-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, VKa4dVu/XRBAX5upUDouHBmhgmEmy5jgAYJpRFnCzDMD9N95UZq0yczDfofEuiZZ 4seIKX/FODjP2htATYQ+Qg== 0000950152-94-000432.txt : 19940427 0000950152-94-000432.hdr.sgml : 19940427 ACCESSION NUMBER: 0000950152-94-000432 CONFORMED SUBMISSION TYPE: 10-K CONFIRMING COPY: PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940426 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLEN GROUP INC CENTRAL INDEX KEY: 0000003721 STANDARD INDUSTRIAL CLASSIFICATION: 3825 IRS NUMBER: 380290950 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06016 FILM NUMBER: 00000000 BUSINESS ADDRESS: STREET 1: 25101 CHAGRIN BLVD # 350 CITY: BEACHWOOD STATE: OH ZIP: 44122-5619 BUSINESS PHONE: 2167655818 10-K 1 ALLEN GROUP 10-K 1 THIS IS AN ELECTRONIC CONFIRMING COPY OF A DOCUMENT FILED ON MARCH 31, 1994. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ____________________ FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1993 ----------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from _______________ to _______________ Commission file number 1-6016 -------------- THE ALLEN GROUP INC. - ------------------------------------------------------------------------------ (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Delaware 38-0290950 - ------------------------------- ----------------------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 25101 Chagrin Boulevard, Beachwood, Ohio 44122 - ---------------------------------------- ------------------ (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (216) 765-5818 ------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ------------------- ------------------------ Common Stock, $1 par value New York Stock Exchange Pacific Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Pacific Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days: Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] As of March 4, 1994, there were 26,009,314 shares of the Registrant's Common Stock outstanding, and the aggregate market value (based upon the last sale price of the Registrant's Common Stock on the New York Stock Exchange Composite Tape on March 4, 1994) of the Registrant's Common Stock held by nonaffiliates of the Registrant was $399,893,203. Exhibit Index is on page 18 of this Report. DOCUMENTS INCORPORATED BY REFERENCE Annual Report to Stockholders for fiscal year ended December 31, 1993 incorporated by reference into Parts I and II hereof. Proxy Statement dated March 17, 1994 for Annual Meeting of Stockholders to be held April 28, 1994 incorporated by reference into Part III hereof. Page 1 of 166 Pages. Exhibit Index is on Page 18. 2 THE ALLEN GROUP INC. -------------------- FORM 10-K --------- (For the fiscal year ended December 31, 1993) TABLE OF CONTENTS ----------------- Page ---- PART I Item 1 - Business ................................................. 3 Item 2 - Properties ............................................... 8 Item 3 - Legal Proceedings ........................................ 8 Item 4 - Submission of Matters to a Vote of Security Holders ...... 8 Executive Officers of The Registrant ............................... 9 PART II Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters ...................................... 10 Item 6 - Selected Financial Data .................................. 10 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations ...................... 10 Item 8 - Financial Statements and Supplementary Data .............. 10 Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...................... 10 PART III Item 10 - Directors and Executive Officers of the Registrant ....... 11 Item 11 - Executive Compensation ................................... 11 Item 12 - Security Ownership of Certain Beneficial Owners and Management ........................................... 11 Item 13 - Certain Relationships and Related Transactions ........... 11 PART IV Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K ...................................... 12 SIGNATURES ............................................................ 16 EXHIBIT INDEX ......................................................... 18 -2- 3 THE ALLEN GROUP INC. -------------------- FORM 10-K --------- PART I ------ ITEM 1 - BUSINESS ----------------- GENERAL - ------- The Allen Group Inc. ("Allen", the "Company" or the "Registrant") was incorporated under the laws of the State of Delaware on February 3, 1969. Its predecessor was Allen Electric and Equipment Company, incorporated under the laws of the State of Michigan on January 13, 1928, which merged into the Delaware corporation on May 1, 1969. On May 5, 1972, the name of the Company was changed to The Allen Group Inc. The business of Allen and its subsidiaries includes Mobile Communications Products, Automotive Test and Service and Truck Products. On June 11, 1993, Allen sold its Allen Testproducts division and related wholly owned leasing subsidiary, The Allen Group Leasing Corp. ("Leasing"), to SPX Corporation ("SPX"). Allen Testproducts manufactured and sold automotive engine diagnostic and emission test equipment for the automotive service industry and provided product financing through Leasing. At the closing, Allen received $21,000,000 in cash and an 8% subordinated note of SPX, dated June 11, 1993, in the amount of $19,737,000. Additional information regarding this divestiture is incorporated herein by reference to "Acquisitions and Dispositions" in Note 10 of the Notes to Consolidated Financial Statements on page 26 of Allen's 1993 Annual Report to Stockholders, a copy of which is filed as Exhibit 13 to this Report. There have been no other significant changes in the business, kinds of products produced or services rendered or in the markets or methods of distribution since the beginning of the last fiscal year. MOBILE COMMUNICATIONS PRODUCTS - ------------------------------ Allen's Mobile Communications Products segment is principally comprised of Allen Telecom Group ("ATG") and Comsearch. In early 1993, Allen's Antenna Specialists, Decibel Products, Grayson Electronics Company and db Mobile business units were reorganized to form ATG in order to better serve ATG's customers and to develop broader name recognition in the industry. ATG's principal product lines are systems products, including Extend-A-Cells trademark, microcells, paging repeaters and power amplifiers; site management and base station products, including filters, combiners, duplexers, isolators and cable; and mobile and base station antennas. The demand for equipment supplied by ATG is primarily a function of the development of wireless communications systems throughout the world, and ATG's ability to develop new products and technology related to system coverage and capacity. Comsearch is a leading provider of transmission planning services for microwave, satellite, cellular, SMR and PCS communications. Over the last two years, Comsearch has become a leading provider of engineering services and software to the cellular and PCS markets. During 1993, the Company increased its investment in other wireless communication technologies in the form of loans, advances and/or direct minority equity investments in order to broaden its expertise in this industry. ATG acquired substantially all of the assets of TSR Technologies, Inc., which supplies test equipment and measuring systems in cellular and paging markets, and designs proprietary software to monitor cellular and paging activity. Allen also has invested $1.0 million in Alven Capital Corporation, which is engineering rural telephony systems, and over $1 million in Encompass, Inc., which is a PCS consulting company. Allen also maintains a 14% equity ownership interest in RF Micro Devices Inc., which manufactures radio frequency integrated circuits for various communications products. -3- 4 In 1993, sales of the Mobile Communications Products segment increased nearly $55 million, or 43%, over 1992, primarily due to the full year effect of the acquisition of Alliance Telecommunications Corporation in July 1992, and sustained growth of existing telecommunication products. Mobile communication products are manufactured or assembled by the Company, and are sold directly or through distributors and sales representatives to original equipment manufacturers, common carriers and other large users of telecommunication products. In 1993, 11% of sales in the Mobile Communications Products segment were made to Motorola, Inc. AUTOMOTIVE TEST AND SERVICE - --------------------------- Allen's Automotive Test and Service segment now consists solely of its wholly owned subsidiary, MARTA Technologies, Inc. ("MARTA"), which is engaged in the centralized automotive emissions testing business. The Company's former Allen Testproducts division, which manufactured, sold and leased automotive diagnostic and emissions testing equipment, was divested during 1993. MARTA designs, builds and operates centralized automotive emissions testing programs under long-term contracts with state governments, and is one of only five major companies that has the necessary capabilities and experience for such programs. Due to more stringent air quality standards mandated by the 1990 Amendments to the Federal Clean Air Act, it is expected that approximately 100 million cars will be subjected to biennial emissions testing. Generally, each of these emissions testing programs is structured so that once awarded, the company awarded the program (such as MARTA) is responsible for purchasing the land, constructing the testing facilities, equipping the sites with analytical and computer equipment, hiring and training personnel and eventually operating the program. It is not until a program begins to operate (typically under a multi-year sole source contract) that revenue (generally on a fixed fee, cash per test basis, except for the State of Maryland program which is an annual fixed fee received monthly from the State) begins to be generated. During 1993, MARTA was awarded two programs: the El Paso region of Texas and the State of Maryland. These two programs are scheduled to begin operations on January 1, 1995. In addition, MARTA currently has five bids outstanding and anticipates bidding on other programs in 1994. The timing and number of new centralized emissions testing programs placed for bid are dependent upon the enactment of state legislation and resultant issuance of a request for proposal. Any delay in legislation or the issuance of proposals will necessarily delay the start-up of the operating phase of such programs. MARTA also operates an emissions inspection program in Jacksonville, Florida, which currently accounts for 100% of its revenue. The State of Maryland program requires a capital commitment of approximately $48 million ($3.6 million expended in 1993); however, under the terms of the contract, the State will purchase the capital assets from the Company for cash on or before the January 1, 1995 start-up date. The El Paso region of Texas program requires a capital investment of approximately $8.0 million ($0.6 million expended in 1993). The Company anticipates significant opportunity for MARTA as it bids additional programs throughout 1994. The Company intends to finance such programs through MARTA but still may make considerable equity investments or guarantees on behalf of MARTA. TRUCK PRODUCTS - -------------- Allen manufactures and sells heavy-duty radiators and specialty heat exchangers for trucks and off-highway equipment through its G & O Manufacturing Company division. Allen also produces steel parts manufactured primarily to customers' specifications, such as truck fenders, cabs and battery boxes, specialized interiors installed in utility trucks and vans, and custom sheet metal fabrications, through its Crown divisions. These products are sold by Allen's own sales employees and commissioned sales representatives to major automotive, truck and off-road equipment manufacturers, major delivery services and others. -4- 5 During 1993, Allen's Crown division relocated production of its four-door pickup truck cabs and dual rear wheel conversions from Canada to a new facility located near Louisville, Kentucky. During 1993, the Company manufactured certain truck products in Canada, which accounted for 27% of sales in this industry segment and 9% of Allen's total sales in 1993. Ford Motor Company and PACCAR Inc. accounted for 37% and 13%, respectively, of sales in the Truck Products segment in 1993. JOINT VENTURE OPERATIONS - ------------------------ The Company, along with Handy & Harman, participates in a 50/50 joint venture partnership, GO/DAN Industries, which is accounted for under the equity method. GO/DAN Industries is engaged in the manufacture and sale of automotive replacement radiators and other heat transfer products. GO/DAN Industries was organized on June 1, 1990, at which time Allen and Handy & Harman each transferred to the joint venture certain assets, net of related liabilities, relating to such business. WORKING CAPITAL - --------------- The working capital requirements of the Company vary with its particular product lines. Truck Products are generally manufactured on an "as ordered" basis; therefore, large inventories are generally not maintained nor is the amount of product returned significant. The remaining manufacturing product lines of the Company consist of standard manufactured products for which inventory levels are generally based on product demand. The most significant capital requirement for the Company will be for the expansion of MARTA. As previously noted, MARTA was awarded two programs in 1993. The Maryland program requires a capital commitment of approximately $48.0 million ($3.6 million expended in 1993); however, under the terms of the contract between the State of Maryland and MARTA, the State will purchase the capital assets from the Company, for cash, on or before the January 1, 1995 start-up date. Interim construction financing has been established by MARTA through two banking institutions. The El Paso region of Texas program requires a capital investment of approximately $8.0 million ($.6 million expended in 1993), and the Company anticipates arranging project supported financing prior to its January 1, 1995 start-up date. The Company continues to see significant opportunity for MARTA as it bids additional programs throughout 1994. The Company anticipates financing such programs through MARTA, but still may make considerable equity investments or guarantees on behalf of MARTA. MARTA has available credit lines with three banks, each in the amount of $20.0 million, and such lines expire in September 1994. Additional capital requirements will depend upon any new emissions programs being awarded to MARTA. COMPETITION - ----------- In each of Allen's industry segments, competition is vigorous. In its centralized emissions testing inspection program product line, the Company presently has four principal competitors. The primary means of competition and the selection of a contractor by the governmental agency are experience, technological capability, financial resources and price. The Company believes that it has established a major market position in the United States for mobile cellular telephone antennas, where competition is distributed among many manufacturers. In its other product lines, the Company believes that it is among the major manufacturers and that competition is widely distributed. Allen's principal methods of competition include price, service, warranty, market availability and product research and development, innovation and performance. In certain of its product lines, the Company has augmented its own resources through licensing agreements with companies possessing complementary resources and technologies. -5- 6 MAJOR CUSTOMERS - --------------- Except as noted in the preceding industry segment descriptions, there is no single customer or group of a few customers for which the loss of any one or more would have a material adverse effect on any industry segment or on the Company. The remainder of Allen's sales is widely distributed among many customers. BACKLOG - ------- The approximate backlogs for the Company's continuing operations by industry segment as of December 31, 1993 and 1992 are as follows (amounts in thousands):
1993 1992 ---- ---- Automotive Test and Service $ 67,176 $ 15,031 Truck Products 19,544 17,337 Mobile Communications Products 20,082 14,436 ------- ------- 106,802 46,804 Automotive Test and Service backlog not expected to be filled within one year (64,376) (12,298) ------ ------ Backlog expected to be filled in succeeding fiscal year $ 42,426 $ 34,506 ======== ========
The increase in the Automotive Test and Service backlog represents the award of two emission testing contracts to MARTA (the El Paso region of Texas and the State of Maryland) in 1993. The increase in backlog for Mobile Communications Products represents increased orders for systems and site management products. With the exception of Automotive Test and Service, all 1993 backlog is expected to be completely filled within the 1994 fiscal year. PRODUCTION, RAW MATERIALS AND SUPPLIES - -------------------------------------- In addition to manufacturing certain products, Allen also assembles at its facilities certain components manufactured for it by non-affiliated companies. The principal materials used in the production of Allen's products are steel, copper, brass, zinc, aluminum, plastics, rubber, nickel and electronic components. These materials are purchased regularly from several domestic and foreign producers and have been generally available in sufficient quantities to meet Allen's requirements, although occasionally shortages have occurred. A significant portion of the copper and brass used by the Company in the manufacture of truck radiators is sourced from a foreign manufacturer; the Company believes that the risk, if any, inherent in this arrangement is no greater than in any of its other raw material sources. The Company believes that the supplies of materials through the end of 1994 will be adequate. PATENTS, LICENSES AND FRANCHISES - -------------------------------- The Company owns a number of patents, trademarks and copyrights and conducts certain operations under licenses granted by others. Although the Company does not believe that the expiration or loss of any one of these would materially affect its business considered as a whole or the operations of any industry segment, it does consider certain of them to be important to the conduct of its business in certain product lines. In 1991, a United States Federal Court found that an overseas manufacturer had willfully infringed the Company's patent on its On-Glass registered trademark cellular telephone antennas. The Company believes that the court affirmation of the validity of its patent has slowed the entrance of infringing foreign-manufactured products into the United States. Business franchises and concessions are not of material importance to Allen's industry segments. -6- 7 RESEARCH AND DEVELOPMENT - ------------------------ The Company is engaged in research and development activities (substantially all of which are Company-sponsored) as part of its ongoing business. The Company is continuing to emphasize the development of specialty products and accessories to serve the cellular telephone and mobile communications markets. Currently, these are not at a stage that would require a material investment in assets. For additional information, see "Research and Development Expenses" in Note 1 of Notes to Consolidated Financial Statements on page 17 of Allen's 1993 Annual Report to Stockholders, a copy of which is filed as Exhibit 13 to this Report. ENVIRONMENTAL CONTROLS - ---------------------- The Company is subject to federal, state and local laws designed to protect the environment and believes that, as a general matter, its policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage and financial liability to the Company. Additional information regarding environmental issues is incorporated herein by reference to the last paragraph of Note 6, "Commitments and Contingencies", of the Notes to Consolidated Financial Statements on page 22 of Allen's 1993 Annual Report to Stockholders, a copy of which is filed as Exhibit 13 to this Report. EMPLOYEES - --------- As of December 31, 1993, Allen had approximately 2,500 employees. SEASONAL TRENDS - --------------- Generally, the Company's sales are not subject to significant seasonal variations; however, sales and earnings for ATG tend to be lower in the first fiscal quarter due to lower base station antenna installations. In addition, earnings typically tend to be lower during the first half of the year due to the seasonality of the Company's GO/DAN Industries joint venture. INDUSTRY SEGMENTS, CLASSES OF PRODUCTS, FOREIGN OPERATIONS AND EXPORT SALES - --------------------------------------------------------------------------- Information relating to the Company's industry segments, classes of similar products or services, foreign and domestic operations and export sales is incorporated herein by reference to "Segment Sales and Income" on page 12, "Industry Segment and Geographic Data" in Note 9 of the Notes to Consolidated Financial Statements on page 26, and the information presented in the charts on pages 30 to 33, of the Company's 1993 Annual Report to Stockholders, a copy of which is filed as Exhibit 13 to this Report. With the transfer of its manufacturing operations from Canada to the United States as set forth under "BUSINESS - Truck Products" on pages 4 to 5 of this Report, and except with respect to ATG's Mexican operations which supplies mobile antennas to ATG, Allen engages in no material manufacturing operations in foreign countries, and no material portion of Allen's sales currently is derived from such operations. In addition, the Company's 50/50 joint venture, GO/DAN Industries, has a manufacturing facility located in Mexico. With the opportunities represented by the rapid deployment of cellular telephony systems throughout the world, the Company has seen extensive growth in international markets and export sales have increased from $33 million in 1992 to over $57 million in 1993. This growth has encouraged the Company to continue to expand the size and number of its international sales and service offices. In the opinion of management, any risks inherent in Allen's existing foreign operations and sales are not substantially different than the risks inherent in its domestic operations and sales. -7- 8 ITEM 2 - PROPERTIES ------------------- At December 31, 1993, Allen's continuing operations were conducted in 31 facilities in 13 states, Canada (the Company exited its principal Canadian manufacturing facility in 1994) and Mexico. In addition, ATG maintains sales offices in Australia, Germany, the United Kingdom and Singapore. Allen occupies approximately 1,463,000 square feet of space for manufacturing, fabrication, assembly, centralized automotive emissions testing, warehousing, research and development and administrative offices. Approximately 440,000 square feet are rented under operating leases, and the remainder is owned. Principal domestic facilities are located in Ohio, Connecticut, Florida, Kentucky, Mississippi, Texas, and Virginia. In Ontario, Canada, Allen formerly occupied approximately 96,000 square feet; in Reynosa, Mexico, Allen owns approximately 59,000 square feet. Information concerning the Company's properties by industry segment at December 31, 1993 is as follows (amounts in thousands):
Square Footage ------------------------------------------------ Domestic Foreign -------- ------- Owned Leased Owned Leased Total ----- ------ ----- ------ ----- Automotive Test and Service 26 20 - - 46 Truck Products 688 157 - 96 941 Mobile Communications Products 250 152 59 2 463 General Corporate - 13 - - 13 ----- ----- ----- ----- ----- 964 342 59 98 1,463 ===== ===== ===== ===== =====
Allen's machinery, plants, warehouses and offices are in good condition, reasonably suited and adequate for the purposes for which they are presently used and generally are fully utilized. In addition to the above, Allen owns four manufacturing facilities that had been utilized by its former discontinued operations and automotive replacement radiator businesses. Three of these facilities (totalling 185,000 square feet) are currently under short-term leases, including a facility leased to the purchaser of the automated manufacturing product line, a facility leased to GO/DAN Industries (an affiliated joint venture) and a facility leased (with an option to purchase) to an independent third party. The fourth facility, with an aggregate of 48,000 square feet, is currently vacant and being held for sale. ITEM 3 - LEGAL PROCEEDINGS -------------------------- The information required by this Item is incorporated herein by reference to the fourth paragraph of Note 6, "Commitments and Contingencies", of the Notes to Consolidated Financial Statements on page 22 of the Registrant's 1993 Annual Report to Stockholders, a copy of which is filed as Exhibit 13 to this Report. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ------------------------------------------------------------ Not applicable. -8- 9 EXECUTIVE OFFICERS OF THE REGISTRANT ------------------------------------ The following list sets forth the names of the executive officers (as defined under rules promulgated by the Securities and Exchange Commission) of Allen, their ages and business experience during at least the last five years. ROBERT G. PAUL - President and Chief Executive Officer; age 52. Mr. Paul has been President and Chief Executive Officer of the Company since February 1991. He was President and Chief Operating Officer of the Company from December 1989 to February 1991, Senior Vice President-Finance from April 1987 to December 1989, Vice President-Finance from January 1987 to April 1987 and a Vice President from 1974 to January 1987. He also was President of the Antenna Specialists Company division of the Company from 1978 to June 1990. Mr. Paul joined the Company in 1970 as an Assistant to the President and also served as Assistant Treasurer from 1970 to 1972. He was elected Treasurer in 1972 and Vice President and Treasurer of Allen in 1974. Mr. Paul was appointed Vice President-Finance and Administration of the Antenna Specialists Company division of Allen's subsidiary, Orion Industries, Inc. (a predecessor of ATG), in 1976, its Vice President-Operations in 1977 and its President in 1978, while continuing as a Vice President of Allen. ROBERT A. YOUDELMAN - Senior Vice President-Finance and Chief Financial Officer; age 52. Mr. Youdelman joined the Company in 1977 as Director of Taxes. In February 1980 he was elected Vice President-Taxation, and in December 1989 was elected Senior Vice President-Finance and Chief Financial Officer. Mr. Youdelman is an attorney. FRANK J. HYSON - Vice President; age 61. Mr. Hyson joined Allen in 1973 as Vice President-Finance of the Company's Crown Divisions and was appointed President of Crown in 1976. He was elected a Vice President of Allen in September 1987. ERIK H. VAN DER KAAY - Vice President; age 53. Mr. van der Kaay joined the Company in 1990 as President of the Antenna Specialists Company division of Allen's subsidiary, Orion Industries, Inc. He was elected Vice President of Allen in February 1993. Prior to joining Allen, Mr. van der Kaay was the Chief Executive Officer of Millitech Corporation, a developer and manufacturer of milliliter communication components and systems, South Deerfield, Massachusetts, from 1988 to 1990, and Group Vice President of Telecommunications at Avantek Inc., a developer and manufacturer of microwave radios and CATV systems, Santa Clara, California, from 1984 to 1988. JAMES L. LEPORTE, III - Vice President and Controller; age 39. Mr. LePorte joined the Company in 1981 as Senior Financial Analyst. In 1983, he was appointed Manager of Financial Analysis, and, in 1984, was named Assistant Controller. In April 1988, Mr. LePorte was elected Controller of the Company and in December 1990 was elected a Vice President. JOHN C. MARTIN, III - Vice President and Treasurer; age 41. Mr. Martin joined the Company in 1979 as a Senior Business Analyst and was appointed Manager, International Business Development in 1984 and Director, Corporate Development in 1987. He was elected Treasurer in April 1988 and a Vice President in September 1991. MCDARA P. FOLAN, III - Secretary and General Counsel; age 35. Mr. Folan joined the Company in August 1992 as Corporate Counsel and was elected Secretary and General Counsel in September 1992. Prior to joining Allen, Mr. Folan was affiliated with the law firm of Jones, Day, Reavis and Pogue, Cleveland, Ohio, from September 1987 to August 1992. Mr. Folan is an attorney. There is no family relationship between any of the foregoing officers. All officers of Allen hold office until the first meeting of directors following the annual meeting of stockholders and until their successors have been elected and qualified. -9- 10 PART II ------- ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ------------------------------------------------------------------------------ The information required by this Item is incorporated herein by reference to the eighth paragraph of Note 2 of the Notes to Consolidated Financial Statements on page 19, and to "Exchange Listings", "Market Price Range of Common Stock", "Dividends Declared on Common Stock" and "Stockholders" on page 36, of the Registrant's 1993 Annual Report to Stockholders, a copy of which is filed as Exhibit 13 to this Report. ITEM 6 - SELECTED FINANCIAL DATA -------------------------------- The information required by this Item is incorporated herein by reference to "Ten Year Summary of Operations" on pages 34 to 35 of the Registrant's 1993 Annual Report to Stockholders, a copy of which is filed as Exhibit 13 to this Report. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND ------------------------------------------------------------------------ RESULTS OF OPERATIONS --------------------- The information required by this Item is incorporated herein by reference to pages 30 to 33 of the Registrant's 1993 Annual Report to Stockholders, a copy of which is filed as Exhibit 13 to this Report. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ---------------------------------------------------- The information required by this Item is incorporated herein by reference to the Consolidated Statements of Income, Consolidated Balance Sheets, Consolidated Statements of Cash Flows and Consolidated Statements of Stockholders' Equity on pages 13 to 16, to the Notes to Consolidated Financial Statements on pages 17 to 28, and to the "Report of Independent Accountants" on page 29, of the Registrant's 1993 Annual Report to Stockholders, a copy of which is filed as Exhibit 13 to this Report. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON --------------------------------------------------------- ACCOUNTING AND FINANCIAL DISCLOSURE ----------------------------------- Not applicable. -10- 11 PART III -------- ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT -------------------------------------------------------- The information required by this Item relating to the Company's executive officers is included on page 9 hereof under "EXECUTIVE OFFICERS OF ALLEN" and is incorporated herein by reference to "EXECUTIVE COMPENSATION AND TRANSACTIONS WITH MANAGEMENT -- Employment, Termination of Employment and Change of Control Arrangements" on pages 16 to 18 of the Registrant's definitive proxy statement dated March 17, 1994 filed with the Securities and Exchange Commission pursuant to Section 14(a) of the Securities Exchange Act of 1934. The other information required by this Item is incorporated herein by reference to "ELECTION OF DIRECTORS -- Information Regarding Nominees" on pages 1 to 3 of the Registrant's definitive proxy statement dated March 17, 1994 filed with the Securities and Exchange Commission pursuant to Section 14(a) of the Securities Exchange Act of 1934. ITEM 11 - EXECUTIVE COMPENSATION -------------------------------- The information required by this Item is incorporated herein by reference to "ELECTION OF DIRECTORS -- Compensation Committee Interlocks and Insider Participation" on page 4, to "ELECTION OF DIRECTORS -- Compensation of Directors" on pages 4 to 6 and to "EXECUTIVE COMPENSATION AND TRANSACTIONS WITH MANAGEMENT -- Transactions with Executive Officers and Directors" on page 20 of the Registrant's definitive proxy statement dated March 17, 1994 filed with the Securities and Exchange Commission pursuant to Section 14(a) of the Securities Exchange Act of 1934. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ------------------------------------------------------------------------ The information required by this Item is incorporated herein by reference to "STOCK OWNERSHIP" on pages 21 to 23 of the Registrant's definitive proxy statement dated March 17, 1994 filed with the Securities and Exchange Commission pursuant to Section 14(a) of the Securities Exchange Act of 1934. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -------------------------------------------------------- The information required by this Item is incorporated herein by reference to "EXECUTIVE COMPENSATION AND TRANSACTIONS WITH MANAGEMENT -- Transactions with Executive Officers and Directors" on page 20, and to "STOCK OWNERSHIP -- Principal Stockholders" on page 21 of the Registrant's definitive proxy statement dated March 17, 1994 filed with the Securities and Exchange Commission pursuant to Section 14(a) of the Securities Exchange Act of 1934. -11- 12 PART IV ------- ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K -------------------------------------------------------------------------- (a)(1) FINANCIAL STATEMENTS OF THE REGISTRANT -------------------------------------- The Consolidated Financial Statements of the Registrant listed below, together with the Report of Independent Accountants, dated February 16, 1994, are incorporated herein by reference to pages 13 to 29 of the Registrant's 1993 Annual Report to Stockholders, a copy of which is filed as Exhibit 13 to this Report. Consolidated Statements of Income for the Years Ended December 31, 1993, 1992 and 1991 Consolidated Balance Sheets at December 31, 1993 and 1992 Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1992 and 1991 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1993, 1992 and 1991 Notes to Consolidated Financial Statements Report of Independent Accountants (2) FINANCIAL STATEMENT SCHEDULES ----------------------------- The following additional information should be read in conjunction with the Consolidated Financial Statements of the Registrant described in Item 14(a)(1) above: FINANCIAL STATEMENT SCHEDULES OF THE REGISTRANT ----------------------------------------------- Report of Independent Accountants on page 13 of this Report relating to the financial statement schedules Schedule VIII - Valuation and Qualifying Accounts and Reserves, on page 14 of this Report Schedule X - Supplementary Income Statement Information, of page 15 of this Report Schedules other than that listed above are omitted because they are not required or are not applicable, or because the information is furnished elsewhere in the financial statements or the notes thereto. (3) EXHIBITS* -------- The information required by this Item relating to Exhibits to this Report is included in the Exhibit Index on pages 18 to 23 hereof. (b) REPORTS ON FORM 8-K ------------------- None. ______________ *A copy of any of the Exhibits to this Report will be furnished to persons who request a copy upon the payment of a fee of $.25 per page to cover the Company's duplication and handling expenses. -12- 13 REPORT OF INDEPENDENT ACCOUNTANTS --------------------------------- To the Board of Directors and Stockholders of The Allen Group Inc.: Our report on the consolidated financial statements of The Allen Group Inc. has been incorporated by reference in this Annual Report on Form 10-K from page 29 of the 1993 Annual Report to Stockholders of The Allen Group Inc. In connection with our audits of such financial statements, we have also audited the related financial statement schedules listed in the Index on page 12 of this Form 10-K Annual Report. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. /s/ Coopers & Lybrand COOPERS & LYBRAND Cleveland, Ohio February 16, 1994 -13- 14 THE ALLEN GROUP INC. -------------------- SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES -------------------------------------------------------------- FOR THE THREE YEARS ENDED DECEMBER 31, 1993 ------------------------------------------- (AMOUNTS IN THOUSANDS) ----------------------
Column A Column B Column C Column D Column E - ------------------------------- --------- -------------------- ---------- -------- Additions Balance -------------------- Balance at Charged to Charged Deductions at End Beginning Costs and to Other from of Description of Period Expenses Accounts Reserves Period - ------------------------------- --------- ---------- -------- ---------- -------- Allowance for doubtful accounts: 1993 $ 3,543 719 - 2,992(1)(2) $ 1,270 ======= ======= ====== ====== ======= 1992 $ 1,470 2,416 - 343(1) $ 3,543 ======= ======= ====== ====== ======= 1991 $ 2,111 465 - 1,106(1)(2) $ 1,470 ======= ======= ====== ====== ======= Allowance for credit losses on lease receivables: 1993 $ 2,221 870 - 3,091(1)(2) $ - ======= ======= ====== ====== ======= 1992 $ 1,894 2,100 - 1,773 $ 2,221 ======= ======= ====== ====== ======= 1991 $ 1,662 1,780 - 1,548 $ 1,894 ======= ======= ====== ====== ======= Reserves for losses on lease receivables sold: 1993 $ 2,232 - - 2,232(2) $ - ======= ======= ====== ====== ======= 1992 $ 2,592 808 - 1,168 $ 2,232 ======= ======= ====== ====== ======= 1991 $ 3,359 532 - 1,299 $ 2,592 ======= ======= ====== ====== ======= Reserve for loss on unliquidated assets of discontinued European operations: 1993 $ 1,846 - - 1,239(3) $ 607 ======= ======= ====== ====== ======= 1992 $ 3,037 - - 1,191(3) $ 1,846 ======= ======= ====== ====== ======= 1991 $ 3,055 913 - 931(3) $ 3,037 ======= ======= ====== ====== ======= Reserve for restructuring/ relocation costs: 1993 $ 1,282 - - 672(4) $ 610 ======= ======= ====== ====== ======= 1992 $ 1,800 250 - 768(4) $ 1,282 ======= ======= ====== ====== ======= (1) Represents the write-off of uncollectible accounts, less recoveries. (2) Includes the elimination of related balances for its Allen Testproducts division and leasing subsidiary sold in 1993 and its automated manufacturing equipment operations sold in 1991. (3) Includes write-off of uncollectible accounts and net transaction adjustments. (4) Write-off of restructuring costs against reserve.
