-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T/pcWT3NUmfPLMh/nn89tcip1eCPGqvDEbkHuFjadNHRoG6VTKmiNDzxmQ9QZEV/ ruNLzLGWBCz2gd9iKDFx5g== 0000950152-96-001226.txt : 19960329 0000950152-96-001226.hdr.sgml : 19960329 ACCESSION NUMBER: 0000950152-96-001226 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLEN GROUP INC CENTRAL INDEX KEY: 0000003721 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 380290950 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-06016 FILM NUMBER: 96540396 BUSINESS ADDRESS: STREET 1: 25101 CHAGRIN BLVD # 350 CITY: BEACHWOOD STATE: OH ZIP: 44122-5619 BUSINESS PHONE: 2167655818 10-K405 1 ALLEN GROUP 10-K405 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (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, 1995 ----------------- 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 1, 1996, there were 26,577,795 shares of the Registrant's Common Stock issued and 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 1, 1996) of the Registrant's Common Stock held by nonaffiliates of the Registrant was $504,978,105. Exhibit Index is on pages 18 to 24 of this Report. DOCUMENTS INCORPORATED BY REFERENCE Annual Report to Stockholders for fiscal year ended December 31, 1995 incorporated by reference into Parts I and II hereof. Proxy Statement dated March 15, 1996 for Annual Meeting of Stockholders to be held April 23, 1996 incorporated by reference into Part III hereof. 2 THE ALLEN GROUP INC. -------------------- FORM 10-K --------- (For the fiscal year ended December 31, 1995) TABLE OF CONTENTS -----------------
Page ---- PART I Item 1 - Business ................................................. 3 Item 2 - Properties ............................................... 9 Item 3 - Legal Proceedings ........................................ 9 Item 4 - Submission of Matters to a Vote of Security Holders ...... 9 Executive Officers of The Registrant ............................... 10 PART II Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters ...................................... 11 Item 6 - Selected Financial Data .................................. 11 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations ...................... 11 Item 8 - Financial Statements and Supplementary Data .............. 11 Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...................... 11 PART III Item 10 - Directors and Executive Officers of the Registrant ....... 12 Item 11 - Executive Compensation ................................... 12 Item 12 - Security Ownership of Certain Beneficial Owners and Management ........................................... 12 Item 13 - Certain Relationships and Related Transactions ........... 12 PART IV Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K ...................................... 13 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 segments of Allen and its subsidiaries include Mobile Communications and Centralized Automotive Emissions Inspections. On September 29, 1995, Allen completed the spin-off distribution of 100% of the common shares of a newly formed wholly owned subsidiary, TransPro, Inc. ("TransPro") to Allen's common stockholders. Prior to the distribution, Allen contributed to TransPro certain ownership interests in the net assets and liabilities of its Crown and G&O Manufacturing Company divisions and the stock of AHTP II, Inc. and Allen Heat Transfer Products, Inc., which owned Allen's partnership joint venture interest in GO/DAN Industries ("GDI"). These entities comprised Allen's Truck Products businesses. Immediately prior to the spin-off distribution, Allen also caused GDI to redeem the remaining ownership interest from the Company's other joint venture partner, thereby making GDI an indirect, wholly owned partnership of TransPro. Following the distribution, TransPro became an independent, publicly traded corporation. On March 17, 1995, Allen acquired an additional 40% interest in FOR.E.M. S.p.A., a manufacturer of wireless telecommunications products located in Agrate Brianza (Milan), Italy. Allen previously had acquired an initial 40% of FOR.E.M. S.p.A. in December, 1994, as well as options to acquire the remaining 20% interest during the next five years. FOR.E.M. S.p.A. owns 62% of Mikom G.m.b.H., located in Buchdorf (Munich), Germany, and also has sales and engineering offices in the United Kingdom and France. (FOR.E.M. S.p.A. and Mikom G.m.b.H. sometimes are referred to collectively herein as "FOREM"). Additional information regarding both of these transactions is incorporated herein by reference in Note 9 of the Notes to Consolidated Financial Statements, "Acquisitions and Dispositions," on page 27 of Allen's 1995 Annual Report to Stockholders, a copy of which is filed as Exhibit 13 of 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 - --------------------- Allen's Mobile Communications segment is comprised of Allen Telecom Group ("ATG"), FOREM and Comsearch. ATG, along with FOREM, are leading equipment suppliers of system expansion, site management products and mobile and base station antennas to the worldwide wireless communications market. The principal product lines are systems products, including Extend-A-Cells(TM), repeaters, microcells, wireless PBX systems, paging repeaters and power amplifiers; site management and other non-antenna products, including filters, tower mounted amplifiers, combiners, duplexers, isolators and cable; and mobile and base station antennas. The demand for equipment supplied by ATG and FOREM is primarily a function of the development of wireless communications systems throughout the world, and ATG's ability to develop new products and technologies -3- 4 related to system coverage and capacity and components for other manufacturers' wireless communications systems. In this regard, in September 1995, ATG introduced its Smartcell(TM) microcell which has the ability to enhance geographic coverage as well as serve as a platform for wireless PBX. The Company also has developed several new wireless test and measurement products which have applications in cellular, PCS, trunking and paging systems. Currently, these products perform analysis for AMPS, TACS and paging systems standards. By mid-1996, these products will offer the same capabilities for the digital TDMA, GSM, CDMA and PCS standards. Comsearch is a leading supplier of frequency planning and coordinating services as well as system design and field engineering services and software products for the wireless markets and personal communications systems ("PCS") market. Comsearch is involved very early with carriers and original equipment manufacturers ("OEMs") in the process of designing the cell layout of a system. Comsearch's engineering expertise in spectrum sharing, microwave inter-connectivity, microwave migration and cell system design has enabled it to obtain orders from most major PCS carriers. Comsearch's spectrum sharing software, IQ.Clear, currently is licensed in all major domestic PCS markets, and its IQ. Clear software for microwave interconnection is operational in several European PCS systems. Comsearch's cellular design software, MCAP, is in the process of a major overhaul for PCS applications, and the new software, IQ.Signum, is expected to be released in mid-year 1996. International sales of this segment have increased substantially and are now more than 50% of total sales. The Company's export sales from the U.S. are primarily to major wireless telephony companies and are typically payable in U.S. dollars. FOREM's sales are primarily in Europe to major European OEM's and cellular or PCS operators in local currencies. The Company currently has sales/engineering offices in Canada, China, Brazil, Australia, Singapore, France and the United Kingdom. Additional offices in South America, China and Hong Kong are expected to be opened in 1996. The Company sees no significantly greater risk as a result of the greater proportion of international business than that of its domestic operations. In 1995, sales of the Mobile Communications segment increased $93.1 million, or 44%, over 1994, primarily due to FOREM, which contributed $55 million in sales for the nine-month period they were included in Allen's results of operations, as well as the continued strong growth of its existing products. ATG and FOREM products are generally manufactured or assembled by the Company. With respect to FOREM, a substantial portion of product manufacturing labor is outsourced to third parties. Comsearch's frequency planning and coordination services are provided principally at its central headquarters facility. Products are sold directly through commissioned sales employees or through distributors and sales representatives to OEMs, common carriers and other large uses of telecommunications products. CENTRALIZED AUTOMOTIVE EMISSIONS INSPECTIONS - -------------------------------------------- Allen's Centralized Automotive Emissions Inspections segment consists solely of its wholly owned subsidiary, MARTA Technologies, Inc. ("MARTA"). MARTA designs, builds and operates centralized automotive emissions testing programs under long-term contracts with state governments, and is one of only three major companies that have previously demonstrated the necessary capabilities and experience for such programs, although a number of additional companies recently have begun to bid on these programs. During 1995, MARTA's sole source of sales revenue was its Jacksonville, Florida and Maryland emissions testing programs which, at $8.8 million ($2.8 million for Jacksonville and $6.0 million for Maryland), represents less than 3% of consolidated revenues of the Company. Emissions testing programs are mandated by the Federal Environmental Protection Agency ("EPA") pursuant to the 1990 Clean Air Act and related amendments. Generally, if a centralized emissions testing program is to be -4- 5 adopted by a state, the emissions testing program 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) is generated. Revenue for the Company's Maryland program, however, is based on an annual fixed fee for the entire program. Since Allen's initial participation in the centralized emission inspection industry, MARTA has been awarded emissions testing contracts for the State of Maryland and the El Paso region of Texas (both in 1993) and the Cincinnati region of Ohio and Northern Kentucky (both in 1994). The Maryland program, originally scheduled to begin operations on January 1, 1995, was delayed and revenue generating operations began on May 1, 1995. MARTA's contract with the State of Texas was, as discussed more fully below, officially terminated in January 1996. On February 1, 1995, this program had been suspended prior to start-up (along with similar programs for another contractor in Dallas and Houston). The Cincinnati program officially began full revenue generating operations on January 1, 1996. The Northern Kentucky program, originally scheduled to begin operation on January 1, 1996, was delayed by the State in early 1995 and continues to remain uncertain as the State reviews its options for implementation of an emissions inspection program. In the latter part of 1995, Kentucky and MARTA re-initiated negotiations for a nine to ten-year program; these negotiations are continuing. As indicated above, MARTA's contract with the State of Texas was terminated. This termination allows the Company to formally proceed with the settlement and damage provisions set forth in its contract with the State. The Company continues to believe that its contract provides for appropriate compensation, and anticipates filing a claim with the State early in 1996. MARTA will pursue all remedies available to protect its interest regarding its investment in the program; however, it is not possible at this time to predict the ultimate outcome of the settlement process or the timing of the receipt of any funds related thereto which would be subject to the appropriation of funds by the State of Texas. It is possible that this process would continue into fiscal year 1997 before a resolution is reached. Programs for automotive emissions testing continue to be hampered by an unsettled political climate and various implementation problems which have delayed programs previously awarded and the bidding and awarding of new programs. Even with respect to MARTA's existing operations in Florida, Maryland and Ohio, there exists proposed legislation, or the discussion of legislation, to change, amend or cancel programs. Given recent history, both for MARTA and other industry contract operators, there is no certainty that the future might not bring substantial changes in this business. Several states appear to be moving forward with the bidding of new emissions test programs, but the role for a Company such as MARTA has been reduced from what was thought possible one to two years previously. (See "Competition" below). WORKING CAPITAL - --------------- Production for the Mobile Communications segment consist of standard manufactured products for which inventory levels are generally based on product demand. As previously indicated, the increase in international export sales generally resulted in extended collection periods as such receivables make up a greater proportion of trade receivables. This factor, in conjunction with the general level of increase in business, has increased the working capital needs of the Mobile Communications business. MARTA's capital requirements are less clear given the uncertainty in the centralized emissions testing industry. Capital requirements are dependent upon the award of programs, the type of programs to be implemented and the scheduled -5- 6 start-up dates. MARTA currently has no significant commitments with respect to program expenditures. The Company believes it has adequate financial resources to meet its working capital needs in the near term. The Company entered into a new revolving credit agreement which provides for borrowings up to $75 million for the Company and $60 million for MARTA, none of which were utilized at December 31, 1995. In addition, the Company may seek third party asset-based financing in respect to future programs of MARTA. COMPETITION - ----------- In each of Allen's industry segments, competition is vigorous. 