UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended January 2, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from to Commission file number: 1-15295 TELEDYNE TECHNOLOGIES INCORPORATED (Exact name of registrant as specified in its charter) Delaware 25-1843385 (State of other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 2049 Century Park East, Suite 1500 Los Angeles, California 90067-3101 (Address of principal executive office and Zip Code) Registrant's telephone number, including area code: (310) 277-3311 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- --------------------- Common Stock, par value $.01 per share New York Stock Exchange Preferred Share Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None ---------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] At March 23, 2000, the number of outstanding shares of Common Stock of the registrant was 26,732,933. At March 23, 2000, the aggregate market value of the registrant's Common Stock held by non-affiliates of the registrant was approximately $350.7 million, based on the closing price of $13.625 per share as reported on the New York Stock Exchange. Shares of Common Stock known by the registrant to be beneficially owned by directors and executive officers subject to Section 16 of the Securities Exchange Act of 1934 are not included in the computation. The registrant, however, has made no determination that such persons are "affiliates" within the meaning of Rule 12b-2 under the Securities Exchange Act of 1934. DOCUMENTS INCORPORATED BY REFERENCE Selected portions of the registrant's proxy statement for its 2000 Annual Meeting of Stockholders (the "2000 Proxy Statement") are incorporated by reference in Part III of this Report. Information required by paragraphs (k) and (l) of Item 402 of Regulation S-K is not incorporated by reference in this Form 10-K or in any other filing of the registrant. Such information shall not be deemed "soliciting material" or to be filed with the Commission as permitted by Instruction (9) to Item 402 of Regulation S-K. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 2 INDEX PAGE NUMBER ------ PART I Item Business.................................................... 3 1. Item Properties.................................................. 21 2. Item Legal Proceedings........................................... 23 3. Item Submission of Matters to a Vote of Security Holders......... 23 4. PART II Item Market for Registrant's Common Equity and Related 5. Stockholder Matters......................................... 24 Item Selected Financial Data..................................... 24 6. Item Management's Discussion and Analysis of Financial Condition 7. and Results of Operations................................... 25 Item Quantitative and Qualitative Disclosure About Market Risk... 32 7A. Item Financial Statements and Supplementary Data................. 32 8. Item Changes in and Disagreements with Accountants on Accounting 9. and Financial Disclosure.................................... 32 PART III Item Directors and Executive Officers of the Registrant.......... 33 10. Item Executive Compensation...................................... 33 11. Item Security Ownership of Certain Beneficial Owners and 12. Management.................................................. 33 Item Certain Relationships and Related Transactions.............. 33 13. PART IV Item Exhibits, Financial Statement Schedules, and Reports on Form 14. 8-K......................................................... 33 INDEX TO FINANCIAL STATEMENTS AND RELATED INFORMATION F-1 SIGNATURES EXHIBIT INDEX DEFINED TERMS In this Form 10-K, Teledyne Technologies Incorporated is sometimes referred to as the "Company", "Teledyne Technologies", or "TDY". References to ATI mean Allegheny Technologies Incorporated, formerly known as Allegheny Teledyne Incorporated, the company from which we were spun-off on November 29, 1999. 3 PART I ITEM 1. BUSINESS. WHO WE ARE Teledyne Technologies Incorporated is a leading provider of sophisticated electronic and communications 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 technology to provide cost-effective and value-added solutions. Our products include avionic 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 1999 were $803.4 million, compared to $780.4 million and $756.6 million in 1998 and 1997, respectively. Our segment operating profits were $90.6 million, $89.2 million and $74.9 million in 1999, 1998 and 1997, respectively. Approximately 57% of our total sales in 1999 was to commercial customers and the balance was to the U.S. Government. Approximately 67% 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 18% of total sales in 1999. Our three business segments, their respective operating companies, and their contribution to our sales in 1999, 1998 and 1997 are summarized in the following table: PERCENTAGE OF SALES --------------------- SEGMENT OPERATING BUSINESSES 1999 1998 1997 ---------------------------------- ---------------------------------- ----- ----- ----- Electronics and Communications Teledyne Electronic Technologies 43% 44% 45% Systems Engineering Solutions Teledyne Brown Engineering, Inc. 28% 29% 28% Aerospace Engines and Components Teledyne Continental Motors and 29% 27% 27% Teledyne Cast Parts Teledyne Technologies was organized as a Delaware corporation on August 23, 1999. Teledyne Technologies is comprised of certain businesses of the former Aerospace and Electronics segment of Allegheny Teledyne Incorporated, now known as Allegheny Technologies Incorporated. On November 29, 1999, we were spun-off from ATI after a strategic review concluded that our businesses would be able to grow faster and be stronger competitors if they were combined as a separate company. On such date, each holder of ATI stock as of the close of business on November 22, 1999 received one share of TDY Common Stock for every seven shares of ATI stock. Our origin dates back to Teledyne, Inc. founded in 1960 by Dr. Henry Singleton. Our principal executive offices are located at 2049 Century Park East, Suite 1500, Los Angeles, California 90067-3101. Our telephone number is (310) 277-3311. OUR BUSINESS SEGMENTS 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 Manufacturing. Data Acquisition and Communication Products We are a leading supplier of systems and software for data acquisition and communications 3 4 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 (HDR) 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 also provide our systems of certain aircraft customers of Airbus Industrie's partner, DaimlerChrysler Aerospace Airbus. 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 communications systems include both new and retrofitted aircraft. Boeing estimates that the worldwide 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 to the required expansion of data recording capabilities, which were mandated by the Federal Aviation Administration (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. - 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-ground telephony, facsimile and data transmission products to the growing business and commuter aircraft market. Bombardier Aerospace 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 commercial air transport fleet, with approximately 27,000 aircraft currently operational. Forecast International, an industry consultant, projects that the business and commuter fleet will increase by approximately 40% during the next decade. We expect continued demand for both new installations and upgrades for these systems by business and commuter aircraft customers. - Wireless Ground Link. In March 1999, we demonstrated a prototype of our new Wireless Ground Link that automates the transfer of in-flight data recorded by our data acquisition systems to an airline's operations center. Transmission of the data can occur anytime an aircraft is on the ground utilizing the existing digital wireless infrastructure. The raw data are then forwarded to the airline through the Internet, where our Flight Data Replay and Analysis System can process them 4 5 into useful formats. Such data can then be used by the airline in scheduling maintenance services and implementing safety procedures. - Wireless and Satellite Communication Components. Our communication components and subsystems are used in satellite earth terminals, communication satellites, and base stations for Personal Communication Services (PCS) and wireless 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 (MMICs) and high power helix traveling wave tubes. Markets include amplifiers for fixed wireless applications operating in the Unlicensed National Information Infrastructure (U-NII) band and 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 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-18, B-1B, F-15 and E-A6B, and Global Hawk, and 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). In late 1999, Harris Corporation awarded us the contract to manufacture rugged fiber optic transmitters and receivers for the new F-22 fighter program. Approximately 50 transmit and 5 6 receive modules are used on each aircraft to route data to and from avionics equipment and the aircraft's central processor. Our fiber optic transmitter and receiver modules are also 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 electronic manufacturing facilities, certified to IS0 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 communication satellites. According to Venture Development, an industry consultant, the size of 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. During 1999, we added new products to our growing line of high frequency relays and work towards introducing additional products in 2000. - 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. - High-Density Connectors. We supply custom, low profile, surface mount connectors for applications in commuter 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. We were issued a patent for a new, low- cost method of producing high-density connectors in October 1999. Prismark Partners, an industry consultant, estimates that the 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 broadline 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. Our Model 2002(TM) sensor is a wide range digital vacuum meter used to measure vacuum or pressure in various process control and other systems applications. 6 7 Electronic Manufacturing 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 electronic 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 use 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 capabilities for rigid-flex printed circuits to improve customer service. In 1999, we expanded our line of capital equipment for printed circuit board manufacturing with an innovative copper plating system designed to plate panels in ten minutes. This compact system occupies 50% less space than conventional systems. 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 Teledyne Brown Engineering, Inc. 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 $19.3 billion in 2000. 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 $29 million in 1999. The development and integration of complex ground support equipment has long been one of 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. 7 8 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 $3.6 billion in expenditures in 2000 for various missile defense programs, which are projected to grow at a modest rate for the next five years. The current 2000 budget for the National Missile Defense program is approximately $837 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 material 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 Demilitarization program, we are designing, fabricating, integrating, and testing equipment to safely destroy small caches of chemical munitions and materiel located in over 30 states. 8 9 We were selected by the Air Force to establish and operate a highly specified analysis laboratory for performing nuclear forensic analysis of gas samples. Prior to selecting a contractor operation, military personnel at McClellan Air Force Base in California operated this laboratory for many years. 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 acquisitions systems are used for managing over half of the gas transportation pipelines in the United States, and we have some international customers. 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 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 complex 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 included 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, our engines will power four new high-speed composite aircraft currently entering production. These are the Cirrus SR-20, 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 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 technology development programs aimed at increasing the efficient commercial use of small general aviation aircraft. These programs include the demonstration of a new piston aircraft engine for light aircraft that is fueled by Jet-A fuel. Teledyne Continental Motors was selected to design and demonstrate this advanced engine. 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 utiliza- 9 10 tion 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 require some degree of overhaul 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 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 and power management. This system also saves fuel as a result of improved engine management. We believe that these control systems, which are in the process of FAA certification testing, will become standard equipment on new aircraft, and will be retrofitted on higher-end, piston-powered general aviation aircraft. In November 1999, we acquired certain assets of Long Island, New York-based Mattituck Aviation Corporation, a privately owned aftermarket supplier and piston engine rebuilder and overhauler to the general aviation marketplace. This acquisition is expected to bring additional service capabilities to Teledyne Continental Motors. These service capabilities should leverage our investments in manufacturing excellence and the development of digital electronic controls for piston aircraft engines. Turbine Engines We design, develop and manufacture small turbine engines for missiles and unmanned aerial vehicles. We also produce engines that power military trainer aircraft. Since the late 1950s, we have delivered over 21,000 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 7,700 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 Corporation to power the Joint Air-to-Surface Standoff Missile (JASSM) that is scheduled to be fielded in late 2001. We are the sole source provider for engines for the JASSM system. The JASSM production requirement, which initially was projected at 2,400 units, has been increased in recent months to 3,700 units. 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. 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 characteris- 10 11 tics 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 1999, 1998 or 1997. Approximately 43%, 40% and 40% of our total sales for 1999, 1998 and 1997 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, represented 5.8%, 7.3% and 7.1% of total sales for 1999, 1998 and 1997. Sales by our segment to agencies of and prime contractors to the U.S. Government in each of the past three years were as follows: 1999 1998 1997 ------ ------ ------ (IN MILLIONS) Electronics and Communications........ $101.1 $102.4 $102.7 Systems Engineering Solutions............. $185.4 $159.2 $158.0 Aerospace Engines and Components............ $ 61.7 $ 46.8 $ 42.6 Our sales and marketing approach varies by segment and by products within our segments. A shared fundamental tenet is the commitment to work closely with our customers to understand their needs, with an aim to secure preferred supplier and longer-term relationships. Our business segments use a combination of internal sales forces, distributors and commissioned sales representatives to market and sell our products and services. Products are also advertised in appropriate trade journals and by means of various Internet web sites. To promote our products and other capabilities, our personnel regularly participate in relevant trade shows and professional associations. Many of our government contracts are awarded after a competitive bidding process in which we seek to emphasize our ability to provide superior products and technical solutions in addition to competitive pricing. COMPETITION We believe that technological capabilities and innovation and the ability to invest in the development of new and enhanced products are critical to obtaining and maintaining leadership in our markets and the industries in which we 11 12 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 vigorously 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 $215.9 million, $175.0 million and $188.4 million on research and development for 1999, 1998 and 1997, respectively. Customer-funded research and development, most of which was attributable to work under contracts with the U.S. Government, represented approximately 87%, 86% and 85% of total research and development costs for 1999, 1998 and 1997, 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. Pursuant to a Trademark License Agreement, an affiliate of ATI granted us an exclusive license to use the "Teledyne" name and related logos, symbols and marks in connection with our operations. We pay an annual fee of $100,000 for this license and on November 24, 2004 have an option to purchase all rights and interests in the Teledyne marks for $412,000. 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. EMPLOYEES Out of a total workforce of approximately 5,800, about 1,400 individuals have engineering, physics, mathematics or computer science degrees. The International Union of United Automobile, Aerospace and Agricultural Implement Workers of America represents approximately 370 of our employees under a collective bargaining agreement that expires on December 16, 2000. We consider our relations with our employees to be good. 12 13 EXECUTIVE MANAGEMENT TDY's executive officers and segment presidents include: NAME AND TITLE AGE PRINCIPAL OCCUPATIONS LAST 5 YEARS -------------- --- ---------------------------------------- Executive Officers*: Robert Mehrabian 58 Dr. Mehrabian has been the President and President and Chief Executive Chief Executive Officer of TDY since its Officer; Director formation. Prior to the spin-off, he was the President and Chief Executive Officer of ATI's Aerospace and Electronics segment since July 1999 and had served ATI at various senior executive capacities since July 1997. Before joining ATI, Dr. Mehrabian served as President of Carnegie Mellon University. He is a director of TDY, Mellon Financial Corporation and PPG Industries, Inc. Stefan C. Riesenfeld 51 Mr. Riesenfeld has been the Executive Executive Vice President and Chief Vice President and Chief Financial Financial Officer Officer and the Treasurer of TDY since the spin-off. From August 1999 to the spin-off, he was the Executive Vice President and Chief Financial Officer of ATI's Aerospace and Electronics segment. 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 57 Mr. Kuelbs has been the Senior Vice Senior Vice President, General President, General Counsel and Secretary Counsel and Secretary of TDY since the spin-off, 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. 13 14 NAME AND TITLE AGE PRINCIPAL OCCUPATIONS LAST 5 YEARS -------------- --- ---------------------------------------- Nicholas L. Blauwiekel 44 Mr. Blauwiekel became Vice President - Vice President - Human Resources Human Resources of TDY on March 1, 2000. From October 1998 through February 2000, he was Corporate Vice President, Human Resources of Shiloh Industries, a manufacturer of steel and advanced materials located in Cleveland, Ohio. From July 1996 to October 1998, Mr. Blauwiekel was Vice President, Human Resources of Cooper Automotive Company, located in Chesterfield, Missouri. For over 16 years prior thereto he held various human resources management positions with Eaton Corporation, a global manufacturer of highly engineered products which serve industrial, vehicle, construction, commercial and semiconductor markets. Dale A. Schnittjer 55 Mr. Schnittjer has been the Controller Controller of TDY since its spin-off. From 1998 to the spin-off, Mr. Schnittjer served as a financial executive to the Aerospace and Electronics and Industrial Segments of ATI. Prior to that, he was Vice President-Finance of Teledyne Wah Chang from 1997 to 1998 and Vice President-Finance of Teledyne Specialty Equipment from 1995 to 1997. Mr. Schnittjer has held various financial positions with several of Teledyne's aerospace and electronics companies since 1987. Segment Management: Marvin H. Fink 63 Mr. Fink has been the President of President, Teledyne Electronic Technologies since Teledyne Electronic Technologies 1993. Mr. Fink has held various management positions with several of Teledyne's aerospace and electronic companies for over 37 years. Richard A. Holloway 57 Mr. Holloway has been the President of President, Teledyne Brown Engineering since Teledyne Brown Engineering, Inc. February 1998. Prior thereto, he 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. Bryan L. Lewis 50 Mr. Lewis has been the President of President, Teledyne Continental Motors since 1992. Teledyne Continental Motors Mr. Lewis first joined Teledyne 18 years ago as a project engineer for its turbine engine business. 14 15 NAME AND TITLE AGE PRINCIPAL OCCUPATIONS LAST 5 YEARS -------------- --- ---------------------------------------- Charles E. McGill 64 Mr. McGill has been the President of President, Teledyne Cast Parts since March 1999. Teledyne Cast Parts Prior thereto, 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 Electronic Technologies. Mr. McGill has held various management and financial positions with several of Teledyne's aerospace and electronics companies for over 34 years. ------------------------- * Such officers are subject to the reporting and other requirements of Section 16 of the Securities Exchange Act of 1934, as amended. Dr. Mehrabian has an Employment Agreement dated as of December 21, 1999 with Teledyne Technologies. A copy is filed as Exhibit 10.8 to this Form 10-K. Each of the above-listed persons and six other members of management have entered into Change in Control Severance Agreements with Teledyne Technologies. A form of such agreement is filed as Exhibit 10.9 to this Form 10-K. 15 16 RISK FACTORS; CAUTIONARY STATEMENT AS TO FORWARD-LOOKING STATEMENTS The following text highlights various risks and uncertainties associated with Teledyne Technologies. These factors could materially affect "forward-looking statements" (within the meaning of the Private Securities Litigation Reform Act of 1995) that we may from time to time make, including forward-looking statements contained in "Item 1. Business" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-K and in TDY's 1999 Annual Report to Stockholders. 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 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 offering. Our failure to do so would be a breach of those agreements and subject us to substantial liabilities. 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 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. In light of current market conditions and other factors, we cannot provide any assurances that we can complete a public offering of such size in the required time period. TDY's management is currently reviewing this public offering requirement. 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 gains 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 a 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 amounts described above were to become 16 17 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. 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 43% of our total revenue for 1999. 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 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 reprocuring 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 (67% in 1999). 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. 17 18 WE MAY BE UNABLE TO SUCCESSFULLY INTRODUCE NEW AND ENHANCED PRODUCTS IN A TIMELY AND COST-EFFECTIVE MANNER. Our operating results will depend in part on our ability to introduce new and enhanced products on a timely basis. Successful product development and introduction depends on numerous factors, including our ability to anticipate customer and market requirements, changes in technology and industry standards, our ability to differentiate our offerings from offerings of our competitors, and market acceptance. We may not be able to develop and introduce new or enhanced products in a timely and cost-effective manner or to develop and introduce products that satisfy customer requirements. Our new products also may not achieve market acceptance or correctly anticipate new industry standards and technological changes. TECHNOLOGICAL CHANGE COULD CAUSE CERTAIN OF OUR PRODUCTS OR SERVICES TO BECOME OBSOLETE OR NON-COMPETITIVE. The markets for a number of our products and services are generally characterized by rapid technological development, evolving industry standards, changes in customer requirements and new product introductions and enhancements. A faster than anticipated change in one or more of the technologies related to our products or services or in market demand for products or services based on a particular technology could result in faster than anticipated obsolescence of certain of our products or services and could have a material adverse effect on our business, results of operation and financial condition. Currently accepted industry standards are also subject to change, which may contribute to the obsolescence of our products or services. 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 our $200 million 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. 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 18 19 services if prime contractors seek to control more aspects of vertically-integrated projects. 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. WE ARE SUBJECT TO THE RISKS ASSOCIATED WITH INTERNATIONAL SALES. During 1999, international sales accounted for approximately 18% 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 operations and financial condition. Weak conditions in Asian economies have affected our results of operations adversely. 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. 19 20 We cannot assure that we will not have additional product liability claims or that we will not recall any additional products. 