<PAGE> 1
FILE NO. 1-15295
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 29, 1999
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10/A-2
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
TELEDYNE TECHNOLOGIES INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 25-1843385
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
2049 CENTURY PARK EAST
LOS ANGELES, CALIFORNIA 90067-3101
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 277-3311
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
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<S> <C>
COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE
PREFERRED SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
</TABLE>
<TABLE>
<S> <C>
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE
ACT: NONE
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(TITLE OF CLASS)
</TABLE>
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TELEDYNE TECHNOLOGIES INCORPORATED
INFORMATION INCLUDED IN INFORMATION STATEMENT
AND INCORPORATED IN FORM 10 BY REFERENCE
<TABLE>
<CAPTION>
ITEM
NO. ITEM CAPTION LOCATION IN INFORMATION STATEMENT
- ---- ------------ ---------------------------------
<C> <S> <C>
1 Business.............................. "Summary," "Management's Discussion
and Analysis of Financial Condition
and Results of Operations" and "Our
Business"
2 Financial Information................. "Management's Discussion and Analysis
of Financial Condition and Results of
Operations," "Our Historical Selected
Financial Data," "Our Unaudited Pro
Forma Consolidated Financial
Information," and "Index to Our
Financial Statements"
3 Properties............................ "Our Business"
4 Security Ownership of Certain
Beneficial Owners and Management...... "Security Ownership"
5 Directors and Officers................ "Management" and "Liability and
Indemnification of Our Officers and
Directors"
6 Executive Compensation................ "Management"
7 Certain Relationships and Related
Transactions.......................... "Arrangements with ATI Relating to the
Spin-Off"
8 Legal Proceedings..................... "Our Business"
9 Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters................... "The Spin-Off--Listing and Trading of
our Common Stock," "Arrangements with
ATI Relating to the Spin-Off" and
"Index to Our Financial Statements"
10 Recent Sales of Unregistered
Securities............................ Not Applicable
11 Description of Registrant's Securities
to be Registered...................... "Description of Our Capital Stock"
12 Indemnification of Officers and
Directors............................. "Liability and Indemnification of Our
Officers and Directors"
13 Financial Statements and
Supplementary Data.................... "Management's Discussion and Analysis
of Financial Condition and Results of
Operations," "Our Historical Selected
Financial Data," "Our Unaudited Pro
Forma Consolidated Financial
Information," and "Index to Our
Financial Statements"
14 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure.................. Not Applicable
15 Financial Statements and Exhibits..... "Index to Our Financial Statements"
and "Exhibit Index"
</TABLE>
<PAGE> 3
[ALLEGHENY TELEDYNE INCORPORATED LOGO]
, 1999
To Our Stockholders:
These are exciting times at your company. In January we announced our plans
to effect a major transformation of Allegheny Teledyne that included the
spin-offs of two of our business segments into independent, publicly-traded
companies. This transformation is now being implemented. The businesses formerly
comprising our Aerospace and Electronics segment will now be a separate company
known as Teledyne Technologies Incorporated. The businesses formerly comprising
our Consumer segment will be a separate company known as Water Pik Technologies,
Inc. The common stock of these companies will be traded on the New York Stock
Exchange under the symbols "TDY" and "PIK," respectively.
Concurrently with the spin-offs we will change our name to "Allegheny
Technologies Incorporated." We also intend to effect a one-for-two reverse split
of our common stock.
The spin-offs will allow Allegheny Technologies to focus exclusively on its
strategic growth objectives as one of the largest and most diversified specialty
metals companies in the world. ATI's strong base of companies provides an
excellent foundation for enhanced operating synergies and for adding
strategically complementary acquisitions. At the same time, the spin-offs
provide each new company with a sharper focus, more efficient access to capital
markets, and substantial growth opportunities in its respective areas of
expertise. By creating these new companies, we believe that we will unlock
greater value for their respective businesses and enhance their ability to
thrive in today's competitive marketplace.
Both of the spin-offs, which will be tax-free to U.S. stockholders and
which do not require any action on your part, will be completed on
, 1999. For every seven shares of ATI common stock that you own
as of the close of business on , 1999, you will receive one share
of Teledyne Technologies common stock. For every 20 shares of ATI common stock
that you own as of the close of business on that date, you will receive one
share of Water Pik Technologies common stock.
The enclosed Information Statement contains information about the spin-off
of Teledyne Technologies and about Teledyne Technologies' business, management
and financial performance. Information about the Water Pik Technologies spin-off
is being provided to you in a separate document. We encourage you to read all of
these materials carefully.
Very truly yours,
Richard P. Simmons
Chairman
<PAGE> 4
[TELEDYNE TECHNOLOGIES INCORPORATED LOGO]
, 1999
To Our Future Stockholders:
Welcome to Teledyne Technologies Incorporated. On , 1999 you
will become a stockholder of our company. We hope that you share our enthusiasm
about our new company and its future.
Teledyne Technologies has a strong foundation. We are a leading provider of
sophisticated electronic and communication products, systems engineering
solutions and information technology services, and aerospace engines and
components. Our customers include aerospace prime contractors, general aviation
companies, government agencies and major communications and other commercial
companies. We serve high-value niche market segments where performance,
precision and reliability are critical and where we are in several cases the
leading supplier. Our businesses are interrelated by their use of advanced
engineering and specialized technology to provide cost-effective and value-added
solutions.
The business operations of our company were carefully selected to create a
group of high technology businesses that have critical mass and shared core
competencies, are strategically complementary and have the potential for
profitable growth. Our products include avionics systems that collect and
communicate information for airlines and business aircraft systems; broadband
communications subsystems for wireless and satellite systems; engineering and
information technology services for space, defense and industrial customers; and
engines for general aviation aircraft and for cruise missiles.
Our goal is to become the leading provider of specialized products, systems
engineering solutions and information services for a broad range of high
technology applications. We are fortunate to have a technically-sophisticated
and well-educated workforce. I am excited to be working with a management team
that will provide high-caliber, experienced leadership and that is committed to
our new company.
Please read the enclosed material for more information about our company.
We look forward to your support and are pleased to have you share in this
exciting opportunity.
Very truly yours,
Robert Mehrabian
President and Chief Executive Officer
<PAGE> 5
PRELIMINARY INFORMATION STATEMENT DATED OCTOBER 29, 1999 -- FOR INFORMATION ONLY
INFORMATION STATEMENT
-------------------------
ALLEGHENY TELEDYNE INCORPORATED'S SPIN-OFF
OF
TELEDYNE TECHNOLOGIES INCORPORATED
-------------------------
We are furnishing you with this Information Statement in connection with
the spin-off by Allegheny Teledyne Incorporated ("ATI") of all of the
outstanding common stock of Teledyne Technologies Incorporated to stockholders
of ATI. We will own and operate the businesses formerly comprising the Teledyne
Electronic Technologies, Teledyne Brown Engineering, Teledyne Continental Motors
and Teledyne Cast Parts divisions of ATI's Aerospace and Electronics segment.
ATI will accomplish the spin-off by distributing all issued and outstanding
shares of our common stock to holders of record of ATI common stock. ATI will
distribute one share of our common stock for every seven ATI shares held as of
the close of business on , 1999. The actual number of our shares to
be distributed will depend on the number of ATI shares outstanding on that date.
Concurrently with the spin-off, ATI will change its name to "Allegheny
Technologies Incorporated."
OWNING SHARES OF OUR COMMON STOCK WILL ENTAIL RISKS. PLEASE READ "RISK
FACTORS" BEGINNING ON PAGE 16.
NO VOTE OF STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THE SPIN-OFF. WE ARE
NOT ASKING YOU FOR A PROXY AND YOU ARE NOT REQUESTED TO SEND US A PROXY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
INFORMATION STATEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
-------------------------
The date of this Information Statement is , 1999.
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TABLE OF CONTENTS
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<CAPTION>
PAGE
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<S> <C>
Summary..................................................... 3
Risk Factors................................................ 16
Cautionary Statement as to Forward-Looking Statements....... 22
The Spin-Off................................................ 22
Reasons for the Spin-Off.................................. 22
Manner of Effecting the Spin-Off.......................... 23
Results of the Spin-Off................................... 23
Material Federal Income Tax Consequences of the
Spin-Off............................................... 24
Listing and Trading of Our Common Stock................... 25
Our Historical Selected Financial Data...................... 27
Our Unaudited Pro Forma Consolidated Financial
Information............................................... 28
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 34
Our Business................................................ 44
Overview.................................................. 44
Our Business and Growth Strategy.......................... 44
Our Business Segments..................................... 47
Sales and Marketing....................................... 54
Competition............................................... 55
Research and Development.................................. 55
Intellectual Property..................................... 55
Our Facilities............................................ 56
Legal Proceedings......................................... 57
Employees................................................. 57
Arrangements with ATI Relating to the Spin-Off.............. 57
Separation and Distribution Agreement..................... 57
Employee Benefits Agreement............................... 58
Tax Sharing and Indemnification Agreement................. 59
Interim Services Agreement................................ 60
Trademark License Agreement............................... 60
Management.................................................. 61
Security Ownership.......................................... 71
Description of Our Capital Stock............................ 73
Liability and Indemnification of Our Officers and
Directors................................................. 79
Available Information....................................... 79
Index to Our Financial Statements........................... F-1
</TABLE>
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SUMMARY
This summary highlights material information from this Information
Statement, but does not contain all the details concerning the spin-off,
including information that may be important to you. To better understand us and
the spin-off, you should carefully review this entire document. References to
"we," "us," "our," "Teledyne Technologies" or "the Company" mean Teledyne
Technologies Incorporated and our subsidiaries and divisions. References to
"ATI" mean Allegheny Teledyne Incorporated and its subsidiaries and divisions.
WHO WE ARE
Teledyne Technologies is a leading provider of sophisticated electronic and
communication products, systems engineering solutions and information technology
services, and aerospace engines and components. Our customers include aerospace
prime contractors, general aviation companies, government agencies and major
communications and other commercial companies. We serve high-value niche market
segments where performance, precision and reliability are critical and where we
are in several cases the leading supplier. Our businesses are interrelated by
their use of advanced engineering and specialized technology to provide
cost-effective and value-added solutions.
Our products include avionics systems that collect and communicate
information for airlines and business aircraft systems; broadband communications
subsystems for wireless and satellite systems; engineering and information
technology services for space, defense and industrial customers; and engines for
general aviation aircraft and for cruise missiles.
Total sales in 1998 were $780 million, compared to $757 million and $716
million in 1997 and 1996, respectively. Our operating profits were $89 million,
$75 million and $75 million in 1998, 1997 and 1996, respectively. Approximately
60% of our total sales in 1998 were to commercial customers and the balance was
to the U.S. Government. Approximately 69% of these U.S. Government sales were
attributable to fixed price-type contracts and the balance to cost plus fee-type
contracts. International sales accounted for approximately 22% of total sales in
1998.
We have a total workforce of approximately 5,800, of whom approximately
1,400 individuals have engineering, physics, mathematics or computer science
degrees.
We believe that as several of the markets we serve experience
consolidation, customers have tended to become increasingly dependent on
technologically-sophisticated specialized suppliers, such as ourselves, to
provide a more comprehensive range of products and services. With our history of
product innovation, advanced research and development and highly sophisticated
engineering and manufacturing capabilities, we believe that we are well-
positioned to take advantage of opportunities to expand our business.
OUR HISTORY
The original Teledyne, Inc. was founded by Dr. Henry Singleton in 1960.
Over the following two decades, Teledyne acquired over 100 high technology and
specialty metals businesses. The original Teledyne ultimately focused on four
major business segments: aviation and electronics, specialty metals, industrial
and consumer. In 1996, Teledyne and Allegheny Ludlum Corporation combined to
form ATI, one of the largest and most diversified specialty metals producers in
the world. Subsequently, ATI integrated the Teledyne specialty
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metals businesses with those of Allegheny Ludlum. ATI also established new
management and a new management philosophy for our businesses, with an increased
emphasis on manufacturing discipline and on strengthening cost management
systems.
After a strategic review initiated in 1998, ATI concluded that its core
Aerospace and Electronics businesses, which will comprise our company, would be
able to grow faster and be a stronger competitor as a separate company. As a
separate company, Teledyne Technologies will be better able to focus on its own
strategic priorities and will have more efficient access to the capital markets
than it could as part of ATI. The operations included in Teledyne Technologies
were carefully selected to create a group of high technology businesses that
have critical mass and shared core competencies, are strategically complementary
and have the potential for profitable growth. Certain businesses in ATI's
Aerospace and Electronics segment were determined not to have these
characteristics and were sold.
Concurrently with the spin-off, ATI will change its name to "Allegheny
Technologies Incorporated."
OUR BUSINESS SEGMENTS
Teledyne Technologies' three business segments, their respective operating
companies and their contribution to our sales in 1998 are summarized in the
following table.
<TABLE>
<CAPTION>
PERCENTAGE OF
SEGMENT OPERATING COMPANIES 1998 SALES
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<S> <C> <C>
Electronics and Teledyne Electronic Technologies 44%
Communications
Systems Engineering Teledyne Brown Engineering 29%
Solutions
Aerospace Engines and Teledyne Continental Motors 27%
Components Teledyne Cast Parts
</TABLE>
Electronics and Communications
Our Electronics and Communications segment, through Teledyne Electronic
Technologies, applies proprietary technology, advanced software and hardware
design skills and manufacturing capabilities in three areas: Data Acquisition
and Communications Products; Precision Electronic Devices; and Electronic
Contract Manufacturing Services.
- Data Acquisition and Communications Products. With over 200 commercial
airline customers, we are one of the leading suppliers of systems that
collect and communicate essential performance data for the commercial
airline industry. We have provided these data acquisition systems for our
airline customers for over one-half of Boeing aircraft currently in
production. We were recently selected by Airbus Industrie's partner,
DaimlerChrysler Aerospace-Airbus, to provide our systems for certain of
its aircraft customers. Teledyne Technologies is also one of the largest
suppliers of air-to-ground telephony and facsimile and data transmission
products to the growing business and commuter aircraft market. We also
supply microwave power amplifiers used in satellite uplink transmitters
for corporate networking and mobile news gathering, and are developing
new products to support the growing market for high data rate broadband
communications, including Internet applications.
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- Precision Electronic Devices. We develop and manufacture specialized
electronic components for demanding applications in the defense,
commercial aerospace, medical, instrumentation and industrial markets,
where high performance and reliability are of paramount importance. Our
miniature electromechanical relays are used to switch high-speed digital
and microwave signals in wireless systems, communication satellites,
semiconductor test equipment and other applications where maintenance of
signal fidelity is essential. We provide custom microelectronic modules
for high reliability applications ranging from fiber optic systems on the
International Space Station to life-sustaining medical devices such as
cardiac pacemakers. We also manufacture instruments designed to provide
the precise data that are essential for control of critical processes in
the semiconductor and petrochemical industries.
- Electronic Contract Manufacturing Services. We operate turnkey
manufacturing facilities in Tennessee, Mexico and Scotland for
low-to-moderate volume, technically-sophisticated products, ranging from
individual printed circuit board assemblies to complete electronic
systems. We manufacture subsystems used in such diverse products as
weapons release systems and medical magnetic resonance imaging systems.
We also support our customers with our patented REGAL(R) rigid-flex
technology, which combines rigid and flexible printed circuits into one
assembly that eliminates board-to-board connectors, resulting in improved
reliability and packaging density.
Systems Engineering Solutions
Our Systems Engineering Solutions segment, through Teledyne Brown
Engineering, offers a wide range of engineering solutions and information
services to government defense, aerospace and commercial customers. Our
solutions and services are focused on five areas: Aerospace Solutions, Defense
Solutions, Information Services, Environmental Solutions, and Enterprise Control
and Energy Products.
- Aerospace Solutions. We provide a broad range of highly-sophisticated
engineering solutions and services to U.S. space programs, including
mission planning, payload integration, launch and flight operations and
astronaut crew training for the Space Shuttle. We also provide various
solutions and services for the International Space Station.
- Defense Solutions. For over 45 years, we have played a key role in the
development of the U.S. defense systems. For ballistic missile defense
programs, we have provided solutions in systems engineering, integration,
and testing; real-time distributed testing and training; radar and
optical systems design; command center development; and intelligence
studies and threat analysis. We provide battle simulation software as
part of our role for the U.S. Ballistic Missile Defense Organization's
National Missile Defense program.
- Information Services. Our software products, most of which are certified
to ISO 9001, are used for highly diverse applications, such as
high-fidelity simulations, multi-media training, Internet website
development, distributed real-time testing, and command and control
centers.
- Environmental Solutions. We utilize our systems engineering solutions to
assist the U.S. Government in complying with terms of the Chemical
Weapons Convention
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Treaty. As the prime contractor for the U.S. Army's Non-Stockpile
Chemical Materiel Demilitarization program, we are designing,
fabricating, integrating and testing equipment to destroy chemical
munitions.
- Enterprise Control and Energy Products. Our systems engineering
capabilities are applied to energy problems through a variety of services
and products. Our OpenVector(TM) supervisory control and data acquisition
systems are used for managing over half of the gas transportation
pipelines in the United States. We also manufacture low-power,
continuously-operating electrical generators.
Aerospace Engines and Components
Our Aerospace Engines and Components segment, through Teledyne Continental
Motors and Teledyne Cast Parts, focuses on the design, development and
manufacture of piston engines, turbine engines, electronic engine controls,
batteries and metal castings.
- Piston Engines. We design, develop and manufacture piston engines and
ignition systems for major general aviation airframe manufacturers and
provide spare parts and engine rebuilding services. Teledyne Continental
Motors piston engines have been powering airplanes for over 70 years. We
have built approximately one-half of the general aviation piston engines
currently in use in the United States. Our Aerosance unit has developed
the first full authority digital electronic controls for piston engines
to automate many functions, such as fuel flow, ignition and power
management, that currently require manual control. These controls are
currently undergoing FAA certification testing.
- Turbine Engines. We design, develop and manufacture small turbine
engines for missiles, unmanned air vehicles and military trainer
aircraft. Since the late 1950s, we have delivered over 20,000 of these
engines to defense contractors. Our engines power the HARPOON cruise
missile and other missile systems. We have recently been selected as the
sole source provider of engines to power the two new U.S. cruise missile
systems, the Joint Air to Surface Standoff Missile (JASSM) and the
Tactical Tomahawk Cruise Missile.
- Battery Products. Our Gill(R) line of lead acid batteries is recognized
as the premier dry-charged, starting and standby power source for general
aviation. We are focused on providing highly engineered battery products
in niche markets with favorable margins.
- Cast Parts. Teledyne Cast Parts offers a wide range of complex aluminum
and magnesium castings and nickel-based superalloy and stainless steel
castings to the aerospace and defense industries. Many of our castings
are used in specialized high pressure and high temperature applications
where precision and product reliability are critical.
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OUR COMPETITIVE STRENGTHS
We have developed a number of competitive strengths as we have grown to
become one of the leading developers of high technology product applications for
the industries we serve. We believe that our competitive strengths include the
following:
- Product Innovation and Advanced Research and Development
- Highly Sophisticated Engineering Capabilities
- Widely-Recognized Brand Names
- Advanced Manufacturing Capabilities
- Established Customer and Regulatory Relationships
- Technically-Sophisticated Workforce and Extensive Intellectual Property
- Financial and Operating Discipline
OUR BUSINESS AND GROWTH STRATEGY
Our goal is to become the leading provider of specialized products, systems
engineering solutions and information services for a broad range of high
technology applications. Our core strategies for achieving our goal and growth
objectives are to:
- Focus on Operating Discipline and Manufacturing Excellence
- Leverage Niche Market Leadership and Technical Expertise to Increase
Market Penetration
- Accelerate Introduction of Innovative High-Margin Products and Services
- Capitalize on Synergies to Enter New Markets
- Enhance and Strengthen Customer and Regulatory Relationships
- Expand Value-Added Information Services
- Pursue Selected Acquisitions and Strategic Alliances
QUESTIONS AND ANSWERS ABOUT THE SPIN-OFF
Why are we being spun-off by
ATI? After a strategic review initiated in 1998,
ATI concluded that its core aerospace and
electronics businesses, which will comprise
our company, would be able to grow faster
and more effectively as a separate company.
As a separate company, we will be better
able to focus on our own strategic
priorities and have more efficient access to
the capital markets than we could as part of
ATI. The operations included in Teledyne
Technologies were carefully selected to
create a group of high technology businesses
that have critical mass and shared core
competencies, are strategically
complementary and have the potential for
profitable growth. Certain businesses in
ATI's Aerospace and Electronics segment were
determined not to have these characteristics
and were sold.
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<PAGE> 12
We believe that the spin-off will enable our
businesses to expand and grow more quickly
and efficiently in the following ways:
- Our high technology businesses have
different fundamentals, growth
characteristics and strategic priorities
than the specialty metals businesses
currently conducted by ATI. The separation
of our businesses from those of ATI will
enable us to focus on our own strategic
priorities, which should increase our
ability to capitalize on growth
opportunities for our businesses and
enhance our ability to respond more
quickly to changes in the technically-
sophisticated markets that we serve.
- The spin-off will enable us to have direct
access to the capital markets. We intend
to raise our own equity capital that we
will use: to expand our businesses by
accelerating new higher-margin product
introductions through increased research
and development investment; to expand upon
our extensive data acquisition and systems
engineering capabilities to provide
value-added information services to
broaden and deepen our market penetration;
to further develop our manufacturing
capabilities; and to pursue selected
acquisitions.
- The spin-off will enable us to recruit,
retain and motivate key employees by
providing them with stock-based
compensation incentives directly tied to
the success of our businesses.
What will I receive in the
spin-off? ATI will distribute one share of our common
stock for every seven shares of ATI common
stock you owned as of , 1999.
For example, if you own 100 shares of ATI
common stock, you will receive 14 whole
shares of our common stock and cash instead
of the fractional share. You will continue
to own your ATI stock. ATI intends to effect
a one-for-two reverse split of its common
stock immediately after the spin-off. The
ATI reverse split will have no effect on
Teledyne Technologies common stock or the
distribution ratio of the spin-off.
What do I have to do to
participate in
the spin-off? Nothing. No stockholder vote is required for
the spin-off.
How will ATI distribute Teledyne
Technologies common stock to
me? If you own ATI common stock on the record
date, the distribution agent will
automatically credit your shares of our
common stock to a book-entry account
established to hold your Teledyne
Technologies
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<PAGE> 13
common stock on , 1999 and will
mail you a statement of your Teledyne
Technologies common stock ownership.
Following the spin-off you may retain your
shares of Teledyne Technologies common stock
in your book-entry account, sell them,
transfer them to a brokerage or other
account, or request a physical certificate
for whole shares.
What is the record date? The record date is , 1999.
What if I hold my shares of ATI
stock
through my stockbroker, bank
or
other nominee? If you hold your shares of ATI stock through
your stockbroker, bank or other nominee, you
are probably not a stockholder of record and
your receipt of Teledyne Technologies common
stock depends on your arrangements with the
nominee that holds your shares of ATI stock
for you. We anticipate that stockbrokers,
banks and other nominees generally will
credit their customers' accounts with
Teledyne Technologies common stock on or
about , 1999, but you should
check with your stockbroker, bank or other
nominee. Following the spin-off you may
instruct your stockbroker, bank or other
nominee to transfer your shares of Teledyne
Technologies common stock into your own name
to be held in book-entry form through the
direct registration system operated by the
distribution agent.
How will you treat fractional
shares? If you are otherwise entitled to receive a
fractional share of Teledyne Technologies
common stock you will receive cash instead
of the fractional share. Fractional shares
will be aggregated and sold by the
distribution agent, which will distribute to
you your portion of the cash proceeds
promptly after the spin-off. No interest
will be paid on any cash distributed instead
of fractional shares.
What is Teledyne Technologies'
dividend policy? We currently anticipate that no cash
dividends will be paid on Teledyne
Technologies common stock in the foreseeable
future in order to conserve cash for use in
our businesses, including possible future
acquisitions. Our current credit facility
will limit our ability to pay dividends. Our
board of directors will periodically re-
evaluate this dividend policy taking into
account our operating results, capital
needs, the terms of our credit facility and
other factors.
How does Teledyne Technologies
common stock differ from ATI
common stock? Teledyne Technologies common stock and ATI
common stock will be different securities
and will not trade or be valued alike.
Teledyne Technologies and ATI will be
separate companies with different
management, fundamentals, growth
characteristics
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<PAGE> 14
and strategic priorities. However, as with
ATI common stock, Teledyne Technologies
common stock will have the following
characteristics:
- be fully paid and nonassessable;
- have one vote per share, with no right to
cumulate votes;
- carry no preemptive rights; and
- be accompanied by Preferred Share Purchase
Rights.
How will Teledyne Technologies
common stock trade? We have applied to list Teledyne
Technologies common stock on the New York
Stock Exchange under the symbol "TDY" and
expect that regular trading will begin on
, 1999. A temporary form of
interim trading called "when-issued trading"
may occur for our common stock on or before
, 1999 and continue through
, 1999. If when-issued trading
occurs, the listing for Teledyne
Technologies common stock will be
accompanied by the letters "wi" on the New
York Stock Exchange. If when-issued trading
develops, you will be able to buy Teledyne
Technologies common stock in advance of the
, 1999 spin-off and you may
sell Teledyne Technologies common stock in
advance of such date on a when-issued basis.
How will ATI common stock trade? ATI common stock will continue to trade on a
"regular way" basis and may also trade on a
when-issued or ex-distribution basis,
reflecting an assumed value for ATI common
stock after giving effect to the spin-offs
of Teledyne Technologies and Water Pik
Technologies, Inc. When-issued or
ex-distribution trading in ATI common stock,
if available, could last from on or before
, 1999 through ,
1999.
Is the spin-off taxable for
United
States federal income tax
purposes? No. ATI has received a tax ruling from the
Internal Revenue Service stating that the
spin-off will be tax-free to ATI and to
ATI's stockholders. The continuing validity
of the IRS tax ruling is subject to various
factual representations and assumptions,
including the completion of a public
offering of our common stock within one year
of the spin-off. See "Risk Factors" and "The
Spin-Off -- Material Federal Income Tax
Consequences of the Spin-Off."
Will we be related to ATI in any
way after the spin-off? ATI will not own any of our common stock
after the spin-off.
10
<PAGE> 15
Until the third annual meeting of our
stockholders held after the spin-off, at
least a majority of the members of our Board
of Directors will also be members of the
Board of Directors of ATI.
We will enter into the following agreements
with ATI prior to the spin-off:
- A Separation and Distribution Agreement,
which provides for the various corporate
transactions required to separate our
businesses from other businesses of ATI
and governs various relationships and
circumstances that may arise between us
after the spin-off;
- An Employee Benefits Agreement, which
contains various agreements between ATI
and us concerning employees, pension and
employee benefit plans and other
compensation arrangements for current and
former employees of our businesses;
- A Tax Sharing and Indemnification
Agreement allocating certain federal,
state, local and foreign tax
responsibilities and liabilities between
ATI and us;
- An Interim Services Agreement under which
ATI will provide various services to us
for limited periods of time following the
spin-off; and
- A Trademark License Agreement under which
an affiliate of ATI will grant Teledyne
Technologies an exclusive license to use
the "Teledyne" name and related logos,
symbols and marks in connection with
Teledyne Technologies operations after the
spin-off, which license will include
Teledyne Technologies' option to purchase,
on the fifth anniversary of the spin-off,
all rights and interests in the Teledyne
name and related logos, symbols and marks.
See "Arrangements with ATI Relating to the
Spin-Off."
Are there any risks entailed in
owning
our stock? Yes. Stockholders should consider carefully
the matters discussed in the section of this
Information Statement called "Risk Factors."
How can I obtain information
about
the separate spin-off of ATI's
Consumer segment? The decision to spin-off Water Pik
Technologies, Inc., the company that owns
and operates the businesses formerly
comprising ATI's Consumer segment, was part
of the strategic planning process that lead
to the decision to spin-off Teledyne
11
<PAGE> 16
Technologies. You will be provided with a
separate Information Statement describing
the spin-off of Water Pik Technologies.
WHAT WE HAVE ALREADY DONE IN PREPARATION FOR THE SPIN-OFF
Board Appointments As of the date of the spin-off, the Board of
Directors will consist of at least four
members. Our initial directors will be Frank
V. Cahouet, C. Fred Fetterolf and Charles J.
Queenan, Jr., all of whom are also directors
of ATI, as well as Robert Mehrabian, our
President and Chief Executive Officer. Until
the third annual meeting of our stockholders
held after the spin-off, at least a majority
of our directors will also be members of the
Board of Directors of ATI.
Senior Management Appointments Dr. Robert Mehrabian is our President and
Chief Executive Officer. He has been the
President and Chief Executive Officer of
ATI's Aerospace and Electronics segment
since July 1999. Dr. Mehrabian has served
ATI in various senior executive capacities
since July 1997, and prior to that, he
served as President of Carnegie Mellon
University.
Stefan C. Riesenfeld is our Executive Vice
President and Chief Financial Officer. He
joined ATI in August 1999 as Executive Vice
President and Chief Financial Officer of
ATI's Aerospace and Electronics segment in
anticipation of the spin-off. From 1996 to
May 1999 he was Chief Financial Officer of
ICL, PLC, a global information systems and
services company based in London, England.
Prior to that, from 1983 to 1996, he was
with Unisys Corporation where he served as
Vice President and Corporate Treasurer from
1989.
John T. Kuelbs is our Senior Vice President,
General Counsel and Secretary. He joined
ATI's Aerospace and Electronics segment in
October 1999. Mr. Kuelbs was Senior Vice
President -- Acquisition Policy for Raytheon
Company from November 1998 to September 1999
and Senior Vice President -- Legal of
Raytheon Systems Company from January 1998
to November 1998. Before Raytheon's
acquisition of Hughes Aircraft Company, Mr.
Kuelbs spent 17 years at Hughes Aircraft
Company where he served as Senior Vice
President, General Counsel and Secretary
from 1994 to 1998.
New Credit Facility ATI will establish a five-year, $200 million
revolving credit facility. Prior to the
spin-off, ATI
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<PAGE> 17
will use $100 million of borrowings under
this credit facility to repay certain of its
debt obligations and we will assume the
repayment obligations for those borrowings.
Following that assumption, we will have $100
million of borrowing availability remaining
under the credit facility, subject to the
terms of the facility.
WHO CAN HELP ANSWER YOUR QUESTIONS
Stockholders of ATI with questions relating to the spin-off should contact:
Richard J. Harshman
Vice President, Investor Relations
and Corporate Communications
Allegheny Teledyne Incorporated
1000 Six PPG Place
Pittsburgh, Pennsylvania 15222-5479
(412) 394-2861
The distribution agent for our common stock in the spin-off and the
transfer agent and registrar for our common stock after the spin-off is:
ChaseMellon Shareholder Services L.L.C.
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
1-888-540-9867
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<PAGE> 18
HISTORICAL SELECTED COMBINED FINANCIAL DATA
The following table summarizes certain selected combined financial data for
Teledyne Technologies. The income statement data for each of the three years
ended December 31, 1998, 1997 and 1996 and the balance sheet data at December
31, 1998 and 1997 set forth below are derived from audited combined financial
statements of Teledyne Technologies. The income statement data for the nine
months ended September 30, 1999 and 1998, and the years ended December 31, 1995
and 1994 and the balance sheet data at September 30, 1999 and 1998 and December
31, 1996, 1995 and 1994 set forth below are derived from unaudited combined
financial statements of Teledyne Technologies.
The historical selected combined financial data are not necessarily
indicative of the results of operations or financial position that would have
occurred if Teledyne Technologies had been a separate, independent company
during the periods presented, nor are they indicative of our future performance.
Such historical data should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our combined
financial statements and related notes included in this Information Statement.
Per share data has not been presented because Teledyne Technologies was not a
publicly held company during the periods presented.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales................ $602,978 $588,690 $780,393 $756,601 $716,400 $680,475 $667,663
Net income........... $ 35,835 $ 37,803 $ 48,717 $ 41,624 $ 40,695 $ 30,850 $ 36,398
Working capital...... $ 93,085 $ 83,591 $ 78,568 $ 87,653 $104,184 $ 92,814 $ 68,896
Total assets......... $277,497 $255,850 $250,819 $255,366 $252,961 $234,301 $217,610
Stockholder's
equity............. $126,370 $109,057 $106,402 $109,365 $128,018 $115,168 $ 99,337
</TABLE>
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<PAGE> 19
PRO FORMA SELECTED CONSOLIDATED FINANCIAL DATA
The pro forma selected consolidated financial data set forth below are
derived from the unaudited pro forma consolidated financial information included
in this Information Statement. The pro forma data do not represent what our
financial position or results of operation would have been had we operated as a
separate, independent public company, nor do they give effect to any events
other than those discussed in the related notes. The pro forma data also do not
project our financial position or results of operations as of any future date or
for any future period.
The capital structure that existed when our businesses operated as a part
of ATI is not relevant because it does not reflect our expected future capital
structure as a separate, independent public company. The basic weighted average
shares outstanding were calculated by applying the distribution ratio (one share
of Teledyne Technologies common stock for every seven shares of ATI common
stock) to ATI's basic weighted average shares outstanding during each period.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Sales...................................... $602,978 $780,393
Net income................................. $ 29,227 $ 39,768
Basic earnings per share................... $ 1.06 $ 1.41
Weighted average shares
outstanding -- basic..................... 27,481 28,107
Diluted earnings per share................. $ 1.06 $ 1.41
Weighted average shares
outstanding -- diluted................... 27,507 28,134
Working capital............................ $ 93,085
Total assets............................... $294,505
Long-term debt............................. $100,000
Stockholders' equity....................... $ 13,062
</TABLE>
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<PAGE> 20
RISK FACTORS
You should carefully consider all the information we have included in this
Information Statement. In particular, you should carefully consider the risk
factors described below. In addition, please read "Cautionary Statement as to
Forward Looking Statements" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" where we describe additional
uncertainties associated with our business and certain forward-looking
statements included in this Information Statement.
WE MAY BE UNABLE TO SUCCESSFULLY INTRODUCE NEW AND ENHANCED PRODUCTS IN A TIMELY
AND COST-EFFECTIVE MANNER.
Our operating results will depend in part on our ability to introduce new
and enhanced products on a timely basis. Successful product development and
introduction depends on numerous factors, including our ability to anticipate
customer and market requirements, changes in technology and industry standards,
our ability to differentiate our offerings from offerings of our competitors,
and market acceptance.
We may not be able to develop and introduce new or enhanced products in a
timely and cost-effective manner or to develop and introduce products that
satisfy customer requirements. Our new products also may not achieve market
acceptance or correctly anticipate new industry standards and technological
changes.
TECHNOLOGICAL CHANGE COULD CAUSE CERTAIN OF OUR PRODUCTS OR SERVICES TO BECOME
OBSOLETE OR NON-COMPETITIVE.
The markets for a number of our products and services are generally
characterized by rapid technological development, evolving industry standards,
changes in customer requirements and new product introductions and enhancements.
A faster than anticipated change in one or more of the technologies related to
our products or services or in market demand for products based on a particular
technology could result in faster than anticipated obsolescence of certain of
our products or services and could have a material adverse effect on our
business, results of operation and financial condition. Currently accepted
industry standards are also subject to change, which may contribute to the
obsolescence of our products or services.
OUR DEPENDENCE ON REVENUE FROM GOVERNMENT CONTRACTS SUBJECTS US TO THE RISK THAT
WE MAY NOT BE SUCCESSFUL IN BIDDING FOR FUTURE CONTRACTS AND THAT GOVERNMENT
FUNDING FOR THESE CONTRACTS MAY BE DELAYED OR CONTINUE TO DECREASE.
We perform work on a number of contracts with the Department of Defense and
other agencies and departments of the U.S. Government. Sales under contracts
with the U.S. Government as a whole, including sales under contracts with the
Department of Defense, as prime or subcontractor, represented approximately 40%
of our total revenue for 1998. Performance under government contracts has
certain inherent risks that could have a material effect on our business,
results of operations and financial condition.
Government contracts are conditioned upon the continuing availability of
Congressional appropriations. Congress typically appropriates funds for a given
program on a fiscal-year basis even though contract performance may take more
than one year. As a result, at the beginning of a major program, a contract is
typically only partially funded, and additional monies are normally committed to
the contract by the procuring agency only as appropriations are made by Congress
for future fiscal years.
The overall U.S. military budget declined in real dollars from the
mid-1980's through the early 1990's. Although U.S. military budgets have
stabilized in recent years, future levels of defense spending cannot be
predicted. Delays or further declines in U.S. military expenditures could
adversely affect our business, results of operations and financial condition,
depending upon the programs affected, the timing and size of the changes and our
ability to offset the impact with new business or cost reductions.
Most of our U.S. Government contracts are subject to termination by the
U.S. Government
16
<PAGE> 21
either at its convenience or upon the default of the contractor.
Termination-for-convenience provisions provide only for the recovery of costs
incurred or committed, settlement expenses, and profit on work completed prior
to termination. Termination-for-default imposes liability on the contractor for
excess costs incurred by the U.S. Government in procuring undelivered items from
another source.
We obtain many U.S. Government prime and subcontracts through the process
of competitive bidding. We may not be successful in having our bids accepted. In
addition, contracts may not be profitable.
A number of our U.S. Government prime and subcontracts are fixed price-type
contracts (69% in 1998). Under these types of contracts, we bear the inherent
risk that actual performance cost may exceed the fixed contract price. This is
particularly true where the contract was awarded and the price finalized in
advance of final completion of design. We believe that the U.S. Government is
increasingly requesting proposals for fixed price-type contracts.
We, like other government contractors, are subject to various audits,
reviews and investigations (including private party "whistleblower" lawsuits)
relating to our compliance with federal and state laws. In addition, we have a
compliance program designed to surface issues that may lead to voluntary
disclosures to the U.S. Government. Generally, claims arising out of these U.S.
Government inquiries and voluntary disclosures can be resolved without resorting
to litigation. However, should the business unit or division involved be charged
with wrongdoing, or should the U.S. Government determine that the unit or
division is not a "presently responsible contractor," that unit or division, and
conceivably our company as a whole, could be temporarily suspended or, in the
event of a conviction, could be debarred for up to three years from receiving
new government contracts or government-approved subcontracts. In addition, we
could expend substantial amounts in defending against such charges and in
damages, fines and penalties if such charges are proven or result in negotiated
settlements.
WE MAY NOT HAVE SUFFICIENT RESOURCES TO FUND PLANNED OR NECESSARY RESEARCH AND
DEVELOPMENT, CAPITAL EXPENDITURES AND POSSIBLE ACQUISITIONS.
In order to remain competitive, we must make substantial investments in
research and development to develop new and enhanced products and continuously
upgrade our process technology and manufacturing capabilities.
Although we believe that anticipated cash flows from operations and
available borrowings under the Credit Facility will be sufficient to satisfy our
working capital and normal operating requirements, we cannot fund our planned
research and development, capital investment programs and possible acquisitions
without additional financing. Our ability to raise additional capital will
depend on a variety of factors, some of which will not be within our control,
including investor perceptions of us, our businesses and the industries in which
we operate, and general economic and market conditions. We may be unable to
successfully raise needed capital and the amount of net proceeds that will be
available to us may not be sufficient to meet our needs. Failure to successfully
raise needed capital on a timely or cost-effective basis could have a material
adverse effect on our business, results of operations and financial condition.
IF WE FAIL TO UNDERTAKE A PUBLIC OFFERING OF OUR COMMON STOCK WITHIN ONE YEAR
FOLLOWING THE SPIN-OFF, WE WILL BE IN BREACH OF OUR AGREEMENTS WITH ATI.
ATI has received a tax ruling from the IRS stating in principle that the
spin-off will be tax-free to ATI and to ATI's stockholders. One of the
assumptions underlying the tax ruling is that we will undertake a public
offering of our common stock within one year following the spin-off and use the
anticipated gross proceeds of approximately $125 million (less associated costs)
for research and development and related capital projects, for the further
development of our manufacturing capabilities and for acquisitions and/or joint
ventures. Pursuant to the Separation and Distribution Agreement and the Tax
Sharing and Indemnification Agreement, we have also agreed with ATI to undertake
such a public
17
<PAGE> 22
offering. Our failure to do so would be a breach of those agreements and subject
us to substantial liabilities.
WE SELL PRODUCTS AND SERVICES TO CUSTOMERS IN INDUSTRIES WHICH ARE CYCLICAL AND
SENSITIVE TO CHANGES IN GENERAL ECONOMIC ACTIVITY.
We derive significant revenues from the commercial aerospace industry.
Domestic and international commercial aerospace markets are cyclical in nature.
Historic demand for new commercial aircraft has been related to the stability
and health of domestic and international economies. Delays or changes in
aircraft and component orders could impact the future demand for our products
and have a material adverse effect on our business, results of operations and
financial condition.
In addition, we sell products and services to customers in industries that
are sensitive to the level of general economic activity and in mature industries
that are sensitive to capacity. Adverse economic conditions affecting these
industries may reduce demand for our products and services, which may reduce our
profits, or our production levels, or both.
PRODUCT LIABILITY CLAIMS OR RECALLS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
REPUTATION, BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
As a manufacturer and distributor of various products, our results of
operations are susceptible to adverse publicity regarding the quality or safety
of our products. In part, product liability claims challenging the safety of our
products may result in a decline in sales for a particular product which could
adversely affect our results of operations. This could be true even if the
claims themselves are proven to not be true or settled for immaterial amounts.
While we will have general liability and other insurance policies
concerning product liabilities, we will have self-insured retentions or
deductibles under such policies with respect to a portion of these liabilities.
For example, our annual self-insured retention for general aviation aircraft
liabilities incurred in connection with products manufactured by Teledyne
Continental Motors is $10 million.
Product recalls could also have a material adverse effect on our business,
results of operations and financial condition. For example, in the second
quarter of 1999, Teledyne Continental Motors engaged in a product recall of
piston engines produced in 1998, which had an adverse effect on our recent
financial performance. Product recalls have the potential for tarnishing a
company's reputation and could have a material adverse effect on the sales of
our products.
We cannot assure you that we will not have additional product liability
claims or that we will not recall any additional products.
WE ARE SUBJECT TO THE RISKS ASSOCIATED WITH INTERNATIONAL SALES.
During 1998, international sales accounted for approximately 22% of our
total revenues. We anticipate that future international sales will continue to
account for a significant percentage of our revenues. Risks associated with
these sales include:
- - political and economic instability;
- - export controls;
- - changes in legal and regulatory requirements;
- - U.S. and foreign government policy changes affecting the markets for our
products;
- - changes in tax laws and tariffs;
- - the impact of the transition to a common European currency;
- - convertibility and transferability of international currencies; and
- - exchange rate fluctuations (which may affect sales to international customers
and the value of and profits earned on international sales when converted into
dollars).
Any of these factors could have a material adverse effect on our business,
results of opera-
18
<PAGE> 23
tions and financial condition. Recent weak conditions in Asian economies have
affected our results of operations adversely. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
OUR INABILITY TO ATTRACT AND RETAIN KEY PERSONNEL COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR FUTURE SUCCESS.
Our future success depends to a significant extent upon the continued
service of our executive officers and other key management and technical
personnel and on our ability to continue to attract, retain and motivate
qualified personnel. The loss of the services of one or more of our key
employees or our failure to attract, retain and motivate qualified personnel
could have a material adverse effect on our business, financial condition and
results of operations. In particular, the loss of the services of Dr. Robert
Mehrabian, our President and Chief Executive Officer, could materially and
adversely affect us.
ACQUISITIONS INVOLVE INHERENT RISKS THAT MAY ADVERSELY AFFECT OUR OPERATING
RESULTS AND FINANCIAL CONDITION.
Our growth strategy includes possible acquisitions. Acquisitions involve
various inherent risks, such as:
- - our ability to assess accurately the value, strengths, weaknesses, contingent
and other liabilities and potential profitability of acquisition candidates;
- - the potential loss of key personnel of an acquired business;
- - our ability to integrate acquired businesses and to achieve identified
financial and operating synergies anticipated to result from an acquisition;
and
- - unanticipated changes in business and economic conditions affecting an
acquired business.
PROVISIONS OF OUR GOVERNING DOCUMENTS, APPLICABLE LAW AND THE TAX SHARING AND
INDEMNIFICATION AGREEMENT COULD MAKE AN ACQUISITION OF TELEDYNE TECHNOLOGIES
MORE DIFFICULT.
Our Certificate of Incorporation, Bylaws and Rights Agreement, and the
General Corporation Law of the State of Delaware (the "DGCL") contain several
provisions that could make the acquisition of control of Teledyne Technologies
in a transaction not approved by our board of directors more difficult. See
"Description of Our Capital Stock -- Rights Plan," "-- Certain Provisions of Our
Governing Documents," and "-- Anti-takeover Legislation." Certain tax aspects of
the spin-off could also discourage an acquisition of control of Teledyne
Technologies for some period of time. For example, the acquisition of Teledyne
Technologies by a third party during the two-year period following the spin-off
could result in the spin-off not qualifying as a tax-free distribution within
the meaning of Section 355 of the Internal Revenue Code and trigger
indemnification obligations of Teledyne Technologies under the Tax Sharing and
Indemnification Agreement. See "Arrangements with ATI Relating to the
Spin-Off -- Tax Sharing and Indemnification Agreement."
IF WE ARE UNABLE TO MANAGE THE YEAR 2000 TRANSITION, OUR BUSINESS, RESULTS OF
OPERATIONS AND FINANCIAL CONDITION WILL BE ADVERSELY AFFECTED.
We are in the final stages of implementing plans to address issues related
to the impact of the Year 2000 on our products, business systems,
infrastructure, manufacturing systems and suppliers. The estimated costs
associated with these efforts continue to be evaluated based on actual
experience.
While we believe, based on available information, that we will be able to
manage the Year 2000 transition without any material adverse effect on our
business, results of operations and financial condition, there can be no
assurance that this will be the case. In addition, we may be adversely affected
by the failure of suppliers, customers and federal, state, local and
international governments to address Year 2000 issues affecting their systems.
19
<PAGE> 24
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000 Readiness Disclosure."
COMPLIANCE WITH INCREASING ENVIRONMENTAL REGULATIONS AND THE EFFECTS OF
POTENTIAL ENVIRONMENTAL LIABILITIES COULD HAVE A MATERIAL ADVERSE FINANCIAL
EFFECT ON US.
We, like other industry participants, are subject to various federal,
state, local and international environmental laws and regulations. We may be
subject to increasingly stringent environmental standards in the future. Future
developments, administrative actions or liabilities relating to environmental
matters could have a material adverse effect on our business, results of
operations or financial condition.
Some of our businesses work with highly dangerous substances which require
heightened standards of care. For example, as the prime contractor for the U.S.
Army's Non-Stockpile Chemical Materiel Demilitarization program, we are
responsible for the destruction of small caches of chemical munitions and
materiel located in over 30 states. The destruction of chemical weapons is an
inherently dangerous activity. Although we have not experienced any accidents or
other adverse consequences as a result of our participation in this program, we
cannot assure you that we will not experience any problems in the future.
INCREASING COMPETITION COULD REDUCE THE DEMAND FOR OUR PRODUCTS AND SERVICES.
Although we have certain advantages that we believe help us compete in our
markets, each of our markets is highly competitive. Many of our competitors
have, and potential competitors could have, greater name recognition, a larger
installed base of products, more extensive engineering, manufacturing, marketing
and distribution capabilities and greater financial, technological and personnel
resources than we do. New or existing competitors may also develop new
technologies which could adversely affect the demand for our products and
services. Industry consolidation trends, particularly among aerospace and
defense contractors, could adversely affect demand for our products and services
if prime contractors seek to control more aspects of vertically-integrated
projects.
HAVING NO OPERATING HISTORY AS AN INDEPENDENT COMPANY MAKES IT DIFFICULT TO
PREDICT OUR PROFITABILITY AS A STAND-ALONE COMPANY.
We do not have an operating history as an independent company. Our
businesses have historically relied on ATI for various financial, managerial and
administrative services and have been able to benefit from the earnings,
financial resources, assets and cash flows of ATI's other businesses. After the
spin-off, ATI will only be obligated to provide us with the assistance and
services set forth in the Interim Services Agreement. See "Arrangements with ATI
Relating to the Spin-Off."
Following the spin-off, we will incur costs and expenses associated with
the management of a public company that we expect will be greater than the
amount reflected in our historical financial statements. We will also incur
interest expense and be subject to the other requirements associated with our
credit facility. While we have been profitable as part of ATI, there can be no
assurance that, as a stand-alone company, our future profits will be comparable
to historical operating results before the spin-off.
We also will need to dedicate significant managerial and other resources at
the corporate level to establish the infrastructure and systems necessary for us
to operate as an independent public company. While we believe that we have
sufficient management resources, we cannot assure you that this will be the case
or that we will successfully implement our operating and growth initiatives.
Failure to implement these initiatives successfully could have a material
adverse effect on our business, results of operations and financial condition.
20
<PAGE> 25
SINCE THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK IT IS IMPOSSIBLE TO
PREDICT THE PRICES AT WHICH OUR COMMON STOCK WILL TRADE IN THE OPEN MARKET.
There has been no prior trading market for our common stock, and we cannot
predict the prices at which trading in our common stock will occur after the
spin-off. The trading prices for our common stock could fluctuate significantly.
SUBSTANTIAL SALES OF OUR COMMON STOCK FOLLOWING THE SPIN-OFF OR THE PROSPECT OF
THE REQUIRED PUBLIC OFFERING COULD CAUSE A DECREASE IN THE MARKET PRICE OF OUR
COMMON STOCK.
Substantially all of the shares of our common stock distributed in the
spin-off will be eligible for immediate resale in the public market. In
transactions similar to the spin-off, it is not unusual for a significant
redistribution of shares to occur during the first few weeks or even months
following completion of the transaction because of the differing objectives and
strategies of investors, including mutual funds, who acquire shares of our
common stock in the transaction. In addition, the prospect of our being required
to undertake a public offering of our common stock within one year following the
spin-off may adversely affect the market price of our common stock.
Sales of substantial amounts of our common stock in the public market
following the spin-off, the perception that any redistribution has not been
completed, or the prospect of our having to undertake a public offering of our
common stock following the spin-off, could materially adversely affect the
market price of our common stock.
FAILURE OF REPRESENTATIONS AND ASSUMPTIONS UNDERLYING THE IRS TAX RULING COULD
CAUSE THE SPIN-OFF NOT TO BE TAX-FREE TO ATI OR TO ATI'S STOCKHOLDERS AND MAY
REQUIRE US TO INDEMNIFY ATI.
While the tax ruling relating to the qualification of the spin-off as a
tax-free distribution within the meaning of Section 355 of the Internal Revenue
Code generally is binding on the IRS, the continuing validity of the tax ruling
is subject to certain factual representations and assumptions, including the
assumption that we will complete a required public offering of our common stock
within one year following the spin-off, and use the anticipated gross proceeds
of approximately $125 million (less associated costs) for research and
development and related capital projects, for the further development of our
manufacturing capabilities and for acquisitions and/or joint ventures. ATI and
Teledyne Technologies are not aware of any facts or circumstances that would
cause such representations and assumptions to become untrue.
If the spin-off were not to qualify as a tax-free distribution within the
meaning of Section 355 of the Code, ATI would recognize taxable gain generally
equal to the amount by which the fair market value of the Teledyne Technologies
common stock distributed to ATI's stockholders exceeded the tax basis in our
assets. In addition, the distribution of our common stock to each ATI
stockholder would generally be treated as taxable in an amount equal to the fair
market value of the Teledyne Technologies common stock such stockholder
receives.
If the spin-off qualified as a distribution under Section 355 of the Code
but failed to be tax-free to ATI because of certain post-spin-off circumstances
(such as an acquisition of Teledyne Technologies) ATI would recognize taxable
gain as described above, but the distribution of our common stock in the
spin-off would generally be tax-free to each ATI stockholder.
The Tax Sharing and Indemnification Agreement provides that we will be
responsible for any taxes imposed on, or other amounts paid by, ATI, its agents
and representatives and its stockholders as a result of the failure of the
spin-off to qualify as a tax-free distribution within the meaning of Section 355
of the Code if the failure or disqualification is caused by certain
post-spin-off actions by or with respect to us (including our subsidiaries) or
our stockholders. For example, the acquisition of Teledyne Technologies by a
third party during the two-year period following the spin-off could cause such a
failure or disqualification. If any of the taxes or other
21
<PAGE> 26
amounts described above were to become payable by us, the payment could have a
material adverse effect on our financial condition, results of operations and
cash flow and could exceed our net worth by a substantial amount. See
"Arrangements with ATI Relating to the Spin-Off -- Tax Sharing and
Indemnification Agreement."
CAUTIONARY STATEMENT AS TO FORWARD LOOKING STATEMENTS
We caution you that this document contains disclosures which are
forward-looking statements. All statements regarding ATI's or Teledyne
Technologies' expected future financial position, results of operations, cash
flows, dividends, financing plans, business strategy, budgets, projected costs
or cost savings, capital expenditures, competitive positions, continuation or
expansion of government programs, growth opportunities for existing products or
products under development, benefits from new technology, plans and objectives
of management for future operations and markets for stock are forward-looking
statements. In addition, forward-looking statements include statements in which
we use words such as "expect," "believe," "anticipate," "intend," or similar
expressions. Although we believe the expectations reflected in such
forward-looking statements are based on reasonable assumptions, we cannot assure
you that these expectations will prove to have been correct, and actual results
may differ materially from those reflected in the forward-looking statements.
Factors that could cause our actual results to differ from the expectations
reflected in the forward-looking statements in this document include those set
forth in "Risk Factors."
Neither Teledyne Technologies nor ATI has any intention of or obligation to
update the forward-looking statements, even if new information, future events or
other circumstances make them incorrect or misleading.
THE SPIN-OFF
REASONS FOR THE SPIN-OFF
After a strategic review initiated in 1998, ATI concluded that its core
aerospace and electronics businesses, which will comprise our company, would be
able to grow faster and more effectively as a separate, independent company. As
a separate, independent company, we will be better able to focus on our own
strategic priorities and have more efficient access to the capital markets than
we could as part of ATI. The operations included in Teledyne Technologies were
carefully selected to create a group of high technology businesses that have
critical mass and shared core competencies, are strategically complementary and
have the potential for profitable growth. Certain businesses in ATI's Aerospace
and Electronics segment were determined not to have these characteristics and
were sold.
This Information Statement relates only to distribution of the common stock
of Teledyne Technologies, whose businesses are those formerly comprising ATI's
Aerospace and Electronics segment. A separate Information Statement will be
provided to you regarding the spin-off of Water Pik Technologies, Inc., the
company that owns and operates the businesses formerly comprising ATI's Consumer
segment.
We believe that the spin-off will enable our businesses to expand and grow
more quickly and efficiently in the following ways:
- - Our high technology businesses have different fundamentals, growth
characteristics and strategic priorities than the specialty metals businesses
currently conducted by ATI. The separation of our businesses from those of ATI
will allow us to focus on our own strategic priorities, which should increase
our ability to capitalize on growth opportunities for our businesses and
enhance our ability to respond more quickly to changes in the technically-
sophisticated markets that we serve.
- - The spin-off will enable us to have direct access to the capital markets to
finance the expansion of our businesses and support our
22
<PAGE> 27
future growth. More specifically, we intend to raise our own equity capital:
- to accelerate new higher-margin product introductions through increased
research and development investment
- to expand upon our extensive data acquisition and systems engineering
capabilities to provide value-added information services to broaden and
deepen our market penetration
- to further develop our manufacturing capabilities
- to pursue selected acquisitions
- - The spin-off will enable us to recruit, retain and motivate key employees by
providing them with stock-based compensation incentives directly tied to the
success of our businesses.
MANNER OF EFFECTING THE SPIN-OFF
ATI will effect the spin-off by distributing all issued and outstanding
shares of our common stock to holders of record of ATI common stock as of the
close of business on , 1999. The spin-off will be made on the basis
of one share of our common stock for every seven shares of ATI common stock
held.
If you own ATI common stock on the record date, the distribution agent will
automatically credit your shares of our common stock to a book-entry account
established to hold your Teledyne Technologies common stock on ,
1999 and will mail you a statement of your Teledyne Technologies common stock
ownership. Following the spin-off you may retain your shares of Teledyne
Technologies common stock in your book-entry account, sell them, transfer them
to a brokerage or other account, or request a physical certificate for whole
shares.
If a stockholder is otherwise entitled to receive a fractional share of
Teledyne Technologies common stock, that stockholder will instead receive cash
for that fractional share. The distribution agent will, promptly after the date
of the spin-off, aggregate all fractional share interests in Teledyne
Technologies common stock with those of other similarly situated stockholders
and sell such interests in Teledyne Technologies common stock in open market
transactions at then-prevailing prices. The distribution agent will have sole
discretion regarding when, how, through which broker (which will not be
affiliated with ATI or Teledyne Technologies) and at what prices to make such
sales. The distribution agent will distribute the cash proceeds to stockholders
entitled to such proceeds pro rata based upon their fractional interests in
Teledyne Technologies common stock. No interest will be paid on any cash
distributed instead of fractional shares. The distribution agent is not
affiliated with ATI or Teledyne Technologies.
No owner of ATI common stock will be required to pay any cash or other
consideration for shares of Teledyne Technologies common stock received in the
spin-off or to surrender or exchange any shares of ATI common stock to receive
shares of Teledyne Technologies common stock. The actual total number of shares
of Teledyne Technologies common stock to be distributed will depend on the
number of shares of ATI common stock outstanding on , 1999.
Participants in the ATI Investor Services Program will be credited with the
number of shares (including fractional shares) of Teledyne Technologies common
stock distributed in the spin-off in respect of the ATI common stock held in
their accounts.
NO CONSIDERATION WILL BE PAID BY STOCKHOLDERS OF ATI FOR THE SHARES OF OUR
COMMON STOCK TO BE RECEIVED BY THEM IN THE SPIN-OFF. ATI STOCKHOLDERS WILL NOT
BE REQUIRED TO SURRENDER OR EXCHANGE SHARES OF ATI COMMON STOCK OR TAKE ANY
OTHER ACTION IN ORDER TO RECEIVE OUR COMMON STOCK.
RESULTS OF THE SPIN-OFF
After the spin-off, we will be a separate, independent public company. Our
management, fundamentals, growth characteristics and strategic priorities will
be different from those of ATI.
23
<PAGE> 28
Concurrently with the spin-off, ATI will change its name to "Allegheny
Technologies Incorporated."
The number and identity of our stockholders immediately after the spin-off
will be the same as the number and identity of ATI's stockholders at the close
of business on , 1999. Immediately after the spin-off, we expect to
have approximately 9,200 holders of record of our common stock and approximately
27,008,553 shares of our common stock outstanding, based on the number of record
stockholders and issued and outstanding shares of ATI common stock as of the
close of business on September 30, 1999 and on the distribution ratio of one
share of our common stock for every seven shares of ATI common stock owned by
ATI stockholders at that time.
As with ATI common stock, the shares of Teledyne Technologies common stock
will:
- - be fully paid and nonassessable;
- - have one vote per share, with no right to cumulate votes;
- - carry no preemptive rights; and
- - be accompanied by Preferred Share Purchase Rights.
The Teledyne Technologies common stock and the ATI common stock, however, will
be different securities and will not trade or be valued alike. See "Description
of Our Capital Stock."
We have applied to have our common stock approved for listing on the New
York Stock Exchange under the trading symbol "TDY."
The spin-off will not, in and of itself, affect the number of outstanding
shares of ATI common stock or the rights associated with these shares. ATI
intends to effect a one-for-two reverse split of its common stock immediately
following the spin-off.
MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE SPIN-OFF
The following is a summary of the material United States Federal income tax
consequences of the spin-off. It is not intended to address the tax consequences
applicable to every stockholder. In particular, this summary does not cover
state, local, or international income and other tax consequences. Accordingly,
stockholders are strongly encouraged to consult their individual tax advisors
for information on the tax consequences applicable to their individual
situations.
ATI has received a tax ruling from the IRS that states that the spin-off
will qualify as a tax-free distribution under Section 355 of the Internal
Revenue Code. In accordance with this tax ruling:
- - No gain or loss will be recognized by ATI upon the distribution of Teledyne
Technologies common stock to ATI's stockholders.
- - No gain or loss will be recognized by ATI's stockholders as a result of your
receipt of our common stock in the spin-off except to the extent that you
receive cash instead of a fractional share.
- - If you receive cash instead of a fractional share of our common stock in the
spin-off, you will be treated as having received the fractional share in the
spin-off and then having sold the fractional share. Accordingly, you will
recognize gain or loss equal to the difference between the cash you receive
and the amount of tax basis allocable (as described below) to the fractional
share. The gain or loss will be capital gain or loss if you would have had the
fractional share as a capital asset.
