UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------- FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______ Commission file number 1-12001 ALLEGHENY TECHNOLOGIES INCORPORATED (Exact name of registrant as specified in its charter) Delaware 25-1792394 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification Number) 1000 Six PPG Place, Pittsburgh, Pennsylvania 15222-5479 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (412) 394-2800 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: ================================================================================ Title of each class Name of each exchange on which registered -------------------------------------------------------------------------------- Common Stock, $0.10 Par Value New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange ================================================================================ SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] At March 15, 2000, the Registrant had outstanding 85,061,059 shares of its Common Stock. The aggregate market value of the Registrant's voting stock held by non-affiliates at this date was approximately $1.3 billion, based on the closing price per share of Common Stock on this date of $17-15/16 as reported on the New York Stock Exchange. Shares of Common Stock known by the Registrant to be beneficially owned by directors of the Registrant and officers of the Registrant subject to the reporting and other requirements of Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are not included in the computation. The Registrant, however, has made no determination that such persons are "affiliates" within the meaning of Rule 12b-2 under the Securities Exchange Act of 1934. Documents Incorporated By Reference Selected portions of the 1999 Annual Report to Stockholders - Part I, Part II and Part IV of this Report. Selected portions of the Proxy Statement for 2000 Annual Meeting of Stockholders - Part III of this Report. The information included in the Proxy Statement as required by paragraphs (k) and (l) of Item 402 of Regulation S-K is not incorporated by reference in this Form 10-K. ================================================================================ 2 INDEX PAGE NUMBER ------ PART I.................................................................................................. 3 Item 1. Business.......................................................................... 3 Item 2. Properties........................................................................ 19 Item 3. Legal Proceedings................................................................. 21 Item 4. Submission of Matters to a Vote of Security Holders............................... 21 PART II ................................................................................................ 22 Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.......................................................... 22 Item 6. Selected Financial Data........................................................... 22 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................... 22 Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................ 22 Item 8. Financial Statements and Supplementary Data....................................... 22 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......................................... 22 PART III ............................................................................................... 22 Item 10. Directors and Executive Officers of the Registrant................................ 22 Item 11. Executive Compensation............................................................ 23 Item 12. Security Ownership of Certain Beneficial Owners and Management................................................................... 23 Item 13. Certain Relationships and Related Transactions.................................... 23 PART IV ................................................................................................ 23 Item 14. Exhibits, Financial Statement Schedules, and Report on Form 8-K................... 23 SIGNATURES.............................................................................................. 25 EXHIBIT INDEX........................................................................................... 26 2 3 PART I ITEM 1. BUSINESS THE COMPANY Allegheny Technologies is one of the largest and most diversified producers of specialty materials in the world. We offer to global markets a wide range of specialty materials which include stainless steel, nickel- and cobalt-based alloys and superalloys, titanium and titanium alloys, specialty steel alloys, zirconium and related alloys, and tungsten-based specialty materials, as well as precision forgings and large grey and ductile iron castings. The Company operates in the following three business segments, which accounted for the following percentages of total revenues of $2.3 billion, $2.4 billion and $2.5 billion for each of the three years ended December 31, 1999: 1999 1998 1997 ---- ---- ---- Flat-Rolled Products 56% 49% 51% High Performance Metals 32% 36% 35% Industrial Products 12% 15% 14% Business segment information presented for 1998 and 1997 has been restated to conform with the 1999 presentation. Additional financial information with respect to the Company's business segments, including their contributions to operating profit and their identifiable assets, for the three years ended December 31, 1999, is presented under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations" on pages 20 through 23 of the 1999 Annual Report to Stockholders (the "1999 Annual Report") and in Note 12 of Notes to Consolidated Financial Statements on pages 46 through 47 of the 1999 Annual Report and is incorporated herein by reference. Allegheny Technologies Incorporated is a Delaware corporation with its principal executive offices located at 1000 Six PPG Place, Pittsburgh, Pennsylvania 15222-5479, telephone number (412) 394-2800. Allegheny Technologies, which changed its name from Allegheny Teledyne Incorporated effective November 29, 1999, was formed on August 15, 1996 in the combination of Allegheny Ludlum Corporation ("Allegheny Ludlum") and Teledyne, Inc., which became wholly owned subsidiaries of Allegheny Technologies. References to "Allegheny Technologies," the "Company" or the "Registrant" mean Allegheny Technologies Incorporated and its subsidiaries, unless the context otherwise requires. COMPLETION OF STRATEGIC TRANSFORMATION In 1999, the Company completed a major transformation, announced in January 1999, that included the spin-offs of Teledyne Technologies Incorporated ("Teledyne"), which was comprised of certain businesses in the Company's former Aerospace and Electronics segment, and Water Pik Technologies, Inc. ("Water Pik"), which was comprised of businesses in the Company's former Consumer segment. The spin-offs were completed on November 29, 1999, when the Company distributed all of the stock of Teledyne (NYSE:TDY) and Water Pik (NYSE:PIK) to the Company's stockholders of record on November 22, 1999. Prior to the spin- 3 4 offs, the Company received a ruling from the Internal Revenue Service that the spin-offs would be tax-free to the Company and its stockholders. Immediately following the spin-offs, the Company effected a one-for-two reverse split of its common stock and changed its name from Allegheny Teledyne Incorporated to Allegheny Technologies Incorporated. Additionally, as part of this strategic transformation, the Company sold several businesses, including the following: o Teledyne Specialty Equipment -- an assembler of hydraulic attachments for mining and construction equipment, and a manufacturer of transportable forklifts. o Teledyne Fluid Systems -- a manufacturer of nitrogen gas springs, pressure relief valves and vehicle control valves. o Teledyne Ryan Aeronautical -- a manufacturer of unmanned aerial vehicles and target drones. o McCormick Selph Ordnance -- a manufacturer of advanced controlled pyrotechnic components and systems for the aerospace industry and automotive safety products. ACQUISITIONS The Company has recently made several strategic acquisitions: Flat-Roll Finishing Facility. On December 22, 1999, the Company acquired the Washington, Pennsylvania stainless steel sheet and strip finishing plant of Bethlehem Steel Corporation ("Bethlehem") for $20.5 million in cash. The plant's Sendzimir mills and anneal and pickle lines provide incremental production capacity for our flat-rolled sheet and strip products. Company production at this plant began in the first quarter of 2000. Melting and Hot Rolling Facilities. In the fourth quarter of 1998, the Company acquired melting and hot rolling facilities in Houston, Pennsylvania and a wide anneal and pickle line in Massillon, Ohio from Bethlehem, and entered into a 20-year conversion services agreement with Bethlehem to provide for the melting, casting and rolling of the Company's wide stainless steel continuous mill plate products and nickel-based alloys, for $105 million in cash and $70 million in a promissory note that was paid in 1999. These transactions provide the Company with additional melting capacity and enable the Company to produce wide continuous mill plate. Titanium Production Facilities. In March 1998, the Company acquired the stock of Oregon Metallurgical Corporation ("Oremet"), an integrated producer and distributor of titanium sponge, ingot, mill products and castings, in exchange for Company stock, which expanded the capabilities of our High Performance Metals segment and also enabled Allegheny Ludlum to enter the titanium flat-rolled business. Oremet's operations have been integrated into our High Performance Metals segment. United Kingdom Specialty Steel, Nickel-Based Alloy and Titanium Production Facilities. In February 1998, the Company acquired assets in the United Kingdom, for $110 million in cash, that provide significant support for and additional capacities in the Company's High 4 5 Performance Metals segment and enhance the sales and distribution network for the Company's nickel-based alloy, specialty steel and titanium products in Europe. The acquisition also provides additional vacuum melting, vacuum consumable remelting, electroslag remelting, and forging capacity. Strategic Capital Investments. During 1998 and 1999, the Company completed the installation of and began production on a new vacuum induction melt furnace capable of producing 50,000 pound heats. This state-of-the-art furnace provides additional capacity to meet the growing demands for nickel-based superalloys from several markets, including large land-based turbines for power generation. The Company also installed and began production on a new electron beam melt facility for titanium slabs. This new facility contains one of the largest and most advanced electron beam melt furnaces in the world and has enhanced the Company's position as a low cost producer of high quality titanium ingots and slabs. During this same time frame, the Company installed and began production on a new 60" Sendzimir mill which provides additional capacity primarily for stainless steel sheet and strip products. Additional Information. Additional information about recent acquisitions is included in "Management's Discussion and Analysis of Financial Condition and Results of Operations--Strategic Acquisitions" on page 20 of the 1999 Annual Report and in Notes 3 and 11 to the Notes to Consolidated Financial Statements on pages 37 and 45 of the 1999 Annual Report, which information is incorporated herein by reference. Also see "Forward Looking and Other Statements - Uncertainties Relating to Synergies" herein. OUR BUSINESS Specialty materials play a significant role in our lives. Allegheny Technologies is a world leader in the manufacture of specialty materials, including stainless steel, nickel- and cobalt-based alloys and superalloys, titanium and titanium alloys, specialty steel alloys, zirconium and related alloys, and also produces tungsten-based specialty materials, precision forgings and large grey and ductile iron castings. Specialty materials are produced in a variety of forms, including sheet, strip, foil, plate, slab, ingot, billet, bar, rod, wire, coil, tubing, and shapes, and are selected for use in environments that demand materials having exceptional hardness, toughness, strength, resistance to heat, corrosion or abrasion, or a combination of these characteristics. Common end uses of our products include jet engines, air frames, electrical energy, automotive, chemical processing, oil and gas, construction and mining, machine and cutting tools, appliances and food equipment, transportation and medical. Flat-Rolled Products Segment The Company produces, converts and distributes stainless steel, nickel-based alloys and superalloys, titanium and titanium-based alloys in sheet, strip, plate and foil, and Precision Rolled Strip(R) products, as well as silicon electric steels and tool steels. Our Flat-Rolled Products segment consists of Allegheny Ludlum and its 60% interest in the Chinese joint venture company known as Shanghai Precision Stainless Steel Company Limited ("STAL"), which began limited commercial production in 1999. 5 6 As compared with carbon steel, stainless steel and nickel-based alloys contain elements such as chromium, nickel and molybdenum to make them corrosion- and heat-resistant; titanium and titanium-based alloys provide higher strength-to-weight ratios and are corrosion-resistant; tool steel alloys, which contain more carbon than stainless steel, include tungsten, molybdenum and other metals to make them both hard and malleable; and electrical steel contains silicon to minimize electrical energy loss when in use. We offer these flat-rolled products in a broad selection of grades, sizes and finishes designed to meet international specifications. Finishing capabilities include plasma arc cutting, shearing, abrasive cutting, sawing and machining. We provide technical support for material selection and our market basket of alloys and product forms provides customers with choices to select the optimum alloy for their application. Sheet. Stainless steel, nickel-based alloy and titanium alloy sheet products (24-inches and wider and less than 0.1875-inch thick) are used in a wide variety of consumer and industrial applications such as food preparation, appliance, automotive and medical applications that require cleanability, fabricability and corrosion resistance. Approximately 60% of the Company's flat-rolled sheet products are sold to service centers, which have slitting, cutting or other processing facilities, with the remainder sold directly to end-use customers. Strip. Stainless steel, nickel-based alloy and titanium alloy strip products (less than 24-inches wide and less than 0.1875-inch thick) are used in a variety of consumer products and a wide range of automotive components. We also offer very thin Precision Rolled Strip(R) products which range in thinness from 0.015 inch to less than 0.0015 inch (0.038 - 0.003 mm). Our Precision Rolled Strip(R) products include stainless steel, nickel-based alloys, titanium and titanium alloys, and carbon and coated-carbon steel which are used by customers to fabricate a variety of different products ranging from automobile components to photographic, personal computer, building and construction and consumer products. Approximately 50% of the Company's flat-rolled strip products are sold directly to end-use customers, with the remainder sold to service centers, including the Company's own distribution network for flat-rolled strip materials which is known as the Allegheny Rodney Strip Service Center Division of Allegheny Ludlum. Plate. Stainless steel, nickel-based alloy and titanium alloy plate products (0.1875-inch and thicker and 10-inches wide) are primarily used in industrial equipment that requires cleanability or corrosion-resistant capabilities such as pollution control scrubbers, food processing equipment, pulp and paper equipment, chemical processing equipment and power generation equipment. With our flat-roll capabilities, we process and distribute stainless steel and nickel alloy plate and titanium and titanium alloy plate products in a wide variety of grades and gauges. Approximately 80% of our flat-rolled plate products are sold directly to service centers, with the remainder sold to end-use customers. Silicon Electric Steel. The Company's grain-oriented silicon electrical steel products are used generally in applications in which electrical conductivity and magnetic properties are important. These products are sold directly to end-use customers, including manufacturers of transformers and communications equipment. STAL. In February 1996, the Company established a joint venture company in the People's Republic of China with Shanghai No. 10 Steel Company Limited for the production and 6 7 sale of Precision Rolled Strip(R) products. The joint venture, 60% of which is owned by Allegheny Ludlum, is known as STAL. In 1999, the joint venture began limited commercial production. The new plant is a fully integrated finishing facility equipped with two Sendzimir mills, a bright anneal line, slitters, a tension leveler and roll grinders. It is expected to produce and sell up to 15,000 metric tonnes of Precision Rolled Strip(R) products. This venture is expected to enhance Allegheny Technologies' participation in the Asian market and other highly competitive global markets. High Performance Metals The Company's High Performance Metals segment produces, converts and distributes a wide range of high performance alloys, including nickel- and cobalt-based alloys and superalloys, titanium and titanium-based alloys, zirconium and related alloys, hafnium, niobium, tantalum, and other specialty materials, primarily in slab, ingot, billet, bar, rod, wire and coil forms, and zirconium chemicals. Generally, high performance metals have high strength, withstand high temperatures, are corrosion resistant or have a combination of these properties. Our High Performance Metals segment consists of Allvac, Allvac Ltd, Wah Chang, Titanium Industries, and Rome Metals. The Company is one of two fully integrated U.S. producers of titanium. Nickel-, Cobalt- and Titanium-Based Alloys and Superalloys. Our nickel-, iron-, cobalt- and titanium-based alloys and superalloys are engineered to retain exceptional strength and corrosion resistance at temperatures through 2,000 degrees Fahrenheit and are used in critical, high-stress applications. These products are designed for the high performance requirements of aerospace, oil and gas, chemical processing, transportation, power generation, biomedical, marine and nuclear industries. Two major capital investments were completed in 1998-1999 which increase the production capabilities of the Company's High Performance Metals businesses. A new vacuum induction furnace capable of producing 50,000-pound heats provides additional capacity for our nickel-based superalloys capacity. A new electron beam melt facility located in Richland, Washington produces titanium ingots and slabs. Zirconium and Hafnium. We are also a leading U.S. producer of zirconium, a highly corrosion-resistant metal that is transparent to neutrons. It is used for fuel tubes and structural parts in nuclear power reactors and for corrosion-resistant chemical industry applications. Other users of zirconium include the jewelry and personal hygiene industries. Hafnium, derived as a by-product of zirconium, is used for control rods in nuclear reactors due to its ability to absorb neutrons. Niobium and Tantalum. The Company produces niobium, also known as columbium, in various forms and alloys. Niobium, a high-technology metal, is used as an alloying element in the manufacture of many steels. The higher quality grades the Company produces are used as an alloying addition in superalloys for jet engines and other specialty alloys for aerospace applications such as rocket nozzles. When alloyed with titanium, niobium is used in applications requiring superconducting characteristics for high-strength magnets. Niobium-titanium alloys 7 8 are also used in medical devices for body-scanning, accelerators for high-energy physics, and fusion energy projects for the generation of electricity. The Company also produces tantalum, one of the most corrosion-resistant metals, for medical implants, chemical process equipment and aerospace engine components. Industrial Segment The Industrial Products segment's principal business produces tungsten powder, tungsten carbide materials and carbide cutting tools. The segment also produces large grey and ductile iron castings and carbon, alloy steel and non-ferrous forgings. The companies in this segment are Metalworking Products, Casting Service and Portland Forge. Cutting Tools and Tungsten Products. For the metalworking, mining and other industries requiring tools with extra hardness, the Company produces a line of sintered tungsten carbide products, made under heat, to produce a material that approaches diamond hardness. Cemented carbide products, which may be coated or uncoated, are used as super-hard cutters in the high-speed machining and cutting of steel and other applications where hardness and wear resistance are important. Technical developments related to ceramics, coatings, and other disciplines are incorporated in these products. The Company also produces tungsten for the worldwide market, starting with numerous and varied tungsten-bearing raw materials and resulting in tungsten and tungsten carbide powders. Previously used cemented carbide parts are also recycled into tungsten carbide powder. Molybdenum, a sister metal to tungsten, which also has a very high melting point, is produced by Metalworking Products in powder form and then shaped into solid forms through powder metallurgy techniques. It is an important alloying element for steels and is used for plasma arc spraying of piston rings, for electrodes in glass melting, and for structural parts in high temperature furnaces. Forgings and Castings. The Company forges carbon and alloy steel into finished forms that are used in a diverse number of industries. With the latest screw-type forging presses, Portland Forge produces carbon and alloy steel forgings in sizes ranging from one pound to more than 200 pounds. We also cast a variety of metals in sizes ranging from 1,000 pounds to 160,000 pounds and forms ranging from diesel locomotive engine blocks to housings and parts for power generation equipment, tools, and automobiles. COMPETITION Markets for the Company's products and services in each of its principal business segments are highly competitive. The Company competes with many manufacturers which, depending on the product involved, range from large diversified enterprises to smaller companies specializing in particular products. Factors that affect the Company's competitive posture are the 8 9 quality of its products, services and delivery capabilities, its research and development efforts, its marketing strategies and price. Our companies face competition from domestic and foreign competitors, a number of which are government subsidized. By July 1999, the United States had imposed antidumping and countervailing duties ranging up to 60% on dumped and subsidized imports of stainless steel sheet and strip in coils and stainless steel plate in coils from companies in ten foreign countries. Allegheny Ludlum and other domestic producers of flat-rolled stainless steel sheet and strip products in coils and stainless steel plate in coils and several unions had filed petitions with the International Trade Commission and the Department of Commerce in 1998 charging companies in these ten countries with violations of U.S. trade laws. RAW MATERIALS AND SUPPLIES Substantially all parts and materials required in the manufacture of the Company's products are available from more than one supplier and the sources and availability of raw materials essential to its businesses are adequate. The principal materials used by the Company in the production of its specialty materials are scrap (including nickel-, chromium-, titanium- and molybdenum-bearing scrap), nickel, titanium sponge, zirconium, ferrochromium, ferrosilicon, molybdenum and molybdenum alloys, manganese and manganese alloys, cobalt, niobium and other alloying materials. Purchase prices of certain critical raw materials are volatile. As a result, the Company's operating results could be subject to significant fluctuation. For example, since the Company generally uses in excess of 47,500 tons of nickel each year, a hypothetical change of $1.00 per pound in nickel prices would result in increased costs of approximately $95 million. In addition, certain of these raw materials, such as nickel, cobalt and ferrochromium, can be acquired by the Company and its specialty materials industry competitors, in large part, only from foreign sources. Some of these foreign sources are located in countries that may be subject to unstable political and economic conditions, which might disrupt supplies or affect the price of these materials. The Company purchases its nickel requirements principally from producers in Australia, Canada, Norway, Russia, and the Dominican Republic. Zirconium sponge is purchased from a source in France, while zirconium sand is purchased from both U.S. and Australian sources. Cobalt is purchased primarily from producers in Canada. More than 80% of the world's reserves of ferrochromium are located in South Africa, Zimbabwe, Albania, and Kazakhstan. Titanium tetrachloride, the principal raw material required for the production of titanium sponge, is supplied to the Company under a long-term contract with a U.S. source. We also use large amounts of electricity and natural gas in the manufacture of our products. See "Forward Looking and Other Statements - Volatility of Prices of Critical Raw Materials; Unavailability of Raw Materials." 