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 that we will not experience any problems in the future. For additional discussion of environmental matters, see the information at page 30 under the caption "Other Matters-Environmental" of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and Notes 2 and 13 to Notes to Consolidated Financial Statements. HAVING MINIMAL OPERATING HISTORY AS AN INDEPENDENT COMPANY MAKES IT DIFFICULT TO PREDICT OUR PROFITABILITY AS A STAND-ALONE COMPANY. We do not have an external operating history as an independent company. Prior to the spin-off, our businesses 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. Since the spin-off, ATI is only obligated to provide us with minimal transitional assistance and services. We expect costs and expenses associated with the management of a public company to be greater than the amount reflected in our historical financial statements. We also will incur interest expense and be subject to the other requirements associated with our credit facility. While we had 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 have been dedicating 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. 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 Robert Mehrabian, our President and Chief Executive Officer, could materially and adversely affect us. 20 21 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, THE TAX SHARING AND INDEMNIFICATION AGREEMENT WITH ATI AND OUR CHANGE IN CONTROL SEVERANCE AGREEMENTS COULD MAKE AN ACQUISITION OF TELEDYNE TECHNOLOGIES MORE DIFFICULT. Our Restated Certificate of Incorporation, Amended and Restated 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. 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. We have entered into Change in Control Severance Agreements with 15 members of our management, which could have an antitakeover effect. ITEM 2. PROPERTIES. Our principal facilities as of January 2, 2000 are listed below. Although the facilities vary in terms of age and condition, our management believes that these facilities have generally been well maintained. 21 22 SQUARE FOOTAGE FACILITY LOCATION PRINCIPAL USE (OWNED/LEASED) --------------------------------------- --------------------------------------- ------------------- ELECTRONICS AND COMMUNICATIONS SEGMENT Teledyne Electronic Technologies Los Angeles, California Development and production of 123,000 (leased) electronic components and subsystems. 17,000 (owned) Los Angeles, California Production of digital data acquisition 154,000 (leased) systems for monitoring commercial aircraft and engines. Lewisburg, Tennessee Development and production of 153,000 (owned) electronic components and subsystems. Mountain View, California Production of ferrite components, 100,000 (owned) switching devices, filters and monolithic microwave integrated circuits. Hawthorne, California Production of electronic components. 83,000 (owned) Rancho Cordova, California Development of production of traveling 75,000 (owned) wave tubes and power supplies for use 16,000 (leased) in commercial markets. SYSTEMS ENGINEERING SOLUTIONS SEGMENT Teledyne Brown Engineering Huntsville, Alabama Provision of engineered services and 474,000 (owned) products, including systems 123,000 (leased) engineering, optical engineering, software and hardware engineering, and instrumentation technology. Hunt Valley, Maryland Manufacturing, assembling and 60,000 (leased) maintenance of power generating systems. Oak Ridge, Tennessee Laboratories and offices in support of 40,000 (leased) environmental services. Washington, DC Defense program offices supporting 21,500 (leased) governmental customers. 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 military markets. Teledyne Cast Parts Pomona, California Manufacturing of aluminum and magnesium 231,000 (owned) castings for air frames, turbine engines and missiles. City of Industry, California Manufacturing of nickel-based 70,000 (owned) superalloy and stainless steel investment castings. We also own or lease facilities elsewhere in the U.S. and in countries outside the U.S., including Tijuana, Mexico, Gloucester, England and Cumbernauld, Scotland. Our executive offices are currently located at 2049 Century Park East, Suite 1500, Los Angeles, California 90067-3101 and are subleased from a subsidiary of ATI. 22 23 ITEM 3. 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. The resolution in any reporting period of one or more of these matters, however, could have a material adverse effect on our results of operations for that period. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of TDY's stockholders during the fourth quarter of 1999. 23 24 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. On November 29, 1999, in connection with the distribution of our Common Stock to record holders of ATI's stock as of the close of business on November 22, 1999, our Common Stock commenced trading "regular way" on the New York Stock Exchange under the symbol "TDY". For the period from November 29, 1999 through December 31, 1999, our stock traded at a high of $10 5/8 per share and at a low of $7 13/16 per share. As of January 2, 2000, there were approximately 9,000 record holders of TDY's Common Stock. ITEM 6. SELECTED FINANCIAL DATA. The historical financial information below does not include pro forma adjustments that reflect estimates of the expenses that would have been incurred had Teledyne Technologies operated as an independent company and as capitalized at the time of the spin-off for each period presented. The historical financial information should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." TELEDYNE TECHNOLOGIES INCORPORATED FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA(a) FOR THE FISCAL YEARS 1999 1998 1997 1996 1995 -------------------- ------ ------ ------ ------ ------ (IN MILLIONS, EXCEPT PER-SHARE AMOUNTS) Sales............................................... $803.4 $780.4 $756.6 $716.4 $680.5 Net income.......................................... $ 49.0 $ 48.7 $ 41.6 $ 40.7 $ 30.9 Working capital..................................... $105.3 $ 78.6 $ 87.7 $104.2 $ 92.8 Total assets........................................ $317.4 $250.8 $255.4 $253.0 $234.3 Long-term debt, net................................. $ 97.0 n/a n/a n/a n/a Stockholders' equity................................ $ 44.5 $106.4 $109.4 $128.0 $115.2 Basic earnings per common share(b).................. $ 1.79 $ 1.73 $ 1.48 $ 1.49 $ 1.23 Diluted earnings per common share(b)................ $ 1.79 $ 1.73 $ 1.48 $ 1.49 $ 1.23 ------------------------- (a) Effective November 29, 1999, the Company spun-off from ATI. The historical financial information is 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 is it indicative of future performance. (b) Prior to the spin-off, the average outstanding shares used to compute earnings per share were based on a distribution ratio of one share of Teledyne Technologies' Common Stock for every seven shares of ATI common stock. 24 25 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Effective November 29, 1999, Teledyne Technologies Incorporated was spun off from ATI. As a result of a strategic review initiated in 1998, ATI concluded that certain of its aerospace and electronics businesses, which now comprise Teledyne Technologies, would be able to grow faster and be stronger competitors if they were combined as a separate company. The operations included in Teledyne Technologies are a group of high technology businesses that have critical mass and shared core competencies, are strategically complementary and have the potential for profitable growth. The following is Teledyne Technologies' pro forma financial information for 1999, 1998 and 1997. 1999 1998 1997 ------ ------ ------ (IN MILLIONS, EXCEPT PER-SHARE AMOUNTS) SALES................... $803.4 $780.4 $756.6 COSTS AND EXPENSES Cost of sales......... 587.7 572.1 551.1 Selling, general and administrative expenses............ 140.2 134.1 146.6 ------ ------ ------ 727.9 706.2 697.7 ------ ------ ------ OPERATING PROFIT........ 75.5 74.2 58.9 Interest and debt expense, net........ 8.1 8.0 8.0 Other income.......... 1.0 1.6 1.4 ------ ------ ------ INCOME BEFORE INCOME TAXES................. 68.4 67.8 52.3 Provision for income taxes................. 27.5 28.0 20.1 ------ ------ ------ NET INCOME.............. $ 40.9 $ 39.8 $ 32.2 ====== ====== ====== DILUTED EARNINGS PER COMMON SHARE.......... $ 1.50 $ 1.41 $ 1.15 ====== ====== ====== ------------------------- The pro forma financial information above has been presented for informational purposes only and may not reflect the results of operations of Teledyne Technologies that would have occurred had Teledyne Technologies operated as a separate, independent company for the periods presented. The pro forma financial information should not be relied upon as being indicative of future results. Pro forma adjustments reflect the estimated expense impacts (primarily interest expense and corporate expenses) that would have been incurred had Teledyne Technologies been operated as a separate company as of the beginning of each year and as capitalized at the time of the spin-off for each period presented. As part of the spin-off, Teledyne Technologies assumed $100 million in long-term debt incurred by ATI. Pro forma income includes pro forma interest expense on this long-term debt as if it had been outstanding for all periods presented. Pro forma income adjusts corporate expenses to an annual level of $15 million from the amount previously allocated, which was lower. 1999 OVERVIEW 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 technology to provide cost-effective and value-added solutions. Teledyne Technologies operates 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 communication 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. 25 26 Our segments' respective contributions to our total sales for 1999, 1998 and 1997 are summarized in the following table: 1999 1998 1997 ---- ---- ---- Electronics and Communications........... 43% 44% 45% Systems Engineering Solutions................ 28% 29% 28% Aerospace Engines and Components............... 29% 27% 27% --- --- --- 100% 100% 100% === === === RESULTS OF OPERATIONS Teledyne Technologies reported 1999 sales of $803.4 million, compared with sales of $780.4 million for 1998 and $756.6 million for 1997. Pro forma net income was $40.9 million ($1.50 per diluted share) for 1999, compared with pro forma net income of $39.8 million ($1.41 per diluted share) for 1998 and pro forma net income of $32.2 million ($1.15 per diluted share) for 1997. International sales represented approximately 18%, 22% and 21% of our total sales for 1999, 1998 and 1997, respectively. Sales under contracts with the U.S. Government, which included contracts with the Department of Defense, were approximately 43%, 40% and 40% of our total sales for 1999, 1998 and 1997, respectively. In 1999, segment operating profit was $90.6 million, compared with $89.2 million in 1998 and $74.9 million in 1997. Included in operating profit was pension income of $6.6 million in 1999, $1.7 million in 1998 and pension expense of $722 thousand in 1997. Net income, before pro forma adjustments, was $49.0 million ($1.79 per diluted share) in 1999, compared with $48.7 million ($1.73 per diluted share) in 1998 and $41.6 million ($1.48 per diluted share) in 1997. The historical financial statements reflect allocations representing corporate expense from ATI of $7.3 million, $7.8 million, $7.6 million for 1999, 1998 and 1997, respectively. These allocations were based on sales. The historical financial statements for 1999 also include one month of actual corporate expenses incurred by us after the spin-off and one month of interest costs on long-term debt. Cost of sales increased from 1997 to 1998 and from 1998 to 1999 in line with sales. Selling, general and administrative expenses decreased in 1998, compared with 1997, reflecting lower selling costs for each segment. SEGMENTS The following discussion of our three business segments should be read in conjunction with Note 12 to Notes to Consolidated Financial Statements. ELECTRONICS AND COMMUNICATIONS 1999 1998 1997 --------- --------- --------- (IN MILLIONS, EXCEPT AS INDICATED) Sales....................................................... $340.7 $342.1 $340.0 Operating profit............................................ $ 42.6 $ 42.6 $ 36.8 Operating profit % of sales................................. 12.5% 12.5% 10.8% International sales % of sales.............................. 17.3% 22.2% 23.0% Governmental sales % of sales............................... 29.6% 29.9% 30.2% Capital expenditures........................................ $ 13.5 $ 10.3 $ 10.8 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 Manufacturing. 1999 Compared with 1998 Our Electronics and Communications segment sales were $340.7 million in 1999, down slightly from 1998 sales of $342.1 million. Operating profit was $42.6 million, the same as 1998. 26 27 Improved revenue growth and operating profit margins in the second half of 1999 allowed the segment to recover from a weak first half. For the year, sales of data acquisition and communications products increased by 3%, led by strong sales growth in communications equipment for business and commuter aircraft. Precision electronic device sales declined by 6% as strong sales increases in medical devices were offset by declines in other lines, particularly military microelectronics. Electronic manufacturing sales grew modestly. Operating profit, which was unchanged from 1998, reflected the sales impacts and included the licensing of certain intellectual property. 1998 Compared with 1997 Sales for our Electronics and Communications segment increased 1% and operating profit increased 16% in 1998, compared with 1997. Improvements in sales and operating profit for the segment in 1998 were due primarily to increases in sales and operating profit of 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 for the business and commuter aircraft market. Improved sales and operating profit for electronic contract manufacturing services of $7.4 million and $2.6 million, respectively, reflected 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 million and $9.4 million, respectively, due to continuing economic difficulties in Asia and the continued weakness in the semiconductor equipment market. Results for 1998 included a loss of $1.4 million associated with the contract development of a low-level windshear alert system which was terminated in 1998. SYSTEMS ENGINEERING SOLUTIONS 1999 1998 1997 --------- --------- --------- (IN MILLIONS, EXCEPT AS INDICATED) Sales....................................................... $226.5 $223.2 $210.4 Operating profit............................................ $ 20.2 $ 20.5 $ 13.1 Operating profit % of sales................................. 8.9% 9.2% 6.2% International sales % of sales.............................. 13.3% 21.8% 17.4% Governmental sales % of sales............................... 81.9% 71.3% 75.1% Capital expenditures........................................ $ 2.0 $ 2.6 $ 2.3 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. 1999 Compared with 1998 Sales for the Systems Engineering Solutions segment were $226.5 million, up slightly from 1998 sales of $223.2 million. For 1999, operating income was $20.2 million, down from $20.5 million for 1998. The aerospace, defense and environmental businesses all reported sales increases in double digits, with our environmental business growing by 24% relative to 1998. This strong performance was offset by a decline of $20.9 million in marine instrumentation products sales due to industry conditions affecting petroleum exploration activity. While operating profit was down slightly overall, significant increases in the rest of the business unit nearly offset a decline of approximately $4 million in marine products. 1998 Compared with 1997 Sales for our Systems Engineering Solutions segment increased 6% and operating profit increased 56% in 1998 compared with 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 marine instrumentation products due to favorable conditions in the oil industry, as 27 28 well as 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 the NASA payload integration contract, but operating profit for aerospace programs increased by $800 thousand due to increased deliveries of international aerospace hardware. AEROSPACE ENGINES AND COMPONENTS 1999 1998 1997 --------- --------- --------- (IN MILLIONS, EXCEPT AS INDICATED) Sales....................................................... $236.2 $215.1 $206.2 Operating profit............................................ $ 27.8 $ 26.1 $ 25.0 Operating profit % of sales................................. 11.8% 12.1% 12.1% International sales % of sales.............................. 25.0% 22.5% 21.5% Governmental sales % of sales............................... 26.1% 21.8% 20.7% Capital expenditures........................................ $ 16.0 $ 5.2 $ 2.7 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. 1999 Compared with 1998 Our Aerospace Engines and Components segment's 1999 sales were $236.2 million, which represented an increase of 10% from 1998 sales of $215.1 million. For the year, 1999 operating profit rose 7% to $27.8 million compared with $26.1 million for 1998. Engine related sales grew by over 15% in 1999, led by revenue increases of over 50% in turbine engines relative to 1998. Strong profit improvement in turbines was partially offset by a $3 million charge taken in the second quarter for a piston engine product recall. Sales and operating profit in our Teledyne Cast Parts business declined from the prior year due to production inefficiencies, difficult market conditions and a shift in product mix. 1998 Compared with 1997 Sales for our Aerospace Engines and Components segment increased 4% and operating profit increased 4% in 1998 compared with 1997. These sales and operating profit increases were due principally to a $10.6 million increase in sales and a $4.7 million increase in operating profit for new piston engine and turbine engine programs. These increases offset higher costs associated with manufacturing plant reconfiguration and the development of new products, including new digital electronic piston engine controls and a NASA-sponsored new piston engine program, as well as sales decreases of $1.7 million and a decrease in operating profit of $3.6 million as a result of production inefficiencies and delays in shipments experienced at Teledyne Cast Parts. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Our principal capital requirements are to fund working capital needs, capital expenditures and debt service requirements. It is anticipated that operating cash flow, together with available borrowings under the credit facility described below, will be sufficient to meet these requirements in the year 2000. In 1999, cash provided from operations amounted to $47.4 million, compared with $67.1 million in 1998 and $72.9 million in 1997. The decrease in cash provided from operations in 1999, compared with 1998, reflected an increase in accounts receivables in 1999, compared with 1998, while in 1998 accounts receivable decreased from the prior year. The impact of the increase in accounts receivable in 1999 was partially offset by higher accounts payable and income taxes payable compared with the prior year. 28 29 The January 2, 2000 balance sheet includes several accounts that were transferred to Teledyne Technologies in connection with the spin-off that were not included in the historical balance sheet at year end 1998. These amounts include certain deferred tax assets of $10.8 million, deferred compensation assets of $9.7 million, deferred compensation liabilities of $9.3 million, and net unrecognized actuarial gains on pension obligation of $14.7 million. Working capital increased to $105.3 million at year end 1999, compared with $78.5 million at year end 1998. The increase in working capital was primarily due to the increase in accounts receivable and current deferred tax asset balances. Net cash used in investing activities was primarily for capital expenditures as presented below. 1999 1998 1997 ----- ----- ----- (IN MILLIONS) Electronics and Communications.............. $13.5 $10.3 $10.8 Systems Engineering Solutions................... 2.0 2.6 2.3 Aerospace Engines and Components.................. 16.0 5.2 2.7 ----- ----- ----- $31.5 $18.1 $15.8 ===== ===== ===== Our capital spending for 2000 is expected to be approximately $32.5 million. Commitments at January 2, 2000 for capital expenditures were less than $2 million. The increase in property, plant and equipment primarily reflected capital spending offset, in part, by depreciation. Cash used in financing activities for 1999 primarily reflected net transactions with ATI as well as net payments on long-term debt. Cash used in financing activities for 1998 and 1997 only reflected net transactions with ATI. A $200 million five-year revolving credit agreement that terminates in November 2004 was arranged with a syndicate of banks in connection with the spin-off. ATI drew $100 million under the facility prior to our assumption of the facility. Teledyne Technologies assumed the repayment obligation for the amount drawn by ATI. At January 2, 2000 we had $97 million outstanding under the facility at an interest rate of 7.63%. Excluding interest and fees, no payments are due under the credit facility until the facility terminates. The estimated fair value of our long-term debt at January 2, 2000 was $97 million. At year end 1999, Teledyne Technologies had approximately $103 million of borrowing availability remaining under the credit facility. Borrowings under the credit facility bear interest at variable rates based on the prevailing prime or Eurodollar rates (or, in certain circumstances, the prevailing federal funds rate) and these rates will depend, in part, on the ratio of consolidated total indebtedness to consolidated total capitalization from time to time. The credit facility requires the Company 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 total consolidated indebtedness to earnings before interest, taxes and depreciation and amortization. The credit agreement prohibits the declaration of dividends or making other specified payments in amounts exceeding 25% of cumulative net income after the effective date of the credit agreement (which was $1.4 million as of January 2, 2000). The stock of our wholly-owned subsidiary, Teledyne Brown Engineering, Inc., was pledged to the lenders under the credit agreement as collateral to secure the obligations under the credit agreement until certain conditions related to a public offering of the Company's Common Stock are satisfied. In connection with the spin-off, a new defined benefit pension plan was established and we assumed the existing pension obligations for all of the employees, both active and inactive, at the operations which perform government contract work and for active employees at operations which do not perform government contract work. ATI transferred pension assets to fund the new defined benefit pension plan, which at the time of the transfer then had assets in excess of liabilities. 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 29 30 validity of the IRS tax ruling is subject to certain factual representations and assumptions, including the completion of a public offering of our Common Stock within one year following the spin-off and use of anticipated gross proceeds of approximately $125 million (less associated costs) for research and development and related capital projects, for the further development of manufacturing capabilities and for acquisitions and/or joint ventures. Pursuant to the Separation and Distribution Agreement, Teledyne Technologies agreed with ATI to undertake such a public offering. In light of current market conditions and other factors, we cannot provide any assurances that we will be able to complete a public offering of such size in the required time period. Our management is currently reviewing this public offering requirement. 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 Teledyne Technologies, the payment could have a material adverse effect on our financial condition, results of operations and cash flow and could exceed Teledyne Technologies net worth by a substantial amount. OTHER MATTERS Taxes The effective income tax rate was 40.2%, 41.3% and 39.4% in 1999, 1998 and 1997, respectively. Based on our history of operating earnings, expectations of future operating earnings and potential tax planning strategies, it is more likely than not that the deferred income tax assets at January 2, 2000 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. These costs, the increasing costs of equipment and other costs are considered in establishing sales pricing polices. The Company emphasizes cost containment in all aspects of its business. Hedging Activities; Market Risk Disclosures Teledyne Technologies generally does not actively engage in derivative financial instruments such as futures contracts, options and swaps, forward exchange contracts or interest rate swaps and futures. While we believe that adequate controls are in place to monitor any hedging activities in which we may engage, many factors, including those beyond our control such as changes in domestic and foreign political and economic conditions, could adversely affect these activities. At January 2, 2000 and January 3, 1999, there were no hedging contracts outstanding. Our primary exposure to market risk relates to changes in interest rates and foreign currency exchange rates. We periodically evaluate these risks and have taken measures to mitigate these risks. We own assets and operate facilities in countries that have been politically stable. Also, our foreign risk management objectives are geared towards stabilizing cash flow from the effects of foreign currency fluctuations. We will, whenever practical, offset local investments in foreign currencies with borrowings denominated in the same currencies. All of the Company's long-term debt is based on a market interest rate and, consequently, the fair value should not be affected materially by changes in market interest rates. Overall, we believe that our exposure to interest rate risk and foreign currency exchange rate changes is not material to our financial condition or results of operations. Environmental Teledyne Technologies is 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 Compre- 30 31 hensive 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. Reserves for environmental investigation and remediation totaled approximately $1.2 million at January 2, 2000. As investigation and remediation of these sites proceed and new information is received, we expect that accruals will be adjusted 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 these 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 proceedings brought under the federal Superfund laws, or similar state statutes, the Company has 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 13 to Notes to Consolidated Financial Statements. Government Contracts Teledyne Technologies performs 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 43% of total sales in 1999 and 40% of our total sales in both 1998 and 1997. For a breakdown of sales to the U.S. Government by segment, see Note 12 to Notes to Consolidated Financial Statements. Defense sales represented approximately 31%, 27% and 26% of our total sales for 1999, 1998 and 1997, respectively. Performance under government contracts has certain inherent risks that could have material adverse effect on the Company's 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 overall U.S. military budget declined in real dollars from the mid-1980s through the early 1990s. 