-14- 15 THE ALLEN GROUP INC. -------------------- SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION ------------------------------------------------------- FOR THE THREE YEARS ENDED DECEMBER 31, 1993 ------------------------------------------- (AMOUNTS IN THOUSANDS) ----------------------
Column A Column B - ------------------------------- -------------------------------------- Charged To Costs and Expenses Item 1993 1992 1991 - ------------------------------- ---- ---- ---- Maintenance and repairs 2,904 2,199 1,394 Taxes, other than payroll and income taxes 1,769 2,106 1,815 Royalties 3,460 2,476 1,958 Advertising costs 3,642 2,242 1,412
-15- 16 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. THE ALLEN GROUP INC. -------------------- (Registrant) By /s/ Robert A. Youdelman ---------------------------- Robert A. Youdelman Senior Vice President-Finance Date: March 30, 1994 ------------------- 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. /s/ Robert G. Paul March 30, 1994 -------------------------------------------- Robert G. Paul, President, Chief Executive Officer and Director (Principal Executive Officer) /s/ Robert A. Youdelman March 30, 1994 -------------------------------------------- Robert A. Youdelman, Senior Vice President- Finance (Principal Financial Officer) /s/ James L. LePorte March 30, 1994 -------------------------------------------- James L. LePorte, Vice President and Controller (Principal Accounting Officer) /s/ Wade A. Allen March 30, 1994 -------------------------------------------- Wade W. Allen, Director March , 1994 -------------------------------------------- George A. Chandler, Director /s/ Philip Wm. Colburn March 30, 1994 -------------------------------------------- Philip Wm. Colburn, Chairman of the Board and Director /s/ Jill K. Conway March 30, 1994 -------------------------------------------- Jill K. Conway, Director /s/ Albert H. Gordon March 30, 1994 -------------------------------------------- Albert H. Gordon, Director -16- 17 /s/ William O. Hunt March 30, 1994 ------------------------------------------ William O. Hunt, Director /s/ J. Chisholm Lyons March 30, 1994 ------------------------------------------ J. Chisholm Lyons, Director /s/ Charles W. Robinson March 30, 1994 ------------------------------------------ Charles W. Robinson, Director /s/ Richard S. Vokey March 30, 1994 ------------------------------------------ Richard S. Vokey, Director /s/ William M. Weaver, Jr. March 30, 1994 ------------------------------------------ William M. Weaver, Jr., Director -17- 18 EXHIBIT INDEX ------------- EXHIBIT NUMBERS PAGES - --------------- ----- (3) Certificate of Incorporation and By Laws - (a) Restated Certificate of Incorporation (filed as Exhibit Number 3(a) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1984 (Commission file number 1-6016) and incorporated herein by reference)............... - (b) Certificate of Designations, Powers, Preferences and Rights of the $1.75 Convertible Exchangeable Preferred Stock, Series A (filed as Exhibit Number 3(b) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1986 (Commission file number 1-6016) and incorporated herein by reference) ........................... - (c) Certificate of Amendment of Restated Certificate of Incorporation (filed as Exhibit Number 3(c) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1987 (Commission file number 1-6016) and incorporated herein by reference) .. - (d) Certificate of Designations, Powers, Preferences and Rights of the Variable Rate Preferred Stock, Series A (filed as Exhibit Number 3(d) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1987 (Commission file number 1-6016) and incorporated herein by reference) .. - (e) Certificate of Designation, Preferences and Rights of Series B Junior Participating Preferred Stock (filed as Exhibit Number 3(e) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1987 (Commission file number 1-6016) and incorporated herein by reference) .. - (f) Certificate Eliminating Variable Rate Preferred Stock, Series A (filed as Exhibit Number 3(f) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1989 (Commission file number 1-6016) and incorporated herein by reference) ..................................... - (g) Certificate of Amendment of Restated Certificate of Incorporation................................ 24 (h) Certificate Eliminating $1.75 Convertible Exchangeable Preferred Stock, Series A.......... 26 (i) By-Laws, as amended through September 10, 1992 (filed as Exhibit Number 3(g) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1992 (Commission file number 1-6016) and incorporated herein by reference)............................ - (4) Instruments defining the rights of security holders - (a) Rights Agreement, dated as of January 7, 1988, between the Registrant and Manufacturers Hanover Trust Company (filed as Exhibit Number 4 to Registrant's Form 8-K Current Report dated January 7, 1988 (Commission file number 1-6016) and incorporated herein by reference) .......... - -18- 19 (b) Credit Agreement, dated as of February 17, 1994, among the Registrant, the Banks signatory thereto, and Bank of Montreal, as agent........................... 29 Additional information concerning Registrant's long- term debt is set forth in Note 2 of the Notes to Consolidated Financial Statements on pages 18 to 19 of Registrant's 1993 Annual Report to Stockholders, a copy of which is filed as Exhibit 13 to this Report. Other than the Credit Agreement referred to above, no instrument defining the rights of holders of such long-term debt relates to securities having an aggregate principal amount in excess of 10% of the consolidated assets of Registrant and its subsidiaries; therefore, in accordance with paragraph (iii) of Item 4 of Item 601(b) of Regulation S-K, the other instruments defining the rights of holders of long-term debt are not filed herewith. Registrant hereby agrees to furnish a copy of any such other instrument to the Securities and Exchange Commission upon request. (10) Material contracts (All of the exhibits listed as material contracts hereunder are management contracts or compensatory plans or arrangements required to be filed as exhibits to this Report pursuant to Item 14(c) of this Report.) - (a) The Allen Group Inc. 1970 Non-Qualified Stock Option Plan, as amended April 25, 1978, June 23, 1981 and February 19, 1985 (revised) (filed as Exhibit Number 10(a) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1985 (Commission file number 1-6016) and incorporated herein by reference)............................................... - (b) Amendment, dated November 3, 1987, to 1970 Non-Qualified Stock Option Plan (filed as Exhibit Number 10(b) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1987 (Commis- sion file number 1-6016) and incorporated herein by reference) .............................................. - (c) The Allen Group Inc. 1982 Stock Plan, as amended through November 3, 1987 (filed as Exhibit Number 10(c) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1987 (Commission file number 1-6016) and incorporated herein by reference)............ - (d) Amendment, dated as of December 4, 1990, to 1982 Stock Plan, as amended (filed as Exhibit No. 10(d) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1990 (Commission file number 1-6016) and incorporated herein by reference) .......... - (e) Form of Restricted Stock Agreement pursuant to 1982 Stock Plan, as amended (filed as Exhibit No. 10(e) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1990 (Commission file number 1-6016) and incorporated herein by reference) .......... - (f) The Allen Group Inc. 1992 Stock Plan (filed as Exhibit No. 10(f) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1992 (Commission file number 1-6016) and incorporated herein by reference)..... - -19- 20 (g) Form of Restricted Stock Agreement pursuant to 1992 Stock Plan (Salary Increase Deferral), dated November 30, 1993, entered into by the Registrant with certain executive officers, officers and division presidents...................................... 111 (h) Form of Restricted Stock Agreement pursuant to 1992 Stock Plan (Salary Increase Deferral), dated April 28, 1992, entered into by the Registrant with certain executive officers, officers and division presidents (filed as Exhibit No. 10(g) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1992 (Commission file number 1-6016) and incorporated herein by reference)................................................ - (i) Form of Non-Qualified Option to Purchase Stock granted to certain directors of the Registrant on September 12, 1989 (filed as Exhibit Number 10(e) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1989 (Commission file number 1-6016) and incorporated herein by reference) ................................... - (j) The Allen Group Inc. 1994 Non-Employee Directors Stock Option Plan (filed as Exhibit A to Registrant's Proxy Statement dated March 17, 1994 (Commission file number 1-6016) and incorporated herein by reference)...... 119 (k) The Allen Group Inc. Amended and Restated Key Management Deferred Bonus Plan (incorporating all amendments through February 27, 1992) (filed as Exhibit No. 10(i) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1992 (Commission file number 1-6016) and incorporated herein by reference)..................................... - (l) Form of Restricted Stock Agreement pursuant to 1992 Stock Plan and Key Management Deferred Bonus Plan (filed as Exhibit No. 10(j) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1992 (Commission file number 1-6016) and incorporated herein by reference).................... - (m) Form of Severance Agreement, dated as of November 3, 1987, entered into by the Registrant with certain executive officers, officers and division presidents (filed as Exhibit Number 10(g) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1987 (Commission file number 1-6016) and incorporated herein by reference) ............................................. - (n) Form of Amendment, dated December 5, 1989, to Severance Agreement entered into by the Registrant with certain executive officers, officers and division presidents (filed as Exhibit Number 10(j) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1989 (Commission file number 1-6016) and incorporated herein by reference) .......... - (o) Key Employee Severance Policy adopted by the Registrant on November 3, 1987 (filed as Exhibit Number 10(h) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1987 (Commission file number 6-6016) and incorporated herein by reference) ................................... - -20- 21 (p) Amendment, dated May 14, 1991, to Key Employee Severance Policy adopted by the Registrant on November 3, 1987 (filed as Exhibit No. 10(n) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1992 (Commission file number 1-6016) and incorporated herein by reference)............................................. - (q) Employment Agreement, dated June 28, 1988, between the Registrant and Philip Wm. Colburn (filed as Exhibit Number 10(m) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1988 (Commission file number 1-6016) and incorporated herein by reference) ................................... - (r) Amendment, dated as of February 27, 1992, of Employment Agreement, dated June 28, 1988, between the Registrant and Philip Wm. Colburn (filed as Exhibit No. 10(p) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1992 (Commission file number 1-6016) and incorporated herein by reference)............ - (s) Amendment, dated as of February 26, 1991, of Employment Agreement, dated June 28, 1988, between the Registrant and Philip Wm. Colburn (filed as Exhibit Number 10(n) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1990 (Commission file number 1-6016) and incorporated herein by reference) .......................................... - (t) Amended and Restated Post Employment Consulting Agreement, dated as of December 20, 1990, between the Registrant and Philip Wm. Colburn (filed as Exhibit Number 10(o) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1990 (Commission file number 1-6016) and incorporated herein by reference) .......................................... - (u) Amended and Restated Supplemental Pension Benefit Agreement, dated as of December 20, 1990, between the Registrant and Philip Wm. Colburn (filed as Exhibit Number 10(p) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1990 (Commission file number 1-6016) and incorporated herein by reference) .......................................... - (v) Insured Supplemental Retirement Benefit Agreement, dated as of September 4, 1985, between the Registrant and Philip Wm. Colburn (filed as Exhibit Number 10(l) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1987 (Commission file number 1-6016) and incorporated herein by reference) .......... - (w) Split Dollar Insurance Agreement, dated as of July 1, 1991, between the Registrant and Philip Wm. Colburn (filed as Exhibit No. 10(u) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1992 (Commission file number 1-6016) and incorporated herein by reference...................................... - (x) Supplemental Pension Benefit Agreement, dated as of December 6, 1983, between the Registrant and J. Chisholm Lyons (filed as Exhibit Number 10(r) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1983 (Commission file number 1-6016) and incorporated herein by reference) ... - -21- 22 (y) Amendment, dated as of December 20, 1990, of Supplemental Pension Benefit Agreement, dated as of December 6, 1983, between the Registrant and J. Chisholm Lyons (filed as Exhibit Number 10(s) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1990 (Commission file number 1-6016) and incorporated herein by reference) ... - (z) Post Employment Consulting Agreement, dated as of September 12, 1989, between the Registrant and J. Chisholm Lyons (filed as Exhibit Number 10(s) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1989 (Commission file number 1-6016) and incorporated herein by reference) .......... - (aa) Amendment, dated as of December 20, 1990, of Post Employment Consulting Agreement, dated as of September 12, 1989, between the Registrant and J. Chisholm Lyons (filed as Exhibit No. 10(u) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1990 (Commission file number 1-6016) and incorporated herein by reference) .......... - (bb) Employment Agreement, dated June 25, 1991, between the Registrant and Robert G. Paul (filed as Exhibit Number 10(x) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1991 (Commission file number 1-6016) and incorporated herein by reference)..................................... - (cc) Supplemental Pension Benefit Agreement, dated as of June 25, 1991, between the Registrant and Robert G. Paul (filed as Exhibit Number 10(y) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1991 (Commission file number 1-6016) and incorporated herein by reference).................... - (dd) Form of Split Dollar Insurance Agreement, dated as of November 1, 1991, entered into by the Registrant with certain executive officers, officers and division presidents (filed as Exhibit No. 10(bb) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1992 (Commission file number 1-6016) and incorporated herein by reference......................... - (ee) Form of Supplemental Pension Benefit Agreement, dated as of February 27, 1992, entered into by the Registrant with certain executive officers, officers and division presidents (filed as Exhibit No. 10(cc) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1992 (Commission file number 1-6016) and incorporated herein by reference......................... - (11) Statement re Computation of Earnings (Loss) Per Common Share ........................................... 123 (13) 1993 Annual Report to Stockholders* .................... 124 (21) Subsidiaries of the Registrant ......................... 164 (23) Consent of Independent Accountants ..................... 166 ___________________________ -22- 23 * Furnished for the information of the Securities and Exchange Commission and not to be deemed "filed" as part of this Report except for the Consolidated Financial Statements of the Registrant and the Accountants' Report on pages 11 to 29 of said Annual Report to Stockholders and the other information incorporated by reference in Items 1 and 3 of Part I hereof and Items 5 to 8 of Part II hereof. A copy of any of these Exhibits will be furnished to persons who request a copy upon the payment of a fee of $.25 per page to cover the Company's duplication and handling expenses. -23- EX-3.G 2 ALLEN GROUP EX-3(G) 1 Exhibit 3(g) ------------ State of Delaware ----------------- OFFICE OF THE SECRETARY OF STATE -------------------------------- I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF "THE ALLEN GROUP INC." FILED IN THIS OFFICE ON THE TWENTY-SECOND DAY OF APRIL, A.D. 1993, AT 12 O'CLOCK P.M. A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO NEW CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING. * * * * * * * * * * * * /s/ William T. Quillen -------------------------------------- [logo] William T. Quillen, Secretary of State -------------------------------------- AUTHENTICATION: *3869599 733112013 DATE: 04/22/93 2 CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF THE ALLEN GROUP INC. The Allen Group Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify: FIRST: That at a meeting of the Board of Directors of The Allen Group Inc. duly called and held on February 25, 1993, a resolution was duly adopted proposing and declaring advisable the following amendment to the Restated Certificate of Incorporation of said corporation: RESOLVED, that the Restated Certificate of Incorporation of this corporation be amended by changing the first sentence of Article "FOURTH" so that, as amended, said first sentence shall be and read as follows: "FOURTH. The total number of shares of stock which the corporation shall have authority to issue is fifty-three million (53,000,000), of which three million (3,000,000) shares shall be Preferred Stock, without par value, and fifty million (50,000,000) shares shall be Common Stock of the par value of $1 per share. SECOND: That an annual meeting of the stockholders of said corporation was duly called and held on April 2, 1993, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware, at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. THIRD: That the aforesaid amendment was duly adopted in accordance with the applicable provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, The Allen Group Inc. has caused this Certificate to be signed by Robert G. Paul, President and McDara P. Folan, III, Secretary, this 22nd day of April, 1993. THE ALLEN GROUP INC. By: /s/ Robert G. Paul ------------------------------ Robert G. Paul, President ATTEST: By: /s/ McDara P. Folan, III ---------------------------------- McDara P. Folan, III, Secretary EX-3.H 3 ALLEN GROUP EX-3(H) 1 Exhibit 3(h) ------------ State of Delaware ----------------- OFFICE OF THE SECRETARY OF STATE -------------------------------- I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF STOCK DESIGNATION OF "THE ALLEN GROUP INC." FILED IN THIS OFFICE ON THE THIRTEENTH DAY OF SEPTEMBER, A.D. 1993, AT 1 O'CLOCK P.M. A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO NEW CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING. * * * * * * * * * * * * * * * /s/ William T. Quillen -------------------------------------- [logo] William T. Quillen, Secretary of State -------------------------------------- AUTHENTICATION: *4058641 733256011 DATE: 09/16/1993 2 CERTIFICATE ELIMINATING $1.75 CONVERTIBLE EXCHANGEABLE PREFERRED STOCK, SERIES A PURSUANT TO SECTION 151(G) OF GENERAL CORPORATION LAW THE ALLEN GROUP INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: That pursuant to authority conferred upon the Board of Directors of the Corporation pursuant to Section 151(g) of the General Corporation Law of the State of Delaware, said Board of Directors adopted the following resolutions at a meeting duly held on September 9, 1993 for the purpose of eliminating from the Restated Certificate of Incorporation, as amended, all references to the Corporation's $1.75 Convertible Exchangeable Preferred Stock, Series A: "WHEREAS, pursuant to the authority expressly granted to and vested in the Board of Directors of the Corporation by the provisions of the Restated Certificate of Incorporation, as amended, of the Corporation, there was created, out of the 3,000,000 shares of Preferred Stock of the Corporation authorized in Article Fourth of its Restated Certificate of Incorporation, as amended, a series of Preferred Stock of the Corporation consisting of 2,300,000 shares of this Corporation's $1.75 Convertible Exchangeable Preferred Stock, Series A (the "Series A Stock"), and, on May 7, 1986, this Corporation filed with the Secretary of State of the State of Delaware a Certificate of Designations, Powers, Preferences and Rights relating to the Series A Stock which had the effect of amending this Corporation's Restated Certificate of Incorporation, as amended, to add certain provisions relating to the Series A Stock; and WHEREAS, subsequent to May 7, 1986, 2,300,000 shares of Series A Stock were issued, and all of such shares were subsequently converted into shares of Common Stock of the Corporation by the holders thereof or redeemed by this Corporation; and WHEREAS, 2,300,000 shares of Series A Stock are authorized for issuance but none of such shares is outstanding on the date hereof, and this Corporation intends to issue none of such shares, and, therefore, this Corporation wishes to amend its Restated Certificate of Incorporation, as amended, to eliminate therefrom all references relating to the Series A Stock so that such 2,300,000 shares shall resume their status as authorized but unissued shares of Preferred Stock of this Corporation. NOW, THEREFORE, BE IT RESOLVED, that none of the Series A Stock is outstanding on the date hereof and that from and after the date hereof no shares of Series A Stock shall be issued by this Corporation subject to the Certificate of Designations, Powers, Preferences and Rights relating to such Series A Stock filed on May 7, 1986 and that all provisions relating to the Series A Stock shall be eliminated from the Restated Certificate of Incorporation, as amended, of this Corporation; and -27- 3 2. FURTHER RESOLVED, that the officers of this Corporation, and each of them, hereby are authorized to execute and acknowledge and to file and record or cause to be filed and recorded a certificate pursuant to Section 151(g) of the General Corporation Law of the State of Delaware setting forth these resolutions for the purpose of amending this Corporation's Restated Certificate of Incorporation, as amended, to eliminate therefrom all references relating to the Series A Stock." IN WITNESS WHEREOF, THE ALLEN GROUP INC. has caused this certificate to be signed by Robert A. Youdelman, its Senior Vice President-Finance, and attested by McDara P. Folan, III, its Secretary, this 9th day of September, 1993. THE ALLEN GROUP INC. By: /s/ Robert A. Youdelman -------------------------------- Senior Vice President-Finance ATTEST: By: /s/ McDara P. Folan, III ---------------------------------- Secretary AGREEMTS\ELIMIN EX-4.B 4 ALLEN GROUP EX-4(B) 1 Exhibit 4(b) ------------ CONFORMED COPY ================================================================================ CREDIT AGREEMENT DATED AS OF FEBRUARY 17, 1994 AMONG THE ALLEN GROUP INC., THE BANKS PARTY HERETO, AND BANK OF MONTREAL, AS AGENT ================================================================================ 224693.01.14 843359/REL February 18, 1994 2 TABLE OF CONTENTS (THIS TABLE OF CONTENTS IS NOT PART OF THE AGREEMENT) PAGE SECTION 1. THE REVOLVING CREDIT FACILITY .............................. 1 Section 1.1. Borrowings under the Revolving Credit............... 1 Section 1.2. Letters of Credit under the Revolving Credit ....... 1 Section 1.3. Applicable Interest Rates .......................... 4 Section 1.4. Minimum Borrowing Amounts .......................... 6 Section 1.5. Manner of Borrowing ................................ 6 Section 1.6. Interest Periods ................................... 8 Section 1.7. Maturity of Loans .................................. 9 Section 1.8. Optional Prepayments ............................... 9 Section 1.9. Default Rate ....................................... 9 Section 1.10. The Notes .......................................... 9 Section 1.11. Funding Indemnity ................................. 10 Section 1.12. Optional Commitment Terminations .................. 10 SECTION 2. FEES AND EXTENSIONS ....................................... 11 Section 2.1. Fees .............................................. 11 Section 2.2. Extension of Termination Dates .................... 12 SECTION 3. PLACE AND APPLICATION OF PAYMENTS ......................... 12 Section 3.1. Place and Application of Payments ................. 12 SECTION 4. DEFINITIONS; INTERPRETATION ............................... 12 Section 4.1. Definitions ....................................... 12 Section 4.2. Interpretation .................................... 22 SECTION 5. REPRESENTATIONS AND WARRANTIES ............................ 22 Section 5.1. Corporate Organization and Authority .............. 22 Section 5.2. Subsidiaries ...................................... 23 Section 5.3. Corporate Authority and Validity of Obligations ... 23 Section 5.4. Financial Statements .............................. 23 Section 5.5. No Material Adverse Change ........................ 24 Section 5.6. No Litigation ..................................... 24 Section 5.7. Taxes ............................................. 24 Section 5.8. Approvals ......................................... 24 Section 5.9. ERISA ............................................. 24 Section 5.10. Not an Investment Company ......................... 24 -i- 3 Section 5.11. Margin Stock ..................................... 24 Section 5.12. Compliance with Environmental Laws ............... 25 Section 5.13. Ownership of Property; Liens ..................... 25 Section 5.14. No Burdensome Restrictions ....................... 26 Section 5.15. Long Term Debt ................................... 26 SECTION 6. CONDITIONS PRECEDENT ..................................... 26 Section 6.1. Initial Credit Event ............................. 26 Section 6.2. All Credit Events ................................ 27 SECTION 7. COVENANTS ................................................ 27 Section 7.1. Corporate Existence .............................. 28 Section 7.2. Maintenance ...................................... 28 Section 7.3. Taxes ............................................ 28 Section 7.4. ERISA ............................................ 28 Section 7.5. Insurance ........................................ 28 Section 7.6. Financial Reports and Other Information .......... 29 Section 7.7. Change of Control ................................ 30 Section 7.8. Conduct of Business .............................. 30 Section 7.9. Liens ............................................ 31 Section 7.10. Compliance with Laws ............................. 33 Section 7.11. Regulation U ..................................... 33 Section 7.12. Notice of Litigation ............................. 33 Section 7.13. Mergers, Consolidations and Sales of Assets ...... 33 Section 7.14. Use of Property and Facilities ................... 34 Section 7.15. Current Ratio .................................... 35 Section 7.16. Interest Coverage Ratio .......................... 35 Section 7.17. Consolidated Tangible Net Worth .................. 35 Section 7.18. Adjusted Consolidated Net Worth .................. 35 Section 7.19. Funded Debt to Cash Flow ......................... 35 Section 7.20. Restricted Investments and Contingent Obligations 35 Section 7.21. Investments in MARTA ............................. 35 Section 7.22. MARTA Obligations ................................ 35 Section 7.23. Subsidiary Debt .................................. 36 SECTION 8. EVENTS OF DEFAULT AND REMEDIES ........................... 36 Section 8.1. Events of Default ................................ 36 Section 8.2. Non-Bankruptcy Defaults .......................... 38 Section 8.3. Bankruptcy Defaults .............................. 38 Section 8.4. Collateral for Undrawn Letters of Credit ......... 39 Section 8.5. Notice of Default ................................ 39 Section 8.6. Expenses ......................................... 39 SECTION 9. CHANGE IN CIRCUMSTANCES .................................. 40 -ii- 4 Section 9.1. Change of Law .................................... 40 Section 9.2. Unavailability of Deposits or Inability to Ascertain, or Inadequacy of, LIBOR ............... 40 Section 9.3. Increased Cost and Reduced Return ................ 40 Section 9.4. Lending Offices .................................. 42 Section 9.5. Discretion of Bank as to Manner of Funding ....... 43 SECTION 10. THE AGENT ................................................ 43 Section 10.1. Appointment and Authorization of Agent ........... 43 Section 10.2. Agent and Affiliates ............................. 43 Section 10.3. Action by Agent .................................. 43 Section 10.4. Consultation with Experts ........................ 43 Section 10.5. Liability of Agent and Issuing Bank; Credit Decision ......................................... 43 Section 10.6. Costs and Expenses ............................... 44 Section 10.7. Indemnity ........................................ 44 Section 10.8. Resignation of Agent and Successor Agent ......... 44 SECTION 11. MISCELLANEOUS ............................................ 45 Section 11.1. Withholding Taxes ................................ 45 Section 11.2. No Waiver of Rights .............................. 46 Section 11.3. Non-Business Day ................................. 46 Section 11.4. Documentary Taxes ................................ 47 Section 11.5. Survival of Representations ...................... 47 Section 11.6. Survival of Indemnities .......................... 47 Section 11.7. Sharing of Set-Off ............................... 47 Section 11.8. Notices .......................................... 47 Section 11.9. Counterparts ..................................... 48 Section 11.10. Successors and Assignees ......................... 48 Section 11.11. Participants and Note Assignees .................. 48 Section 11.12. Assignment of Commitments by Banks ............... 49 Section 11.13. Amendments ....................................... 49 Section 11.14. Headings ......................................... 49 Section 11.15. Legal Fees and Indemnification ................... 49 Section 11.16. Governing Law .................................... 50 Section 11.17. Entire Agreement ................................. 50 Signature Pages .......................................................... 51 EXHIBITS Exhibit A - Form of Notice of Payment Request Exhibit B - Form of Note Exhibit C - Form of Opinion of Counsel to Borrower Exhibit D - Form of Compliance Certificate -iii- 5 Schedule I - Schedule of Subsidiaries Schedule II - Schedule of Environmental Notices Schedule III - Schedule of Outstanding Long Term Debt Schedule IV - Schedule of Outstanding Liens Schedule V - Schedule of Restricted Investments Appendix I - Form of Standby Letter of Credit Application Appendix II - Form of Commercial Letter of Credit Application -iv- 6 CREDIT AGREEMENT To each of the Banks signatory hereto Ladies and Gentlemen: The undersigned, The Allen Group Inc., a Delaware corporation (the "BORROWER") applies to you for your several commitments, subject to all the terms and conditions hereof and on the basis of the representations and warranties hereinafter set forth, to make available a revolving credit providing for loans and letters of credit as described herein. Each of you and your assigns pursuant to Section 11.12 is hereinafter referred to as a "BANK", and Bank of Montreal, in its capacity as agent for the Banks and any successor pursuant to Section 10.8, is referred to as the "AGENT". Continental Bank N.A. is the "CO-AGENT" hereunder. SECTION 1. THE REVOLVING CREDIT FACILITY. SECTION 1.1. BORROWINGS UNDER THE REVOLVING CREDIT. Subject to the terms and conditions hereof, each Bank, by its acceptance hereof, severally agrees to make a loan or loans (individually a "LOAN" and collectively "LOANS") to the Borrower from time to time on a revolving basis in the amount of its commitment to make Loans set forth on the applicable signature page hereof or pursuant to Section 11.12 (its "COMMITMENT" and cumulatively for all the Banks the "COMMITMENTS") (subject to any reductions thereof pursuant to the terms hereof) prior to the Termination Date. The aggregate principal amount of Loans plus the aggregate amount of L/C Obligations at any time outstanding shall not exceed the aggregate Commitments then in effect. Each Borrowing of Loans shall be made ratably from the Banks in proportion to their respective Commitments (for each Bank its "PERCENTAGE"). The Borrower may elect that each Borrowing be made available by means of either Domestic Rate Loans or Eurodollar Loans, which Loans may be repaid and the principal amount thereof reborrowed prior to the Termination Date, subject to all the terms and conditions hereof. SECTION 1.2. LETTERS OF CREDIT UNDER THE REVOLVING CREDIT. (a) GENERAL TERMS. Subject to all of the terms and conditions hereof, the Borrower may avail itself of the Commitments through letters of credit (the "LETTERS OF CREDIT") issued by Continental Bank N.A. (in such capacity as issuer of Letters of Credit, the "ISSUING BANK") for the Borrower's account, provided that the aggregate outstanding undrawn face amount of Letters of Credit shall not at any time exceed $20,000,000. Each Letter of Credit shall be issued by the Issuing Bank, but each Bank shall be obligated to reimburse the Issuing Bank for its Percentage of the amount of each draft drawn thereunder and, accordingly, the face amount of each Letter of Credit shall be deemed to utilize the Commitments of all Banks PRO RATA based on each Bank's Percentage. No Letter of Credit shall have an expiration date after the Termination Date (and no time draft eligible to be presented for acceptance, or other payment undertaking eligible to be incurred, under a Letter of Credit may have a maturity date later than the Termination Date). In the event the Issuing Bank issues a Letter of Credit with an expiration date that automatically extends unless the Issuing Bank gives notice that 7 the expiration date will not so extend beyond such Letter of Credit's then scheduled expiration date, the Issuing Bank will give such notice of non-renewal before the time necessary to prevent such automatic extension if before such required notice date (i) the expiration date of such Letter of Credit if so extended would be after the Termination Date, (ii) the Commitments have been terminated, or (iii) an Event of Default exists and the Required Banks have given the Issuing Bank instructions not to so permit the extension of the expiration date of such Letter of Credit. At least thirty (30) days before the date on which the Issuing Bank is required to give notice of the non-renewal of such a Letter of Credit in order to prevent its automatic extension, the Issuing Bank shall give notice to the Agent of such circumstance and the Agent shall promptly notify each Bank thereof. (b) APPLICATIONS. At any time before the Termination Date, the Issuing Bank agrees that at the Borrower's request it shall issue one or more Letters of Credit, in a form satisfactory to the Issuing Bank, with expiration dates no later than the Termination Date, in an aggregate face amount as set forth above, upon the receipt of a duly executed application for the relevant Letter of Credit in the form customarily prescribed by the Issuing Bank for a letter of credit of the type, whether standby or commercial, requested (each an "APPLICATION"). The current forms of the Issuing Bank's Applications are attached as Appendices I and II hereto. The Issuing Bank shall provide the Borrower and the other Banks with copies of any new forms of Applications that may, from time to time, be adopted by the Issuing Bank. Notwithstanding anything contained in any Application to the contrary (i) the Borrower shall pay fees in connection with each Letter of Credit as set forth in Section 2.1(b) hereof, (ii) prior to the occurrence of an Event of Default, neither the Issuing Bank nor the Agent will call for the funding by the Borrower of any amount under a Letter of Credit, or any other collateral security for obligations of the Borrower under an Application, prior to being presented with a drawing thereunder, (iii) upon the termination of the Commitments, the full amount then available for drawing under all outstanding Letters of Credit shall be immediately due and payable in the manner described in Section 8.4 hereof, and (iv) in the event the Issuing Bank is not timely reimbursed for the amount of any drawing under a Letter of Credit on the date such drawing is paid, the Borrower's obligation to reimburse the Issuing Bank for the amount of such drawing shall bear interest (which the Borrower hereby promises to pay) from and after the date such drawing is paid at a rate per annum equal to the rate set forth in Section 1.9(a) hereof. The Issuing Bank also agrees to issue amendments to its Letter(s) of Credit increasing the amount, or extending the expiration date, thereof at the Borrower's request subject to the conditions of Section 6 and the other terms of this Section 1.2. Before issuing, or increasing the amount of, any Letter of Credit under this Section 1.2 the Issuing Bank shall notify the Agent of the proposed amount of the Letter of Credit, or of the proposed increase thereof, and the Agent shall determine and notify the Issuing Bank whether such amount would exceed any restriction in this Section 1 on the aggregate face amount of Letters of Credit as set forth in Section 6.2(d) and (e) hereof. (c) BORROWER'S REIMBURSEMENT OBLIGATIONS. Subject to Section 1.2(b) hereof, the obligation of the Borrower to reimburse the Issuing Bank for all drawings under a Letter of Credit (a "REIMBURSEMENT OBLIGATION") shall be governed by the Application for such Letter of Credit except that payments of drawings shall be made to the Agent, not the Issuing Bank, -2- 8 by no later than 12:00 Noon (Chicago time) on the date when such drawing is paid in immediately available funds at the Agent's principal office in Chicago, Illinois, and the Agent shall promptly thereafter remit such payment in like funds as received to the Issuing Bank. If the Borrower does not make any such reimbursement payment on the date due and the Participating Banks fund their participations therein in the manner set forth in Section 1.2(d) below, then all payments thereafter received by the Agent in discharge of any of the relevant Reimbursement Obligations shall be distributed ratably to each Bank hereunder in accordance with its Percentage. The Borrower's reimbursement obligations under this Section 1.2(c) and each Application shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement and the Applications, under all circumstances whatsoever, including without limitation the following circumstances: (i) any lack of validity or enforceability of any L/C Document; (ii) the existence of any claim, set-off, defense or other right that the Borrower may have at any time against a beneficiary of a Letter of Credit (or any Person for whom such a beneficiary may be acting), the Agent, the Issuing Bank, any other Bank or any other Person, whether in connection with this Agreement, another L/C Document or any unrelated transaction; (iii) any statement or any other document presented under a 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; (iv) payment by the Issuing Bank under a Letter of Credit against presentation to the Issuing Bank of a draft or certificate that does not comply with the terms of the Letter of Credit, PROVIDED that the Issuing Bank's determination that documents presented under the Letter of Credit comply with the terms thereof shall not have constituted gross negligence or willful misconduct of the Issuing Bank; or (v) any other act or omission to act or delay of any kind by the Agent, the Issuing Bank, any other Bank or any other Person or any other event or circumstance whatsoever that might, but for the provisions of this Section 1.2(c), constitute a legal or equitable discharge of the Borrower's obligations hereunder. (d) THE PARTICIPATING INTERESTS. Each Bank (other than the Issuing Bank), by its acceptance hereof, severally agrees to purchase from the Issuing Bank, and the Issuing Bank hereby agrees to sell to each such Bank (a "PARTICIPATING BANK"), an undivided percentage participating interest, to the extent of its Percentage, in each Letter of Credit issued by, and Reimbursement Obligation owed to, the Issuing Bank. Upon any failure by the Borrower to pay any Reimbursement Obligation at the time required on the date the related drawing is paid, as set forth in Section 1.2(c) above, or in the event the Issuing Bank is required at any time to return to the Borrower or to a trustee, receiver, liquidator, custodian or other similar official any portion of any payment by the Borrower of any Reimbursement -3- 9 Obligation, each Participating Bank shall, not later than the Business Day it receives a certificate in the form of Exhibit A hereto from the Issuing Bank (given directly or through the Agent) to such effect, if such certificate is received before 1:00 P.M. (Chicago time), or not later than the following Business Day, if such certificate is received after such time, pay to the Agent for the account of the Issuing Bank an amount equal to its Percentage of such unpaid or recaptured Reimbursement Obligation together with interest on such amount accrued from the date the related payment was made by the Issuing Bank to the date of such payment by such Participating Bank at a rate per annum equal to (i) from the date the related payment was made by the Issuing Bank to the date two (2) Business Days after payment by such Participating Bank is due hereunder, the Federal Funds Rate for each such day and (ii) from the date two (2) Business Days after such payment is due from such Participating Bank to the date such payment is made by such Participating Bank, the Domestic Rate in effect for each such day. Each such Participating Bank shall thereafter be entitled to receive its Percentage of each payment received in respect of the relevant Reimbursement Obligation and of interest paid thereon, with the Issuing Bank retaining its Percentage. The several obligations of the Participating Banks to the Issuing Bank under this Section 1.2 shall be absolute, irrevocable and unconditional under any and all circumstances whatsoever and shall not be subject to any set-off, counterclaim or defense to payment which any Participating Bank may have or have had against the Borrower, the Issuing Bank, any other Bank or any other Person whatsoever. Without limiting the generality of the foregoing, such obligations shall not be affected by any Default or Event of Default or by any reduction or termination of the Commitments of any Bank and each payment by a Participating Bank under this Section 1.2 shall be made without any offset, abatement, withholding or reduction whatsoever. The Agent shall be entitled to offset amounts received for the account of Banks under this Agreement against unpaid amounts due from Banks hereunder (whether as fundings of participations, indemnities or otherwise) but shall not be entitled to offset against amounts owed to the Agent by any Bank arising outside this Agreement. (e) INDEMNIFICATION. The Participating Banks shall, to the extent of their respective Percentages, indemnify the Issuing Bank (to the extent not reimbursed by the Borrower) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from the Issuing Bank's gross negligence or willful misconduct) that the Issuing Bank may suffer or incur in connection with any Letter of Credit. The obligations of the Participating Banks under this Section 1.2(e) and all other parts of this Section 1.2 shall survive termination of this Agreement and of any Application. SECTION 1.3. APPLICABLE INTEREST RATES. (a) DOMESTIC RATE LOANS. Each Domestic Rate Loan made by a Bank shall bear interest (computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed) each day on the unpaid principal amount thereof from the date such Loan is made until maturity (whether by acceleration or otherwise) at a rate per annum equal to the Domestic Rate applicable for such day, payable on the last day of the applicable Interest Period and at maturity (whether by acceleration or otherwise). -4- 10 "DOMESTIC RATE" means for any day the greater of: (i) the rate of interest then most recently announced by Continental Bank N.A. at Chicago, Illinois as its reference rate, with any change in the Domestic Rate resulting from a change in said announced reference rate to be effective as of the date of the relevant change in said reference rate; and (ii) the sum of (x) the rate for that day set forth opposite the caption "FEDERAL FUND (EFFECTIVE)" in the daily statistical release designated as "COMPOSITE 3:30 P.M. QUOTATIONS FOR U.S. GOVERNMENT SECURITIES", or any successor publication, published by the Federal Reserve Bank of New York or, if such publication shall be suspended or terminated, the rate determined by the Agent (based on quotations received from two or more Federal funds dealers of recognized standing) to be the prevailing rate per annum (rounded upward, if necessary, to the nearest 1/100 of 1%) at approximately 10:00 A.M. (Chicago time) (or as soon thereafter as is practicable) on such day for the purchase at face value of Federal funds in an amount approximately equal to the principal amount owed to the Agent for which such rate is being determined, PLUS (y) 1/2 of 1% (0.50%). (b) EURODOLLAR LOANS. Each Eurodollar Loan made by a Bank shall bear interest (computed on the basis of a year of 360 days and actual days elapsed) each day on the unpaid principal amount thereof from the date such Loan is made until maturity (whether by acceleration or otherwise) at a rate per annum equal to the sum of the Eurodollar Margin plus the Adjusted LIBOR applicable to such Loan, payable on the last day of the applicable Interest Period and at maturity (whether by acceleration or otherwise), and, if the applicable Interest Period is longer than three months, on the date occurring every three months after the date such Loan is made. "ADJUSTED LIBOR" means a rate per annum (rounded upward, if necessary, to the nearest 1/100 of 1%) determined in accordance with the following formula: LIBOR ------------------------------------- Adjusted LIBOR = 100% - Eurodollar Reserve Percentage "LIBOR" means, with respect to an Interest Period for a Borrowing of Eurodollar Loans, the rate of interest per annum, as determined by the Agent (rounded upwards, if necessary, to the nearest whole multiple of 1/16 of 1%), at which deposits of United States Dollars in immediately available and freely transferable funds are offered to the Agent at 11:00 A.M. (London, England time) two Business Days prior to the commencement of such Interest Period by major banks in the interbank Eurodollar market for a period equal to such Interest Period and in an amount approximately equal to the principal amount of the Eurodollar Loan scheduled to be made by the Agent as part of such Borrowing. "EURODOLLAR RESERVE PERCENTAGE" means, for an Interest Period for a Borrowing of Eurodollar Loans, the daily average of the maximum rate at which reserves, if any, (including, without limitation, any supplemental, marginal and emergency reserves) are imposed during such Interest Period by the Board of Governors of the Federal Reserve -5- 11 System (or any successor) on "EUROCURRENCY LIABILITIES", as defined in such Board's Regulation D, (or in respect of any other category of liabilities that includes deposits by reference to which the interest rate on Eurodollar Loans is determined or any category of extension of credit or other assets that include loans by non-United States offices of any Bank to United States residents) subject to any amendments of such reserve requirement by such Board or its successor, taking into account any transitional adjustments thereto. For purposes of this definition, the Eurodollar Loans shall be deemed to be eurocurrency liabilities as defined in Regulation D without benefit or credit for any prorations, exemptions or offsets under Regulation D. "EURODOLLAR MARGIN" means, until the first Pricing Change Date occurs, 0.625% per annum and, thereafter, from one Pricing Change Date to the next a rate per annum determined in accordance with the following schedule: Funded Debt to Cash Flow Ratio - ------------------------------ for such Pricing Change Date: Eurodollar Margin: - ---------------------------- ----------------- 1. Less than 1.50 to 1.00 0.50% 2. 