9 10 GOVERNMENT CONTRACTS For the year ended December 31, 1999, approximately 2% of the Company's total sales were attributable to sales under contracts with the U.S. Government. Sales to the Department of Defense accounted for approximately 1% of total sales in 1999. Most of the Company's contracts with the U.S. Government are terminable at the convenience of the government. See the discussion of related matters under the caption "Forward Looking and Other Statements - Risks Associated with Government Contracts." Additional related information is presented under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations - Other Matters - Government Contracts" on page 26 of the 1999 Annual Report and in Note 15 of Notes to Consolidated Financial Statements on pages 49 to 50 of the 1999 Annual Report. EXPORT SALES AND FOREIGN OPERATIONS International sales represented approximately 20%, 19%, and 16% of the Company's total sales in 1999, 1998, and 1997 respectively. These figures include export sales by U.S. operations to customers in foreign countries, which accounted for approximately 13%, 11%, and 12% of the Company's total sales in each of 1999, 1998 and 1997, respectively. See "Forward Looking and Other Statements - Risks of Export Sales." The Company's overseas sales, marketing and distribution efforts are aided by international marketing offices or representatives located in Europe, Asia, South America, and the Middle East. In December 1995, the Company acquired the Stellram group, manufacturers of high precision threading, milling, boring and drilling systems for the European market. In 1998, the Company expanded its presence internationally and expects to continue such expansion. In February 1998, the Company acquired manufacturing capabilities in the United Kingdom. This acquisition has enhanced service to customers by improving the sales and distribution network for the Company's nickel-based alloys, specialty steel and titanium in Europe. In 1999, the STAL joint venture in the People's Republic of China, which was established in 1996, completed plant construction and began limited commercial production of Precision Rolled Strip(R) products. This venture should enable the Company to offer its Precision Rolled Strip(R) products more effectively to the Asian markets. BACKLOG, SEASONALITY AND CYCLICALITY The Company's backlog of confirmed orders was approximately $595.8 million at December 31, 1999 and $697.2 million at December 31, 1998. During the year ending December 31, 2000, it is anticipated that approximately 87% of confirmed orders on hand at December 31, 1999 will be filled. Backlog of confirmed orders of the Flat-Rolled Products segment was $138.4 million at December 31, 1999 and $186.0 million at December 31, 1998. During the year ending December 31, 2000, it is anticipated that approximately 100% of the confirmed orders on hand at December 31, 1999 for this segment will be filled. Backlog of confirmed orders of the High Performance Metals segment was $395.8 million at December 31, 1999 and $432.6 million at December 31, 1998. During the year ending December 31, 2000, it is anticipated that approximately 80% of the confirmed orders on hand at December 31, 1999 for this segment will be filled. 10 11 Generally, sales and operations of the Company's businesses are not seasonal. However, demand for products of the Company's businesses are cyclical over longer periods because specialty materials customers operate in cyclical industries and are subject to changes in general economic conditions. See "Forward Looking and Other Statements - Cyclical Demand for Products." RESEARCH, DEVELOPMENT AND TECHNICAL SERVICES The Company's management believes that the Company's research and development capabilities give it an edge in developing new products with profitable growth potential on a long-term basis. The Company conducts research and development at its various operating locations both for its own account and, on a limited basis, for customers on a contract basis. Estimates of the components of research and development for each of the Company's segments, including bid and proposal costs, for the years ended December 31, 1999, 1998, and 1997 included the following: (In millions) 1999 1998 1997 ---- ---- ---- Customer-Sponsored: High Performance Metals $1.1 $ 0.8 $ 2.5 Company-Sponsored: Flat-Rolled Products 7.3 7.4 8.3 High Performance Metals 5.7 8.3 9.2 Industrial Products 2.2 2.4 1.7 ----- ----- ----- 15.2 18.1 19.2 Total Research and Development $16.3 $18.9 $21.7 ===== ===== ===== With respect to the Flat-Rolled Products and High Performance Metals segments, the Company's research, development and technical service activities are closely interrelated and are directed toward cost reduction, process improvement, process control, quality assurance and control, system development, the development of new manufacturing methods, the improvement of existing manufacturing methods, the improvement of existing products, and the development of new products. The Company owns several hundred United States patents, many of which are also filed under the patent laws of other nations. Although these patents, as well as the Company's numerous trademarks, technical information license agreements, and other intellectual property, have been and are expected to be of value, management believes that the loss of any single such item or technically related group of such items would not materially affect the conduct of its business. 11 12 ENVIRONMENTAL, HEALTH AND SAFETY MATTERS The Company is subject to various domestic and international 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 Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund, and comparable state laws. The Company is currently involved in the investigation and remediation of a number of sites under these laws. The Company's reserves for environmental remediation totaled approximately $58.1 million at December 31, 1999. Based on currently available information, 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. 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. In addition, 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 operation. With respect to proceedings brought under the federal Superfund laws, or similar state statutes, the Company has been identified as a potentially responsible party at approximately 32 of such sites, excluding those at which it believes it has no future liability. The Company's involvement is very limited or de minimis at approximately 14 of these sites, and the potential loss exposure with respect to any of the remaining 18 individual sites is not considered to be material. See the discussion of related matters herein under the caption "Forward Looking and Other Statements - Risks Associated with Environmental Matters" and in Item 3. Legal Proceedings. Additional related information is presented under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations - Other Matters -Environmental" on page 26 of the 1999 Annual Report and in Notes 1 and 15 of Notes to Consolidated Financial Statements on pages 35 and 49-50 of the 1999 Annual Report. EMPLOYEES The Company has approximately 11,500 employees. Approximately 48% of the Company's workforce is covered by various collective bargaining agreements, principally with the United Steelworkers of America ("USWA"), including: approximately 400 Oremet employees covered by a collective bargaining agreement with the USWA, which is effective through July 31, 2000; approximately 600 Wah Chang employees covered by a collective bargaining agreement with the USWA, which is effective through October 1, 2000; and approximately 3,900 Allegheny Ludlum production and maintenance employees covered by collective bargaining agreements between Allegheny Ludlum and the USWA, which are effective through June 30, 2001. In 1994, following the expiration of a prior collective bargaining agreement between Allegheny Ludlum and the USWA, the USWA authorized a strike by its members that lasted 12 13 10 weeks and materially adversely affected Allegheny Ludlum's operating results. There can be no assurance that the Company will succeed in concluding collective bargaining agreements with the USWA or other unions to replace those that expire. PRINCIPAL OFFICERS OF THE REGISTRANT Principal officers of the Company as of March 15, 2000 are as follows: NAME AGE TITLE ---- --- ----- Thomas A. Corcoran 55 President and Chief Executive Officer* James L. Murdy 61 Executive Vice President, Finance and Administration and Chief Financial Officer* Judd R. Cool 64 Senior Vice President, Human Relations* Jon D. Walton 57 Senior Vice President, General Counsel & Secretary* Terry L. Dunlap 40 Vice President, e-Business Richard J. Harshman 43 Vice President, Investor Relations and Corporate Communications Robert S. Park 55 Vice President, Treasurer Dale G. Reid 44 Vice President, Controller and Chief Accounting Officer* Set forth below are descriptions of the business background for the past five years of the principal officers of the Company. Thomas A. Corcoran has been President and Chief Executive Officer since October 1999. Mr. Corcoran also serves as a director of the Company. Prior to joining the Company, Mr. Corcoran 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. Mr. Corcoran will become Chairman of the Company's Board of Directors following the retirement of Richard P. Simmons as Chairman on May 11, 2000. James L. Murdy has been Chief Financial Officer and a Senior Vice President of the Company since August 1996 and Executive Vice President, Finance and Administration since December 1996. Mr. Murdy previously served as the Senior Vice President-Finance and Chief Financial Officer of Allegheny Ludlum. Mr. Murdy also serves as a director of the Company. Judd R. Cool has been Senior Vice President, Human Resources since September 1997. Prior to joining the Company, Mr. Cool served as Vice President for Human Resources for Inland Steel Industries, Inc. Jon D. Walton has been Senior Vice President, General Counsel and Secretary of the Company since August 1997 and served as Vice President, General Counsel and Secretary of the -------------- * Such officers are subject to the reporting and other requirements of Section 16 of the Securities Exchange Act of 1934, as amended. 13 14 Company from August 1996 to August 1997, having previously served in the same capacity as an officer of Allegheny Ludlum. Terry L. Dunlap will serve as Vice President, e-Business effective April 1, 2000. He has served as General Manager, Sheet Products for Allegheny Ludlum since 1998. Mr. Dunlap previously served in a number of management positions with Allegheny Ludlum. Richard J. Harshman has served as Vice President, Investor Relations and Corporate Communications since July 1998. He had been Senior Vice President, Finance and Administration, at Allvac since 1995. Prior thereto, he served in a number of financial and management corporate and operating positions with Teledyne, Inc. Robert S. Park has served as Vice President, Treasurer of the Company since August 1996. From May 1994 to August 1996, Mr. Park served as Vice President, Treasurer of Allegheny Ludlum. Previously, he served as Treasurer of Allegheny Ludlum. Dale G. Reid has served as a Vice President of the Company since May 1997 and Controller since August 1996. Mr. Reid previously served as Chief Accounting Officer and Controller of Teledyne. Messrs. Corcoran, Murdy and Walton have employment agreements with the Company. Copies of the employment agreements are filed as Exhibits 10.19, 10.17, and 10.18 to this Form 10-K. Other employment related agreements with Mr. Corcoran are filed as Exhibits 10.20 and 10.21 to this Form 10-K. The Company has executed change in control agreements with certain key employees, including all of our principal officers listed above, a form of which is filed as Exhibit 10.22 to this Form 10-K. FORWARD LOOKING AND OTHER STATEMENTS From time to time, the Company has made and may continue to make "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. This annual report contains many forward looking statements. These statements, which represent the Company's expectations or beliefs concerning various future events, include statements concerning: product demand, including projected growth in stainless steel consumption; prices; raw material costs; anticipated effects of acquisitions on earnings, cost savings and operations of the Company; cash flow; anticipated business and economic conditions; aerospace industry trends; cost reductions; certain expected capital expenditures; impact of Year 2000 issues; effects of the euro currency conversion; the outcome of any government inquiries, litigation or other proceedings related to government contracts or other matters; and future environmental costs. These statements are based on current expectations that involve a number of risks and uncertainties, including those described under the captions "Management's Discussion and Analysis of Financial Condition and Results of Operation - Other Matters - Environmental" and "Management's Discussion and Analysis of Financial Condition and Results of Operation - Other Matters - Government Contracts" on page 26 of the 1999 Annual Report. Actual results 14 15 may differ materially from results anticipated in forward looking statements. The Company assumes no duty to update its forward-looking statements. Other important factors that could cause actual results to differ from those in such forward-looking statements include the following: Cyclical Demand for Products. Demand for the Company's products is cyclical because the industries in which customers of such businesses operate are cyclical. Various changes in general economic conditions affect these industries, including decreases in the rate of consumption or use of their products due to economic recessions. Significant downturns in the domestic economy are believed to have adversely affected the Company's results of operations from time to time. Other factors causing fluctuation in market demand and volatile pricing include national and international overcapacity, currency fluctuations, lower priced imports and increases in use or decreases in prices of substitute materials. The current trend of price deflation for many commodity products may also adversely affect prices for commodity grades of specialty materials and industrial products. As a result of these factors, the Company's operating results could be subject to significant fluctuation. For example, in recent years, adverse pricing environments for commodity grades of stainless steel, titanium and tungsten products have negatively affected the Company's sales and operating profit. Volatility of Prices of Critical Raw Materials; Unavailability of Raw Materials. Purchase prices of certain critical raw materials are volatile. As a result, the Company's operating results could be subject to significant fluctuation. For example, since the Company generally uses in excess of 47,500 tons of nickel each year, a hypothetical change of $1.00 per pound in nickel prices would result in increased costs of approximately $95 million. While nickel surcharges are intended to offset the impact of increased nickel costs, competitive factors in the marketplace can limit the Company's ability to institute surcharges and there can be a delay between the increase in the price of nickel and the realization of the benefit of the surcharges. The Company enters into raw material future contracts from time to time to hedge its exposure to price fluctuation. The Company believes that it has adequate controls to monitor these contracts, which are not financially material. Certain important raw materials used to produce specialty materials must be acquired from foreign sources. Some of these sources operate in countries that may be subject to unstable political and economic conditions. These conditions may disrupt supplies or affect the prices of these materials. Risks of Export Sales. The Company believes that export sales will account for an increasing percentage of the Company's sales. Risks associated with export sales include: political and economic instability, including weak conditions in the world's economies; accounts receivable collection; export controls; changes in legal and regulatory requirements; policy changes affecting the markets for the Company's products; changes in tax laws and tariffs; and exchange rate fluctuations (which may affect sales to international customers and the value of and profits earned on export sales when converted into dollars). Any of these factors could materially adversely effect the Company's results. 15 16 Risks Associated with Acquisition and Disposition Strategies. The Company intends to continue to strategically position its businesses in order to improve its ability to compete. The Company plans to do this by seeking specialty niches, expanding its global presence, acquiring businesses complementary to existing strengths and continually evaluating the performance and strategic fit of existing business units. The Company regularly considers acquisition and business combination opportunities as well as possible business unit dispositions. Its management from time to time holds discussions with management of other companies to explore such opportunities. As a result, the relative makeup of the businesses comprising the Company is subject to change. Acquisitions involve various inherent risks, such as: assessing 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; the Company's ability 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. International acquisitions could be affected by export controls, exchange rate fluctuations, the euro conversion, domestic and foreign political conditions and a deterioration in domestic and foreign economic conditions. Uncertainties Relating to Synergies. There can be no assurance that the Company will be able to realize, or do so within any particular time frame, the cost reductions, cash flow increases or other synergies expected to result from acquisitions and other transactions the Company may undertake or be able to generate additional revenue to offset any unanticipated inability to realize such expected synergies. Realization of the anticipated benefits of acquisitions and other transactions could take longer than expected and implementation difficulties, market factors and a deterioration in domestic or global economic conditions could alter the anticipated benefits. Uncertainties Relating to Spin-Offs - General. In the spin-offs of Teledyne and Water Pik, completed in November 1999, the new companies agreed to assume and to defend and hold the Company harmless against all liabilities (other than certain income tax liabilities) associated with the historical operations of their businesses, including all government contracting, environmental, product liability and other claims and demands, whenever any such claims or demands might arise or be made. If the new companies were unable or otherwise fail to satisfy these assumed liabilities, the Company could be required to satisfy them, which could have a material adverse effect on the Company's results of operations and financial condition. Uncertainties Relating to Spin-Offs - Tax Ruling. While the tax ruling relating to the qualification of the spin-offs of Teledyne and Water Pik as tax-free distributions within the meaning of the Internal Revenue Code generally is binding on the Internal Revenue Service, the continuing validity of the tax ruling is subject to certain factual representations and uncertainties that, among other things, require the new companies to take or refrain from taking certain actions. If a spin-off were not to qualify as a tax-free distribution within the meaning of the Internal Revenue Code, the Company would recognize taxable gain generally equal to the amount by which the fair market value of the common stock distributed to the Company's stockholders in the spin-off exceeded the Company's basis in the new company's assets. In addition, the distribution of the new company's common stock to Company stockholders would generally be treated as taxable to the Company's stockholders in an amount equal to the fair market value of the common stock they received. If a spin-off qualified as a distribution within the meaning of the Internal Revenue Code but was disqualified as tax-free to the Company 16 17 because of certain post-spin-off circumstances, the Company would recognize taxable gain as described in the preceding sentence, but the distribution of the new company's common stock to the Company's stockholders in the spin-off would generally be tax-free to each Company stockholder. In the spin-offs, the new companies executed tax sharing and indemnification agreements in which each agreed to be responsible for any taxes imposed on and other amounts paid by the Company, 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 the Internal Revenue Code if the failure or disqualification is caused by post-spin-off actions by or with respect to that company or its stockholders. Potential liabilities under these agreements could exceed the respective new company's net worth by a substantial amount. If either or both of the spin-offs were not to qualify as tax-free distributions to the Company or its stockholders, and either or both of the new companies were unable to or otherwise failed to satisfy the liabilities they assumed under the tax sharing and indemnification agreements, the Company could be required to satisfy them without full recourse against the new companies. This could have a material adverse effect on the Company's results of operations and financial condition. Risks Associated with Environmental Matters. The Company is subject to various domestic and international environmental laws and regulations. These laws have changed in recent years, and the Company expects to face increasingly stringent environmental standards in the future. The Company believes that it operates its businesses in compliance in all material respects with applicable environmental laws and regulations. However, the Company is a party to lawsuits and other proceedings involving alleged violations of environmental laws. When the Company's liability is probable and it can reasonably estimate its costs, the Company records environmental liabilities on its financial statements. However, some of these environmental investigations are not at a stage where the Company has been able to determine liability, or if liability is probable, to reasonably estimate the loss or range of loss. Estimates of the Company's liability remain subject to additional 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 proceed and the Company receives new information, the Company expects that it will adjust its accruals to reflect new information. Future adjustments could have a material adverse effect on the Company's results of operations in a given period, but the Company cannot reliably predict the amounts of such future adjustments. Based on currently available information, the Company's management does not believe that future environmental costs, in excess of those already accrued, will materially adversely affect the Company's financial condition or results of operations. However, the Company cannot provide any 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. 17 18 Risks Associated with Government Contracts. One of the Company's operating companies directly performs work on contracts with the U.S. Government. 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, principally related to the former operations of Teledyne, Inc., including claims based on business practices and cost classifications and actions under the False Claims Act. Under the False Claims Act, a person may assert the rights of the U.S. Government by initiating a suit under seal against a contractor. For the claim to be successful, the person must have information that the contractor falsely submitted a claim to the U.S. Government for payment. The U.S. Government may choose to intervene and assume control of the case. Government contracting claims may be resolved by detailed fact-finding and negotiation. When they are not resolved in that way, 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. Given the limited extent of the Company's business with the U.S. Government, the Company believes that a suspension or debarment of the Company would not have a material adverse effect on the future operating results and consolidated financial condition of the Company. 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 have a material adverse effect on the Company's financial condition or liquidity. 