that no party hereto or thereto may assign its respective rights or delegate its respective obligations under this Agreement or any Ancillary Agreement without the express prior written consent of the other parties hereto or thereto. 10.04 THIRD PARTY BENEFICIARIES. Except for the indemnification rights under this Agreement of any ATI Indemnitee, Teledyne Technologies Indemnitee or Water Pik Indemnitee in their respective capacities as such, (a) the provisions of this Agreement and each Ancillary Agreement are solely for the benefit of the parties and are not intended to confer upon any Person except the parties any rights or remedies hereunder, (b) there are no third party beneficiaries of this Agreement or any Ancillary Agreement, and (c) neither this Agreement nor any Ancillary Agreement shall provide any third person with any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement or any Ancillary Agreement. No party hereto shall have any right, remedy or claim with respect to any provision of this Agreement or any Ancillary Agreement to the extent such provision relates solely to the other two parties hereto or the members of such other two parties' respective Groups. No party shall be required to deliver any notice under this Agreement or under any Ancillary Agreement to any other party with respect to any matter in which such other party has no right, remedy or claim. 10.05 NOTICES. All notices or other communications under this Agreement or any Ancillary Agreement shall be in writing and shall be deemed to be duly given when (a) delivered in person or (b) deposited in the United States mail or private express mail, postage prepaid, addressed as follows: If to ATI, Holdings or TII, to: Allegheny Teledyne Incorporated 1000 Six PPG Place Pittsburgh, Pennsylvania 15222-5479 Attn: Senior Vice President, General Counsel and Secretary 39 43 If to Teledyne Technologies, to: Teledyne Technologies Incorporated 2049 Century Park East Los Angeles, California 90067-3101 Attn: Senior Vice President, General Counsel and Secretary Any party may, by notice to the other party, change the address to which such notices are to be given. 10.06 SEVERABILITY. If any provision of this Agreement or any Ancillary Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof or thereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby or thereby, as the case may be, is not affected in any manner adverse to any party. Upon such determination, the parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the parties. 10.07 FORCE MAJEURE. No party shall be deemed in default of this Agreement or any Ancillary Agreement to the extent that any delay or failure in the performance of its obligations under this Agreement or any Ancillary Agreement results from any cause beyond its reasonable control and without its fault or negligence, such as acts of God, acts of civil or military authority, embargoes, epidemics, war, riots, insurrections, fires, explosions, earthquakes, floods, unusually severe weather conditions, labor problems or unavailability of parts, or, in the case of computer systems, Year 2000 problems or any failure in electrical or air conditioning equipment. In the event of any such excused delay, the time for performance shall be extended for a period equal to the time lost by reason of the delay. 10.08 HEADINGS. The article, section and paragraph headings contained in this Agreement and in the Ancillary Agreements are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement or any Ancillary Agreement. 10.09 SURVIVAL OF COVENANTS. Except as expressly set forth in any Ancillary Agreement, the covenants, representations and warranties contained in this Agreement and each Ancillary Agreement, and liability for the breach of any obligations contained herein, shall survive each of the Separation and the Distribution and shall remain in full force and effect. 10.10 WAIVERS OF DEFAULT. Waiver by any party of any default by the other party of any provision of this Agreement or any Ancillary Agreement shall not be deemed a waiver by the waiving party of any subsequent or other default, nor shall it prejudice the rights of the other party. 40 44 10.11 SPECIFIC PERFORMANCE. In the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement or any Ancillary Agreement, the party or parties who are or are to be thereby aggrieved shall have the right to specific performance and injunctive or other equitable relief of its rights under this Agreement or such Ancillary Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. The parties agree that the remedies at law for any breach or threatened breach, including monetary damages, are inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are waived. 10.12 AMENDMENTS. No provisions of this Agreement or any Ancillary Agreement shall be deemed waived, amended, supplemented or modified by any party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of the party against whom it is sought to enforce such waiver, amendment, supplement or modification. Without limiting the foregoing, the parties agree that any waiver, amendment, supplement or modification of this Agreement or any Ancillary Agreement that solely relates to and affects only two of the three parties hereto shall not require the consent of the third party hereto. 10.13 INTERPRETATION. Words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other genders as the context requires. The terms "hereof," "herein," and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement (or the applicable Ancillary Agreement) as a whole (including all of the Schedules, Exhibits and Appendices hereto and thereto) and not to any particular provision of this Agreement (or such Ancillary Agreement). Article, Section, Exhibit, Schedule and Appendix references are to the Articles, Sections, Exhibits, Schedules and Appendices to this Agreement (or the applicable Ancillary Agreement) unless otherwise specified. The word "including" and words of similar import when used in this Agreement (or the applicable Ancillary Agreement) shall mean "including, without limitation," unless the context otherwise requires or unless otherwise specified. The word "or" shall not be exclusive. Unless expressly stated to the contrary in this Agreement or in any Ancillary Agreement, all references to "the date hereof," "the date of this Agreement," "hereby" and "hereupon" and words of similar import shall all be references to November __, 1999, regardless of any amendment or restatement hereof. 10.14 DISPUTES. (a) Resolution of any and all disputes arising from or in connection with this Agreement other than those arising from or in connection with Article IV of this Agreement, whether based on contract, tort, statute or otherwise, including, but not limited to, disputes in connection with claims by third parties (collectively, "Disputes"), shall be subject to the provisions of this Section 10.14; provided, however, that nothing contained herein shall preclude any party from seeking or obtaining (i) injunctive relief or (ii) equitable or other judicial relief to enforce the provisions hereof or to preserve the status quo pending resolution of Disputes hereunder. 41 45 (b) Any party may give the other parties written notice of any Dispute not resolved in the normal course of business. The parties shall attempt in good faith to resolve any Dispute promptly by negotiation between executives of the parties who have authority to settle the controversy. Within 15 days after delivery of the notice, the foregoing executives of both parties shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary for a period not to exceed five days, to attempt to resolve the Dispute. All reasonable requests for information made by one party to the other will be honored. If the parties do not resolve the Dispute within such 20 day period (the "Initial Mediation Period"), the parties shall attempt in good faith to resolve the Dispute by negotiation between or among the Designated Officers. The Designated Officers shall meet at a mutually acceptable time and place (but in no event no later than 15 days following the expiration of the Initial Mediation Period) and thereafter as often as they reasonably deem necessary for a period not to exceed 15 days, to attempt to resolve the Dispute. (c) If the Dispute has not been resolved by negotiation within 50 days of the first party's notice, or if the parties failed to meet within 15 days of the first party's notice, or if the Designated Officers failed to meet within 35 days of the first party's notice, any party may commence any litigation or other procedure allowed by law. 10.15 EXCLUSIVITY OF TAX SHARING AGREEMENT. Notwithstanding anything in this Agreement to the contrary, and subject to the provisions of Article IV hereof, the Tax Sharing Agreement will be the exclusive agreement among the parties with respect to all matters pertaining to Taxes, including, without limitation, indemnification with respect to matters pertaining to Taxes and indemnification with respect to the qualification of the Distribution as a tax-free distribution under Section 355 and related provisions of the Code. 42 46 IN WITNESS WHEREOF, the parties have caused this Separation and Distribution Agreement to be executed by their duly authorized representatives. ALLEGHENY TELEDYNE INCORPORATED By: Name: Title: TDY HOLDINGS, LLC By: Name: Title: TELEDYNE INDUSTRIES, INC. By: Name: Title: TELEDYNE TECHNOLOGIES INCORPORATED By: Name: Title: 43 EX-3.1 3 FORM OF RESTATED CERTIFICATE OF INCORPORATION 1 Exhibit 3.1 FORM OF RESTATED CERTIFICATE OF INCORPORATION OF TELEDYNE TECHNOLOGIES INCORPORATED ONE: The name of the corporation is Teledyne Technologies Incorporated (hereinafter referred to as the "Corporation"). TWO: The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle, and the name of its registered agent at such address is The Corporation Trust Company. THREE: The purpose of the Corporation is to engage in any lawful act or activity for which a Corporation may be organized under the Delaware General Corporation Law. FOUR: The total number of shares of all classes of stock which the Corporation shall have authority to issue is One Hundred Forty Million (140,000,000), consisting of One Hundred Twenty Five Million (125,000,000) shares of Common Stock, par value one cent ($.01) per share (the "Common Stock"), and Fifteen Million (15,000,000) shares of Preferred Stock, par value one cent ($.01) per share (the "Preferred Stock"). The term "Voting Stock" shall hereafter refer to all shares of capital stock entitled to vote generally in the election of directors. A. Common Stock 1. Except where otherwise provided by law, by this Restated Certificate of Incorporation, or by resolution of the Board of Directors pursuant to this Article FOUR, the holders of the Common Stock issued and outstanding shall have and possess the exclusive right to notice of stockholders' meetings and the exclusive voting rights and powers of the capital stock. 2. Subject to any preferential rights of the Preferred Stock, dividends may be paid on the Common Stock, as and when declared by the Board of Directors, out of any funds of the Corporation legally available for the payment of such dividends. B. Preferred Stock The Board of Directors is authorized, subject to any limitations prescribed by law, to provide for the issuance of shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware (such certificate being hereinafter referred to as a "Preferred Stock Designation"), to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers (including but not limited to voting powers, if any), preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the terms of any Preferred Stock Designation. FIVE: The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of 2 the powers of the Corporation and of its directors and stockholders: A. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authority expressly conferred upon them by statute or by this Restated Certificate of Incorporation or the Bylaws of the Corporation, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation. B. The Board of Directors may adopt, amend or repeal the Bylaws of the Corporation. The stockholders of the Corporation may not adopt, amend or repeal the Bylaws of the Corporation other than by the affirmative vote of 75% of the combined voting power of all outstanding voting securities of the Corporation entitled to vote generally in the election of directors of the Board of Directors of the Corporation ("Voting Power"), voting together as a single class. C. The directors of the Corporation need not be elected by written ballot unless the Bylaws so provide. SIX: The Corporation reserves the right to amend and repeal any provision contained in this Restated Certificate of Incorporation in the manner from time to time prescribed by the laws of the State of Delaware. All rights herein conferred are granted subject to this reservation. SEVEN: A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which such director derived any improper personal benefit. No amendment to or repeal of this Article SEVEN shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. If the Delaware General Corporation Law is amended to authorize corporate action further eliminating the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as amended. EIGHT: A. Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director or an officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an "indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith; provided, however, that, except as provided in Section C of this Article EIGHT with respect to proceedings to enforce rights to indemnification, -2- 3 the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. B. Right to Advancement of Expenses. The right to indemnification conferred in Section A of this Article EIGHT shall include the right to be paid by the Corporation the expenses (including attorneys' fees) incurred in defending any such proceeding in advance of its final disposition (hereinafter an "advancement of expenses"); provided, however, that, if the Delaware General Corporation Law requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a director or officer of the Corporation (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a "final adjudication") that such indemnitee is not entitled to be indemnified for such expenses under this Section B or otherwise. The rights to indemnification and to the advancement of expenses conferred in Sections A and B of this Article EIGHT shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the indemnitee's heirs, executors and administrators. C. Right of Indemnitee to Bring Suit. If a claim under Section A or B of this Article EIGHT is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty (20) days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and in any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article EIGHT or otherwise shall be on the Corporation. D. Non-Exclusivity of Rights. The rights to indemnification and to the advancement of expenses conferred in this Article EIGHT shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Corporation's Restated Certificate of -3- 4 Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise. E. Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. F. Indemnification of Employees and Agents of the Corporation. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation, including any subsidiary of the Corporation, to the fullest extent of the provisions of this Article with respect to the indemnification and advancement of expenses of directors and officers of the Corporation. G. Amendment. Any repeal or modification of this Article EIGHT shall not change the rights of any person to indemnification with respect to any action or omission occurring prior to such repeal or modification. NINE: The following provisions are inserted for the definition, limitation and regulation of actions of the stockholders of the Corporation: A. Action to be Taken at Stockholder Meetings Only. Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of such stockholders and may not be effected by the written consent of such stockholders. B. Calling of Special Meetings. Special meetings of the stockholders, other than those required by statute, may be called only by the Board of Directors pursuant to a resolution approved by a majority of the directors then in office, the Chairman of the Board or the Chief Executive Officer. The Board of Directors may postpone, reschedule or cancel any previously scheduled special meeting. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation's notice of meeting (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice as provided in this Article NINE, Section B, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Article NINE, Section B. Nominations by stockholders of persons for election to the Board of Directors may be made at such a special meeting of stockholders if the stockholder's notice required by Article NINE, Section C shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not earlier than the ninetieth day prior to such special meeting and not later than the close of business on the later of the seventy-fifth day prior to such special meeting or the tenth day following the day on which a public announcement (as defined in subparagraph (e) of Article NINE, Section C) is first made of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. C. Notice of Nominations and Action to be Taken at an Annual Meeting. -4- 5 (a) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (i) pursuant to the Corporation's notice of meeting, (ii) by or at the direction of the Board of Directors or (iii) by any stockholder of the Corporation who was a stockholder of record at the time of giving of the notice provided for in this Article NINE, Section C who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Article NINE, Section C. (b) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of paragraph (a) of this Article NINE, Section C, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such business must be a proper matter for stockholder action under the Delaware General Corporation Law. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not less than seventy-five days nor more than ninety days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than thirty days or delayed by more than sixty days from such anniversary date, or in the case of the first annual meeting of the Corporation's stockholders after the Corporation becomes subject to the reporting requirements of Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), notice by the stockholder to be timely must be so delivered not earlier than the ninetieth day prior to such annual meeting and not later than the close of business on the later of the sixtieth day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made. Such stockholder's notice shall set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (ii) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any financial or other interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (1) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner and (2) the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner. (c) Notwithstanding anything in the second sentence of paragraph (b) of this Article NINE, Section C to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least eighty-five days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this Article NINE, Section C shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth day following the day on which such public announcement is first made by the Corporation. (d) Only such persons who are nominated in accordance with the procedures set forth in this Article NINE, Section C shall be eligible to serve as directors and only such business shall be conducted at an annual meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Article NINE, Section C. The presiding officer -5- 6 of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this Article NINE, Section C and, if any proposed nomination or business is not in compliance with this Article NINE, Section C, to declare that such defective proposed business or nomination shall be disregarded. (e) For purposes of this Article NINE, Section C, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or a comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (f) Notwithstanding the foregoing provisions of this Article NINE, Section C, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Article NINE, Section C. Nothing in this Article NINE, Section C shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. (g) The Bylaws of the Corporation may contain additional provisions not inconsistent with this Article NINE, Section C regarding nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be transacted by the stockholders. Without limiting the category of such provisions which would not be inconsistent with this Article NINE, Section C, a provision in the Bylaws of the Corporation which sets forth additional information which must be provided by a stockholder in the notice required by this Article NINE, Section C shall not be deemed to be so inconsistent. D. Voting. The stockholders shall not have the right to cumulate their votes in the election of directors. TEN: (A) Except as otherwise fixed pursuant to the provisions of Article FOUR hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect additional directors under specified circumstances, the number of directors of the Corporation shall be fixed from time to time by the affirmative vote of a majority of the whole Board of Directors. The directors, other than those who may be elected by the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, shall be classified, with respect to the time for which they severally hold office, into three classes: Class I, Class II and Class III. The terms of office of the initial classes of directors shall be as follows: the Class I Directors shall be elected to hold office for a term to expire at the first annual meeting of stockholders after the initial classification of directors; the Class II Directors shall be elected to hold office for a term to expire at the second annual meeting of stockholders after the initial classification of directors; and the Class III Directors shall be elected to hold office for a term to expire at the third annual meeting of stockholders after the initial classification of directors; and in the case of each class, until their respective successors are duly elected and qualified. At each annual meeting of stockholders the directors elected to succeed those whose terms have expired shall be identified as being of the same class as the directors they succeed and shall be elected to hold office for a term to expire at the third annual meeting of stockholders after their election, or until his or her earlier resignation or removal, and until their respective successors are duly elected and qualified. (B) Except as otherwise fixed pursuant to the provisions of Article FOUR hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors: -6- 7 (a) In case of any increase in the number of directors, the additional director or directors, and in case of any vacancy in the Board of Directors due to death, resignation, removal, disqualification or any other reason, the successors to fill the vacancies, shall be elected only by a majority of the directors then in office, even though less than a quorum, or by a sole remaining director and not by the stockholders, unless otherwise provided by law or by resolution adopted by a majority of the whole Board of Directors. (b) Directors appointed in the manner provided in paragraph (a) to newly created directorships resulting from any increase in the authorized number of directors or any vacancies on the Board of Directors resulting from death, resignation, removal, disqualification or any other cause shall hold office for a term expiring at the next annual meeting of stockholders at which the term of the class to which they have been elected expires. (c) No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. (C) Except as otherwise fixed pursuant to the provisions of Article FOUR hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors, any director or directors may be removed from office at any time, but only for cause and only by the affirmative vote of 75% of the Voting Power, voting together as a single class. ELEVEN: In addition to any other considerations which the Board of Directors, any committee thereof or any individual director lawfully may take into account in determining whether to take or refrain from taking corporate action on any matter, including making or declining to make any recommendations to the stockholders of the Corporation, the Board of Directors, any committee thereof or any individual director may in its, his or her discretion consider the long term as well as the short term best interests of the Corporation (including the possibility that these interests may best be served by the continued independence of the Corporation), taking into account and weighing as deemed appropriate the effects of such action on employees, suppliers, distributors and customers of the Corporation and its subsidiaries and the effect upon communities in which the offices or facilities of the Corporation and its subsidiaries are located and any other factors considered pertinent. This Article ELEVEN shall be deemed to grant discretionary authority to the Board of Directors, any committee thereof and each individual director, and shall not be deemed to provide to any specific constituency any right to be considered. TWELVE: In addition to the requirements of (i) law and (ii) the other provisions of this Restated Certificate of Incorporation, the affirmative vote of the holders of at least two-thirds of the outstanding shares of Common Stock of the Corporation entitled to vote shall be required for the adoption or authorization of a Fundamental Change unless the Fundamental Change has been approved at a meeting of the Board of Directors by the vote of more than two-thirds of the incumbent members of the Board of Directors. As used in this Article Twelve, "Fundamental Change" shall mean (1) any merger or consolidation of the Corporation with or into any other corporation, (2) any sale, lease, exchange, transfer or other disposition, but excluding a mortgage or any other security device, of all or substantially all of the assets of the Corporation, (3) any merger or consolidation of a Significant Shareholder with or into the Corporation or a direct or indirect subsidiary of the Corporation, (4) any sale, lease, exchange, transfer or other disposition to the Corporation or to a direct or indirect subsidiary of the Corporation of any Common Stock of the Corporation held by a Significant Shareholder or any other assets of a Significant Shareholder which, if included with all other -7- 8 dispositions consummated during the same fiscal year of the Corporation by the same Significant Shareholder, would result in dispositions of assets having an aggregate fair value in excess of five percent of the total consolidated assets of the Corporation as shown on its certified balance sheet as of the end of the fiscal year preceding the proposed disposition, (5) any reclassification of Common Stock of the Corporation, or any recapitalization involving Common Stock of the Corporation, consummated within five years after a Significant Shareholder becomes a Significant Shareholder, whereby the number of outstanding shares of Common Stock is reduced or any of such shares are converted into or exchanged for cash or other securities, (6) any dissolution and (7) any agreement, contract or other arrangement providing for any of the transactions described in this definition of Fundamental Change but, notwithstanding anything to the contrary herein, Fundamental Change shall not include any merger pursuant to the Delaware General Corporation Law, as amended from time to time, which does not require a vote of the Corporation's stockholders for approval. As used in this Article TWELVE, "Significant Shareholder" shall mean any person who or which beneficially owns a number of shares of Common Stock of the Corporation, whether or not such number includes shares not then outstanding or entitled to vote, which exceeds a number equal to fifteen percent of the outstanding shares of Common Stock of the Corporation entitled to vote, any and all affiliates of such person and any and all associates and family members of such person or any such affiliate. THIRTEEN: Notwithstanding any other provisions of this Restated Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of Voting Stock required by law or this Restated Certificate of Incorporation, the affirmative vote of the holders or at least 75% of the Voting Power, voting together as a single class, shall be required to alter, amend, supplement or repeal, or to adopt any provision inconsistent with the purpose or intent of, paragraph B of Article FIVE and Articles SEVEN, NINE, TEN, ELEVEN, TWELVE or THIRTEEN; provided, however, that no amendment of Article TWELVE shall apply to any person who is a Significant Shareholder at the time of the adoption of such amendment. -8- EX-3.2 4 AMENDED AND RESTATED BYLAWS 1 Exhibit 3.2 ---------------------------------------------- AMENDED AND RESTATED BYLAWS OF TELEDYNE TECHNOLOGIES INCORPORATED ---------------------------------------------- ADOPTED: _______________, 1999 2 TABLE OF CONTENTS
Page ---- ARTICLE I OFFICES.....................................................................................1 Section 1. Registered Office...........................................................1 Section 2. Other Offices...............................................................1 ARTICLE II MEETINGS OF STOCKHOLDERS....................................................................1 Section 1. Place of Meetings...........................................................1 Section 2. Annual Meeting..............................................................1 Section 3. Special Meetings............................................................1 Section 4. Notice of Meetings..........................................................1 Section 5. Quorum; Adjournment.........................................................2 Section 6. Proxies and Voting..........................................................2 Section 7. Stock List..................................................................2 ARTICLE III BOARD OF DIRECTORS..........................................................................3 Section 1. Duties and Powers...........................................................3 Section 3. Vacancies...................................................................4 Section 4. Meetings....................................................................4 Section 5. Quorum......................................................................5 Section 6. Actions of Board Without a Meeting..........................................5 Section 7. Meetings by Means of Conference Telephone...................................5 Section 8. Committees..................................................................5 Section 9. Compensation................................................................5 Section 10. Removal.....................................................................6 Section 11. Initial Period..............................................................6 ARTICLE IV OFFICERS....................................................................................6 Section 1. General.....................................................................6 Section 2. Election; Term of Office....................................................7 Section 3. Chairman of the Board.......................................................7 Section 4. Chief Executive Officer.....................................................7 Section 5. President...................................................................7 Section 6. Vice President..............................................................8 Section 7. Secretary...................................................................8 Section 8. Assistant Secretaries.......................................................8 Section 9. Treasurer...................................................................8 Section 10. Assistant Treasurers........................................................8 Section 11. Other Officers..............................................................9 ARTICLE V STOCK.......................................................................................9 Section 1. Form of Certificates; Uncertificated Shares.................................9 Section 2. Signatures..................................................................9
i 3 Section 3. Lost Certificates...........................................................9 Section 4. Transfers...................................................................9 Section 5. Record Date................................................................10 Section 6. Beneficial Owners..........................................................10 Section 7. Voting Securities Owned by the Corporation.................................10 ARTICLE VI NOTICES....................................................................................10 Section 1. Notices....................................................................10 Section 2. Waiver of Notice...........................................................11 ARTICLE VII GENERAL PROVISIONS.........................................................................11 Section 1. Dividends..................................................................11 Section 2. Disbursements..............................................................11 Section 3. Corporation Seal...........................................................11 ARTICLE VIII AMENDMENTS.................................................................................11