1.50 to 1.00 or greater, but equal to or less than 2.50 to 1.00 0.625% 3. Greater than 2.50 to 1.00 but equal to or less than 3.75 to 1.00 0.75% 4. Greater than 3.75 to 1.00 but equal to or less than 4.75 to 1.00 1.125% 5. Greater than 4.75 to 1.00 1.50% (c) RATE DETERMINATIONS. The Agent shall determine each interest rate applicable to the Loans hereunder, and its determination thereof shall be conclusive and binding except in the case of manifest error or willful misconduct. Continental Bank N.A. shall notify the Agent of all changes in its reference rate described in clause (i) of the definition of Domestic Rate. SECTION 1.4. MINIMUM BORROWING AMOUNTS. Each Borrowing of Domestic Rate Loans shall be in an amount not less than $1,000,000, or any larger amount that is an integral multiple of $100,000, and each Borrowing of Eurodollar Loans shall be in an amount not less than $5,000,000, or any larger amount that is an integral multiple of $500,000. SECTION 1.5. MANNER OF BORROWING. (a) NOTICE TO THE AGENT. The Borrower shall give telephonic, telex or telecopy notice to the Agent (which notice shall be irrevocable once given and, if by telephone, shall be promptly confirmed in writing) (i) by no later than 2:00 P.M. (Chicago time) on the date at least three (3) Business Days prior to the date of each -6- 12 requested Borrowing of Eurodollar Loans, and (ii) by no later than 9:00 A.M. (Chicago time) on the date of each requested Borrowing of Domestic Rate Loans. Each such notice from the Borrower shall specify the date of the requested Borrowing (which shall be a Business Day), the amount of the requested Borrowing, the type of Loans to comprise such Borrowing, and, if such Borrowing is to be comprised of Eurodollar Loans, the Interest Period selected by the Borrower to be applicable thereto. The Borrower agrees that the Agent may rely on any such telephonic, telex or telecopy notice given by any person it in good faith believes is an Authorized Representative without the necessity of independent investigation and, in the event any notice by such means conflicts with the written confirmation, such notice shall govern if the Agent has acted in reliance thereon. (b) NOTICE TO THE BANKS. The Agent shall give prompt telephonic, telex or telecopy notice to each of the Banks of any borrowing request received pursuant to Section 1.5(a) above and, if such notice requests the Banks to make Eurodollar Loans, the Agent shall give notice to the Borrower and each of the Banks by like means of the interest rate applicable thereto (but, if such notice is given by telephone, the Agent shall confirm such rate in writing) promptly after the Agent has made such determination. (c) BORROWER'S FAILURE TO NOTIFY. In the event the Borrower fails to give notice pursuant to Section 1.5(a) above of the reborrowing of the principal amount of any maturing Borrowing or of a Borrowing equal to the amount of a Reimbursement Obligation and has not notified the Agent by 10:00 A.M. (Chicago time) on the day such Borrowing matures or such Reimbursement Obligation becomes due that it intends to repay such Borrowing or pay such Reimbursement Obligation through funds not borrowed under this Agreement, the Borrower shall be deemed to have requested a Borrowing of Domestic Rate Loans on such day in the amount of the maturing Borrowing of Loans or of the Reimbursement Obligation then due, subject to Section 6.2 hereof, which Borrowing shall be applied to pay the maturing Borrowing or the Reimbursement Obligation then due. (d) DISBURSEMENT OF LOANS. Not later than 12:00 noon (Chicago time) on the date of any Borrowing of Loans, each Bank shall make available its Loan in funds immediately available in Chicago, Illinois at the principal office of the Agent, except to the extent such Borrowing is a reborrowing, in whole or in part, of the principal amount of a maturing Borrowing of Loans (a "REFUNDING BORROWING"), in which case each Bank shall record the Loan made by it as a part of such Refunding Borrowing on its books and records or on a schedule to its appropriate Note, as provided in Section 1.10(b) hereof, and shall effect the repayment, in whole or in part, as appropriate, of its maturing Loan through the proceeds of such new Loan. Subject to Section 6 hereof, the Agent shall make the proceeds of each non-Refunding Borrowing available to the Borrower at the Agent's principal office in Chicago, Illinois. (e) AGENT RELIANCE ON BANK FUNDING. Unless the Agent shall have been notified by a Bank prior to (or, in the case of a Borrowing of Domestic Rate Loans, by 11:00 A.M. (Chicago time) on) the date on which such Bank is scheduled to make payment to the Agent of the proceeds of a Loan (which notice shall be effective upon receipt) that such Bank does not intend to make such payment, the Agent may assume that such Bank has made such -7- 13 payment when due and the Agent may in reliance upon such assumption (but shall not be required to) make available to the Borrower the proceeds of the Loan to be made by such Bank and, if any Bank has not in fact made such payment to the Agent, such Bank shall, on demand, pay to the Agent the amount made available to the Borrower attributable to such Bank together with interest thereon in respect of each day during the period commencing on the date such amount was made available to the Borrower and ending on (but excluding) the date such Bank pays such amount to the Agent at a rate per annum equal to the Federal Funds Rate. If such amount is not received from such Bank by the Agent immediately upon demand, the Borrower will, on demand, repay to the Agent the proceeds of the Loan attributable to such Bank with interest thereon at a rate per annum equal to the interest rate applicable to the relevant Loan, but without such payment being considered a payment or prepayment of a Loan, so that the Borrower will have no liability under Section 1.11 hereof with respect to such payment. SECTION 1.6. INTEREST PERIODS. As provided in Section 1.5(a) hereof, at the time of each request for the Borrowing of Eurodollar Loans hereunder the Borrower shall select an Interest Period applicable to such Loans from among the available options. The term "INTEREST PERIOD" means the period commencing on the date a Borrowing of Loans is made and ending on the date, (a) in the case of Domestic Rate Loans, that is the last day of the calendar quarter (i.e., March 31, June 30, September 30 or December 31) during which such Borrowing is made; and (b) in the case of Eurodollar Loans 1, 2, 3, 4, 5 or 6 (or, if each Bank confirms to the Agent it has available funding for Eurodollar Loans for such a period, 9 or 12) months thereafter; PROVIDED, HOWEVER, that: (a) any Interest Period for a Borrowing of Domestic Rate Loans commencing during the calendar quarter in which the Termination Date occurs shall end on the Termination Date; (b) with respect to any Borrowing of Eurodollar Loans, the Borrower may not select an Interest Period that extends beyond the Termination Date; (c) whenever the last day of any Interest Period would otherwise be a day that is not a Business Day, the last day of such Interest Period shall be extended to the next succeeding Business Day, PROVIDED THAT, in the case of an Interest Period for a Borrowing of Eurodollar Loans, if such extension would cause the last day of such Interest Period to occur in the following calendar month, the last day of such Interest Period shall be the immediately preceding Business Day; and (d) for purposes of determining the Interest Period for a Borrowing of Eurodollar Loans, a month means a period starting on one day in a calendar month and ending on the numerically corresponding day in the next calendar month; PROVIDED, HOWEVER, that if there is no numerically corresponding day in the month in which such an Interest Period is to end or if such an Interest Period begins on the last Business Day of a calendar month, then such Interest Period shall end on the last Business Day of the calendar month in which such Interest Period is to end. -8- 14 SECTION 1.7. MATURITY OF LOANS. Each Loan shall mature and become due and payable by the Borrower on the last day of the Interest Period applicable thereto or, if earlier, on the Termination Date. SECTION 1.8. OPTIONAL PREPAYMENTS. The Borrower shall have the privilege of prepaying without premium or penalty and in whole or in part (but, if in part, then: (i) in an amount not less than $1,000,000 for Domestic Rate Loans, and $5,000,000 for Eurodollar Loans, and in integral multiples of $100,000, and (ii) in an amount such that the minimum amount required pursuant to Section 1.4 hereof remains outstanding) any Borrowing of Loans at any time upon one (1) Business Day's (or, in the case of Eurodollar Loans, three (3) Business Days') prior notice (which shall be irrevocable) to the Agent (which shall advise each Bank thereof promptly thereafter), such prepayment to be made by the payment of the principal amount to be prepaid and accrued interest thereon to the date fixed for prepayment and, in the case of Eurodollar Loans, any compensation payable under Section 1.11 hereof. SECTION 1.9. DEFAULT RATE. If any payment of principal on any Loan is not made when due (whether by acceleration or otherwise), such Loan shall bear interest (computed on the basis of a year of 360 days and actual days elapsed) from the date such payment was due until paid in full, payable on demand, at a rate per annum equal to: (a) with respect to any Domestic Rate Loan, the sum of two percent (2%) per annum PLUS the Domestic Rate from time to time in effect; and (b) with respect to any Eurodollar Loan, the sum of two percent (2%) per annum PLUS the rate of interest in effect thereon at the time of such default until the end of the Interest Period applicable thereto and, thereafter, at a rate per annum equal to the sum of two percent (2%) per annum PLUS the Domestic Rate from time to time in effect; it being understood that the repayment of a maturing Borrowing with the proceeds of a Refunding Borrowing on the date such maturing Borrowing is due constitutes, to the extent of such Refunding Borrowing, payment of the maturing Borrowing when due. SECTION 1.10. THE NOTES. (a) The Loans made by a Bank shall be evidenced by a single promissory note of the Borrower in the form of Exhibit B hereto (each a "NOTE" and collectively the "NOTES"). Each such Note shall be dated the date of issuance, shall be payable to the order of the relevant Bank in the principal amount of its Commitment, and shall otherwise be in the form of Exhibit B hereto. (b) Each Bank shall record on its books and records or on a schedule to its Note the amount of each Loan made by it to the Borrower, the Interest Period thereof, all payments of principal and interest and the principal balance from time to time outstanding thereon, the type of such Loan and, if a Eurodollar Loan, the interest rate applicable thereto; PROVIDED THAT prior to the transfer of any Note all such amounts shall be recorded on a schedule to such Note. The record thereof, whether shown on such books and records of a Bank or on a -9- 15 schedule to any Note, shall be PRIMA FACIE evidence as to all such amounts; PROVIDED, HOWEVER, that the failure of any Bank to record any of the foregoing shall not limit or otherwise affect the obligation of the Borrower to repay all Loans made to it hereunder together with accrued interest thereon. At the request of any Bank and upon such Bank tendering to the Borrower the Note to be replaced, the Borrower shall furnish a new Note to such Bank to replace any outstanding Note and at such time the first notation appearing on a schedule on the reverse side of, or attached to, such Note shall set forth the aggregate unpaid principal amount of all Loans, if any, then outstanding thereon. SECTION 1.11. FUNDING INDEMNITY. In the event any Bank shall incur any loss, cost or expense (including, without limitation, any loss of profit and any loss, cost, expense or premium incurred by reason of the liquidation or re-employment of deposits or other funds acquired by such Bank to fund or maintain any Eurodollar Loan or the relending or reinvesting of such deposits or amounts paid or prepaid to such Bank) as a result of: (a) any payment or prepayment of a Eurodollar Loan on a date other than the last day of its Interest Period, (b) any failure (because of a failure to meet the conditions of Section 6 or otherwise) by the Borrower to borrow a Eurodollar Loan on the date specified in a notice given pursuant to Section 1.5(a) hereof, (c) any failure, for any reason, to prepay a Eurodollar Loan after giving notice thereof under Section 1.8 hereof, or (d) the occurrence of any Event of Default hereunder, then, upon the demand of such Bank, the Borrower shall pay to such Bank such amount as will reimburse such Bank for such loss, cost or expense. If any Bank makes such a claim for compensation, it shall provide to the Borrower a certificate executed by an officer of such Bank setting forth the amount of such loss, cost or expense in reasonable detail (including an explanation of the basis for and the computation of such loss, cost or expense), and the amounts shown on such certificate shall be conclusive and binding absent manifest error. SECTION 1.12. OPTIONAL COMMITMENT TERMINATIONS. The Borrower shall have the right at any time and from time to time, upon five (5) Business Days' prior written notice to the Agent, to terminate without premium or penalty, in whole or in part, the Commitments, any partial termination to be in an amount not less than $5,000,000 or any larger amount that is an integral multiple of $1,000,000 and to reduce ratably the respective Commitments of each Bank; provided that the Commitments may not be reduced to an amount less than the Revolving Obligations then outstanding. Any termination of Commitments pursuant to this Section 1.12 may not be reinstated. -10- 16 SECTION 2. FEES AND EXTENSIONS. SECTION 2.1. FEES. (a) REVOLVING CREDIT. For the period from the Effective Date to and including the Termination Date, the Borrower shall pay to the Agent for the ratable account of the Banks a commitment fee accruing at the rate of 0.25% per annum until the first Pricing Change Date and thereafter from one Pricing Change Date to the next a rate per annum (the "COMMITMENT FEE RATE"), determined in accordance with the schedule below (computed on a basis of a year of 365 or 366 days, as the case may be, and actual days elapsed) on the average daily unused amount of the Commitments, such fees being payable in arrears on March 31, 1994, on the last day of each calendar quarter thereafter and on the Termination Date, unless the Commitments are terminated in whole on an earlier date, in which event the commitment fee for the period to but not including the date of such termination shall be paid in whole on the date of such termination: Funded Debt to Cash Flow Ratio - ------------------------------ for such Pricing Change Date: Commitment Fee Rate: - ---------------------------- ------------------- 1. Less than 1.50 to 1.00 0.25% 2. 1.50 to 1.00 or greater, but equal to or less than 2.50 to 1.00 0.25% 3. Greater than 2.50 to 1.00 but equal to or less than 3.75 to 1.00 0.375% 4. Greater than 3.75 to 1.00 but equal to or less than 4.75 to 1.00 0.375% 5. Greater than 4.75 to 1.00 0.50% (b) LETTERS OF CREDIT. The Borrower shall pay to the Agent for the ratable benefit of the Banks a fee for each Letter of Credit at a rate per annum equal to the Eurodollar Margin in effect at the time payment of such fee is due applied to the face amount of such Letter of Credit, payable quarterly in advance on the date of issuance of the Letter of Credit (and separately on the date of any increase in the amount of the Letter of Credit for the amount of such increase) for the period from such date to the end of the calendar quarter in which such date falls and thereafter on the last day of such calendar quarter and of each subsequent calendar quarter, based on the scheduled expiration date of such Letter of Credit. (c) CLOSING. On the date hereof, the Borrower shall pay to the Agent a closing fee for the ratable benefit of the Banks equal to one-quarter of one percent (0.25%) of the original Commitments. (d) AGENT. The Borrower shall pay to the Agent the fees agreed to between the Agent and the Borrower. -11- 17 SECTION 2.2. EXTENSION OF TERMINATION DATE. Between April 1 and April 30, 1996 (and between April 1 and April 30 of each year thereafter before the Termination Date) the Borrower may request in a written notice to the Agent that the Termination Date then in effect be extended by one (1) year. The Agent will promptly inform the Banks of any such request and each Bank shall notify the Agent in writing by June 30 of the applicable year whether it agrees to such extension (each such Bank agreeing to such extension being a "CONSENTING BANK"). In the event that a Bank shall fail timely to so notify the Agent whether it agrees to such extension, such Bank shall be deemed to have refused to grant the requested extension. Upon receipt by the Agent of the consent of all the Banks by June 30 of the applicable year, the Termination Date shall be automatically extended an additional one (1) year. If the Required Banks consent to such extension but fewer than all the Banks so consent, and if the Borrower still desires to extend the Termination Date, it may seek to: (a) Reallocate the Commitments among the Consenting Banks, subject to the approval of each Consenting Bank whose Commitment would be increased by such reallocation; or (b) Substitute new Banks, subject to the approval of all the Consenting Banks, such substitution to take place in a manner and at a time reasonably established by the Borrower and the Agent. If the Borrowers and the relevant Banks do not agree pursuant to (a) or (b) above, the Termination Date shall take place as scheduled. SECTION 3. PLACE AND APPLICATION OF PAYMENTS. SECTION 3.1. PLACE AND APPLICATION OF PAYMENTS. All payments of principal of and interest on the Loans and the Reimbursement Obligations, and of all other amounts payable by the Borrower under this Agreement, shall be made by the Borrower to the Agent by no later than 12:00 noon (Chicago time) at the principal office of the Agent in Chicago, Illinois (or such other location in the State of Illinois as the Agent may designate to the Borrower) for the benefit of the Banks. All such payments shall be made in lawful money of the United States of America, in immediately available funds at the place of payment, without setoff or counterclaim. The Agent will promptly thereafter cause to be distributed like funds relating to the payment of fees and of principal or interest on Loans and on Reimbursement Obligations in which the Banks have purchased participating interests ratably to the Banks, and like funds relating to the payment of any other amount payable to any Bank (including the Issuing Bank) to such Person, in each case to be applied in accordance with the terms of this Agreement. SECTION 4. DEFINITIONS; INTERPRETATION. SECTION 4.1. DEFINITIONS. The following terms when used herein have the following meanings: -12- 18 "ADJUSTED CONSOLIDATED NET WORTH" means Consolidated Net Worth PLUS the Subordinated Debt Amount MINUS Redeemable Preferred Stock included in Consolidated Net Worth. "ADJUSTED LIBOR" is defined in Section 1.3(b) hereof. "AFFILIATE" means any Person (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, the Borrower, (ii) which beneficially owns 20% or more of any class of the Voting Stock of the Borrower or (iii) 20% or more of the Voting Stock of which is beneficially owned by the Borrower or a Subsidiary. The term "CONTROL" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of Voting Stock, by contract or otherwise. "AGENT" means Bank of Montreal and any successor pursuant to Section 10.8 hereof. "ALLIANCE DEBENTURES" means the Borrower's Convertible Subordinated Debentures, Series A and B, due July 30, 1999. "APPLICATION" is defined in Section 1.2(b) hereof. "AUTHORIZED REPRESENTATIVE" means the Chairman of the Board, the President, the Senior Vice President, any Vice President, the Controller or the Treasurer of the Borrower as shown on the list of officers provided by the Borrower pursuant to Section 6.1(d) hereof, or on any updated such list provided by the Borrower to the Agent, or any further or different officer of the Borrower so named by any Authorized Representative in a written notice to the Agent. "BANK" means each bank signatory hereto, including the Issuing Bank, and any assignee of a Bank pursuant to Section 9.3 or 11.12 hereof. "BORROWER" means The Allen Group Inc., a Delaware Corporation. "BORROWING" means the total of Loans of a single type made by one or more Banks to the Borrower on a single date and for a single Interest Period. Borrowings are made ratably from each of the Banks according to their Commitments. "BUSINESS DAY" means any day other than a Saturday or Sunday on which banks are not authorized or required to close in Chicago, Illinois or New York, New York and, if the applicable Business Day relates to the borrowing or payment of a Eurodollar Loan, on which banks are dealing in United States Dollar deposits in the interbank market in London, England. "CAPITAL LEASE" means any lease of Property which in accordance with GAAP would be required to be capitalized on the balance sheet of the lessee. -13- 19 "CAPITALIZED COSTS OF MARTA PROJECT" means, for any MARTA Project, the greater of the budgeted and actual construction costs of MARTA for such project. "CAPITALIZED LEASE OBLIGATIONS" means for any Person the amount of the liability as shown on the balance sheet of such Person in respect of Capital Leases as determined at any date in accordance with GAAP. "CHANGE OF CONTROL" is defined in Section 8.1(l) hereof. "CO-AGENT" means Continental Bank N.A. "CODE" means the Internal Revenue Code of 1986, as amended. "COMMITMENTS" is defined in Section 1.1 hereof. "COMPLETION GUARANTY" means any Guaranty from the Borrower or any Subsidiary (other than MARTA) covering a performance obligation of MARTA to complete a MARTA Project (but not if such Guaranty covers the repayment of Debt), whether such Guaranty is limited or unlimited in amount and whether such Guaranty is provided to a governmental entity, a lender, a surety, or other Person; PROVIDED THAT if any such Guaranty survives acceptance of the relevant MARTA Project it shall not be considered a Completion Guaranty at any time it so remains in effect following acceptance of the relevant MARTA Project by the appropriate governmental or other public entity for which such MARTA Project is constructed. "COMPLIANCE CERTIFICATE" means a certificate in the form of Exhibit D hereto delivered by the Borrower pursuant to Section 7.6(a) hereof. "CONSENTING BANK" is defined in Section 2.2 hereof. "CONSOLIDATED CASH FLOW" means, for any fiscal quarter of the Borrower and its Subsidiaries (except MARTA), their consolidated net income (including cash dividends actually received from earnings of MARTA) MINUS (A) "EXTRAORDINARY" and "UNUSUAL OR NON-RECURRING" gains, PLUS (B) "EXTRAORDINARY" and "UNUSUAL OR NON-RECURRING" losses, PLUS (C) depreciation expense, PLUS (D) non-cash amortization expense, all determined in accordance with GAAP for the four fiscal quarter period of the Borrower and its Subsidiaries ending with such fiscal quarter. It is understood that gains or losses properly classified under GAAP as resulting from discontinued operations are not "EXTRAORDINARY" or "UNUSUAL OR NON-RECURRING". "CONSOLIDATED FUNDED DEBT" means, at any time, all then outstanding Debt of the Borrower and its Subsidiaries (except MARTA, but without limiting the application of clauses (vi) and (vii) of the definition of Debt) determined, without duplication, on a consolidated basis PLUS the lesser of (x) 30% of the amount by which the aggregate Capitalized Costs of MARTA Projects supported by Completion Guaranties exceeds $200,000,000 and (y) the maximum dollar liability under such Completion Guaranties on -14- 20 MARTA Projects with capitalized costs in excess of $200,000,000. To the extent Debt of MARTA financing a MARTA Project is included in Consolidated Funded Debt because such Debt is supported by a Guaranty other than merely a Completion Guaranty, any Completion Guaranty for such MARTA Project will not be included in the computation required by clauses (x) and (y) of this definition. "CONSOLIDATED NET WORTH" means the excess of total assets of the Borrower and its Subsidiaries on a consolidated basis over total liabilities of the Borrower and its Subsidiaries on a consolidated basis, total assets and total liabilities each to be determined in accordance with GAAP. "CONSOLIDATED TANGIBLE NET WORTH" means Consolidated Net Worth MINUS (to the extent included in such amount) all Redeemable Preferred Stock MINUS all assets which would be classified as intangible assets under GAAP. "CONTINGENT OBLIGATIONS" means, as to any Person, all obligations of such Person on or with respect to Guaranties, and all other obligations of such Person that are not Debt but that must be disclosed in the financial statements of such Person as to amount in accordance with GAAP; PROVIDED, HOWEVER, that Contingent Obligations of the Borrower and its Subsidiaries that are Completion Guaranties or that are Guaranties of Debt of MARTA shall not be considered Contingent Obligations hereunder. "CONTRACTUAL OBLIGATIONS" 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. "CREDIT DOCUMENTS" means this Agreement, the Notes, the Applications and the Letters of Credit. "CREDIT EVENT" means the making of any Loan or the issuance of, or extension of the expiration date or increase in the amount of, any Letter of Credit. "DEBT" means, for the Borrower and each Subsidiary, all (i) obligations of such Person for borrowed money, (ii) obligations of such Person representing the deferred purchase price of property or services other than accounts payable arising in the ordinary course of business on terms customary in the trade, (iii) obligations of such Person evidenced by bonds, debentures, notes, acceptances, or other similar instruments, (iv) Capitalized Lease Obligations of such Person, (v) obligations of the type described in clauses (i)-(iv) above secured by Liens or payable out of the proceeds or production from Property now or hereafter owned or acquired by such Person, whether or not assumed by such Person, (vi) obligations of MARTA of the type described in clauses (i)-(v) above (or the portion thereof) for which such Person (other than MARTA) is obligated pursuant to a Guaranty other than a Completion Guaranty, and (vii) obligations of such Person (other than MARTA) to reimburse or otherwise indemnify issuers of letters of credit or surety bonds (or equivalent third party instruments) issued to guaranty performance obligations of MARTA in connection with MARTA Projects (other than Completion Guaranties). To the -15- 21 extent Debt of MARTA is included in clause (vi) of this definition and the MARTA Project financed by such Debt is subject to an obligation described in clause (vii), to avoid duplication only the larger of such amounts under clauses (vi) and (vii) will be included as Debt. "DEFAULT" means any event or condition the occurrence of which would, with the passage of time or the giving of notice, or both, constitute an Event of Default. "DOMESTIC RATE" is defined in Section 1.3(a) hereof. "DOMESTIC RATE LOAN" means a Loan bearing interest prior to maturity at the rate specified in Section 1.3(a) hereof. "EFFECTIVE DATE" MEANS the date on which the Agent has received signed counterpart signature pages of this Agreement from each of the signatories (or, in the case of a Bank, confirmation that such Bank has executed such a counterpart and dispatched it for delivery to the Agent) and the documents required by Section 6.1 hereof. "ERISA" is defined in Section 5.9 hereof. "ERISA AFFILIATE" means each member of a controlled group of corporations and each trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414 of the Code, and the regulations promulgated and rulings issued thereunder. "EURODOLLAR LOAN" means a Loan bearing interest prior to maturity at the rate specified in Section 1.3(b) hereof. "EURODOLLAR MARGIN" is defined in Section 1.3(b) hereof. "EURODOLLAR RESERVE PERCENTAGE" is defined in Section 1.3(b) hereof. "EVENT OF DEFAULT" means any of the events or circumstances specified in Section 8.1 hereof. "FEDERAL FUNDS RATE" means the fluctuating interest rate per annum described in part (x) of clause (ii) of the definition of Domestic Rate in Section 1.3(a) hereof. "FUNDED DEBT TO CASH FLOW RATIO" MEANS, at any time, the ratio of Consolidated Funded Debt to Consolidated Cash Flow as of the last day of the then most recently completed fiscal quarter of the Borrower and its Subsidiaries. "GAAP" means generally accepted accounting principles from time to time in effect, applied in a manner consistent with those used in the preparation of the financial statements of the Borrower for the fiscal quarter ending September 30, 1992, as those practices will be -16- 22 revised, if at all, for the audited financial statements of the Borrower for fiscal year 1993 as described to the Banks by the Borrower before the date hereof. "GUARANTY" by any Person shall mean all obligations (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any Indebtedness, dividend or other obligation (including, without limitation, limited or full recourse obligations in connection with sales of receivables or any other Property) of any other Person (the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including, without limitation, all obligations in connection with letters of credit, surety bonds, or similar instruments issued for the account of such Person or for which such Person is otherwise liable and all obligations incurred through an agreement, contingent or otherwise, by such Person: (i) to purchase such Indebtedness or obligation or any Property or assets constituting security therefor, (ii) to advance or supply funds (x) for the purchase or payment of such Indebtedness or obligation, (y) to maintain working capital or other balance sheet condition or otherwise to advance or make available funds for the purchase or payment of such Indebtedness or obligation, or (iii) to lease property or to purchase Securities or other property or services primarily for the purpose of assuring the owner of such Indebtedness or obligation of the ability of the primary obligor to make payment of the Indebtedness or obligation, or (iv) otherwise to assure the owner of the Indebtedness or obligation of the primary obligor against loss in respect thereof. For the purpose of all computations made under this Agreement, the amount of a Guaranty in respect of any obligation shall be deemed to be equal to the maximum aggregate amount of such obligation or, if the Guaranty is limited to less than the full amount of such obligation, the maximum aggregate potential liability under the terms of the Guaranty. "INDEBTEDNESS" means, and includes, as to any Person, all obligations of such Person which are required by GAAP to be shown as liabilities on its balance sheet. "INTEREST COVERAGE RATIO" means, for any fiscal period of the Borrower and its Subsidiaries (except MARTA), the ratio, calculated without duplication, of (i) their consolidated net income during such period (excluding "EXTRAORDINARY" and "UNUSUAL OR NON-RECURRING" gains and losses) determined in accordance with GAAP plus (A) income tax expense (or minus any income tax credit), whether current or deferred, to the extent deducted from (or added to) income before taxes in determining consolidated net income for such period, and (B) interest expense deducted from consolidated net income for such period, to (ii) the sum of (y) interest expense and (z) dividends paid or accrued on preferred stock for such period, all as determined in accordance with GAAP for such fiscal period but excluding all income and expense of MARTA except any such income actually received or expense actually paid by the Borrower or a Subsidiary other than MARTA. "INTEREST PERIOD" is defined in Section 1.6 hereof. "ISSUING BANK" is defined in Section 1.2(a) hereof and shall include any assignee of the Issuing Bank that assumes the Issuing Bank's obligations and rights hereunder. -17- 23 "L/C DOCUMENTS" means the Letters of Credit, any draft or other document presented in connection with a drawing thereunder, the Applications and this Agreement. "L/C OBLIGATIONS" means the undrawn face amounts of all outstanding Letters of Credit and all unpaid Reimbursement Obligations. "LENDING OFFICE" is defined in Section 9.4 hereof. "LETTER OF CREDIT" is defined in Section 1.2(a) hereof. "LIBOR" is defined in Section 1.3(b) hereof. "LIEN" means any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on the common law, statute or contract, including, but not limited to, the security interest lien arising from a mortgage, encumbrance, pledge, conditional sale, security agreement or trust receipt, or a lease, consignment or bailment for security purposes. The term "LIEN" shall also include reservations, exceptions, encroachments, easements, rights of way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting Property. For the purposes of this definition, the Borrower shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement, Capital Lease or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes, and such retention of title shall constitute a "LIEN." "LOAN" is defined in Section 1.1 hereof and, as so defined, includes a Domestic Rate Loan or Eurodollar Loan, each of which is a "TYPE" of Loan hereunder. "MARTA" means MARTA Technologies, Inc., its Subsidiaries, and any other Affiliate of the Borrower that engages in the business of constructing, maintaining or operating vehicle emissions test sites or the business of contracting to provide such services directly or indirectly through subcontractors. "MARTA PROJECT" means a vehicle emissions test site or a series of such sites that MARTA constructs or operates or contracts to construct or operate directly or indirectly through contractors. "1990 CREDIT AGREEMENT" means the Credit Agreement dated as of February 28, 1990 among The Allen Group Inc., The Allen Group Leasing Corp., the Banks party thereto, and Harris Trust and Savings Bank and Continental Bank N.A., as Co-Agents, as amended. "NOTE" is defined in Section 1.10(a) hereof. "OBLIGATIONS" means all fees payable hereunder, all obligations of the Borrower to pay principal or interest on Loans and Reimbursement Obligations, and all other obligations of the Borrower arising under or in relation to any Credit Document. -18- 24 "PARTICIPATING BANK" is defined in Section 1.2(d) hereof. "PERCENTAGE" is defined in Section 1.1 hereof. "PERSON" means an individual, partnership, corporation, association, trust, unincorporated organization or any other entity or organization, including a government or agency or political subdivision thereof. "PLAN" means at any time an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and is either (i) maintained by an ERISA Affiliate for employees of such ERISA Affiliate or (ii) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which an ERISA Affiliate is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions. "PBGC" is defined in Section 5.9 hereof. "PRICING CHANGE DATE" means, for any fiscal quarter of the Borrower ended after the date hereof, the latest date by which the Borrower is required to deliver a Compliance Certificate for such fiscal quarter pursuant to Section 7.6(a). The Eurodollar Margin and the Commitment Fee Rate established on a Pricing Change Date shall remain in effect until the next Pricing Change Date. If the Borrower has not delivered a Compliance Certificate by the date such Compliance Certificate is required to be delivered under Section 7.6(a), until a Compliance Certificate is delivered before the next Pricing Change Date, the Eurodollar Margin shall be 1.50% per annum and the Commitment Fee Rate shall be 0.50% per annum. If the Borrower subsequently delivers such a Compliance Certificate before the next Pricing Change Date, the Eurodollar Margin and Commitment Fee Rate established by such late delivered Compliance Certificate shall take effect from the date of delivery until the next Pricing Change Date. In all other circumstances, the Eurodollar Margin and Commitment Fee Rate established by a Compliance Certificate shall be in effect from the Pricing Change Date that occurs immediately after the end of the Borrower's fiscal quarter covered by such Compliance Certificate until the next Pricing Change Date. "PROJECT FINANCING" means financing provided for a MARTA Project by any lender under which neither the Borrower nor any Affiliate of the Borrower other than MARTA guaranties to such lender, directly or indirectly, more than 20% of the Debt financing, or the operation risk of, such MARTA Project. "PROPERTY" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible, whether now owned or hereafter acquired. "REDEEMABLE PREFERRED STOCK" means preferred stock of the Borrower and its Subsidiaries (other than MARTA) that the holder can require be redeemed (it being understood that a right solely to convert preferred stock into common stock is not a redemption right). -19- 25 "REFUNDING BORROWING" means any Borrowing of Loans that refunds in whole or in part outstanding Loans at their maturity and does not increase the aggregate outstanding amount of Loans as further defined in Section 1.5(d) hereof. "REIMBURSEMENT OBLIGATION" is defined in Section 1.2(c) hereof. "REQUIRED BANKS" means, as of the date of determination thereof, either (i) Banks holding at least 65% of the Commitments or, if the Commitments have been terminated in whole, Banks holding at least 65% in aggregate principal amount of the Loans and L/C Obligations (calculated after giving effect to each Participating Bank's Percentage participation therein) outstanding hereunder. "REQUIREMENT OF LAW" means, as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other governmental authority, in each case applicable to or binding upon such Person or any of its Property or to which such Person or any of its Property is subject. "RESTRICTED INVESTMENT" means, for the Borrower and each of its Subsidiaries, any investment in any other Person, computed in accordance with GAAP, made by stock purchase, capital contribution, loan, advance, extension of credit, acquisition of property, but not the creation or assumption of any Contingent Obligation in respect of any obligation of such other Person; PROVIDED, HOWEVER, that investments of the Borrower or Subsidiaries in Wholly-Owned Subsidiaries (including investments in a Person that, after giving effect to such investments, is a Wholly-Owned Subsidiary) other than MARTA and investments of Subsidiaries in the Borrower shall not be Restricted Investments, and PROVIDED FURTHER that the following investments shall not be Restricted Investments: (i) investments by the Borrower or any Subsidiary in commercial paper or similar short term obligations (including tax exempt securities) maturing in 270 days or less from the date of acquisition which, at the time of acquisition by the Borrower or Subsidiary, is accorded one of the two highest ratings (without regard to gradations, such as "+" or "-", within a single ratings category) available from Standard & Poor's Corporation, Moody's Investors Service, Inc. or any other nationally recognized credit rating agency of similar standing providing similar ratings; (ii) investments by the Borrower or any Subsidiary in direct obligations of the Dominion of Canada or the United States of America, or any agency thereof, maturing in five years or less from the date of acquisition thereof; (iii) investments by the Borrower or any Subsidiary in certificates of deposit maturing within five years from the date of origin and bankers' acceptances maturing within 180 days from the date of origin, in each case issued by a Bank hereunder or any bank or trust company organized under the laws of Canada or the United States or -20- 26 any state thereof having capital, surplus and undivided profits aggregating at least $100,000,000; (iv) investments by the Borrower or any Subsidiary consisting of purchases of participation interests from banks described in item (iii) of this definition in notes maturing in 270 days or less from the date of issuance issued by corporations or other entities whose short-term debt, at the time of acquisition of the participation by the Borrower or Subsidiary, is accorded one of the two highest ratings available from Standard & Poor's Corporation, Moody's Investors Service, Inc. or any other nationally recognized credit rating agency of similar standing providing similar ratings; (v) loans or advances (not to exceed $2,000,000 in the aggregate outstanding) in the usual and ordinary course of business to officers, directors and employees for expenses (including moving expenses related to a transfer) incidental to carrying on the business of the Borrower or any Subsidiary; and (vi) receivables arising from the sale of goods and services in the ordinary course of business of the Borrower and its Subsidiaries. "REVOLVING OBLIGATIONS" means, at any time, the sum of the principal amount of all then outstanding Revolving Loans and L/C Obligations. "SEC" means the Securities and Exchange Commission. "SECURITY" has the same meaning as in Section 2(l) of the Securities Act of 1933, as amended. "SET-OFF" is defined in Section 11.7 hereof. "SUBORDINATED DEBT" means the Alliance Debentures in an aggregate principal outstanding amount not exceeding $5,000,000 and any other Debt of the Borrower that has been subordinated to all Indebtedness under the Credit Documents on terms and conditions (including covenants and acceleration or mandatory prepayment provisions) acceptable to the Required Banks. "SUBORDINATED DEBT AMOUNT" means, at any time, the aggregate principal amount of outstanding Subordinated Debt up to an amount equal to 25% of Consolidated Net Worth. "SUBSIDIARY" means, as to the Borrower, any corporation or other entity of which more than fifty percent (50%) of the outstanding stock or comparable equity interests having ordinary voting power for the election of the Board of Directors of such corporation or similar governing body in the case of a non-corporation (irrespective of whether or not, at the time, stock or other equity interests of any other class or classes of such corporation or other entity shall have or might have voting power by reason of the happening of any -21- 27 contingency) is at the time directly or indirectly owned by the Borrower or by one or more of its Subsidiaries, or by the Borrower and one or more of its Subsidiaries. "SUBSTITUTE BANK" is defined in Section 9.3(d) hereof. "TERMINATION DATE" means July 1, 1997. "UNFUNDED VESTED LIABILITIES" means, with respect to any Plan at any time, the amount (if any) by which (i) the present value of all vested nonforfeitable accrued benefits under such Plan exceeds (ii) the fair market value of all Plan assets allocable to such benefits, all determined in accordance with the actuarial assumptions used by the actuary for each Plan as of the then most recent actuarial valuation date for such Plan, but only to the extent that such excess represents a potential liability of the Borrower or any ERISA Affiliate to the PBGC or the Plan under Title IV of ERISA. "U.S. TAX RETURNS" is defined in Section 5.7 hereof. "VOTING STOCK" of any Person means capital stock of any class or classes or other equity interests (however designated) having ordinary voting power for the election of directors or equivalent governing body of such Person, other than stock or other equity interests having such power only by reason of the happening of a contingency. "WELFARE PLAN" means a "WELFARE PLAN", as defined in Section 3(1) of ERISA. "WHOLLY-OWNED" when used in connection with any Subsidiary of the Borrower means a Subsidiary of which all of the issued and outstanding shares of stock or other equity interests (other than directors' qualifying shares as required by law) shall be owned by the Borrower and/or one or more of its Subsidiaries. SECTION 4.2. INTERPRETATION. The foregoing definitions shall be equally applicable to both the singular and plural forms of the terms defined. All references to times of day shall be references to Chicago, Illinois time unless otherwise specifically provided. Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made for the purposes of this Agreement, it shall be done in accordance with GAAP as in effect from time to time, except where such principles are inconsistent with specific provisions of this Agreement; PROVIDED THAT, if (within six months after the application of such a change in GAAP) the Borrower notifies the Agent that the Borrower wishes to amend any provision hereof to eliminate the effect of any change after the date hereof in GAAP (including its generally accepted application or interpretation) on the operation of a provision of this Agreement (or if the Agent notifies the Borrower within such six month period that the Required Banks wish to amend any provision for such purpose), then such provision shall be interpreted and the Borrower's compliance with and performance under such provision shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such provision is amended in a manner satisfactory to the Borrower and the Required Banks. -22- 28 SECTION 5. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to each Bank as follows: SECTION 5.1. CORPORATE ORGANIZATION AND AUTHORITY. The Borrower is duly organized and existing in good standing under the laws of the State of its incorporation; has all necessary corporate power to carry on its present business; and is duly licensed or qualified and in good standing in each jurisdiction in which the nature of the business transacted by it or the nature of the Property owned or leased by it makes such licensing or qualification necessary and in which the failure to be so licensed or qualified would materially and adversely affect its business, properties or operations. SECTION 5.2. SUBSIDIARIES. As of the date hereof, the only Subsidiaries of the Borrower are designated in Schedule I hereto; each Subsidiary is duly organized and existing in good standing under the laws of the jurisdiction in which it was incorporated, has all necessary corporate power to carry on its present business, and is duly licensed or qualified and in good standing in each jurisdiction in which the nature of the business transacted by it or the nature of the Property owned or leased by it makes such licensing or qualification necessary and in which the failure to be so licensed or qualified would have a material adverse effect on the financial condition, or the Property, business or operations, of the Borrower and its Subsidiaries taken as a whole. Schedule I hereto, as it may be updated from time to time pursuant to Section 7.6(a) hereof, correctly sets forth, as to each Subsidiary, whether or not it is a consolidated Subsidiary, the jurisdiction of its incorporation, the percentage of issued and outstanding shares of each class of its capital stock owned by the Borrower and its Subsidiaries and, if such percentage is not 100% (excluding directors' qualifying shares as required by law), a description of each class of its authorized capital stock and the number of shares of each class issued and outstanding. All of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and outstanding and fully paid and nonassessable and all such shares indicated in Schedule I as owned by the Borrower or a Subsidiary are owned, beneficially and of record, by the Borrower or such Subsidiary, free of any Lien. SECTION 5.3. CORPORATE AUTHORITY AND VALIDITY OF OBLIGATIONS. The Borrower has full right and authority to enter into the Credit Documents, to make the borrowings herein provided for, to issue its Notes in evidence thereof, to apply for the issuance of the Letters of Credit and to perform all of its obligations under the Credit Documents; each Credit Document delivered by the Borrower has been duly authorized, executed and delivered by the Borrower and constitutes valid and binding obligations of the Borrower enforceable in accordance with its terms; and no Credit Document, nor the performance or observance by the Borrower or any Subsidiary of any of the matters or things therein provided for, contravenes any provision of law or any charter or by-law provision of the Borrower or any Subsidiary or (individually or in the aggregate) any material covenant, indenture or agreement of or affecting the Borrower or any Subsidiary or a substantial portion of their respective Properties or results in or requires the creation or imposition of any Lien on any of the Borrower's Properties or revenues. -23- 29 SECTION 5.4. FINANCIAL STATEMENTS. All public financial statements showing historical performance of the Borrower heretofore delivered to the Banks have been prepared in accordance with GAAP applied on a basis consistent, except as otherwise noted therein, with that of the previous fiscal year, and fairly present on a consolidated basis the financial position of the Borrower as of the dates thereof, and the results of operations for the periods covered thereby. The Borrower and its Subsidiaries have no material contingent liabilities other than those disclosed in such financial statements referred to in this Section or in comments or footnotes thereto or in any supplemental report thereto heretofore furnished to the Banks. SECTION 5.5. NO MATERIAL ADVERSE CHANGE. There has been no material adverse change in the financial condition or business prospects of the Borrower and its Subsidiaries on a consolidated basis since September 30, 1993. SECTION 5.6. NO LITIGATION. There is no litigation or governmental proceeding pending, or to the knowledge of the Borrower threatened, against the Borrower or any Subsidiary of the Borrower that has any reasonable possibility of success which, if adversely determined, would (individually or in the aggregate) materially adversely affect the financial condition, operations, business, or properties of the Borrower and its Subsidiaries on a consolidated basis. SECTION 5.7. TAXES. The United States Federal income tax returns of the Borrower and its Subsidiaries ("U.S. TAX RETURNS") for the fiscal year ended December 31, 1980, and for all fiscal years ended prior to said date, have been examined by the Internal Revenue Service ("IRS") and have been approved as filed, or any additional assessments in connection with any of such years have been paid. The Borrower has filed U.S. Tax Returns for each fiscal year through December 31, 1992, and no audits of the U.S. Tax Returns for any fiscal year ended after December 31, 1980 are pending, nor to the knowledge of the Borrower is any objection or controversy threatened. SECTION 5.8. APPROVALS. No authorization, consent, license, exemption or filing or registration with any court or governmental department, agency or instrumentality, or any approval or consent of the stockholders of the Borrower or from any other Person, is necessary to the valid execution, delivery or performance by the Borrower of any Credit Document. SECTION 5.9. ERISA. The Borrower and each ERISA Affiliate has fulfilled its obligations under the minimum funding standards of and is in compliance in all material respects with the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and with the Code to the extent applicable to it and has not incurred any liability to the Pension Benefit Guaranty Corporation ("PBGC") or a Plan under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. Neither the Borrower nor any Subsidiary has any material contingent liability with respect to any post-retirement benefits under a Welfare Plan, other than liability for continuation coverage described in Part 6 of Title I of ERISA except as disclosed in the consolidated financial statements of the Borrower for the fiscal year ended December 31, 1992. -24- 30 SECTION 5.10. NOT AN INVESTMENT COMPANY. The Borrower is not an "INVESTMENT COMPANY" as defined in the Investment Company Act of 1940, as amended. SECTION 5.11. MARGIN STOCK. Neither the Borrower nor any of its Subsidiaries is engaged principally, or as one of its primary activities, in the business of extending credit for the purpose of purchasing or carrying margin stock ("MARGIN STOCK" to have the same meaning herein as in Regulation U of the Board of Governors of the Federal Reserve System). Neither the Borrower nor any of its Subsidiaries will use the proceeds of any Loan in a manner that violates any provision of Regulations G, U, or X of the Board of Governors of the Federal Reserve System. SECTION 5.12. COMPLIANCE WITH ENVIRONMENTAL LAWS. (a) To the best of the Borrower's knowledge, the business and operations of the Borrower and its Subsidiaries comply in all respects with all applicable federal, state, regional, county and local laws, statutes, rules, regulations and ordinances relating to public health, safety or the environment, including, without limitation, relating to releases, discharges, emissions or disposals to air, water, land or groundwater, to the withdrawal or use of groundwater, to the use, handling or disposal of polychlorinated biphenyls (PCBs), asbestos or urea formaldehyde, to the treatment, storage, disposal or management of hazardous substances (including, without limitation, petroleum, its derivatives by-products or other hydrocarbons), to exposure to toxic, hazardous, or other controlled, prohibited or regulated substances, to the transportation, storage, disposal, management or release of gaseous or liquid substances, and any regulation, order, injunction, judgment, declaration, notice or demand issued thereunder, except where the failure to so comply would not (individually or in the aggregate) have a material adverse effect on the Property, business or operations of the Borrower and its Subsidiaries taken as a whole. (b) Except as set forth on Schedule II hereto (as updated pursuant to Section 7.14(b) and with this representation remaining true so long as all such updated information is delivered by the time required by Section 7.14(b)), neither the Borrower nor any Subsidiary has given, nor is it required to give, nor has it received, any notice, letter, citation, order, warning, complaint, inquiry, claim or demand to or from any governmental entity or in connection with any court proceeding that: (i) the Borrower or any Subsidiary has violated, or is about to violate, any federal, state, regional, county or local environmental, health or safety statute, law, rule, regulation, ordinance, judgment or order; (ii) there has been a release, or there is a threat of release, of hazardous substances (including, without limitation, petroleum, its by-products or derivatives, or other hydrocarbons) from the Borrower's or any Subsidiary's property, facilities, equipment or vehicles; (iii) the Borrower or any Subsidiary may be or is liable, in whole or in part, for the costs of cleaning up, remediating or responding to a release of hazardous substances (including, without limitation, petroleum, its by-products or derivatives, or other hydrocarbons); or (iv) any of the Borrower's or any Subsidiary's property or assets are subject to a Lien in favor of any governmental entity for any liability, costs or damages, under any federal, state or local environmental law, rule or regulation arising from, or costs incurred by such governmental entity in response to, a release of a hazardous substance -25- 31 (including, without limitation, petroleum, its by-products or derivatives, or other hydrocarbons). SECTION 5.13. OWNERSHIP OF PROPERTY; LIENS. The Borrower and its Subsidiaries have good record and marketable title in fee simple to or valid leasehold interests in all its real property, and good title to or valid leasehold interests in all its other property, and none of such property is subject to any Lien, except as permitted in Section 7.9. SECTION 5.14. NO BURDENSOME RESTRICTIONS. Neither the Borrower nor any Subsidiary is party to or subject to any law, regulation, rule or order, or any Contractual Obligation that (individually or in the aggregate) materially adversely affects, or insofar as the Borrower may reasonably foresee may so affect, the business, operations, Property or financial condition of the Borrower and its Subsidiaries taken as a whole. SECTION 5.15. LONG TERM DEBT. As of the date hereof, all Debt of the Borrower and its Subsidiaries with a remaining scheduled maturity of more than one (1) year is listed on Schedule III hereto. SECTION 6. CONDITIONS PRECEDENT. The obligation of each Bank to make any Loan hereunder, or of the Issuing Bank to issue, extend the expiration date or increase the amount, of any Letter of Credit, shall be subject to the following conditions precedent: SECTION 6.1. INITIAL CREDIT EVENT. Prior to the first Credit Event hereunder: (a) The Agent shall have received for each Bank the favorable written opinion of McDara P. Folan, III, Secretary and General Counsel of Allen Group, in substantially the form attached hereto as Exhibit C, and otherwise in form and substance satisfactory to the Banks; (b) The Agent shall have received for each Bank copies (executed or certified as may be appropriate) of all legal documents or proceedings taken in connection with the execution and delivery of this Agreement and the Notes to the extent the Agent or the Required Banks may reasonably request; (c) The Agent shall have received for the Banks copies of the Borrower's Articles of Incorporation and bylaws, certified by the Borrower's Secretary or Assistant Secretary; (d) The Agent shall have received from the Borrower a list of its Authorized Representatives and certified resolutions of its Board of Directors authorizing the execution and delivery of the Credit Documents and the consummation of the transactions contemplated thereby, together with a certification of the incumbency and specimen signatures of each of the officers of the Borrower executing Credit Documents on its behalf; and -26- 32 (e) The 1990 Credit Agreement shall have been terminated and all outstanding Indebtedness thereunder shall have been paid in full. SECTION 6.2. ALL CREDIT EVENTS. As of the time of each Credit Event hereunder (including the initial Credit Event): (a) In the case of a Borrowing, the Agent shall have received for the account of each Bank its Note and the notice required by Section 1.5 hereof and in the case of the issuance of any Letter of Credit the Issuing Bank shall have received a duly completed Application for a Letter of Credit and, in the case of an extension or increase in the amount of a Letter of Credit, a written request therefor, in a form acceptable to the Issuing Bank; (b) Each of the representations and warranties of the Borrower set forth in Section 5 hereof (except, in the case of a Refunding Borrowing only, for the representation and warranty appearing in Section 5.5 hereof) shall be and remain true and correct in all material respects as of said time, except to the extent that any such representation or warranty relates solely to an earlier date; (c) The Borrower shall be in full compliance with all of the terms and conditions hereof, and no Default or Event of Default shall have occurred and be continuing or would occur as a result of such Credit Event; (d) The aggregate outstanding principal amount of Revolving Obligations, after giving effect to the proposed Credit Event, shall not exceed the Commitments then in effect; (e) In the case of the issuance of, or the increase in the amount of, a Letter of Credit the aggregate undrawn face amount of all outstanding Letters of Credit after giving effect to such proposed Credit Event shall not exceed $20,000,000; and (f) Such Credit Event shall not violate any order, judgment or decree of any court or other authority or any provision of law or regulation applicable to any Bank (including, without limitation, Regulation U of the Board of Governors of the Federal Reserve System) as then in effect. Each request for a Borrowing hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing as to the facts specified in paragraphs (b), (c), (d) and (e) of this Section 6.2. SECTION 7. COVENANTS. The Borrower covenants and agrees that, so long as any Note, any Letter of Credit or any Reimbursement Obligation is outstanding hereunder or any credit is available to or in use by the Borrower hereunder, except to the extent compliance in any case is waived in writing by the Required Banks: -27- 33 SECTION 7.1. CORPORATE EXISTENCE. The Borrower shall, and shall cause each of its Subsidiaries to, preserve and maintain its corporate existence, subject to the provisions of Section 7.13 hereof. SECTION 7.2. MAINTENANCE. The Borrower will maintain, preserve and keep its plants, properties and equipment deemed by it necessary to the proper conduct of its business in reasonably good repair, working order and condition and will from time to time make all reasonably necessary repairs, renewals, replacements, additions and betterments thereto so that at all times such plants, properties and equipment shall be reasonably preserved and maintained, and will cause each Subsidiary so to do in respect of Property owned or used by it; PROVIDED, HOWEVER, that nothing in this Section shall prevent the Borrower or a Subsidiary from discontinuing the operation or maintenance of any such properties if such discontinuance is, in the judgment of the Borrower, desirable in the conduct of its business or the business of the Subsidiary and not disadvantageous to the Banks or the holders of the Notes. SECTION 7.3. TAXES. The Borrower will duly pay and discharge, and will cause each Subsidiary to pay and discharge, all taxes, rates, assessments, fees and governmental charges upon or against the Borrower or such Subsidiary or against their respective Properties, in each case before the same becomes delinquent and before penalties accrue thereon, unless and to the extent that the same is being contested in good faith and by appropriate proceedings and reserves in conformity with GAAP have been provided therefor on the books of the Borrower or such Subsidiary, as the case may be. SECTION 7.4. ERISA. The Borrower will, and will cause each ERISA Affiliate to, promptly pay and discharge all obligations and liabilities arising under ERISA of a character which if unpaid or unperformed might result in the imposition of a Lien against any of its properties or assets and will promptly notify the Agent of (i) the occurrence of any reportable event (as defined in ERISA) with respect to a Plan, other than any such event of which the PBGC has waived notice by regulation, (ii) receipt of any notice from PBGC of its intention to seek termination of any Plan or appointment of a trustee therefor, (iii) its or any Subsidiary's intention to terminate or withdraw from any Plan, and (iv) the occurrence of any event with respect to any Plan which could result in the incurrence by the Borrower or any Subsidiary of any material liability, fine or penalty, or any material increase in the contingent liability of the Borrower or any Subsidiary with respect to any post-retirement Welfare Plan benefit; provided that for items described in clause (i)-(iii) above that affect multiemployer plans (I.E. those described in clause (ii) of the definition of Plan) that are immaterial to the Borrower and its ERISA Affiliates the Borrower need only notify the Agent of such events on an annual basis at the time it delivers the financial statements required to be delivered pursuant to Section 7.6(a)(ii) hereof. SECTION 7.5. INSURANCE. The Borrower will insure, and keep insured, and will cause each Subsidiary to insure, and keep insured, in good and responsible insurance companies, all insurable Property owned by it which is of a character usually insured by companies similarly situated and operating like Property; and to the extent usually insured (subject to self-insured retentions) by companies similarly situated and conducting similar businesses the -28- 34 Borrower will also insure, and cause each of its Subsidiaries to insure, employers' and public and product liability risks in good and responsible insurance companies. The Borrower will upon request of the Agent furnish a summary setting forth the nature and extent of the insurance maintained pursuant to this Section 7.5. SECTION 7.6. FINANCIAL REPORTS AND OTHER INFORMATION. (a) The Borrower will maintain a system of accounting in accordance with GAAP and will furnish to the Banks and their respective duly authorized representatives such information respecting the business and financial condition of the Borrower and its Subsidiaries as the Required Banks or the Agent may reasonably request; and without any request will furnish to each Bank: (i) within 60 days after the end of each of the Borrower's first three quarterly fiscal periods, a copy of the Borrower's Form 10-Q Report filed with the SEC, with supplemental calculations setting forth (A) for each account affected thereby, all eliminating entries for MARTA and (B) the resulting consolidated figures for the Borrower and its Subsidiaries exclusive of MARTA and such consolidated figures for MARTA and its Subsidiaries; (ii) within 100 days after the end of each fiscal year of the Borrower, a copy of the Borrower's Form 10-K Report filed with the SEC, including a copy of the annual report of the Borrower and its Subsidiaries for such year with accompanying consolidated financial statements with supplemental calculations setting forth (A) for each account affected thereby, all eliminating entries for MARTA and (B) the resulting consolidated figures for the Borrower and its Subsidiaries exclusive of MARTA and such consolidated figures for MARTA and its Subsidiaries, prepared by the Borrower and, in the case of the consolidated financial statements of the Borrower and its Subsidiaries, certified by Coopers & Lybrand or other independent public accountants of recognized standing selected by the Borrower and satisfactory to the Required Banks stating that they audited the consolidated financial statements in accordance with generally accepted auditing standards and in their opinion such statements present fairly, in all material respects, the consolidated financial position of the Borrower and its Subsidiaries as of the end of the fiscal year and the consolidated results of operations for the fiscal year then ended; (iii) promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports that the Borrower sends to its shareholders, and copies of all other regular, periodic and special reports and all registration statements the Borrower files with the SEC or any successor thereto, or with any national securities exchange; and (iv) an updated Schedule I along with the financial statements delivered under Subsection (i) or (ii) above, as applicable, for any calendar quarter during which there is a change in any of the facts specified in Schedule I, as then most recently updated. Each of the financial statements furnished to the Banks pursuant to subsections (i) and (ii) of this Section 7.6(a) shall be accompanied by a written certificate signed by the chief financial -29- 35 officer or Controller or Treasurer of the Borrower to the effect that (1) no Default or Event of Default has occurred during the period covered by such statements or, if any such Default or Event of Default has occurred during such period (it being understood that in preparing such certificate the officer's determination of such compliance will be based upon periodic, not daily, financial reporting, but that this does not in any way limit or otherwise affect the requirements of any part of this Section 7 or of any other provision of this Agreement that the Borrower at all times be in compliance with the terms and conditions of this Agreement), setting forth a description of such Default or Event of Default and specifying the action, if any, taken by the Borrower to remedy the same, (2) the representations and warranties contained in Section 5 hereof are true and correct in all material respects as though made on the date of such certificate, except as otherwise described, and (3) a Compliance Certificate showing the Borrower's performance of the covenants set forth in Sections 7.15-7.23 hereof and the calculation of the Eurodollar Margin and Commitment Fee in effect for the Pricing Change Date that will take place on the date such Compliance Certificate is required to be delivered with its related financial statements. In the event the Borrower is no longer required to file Form 10-Q and 10-K Reports with the SEC, it will nevertheless furnish to the Banks at the time hereinabove set forth all the financial and other information that would have comprised such filings. (b) The Borrower will permit each Bank (or such Persons as any Bank may designate) to visit and inspect, under the Borrower's guidance, any of the properties of the Borrower or any Subsidiary, to examine all their books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants (and by this provision the Borrower authorize such accountants to discuss with the Banks the finances and affairs of the Borrower and its Subsidiaries) all at such reasonable times and as often as may be reasonably requested. (c) The Borrower will promptly give notice to the Agent and each Bank (and in any event within two Business Days after the Borrower has knowledge thereof): (i) of the occurrence of any Default or Event of Default; (ii) of any default or event of default under any material Contractual Obligation of the Borrower or any of its Subsidiaries; (iii) of a material adverse change in the business, operations, property or financial or other condition of the Borrower and its Subsidiaries taken as a whole. SECTION 7.7. CHANGE OF CONTROL. If a Change of Control shall occur, the Borrower will, within 1 Business Day after it becomes aware of the occurrence thereof, give the Agent notice thereof and describe in reasonable detail the facts and circumstances giving rise thereto. SECTION 7.8. CONDUCT OF BUSINESS. The Borrower and its Subsidiaries will not engage in any business if, as a result, the general nature of the business which would then be -30- 36 engaged in by the Borrower and its Subsidiaries would be substantially changed from the general nature of the business engaged in by the Borrower and its Subsidiaries on the date of this Agreement. MARTA will not engage in any business except the construction and operation, or the contracting to construct or operate directly or indirectly through subcontractors, vehicle emissions test sites. SECTION 7.9. LIENS. The Borrower will not nor will it permit any Subsidiary to create, incur, permit to exist or to be incurred any Lien of any kind on any Property owned by the Borrower or any Subsidiary; PROVIDED, HOWEVER, that this Section 7.9 shall not apply to nor operate to prevent: (a) Liens in connection with worker's compensation, unemployment insurance, old age benefits (in any case not including Liens under ERISA), social security obligations, taxes, assessments, statutory obligations or other similar charges, good faith deposits, pledges or Liens in connection with bids, tenders, contracts or leases to which the Borrower or any Subsidiary is a party (other than contracts for borrowed money), or other deposits required to be made in the ordinary course of business; PROVIDED that in each case the obligation secured is not overdue or, if overdue, is being contested in good faith by appropriate proceedings and for which reserves in conformity with GAAP have been provided on the books of the Borrower or such Subsidiary, as the case may be; (b) mechanics', workmen's, materialmen's, landlords', carriers' or other similar Liens arising in the ordinary course of business (or deposits to obtain the release of such Liens) with respect to obligations which are not due or, if due, are being contested in good faith by appropriate proceedings and for which reserves in conformity with GAAP have been provided on the books of the Borrower or such Subsidiary, as the case may be; (c) Liens arising out of judgments or awards against the Borrower or any Subsidiary, or in connection with surety or appeal bonds in connection with bonding such judgments or awards, the time for appeal from which or petition for rehearing of which shall not have expired or with respect to which the Borrower or such Subsidiary shall be prosecuting an appeal or proceeding for review, and with respect to which it shall have obtained a stay of execution pending such appeal or proceeding for review; PROVIDED that the aggregate amount of liabilities (including interest and penalties, if any) of the Borrower and the Subsidiaries secured by such Liens shall not exceed $2,000,000 at any one time outstanding; (d) Liens upon any Property acquired by the Borrower or any Subsidiary after the date hereof (A) to secure the payment of all or any part of the purchase price of such Property upon the acquisition thereof by the Borrower or such Subsidiary, or (B) to secure any indebtedness issued, assumed or guaranteed by the Borrower or any Subsidiary prior to, at the time of, or within 90 days after the acquisition of such Property, which indebtedness is issued, assumed or guaranteed for the purpose of financing all or any part of the purchase price of such Property, PROVIDED that in the -31- 37 case of any such acquisition the Lien shall not apply to any Property other than the Property so acquired or purchased; (e) Liens of or upon any Property existing at the time of acquisition thereof by the Borrower or any Subsidiary and not created in contemplation of such acquisition; (f) Liens of or upon any Property of a corporation existing at the time such corporation is merged with or into or consolidated with the Borrower or any Subsidiary or existing at the time of a sale or transfer of the properties of a corporation as an entirety or substantially as an entirety to the Borrower or any Subsidiary and not created in contemplation of such transaction; (g) Liens to secure Debt of any Subsidiary to the Borrower or to a Subsidiary so long as the Debt so secured is not related to any Indebtedness (other than Indebtedness hereunder) of the secured Subsidiary or Borrower to any Person; (h) Liens for taxes or assessments or other government charges or levies not yet due or delinquent, or which can thereafter be paid without penalty, or which are being contested in good faith by appropriate proceedings and for which reserves in conformity with GAAP have been provided on the books of the Borrower or such Subsidiary, as the case may be; (i) Options granted to others to purchase real property or other assets of the Borrower or any Subsidiary in compliance with Section 7.13; (j) Minor survey exceptions or minor encumbrances, easements or reservations, or rights of others for rights-of-way, utilities and other similar purposes, or zoning or other restrictions as to the use of real properties which are necessary for the conduct of the activities of the Borrower and its Subsidiaries or which customarily exist on properties of corporations engaged in similar activities and similarly situated and which do not in any event materially impair their use in the operation of the business of the Borrower and its Subsidiaries; (k) Liens, existing as of the date hereof, securing Indebtedness of the Borrower or any Subsidiary outstanding on the date hereof and listed on Schedule IV to this Agreement; (l) Liens resulting from leases of real or personal property, including without limitation Capital Leases, where the Borrower or Subsidiary is the lessee and which do not violate the limitations of any other provision hereof; (m) any extension, renewal or replacement (or successive extensions, renewals or replacements) in whole or in part of any Lien referred to in the foregoing paragraphs (a) through (l), inclusive, PROVIDED, HOWEVER, that the principal amount of Indebtedness secured thereby shall not exceed the principal amount of Indebtedness so -32- 38 secured at the time of such extension, renewal or replacement, and that such extension, renewal or replacement shall be limited to the Property which was subject to the Lien so extended, renewed or replaced; (n) Liens on Property of MARTA that secure Debt incurred by MARTA to finance the construction or operation of vehicle emissions test sites; or (o) Liens not otherwise permitted under this Section 7.9 securing obligations in an aggregate principal amount not exceeding $1,000,000; PROVIDED THAT no Lien on the capital stock of MARTA or on any Debt owed by MARTA to the Borrower or any Subsidiary (other than MARTA) shall be permitted under this Section 7.9 except to the extent such a Lien arises involuntarily by operation of law pursuant to paragraph (a), (b) or (c) of this Section 7.9. SECTION 7.10. COMPLIANCE WITH LAWS. Without limiting any of the other covenants of the Borrower in this Section 7, the Borrower will, and will cause each of its Subsidiaries to, conduct its business, and otherwise be, in compliance with all applicable laws, regulations, ordinances and orders of any governmental or judicial authorities; provided, however, that neither the Borrower nor any Subsidiary shall be required to comply with any such law, regulation, ordinance or order if (x) it shall be contesting such law, regulation, ordinance or order in good faith by appropriate proceedings and reserves in conformity with GAAP have been provided therefor on the books of the Borrower or such Subsidiary, as the case may be, or (y) the failure to comply therewith could not, in the aggregate, have a material adverse effect on the business, operations, property or financial or other condition of the Borrower and its Subsidiaries on a consolidated basis. SECTION 7.11. REGULATION U. The proceeds of each Loan shall be used for general corporate purposes. The Borrower shall not use any part of the proceeds of any of the Loans directly or indirectly to purchase or carry any margin stock (as defined in Section 5.11 hereof) or to extend credit to others for the purpose of purchasing or carrying any such margin stock except in compliance with Regulations G, U and X of the Board of Governors of the Federal Reserve System. SECTION 7.12. NOTICE OF LITIGATION. The Borrower shall promptly give notice to the Agent of any litigation or governmental proceeding of the type described in Section 5.6 hereof. SECTION 7.13. MERGERS, CONSOLIDATIONS AND SALES OF ASSETS. (a) The Borrower will not, and will not permit any of its Subsidiaries (other than MARTA) to, (i) consolidate with or be a party to a merger with any other Person or (ii) during any fiscal year, sell, lease or otherwise dispose of all or a "SUBSTANTIAL PART" of the consolidated assets of the Borrower and its Subsidiaries (exclusive of Property of MARTA); provided, however, that: (1) any Subsidiary (except MARTA) may merge or consolidate with or into or sell, lease or otherwise convey all or a substantial part of its assets to the Borrower or any other Subsidiary for which the Borrower holds at least the same percentage -33- 39 equity ownership; PROVIDED THAT in any such merger or consolidation involving the Borrower, the Borrower shall be the surviving or continuing corporation; and (2) the Borrower may consolidate or merge with any other Person (except MARTA) if the Borrower is the surviving or continuing corporation and at the time of such consolidation or merger, and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing. As used in this Section 7.13(a) a sale, lease, transfer or disposition of assets shall be deemed to be of a "SUBSTANTIAL PART" of the assets of the Borrower and its Subsidiaries (exclusive of MARTA) if the book value of such assets, when added to the book value of all other assets sold, leased, transferred or disposed of by the Borrower and such Subsidiaries (other than in the ordinary course of business) during the same fiscal year, exceeds 5% of the consolidated assets of the Borrower and its Subsidiaries (exclusive of MARTA) determined as of the end of the immediately preceding fiscal year. (b) The Borrower will not permit any material Subsidiary (except MARTA) to issue or sell any shares of stock of any class (including as "STOCK" for the purpose of this subsection any warrants, rights or options to purchase or otherwise acquire stock or other Securities exchangeable for or convertible into stock) of such Subsidiary to any Person other than the Borrower or a Wholly-Owned Subsidiary, except for the purpose of qualifying directors, or except in satisfaction of the validly pre-existing preemptive rights of minority shareholders in connection with the simultaneous issuance of stock to the Borrower and/or a Subsidiary whereby the Borrower and/or such Subsidiary maintain their same proportionate interest in such Subsidiary. (c) The Borrower will not sell, transfer or otherwise dispose of any shares of stock in any material Subsidiary other than MARTA (except to qualify directors) or any Indebtedness of any material Subsidiary, and will not permit any Subsidiary to sell, transfer or otherwise dispose of (except to the Borrower or a Wholly-Owned Subsidiary) any shares of stock or any Indebtedness of any material Subsidiary other than MARTA, where "MATERIAL SUBSIDIARY" for purposes of Section 7.13(b) and (c) means any Subsidiary constituting or providing 5% or more of the consolidated assets or revenues of the Borrower and its Subsidiaries (exclusive of MARTA). SECTION 7.14. USE OF PROPERTY AND FACILITIES. (a) The Borrower will, and will cause each Subsidiary to, comply in all material respects with the requirements of all federal, state and local environmental and health and safety laws, rules, regulations and orders applicable to or pertaining to the Properties or business operations of the Borrower or any Subsidiary. (b) The Borrower shall provide the Banks with copies of any material notice or other instrument of the type described in Section 5.12(b) hereof within five (5) Business Days after receiving such notice or instrument and of any non-material notice or instrument at least annually along with the financial statements required to be delivered pursuant to Section 7.6(a)(ii). -34- 40 SECTION 7.15. CURRENT RATIO. The Borrower will at all times maintain a ratio of consolidated current assets to consolidated current liabilities (exclusive of MARTA's current assets and liabilities and of all Obligations under this Agreement) of not less than 1.50 to 1.00, consolidated current assets and consolidated current liabilities to be determined in accordance with GAAP. SECTION 7.16. INTEREST COVERAGE RATIO. The Borrower will at the end of each fiscal quarter maintain an Interest Coverage Ratio, calculated for the four quarter period ending with such fiscal quarter, of not less than 2.50 to 1.00. SECTION 7.17. CONSOLIDATED TANGIBLE NET WORTH. The Borrower will at all times maintain Consolidated Tangible Net Worth in an amount not less than $105,000,000. SECTION 7.18. ADJUSTED CONSOLIDATED NET WORTH. The Borrower will at all times maintain an Adjusted Consolidated Net Worth of not less than $168,000,000 plus 75% of the cumulative amount of consolidated net income (including cash dividends actually received from MARTA) of the Borrower and its Subsidiaries (exclusive of MARTA) for each fiscal quarter of the Borrower commencing after December 31, 1993 through the most recently completed fiscal quarter (without deduction for any consolidated net loss during any such fiscal quarter). SECTION 7.19. FUNDED DEBT TO CASH FLOW. The Borrower's Funded Debt to Cash Flow Ratio at the end of each fiscal quarter of the Borrower shall not exceed 5.50 to 1.00 through the fiscal quarter ending March 31, 1995 and shall not exceed 5.00 to 1.00 at the end of any fiscal quarter thereafter. SECTION 7.20. RESTRICTED INVESTMENTS AND CONTINGENT OBLIGATIONS. The Borrower and its Subsidiaries shall not make, retain or have outstanding a Restricted Investment (including, without limitation, those listed on Schedule V hereto) or a Contingent Obligation to the extent that the sum of all Restricted Investments and all Contingent Obligations (other than Restricted Investments in MARTA and Contingent Obligations solely supporting obligations of MARTA) of the Borrower and their Subsidiaries (other than MARTA), computed on a consolidated basis in accordance with GAAP except as otherwise expressly provided in the definition of Restricted Investment, would exceed $10,000,000 plus 35% of Adjusted Consolidated Net Worth. SECTION 7.21. INVESTMENTS IN MARTA. The aggregate amount of the Restricted Investments on a consolidated basis of the Borrower and its Subsidiaries in MARTA (calculated without revaluing such investment based on MARTA income or loss) may not exceed at any time the lesser of (i) 50% of Consolidated Tangible Net Worth; (ii) 25% of the aggregate Capitalized Costs of MARTA Projects at any time that the total Restricted Investment in MARTA is $25,000,000 or more; and (iii) $75,000,000. SECTION 7.22. MARTA OBLIGATIONS. The aggregate Capitalized Costs of MARTA Projects on awarded contracts supported by Guaranties of the Borrower or any Affiliate of the Borrower (other than MARTA) may not exceed $150,000,000 unless MARTA has -35- 41 arranged Project Financing for MARTA Projects with Capitalized Costs at least equal to such excess over $150,000,000. The aggregate Capitalized Costs of MARTA Projects under all awarded contracts supported by Guaranties of the Borrower or any Affiliate of the Borrower (other than MARTA) may not exceed $300,000,000 at any time. For purposes of calculating the Capitalized Costs of MARTA Projects under this Section 7.22 only, MARTA's 1993 contract with the Maryland Department of Transportation to construct and operate certain vehicle inspection facilities in the State of Maryland shall be equal to the amount of the surety bonds or other Guaranties from the Borrower and its Affiliates (other than MARTA) outstanding to guaranty MARTA's performance under such contracts. SECTION 7.23. SUBSIDIARY DEBT. No Subsidiary of the Borrower (except MARTA) shall incur any Debt or any Guaranty of Indebtedness of any other Person of the type described in clauses (i)-(v) of the definition of Debt except (x) Debt to the Borrower or any other Subsidiary (except MARTA) and (y) additional Debt and Guaranties of such type of such Subsidiaries (computed without duplication) in an aggregate outstanding principal amount not to exceed 10% of Consolidated Tangible Net Worth, in all cases under these clauses (x) and (y) incurred in the ordinary course of business. SECTION 8. EVENTS OF DEFAULT AND REMEDIES. SECTION 8.1. EVENTS OF DEFAULT. Any one or more of the following shall constitute an Event of Default: (a) default in the payment when due of the principal amount of any Loan or of any Reimbursement Obligation, or default for a period of three (3) days in the payment when due of any other obligation hereunder; (b) default by the Borrower in the observance or performance of any covenant set forth in Sections 7.1, 7.7, 7.9 (except as provided in Section 8.1(d) below), 7.13(b), 7.15-7.21, or the second sentence of 7.22 hereof; (c) default by the Borrower in the observance or performance of the covenant set forth in the first sentence of Section 7.22 hereof or of the covenant set forth in Section 7.23, which in either case is not remedied within ninety (90) days; (d) default by the Borrower in the observance or performance of any covenant set forth in Section 7.9 hereof to the extent the relevant Lien was not created through any agreement of, or through any judgment or other judicial order against, a Borrower or Subsidiary or in the observance or performance of any other provision hereof or of any other Credit Document not mentioned in (a), (b) or (c) above, which is not remedied within thirty (30) days after notice thereof to the Borrower by the Agent; (e) (i) default shall occur in the payment when due of any Indebtedness or Contingent Obligation in an aggregate principal amount of $1,000,000 or more of the Borrower or any Subsidiary or (ii) default shall occur under any indenture, -36- 42 agreement or other instrument under which any Indebtedness or Contingent Obligation in an aggregate principal amount of $5,000,000 or more may be issued or created and such default shall continue for a period of time sufficient to permit the holder or beneficiary of such Indebtedness or Contingent Obligation or a trustee therefor to cause the acceleration of the maturity of any such Indebtedness or Contingent Obligation or any mandatory unscheduled prepayment, purchase or funding thereof; (f) any representation or warranty made herein or in any other Credit Document by the Borrower, or in any statement or certificate furnished pursuant hereto or pursuant to any other Credit Document by the Borrower, or in connection with any Credit Event proves untrue in any material respect as of the date of the issuance or making, or deemed making or issuance, thereof; (g) the Borrower or any of its Subsidiaries shall (i) have entered involuntarily against it an order for relief under the United States Bankruptcy Code, as amended, (ii) not pay, or admit in writing its inability to pay, its debts generally as they become due, (iii) make an assignment for the benefit of creditors, (iv) apply for, seek, consent to, or acquiesce in, the appointment of a receiver, custodian, trustee, examiner, liquidator or similar official for it or any substantial part of its property, (v) institute any proceeding seeking to have entered against it an order for relief under the United States Bankruptcy Code, as amended, to adjudicate it insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, (vi) take any corporate action in furtherance of any matter described in parts (i)-(v) above, or (vii) fail to contest in good faith any appointment or proceeding described in Section 8.1(h) hereof; (h) a custodian, receiver, trustee, examiner, liquidator or similar official shall be appointed for the Borrower or any of its Subsidiaries or any substantial part of any of their Property, or a proceeding described in Section 8.1(g)(v) shall be instituted against the Borrower or any of its Subsidiaries, and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of sixty (60) days; (i) The Borrower shall fail at any time to own 94% (on a fully diluted basis) of the Voting Stock of MARTA directly or indirectly through one or more Subsidiaries in which it holds 94% or more of the Voting Stock; (j) the Borrower shall fail within thirty (30) days to pay, bond or otherwise discharge any judgment or order for the payment of money in excess of $5,000,000, which is not stayed on appeal or otherwise being appropriately contested in good faith; -37- 43 (k) the Borrower or any ERISA Affiliate shall fail to pay when due an amount or amounts aggregating in excess of $5,000,000 which it shall have become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice of intent to terminate a Plan or Plans having aggregate Unfunded Vested Liabilities in excess of $5,000,000 (collectively, a "MATERIAL PLAN") shall be filed under Title IV of ERISA by the Borrower, any ERISA Affiliate, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any Material Plan or a proceeding shall be instituted by a fiduciary of any Material Plan against the Borrower or any ERISA Affiliate to enforce Section 515 or 4219(c)(5) of ERISA and such proceeding shall not have been dismissed within thirty (30) days thereafter; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or (l) any person or group of persons (within the meaning of Section 13 or 14 of the Securities and Exchange Act of 1934, as amended) shall acquire legal or beneficial ownership (within the meaning of Rule 13d-3 promulgated by the SEC under said Act) of 30% or more in voting power of the outstanding Voting Stock of the Borrower (a "CHANGE OF CONTROL"). SECTION 8.2. NON-BANKRUPTCY DEFAULTS. When any Event of Default other than those described in Sections 8.1(g) or (h) hereof has occurred and is continuing, the Agent shall, by notice to the Borrower, (a) if so directed by the Required Banks, terminate the remaining Commitments and all other obligations of the Banks hereunder on the date stated in such notice (which may be the date thereof); (b) if so directed by the Required Banks, declare the principal of and the accrued interest on all outstanding Notes to be forthwith due and payable and thereupon all of said Notes, including both principal and interest, shall be and become immediately due and payable together with all other amounts payable under this Agreement without further demand, presentment, protest or notice of any kind; and (c) if so directed by the Required Banks, demand that the Borrower immediately pay to the Agent the full amount then available for drawing under each or any Letter of Credit, and the Borrower agrees to immediately make such payment and acknowledges and agrees that the Banks would not have an adequate remedy at law for failure by the Borrower to honor any such demand and that the Agent, for the benefit of the Banks, shall have the right to require the Borrower to specifically perform such undertaking whether or not any drawings or other demands for payment have been made under any Letter of Credit. The Agent, after giving notice to the Borrower pursuant to Section 8.1 or this Section 8.2, shall also promptly send a copy of such notice to the other Banks, but the failure to do so shall not impair or annul the effect of such notice. SECTION 8.3. BANKRUPTCY DEFAULTS. When any Event of Default described in subsections (g) or (h) of Section 8.1 hereof has occurred and is continuing, then all outstanding Notes shall immediately become due and payable together with all other amounts payable under this Agreement without presentment, demand, protest or notice of any kind, the obligation of the Banks to extend further credit pursuant to any of the terms hereof shall immediately terminate, and the Borrower shall immediately pay to the Agent the full amount -38- 44 then available for drawing under all outstanding Letters of Credit, the Borrower acknowledging that the Banks would not have an adequate remedy at law for failure by the Borrower to honor any such demand and that the Banks, and the Agent on their behalf, shall have the right to require the Borrower to specifically perform such undertaking whether or not any draws have been made under any of the Letters of Credit. SECTION 8.4. COLLATERAL FOR UNDRAWN LETTERS OF CREDIT. (a) If the prepayment of the amount available for drawing under any or all outstanding Letters of Credit is required under Section 1.2(b) or under Section 8.2 or 8.3 above, the Borrower shall forthwith pay the amount required to be so prepaid, to be held by the Agent as provided in subsection (b) below. (b) All amounts prepaid pursuant to subsection (a) above shall be held by the Agent in a separate collateral account (such account, and the credit balances, properties and any investments from time to time held therein, and any substitutions for such account, any certificate of deposit or other instrument evidencing any of the foregoing and all proceeds of and earnings on any of the foregoing being collectively called the "ACCOUNT") as security for, and for application by the Agent (to the extent available) to, the reimbursement of any payment under any Letter of Credit then or thereafter made by the Issuing Bank, and to the payment of the unpaid balance of any Loans and all other obligations of the Borrower hereunder. The Account shall be held in the name of and subject to the exclusive dominion and control of the Agent for the benefit of the Agent, the Issuing Bank and the Banks. If and when requested by the Borrower, the Agent shall invest funds held in the Account from time to time in direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America with a remaining maturity of one year or less, PROVIDED that the Agent is irrevocably authorized to sell investments held in the Account when and as required to make payments out of the Account for application to amounts due and owing from the Borrower to the Agent, the Issuing Bank or the Banks; PROVIDED, HOWEVER, that if (i) the Borrower shall have made payment of all such obligations referred to in subsection (a) above, (ii) all relevant preference or other disgorgement periods relating to the receipt of such payments have passed, and (iii) no Letters of Credit, Commitments, Loans or other obligations remain outstanding hereunder, then the Agent shall repay to the Borrower any remaining amounts held in the Account. (c) As security for the payment when due of all of the Obligations, the Borrower hereby pledges and assigns to the Agent for the benefit of the Agent and the Banks (including the Issuing Bank), and grants to the Agent for the benefit of the Agent and the Banks (including the Issuing Bank), a general lien on and security interest in and right of set-off against, all of its right, title and interest in and to the Account. SECTION 8.5. NOTICE OF DEFAULT. The Agent shall give notice to the Borrower under Section 8.1(d) hereof promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof. SECTION 8.6. EXPENSES. The Borrower agrees to pay to the Agent and each Bank, and any other holder of any Note outstanding hereunder, all expenses incurred or paid by the -39- 45 Agent and such Bank or any such holder, including reasonable attorneys' fees and court costs, in connection with any Default or Event of Default by any of the Borrower hereunder or in connection with the enforcement of any of the terms hereof or of any of the other Credit Documents. SECTION 9. CHANGE IN CIRCUMSTANCES. SECTION 9.1. CHANGE OF LAW. Notwithstanding any other provisions of this Agreement or any Note, if at any time any change in applicable law or regulation or in the interpretation thereof makes it unlawful for any Bank to make or continue to maintain Eurodollar Loans or to give effect to its obligations as contemplated hereby, such Bank shall promptly give notice thereof to the Borrower and such Bank's obligations to make or maintain Eurodollar Loans under this Agreement shall terminate until it is no longer unlawful for such Bank to make or maintain Eurodollar Loans. The Borrower shall prepay on demand the outstanding principal amount of any such affected Eurodollar Loans, together with all interest accrued thereon and all other amounts due and payable to such Bank under this Agreement; PROVIDED, HOWEVER, subject to all of the terms and conditions of this Agreement, the Borrower may then elect to borrow the principal amount of the affected Eurodollar Loans from such Bank by means of Domestic Rate Loans from such Bank that shall not be made ratably by the Banks but only from such affected Bank. SECTION 9.2. UNAVAILABILITY OF DEPOSITS OR INABILITY TO ASCERTAIN, OR INADEQUACY OF, LIBOR. If on or prior to the first day of any Interest Period for any Borrowing of Eurodollar Loans: (a) the Agent determines that deposits in United States Dollars (in the applicable amounts) are not being offered to it in the eurodollar market for such Interest Period, or (b) Banks having 50% or more of the aggregate amount of the Commitments (excluding the Commitment of the Agent as a Bank) advise the Agent that the LIBOR as determined by the Agent will not adequately and fairly reflect the cost to such Banks of funding their Eurodollar Loans for such Interest Period, then the Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, which notification the Agent shall promptly give the Borrower when it determines such circumstances no longer exist, the obligations of the Banks to make Eurodollar Loans shall be suspended. SECTION 9.3. INCREASED COST AND REDUCED RETURN. (a) If on or after the date hereof, the adoption of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Lending Office), including (if applicable) in its capacity as -40- 46 the Issuing Bank hereunder, with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency: (i) shall subject any Bank (or its Lending Office) to any tax, duty or other charge with respect to its Eurodollar Loans, its Notes, its Letter(s) of Credit, or its participation in any thereof, any Reimbursement Obligations owed to it, or its obligation to make Eurodollar Loans, issue a Letter of Credit, or to participate therein, or shall change the basis of taxation of payments to any Bank (or its Lending Office) of the principal of or interest on its Eurodollar Loans, Letter(s) of Credit, or participations therein, or any other amounts due under this Agreement in respect of its Eurodollar Loans, Letter(s) of Credit, or participations therein, any Reimbursement Obligations owed to it, or its obligation to make Eurodollar Loans, issue a Letter of Credit, or acquire participations therein (except for changes in the rate of tax on the overall net income of such Bank or its Lending Office); or (ii) shall impose, modify or deem applicable any reserve, special deposit or similar requirements (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding any such requirement included in an applicable Eurodollar Reserve Percentage) against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Lending Office) or shall impose on any Bank (or its Lending Office) or on the United States market for certificates of deposit or the interbank market any other condition affecting its Eurodollar Loans, its Notes, its Letters(s) of Credit, or its participation in any thereof, any Reimbursement Obligation owed to it, or its obligation to make Eurodollar Loans, to issue a Letter of Credit or to participate therein; and the result of any of the foregoing is to increase the cost to such Bank (or its Lending Office) of making or maintaining any Eurodollar Loan, issuing or maintaining a Letter of Credit, or participating therein, or to reduce the amount of any sum received or receivable by such Bank (or its Lending Office) under this Agreement or under its Notes with respect thereto, by an amount deemed by such Bank to be material, then, within fifteen (15) days after demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction. (b) If after the date hereof, any Bank (including as the Issuing Bank) shall have determined that the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein (including, without limitation, any revisions in the Final Risk-Based Capital Guidelines of the Board of Governors of the Federal Reserve System (12 CFR Part 208, Appendix A; 12 CFR Part 225, Appendix A) or of the Office of the Comptroller of the Currency (12 CFR Part 3, Appendix A), or in any other applicable capital rules heretofore adopted and issued by any governmental authority), or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Lending Office) with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or -41- 47 comparable agency, has or would have the effect of reducing the rate of return on such Bank's capital, or on the capital of any corporation controlling such Bank, as a consequence of its obligations hereunder to a level below that which such Bank could have achieved but for such adoption, change or compliance (taking into consideration such Bank's policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within fifteen (15) days after demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such reduction. (c) A certificate of a Bank setting forth such amount or amounts as shall be necessary to compensate such Bank or its holding company as specified in subsection (b) above shall be delivered to the Borrower (with a copy to the Agent) and shall be conclusive absent manifest error. The Borrower shall be obligated to pay each Bank the amount shown as due on any such certificate delivered by it within 10 Business Days after its receipt of the same. (d) In the event any Bank (including, if applicable, in its capacity as an Issuing Bank) delivers a certificate pursuant to subsection (c) above, the Borrower may require, at its expense, such Bank to assign (in accordance with Section 11.11 hereof) all its interests, rights and obligations hereunder (including all of its Commitment, the Loans at the time owing to it, and the Notes and participations in Letters of Credit held by it or, in the case of an assignment solely of an Issuing Bank's rights and obligations, solely its rights and obligations in such capacity) to a financial institution specified by the Borrower (a "SUBSTITUTE BANK"), provided that (i) such assignment shall not conflict with or violate any law, rule or regulation or order of any court or other governmental agency or instrumentality, (ii) the Borrower shall have received the written consent of the Agent and Issuing Bank (other than the Issuing Bank in the case of an assignment by it), which consent shall not be unreasonably withheld, to such assignment and (iii) the Borrower shall have paid to the assigning Bank all monies then due to it under the Credit Documents (including pursuant to this Section 9.3) with the Substitute Bank purchasing all accrued but not yet due Obligations owed such assigning Bank. (e) Promptly after any Bank becomes aware of any circumstance which will, in its sole judgment, result in a request for increased compensation pursuant to Section 9.3(b), such Bank shall notify the Borrower thereof (with a copy to the Agent). Failure on the part of any Bank so to notify the Borrower or to demand compensation for any increased costs or reduction in amounts received or receivable or reduction in return on capital with respect to any period shall not constitute a waiver of such Bank's right to demand compensation with respect to such period or any other period. The protection of this Section 9.3 shall be available to each Bank and Agent regardless of any possible contention of the invalidity or inapplicability of the law, rule, regulation, guideline or other change or condition which shall have occurred or been imposed. SECTION 9.4. LENDING OFFICES. Each Bank may, at its option, elect to make its Loans hereunder at the branch, office or affiliate specified on the appropriate signature page hereof (each a "LENDING OFFICE") for each type of Loan available hereunder or at such other -42- 48 of its branches, offices or affiliates as it may from time to time elect and designate in a written notice to the Borrower and the Agent. SECTION 9.5. DISCRETION OF BANK AS TO MANNER OF FUNDING. Notwithstanding any other provision of this Agreement, each Bank shall be entitled to fund and maintain its funding of all or any part of its Loans in any manner it sees fit, it being understood, however, that for the purposes of this Agreement all determinations hereunder shall be made as if each Bank had actually funded and maintained each Eurodollar Loan through the purchase of deposits in the eurodollar interbank market having a maturity corresponding to such Loan's Interest Period and bearing an interest rate equal to the LIBOR for such Interest Period. SECTION 10. THE AGENT. SECTION 10.1. APPOINTMENT AND AUTHORIZATION OF AGENT. Each Bank hereby appoints Bank of Montreal as Agent hereunder and hereby authorizes the Agent to take such action as Agent on its behalf and to exercise such powers under the Credit Documents as are delegated to such Agent by the terms hereof, together with such powers as are reasonably incidental thereto. SECTION 10.2. AGENT AND AFFILIATES. The Agent shall have the same rights and powers under this Agreement and the other Credit Documents as any other Bank and may exercise or refrain from exercising the same as though it were not Agent, and the Agent and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Affiliate of the Borrower as if it were not an Agent hereunder. The term Bank as used herein and in all other Credit Documents, unless the context otherwise clearly requires, includes the Agent in its individual capacity as a Bank. SECTION 10.3. ACTION BY AGENT. The obligations of the Agent hereunder are only those expressly set forth herein. Without limiting the generality of the foregoing, the Agent shall not be required to take any action with respect to any Event of Default, except as expressly provided in Sections 8.2 and 8.3. SECTION 10.4. CONSULTATION WITH EXPERTS. The Agent may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 10.5. LIABILITY OF AGENT AND ISSUING BANK; CREDIT DECISION. Neither the Agent nor the Issuing Bank, nor any of their respective directors, officers, agents, or employees, shall be liable for any action taken or not taken by it in connection with this Agreement, any Letter of Credit or any other Credit Document (i) with the consent or at the request of the Required Banks or (ii) in the absence of its own gross negligence or willful misconduct. Neither the Agent nor the Issuing Bank, nor any of their respective directors, officers, agents or employees, shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this -43- 49 Agreement, any other Credit Document or any Credit Event; (ii) the performance or observance of any of the covenants or agreements of the Borrower contained in any Credit Document; (iii) the satisfaction of any condition specified in Section 6 hereof, except receipt of items required to be delivered to it under Section 6; or (iv) the validity, effectiveness or genuineness of this Agreement, the Notes, any Letter of Credit or other Credit Document or any other instrument or writing furnished in connection herewith, or the perfection, value, worth or collectibility of any Credit Document, and neither the Agent nor the Issuing Bank makes any representation of any kind or character with respect to any such matter mentioned in this sentence. Neither the Agent nor the Issuing Bank shall incur any liability by acting in reliance upon any notice, consent, certificate, other document or statement (whether written or oral) believed by it to be genuine or to be sent by the proper party or parties. In particular, neither the Agent nor the Issuing Bank shall have any responsibility for confirming the accuracy of any Compliance Certificate or other document or instrument received by it hereunder. The Agent and Issuing Bank shall each in all cases be fully justified in failing or refusing to act hereunder unless it shall be indemnified to its reasonable satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent may treat the owner of any Note as the holder thereof until written notice of transfer shall have been filed with the Agent signed by such owner in form satisfactory to the Agent. Each Bank acknowledges that it has independently and without reliance on the Agent, the Issuing Bank or any other Bank and based upon such information, investigations and inquiries as its deems appropriate made its own credit analysis and decision to extend credit to the Borrower in the manner set forth herein. It shall be the responsibility of each Bank to keep itself informed as to the creditworthiness of the Borrower and the Subsidiaries and the Agent and Issuing Bank shall not have any liability to any Bank with respect thereto. SECTION 10.6. COSTS AND EXPENSES. Each Bank agrees to reimburse the Agent for all out-of-pocket costs and expenses suffered or incurred by the Agent in performing its duties hereunder or in the exercise of any right or power imposed or conferred upon the Agent hereby, to the extent that the Agent is not promptly reimbursed for same by the Borrower, all such costs and expenses to be borne by the Banks ratably in accordance with the amounts of their respective Percentages. SECTION 10.7. INDEMNITY. The Banks shall ratably, in accordance with their Percentages, indemnify and hold the Agent, and its directors, officers, employees, agents and representatives (including as such any security trustee therefor) harmless from and against any liabilities, losses, costs or expenses suffered or incurred by them hereunder or in connection with the transactions contemplated hereby, regardless of when asserted or arising, except to the extent they are promptly reimbursed for the same by the Borrower and except to the extent that any event giving rise to a claim was caused by the gross negligence or willful misconduct of the party seeking to be indemnified. The obligations of the Banks under this Section 10.7 and all other parts of this Section 10.7 shall survive termination of this Agreement. SECTION 10.8. RESIGNATION OF AGENT AND SUCCESSOR AGENT. The Agent may resign at any time by giving written notice thereof to the Banks and the Borrower. Upon any such -44- 50 resignation, the Required Banks shall have the right to appoint a successor Agent with the consent of the Borrower. If no successor Agent shall have been so appointed by the Required Banks, and shall have accepted such appointment, within thirty (30) days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be any Bank hereunder or any commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $200,000,000. Upon the acceptance of its appointment as an Agent hereunder, such successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this Section 10 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent. SECTION 11. MISCELLANEOUS. SECTION 11.1. WITHHOLDING TAXES. (a)PAYMENTS FREE OF WITHHOLDING. Except as otherwise required by law and subject to Section 11.1(b) hereof, each payment by the Borrower under this Agreement or the Notes shall be made without withholding for or on account of any present or future taxes (other than overall net income taxes on the recipient) imposed by or within the jurisdiction in which the Borrower is domiciled, any jurisdiction from which the Borrower makes any payment, or any political subdivision or taxing authority thereof or therein. If any such withholding is so required, the Borrower shall make the withholding, pay the amount withheld to the appropriate governmental authority before penalties attached thereto or interest accrues thereon and forthwith pay such additional amount as may be necessary to ensure that the net amount actually received by each Bank (including as an Issuing Bank) and the Agent free and clear of such taxes (including such taxes on such additional amount) is equal to the amount which that Bank or the Agent (as the case may be) would have received had such withholding not been made. If the Agent or any Bank pays any amount in respect of any such taxes, penalties or interest the Borrower shall reimburse the Agent or such Bank for that payment on demand in the currency in which such payment was made. If the Borrower pays any such taxes, penalties or interest, it shall deliver official tax receipts evidencing that payment or certified copies thereof to the Bank or Agent on whose account such withholding was made (with a copy to the Agent if not the recipient of the original) on or before the thirtieth day after payment. If any Bank or the Agent determines it has received or been granted a credit against or relief or remission for, or repayment of, any taxes paid or payable by it because of any taxes, penalties or interest paid by the Borrower and evidenced by such a tax receipt, such Bank or Agent shall, to the extent it can do so without prejudice to the retention of the amount of such credit, relief, remission or repayment, pay to the Borrower such amount as such Bank or Agent determines is attributable to such deduction or withholding and which will leave such Bank or Agent (after such payment) in no better or worse position than it would have been in if the Borrower had not been required to make such deduction or withholding. Nothing in this Agreement shall interfere with the right of each Bank and the Agent to arrange its tax affairs in whatever manner it thinks fit nor oblige any Bank or the Agent to disclose any information relating to its tax affairs or any computations in connection with such taxes. -45- 51 (b) U.S. WITHHOLDING TAX EXEMPTIONS. Each Bank (including each Issuing Bank and the Agent in its capacity as a Bank) that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) shall submit to the Borrower and (except for the Agent) to the Agent on or before the earlier of the date the initial Borrowing is made hereunder and thirty (30) days after the date hereof, two duly completed and signed copies of either Form 1001 (relating to such Bank and entitling it to a complete exemption from withholding under the Code on all amounts to be received by such Bank, including fees, pursuant to this Agreement and the Loans) or Form 4224 (relating to all amounts to be received by such Bank, including fees, pursuant to this Agreement and the Loans) of the United States Internal Revenue Service. Thereafter and from time to time, each Bank shall submit to the Borrower and the Agent such additional duly completed and signed copies of one or the other of such Forms (or such successor forms as shall be adopted from time to time by the relevant United States taxing authorities) as may be (i) notified by the Borrower, directly or through the Agent, to such Bank and (ii) required under then-current United States law or regulations to avoid or reduce United States withholding taxes on payments in respect of all amounts to be received by such Bank, including fees, pursuant to this Agreement or the Loans. Upon the request of the Borrower or Agent, each Bank that is a United States person (as such term is defined in Section 7701(a)(30) of the Code) shall submit to the Borrower and Agent a certificate to the effect that it is such a United States person. (c) INABILITY OF BANK TO SUBMIT FORMS. If any Bank determines, as a result of any change in applicable law, regulation or treaty, or in any official application or interpretation thereof, that it is unable to submit to the Borrower or Agent any form or certificate that such Bank is obligated to submit pursuant to subsection (b) of this Section 11.1 or that such Bank is required to withdraw or cancel any such form or certificate previously submitted or any such form or certificate otherwise becomes ineffective or inaccurate, such Bank shall promptly notify the Borrower and Agent of such fact and, without affecting the Borrower's obligations hereunder, the Bank shall to that extent not be obligated to provide any such form or certificate and will be entitled to withdraw or cancel any affected form or certificate, as applicable. SECTION 11.2. NO WAIVER OF RIGHTS. No delay or failure on the part of the Agent or any Bank or on the part of the holder or holders of any Note in the exercise of any power or right shall operate as a waiver thereof, nor as an acquiescence in any default, nor shall any single or partial exercise thereof preclude any other or further exercise of any other power or right, and the rights and remedies hereunder of the Agent, the Banks and the holder or holders of any Notes are cumulative to, and not exclusive of, any rights or remedies which any of them would otherwise have. SECTION 11.3. NON-BUSINESS DAY. If any payment of principal or interest on any Loan shall fall due on a day which is not a Business Day, interest at the rate such Loan bears for the period prior to maturity shall continue to accrue on such principal from the stated due date thereof to and including the next succeeding Business Day, on which the same shall be payable. -46- 52 SECTION 11.4. DOCUMENTARY TAXES. The Borrower agrees that they will pay any documentary, stamp or similar taxes payable in respect to this Agreement, any Note or any Letter of Credit, including interest and penalties, in the event any such taxes are assessed irrespective of when such assessment is made and whether or not any credit is then in use or available hereunder. SECTION 11.5. SURVIVAL OF REPRESENTATIONS. All representations and warranties made herein or in certificates given pursuant hereto shall survive the execution and delivery of this Agreement and of the Notes and the issuance of any Letter of Credit, and shall continue in full force and effect with respect to the date as of which they were made as long as any credit is in use or available hereunder. SECTION 11.6. SURVIVAL OF INDEMNITIES. All indemnities and all other provisions relative to reimbursement to the Banks of amounts sufficient to protect the yield of the Banks with respect to the Loans and the Letters of Credit, including, but not limited to, Section 1.11 and Section 9.3 hereof, shall survive the termination of this Agreement and the payment of the Loans, the Reimbursement Obligations and the Notes; PROVIDED THAT any Bank seeking compensation pursuant to Section 1.11 and Section 9.3 hereof shall make a claim for such compensation no later than six (6) months after the termination of all Commitments hereunder and the repayment of all Loans and Reimbursement Obligations. SECTION 11.7. SHARING OF SET-OFF. Each Bank agrees with each other Bank a party hereto that if such Bank shall receive and retain any payment, whether by set-off or application of deposit balances or otherwise ("SET-OFF"), on any of the Loans or Reimbursement Obligations in excess of its ratable share of payments on all such obligations then outstanding to the Banks, then such Bank shall purchase for cash at face value, but without recourse, ratably from each of the other Banks such amount of the Loans or Reimbursement Obligations, or participations therein, held by each such other Bank (or interest therein) as shall be necessary to cause such Bank to share such excess payment ratably with all the other Banks; PROVIDED, HOWEVER, that if any such purchase is made by any Bank, and if such excess payment or part thereof is thereafter recovered from such purchasing Bank, the related purchases from the other Banks shall be rescinded ratably and the purchase price restored as to the portion of such excess payment so recovered, but without interest. SECTION 11.8. NOTICES. Except as otherwise specified herein, all notices hereunder shall be in writing (including telecopy or telex) and shall be given to such party at its address, telecopier number or telex number set forth below or such other address, telecopier number or telex as such party may hereafter specify by notice to the Agent and the Borrower, given by United States certified or registered mail, by overnight courier service, by telegram or by other telecommunication device capable of creating a written record of such notice and its receipt. Notices hereunder to the Banks and the Agent shall be addressed to their respective addresses, telecopier and telephone number set forth on the signature pages hereof, and to the Borrower to: -47- 53 The Allen Group Inc. 25101 Chagrin Boulevard Beachwood, Ohio 44122 Attention: Vice President & Treasurer (with a copy to General Counsel) Telephone: 216-765-5815 Telecopy: 216-765-0410 Each such notice, request or other communication shall be effective (i) if given by telecopier, when such telecopy is transmitted to the telecopier number specified in this Section or on the signature pages hereof and a confirmation of such telecopy has been received by the sender, (ii) if given by telex, when such telex is transmitted to the telex number specified in this Section or on the signature pages hereof and the answerback is received by sender, (iii) if given by mail, five (5) days after such communication is deposited in the mail, registered with return receipt requested, addressed as aforesaid or (iv) if given by any other means (including by overnight courier), when delivered at the addresses specified in this Section or on the signature pages hereof; PROVIDED THAT any notice given pursuant to Section 1 or Section 2 shall be effective only upon receipt. SECTION 11.9. COUNTERPARTS. This Agreement may be executed in any number of counterparts, and by the different parties on different counterparts, each of which when executed shall be deemed an original but all such counterparts taken together shall constitute one and the same instrument. SECTION 11.10. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Borrower and its respective successors and assigns, and shall inure to the benefit of each of the Banks and the benefit of their respective successors and assigns, including any subsequent holder of any Note. The Borrower may not assign any of its rights or obligations hereunder without the written consent of all of the Banks, subject to Section 7.13. SECTION 11.11. PARTICIPANTS AND NOTE ASSIGNEES. Each Bank shall have the right at its own cost to grant participations (to be evidenced by one or more agreements or certificates of participation) in the Loans made, and/or Commitments held, and the Reimbursement Obligations, or participations therein, held by such Bank at any time and from time to time, and to assign its rights under such Loans, or the Notes evidencing such Loans, and/or the Reimbursement Obligations, or participations therein, to one or more other Persons; PROVIDED THAT no such participation or assignment shall relieve any Bank of any of its obligations under this Agreement, and PROVIDED FURTHER that no such assignee or participant shall have any rights under this Agreement except as provided in this Section 11.11, and the Agents shall have no obligation or responsibility to such participant or assignee, except that nothing herein provided is intended to affect the rights of an assignee of a Note to enforce the Note assigned. Any party to which such a participation or assignment has been granted shall have the benefits of Section 1.11 and Section 9.3 hereof. Any Bank assigning any Note hereunder shall give prompt notice thereof to the Borrower and the Agent, who shall in each case only be required to treat such assignee of a Note as the holder thereof after receipt of such notice. -48- 54 SECTION 11.12. ASSIGNMENT OF COMMITMENTS BY BANKS. Each Bank shall have the right at any time, with the prior consent of the Issuing Bank and Agent, which shall not be unreasonably withheld, to sell, assign, transfer or negotiate all or any part of its Commitment (including the same percentage of its Note, outstanding Loans, participations in Letters of Credit and its other extensions of credit hereunder) to one or more commercial banks or other financial institutions that have the capability to fund Loans at the interest rates provided in this Agreement, provided that the assignee must assume a Commitment of at least $5,000,000 and the Percentage so assigned shall remain constant, not vary by its terms, and shall be the same for all Sections of this Agreement. Any such assignee shall become a Bank for all purposes hereunder to the extent of the Commitment it assumes and the assigning Bank shall be released from its obligations, and will have released its rights, hereunder to the extent of such assignment. SECTION 11.13. AMENDMENTS. Any provision of any Credit Document may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by (a) the Borrower, (b) the Required Banks, and (c) if the rights or duties of the Issuing Bank or the Agent are affected thereby, the relevant Issuing Bank or Agent; provided that: (i) no amendment or waiver pursuant to this Section shall (A) increase any Commitment or Percentage of any Bank without the consent of such Bank or (B) reduce the amount of or postpone the date for payment of any principal of or interest on any Loan or of any Reimbursement Obligation or of any fee payable hereunder without the consent of all the Banks; and (ii) no amendment or waiver pursuant to this Section shall, unless signed by each Bank, change the provisions of this Section 11.13, the definition of Required Banks, or any condition precedent set forth in Section 6 hereof or the provisions of Sections 8.1(g), 8.1(h) or 8.3 or 9, or affect the number of Banks required to take any action under this Agreement. SECTION 11.14. HEADINGS. Section headings used in this Agreement are for reference only and shall not affect the construction of this Agreement. SECTION 11.15. LEGAL FEES AND INDEMNIFICATION. The Borrower agrees to pay the reasonable fees and disbursements of Messrs. Chapman and Cutler, counsel to the Agent, in connection with the preparation and execution of this Agreement, and any amendment, waiver or consent related hereto, whether or not the transactions contemplated herein are consummated. The Borrower further agrees to indemnify each Bank and the Agent, and their respective directors, officers and employees, against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all expenses of litigation or preparation therefor) which any of them may pay or incur arising out of or relating to this Agreement, any Note, any Letter of Credit, any drawing thereunder, any of the transactions contemplated hereby or thereby or the direct or indirect application or proposed application of the proceeds of any Loan or Credit Document, other than those which arise from the gross negligence or willful misconduct of the party claiming indemnification. The Borrower, upon demand by an Agent or a Bank at any time, shall -49- 55 reimburse such Agent or Bank for any legal or other expenses incurred in connection with investigating or defending against any of the foregoing except if the same is directly due to the gross negligence or willful misconduct of the party to be indemnified or to any breach of an express contractual obligation owed by the party to be indemnified; PROVIDED, HOWEVER, that (i) the Borrower shall not, in connection with any such proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate law firm for the Banks and the Agent (which shall be selected by the Agent after consultation with the Borrower), (ii) the Agent and each Bank shall consult with the Borrower from time to time at the request of the Borrower regarding the conduct of the defense in any such proceeding and will cooperate with the Borrower in their joining as parties to any such proceeding to the extent the Borrower is permitted by law to join such litigation, and (iii) the Borrower shall not be obligated to pay an amount of any settlement entered into without its consent (which shall not be unreasonably withheld). The obligations of the Borrower under this Section shall survive the termination of this Agreement. Section 11.16. GOVERNING LAW. This Agreement and the Notes, and the rights and duties of the parties hereto, shall be construed and determined in accordance with the internal laws of the State of Illinois. Section 11.17. ENTIRE AGREEMENT. This Agreement and the other Credit Documents constitute the entire understanding of the parties hereto with respect to the subject matter hereof and thereof and any prior or contemporaneous agreements, whether written or oral, with respect thereto are superseded hereby. Section 11.18. TERMINATION OF 1990 CREDIT AGREEMENT. The Borrower and each of the Banks hereunder that is a party to the 1990 Credit Agreement consents to the termination of the "COMMITMENTS" on the Effective Date, notwithstanding the notice requirements for such termination set forth in Section 1.13 of the 1990 Credit Agreement. Because such Banks hereunder constitute the "REQUIRED BANKS" under the 1990 Credit Agreement, the 1990 Credit Agreement shall terminate and all amounts payable thereunder, including accrued and unpaid commitment fees payable under Section 2.1(b) thereof, shall be payable on the Effective Date. -50- 56 Upon your acceptance hereof in the manner hereinafter set forth, this Agreement shall be a contract between us for the purposes hereinabove set forth. Dated as of February 17, 1994. THE ALLEN GROUP INC. By /s/ Robert A. Youdelman -------------------------------------- Its Senior Vice President-Finance and -------------------------------------- Assistant Secretary ------------------- By /s/ John C. Martin, III -------------------------------------- Its Vice President and Treasurer -------------------------------- Accepted and Agreed to as of the day and year last above written. Address and Amount of Commitment: Address: 115 S. LaSalle Street BANK OF MONTREAL, CHICAGO Chicago, Illinois 60603 BRANCH, in its individual Attn: Randall B. Becker capacity as a Bank and as Agent Telecopy: (312) 750-4314 Telephone: (312) 750-3723 By /s/ Randall B. Becker Commitment: $30,000,000 ----------------------------- Its Managing Director --------------------- Lending Offices: 115 S. LaSalle Street Chicago, IL 60603 CONTINENTAL BANK N.A., in its Address: 231 S. LaSalle Street individual capacity as a Bank, as Chicago, IL 60697 Issuing Bank, and as Co-Agent Attn: Charles F. Dwyer Telecopy: (312) 987-0303 Telephone: (312) 828-4405 By /s/ Charles F. Dwyer Commitment: $20,000,000 ---------------------------- Its Managing Director --------------------- -51- 57 Lending Offices: 231 S. LaSalle Street Chicago, IL 60697 SOCIETY NATIONAL BANK Address: 127 Public Square 01-127-0606 Cleveland, OH 44114-1306 Attn: Peter D. Moore Telecopy: (216) 689-3814 Telephone: (216) 689-3553 By /s/ Peter D. Moore Commitment: $15,000,000 ------------------- Its Vice President ------------------ Lending Offices: 127 Public Square Cleveland, OH 44114-1306 NATIONAL WESTMINSTER BANK USA Address: 100 Jericho Quadrangle Jericho, NY 11753 Attn: Christopher Mendelsohn Telecopy: (516) 349-2098 Telephone: (516) 349-2065 By /s/ Christopher Mendelsohn Commitment: $12,500,000 -------------------------- Its Vice President ------------------ Lending Offices: 100 Jericho Quadrangle Jericho, NY 11753 NATIONSBANK OF NORTH CAROLINA, N.A. Address: Nations Corporate Center 100 Tryon Street NC1-007-0804 Charlotte, NC 28255 By /s/ Richard Peccie Attn: Jay Johnston --------------------------- Its Senior Vice President Telecopy: (704) 386-3271 -------------------------- Telephone: (704) 386-8335 Commitment: $12,500,000 Lending Offices: 100 Tryon Street Charlotte, NC 28255 -52- 58 THE FIRST NATIONAL BANK OF BOSTON Address: 100 Federal Street Boston, MA 02110 Attn: Peter L. Griswold, Director By /s/ Rodney Guinn Telecopy: (617) 434-0630 ---------------------- Telephone: (617) 434-8312 Its Vice President Commitment: $10,000,000 Lending Offices: 100 Federal Street Boston, MA 02110 -53- 59 EXHIBIT A NOTICE OF PAYMENT REQUEST [Name of Bank] [Date] [Address] Attention: Reference is made to the Credit Agreement, dated as of February 17, 1994 among The Allen Group Inc., the Banks named therein, and Bank of Montreal, as Agent (the "CREDIT AGREEMENT"). Capitalized terms used herein and not defined herein have the meanings assigned to them in the Credit Agreement. [the Borrower has failed to pay its Reimbursement Obligation in the amount of $______________. Your Bank's Percentage of the unpaid Reimbursement Obligation is $________________] or [The (fill in Issuing Bank) has been required to return a payment by the Borrower of a Reimbursement Obligation in the amount of $__________________. Your Bank's Percentage of the returned Reimbursement Obligations is $____________________.] Very truly yours, [Insert Name of Issuing Bank] By _____________________________ Its ____________________________ -87- 60 EXHIBIT B NOTE U.S. $___________________ __________________, 1994 FOR VALUE RECEIVED, the undersigned ___________________________________, a ________________________ corporation (the "BORROWER"),promises to pay to the order of________________________________________________ (the "BANK") on the Termination Date of the hereinafter defined Credit Agreement at the principal office of Bank of Montreal in Chicago, Illinois, in immediately available funds, the principal sum of _____________________________________ Dollars ($_________________) or, if less, the aggregate unpaid principal amount of all Loans made by the Bank to the Borrower under its Commitment pursuant to the Credit Agreement and with each Loan to mature and become payable on the last day of the Interest Period applicable thereto, but in no event later than the Termination Date, together with interest on the principal amount of each Loan from time to time outstanding hereunder at the rates, and payable in the manner and on the dates, specified in the Credit Agreement. The Bank shall record on its books and records or on the schedule attached to this Note, which is a part hereof, each Loan made by it to the Borrower pursuant to its Commitment, together with all payments of principal and interest and the principal balances from time to time outstanding hereon, whether the Loan is a Domestic Rate Loan or a Eurodollar Loan and the interest rate and Interest Period applicable thereto, provided that prior to the transfer of this Note all such amounts shall be recorded on the schedule attached to this Note. The record thereof, whether shown on such books and records or on the schedule to this Note, shall be PRIMA FACIE evidence of the same, provided, however, that the failure of the Bank to record any of the foregoing or any error in any such record shall not limit or otherwise affect the obligation of the Borrower to repay all Loans made to it pursuant to the Credit Agreement together with accrued interest thereon. This Note is one of the Notes referred to in the Credit Agreement dated as of February 17, 1994, between the Borrower, Bank of Montreal, as Agent, and others (the "CREDIT AGREEMENT"), and this Note and the holder hereof are entitled to all the benefits provided for thereby or referred to therein, to which Credit Agreement reference is hereby made for a statement thereof. All defined terms used in this Note, except terms otherwise defined herein, shall have the same meaning as in the Credit Agreement. This Note shall be governed by and construed in accordance with the internal laws of the State of Illinois. Prepayments may be made hereon and this Note may be declared due prior to the expressed maturity hereof, all in the events, on the terms and in the manner as provided for in the Credit Agreement. -88- 61 The Borrower hereby waives demand, presentment, protest or notice of any kind hereunder. _______________________________ By_____________________________ Its__________________________ -2- 62 EXHIBIT C [FORM OF OPINION] To each of the Banks named in the hereinafter-defined Credit Agreement c/o Bank of Montreal 115 South LaSalle Street Chicago, Illinois 60603 as Agent under the Credit Agreement defined below Gentlemen: I am Secretary and General Counsel of The Allen Group Inc. (the "BORROWER"), and I have acted as counsel for the Borrower and am familiar with the actions taken with respect to the authorization, execution and delivery, and have examined a counterpart of, the Credit Agreement dated as of February 17, 1994, among the Borrower and the Banks and Agent named therein (the "CREDIT AGREEMENT"), executed by the Borrower and the Notes issued by the Borrower thereunder. All terms used and not defined herein shall have the meanings assigned to them in the Credit Agreement. In connection with this opinion, I have examined such corporate documents and records of the Borrower and its Subsidiaries, certificates of public officials and officers of the Borrower and its Subsidiaries, and such other documents, as I have deemed necessary or appropriate for the purposes of this opinion. Based upon the foregoing, it is my opinion that: 1. The Borrower is duly organized, validly existing and in good standing under the laws of the State of Delaware, is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction in which a failure to so qualify or be in good standing would materially and adversely affect the ownership of property of, or the business and operations conducted by, the Borrower and its Subsidiaries taken as a whole, or its ability to perform any of its obligations under any of the Credit Documents. 2. The Borrower has the corporate power and authority to execute, deliver and perform the Credit Documents, to borrow thereunder, and to apply for the Letters of Credit. The Borrower has taken all necessary corporate action to authorize such transactions on the terms and conditions of the Credit Documents, and to authorize the execution, delivery and performance of the Credit Documents, including, without limitation, the Applications for the Letters of Credit. Other than such corporate approvals and consents that have been obtained, no consent or authorization of, filing with, or other act by or in respect of, any Person is required in connection with the execution, delivery, performance, 63 validity or enforceability of any of the Credit Documents, any borrowings thereunder or the application for any Letters of Credit. 3. The Credit Agreement and a Note for each Bank signatory to the Credit Agreement have been duly executed and delivered on behalf of the Borrower, and such Credit Documents (assuming due authorization, execution and delivery by the other parties thereto) constitute valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and general principles of equity. 4. The execution, delivery and performance of the Credit Documents by the Borrower, and the use of the proceeds of borrowings thereunder and of the credit provided by the Letters of Credit issued thereunder as provided therein, will not violate or contravene any provision of law or any judgment or decree, or any charter or bylaw provision or any material agreement, instrument or undertaking, to which the Borrower is a party or by which it or any of its Properties is bound and will not result in, or require, the creation or imposition of any Lien on any of the Borrower's Properties or revenues. 5. No litigation, investigation or proceeding of or before any court, arbitrator or governmental authority is pending or, to the best of my knowledge, threatened by or against the Borrower or any of its Subsidiaries or any of their respective Properties or revenues that calls into question the validity or enforceability of any of the Credit Documents or any of the transactions contemplated thereby or which could have a material adverse effect on the business, operations, property or financial condition of the Borrower and its Subsidiaries taken as a whole. 6. The Borrower is not an "INVESTMENT COMPANY" or a company "CONTROLLED" by an "INVESTMENT COMPANY", within the meaning of the Investment Company Act of 1940, as amended. My opinions expressed above are limited to the laws of the State of Ohio, the corporate laws of the State of Delaware, and the federal laws of the United States. The Credit Documents state that they are governed by the laws of the State of Illinois. For purposes of these opinions, I have assumed, with your permission, that the laws of the States of Ohio and Illinois are the same in all relevant respects. Very truly yours, -2- 64 EXHIBIT D COMPLIANCE CERTIFICATE This Compliance Certificate is furnished to Bank of Montreal as Agent pursuant to that certain Credit Agreement dated as of February 17, 1994, by and among The Allen Group Inc., the Banks party thereto and Bank of Montreal, as Agent. Unless otherwise defined herein, the terms used in this Compliance Certificate have the meanings ascribed thereto in the Credit Agreement. THE UNDERSIGNED HEREBY CERTIFIES THAT: 1. I am the duly elected _______________________ of The Allen Group Inc.; 2. I have reviewed the terms of the Credit Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of The Allen Group Inc. and its Subsidiaries during the accounting period covered by the attached financial statements; 3. The examinations described in paragraph 2 did not disclose, and I have no knowledge of, the existence of any condition or event which constitutes an Event of Default during or at the end of the period ending ________________, except as set forth below; and 4. Schedule 1 attached hereto sets forth financial data and computations evidencing __________________ compliance with certain covenants of the Credit Agreement, all of which data and computations are true, complete and correct. All computations are made in accordance with the terms of the Credit Agreement. Described below are the exceptions, if any, to paragraph 3 by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which the Company has taken, is taking, or proposes to take with respect to each such condition or event: __________________________________________________ __________________________________________________ __________________________________________________ The foregoing certifications, together with the computations set forth in Schedule 1 hereto and the financial statements delivered with this Certificate in support hereof, are made and delivered this _____ day of ___________________, 19___. -92- 65 SCHEDULE 1 TO COMPLIANCE CERTIFICATE Compliance Calculations for Credit Agreement dated as of ________,1994 Calculation as of ___________, 19__ A. Current Ratio (Section 7.15) ---------------------------- 1. Consolidated Current Assets _______________ (a) Less MARTA Current Assets _______________ _______________ 2. Consolidated Current Liabilities _______________ (a) Less MARTA Current Liabilities _______________ _______________ 3. Ratio of Line 1 to Line 2 _______________ Line 3 Ratio must be equal to or greater than 1.50:1.00 B. Interest Coverage Ratio (Section 7.16) -------------------------------------- (except MARTA) 1. Net Income _______________ (a) Plus Income Tax Expense _______________ (b) Plus Interest Expense _______________ _______________ 2. The total of: (a) Interest Expense _______________ (b) Dividends Paid or Accrued on Preferred Stock _______________ _______________ 3. Ratio of Line 1 to Line 2 _______________ Line 3 must equal or be greater than 2.50 to 1.00 -93- 66 C. Consolidated Tangible Net Worth (Section 7.17) ---------------------------------------------- 1. Consolidated Book Net Worth _______________ (a) Less Redeemable Preferred Stock_______________ (b) Less Intangibles _______________ _______________ Total must be equal to or greater than $105,000,000 D. Adjusted Consolidated Net Worth (Section 7.18) ---------------------------------------------- 1. Consolidated Book Net Worth _______________ (a) Less Redeemable Preferred Stock _______________ (b) Plus Subordinated Debt _______________ _______________ 2. 75% of Consolidated Net Income since December 31, 1993 (without subtraction for any quarterly losses and exclusive of MARTA but inclusive of cash dividends received from MARTA) _______________ (a) Plus $168,000,000 $168,000,000 _______________ Line 1 must equal or exceed line 2 -2- 67 E. Funded Debt to Cash Flow (Section 7.19) -------------------------------------- 1. Total Funded Debt (except MARTA) ________________ (a) Plus the lesser of (x) 30% of the amount by which Capitalized Costs of MARTA Projects supported by Completion Guaranties exceeds $200,000,000 and (y) the maximum dollar liability under such Completion Guaranties on MARTA Projects with capitalized costs in excess of $200,000,000 ________________ ________________ 2. Net Income ________________ (a) Less "extraordinary" and "unusual or non-recurring" gains ________________ (b) Plus "extraordinary" and "unusual or non-recurring" losses ________________ (c) Plus depreciation expense ________________ (d) Plus non-cash amortization expense ________________ ________________ 3. Ratio of Line 1 to Line 2 ________________ Line 3 must not be greater than 5.50 to 1.00 through March 31, 1995 and must not exceed 5.00 to 1.00 thereafter. F. Restricted Investments and Contingent Obligations (Section 7.20) ---------------------------------------------------------------- 1. Restricted Investments ________________ 2. Contingent Obligations ________________ 3. Total of Line 1 and Line 2 Line 3 must equal or be less than $10,000,000 plus 35% of Adjusted Consolidated Net Worth ________________ -3- 68 G. Investments in MARTA (Section 7.21) ----------------------------------- 1. Investments in MARTA 2. (a) 50% of Consolidated Tangible Net worth _________________ (b) 25% of the aggregate Capitalized Costs of MARTA Projects at any time that the total Restricted Investment in MARTA is $25,000,000 or more _________________ (c) $75,000,000 _________________ The lesser of a, b, and c: ________________ Line 1 must not exceed line 2 H. MARTA Obligations (Section 7.22) -------------------------------- 1. (a) Aggregate Capitalized Costs of MARTA Projects supported by Guaranties of the Borrower or any Affiliate of the Borrower ________________ (b) MARTA Projects included in line (a) that are funded by Project Financing ________________ (c) Line (a) minus line (b) ________________ Line (c) must not exceed $150,000,000 and line (a) must not exceed $300,000,000 I. Subsidiary Debt --------------- 1. Total Debt and Guaranties owed by Subsidiaries (except MARTA) to third parties including MARTA 2. 10% of Consolidated Tangible Net Worth ________________ Line 1 must not exceed Line 2. ________________ -96- 69 SCHEDULE I SUBSIDIARIES OF THE ALLEN GROUP INC. The following is a list of the Subsidiaries of The Allen Group Inc. and, indented, Subsidiaries of such Subsidiaries, including in each case the state or other jurisdiction in which each Subsidiary was incorporated or organized, and indicating in each case the percentage of Voting Stock owned by the immediate parent. All such Subsidiaries are consolidated Subsidiaries except GO/DAN Industries, Alven Capital Corporation and Sponmech Limited.
State/Country of Name of Corporation Incorporation Date % - ------------------- ---------------- ---- - The Allen Group Canada Limited Ontario, Canada 04-19-72 100 The Allen Group International, Inc. Delaware 07-19-73 100 The Allen Group GmbH (2) West Germany 09-29-70 100 The Allen Group Limited (1) U.K. 05-08-72 100 Allen Heat Transfer Products Inc. Delaware 05-22-90 100 GO/DAN Industries (4) New York 05-24-90 50 Allen Telecom Canada, Inc. (5) Ontario 04-14-93 80 Allen Telecom Group, Inc. Delaware 10-26-88 100 Alven Capital Corporation (3) Delaware 11-10-93 15.9 Antenna Specialists Co., Inc. Delaware 10-07-88 100 Antespec, S.A. de C.V. Mexico 11-14-88 100 The Antenna Specialists S.A. Spain 06-05-90 100 Decibel Mobilcom GmbH Germany 07-28-90 100 Decibel Mobilcom Limited England 01-31-91 100 Grayson Electronics Company (6) Virginia 09-03-86 80 Orion Far East Management Inc. (1) Delaware 07-16-81 100 Orion Industries, Inc., Limited (1) Hong Kong 06-01-71 100 Orion Imports & Exports Limited (1) Hong Kong 09-07-73 100
-97- 70 Orion Industries, Inc. Japan (1) Japan 09-73 100 Orion Industries Taiwan Limited (1) Taiwan 10-73 100 MARTA Technologies, Inc. Delaware 10-14-92 100 Sponmech Limited U.K. 12-22-76 33.3 276017 Ontario Limited (1) Ontario, Canada 09-11-73 100 (1) These Subsidiaries are not significant in the aggregate and are no longer active. (2) 95% of the outstanding capital stock of this subsidiary is owned by The Allen Group International, Inc. and the remaining 5% is owned by The Allen Group Inc. (3) On a fully diluted basis, 57.26% of the outstanding capital stock is owned by ATG, 19.35% is owned by Rose Investors and 23.39% is owned by Philadelphia Ventures. (4) A 50% owned general partnership joint venture accounted for under the equity method of accounting. (5) 80% of the outstanding capital stock of this Subsidiary is owned by The Allen Group Inc. and the remaining 20% is owned by senior management of Allen Telecom Canada, Inc. (6) 80% of the outstanding capital stock of this Subsidiary is owned by The Allen Group Inc. and the remaining 20% is owned by senior management of Grayson Electronics Company.