- - Your tax basis in your ATI common stock will be apportioned among the ATI
common stock and the common stock of Teledyne Technologies and common stock of
Water Pik Technologies, Inc. you receive in the spin-offs on the basis of the
relative fair market values of the shares at the time of the spin-offs.
Promptly following the spin-off, ATI will send a letter to the holders of ATI
common stock who receive our common stock in the spin-off that will
24
<PAGE> 29
explain the allocation of tax basis among ATI common stock and the Teledyne
Technologies common stock and the Water Pik common stock you receive in the
spin-offs.
- - The holding period of Teledyne Technologies common stock that you receive in
the spin-off will be the same as the holding period of ATI common stock with
respect to which you received our common stock so long as you hold the ATI
common stock as a capital asset on the date of the spin-off.
The tax ruling relating to the qualification of the spin-off as a tax-free
distribution within the meaning of Section 355 of the Internal Revenue Code
generally is binding on the IRS. However, the continuing validity of the tax
ruling is subject to certain factual representations and assumptions, including
completion of a public offering of our common stock within one year of the
spin-off, and use of the anticipated gross proceeds of approximately $125
million (less associated costs) for research and development and related capital
projects, for the further development of our manufacturing capabilities and for
acquisitions and/or joint ventures, as well as the lack of a plan or intention
on the part of ATI or Teledyne Technologies to merge with any other corporation
or to sell assets otherwise than in the ordinary course of business, or (subject
to certain exceptions) to purchase shares of its outstanding stock.
If the spin-off were not to qualify as a tax-free distribution within the
meaning of Section 355 of the Code, ATI would recognize taxable gain generally
equal to the amount by which the fair market value of Teledyne Technologies
common stock distributed to ATI's stockholders exceeds the tax basis in our
assets. In addition, each ATI stockholder who receives our common stock in the
spin-off would generally be treated as having received a taxable distribution in
an amount equal to the fair market value of our common stock. If the spin-off
qualified under Section 355 of the Code but failed to be tax-free to ATI because
of certain post-spin-off circumstances, ATI would recognize taxable gain as
described above but the spin-off would generally be tax-free to each ATI
stockholder as described in the preceding paragraph. See "Risk Factors."
THE FOREGOING SUMMARIZES THE MATERIAL UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF THE SPIN-OFF UNDER CURRENT LAW. YOU SHOULD CONSULT YOUR TAX
ADVISOR AS TO THE PARTICULAR CONSEQUENCES OF THE SPIN-OFF TO YOU, INCLUDING THE
APPLICATION OF STATE, LOCAL AND INTERNATIONAL TAX LAWS, AND AS TO POSSIBLE
CHANGES IN TAX LAW THAT MAY AFFECT THE TAX CONSEQUENCES DESCRIBED ABOVE.
The Tax Sharing and Indemnification Agreement provides that we are not to
take any action inconsistent with, nor fail to take any action required by, the
request for the tax ruling or the tax ruling unless ATI has given its prior
written consent or, in certain circumstances, a supplemental ruling that permits
such action is obtained. The Tax Sharing and Indemnification Agreement also
provides that we will be responsible for any taxes imposed on, or amounts paid
by, ATI, its agents and representatives and its stockholders as a result of the
failure of the spin-off to qualify as a tax-free distribution within the meaning
of Section 355 of the Code if the failure or disqualification is attributable to
certain post-spin-off actions or failures to act by or with respect to us
(including our subsidiaries) or our stockholders, such as the acquisition of
Teledyne Technologies by a third party at a time and in a manner that would
cause such a failure or disqualification. See "Arrangements with ATI Relating to
the Spin-Off -- Tax Sharing and Indemnification Agreement."
LISTING AND TRADING OF OUR COMMON STOCK
Currently, there is no public market for our common stock. We have applied
to have our common stock approved for listing on the New York Stock Exchange
under the trading symbol "TDY."
A temporary form of interim trading called "when-issued trading" may occur
for our common stock on or before , 1999 and continue through
, 1999. If when-issued trading occurs, the listing for Teledyne
Technologies common stock will be
25
<PAGE> 30
accompanied by the letters "wi" on the New York Stock Exchange. If when-issued
trading develops, you will be able to buy Teledyne Technologies common stock in
advance of the , 1999 spin-off and you may sell Teledyne
Technologies common stock in advance of such date on a when-issued basis.
ATI common stock will continue to trade on a "regular way" basis and may
also trade on a when-issued or ex-distribution basis, reflecting an assumed
value for ATI common stock after giving effect to the spin-offs of Teledyne
Technologies and Water Pik Technologies, Inc. When issued or ex-distribution
trading in ATI common stock, if available, could last from on or before
, 1999 through , 1999.
Beginning on the first New York Stock Exchange trading day after the date
of the spin-off, we expect that ATI common stock will trade "regular way" only,
entitling the buyer to receive only ATI common stock.
Until our common stock is fully distributed and an orderly market develops,
the prices at which trading in our common stock occurs may fluctuate
significantly and may be lower or higher than the price that would be expected
for a fully-distributed issue. The prices at which our common stock will trade
following the spin-off will be determined by the marketplace and may be
influenced by many factors, including:
- - the depth and liquidity of the market for our common stock;
- - investor perceptions of us, our businesses and the industries in which we
operate;
- - our dividend policy;
- - our financial results; and
- - general economic and market conditions.
Substantially all of the shares of our common stock that are distributed in
the spin-off will be eligible for immediate resale. In transactions similar to
the spin-off, it is not unusual for a significant redistribution of shares to
occur during the first few weeks or even months following completion of the
transaction because of the differing objectives and strategies of investors who
acquire shares of our common stock in the transaction. We are not able to
predict whether substantial amounts of our common stock will be sold in the open
market following the spin-off or what effect these sales may have on prices at
which our common stock may trade. Sales of substantial amounts of our common
stock in the public market during this period, the perception that any
redistribution has not been completed or the prospect of our having to undertake
a public offering of our common stock following the spin-off could materially
adversely affect the market price of our common stock.
Generally, the shares of our common stock that are distributed in the
spin-off will be freely transferable, except for securities received by persons
deemed to be our "affiliates" under the Securities Act of 1933, as amended
("Securities Act"). Persons who may be deemed to be our affiliates after the
spin-off generally include individuals or entities that control, are controlled
by, or are in common control with us, including our directors. Persons who are
our affiliates will be permitted to sell shares of our common stock they receive
in the spin-off only pursuant to an effective registration statement under the
Securities Act or an exemption from the registration requirements of the
Securities Act, such as in accordance with the requirements of Rule 144 under
the Securities Act.
26
<PAGE> 31
OUR HISTORICAL SELECTED FINANCIAL DATA
The following table summarizes certain selected combined financial data for
Teledyne Technologies. The income statement data for each of the three years
ended December 31, 1998, 1997 and 1996 and the balance sheet data at December
31, 1998 and 1997 set forth below are derived from audited combined financial
statements of Teledyne Technologies. The income statement data for the nine
months ended September 30, 1999 and 1998 and the years ended December 31, 1995
and 1994 and the balance sheet data at September 30, 1999 and 1998 and December
31, 1996, 1995 and 1994 set forth below are derived from unaudited combined
financial statements of Teledyne Technologies.
The historical selected combined financial data are not necessarily
indicative of the results of operations or financial position that would have
occurred if Teledyne Technologies had been a separate, independent company
during the periods presented, nor are they indicative of our future performance.
Such historical data should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our combined
financial statements and related notes included in this Information Statement.
Per share data has not been presented because Teledyne Technologies was not a
publicly held company during the periods presented.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales......................... $602,978 $588,690 $780,393 $756,601 $716,400 $680,475 $667,663
Net income.................... $ 35,835 $ 37,803 $ 48,717 $ 41,624 $ 40,695 $ 30,850 $ 36,398
Working capital............... $ 93,085 $ 83,591 $ 78,568 $ 87,653 $104,184 $ 92,814 $ 68,896
Total assets.................. $277,497 $255,850 $250,819 $255,366 $252,961 $234,301 $217,610
Stockholder's equity.......... $126,370 $109,057 $106,402 $109,365 $128,018 $115,168 $ 99,337
</TABLE>
27
<PAGE> 32
OUR UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION
The following unaudited pro forma consolidated income statements for the
nine months ended September 30, 1999 and for the year ended December 31, 1998
and the unaudited pro forma consolidated balance sheet at September 30, 1999
present the combined results of operations and financial position of Teledyne
Technologies assuming that the transactions contemplated by the spin-off had
been completed as of the beginning of 1998 with respect to the pro forma
consolidated income statements for the nine months ended September 30, 1999 and
for the year ended December 31, 1998 and as of September 30, 1999 with respect
to the pro forma consolidated balance sheet. In the opinion of management, they
include all material adjustments necessary to reflect, on a pro forma basis, the
impact of transactions contemplated by the spin-off on the historical financial
information of Teledyne Technologies. The adjustments are described in the notes
to pro forma consolidated financial information and are set forth in the "Pro
Forma Adjustments" column.
The unaudited pro forma consolidated financial information of Teledyne
Technologies should be read in conjunction with the historical financial
statements of Teledyne Technologies and the related notes. The pro forma
financial information has been presented for informational purposes only and
does not reflect the results of operations or financial position of Teledyne
Technologies that would have occurred had Teledyne Technologies operated as a
separate, independent company for the periods presented. Actual results might
have differed from pro forma results if Teledyne Technologies had operated
independently. The pro forma financial information should not be relied upon as
being indicative of results Teledyne Technologies would have had or of future
results after the spin-off.
28
<PAGE> 33
TELEDYNE TECHNOLOGIES INCORPORATED
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
TELEDYNE TELEDYNE
TECHNOLOGIES PRO FORMA TECHNOLOGIES
INCORPORATED ADJUSTMENTS INCORPORATED
------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Cash.................................... $ -- $ -- $ --
Accounts receivable................... 120,627 -- 120,627
Inventories........................... 53,852 -- 53,852
Deferred income taxes................. 18,855 -- 18,855
Prepaid expenses and other current
assets............................. 2,157 -- 2,157
-------- --------- --------
TOTAL CURRENT ASSETS............... 195,491 -- 195,491
Property, plant and equipment......... 50,453 -- 50,453
Deferred income taxes................. 17,232 8,456 25,688
Cost in excess of net assets
acquired........................... 9,201 -- 9,201
Other assets.......................... 5,120 8,552 13,672
-------- --------- --------
TOTAL ASSETS....................... $277,497 $ 17,008 $294,505
======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable...................... $ 51,224 $ -- $ 51,224
Accrued liabilities................... 51,182 -- 51,182
-------- --------- --------
TOTAL CURRENT LIABILITIES 102,406 -- 102,406
Long-term debt........................ -- 100,000 100,000
Net unrecognized actuarial gains on
pension obligation................. -- 16,552 16,552
Accrued postretirement benefits....... 33,337 -- 33,337
Other long-term liabilities........... 15,384 13,764 29,148
-------- --------- --------
TOTAL LIABILITIES.................. 151,127 130,316 281,443
-------- --------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.01:
authorized -- 15,000,000 shares;
issued and outstanding -- none..... -- -- --
Common stock, par value $0.01:
authorized -- 125,000,000 shares;
issued and
outstanding -- 27,008,553 shares... -- 270 270
Additional paid-in capital............ -- 11,172 11,172
Net advances from (to) Allegheny
Teledyne Incorporated.............. 124,750 (124,750) --
Foreign currency translation gains.... 1,620 -- 1,620
-------- --------- --------
TOTAL STOCKHOLDERS' EQUITY......... 126,370 (113,308) 13,062
-------- --------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY........................... $277,497 $ 17,008 $294,505
======== ========= ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Financial
Information.
29
<PAGE> 34
TELEDYNE TECHNOLOGIES INCORPORATED
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
HISTORICAL TELEDYNE PRO FORMA TELEDYNE
TECHNOLOGIES PRO FORMA TECHNOLOGIES
INCORPORATED ADJUSTMENTS INCORPORATED
------------------- ----------- ------------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
SALES.......................... $602,978 $ -- $602,978
Costs and expenses:
Cost of sales................ 442,146 -- 442,146
Selling, general and
administrative expenses... 100,500 5,220 105,720
Interest expense............. -- 6,038 6,038
-------- -------- --------
542,646 11,258 553,904
-------- -------- --------
Earnings before other income... 60,332 (11,258) 49,074
Other income................... 716 -- 716
-------- -------- --------
INCOME BEFORE INCOME TAXES..... 61,048 (11,258) 49,790
Provision for income taxes..... 25,213 (4,650) 20,563
-------- -------- --------
NET INCOME..................... $ 35,835 $ (6,608) $ 29,227
======== ======== ========
BASIC NET INCOME PER COMMON
SHARE........................ $ 1.06
========
DILUTED NET INCOME PER COMMON
SHARE........................ $ 1.06
========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Financial
Information.
30
<PAGE> 35
TELEDYNE TECHNOLOGIES INCORPORATED
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL TELEDYNE PRO FORMA TELEDYNE
TECHNOLOGIES PRO FORMA TECHNOLOGIES
INCORPORATED ADJUSTMENTS INCORPORATED
------------------- ----------- ------------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
SALES.......................... $780,393 $ -- $780,393
Costs and expenses:
Cost of sales................ 572,087 -- 572,087
Selling, general and
administrative expenses... 126,875 7,196 134,071
Interest expense............. -- 8,050 8,050
-------- -------- --------
698,962 15,246 714,208
-------- -------- --------
Earnings before other income... 81,431 (15,246) 66,185
Other income................... 1,562 -- 1,562
-------- -------- --------
INCOME BEFORE INCOME TAXES..... 82,993 (15,246) 67,747
Provision for income taxes..... 34,276 (6,297) 27,979
-------- -------- --------
NET INCOME..................... $ 48,717 $ (8,949) $ 39,768
======== ======== ========
BASIC NET INCOME PER COMMON
SHARE........................ $ 1.41
========
DILUTED NET INCOME PER COMMON
SHARE........................ $ 1.41
========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Financial
Information.
31
<PAGE> 36
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
NOTE 1.
The historical financial statements of Teledyne Technologies reflect
periods during which Teledyne Technologies did not operate as a separate,
independent company. Certain estimates, assumptions and allocations were made in
preparing such financial statements. Therefore, the historical financial
statements do not necessarily reflect the results of operations or financial
position that would have occurred had Teledyne Technologies been a separate,
independent company during the periods presented, nor are they indicative of
future performance.
Management believes that the estimates, assumptions and allocations made in
preparing the historical financial statements are reasonable.
NOTE 2.
The pro forma unaudited consolidated balance sheet was prepared assuming
the distribution occurred on September 30, 1999 and includes "Pro Forma
Adjustments" for transactions that occurred subsequent to September 30, 1999 as
follows:
(a) To record debt of $100,000,000 to be assumed by Teledyne
Technologies at the date of the spin-off.
(b) To record the transfer of net unrecognized actuarial gains on
pension obligation of $16,552,000 as of September 30, 1999 and the related
deferred tax effect of $6,419,000. The components of net unrecognized
actuarial gains on pension obligation are as follows:
<TABLE>
<S> <C>
Projected benefit obligation.... $361,593
Fair value of plan assets....... 420,352
--------
Funded status of plan -- plan
assets in excess of projected
benefit obligation............ 58,759
Unrecognized prior service
cost.......................... 15,956
Unrecognized transition
obligation.................... (12,744)
Unrecognized actuarial gains.... (78,523)
--------
Total net unrecognized actuarial
gains on pension obligation... $(16,552)
========
</TABLE>
(c) To record the transfer of worker's compensation and general
liability insurance reserves of $5,253,000 and the related deferred taxes
of $2,037,000.
(d) To record the transfer of deferred compensation long-term assets
of $8,552,000 and long-term liabilities of $8,511,000.
(e) To record the planned liquidation of the remaining investment by
ATI and the issuance of 27,008,553 shares of Teledyne Technologies common
stock.
The effect on income from the balance sheet transfers of the pension plan,
insurance reserves and deferred compensation plan is reflected in the historical
financial statements. See Note 7 of Notes to Combined Financial Statements.
NOTE 3.
Pro forma net income was adjusted to include interest expense and
commitment fees on the ATI revolving debt we will assume in the amount of
$6,038,000 before tax, or $3,544,000 after tax, for the nine months ended
September 30, 1999 and $8,050,000 before tax, or $4,725,000 after tax, for the
year ended December 31, 1998. Interest expense and commitment fees were
calculated assuming the $100,000,000 of assumed debt had been outstanding for
the entire period with an average
32
<PAGE> 37
interest rate of 7.7% based upon LIBOR plus
1.5% and commitment fees of 0.35% on the unused portion of the facility.
A 0.125% increase in the assumed interest rate on the revolving debt would
increase interest expense by $94,000 ($55,000 after tax) for the nine months
ended September 30, 1999 and by $125,000 ($73,000 after tax) for the year ended
December 31, 1998.
In addition, pro forma net income was adjusted to include additional
corporate expenses of $5,220,000 and $7,196,000 before tax for the nine months
ended September 30, 1999 and the year ended December 31, 1998, respectively.
These expenses in combination with the corporate expenses allocated for
historical purposes ($6,030,000 and $7,804,000 for the nine months ended
September 30, 1999 and the year ended December 31, 1998, respectively),
represent what management believes to be the reasonable corporate expenses of
Teledyne Technologies had it operated as a separate stand alone company during
the periods presented. We determined the additional corporate expenses for the
periods presented by estimating the number, seniority and compensation levels of
additional employees that would likely be required to fully carry out the
finance, legal, tax, human resources, investor and public relations and other
functions associated with being a stand alone public company. In addition, we
included estimates of various corporate and related administrative expenses that
can be expected to be incurred as a stand alone public company, such as board of
directors fees and expenses and independent accounting and legal fees and
expenses. In making these estimates, we also examined expenses historically
incurred by ATI for these personnel and expenses.
NOTE 4.
The average number of shares of Teledyne Technologies common stock used in
the computation of basic net income per share was 27,481,371 and 28,107,241 for
the nine months ended September 30, 1999 and the year ended December 31, 1998,
respectively, based on a distribution ratio of one share of Teledyne
Technologies common stock for every seven shares of ATI common stock. The
average number of shares of Teledyne Technologies common stock used in the
computation of diluted net income per share was 27,506,953 and 28,133,879 for
the nine months ended September 30, 1999 and the year ended December 31, 1998,
respectively. A distribution ratio of one share of Teledyne Technologies common
stock for every seven shares of ATI common stock was used to adjust the stock
options. The actual stock option adjustment will be based upon the relation of
the market price of ATI common stock prior to the spin-off to the market price
of Teledyne Technologies after the spin-off and therefore cannot be determined
at the present time.
33
<PAGE> 38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
After a strategic review initiated in 1998, ATI concluded that its core
Aerospace and Electronics businesses, which comprise our Company, would be able
to grow faster and be a stronger competitor as a separate company. The
operations included in Teledyne Technologies were carefully selected to create a
group of high technology businesses that have critical mass and shared core
competencies, are strategically complementary and have the potential for
profitable growth. Certain businesses in ATI's Aerospace and Electronics segment
were determined not to have these characteristics and were sold.
Teledyne Technologies is a leading provider of sophisticated electronic and
communication products, systems engineering solutions and information technology
services, and aerospace engines and components. Our customers include aerospace
prime contractors, general aviation companies, government agencies and major
communications and other commercial companies. We serve high-value niche market
segments where performance, precision and reliability are critical and where we
are in several cases the leading supplier. Our businesses are interrelated by
their use of advanced engineering and specialized technology to provide
cost-effective and value-added solutions.
We operate in three business segments: Electronics and Communications;
Systems Engineering Solutions; and Aerospace Engines and Components. Our
products include avionics systems that collect and communicate information for
airlines and business aircraft systems; broadband communications subsystems for
wireless and satellite systems; engineering and information technology services
for space, defense and industrial customers; and engines for general aviation
aircraft and for cruise missiles. Our segments' respective contributions to
total sales for the nine months ended September 30, 1999 and for 1998, 1997 and
1996 are summarized in the following table:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEGMENT OPERATING COMPANIES SEPTEMBER 30, 1999 1998 1997 1996
- -------------------------------- -------------------------------- ------------------ ---- ---- ----
<S> <C> <C> <C> <C> <C>
Electronics and Communications Teledyne Electronic Technologies 43% 44% 45% 44%
Systems Engineering Solutions Teledyne Brown Engineering 28% 29% 28% 30%
Aerospace Engines and Components Teledyne Continental Motors
Teledyne Cast Parts 29% 27% 27% 26%
--- --- --- ---
100% 100% 100% 100%
</TABLE>
Our historical financial information is not necessarily indicative of the
results of operations, financial position or cash flows that would have occurred
if we had been a separate, independent company during the periods presented, nor
is it indicative of our future performance. The historical financial statements
do not reflect any changes that may occur in our capitalization or results of
operations as a result of, or after, the spin-off.
On an historical basis, the capital for our businesses was provided by
ATI's net investment in our businesses. In addition, no ATI debt was allocated
to us. Accordingly, our historical financial statements reflect no interest
income or interest expense. In connection with the spin-off, we will assume
repayment obligations for $100.0 million under a five-year revolving credit
facility initially established by ATI.
Our historical financial statements also do not fully reflect the corporate
costs and expenses we expect to incur in connection with our being an
independent public company. These financial statements reflect a $6.0 million
allocation of part of ATI corporate expenses for the nine months ended September
30, 1999, and allocations of $7.8 million, $7.6 million and $7.2 million for
1998, 1997 and 1996, respec-
34
<PAGE> 39
tively. We do not believe that these recorded amounts are indicative of what our
actual corporate expenses will be in the future. We expect that our actual
corporate expenses will be approximately $15.0 million annually, significantly
greater than those reflected in our historical financial statements, as we add
significant managerial and other resources to complete the infrastructure and
systems necessary for us to operate as an independent public company.
Assuming the spin-off had occurred on January 1, 1998 and that the
applicable interest rate under our credit facility was 7.7% and our commitment
fees were 0.35% on the unused portion of the facility throughout all periods, we
would have incurred interest expense of $6.0 million during the nine months
ended September 30, 1999 and $8.1 million during 1998. If annual corporate
expenses were approximately $15 million incurred ratably over the year, our net
income would have been $29.2 million and $39.8 million during the 1999
nine-month period and 1998, respectively.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
Our sales were $603.0 million in the first nine months of 1999, compared to
$588.7 million in the same 1998 period. International sales represented
approximately 18% and 22% of our sales in the 1999 and 1998 nine-month periods,
respectively. Sales under contracts with the U.S. Government, which included
contracts with the Department of Defense, represented approximately 43% and 39%
of our total sales in the nine months ended September 30, 1999 and 1998,
respectively.
For the 1999 nine-month period, operating profit decreased 4% to $66.4
million from the 1998 period. Product recall costs at Teledyne Continental
Motors and a continuing slow economic recovery in some of our Asian markets
negatively impacted our performance and were partially offset by an increase in
net pension income.
Net income for the 1999 nine-month period was $35.8 million, a decrease of
5.2% from the corresponding period of 1998.
Assuming that the spin-off had been completed as of January 1, 1998 and
that the applicable interest rate under our credit facility was 7.7% and our
commitment fees were 0.35% on the unused portion of the facility throughout all
periods, our pro forma interest expense would have been approximately $6.0
million, our pro forma corporate expenses would have been approximately $11.3
million and our pro forma net income would have been approximately $29.2 million
in the 1999 nine-month period. See "Our Unaudited Pro Forma Consolidated
Financial Information."
Sales and operating profit for our three segments for the nine months ended
September 30, 1999 and 1998 are presented separately below and in Note 3 of the
Notes to Interim Combined Financial Statements.
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1999 % CHANGE SEPTEMBER 30, 1998
ELECTRONICS AND COMMUNICATIONS ------------------ -------- ------------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Sales.......................................... $258,710 (1)% $261,950
Operating profit............................... $ 31,277 (5)% $ 33,081
Operating profit as a percentage of sales...... 12.1% 12.6%
International sales as a percentage of sales... 17.7% 21.7%
Government sales as a percentage of sales...... 29.4% 31.6%
</TABLE>
Sales of our Electronics and Communications segment decreased 1% and
operating profit decreased 5% in the nine months ended September 30, 1999
compared to the 1998 nine-
35
<PAGE> 40
month period. Sales decreased in the 1999 nine-
month period primarily due to a $1.6 million decrease in sales of electronic
contract manufacturing services and a $5.8 million decrease in sales of
precision electronic devices, which was partially offset by a $4.1 million
increase in sales of data acquisition and communication products. Operating
profits for the period were also adversely affected by the reduced sales and
were further affected by an additional $670,000 in costs related to a workforce
reduction of 90 employees of Teledyne Electronic Technologies.
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1999 % CHANGE SEPTEMBER 30, 1998
SYSTEMS ENGINEERING SOLUTIONS ------------------ -------- ------------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Sales........................................... $166,535 1% $165,465
Operating profit................................ $ 13,308 (6)% $ 14,227
Operating profit as a percentage of sales....... 8.0% 8.6%
International sales as a percentage of sales.... 13.1% 22.6%
Government sales as a percentage of sales....... 82.4% 70.6%
</TABLE>
Sales of our Systems Engineering Solutions segment increased 1% and
operating profit decreased 6% in the nine months ended September 30, 1999
compared to the 1998 nine-month period. For the 1999 nine-month period, sales
and operating profit included increases in defense energy systems and
environmental programs of $12.6 million and $3.4 million, respectively and lower
sales and operating profit in marine instrumentation products of $16.1 million
and $4.1 million, respectively. The decrease in sales and operating profit for
marine instrumentation products was attributable, in large part, to adverse
conditions in the oil industry. Sales in space programs increased by $3.8
million, while operating profit decreased by $474,000, due to a development
program for aircraft loaders.
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1999 % CHANGE SEPTEMBER 30, 1998
AEROSPACE ENGINES AND COMPONENTS ------------------ -------- ------------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Sales........................................... $177,733 10% $161,275
Operating profit................................ $ 21,777 (1)% $ 22,092
Operating profit as a percentage of sales....... 12.3% 13.7%
International sales as a percentage of sales.... 23.4% 22.0%
Government sales as a percentage of sales....... 26.5% 20.0%
</TABLE>
Sales of our Aerospace Engines and Components increased 10% and operating
profit decreased 1% in the nine months ended September 30, 1999 compared to the
1998 nine-month period. While sales improved in the 1999 nine-month period,
sales and operating profit at Teledyne Continental Motors were negatively
impacted by a recall of piston engines produced in 1998. Efforts associated with
the recall resulted in a $3.0 million charge and impacted sales during the
period. The decline in operating profit for this period was due in part to the
recall charge as well as to a decline in operating profit at Teledyne Cast
Parts. Operating results for Teledyne Continental Motors' turbine engines
increased during the period.
COMPARISON OF ANNUAL PERIOD RESULTS
Our sales were $780.4 million in 1998, compared to $756.6 million in 1997
and $716.4 million in 1996. International sales represented approximately 22%,
21% and 23% of our sales for 1998, 1997 and 1996, respectively. Sales
36
<PAGE> 41
under contracts with the U.S. Government, which included contracts with the
Department of Defense, were approximately 40%, 40% and 44% of our total sales
for 1998, 1997 and 1996, respectively. Defense sales represented approximately
27%, 26% and 27% of our total sales for 1998, 1997 and 1996, respectively.
In 1998, our operating profit was $89.2 million, compared to $74.9 million
in 1997 and $75.2 million in 1996.
Net income for 1998 was $48.7 million, compared to $41.6 million in 1997
and $40.7 million in 1996.
Assuming that the spin-off had been completed as of January 1, 1998 and
that the applicable interest rate under our credit facility was 7.7% and our
commitment fees were 0.35% on the unused portion of the facility throughout all
periods, our pro forma interest expense would have been approximately $8.1
million, our pro forma corporate expenses would have been approximately $15.0
million and our pro forma net income would have been approximately $39.8 million
in 1998. See "Our Unaudited Pro Forma Consolidated Financial Information."
Sales and operating profit for our three segments are presented separately
below and in Note 11 of Notes to Combined Financial Statements.
<TABLE>
<CAPTION>
1998 % CHANGE 1997 % CHANGE 1996
ELECTRONICS AND COMMUNICATIONS -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales................................... $342,110 1% $340,034 8% $313,488
Operating profit........................ $ 42,620 16% $ 36,787 (3)% $ 37,907
Operating profit as a percentage of
sales................................. 12.5% 10.8% 12.1%
International sales as a percentage of
sales................................. 22.2% 23.0% 26.9%
Government sales as a percentage of
sales................................. 29.9% 30.2% 36.6%
</TABLE>
1998 Compared to 1997. Sales of our Electronics and Communications segment
increased 1% and operating profit increased 16% in 1998 compared to 1997. For
this period, improvements in sales and operating profit for the segment were due
primarily to increases in sales and operating profit of our data acquisition and
communications products, which increased by $9.8 million and $11.8 million,
respectively. These increases were attributable to expanded demand by commercial
airlines as well as business and consumer aircraft, coupled with a reduction in
research and development expenses. Improved sales and operating profit for
electronic contract manufacturing services of $7.4 million and $2.6 million,
respectively, reflected a continued strength in this market. These improvements
offset declines in sales and operating profit with respect to precision
electronic devices during the period, which decreased by $15.8 and $9.4 million,
respectively, due to continuing economic difficulties in Asia and the continued
weakness in the semiconductor equipment market.
1997 Compared to 1996. Sales of our Electronics and Communications segment
increased 8% and operating profit decreased 3% in 1997 compared to 1996. The
increase in sales during this period was primarily due to sales of our data
acquisition and communications products, precision electronic devices and
electronic contract manufacturing services, which increased by $9.4 million,
$8.8 million and $8.3 million, respectively. Nonrecurring expenses, consisting
primarily of research and development-related expenses for electronic components
for aircraft, resulted in a decline in operating profit of $8.3 million for
Teledyne Controls' data acquisition and communication products.
37
<PAGE> 42
<TABLE>
<CAPTION>
1998 % CHANGE 1997 % CHANGE 1996
SYSTEMS ENGINEERING SOLUTIONS -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales................................... $223,185 6% $210,375 (3)% $216,090
Operating profit........................ $ 20,543 57% $ 13,117 (34)% $ 19,880
Operating profit as a percentage of
sales................................. 9.2% 6.2% 9.2%
International sales as a percentage of
sales................................. 21.8% 17.4% 16.3%
Government sales as a percentage of
sales................................. 71.3% 75.1% 78.4%
</TABLE>
1998 Compared to 1997. Sales of our Systems Engineering Solutions segment
increased 6% and operating profit increased 57% in 1998 compared to 1997. The
improvement in sales
and operating profit was principally due to the increased sales and operating
profit of $18.6 million and $5.2 million, respectively, of our marine
instrumentation products due to favorable conditions in the oil industry, as
well as our participation in defense programs, primarily ballistic missile
defense activities. Aerospace program sales decreased by $6.9 million in 1998 as
a result of the winding down of our NASA payload integration contract, but
operating profit for aerospace programs increased by $800,000 due to increased
deliveries of international aerospace hardware.
1997 Compared to 1996. Sales of our Systems Engineering Solutions segment
decreased by 3% and operating profit decreased 34% in 1997 compared to 1996.
Operating results declined in 1997 due to lower shipments and funding levels on
defense and NASA contracts and costs totaling $2.4 million, consisting primarily
of charges related to asset impairments for discontinued businesses.
<TABLE>
<CAPTION>
1998 % CHANGE 1997 % CHANGE 1996
AEROSPACE ENGINES AND COMPONENTS -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales.................................. $215,098 4% $206,192 10% $186,822
Operating profit....................... $ 26,072 4% $ 24,950 43% $ 17,444
Operating profit as a percentage of
sales................................ 12.1% 12.1% 9.3%
International sales as a percentage of
sales................................ 22.5% 21.5% 23.9%
Government sales as a percentage of
sales................................ 21.8% 20.7% 17.4%
</TABLE>
1998 Compared to 1997. Sales of our Aerospace Engines and Components
segment increased 4% and operating profit increased 4% in 1998 compared to 1997.
These sales and operating profit increases were due principally to a $10.6
million increase in sales and a $4.7 million increase in operating profit for
new piston engine and turbine engine programs. These increases offset higher
costs associated with manufacturing plant reconfiguration and the development of
new products, including new digital electronic piston engine controls and a
NASA-sponsored new piston engine program, as well as sales decreases of $1.7
million and a decrease in operating profit of $3.6 million as a result of
production inefficiencies and delays in shipments experienced by our Teledyne
Cast Parts operations.
1997 Compared to 1996. Sales of our Aerospace Engines and Components
segment increased 10% and operating profit increased 43% in 1997 compared to
1996. Improvements in sales and operating profit were principally due to turbine
engine programs, which had sales increases of $5.1 million and operating profit
increases of $2.4 million during the period. These increases were partially
offset by the termination of a program in the third quarter of 1997. A decline
in sales of rebuilt engines and aftermarket new engines resulted in a decrease
of $4.6 million in sales for piston engines. Sales and operating profit in this
segment benefited, however, from increased orders for airframe and engine cast
parts, which resulted in increases of $18.8 million in sales and $5.1 million in
operating profit. These increases were attributable to the increased production
of commercial
38
<PAGE> 43
aircraft and increased tooling sales associated
with the JASSM cruise missile program.
FINANCIAL CONDITION AND LIQUIDITY
Our principal capital requirements are to fund working capital needs and
capital expenditures and to meet required debt payments. We anticipate that our
operating cash flow, together with available borrowings under our credit
facility described below, will be sufficient to meet our working capital
requirements, capital expenditure requirements and interest service requirements
on our debt obligations. Assuming that the transactions contemplated by the
spin-off had been consummated on September 30, 1999, our pro forma long-term
debt and stockholders' equity at September 30, 1999 would have been
approximately $100.0 million and $13.1 million, respectively. Our pro forma
interest expense would have been approximately $6.0 million for the nine months
ended September 30, 1999 and approximately $8.1 million in 1998 had the spin-
off occurred as of the beginning of 1998. See "Our Unaudited Pro Forma
Consolidated Financial Information."
For the nine months ended September 30, 1999 and 1998, cash generated from
operations amounted to $31.6 million and $45.2 million. This decrease resulted
from reduced income of $2.0 million, increased working capital of $16.0 million,
and decreased long-term liabilities of $4.4 million, and was partially offset by
an increase in depreciation and amortization and deferred taxes of $8.8 million.
Cash generated from operations totaled $67.1 million, $72.9 million and $44.9
million in 1998, 1997 and 1996, respectively.
Working capital increased to $93.1 million at September 30, 1999, compared
to $78.6 million at December 31, 1998. The current ratio was 1.9 at September
30, 1999, compared to 1.8 at December 31, 1998. The increase in working capital
was primarily due to the increase in accounts receivable and current deferred
tax asset balances partially offset by an increase in the accounts payable
balance.
In connection with the spin-off, we will assume repayment obligations for
$100.0 million under a five-year revolving credit facility initially established
by ATI. As a result of the spin-off, we will have $100.0 million of borrowing
availability remaining under the credit facility. Borrowings under the credit
facility will bear interest at variable rates at, or at margins above,
prevailing prime or Eurodollar rates (or, in certain circumstances, the
prevailing federal funds rate) and will depend on the ratio of our consolidated
total indebtedness to consolidated total capitalization from time to time. The
credit facility will require us to comply with various financial covenants and
restrictions, including covenants and restrictions relating to indebtedness,
liens, investments, dividend payments, consolidated net worth, interest coverage
and the relationship of our total consolidated indebtedness to our earnings
before interest, taxes, depreciation and amortization. The credit agreement will
prohibit us from declaring dividends or making other specified payments in
amounts exceeding 25% of our cumulative net income after the effective date of
the credit agreement. The stock of our wholly owned subsidiary, Teledyne Brown
Engineering, Inc., will be pledged to the lenders under the credit agreement as
collateral to secure our obligations under the credit agreement until our
required public offering is completed.
Capital expenditures for 1999 are expected to approximate $25.0 million, of
which $16.1 million were spent during the first nine months of 1999.
In connection with the spin-off, we will establish a new defined benefit
pension plan and assume the existing pension obligations for all of our
employees, both active and inactive, at our operations which perform government
contract work and for our active employees at our operations which do not
perform government contract work. ATI will transfer sufficient pension assets to
fund our new defined benefit pension plan such that at the time of the transfer,
pension assets will exceed pension obligations by approximately $50.0 million.
As a result, we anticipate that we will not have to make contributions to the
pension plan for the foreseeable future. Additionally, in accordance with
Internal Revenue Code regulations, we would be able to
39
<PAGE> 44
recover from the excess pension assets amounts paid for retiree medical
expenses.
We currently anticipate that no cash dividends will be paid on Teledyne
Technologies common stock in order to conserve cash for use in our business,
including possible future acquisitions. Our Board of Directors will periodically
re-evaluate this dividend policy taking into account operating results, capital
needs and other factors.
In connection with the spin-off, ATI received a tax ruling from the IRS
stating in principle that the spin-off will be tax-free to ATI and to ATI's
stockholders. The continuing validity of the IRS tax ruling is subject to
certain factual representations and assumptions, including our completion of the
required public offering of our common stock within one year following the
spin-off and use of the anticipated gross proceeds of approximately $125 million
(less associated costs) for research and development and related capital
projects, for the further development of our manufacturing capabilities and for
acquisitions and/or joint ventures. Pursuant to the Separation and Distribution
Agreement, we have also agreed with ATI to undertake such a public offering.
The Tax Sharing and Indemnification Agreement between ATI and Teledyne
Technologies provides that we will indemnify ATI and its agents or
representatives for taxes imposed on, and other amounts paid by, them or ATI's
stockholders if we take actions or fail to take actions (such as completing the
public offering) that result in the spin-off not qualifying as a tax-free
distribution. If any of the taxes or other amounts described above were to
become payable by us, the payment could have a material adverse effect on our
financial condition, results of operations and cash flow and could exceed our
net worth by a substantial amount.
ACCOUNTING PRONOUNCEMENTS
FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued in June 1998. This statement establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. In June 1999, FASB Statement No. 137, "Accounting for Derivative
Instruments and Hedging Activities: Deferral of the Effective Date of FASB
Statement No. 133 was issued. This statement delays the effective date of
Statement No. 133 to all fiscal quarters beginning after June 15, 2000. We are
presently evaluating the effect of adopting these statements.
OTHER MATTERS
INCOME TAXES
Our effective income tax rate was 41.3%, 39.4% and 41.8% in 1998, 1997 and
1996, respectively. We have determined, based on our history of operating
earnings, expectations of future operating earnings and potential tax planning
strategies, that it is more likely than not that the deferred income tax assets
at December 31, 1998 will be realized.
COSTS AND PRICING
Inflationary trends in recent years have been moderate. We primarily use
the last-in, first-out method of inventory accounting that reflects current
costs in the costs of products sold. We consider these costs, the increasing
costs of equipment and other costs in establishing sales pricing policies. We
emphasize cost containment in all aspects of our business.
IMPACT OF THE EURO CONVERSION
In 1998, ATI initiated an internal analysis to determine the effects of the
January 1, 1999 conversion and related transition by 11 member states of the
European Union to a common currency, the "euro." The United Kingdom, where all
of our European operations are located, is not currently a participating
country. We do not expect the euro conversion to have a material impact on our
results of operation or financial condition. Like other companies with European
sales and operations, we anticipate that we will face wage and product pricing
transparency
40
<PAGE> 45
issues in participating countries; however, we do
not expect the resolution of these issues to have a material adverse effect on
us. Additionally, while we expect to encounter some technical challenges to
adapt information technology and other systems to accommodate euro-denominated
transactions, we do not anticipate associated costs to be material. Our computer
software and hardware at our European operations have been modified and replaced
due to evolving business needs and continuing technological advances.
We believe that the euro conversion will not have a material adverse effect
on our foreign currency activities described below.
HEDGING
We use derivative financial instruments from time to time to hedge ordinary
business risks regarding foreign currencies on product sales.
Foreign currency exchange contracts are used to limit transactional
exposure to changes in currency exchange rates. We sometimes purchase foreign
currency forward contracts that permit us to sell specified amounts of foreign
currencies expected to be received from our export sales for pre-established
U.S. dollar amounts at specified dates. The forward contracts are denominated in
the same foreign currencies in which export sales are denominated. These
contracts, which are not financially material, are designated as hedges of
export sales transactions in which settlement will occur in future periods and
which otherwise would expose us, on the basis of its aggregate net cash flows in
respective currencies, to foreign currency risk.
We believe that adequate controls are in place to monitor these hedging
activities, which are not financially material. However, many factors, including
those beyond our control such as changes in domestic and foreign political and
economic conditions, as well as the magnitude and timing of interest rate
changes, could adversely affect these activities.
ENVIRONMENTAL
We are subject to various federal, state, local and international
environmental laws and regulations which require that we investigate and
remediate the effects of the release or disposal of materials at sites
associated with past and present operations. This includes sites at which we
have been identified as a potentially responsible party under the Comprehensive
Environmental Response, Compensation and Liability Act, commonly known as
Superfund, and comparable state laws. We are currently involved in the
investigation and remediation of a number of sites. Our reserves for
environmental investigation and remediation totaled approximately $1.3 million
at September 30, 1999. As investigation and remediation of these sites proceed
and we receive new information, we expect that we will adjust our accruals to
reflect new information. Based on current information, we do not believe that
future environmental costs, in excess of those already accrued, will materially
and adversely affect our financial condition or liquidity. However, resolution
of one or more of our environmental matters or future accrual adjustments in any
one reporting period could have a material adverse effect on our results of
operations for that period.
With respect to proceeding brought under the federal Superfund laws, or
similar state statutes, we have been identified as a potentially responsible
party at approximately 17 such sites, excluding those sites at which we believe
we have no future liability. Our involvement is very limited or de minimis at
approximately 10 of these sites, and the potential loss exposure with respect to
any of the remaining seven sites is not considered to be material.
For additional discussion of environmental matters, see Notes 2 and 12 to
our Notes to Combined Financial Statements and "Risk Factors."
GOVERNMENT CONTRACTS
We perform work on a number of contracts with the Department of Defense and
other agencies and departments of the U.S. Government. Sales under contracts
with the U.S. Government, which included contracts with the Department of
Defense, were approximately 40%, 40% and 44% of our total sales for 1998, 1997
and 1996, respectively. A breakdown of sales to the U.S. Government by segment
appears
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<PAGE> 46
in Note 11 to Notes to Combined Financial
Statements. Defense sales represented approximately 27%, 26% and 27% of our
total sales for 1998, 1997 and 1996, respectively.
Performance under government contracts has certain inherent risks that
could have a material adverse effect on our business, results of operations and
financial condition. Government contracts are conditioned upon the continuing
availability of Congressional appropriations, which usually occurs on a fiscal
year basis even though contract performance may take more than one year. The
U.S. defense budget has been declining since the mid-1980's, resulting in some
delays in new program starts, program stretch-outs and program cancellations.
Future levels of defense spending cannot be predicted.
Of our U.S. Government contracts, 69%, 56% and 43% were fixed price-type
contracts for the years 1998, 1997 and 1996, respectively. Fixed price-type
contracts have the inherent risk that actual performance cost may exceed the
fixed contract price. This is particularly true where the contract was awarded
and the price finalized in advance of completion of design (which may result in
unforeseen technological difficulties and/or cost overruns). We believe that the
U.S. Government is increasingly requesting proposals for fixed price-type
contracts.
For additional discussion of government contract matters, see Note 12 to
our Notes to Combined Financial Statements, Note 4 to our Notes to Interim
Combined Financial Statements (Unaudited) and "Risk Factors."
YEAR 2000 READINESS DISCLOSURE
Year 2000 Task Forces. Over the past several years, ATI has put in place
management task forces at its operating companies, including companies in ATI's
Aerospace and Electronics segment, to identify whether its computer systems,
which include business computers, mill equipment and process control computers
and other devices using microprocessors, as well as telecommunication and
payroll and employee benefit processing systems, would function properly with
respect to dates in the Year 2000 and thereafter. These task forces have
reported to ATI's Executive Resource Information Committee, a senior management
committee of ATI charged with reviewing and establishing priorities for
information technology-related matters, including Year 2000 issues, and which
reports to the Audit and Finance Committee of ATI's Board of Directors. Through
these efforts, Year 2000 identification, solution development, testing and
implementation initiatives, and contingency planning initiatives have proceeded
at Teledyne Technologies.
Targeted Completion of Internal Solutions. In part as a result of ATI's
Year 2000 initiatives, but mostly due to evolving business needs and continuing
technological advancements, we have been modifying and replacing portions of our
computer software and hardware systems. We estimate, based on dollars expended,
that installation of solutions to identified Year 2000 issues relating to our
information technology systems is nearly 100% complete. We estimate that based
on dollars expended nearly 100% of solutions have been implemented for our
non-information technology systems. We believe that a substantial portion of our
internal solutions relating to Year 2000 functionality of our computer systems
have been completed and implemented. Confirmatory testing of implemented
solutions is ongoing.
Other Year 2000 Areas of Focus. We have provided many customers and
suppliers who we believe to be material to our business with Year 2000
questionnaires. None of the responding customers and suppliers has identified
for us any material Year 2000 issues. Efforts continue to be made to identify
and resolve other customer- and supplier-based Year 2000 issues that could
affect us and our operating and support systems. We believe that we have
identified substantially all material customer- and supplier-based Year 2000
issues. Efforts also continue to be made to identify whether products we have
produced and sold have Year 2000 issues. Various of our electronic products
contain embedded microprocessors. We believe that we have identified
substantially all products that have Year 2000 issues, primarily a limited
number of products of Teledyne Electronic Technologies and Teledyne Brown
Engineering, and we are working to resolve such issues. We believe that there
are no significant product-related Year 2000
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issues. Neither Teledyne Technologies nor ATI have conducted any extensive
review of products manufactured and sold by discontinued businesses or
businesses that they have sold.
Year 2000 Expenditures. Excluding expenditures necessitated by ordinary
business needs and continuing technological advancements in the computer
industry, we spent approximately $2.0 million in 1998 and we anticipate spending
another estimated $1.3 million in 1999 to address Year 2000 issues, of which
over $1.0 million were spent during the first nine months of 1999. These
expenditures do not include expenditures that may be required to address Year
2000 issues associated with some products. Substantially all costs related to
our Year 2000 initiatives are expensed as incurred and funded through operating
cash flows. Although we currently do not have any plans for additional
expenditures, additional amounts may be spent in later years.
Overall Assessment; Worst Case Scenario. Based upon internal assessments,
formal communications with suppliers and customers with which we exchange
electronic data, and work completed to date, we believe that Year 2000 issues
should not pose significant operational problems or have a material impact on
our business, results of operations, financial condition, or cash flow. A
failure of third party vendors or customers to be Year 2000 ready, however,
could adversely affect these beliefs and is not quantifiable at the present
time. Such failure could have a material adverse effect on our business, results
of operations, financial condition, or cash flow in a given period, but probably
not over the long-term. The most reasonably likely worst case scenario of our
failure (or the failure of our suppliers or customers) to resolve Year 2000
problems would be a temporary slowdown or cessation of manufacturing operations
at one or more of our facilities and our temporary inability to timely process
orders and to deliver finished products to customers. Delays in meeting
customers' orders would affect the timing of billings to and payments received
from customers with respect to orders and could result in other liabilities.
Customers' Year 2000 problems could also delay the timing of payments to us for
orders.
Contingency Plans. We have been working to establish contingency plans
with respect to our critical business and operating systems should unplanned
situations arise on or after January 1, 2000, and expect such contingency plans
to be in place prior to December 31, 1999. Most of our current contingency plans
contemplate the use of current personnel to make certain manual adjustments to
systems or to perform various tasks manually. Vacations for information
technology professionals and other relevant personnel are expected to be limited
toward the end of December 1999 and the early part of 2000 in order to have
employees on hand to assist in avoiding and responding to adverse scenarios. We
are considering establishing additional inventories and back-up procedures in
the event suppliers are unable to deliver raw materials and services in a timely
manner.
Factors that May Affect Year 2000 Estimates. While we have been conducting
a comprehensive Year 2000 review of our computer systems and products, there may
be Year 2000-related matters that have not been identified. Actual dollar
amounts spent by us to address Year 2000 issues could materially differ from the
estimates for a number of reasons, including:
- changes in the availability or costs of personnel trained in this area;
- changes made to our remediation plans;
- the ability of our significant suppliers, customers and others with which
we conduct business, including governmental agencies, to identify and
resolve their own Year 2000 issues; or
- identification of other Year 2000-related matters.
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OUR BUSINESS
OVERVIEW
Teledyne Technologies provides sophisticated electronic and communication
products, systems engineering solutions and information technology services, and
aerospace engines and components. Our customers include aerospace prime
contractors, general aviation companies, government agencies and major
communications and other commercial companies. We serve high-value niche market
segments where performance, precision and reliability are critical and where we
are in several cases the leading supplier. Our businesses are interrelated by
their use of advanced engineering and specialized technology to provide
cost-effective and value-added solutions.
Our products include avionics systems that collect and communicate
information for airlines and business aircraft systems; broadband communications
subsystems for wireless and satellite systems; engineering and information
technology services for space, defense and industrial customers; and engines for
general aviation aircraft and for cruise missiles.
We have strong, established relationships with many of our customers which
include:
- - major commercial aerospace and electronics companies, and defense prime
contractors;
- - the U.S. Department of Defense;
- - NASA;
- - general aviation original equipment manufacturers and aftermarket suppliers
and airlines; and
- - other commercial customers in the communications, electronics, medical
devices, and oil and gas industries.
In 1998, approximately 60% of our total sales were to commercial customers
with the balance to the U.S. Government:
<TABLE>
<S> <C>
Commercial customers:
Aerospace..................... 35%
Electronics................. 16%
Industrial.................. 9%
---
60%
U.S. Government:
Defense industry............ 36%
NASA........................ 4%
---
40%
</TABLE>
Approximately 69% of our U.S. Government sales in 1998 were attributable to
fixed price-type contracts, with the remaining 31% to cost plus fee-type
contracts. International sales accounted for approximately 22% of our total
sales in 1998.
Our three business segments, their respective operating companies, and
their contribution to our sales in 1998 are summarized in the following table.
<TABLE>
<CAPTION>
PERCENTAGE OF
SEGMENT OPERATING COMPANIES 1998 SALES
- -------------------------------- -------------------------------- -------------
<S> <C> <C>
Electronics and Communications Teledyne Electronic Technologies 44%
Systems Engineering Solutions Teledyne Brown Engineering 29%
Aerospace Engines and Components Teledyne Continental Motors 27%
Teledyne Cast Parts
</TABLE>
OUR BUSINESS AND GROWTH STRATEGY
Building upon our competitive strengths and technological capabilities, our
goal is to become the leading provider of specialized products, systems
engineering solutions and information
services for a broad range of high technology applications. With our history of
product innovation, advanced research and development and highly sophisticated
engineering and manufacturing capabilities, we believe that we are
well-positioned to take advantage of opportunities
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<PAGE> 49
to expand our business by pursuing the following strategies.
FOCUS ON OPERATING DISCIPLINE AND MANUFACTURING EXCELLENCE
Measuring and controlling manufacturing costs has become a core discipline
of Teledyne Technologies, and we are committed to a continuous improvement
philosophy. Most of our key manufacturing operations are ISO 9000 certified, and
meet the rigid military specification qualifications necessary in our markets,
where required. We have adopted a comprehensive program of manufacturing
excellence initiatives which focus on lean manufacturing cells, cost reduction
programs and product redesign in order to minimize manufacturing costs and
maximize product quality. We have also developed manufacturing technologies and
rapid prototyping capabilities that in many cases have become the standards in
their industries.
Our efforts are intended to create additional cost reductions and increased
efficiencies in management of our working capital. Our increasing emphasis on
cost reduction programs yielded savings of $7.7 million in 1997 and $22.1
million in 1998. Through active management of our working capital, working
capital as a percentage of sales decreased from 15% for 1996 to 10% for 1998. We
believe that our financial discipline will enable us to maintain our competitive
posture while continuing to provide leading edge products and services.
LEVERAGE NICHE MARKET LEADERSHIP AND TECHNICAL EXPERTISE TO INCREASE MARKET
PENETRATION
We serve high-value niche market segments where performance, precision and
reliability are critical and where we are in several cases the leading supplier.
These market segments exist within very large, highly fragmented markets for
electronic and communications equipment and devices, engineering and information
systems and services, and aviation and aerospace components.
We have a reputation for solving complex manufacturing and systems
problems, and have sophisticated software, simulation and modeling capabilities.
For example, Teledyne Technologies is recognized as a leader in the development
of real-time simulations for weapons systems testing and training. These
capabilities have led to our selection to play a key role in the U.S. Ballistic
Missile Defense Organization's National Missile Defense program.
The collective expertise and training of our employees foster a culture of
innovation and a technology-driven focus. Out of a total workforce of
approximately 5,800, approximately 1,400 individuals have engineering, physics,
mathematics and computer science degrees. Our employees have developed over 700
patents.
We believe that as several of the markets we serve experience
consolidation, customers have tended to become increasingly dependent on
technologically-sophisticated specialized suppliers, such as ourselves, to
provide a more competitive range of products and services. With our history of
product innovation, advanced research and development and highly sophisticated
engineering and manufacturing capabilities, we believe that we are
well-positioned to take advantage of opportunities to expand our niche market
leadership positions to provide leading products and services in related
markets.
ACCELERATE INTRODUCTION OF INNOVATIVE HIGH-MARGIN PRODUCTS AND SERVICES
We have a well-established history of developing innovative products and
services to meet the exacting specifications of our customers'
performance-critical applications.
For example, building on our history as the manufacturer of the engine for
the first turbine-powered cruise missile, we have developed advanced versions
leading to our sole-source position with respect to each of two new U.S. cruise
missile programs.
We are also a leading supplier of traveling wave tubes for military
applications. We have adapted this product to create our microwave power
amplifiers, which were the first to permit operation in multiple frequency bands
for mobile satellite news gathering systems. We are
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extending our position in power amplifiers by developing and producing
amplifiers for the emerging higher-frequency Ka band market for broadband
wireless and satellite communications systems. New products that we are
currently introducing for the emerging broadband communications market include
high frequency relays for wireless and satellite systems, high data rate
networks and high speed digital semiconductor test equipment.
As an independent company we intend to increase our spending on research
and development to accelerate the introduction of new products and services.
CAPITALIZE ON SYNERGIES TO ENTER NEW MARKETS
Our businesses are interrelated by their use of advanced engineering and
specialized technology to provide cost-effective and value-added solutions. We
believe that by better utilizing our extensive base of technical expertise that
extends across our operating units, we will be able to provide superior products
and services and to reduce product development and manufacturing costs.
For example, we have benefited from our commercial aviation electronics
experience in the development of new electronic controls for general aviation
piston engines. We plan to use the expertise of Teledyne Electronic Technologies
to provide data acquisition and communications products to the general aviation
aircraft market served by Teledyne Continental Motors. In addition, both
Teledyne Electronic Technologies and Teledyne Brown Engineering provide data
acquisition and communication products in their current markets. We believe that
we can draw on these and other capabilities to access additional markets for our
products and services.
ENHANCE AND STRENGTHEN CUSTOMER AND REGULATORY RELATIONSHIPS
We are a long-term supplier to several government agencies and major
manufacturers and integrators of systems and services. Our close relationships
are a key competitive advantage. We are often integrally involved early in our
customers' product development efforts. Our knowledge of customers' requirements
enables us to more rapidly develop products and services ideally suited to meet
those needs. This close relationship with our customers has led to a significant
amount of repeat business. We plan to capitalize on our strong relationships to
secure additional contracts as prime contractors expand their outsourcing
initiatives.
Government certification of products and facilities is required to
participate in many of the markets we serve. We have extensive experience and
established working relationships with the various federal regulatory agencies
that certify our products. For example, we work proactively with the Federal
Aviation Administration in the continuous certification processes applicable to
our commercial aviation electronics and communications products, and general
aviation engines. We are also regularly engaged in consultations with the FAA
regarding new technologies and the development of new or changing standards
applicable to our products and markets. In addition, we are able to serve the
specialized needs of our customers with medical devices, such as pacemaker and
defibrillator providers, by maintaining the registration of our medical
electronics contract manufacturing facilities with the Federal Food and Drug
Administration.
EXPAND VALUE-ADDED INFORMATION SERVICES
We believe that our extensive customer base has growing requirements for
information services and that we have the capabilities to meet these needs. For
example, our flight data acquisition systems have been purchased worldwide by
over 200 airline customers. These customers are increasingly committed to
obtaining additional operational and maintenance information to improve safety
and increase efficiency. We are developing systems that will automatically
transfer flight data to an airline's operations center soon after its aircraft
lands. These systems are designed to translate data into useable reports and
distribute the reports and raw data through the Internet.
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We believe that our extensive technical, engineering and manufacturing
capabilities will enable us to expand the development and sale of additional
value-added engineering and information services.
PURSUE SELECTED ACQUISITIONS AND
STRATEGIC ALLIANCES
We operate in many large, highly fragmented markets that provide
opportunities for growth through complementary acquisitions. The basic criteria
will be whether the particular acquisition:
- - has strategic value
- - achieves our financial return criteria
- - enhances our ability to achieve a market leadership position
- - provides the opportunity to grow profitability
Specifically, we expect to target acquisitions that permit:
- - a broader product offering
- - entry into new markets
- - access to product innovation and unique product design capabilities
- - access to new manufacturing processes
- - access to off-shore suppliers and increased procurement leverage
- - new distribution channels
OUR BUSINESS SEGMENTS
ELECTRONICS AND COMMUNICATIONS SEGMENT
Teledyne Electronic Technologies applies proprietary technology, advanced
software and hardware design skills and manufacturing capabilities in three
areas: Data Acquisition and Communications Products; Precision Electronic
Devices; and Electronic Contract Manufacturing Services.
Data Acquisition and Communications Products
We are a leading supplier of systems and software for data acquisition and
communications applications in commercial aviation, as well as critical
components and subsystems for wireless and satellite communications terminals.
We are focused on expanding our technology base to support the emerging needs
for high data rate broadband communications technology.
We also supply a range of specialized components, subsystems and equipment
to domestic and international government aviation and aerospace customers. We
participate in the markets for data acquisition and communications equipment and
services for both air transport (including commercial passenger aircraft) and
business and commuter aircraft.
Air Transport Products. Our aircraft information management solutions are
designed to increase the safety and efficiency of airline transportation
throughout the world. With over 200 commercial airline customers, we are a
leading supplier of digital flight data acquisition systems for the commercial
airline industry. We have provided these systems for our airline customers for
over one-half of Boeing aircraft currently in production. We were recently
selected by Airbus Industrie's partner, DaimlerChrysler Aerospace-Airbus, to
provide our systems for certain of its aircraft customers. These systems acquire
both mandatory data for use by the aircraft's flight data recorder, and record
additional data for the airline's use, such as performance and engine condition
monitoring.
The markets for data acquisition and communication systems include both new
and retrofitted aircraft. Boeing estimates that the operational air transport
fleet will grow from a current fleet of 12,600 to 19,100 aircraft by 2008.
Our newest digital flight data acquisition units have the most advanced
features in the industry. These systems conform with the required expansion of
data recording capabilities, which were mandated by the FAA in 1997. At that
time, the FAA increased the number of mandatory parameters to be monitored from
17 (prior to the rule change) to 88 by the year 2002. Our flight data units also
perform additional, non-mandatory aircraft and engine condition monitoring for
use by airline customers.
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Business and Commuter Products. Communication capabilities for business and
commuter aircraft are growing rapidly as these aircraft have begun to mirror air
transport aircraft in data gathering and aircraft monitoring. We are one of the
largest suppliers of air-to-ground telephony and facsimile and data transmission
products to the growing business and commuter aircraft market.
Bombardier Aerospace recently selected us to provide a suite of
communications products for its new, ultra long-range Global Express business
jet. These products include an air-to-ground telephone system and our
TeleLink(TM) datalink system that link onboard avionics with ground service
providers to facilitate air traffic management and flight operations.
The business and commuter fleet is significantly larger than the air
transport fleet, with approximately 27,000 aircraft currently operational.
Forecast International, an industry consultant, projects that the business and
commuter fleet will increase by approximately 40% during the next decade. We
expect continued demand for these systems for both new installations and
upgrades by business and commuter aircraft customers.