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, 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. In its Centralized Automotive Emissions Inspections segment, the competitive environment has been evolving over the past year. In recent months, the EPA has provided substantial flexibility in the way states can implement automotive emissions testing programs, permitting the potential use of centralized programs, decentralized programs and centralized/decentralized hybrid programs. MARTA presently is one of three companies that are running multiple centralized programs in multiple states. The degree in variation in programs has, however, opened up opportunities for increased competition from data management/operators to run "managed" programs, decentralized programs as well as state-run centralized programs. The Company anticipates competition to operate and/or manage programs to intensify as a result of these factors. MAJOR CUSTOMERS - --------------- Except as noted in the Centralized Automotive Emissions Inspections industry segment description, there is no single customer or group of a few customers for which the loss would have a material adverse effect on any industry segment or on the Company. Sales of Mobile Communications products are widely distributed among many customers. BACKLOG - ------- The approximate backlog of orders by industry segment as of December 31, 1995 and 1994 are as follows (amounts in thousands):
1995 1994 ---- ---- Centralized Automotive Emissions Inspections $144,138 $206,812 Mobile Communications 85,339 33,791 -------- ------- 229,477 240,603 Centralized Automotive Emissions Inspections backlog not expected to be filled within one year (121,274) (194,112) ------- ------- Backlog expected to be filled in succeeding fiscal year $108,203 $ 46,491 ======= ========
-6- 7 Backlog from the terminated El Paso, Texas program and the suspended Northern Kentucky program are excluded from this compilation and is the reason for the decline in backlog of Centralized Automotive Emissions Inspections from 1994 to 1995. As previously mentioned, legislation has been discussed or proposed in a number of states, including Florida, Maryland and Ohio where MARTA has programs, to change, amend or cancel programs which could impact existing backlog. The backlog for Mobile Communications represents orders for systems and site management products and base station and mobile antennas. All Mobile Communications backlog is expected to be completely filled within the 1996 fiscal year. The increase in backlog for the Mobile Communications segment from 1994 to 1995 reflects the inclusion of FOREM ($40 million) and a general increase in the level of business for existing products. 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, aluminum, plastics and electronic components. These materials are purchased regularly from several producers and have been generally available in sufficient quantities to meet Allen's requirements, although occasionally shortages have occurred. The Company believes that the supplies of materials through the end of 1996 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. Business franchises and concessions are not of material importance to Allen's industry segments. 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 wireless communications markets. Currently, these development activities are not expected to require a material investment in assets. For additional information, see "Research and Development Costs" in Note 1 of Notes to Consolidated Financial Statements on page 20 of Allen's 1995 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 5, "Commitments and Contingencies", of the Notes to Consolidated Financial Statements on page 23 of Allen's 1995 Annual Report to Stockholders, a copy of which is filed as Exhibit 13 to this Report. EMPLOYEES - --------- As of December 31, 1995, Allen had approximately 2,800 employees. -7- 8 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. 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 14, "Industry Segment and Geographic Data" in Note 8 of the Notes to Consolidated Financial Statements on page 26, and the information presented in the charts on pages 32 to 35, of the Company's 1995 Annual Report to Stockholders, a copy of which is filed as Exhibit 13 to this Report. The Company now has sizeable manufacturing and sales operations in Italy and Germany as a result of its additional 40% investment in FOREM in 1995. With the opportunities represented by the rapid deployment of wireless telephony systems throughout the world, the Company has seen extensive growth in international markets. The Company's export sales have increased from $62 million in 1994 to over $98 million in 1995. This growth has encouraged the Company to continue to expand the size and number of its international sales and service offices. The Company also has a manufacturing operation in Mexico (a "Maquildora") which supplies mobile antennas to ATG. 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. -8- 9 ITEM 2 - PROPERTIES ------------------- At December 31, 1995, Allen's operations were conducted in 58 facilities in 12 states, Germany, Italy and Mexico. In addition, ATG maintains sales and engineering offices in Australia, Brazil, Canada, China, France, the United Kingdom and Singapore. Allen occupies approximately 1,056,000 square feet of space for manufacturing, assembly, centralized automotive emissions testing, warehousing, research and development and administrative offices. Approximately 475,000 square feet are rented under operating leases; approximately 100,000 square feet relates to facilities under a capital lease arrangement for the Centralized Automotive Emissions Inspections segment; the remainder is owned. Principal domestic facilities are located in Ohio, Florida, Texas and Virginia. The Company owns three foreign facilities: one in Italy (64,000 square feet), one in Germany (27,000 square feet) and one in Mexico (59,000 square feet). Information concerning the Company's properties by industry segment at December 31, 1995 is as follows (amounts in thousands):
Square Footage ---------------------------------------------------------------- Domestic Foreign -------- ------- Owned Leased Owned Leased Total ----- ------ ----- ------ ----- Centralized Automotive Emissions Inspections 74 131 - - 205 Mobile Communications Products 254 427 150 7 838 General Corporate - 13 - - 13 ---- --- --- --- ---- 328 571 150 7 1,056 ==== === === === =====
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 two manufacturing facilities that had been utilized by its discontinued operations. These facilities (totalling 116,000 square feet) currently are under short-term leases to third parties. ITEM 3 - LEGAL PROCEEDINGS -------------------------- The information required by this Item is incorporated herein by reference to the third paragraph of Note 5, "Commitments and Contingencies", of the Notes to Consolidated Financial Statements on page 23 of the Registrant's 1995 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. -9- 10 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 54. 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's subsidiary, Orion Industries, Inc. (a predecessor of ATG), 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. (the predecessor to 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 54. 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. ERIK H. VAN DER KAAY - Vice President; age 55. Mr. van der Kaay joined the Company in 1990 as President of the Antenna Specialists Company division of Allen's subsidiary, Orion Industries, Inc. (the predecessor to ATG). 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 millimeter 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, Treasurer and Controller; age 41. 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; in December 1990, was elected a Vice President, and in September 1995, was elected Treasurer of the Company. MCDARA P. FOLAN, III - Vice President, Secretary and General Counsel; age 37. Mr. Folan joined the Company in August 1992 as Corporate Counsel and was elected Secretary and General Counsel in September 1992 and Vice President in December 1994. 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. -10- 11 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 last paragraph of Note 2 "Financing" of the Notes to Consolidated Financial Statements on page 21, and to "Exchange Listings," "Market Price Range of Common Stock," "Dividends Declared On Common Stock" and "Stockholders" on page 36 of the Registrant's 1995 Annual Report to Stockholders, a copy of which is filed as Exhibit 13 to this Report. In light of the Company's concentration in the rapidly growing telecommunications industry after the spin-off of its Truck Products businesses, the Company announced on September 14, 1995 that it has decided to discontinue cash dividends for the foreseeable future. The Company will be aggressively pursuing the significant opportunities presented in the telecommunications industry and plans on reinvesting its earnings in these businesses. ITEM 6 - SELECTED FINANCIAL DATA -------------------------------- The information required by this Item is incorporated herein by reference to "Five Year Summary of Operations" on page 31, and to "Dividends Declared on Common Stock" on page 36, of the Registrant's 1995 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 32 to 35 of the Registrant's 1995 Annual Report to Stockholders, a copy of which is filed as Exhibit 13 to this Report, as updated below. Statements included in Management's Discussion and Analysis of Financial Condition and Results of Operations which are not historical in nature are forward-looking statements. Such forward looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements regarding the Company's future business prospects, revenues, orders, sales and liquidity are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements, including, without limitation, business conditions and growth in the general economy and wireless telecommunications and centralized automotive emissions inspections industries, timely development and acceptance of new products, the impact of competitive products and pricing, changes in product mix, inventory risk due to shifts in market demand, and other risks identified from time to time in the Company's reports filed with the Securities Exchange Commission pursuant to the Exchange Act of 1934. 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 15 to 18, to the Notes to Consolidated Financial Statements on pages 19 to 29, and to the "Report of Independent Accountants" on page 30, of the Registrant's 1995 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. -11- 12 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 10 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 17 of the Registrant's definitive proxy statement dated March 15, 1996 and filed with the Securities and Exchange Commission pursuant to Section 14(a) of the Securities 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 15, 1996 and 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 of Directors" on pages 4 to 5, and to "EXECUTIVE COMPENSATION AND TRANSACTIONS WITH MANAGEMENT" on pages 6 to 19, of the Registrant's definitive proxy statement dated March 15, 1996 and 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 20 to 22 of the Registrant's definitive proxy statement dated March 15, 1996 and 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 19 of the Registrant's definitive proxy statement dated March 15, 1996 and filed with the Securities and Exchange Commission pursuant to Section 14(a) of the Securities Exchange Act of 1934. -12- 13 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, 1996, are incorporated herein by reference to pages 15 to 30 of the Registrant's 1995 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, 1995, 1994 and 1993 Consolidated Balance Sheets at December 31, 1995 and 1994 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1995, 1994 and 1993 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 14 of this Report, relating to the financial statement schedule Valuation and Qualifying Accounts Schedule, on page 15 of this Report Schedules other than the schedule 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 24 hereof. (b) REPORTS ON FORM 8-K ------------------- The Company filed a Form 8-K Current Report dated October 12, 1995 in which it reported under Item 2 - "Acquisition or Disposition of Assets" and Item 7- "Financial Statements and Exhibits" that it had effected the spin-off distribution, on a pro rata basis, of 100% of the outstanding shares of common stock of the Company's wholly owned subsidiary, TransPro, Inc., to holders of record of the Company's common stock as of the close of business on September 29, 1995. _____________________ *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. -13- 14 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 30 of the 1995 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 schedule listed in the Index on page 13 of this Form 10-K Annual Report. In our opinion, the financial statement schedule 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. COOPERS & LYBRAND L.L.P. Cleveland, Ohio February 16, 1996 -14- 15 SCHEDULE II THE ALLEN GROUP INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED DECEMBER 31, 1995 (AMOUNTS IN THOUSANDS)