-98- 71 SCHEDULE II ----------- SCHEDULE OF ENVIRONMENTAL NOTICES --------------------------------- 1. Notice in September 1983 from U.S. Environmental Protection Agency regarding waste disposal by the Wilson Engineering division of the Allen Automated Systems Company division of The Allen Group Inc. at Berlin & Ferro Liquid Incineration Inc., Swartz Creek, Michigan. EPA has requested $7,475 settlement; Wilson offered $750. Legal action against Wilson was threatened in December 1986. There has been no activity with respect to this matter since December 1986. This matter is being handled by Robert Kendrick of Braun, Kendrick, Finkbeiner, Schafer & Murphy in Saginaw, Michigan. Mr. Kendrick reported on February 2, 1993 that it was his understanding that all of the so-called "non-settlors" had been sued by that date and that Wilson was considered not to have actually sent any waste oil to the Swartz Creek site, and that it therefore seemed highly unlikely, although not impossible, that a lawsuit in this matter will be commenced. 2. Notice dated August 6, 1985 from U.S. Environmental Protection Agency that the EPA considered Allen a potentially responsible party ("PRP") under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA") with respect to alleged environmental contamination at the KL Avenue Landfill in Oshmeto Township, Michigan. Allen, along with more than 200 other PRPs, entered into a Consent Decree legal settlement of this matter with the EPA. The Consent Decree was filed in Federal District Court for the Western District of Michigan on September 17, 1992. Pursuant to the terms of the Consent Decree, Allen agreed to pay $20,933 to the KL Avenue Facility Trust in settlement of this matter. This matter was handled by James A. Rogers and Carol Clayton of Skadden, Arps, Slate, Meagher & Flom, Washington, D.C. 3. Notice dated April 22, 1986 from U.S. Environmental Protection Agency identifying the Crown division of The Allen Group Inc. as one of the PRPs for the cleanup and remediation of hazardous wastes from the Liquid Disposal, Inc. Superfund Site located in Shelby Township, Michigan. On January 6, 1989, Allen entered into a Consent Decree as a DE MINIMIS settling party and paid $2,800 to the United States Government. Allen's payment was consideration for a covenant of the United States not to sue or take administrative action against Allen for any and all civil liability for causes of action arising under Sections 106 and 107(a) of CERCLA and Section 7003 of the Resource Conservation and Recovery Act relating to the site. This matter was handled by Ralph Amiet of Buckingham, Doolittle & Burroughs in Wooster, Ohio. 4. Notice in April 1987 from Illinois Environmental Protection Agency that the G&O Manufacturing Company division of The Allen Group Inc., among others, is considered to be a PRP for releases of hazardous substances at the Brockman Landfill in Peru, LaSalle County, Illinois. G&O personnel believe, but have not yet been able to document, that its waste material was sent to another landfill. A group of PRPs, including G&O, have submitted a proposed work plan to IEPA ot address possible contamination at the site. This plan could cost approximately $2 million, and IEPA has also suggested a plan which could cost $6 million. G&O has not yet agreed to participate in the actual 99 72 cleanup. Any cleanup work is contingent upon IEPA's obtaining secure access to the site, which IEPA has been unable to obtain from the present owner. As a result, neither IEPA nor G&O can state with any certainty whether G&O has any actual liability for the alleged release of hazardous substances, and any meaningful analysis of G&O's liability cannot be provided. G&O has continued to meet with other private parties regarding the site, although its investigation indicates that G&O's waste was never transported to the site. Because IEPA has been unable to gain access to the site from the owners, there is no current activity on this matter. The documents assembled by the generator's group do not indicate any disposal by G&O at the site, so G&O's proportionate share of any cleanup cost at this time appears to be zero. According to G&O's records of all wastes generated during the period in question, all of G&O's wastes were substantially less than 1% of wastes deposited at the site, although G&O's record indicated that none of its wastes in fact were disposed of at the site. This matter is being handled by Michael J. Quinn of D'Ancona & Pflaum in Chicago, Illinois. 5. Lawsuit in August 1983 by two landowners in Canada against the National Rubber Company division of The Allen Group Canada Limited, a wholly owned subsidiary of The Allen Group Inc., and others for damages of Canadian $3.5 million and punitive damages of Canadian $1 million. The suit alleges that waste was illegally dumped on the plaintiff's land by an unlicensed waste disposal company and that these acts diminished the value of their land and caused them damages. The Ontario government proposed a proceeding against Allen requiring it to clean up the property, but this claim was settled in 1984 by Allen's paying $150,000 for a 1/3 share of the then-estimated cleanup costs, and Allen counter-claimed against the plaintiffs for this amount. This case has since been settled. This case was handled by Douglas Hatch of Smith, Lyons, Torrance, Stevenson & Mayer in Toronto, Ontario, Canada. 6. In 1988, the facility of the former Wilson Machine division of the Allen Automated Systems Company division of The Allen Group Inc. located at 2119 River Street, Saginaw, Michigan was listed on the Michigan Environmental Response Act 307 Group B Priority List by the Michigan Department of Natural Resources because of an area of stained soil around the concrete footing on the facility. The Michigan Act provides a system for identifying and prioritizing contaminated sites within Michigan. The Group B listing means the site has been screened but not fully assessed. The Wilson Machine division retained Warzyn Engineering, Inc. to conduct various tests and to assist Wilson in removing the property from the State 307 List. Warzyn submitted a work plan for remediation activities in June 1990 to the Michigan Department of Natural Resources. The plan was approved, and work commenced in August 1990 and was completed in May 1991. Although the contamination was remediated to target cleanup levels, it was noted during the cleanup that foundry sands had been used historically for fill material on the property. Due to the presence of the contaminated historic fill, the site remains listed on the State 307 List. However, the site name and conditions of listing were changed to reflect the current site conditions and the remediation that had been completed. The Michigan Department of Natural Resources recently published new Type C Generic Industrial Site Risk Assessment Cleanup Criteria. Allen is working with Warzyn to determine what 100 73 further remediation of the site, if any, is necessary to meet the new cleanup criteria. 7. Order #HM-724 (the "Order") dated July 10, 1991 issued by the State of Connecticut Department of Environmental Protection, the State's compliance arm, regarding alleged violations of the Connecticut Hazardous Waste Management Regulations by G&O Manufacturing Company division of The Allen Group Inc. at its New Haven, Connecticut facility. The alleged violations included failure to have a contingency plan, failure to conduct hazardous waste determinations, failure to have a personnel training program and failure to have an inspection schedule and log. Allen retained Environmental Management Consultants, Inc. to prepare documents and implement and oversee the actions required by the Order. Based on correspondence between DEP and EMC during the late summer and fall of 1991, Allen believed that it had fully complied with the requirements of the Order. On December 21, 1992, the Commissioner of Environmental Protection of the State of Connecticut, the State's enforcement arm, filed a lawsuit against The Allen Group Inc. in the Superior Court, Judicial District of Hartford-New Britain at Hartford, Connecticut, seeking damages for the violations contained in the Order. This lawsuit was settled in December 1993. Pursuant to such settlement, G&O agreed to pay a civil penalty in the amount of $15,000 and to conduct two audits to demonstrate G&O's compliance with the Connecticut Hazardous Waste Management Regulations. This matter was handled by Mark Zimmerman of Updike, Kelly & Spellacy, P.C. 8. Notice dated June 11, 1992 from U.S. Environmental Protection Agency identifying the G&O Manufacturing Company division of The Allen Group Inc. as one of the PRPs for the cleanup and remediation of hazardous wastes at the Solvents Recovery Service of New England site in Southington, Connecticut (the "Site"). G&O disposed of three 55 gallon drums of waste paint at the Site on October 31, 1984. Allen joined the SRSNE Site PRP Group (the "Group") in late November 1992. The DE MINIMIS Committee of the Group is negotiating actively with the EPA to set out the terms of an early DE MINIMIS settlement. It is anticipated that Allen's settlement payment will be approximately $1,500. The present contacts for the PRP Steering Committee of the Group are Rob Kirsch and Paul Wallace of Hale & Dorr in Boston, Massachusetts, and the attorney for small waste generators is Harlan Doliner of Goldstein & Manello in Boston, Massachusetts. 9. Notice dated October 1, 1986, from State of Ohio Environmental Protection Agency ("OEPA") to the Crown Divisions of The Allen Group Inc. ("Crown") regarding cleanup of immediate area around the central hydraulic unit located in its Orrville, Ohio plant. This notice resulted from a PCB compliance inspection for the U.S. Environmental Protection Agency under the authority of the Toxic Substances Control Act (40 CFR, Part 761). Contamination of concrete, and soil below, resulted from Crown's use of oil later discovered to be contaminated with PCBs. Crown has conducted a cleanup of the area with OEPA supervision by removal of concrete and soil, followed by testing; there have been several such removals. Pursuant to an agreemant with OEPA, Crown has been permitted to fill in and reseal the area in consideration of putting in three monitoring wells and placing a notice on the deed to the 101 74 property that PCB contamination is on the property. This matter is being handled by Ralph Amiet of Buckingham, Doolittle & Burroughs in Wooster, Ohio. 10. The Allen Electric and Equipment Company, the predecessor to The Allen Group Inc., has been joined as a third party defendant in companion actions filed in the United States District Court for the Western District of Michigan, Southern Division, Civ. No. 1:92CV713; Civ. No. 4:92CV139 on September 24, 1993. These cases were filed by the third party plaintiffs who are themselves defendants in an action under the Comprehensive Environmental Response, Compensation and Liability Act, 42 USC Section 9613(f) and the Michigan Contribution Among Joint Tortfeasors Act, Mich. Comp. Laws Ann. Section Section 600.2925(a) et seq. The third party plaintiffs seek recovery pursuant to those statutes for costs of alleged environmental contamination related to the so-called Verona Well Field site in Battle Creek, Michigan. The third party plaintiffs seek contribution for an equitable share of any and all response costs which they may be ordered to pay in the underlying litigation and any future costs related to the so-called Raymond Road site. The Company has been participating in this litigation pursuant to provisions of the Acquisition Agreement between Allen and SPX Corporation dated March 29, 1993 and certain provisions thereof concerning indemnification. At this time the third party proceeding is in a very early stage and no answers have been filed yet, nor has any specific amount of damages been identified. This matter is being handled by James Friedman of Benesch, Friedlander, Coplan & Aronoff, Cleveland, Ohio. 11. In connection with the sale of its former facility located at 4150 North Knox Avenue, Chicago, Illinois to Sang Hun Lee on November 10, 1993, The Allen Group Inc. filed an Environmental Disclosure Document for transfer of Real Property with the Illinois Environmental Protection Agency. This filing was required upon the sale of the facility because the site contained an underground storage tank which had been filled in place in 1990 in compliance with state and federal environmental laws. This matter was handled by Mary K. Krigbaum of Rudnick & Wolfe of Chicago, Illinois. 12. Notification of groundwater sampling results in ongoing environmental investigation at 1859 Sabre Street in Hayward, California dated February 16, 1990, provided to the California Regional Water Quality Control Board pertaining to a building The Allen Group Inc.'s G&O Manufacturing Company division vacated in January 1989, as lessee. This matter relates to soil contamination, which was remediated, and perched groundwater which contained certain elevated readings. This matter is being handled by Jerome Bleiweis of Torrance, California. MPF\ENVIROMATTER 102 75 SCHEDULE III SCHEDULE OF OUTSTANDING LONG TERM DEBT 1. Industrial Development Revenue Bonds, Series 1979 (The Allen Group Inc., Project) of the City of Jackson, Mississippi and associated instruments, in the initial aggregate principal amount of $2,000,000 (current outstanding balance $900,000). 2. Floating Rate Monthly Demand Industrial Development Refunding Bonds (The Allen Group Inc. Project - 1983 Series) of the Connecticut Development Authority and associated instruments, in the initial aggregate principal amount of $5,000,000. 3. Industrial Development Revenue Bonds (The Allen Group Inc. Project) Series 1985 of the Michigan Strategic Fund and associated instruments, in the initial aggregate principal amount of $4,000,000. 4. Floating Rate Demand Industrial Development Revenue Bonds (The Allen Group Inc. Project) Series 1985 of the County of Cuyahoga, Ohio and associated instruments, in the initial aggregate principal amount of $5,000,000. 5. Industrial Development Revenue Bonds (The Allen Group Inc. Project) Series 1985 of the City of Wooster, Ohio and associated instruments, in the initial aggregate principal amount of $8,000,000. 6. Floating Rate Demand Industrial Development Revenue Bonds (The Allen Group Inc. Project) Series 1987 of the County of Cuyahoga, Ohio and associated instruments, in the initial aggregate principal amount of $3,000,000. 7. Note Agreement dated February 16, 1993, for the $5,000,000 7.50% guaranteed Series A Senior Notes due February 16, 1999 and for the $15,000,000 8.13% guaranteed Series B Senior Notes due February 16, 2003, between The Allen Group Inc. and American General Life Insurance Company and The Variable Annuity Life Insurance Company. 8. Promissory Note dated October 1, 1990 in the amount of $3,945,000 between MARTA Technologies, Inc. and NCNB National Bank of North Carolina (not included as "Debt" per the new Revolver). The current outstanding balance is $2,265,000. 9. Allen guarantee in the amount of $500,000 and $500,000 L/C in favor of United Pacific Insurance supporting the $1,000,000 performance bond for MARTA's Jacksonville program to the State of Florida. 10. Allen guarantee supporting $60 million of MARTA short term bank lines ($0 outstandings). M\1467 103 76 SCHEDULE III SCHEDULE OF OUTSTANDING LONG TERM DEBT (cont'd) 11. Allen guarantee in the amount of $500,000 and $500,000 L/C in favor of United Pacific Insurance supporting the $1,000,000 performance bond for MARTA's Jacksonville program to the State of Florida. 12. Allen guarantee supporting $60 million of MARTA short term bank lines ($0 outstandings). M\1467 104 77 SCHEDULE IV SCHEDULE OF OUTSTANDING LIENS LIENS SECURING THE FOLLOWING INDEBTEDNESS: 1. The Promissory Note dated October 1, 1990 in the amount of $3,945,000 between MARTA Technologies, Inc. and NCNB National Bank of North Carolina, relating to MARTA Technologies, Inc.'s Florida Program (current outstanding balance $2,265,000). 2. Industrial Development Revenue Bonds, Series 1979 (The Allen Group Inc., Project) of the City of Jackson, Mississippi and associated instruments, in the initial aggregate principal amount of $2,000,000 (current outstanding balance $900,000). 3. Floating Rate Monthly Demand Industrial Development Refunding Bonds (The Allen Group Inc. Project - 1983 Series) of the Connecticut Development Authority and associated instruments, in the initial aggregate principal amount of $5,000,000. 4. Industrial Development Revenue Bonds (The Allen Group Inc. Project) Series 1985 of the Michigan Strategic Fund and associated instruments, in the initial aggregate principal amount of $4,000,000. 5. Floating Rate Demand Industrial Development Revenue Bonds (The Allen Group Inc. Project) Series 1985 of the County of Cuyahoga, Ohio and associated instruments, in the initial aggregate principal amount of $5,000,000. 6. Industrial Development Revenue Bonds (The Allen Group Inc. Project) Series 1985 of the City of Wooster, Ohio and associated instruments, in the initial aggregate principal amount of $8,000,000. 7. Floating Rate Demand Industrial Development Revenue Bonds (The Allen Group Inc. Project) Series 1987 of the County of Cuyahoga, Ohio and associated instruments, in the initial aggregate principal amount of $3,000,000. M\1467 105 78 SCHEDULE V SCHEDULE OF RESTRICTED INVESTMENTS Investments in GDI Joint Venture $23,042,000 National Rubber 4,344,000 Reserve (33,214) ----------- 4,310,786 MARTA (excluded per new Revolver) N/A SPX Note Receivable 19,736,985 Alven Capital Corporation 968,595 RF Micro Devices 1,442,623 Encompass Inc. 1,200,000 ___________ TOTAL RESTRICTED INVESTMENTS $50,700,989 M\1467 106 79 APPENDIX I [Form of Continental Bank Application for Irrevocable Documentary Standby Letter of Credit] 107-108 80 APPENDIX II [Form of Continental Bank Application for Irrevocable Documentatary Credit (Commercial)] 109-110 EX-10.G 5 ALLEN GROUP EX-10(G) 1 Exhibit 10(g) THE ALLEN GROUP INC. RESTRICTED STOCK AGREEMENT PURSUANT TO 1992 STOCK PLAN (Salary Increase Deferral) Number of Restricted Shares _______________ November 30, 1993 The Allen Group Inc., a Delaware corporation (hereinafter called the "Company"), pursuant to its 1992 Stock Plan, as amended (hereinafter called the "Plan"), a copy of which is attached hereto as EXHIBIT A and is incorporated herein by reference, hereby awards unto ___________________ __________________ (hereinafter called the "Employee") ________ shares of Common Stock of the Company, par value $1.00 per share (hereinafter called "Common Stock"), as additional compensation for services rendered to the Company or a subsidiary thereof and in lieu of any increase in the Employee's salary for a period of two years after the year in which the Employee last received an increase in salary (except in unusual circumstances as determined by the Management Compensation Committee, in its sole discretion), on the terms and subject to the conditions hereinafter set forth. These shares are referred to in this Agreement as "Restricted Shares" during the applicable Restriction Period (as defined in paragraph 3(d) hereof). Acceptance of the Restricted Shares shall be deemed to be agreement by the Employee to the terms and conditions set forth in this Agreement and the Plan. Certificates representing the Restricted Shares may not be sold or otherwise transferred and must be held by the Employee until the end of the applicable Restriction Period. Until such terms and conditions have lapsed with respect to any Restricted Shares, the certificate for such shares will bear a legend to the effect that they were issued or transferred subject to, and may be sold or otherwise disposed of only in accordance with, the terms of this Agreement and the Plan. 1. STOCKHOLDER STATUS. Effective upon the date of delivery to the Employee of certificates for Restricted Shares registered in the Employee's name, the Employee will be a holder of record of the Restricted Shares and will have all rights of a stockholder with respect to such shares (including the right to vote such shares at any meeting of stockholders of the Company and the right to receive all dividends paid with respect to such shares), subject only to the terms and conditions imposed by this Agreement and the Plan. 2. EFFECT OF CHANGES IN CAPITALIZATION. The number of Restricted Shares are subject to adjustment as provided in Section 7 of the Plan. Any additional or different shares or securities issued as the result of such an adjustment will be delivered to the Employee and will be deemed to be included within the term "Restricted Shares". The certificates or other instruments evidencing such additional or different shares or securities shall bear the legend referred to in the introductory paragraph; PROVIDED, HOWEVER, that any fractional shares and any pre-emptive or other rights or warrants to purchase securities issued to the Employee as a holder of Restricted Shares in connection with a public offering will be issued to the Employee free and clear of all terms and conditions imposed by this Agreement and the Plan. 2 3. LAPSE OF RESTRICTIONS. (a) The restrictions set forth in paragraph 4 below will lapse (i) in four equal consecutive annual installments, each equal to one-fourth of the original number of Restricted Shares set forth in the first paragraph of this Agreement, as such number may be adjusted pursuant to paragraph 2 above (hereinafter called the "Original Number"), at the close of business on December 31, 2000 and at the close of business on each December 31 thereafter or (ii) with respect to one-eighth of the Original Number at the end of the first period of ninety-one consecutive calendar days commencing on or after December 31, 1996 during which the average daily Closing Price (as defined below in this paragraph 3(a)) of the Company's Common Stock equals or exceeds $39.00 per share, an additional one-eighth of the Original Number at the end of the first such period during which such daily Closing Price equals or exceeds $43.00 per share, an additional one-eighth of the Original Number at the end of the first such period during which such daily Closing Price equals or exceeds $47.00 per share and an additional one-eighth of the Original Number at the end of the first such period during which such daily Closing Price equals or exceeds $52.00 per share or (iii) with respect to one-eighth of the Original Number at the end of the first period of three consecutive fiscal years of the Company commencing with the fiscal year 1994 during which the average net income (excluding extraordinary and other non-operating gains and losses) per share of Common Stock per year ("Average Net Income") equals or exceeds $2.00, an additional one-eighth of the Original Number at the end of the first such period during which Average Net Income equals or exceeds $2.25, an additional one-eighth of the Original Number at the end of the first such period during which Average Net Income equals or exceeds $2.50 and an additional one-eighth of the Original Number at the end of the first such period during which Average Net Income equals or exceeds $2.75, with any such Shares as to which restrictions lapse pursuant to the preceding clause (ii) or (iii) prior to December 31, 2000 or any December 31 thereafter to be applied against the installments of the Original Number set forth in clause (i) in the order in which the restrictions would otherwise have lapsed with respect to such installments on December 31, 2000 and on each December 31 thereafter. The foregoing Closing Price and Average Net Income amounts are subject to adjustment in the same manner as the price per share of Options as provided in Section 7 of the Plan. For purposes of this Agreement, "Closing Price" shall mean the reported last sale price regular way or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way for Common Stock of the Company, in either case as reported on the New York Stock Exchange Composite Tape, or, if at any time the Common Stock of the Company is not listed or admitted to trading on such Exchange, on the principal national securities exchange on which the Common Stock of the Company is listed or admitted to trading, or if not listed or admitted to trading on any national securities exchange, on the National Association of Securities Dealers Automated Quotations National Market System or, if the Common Stock of the company is not listed or admitted to trading on any national securities exchange or quoted on such National Market System, the average of the closing bid and asked prices for Common Stock of the Company in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Company for that purpose. (b) Notwithstanding paragraph 3(a) above, the restrictions set forth in paragraph 4 below will lapse on all Restricted Shares at the close of business on the date on which a Change in Control of the Company (as defined below in this paragraph 3(b)) shall occur; PROVIDED, HOWEVER, that such restrictions will not lapse on any Restricted Shares with respect to which any amount, as determined by the Company's independent 3 auditors in accordance with the principles of sections 280G(d)(3) and (4) of the Internal Revenue Code of 1986, as amended (the "Code"), when added to any other payment or benefit received or to be received by the Employee in connection with a Change in Control of the Company or the termination of the Employee's employment, would not be deductible by the Company by reason of section 280G of the Code; PROVIDED, FURTHER, that no portion of any such amount with respect to any Restricted Shares and no portion of any such other payment or benefit shall be taken into account which in the opinion of tax counsel selected by the Company's independent auditors and acceptable to the Employee does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code (without regard to subsection (A)(ii) thereof). For purposes of this Agreement, a Change in Control of the Company shall mean: (A) any "person", as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities; (B) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (A), (C) or (D) of this paragraph) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (C) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than (I) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (II) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) acquires more than 30% of the combined voting power of the Company's then outstanding securities; or (D) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. -3- 4 For purposes of this Agreement, the date on which a Change in Control shall occur shall be the date on which public announcement of the acquisition of such percentage described in clause (A) above shall have been made, or the date on which the change in the composition of the Board described in clause (B) above shall have occurred, or the date of any such stockholder approval described in clauses (C) or (D) above. (c) Notwithstanding paragraph 3(a) above, the restrictions set forth in paragraph 4 below will not lapse on any Restricted Shares with respect to which any amount (the "Cap Amount"), as determined by the Company's independent auditors in accordance with the principles of section 162(m) of the Code, when added to any other compensation received or to be received by the Employee in any given fiscal year, would not be deductible by the Company by reason of section 162(m) of the Code UNTIL such time as the Management Compensation Committee determines, in its sole discretion using its best judgment, that such Cap Amount (or portion thereof), when added to all other compensation received or to be received by the Employee in such fiscal year, would be deductible by the Company, as determined by the Company's independent auditors in accordance with the principles of section 162(m) of the Code; PROVIDED, HOWEVER, that in the event of the termination of Employee's employment by the Company or any subsidiary thereof as a result of the death or permanent disability of Employee, or the termination of Employee's employment and concurrent retirement pursuant to normal or early retirement under a retirement plan of the Company or any subsidiary thereof, or the involuntary termination of Employee's employment by the Company or any subsidiary thereof, the restrictions set forth in paragraph 4 below will immediately lapse on any Restricted Shares comprising a Cap Amount; and PROVIDED FURTHER, that in the event of the voluntary termination of Employee's employment by the Company or any subsidiary thereof, the Restricted Shares comprising a Cap Amount shall remain subject to the forfeiture provisions set forth in paragraph 5 below. (d) As soon as practicable after the restrictions with respect to any installment of Restricted Shares lapse (i) at the end of the period applicable to such installment set forth in paragraph 3(a) above (the "Restriction Period") or (ii) pursuant to paragraphs 3(b), 3(c) or 5 hereof, the Company will deliver to the Employee, or the Employee's legal representative in case of the Employee's death, promptly after surrender of the Employee's certificate(s) for the Restricted Shares to the Treasurer of the Company, the certificate or certificates for such shares free of any legend or further restrictions together with a new certificate representing any remaining Restricted Shares. It shall be a condition to the obligation of the Company to issue or transfer shares of Common Stock upon the lapse of restrictions that the Employee (or any person entitled to act under this paragraph 3(d)) pay to the Company, upon its demand, such amount as may be requested by the Company for the purpose of satisfying its liability to withhold federal, state or local income or other taxes by reason of such issuance or transfer. If the amount requested is not paid, the Company may refuse to issue or transfer shares of Common Stock. 4. RESTRICTIONS. During the Restriction Period, neither the Restricted Shares nor any right or privilege pertaining thereto may be sold, transferred, assigned, pledged, hypothecated or otherwise disposed of or encumbered in any way, by operation of law or otherwise, and shall not be subject to execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of or encumber the Restricted Shares or any right or privilege pertaining thereto, otherwise -4- 5 than by will or by the laws of descent and distribution, or upon the levy of any execution, attachment or similar process thereupon, the Restricted Shares and all rights and privileges given hereby shall immediately terminate and the Restricted Shares shall be forfeited to the Company pursuant to paragraph 5 hereof. 5. FORFEITURE. (a) All the Employee's rights to, and interest in, the Restricted Shares shall terminate and be forfeited to the Company without payment of consideration if either (i) the Employee's employment by the Company or any subsidiary thereof terminates for any reason other than the Employee's death, disability, retirement pursuant to normal or early retirement under any retirement plan of the Company or any subsidiary of the Company or termination by the Company or any subsidiary of the Company, PROVIDED, HOWEVER, that the Employee's employment will not be deemed to have terminated for this purpose while the Employee is on a leave of absence which has been approved by the Company, or (ii) any action prohibited by paragraph 4 hereof is taken. In the event of termination of employment as a result of death or permanent disability, the restrictions set forth in paragraph 4 hereof will lapse with respect to the Original Number multiplied by a fraction, the denominator of which shall be 120 and the numerator of which shall be the number of full months of employment of the Employee by the Company or any subsidiary of the Company after December 31, 1993 (the "Pro Rata Number"), and the remaining Restricted Shares in excess of the Pro Rata Number shall be forfeited in accordance with this paragraph 5(a) or, if the Original Number with respect to which restrictions have lapsed pursuant to paragraph 3 hereof prior to such termination of employment exceeds the Pro Rata Number, all remaining Restricted Shares in excess of such Original Number with respect to which restrictions have lapsed pursuant to paragraph 3 hereof shall be forfeited in accordance with this paragraph 5(a); in the event of termination of employment and concurrent retirement pursuant to normal or early retirement under a retirement plan of the Company or any subsidiary thereof, the Pro Rata Number shall continue to be subject to the provisions of paragraph 3 hereof (provided that the lapsing of restrictions for such Pro Rata Number under paragraph 3(a) and 3(c) shall be determined based on the Original Number) and the remaining Restricted Shares in excess of the Pro Rata Number shall be forfeited in accordance with this paragraph 5(a) or, if the Original Number with respect to which restrictions have lapsed pursuant to paragraph 3 hereof prior to such termination of employment and retirement exceeds the Pro Rata Number, all remaining Restricted Shares in excess of such Original Number with respect to which restrictions have lapsed pursuant to paragraph 3 hereof shall be forfeited in accordance with this paragraph 5(a); and in the event of termination by the Company or any subsidiary thereof of the Employee's employment by the Company or any subsidiary thereof for any reason, the restrictions set forth in paragraph 4 hereof will lapse with respect to the lesser of the Pro Rata Number and the Pro Rata Number multiplied by a fraction, the denominator of which shall be the Closing Price of the Company's Common Stock on the date of such termination of employment and the numerator of which shall be $18.625 (the "Modified Pro Rata Number"), and the remaining Restricted Shares in excess of the lesser of the Pro Rata Number and the Modified Pro Rata Number shall be forfeited in accordance with this paragraph 5(a) or, if the Original Number with respect to which restrictions have lapsed pursuant to paragraph 3 hereof prior to such termination of employment exceeds the Pro Rata Number, all remaining Restricted Shares in excess of such Original Number with respect to which restrictions have lapsed pursuant to paragraph 3 hereof shall be forfeited in accordance with this paragraph 5(a). For purposes of this Agreement, a transfer of employment from the Company to a subsidiary or from a subsidiary to the Company or between subsidiaries shall not be deemed a termination of employment. -5- 6 (b) If Restricted Shares are forfeited for any of the reasons stated in paragraph 5(a) hereof, such forfeiture shall be effective upon the occurrence of the event giving rise to the forfeiture. The Employee agrees to repay to the Company all dividends, if any, paid after such event with respect to the Restricted Shares which have been forfeited. (c) If at any time the Employee forfeits any Restricted Shares pursuant to this Agreement, the Employee agrees to return the certificate or certificates for such Restricted Shares to the Company duly endorsed in blank or accompanied by a stock power duly executed in blank. (d) Determination as to whether an event has occurred resulting in the forfeiture of, or lapse of restrictions on, Restricted Shares, in accordance with this Agreement, shall be made by the Company's Management Compensation Committee, and all determinations of the Committee shall be final and conclusive. 6. NOTICES. (a) Any notice to the Company pursuant to any provision of this Agreement will be deemed to have been delivered when delivered in person to the Secretary of the Company or when deposited in the United States mail as certified or registered mail, return receipt requested, addressed to the Secretary of the Company at the executive offices of The Allen Group Inc., at 25101 Chagrin Boulevard, Beachwood, Ohio 44122, or such other address as the Company may from time to time designate in writing by notice to the Employee given pursuant to paragraph 6(b) below. (b) Any notice or demand to the Employee pursuant to any provision of this Agreement will be deemed to have been delivered to the Employee when delivered to the Employee in person or when deposited in the United States mail as certified or registered mail, return receipt requested, addressed to the Employee at the Employee's address given at the end of this Agreement or the Employee's address on the stockholder records of the Company or such other address as the Employee may from time to time designate in writing by notice to the Company given pursuant to paragraph 6(a) above. 7. COMPANY RIGHT TO TERMINATE EMPLOYMENT AND OTHER REMEDIES. Nothing provided herein shall be construed to affect in any way the right or power of the Company, subject to the provisions of any other written agreement between the Employee and the Company relating to the subject matter, to terminate the Employee's employment as an employee of or a consultant to the Company at any time for any reason with or without cause, nor to preclude the Company from taking any action or enforcing any remedy available to it with respect to any action or conduct on the Employee's part. 8. ADDITIONAL DOCUMENTS. (a) It is the intention of the Company that this award of Restricted Shares shall meet the requirements of, and result in the application of, the rules prescribed by Section 83 of the Code and applicable Regulations thereunder. Accordingly, each and every provision shall be construed and interpreted in such manner as to conform with such intention and the Company reserves the right to execute and to require the Employee to execute any further agreements or other instruments, which may be effective as of the date of the award of the Restricted Shares covered by this Agreement, including, but without limitation, any instrument modifying or -6- 7 correcting any provision hereof, or any action taken hereunder or contemporaneously herewith, and to take any other action, which may be effective as of the date of the award of the Restricted Shares covered by this Agreement, that, in the opinion of counsel for the Company, may be necessary or desirable to carry out such intention. (b) If the Employee fails, refuses or neglects to execute and deliver any instrument or document or to take any action requested by the Company to be executed or taken by the Employee pursuant to the provisions of paragraph 8(a) above for a period of thirty (30) days after the date of such request, the Company may require the Employee, within ten (10) days after delivery to the Employee of a written demand by the Company, to forfeit all Restricted Shares then held by the Employee. 9. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be binding upon and inure to the benefit of the Company, its successors and assigns, and the Employee and, to the extent applicable, the Employee's legal representative. 10. GOVERNING LAW. The validity, interpretation, performance and enforcement of this Agreement and the Employee's rights in, to and under the Restricted Shares shall for all purposes be governed by the laws of the State of Delaware without giving effect to the principles of conflicts of laws thereof. 11. 1992 STOCK PLAN. The provisions hereof shall be subject to all the terms, provisions and conditions of the Plan (as amended from time to time by the Board of Directors of the Company within the limitations permitted by the Plan) and the rules and regulations relating to the Plan prescribed by the Management Compensation Committee of the Company, and this Agreement and the Plan and said rules and regulations relating thereto shall be construed as one instrument and in the event of any inconsistency the provisions of the Plan as interpreted and construed by the Management Compensation Committee shall control. THE ALLEN GROUP INC. By_______________________ Member Management Compensation Committee -7- 8 ACCEPTANCE. The Restricted Shares of Common Stock of The Allen Group Inc. awarded to the undersigned Employee under the foregoing Restricted Stock Agreement and the 1992 Stock Plan are hereby accepted on the terms and subject to the conditions of such Restricted Stock Agreement and 1992 Stock Plan. _______________________________ Employee's Signature _______________________________ _______________________________ __________________________ (Employee's Address) Employee's Social Security Number INSTRUCTION. Employee should sign and print his address and social security number in the spaces provided above, which serves as the Employee's acceptance of the Restricted Shares. STOCK\RESTAGREE -8- EX-10.J 6 ALLEN GROUP EX-10(J) 1 EXHIBIT 10(j) THE ALLEN GROUP INC. 1994 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN ------------------------ 1. PURPOSE. The purpose of The Allen Group Inc. 1994 Non-Employee Directors Stock Option Plan (the "Plan") is to attract, retain and compensate highly qualified individuals who are not current employees of The Allen Group Inc. (the "Company") as members of the Board of Directors and to enable them to increase their ownership of shares of Common Stock, $1.00 par value, of the Company ("Common Stock"). The Plan will be beneficial to the Company and its stockholders since it will allow these directors to have a greater personal financial stake in the Company through the ownership of Company stock, in addition to underscoring their common interest and identification with stockholders in increasing the value of Company stock. 2. SHARES SUBJECT TO PLAN. The total number of shares of Common Stock with respect to which options may be granted under the Plan shall not exceed 250,000 (as adjusted pursuant to Section 7 hereof). Shares issued upon exercise of options granted under the Plan may be either authorized and previously unissued shares, issued shares which have been reacquired by the Company, or any combination thereof. In the event that any option granted under the Plan shall terminate, expire or, with the consent of the optionee, be canceled as to any shares of Common Stock, without having been exercised in full, new options may be granted with respect to such shares without again being charged against the maximum share limitations set forth above in this Section 2. 3. ADMINISTRATION. The Plan shall be administered by the Management Compensation Committee of the Board of Directors, or any successor Committee (the "Committee"), which shall be appointed by the Board of Directors of the Company and shall consist of such number of directors, not less than two, as shall be determined by the Board, who shall serve at the pleasure of the Board, and each of whom shall at the time of designation and service be a "disinterested person" within the meaning of Rule 16b-3 of the Securities and Exchange Act of 1934, or any successor provision at the time in effect ("Rule 16b-3"). Vacancies occurring in the membership of the Committee shall be filled by appointment by the Board of Directors. If for any reason the Committee is unable to perform its functions and duties under the Plan, the Board of Directors may perform any such functions and duties. The Committee, from time to time, may adopt rules and regulations for carrying out the provisions and purposes of the Plan. The interpretation and construction by the Committee of any provisions of, and the determination of any questions arising under, the Plan, any such rule or regulation, or any agreement evidencing options under the Plan, shall be final, binding and conclusive on all persons interested in the Plan. The Secretary of the Company shall be authorized to implement the Plan in accordance with its terms and to take such actions of a ministerial nature as shall be necessary to effectuate the intent and purposes hereof. The validity, construction and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of Delaware without regard to its conflicts of law principles. 4. ELIGIBILITY. All members of the Company's Board of Directors who are not current employees of the Company or any of its subsidiaries at the time of option award ("Non-Employee Directors") are eligible to participate in the Plan. 5. TYPES OF OPTIONS. (a) FORMULA AWARDS. Options to purchase 1,000 shares of Common Stock (as adjusted pursuant to Section 7 hereof) shall be granted automatically to each Non-Employee Director who previously has not been employed by the Company or any of its subsidiaries each year on the first Friday following the Company's Annual Meeting of Stockholders (hereinafter referred to as "Formula Awards"). No Non-Employee Director who previously has been employed by the Company or any of its subsidiaries shall be eligible to receive Formula Awards under the Plan. A-1 2 (b) DISCRETIONARY AWARDS. The Committee, in its sole discretion, shall determine the Non-Employee Directors who previously have been employed by the Company or any of its subsidiaries to whom options (other than Formula Awards) shall be granted, the time or times when they shall be granted and the number of shares to be covered by each option so granted (hereinafter referred to as "Discretionary Awards"). No Non-Employee Director who is eligible to receive Formula Awards and no director who is a member of the Committee, during the time of his or her service as such, shall be eligible to receive Discretionary Awards under the Plan. (c) NON-STATUTORY STOCK OPTIONS. All options granted under the Plan shall be non-statutory options not intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). Each option granted under the Plan shall provide that such option will not be treated as an "incentive stock option," as that term is defined in Section 422(b) of the Code. 6. TERMS AND CONDITIONS OF OPTIONS. All options approved by the Committee under the Plan shall be evidenced by stock option agreements in writing (hereinafter referenced to as "option agreements"), in such form as the Committee may from time to time approve, executed on behalf of the Company by the Chairman of the Board or President of the Company. Each option agreement shall be subject to the Plan, and, in addition to such other terms and conditions as the Committee may deem desirable, shall provide in substance as follows: (a) PURCHASE PRICE. The purchase price per share of Common Stock for which each option is exercisable shall be equal to 100% of the Fair Market Value of a share of Common Stock as of the date such option is granted ("Fair Market Value"). Such Fair Market Value shall be the last sale price of Common Stock on the date next preceding such date as reported on the New York Stock Exchange Composite Tape or, in the event that no sale shall have taken place on the New York Stock Exchange on such next preceding day, the last sale price of Common Stock on the next preceding day on which there was a sale as reported on the New York Stock Exchange Composite Tape, or if the Common Stock is no longer traded on the New York Stock Exchange, the fair market value on such date as determined by the Committee in accordance with applicable law and regulations. The option price shall be subject to adjustment as provided in Section 7 hereof. (b) EXERCISABILITY AND TERM OF OPTIONS. Subject to Section 6(c) hereof, each option granted under the Plan shall be exercisable 50 percent after two years from date of grant, 75 percent after three years from date of grant and 100 percent after four years from date of grant. Each option granted under the Plan shall expire 10 years from the date of grant and shall be subject to earlier termination as hereinafter provided. If a Non-Employee Director subsequently becomes an employee of the Company while remaining a member of the Board of Directors, any options held under the Plan by such individual at the time of such commencement of employment shall not be affected thereby. (c) CESSATION OF SERVICE. Except as hereinafter set forth, no option shall be exercisable after the date of cessation of an optionee's service as a director of the Company. Upon the death of an optionee at any time or upon cessation of service six months or more after the date of grant, all of the then outstanding Formula Award options of such optionee shall become immediately exercisable. If an optionee's service ceases for any reason, such exercisable Formula Award options may be exercised by the optionee within three months after such cessation of service. If an optionee shall die within such three-month period, or if cessation of his or her service shall have been due to such optionee's death, such Formula Award options may be exercised at any time within one year after such death by the optionee's executor or administrator or by his or her distributee to whom such Formula Award options may have been transferred by will or by the laws of descent and distribution. Notwithstanding anything to the contrary herein, if upon an optionee's cessation of service the optionee is or becomes an employee or a senior management consultant to the Company and/or its subsidiaries, such Formula Award options may be exercised by the optionee during the period ending on the earliest of (i) the ninetieth (90th) day following the date that the optionee permanently ceases to render employment or consulting services to the Company and/or its subsidiaries, for any reason other than cessation by reason of death, or (ii) the date that is one year after the date described in clause (i) if the optionee ceases to render employment or consulting services on account of his or her death (in which case such option may be exercised by the A-2 3 optionee's executor or administrator or by his or her distributee to whom the option may have been transferred by will or by the laws of descent and distribution). The effects of cessation of an optionee's service as a director on the exercisability of a Discretionary Award option shall be determined by the Committee, in its sole discretion, and shall be set forth in the option agreement evidencing such Discretionary Award option; PROVIDED, HOWEVER, that the cessation of service terms with respect to any Discretionary Award option shall be no more favorable than those set forth herein with respect to Formula Award options. The foregoing provisions shall not extend the period during which an option may be exercised beyond the date it expires by its terms. (d) MANNER OF EXERCISE. Each option agreement shall provide that any option therein granted shall be exercisable only by giving in each case written notice of exercise, accompanied by full payment of the purchase price either (i) in cash (including check, bank draft or money order, or wire or other transfer of funds, or advice of credit to the Company), or (ii) in shares of Common Stock with a fair market value equal to the purchase price or a combination of cash and shares of Common Stock which in the aggregate are equal in value to such purchase price. At the discretion of the Committee, the option agreement may provide that shares of Common Stock may be issued in the name of the optionee and another person jointly with the right of survivorship. (e) NONTRANSFERABILITY. Each option agreement shall provide that any option therein granted is not transferable by the optionee other than by will or by the laws of descent and distribution and that, during the lifetime of the optionee, such option may be exercised only by the optionee or such optionee's legal representative. (f) WITHHOLDING OF TAXES. It shall be a condition to the obligation of the Company to issue or transfer shares of Common Stock upon the exercise of an option that the optionee pay to the Company, upon its demand, such amount, if any, as may be requested by the Company for the purpose of satisfying its liability to withhold federal, state or local income or other taxes incurred by reason of the exercise of such option or the transfer of shares upon such exercise. If the amount requested is not paid, the Company may refuse to issue or transfer shares of Common Stock upon exercise of the option. 7. ADJUSTMENT UPON CHANGES IN STOCK. The Board of Directors shall make or provide for such adjustments in the option price and in the number or kind of shares or other securities covered by outstanding options as the Board of Directors in its sole discretion, exercised in good faith, shall determine is equitably required to prevent dilution or enlargement of rights of optionees that would otherwise result from (a) any stock dividend, stock split, combination of shares, issuance of rights or warrants to purchase stock, recapitalization or other changes in the capital structure of the Company, (b) any merger, consolidation, reorganization or partial or complete liquidation, or (c) any other corporate transaction or event having an effect similar to any of the foregoing. The Board of Directors also shall make or provide for such adjustments in the number or kind of shares of the Company's Common Stock or other securities which may be acquired pursuant to options granted under this Plan and the number of such securities to be awarded to each optionee as the Board of Directors in its sole discretion, exercised in good faith, shall determine is appropriate to reflect any transaction or event described in the preceding sentence. The determination of the Board of Directors as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive. 8. FRACTIONAL SHARES. No fractional shares shall be issued pursuant to options granted hereunder, and any fractional share resulting from an adjustment pursuant to Section 7 hereof shall be eliminated. 9. GOVERNMENT REGULATIONS. The Plan, the grant and exercise of options hereunder, and the Company's obligation to sell and deliver shares of stock pursuant to any such exercise, shall be subject to all applicable federal and state laws, rules and regulations and to such approvals by any regulatory or government agency as shall be required. The Company shall not be required to issue or deliver any certificate or certificates for shares of its Common Stock prior to (a) the admission of such shares to listing on any stock exchange on which the stock shall then be listed and (b) the completion of any registration or other qualification of such shares under any state or federal law or rulings or regulations of any government body, which the Company shall, in its sole discretion, determine to be necessary or advisable. A-3 4 10. TERM OF THE PLAN. The Plan shall become effective immediately following approval by the stockholders of the Company at its 1994 Annual Meeting of Stockholders. The period during which option grants shall be made under the Plan shall terminate on the first Saturday following the 2003 Annual Meeting of Stockholders. Termination of the Plan, however, shall not affect outstanding options which have been granted prior to such termination, and all unexpired options shall continue in full force and operation after termination of the Plan, except as they shall lapse or terminate by their own terms and conditions, and the terms of the Plan shall continue to apply to such options. 11. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN. The Board of Directors at any time and from time to time may amend, suspend or terminate the Plan; PROVIDED, HOWEVER, that (a) no amendment which requires stockholder approval in order for the exemptions available under Rule 16b-3 to continue to be applicable shall be effective unless the same shall be approved by the stockholders of the Company entitled to vote thereon, and (b) amendments revising the amount, price or timing of Formula Awards shall not be made more frequently than once every six months unless necessary to comply with the Code, the Employee Retirement Income Security Act, or the rules thereunder. Without the written consent of the optionee, no amendment, suspension or termination of the Plan shall adversely affect any option previously granted under the Plan, but it shall be conclusively presumed that any adjustment or change as provided in Section 7 does not adversely affect any such right. 12. COMPLIANCE WITH RULE 16b-3. The Plan is intended to comply with Rule 16b-3 as in effect prior to May 1, 1991. Notwithstanding the previous sentence, the Committee may elect at any time to have Rule 16b-3 as in effect after May 1, 1991 apply to the Plan. 13. NO RIGHT TO CONTINUE AS DIRECTOR. Neither the Plan, nor the granting of an option nor any other action taken pursuant to the Plan, shall constitute or be evidence of any agreement or understanding, express or implied, that a director has a right to continue as a director for any period of time, or at any particular rate of compensation. A-4 EX-11 7 ALLEN GROUP EX-11 1 EXHIBIT 11 STATEMENT RE COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE ------------------------------------------------------------ Net income (loss) and common shares used in calculation of earnings (loss) per common share for the five years ended December 31, 1993 were computed as follows (amounts in thousands):
For the Years Ended December 31, ----------------------------------------------------------------------- 1989 1990 1991 1992 1993 ----------------------------------------------------------------------- Earnings: - -------- Net Income (loss) $19,025 $(1,262) $17,482 $15,340 $24,127 Less preferred stock dividends(1) (4,025) (4,025) (4,025) (4,025) (2,180) ------ ------ ------ ------ ----- Net income (loss) applicable to common stock (primary and fully diluted) $15,000 $(5,287) $13,457 $11,315 21,947 ====== ====== ====== ====== ====== Common Shares:(2) - ------------- Weighted average shares outstanding during each year 18,058 18,366 18,482 19,050 22,147 Shares issuable upon assumed exer- cise of options 92 158 250 634 793 ------ ------ ------ ------ ----- Common shares - primary 18,150 18,524 18,732 19,684 22,940 Adjustment for full dilution(3) - - - - - ------ ------ ------ ------ ----- Common shares - assuming full dilution 18,150 18,524 18,732 19,684 22,940 ====== ====== ====== ====== ====== (1) In 1993, the Company exercised its redemption rights; however, prior to the planned redemption date, 2,289,615 shares of convertible Preferred Stock were converted into 2,289,615 shares (4,579,230 on a post stock split basis) of Common Stock of the Company. (2) All share amounts have been adjusted to reflect a 10% Common Stock dividend paid January 17, 1992 to stockholders of record December 23, 1991 and a two-for-one Common Stock split paid October 18, 1993 to stockholders of record September 30, 1993. (3) The assumed conversion of preferred stock and outstanding convertible subordinated debentures into Common Stock was not dilutive for purposes of calculating fully diluted earnings per common share for each year in the periods ended December 31, 1989 through 1993.
EX-13 8 ALLEN GROUP EX-13 1 EXHIBIT 13 The Allen Group Inc. Annual Report 124-136 2 SEGMENT SALES AND INCOME
PRODUCT LINE SALES (amounts in millions) 1993 1992 1991 1990 1989 MOBILE COMMUNICATIONS* Systems Products $ 62.4 $ 51.3 $ 20.7 $10.4 $ 3.7 Site Management and Other Non-Antenna Products 49.1 29.3 31.5 20.6 15.5 Mobile and Base Antennas 57.2 42.4 28.4 30.3 33.7 Frequency Planning, Systems Design and Related Services 14.9 5.7 - - - ----------------------------------------------------------------------- $183.6 $128.7 $ 80.6 $ 61.3 $ 52.9 _______________________________________________________________________________________________________________________________ AUTOMOTIVE TEST AND SERVICE Centralized Automotive Emissions Inspections $ 2.7 $ .4 $ - - - Replacement Radiators** - - - 23.1 66.0 ----------------------------------------------------------------------- $ 2.7 $ .4 $ - $ 23.1 $ 66.0 _______________________________________________________________________________________________________________________________ TRUCK PRODUCTS Truck Cabs, Van Conversions, and Metal and Fiberglass Fabrications $ 56.0 $ 50.0 $ 40.2 $ 52.0 $ 61.4 Truck Radiators and OEM Products 37.7 33.9 30.7 36.9 42.1 ----------------------------------------------------------------------- $ 93.7 $ 83.9 $ 70.9 $ 88.9 $ 103.5 _______________________________________________________________________________________________________________________________ Total Sales $ 280.0 $ 213.0 $ 151.5 $ 173.3 $ 222.4 _______________________________________________________________________________________________________________________________ OPERATING INCOME (amounts in millions) 1993 1992 1991 1990 1989 Mobile Communications*** $34.1 $34.3 $20.9 $12.7 $ 9.3 Automotive Test and Service (1.0) - - (1.1) 3.9 Truck Products 9.9 4.4 (1.0) 4.6 7.3 Equity in Earnings (Loss) of Joint Ventures .4 (3.7) (1.4) .7 - ----------------------------------------------------------------------- Operating Income 43.4 35.0 18.5 16.9 20.5 Financing Costs (3.2) (2.0) (1.5) (2.1) (3.8) General Corporate Expenses**** (7.2) (7.4) (9.6) (7.2) (6.5) ----------------------------------------------------------------------- Income before taxes $33.0 $25.6 $ 7.4 $ 7.6 $10.2 _______________________________________________________________________________________________________________________________ * In 1992 the Company purchased Alliance Telecommunications Corporation; accordingly, sales include those of Alliance since the July 30, 1992 acquisition date. ** The decline in sales of replacement radiators in 1990 is due to the establishment of the Company's joint venture, GO/DAN Industries, on June 1, 1990. Accordingly, 1990 includes only five months of sales. *** Includes amortization of goodwill in the amount of $1,642,000 and $632,000 in 1993 and 1992, respectively. **** The increase in general corporate expenses in 1991 is primarily attributable to a $1.8 million provision for relocation costs.
12 3 CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991 (AMOUNTS IN THOUSANDS) 1993 1992 1991
SALES $280,031 $212,953 $151,532 ---------------------------------------- COSTS AND EXPENSES Cost of sales 195,780 143,831 109,812 Selling, general and administrative expenses 48,495 37,824 31,457 EQUITY IN EARNINGS (LOSS) OF JOINT VENTURES (Note 3) 407 (3,742) (1,399) INTEREST AND FINANCING EXPENSE (Note 2) 3,156 1,978 1,463 ---------------------------------------- INCOME BEFORE TAXES 33,007 25,578 7,401 PROVISION FOR INCOME TAXES (Note 8) 3,483 3,751 1,543 ---------------------------------------- INCOME FROM CONTINUING OPERATIONS 29,524 21,827 5,858 ________________________________________________________________________________________________________________________________ DISCONTINUED OPERATIONS (Note 10) Income (loss) from discontinued operations (4,563) (1,933) 11,583 Net gain (loss) on disposal of discontinued operations (2,936) - 41 ---------------------------------------- INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES 22,025 19,894 17,482 Cumulative effect of changes in accounting principles: Postretirement benefits other than pensions (Note 7) - (4,554) - Income taxes (Note 8) 2,102 - - ________________________________________________________________________________________________________________________________ NET INCOME $ 24,127 $ 15,340 $ 17,482 ________________________________________________________________________________________________________________________________ NET INCOME APPLICABLE TO COMMON STOCK $ 21,947 $ 11,315 $ 13,457 ________________________________________________________________________________________________________________________________ EARNINGS PER COMMON SHARE From continuing operations $ 1.19 $ .91 $ .10 Discontinued operations: Income (loss) from discontinued operations (.20) (.10) .62 Loss on sale of discontinued operations (.13) - - Cumulative effect of changes in accounting principles: Postretirement benefits other than pensions - (.24) - Income taxes (.10) - - ---------------------------------------- Net income $ .96 $ .57 $ .72 ---------------------------------------- Average common and common equivalent shares outstanding 22,940 19,680 18,740 ________________________________________________________________________________________________________________________________ The Notes are an integral part of these statements.