Wireless Ground Link. In March 1999 we demonstrated a prototype of our new
Wireless Ground Link that automates the transfer of in-flight data recorded by
our data acquisition systems to an airline's operations center. Transmission of
the data can occur anytime an aircraft is on the ground utilizing the existing
digital wireless infrastructure. The raw data are then forwarded to the airline
through the Internet, where they can be processed into useful formats by our
Flight Data Replay and Analysis System. Such data can then be used by the
airline in scheduling maintenance services and implementing safety procedures.
Wireless and Satellite Communication Components. Our communications
components and subsystems are used in satellite earth terminals, communications
satellites, and base stations for Personal Communication Services (PCS) and
wireless local loops. The technology that we apply to wireless and satellite
communications originated in defense applications.
We supply power amplifiers used in the L, C and Ku band satellite uplink
transmitters. These products encompass both solid state monolithic microwave
integrated circuits and high power helix traveling wave tubes. Applications
include Very Small Aperture Terminals (VSATs) used for credit card verification,
corporate networking, and mobile news gathering.
The markets for both wireless and satellite systems are being driven by the
growing need for high data rate (HDR) communications. In order to obtain
sufficient bandwidth to support transmission of these data, wireless and
satellite systems are moving to higher frequencies.
We are extending our position in power amplifiers by developing and
producing amplifiers for the emerging higher-frequency Ka band market for
broadband wireless and satellite communications systems. According to Allied
Business Intelligence and other independent market analysts, the market segment
for high frequency solid state power amplifiers is projected to grow from
approximately $47 million in 1999 to $118 million in 2003.
We have developed a unique line of microwave filters that are manufactured
with a patented injection molding technique. These metal-plated plastic filters
are lighter in weight than competing metal filters, and can be used efficiently
in the new lightweight microcell and picocell base stations for PCS systems. Our
filters and our new VSAT transceivers have applications in wireless local loops,
which are used to supply communications infrastructure in the developing world
where the cost and time to deploy wireline communications can be excessive.
Defense and Space Electronics. We are a leading supplier of high power
traveling wave tubes for electronic warfare systems, radar systems, and military
satellite communications systems for both domestic and international
applications. Our tubes are used in airborne systems on many aircraft, including
the B-52, B-1B, F-15 and E-A6B, and Global Hawk, and
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on surface systems, such as AEGIS ships. We believe that there will be a
continuing demand for our tubes in both new and existing systems.
We believe that the use of traveling wave tubes for radar applications will
grow as these systems are upgraded with advanced capabilities that cannot be
achieved with current transmitter technologies.
We have also supplied thousands of microprocessor-controlled ejection seat
sequencers for U.S. Air Force and U.S. Navy tactical aircraft, such as the F-16,
F-18 and the new F-22 fighter.
Precision Electronic Devices
We develop and manufacture microelectronic devices, high-performance
relays, microelectromechanical systems (MEMS), high-density connectors and
precision instruments that are engineered for demanding applications in the
defense, commercial aerospace, medical, instrumentation and industrial markets
where small size, high performance and reliability are of paramount importance.
We also provide precision instruments to manufacturers in these industries.
Microelectronic Devices. Our hybrid microcircuits are used in applications
such as military (including F-18 and F-22 aircraft and the M1A2 tank),
aerospace, medical and instrumentation systems. These compact and complex
electronic building blocks combine multiple transistors and integrated circuits
in multi-chip modules (MCMs). Our fiber optic transmitter and receiver modules
are used for video distribution on the International Space Station.
We have applied our MCM technology to the manufacture of life sustaining
and life enhancing implantable medical devices, including cardiac pacemakers and
defibrillators, neural stimulators and cochlear implant hearing aids. Newer
products include biological signal sensors and ambulatory digital recorders for
diagnosis and monitoring of epilepsy and sleep disorders. These products are
distributed on a private label basis by our customers. Our medical manufacturing
operations are FDA-registered, and like all of our electronics manufacturing
facilities, are certified to ISO 9000.
High-Performance Relays. Our Teledyne Relays miniature electromechanical
relays are used where maintenance of signal fidelity is essential. Examples of
applications include switching of high-speed digital and microwave signals in
semiconductor and microwave test equipment, wireless systems and communications
satellites. According to Venture Development, an industry consultant, the
telecommunications and instrumentation relay market is approximately $870
million annually and is expected to grow at more than 5% per year.
Growth in the transmission of broadband data via the Internet, increases in
clock speeds of microprocessors, and the migration of wireless and satellite
systems to higher frequency bands are all contributing to a need for switching
devices that operate at higher frequencies. With the introduction of our new
high-frequency relay in 1999, we more than tripled the range of frequencies that
can be switched reliably and accurately by available technologies.
Microelectromechanical Systems. We are leveraging our experience with
precision electromechanical devices and microelectronics fabrication technology
to develop new MEMS. The first product we are developing in this line is a
microrelay based on an exclusively licensed patented electromagnetic actuation
technique. The microrelay will be significantly smaller than current
electromechanical relays, an important factor in modern, miniaturized electronic
systems, and will provide us with access to a new market segment in which we do
not currently compete. Venture Development estimates this market segment to be
approximately $150 million.
High-Density Connectors. We supply custom, low profile, surface mount
connectors for applications in computer disk drives and consumer medical
electronic devices. We have increased our development efforts for high-density
microprocessor connectors, targeted for use in high-volume applications such as
personal computers and workstations and personal communication systems handsets.
Prismark Partners, an industry consultant, estimates that the
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market for this type of connector will grow from 100 million units per year in
1999 to 200 million by 2003, with the price of a typical connector expected to
be approximately $6.
Precision Instruments. We design and manufacture precision instruments for
process applications in semiconductor and petrochemical manufacturing with a
broad line of analyzers for oxygen and other gases, vacuum gauges, and mass flow
meters and controllers. These instruments are sold under the Teledyne Analytical
Instruments and Teledyne Hastings brand names.
Electronic Contract Manufacturing Services
We operate turnkey manufacturing facilities in Tennessee, Mexico and
Scotland for low-to-moderate volume, technically-sophisticated products, ranging
from individual printed circuit board assemblies to complete electronic systems,
used in the aerospace, medical and communications industries. We manufacture
subsystems used in such diverse products as weapons release systems and medical
magnetic resonance imaging systems. Our customers include major aerospace and
electronics companies. Our production capabilities include through-hole, surface
mount and multi-chip module assembly; and digital, analog, radio frequency and
microwave testing.
Our patented REGAL(R) rigid-flex technology combines rigid and flexible
printed circuits into one assembly that eliminates board-to-board connectors,
which results in improved reliability and packaging density. These rigid-flex
circuit boards are used in military (such as the AMRAAM missiles, the Airborne
Self Protection Jammer and the Apache Longbow Helicopter), commercial aerospace
and medical applications. In late 1998 we added rapid prototyping capability for
rigid-flex printed circuits to improve customer service.
During 1998 we expanded our capacity for low-cost manufacturing in Mexico.
Subject to prevailing labor conditions, we plan additional growth in Mexico and
at our Scotland facility. According to Frost & Sullivan, an industry consultant,
the market for military electronic contract manufacturing services was
approximately $800 million in 1998 and is expected to grow at an 8% annual rate
as major military systems companies increasingly focus more on integration of
systems and rely on merchant suppliers for electronics manufacturing.
SYSTEMS ENGINEERING SOLUTIONS SEGMENT
Teledyne Brown Engineering offers a wide range of engineering solutions and
information services to government defense, aerospace and commercial customers.
Our software solutions center on the following five areas:
- - Aerospace Solutions
- - Defense Solutions
- - Information Services
- - Environmental Solutions
- - Enterprise Control and Energy Products
Aerospace Solutions
We provide a broad range of highly sophisticated engineering solutions and
services to U.S. space programs. U.S. Government budgeted expenditures in this
market are approximately $10.3 billion in 1999.
As the payload integration contractor for NASA's Marshall Space Flight
Center, we have had major responsibilities in the numerous scientific missions
of the Space Shuttle. This work has ranged from experiment planning, through
designing and fabricating interface hardware, to manning the mission control
center during flight operations.
The centerpiece of our current space activities is the International Space
Station. We are involved in both space-borne and ground-support hardware
development and we participate in mission planning and operations. We have
approximately 300 people working on International Space Station projects and
realized sales associated with these projects of approximately $25 million in
1998. We expect to generate a similar level of revenue with respect to these
projects in 1999.
The development and integration of complex ground support equipment has
long been one of
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our specialties. Recognition of this is reflected in our selection by the U.S.
Air Force to produce three prototype aircraft cargo loaders as a part of the Air
Force's Next Generation Small Loader program.
Defense Solutions
For over 45 years, we have played a key role in the development of U.S.
defense systems. The Department of Defense has budgeted $4.04 billion in
expenditures in 1999 for various missile defense programs, which are projected
to grow at a modest rate for the next five years. The current projected 2000
budget for the National Missile Defense program is approximately $800 million
and is projected to grow to $1.8 billion in 2002. During the last 10 years
alone, our systems engineering solutions in defense technologies have averaged
over 1,000,000 man-hours per year.
In ballistic missile defense programs, we have provided solutions in
systems engineering, integration, and testing; real-time distributed testing and
training; radar and optical systems design; command center development; and
intelligence studies and threat analysis. We provide battle simulation software
as part of our role for the U.S. Ballistic Missile Defense Organization's
National Missile Defense program.
We also provide an array of engineering solutions related to combat systems
technologies, including research and development test support, operational test
and evaluation, systems survivability analysis, and body armor development.
Information Services
One of our strongest capabilities is in information technology. The
government sector of the information technology market is approximately $33.6
billion in 1999, and is expected to grow at an annual rate of between 4% and
10%. Approximately 30% of our contracts are in this sector.
Our software products, most of which are certified to ISO 9001, are used
for highly diverse applications, such as high-fidelity simulations, multi-media
training, Internet website development, distributed real-time testing, and
command and control centers.
We have developed hundreds of simulation programs, including the Extended
Air Defense Simulation, which is used by friendly governments worldwide and was
combat-proven during Operation Desert Storm and more recent operations. We have
recently upgraded the U.S. Army's land-combat model to include amphibious and
tactical air operations.
We are recognized as a leader in the development of real-time, vehicle-and
weapons-integrated simulations for systems testing and training. Our Systems
Exerciser is a simulation tool used to verify the inter-operational
compatibility of geographically separated, complex defense systems. The Systems
Exerciser "drives" actual weapons systems with a simulated environment including
threats, weather and terrain, creating a robust virtual world in which real
systems can operate and interact.
We have been continuously involved in weapons signature management
development efforts since 1989, with over 47 successful programs, of which 37
were sole source contracts. We are particularly well-known for systems that
limit the detection of soldiers on the battlefield by radar or infrared sensors,
as to which we hold several issued and pending patents. The Optical Signatures
Code, which we developed and maintain, is the recognized standard in missile
defense. We also developed the world's largest on-line database for optical
signatures.
Environmental Solutions
We utilize our systems engineering solutions to assist the U.S. Government
in complying with terms of the Chemical Weapons Convention Treaty. This Treaty
requires the United States to destroy all chemical weapons and materiel by 2007.
As a 50% participant in a joint venture, we are developing alternative
technologies to incineration for the destruction of stockpile chemical
munitions. We are presently the only contractor operating in the non-stockpile
chemical munitions sector. As the prime contractor for the U.S. Army's
Non-Stockpile Chemical Materiel Demil-
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itarization program, we are designing, fabricating, integrating, and testing
equipment to safely destroy small caches of chemical munitions and materiel
located in over 30 states.
We were recently selected by the Air Force to establish and operate a
highly-specified analysis laboratory. This laboratory, used for performing
nuclear forensic analysis of gas samples, has been operated for many years by
military personnel at McClellan Air Force Base in California, and is now being
transferred to contractor operation.
Enterprise Control and Energy Products
Our systems engineering capabilities are applied to energy problems through
a variety of services and products. Our OpenVector(TM) supervisory control and
data acquisition systems are used for managing over half of the gas
transportation pipelines in the United States, and we have recently added new
international customers in South Korea, Hungary and Brazil. While most of our
Open Vector(TM) software sales have been in the United States, additional
significant market opportunities exist in the international arena as well as in
new applications such as satellite control. Applications of OpenVector(TM)
software are expanding into water/waste water control and general enterprise
consolidated information management. Frost & Sullivan has estimated that the
international market for commercial system control and data acquisition
applications would be approximately $2.6 billion in 1998 and will grow at
approximately 15% per year.
We manufacture and sell low-power, continuously-operating electrical
generators utilized in energy remote locations. We market our line of low-power
radioisotope thermoelectric generators under the SENTINEL(TM) brand name. One of
our units aboard the Pioneer spacecraft has exited the solar system, after
flawlessly providing power for more than two decades. Our TELAN(TM)
thermoelectric systems provide up to 90 watts of constant, reliable power at
remote locations throughout the world. Our recently announced 2.5-kilowatt
Minotaur(TM) engine-generator system runs on natural gas and is designed for
long-term, continuous, low-maintenance operation for the oil and gas production
industry, and to provide prime power for applications in emerging countries that
lack sophisticated infrastructures.
AEROSPACE ENGINES AND COMPONENTS SEGMENT
Our Aerospace Engines and Components segment, through Teledyne Continental
Motors and Teledyne Cast Parts, focuses on the design, development and
manufacture of piston engines, turbine engines, electronic engine controls,
batteries and metal castings.
Piston Engines
We design, develop and manufacture piston engines and ignition systems for
major general aviation airframe manufacturers and provide spare parts and engine
rebuilding services. We are one of two primary worldwide producers of piston
engines and after-market service providers for the general aviation marketplace.
Over 300,000 piston-powered aircraft have been produced since the inception
of the general aviation industry. The active fleet of single and twin-engine
aircraft is estimated to be 165,000, with approximately 200,000 engines
currently in service. We estimate that our engines power approximately one half
of the active fleet. The average age of this fleet is approximately 30 years.
Our share of the installed base is extremely important in a business in which
repair and replacement parts can provide substantial ongoing revenue.
Our product lines include engines powering the industry benchmark Raytheon
Beech Bonanza and Baron aircraft, the Mooney Aircraft line of advanced single
engine aircraft, and the popular New Piper Seneca V twin-engine aircraft. In
addition to these long-standing products, all four new high-speed, composite
aircraft currently entering production will be powered by our engines. These are
the Cirrus SR20, Lancair Columbia, Diamond Katana C1, and the Extra 400.
The market for piston powered general aviation aircraft has shown a strong
resurgence in recent years. Following the passage of the
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General Aviation Revitalization Act (GARA) of 1994, which limited manufacturers'
product liability for aircraft over 18 years in age, the domestic production of
new aircraft has increased from 444 new units in 1994 to over 1,500 units in
1998. Following the passage of GARA, the industry has introduced new and
advanced airframes and avionics and increased the rate of spending for new
product research and development. Additionally, NASA is sponsoring three new
programs aimed at increasing the efficient commercial use of small general
aviation aircraft. NASA is also co-sponsoring our development of a new engine
that will use commonly available and less expensive Jet-A fuel.
In addition to the sales of new aircraft engines to aircraft producers, we
also actively support the aircraft engine aftermarket. Piston aircraft engines
are produced with a finite utilization life generally expressed as time between
overhaul (TBO). Rebuilding or overhauling of the engine is required at TBO,
which can range between 1,600 and 2,000 hours for our aircraft engines. With an
installed base of approximately 100,000 Teledyne Continental Motors engines and
an average aircraft utilization of 133 hours per year, approximately 10,000 of
our aircraft engines can be expected to be overhauled in the aftermarket each
year. Our aftermarket support includes the rebuilding of nearly 3,000 of these
units annually with our Gold Medallion Rebuilt Engine. We also provide a full
complement of spare parts such as cylinders, crankcases, fuel systems,
crankshafts, camshafts and ignition products.
Our Aerosance unit has developed the first first full authority digital
electronic controls for piston aircraft engines. These controls are designed to
automate many functions that currently require manual control, such as fuel
flow, ignition and power management. This system also saves fuel as a result of
improved engine management. We believe that these control systems, which are in
the process of FAA certification testing, will become standard equipment on new
aircraft, and will be retrofitted on higher-end, piston-powered general aviation
aircraft.
Turbine Engines
We design, develop and manufacture small turbine engines for missiles and
unmanned aerial vehicles. We also produce engines that power military trainer
aircraft. Since the late 1950s, we have delivered over 20,000 of these engines
to defense contractors. We believe that the near-term demand for these engines
will increase as a result of the depletion of cruise missiles in recent
international conflicts.
Our J402 engine powers the HARPOON missile system. Derivatives of this
engine power the Standoff Land Attack Missile and the Standoff Land Attack
Missile Expanded Response. Over 7,400 of these engines have been produced for
these missile systems, which are deployed by the U.S. Navy and various NATO
countries.
A derivative of the J402 engine has been selected by Lockheed Martin to
power the Joint Air to Surface Standoff Missile which is scheduled to be fielded
in 2002. The U.S. Air Force and the U.S. Navy plan to purchase approximately
2,400 of these missiles by 2008. Another derivative has been selected by
Raytheon to provide propulsion for the Tactical Tomahawk Cruise Missile, with
over 1,300 missiles planned for field deployment beginning in 2003. We are the
sole source provider of engines for the Joint Air to Surface Standoff and
Tactical Tomahawk cruise missiles systems.
Another of our engines provides the turbine power for the Improved Tactical
Air Launched Decoy being built for the U.S. Navy. This system enhances stand-off
capability by identifying the enemy radar sources for lethal weapons. This
low-cost turbine engine is the first of a family of lower-thrust engines to
enter production.
Another of our engines serves as the propulsion source for the T-37
aircraft, the primary jet trainer for the U.S. Air Force. This engine has been
in service for over 40 years and will continue to power the T-37 well into the
next decade. We are the sole source for major spare parts for this engine.
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Battery Products
Our battery products operations specialize in the design, development and
manufacture of engineered products for the lead acid battery markets. We are
focused on providing engineered products in niche markets with more favorable
margins than typical battery products.
We design, develop and manufacture dry-charged batteries that can be stored
for years without deterioration. Our maintenance-free, valve-regulated,
recombinant batteries offer electrical performance and rechargeable
characteristics that are superior to other types of maintenance-free batteries.
Our Gill(TM) line of lead acid batteries is widely recognized as the
premier dry-charged, starting and standby power source for general aviation.
More companies manufacturing new general aviation aircraft choose the Gill(TM)
product line than any other lead acid battery.
The technical characteristics of our batteries offer the possibility of
sales to growing non-aviation markets, such as the cable television and
telecommunications industries backup.
Cast Parts
Teledyne Cast Parts offers a wide range of complex sand-cast aluminum and
magnesium castings and nickel-based superalloy and stainless steel investment
castings to the aerospace and defense industries. Premium quality castings are
produced from various processes in accordance with military, aerospace and
commercial customer specifications to exacting tolerances and mechanical
strengths.
Our major customers include airframe and turbine engine manufacturers,
missile producers and other defense contractors. We supply castings to the U.S.
Navy for use in its Phalanx weapons system, as well as castings used in Tomahawk
Cruise Missiles, jet engines and armament systems for both airborne and land
vehicles.
Based on publicly-available sales data, we estimate that the market for
aluminum and magnesium casting was approximately $1 billion in 1998 and the
market for air melt steel and vacuum melt superalloys was approximately $2.6
billion. The metals casting industry has been highly fragmented and has
experienced consolidation in recent years. We believe that this trend may
provide us with additional growth opportunities.
SALES AND MARKETING
No commercial customer accounted for more than 10% of our total sales
during 1998, 1997 or 1996. Approximately 40%, 40% and 44% of our total sales for
1998, 1997 and 1996 were derived from contracts with agencies of, and prime
contractors to, the U.S. Government. We do not regard sales to the U.S.
Government as constituting sales to a single customer, because various U.S.
Government customers exercise independent purchasing decisions.
Our principal U.S. Government customer is the U.S. Department of Defense.
Our largest program with the U.S. Government, the Systems Engineering and
Technical Assistance contract with the Space and Missiles Defense Command
accounted for 7.3%, 7.1% and 8% of total sales for 1998, 1997 and 1996. No other
program represented more than 4% of total sales for 1998, 1997 and 1996. Sales
by our segments to agencies of and prime contractors to, the U.S. Government in
each of the past three years were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Electronics and
Communications..... $102.4 $102.7 $114.8
Systems Engineering
Solutions............ $159.2 $158.0 $169.4
Aerospace Engines and
Components......... $ 46.8 $ 42.6 $ 32.5
</TABLE>
Our sales and marketing approach varies by segment and by products within
our segments. A shared fundamental tenet is the commitment to work closely with
our customers to understand their needs, with an aim to secure preferred
supplier and longer-term relationships.
Our business segments use a combination of internal sales forces,
distributors and commis-
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sioned sales representatives to market and sell our products and services.
Products are also advertised in appropriate trade journals and by means of
various Internet web sites. To promote our products and other capabilities, our
personnel regularly participate in relevant trade shows and professional
associations. Many of our government contracts are awarded after a competitive
bidding process in which we seek to emphasize our ability to provide superior
products and technical solutions in addition to competitive pricing.
COMPETITION
We believe that technological capabilities and innovation and the ability
to invest in the development of new and enhanced products are critical to
obtaining and maintaining leadership in our markets and the industries in which
we compete generally. Although we have certain advantages that we believe help
us compete in our markets effectively, each of our markets is highly
competitive. Our businesses variously compete on the basis of quality, product
performance and reliability, technical expertise, price and service. Many of our
competitors have, and potential competitors could have, greater name
recognition, a larger installed base of products, more extensive engineering,
manufacturing, marketing and distribution capabilities and greater financial,
technological and personnel resources than we do.
RESEARCH AND DEVELOPMENT
We spent a total of $160.5 million, $175.0 million, $188.8 million and
$202.6 million on research and development for the nine months ended September
30, 1999 and for 1998, 1997, and 1996, respectively. Customer-funded research
and development, most of which was attributable to work under contracts with the
U.S. Government, represented approximately 87%, 86%, 85%, and 86% of total
research and development costs for the nine months ended September 30, 1999 and
for 1998, 1997, and 1996, respectively.
INTELLECTUAL PROPERTY
While we own and control various intellectual property rights, including
patents, trade secrets, confidential information, trademarks, trade names, and
copyrights, which, in the aggregate, are of material importance to our business,
our management believes that our business as a whole is not materially dependent
upon any one intellectual property or related group of such properties. We own
over 700 active patents and are licensed to use certain patents, technology and
other intellectual property rights owned and controlled by others. Similarly,
other companies are licensed to use certain patents, technology and other
intellectual property rights owned and controlled by us.
Patents, patent applications and license agreements will expire or
terminate over time by operation of law, in accordance with their terms or
otherwise. We do not expect the expiration or termination of these patents,
patent applications and license agreements to have a material adverse effect on
our business, results of operations or financial condition.
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OUR FACILITIES
Our principal facilities as of September 30, 1999 are listed below.
Although the facilities vary in terms of age and condition, our management
believes that these facilities have generally been well-maintained.
<TABLE>
<CAPTION>
SQUARE FOOTAGE
FACILITY LOCATION PRINCIPAL USE (OWNED/LEASED)
- -------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
ELECTRONICS AND COMMUNICATIONS SEGMENT
Teledyne Electronic Technologies
Los Angeles, California Development and production of 123,000 (leased)
electronic components and subsystems. 17,000 (owned)
Los Angeles, California Production of digital data acquisition 154,000 (leased)
systems for monitoring commercial
aircraft and engines.
Lewisburg, Tennessee Development and production of 153,000 (owned)
electronic components and subsystems.
Mountain View, California Production of ferrite components, 100,000 (owned)
switching devices, filters and
monolithic microwave integrated
circuits.
Hawthorne, California Production of electronic components. 83,000 (owned)
Rancho Cordova, California Development and production of 75,000 (owned)
traveling wave tubes and power 16,000 (leased)
supplies for use in commercial
markets.
SYSTEMS ENGINEERING SOLUTIONS SEGMENT
Teledyne Brown Engineering
Huntsville, Alabama Provision of engineered services and 475,000 (owned)
products, including systems 123,000 (leased)
engineering, optical engineering,
software and hardware engineering, and
instrumentation technology.
AEROSPACE ENGINES AND COMPONENTS
SEGMENT
Teledyne Continental Motors
Mobile, Alabama Design, development and production of 1,270,000 (leased)
new and rebuilt piston engines,
ignition systems and spare parts for
the general aviation market.
Redlands, California Manufacturing of batteries for the 91,000 (owned)
general aviation market.
Toledo, Ohio Design, development and production of 373,000 (leased)
small turbine engines for aerospace
and automotive markets.
Teledyne Cast Parts
Pomona, California Manufacturing of aluminum and 231,000 (owned)
magnesium castings for air frames,
turbine engines and missiles.
City of Industry, California Manufacturing of nickel-based 70,000 (owned)
superalloy and stainless steel
investment castings.
</TABLE>
We also own or lease facilities elsewhere in the U.S. and in countries outside
the U.S., including Tijuana, Mexico, Gloucester, England and Cumbernauld,
Scotland. Our executive offices are currently located at 2049 Century Park East,
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Los Angeles, California 90067-3101 and will be subleased from a subsidiary of
ATI.
LEGAL PROCEEDINGS
From time to time, we become involved in various lawsuits, claims and
proceedings related to the conduct of our business. While we cannot predict the
outcome of any lawsuits, claims or proceedings, our management does not believe
that the disposition of any pending matters is likely to have a material adverse
effect on our financial condition or liquidity.
EMPLOYEES
Out of a total workforce of 5,800, approximately 1,400 individuals have
engineering, physics, mathematics or computer science degrees. Approximately 370
of our employees are represented by the International Union of United
Automobile, Aerospace and Agricultural Implement Workers of America under a
collective bargaining agreement that expires on December 16, 2000. We consider
our relations with our employees to be good.
ARRANGEMENTS WITH ATI
RELATING TO THE SPIN-OFF
For the purpose of governing certain of the relationships between ATI and
Teledyne Technologies relating to the spin-off, to provide for an orderly
transition and for other matters, ATI and Teledyne Technologies will enter into
the agreements described below, copies of which have been filed as exhibits to
the Registration Statement of which this Information Statement is a part. The
following summaries of the material terms of these agreements are qualified by
reference to the agreements as so filed.
SEPARATION AND DISTRIBUTION AGREEMENT
ATI and Teledyne Technologies and certain other companies affiliated with
ATI will enter into a Separation and Distribution Agreement that will provide
for the principal corporate transactions required to effect the separation of
our businesses from those of ATI, the spin-off and certain other matters
governing the relationship among us after the spin-off.
To separate our businesses from other businesses of ATI, the subsidiary of
ATI that has historically held most of the assets used in our businesses will
transfer those assets to us and we will purchase the remaining assets used in
our business from other subsidiaries of ATI, without representation or warranty
and on an "as is," "where is" basis and "with all faults". We will assume all
liabilities associated with our businesses, including those arising from the
operation of our businesses both before and after the spin-off.
Each of ATI and Teledyne Technologies will release the other from all other
obligations and liabilities owed to such party existing on the date of the
spin-off, other than liabilities and obligations arising under the Separation
and Distribution Agreement and the other agreements entered into in connection
with the spin-off. Likewise, each of ATI and Teledyne Technologies will
indemnify the other for liabilities arising from a breach of these agreements or
the failure to pay or discharge the liabilities assumed by such party under the
Separation and Distribution Agreement.
The Separation and Distribution Agreement requires that we initiate a
public offering of our common stock within eight months following the spin-off,
and complete the public offering within one year following the spin-off. It also
requires that we use proceeds of the offering as contemplated by the tax ruling
request. It was represented in the tax ruling request that we expected that
gross proceeds of the public offering would be approximately $125 million, and
that we intend to use the net proceeds of the offering for research and
development and related capital projects, for further development of our
manufacturing capabilities, and for acquisitions and/or joint ventures.
We are currently an additional named insured under various ATI insurance
policies. Under the Separation and Distribution Agreement, we will be entitled
to the benefit of pre-spin-off historical coverage under ATI's property,
liability and certain other insurance policies to the extent coverage is
applicable or potentially
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available and where limits of liability have not been exhausted, either on a per
occurrence or aggregate basis. The terms and conditions of these policies,
including limits of liability, will not be amended as a consequence of the
spin-off. To the extent that these policies feature a deductible or self-insured
retention, we will continue to be responsible for our allocable share of the
deductibles and retentions, based on the same allocation formulas that applied
prior to the spin-off and, in the case of aircraft product liability policies,
to the full extent of the deductible or retention for each claim made against
our Company under those policies.
The Separation and Distribution Agreement provides that until the third
annual meeting of our stockholders held following the spin-off, at least a
majority of our directors will also be members of the Board of Directors of ATI.
The initial members of our board of directors will be Frank V. Cahouet (Class
I), Robert Mehrabian (Class II) and C. Fred Fetterolf and Charles J. Queenan,
Jr. (Class III). The Separation and Distribution Agreement also provides that we
will nominate Mr. Cahouet (or, if he is unable or unwilling to serve, such other
candidate as Messrs. Fetterolf and Queenan or the survivor of them shall
designate) for re-election as a Class I director at the first annual meeting of
our stockholders following the spin-off.
EMPLOYEE BENEFITS AGREEMENT
Prior to the date of the spin-off, ATI and Teledyne Technologies will enter
into an Employee Benefits Agreement to set forth the manner in which assets and
liabilities under employee benefit plans and other employment-related
liabilities will be divided between them, and to help ensure a smooth transition
for employees' benefits in the spin-off. In general, we will be responsible for
compensation and employee benefits relating to our employees.
The Employee Benefits Agreement provides that we will establish a new
defined benefit pension plan on terms substantially similar to the parts of
ATI's Pension Plan applicable to all of our employees, both active and inactive
at our operations which perform government contract work and for our active
employees at our operations which do not perform government contract work. It is
anticipated that we will receive pension assets equal to liabilities as well as
approximately $50 million in surplus pension assets. With this transfer, it is
anticipated that we will not have to make a pension contribution in the
foreseeable future. In addition, we will assume certain retiree medical
obligations and should be able to withdraw cash from our pension plan to pay our
retiree medical costs.
The Employee Benefits Agreement will also provide for the treatment of
outstanding options to acquire ATI common stock issued under ATI benefit plans.
At the time of the spin-off, ATI stock options held by our employees will be
converted into options to purchase shares of Teledyne Technologies common stock.
The number of shares the option holder would be able to purchase and the
exercise price of the options would be adjusted in the conversion based on the
relationship of the ATI stock price and the stock price of Teledyne Technologies
over a fixed period of time, so that the "intrinsic value" of the options (that
is, the difference between the market value of the stock acquired on the
exercise and the exercise price of the options) before the spin-off would be
equivalent to the intrinsic value of the options immediately after the spin-off.
The options would otherwise continue to be and become exercisable on the terms
and conditions set forth in the original ATI benefit plans.
Under the Employee Benefit Agreement, the current award period under the
ATI Performance Share Program would be terminated when the spin-off occurs.
ATI's compensation committee will determine the amount of the awards, if any,
that have been earned, based on the achievement of plan goals through the
spin-off date, and will make awards pro-rated for the shortened Program term.
Pursuant to the Program, payments will be made in cash and stock. Stock payments
to our employees will be paid in Teledyne Technologies common stock. Pursuant to
the Program, we will make the payments in three annual installments, with the
first payment expected to be made early in the year 2000.
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The Employee Benefits Agreement also provides for the treatment of
purchased, designated and restricted shares issued under the ATI Stock
Acquisition and Retention Program prior to the spin-off. Under the Agreement,
participants who have purchased or designated ATI shares will receive
distributions of the common stock of Teledyne Technologies and Water Pik
Technologies in the spin-offs on the purchased or designated ATI shares. The
shares they receive in the spin-off, as well as the original ATI shares, will
continue to be held as collateral for the loans for the purchased shares, all of
which will be retained by ATI, until the loans are fully paid. Restricted shares
issued under the Program to our employees will be converted into shares of
Teledyne Technologies common stock. The new Teledyne Technologies shares will
also be restricted shares until the restriction lapse on the terms and
conditions set forth in the original ATI Program.
The Employee Benefits Agreement provides, in general, that we will receive
no assets with which to fund liabilities under non-qualified plans. An exception
applies with respect to the Allegheny Teledyne Executive Deferred Compensation
Plan under which employees with total annual compensation in excess of $100,000
may elect to defer a portion or all of their salary and/or bonus; it is
anticipated that we will receive company-owned life insurance policies or other
assets with a cash value equal to the amount of deferred compensation
liabilities at the time of the spin-off. In addition, while we would assume
liabilities for pension benefits in excess of qualified plan limits under the
Teledyne, Inc. Pension Equalization Plan, ATI would guarantee to participants
the payments of these obligations -- as of the spin-off date -- if we cannot pay
such obligations.
TAX SHARING AND INDEMNIFICATION AGREEMENT
On or prior to the date of the spin-off, ATI and Teledyne Technologies will
enter into a Tax Sharing and Indemnification Agreement that will set forth each
party's rights and obligations regarding payment and refunds, if any, with
respect to taxes for periods before and after the spin-off and related matters
such as the filing of tax returns and the conduct of audits or other proceedings
involving claims made by taxing authorities.
In general, ATI will be responsible for filing consolidated U.S. federal
and consolidated, combined or unified state income tax returns for periods
through the date of the spin-off, and for paying the taxes relating to such
returns including any subsequent adjustments resulting from the redetermination
of such tax liability by the applicable taxing authorities. We will be
responsible for other taxes attributable to our operations.
The Tax Sharing and Indemnification Agreement provides that we will
indemnify ATI and its directors, officers, employees, agents and representatives
for any taxes imposed on, or other amounts paid by, them or ATI's stockholders,
if we take actions or fail to take actions (such as completing the public
offering) that result in the spin-off not qualifying as a tax-free distribution.
For example, pursuant to the Tax Sharing and Indemnification Agreement, Teledyne
Technologies will agree that for a two-year period following the date of the
spin-off: (i) we will continue to engage in the Teledyne Technologies
businesses; (ii) we will continue to own and manage at least 50% of the assets
which we own directly or indirectly immediately after the spin-off; and (iii) we
will not, unless we obtain the written consent of ATI, engage in a number of
specified transactions. Transactions subject to these restrictions will include,
among others, issuance of Teledyne Technologies common stock (or certain
derivatives of our stock) in amounts which represent 40% or more of the Teledyne
Technologies common stock, issuance of instruments other than Teledyne
Technologies common stock (or derivatives of our stock) constituting equity for
U.S. federal tax purposes, certain redemptions and other acquisitions of capital
stock or equity securities of Teledyne Technologies, or the merger, dissolution
or liquidation of our company.
If our obligations under the Tax Sharing and Indemnification Agreement were
breached and the spin-off were to fail to qualify as tax-free for
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U.S. federal income tax purposes as a result of such breach, we would be
required to satisfy the indemnification obligation described above. This
indemnification obligation could exceed our net worth at that time.
Though valid as between the parties thereto, the Tax Sharing and
Indemnification Agreement is not binding on the IRS and does not affect the
several liability of ATI, Teledyne Technologies and their respective
subsidiaries to the IRS for all U.S. federal taxes of the consolidated group
relating to periods prior to the spin-off.
INTERIM SERVICES AGREEMENT
On or prior to the date of the spin-off, ATI and Teledyne Technologies will
enter into an Interim Services Agreement pursuant to which ATI will provide us
with transitional administrative and support services for a period of time not
expected to exceed 12 months. The Interim Services Agreement will provide that
we will pay a fee to ATI intended to approximate ATI's cost for such services
plus 10%.
The Interim Services Agreement will provide that we will indemnify ATI for
all claims, losses, damages, liabilities and costs incurred by ATI to a third
party arising in connection with the provisions of a service under the
agreement, other than those costs resulting from ATI's willful misconduct or
gross negligence. In general, we can terminate an interim service after an
agreed notice period.
TRADEMARK LICENSE AGREEMENT
On or prior to the date of the spin-off, an affiliate of ATI and Teledyne
Technologies will enter into certain intellectual property related agreements,
including a license agreement pursuant to which Teledyne Technologies will be
granted a license to use the "Teledyne" name and related logos, symbols and
marks (collectively, "Teledyne Marks") in connection with Teledyne Technologies
operations after the spin-off. Under the terms of this license agreement,
Teledyne Technologies will have the right to use the Teledyne Marks anywhere in
the world in connection with the manufacture, distribution, marketing,
advertising, promotion and sale of its products. We have agreed to pay an annual
fee of $100,000 for this license and at the end of five years have an option to
purchase all rights and interests in the Teledyne Marks for $412,000.
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MANAGEMENT
DIRECTORS
Our Board of Directors is expected initially to consist of the individuals
named below. Until the third annual meeting of our stockholders following the
spin-off, at least a majority of the members of our Board of Directors will also
be directors of ATI. See "Arrangements with ATI Relating to the
Spin-Off -- Separation and Distribution Agreement" and "Description of Our
Capital Stock."
Our Certificate of Incorporation provides that we will have three classes
of directors, the initial terms of office of which will expire, respectively, at
the annual meeting of stockholders in 2000, 2001 and 2002. Successors to any
directors whose terms are expiring are elected to three-year terms and hold
office until their successors are elected and qualified.
Also set forth below with respect to each director is the class of which
such director will be a member. The business address for each person listed
below is 2049 Century Park East, Los Angeles, California 90067-3101. Each
individual listed below is a citizen of the United States.
Our Bylaws contain provisions designed to ensure that at least a majority
of our directors are also directors of ATI until the third annual meeting of our
stockholders held after the spin-off. The Bylaws also provide that no quorum of
the Board will be deemed present unless at least a majority of the directors
present are also members of the Board of Directors of ATI.
CLASS I DIRECTOR
The Class I Director will serve until the 2000 annual meeting of our
stockholders and until his successor is elected and qualified. Our Class I
Director will be:
C. Fred Fetterolf
Age 70
C. Fred Fetterolf was President and Chief Operating Officer of Alcoa, Inc.
prior to his retirement in 1991. He is also a director of ATI, Commonwealth
Industries, Dentsply International Inc., Mellon Bank Corporation, Union Carbide
Corporation, Praxair, Inc. and Pennzoil-Quaker State Corporation.
CLASS II DIRECTOR
The Class II Director will serve until the 2001 annual meeting of our
stockholders and until his successor is elected and qualified. Our Class II
Director will be:
Robert Mehrabian
Age 58
Robert Mehrabian has been the President and Chief Executive Officer of
ATI's Aerospace and Electronics segment since July 1999 and has served ATI in
various senior executive capacities since July 1997. Prior to that, Dr.
Mehrabian served as President of Carnegie Mellon University. Dr. Mehrabian is a
director of ATI, Mellon Bank Corporation, PPG Industries Inc. and BEI
Technologies, Inc.
CLASS III DIRECTORS
Class III directors will serve until the 2002 annual meeting of our
stockholders and until their respective successors are elected and qualified.
Our Class III Directors will be:
Frank V. Cahouet
Age 67
Frank V. Cahouet served as the Chairman, President and Chief Executive
Officer of Mellon Bank Corporation, a bank holding corporation, and Mellon Bank,
N.A. prior to his retirement on December 31, 1998. Mr. Cahouet is also a
director of ATI, Avery Dennison Corporation,
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Mellon Bank Corporation, Saint-Gobain Corporation and USEC, Inc.
Charles J. Queenan, Jr.
Age 69
Charles J. Queenan, Jr. is Senior Counsel to Kirkpatrick & Lockhart LLP,
attorneys-at-law. Prior to January 1996, he was a partner of that firm. Mr.
Queenan is also a director of ATI and Crane Co. Kirkpatrick & Lockhart LLP
performs legal services for ATI, including in connection with the spin-off, and
may in the future perform services for us.
COMMITTEES OF OUR BOARD OF DIRECTORS
In addition to other committees established by our Board of Directors from
time to time, our board has established an Audit and Finance Committee, a
Governance Committee and a Personnel and Compensation Committee.
AUDIT AND FINANCE COMMITTEE. The principal audit functions of the Audit
and Finance Committee include:
- - Making recommendations to the Board of Directors regarding the appointment of
the independent accountants for the coming year.
- - Reviewing the scope and general extent of, and proposed fees for, the annual
audit plan and other activities of the independent accountants and the audit
plan of the internal auditors.
- - Reviewing with management and the independent accountants, upon completion of
the annual audit, the financial statements and related reports for their
adequacy and compliance with generally accepted accounting, reporting and
disclosure standards.
- - Evaluating the effectiveness of our internal and external audit efforts,
accounting and financial controls, policies and procedures and business ethics
policies and practices through a review of reports by, and at regular meetings
with, the internal and external auditors and with management, as appropriate.
The principal finance functions of the Audit and Finance Committee include:
- - Reviewing and evaluating proposed bank credit agreements and other major
financial proposals.
- - Reviewing and evaluating our relationships with banks and other financial
institutions.
- - Reviewing and making recommendations to the Board of Directors concerning
policies with respect to dividends and capital structure.
- - Meeting with the independent auditors and the internal auditors, with and
without management being present, to discuss all appropriate matters.
GOVERNANCE COMMITTEE. The Governance Committee will:
- - Make recommendations to the Board of Directors with respect to candidates for
nomination as new board members and with respect to incumbent directors for
nomination as continuing board members.
- - Make recommendations to the Board of Directors concerning the memberships of
committees of the board and the chairpersons of the respective committees.
- - Make recommendations to the Board of Directors with respect to the
remuneration paid and benefits provided to members of the board in connection
with their service on the board and its committees.
- - Administer our formal compensation programs for directors, including the
Teledyne Technologies Incorporated 1999 Non-Employee Director Stock
Compensation Plan.
- - Make recommendations to the Board of Directors concerning the composition,
organization and operations of the board of directors, including the
orientation of new members and the flow of information.
- - Evaluate board tenure policies as well as policies covering the retirement or
resignation of incumbent directors.
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<PAGE> 67
PERSONNEL AND COMPENSATION COMMITTEE. The Personnel and Compensation
Committee will:
- - Make recommendations to the Board of Directors concerning general executive
management organization matters.
- - Make recommendations to the Board of Directors concerning compensation and
benefits for employees who are also our directors, consult with our Chief
Executive Officer on compensation and benefit matters relating to other
officers who are required to file reports under Section 16 of the Securities
Exchange Act of 1934, as amended ("statutory insiders") and make
recommendations to the board of directors concerning compensation policies and
procedures relating to officers who are statutory insiders.
- - Make recommendations to the Board of Directors concerning policy matters
relating to employee benefits and employee benefit plans.
- - Make awards of stock-based compensation to officers who are our statutory
insiders.
- - Administer our formal incentive compensation plans.
COMPENSATION OF OUR DIRECTORS
Directors who are not our employees will be paid an annual retainer fee of
$24,000. Directors will also be paid $1,200 for each board meeting and $1,000
for each committee meeting attended. Each non-employee chair of a committee will
be paid an annual fee of $2,500. Directors who are our employees will not
receive any compensation for their services on our board or its committees.
The non-employee directors will also participate in the 1999 Non-Employee
Director Stock Compensation Plan (the "Director Stock Plan"). The purpose of the
Director Stock Plan is to provide non-employee directors with an increased
personal interest in our performance.
Under the Director Stock Plan, options to purchase 2,000 shares of our
common stock will be granted to non-employee directors on the date of the
distribution of our common stock to ATI stockholders and at the conclusion of
each annual meeting of stockholders. If, after the spin-off, a non-employee
director first becomes a director on a date other than an annual meeting date,
an option covering 2,000 shares of our common stock will be granted to such
non-employee director on his or her first date of board service. The purchase
price of our common stock covered by these options will be the fair market value
of our common stock on the date the option is granted.
The Director Stock Plan also provides that each non-employee director will
receive at least 25% of the annual retainer fee in the form of our common stock
and/or options to acquire our common stock. Each director may elect a greater
percentage. Options granted under this part of the Director Stock Plan are
intended to provide each electing director with options having an exercise value
on the date of grant equal to the foregone fees; that is, the difference between
the exercise price and the market price of the underlying shares of common stock
on the date of grant is intended to be equal to the foregone fees.
In order to continue to attract and retain non-employee directors of
exceptional ability and experience, we will also maintain a Fee Continuation
Plan for Non-Employee Directors. Under the plan, benefits will be payable to a
person who serves as a non-employee director for at least five years. The annual
benefit will equal the retainer fee in effect when the director retires from the
board. Benefits will be paid for each year of the participant's credited service
as a director up to a maximum of ten years.
EXECUTIVE OFFICERS
Set forth below are the name, age, position and office to be held with us,
and principal occupations and employment during the past five years, of those
individuals who are expected to serve as our executive officers immediately
following the spin-off. Those individuals named below who are currently officers
or employees of ATI will resign from all such positions prior to the spin-off.
Our executive officers will be elected to serve until they resign or are
removed,
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<PAGE> 68
or are otherwise disqualified to serve, or until their successors are elected
and qualified.
Robert Mehrabian
Age 58
President and
Chief Executive Officer
Robert Mehrabian has been the President and Chief Executive Officer of
ATI's Aerospace and Electronics segment since July 1999 and has served ATI in
various senior executive capacities since July 1997. Prior to that, Dr.
Mehrabian served as President of Carnegie Mellon University. Dr. Mehrabian is a
director of ATI, Mellon Bank Corporation, PPG Industries, Inc. and BEI
Technologies, Inc.
Stefan C. Riesenfeld
Age 51
Executive Vice President and
Chief Financial Officer
Stefan Riesenfeld has been the Executive Vice President and Chief Financial
Officer of ATI's Aerospace and Electronics segment since August 1999. From 1996
to May 1999, Mr. Riesenfeld was Chief Financial Officer of ICL, PLC, a global
information systems and services company based in London, England. From 1983 to
1996, he was with Unisys Corporation where he served as Vice President and
Corporate Treasurer from 1989.
John T. Kuelbs
Age 57
Senior Vice President, General Counsel
and Secretary
John T. Kuelbs is the Senior Vice President, General Counsel and Secretary
of Teledyne Technologies, having joined ATI's Aerospace and Electronics segment
in October 1999. Mr. Kuelbs was Senior Vice President -- Acquisition Policy for
Raytheon Company from November 1998 to September 1999 and Senior Vice
President -- Legal of Raytheon Systems Company from January 1998 to November
1998. Before Raytheon's acquisition of Hughes Aircraft Company, Mr. Kuelbs spent
17 years at Hughes Aircraft Company where he served as Senior Vice President,
General Counsel and Secretary from 1994 to 1998. From 1976 to 1981, Mr. Kuelbs
was Division Counsel for Ford Aerospace and Communications Company, Newport
Beach, California. Mr. Kuelbs began his legal career in 1973 with the Office of
the Army Chief Trial Counsel.
SEGMENT MANAGEMENT
Marvin H. Fink
Age 63
President,
Teledyne Electronic Technologies
Marvin Fink has been the President of Teledyne Electronic Technologies
since 1993. From 1986 to 1993, he was President of Teledyne Microelectronics.
Mr. Fink has held various management positions with several of Teledyne's
aerospace and electronics companies for over 36 years. Prior to joining
Teledyne, Mr. Fink was a manager and engineer with Litton Industries and Hughes
Aircraft Company. Mr. Fink is a director of Gul Technologies Singapore Ltd, an
electronics components company headquartered in Singapore.
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<PAGE> 69
Richard A. Holloway
Age 57
President,
Teledyne Brown Engineering
Richard Holloway has been the President of Teledyne Brown Engineering since
February 1998. From 1986 until joining Teledyne Brown Engineering, Mr. Holloway
was Senior Vice President, Government Division of SCI Systems, Inc., a provider
of manufacturing and design services to commercial companies, the U.S. military
and foreign governments. From 1964 to 1986, he held various positions with The
Boeing Company, including General Manager, Director of High-Technology Products.
Bryan L. Lewis
Age 50
President,
Teledyne Continental Motors
Bryan Lewis has been the President of Teledyne Continental Motors since
1992. Mr. Lewis first joined Teledyne 18 years ago as a project engineer for its
turbine engine business. Mr. Lewis began his industry career in 1972 at the
Pratt & Whitney Aircraft Division of United Technologies in Hartford,
Connecticut.
Charles E. McGill
Age 64
President,
Teledyne Cast Parts
Charles E. McGill has been President of Teledyne Cast Parts since March
1999. Prior to that, he was Vice President of ATI's Aerospace and Electronics
segment and from 1993 through 1997 he was Vice President, Finance and
Administration of Teledyne Electronics Technologies. Mr. McGill has held various
management and financial positions with several of Teledyne's aerospace and
electronics companies for over 34 years. Prior to joining Teledyne, Mr. McGill
worked for the Ford Motor Company.
EMPLOYMENT ARRANGEMENTS
Messrs. Riesenfeld and Kuelbs were retained at an annual base salary of
$300,000 and $275,000, respectively, and are entitled to certain additional
payments. Each of them is also entitled to participate in Teledyne Technologies'
annual incentive bonus plan. In addition, at the spin-off date, Messrs.
Riesenfeld and Kuelbs will receive options to purchase approximately 75,000
shares and 70,000 shares, respectively, of Teledyne Technologies common stock.
The stock option price will be the average price of our common stock over the
first 20 days of trading following the spin-off. Options to purchase 10% of the
shares will become exercisable one year after the grant date, options to
purchase an additional 20% of the shares will become exercisable two years after
the grant date, and options to purchase the remaining 70% of the shares will
become exercisable three years after the grant date.
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<PAGE> 70
HISTORICAL COMPENSATION OF EXECUTIVE OFFICERS
Shown below is information concerning the annual and long-term compensation
for services rendered in all capacities to ATI and its subsidiaries for the
years ended December 31, 1997 and 1998 of the individual who will serve as our
Chief Executive Officer and who was the only executive officer employed by ATI
or an affiliate of ATI at December 31, 1998. The compensation described in this
table was paid by ATI or an affiliate of ATI. The table does not reflect the
compensation to be paid to our executive officers in the future.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ---------------------
----------------------------------- RESTRICTED OPTIONS
FISCAL OTHER ANNUAL STOCK (SHARES) ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS(1) (2) COMPENSATION
- --------------------------- ---------- -------- -------- ------------- ---------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert Mehrabian............. 1998 $370,833 $501,120 $6,171 170,991 40,000 $226,492(3)
1997 145,833 160,000 0 0 0 9,696
(5 months)
</TABLE>
- -------------------------
(1) Represents the closing market price on the award date of ATI restricted
stock awarded to Dr. Mehrabian under ATI's Stock Acquisition and Retention
Program. Dividends are paid on the restricted shares. On December 31, 1998,
the number of shares (and closing price of such shares, if unrestricted)
held by Dr. Mehrabian under the Program were: 6,847 shares ($140,487). Prior
to 1998, Dr. Mehrabian was not eligible to participate in the Program.
(2) Reflects options granted under ATI's Incentive Plan. Does not include
options awarded to Dr. Mehrabian under ATI's Non-Employee Director Stock
Compensation Plan for his service as a director of ATI before becoming as
employee of ATI.
(3) Includes annual accruals for possible future payments to Dr. Mehrabian under
the ATI Supplemental Pension Plan in the amount of $182,068, company
contributions pursuant to the retirement portion of the ATI Retirement
Savings Plan in the amount of $10,920, company contributions to the ATI
Benefit Restoration Plan in the amount of $24,104, and the dollar value of
the benefit to Dr. Mehrabian of the remainder of company-paid premiums for
split-dollar life insurance in the amount of $9,400.
OPTION GRANTS IN LAST FISCAL YEAR
Shown below is information on grants to Dr. Mehrabian of options to
purchase shares of ATI common stock pursuant to the ATI Incentive Plan during
the year ended December 31, 1998, which are reflected in the Summary
Compensation Table above.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED RATES OF STOCK
NUMBER OF % OF TOTAL PRICE APPRECIATION FOR
SECURITIES OPTIONS EXERCISE OPTION TERM(1)
UNDERLYING GRANTED TO OR BASE --------------------------
OPTIONS EMPLOYEES IN PRICE EXPIRATION 0% 5% 10%
NAME GRANTED FISCAL YEAR ($/SHARE) DATE $ $ $
- ---- ---------- ------------ --------- ---------- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert Mehrabian................. 20,000 * 25.88 2/11/2008 0 325,600 825,000
20,000 * 20.375 12/17/2008 0 256,300 649,500
</TABLE>
- -------------------------
* Less than 1%.
(1) No gain to the optionee is possible without stock price appreciation, which
will benefit all stockholders commensurately. The assumed "potential
realizable values" are mathematically derived from certain prescribed rates
of stock price appreciation. The actual value of these option grants depends
on the future performance of ATI common stock and overall stock market
condition. There is no assurance that the values reflected in this table
will be realized.
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<PAGE> 71
Under the Employee Benefits Agreement, options to purchase shares of ATI
common stock that are held by Dr. Mehrabian will be converted into options to
purchase shares of Teledyne Technologies common stock. The number of our shares
that Dr. Mehrabian will be able to purchase and the exercise price of the
options will be adjusted in the conversion based on the relationship of the ATI
stock price and the stock price of Teledyne Technologies over a fixed period of
time.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
SHARES UNEXERCISED OPTIONS AT OPTIONS AT FISCAL
ACQUIRED ON VALUE FISCAL YEAR END(#) YEAR END($)(2)
NAME AND PRINCIPAL POSITION EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------- ------------- ----------- ----------------------------- -------------------------
<S> <C> <C> <C> <C>
Robert Mehrabian(1)............ 0 0 8,660/40,000 31,364/0
</TABLE>
- -------------------------
(1) Includes options to purchase shares of ATI common stock granted to Dr.
Mehrabian under ATI's Non-Employee Director Stock Compensation Plan with
respect to his service as a non-employee director.
(2) The "value of unexercised in-the-money options" is calculated by subtracting
the exercise price per share from $20.21875 which was the average of the
high and low sales prices of a share of ATI common stock on the New York
Stock Exchange on December 31, 1998.
ATI PERFORMANCE SHARE PROGRAM AWARDS
The following table sets forth information about awards for the 1998-2000
award period made in 1998 under the ATI Performance Share Program.
The amounts included in the Estimated Future Payouts columns represent the
potential payment of ATI common stock and cash to the named officers depending
on the level of achievement (i.e., threshold, target or maximum) of the
performance goals for the three-year award period. Participants will not receive
any payment of ATI common stock or cash under the program if ATI and/or
designated business unit does not achieve the threshold level of performance
objectives during the award period.
<TABLE>
<CAPTION>
ESTIMATED
NUMBER OF FUTURE PAYOUTS UNDER
SHARES, PERFORMANCE NON-STOCK PRICE-BASED PLANS
UNITS OR OR OTHER PERIOD --------------------------------------------
OTHER UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME RIGHTS(#) OR PAYOUT ($ OR #) ($ OR #) ($ OR #)
- ---- -------------- ------------------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Robert Mehrabian........... * 1998-2000 award period 3,284 shs. 13,134 shs. 26,268 shs.
(2001-2003 payout period) $41,667 $166,667 $333,334
</TABLE>
- -------------------------
* The amount of the award is based on base salary at the beginning of the award
period. Two-thirds of the award is to be paid in ATI common stock, with the
number of shares based on the average price of a share of ATI common stock on
the New York Stock Exchange for the last 30 trading days in 1997. One-third of
the award is to be paid in cash.
Under the Employee Benefits Agreement, the current award period under the
ATI Performance Share Program would be terminated when the spin-off occurs and
ATI's compensation committee will determine the amount of awards, if any, that
have been earned. Stock awards
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<PAGE> 72
payable under the Program to our employees will be payable in shares of our
common stock. See "Arrangements with ATI Relating to the Spin-Off--Employee
Benefits Agreement."
BENEFIT PLANS FOLLOWING THE SPIN-OFF
Our Incentive Plans
On or prior to the date of the spin-off, our Board of Directors will adopt,
and ATI as our sole stockholder will approve, the following incentive
compensation plans.
Long-Term Incentive Plan
Our long-term incentive plan is expected to provide for the grant of
various types of long-term incentive awards to selected employees, consistent
with the objectives and restrictions of the plan. Although these awards may
include non-qualified stock options, incentive stock options under the Internal
Revenue Code, stock appreciation rights, and restricted and unrestricted share
awards, it is expected that only stock options and restricted stock awards under
a stock acquisition and retention program will be granted under the plan
initially. A total of 2,650,000 shares of our common stock will be available for
issuance under our long-term incentive plan. The term of the plan is expected to
be ten years.
The plan will vest broad powers in the Personnel and Compensation Committee
of our Board of Directors to administer and interpret the plan. This power will
include the authority to select the persons to be granted awards, to determine
the terms, goals and conditions of awards, and to determine whether such goals
and conditions have been met.
While the precise number of shares is yet to be determined, it is
anticipated that we will grant options for up to 187,500 shares of our Common
Stock to our senior management following the spin-off in addition to those
options granted in connection with the conversion of options to purchase ATI
common stock under the Employee Benefits Agreement.
We also expect to establish a stock acquisition and retention program
("SARP") under our incentive plan with terms that are similar to the SARP
established by ATI. Under this program, each year, key executives will be given
the opportunity to purchase shares of our stock, or designate shares of our
stock previously acquired by them, with a value equal to their base salary at
the beginning of the year. Under the SARP, executives who purchase shares can
deliver a promissory note, payable to Teledyne Technologies, as payment of the
purchase price. Executives will receive an award of one restricted share of our
common stock for each two shares they purchase or designate. In general, the
restricted shares will vest only if the participant retains the shares purchased
or designated by the participant as subject to the SARP for a period of five
years.
Annual Incentive Plan
Our annual incentive plan is expected to give the Personnel and
Compensation Committee of our Board of Directors the discretion to determine the
aggregate amount of money to be used for awards based upon competitive
compensation practices and such measures of our performance as the Committee
selects from time to time. Individual awards will be determined annually by the
Personnel and Compensation Committee in accordance with performance goals
established by the Committee at the beginning of the year.
Deferred Compensation Plan
It is anticipated that we will implement a deferred compensation plan that
will allow certain of our executives to defer all or a portion of their annual
salary and annual incentive plan awards, as well as amounts due under certain of
our other compensation programs. A participant's deferred benefit will be
credited with earnings based on one or more hypothetical investments available
under the plan. The plan is not funded. We expect, however, to hold insurance
policies on the lives of participants in the plan, to the extent insurance is
reasonably available, to provide a possible source of cash for payments that
become due under the plan.
Pension and Other Plans
Pension Plans
Many of our employees will have been participants in various parts of the
ATI Pension
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<PAGE> 73
Plan. On or prior to the date of the spin-off, we
intend to adopt the Teledyne Technologies Pension Plan on terms substantially
similar to the parts of the ATI Pension Plan applicable to all of our employees,
both active and inactive at our operations which perform government contract
work and for our active employees at our operations which do not perform
government contract work. The annual benefits payable under these parts of the
pension plans to participating salaried employees retiring at or after age 65
will be calculated under a formula which takes into account the participant's
compensation and years of service. The Code limits the amounts payable to
participants under a qualified pension plan. We intend to adopt a Pension
Equalization Plan which is designed to restore benefits which would be payable
under the pension plan provisions but for the limits imposed by the Code, to the
levels calculated pursuant to the formulas contained in the pension plan
provisions.
The following table illustrates the approximate annual pension that may
become payable to a Teledyne Technologies employee in the higher salary
classifications under our regular and supplemental pension plans.
<TABLE>
<CAPTION>
ESTIMATED ANNUAL PENSIONS(1)
AVERAGE PAY IN HIGHEST YEARS OF SERVICE(3)
60 MONTHS OF LAST 120 ------------------------------
MONTHS OF EMPLOYMENT(2) 15 20 30
- ----------------------- -------- -------- --------
<S> <C> <C> <C>
$ 200,000 $ 46,277 $ 61,702 $ 92,553
300,000 71,027 94,702 142,053
400,000 95,777 127,702 191,553
500,000 120,527 160,702 241,053
600,000 145,277 193,702 290,553
700,000 170,027 226,702 340,053
800,000 194,777 259,702 389,553
1,000,000 244,277 325,702 488,553
</TABLE>
- ---------------
(1) The estimated amounts assume retirement at age 65 (normal retirement age)
with a straight-life annuity without reduction for a survivor annuity or for
optional benefits. They are not subject to deduction for Social Security
benefits.
(2) For the period through December 31, 1994, for Teledyne employees who are in
the higher salary classifications, compensation for the purposes of the plan
was limited to an individual's base salary. Effective January 1, 1995, plan
compensation for those employees includes base salary and up to five annual
incentive compensation received on and after January 1, 1995.
(3) The maximum benefits payable under the pension provisions applicable to our
employees are reached after 30 years of credited service.