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 on the programs affected, the timing and size of the changes and our ability to offset the impact with new business or cost reductions. For information on accounts receivable from the U.S. Government, see Note 4 to Notes to Consolidated Financial Statements. ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133--"Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives in the statement of financial position and measure those instruments at fair value. In 1999, the FASB issued SFAS No. 137--"Accounting for Derivative Instruments and Hedging Activities-- Deferral of the Effective Date of FASB Statement No. 133--an amendment of FASB Statement No. 133," which defers the effective date of SFAS No. 133 for one year. Teledyne Technologies must implement SFAS No. 133 by the first quarter of 2001 and has not yet made a final determination of its impact on the financial statements. YEAR 2000 READINESS DISCLOSURE We spent approximately $1.3 million in 1999 and $2.0 million in 1998 to address Year 2000 issues which excludes expenditures necessi- 31 32 tated by ordinary business needs and continuing technological advancements in the computer industry. We have experienced no significant Year 2000 problems. We plan to monitor our critical computer applications and those of our suppliers and vendors throughout the year in the event that any latent Year 2000 matters arise. CAUTIONARY STATEMENT AS TO FORWARD-LOOKING STATEMENTS This Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, relating to growth opportunities and strategic plans. Actual results could differ materially from these forward-looking statements. Many factors, including the extent and timing of the required public offering, market, economic and political conditions, and implementation difficulties, could change the anticipated results. Additional information concerning factors that could cause actual results to differ materially from those projected in the forward-looking statements is contained on pages 16 to 21 of this Form 10-K under the caption "Risk Factors; Cautionary Statements as to Forward-Looking Statements." Forward-looking statements are generally accompanied by words such as "estimate", "project", "predict", "believes" or "expect", that convey the uncertainty of future events or outcomes. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or otherwise. REPORT OF MANAGEMENT The management of Teledyne Technologies is responsible for the integrity of our financial data. Fulfilling this responsibility requires the preparation and presentation of consolidated financial statements in accordance with generally accepted accounting principles. Management uses internal accounting controls, corporate-wide policies and procedures and judgment so that such statements reflect fairly our consolidated financial position, results of operations and cash flows. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. The information required by this item is included in this Report at page 30 under the caption "Other Matters--Hedging Activities; Market Risk Disclosures" of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by this item is included in this Report at page F-1 through F-28. See the "Index to Financial Statements and Related Information" at page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. 32 33 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. In addition to the information set forth under the caption "Executive Management" in Part I of this Report, the information concerning the directors of Teledyne Technologies required by this item is set forth in the 2000 Proxy Statement under the caption "Election of Directors" and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. The information required by this item is set forth in the 2000 Proxy Statement under the captions "Director Compensation", "Executive Compensation" and "Compensation Committee Interlocks and Insider Participation" and is incorporated herein by reference. TDY does not incorporate by reference in this Form 10-K either the "1999 Report on Executive Compensation" or the "Cumulative Total Stockholder Return" section of the 2000 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item is set forth in the 2000 Proxy Statement under the caption "Stock Ownership Information" and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this item is set forth in the 2000 Proxy Statement under the caption "Certain Transactions" and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) Exhibits and Financial Statement Schedules: (1) Financial Statements See the "Index to Financial Statements and Related Information" at page F-1 of this Report, which is incorporated herein by reference. (2) Financial Statement Schedules See Schedule II captioned "Valuation and Qualifying Accounts" at page F-28 of this Report, which is incorporated herein by reference. (3) Exhibits A list of exhibits filed with this Form 10-K or incorporated by reference is found in the Exhibit Index immediately following the signature page of this Report and incorporated herein by reference. (4) Reports on Form 8-K filed in the fourth quarter of 1999: Current Report on Form 8-K dated as of November 29, 1999, as amended by Amendment No. 1 (filed to report consummation of the spin-off and distribution of TDY's Common Stock to ATI's stockholders). 33 34 INDEX TO FINANCIAL STATEMENTS AND RELATED INFORMATION Financial Statements: Report of Independent Auditors............................ F-2 Consolidated Statements of Income......................... F-3 Consolidated Balance Sheets............................... F-4 Consolidated Statements of Stockholders' Equity........... F-5 Consolidated Statements of Cash Flows..................... F-6 Notes to Consolidated Financial Statements................ F-7 Quarterly Financial Data (Unaudited)...................... F-27 Financial Statement Schedule: Schedule II--Valuation and Qualifying Accounts............ F-28 F-1 35 REPORT OF INDEPENDENT AUDITORS To the Stockholders and Board of Directors Teledyne Technologies Incorporated: We have audited the accompanying consolidated balance sheets of Teledyne Technologies Incorporated as of January 2, 2000 and January 3, 1999, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three fiscal years in the period ended January 2, 2000. Our audits also included the financial statement schedule listed in the index at Item 14(a). These financial statements and schedule 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 auditing standards generally accepted in the United States. 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Teledyne Technologies Incorporated at January 2, 2000 and January 3, 1999, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended January 2, 2000, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Los Angeles, California January 26, 2000 F-2 36 TELEDYNE TECHNOLOGIES INCORPORATED CONSOLIDATED STATEMENTS OF INCOME 1999 1998 1997 -------- -------- -------- (IN MILLIONS, EXCEPT PER-SHARE AMOUNTS) SALES.............................................. $803.4 $780.4 $756.6 COSTS AND EXPENSES Cost of sales.................................... 587.7 572.1 551.1 Selling, general and administrative expenses..... 133.9 126.9 138.2 ------ ------ ------ 721.6 699.0 689.3 ------ ------ ------ OPERATING PROFIT................................... 81.8 81.4 67.3 Interest and debt expense, net................... .8 -- -- Other income..................................... 1.0 1.6 1.4 ------ ------ ------ EARNINGS BEFORE INCOME TAXES....................... 82.0 83.0 68.7 Provision for income taxes......................... 33.0 34.3 27.1 ------ ------ ------ NET INCOME......................................... $ 49.0 $ 48.7 $ 41.6 ====== ====== ====== BASIC EARNINGS PER COMMON SHARE.................... $ 1.79 $ 1.73 $ 1.48 ====== ====== ====== DILUTED EARNINGS PER COMMON SHARE.................. $ 1.79 $ 1.73 $ 1.48 ====== ====== ====== The accompanying notes are an integral part of these financial statements. F-3 37 TELEDYNE TECHNOLOGIES INCORPORATED CONSOLIDATED BALANCE SHEETS 1999 1998 ------- ------- (IN MILLIONS, EXCEPT SHARE AMOUNTS) CURRENT ASSETS Cash and cash equivalents................................. $ 7.1 $ -- Accounts receivable, net.................................. 117.6 103.2 Inventories, net.......................................... 53.7 53.2 Deferred income taxes, net................................ 21.7 12.9 Prepaid expenses and other current assets................. 4.5 1.7 ------ ------ TOTAL CURRENT ASSETS................................... 204.6 171.0 ------ ------ Property, plant and equipment, net........................ 62.1 43.0 Deferred income taxes, net................................ 25.6 22.1 Cost in excess of net assets acquired, net................ 8.2 9.4 Other assets.............................................. 16.9 5.3 ------ ------ TOTAL ASSETS........................................... $317.4 $250.8 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable.......................................... $ 46.9 $ 43.4 Accrued liabilities....................................... 48.6 49.1 Income taxes payable...................................... 3.8 -- ------ ------ TOTAL CURRENT LIABILITIES.............................. 99.3 92.5 Long-term debt............................................ 97.0 -- Net unrecognized actuarial gains on pension obligation.... 14.7 -- Accrued postretirement benefits........................... 33.6 32.9 Other long-term liabilities............................... 28.3 19.0 ------ ------ TOTAL LIABILITIES...................................... 272.9 144.4 ------ ------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Common stock, $.01 par value issued in 1999; authorized 125 million shares; outstanding shares: 1999--26,687,002....................................... .3 -- Additional paid-in capital................................ 37.9 -- Net advances from ATI..................................... -- 104.7 Retained earnings......................................... 5.6 -- Accumulated other comprehensive income.................... .7 1.7 ------ ------ TOTAL STOCKHOLDERS' EQUITY............................. 44.5 106.4 ------ ------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............. $317.4 $250.8 ====== ====== The accompanying notes are an integral part of these financial statements. F-4 38 TELEDYNE TECHNOLOGIES INCORPORATED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY ACCUMULATED ADVANCES ADDITIONAL OTHER TOTAL (TO) FROM COMMON PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS' ATI STOCK CAPITAL EARNINGS INCOME EQUITY --------- ------- ---------- -------- ------------- ------------- (IN MILLIONS) BALANCE, DECEMBER 29, 1996......... $ 126.1 $ -- $ -- $ -- $ 1.9 $ 128.0 Net income/comprehensive income.... 41.6 -- -- -- -- 41.6 Net transactions with ATI.......... (60.2) -- -- -- -- (60.2) -------- ------- ------- ------- ------- ------- BALANCE, DECEMBER 28, 1997......... $ 107.5 $ -- $ -- $ $ 1.9 $ 109.4 Net income......................... 48.7 -- -- -- -- 48.7 Other comprehensive income, net of tax: Foreign currency translation losses....................... -- -- -- -- (.2) (.2) -------- ------- ------- ------- ------- ------- Comprehensive income............... 48.7 -- -- -- (.2) 48.5 Net transactions with ATI.......... (51.5) -- -- -- -- (51.5) -------- ------- ------- ------- ------- ------- BALANCE, JANUARY 3, 1999........... $ 104.7 $ -- $ -- $ -- $ 1.7 $ 106.4 Net income......................... 43.4 -- -- -- -- 43.4 Other comprehensive income, net of tax: Foreign currency translation losses....................... -- -- -- -- (.1) (.1) -------- ------- ------- ------- ------- ------- Comprehensive income............... 43.4 -- -- -- (.1) 43.3 Net transactions with ATI.......... (47.5) -- -- -- -- (47.5) -------- ------- ------- ------- ------- ------- BALANCE PRIOR TO SPIN-OFF, NOVEMBER 29, 1999......................... $ 100.6 $ -- $ -- $ -- $ 1.6 $ 102.2 Spin-off capitalization transactions..................... (100.6) .3 37.9 -- (.9) (63.3) -------- ------- ------- ------- ------- ------- Balance after spin-off $ -- $ .3 $ 37.9 $ -- $ .7 $ 38.9 Net income/comprehensive income.... -- -- -- 5.6 -- 5.6 -------- ------- ------- ------- ------- ------- BALANCE, JANUARY 2, 2000........... $ -- $ .3 $ 37.9 $ 5.6 $ .7 $ 44.5 ======== ======= ======= ======= ======= ======= The accompanying notes are an integral part of these financial statements. F-5 39 TELEDYNE TECHNOLOGIES INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS 1999 1998 1997 ------- ------- ------- (IN MILLIONS) OPERATING ACTIVITIES Net income................................................ $ 49.0 $ 48.7 $ 41.6 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of assets................ 11.9 11.1 11.3 Deferred income taxes.................................. (1.4) (.4) .3 Gains on sale of property, plant and equipment......... (.1) (.4) -- Changes in operating assets and liabilities: Decrease (increase) in accounts receivable............. (14.4) 17.8 .2 Increase in inventories................................ (.5) (6.1) (2.9) Increase in prepaid expenses and other assets.......... (2.8) -- -- Increase in accounts payable........................... 3.6 .8 14.3 Increase (decrease) in accrued liabilities............. (.5) (5.5) 2.8 Increase in current income taxes payable............... 3.8 -- -- Increase in other long-term liabilities................ -- 2.9 3.1 Increase in accrued postretirement benefits............ .6 .2 .4 Other operating, net...................................... (1.8) (2.0) 1.8 ------- ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES.............. 47.4 67.1 72.9 ------- ------- ------- INVESTING ACTIVITIES Purchases of property, plant and equipment................ (31.5) (18.1) (15.8) Disposals of property, plant and equipment................ .1 .7 .1 Other investing, net...................................... (.7) 1.8 2.9 ------- ------- ------- NET CASH USED BY INVESTING ACTIVITIES.................. (32.1) (15.6) (12.8) ------- ------- ------- FINANCING ACTIVITIES Net payments on revolving credit agreement................ (3.0) -- -- Net advances/spin-off capitalization with ATI............. (5.2) (51.5) (60.2) ------- ------- ------- NET CASH USED BY FINANCING ACTIVITIES.................. (8.2) (51.5) (60.2) ------- ------- ------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 7.1 -- (.1) Cash and cash equivalents -- beginning of year.............. -- -- .1 ------- ------- ------- CASH AND CASH EQUIVALENTS -- END OF YEAR.................... $ 7.1 $ -- $ -- ======= ======= ======= The accompanying notes are an integral part of these financial statements. F-6 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. ALLEGHENY TELEDYNE INCORPORATED'S SPIN-OFF OF TELEDYNE TECHNOLOGIES INCORPORATED -------------------------------------------------------------------------------- Effective November 29, 1999 (the Distribution Date), Teledyne Technologies Incorporated (Teledyne Technologies or the Company) became an independent, public company as a result of the distribution by Allegheny Teledyne Incorporated, now known as Allegheny Technologies Incorporated (ATI) of the Company's Common Stock, $.01 par value per share, to holders of ATI Common Stock at a distribution ratio of one for seven (the spin-off). The spin-off has been treated as a tax-free distribution for federal income tax purposes. Immediately prior to the spin-off, ATI transferred certain of the businesses of ATI's Aerospace and Electronics segment to the new corporation. ATI no longer has a financial investment in Teledyne Technologies. Teledyne Technologies consists of the operations of the Teledyne Electronic Technologies division with operations in the United States, United Kingdom and Mexico; Teledyne Brown Engineering division with operations in the United States and United Kingdom; Teledyne Continental Motors and Teledyne Cast Parts divisions, both with operations in the United States. Prior to the spin-off, these operations were divisions of wholly-owned subsidiaries of ATI. A $200 million five-year revolving credit agreement was arranged with a syndicate of banks in connection with the spin-off. ATI drew $100 million under the facility prior to the assumption of the facility by Teledyne Technologies. Teledyne Technologies assumed the repayment obligation for the amount drawn by ATI. In addition, prior to and in connection with the spin-off, Teledyne Technologies and ATI entered 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 consolidated financial statements for periods prior to the spin-off included certain expenses (primarily corporate expenses) based on an allocation of the overall expense of ATI. ATI's historical cost basis of assets and liabilities has been reflected in 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 consolidated financial statements included herein do not reflect changes that occurred in the capitalization and operations of Teledyne Technologies as a result of, or after, the spin-off other than for the period following the spin-off. The following unaudited pro forma financial information is presented for informational purposes only and may 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. The pro forma financial information should not be relied upon as being indicative of future results. Pro forma adjustments reflect the estimated expense impacts (primarily interest expense and corporate expenses) that would have been incurred had Teledyne Technologies been operated as a separate company as of the beginning of each year and as capitalized at the time of the spin-off for each period presented. As part of the spin-off, Teledyne Technologies assumed $100 million of long-term debt incurred by ATI. Pro forma income includes pro forma interest expense on the long-term debt as if it had been outstanding for all periods presented. Pro forma income adjusts corporate expenses to an annual level of $15 million from the amount previously allocated, F-7 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) which was lower. The following is Teledyne Technologies unaudited pro forma financial information for the 1999, 1998 and 1997 fiscal years: 1999 1998 1997 -------- -------- -------- (IN MILLIONS, EXCEPT PER SHARE-DATA) SALES........................................... $803.4 $780.4 $756.6 COSTS AND EXPENSES Cost of sales................................. 587.7 572.1 551.1 Selling, general and administrative expenses................................... 140.2 134.1 146.6 ------ ------ ------ 727.9 706.2 697.7 ------ ------ ------ OPERATING PROFIT................................ 75.5 74.2 58.9 Interest and debt expense, net................ 8.1 8.0 8.0 Other income.................................. 1.0 1.6 1.4 ------ ------ ------ INCOME BEFORE INCOME TAXES...................... 68.4 67.8 52.3 Provision for income taxes...................... 27.5 28.0 20.1 ------ ------ ------ NET INCOME...................................... $ 40.9 $ 39.8 $ 32.2 ====== ====== ====== BASIC EARNINGS PER COMMON SHARE................. $ 1.50 $ 1.41 $ 1.15 ====== ====== ====== DILUTED EARNINGS PER COMMON SHARE............... $ 1.50 $ 1.41 $ 1.15 ====== ====== ====== NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -------------------------------------------------------------------------------- PRINCIPLES OF CONSOLIDATION The consolidated financial statements of Teledyne Technologies include the accounts of the businesses distributed by ATI and its subsidiaries as described in Note 1. Significant intercompany accounts and transactions have been eliminated. Certain financial statements, notes and supplementary data for prior years have been changed to conform to the 1999 presentation. FISCAL YEAR The Company is on a 53/52-week fiscal year convention. Fiscal years 1999 and 1997 were 52-week years and ended on January 2, 2000 and December 28, 1997, respectively and fiscal year 1998 was a 53-week year and ended on January 3, 1999. References to 1999, 1998 and 1997 are intended to refer to the respective fiscal year unless otherwise noted. 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. F-8 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) REVENUE RECOGNITION Commercial sales and revenue from U.S. Government fixed-price type contracts generally are recorded as shipments are made or as services are rendered. Occasionally, for certain fixed-price type contracts that require substantial performance over a long time period (one or more years) before shipments begin, sales may be recorded based upon attainment of scheduled performance milestones which could be time, event or expense driven. In these few instances, invoices are submitted to the customer under a contractual agreement and payments are made by the customer. 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. If the current contract estimate indicates a loss, provision is made for the total anticipated loss. RESEARCH AND DEVELOPMENT Company-funded research and development costs were $27.8 million in 1999, $24.8 million in 1998 and $27.7 million in 1997, and include bid and proposal costs, are expensed as incurred. Costs related to customer-funded research and development contracts were $188.1 million in 1999, $150.3 million in 1998 and $160.7 million in 1997 and 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 27,303,421, 28,107,241 and 28,085,823 for the fiscal years ended January 2, 2000, January 3, 1999 and December 28, 1997, respectively. Prior to the spin-off, the number of shares outstanding was 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 common share was 27,334,737, 28,133,879 and 28,120,380 for the fiscal years ended January 2, 2000, January 3, 1999 and December 28, 1997, respectively. ACCOUNTS RECEIVABLE Receivables are presented net of a reserve for doubtful accounts of $3.5 million at January 2, 2000 and $2.9 million at January 3, 1999. Expense recorded for the reserve for doubtful accounts was $608 thousand, $1.4 million and $1.3 million for the 1999, 1998 and 1997 fiscal years, 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 F-9 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) upon evaluations of each customer's ability to perform its obligations, which are updated periodically. CASH AND CASH EQUIVALENTS Cash equivalents consist of highly liquid money-market mutual funds and bank deposits with initial maturities of three months or less. Cash equivalents totaled approximately $5.5 million at January 2, 2000 and included only bank deposits. 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, applicable manufacturing and engineering overhead, and other direct costs. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is capitalized at cost. The method of depreciation adopted for all property, plant and equipment placed into service after July 1, 1996 is the straight-line method. For property, plant 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. COST IN EXCESS OF NET ASSETS ACQUIRED Cost in excess of net assets acquired related to businesses purchased prior to November 1970 is not being amortized. 