13 4 CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1992 (AMOUNTS IN THOUSANDS) 1993 1992 ASSETS: CURRENT ASSETS: Cash $ 11,173 $ 4,391 Accounts receivable, less allowance for doubtful accounts 1993, $1,270,000; 1992, $3,543,000 54,721 47,592 Receivable from joint venture 242 914 Inventories (Note 1) 56,828 75,573 Prepaid expenses 1,021 1,746 Current portion of note receivable (Note 10) 6,579 - Other current asset - 6,285 -------------------------- Total current assets 130,564 136,501 __________________________________________________________________________________________________________________ PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation and amortization (Note 1) 51,898 56,402 __________________________________________________________________________________________________________________ NET INVESTMENT IN AND ADVANCES TO JOINT VENTURE (NOTE 3) 23,042 22,619 EXCESS OF COST OVER NET ASSETS OF BUSINESSES ACQUIRED 59,578 61,159 OTHER ASSETS (NOTE 4) 59,556 27,430 -------------------------- 324,638 304,111 __________________________________________________________________________________________________________________ LEASE FINANCING ASSET - 83,811 __________________________________________________________________________________________________________________ TOTAL ASSETS $ 324,638 $ 387,922 __________________________________________________________________________________________________________________ LIABILITIES AND STOCKHOLDERS EQUITY: CURRENT LIABILITIES: Notes payable and current maturities of long-term obligations (Note 2) $ 839 $ 1,033 Accounts payable 20,180 20,425 Accrued expenses (including accrued wages and commissions- 1993, $6,540,000; 1992, $8,596,000) 32,697 45,393 Income taxes payable (Note 8) 5,040 2,637 -------------------------- Total current liabilities 58,756 69,488 __________________________________________________________________________________________________________________ LONG-TERM DEBT (NOTE 2) 51,758 67,050 OTHER LIABILITIES AND DEFERRED CREDITS (NOTE 4) 18,963 21,109 -------------------------- 129,477 157,647 __________________________________________________________________________________________________________________ LEASE FINANCING LIABILITIES - 70,936 __________________________________________________________________________________________________________________ COMMITMENTS AND CONTINGENCIES (NOTE 6) - - __________________________________________________________________________________________________________________ STOCKHOLDERS EQUITY (NOTE 5) Preferred stock - 2,300 Common stock, par value $1.00; authorized 50,000,000 shares; issued - 1993, 29,058,000; 1992, 23,202,000; outstanding - 1993, 25,964,000; 1992, 20,058,000 29,058 11,601 Paid-in capital 159,989 156,164 Retained earnings 32,671 13,742 Translation adjustments (90) (1,303) Less: Treasury stock-common shares, at cost, 1993, 3,094,482; 1992, 3,143,380 shares (17,916) (18,192) Unearned compensation (6,192) (4,973) Minimum pension liability adjustment (2,359) - -------------------------- Total stockholders equity 195,161 159,339 __________________________________________________________________________________________________________________ TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 324,638 $ 387,922 __________________________________________________________________________________________________________________ The Notes are an integral part of these statements.
14 5 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (amounts in thousands) 1993 1992 1991 CASH FLOWS FROM OPERATING ACTIVITIES: Income (loss) from operations: Continuing operations $29,524 $21,827 $5,858 Discontinued operations (10,225) (9,620) 6,407 Accounting change 2,102 (4,554) -- --------------------------------------- 21,401 7,653 12,265 Adjustments to reconcile income to net cash flow: Depreciation and amortization of fixed assets 6,611 6,701 6,325 Amortization of goodwill 1,742 657 -- Deferred income taxes 1,309 (664) (2,020) Equity in (earnings) losses of joint ventures (407) 3,742 1,399 Other amortization 2,575 1,693 490 Changes in operating assets and liabilities: Receivables (9,580) (2,393) 3,171 Inventories (8,560) 947 (2,248) Accounts payable and accrued expenses (6,659) 1,734 73 Income taxes payable 1,903 80 (8,873) Other, net (980) 3,665 (568) --------------------------------------- Cash generated by operating activities 9,355 23,815 10,014 ______________________________________________________________________________________________________________________________ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (11,360) (6,653) (4,976) Centralized emissions inspection program (3,585) -- -- Capitalized software product costs (1,912) (300) -- Start-up of manufacturing facility (2,532) -- -- Investments in and loans to telecommunication ventures (2,838) -- -- Sales and retirements of fixed assets 628 286 94 Proceeds from sale of: Automotive diagnostic and lease financing businesses 21,000 -- -- Automated manufacturing equipment business -- -- 34,477 Acquisition of businesses, net of cash acquired -- (21,841) -- Net proceeds from joint ventures 750 125 5,355 Collections on European notes receivable -- -- 8,372 --------------------------------------- Cash provided (used) by investing activities 151 (28,383) 43,322 ______________________________________________________________________________________________________________________________ CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds (repayments) of notes payable (194) 834 (5,039) Repayments of long-term debt (3,839) (4,016) (33,602) Dividends paid (4,023) (6,139) (4,887) Dividends received from Lease Financing -- 8,475 4,113 Exercise of stock options 1,936 1,912 331 Treasury stock sold to employee benefit plans 671 631 432 --------------------------------------- Cash provided (used) by financing activities (5,449) 1,697 (38,652) --------------------------------------- Net cash provided (used) by manufacturing 4,057 (2,871) 14,684 ______________________________________________________________________________________________________________________________ NET CASH PROVIDED (USED) BY LEASE FINANCING 2,691 (185) (8,021) ______________________________________________________________________________________________________________________________ TOTAL COMPANY INCREASE (DECREASE) IN CASH 6,748 (3,056) 6,663 Cash at beginning of year 4,425 7,481 818 --------------------------------------- Cash at end of year $11,173 $ 4,425 $ 7,481 ______________________________________________________________________________________________________________________________ The Notes are an integral part of these statements.
15 6 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991 (amounts in thousands) PREFERRED COMMON PAID-IN RETAINED TRANSLATION TREASURY UNEARNED STOCK STOCK CAPITAL EARNINGS ADJUSTMENT STOCK COMPENSATION ___________________________________________________________________________________________________________________________________ BALANCE DECEMBER 31, 1990 $2,300 $ 9,966 $125,663 $10,285 $ 52 $(19,453) $( 813) Net income -- -- -- 17,482 -- -- -- Cash dividends -- -- -- (4,887) -- -- -- Stock dividend -- 1,001 17,320 (18,339) -- -- -- Exercise of stock options -- 22 309 -- -- -- -- Treasury stock reissued, 86,298 common shares, at cost -- -- (201) -- -- 763 -- Restricted shares issued, net -- 32 497 -- -- -- (529) Remeasurement of restricted shares -- -- 931 -- -- -- (931) Amortization of unearned compensation -- -- -- -- -- -- 490 Adjustment from translating foreign financial statements into U.S. dollars -- -- -- -- (153) -- -- ___________________________________________________________________________________________________________________________________ BALANCE DECEMBER 31, 1991 2,300 11,021 144,519 4,541 (101) (18,690) (1,783) Net income -- -- -- 15,340 -- -- -- Cash dividends -- -- -- (6,139) -- -- -- Common shares issued in acquisition -- 271 5,516 -- -- -- -- Exercise of stock options -- 156 1,795 -- -- (39) -- Treasury stock reissued, 67,852 common shares, at cost -- -- 94 -- -- 537 -- Restricted shares issued, net -- 153 3,586 -- -- -- (3,739) Remeasurement of restricted shares -- -- 654 -- -- -- (654) Amortization of unearned compensation -- -- -- -- -- -- 1,203 Adjustment from translating foreign financial statements into U.S. dollars -- -- -- -- (1,202) -- -- ___________________________________________________________________________________________________________________________________ BALANCE DECEMBER 31, 1992 2,300 11,601 156,164 13,742 (1,303) (18,192) (4,973) Net income -- -- -- 24,126 -- -- -- Cash dividends -- -- -- (4,023) -- -- -- Preferred stock redemption (2,300) 2,290 911 (1,174) -- -- -- Two-for-one stock split -- 14,436 (14,436) -- -- -- -- Conversion of debentures -- 472 11,129 -- -- -- -- Exercise of stock options -- 165 1,883 -- -- (112) -- Treasury stock reissued, 55,088 common shares, at cost -- -- 283 -- -- 388 -- Restricted shares issued, net -- 94 1,636 -- -- -- (1,730) Remeasurement of restricted shares -- -- 770 -- -- -- (770) Amortization of unearned compensation -- -- -- -- -- -- 1,281 Stock option tax benefits -- -- 1,649 -- -- -- -- Eliminate translation adjustment from closed foreign operations -- -- -- -- 1,569 -- -- Adjustment from translating foreign financial statements into U.S. dollars -- -- -- -- (356) -- -- ___________________________________________________________________________________________________________________________________ BALANCE DECEMBER 31, 1993 $ -- $29,058 $159,989 $32,671 $ (90) $(17,916) $(6,192) ___________________________________________________________________________________________________________________________________ The Notes are an integral part of these statements.
16 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Accounting policies followed by the Company that materially affect the determination of financial position and results of operations are described below. BASIS OF CONSOLIDATION: The Company's consolidated financial statements include the accounts of all subsidiaries. Investments in and advances to GO/DAN Industries, a partnership joint venture in which the Company has a 50% ownership interest, are accounted for by the equity method. Under such method, the Company's share of net earnings (or losses) is included as a separate item in the consolidated statement of income. EXCESS OF COST OVER NET ASSETS OF BUSINESSES ACQUIRED (GOODWILL): The excess of investments in consolidated subsidiaries over net asset value at acquisition is being amortized on a straight-line basis over periods not exceeding forty years. FOREIGN CURRENCY TRANSLATION: Assets and liabilities of the Company's foreign subsidiaries are translated into U.S. dollars at the current rate of exchange, while revenues and expenses are translated at the average exchange rate during the year. Adjustments from translating foreign subsidiaries financial statements are excluded from the results of operations and are reported as a separate component of stockholders equity. VALUATION OF INVENTORIES: The Company values inventories including materials, labor and overhead at the lower of cost (principally first-in, first-out) or market. Inventories consisted of the following at December 31, 1993 and 1992 (amounts in thousands):
1993 1992 ____________________________________________________________________ Raw material $33,541 $35,043 Work-in-process 14,191 15,982 Finished goods 9,096 24,548 ----------------------------- $56,828 $75,573 ____________________________________________________________________
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is recorded at cost, less accumulated depreciation and amortization. Land improvements, buildings and machinery and equipment are depreciated over their estimated useful lives under the straight-line method. Provision for amortization of leasehold improvements is based on the term of the lease or the estimated useful lives of the improvements, whichever is shorter. Property, plant and equipment consisted of the following at December 31, 1993 and 1992 (amounts in thousands):
1993 1992 ____________________________________________________________________ Land and improvements $ 3,805 $ 3,734 Buildings 27,916 31,604 Machinery and equipment 52,940 58,574 Leasehold improvements 2,566 4,256 ----------------------------- $87,227 $98,168 Less accumulated depreciation and amortization (35,329) (41,766) ----------------------------- $51,898 $56,402 ____________________________________________________________________
COMPUTER SOFTWARE COSTS: The Company's policy is to capitalize costs incurred in creating computer software products once technological feasibility is established and to amortize such cost over periods ranging from two to ten years. The Company also capitalizes costs incurred in the development of computerized databases which are amortized over periods of from ten to twenty years. In 1993 and 1992, approximately $1,912,000 and $300,000, respectively, of these costs were capitalized and approximately $1,294,000 and $490,000, respectively, was amortized. No costs were capitalized and amortization was not significant in 1991. SOFTWARE LICENSE REVENUE: Revenues from software licenses are recognized upon delivery of the software if vendor obligations are insignificant and if collectibility is probable. Revenues from post contract support that are significant and/or unbundled with regards to the initial licensing fee, are recognized ratably over the post contract period. DEFERRED START-UP COSTS: During the initial phase of major new programs or development of significant new plant facilities for which prospective sales and cost recovery are based upon long-term commitments from customers, start-up costs are deferred and amortized over periods not exceeding four years. Pre-operating costs incurred in connection with the construction of centralized automotive emission testing program facilities under long-term contracts with governmental entities are deferred. Once operations have begun these costs are amortized by the straight-line method over the respective lives of the contracts, which currently range from three to seven years. RESEARCH AND DEVELOPMENT EXPENSES: Expenses for current and future products are expensed currently and such costs were $5,400,000, 2,550,000, and $1,030,000 in 1993, 1992 and 1991, respectively. In addition, the Company incurred other engineering expenses relating to new product development (that does not meet the accounting definition of "Research and Development") in the amount of $3,200,000, $2,470,000, and $2,200,000 in 1993, 1992 and 1991 respectively. 17 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INCOME TAXES: The Company accounts for income taxes pursuant to the provisions of Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." This standard revises and replaces SFAS No. 96, "Accounting for Income Taxes," under which the Company had previously accounted for income taxes. SFAS 109 has been applied prospectively from the January 1, 1993 adoption date, and prior year financial statements have not been restated. Under SFAS 109, deferred income taxes are recorded to reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end. EARNINGS PER COMMON SHARE: The primary earnings per common share calculations are determined after deducting dividends on outstanding preferred stock (prior to redemption) and are based upon the weighted average number of common and common equivalent shares outstanding. The calculations also include, if dilutive, the incremental number of common shares issuable on a pro forma basis upon the exercise of employee stock options, assuming the use of the proceeds of such exercise to repurchase outstanding shares at the average market price during the year. The higher amount of average primary shares in 1993, as compared with 1992 and 1991, is a result of the conversion of the Company's convertible preferred stock and a portion of its convertible debentures into common shares during the year. Prior to conversion, such securities were and, to the extent the convertible debentures remain outstanding, are included only in the computation of fully diluted earnings per common share. The calculations of fully diluted earnings per common share begin with the primary calculations but further reflect the pro forma effect, if dilutive, of the conversion of the then outstanding preferred stock and convertible debentures into common stock at the beginning of the year or time of issuance, if later. This calculation resulted in no dilution for the years 1993, 1992 and 1991. OTHER: The 1992 and 1991 financial statements have been reclassified to conform to the 1993 presentation; additionally, all per share and other related data have been adjusted, where applicable, to reflect the two-for-one stock split declared in September 1993. NOTE 2 FINANCING Long-term obligations consisted of the following (amounts in thousands):
1993 1992 _____________________________________________________________________ Credit agreement borrowings $ -- $23,163 Convertible subordinated debentures 4,978 16,431 Industrial revenue bonds: 7.5% due 1994 - 1999 900 1,050 Floating rate bonds due 2010 - 2025 25,000 25,000 Notes payable to insurance company 20,000 -- Other notes payable 2,602 3,489 Unamortized debt expense (883) (1,050) -------------------- 52,597 68,083 Less current maturities (839) (1,033) -------------------- $51,758 $67,050 _____________________________________________________________________
On February 17, 1994, the Company entered into a new revolving credit agreement. The new agreement increased the bank's lending commitments to $100,000,000 from $50,000,000 and extends the expiration date to July 1, 1997. Interest may be determined on a LIBOR (plus 1/2% to 1-1/2%) or prime rate basis at the Company's option. The Company has agreed to pay a commitment fee varying from 1/4 - 1/2 of 1% per annum on the unused portion of the commitment. At December 31, 1993, there were no outstanding borrowings under the predecessor credit agreement. In March 1994, the Company's wholly-owned subsidiary, MARTA Technologies, Inc., ("MARTA") entered into a credit agreement with two banks to provide project financing in the amount of $38,500,000 for the Maryland Centralized Automotive Emissions Testing Program expiring March 31, 1995. Interest may be determined on a LIBOR (plus 3/4%) or prime rate basis at MARTA'S option. MARTA has agreed to pay a commitment fee of 3/8% per annum on the unused portion of the facility. MARTA also has available credit lines with three banks, each in the amount of $20,000,000. Such lines expire in September 1994. Interest is based on the prime rate and MARTA has agreed to pay a commitment fee of 1/4% per annum on the unused portion. No amounts were outstanding under these lines at December 31, 1993. The Convertible Subordinated Debentures, Series A and B, due July 30, 1999 (the "Debentures"), are unsecured, subordinated obligations of the Company. The Debentures (to the extent not 18 9 converted) are payable in eight semi-annual installments of principal, commencing January 30, 1996 and bear interest at the rate of 6% per annum, payable semi-annually on January 30 and July 30 of each year. The Debentures are convertible at any time prior to their maturity into Common Stock of the Company. The number of shares of Common Stock issuable upon conversion of the Debentures equals the principal amount of the Debentures (or portion thereof) divided by the conversion price then in effect (which is subject to adjustment upon the occurrence of certain events). The Conversion Rate at December 31, 1993 is $13.97. The floating rate industrial revenue bonds bear interest at rates based upon a short-term tax exempt bond index, as defined in the bonds, and which approximated 3% at December 31, 1993. The average interest rate for all industrial revenue borrowings approximated 2.6% during 1993. On February 16, 1993, the Company borrowed $5,000,000 and $15,000,000 from an insurance company. These notes bear interest at a fixed rate of 7.50% and 8.13% per annum, respectively, and are due in installments of $1,500,000, $2,000,000 and $1,500,000 in years 1997, 1998 and 1999, respectively, and $5,000,000 in each year 2001 through 2003. The Note Agreement contains covenants and restrictions similar to the Company's revolving credit agreement. The aggregate maturities of long-term obligations for the years 1994 through 1998 are as follows (amounts in thousands):
1994 1995 1996 1997 1998 ______________________________________________________________________________ $839 $972 $2,168 $2,902 $3,400 ______________________________________________________________________________
The Company's borrowing agreements include various restrictive covenants as to the amount and type of indebtedness, investments and guarantees, maintenance of working capital and net worth, the purchase or redemption of the Company's shares and the disposition of the assets of the Company. The Company has entered into an interest rate swap agreement to reduce the impact of changes in interest rates pertaining to certain borrowings of MARTA Technologies, Inc. The difference to be paid or received is accrued as interest rates change and is recorded over the life of the agreements. At December 31, 1993, the Company had outstanding interest rate swap agreements with a commercial bank, having a total notional amount of $2,265,000. These agreements, which mature in June 1996, effectively change the interest rate exposure on $2,265,000 of its outstanding borrowings. The Company is exposed to credit loss in the event of non-performance by the other parties to the interest rate swap agreements. The Company does not anticipate non-performance by such other parties. NOTE 3 INVESTMENTS IN JOINT VENTURES The Company's investments at December 31, 1993 and 1992 represent principally its interest in GO/DAN Industries ("GO/DAN"), which is engaged in the manufacture and sale of automotive replacement radiators and other heat-transfer products. On October 30, 1992, the Company purchased the remaining 50% partnership interest in its MARTA Technologies joint venture which operates centralized automotive emissions inspection programs; subsequent to the acquisition, MARTA (now a wholly-owned subsidiary) is included on a fully consolidated basis in the Company's financial statements. In addition, the Company dissolved and liquidated its G&O/Altec Industries joint venture in 1992. Summarized financial data for the heat transfer joint ventures GO/DAN and G&O/Altec Industries (through date of dissolution), and MARTA (prior to its acquisition), are as follows (in thousands):
1993 1992 1991 - --------------------------------------------------------------------------------------------------- centralized centralized heat heat emission heat emission transfer transfer inspections transfer inspections - --------------------------------------------------------------------------------------------------- Revenues $121,460 $112,206 $2,253) $110,694 $1,818) Net income (loss)* 2,333 893 (193) 1,440 (166) Current Assets 67,534 64,607 - 75,336 577 Noncurrent assets 19,332 20,296 - 23,342 5,393 Current liabilities 27,349 46,338 - 62,256 1,598 Noncurrent liabilities 18,592 - - 475 3,310 Partners Equity 40,925 38,565 - 35,947 1,062 =================================================================================================== *Net income (loss) includes, in 1993, 1992 and 1991, the reimbursement of certain operating costs and expenses by the partners in the amount of $1,500,000, $9,450,000 and $8,200,000 respectively, for the Heat Transfer ventures and, in 1991, $300,000 for the Centralized Emissions Inspection venture.
19 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 OTHER ASSETS AND LIABILITIES Other assets consisted of the following (amounts in thousands):
1993 1992 ________________________________________________________ Installment note, non-current (Note 10) $ 13,158 $ -- Deferred tax asset (Note 8) 11,548 2,821 Capitalized computer software and database files 9,121 8,775 Investment in specialty rubber products business 4,344 4,344 Unliquidated assets of discontinued operations 2,887 3,317 Deferred start-up and pre-operating costs 3,833 -- Other 14,665 8,173 ----------------------- $59,556 $27,430 ________________________________________________________
In 1992, the Company surrendered its subordinated note received in connection with the sale of its former specialty rubber products business and an existing 9.5% common equity interest in exchange for an 8% common equity interest and $3,000,000 of special Class B equity shares. The Company's investment may be repurchased (at an amount not less than its carrying value) under certain circumstances and is subordinated to certain preferential equity distributions of other shareholders. Unliquidated assets of discontinued operations represent principally facilities held for sale or under short-term lease to the purchasers of such operations. Other liabilities and deferred credits consisted of the following (amounts in thousands):
1993 1992 ____________________________________________________________________ Accrued postretirement benefits $ 4,869 $ 5,406 Casualty self insurance reserves 2,214 2,214 Deferred compensation liabilities 1,373 1,832 Long-term pension liabilities 5,811 3,911 Other 4,696 7,746 ----------------------- $18,963 $21,109 ____________________________________________________________________
NOTE 5 CAPITAL STOCK The Company is authorized to issue up to 50,000,000 shares of common stock, $1.00 par value, and 3,000,000 shares of preferred stock, without par value, in one or more series. In addition, the Company can fix the powers, designations, preferences and rights of each of the preferred stock series. On September 9, 1993, the Company's Board of Directors declared a two-for-one stock split paid on October 18, 1993 to common stockholders of record on September 30, 1993. Accordingly, an amount equal to the $1.00 par value of the common shares issued, in the amount of $14,436,000, was credited to common stock with an offsetting charge to paid-in capital. Pursuant to a Notice of Complete Redemption mailed by the Company to the registered holders of Preferred Stock on June 15, 1993, the Company notified such holders that it would redeem all of the outstanding shares of Preferred Stock on July 16, 1993 (the "Redemption Date") at a redemption price of $25.525 per share plus the dividends accrued and unpaid on each such share of Preferred Stock to the Redemption Date. On or before the Redemption Date, 2,289,615 shares of the 2,300,000 shares of Preferred Stock were converted into 4,579,230 shares (post stock split basis) of Common Stock of the Company, leaving 10,385 shares of Preferred Stock which were redeemed. In addition, during the second half of 1993, approximately $11,453,000 of the outstanding convertible subordinated debentures issued in connection with the 1992 acquisition of Alliance Telecommunications Corporation ("Alliance") were converted into 877,269 shares (post stock split basis) of common stock. The excess of the outstanding amount of debentures converted over the par value of the common shares issued, was credited to paid-in capital. In 1992, the stockholders of the Company approved the adoption of the 1992 Stock Plan of the Company (the "Plan"). The total number of shares of the Company's Common Stock for which options may be granted and restricted shares of the Company's Common Stock ("Restricted Shares") may be awarded may not exceed 1,000,000 shares subject to certain adjustments as defined in the Plan. Under the Plan, the Management Compensation Committee of the Board of Directors (the "Committee") is authorized to grant stock options at market prices to key employees of the Company. Options may contain stock appreciation rights under which the Company, upon request of the optionee, may, at its sole discretion after a determination by the Committee, purchase the exercisable portion of an option for cash and/or shares at a price equal to the difference between the option price and the market price of the shares covered by such portion of the option in lieu of issuing shares upon exercise. The Company made no charges to income in connection with the exercise of stock appreciation rights in 1993, 1992 and 1991. 20 11 Under the Plan, the Company has awarded 385,398 Restricted Shares (net of cancellations), including 133,500 shares awarded in 1993, to key employees without cost to such employees. In connection with these awards, however, the key employees agree to forego salary increases and new stock option grants for a period of two years, other than for exceptional promotions. Restricted Shares vest in four equal increments, with 25% of such shares generally vesting in the seventh, eighth, ninth and tenth year from the year of award. The vesting of 50% of such shares may be accelerated (but not sooner than three years from the year of award) based upon the average sale price of the Company's Common Stock on the New York Stock Exchange during a period of 91 consecutive calendar days exceeding specified target levels, and the vesting of the other 50% of such shares may be accelerated based on average earnings per common share (excluding extraordinary and other non-operating gains and losses) over three consecutive fiscal years exceeding specified target levels beginning with the year the shares were awarded. These Shares are subject to forfeiture in certain circumstances as defined in the Plan. Unearned compensation, representing the fair market value of the Restricted Shares at the date of award, are charged to income over a 10-year period or over the period of actual vesting of such Shares, whichever period is shorter. The Company previously awarded Restricted Shares under the prior 1982 Stock Plan (terminated in 1992), to certain key employees. These Shares are subject to forfeiture under certain circumstances and are issued subject to certain transfer restrictions, including the passage of time, ranging from one to ten years. The Company has awarded 271,944 Restricted Shares under the 1982 Stock Plan without cost. As of December 31, 1993, 145,336 of these Restricted Shares (post-split basis) have vested and an additional 47,740 Shares (post-split basis) have been earned and are to be vested as of April 1, 1994. The remaining unvested shares will vest equally on April 1 of the year following the year in which the Company reports net income per common share, before extraordinary and other nonoperating items, as determined by the Committee, of 10% or more in excess of the net income target for the most recent preceding year during which Restricted Shares vested. Currently such targets are $.67 and $.73 for 1994 and 1995, respectively. Unvested shares may not be transferred unless there is a "Change in Control" of the Company, as defined in the agreements. The amount of compensation expense to be charged to income will be determined based on the fair market value of such shares at the time such net income targets are met. Recorded compensation expense with respect to all Restricted Shares was $1,281,000 in 1993, $1,203,000 in 1992 and $490,000 in 1991. Options to purchase 433,677 shares were exercisable on December 31, 1993, and 418,804 shares were available for grant of future options. At December 31, 1993, options outstanding were exercisable at various dates through the year 2003. In addition to options for common shares issued under the 1982 and 1992 Stock Plans, the Board of Directors granted to non-employee directors (in 1989), options to purchase 83,600 shares of common stock held in its treasury at $5.85 per share. During 1993, 17,600 options were exercised and options for 66,000 shares remain outstanding. Such options expire in 1999 and, at December 31, 1993, all were exercisable. Stock option activity for the three years ended December 31, 1993 is summarized as follows:
NUMBER OPTION OF SHARES PRICE RANGE ____________________________________________________________________________ Balance outstanding, December 31, 1990 1,202,542 $ 4.08 to $11.93 Granted 206,800 $ 6.59 to $ 7.84 Exercised (47,172) $ 4.83 to $ 8.98 Terminated and cancelled (65,992) $ 4.89 to $ 8.98 --------------------------------------- Balance outstanding, December 31, 1991 1,296,178 $ 4.08 to $11.93 Granted 71,000 $10.00 to $12.57 Exercised (312,466) $ 4.08 to $ 8.98 Terminated and cancelled (23,650) $ 4.66 to $ 7.84 --------------------------------------- Balance outstanding, December 31, 1992 1,031,062 $ 4.08 to $12.57 Granted 38,000 $15.13 to $25.81 Exercised (345,710) $ 4.66 to $11.93 Terminated and cancelled (18,150) $ 5.45 to $ 7.84 --------------------------------------- Balance outstanding, December 31, 1993 705,202 $ 4.08 to $25.81 ____________________________________________________________________________
At December 31, 1993, 1,124,006 common shares were reserved for outstanding stock options and for future grants of stock options and Restricted Shares of Common Stock, and 356,337 common shares were reserved for conversion of Debentures. In addition, 125,000 shares of Series B Junior Participating Preferred Stock are authorized for issuance under the Company's Stockholder Rights Plan. 21 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 COMMITMENTS AND CONTINGENCIES The Company's leases consist primarily of manufacturing facilities and equipment and expire principally between 1994 and 2002. A number of leases require that the Company pay certain executory costs (taxes, insurance and maintenance) and contain renewal and purchase options. Annual rental expense for operating leases included in results from continuing operations approximated $4,900,000 in 1993, $3,300,000 in 1992, and $2,300,000 in 1991. Future minimum payments under noncancellable leases as of December 31, 1993 were as follows (amounts in thousands):
OPERATING LEASES ________________________________________________________________________ 1994 $ 3,380 1995 2,020 1996 1,327 1997 765 1998 456 Thereafter 802 ------- Total minimum lease payments $ 8,750 ________________________________________________________________________
The Company is self insured for health care, workers compensation, general liability and product liability up to predetermined amounts above which third party insurance applies. The Company is contingently liable to insurance carriers under its workmen's compensation and liability policies and has provided a letter of credit in the amount of $6,500,000. In connection with the sale of its specialty rubber products operations, the Company remains as guarantor under certain long-term leases assigned to the purchasing company. Various legal actions are pending against or involve the Company and its subsidiaries with respect to such matters as product liability and casualty claims. In the opinion of management, after review and consultation with counsel, the aggregate liability, if any, that ultimately may be incurred in excess of amounts already provided should not have a material adverse effect on the consolidated financial position or results of operations of the Company. The Company has a Key Employee Severance Policy and has entered into severance agreements with senior key employees in order to provide financial assistance if employment with the Company is terminated under the circumstances set forth in the policy and the agreements. The policy and agreements provide for formalized severance benefits in the event of non-voluntary termination (other than for "Cause" or "Disability") before or after a "Change in Control" of the Company or voluntary termination for "Good Reason" after a "Change in Control," all as defined. In connection with two centralized automobile emission testing programs, the Company is contractually committed to the construction and start-up costs in the amount of approximately $56,000,000 of which $4,241,000 had been expended as of December 31, 1993. The Company is subject to federal, state and local laws designed to protect the environment and believes that, as a general matter, its policies, practices, and procedures are properly designed to reasonably prevent risk of environmental damage and financial liability to the Company. The Company has been named as a potentially responsible party under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) with respect to alleged environmental conditions at three sites. The Company expects to negotiate a settlement with the EPA for each of these locations as a de minimus settling party. In addition, the Company believes it is reasonably possible that environmental related liabilities may exist with respect to three industrial sites formerly occupied by the Company. Based upon Environmental Site Assessments, the Company believes that the cost of any potential remediation for which the Company may ultimately be responsible will not have a material adverse effect on the financial position or results of operations of the Company. NOTE 7 PENSION AND EMPLOYEE BENEFIT PLANS The Company has noncontributory pension plans covering the majority of its full-time employees. Plans covering salaried employees provide benefits that are based on years of service and compensation during the ten-year period prior to retirement, while plans covering hourly employees provide benefits of specified amounts for each year of service. Domestic pension costs are funded in compliance with the requirements of the Employee Retirement Income Security Act of 1974, as amended, as employees become eligible to participate, generally upon employment. The Company's consolidated pension cost from continuing operations (including foreign and supplemental pension plans) was approximately $1,620,000 in 1993, $990,000 in 1992, and $1,230,000 in 1991. Net periodic pension cost of continuing operations for the Company's funded plans included the following components (amounts in thousands): 22 13
1993 1992 1991 ______________________________________________________________________________ Service cost benefits earned during the year $ 968 $1,147 $1,135 Interest cost on the projected benefit obligation 3,013 3,086 3,008 Actual income on plan assets (7,650) (3,452) (6,334) Net amortization and deferral 4,845 578 3,973 _____________________________________________ Net periodic pension cost 1,176 1,359 1,782 Less allocated to discontinued operations (202) (665) (487) _____________________________________________ $ 974 $ 694 $1,295 ______________________________________________________________________________
Plan assets consist principally of equity securities (including 120,000 common shares of the Company) and investments in the separate accounts and general funds of insurance companies. The following tables set forth the plans combined funded status, principally at December 31, 1993 and 1992 (amounts in thousands):
PLANS WHOSE PLANS WHOSE ASSETS EXCEED ACCUMULATED BENEFITS ACCUMULATED BENEFITS EXCEED ASSETS ______________________________________________________________________________ 1993 Actuarial present value of benefit obligations: Vested benefits $27,173 $12,410 Nonvested benefits 259 238 ______________________________________ Accumulated benefit obligation 27,432 12,648 Effect of projected future compensation levels 3,058 -- ______________________________________ Projected benefit obligations 30,490 12,648 Plan assets at fair market value 30,722 9,487 ______________________________________ Projected benefit obligation in excess of plan assets 232 (3,161) Loss due to actual experience varying from actuarial assumptions 1,643 2,682 Prior service cost not yet recognized in pension cost 274 513 Transition liability (asset) on adoption of new accounting standard to be recognized in the future (725) 119 Adjustment required to recognize minimum liability -- (3,314) ______________________________________ Prepaid (accrued) pension cost $ 1,424 $ (3,161) ______________________________________________________________________________
PLANS WHOSE PLANS WHOSE ASSETS EXCEED ACCUMULATED BENEFITS ACCUMULATED BENEFITS EXCEED ASSETS ______________________________________________________________________________ 1992 Actuarial present value of benefit obligations: Vested benefits $28,562 $ 5,240 Nonvested benefits 367 199 ______________________________________ Accumulated benefit obligation 28,929 5,439 Effect of projected future compensation levels 4,474 65 ______________________________________ Projected benefit obligations 33,403 5,504 Plan assets at fair market value 32,676 4,180 ______________________________________ Projected benefit obligation in excess of plan assets (727) (1,324) Loss due to actual experience varying from actuarial assumptions 863 765 Prior service cost not yet recognized in pension cost 831 471 Transition liability (asset) on adoption of new accounting standard to be recognized in the future (732) 49 Adjustment required to recognize minimum liability -- (1,219) ______________________________________ Prepaid (accrued) pension cost $ 232 $ (1,258) ______________________________________________________________________________
Assumptions used in determining pension cost for the plans are:
1993 1992 ______________________________________________________________________________ Discount rate 7 1/4%-8% 8 1/2-9% Expected rate of increase in compensation 5 1/2% 6% Expected long-term rate of return on plan assets 9 1/2% 9-9 1/2% ______________________________________________________________________________
The discount rates used by the Company in 1993 are 7-1/4% for all U.S. pension plans and 8% for its Canadian plans. The Company provides health care and life insurance benefits for certain retired employees who reach retirement age while working for the Company. Effective as of January 1, 1992, the Company adopted Statement of Financial Accounting Standards No. 106 ("SFAS 106"), "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the Company accrue for such postretirement benefits based on actuarially determined costs recognized over the period from the date of hire to the full eligibility date of employees who are expected to qualify 23 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for these benefits. In accordance with the provisions of SFAS 106, the Company elected to recognize this change in accounting on the immediate recognition basis. The cumulative impact of adopting SFAS 106 as of January 1, 1992 amounted to $4,554,000 ($.24 per common share). The incremental expense in 1992 of accounting for postretirement health and life insurance benefits under the new accounting method amounted to approximately $430,000 or $.02 per common share. In 1993, the Company renegotiated and settled certain postretirement pension obligations which resulted in a net gain of approximately $580,000 included in selling, general and administrative expenses. The components of the 1993 and 1992 expense for postretirement health care and life benefits from continuing operations are as follows (in thousands):
1993 1992 - ------------------------------------------------------------------------- Net periodic cost: Service cost benefits attributed to service during period $222 $222 Interest cost on accumulated post- retirement benefit obligation 417 402 ---------------------------- Net postretirement health care cost $639 $624 _________________________________________________________________________
The components of the accumulated postretirement benefit obligation (all of which are unfunded) are as follows (in thousands):
1993 1992 - ------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $1,562 $1,704 Fully eligible active plan participants 286 239 Other active plan participants 3,965 3,663 Unrecognized net loss (944) - ---------------------------- Accumulated postretirement benefit obligation $4,869 $5,606 _________________________________________________________________________
The actuarial calculation assumes a 14.6% increase in the health care cost trend rate for 1993 (15% in 1992). The assumed rate decreases approximately .5% per year through the 20th year to 6.5% and remains constant beyond that point. The health care cost trend rate has a significant effect on the amounts reported. For example, a one percentage point increase in the health care cost trend rate would increase the accumulated postretirement benefit obligation by $623,000 and increase net periodic cost by $76,000. The weighted average discount used in determining the accumulated postretirement benefit obligation was 7.25% and 8% in 1993 and 1992, respectively. Retiree health care expense under the former cash basis for 1991 approximated $300,000. In November 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 112 ("SFAS 112"), "Employers Accounting for Postemployment Benefits" which is effective for fiscal years beginning after December 15, 1993. This Statement establishes standards of financial accounting and reporting for the estimated cost of benefits provided by an employer to former or inactive employees after employment including their beneficiaries and covered dependents, if applicable, but before retirement. The Company does not provide such benefits to any significant extent; accordingly, the adoption of these new requirements has no impact on the Company. The Company also has a deferred bonus plan for select key management employees, including officers. Bonuses under the plan may be awarded for any year in which a certain minimum return on equity is attained. Payments are made ratably over the succeeding five years in cash, restricted shares of the Company's Common Stock, pursuant to the 1992 Stock Plan, or a combination thereof, at the discretion of the Management Compensation Committee, whereby such cash and/or shares vest over the succeeding five years, subject to forfeiture in certain circumstances. The bonus awards accrued for 1993, 1992 and 1991 were $560,000, $370,000 and $460,000, respectively. For 1993 and 1992, the bonus will be paid 60% in Restricted Shares and 40% in cash; all prior awards were earned in cash. NOTE 8 INCOME TAXES Information with respect to income taxes in continuing operations is as follows (amounts in thousands):
1993 1992 1991 - ------------------------------------------------------------------------------- Provision (Benefit) for income taxes: Current: Federal $ - $ 501 $ 474 Foreign 349 2,774 1,961 State and local 1,825 1,140 1,128 ---------------------------------------- 2,174 4,415 3,563 ---------------------------------------- Deferred: Federal (1,050) 13 (32) Foreign 2,234 (577) (1,988) State and local 125 (100) - ---------------------------------------- 1,309 (664) (2,020) ---------------------------------------- Total $ 3,483 $ 3,751 $ 1,543 _______________________________________________________________________________ Income before taxes: Domestic (including Mexican Maquiladora) $31,180 $21,758 $ 5,839 Foreign 1,827 3,820 1,562 ---------------------------------------- $33,007 $25,578 $ 7,401 _______________________________________________________________________________
24 15 A reconciliation of the provisions for income taxes at the Federal statutory rates (35% in 1993 and 34% in 1992 and 1991) to the reported tax provisions is as follows (amounts in thousands):
1993 1992 1991 - --------------------------------------------------------------------------- Provision computed at the Federal statutory rate $11,553 $8,697 $2,516 State and local income taxes, net of Federal income tax benefit 1,268 686 744 Net higher tax rates on foreign income net of Puerto Rico tax exemption benefit 1,533 398 3,808 Tax benefit from utilization of U.S. net operating loss carryforward to reduce income tax expense (9,821) (6,544) (6,142) Tax benefit from recognition of future benefit of U.S. net operating loss carry-forward (1,050) - - Provision for U.S. alternative minimum tax - 514 617 ------------------------------------------- $3,483 $3,751 $1,543 _____________________________________________________________________________
Effective January 1, 1993 the Company adopted the provisions of SFAS No. 109, "Accounting for Income Taxes". This standard revised and replaced SFAS No. 96 under which the Company had previously accounted for income taxes. These new requirements resulted in a "cumulative adjustment from a change in accounting principle" of $2,102,000, representing amounts previously expensed under the U.S. "Alternative Minimum Tax" computations which are deemed to be recoverable in future years. This statement has been applied prospectively, and prior year financial statements have not been restated. The components of deferred tax assets (liabilities) are comprised of the following as of December 31, 1993 (amounts in thousands):
Gross deferred tax assets: - ----------------------------------------------------------------------------- Inventory $ 2,066 Self-insurance reserves 1,470 Pensions and deferred compensation 2,713 Postretirement benefits 1,674 Plant closings and costs of discontinued operations 2,520 Earnings of joint venture 1,610 Tax credit carryforwards 3,992 Product warranty claims 1,416 Other 1,826 ------- 19,287 ------- Gross deferred tax liabilities: Depreciation (2,517) Unremitted foreign earnings (3,570) Other (1,652) ------- (7,739) ------- Net deferred tax assets $11,548 ___________________________________________________________________
The Company has, for U.S. reporting purposes, gross deferred tax assets in excess of gross deferred tax liabilities, which includes amounts acquired in the acquisition of Alliance Telecommunications Corporation in July 1992. At December 31, 1993, the Company had approximately $7,700,000 of net future available tax deductions (excluding those of Alliance) and has recorded a deferred tax asset in the amount of $2,699,000, of which $1,649,000 pertained to deductions relative to employee stock options, which were credited to paid-in capital. The Company has available approximately $17,600,000 of future tax deductions with respect to the acquisition of Alliance. The Company has recognized a deferred tax asset in the amount of $6,160,000 with respect to these Alliance deductions which has resulted in a corresponding reduction in the excess of cost over the net assets of Alliance acquired. The Company believes that realization of such future benefits is "more likely than not" as set forth in SFAS 109. The Company also has a foreign net deferred tax asset in the amount of $587,000 representing future tax deductions which may be realized by carryback to offset previous taxable income and related tax expense. The last audit of the Company by the IRS covered the U.S. income tax returns through 1980. 25 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 INDUSTRY SEGMENT AND GEOGRAPHIC DATA Segment sales and income, identifiable assets, capital expenditures and depreciation and amortization by industry segment are presented in the charts on pages 30 to 33 of this Annual Report and are an integral part of these statements. The distribution of the Company's geographic operations is as follows (amount in thousands):