Column A Column B Column C Column D Column E - ------------------------------- --------- -------------------- ---------- -------- Balance Additions 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: 1995 $ 1,684 592 - 1,044(1)(3) $ 1,232 ======= ======= ====== ====== ======= 1994 $ 1,270 417 - 3(1) $ 1,684 ======= ======= ====== ====== ======= 1993 $ 3,543 719 - 2,992(1)(2) $ 1,270 ======= ======= ====== ====== =======
(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. (3) Includes the elimination of related balances for its Truck Products Business spun off in 1995. -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 29, 1996 -------------------- 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 29, 1996 --------------------------------------------- Robert G. Paul, President, Chief Executive Officer and Director (Principal Executive Officer) /s/ Robert A. Youdelman March 29, 1996 --------------------------------------------- Robert A. Youdelman, Senior Vice President- Finance (Principal Financial Officer) /s/ James L. LePorte March 29, 1996 --------------------------------------------- James L. LePorte, Vice President, Treasurer and Controller (Principal Accounting Officer) /s/ George A. Chandler March 29, 1996 --------------------------------------------- George A. Chandler, Director /s/ Philip W. Colburn March 29, 1996 --------------------------------------------- Philip W. Colburn, Chairman of the Board and Director /s/ Jill K. Conway March 29, 1996 --------------------------------------------- Jill K. Conway, Director /s/ Albert H. Gordon March 29, 1996 --------------------------------------------- Albert H. Gordon, Director -16- 17 /s/ William O. Hunt March 29, 1996 --------------------------------------------- William O. Hunt, Director /s/ J. Chisholm Lyons March 29, 1996 --------------------------------------------- J. Chisholm Lyons, Director /s/ John F. McNiff March 29, 1996 --------------------------------------------- John F. McNiff, Director /s/ Charles W. Robinson March 29, 1996 --------------------------------------------- Charles W. Robinson, Director /s/ William M. Weaver, Jr. March 29, 1996 --------------------------------------------- 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 (filed as Exhibit Number 3(g) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1993 (Commission file number 1-6016) and incorporated herein by reference)............ - (h) Certificate Eliminating $1.75 Convertible Exchangeable Preferred Stock, Series A (filed as Exhibit Number 3(h) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1993 (Commission file number 1-6016) and incorporated herein by reference)............ - (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)............................................. - -18- 19 (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) ................... - (b) Credit Agreement, dated as of December 18, 1995, among the Registrant, MARTA Technologies, Inc., the Banks signatories thereto, and Bank of Montreal, as agent ................................................ 25 Additional information concerning Registrant's long- term debt is set forth in Note 2, "Financing," of the Notes to Consolidated Financial Statements on pages 20 to 21 of Registrant's 1995 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 (Other than Exhibit 10(a), 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) Contribution Agreement, dated September 29, 1995, between Registrant and TransPro, Inc. (filed as Exhibit Number 2.1 to Registrant's Form 8-K dated October 12, 1995) (Commission file number 1-6016) and incorporated herein by reference) .................... - (b) 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)............. - (c) Amendment, dated as of December 4, 1990, to The Allen Group Inc. 1982 Stock Plan, as amended (filed as Exhibit Number 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). - (d) Amendment, dated as of June 14, 1995, to The Allen Group Inc. 1982 Stock Plan, as amended (filed as Exhibit Number 10.1 to Registrant's Form 10-Q Quarterly Report for the quarterly period ended June 30, 1995 (Commission file number 1-6016) and incorporated herein by reference ........................ - -19- 20 (e) Form of Restricted Stock Agreement pursuant to The Allen Group Inc. 1982 Stock Plan, as amended (filed as Exhibit Number 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 Number 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). - (g) Amendment to The Allen Group Inc. 1992 Stock Plan, dated September 13, 1994 (filed as Exhibit Number 10 to the Registrant's Form 10-Q Quarterly Report for the quarterly period ended September 30, 1994 (Commission file number 1-6016) and incorporated herein by reference)............. - (h) Second Amendment to The Allen Group Inc. 1992 Stock Plan, dated February 23, 1994 (filed as Exhibit Number 10(h) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1994 (Commission file number 1-6016) and incorporated herein by reference .................... - (i) Third Amendment to The Allen Group Inc. 1992 Stock Plan, dated February 23, 1994 (filed as Exhibit Number 10(i) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1994 (Commission file number 1-6016) and incorporated herein by reference) ............ - (j) Fourth Amendment to The Allen Group Inc. 1992 Stock Plan, dated as of June 14, 1995 (filed as Exhibit Number 10.2 to Registrant's Form 10-Q Quarterly Report for the quarterly period ended June 30, 1995 (Commission file number 1-6016) and incorporated herein by reference) ..... - (k) 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 and divisional officers (filed as Exhibit Number 10(g) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1993 (Commission file number 1-6016) and incorporated herein by reference) ..................................... - (l) 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 and divisional officers (filed as Exhibit Number 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) ..................................... - (m) Amendment to Restricted Stock Agreements pursuant to 1992 Stock Plan (Salary Increase Deferral), dated February 22, 1995 (filed as Exhibit Number 10(l) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1994 (Commission file number 1-6016) and incorporated herein by reference) ............ - (n) 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) ..................................... - -20- 21 (o) 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)...... - (p) Form of Non-Qualified Option to Purchase Stock pursuant to The Allen Group Inc. 1994 Non-Employee Directors Stock Option Plan (filed as Exhibit Number 10(o) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1994 (Commission file number 1-6016) and incorporated herein by reference) ............ - (q) The Allen Group Inc. Amended and Restated Key Management Deferred Bonus Plan (incorporating all amendments through February 27, 1992) (filed as Exhibit Number 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)...................................... - (r) Form of Restricted Stock Agreement pursuant to 1992 Stock Plan and Key Management Deferred Bonus Plan (filed as Exhibit Number 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)..................... - (s) 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) ............................................... - (t) 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) ............ - (u) The Allen Group Inc. Master Discretionary Severance Pay Plan, effective January 1, 1993 (filed as Exhibit 10(t) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1994 (Commission file number 1-6016) and incorporated herein by reference) ..... - (v) 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 1-6016) and incorporated herein by reference) ..................................... - (w) Amendment, dated May 14, 1991, to Key Employee Severance Policy adopted by the Registrant on November 3, 1987 (filed as Exhibit Number 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)................................................ - -21- 22 (x) Amendment No. 2, dated February 22, 1996, to Key Employee Severance Policy ................................ 127 (y) 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) ..................................... - (z) Amendment, dated as of February 27, 1992, of Employment Agreement, dated June 28, 1988, 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, 1992 (Commission file number 1-6016) and incorporated herein by reference)............. - (aa) 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) ............................................ - (bb) 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) ............................................ - (cc) 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) ............................................ - (dd) 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) ............ - (ee) Split Dollar Insurance Agreement, dated as of July 1, 1991, between the Registrant and Philip Wm. Colburn (filed as Exhibit Number 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....................................... - (ff) 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)...... - -22- 23 (gg) 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)...... - (hh) 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)............. - (ii) 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 Number 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)............. - (jj) 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)...................................... - (kk) Supplemental Target Pension Benefit Agreement, dated as of January 1, 1996, between the Registrant and Robert G. Paul ........................................... 128 (ll) Form of Split Dollar Insurance Agreement, dated as of November 1, 1991, entered into by the Registrant with certain executive and divisional officers (filed as Exhibit Number 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 ............................................. - (mm) The Allen Group Inc. Deferred Compensation Plan, effective December 1, 1995 ............................... 145 (nn) The Allen Group Inc. Restoration Plan, effective January 1, 1996 .......................................... 166 (oo) Comsearch Division Supplemental Savings Plan, effective January 1, 1995 .......................................... 178 (pp) Form of Supplemental Target Pension Benefit Agreement, dated as of January 1, 1996, entered into by the Registrant with certain executive and divisional officers ................................................. 193 (11) Statement re Computation of Earnings Per Common Share ............................................. 211 (13) 1995 Annual Report to Stockholders*....................... 212 (21) Subsidiaries of the Registrant ........................... 252 (23) Consent of Independent Accountants ....................... 254 (27) Financial Data Schedule................................... 255 -23- 24 * 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 15 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. -24- EX-4.B 2 EXHIBIT 4(B) 1 EXHIBIT 4(b) ========================================================================== CREDIT AGREEMENT DATED AS OF DECEMBER 18, 1995 AMONG THE ALLEN GROUP INC., MARTA TECHNOLOGIES, INC., THE BANKS PARTY HERETO, AND BANK OF MONTREAL, AS AGENT ========================================================================== 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.3. Applicable Interest Rates . . . . . . . . . . . . . . . . . . . . . . . 5 Section 1.4. Minimum Borrowing Amounts . . . . . . . . . . . . . . . . . . . . . . . 8 Section 1.5. Manner of Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 1.6. Interest Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 1.7. Maturity of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 1.8. Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 1.9. Default Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 1.10. The Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 1.11. Funding Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 1.12. Optional Commitment Terminations . . . . . . . . . . . . . . . . . . . 12 SECTION 2. FEES AND EXTENSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 2.1. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 2.2. Extension of Termination Date. . . . . . . . . . . . . . . . . . . . . 13 SECTION 3. PLACE AND APPLICATION OF PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 3.1. Place and Application of Payments . . . . . . . . . . . . . . . . . . . 14 SECTION 4. DEFINITIONS; INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 4.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 4.2. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 SECTION 5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 5.1. Corporate Organization and Authority . . . . . . . . . . . . . . . . . 26 Section 5.2. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 5.3. Corporate Authority and Validity of Obligations . . . . . . . . . . . . 27 Section 5.4. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 5.5. No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . 28 Section 5.6. No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 5.7. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 5.8. Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 5.9. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 5.10. Not an Investment Company . . . . . . . . . . . . . . . . . . . . . . . 28