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. Risks Associated with the Year 2000. The Company did not experience any significant malfunctions or errors in its operating or business systems when the year changed from 1999 to 2000. Based on its operational experience since January 1, 2000, the Company does not expect that Year 2000 matters will have a significant adverse effect on its business in the future. The full impact of the date change, which was of concern due to computer programs that use two digits instead of four digits to define years, may, however, not yet be fully known. For example, it is possible that Year 2000 or related problems such as those possibly associated with the fact that 2000 is a leap year, could occur with respect to billing, payroll or financial closings at month-, quarter- or year-end. The Company believes that any such problems are not likely to be material. In addition, Year 2000 or similar problems that adversely affect the Company's customers or suppliers could have an impact on the Company. To date, the Company has not experienced significant difficulties resulting from Year 2000 problems of its customers and suppliers. The Company expended $16 million on Year 2000 readiness efforts in 1998 and 1999. These efforts included replacing outdated, noncompliant hardware and noncompliant software as well as identifying and remediating other Year 2000 problems. Substantially all costs related to 18 19 the Company's Year 2000 initiatives were expensed as incurred and funded through operating cash flows. ITEM 2. PROPERTIES The Company's principal domestic facilities as of December 31, 1999 are listed below by segment. Of those facilities listed below which are owned, three are subject to mortgages or similar encumbrances securing borrowings under certain industrial development authority financings. See Note 5 of the Notes to Consolidated Financial Statements beginning on page 38 of the 1999 Annual Report. Although the facilities vary in terms of age and condition, the Company's management believes that these facilities have generally been well-maintained. APPROXIMATE SQUARE FOOTAGE FACILITY LOCATION PRINCIPAL USE (OWNED/LEASED) ----------------- ------------- -------------- FLAT-ROLLED PRODUCTS Brackenridge Works Manufacturing of stainless steel and specialty 2,443,000 (owned) Brackenridge and Natrona, PA material strip, sheet, and plate, silicon electrical steel strip and sheet, and other specialty steel strip and sheet. West Leechburg Works Manufacturing of stainless steel and specialty 1,415,000 (owned) West Leechburg and material strip and sheet, silicon electrical steel Bagdad, PA strip and sheet, and other specialty steel strip and sheet. Vandergrift Plant Manufacturing of stainless steel strip and sheet. 966,000 (owned) Vandergrift, PA Washington Plant Manufacturing of stainless steel and tool steel plate 615,000 (owned) Washington, PA products. Washington Flat-Roll Plant Anneal, pickle, roll and finish stainless steel sheet 350,000 (owned) Washington, PA products. Wallingford Plant Manufacturing of stainless steel and specialty 591,000 (owned) Wallingford and material strip and sheet and other specialty strip Waterbury, CT and sheet. Houston Plant Manufacturing of stainless steel and other specialty 298,000 (owned) Houston, PA material products. Lockport Plant Manufacturing of stainless steel and other specialty 282,000 (owned) Lockport, NY material products. New Castle Plant Manufacturing of stainless steel sheet. 178,000 (owned) New Castle, IN Massillon Plant 96-inch wide anneal and pickle line for manufacture 165,000 (owned) Massillon, OH of stainless steel and other specialty material plate. Allegheny Rodney Strip Plant Manufacturing of stainless steel precision rolled and 250,000 (owned) New Bedford, MA coated thin sheet strip and foil, custom roll-formed and stretch-formed shapes. 19 20 APPROXIMATE SQUARE FOOTAGE FACILITY LOCATION PRINCIPAL USE (OWNED/LEASED) ----------------- ------------- -------------- HIGH PERFORMANCE METALS Monroe Plant Production of nickel and titanium products and other 640,000 (owned) Monroe, NC specialty steel long products. Latrobe Plant Production of nickel and titanium products, tool and 468,000 (owned) Latrobe, PA high speed steel, and other specialty steel long products. Richburg Plant Production of nickel and titanium products, tool and 221,000 (owned) Richburg, SC high speed steel, and other specialty steel long products. Bakers Plant Production of titanium ingot. 60,000 (owned) Monroe, NC Oremet Facility Production of titanium sponge, ingot, mill products 461,000 (owned) Albany, OR and castings. Wah Chang Facility Production of zirconium, hafnium, niobium, titanium 1,215,000 (owned) Albany, OR and tantalum. Richland Plant Production of titanium ingots, slabs and electrodes. 103,000 (owned) Richland, WA INDUSTRIAL PRODUCTS Waynesboro, PA Production of thread-cutting and roll-forming 386,000 (owned) equipment and perishable tools. Huntsville, AL Production of molybdenum, tungsten, and tungsten 293,000 (owned) carbide powders. Grant, AL Production of primary tungsten sintered parts. 88,000 (leased) Nashville, TN Production of tungsten carbide and cutting tools. 134,000 (leased) La Porte, IN Manufacturing of large ductile and grey iron castings. 453,000 (owned) Portland, IN Manufacturing of carbon and alloy steel forgings. 215,000 (owned) Lebanon, KY Manufacturing of carbon and alloy steel forgings. 100,000 (owned) The Company also owns or leases facilities in a number of foreign countries, including the United Kingdom, Germany, France, Italy, Spain, and Switzerland. In connection with the Company's February 1998 acquisition of assets in the United Kingdom, the Company acquired 625,000-square foot facilities for melt and remelt, machining and bar mill operations, laboratories and offices located on a 25-acre site in Sheffield, England, and 40,000-square foot leased facility for computer numerically controlled milling and machine operations. 20 21 The Company's executive offices, located at PPG Place in Pittsburgh, Pennsylvania are leased from third parties. These facilities are modern and sufficient for the Company to carry on its current activities. ITEM 3. LEGAL PROCEEDINGS The Company becomes involved from time to time in various lawsuits, claims and proceedings relating to the conduct of its business, including those pertaining to environmental, government contracting, product liability, patent infringement, commercial, employment, employee benefits, and stockholder matters. In June 1995, the U.S. Department of Justice commenced an action against Allegheny Ludlum in the United States District Court for the Western District of Pennsylvania, alleging multiple violations of the federal Clean Water Act. The complaint seeks injunctive relief and assessment of penalties of up to $25,000 per day of violation. Discovery has been completed. The Company believes that a trial of the case would begin no earlier than the first quarter of 2001. As previously announced, the Company has received a subpoena from a federal grand jury investigating possible violations of the federal antitrust laws in the nickel alloys industry. The Company has cooperated with the Department of Justice regarding their investigation. Sales of nickel-based alloys represent less than ten percent of the Company's revenue. The Company has a comprehensive program designed to ensure that the antitrust laws are complied with. The Company believes that its program is effective and well understood by its employees and that its employees would not violate the antitrust laws. While the outcome of litigation, including the matters specified above, cannot be predicted with certainty, and some 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. See the discussion of related matters in Item 1 of Part I of this Form 10-K under the captions "Environmental, Health and Safety Matters." ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On November 11, 1999, the Company held a special meeting of stockholders. At that meeting, an amendment to the Company's Restated Certificate of Incorporation was approved to effect a one-for-two reverse split of the Company's common stock and to reduce the number of authorized shares of common stock. The number of votes cast for the proposal was 144,370,015, against was 19,160,802, and in abstention was 662,341, and there were no broker non-votes. 21 22 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Information required by this item is incorporated by reference to Note 16 of the Notes to Consolidated Financial Statements on page 51 of the 1999 Annual Report and to "Common Stock Price" on page 52 of the 1999 Annual Report. ITEM 6. SELECTED FINANCIAL DATA Information required by this item is incorporated by reference to "Selected Financial Data" on pages 53 and 54 of the 1999 Annual Report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information required by this item is incorporated by reference to "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 19 through 28 of the 1999 Annual Report. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information required by this item is incorporated by reference to "Management's Discussion and Analysis of Financial Condition and Results of Operations - Other Matters -Hedging" on pages 25 and 26 of the 1999 Annual Report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements and Notes to Consolidated Financial Statements listed in Item 14(a)(1) are incorporated by reference to pages 29 through 51 of the 1999 Annual Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT In addition to the information set forth under the caption "Principal Officers of the Registrant" in Part I of this report, the information concerning the directors of the Company required by this item is incorporated by reference to "Election of Directors" as set forth in the 2000 Proxy Statement filed by the Registrant pursuant to Regulation 14A. 22 23 ITEM 11. EXECUTIVE COMPENSATION Information required by this item is incorporated by reference to "Directors Compensation," "Executive Compensation" and "Compensation Committee Interlocks and Insider Participation" as set forth in the 2000 Proxy Statement filed by the Registrant pursuant to Regulation 14A. The Registrant does not incorporate by reference in this Form 10-K either the "Report on Executive Compensation" or the "Cumulative Total Stockholder Return" section of the 2000 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by this item is incorporated by reference to "Stock Ownership Information" as set forth in the 2000 Proxy Statement filed by the Registrant pursuant to Regulation 14A. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by this item is incorporated by reference to "Certain Transactions" as set forth in the 2000 Proxy Statement filed by the Registrant pursuant to Regulation 14A. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) EXHIBITS AND FINANCIAL STATEMENT SCHEDULES: (1) FINANCIAL STATEMENTS The following consolidated financial statements included on pages 29 through 51 of the 1999 Annual Report are incorporated by reference: Consolidated Statements of Income - Years Ended December 31, 1999, 1998 and 1997 Consolidated Balance Sheets at December 31, 1999 and 1998 Consolidated Statements of Cash Flows - Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Stockholders' Equity - Years Ended December 31, 1999, 1998 and 1997 Report of Ernst & Young LLP, Independent Auditors Notes to Consolidated Financial Statements (2) FINANCIAL STATEMENT SCHEDULES All schedules set forth in the applicable accounting regulations of the Commission either are not required under the related instructions or are not applicable and, therefore, have been omitted. (3) EXHIBITS A list of exhibits included in this Report or incorporated by reference is found in the Exhibit Index beginning on page 26 of this Report and incorporated by reference. 23 24 (b) REPORT ON FORM 8-K FILED IN THE FOURTH QUARTER OF 1999: The Company filed a current report on Form 8-K on November 29, 1999 regarding the completion of the spin-offs of Teledyne Technologies Incorporated and Water Pik Technologies, Inc. The Company also reported unaudited pro forma financial information to reflect the reclassification of sold and spun-off companies as discontinued operations and to reflect the Company's Flat-Rolled Products, High Performance Metals, and Industrial Products segments. 24 25 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. ALLEGHENY TECHNOLOGIES INCORPORATED Date: March 21, 2000 By /s/ Thomas A. Corcoran ----------------------------------------- Thomas A. Corcoran President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and as of the 21st day of March, 2000. /s/ Richard P. Simmons /s/ James L. Murdy -------------------------------------------------- ------------------------------------------------------ Richard P. Simmons James L. Murdy Chairman of the Board Executive Vice President, Finance and Administration and Chief Financial Officer and Director (Principal Financial Officer) /s/ Thomas A. Corcoran /s/ Dale G. Reid -------------------------------------------------- ------------------------------------------------------ Thomas A. Corcoran Dale G. Reid President and Chief Executive Officer Vice President-Controller and Chief Accounting Officer (Principal Accounting Officer) /s/ Robert P. Bozzone /s/ Paul S. Brentlinger -------------------------------------------------- ------------------------------------------------------ Robert P. Bozzone Paul S. Brentlinger Vice Chairman of the Board and Director Director /s/ Frank V. Cahouet /s/ Diane C. Creel -------------------------------------------------- ------------------------------------------------------ Frank V. Cahouet Diane C. Creel Director Director /s/ C. Fred Fetterolf /s/ Ray J. Groves -------------------------------------------------- ------------------------------------------------------ C. Fred Fetterolf Ray J. Groves Director Director /s/ William G. Ouchi /s/ W. Craig McClelland -------------------------------------------------- ------------------------------------------------------ William G. Ouchi W. Craig McClelland Director Director /s/ James E. Rohr /s/ Charles J. Queenan, Jr -------------------------------------------------- ------------------------------------------------------ James E. Rohr Charles J. Queenan, Jr. Director Director 25 26 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION ------- ----------- 2.1 Separation and Distribution Agreement dated November 29, 1999 among Allegheny Teledyne Incorporated (now known as Allegheny Technologies Incorporated), TDY Holdings, LLC, Teledyne Industries, Inc., and Teledyne Technologies Incorporated (incorporated by reference to Exhibit 2.1 to Registrant's Current Report on Form 8-K dated November 29, 1999 (File No. 1-12001)). 2.2 Separation and Distribution Agreement dated November 29, 1999 among Allegheny Teledyne Incorporated (now known as Allegheny Technologies Incorporated), TDY Holdings, LLC, Teledyne Industries, Inc., and Water Pik Technologies, Inc. (incorporated by reference to Exhibit 2.2 to Registrant's Current Report on Form 8-K dated November 29, 1999 (File No. 1-12001)). 3.1 Certificate of Incorporation of Allegheny Technologies Incorporated, as amended (filed herewith). 3.2 Amended and Restated Bylaws of Allegheny Technologies Incorporated (incorporated by reference to Exhibit 3.2 to the Registrant's Report on Form 10-K for the year ended December 31, 1998 (File No. 1-12001)). 4.1 Credit Agreement dated as of August 30, 1996 (incorporated by reference to Exhibit 10 to the Registrant's Report on Form 10-Q for the quarter ended September 30, 1996 (File No. 1-12001)), Assignment and Assumption Agreements dated as of August 22, 1997 and First Amendment to Credit Agreement dated as of August 31, 1996 (incorporated by reference to Exhibit 4 to the Registrant's Report on Form 10-Q for the quarter ended September 30, 1997 (File No. 1-12001)), and Second Amendment to Credit Agreement dated as of March 24, 1998 to certain Credit Agreement dated as of August 30, 1996, as amended by First Amendment to Credit Agreement dated as of August 31, 1997 (incorporated by reference to Exhibit 4 to the Registrant's Report on Form 10-K for the quarter ended March 31, 1998 (File No. 1-12001), and Third Amendment to Credit Agreement dated as of March 30, 1999 (incorporated by reference to Exhibit 4 to the Registrant's Report on Form 10-Q for the quarter ended March 31, 1999 (File No. 1-12001)) and Fourth Amendment to Credit Agreement dated as of August 6, 1999 (incorporated by reference to Exhibit 4 to the Registrant's Report on Form 10-Q for the quarter ended June 30, 1999 (File No. 1-12001)). 4.2 Indenture dated as of December 15, 1995 between Allegheny Ludlum Corporation and The Chase Manhattan Bank (National Association), as trustee (relating to Allegheny Ludlum Corporation's 6.95% Debentures due 2025) (incorporated by reference to Exhibit 4(a) to Allegheny Ludlum Corporation's Report on Form 10-K for the year ended December 31, 1995 (File No. 1-9498)), and First Supplemental Indenture by and among Allegheny Technologies Incorporated, Allegheny Ludlum Corporation and The Chase Manhattan Bank (National Association), as Trustee, dated as of August 15, 1996 26 27 (incorporated by reference to Exhibit 4.1 to Registrant's Current Report on Form 8-K dated August 15, 1996 (File No. 1-12001)). 4.3 Rights Agreement dated March 12, 1998, including Certificate of Designation for Series A Junior Participating Preferred Stock as filed with the State of Delaware on March 13, 1998 (incorporated by reference to Exhibit 1 to the Registrant's Current Report on Form 8-K dated March 12, 1998 (File No. 1-12001)). 10.1 Allegheny Technologies Incorporated 1996 Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant's Report on Form 10-K for the year ended December 31, 1997 (File No. 1-12001)).* 10.2 Allegheny Technologies Incorporated Stock Acquisition and Retention Plan effective January 1, 1997 (incorporated by reference to Exhibit 10.2 to the Registrant's Report on Form 10-K for the year ended December 31, 1996 (File No. 1-12001)).* 10.3 Allegheny Technologies Incorporated Stock Acquisition and Retention Program effective January 1, 1998, as amended and restated (incorporated by reference to Exhibit 10.3 to the Registrant's Report on Form 10-K for the year ended December 31, 1998 (File No. 1-12001)).* 10.4 Allegheny Technologies Incorporated Stock Acquisition Retention Program effective January 1, 2000 (filed herewith).* 10.5 Allegheny Technologies Incorporated 1996 Non-Employee Director Stock Compensation Plan, as amended December 17, 1998 (incorporated by reference to Exhibit 10.4 to the Registrant's Report on Form 10-K for the year ended December 31, 1998 (File No. 1-12001)).* 10.6 Allegheny Technologies Incorporated Fee Continuation Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.4 to the Company's Report on Form 10-K for the year ended December 31, 1997 (File No. 1-12001)).* 10.7 Supplemental Pension Plan for Certain Key Employees of Allegheny Technologies Incorporated and its subsidiaries (formerly known as the Allegheny Ludlum Corporation Key Man Salary Continuation Plan) (incorporated by reference to Exhibit 10.7 to the Company's Report on Form 10-K for the year ended December 31, 1997 (File No. 1-12001)).* 10.8 Allegheny Technologies Incorporated Benefit Restoration Plan, as amended (filed herewith).* 10.9 Allegheny Ludlum Corporation 1987 Stock Option Incentive Plan (as amended and restated) (incorporated by reference to Exhibit 10(f) to Allegheny Ludlum Corporation's Report on Form 10-K for the year ended December 31, 1995 (File No. 1-9498)).* 27 28 10.10 Allegheny Ludlum Corporation Performance Share Plan (as amended and restated) (incorporated by reference to the Registration Statement on Form S-4 (No. 333-8235) of Allegheny Technologies Incorporated, appears as Appendix F to the Joint Proxy Statement/Prospectus forming part of the Registration Statement).* 10.11 Allegheny Ludlum Corporation Stock Acquisition and Retention Plan, as restated effective as of August 15, 1996 (incorporated by reference to Exhibit 10.10 to the Company's Report on Form 10-K for the year ended December 31, 1997 (File No. 1-12001)).* 10.12 Teledyne, Inc. 1990 Stock Option Plan (incorporated by reference to Exhibit 10 to Teledyne, Inc.'s Report on Form 10-K for the year ended December 31, 1990 (File No. 1-5212)).* 10.13 Teledyne, Inc. 1994 Long-Term Incentive Plan (incorporated by reference to Exhibit A to Teledyne, Inc.'s 1994 proxy statement (File No. 1-5212)).* 10.14 Teledyne, Inc. 1995 Non-Employee Director Stock Option Plan (incorporated by reference to Exhibit A to Teledyne, Inc.'s 1995 proxy statement (File No. 1-5212)).* 10.15 Summary of Teledyne, Inc. Executive Deferred Compensation Plan, as restated effective September 1, 1994 (incorporated by reference to Exhibit 10.2 to Teledyne, Inc.'s Report on Form 10-K for the year ended December 31, 1994 (File No. 1-5212)).* 10.16 First Amendment dated as of August 14, 1995 and Second Amendment dated as of December 4, 1995 to the Summary of Teledyne, Inc. Executive Deferred Compensation Plan (incorporated by reference to Exhibit 10.2 to Teledyne, Inc.'s Report on Form 10-K for the year ended December 31, 1995 (File No. 1-5212)).* 10.17 Employment Agreement dated July 15, 1996 between Allegheny Technologies Incorporated and James L. Murdy (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-4 (No. 333-8235)).* 10.18 Employment Agreement dated July 15, 1996 between Allegheny Technologies Incorporated and Jon D. Walton (incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-4 (No. 333-8235)).* 10.19 Employment Agreement dated August 17, 1999 between Allegheny Technologies Incorporated and Thomas A. Corcoran (incorporated by reference to Exhibit 10(a) of the Company's Report on Form 10-Q for the period ending September 30, 1999 (File No. 1-12001)).* 10.20 Restricted Stock Agreement dated September 16, 1999 between Allegheny Technologies Incorporated and Thomas A. Corcoran (incorporated by reference to Exhibit 10(b) to the Company's Report on Form 10-Q for the period ending September 30, 1999 (File No. 12001)).* 28 29 10.21 Supplemental Pension Plan Agreement dated September 16, 1999 between Allegheny Technologies Incorporated and Thomas A. Corcoran (incorporated by reference to Exhibit 10(c) to the Company's Report on Form 10-Q for the period ending September 30, 1999 (File No. 1-12001)).* 10.22 Form of Change in Control Severance Agreement (filed herewith).* 10.23 Employee Benefits Agreement dated November 29, 1999 between Allegheny Technologies Incorporated and Teledyne Technologies Incorporated (filed herewith).* 10.24 Employee Benefits Agreement dated November 29, 1999 between Allegheny Technologies Incorporated and Water Pik Technologies, Inc. (filed herewith).* 10.25 Tax Sharing and Indemnification Agreement dated November 29, 1999 between Allegheny Technologies Incorporated and Teledyne Technologies Incorporated (filed herewith). 10.26 Tax Sharing and Indemnification Agreement dated November 29, 1999 between Allegheny Technologies Incorporated and Teledyne Technologies Incorporated (filed herewith). 10.27 Allegheny Technologies Incorporated Executive Deferred Compensation Plan, as amended (filed herewith).* 10.28 Allegheny Technologies Incorporated Performance Share Program (incorporated by reference to Exhibit 10.22 to the Registrant's Report on Form 10-K for 1998 (File 1-12001)). 10.29 Allegheny Technologies Incorporated Annual Incentive Plan (incorporated by reference to Exhibit 10.23 to the Registrant's Report on Form 10-K for the year ended December 31, 1998 (File 1-12001)). 10.30 Allegheny Technologies Incorporated 2000 Incentive Plan (filed herewith).* 13.1 Pages 19 through 54 inclusive of the Annual Report of Allegheny Technologies Incorporated for the year ended December 31, 1999 (filed herewith). 21.1 Subsidiaries of the Registrant (filed herewith). 23.1 Consent of Ernst & Young LLP (filed herewith). 27.1 Financial Data Schedule for 1999 (filed herewith). 27.2 Restated Financial Data Schedule for 1998 (filed herewith). 27.3 Restated Financial Data Schedule for 1997 (filed herewith). 29 30 *Management contract or compensatory plan or arrangement required to be filed as an Exhibit to this Report. Certain instruments defining the rights of holders of long-term debt of the Company and its subsidiaries have been omitted from the Exhibits in accordance with Item 601(b)(4)(iii) of Regulation S-K. A copy of any omitted document will be furnished to the Commission upon request. 30 EX-3.1 2 CERTIFICATE OF INCORPROATION 1 Exhibit 3.1 RESTATED CERTIFICATE OF INCORPORATION OF ALLEGHENY TECHNOLOGIES INCORPORATED (as amended) ONE: The name of the corporation is Allegheny 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 Five Hundred Fifty Million (550,000,000), consisting of Five Hundred Million (500,000.000) shares of Common Stock, par value ten cents ($.l0) per share (the "Common Stock"), and Fifty Million (50,000,000) shares of Preferred Stock, par value ten cents ($.10) 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. 2 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 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 2 3 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, 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 (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 (i) 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 (ii) 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 3 4 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 or 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 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 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 officer or director 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, 4 5 Section B, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Article NINE, Clause (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. (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, 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 re-election 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 Securities Exchange Act of 1934, as amended (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 5 6 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 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 6 7 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: (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 7 8 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 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 re-capitalization 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 anv such affiliate. 8 9 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. 