ii 4 AMENDED AND RESTATED BYLAWS OF TELEDYNE TECHNOLOGIES INCORPORATED -------------------------------------------- (hereinafter called the "Corporation") ARTICLE I OFFICES Section 1. Registered Office. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may determine from time to time. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Place of Meetings. Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors or the officer of the Corporation calling the meeting as authorized by the Corporation's Certificate of Incorporation and stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual Meeting. Each Annual Meeting of Stockholders shall be held on such date and at such time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. At an Annual Meeting, the stockholders shall elect directors, and transact such other business as may properly be brought before the meeting. Section 3. Special Meetings. Special meetings of the stockholders, other than those required by statute, may be called only as provided in, and for the purposes specified in accordance with, the Corporation's Certificate of Incorporation. Section 4. Notice of Meetings. Written notice of the place, date, and time of each meeting of the stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or as required from time to time by the Delaware 5 General Corporation Law or the Certificate of Incorporation. The notice of a special meeting shall also state the purpose or purposes for which the meeting is called. Section 5. Quorum; Adjournment. At any meeting of the stockholders, the holders of a majority of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law or the Certificate of Incorporation. If a quorum shall fail to attend any meeting, the chairperson of the meeting or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date, or time until a quorum shall be present or represented. When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date, and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. Section 6. Proxies and Voting. At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy, authorized by an instrument in writing or in such manner as may be prescribed by the Delaware General Corporation Law, filed in accordance with the procedure established for the meeting. Each stockholder shall have one vote for every share of stock entitled to vote which is registered in his name on the record date for the meeting, except as otherwise provided herein or required by law or the Certificate of Incorporation. All voting, including on the election of directors but excepting where otherwise provided herein or required by law or the Certificate of Incorporation, may be by a voice vote; provided, however, that upon demand therefor by a stockholder entitled to vote or such stockholder's proxy, or at the discretion of the chairperson of the meeting, a stock vote shall be taken. Every stock vote shall be taken by ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. Every vote taken by ballots shall be counted by an inspector or inspectors appointed by the Board of Directors or the chairperson of the meeting. All elections shall be determined by a plurality of the votes cast. Except as otherwise required by law or the Certificate of Incorporation, all other matters shall be determined by a majority of the votes cast. For purposes of these Bylaws, a vote characterized as an abstention shall not count as a vote "cast." Section 7. Stock List. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in such stockholder's name, shall be open to the examination of any such stockholder, for any purpose germane to the meeting, during 2 6 ordinary business hours for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination of any such stockholder who is present. This list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them. ARTICLE III BOARD OF DIRECTORS Section 1. Duties and Powers. The business of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. Section 2. Number and Term of Office. Subject to Section 11 of this Article III, the Board of Directors shall consist of not less than four (4) and not more than ten (10) members. Subject to the foregoing sentence, the number of directors shall be fixed and may be changed from time to time by resolution duly adopted by a majority of the directors then in office, except as otherwise provided by law, the Certificate of Incorporation or these Bylaws. Except as provided in Section 3 of this Article, directors shall be elected by the holders of record of a plurality of the votes cast at Annual Meetings of stockholders. Any director may resign at any time upon written notice to the Corporation. Directors need not be stockholders. The directors, other than those who may be elected by the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, shall be classified, with respect to the time for which they severally hold office, into three classes: Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the whole number of the Board of Directors. The terms of office of the initial classes of directors shall be as follows: the Class I Directors shall be elected to hold office for a term to expire at the first Annual Meeting of stockholders after the initial classification of directors; the Class II Directors shall be elected to hold office for a term to expire at the second Annual Meeting of stockholders; and the Class III Directors shall be elected to hold office for a term to expire at the third Annual Meeting of stockholders; and in the case of each class, until their respective successors are duly elected and qualified. At each annual meeting of stockholders the directors elected to succeed those whose terms have expired shall be identified as being of the same class as the directors they succeed and shall be elected to hold office for a term to expire at the third Annual Meeting of stockholders after their election, or until his or her earlier resignation or removal, and until their respective successors are duly elected and qualified. This paragraph of Article III, Section 2 is also contained in Article TEN, Section (A) of the Corporation's Certificate of Incorporation, and accordingly, may be altered, amended or repealed only to the extent and at the time the comparable Certificate Article is altered, amended or repealed. 3 7 Section 3. Vacancies. Except as otherwise fixed pursuant to the provisions of Article FOUR of the Corporation's Certificate of Incorporation relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors: (a) In case of any increase in the number of directors, the additional director or directors, and in case of any vacancy in the Board of Directors due to death, resignation, removal, disqualification or any other reason, the successors to fill the vacancies, shall be elected by a majority of the directors then in office, even though less than a quorum, or by a sole remaining director. (b) Directors appointed in the manner provided in paragraph (a) to newly created directorships resulting from any increase in the authorized number of directors or any vacancies on the Board of Directors resulting from death, resignation, removal, disqualification or any other cause shall hold office for a term expiring at the next Annual Meeting of stockholders at which the term of the class to which they have been elected expires and until their successors are duly elected and qualified, or until their earlier resignation or removal. (c) No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. The foregoing provisions of this Article III, Section 3 are also contained in Article TEN, Section (B) of the Corporation's Certificate of Incorporation, and accordingly, may be altered, amended or repealed only to the extent and at the time the comparable Certificate Article is altered, amended or repealed. Section 4. Meetings. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. The first meeting of each newly-elected Board of Directors shall be held immediately following the Annual Meeting of Stockholders and no notice of such meeting shall be necessary to be given the newly-elected directors in order legally to constitute the meeting, provided a quorum shall be present. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President or a majority of the directors then in office. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone, telegram or facsimile transmission on twenty-four (24) hours' notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. Meetings may be held at any time without notice if all the directors are present or if all those not present waive such notice in accordance with Section 2 of Article VI of these Bylaws. Section 5. Quorum. Except as may be otherwise specifically provided by law, the Certificate of Incorporation or these Bylaws (including Section 11 of this Article III), at all meetings of the Board of Directors, a majority of the directors then in office shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any 4 8 meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 6. Actions of Board Without a Meeting. Unless otherwise provided by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Section 7. Meetings by Means of Conference Telephone. Unless otherwise provided by the Certificate of Incorporation or these Bylaws, members of the Board of Directors of the Corporation, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 7 shall constitute presence in person at such meeting. Section 8. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not such members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any committee, to the extent allowed by law and provided in the Bylaw or resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Each committee shall keep regular minutes and report to the Board of Directors when required. Section 9. Compensation. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. Section 10. Removal. Any director or directors may be removed from office only as provided in the Corporation's Certificate of Incorporation. 5 9 Section 11. Initial Period. (a) As used in these Bylaws, (i) the "Third Annual Meeting" means the third Annual Meeting of stockholders held after the date on which the common stock of the Corporation becomes registered pursuant to Section 12 of the Securities Exchange Act of 1934, (ii) the "Initial Period" means the period beginning on the date of the adoption of this Section 11 and ending on the date of the Third Annual Meeting, (iii) "ATI" means Allegheny Teledyne Incorporated, a Delaware corporation, (iv) and "Majority Directors" means directors of the Corporation who are also members of the Board of Directors of ATI. (b) During the Initial Period, at least a majority of the directors of the Corporation shall be Majority Directors. If the election of any director at any time during the Initial Period or if a director's ceasing to be a member of the Board of Directors of ATI results in the number of Majority Directors being less than a majority of the directors of the Corporation then in office, the number of directors shall be increased to the next largest number such that the filling of the resulting vacancy or vacancies by the election of one or more directors who are also members of the Board of Directors of ATI will result in a majority of the directors of the Corporation being Majority Directors, and the successor or successors to fill said vacancy or vacancies shall be elected by a majority of the Majority Directors then in office, or by a sole remaining Majority Director. (c) In case of any vacancy in the Board of Directors during the Initial Period due to death, resignation, removal or disqualification of or any other reason affecting any Majority Director, the successor to fill the vacancy shall be elected by a majority of the Majority Directors then in office, or by a sole remaining Majority Director. Directors elected in the manner provided in this paragraph (c) shall hold office for a term expiring at the next Annual Meeting of stockholders at which the term of the class to which they have been elected expires and until their successors are duly elected and qualified, or until their earlier resignation or removal. (d) During the Initial Period, no quorum shall exist at a meeting of the Board of Directors and no act shall be the act of the Board of Directors unless a majority of the directors present at any such meeting are Majority Directors. (e) The provisions of this Section 11 may not be altered, amended or repealed during the Initial Period except by a resolution duly adopted by all of the Majority Directors. ARTICLE IV OFFICERS Section 1. General. The officers of the Corporation shall be appointed by the Board of Directors and shall consist of a Chairman of the Board, a Chief Executive Officer, a President, such number of Vice Presidents as the Board of Directors shall elect from time to time, a Secretary, a Treasurer (or a position with the duties and responsibilities of a Treasurer) and such other officers and assistant officers (if any) as the Board of Directors may elect from time to time. Any number of offices may be held by the same person, unless the Certificate of Incorporation or these Bylaws otherwise provide. 6 10 Section 2. Election; Term of Office. The Board of Directors at its first meeting held after each Annual Meeting of stockholders shall elect a Chairman of the Board or a President, or both, a Secretary and a Treasurer (or a position with the duties and responsibilities of a Treasurer), and may also elect at that meeting or any other meeting, such other officers and agents as it shall deem necessary or appropriate. Each officer of the Corporation shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors together with the powers and duties customarily exercised by such officer; and each officer of the Corporation shall hold office until such officer's successor is elected and qualified or until such officer's earlier resignation or removal. Any officer may resign at any time upon written notice to the Corporation. The Board of Directors may remove any officer at any time, with or without cause, by the affirmative vote of a majority of directors then in office. Section 3. Chairman of the Board. The Chairman of the Board shall preside at all meetings of the stockholders and the Board of Directors and shall have such other duties and powers as may be prescribed by the Board of Directors from time to time. The Board of Directors may also designate one of its members as Vice Chairman of the Board. The Vice Chairman of the Board shall, during the absence or inability to act of the Chairman of the Board, have the powers and perform the duties of the Chairman of the Board, and shall have such other powers and perform such other duties as shall be prescribed from time to time by the Board of Directors. Section 4. Chief Executive Officer. The Chief Executive Officer shall have general charge and control over the affairs of the Corporation, subject to the Board of Directors, shall see that all orders and resolutions of the Board of Directors are carried out, shall report thereon to the Board of Directors, and shall have such other powers and perform such other duties as shall be prescribed from time to time by the Board of Directors. Section 5. President. The President shall have general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall have and exercise such further powers and duties as may be specifically delegated to or vested in the President from time to time by these Bylaws or the Board of Directors. In the absence of the Chairman of the Board and the Vice Chairman of the Board, or in the event of the inability of or refusal to act by the Chairman of the Board and the Vice Chairman of the Board, or if the Board of Directors has not designated a Chairman or Vice Chairman, the President shall perform the duties of the Chairman of the Board, and, when so acting, shall have all of the powers and be subject to all of the restrictions upon the Chairman of the Board. Section 6. Vice President. In the absence of the President or in the event of his inability or refusal to act, the Vice President (or in the event there be more than one vice president, the vice presidents in the order designated by the Board of Directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the President and, when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice Presidents shall perform such other duties and have such other powers as the Board of Directors or the President may from time to time prescribe. 7 11 Section 7. Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of stockholders and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for the standing and special committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the President. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there be no Assistant Secretary, then either the Board of Directors or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation and the Secretary or any Assistant Secretary, if there be one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his or her signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be. Section 8. Assistant Secretaries. Except as may be otherwise provided in these Bylaws, Assistant Secretaries, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, or the Secretary, and shall have the authority to perform all functions of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary. Section 9. Treasurer. The Treasurer shall have the custody of the corporate funds and securities, shall keep complete and accurate accounts of all receipts and disbursements of the Corporation, and shall deposit all monies and other valuable effects of the Corporation in its name and to its credit in such banks and other depositories as may be designated from time to time by the Board of Directors. The Treasurer shall disburse the funds of the Corporation, taking proper vouchers and receipts for such disbursements. The Treasurer shall, when and if required by the Board of Directors, give and file with the Corporation a bond, in such form and amount and with such surety or sureties as shall be satisfactory to the Board of Directors, for the faithful performance of his or her duties as Treasurer. The Treasurer shall have such other powers and perform such other duties as the Board of Directors or the President shall from time to time prescribe. Section 10. Assistant Treasurers. Except as may be otherwise provided in these Bylaws, Assistant Treasurers, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, or the Treasurer, and shall have the authority to perform all functions of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. Section 11. Other Officers. Such other officers as the Board of Directors may choose shall perform such duties and have such powers as may be assigned to them from time to time by the Board of Directors. The Board of Directors may delegate to any officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers. 8 12 ARTICLE V STOCK Section 1. Form of Certificates; Uncertificated Shares. The shares of the Corporation shall be represented by certificates; provided, that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares in accordance with the Delaware General Corporation Law. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock in the Corporation represented by a certificate, and upon request every holder of uncertificated shares of stock in the Corporation, shall be entitled to have a certificate signed in the name of the Corporation (i) by the Chairman of the Board or the President or a Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by such holder in the Corporation. Section 2. Signatures. Any or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. Section 3. Lost Certificates. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or such owner's legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 4. Transfers. Stock of the Corporation shall be transferable in the manner prescribed by law and in these Bylaws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or in the Corporation's books as the registered owner of uncertificated shares or by such person's attorney lawfully constituted in writing and upon the surrender of the certificate (if any) therefor, which shall be cancelled before a new certificate shall be issued. Section 5. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, 9 13 which shall not be more than sixty (60) days nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 6. Beneficial Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. Section 7. Voting Securities Owned by the Corporation. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the Chairman of the Board, the President, any Vice President or the Secretary and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons. ARTICLE VI NOTICES Section 1. Notices. Whenever written notice is required by law, the Certificate of Incorporation or these Bylaws, to be given to any director, member of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at such person's address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Written notice may also be given personally or by telegram, facsimile transmission, electronic mail, telex or cable and such notice shall be deemed to be given at the time of receipt thereof if given personally or at the time of transmission thereof if given by telegram, facsimile transmission, electronic mail, telex or cable. Section 2. Waiver of Notice. Whenever any notice is required by law, the Certificate of Incorporation or these Bylaws to be given to any director, member or a committee or stockholder, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to notice. 10 14 ARTICLE VII GENERAL PROVISIONS Section 1. Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting or by any Committee of the Board of Directors having such authority at any meeting thereof, and may be paid in cash, in property, in shares of the capital stock or in any combination thereof. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve. Section 2. Disbursements. All notes, checks, drafts and orders for the payment of money issued by the Corporation shall be signed in the name of the Corporation by such officers or such other persons as the Board of Directors may designate from time to time. Section 3. Corporation Seal. The corporate seal, if the Corporation shall have a corporate seal, shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE VIII AMENDMENTS Except as otherwise specifically provided in the particular Article of these Bylaws to be altered, amended or repealed, these Bylaws may be altered, amended or repealed and new Bylaws may be adopted at any meeting of the Board of Directors or of the stockholders, provided notice of the proposed change was given in the notice of the meeting. 11 EX-4.2 5 RIGHTS AGREEMENT 1 Exhibit 4.2 TELEDYNE TECHNOLOGIES INCORPORATED AND CHASEMELLON SHAREHOLDER SERVICES, L.L.C. RIGHTS AGENT RIGHTS AGREEMENT DATED AS OF ____________, 1999 2 TABLE OF CONTENTS Section 1. Definitions.....................................................................................1 Section 2. Appointment of Rights Agent.....................................................................4 Section 4. Form of Right Certificates......................................................................6 Section 5. Countersignature and Registration...............................................................6 Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.........................................6 Section 7. Exercise of Rights: Purchase Price; Expiration Date of Rights...................................7 Section 8. Cancellation and Destruction of Right Certificates..............................................8 Section 9. Availability of Preferred Shares................................................................8 Section 10. Preferred Shares Record Date....................................................................9 Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights..............................9 Section 12. Certificate of Adjustments.....................................................................14 Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power...........................15 Section 14. Fractional Rights and Fractional Shares........................................................15 Section 15. Rights of Action...............................................................................16 Section 16. Agreement of Right Holders.....................................................................16 Section 17. Right Certificate Holder Not Deemed a Stockholder..............................................17 Section 18. Concerning the Rights Agent....................................................................17 Section 19. Merger or Consolidation or Change of Name of Rights Agent......................................17 Section 20. Duties of Rights Agent.........................................................................18 Section 21. Change of Rights Agent.........................................................................20 Section 22. Issuance of New Right Certificates.............................................................20 Section 23. Redemption.....................................................................................20
i 3 Section 24. Exchange.......................................................................................21 Section 25. Notice of Certain Events.......................................................................22 Section 26. Notices........................................................................................23 Section 27. Supplements and Amendments.....................................................................23 Section 28. Successors.....................................................................................23 Section 29. Benefits of this Rights Agreement..............................................................24 Section 30. Severability...................................................................................24 Section 31. Governing Law..................................................................................24 Section 32. Counterparts...................................................................................24 Section 33. Descriptive Headings...........................................................................24 EXHIBIT A Section 1. Designation and Amount......................................................................A-1 Section 2. Dividends and Distributions.................................................................A-2 Section 3. Voting Rights...............................................................................A-3 Section 4. Certain Restrictions........................................................................A-3 Section 5. Reacquired Shares...........................................................................A-4 Section 6. Liquidation, Dissolution or Winding Up......................................................A-4 Section 7. Consolidation, Merger, etc..................................................................A-5 Section 8. No Redemption...............................................................................A-5 Section 9. Rank........................................................................................A-5 Section 10. Amendment...................................................................................A-5 EXHIBIT B
ii 4 Agreement, dated as of ______________, 1999, between TELEDYNE TECHNOLOGIES INCORPORATED, a Delaware corporation (the "Company"), and CHASEMELLON SHAREHOLDER SERVICES, L.L.C., a limited liability company (the "Rights Agent"). The Board of Directors of the Company has authorized and declared a dividend of one preferred share purchase right (a "Right") for each Common Share (as hereinafter defined) of the Company to be distributed in the distribution of Common Shares of the Company (the "Spin-Off") by Allegheny Teledyne Incorporated, a Delaware corporation ("ATI"), to ATI's stockholders, each Right representing the right to purchase one one-hundredth of a Preferred Share (as hereinafter defined) upon the terms and subject to the conditions herein set forth, and has further authorized and directed the issuance of one Right with respect to each Common Share of the Company that shall become outstanding between the effective date of the Spin-Off (the "Record Date") and the earliest of the Distribution Date, the Redemption Date and the Final Expiration Date (as such terms are hereinafter defined). Accordingly, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows: Section 1. Definitions. For purposes of this Rights Agreement, the following terms have the meanings indicated: "Acquiring Person" shall mean any Person who or which, together with all Affiliates and Associates of such Person, shall be the Beneficial Owner of 15 % or more of the Common Shares of the Company then outstanding, but shall not include the Company, any Subsidiary of the Company, any employee benefit plan of the Company or any Subsidiary of the Company or ATI, any entity holding Common Shares for or pursuant to the terms of any such plan. Notwithstanding the foregoing, no Person shall become an "Acquiring Person" as the result of an acquisition of Common Shares of the Company by the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person to 15 % or more of the Common Shares then outstanding; provided, however, that if a Person shall become the Beneficial Owner of 15 % or more of the Common Shares then outstanding by reason of share purchases by the Company and shall, after such share purchases by the Company, become the Beneficial Owner of any additional Common Shares, then such Person shall be deemed to be an "Acquiring Person." Notwithstanding the foregoing, if the Board of Directors of the Company determines in good faith that a Person who would otherwise be an "Acquiring Person," as defined pursuant to the foregoing provisions of this Section 1(a), has become such inadvertently, and such Person divests as promptly as practicable a sufficient number of Common Shares so that such Person would no longer be an "Acquiring Person," as defined pursuant to the foregoing provisions of this Section 1(a), then such Person shall not be deemed to be an "Acquiring Person" for any purposes of this Rights Agreement. Notwithstanding the foregoing provisions of this Section 1(a), ATI shall not be deemed to be an Acquiring Person by virtue of its ownership of capital stock of the Company prior to the Spin-Off. 5 (b) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect on the date of this Rights Agreement. (c) A Person shall be deemed the "Beneficial Owner" of and shall be deemed to "beneficially own" any Securities: (i) that such Person or any of such Person's Affiliates or Associates beneficially owns, directly or indirectly; (ii) that such Person or any of such Person's Affiliates or Associates has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of Securities), upon the exercise of conversion rights, exchange rights, rights (other than these Rights), warrants or options, or otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, Securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered Securities are accepted for purchase or exchange; or (B) the right to vote pursuant to any agreement, arrangement or understanding; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any Security if the agreement, arrangement or understanding to vote such Security (1) arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations promulgated under the Exchange Act and (2) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report); or (iii) that are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Person's Affiliates or Associates has any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of Securities) for the purpose of holding, acquiring, voting (except to the extent contemplated by the provisos to Section l(c)(ii)) or disposing of any Securities of the Company. Notwithstanding anything in this definition of Beneficial Ownership to the contrary, the phrase "then outstanding," when used with reference to a Person's Beneficial Ownership of Securities of the Company, shall mean the number of such Securities then issued and outstanding together with the number of such Securities not then actually issued and outstanding which such Person would be deemed to own beneficially hereunder. (d) "Business Day" shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of California and/or the State of New York are authorized or obligated by law or executive order to close. 2 6 (e) "Close of business" on any given date shall mean 5:00 P.M., Eastern time, on such date; provided, however, that if such date is not a Business Day it shall mean 5:00 P.M., Eastern time, on the next succeeding Business Day. (f) "Common Shares" when used with reference to the Company shall mean the shares of common stock, par value $.01 per share, of the Company. "Common Shares" when used with reference to any Person other than the Company shall mean the capital stock (or equity interest) with the greatest voting power of such other Person or, if such other Person is a Subsidiary of another Person, the Person that ultimately controls such first-mentioned Person. (g) "Company" shall have the meaning set forth in the preamble hereof. (h) "Current per share market price" shall have the meaning set forth in Section 11(d). (i) "Distribution Date" shall have the meaning set forth in Section 3. (j) "Equivalent preferred shares" shall have the meaning set forth in Section 11(b). (k) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (l) "Exchange Ratio" shall have the meaning set forth in Section 24(a). (m) "Final Expiration Date" shall have the meaning set forth in Section 7(a). (n) "Person" shall mean any individual, firm, corporation or other entity, and shall include any successor (by merger or otherwise) of such entity. (o) "Preferred Shares" shall mean shares of Series A Junior Participating Preferred Stock, par value $.01 per share, of the Company having the rights and preferences set forth in the form of Certificate of Designations attached to this Rights Agreement as Exhibit A. (p) "Purchase Price" shall have the meaning set forth in Section 4. (q) "Record Date" shall have the meaning set forth in the second paragraph hereof. (r) "Redemption Date" shall have the meaning set forth in Section 7(a). (s) "Redemption Price" shall have the meaning set forth in Section 23(a). (t) "Right" shall have the meaning set forth in the second paragraph hereof. (u) "Right Certificate" shall have the meaning set forth in Section 3(a). (v) "Rights Agent" shall have the meaning set forth in the preamble hereof. (w) "Security" shall have the meaning set forth in Section 3(a)(10) of the Exchange Act. 3 7 (x) "Shares Acquisition Date" shall mean the first date of public announcement by the Company or an Acquiring Person that an Acquiring Person has become such. (y) "Subsidiary" of any Person shall mean any corporation or other entity of which a majority of the voting power of the voting equity securities or equity interests is owned, directly or indirectly, by such Person. (z) "Summary of Rights" shall have the meaning set forth in Section 3(b). (aa) "Trading Day" shall have the meaning set forth in Section 11(d). Section 2. Appointment of Rights Agent. The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3, shall prior to the Distribution Date also be the holders of the Common Shares of the Company) in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such co-Rights Agents as it may deem necessary or desirable. Section 3. Issue of Right Certificates. (a) Until the earlier of (i) the Shares Acquisition Date or (ii) the tenth business day (or such later date as may be determined by action of the Board of Directors prior to such time as any Person becomes an Acquiring Person) after the date of the commencement or the announcement of an intention to commence by any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company or any entity holding Common Shares for or pursuant to the terms of any such plan) of a tender or exchange offer the consummation of which would result in any Person becoming the Beneficial Owner of Common Shares of the Company aggregating 15% or more of the then outstanding Common Shares (including any such date which is after the date of this Rights Agreement and prior to the issuance of the Rights; the earlier of such dates being herein referred to as the "Distribution Date"), (x) the Rights will be evidenced (subject to the provisions of Section 3(b)) by the certificates for Common Shares registered in the names of the holders thereof (which certificates shall also be deemed to be Right Certificates) and not by separate Right Certificates, and (y) the right to receive Right Certificates will be transferable only in connection with the transfer of Common Shares. As soon as practicable after the Distribution Date, the Company will prepare and execute, the Rights Agent will countersign, and the Company will send or cause to be sent (and the Rights Agent will, if requested, send) by first-class, insured, postage-prepaid mail, to each record holder of Common Shares as of the close of business on the Distribution Date at the address of such holder shown on the records of the Company a Right Certificate, in substantially the form of Exhibit B hereto, evidencing one Right for each Common Share so held (a "Right Certificate"). As of the Distribution Date, the Rights will be evidenced solely by such Right Certificates. (b) Until the Distribution Date (or the earlier of the Redemption Date or the Final Expiration Date), the surrender for transfer of any certificate for Common Shares outstanding on the Record Date shall also constitute the transfer of the Rights associated with the Common Shares represented thereby. 