-i- 3 Section 5.11. Margin Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 5.12. Compliance with Environmental Laws . . . . . . . . . . . . . . . . . . . 29 Section 5.13. Ownership of Property; Liens . . . . . . . . . . . . . . . . . . . . . . 29 Section 5.14. No Burdensome Restrictions . . . . . . . . . . . . . . . . . . . . . . . 30 Section 5.15. Long Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 SECTION 6. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 6.1. Initial Credit Event . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 6.2. All Credit Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 7. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 7.1. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 7.2. Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 7.3. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 7.4. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 7.5. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 7.6. Financial Reports and Other Information . . . . . . . . . . . . . . . . . 33 Section 7.7. Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 7.8. Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 7.9. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 7.10. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 7.11. Regulation U . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 7.12. Notice of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 7.13. Mergers, Consolidations and Sales of Assets . . . . . . . . . . . . . . . 37 Section 7.14. Use of Property and Facilities . . . . . . . . . . . . . . . . . . . . . 38 Section 7.15. Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . 39 Section 7.16. Consolidated Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . 39 Section 7.17. Adjusted Consolidated Net Worth. . . . . . . . . . . . . . . . . . . . . 39 Section 7.18. Funded Debt to Cash Flow Ratios . . . . . . . . . . . . . . . . . . . . . 39 Section 7.19. Restricted Investments and Contingent Obligations . . . . . . . . . . . . 39 Section 7.20. Investments in MARTA. . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 7.21. Subsidiary Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 8. EVENTS OF DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 8.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 8.2. Non-Bankruptcy Defaults . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 8.3. Bankruptcy Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 8.4. Collateral for Undrawn Letters of Credit . . . . . . . . . . . . . . . . 43 Section 8.5. Bond Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 8.6. Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 8.7. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 SECTION 9. CHANGE IN CIRCUMSTANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 9.1. Change of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
-ii- 4 Section 9.2. Unavailability of Deposits or Inability to Ascertain, or Inadequacy of, LIBOR . . . . . . . . . . . . . . . . . . . . . 45 Section 9.3. Increased Cost and Reduced Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 9.4. Lending Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 9.5. Discretion of Bank as to Manner of Funding . . . . . . . . . . . . . . . . . . . . . . . 47 SECTION 10. THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 10.1. Appointment and Authorization of Agent . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 10.2. Agent and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 10.3. Action by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 10.4. Consultation with Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 10.5. Liability of Agent and Issuing Bank; Credit Decision . . . . . . . . . . . . . . . . . . 48 Section 10.6. Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 10.7. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 10.8. Resignation of Agent and Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 11. ALLEN GROUP GUARANTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 11.1. The Guarantee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 11.2. Guarantee Unconditional. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 11.3. Discharge Only Upon Payment in Full . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 11.4. Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 11.5. Stay of Acceleration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 11.6. Removal of MARTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 SECTION 12. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 12.1. Withholding Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 12.2. No Waiver of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 12.3. Non-Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 12.4. Documentary Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 12.5. Survival of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 12.6. Survival of Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 12.7. Sharing of Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 12.8. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 12.9. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Section 12.10. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Section 12.11. Participants and Note Assignees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Section 12.12. Assignment of Commitments by Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 12.13. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 12.14. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 12.15. Legal Fees and Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 12.16. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 12.17. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 12.18. Termination of 1994 Credit Agreement and MARTA Loan Facilities . . . . . . . . . . . . . 58
-iii- 5 Section 12.19. Nature of Borrower Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Signature Pages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
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 Schedule 1.2(c) - Schedule of Bond Letters of Credit Schedule 5.2 - Schedule of Subsidiaries Schedule 5.7 - Schedule of Taxes Schedule 5.12 - Schedule of Environmental Notices Schedule 5.15 - Schedule of Outstanding Long Term Debt Schedule 7.9 - Schedule of Outstanding Liens Schedule 7.19 - 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 ("Allen Group") and MARTA Technologies, Inc., a Delaware corporation ("MARTA") (collectively Allen Group and MARTA are hereinafter sometimes referred to as the "Borrowers" and individually each is sometimes referred to as a "Borrower") apply 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 12.12 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". Bank of America Illinois 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") from time to time on a revolving basis to (i) Allen Group in the amount of its revolving commitment to Allen Group (the "Allen Group Revolving Commitment") and (ii) to MARTA in the amount of its revolving commitment to MARTA (the "MARTA Revolving Commitment"), in each case as set forth on the applicable signature page hereof or pursuant to Section 12.12, subject to any reductions thereof pursuant to the terms hereof, prior to the Termination Date. The Allen Group Revolving Commitment and the MARTA Revolving Commitment each is hereinafter sometimes referred to individually as a "Commitment" to such Borrower and collectively with each other Bank's as the "Commitments" to such Borrower. Each Borrowing of Loans by a Borrower shall be made ratably from the Banks in proportion to their respective Commitments to such Borrower (for each Bank its "Percentage"). Each Bank's Percentage of the Allen Group Revolving Commitment shall at all times be the same as its Percentage of the MARTA Revolving Commitment. A Borrower may elect that each Borrowing by it 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. (a) Revolving Credit. Subject to all of the terms and conditions hereof, Allen Group may avail itself of the Allen Group Revolving Commitments through letters of credit (the "Revolver Letters of Credit") issued by Bank of America Illinois (in such capacity as issuer of Revolver Letters of Credit, the "Revolver Issuer") for Allen Group's account, provided that the aggregate outstanding undrawn face amount of Revolver Letters of Credit shall not at any time exceed $20,000,000. Each Revolver Letter of Credit shall be issued by the Revolver Issuer, but each Bank shall be obligated to 7 reimburse the Revolver Issuer for its Percentage of the amount of each draft drawn thereunder and, accordingly, the face amount of each Revolver Letter of Credit shall be deemed to utilize the Allen Group Revolver Commitments of all Banks pro rata based on each Bank's Percentage. No Revolver 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 Revolver Letter of Credit may have a maturity date later than the Termination Date). In the event the Revolver Issuer issues a Revolver Letter of Credit with an expiration date that automatically extends unless the Revolver Issuer gives notice that the expiration date will not so extend beyond such Revolver Letter of Credit's then scheduled expiration date, the Revolver Issuer 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 Revolver 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 Revolver Issuer instructions not to so permit the extension of the expiration date of such Revolver Letter of Credit. At least thirty (30) days before the date on which the Revolver Issuer is required to give notice of the non-renewal of such a Revolver Letter of Credit in order to prevent its automatic extension, the Revolver Issuer shall give notice to the Agent of such circumstance and the Agent shall promptly notify each Bank thereof. (b) Applications for Revolver Letters of Credit. At any time before the Termination Date, the Revolver Issuer agrees that at Allen Group's request it shall issue one or more Revolver Letters of Credit, in a form satisfactory to the Revolver Issuer, 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 Revolver Letter of Credit in the form customarily prescribed by the Revolver Issuer for a letter of credit of the type, whether standby or commercial, requested (each an "Application"). The current forms of the Revolver Issuer's Applications are attached as Appendices I and II hereto. The Revolver Issuer shall provide Allen Group and the other Banks with copies of any new forms of Applications that may, from time to time, be adopted by the Revolver Issuer. Notwithstanding anything contained in any Application to the contrary (i) Allen Group shall pay fees in connection with each Revolver Letter of Credit as set forth in Section 2.1(b) hereof, (ii) prior to the occurrence of an Event of Default, neither the Revolver Issuer nor the Agent will call for the funding by Allen Group of any amount under a Revolver Letter of Credit, or any other collateral security for obligations of Allen Group under an Application, prior to being presented with a drawing thereunder, (iii) upon the termination of the Commitments to Allen Group, the full amount then available for drawing under all outstanding Revolver Letters of Credit shall be immediately due and payable in the manner described in Section 8.4 hereof, and (iv) in the event the Revolver Issuer is not timely reimbursed for the amount of any drawing under a Revolver Letter of Credit on the date such drawing is paid, Allen Group's obligation to reimburse the Revolver