Savings Plan
We plan to establish a defined contribution 401(k) program for our
employees on terms substantially similar to the Teledyne, Inc. 401(k) Plan prior
to April 1, 2000 and transfer account balances of affected employees under the
Teledyne, Inc. 401(k) Plan directly to our new plan. Until we establish our new
plan, our employees will continue to participate in a part of the Teledyne, Inc.
401(k) Plan that is maintained for the benefit of our employees. After the
spin-off and until we establish our new savings plan, our part of the Teledyne,
Inc. 401(k) Plan will offer along with funds, three common stock funds as
investment alternatives: (i) our common stock fund, (ii) a Water Pik
Technologies, Inc. common stock fund and (iii) an ATI common stock fund. Our
plan participants will be able to increase their holdings in our stock fund.
They will not, however, be able to increase their holdings in the Water Pik
Technologies or ATI stock funds. To the extent that the plan fiduciaries have
not already done so, on December 31, 2002, all remaining investments in the
Water Pik
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<PAGE> 74
Technologies and ATI stock funds under our part of the Teledyne, Inc. 401(k)
Plan or our new savings plan will be liquidated and the proceeds transferred to
the Teledyne Technologies common stock fund under the applicable plan. Similar
investment restrictions and automatic liquidations will apply to our stock fund
available under the ATI and Water Pik Technologies savings plans.
Employee Stock Purchase Plan
We expect to adopt an employee stock purchase plan similar to ATI's Stock
Advantage Plan, under which our employees will be permitted to purchase shares
of our common stock through payroll deductions supplemented by company
contributions.
Other Benefit Plans
It is expected that we will adopt a number of plans to provide certain
employee welfare benefits to our active employees as well as our retirees after
the spin-off, including medical, short and long-term disability, life insurance,
severance and other benefits, and our Board of Directors will reserve the right
to amend, suspend or terminate any of these welfare plans.
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<PAGE> 75
SECURITY OWNERSHIP
The following table sets forth the number of shares of our common stock
expected to be beneficially owned following the spin-off, directly or
indirectly, by each person known to us who is expected to own beneficially more
than five percent of our outstanding common stock, each director, each of our
Named Executive Officers and such persons as a group, in each case based upon
the beneficial ownership of such persons of ATI common stock reported to ATI as
of October 15, 1999, and the distribution ratio of one share of our common stock
for every seven shares of ATI common stock owned by the named persons, including
shares as to which a right to acquire ownership within 60 days of October 15,
1999 exists (for example, through the exercise of stock options) within the
meaning of Rule 13d-3(d)(1) under the Securities Exchange Act of 1934. Each
person has sole voting and investment power with respect to the shares listed
unless otherwise indicated.
<TABLE>
<CAPTION>
NUMBER OF
BENEFICIAL OWNER SHARES PERCENT OF CLASS
- ---------------- --------- ----------------
<S> <C> <C>
J. P. Morgan & Co. Incorporated(1).......................... 3,080,600 11.4%
60 Wall Street
New York, NY 10260
Richard P. Simmons(2)....................................... 2,311,935 8.6%
1000 Six PPG Place
Pittsburgh, PA 15222
Caroline W. Singleton(3).................................... 1,999,902 7.4%
Sole Trustee of the Singleton Family Trust
335 North Maple Drive, Suite 177
Beverly Hills, CA 90210
Scudder Kemper Investments, Inc.(4)......................... 1,575,311 5.8%
345 Park Avenue
New York, NY 10154
Capital Research and Management Company(5).................. 1,450,057 5.4%
333 South Hope Street
Los Angeles, CA 90071
Robert Mehrabian............................................ 9,409 *
Stefan C. Riesenfeld........................................ 0 *
John T. Kuelbs.............................................. 0 *
Frank V. Cahouet(6)......................................... 27 *
C. Fred Fetterolf(6)........................................ 985 *
Charles J. Queenan, Jr.(6).................................. 101,374 *
All directors and executive officers as a group (6
persons).................................................. 111,795 *
</TABLE>
- -------------------------
* Less than one percent of the outstanding shares.
(1) J.P. Morgan & Co. Incorporated filed a Form 13F under the Securities
Exchange Act of 1934 indicating that as of June 30, 1999, it beneficially
owned 21,564,205 shares of ATI common stock, including 15,924,890 shares as
to which it had sole voting power and 158,369 shares as to which it had
shared voting power.
(2) Mr. Simmons will have the sole power to direct the voting of all 2,311,935
shares, and sole power to direct the disposition of 1,157,451 of these
shares. Mrs. Richard P. Simmons will have the sole
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<PAGE> 76
power to direct the disposition of 1,154,484 of these shares. The amount shown
reflects shares held for Mr. Simmons as of September 30, 1999 under the ATI
Retirement Savings Plan. Mr. Simmons disclaims beneficial ownership of shares,
not shown in the table, that will be owned by R.P. Simmons Family
Foundation, a private charitable foundation with respect to which Mr.
Simmons serves as trustee.
(3) Caroline W. Singleton filed a Schedule 13D dated August 25, 1999, indicating
that as of July 26, 1999, she beneficially owned 13,999,320 shares of ATI
common stock, which had been held by Dr. Henry E. Singleton. The shares had
been transferred to the Singleton Family Trust, of which she is the sole
trustee.
(4) Scudder Kemper Investments, Inc. filed a Schedule 13G dated February 12,
1999 indicating that as of December 31, 1998, it beneficially owned ATI
common stock as follows: 2,326,862 sole voting power; 7,974,265 shared
voting power; 10,928,613 sole dispositive power; and 98,569 shared
dispositive power.
(5) Capital Research and Management Company filed a Schedule 13G dated February
8, 1999 indicating that as of December 31, 1998, it held sole dispositive
power, and no voting power, with respect to 10,150,400 shares of ATI common
stock as a result of acting as investment adviser to various registered
investment companies.
(6) The amounts include shares to which beneficial ownership will be disclaimed
as follows: 7,728 shares that will be owned by Mr. Queenan's wife. The
amounts do not include 371 shares that will be owned by the Fetterolf Family
Foundation for which beneficial ownership will be disclaimed.
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DESCRIPTION OF OUR CAPITAL STOCK
Our Restated Certificate of Incorporation ("Certificate") provides that our
authorized capital consists of (i) 125,000,000 shares of common stock, $.01 par
value, of which (based on the number of shares of ATI common stock outstanding
as of September 30, 1999) 27,008,553 shares of our common stock will be issued
to stockholders of ATI in the spin-off, and (ii) 15,000,000 shares of preferred
stock, par value $.01 per share, of which 1,250,000 shares have been designated
as Series A Junior Participating Preferred Stock for issuance in connection with
the exercise of Teledyne Technologies Rights. See "-- Rights Plan."
COMMON STOCK
Each share of our common stock will entitle its holder of record to one
vote for the election of directors and all other matters to be voted on by the
stockholders. Holders of our common stock will not have cumulative voting
rights. As a result, the holders of a majority of the shares of our common stock
voting for the election of directors may elect all nominees standing for
election as our directors.
Subject to the rights of holders of preferred stock, holders of our common
stock will be entitled to receive such dividends, if any, as may be declared
from time to time by our Board of Directors in its discretion from funds legally
available for that use. Subject to the rights of holders of preferred stock,
holders of our common stock will be entitled to share on a pro rata basis in any
distribution to stockholders upon our liquidation, dissolution or winding up. No
holder of our common stock will have any preemptive right to subscribe for any
of our stock or other security.
PREFERRED STOCK
Our Board of Directors, without further action by the stockholders, may
from time to time authorize the issuance of shares of our preferred stock in one
or more series and, within certain limitations, fix the powers, preferences and
rights and the qualifications, limitations or restrictions thereof and the
number of shares constituting any series or designations of such series.
Satisfaction of any dividend preferences of our outstanding preferred stock
would reduce the amount of funds available for the payment of dividends on our
common stock. Holders of our preferred stock would normally be entitled to
receive a preference payment in the event of our liquidation, dissolution or
winding up before any payment is made to the holders of our common stock.
Under certain circumstances, the issuance of our preferred stock may render
more difficult or tend to discourage our change in control. Although we
currently have no plans to issue shares of our preferred stock, our Board of
Directors, without stockholder approval, may issue our preferred stock with
voting and conversion rights which could adversely affect the rights of holders
of shares of our common stock. For a description of the terms of our Series A
Junior Participating Preferred Stock. See "-- Rights Plan."
RIGHTS PLAN
Our Board of Directors has, subject to completion of the spin-off, declared
a dividend of one preferred share purchase Right for each outstanding share of
our common stock. Each Right entitles the registered holder to purchase from us
one one-hundredth of a share of Series A Junior Participating Preferred Stock
(the "Preferred Shares") of Teledyne Technologies at a price of $ per one
one-hundredth of a Preferred Share (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights are set forth in a Rights
Agreement between us and ChaseMellon Shareholder Services, L.L.C., as Rights
Agent.
Until the earlier to occur of:
- a public announcement that a person or group of affiliated or associated
persons (an "Acquiring Person"), has acquired beneficial ownership of 15%
or more of our outstanding shares of common stock; or
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<PAGE> 78
- 10 business days (or such later date as may be determined by our board of
directors) following the commencement of, or announcement of an intention
to make, a tender offer or exchange offer the consummation of which would
result in the beneficial ownership by a person or group of 15% or more of
our outstanding common stock (the earlier of such dates being the
"Distribution Date"), the Rights will be evidenced by the common stock
certificate with a copy of the Summary of Rights attached to it.
The Rights Agreement provides that, until the Distribution Date (or earlier
redemption or expiration of the Rights), the Rights will be transferred with and
only with our common stock. Until the Distribution Date (or earlier redemption
or expiration of the Rights), new certificates of our common stock issued upon
transfer or new issuance of our common stock will contain a notation
incorporating the Rights Agreement by reference.
Until the Distribution Date (or earlier redemption or expiration of the
Rights), the surrender for transfer of any certificates for our common stock,
even without such notation or a copy of the Summary of Rights being attached
thereto, will also constitute the transfer of the Rights associated with our
common stock represented by such certificate. As soon as practicable following
the Distribution Date, separate Rights Certificates will be mailed to holders of
record of our common stock as of the close of business on the Distribution Date
and such separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The final
expiration date for the Rights will occur at the close of business on the tenth
anniversary of the date of the Rights Agreement, unless this date is extended or
unless the Rights are earlier redeemed or exchanged by us, in each case, as
described below.
The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution:
- in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Preferred Shares;
- upon the grant to holders of the Preferred Shares of certain rights or
warrants to subscribe for or purchase Preferred Shares at a price, or
securities convertible into Preferred Shares with a conversion price,
less than the then-current market price of the Preferred Shares; or
- upon the distribution to holders of the Preferred Shares of evidence of
indebtedness or assets (excluding regular periodic cash dividends paid
out of earnings or retained earnings or dividends payable in Preferred
Shares) or of subscription rights or warrants (other than those referred
to above).
The number of outstanding Rights and the number of one one-hundredths of a
Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of our common stock or a stock dividend
on our common stock payable in shares of our common stock or subdivisions,
consolidations or combinations of our common stock occurring, in any such case,
prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1.00 per share but will be entitled to an
aggregate dividend of 100 times the dividend declared per share of our common
stock. If we are liquidated, the holders of the Preferred Shares will be
entitled to a minimum preferential liquidation payment of $100 per share but
will be entitled to an aggregate payment of 100 times the payment made per share
of our common stock. Each Preferred Share will have 100 votes, voting together
with our common stock. Finally, if we engage in a merger, consolidation, or any
other transaction in which shares of our common stock are exchanged, each
Preferred Share will be entitled to receive 100 times the amount received
74
<PAGE> 79
per share of our common stock. These rights are protected by customary
antidilution provisions.
The dividend, liquidation and voting rights attendant to one one-hundredth
of a Preferred Share purchasable upon exercise of each Right are designed to be
the approximate economic equivalent of one share of our common stock.
In the event that we are acquired in a merger or other business combination
transaction or 50% or more of our consolidated assets or earning power are sold
after a person or group has become an Acquiring Person, proper provision will be
made so that each holder of a Right will thereafter have the right to receive,
upon the exercise thereof at the then current exercise price of the Right, that
number of shares of common stock of the acquiring company which at the time of
such transaction will have a market value of two times the exercise price of the
Right. If any person or group of affiliated or associated persons becomes an
Acquiring Person, proper provision shall be made so that each holder of a Right,
other than Rights beneficially owned by the Acquiring Person (which will
thereafter be void), will thereafter have the right to receive upon exercise
that number of shares of our common stock having a market value of two times the
exercise price of the Right.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
shares of our common stock, our board of directors may exchange the Rights
(other than Rights owned by such person or group which will have become void),
in whole or in part, at an exchange ratio of one share of our common stock, or
one one-hundredth of a Preferred Share, per Right.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are integral multiples of one one-hundredth of a Preferred
Share, which may, at our election, be evidenced by depository receipts) and, in
lieu thereof, an adjustment in cash will be made based on the market price of
the Preferred Shares on the last trading day prior to the date of exercise.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of the outstanding
shares of our common stock, our Board of Directors may redeem the Rights in
whole, but not in part, at a price of $.01 per Right. The redemption of the
Rights may be made effective at such time on such basis with such conditions as
our the Board of Directors in its sole discretion may establish. Immediately
upon any redemption of the Rights, the right to exercise the Rights will
terminate and the only right of the holders of Rights will be to receive the
redemption price.
The terms of the Rights may be amended by our Board of Directors without
the consent of the holders of the Rights, except that from and after such time
as any person or group of affiliated or associated persons becomes an Acquiring
Person, no such amendment may adversely affect the interests of the holders of
the Rights.
Until a Right is exercised, the holder of the Right will have no rights as
our stockholder, including, without limitation, the right to vote or to receive
dividends.
CERTAIN PROVISIONS OF OUR GOVERNING DOCUMENTS
The following is a description of certain provisions of our Certificate and
Bylaws. The description is qualified in its entirety by reference to the full
texts of the Certificate and Bylaws. Certain provisions of our Certificate and
Bylaws could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, control of
us, without the approval of our Board of Directors.
Charter Provisions Affecting Control and Other Transactions. Our
Certificate requires the affirmative vote of the holders of at least two-thirds
of the outstanding shares of our common stock to approve certain fundamental
changes such as a merger, consolidation, sale of substantially all of our
assets, dissolution, certain
75
<PAGE> 80
purchases by us or one of our subsidiaries of shares of our common stock or
other assets from a "significant shareholder," any merger of a "significant
shareholder" into us or one of our subsidiaries, or any reclassification or
recapitalization of us consummated within five years after a "significant
shareholder" becomes such, if the result of such reclassification or
recapitalization is to reduce the number of outstanding shares of our common
stock or convert any such shares into cash or other securities. This
supermajority voting requirement is not applicable if the fundamental change has
been approved at a meeting of our board of directors by the vote of more than
two-thirds of the incumbent directors. A "significant shareholder" is defined as
any person who owns beneficially a number of shares of our common stock that is
greater than 15% of the outstanding shares of our common stock, and any and all
associates and affiliates of such person.
Classification of Directors. Our Certificate provides that our Board of
Directors will consist of three classes of directors. The initial members of our
Board of Directors will be divided into three classes to serve as follows: the
Class I Directors will initially hold office for a term to expire at the first
annual meeting of stockholders after their initial election; the Class II
Directors will initially hold office for a term to expire at the second annual
meeting of stockholders after their initial election; and the Class III
Directors will initially hold office for a term to expire at the third annual
meeting of stockholders after their initial election. At each annual meeting of
our stockholders, only the election of directors of the class whose term is
expiring will be voted upon, and upon election each director will serve a
three-year term. See "Management -- Directors."
Right to Call a Special Meeting. Our Certificate provides that special
meetings of the stockholders may only be called by the Chairman of our Board of
Directors or the Chief Executive Officer or by our Board of Directors pursuant
to a resolution passed by a majority of the directors then in office.
Accordingly, our stockholders will not have the right to call a special meeting
of the stockholders. Our Certificate further provides that only such business
will be conducted at a special meeting of stockholders as shall have been
brought before the meeting pursuant to our notice of the special meeting.
Nominations of persons for election to our Board of Directors may be made
at a special meeting of stockholders at which directors are to be elected
pursuant to our notice of meeting (i) by or at the direction of our board of
directors or (ii) by any stockholder of record at the time of the giving of
notice of such meeting. Nominations by a stockholder of persons for election to
our Board of Directors may be made if the stockholder's notice is delivered to
our Secretary not earlier than the 90th day prior to the special meeting and not
later than the 75th day prior to the special meeting or the 10th day following
the day on which a public announcement is first made of the special meeting and
of the nominees proposed by the Board of Directors to be elected at the meeting.
Procedures to Bring Business Before a Meeting; No Action by Consent. Our
Certificate provides that in order for nominations or other business to be
properly brought before an annual meeting by a stockholder, the stockholder must
give timely notice thereof in writing to our Secretary. To be timely, a
stockholder's notice must be delivered to our Secretary not less than 60 days
nor more than 90 days prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event the date of the annual
meeting is advanced by more than 30 days or delayed by more than 60 days from
the anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the 90th day prior to such annual meeting and not
later than the 60th day prior to such annual meeting or the 10th day following
the day on which public announcement of the date of such meeting is first made.
Our Certificate also provides that any action required to be taken by our
stockholders must be effected at a duly called annual or special meeting of our
stockholders and may not be effected by the written consent of our stockholders.
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<PAGE> 81
Fiduciary Duties of Directors. Our Certificate provides that our directors
may take into account the effects of their actions on our employees, suppliers,
distributors and customers and the effect upon communities in which our offices
or facilities are located or any other factors considered pertinent.
As permitted by the DGCL, our Certificate includes a provision eliminating
the personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director except for
liability:
- for any breach of the director's duty of loyalty to the corporation or
its stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- for unlawful payment of a dividend or an unlawful stock purchase or
redemption, and
- for any transaction from which the director derives an improper personal
benefit.
Our Certificate further provides that, if the DGCL is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of our directors shall be eliminated or limited to
the fullest extent so permitted. Our Certificate also specifies that no
amendment to or repeal of the provision shall apply to or have any effect on the
liability or alleged liability of any of our directors for or with respect to
any acts or omissions of such director occurring prior to the amendment or
repeal.
Charter Amendments. Our Certificate provides that the affirmative vote of
the holders of at least 75% of the combined voting power of the outstanding
shares of our capital stock is required to amend or rescind, or adopt any
provision inconsistent with the purpose or intent of the provisions of our
Certificate relating to the adoption, amendment and repeal of our Bylaws,
limitations of certain liabilities of directors, actions of stockholders,
classification of directors, certain factors permitted to be considered by the
directors, approval of certain fundamental changes, and amendments to our
Certificate.
Bylaw Provisions Regarding ATI Directors. Our Bylaws contain provisions
designed to ensure that at least a majority of our directors are also directors
of ATI until the third annual meeting of our stockholders held after the
spin-off. The Bylaws also provide that no quorum of the board will be deemed
present unless at least a majority of the directors present are also members of
the Board of Directors of ATI.
Bylaw Amendments. Our Certificate authorizes our Board of Directors to
adopt, amend or repeal our Bylaws. Our Certificate also provides that our
stockholders may not adopt, amend or repeal our Bylaws other than by the same
affirmative vote that is required to amend certain provisions of our Certificate
See "-- Charter Amendments")
ANTI-TAKEOVER LEGISLATION
Since neither our Certificate nor our Bylaws contain a provision expressly
electing not to be governed by Section 203 of the DGCL, we are subject to this
statutory anti-takeover provision. Section 203 provides that any person who
acquires 15% or more of a corporation's voting stock (thereby becoming an
"interested stockholder") may not engage in a "business combination" with the
corporation for a period of three years following the time the person became an
interested stockholder, unless:
- the board of directors of the corporation approved, prior to such time,
either the business combination or the transaction that resulted in the
person becoming an interested stockholder;
- upon consummation of the transaction that resulted in that person
becoming an interested stockholder, that person owns at least 85% of the
corporation's voting stock outstanding at the time the transaction
commenced (excluding shares owned by persons who are directors and
officers of that corporation and shares owned by
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<PAGE> 82
employee stock plans in which participants do not have the right to
determine confidentially whether shares will be tendered in a tender or
exchange offer); or
- the business combination is approved by the board of directors and
authorized by the affirmative vote (at an annual or special meeting and
not by written consent) of at least 66 2/3% of the outstanding shares of
voting stock not owned by the interested stockholder.
In determining whether a stockholder is the "owner" of 15% or more of a
corporation's voting stock for purposes of Section 203, ownership is defined to
include the right, directly or indirectly, to acquire stock or to control the
voting or disposition of stock. A "business combination" is defined to include:
- mergers or consolidations of a corporation with an interested
stockholder;
- sales or other dispositions of ten percent or more of the assets of a
corporation with or to an interested stockholder;
- certain transactions resulting in the issuance or transfer to an
interested stockholder of any stock of a corporation or its subsidiaries;
- certain transactions which would result in increasing the proportionate
share of the stock of a corporation or its subsidiaries owned by an
interested stockholder, and
- receipt by an interested stockholder of the benefit (except
proportionately as a stockholder) of any loans, advances, guarantees,
pledges or other financial benefits from, by or to a corporation or any
of its majority-owned subsidiaries.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock will be ChaseMellon
Shareholder Services, L.L.C.
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<PAGE> 83
LIABILITY AND INDEMNIFICATION OF OUR OFFICERS AND DIRECTORS
ELIMINATION OF LIABILITY
As permitted by the DGCL, our Certificate eliminates, subject to certain
statutory limitations, the liability of directors to Teledyne Technologies or
its stockholders for monetary damages for breaches of fiduciary duty, except for
liability
- for any breach of the director's duty of loyalty to the corporation or
its stockholders,
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
- under Section 174 of the DGCL, or
- for any transaction from which the director derived an improper personal
benefit.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Section 145 of the DGCL, a corporation has the power to indemnify
directors and officers under certain prescribed circumstances and, subject to
certain limitations, against certain costs and expenses, including attorney's
fees actually and reasonably incurred in connection with any action, suit or
proceeding, whether civil, criminal, administrative or investigative, to which
any of them is a party by reason of his or her being a director or officer of
the corporation if it is determined that he or she acted in accordance with the
applicable standard of conduct set forth in such statutory provision.
Our Certificate provides that we will indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by reason of the fact that he or she is or
was one of our directors or officers, or is or was serving at our request as a
director, officer, employee or agent of another entity, against certain
liabilities, costs and expenses.
We are also authorized to maintain, and do maintain, insurance on behalf of
any person who is or was one of our directors or officers, or is or was serving
at our request as a director, officer, employee or agent of another entity
against any liability asserted against such person and incurred by such person
in any such capacity or arising out of his or her status as such, whether or not
we would have the power to indemnify such person against such liability under
the DGCL.
AVAILABLE INFORMATION
We have filed a Registration Statement on Form 10 with the Securities and
Exchange Commission with respect to our common stock. The Registration Statement
and the exhibits to it contain some information not appearing in this
Information Statement. This Information Statement provides a summary of some of
the agreements and contracts appearing as exhibits to the Registration
Statement. You are encouraged to see the exhibits to the Registration Statement
for a more complete description of the contracts and agreements summarized in
this Information Statement.
You may access and read the Registration Statement and all of the exhibits
to it through the SEC's Internet site at www.sec.gov. This site contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the SEC. You may also read and copy any
document we file at the SEC's public reference room located at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room.
After the spin-off, we will be required to file annual, quarterly and
special reports and other information with the SEC. We will also be subject to
proxy solicitation requirements. Once filed, you can access this information
from the SEC in the manner set forth in the preceding paragraph. Following the
spin-off, our filings will also be available at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005.
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<PAGE> 84
INDEX TO OUR FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Combined Statements of Income for the Years Ended December
31, 1998, 1997 and 1996................................... F-3
Combined Balance Sheets for December 31, 1998 and 1997...... F-4
Combined Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996.......................... F-5
Combined Statements of Stockholder's Equity for the Years
Ended December 31, 1998, 1997 and 1996.................... F-6
Notes to Combined Financial Statements...................... F-7
Combined Statements of Income (Unaudited) for the Nine
Months Ended September 30, 1999 and 1998.................. F-24
Combined Balance Sheets for September 30, 1999 (Unaudited)
and December 31, 1998 (Audited)........................... F-25
Combined Statements of Cash Flows (Unaudited) for the Nine
Months Ended September 30, 1999 and 1998.................. F-26
Combined Statements of Stockholder's Equity (Unaudited) for
the Nine Months Ended September 30, 1999 and 1998......... F-27
Notes to Interim Combined Financial Statements
(Unaudited)............................................... F-28
</TABLE>
F-1
<PAGE> 85
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Teledyne Technologies Incorporated
We have audited the accompanying combined balance sheets of Teledyne
Technologies Incorporated as of December 31, 1998 and 1997 and the related
combined statements of income, stockholder's equity, and cash flows for each of
the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Teledyne
Technologies Incorporated at December 31, 1998 and 1997, and the combined
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
April 30, 1999
F-2
<PAGE> 86
TELEDYNE TECHNOLOGIES INCORPORATED
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
SALES......................................... $780,393 $756,601 $716,400
Costs and expenses:
Cost of sales............................... 572,087 551,064 511,772
Selling, general and administrative
expenses................................. 126,875 138,249 136,561
-------- -------- --------
698,962 689,313 648,333
-------- -------- --------
Earnings before other income.................. 81,431 67,288 68,067
Other income.................................. 1,562 1,399 1,855
-------- -------- --------
INCOME BEFORE INCOME TAXES.................... 82,993 68,687 69,922
Provision for income taxes.................... 34,276 27,063 29,227
-------- -------- --------
NET INCOME.................................... $ 48,717 $ 41,624 $ 40,695
======== ======== ========
BASIC NET INCOME PER COMMON SHARE............. $1.73 $1.48 $1.49
======== ======== ========
DILUTED NET INCOME PER COMMON SHARE........... $1.73 $1.48 $1.49
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 87
TELEDYNE TECHNOLOGIES INCORPORATED
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash.............................................. $ -- $ --
Accounts receivable............................... 103,198 120,953
Inventories....................................... 53,186.... 47,072
Deferred income taxes............................. 12,913 16,216
Prepaid expenses and other current assets......... 1,751 543
-------- --------
TOTAL CURRENT ASSETS........................... $171,048 $184,784
-------- --------
Property, plant and equipment..................... 43,022 36,913
Deferred income taxes............................. 22,121 18,377
Cost in excess of net assets acquired............. 9,370 9,378
Other assets...................................... 5,258 5,914
-------- --------
TOTAL ASSETS................................... $250,819 $255,366
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable.................................. $ 43,344 $ 42,507
Accrued liabilities............................... 49,136 54,624
-------- --------
TOTAL CURRENT LIABILITIES...................... 92,480 97,131
Accrued postretirement benefits................... 32,953 32,797
Other long-term liabilities....................... 18,984 16,073
-------- --------
TOTAL LIABILITIES.............................. 144,417 146,001
-------- --------
STOCKHOLDER'S EQUITY:
Net advances from Allegheny Teledyne.............. 104,682 107,451
Foreign currency translation gains................ 1,720 1,914
-------- --------
TOTAL STOCKHOLDER'S EQUITY..................... 106,402 109,365
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY..... $250,819 $255,366
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 88
TELEDYNE TECHNOLOGIES INCORPORATED
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................... $ 48,717 $ 41,624 $ 40,695
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............. 11,132 11,285 11,160
Deferred income taxes..................... (441) 255 (279)
Gain on sale of property, plant and
equipment............................... (427) (21) (13)
Change in operating assets and liabilities:
Accounts receivable....................... 17,755 200 (13,246)
Inventories............................... (6,114) (2,897) 669
Accrued liabilities....................... (5,488) 2,762 (5,146)
Other long-term liabilities............... 2,911 3,140 7,600
Accounts payable.......................... 837 14,319 2,229
Accrued postretirement.................... 156 423 352
Other........................................ (1,976) 1,782 856
-------- -------- --------
CASH PROVIDED BY OPERATING ACTIVITIES..... 67,062 72,872 44,877
-------- -------- --------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment... (18,065) (15,822) (15,839)
Disposals of property, plant and equipment... 740 111 77
Other........................................ 1,749 2,915 (689)
-------- -------- --------
CASH USED IN INVESTING ACTIVITIES......... (15,576) (12,796) (16,451)
-------- -------- --------
FINANCING ACTIVITIES:
Net advances to Allegheny Teledyne........... (51,486) (60,232) (28,450)
-------- -------- --------
CASH USED IN FINANCING ACTIVITIES......... (51,486) (60,232) (28,450)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. -- (156) (24)
Cash and cash equivalents at beginning of
year......................................... -- 156 180
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR....... $ -- $ -- $ 156
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 89
TELEDYNE TECHNOLOGIES INCORPORATED
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ADVANCES ACCUMULATED OTHER
(TO) FROM COMPREHENSIVE STOCKHOLDER'S
ALLEGHENY TELEDYNE INCOME EQUITY
------------------ ----------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1995................ $113,814 $1,354 $115,168
======== ====== ========
Net income................................ 40,695 -- 40,695
Other comprehensive income, net of tax:
Foreign currency translation gains...... -- 605 605
-------- ------ --------
Comprehensive income...................... 40,695 605 41,300
Net transactions with Allegheny
Teledyne................................ (28,450) -- (28,450)
-------- ------ --------
BALANCE DECEMBER 31, 1996................. 126,059 1,959 128,018
======== ====== ========
Net income................................ 41,624 -- 41,624
Other comprehensive income, net of tax:
Foreign currency translation losses..... -- (45) (45)
-------- ------ --------
Comprehensive income...................... 41,624 (45) 41,579
Net transactions with Allegheny
Teledyne................................ (60,232) -- (60,232)
-------- ------ --------
BALANCE DECEMBER 31, 1997................. 107,451 1,914 109,365
======== ====== ========
Net income................................ 48,717 -- 48,717
Other comprehensive income, net of tax:
Foreign currency translation losses..... -- (194) (194)
-------- ------ --------
Comprehensive income...................... 48,717 (194) 48,523
Net transactions with Allegheny
Teledyne................................ (51,486) -- (51,486)
-------- ------ --------
BALANCE, DECEMBER 31, 1998................ $104,682 $1,720 $106,402
======== ====== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 90
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1. ALLEGHENY TELEDYNE INCORPORATED SPIN-OFF OF TELEDYNE TECHNOLOGIES
INCORPORATED
In 1999, Allegheny Teledyne Incorporated ("Allegheny Teledyne") announced
that it would pursue a course of action that would result in a transformation of
Allegheny Teledyne, which was expected to include the spin-off of Teledyne
Technologies Incorporated ("Teledyne Technologies" or the "Company") to
Allegheny Teledyne stockholders as an independent, publicly-traded company (the
"spin-off"). In August 1999, Allegheny Teledyne received a favorable ruling from
the Internal Revenue Service that the proposed spin-off of Teledyne Technologies
into a freestanding public company would be treated as a tax-free distribution
for federal income tax purposes. In September 1999, Allegheny Teledyne's Board
of Directors approved the various transactions pertaining to the spin-off and
delegated to its Executive Committee the authority to set the record date and
distribution date for the spin-off. Immediately following the spin-off,
Allegheny Teledyne will no longer have a financial investment in Teledyne
Technologies.
Teledyne Technologies consists of the Aerospace and Electronics segment of
Allegheny Teledyne which includes the operations of the Teledyne Electronic
Technologies and the Teledyne Brown Engineering divisions, both with operations
in the United States and United Kingdom, and the Teledyne Continental Motors and
the Teledyne Cast Parts divisions, both with operations in the United States.
A five-year $200,000,000 revolving credit facility will be established by
Allegheny Teledyne, and $100,000,000 of borrowings under the facility will be
used by Allegheny Teledyne prior to the spin-off to repay certain of Allegheny
Teledyne's debt obligations. Teledyne Technologies will assume this credit
facility, including the repayment obligations for Allegheny Teledyne's
$100,000,000 of borrowings, in connection with the spin-off. Following the
spin-off, Teledyne Technologies will have $100,000,000 of borrowing availability
remaining. In addition, prior to and in connection with the spin-off, Teledyne
Technologies and Allegheny Teledyne will enter into agreements providing for the
separation of the companies and governing various relationships for separating
employee benefits and tax obligations, indemnification and transition services.
The financial statements of Teledyne Technologies include the combined
financial position, results of operations and cash flows of the businesses
described above. Allegheny Teledyne's historical cost basis of assets and
liabilities has been reflected in the Teledyne Technologies financial
statements. The financial information in these financial statements is not
necessarily indicative of results of operations, financial position and cash
flows that would have occurred if Teledyne Technologies had been a separate
stand-alone entity during the periods presented or of future results. The
combined financial statements included herein do not reflect any changes that
may occur in the capitalization and operations of Teledyne Technologies as a
result of, or after, the spin-off.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF COMBINATION
The combined financial statements of Teledyne Technologies include the
accounts of the businesses distributed by Allegheny Teledyne and its
subsidiaries as described in Note 1. Significant intercompany accounts and
transactions have been eliminated.
F-7
<PAGE> 91
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts and related disclosures. Actual results
could differ from those estimates. Management believes that the estimates are
reasonable.
REVENUE RECOGNITION
Commercial sales and revenue from U.S. Government fixed-price type
contracts are generally recorded as deliveries are made or as services are
rendered. For certain fixed-price type contracts that require substantial
performance over a long time period (one or more years) before deliveries begin,
sales may be recorded based upon attainment of scheduled performance milestones.
As of December 31, 1998, the average length of our long-term contracts was
approximately two years. Sales under cost-reimbursement contracts are recorded
as costs are incurred and fees are earned.
Since certain contracts extend over a long period of time, all revisions in
cost and funding estimates during the progress of work have the effect of
adjusting the current period earnings on a cumulative catch-up basis. When the
current contract estimate indicates a loss, provision is made for the total
anticipated loss.
RESEARCH AND DEVELOPMENT
Company-funded research and development costs ($24,728,000 in 1998,
$28,116,000 in 1997 and $28,933,000 in 1996), which include bid and proposal
costs, are expensed as incurred. Costs related to customer-funded research and
development contracts ($150,254,000 in 1998, $160,675,000 in 1997 and
$173,693,000 in 1996) are charged to costs and expenses as the related sales are
recorded. A portion of the costs incurred for Company-funded research and
development is recoverable through overhead cost allowances on government
contracts.
INCOME TAXES
Provision for income taxes includes deferred taxes resulting from temporary
differences in income for financial and tax purposes using the liability method.
Such temporary differences result primarily from differences in the carrying
value of assets and liabilities.
NET INCOME PER COMMON SHARE
The average number of shares of Teledyne Technologies common stock used in
the computation of basic net income per common share was 28,107,241, 28,085,823
and 27,317,318 for the years ended December 31, 1998, 1997 and 1996,
respectively, based on a distribution ratio of one share of Teledyne
Technologies common stock for every seven shares of Allegheny Teledyne common
stock. The average number of shares of Teledyne Technologies common stock used
in the computation of diluted net income per common share was 28,133,879,
28,120,380 and 27,341,594 for the years ended December 31, 1998, 1997 and 1996,
respectively. A distribution ratio of one share of Teledyne Technologies common
stock for every seven shares of Allegheny Teledyne common stock was used to
adjust the stock options. The actual stock option adjustment will be based upon
the relation of the market price of Allegheny Teledyne common stock prior to the
spin-off to the market
F-8
<PAGE> 92
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
price of Teledyne Technologies after the spin-off and therefore cannot be
determined at the present time.
ACCOUNTS RECEIVABLE
Receivables are presented net of a reserve for doubtful accounts of
$2,890,000 at December 31, 1998 and $3,205,000 at December 31, 1997. Expense
recorded for the reserve for doubtful accounts was $1,432,000, $1,257,000 and
$1,199,000 for the years ended December 31, 1998, 1997, and 1996, respectively.
Write-offs of doubtful accounts were $1,747,000, $76,000 and $1,092,000 for the
years ended December 31, 1998, 1997 and 1996, respectively. The Company markets
its products and services principally throughout the United States, Europe,
Japan and Canada to commercial customers and agencies of, and prime contractors
to, the U.S. Government. Trade credit is extended based upon evaluations of each
customer's ability to perform its obligations, which are updated periodically.
INVENTORIES
Inventories are stated at the lower of cost (last-in, first-out; first-in,
first-out; and average cost methods) or market, less progress payments. Costs
include direct material, direct labor and applicable manufacturing and
engineering overhead, and other direct costs.
PROPERTY AND EQUIPMENT
Property, plant and equipment are carried at cost. The method of
depreciation adopted for all property placed into service after July 1, 1996 is
the straight-line method. For buildings and equipment acquired prior to July 1,
1996, depreciation is computed using a combination of accelerated and
straight-line methods. The Company believes the straight-line method more
appropriately reflects its financial results by better allocating costs of new
property over the useful lives of these assets. The effect of this change on net
income in 1996 was not material.
COST IN EXCESS OF NET ASSETS ACQUIRED
Cost in excess of net assets acquired related to businesses purchased after
November 1970 is being amortized on a straight-line basis over periods not
exceeding 10 years. Goodwill amortization expense was $582,000, $510,000 and
$125,000 in 1998, 1997 and 1996, respectively.
ENVIRONMENTAL
Costs that mitigate or prevent future environmental contamination or extend
the life, increase the capacity or improve the safety or efficiency of property
utilized in current operations are capitalized. Other costs that relate to
current operations or an existing condition caused by past operations are
expensed. Environmental liabilities are recorded when the Company's liability is
probable and the costs are reasonably estimable, but generally not later than
the completion of the feasibility study or the Company's recommendation of a
remedy or commitment to an appropriate plan of action. The accruals are reviewed
periodically and, as investigations and remediations proceed, adjustments are
made as necessary. Accruals for losses from environmental remediation
obligations do not consider the effects of inflation, and anticipated
expenditures are not discounted to their present value. The accruals are not
reduced by possible recoveries from insurance carriers or other third
F-9
<PAGE> 93
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
parties, but do reflect anticipated allocations among potentially responsible
parties at federal Superfund sites or similar state-managed sites and an
assessment of the likelihood that such parties will fulfill their obligations at
such sites. The measurement of environmental liabilities by the Company is based
on currently available facts, present laws and regulations, and current
technology. Such estimates take into consideration the Company's prior
experience in site investigation and remediation, the data concerning cleanup
costs available from other companies and regulatory authorities, and the
professional judgment of the Company's environmental experts in consultation
with outside environmental specialists, when necessary.
FOREIGN CURRENCY TRANSLATION
The Company's foreign entities' accounts are measured using local currency
as the functional currency. Assets and liabilities are translated at the
exchange rate in effect at year-end. Revenues and expenses are translated at the
rates of exchange prevailing during the year. Translation adjustments arising
from differences in exchange rates from period to period are included in the
cumulative foreign currency translation account in stockholder's equity.
ACCOUNTING PRONOUNCEMENTS
FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued in June 1998. This statement establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. In June 1999, FASB Statement No. 137, "Accounting for Derivative
Instruments and Hedging Activities: Deferral of the Effective Date of FASB
Statement No. 133" was issued. This statement delays the effective date of
Statement No. 133 to all fiscal quarters beginning after June 15, 2000. The
Company is presently evaluating the effect of adopting these statements.
NOTE 3. ACCOUNTS RECEIVABLE
Accounts receivable are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
U.S. Government and prime contractors
contract receivables:
Billed receivables........................ $ 18,117 $ 26,339
Unbilled receivables...................... 21,260 18,830
Other receivables, primarily commercial..... 66,711 78,989
Reserve for doubtful accounts............... (2,890) (3,205)
-------- --------
Total accounts receivable................... $103,198 $120,953
======== ========
</TABLE>
The billed contract receivables from the U.S. Government and prime
contractors contain $5,901,000 and $13,426,000 at December 31, 1998 and 1997,
respectively, due to long-term contracts. The unbilled contract receivables from
the U.S. Government and prime contractors contain $21,260,000 and $17,980,000 at
December 31, 1998 and 1997, respectively, due to long-term contracts.
F-10
<PAGE> 94
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Unbilled contract receivables represent accumulated costs and profits
earned but not yet billed to customers. The Company believes that substantially
all such amounts will be billed and collected within one year.
NOTE 4. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies.................. $ 23,296 $ 18,488
Work-in-process............................. 65,296 67,613
Finished goods.............................. 10,385 7,404
-------- --------
Total inventories at current cost........... 98,977 93,505
Less allowances to reduce current cost
values to LIFO basis...................... (39,043) (38,761)
Progress payments........................... (6,748) (7,672)
-------- --------
Total inventories........................... $ 53,186 $ 47,072
======== ========
</TABLE>
Inventories, before progress payments, determined on the last-in, first-out
method were $56,326,000 at December 31, 1998 and $50,801,000 at December 31,
1997. The remainder of the inventory was determined using the first-in,
first-out and average cost methods. These inventory values do not differ
materially from current cost.
During 1998, 1997 and 1996, inventory usage resulted in liquidations of
last-in, first-out inventory quantities. These inventories were carried at the
lower costs prevailing in prior years as compared with the cost of current
purchases. The effect of these last-in, first-out liquidations was to increase
net income by $264,000 in 1998, $2,200,000 in 1997 and $2,464,000 in 1996.
Inventories, before progress payments, related to long-term contracts were
$2,035,000 and $2,292,000 at December 31, 1998 and 1997, respectively. Progress
payments related to long-term contracts were $125,000 and $75,000 at December
31, 1998 and 1997, respectively.
Under the contractual arrangements by which progress payments are received,
the U.S. Government has a security interest in the inventories associated with
specific contracts.
F-11
<PAGE> 95
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. SUPPLEMENTAL BALANCE SHEET INFORMATION
Property, plant and equipment were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Land........................................ $ 5,549 $ 5,573
Buildings................................... 36,734 35,868
Equipment and leasehold improvements........ 135,493 124,667
--------- ---------
177,776 166,108
Accumulated depreciation and amortization... (134,754) (129,195)
--------- ---------
Total property, plant and equipment......... $ 43,022 $ 36,913
========= =========
</TABLE>
Accrued liabilities included salaries and wages of $22,605,000 and
$24,400,000 in 1998 and 1997, respectively. Other long-term liabilities
consisted of reserves for self-insurance.
NOTE 6. STOCKHOLDER'S EQUITY
Allegheny Teledyne sponsors an incentive plan that provides for stock
option awards to officers and key employees. Teledyne Technologies has officers
and key employees that have participated in this plan. Teledyne Technologies
accounts for its stock option plans in accordance with APB Opinion 25,
"Accounting for Stock Issued to Employees," and related Interpretations. Under
APB Opinion 25, no compensation expense is recognized because the exercise price
of the Company's employee stock options equals the market price of the
underlying stock at the date of the grant.
If compensation cost for these options had been determined using the
fair-value method prescribed by FASB Statement No. 123, "Accounting for
Stock-based Compensation," net income would have been reduced by $673,000,
$154,000, and $131,000 for the years ended December 31, 1998, 1997 and 1996,
respectively. Under FASB Statement No. 123, the fair value of each option grant
is estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions (there were no option grants in
1997):
<TABLE>
<CAPTION>
1998 1997 1996
----- ---- -----
<S> <C> <C> <C>
Expected dividend yield................................. 2.8% --% 3.9%
Expected volatility..................................... 31% --% 31%
Risk-free interest rate................................. 5.0% --% 6.3%
Expected lives.......................................... 8.0 -- 8.0
Weighted-average fair value of options granted during
year.................................................. $7.25 $-- $4.53
</TABLE>
The pro forma amounts above are not necessarily representative of the
effects of awards on future pro forma earnings because future grants of employee
stock options by Teledyne Technologies management will not be comparable to
awards made to employees while Teledyne Technologies was part of Allegheny
Teledyne. The assumptions used to compute the fair value of any stock option
awards will be specific to Teledyne Technologies and therefore may not be
comparable to the Allegheny Teledyne assumptions used.
F-12
<PAGE> 96
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Stock option transactions in Allegheny Teledyne common stock under
Allegheny Teledyne's incentive plan for Teledyne Technologies employees are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- --------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding beginning
of year............. 398,842 $11.47 441,308 $11.38 346,501 $10.39
Granted............... 722,000 $22.89 -- $ -- 102,025 $14.61
Exercised............. (8,000) $10.14 (42,466) $10.48 (7,218) $ 9.96
--------- ------ ------- ------ ------- ------
Outstanding end of
year................ 1,112,842 $18.89 398,842 $11.47 441,308 $11.38
========= ====== ======= ====== ======= ======
Exercisable at end of
year................ 308,456 $10.85 257,113 $10.20 198,878 $ 9.32
========= ====== ======= ====== ======= ======
</TABLE>
Further information about stock options outstanding and exercisable at
December 31, 1998 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------ -------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICES SHARES LIFE PRICE SHARES PRICE
- ------------- --------- ------------ --------- ------- ---------
<S> <C> <C> <C> <C> <C>
$ 8.51-$14.61 390,842 6.5 $11.50 308,456 $10.85
$20.38-$25.88 722,000 9.6 $22.89 -- --
--------- -------
1,112,842 308,456
========= =======
</TABLE>
In connection with the spin-off of Teledyne Technologies from Allegheny
Teledyne, outstanding stock options held by Teledyne Technologies employees will
be converted into options to purchase Teledyne Technologies common stock. The
number of shares and the exercise price of each Allegheny Teledyne option that
is converted to a Teledyne Technologies option will be converted based upon a
formula designed to preserve the inherent economic value, vesting and term
provisions of such Allegheny Teledyne options as of the distribution date. The
exchange ratio and fair market value of the Teledyne Technologies common stock,
upon active trading, will also impact the number of options issued to Teledyne
Technologies employees. The ultimate number and exercise price of the Teledyne
Technologies stock options to be issued, subject to the above calculation,
cannot yet be determined.
Teledyne Technologies intends to establish its own long-term incentive plan
which will provide its Board of Directors the flexibility to grant restricted
stock, incentive stock options, stock appreciation rights and non-qualified
stock options to officers and employees of Teledyne Technologies.
F-13
<PAGE> 97
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. RELATED PARTY TRANSACTIONS
The accompanying financial statements include transactions with Allegheny
Teledyne as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net advances from Allegheny Teledyne, beginning
of the year................................... $ 107,451 $ 126,059 $113,814
Net cash transactions with Allegheny Teledyne:
Current provision for income taxes............ 34,717 26,808 29,506
Insurance expense............................. 17,196 18,637 19,977
Pension expense (income)...................... (1,719) 722 (965)
Corporate general and administrative
expense.................................... 7,804 7,566 7,164
Other net cash to Allegheny Teledyne.......... (109,484) (113,965) (84,132)
--------- --------- --------
Net cash transactions with Allegheny
Teledyne................................... (51,486) (60,232) (28,450)
Net income...................................... 48,717 41,624 40,695
--------- --------- --------
Net advances from Allegheny Teledyne, end of the
year.......................................... $ 104,682 $ 107,451 $126,059
========= ========= ========
</TABLE>
The average net advances from Allegheny Teledyne were $106,067,000,
$116,755,000 and $119,937,000 for the years ended December 31, 1998, 1997 and
1996, respectively.
Teledyne Technologies participates in Allegheny Teledyne's centralized cash
management system. Cash receipts in excess of cash requirements are transferred
to Allegheny Teledyne. These transactions with Allegheny Teledyne are
non-interest bearing and the net advances fluctuate on a daily basis.
Corporate general and administrative expenses represent allocations for
expenses incurred by Allegheny Teledyne on the Company's behalf including costs
for finance, legal, tax and human resources functions. Amounts above were
allocated based on net sales, which management believes to be reasonable.
Teledyne Technologies participates in the defined benefit pension plan sponsored
by Allegheny Teledyne. The expense for the plan was allocated to Teledyne
Technologies based upon actuarially-determined amounts for the pension
obligation and assets intended to be transferred from Allegheny Teledyne to
Teledyne Technologies at the time of the spin-off. Teledyne Technologies also
participates in casualty, medical and life insurance programs sponsored by
Allegheny Teledyne. Insurance expense was allocated to Teledyne Technologies
based upon actual losses incurred plus a share of pooled catastrophic losses
under the Allegheny Teledyne self-insurance program. In the opinion of
management, the allocations of these expenses are reasonable. The expenses
allocated for these services and programs are not necessarily indicative of the
expenses that would have been incurred if Teledyne Technologies had been a
separate, independent entity and had managed these functions. Had Teledyne
Technologies been a separate standalone company and managed these functions
during the periods presented, management estimates that corporate general and
administrative expenses would have been approximately $15,000,000 for each of
the years ended December 31, 1998, 1997 and 1996. The Company determined the
additional corporate expenses for the periods presented by estimating the
number, seniority and compensation levels of additional employees that would
likely be
F-14
<PAGE> 98
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
required to fully carry out the finance, legal, tax, human resources, investor
and public relations and other functions associated with being a stand alone
public company. In addition, we included estimates of various corporate and
related administrative expenses that can be expected to be incurred as a stand
alone public company, such as board of directors fees and expenses and
independent accounting and legal fees and expenses. In making these estimates,
the Company also examined expenses historically incurred by Allegheny Teledyne
for these personnel and expenses. The Company may incur additional general and
administrative expenses, pension and insurance costs as a result of operating
independently of Allegheny Teledyne.
In addition, prior to and in connection with the spin-off, Teledyne
Technologies and Allegheny Teledyne will enter into agreements providing for the
separation of the companies and governing various relationships for separating
employee benefits and tax obligations, indemnification and transition services.
Net sales include $1,074,000, $293,000 and $1,548,000 of sales to other
Allegheny Teledyne subsidiaries for the years ended December 31, 1998, 1997 and
1996, respectively. There was a receivable of $532,000 at December 31, 1998 and
$220,000 at December 31, 1997 from other Allegheny Teledyne subsidiaries.
NOTE 8. INCOME TAXES
Teledyne Technologies is included in the consolidated federal and certain
state income tax returns of Allegheny Teledyne. Any required tax payments were
made by Allegheny Teledyne as part of its consolidated returns. Provision for
income taxes was calculated as if Teledyne Technologies had filed separate
income tax returns. Provision for income taxes was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal........................................ $29,614 $22,729 $25,016
State.......................................... 5,103 4,079 4,490
------- ------- -------
Total....................................... 34,717 26,808 29,506
------- ------- -------
Deferred
Federal........................................ (396) 235 (237)
State.......................................... (45) 20 (42)
------- ------- -------
Total....................................... (441) 255 (279)
------- ------- -------
Provision for income taxes....................... $34,276 $27,063 $29,227
======= ======= =======
</TABLE>
F-15
<PAGE> 99
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
The following is a reconciliation of the statutory federal income tax rate
to the actual effective income tax rate:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal tax rate.......................................... 35.0% 35.0% 35.0%
State and local income taxes, net of federal tax
benefit................................................. 4.5% 3.8% 3.3%
Other..................................................... 1.8% 0.6% 3.5%
---- ---- ----
Effective income tax rate................................. 41.3% 39.4% 41.8%
==== ==== ====
</TABLE>
Deferred income taxes result from temporary differences in the recognition
of income and expense for financial and income tax reporting purposes, and
differences between the fair value of assets acquired in business combinations
accounted for as purchases for financial reporting purposes and their
corresponding tax bases. Deferred income taxes represent future tax benefits or
costs to be recognized when those temporary differences reverse. The categories
of assets and liabilities that have resulted in differences in the timing of the
recognition of income and expense were as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax assets:
Postretirement benefits other than pensions...... $12,878 $12,751
Reserves......................................... 10,005 9,596
Inventory valuation.............................. 5,352 5,409
Accrued vacation................................. 4,200 4,279
Other items...................................... 4,218 2,806
------- -------
Total deferred income tax assets................... 36,653 34,841
------- -------
Deferred income tax liabilities:
Bases of property, plant and equipment........... 1,619 248
------- -------
Total deferred income tax liabilities.............. 1,619 248
------- -------
Net deferred income tax asset...................... $35,034 $34,593
======= =======
</TABLE>
NOTE 9. PENSION PLANS
Certain Teledyne Technologies employees participate in the noncontributory
defined benefit plan sponsored by Allegheny Teledyne. Benefits under the defined
benefit plan are generally based on years of service and/or final average pay.
Allegheny Teledyne funds the pension plan in accordance with the requirements of
the Employee Retirement Income Security Act of 1974, as amended, and the
Internal Revenue Code.
Net periodic pension income or expense allocated to Teledyne Technologies
was $1,719,000 income, $722,000 expense and $965,000 income in the years ended
December 31, 1998, 1997 and 1996, respectively.
It is intended that as of the spin-off date, Teledyne Technologies will
assume the existing defined benefit plan obligations for all of Teledyne
Technologies' employees, both
F-16
<PAGE> 100
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
active and inactive, at its companies that perform government contract work and
for Teledyne Technologies' active employees at its companies that do not perform
government contract work. Allegheny Teledyne will transfer sufficient pension
assets to fund the new Teledyne Technologies defined benefit pension plan such
that at the time of the transfer, pension assets will exceed pension obligations
by approximately $50,000,000. As a result, it is anticipated that Teledyne
Technologies will not have to make contributions to the pension plan for the
foreseeable future. Additionally, in accordance with Internal Revenue Code
regulations, the Company would be able to recover from the excess pension assets
amounts paid for retiree medical expenses.
Teledyne Technologies also participates in a defined contribution plan
sponsored by Allegheny Teledyne maintained for substantially all of its
employees. The costs associated with this plan were $3,323,000, $1,209,000 and
$1,266,000 in 1998, 1997 and 1996, respectively. It is intended that Teledyne
Technologies will establish its own defined contribution plan subsequent to the
distribution.
NOTE 10. POSTRETIREMENT BENEFITS
The Company sponsors several postretirement defined benefit plans covering
certain salaried and hourly employees. The plans provide health care and life
insurance benefits for eligible retirees.
Components of postretirement benefit expense included the following:
<TABLE>
<CAPTION>
EXPENSE (INCOME)
-----------------------------
OTHER POSTRETIREMENT BENEFITS
-----------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost -- benefits earned during the year..... $ 341 $ 356 $ 326
Interest cost on benefits earned in prior years..... 1,647 1,761 1,779
Amortization of prior service cost.................. (381) (381) (381)
Amortization of net actuarial gain.................. (128) -- --
------ ------ ------
Total benefit expense............................... $1,479 $1,736 $1,724
====== ====== ======
</TABLE>
Discount rates of 7.0%, 7.25% and 7.5% were used to develop postretirement
benefit expense for the years ended December 31, 1998, 1997 and 1996,
respectively. Discount rates of 7.0% at December 31, 1998 and 1997 were used for
the valuation of postretirement obligations.
F-17
<PAGE> 101
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
The accrued benefit cost at December 31, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
OTHER POSTRETIREMENT
BENEFITS
--------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year............ $26,634 $25,577
Service cost....................................... 341 356
Interest cost...................................... 1,647 1,761
Benefits paid...................................... (1,322) (1,314)
Net actuarial (gains) and losses................... (2,230) 254
------- -------
Benefit obligation at end of year.................. 25,070 26,634
------- -------
Funded status of the plan.......................... 25,070 26,634
Unrecognized net actuarial gain.................... 6,399 4,298
Unrecognized prior service cost.................... 1,484 1,865
------- -------
Accrued benefit cost............................... $32,953 $32,797
======= =======
</TABLE>
The annual assumed rate of increase in the per capita cost of covered
benefits (the health care cost trend rate) for health care plans was 8.16
percent in 1999 and was assumed to decrease to 5.0 percent in the year 2002 and
remain at that level thereafter. Assumed health care cost trend rates have a
significant effect on the amounts reported for the health care plans. A one
percentage point change in assumed health care cost trend rates would have the
following effects:
<TABLE>
<CAPTION>
ONE PERCENTAGE ONE PERCENTAGE
POINT INCREASE POINT INCREASE
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Effect on total of service and interest
cost components for the year ended
December 31, 1998...................... $ 296 $ (253)
Effect on postretirement benefit
obligation at December 31, 1998........ $3,042 $(2,658)
</TABLE>
NOTE 11. BUSINESS SEGMENTS
Teledyne Technologies is a leading provider of sophisticated electronic and
communications products, systems engineering solutions and information
technology services, and aerospace engines and components. Its customers include
aerospace prime contractors, general aviation companies, government agencies and
major communications and other commercial companies. Teledyne Technologies
operates in three business segments: Electronics and Communications, Systems
Engineering Solutions and Aerospace Engines and Components.
F-18
<PAGE> 102
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Information on the Company's business segments was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales:
Electronics and Communications.............. $342,110 $340,034 $313,488
Systems Engineering Solutions............... 223,185 210,375 216,090
Aerospace Engines and Components............ 215,098 206,192 186,822
-------- -------- --------
Total sales................................... $780,393 $756,601 $716,400
======== ======== ========
</TABLE>
The Company's backlog of confirmed orders was approximately $401,778,000 at
December 31, 1998 and $388,804,000 at December 31, 1997.
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales to the U.S. Government including direct
sales as prime contractor and indirect sales
as subcontractor:
Electronics and Communications.............. $102,448 $102,714 $114,806
Systems Engineering Solutions............... 159,206 157,958 169,372
Aerospace Engines and Components............ 46,787 42,608 32,539
-------- -------- --------
Total sales to U.S. Government................ $308,441 $303,280 $316,717
======== ======== ========
</TABLE>
Sales to the U.S. Government included sales to the Department of Defense of
$214,093,000 in 1998, $198,522,000 in 1997 and $193,450,000 in 1996.
Total international sales were $172,920,000 in 1998, $159,212,000 in 1997
and $164,213,000 in 1996. Of these amounts, sales by operations in the United
States to customers in other countries were $159,308,000 in 1998, $143,981,000
in 1997 and $144,362,000 in 1996. There were no sales to individual countries
outside of the United States in excess of 10 percent of the Company's net sales.
Sales between business segments, which were not material, generally were priced
at prevailing market prices.
F-19
<PAGE> 103
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating profit:
Electronics and Communications.............. $ 42,620 $ 36,787 $ 37,907
Systems Engineering Solutions............... 20,543 13,117 19,880
Aerospace Engines and Components............ 26,072 24,950 17,444
-------- -------- --------
Total operating profit........................ 89,235 74,854 75,231
Corporate expense............................. (7,804) (7,566) (7,164)
Other income.................................. 1,562 1,399 1,855
-------- -------- --------
Income before income taxes.................... $ 82,993 $ 68,687 $ 69,922
======== ======== ========
Depreciation and amortization:
Electronics and Communications.............. $ 5,731 $ 5,735 $ 5,079
Systems Engineering Solutions............... 2,857 3,047 2,977
Aerospace Engines and Components............ 2,544 2,503 3,104
-------- -------- --------
$ 11,132 $ 11,285 $ 11,160
======== ======== ========
Capital expenditures:
Electronics and Communications.............. $ 10,300 $ 10,793 $ 9,425
Systems Engineering Solutions............... 2,612 2,343 3,004
Aerospace Engines and Components............ 5,153 2,686 3,410
-------- -------- --------
$ 18,065 $ 15,822 $ 15,839
======== ======== ========
Identifiable assets:
Electronics and Communications.............. $ 96,152 $ 93,048 $ 95,993
Systems Engineering Solutions............... 63,438 70,745 68,784
Aerospace Engines and Components............ 56,195 56,980 53,336
Corporate................................... 35,034 34,593 34,848
-------- -------- --------
$250,819 $255,366 $252,961
======== ======== ========
</TABLE>
NOTE 12. COMMITMENTS AND CONTINGENCIES
Rental expense under operating leases was $10,424,000 in 1998, $10,179,000
in 1997 and $11,800,000 in 1996. Future minimum rental commitments under
operating leases with non-cancelable terms of more than one year as of December
31, 1998, were as follows: $9,017,000 in 1999, $5,393,000 in 2000, $5,051,000 in
2001, $4,812,000 in 2002, $2,418,000 in 2003 and $6,869,000 thereafter.
The Company is subject to federal, state and local environmental laws and
regulations which require that it investigate and remediate the effects of the
release or disposal of materials at sites associated with past and present
operations, including sites at which the Company has been identified as a
potentially responsible party under the federal Superfund laws and comparable
state laws. The Company has been identified as a potentially
F-20
<PAGE> 104
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
responsible party at approximately 17 such sites, excluding those at which the
Company believes it has no future liability. The Company recognized income of
$469,000 in 1998 and $708,000 in 1996 as a result of favorable negotiations with
other potentially responsible parties related to their level of financial
responsibility for environmental remediation costs. In 1997, the Company
recognized expense of $765,000 related to changes in environmental obligations.