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 15 years. Goodwill amortization expense was $672 thousand, $582 thousand and $510 thousand in 1999, 1998 and 1997, respectively. OTHER LONG-LIVED ASSETS The carrying value of long-lived assets is periodically evaluated in relation to the operating performance and future undiscounted cash flows of the underlying businesses. Adjustments are made if the sum of expected future net cash flows is less than book value. In 1997, the Company recorded an impairment loss of approximately $1.8 million in general and administrative expenses primarily to write off its investment in a limited liability corporation that was determined to have no value. This determination was made as a result of programs that were discontinued in the Systems Engineering Solutions business segment in 1997. ENVIRONMENTAL Costs that mitigate or prevent future environmental contamination or extend the life, increase the capacity or improve the safety or efficiency of property utilized in current operations are capitalized. Other costs that relate to current operations or an existing condition caused by past operations are expensed. Environmental liabilities are recorded when the Company's liability is probable and the costs are reasonably estimable, but generally not later than the completion of the feasibility study or the Company's recommendation of a remedy or commitment to an appropriate plan of action. The accruals are reviewed F-10 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) periodically and, as investigations and remediations proceed, adjustments are made as necessary. Accruals for losses from environmental remediation obligations do not consider the effects of inflation, and anticipated expenditures are not discounted to their present value. The accruals are not reduced by possible recoveries from insurance carriers or other third parties, but do reflect anticipated allocations among potentially responsible parties at federal Superfund sites or similar state-managed sites and an assessment of the likelihood that such parties will fulfill their obligations at such sites. The measurement of environmental liabilities by the Company is based on currently available facts, present laws and regulations, and 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. Unrealized translation gains and losses arising from differences in exchange rates from period to period are included as a component of accumulated other comprehensive income in stockholders' equity. ACCOUNTING PRONOUNCEMENTS SFAS No. 137 and 133 -- In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133--"Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives in the statement of financial position and measure those instruments at fair value. In 1999, the FASB issued SFAS No. 137--"Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133--an amendment of FASB Statement No. 133," which defers the effective date of SFAS No. 133 for one year. Teledyne Technologies must implement SFAS No. 133 by the first quarter of 2001 and has not yet made a final determination of its impact on the financial statements. SFAS No. 132 -- Effective for 1998, Teledyne Technologies adopted the provisions of SFAS No. 132--"Employers' Disclosures about Pensions and Other Postretirement Benefits." This statement standardized the disclosure requirements for pensions and other postretirement benefits and amends SFAS No. 87--"Employers' Accounting for Pensions", SFAS No. 88--"Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans" and SFAS No. 106--"Employers' Accounting for Postretirement Benefits Other Than Pensions." The provisions of SFAS No. 132 are disclosure oriented and do not change the measurement or recognition of the plans. Accordingly, the implementation of SFAS No. 132 did not have an impact on Teledyne Technologies' consolidated financial position or results of operations. SFAS No. 131 -- Effective for 1998, Teledyne Technologies adopted the provisions of SFAS No. 131--"Disclosures about Segments of an Enterprise and Related Information." This statement establishes standards for reporting and display of information about operating F-11 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) segments. It supersedes or amends several FASB statements, most notably, SFAS No. 14--"Financial Reporting for Segments of a Business Enterprise." The implementation of SFAS No. 131 did not have an impact on Teledyne Technologies' consolidated financial position or results of operations. SFAS No. 130 -- Effective for 1998, Teledyne Technologies adopted the provisions of SFAS No. 130--"Reporting Comprehensive Income." This statement establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. The implementation of SFAS No. 130 did not have an impact on Teledyne Technologies' results of operations. Teledyne Technologies' comprehensive income is primarily composed of net income and foreign currency translation adjustments. Teledyne Technologies' comprehensive income was $48.9 million, $48.5 million and $41.6 million for 1999, 1998 and 1997, respectively. HEDGING ACTIVITIES Teledyne Technologies generally does not actively engage in derivative financial instruments such as futures contracts, options and swaps, forward exchange contracts or interest rate swaps and futures. While Teledyne Technologies believes that adequate controls are in place to monitor any hedging activities in which the Company may engage, many factors, including those beyond its control such as changes in domestic and foreign political and economic conditions, could adversely affect these activities. At January 2, 2000 and January 3, 1999, there were no hedging contracts outstanding. SUPPLEMENTAL CASH FLOW INFORMATION Until the spin-off date, ATI was responsible for cash payments for federal, foreign and state income taxes. No tax payments were made by Teledyne Technologies from the date of the spin-off through year end. Interest paid by Teledyne Technologies from the date of the spin-off to year end 1999 totaled approximately $565 thousand. NOTE 3. FINANCIAL INSTRUMENTS -------------------------------------------------------------------------------- Teledyne Technologies values financial instruments as required by SFAS No. 107--"Disclosures about Fair Value of Financial Instruments." The carrying amounts of cash and cash equivalents approximate fair value because of the short maturity of those instruments. Teledyne Technologies estimates the fair value of its long-term debt based on the value of debt of similar maturity and characteristics. The estimated fair value of Teledyne Technologies' long-term debt at January 2, 2000 approximated the carrying value of $97 million. The carrying value of other on-balance sheet financial instruments approximates fair value, and the cost, if any, to terminate off-balance sheet financial instruments is not significant. F-12 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4. ACCOUNTS RECEIVABLE -------------------------------------------------------------------------------- Accounts receivable are summarized as follows: 1999 1998 ------ ------ Balance at year end (IN MILLIONS) U.S. Government and prime contractors contract receivables: Billed receivables................................. $ 27.1 $ 18.1 Unbilled receivables............................... 20.4 21.3 Other receivables, primarily commercial.............. 73.6 66.7 ------ ------ 121.1 106.1 Reserve for doubtful accounts........................ (3.5) (2.9) ------ ------ Total accounts receivable, net....................... $117.6 $103.2 ====== ====== The billed contract receivables from the U.S. Government and prime contractors contain $9.8 million and $5.9 million at January 2, 2000 and January 3, 1999, respectively, due to long-term contracts. The unbilled contract receivables from the U.S. Government and prime contractors contain $10.5 million and $21.3 million at January 2, 2000 and January 3, 1999, respectively, due to long-term contracts. Unbilled contract receivables represent accumulated costs and profits earned but not yet billed to customers. The Company believes that substantially all such amounts will be billed and collected within one year. NOTE 5. INVENTORIES -------------------------------------------------------------------------------- Inventories consisted of the following: 1999 1998 ------ ------ Balance at year end (IN MILLIONS) Raw materials and supplies............................ $ 24.2 $ 23.3 Work in process....................................... 62.5 65.3 Finished goods........................................ 9.1 10.4 ------ ------ Total inventories at current cost (first-in, first-out).......................................... 95.8 99.0 LIFO reserve.......................................... (36.8) (39.0) Progress payments..................................... (5.3) (6.8) ------ ------ Total inventories, net................................ $ 53.7 $ 53.2 ====== ====== Inventories, before progress payments, determined on the last-in, first-out method were $55.8 million at January 2, 2000 and $56.3 million at January 3, 1999. 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 1999, 1998 and 1997, 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 F-13 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) liquidations was to increase net income by $2.2 million in 1999, $264 thousand in 1998 and $2.2 million in 1997. Total inventories at current cost were net of $6.1 million and $5.1 million at January 2, 2000 and January 3, 1999, respectively, which were related to reserves for obsolete inventories. Inventories, before progress payments, related to long-term contracts were $8.8 million and $2.0 million at January 2, 2000 and January 3, 1999, respectively. Progress payments related to long-term contracts were $1.9 million and $125 thousand at January 2, 2000 and January 3, 1999, respectively. Under the contractual arrangements by which progress payments are received, the customer has a security interest in the inventories associated with specific contracts. NOTE 6. SUPPLEMENTAL BALANCE SHEET INFORMATION -------------------------------------------------------------------------------- Property, plant and equipment were as follows: 1999 1998 ------- ------- Balance at year end (IN MILLIONS) Land................................................ $ 5.5 $ 5.5 Buildings........................................... 36.2 36.7 Equipment........................................... 152.7 135.5 ------- ------- 194.4 177.7 Accumulated depreciation and amortization........... (132.3) (134.7) ------- ------- Total property, plant and equipment, net............ $ 62.1 $ 43.0 ======= ======= Accrued liabilities included salaries and wages of $24.7 million and $22.6 million at January 2, 2000 and January 3, 1999, respectively. Other long-term liabilities included reserves for self-insurance and deferred compensation liabilities. NOTE 7. STOCKHOLDERS' EQUITY -------------------------------------------------------------------------------- COMMON STOCK In connection with the spin-off 26,687,002 shares of Teledyne Technologies' Common Stock were issued and are outstanding at year end 1999. This amount includes 943 shares issued under the Non-Employee Director Stock Compensation Plan. PREFERRED STOCK Authorized preferred stock may be issued with designations, powers and preferences designated from time to time by the Board of Directors. At January 2, 2000, there were no shares of preferred stock issued. STOCKHOLDER RIGHTS PLAN On November 12, 1999, the Company's Board of Directors unanimously adopted a stockholder rights plan under which preferred share purchase rights were distributed as a dividend on each share of Teledyne Technologies' Common Stock distributed to ATI's F-14 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) stockholders in connection with the spin-off and each share to become outstanding between the effective date of the spin-off and the earliest of the distribution date, redemption date and final expiration date. The rights will be exercisable only if a person or group acquires 15 percent or more of the Company's Common Stock or announces a tender offer, the consummation of which would result in ownership by a person or group of 15 percent or more of the Common Stock. Each right will entitle stockholders to then buy one-hundredth of a share of a new series of junior participating preferred stock at an exercise price of $60. There are 1,250,000 shares of Series A Junior Participating Preferred Stock authorized for issuance under the plan. The record date for the distribution was the close of business of November 22, 1999. The rights will expire on November 12, 2009, subject to earlier redemption or exchange by Teledyne Technologies as described in the plan. The rights distribution is not taxable to stockholders. STOCK INCENTIVE PLAN ATI sponsored an incentive plan that provided for stock option awards to officers and key employees. Teledyne Technologies has officers and key employees that have participated in this plan. In connection with the spin-off, outstanding stock options held by Teledyne Technologies' employees were converted into options to purchase Teledyne Technologies' Common Stock. The number of shares and the exercise price of each ATI option that was converted to a Teledyne Technologies' option was converted based upon a formula designed to preserve the inherent economic value, vesting and term provisions of such ATI options as of the Distribution Date. The exchange ratio and fair market value of the Teledyne Technologies' Common Stock, upon active trading, also impacted the number of options issued to Teledyne Technologies' employees. Teledyne Technologies has established its own long-term incentive plan which provides 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. The following disclosures are based on stock options held by Teledyne Technologies' employees and have been converted from ATI options to Teledyne Technologies' options as noted above. Teledyne Technologies accounts for its stock option plans in accordance with APB Opinion 25--"Accounting for Stock Issued to Employees" (APB 25), and related Interpretations. Under APB 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" (SFAS No. 123) net income would have been reduced by $1.6 million, $673 thousand and $154 thousand for the fiscal years 1999, 1998 and 1997, respectively. Under SFAS No. 123, the fair value of each option grant is estimated on the date of grant using the Black-Scholes F-15 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) option-pricing model with the following weighted-average assumptions (there were no option grants in 1997): 1999 1998 ----- ----- Expected dividend yield..................................... -- 2.8% Expected volatility......................................... 40.1% 31.0% Risk-free interest rate..................................... 5.5% 5.0% Expected lives.............................................. 8.0 8.0 Weighted-average fair value of options granted during the year...................................................... $4.91 $7.25 Stock option transactions in ATI common stock under ATI's incentive plan for Teledyne Technologies' employees have been converted to Teledyne Technologies as noted above and are summarized as follows: 1999 1998 1997 -------------------- -------------------- ------------------ WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE --------- -------- --------- -------- ------- -------- Beginning balance......... 1,757,392 $12.36 643,985 $ 7.66 708,816 $ 7.58 Granted or issued......... 487,500 $ 8.93 1,123,968 $14.99 -- $ -- Exercised................. (91,329) $ 5.76 (12,213) $ 6.64 (64,831) $ 6.87 Canceled or expired....... (30,266) $13.42 -- $ -- -- $ -- --------- ------ --------- ------ ------- ------ Ending balance............ 2,123,297 $11.84 1,757,392 $12.36 643,985 $ 7.66 ========= ====== ========= ====== ======= ====== Options exercisable at year-end................ 856,087 $10.93 495,891 $ 7.27 409,997 $ 6.85 ========= ====== ========= ====== ======= ====== For options outstanding at year end 1999, the exercise prices were between $5.57 and $17.60 and the weighted-average remaining contractual life was approximately 8 years. For options exercisable at year end 1999 the exercise prices were also between $5.57 and $17.60. NON-EMPLOYEE DIRECTOR STOCK COMPENSATION PLAN Teledyne Technologies also sponsors a stock option plan for non-employee directors. At year end 1999, options for 15,073 shares were issued and outstanding under the plan with exercise prices between $6.62 and $9.94 and a weighted-average exercise price of $9.70. All of these options become exercisable on November 29, 2000. F-16 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8. RELATED PARTY TRANSACTIONS -------------------------------------------------------------------------------- The accompanying financial statements include transactions with ATI for the year-to-date period ended November 29, 1999 and the 1998 and 1997 fiscal years: 1999(A) 1998 1997 ------- ------- ------- (IN MILLIONS) Net advances from ATI, beginning of the year.............. $104.7 $ 107.5 $ 126.1 Net cash transactions with ATI: Current provision for income taxes...................... 26.5 34.7 26.8 Insurance expense....................................... 15.9 17.2 18.6 Pension expense (income)................................ (5.8) (1.7) .7 Corporate general and administrative expense............ 7.3 7.8 7.6 Other net cash to ATI(b)................................ (91.4) (109.5) (113.9) ------ ------- ------- Net cash transactions with ATI.......................... (47.5) (51.5) (60.2) Net income................................................ 43.4 48.7 41.6 ------ ------- ------- Net advances from ATI, end of period...................... $100.6 $ 104.7 $ 107.5 ====== ======= ======= ------------------------- (a) For the year-to-date period ending November 29, 1999. (b) Includes $100 million in long-term debt incurred by ATI and assumed by Teledyne Technologies. Until the spin-off date, Teledyne Technologies participated in ATI's centralized cash management system. Cash receipts in excess of cash requirements were transferred to ATI. These transactions with ATI were non-interest bearing and the net advances fluctuated on a daily basis. Corporate general and administrative expenses represent allocations for expenses incurred by ATI 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 participated in the defined benefit pension plan sponsored by ATI through the date of the spin-off. The expense for the plan was allocated to Teledyne Technologies based upon actuarially-determined amounts for the pension obligation and assets ultimately transferred from ATI to Teledyne Technologies at the time of the spin-off. Teledyne Technologies also participated in casualty, medical and life insurance programs sponsored by ATI. Insurance expense was allocated to Teledyne Technologies based upon actual losses incurred plus a share of pooled catastrophic losses under the ATI self-insurance program. In the opinion of management, the allocations of these expenses were reasonable. In addition, prior to and in connection with the spin-off, Teledyne Technologies and ATI entered 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 $1.4 million, $1.1 million and $293 thousand of sales to other ATI subsidiaries for the eleven month period ended November 30, 1999 and the fiscal years ended January 3, 1999 and December 28, 1997, respectively. There was a receivable of $532 thousand at year end 1998 from other ATI subsidiaries. F-17 51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9. LONG-TERM DEBT -------------------------------------------------------------------------------- Long-term debt at January 2, 2000, was $97 million in the form of bank borrowings under a $200 million long-term, revolving credit agreement. Borrowings under the agreement are on a revolving basis under commitments available until November 2004. The Company had approximately $103 million of borrowing availability under the credit facility at January 2, 2000. The interest-rate applicable to borrowings under the agreement is, indexed to the bank prime rate or the London Interbank Offered Rate (LIBOR), plus appropriate spreads over such indices during the period of the credit agreement and was 7.63% at January 2, 2000. The agreement also provides for a facility fee which are currently equal to .35% of the credit line. The facility fee will vary between .35% and .20% depending on Teledyne Technologies' capitalization ratio as calculated from time to time. Interest expense incurred on long-term debt and facility fees in 1999 were $796 thousand from the date of the spin-off. The financial covenants of the revolving credit agreement require the Company to maintain specified minimum consolidated net worth and ratios of consolidated debt and interest expense to certain measures of income. Under the most restrictive of these covenants, approximately $1.4 million of stockholders' equity was available for dividends as of January 2, 2000. NOTE 10. INCOME TAXES -------------------------------------------------------------------------------- Until the effective date of the spin-off, Teledyne Technologies was included in the consolidated federal and certain state income tax returns of ATI. ATI is responsible for paying the taxes related to such returns including any subsequent adjustment resulting from the redetermination of such tax liability by the applicable taxing authorities. Provision for income taxes was calculated as if Teledyne Technologies had filed separate income tax returns for all years presented. Provision for income taxes was as follows: 1999 1998 1997 ----- ----- ----- (IN MILLIONS) Current Federal.............................................. $27.7 $29.1 $22.3 State................................................ 6.4 5.1 4.1 Foreign.............................................. .3 .5 .4 ----- ----- ----- 34.4 34.7 26.8 ----- ----- ----- Deferred Federal.............................................. (1.3) (.4) .2 State................................................ (.1) -- .1 ----- ----- ----- (1.4) (.4) .3 ----- ----- ----- Provision for income taxes............................. $33.0 $34.3 $27.1 ===== ===== ===== F-18 52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Income before income taxes included income from domestic operations of $81.9 million for 1999, $82.2 million for 1998 and $68.8 million for 1997. The following is a reconciliation of the statutory federal income tax rate to the actual effective income tax rate: 1999 1998 1997 ---- ---- ---- U.S. federal statutory tax rate........................... 35.0% 35.0% 35.0% State and local taxes, net of federal benefit............. 5.2 4.5 3.8 Other..................................................... -- 1.8 .6 ---- ---- ---- Effective income tax rate................................. 40.2% 41.3% 39.4% ==== ==== ==== 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. No valuation allowance has been recorded for 1999 or 1998. The categories of assets and liabilities that have resulted in differences in the timing of the recognition of income and expense were as follows: 1999 1998 ----- ----- (IN MILLIONS) Deferred income tax assets: Postretirement benefits other than pensions.......... $12.6 $12.9 Reserves............................................. 16.1 10.0 Deferred compensation and other benefit plans........ 9.8 -- Inventory valuation.................................. 6.7 5.4 Accrued vacation..................................... 5.2 4.2 Other items.......................................... -- 4.2 ----- ----- Total deferred income tax assets....................... 50.4 36.7 ----- ----- Deferred income tax liabilities: Property, plant and equipment differences............ 3.0 1.7 Other items.......................................... .1 -- ----- ----- Total deferred income tax liabilities.................. 3.1 1.7 ----- ----- Net deferred income tax asset.......................... $47.3 $35.0 ===== ===== NOTE 11. PENSION PLANS AND POSTRETIREMENT BENEFITS -------------------------------------------------------------------------------- Prior to the spin-off, certain Teledyne Technologies' employees participated in the noncontributory defined benefit plan sponsored by ATI. Benefits under the defined benefit plan are generally based on years of service and/or final average pay. ATI funded the pension plan in accordance with the requirements of the Employee Retirement Income Security Act of 1974, as amended, and the Internal Revenue Code. F-19 53 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Net periodic pension income or expense allocated to Teledyne Technologies was $6.6 million of income, $1.7 of income and $722 thousand of expense in the years ended January 2, 2000, January 3, 1999 and December 28, 1997, respectively. As of the spin-off date, Teledyne Technologies assumed the existing defined benefit plan obligations for all of Teledyne Technologies' employees, both 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. ATI transferred pension assets to fund the new Teledyne Technologies' defined benefit pension plan, which at the time of the transfer then had assets in excess of liabilities. Teledyne Technologies also participates in a 401(k) plan that is open to all full time U.S. employees which is currently sponsored by ATI. The costs associated with this plan were $2.9 million, $3.3 million, and $1.2 million for fiscal 1999, 1998 and 1997, respectively. Teledyne Technologies intends to establish its own 401(k) plan effective April 2000. 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. The following table sets forth the components of net period pension benefit (income) expense for Teledyne Technologies' defined benefit pension plans and post-retirement benefit plans for fiscal 1999, 1998 and 1997: PENSION BENEFITS POSTRETIREMENT BENEFITS -------------------------- ----------------------- 1999 1998 1997 1999 1998 1997 ------ ------ ------ ----- ----- ----- (IN MILLIONS) Service cost -- benefits earned during the period.... $ 12.7 $ 12.8 $ 13.2 $ .4 $ .3 $ .3 Interest cost on benefit obligation.................. 23.6 22.6 21.0 1.8 1.7 1.8 Expected return on plan assets...................... (35.9) (32.4) (28.4) -- -- -- Amortization of net transition asset....................... (6.4) (6.4) (6.4) -- -- -- Amortization of prior service cost........................ 2.1 2.1 1.3 (.4) (.4) (.4) Recognized actuarial (gain) loss........................ (2.7) (.4) -- (.4) (.1) -- ------ ------ ------ ---- ---- ---- Net periodic benefit (income) expense..................... $ (6.6) $ (1.7) $ .7 $1.4 $1.5 $1.7 ====== ====== ====== ==== ==== ==== F-20 54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following table sets forth the reconciliation of the beginning and ending balances of the benefit obligation of the defined benefit pension and postretirement benefit plans: POSTRETIREMENT PENSION BENEFITS BENEFITS ---------------- -------------- 1999 1998 1999 1998 ------ ------ ----- ----- (IN MILLIONS) Changes in benefit obligation: Benefit obligation -- beginning of year... $344.8 $329.3 $25.1 $26.6 Service cost -- benefits earned during the period................................. 12.7 12.8 .3 .3 Interest cost on projected benefit obligation............................. 23.6 22.6 1.8 1.7 Actuarial (gain) loss..................... (.2) (16.1) .7 (2.2) Amendments................................ -- 9.5 -- -- Benefits paid............................. (13.9) (13.3) (.8) (1.3) ------ ------ ----- ----- Benefit obligation -- end of year........... $367.0 $344.8 $27.1 $25.1 ====== ====== ===== ===== The following table sets forth the reconciliation of the beginning and ending balances of the fair value of plan assets for Teledyne Technologies' defined benefit pension plans: PENSION BENEFITS ---------------- 1999 1998 ------ ------ (IN MILLIONS) Changes in plan assets: Fair value of plan assets -- beginning of year.............. $403.9 $367.0 Actual return on plan assets.............................. 47.5 50.0 Employer contribution..................................... .2 .2 Benefits paid............................................. (13.9) (13.3) ------ ------ Fair value of plan assets -- end of year.................... $437.7 $403.9 ====== ====== The weighted average discount rate used in determining the benefit obligations was 7.0% as of January 2, 2000 and January 3, 1999. The weighted average rate of increase in future compensation levels used in determining the benefit obligations was approximately 4.5% in 1999 and 1998. The expected weighted average long-term rate of return on assets was 9.0% in 1999 and 1998. The following table sets forth the funded status and amounts recognized in Teledyne Technologies' consolidated balance sheets for the postretirement benefit plans at year end 1999 and year end 1998. The following table also sets forth the funded status and amounts recognized in Teledyne Technologies' consolidated balance sheets for the defined benefit pension plan at year end 1999. The amounts shown for 1998 for the defined benefit pension F-21 55 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) plan are not reflected in consolidated balance sheet at year end 1998 since the plan was not transferred until the date of the spin-off: POSTRETIREMENT PENSION BENEFITS BENEFITS ---------------- ------------------ 1999 1998 1999 1998 ------ ------ ------ ------ (IN MILLIONS) Funded status.............................. $ 70.7 $ 59.1 $(27.1) $(25.1) Unrecognized net transition obligation (asset).................................. (11.1) (17.6) -- -- Unrecognized prior service cost............ 15.4 17.6 (1.1) (1.4) Unrecognized net gain...................... (89.7) (80.5) (5.4) (6.4) ------ ------ ------ ------ Net amount recognized...................... $(14.7) $(21.4) $(33.6) $(32.9) ====== ====== ====== ====== Prepaid benefit cost....................... $(10.6) $(18.2) $ -- $ -- Accrued benefit liability.................. (5.5) (5.0) (33.6) (32.9) Intangible asset........................... 