1993 1992 1991 - ------------------------------------------------------------------------- SALES AND INCOME Sales: United States $248,023 $186,593 $135,063 Canada 26,165 24,245 16,469 Germany 5,843 2,115 - ------------------------------------ $280,031 $212,953 $151,532 _________________________________________________________________________ Operating Income: United States $ 38,936 $ 28,259 $ 14,807 Canada 4,490 6,839 3,720 Germany (95) (98) - ------------------------------------ 43,331 35,000 18,527 Financing costs (3,156) (1,978) (1,463) General corporate expenses (7,168) (7,444) (9,663) ------------------------------------ $ 33,007 $ 25,578 $ 7,401 _________________________________________________________________________ ASSETS United States, including Mexican Maquiladora and Puerto Rico $311,726 $372,286 $293,303 Canada 10,225 12,955 14,202 Germany 2,687 2,681 447 ------------------------------------ $324,638 $387,922 $307,952 _________________________________________________________________________
Export sales of continuing operations were $57,200,000, $32,900,000 and $15,800,000 in 1993, 1992 and 1991, respectively. Sales and transfers among industry segments of the Company were not significant in any year presented. The aggregate net currency transaction and translation amounts included in income from continuing operations was a loss of $1,072,000 in 1993, a loss of $136,000 in 1992 and a gain of $99,000 in 1991. NOTE 10 ACQUISITIONS AND DISPOSITIONS On June 11, 1993, the Company sold its Allen Testproducts division and its wholly-owned leasing subsidiary, The Allen Group Leasing Corp. ("Leasing"), to SPX Corporation ("SPX"). Allen Testproducts manufactured and sold automotive engine diagnostic and test equipment for the automotive service industry and provided product financing through Leasing. At the closing, the Company received $21,000,000 in cash and an 8% Subordinated Note of SPX dated June 11, 1993 (the "Note"), in the amount of $19,737,000. The Note provides for the payment of three equal annual installments of $6,579,000, plus interest, on June 11 of 1994, 1995 and 1996. In addition, SPX assumed all of Leasing's indebtedness to banks in the amount of approximately $56,300,000. The Company also will receive non-competition payments for a three year period based upon a sliding scale from 1% to 3.5% of sales of the newly combined automotive engine diagnostic businesses of Allen Testproducts and SPX s Bear division. Such payments are recorded by the Company when earned and amounted to $880,000 in 1993. The Company has accounted for this transaction as a discontinued operation. Net manufacturing sales and lease finance revenues of the sold businesses were $25,879,000 and $6,845,000, respectively, through June 10, 1993, $66,612,000 and $7,687,000, respectively, in 1992 and $95,277,000 and $5,217,000, respectively, in 1991. Results of discontinued operations are net of allocated interest (based upon the proportion of net assets sold, excluding the separately financed leasing operations, to total Company net assets) of $253,000 through June 10, 1993 and $536,000 and $300,000 in 1992 and 1991, respectively. Results of discontinued operations also include allocated income tax expense of $35,000 through June 10, 1993, an income tax benefit of $40,000 in 1992 and income tax expense of $177,000 in 1991. The loss on sale of this business of $2,936,000 includes $850,000 of foreign currency translation adjustments, previously included as a component of stockholders equity, as well as transaction costs related to the sale. In 1992, the Company acquired Alliance Telecommunications Corporation ("Alliance") for a purchase price of approximately $44,000,000 consisting of $21,600,000 in cash, 270,877 shares of the Company s common stock with a value of $5,800,000 and $16,431,000 of Debentures. Pursuant to the terms of the acquisition agreement, the former shareholders of Alliance may earn additional purchase price consideration in the form of new debentures of the Company based on the attainment of "Net Sales" above specified minimum levels by Alliance's "Microcell Business" (both as defined in the agreement) beginning July 1, 1992 through December 31, 1994. The additional consideration is 80% of the excess of Net Sales of the Microcell Business over stipulated base levels up to the amounts set forth in its "Financial Plan" (as defined in the agreement), and 20% of Net Sales of such Business if and when Net Sales exceed the amounts in such Financial Plan. There is no limit as to the amount of such debentures that may be issued, 26 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS but their convertibility into shares of the Company's common stock is limited. If Net Sales of certain products as set forth in the Financial Plan during the period January 1, 1994 through December 31, 1994 are attained, additional consideration could approximate $7,200,000. No additional consideration has been earned through December 31, 1993. This acquisition has been accounted for under the Purchase Method of accounting; accordingly, Alliance's results of operations have been included in the Company s consolidated financial statements subsequent to the July 30, 1992 acquisition date. Pro forma combined revenues of the Company and Alliance for 1992 and 1991 (assuming the acquisition was effected on January 1, 1991) would have been approximately $249,000,000 and $215,000,000, respectively. Pro forma combined income from continuing operations would have been approximately $17,800,000 ($.69 per common share) and $4,800,000 ($.04 per common share), respectively. However, in management's opinion, the pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the acquisition of Alliance taken place on January 1, 1991. On October 30, 1992, the Company purchased the remaining 50% partnership interest in its Marta Technologies joint venture from its other partners. The purchase price included $540,000 in cash and the distribution of certain land of the venture with a book value of $168,000. In 1991, the Company sold its Allen Automated Systems division which operated its automated manufacturing equipment product line resulting in a net gain of $852,000, after applicable taxes of $100,000. The Company will receive contingent cash consideration based on the sales of certain products in future years (approximately $20,000, $420,000 and $260,000 in 1993, 1992 and 1991, respectively). Net sales of this operation were $30,300,000 for the seven months of 1991. In 1991, the Company was paid all amounts due from the sale of former European operations, including accrued interest. As a result of certain potential additional risk associated with the sale of these operations and due to the expected longer time period required to liquidate them, the Company provided, in 1991, additional reserves for losses and ongoing expenses. This transaction, net of reserves provided, resulted in a net gain of $2,800,000, after applicable U.S. alternative minimum income taxes of $100,000. In 1991, the Company also recorded $3,600,000 reserve against the carrying value of its investment received on the sale of the specialty rubber products business sold in 1989. NOTE 11 UNAUDITED QUARTERLY FINANCIAL DATA Quarterly financial data are summarized as follows (amounts in thousands, except per share amounts):
Three Months Ended: March 31 June 30 Sept. 30 Dec. 31 ______________________________________________________________________________________________ 1993 Sales $66,027 $69,410 $65,595 $78,999 ______________________________________________________________________________________________ Gross profit $20,947 $21,804 $20,290 $21,210 ______________________________________________________________________________________________ Income from continuing operations $ 6,769 $ 6,945 $ 7,559 $ 8,251 ______________________________________________________________________________________________ Net income* $ 7,125 $ 1,192 $ 7,559 $ 8,251 ______________________________________________________________________________________________ Earnings per common share: Primary: Continuing operations $ .29 $ .29 $ .30 $ .32 ______________________________________________________________________________________________ Net Income $ .31 $ .01 $ .30 $ .32 ______________________________________________________________________________________________ Fully Diluted $ .28 $ .01 $ .30 $ .32 ______________________________________________________________________________________________ 1992 Sales $41,443 $47,050 $59,024 $65,436 ______________________________________________________________________________________________ Gross profit $12,308 $15,922 $18,676 $22,216 ______________________________________________________________________________________________ Income from continuing operations $ 3,326 $ 4,988 $ 6,526 $ 6,942 ______________________________________________________________________________________________ Net income (loss)** $(1,130) $ 4,696 $ 5,533 $ 6,241 ______________________________________________________________________________________________ Earnings (loss) per common share: Primary and Fully Diluted: Continuing operations $ .12 $ .21 $ .28 $ .30 ______________________________________________________________________________________________ Net Income $ (.11) $ .19 $ .23 $ .26 ______________________________________________________________________________________________
* Results of operations in the fourth quarter of 1993 include a reduction of income tax expense in the amount of $1,050,000 ($.04 per common share) representing a tax benefit on the Company's remaining U.S. net operating loss carryforward. Results of operations for the first quarter of 1993 include the impact of the Company's adoption of SFAS No. 109 in the first quarter of 1993. The Company reported as a "cumulative adjustment from a change in accounting principle," income in the amount of $2,102,000, or $.10 per common share. ** Net income in the first quarter of 1992 includes the cumulative prior years' impact of the Company's change in accounting principle to reflect the adoption of SFAS No. 106 for postretirement benefits in the amount of $4,554,000 or $.24 per common share. 27 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12 FAIR VALUES OF FINANCIAL INSTRUMENTS Financial Accounting Standards Board ("FASB") Statement No. 107, "Disclosure about Fair Value of Financial Instruments," is a part of a continuing process by the FASB to improve information on financial instruments. The following methods and assumptions were used by the Company in estimating its fair value disclosures for such financial instruments as defined by the Statement: CASH AND SHORT-TERM INVESTMENTS: The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value. LONG-TERM INVESTMENTS: It is not practicable to estimate the fair value of the Company's 8% investment in the common stock of its former specialty rubber products business and its 50% interest in the GO/DAN joint venture because of the lack of quoted market prices and the inability to estimate fair value without incurring excessive costs. However, management believes that the carrying amounts as recorded at December 31, 1993 are not impaired and reflect their corresponding fair values. No dividends have been paid on these investments. LONG-TERM DEBT: The carrying amounts of the Company's borrowings under its revolving credit agreements approximate fair value. The fair values of the Company's other long-term debt either approximate fair value or are estimated using discounted cash flow analyses based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. OFF-BALANCE-SHEET INSTRUMENTS: Fair values for the Company's off-balance-sheet instruments, consist of an interest rate swap (as described in Note 2), and is based on quoted market prices of comparable instruments or fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. LETTERS OF CREDIT: The Company utilizes letters of credit to back certain financing instruments and insurance policies. The letters of credit reflect fair value as a condition of their underlying purpose and are subject to fees competitively determined in the market place. The carrying amounts and fair values of the Company's financial instruments at December 31, 1993 and 1992 are as follows (amounts in thousands):
Carrying Amount Fair Value - ------------------------------------------------------------------------------------------------ 1993 Cash and cash equivalents $ 11,173 $ 11,173 Investment securities: Non-current investment 4,344 4,344 Investment in joint venture 23,284 23,284 Other long-term debt 53,480 53,404 - ------------------------------------------------------------------------------------------------ Off-Balance Sheet Financial Instruments: Interest rate swaps 2,265 2,341 Letters of credit 7,385 7,385 - ------------------------------------------------------------------------------------------------ 1992 Cash and cash equivalents $ 4,425 $ 4,425 Investment securities: Non-current investment 4,344 4,344 Investment in joint venture 23,533 23,533 Revolving credit agreement 82,500 82,500 Other long-term debt 46,727 46,395 - ------------------------------------------------------------------------------------------------ Off-Balance Sheet Financial Instruments: Interest rate swaps 22,980 23,312 Letters of credit 7,683 7,683 ================================================================================================
NOTE 13 SUPPLEMENTAL CASH FLOW DISCLOSURE During 1993, the following non-cash transactions were effected and are not reflected in the Consolidated Statement of Cash Flows: - - On June 11, 1993, the Company sold its Allen Testproducts and Lease Financing operations. In conjunction with the sale, the Company received a three-year installment note receivable of $19,737,000, and the purchaser assumed $56,300,000 of Leasing indebtedness. - - In 1993, approximately $11,453,000 of the Company's convertible debentures were converted into 877,269 shares (post stock split basis) of the Company's Common Stock. - - As described in Note 5, the Company declared a two-for-one stock split paid on October 18, 1993. - - The Company exercised its redemption rights, but prior to the planned redemption date 2,289,615 shares of convertible Preferred Stock were converted into 4,579,230 shares (post stock split basis) of Common Stock of the Company. Information with respect to cash paid during the year for interest and taxes is as follows: 1993 1992 1991 - -------------------------------------------------------------------- Interest paid $ 3,260,000 $ 5,800,000 $ 7,800,000 Income taxes paid 2,930,000 4,300,000 13,600,000 ==================================================================== 28 19 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of The Allen Group Inc. We have audited the accompanying consolidated balance sheets of The Allen Group Inc, as of December 31, 1993 and 1992, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Allen Group Inc. as of December 31, 1993 and 1992, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. As described in Note 8 to the Consolidated Financial Statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," in 1993 and, as described in Note 7, the Company adopted the provisions of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" in 1992. /s/ Coopers & Lybrand _________________________________ Cleveland, Ohio February 16, 1994 REPORT OF MANAGEMENT To the Board of Directors and Stockholders of The Allen Group Inc. The Company maintains accounting and related internal control systems which are intended to provide reasonable assurance that assets are safeguarded from loss of unauthorized use and to produce records necessary for the preparation of financial information. There are limits inherent in all systems of internal control, and the cost of the systems should not exceed the expected benefits. Through the use of a program of internal audits and discussions with and recommendations from its independent accountants, the Company periodically reviews these systems and controls and compliance therewith. The Audit Committee of the Board of Directors, comprised entirely of nonemployee directors, meets regularly with management, the internal auditors and the independent accountants to review the results of their work and to satisfy itself that their responsibilities are being properly discharged. The internal auditors and independent accountants have full and free access to the Audit Committee and may have discussions regarding appropriate matters, with and without the presence of management. The primary responsibility for the integrity of financial information rests with management. Certain valuations contained herein result, of necessity, from estimates and judgments of management. The accompanying consolidated financial statements, notes thereto and other related information were prepared in conformity with generally accepted accounting principles applied on a consistent basis. /s/ Robert G. Paul /s/ Robert A. Youdelman __________________________ _________________________ Robert G. Paul Robert A. Youdelman President and Chief Senior Vice President - Executive Officer Finance, Chief Financial Officer /s/ James L. LePorte, III __________________________ James L. LePorte, III Vice President and Controller, Chief Accounting Officer 29 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SUMMARY OF OPERATIONS OVERVIEW
(amounts in millions) 1993 1992 1991 ______________________________________________________________________________ Product Sales $280.0 $213.0 $151.5 Income before taxes 33.0 25.6 7.4 Income from continuing operations 29.5 21.8 5.9 Total assets 324.6 387.9 308.0 Capital expenditures 11.4 6.7 5.0 Depreciation 6.6 6.7 6.3 ______________________________________________________________________________
The Company reported income from continuing operations in 1993 of $29.5 million ($1.19 per common share), compared with $21.8 million ($.91 per common share) in 1992 and $5.9 million ($.10 per common share) in 1991. The growth in earnings in 1993, when compared with 1992, is attributable to improved earnings in the Truck Products segment as well as the improved performance of the Company's GO/DAN Industries ("GO/DAN") joint venture. These improvements were offset, in part, by higher interest costs and losses of the Centralized Automotive Emissions Inspection Business. While earnings for the Mobile Communications segment remain strong, they are essentially unchanged from the prior year. The significantly higher operating income in 1992, when compared with 1991, was due principally to the strong performance of the Mobile Communications segment and improvement in the Truck Products segment, partially offset by lower earnings in the Company's GO/DAN joint venture and a higher provision for income taxes. The sales growth in 1993 was due primarily to the full year impact of the acquisition of Alliance Telecommunications Corporation ( Alliance ) in July 1992, sustained growth from the Company's existing telecommunications products and increased sales of Truck Products. The increase in sales in 1992, when compared with 1991, was similarly due to the Alliance acquisition and growth in sales of Mobile Communications and Truck Products. Additional information concerning the Company's 1993 results and outlook is contained on pages 4 to 12 of this Annual Report and should be read in conjunction with this discussion. MOBILE COMMUNICATIONS
(amounts in millions) 1993 1992 1991 ______________________________________________________________________________ Sales $183.6 $128.7 $80.6 Operating income 34.1 34.3 20.9 Identifiable assets 184.7 151.5 41.8 Capital expenditures 6.4 3.5 1.1 Depreciation 2.7 1.6 1.0 ______________________________________________________________________________
In 1993, the Company redefined its product lines as it integrated the Alliance business with its existing mobile communications product lines. The Company now reports sales for this segment under Systems, Site and Other Non Antenna products, Mobile and Base Antennas and Frequency Planning, Systems Design and Related Services product lines. Sales of systems products grew $11.1 million in 1993 based on the continued strong acceptance of Extend-A-Cells registered trademark and Microcells. Extend-A-Cell sales were modestly higher in 1993 when compared with 1992 due to significantly higher sales in the international markets partially offset by weaker demand in the domestic market. Site management products increased $19.8 million primarily due to the strong demand for the Company's new generation of ceramic filters. The sales of mobile and base antenna products increased in large part due to the full year impact of the acquisition of Alliance in July 1992. While the sales of base station antenna products remain strong and increased in 1993 compared with 1992, the Company's mobile antenna sales declined due to intense price competition and resultant loss of market share. Sales of the Company's frequency planning, system design and related services experienced increased sales in real terms, but the dramatic increase in 1993 from 1992 primarily relates to the full year impact on sales since the acquisition of Alliance in July 1992. The significant increase in sales in 1992 compared with 1991 was due to the continued strong demand for the Company's Extend-A-Cell and other cellular telecommunications products, as well as the acquisition of Alliance. Alliance added $31.3 million to sales in 1992 since its acquisition on July 30, 1992. Operating income of the mobile communications segment in 1993 did not keep pace with the significant increase in sales, principally due to a $7.8 million investment made in new product engineering costs, as well as costs incurred to penetrate international markets, integrate Alliance within existing telecommunication product lines and upgrade manufacturing facilities. Operating income in 1992, when compared with 1991, increased both as a result of higher sales volume and improved margins on the Company's existing product lines, offset, in part, by the acquisition of Alliance, whose products produced slightly lower gross margins. AUTOMOTIVE TEST AND SERVICE
(amounts in millions) 1993 1992 1991 ______________________________________________________________________________ Sales $ 2.7 $ .4 $ -- Operating income (loss) (1.0) -- -- Identifiable assets 9.1 56.4 64.6 Capital expenditures .7 .8 1.5 Depreciation .5 1.4 2.2 ______________________________________________________________________________
This segment is now solely comprised of the Company's centralized automotive emissions testing business operated by its MARTA Technologies, Inc. subsidiary ("MARTA"). The increase in sales in 1993 is attributable to the inclusion of a full year of 30 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS inspection revenue once MARTA became a wholly-owned consolidated subsidiary of the Company on October 30, 1992 when the Company increased its ownership to 100% (previously a 50/50 joint venture). The loss from operations in 1993 reflects, in large part, the incurrence of bidding costs (approximately $.8 million). The Company anticipates that such losses will continue, and are likely to increase in 1994, as it continues to pursue programs as well as build its organizational framework in anticipation of future contract awards. In 1993, MARTA was awarded the $48 million contract to build and then operate the centralized emissions testing programs for the State of Maryland (a three-year program with two one-year options by the State) with annual revenue of $9.8 million and the El Paso, Texas region (a seven-year program) with annual revenues of approximately $1.8 million in 1995 and $3.8 million thereafter. Operations of both programs begin January 1, 1995. MARTA currently has several bids outstanding and will continue its bidding efforts over the course of the next year as programs are placed for bid. Revenues and profits from any programs won in the near term, however, will not impact operating results until 1995 because of the long lead time required to build facilities and establish such programs. The timing and number of new emissions test programs placed for bid is dependent upon the enactment of state and/or local legislation and resultant issuance of a request for proposal. Any delay in legislation or the issuance of proposals will necessarily delay the start-up of the operating phase of such programs. The decline in identifiable assets from 1992 reflects the sale of the Company's Allen Testproducts division as more fully described in Note 10 to the consolidated financial statements. TRUCK PRODUCTS
(amounts in millions) 1993 1992 1991 ______________________________________________________________________________ Sales $93.7 $83.9 $70.9 Operating income (loss) 9.9 4.4 (1.0) Identifiable assets 51.7 47.0 44.6 Capital expenditures 4.2 1.6 2.4 Depreciation 3.1 3.2 3.1 ______________________________________________________________________________
As in prior years, sales in this segment (comprised principally of truck cabs, fenders and radiators) have been directly related to the rate of truck production by original equipment manufacturers, which form the major customer base of this business. The increase in sales in both 1993 and 1992, each when compared with the immediate preceding year, is principally due to increased unit sales of its crew cab and dual rear wheel fenders, which are sold to the Ford Motor Company as part of its family of pick-up trucks which continue to experience broad retail market acceptance. The Company also continued to see strengthening sales of radiators, which are sold to heavy duty truck and off-highway equipment manufacturers. While the Company expects continued increases in sales of crew cabs and fenders in 1994, sales of radiators will likely decline due to the loss of a significant customer in 1993 which accounted for $5.1 million of 1993 sales. However, the addition of a new industrial account in 1994 will partially offset the decline. While operating margins in this segment generally correlate closely with sales activity, the earnings of this segment were further benefitted by improved margins in the radiator product line as a result of cost reductions, productivity improvements and lower purchased material costs. The increased profits in 1992, when compared to 1991, was due primarily to increased unit sales as prices remained relatively stable and cost increases of major components remained modest due to the low rate of inflation. JOINT VENTURE OPERATIONS
(amounts in millions) 1993 1992 1991 ______________________________________________________________________________ Equity in earnings (losses) of joint ventures $ .4 $(3.7) $(1.4) Investments and advances in joint ventures 23.3 23.5 29.2 ______________________________________________________________________________
The equity in earnings from joint ventures in 1993 is entirely attributable to the Company's investment in GO/DAN Industries which manufactures radiators for sale in the automotive aftermarket. The increase in profitability in 1993 reflects cost reductions, lower copper commodity costs and improved market share. The equity in loss from joint ventures in 1992 was primarily attributable to GO/DAN and was due to lower gross profit margins and the lack of preferential income distributions payable to the Company which were fully realized in 1991. The lower earnings in 1992, as compared with 1991, resulted from weakness in the economy and slower realization of expected benefits from cost reductions and efficiencies in the business. The equity in losses for 1991 included preferential income distributions from GO/DAN in the amount of $3.9 million. Beginning with 1992, all profits and losses were shared equally by the partners, and the Company will receive no further income preferences. In 1992, the Company dissolved its 50/50 joint venture to produce brazed aluminum products, and subsequently made arrangements for aluminum brazed product from an independent supplier. FINANCING COSTS
(amounts in millions) 1993 1992 1991 ______________________________________________________________________________ Interest and financing expense $3.2 $ 2.0 $ 1.5 Average borrowing rate 6.0% 5.9% 6.1% ______________________________________________________________________________
Higher interest costs in 1993 are attributable to higher borrowing levels incurred relating to the Alliance acquisition and the Company's decision to borrow, and lock in long-term interest rates of approximately 8% on $20 million in early 1993 offset, in part, by lower credit line borrowings and lower interest rates. The increase in interest costs in 1992 over 1991 reflects higher borrowing levels in the second half of 1992 as a result of the Alliance acquisition offset, in part, by slightly lower borrowing rates. 31 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL CORPORATE
(amounts in millions) 1993 1992 1991 ______________________________________________________________________________ General corporate expenses $ 7.2 $ 7.4 $ 9.6 Corporate identifiable assets 55.9 25.7 37.1 ______________________________________________________________________________
In 1993, lower general corporate expenses reflect lower costs attributable to the full year impact of the move of the Company's corporate headquarters from New York to Ohio in 1992. In 1991, general corporate expenses included a charge of $1.8 million for costs in connection with the relocation of the Company's corporate headquarters on September 1, 1992. Lower expenses in 1992 reflect both the absence of such a charge and the partial year effect of lower costs attributable to the new headquarters. Corporate identifiable assets are comprised principally of corporate cash, unliquidated assets remaining from the sale of businesses, and various other corporate assets. The increase in identifiable assets in 1993, when compared with 1992, results primarily from the inclusion of a $19.7 million installment note receivable received from the divestiture of a business in 1993 and a $4.8 million increase in recorded deferred tax benefits. INCOME TAXES
(amounts in millions) 1993 1992 1991 ______________________________________________________________________________ Provision for income taxes $ 3.5 $ 3.8 $ 1.5 Effective tax rate 10.6% 14.7% 20.8% ______________________________________________________________________________
Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting For Income Taxes," and recognized a deferred tax benefit for the cumulative effect of this change in accounting of $2,102,000, or $.10 per common share. This new accounting statement was adopted prospectively and prior years have not been restated. The Company's effective tax rate for the years 1991 through 1993 was lower than the federal statutory rate (35% in 1993 and 34% in 1992 and 1991) due to the benefit of utilizing its financial reporting U.S. net operating loss carryforward to reduce U.S. income tax expense, offset, in part, by the impact of state taxes and higher tax rates on Canadian income. The 1993 tax provision has been reduced by approximately $1.1 million ($.04 per common share) representing the tax benefit of the Company's remaining financial reporting U.S. net operating loss carryforward, the ultimate realization of which the Company believes is "more likely than not" as that term is defined under generally accepted accounting principles. Note 8 to the consolidated financial statements has additional information concerning the Company's income tax benefits, including details concerning certain other deferred tax assets recorded in 1993 which were offset to the excess of cost over the net assets of businesses acquired (approximately $6.2 million) and other deferred tax assets relating to the bargain purchase element of employee stock option exercises which were credited to stockholders' equity (approximately $1.6 million). The total of deferred tax assets recorded includes approximately $25.3 million of future net tax deductions which the Company believes will be realized from future profitable operations. This determination is based upon the significantly improved profitability of its U.S. operations in recent years, the disposal of its unprofitable Allen Testproducts business in 1993, the transfer of its profitable cab and fender truck products business from Canada to the U.S., and the expected strong continued profitability of its Mobile Communications segment. The Company has now fully recorded the tax benefits of all of its U.S. future available tax deductions and operating loss carryforward. Accordingly, it is expected that the effective tax rate will increase significantly in future years as the company provides taxes at the statutory rate of 35% on U.S. pretax income plus applicable state and local taxes. OTHER INFORMATION INFLATION Certain raw materials, such as copper and other primary metals, used in the Company's heat transfer, truck cabs and metal fabrication product lines can be subject to significant price movements; however, the overall impact of the low rate of inflation in recent years has resulted in no significant impact on the Company. DIVESTITURE In June 1993, the Company sold its automotive diagnostic equipment product line and related Lease Finance operations which resulted in a loss of $2.9 million ($.13 per common share). Such loss is exclusive of any U.S. tax benefit due to the Company's available U.S. tax loss carryforward in 1993. The Company received $21 million in cash and a $19.7 million, 8% note receivable payable in equal annual installments over a three year period. See Note 10 to the consolidated financial statements for additional information. ENVIRONMENTAL The Company is subject to federal, state and local laws designed to protect the environment and believes that, as a general matter, its policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage and financial liability to the Company. See Note 6 to the consolidated financial statements for additional information. 32 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES
(amounts in millions) 1993 1992 1991 ______________________________________________________________________________ Total Debt: Manufacturing $ 52.6 $ 68.1 $ 25.4 Lease financing -- 63.2 67.9 Debt-to-equity ratio: Manufacturing .3:1 .5:1 .2:1 Lease financing -- 4.9:1 5.2:1 Total company .3:1 .8:1 .6:1 ______________________________________________________________________________
In 1993, the Company continued to refine its business focus with the sale of its automotive diagnostic equipment product line and lease finance operations. As noted above, sale proceeds included $21.0 million in cash and a $19.7 million note receivable. In addition, the purchaser assumed all of the debt of its lease finance operations. The cash proceeds were used to reduce amounts outstanding under the Company's revolving credit facility with the balance invested in short-term cash equivalents. This sale accounts for the decrease in inventories, fixed assets, accounts payable, accrued expenses, long-term debt (in part) and other liabilities and deferred credits, as well as the elimination of the lease finance assets and liabilities in the consolidated balance sheet when compared with the prior year. While this sale also resulted in a reduction of accounts receivable, it was more than offset by increases attributable to higher sales, particularly in international markets which generally have a longer collection time frame. In the second quarter of 1993, the Company called for the redemption of its outstanding convertible Preferred Stock, and all but a small fraction of such shares were converted into Common Stock. The conversion of these shares will result in approximately $3.0 million in annual savings of cash dividends. Further, approximately $11.5 million of the Company's convertible subordinated debentures were converted into approximately 877,000 shares (post stock split basis) of Common Stock pursuant to the terms of such debentures. The future liquidity and capital needs of the Company in the near term are anticipated to center around its continuing investment into the expanding telecommunications industry, financing the growth in the centralized automotive emissions testing business (MARTA) and, to a lesser degree, in support of maintaining and improving productive capacity in the Truck Products segment. The Mobile Communication segment is expected to absorb almost 70% of the Company's capital expenditure requirement in 1994 (excluding MARTA). In addition, the Company anticipates making certain strategic investments in telecommunication ventures (approximately $2.8 million was loaned and invested in 1993) as it expands its business scope to participate in the wireless telecommunications industry including the emerging PCS market. Such investments are likely to take the form of loans (with potential equity conversion participation) and minority equity positions. The most significant capital requirement will be for the expansion of MARTA. As previously noted, MARTA was awarded two programs in 1993. The Maryland program requires a capital commitment of approximately $48.0 million ($3.6 million expended in 1993); however, under the terms of the contract, the State will purchase the capital assets from the Company, for cash, on or before the January 1, 1995 start-up date. Interim construction financing has been established by MARTA through two banking institutions. The El Paso, Texas program requires a capital investment of approximately $8.0 million ($.6 million expended in 1993), and the Company anticipates arranging project supported financing prior to its January 1, 1995 start-up date. The Company continues to see significant opportunity for MARTA as it bids additional programs throughout 1994. The Company anticipates financing such programs through MARTA but still may make considerable equity investments or guarantees on behalf of MARTA. As set forth in the consolidated statement of cash flows the Company generated $9.4, $23.5 and $10.0 million from manufacturing operations in 1993, 1992 and 1991, respectively. The year 1991, however, includes a one time payment of $10.1 million in U.S. Federal income taxes pertaining to prior years. The decline in cash generation in 1993 reflects, in large measure, increased investments in inventory and receivables in support of the mobile communications segment. The Company believes that continued profitability, a cash and short-term investment balance of $11.1 million, available unused credit lines of $92 million and the future proceeds from the $19.7 million installment note receivable from the aforementioned divestiture provide sufficient liquidity to fund growth. As described in Note 2 to the consolidated financial statements the Company entered into a new revolving credit agreement which doubles the banks commitments to $100 million. The agreement expires on July 1, 1997 and provides extended flexibility to fund growth. The Company estimates that capital expenditures will approximate $11.0 million in 1994 (excluding MARTA which will depend upon emissions programs awarded) of which $2.3 million was committed at December 31, 1993. 33 24 TEN YEAR SUMMARY OF OPERATIONS
TEN YEARS ENDED DECEMBER 31, 1993 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 1993 1992 1991 OPERATING RESULTS SALES $280,031 $212,953 $151,532 Cost of sales 195,780 143,831 109,812 Selling, general and administrative expenses 48,495 37,824 31,457 Interest and financing expense 3,156 1,978 1,463 Earnings (losses) of joint ventures 407 (3,742) (1,399) -------------------------------------- Operating income (loss) 33,007 25,578 7,401 Patent litigation charge -- -- -- Restructuring costs -- -- -- -------------------------------------- INCOME (LOSS) BEFORE TAXES 33,007 25,578 7,401 -------------------------------------- Provision for income taxes 3,483 3,751 1,543 -------------------------------------- INCOME (LOSS) FROM CONTINUING OPERATIONS 29,524 21,827 5,858 DISCONTINUED OPERATIONS Income (loss) from discontinued operations (4,563) (1,933) 11,583 Gain (loss) on sale of discontinued businesses (2,936) - 41 CUMULATIVE EFFECT OF ACCOUNTING CHANGES 2,102 (4,554) - -------------------------------------- NET INCOME (LOSS) $ 24,127 $ 15,340 $ 17,482 ================================================================================================================================ Net income (loss) applicable to common stock $ 21,947 $ 11,315 $ 13,457 ================================================================================================================================ EARNINGS (LOSS) PER COMMON SHARE (PRIMARY AND FULLY DILUTED): From continuing operations $1.19 $.91 $ .10 Discontinued operations: Income (loss) from discontinued operations (.20) (.10) .62 Gain (loss) on sale of discontinued businesses (.13) - - Cumulative effect of accounting changes .10 (.24) - -------------------------------------- Net income (loss) per share $.96 $ .57 $ .72 ================================================================================================================================ FINANCIAL CONDITION Total assets: Manufacturing $324,638 $304,111 $217,291 Lease financing - 83,811 90,661 Total company 324,638 387,922 307,952 Working capital - Manufacturing 71,808 67,013 84,112 Current ratio - Manufacturing 2.22 1.96 2.71 Total debt: Manufacturing 52,597 68,083 25,398 Lease financing - 63,151 67,943 Total company 52,597 128,177 85,127 Stockholder equity 195,161 159,339 141,807 Debt to equity ratio: Manufacturing .27 .47 .20 Lease financing - 4.90 5.17 Total company .27 .81 .60 Book value per common share 7.52 5.08 4.48 Shares outstanding at year end 25,964 20,058 18,832 Return on stockholders' equity 12.6% 13.5% 13.0% Capital expenditures 11,360 6,653 4,976 Depreciation 6,611 6,701 6,325 Number of employees 2,500 3,000 2,400 ================================================================================================================================ All per share data have been restated to reflect stock dividends and stock splits.
34 25
1990 1989 1988 1987 1986 1985 1984 $173,364 $222,329 $210,526 $182,730 $156,900 $161,267 $150,936 130,508 164,388 158,080 137,941 119,890 116,569 109,578 33,838 43,989 45,012 45,095 38,945 40,027 34,057 2,133 3,771 5,412 4,358 2,915 4,257 4,042 717 - - - - - - - ------------------------------------------------------------------------------------------------------------------------ 7,602 10,181 2,022 (4,664) (4,850) 414 3,259 (18,554) - - - - - - - - - - (5,142) - - - ------------------------------------------------------------------------------------------------------------------------ (10,952) 10,181 2,022 (4,664) (9,992) 414 3,259 - ------------------------------------------------------------------------------------------------------------------------ 4,053 4,105 2,956 3,576 2,414 3,469 1,443 - ------------------------------------------------------------------------------------------------------------------------ (15,005) 6,076 (934) (8,240) (12,406) (3,055) 1,816 13,743 4,094 4,973 (7,237) 1,682 19,193 6,570 - 8,855 1,636 - - - 1,046 - - - - - - - - ------------------------------------------------------------------------------------------------------------------------ $ (1,262) $ 19,025 $ 5,675 $ (15,477) $ (10,724) $ 16,138 $ 9,432 ======================================================================================================================== $ (5,287) $ 15,000 $ 1,650 $ (19,501) $ (13,272) $ 16,138 $ 9,432 ======================================================================================================================== $(1.03) $.11 $(.27) $ (.69) $(.75) $(.15) $ .09 .74 .23 .27 (.40) .08 .96 .38 - .49 .09 - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------ $ (.29) $ .83 $ .09 $ (1.09) $(.67) $ .81 $ .47 ======================================================================================================================== $257,913 $262,574 $ 278,673 $302,382 $310,539 $243,555 $ 199,688 76,764 58,926 50,868 57,539 117,655 113,827 87,577 334,677 321,500 329,541 359,921 428,194 357,382 287,265 97,839 104,657 97,868 108,207 110,224 89,576 69,459 2.46 2.53 2.02 2.03 2.06 2.33 2.10 64,039 62,502 96,907 96,603 85,586 67,565 39,015 54,057 41,938 35,916 43,532 89,908 90,018 70,552 118,096 104,440 132,823 140,135 175,494 157,583 109,567 128,000 131,943 115,601 115,244 143,071 116,054 102,059 .56 .50 .89 .91 .67 .71 .45 5.02 5.36 5.09 5.07 5.56 4.35 4.71 .92 .79 1.15 1.22 1.23 1.36 1.07 3.78 4.04 3.22 3.20 4.68 5.83 6.54 18,630 18,449 18,042 18,038 18,280 19,910 15,596 (1.0%) 15.4% 4.9% (12.0%) (8.3%) 14.8% 9.6% 6,578 7,374 10,540 18,604 27,333 14,623 11,504 6,716 8,733 9,740 8,551 7,251 6,142 5,656 2,800 3,500 4,600 5,200 5,400 5,300 5,000 ========================================================================================================================
35 26 SHAREHOLDER INFORMATION EXCHANGE LISTINGS Common Stock (Ticker Symbol - ALN) New York Stock Exchange Pacific Stock Exchange MARKET PRICE RANGE OF COMMON STOCK
1993 1992 1991 High Low High Low High Low 1st Quarter 17-7/16 12-15/16 15 9-5/8 6-7/8 4-1/2 2nd Quarter 23-1/16 16 14-1/16 9-7/16 6-3/8 5-5/8 3rd Quarter 29-3/16 20-3/4 12-7/16 9-9/16 7-7/8 6-1/8 4th Quarter 29 15-1/4 14-5/16 11 10 7-11/16
DIVIDENDS DECLARED ON COMMON STOCK
1993 1992 1991 1st Quarter $.03 $.025 - 2nd Quarter $.03 $.025 - 3rd Quarter $.03 $.025 $.023 4th Quarter $.04 $ .03 $.023
Dividends paid on both Preferred Stock and Common Stock are taxable as dividend income for United States income tax purposes. TRANSFER AGENT AND REGISTRAR Harris Trust Company of New York 77 Water Street New York, New York 10005 AUDITORS Coopers & Lybrand Cleveland, Ohio FORM 10-K OR ADDITIONAL INFORMATION ABOUT THE COMPANY Stockholders and others interested in obtaining additional information about the Company may do so by writing or calling The Allen Group Inc., 25101 Chagrin Blvd., Beachwood, Ohio, 44122-5619, (216) 765-5822. The Form 10-K Annual Report, including financial statements and schedules, will be furnished without charge. AFFIRMATIVE ACTION POLICY It is the policy of The Allen Group Inc. that all employees will be judged on the basis of qualifications and ability, without regard to age, sex, race, creed, color or national origin, in all personnel actions. No employee or applicant for employment will receive discriminatory treatment because of physical or mental handicap in regard to any position for which the employee or applicant for employment is qualified. STOCKHOLDERS As of February 15, 1994, The Allen Group Inc. had outstanding 25,988,241 shares of Common Stock owned by 2,435 holders of record. ANNUAL STOCKHOLDERS' MEETING The Annual Meeting of Stockholders will be held at the Cleveland Marriott Society Center, 127 Public Square, Cleveland, Ohio on Thursday, April 28, 1994 at 9:30 a.m. ANNUAL REPORT DESIGN Epstein, Gutzwiller, Schultz and Partners Inc., Cleveland, Ohio 36 EX-21 9 ALLEN GROUP EX-21 1 Exhibit 21 SUBSIDIARIES OF THE ALLEN GROUP INC. The following is a list of the subsidiaries of The Allen Group Inc. and, indented, Subsidiaries of such Subsidiaries, including in each case the state or other jurisdiction in which each Subsidiary was incorporated or organized, and indicating in each case the percentage of Voting Securities owned by the immediate parent. All such Subsidiaries are consolidated Subsidiaries except GO/DAN Industries, Alven Capital Corporation and Sponmech Limited.
State/Country Name of Corporation of Incorporation Date % - ------------------- ---------------- ----- - The Allen Group Canada Limited Ontario, Canada 04-19-72 100 The Allen Group International, Inc. Delaware 07-19-73 100 The Allen Group GmbH (2) West Germany 09-29-70 100 The Allen Group Limited (1) U.K. 05-08-72 100 Allen Heat Transfer Products Inc. Delaware 05-22-90 100 GO/DAN Industries (4) New York 05-24-90 50 Allen Telecom Canada, Inc. (5) Ontario 04-14-93 80 Allen Telecom Group, Inc. Delaware 10-26-88 100 Alven Capital Corporation (3) Delaware 11-10-93 15.9 Antenna Specialists Co., Inc. Delaware 10-07-88 100 Antespec, S.A. de C.V. Mexico 11-14-88 100 The Antenna Specialists S.A. Spain 06-05-90 100 Decibel Mobilcom GmbH Germany 07-28-90 100 Decibel Mobilcom Limited England 01-31-91 100 Grayson Electronics Company (6) Virginia 09-03-86 80 Orion Far East Management Inc. (1) Delaware 07-16-81 100 Orion Industries, Inc., Limited (1) Hong Kong 06-01-71 100 Orion Imports & Exports Limited (1) Hong Kong 09-07-73 100
2 Orion Industries, Inc. Japan (1) Japan 09-73 100 Orion Industries Taiwan Limited Taiwan 10-73 100 (1) MARTA Technologies, Inc. Delaware 10-14-92 100 Sponmech Limited U.K. 12-22-76 33.3 276017 Ontario Limited (1) Ontario, Canada 09-11-73 100
(1) These Subsidiaries are not significant in the aggregate and are no longer active. (2) 95% of the outstanding capital stock of this subsidiary is owned by The Allen Group International, Inc. and the remaining 5% is owned by The Allen Group Inc. (3) On a fully diluted basis, 57.26% of the outstanding capital stock is owned by ATG, 19.35% is owned by Rose Investors and 23.39% is owned by Philadelphia Ventures. (4) A 50% owned general partnership joint venture accounted for under the equity method of accounting. (5) 80% of the outstanding capital stock of this Subsidiary is owned by The Allen Group Inc. and the remaining 20% is owned by senior management of Allen Telecom Canada, Inc. (6) 80% of the outstanding capital stock of this subsidiary is owned by The Allen Group Inc. and the remaining 20% is owned by senior management of Grayson Electronics Company. 2 EX-23 10 ALLEN GROUP EX-23 1 EXHIBIT 23 ---------- CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statement on Form S-3 (File No. 33-48545) and on the Registration Statements on Form S-8 (File Nos. 33-52420, 33-8658 and 2-99919) and the related Prospectuses of The Allen Group Inc. of (a) our report dated February 16, 1994 on our audits of the consolidated financial statements of The Allen Group Inc. as of December 31, 1993 and 1992 and for the years ended December 31, 1993, 1992 and 1991, which report has been incorporated by reference in this Annual Report on Form 10-K from the 1993 Annual Report to Stockholders of The Allen Group Inc. (a copy of which is filed as Exhibit 13 to this Report) and appears on page 29 therein, and (b) our report dated February 16, 1994 on our audits of the financial statement schedule for the years ended December 31, 1993, 1992 and 1991 of The Allen Group Inc., which report appears on page 13 in this Annual Report on Form 10-K. We also consent to the references to our firm in the above mentioned Prospectuses under the caption "EXPERTS". /s/ Coopers & Lybrand COOPERS & LYBRAND Cleveland, Ohio March 28, 1994 -----END PRIVACY-ENHANCED MESSAGE-----