Issuer for the amount of such drawing shall bear interest (which Allen Group 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 Revolver Issuer also agrees to issue amendments to its Revolver Letter(s) of Credit increasing the amount, or extending the expiration date, thereof at Allen Group's request subject to the conditions of Section 6 and the other terms of this -2- 8 Section 1.2. Before issuing, or increasing the amount of, any Revolver Letter of Credit under this Section 1.2 the Revolver Issuer shall notify the Agent of the proposed amount of the Revolver Letter of Credit, or of the proposed increase thereof, and the Agent shall determine and notify the Revolver Issuer whether such amount would exceed any restriction on the aggregate face amount of Revolver Letters of Credit set forth in Section 6.2(d) or (e) hereof. (c) Bond Letters of Credit. Dresdner Bank AG, New York Branch (in such capacity, the "Bond Letter of Credit Issuer") has issued and has outstanding three (3) separate letters of credit (the "Bond Letters of Credit" and each individually a "Bond Letter of Credit") in the aggregate face amount of $12,355,069 to support payments on certain industrial revenue bonds, as more fully identified on Schedule 1.2(c) hereto. Each Bank agrees to participate in such outstanding Bond Letters of Credit in accordance with its Percentage on the terms applicable to participations in Revolver Letters of Credit hereunder. Except to the extent inconsistent with the terms hereof (in which case the inconsistent terms herein shall govern), the provisions of the three (3) Reimbursement Agreements applicable to such Letters of Credit, as identified on Schedule 1.2(c) hereto, shall continue to govern such Bond Letters of Credit. Notwithstanding anything to the contrary in any Reimbursement Agreement, the fees payable in connection with each Bond Letter of Credit to be shared with the Banks shall accrue from the date hereof at the rate provided in Section 2.1(b) hereof. "Bond Letters of Credit" and "Revolver Letters of Credit" are collectively hereinafter sometimes referred to as "Letters of Credit" and each is hereinafter sometimes referred to as a "Letter of Credit". (d) Allen Group's Reimbursement Obligations. Subject to Section 1.2(b) and (c) hereof, the obligation of Allen Group to reimburse the Revolver Issuer or Bond Letter of Credit Issuer (each an "Issuing Bank"), as applicable, for all drawings under a Letter of Credit it has issued (a "Reimbursement Obligation") shall be governed by the Application or Reimbursement Agreement, as applicable, for such Letter of Credit except that reimbursement of drawings under the Revolver Letters of Credit shall be made to the Agent, not the Revolver Issuer, 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 Revolver Issuer. If Allen Group 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(e) 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 Bond Letter of Credit Issuer will notify the Agent no later than the Business Day after the due date of any Reimbursement Obligation if it has not received payment of such Reimbursement Obligation and promptly after it becomes aware of any other "default" or "event of default" under a Reimbursement Agreement. The Agent shall promptly forward to each Bank any such notice it receives from the Bond Letter of Credit Issuer. Allen Group's reimbursement obligations under this Section 1.2(d) and each Application and Reimbursement Agreement shall be absolute, unconditional and irrevocable, -3- 9 and shall be performed strictly in accordance with the terms of this Agreement, the Applications, and the Reimbursement Agreements, 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 Allen Group 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(d), constitute a legal or equitable discharge of Allen Group's obligations hereunder. (e) The Participating Interests. Each Bank (other than the relevant Issuing Bank), by its acceptance hereof, severally agrees to purchase from each Issuing Bank, and each 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, such Issuing Bank. Upon any failure by Allen Group to pay any Reimbursement Obligation at the time required on the date the related drawing is paid, as set forth in Section 1.2(d) above, or in the event the Issuing Bank is required at any time to return to Allen Group or to a trustee, receiver, liquidator, custodian or other similar official any portion of any payment by Allen Group of any Reimbursement 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 -4- 10 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 each Issuing Bank under this Section 1.2 shall be absolute, irrevocable and unconditional under any and all circumstances whatsoever (except, without limiting Allen Group's unconditional obligation under Section 1.2(d) to pay all Reimbursement Obligations, to the extent the gross negligence or willful misconduct of the relevant Issuing Bank relieves Allen Group of its obligation to pay a Reimbursement Obligation) 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 any Commitment 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. (f) Indemnification. The Participating Banks shall, to the extent of their respective Percentages, indemnify each Issuing Bank (to the extent not reimbursed by Allen Group) 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(f) and all other parts of this Section 1.2 shall survive the termination of this Agreement and of any relevant Application or Reimbursement Agreement. 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). "Domestic Rate" means for any day the greater of: (i) the rate of interest then most recently announced by Bank of America Illinois at Chicago, Illinois as its reference rate, with any change in the Domestic Rate resulting from a -5- 11 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 per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with member banks of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (i) if such day is not a Business Day, the rate for such day shall be such rate on such transactions on the immediately preceding Business Day as so published on the next succeeding Business Day, and (ii) if no such rate is so published on any such next succeeding Business Day, the rate for such day shall be the average of the rates quoted to the Agent by two or more New York or Chicago Federal funds brokers on such day for such transactions as determined by the Agent, 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 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 -6- 12 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, 0.375% per annum and, thereafter, from one Pricing Change Date (the "Pricing Date") to the next a rate per annum determined based on the Non-MARTA Funded Debt to Cash Flow Ratio and the Total Funded Debt to Cash Flow Ratio for such Pricing Date in accordance with the following schedule:
Debt to Cash Flow - ----------------- Tests for such Pricing Date: Eurodollar Margin: - --------------------------- ----------------- Level I. Non-MARTA Funded Debt - ------- to Cash Flow Ratio less than 1.00 to 1.00 and Total Funded Debt to Cash Flow Ratio - --- less than 1.50 to 1.00 0.25% Level II. Level I not achieved, but Non-MARTA - -------- Funded Debt to Cash Flow Ratio less than 2.00 to 1.00 and Total Funded Debt to --- Cash Flow Ratio less than 3.50 to 1.00 0.375% Level III. Levels I and II not achieved, - --------- but Non-MARTA Funded Debt to Cash Flow Ratio less than 3.00 to 1.00 and Total Funded Debt to Cash Flow Ratio - --- less than 4.50 to 1.00 0.55% Level IV. Levels I, II and III not achieved, - -------- but Non-MARTA Funded Debt to Cash Flow Ratio less than 4.00 to 1.00 and Total Funded --- Debt to Cash Flow Ratio less than 5.50 to 1.00 1.00% Level V. None of Levels I-IV achieved. 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. Bank of America Illinois shall notify the Agent of all changes in its reference rate described in clause (i) of the definition of Domestic Rate. -7- 13 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 relevant 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 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 a 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. Each 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 relevant 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 a Borrower fails to give notice pursuant to Section 1.5(a) above of the reborrowing of the principal amount of any maturing Borrowing or, in the case of Allen Group, of a Borrowing equal to the amount of a Reimbursement Obligation owed on a Revolver Letter of Credit 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 relevant 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. The Agent shall give prompt telephonic, telex or telecopy notice to each Bank of any such deemed borrowing request. (d) Disbursement of Loans. Not later than 12:00 noon (Chicago time) on the date of any Borrowing of Loans, subject to Section 6 hereof, 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 -8- 14 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. The Agent shall make the proceeds of each non-Refunding Borrowing available to the relevant 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 payment when due and the Agent may in reliance upon such assumption (but shall not be required to) make available to the relevant 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 relevant 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 relevant 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, a 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 -9- 15 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. Section 1.7. Maturity of Loans. Each Loan shall mature and become due and payable by the Borrower to which such Loan was made on the last day of the Interest Period applicable thereto or, if earlier, on the Termination Date. Section 1.8. Optional Prepayments. Each 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, which sum may be comprised of the amount of such Loans outstanding to both Borrowers, 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, which, in the case of Domestic Rate Loans, may after such a prepayment be the sum of all such Loans outstanding to both Borrowers) any Borrowing of Loans by such Borrower 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 by the Borrower of such Loan 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; -10- 16 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 to a Borrower shall be evidenced by a single promissory note of such 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 to such Borrower, 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 the appropriate Borrower's 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 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 or any error in any such record shall not limit or otherwise affect the obligation of each 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 either Borrower the Note to be replaced, such Borrower shall furnish a new Note to such Bank to replace any outstanding Note issued by it 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 a 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 relevant Borrower shall pay to such Bank such amount as will reimburse such Bank for such loss, cost or expense. If any Bank makes such -11- 17 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. Each 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 to it, 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 to a Borrower may not be reduced to an amount less than the Revolving Obligations then outstanding to it. Any termination of Commitments pursuant to this Section 1.12 may not be reinstated. 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, each Borrower shall pay to the Agent for the ratable account of the Banks, based on their Percentages, a commitment fee accruing at the rate of 0.15% per annum until the first Pricing Change Date and thereafter from one Pricing Change Date (the "Pricing Date") to the next at a rate per annum (the "Commitment Fee Rate") determined based on the Non-MARTA Funded Debt to Cash Flow Ratio and the Total Funded Debt to Cash Flow Ratio for such Pricing Date in accordance with the following schedule (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 to it, such fees being payable in arrears on December 31, 1995, on the last day of each calendar quarter thereafter and on the Termination Date, unless the Commitments to such Borrower 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:
Debt to Cash Flow - ----------------- Tests for such Pricing Date: Commitment Fee Rate: - --------------------------- ------------------- Level I. Non-MARTA Funded Debt - ------- to Cash Flow Ratio less than 1.00 to 1.00 and Total Funded Debt to Cash Flow Ratio - --- less than 1.50 to 1.00 0.125% Level II. Level I not achieved, but Non-MARTA - -------- Funded Debt to Cash Flow Ratio less than 2.00 to 1.00 and Total Funded Debt to --- Cash Flow Ratio less than 3.50 to 1.00 0.15%