In accordance with the Company's accounting policy disclosed in Note 2,
environmental liabilities are recorded when the Company's liability is probable
and the costs are reasonably estimable. In many cases, however, investigations
are not yet at a stage where the Company has been able to determine whether it
is liable or, if liability is probable, to reasonably estimate the loss or range
of loss, or certain components thereof. Estimates of the Company's liability are
further subject to uncertainties regarding the nature and extent of site
contamination, the range of remediation alternatives available, evolving
remediation standards, imprecise engineering evaluations and estimates of
appropriate cleanup technology, methodology and cost, the extent of corrective
actions that may be required, and the number and financial condition of other
potentially responsible parties, as well as the extent of their responsibility
for the remediation. Accordingly, as investigation and remediation of these
sites proceeds, it is likely that adjustments in the Company's accruals will be
necessary to reflect new information. The amounts of any such adjustments could
have a material adverse effect on the Company's results of operations in a given
period, but the amounts, and the possible range of loss in excess of the amounts
accrued, are not reasonably estimable. Based on currently available information,
however, management does not believe that future environmental costs in excess
of those accrued with respect to sites with which the Company has been
identified are likely to have a material adverse effect on the Company's
financial condition or liquidity. However, there can be no assurance that
additional future developments, administrative actions or liabilities relating
to environmental matters will not have a material adverse effect on the
Company's financial condition or results of operations.
At December 31, 1998, the Company's reserves for environmental remediation
obligations totaled approximately $1,600,000, of which approximately $823,000
were included in other current liabilities. The reserve includes estimated
probable future costs of $1,022,000 for federal Superfund and comparable
state-managed sites; $359,000 for formerly owned or operated sites for which the
Company has remediation or indemnification obligations; and $219,000 for sites
utilized by the Company in its ongoing operations. The Company is evaluating
whether it may be able to recover a portion of future costs for environmental
liabilities from its insurance carriers and from third parties other than
participating potentially responsible parties.
The timing of expenditures depends on a number of factors that vary by
site, including the nature and extent of contamination, the number of
potentially responsible parties, the timing of regulatory approvals, the
complexity of the investigation and remediation, and the standards for
remediation. The Company expects that it will expend present accruals over many
years, and will complete remediation of all sites with which it has been
identified in up to thirty years.
Various claims (whether based on U.S. Government or Company audits and
investigations or otherwise) have been or may be asserted against the Company
related to its U.S. Government contract work, including claims based on business
practices and cost classifications and actions under the False Claims Act.
Although such claims are generally
F-21
<PAGE> 105
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
resolved by detailed fact-finding and negotiation, on those occasions when they
are not so resolved, civil or criminal legal or administrative proceedings may
ensue. Depending on the circumstances and the outcome, such proceedings could
result in fines, penalties, compensatory and treble damages or the cancellation
or suspension of payments under one or more U.S. Government contracts. Under
government regulations, a company, or one or more of its operating divisions or
units, can also be suspended or debarred from government contracts based on the
results of investigations. However, although the outcome of these matters cannot
be predicted with certainty, management does not believe there is any audit,
review or investigation currently pending against the Company of which
management is aware that is likely to result in suspension or debarment of the
Company, or that is otherwise likely to have a material adverse effect on the
Company's financial condition or liquidity, although the resolution in any
reporting period of one or more of these matters could have a material adverse
effect on the Company's results of operations for that period.
The Company learns from time to time that it has been named as a defendant
in civil actions filed under seal pursuant to the False Claims Act. Generally,
since such cases are under seal, the Company does not in all cases possess
sufficient information to determine whether the Company could sustain a material
loss in connection with such cases, or to reasonably estimate the amount of any
loss attributable to such cases.
In connection with the spin-off, Allegheny Teledyne received a tax ruling
from the Internal Revenue Service stating that the spin-off will be tax-free to
Allegheny Teledyne and to Allegheny Teledyne's stockholders. The continuing
validity of the Internal Revenue Service tax ruling is subject to certain
factual representations and assumptions, including completion of a public
offering of the Company's common stock within one year following the spin-off
and use of the anticipated gross proceeds of approximately $125 million (less
associated costs) for research and development and related capital projects, for
the further development of the Company's manufacturing capabilities and for
acquisitions and/or joint ventures. Pursuant to the Separation and Distribution
Agreement that Teledyne Technologies will sign prior to the spin-off, the
Company will agree with Allegheny Teledyne to undertake such a public offering.
The Tax Sharing and Indemnification Agreement between Allegheny Teledyne
and Teledyne Technologies provides that the Company will indemnify Allegheny
Teledyne and its agents and representatives for taxes imposed on, and other
amounts paid by, them or ATI's stockholders if the Company takes actions or
fails to take actions (such as completing the public offering) that result in
the spin-off not qualifying as a tax-free distribution. If the Company were
required to so indemnify Allegheny Teledyne, such an obligation could have a
material adverse effect on its financial condition, results of operations and
cash flow and the amount the Company could be required to pay could exceed its
net worth by a substantial amount.
A number of other lawsuits, claims and proceedings have been or may be
asserted against the Company relating to the conduct of its business, including
those pertaining to product liability, patent infringement, commercial,
employment and employee benefits. While the outcome of litigation cannot be
predicted with certainty, and some of these lawsuits, claims or proceedings may
be determined adversely to the Company, management does not believe that the
disposition of any such pending matters is likely to have a material adverse
effect on the Company's financial condition or liquidity, although the
resolution in any
F-22
<PAGE> 106
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
reporting period of one or more of these matters could have a material adverse
effect on the Company's results of operations for that period.
NOTE 13. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1998 --
Sales........................ $198,760 $200,468 $189,462 $191,703
Gross profit................. $ 52,742 $ 55,066 $ 48,616 $ 51,882
Net income................... $ 11,300 $ 13,918 $ 12,585 $ 10,914
1997 --
Sales........................ $182,126 $192,757 $188,388 $193,330
Gross profit................. $ 49,176 $ 49,496 $ 51,859 $ 55,006
Net income................... $ 10,126 $ 8,181 $ 10,854 $ 12,463
</TABLE>
In the 1998 third quarter, results reflect the favorable impact of an
adjustment to product liability self-insurance reserves as a result of favorable
experience.
In the 1997 second quarter, nonrecurring expenses, primarily research and
development-related expenses for electronic components for aircraft, resulted in
declines in operating profit for Teledyne Controls' data acquisition and
communication products.
F-23
<PAGE> 107
TELEDYNE TECHNOLOGIES INCORPORATED
COMBINED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
SALES.................................................... $602,978 $588,690
Costs and expenses:
Cost of sales.......................................... 442,146 432,266
Selling, general and administrative expenses........... 100,500 92,911
-------- --------
542,646 525,177
-------- --------
Earnings before other income............................. 60,332 63,513
Other income............................................. 716 887
-------- --------
INCOME BEFORE INCOME TAXES............................... 61,048 64,400
Provision for income taxes............................... 25,213 26,597
-------- --------
NET INCOME............................................... $ 35,835 $ 37,803
======== ========
BASIC NET INCOME PER COMMON SHARE........................ $1.30 $1.34
======== ========
DILUTED NET INCOME PER COMMON SHARE...................... $1.30 $1.34
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-24
<PAGE> 108
TELEDYNE TECHNOLOGIES INCORPORATED
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
CAPITALIZATION HISTORICAL
-------------- ----------------------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1998
-------------- ------------- ------------
(UNAUDITED) (UNAUDITED) (AUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Cash.......................................... $ -- $ --
Accounts receivable........................... 120,627 103,198
Inventories................................... 53,852 53,186
Deferred income taxes......................... 18,855 12,913
Prepaid expenses and other current assets..... 2,157 1,751
--------- ---------
TOTAL CURRENT ASSETS...................... 195,491 171,048
Property, plant and equipment................. 50,453 43,022
Deferred income taxes......................... 17,232 22,121
Cost in excess of net assets acquired......... 9,201 9,370
Other assets.................................. 5,120 5,258
--------- ---------
TOTAL ASSETS.............................. $ 277,497 $ 250,819
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable.............................. $ 51,224 $ 43,344
Accrued liabilities........................... 51,182 49,136
--------- ---------
TOTAL CURRENT LIABILITIES................. 102,406 92,480
Long-term debt................................ $ 100,000 -- --
Accrued postretirement benefits............... 33,337 32,953
Other long-term liabilities................... 15,384 18,984
--------- ---------
TOTAL LIABILITIES......................... 151,127 144,417
--------- ---------
STOCKHOLDER'S EQUITY:
Preferred stock, par value $0.01:
authorized -- 15,000,000 shares; issued
and outstanding -- none................... -- -- --
Common stock, par value $0.01:
authorized -- 125,000,000 shares; issued
and outstanding -- 27,008,553 shares...... 270 -- --
Additional paid-in capital.................. 11,172 -- --
Net advances from Allegheny Teledyne........ -- 124,750 104,682
Foreign currency translation gains.......... 1,620 1,620 1,720
--------- --------- ---------
TOTAL STOCKHOLDER'S EQUITY................ 13,062 126,370 106,402
--------- --------- ---------
TOTAL CAPITALIZATION...................... $ 113,062
=========
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY................................. $ 277,497 $ 250,819
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-25
<PAGE> 109
TELEDYNE TECHNOLOGIES INCORPORATED
COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income................................................ $ 35,835 $ 37,803
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................ 9,044 8,358
Deferred income taxes................................ (1,053) (8,766)
Gain on sale of property, plant and equipment........ -- (427)
Change in operating assets and liabilities:
Accounts receivable.................................. (17,429) 14,215
Accounts payable..................................... 7,880 (350)
Other long-term liabilities.......................... (3,600) 1,350
Accrued liabilities.................................. 2,046 (104)
Inventories.......................................... (666) (5,477)
Accrued postretirement............................... 384 (104)
Other................................................... (846) (1,260)
-------- --------
CASH PROVIDED BY OPERATING ACTIVITIES................ 31,595 45,238
-------- --------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment.............. (16,089) (9,503)
Disposals of property, plant and equipment.............. -- 719
Other................................................... 261 1,415
-------- --------
CASH USED IN INVESTING ACTIVITIES.................... (15,828) (7,369)
-------- --------
FINANCING ACTIVITIES:
Net advances to Allegheny Teledyne...................... (15,767) (37,869)
-------- --------
CASH USED IN FINANCING ACTIVITIES.................... (15,767) (37,869)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......... -- --
Cash and cash equivalents at beginning of year............ -- --
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................ $ -- $ --
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-26
<PAGE> 110
TELEDYNE TECHNOLOGIES INCORPORATED
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
ADVANCES ACCUMULATED
(TO) FROM OTHER
ALLEGHENY COMPREHENSIVE STOCKHOLDER'S
TELEDYNE INCOME EQUITY
--------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1997............. $107,451 $1,914 $109,365
======== ====== ========
Net income............................. 37,803 -- 37,803
Other comprehensive income, net of tax:
Foreign currency translation losses.... -- (242) (242)
-------- ------ --------
Comprehensive income................... 37,803 (242) 37,561
Net transactions with Allegheny
Teledyne............................. (37,869) -- (37,869)
-------- ------ --------
BALANCE, SEPTEMBER 30, 1998............ $107,385 $1,672 $109,057
======== ====== ========
BALANCE, DECEMBER 31, 1998............. $104,682 $1,720 $106,402
======== ====== ========
Net income............................. 35,835 -- 35,835
Other comprehensive income, net of tax:
Foreign currency translation losses.... -- (100) (100)
-------- ------ --------
Comprehensive income................... 35,835 (100) 35,735
Net transactions with Allegheny
Teledyne............................. (15,767) -- (15,767)
-------- ------ --------
BALANCE, SEPTEMBER 30, 1999............ $124,750 $1,620 $126,370
======== ====== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-27
<PAGE> 111
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
These interim combined financial statements include the accounts of
Teledyne Technologies Incorporated and its subsidiaries ("Teledyne Technologies"
or the "Company"). These unaudited combined financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and note
disclosures required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company, all adjustments (which
include only normal recurring adjustments) considered necessary for a fair
presentation have been included. These unaudited combined financial statements
should be read in conjunction with the annual combined historical financial
statements and notes thereto included in this Information Statement. The results
of operations for these interim periods are not necessarily indicative of the
operating results for a full year.
The average number of shares of Teledyne Technologies common stock used in
the computation of basic net income per common share was 27,481,371 and
28,126,024 for the nine months ended September 30, 1999 and 1998, respectively,
based on a distribution ratio of one share of Teledyne Technologies common stock
for every seven shares of Allegheny Teledyne common stock. The average number of
shares of Teledyne Technologies common stock used in the computation of diluted
net income per common share was 27,506,953 and 28,154,010 for the nine months
ended September 30 1999 and 1998, respectively. A distribution ratio of one
share of Teledyne Technologies common stock for every seven shares of Allegheny
Teledyne common stock was used to adjust the stock options. The actual stock
option adjustment will be based upon the relation of the market price of
Allegheny Teledyne common stock prior to the spin-off to the market price of
Teledyne Technologies after the spin-off and therefore cannot be determined at
the present time.
FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued in June 1998. This statement establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. In June 1999, FASB Statement No. 137, "Accounting for Derivative
Instruments and Hedging Activities: Deferral of the Effective Date of FASB
Statement No. 133" was issued. This statement delays the effective date of
Statement No. 133 to all fiscal quarters beginning after June 15, 2000. The
Company is presently evaluating the effect of adopting these statements.
F-28
<PAGE> 112
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. INVENTORIES
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies................. $ 25,177 $ 23,296
Work-in-process............................ 65,684 65,296
Finished goods............................. 9,398 10,385
-------- --------
Total inventories at current cost.......... 100,259 98,977
Less allowances to reduce current cost
values to LIFO basis..................... (39,364) (39,043)
Progress payments.......................... (7,043) (6,748)
-------- --------
Total inventories.......................... $ 53,852 $ 53,186
======== ========
</TABLE>
NOTE 3. BUSINESS SEGMENTS
Information on the Company's business segments for the nine months ended
September 30, 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Sales:
Electronics and Communications................... $258,710 $261,950
Systems Engineering Solutions.................. 166,535 165,465
Aerospace Engines and Components............... 177,733 161,275
-------- --------
Total sales................................. $602,978 $588,690
======== ========
Operating profit:
Electronics and Communications................. $ 31,277 $ 33,081
Systems Engineering Solutions.................. 13,308 14,227
Aerospace Engines and Components............... 21,777 22,092
-------- --------
Total operating profit........................... 66,362 69,400
Corporate expense................................ (6,030) (5,887)
Other income..................................... 716 887
-------- --------
Income before income taxes....................... $ 61,048 $ 64,400
======== ========
</TABLE>
NOTE 4. COMMITMENTS AND CONTINGENCIES
The Company is subject to federal, state and local environmental laws and
regulations which require that it investigate and remediate the effects of the
release or disposal of materials at sites associated with past and present
operations, including sites at which the Company has been identified as a
potentially responsible party under the federal Superfund laws and comparable
state laws. The Company is currently involved in the investigation and
remediation of a number of sites under these laws. The Company recognized
expense related
F-29
<PAGE> 113
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED)
to changes in environmental obligations of $60,000 for the nine months ended
September 30, 1999 and income of $681,000 for the nine months ended September
30, 1998.
In accordance with the Company's accounting policy, environmental
liabilities are recorded when the Company's liability is probable and the costs
are reasonably estimable. In many cases, however, investigations are not yet at
a stage where the Company has been able to determine whether it is liable or, if
liability is probable, to reasonably estimate the loss or range of loss, or
certain components thereof. Estimates of the Company's liability are further
subject to uncertainties regarding the nature and extent of site contamination,
the range of remediation alternatives available, evolving remediation standards,
imprecise engineering evaluations and estimates of appropriate cleanup
technology, methodology and cost, the extent of corrective actions that may be
required, and the number and financial condition of other potentially
responsible parties, as well as the extent of their responsibility for the
remediation. Accordingly, as investigation and remediation of these sites
proceeds, it is likely that adjustments in the Company's accruals will be
necessary to reflect new information. The amounts of any such adjustments could
have a material adverse effect on the Company's results of operations in a given
period, but the amounts, and the possible range of loss in excess of the amounts
accrued, are not reasonably estimable. Based on currently available information,
however, management does not believe that future environmental costs in excess
of those accrued with respect to sites with which the Company has been
identified are likely to have a material adverse effect on the Company's
financial condition or liquidity. However, there can be no assurance that
additional future developments, administrative actions or liabilities relating
to environmental matters will not have a material adverse effect on the
Company's financial condition or results of operations.
At September 30, 1999, the Company's reserves for environmental remediation
obligations totaled approximately $1,334,000, of which approximately $922,100
were included in other current liabilities. The reserve includes estimated
probable future costs of $782,400 for federal Superfund and comparable
state-managed sites; $292,000 for formerly owned or operated sites for which the
Company has remediation or indemnification obligations; and $259,600 for sites
utilized by the Company in its ongoing operations. The Company is evaluating
whether it may be able to recover a portion of future costs for environmental
liabilities from its insurance carriers and from third parties other than
participating potentially responsible parties.
The timing of expenditures depends on a number of factors that vary by
site, including the nature and extent of contamination, the number of
potentially responsible parties, the timing of regulatory approvals, the
complexity of the investigation and remediation, and the standards for
remediation. The Company expects that it will expend present accruals over many
years, and will complete remediation of all sites with which it has been
identified in up to thirty years.
Various claims (whether based on U.S. Government or Company audits and
investigations or otherwise) have been or may be asserted against the Company
related to its U.S. Government contract work, including claims based on business
practices and cost classifications and actions under the False Claims Act.
Although such claims are generally resolved by detailed fact-finding and
negotiation, on those occasions when they are not so resolved, civil or criminal
legal or administrative proceedings may ensue. Depending on the circumstances
and the outcome, such proceedings could result in fines, penalties, compensatory
and treble damages or the cancellation or suspension of payments under one or
F-30
<PAGE> 114
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED)
more U.S. Government contracts. Under government regulations, a company, or one
or more of its operating divisions or units, can also be suspended or debarred
from government contracts based on the results of investigations. However,
although the outcome of these matters cannot be predicted with certainty,
management does not believe there is any audit, review or investigation
currently pending against the Company of which management is aware that is
likely to result in suspension or debarment of the Company, or that is otherwise
likely to have a material adverse effect on the Company's financial condition or
liquidity, although the resolution in any reporting period of one or more of
these matters could have a material adverse effect on the Company's results of
operations for that period.
The Company learns from time to time that it has been named as a defendant
in civil actions filed under seal pursuant to the False Claims Act. Generally,
since such cases are under seal, the Company does not in all cases possess
sufficient information to determine whether the Company could sustain a material
loss in connection with such cases, or to reasonably estimate the amount of any
loss attributable to such cases.
In connection with the spin-off, Allegheny Teledyne received a tax ruling
from the Internal Revenue Service stating that the spin-off will be tax-free to
Allegheny Teledyne and to Allegheny Teledyne's stockholders. The continuing
validity of the Internal Revenue Service tax ruling is subject to certain
factual representations and assumptions, including completion of a public
offering of the Company's common stock within one year following the spin-off
and use of the anticipated gross proceeds of approximately $125 million (less
associated costs) for research and development and related capital projects, for
the further development of the Company's manufacturing capabilities and for
acquisitions and/or joint ventures. Pursuant to the Separation and Distribution
Agreement that Teledyne Technologies will sign prior to the spin-off, the
Company will agree with Allegheny Teledyne to undertake such a public offering.
The Tax Sharing and Indemnification Agreement between Allegheny Teledyne
and Teledyne Technologies will provide that the Company will indemnify Allegheny
Teledyne and its agents and representatives for taxes imposed on, and other
amounts paid by, them or ATI's stockholders if the Company takes actions or
fails to take actions (such as completing the public offering) that result in
the spin-off not qualifying as a tax-free distribution. If the Company were
required to so indemnify Allegheny Teledyne, such an obligation could have a
material adverse effect on its financial condition, results of operations and
cash flow and the amount the Company could be required to pay could exceed its
net worth by a substantial amount.
A number of other lawsuits, claims and proceedings have been or may be
asserted against the Company relating to the conduct of its business, including
those pertaining to product liability, patent infringement, commercial,
employment and employee benefits. While the outcome of litigation cannot be
predicted with certainty, and some of these lawsuits, claims or proceedings may
be determined adversely to the Company, management does not believe that the
disposition of any such pending matters is likely to have a material adverse
effect on the Company's financial condition or liquidity, although the
resolution in any reporting period of one or more of these matters could have a
material adverse effect on the Company's results of operations for that period.
F-31
<PAGE> 115
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. UNAUDITED PRO FORMA CAPITALIZATION
The unaudited pro forma capitalization at September 30, 1999 presented on
the balance sheet was prepared assuming the distribution occurred on September
30, 1999 and includes the following transactions that occurred subsequent to
September 30, 1999:
(a) Recording debt of $100,000,000 to be assumed by Teledyne Technologies
at the date of the spin-off.
(b) Recording the transfer of net unrecognized actuarial gains on pension
obligation, insurance reserves, deferred compensation long-term assets
and liabilities and deferred taxes.
(c) Recording the planned liquidation of the remaining investment by
Allegheny Teledyne and the issuance of 27,008,553 shares of Teledyne
Technologies common stock.
F-32
<PAGE> 116
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
2.1 Form of Separation and Distribution Agreement by and among
Allegheny Teledyne Incorporated, TDY Holdings, LLC, Teledyne
Industries, Inc. and Teledyne Technologies Incorporated*
3.1 Form of Restated Certificate of Incorporation of Teledyne
Technologies Incorporated*
3.2 Form of Amended and Restated Bylaws of Teledyne Technologies
Incorporated*
4.1 Specimen Certificate for Common Stock of Teledyne
Technologies Incorporated*
4.2 Form of Rights Agreement between Teledyne Technologies
Incorporated and ChaseMellon Shareholder Services, L.L.C.*
4.3 Form of Credit Agreement among Allegheny Teledyne
Incorporated, Teledyne Technologies Incorporated, Bank of
America, N.A., as Administrative Agent, Swing Line Lender
and Issuing Lender, and the other financial institutions
party thereto.
10.1 Form of Tax Sharing and Indemnification Agreement between
Allegheny Teledyne Incorporated and Teledyne Technologies
Incorporated*
10.2 Form of Interim Services Agreement between Allegheny
Teledyne Incorporated and Teledyne Technologies
Incorporated*
10.3 Form of Employee Benefits Agreement between Allegheny
Teledyne Incorporated and Teledyne Technologies
Incorporated*
10.4 Form of Trademark License Agreement between Allegheny
Teledyne Incorporated and Teledyne Technologies
Incorporated*
10.5 Form of Teledyne Technologies Incorporated 1999 Incentive
Plan*
10.6 Form of Teledyne Technologies Incorporated 1999 Non-Employee
Director Stock Compensation Plan*
10.7 Form of Fee Continuation Plan for Non-Employee Directors*
21 Significant Subsidiary of Teledyne Technologies
Incorporated*
27 Financial Data Schedule
</TABLE>
- ---------------
* Previously filed.
<PAGE> 117
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this amendment to registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
TELEDYNE TECHNOLOGIES
INCORPORATED
(Registrant)
By: /s/ ROBERT MEHRABIAN
-----------------------------------
Name: Robert Mehrabian
Title: President and Chief Executive
Officer
Date: October 29, 1999
<PAGE> 1
Exhibit 4.3
================================================================================
FORM OF
CREDIT AGREEMENT
AMONG
ALLEGHENY TELEDYNE INCORPORATED,
TELEDYNE TECHNOLOGIES
INCORPORATED
AND
BANK OF AMERICA, N.A.,
AS ADMINISTRATIVE AGENT, SWING LINE LENDER
AND
ISSUING LENDER
AND
THE OTHER FINANCIAL
INSTITUTIONS PARTY HERETO
DATED AS OF OCTOBER 29, 1999
MELLON BANK, N.A. AND THE CHASE MANHATTAN BANK,
AS SYNDICATION AGENTS,
AND
BANC OF AMERICA SECURITIES LLC,
AS
SOLE ARRANGER AND SOLE BOOK MANAGER
[Bank of America Logo]
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
SECTION 1. DEFINITIONS AND ACCOUNTING TERMS................................................................1
1.01 Defined Terms...................................................................................1
1.02 Use of Certain Terms...........................................................................26
1.03 Accounting Terms...............................................................................26
1.04 Rounding.......................................................................................26
1.05 Exhibits and Schedules.........................................................................27
1.06 References to Agreements and Laws..............................................................27
SECTION 2. THE COMMITMENTS AND EXTENSIONS OF CREDIT.......................................................27
2.01 Amount and Terms of Commitments................................................................27
2.02 Borrowings, Conversions and Continuations of Loans.............................................27
2.03 Letters of Credit..............................................................................28
2.04 Swing Line.....................................................................................33
2.05 Prepayments....................................................................................34
2.06 Reduction or Termination of Commitments........................................................35
2.07 Principal and Interest.........................................................................35
2.08 Fees...........................................................................................35
2.09 Computation of Interest and Fees...............................................................36
2.10 Making Payments................................................................................37
2.11 Funding Sources................................................................................38
2.12 Release of ALT.................................................................................38
SECTION 3. TAXES, YIELD PROTECTION AND ILLEGALITY.........................................................38
3.01 Taxes..........................................................................................38
3.02 Illegality.....................................................................................39
3.03 Inability to Determine Rates...................................................................40
3.04 Increased Cost and Reduced Return; Capital Adequacy............................................40
3.05 Breakfunding Costs.............................................................................41
3.06 Matters Applicable to all Requests for Compensation............................................41
3.07 Survival.......................................................................................41
SECTION 4. CONDITIONS PRECEDENT...........................................................................41
4.01 Conditions to Effectiveness of the Credit Agreement............................................41
4.02 Conditions of Initial Extension of Credit to ALT...............................................44
4.03 Conditions to Assumption of Obligations and Initial Extensions of Credit to TTI................46
4.04 Conditions to all Extensions of Credit.........................................................48
SECTION 5. REPRESENTATIONS AND WARRANTIES.................................................................48
5.01 Existence and Qualification; Power; Compliance with Laws.......................................49
5.02 Power; Authorization; Enforceable Obligations..................................................49
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
5.03 No Legal Bar...................................................................................49
5.04 Financial Statements; No Material Adverse Effect...............................................50
5.05 Litigation.....................................................................................50
5.06 No Default.....................................................................................50
5.07 Ownership of Property; Liens...................................................................51
5.08 Taxes..........................................................................................51
5.09 Margin Regulations; Investment Company Act; Public Utility Holding Company Act.................51
5.10 ERISA Compliance...............................................................................51
5.11 Intellectual Property..........................................................................52
5.12 Compliance With Laws...........................................................................52
5.13 Environmental Compliance.......................................................................52
5.14 Insurance......................................................................................52
5.15 Year 2000......................................................................................52
5.16 Disclosure.....................................................................................53
5.17 Solvency.......................................................................................53
SECTION 6. AFFIRMATIVE COVENANTS..........................................................................53
6.01 Financial Statements...........................................................................53
6.02 Certificates, Notices and Other Information....................................................54
6.03 Payment of Taxes...............................................................................55
6.04 Preservation of Existence......................................................................55
6.05 Maintenance of Properties......................................................................55
6.06 Maintenance of Insurance.......................................................................55
6.07 Compliance With Laws...........................................................................56
6.08 Inspection Rights..............................................................................56
6.09 Keeping of Records and Books of Account........................................................56
6.10 Compliance with ERISA..........................................................................56
6.11 Compliance With Agreements.....................................................................56
6.12 Use of Proceeds................................................................................56
6.13 Additional Borrower Parties....................................................................57
SECTION 7. NEGATIVE COVENANTS.............................................................................57
7.01 Indebtedness...................................................................................57
7.02 Liens..........................................................................................58
7.03 Fundamental Changes............................................................................59
7.04 Dispositions...................................................................................60
7.05 Investments....................................................................................60
7.06 Restricted Payments............................................................................61
7.07 ERISA..........................................................................................61
7.08 Limitation on Nature of Business...............................................................61
7.09 Transactions with Affiliates...................................................................61
7.10 Hostile Acquisitions...........................................................................61
7.11 Limitations on Upstreaming, etc................................................................61
7.12 Financial Covenants............................................................................62
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
7.13 Limitation on Amendments to Spinoff Documents..................................................62
7.14 ALT Subordination Agreement....................................................................62
SECTION 8. EVENTS OF DEFAULT AND REMEDIES.................................................................62
8.01 Events of Default..............................................................................62
8.02 Remedies Upon Event of Default.................................................................65
SECTION 9. ADMINISTRATIVE AGENT...........................................................................66
9.01 Appointment and Authorization of Administrative Agent..........................................66
9.02 Delegation of Duties...........................................................................67
9.03 Liability of Administrative Agent..............................................................67
9.04 Reliance by Administrative Agent...............................................................68
9.05 Notice of Default..............................................................................68
9.06 Credit Decision; Disclosure of Information by Administrative Agent.............................69
9.07 Indemnification of Administrative Agent........................................................69
9.08 Administrative Agent in Individual Capacity....................................................70
9.09 Successor Administrative Agent.................................................................70
SECTION 10. MISCELLANEOUS..................................................................................71
10.01 Amendments; Consents...........................................................................71
10.02 Release of Collateral..........................................................................72
10.03 Transmission and Effectiveness of Notices and Signatures.......................................72
10.04 Attorney Costs, Expenses and Taxes.............................................................73
10.05 Binding Effect; Assignment.....................................................................74
10.06 Set-off........................................................................................75
10.07 Sharing of Payments............................................................................75
10.08 No Waiver; Cumulative Remedies.................................................................76
10.09 Usury..........................................................................................77
10.10 Counterparts...................................................................................77
10.11 Integration....................................................................................77
10.12 Nature of Lenders' Obligations.................................................................77
10.13 Survival of Representations and Warranties.....................................................77
10.14 Indemnity by Borrower..........................................................................78
10.15 Nonliability of Lenders........................................................................78
10.16 No Third Parties Benefited.....................................................................79
10.17 Severability...................................................................................79
10.18 Confidentiality................................................................................79
10.19 Further Assurances.............................................................................80
10.20 Headings.......................................................................................80
10.21 Time of the Essence............................................................................80
10.22 Foreign Lenders and Participants...............................................................80
10.23 Removal and/or Replacement of Lenders..........................................................81
10.24 Governing Law..................................................................................82
10.25 Waiver of Right to Trial by Jury; Other Waivers................................................82
10.26 Entire Agreement...............................................................................83
</TABLE>
-iii-
<PAGE> 5
EXHIBITS
FORM OF
A Request for Extension of Credit
B Compliance Certificate
C Note
D Notice of Assignment and Acceptance
E-1 Opinions of Counsel on the Signing Date
E-2 Opinions of Counsel on the ALT Closing Date
E-3 Opinions of Counsel on the TTI Closing Date
F ALT Global Note
G Guaranty
H Pledge Agreement
I ALT Subordination Agreement
J Assumption Agreement
SCHEDULES
1.01 Consolidated EBITDA
2.01 Commitments and Pro Rata Shares
7.01(b) Existing Indebtedness of TTI and its Subsidiaries
7.02(a) Liens of TTI and its Subsidiaries
7.05(a) Investments by TTI and its Subsidiaries
10.03 Eurodollar and Domestic Lending Offices, Addresses for Notices
-iv-
<PAGE> 6
CREDIT AGREEMENT
This CREDIT AGREEMENT is entered into as of October 29, 1999, by and
among ALLEGHENY TELEDYNE INCORPORATED, a Delaware corporation ("ALT"), TELEDYNE
TECHNOLOGIES INCORPORATED, a Delaware corporation ("TTI"), each lender from time
to time party hereto (collectively, "Lenders" and individually, a "Lender"), and
BANK OF AMERICA, N.A., as Administrative Agent, Issuing Lender and Swing Line
Lender. BANC OF AMERICA SECURITIES LLC has acted as sole arranger and sole book
manager.
RECITALS
WHEREAS, ALT has incorporated TTI, a wholly-owned Subsidiary of ALT,
for the purpose of effecting the transfer by ALT to TTI of certain assets and
liabilities and operations of the Aerospace and Electronics segment of ALT (the
"Line of Business Transfer") in accordance with the Spinoff Documents (as
defined below).
WHEREAS, following consummation of the Line of Business Transfer, ALT
will make a distribution of all the capital stock of TTI to the stockholders of
ALT (the "Spinoff") in accordance with the Spinoff Documents (as defined below).
WHEREAS, ALT and TTI have requested that Lenders make credit facilities
available to ALT and TTI for the purposes set forth herein.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto covenant and agree intending to be legally
bound as follows:
AGREEMENT
SECTION 1.
DEFINITIONS AND ACCOUNTING TERMS
1.01 DEFINED TERMS. As used in this Agreement, the following terms
shall have the meanings set forth below:
"Acquired Indebtedness" means Indebtedness of any Person that becomes a
Subsidiary of TTI or Indebtedness directly attributable to assets acquired by
TTI or any of its Subsidiaries, in each case, after the TTI Closing Date
pursuant to a Permitted Acquisition, if such Indebtedness was outstanding prior
to the time such Person became a Subsidiary of TTI or such assets were so
acquired and was not created in contemplation of or in connection with such
Person becoming a Subsidiary of TTI or the acquisition of such assets and
constitutes either (i) obligations under capital leases or (ii) purchase money
or other Indebtedness incurred to finance the acquisition of fixed or capital
assets and otherwise satisfying the requirements of Section 7.02(f).
"Acquisition" means the acquisition, in one transaction or a series of
transactions, by Borrower or any of its Subsidiaries of all or substantially all
the stock, partnership or other equity
-1-
<PAGE> 7
interests or assets of any other Person or all or substantially all of the
assets of any division or business of any other Person.
"Acquisition Consideration" means the purchase consideration for any
Permitted Acquisition and all other payments made and liabilities incurred by
Borrower or any of its Subsidiaries in exchange for, or as part of, or in
connection with, any Permitted Acquisition, whether paid in cash or by exchange
of assets or otherwise and whether payable at or prior to the consummation of
such Permitted Acquisition or deferred for payment at any future time, whether
or not any such future payment is subject to the occurrence of any contingency,
and includes any and all payments and liabilities representing the purchase
price and any assumptions of liabilities, "earn-outs" and other Profit Payment
Agreements, consulting agreements, services agreements and non-competition
agreements and other liabilities of every type and description.
"Administrative Agent" means Bank of America, N.A., in its capacity as
administrative agent under any of the Loan Documents, and any successor
administrative agent.
"Administrative Agent's Office" means Administrative Agent's address
and, as appropriate, account as set forth on Schedule 10.03, or such other
address or account as Administrative Agent hereafter may designate by written
notice to Borrower and Lenders.
"Administrative Agent-Related Persons" means Administrative Agent
(including any successor agent), together with its Affiliates (including, in the
case of Administrative Agent, the Arranger), and the officers, directors,
employees, agents and attorneys-in-fact of such Persons and Affiliates.
"Affiliate" means any Person directly or indirectly controlling,
controlled by, or under direct or indirect common control with, another Person.
A Person shall be deemed to be "controlled by" any other Person if such other
Person possesses, directly or indirectly, power (a) to vote 10% or more of the
securities (on a fully diluted basis) having ordinary voting power for the
election of directors or managing general partners; or (b) to direct or cause
the direction of the management and policies of such Person whether by contract
or otherwise.
"Agreement" means this Credit Agreement, as amended, restated,
extended, supplemented or otherwise modified in writing from time to time.
"ALT" has the meaning set forth in the introductory paragraph hereto.
"ALT Closing Date" means the date on which all the conditions precedent
in Section 4.02 are satisfied or waived in accordance with Section 4.02, which
date shall be no later than November 24, 1999.
"ALT Global Note" means the promissory note made by Borrower in favor
of Administrative Agent for the account of Lenders, substantially in the form of
Exhibit F.
"ALT Subordination Agreement" means the ALT subordination agreement in
the form of Exhibit I.
-2-
<PAGE> 8
"Applicable Amount" means (a) prior to the consummation of a Qualified
Public Offering, (i) with respect to the Facility Fee, .35%, (ii) with respect
to the Utilization Fee, 0.0%, (iii) with respect to the Base Rate, 0.75%, and
(iv) with respect to the Eurodollar Rate and Letters of Credit, 1.15%, and (b)
from and after the consummation of a Qualified Public Offering, the following
amounts per annum, based upon the Capitalization Ratio as set forth in the then
most recent Compliance Certificate received by Administrative Agent pursuant to
Section 6.02(b) (provided, however, that, if this clause (b) is applicable,
until Administrative Agent receives the first Compliance Certificate after the
TTI Closing Date, such amounts shall be those indicated for pricing level I set
forth below):
<TABLE>
<CAPTION>
PRICING CAPITALIZATION FACILITY UTILIZATION BASE EURODOLLAR RATE/
LEVEL RATIO FEE FEE RATE LETTERS OF CREDIT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
I Greater than or
equal to 55% .35% .25% .50% .90%
II Greater than or
equal to 45% .30% .25% .375% .825%
III Greater than or
equal to 35% .25% .25% .125% .625%
IV Less than 35% .20% .125% 0% .55%
</TABLE>
The Applicable Amount shall be in effect from the date the most recent
Compliance Certificate is received by Administrative Agent to but excluding the
date the next Compliance Certificate is received; provided, however, that if
Borrower fails to timely deliver the next Compliance Certificate, the Applicable
Amount from the date such Compliance Certificate was due to but excluding the
date such Compliance Certificate is received by Administrative Agent shall be
the highest pricing level set forth above, and, thereafter, the pricing level
indicated by such Compliance Certificate when received.
"Applicable Payment Date" means, (a) as to any Eurodollar Rate Loan,
the last day of the relevant Interest Period and any date that such Loan is
prepaid or converted in whole or in part and the Maturity Date; provided,
however, that if any Interest Period for a Eurodollar Rate Loan exceeds three
months, interest shall also be paid on the date which falls every three months
after the beginning of such Interest Period, and (b) as to any other
Obligations, the last Business Day of each calendar quarter and the Maturity
Date; provided, further, that interest accruing at the Default Rate shall be
payable from time to time at any time upon written demand of Administrative
Agent.
"Arranger" means Banc of America Securities LLC, in its capacity as
sole arranger and sole book manager.
"Assumption Agreement" means an assumption agreement in the form of
Exhibit J.
-3-
<PAGE> 9
"Attorney Costs" means and includes all fees and disbursements of any
law firm or other external counsel and the allocated cost of internal legal
services and all disbursements of internal counsel.
"Audited ALT Financial Statements" means the audited consolidated
balance sheet of ALT and its Subsidiaries for the fiscal year ended December 31,
1998, and the related consolidated statements of income and cash flows for such
fiscal year of ALT.
"Audited TTI Financial Statements" means, collectively, (i) the audited
combined balance sheet of TTI for the fiscal years ended December 31, 1997 and
December 31, 1998, and (ii) the combined statements of income, stockholders
equity and cash flows for the fiscal years ended December 31, 1996, December 31,
1997 and December 31, 1998.
"Bank of America" means Bank of America, N.A.
"Base Rate" means, for any day, a fluctuating rate per annum equal to
the higher of (a) the Federal Funds Rate for such day plus 1/2 of 1% and (b) the
rate of interest in effect for such day as publicly announced from time to time
by Bank of America as its "prime rate." Such prime rate is a rate set by Bank of
America based upon various factors including Bank of America's costs and desired
return, general economic conditions and other factors, and is used as a
reference point for pricing some loans, which may be priced at, above, or below
such announced rate. Any change in such prime rate announced by Bank of America
shall take effect at the opening of business on the day specified in the public
announcement of such change.
"Base Rate Loan" means a Loan which bears interest based on the Base
Rate.
"Borrower" means (i) on or prior to the TTI Closing Date and the
assumption by TTI pursuant to the Assumption Agreement of ALT's Obligations
(other than ALT's Obligations under the ALT Subordination Agreement), ALT, and
(ii) thereafter, TTI.
"Borrower Party" means Borrower or any Person other than Lenders and
any Affiliates of Lenders, Administrative Agent and Issuing Lender from time to
time party to a Loan Document.
"Borrowing" and "Borrow" each mean, a borrowing hereunder consisting of
Loans of the same type made on the same day and, other than in the case of Base
Rate Loans, having the same Interest Period.
"Borrowing Date" means the date that a Loan is made, which shall be a
Business Day.
"Business Day" means any day other than a Saturday, Sunday, or other
day on which commercial banks are authorized to close under the Laws of, or are
in fact closed in, the state where Administrative Agent's Office is located or
the State of California and, if such day relates to any Eurodollar Rate Loan,
means any such day on which dealings in Dollar deposits are conducted by and
between banks in the London interbank eurodollar market.
-4-
<PAGE> 10
"Capitalization Ratio" means, as of any date of determination, for
Borrower and its Subsidiaries on a consolidated basis, the ratio of (a)
Consolidated Total Indebtedness as of such date to (b) Consolidated Total
Capitalization as of such date.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral" means all property of the Borrower Parties, now owned or
hereafter acquired, with respect to which a Lien is purported to be created by
the Pledge Agreement.
"Collateral Release Date" means the date on which each of the following
shall have occurred: (i) TTI shall have consummated a Qualified Public Offering
on or before the date that is 12 months after the ALT Closing Date, (ii) no
Default or Event of Default shall have occurred and be continuing, (iii)
Borrower shall have delivered to Administrative Agent a written request for the
release of the Collateral and a certificate of the chief financial officer of
Borrower certifying that the requirements of clauses (i) and (ii) of this
definition have been satisfied.
"Commitment" means, for each Lender, the obligation of such Lender to
make Extensions of Credit in an aggregate principal amount not exceeding the
amount set forth opposite such Lender's name on Schedule 2.01 at any one time
outstanding, as such amount may be reduced or adjusted from time to time in
accordance with this Agreement (collectively, the "combined Commitments").
"Compliance Certificate" means a certificate in the form of Exhibit B,
properly completed and signed by a Responsible Officer of Borrower.
"Consolidated EBIT" means, for any period, for TTI and its Subsidiaries
on a consolidated basis, an amount equal to the sum of (a) Consolidated Net
Income (excluding gains or losses from Dispositions of assets), (b) Consolidated
Interest Charges, and (c) the amount of taxes, based on or measured by income,
used or included in the determination of such Consolidated Net Income.
"Consolidated EBITDA" means, for any period, for TTI and its
Subsidiaries on a consolidated basis, an amount equal to the sum of (a)
Consolidated Net Income (excluding gains or losses from Dispositions of assets),
(b) Consolidated Interest Charges, (c) the amount of taxes, based on or measured
by income, used or included in the determination of such Consolidated Net
Income, and (d) the amount of depreciation and amortization expense deducted in
determining such Consolidated Net Income; provided that for purposes of
calculating Consolidated EBITDA of TTI and its Subsidiaries for any period, (i)
the Consolidated EBITDA of any Person or assets acquired by TTI and its
Subsidiaries in a Permitted Acquisition during such period shall be included on
a pro forma basis for such period (assuming the consummation of such Permitted
Acquisition occurred on the first day of such period) if the consolidated
balance sheet of such acquired Person and its consolidated Subsidiaries (or, in
the case of a Permitted Acquisition of assets, a consolidated balance sheet
reflecting such assets in a manner satisfactory to Administrative Agent) as at
the end of the period preceding the acquisition of such Person or assets and the
related consolidated statements of income and stockholders' equity and of cash
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<PAGE> 11
flows for the period in respect of which Consolidated EBITDA is to be calculated
either (1) have been reported on without a qualification arising out of the
scope of the audit by independent certified public accountants of nationally
recognized standing or (2) have been reasonably approved by Administrative Agent
and (ii) the Consolidated EBITDA of any Person or assets Disposed of by TTI or
its Subsidiaries during such period shall be excluded for such period (assuming
the consummation of such Disposition and the repayment of any Indebtedness in
connection therewith occurred on the first day of such period).
"Consolidated Interest Charges" means, for any period, for TTI and its
Subsidiaries on a consolidated basis, the sum of all interest, premium payments,
fees, charges and related expenses payable for such period by TTI and its
Subsidiaries in connection with Indebtedness (including capitalized interest and
other fees and charges incurred under any asset securitization program), in each
case to the extent treated as interest in accordance with GAAP (including any
such amounts payable in respect of Indebtedness of any Person acquired during
such period and in respect of Indebtedness incurred in connection with such
acquisition, in each case as if such Indebtedness was incurred on the first day
of such period); provided that, for purposes of calculating the Interest
Coverage Ratio and the Leverage Ratio only, "Consolidated Interest Charges"
shall include, for any period, rent payable for such period by TTI and its
Subsidiaries pursuant to any Synthetic Lease Obligations.
"Consolidated Net Income" means, for any period, for TTI and its
Subsidiaries on a consolidated basis, the net income of TTI and its Subsidiaries
from continuing operations after extraordinary items for that period, determined
in accordance with GAAP.
"Consolidated Net Worth" means, as of any date of determination, for
TTI and its Subsidiaries on a consolidated basis, Stockholders' Equity of TTI
and its Subsidiaries on that date, determined in accordance with GAAP.
"Consolidated Total Assets" means, as of any date of determination, for
TTI and its Subsidiaries on a consolidated basis, the value of all properties
and all right, title and interest in such properties which would be classified
as assets of TTI and its Subsidiaries, determined in accordance with GAAP.
"Consolidated Total Capitalization" means, as of any date of
determination, the sum of (i) Consolidated Total Indebtedness, and (ii)
Consolidated Net Worth, in each case as of such date.
"Consolidated Total Indebtedness" means, as of any date of
determination, for TTI and its Subsidiaries on a consolidated basis, the sum of
(a) the outstanding principal amount of all obligations and liabilities of TTI
and its Subsidiaries, whether current or long-term, for borrowed money
(including Extensions of Credit hereunder), (b) that portion of obligations with
respect to capital leases that are capitalized in the consolidated balance sheet
of TTI and its Subsidiaries, (c) without duplication, all Guaranty Obligations
with respect to Indebtedness of the type specified in subsections (a) and (b)
above of Persons other than TTI or any of its Subsidiaries, (d) the outstanding
principal amount of all obligations and liabilities, whether current or
long-term,
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<PAGE> 12
associated with any sale by TTI or any of its Subsidiaries of its accounts
receivable, (e) Synthetic Lease Obligations of TTI and its Subsidiaries, (f)
Indebtedness of TTI and its Subsidiaries in respect of Swap Contracts, in each
case, determined in accordance with GAAP, (g) Joint Venture Indebtedness of TTI
and its Subsidiaries, and (h) Indebtedness of the type described in clause (b)
of the definition of Indebtedness.
"Continuation" and "Continue" mean, with respect to any Eurodollar Rate
Loan, the continuation of such Eurodollar Rate Loan as a Eurodollar Rate Loan on
the last day of the Interest Period for such Loan.
"Contractual Obligation" means, as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or undertaking to
which such Person is a party or by which it or any of its property is bound.
"Conversion" and "Convert" mean, with respect to any Loan, the
conversion of such Loan from or into another type of Loan.
"Debtor Relief Laws" means the Bankruptcy Code of the United States of
America, and all other liquidation, conservatorship, bankruptcy, assignment for
the benefit of creditors, moratorium, rearrangement, receivership, insolvency,
reorganization, or similar debtor relief Laws of the United States of America or
other applicable jurisdictions from time to time in effect affecting the rights
of creditors generally.
"Default" means any event that, with the giving of any notice, the
passage of time, or both, would be an Event of Default.
"Default Rate" means an interest rate equal to the Base Rate plus the
Applicable Amount, if any, applicable to Base Rate Loans plus 2% per annum, to
the fullest extent permitted by applicable Laws; provided, however, that with
respect to a Eurodollar Rate Loan, the Default Rate shall be an interest rate
equal to the interest rate (including any Applicable Amount) otherwise
applicable to such Loan plus 2% per annum.
"Designated Deposit Account" means a deposit account reasonably
acceptable to Administrative Agent, as from time to time designated by Borrower
by written notification to Administrative Agent.
"Disposition" means the sale, transfer, license (excluding any license
on reasonable terms for fair value) or other disposition (including any sale and
leaseback transaction) of any property by any Person, including any sale,
assignment, transfer or other disposal with or without recourse of any notes or
accounts receivable or any rights and claims associated therewith, and the terms
"Dispose" and "Disposed of" have correlative meanings.
"Dollar" and "$" means lawful money of the United States of America.
"Eligible Assignee" means (a) a financial institution organized under
the laws of the United States, or any state thereof, and having a combined
capital and surplus of at least
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<PAGE> 13
$100,000,000; (b) a commercial bank organized under the laws of any other
country which is a member of the Organization for Economic Cooperation and
Development, or a political subdivision of any such country, and having a
combined capital and surplus of at least $100,000,000, provided that such bank
is acting through a branch or agency located in the United States; (c) a Person
that is primarily engaged in the business of commercial banking and that is (i)
a Subsidiary of a Lender, (ii) a Subsidiary of a Person of which a Lender is a
Subsidiary, or (iii) a Person of which a Lender is a Subsidiary; (d) another
Lender; or (e) other lenders or institutional investors consented to in writing
in advance by Administrative Agent and, so long as no Default or Event of
Default shall have occurred and be continuing, Borrower. No Borrower Party or
any Affiliate of a Borrower Party shall be an Eligible Assignee.
"Environmental Laws" means all foreign, federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes, together
with all administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any Governmental Authority,
in each case relating to environmental, health, safety and land use matters
applicable to any property.
"ERISA" means the Employee Retirement Income Security Act of 1974 and
any regulations issued pursuant thereto, as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control with Borrower within the meaning of Sections
414(b) or (c) of the Code (and Sections 414(m) or (o) of the Code for purposes
of provisions relating to Section 412 of the Code).
"ERISA Event" means (a) a Reportable Event with respect to a Pension
Plan; (b) a withdrawal by Borrower or any ERISA Affiliate from a Pension Plan
subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer (as defined in Section 4001(a)(2) of ERISA), a cessation of
operations that is treated as such a withdrawal under Section 4062(e) of ERISA,
or the termination of a Pension Plan subject to Section 4064 of ERISA; (c) a
complete or partial withdrawal by Borrower or any ERISA Affiliate from a
Multiemployer Plan or notification that a Multiemployer Plan is in
reorganization; (d) the filing of a notice of intent to terminate, the treatment
of a Plan amendment as a termination under Sections 4041 or 4041A of ERISA, or
the commencement of proceedings by the PBGC to terminate a Pension Plan or
Multiemployer Plan; (e) an event or condition which might reasonably be expected
to constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Pension Plan or Multiemployer Plan;
or (f) the imposition of any liability under Title IV of ERISA, other than PBGC
premiums due but not delinquent under Section 4007 of ERISA, upon Borrower or
any ERISA Affiliate.
"Eurodollar Base Rate" has the meaning set forth in the definition of
Eurodollar Rate.
"Eurodollar Rate" means for any Interest Period with respect to any
Eurodollar Rate Loan, a rate per annum determined by Administrative Agent
pursuant to the following formula:
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<PAGE> 14
Eurodollar Rate = Eurodollar Base Rate
------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"Eurodollar Base Rate" means, for such Interest Period:
(a) the rate per annum (carried out to the fifth decimal
place) equal to the rate determined by Administrative Agent to be the
offered rate that appears on the page of the Telerate Screen that
displays an average British Bankers Association Interest Settlement
Rate for deposits in dollars (for delivery on the first day of such
Interest Period) with a term equivalent to such Interest Period,
determined as of approximately 11:00 a.m. (London time) two Business
Days prior to the first day of such Interest Period, or
(b) in the event the rate referenced in the preceding
subsection (a) does not appear on such page or service or such page or
service shall cease to be available, the rate per annum (carried out to
the fifth decimal place) equal to the rate determined by Administrative
Agent to be the offered rate on such other page or other service that
displays an average British Bankers Association Interest Settlement
Rate for deposits in dollars (for delivery on the first day of such
Interest Period) with a term equivalent to such Interest Period,
determined as of approximately 11:00 a.m. (London time) two Business
Days prior to the first day of such Interest Period, or
(c) in the event the rates referenced in the preceding
subsections (a) and (b) are not available, the rate per annum
determined by Administrative Agent as the rate of interest at which
dollar deposits (for delivery on the first day of such Interest Period)
in same day funds in the approximate amount of the applicable
Eurodollar Rate Loan and with a term equivalent to such Interest Period
would be offered by its London Branch to major banks in the eurodollar
market at their request at approximately 11:00 a.m. (London time) two
Business Days prior to the first day of such Interest Period.
"Eurodollar Reserve Percentage" means, for any day during any
Interest Period, the reserve percentage (expressed as a decimal,
rounded upward to the next 1/100th of 1%) in effect on such day,
whether or not applicable to any Lender, under regulations issued from
time to time by the Board of Governors of the Federal Reserve System
for determining the maximum reserve requirement (including any
emergency, supplemental or other marginal reserve requirement) with
respect to Eurocurrency funding (currently referred to as "Eurocurrency
liabilities"). The Eurodollar Rate for each outstanding Eurodollar Rate
Loan shall be adjusted automatically as of the effective date of any
change in the Eurodollar Reserve Percentage.
"Eurodollar Rate Loan" means a Loan bearing interest based on the
Eurodollar Rate.
"Event of Default" means any of the events specified in Section 8.
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<PAGE> 15
"Existing ALT Credit Agreement" means that certain Credit Agreement,
dated as of August 30, 1996, among ALT, the lenders from time to time parties
thereto, Bank of America Illinois, The Chase Manhattan Bank, Mellon Bank, N.A.
and PNC Bank, National Association, as managing agents, and PNC Bank, National
Association, as documentation and administrative agent, as amended by First
Amendment to Credit Agreement, dated as of August 31, 1997, Second Amendment to
Credit Agreement, dated as of March 24, 1998, Third Amendment to Credit
Agreement dated as of March 30, 1999, and Fourth Amendment to Credit Agreement
and Waiver, dated as of August 6, 1999.
"Extension of Credit" means (a) the Borrowing of Loans, (b) the
Conversion or Continuation of any Loans, or (c) any Letter of Credit Action
which has the effect of increasing the amount of any Letter of Credit, extending
the maturity of any Letter of Credit or making any material modification to any
Letter of Credit or the reimbursement of drawings thereunder (collectively, the
"Extensions of Credit").
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards to the nearest 1/100 of 1%) equal to the weighted average of the rates
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers on such day, as published by the
Federal Reserve Bank on the Business Day next succeeding such day; provided that
(a) if such day is not a Business Day, the Federal Funds Rate for such day shall
be such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (b) if no such rate is so
published on such next succeeding Business Day, the Federal Funds Rate for such
day shall be the average rate charged to Bank of America on such day on such
transactions as determined by Administrative Agent.
"Foreign Subsidiary" means any "controlled foreign corporation" within
the meaning of Section 957(a) of the Code as to which TTI or any of its
Subsidiaries is a "United States shareholder" as defined in Section 951(b) of
the Code; provided that a "controlled foreign corporation" that is treated as a
pass through entity for United States federal income tax purposes shall not be a
Foreign Subsidiary while so treated.
"Form 10" means TTI's Form 10 Registration Statement, as filed with the
Securities and Exchange Commission on September 13, 1999, including, without
limitation, the information statement contained therein, as amended, restated,
extended, supplemented or otherwise modified in writing from time to time.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or such other principles as may be
approved by a significant segment of the accounting profession, that are
applicable to the circumstances as of the date of determination, consistently
applied. If at any time any change in GAAP would affect the computation of any
financial ratio or requirement set forth in any Loan Document, and either
Borrower or the Required Lenders shall so request, Administrative Agent, Lenders
and Borrower shall negotiate in good faith to amend such ratio or requirement to
preserve the original intent thereof in light of, and to reflect,
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<PAGE> 16
such change in GAAP (subject to the approval of the Required Lenders), provided
that, until so amended, (a) such ratio or requirement shall continue to be
computed in accordance with GAAP prior to such change therein and (b) Borrower
shall provide to Administrative Agent and Lenders financial statements and other
documents required under this Agreement or as reasonably requested hereunder
setting forth a reconciliation between calculations of such ratio or requirement
made before and after giving effect to such change in GAAP.
"Governing State" means the State of New York.
"Governmental Authority" means (a) any international, foreign, federal,
state, county or municipal government, or political subdivision thereof, (b) any
governmental or quasi-governmental agency, authority, board, bureau, commission,
department, instrumentality, central bank or public body, or (c) any court,
administrative tribunal or public utility.
"Guaranty" means collectively, (i) the guaranty substantially in the
form of Exhibit G, and (ii) any supplements thereto substantially in the form of
Annex A to Exhibit G executed and delivered pursuant to Section 6.13.
"Guarantor" means each Material Subsidiary of TTI (other than any
Foreign Subsidiary) that is a party to the Guaranty.
"Guaranty Obligation" means, as to any Person, any (a) guaranty by that
Person of Indebtedness of, or other obligation payable by, any other Person or
(b) agreement, undertaking or arrangement given by that Person to an obligee of
any other Person with respect to the payment of an obligation by, or the
financial condition of, such other Person, whether direct, indirect or
contingent, including any purchase or repurchase agreement covering such
obligation or any collateral security therefor, any agreement to provide funds
(by means of loans, capital contributions or otherwise) to such other Person,
any agreement to support the solvency or level of any balance sheet item of such
other Person or any "keep-well" or other arrangement of whatever nature given
for the purpose of assuring or holding harmless such obligee against loss with
respect to any obligation of such other Person; provided, however, that the term
Guaranty Obligation shall not include endorsements of instruments for deposit or
collection in the ordinary course of business. The amount of any Guaranty
Obligation shall be deemed to be an amount equal to the stated or determinable
amount of the related primary obligation, or portion thereof, covered by such
Guaranty Obligation or, if not stated or determinable, the reasonably
anticipated liability in respect thereof as determined by the Person in good
faith.
"Indebtedness" means, as to any Person at any time, all items which
would, in conformity with GAAP, be classified as indebtedness on a balance sheet
of such Person at such time, but in any event including:
(a) all obligations of such Person for borrowed money and all
obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments;
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<PAGE> 17
(b) any direct or contingent obligations of such Person
arising under letters of credit (including standby and commercial),
banker's acceptances, bank guaranties, surety bonds and similar
instruments; provided that any obligations of such Person arising under
a performance letter of credit or a surety bond shall constitute
Indebtedness only to the extent of any monetary obligation thereunder;
(c) net obligations under any Swap Contract in an amount equal
to (i) if such Swap Contract has been closed out, any outstanding
termination value thereof, or (ii) if such Swap Contract has not been
closed out, the mark-to-market value thereof determined on the basis of
readily available quotations provided by any recognized dealer in such
type of Swap Contract;
(d) whether or not so included as liabilities in accordance
with GAAP, all obligations of such Person to pay the deferred purchase
price of property or services, and indebtedness (excluding prepaid
interest thereon) secured by a Lien on property owned or being
purchased by such Person (including indebtedness arising under
conditional sales or other title retention agreements), whether or not
such indebtedness shall have been assumed by such Person or is limited
in recourse;
(e) lease payment obligations under capital leases or
Synthetic Lease Obligations;
(f) all Guaranty Obligations of such Person in respect of any
of the foregoing;
(g) obligations and liabilities associated with any sale by
such Person of its accounts receivable;
(h) Joint Venture Indebtedness; and
(i) trade and other accounts payable in the ordinary course of
business in accordance with customary trade terms which are overdue for
a period of more than 90 days (unless disputed by such Person in good
faith).
"Indemnified Liabilities" has the meaning set forth in Section 10.14.
"Interest Coverage Ratio" means, as of any date of determination, the
ratio of (a) Consolidated EBIT for the period of the four prior fiscal quarters
ending on such date (or, if the number of fiscal quarters of TTI ending after
the Signing Date is less than four, such number of fiscal quarters) to (b)
Consolidated Interest Charges during such period.
"Interest Period" means, for each Eurodollar Rate Loan as requested by
Borrower, (a) initially, the period commencing on the date such Eurodollar Rate
Loan is disbursed, Continued as, or Converted into, a Eurodollar Rate Loan and
(b) thereafter, the period commencing on the last day of the preceding Interest
Period, and ending, in each case, on the earlier of (x) the scheduled Maturity
Date, or (y) one, two, three or six months thereafter; provided that:
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<PAGE> 18
(i) any Interest Period that would otherwise end on a day that is not a
Business Day shall be extended to the next succeeding Business Day unless such
Business Day falls in another calendar month, in which case such Interest Period
shall end on the next preceding Business Day;
(ii) any Interest Period which begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall end on the last
Business Day of the calendar month at the end of such Interest Period; and
(iii) unless Administrative Agent otherwise consents, there may not be
more than 10 Interest Periods in effect at any time.