4 8 (c) Until the earliest of the Distribution Date, the Redemption Date or the Final Expiration Date, certificates for Common Shares shall have impressed on, printed on, written on or otherwise affixed to them the following legend: This certificate also evidences and entitles the holder hereof to certain rights as set forth in a Rights Agreement between Teledyne Technologies Incorporated and ChaseMellon Shareholder Services, L.L.C., dated as of ______________, 1999, as amended from time to time (as so amended, the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of Teledyne Technologies Incorporated. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. Teledyne Technologies Incorporated will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. Under certain circumstances, as set forth in the Rights Agreement, Rights issued to any Person who becomes an Acquiring Person (as defined in the Rights Agreement) may become null and void. With respect to the certificates containing the foregoing legend, until the Distribution Date the Rights associated with the Common Shares represented by such certificates shall be evidenced by such certificates alone, and the surrender for transfer of any such certificate shall also constitute the transfer of the Rights associated with the Common Shares represented thereby. (d) Until the earliest of the Distribution Date, the Redemption Date or the Final Expiration Date, confirmations and account statements sent to holders of Common Shares in book-entry form and initial transaction statements relating to the registration, pledge or release from pledge of Common Shares in uncertificated form shall have impressed on, printed on, written on or otherwise affixed to them substantially the following legend: The shares of the Common Stock, par value $.01 per share, of Teledyne Technologies Incorporated, to which this statement relates also evidence and entitle the holder thereof to certain Rights as set forth in a Rights Agreement between Teledyne Technologies Incorporated and ChaseMellon Shareholder Services, L.L.C., dated as of __________, 1999 (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of Teledyne Technologies Incorporated. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by the shares to which this statement relates. Teledyne Technologies Incorporated will mail to the holder of the shares to which this statement relates and any registered pledgee of uncertificated shares a copy of the Rights Agreement without charge after receipt of a written request therefor. Under certain circumstances, as set forth in the Rights Agreement, Rights issued to any Person who becomes an Acquiring Person (as defined in the Rights Agreement) may become null and void. With respect to Common Shares in book-entry form for which there has been sent a confirmation or account statement and Common Shares in uncertificated form for which there has been sent an initial transaction statement containing the foregoing legend, until the Distribution Date, the rights associated with such Common Shares shall be evidenced by such Common Shares alone, and the registration of transfer or pledge, or the release from pledge, of 5 9 any such Common Shares shall also constitute the registration of transfer or pledge, or the release from pledge, as the case may be, of the rights associated with such Common Shares. (e) In the event that the Company purchases or acquires any Common Shares after the Record Date but prior to the Distribution Date, any Rights associated with such Common Shares shall be deemed cancelled and retired so that the Company shall not be entitled to exercise any Rights associated with Common Shares that are no longer outstanding. Section 4. Form of Right Certificates. The Right Certificates (and the forms of election to purchase Preferred Shares and of assignment to be printed on the reverse thereof) shall be substantially the same as Exhibit B hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Rights Agreement or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange or automated quotation system on which the Rights may from time to time be listed or to conform to usage. Subject to the provisions of Section 22, the Right Certificates shall entitle the holders thereof to purchase such number of one one-hundredths of a Preferred Share as shall be set forth therein at the price per one one-hundredth of a Preferred Share set forth therein (the "Purchase Price"), but the number of such one one-hundredths of a Preferred Share and the Purchase Price shall be subject to adjustment as provided herein. Section 5. Countersignature and Registration. The Right Certificates shall be executed on behalf of the Company by its Chairman of the Board, its Chief Executive Officer, its President, any of its Vice Presidents, or its Treasurer, either manually or by facsimile signature, shall have affixed thereto the Company's seal or a facsimile thereof, and shall be attested by the Secretary or an Assistant Secretary of the Company, either manually or by facsimile signature. The Right Certificates shall be manually countersigned by the Rights Agent and shall not be valid for any purpose unless countersigned. In case any officer of the Company who shall have signed any of the Right Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Right Certificates nevertheless may be countersigned by the Rights Agent and issued and delivered by the Company with the same force and effect as though the person who signed such Right Certificates had not ceased to be such officer of the Company; and any Right Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Right Certificate, shall be a proper officer of the Company to sign such Right Certificate, although at the date of execution of this Rights Agreement any such person was not such an officer. Following the Distribution Date, the Rights Agent will keep or cause to be kept, at its principal office, books for registration and transfer of the Right Certificates issued hereunder. Such books shall show the names and addresses of the holders of the Right Certificates, the number of Rights evidenced on its face by each of the Right Certificates and the date of each of the Right Certificates. Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject to the provisions of Section 14, 6 10 at any time after the close of business on the Distribution Date and at or prior to the close of business on the earlier of the Redemption Date or the Final Expiration Date, any Right Certificate or Right Certificates (other than Right Certificates representing Rights that have become void pursuant to Section 11(a)(ii) or that have been exchanged pursuant to Section 24) may be transferred, split up, combined or exchanged for another Right Certificate or Right Certificates, entitling the registered holder to purchase a like number of one one-hundredths of a Preferred Share as the Right Certificate or Right Certificates surrendered then entitled such holder to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Right Certificate or Right Certificates shall make such request in writing delivered to the Rights Agent and shall surrender the Right Certificate or Right Certificates to be transferred, split up, combined or exchanged at the principal office of the Rights Agent. Thereupon the Rights Agent shall countersign and deliver to the person entitled thereto a Right Certificate or Right Certificates, as the case may be, as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Right Certificates. Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Right Certificate and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them and, at the Company's request, reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto and upon surrender to the Rights Agent and cancellation of the Right Certificate if mutilated, the Company will make and deliver a new Right Certificate of like tenor to the Rights Agent for delivery to the registered holder in lieu of the Right Certificate so lost, stolen, destroyed or mutilated. Section 7. Exercise of Rights: Purchase Price; Expiration Date of Rights. (a) The registered holder of any Right Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein) in whole or in part at any time after the Distribution Date upon surrender of the Right Certificate, with the form of election to purchase on the reverse side thereof duly executed, to the Rights Agent at the principal office of the Rights Agent, together with payment of the Purchase Price for each one one-hundredth of a Preferred Share as to which Rights are being exercised, at or prior to the earliest of (i) the close of business on ___________, 2009 (the "Final Expiration Date"), (ii) the time at which the Rights are to be redeemed as provided in Section 23 (the "Redemption Date"), or (iii) the time at which such Rights are to be exchanged as provided in Section 24. (b) The Purchase Price for each one one-hundredth of a Preferred Share purchasable pursuant to the exercise of a Right shall initially be $______, shall be subject to adjustment from time to time as provided in Section 11 or 13, and shall be payable in lawful money of the United States of America in accordance with Section 7 (c). (c) Upon receipt of a Right Certificate representing exercisable Rights, with the form of election to purchase duly executed, accompanied by payment of the Purchase Price for the shares to be purchased and an amount equal to any applicable transfer tax required to be paid by the holder of such Right Certificate in accordance with Section 9 by certified check, cashier's check or money order payable to the order of the Company, the Rights Agent shall thereupon 7 11 promptly (i) (A) requisition from any transfer agent of the Preferred Shares certificates for the number of Preferred Shares to be purchased and the Company hereby authorizes such transfer agent to comply with all such requests or (B) requisition from the depositary agent depositary receipts representing such number of one one-hundredths of a Preferred Share as are to be purchased (in which case certificates for the Preferred Shares represented by such receipts shall be deposited by the transfer agent with the depositary agent) and the Company hereby directs the depositary agent to comply with such request, (ii) when appropriate, requisition from the Company the amount of cash to be paid in lieu of issuance of fractional shares in accordance with Section 14, (iii) promptly after receipt of such certificates or depositary receipts, cause the same to be delivered to or upon the order of the registered holder of such Right Certificate, registered in such name or names as may be designated by such holder, and (iv) when appropriate, after receipt, promptly deliver such cash to or upon the order of the registered holder of such Right Certificate. (d) In case the registered holder of any Right Certificate shall exercise less than all the Rights evidenced thereby, a new Right Certificate evidencing Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent to the registered holder of such Right Certificate or to his duly authorized assigns, subject to the provisions of Section 14. Section 8. Cancellation and Destruction of Right Certificates. All Right Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or to any of its agents, be delivered to the Rights Agent for cancellation or in cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Rights Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement and the Rights Agent shall so cancel and retire, any other Right Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all cancelled Right Certificates to the Company or shall, at the written request of the Company, destroy such cancelled Right Certificates and in such case shall deliver a certificate of destruction thereof to the Company. Section 9. Availability of Preferred Shares. The Company covenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued Preferred Shares or any Preferred Shares held in its treasury the number of Preferred Shares that will be sufficient to permit the exercise in full of all outstanding Rights in accordance with Section 7. The Company covenants and agrees that it will take all such action as may be necessary to ensure that all Preferred Shares delivered upon exercise of Rights shall, at the time of delivery of the certificates for such Preferred Shares (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable shares. The Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the issuance or delivery of the Right Certificates or of any Preferred Shares upon the exercise of Rights. The Company shall not, however, be required to pay any transfer tax which may be payable in respect of any transfer or delivery of Right Certificates to a person other than, or any issuance or delivery of certificates or depositary receipts for Preferred Shares in a name other than that of, the 8 12 registered holder of the Right Certificate evidencing the Rights surrendered for exercise or to issue or to deliver any certificates or depositary receipts for Preferred Shares upon the exercise of any Rights until any such tax shall have been paid (any such tax being payable by the holder of such Right Certificate at the time of surrender) or until it has been established to the Company's reasonable satisfaction that no such tax is due. Section 10. Preferred Shares Record Date. Each person in whose name any certificate for Preferred Shares is issued upon an exercise of Rights shall for all purposes be deemed to have become the holder of record of the Preferred Shares represented thereby on, and such certificate shall be dated, the date upon which the Right Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and any applicable transfer taxes) was made; provided, however, that if the date of such surrender and payment is a date upon which the Preferred Share transfer books of the Company are closed, such person shall be deemed to have become the record holder of such shares on and such certificate shall be dated the next succeeding Business Day on which the Preferred Share transfer books of the Company are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Right Certificate shall not be entitled to any rights of a holder of the Preferred Shares for which such Rights shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of the Company except as provided herein. Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights. The Purchase Price, the number of Preferred Shares covered by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11. (a) (i) In the event that the Company shall at any time after the date of this Rights Agreement (A) declare a dividend on the Preferred Shares payable in Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine the outstanding Preferred Shares into a smaller number of Preferred Shares or (D) issue any shares of its capital stock in a reclassification of the Preferred Shares (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), except as otherwise provided in this Section 11(a), the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification and the number and kind of shares of capital stock issuable on such date shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive the aggregate number and kind of shares of capital stock which, if such Right had been exercised immediately prior to such date and at a time when the Preferred Share transfer books of the Company were open, he would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification; provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. (ii) Subject to Section 24, in the event that any Person becomes an Acquiring Person, each holder of a Right shall thereafter have a right to receive, upon exercise thereof at a price equal to the then-current Purchase Price multiplied by the number of one one-hundredths of a 9 13 Preferred Share for which a Right is then exercisable, in accordance with the terms of this Rights Agreement and in lieu of Preferred Shares, such number of Common Shares of the Company as shall equal the result obtained by (A) multiplying the then-current Purchase Price by the number of one one-hundredths of a Preferred Share for which a Right is then exercisable and dividing that product by (B) 50% of the current per share market price of the Common Shares (determined pursuant to Section 11(d)) on the date of such event. In the event that any Person shall become an Acquiring Person and the Rights shall then be outstanding, the Company shall not take any action which would eliminate or diminish the benefits intended to be afforded by the Rights. From and after the occurrence of such event, any Rights that are or were acquired or beneficially owned by any Acquiring Person (or any Associate or Affiliate of such Acquiring Person) shall be void and any holder of such Rights shall thereafter have no right to exercise such Rights under any provision of this Rights Agreement. No Right Certificate shall be issued pursuant to Section 3 to represent Rights beneficially owned by an Acquiring Person or any Associate or Affiliate thereof whose Rights have become void pursuant to the preceding sentence; no Right Certificate shall be issued at any time for the transfer of any Rights to an Acquiring Person or any Associate or Affiliate thereof or to any nominee of such Acquiring Person, Associate or Affiliate as such Rights would be void pursuant to the preceding sentence; and any Right Certificate delivered to the Rights Agent for transfer to an Acquiring Person shall be canceled. (iii) In the event that there shall not be sufficient Common Shares issued but not outstanding or authorized but unissued to permit the exercise in full of the Rights in accordance with the foregoing subparagraph (ii), the Company shall take all such action as may be necessary to authorize additional Common Shares for issuance upon exercise of the Rights. In the event the Company shall, after good faith effort, be unable to take all such action as may be necessary to authorize such additional Common Shares, the Company shall substitute, for each Common Share that would otherwise be issuable upon exercise of a Right, a number of Preferred Shares or fraction thereof such that the product of the current per share market price of one Preferred Share multiplied by such number or fraction is equal to the current per share market price of one Common Share as of the date of issuance of such Preferred Shares or fraction thereof. (b) In case the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Preferred Shares entitling them (for a period expiring within 45 calendar days after such record date) to subscribe for or purchase Preferred Shares (or shares having the same rights, privileges and preferences as the Preferred Shares ("equivalent preferred shares")) or Securities convertible into or exchangeable for Preferred Shares or equivalent preferred shares at a price per Preferred Share or equivalent preferred share (or having a conversion or exchange price per share, if a Security convertible into or exchangeable for Preferred Shares or equivalent preferred shares) less than the then-current per share market price of the Preferred Shares on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of Preferred Shares outstanding on such record date plus the number of Preferred Shares which the aggregate offering price of the total number of Preferred Shares and/or equivalent preferred shares so to be offered (and/or the aggregate initial conversion or exchange price of the convertible or 10 14 exchangeable Securities so to be offered) would purchase at such current market price and the denominator of which shall be the number of Preferred Shares outstanding on such record date plus the number of additional Preferred Shares and/or equivalent preferred shares to be offered for subscription or purchase (or into or for which the convertible or exchangeable Securities so to be offered are initially convertible or exchangeable); provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. In case such subscription price may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent. Preferred Shares owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed; and in the event that such rights, options or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (c) In case the Company shall fix a record date for making a distribution to all holders of the Preferred Shares (including any such distribution to be made in connection with a consolidation or merger in which the Company is the continuing or surviving corporation) of assets or evidences of indebtedness (other than a regular quarterly cash dividend or a dividend payable in Preferred Shares) or subscription rights or warrants (excluding those referred to in Section 11(b)), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the then-current per share market price of the Preferred Shares on such record date, less the fair market value (as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent) of the portion of the assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to one Preferred Share, and the denominator of which shall be such current per share market price of the Preferred Shares; provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company to be issued upon exercise of one Right. Such adjustments shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the Purchase Price shall again be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (d) (i) For the purpose of any computation hereunder, the "current per share market price" of any Security on any date shall be deemed to be the average of the daily closing prices per share or other unit of such Security for the 30 consecutive Trading Days immediately prior to such date; provided, however, that in the event that the current per share market price of a Security is to be determined for any date during a period that follows the announcement by the issuer of such Security of (A) a dividend or distribution on such Security payable in shares or other units of such Security or Securities convertible into or exchangeable for such shares or other units of such Security, or (B) any subdivision, combination or reclassification of such Security and does not end prior to the expiration of 30 Trading Days after the ex-dividend date for such dividend or distribution or the record date for such subdivision, combination or reclassification, then, and in each such case, the current per share market price shall be 11 15 appropriately adjusted to reflect such dividend, distribution, subdivision, combination or reclassification. The closing price of a Security for any Trading Day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if such Security is not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the principal national securities exchange on which such Security is listed or admitted to trading or, if such Security is not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other system then in use, or, if on any such Trading Day such Security is not reported by any such system, the average of the closing bid and asked prices as furnished by a professional market maker making a market in such Security selected by the Board of Directors of the Company. The term "Trading Day" for any Security shall mean a day on which the principal national securities exchange on which such Security is listed or admitted to trading is open for the transaction of business or, if such Security is not listed or admitted to trading on any national securities exchange, a Business Day. (ii) For the purpose of any computation hereunder, the current per share market price of the Preferred Shares shall be determined in accordance with the method set forth in Section 11(d)(i) if possible. If the Preferred Shares are not publicly traded, the current per share market price of the Preferred Shares shall be conclusively deemed to be the current per share market price of the Common Shares as determined pursuant to Section 11(d)(i) multiplied by one hundred (appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof). If neither the Common Shares nor the Preferred Shares are publicly held or listed or traded, current per share market price shall mean the fair value per share as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent. (e) No adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Purchase Price; provided, however, that any adjustments which by reason of this Section 11(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest one one-millionth of a Preferred Share or one ten-thousandth of any other Security, as the case may be. Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11 shall be made no later than the earlier of (i) three years from the date of the transaction which requires such adjustment or (ii) the date of the expiration of the right to exercise any Rights. (f) If, as a result of an adjustment made pursuant to Section 11(a), the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock of the Company other than Preferred Shares, then the number of such other shares so receivable upon exercise of any Right shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Preferred Shares 12 16 contained in Section 11(a) through (c) inclusive, and the provisions of Sections 7, 9, 10 and 13 with respect to the Preferred Shares shall apply on like terms to any such other shares. (g) All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of one one-hundredths of a Preferred Share purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein. (h) Unless the Company shall have exercised the option provided in Section 11(i), upon each adjustment of the Purchase Price as a result of any calculation made pursuant to Section 11(b) or (c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of one one-hundredths of a Preferred Share (calculated to the nearest one one-millionth of a Preferred Share) obtained by (i) multiplying (A) the number of one one-hundredths of a share covered by a Right immediately prior to this adjustment by (B) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price. (i) The Company may elect on or after the date of any adjustment of the Purchase Price to adjust the number of Rights, in substitution for any adjustment in the number of one one-hundredths of a Preferred Share purchasable upon the exercise of a Right. Each of the Rights outstanding after such adjustment of the number of Rights shall be exercisable for the number of one one-hundredths of a Preferred Share for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one ten-thousandth) obtained by dividing the Purchase Price in effect immediately prior to adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if Right Certificates have been issued, shall be at least 10 days later than the date of the public announcement. If Right Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Right Certificates on such record date Right Certificates evidencing, subject to Section 14, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Right Certificates held by such holders prior to the date of adjustment and, upon surrender thereof, if required by the Company, new Right Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Right Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein and shall be registered in the names of the holders of record of Right Certificates on the record date specified in the public announcement. (j) Irrespective of any adjustment or change in the Purchase Price or the number of one one-hundredths of a Preferred Share issuable upon exercise of the Rights, the Right Certificates theretofore and thereafter issued may continue to express the Purchase Price and the 13 17 number of one one-hundredths of a Preferred Share which were expressed in the initial Right Certificates issued hereunder. (k) Before taking any action that would cause an adjustment reducing the Purchase Price below one one-hundredth of the then par value, if any, of the Preferred Shares issuable upon exercise of the Rights, the Company shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable Preferred Shares at such adjusted Purchase Price. (l) In any case in which this Section 11 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer, until the occurrence of such event, issuing to the holder of any Right exercised after such record date the Preferred Shares and other Securities of the Company, if any, issuable upon such exercise over and above the Preferred Shares and other Securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares or Securities upon the occurrence of the event requiring such adjustment. (m) Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that it in its sole discretion shall determine to be advisable in order that any consolidation or subdivision of the Preferred Shares or issuance wholly for cash of Preferred Shares or Securities which by their terms are convertible into or exchangeable for Preferred Shares, of dividends on Preferred Shares payable in Preferred Shares or of rights, options or warrants referred to in Section 11(b) hereafter made by the Company to holders of its Preferred Shares shall not be taxable to such stockholders. (n) In the event that at any time after the Record Date and prior to the Distribution Date, the Company shall (i) pay any dividend on the Common Shares payable in Common Shares or (ii) effect a subdivision, combination or consolidation of the Common Shares (by reclassification or otherwise than by payment of dividends in Common Shares) into a greater or lesser number of Common Shares, then in any such case (A) the number of one one-hundredths of a Preferred Share purchasable after such event upon proper exercise of each Right shall be determined by multiplying the number of one one-hundredths of a Preferred Share so purchasable immediately prior to such event by a fraction, the numerator of which is the number of Common Shares outstanding immediately before such event and the denominator of which is the number of Common Shares outstanding immediately after such event, and (B) each Common Share outstanding immediately after such event shall have issued with respect to it that number of Rights which each Common Share outstanding immediately prior to such event had issued with respect to it. The adjustments provided for in this Section 11(n) shall be made successively whenever such a dividend is paid or such a subdivision, combination or consolidation is effected. Section 12. Certificate of Adjustments. Whenever an adjustment is made as provided in Section 11 or 13, the Company shall promptly (a) prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment, (b) file with the 14 18 Rights Agent and with each transfer agent for the Common Shares or the Preferred Shares a copy of such certificate, and (c) mail such certificate or a brief summary thereof to each holder of a Right Certificate in accordance with Section 25. Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power. In the event that, directly or indirectly, at any time after a Person has become an Acquiring Person, (a) the Company shall consolidate with, or merge with and into, any other Person, (b) any Person shall consolidate with the Company or merge with and into the Company and the Company shall be the continuing or surviving corporation of such merger and, in connection with such transaction, all or part of the Common Shares shall be changed into or exchanged for stock or other Securities of any other Person (or the Company) or cash or any other property, or (c) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one or more transactions, assets or earning power aggregating 50% or more of the assets or earning power of the Company and its Subsidiaries, taken as a whole, to any Person other than the Company or one or more of its wholly owned Subsidiaries, then, and in each such case, proper provision shall be made so that (i) each holder of a Right (except as otherwise provided herein) shall thereafter have the right to receive, upon exercise thereof at a price equal to the then-current Purchase Price multiplied by the number of one one-hundredths of a Preferred Share for which a Right is then exercisable, in accordance with the terms of this Rights Agreement and in lieu of Preferred Shares, such number of Common Shares of such other Person (including the Company as the successor or surviving corporation) as shall equal the result obtained by (A) multiplying the then-current Purchase Price by the number of one one-hundredths of a Preferred Share for which a Right is then exercisable and dividing that product by (B) 50% of the current per share market price of the Common Shares of such other Person (determined pursuant to Section 11(d)) on the date of consummation of such consolidation, merger, sale or transfer; (ii) the issuer of such Common Shares shall thereafter be liable for and shall assume, by virtue of such consolidation, merger, sale or transfer, all the obligations and duties of the Company pursuant to this Rights Agreement; (iii) the term "Company" shall thereafter be deemed to refer to such issuer; and (iv) such issuer shall take such steps (including, but not limited to, the reservation of a sufficient number of its Common Shares in accordance with Section 9) in connection with such consummation as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to the Common Shares thereafter deliverable upon exercise of the Rights. The Company shall not consummate any such consolidation, merger, sale or transfer unless prior thereto the Company and such issuer shall have executed and delivered to the Rights Agent a supplemental agreement so providing. The Company shall not enter into any transaction of the kind referred to in this Section 13 if at the time of such transaction there are any rights, warrants, instruments or securities outstanding or any agreements or arrangements which, as a result of the consummation of such transaction, would eliminate or substantially diminish the benefits intended to be afforded by the Rights. The provisions of this Section 13 shall similarly apply to successive mergers, consolidations, sales and other transfers. Section 14. Fractional Rights and Fractional Shares. (a) The Company shall not be required to issue fractions of Rights or to distribute Right Certificates which evidence fractional Rights. In lieu of such fractional Rights, there shall be paid to any registered holder of a Right Certificate with regard to which a fractional Right would otherwise be issuable, an amount in 15 19 cash equal to the same fraction of the current market value of a whole Right. For purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights on the Trading Day immediately prior to the date on which fractional Rights would otherwise have been issuable (determined in accordance with Section 11(d)(i)). If for any such date no closing price of the Rights can be determined, the current market value of a whole Right shall be its fair value on such date as determined in good faith by the Board of Directors of the Company. (b) The Company shall not be required to issue fractions of Preferred Shares (other than fractions which are integral multiples of one one-hundredth of a Preferred Share) upon exercise of the Rights or to distribute certificates which evidence fractional Preferred Shares (other than fractions which are integral multiples of one one-hundredth of a Preferred Share). Fractions of Preferred Shares in integral multiples of one one-hundredth of a Preferred Share may, at the election of the Company, be evidenced by depositary receipts pursuant to an appropriate agreement between the Company and a depositary selected by it; provided, that such agreement shall provide that the holders of such depositary receipts shall have all the rights, privileges and preferences to which they are entitled as beneficial owners of the Preferred Shares represented by such depositary receipts. In lieu of fractional Preferred Shares that are not integral multiples of one one-hundredth of a Preferred Share, the Company shall pay to any registered holder of a Right Certificate at the time Rights represented thereby are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one Preferred Share. For purposes of this Section 14(b), the current market value of a Preferred Share shall be the closing price of a Preferred Share on the Trading Day immediately prior to the date of such exercise (determined in accordance with Section 11(d)(i)). (c) The holder of a Right by the acceptance of such Right expressly waives his right to receive any fractional Rights or any fractional shares upon exercise of a Right (except as provided above). Section 15. Rights of Action. All rights of action in respect of this Rights Agreement, excepting the rights of action given to the Rights Agent under Section 18, are vested in the respective registered holders of the Right Certificates (and, prior to the Distribution Date, the registered holders of the Common Shares); and any registered holder of any Right Certificate (or, prior to the Distribution Date, of Common Shares), without the consent of the Rights Agent or of the holder of any other Right Certificate (or, prior to the Distribution Date, of Common Shares), may, in his own behalf and for his own benefit, enforce and may institute and maintain any suit, action or proceeding against the Company to enforce or otherwise act in respect of his right to exercise the Rights evidenced by such Right Certificate in the manner provided in such Right Certificate and in this Rights Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Rights Agreement and will be entitled to specific performance of the obligations under and injunctive relief against actual or threatened violations of the obligations of any Person subject to this Rights Agreement. Section 16. Agreement of Right Holders. Every holder of a Right, by accepting the same, consents and agrees with the Company and the Rights Agent and with every other holder of a Right that: 16 20 (a) prior to the Distribution Date, Rights will be transferable only in connection with the transfer of the applicable Common Shares; (b) after the Distribution Date, the Right Certificates are transferable only on the registry books of the Rights Agent if surrendered at the principal office of the Rights Agent, duly endorsed or accompanied by a proper instrument of transfer; and (c) the Company and the Rights Agent may deem and treat the person in whose name a Right Certificate (or, prior to the Distribution Date, the associated Common Share certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on any Right Certificate or the associated Common Share certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary. Section 17. Right Certificate Holder Not Deemed a Stockholder. No holder, as such, of any Right Certificate shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Preferred Shares or any other Securities of the Company which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Right Certificate be construed to confer upon the holder of any Right Certificate, as such, any of the rights of a stockholder of the Company, including any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof or to give or withhold consent to any corporate action or to receive notice of meetings or other actions affecting stockholders (except as provided in Section 25) or to receive dividends or subscription rights or otherwise, until the Right or Rights evidenced by such Right Certificate shall have been exercised in accordance with the provisions hereof. Section 18. Concerning the Rights Agent. The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and execution of this Rights Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability or expense incurred without negligence, bad faith or willful misconduct on the part of the Rights Agent for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Rights Agreement, including the costs and expenses of defending against any claim of liability in the premises. The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Rights Agreement in reliance upon any Right Certificate or certificate for the Preferred Shares or Common Shares or for other Securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged by the proper person or persons or otherwise in reliance upon the advice of counsel as set forth in Section 20. 17 21 Section 19. Merger or Consolidation or Change of Name of Rights Agent. Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party or any corporation succeeding to the stock transfer or corporate trust powers of the Rights Agent or any successor Rights Agent shall be the successor to the Rights Agent under this Rights Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto; provided, that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 21. In case at the time such successor Rights Agent shall succeed to the agency created by this Rights Agreement any of the Right Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, any successor Rights Agent may countersign such Right Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Rights Agreement. In case at any time the name of the Rights Agent shall be changed and at such time any of the Right Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, the Rights Agent may countersign such Right Certificates either in its prior name or in its changed name; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Rights Agreement. Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties and obligations imposed by this Rights Agreement upon the following terms and conditions, by all of which the Company and the holders of Right Certificates, by their acceptance thereof, shall be bound: (a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. (b) The Rights Agent shall not be deemed to have knowledge of any fact or matter pertaining to the performance of its duties under this Rights Agreement, except such facts or matters as are evidenced by records which are required to be created and maintained by it hereunder or to the extent it shall have been advised thereof in writing by the Company or by a holder of Rights. Whenever in the performance of its duties under this Rights Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by any one of the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Treasurer or the Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full 18 22 authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Rights Agreement in reliance upon such certificate. (c) The Rights Agent shall be liable hereunder to the Company and any other Person only for its own negligence, bad faith or willful misconduct. (d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Rights Agreement or in the Right Certificates (except its countersignature thereof) or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only. (e) The Rights Agent shall not be under any responsibility in respect of the validity of this Rights Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Right Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Rights Agreement or in any Right Certificate; nor shall it be responsible for any change in the exercisability of the Rights (including any Rights becoming void pursuant to Section 11(a)(ii)) or any adjustment in the terms of the Rights (including the manner, method or amount thereof) provided for in Section 3, 11, 13, 23 or 24 or the ascertaining of the existence of facts that would require any such change or adjustment (except with respect to the exercise of Rights evidenced by Right Certificates after actual notice that such change or adjustment is required); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any Preferred Shares to be issued pursuant to this Rights Agreement or any Right Certificate or as to whether any Preferred Shares will, when issued, be validly authorized and issued and fully paid and nonassessable. (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Rights Agreement. (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any one of the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Secretary or the Treasurer of the Company and to apply to such officers for advice or instructions in connection with its duties, and the Rights Agent shall not be liable for any action taken or suffered by it in good faith in accordance with instructions of any such officer or for any delay in acting while waiting for those instructions. (h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other Securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested or contract with or lend money to the Company or otherwise act as fully and freely as though it were not the Rights Agent under this Rights Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity. 19 23 (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss resulting from any such act, default, neglect or misconduct; provided, that reasonable care was exercised in the selection and continued employment thereof. Section 21. Change of Rights Agent. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Rights Agreement upon 30 days' notice in writing mailed to the Company and to each transfer agent of the Common Shares or Preferred Shares by registered or certified mail and to the holders of the Right Certificates by first-class mail. The Company may remove the Rights Agent or any successor Rights Agent upon 30 days' notice in writing mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Shares or Preferred Shares by registered or certified mail and to the holders of the Right Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of 30 days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Right Certificate (which holder shall, with such notice, submit such holder's Right Certificate for inspection by the Company), then the registered holder of any Right Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be a corporation or limited liability company which is authorized under applicable laws to exercise corporate trust or stock transfer powers and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $50 million. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as the Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Shares or Preferred Shares and mail a notice thereof in writing to the registered holders of the Right Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. Section 22. Issuance of New Right Certificates. Notwithstanding any of the provisions of this Rights Agreement or of the Rights to the contrary, the Company may, at its option, issue new Right Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change in the Purchase Price and the number or kind or class of shares or other Securities or property purchasable under the Right Certificates made in accordance with the provisions of this Rights Agreement. 20 24 Section 23. Redemption. (a) The Board of Directors of the Company may, at its option, at any time prior to such time as any Person becomes an Acquiring Person, redeem all but not less than all of the outstanding Rights at a price of $.01 per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the "Redemption Price"). The redemption of the Rights by the Board of Directors may be made effective at such time, on such basis and with such conditions as the Board of Directors in its sole discretion may establish. (b) Immediately upon the action of the Board of Directors of the Company ordering the redemption of the Rights pursuant to paragraph (a) of this Section 23 and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price. The Company shall promptly give public notice of any such redemption; provided, however, that the failure to give, or any defect in, any such notice shall not affect the validity of such redemption. Within 10 days after such action of the Board of Directors ordering the redemption of the Rights, the Company shall mail a notice of redemption to all holders of the outstanding Rights at their last addresses as they appear upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the transfer agent for the Common Shares. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not any particular holder receives notice. Each such notice of redemption will state the method by which payment of the Redemption Price will be made. Neither the Company nor any of its Affiliates or Associates may redeem, acquire or purchase for value any Rights at any time in any manner other than that specifically set forth in this Section 23 or in Section 24 and other than in connection with the purchase of Common Shares prior to the Distribution Date. Section 24. Exchange. (a) The Board of Directors of the Company may, at its option, at any time after any Person becomes an Acquiring Person, exchange all or part of the then outstanding and exercisable Rights (which shall not include any Rights that have become void pursuant to the provisions of Section 11(a)(ii)) for Common Shares at an exchange ratio of one Common Share per Right (the "Exchange Ratio"). Notwithstanding the foregoing, the Board of Directors shall not be empowered to effect such exchange at any time after any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or any such Subsidiary, or any entity holding Common Shares for or pursuant to the terms of any such plan), together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or more of the Common Shares then outstanding. (b) Immediately upon the action of the Board of Directors of the Company ordering the exchange of any Rights pursuant to paragraph (a) of this Section 24 and without any further action and without any notice, the right to exercise such Rights will terminate and the only right thereafter of a holder of such Rights shall be to receive that number of Common Shares equal to the number of such Rights held by such holder multiplied by the Exchange Ratio. The Company shall promptly give public notice of any such exchange; provided, however, that the failure to give, or any defect in, any such notice shall not affect the validity of such exchange. The Company promptly shall mail notice of such exchange to all holders of such Rights at their last addresses as they appear upon the registry books of the Rights Agent. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not any particular holder 21 25 receives notice. Each such notice of exchange will state the method by which the exchange of the Common Shares for Rights will be effected and, in the event of any partial exchange, the number of Rights which will be exchanged. Any partial exchange shall be effected pro rata based on the number of Rights (other than Rights which have become void pursuant to the provisions of Section 11(a)(ii)) held by each holder of Rights. (c) In the event that there shall not be sufficient Common Shares issued but not outstanding or authorized but unissued to permit an exchange of Rights in accordance with this Section 24, the Company shall take all such action as may be necessary to authorize additional Common Shares for issuance upon exchange of the Rights. In the event the Company shall, after good faith effort, be unable to take all such action as may be necessary to authorize such additional Common Shares, the Company shall substitute, for each Common Share that would otherwise be issuable upon exchange of a Right, a number of Preferred Shares or equivalent preferred shares or fraction thereof such that the product of the current per share market price of one Preferred Share or equivalent preferred share multiplied by such number or fraction is equal to the current per share market price of one Common Share as of the date of issuance of such Preferred Shares or equivalent preferred shares or fraction thereof. (d) The Company shall not be required to issue fractions of Common Shares or to distribute certificates which evidence fractional Common Shares in an exchange. In lieu of such fractional Common Shares, the Company shall pay to any registered holder of a Right Certificate with regard to which a fractional Common Share would otherwise be issuable an amount in cash equal to the same fraction of the current market value of a whole Common Share. For purposes of this paragraph (d), the current market value of a whole Common Share shall be the closing price of a Common Share on the Trading Day immediately prior to the date of exchange pursuant to this Section 24 (determined in accordance with Section 11(d)(i)). Section 25. Notice of Certain Events. (a) In case the Company shall propose (i) to pay any dividend payable in stock of any class to the holders of its Preferred Shares or to make any other distribution to the holders of its Preferred Shares (other than a regular quarterly cash dividend), (ii) to offer to the holders of its Preferred Shares rights or warrants to subscribe for or to purchase any additional Preferred Shares or shares of stock of any other class or any other Securities, (iii) to effect any reclassification of its Preferred Shares (other than a reclassification involving only the subdivision of outstanding Preferred Shares), (iv) to effect any consolidation or merger into or with, or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), in one or more transactions, of 50% or more of the assets or earning power of the Company and its Subsidiaries, taken as a whole, to, any other Person, or (v) to effect the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to each holder of a Right Certificate, in accordance with Section 26, a notice of such proposed action, which shall specify (x) the record date for the purposes of such stock dividend or distribution of rights or warrants or the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution or winding up is to take place and (y) the date of participation therein by the holders of the Common Shares and/or Preferred Shares, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (i) or (ii) above at least 10 days prior to the record date for determining holders of the Preferred Shares for purposes of such action, and in the case of any 22 26 such other action at least 10 days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the Common Shares and/or Preferred Shares, whichever shall be the earlier. (b) In case the event set forth in Section 11(a)(ii) shall occur, then the Company shall as soon as practicable thereafter give to each holder of a Right Certificate, in accordance with Section 26, a notice of the occurrence of such event, which notice shall describe such event and the consequences of such event to holders of Rights under said Section 11(a)(ii). Section 26. Notices. Notices or demands authorized by this Rights Agreement to be given or made by the Rights Agent or by the holder of any Right Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: Teledyne Technologies Incorporated 2049 Century Park East Los Angeles, California 90067-3101 Attention: Corporate Secretary Subject to the provisions of Section 21, any notice or demand authorized by this Rights Agreement to be given or made by the Company or by the holder of any Right Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: ChaseMellon Shareholder Services, L.L.C. Overpeck Centre 85 Challenger Road Ridgefield Park, NJ 07660 Notices or demands authorized by this Rights Agreement to be given or made by the Company or the Rights Agent to the holder of any Right Certificate shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company. Section 27. Supplements and Amendments. The Company may from time to time supplement or amend this Rights Agreement without the approval of any holders of Right Certificates in order to cure any ambiguity, to correct or supplement any provision contained herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to the Rights which the Company may deem necessary or desirable, any such supplement or amendment to be evidenced by a writing signed by the Company and the Rights Agent; provided, however, that from and after such time as any Person becomes an Acquiring Person this Rights Agreement shall not be amended in any manner which would adversely affect the interests of the holders of Rights. Without limiting the foregoing, the Company may at any time prior to such time as any Person becomes an Acquiring Person amend this Rights Agreement to extend the Final Expiration Date or change the Purchase Price hereunder. 23 27 Section 28. Successors. All the covenants and provisions of this Rights Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. Section 29. Benefits of this Rights Agreement. Nothing in this Rights Agreement shall be construed to give to any person or corporation other than the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the Common Shares) any legal or equitable right, remedy or claim under this Rights Agreement; but this Rights Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the Common Shares). Section 30. Severability. If any term, provision, covenant or restriction of this Rights Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Rights Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. Section 31. Governing Law. This Rights Agreement and each Right Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made and performed entirely within such State. Section 32. Counterparts. This Rights Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Section 33. Descriptive Headings. Descriptive headings of the several Sections of this Rights Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. IN WITNESS WHEREOF, the parties hereto have caused this Rights Agreement to be duly executed and attested all as of the day and year first above written. TELEDYNE TECHNOLOGIES Attest: INCORPORATED By: By: Title: Title: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. Attest: Rights Agent By: By: Title: Assistant Vice President Title: Vice President 24 28 Exhibit A FORM of CERTIFICATE OF DESIGNATIONS of SERIES A JUNIOR PARTICIPATING PREFERRED STOCK of TELEDYNE TECHNOLOGIES INCORPORATED (Pursuant to Section 151 of the Delaware General Corporation Law) Teledyne Technologies Incorporated, a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the "Corporation"), hereby certifies that the following resolution was adopted by the Board of Directors of the Corporation as required by Section 151 of the General Corporation Law at a meeting duly called and held on ______________, 1999. RESOLVED, that, pursuant to the authority granted to and vested in the Board of Directors of this Corporation (hereinafter called the "Board of Directors" or the "Board") in accordance with the provisions of the Certificate of Incorporation, the Board of Directors hereby creates a series of Preferred Stock, par value $.01 per share (the "Preferred Stock"), of the Corporation and hereby states the designation and number of shares and fixes the relative rights, preferences, and limitations thereof as follows: Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Junior Participating Preferred Stock" (the "Series A Preferred Stock") and the number of shares constituting the Series A Preferred Stock shall be 1,250,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion or exchange of any outstanding securities issued by the Corporation convertible into or exchangeable for shares of Series A Preferred Stock. A-1 29 Section 2. Dividends and Distributions. (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of shares of Common Stock, par value $.01 per share (the "Common Stock"), of the Corporation and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided, that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear A-2 30 interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein, in any other Certificate of Designations creating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) Except as set forth herein or as otherwise provided by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of the Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends or make any other distributions on any shares of stock ranking junior (as to dividends) to the Series A Preferred Stock; (ii) declare or pay dividends or make any other distributions on any shares of stock ranking on a parity (as to dividends) with the Series A Preferred Stock, except dividends paid A-3 31 ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable and in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem, purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; provided, that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or (iv) redeem, purchase or otherwise acquire for consideration any shares of Series A Preferred Stock or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized and unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Certificate of Incorporation or in any other Certificate of Designations creating a series of Preferred Stock or any similar stock or otherwise required by law. Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $100 per share, plus an amount equal to the accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment; provided, that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity (upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock or effect A-4 32 a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. No Redemption. The shares of Series A Preferred Stock shall not be redeemable. Section 9. Rank. The Series A Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, junior to all other series of the Preferred Stock. Section 10. Amendment. The Certificate of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the shares of Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single class. IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Corporation by its Chairman of the Board and attested by its Secretary this _____ th day of _______, 1999. Attest: Secretary President and Chief Financial Officer A-5 33 Exhibit B Form of Right Certificate Certificate No. R- Rights NOT EXERCISABLE AFTER _________________, 2009 OR EARLIER IF REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. Right Certificate TELEDYNE TECHNOLOGIES INCORPORATED This certifies that _______________________, or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of ______________, 1999, as amended from time to time (as so amended, the "Rights Agreement"), between Teledyne Technologies Incorporated, a Delaware corporation (the "Company"), and ChaseMellon Shareholder Services, L.L.C., a limited liability company (the "Rights Agent"), to purchase from the Company at any time after the Distribution Date (as such term is defined in the Rights Agreement) and prior to 5:00 P.M., Eastern time, on __________, 2009 at the principal office of the Rights Agent, or at the office of its successor as Rights Agent, one one-hundredth of a fully paid non-assessable share of Series A Junior Participating Preferred Stock, par value $.01 per share (the "Preferred Shares"), of the Company, at a purchase price of $_____ per one one-hundredth of a Preferred Share (the "Purchase Price"), upon presentation and surrender of this Right Certificate with the Form of Election to Purchase duly executed. The number of Rights evidenced by this Right Certificate (and the number of one one-hundredths of a Preferred Share which may be purchased upon exercise hereof) set forth above, and the Purchase Price set forth above, are the number and Purchase Price as of ______________, 1999, based on the Preferred Shares as constituted at such date. As provided in the Rights Agreement, the Purchase Price and the number of one one-hundredths of a Preferred Share which may be purchased upon the exercise of the Rights evidenced by this Right Certificate are subject to modification and adjustment upon the happening of certain events. This Right Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Right Certificates. Copies of the Rights Agreement are on file at the principal executive offices of the Company and the above-mentioned office of the Rights Agent. B-1 34 Subject to the provisions of the Rights Agreement, this Right Certificate, with or without other Right Certificates, upon surrender at the principal office of the Rights Agent, may be exchanged for another Right Certificate or Right Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of Preferred Shares as the Rights evidenced by the Right Certificate or Right Certificates surrendered shall have entitled such holder to purchase. If this Right Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Right Certificate or Right Certificates for the number of whole Rights not exercised. Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate (i) may be redeemed by the Company at a redemption price of $.01 per Right or (ii) may be exchanged in whole or in part for shares of the Company's Common Stock, par value $.01 per share, or Preferred Shares. No fractional Preferred Shares will be issued upon the exercise of any Right or Rights evidenced hereby (other than fractions which are integral multiples of one one-hundredth of a Preferred Share, which may, at the election of the Company, be evidenced by depositary receipts), but in lieu thereof a cash payment will be made as provided in the Rights Agreement. No holder of this Right Certificate shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Preferred Shares or of any other securities of the Company which may at any time be issuable upon exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company, including any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, to give or withhold consent to any corporate action, to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, until the Right or Rights evidenced by this Right Certificate shall have been exercised as provided in the Rights Agreement. This Right Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. B-2 35 WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of ___________________ . TELEDYNE TECHNOLOGIES ATTEST: INCORPORATED By Countersigned: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. Rights Agent By Authorized Signature B-3 36 Form of Reverse Side of Right Certificate FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer this Right Certificate.) FOR VALUE RECEIVED _______________________________________________ hereby sells, assigns and transfers unto _____________________________________________________________________ (Please print name and address of transferee) ______________________________________________________________________________ this Right Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ________________, as his Attorney, to transfer the within Right Certificate on the books of the within-named Company, with full power of substitution. Dated: Signature Signature Guaranteed: Signatures must be guaranteed by a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States. The undersigned hereby certifies that the Rights evidenced by this Right Certificate are not beneficially owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement). Signature B-4 37 Form of Reverse Side of Right Certificate -- continued FORM OF ELECTION TO PURCHASE (To be executed if holder desires to exercise Rights represented by this Right Certificate.) To: TELEDYNE TECHNOLOGIES INCORPORATED The undersigned hereby irrevocably elects to exercise __________________ Rights represented by this Right Certificate to purchase the Preferred Shares issuable upon the exercise of such Rights and requests that certificates for such Preferred Shares be issued in the name of: Please insert social security or other identifying number (Please print name and address) If such number of Rights shall not be all the Rights evidenced by this Right Certificate, a new Right Certificate for the balance remaining of such Rights shall be registered in the name of and delivered to: Please insert social security or other identifying number (Please print name and address) Dated: Signature B-5 38 Form of Reverse Side of Right Certificate - continued Signature Guaranteed: Signatures must be guaranteed by a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States. The undersigned hereby certifies that the Rights evidenced by this Right Certificate are not beneficially owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement). Signature NOTICE The signature in the Form of Assignment or Form of Election to Purchase, as the case may be, must conform to the name as written upon the face of this Right Certificate in every particular, without alteration or enlargement or any change whatsoever. In the event the certification set forth above in the Form of Assignment or the Form of Election to Purchase, as the case may be, is not completed, the Company and the Rights Agent will deem the beneficial owner of the Rights evidenced by this Right Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) and such Assignment or Election to Purchase will not be honored. B-6 EX-10.1 6 TAX SHARING AND INDEMNIFICATION AGREEMENT 1 Exhibit 10.1 TAX SHARING AND INDEMNIFICATION AGREEMENT THIS TAX SHARING AND INDEMNIFICATION AGREEMENT (the "Agreement"), dated as of ___________1999, is made by and between Allegheny Teledyne Incorporated, a Delaware corporation ("ATI") on behalf of itself and each member of the ATI Consolidated Group, and Teledyne Technologies Incorporated, a Delaware corporation ("SPINCO"), on behalf of itself and each member of the SPINCO Group and their respective successors. Witnesseth: WHEREAS, ATI has determined to effect the Distribution pursuant to the Distribution Agreement; WHEREAS, the IRS has issued the IRS Ruling which states the tax treatment of the Distribution and the Other Transactions; WHEREAS, the parties are entering into this Agreement to ensure the continuing effectiveness of the IRS Ruling, to provide for certain indemnities, and to provide for various administrative matters relating to Taxes, including: 1. the preparation and filing of Tax Returns along with the payment of Taxes shown due and payable thereon; 2. the retention and maintenance of relevant records necessary to prepare and file appropriate Tax Returns, as well as providing for appropriate access to those records by the parties to this Agreement; 3. the conduct of audits, examinations, and proceedings by appropriate government entities which could result in a redetermination of Taxes; and 4. the cooperation of all parties with one another in order to fulfill their duties and responsibilities under this Agreement and under the Code and other applicable law; and WHEREAS, it is the intent of the parties that SPINCO or the appropriate member of the SPINCO Group shall economically bear the burden of all Taxes otherwise imposed upon or attributable to the Operations of members of the SPINCO Group occurring after the Effective Date, and that SPINCO will be responsible for and reimburse ATI for any Incremental Tax Assessment. NOW, THEREFORE, in consideration of the mutual promises, covenants, and conditions contained in this Agreement, and intending to be legally bound hereby, the parties hereto agree as follows: 2 ARTICLE I DEFINITIONS SECTION 1.1 DEFINITIONS. For the purposes of this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural of the terms involved): ADJUSTMENT means any final change in the Tax Liability of a taxpayer. AFFILIATE means, when used with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with such Person. AFFILIATED PERSON has the meaning ascribed to such term in the Investment Company Act of 1940, as amended, and the rules and regulations promulgated thereunder. AGREEMENT means this Tax Sharing and Indemnification Agreement. ASSOCIATES has the meaning ascribed to such term in the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. ATI CONSOLIDATED RETURN means any Tax Return that includes any member of the ATI Consolidated Group. ATI CONSOLIDATED GROUP means, as of any relevant date, ATI and its Subsidiaries, determined as of such date. BENEFICIAL OWNERSHIP has the meaning ascribed to such term in the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. BUSINESS TAXES means any Tax (except for federal income, state income or franchise, and local and foreign gross or net income) including interest, penalties, and other assessments thereon that is attributable to Operations of SPINCO or members of the SPINCO Group for a tax period ending prior to or including the Effective Date. BUSINESS TAX RETURNS means all reports, estimates, declarations of estimated tax, information statements and returns relating to or required to be filed in connection with any Business Taxes, including information returns or reports with respect to backup withholding and other payments to third parties. CODE means the Internal Revenue Code of 1986, as amended, and the Treasury regulations promulgated thereunder. COMBINED RETURN shall mean all state income tax returns which ATI files on a combined or unitary basis with respect to some or all of its Subsidiaries. 