9 EX-10.4 3 STOCK ACQUISITION RETENTION PROGRAM 1 Exhibit 10.4 ALLEGHENY TECHNOLOGIES INCORPORATED 1996 INCENTIVE PLAN ADMINISTRATIVE RULES FOR THE ALLEGHENY TECHNOLOGIES INCORPORATED STOCK ACQUISITION AND RETENTION PROGRAM EFFECTIVE AS OF JANUARY 1, 2000 (AS AMENDED AND RESTATED) ARTICLE I. ADOPTION AND PURPOSE OF THE PROGRAM 1.01 ADOPTION. These rules are adopted by the Personnel and Compensation Committee and the Stock Incentive Award Subcommittee of the Board of Directors pursuant to the authority reserved in Section 3.01 of the Allegheny Technologies Incorporated 1996 Incentive Plan (the "Plan"). Capitalized terms used but not defined in these rules shall have the same meanings as in the Plan. 1.02 PURPOSE. The purpose of the Allegheny Technologies Incorporated Stock Acquisition and Retention Program (the "SARP") is to assist the Corporation and its subsidiaries in retaining and motivating selected key management employees who will contribute to the success of the Corporation and its subsidiaries. The SARP encourages eligible employees to hold a proprietary interest in the Corporation by offering them an opportunity to receive grants of restricted shares of Stock which, in accordance with the terms and conditions set forth below, will vest only if the employees retain, for a specified period of time, ownership of (i) shares of Stock purchased pursuant to the SARP or (ii) already-owned shares of Stock which such employees identify as being subject to the SARP. Awards under the SARP will act as an incentive to participating employees to achieve long-term objectives which will inure to the benefit of all stockholders of the Corporation. ARTICLE II. DEFINITIONS For purposes of these rules, the capitalized terms set forth below shall have the following meanings: 2.01 AWARD AGREEMENT means a written agreement between the Corporation and a Participant or a written acknowledgment from the Corporation specifically setting forth the terms and conditions of an award of Restricted Stock granted to a Participant pursuant to Article VII of these rules. 2.02 BOARD means the Board of Directors of the Corporation. 2.03 BUSINESS DAY means any day on which the New York Stock Exchange shall be open for trading. 2.04 CAUSE means a determination by the Committee that a Participant has engaged in conduct that is dishonest or illegal, involves moral turpitude or jeopardizes the Corporation's right to operate its business in the manner in which it is now operated. 2 2.05 CHANGE IN CONTROL means any of the events set forth below: (a) The acquisition in one or more transactions, other than from the Corporation, by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of a number of Corporation Voting Securities in excess of 30% of the Corporation Voting Securities unless such acquisition has been approved by the Board; or (b) Any election has occurred of persons to the Board that causes two-thirds of the Board to consist of persons other than (i) persons who were members of the Board on January 1, 1998 and (ii) persons who were nominated for election as members of the Board at a time when two-thirds of the Board consisted of persons who were members of the Board on January 1, 1998; provided, however, that any person nominated for election by the Board at a time when at least two-thirds of the members of the Board were persons described in clauses (i) and/or (ii) or by persons who were themselves nominated by such Board shall, for this purpose, be deemed to have been nominated by a Board composed of persons described in clause (i); or (c) Approval by the stockholders of the Corporation of a reorganization, merger or consolidation, unless, following such reorganization, merger or consolidation, all or substantially all of the individuals and entities who were the respective beneficial owners of the Outstanding Stock and Corporation Voting Securities immediately prior to such reorganization, merger or consolidation, following such reorganization, merger or consolidation beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors or trustees, as the case may be, of the entity resulting from such reorganization, merger or consolidation in substantially the same proportion as their ownership of the Outstanding Stock and Corporation Voting Securities immediately prior to such reorganization, merger or consolidation, as the case may be; or (d) Approval by the stockholders of the Corporation of (i) a complete liquidation or dissolution of the Corporation or (ii) a sale or other disposition of all or substantially all the assets of the Corporation. 2.06 COMMITTEE means the Stock Incentive Award Subcommittee of the Board, in the case of individuals who are "officers" of the Corporation as defined in Rule 16a-1(f) as promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, as such Rule may be amended from time to time, and the Personnel and Compensation Committee of the Board, in the case of individuals who are not such officers of the Corporation. 2.07 CORPORATION means Allegheny Technologies Incorporated, a Delaware corporation, and its successors. 2.08 CORPORATION VOTING SECURITIES means the combined voting power of all outstanding voting securities of the Corporation entitled to vote generally in the election of the Board. 2.09 DATE OF GRANT means the date as of which an award of Restricted Stock is granted in accordance with Article VII of these rules. 2 3 2.10 DESIGNATED STOCK means shares of Stock already owned by a Participant that the Participant identifies as being subject to the SARP, thereby triggering the grant of Restricted Stock to such Participant pursuant to Article VII of these rules. 2.11 DESIGNATION NOTICE means a written notice, in a form acceptable to the Committee, by which a Participant designates previously-acquired shares of Stock as Designated Stock. 2.12 DISABILITY means any physical or mental injury or disease of a permanent nature which renders a Participant incapable of meeting the requirements of the employment performed by such Participant immediately prior to the commencement of such disability. The determination of whether a Participant is disabled shall be made by the Committee in its sole and absolute discretion. Notwithstanding the foregoing, if a Participant's employment by the Corporation or an applicable subsidiary terminates by reason of a disability, as defined in an Employment Agreement between such Participant and the Corporation or an applicable subsidiary, such Participant shall be deemed to be disabled for purposes of the SARP. 2.13 EFFECTIVE DATE means January 1, 2000. 2.14 EXCHANGE ACT means the Securities Exchange Act of 1934, as amended. 2.15 FAIR MARKET VALUE means, as of any given date, the average of the high and low trading prices of the Stock on such date as reported on the New York Stock Exchange or, if the Stock is not then traded on the New York Stock Exchange, on such other national securities exchange on which the Stock is admitted to trade, or, if none, on the National Association of Securities Dealers Automated Quotation System if the Stock is admitted for quotation thereon; provided, however, if there were no sales reported as of such date, Fair Market Value shall be computed as of the last date preceding such date on which a sale was reported; provided, further, that if any such exchange or quotation system is closed on any day on which Fair Market Value is to be determined, Fair Market Value shall be determined as of the first date immediately preceding such date on which such exchange or quotation system was open for trading. 2.16 OUTSTANDING STOCK means, at any time, the issued and outstanding Stock. 2.17 PARTICIPANT means any person selected by the Committee, pursuant to Section 5.01 of these rules, as eligible to participate under the SARP. 2.18 PERMITTED TRANSFEREE means a Participant's spouse, or (by blood, adoption or marriage) parent, child, stepchild, descendant or sibling, or the estate, any guardian, custodian, conservator or committee of, or any trust for the benefit of, the Participant or any of the foregoing persons. 2.19 PLAN means the Allegheny Technologies Incorporated 1996 Incentive Plan, as the same may be amended from time to time. 2.20 PURCHASE AMOUNT means the dollar amount that a Participant specifies in a Purchase Notice with respect to a particular Purchase Date. 2.21 PURCHASE DATE means, the date on which the Corporation receives the Purchase Notice or, if such date is not a Business Day, the Business Day immediately preceding the date on which such Notice is received. 3 4 2.22 PURCHASED STOCK means Stock purchased by a Participant pursuant to Article VI of these rules, which triggers the grant of Restricted Stock to such Participant pursuant to Article VII of these rules. 2.23 PURCHASE LOAN means a loan provided to a Participant by the Corporation to facilitate the Participant's purchase of Stock pursuant hereto. 2.24 PURCHASE NOTICE means a written notice, in a form acceptable to the Committee, by which a Participant may elect to purchase Stock as of a Purchase Date in accordance with Section 6.01 of these rules. 2.25 RELATED STOCK means, with respect to any three-quarters of a share of Restricted Stock, the one share of Purchased Stock or Designated Stock, as the case may be, which entitles such Participant to receive such three-quarters of a share of Restricted Stock pursuant to Article VII of these rules. 2.26 RESTRICTED STOCK means shares of Stock awarded to a Participant subject to restrictions as described in Article VII of these rules. 2.27 SARP means the Stock Acquisition and Retention Program, as the same may be amended from time to time. 2.28 SARP YEAR means each of the calendar years during the term the SARP remains in effect. 2.29 STOCK means the common stock, par value $0.10 per share, of the Corporation. ARTICLE III. ADMINISTRATION The SARP shall be administered by the Committee, which shall have exclusive and final authority and discretion in each determination, interpretation or other action affecting the SARP and its Participants. The Committee shall have the sole and absolute authority and discretion to interpret the SARP, to modify these administrative rules for the SARP, to select, in accordance with Section 5.01 of these rules, the persons who will be Participants hereunder, to impose such conditions and restrictions as it determines appropriate and to take such other actions and make such other determinations in connection with the SARP as it may deem necessary or advisable. ARTICLE IV. STOCK ISSUABLE UNDER THE SARP 4.01 SHARES OF STOCK ISSUABLE. The Stock to be offered under the SARP shall be authorized and unissued Stock, or Stock which shall have been reacquired by the Corporation and held in its treasury. 4.02 SHARES SUBJECT TO TERMINATED AWARDS. Shares of Stock forfeited as provided in Section 7.02 of these rules may again be issued under the SARP. ARTICLE V. PARTICIPATION 5.01 DESIGNATION OF PARTICIPANTS. Participants in the SARP shall be such officers and senior executives of the Corporation and its subsidiaries whose actions most directly affect the long-term success of the Corporation as the Committee, in its sole discretion, after consultation with the 4 5 Chief Executive Officer, may designate as eligible to participate in the SARP. The Committee shall designate the Participants who are eligible to participate in the SARP during a SARP Year which designation will generally be made prior to or within ninety days after the commencement of such SARP Year. The Committee's designation of a Participant with respect to any SARP Year shall not require the Committee to designate such person as a Participant with respect to any other SARP Year. The Committee shall consider such factors as it deems pertinent in selecting Participants. The Committee shall promptly provide to each person selected as a Participant written notice of such selection. The designation of a person as a Participant with respect to a SARP Year shall permit such person to elect to submit one or more Purchase Notices and/or Designation Notices during such SARP Year. 5.02 PARTICIPANT ELECTIONS. A person who is designated as a Participant in accordance with Section 5.01 of these rules shall be entitled to purchase Stock by delivering one or more Purchase Notices in accordance with Article VI of these rules, and such Stock purchases shall result in the award of Restricted Stock to such Participant in accordance with Article VII of these rules. In addition, a Participant shall be entitled to designate as Designated Stock, in one or more Designation Notices delivered to the Corporation at any time during a SARP Year, any number of shares of Stock then owned by the Participant, other than shares of Purchased Stock, shares of Stock credited to the Participant's account under a company-sponsored defined contribution plan and shares of Stock subject to outstanding and as yet unexercised stock options, such that, in accordance with Section 7.01, a whole number of Restricted Stock, and no fractions of a share of Restricted Stock, shall be issuable with respect to such Designated Stock. Such designation of shares as Designated Stock shall result in the award of Restricted Stock to the Participant in accordance with Article VII of these rules. The sum of (i) the aggregate Purchase Amounts elected by a Participant pursuant to one or more Purchase Notices submitted within any one SARP Year and (ii) the Fair Market Value of the Designated Stock designated by the Participant pursuant to one or more Designation Notices submitted within such SARP Year (such Fair Market Value being determined as of the date the applicable Designation Notice is delivered), shall not exceed such Participant's gross annual salary as in effect on the first day of such SARP Year; provided, however, that, for any SARP Year, the Committee may establish such greater or lesser dollar limit as it deems appropriate. ARTICLE VI. STOCK PURCHASES 6.01 STOCK PURCHASE ELECTIONS. A Participant shall have the right to purchase Stock in accordance with the terms of this Article VI of these rules. A Participant may elect to purchase Stock under this SARP by delivering to the Corporation a Purchase Notice and cash and/or a promissory note executed by the Participant in an amount equal to the purchase price designated in such Participant's Purchase Notice. Such Purchase Notice shall set forth, among other things, the Purchase Amount elected by the Participant. Such promissory note which shall evidence such Participant's Purchase Loan in accordance with Section 6.03 of these rules, shall be in a principal amount equal to the Purchase Amount designated in such Participant's Purchase Notice and shall by its terms become effective as of the applicable Purchase Date. All elections under this Section 6.01 shall be irrevocable. Each election shall take effect as of the Purchase Date. 6.02 ISSUANCE OF AND PAYMENT FOR STOCK. As of each Purchase Date, the Corporation shall credit to each Participant the number of shares of Purchased Stock purchased pursuant to the Purchase Notice submitted by such Participant. The number of shares of Purchased Stock to be so credited shall be determined by dividing the Purchase Amount designated by such Participant in his or her Purchase Notice by a purchase price per share equal to the Fair Market Value on the Purchase Date. As of any Purchase Date, the number of shares that can be purchased by a Participant shall be 5 6 a number that will result in the issuance of a whole number of shares of Restricted Stock; in no event shall the Corporation be required to issue fractional shares of Purchased Stock or fractional shares of Restricted Stock. The Purchase Amount elected by a Participant, and the principal amount of the related promissory note, shall be automatically reduced (and if the entire Purchase Amount is paid in cash, cash shall be returned to the Participant) to the minimum extent necessary so that only a whole number of shares of Restricted Stock will be issued with respect to the Related Stock. The purchase price for shares of Purchased Stock credited to a Participant as of a Purchase Date shall be paid in cash and/or by means of a Purchase Loan made by the Corporation to the Participant in accordance with Section 6.03 of these rules. The Participant shall have all of the rights of a stockholder with respect to the shares of Purchased Stock credited to him under this Section 6.02 including, but not limited to, the right to vote such shares and the right to receive dividends (or dividend equivalents) paid with respect to such shares. 6.03 TERMS OF PURCHASE LOAN. (a) Purchase Loan. The promissory note delivered to the Corporation by a Participant in accordance with Section 6.01 of these rules shall evidence a Purchase Loan in principal amount equal to such Participant's Purchase Amount reduced by the amount of cash paid, if any. Unless the Committee shall otherwise determine prior to the applicable Purchase Date, each Purchase Loan shall have a term not to exceed ten years, and be secured by the shares of Purchased Stock acquired with such Purchase Loan. (b) Interest on Purchase Loan. Until the Participant's Purchase Loan is paid in full, or otherwise satisfied or discharged in full, interest on the outstanding balance of the Purchase Loan shall accrue at a fixed rate per annum equal to the minimum rate required to avoid imputed interest under the applicable provisions of the Internal Revenue Code of 1986. (c) Repayment of Purchase Loan. No principal or interest payments with respect to a Purchase Loan shall be required prior to the fifth anniversary of the date such Purchase Loan is made; provided, however, that prior to such fifth anniversary, cash dividends on shares of Purchased Stock held as security for such Purchase Loan, and on the related shares of Restricted Stock, shall be applied to pay accrued interest on the Purchase Loan (any non-cash dividends shall remain as part of the collateral securing such Purchase Loan). After such fifth anniversary, level monthly payments of principal and accrued interest with respect to a Purchase Loan shall be required for the remaining term thereof. Unless otherwise determined by the committee, all outstanding principal and interest on a Participant's Purchase Loan shall be immediately due and payable in full upon termination of the Participant's employment with the Corporation and its affiliates. All or any portion of the principal and/or interest with respect to a Purchase Loan may, at the election of the Participant, be paid by the delivery to the Corporation of whole shares of Stock, other than (i) shares of Stock credited to the Participant's account under a company-sponsored defined contribution plan or (ii) shares of Stock subject to outstanding and as yet unexercised stock options. For purposes of the immediately preceding sentence, shares of Stock shall be valued at the Fair Market Value of such shares on the Business Day immediately preceding the date such shares are delivered to the Corporation. (d) Other Terms. The promissory notes evidencing the Purchase Loans shall contain such other terms and conditions as the Committee may determine, including, without limitation, any special terms relating to the retirement of a Participant prior to the expiration of the term of one or more Purchase Loans. 6 7 6.04 STOCK CERTIFICATES. As promptly as administratively feasible after each Purchase Date, the Corporation shall deliver to each Participant one or more stock certificates for the number of shares of Stock purchased by such Participant as of such Purchase Date in accordance with this Article VI. The Participant shall then deliver certificates representing a number of shares with a value equal to the principal amount of the Purchase Loan to the Corporation in pledge for the related Purchase Loan along with an executed security agreement in such form as the Committee shall specify. Upon satisfaction in full of the Purchase Loan, the certificates shall be delivered to the Participant free and clear of any restrictions except for any restrictions that may be imposed by law. ARTICLE VII. RESTRICTED STOCK 7.01 RESTRICTED STOCK AWARDS. Beginning with the 2000 SARP Year, as of each Purchase Date, there shall automatically be granted to any Participant who purchases Purchased Stock as of such Purchase Date pursuant to Article VI of these rules an award of three-fourths of a share of Restricted Stock for each one share of Purchased Stock. The Purchase Date shall be the Date of Grant of such Restricted Stock. Beginning with the 2000 SARP Year, as of any date that a Participant delivers a Designation Notice to the Corporation, in accordance with Section 5.02 of these rules, designating shares of Stock as Designated Stock, there shall automatically be granted to such Participant an award of three-fourths of a share of Restricted Stock for each one share of Designated Stock. The date of delivery of such Designation Notice shall be the Date of Grant of such Restricted Stock. The terms of all such Restricted Stock awards shall be set forth in an Award Agreement between the Corporation and the Participant which shall contain such forfeiture periods and conditions, restrictions and other provisions, not inconsistent with these rules, as shall be determined by the Committee. (a) Issuance of Restricted Stock. As soon as practicable after the Date of Grant of Restricted Stock, the Corporation shall cause to be transferred on the books of the Corporation shares of Stock, registered on behalf of the Participant, evidencing such Restricted Stock, but subject to forfeiture to the Corporation retroactive to the Date of Grant if an Award Agreement delivered to the Participant by the Corporation with respect to the Restricted Stock is not duly executed by the Participant and timely returned to the Corporation. Until the lapse or release of all restrictions applicable to an award of Restricted Stock, the stock certificates representing such Restricted Stock shall be held in custody by the Corporation or its designee. (b) Stockholder Rights. Beginning on the Date of Grant of the Restricted Stock and subject to execution of the Award Agreement as provided in Section 7.01(a) of these rules, the Participant shall become a stockholder of the Corporation with respect to all Stock subject to the Award Agreement and shall have all of the rights of a stockholder, including, but not limited to, the right to vote such Stock and the right to receive dividends (or dividend equivalents) paid with respect to such Stock; provided, however, that any Stock distributed as a dividend or otherwise with respect to any Restricted Stock as to which the restrictions have not yet lapsed shall be subject to the same restrictions as such Restricted Stock and shall be held as prescribed in Section 7.01(a) of these rules. (c) Restriction on Transferability. None of the Restricted Stock may be assigned, transferred (other than by will or the laws of descent and distribution), pledged, sold or otherwise disposed of prior to lapse or release of the restrictions applicable thereto. 7 8 (d) Delivery of Stock Upon Release of Restrictions. Upon expiration or earlier termination of the forfeiture period without a forfeiture, the satisfaction of the Purchase Loan, if any, for the Related Stock and the satisfaction of or release from any other conditions prescribed by the Committee, the restrictions applicable to the Restricted Stock shall lapse. As promptly as administratively feasible thereafter, subject to the requirements of Section 8.02 of these rules, the Corporation shall deliver to the Participant, or, in case of the Participant's death, to the Participant's legal representatives, one or more stock certificates for the appropriate number of shares of Stock, free of all such restrictions, except for any restrictions that may be imposed by law. 7.02 TERMS OF RESTRICTED STOCK. (a) Forfeiture of Restricted Stock. Subject to Section 7.02(b) of these rules, all Restricted Stock shall be forfeited and returned to the Corporation and all rights of the Participant with respect to such Restricted Stock shall cease and terminate in their entirety if during the forfeiture period (i) the Participant transfers, sells or otherwise disposes of the Related Stock other than to a Permitted Transferee or in a transaction constituting a Change in Control or (ii) the employment of the Participant with the Corporation and its affiliates terminates for any reason or (iii) the Participant defaults on the Purchase Loan, if any, for the Related Stock. Unless the Committee, in its sole discretion, provides otherwise in the applicable Award Agreement, the forfeiture period for any shares of Restricted Stock shall be five years from the Date of Grant of such Restricted Stock. Notwithstanding the foregoing, in the event of the discharge by the Corporation and its subsidiaries of a Participant without Cause or termination of a Participant's employment by reason of death, Disability or retirement pursuant to the retirement policy of the Corporation or its applicable subsidiaries, all forfeiture restrictions imposed on Restricted Stock shall immediately and fully lapse. In addition, upon the occurrence of a Change in Control, all forfeiture restrictions imposed on Restricted Stock shall immediately and fully lapse. (b) Waiver of Forfeiture Period. Notwithstanding anything contained in this Article VII to the contrary, the Committee may, in its sole discretion, waive the forfeiture conditions set forth in any Award Agreement under appropriate circumstances and subject to such terms and conditions (including forfeiture of a proportionate number of the shares of Restricted Stock) as the Committee may deem appropriate, provided that the Participant shall at that time have completed at least one year of employment after the Date of Grant. ARTICLE VIII. MISCELLANEOUS 8.01 LIMITATIONS ON TRANSFER. The rights and interest of a Participant under the SARP may not be assigned or transferred other than by will or the laws of descent and distribution. During the lifetime of a Participant, only the Participant personally may exercise rights under the SARP. 8.02 TAXES. The Corporation shall be entitled to withhold (or secure payment from the Participant in lieu of withholding) the amount of any withholding or other tax required by law to be withheld or paid by the Corporation with respect to any Stock issuable under the SARP, or with respect to any income recognized upon the lapse of restrictions applicable to Restricted Stock, and the Corporation may defer issuance of Stock hereunder until and unless indemnified to its satisfaction against any liability for any such tax. The amount of such withholding or tax payment shall be determined by the Committee or its delegate and shall be payable by the Participant at such time as the Committee determines. The Committee shall prescribe in each Award Agreement one or more methods by which the Participant will be permitted to satisfy his or her tax withholding 8 9 obligation, which methods may include, without limitation, the payment of cash by the Participant to the Corporation and the withholding, at the appropriate time, of shares of Stock otherwise issuable to the Participant in a number sufficient, based upon the Fair Market Value of such Stock, to satisfy such tax withholding requirements. 