1.4 1.7 -- -- Other...................................... -- .1 -- -- ------ ------ ------ ------ Net amount recognized...................... $(14.7) $(21.4) $(33.6) $(32.9) ====== ====== ====== ====== 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 8.4% in 2000 and was assumed to decrease to 5.0% 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 increase in the assumed health care cost trend rates would result in an increase in the annual service and interest costs by $273 thousand for 1999 and would result in an increase in the postretirement benefit obligation by $3.4 million at January 2, 2000. A one percentage point decrease in the assumed health care cost trend rates would result in a decrease in the annual service and interest costs by $238 thousand for 1999 and would result in a decrease in the postretirement benefit obligation by $3.0 million at January 2, 2000. NOTE 12. BUSINESS SEGMENTS -------------------------------------------------------------------------------- Effective January 1, 1998, Teledyne Technologies adopted the provisions of SFAS No. 131--"Disclosures about Segments of an Enterprise and Related Information." Teledyne Technologies operates in three business segments: Electronics and Communications, Systems Engineering Solutions and Aerospace Engines and Components. The factors for determining the reportable segments were based on the distinct nature of their operations. They are managed as separate business units because each requires and is responsible for executing a unique business strategy. The 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 Manufacturing Services. The 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. The Aerospace Engines and Components segment, through Teledyne Continental Motors and Teledyne Cast Parts, focuses on the design, development and F-22 56 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) manufacture of piston engines, turbine engines, electronic engine controls, batteries and metal castings. Identifiable assets are those assets used in the operations of the segments. Corporate assets primarily consist of cash and cash equivalents, deferred tax assets, pension assets and other assets. Information on the Company's business segments was as follows: 1999 1998 1997 ------ ------ ------ (IN MILLIONS) SALES Electronics and Communications.................... $340.7 $342.1 $340.0 Systems Engineering Solutions..................... 226.5 223.2 210.4 Aerospace Engines and Components.................. 236.2 215.1 206.2 ------ ------ ------ TOTAL SALES......................................... $803.4 $780.4 $756.6 ====== ====== ====== OPERATING PROFIT Electronics and Communications.................... $ 42.6 $ 42.6 $ 36.8 Systems Engineering Solutions..................... 20.2 20.5 13.1 Aerospace Engines and Components.................. 27.8 26.1 25.0 ------ ------ ------ SEGMENT OPERATING PROFIT....................... 90.6 89.2 74.9 Corporate expense including interest........... (9.6) (7.8) (7.6) Other income................................... 1.0 1.6 1.4 ------ ------ ------ INCOME BEFORE TAXES............................... $ 82.0 $ 83.0 $ 68.7 ====== ====== ====== DEPRECIATION AND AMORTIZATION Electronics and Communications.................... $ 6.6 $ 5.7 $ 5.7 Systems Engineering Solutions..................... 2.5 2.9 3.1 Aerospace Engines and Components.................. 2.8 2.5 2.5 ------ ------ ------ TOTAL DEPRECIATION AND AMORTIZATION................. $ 11.9 $ 11.1 $ 11.3 ====== ====== ====== CAPITAL EXPENDITURES Electronics and Communications.................... $ 13.5 $ 10.3 $ 10.8 Systems Engineering Solutions..................... 2.0 2.6 2.3 Aerospace Engines and Components.................. 16.0 5.2 2.7 ------ ------ ------ TOTAL CAPITAL EXPENDITURES.......................... $ 31.5 $ 18.1 $ 15.8 ====== ====== ====== IDENTIFIABLE ASSETS Electronics and Communications.................... $109.0 $ 96.2 $ 93.1 Systems Engineering Solutions..................... 62.2 63.4 70.7 Aerospace Engines and Components.................. 79.0 56.2 57.0 Corporate......................................... 67.2 35.0 34.6 ------ ------ ------ TOTAL IDENTIFIABLE ASSETS........................... $317.4 $250.8 $255.4 ====== ====== ====== F-23 57 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company's backlog of confirmed orders was approximately $373.7 million at January 2, 2000 and $401.8 million at January 3, 1999. Information on the Company's sales to the U.S. Government, including direct sales as a prime contractor and indirect sales as a subcontractor, were as follows: 1999 1998 1997 ------ ------ ------ (IN MILLIONS) Electronics and Communications.................... $101.1 $102.4 $102.7 Systems Engineering Solutions..................... 185.4 159.2 158.0 Aerospace Engines and Components.................. 61.7 46.8 42.6 ------ ------ ------ Total U.S. Government sales......................... $348.2 $308.4 $303.3 ====== ====== ====== Sales to the U.S. Government included sales to the Department of Defense of $246.3 million in 1999, $214.1 million in 1998 and $198.5 million in 1997. Total international sales were $148.1 million in 1999, $172.9 million in 1998 and $159.2 million in 1997. Of these amounts, sales by operations in the United States to customers in other countries were $131.1 million in 1999, $159.3 million in 1998 and $144.0 million in 1997. There were no sales to individual countries outside of the United States in excess of 10% of the Company's net sales. Sales between business segments, which were not material, generally were priced at prevailing market prices. NOTE 13. COMMITMENTS AND CONTINGENCIES -------------------------------------------------------------------------------- Rental expense, under operating leases, net of sublease income, was $10.0 million in 1999, $10.4 million in 1998 and $10.2 million in 1997. Future minimum rental commitments under operating leases with non-cancelable terms of more than one year as of January 2, 2000, were as follows (in millions unless noted): $6.0 in 2000, $5.3 in 2001, $4.6 in 2002, $2.9 in 2003, $73 thousand in 2004 and $3.4 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 responsible party at approximately 17 such sites, excluding those at which the Company believes it has no future liability. 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 F-24 58 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 January 2, 2000, the Company's reserves for environmental remediation obligations totaled approximately $1.2 million, of which approximately $836 thousand were included in other current liabilities. The Company is evaluating whether it may be able to recover a portion of future costs for environmental liabilities from its insurance carriers and from third parties other than participating potentially responsible parties. The timing of expenditures depends on a number of factors that vary by site, including the nature and extent of contamination, the number of potentially responsible parties, the timing of regulatory approvals, the complexity of the investigation and remediation, and the standards for remediation. The Company expects that it will expend present accruals over many years, and will complete remediation of all sites with which it has been identified in up to thirty years. Various claims (whether based on U.S. Government or Company audits and investigations or otherwise) have been or may be asserted against the Company related to its U.S. Government contract work, including claims based on business practices and cost classifications and actions under the False Claims Act. Although such claims are generally resolved by detailed fact-finding and negotiation, on those occasions when they are not so resolved, civil or criminal legal or administrative proceedings may ensue. Depending on the circumstances and the outcome, such proceedings could result in fines, penalties, compensatory and treble damages or the cancellation or suspension of payments under one or more 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, ATI 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 F-25 59 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) continuing validity of the Internal Revenue Service tax ruling is subject to certain factual representations and assumptions, including the Company's completion of a public offering of the Company's Common Stock within one year following the spin-off and use of the anticipated gross proceeds of approximately $125 million (less associated costs) for research and development and related capital projects, for the further development of the Company's manufacturing capabilities and for acquisitions and/or joint ventures. Pursuant to the Separation and Distribution Agreement that Teledyne Technologies signed prior to the spin-off, the Company agreed with ATI to undertake such a public offering. The Tax Sharing and Indemnification Agreement between ATI and Teledyne Technologies provides that the Company will indemnify ATI and its agents and representatives for taxes imposed on, and other amounts paid by, them or ATI 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 ATI, 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-26 60 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 14. QUARTERLY FINANCIAL DATA (UNAUDITED) -------------------------------------------------------------------------------- The following is Teledyne Technologies' quarterly information: 1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- (IN MILLIONS, EXCEPT PER-SHARE AMOUNTS) FISCAL YEAR 1999(A) SALES..................................... $202.0 $195.4 $205.6 $200.4 GROSS PROFIT.............................. $ 50.6 $ 50.2 $ 60.1 $ 54.8 NET INCOME................................ $ 11.9 $ 10.2 $ 13.8 $ 13.1 DILUTED EARNINGS PER SHARE................ $ .43 $ .37 $ .50 $ .49 FISCAL YEAR 1998(B) Sales..................................... $198.8 $200.4 $189.5 $191.7 Gross profit.............................. $ 52.7 $ 55.1 $ 48.6 $ 51.9 Net income................................ $ 11.3 $ 13.9 $ 12.6 $ 10.9 Diluted earnings per share................ $ .40 $ .50 $ .45 $ .39 ------------------------- (a) Teledyne Technologies spun-off from ATI effective November 29, 1999. (b) The 1998 third quarter results reflect the favorable impact of an adjustment to product liability self-insurance reserves as a result of favorable experience. F-27 61 SCHEDULE II TELEDYNE TECHNOLOGIES INCORPORATED VALUATION AND QUALIFYING ACCOUNTS FOR THE FISCAL YEARS ENDED JANUARY 2, 2000, JANUARY 3, 1999 AND DECEMBER 28, 1997 (IN MILLIONS) ADDITIONS ----------------------- BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS(A) PERIOD ----------- ---------- ---------- ---------- ------------- ---------- FISCAL 1999 RESERVE FOR DOUBTFUL ACCOUNTS $2.9 0.6 -- -- $3.5 FISCAL 1998 Reserve for doubtful accounts $3.2 1.4 -- (1.7) $2.9 FISCAL 1997 Reserve for doubtful accounts $2.0 1.3 -- (0.1) $3.2 ------------------------- (a) Represents write-offs of doubtful accounts. F-28 62 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized as of March 27, 2000. TELEDYNE TECHNOLOGIES INCORPORATED (Registrant) By: /s/ ROBERT MEHRABIAN ----------------------------------- Robert Mehrabian President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. * Chairman and Director March 27, 2000 ------------------------------------------ Thomas A. Corcoran /s/ ROBERT MEHRABIAN President and Chief March 27, 2000 ------------------------------------------ Executive Officer Robert Mehrabian (Principal Executive Officer) and Director /s/ STEFAN C. RIESENFELD Executive Vice President March 27, 2000 ------------------------------------------ and Chief Financial Officer Stefan C. Riesenfeld (Principal Financial Officer) /s/ DALE A. SCHNITTJER Controller March 27, 2000 ------------------------------------------ (Principal Accounting Officer) Dale A. Schnittjer * Director March 27, 2000 ------------------------------------------ Robert P. Bozzone * Director March 27, 2000 ------------------------------------------ Paul S. Brentlinger * Director March 27, 2000 ------------------------------------------ Frank V. Cahouet * Director March 27, 2000 ------------------------------------------ Diane C. Creel * Director March 27, 2000 ------------------------------------------ C. Fred Fetterolf * Director March 27, 2000 ------------------------------------------ Charles J. Queenan, Jr. *By: /s/ JOHN T. KUELBS -------------------------------------------------- John T. Kuelbs Pursuant to Power of Attorney filed as Exhibit 24. 63 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION ------- ----------- 2.1 Separation and Distribution Agreement dated as of November 29, 1999 by and among Allegheny Teledyne Incorporated, TDY Holdings, LLC, Teledyne Industries, Inc. and Teledyne Technologies Incorporated (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated as of November 29, 1999 (File No. 1-15295)) 3.1* Restated Certificate of Incorporation of Teledyne Technologies Incorporated (including Certificate of Designation of Series A Junior Participating Preferred Stock) 3.2* Amended and Restated Bylaws of Teledyne Technologies Incorporated 4.1 Rights Agreement dated as of November 29, 1999 between Teledyne Technologies Incorporated and ChaseMellon Shareholder Services, L.L.C. (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated as of November 29, 1999 (File No. 1-15295)) 4.2* Credit Agreement dated as of October 29, 1999 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 4.3* First Amendment to the Credit Agreement dated as of November 10, 1999 10.1 Tax Sharing and Indemnification Agreement between Allegheny Teledyne Incorporated and Teledyne Technologies Incorporated (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated as of November 29, 1999 (File No. 1-15295)) 10.2 Interim Services Agreement between Allegheny Teledyne Incorporated and Teledyne Technologies Incorporated (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K dated as of November 29, 1999 (File No. 1-15295)) 10.3 Employee Benefits Agreement between Allegheny Teledyne Incorporated and Teledyne Technologies Incorporated (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K/A (Amendment No. 1) dated as of November 29, 1999 (File No. 1-15295))+ 10.4 Trademark License Agreement between Allegheny Teledyne Incorporated and Teledyne Technologies Incorporated (incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K dated as of November 29, 1999 (File No. 1-15295)) 10.5* Teledyne Technologies Incorporated 1999 Incentive Plan, as amended+ 10.6* Teledyne Technologies Incorporated 1999 Non-Employee Director Stock Compensation Plan+ 10.7 Fee Continuation Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.7 to the Company's Registration Statement on Form 10/A-1 filed on October 29, 1999 (File No. 1-15295))+ 10.8* Employment Agreement dated as of December 31, 1999 between Robert Mehrabian and Teledyne Technologies Incorporated+ 10.9* Form of Change of Control Severance Agreement+ 10.10* Teledyne Technologies Incorporated Executive Deferred Compensation Plan+ 10.11* Teledyne Technologies Incorporated Pension Equalization/Benefit Restoration Plan+ 21* Significant Subsidiary of Teledyne Technologies Incorporated 23* Consent of Ernst & Young LLP 24* Power of Attorney 27.1* Financial Data Schedule 27.2* Financial Data Schedule (Restated) --------------- * Filed herewith. + Denotes management contract or compensatory plan or arrangement required to be filed as an Exhibit to this Form 10-K. EX-3.1 2 RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION OF TELEDYNE TECHNOLOGIES INCORPORATED The name of the corporation is Teledyne Technologies Incorporated. The corporation's original Certificate of Incorporation was filed with the Secretary of the State of Delaware on August 23, 1999. This Restated Certificate of Incorporation restates and integrates and also further amends the Certificate of Incorporation of the corporation, as heretofore amended and supplemented, and was duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware. This Restated Certificate of Incorporation shall become effective upon filing with the Delaware Secretary of State. * * * * * ONE: The name of the corporation is Teledyne Technologies Incorporated (hereinafter referred to as the "Corporation"). TWO: The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle, and the name of its registered agent at such address is The Corporation Trust Company. THREE: The purpose of the Corporation is to engage in any lawful act or activity for which a Corporation may be organized under the Delaware General Corporation Law. FOUR: The total number of shares of all classes of stock which the Corporation shall have authority to issue is One Hundred Forty Million (140,000,000) consisting of One Hundred Twenty-Five Million (125,000,000) shares of Common Stock, par value one cent ($.01) per share (the "Common Stock"), and Fifteen Million (15,000,000) shares of Preferred Stock, par value one cent ($.01) per share (the "Preferred Stock"). The term "Voting Stock" shall hereafter refer to all shares of capital stock entitled to vote generally in the election of directors. A. Common Stock 1. Except where otherwise provided by law, by this Restated Certificate of Incorporation, or by resolution of the Board of Directors pursuant to this Article FOUR, the holders of the Common Stock issued and outstanding shall have and possess the exclusive right to notice of stockholders' meetings and the exclusive voting rights and powers of the capital stock. 2. Subject to any preferential rights of the Preferred Stock, dividends may be paid on the Common Stock, as and when declared by the Board of Directors, out of any funds of the Corporation legally available for the payment of such dividends. 1 2 B. Preferred Stock The Board of Directors is authorized, subject to any limitations prescribed by law, to provide for the issuance of shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware (such certificate being hereinafter referred to as a "Preferred Stock Designation"), to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers (including but not limited to voting powers, if any), preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the terms of any Preferred Stock Designation. FIVE: The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders: A. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authority expressly conferred upon them by statute or by this Restated Certificate of Incorporation or the Bylaws of the Corporation, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation. B. The Board of Directors may adopt, amend or repeal the Bylaws of the Corporation. The stockholders of the Corporation may not adopt, amend or repeal the Bylaws of the Corporation other than by the affirmative vote of 75% of the combined voting power of all outstanding voting securities of the Corporation entitled to vote generally in the election of directors of the Board of Directors of the Corporation ("Voting Power"), voting together as a single class. C. The directors of the Corporation need not be elected by written ballot unless the Bylaws so provide. SIX: The Corporation reserves the right to amend and repeal any provision contained in this Restated Certificate of Incorporation in the manner from time to time prescribed by the laws of the State of Delaware. All rights herein conferred are granted subject to this reservation. SEVEN: A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which such director derived any improper personal benefit. No amendment to or repeal of this Article SEVEN shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of 2 3 such director occurring prior to such amendment or repeal. If the Delaware General Corporation Law is amended to authorize corporate action further eliminating the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as amended. EIGHT: A. Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director or an officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an "indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith; provided, however, that, except as provided in Section C of this Article EIGHT with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. B. Right to Advancement of Expenses. The right to indemnification conferred in Section A of this Article EIGHT shall include the right to be paid by the Corporation the expenses (including attorneys' fees) incurred in defending any such proceeding in advance of its final disposition (hereinafter an "advancement of expenses"); provided, however, that, if the Delaware General Corporation Law requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a director or officer of the Corporation (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a "final adjudication") that such indemnitee is not entitled to be indemnified for such expenses under this Section B or otherwise. The rights to indemnification and to the advancement of expenses conferred in Sections A and B of this Article EIGHT shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the indemnitee's heirs, executors and administrators. C. Right of Indemnitee to Bring Suit. If a claim under Section A or B of this Article EIGHT is not paid in full by the Corporation within sixty (60) days after a written claim has been 3 4 received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty (20) days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and in any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article EIGHT or otherwise shall be on the Corporation. D. Non-Exclusivity of Rights. The rights to indemnification and to the advancement of expenses conferred in this Article EIGHT shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Corporation's Restated Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise. E. Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. F. Indemnification of Employees and Agents of the Corporation. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation, including any subsidiary of the Corporation, to the fullest extent of the provisions of this Article with respect to the indemnification and advancement of expenses of directors and officers of the Corporation. 4 5 G. Amendment. Any repeal or modification of this Article EIGHT shall not change the rights of any person to indemnification with respect to any action or omission occurring prior to such repeal or modification. NINE: The following provisions are inserted for the definition, limitation and regulation of actions of the stockholders of the Corporation: A. Action to be Taken at Stockholder Meetings Only. Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of such stockholders and may not be effected by the written consent of such stockholders. B. Calling of Special Meetings. Special meetings of the stockholders, other than those required by statute, may be called only by the Board of Directors pursuant to a resolution approved by a majority of the directors then in office, the Chairman of the Board or the Chief Executive Officer. The Board of Directors may postpone, reschedule or cancel any previously scheduled special meeting. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation's notice of meeting (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice as provided in this Article NINE, Section B, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Article NINE, Section B. Nominations by stockholders of persons for election to the Board of Directors may be made at such a special meeting of stockholders if the stockholder's notice required by Article NINE, Section C shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not earlier than the ninetieth day prior to such special meeting and not later than the close of business on the later of the seventy-fifth day prior to such special meeting or the tenth day following the day on which a public announcement (as defined in subparagraph (e) of Article NINE, Section C) is first made of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. C. Notice of Nominations and Action to be Taken at an Annual Meeting. (a) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (i) pursuant to the Corporation's notice of meeting, (ii) by or at the direction of the Board of Directors or (iii) by any stockholder of the Corporation who was a stockholder of record at the time of giving of the notice provided for in this Article NINE, Section C who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Article NINE, Section C. (b) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of paragraph (a) of this Article NINE, Section C, the stockholder must have given timely notice thereof in writing to the Secretary of the 5 6 Corporation and such business must be a proper matter for stockholder action under the Delaware General Corporation Law. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not less than seventy-five days nor more than ninety days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than thirty days or delayed by more than sixty days from such anniversary date, or in the case of the first annual meeting of the Corporation's stockholders after the Corporation becomes subject to the reporting requirements of Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), notice by the stockholder to be timely must be so delivered not earlier than the ninetieth day prior to such annual meeting and not later than the close of business on the later of the sixtieth day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made. Such stockholder's notice shall set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (ii) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any financial or other interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (1) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner and (2) the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner. (c) Notwithstanding anything in the second sentence of paragraph (b) of this Article NINE, Section C to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least eighty-five days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this Article NINE, Section C shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth day following the day on which such public announcement is first made by the Corporation. (d) Only such persons who are nominated in accordance with the procedures set forth in this Article NINE, Section C shall be eligible to serve as directors and only such business shall be conducted at an annual meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Article NINE, Section C. The presiding officer of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this Article NINE, Section C and, if any proposed nomination or 6 7 business is not in compliance with this Article NINE, Section C, to declare that such defective proposed business or nomination shall be disregarded. (e) For purposes of this Article NINE, Section C, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or a comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (f) Notwithstanding the foregoing provisions of this Article NINE, Section C, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Article NINE, Section C. Nothing in this Article NINE, Section C shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. (g) The Bylaws of the Corporation may contain additional provisions not inconsistent with this Article NINE, Section C regarding nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be transacted by the stockholders. Without limiting the category of such provisions which would not be inconsistent with this Article NINE, Section C, a provision in the Bylaws of the Corporation which sets forth additional information which must be provided by a stockholder in the notice required by this Article NINE, Section C shall not be deemed to be so inconsistent. D. Voting. The stockholders shall not have the right to cumulate their votes in the election of directors. TEN: (A) Except as otherwise fixed pursuant to the provisions of Article FOUR hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect additional directors under specified circumstances, the number of directors of the Corporation shall be fixed from time to time by the affirmative vote of a majority of the whole Board of Directors. The directors, other than those who may be elected by the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, shall be classified, with respect to the time for which they severally hold office, into three classes: Class I, Class II and Class III. The terms of office of the initial classes of directors shall be as follows: the Class I Directors shall be elected to hold office for a term to expire at the first annual meeting of stockholders after the initial classification of directors; the Class II Directors shall be elected to hold office for a term to expire at the second annual meeting of stockholders after the initial classification of directors; and the Class III Directors shall be elected to hold office for a term to expire at the third annual meeting of stockholders after the initial classification of directors; and in the case of each class, until their respective successors are duly elected and qualified. At each annual meeting of stockholders the directors elected to succeed those whose terms have expired shall be identified as being of the same class as the directors they succeed and shall be elected to hold office for a 7 8 term to expire at the third annual meeting of stockholders after their election, or until his or her earlier resignation or removal, and until their respective successors are duly elected and qualified. (B) Except as otherwise fixed pursuant to the provisions of Article FOUR hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors: (a) In case of any increase in the number of directors, the additional director or directors, and in case of any vacancy in the Board of Directors due to death, resignation, removal, disqualification or any other reason, the successors to fill the vacancies, shall be elected only by a majority of the directors then in office, even though less than a quorum, or by a sole remaining director and not by the stockholders, unless otherwise provided by law or by resolution adopted by a majority of the whole Board of Directors. (b) Directors appointed in the manner provided in paragraph (a) to newly created directorships resulting from any increase in the authorized number of directors or any vacancies on the Board of Directors resulting from death, resignation, removal, disqualification or any other cause shall hold office for a term expiring at the next annual meeting of stockholders at which the term of the class to which they have been elected expires. (c) No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. (C) Except as otherwise fixed pursuant to the provisions of Article FOUR hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors, any director or directors may be removed from office at any time, but only for cause and only by the affirmative vote of 75% of the Voting Power, voting together as a single class. ELEVEN: In addition to any other considerations which the Board of Directors, any committee thereof or any individual director lawfully may take into account in determining whether to take or refrain from taking corporate action on any matter, including making or declining to make any recommendations to the stockholders of the Corporation, the Board of Directors, any committee thereof or any individual director may in its, his or her discretion consider the long term as well as the short term best interests of the Corporation (including the possibility that these interests may best be served by the continued independence of the Corporation), taking into account and weighing as deemed appropriate the effects of such action on employees, suppliers, distributors and customers of the Corporation and its subsidiaries and the effect upon communities in which the offices or facilities of the Corporation and its subsidiaries are located and any other factors considered pertinent. This Article ELEVEN shall be deemed to grant discretionary authority to the Board of Directors, any committee thereof and each individual director, and shall not be deemed to provide to any specific constituency any right to be considered. TWELVE: In addition to the requirements of (i) law and (ii) the other provisions of this Restated Certificate of Incorporation, the affirmative vote of the holders of at least two-thirds of 8 9 the outstanding shares of Common Stock of the Corporation entitled to vote shall be required for the adoption or authorization of a Fundamental Change unless the Fundamental Change has been approved at a meeting of the Board of Directors by the vote of more than two-thirds of the incumbent members of the Board of Directors. As used in this Article TWELVE, "Fundamental Change" shall mean (1) any merger or consolidation of the Corporation with or into any other corporation, (2) any sale, lease, exchange, transfer or other disposition, but excluding a mortgage or any other security device, of all or substantially all of the assets of the Corporation, (3) any merger or consolidation of a Significant Shareholder with or into the Corporation or a direct or indirect subsidiary of the Corporation, (4) any sale, lease, exchange, transfer or other disposition to the Corporation or to a direct or indirect subsidiary of the Corporation of any Common Stock of the Corporation held by a Significant Shareholder or any other assets of a Significant Shareholder which, if included with all other dispositions consummated during the same fiscal year of the Corporation by the same Significant Shareholder, would result in dispositions of assets having an aggregate fair value in excess of five percent of the total consolidated assets of the Corporation as shown on its certified balance sheet as of the end of the fiscal year preceding the proposed disposition, (5) any reclassification of Common Stock of the Corporation, or any recapitalization involving Common Stock of the Corporation, consummated within five years after a Significant Shareholder becomes a Significant Shareholder, whereby the number of outstanding shares of Common Stock is reduced or any of such shares are converted into or exchanged for cash or other securities, (6) any dissolution and (7) any agreement, contract or other arrangement providing for any of the transactions described in this definition of Fundamental Change but, notwithstanding anything to the contrary herein, Fundamental Change shall not include any merger pursuant to the Delaware General Corporation Law, as amended from time to time, which does not require a vote of the Corporation's stockholders for approval. As used in this Article TWELVE, "Significant Shareholder" shall mean any person who or which beneficially owns a number of shares of Common Stock of the Corporation, whether or not such number includes shares not then outstanding or entitled to vote, which exceeds a number equal to fifteen percent of the outstanding shares of Common Stock of the Corporation entitled to vote, any and all affiliates of such person and any and all associates and family members of such person or any such affiliate. THIRTEEN: Notwithstanding any other provisions of this Restated Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of Voting Stock required by law or this Restated Certificate of Incorporation, the affirmative vote of the holders or at least 75% of the Voting Power, voting together as a single class, shall be required to alter, amend, supplement or repeal, or to adopt any provision inconsistent with the purpose or intent of, paragraph B of Article FIVE and Articles SEVEN, NINE, TEN, ELEVEN, TWELVE or THIRTEEN; provided, however, that no amendment of Article TWELVE shall apply to any person who is a Significant Shareholder at the time of the adoption of such amendment. 9 10 IN WITNESS WHEREOF, the corporation has caused this certificate to be executed by the undersigned duly authorized officer on November 29, 1999. TELEDYNE TECHNOLOGIES INCORPORATED By: /s/ Robert Mehrabian ------------------------------------------- Title: President and Chief Executive Officer 10 11 CERTIFICATE OF DESIGNATIONS of SERIES A JUNIOR PARTICIPATING PREFERRED STOCK of TELEDYNE TECHNOLOGIES INCORPORATED (Pursuant to Section 151 of the Delaware General Corporation Law) Teledyne Technologies Incorporated, a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the "Corporation"), hereby certifies that the following resolution was adopted by the Board of Directors of the Corporation as required by Section 151 of the General Corporation Law at a meeting duly called and held on November 12, 1999. RESOLVED, that, pursuant to the authority granted to and vested in the Board of Directors of this Corporation (hereinafter called the "Board of Directors" or the "Board") in accordance with the provisions of the Certificate of Incorporation, the Board of Directors hereby creates a series of Preferred Stock, par value $.01 per share (the "Preferred Stock"), of the Corporation and hereby states the designation and number of shares and fixes the relative rights, preferences, and limitations thereof as follows: SECTION 1. DESIGNATION AND AMOUNT. The shares of such series shall be designated as "Series A Junior Participating Preferred Stock" (the "Series A Preferred Stock") and the number of shares constituting the Series A Preferred Stock shall be 1,250,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion or exchange of any outstanding securities issued by the Corporation convertible into or exchangeable for shares of Series A Preferred Stock. SECTION 2. DIVIDENDS AND DISTRIBUTIONS. (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of shares of Common Stock, par value $.01 per share (the "Common Stock"), of the Corporation and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being 1 12 referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided, that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. 2 13 SECTION 3. VOTING RIGHTS. The holders of shares of Series A Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein, in any other Certificate of Designations creating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) Except as set forth herein or as otherwise provided by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of the Common Stock as set forth herein) for taking any corporate action. SECTION 4. CERTAIN RESTRICTIONS. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends or make any other distributions on any shares of stock ranking junior (as to dividends) to the Series A Preferred Stock; (ii) declare or pay dividends or make any other distributions on any shares of stock ranking on a parity (as to dividends) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable and in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem, purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; provided, that the Corporation may at any time redeem, purchase or otherwise 3 14 acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or (iv) redeem, purchase or otherwise acquire for consideration any shares of Series A Preferred Stock or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. SECTION 5. REACQUIRED SHARES. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized and unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Certificate of Incorporation or in any other Certificate of Designations creating a series of Preferred Stock or any similar stock or otherwise required by law. SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $100 per share, plus an amount equal to the accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment; provided, that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity (upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of 4 15 Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. SECTION 7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. SECTION 8. NO REDEMPTION. The shares of Series A Preferred Stock shall not be redeemable. SECTION 9. RANK. The Series A Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, junior to all other series of the Preferred Stock. SECTION 10. AMENDMENT. The Certificate of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the shares of Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single class. IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Corporation by the undersigned duly authorized officer this 29th day of November, 1999. /s/ Robert Mehrabian ------------------------------------- President and Chief Executive Officer EX-3.2 3 AMENDED AND RESTATED BYLAWS 1 Exhibit 3.2 ---------------------------------------------- AMENDED AND RESTATED BYLAWS OF TELEDYNE TECHNOLOGIES INCORPORATED ---------------------------------------------- ADOPTED: NOVEMBER 29, 1999 2 TABLE OF CONTENTS Page ---- ARTICLE I OFFICES.....................................................................................1 Section 1. Registered Office...........................................................1 Section 2. Other Offices...............................................................1 ARTICLE II MEETINGS OF STOCKHOLDERS....................................................................1 Section 1. Place of Meetings...........................................................1 Section 2. Annual Meeting..............................................................1 Section 3. Special Meetings............................................................1 Section 4. Notice of Meetings..........................................................1 Section 5. Quorum; Adjournment.........................................................2 Section 6. Proxies and Voting..........................................................2 Section 7. Stock List..................................................................2 ARTICLE III BOARD OF DIRECTORS..........................................................................3 Section 1. Duties and Powers...........................................................3 Section 3. Vacancies...................................................................4 Section 4. Meetings....................................................................4 Section 5. Quorum......................................................................5 Section 6. Actions of Board Without a Meeting..........................................5 Section 7. Meetings by Means of Conference Telephone...................................5 Section 8. Committees..................................................................5 Section 9. Compensation................................................................5 Section 10. Removal.....................................................................6 Section 11. Initial Period..............................................................6 ARTICLE IV OFFICERS....................................................................................6 Section 1. General.....................................................................6 Section 2. Election; Term of Office....................................................7 Section 3. Chairman of the Board.......................................................7 Section 4. Chief Executive Officer.....................................................7 Section 5. President...................................................................7 Section 6. Vice President..............................................................8 Section 7. Secretary...................................................................8 Section 8. Assistant Secretaries.......................................................8 Section 9. Treasurer...................................................................8 Section 10. Assistant Treasurers........................................................8 Section 11. Other Officers..............................................................9 i 3 ARTICLE V STOCK.......................................................................................9 Section 1. Form of Certificates; Uncertificated Shares.................................9 Section 2. Signatures..................................................................9 Section 3. Lost Certificates...........................................................9 Section 4. Transfers...................................................................9 Section 5. Record Date................................................................10 Section 6. Beneficial Owners..........................................................10 Section 7. Voting Securities Owned by the Corporation.................................10 ARTICLE VI NOTICES....................................................................................10 Section 1. Notices....................................................................10 Section 2. Waiver of Notice...........................................................11 ARTICLE VII GENERAL PROVISIONS.........................................................................11 Section 1. Dividends..................................................................11 Section 2. Disbursements..............................................................11 Section 3. Corporation Seal...........................................................11 ARTICLE VIII AMENDMENTS.................................................................................11 ii 4 AMENDED AND RESTATED BYLAWS OF TELEDYNE TECHNOLOGIES INCORPORATED -------------------------------------------- (hereinafter called the "Corporation") ARTICLE I OFFICES Section 1. Registered Office. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may determine from time to time. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Place of Meetings. Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors or the officer of the Corporation calling the meeting as authorized by the Corporation's Certificate of Incorporation and stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual Meeting. Each Annual Meeting of Stockholders shall be held on such date and at such time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. At an Annual Meeting, the stockholders shall elect directors, and transact such other business as may properly be brought before the meeting. Section 3. Special Meetings. Special meetings of the stockholders, other than those required by statute, may be called only as provided in, and for the purposes specified in accordance with, the Corporation's Certificate of Incorporation. Section 4. Notice of Meetings. Written notice of the place, date, and time of each meeting of the stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or as required from time to time by the Delaware 5 General Corporation Law or the Certificate of Incorporation. The notice of a special meeting shall also state the purpose or purposes for which the meeting is called. Section 5. Quorum; Adjournment. At any meeting of the stockholders, the holders of a majority of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law or the Certificate of Incorporation. If a quorum shall fail to attend any meeting, the chairperson of the meeting or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date, or time until a quorum shall be present or represented. When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date, and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. Section 6. Proxies and Voting. At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy, authorized by an instrument in writing or in such manner as may be prescribed by the Delaware General Corporation Law, filed in accordance with the procedure established for the meeting. Each stockholder shall have one vote for every share of stock entitled to vote which is registered in his name on the record date for the meeting, except as otherwise provided herein or required by law or the Certificate of Incorporation. All voting, including on the election of directors but excepting where otherwise provided herein or required by law or the Certificate of Incorporation, may be by a voice vote; provided, however, that upon demand therefor by a stockholder entitled to vote or such stockholder's proxy, or at the discretion of the chairperson of the meeting, a stock vote shall be taken. Every stock vote shall be taken by ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. Every vote taken by ballots shall be counted by an inspector or inspectors appointed by the Board of Directors or the chairperson of the meeting. All elections shall be determined by a plurality of the votes cast. Except as otherwise required by law or the Certificate of Incorporation, all other matters shall be determined by a majority of the votes cast. For purposes of these Bylaws, a vote characterized as an abstention shall not count as a vote "cast." Section 7. Stock List. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in such stockholder's name, shall be open to the examination of any such stockholder, for any purpose germane to the meeting, during 2 6 ordinary business hours for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination of any such stockholder who is present. This list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them. ARTICLE III BOARD OF DIRECTORS Section 1. Duties and Powers. The business of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. Section 2. Number and Term of Office. Subject to Section 11 of this Article III, the Board of Directors shall consist of not less than four (4) and not more than ten (10) members. Subject to the foregoing sentence, the number of directors shall be fixed and may be changed from time to time by resolution duly adopted by a majority of the directors then in office, except as otherwise provided by law, the Certificate of Incorporation or these Bylaws. Except as provided in Section 3 of this Article, directors shall be elected by the holders of record of a plurality of the votes cast at Annual Meetings of stockholders. Any director may resign at any time upon written notice to the Corporation. Directors need not be stockholders. The directors, other than those who may be elected by the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, shall be classified, with respect to the time for which they severally hold office, into three classes: Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the whole number of the Board of Directors. The terms of office of the initial classes of directors shall be as follows: the Class I Directors shall be elected to hold office for a term to expire at the first Annual Meeting of stockholders after the initial classification of directors; the Class II Directors shall be elected to hold office for a term to expire at the second Annual Meeting of stockholders; and the Class III Directors shall be elected to hold office for a term to expire at the third Annual Meeting of stockholders; and in the case of each class, until their respective successors are duly elected and qualified. At each annual meeting of stockholders the directors elected to succeed those whose terms have expired shall be identified as being of the same class as the directors they succeed and shall be elected to hold office for a term to expire at the third Annual Meeting of stockholders after their election, or until his or her earlier resignation or removal, and until their respective successors are duly elected and qualified. This paragraph of Article III, Section 2 is also contained in Article TEN, Section (A) of the Corporation's 3 7 Certificate of Incorporation, and accordingly, may be altered, amended or repealed only to the extent and at the time the comparable Certificate Article is altered, amended or repealed. Section 3. Vacancies. Except as otherwise fixed pursuant to the provisions of Article FOUR of the Corporation's Certificate of Incorporation relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors: (a) In case of any increase in the number of directors, the additional director or directors, and in case of any vacancy in the Board of Directors due to death, resignation, removal, disqualification or any other reason, the successors to fill the vacancies, shall be elected by a majority of the directors then in office, even though less than a quorum, or by a sole remaining director. (b) Directors appointed in the manner provided in paragraph (a) to newly created directorships resulting from any increase in the authorized number of directors or any vacancies on the Board of Directors resulting from death, resignation, removal, disqualification or any other cause shall hold office for a term expiring at the next Annual Meeting of stockholders at which the term of the class to which they have been elected expires and until their successors are duly elected and qualified, or until their earlier resignation or removal. (c) No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. The foregoing provisions of this Article III, Section 3 are also contained in Article TEN, Section (B) of the Corporation's Certificate of Incorporation, and accordingly, may be altered, amended or repealed only to the extent and at the time the comparable Certificate Article is altered, amended or repealed. Section 4. Meetings. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. The first meeting of each newly-elected Board of Directors shall be held immediately following the Annual Meeting of Stockholders and no notice of such meeting shall be necessary to be given the newly-elected directors in order legally to constitute the meeting, provided a quorum shall be present. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President or a majority of the directors then in office. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone, telegram or facsimile transmission on twenty-four (24) hours' notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. Meetings may be held at any time without notice if all the directors are present or if all those not present waive such notice in accordance with Section 2 of Article VI of these Bylaws. 4 8 Section 5. Quorum. Except as may be otherwise specifically provided by law, the Certificate of Incorporation or these Bylaws (including Section 11 of this Article III), at all meetings of the Board of Directors, a majority of the directors then in office shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 6. Actions of Board Without a Meeting. Unless otherwise provided by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Section 7. Meetings by Means of Conference Telephone. Unless otherwise provided by the Certificate of Incorporation or these Bylaws, members of the Board of Directors of the Corporation, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 7 shall constitute presence in person at such meeting. Section 8. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not such members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any committee, to the extent allowed by law and provided in the Bylaw or resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Each committee shall keep regular minutes and report to the Board of Directors when required. Section 9. Compensation. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving 5 9 the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. Section 10. Removal. Any director or directors may be removed from office only as provided in the Corporation's Certificate of Incorporation. Section 11. Initial Period. (a) As used in these Bylaws, (i) the "Third Annual Meeting" means the third Annual Meeting of stockholders held after the date on which the common stock of the Corporation becomes registered pursuant to Section 12 of the Securities Exchange Act of 1934, (ii) the "Initial Period" means the period beginning on the date of the adoption of this Section 11 and ending on the date of the Third Annual Meeting, (iii) "ATI" means Allegheny Teledyne Incorporated, a Delaware corporation, (iv) and "Majority Directors" means directors of the Corporation who are also members of the Board of Directors of ATI. (b) During the Initial Period, at least a majority of the directors of the Corporation shall be Majority Directors. If the election of any director at any time during the Initial Period or if a director's ceasing to be a member of the Board of Directors of ATI results in the number of Majority Directors being less than a majority of the directors of the Corporation then in office, the number of directors shall be increased to the next largest number such that the filling of the resulting vacancy or vacancies by the election of one or more directors who are also members of the Board of Directors of ATI will result in a majority of the directors of the Corporation being Majority Directors, and the successor or successors to fill said vacancy or vacancies shall be elected by a majority of the Majority Directors then in office, or by a sole remaining Majority Director. (c) In case of any vacancy in the Board of Directors during the Initial Period due to death, resignation, removal or disqualification of or any other reason affecting any Majority Director, the successor to fill the vacancy shall be elected by a majority of the Majority Directors then in office, or by a sole remaining Majority Director. Directors elected in the manner provided in this paragraph (c) shall hold office for a term expiring at the next Annual Meeting of stockholders at which the term of the class to which they have been elected expires and until their successors are duly elected and qualified, or until their earlier resignation or removal. (d) During the Initial Period, no quorum shall exist at a meeting of the Board of Directors and no act shall be the act of the Board of Directors unless a majority of the directors present at any such meeting are Majority Directors. (e) The provisions of this Section 11 may not be altered, amended or repealed during the Initial Period except by a resolution duly adopted by all of the Majority Directors. ARTICLE IV OFFICERS Section 1. General. The officers of the Corporation shall be appointed by the Board of Directors and shall consist of a Chairman of the Board, a Chief Executive Officer, a President, 6 10 such number of Vice Presidents as the Board of Directors shall elect from time to time, a Secretary, a Treasurer (or a position with the duties and responsibilities of a Treasurer) and such other officers and assistant officers (if any) as the Board of Directors may elect from time to time. Any number of offices may be held by the same person, unless the Certificate of Incorporation or these Bylaws otherwise provide. Section 2. Election; Term of Office. The Board of Directors at its first meeting held after each Annual Meeting of stockholders shall elect a Chairman of the Board or a President, or both, a Secretary and a Treasurer (or a position with the duties and responsibilities of a Treasurer), and may also elect at that meeting or any other meeting, such other officers and agents as it shall deem necessary or appropriate. Each officer of the Corporation shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors together with the powers and duties customarily exercised by such officer; and each officer of the Corporation shall hold office until such officer's successor is elected and qualified or until such officer's earlier resignation or removal. Any officer may resign at any time upon written notice to the Corporation. The Board of Directors may remove any officer at any time, with or without cause, by the affirmative vote of a majority of directors then in office. Section 3. Chairman of the Board. The Chairman of the Board shall preside at all meetings of the stockholders and the Board of Directors and shall have such other duties and powers as may be prescribed by the Board of Directors from time to time. The Board of Directors may also designate one of its members as Vice Chairman of the Board. The Vice Chairman of the Board shall, during the absence or inability to act of the Chairman of the Board, have the powers and perform the duties of the Chairman of the Board, and shall have such other powers and perform such other duties as shall be prescribed from time to time by the Board of Directors. Section 4. Chief Executive Officer. The Chief Executive Officer shall have general charge and control over the affairs of the Corporation, subject to the Board of Directors, shall see that all orders and resolutions of the Board of Directors are carried out, shall report thereon to the Board of Directors, and shall have such other powers and perform such other duties as shall be prescribed from time to time by the Board of Directors. Section 5. President. The President shall have general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall have and exercise such further powers and duties as may be specifically delegated to or vested in the President from time to time by these Bylaws or the Board of Directors. In the absence of the Chairman of the Board and the Vice Chairman of the Board, or in the event of the inability of or refusal to act by the Chairman of the Board and the Vice Chairman of the Board, or if the Board of Directors has not designated a Chairman or Vice Chairman, the President shall perform the duties of the Chairman of the Board, and, when so acting, shall have all of the powers and be subject to all of the restrictions upon the Chairman of the Board. 7 11 Section 6. Vice President. In the absence of the President or in the event of his inability or refusal to act, the Vice President (or in the event there be more than one vice president, the vice presidents in the order designated by the Board of Directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the President and, when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice Presidents shall perform such other duties and have such other powers as the Board of Directors or the President may from time to time prescribe. Section 7. Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of stockholders and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for the standing and special committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the President. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there be no Assistant Secretary, then either the Board of Directors or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation and the Secretary or any Assistant Secretary, if there be one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his or her signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be. Section 8. Assistant Secretaries. Except as may be otherwise provided in these Bylaws, Assistant Secretaries, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, or the Secretary, and shall have the authority to perform all functions of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary. Section 9. Treasurer. The Treasurer shall have the custody of the corporate funds and securities, shall keep complete and accurate accounts of all receipts and disbursements of the Corporation, and shall deposit all monies and other valuable effects of the Corporation in its name and to its credit in such banks and other depositories as may be designated from time to time by the Board of Directors. The Treasurer shall disburse the funds of the Corporation, taking proper vouchers and receipts for such disbursements. The Treasurer shall, when and if required by the Board of Directors, give and file with the Corporation a bond, in such form and amount and with such surety or sureties as shall be satisfactory to the Board of Directors, for the faithful performance of his or her duties as Treasurer. The Treasurer shall have such other powers and perform such other duties as the Board of Directors or the President shall from time to time prescribe. Section 10. Assistant Treasurers. Except as may be otherwise provided in these Bylaws, Assistant Treasurers, if there be any, shall perform such duties and have such powers as from 8 12 time to time may be assigned to them by the Board of Directors, the President, or the Treasurer, and shall have the authority to perform all functions of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. Section 11. Other Officers. Such other officers as the Board of Directors may choose shall perform such duties and have such powers as may be assigned to them from time to time by the Board of Directors. The Board of Directors may delegate to any officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers. ARTICLE V STOCK Section 1. Form of Certificates; Uncertificated Shares. The shares of the Corporation shall be represented by certificates; provided, that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares in accordance with the Delaware General Corporation Law. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock in the Corporation represented by a certificate, and upon request every holder of uncertificated shares of stock in the Corporation, shall be entitled to have a certificate signed in the name of the Corporation (i) by the Chairman of the Board or the President or a Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by such holder in the Corporation. Section 2. Signatures. Any or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. Section 3. Lost Certificates. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or such owner's legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 4. Transfers. Stock of the Corporation shall be transferable in the manner prescribed by law and in these Bylaws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or in the Corporation's books as the 9 13 registered owner of uncertificated shares or by such person's attorney lawfully constituted in writing and upon the surrender of the certificate (if any) therefor, which shall be cancelled before a new certificate shall be issued. Section 5. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 6. Beneficial Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. Section 7. Voting Securities Owned by the Corporation. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the Chairman of the Board, the President, any Vice President or the Secretary and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons. ARTICLE VI NOTICES Section 1. Notices. Whenever written notice is required by law, the Certificate of Incorporation or these Bylaws, to be given to any director, member of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at such person's address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Written notice may also be given personally or by telegram, facsimile transmission, electronic mail, telex or cable and such 10 14 notice shall be deemed to be given at the time of receipt thereof if given personally or at the time of transmission thereof if given by telegram, facsimile transmission, electronic mail, telex or cable. Section 2. Waiver of Notice. Whenever any notice is required by law, the Certificate of Incorporation or these Bylaws to be given to any director, member or a committee or stockholder, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to notice. ARTICLE VII GENERAL PROVISIONS Section 1. Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting or by any Committee of the Board of Directors having such authority at any meeting thereof, and may be paid in cash, in property, in shares of the capital stock or in any combination thereof. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve. Section 2. Disbursements. All notes, checks, drafts and orders for the payment of money issued by the Corporation shall be signed in the name of the Corporation by such officers or such other persons as the Board of Directors may designate from time to time. Section 3. Corporation Seal. The corporate seal, if the Corporation shall have a corporate seal, shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE VIII AMENDMENTS Except as otherwise specifically provided in the particular Article of these Bylaws to be altered, amended or repealed, these Bylaws may be altered, amended or repealed and new Bylaws may be adopted at any meeting of the Board of Directors or of the stockholders, provided notice of the proposed change was given in the notice of the meeting. 11 EX-4.2 4 CREDIT AGREEMENT 1 EXHIBIT 4.2 ================================================================================ 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 19, 1999 BANC OF AMERICA SECURITIES LLC, AS SOLE ARRANGER AND SOLE BOOK MANAGER [BANK OF AMERICA LOGO] ================================================================================ 2 TABLE OF CONTENTS Section Page ------- ---- SECTION 1. DEFINITIONS AND ACCOUNTING TERMS................................................................1 1.01 Defined Terms...................................................................................1 1.02 Use of Certain Terms...........................................................................27 1.03 Accounting Terms...............................................................................27 1.04 Rounding.......................................................................................27 1.05 Exhibits and Schedules.........................................................................27 1.06 References to Agreements and Laws..............................................................28 SECTION 2. THE COMMITMENTS AND EXTENSIONS OF CREDIT.......................................................28 2.01 Amount and Terms of Commitments................................................................28 2.02 Borrowings, Conversions and Continuations of Loans.............................................28 2.03 Letters of Credit..............................................................................29 2.04 Swing Line.....................................................................................34 2.05 Prepayments....................................................................................35 2.06 Reduction or Termination of Commitments........................................................36 2.07 Principal and Interest.........................................................................36 2.08 Fees...........................................................................................36 2.09 Computation of Interest and Fees...............................................................37 2.10 Making Payments................................................................................38 2.11 Funding Sources................................................................................38 2.12 Release of ALT.................................................................................39 SECTION 3. TAXES, YIELD PROTECTION AND ILLEGALITY.........................................................39 3.01 Taxes..........................................................................................39 3.02 Illegality.....................................................................................40 3.03 Inability to Determine Rates...................................................................40 3.04 Increased Cost and Reduced Return; Capital Adequacy............................................41 3.05 Breakfunding Costs.............................................................................42 3.06 Matters Applicable to all Requests for Compensation............................................42 3.07 Survival.......................................................................................42 SECTION 4. CONDITIONS PRECEDENT...........................................................................42 4.01 Conditions to Effectiveness of the Credit Agreement............................................42 4.02 Conditions of Initial Extension of Credit to ALT...............................................45 4.03 Conditions to Assumption of Obligations and Initial Extensions of Credit to TTI................47 4.04 Conditions to all Extensions of Credit.........................................................49 SECTION 5. REPRESENTATIONS AND WARRANTIES.................................................................50 5.01 Existence and Qualification; Power; Compliance with Laws.......................................50 5.02 Power; Authorization; Enforceable Obligations..................................................50 3 5.03 No Legal Bar...................................................................................50 5.04 Financial Statements; No Material Adverse Effect...............................................51 5.05 Litigation.....................................................................................51 5.06 No Default.....................................................................................51 5.07 Ownership of Property; Liens...................................................................52 5.08 Taxes..........................................................................................52 5.09 Margin Regulations; Investment Company Act; Public Utility Holding Company Act.................52 5.10 ERISA Compliance...............................................................................52 5.11 Intellectual Property..........................................................................53 5.12 Compliance With Laws...........................................................................53 5.13 Environmental Compliance.......................................................................53 5.14 Insurance......................................................................................53 5.15 Year 2000......................................................................................53 5.16 Disclosure.....................................................................................54 5.17 Solvency.......................................................................................54 SECTION 6. AFFIRMATIVE COVENANTS..........................................................................54 6.01 Financial Statements...........................................................................54 6.02 Certificates, Notices and Other Information....................................................55 6.03 Payment of Taxes...............................................................................56 6.04 Preservation of Existence......................................................................56 6.05 Maintenance of Properties......................................................................56 6.06 Maintenance of Insurance.......................................................................56 6.07 Compliance With Laws...........................................................................56 6.08 Inspection Rights..............................................................................57 6.09 Keeping of Records and Books of Account........................................................57 6.10 Compliance with ERISA..........................................................................57 6.11 Compliance With Agreements.....................................................................57 6.12 Use of Proceeds................................................................................57 6.13 Additional Borrower Parties....................................................................57 SECTION 7. NEGATIVE COVENANTS.............................................................................58 7.01 Indebtedness...................................................................................58 7.02 Liens and Negative Pledges.....................................................................59 7.03 Fundamental Changes............................................................................60 7.04 Dispositions...................................................................................61 7.05 Investments....................................................................................61 7.06 Restricted Payments............................................................................62 7.07 ERISA..........................................................................................62 7.08 Limitation on Nature of Business...............................................................62 7.09 Transactions with Affiliates...................................................................62 7.10 Hostile Acquisitions...........................................................................62 7.11 Limitations on Upstreaming, etc................................................................62 7.12 Financial Covenants............................................................................63 - ii - 4 7.13 Limitation on Amendments to Spinoff Documents..................................................63 7.14 Limitation on Modifications of Indebtedness....................................................63 SECTION 8. EVENTS OF DEFAULT AND REMEDIES.................................................................63 8.01 Events of Default..............................................................................63 8.02 Remedies Upon Event of Default.................................................................66 SECTION 9. ADMINISTRATIVE AGENT...........................................................................68 9.01 Appointment and Authorization of Administrative Agent..........................................68 9.02 Delegation of Duties...........................................................................68 9.03 Liability of Administrative Agent..............................................................68 9.04 Reliance by Administrative Agent...............................................................69 9.05 Notice of Default..............................................................................69 9.06 Credit Decision; Disclosure of Information by Administrative Agent.............................70 9.07 Indemnification of Administrative Agent........................................................70 9.08 Administrative Agent in Individual Capacity....................................................71 9.09 Successor Administrative Agent.................................................................71 SECTION 10. MISCELLANEOUS..................................................................................72 10.01 Amendments; Consents...........................................................................72 10.02 Release of Collateral..........................................................................72 10.03 Transmission and Effectiveness of Notices and Signatures.......................................73 10.04 Attorney Costs, Expenses and Taxes.............................................................74 10.05 Binding Effect; Assignment.....................................................................75 10.06 Set-off........................................................................................76 10.07 Sharing of Payments............................................................................76 10.08 No Waiver; Cumulative Remedies.................................................................77 10.09 Usury..........................................................................................78 10.10 Counterparts...................................................................................78 10.11 Integration....................................................................................78 10.12 Nature of Lenders' Obligations.................................................................78 10.13 Survival of Representations and Warranties.....................................................78 10.14 Indemnity by Borrower..........................................................................79 10.15 Nonliability of Lenders........................................................................79 10.16 No Third Parties Benefited.....................................................................80 10.17 Severability...................................................................................80 10.18 Confidentiality................................................................................80 10.19 Further Assurances.............................................................................81 10.20 Headings.......................................................................................81 10.21 Time of the