2 3 DISQUALIFIED SPINCO STOCK is defined at Section 5.2. DISTRIBUTION means the distribution of SPINCO common stock to the stockholders of ATI pursuant to the Distribution Agreement. DISTRIBUTION AGREEMENT means the Separation and Distribution Agreement among ATI, SPINCO and certain other parties dated as of __________________1999. EFFECTIVE DATE means the date on which the Distribution occurs. EFFECTIVE TIME means 5 p.m., Eastern Standard Time or Eastern Daylight Time (whichever shall then be in effect), on the Effective Date. FINAL DETERMINATION means the final resolution of any Tax matter. A Final Determination shall result from the first to occur of: 1. the expiration of 30 days after the IRS's acceptance of a Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment on Form 870 or 870-AD (or any successor comparable form) (the "Waiver"), except as to reserved matters specified therein, or the expiration of 30 days after acceptance by any other taxing authority of a comparable agreement or form under the laws of any other jurisdiction, including state, local, and foreign jurisdictions; unless, within such period, the taxpayer gives notice to the other party to this Agreement of the taxpayer's intention to attempt to recover all or part of any amount paid pursuant to the Waiver by the filing of a timely claim for refund; 2. a decision, judgment, decree, or other order by a court of competent jurisdiction that is not subject to further judicial review (by appeal or otherwise) and has become final; 3. the execution of a closing agreement under Code Section 7121, or the acceptance by the IRS of an offer in compromise under Code Section 7122, or comparable agreements under the laws of any other jurisdiction, including state, local, and foreign jurisdictions, except as to reserved matters specified therein; 4. the expiration of the time for filing a claim for refund or for instituting suit in respect of a claim for refund that was disallowed in whole or in part by the IRS or any other taxing authority; 5. the expiration of the applicable statute of limitations; or 6. an agreement by the parties hereto that a Final Determination has been made. 3 4 GROSS ASSET VALUE means, when used with respect to a specified Person, the fair market value of such Person's assets unencumbered by any liabilities. GROUP has the meaning ascribed to such term in the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. INCREMENTAL TAX ASSESSMENT means any increase in Business Taxes imposed upon ATI after the date hereof. INDEMNIFIED LIABILITY is defined at Section 7.1. INDEMNIFIED PARTY is defined at Section 6.1. INDEMNIFYING PARTIES is defined at Section 6.1. INTERNAL DISTRIBUTIONS means the distributions of SPINCO common stock by Teledyne Industries, Inc. to TDY Holdings, LLC, a Delaware limited liability company wholly owned by ATI, and by TDY Holdings, LLC to ATI. IRS means the U.S. Internal Revenue Service. IRS INTEREST RATE means the rate of interest imposed from time to time on underpayments of income tax pursuant to Code Section 6621(a)(2). IRS RULING means the private letter ruling (together with any supplements) issued by the IRS in respect of the Ruling Request. OPERATIONS means any business activity of any SPINCO business unit, as described in the Ruling Request. OTHER TRANSACTIONS means the Internal Distributions and all other transactions related to the Distribution and described in the Ruling Request, including all modifications to such transactions reflected in supplements to the Ruling Request. PERSON means any natural person, corporation, limited liability company, business trust, joint venture, association, company, partnership or government, or any agency or political subdivision thereof. POST-DISTRIBUTION PERIOD means any taxable period that begins after the Effective Date. PRE-DISTRIBUTION PERIOD means any taxable period that ends on or before the Effective Date. PROCEEDING is defined at Section 8.2(a). 4 5 PUBLIC OFFERING means the first public offering of SPINCO common stock following the Distribution. The gross proceeds of such Public Offering shall be approximately $125 million or such other amount as ATI, in its sole discretion, may approve. RESTRICTED PERIOD means the two year period following the Effective Date. RESTRICTED REDEMPTION PERIOD means the two year period beginning on the Effective Date and ending two years following the Public Offering. RULING REQUEST means the request for ruling (including all exhibits), under Section 355, and other provisions of the Code, as originally filed on behalf of ATI on April 6, 1999, as amended and supplemented, in respect of the Distribution. SPINCO GROUP means: (i) as of any relevant date after the Effective Date, SPINCO and its Subsidiaries determined as of such date; and (ii) as of any relevant date on or before the Effective Date, SPINCO and those businesses which become part of SPINCO or its Subsidiaries as contemplated by the Distribution Agreement, whether or not such Persons or businesses were Subsidiaries of SPINCO before the Distribution. STRADDLE PERIOD means any taxable period with respect to a Tax Return, that begins on or before the Effective Date and ends after the Effective Date. SUBSIDIARY means with respect to ATI or SPINCO, any Person of which ATI or SPINCO, respectively, controls or owns, directly or indirectly, more than 50% of the stock or other equity interest entitled to vote on the election of members to the board of directors or similar governing body. TAXES means all federal, state, local and foreign gross or net income, gross receipts, withholding, payroll, franchise, transfer, sales, use, value added, estimated or other taxes of any kind whatsoever or similar charges and assessments, such as customs, duties and the like, or other amounts paid in respect thereof, including all interest, penalties and additions imposed with respect to such amounts. TAX LIABILITY means the net amount of Taxes due and paid or payable for any taxable period, determined after applying all tax credits and all applicable carrybacks or carryovers for net operating losses, net capital losses, unused general business tax credits, or any other Tax items arising from a prior or subsequent taxable period, and all other relevant adjustments. TAX RETURNS means all reports, estimates, declarations of estimated tax, information statements and returns relating to or required to be filed in connection with any Taxes, other than Business Taxes, including information returns or reports with respect to backup withholding and other payments to third parties. 5 6 ARTICLE II FILING OF TAX RETURNS AND PAYMENT OF TAXES SECTION 2.1. TAX RETURNS REQUIRED TO BE FILED PRIOR TO DISTRIBUTION DATE. ATI shall file or cause to be filed all Tax Returns of ATI and any member of the ATI Consolidated Group required to be filed (after giving effect to any valid extension of time in which to make such filings) prior to the Effective Date and shall pay or cause to be paid any Tax Liability due with respect to such Tax Returns. SECTION 2.2. TAX RETURNS FOR PRE-DISTRIBUTION PERIODS. (a) SPINCO shall prepare or cause to be prepared, consistent with past practice, Business Tax Returns for the Pre-Distribution Period and shall pay or cause to be paid any Tax Liability due with respect to such Business Tax Returns. ATI will promptly notify SPINCO of any audit, assessment, notice, levy, or questionnaire with respect to Business Taxes. SPINCO shall control all matters relating to such Business Taxes and shall pay or cause to be paid and/or indemnify ATI or cause ATI to be indemnified, whatever the case may be, for and defend and hold ATI harmless against any Incremental Tax Assessment set forth in a Final Determination of Business Taxes. Payment to ATI with respect to such Incremental Tax Assessment shall be made in the same manner as if SPINCO were an Indemnifying Party as set forth in Section 8.3. (b) Except as provided in Section 2.2(a), ATI shall prepare or cause to be prepared, for Pre-Distribution Periods, all (1) Combined Returns and (2) Tax Returns required to be filed on a separate return basis by any member of the ATI Consolidated Group, in each case, which Tax Returns are not required to be (after giving effect to any valid extensions), and are not, filed on or prior to the Effective Date and shall pay or cause to be paid any Tax Liability due with respect to such Tax Returns. With respect to Tax Returns described in this Section 2.2(b), ATI shall prepare the returns in a manner, absent any intervening law change, consistent with ATI's preparation of Tax Returns covered by Section 2.1. With respect to any Tax Returns described in part (2) of the first sentence of this Section 2.2(b) relating to a member of the SPINCO Group, ATI shall file such Tax Returns with the appropriate tax authority, pursuant to a power of attorney executed and delivered to ATI by SPINCO pursuant to Section 10.15 hereof and shall pay or cause to be paid any Tax Liability due with respect to such Tax Returns. (c) Notwithstanding Section 2.2(a), ATI will be responsible for paying Business Taxes that arise directly from the Distribution and Other Transactions. For this Section 2.2(c) to apply, ATI must consent in writing, which consent shall not be unreasonably withheld, that the amount of such Business Taxes has been correctly determined. In addition, ATI shall have the right to control any audit, litigation or proceeding regarding such Business Taxes. SECTION 2.3. TAX RETURNS FOR POST-DISTRIBUTION PERIODS. SPINCO shall (a) prepare and file or cause to be prepared and filed all Tax Returns required to be filed by any member of the SPINCO Group for any Post-Distribution Period and (b) pay or cause to be paid any Tax Liability due with respect to such Tax Returns. 6 7 SECTION 2.4. TAX RETURNS FOR STRADDLE PERIOD. ATI shall prepare all Tax Returns of or which include any member of the SPINCO Group for a Straddle Period. ATI shall pay or cause to be paid and shall defend, indemnify and hold SPINCO and members of the SPINCO Group harmless against the Tax Liabilities attributable to the affected member or members of the SPINCO Group for the portion of the Straddle Period ending on the Effective Date and SPINCO shall pay or cause to be paid and shall defend, indemnify, and hold ATI and members of the ATI Consolidated Group harmless against the Tax Liabilities attributable to the affected member or members of the SPINCO Group for the remainder of the Straddle Period beginning with the day after the Effective Date. ATI's determination of Tax Liabilities up to and following the Effective Date shall be based on ATI's interim closing of the books, determined as of the Effective Time, of the affected member or members of the SPINCO Group. SECTION 2.5. TAX-BASIS BALANCE SHEETS. In the case of any business that was conducted prior to the Effective Date as a division of ATI, its Subsidiaries or a member of the ATI Consolidated Group and which will be conducted after the Effective Date by a member of the SPINCO Group, ATI shall prepare and furnish to SPINCO, within 120 days after the Effective Date, a tax-basis balance sheet, prepared consistent with past practices, relating to such business as of the Effective Date. ARTICLE III COOPERATION AND EXCHANGE OF INFORMATION; AUDITS AND ADJUSTMENTS; SECTION 3.1. TAX RETURN INFORMATION (a) SPINCO shall, and shall cause each appropriate member of the SPINCO Group to, provide ATI with all information and other assistance reasonably requested by ATI to enable the members of the ATI Consolidated Group to prepare and file ATI Consolidated Returns required to be filed by the ATI Consolidated Group pursuant to this Agreement. (b) ATI shall, and shall cause each appropriate member of the ATI Consolidated Group to, provide SPINCO with all information and other assistance reasonably requested by SPINCO to enable the members of the SPINCO Group to prepare and file SPINCO Returns required to be filed by the SPINCO Group pursuant to this Agreement. (c) Within 60 days of the Effective Date, SPINCO shall provide and cause each appropriate member of the SPINCO Group to provide to ATI customary tax packages prepared consistent with past practice for any Pre-Distribution Period or Straddle Period. SECTION 3.2. AUDITS AND ADJUSTMENTS (a) Except as provided for in Section 3.3, ATI shall have full control over and absolute discretion with respect to all matters relating to any Tax Return covered by Section 2.1, Section 2.2 or Section 2.4. 7 8 (b) SPINCO shall have full control over and absolute discretion with respect to all Tax Returns covered by Section 2.3. (c) SPINCO agrees to cooperate with ATI in the negotiation, settlement, and litigation of or other proceeding regarding any liability for or refund of Taxes of any member paid or payable by the ATI Consolidated Group. (d) ATI agrees to cooperate with SPINCO in the negotiation, settlement, and litigation of or other proceeding regarding any liability for Taxes paid or payable by any member of the SPINCO Group. (e) ATI will promptly notify SPINCO in writing of any Adjustment involving a change in the tax basis of any asset of SPINCO, specifying the nature of the change so that the SPINCO Group will be able to reflect the revised basis in its tax books and records for periods beginning on or after the Effective Date. (f) In the event of a conflict between the operation of this Section 3.2 and Articles VI, VII, or VIII, those Articles will take precedence over this Section 3.2. SECTION 3.3. CARRYBACKS. SPINCO shall make an election under Section 172(b)(3) of the Code to relinquish the entire carryback period with respect to any net operating loss attributable to SPINCO or any of its Subsidiaries in any taxable period beginning after or including the Effective Date that could be carried back to a taxable year of SPINCO or any Subsidiaries ending on or before the Effective Date. Neither ATI nor any member of the ATI Consolidated Group shall be required to pay to SPINCO or its Subsidiaries any refund or credit of Taxes that results from the carryback to any taxable period ending on or before the Effective Date of any net operating loss, capital loss, or tax credit attributable to SPINCO or any of its Subsidiaries in any taxable period beginning after or including the Effective Date. ARTICLE IV RETENTION OF RECORDS; STATUTES OF LIMITATIONS SECTION 4.1. RETENTION OF RECORDS. ATI and SPINCO agree to retain the appropriate records which may affect the determination of the liability for Taxes of any member of the ATI Consolidated Group or the SPINCO Group, respectively, until such time as there has been a Final Determination with respect to such liability for Taxes. A party may satisfy its obligations under the preceding sentence by allowing the other party to duplicate records at such second party's expense. SECTION 4.2. DESTRUCTION OF RECORDS. Any member of the SPINCO Group intending to destroy any materials, records, or documents relating to Taxes shall provide ATI 90 days advance notice and the reasonable opportunity to copy or take possession of such materials, records, or documents. 8 9 SECTION 4.3. STATUTE OF LIMITATIONS. ATI and SPINCO will notify each other in writing of any waivers or extensions of the applicable statute of limitations that may affect the period for which any materials, records, or documents must be retained. ARTICLE V REPRESENTATIONS AND COVENANTS SECTION 5.1. COMPLIANCE WITH IRS RULING. SPINCO shall, and shall cause each member of the SPINCO Group to, comply with each representation and statement concerning SPINCO and the SPINCO Group made in the Ruling Request and in the materials submitted to the IRS in connection with the Ruling Request, including, without limitation, statements relating to actions regarding the Public Offering and the use of Public Offering proceeds by the SPINCO Group. SPINCO has reviewed the materials submitted to the IRS in connection with the Ruling Request and represents to ATI that these materials, including without limitation, any statements and representations concerning SPINCO, its business operations, capital structure and/or organization, are complete and accurate. During the Restricted Period, neither SPINCO nor any member of the SPINCO Group shall take any action, refrain from taking any action or enter into any transaction or series of transactions or agree to take any action, refrain from taking any action or enter into any transaction or series of transactions that could jeopardize the tax-free status of the Distribution, including any action, inaction or transaction that would be inconsistent with any representation or statement made to the IRS in connection with the Ruling Request, unless prior thereto SPINCO obtains the express written consent of ATI which consent will be granted, if at all, in the sole discretion of ATI. SPINCO hereby represents and warrants to ATI that SPINCO has no intention to undertake or allow to be undertaken any of the transactions set forth in Section 5.2(a)(iii), nor does SPINCO or any member of the SPINCO Group have any intention to cease to engage in the active conduct of its trade or business (within the meaning of Section 355(b)(2) of the Code). SECTION 5.2. COVENANTS. (a) Without limiting the generality of Section 5.1, SPINCO and each member of the SPINCO Group jointly and severally covenant and agree with ATI that during the Restricted Period or, in the case of a transaction described in Section 5.2(a)(iii)(4), the Restricted Redemption Period: (i) SPINCO and the members of the SPINCO Group will continue to engage in its business, and will continue to maintain a substantial portion of their respective assets and business operations, as they existed immediately prior to the Distribution; provided that the foregoing shall not be deemed to prohibit SPINCO and the members of the SPINCO Group from entering into or acquiring other businesses or operations or from disposing of or shutting down segments of such Businesses so long as SPINCO and the members of the SPINCO Group continue to engage in such businesses and continue to so maintain such substantial portion of their assets and business operations; 9 10 (ii) SPINCO will continue to manage and to own (A) directly, assets which represent at least 50% of the Gross Asset Value which SPINCO managed and owned directly immediately after the Distribution, and (B) directly or indirectly, through one or more entities, assets which represent at least 50% of the Gross Asset Value which SPINCO owned indirectly through one or more entities immediately after the Distribution; (iii) Except as provided in Section 5.2(c), neither SPINCO nor any of its Affiliates nor any of its or their respective directors, officers or other representatives (acting in their capacity as directors, officers, or representatives) will undertake, authorize, approve, recommend, permit, facilitate, or enter into any contract, or consummate any transaction with respect to: (1) the issuance of SPINCO common stock (including options, warrants, rights or securities exercisable for, or convertible into, SPINCO common stock) in a single transaction or in a series of related or unrelated transactions (including the Public Offering) which represents (treating any such options, warrants, rights, or securities as exercised or converted) 40% or more of the outstanding shares of SPINCO common stock; (2) the issuance of any class or series of capital stock or any other instrument (other than SPINCO common stock and options, warrants, rights or securities exercisable for, or convertible into, SPINCO common stock) that would constitute equity for federal tax purposes (such classes or series of capital stock and other instruments being referred to herein as "Disqualified SPINCO Stock"); (3) the issuance of any options, rights, warrants, securities or similar arrangements exercisable for, or convertible into, Disqualified SPINCO Stock; (4) any redemptions, repurchases or other acquisitions of capital stock or other equity interests in SPINCO by SPINCO; and/or (5) the dissolution, merger, or complete or partial liquidation of SPINCO or any announcement of such action. (b) In addition to the other representations, warranties, covenants and agreements set forth in this Agreement, SPINCO and each member of the SPINCO Group will take, or refrain from taking, as the case may be, such actions as ATI may request to ensure that the Distributions and the Other Transactions qualify for the tax-free treatment stated in the IRS Ruling, including, without limitation, such actions as ATI determines may be necessary to preserve the validity of the IRS Ruling. Without limiting the generality of the foregoing, SPINCO and the SPINCO Group shall cooperate with ATI if ATI, in its sole discretion, determines to obtain additional or supplemental IRS rulings pertaining to whether any actual or proposed change in facts and circumstances affects the tax-free status of the Distribution or the Other Transactions. Regardless of the fact that ATI shall control matters set forth in the preceding sentence of this Section 5.2(b), 10 11 the ATI Consolidated Group, on one hand, and SPINCO and the SPINCO Group, on the other hand, shall equally bear responsibility for all expenses associated with any such additional or supplemental IRS rulings; provided, however, that any expenses associated with any additional or supplemental IRS Rulings based on a proposed action or omission by SPINCO or a member of the SPINCO Group will be borne solely by SPINCO. (c) Following the Effective Date, SPINCO and its Affiliates shall not take any action or engage in conduct otherwise prohibited by Section 5.2 unless prior to such action or conduct, as the case may be, SPINCO receives express written consent from ATI which consent will be granted, if at all, in the sole discretion of ATI. (d) SPINCO will consummate the Public Offering within one year after the Effective Date and will use the Public Offering proceeds in the manner and during time periods set forth in the Ruling Request. (e) If, within two years after the Public Offering, SPINCO disposes of any assets, other than inventory, SPINCO will use the proceeds (net of tax and transaction costs) from such disposition in a manner that is, in ATI's sole discretion, consistent with the business purpose of expanding SPINCO's business as set forth in the Ruling Request. ARTICLE VI SPINCO INDEMNITY OBLIGATIONS SECTION 6.1. SPINCO INDEMNITY. If SPINCO, or another member (or former member) of the SPINCO Group (collectively, the "Indemnifying Parties") takes or fails to take any action whether or not prohibited or required by Article V or violates a representation or covenant in Article V or in the Ruling Request, and the Distribution or any of the Other Transactions fail to or otherwise do not qualify for the tax treatment stated in the IRS Ruling as a result of such action, failure to take action, or violation, then the Indemnifying Parties shall jointly and severally defend, indemnify and hold harmless ATI and each member of the ATI Consolidated Group and each of their respective directors, officers, employees, agents or other representatives (collectively, and/or individually, as the case may be, the "Indemnified Party") against any liability for such Taxes which the Indemnified Party may assume or otherwise incur and any and all Taxes or other liabilities directly or indirectly imposed upon or incurred by the Indemnified Party as a result of such failure or lack of qualification, including, without limitation, any liability of the Indemnified Party arising from Taxes imposed on stockholders of ATI whether or not any stockholder or stockholders of ATI, or the IRS or other taxing authority, successfully seeks recourse against the Indemnified Party on account of any such failure. SECTION 6.2. TENDER OFFER OR PURCHASE OFFER. Notwithstanding anything to the contrary set forth in this Agreement, if, during the Restricted Period, any Person or Group of Affiliated Persons or Associates acquires Beneficial Ownership of SPINCO common stock (or any other class of outstanding SPINCO stock) or commences a tender or other purchase offer for the capital stock of SPINCO or initiates any other form of transaction to acquire directly or indirectly SPINCO capital stock, upon consummation of which such Person or Group of 11 12 Affiliated Persons or Associates would acquire Beneficial Ownership of SPINCO common stock (or any other class of outstanding SPINCO stock or equity) and as a result thereof the Distribution or any of the Other Transactions shall fail to or otherwise do not qualify for the tax treatment stated in the IRS Ruling then the Indemnifying Parties shall defend, indemnify and hold harmless the Indemnified Party against any liability for Taxes which the Indemnified Party may assume or otherwise incur and any and all Taxes or other liabilities directly or indirectly imposed upon or incurred by any Indemnified Party and/or its stockholders as a result of such failure. SECTION 6.3. EFFECT OF EXPRESS WRITTEN CONSENT OF ATI. The Indemnified Party shall be defended, indemnified and held harmless under Section 6.1 without regard to the fact that the Indemnifying Party may have received the express written consent of ATI as contemplated by Article V. The Indemnified Party shall be defended, indemnified and held harmless under Section 6.2 whether or not the acquisition of Beneficial Ownership results from a transaction which is not prohibited under Article V. ARTICLE VII CALCULATION OF SPINCO INDEMNITY AMOUNTS SECTION 7.1. AMOUNT OF INDEMNITY. The amount indemnified against under Article VI ("Indemnified Liability") for a Tax based on or determined with reference to income shall be deemed to be, for each applicable taxing jurisdiction, an amount determined by multiplying (i) the taxing jurisdiction's highest marginal corporate income or tax rate for the taxable period in which the Distribution or Other Transaction occurs, times (ii) the gain or income of the Indemnified Party which is subject to such Tax. In the case of other Indemnified Liabilities, the amount of the Indemnified Liability shall be equal to the amount so owed. In addition, the amount of any Indemnified Liability shall be increased by any interest, costs, legal and professional fees, additions, expenses and penalties incurred by the Indemnified Party. All amounts payable under this Article VII shall, to the extent that such amounts constitute taxable income, be grossed-up, based on the tax rate referred to in clause (i) of the first sentence of this Section 7.1. ARTICLE VIII PROCEDURAL ASPECTS OF SPINCO INDEMNITY SECTION 8.1. GENERAL. (a) If either the Indemnified Party or any of the Indemnifying Parties receives any written notice of deficiency, claim or adjustment or any other written communication from a taxing authority or any other Person that may result in an Indemnified Liability, the party receiving such notice or communication shall promptly give written notice thereof to the other parties, provided that any delay by the Indemnified Party in so notifying an Indemnifying Party shall not relieve the Indemnifying Party of any liability hereunder, except to the extent the Indemnifying Party is materially and adversely prejudiced by such delay. 12 13 (b) Each party hereto undertakes and agrees that from and after such time as it obtains knowledge that any representative of a taxing authority has begun to investigate or inquire into the Distribution or any of the Other Transactions (whether or not such investigation or inquiry is a formal or informal investigation or inquiry), such party shall (i) notify the other parties thereof, provided that any delay by the Indemnified Party in so notifying the Indemnifying Party shall not relieve the Indemnifying Party of any liability hereunder (except to the extent the Indemnifying Party is materially and adversely prejudiced by such delay), (ii) consult with the other parties from time to time as to the conduct of such investigation or inquiry, (iii) provide the other parties with copies of all correspondence with such taxing authority or any representative thereof or other Person pertaining to such investigation or inquiry, and (iv) arrange for a representative of the other parties to be present at all meetings with such taxing authority or any representative thereof pertaining to such investigation or inquiry. (c) SPINCO undertakes and agrees to give full cooperation and support to ATI, including without limitation, attestations and/or access to Information, as requested by ATI, to document and verify the use of the Public Offering proceeds in the manner and during the time period set forth in the Ruling Request. SPINCO will submit a quarterly accounting to ATI, due within 30 days after the end of each calendar quarter, which sets forth in detail the use of Public Offering proceeds. This information will be submitted to ATI in a format substantially similar to the chart attached hereto as Appendix I. SECTION 8.2. CONTESTS. (a) If (i) the Indemnifying Party furnishes the Indemnified Party with evidence satisfactory to the Indemnified Party of its ability to pay the full amount of the Indemnified Liability and (ii) such Indemnifying Party acknowledges in writing that the asserted liability is an Indemnified Liability, such Indemnifying Party may assume and direct the tax examination, administrative appeal, hearing, arbitration, suit or other proceeding (each a "Proceeding") commenced, filed or otherwise initiated or convened to investigate or resolve the existence and extent of such Indemnified Liability. (b) Notwithstanding the foregoing, if at any time during a Proceeding controlled by the Indemnifying Party pursuant to Section 8.2(a), such Indemnifying Party fails to provide evidence satisfactory to the Indemnified Party of its continuing ability to pay the full amount of the Indemnified Liability or the Indemnified Party determines that such Indemnifying Party may be unable to pay the full amount of the Indemnified Liability, then the Indemnified Party may immediately assume control of and direct the Proceedings. (c) During the period in which the Indemnifying Party assumes and directs the Proceeding, if the Indemnified Liability is grouped with other unrelated asserted liabilities or issues in the Proceeding, the parties shall use their respective best efforts to cause the Indemnified Liability to be the subject of a separate proceeding. If such severance is not possible, the Indemnifying Party shall assume and direct and be responsible only for the matters relating to the Indemnified Liability. 