8.03 LEGENDS. All certificates for Stock delivered under the SARP shall be subject to such transfer restrictions set forth in these rules and such other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Stock is then listed and any applicable federal or state securities law, and the Committee may cause a legend or legends to be endorsed on any such certificates making appropriate references to such restrictions. 8.04 AMENDMENT AND TERMINATION. The Committee shall have complete power and authority to amend or terminate these rules at any time it is deemed necessary or appropriate. No termination or amendment of the SARP may, without the consent of the Participant to whom any award shall theretofore have been granted under the SARP, adversely affect the right of such individual under such award; provided, however, that the Committee may, in its sole discretion, make such provision in the Award Agreement for amendments which, in its sole discretion, it deems appropriate. #### 9 EX-10.8 4 BENEFIT RESTORATION PLAN 1 Exhibit 10.8 ALLEGHENY TECHNOLOGIES INCORPORATED BENEFIT RESTORATION PLAN 2 PURPOSE The purpose of the Allegheny Technologies Incorporated Benefit Restoration Plan is to provide certain corporate employees of Allegheny Technologies Incorporated and salaried employees of its wholly owned subsidiary, Allegheny Ludlum Corporation ("Allegheny Ludlum"), who participate in the RSP (as defined below) with benefits and retirement income equal to that which they would have received (i) but for the limitations imposed on plans which are qualified within the meaning of Section 401(a) of the Code by Sections 401(a)(17), 401(k), 401(m), 402(g) or 415 of the Internal Revenue Code of 1986, as amended, and (ii) but for participation in the Allegheny Technologies Incorporated Executive Deferred Compensation Plan (the "Executive Deferred Compensation Plan"), by supplementing, on an unfunded basis, amounts payable under such qualified plans with amounts paid under this Plan. Allegheny Ludlum sponsored this Benefit Restoration Plan for several years with regard to its defined benefit plan and such arrangements are set forth herein as the Defined Benefit Portion. However, in 1989, due to changes in Allegheny Ludlum's benefit focus and, in light of the effects of then recent federal legislation, Allegheny Ludlum amended this Plan by adding the Defined Contribution Portion effective January 1, 1989. In connection with the business combination between the Allegheny Ludlum and Teledyne, Inc. to form Allegheny Technologies Incorporated, formerly known as Allegheny Teledyne Incorporated ("Allegheny Technologies"), certain employees of Allegheny Ludlum and Teledyne, Inc. were transferred to a payroll of Allegheny Technologies to perform various management and corporate staff functions. All former employees of Teledyne, Inc. who transferred to Allegheny Technologies' payroll began to participate in the RSP and former Teledyne, Inc. employees ceased to accrue benefits under any defined benefit plan. Such transferred employees were made participants in this Plan effective upon the business combination. In addition, effective January 1, 1999, employees covered by this Plan were included in a group of employees permitted to participate in the Allegheny Technologies Incorporated Executive Deferred Compensation Plan under which eligible employees may defer all or any portion (subject to certain income and payroll tax limitations) of their compensation. Accordingly, effective January 1, 1999 this Plan was amended to restore to employees making deferrals under the Executive Deferred Compensation Plan amounts lost and/or foregone as RSP contributions. ARTICLE I. DEFINITIONS 1.01 "Administrator" shall mean the person or committee appointed by the Board for such purpose under Article VI. 1.02 "ALPS" shall mean the Allegheny Ludlum Planned Savings Plan and, except as otherwise noted to the contrary, the S and S Plan (in each case predecessor plans to the RSP) as in effect prior to the merger of the ALPS and the Allegheny Ludlum Corporation Retirement Security Plan. 1.03 "Code" shall mean the Internal Revenue Code of 1986, as the same shall be amended from time to time. 2 3 1.04 "Corporation" shall mean Allegheny Technologies Incorporated. 1.05 "DCP" shall mean the Allegheny Technologies Executive Deferred Compensation Plan. 1.06 "Defined Contribution Portion" shall mean that portion of this Plan which relates to the restoration of aggregate benefits under the RSP or, for events prior to the merger of the ALPS and RSP, ALPS or an S and S Plan. 1.07 "Employee" shall mean any employee of the Corporation and employees of Allegheny Ludlum Corporation and employees of Teledyne, Inc. assigned to the corporate offices of Allegheny Technologies Incorporated. 1.08 "Limitations" shall mean any limitation, with respect to a qualified plan, within the meaning of Section 401(a) of the Code, on the amount of contributions or the accrual or payment of benefits to or on behalf of a Participant as imposed under Section 401(a)(17), Section 401(k), Section 401(m), Section 402(g), Section 415 and/or under any other Section of the Code hereinafter adopted which shall be the successor of any of them or have the effect of any of them. 1.09 "Matching Contributions" shall mean the contributions made by the Corporation under the Savings Portion (or its predecessor, ALPS) based on a percentage of deferrals made by a Participant. 1.10 "Participant" shall mean any Employee who meets the conditions for participation set forth in Article III. 1.11 "Pension Plan" shall mean the Allegheny Ludlum Corporation Salaried Pension Plan and, from and after December 31, 1996, that portion of the Allegheny Technologies Incorporated Pension Plan commonly referred to as the Allegheny Ludlum Corporation Salaried Pension Plan. 1.12 "Plan" shall mean this Allegheny Technologies Incorporated Benefit Restoration Plan, formerly known as the Allegheny Ludlum Corporation Benefit Restoration Plan. 1.13 "Plans" shall mean, collectively, the applicable of ALPS, an S and S Plan, the Pension Plan or the RSP. 1.14 "RSP" shall mean the Allegheny Technologies Incorporated Retirement Savings Plan (including in such reference the Retirement Portion and the Savings Portion). 1.15 "Retirement Portion" shall mean the portion of the RSP under which the Corporation (or an affiliate which employs an Employee) makes contributions to the Account of a Participant determined by multiplying the amount of compensation earned by the rate of 3 4 corporate contributions then in effect and, for events prior to the merger of the ALPS and the Allegheny Ludlum Retirement Savings Plan, the Allegheny Ludlum Retirement Security Plan. 1.16 "S and S Plan" shall mean the applicable, if any, of the Savings and Security Plan of the Special Materials Division or of the Tubular Products Division. 1.17 "Savings Portion" shall mean the portion of the RSP under which a Participant may defer compensation and the Corporation (or an affiliate which employs the Employee) makes contributions based on a percentage of the amount deferred by the Participant, and for events prior to the merger of the ALPS and the Allegheny Ludlum Corporation Retirement Security Plan, the ALPS. ARTICLE II. EFFECTIVE DATE 2.01 Effective Date. The Effective Date of this Plan with respect to the Defined Benefit Portion is January 1, 1986 and with respect to the Defined Contribution Portion (i) as it relates to the RSP and/or to the Savings and Security Plan of the Tubular Products Division, is January 1, 1989; (ii) as it relates to all other plans of Allegheny Ludlum Corporation, is January 1, 1990; (iii) with regard to corporate employees of Allegheny Technologies Incorporated (then known as Allegheny Teledyne), August 15, 1996; and (iv) with regard to deferrals under the Allegheny Technologies Incorporated Executive Deferred Compensation Plan (then Allegheny Teledyne), January 1, 1999. ARTICLE III. PARTICIPATION 3.01 Group Eligible to Participate. Prior to January 1, 1998, participation was limited to that group of highly compensated Employees who were eligible to participate and were designated as participants in the Allegheny Ludlum Corporation Additional Compensation Plan (or a successor plan as in effect from time to time). Since January 1, 1998, participation is limited to that group of highly compensated Employees eligible to participate in the Annual Incentive Program (or a successor plan as in effect from time to time) comparable to the Annual Incentive Plan or its successor. 3.02 Contributions by Participants. Participants shall not be permitted to make contributions in any form to this Plan. ARTICLE IV. DEFINED BENEFIT PORTION 4.01 Restoration of Pension Plan Benefits. In respect of each Participant who participates or participated in the Pension Plan, the Corporation agrees to pay to the Participant, without requirement for Participant contribution upon his retirement, a retirement benefit equal to the difference between (a) and (b): (a) the maximum life annuity to which the participant would be entitled under the Pension Plan upon his or her retirement without regard to the Limitations; less 4 5 (b) the life annuity which is actually paid to the participant under the Pension Plan after giving effect to the Limitations. 4.02 Elections and Calculations. Any election made by a Participant pursuant to the Pension Plan relating to his benefit thereunder shall be deemed an election hereunder and the Participant shall be deemed to have made the same election hereunder without requirement of additional elections. All calculations pursuant to the Defined Benefit Portion shall be consistent with those used in determining benefits under the Pension Plan, including, but not limited to, calculation of actuarial equivalents for optional forms of benefits and reductions for early payment. 4.03 Reports. The Corporation may, but shall not be required to, send reports from time to time to each Participant regarding the amounts to which he is entitled under this Plan. 4.04 Payment of Restored Defined Benefit Portion Benefits. When a Participant retires within the meaning of the Pension Plan or dies, the Corporation shall pay to the Participant or his or her beneficiary, as the case may be, the amounts determined under this Article IV in the same manner, at the same times and frequencies and subject to the same terms and conditions (except as set forth herein) which the Participant's benefits are paid under the Pension Plan. 4.05 Special Calculation of Grandfathered Amount under Pension Plan. In calculating the amount restored under the Defined Benefit Portion for a Participant who meets the grandfather provisions under the Pension Plan as of December 31, 1988, the Administrator of the Plan shall calculate the amount set forth in Section 4.01(a) using the formula in effect at any time on or after January 1, 1986 which produces the greatest benefit without regard to any Limitations. ARTICLE V. DEFINED CONTRIBUTION PORTION 5.01 Restoration of Savings Portion. The applicable, if any, of the following amounts shall be credited to a Participant's Defined Contribution Portion in addition to amounts under Section 5.02: (a) Restoration of Deferrals for Effect of Limitations. For each calendar year beginning on or after January 1, 1990, in the event a Participant is deferring or contributing the maximum amount then permitted under the Limitations and such contributed amount is less than the amount which could be deferred or contributed by the Participant as Basic Savings under the Savings Portion without regard to the Limitations, the Participant's Defined Contribution Portion shall be credited with an amount equal to the difference between (i) the amount which would have been contributed as a Corporation matching contribution under the Savings Portion of the RSP if the Participant was permitted to contribute 100% of Basic Savings without regard to the Limitations and (ii) the amount actually contributed on the Participant's behalf as matching contributions under ALPS or the Savings portion of the RSP. 5 6 (b) Restoration of Matching Contributions for Participation in the DCP. For each calendar year beginning on or after January 1, 1999, a Participant's Defined Contribution Portion shall be credited with an amount equal to the amount of Matching Contributions the Participant would have received under the Savings Portion if his or her deferrals, if any, under the DCP were compensation for purposes of the Savings Portion and the Participant was permitted to contribute 100% of Basic Savings with respect to deferrals under the DCP without regard to the Limitations. 5.02 Restoration of Retirement Portion of the RSP. The applicable, if any, of the following amounts shall be credited to a Participant's Defined Contribution Portion in addition to amounts under Section 5.01: (a) Restoration of Corporation Contributions for Effect of the Limitations. For each calendar year beginning on or after January 1, 1989, a Participant's Defined Contribution Portion shall be credited with the amount equal to the difference, if any, between (i) the amount which would have been allocated to his or her account under the Retirement Portion (at the rate of Corporation contributions to the Retirement Portion then in effect) without regard to the Limitations and (ii) the amount actually allocated to his or her Account under the Retirement Portion. (b) Restoration of Corporation Contributions for Deferrals under the DCP. For each calendar year beginning on or after January 1, 1999, a Participant's Defined Contribution Portion shall be credited with an amount equal to the difference, if any, between (i) the amount which would have been allocated to his or her Account under the Retirement Portion (at the rate of Corporation contributions to the Retirement Portion then in effect) if the Participant's deferrals under the DCP, if any, were compensation for purposes of the Retirement Portion and (ii) the amount actually allocated to his or her Account under the Retirement Portion, provided, however, compensation amounts taken into account under Section 5.02(a) shall not be taken into account a second time under this Section 5.02(b). 5.03 Earnings. Balances in Participant's Defined Contribution Portion shall be credited with earnings as of the last day of each calendar year at the rate then in effect under the Fixed Income Fund under the RSP. 5.04 Accounting. The Administrator shall establish on its records, for bookkeeping purposes, an account for each Participant receiving credits under this Deferred Contribution Portion to record the amount credited as contributions under Section 5.01 and/or 5.02 and earnings, if any, pursuant to Section 5.03. The Administrator shall post any contributions to such bookkeeping account within thirty (30) days of the date a contribution would have been made to the appropriate of the Plans under this Article V. The Administrator shall respond to any inquiry of any Participant concerning the status of his account within thirty (30) days of receipt thereof. 5.05 No Withdrawals or Loans. No withdrawals of or loans against any balance under the Plan may be made at any time by a Participant. 6 7 5.06 Payment of Restored Defined Contribution Portion Benefit. (a) Death. In the event of a Participant's death, his then balance in his or her Defined Contribution Portion (including any Corporation contributions for such calendar year pursuant to Section 5.01 and/or Section 5.02, whether or not then actually made, net of withholding of applicable federal, state and local taxes) shall be distributed in a single cash payment to his beneficiary designated pursuant to the ALPS Plan or RSP, as applicable, as soon as administratively feasible after the Administrator receives notice of such death. (b) Disability, Retirement or Other Severance from Service. In the event of the Participant's Disability, Retirement or other severance from service, his then balance in his or her Defined Contribution Portion (including Corporation contributions for such calendar year pursuant to Section 5.01 and/or Section 5.02, whether or not then actually made, net of withholding or applicable federal, state and local income tax) shall be distributed in a single cash payment to him as soon as administratively feasible after the Administrator receives notice of such event; provided, however, with the consent of the Administrator, the Participant may elect to receive such amount at a later time and/or in a different form of payment. ARTICLE VI. ADMINISTRATION 6.01 Administration. The Plan shall be administered by the Administrator appointed for such purpose by the Board who shall have the power and duty to interpret the Plan and to make such rules and regulations as the Administrator, in its discretion, shall deem appropriate. The Administrator may retain such experts, consultants, or advisors as it, in its discretion deems necessary or appropriate to the administration of the Plan and/or may delegate to Allegheny Technologies Incorporated or to employees of Allegheny Technologies Incorporated such duties as it may deem necessary or appropriate. Any determination of the Administrator shall be final, conclusive and binding for all parties. ARTICLE VII. AMENDMENT AND TERMINATION 7.01 Amendment and Termination. Allegheny Technologies Incorporated shall have the right to amend or terminate this Plan at any time; provided that no amendment shall be made which would have the effect of decreasing the amount payable to any Participants hereunder. ARTICLE VIII. ASSIGNMENT 8.01 Assignment. No benefit or other right under or created by this Plan shall be assignable by any Participant or the Participant's beneficiary by pledge or otherwise. Any attempt to assign, pledge or otherwise dispose of or anticipate benefits under this Plan shall be void. 7 8 ARTICLE IX. BENEFITS UNFUNDED 9.01. Benefits Unfunded. The benefits provided under this Plan shall be unfunded. All payments of benefits hereunder shall be made by the Corporation from general assets and the Corporation will not be obligated to establish any special or separate fund or make other segregation of assets to assure the payment of any benefits hereunder. In the event the Corporation establishes any fund or segregation, no party who is or becomes entitled to receive amounts hereunder shall have any right to assert any claim, levy or lien thereon or assert any right thereto unless such right is specifically set forth in writing. The rights of any party to receive payments of any benefits hereunder shall be no greater than the rights of an unsecured creditor of the Corporation. ARTICLE X. MISCELLANEOUS 10.01 Applicable Law. This Plan shall be governed by, and construed in accordance with, the law of the Commonwealth of Pennsylvania, except with regard to its principles of conflicts of laws or to the extent that the law of the Commonwealth of Pennsylvania shall have been specifically preempted by federal law. 10.02 Incapacity of Recipient of Benefits. If any person entitled to receive benefits hereunder shall be physically or mentally incapable of receiving or acknowledging receipt of any payment of benefits, the Corporation, upon the receipt of satisfactory evidence that such incapacitated person is so incapacitated and that another person or institution is maintaining him or her and that no guardian or committee has been appointed for him or her, may provide for such payment of benefits hereunder to such person or institution maintaining him or her, and such payments so made shall be deemed for every purpose to have been made to such incapacitated person. 10.03 Liability of Officers and Directors of the Corporation. No past, present or future officer or director of the Corporation shall be personally liable to any Participant, beneficiary or other person under any provision of this Plan. 10.04 Assets Owned by the Corporation. Nothing contained herein shall be deemed to give any Participant or his beneficiary any interest in any specific property of the Corporation or any right except to receive such distributions as are expressly provided for in this Plan. 10.05 Withholding. The payment of any benefits under this Plan shall be net of any federal, state and local taxes which the Corporation is required to withhold. 10.06 Meaning of Certain Words. As used herein any gender shall include all other genders and the singular shall include the plural and the plural shall include the singular in all cases where such meaning would be appropriate. The terms "herein", "hereto", "hereunder", and the like shall be deemed to refer to this Plan as a whole and not to any particular paragraph or other subdivision of this Plan. 8 EX-10.22 5 FORM OF CHANGE IN CONTROL SEVERANCE AGREEMENT 1 Exhibit 10.22 FORM OF CHANGE IN CONTROL SEVERANCE AGREEMENT THIS AGREEMENT ("Agreement") is made and entered into as of this 10th day of February, 2000 (the "Effective Date"), by and among Allegheny Technologies Incorporated, a Delaware corporation (hereinafter referred to as the "Company"), and the individual identified on the signature page of this Agreement (the "Executive"). W I T N E S S E T H: WHEREAS, the Board of Directors of the Company (the "Board") has approved the Company entering into this agreement providing for certain severance protection for the Executive following a Change in Control (as hereinafter defined); WHEREAS, the Board of the Company believes that, should the possibility of a Change in Control arise, it is imperative that the Company be able to receive and rely upon the Executive's advice, if requested, as to the best interests of the Company and its stockholders without concern that the Executive might be distracted by the personal uncertainties and risks created by the possibility of a Change in Control; and WHEREAS, in addition to the Executive's regular duties, the Executive may be called upon to assist in the assessment of a possible Change in Control, advise management and the Board of the Company as to whether such Change in Control would be in the best interests of the Company and its stockholders, and to take such other actions as the Board determines to be appropriate; NOW, THEREFORE, to assure the Company that it will have the continued dedication of the Executive and the availability of Executive's advice and counsel notwithstanding the possibility, threat, or occurrence of a Change in Control, and to induce the Executive to remain in the employ of the Company, and for good and valuable consideration and the mutual covenants set forth herein, the Company and the Executive, intending to be legally bound, agree as follows: Article I. Definitions 1.1 Definitions. Whenever used in this Agreement, the following terms shall have the meanings set forth below when the initial letter of the word or abbreviation is capitalized: (a) "Accrued Obligations" means, as of the Effective Date of Termination, the sum of (i) the Executive's Base Compensation through and including the Effective Date of Termination, (ii) the amount of any bonus, incentive compensation, deferred compensation and other cash compensation accrued by the Executive as of the Effective Date of Termination under the terms of any such arrangement and not then paid, including, but not limited to, AIP accrued but not 2 paid for a year ending prior to the year in which occur, the Effective Date of Termination, (iii) unused vacation time monetized at the then rate of Base Compensation, (iv) expense reimbursements or other cash entitlements, (v) amounts accrued under any qualified, non-qualified or supplemental employee benefit plan, payroll practice, policy or perquisite. (b) "AIP" means the Company's Annual Incentive Plan as it exists on the date hereof and as it may be amended, supplemented or modified from time to time or any successor plan. (c) "Base Compensation" shall mean (1) the highest annual rate of base salary of the Executive within the time period consisting of two years prior to the date of a Change in Control and the Effective Date of Termination and (2) the AIP bonus target for performance in the calendar year that a Change in Control occurs or the actual AIP payment for the year immediately preceding the Change in Control, whichever is higher. (d) "Beneficiary" shall mean the persons or entities designated or deemed designated by the Executive pursuant to Section 7.2 herein. (e) "Board" shall mean the Board of Directors of the Company. (f) For purposes hereof, the term "Cause" shall mean the Executive's conviction of a felony, breach of a fiduciary duty involving personal profit to the Executive or intentional failure to perform stated duties reasonably associated with the Executive's position; provided, however, an intentional failure to perform stated duties shall not constitute Cause unless and until the Board provides the Executive with written notice setting forth the specific duties that, in the Board's view, the Executive has failed to perform and the Executive is provided a period of thirty (30) days to cure such specific failure(s) to the reasonable satisfaction of