-12- 18 Level III. Levels I and II not achieved, - --------- but Non-MARTA Funded Debt to Cash Flow Ratio less than 3.50 to 1.00 and Total Funded Debt to Cash Flow Ratio - --- less than 4.50 to 1.00 0.20% Level IV. Levels I, II and III not achieved, - -------- but Non-MARTA Funded Debt to Cash Flow Ratio less than 4.00 to 1.00 and Total Funded --- Debt to Cash Flow Ratio less than 5.50 to 1.00 0.25% Level V. None of Levels I-IV achieved. 0.50% - -------
(b) Letters of Credit. Allen Group 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, each Borrower shall pay to the Agent a closing fee for the ratable benefit of the Banks, based on their Percentages, equal to one-tenth of one percent (0.10%) of the original Commitments to it plus, in the case of Allen Group, the face amount of the Bond Letters of Credit then outstanding. (d) Agent. The Borrowers shall pay to the Agent the fees agreed to between the Agent and the Borrowers. Section 2.2. Extension of Termination Date. Between April 1 and April 30, 1997 (and between April 1 and April 30 of each year thereafter before the Termination Date) the Borrowers 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 to such extension 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 Borrowers still desire to extend the Termination Date, they 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 -13- 19 reallocation and that each Bank's Commitment to each Borrower represents the same Percentage of the Commitments to each Borrower; 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 Borrowers 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 (other than Reimbursement Obligations under the Bond Letters of Credit, which remain subject to their Reimbursement Agreements, as provided in Section 1.2(c)), and of all other amounts payable by a Borrower under this Agreement, shall be made by the relevant 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 Borrowers) 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: "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" for either Borrower 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 -14- 20 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. "Allen Group" is defined in the introductory paragraph hereof. "Allen Group Revolving Commitment" is defined in Section 1.1 hereof. "Application" is defined in Section 1.2(b) hereof. "Authorized Representative" means, for each Borrower, each person shown on the list of officers provided by each Borrower pursuant to Section 6.1(d) hereof, or on any updated such list provided by a Borrower to the Agent, or any further or different officer of a Borrower so named by any Authorized Representative in a written notice to the Agent. "Bank" means each bank signatory hereto, including each Issuing Bank, and any assignee of a Bank pursuant to Section 12.12 hereof. "Bond Document" means any document or instrument entered into in connection with any Bonds and any amendment or supplement thereto (including, without limitation, all "Related Documents" as defined in any Reimbursement Agreement). "Bond Letter of Credit Issuer" is defined in Section 1.2(d) hereof. "Bond Letters of Credit" is defined in Section 1.2 hereof. "Bonds" means the bond issues identified on Schedule 1.2. "Borrower" is defined in the introductory paragraph hereof. "Borrowing" means the total of Loans of a single type made by one or more Banks to a Borrower on a single date and for a single Interest Period. Borrowings are made ratably from each of the Banks according to their Percentages. "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. -15- 21 "Capitalized Costs of MARTA Project" means, for any MARTA Project, at any time before completion, the greater of the then budgeted and then actual construction costs of the MARTA Group for such project and, thereafter, the actual final construction costs. "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 Bank of America Illinois. "Code" means the Internal Revenue Code of 1986, as amended. "Commitments" is defined in Section 1.1 hereof. "Completion Guaranty" means any Guaranty from Allen Group or any Subsidiary (other than a member of the MARTA Group) covering a performance obligation of the MARTA Group 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 as being complete and operable in all material respects as required 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 Allen Group pursuant to Section 7.6(a) hereof. "Consenting Bank" is defined in Section 2.2 hereof. "Consolidated Net Worth" means the excess of total assets of Allen Group and its Subsidiaries on a consolidated basis over total liabilities of Allen Group 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 that duplicate or are included -16- 22 (partially or in whole) in either Non-MARTA Funded Debt or Total Funded Debt 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. "1994 Credit Agreement" means the Credit Agreement dated as of February 17, 1994 among The Allen Group Inc., the Banks party thereto, and Bank of Montreal, as Agent, as amended. "Credit Documents" means this Agreement, the Notes, the Applications, the Reimbursement Agreements, the Bond Documents 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 Allen Group 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 the type described in clauses (i)-(iv) above for which such Person is obligated pursuant to a Guaranty, (vii) obligations of such Person to reimburse or otherwise indemnify issuers of letters of credit or surety bonds (or equivalent third party instruments), (viii) the imputed principal component of obligations of any member of the MARTA Group under Operating Leases for real property, machinery, or equipment (other than minor office equipment such as photocopy or telecopy machines and excluding leases of automobiles), and (ix) the amount of any reserve required to be established by such Person under GAAP for any judgment against it. To the extent Debt of the MARTA Group 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. The amount computed under clause (ix) shall only be included in Non-MARTA Funded Debt or Total Funded Debt, as applicable, to the extent, if any, the amount so computed exceeds $250,000. To the extent outstanding Hedging Loans do not exceed $15,000,000 (based upon the exchange rate between U.S. Dollars and each relevant currency at the time each such loan is borrowed and at the end of each calendar quarter thereafter) such Hedging Loans shall be excluded from the computation of Non-MARTA Funded Debt, Total Funded Debt, and Debt of Subsidiaries restricted by Section 7.21. "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. -17- 23 "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 a 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. "Fixed Charge Coverage Ratio" means, for any period of Allen Group and its Subsidiaries, the ratio, calculated without duplication, of (i) their consolidated net income during such period (excluding "extraordinary" and "unusual or non-recurring" gains and losses) 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 (net of interest income) deducted from consolidated net income for such period, to (ii) the sum of (w) interest expense (net of interest income) for such period, (x) dividends paid or accrued on preferred stock for such period, (y) operating lease expense (other than for the MARTA Group or under FASB 13 "synthetic leases") for real property for such fiscal period to the extent it has exceeded $4,000,000 during the four quarter period ending with such fiscal period and (z) the imputed interest component of Capitalized Lease Obligations and FASB 13 "synthetic leases" paid or accrued during such period, all as determined in accordance with GAAP for such fiscal period, except that, if not dictated by GAAP, the imputed interest component of Capital Lease Obligations and of payments under "synthetic leases" will be determined by -18- 24 any reasonable method selected and disclosed to the Banks by Allen Group and not objected to by the Required Banks. "GAAP" means generally accepted accounting principles from time to time in effect. "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. "Hedging Loan" means a loan in one currency incurred by Allen Group or a Subsidiary to purchase another currency when such purchased currency (or temporarily the borrowed currency) is then pledged to the lender to secure such loan. "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. "Indenture" means a trust indenture, bond resolution or other similar instrument pursuant to which Bonds are issued, including any amendments or supplements thereto. "Interest Period" is defined in Section 1.6 hereof. "Issuing Bank" is defined in Section 1.2(d) hereof and shall include any assignee of an Issuing Bank that assumes the Issuing Bank's obligations and rights hereunder. "L/C Documents" means the Letters of Credit, any draft or other document presented in connection with a drawing thereunder, the Applications, the Reimbursement Agreements and this Agreement. -19- 25 "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(c) 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, a Person 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" is defined in the introductory paragraph hereof. "MARTA Group" means MARTA Technologies, Inc., its Subsidiaries, and any other Affiliate of Allen Group 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 related sites that the MARTA Group constructs or operates or contracts to construct or operate directly or indirectly through contractors under a single contract with a single governmental authority. "MARTA Revolving Commitment" is defined in Section 1.1 hereof. "Non-MARTA Cash Flow" means, for any fiscal quarter of Allen Group and its Subsidiaries (except the MARTA Group), their consolidated net income (including cash dividends actually received from earnings of the MARTA Group) 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 Allen Group 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". -20- 26 "Non-MARTA Funded Debt" means, at any time, all then outstanding Debt of Allen Group and its Subsidiaries (except the MARTA Group, but without limiting the application of clauses (vi) and (vii) of the definition of Debt) determined, without duplication, on a consolidated basis plus, for each MARTA Project supported by a Completion Guaranty, 25% of the lesser of (x) the Capitalized Costs of such MARTA Project supported by a Completion Guaranty and (y) the maximum dollar liability under such Completion Guaranty. To the extent Debt of the MARTA Group financing a MARTA Project is included in Non-MARTA 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. "Non-MARTA Funded Debt to Cash Flow Ratio" means, at any time, the ratio of Non-MARTA Funded Debt to Non-MARTA Cash Flow as of the last day of the then most recently completed fiscal quarter of Allen Group and its Subsidiaries. "Non-Recourse Debt" means Debt incurred to finance a MARTA Project for which the debtholder has no recourse, direct or indirect, to the MARTA Group, other than to specific assets of the MARTA Group financed by such Debt and/or a Subsidiary (a "MARTA Special Purpose Subsidiary") the equity securities of which are directly owned by MARTA and the sole business activity of which is to own and/or operate the assets financed by such Debt, as specifically stipulated in documentation governing such Debt, and for which neither Allen Group nor any Affiliate (other than the relevant MARTA Special Purpose Subsidiary, if applicable) is liable, in whole or in part, pursuant to a Completion Guaranty or other form of Contingent Obligation of any kind. "Non-Recourse Projects" means all MARTA Projects that are financed by no Debt other than Non-Recourse Debt and, to the extent any MARTA Project is financed by Debt that is Non-Recourse Debt and other Debt not qualifying as Non-Recourse Debt, a percentage of such MARTA Project equal to the Non-Recourse Debt financing such MARTA Project divided by the sum of all Debt financing such MARTA Project. "Note" is defined in Section 1.10(a) hereof. "Obligations" means all fees payable hereunder, all obligations of a Borrower to pay principal or interest on Loans and Reimbursement Obligations, and all other obligations of a Borrower arising under or in relation to any Credit Document. "Operating Lease" means any lease of any real or personal property that is not a Capital Lease. The imputed principal component of obligations under an Operating Lease will be determined for purposes of clause (viii) of the definition of Debt by any reasonable method selected by Allen Group and disclosed to the Banks that is not objected to by the Required Banks. "Participating Bank" is defined in Section 1.2(e) hereof. "PBGC" is defined in Section 5.9 hereof. -21- 27 "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. "Pricing Change Date" means, for any fiscal quarter of Allen Group 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 Allen Group 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 Allen Group 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 Allen Group's fiscal quarter covered by such Compliance Certificate until the next Pricing Change Date. "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 Allen Group and its Subsidiaries 