"Investment" means, as to any Person, any acquisition or any investment
by such Person, whether by means of the purchase or other acquisition of stock
or other securities of any other Person or by means of a loan, creating a debt,
capital contribution, guaranty or other debt or equity participation or interest
in any other Person, including any partnership and joint venture interests in
such other Person. For purposes of covenant compliance, the amount of any
Investment shall be the amount actually invested, without adjustment for
subsequent increases or decreases in the value of such Investment.
"IRS" means the Internal Revenue Service.
"Issuing Lender" means Bank of America, or any successor issuing lender
hereunder.
"Joint Venture Indebtedness" means, as to any Person at any time, all
Indebtedness of any partnership or joint venture in which such Person is a
general partner or a joint venturer, unless and to the extent (i) such
Indebtedness is expressly made non-recourse to such Person except for customary
exceptions, (ii) such Person is otherwise protected (including, without
limitation, pursuant to indemnification agreements) from liability for such
Indebtedness in a manner reasonably satisfactory to Required Lenders, or (iii)
under applicable Law, the holders of the ownership interests in such partnership
or joint venture are not liable for such Indebtedness.
"Laws" or "Law" means, collectively, all international, foreign,
federal, state and local statutes, treaties, rules, guidelines, regulations,
ordinances, codes and administrative or judicial precedents or authorities,
including the interpretation or administration thereof by any Governmental
Authority charged with the enforcement, interpretation or administration
thereof, in each case whether or not having the force of law.
"Lender" means each lender from time to time party hereto, Issuing
Lender and Swing Line Lender.
"Lending Office" means, as to any Lender, the office or offices of such
Lender described as such on Schedule 10.03, or such other office or offices as
such Lender may from time to time notify Borrower and Administrative Agent.
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<PAGE> 19
"Letter of Credit" means any letter of credit issued or outstanding
hereunder. A Letter of Credit may be a standby letter of credit only.
"Letter of Credit Action" means the issuance, supplement, amendment,
renewal, extension, modification or other action relating to a Letter of Credit.
"Letter of Credit Application" means an application for a Letter of
Credit Action as shall at any time be in use by Issuing Lender.
"Letter of Credit Cash Collateral Account" means a blocked deposit
account at Bank of America with respect to which Borrower hereby grants a
security interest in such account to Administrative Agent for and on behalf of
Lenders as security for Letter of Credit Usage and with respect to which
Borrower agrees to execute and deliver from time to time such documentation as
Administrative Agent may reasonably request to further assure and confirm such
security interest.
"Letter of Credit Commitment" means an amount equal to the lesser of
the combined Commitments and $25,000,000.
"Letter of Credit Expiration Date" means the date which is 5 days prior
to the Maturity Date.
"Letter of Credit Usage" means, as at any date of determination, the
aggregate undrawn face amount of outstanding Letters of Credit plus the
aggregate amount of all drawings under the Letters of Credit honored by Issuing
Lender and not reimbursed to Issuing Lender by Borrower or converted into Loans.
"Leverage Ratio" means, as of any date of determination, for TTI and
its Subsidiaries on a consolidated basis, the ratio of (a) Consolidated Total
Indebtedness as of such date (in the case of periods prior to the consummation
of the Spinoff, giving pro forma effect to the Line of Business Transfer and the
Spinoff) to (b) Consolidated EBITDA for the period of the four fiscal quarters
ending immediately prior to that date; provided, however, that for purposes of
determining Consolidated EBITDA for any period of four fiscal quarters that
includes the quarters ended December 31, 1998, March 31, 1999, June 30, 1999 or
September 30, 1999, Consolidated EBITDA for such fiscal quarters shall be as set
forth on Schedule 1.01 (which shall give pro forma effect to the Line of
Business Transfer and the Spinoff and shall be subject to adjustments for
Permitted Acquisitions occurring after the TTI Closing Date as described in the
definition of "Consolidated EBITDA"); provided further that, for purposes of
calculating Consolidated Total Indebtedness for purposes of the Leverage Ratio
only, in the event that there are no Outstanding Obligations, the amount of
Consolidated Total Indebtedness shall be reduced by an amount equal to the
amount, if any, by which the amount set forth opposite the line-item "cash and
cash equivalents" on the balance sheet of TTI as of the date of determination
exceeds $10,000,000.
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"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement (in the nature of compensating balances, cash collateral accounts or
security interests), encumbrance, lien (statutory or other), charge, or
preference, priority or other security interest or preferential arrangement of
any kind or nature whatsoever (including any conditional sale or other title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of any financing statement under
the Uniform Commercial Code or comparable Laws of any jurisdiction), including
the interest of a purchaser of accounts receivable.
"Line of Business Transfer" has the meaning set forth in the recitals
hereto.
"Loan" means any advance made by any Lender to Borrower as provided in
Section 2 (collectively, the "Loans").
"Loan Documents" means this Agreement, the Guaranty, the Pledge
Agreement, the ALT Subordination Agreement, the Assumption Agreement, any Letter
of Credit Application, any Request for Extension of Credit, the ALT Global Note,
any Note and any certificate, any fee letter, any commitment letter, and other
instrument, document or agreement from time to time delivered in connection with
this Agreement.
"Material Adverse Effect" means any set of circumstances or events
which (a) has or would reasonably be expected to have any material adverse
effect whatsoever upon the validity or enforceability of any Loan Document, (b)
is or would reasonably be expected to be material and adverse to the condition
(financial or otherwise), business, assets, operations or liabilities
(contingent or otherwise) of Borrower and its Subsidiaries taken as a whole, or
(c) materially impairs or would reasonably be expected to materially impair the
ability of any Borrower and its Subsidiaries taken as a whole to perform the
Obligations. For purposes of this definition, the phrase "Borrower and its
Subsidiaries" means (i) on and prior to the consummation of the Spinoff and the
assumption by TTI of ALT's Obligations (other than ALT's Obligations under the
ALT Subordination Agreement) pursuant to the Assumption Agreement, each of (a)
ALT and its Subsidiaries, or (b) the assets and liabilities and operations of
the Aerospace and Electronics segment of ALT intended to be transferred in
connection with the Line of Business Transfer to TTI and its Subsidiaries, and
(ii) following the consummation of the Spinoff and the assumption by TTI of
ALT's Obligations (other than ALT's Obligations under the ALT Subordination
Agreement) pursuant to the Assumption Agreement, TTI and its Subsidiaries.
"Material Division" means, as of any date of determination, any
division of TTI or any of its Subsidiaries that has on such date (i) Total
Assets constituting ten percent or more of Consolidated Total Assets or (ii)
total revenues constituting ten percent or more of the consolidated total
revenues of TTI and its Subsidiaries, determined in accordance with GAAP.
"Material Subsidiary" means, as of any date of determination, any
Subsidiary of TTI that has on such date (i) Total Assets constituting ten
percent or more of Consolidated Total Assets or (ii) total revenues constituting
ten percent or more of the consolidated total revenues of TTI and its
Subsidiaries, determined in accordance with GAAP.
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"Maturity Date" means (i) if the ALT Closing Date does not occur on or
before November 24, 1999, November 24, 1999, (ii) if the TTI Closing Date does
not occur on or before the date that is one month following the ALT Closing
Date, the date that is one month following the ALT Closing Date, (iii)
otherwise, the date that is five years following the ALT Closing Date, in each
case, as it may be earlier terminated or extended in accordance with the terms
hereof.
"Minimum Amount" means, with respect to each of the following actions,
the minimum amount and any multiples in excess thereof set forth opposite such
action:
<TABLE>
<CAPTION>
MINIMUM INCREMENTS IN
TYPE OF ACTION AMOUNT EXCESS THEREOF
-------------------------------------------------------------------------------
<S> <C> <C>
Borrowing of, prepayment of, or $ 500,000 $ 100,000
Conversion into, Base Rate Loans
Borrowing of, prepayment of, $ 5,000,000 $ 1,000,000
Continuation of, or Conversion into,
Eurodollar Rate Loans
Borrowing of, or prepayment of, $ 100,000 None
Swing Line Loans
Letter of Credit Action $ 50,000 None
Reduction in Commitments $ 1,000,000 $ 500,000
Assignments $10,000,000 $ 1,000,000
</TABLE>
"Multiemployer Plan" means any employee benefit plan of the type
described in Section 4001(a)(3) of ERISA.
"Notes" means, collectively each promissory note made by Borrower in
favor of a Lender evidencing Loans made by such Lender, substantially in the
form of Exhibit C.
"Notice of Assignment and Acceptance" means a Notice of Assignment and
Acceptance substantially in the form of Exhibit D.
"Obligations" means all advances to, and debts, liabilities,
obligations (including, without limitation, obligations to provide cash
collateral and indemnification obligations), covenants and duties of, any
Borrower Party arising under any Loan Document, whether direct or indirect
(including those acquired by assignment), absolute or contingent, due or to
become due, now existing or hereafter arising and including interest that
accrues after the commencement of any proceeding under any Debtor Relief Laws by
or against any Borrower Party or any Subsidiary or Affiliate of any Borrower
Party.
"Ordinary Course Dispositions" means:
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<PAGE> 22
(a) Dispositions of obsolete or worn out property, whether now
owned or hereafter acquired, in the ordinary course of business;
(b) Dispositions of cash, cash equivalents, inventory and
other property in the ordinary course of business;
(c) Dispositions of property in the ordinary course of
business to the extent that such property is exchanged for credit
against the purchase price of similar replacement property, or the
proceeds of such sale are reasonably promptly applied to the purchase
price of such replacement property or where TTI or its Subsidiary
determine in good faith that the failure to replace such equipment will
not be detrimental to the business of TTI or such Subsidiary; and
(d) Dispositions of assets or property by any Subsidiary of
TTI to TTI or another wholly-owned Solvent Subsidiary of TTI;
provided, however, that no such Disposition shall be for less than the fair
market value of the property being disposed of.
"Ordinary Course Indebtedness" means:
(a) Indebtedness under the Loan Documents;
(b) intercompany Guaranty Obligations of TTI or any of its
Subsidiaries guarantying Indebtedness and other obligations otherwise
permitted hereunder of TTI or any wholly-owned Subsidiary of TTI;
(c) Indebtedness arising from the honoring of a check, draft
or similar instrument against insufficient funds; and
(d) Ordinary Course Swap Obligations.
"Ordinary Course Investments" means:
(a) Investments consisting of cash and cash equivalents;
(b) Investments consisting of advances to officers, directors
and employees of TTI and its Subsidiaries for travel, entertainment,
relocation and analogous ordinary business purposes;
(c) Investments of TTI in any Guarantor and Investments of any
Subsidiary of TTI in TTI or any Guarantor;
(d) Investments consisting of or evidencing the extension of
credit to customers or suppliers of TTI and its Subsidiaries in the
ordinary course of business and any Investments received in
satisfaction or partial satisfaction thereof; and
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<PAGE> 23
(e) Investments consisting of Guaranty Obligations permitted
by Section 7.01.
"Ordinary Course Liens" means:
(a) Liens pursuant to any Loan Document;
(b) Liens for taxes not yet due or which are being contested
in good faith and by appropriate proceedings, if adequate reserves with
respect thereto are maintained on the books of the applicable Person in
accordance with GAAP;
(c) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business which are not overdue for a period of more than 30 days or
which are being contested in good faith and by appropriate proceedings,
if adequate reserves with respect thereto are maintained on the books
of the applicable Person;
(d) pledges or deposits in connection with worker's
compensation, unemployment insurance and other social security
legislation;
(e) deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory
obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of
business;
(f) easements, rights-of-way, restrictions and other similar
encumbrances affecting real property which, in the aggregate, are not
substantial in amount, and which do not in any case materially detract
from the value of the property subject thereto or materially interfere
with the ordinary conduct of the business of any Person; and
(g) attachment, judgment or other similar Liens arising in
connection with litigation or other legal proceedings (and not
otherwise a Default hereunder) in the ordinary course of business that
is currently being contested in good faith by appropriate proceedings,
so long as adequate reserves with respect thereto are maintained on the
books of the applicable Person in accordance with GAAP and no material
property is subject to a material risk of loss or forfeiture.
"Ordinary Course Swap Obligations" means all obligations (contingent or
otherwise) of TTI or any Subsidiary existing or arising under any Swap Contract,
provided that each of the following criteria is satisfied: (a) such obligations
are (or were) entered into by such Person in the ordinary course of business for
the purpose of directly mitigating risks associated with liabilities,
commitments or property held or reasonably anticipated by such Person, or
changes in the value of securities issued by such Person in conjunction with a
securities repurchase program not otherwise prohibited hereunder, and not for
purposes of speculation or taking a "market view;" and (b) such Swap Contracts
do not contain (i) any provision ("walk-away" provision) exonerating the
non-defaulting party from its obligation to make payments on outstanding
transactions to the defaulting party, or (ii) any provision creating or
permitting the declaration of
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<PAGE> 24
an event of default, termination event or similar event upon the occurrence of
an Event of Default hereunder (other than an Event of Default under Section
8.01(f)(ii)).
"Organization Documents" means, (a) with respect to any corporation,
the certificate or articles of incorporation and the bylaws; (b) with respect to
any limited liability company, the articles of formation and operating
agreement; and (c) with respect to any partnership, joint venture or other form
of business entity, the partnership agreement and any agreement, filing or
notice with respect thereto filed with the secretary of state of the state of
its formation, in each case as amended from time to time.
"Outstanding Obligations" means, as of any date, and giving effect to
making any Extensions of Credit requested on such date and all payments,
repayments and prepayments made on such date, (a) when reference is made to all
Lenders, the sum of (i) the aggregate outstanding principal amount of all Loans,
and (ii) all Letter of Credit Usage, and (b) when reference is made to one
Lender the sum of (i) the aggregate outstanding principal amount of all Loans
(excluding, in the case of the Swing Line Lender, Swing Line Loans) made by such
Lender, (ii) such Lender's ratable participation in all Letter of Credit Usage,
and (iii) such Lender's ratable participation in all outstanding Swing Line
Loans.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto established under ERISA.
"Pension Plan" means any "employee pension benefit plan" (as such term
is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is
subject to Title IV of ERISA and is sponsored or maintained by Borrower or any
ERISA Affiliates or to which Borrower or any ERISA Affiliate contributes or has
an obligation to contribute, or in the case of a multiple employer plan (as
described in Section 4064(a) of ERISA) has made contributions at any time during
the immediately preceding five plan years.
"Permitted Acquisition" means any non-hostile Acquisition by TTI or any
Guarantor if all of the following conditions are met:
(a) before and immediately after giving effect thereto, (i) no
Default or Event of Default has occurred and is continuing or would
result therefrom, and (ii) the representations and warranties of each
Borrower Party set forth in the Loan Documents shall be true and
correct in all material respects on and as of the date of such
Acquisition, as though made on and as of such date, other than any such
representations or warranties that by their terms refer to a date other
than the date of such Acquisition, in which case such representations
and warranties shall be true and correct in all material respects as of
such other date;
(b) such Acquisition has not been preceded by an unsolicited
tender offer for such Person by TTI or any of its Affiliates;
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<PAGE> 25
(c) all transactions related thereto shall be consummated in
all material respects in accordance with applicable Laws;
(d) in the case of any Acquisition of shares, partnership
interests or other equity interests in any Person, such Acquisition is
an Acquisition of at least 80% of the equity interests in such Person
and, after giving effect to such Acquisition, such Person becomes an at
least 80%-owned Subsidiary of TTI;
(e) all actions required to be taken, if any, with respect to
any acquired or newly formed Material Subsidiary under Section 6.13
shall have been taken;
(f) such assets are used for, or such Person is engaged in, a
line of business permitted under Section 7.08;
(g) after giving pro forma effect to such Acquisition, (A) TTI
would have been in compliance with the covenants set forth in Section
7.12 as of the last day of TTI's fiscal quarter most recently ended
prior to the consummation of such Acquisition, and (B) based solely on
TTI's then-current good faith and reasonable financial projections for
the fiscal quarter ending after the consummation of such Acquisition
and the succeeding three quarters and without any assurance that such
projections will be achieved, TTI can reasonably be expected to remain
in compliance with such covenants for the twelve-month period following
the consummation of such Acquisition, and to have sufficient cash
liquidity to conduct its business, to support working capital
requirements and pay its debts and other liabilities as they become due
and otherwise remain Solvent;
(h) neither TTI nor any of its Subsidiaries shall incur,
assume or otherwise become liable for or subject to any Indebtedness in
connection with such Acquisition except for Indebtedness permitted by
Section 7.01; and
(i) the assets acquired in such Acquisition shall be acquired
free and clear of all Liens other than Ordinary Course Liens and Liens
permitted by Section 7.02(g) or Section 7.02(i).
"Person" means any individual, trustee, corporation, general
partnership, limited partnership, limited liability company, joint stock
company, trust, unincorporated organization, bank, business association, firm,
joint venture, Governmental Authority, or otherwise.
"Plan" means any employee benefit plan maintained or contributed to by
a Borrower Party or by any trade or business (whether or not incorporated) under
common control with a Borrower Party as defined in Section 4001(b) of ERISA and
insured by the Pension Benefit Guaranty Corporation under Title IV of ERISA.
"Pledge Agreement" means, collectively, (i) the pledge agreement
executed and delivered by TTI, substantially in the form of Exhibit H, and (ii)
any supplements thereto substantially in the form of Annex A to Exhibit H
executed and delivered pursuant to Section 6.13.
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<PAGE> 26
"Private Letter Ruling" mean an IRS private letter ruling confirming
the tax free treatment of the Spinoff under Section 355 of the Code, as amended,
restated, extended, supplemented or otherwise modified in writing from time to
time.
"Profit Payment Agreement" means any agreement to make any payment the
amount of which is, or the terms of payment of which are, in any respect subject
to or contingent upon the revenues, income, cash flow or profits (or the like)
of any Person or business.
"Pro Rata Share" means, with respect to each Lender, the percentage of
the combined Commitments set forth opposite the name of that Lender on Schedule
2.01, as such share may be adjusted pursuant to Section 10.23.
"Qualified Public Offering" means an underwritten public offering,
pursuant to an effective registration statement under the Securities Act of
1933, as amended, of shares of common stock of TTI which results in gross
proceeds to TTI of not less than $115,000,000.
"Reportable Event" means any of the events set forth in Section 4043(c)
of ERISA or the regulations thereunder, a withdrawal from a Plan described in
Section 4063 of ERISA, or a cessation of operations described in Section 4062(e)
of ERISA.
"Request for Extension of Credit" means a written request substantially
in the form of Exhibit A duly completed and signed by a Responsible Officer, or
a telephonic request followed by such a written request, in each case delivered
to Administrative Agent by Requisite Notice. In the case of a request for a new
or amended Letter of Credit, the written Letter of Credit Application shall be
deemed to be the Request for Extension of Credit.
"Required Lenders" means (a) as of any date of determination if the
Commitments are then in effect, Lenders having in the aggregate more than 50% of
the combined Commitments then in effect and (b) as of any date of determination
if the Commitments have then been terminated and there are Loans and/or Letter
of Credit Usage outstanding, Lenders holding Loans and Letter of Credit Usage
aggregating more than 50% of the aggregate outstanding principal amount of the
Loans and Letter of Credit Usage.
"Requisite Notice" means, unless otherwise provided herein, (a)
irrevocable written notice to the intended recipient or (b) except with respect
to Letter of Credit Actions (which must be in writing), irrevocable telephonic
notice to the intended recipient, promptly followed by a written notice to such
recipient. Such notices shall be (i) delivered to such recipient at the address
or telephone number specified on Schedule 10.03 or as otherwise designated by
such recipient by Requisite Notice to each other party hereto, and (ii) if made
by any Borrower Party, given or made by a Responsible Officer of such Borrower
Party. Any written notice delivered in connection with any Loan Document shall
be in the form, if any, prescribed in the applicable section hereof or thereof
and may be delivered as provided in Section 10.03. Any notice sent by other than
hardcopy shall be promptly confirmed by a telephone call to the recipient and,
if requested by Administrative Agent, by a manually-signed hardcopy thereof.
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<PAGE> 27
"Requisite Time" means, with respect to any of the actions listed
below, the time and date set forth below opposite such action (all times are
local time (standard or daylight) as observed in the State of California):
<TABLE>
<CAPTION>
TYPE OF ACTION TIME DATE OF ACTION
-----------------------------------------------------------------------------------------------------------------
Delivery of Request for Extension of Credit for,
or notice for:
<C> <S> <C> <C>
o Borrowing of, prepayment of, or 9:00 A.M. Same date as such Borrowing, prepayment or
Conversion into, Base Rate Loans Conversion
o Borrowing of, prepayment of, Continuation 10:00 A.M. 3 Business Days prior to such Borrowing,
of, or Conversion into, prepayment or Conversion
Eurodollar Rate Loans
o Borrowing of Swing Line Loans 1:00 P.M. Same date as such Borrowing
o Prepayment of Swing Line Loans 1:00 P.M. Same date as such prepayment
o Letter of Credit Action 10:00 A.M. 2 Business Days prior to such action (or
such lesser time which is acceptable to
Issuing Lender)
o Voluntary reduction in or termination of 10:00 A.M. 2 Business Days prior to such reduction or
Commitments termination
o Payments by Lenders or Borrower to 11:00 A.M. On date payment is due
Administrative Agent
</TABLE>
"Responsible Officer" means the president, chief financial officer,
treasurer or assistant treasurer of any Borrower Party. Any document or
certificate hereunder that is signed by a Responsible Officer of a Borrower
Party shall be conclusively presumed to have been authorized by all necessary
corporate, partnership and/or other action on the part of such Borrower Party
and such Responsible Officer shall be conclusively presumed to have acted on
behalf of such Borrower Party.
"Restricted Payment" means:
(a) the declaration or payment of any dividend or distribution
by Borrower or any of its Subsidiaries, either in cash or property, on
any shares of the capital stock of any class of Borrower or any of its
Subsidiaries (except dividends or other distributions payable solely in
shares of capital stock of Borrower or any of its Subsidiaries or
payable by a Subsidiary to Borrower or another wholly-owned Subsidiary
of Borrower that is a Guarantor);
(b) the purchase, redemption or retirement by Borrower or any
of its Subsidiaries of any shares of its capital stock of any class or
any warrants, rights or options to purchase or acquire any shares of
its capital stock, whether directly or indirectly;
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<PAGE> 28
(c) any other payment or distribution by Borrower or any of
its Subsidiaries in respect of its capital stock, either directly or
indirectly; and
(d) any Investment other than an Investment otherwise
permitted under any Loan Document.
"Separation and Distribution Agreement" means that certain Separation
and Distribution Agreement, entered into in connection with the Spinoff, among
ALT, TII Holdings, LLC, Teledyne Industries, Inc. and TTI.
"Signing Date" means the date on which all the conditions precedent in
Section 4.01 are satisfied or waived in accordance with Section 4.01, which date
shall be no later than October 29, 1999.
"Solvent" means, when used with respect to any Person, as of any date
of determination, that (a) the amount of the "present fair saleable value" of
the assets of such Person will, as of such date, exceed the amount of all
"liabilities of such Person, contingent or otherwise", as of such date, as such
quoted terms are determined in accordance with applicable federal and state Laws
governing determinations of the insolvency of debtors, (b) the present fair
saleable value of the assets of such Person will, as of such date, be greater
than the amount that will be required to pay the liability of such Person on its
debts as such debts become absolute and matured, (c) such Person will not have,
as of such date, an unreasonably small amount of capital with which to conduct
its business, (d) such Person will be able to pay its debts as they mature, and
(e) such Person is not insolvent within the meaning of any applicable Law. For
purposes of this definition, (i) "debt" means liability on a "claim", and (ii)
"claim" means any (x) right to payment, whether or not such a right is reduced
to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured or (y) right to an
equitable remedy for breach of performance if such breach gives rise to a right
to payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured
or unsecured.
"Spinoff" has the meaning set forth in the introductory paragraph
hereto.
"Spinoff Documents" means, collectively, (i) the Form 10, (ii) the
Private Letter Ruling, (iii) the Separation and Distribution Agreement, (iv) the
Tax Sharing and Indemnification Agreement, (v) the Interim Services Agreement,
entered into in connection with the Spinoff, between ALT and TTI, (vi) the
Employee Benefits Agreement, entered into in connection with the Spinoff,
between ALT and TTI, (vii) the Trademark License Agreement, entered into in
connection with the Spinoff, among TII Holdings, LLC and TTI, and (viii) and all
schedules, exhibits, annexes and amendments thereto and all side letters and
agreements affecting the terms thereof or entered into in connection therewith.
"Stockholders' Equity" means, as of any date of determination for TTI
and its Subsidiaries on a consolidated basis, stockholders' equity as of that
date determined in accordance with GAAP.
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<PAGE> 29
"Subsidiary" means a corporation, partnership, joint venture, limited
liability company or other business entity of which a majority of the shares of
securities or other interests having ordinary voting power for the election of
directors or other governing body (other than securities or interests having
such power only by reason of the happening of a contingency) are at the time
beneficially owned, or the management of which is otherwise controlled,
directly, or indirectly through one or more intermediaries, or both, by
Borrower.
"Swap Contract" means (a) any and all rate swap transactions, basis
swaps, forward rate transactions, commodity swaps, commodity options, forward
commodity contracts, equity or equity index swaps or options, bond or bond price
or bond index swaps or options or forward bond or forward bond price or forward
bond index transactions, interest rate options, forward foreign exchange
transactions, cap transactions, floor transactions, collar transactions,
currency swap transactions, cross-currency rate swap transactions, currency
options, or any other similar transactions or any combination of any of the
foregoing (including any options to enter into any of the foregoing), whether or
not any such transaction is governed by or subject to any master agreement, or
(b) any and all transactions of any kind, and the related confirmations, which
are subject to the terms and conditions of, or governed by, any form of master
agreement published by the International Swaps and Derivatives Association,
Inc., or any other master agreement (any such master agreement, together with
any related schedules, as amended, restated, extended, supplemented or otherwise
modified in writing from time to time, a "Master Agreement"), including any such
obligations or liabilities under any Master Agreement.
"Swap Termination Value" means, in respect of any one or more Swap
Contracts, after taking into account the effect of any legally enforceable
netting agreement relating to such Swap Contracts, (a) for any date on or after
the date such Swap Contracts have been closed out and termination value(s)
determined in accordance therewith, any outstanding termination value(s), and
(b) for any date prior to the date referenced in clause (a) the amount(s)
determined as the mark-to-market value(s) for such Swap Contracts, as determined
based upon one or more mid-market or other readily available quotations provided
by any recognized dealer in such Swap Contracts (which may include any Lender).
"Swing Line" means the revolving line of credit established by Swing
Line Lender in favor of Borrower pursuant to Section 2.04.
"Swing Line Commitment" means an amount equal to the lesser of (a)
$10,000,000 and (b) the combined Commitments.
"Swing Line Lender" means Bank of America, or any successor swing line
lender hereunder.
"Swing Line Loan" means a loan which bears interest at a rate per annum
equal to interest payable on a Base Rate Loan (plus the Applicable Amount, if
any) and made by Swing Line Lender to Borrower under the Swing Line.
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<PAGE> 30
"Swing Line Outstandings" means, as of any date, the aggregate
principal amount of all outstanding Swing Line Loans.
"Synthetic Lease Obligations" means all monetary obligations of a
Person under (a) a so-called synthetic or tax retention off-balance sheet lease,
or (b) an agreement for the use or possession of property creating obligations
which do not appear on the balance sheet of such Person but which, upon the
insolvency or bankruptcy of such Person, would be characterized as the
Indebtedness of such Person (without regard to accounting treatment).
"Tax Sharing and Indemnification Agreement" means that certain Tax
Sharing and Indemnification Agreement, entered into in connection with the
Spinoff, between ALT and TTI.
"Threshold Amount" means $10,000,000.
"Total Assets" means, as of any date of determination, for any Person,
the value of all properties and all right, title and interest in such properties
which would be classified as assets of such Person, determined in accordance
with GAAP.
"to the best knowledge of" means, when modifying a representation,
warranty or other statement of any Person, that the fact or situation described
therein is known by such Person (or, in the case of a Person other than a
natural Person, known by any officer of such Person) making the representation,
warranty or other statement, or with the exercise of reasonable due diligence
under the circumstances (in accordance with the standard of what a reasonable
Person in similar circumstances would have done) would have been known by such
Person (or, in the case of a Person other than a natural Person, would have been
known by an officer of such Person).
"TTI" has the meaning set forth in the introductory paragraph hereto.
"TTI Closing Date" means the date on which all the conditions precedent
in Section 4.03 are satisfied or waived in accordance with Section 4.03, which
date shall be no later than the date that is one month following the ALT Closing
Date.
"TTI Financial Statements" means, collectively, (i) the Audited TTI
Financial Statements and (ii) the Unaudited TTI Financial Statements.
"TTI Group" means, collectively, TTI and its Subsidiaries.
"type", when used with respect to any Loan, means the designation of
whether such Loan is a Base Rate Loan or a Eurodollar Rate Loan.
"Unaudited TTI Financial Statements" means the unaudited pro forma
consolidated statement of income of TTI for the fiscal year ended December 31,
1998, (ii) the unaudited pro forma consolidated balance sheets of TTI as at June
30, 1999 and September 30, 1999, respectively, (iii) the unaudited pro forma
consolidated statement of income of TTI for the six months ended June 30, 1999,
and (iv) the unaudited pro forma consolidated statement of income of TTI for the
nine months ended September 30, 1999.
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<PAGE> 31
"Unfunded Pension Liability" means the excess of a Pension Plan's
benefit liabilities under Section 4001(a)(16) of ERISA, over the current value
of that Pension Plan's assets, determined in accordance with the assumptions
used for funding the Pension Plan pursuant to Section 412 of the Code for the
applicable plan year.
"Utilization Fee" has the meaning set forth in Section 2.08(a).
"Voting Stock" means capital stock issued by a corporation, or
equivalent interests in any other Person, the holders of which are ordinarily,
in the absence of contingencies, entitled to vote for the election of directors
(or persons performing similar functions) of such Person, even though the right
so to vote has been suspended by the happening of such a contingency.
1.02 USE OF CERTAIN TERMS.
(a) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto or thereto, unless otherwise defined therein.
(b) As used herein, unless the context requires otherwise, the
masculine, feminine and neuter genders and the singular and plural include one
another.
(c) The words "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement. The term "including" is by
way of example and not limitation. References herein to a Section, subsection or
clause shall refer to the appropriate Section, subsection or clause in this
Agreement.
(d) The term "or" is disjunctive; the term "and" is
conjunctive. The term "shall" is mandatory; the term "may" is permissive.
Masculine terms also apply to females; feminine terms also apply to males.
1.03 ACCOUNTING TERMS. All accounting terms not specifically or
completely defined in this Agreement shall be construed in conformity with, and
all financial data required to be submitted by this Agreement shall be prepared
in conformity with, GAAP applied on a consistent basis, as in effect from time
to time, applied in a manner consistent with that used in preparing the Audited
Financial Statements, except as otherwise specifically prescribed herein.
1.04 ROUNDING. Any financial ratios required to be maintained by
Borrower pursuant to this Agreement shall be calculated by dividing the
appropriate component by the other component, carrying the result to one place
more than the number of places by which such ratio is expressed in this
Agreement and rounding the result up or down to the nearest number (with a
round-up if there is no nearest number) to the number of places by which such
ratio is expressed in this Agreement.
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<PAGE> 32
1.05 EXHIBITS AND SCHEDULES. All exhibits and schedules to this
Agreement, either as originally existing or as the same may from time to time be
supplemented, modified or amended, are incorporated herein by this reference.
1.06 REFERENCES TO AGREEMENTS AND LAWS. Unless otherwise expressly
provided herein, (a) references to the Loan Documents, the Private Letter
Ruling, the Form 10 and the other Spinoff Documents shall include all
amendments, restatements, extensions, supplements or other modifications thereto
in accordance with this Agreement, (b) references to agreements and other
contractual instruments (other than those included in clause (a) above) shall
include all amendments, restatements, extensions, supplements or other
modifications thereto (unless prohibited by any Loan Document), and (c)
references to any statute or regulation shall include all statutory and
regulatory provisions consolidating, amending, replacing, supplementing or
interpreting the statute or regulation.
SECTION 2.
THE COMMITMENTS AND EXTENSIONS OF CREDIT
2.01 AMOUNT AND TERMS OF COMMITMENTS.
(a) Subject to the terms and conditions set forth in this
Agreement, each Lender severally agrees to make, Convert and Continue Loans
until the Maturity Date as Borrower may from time to time request; provided,
however, that the Outstanding Obligations of each Lender shall not exceed such
Lender's Commitment, and the Outstanding Obligations of all Lenders shall not
exceed the combined Commitments at any time. Subject to the foregoing and the
other terms and conditions hereof, Borrower may borrow, Convert, Continue,
prepay and reborrow Loans as set forth herein without premium or penalty.
(b) Loans made by each Lender shall be evidenced by one or
more loan accounts or records maintained by such Lender in the ordinary course
of business. Upon the request of any Lender made through Administrative Agent,
such Lender's Loans may be evidenced by one or more Notes, instead of or in
addition to loan accounts; provided that Loans made to ALT shall be evidenced by
the ALT Global Note only. Each such Lender may attach schedules to its Note(s)
and endorse thereon the date, amount and maturity of its Loans and payments with
respect thereto. Such loan accounts, records or Notes shall be conclusive absent
manifest error of the amount of such Loans and payments thereon. Any failure to
so record or any error in doing so shall not, however, limit or otherwise affect
the obligation of Borrower to pay any amount owing with respect to the Loans.
2.02 BORROWINGS, CONVERSIONS AND CONTINUATIONS OF LOANS.
(a) Borrower may irrevocably request a Borrowing, Conversion
or Continuation of Loans in a Minimum Amount therefor by delivering a Request
for Extension of Credit therefor by Requisite Notice to Administrative Agent not
later than the Requisite Time therefor. All Borrowings, Conversions and
Continuations shall constitute Base Rate Loans unless properly and timely
otherwise designated as set forth in the prior sentence.
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(b) Following receipt of a Request for Extension of Credit,
Administrative Agent shall promptly notify each Lender of its Pro Rata Share
thereof by Requisite Notice. In the case of a Borrowing of Loans, each Lender
shall make the funds for its Loan available to Administrative Agent at
Administrative Agent's Office not later than the Requisite Time therefor on the
Business Day specified in such Request for Extension of Credit. Upon
satisfaction of the applicable conditions set forth in Section 4, all funds so
received shall be made available to Borrower in like funds received.
(c) Administrative Agent shall promptly notify Borrower and
Lenders of the interest rate applicable to any Loan other than a Base Rate Loan
upon determination of same.
(d) Except as otherwise provided herein, a Eurodollar Rate
Loan may be Continued or Converted only on the last day of the Interest Period
for such Eurodollar Rate Loan. No Loans may be requested as, Converted into or
Continued as Eurodollar Rate Loans during the existence of a Default or Event of
Default. During the existence of a Default or Event of Default, the Required
Lenders may demand that any or all of the then outstanding Eurodollar Rate Loans
be Converted immediately into Base Rate Loans. Such Conversion shall be
effective upon notice to Borrower and shall continue so long as such Default or
Event of Default continues to exist.
(e) If a Loan is to be made on the same date that another Loan
is due and payable, Borrower or Lenders, as the case may be, shall, unless
Administrative Agent otherwise requests, make available to Administrative Agent
the net amount of funds giving effect to both such Loans and the effect for
purposes of this Agreement shall be the same as if separate transfers of funds
had been made with respect to each such Loan.
(f) The failure of any Lender to make any Loan on any date
shall not relieve any other Lender of any obligation to make a Loan on such
date, but no Lender shall be responsible for the failure of any other Lender to
so make its Loan.
2.03 LETTERS OF CREDIT.
(a) THE LETTER OF CREDIT COMMITMENT. Subject to the terms and
conditions hereof, at any time and from time to time from the TTI Closing Date
through the Letter of Credit Expiration Date, Issuing Lender shall take such
Letter of Credit Actions under the Commitments as Borrower may request;
provided, however, that (i) the Outstanding Obligations of each Lender shall not
exceed such Lender's Commitment and the Outstanding Obligations of all Lenders
shall not exceed the combined Commitments at any time, and (ii) the aggregate
outstanding Letter of Credit Usage shall not exceed the Letter of Credit
Commitment at any time. Each Letter of Credit Action shall be in a form
reasonably acceptable to Issuing Lender and shall not violate any policies of
Issuing Lender. Subject to subsection (f) below and unless consented to by the
Issuing Lender and the Required Lenders, no Letter of Credit may expire more
than 12 months after the date of its issuance or last renewal; provided,
however, that no Letter of Credit shall expire after the Letter of Credit
Expiration Date. If any Letter of Credit Usage remains outstanding after the
Letter of Credit Expiration Date, Borrower shall, not later than the Letter of
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Credit Expiration Date, deposit cash in an amount equal to such Letter of Credit
Usage in a Letter of Credit Cash Collateral Account.
(b) REQUESTING LETTER OF CREDIT ACTIONS. Borrower may
irrevocably request a Letter of Credit Action in a Minimum Amount therefor by
delivering a Letter of Credit Application therefor to Issuing Lender, with a
copy to Administrative Agent (who shall notify Lenders), by Requisite Notice not
later than the Requisite Time therefor. Unless Administrative Agent notifies
Issuing Lender that such Letter of Credit Action is not permitted hereunder or
Issuing Lender determines that such Letter of Credit Action is contrary to any
Laws or policies of Issuing Lender or does not otherwise conform to the
requirements of this Agreement, Issuing Lender shall effect such Letter of
Credit Action. This Agreement shall control in the event of any conflict with
any Letter of Credit Application. Upon the issuance of a Letter of Credit, each
Lender shall be deemed to have purchased a pro rata participation in such Letter
of Credit from Issuing Lender in an amount equal to that Lender's Pro Rata
Share.
(c) REIMBURSEMENT OF PAYMENTS UNDER LETTERS OF CREDIT.
Borrower shall reimburse Issuing Lender through Administrative Agent for any
payment that Issuing Lender makes under a Letter of Credit no later than the
date of such payment; provided, however, that if the conditions precedent set
forth in Section 4 can be satisfied, Borrower may request a Borrowing of Loans
to reimburse Issuing Lender for such payment on or before the date thereof by
complying with Section 2.02, or Borrower may allow a deemed Borrowing of Loans
which are Base Rate Loans to take place on such payment date pursuant to
subsection (e) below.
(d) FUNDING BY LENDERS WHEN ISSUING LENDER NOT REIMBURSED.
Upon any drawing under a Letter of Credit, Issuing Lender shall notify
Administrative Agent and Borrower. If Borrower fails to timely make the payment
required pursuant to subsection (c) above, Issuing Lender shall notify
Administrative Agent of such fact and the amount of such unreimbursed payment.
Administrative Agent shall promptly notify each Lender of its Pro Rata Share of
such amount by Requisite Notice. Each Lender shall make funds in an amount equal
its Pro Rata Share of such amount available to Administrative Agent at
Administrative Agent's Office not later than the Requisite Time on the Business
Day specified by Administrative Agent, and Administrative Agent shall remit the
funds so received to reimburse Issuing Lender. The obligation of each Lender to
so reimburse Issuing Lender shall be absolute and unconditional and shall not be
affected by the occurrence of an Event of Default or any other occurrence or
event. Any such reimbursement shall not relieve or otherwise impair the
obligation of Borrower to reimburse Issuing Lender for the amount of any payment
made by Issuing Lender under any Letter of Credit, together with interest as
provided herein.
(e) NATURE OF LENDERS' FUNDING. If the conditions precedent
set forth in Section 4 can be satisfied (except for the giving of a Request for
Extension of Credit) on the date Borrower is obligated to make, but fails to
make, a reimbursement of a payment under a Letter of Credit, the funding by
Lenders pursuant to subsection (d) above shall be deemed to be part of a
Borrowing of Loans which are Base Rate Loans (without regard to the Minimum
Amount therefor) requested by Borrower. If the conditions precedent set forth in
Section 4 cannot be satisfied on the date Borrower is obligated to make, but
fails to make, a reimbursement of a
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payment under a Letter of Credit, the funding by Lenders pursuant to subsection
(d) above shall be deemed to be a funding by each Lender of its participation in
such Letter of Credit, and such funds shall be payable by Borrower upon demand
and shall bear interest at the Default Rate payable on demand, and each Lender
making such funding shall thereupon acquire a pro rata participation, to the
extent of such reimbursement, in the claim of Issuing Lender against Borrower in
respect of such payment and shall share, in accordance with that pro rata
participation, in any payment made by Borrower with respect to such claim. If
Administrative Agent or Issuing Lender is required at any time to return to
Borrower, or to a trustee, receiver, liquidator, custodian, or any official
under any proceeding under Debtor Relief Laws, any portion of the payments made
by Borrower to Administrative Agent for the account of Issuing Lender pursuant
to this subsection in reimbursement of a payment made under a Letter of Credit
or interest or fee thereon, each Lender shall, on demand of Administrative
Agent, forthwith return to Administrative Agent or Issuing Lender the amount of
its Pro Rata Share of any amounts so returned by Administrative Agent or Issuing
Lender plus interest thereon from the date such demand is made to the date such
amounts are returned by such Lender to Administrative Agent or Issuing Lender,
at a rate per annum equal to the daily Federal Funds Rate.
(f) SPECIAL PROVISIONS RELATING TO EVERGREEN LETTERS OF
CREDIT. Borrower may request Letters of Credit that have automatic extension or
renewal provisions ("evergreen" Letters of Credit) so long as Issuing Lender has
the right to not permit any such extension or renewal at least annually within a
notice period to be agreed upon at the time each such Letter of Credit is
issued. Once an evergreen Letter of Credit is issued, unless Administrative
Agent has notified Issuing Lender that all Lenders have elected not to permit
such extension or renewal, the Borrower Parties, Administrative Agent and
Lenders shall be deemed to authorize (but may not require) Issuing Lender to, in
its sole and absolute discretion, permit the renewal of such evergreen Letter of
Credit at any time to a date not later than the Letter of Credit Expiration
Date, and, unless directed by Issuing Lender, Borrower shall not be required to
request such extension or renewal. Notwithstanding the foregoing, Issuing Lender
may, in its sole and absolute discretion, upon not less than 60 days' advance
written notice to Borrower, elect not to permit an evergreen Letter of Credit to
be extended or renewed at any time.
(g) OBLIGATIONS ABSOLUTE. The obligation of Borrower to pay to
Issuing Lender the amount of any payment made by Issuing Lender under any Letter
of Credit shall be absolute, unconditional, and irrevocable. Without limiting
the foregoing, Borrower's obligation shall not be affected by any of the
following circumstances:
(i) any lack of validity or enforceability of the
Letter of Credit, this Agreement, or any other agreement or instrument relating
thereto;
(ii) any amendment or waiver of or any consent to
departure from the Letter of Credit, this Agreement, or any other agreement or
instrument relating thereto;
(iii) the existence of any claim, setoff, defense, or
other rights which Borrower may have at any time against Issuing Lender,
Administrative Agent or any Lender, any beneficiary of the Letter of Credit (or
any persons or entities for whom any such beneficiary may
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be acting) or any other Person, whether in connection with the Letter of Credit,
this Agreement, or any other agreement or instrument relating thereto, or any
unrelated transactions;
(iv) any demand, statement, or any other document
presented under the Letter of Credit proving to be forged, fraudulent, invalid,
or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever so long as any such document appeared to
comply with the terms of the Letter of Credit;
(v) payment by Issuing Lender in good faith under the
Letter of Credit against presentation of a draft or any accompanying document
which does not strictly comply with the terms of the Letter of Credit; or any
payment made by Issuing Lender under any Letter of Credit to any Person
purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the
benefit of creditors, liquidator, receiver or other representative of or
successor to any beneficiary or any transferee of any Letter of Credit,
including any arising in connection with any proceeding under any Debtor Relief
Laws;
(vi) the existence, character, quality, quantity,
condition, packing, value or delivery of any property purported to be
represented by documents presented in connection with any Letter of Credit or
for any difference between any such property and the character, quality,
quantity, condition, or value of such property as described in such documents;
(vii) the time, place, manner, order or contents of
shipments or deliveries of property as described in documents presented in
connection with any Letter of Credit or the existence, nature and extent of any
insurance relative thereto;
(viii) the solvency or financial responsibility of
any party issuing any documents in connection with a Letter of Credit;
(ix) any failure or delay in notice of shipments or
arrival of any property;
(x) any error in the transmission of any message
relating to a Letter of Credit not caused by Issuing Lender, or any delay or
interruption in any such message;
(xi) any error, neglect or default of any
correspondent of Issuing Lender in connection with a Letter of Credit;
(xii) any consequence arising from acts of God, wars,
insurrections, civil unrest, disturbances, labor disputes, emergency conditions
or other causes beyond the control of Issuing Lender;
(xiii) so long as Issuing Lender in good faith
determines that the document appears to comply with the terms of the Letter of
Credit, the form, accuracy, genuineness or legal effect of any contract or
document referred to in any document submitted to Issuing Lender in connection
with a Letter of Credit; and
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(xiv) where Issuing Lender has acted in good faith
under any other circumstances whatsoever.
In addition, Borrower will promptly examine a copy of each Letter of
Credit and amendments thereto delivered to it and, in the event of any claim of
noncompliance with Borrower's instructions or other irregularity, Borrower will
promptly notify Issuing Lender in writing. Borrower shall be conclusively deemed
to have waived any such claim against Issuing Lender and its correspondents
unless such notice is given as aforesaid.
(h) ROLE OF ISSUING LENDER. Each Lender and Borrower Party
agree that, in paying any drawing under a Letter of Credit, Issuing Lender shall
not have any responsibility to obtain any document (other than any sight draft,
certificates and documents expressly required by the Letter of Credit) or to
ascertain or inquire as to the validity or accuracy of any such document or the
authority of the Person executing or delivering any such document. No
Administrative Agent-Related Person nor any of the respective correspondents,
participants or assignees of Issuing Lender shall be liable to any Lender for
any action taken or omitted in connection herewith at the request or with the
approval of Lenders or the Required Lenders, as applicable; any action taken or
omitted in the absence of gross negligence or willful misconduct as determined
in a final, nonappealable judgment by a court of competent jurisdiction; or the
due execution, effectiveness, validity or enforceability of any document or
instrument related to any Letter of Credit. Borrower hereby assumes all risks of
the acts or omissions of any beneficiary or transferee with respect to its use
of any Letter of Credit; provided, however, that this assumption is not intended
to, and shall not, preclude Borrower's pursuing such rights and remedies as it
may have against the beneficiary or transferee at law or under any other
agreement. No Administrative Agent-Related Person, nor any of the respective
correspondents, participants or assignees of Issuing Lender, shall be liable or
responsible for any of the matters described in subsection (g) above. In
furtherance and not in limitation of the foregoing, Issuing Lender may accept
documents that appear on their face to be in order, without responsibility for
further investigation, regardless of any notice or information to the contrary,
and Issuing Lender shall not be responsible for the validity or sufficiency of
any instrument transferring or assigning or purporting to transfer or assign a
Letter of Credit or the rights or benefits thereunder or proceeds thereof, in
whole or in part, which may prove to be invalid or ineffective for any reason;
provided that the Issuing Lender shall be responsible for its gross negligence
or willful misconduct as determined in a final, nonappealable judgment by a
court of competent jurisdiction.
(i) APPLICABILITY OF ISP98. Unless otherwise expressly agreed
by the Issuing Lender and Borrower when a Letter of Credit is issued,
performance under Letters of Credit by the Issuing Lender, its correspondents,
and beneficiaries will be governed by the rules of the "International Standby
Practices 1998" (ISP98) or such later revision as may be published by the
International Chamber of Commerce.
(j) LETTER OF CREDIT FEE. On each Applicable Payment Date,
Borrower shall pay to Administrative Agent in arrears, for the account of each
Lender in accordance with its Pro Rata Share, a Letter of Credit fee equal to
the indicated Applicable Amount for Letters of Credit times the actual daily
maximum amount available to be drawn under each Letter of Credit since
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the later of the TTI Closing Date and the previous Applicable Payment Date. If
there is any change in the Applicable Amount during any quarter, the actual
daily amount shall be computed and multiplied by the Applicable Amount
separately for each period during such quarter that such Applicable Amount was
in effect.
(k) FRONTING FEE AND DOCUMENTARY AND PROCESSING CHARGES
PAYABLE TO ISSUING LENDER. Borrower shall pay to Administrative Agent for the
sole account of Issuing Lender a fronting fee in an amount equal to 1/8 of 1%
per annum on the daily average face amount thereof, payable quarterly in arrears
on each Applicable Payment Date. In addition, Borrower shall pay directly to
Issuing Lender for its sole account its customary documentary and processing
charges in accordance with its standard schedule, as from time to time in
effect, for any Letter of Credit Action or other occurrence relating to a Letter
of Credit for which such charges are customarily made. Such fees and charges are
nonrefundable.
2.04 SWING LINE.
(a) Subject to the terms and conditions set forth in this
Agreement, Swing Line Lender agrees to make Swing Line Loans from the TTI
Closing Date until the Maturity Date in such amounts as Borrower may from time
to time request; provided, however, that (i) the aggregate principal amount of
all Swing Line Loans shall not exceed the Swing Line Commitment, and (ii) the
Outstanding Obligations of each Lender shall not exceed such Lender's Commitment
and the Outstanding Obligations of all Lenders shall not exceed the combined
Commitments at any time. No Swing Line Loan shall be made during the
continuation of an Event of Default without the consent of the Required Lenders
(or, if the waiver of any such Event of Default requires the consent of all
Lenders under Section 10.01, all Lenders) and Swing Line Lender. Borrower may
borrow, repay and reborrow under this Section. Unless notified to the contrary
by Swing Line Lender, Borrowings under the Swing Line shall be made in the
Minimum Amount therefor upon Requisite Notice made to Swing Line Lender not
later than the Requisite Time therefor. Each such request for a Swing Line Loan
shall constitute a representation and warranty by Borrower that the conditions
set forth in Sections 4.04(a) and (b) are satisfied. Promptly after receipt of
such request, Swing Line Lender shall obtain telephonic verification from
Administrative Agent that there is availability for such Swing Line Loan under
the Commitments. Unless notified to the contrary by Swing Line Lender, each
repayment of a Swing Line Loan shall be made directly to Swing Line Lender in
the Minimum Amount therefor by payment or debit at a demand deposit account at
the Swing Line Lender. All payments received after the Requisite Time therefor
shall be deemed received on the next succeeding Business Day. Swing Line Lender
shall promptly notify Administrative Agent of the Swing Line Outstandings each
time there is a change therein. Upon the making of a Swing Line Loan, each
Lender shall be deemed to have purchased from Swing Line Lender a risk
participation therein in an amount equal to that Lender's Pro Rata Share times
the amount of the Swing Line Loan.
(b) Swing Line Loans shall bear interest at a fluctuating rate
per annum equal to the rate of interest payable on Base Rate Loans (plus the
Applicable Amount, if any) payable on such dates, not more frequent than
monthly, as may be specified by Swing Line Lender and,
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in any event, on the Maturity Date. Interest on Swing Line Loans shall be
payable upon demand of Swing Line Lender, and Swing Line Lender shall be
responsible for invoicing Borrower for such interest. The interest payable on
Swing Line Loans is solely for the account of Swing Line Lender.
(c) Each Swing Line Loan shall be payable on the earliest of
(i) the fifth Business Day after it is made and (ii) the Maturity Date.
(d) Unless Borrower has made other arrangements satisfactory
to Swing Line Lender in Swing Line Lender's sole discretion, if any Swing Line
Loan remains outstanding in excess of five consecutive Business Days, then on
the next Business Day, Borrower shall repay such Swing Line Loan by payment
directly to Swing Line Lender or by debit at a demand deposit account at Swing
Line Lender not later than the Requisite Time for payments hereunder. Borrower
shall also pay accrued interest on any principal amount so repaid.
(e) If Borrower fails to timely make any principal or interest
payment required pursuant to subsection (d) above, Swing Line Lender shall
notify Administrative Agent of such fact and the unpaid amount. Administrative
Agent shall promptly notify each Lender of its Pro Rata Share of such amount by
Requisite Notice. Each Lender shall make funds in an amount equal its Pro Rata
Share of such amount available to Administrative Agent at Administrative Agent's
Office not later than the Requisite Time for payments hereunder on the following
Business Day. The obligation of each Lender to make such payment shall be
absolute and unconditional and shall not be affected by the occurrence of an
Event of Default or any other occurrence or event. Any such payment shall not
relieve or otherwise impair the obligation of Borrower to repay Swing Line
Lender for any amount of Swing Line Loans, together with interest as provided
herein.
(f) If the conditions precedent set forth in Section 4 can be
satisfied (except for the giving of a Request for Extension of Credit) on any
date Borrower is obligated to make, but fails to make, a repayment of Swing Line
Loans, the funding by Lenders pursuant to subsection (e) above shall be deemed
to be part of a Borrowing of Loans which are Base Rate Loans (without regard to
the Minimum Amount therefor) requested by Borrower. If the conditions precedent
set forth in Section 4 cannot be satisfied on the date Borrower is obligated to
make, but fails to make, such payment, the funding by Lenders pursuant to
subsection (e) above shall be deemed to be a funding by each Lender of its
participation in such Swing Line Loans, and such funds shall be payable by
Borrower upon demand and shall bear interest at the Default Rate, and each
Lender making such funding shall thereupon acquire a pro rata participation, to
the extent of such payment, in the claim of Swing Line Lender against Borrower
in respect of such payment and shall share, in accordance with that pro rata
participation, in any payment made by Borrower with respect to such claim.
2.05 PREPAYMENTS.
(a) Upon Requisite Notice to Administrative Agent not later
than the Requisite Time therefor, Borrower may at any time and from time to time
voluntarily prepay
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Loans in part in the Minimum Amount therefor or in full without premium or
penalty. Administrative Agent will promptly notify each Lender thereof and of
such Lender's Pro Rata Share of such prepayment. Any prepayment of a Eurodollar
Rate Loan shall be accompanied by all accrued interest thereon, together with
the costs set forth in Section 3.05.
(b) If for any reason the Outstanding Obligations exceed the
combined Commitments as in effect or as reduced or because of any limitation set
forth in this Agreement or otherwise, Borrower shall immediately prepay Loans
and/or deposit cash in a Letter of Credit Cash Collateral Account in an
aggregate amount equal to such excess.
2.06 REDUCTION OR TERMINATION OF COMMITMENTS. Upon Requisite Notice to
Administrative Agent not later than the Requisite Time therefor, Borrower may at
any time and from time to time, without premium or penalty, permanently and
irrevocably reduce the Commitments in a Minimum Amount therefor to an amount not
less than the Outstanding Obligations at such time or terminate the Commitments.
Any such reduction or termination shall be accompanied by payment of all accrued
and unpaid fees payable under Section 2.08 with respect to the portion of the
Commitments being reduced or terminated. Administrative Agent shall promptly
notify Lenders of any such request for reduction or termination of the
Commitments. Each Lender's Commitment shall be reduced by an amount equal to
such Lender's Pro Rata Share times the amount of such reduction.
2.07 PRINCIPAL AND INTEREST.
(a) If not sooner paid, Borrower agrees to pay the outstanding
principal amount of each Loan on the Maturity Date.
(b) Subject to subsection (c) below, Borrower shall pay
interest on the unpaid principal amount of each Loan (before and after default,
before and after maturity, before and after judgment, and before and after the
commencement of any proceeding under any Debtor Relief Laws) from the date
borrowed until paid in full (whether by acceleration or otherwise) on each
Applicable Payment Date at a rate per annum equal to the interest rate
determined in accordance with the definition of such type of Loan, plus, to the
extent applicable in each case, the Applicable Amount.
(c) If any amount payable by any Borrower Party under any Loan
Document is not paid when due (without regard to any applicable grace periods),
it shall thereafter bear interest (after as well as before entry of judgment
thereon to the extent permitted by law) at a fluctuating interest rate per annum
at all times equal to the Default Rate to the fullest extent permitted by
applicable Law. Accrued and unpaid interest on past due amounts (including
interest on past due interest) shall be payable upon demand.
2.08 FEES.
(a) UTILIZATION FEE. After the consummation of a Qualified
Public Offering, Borrower shall pay to Administrative Agent for the account of
each Lender pro rata according to
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its Pro Rata Share, a utilization fee (the "Utilization Fee") equal to the
Applicable Amount times the actual daily amount of the Outstanding Obligations
(including Swing Line Loans) in respect of each day on which the actual daily
amount of such Outstanding Obligations exceeds an amount equal to 50% of the
combined Commitments. The utilization fee shall accrue at all times from and
after the consummation of a Qualified Public Offering until the Maturity Date
and shall be payable quarterly in arrears on each Applicable Payment Date. The
utilization fee shall be calculated quarterly in arrears, and if there is any
change in the Applicable Amount during any quarter, the actual daily amount
shall be computed and multiplied by the Applicable Amount separately for each
period during such quarter that such Applicable Amount was in effect.
(b) FACILITY FEE. Borrower shall pay to Administrative Agent
for the account of each Lender a facility fee equal to the Applicable Amount
times the actual daily amount of each Lender's Commitment, regardless of usage.
The facility fee shall accrue at all times from the Signing Date until the
Maturity Date and shall be payable quarterly in arrears on each Applicable
Payment Date. The facility fee shall be calculated quarterly in arrears, and if
there is any change in the Applicable Amount during any quarter, the actual
daily amount shall be computed and multiplied by the Applicable Amount
separately for each period during such quarter that such Applicable Amount was
in effect. The facility fee shall accrue at all times, including at any time
during which one or more conditions in Section 4 are not met.
(c) AGENT FEES. Borrower shall pay to Administrative Agent an
agency fee and such other fees, if any, in such amounts and at such times as set
forth in a separate letter agreement or agreements among Borrower,
Administrative Agent and Arranger. The agency fee is for the services to be
performed by Administrative Agent in acting as Administrative Agent and is fully
earned on the date paid. Any such fees paid to Administrative Agent are solely
for its own account and are nonrefundable.
(d) STRUCTURING AND SYNDICATING FEE. On the Signing Date,
Borrower shall pay to the Arranger a structuring and syndicating fee in the
amount set forth in a separate letter agreement among Borrower, Administrative
Agent and Arranger. Such arrangement fee is for the services of Arranger in
structuring and syndicating the credit facilities under this Agreement and is
fully earned on the date paid. The structuring and syndicating fee paid to
Arranger is solely for its own account and is nonrefundable.
(e) LENDERS' UPFRONT FEE. On the earlier of ALT Closing Date
and the Maturity Date, Borrower shall pay to Administrative Agent, for the
respective accounts of Lenders pro rata according to their Pro Rata Share, an
upfront fee in an amount set forth in a separate letter from the Arranger to
each Lender and acknowledged by that Lender as the applicable upfront fee for
such Lender. Such upfront fees are for the combined Commitments made by each
Lender under this Agreement and are fully earned on the date paid. The upfront
fee paid to each Lender is solely for its own account and is nonrefundable.
2.09 COMPUTATION OF INTEREST AND FEES. Computation of interest on Base
Rate Loans when the Base Rate is determined by Bank of America's "prime rate"
shall be calculated on the basis of a year of 365 or 366 days, as the case may
be, and the actual number of days elapsed.
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Computation of all other types of interest and all fees shall be calculated on
the basis of a year of 360 days and the actual number of days elapsed, which
results in a higher yield to Lenders than a method based on a year of 365 or 366
days. Interest shall accrue on each Loan for the day on which the Loan is made,
and shall not accrue on a Loan, or any portion thereof, for the day on which the
Loan or such portion is paid, provided that any Loan that is repaid on the same
day on which it is made shall bear interest for one day.
2.10 MAKING PAYMENTS.
(a) Except as otherwise provided herein, all payments by
Borrower or any Lender shall be made to Administrative Agent at Administrative
Agent's Office not later than the Requisite Time for such type of payment. All
payments received after such Requisite Time shall be deemed received on the next
succeeding Business Day. All payments shall be made in immediately available
funds in Dollars. All payments by Borrower shall be made without condition or
deduction for any counterclaim, defense, recoupment or setoff.
(b) Upon satisfaction of any applicable terms and conditions
set forth herein, Administrative Agent shall promptly make any amounts received
in accordance with the prior subsection available in like funds received as
follows: (i) if payable to Borrower, by crediting or by wire transfer to the
Designated Deposit Account, and (ii) if payable to any Lender, by wire transfer
to such Lender at the address specified in Schedule 10.03.
(c) Subject to the definition of "Interest Period," if any
payment to be made by any Borrower Party shall come due on a day other than a
Business Day, payment shall instead be considered due on the next succeeding
Business Day, and such extension of time shall be reflected in computing
interest and fees.