the Board. (g) For the purposes of this Agreement, "Change in Control" shall mean, and shall be deemed to have occurred upon the occurrence of, any of the following events: (1) The Company acquires actual knowledge that (x) any Person, other than the Company, a subsidiary, any employee benefit plan(s) sponsored by the Company or a subsidiary, has acquired the Beneficial Ownership, directly or indirectly, of securities of the Company entitling such Person to 20% or more of the Voting Power of the Company, or (y) any Person or Persons agree to act together for the purpose of acquiring, holding, voting or disposing of securities of the Company or to act in concert or otherwise with the purpose or effect of changing or influencing control of the Company, or in connection with or as Beneficial Ownership, directly or indirectly, of securities of the Company entitling such Person(s) to 20% or more of the Voting Power of the Company; or (2) The completion of a Tender Offer is made to acquire securities of the Company entitling the holders thereof to 20% or more of the Voting Power of the Company; or -2- 3 (3) The occurrence of a successful solicitation subject to Rule 14a-11 under the Securities Exchange Act of 1934 as amended (or any successor Rule) (the "1934 Act") relating to the election or removal of 50% or more of the members of the Board or any class of the Board shall be made by any person other than the Company or less than 51% of the members of the Board (excluding vacant seats) shall be Continuing Directors; or (4) The occurrence of a merger, consolidation, share exchange, division or sale or other disposition of assets of the Company as a result of which the stockholders of the Company immediately prior to such transaction shall not hold, directly or indirectly, immediately following such transaction a majority of the Voting Power of (i) in the case of a merger or consolidation, the surviving or resulting corporation, (ii) in the case of a share exchange, the acquiring corporation or (iii) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring corporation which, immediately following the transaction, holds more than 20% of the consolidated assets of the Company immediately prior to the transaction; provided, however that (A) if securities beneficially owned by Executive are included in determining the Beneficial Ownership of a Person referred to in Section (i), (B) if Executive is named pursuant to Item 2 of the Schedule 14D-1 (or any similar successor filing requirement) required to be filed by the bidder making a Tender Offer referred to in Section (ii) or (C) if Executive is a "participant" as defined in Instruction 3 to Item 4 of Schedule 14A under the 1934 Act in a solicitation referred to in Section (iii) then no Change of Control with respect to Executive shall be deemed to have occurred by reason of any such event. For the purposes of Section 1(g), the following terms shall have the following meanings: (i) The term "Person" shall be used as that term is used in Section 13(d) and 14(d) of the 1934 Act as in effect on the Effective Date hereof. (ii) "Beneficial Ownership" shall be determined as provided in Rule 13d-3 under the 1934 Act as in effect on the Effective Date hereof. (iii) A specified percentage of "Voting Power" of a company shall mean such number of the Voting Shares as shall enable the holders thereof to cast such percentage of all the votes which could be cast in an annual election of directors (without consideration of the rights of any class of stock, other than the common stock of the company, to elect directors by a separate class vote); and "Voting Shares" shall mean all securities of a company entitling the holders thereof to vote in an annual election of directors (without consideration of the rights of any class of stock, other than the common stock of the company, to elect directors by a separate class vote). -3- 4 (iv) "Tender Offer" shall mean a tender offer or exchange offer to acquire securities of the Company (other than such an offer made by the Company or any subsidiary), whether or not such offer is approved or opposed by the Board. (v) "Continuing Directors" shall mean a director of the Company who either (x) was a director of the Company on the date hereof or (y) is an individual whose election, or nomination for election, as a director of the Company was approved by a vote of at least two-thirds of the directors then still in office who were Continuing Directors (other than an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors of the Company which would be subject to Rule 14a-11 under the 1934 Act, or any successor Rule). (h) "Code" shall mean the Internal Revenue Code of 1986, as amended. (i) "Effective Date of Termination" shall mean the date on which the Executive's employment terminates in a circumstance in which Section 2.1 provides for Severance Benefits (as defined in Section 2.1). (j) "Good Reason" shall mean, without the Executive's express written consent, the occurrence of any one or more of the following: (1) A material diminution of the Executive's authorities, duties, responsibilities, or status (including offices, titles, or reporting relationships) as an employee of the Company from those in effect as of one hundred eighty (180) days prior to the Change in Control or as of the date of execution of this Agreement if a Change in Control occurs within one hundred eighty (180) days of the execution of this Agreement (the "Reference Date") or the assignment to the Executive of duties or responsibilities inconsistent with his position as of the Reference Date, other than an insubstantial and inadvertent act that is remedied by the Company promptly after receipt of notice thereof given by the Executive, and other than any such alteration which is consented to by the Executive in writing; (2) The Company's requiring the Executive to be based at a location in excess of thirty-five (35) miles from the location of the Executive's principal job location or office immediately prior to the Change in Control, except for required travel on the Company's business to an extent substantially consistent with the Executive's present business obligations; (3) A reduction in the Executive's annual salary or any material reduction by the Company of the Executive's other compensation or benefits from that in effect on the Reference Date or on the date of the Change in Control, whichever is greater; (4) The failure of the Company to obtain an agreement satisfactory to the Executive from any successor to the Company to assume and agree to perform the Company's obligations under this Agreement, as contemplated in Article 5 herein; and -4- 5 (5) Any purported termination by the Company of the Executive's employment that is not effected pursuant to a Notice of Termination satisfying the requirements of Section 2.6 below, and for purposes of this Agreement, no such purported termination shall be effective. The Executive's right to terminate employment for Good Reason shall not be affected by the Executive's (A) incapacity due to physical or mental illness or (B) continued employment following the occurrence of any event constituting Good Reason herein. (k) "PSP" means the Company's Performance Share Program as it exists on the date hereof and as it may be, amended, supplemented, or modified from time to time or any successor plan. (l) "SARP" means the Company's Stock Acquisition and Retention Program as it exists on the date hereof and as it may be, amended, supplemented or modified from time to time or any successor plan. (m) "Severance Compensation" means ______ times Base Compensation. Article II. Severance Benefits 2.1 Right to Severance Benefits. The Executive shall be entitled to receive from the Company severance benefits described in Section 2.2 below (collectively, the "Severance Benefits") if a Change in Control shall occur and within twenty-four (24) months after the Change in Control either of the following shall occur: (a) an involuntary termination of the Executive's employment with the Company without Cause; or (b) a voluntary termination of the Executive's employment with the Company for Good Reason. 2.2 Severance Benefits. In the event that the Executive becomes entitled to receive Severance Benefits, as provided in Section 2.1, the Company shall provide the Executive with total Severance Benefits as follows (but subject to Sections 2.5 and 2.6): (a) The Executive shall receive a single lump sum cash Severance Compensation payment within thirty (30) days of the Effective Date of Termination. (b) The Executive shall receive the Accrued Obligations. (c) The Executive shall receive as AIP for the year in which the termination occurs a lump sum cash payment paid within thirty (30) days of the Effective Date of Termination equal to that which would have been paid if corporate and personal performance had achieved 120% of target -5- 6 objectives established for the annual period in which the Change in Control occurred, multiplied by a fraction, the numerator of which is the number of days elapsed in the current fiscal period to the Effective Date of Termination, and the denominator of which is 365. (d) The Executive shall receive a lump sum payment paid within thirty (30) days of the Effective Date of Termination (in accordance with the then current PSP; provided that any portion of the PSP award which would have been paid in stock under the PSP is to be paid in cash based on the current market value of the stock) which payment will be determined based upon actual performance for the number of full years of completed then current PSP measurement period(s) at the time of the Effective Date of Termination and for years not yet completed in the then current PSP measurement period(s) Executive will be assumed to have met all applicable goals at 120% of performance. (e) All welfare benefits, including medical, dental, vision, life and disability benefits pursuant to plans under which the Executive and/or the Executive's family is eligible to receive benefits and/or coverage shall be continued for a period of thirty-six (36) months after the Effective Date of Termination. Such benefits shall be provided to the Executive at no less than the same coverage level as in effect as of the date of the Change in Control. The Company shall pay the full cost of such continued benefits, except that the Executive shall bear any portion of such cost as was required to be borne by key executives of the Company generally at the date of the Change in Control. Notwithstanding the foregoing, the benefits described in this Section 2.2(e) may be discontinued prior to the end of the periods provided in this Section to the extent, but only to the extent, that the Executive receives substantially similar benefits from a subsequent employer. In the event any insurance carrier shall refuse to provide coverage to a former employee, the Company shall secure comparable coverage or may self-insure the benefits if it pays such benefits together with a payment to the Executive equal to the federal income tax consequences of payments to a former highly compensated employee from a discriminatory self-insured plan. (f) The Executive shall be entitled to reimbursement for actual payments made for professional outplacement services or job search not to exceed $_________ in the aggregate. (g) In determining the Executive's pension benefit following entitlement to a Severance Benefit, the Executive shall be deemed to have satisfied the age and service requirements for full vesting under the Company's qualified (within applicable legal parameters), non-qualified and supplemental pension plans as of the Effective Date of Termination such that the -6- 7 Executive shall be entitled to receive the full accrued benefit under all such plans in effect as of the date of the Change in Control, without any actuarial reduction for early payment. 2.3. Stock Options. All Company stock options previously granted to the Executive shall be fully vested and exercisable immediately upon a Change in Control. Such options shall be exercisable for the remainder of the term established by the Company's stock option plan as if the options had vested in accordance with the normal vesting schedule and the Executive had remained an employee of the Company. Company stock acquired pursuant to any such exercise may be sold by the Executive free of any Company restrictions, whatsoever (other than those imposed by federal and state securities laws). 2.4. SARP. In the event of entitlement to a Severance Benefit, all forfeiture restrictions on all Company stock purchased by or granted to the Executive under the Company's SARP shall lapse and all shares of restricted stock shall vest. All of the foregoing shares may be sold by the Executive free of any Company restrictions whatsoever (other than those imposed by federal and state securities laws). Any promissory notes of Executive under the SARP shall be paid off by the Executive within ninety (90) days after Executive's receipt of the Severance Benefits. 2.5. Termination for any Other Reason. If the Executive's employment with the Company is terminated under any circumstances other than those set forth in Section 2.1, including without limitation by reason of retirement, death, disability, discharge for Cause or resignation without Good Reason, or any termination, for any reason, that occurs prior to a Change in Control (other than as provided below) or after twenty-four (24) months following a Change in Control, the Executive shall have no right to receive the Severance Benefits under this Agreement or to receive any payments in respect of this Agreement. In such event Executive's benefits, if any, in respect of such termination shall be determined in accordance with the Company's retirement, survivor's benefits, insurance, and other applicable plans, programs, policies and practices then in effect. Notwithstanding anything in this Agreement to the contrary, if the Executive's employment with the Company is terminated at any time from three (3) to eight (8) months prior to the date on which a Change in Control occurs either (i) by the Company other than for Cause or (ii) by the Executive for Good Reason, and it is reasonably demonstrated that termination of employment (a) was at the request of an unrelated third party who has taken steps reasonably calculated to effect a Change in Control, or (b) otherwise arose in connection with or in anticipation of the Change in Control, then for all purposes of this Agreement the termination shall be deemed to have occurred as if immediately following a Change in Control for Good Reason and the Executive shall be entitled to Severance Benefits as provided in Section 2.2 hereof. Notwithstanding anything in this Agreement to the contrary, if the Executive's employment with the Company is terminated at any time within three (3) months prior to the date on which a Change in Control occurs either (i) by the Company other than for Cause or (ii) by the Executive for Good Reason, such termination shall conclusively be deemed to have occurred as if immediately following a Change in Control for Good Reason and the Executive shall be entitled to Severance Benefits as provided in Section 2.2. hereof. -7- 8 2.6. Notice of Termination. Any termination by the Company for Cause or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. 2.7. Withholding of Taxes. The Company shall withhold from any amounts payable under this Agreement all Federal, state, local, or other taxes that are legally required to be withheld. 2.8. Certain Additional Payments by the Company. (a) Notwithstanding anything in this Agreement to the contrary, in the event it shall be determined that any economic benefit or payment or distribution by the Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up-Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 2.8(c), all determinations required to be made under this Section 2.8, including whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be made by the Company's regular outside independent public accounting firm (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within fifteen (15) business days of the Effective Date of Termination, if applicable, or such earlier time as is requested by the Company. The initial Gross-Up Payment, if any, as determined pursuant to this Section 2.8(b), shall be paid to the Executive within five (5) days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with an opinion that the Executive has substantial authority not to report any Excise Tax or excess parachute payments on Executive's federal income tax return. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm -8- 9 hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 2.8(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after the later of either (i) the date the Executive has actual knowledge of such claim, or (ii) ten (10) days after the Internal Revenue Service issues to the Executive either a written report proposing imposition of the Excise Tax or a statutory notice of deficiency with respect thereto, and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the thirty-day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that the Company desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limitation of the foregoing provisions of this Section 2.8(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to request or accede to a request for an extension of the statute of limitations with respect only to the tax claimed, or pay the tax claimed and sue for a refund or contest the claim in any -9- 10 permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided further that any extension of the statute of limitations requested or acceded to by the Executive at the Company's request and relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 2.8(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 2.8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 2.8(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. (e) In the event that any state or municipality or subdivision thereof shall subject any Payment to any special tax which shall be in addition to the generally applicable income tax imposed by such state, municipality, or subdivision with respect to receipt of such Payment, the foregoing provisions of this Section 2.8 shall apply, mutatis mutandis, with respect to such special tax. -10- 11 Article III. The Company's Payment Obligation 3.1 Payment Obligations Absolute. Except as otherwise provided in the last sentence of Section 2.2(e), the Company's obligation to make the payments and the arrangements provided for in this Agreement shall be absolute and unconditional, and shall not be affected by any circumstances, including, without limitation, any offset, counterclaim, recoupment, defense, or other right that the Company may have against the Executive or any other party. All amounts payable by the Company under this Agreement shall be paid without notice or demand. Each and every payment made hereunder by the Company shall be final, and the Company shall not seek to recover all or any part of such payment from the Executive or from whomsoever may be entitled thereto, for any reasons whatsoever. Notwithstanding any other provisions of this Agreement to the contrary, the Company shall have no obligation to make any payment to the Executive hereunder to the extent, but only to the extent, that such payment is prohibited by the terms of any final order of a Federal or state court or regulatory agency of competent jurisdiction; provided, however, that such an order shall not affect, impair, or invalidate any provision of this Agreement not expressly subject to such order. 3.2 Contractual Rights to Payments and Benefits. This Agreement establishes and vests in the Executive a contractual right to the payments and benefits to which the Executive is entitled hereunder. Nothing herein contained shall require or be deemed to require, or prohibit or be deemed to prohibit, the Company to segregate, earmark, or otherwise set aside any funds or other assets, in trust or otherwise, to provide for any payments to be made or required hereunder. The Executive shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under any provision of this Agreement, and the obtaining of any such other employment shall in no event effect any reduction of the Company's obligations to make the payments and arrangements required to be made under this Agreement, except to the extent provided in the last sentence of Section 2.2(e). Article IV. Enforcement and Legal Remedies 4.1. Consent to Jurisdiction. Each of the parties hereto irrevocably consents to personal jurisdiction in any action brought in connection with this Agreement in the United States District Court for the Western District of Pennsylvania or any Pennsylvania court of competent jurisdiction. The parties also consent to venue in the above forums and to the convenience of the above forums. Any suit brought to enforce the provisions of this Agreement must be brought in the aforementioned forums. 4.2 Cost of Enforcement. In the event that it shall be necessary or desirable for the Executive to retain legal counsel in connection with the enforcement of any or all of Executive's rights to Severance Benefits under Section 2.2 of this Agreement, and provided that the Executive substantially prevails in the enforcement of such rights, the Company, as applicable, shall pay (or the Executive shall be entitled to recover from the Company, as the case may be) -11- 12 the Executive's reasonable attorneys' fees, costs and expenses in connection with the enforcement of Executive's rights. Article V. Binding Effect; Successors The rights of the parties hereunder shall inure to the benefit of their respective successors, assigns, nominees, or other legal representatives. The Company shall require any successor (whether direct or indirect, by purchase, merger, reorganization, consolidation, acquisition of property or stock, liquidation, or otherwise) to all or a significant portion of the assets of the Company, as the case may be, by agreement in form and substance reasonably satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company, as the case may be, would be required to perform if no such succession had taken place. Regardless of whether such agreement is executed, this Agreement shall be binding upon any successor in accordance with the operation of law and such successor shall be deemed the "Company", as the case may be, for purposes of this Agreement. Article VI. Term of Agreement The term of this Agreement shall commence on the Effective Date and shall continue in effect for three (3) full years (the "Term") unless further extended as provided in this Article. The Term of this Agreement shall be automatically and without action by either party extended for one additional calendar month on the last business day of each calendar month so that at any given time there are no fewer than 35 nor more than 36 months remaining unless one party gives written notice to the other that it no longer wishes to extend the Term of this Agreement, after which written notice, the Term shall not be further extended except as may be provided in the following sentence. However, in the event a Change in Control occurs during the Term, this Agreement will remain in effect for the longer of: (i) thirty-six (36) months beyond the month in which such Change in Control occurred; or (ii) until all obligations of the Company hereunder have been fulfilled and all benefits required hereunder have been paid to the Executive or other party entitled thereto. Article VII. Miscellaneous 7.1 Employment Status. Neither this Agreement nor any provision hereof shall be deemed to create or confer upon the Executive any right to be retained in the employ of the Company or any subsidiary or other affiliate thereof. 7.2 Beneficiaries. The Executive may designate one or more persons or entities as the primary and/or contingent Beneficiaries of any Severance Benefits owing to the Executive under this Agreement. Such designation must be in the form of a signed writing acceptable to the Board of Directors of the Company. The Executive may make or change such designation at any time. 7.3 Entire Agreement. This Agreement contains the entire understanding of the Company and the Executive with respect to the subject matter hereof. Any payments actually made under this Agreement in the event of the Executive's termination of employment shall be in -12- 13 lieu of any severance benefits payable under any severance plan, program, or policy of the Company to which the Executive might otherwise be entitled. 7.4 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular, and the singular shall include the plural. 7.5 Notices. All notices, requests, demands, and other communications hereunder must be in writing and shall be deemed to have been duly given if delivered by hand or mailed within the continental United States by first-class certified mail, return receipt requested, postage prepaid, to the other party, addressed as follows: (a) If to the Company: Allegheny Technologies Incorporated 1000 Six PPG Place Pittsburgh, PA 15222-5479 Attn: Senior Vice President, General Counsel and Secretary (b) If to Executive, to the Executive's address set forth at the end of this Agreement. Addresses may be changed by written notice sent to the other party at the last recorded address of that party. 7.6 Execution in Counterparts. The parties hereto in counterparts may execute this Agreement, each of which shall be deemed to be original, but all such counterparts shall constitute one and the same instrument, and all signatures need not appear on any one counterpart. 7.7. Severability. In the event any provision of this Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Agreement, and the Agreement shall be construed and enforced as if the illegal or invalid provision had not been included. Further, the captions of this Agreement are for convenience of reference and not part of the provisions hereof and shall have no force and effect. 