13 14 (d) In addition to the amounts referred to in Section 6.1, an Indemnifying Party shall pay all out-of-pocket expenses and other costs related to the Indemnified Liability, including but not limited to fees for attorneys, accountants, expert witnesses or other consultants retained by such Indemnifying Party and/or the Indemnified Party with respect to a claim pursuant to this Agreement. To the extent that any such expenses and other costs have been or are paid by an Indemnified Party, the Indemnifying Party shall promptly upon written request reimburse the Indemnified Party therefor. (e) An Indemnifying Party shall not pay (unless otherwise required by a proper notice of levy and after prompt written notification to the Indemnified Party of receipt of notice and demand for payment), settle, compromise or concede any portion of the Indemnified Liability without the express written consent of the Indemnified Party. An Indemnifying Party shall, on a timely basis, keep the Indemnified Party informed of all developments in the Proceeding and provide the Indemnified Party with copies of all pleadings, briefs, orders, and other written papers; provided that in the event that the Indemnifying Party determines that the providing of a written paper could waive an attorney-client privilege, the parties shall take all reasonable measures to permit the compliance with such obligation in a manner that avoids such consequence. (f) Any Proceeding which is not controlled or which is no longer controlled by an Indemnifying Party pursuant to Section 8.2 shall be controlled and directed exclusively by the Indemnified Party, and any related out-of-pocket expenses and other costs incurred by the Indemnified Party, including but not limited to, fees for attorneys, accountants, expert witnesses or other consultants, with respect to a claim pursuant to this Agreement, shall be reimbursed by such Indemnifying Party. An Indemnified Party will not be required to pursue the claim in federal district court, the Court of Federal Claims or any state or foreign court if as a prerequisite to such court's jurisdiction, the Indemnified Party is required to pay the asserted liability unless the funds necessary to invoke such jurisdiction are provided by such Indemnifying Party. SECTION 8.3. TIME AND MANNER OF PAYMENT. Upon receipt of notice of a Final Determination, an Indemnifying Party shall pay, within seven (7) business days of such receipt, to the Indemnified Party the amount of the Indemnified Liability and any expenses or other costs indemnified against (less, in the case of an Indemnified Liability for Taxes, any amount of such Taxes paid directly by an Indemnifying Party to the taxing authority). With respect to payments of an Indemnified Liability for amounts other than Taxes including any and all Liabilities with respect to ATI stockholders, the Indemnifying Party shall pay to the Indemnified Party the amount of this Indemnified Liability within seven (7) days of a final determination of the amount of such Liability and, in the case of Liabilities with respect to ATI stockholders, no less than seven (7) days prior to the date that payment is required to be made to such stockholders. Such payment shall be paid by wire transfer of immediately available funds to an account designated by the Indemnified Party by written notice to an Indemnifying Party at the address specified in Section 10.11 prior to the due date of such payment. If an Indemnifying Party delays making payment beyond the due date hereunder, such party shall pay interest on the amount unpaid at the IRS Interest Rate for each day and the actual number of days for which any amount due hereunder is unpaid. 14 15 SECTION 8.4. COOPERATION. The parties shall cooperate with one another in a timely manner in any administrative or judicial Proceeding involving any matter that may result in an Indemnified Liability. SECTION 8.5. ADMINISTRATION. ATI's and SPINCO's Chief Tax Officer or other designated tax representative shall have primary responsibility for the day-to-day administration of the provisions of this Agreement. ARTICLE IX DISPUTES SECTION 9.1. DISPUTES. (a) Resolution of any and all disputes arising from or in connection with this Agreement, whether based on contract, tort, statute or otherwise, including, but not limited to, unreasonable withholding of consent and disputes in connection with claims by third parties (collectively, "Disputes"), shall be subject to the provisions of this Section 9.1; provided, however, that nothing contained herein shall preclude either party from seeking or obtaining (i) injunctive relief or (ii) equitable or other judicial relief to enforce the provisions hereof or to preserve the status quo pending the final resolution of Disputes hereunder. (b) Either party may give the other party written notice of any Dispute not resolved in the normal course of business. The parties shall attempt in good faith to resolve any Dispute promptly by negotiation between executives of the parties who have authority to settle the controversy. Within 15 days after delivery of the notice, the foregoing executives of both parties shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary for a period not to exceed 5 days, to attempt to resolve the Dispute. All reasonable requests for information made by one party to the other will be honored. If the parties do not resolve the Dispute within such 20 day period (the "Initial Mediation Period"), the parties shall attempt in good faith to resolve the Dispute by negotiation between (a) in the case of ATI, the Chief Financial Officer and General Counsel, and (b) in the case of SPINCO, the Chief Financial Officer and General Counsel (collectively, the "Designated Officers"). Such officers shall meet at a mutually acceptable time and place (but in any event no later than 20 days following the expiration of the Initial Mediation Period) and thereafter as often as they reasonably deem necessary for a period not to exceed 20 days, to attempt to resolve the Dispute. (c) If the Dispute has not been resolved by negotiation within 50 days of the first party's notice, or if the parties failed to meet within 15 days of the first party's notice, or if the Designated Officers failed to meet within 35 days of the first party's notice, either party may commence any litigation or other procedure allowed by law. 15 16 ARTICLE X GENERAL SECTION 10.1. ELECTIONS UNDER CODE SECTION 1552. Nothing in this Agreement is intended to change or otherwise affect any election made by or on behalf of the ATI Consolidated Group with respect to the calculation of earnings and profits under Code Section 1552. SECTION 10.2. PRE-DISTRIBUTION EARNINGS AND PROFITS. ATI and SPINCO agree to allocate pre-Distribution earnings and profits in accordance with Treasury Regulation Sections 1.312-10 and 1.1502-33. SECTION 10.3. REMEDIES. SPINCO acknowledges that its obligations under Article V of this Agreement are of a special, unique, unusual and extraordinary character. Because the failure of SPINCO to perform its obligations set forth in Article V of this Agreement could cause unique and extraordinary injury to ATI, ATI shall, notwithstanding anything to the contrary herein, have the right in addition to any other remedies available, at law or in equity, to seek an injunction in a court of equity to compel SPINCO to perform such obligations. SPINCO hereby waives any and all defenses it may have on the ground of lack of jurisdiction or competence of the court to grant an injunction or other equitable relief, or otherwise, and agrees that it will not assert any such defense or any defense to a request by ATI for injunctive relief based on the alleged existence of an adequate remedy at law or for money damages. Without limiting the foregoing, SPINCO hereby waives the right to require ATI to post any bond or other security with respect to any proceeding to enforce any provisions of this Agreement. The existence of the rights of ATI set forth in this Section 10.3 shall not preclude any other rights and remedies at law or in equity which ATI may have. SECTION 10.4. ASSIGNMENT. Neither of the parties may assign or delegate any of its rights or duties under this Agreement without the prior written consent of the other party. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and permitted assigns, by merger, acquisition of assets or otherwise. SECTION 10.5. FURTHER ASSURANCES. Subject to the provisions hereof, the parties hereto shall make, execute, acknowledge, and deliver such other instruments and documents, and take all such other actions, as may be reasonably required in order to effectuate the purposes of this Agreement and to consummate the transactions contemplated hereby. Subject to the provisions hereof, each of the parties shall, in connection with entering into this Agreement, performing its obligations hereunder and taking any and all actions relating hereto, comply with all applicable laws, regulations, orders, and decrees, and promptly provide the other parties with all such information as they may reasonably request in order to be able to comply with the provisions of this Agreement. SECTION 10.6. WAIVERS. No failure or delay on the part of the parties in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce 16 17 such right or power, preclude any other or further exercise thereof or the exercise of any other right or power. No modification or waiver of any provision of this Agreement nor consent to any departure by the parties therefrom shall in any event be effective unless the same shall be in writing, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. SECTION 10.7. CHANGE OF LAW. If, due to any change in applicable law or regulations or their interpretation by any court of law or other governing body having jurisdiction subsequent to the date of this Agreement, performance of any provision of this Agreement or any transaction contemplated thereby shall become impracticable or impossible, the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such provision. SECTION 10.8. CONFIDENTIALITY. Subject to any contrary requirement of law and the right of each party to enforce its rights hereunder in any legal action, each party agrees that it shall keep strictly confidential, and shall cause its employees and agents to keep strictly confidential, any information which it or any of its employees or agents may acquire pursuant to, or in the course of performing its obligations under, any provision of this Agreement. SECTION 10.9. HEADINGS. Descriptive headings are for convenience only and shall not control or affect the meaning or construction of any provision of this Agreement. SECTION 10.10. COUNTERPARTS. For the convenience of the parties, any number of counterparts of this Agreement may be executed by the parties hereto, and each such executed counterpart shall be, and shall be deemed to be, an original instrument. SECTION 10.11. NOTICES. All notices, requests, claims and other communications hereunder shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery by hand, by reputable overnight courier service, by facsimile transmission, or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 10.11) listed below: Allegheny Teledyne Incorporated 1000 Six PPG Place Pittsburgh, Pennsylvania 15222-5479 Attn: Jon D. Walton Senior Vice President, General Counsel and Secretary Fax No.:412-394-2837 Teledyne Technologies Incorporated 2049 Century Park East Los Angeles, California 90067-3101 Attn: John T. Kuelbs Senior Vice President, General Counsel and Secretary Attn: Fax No.:310-551-4366 17 18 or to such other address as any party may, from time to time, designate in a written notice given in a like manner. Notice given by hand shall be deemed delivered when received by the recipient. Notice given by mail as set out above shall be deemed delivered five (5) calendar days after the date the same is mailed. Notice given by reputable overnight courier shall be deemed delivered on the next following business day after the same is sent. Notice given by facsimile transmission shall be deemed delivered on the day of transmission provided telephone confirmation of receipt is obtained promptly after completion of transmission. SECTION 10.12. COSTS AND EXPENSES. Unless otherwise specifically provided herein, each party agrees to pay its own costs and expenses resulting from the fulfillment of its respective obligations hereunder. SECTION 10.13. CANCELLATION OF PRIOR TAX ALLOCATION OR TAX-SHARING AGREEMENTS. On or prior to the Effective Date, ATI shall cancel or cause to be canceled all agreements (other than this Agreement) providing for the allocation or sharing of Taxes to which any member of the SPINCO Group would otherwise be bound following the Distribution. SECTION 10.14. INTEREST ON LATE PAYMENTS. If a party makes any payment beyond the due date hereunder, such party shall pay interest on the amount unpaid at the IRS Interest Rate for each day and the actual number of days for which any amount due hereunder is unpaid. SECTION 10.15. POWER OF ATTORNEY. Each member of the SPINCO Group shall execute and deliver to ATI any power of attorney or other document reasonably requested by ATI in connection with the filing of the Tax Returns and payment of Taxes described in Article II hereof, or any Proceeding described in Article VIII hereof. Each member of the ATI Consolidated Group shall execute and deliver to SPINCO a power of attorney in connection with any matters controlled by SPINCO under Section 2.2. SECTION 10.16. GENERAL. This Agreement, including the attachments, shall constitute the entire agreement between the parties hereto with respect to the subject matter hereof and shall supersede all prior agreements and undertakings, both written and oral, between the parties with respect to the subject matter hereof and thereof. This Agreement may not be amended or modified except (a) by an instrument in writing signed by, or on behalf of, the parties or (b) by a waiver in accordance with Section 10.6. This Agreement shall be binding upon and inure solely to the benefit of the parties hereto and their respective present and future Subsidiaries, and nothing herein, express or implied, is intended to or shall confer upon any third parties any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. 18 19 SECTION 10.17. GOVERNING LAW: CONSENT TO JURISDICTION. (a) This Agreement shall be governed by and construed and interpreted in accordance with the laws of the Commonwealth of Pennsylvania as to all matters, including matters of validity, construction, effect, enforceability, performance and remedies, irrespective of the choice of laws and principles of the laws of the Commonwealth of Pennsylvania. (b) Each of the parties hereto irrevocably submits to the exclusive jurisdiction of (i) the Court of Common Pleas of Allegheny County, Pennsylvania and (ii) the United States District Court for the Western District of Pennsylvania, for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby or thereby (and agrees not to commence any action, suit or proceeding relating thereto except in such courts). Each of the parties hereto further agrees that service of any process, summons, notice or document hand delivered or sent by U.S. registered mail to such parties respective address set forth in Section 10.11 will be effective service of process for any action, suit or proceeding in Pennsylvania with respect to any matters to which it has submitted to jurisdiction as set forth in the immediately preceding sentence. Each of the parties hereto irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby or thereby (i) the Court of Common Pleas of Allegheny County, Pennsylvania or (ii) the United States District Court for the Western District of Pennsylvania, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. SECTION 10.18. SEVERABILITY. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible. IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed by their respective officers, each of whom is duly authorized, all as of the Effective Date. ALLEGHENY TELEDYNE INCORPORATED By: ------------------------------------ (Name) (Title) 19 20 TELEDYNE TECHNOLOGIES INCORPORATED By: ------------------------------------ (Name) (Title) [OTHER COMPANIES] By: ------------------------------------ (Name) (Title) 20 EX-10.3 7 EMPLOYEE BENEFITS AGREEMENT 1 Exhibit 10.3 EMPLOYEE BENEFITS AGREEMENT BETWEEN ALLEGHENY TELEDYNE INCORPORATED AND TELEDYNE TECHNOLOGIES INCORPORATED DATED AS OF _______________, 1999 2 TABLE OF CONTENTS ARTICLE I DEFINITIONS............................................................................................1 ARTICLE II GENERAL PRINCIPLES....................................................................................6 2.1 ASSUMPTION OF LIABILITIES...............................................................6 2.2 ESTABLISHMENT OF TELEDYNE TECHNOLOGIES PLANS............................................6 2.3 TERMS OF PARTICIPATION BY TELEDYNE TECHNOLOGIES INDIVIDUALS IN TELEDYNE TECHNOLOGIES PLANS...................................................................7 ARTICLE III DEFINED BENEFIT PLANS................................................................................8 3.1 ESTABLISHMENT OF TELEDYNE TECHNOLOGIES PENSION PLAN AND TRUST...........................8 3.2 ASSUMPTION OF PENSION PLAN LIABILITIES AND ALLOCATION OF INTERESTS IN THE ATI MASTER PENSION TRUST.................................................................8 3.3 FREEZING OF PENSION PLAN BENEFITS.......................................................9 3.4 CREDITING SERVICE UNDER ATI'S PENSION PLAN..............................................9 ARTICLE IV DEFINED CONTRIBUTION PLANS............................................................................9 4.1 401(k) PLAN.............................................................................9 ARTICLE V HEALTH AND WELFARE PLANS..............................................................................11 5.1 ASSUMPTION OF HEALTH AND WELFARE PLAN LIABILITIES......................................11 5.2 VENDOR CONTRACTS.......................................................................11 5.3 PROCEDURES FOR AMENDMENTS TO PLANS, PLAN DESIGNS, ADMINISTRATIVE PRACTICES, AND VENDOR CONTRACTS................................................................13 5.4 ATI SICKNESS AND ACCIDENT, LONG TERM DISABILITY AND PENSION DISABILITY BENEFITS............................................................................14 5.5 POST-RETIREMENT HEALTH AND LIFE INSURANCE BENEFITS.....................................14 5.6 COBRA AND DIRECT PAY...................................................................15 5.7 POST-DISTRIBUTION TRANSITIONAL ARRANGEMENTS............................................15 5.8 APPLICATION OF ARTICLE V TO TELEDYNE TECHNOLOGIES ENTITIES.............................16
i 3 ARTICLE VI EXECUTIVE BENEFITS AND NON-EMPLOYEE DIRECTOR BENEFITS................................................17 6.1 ASSUMPTION OF OBLIGATIONS..............................................................17 6.2 CONSENTS AND NOTIFICATIONS.............................................................17 6.3 ATI 1999 BONUS PLAN....................................................................17 6.4 ATI INCENTIVE PLANS....................................................................17 6.5 ATI NONQUALIFIED DEFERRED COMPENSATION PROGRAMS........................................20 6.6 NON-EMPLOYEE DIRECTOR BENEFITS.........................................................20 6.7 CONFIDENTIALITY AND PROPRIETARY INFORMATION............................................21 ARTICLE VII GENERAL AND ADMINISTRATIVE..........................................................................21 7.1 INTERIM SERVICES AGREEMENT.............................................................21 7.2 PAYMENT OF LIABILITIES, PLAN EXPENSES AND RELATED MATTERS..............................21 7.3 SHARING OF PARTICIPANT INFORMATION.....................................................22 7.4 REPORTING AND DISCLOSURE AND COMMUNICATIONS TO PARTICIPANTS............................22 7.5 NON-TERMINATION OF EMPLOYMENT; NO THIRD-PARTY BENEFICIARIES............................22 7.6 BENEFICIARY DESIGNATIONS...............................................................23 7.7 REQUESTS FOR IRS RULINGS AND DOL OPINIONS..............................................23 7.8 FIDUCIARY MATTERS......................................................................23 7.9 COLLECTIVE BARGAINING..................................................................23 7.10 CONSENT OF THIRD PARTIES..............................................................23 7.11 INDEMNIFICATION OF ATI................................................................24 ARTICLE VIII MISCELLANEOUS......................................................................................24 8.1 FOREIGN PLANS..........................................................................24 8.2 EFFECT IF DISTRIBUTION DOES NOT OCCUR..................................................24 8.3 RELATIONSHIP OF PARTIES................................................................24 8.4 AFFILIATES.............................................................................24 8.5 COUNTERPARTS; ENTIRE AGREEMENT; CORPORATE POWER........................................24 8.6 GOVERNING LAW; CONSENT TO JURISDICTION.................................................25 8.7 ASSIGNABILITY..........................................................................25 8.8 THIRD PARTY BENEFICIARIES..............................................................26 8.9 NOTICES................................................................................26 8.10 SEVERABILITY..........................................................................26 8.12 HEADINGS..............................................................................26 8.13 WAIVERS OF DEFAULT....................................................................27 8.15 AMENDMENTS............................................................................27 8.16 INTERPRETATION........................................................................27 8.17 DISPUTES..............................................................................27
ii 4 EMPLOYEE BENEFITS AGREEMENT ________________, 1999 The parties to this Employee Benefits Agreement, dated as of the date written above, are Allegheny Teledyne Incorporated, a Delaware corporation ("ATI"), and Teledyne Technologies Incorporated, a Delaware corporation ("Teledyne Technologies"). Capitalized terms used herein (other than the formal names of ATI Plans (as defined below) and related trusts of ATI) and not otherwise defined shall have the respective meanings assigned to them in Article I hereof or as assigned to them in the Separation and Distribution Agreement (as defined below). WHEREAS, the Board of Directors of ATI has determined that it is in the best interests of ATI and its stockholders to separate ATI's aerospace and electronics businesses into an independent business entity; WHEREAS, in furtherance of the foregoing, ATI and Teledyne Technologies have entered into a Separation and Distribution Agreement, dated as of the date hereof (the "Separation and Distribution Agreement"), and certain other agreements that will govern certain matters relating to the Separation, the Distribution and the relationship of ATI and Teledyne Technologies, and their respective Subsidiaries following the Distribution; and WHEREAS, pursuant to the Separation and Distribution Agreement, ATI and Teledyne Technologies have agreed to enter into this agreement allocating assets, liabilities and responsibilities with respect to certain employee compensation and benefit plans and programs between them. NOW, THEREFORE, the parties, intending to be legally bound, agree as follows: ARTICLE I DEFINITIONS For purposes of this Agreement the following terms shall have the following meanings: 1.1 Agreement means this Employee Benefits Agreement, including all the Schedules and Exhibits hereto. 1.2 ASO Contract is defined in Section 5.2(a)(i). 1.3 ATI Entity means any entity that is, at the relevant time, an Affiliate of ATI, except that, for periods beginning Immediately After the Distribution Date, the term "ATI Entity" shall not include Teledyne Technologies or a Teledyne Technologies Entity. 5 1.4 ATI Executive means an employee or former employee of ATI, an ATI Entity, Teledyne Technologies or a Teledyne Technologies Entity, who immediately before the Close of the Distribution Date is eligible to participate in or receive a benefit under any ATI Executive Benefit Plan. 1.5 ATI Master Pension Trust means the master trust under which the assets of the ATI Pension Plan are held. 1.6 ATI Pension Plan means the Allegheny Teledyne Incorporated Pension Plan. 1.7 ATI Stock Value means the closing price per share of ATI Common Stock (regular way) on the NYSE on the Distribution Date. 1.8 Award means an award under the Incentive Plan, including Performance Awards and SARP Awards. When immediately preceded by "ATI," the term Award (including the term Performance Award or SARP Award) means an award under the ATI Incentive Plan. When immediately preceded by "Teledyne Technologies," the term Award (including the term Performance Award or SARP Award) means an award under the Teledyne Technologies Incentive Plan. 1.9 Benefit Liabilities means any Liabilities (as defined in the Separation and Distribution Agreement) relating to any contributions, compensation or other benefits accrued or payable under any profit sharing, pension, savings, deferred compensation, fringe benefit, insurance, medical, medical reimbursement, life, disability, accident, post-retirement health or welfare benefit, stock option, stock purchase, sick pay, vacation, employment, severance, termination or other compensation or benefit plan, agreement, contract, policy, trust fund or arrangement. 1.10 Change is defined in Section 5.3(b)(i). 1.11 Close of the Distribution Date means 5:00 P.M., Eastern Standard Time or Eastern Daylight Time (whichever shall then be in effect), on the Distribution Date. 1.12 COBRA means the continuation coverage requirements for "group health plans" under Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and as codified in Code Section 4980B and ERISA Sections 601 through 608. 1.13 Code means the Internal Revenue Code of 1986, as amended. Reference to a specific Code provision also includes any proposed, temporary, or final regulation in force under that provision. 1.14 Corporate-Owned Life Insurance Policies means the life insurance policies owned by ATI insuring the lives of certain ATI Executives and certain other highly compensated employees of ATI or an ATI Entity. 1.15 DOL means the United States Department of Labor. 2 6 1.16 ERISA means the Employee Retirement Income Security Act of 1974, as amended. Reference to a specific provision of ERISA also includes any proposed, temporary, or final regulation in force under that provision. 1.17 Executive Benefit Plans, when immediately preceded by "ATI," means the executive benefit plans, programs, and arrangements established, maintained, agreed upon, or assumed by ATI or an ATI Entity for the benefit of employees and former employees of ATI or an ATI Entity before the Close of the Distribution Date as listed in Schedule 1.17. When immediately preceded by "Teledyne Technologies," Executive Benefit Plans means the executive benefit plans and programs to be established by Teledyne Technologies pursuant to Section 2.2 that correspond to the respective ATI Executive Benefit Plans. 1.18 Foreign Plan means a Plan maintained by ATI, an ATI Entity, Teledyne Technologies, or a Teledyne Technologies Entity for the benefit of employees outside the U.S. 1.19 Group Insurance Policies is defined in Section 5.2(b)(i). 1.20 HCRA Plan, when immediately preceded by "ATI," means the ATI Health Care Reimbursement Account Plan. When immediately preceded by "Teledyne Technologies," HCRA Plan means the Health Care Reimbursement Account Plan to be established by Teledyne Technologies pursuant to Section 2.2. 1.21 Health and Welfare Plans, when immediately preceded by "ATI," means the health and welfare plans listed on Schedule 1.21 established and maintained by ATI for the benefit of employees and retirees of ATI and certain ATI Entities, and such other welfare plans or programs as may apply to such employees and retirees of ATI or an ATI Entity before the Close of the Distribution Date. When immediately preceded by "Teledyne Technologies," Health and Welfare Plans means the health and welfare plans to be established by Teledyne Technologies pursuant to Section 2.2 that correspond to the respective ATI Health and Welfare Plans. 1.22 HMO means a health maintenance organization that provides benefits under one or more of the ATI Health and Welfare Plans or the Teledyne Technologies Health and Welfare Plans. 1.23 HMO Agreements is defined in Section 5.2(c)(i). 1.24 Immediately After the Distribution Date means 5:01 P.M., Eastern Standard Time or Eastern Daylight Time (whichever shall then be in effect), on the Distribution Date. 1.25 Incentive Plan, when immediately preceded by "ATI," means any of the Allegheny Teledyne Incorporated 1996 Incentive Plan, any predecessor Incentive Plan thereto and any other stock-based incentive plans assumed by ATI by reason of merger, combination, acquisition or otherwise. When immediately preceded by "Teledyne Technologies," Incentive Plan means the Incentive Plan to be established by Teledyne Technologies pursuant to Section 2.2. 3 7 1.26 IRS means the Internal Revenue Service. 1.27 Material Feature means any feature of a Plan that could reasonably be expected to be of material importance to the sponsoring employer or the participants and beneficiaries of the Plan, which could include, depending on the type and purpose of the particular Plan, the class or classes of employees eligible to participate in such Plan, the nature, type, form, source, and level of benefits provided by the employer under such Plan and the amount or level of contributions, if any, required to be made by participants (or their dependents or beneficiaries) to or under such Plan. 1.28 Non-Employee Director, when immediately preceded by "ATI," means a member of ATI's Board of Directors who is not an employee of ATI or an ATI Entity. When immediately preceded by "Teledyne Technologies," Non-Employee Director means a member of Teledyne Technologies' Board of Directors who is not an employee of Teledyne Technologies or a Teledyne Technologies Entity. 1.29 Non-Employee Director Plans, when immediately preceded by "ATI," means the Allegheny Teledyne Incorporated 1996 Non-Employee Director Stock Compensation Plan and the Allegheny Teledyne Incorporated Fee Continuation Plan for Non-Employee Directors. When immediately preceded by "Teledyne Technologies," Non-Employee Director Plans means the plans and programs to be established by Teledyne Technologies pursuant to Section 2.2 that correspond to the ATI Non-Employee Director Plans. 1.30 Nonqualified Deferred Compensation Programs, when immediately preceded by "ATI," means the Allegheny Teledyne Incorporated Executive Deferred Compensation Plan, the Allegheny Teledyne Incorporated Supplemental Pension Plan and the Teledyne, Inc. Pension Equalization Plan. When immediately preceded by "Teledyne Technologies," Deferral Plan means the Executive Deferred Compensation Plan to be established by Teledyne Technologies pursuant to Section 2.2. 1.31 Option, when immediately preceded by "ATI," means an option to purchase ATI Common Stock and, when immediately preceded by "Teledyne Technologies," Option means an option to purchase Teledyne Technologies Common Stock, in each case pursuant to an Incentive Plan. 1.32 PBGC means the Pension Benefit Guaranty Corporation. 1.33 Performance Award means any Award granted pursuant to the terms of the Performance Share Program. 1.34 Performance Share Program means the Allegheny Teledyne Incorporated Performance Share Program adopted pursuant to Administrative Rules under the ATI Incentive Plan. 1.35 Plan, when immediately preceded by "ATI" or "Teledyne Technologies," means any plan, policy, program, payroll practice, on-going arrangement, contract, trust, insurance policy or other agreement or funding vehicle providing benefits to employees, former 4 8 employees or Non-Employee Directors of ATI or an ATI Entity, or Teledyne Technologies or a Teledyne Technologies Entity, as applicable. 1.36 Ratio means the amount obtained by dividing the ATI Stock Value by the Teledyne Technologies Stock Value. 1.37 Reasonable Efforts means such acts or actions that, in the reasonable good faith opinion of the party taking such acts or actions, are calculated to achieve, or otherwise further, the applicable provisions to which the term applies; provided, however, to the extent any costs, fees or other expenditures (the "Expenses") occur as a result of a party's use of Reasonable Efforts and such expenses are not expressly allocated under the terms of this Agreement or any Ancillary Agreement, such Expenses shall be borne by the party for whose benefit such Expenses are incurred and such party shall indemnify and hold harmless the other party with respect to such Expenses. 1.38 SARP, when immediately preceded by "ATI," means the Allegheny Teledyne Incorporated Stock Acquisition and Retention Program. 1.39 SARP Award means any Award granted pursuant to the terms of the SARP. 1.40 Section 414(l) Amount is defined in the last sentence of Section 3.2(a). 1.41 Separation and Distribution Agreement is defined in the third paragraph of the preamble of this Agreement. 1.42 Stock Purchase Plan when immediately preceded by "ATI," means the Allegheny Teledyne Incorporated Employee Stock Purchase Plan. When immediately preceded by "Teledyne Technologies," Stock Purchase Plan means the employee stock purchase plan to be established by Teledyne Technologies pursuant to Section 2.2. 1.43 Teledyne means Teledyne, Inc., a Delaware corporation, or its successors or assigns. 1.44 Teledyne 401(k) Plan means the Teledyne, Inc. 401(k) Plan. 1.45 Teledyne Technologies Entity means any Person that is, at the relevant time, a Subsidiary of Teledyne Technologies or is otherwise controlled, directly or indirectly, by Teledyne Technologies. 1.46 Teledyne Technologies 401(k) Plan means, for the period between the Close of the Distribution Date and April 1, 2000, that portion of the Teledyne 401(k) Plan amended as described in Section 4.1(a) and, for the period on and after April 1, 2000, the separate 401(k) plan established by Teledyne Technologies effective no later than April 1, 2000. 1.47 Teledyne Technologies Individual means any individual who, Immediately After the Distribution Date, (i) is an active hourly or salaried employee of one of the Teledyne 5 9 Technologies Entities or (ii) is a former hourly or salaried employee who is in pay status or deferred vested status under the ATI Pension Plan of one of the Teledyne Technologies Entities listed in Schedule 1.47. 1.48 Teledyne Technologies Pension Plan means the pension plan established by Teledyne Technologies pursuant to Article III and Section 2.2. 