(d) Except as otherwise provided in Section 2.03(c) with
respect to Borrower reimbursing drawings under Letters of Credit, unless
Borrower or any Lender has notified Administrative Agent prior to the date any
payment to be made by it is due, that it does not intend to remit such payment,
Administrative Agent may, in its sole and absolute discretion, assume that
Borrower or such Lender, as the case may be, has timely remitted such payment
and may, in its sole and absolute discretion and in reliance thereon, make
available such payment to the Person entitled thereto. If such payment was not
in fact remitted to Administrative Agent in immediately available funds, then:
(i) if Borrower failed to make such payment, each
Lender shall forthwith on demand repay to Administrative Agent the amount of
such assumed payment made available to such Lender, together with interest
thereon in respect of each day from and including the date such amount was made
available by Administrative Agent to such Lender to the date such amount is
repaid to Administrative Agent at the Federal Funds Rate; and
(ii) if any Lender failed to make such payment,
Administrative Agent shall be entitled to recover such corresponding amount on
demand from such Lender. If such Lender does not pay such corresponding amount
forthwith upon Administrative Agent's demand
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therefor, Administrative Agent promptly shall notify Borrower, and Borrower
shall pay such corresponding amount to Administrative Agent. Administrative
Agent also shall be entitled to recover interest on such corresponding amount in
respect of each day from the date such corresponding amount was made available
by Administrative Agent to Borrower to the date such corresponding amount is
recovered by Administrative Agent, (A) from such Lender at a rate per annum
equal to the daily Federal Funds Rate, and (B) from Borrower, at a rate per
annum equal to the interest rate applicable to such Borrowing. Nothing herein
shall be deemed to relieve any Lender from its obligation to fulfill its
Commitment or to prejudice any rights which Administrative Agent or Borrower may
have against any Lender as a result of any default by such Lender hereunder.
2.11 FUNDING SOURCES. Nothing in this Agreement shall be deemed to
obligate any Lender to obtain the funds for any Loan in any particular place or
manner or to constitute a representation by any Lender that it has obtained or
will obtain the funds for any Loan in any particular place or manner.
2.12 RELEASE OF ALT. Upon the effectiveness of the assumption by TTI
pursuant to the Assumption Agreement of the Obligations of ALT, ALT shall be
released in full from such Obligations (other than ALT's Obligations under the
ALT Subordination Agreement) and shall have no further Obligations under the
Loan Documents (except for its Obligations under the ALT Subordination
Agreement), in each case, without further action on the part of Administrative
Agent or any Lender. In connection with such release, Administrative Agent shall
execute all such further documents and instruments as may be reasonably
requested by ALT in order to more fully evidence or effect such release. All
such deliveries shall be at the expense of ALT, with no liability to
Administrative Agent or any Lender, and with no representation or warranty by or
recourse to Administrative Agent or any Lender. Promptly upon the effectiveness
of the assumption by TTI pursuant to the Assumption Agreement of the Obligations
of ALT, Administrative Agent shall deliver the ALT Global Note to ALT, marked
"cancelled".
SECTION 3.
TAXES, YIELD PROTECTION AND ILLEGALITY
3.01 TAXES.
(a) Any and all payments by Borrower to or for the account of
Administrative Agent or any Lender under any Loan Document shall be made free
and clear of and without deduction for any and all present or future taxes,
duties, levies, imposts, deductions, assessments, fees, withholdings or similar
charges, and all liabilities with respect thereto, excluding, in the case of
Administrative Agent and any Lender, taxes imposed on or measured by its net
income, and franchise taxes imposed on it (in lieu of net income taxes), by the
jurisdiction (or any political subdivision thereof) under the Laws of which
Administrative Agent or such Lender, as the case may be, is organized or
maintains a lending office (all such non-excluded taxes, duties, levies,
imposts, deductions, assessments, fees, withholdings or similar charges, and
liabilities being hereinafter referred to as "Taxes"). If Borrower shall be
required by any Laws to deduct any Taxes from or in respect of any sum payable
under any Loan Document to Administrative
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Agent or any Lender, (i) the sum payable shall be increased as necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section), Administrative Agent and such
Lender receives an amount equal to the sum it would have received had no such
deductions been made, (ii) Borrower shall make such deductions, (iii) Borrower
shall pay the full amount deducted to the relevant taxation authority or other
authority in accordance with applicable Laws, and (iv) within 30 days after the
date of such payment, Borrower shall furnish to Administrative Agent (who shall
forward the same to such Lender) the original or a certified copy of a receipt
evidencing payment thereof.
(b) In addition, Borrower agrees to pay any and all present or
future stamp, court or documentary taxes and any other excise or property taxes
or charges or similar levies which arise from any payment made under any Loan
Document or from the execution, delivery, performance, enforcement or
registration of, or otherwise with respect to, any Loan Document (hereinafter
referred to as "Other Taxes").
(c) If Borrower shall be required by the Laws of any
jurisdiction outside the United States to deduct any Taxes from or in respect of
any sum payable under any Loan Document to Administrative Agent or any Lender,
Borrower shall also pay to such Lender or Administrative Agent (for the account
of such Lender), at the time interest is paid, such additional amount that the
respective Lender specifies as necessary to preserve the after-tax yield (after
factoring in United States (federal and state) taxes imposed on or measured by
net income) the Lender would have received if such deductions (including
deductions applicable to additional sums payable under this Section) had not
been made.
(d) Borrower agrees to indemnify Administrative Agent and each
Lender for the full amount of Taxes and Other Taxes (including any Taxes or
Other Taxes imposed or asserted by any jurisdiction on amounts payable under
this Section) paid by Administrative Agent and such Lender and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto. The obligations of Borrower under this subsection shall survive payment
of all Obligations.
3.02 ILLEGALITY. If any Lender determines that any Laws have made it
unlawful, or that any Governmental Authority has asserted that it is unlawful,
for any Lender or its applicable Lending Office to make, maintain or fund
Eurodollar Rate Loans, or materially restricts the authority of such Lender to
purchase or sell, or to take deposits of, Dollars in the applicable eurodollar
market, or to determine or charge interest rates based upon the Eurodollar Rate,
then, on notice thereof by Lender to Borrower through Administrative Agent, any
obligation of that Lender to make Eurodollar Rate Loans shall be suspended until
Lender notifies Administrative Agent and Borrower that the circumstances giving
rise to such determination no longer exist. Upon receipt of such notice,
Borrower shall, upon demand from such Lender (with a copy to Administrative
Agent), prepay or Convert all Eurodollar Rate Loans of that Lender, either on
the last day of the Interest Period thereof, if Lender may lawfully continue to
maintain such Eurodollar Rate Loans to such day, or immediately, if Lender may
not lawfully continue to maintain such Eurodollar Rate Loans. Each Lender agrees
to designate a different Lending
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Office if such designation will avoid the need for such notice and will not, in
the good faith judgment of such Lender, otherwise be materially disadvantageous
to such Lender.
3.03 INABILITY TO DETERMINE RATES. If, in connection with any Request
for Extension of Credit involving any Eurodollar Rate Loan, Administrative Agent
determines that (a) Dollar deposits are not being offered to banks in the
applicable eurodollar market for the applicable amount and Interest Period of
the requested Eurodollar Rate Loan, (b) adequate and reasonable means do not
exist for determining the underlying interest rate for such Eurodollar Rate
Loan, or (c) such underlying interest rate does not adequately and fairly
reflect the cost to any Lender of funding such Eurodollar Rate Loan,
Administrative Agent will promptly notify Borrower and all Lenders. Thereafter,
the obligation of all Lenders to make or maintain such Eurodollar Rate Loan
shall be suspended until Administrative Agent revokes such notice. Upon receipt
of such notice, Borrower may revoke any pending request for a Borrowing of
Eurodollar Rate Loans or, failing that, be deemed to have converted such request
into a request for a Borrowing of Base Rate Loans in the amount specified
therein.
3.04 INCREASED COST AND REDUCED RETURN; CAPITAL ADEQUACY.
(a) If after the Signing Date any Lender determines that the
adoption of or any change in any Laws or in the interpretation or application
thereof or compliance by such Lender therewith:
(i) subjects such Lender to any Tax, duty, or other
charge with respect to any Eurodollar Rate Loans or its obligation to make
Eurodollar Rate Loans, or changes the basis on which taxes are imposed on any
amounts payable to such Lender under this Agreement in respect of any Eurodollar
Rate Loans;
(ii) shall impose or modify any reserve, special
deposit, or similar requirement (other than the reserve requirement utilized in
the determination of the Eurodollar Rate) relating to any extensions of credit
or other assets of, or any deposits with or other liabilities or commitments of,
such Lender (including its Commitment); or
(iii) shall impose on such Lender or on the
eurodollar interbank market any other condition affecting this Agreement or any
of such extensions of credit or liabilities or commitments;
and the result of any of the foregoing is to increase the cost to such Lender of
making, Converting into, Continuing, or maintaining any Eurodollar Rate Loans or
to reduce any sum received or receivable by such Lender under this Agreement
with respect to any Eurodollar Rate Loans, then from time to time upon demand of
such Lender (with a copy of such demand to Administrative Agent), Borrower shall
pay to such Lender such additional amounts as will compensate such Lender for
such increased cost or reduction.
(b) If after the Signing Date any Lender determines that any
change in or the interpretation of any Laws have the effect of reducing the rate
of return on the capital of such
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Lender or compliance by such Lender (or its Lending Office) or any corporation
controlling such Lender as a consequence of such Lender's obligations hereunder
(taking into consideration its policies with respect to capital adequacy and
such Lender's desired return on capital), then from time to time upon demand of
such Lender (with a copy to Administrative Agent), Borrower shall pay to such
Lender such additional amounts as will compensate such Lender for such
reduction.
3.05 BREAKFUNDING COSTS. Upon demand of any Lender (with a copy to
Administrative Agent) from time to time, Borrower shall promptly compensate such
Lender for and hold such Lender harmless from any loss, cost or expense incurred
by it as a result of:
(a) any Continuation, Conversion, payment or prepayment of any
Loan other than a Base Rate Loan on a day other than the last day of the
Interest Period for such Loan (whether voluntary, mandatory, automatic, by
reason of acceleration, or otherwise); or
(b) any failure by Borrower (for a reason other than the
failure of such Lender to make a Loan) to prepay, borrow, Continue or Convert
any Loan other than a Base Rate Loan on the date or in the amount notified by
Borrower;
including any loss of anticipated profits and any loss or expense arising from
the liquidation or reemployment of funds obtained by it to maintain such Loan or
from fees payable to terminate the deposits from which such funds were obtained.
Borrower shall also pay any customary administrative fees charged by such Lender
in connection with the foregoing.
3.06 MATTERS APPLICABLE TO ALL REQUESTS FOR COMPENSATION.
(a) A certificate of Administrative Agent claiming
compensation under this Section 3 and setting forth the additional amount or
amounts to be paid to it hereunder shall be conclusive in the absence of clearly
demonstrable error. In determining such amount, Administrative Agent may use any
reasonable averaging and attribution methods. For purposes of this Section 3, a
Lender shall be deemed to have funded each Eurodollar Rate Loan at the
Eurodollar Base Rate used in determining the Eurodollar Rate for such Loan by a
matching deposit or other borrowing in the eurodollar interbank market, whether
or not such Eurodollar Rate Loan was in fact so funded.
(b) Upon any Lender making a claim for compensation under
Sections 3.01 or 3.04, Borrower may remove and replace such Lender in accordance
with Section 10.23.
3.07 SURVIVAL. All of Borrower's obligations under this Section 3 shall
survive termination of the Commitments and payment in full of all Obligations.
SECTION 4.
CONDITIONS PRECEDENT
4.01 CONDITIONS TO EFFECTIVENESS OF THE CREDIT AGREEMENT. The
effectiveness of this Agreement is subject to satisfaction of the following
conditions precedent:
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(a) Unless waived by all Lenders (or by Administrative Agent
with respect to immaterial matters, or items specified in subsections (iv) or
(v) below, that the Borrower has given assurances reasonably satisfactory to
Administrative Agent that they will be delivered promptly following the Signing
Date), Administrative Agent's receipt of the following, each of which shall be
originals unless otherwise specified, each properly executed by a Responsible
Officer of each applicable Borrower Party, each dated on or about the Signing
Date and each in form and substance reasonably satisfactory to Administrative
Agent and its legal counsel:
(i) executed counterparts of this Agreement and the
ALT Subordination Agreement, sufficient in number for distribution to
Administrative Agent, Lenders, ALT and TTI;
(ii) the ALT Global Note executed by ALT in favor of
Administrative Agent for the account of each Lender, in a principal amount equal
to the combined Commitments;
(iii) such certificates or resolutions or other
action, incumbency certificates and/or other certificates of Responsible
Officers of each Borrower Party as Administrative Agent may reasonably require
to establish the identities of and verify the authority and capacity of each
Responsible Officer thereof authorized to act as a Responsible Officer thereof;
(iv) certified copies of each Borrower Party's
Organization Documents and a certificate of good standing for each Borrower
Party in its jurisdiction of organization;
(v) a certificate signed by a Responsible Officer of
ALT certifying that (A) the conditions specified in Sections 4.01(c) and 4.01(d)
have been satisfied, and (B) there has been no event or circumstance since
December 31, 1998 which would reasonably be expected to have a Material Adverse
Effect;
(vi) opinions of counsel to ALT and TTI substantially
in the form of Exhibit E-1 hereto; and
(vii) such other assurances, certificates, documents,
consents or opinions as Administrative Agent, Issuing Lender or the Required
Lenders reasonably may require.
(b) Administrative Agent, Arranger, each Lender and/or their
respective Affiliates shall have received all fees and expenses required to be
paid on or before the Signing Date.
(c) The representations and warranties made by Borrower
herein, or which are contained in any certificate, document or financial or
other statement furnished at any time under or in connection herewith or
therewith, shall be true and correct in all material respects on and as of the
Signing Date.
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(d) Each Borrower Party shall be in compliance with all the
terms and provisions of the Loan Documents to which it is a party, and no
Default or Event of Default shall have occurred and be continuing.
(e) Borrower shall have paid all reasonable Attorney Costs of
Administrative Agent to the extent invoiced prior to or on the Signing Date,
plus such additional amounts of reasonable Attorney Costs as shall constitute
its reasonable estimate of reasonable Attorney Costs incurred or to be incurred
by it through the closing proceedings (provided that such estimate shall not
thereafter preclude final settling of accounts between Borrower and
Administrative Agent).
(f) Administrative Agent and Lenders shall have received the
Form 10 and all amendments thereto and the other Spinoff Documents (or, to the
extent not then finalized, the then current drafts thereof), including (x) the
form and substance of the private letter requests to the IRS regarding the tax
free treatment of the Spinoff, (y) the Private Letter Ruling, and (z) all
documents relating to the indemnification by TTI of ALT regarding the tax-free
treatment of the Spinoff (which indemnification shall be subordinated to the
prior payment in full of all Obligations pursuant to the ALT Subordination
Agreement), which documents shall, in each case, be reasonably satisfactory in
form and substance to Administrative Agent and the Lenders.
(g) The corporate, capital and ownership structure and
management of TTI and its Subsidiaries shall not have changed in any material
respect from that described in the Spinoff Documents (or, to the extent not then
finalized, the then current drafts thereof) provided to Administrative Agent and
Lenders pursuant to Section 4.01(f).
(h) There shall not have occurred a material adverse change
since December 31, 1998 in the business, assets, liabilities (actual or
contingent), operations, condition (financial or otherwise) or prospects of
Borrower and its Subsidiaries taken as a whole or of TTI and its Subsidiaries
taken as a whole or in the facts and information regarding such entities as
represented on or prior to the Signing Date.
(i) Administrative Agent and Lenders shall have received and
reviewed, with results reasonably satisfactory to Administrative Agent and
Lenders, information confirming that (a) ALT, TTI and their respective
Subsidiaries are taking all necessary and appropriate steps to ascertain the
extent of, and to quantify and successfully address, business and financial
risks facing ALT, TTI and their respective Subsidiaries as a result of what is
commonly referred to as the "Year 2000 problem" (i.e., the inability of certain
computer applications and devices containing imbedded computer chips to
recognize correctly and perform properly date-sensitive functions involving
certain dates prior to and after December 31, 1999), including risks resulting
from the failure of key vendors and customers of ALT, TTI and their respective
Subsidiaries to successfully address the Year 2000 problem, and (b) ALT's, TTI's
and their respective Subsidiaries' material computer applications and those of
their key vendors and customers will, on a timely basis, adequately address the
Year 2000 problem in all material respects.
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(j) All governmental and third party consents and approvals
required to be obtained on or before the Signing Date (other than any such
consents and approvals the failure of which to obtain on or before the Signing
Date would not reasonably be expected to have a Material Adverse Effect),
including but not limited to the consent of the lenders under the Existing ALT
Credit Agreement, necessary or desirable in connection with the Line of Business
Transfer, the Spinoff and the other transactions contemplated hereby and by the
Spinoff Documents shall have been obtained; all such consents and approvals
shall be in full force and effect; and all applicable waiting periods shall have
expired without any action being taken by any authority that could restrain,
prevent or impose any material adverse conditions on the Line of Business
Transfer, the Spinoff or such other transactions or that could seek to enjoin or
threaten any of the foregoing, and no Law shall be applicable which in the
reasonable judgment of Administrative Agent would reasonably be expected to have
such effect.
(k) There shall not exist (a) any order, decree, judgment,
ruling or injunction which restrains the consummation of the Spinoff or the
Extensions of Credit in the manner contemplated by the Spinoff Documents or the
Loan Documents, and (b) any pending or, to Borrower's knowledge, threatened
action, suit, investigation or proceeding, which would reasonably be expected to
materially and adversely affect ALT, TTI or any of their respective Material
Subsidiaries, any transaction contemplated hereby or by the Spinoff Documents or
the ability of ALT, TTI or any of their respective Subsidiaries to perform their
obligations under the Loan Documents or the ability of Lenders to exercise their
rights thereunder.
(l) Borrower shall have delivered to Administrative Agent a
certificate of a Responsible Officer of Borrower certifying that the insurance
required to be maintained pursuant to Section 6.06 is in full force and effect,
is adequate in nature and amount and complies in all material respects with
Borrower's and each Subsidiary's obligations under Section 6.06.
4.02 CONDITIONS OF INITIAL EXTENSION OF CREDIT TO ALT. The obligation
of each Lender to make the initial Extension of Credit to ALT is subject to
satisfaction of the following conditions precedent:
(a) Unless waived by all Lenders (or by Administrative Agent
with respect to immaterial matters, or items specified in subsections (ii) or
(iii) below, that the Borrower has given assurances reasonably satisfactory to
Administrative Agent that they will be delivered promptly following the ALT
Closing Date), Administrative Agent's receipt of the following, each of which
shall be originals unless otherwise specified, each properly executed by a
Responsible Officer of each applicable Borrower Party, each dated on or about
the ALT Closing Date and each in form and substance reasonably satisfactory to
Administrative Agent and its legal counsel:
(i) such certificates or resolutions or other action,
incumbency certificates and/or other certificates of Responsible Officers of
each Borrower Party as Administrative Agent may reasonably require to establish
the identities of and verify the authority and capacity of each Responsible
Officer thereof authorized to act as a Responsible Officer thereof;
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(ii) certified copies of each Borrower Party's
Organization Documents and a certificate of good standing for each Borrower
Party in its jurisdiction of organization;
(iii) a certificate signed by a Responsible Officer
of ALT certifying that (A) the conditions specified in Sections 4.02(c) and
4.02(d) have been satisfied, and (B) there has been no event or circumstance
since December 31, 1998 which would reasonably be expected to have a Material
Adverse Effect;
(iv) opinions of counsel to ALT and TTI substantially
in the form of Exhibit E-2 hereto; and
(v) such other assurances, certificates, documents,
consents or opinions as Administrative Agent, Issuing Lender or the Required
Lenders reasonably may require.
(b) Administrative Agent, Arranger, each Lender and/or their
respective Affiliates shall have received all fees and expenses required to be
paid on or before the ALT Closing Date.
(c) The representations and warranties made by Borrower
herein, or which are contained in any certificate, document or financial or
other statement furnished at any time under or in connection herewith or
therewith, shall be true and correct in all material respects on and as of the
ALT Closing Date.
(d) Each Borrower Party shall be in compliance with all the
terms and provisions of the Loan Documents to which it is a party, and no
Default or Event of Default shall have occurred and be continuing.
(e) All conditions precedent, if any, to the Spinoff set forth
in the Spinoff Documents (in each case, with no material modifications from such
documents (or, to the extent applicable, the drafts thereof) reviewed by Lenders
on or before the Signing Date) shall have been satisfied in accordance with the
terms thereof.
(f) All governmental and third party consents and approvals
(other than any such consents and approvals the failure of which to obtain on or
before the ALT Closing Date would not reasonably be expected to have a Material
Adverse Effect), including but not limited to (x) the consent of the lenders
under the Existing ALT Credit Agreement and (y) the receipt of the Private
Letter Ruling in form and substance satisfactory to all Lenders, and approvals
necessary or desirable in connection with the Line of Business Transfer, the
Spinoff and the other transactions contemplated hereby and by the Spinoff
Documents shall have been obtained; all such rulings, consents and approvals
shall be in full force and effect without modification; and all applicable
waiting periods shall have expired without any action being taken by any
authority that could restrain, prevent or impose any material adverse conditions
on the Line of Business Transfer, the Spinoff or such other transactions or that
would reasonably be expected to seek to
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enjoin or threaten any of the foregoing, and no Law shall be applicable which in
the reasonable judgment of Administrative Agent would reasonably be expected to
have such effect.
(g) There shall not exist (a) any order, decree, judgment,
ruling or injunction which restrains the consummation of the Line of Business
Transfer or the Spinoff or the Extensions of Credit in the manner contemplated
by the Spinoff Documents or the Loan Documents, and (b) any pending or, to
Borrower's knowledge, threatened action, suit, investigation or proceeding,
which would reasonably be expected to materially and adversely affect ALT, TTI
or any of their respective Material Subsidiaries, any transaction contemplated
hereby or by the Spinoff Documents or the ability of ALT, TTI or any of their
respective Subsidiaries to perform their obligations under the Loan Documents or
the ability of Lenders to exercise their rights thereunder.
(h) There shall not have occurred a material adverse change
since December 31, 1998 in the business, assets, liabilities (actual or
contingent), operations, condition (financial or otherwise) or prospects of ALT
and its Subsidiaries taken as a whole or of TTI and its Subsidiaries taken as a
whole or in the facts and information regarding such entities as represented on
or prior to the ALT Closing Date.
4.03 CONDITIONS TO ASSUMPTION OF OBLIGATIONS AND INITIAL EXTENSIONS OF
CREDIT TO TTI. The assumption by TTI of the Obligations of ALT (other than ALT's
Obligations under the ALT Subordination Agreement) and the obligation of each
Lender to make the initial Extensions of Credit to TTI are subject to
satisfaction of the following conditions precedent:
(a) Unless waived by all Lenders (or by Administrative Agent
with respect to immaterial matters, or items specified in subsections (iii) or
(iv) below, that Borrower has given assurances reasonably satisfactory to
Administrative Agent that they will be delivered promptly following the Signing
Date), Administrative Agent's receipt of the following, each of which shall be
originals unless otherwise specified, each properly executed by a Responsible
Officer of each applicable Borrower Party, each dated on or about the Signing
Date and each in form and substance reasonably satisfactory to Administrative
Agent and its legal counsel:
(i) executed counterparts of the Assumption
Agreement, the Guaranty and the Pledge Agreement, sufficient in number for
distribution to Administrative Agent, Lenders, ALT and TTI;
(ii) Notes executed by TTI in favor of each Lender
requesting a Note, each in a principal amount equal to that Lender's Commitment;
(iii) such certificates or resolutions or other
action, incumbency certificates and/or other certificates of Responsible
Officers of each Borrower Party as Administrative Agent may reasonably require
to establish the identities of and verify the authority and capacity of each
Responsible Officer thereof authorized to act as a Responsible Officer thereof;
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(iv) certified copies of each Borrower Party's
Organization Documents and a certificate of good standing for each Borrower
Party in its jurisdiction of organization;
(v) a certificate signed by a Responsible Officer of
each of ALT and TTI certifying that (A) the conditions specified in Sections
4.03(c) and 4.03(d) have been satisfied, and (B) there has been no event or
circumstance since December 31, 1998 which would reasonably be expected to have
a Material Adverse Effect;
(vi) opinions of counsel to ALT and TTI substantially
in the form of Exhibit E-3 hereto; and
(vii) such other assurances, certificates, documents,
consents or opinions as Administrative Agent, Issuing Lender or the Required
Lenders reasonably may require.
(b) Administrative Agent, Arranger, each Lender and/or their
respective Affiliates shall have received all fees and expenses required to be
paid on or before the TTI Closing Date.
(c) The representations and warranties made by Borrower
herein, or which are contained in any certificate, document or financial or
other statement furnished at any time under or in connection herewith or
therewith, shall be true and correct in all material respects on and as of the
TTI Closing Date.
(d) Each Borrower Party shall be in compliance with all the
terms and provisions of the Loan Documents to which it is a party, and no
Default or Event of Default shall have occurred and be continuing.
(e) Both the Line of Business Transfer and the Spinoff shall
have been (or shall concurrently be) consummated in accordance with the terms of
the Spinoff Documents (in each case, with no material modifications from such
documents (or, to the extent applicable, the drafts thereof) reviewed by
Administrative Agent and Lenders prior to the ALT Closing Date) and in
compliance in all material respects with applicable Law and regulatory
approvals. None of the Spinoff Documents shall have been altered, amended or
otherwise changed or supplemented in any material respect or any material
condition therein waived without the prior written consent of Administrative
Agent.
(f) There shall not exist (i) any order, decree, judgment,
ruling or injunction which restrains the consummation of the Line of Business
Transfer or the Spinoff or the Extensions of Credit in the manner contemplated
by the Spinoff Documents or the Loan Documents, and (ii) any pending or, to
Borrower's knowledge, threatened action, suit, investigation or proceeding,
which would reasonably be expected to materially and adversely affect ALT, TTI
or any of their respective Material Subsidiaries, any transaction contemplated
hereby or by the Spinoff Documents or the ability of ALT, TTI or any of their
respective
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Subsidiaries to perform their obligations under the Loan Documents or the
ability of Lenders to exercise their rights thereunder.
(g) After giving effect to the transactions contemplated by
the Line of Business Transfer and the Spinoff, and the assumption by TTI of
ALT's Obligations (other than ALT's Obligations under the ALT Subordination
Agreement) pursuant to the Assumption Agreement, (i) each of TTI and each of its
Subsidiaries, taken as a whole, Borrower and each Material Subsidiary shall be
Solvent, and (ii) the Leverage Ratio on such date shall be not greater than 3.0:
1.0, and, with respect to the matters set forth in clauses (i) and (ii), TTI
shall have delivered to Administrative Agent and all Lenders a certificate of
its chief financial officer (together with supporting calculations), in form and
substance satisfactory to Administrative Agent, to such effect.
(h) After giving effect to any outstanding Extensions of
Credit, the combined Commitments shall exceed the Outstanding Obligations by not
less than $100,000,000.
4.04 CONDITIONS TO ALL EXTENSIONS OF CREDIT. In addition to any
applicable conditions precedent set forth elsewhere in this Section 4 or in
Section 2, the obligation of each Lender to honor any Request for Extension of
Credit is subject to the following conditions precedent:
(a) the representations and warranties of Borrower contained
in Section 5, or which are contained in any certificate, document or financial
or other statement furnished at any time under or in connection herewith or
therewith, shall be true and correct in all material respects on and as of the
date of such Extension of Credit, except to the extent that such representations
and warranties specifically refer to any earlier date.
(b) no Default or Event of Default exists or would result from
such proposed Extension of Credit.
(c) Administrative Agent shall have timely received a Request
for Extension of Credit by Requisite Notice by the Requisite Time therefor.
(d) Administrative Agent shall have received, in form and
substance satisfactory to it, such other certificates, documents or consents
related to the foregoing as Administrative Agent or Required Lenders reasonably
may require.
Each Request for Extension of Credit by Borrower shall be deemed to be
a representation and warranty that the conditions specified in Sections 4.04(a)
and (b) have been satisfied and on and as of the date of such Extension of
Credit.
SECTION 5.
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Administrative Agent and Lenders
that:
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5.01 EXISTENCE AND QUALIFICATION; POWER; COMPLIANCE WITH LAWS. Each
Borrower Party is a corporation, partnership or limited liability company duly
organized or formed, validly existing and in good standing under the Laws of the
state of its incorporation or organization, has the power and authority and the
legal right to own and operate its properties, to lease the properties it
operates and to conduct its business, is duly qualified and in good standing
under the Laws of each jurisdiction where its ownership, lease or operation of
properties or the conduct of its business requires such qualification (other
than under the Laws of any jurisdiction in which the failure to be so qualified
as a foreign corporation or other entity would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect), and is in
compliance with all Laws except to the extent that noncompliance does not have a
Material Adverse Effect. As of the date hereof and as of the TTI Closing Date,
Teledyne Brown Engineering, Inc. is the only Material Subsidiary of TTI.
5.02 POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. Each Borrower Party
has the power and authority and the legal right to make, deliver and perform
each Loan Document and Spinoff Document to which it is a party and Borrower has
power and authority to Borrow and request the issuance of Letters of Credit
hereunder and has taken all necessary action to authorize the Borrowings and
other Extensions of Credit on the terms and conditions of this Agreement and to
authorize the execution, delivery and performance of this Agreement and the
other Loan Documents to which it is a party. No consent or authorization of,
filing with, or other act by or in respect of any Governmental Authority, is
required in connection with the Borrowings and other Extensions of Credit
hereunder or with the execution, delivery, performance, validity or
enforceability of this Agreement, or any of the other Loan Documents other than
any consent or authorization of, filing with, or other act by or in respect of
any Governmental Authority, the failure of which to have been obtained on or
before the date hereof would not reasonably be expected to have a Material
Adverse Effect. The Loan Documents have been duly executed and delivered by each
Borrower Party party thereto, and constitute a legal, valid and binding
obligation of each such Borrower Party, enforceable against each such Borrower
Party in accordance with their respective terms. On or before the ALT Closing
Date, each Borrower Party will have taken all necessary action to authorize the
execution, delivery and performance of the Spinoff Documents to which it is a
party. On and after the ALT Closing Date, no consent or authorization of, filing
with, or other act by or in respect of any Governmental Authority will be
required in connection the execution, delivery, performance, validity or
enforceability of any Spinoff Document, other than any consent or authorization
of, filing with, or other act by or in respect of any Governmental Authority,
the failure of which to have been obtained on or before the ALT Closing Date
would not reasonably be expected to have a Material Adverse Effect. Upon the due
authorization, execution and delivery by each Borrower Party party thereto, the
Spinoff Documents shall constitute a legal, valid and binding obligation of each
such Borrower Party, enforceable against each such Borrower Party in accordance
with their respective terms.
5.03 NO LEGAL BAR. Other than exceptions to any of the following (other
than the requirements of clause (a)(i) below) that would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect, the
execution, delivery, and performance by each Borrower Party of the Loan
Documents to which it is a party and compliance with the provisions thereof have
been duly authorized by all requisite action on the part of such Borrower Party
and do not and will not (a) violate or conflict with, or result in a breach of,
or require any consent under (i) any Organization Documents of such Borrower
Party or any of its Subsidiaries, (ii) any applicable Laws, rules, or
regulations or any order, writ, injunction, or decree of any Governmental
Authority or arbitrator, or (iii) any Contractual Obligation (including, without
limitation, on and after the ALT Closing Date any Spinoff Document) of such
Borrower Party or any of its Subsidiaries or by which any of them or any of
their property is bound or subject,
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(b) constitute a default under any such Contractual Obligation, or (c) result
in, or require, the creation or imposition of any Lien on any of the properties
of such Borrower Party or any of its Subsidiaries. Other than exceptions to any
of the following (other than the requirements of clause (a)(i) below), that
would not, individually or in the aggregate, reasonable be expected to have a
Material Adverse Effect, on and after the ALT Closing Date, the execution,
delivery and performance by each Borrower Party of the Spinoff Documents to
which it is a party and compliance with the provisions thereof will have been
duly authorized by all requisite action on the part of such Borrower Party and
will not (a) violate or conflict with, or result in a breach of, or require any
consent under (i) any Organizational Documents of such Borrower Party or any of
its Subsidiaries, (ii) any applicable Laws, rules or regulations or any order,
writ, injunction, or decree of any Governmental Authority or arbitrator, or
(iii) any Contractual Obligation (including, without limitation, any Spinoff
Document) of such Borrower Party or any of its Subsidiaries or by which any of
them or any of their property is bound or subject, (b) constitute a default
under any such Contractual Obligations, or (c) result in, or require, the
creation or imposition of any Lien on any of the properties of such Borrower
Party or any of its Subsidiaries. Neither the consummation of the transactions
contemplated by, nor the execution and delivery of, the Loan Documents and the
Spinoff Documents will constitute or result in a tortious interference with any
Contractual Obligation of any Borrower Party.
5.04 FINANCIAL STATEMENTS; NO MATERIAL ADVERSE EFFECT.
(a) The Audited ALT Financial Statements and the Audited TTI
Financial Statements (i) were prepared in accordance with GAAP consistently
applied throughout the periods covered thereby, except as otherwise expressly
noted therein; (ii) fairly present in all material respects the financial
condition of ALT and its Subsidiaries and TTI and its Subsidiaries,
respectively, as of the dates thereof and their results of operations for the
periods covered thereby in accordance with GAAP consistently applied throughout
the periods covered thereby, except as otherwise expressly noted therein; and
(iii) show all material indebtedness and other liabilities, direct or
contingent, of ALT and its Subsidiaries and TTI and its Subsidiaries,
respectively, as of the dates thereof, including liabilities for taxes, material
commitments and Indebtedness in accordance with GAAP consistently applied
throughout the periods covered thereby.
(b) The Unaudited TTI Financial Statements (i) were prepared
in accordance with GAAP consistently applied throughout the periods covered
thereby, except as otherwise expressly noted therein, (ii) fairly present in all
material respects the pro forma financial condition of TTI and its Subsidiaries
as of the dates thereof and their pro forma results of operations for the
periods covered thereby; and (iii) show all pro forma material indebtedness and
other liabilities, direct or contingent, of TTI and its Subsidiaries as of the
dates thereof, including liabilities for taxes, material commitments and
Indebtedness in accordance with GAAP consistently applied throughout the periods
covered thereby.
(c) Since December 31, 1998, there has been no event or
circumstance which is continuing which (or the continuing effects or results of
which) would reasonably be expected to have a Material Adverse Effect.
5.05 LITIGATION. No litigation or proceeding of or before an arbitrator
or Governmental Authority is pending and no litigation, investigation or
proceeding, to the knowledge of Borrower, is threatened by or against any
Borrower Party or any of its Subsidiaries or against any of their properties or
revenues which would reasonably be expected to have a Material Adverse Effect.
5.06 NO DEFAULT. Neither any Borrower Party nor any of their respective
Subsidiaries are in default under or with respect to any Contractual Obligation
(including, without limitation, any Spinoff Document) which could have a
Material Adverse Effect, and no Default or Event of Default has occurred and is
continuing or will result from the consummation of this Agreement, any of the
other Loan Documents or any Spinoff Document, or the making of the Extensions of
Credit hereunder.
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5.07 OWNERSHIP OF PROPERTY; LIENS. Each Borrower Party and its
Subsidiaries have valid fee or leasehold interests in all material real property
which they use in their respective businesses, and each Borrower Party and their
respective Subsidiaries have good and marketable title to all their other
material property, and none of such material property is subject to any Lien,
except as permitted in Section 7.02.
5.08 TAXES. Each Borrower Party and its Subsidiaries have filed all
federal and other material tax returns which are required to be filed, and have
paid, or made provision for the payment of, all taxes with respect to the
periods, property or transactions covered by said returns, or pursuant to any
assessment received by such Borrower Party or its respective Subsidiaries,
except (a) such taxes, if any, as are being contested in good faith by
appropriate proceedings and as to which adequate reserves have been established
and maintained in accordance with GAAP, and (b) immaterial taxes; provided,
however, that in each case no material item or portion of property of any
Borrower Party or any of its Material Subsidiaries is in jeopardy of being
seized, levied upon or forfeited.
5.09 MARGIN REGULATIONS; INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING
COMPANY ACT.
(a) No Borrower Party is engaged or will engage, principally
or as one of its important activities, in the business of extending credit for
the purpose of "purchasing" or "carrying" "margin stock" within the respective
meanings of each of the quoted terms under Regulation U of the Board of
Governors of the Federal Reserve System as now and from time to time hereafter
in effect. No part of the proceeds of any Extensions of Credit hereunder will be
used for "purchasing" or "carrying" "margin stock" as so defined or for any
purpose which violates, or which would be inconsistent with, the provisions of
Regulations T, U or X of such Board of Governors.
(b) No Borrower Party or any of its Subsidiaries (i) is a
"holding company," or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company," within the meaning of the Public Utility Holding Company Act of 1935,
as amended, or (ii) is or is required to be registered as an "investment
company" under the Investment Company Act of 1940, as amended.
5.10 ERISA COMPLIANCE.
(a) Each Plan is in compliance in all material respects with
the applicable provisions of ERISA, the Code and other federal or state Laws.
Each Plan that is intended to qualify under Section 401(a) of the Code has
received a favorable determination letter from the IRS or an application for
such a letter is currently being processed by the IRS with respect thereto and,
to the best knowledge of Borrower, nothing has occurred which would prevent, or
cause the loss of, such qualification. Borrower and each ERISA Affiliate have
made all required contributions to each Plan subject to Section 412 of the Code,
and no application for a funding waiver or an extension of any amortization
period pursuant to Section 412 of the Code has been made with respect to any
Plan.
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(b) There are no pending or, to the best knowledge of
Borrower, threatened claims, actions or lawsuits, or action by any Governmental
Authority, with respect to any Plan that would reasonably be expected to have a
Material Adverse Effect. There has been no prohibited transaction or violation
of the fiduciary responsibility rules with respect to any Plan that would
reasonably be expected to have a Material Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably expected
to occur; (ii) no Pension Plan has any Unfunded Pension Liability that would
reasonably be expected to have a Material Adverse Effect; (iii) neither Borrower
nor any ERISA Affiliate has incurred, or reasonably expects to incur, any
liability under Title IV of ERISA with respect to any Pension Plan (other than
premiums due and not delinquent under Section 4007 of ERISA); (iv) neither
Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur,
any liability (and no event has occurred which, with the giving of notice under
Section 4219 of ERISA, would result in such liability) under Sections 4201 or
4243 of ERISA with respect to a Multiemployer Plan; and (v) neither Borrower nor
any ERISA Affiliate has engaged in a transaction that could be subject to
Sections 4069 or 4212(c) of ERISA.
5.11 INTELLECTUAL PROPERTY. Each Borrower Party and its Subsidiaries
own, or possess the right to use, all material trademarks, trade names,
copyrights, patents, patent rights, franchises, licenses and other intangible
assets that are used in the conduct of their respective businesses as now
operated, and none of such items conflicts with the valid trademark, trade name,
copyright, patent, patent right or intangible asset of any other Person to the
extent that such conflict would reasonably be expected to have a Material
Adverse Effect.
5.12 COMPLIANCE WITH LAWS. Each Borrower Party and its Subsidiaries are
in compliance in all material respects with all Laws that are applicable to it.
5.13 ENVIRONMENTAL COMPLIANCE. Each Borrower Party and its Subsidiaries
conduct in the ordinary course of business a review of the effect of existing
Environmental Laws and claims alleging potential liability or responsibility for
violation of any Environmental Law on their respective businesses, operations
and properties, and as a result thereof Borrower has reasonably concluded that
such Environmental Laws and claims would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
5.14 INSURANCE. The properties of each Borrower Party and its
Subsidiaries are insured with financially sound and reputable insurance
companies not Affiliates of Borrower, in such amounts, with such deductibles and
covering such risks as are customarily carried by companies engaged in similar
businesses and owning similar properties in localities where Borrower or such
Subsidiary operates.
5.15 YEAR 2000. Borrower has (a) initiated a review and assessment of
all material areas within its and each of its Subsidiaries' business and
operations (including those affected by customers and vendors) that could be
adversely affected by the "Year 2000 Problem" (that is, the risk that computer
applications and devices containing imbedded computer chips used by any Borrower
Party or any of its Subsidiaries (or their respective key customers and vendors)
may be
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unable to recognize and perform properly date-sensitive functions involving
certain dates prior to and any date after December 31, 1999), (b) developed a
plan and timeline for addressing the Year 2000 Problem on a timely basis, and
(c) to date, implemented that plan in all material respects in accordance with
that timetable. Based on the foregoing, Borrower believes that all computer
applications and devices containing imbedded computer chips (including those of
its and its Subsidiaries' key customers and vendors) that are material to its or
any of its Subsidiaries' business and operations are reasonably expected on a
timely basis to be able to perform properly date-sensitive functions for all
dates before and after January 1, 2000 (that is, be "Year 2000 Compliant"),
except to the extent that a failure to do so would not reasonably be expected to
have a Material Adverse Effect.
5.16 DISCLOSURE. No statement, information, report, representation, or
warranty made by any Borrower Party in any Loan Document or Spinoff Document or
furnished to Administrative Agent or any Lender in connection with any Loan
Document or Spinoff Document contains any untrue statement of a material fact or
omits to state any material fact necessary to make the statements herein or
therein under the circumstances when made not misleading.
5.17 SOLVENCY. Each of Borrower and its Subsidiaries, taken as a whole,
the Borrower and each Material Subsidiary is, and after giving effect to the
Line of Business Transfer, the Spinoff, the assumption by TTI of ALT's
Obligations (other than ALT's Obligations under the ALT Subordination Agreement)
pursuant to the Assumption Agreement and the incurrence of all Indebtedness and
obligations being incurred in connection with the Loan Documents, the Line of
Business Transfer and the Spinoff will be and will continue to be, Solvent.
SECTION 6.
AFFIRMATIVE COVENANTS
So long as any Obligation remains unpaid, or any portion of the
Commitments remains outstanding, Borrower shall, and shall (except in the case
of Borrower's reporting covenants) cause each of its Subsidiaries to:
6.01 FINANCIAL STATEMENTS. Deliver to Administrative Agent in form and
detail reasonably satisfactory to Administrative Agent and the Required Lenders,
with sufficient copies for each Lender:
(a) as soon as available, but in any event within 100 days
after the end of each fiscal year of Borrower, a consolidated balance sheet of
Borrower and its Subsidiaries as at the end of such fiscal year, and the related
consolidated statements of income and cash flows for such fiscal year, setting
forth in each case in comparative form the figures for the previous fiscal year,
all in reasonable detail, audited and accompanied by a report and opinion of an
independent certified public accountant of nationally recognized standing, which
report and opinion shall be prepared in accordance with GAAP and shall not be
subject to any qualifications or exceptions as to the scope of the audit nor to
any qualifications and exceptions (including possible errors
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generated by financial reporting and related systems due to the Year 2000
Problem) not reasonably acceptable to the Required Lenders; and
(b) as soon as available, but in any event within 50 days
after the end of each of the first three fiscal quarters of each fiscal year of
Borrower commencing with the fiscal quarter ended September 30, 1999, a
consolidated balance sheet of Borrower and its Subsidiaries as at the end of
such fiscal quarter, and the related consolidated statements of income and cash
flows for such fiscal quarter and for the portion of Borrower's fiscal year then
ended, setting forth in each case in comparative form the figures for the
corresponding fiscal quarter of the previous fiscal year and the corresponding
portion of the previous fiscal year, all in reasonable detail and certified by a
Responsible Officer of Borrower as fairly presenting in all material respects
the financial condition, results of operations and cash flows of Borrower and
its Subsidiaries in accordance with GAAP, subject only to normal year-end audit
adjustments and the absence of footnotes.
6.02 CERTIFICATES, NOTICES AND OTHER INFORMATION. Deliver to
Administrative Agent in form and detail reasonably satisfactory to
Administrative Agent and the Required Lenders, with sufficient copies for each
Lender:
(a) concurrently with the delivery of the financial statements
referred to in Sections 6.01(a) and (b), a duly completed Compliance Certificate
signed by a Responsible Officer of Borrower;
(b) promptly after the same are available, copies of each
annual report, proxy or financial statement or other report or communication
sent to the stockholders of Borrower, and copies of all annual, regular,
periodic and special reports and registration statements which Borrower may file
or be required to file with the Securities and Exchange Commission under
Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended, and not
otherwise required to be delivered to Administrative Agent pursuant hereto;
(c) promptly after the occurrence thereof, notice of any
Default or Event of Default;
(d) promptly after Borrower becomes aware thereof and has made
a determination with respect thereto (the making of which determination shall
not be unreasonably delayed), notice of any litigation, investigation or
proceeding affecting any Borrower Party in which there is a reasonable
possibility of an adverse determination and which, if adversely determined,
would reasonably be expected to have a Material Adverse Effect;
(e) promptly after the occurrence thereof, notice of any
Reportable Event with respect to any Plan or a decision to terminate any Plan,
or the institution of proceedings or the taking or expected taking of any other
action to terminate any Plan or withdraw from any Plan;
(f) promptly of any discovery or determination that any
computer application (including those of its key suppliers and vendors) that is
material to any Borrower Parties' or any
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of their Subsidiaries' business and operations will not be Year 2000 Compliant
on a timely basis, except to the extent that such failure would not reasonably
be expected to have a Material Adverse Effect;
(g) promptly after receipt thereof, copies of any notice
relating to revocation of the Private Letter Ruling and any claim for
indemnification, individually or in the aggregate, in excess of the Threshold
Amount under any Spinoff Document;
(h) concurrently with the delivery of the financial statements
referred to in Section 6.01(a), a certificate of a Responsible Officer of
Borrower certifying that the insurance required to be maintained pursuant to
Section 6.06 is in full force and effect, is adequate in nature and amount and
complies in all material respects with Borrower's and each Subsidiary's
obligations under Section 6.06; and
(i) promptly (following the elapse of a reasonable time to
obtain such requested data and information), such other data and information as
from time to time may be reasonably requested by Administrative Agent, or,
through Administrative Agent or any Lender.
Each notice pursuant to this Section shall be accompanied by a
statement of a Responsible Officer of Borrower in reasonable detail setting
forth details of the occurrence referred to therein and stating what action
Borrower has taken and proposes to take with respect thereto.
6.03 PAYMENT OF TAXES. Pay and discharge in all material respects when
due all taxes, assessments, and governmental charges, Ordinary Course Liens or
levies imposed on any Borrower Party or its Subsidiaries or on its income or
profits or any of its property, except for any such tax, assessment, charge, or
levy which is an Ordinary Course Lien under subsection (b) of the definition of
such term.
6.04 PRESERVATION OF EXISTENCE. Preserve and maintain its existence,
licenses, permits, rights, franchises and privileges necessary or desirable in
the normal conduct of its business, except as permitted under Section 7.03 or,
with respect to such licenses, permits, rights, franchises and privileges, where
failure to do so would not reasonably be expected to have a Material Adverse
Effect.
6.05 MAINTENANCE OF PROPERTIES. Maintain, preserve and protect all of
its material properties and equipment necessary in the operation of its business
in good order and condition, subject to wear and tear in the ordinary course of
business, and not permit any waste of its properties, except, in each case,
where the failure to do so would not reasonably be expected to have a Material
Adverse Effect.
6.06 MAINTENANCE OF INSURANCE. Maintain liability and casualty
insurance with responsible insurance companies in such amounts and against such
risks as is customary for similarly situated businesses.
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6.07 COMPLIANCE WITH LAWS.
(a) Comply with the requirements of all applicable Laws and
orders of any Governmental Authority, noncompliance with which would reasonably
be expected to have a Material Adverse Effect.
(b) Conduct its operations and keep and maintain its property
in compliance with all Environmental Laws, noncompliance with which would
reasonably be expected to have a Material Adverse Effect.
6.08 INSPECTION RIGHTS. At any time during regular business hours and
as often as reasonably requested upon reasonable notice, permit Administrative
Agent or any Lender, or any employee, agent or representative thereof, to
examine and make copies and abstracts from the Borrower Parties' financial
records and books of account and to visit and inspect their properties and to
discuss their affairs, finances and accounts with a Responsible Officer, and,
upon request, furnish promptly to Administrative Agent or any Lender true copies
of all financial information as Administrative Agent or any Lender may
reasonably request.
6.09 KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Keep in all material
respects adequate records and books of account reflecting all financial
transactions in conformity with GAAP, consistently applied, and in material
conformity with all applicable requirements of any Governmental Authority having
regulatory jurisdiction over Borrower or any of its Subsidiaries.
6.10 COMPLIANCE WITH ERISA. Cause, and cause each of its ERISA
Affiliates to: (a) maintain each Plan in compliance in all material respects
with the applicable provisions of ERISA, the Code and other federal or state
Law; (b) cause each Plan which is qualified under Section 401(a) of the Code to
maintain such qualification; and (c) make all required contributions to any Plan
subject to Section 412 of the Code.
6.11 COMPLIANCE WITH AGREEMENTS. Promptly and comply in all material
respects with the Private Letter Ruling and all Spinoff Documents and all other
Contractual Obligations under all material agreements, indentures, leases and/or
instruments to which any one or more of them is a party, except for any such
Contractual Obligations (a) the performance of which would cause a Default, (b)
then being contested by any of them in good faith by appropriate proceedings, or
(c) if the failure to comply therewith would not reasonably be expected to have
a Material Adverse Effect.
6.12 USE OF PROCEEDS. Use the proceeds of Extensions of Credit: (i) for
the repayment of a portion of ALT's indebtedness related to the assets to be
transferred by ALT to TTI in accordance with the Spinoff Documents in
conjunction with the Spinoff, (ii) for working capital, capital expenditures,
and other lawful general corporate purposes of TTI following consummation of the
Spinoff, and (iii) to finance acquisitions by TTI following consummation of the
Spinoff to the extent expressly permitted under the Loan Documents.
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6.13 ADDITIONAL BORROWER PARTIES. Substantially concurrently with the
formation or acquisition of any Material Subsidiary of TTI (and upon any
Subsidiary of TTI becoming a Material Subsidiary), (i) cause such Subsidiary
(unless such Subsidiary is a Foreign Subsidiary) to guarantee the payment and
performance of the Obligations hereunder and under the other Loan Documents by
executing and delivering to Administrative Agent a supplement to the Guaranty in
substantially the form of Annex A to Exhibit G, (ii) at all times prior to the
Collateral Release Date, (A) cause the direct parent or parents (excluding any
Person other than TTI or any of its Subsidiaries) of such Subsidiary to execute
and deliver to Administrative Agent a supplement to the Pledge Agreement, in
substantially the form of Annex A to Exhibit H (whereby each such parent shall
grant a Lien on those of its assets described in the Pledge Agreement), (B)
promptly pledge to Administrative Agent or cause to be pledged to Administrative
Agent all of the outstanding capital stock of such Subsidiary (or, if such
Subsidiary is a Foreign Subsidiary, 65% of such capital stock) owned by TTI or
any of its Subsidiaries to secure the Obligations under the Loan Documents, and
(C) promptly take, and cause such Subsidiary and each other Borrower Party to
take all action necessary or (in the opinion of Administrative Agent or the
Required Lenders) desirable to perfect and protect the Liens intended to be
created by the Pledge Agreement, as amended pursuant to this Section 6.13, and
(iii) promptly deliver to Administrative Agent such opinions of counsel, if any,
as Administrative Agent or the Required Lenders may reasonably require with
respect to the foregoing (including opinions as to enforceability and, prior to
the Collateral Release Date, perfection of security interests).
SECTION 7.
NEGATIVE COVENANTS
So long as any Obligations remain unpaid, or any portion of the
Commitments remains outstanding, Borrower shall not, nor shall it permit any of
its Subsidiaries to, directly or indirectly:
7.01 INDEBTEDNESS. Create, incur, assume or suffer to exist any
Indebtedness, except:
(a) Ordinary Course Indebtedness of TTI and its Subsidiaries;
(b) Indebtedness of TTI and its Subsidiaries outstanding on
the date hereof and listed on Schedule 7.01(b) and any refinancings, refundings,
renewals or extensions thereof, provided that the amount of such Indebtedness is
not increased at the time of such refinancing, refunding, renewal or extension
except by an amount equal to the premium or other amount paid, and fees and
expenses incurred, in connection with such refinancing and by an amount equal to
any utilized commitments thereunder;
(c) Indebtedness of TTI and the Guarantors secured by Liens
permitted by Section 7.02(f) in an aggregate principal amount not to exceed
$25,000,000 at any time outstanding;
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(d) additional unsecured (except to the extent of any Liens
permitted pursuant to Section 7.02(i)) Indebtedness of TTI and the Guarantors;
provided such additional Indebtedness, when added to the then outstanding
Indebtedness of TTI and its Subsidiaries, would not cause TTI to be in violation
of Section 7.12; and provided further that (i) the additional Indebtedness
permitted pursuant to this clause (d) which is Indebtedness of the Guarantors
shall not exceed, in the aggregate at any one time outstanding, $25,000,000, and
(ii) Indebtedness permitted under this clause (d) may not (other than additional
unsecured (except to the extent of any Liens permitted pursuant to Section
7.02(i)) Indebtedness assumed in connection with a Permitted Acquisition in an
aggregate amount not to exceed at any one time outstanding $20,000,000) contain
covenants more restrictive than those contained herein;
(e) Acquired Indebtedness of TTI and its Subsidiaries in an
aggregate principal amount not to exceed $35,000,000 at any time outstanding;
and
(f) on and prior to the TTI Closing Date, Indebtedness of ALT
and its Subsidiaries (other than any member of the TTI Group) to the extent
permitted under Section 5.1 of the Existing ALT Credit Agreement, as in effect
on the date hereof.
7.02 LIENS. Incur, assume or suffer to exist, any Lien upon any of its
property, assets or revenues, whether now owned or hereafter acquired, except:
(a) Liens of TTI and its Subsidiaries existing on the date
hereof and listed on Schedule 7.02(a) and any renewals or extensions thereof,
provided that the obligations secured or benefited thereby or the property
covered thereby are not increased, except as permitted by Section 7.01(b);
(b) Ordinary Course Liens of TTI and its Subsidiaries;
(c) Security interests granted by TTI or any of its
Subsidiaries in favor of lessors of personal property, which property is the
subject of a true lease between such lessor and TTI or any of its Subsidiaries
as lessee;
(d) Liens granted by TTI or any of its Subsidiaries in favor
of any Governmental Authority created pursuant to cost-type contracts,
progress-billing contracts or advance-pay contracts with such Governmental
Authority to which TTI or any of its Subsidiaries is a party in the materials
and products of TTI and its Subsidiaries subject to such contracts or, in the
case of advance-pay contracts only, any advance payments made thereunder to TTI
and its Subsidiaries by such Governmental Authority;
(e) Liens of TTI and its Subsidiaries arising solely by virtue
of any statutory or common law provision relating to banker's liens, rights of
set-off or similar rights and remedies as to deposit accounts or other funds
maintained with a creditor depository institution; provided that (i) such
deposit account is not a dedicated cash collateral account and is not subject to
restrictions against access by TTI or any of its Subsidiaries in excess of those
set forth by
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regulations promulgated by the Federal Reserve Board, and (ii) such deposit
account is not intended by TTI or any of its Subsidiaries to provide collateral
to the depository institution;
(f) Liens granted by TTI and the Guarantors securing
Indebtedness of TTI or any Guarantor incurred after the TTI Closing Date
pursuant to Section 7.01(c) to finance the acquisition of fixed or capital
assets, provided that (i) such Liens shall be created substantially
simultaneously with the acquisition of such fixed or capital assets, (ii) such
Liens do not at any time encumber any property other than the property financed
by such Indebtedness and (iii) the amount of Indebtedness secured thereby is not
increased;
(g) any Lien on any property or asset owned by TTI or any of
its Subsidiaries that was existing on such property or asset prior to the
acquisition thereof by TTI or such Subsidiary or that was owned by any Person
that becomes a Subsidiary of TTI after the date hereof prior to the time such
Person became a Subsidiary of TTI, in each case, if (i) such Lien was not
created in contemplation of or in connection with such acquisition or such
Person becoming a Subsidiary of TTI, as the case may be, (ii) such Lien is not
enforceable against, or spread to cover, any other property or assets of TTI or
any of its Subsidiaries, and (iii) such Lien secures only (A) those obligations
(including Acquired Indebtedness other than Acquisition Consideration) that it
secures on the date of such acquisition or the date such Person becomes a
Subsidiary of TTI, as the case may be and (B) Acquired Indebtedness permitted
hereunder;
(h) on and prior to the TTI Closing Date, Liens granted by ALT
and its Subsidiaries (other than any member of the TTI Group) on property and
assets of ALT and its Subsidiaries (other than any capital stock of or assets of
any member of the TTI Group) to the extent permitted under Section 5.2 of the
Existing ALT Credit Agreement, as in effect on the date hereof; and
(i) other Liens which secure Indebtedness of TTI and its
Subsidiaries; provided that the aggregate principal amount of Indebtedness
secured thereby shall not at any time exceed $10,000,000.
7.03 FUNDAMENTAL CHANGES. Merge or consolidate with or into any Person
or liquidate, wind-up or dissolve itself, or permit or suffer any liquidation or
dissolution or sell all or substantially all of its assets, except, that so long
as no Default or Event of Default exists or would result therefrom:
(a) any Solvent Subsidiary of TTI may merge with (i) TTI
provided that TTI shall be the continuing or surviving corporation, (ii) with
any one or more other Solvent Subsidiaries of TTI (provided that if either party
to such merger is a Guarantor, the surviving entity shall be a Guarantor), and
(iii) with any joint ventures, partnerships and other Persons, so long as such
joint ventures, partnerships and other Persons will, as a result of making such
merger and all other contemporaneous related transactions, become a wholly owned
Subsidiary of TTI; provided that when any wholly-owned Material Subsidiary of
TTI is merging into another Subsidiary of TTI, the wholly-owned Material
Subsidiary of TTI shall be the continuing or surviving Person;
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(b) any Subsidiary of TTI may sell all or substantially all of
its assets (upon voluntary liquidation or otherwise), to TTI or any of its
Solvent Subsidiaries that is a Guarantor; provided that when any wholly-owned
Subsidiary of TTI is selling all or substantially all of its assets to another
Subsidiary of TTI, the Subsidiary acquiring such assets shall be a wholly-owned
Subsidiary of TTI;
(c) on and prior to the TTI Closing Date, ALT and its
Subsidiaries (other than any member of the TTI Group) may merge or consolidate
with other Persons to the extent permitted under Section 5.6 of the Existing ALT
Credit Agreement, as in effect on the date hereof;
(d) TTI and its Subsidiaries may make Dispositions permitted
under Sections 7.04(a), (c) and (d); and
(e) ALT and its Subsidiaries may undertake transactions
permitted under, and in accordance with, the Separation and Distribution
Agreement.
7.04 DISPOSITIONS. Make any Dispositions, except:
(a) Ordinary Course Dispositions by TTI and its Subsidiaries;
(b) Dispositions by TTI and its Subsidiaries permitted by
Section 7.03;
(c) Dispositions by TTI and its Subsidiaries after the TTI
Closing Date, so long as the total book value of any assets or property so
Disposed of in any fiscal year of TTI does not exceed in the aggregate ten
percent of Consolidated Total Assets determined as of the last day of the
immediately preceding fiscal year; provided that, in determining compliance with
this Section 7.04(c), a Disposition shall be excluded to the extent the net
proceeds of such Disposition are used within a period of 180 days following such
Disposition to acquire assets or property useful in the ordinary course of TTI's
or its Subsidiaries' businesses; and
(d) on and prior to the TTI Closing Date, Dispositions by ALT
and its Subsidiaries (other than any member of the TTI Group) to the extent
permitted under Section 5.5 of the Existing ALT Credit Agreement, as in effect
on the date hereof.
7.05 INVESTMENTS. Make or hold any Investments, except:
(a) Investments by TTI and its Subsidiaries existing on the
date hereof and listed on Schedule 7.05(a);
(b) Ordinary Course Investments by TTI and its Subsidiaries;
(c) Investments by TTI and its Subsidiaries permitted by
Section 7.03;
(d) Permitted Acquisitions;
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(e) Investments by TTI and the Guarantors in joint ventures
not to exceed at any time an amount equal to 20% of Consolidated Total Assets as
of the last day of the immediately preceding fiscal quarter of TTI for which TTI
shall have delivered financial statements pursuant to Section 6.01(a) or (b), as
the case may be; and
(f) on and prior to the TTI Closing Date, Investments by ALT
and its Subsidiaries (other than any member of the TTI Group) not prohibited
under the Existing ALT Credit Agreement, as in effect on the date hereof.