Essence............................................................................81 10.22 Foreign Lenders and Participants...............................................................81 10.23 Removal and/or Replacement of Lenders..........................................................82 10.24 Governing Law..................................................................................83 10.25 Waiver of Right to Trial by Jury; Other Waivers................................................83 10.26 Entire Agreement...............................................................................84 - iii - 5 EXHIBITS FORM OF A Request for Extension of Credit B Compliance Certificate C Note D Notice of Assignment and Acceptance E-1 Opinion of Counsel on the Signing Date E-2 Opinion of Counsel on the ALT Closing Date E-3 Opinion 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; Consolidated EBIT; Consolidated Interest Charges 2.01 Commitments and Pro Rata Shares 7.01(b) Existing Indebtedness of ALT and its Subsidiaries 7.01(c) Existing Indebtedness of TTI and its Subsidiaries 7.02(a) Liens of ALT and its Subsidiaries 7.02(b) Liens of TTI and its Subsidiaries 7.05(a) Investments by ALT and its Subsidiaries 7.05(b) Investments by TTI and its Subsidiaries 10.03 Eurodollar and Domestic Lending Offices, Addresses for Notices - iv - 6 CREDIT AGREEMENT This CREDIT AGREEMENT is entered into as of October 19, 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. BANK 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 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 and was not created in contemplation of or in connection with such Person becoming a Subsidiary of TTI 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(h). "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 interests or assets of any other Person or all or substantially all of the assets of any division or business of any other Person. - 1 - 7 "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 15], 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 and indemnity agreement in the form of Exhibit I. "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%, - 2 - 8 (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): PRICING CAPITALIZATION RATIO FACILITY UTILIZATION BASE EURODOLLAR RATE/ LEVEL FEE FEE RATE LETTERS OF CREDIT --------------------- --------------------- -------------- ----------------- ----------------- ----------------------- 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% 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 - 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 - 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, (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, (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 and the incurrence or assumption of any Indebtedness in connection therewith occurred on the first day of such period) 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). - 5 - 11 "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). "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 (excluding gains or losses from Dispositions of assets) 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, 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, and (g) Joint Venture Indebtedness of TTI and its Subsidiaries. "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. - 6 - 12 "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 to be maintained by Borrower with Bank of America, as from time to time designated by Borrower by written notification to Administrative Agent. "Disposition" means the sale, transfer, license (excluding the license of property that has a fair market value, individually or in the aggregate, of not greater than $________) or other disposition (including any sale and leaseback transaction) of any property by any Person, including any sale, assignment, transfer or other disposal with or without recourse of any notes or accounts receivable or any rights and claims associated therewith, and the terms "Dispose" and "Disposed of" have correlative meanings. "Dollar" and "$" 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 $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; (e) any other entity which is an "accredited investor" (as defined in Regulation D under the Securities Act of 1933, as - 7 - 13 amended) which extends credit or buys loans as one of its businesses, including but not limited to, insurance companies, mutual funds and lease financing companies; or (f) 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) and (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) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) 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: Eurodollar Base Rate Eurodollar Rate = ------------------------------------ 1.00 - Eurodollar Reserve Percentage Where, "Eurodollar Base Rate" means, for such Interest Period: - 8 - 14 (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. "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, Fourth Amendment to Credit Agreement and - 9 - 15 Waiver, dated as of August 6, 1999, and [identify any additional required consent to Loan Documents and Spinoff Documents]. "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 Report, 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 in accordance with this Agreement. "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, 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. - 10 - 16 "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 or performable 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 or performance 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 maximum 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 liabilities on a balance sheet of such Person at such time (excluding trade and other accounts payable in the ordinary course of business in accordance with customary trade terms and which are not overdue for a period of more than 90 days and excluding deferred taxes), 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; (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; - 11 - 17 (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; and (h) Joint Venture Indebtedness. "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 to (b) Consolidated Interest Charges during such period (giving pro forma effect to the Line of Business Transfer and the Spinoff); provided, however, that for purposes of determining Consolidated EBIT and Consolidated Interest Charges 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 EBIT and Consolidated Interest Charges 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). "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: (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; - 12 - 18 (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 such Indebtedness is expressly made non-recourse to such Person except for customary exceptions approved by the Required Lenders. "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. "Letter of Credit" means any letter of credit issued or outstanding hereunder. A Letter of Credit may be a financial 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. - 13 - 19 "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 30 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 (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 on 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"). "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 - 14 - 20 Request for Extension of Credit and any Note (including, without limitation, the ALT Global Note), 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 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. "Maturity Date" means (i) if the Spinoff has not been consummated in accordance with the terms of the Spinoff Documents and applicable Law on or before such date, the date that is one month following the ALT Closing Date and (ii) 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: - 15 - 21 MINIMUM AMOUNT INCREMENTS IN TYPE OF ACTION EXCESS THEREOF --------------------------------------------- ------------------- --------------------- Borrowing of, prepayment of, or Conversion $500,000 $100,000 into, Base Rate Loans Borrowing of, prepayment of, Continuation $5,000,000 $1,000,000 of, or Conversion into, Eurodollar Rate Loans Borrowing of, or prepayment of, Swing Line $100,000 None Loans Letter of Credit Action [$100,000] None Reduction in Commitments $1,000,000 $500,000 Assignments $10,000,000 $1,000,000 "Multiemployer Plan" means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA. "Notes" means, collectively (i) 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: (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 - 16 - 22 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 (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; - 17 - 23 (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 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. - 18 - 24 "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; (c) all transactions related thereto shall be consummated 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 80% of the equity interests in such Person and, after giving effect to such Acquisition, such Person becomes an 80%-owned Subsidiary of TTI; (e) all actions required to be taken, if any, with respect to any acquired or newly formed Subsidiary under Section 6.13 shall have been taken; - 19 - 25 (f) such assets are used for, or such Person is engaged in, a line of business permitted under Section 7.08; (g) in the event that the Acquisition Consideration payable in connection with such Acquisition is in excess of $50,000,000, (i) at least 10 days prior to entering into such Acquisition, or any agreement therefor, TTI delivers notice thereof to Administrative Agent, (ii) at least 5 days prior to the consummation of such Acquisition, TTI delivers to Administrative Agent and Lenders a certificate signed by the chief financial officer of TTI calculating the Capitalization Ratio, Consolidated Net Worth, the Interest Coverage Ratio and the Leverage Ratio, each on a pro forma basis so as to give effect to such Acquisition and all Acquisition Consideration therefor and all other Indebtedness assumed or incurred by TTI or any of its Subsidiaries in connection therewith, and attaching TTI's then-current good faith and reasonable financial projections for the first fiscal quarter ending after the consummation of such Acquisition and the succeeding three quarters, demonstrating (to the reasonable satisfaction of the Required Lenders) that, after giving 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 such projections 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, to make required income tax distributions and pay its debts and other liabilities as they become due and otherwise remain Solvent, and (iii) prior to the inclusion in the calculation of Consolidated EBITDA of the Consolidated EBITDA of the Person and its consolidated Subsidiaries or the assets to be acquired in such Acquisition, TTI delivers to Administrative Agent the consolidated balance sheet of such acquired Person and its consolidated Subsidiaries (or, in the case of an Acquisition of assets, a consolidated balance sheet reflecting such assets in a manner reasonably 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 flows for the period in respect of which Consolidated EBITDA is to be calculated, and such financial statements (x) have been previously provided to Administrative Agent and Lenders and (y) 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 approved by Administrative Agent; (h) after giving 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- - 20 - 26 month period following the consummation of such Acquisition, and to have sufficient cash liquidity to conduct its business, to support working capital requirements, to make required income tax distributions and pay its debts and other liabilities as they become due and otherwise remain Solvent; (i) 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; (j) 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(i); and (k) as soon as reasonably practicable and, in any event, within 45 days following the date of such Acquisition, Administrative Agent shall have received copies of all acquisition documents related thereto and legal opinions, evidence of solvency and other documents and instruments reasonably requested by Administrative Agent in connection with such Acquisition. "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 each Material Subsidiary of TTI (other than any Foreign Subsidiary), 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. "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 in accordance with this Agreement. "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. - 21 - 27 "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(b) 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 (excluding any Lenders not funding when required to so hereunder) 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. "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 where Administrative Agent's Office is located): TYPE OF ACTION TIME DATE OF ACTION ---------------------------------------------------- ---------------- -------------------------------------------- Delivery of Request for Extension of Credit for, or notice for: 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, Eurodollar Rate Loans prepayment or Conversion - 22 - 28 o Borrowing of, or prepayment of, Swing 1:00 P.M. Same date as such Borrowing or prepayment Line Loans 2 Business Days prior to such action (or o Letter of Credit Action 10:00 A.M. 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 "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; (c) any other payment or distribution by Borrower or any of its Subsidiaries in respect of its capital stock, either directly or indirectly; (d) any Investment other than an Investment otherwise permitted under any Loan Document; and (e) the prepayment, repayment, redemption, defeasance or other acquisition or retirement for value prior to any scheduled maturity, scheduled repayment or scheduled sinking fund payment, or the segregation of funds for any such prepayment, repayment, redemption, defeasance or other acquisition or retirement for value, of any Indebtedness - 23 - 29 not otherwise expressly permitted under any Loan Document to be so paid, except scheduled repayments of Indebtedness created under the Existing ALT Credit Agreement, as in effect on the date hereof. "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, (iv) the Interim Services Agreement, entered into in connection with the Spinoff, between ALT and TTI, (v) the Employee Benefits Agreement, entered into in connection with the Spinoff, between ALT and TTI, (vi) the Trademark License Agreement, entered into in connection with the Spinoff, among TII Holdings, LLC and TTI, and (vii) 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. - 24 - 30 "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. - 25 - 31 "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, off-balance sheet or tax retention 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 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 sheet of TTI as at June 30, 1999, (iii) the unaudited pro forma consolidated statement of income of TTI for the six months ended June 30, 1999, and (iv) [___________________]. - 26 - 32 "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. "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. 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. - 27 - 33 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. (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 - 28 - 34 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 Credit Expiration Date, deposit cash in an amount equal to such Letter of Credit Usage in a Letter of Credit Cash Collateral Account. - 29 - 35 (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 on or before 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 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 - 30 - 36 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 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 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; - 31 - 37 (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 (xiv) where Issuing Lender has acted in good faith under any other circumstances whatsoever. - 32 - 38 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 immediately 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. (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 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. - 33 - 39 (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. Swing Line Lender may terminate or suspend the Swing Line at any time and from time to time in its sole discretion upon at least 24 hours prior notice to Borrower. Without the consent of the Required Lenders and Swing Line Lender, no Swing Line Loan shall be made during the continuation of an Event of Default. 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, 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. - 34 - 40 (c) The Swing Line Loans shall be payable on the earliest of (i) the fifth Business Day after it is made, (ii) the Maturity Date and (iii) upon demand made by Swing Line Lender. (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 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. - 35 - 41 (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 its Pro Rata Share, a 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 - 36 - 42 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 ALT Closing 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 credit facilities committed 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. 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 - 37 - 43 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 lawful money of the United States of America. 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 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 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 - 38 - 44 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. 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 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 - 39 - 45 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 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 - 40 - 46 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 any Lender determines that any Laws: (i) subject 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 change 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 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 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. - 41 - 47 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: (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 - 42 - 48 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) an opinion of counsel to Borrower 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. (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. - 43 - 49 (e) Borrower shall have paid all Attorney Costs of Administrative Agent to the extent invoiced prior to or on the Signing Date, plus such additional amounts of Attorney Costs as shall constitute its reasonable estimate of 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 satisfactory in form and substance to Administrative Agent and the Lenders. The Spinoff Documents shall contain mutual indemnification terms relating to existing direct and contingent obligations of ALT and TTI, all in form and substance satisfactory to Administrative Agent in its discretion. (g) The corporate, capital and ownership structure and management of TTI and its Subsidiaries (before and after giving effect to the Line of Business Transfer and to the Spinoff) including, without limitation, the execution of employment contracts with key executives of the lines of business transferred in connection with the Line of Business Transfer, shall be satisfactory to Administrative Agent. (h) Administrative Agent shall have completed, with results reasonably satisfactory to Administrative Agent and its counsel, its reasonable due diligence investigation, including, without limitation, with respect to litigation, tax (including all matters relating to the tax free treatment of the Spinoff), accounting, labor, insurance, pension liabilities (actual or contingent), real estate leases, environmental matters, material contracts, debt agreements, property ownership, contingent liabilities and management of ALT, TTI and their respective Subsidiaries (before and after giving effect to the Line of Business Transfer and to the Spinoff). (i) There shall not have occurred a material adverse change since December 31, 1998 in the business, assets, liabilities (actual or contingent), operations or condition (financial or otherwise) 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. (j) Administrative Agent and Lenders shall have received and reviewed, with results 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 - 44 - 50 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. (k) All governmental and third party consents required to be obtained on or before the Signing Date (other than any third party consents 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 judgment of Administrative Agent could have such effect. (l) 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 threatened action, suit, investigation or proceeding, which, if adversely determined, could materially and adversely affect ALT, TTI or any of their respective 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. (m) 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 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: - 45 - 51 (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; (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) an opinion of counsel to Borrower 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 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 (other than any third party consents 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, - 46 - 52 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 could seek to enjoin or threaten any of the foregoing, and no Law shall be applicable which in the judgment of Administrative Agent could 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 threatened action, suit, investigation or proceeding, which, if adversely determined, could reasonably be expected to materially and adversely affect ALT, TTI or any of their respective 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 or condition (financial or otherwise) 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. (i) [Administrative Agent shall have received a satisfactory reliance letter entitling Administrative Agent, Arranger and Lenders to rely on all fairness and/or solvency opinions delivered in connection with the Line of Business Transfer and the Spinoff.] 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; - 47 - 53 (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; (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) an opinion of counsel to Borrower 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 or any condition therein waived without the prior written consent of Administrative Agent. - 48 - 54 (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 threatened action, suit, investigation or proceeding, which, if adversely determined, could materially and adversely affect ALT, TTI or any of their respective 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. (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 assurances, 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. - 49 - 55 SECTION 5. REPRESENTATIONS AND WARRANTIES Borrower represents and warrants to Administrative Agent and Lenders that: 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. 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 and Spinoff 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, any of the other Loan Documents or 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 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. Upon the due 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 could 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 and Spinoff 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 - 50 - 56 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 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. 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 would reasonably be expected to have a Material Adverse Effect. 5.05 LITIGATION. No litigation, investigation or proceeding of or before an arbitrator or Governmental Authority is pending or, to the knowledge of Borrower, threatened by or against any Borrower Party or any of its Subsidiaries or against any of their properties or revenues which, if determined adversely, 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. - 51 - 57 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 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. - 52 - 58 (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; (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 could 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 unable to recognize and perform properly date-sensitive functions involving certain dates prior to - 53 - 59 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 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 unperformed, 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 generated by financial reporting and related systems due to the Year 2000 Problem) not reasonably acceptable to the Required Lenders; and - 54 - 60 (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 March 31, 2000], 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 the commencement thereof, 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 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; - 55 - 61 (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 with Borrower's and each Subsidiary's obligations under Section 6.06; and (i) promptly, 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 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. 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. - 56 - 62 (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, permit Administrative Agent or any Lender, or any employee, agent or representative thereof, to examine and make copies and abstracts from the Borrower Parties' records and books of account and to visit and inspect their properties and to discuss their affairs, finances and accounts with any of their Responsible Officers, and, upon request, furnish promptly to Administrative Agent or any Lender true copies of all [publicly available] financial information. 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 [fully] [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. 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