1.49 Teledyne Technologies Pension Plan Participants means, collectively, the Teledyne Technologies Individuals who are eligible to participate and/or receive benefits under the terms of the Teledyne Technologies Pension Plan. 1.50 Teledyne Technologies Stock Value means the opening price per share of Teledyne Technologies Common Stock on the NYSE on the day following the Distribution Date. ARTICLE II GENERAL PRINCIPLES 2.1 ASSUMPTION OF LIABILITIES. Except as otherwise expressly provided in Article III and Article VI, Teledyne Technologies hereby assumes and agrees to pay, perform, fulfill and discharge, in accordance with their respective terms, all of the following (regardless of when or where such Benefit Liabilities arose or arise or were or are incurred): (i) all Benefit Liabilities to or relating to Teledyne Technologies Individuals, and their respective dependents and beneficiaries, in each case relating to, arising out of or resulting from employment by ATI or an ATI Entity before the Distribution Date (including Benefit Liabilities under ATI Plans and Teledyne Technologies Plans); (ii) all other Benefit Liabilities to or relating to Teledyne Technologies Individuals and other employees of Teledyne Technologies or a Teledyne Technologies Entity, and their dependents and beneficiaries, to the extent relating to, arising out of or resulting from future, present or former employment with Teledyne Technologies or a Teledyne Technologies Entity (including Benefit Liabilities under ATI Plans and Teledyne Technologies Plans); (iii) all Benefit Liabilities relating to, arising out of or resulting from any other actual or alleged employment relationship with Teledyne Technologies or a Teledyne Technologies Entity; (iv) all Benefit Liabilities relating to, arising out of or resulting from the imposition of withdrawal liability under Subtitle E of Title IV of ERISA as a result of a complete or partial withdrawal of any ATI Entity from a "multiemployer plan" within the meaning of ERISA Section 4021 which occurs solely as a result of the Separation or the Distribution; and (v) all other Benefit Liabilities relating to, arising out of or resulting from obligations, liabilities and responsibilities expressly assumed or retained by Teledyne Technologies, a Teledyne Technologies Entity, or a Teledyne Technologies Plan pursuant to this Agreement. Notwithstanding the generality of the foregoing, Teledyne Technologies does not assume or agree to pay, perform, fulfill or discharge any Benefit Liabilities relating to, arising out of or resulting from the Teledyne Savings and Retirement Supplemental Plan. 2.2 ESTABLISHMENT OF TELEDYNE TECHNOLOGIES PLANS. Effective prior to the Distribution Date, Teledyne Technologies shall adopt, or cause to be adopted, the Teledyne 6 10 Technologies Pension Plan and its related trust, the amended Teledyne 401(k) Plan for the period between the Distribution Date and April 1, 2000, the Teledyne Technologies Stock Purchase Plan, the Teledyne Technologies Health and Welfare Plans, and the Teledyne Technologies Executive Benefit Plans for the benefit of the Teledyne Technologies Individuals and other current and future employees of Teledyne Technologies and the Teledyne Technologies Entities; provided, however, that Teledyne Technologies may, in its sole discretion, elect not to adopt or establish the Plan or Plans listed in Schedule 2.2(a). Subject to the provisions of Section 4.1 regarding the Teledyne Technologies 401(k) Plan, or as otherwise may be set forth in Schedule 2.2(b), the foregoing Teledyne Technologies Plans shall be substantially identical in all Material Features to the corresponding ATI Plans as in effect as of the Close of the Distribution Date. Effective prior to or within a reasonable time after the Distribution Date, Teledyne Technologies shall adopt, or cause to be adopted, the Teledyne Technologies Non-Employee Director Plans, for the benefit of Teledyne Technologies Non-Employee Directors. The Teledyne Technologies Non-Employee Director Plans shall be substantially similar in all Material Features to the corresponding ATI Non-Employee Director Plans as in effect on the Distribution Date. Effective no later than April 1, 2000, Teledyne Technologies shall adopt the Teledyne Technologies 401(k) Plan and its related trust. 2.3 TERMS OF PARTICIPATION BY TELEDYNE TECHNOLOGIES INDIVIDUALS IN TELEDYNE TECHNOLOGIES PLANS. The Teledyne Technologies Plans shall be, with respect to Teledyne Technologies Individuals, in all respects the successors in interest to, and shall not provide benefits that duplicate benefits provided by, the corresponding ATI Plans. ATI and Teledyne Technologies shall agree on methods and procedures, including amending the respective Plan documents and/or requesting approvals or consents of Teledyne Technologies Individuals where the parties deem appropriate, to prevent Teledyne Technologies Individuals from receiving duplicative benefits from the ATI Plans and the Teledyne Technologies Plans. With respect to Teledyne Technologies Individuals, each Teledyne Technologies Plan shall provide that all service, all compensation and all other benefit-affecting determinations that, as of the Close of the Distribution Date, were recognized under the corresponding ATI Plan shall, as of Immediately After the Distribution Date, receive full recognition, credit, and validity and be taken into account under such Teledyne Technologies Plan to the same extent as if such items occurred under such Teledyne Technologies Plan, except to the extent that duplication of benefits would result. The provisions of this Agreement for the transfer of assets from certain trusts relating to ATI Plans (including Foreign Plans) to the corresponding trusts relating to Teledyne Technologies Plans (including Foreign Plans) are based upon the understanding of the parties that each such Teledyne Technologies Plan will assume all Benefit Liabilities of the corresponding ATI Plan to or relating to Teledyne Technologies Individuals, as provided for herein. If any such Benefit Liabilities are not effectively assumed by the appropriate Teledyne Technologies Plan, then the amount of assets transferred to the trust relating to such Teledyne Technologies Plan from the trust relating to the corresponding ATI Plan shall be recomputed as set forth below, but taking into account the retention of such Benefit Liabilities by such ATI Plan, and assets shall be transferred by the trust relating to such Teledyne Technologies Plan to the trust relating to such ATI Plan so as to place each such trust in the position it would have been in, had the initial asset transfer been made in accordance with such recomputed amount of assets. 7 11 ARTICLE III DEFINED BENEFIT PLANS 3.1 ESTABLISHMENT OF TELEDYNE TECHNOLOGIES PENSION PLAN AND TRUST. The Teledyne Technologies Pension Plan, established by Teledyne Technologies pursuant to Section 2.2, (i) shall be a qualified defined benefit pension plan within the meaning of Code Section 401(a), (ii) shall contain provisions, terms and conditions substantially similar to the provisions, terms and conditions of the ATI Pension Plan, (iii) shall provide coverage to and assume the benefit payment obligations of the ATI Pension Plan with respect to the Teledyne Technologies Pension Plan Participants, (iv) shall provide a benefit formula which shall accrue benefits for eligible Teledyne Technologies Individuals at a rate substantially similar to the rate at which benefits are accrued under the ATI Pension Plan and (v) shall provide that the Teledyne Technologies Pension Plan cannot be amended to increase the rate of benefit accrual until January 1, 2001 without the prior written consent of ATI. The trust related to the Teledyne Technologies Pension Plan, established by Teledyne Technologies pursuant to Section 2.2, is intended to be exempt from taxation under Code Section 501(a) and Teledyne Technologies shall take all steps necessary or appropriate to cause such trust to meet the requirements for tax exemption under Code Section 501(a). 3.2 ASSUMPTION OF PENSION PLAN LIABILITIES AND ALLOCATION OF INTERESTS IN THE ATI MASTER PENSION TRUST. (a) CALCULATION OF ASSET ALLOCATION. A nationally-recognized actuarial firm, selected by ATI in its sole and absolute discretion (the "Actuary"), shall determine the Section 414(l) Amount effective as of the Distribution Date. As soon as practicable after the Distribution Date, the Actuary shall deliver to ATI and Teledyne Technologies a written report, with the necessary supporting data, setting forth the calculations by the Actuary of the Section 414(l) Amount and a certification that such amount complies with Section 414(l) of the Code. The Actuary's determination of the Section 414(l) Amount shall be final and binding on all parties hereto and for all purposes hereunder. The costs of the Actuary with respect to the determination of the Section 414(l) Amount under this Section 3.2(a) shall be borne equally by ATI and Teledyne Technologies. The "Section 414(l) Amount" means the minimum amount required to be transferred from the ATI Pension Plan to the Teledyne Technologies Pension Plan with respect to the Teledyne Technologies Pension Plan Participants pursuant to Section 208 of ERISA and Section 414(l) of the Code and the applicable rulings and regulations thereunder using actuarial assumptions deemed reasonable in the aggregate by the Actuary within the meaning of Treasury Regulation Section 1.414(l)-1(b)(9) with respect to plan terminations occurring as of the Distribution Date. (b) TRANSFER OF ASSETS. As soon as practicable after determination of the Section 414(l) Amount in accordance with the procedures set forth in Section 3.2(a) but in no event earlier than two (2) business days after the Distribution Date or more than sixty (60) days after the Distribution Date, ATI shall cause to be transferred from the ATI Master Pension Trust to the Teledyne Technologies Master Pension Trust assets in a form determined by ATI in its 8 12 sole discretion with a market value then equal to the sum of (i) the Section 414(l) Amount and (ii) $50,000,000, together with interest on such Section 414(l) Amount for the period from the Distribution Date to the date of transfer at a rate equal to the rate of interest on 90-day U.S. Treasury bills as of the Distribution Date, reduced by the amount of any benefit payments due and made to or on behalf of any of the Teledyne Technologies Individuals from the ATI Master Pension Trust during such period and not taken into account in determining the Section 414(l) Amount. As of the date of such transfer of assets, Teledyne Technologies shall assume all Benefit Liabilities to or relating to Teledyne Technologies Pension Plan Participants under ATI's Pension Plan and ATI's Pension Plan shall retain no liability for such benefits. 3.3 FREEZING OF PENSION PLAN BENEFITS. Effective Immediately After the Distribution Date, the accrued benefits with respect to Teledyne Technologies Individuals who, as of the Distribution Date, were participants under the ATI Pension Plan shall be frozen and such Individuals shall not accrue any additional benefits from and after the Distribution Date under the ATI Pension Plan. The assets and Benefit Liabilities with respect to such Individuals, determined as of the Distribution Date, shall be retained by the ATI Pension Plan and its related trust and paid therefrom when due under the terms of the ATI Pension Plan. 3.4 CREDITING SERVICE UNDER ATI'S PENSION PLAN. Teledyne Technologies Individuals other than Teledyne Technologies Pension Plan Participants who, as of the Distribution Date, were participants in the ATI Pension Plan will continue to receive service credit for vesting and retirement benefit eligibility purposes under the ATI Pension Plan for service with Teledyne Technologies after the Distribution Date. ARTICLE IV DEFINED CONTRIBUTION PLANS 4.1 401(k) PLAN. (a) ADOPTION BY TELEDYNE TECHNOLOGIES OF TELEDYNE 401(k) PLAN AMENDED TO BE A MULTIPLE EMPLOYER PLAN. On or before the Distribution Date, the Teledyne 401(k) Plan will be amended by Teledyne to be and become a multiple employer plan under which Teledyne Technologies may elect to be a contributing sponsor and to provide participation to Teledyne Technologies Individuals under the terms and conditions set forth in the Teledyne 401(k) Plan for a period ending on the earlier of (i) adoption by Teledyne Technologies of the Teledyne Technologies 401(k) Plan or (ii) April 1, 2000. The right to amend the Teledyne 401(k) Plan in any respect shall be exclusively within the power of Teledyne at all relevant times. As amended, the Teledyne 401(k) Plan shall provide that (A) Teledyne Technologies Individuals shall not be permitted to direct investments after the Distribution Date in shares of common stock of ATI ("ATI Common Stock") or in the common stock of Teledyne Technologies or any other corporation spun off by ATI on the Distribution Date and (B) that each Teledyne Technologies Individual shall have the right to direct the administrator of the Teledyne 401(k) Plan to liquidate such Teledyne Technologies Individual's interest in shares of ATI Common Stock, Teledyne Technologies Common Stock or the common stock of any other previously related corporation 9 13 and direct the method of reinvestment of the proceeds of such sale from among the options then available under the Teledyne 401(k) Plan. (b) ESTABLISHMENT OF TELEDYNE TECHNOLOGIES 401(k) PLAN AND TRUST. The Teledyne Technologies 401(k) Plan, established by Teledyne Technologies no later than April 1, 2000 pursuant to Section 2.2, (i) shall be a qualified defined contribution plan within the meaning of Code Section 401(a), (ii) except as provided under Section 4.1(c), shall contain provisions, terms and conditions substantially similar to the provisions, terms and conditions of the Teledyne 401(k) Plan, including provisions with respect to the ATI Common Stock and the common stock of Teledyne Technologies and any other corporation spun off by ATI on the Distribution Date, and shall further provide that if ATI Common Stock and/or common stock of any previously related corporation other than Teledyne Technologies is held in accounts of Teledyne Technologies Individuals in the Teledyne 401(k) Plan as of December 31, 2002, interests of Teledyne Technologies Individuals in such stock shall be liquidated by the Plan administrator and the proceeds reinvested in Teledyne Technologies Common Stock, and (iii) shall provide coverage from and after the earlier of (i) its adoption by Teledyne Technologies or (ii) April 1, 2000 with respect to Teledyne Technologies Individuals who, as of the later of the dates above, were participants in the Teledyne 401(k) Plan, as amended as described in Section 4.1(a). The trust related to the Teledyne Technologies 401(k) Plan, established by Teledyne Technologies pursuant to Section 2.2, shall be exempt from taxation under Code Section 501(a). (c) ASSUMPTION OF LIABILITIES AND TRANSFER OF ASSETS. (i) Effective Immediately After the Distribution Date and until the earlier of (i) the date of adoption by Teledyne Technologies of the Teledyne Technologies 401(k) Plan or (ii) April 1, 2000, ATI shall administer or cause the administration of the assets and Benefit Liabilities of the Teledyne 401(k) Plan with respect to both Teledyne employees and Teledyne Technologies Individuals. Teledyne Technologies shall pay to ATI, within thirty days of presentment of an invoice therefor, an amount equal to the actual cost incurred by ATI for administration of the assets and Benefit Liabilities in the Teledyne 401(k) Plan relating to Teledyne Technologies Individuals. Teledyne Technologies Individuals shall continue to accrue service credit under the Teledyne 401(k) Plan for vesting and benefit eligibility purposes until the earlier of (i) the date of adoption by Teledyne Technologies of the Teledyne Technologies 401(k) Plan or (ii) April 1, 2000. Effective as of the earlier of (i) adoption by Teledyne Technologies of the Teledyne Technologies 401(k) Plan or (ii) April 1, 2000: (A) the Teledyne Technologies 401(k) Plan shall assume and be solely responsible for all Benefit Liabilities to or relating to Teledyne Technologies Individuals under the Teledyne Technologies 401(k) Plan, and (B) ATI shall cause an amount equal to the aggregate account balances of the Teledyne Technologies Individuals participating under the Teledyne 401(k) Plan, whether such amounts are vested or unvested under the terms of the Teledyne 401(k) Plan, which are held by the related trust as of the applicable of (i) the date of adoption by Teledyne Technologies of the Teledyne Technologies 401(k) Plan or (ii) April 1, 2000 (or such other date as may be agreed by ATI and Teledyne Technologies) to be transferred to the Teledyne Technologies 401(k) Plan, and its related trust, and Teledyne Technologies shall cause such transferred accounts to be accepted by such plan and trust. In ATI's sole and absolute discretion, the amount so transferred may be in cash or in kind or a combination thereof; provided, however, that the following shall be transferred in kind: (A) shares of ATI Common Stock, shares of Teledyne Technologies Common Stock allocated to participants' accounts as a result of the Distribution and shares of Water Pik Technologies, Inc. 10 14 Common Stock allocated to participants' accounts as a result of the spin-off of ATI's consumer business; and (B) all promissory notes reflecting participant loans to Teledyne Technologies Individuals under the Teledyne 401(k) Plan outstanding as of the Distribution Date. (ii) If any benefit with respect to a Teledyne Technologies Individual under the Teledyne 401(k) Plan is subject to a qualified domestic relations order at the time of transfer, all documentation concerning such qualified domestic relations order shall be assigned to the Teledyne Technologies 401(k) Plan. ARTICLE V HEALTH AND WELFARE PLANS 5.1 ASSUMPTION OF HEALTH AND WELFARE PLAN LIABILITIES. (a) Immediately After the Distribution Date, all Benefit Liabilities to or relating to Teledyne Technologies Individuals under the ATI Health and Welfare Plans shall cease to be Benefit Liabilities of the ATI Health and Welfare Plans and shall be assumed by the corresponding Teledyne Technologies Health and Welfare Plans. (b) Notwithstanding Section 5.1(a), all treatments which have been pre-certified for or are being provided to a Teledyne Technologies Individual as of the Close of the Distribution Date shall be provided without interruption under the appropriate ATI Health and Welfare Plan until such treatment is concluded or discontinued pursuant to applicable plan rules and limitations, but Teledyne Technologies shall continue to be responsible for all Benefit Liabilities relating to, arising out of or resulting from such ongoing treatments as of the Close of the Distribution Date. 5.2 VENDOR CONTRACTS. (a) THIRD-PARTY ASO CONTRACTS. (i) ATI shall use its Reasonable Efforts to amend each administrative services only contract with a third-party administrator that relates to any of the ATI Health and Welfare Plans (an "ASO Contract") in existence as of the date of this Agreement to permit Teledyne Technologies to participate in the terms and conditions of such ASO Contract from Immediately After the Distribution Date until December 31, 2000. ATI shall use its Reasonable Efforts to cause all ASO Contracts into which ATI enters after the date of this Agreement but before the Close of the Distribution Date to allow Teledyne Technologies to participate in the terms and conditions thereof effective Immediately After the Distribution Date on the same basis as ATI. (ii) ATI shall have the right to determine, and shall promptly notify Teledyne Technologies of, the manner in which Teledyne Technologies' participation in the terms and conditions of ASO Contracts as set forth above shall be effectuated. The permissible 11 15 ways in which Teledyne Technologies' participation may be effectuated include automatically making Teledyne Technologies a party to the ASO Contracts or obligating the third party to enter into a separate ASO Contract with Teledyne Technologies providing for the same terms and conditions as are contained in the ASO Contracts to which ATI is a party (or such other arrangement as to which ATI and Teledyne Technologies shall mutually agree). Such terms and conditions shall include the financial and termination provisions, performance standards, methodology, auditing policies, quality measures, reporting requirements and target claims. Teledyne Technologies hereby authorizes ATI to act on its behalf to extend to Teledyne Technologies the terms and conditions of the ASO Contracts. Teledyne Technologies shall fully cooperate with ATI in such efforts, and Teledyne Technologies shall not perform any act, including discussing any alternative arrangements with any third party, that would prejudice ATI's efforts. (b) GROUP INSURANCE POLICIES. (i) This Section 5.2(b) applies to group insurance policies not subject to allocation or transfer pursuant to the foregoing provisions of this Article V ("Group Insurance Policies"). (ii) ATI shall use its Reasonable Efforts to amend each Group Insurance Policy in existence as of the date of this Agreement for the provision or administration of benefits under the ATI Health and Welfare Plans to permit Teledyne Technologies to participate in the terms and conditions of such policy from Immediately After the Distribution Date until December 31, 2000. ATI shall use its Reasonable Efforts to cause all Group Insurance Policies into which ATI enters or which ATI renews after the date of this Agreement but before the Close of the Distribution Date to allow Teledyne Technologies to participate in the terms and conditions thereof effective Immediately After the Distribution Date on the same basis as ATI. (iii) Teledyne Technologies' participation in the terms and conditions of each such Group Insurance Policy shall be effectuated by obligating the insurance company that issued such insurance policy to ATI to issue one or more separate policies to Teledyne Technologies. Such terms and conditions shall include the financial and termination provisions, performance standards and target claims. Teledyne Technologies hereby unconditionally and irrevocably authorizes ATI to act on its behalf to extend to Teledyne Technologies the terms and conditions of such Group Insurance Policies. Teledyne Technologies shall fully cooperate with ATI in such efforts, and Teledyne Technologies shall not perform any act, including discussing any alternative arrangements with third parties, that would prejudice ATI's efforts. (c) HMO AGREEMENTS. (i) Before the Distribution Date, ATI shall use its Reasonable Efforts to amend all letter agreements with HMOs that provide medical services under the ATI Medical Plans for 1999 ("HMO Agreements") in existence as of the date of this Agreement to permit Teledyne Technologies to participate in the terms and conditions of such HMO Agreements, in each case, from Immediately After the Distribution Date until December 31, 2000. ATI shall use its Reasonable Efforts to cause all HMO Agreements into which ATI enters after the date of this 12 16 Agreement but before the Close of the Distribution Date to allow Teledyne Technologies to participate in the terms and conditions of such HMO Agreements from Immediately After the Distribution Date until December 31, 2000 on the same basis as ATI. (ii) ATI shall have the right to determine, and shall promptly notify Teledyne Technologies of, the manner in which Teledyne Technologies' participation in the terms and conditions of all HMO Agreements as set forth above shall be effectuated. The permissible ways in which Teledyne Technologies' participation may be effectuated include automatically making Teledyne Technologies a party to the HMO Agreements or obligating the HMOs to enter into letter agreements with Teledyne Technologies which are identical to the HMO Agreements (or such other arrangement as to which ATI and Teledyne Technologies shall mutually agree). Such terms and conditions shall include the financial and termination provisions of the HMO Agreements. Teledyne Technologies hereby authorizes ATI to act on its behalf to extend to Teledyne Technologies the terms and conditions of the HMO Agreements. Teledyne Technologies shall fully cooperate with ATI in such efforts, and Teledyne Technologies shall not perform any act, including discussing any alternative arrangements with any third-party, that would prejudice ATI's efforts. (iii) Notwithstanding anything in this Article V to the contrary, Teledyne Technologies shall have the sole discretion to determine which HMOs to offer to the participants in the Teledyne Technologies Health and Welfare Plans for 2001 and subsequent years, and all HMO Agreements in which Teledyne Technologies participates pursuant to this Section 5.2(c) shall provide Teledyne Technologies with the right to discontinue its participation effective January 1, 2001. 5.3 PROCEDURES FOR AMENDMENTS TO PLANS, PLAN DESIGNS, ADMINISTRATIVE PRACTICES, AND VENDOR CONTRACTS. (a) AMENDMENTS TO PLAN DOCUMENTS. From Immediately After the Distribution Date through December 31, 2000, Teledyne Technologies shall not amend any Teledyne Technologies Health and Welfare Plan or Plans, and Teledyne Technologies shall have no rights or privileges with respect to such Plans other than those rights and privileges contained in any policy, contract or other written arrangement governing such Plans. During any period in which ATI is providing Interim Services with respect to any Teledyne Technologies Health and Welfare Plan pursuant to Section 7.1, ATI shall have the right to amend any applicable Teledyne Technologies Health and Welfare Plan; provided that, in ATI's reasonable good faith opinion, such amendment will have no material adverse impact on the Teledyne Technologies Health and Welfare Plan or its participants or, to the extent a material adverse impact would occur, such impact would affect both the applicable Teledyne Technologies Health and Welfare Plan and any corresponding ATI Health and Welfare Plan and any costs incurred as a result of such amendment shall be borne by ATI and Teledyne Technologies in the same proportion that Teledyne Technologies and ATI employees, respectively, participate. (b) CHANGES IN VENDOR CONTRACTS, GROUP INSURANCE POLICIES, PLAN DESIGN, AND ADMINISTRATION PRACTICES AND PROCEDURES. 13 17 (i) From Immediately After the Distribution Date until December 31, 2000, Teledyne Technologies shall not materially modify, or take other action which would have a material effect on, any of the following items (each such modification, a "Change"): (A) the termination date, administration, or operation of (1) an ASO contract between ATI or Teledyne Technologies and a third-party administrator, (2) a Group Insurance Policy issued to ATI or Teledyne Technologies, or (3) an HMO Agreement with ATI or Teledyne Technologies, in each case, the material terms and conditions of which contracts and policies are extended to Teledyne Technologies or to which Teledyne Technologies becomes a party pursuant to Section 5.2; (B) the design of either an ATI Health and Welfare Plan or a Teledyne Technologies Health and Welfare Plan; or (C) the financing, operation, administration or delivery of benefits under either an ATI Health and Welfare Plan or a Teledyne Technologies Health and Welfare Plan. (ii) During any period in which ATI is providing Interim Services with respect to any Teledyne Technologies Health and Welfare Plan pursuant to Section 7.1, ATI shall be permitted to make any Change to such Teledyne Technologies Plan; provided that, in ATI's reasonable good faith opinion, such Change would affect both the applicable Teledyne Technologies Health and Welfare Plan and any corresponding ATI Health and Welfare Plan and any costs incurred as a result of such amendment shall be borne by ATI and Teledyne Technologies in the same proportion that Teledyne Technologies and ATI employees, respectively, participate. (c) EMPLOYEE CONTRIBUTIONS. Except as otherwise expressly provided in Sections 5.3(a) and 5.3(b), as of January 1, 2001, Teledyne Technologies shall have the right, in its sole and absolute discretion and without compliance with Sections 5.3(a) and 5.3(b), to increase or decrease the amount of employee contributions under their respective Health and Welfare Plans. 5.4 ATI SICKNESS AND ACCIDENT, LONG TERM DISABILITY AND PENSION DISABILITY BENEFITS. ATI shall transfer to Teledyne Technologies, effective Immediately After the Distribution Date, responsibility for administering all claims incurred by Teledyne Technologies Individuals and other employees and former employees of Teledyne Technologies and the Teledyne Technologies Entities before the Close of the Distribution Date that are administered by ATI as of the Close of the Distribution Date. Teledyne Technologies shall administer such claims in the same manner, and using the same methods and procedures, as ATI used in administering such claims. Teledyne Technologies shall have sole discretionary authority to make any necessary determinations with respect to such claims, including entering into settlements with respect to such claims. 5.5 POST-RETIREMENT HEALTH AND LIFE INSURANCE BENEFITS. As soon as practicable after the Distribution Date, Teledyne Technologies shall provide ATI with a list of all Teledyne Technologies Individuals who are, to the best knowledge of Teledyne Technologies, eligible to receive retiree medical or dental coverage under the ATI Health and Welfare Plans from and after the Distribution Date and/or post-retirement life insurance coverage under the ATI Group Life Program, and the type of retiree medical or dental coverage and the level of life insurance coverage for which they are eligible, as applicable. 14 18 5.6 COBRA AND DIRECT PAY. Effective Immediately After the Distribution Date, Teledyne Technologies shall solely be responsible for administering compliance with the health care continuation coverage requirements of COBRA and the Teledyne Technologies Health and Welfare plans, and, with respect to Teledyne Technologies Individuals, the ATI Health and Welfare Plans. 5.7 POST-DISTRIBUTION TRANSITIONAL ARRANGEMENTS. (a) CONTINUANCE OF ELECTIONS, CO-PAYMENTS AND MAXIMUM BENEFITS. (i) Teledyne Technologies shall cause the Teledyne Technologies Health and Welfare Plans to recognize and maintain all coverage and contribution elections made by Teledyne Technologies Individuals under the ATI Health and Welfare Plans and apply such elections under the Teledyne Technologies Health and Welfare Plans for the remainder of the period or periods for which such elections are by their terms applicable. The transfer or other movement of employment from ATI to Teledyne Technologies at any time before the Close of the Distribution Date shall neither constitute nor be treated as a "status change" under the ATI Health and Welfare Plans or the Teledyne Technologies Health and Welfare Plans. (ii) Teledyne Technologies shall cause the Teledyne Technologies Health and Welfare Plans to recognize and give credit for (A) all amounts applied to deductibles, out-of-pocket maximums, and other applicable benefit coverage limits with respect to which such expenses have been incurred by Teledyne Technologies Individuals under the ATI Health and Welfare Plans for the remainder of the year in which the Distribution occurs, and (B) all benefits paid to Teledyne Technologies Individuals under the ATI Health and Welfare Plans for purposes of determining when such persons have reached their lifetime maximum benefits under the Teledyne Technologies Health and Welfare Plans. (iii) Teledyne Technologies shall recognize and maintain through December 31, 1999 all eligible populations covered by the ATI Health and Welfare Plans (as defined in the applicable ATI Health and Welfare Plan documents), including Class I and Class II dependents, term and temporary employees, alternate benefit plan employees, and all categories of part-time employees (which are fully and non-fully eligible for company contributions). (iv) Teledyne Technologies shall (A) provide coverage to Teledyne Technologies Individuals under the Teledyne Technologies Group Life Program without the need to undergo a physical examination or otherwise provide evidence of insurability, and (B) recognize and maintain all irrevocable assignments and accelerated benefit option elections made by Teledyne Technologies Individuals under the ATI Group Life Program. (b) OTHER POST-DISTRIBUTION TRANSITIONAL RULES. (i) ATI HCRA PLAN. To the extent any Teledyne Technologies Individual contributed to an account under the ATI HCRA Plan during the calendar year that includes the Distribution Date, effective as of the Close of the Distribution Date, ATI shall 15 19 transfer to the Teledyne Technologies HCRA Plan the account balances of Teledyne Technologies Individuals for such calendar year under the ATI HCRA Plan, regardless of whether the account balance is positive or negative. (ii) ATI CHILD/ELDER CARE REIMBURSEMENT ACCOUNT PLAN. To the extent any Teledyne Technologies Individual contributed to the ATI CECRA Plan during the calendar year that includes the Distribution Date, ATI shall transfer the account balances of Teledyne Technologies Individuals for such calendar year in the ATI CECRA Plan to the Teledyne Technologies CECRA Plan. (iii) POST-RETIREMENT MEDICAL PLAN. For a period ending on December 31st of the calendar year which is five calendar years after the Distribution Date, Teledyne Technologies shall comply with all cost maintenance period requirements and benefit maintenance period requirements under Code Section 401(h) or 420 that are applicable to post-retirement health benefits under the Teledyne Technologies Health Plans for any pension asset transfers pursuant to Code Section 420 by or on behalf of ATI for qualified current retiree health liabilities (as defined under Code Section 420). With respect to any pension asset transfers pursuant to Code Section 420, Teledyne Technologies shall obtain ATI's prior written approval before amending any Teledyne Technologies Health Plan with respect to the provision of post-retirement health benefits during the cost maintenance or benefit maintenance periods to which the ATI Health Plans are subject pursuant to Code Section 420 and no such amendment shall be effective in any respect until ATI's prior written approval is obtained. No pension asset transfer pursuant to Code Section 420 shall be made by Teledyne Technologies after the date hereof and before the Close of the Distribution Date unless Teledyne Technologies and ATI so agree. (iv) HEALTH AND WELFARE PLANS SUBROGATION RECOVERY. After the Close of the Distribution Date, ATI shall pay to Teledyne Technologies any amounts ATI recovers from time to time through subrogation or otherwise for claims incurred by or reimbursed to any Teledyne Technologies Individual. If Teledyne Technologies recovers any amounts through subrogation or otherwise for claims incurred by or reimbursed to employees and former employees of ATI or an ATI Entity and their respective beneficiaries and dependents (other than Teledyne Technologies Individuals), Teledyne Technologies shall pay such amounts to ATI. 5.8 APPLICATION OF ARTICLE V TO TELEDYNE TECHNOLOGIES ENTITIES. Any reference in this Article V to "Teledyne Technologies" shall include a reference to a Teledyne Technologies Entity when and to the extent ATI or Teledyne Technologies has caused the Teledyne Technologies Entity to (a) become a party to a vendor contract, group insurance contract, or HMO letter agreement associated with a Teledyne Technologies Health and Welfare Plan, (b) become a self-insured entity for the purposes of one or more Teledyne Technologies Health and Welfare Plans, (c) assume all or a portion of the liabilities or administrative responsibilities for benefits which arose before the Close of the Distribution Date under an ATI Health and Welfare Plan and which were expressly assumed by Teledyne Technologies pursuant to the terms of this Agreement, or (d) take any other action, extend any coverage, assume any other liability or fulfill any other responsibility that Teledyne Technologies would otherwise be required to take under the terms of this Article V, unless it is clear from the 16 20 context that the particular reference is not intended to include a Teledyne Technologies Entity. In all such instances in which a reference in this Article V to "Teledyne Technologies" includes a reference to a Teledyne Technologies Entity, Teledyne Technologies shall be responsible to ATI for ensuring that the Teledyne Technologies Entity complies with the applicable terms of this Agreement and the Teledyne Technologies Individuals allocated to such Teledyne Technologies Entity shall have the same rights and entitlements to benefits under the applicable Teledyne Technologies Health and Welfare Plans that the Teledyne Technologies Individual would have had if he or she had instead been allocated to Teledyne Technologies. Further, each such Teledyne Technologies Entity, unless otherwise expressly provided under the terms of this Agreement or any Ancillary Agreement, shall defend, indemnify and hold harmless ATI for any costs incurred by ATI pursuant to the provisions of Article V on behalf of or related to such Teledyne Technologies Entity. ARTICLE VI EXECUTIVE BENEFITS AND NON-EMPLOYEE DIRECTOR BENEFITS 6.1 ASSUMPTION OF OBLIGATIONS. Except as otherwise expressly provided in this Article VI, effective Immediately After the Distribution Date, Teledyne Technologies and the Teledyne Technologies Entities shall assume and be solely responsible for all Benefit Liabilities to or relating to Teledyne Technologies Individuals under all ATI Executive Benefit Plans. 