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). "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 Agreement" means each agreement between Allen Group and Dresdner Bank AG, New York Branch relating to a Bond Letter of Credit identified under the column "Reimbursement Agreement" on Schedule 1.2(c) hereto, as any such agreement may be amended or otherwise modified in accordance with the terms hereof. -22- 28 "Reimbursement Obligation" is defined in Section 1.2(d) hereof. "Required Banks" means, as of the date of determination thereof, either Banks holding at least a majority of the Commitments to both Borrowers or, if the Commitments to both Borrowers have been terminated in whole, Banks holding at least a majority 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; provided that the Required Banks must at all times be comprised of at least four Banks. "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 Allen Group 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 Subsidiaries (other than members of the MARTA Group) that are consolidated with Allen Group under GAAP (including investments in a Person that, after giving effect to such investments, is such a Subsidiary) and investments of Subsidiaries in Allen Group shall not be Restricted Investments, and provided further that the following investments shall not be Restricted Investments: (i) investments by Allen Group 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 Allen Group or the 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, Moody's Investors Service, Inc. or any other nationally recognized credit rating agency of similar standing providing similar ratings; (ii) investments by Allen Group or any Subsidiary in direct obligations of the United States of America, or any agency thereof (or by any other national government or agency thereof if invested in by a Subsidiary operating in such country investing revenue earned in the currency of such country), maturing in five years or less from the date of acquisition thereof; (iii) investments by Allen Group 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 the United States or any state thereof (or under the laws of the country in which a Subsidiary operates, if such Subsidiary is investing revenues earned in the currency of such country) having -23- 29 capital, surplus and undivided profits aggregating at least $100,000,000 (or its equivalent in another currency if a non-United States bank); (iv) investments by Allen Group 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 Allen Group or the Subsidiary, is accorded one of the two highest ratings available from Standard & Poor's, 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 Allen Group or any Subsidiary; and (vi) receivables arising from the sale of goods and services in the ordinary course of business of Allen Group and its Subsidiaries. "Revolver Issuer" is defined in Section 1.2(a) hereof. "Revolver Letters of Credit" is defined in Section 1.2(a) hereof. "Revolving Obligations" means, for Allen Group at any time, the sum of the principal amount of the Loans to it and L/C Obligations under Revolver Letter of Credit then outstanding and, for MARTA at any time, the principal amount of Loans then outstanding to it. "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 any Debt of Allen Group that has been subordinated to all Obligations 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 Allen Group, any corporation (including, without limitation, MARTA) 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 -24- 30 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 contingency) is at the time directly or indirectly owned by Allen Group or by one or more of its Subsidiaries, or by Allen Group and one or more of its Subsidiaries. References in this Agreement to a Borrower "or" a Subsidiary do not affect the intention in this Agreement to include MARTA in all references to a Subsidiary. "Substitute Bank" is defined in Section 9.3(d) hereof. "Termination Date" means December 18, 1999. "Total Cash Flow" means, for any fiscal quarter of Allen Group and its Subsidiaries, their consolidated net income 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 Allen Group and its Subsidiaries ending with such fiscal quarter; except that there shall be excluded from such computation any portion of consolidated net income or items in clauses (A) through (D) that derive from Non-Recourse Projects (including a percentage of such revenue for MARTA Projects partially financed by Non-Recourse Debt, as described in the definition of Non-Recourse Projects). It is understood that gains or losses properly classified under GAAP as resulting from discontinued operations are not "extraordinary" or "unusual or non-recurring". "Total Funded Debt" means, at any time, all then outstanding Debt of Allen Group and its Subsidiaries (other than Non-Recourse Debt) determined, without duplication, on a consolidated basis, plus, to the extent (if any) greater than the Debt (other than Non-Recourse Debt) of Allen Group and its Subsidiaries financing a MARTA Project, for each such MARTA Project, the lesser of the amounts calculated under clauses (x) and (y) of the definition of Non-MARTA Funded Debt over the amount of such Debt (other than Non-Recourse Debt) financing the MARTA Project. "Total Funded Debt to Cash Flow Ratio" means, at any time, the ratio of Total Funded Debt to Total Cash Flow as of the last day of the then most recently completed fiscal quarter of Allen Group. "Trustee" means the trustee, or equivalent fiduciary, appointed under any Indenture. "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 a Borrower or any ERISA Affiliate to the PBGC or the Plan under Title IV of ERISA. -25- 31 "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 Allen Group 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 Allen Group 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 applied in a manner consistent with Allen Group's December 31, 1994 financial statements referred to in Section 5.4 hereof, 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) Allen Group notifies the Agent that the Borrowers wish 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 Allen Group 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 Borrowers' 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 Borrowers and the Required Banks. SECTION 5. REPRESENTATIONS AND WARRANTIES. Each Borrower represents and warrants to each Bank as follows: Section 5.1. Corporate Organization and Authority. Each 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. -26- 32 Section 5.2. Subsidiaries. As of the date hereof, the only Subsidiaries of Allen Group are designated in Schedule 5.2 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 Borrowers and Subsidiaries taken as a whole. Schedule 5.2 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 Allen Group 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 5.2 as owned by Allen Group or a Subsidiary are owned, beneficially and of record, by Allen Group or such Subsidiary, free of any Lien. Section 5.3. Corporate Authority and Validity of Obligations. Each Borrower has full right and authority to enter into the Credit Documents to which it is a party, to make the borrowings herein provided for, to issue its Notes in evidence thereof, to apply for the issuance of the Letters of Credit (in the case of Allen Group) and to perform all of its obligations under the Credit Documents to which it is a party; each Credit Document delivered by a Borrower has been duly authorized, executed and delivered by such 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 either 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 either Borrower or any Subsidiary or (individually or in the aggregate) any material covenant, indenture or agreement of or affecting either 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 either Borrower's or any Subsidiary's Properties or revenues. Section 5.4. Financial Statements. All public financial statements showing historical performance of Allen Group and the Subsidiaries 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 Allen Group and the Subsidiaries as of the dates thereof, and the results of operations for the periods covered thereby. Allen Group and its Subsidiaries have no material contingent liabilities other than those disclosed in such financial statements referred to in this Section 5.4 or in comments or footnotes thereto or in any supplemental report thereto heretofore furnished to the Banks. -27- 33 Section 5.5. No Material Adverse Change. There has been no material adverse change in the financial condition or business prospects of Allen Group and its Subsidiaries on a consolidated basis since June 30, 1995, except to the extent of the effects of the distribution of TransPro, Inc. to the shareholders of Allen Group, as described in Allen Group's Registration Statement on Form S-1 filed with the SEC on September 11, 1995. Section 5.6. No Litigation. There is no litigation or governmental proceeding pending, or to the knowledge of either Borrower threatened, against either Borrower or any Subsidiary 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 Allen Group and its Subsidiaries on a consolidated basis. Section 5.7. Taxes. Except as described on Schedule 5.7 hereto, the United States Federal income tax returns of Allen Group 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. Except as described on Schedule 5.7 hereto, Allen Group has filed U.S. Tax Returns for each fiscal year through December 31, 1994, 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 either 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 either Borrower or from any other Person, is necessary to the valid execution, delivery or performance by either Borrower of any Credit Document. Section 5.9. ERISA. Each 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 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 Allen Group for the fiscal year ended December 31, 1994. Section 5.10. Not an Investment Company. Neither Borrower is an "investment company" as defined in the Investment Company Act of 1940, as amended. Section 5.11. Margin Stock. Neither Borrower nor any Subsidiary 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 -28- 34 herein as in Regulation U of the Board of Governors of the Federal Reserve System). Neither Borrower nor any Subsidiary 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 each Borrower's knowledge, the business and operations of each Borrower and the 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 formeldahyde, to the treatment, storage, disposal or management of hazardous substances (including, without limitation, petroleum, its derivatives or 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 Allen Group and the Subsidiaries taken as a whole. (b) Except as set forth on Schedule 5.12 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 Allen Group 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) Allen Group 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 Allen Group's or any Subsidiary's property, facilities, equipment or vehicles; (iii) Allen Group 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 Allen Group'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 (including, without limitation, petroleum, its by-products or derivatives, or other hydrocarbons). Section 5.13. Ownership of Property; Liens. Allen Group and its Subsidiaries have good record and marketable title in fee simple to or valid leasehold interests in all their respective real property, and good title to or valid leasehold interests in all their respective -29- 35 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 Allen Group 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 either Borrower may reasonably foresee may so affect, the business, operations, Property or financial condition of Allen Group and its Subsidiaries taken as a whole. Section 5.15. Long Term Debt. As of the date hereof, all Debt of Allen Group and its Subsidiaries with a remaining scheduled maturity of more than one (1) year is listed on Schedule 5.15 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 of 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, Vice President, 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 either Borrower's 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 each Borrower's Certificate of Incorporation and bylaws, each certified by the relevant Borrower's Secretary or Assistant Secretary; (d) The Agent shall have received from each 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 each Borrower executing Credit Documents on its behalf; and (e) The 1994 Credit Agreement shall have been terminated and all outstanding Indebtedness thereunder shall have been paid in full. -30- 36 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 Notes and the notice required by Section 1.5 hereof and, in the case of the issuance of any Revolver Letter of Credit, the Issuing Bank shall have received a duly completed Application for the 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 Borrowers 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 Borrowers 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 of