7.8. Modification. No provision of this Agreement may be modified, waived, or discharged unless such modification, waiver, or discharge is agreed to in writing and signed by the Executive and on behalf of the Company. 7.9. Applicable Law. To the extent not preempted by the laws of the United States, the laws of the Commonwealth of Pennsylvania, other than the conflict of law provisions thereof, shall be the controlling laws in all matters relating to this Agreement. -13- 14 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. ALLEGHENY TECHNOLOGIES INCORPORATED By: ____________________________________ Title: Senior Vice President, General Counsel and Secretary EXECUTIVE: ________________________________________ Name: Address: -14- EX-10.23 6 EMPLOYEE BENEFITS AGREEMENT 11/29/99 1 Exhibit 10.23 EMPLOYEE BENEFITS AGREEMENT BETWEEN ALLEGHENY TELEDYNE INCORPORATED AND TELEDYNE TECHNOLOGIES INCORPORATED DATED AS OF NOVEMBER 29, 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 4.2 PACIFIC AVIONICS CORPORATION PROFIT SHARING PLAN.......................................11 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.....................................15 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....................................................................18 6.5 ATI NONQUALIFIED DEFERRED COMPENSATION PROGRAMS........................................20 6.6 NON-EMPLOYEE DIRECTOR BENEFITS.........................................................21 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............................23 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..............................................................24 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..........................................................................26 8.8 THIRD PARTY BENEFICIARIES..............................................................26 8.9 NOTICES................................................................................26 8.10 SEVERABILITY..........................................................................26 8.12 HEADINGS..............................................................................27 8.13 WAIVERS OF DEFAULT....................................................................27 8.15 AMENDMENTS............................................................................27 8.16 INTERPRETATION........................................................................27 8.17 DISPUTES..............................................................................27 ii 4 EMPLOYEE BENEFITS AGREEMENT November 29, 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. 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 5 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 November 22, 1999. 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 6 10 Teledyne 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 sole 8 12 discretion with a market value then equal to the sum of (i) the Section 414(l) Amount and (ii) up to $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 any corporation spun off by ATI on the Distribution Date other than Teledyne Technologies 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 9 13 stock of any other previously related corporation 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 Teledyne Technologies Individuals may maintain investments in ATI Common Stock, Teledyne Technologies Common Stock and/or stock of any previously related corporation until December 31, 2002 and, 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, 10 14 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. 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 time of transfer. (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. 4.2 PACIFIC AVIONICS CORPORATION PROFIT SHARING PLAN. Effective Immediately After the Distribution Date, Teledyne Technologies will assume sponsorship of and all liabilities and responsibilities for the Pacific Avionics Corporation Profit Sharing 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 11 15 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 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. 12 16 (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 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 13 17 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. (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. 14 18 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. 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) 15 19 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 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 16 20 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 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 17 21 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 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 18 22 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 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. 19 23 (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 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 20 24 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 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. 21 25 (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 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. 22 26 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, 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. 23 27 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. 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 24 28 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. (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 25 29 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 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 and Secretary 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. 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 26 30 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. 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 November 29, 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 8.15; 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 27 31 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. (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 /s/ James L. Murdy ----------------------------------- Title -------------------------------- TELEDYNE TECHNOLOGIES INCORPORATED By /s/ Robert Mehrabian ----------------------------------- Title -------------------------------- 28 EX-10.24 7 EMPLOYEE BENEFITS AGREEMENT 11/29/99 1 Exhibit 10.24 EMPLOYEE BENEFITS AGREEMENT BETWEEN ALLEGHENY TELEDYNE INCORPORATED AND WATER PIK TECHNOLOGIES, INC. DATED AS OF NOVEMBER 29, 1999 2 INDEX PAGE ---- ARTICLE I DEFINITIONS ........................................................1 ARTICLE II GENERAL PRINCIPLES.................................................5 2.1 ASSUMPTION OF LIABILITIES........................................5 2.2 ESTABLISHMENT OF WATER PIK PLANS.................................6 2.3 TERMS OF PARTICIPATION BY WATER PIK INDIVIDUALS IN WATER PIK PLANS.........................................................6 ARTICLE III DEFINED BENEFIT PLANS.............................................7 3.1 FREEZING OF PENSION PLAN BENEFITS................................7 3.2 CREDITING SERVICE UNDER ATI'S PENSION PLAN.......................7 ARTICLE IV DEFINED CONTRIBUTION PLANS.........................................8 4.1 401(k) PLAN......................................................8 4.2 ASSUMPTION OF JANDY INDUSTRIES, INC. EMPLOYEE SAVINGS PLAN.......9 ARTICLE V HEALTH AND WELFARE PLANS............................................9 5.1 ASSUMPTION OF HEALTH AND WELFARE PLAN LIABILITIES................9 5.2 VENDOR CONTRACTS................................................10 5.3 PROCEDURES FOR AMENDMENTS TO PLANS, PLAN DESIGNS, ADMINISTRATIVE PRACTICES, AND VENDOR CONTRACTS...............12 5.4 ATI SICKNESS AND ACCIDENT, LONG TERM DISABILITY AND PENSION DISABILITY BENEFITS..........................................13 5.5 POST-RETIREMENT HEALTH AND LIFE INSURANCE BENEFITS..............13 5.6 COBRA AND DIRECT PAY............................................13 5.7 POST-DISTRIBUTION TRANSITIONAL ARRANGEMENTS.....................13 5.8 APPLICATION OF ARTICLE V TO WATER PIK ENTITIES..................15 ARTICLE VI EXECUTIVE BENEFITS AND NON-EMPLOYEE DIRECTOR BENEFITS.............15 6.1 ASSUMPTION OF OBLIGATIONS.......................................15 6.2 CONSENTS AND NOTIFICATIONS......................................15 6.3 ATI 1999 BONUS PLAN.............................................16 6.4 ATI INCENTIVE PLANS.............................................16 6.5 ATI NONQUALIFIED DEFERRED COMPENSATION PROGRAMS.................18 6.6 NON-EMPLOYEE DIRECTOR BENEFITS..................................19 6.7 CONFIDENTIALITY AND PROPRIETARY INFORMATION.....................19 ARTICLE VII GENERAL AND ADMINISTRATIVE.......................................19 7.1 INTERIM SERVICES AGREEMENT......................................19 3 7.2 PAYMENT OF LIABILITIES, PLAN EXPENSES AND RELATED MATTERS........19 7.3 SHARING OF PARTICIPANT INFORMATION...............................20 7.4 REPORTING AND DISCLOSURE AND COMMUNICATIONS TO PARTICIPANTS..................................................20 7.5 NON-TERMINATION OF EMPLOYMENT; NO THIRD-PARTY BENEFICIARIES.................................................20 7.6 BENEFICIARY DESIGNATIONS.........................................21 7.7 REQUESTS FOR IRS RULINGS AND DOL OPINIONS........................21 7.8 FIDUCIARY MATTERS................................................21 7.9 COLLECTIVE BARGAINING............................................21 7.10 CONSENT OF THIRD PARTIES........................................21 7.11 INDEMNIFICATION OF ATI..........................................21 ARTICLE VIII MISCELLANEOUS....................................................22 8.1 FOREIGN PLANS....................................................22 8.2 EFFECT IF DISTRIBUTION DOES NOT OCCUR............................22 8.3 RELATIONSHIP OF PARTIES..........................................22 8.4 AFFILIATES.......................................................22 8.5 COUNTERPARTS; ENTIRE AGREEMENT; CORPORATE POWER..................22 8.6 GOVERNING LAW; CONSENT TO JURISDICTION...........................23 8.7 ASSIGNABILITY....................................................23 8.8 THIRD PARTY BENEFICIARIES........................................24 8.9 NOTICES..........................................................24 8.10 SEVERABILITY....................................................24 8.11 HEADINGS........................................................24 8.12 WAIVERS OF DEFAULT..............................................24 8.13 AMENDMENTS......................................................24 8.14 INTERPRETATION..................................................25 8.15 DISPUTES........................................................25 ii 4 EMPLOYEE BENEFITS AGREEMENT November 29 , 1999 The parties to this Employee Benefits Agreement, dated as of the date written above, are Allegheny Teledyne Incorporated, a Delaware corporation ("ATI"), and Water Pik Technologies, Inc., a Delaware corporation ("Water Pik"). 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 consumer products businesses into an independent business entity; WHEREAS, in furtherance of the foregoing, ATI and Water Pik 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 Water Pik, and their respective Subsidiaries following the Distribution; and WHEREAS, pursuant to the Separation and Distribution Agreement, ATI and Water Pik 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 Water Pik or a Water Pik Entity. 1.4 ATI Executive means an employee or former employee of ATI, an ATI Entity, Water Pik or a Water Pik 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. 5 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 November 22, 1999. 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 "Water Pik," the term Award (including the term Performance Award or SARP Award) means an award under the Water Pik 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. 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 2 6 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 "Water Pik," Executive Benefit Plans means the executive benefit plans and programs to be established by Water Pik 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, Water Pik, or a Water Pik 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 "Water Pik," HCRA Plan means the Health Care Reimbursement Account Plan to be established by Water Pik 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 "Water Pik," Health and Welfare Plans means the health and welfare plans to be established by Water Pik 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 Water Pik 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 "Water Pik," Incentive Plan means the Incentive Plan to be established by Water Pik pursuant to Section 2.2. 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. 3 7 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 "Water Pik," Non-Employee Director means a member of Water Pik's Board of Directors who is not an employee of ATI, an ATI Entity, Water Pik or a Water Pik 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 "Water Pik," Non-Employee Director Plans means the plans and programs to be established by Water Pik 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 "Water Pik," Deferral Plan means the Executive Deferred Compensation Plan to be established by Water Pik 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 "Water Pik," Option means an option to purchase Water Pik 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 "Water Pik," 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 employees or Non-Employee Directors of ATI or an ATI Entity, or Water Pik or a Water Pik Entity, as applicable. 1.36 Ratio means the amount obtained by dividing the ATI Stock Value by the Water Pik 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. 4 8 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 Separation and Distribution Agreement is defined in the third paragraph of the preamble of this Agreement. 1.41 Stock Purchase Plan, when immediately preceded by "ATI," means the Allegheny Teledyne Incorporated Employee Stock Purchase Plan. When immediately preceded by "Water Pik," Stock Purchase Plan means the employee stock purchase plan to be established by Water Pik pursuant to Section 2.2. 1.42 Teledyne means Teledyne, Inc., a Delaware corporation, or its successors and assigns. 1.43 Teledyne 401(k) Plan means the Teledyne, Inc. 401(k) Plan. 1.44 Water Pik Entity means any Person that is, at the relevant time, a Subsidiary of Water Pik or is otherwise controlled, directly or indirectly, by Water Pik. 1.45 Water Pik 401(k) Plan means the 401(k) plan established by Water Pik effective no later than April 1, 2000 pursuant to Section 2.2. 1.46 Water Pik Individual means any individual who, Immediately After the Distribution Date is an active hourly or salaried employee of Water Pik or a Water Pik Entity. 1.47 Water Pik Stock Value means the opening price per share of Water Pik Common Stock on the day following the Distribution Date. ARTICLE II GENERAL PRINCIPLES 2.1 ASSUMPTION OF LIABILITIES. Except as otherwise expressly provided in Section 3.1 or Article VI, Water Pik 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 Water Pik 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 Water Pik Plans); (ii) all other Benefit Liabilities to or relating to Water Pik Individuals and other employees of Water Pik or a Water Pik Entity, and their dependents and beneficiaries, to the extent relating to, arising out of or resulting from future, present or former employment with Water Pik or a Water Pik Entity (including Benefit Liabilities under ATI Plans and Water Pik Plans); (iii) all Benefit Liabilities relating to, arising out of or resulting from any other actual or alleged employment relationship with Water Pik or a Water Pik Entity; (iv) all Benefit Liabilities relating to, arising out of or 5 9 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 Water Pik, a Water Pik Entity, or a Water Pik Plan pursuant to this Agreement. Notwithstanding the generality of the foregoing, Water Pik 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 Supplement Plan. 2.2 ESTABLISHMENT OF WATER PIK PLANS. Effective prior to or within a reasonable time after the Distribution Date, Water Pik shall adopt, or cause to be adopted, the amended Teledyne 401(k) Plan for the period between the Distribution Date and April 1, 2000, the Water Pik Stock Purchase Plan, the Water Pik Health and Welfare Plans, and the Water Pik Executive Benefit Plans for the benefit of the Water Pik Individuals and other current and future employees of Water Pik and the Water Pik Entities; provided, however, that Water Pik 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 Water Pik 401(k) Plan, or as otherwise may be set forth in Schedule 2.2(b), the foregoing Water Pik 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, Water Pik shall adopt, or cause to be adopted, the Water Pik Non-Employee Director Plans, for the benefit of Water Pik Non-Employee Directors. The Water Pik 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. No later than April 1, 2000, Water Pik shall adopt the Water Pik 401(k) Plan and its related trust, which Water Pik 401(k) Plan shall provide for employer contributions, independent of employee contributions and expressed as a rate of participant compensation, determined appropriate by Water Pik in its sole discretion in light of Water Pik's choice not to sponsor a defined benefit plan. 2.3 TERMS OF PARTICIPATION BY WATER PIK INDIVIDUALS IN WATER PIK PLANS. The Water Pik Plans shall be, with respect to Water Pik 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 Water Pik shall agree on methods and procedures, including amending the respective Plan documents and/or requesting approvals or consents of Water Pik Individuals where the parties deem appropriate, to prevent Water Pik Individuals from receiving duplicative benefits from the ATI Plans and the Water Pik Plans. With respect to Water Pik Individuals, each Water Pik 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 Water Pik Plan to the same extent as if such items occurred under such Water Pik 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 Water Pik Plans (including Foreign Plans) are based upon the understanding of the parties that each such Water Pik Plan will assume all Benefit Liabilities of the corresponding ATI 6 10 Plan to or relating to Water Pik Individuals, as provided for herein. If any such Benefit Liabilities are not effectively assumed by the appropriate Water Pik Plan, then the amount of assets transferred to the trust relating to such Water Pik 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 Water Pik 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. ARTICLE III DEFINED BENEFIT PLANS 3.1 FREEZING OF PENSION PLAN BENEFITS. Effective upon the applicable of the dates under Section 3.2, the accrued benefits with respect to Water Pik 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. 3.2 CREDITING SERVICE UNDER ATI'S PENSION PLAN. (a) VESTING. Water Pik Individuals 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 actually rendered to Water Pik during the period commencing on the Distribution Date and ending April 1, 2000. (b) BENEFIT ACCRUAL. Water Pik Individuals who, as of the Distribution Date, were participants in the ATI Pension Plan will continue to receive service credit for benefit accrual purposes under the ATI Pension Plan for service actually rendered to Water Pik during the period commencing on the Distribution Date and ending April 2, 2000. Benefits accrued with respect to service credited pursuant to this Section 3.2 shall be paid by the ATI Pension Plan at the same times and under the same terms and conditions as applicable to benefits accrued under the ATI Pension Plan. (c) DISTRIBUTION OF BENEFITS FROM ATI PENSION PLAN TO WATER PIK INDIVIDUALS. For purposes of the ATI Pension Plan, the date which is the earlier of the applicable of (i) a Water Pik's Individual's actual separation from service with Water Pik or (ii) April 1, 2000 shall be for each Water Pik Individual a separation from service with the employer and Water Pik Individuals who are eligible to commence receipt of benefits under the ATI Pension Plan may, in their respective discretion, apply at any time after the applicable date described above to commence benefits to the extent then payable and subject to the terms and conditions of the ATI Pension Plan. The Distribution Date does not, however, constitute and shall not be treated under the ATI Pension Plan as a sale or otherwise as an event permitting Water Pik Individuals to elect to receive a lump sum form of distribution under the ATI Pension Plan. 7 11 ARTICLE IV DEFINED CONTRIBUTION PLANS 4.1 401(k) PLAN. (a) ADOPTION BY WATER PIK 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 Water Pik may elect to be a contributing sponsor and to provide participation to Water Pik 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 Water Pik of the Water Pik 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) Water Pik 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 any corporation spun off by ATI on the Distribution Date other than Water Pik and (B) that each Water Pik Individual shall have the right to direct the administrator of the Teledyne 401(k) Plan to liquidate the interests of Water Pik Individuals in the ATI Common Stock, Water Pik Common Stock or the common stock of any other previously related corporation 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 WATER PIK 401(k) PLAN AND TRUST. The Water Pik 401(k) Plan, established by Water Pik pursuant to Section 2.2 no later than April 1, 2000, (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 ATI Common Stock and the common stock of Water Pik and any other corporation spun off by ATI on the Distribution Date, and shall further provide that Water Pik Individuals may maintain investments in ATI Common Stock, Water Pik Common Stock and/or stock of any previously related corporation until December 31, 2002 and, if ATI Common Stock and/or common stock of any previously related corporation other than Water Pik is held in accounts of Water Pik Individuals in the Teledyne 401(k) Plan as of December 31, 2002, the interests of Water Pik Individuals shall be liquidated by the Plan administrator and the proceeds reinvested in Water Pik Common Stock, and (iii) shall provide coverage from and after the earlier of (i) its adoption by Water Pik or (ii) April 1, 2000 with respect to Water Pik 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 Water Pik 401(k) Plan, established by Water Pik 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 Water Pik of the Water Pik 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 Water Pik Individuals. 8 12 Water Pik shall pay to ATI, within thirty (30) 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 Water Pik Individuals. Water Pik 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 Water Pik of the Water Pik 401(k) Plan or (ii) April 1, 2000. Effective as of the earlier of (i) the adoption by Water Pik of the Water Pik 401(k) Plan or (ii) April 1, 2000: (A) the Water Pik 401(k) Plan shall assume and be solely responsible for all Benefit Liabilities to or relating to Water Pik Individuals under the Water Pik 401(k) Plan, and (B) ATI shall cause an amount equal to the aggregate account balances of the Water Pik 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 Water Pik of the Water Pik 401(k) Plan or (ii) April 1, 2000 to be transferred to the Water Pik 401(k) Plan, and its related trust, and Water Pik 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 Water Pik Common Stock allocated to participants' accounts as a result of the Distribution and shares of Teledyne Technologies Incorporated Common Stock allocated to participants' accounts as a result of the spin-off of ATI's aerospace and electronics businesses; and (B) all promissory notes reflecting participant loans to Water Pik Individuals under the Teledyne 401(k) Plan outstanding as of the time of transfer. (ii) If any benefit with respect to a Water Pik 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 Water Pik 401(k) Plan. 4.2 ASSUMPTION OF JANDY INDUSTRIES, INC. EMPLOYEES SAVINGS PLAN. Effective Immediately After the Effective Date, Water Pik will assume sponsorship of and liability and responsibility for the Jandy Industries, Inc. Employees Savings 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 Water Pik 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 Water Pik Health and Welfare Plans. (b) Notwithstanding Section 5.1(a), all treatments which have been pre-certified for or are being provided to a Water Pik Individual as of the Close of the Distribution Date shall be provided without interruption under the appropriate ATI Health and Welfare Plan until such 9 13 treatment is concluded or discontinued pursuant to applicable plan rules and limitations, but Water Pik 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 Water Pik 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 Water Pik 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 Water Pik of, the manner in which Water Pik's participation in the terms and conditions of ASO Contracts as set forth above shall be effectuated. The permissible ways in which Water Pik's participation may be effectuated include automatically making Water Pik a party to the ASO Contracts or obligating the third party to enter into a separate ASO Contract with Water Pik 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 Water Pik 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. Water Pik hereby authorizes ATI to act on its behalf to extend to Water Pik the terms and conditions of the ASO Contracts. Water Pik shall fully cooperate with ATI in such efforts, and Water Pik 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 Water Pik 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 Water Pik to participate in the terms 10 14 and conditions thereof effective Immediately After the Distribution Date on the same basis as ATI. (iii) Water Pik's 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 Water Pik. Such terms and conditions shall include the financial and termination provisions, performance standards and target claims. Water Pik hereby unconditionally and irrevocably authorizes ATI to act on its behalf to extend to Water Pik the terms and conditions of such Group Insurance Policies. Water Pik shall fully cooperate with ATI in such efforts, and Water Pik 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 Water Pik 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 Agreement but before the Close of the Distribution Date to allow Water Pik 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 Water Pik of, the manner in which Water Pik's participation in the terms and conditions of all HMO Agreements as set forth above shall be effectuated. The permissible ways in which Water Pik's participation may be effectuated include automatically making Water Pik a party to the HMO Agreements or obligating the HMOs to enter into letter agreements with Water Pik which are identical to the HMO Agreements (or such other arrangements as to which ATI and Water Pik shall mutually agree). Such terms and conditions shall include the financial and termination provisions of the HMO Agreements. Water Pik hereby authorizes ATI to act on its behalf to extend to Water Pik the terms and conditions of the HMO Agreements. Water Pik shall fully cooperate with ATI in such efforts, and Water Pik 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, Water Pik shall have the sole discretion to determine which HMOs to offer to the participants in the Water Pik Health and Welfare Plans for 2001 and subsequent years, and all HMO Agreements in which Water Pik participates pursuant to this Section 5.2(c) shall provide Water Pik with the right to discontinue its participation effective January 1, 2001. 