6.2 CONSENTS AND NOTIFICATIONS. ATI and Teledyne Technologies shall use their Reasonable Efforts to obtain, or cause to be obtained, to the extent necessary, the written consent of each Teledyne Technologies Individual who is a party to a separate agreement between the Individual and ATI and/or a participant in any ATI Executive Benefit Plan, to the treatment of such individual agreement and/or Executive Benefit Plan, as applicable, in accordance with this Article VI, including the assumption by Teledyne Technologies and the Teledyne Technologies Entities, of sole responsibility for, and the release of ATI and the ATI Entities from, all Benefit Liabilities thereunder; provided, that no failure to seek or to obtain any such consent shall have any effect upon the obligations of Teledyne Technologies and the Teledyne Technologies Entities with respect to such Benefit Liabilities. 6.3 ATI 1999 BONUS PLAN. Subject to the provisions of Section 6.4(a)(ii)(B), Teledyne Technologies shall be responsible for determining, with respect to all Awards that would otherwise be payable under any bonus Plan or arrangement to Teledyne Technologies Individuals for the 1999 performance year, (a) the extent to which established performance criteria (as interpreted by Teledyne Technologies, in its sole discretion, after taking into account the effects of the Distribution) have been met and (b) the payment level for each Teledyne Technologies Individual. 6.4 ATI INCENTIVE PLANS. ATI and Teledyne Technologies shall use their Reasonable Efforts to take all actions necessary or appropriate so that each outstanding Award granted under any ATI Incentive Plan held by any Teledyne Technologies Individual shall be 17 21 determined, converted or replaced, as the case may be, as set forth in this Section 6.4 with an Award under the Teledyne Technologies Incentive Plan. (a) TELEDYNE TECHNOLOGIES INDIVIDUALS WHO ARE ACTIVE EMPLOYEES OF TELEDYNE TECHNOLOGIES. (i) STOCK OPTIONS. Teledyne Technologies shall cause each ATI Option that is outstanding as of the Close of the Distribution Date and is held by a Teledyne Technologies Individual to be converted, effective Immediately After the Distribution Date, to a Teledyne Technologies Option (a "Converted Option"). Such Converted Option shall provide for the option to purchase a number of shares of Teledyne Technologies Common Stock equal to the number of shares of ATI Common Stock subject to such ATI Option as of the Close of the Distribution Date, multiplied by the Ratio, and then rounded up to the nearest whole share. The per-share exercise price of such Converted Option shall equal the per-share exercise price of such ATI Option as of the Close of the Distribution Date divided by the Ratio. Each such Converted Option shall otherwise have the same terms and conditions as were applicable to the corresponding ATI Option as of the Close of the Distribution Date, except that references to ATI and its Affiliates shall be amended to refer to Teledyne Technologies and its Affiliates. (ii) PERFORMANCE AWARDS. (A) The current performance period under the ATI Performance Share Program is the three-year period commencing on January 1, 1998. Either prior to or within a reasonable time after the Distribution Date, in accordance with the provisions of Section 6.4(a)(ii)(B), the applicable ATI Performance Award under the ATI Performance Share Program shall be determined by ATI with respect to each Teledyne Technologies Individual for the period from January 1, 1998 through the Distribution Date. Effective Immediately After the Distribution Date, Teledyne Technologies and the Teledyne Technologies Entities shall assume and be solely responsible for all Benefit Liabilities to or relating to Teledyne Technologies Individuals with respect to the administration and distribution of Performance Awards to such Teledyne Technologies Individuals. (B) Notwithstanding the provisions of Section 6.3, the ATI Personnel and Compensation Committee or the Stock Incentive Award Subcommittee, as the case may be, shall determine, in its sole and absolute discretion, with respect to each Teledyne Technologies Individual, the extent to which, as of the Distribution Date, such Individual has achieved target performance levels established under the ATI Performance Share Program and the appropriate Performance Award for such Individual based upon such performance. The Performance Award so determined shall be pro-rated by multiplying the Performance Award determined under the preceding sentence by a fraction, the numerator of which shall be equal to the number of months from and including January 1, 1998 to the month in which the Distribution Date occurs and the denominator of which shall be 36. The Performance Award as determined hereunder shall be distributed by Teledyne Technologies and the Teledyne Technologies Entities to the applicable Teledyne Technologies Individual as provided under the terms of the Performance Share Program; provided, however, that any ATI Common Stock allocated or otherwise awarded to a Teledyne Technologies Individual as part of a Performance Award under 18 22 the provisions of this Section 6.4(a)(ii) shall, prior to any distribution to such Individual and, in any event, no later than Immediately After the Distribution Date, be converted into Teledyne Technologies Common Stock by multiplying the number of shares of ATI Common Stock subject to such Performance Award by an appropriate ratio, as determined by ATI's Board of Directors or an applicable Committee thereof and then rounding the product up to the nearest whole share. Teledyne Technologies shall pay to the holder of such Performance Award, at the time of such conversion, cash in lieu of any fractional share based on the Teledyne Technologies Stock Value. (iii) SARP. As of the Distribution Date, all shares of ATI Common Stock issued and outstanding held by a Teledyne Technologies Individual under the ATI SARP as Designated Stock or Purchased Stock (as those terms are defined in the ATI SARP) shall continue to be so held, and the shares of Teledyne Technologies Common Stock received by Teledyne Technologies Individuals in respect of their Purchased Stock and Designated Stock pursuant to the distribution terms of Article III of the Separation and Distribution Agreement and the shares of Water Pik Technologies, Inc. Common Stock received by Teledyne Technologies Individuals in respect of their Purchased Stock and Designated Stock as a result of the spin-off of Water Pik Technologies, Inc. by ATI to ATI's stockholders shall also be considered Designated Stock or Purchased Stock, as the case may be, subject to the terms of the ATI SARP. Effective Immediately After the Distribution Date, Teledyne Technologies shall assume all Benefit Liabilities to or relating to Teledyne Technologies Individuals under the ATI SARP relating to the Restricted Stock (as that term is defined in the ATI SARP), but ATI shall retain all promissory notes payable by participants into the ATI SARP, including Teledyne Technologies Individuals, to the order of ATI, and the collateral with respect to such notes shall include all shares of ATI Common Stock that were pledged as collateral for purposes of the ATI SARP immediately prior to the Distribution Date as well as the shares of Teledyne Technologies Common Stock and Water Pik Technologies, Inc. Common Stock issued in respect of such shares of ATI Common Stock held as collateral. Effective Immediately After the Distribution Date, pursuant to the terms of the ATI SARP, all Teledyne Technologies Individuals holding awards of Restricted Stock under the ATI SARP as of the Distribution Date shall receive, without any further action on their part and in substitution for all shares of Restricted Stock held immediately prior to the Distribution Date by such Teledyne Technologies Individuals under the ATI SARP, a number of shares of Teledyne Technologies Common Stock determined by multiplying the number of shares of ATI Common Stock that are held immediately prior to the Distribution Date as Restricted Stock under the ATI SARP by an appropriate ratio, as determined by ATI's Board of Directors or an applicable Committee thereof then rounding the product up to the nearest whole share, and such shares of Teledyne Technologies Common Stock shall be subject to the same restrictions as the shares of ATI Common Stock prior to the conversion. (b) TELEDYNE TECHNOLOGIES INDIVIDUALS WHO ARE NOT ACTIVE EMPLOYEES OF TELEDYNE TECHNOLOGIES. Each outstanding Award that is held by an individual who, as of the Close of the Distribution Date, would otherwise be a Teledyne Technologies Individual but is not an active employee of or on leave of absence from Teledyne Technologies or a Teledyne Technologies Entity shall remain outstanding Immediately After the Distribution Date in accordance with its terms as applicable as of the Close of the Distribution Date, subject to such adjustments as may be applicable to outstanding Awards held 19 23 by individuals who remain active employees of or on leave of absence from ATI or an ATI Entity after the Distribution Date. 6.5 ATI NONQUALIFIED DEFERRED COMPENSATION PROGRAMS. (a) ASSUMPTION OF LIABILITIES AND TRANSFER OF ASSETS. Effective Immediately After the Distribution Date, Teledyne Technologies shall assume all Benefit Liabilities to or relating to Teledyne Technologies Individuals under the ATI Nonqualified Deferred Compensation Programs. Effective Immediately After the Distribution Date, to the extent ATI has acquired Corporate-Owned Life Insurance Policies as a source of payment of liabilities which are or may be payable under the Allegheny Teledyne Incorporated Executive Deferred Compensation Plan with respect to Teledyne Technologies Individuals, ATI shall cause the transfer, either by assignment or any other reasonable means, to Teledyne Technologies of Policies on the lives of Teledyne Technologies Individuals and such other employees or former employees of ATI or its subsidiaries as ATI may, in its sole and absolute discretion select, or any portion thereof, having in the aggregate a cash surrender value equal to the amount of any Benefit Liabilities for Teledyne Technologies Individuals under the Allegheny Teledyne Incorporated Executive Deferred Compensation Plan. (b) GUARANTEE OF CERTAIN OBLIGATIONS. ATI shall guarantee to Teledyne Technologies Individuals who are participants in the Teledyne, Inc. Pension Equalization Plan payment of the Benefit Liabilities of Teledyne under such plan to such participants as of the Distribution Date to the extent Teledyne Technologies is unable to satisfy such Benefit Liabilities. (c) CORPORATE-OWNED LIFE INSURANCE. ATI and Teledyne Technologies shall take all actions necessary to replicate the manner in which ATI has heretofore held Corporate-Owned Life Insurance Policies, and executing or accepting delivery of any assignments reasonably requested by either party or any insurance company insuring one or more lives under the Corporate-Owned Life Insurance Policies, as may be necessary or appropriate in order to assign those Policies insuring Teledyne Technologies Individuals to Teledyne Technologies, effective Immediately After the Distribution Date. If a Corporate-Owned Life Insurance Policy is so assigned to Teledyne Technologies, Teledyne Technologies shall assume and be solely responsible for all Benefit Liabilities, and shall be entitled to all benefits, thereunder, effective as of the earlier of (i) the Close of the Distribution Date and (ii) the date of such assignment. ATI and Teledyne Technologies shall continue, liquidate and/or administer such Corporate-Owned Life Insurance Policies on terms and conditions agreed to by ATI and Teledyne Technologies. ATI and Teledyne Technologies shall share all information that may be necessary to identify the individuals insured by the Corporate-Owned Life Insurance Policies owned by ATI and/or Teledyne Technologies and to determine when and whether such individuals are deceased. 6.6 NON-EMPLOYEE DIRECTOR BENEFITS. The parties intend that all Teledyne Technologies Non-Employee Directors who were ATI Non-Employee Directors prior to the Distribution Date may continue to serve as ATI Non-Employee Directors. In furtherance of such intention, ATI shall retain all Benefit Liabilities with respect to the services of its Non-Employee 20 24 Directors under the ATI Non-Employee Director Plans accrued as of the Distribution Date. Teledyne Technologies assumes no Benefit Liabilities under the ATI Non-Employee Director Plans. 6.7 CONFIDENTIALITY AND PROPRIETARY INFORMATION. No provision of this Agreement shall be deemed to release any individual for a violation of any agreement or policy pertaining to confidential or proprietary information of ATI or any of its Affiliates, or otherwise relieve any individual of his or her obligations under any such agreement or policy. ARTICLE VII GENERAL AND ADMINISTRATIVE 7.1 INTERIM SERVICES AGREEMENT. Effective on or before the Distribution Date, ATI and Teledyne Technologies shall enter into an agreement relating to the coordination of and payment for interim services to be provided by ATI regarding the establishment and administration of the Teledyne Technologies Plans (the "Interim Services Agreement"). The provisions of the Interim Services Agreement shall be incorporated by reference in this Agreement and shall become a part of this Agreement. 7.2 PAYMENT OF LIABILITIES, PLAN EXPENSES AND RELATED MATTERS. (a) ACTUARIAL AND ACCOUNTING METHODOLOGIES AND ASSUMPTIONS. For purposes of this Agreement, unless specifically indicated otherwise: (i) all actuarial methodologies and assumptions used for a particular Plan shall (except to the extent otherwise determined by ATI and Teledyne Technologies to be reasonable or necessary) be substantially the same as those used in the actuarial valuation of that Plan used to determine minimum funding requirements under ERISA Section 302 and Code Section 412(c) for 1999, or, if such Plan is not subject to such minimum funding requirements, the assumptions used to prepare ATI's audited financial statements for 1999, as the case may be; and (ii) the value of plan assets shall be the value established by ATI for purposes of audited financial statements of the relevant plan or trust for the period ending on the date as of which the valuation is to be made. Except as otherwise contemplated by this Agreement or as required by law, all determinations as to the amount or valuation of any assets of or relating to any ATI Plan (whether or not such assets are being transferred to a Teledyne Technologies Plan) shall be made by ATI in its sole and absolute discretion and such determination shall be final and binding on all parties. (b) PAYMENT OF LIABILITIES; DETERMINATION OF EMPLOYEE STATUS. Teledyne Technologies shall pay directly, or reimburse ATI promptly for, all Benefit Liabilities assumed by it pursuant to this Agreement, including all compensation payable to Teledyne Technologies Individuals for services rendered while in the employ of ATI or an ATI Entity before becoming a Teledyne Technologies Individual (to the extent not charged for pursuant to Section 7.1 or another Ancillary Agreement). To the extent the amount of such Benefit Liabilities is not yet determinable because the status of individuals as Teledyne Technologies Individuals is not yet determined, except as otherwise specified herein or in another 21 25 Ancillary Agreement with respect to particular Benefit Liabilities, Teledyne Technologies shall make such payments or reimbursements based upon ATI's reasonable estimates of the amounts thereof, and when such status is determined, Teledyne Technologies shall make additional reimbursements or payments, or ATI shall reimburse Teledyne Technologies, to the extent necessary to reflect the actual amount of such Benefit Liabilities. In determining the number of individuals in any particular group of employees described in this Agreement (such as "Teledyne Technologies Individuals"), no individual shall be counted twice. Determinations of what entity employs or employed a particular individual shall be made by reference to the applicable legal entity and/or other appropriate accounting code, to the extent possible. 7.3 SHARING OF PARTICIPANT INFORMATION. ATI and Teledyne Technologies shall share, ATI shall cause each applicable ATI Entity to share, and Teledyne Technologies shall cause each applicable Teledyne Technologies Entity to share, with each other and their respective agents and vendors (without obtaining releases) all participant information necessary for the efficient and accurate administration of each of the ATI Plans and the Teledyne Technologies Plans. ATI and Teledyne Technologies and their respective authorized agents shall, subject to applicable laws on confidentiality, be given reasonable and timely access to, and may make copies of, all information relating to the subjects of this Agreement in the custody of the other party, to the extent necessary for such administration. Until December 31, 2000, all participant information shall be provided in a manner and medium that is compatible with the data processing systems of ATI as in effect on the Close of the Distribution Date, unless otherwise agreed to by ATI and Teledyne Technologies. 7.4 REPORTING AND DISCLOSURE AND COMMUNICATIONS TO PARTICIPANTS. Teledyne Technologies shall take, and shall cause each other applicable Teledyne Technologies Entity to take, all actions necessary or appropriate to facilitate the distribution of all applicable ATI Plan-related communications and materials to Teledyne Technologies Individuals and their beneficiaries, including summary plan descriptions and related summaries of material modification, summary annual reports, investment information, prospectuses, notices and enrollment material related to the Teledyne Technologies Plans. Teledyne Technologies shall pay ATI the cost relating to the copies of all such documents provided to Teledyne Technologies, except to the extent such costs are charged pursuant to Section 7.1 or pursuant to an Ancillary Agreement. Teledyne Technologies shall assist, and Teledyne Technologies shall cause each other applicable Teledyne Technologies Entity to assist, ATI in complying with all reporting and disclosure requirements of ERISA, including the preparation of Form 5500 annual reports for the ATI Plans, where applicable. 7.5 NON-TERMINATION OF EMPLOYMENT; NO THIRD-PARTY BENEFICIARIES. No provision of this Agreement or the Separation and Distribution Agreement shall be construed to create any right, or accelerate entitlement, to any compensation or benefit whatsoever on the part of any Teledyne Technologies Individual or other future, present or former employee of ATI, an ATI Entity, Teledyne Technologies, or a Teledyne Technologies Entity under any ATI Plan or Teledyne Technologies Plan or otherwise. Without limiting the generality of the foregoing: (i) the Distribution shall not cause any employee to be deemed to have incurred a termination of employment which entitles such individual to the commencement of benefits under any of the ATI Plans, any of the Teledyne Technologies Plans, 22 26 or any individual agreements; and (ii) except as expressly provided in this Agreement, nothing in this Agreement shall preclude Teledyne Technologies, at any time after the Close of the Distribution Date, from amending, merging, modifying, terminating, eliminating, reducing, or otherwise altering in any respect any Teledyne Technologies Plan, any benefit under any Plan or any trust, insurance policy or funding vehicle related to any Teledyne Technologies Plan unless such change could or will increase the obligations of ATI or any ATI Entity under any plan or arrangement. 7.6 BENEFICIARY DESIGNATIONS. All beneficiary designations made by Teledyne Technologies Individuals for ATI Plans shall be transferred to and be in full force and effect under the corresponding Teledyne Technologies Plans until such beneficiary designations are replaced or revoked by the Teledyne Technologies Individual who made the beneficiary designation. 7.7 REQUESTS FOR IRS RULINGS AND DOL OPINIONS. Teledyne Technologies shall cooperate fully with ATI on any issue relating to the transactions contemplated by this Agreement for which ATI elects to seek a determination letter or private letter ruling from the IRS or an advisory opinion from the DOL. ATI shall cooperate fully with Teledyne Technologies with respect to any request for a determination letter or private letter ruling from the IRS or advisory opinion from the DOL with respect to any of the Teledyne Technologies Plans relating to the transactions contemplated by this Agreement. 7.8 FIDUCIARY MATTERS. ATI and Teledyne Technologies each acknowledges that actions required to be taken pursuant to this Agreement may be subject to fiduciary duties or standards of conduct under ERISA or other applicable law, and no party shall be deemed to be in violation of this Agreement if it fails to comply with any provisions hereof based upon its good faith determination that to do so would violate such a fiduciary duty or standard. 7.9 COLLECTIVE BARGAINING. To the extent any provision of this Agreement is contrary to the provisions of any collective bargaining agreement to which ATI or any Affiliate of ATI is a party, the terms of such collective bargaining agreement shall prevail. Should any provisions of this Agreement be deemed to relate to a topic determined by an appropriate authority to be a mandatory subject of collective bargaining, ATI or Teledyne Technologies may be obligated to bargain with the union representing affected employees concerning those subjects. Neither party will agree to a modification of any collective bargaining agreement without the consent of the other. 7.10 CONSENT OF THIRD PARTIES. If any provision of this Agreement is dependent on the consent of any third party (such as a vendor or a union) and such consent is withheld, ATI and Teledyne Technologies shall use their Reasonable Efforts to implement the applicable provisions of this Agreement to the full extent practicable. If any provision of this Agreement cannot be implemented due to the failure of such third party to consent, ATI and Teledyne Technologies shall negotiate in good faith to implement the provision in a mutually satisfactory manner. 23 27 7.11 INDEMNIFICATION OF ATI. Teledyne Technologies shall indemnify, defend and hold harmless ATI, each ATI Entity and each of their respective directors, officers and employees, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the "ATI Indemnitees") from and against (i) any and all Benefit Liabilities of the ATI Indemnitees to the extent any such Benefit Liabilities are assumed by Teledyne Technologies or a Teledyne Technologies Entity under this Agreement and (ii) any and all changes or modifications to any rights, privileges or benefits of or relating to any Teledyne Technologies Individual as provided in or otherwise contemplated by this Agreement. ARTICLE VIII MISCELLANEOUS 8.1 FOREIGN PLANS. To the extent that Teledyne Technologies has or assumes any responsibility for sponsorship, maintenance or administration of any Foreign Plan, ATI shall have no responsibility or liability with respect to such Plan and Teledyne Technologies shall indemnify and hold harmless ATI from any liability under such Plan. 8.2 EFFECT IF DISTRIBUTION DOES NOT OCCUR. If the Distribution does not occur, then all actions and events that are, under this Agreement, to be taken or occur effective as of the Close of the Distribution Date, Immediately After the Distribution Date, or otherwise in connection with the Distribution, shall not be taken or occur except to the extent specifically agreed by Teledyne Technologies and ATI. 8.3 RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be deemed or construed by the parties or any third party as creating the relationship of principal and agent, partnership or joint venture between the parties, it being understood and agreed that no provision contained herein, and no act of the parties, shall be deemed to create any relationship between the parties other than the relationship set forth herein. 8.4 AFFILIATES. Each of ATI and Teledyne Technologies shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth in this Agreement to be performed by an ATI Entity or a Teledyne Technologies Entity, respectively. 8.5 COUNTERPARTS; ENTIRE AGREEMENT; CORPORATE POWER. (a) This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party. (b) This Agreement, and the Exhibits, Schedules and Appendices hereto and thereto contain the entire agreement between the parties with respect to the subject matter hereof, supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter and there are no agreements or understandings between the parties other than those set forth or referred to herein or therein. 24 28 (c) ATI represents on behalf of itself and each ATI Entity, and Teledyne Technologies represents on behalf of itself and each Teledyne Technologies Entity, as follows: (i) each such Person has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute, deliver and perform each of this Agreement and to consummate the transactions contemplated hereby; and (ii) this Agreement has been duly executed and delivered by it and constitutes a valid and binding agreement of it enforceable in accordance with the terms thereof. (d) Each party hereto acknowledges that it and each other party hereto may be executing this Agreement by facsimile, stamp or mechanical signature. Each party hereto expressly adopts and confirms each such facsimile, stamp or mechanical signature made in its respective name as if it were a manual signature, agrees that it will not assert that any such signature is not adequate to bind such party to the same extent as if it were signed manually and agrees that at the reasonable request of any other party hereto at any time it will as promptly as reasonably practicable cause this Agreement to be manually executed (any such execution to be as of the date of the initial date thereof). 8.6 GOVERNING LAW; CONSENT TO JURISDICTION. (a) This Agreement shall be governed by and construed and interpreted in accordance with the laws of the Commonwealth of Pennsylvania as to all matters, including matters of validity, construction, effect, enforceability, performance and remedies, irrespective of the choice of laws principles of the Commonwealth of Pennsylvania. (b) Each of the parties hereto irrevocably submits to the exclusive jurisdiction of (i) the Court of Common Pleas of Allegheny County, Pennsylvania and (ii) the United States District Court for the Western District of Pennsylvania, for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby (and agrees not to commence any action, suit or proceeding relating thereto except in such courts). Each of the parties hereto further agrees that service of any process, summons, notice or document hand delivered or sent by U.S. registered mail to such party's respective address set forth in Section 8.9 will be effective service of process for any action, suit or proceeding in Pennsylvania with respect to any matters to which it has submitted to jurisdiction as set forth in the immediately preceding sentence. Each of the parties hereto irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in (i) the Court of Common Pleas of Allegheny County, Pennsylvania or (ii) the United States District Court for the Western District of Pennsylvania, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. 8.7 ASSIGNABILITY. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that 25 29 no party hereto may assign its respective rights or delegate its respective obligations under this Agreement without the express prior written consent of the other party hereto. 8.8 THIRD PARTY BENEFICIARIES. Except as otherwise expressly provided herein, (a) the provisions of this Agreement are solely for the benefit of the parties and are not intended to confer upon any Person except the parties any rights or remedies hereunder, (b) there are no third party beneficiaries of this Agreement, and (c) this Agreement shall not provide any third person with any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement. No party shall be required to deliver any notice under this Agreement to any other party with respect to any matter in which such other party has no right, remedy or claim. 8.9 NOTICES. All notices or other communications under this Agreement shall be in writing and shall be deemed to be duly given when (a) delivered in person or (b) deposited in the United States mail or private express mail, postage prepaid, addressed as follows: If to ATI, to: Allegheny Teledyne Incorporated 1000 Six PPG Place Pittsburgh, Pennsylvania 15222-5479 Attn: Senior Vice President, General Counsel & Secretary If to Teledyne Technologies, to: Teledyne Technologies Incorporated 2049 Century Park East Los Angeles, California 90067-3101 Attn: Senior Vice President, General Counsel & Secretary Any party may, by notice to the other party, change the address to which such notices are to be given. 8.10 SEVERABILITY. If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof or thereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby or thereby, as the case may be, is not affected in any manner adverse to any party. Upon such determination, the parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the parties. 8.11 HEADINGS. The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 26 30 8.12 WAIVERS OF DEFAULT. Waiver by any party of any default by the other party of any provision of this Agreement shall not be deemed a waiver by the waiving party of any subsequent or other default, nor shall it prejudice the rights of the other party. 8.13 AMENDMENTS. No provisions of this Agreement shall be deemed waived, amended, supplemented or modified by any party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of the party against whom it is sought to enforce such waiver, amendment, supplement or modification. 8.14 INTERPRETATION. Words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other genders as the context requires. The terms "hereof," "herein," and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all of the Schedules, Exhibits and Appendices hereto) and not to any particular provision of this Agreement. Article, Section, Exhibit, Schedule and Appendix references are to the Articles, Sections, Exhibits, Schedules and Appendices to this Agreement unless otherwise specified. The word "including" and words of similar import when used in this Agreement shall mean "including, without limitation," unless the context otherwise requires or unless otherwise specified. The word "or" shall not be exclusive. Unless expressly stated to the contrary in this Agreement, all references to "the date hereof," "the date of this Agreement," "hereby" and "hereupon" and words of similar import shall all be references to __________, 1999, regardless of any amendment or restatement hereof. 8.15 DISPUTES. (a) Resolution of any and all disputes arising from or in connection with this Agreement, whether based on contract, tort, statute or otherwise, including, but not limited to, disputes in connection with claims by third parties (collectively, "Disputes"), shall be subject to the provisions of this Section 8.17; provided, however, that nothing contained herein shall preclude any party from seeking or obtaining (i) injunctive relief or (ii) equitable or other judicial relief to enforce the provisions hereof or to preserve the status quo pending resolution of Disputes hereunder. (b) Any party may give the other parties written notice of any Dispute not resolved in the normal course of business. The parties shall attempt in good faith to resolve any Dispute promptly by negotiation between executives of the parties who have authority to settle the controversy. Within 15 days after delivery of the notice, the foregoing executives of both parties shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary for a period not to exceed five days, to attempt to resolve the Dispute. All reasonable requests for information made by one party to the other will be honored. If the parties do not resolve the Dispute within such 20 day period (the "Initial Mediation Period"), the parties shall attempt in good faith to resolve the Dispute by negotiation between or among the Designated Officers (as defined in the Separation and Distribution Agreement). The Designated Officers shall meet at a mutually acceptable time and place (but in no event no later than 15 days following the expiration of the Initial Mediation Period) and thereafter as often as they reasonably deem necessary for a period not to exceed 15 days, to attempt to resolve the Dispute. 27 31 (c) If the Dispute has not been resolved by negotiation within 50 days of the first party's notice, or if the parties failed to meet within 15 days of the first party's notice, or if the Designated Officers failed to meet within 35 days of the first party's notice, any party may commence any litigation or other procedure allowed by law. IN WITNESS WHEREOF, the parties have caused this Employee Benefits Agreement to be duly executed as of the day and year first above written. ALLEGHENY TELEDYNE INCORPORATED By Title TELEDYNE TECHNOLOGIES INCORPORATED By Title 28 -----END PRIVACY-ENHANCED MESSAGE-----