7.06 RESTRICTED PAYMENTS. Make any Restricted Payments, except (i) the
distribution by ALT of all of the capital stock of TTI to the stockholders of
ALT in accordance with the Spinoff Documents, (ii) on and prior to the TTI
Closing Date, ALT and its Subsidiaries (other than any member of the TTI Group)
may make Restricted Payments to the extent permitted under the Existing ALT
Credit Agreement, as in effect on the date hereof, and (iii) from and after the
TTI Closing Date, TTI and its Subsidiaries may make dividends and other
distributions payable solely in cash in an aggregate amount not to exceed an
amount equal to 25% of cumulative Consolidated Net Income since the TTI Closing
Date.
7.07 ERISA. At any time engage in a transaction which could be subject
to Sections 4069 or 4212(c) of ERISA, or permit any Pension Plan to (a) engage
in any non-exempt "prohibited transaction" (as defined in Section 4975 of the
Code); (b) fail to comply with ERISA or any other applicable Laws; or (c) incur
any material "accumulated funding deficiency" (as defined in Section 302 of
ERISA), which, with respect to each event listed in clauses (a) through (c)
above, would reasonably be expected to have a Material Adverse Effect.
7.08 LIMITATION ON NATURE OF BUSINESS. Enter into any business, either
directly or through a Subsidiary, except for (i) any business in which Borrower
or the applicable Subsidiary is engaged on the date hereof, (ii) any business
that is reasonably related thereto, (iii) any business that is in substantially
the same industry as any business conducted by Borrower or such Subsidiary on
the date hereof, or (iv) any other business on a non-material basis to the
extent acquired by Borrower in a Permitted Acquisition so long as the other
business or businesses acquired by Borrower in such Permitted Acquisition
otherwise satisfy the requirements of clauses (i), (ii) or (iii) of this Section
7.08.
7.09 TRANSACTIONS WITH AFFILIATES. Enter into any transaction of any
kind with any Affiliate of Borrower other than arm's-length transactions with
Affiliates that are otherwise permitted hereunder.
7.10 HOSTILE ACQUISITIONS. Use the proceeds of any Extension of Credit
in connection with the acquisition of any voting interest in any Person if such
acquisition is opposed by the board of directors or management of such Person.
7.11 LIMITATIONS ON UPSTREAMING, ETC. Suffer to exist or become
effective any consensual restriction or limitation on the ability of Borrower or
any of its Subsidiaries (or, in the case of clause (a) only, any Subsidiary of
Borrower) to: (a) make Restricted Payments, (b) pay or
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subordinate any Indebtedness owed to Borrower or any other Subsidiary, (c) make
Investments in Borrower or any other Subsidiary or (d) transfer any of its
assets to Borrower or any other Subsidiary, except for the restrictions
contained in the Loan Documents.
7.12 FINANCIAL COVENANTS.
(a) CONSOLIDATED NET WORTH. Permit Consolidated Net Worth at
any time to be less than the sum of (a) an amount equal to 75% of Consolidated
Net Worth as of the TTI Closing Date, (b) an amount equal to 50% of the
Consolidated Net Income earned in each fiscal quarter of TTI ending after the
TTI Closing Date (with no deduction for a net loss in any such fiscal quarter)
and (c) an amount equal to 75% of the net proceeds after the TTI Closing Date of
the issuance and sale of capital stock of TTI (including upon any conversion of
debt securities of TTI into such capital stock).
(b) INTEREST COVERAGE RATIO. Permit the Interest Coverage
Ratio as of the end of any fiscal quarter of TTI to be less than 3.0: 1.0.
(c) LEVERAGE RATIO. Permit the Leverage Ratio at any time to
be greater than 3.0: 1.0.
7.13 LIMITATION ON AMENDMENTS TO SPINOFF DOCUMENTS. Amend, supplement,
replace or otherwise modify (whether pursuant to a waiver granted by or to such
Person or otherwise) or fail to enforce the terms and conditions of any Spinoff
Document, except for exceptions to the foregoing that would not, individually or
in the aggregate, reasonably be expected to be adverse to Administrative Agent
or any Lender.
7.14 ALT SUBORDINATION AGREEMENT. Make any payment in violation of the
subordination provisions of the ALT Subordination Agreement or otherwise fail to
perform or observe any of the terms or conditions of the ALT Subordination
Agreement applicable to it.
SECTION 8.
EVENTS OF DEFAULT AND REMEDIES
8.01 EVENTS OF DEFAULT. Any one or more of the following events shall
constitute an Event of Default:
(a) Borrower fails to pay any principal on any Outstanding
Obligation (other than fees) as and on the date when due; or
(b) Borrower fails to pay any interest on any Outstanding
Obligation, or any fees payable under Section 2.08 due hereunder, or any other
fees or amount payable to Administrative Agent or any Lender under any Loan
Document, in each case, within three Business Days after the date when due; or
(c) Any default occurs in the observance or performance of any
agreement contained in Sections 6.01, 6.02, 6.08 or 7; or
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(d) The occurrence of an Event of Default (as such term is or
may hereafter be specifically defined in any other Loan Document) under any
other Loan Document; or any Borrower Party fails to perform or observe any other
covenant or agreement (not specified in subsections (a), (b) or (c) above)
contained in any Loan Document on its part to be performed or observed and such
failure continues for 30 days; or
(e) Any representation or warranty in any Loan Document or in
any certificate, agreement, instrument or other document made or delivered by
any Borrower Party pursuant to or in connection with any Loan Document proves to
have been incorrect in any material respect when made or deemed made; or
(f) (i) any Borrower Party (x) defaults in any payment when
due of principal of or interest on any Indebtedness (other than Indebtedness
hereunder) or (y) defaults in the observance or performance of any other
agreement or condition relating to any Indebtedness (other than Indebtedness
hereunder) or contained in any instrument or agreement evidencing, securing or
relating thereto, or any other event shall occur, the effect of which default or
other event is to cause, or to permit the holder or holders of such Indebtedness
(or a trustee or agent on behalf of such holder or holders or beneficiary or
beneficiaries) to cause, with the giving of notice if required, Indebtedness
having an aggregate principal amount in excess of the Threshold Amount to be
demanded or become due (automatically or otherwise) prior to its stated
maturity, or any Guaranty Obligation in such amount to become payable or cash
collateral in respect thereof to be demanded, or any Borrower Party is unable or
admits in writing its inability to pay its debts as they mature; or (ii) the
occurrence under any Swap Contract of an Early Termination Date (as defined in
such Swap Contract) resulting from (x) any event of default under such Swap
Contract as to which Borrower or any Subsidiary is the Defaulting Party (as
defined in such Swap Contract) or (y) any Termination Event under any Swap
Contract (as defined therein) as to which Borrower or any Subsidiary is an
Affected Party (as defined therein), if, in either event, the Swap Termination
Value owed by Borrower or such Subsidiary as a result thereof is greater than
the Threshold Amount; or
(g) Any Loan Document, at any time after its execution and
delivery ceases (other than, in the case of the Pledge Agreement, pursuant to
the terms thereof on or after the Collateral Release Date) to be in full force
and effect or is declared by a court of competent jurisdiction to be null and
void, invalid or unenforceable in any respect; or any Borrower Party denies that
it has any or further liability or obligation under any Loan Document, or
purports to revoke, terminate or rescind any Loan Document; or
(h) The Pledge Agreement, at any time after its execution and
delivery ceases (other than pursuant to the terms thereof on or after the
Collateral Release Date) to create a valid and perfected first priority Lien on
the Collateral purported to be covered thereby; or
(i) A final judgment against any Borrower Party is entered for
the payment of money in excess of the Threshold Amount, or any non-monetary
final judgment is entered against any Borrower Party which has a Material
Adverse Effect and, in each case if such judgment remains unsatisfied without
procurement of a stay of execution within 30 calendar days
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after the date of entry of judgment or, if earlier, five days prior to the date
of any proposed sale, or any writ or warrant of attachment or execution or
similar process is issued or levied against all or any material part of the
property of any such Person and is not released, vacated or fully bonded within
30 calendar days after its issue or levy; or
(j) Any Borrower Party or any of its Subsidiaries institutes
or consents to the institution of any proceeding under Debtor Relief Laws, or
makes an assignment for the benefit of creditors; or applies for or consents to
the appointment of any receiver, trustee, custodian, conservator, liquidator,
rehabilitator or similar officer for it or for all or any material part of its
property; or any receiver, trustee, custodian, conservator, liquidator,
rehabilitator or similar officer is appointed without the application or consent
of that Person and the appointment continues undischarged or unstayed for 60
calendar days; or any proceeding under Debtor Relief Laws relating to any such
Person or to all or any part of its property is instituted without the consent
of that Person and continues undismissed or unstayed for 60 calendar days, or an
order for relief is entered in any such proceeding; or
(k) (i) An ERISA Event occurs with respect to a Pension Plan
or Multiemployer Plan which has resulted or would reasonably be expected to
result in liability of Borrower under Title IV of ERISA to the Pension Plan,
Multiemployer Plan or the PBGC in an aggregate amount in excess of the Threshold
Amount; (ii) the aggregate amount of Unfunded Pension Liability among all
Pension Plans at any time would reasonably be expected to have a Material
Adverse Effect; or (iii) Borrower or any ERISA Affiliate fails to pay when due,
after the expiration of any applicable grace period, any installment payment
with respect to its withdrawal liability under Section 4201 of ERISA under a
Multiemployer Plan in an aggregate amount in excess of the Threshold Amount; or
(l) TTI fails, on or before the date that is 12 months after
the ALT Closing Date, to consummate a Qualified Public Offering; or
(m) The Private Letter Ruling is withdrawn or otherwise ceases
to be in full force and effect or is declared by a court of competent
jurisdiction to be null and void, invalid or unenforceable in any respect; or,
prior to its satisfaction of its liabilities and obligations thereunder, any
Borrower Party denies that it has any or further liability or obligation under
the Private Letter Ruling, or fails to satisfy any condition contained therein,
or purports to revoke, terminate or rescind the Private Letter Ruling; or
(n) Any Person or two or more Persons acting in concert shall
have acquired beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended), directly or indirectly, of Voting Stock of Borrower (or other
securities convertible into such Voting Stock) representing 25% or more of the
combined voting power of all Voting Stock of Borrower; or (ii) during any period
of up to 24 consecutive months, commencing after the date of this Agreement,
individuals who at the beginning of such 24-month period were directors of
Borrower, or individuals whose nomination for election to the board of directors
of Borrower was recommended by at least 66-2/3% of the then directors of
Borrower, shall cease for any reason to constitute a majority of the
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board of directors of Borrower; or (iii) any Person or two or more Persons
acting in concert shall have acquired by contract or otherwise, or shall have
entered into a contract or arrangement that, upon consummation, will result in
its or their acquisition of, control over Voting Stock of Borrower (or other
securities convertible into such securities) representing 25% or more of the
combined voting power of all Voting Stock of Borrower; or
(o) There shall be any suspension or debarment of any
contracting rights of Borrower, any of its Material Subsidiaries or any Material
Division in effect for more than 30 days from its commencement (or Borrower
shall learn that any such suspension or debarment shall be imposed for a period
in excess of 30 days); or
(p) An indemnification claim in excess of the Threshold Amount
shall be made against any member of the TTI Group by ALT, any of its Affiliates
or any of their respective stockholders pursuant to, or in connection with, any
of the Spinoff Documents including, without limitation, pursuant to Section 6.1
of the Tax Sharing and Indemnification Agreement and Section 5.02 of the
Separation and Distribution Agreement.
8.02 REMEDIES UPON EVENT OF DEFAULT. Without limiting any other rights
or remedies of Administrative Agent or Lenders provided for elsewhere in this
Agreement, or the other Loan Documents, or by applicable Law, or in equity, or
otherwise:
(a) Upon the occurrence, and during the continuance, of any
Event of Default other than an Event of Default described in Section 8.01(j):
(i) the Required Lenders may request Administrative
Agent to, and Administrative Agent thereupon shall, terminate the Commitments
and/or declare all or any part of the unpaid principal of all Loans, all
interest accrued and unpaid thereon and all other amounts payable under the Loan
Documents to be immediately due and payable, whereupon the same shall become and
be immediately due and payable, without protest, presentment, notice of
dishonor, demand or further notice of any kind, all of which are expressly
waived by Borrower; and
(ii) Issuing Lender may, with the approval of
Administrative Agent on behalf of the Required Lenders, demand immediate payment
by Borrower of an amount equal to the aggregate amount of all outstanding
Letters of Credit Usage to be held in a Letter of Credit Cash Collateral
Account.
(b) Upon the occurrence of any Event of Default described in
Section 8.01(j):
(i) the Commitments and all other obligations of
Administrative Agent or Lenders shall automatically terminate without notice to
or demand upon Borrower, which are expressly waived by Borrower;
(ii) the unpaid principal of all Loans, all interest
accrued and unpaid thereon and all other amounts payable under the Loan
Documents shall be immediately due and
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payable, without protest, presentment, notice of dishonor, demand or further
notice of any kind, all of which are expressly waived by Borrower; and
(iii) an amount equal to the aggregate amount of all
outstanding Letters of Credit Usage shall be immediately due and payable to
Issuing Lender without notice to or demand upon Borrower, which are expressly
waived by Borrower, to be held in a Letter of Credit Cash Collateral Account.
(c) Upon the occurrence of any Event of Default, Lenders and
Administrative Agent, or any of them, without notice to (except as expressly
provided for in any Loan Document) or demand upon Borrower, which are expressly
waived by Borrower (except as to notices expressly provided for in any Loan
Document), may proceed to (but only with the consent of the Required Lenders)
protect, exercise and enforce their rights and remedies under the Loan Documents
against any Borrower Party and such other rights and remedies as are provided by
Law or equity or otherwise.
(d) Except as permitted by Section 10.06, no Lender may
exercise any rights or remedies with respect to the Obligations without the
consent of the Required Lenders in their sole and absolute discretion. The order
and manner in which Administrative Agent's and Lenders' rights and remedies are
to be exercised shall be determined by the Required Lenders in their sole and
absolute discretion. Regardless of how a Lender may treat payments for the
purpose of its own accounting, for the purpose of computing the Obligations
hereunder, payments shall be applied first, to costs and expenses (including
Attorney Costs) incurred by Administrative Agent and each Lender, second, to the
payment of accrued and unpaid interest on the Loans to and including the date of
such application, third, to the payment of the unpaid principal of the Loans,
and fourth, to the payment of all other amounts (including fees) then owing to
Administrative Agent and Lenders under the Loan Documents, in each case paid pro
rata to each Lender in the same proportions that the aggregate Obligations owed
to each Lender under the Loan Documents bear to the aggregate Obligations owed
under the Loan Documents to all Lenders, without priority or preference among
Lenders. No application of payments will cure any Event of Default, or prevent
acceleration, or continued acceleration, of amounts payable under the Loan
Documents, or prevent the exercise, or continued exercise, of rights or remedies
of Administrative Agent and Lenders hereunder or thereunder or at Law or in
equity or otherwise.
SECTION 9.
ADMINISTRATIVE AGENT
9.01 APPOINTMENT AND AUTHORIZATION OF ADMINISTRATIVE AGENT.
(a) Each Lender hereby irrevocably (subject to Section 9.09)
appoints, designates and authorizes Administrative Agent to take such action on
its behalf under the provisions of this Agreement and each other Loan Document
and to exercise such powers and perform such duties as are expressly delegated
to it by the terms of this Agreement or any other Loan Document, together with
such powers as are reasonably incidental thereto.
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Notwithstanding any provision to the contrary contained elsewhere in this
Agreement or in any other Loan Document, Administrative Agent shall not have any
duties or responsibilities, except those expressly set forth herein, nor shall
Administrative Agent have or be deemed to have any fiduciary relationship with
any Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against Administrative Agent. Without limiting the
generality of the foregoing sentence, the use of the term "agent" in this
Agreement with reference to Administrative Agent is not intended to connote any
fiduciary or other implied (or express) obligations arising under agency
doctrine of any applicable law. Instead, such term is used merely as a matter of
market custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties.
(b) Issuing Lender shall act on behalf of Lenders with respect
to any Letters of Credit issued by it and the documents associated therewith
until such time and except for so long as Administrative Agent may agree at the
request of the Required Lenders to act for Issuing Lender with respect thereto;
provided, however, that Issuing Lender shall have all of the benefits and
immunities (i) provided to Administrative Agent in this Section 9 with respect
to any acts taken or omissions suffered by Issuing Lender in connection with
Letters of Credit issued by it or proposed to be issued by it and the
application and agreements for letters of credit pertaining to the Letters of
Credit as fully as if the term "Administrative Agent" as used in this Section 9
included Issuing Lender with respect to such acts or omissions, and (ii) as
additionally provided in this Agreement with respect to Issuing Lender.
9.02 DELEGATION OF DUTIES. Administrative Agent may execute any of its
duties under this Agreement or any other Loan Document by or through agents,
employees or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. Administrative Agent shall not
be responsible for the negligence or misconduct of any agent or attorney-in-fact
that it selects with reasonable care.
9.03 LIABILITY OF ADMINISTRATIVE AGENT. None of Administrative
Agent-Related Persons shall (i) be liable for any action taken or omitted to be
taken by any of them under or in connection with this Agreement or any other
Loan Document or the transactions contemplated hereby (except for its own gross
negligence or willful misconduct as determined in a final, nonappealable
judgment by a court of competent jurisdiction), or (ii) be responsible in any
manner to any Lender for any recital, statement, representation or warranty made
by Borrower or any Subsidiary or Affiliate of Borrower, or any officer thereof,
contained in this Agreement or in any other Loan Document or Spinoff Document,
or in any certificate, report, statement or other document referred to or
provided for in, or received by Administrative Agent under or in connection
with, this Agreement, any other Loan Document or any Spinoff Document, or the
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement, any other Loan Document or any Spinoff Document, or for any failure
of Borrower or any other party to any Loan Document or Spinoff Document to
perform its obligations hereunder or thereunder. No Administrative Agent-Related
Person shall be under any obligation to any Lender to ascertain or to inquire as
to the observance or performance of any of the agreements contained in, or
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conditions of, this Agreement, any other Loan Document or any Spinoff Document,
or to inspect the properties, books or records of Borrower or any of Borrower's
Subsidiaries or Affiliates.
9.04 RELIANCE BY ADMINISTRATIVE AGENT.
(a) Administrative Agent shall be entitled to rely, and shall
be fully protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement or other document or conversation believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons,
and upon advice and statements of legal counsel (including counsel to Borrower),
independent accountants and other experts selected by Administrative Agent.
Administrative Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Required Lenders or all Lenders, as
the case may be, as it deems appropriate and, if it so requests, it shall first
be indemnified to its satisfaction by Lenders against any and all liability and
expense which may be incurred by it by reason of taking or continuing to take
any such action. Administrative Agent shall in all cases be fully protected in
acting, or in refraining from acting, under this Agreement or any other Loan
Document in accordance with a request or consent of the Required Lenders or all
Lenders, if required hereunder, and such request and any action taken or failure
to act pursuant thereto shall be binding upon all Lenders. Where this Agreement
expressly permits or prohibits an action unless the Required Lenders otherwise
determine, and in all other instances, Administrative Agent may, but shall not
be required to, initiate any solicitation for the consent or a vote of Lenders.
(b) For purposes of determining compliance with the conditions
specified in Sections 4.01, 4.02 and 4.03, each Lender that has executed this
Agreement shall be deemed to have consented to, approved or accepted or to be
satisfied with, each document or other matter either sent by Administrative
Agent to such Lender for consent, approval, acceptance or satisfaction, or
required thereunder to be consented to or approved by or acceptable or
satisfactory to such Lender.
9.05 NOTICE OF DEFAULT. Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default,
except with respect to defaults in the payment of principal, interest and fees
required to be paid to Administrative Agent for the account of Lenders, unless
Administrative Agent shall have received written notice from a Lender or
Borrower referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". Administrative
Agent will notify Lenders of its receipt of any such notice. Administrative
Agent shall take such action with respect to such Default or Event of Default as
may be requested by the Required Lenders in accordance with Section 8; provided,
however, that unless and until Administrative Agent has received any such
request, Administrative Agent may (but shall not be obligated to) take such
action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable or in the best interest of Lenders.
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9.06 CREDIT DECISION; DISCLOSURE OF INFORMATION BY ADMINISTRATIVE
AGENT. Each Lender acknowledges that none of Administrative Agent-Related
Persons has made any representation or warranty to it, and that no act by
Administrative Agent hereinafter taken, including any consent to and acceptance
of any assignment or review of the affairs of Borrower and its Subsidiaries,
shall be deemed to constitute any representation or warranty by any
Administrative Agent-Related Person to any Lender as to any matter, including
whether Administrative Agent-Related Persons have disclosed material information
in their possession. Each Lender, including any Lender by assignment, represents
to Administrative Agent and Borrower that it has, independently and without
reliance upon any Administrative Agent-Related Person and based on such
documents and information as it has deemed appropriate, made its own appraisal
of and investigation into the business, prospects, operations, property,
financial and other condition and creditworthiness of Borrower and its
Subsidiaries, and all applicable bank regulatory laws relating to the
transactions contemplated hereby, and made its own decision to enter into this
Agreement and to extend credit to Borrower hereunder. Each Lender also
represents that it will, independently and without reliance upon any
Administrative Agent-Related Person and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
analysis, appraisals and decisions in taking or not taking action under this
Agreement and the other Loan Documents, and to make such investigations as it
deems necessary to inform itself as to the business, prospects, operations,
property, financial and other condition and creditworthiness of Borrower or any
of its Subsidiaries. Except for notices, reports and other documents expressly
required to be furnished to Lenders by Administrative Agent herein,
Administrative Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the business, prospects,
operations, property, financial and other condition or creditworthiness of
Borrower or any of its Subsidiaries which may come into the possession of any of
Administrative Agent-Related Persons.
9.07 INDEMNIFICATION OF ADMINISTRATIVE AGENT. Whether or not the
transactions contemplated hereby are consummated, Lenders shall indemnify upon
demand each Administrative Agent-Related Person (to the extent not reimbursed by
or on behalf of Borrower and without limiting the obligation of Borrower to do
so), pro rata, and hold harmless each Administrative Agent-Related Person from
and against any and all Indemnified Liabilities incurred by it; provided,
however, that no Lender shall be liable for the payment to any Administrative
Agent-Related Person of any portion of such Indemnified Liabilities resulting
from such Person's gross negligence or willful misconduct as determined by a
final nonappealable judgment by a court of competent jurisdiction; provided,
however, that no action taken in accordance with the directions of the Required
Lenders or all Lenders, as the case may be, shall be deemed to constitute gross
negligence or willful misconduct for purposes of this Section. Without
limitation of the foregoing, each Lender shall reimburse Administrative Agent
upon demand for its ratable share of any costs or out-of-pocket expenses
(including Attorney Costs) incurred by Administrative Agent in connection with
the preparation, execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement,
any other Loan Document, or any document contemplated by or referred to herein,
to
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the extent that Administrative Agent is not reimbursed for such expenses by or
on behalf of Borrower. The undertaking in this Section shall survive the payment
of all Obligations hereunder and the resignation or replacement of
Administrative Agent.
9.08 ADMINISTRATIVE AGENT IN INDIVIDUAL CAPACITY. Bank of America and
its Affiliates may make loans to, issue letters of credit for the account of,
accept deposits from, acquire equity interests in and generally engage in any
kind of banking, trust, financial advisory, underwriting or other business with
Borrower and its Subsidiaries and Affiliates as though Bank of America were not
Administrative Agent or Issuing Lender hereunder or Swing Line Lender and
without notice to or consent of Lenders. Lenders acknowledge that, pursuant to
such activities, Bank of America or its Affiliates may receive information
regarding Borrower or its Affiliates (including information that may be subject
to confidentiality obligations in favor of Borrower or such Affiliate) and
acknowledge that Administrative Agent shall be under no obligation to provide
such information to them. With respect to its Loans and Letters of Credit, Bank
of America shall have the same rights and powers under this Agreement as any
other Lender and may exercise the same as though it were not Administrative
Agent or Issuing Lender.
9.09 SUCCESSOR ADMINISTRATIVE AGENT. Administrative Agent may, and at
the request of the Required Lenders shall, resign as Administrative Agent upon
30 days' notice to Lenders and Borrower. If Administrative Agent resigns under
this Agreement, the Required Lenders shall appoint from among Lenders a
successor administrative agent for Lenders which successor administrative agent
shall, so long as no Default or Event of Default shall have occurred and be
continuing, be approved by Borrower. If no successor administrative agent is
appointed prior to the effective date of the resignation of Administrative
Agent, Administrative Agent may appoint, after consulting with Lenders and
Borrower, a successor administrative agent from among Lenders. Upon the
acceptance of its appointment as successor administrative agent hereunder, such
successor administrative agent shall succeed to all the rights, powers and
duties of the retiring Administrative Agent and the term "Administrative Agent"
shall mean such successor administrative agent and the retiring Administrative
Agent's appointment, powers and duties as Administrative Agent shall be
terminated. After any retiring Administrative Agent's resignation hereunder as
Administrative Agent, the provisions of this Section 9 and Sections 10.04 and
10.12 shall inure to its benefit as to any actions taken or omitted to be taken
by it while it was Administrative Agent under this Agreement. If no successor
administrative agent has accepted appointment as Administrative Agent by the
date which is 30 days following a retiring Administrative Agent's notice of
resignation, the retiring Administrative Agent's resignation shall nevertheless
thereupon become effective and Lenders shall perform all of the duties of
Administrative Agent hereunder until such time, if any, as the Required Lenders
appoint a successor agent as provided for above. Notwithstanding the foregoing,
however, Bank of America may not be removed as Administrative Agent at the
request of the Required Lenders unless Bank of America shall also simultaneously
be replaced as "Issuing Lender" and "Swing Line Lender" hereunder pursuant to
documentation in form and substance reasonably satisfactory to Bank of America.
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SECTION 10.
MISCELLANEOUS
10.01 AMENDMENTS; CONSENTS. No amendment, modification, supplement,
extension, termination or waiver of any provision of this Agreement or any other
Loan Document, no approval or consent thereunder, and no consent to any
departure by any Borrower Party therefrom shall be effective unless in writing
signed by Borrower and the Required Lenders and acknowledged by Administrative
Agent, and each such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. Except as otherwise
expressly provided herein, without the approval in writing of Borrower,
Administrative Agent and all Lenders, no amendment, modification, supplement,
termination, waiver or consent may be effective:
(a) to reduce the amount of principal, principal prepayments
or the rate of interest payable on, any Loan, or the amount of any fee or other
amount payable to any Lender under the Loan Documents (unless such modification
is consented to by each Lender entitled to receive such fee) or to waive an
Event of Default consisting of the failure of Borrower to pay when due
principal, interest or any utilization fee or facility fee;
(b) to postpone any date fixed for any payment of principal
of, prepayment of principal of, or any installment of interest on, any Loan or
any installment of any fee payable to Lenders under Section 2.08, to extend the
term of, or increase the amount of, any Lender's Commitment (it being understood
that a waiver of an Event of Default shall not constitute an extension or
increase in the Commitment of any Lender) or modify the Pro Rata Share of any
Lender;
(c) to amend the provisions of the definition of "Required
Lenders", Sections 4, 9, this Section 10.01 or Section 10.07;
(d) to amend any provision of this Agreement that expressly
requires the consent or approval of all Lenders;
(e) to release all or substantially all of the Guarantors from
their guarantee obligations under the Guaranty; or
(f) to release all or substantially all of the Collateral
(other than pursuant to Section 10.02);
provided, however, that (i) no amendment, waiver or consent shall, unless in
writing and signed by Issuing Lender in addition to Borrower and Required
Lenders or all Lenders, as the case may be, affect the rights or duties of
Issuing Lender under any Loan Document relating to Letters of Credit, (ii) no
amendment, waiver or consent shall, unless in writing and signed by
Administrative Agent in addition to Borrower and Required Lenders or all
Lenders, as the case may be, affect the rights or duties of Administrative Agent
under any Loan Document, (iii) no amendment, waiver or consent shall, unless in
writing and signed by Swing Line Lender in
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addition to Borrower and Required Lenders or all Lenders, as the case may be,
affect the rights or duties of Swing Line Lender under any Loan Document, (iv)
no amendment, waiver or consent shall, unless in writing and signed by TTI in
addition to ALT and Administrative Agent affect the rights or duties of TTI
under the ALT Subordination Agreement, and (v) any fee letter may be amended
adversely to TTI, or rights or privileges thereunder waived, in a writing
executed by the parties thereto. Any amendment, modification, supplement,
termination, waiver or consent pursuant to this Section shall apply equally to,
and shall be binding upon, all Lenders and Administrative Agent. Administrative
Agent shall provide TTI with a copy of each amendment, waiver or consent of or
to the ALT Subordination Agreement.
10.02 RELEASE OF COLLATERAL. Anything contained in this Agreement or
any of the other Loan Documents to the contrary notwithstanding, on the
Collateral Release Date, the Pledge Agreement shall be terminated, and all
Collateral pledged thereunder shall be released, without further action on the
part of Administrative Agent or any Lender. Any release of Collateral pledged
under the Pledge Agreement in accordance with the provisions of this Section
10.02 shall be deemed to be a release of such pledged Collateral approved by all
Lenders for purposes of the Loan Documents. In connection with any such release,
Administrative Agent shall execute all such further documents and instruments as
may be reasonably requested by Borrower in order to more fully evidence or
effect such release. All such deliveries shall be at the expense of Borrower,
with no liability to Administrative Agent or any Lender, and with no
representation or warranty by or recourse to Administrative Agent or any Lender.
Notwithstanding anything to the contrary herein or in any other Loan Document,
the Guaranty shall not be terminated on the Collateral Release Date.
10.03 TRANSMISSION AND EFFECTIVENESS OF NOTICES AND SIGNATURES.
(a) MODES OF DELIVERY. Except as otherwise provided in any
Loan Document, notices, requests, demands, directions, agreements and documents
delivered in connection with the Loan Documents (collectively, "communications")
shall be transmitted by Requisite Notice to the number and address set forth on
Schedule 10.03, may be delivered by the following modes of delivery, and shall
be effective as follows:
<TABLE>
<CAPTION>
MODE OF DELIVERY EFFECTIVE ON EARLIER OF ACTUAL RECEIPT AND:
------------------------------------------------------------------------------------
<S> <C>
Courier Scheduled delivery date
Facsimile When transmission in legible form complete
Mail Fourth Business Day after deposit in U.S. mail first
class postage pre-paid
Personal delivery When received
Telephone When conversation completed
</TABLE>
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provided, however, that communications delivered to Administrative Agent
pursuant to Section 2 shall not be effective until actually received by
Administrative Agent.
(b) RELIANCE BY ADMINISTRATIVE AGENT AND LENDERS.
Administrative Agent and Lenders shall be entitled to rely and act on any
communications purportedly given by or on behalf of any Borrower Party and
believed by it to be genuine and correct and to have been signed, made or given
by the proper Person. Borrower shall indemnify Administrative Agent and Lenders
pursuant to Section 10.14 from any loss, cost, expense or liability as a result
of relying on any communications permitted herein. The obligations of Borrower
in this subsection shall survive payment of all Obligations.
(c) EFFECTIVENESS OF FACSIMILE SIGNATURES. Signatures on
communications may be transmitted by facsimile; provided that the Administrative
Agent may, in its sole and absolute discretion in each instance, require the
delivery of originally executed signature pages. The effectiveness of any such
facsimile signatures accepted by Administrative Agent shall, subject to
applicable Law, have the same force and effect as manual signatures and shall be
binding on all Borrower Parties and Administrative Agent and Lenders.
Administrative Agent may also require that any such facsimile signature be
confirmed by a manually-signed hardcopy thereof; provided, however, that the
failure to request any such manually-signed hardcopy confirmation shall not
affect the effectiveness of any facsimile signatures.
10.04 ATTORNEY COSTS, EXPENSES AND TAXES. Borrower agrees (a) to pay or
reimburse Administrative Agent for all reasonable costs and expenses incurred in
connection with the development, preparation, negotiation and execution of the
Loan Documents, and the development, preparation, negotiation and execution of
any amendment, waiver, consent, supplement or modification to, any Loan
Documents, and any other documents prepared in connection herewith or therewith,
and the consummation and administration of the transactions contemplated hereby
and thereby, including reasonable Attorney Costs, and (b) to pay or reimburse
Administrative Agent and each Lender for all costs and expenses incurred in
connection with any refinancing, restructuring, reorganization (including a
bankruptcy reorganization) and enforcement or attempted enforcement, or
preservation of any rights under any Loan Documents, and any other documents
prepared in connection herewith or therewith, or in connection with any
refinancing, or restructuring of any such documents in the nature of a "workout"
or of any insolvency or bankruptcy proceeding, including all Attorney Costs. The
foregoing costs and expenses shall include all (and, in the case of clause (a)
of the immediately preceding sentence only, all reasonable) search, filing,
recording, title insurance and appraisal charges and fees and taxes related
thereto, and (and, in the case of clause (a) of the immediately preceding
sentence only, all reasonable) other out-of-pocket expenses incurred by
Administrative Agent and the cost of independent public accountants and other
outside experts retained by Administrative Agent or any Lender. Such costs and
expenses shall also include administrative costs of Administrative Agent
reasonably attributable to the administration of the Loan Documents. Any amount
payable by Borrower under this Section shall bear interest from the second
Business Day following the date of demand for payment at the Default Rate,
unless waived by Administrative Agent. The agreements in this Section shall
survive repayment of all Obligations.
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10.05 BINDING EFFECT; ASSIGNMENT.
(a) This Agreement and the other Loan Documents to which
Borrower is a party will be binding upon and inure to the benefit of Borrower,
Administrative Agent, Lenders and their respective successors and assigns,
except that, Borrower may not assign its rights hereunder or thereunder or any
interest herein or therein without the prior written consent of all Lenders and
any such attempted assignment shall be void. Any Lender may at any time pledge
its Note or any other instrument evidencing its rights as a Lender under this
Agreement to a Federal Reserve Bank, but no such pledge shall release that
Lender from its obligations hereunder or grant to such Federal Reserve Bank the
rights of a Lender hereunder absent foreclosure of such pledge.
(b) From time to time following the Signing Date, each Lender
may assign to one or more Eligible Assignees all or any portion of its Pro Rata
Share of its Commitment and/or Extensions of Credit; provided that (i) such
assignment, if not to a Lender or an Affiliate of the assigning Lender, shall be
consented to by Borrower at all times other than during the existence of a
Default or Event of Default and Administrative Agent, Issuing Lender and Swing
Line Lender (which approval of Borrower, Administrative Agent, Issuing Lender
and Swing Line Lender shall not be unreasonably withheld or delayed), (ii) a
copy of a duly signed and completed Notice of Assignment and Acceptance shall be
delivered to Administrative Agent, (iii) except in the case of an assignment to
an Affiliate of the assigning Lender, to another Lender or of the entire
remaining Commitment of the assigning Lender, the assignment shall not assign a
Pro Rata Share equivalent to less than the Minimum Amount therefor, and (iv) the
effective date of any such assignment shall be as specified in the Notice of
Assignment and Acceptance, but not earlier than the date which is five Business
Days after the date Administrative Agent has received the Notice of Assignment
and Acceptance. Upon acceptance by Administrative Agent of such Notice
Assignment and Acceptance and consent thereto by Administrative Agent, Issuing
Lender and Swing Line Lender and payment of the requisite fee described below,
the Eligible Assignee named therein shall be a Lender for all purposes of this
Agreement, with the Pro Rata Share therein set forth and, to the extent of such
Pro Rata Share, the assigning Lender shall be released from its further
obligations under this Agreement. Borrower agrees that it shall execute and
deliver upon request (against delivery by the assigning Lender to Borrower of
any Note) to such assignee Lender, one or more Notes evidencing that assignee
Lender's Pro Rata Share, and to the assigning Lender if requested, one or more
Notes evidencing the remaining balance Pro Rata Share retained by the assigning
Lender; provided that Loans made to ALT shall be evidenced by the ALT Global
Note only. Administrative Agent's consent to and acceptance of any assignment
shall not be deemed to constitute any representation or warranty by any
Administrative Agent-Related Person as to any matter.
(c) After receipt of a completed Notice of Assignment and
Acceptance, and receipt of an assignment fee of $3,500 from such Eligible
Assignee (including Affiliates of assigning Lenders), Administrative Agent
shall, promptly following the effective date thereof, provide to Borrower and
Lenders a revised Schedule 10.03 giving effect thereto.
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(d) Each Lender may from time to time grant participations to
one or more other Person (including another Lender) all or any portion of its
Pro Rata Share of its Commitment and/or Extensions of Credit; provided, however,
that (i) such Lender's obligations under this Agreement shall remain unchanged,
(ii) such Lender shall remain solely responsible to the other parties hereto for
the performance of such obligations, (iii) the participating banks or other
financial institutions shall not be a Lender hereunder for any purpose except,
if the participation agreement so provides, for the purposes of Section 3 (but
only to the extent that the cost of such benefits to Borrower does not exceed
the cost which Borrower would have incurred in respect of such Lender absent the
participation) and subject to Sections 10.06 and 10.07, (iv) Borrower,
Administrative Agent and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement, (v) the participation shall not restrict an
increase in the Commitment or in granting Lender's Pro Rata Share, so long as
the amount of the participation interest is not affected thereby, and (vi) the
consent of the holder of such participation interest shall not be required for
amendments or waivers of provisions of the Loan Documents; provided, however,
that the assigning Lender may, in any agreement with a participant, give such
participant the right to consent to any matter which (A) extends the Maturity
Date as to such participant or any other date upon which any payment of money is
due to such participant, (B) reduces the rate of interest owing to such
participant, any fee or any other monetary amount owing to such participant, (C)
reduces the amount of any installment of principal owing to such participant, or
(D) releases of all or substantially all of the Guarantors or releases of all or
substantially all of the Collateral (other than pursuant to Section 10.02).
10.06 SET-OFF. In addition to any rights and remedies of Administrative
Agent and Lenders or any assignee or participant of Lenders or any Affiliates
thereof (each, a "Proceeding Party") provided by law or in equity or otherwise,
upon the occurrence and during the continuance of any Event of Default, each
Proceeding Party is authorized at any time and from time to time, without prior
notice to Borrower, any such notice being waived by Borrower to the fullest
extent permitted by law, to proceed directly, by right of set-off, banker's lien
or counterclaim, or otherwise, against any assets of the Borrower Parties which
may be in the hands of such Proceeding Party (including all general or special,
time or demand, provisional or other deposits and other indebtedness owing by
such Proceeding Party to or for the credit or the account of Borrower but
excluding any trust or custodial accounts in respect of Plans of any Borrower
Party) and apply such assets against the Obligations, irrespective of whether
such Proceeding Party shall have made any demand therefor and although such
Obligations may be unmatured. Each Lender agrees promptly to notify Borrower and
Administrative Agent after any such set-off and application made by such Lender;
provided, however, that the failure to give such notice shall not affect the
validity of such set-off and application.
10.07 SHARING OF PAYMENTS. Each Lender severally agrees that if it,
through the exercise of any right of setoff, banker's lien or counterclaim
against Borrower, or otherwise, receives payment of the Obligations held by it
that is ratably more than any other Lender, through any means, receives in
payment of the Obligations held by that Lender, then, subject to applicable
Laws: (a) Lender exercising the right of setoff, banker's lien or counterclaim
or
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otherwise receiving such payment shall purchase, and shall be deemed to have
simultaneously purchased, from the other Lender a participation in the
Obligations held by the other Lender and shall pay to the other Lender a
purchase price in an amount so that the share of the Obligations held by each
Lender after the exercise of the right of setoff, banker's lien or counterclaim
or receipt of payment shall be in the same proportion that existed prior to the
exercise of the right of setoff, banker's lien or counterclaim or receipt of
payment; and (b) such other adjustments and purchases of participations shall be
made from time to time as shall be equitable to ensure that all of Lenders share
any payment obtained in respect of the Obligations ratably in accordance with
each Lender's Pro Rata Share of the Obligations immediately prior to, and
without taking into account, the payment; provided that, if all or any portion
of a disproportionate payment obtained as a result of the exercise of the right
of setoff, banker's lien, counterclaim or otherwise is thereafter recovered from
the purchasing Lender by Borrower or any Person claiming through or succeeding
to the rights of Borrower, the purchase of a participation shall be rescinded
and the purchase price thereof shall be restored to the extent of the recovery,
but without interest. Each Lender that purchases a participation in the
Obligations pursuant to this Section shall from and after the purchase have the
right to give all notices, requests, demands, directions and other
communications under this Agreement with respect to the portion of the
Obligations purchased to the same extent as though the purchasing Lender were
the original owner of the Obligations purchased. Borrower expressly consents to
the foregoing arrangements and agrees that any Lender holding a participation in
an Obligation so purchased may exercise any and all rights of setoff, banker's
lien or counterclaim or otherwise with respect to the participation as fully as
if Lender were the original owner of the Obligation purchased.
10.08 NO WAIVER; CUMULATIVE REMEDIES.
(a) No failure by any Lender or Administrative Agent to
exercise, and no delay by any Lender or Administrative Agent in exercising, any
right, remedy, power or privilege hereunder, shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, remedy, power or
privilege under any Loan Document preclude any other or further exercise thereof
or the exercise of any other right, remedy, power or privilege.
(b) The rights, remedies, powers and privileges herein or
therein provided are cumulative and not exclusive of any rights, remedies,
powers and privileges provided by Law. Any decision by Administrative Agent or
any Lender not to require payment of any interest (including Default Interest),
fee, cost or other amount payable under any Loan Document or to calculate any
amount payable by a particular method on any occasion shall in no way limit or
be deemed a waiver of Administrative Agent's or such Lender's right to require
full payment thereof, or to calculate an amount payable by another method that
is not inconsistent with this Agreement, on any other or subsequent occasion.
(c) The terms and conditions of Section 9 are inserted for the
sole benefit of Administrative Agent and Lenders; the same may be waived in
whole or in part, with or without terms or conditions, in respect of any
Extension of Credit without prejudicing Administrative Agent's or Lenders'
rights to assert them in whole or in part in respect of any other Extension of
Credit.
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10.09 USURY. Notwithstanding anything to the contrary contained in any
Loan Document, the interest and fees paid or agreed to be paid under the Loan
Documents shall not exceed the maximum rate of non-usurious interest permitted
by applicable Law (the "Maximum Rate"). If Administrative Agent or any Lender
shall receive interest or a fee in an amount that exceeds the Maximum Rate, the
excessive interest or fee shall be applied to the principal of the Outstanding
Obligations or, if it exceeds the unpaid principal, refunded to Borrower. In
determining whether the interest or a fee contracted for, charged, or received
by Administrative Agent or a Lender exceeds the Maximum Rate, such Person may,
to the extent permitted by applicable Law, (a) characterize any payment that is
not principal as an expense, fee, or premium rather than interest, (b) exclude
voluntary prepayments and the effects thereof, and (c) amortize, prorate,
allocate, and spread in equal or unequal parts the total amount of interest
throughout the contemplated term of the Obligations.
10.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.11 INTEGRATION. This Agreement, together with the other Loan
Documents and any letter agreements referred to herein, comprises the complete
and integrated agreement of the parties on the subject matter hereof and
supersedes all prior agreements, written or oral, on the subject matter hereof.
In the event of any conflict between the provisions of this Agreement and those
of any other Loan Document, the provisions of this Agreement shall control and
govern; provided that the inclusion of supplemental rights or remedies in favor
of Administrative Agent or Lenders in any other Loan Document shall not be
deemed a conflict with this Agreement. Each Loan Document was drafted with the
joint participation of the respective parties thereto and shall be construed
neither against nor in favor of any party, but rather in accordance with the
fair meaning thereof.
10.12 NATURE OF LENDERS' OBLIGATIONS. The obligations of Lenders
hereunder are several and not joint or joint and several. Nothing contained in
this Agreement or any other Loan Document and no action taken by Administrative
Agent or Lenders or any of them pursuant hereto or thereto may, or may be deemed
to, make Lenders a partnership, an association, a joint venture or other entity,
either among themselves or with Borrower or any Affiliate of Borrower. Each
Lender's obligation to make any Extension of Credit pursuant hereto is several
and not joint or joint and several, and in the case of the initial Extension of
Credit only is conditioned upon the performance by all other Lenders of their
obligations to make initial Extensions of Credit. A default by any Lender will
not increase the Pro Rata Share attributable to any other Lender.
10.13 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made hereunder and in any Loan Document, certificate or statement
delivered pursuant hereto or thereto or in connection herewith or therewith
shall survive the execution and delivery thereof but shall terminate the later
of (a) when the Commitments are terminated and (b) when no Obligations remain
outstanding under any Loan Document. Such representations and warranties have
been or will be relied upon by Administrative Agent and each Lender,
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notwithstanding any investigation made by Administrative Agent or any Lender or
on their behalf.
10.14 INDEMNITY BY BORROWER. Borrower agrees to indemnify, save and
hold harmless each Administrative Agent-Related Person and each Lender and their
respective Affiliates, directors, officers, agents, advisors and employees
(collectively the "Indemnitees") from and against, and to pay upon demand: (a)
any and all claims, demands, actions or causes of action that are asserted
against any Indemnitee by any Person relating directly or indirectly to a claim,
demand, action or cause of action that such Person asserts or may assert against
any Borrower Party, any of their Affiliates or any of their officers or
directors; (b) any and all claims, demands, actions or causes of action, losses,
costs, expenses or liabilities arising out of or relating to, the Spinoff
Documents, the Spinoff, the Line of Business Transfer, the Loan Documents, any
predecessor loan documents, the Commitments, the use or contemplated use of the
proceeds of any Extension of Credit, or the relationship of any Borrower Party,
Administrative Agent and Lenders under this Agreement; (c) any administrative or
investigative proceeding by any Governmental Authority arising out of or related
to a claim, demand, action or cause of action described in subsection (a) or (b)
above; and (d) any and all liabilities, losses, costs or expenses (including
reasonable Attorney Costs) that any Indemnitee suffers or incurs as a result of
the assertion of any foregoing claim, demand, action, cause of action or
proceeding, or as a result of the preparation of any defense in connection with
any foregoing claim, demand, action, cause of action or proceeding, in all
cases, whether or not an Indemnitee is a party to such claim, demand, action,
cause of action or proceeding, including those liabilities caused by an
Indemnitee's own negligence (all the foregoing, collectively, the "Indemnified
Liabilities"); provided that no Indemnitee shall be entitled to indemnification
for any loss caused by its own gross negligence or willful misconduct as
determined by a final nonappealable judgment by a court of competent
jurisdiction. No Indemnitee shall be liable for any damages arising from the use
by others of information or other materials obtained through internet,
Intralinks or other similar information transmission systems in connection with
Extensions of Credit or the Loan Documents. The obligations of Borrower under
this Section shall survive payment of all Obligations.
10.15 NONLIABILITY OF LENDERS. Borrower acknowledges and agrees that:
(a) Any inspections of any property of Borrower made by or
through Administrative Agent or Lenders are for purposes of administration of
the Loan Documents only, and Borrower is not entitled to rely upon the same
(whether or not such inspections are at the expense of Borrower);
(b) By accepting or approving anything required to be
observed, performed, fulfilled or given to Administrative Agent or Lenders
pursuant to the Loan Documents, neither Administrative Agent nor Lenders shall
be deemed to have warranted or represented the sufficiency, legality,
effectiveness or legal effect of the same, or of any term, provision or
condition thereof, and such acceptance or approval thereof shall not constitute
a warranty or representation to anyone with respect thereto by Administrative
Agent or Lenders;
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(c) The relationship between Borrower and Administrative Agent
and Lenders is, and shall at all times remain, solely that of borrower and
lenders; neither Administrative Agent nor Lenders shall under any circumstance
be construed to be partners or joint venturers of Borrower or its Affiliates;
neither Administrative Agent nor Lenders shall under any circumstance be deemed
to be in a relationship of confidence or trust or a fiduciary relationship with
Borrower or its Affiliates, or to owe any fiduciary duty to Borrower or its
Affiliates; neither Administrative Agent nor Lenders undertake or assume any
responsibility or duty to Borrower or its Affiliates to select, review, inspect,
supervise, pass judgment upon or inform Borrower or its Affiliates of any matter
in connection with their property or the operations of Borrower or its
Affiliates; Borrower and its Affiliates shall rely entirely upon their own
judgment with respect to such matters; and any review, inspection, supervision,
exercise of judgment or supply of information undertaken or assumed by
Administrative Agent or Lenders in connection with such matters is solely for
the protection of Administrative Agent and Lenders and neither Borrower nor any
other Person is entitled to rely thereon; and
(d) Administrative Agent and Lenders shall not be responsible
or liable to any Person for any loss, damage, liability or claim of any kind
relating to injury or death to Persons or damage to property caused by the
actions, inaction or negligence of Borrower and/or its Affiliates and Borrower
hereby indemnifies and holds Administrative Agent and Lenders harmless from any
such loss, damage, liability or claim. The obligations of Borrower under this
subsection shall survive payment of all Obligations.
10.16 NO THIRD PARTIES BENEFITED. This Agreement is made for the
purpose of defining and setting forth certain obligations, rights and duties of
Borrower, Administrative Agent and Lenders in connection with the Extensions of
Credit, and is made for the sole benefit of Borrower, Administrative Agent and
Lenders, and Administrative Agent's and Lenders' successors and assigns. Except
as provided in Sections 10.05 and 10.14, no other Person shall have any rights
of any nature hereunder or by reason hereof.
10.17 SEVERABILITY. Any provision of the Loan Documents that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.18 CONFIDENTIALITY. Administrative Agent and each Lender shall use
any confidential non-public information concerning the Borrower Parties and
their Subsidiaries that is furnished to Administrative Agent or such Lender by
or on behalf of the Borrower Parties and their Subsidiaries in writing in
connection with the Loan Documents (collectively, "Confidential Information")
solely for the purpose of administering and enforcing the Loan Documents, and it
will hold the Confidential Information in confidence. Notwithstanding the
foregoing, Administrative Agent and each Lender may disclose Confidential
Information (a) to their Affiliates or any of their or their Affiliates'
directors, officers, employees, advisors, or representatives (collectively, the
"Representatives") whom it determines need to know such information for the
purposes set forth in this Section; (b) to any bank or financial institution or
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other entity to which such Lender has assigned or desires to assign an interest
or participation in the Loan Documents or the Obligations, provided that any
such foregoing recipient of such Confidential Information agrees to keep such
Confidential Information confidential as specified herein; (c) to any
governmental agency or regulatory body having or claiming to have authority to
regulate or oversee any aspect of Administrative Agent's or such Lender's
business or that of their Representatives in connection with the exercise of
such authority or claimed authority; (d) to the extent necessary or appropriate
to effect or preserve Administrative Agent's or such Lender's or any of their
Affiliates' security (if any) for any Obligation or to enforce any right or
remedy or in connection with any claims asserted by or against Administrative
Agent or such Lender or any of their Representatives; and (e) pursuant to, and
as required to comply with, any subpoena or any similar legal process; provided
that, in the case of clause (e) only, to the extent permitted under applicable
Law, Administrative Agent or such Lender, as the case may be, shall notify
Borrower of any such requirement applicable to it so that Borrower may seek a
protective order or other appropriate remedy to prevent the disclosure thereof.
For purposes hereof, the term "Confidential Information" shall not include
information that (x) is in Administrative Agent's or a Lender's possession prior
to its being provided by or on behalf of the Borrower Parties, provided that
such information is not known by Administrative Agent or such Lender to be
subject to another confidentiality agreement with, or other legal or contractual
obligation of confidentiality to, a Borrower Party, (y) is or becomes publicly
available (other than through a breach hereof by Administrative Agent or such
Lender), or (z) becomes available to Administrative Agent or such Lender on a
nonconfidential basis, provided that the source of such information was not
known by Administrative Agent or such Lender to be bound by a confidentiality
agreement or other legal or contractual obligation of confidentiality with
respect to such information.
10.19 FURTHER ASSURANCES. Borrower and its Subsidiaries shall, at their
expense and without expense to Lenders or Administrative Agent, do, execute and
deliver such further acts and documents as any Lender or Administrative Agent
from time to time reasonably requires for the assuring and confirming unto
Lenders or Administrative Agent of the rights hereby created or intended now or
hereafter so to be, or for carrying out the intention or facilitating the
performance of the terms of any Loan Document.
10.20 HEADINGS. Section headings in this Agreement and the other Loan
Documents are included for convenience of reference only and are not part of
this Agreement or the other Loan Documents for any other purpose.
10.21 TIME OF THE ESSENCE. Time is of the essence of the Loan
Documents.
10.22 FOREIGN LENDERS AND PARTICIPANTS. Each Lender, and each holder of
a participation interest herein, that is a "foreign corporation, partnership or
trust" within the meaning of the Code shall deliver to Administrative Agent,
prior to receipt of any payment subject to withholding (or after accepting an
assignment or receiving a participation interest herein), two duly signed
completed copies of either Form W-8BEN or any successor thereto (relating to
such Person and entitling it to a complete exemption from withholding on all
payments to be made to such Person by Borrower pursuant to this Agreement) or
Form W-8ECI
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or any successor thereto (relating to all payments to be made to such Person by
Borrower pursuant to this Agreement) of the IRS or such other evidence
satisfactory to Borrower and Administrative Agent that no withholding under the
federal income tax Laws is required with respect to such Person. Thereafter and
from time to time, each such Person shall (a) promptly submit to Administrative
Agent such additional duly completed and signed copies of one of such forms (or
such successor forms as shall be adopted from time to time by the relevant
United States taxing authorities) as may then be available under then current
United States Laws and regulations to avoid, or such evidence as is satisfactory
to Borrower and Administrative Agent of any available exemption from, United
States withholding taxes in respect of all payments to be made to such Person by
Borrower pursuant to this Agreement, and (b) take such steps as shall not be
materially disadvantageous to it, in the reasonable judgment of such Lender, and
as may be reasonably necessary (including the re-designation of its Lending
Office, if any) to avoid any requirement of applicable Laws that Borrower make
any deduction or withholding for taxes from amounts payable to such Person. If
such Persons fails to deliver the above forms or other documentation, then
Administrative Agent may withhold from any interest payment to such Person an
amount equivalent to the applicable withholding tax imposed by Sections 1441 and
1442 of the Code, without reduction. If any Governmental Authority asserts that
Administrative Agent did not properly withhold any tax or other amount from
payments made in respect of such Person, such Person shall indemnify
Administrative Agent therefor, including all penalties and interest and costs
and expenses (including Attorney Costs) of Administrative Agent. The obligation
of Lenders under this subsection shall survive the payment of all Obligations
and the resignation or replacement of Administrative Agent.
10.23 REMOVAL AND/OR REPLACEMENT OF LENDERS.
(a) Under any circumstances set forth in this Agreement
providing that Borrower shall have the right to remove and/or replace a Lender
as a party to this Agreement, Borrower may, upon notice to such Lender and
Administrative Agent, remove such Lender by (i) non ratably terminating such
Lender's Commitment and/or (ii) causing such Lender to assign its Commitment to
one or more other Lenders or Eligible Assignees acceptable to Borrower,
Administrative Agent, Swing Line Lender and Issuing Bank. Any removed or
replaced Lender shall be entitled to (x) payment in full of all principal,
interest, fees and other amounts owing to such Lender through the date of
termination or assignment (including any amounts payable pursuant to Section
3.05), (y) appropriate assurances and indemnities (which may include letters of
credit) as such Lender may reasonably require with respect to its participation
interest in any Letters of Credit or any Swing Line Loans then outstanding and
(z) a release of such Lender from its obligations under the Loan Documents. Any
Lender being replaced shall execute and deliver a Notice of Assignment and
Acceptance covering that Lender's Commitment. Administrative Agent shall
distribute an amended Schedule 2.01, which shall thereafter be incorporated into
this Agreement, to reflect adjustments to Lenders and their Commitments.
(b) In order to make all Lender's interests in any outstanding
Extensions of Credit ratable in accordance with any revised Pro Rata Shares
after giving effect to the removal or replacement of a Lender, Borrower shall
pay or prepay, if necessary, on the effective date thereof, all outstanding
Extensions of Credit of all Lenders, together with any amounts due under
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Section 3.05. Borrower may then request Extensions of Credit from Lenders in
accordance with their revised Pro Rata Shares.
10.24 GOVERNING LAW.
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE GOVERNING STATE APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE; PROVIDED THAT ADMINISTRATIVE
AGENT AND EACH LENDER SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE
OF THE GOVERNING STATE OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF THE
GOVERNING STATE, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH BORROWER
PARTY, ADMINISTRATIVE Agent AND EACH LENDER CONSENTS, FOR ITSELF AND IN RESPECT
OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH
BORROWER PARTY, ADMINISTRATIVE Agent AND EACH LENDER IRREVOCABLY WAIVES ANY
OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE
GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF ANY LOAN
DOCUMENT OR OTHER DOCUMENT RELATED HERETO. EACH BORROWER PARTY, ADMINISTRATIVE
Agent AND EACH LENDER WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER
PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY THE LAW OF THE
GOVERNING STATE.
10.25 WAIVER OF RIGHT TO TRIAL BY JURY; OTHER WAIVERS. EACH PARTY TO
THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR
ANY OF THEM WITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED
THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND
CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED
BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT
TO TRIAL BY JURY. EACH PARTY TO THIS AGREEMENT WAIVES, TO THE FULLEST EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LEGAL ACTION
OR PROCEEDING REFERRED TO IN SECTION 10.24(b) ANY SPECIAL, EXEMPLARY, PUNITIVE
OR CONSEQUENTIAL DAMAGES.
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<PAGE> 88
10.26 ENTIRE AGREEMENT. THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND
ANY LETTER AGREEMENTS REFERRED TO HEREIN REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
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<PAGE> 89
IN WITNESS WHEREOF, the parties hereto have caused this Credit
Agreement to be duly executed as of the date first above written.
ALLEGHENY TELEDYNE INCORPORATED
By:____________________________
Name:__________________________
Title:_________________________
-84-
<PAGE> 90
TELEDYNE TECHNOLOGIES INCORPORATED
By:_______________________________
Name:_____________________________
Title:____________________________
-85-
<PAGE> 91
BANK OF AMERICA, N.A.,
as Administrative Agent
By:____________________________
Name:__________________________
Title:_________________________
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<PAGE> 92
BANK OF AMERICA, N.A.,
as Issuing Lender, Lender and
Swing Line Lender
By:____________________________
Name:__________________________
Title:_________________________
-87-
<PAGE> 93
MELLON BANK, N.A.,
as Syndication Agent and Lender
By:____________________________
Name:__________________________
Title:_________________________
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<PAGE> 94
THE CHASE MANHATTAN BANK,
as Syndication Agent and Lender
By:____________________________
Name:__________________________
Title:_________________________
-89-
<PAGE> 95
THE BANK OF NEW YORK,
as Co-Agent and Lender
By:____________________________
Name:__________________________
Title:_________________________
-90-
<PAGE> 96
BANK ONE, NA,
as Co-Agent and Lender
By:____________________________
Name:__________________________
Title:_________________________
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<PAGE> 97
NATIONAL CITY BANK OF PENNSYLVANIA,
as Co-Agent and Lender
By:________________________________
Name:______________________________
Title:_____________________________
-92-
<PAGE> 98
BANK OF TOKYO - MITSUBISHI TRUST COMPANY,
as Lender
By:______________________________________
Name:____________________________________
Title:___________________________________
-93-
<PAGE> 99
THE FUJI BANK, LIMITED,
as Lender
By:____________________________
Name:__________________________
Title:_________________________
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<PAGE> 100
WACHOVIA BANK, N.A.,
as Lender
By:____________________________
Name:__________________________
Title:_________________________
-95-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S COMBINED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1998
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND COMBINED BALANCE SHEET AS OF
DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001094285
<NAME> TELEDYNE TECHNOLOGIES INCORPORATED
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 SEP-30-1999
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 106 124
<ALLOWANCES> 3 3
<INVENTORY> 53 54
<CURRENT-ASSETS> 171 195
<PP&E> 178 182
<DEPRECIATION> 135 132
<TOTAL-ASSETS> 251 277
<CURRENT-LIABILITIES> 92 102
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 106 126
<TOTAL-LIABILITY-AND-EQUITY> 251 277
<SALES> 780 603
<TOTAL-REVENUES> 780 603
<CGS> 572 442
<TOTAL-COSTS> 572 442
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 83 61
<INCOME-TAX> 34 25
<INCOME-CONTINUING> 49 36
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 49 36
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