11 15 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, Water Pik shall not amend any Water Pik Health and Welfare Plan or Plans, and Water Pik 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 Water Pik Health and Welfare Plan pursuant to Section 7.1, ATI shall have the right to amend any applicable Water Pik Health and Welfare Plan; provided that, in ATI's reasonable good faith opinion, such amendment will have no material adverse impact on the Water Pik Health and Welfare Plan or its participants or, to the extent a material adverse impact would occur, such impact would affect both the applicable Water Pik 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 Water Pik in the same proportion that Water Pik and ATI employees, respectively, participate. (b) CHANGES IN VENDOR CONTRACTS, GROUP INSURANCE POLICIES, PLAN DESIGN, AND ADMINISTRATION PRACTICES AND PROCEDURES. (i) From Immediately After the Distribution Date until December 31, 2000, Water Pik 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 Water Pik and a third-party administrator, (2) a Group Insurance Policy issued to ATI or Water Pik, or (3) an HMO Agreement with ATI or Water Pik, in each case, the material terms and conditions of which contracts and policies are extended to Water Pik or to which Water Pik becomes a party pursuant to Section 5.2; (B) the design of either an ATI Health and Welfare Plan or a Water Pik Health and Welfare Plan; or (C) the financing, operation, administration or delivery of benefits under either an ATI Health and Welfare Plan or a Water Pik Health and Welfare Plan. (ii) During any period in which ATI is providing Interim Services with respect to any Water Pik Health and Welfare Plan pursuant to Section 7.1, ATI shall be permitted to make any Change to such Water Pik Plan; provided that, in ATI's reasonable good faith opinion, such Change would affect both the applicable Water Pik 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 proportionally by ATI and Water Pik in the same proportion that Water Pik 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, Water Pik 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. 12 16 5.4 ATI SICKNESS AND ACCIDENT, LONG TERM DISABILITY AND PENSION DISABILITY BENEFITS. ATI shall transfer to Water Pik, effective Immediately After the Distribution Date, responsibility for administering all claims incurred by Water Pik Individuals and other employees and former employees of Water Pik and the Water Pik Entities before the Close of the Distribution Date that are administered by ATI as of the Close of the Distribution Date. Water Pik shall administer such claims in the same manner, and using the same methods and procedures, as ATI used in administering such claims. Water Pik 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, Water Pik shall provide ATI with a list of all Water Pik Individuals who are, to the best knowledge of Water Pik, 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. 5.6 COBRA AND DIRECT PAY. Effective Immediately After the Distribution Date, Water Pik shall solely be responsible for administering compliance with the health care continuation coverage requirements of COBRA and the Water Pik Health and Welfare plans, and, with respect to Water Pik Individuals, the ATI Health and Welfare Plans. 5.7 POST-DISTRIBUTION TRANSITIONAL ARRANGEMENTS. (a) CONTINUANCE OF ELECTIONS, CO-PAYMENTS AND MAXIMUM BENEFITS. (i) Water Pik shall cause the Water Pik Health and Welfare Plans to recognize and maintain all coverage and contribution elections made by Water Pik Individuals under the ATI Health and Welfare Plans and apply such elections under the Water Pik 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 Water Pik 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 Water Pik Health and Welfare Plans. (ii) Water Pik shall cause the Water Pik 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 Water Pik 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 Water Pik Individuals under the ATI Health and Welfare Plans for purposes of determining when such persons have reached their lifetime maximum benefits under the Water Pik Health and Welfare Plans. 13 17 (iii) Water Pik 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) Water Pik shall (A) provide coverage to Water Pik Individuals under the Water Pik 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 Water Pik Individuals under the ATI Group Life Program. (b) OTHER POST-DISTRIBUTION TRANSITIONAL RULES. (i) ATI HCRA PLAN. To the extent any Water Pik 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 transfer to the Water Pik HCRA Plan the account balances of Water Pik 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 Water Pik Individual contributed to the ATI CECRA Plan during the calendar year that includes the Distribution Date, ATI shall transfer the account balances of Water Pik Individuals for such calendar year in the ATI CECRA Plan to the Water Pik CECRA Plan. (iii) POST-RETIREMENT MEDICAL PLAN. For the period ending on December 31st of the calendar year which is five calendar years after the Distribution Date, Water Pik shall comply with all cost maintenance period requirements and benefit maintenance period requirements under Code Sections 401(h) or 420 that are applicable to post-retirement health benefits under the Water Pik 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, Water Pik shall obtain ATI's prior written approval before amending any Water Pik 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 Water Pik after the date hereof and before the Close of the Distribution Date unless Water Pik and ATI so agree. (iv) HEALTH AND WELFARE PLANS SUBROGATION RECOVERY. After the Close of the Distribution Date, ATI shall pay to Water Pik any amounts ATI 14 18 recovers from time to time through subrogation or otherwise for claims incurred by or reimbursed to any Water Pik Individual. If Water Pik 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 Water Pik Individuals), Water Pik shall pay such amounts to ATI. 5.8 APPLICATION OF ARTICLE V TO WATER PIK ENTITIES. Any reference in this Article V to "Water Pik" shall include a reference to a Water Pik Entity when and to the extent ATI or Water Pik has caused the Water Pik Entity to (a) become a party to a vendor contract, group insurance contract, or HMO letter agreement associated with a Water Pik Health and Welfare Plan, (b) become a self-insured entity for the purposes of one or more Water Pik 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 Water Pik 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 Water Pik would otherwise be required to take under the terms of this Article V, unless it is clear from the context that the particular reference is not intended to include a Water Pik Entity. In all such instances in which a reference in this Article V to "Water Pik" includes a reference to a Water Pik Entity, Water Pik shall be responsible to ATI for ensuring that the Water Pik Entity complies with the applicable terms of this Agreement and the Water Pik Individuals allocated to such Water Pik Entity shall have the same rights and entitlements to benefits under the applicable Water Pik Health and Welfare Plans that the Water Pik Individual would have had if he or she had instead been allocated to Water Pik. Further, each such Water Pik 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 Water Pik Entity. ARTICLE VI EXECUTIVE BENEFITS AND NON-EMPLOYEE DIRECTOR BENEFITS 6.1 ASSUMPTION OF OBLIGATIONS. Except (i) for Benefit Liabilities arising under the Teledyne Pension Equalization Plan and (ii) as otherwise expressly provided in this Article VI, effective Immediately After the Distribution Date, Water Pik and the Water Pik Entities shall assume and be solely responsible for all Benefit Liabilities to or relating to Water Pik Individuals under all ATI Executive Benefit Plans. 6.2 CONSENTS AND NOTIFICATIONS. ATI and Water Pik shall use their Reasonable Efforts to obtain, or cause to be obtained, to the extent necessary, the written consent of each Water Pik 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 Water Pik and the Water Pik 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 Water Pik and the Water Pik Entities with respect to such Benefit Liabilities. 15 19 6.3 ATI 1999 BONUS PLAN. Subject to the provisions of Section 6.4(a)(ii)(B), Water Pik shall be responsible for determining, with respect to all Awards that would otherwise be payable under any bonus Plan or arrangement to Water Pik Individuals for the 1999 performance year, (a) the extent to which established performance criteria (as interpreted by Water Pik, in its sole discretion, after taking into account the effects of the Distribution) have been met and (b) the payment level for each Water Pik Individual. 6.4 ATI INCENTIVE PLANS. ATI and Water Pik 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 Water Pik Individual shall be determined, converted or replaced, as the case may be, as set forth in this Section 6.4 with an Award under the Water Pik Incentive Plan. (a) WATER PIK INDIVIDUALS WHO ARE ACTIVE EMPLOYEES OF WATER PIK. (i) STOCK OPTIONS. Water Pik shall cause each ATI Option that is outstanding as of the Close of the Distribution Date and is held by a Water Pik Individual to be converted, effective Immediately After the Distribution Date, to a Water Pik Option (a "Converted Option"). Such Converted Option shall provide for the option to purchase a number of shares of Water Pik 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 Water Pik 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 Water Pik Individual for the period from January 1, 1998 through the Distribution Date. Effective Immediately After the Distribution Date, Water Pik and the Water Pik Entities shall assume and be solely responsible for all Benefit Liabilities to or relating to Water Pik Individuals with respect to the administration and distribution of Performance Awards to such Water Pik 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 16 20 each Water Pik 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 Water Pik and the Water Pik Entities to the applicable Water Pik Individual as provided under the terms of the Performance Share Program; provided, however, that any ATI Common Stock allocated or otherwise awarded to a Water Pik Individual as part of a Performance Award under 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 Water Pik 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 up the product to the nearest whole share. (iii) SARP. As of the Distribution Date, all shares of ATI Common Stock issued and outstanding held by a Water Pik 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 Water Pik Common Stock received by Water Pik 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 Teledyne Technologies Incorporated Common Stock received by Water Pik Individuals in respect of their Purchased Stock and Designated Stock as a result of the spin-off of Teledyne Technologies Incorporated 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, Water Pik shall assume all Benefit Liabilities to or relating to Water Pik 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 Water Pik 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 Water Pik Common Stock and Teledyne Technologies Incorporated 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 Water Pik 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 Water Pik Individuals under the ATI SARP, a number of shares of Water Pik Common Stock determined by multiplying the number of shares of ATI Common Stock that are held 17 21 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 Water Pik Common Stock shall be subject to the same restrictions as the shares of ATI Common Stock prior to the conversion. (b) WATER PIK INDIVIDUALS WHO ARE NOT ACTIVE EMPLOYEES OF WATER PIK. Each outstanding Award that is held by an individual who, as of the Close of the Distribution Date, would otherwise be a Water Pik Individual but is not an active employee of or on leave of absence from Water Pik or a Water Pik 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 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. Subject to the provisions of Section 6.1, effective Immediately After the Distribution Date, Water Pik shall assume all Benefit Liabilities to or relating to Water Pik 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 Water Pik Individuals, ATI shall, in ATI's sole discretion, (i) transfer an amount in cash equal to the cash surrender value of such policies or (ii) cause the transfer, either by assignment or any other reasonable means, to Water Pik of Corporate-Owned Life Insurance Policies on the lives of such Water Pik Individuals and such other employees or former employees of ATI or its subsidiaries as ATI may, in its sole discretion select, or any portion thereof, having in the aggregate a cash surrender value equal to the amount of any Benefit Liabilities for Water Pik Individuals under the Allegheny Teledyne Incorporated Executive Deferred Compensation Plan. (b) CORPORATE-OWNED LIFE INSURANCE. ATI and Water Pik 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 Water Pik Individuals to Water Pik, effective Immediately After the Distribution Date. If a Corporate-Owned Life Insurance Policy is so assigned to Water Pik, Water Pik 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 Water Pik shall continue, liquidate and/or administer such Corporate-Owned Life Insurance Policies on terms and conditions agreed to by ATI and Water Pik. ATI and Water Pik shall share all information that may be necessary to identify the individuals insured by 18 22 the Corporate-Owned Life Insurance Policies owned by ATI and/or Water Pik and to determine when and whether such individuals are deceased. 6.6 NON-EMPLOYEE DIRECTOR BENEFITS. The parties intend that all Water Pik 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 Directors under the ATI Non-Employee Director Plans accrued as of the Distribution Date. Water Pik 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 Water Pik shall enter into an agreement relating to the coordination of and payment for transition services to be provided by ATI regarding the establishment and administration of the Water Pik 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 Water Pik 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 Water Pik 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. Water Pik shall pay directly, or reimburse ATI promptly for, all Benefit Liabilities assumed by it 19 23 pursuant to this Agreement, including all compensation payable to Water Pik Individuals for services rendered while in the employ of ATI or an ATI Entity before becoming a Water Pik 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 Water Pik Individuals is not yet determined, except as otherwise specified herein or in another Ancillary Agreement with respect to particular Benefit Liabilities, Water Pik shall make such payments or reimbursements based upon ATI's reasonable estimates of the amounts thereof, and when such status is determined, Water Pik shall make additional reimbursements or payments, or ATI shall reimburse Water Pik, 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 "Water Pik 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 Water Pik shall share, ATI shall cause each applicable ATI Entity to share, and Water Pik shall cause each applicable Water Pik 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 Water Pik Plans. ATI and Water Pik 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 Water Pik. 7.4 REPORTING AND DISCLOSURE AND COMMUNICATIONS TO PARTICIPANTS. Water Pik shall take, and shall cause each other applicable Water Pik Entity to take, all actions necessary or appropriate to facilitate the distribution of all applicable ATI Plan-related communications and materials to Water Pik 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 Water Pik Plans. Water Pik shall pay ATI the cost relating to the copies of all such documents provided to Water Pik, except to the extent such costs are charged pursuant to Section 7.1 or pursuant to an Ancillary Agreement. Water Pik shall assist, and Water Pik shall cause each other applicable Water Pik 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 Water Pik Individual or other future, present or former employee of ATI, an ATI Entity, Water Pik, or a Water Pik Entity under any ATI Plan or Water Pik Plan or otherwise. Without limiting the generality of the foregoing: (i) the Distribution shall 20 24 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 Water Pik Plans, or any individual agreements; and (ii) except as expressly provided in this Agreement, nothing in this Agreement shall preclude Water Pik, at any time after the Close of the Distribution Date, from amending, merging, modifying, terminating, eliminating, reducing, or otherwise altering in any respect any Water Pik Plan, any benefit under any Plan or any trust, insurance policy or funding vehicle related to any Water Pik Plan unless such change could or will increase the obligations of ATI or any ATI Entity under any Plan or agreement. 7.6 BENEFICIARY DESIGNATIONS. All beneficiary designations made by Water Pik Individuals for ATI Plans shall be transferred to and be in full force and effect under the corresponding Water Pik Plans until such beneficiary designations are replaced or revoked by the Water Pik Individual who made the beneficiary designation. 7.7 REQUESTS FOR IRS RULINGS AND DOL OPINIONS. Water Pik 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 Water Pik 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 Water Pik Plans relating to the transactions contemplated by this Agreement. 7.8 FIDUCIARY MATTERS. ATI and Water Pik 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 Water Pik 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 Water Pik 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 Water Pik shall negotiate in good faith to implement the provision in a mutually satisfactory manner. 7.11 INDEMNIFICATION OF ATI. Water Pik shall indemnify, defend and hold harmless ATI, each ATI Entity and each of their respective directors, officers and employees, and 21 25 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 Water Pik or a Water Pik Entity under this Agreement and (ii) any and all changes or modifications to any rights, privileges or benefits of or relating to any Water Pik Individual as provided in or otherwise contemplated by this Agreement. ARTICLE VIII MISCELLANEOUS 8.1 FOREIGN PLANS. To the extent that Water Pik 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 Water Pik 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 Water Pik 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 Water Pik 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 Water Pik 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. (c) ATI represents on behalf of itself and each ATI Entity, and Water Pik represents on behalf of itself and each Water Pik Entity, as follows: 22 26 (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 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. 23 27 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 and Secretary If to Water Pik, to: Water Pik Technologies, Inc. 600 Newport Center Drive, Suite 470 Newport Beach, California 92660 Attn: President 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. 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 24 28 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 input shall all be references to November 29, 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 8.15; 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. (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. 25 29 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: /s/ Jon D. Walton ---------------------------- Title:_________________________ WATER PIK TECHNOLOGIES, INC. By: /s/ Michael Hoopis ---------------------------- Title:_________________________ 26 EX-10.25 8 TAX SHARING & INDEMNIFICATION AGREEMENT 1 Exhibit 10.25 TAX SHARING AND INDEMNIFICATION AGREEMENT THIS TAX SHARING AND INDEMNIFICATION AGREEMENT (the "Agreement"), dated as of November 29, 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 November 29, 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), the ATI Consolidated Group, on one hand, and SPINCO and the SPINCO Group, on the other 10 11 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 Affiliated Persons or Associates would acquire Beneficial Ownership of SPINCO common stock 11 12 (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. (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 12 13 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. (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 13 14 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. 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. 14 15 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 17 18 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 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 18 19 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. 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. 19 20 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: /s/ James L. Murdy ------------------------------------------- James L. Murdy Executive Vice President-Finance and Administration and Chief Financial Officer TELEDYNE TECHNOLOGIES INCORPORATED By: /s/ Robert Mehrabian ------------------------------------------- Robert Mehrabian President and Chief Executive Officer TELEDYNE BROWN ENGINEERING, INC. By: /s/ Robert Mehrabian ------------------------------------------- Robert Mehrabian President and Chief Executive Officer 20 EX-10.26 9 TAX SHARING & INDEMNIFICATION AGREEMENT 1 Exhibit 10.26 TAX SHARING AND INDEMNIFICATION AGREEMENT THIS TAX SHARING AND INDEMNIFICATION AGREEMENT (the "Agreement"), dated as of November 29, 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 Water Pik Technologies, Inc., 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. DISQUALIFIED SPINCO STOCK is defined at Section 5.2. 2 3 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 November 29, 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. 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. 3 4 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). PUBLIC OFFERING means the first public offering of SPINCO common stock following the Distribution. The gross proceeds of such Public Offering shall be approximately $50 million or such other amount as ATI, in its sole discretion, may approve. RESTRICTED PERIOD means the two year period following the Effective Date. 4 5 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. 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. 5 6 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. 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 6 7 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. (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. 7 8 (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. 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 8 9 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; (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) xcept 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 9 10 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), 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. 10 11 (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 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. 11 12 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. (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