each Borrower, after giving effect to the proposed Credit Event, shall not exceed the Commitments to such Borrower then in effect; (e) In the case of the issuance of, or the increase in the amount of, a Revolver Letter of Credit the aggregate undrawn face amount of all outstanding Revolver 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. Each 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 either Borrower hereunder, except to the extent compliance in any case is waived in writing by the Required Banks: -31- 37 Section 7.1. Corporate Existence. Each Borrower shall, and Allen Group 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. Each 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 Allen Group will cause each Subsidiary so to do in respect of Property owned or used by it; provided, however, that nothing in this Section 7.2 shall prevent a Borrower or a Subsidiary from discontinuing the operation or maintenance of any such properties if such discontinuance is, in the judgment of Allen Group, 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. Each Borrower will duly pay and discharge, and Allen Group 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. Each Borrower will, and Allen Group 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 a Borrower or any Subsidiary of any material liability, fine or penalty, or any material increase in the contingent liability of a 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 each Borrower and its ERISA Affiliates, Allen Group 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. Each Borrower will insure, and keep insured, and Allen Group 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 -32- 38 conducting similar businesses each Borrower will also insure, and Allen Group will cause each of its Subsidiaries to insure, employers' and public and product liability risks in good and responsible insurance companies. The Borrowers 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) Each 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 Borrowers and Subsidiaries as the Required Banks or the Agent may reasonably request; and without any request Allen Group will furnish to each Bank: (i) within 60 days after the end of each of Allen Group's first three quarterly fiscal periods, a copy of Allen Group's Form 10-Q Report filed with the SEC, with supplemental calculations setting forth (A) for each account affected thereby, all eliminating entries for the MARTA Group and (B) the resulting consolidated figures for Allen Group and its Subsidiaries exclusive of the MARTA Group and such consolidated figures for the MARTA Group; (ii) within 100 days after the end of each fiscal year of Allen Group, a copy of Allen Group's Form 10-K Report filed with the SEC, including a copy of the annual report of Allen Group 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 the MARTA Group and (B) the resulting consolidated figures for Allen Group and its Subsidiaries exclusive of the MARTA Group and such consolidated figures for the MARTA Group, prepared by Allen Group and, in the case of the consolidated financial statements of Allen Group and its Subsidiaries, certified by Coopers & Lybrand or other independent public accountants of recognized standing selected by Allen Group 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 Allen Group 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 Allen Group sends to its shareholders, and copies of all other regular, periodic and special reports and all registration statements Allen Group files with the SEC or any successor thereto, or with any national securities exchange; and (iv) an updated Schedule 5.2 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 5.2, as then most recently updated. -33- 39 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 Compliance Certificate signed by the chief financial officer or Controller or Treasurer of Allen Group (it being understood that in preparing such certificate the officer's determination of 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 Borrowers at all times be in compliance with the terms and conditions of this Agreement). In the event Allen Group 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) Each Borrower will permit each Bank (or such Persons as any Bank may designate) to visit and inspect, under Allen Group's guidance, any of the properties of either 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 each Borrower authorizes such accountants to discuss with the Banks the finances and affairs of the Borrowers and Subsidiaries) all at such reasonable times and as often as may be reasonably requested. (c) The Borrowers will promptly give notice to the Agent and each Bank (and in any event within two Business Days after a 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 a Borrower or any Subsidiary; (iii) of a material adverse change in the business, operations, property or financial or other condition of Allen Group and its Subsidiaries taken as a whole. Section 7.7. Change of Control. If a Change of Control shall occur, the Borrowers will, within 1 Business Day after either 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. Allen Group and its Subsidiaries will not engage in any business if, as a result, the general nature of the business which would then be engaged in by Allen Group and its Subsidiaries would be substantially changed from the general nature of the business engaged in by Allen Group and its Subsidiaries on the date of this Agreement. The MARTA Group 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. Neither Borrower will nor will Allen Group permit any Subsidiary to create, incur, or permit to exist or to be incurred any Lien of any kind on any -34- 40 Property owned by a 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 a 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 relevant 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 relevant Borrower or such Subsidiary, as the case may be; (c) Liens arising out of judgments or awards against a 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 Borrowers 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 a 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 a 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 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 a 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 a Borrower or any Subsidiary -35- 41 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 a Borrower or any Subsidiary and not created in contemplation of such transaction; (g) Liens to secure Debt of any Subsidiary to Allen Group 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 Allen Group 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 relevant Borrower or such Subsidiary, as the case may be; (i) Options granted to others to purchase real property or other assets of a 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 Borrowers and 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 Borrowers and Subsidiaries; (k) Liens, existing as of the date hereof, securing Indebtedness of a Borrower or any Subsidiary outstanding on the date hereof and listed on Schedule 7.9 to this Agreement; (l) Liens resulting from leases of real or personal property, including without limitation Capital Leases, where a 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 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 securing Non-Recourse Debt on Property financed by such Debt; (o) Liens on funds derived from a Hedging Loan (before or after the exchange of the borrowed funds into a different currency) securing such Hedging Loan; or -36- 42 (p) 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 any member of the MARTA Group or on any Debt owed by any member of the MARTA Group to Allen Group or any Subsidiary (other than a member of the MARTA Group) 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 Borrowers in this Section 7, Allen Group 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 Allen Group 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 Allen Group 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 Allen Group and its Subsidiaries on a consolidated basis. Section 7.11. Regulation U. The proceeds of each Loan shall be used for general corporate purposes of the relevant Borrower. Neither Borrower shall 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. Allen Group 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) Allen Group will not, and will not permit any of its Subsidiaries 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 Allen Group and its Subsidiaries; provided, however, that: (1) any member of the MARTA Group may merge or consolidate with any other member of the MARTA Group; provided that, in any such merger or consolidation involving MARTA, MARTA shall be the surviving or continuing corporation; (2) any Subsidiary (except a member of the MARTA Group) may merge or consolidate with or into or sell, lease or otherwise convey all or a substantial part of its assets to Allen Group or any other Subsidiary for which Allen Group holds at least the same percentage equity ownership; provided that in any such merger or -37- 43 consolidation involving Allen Group, Allen Group or Allen Telecom Group, Inc. shall be the surviving or continuing corporation and shall continue to own all of the assets Allen Group owned immediately before such transaction (other than the capital stock of Allen Telecom Group, Inc. if it is the surviving or continuing corporation); and (3) either Borrower may consolidate or merge with any other Person (except Allen Group will not consolidate or merge with a member of the MARTA Group) 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 Allen Group and its Subsidiaries if the book value of such assets, when added to the book value of all other assets sold, leased, transferred or disposed of by Allen Group and such Subsidiaries (other than in the ordinary course of business) during the same fiscal year, exceeds 5% of the consolidated assets of Allen Group and its Subsidiaries determined as of the end of the immediately preceding fiscal year. (b) Allen Group will not permit any material Subsidiary (except members of the MARTA Group) 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 Allen Group 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 Allen Group and/or a Subsidiary whereby Allen Group and/or such Subsidiary maintain their same proportionate interest in such Subsidiary. (c) Allen Group will not sell, transfer or otherwise dispose of any shares of stock in any material Subsidiary other than members of the MARTA Group (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 Allen Group or a Wholly-Owned Subsidiary) any shares of stock or any Indebtedness of any material Subsidiary, 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 Allen Group and its Subsidiaries. Section 7.14. Use of Property and Facilities. (a) Allen Group 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 Allen Group or any Subsidiary. (b) A 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 -38- 44 least annually along with the financial statements required to be delivered pursuant to Section 7.6(a)(ii). Section 7.15. Fixed Charge Coverage Ratio. Allen Group will at the end of each fiscal quarter maintain a Fixed Charge Coverage Ratio, calculated for the four quarter period ending with such fiscal quarter, of not less than 2.00 to 1.00. Section 7.16. Consolidated Tangible Net Worth. Allen Group will at all times maintain Consolidated Tangible Net Worth in an amount not less than $80,000,000. Section 7.17. Adjusted Consolidated Net Worth. Allen Group will at all times maintain an Adjusted Consolidated Net Worth of not less than $160,000,000 plus 75% of the cumulative amount of consolidated net income of Allen Group and its Subsidiaries for each fiscal quarter of Allen Group commencing after September 30, 1995 through the most recently completed fiscal quarter (without deduction for any consolidated net loss during any such fiscal quarter), plus 75% of the proceeds from any capital stock of Allen Group issued after September 30, 1995, minus redemptions of up to $50,000,000 in Allen Group common stock after September 30, 1995. Section 7.18. Funded Debt to Cash Flow Ratios. (a) Allen Group will not permit the Non-MARTA Funded Debt to Cash Flow Ratio to exceed 5.0 to 1.00 at the end of any fiscal quarter. (b) Allen Group will not permit the Total Funded Debt to Cash Flow Ratio to exceed 7.0 to 1.0 at the end of any fiscal quarter. (c) If any Debt of MARTA is excluded from the computation of Total Funded Debt as Non-Recourse Debt, Allen Group shall provide to the Banks an explanation for such exclusion and copies of the documentation governing such Debt. If after reviewing such documentation and Allen Group's explanation for how the documentation evidences Non-Recourse Debt, the Required Banks reasonably question such classification, in order to further assist their review the Required Banks may request, and Allen Group shall provide at its expense, an opinion of McDara P. Folan, III, or other legal counsel acceptable to the Required Banks, confirming the classification of such Debt as Non-Recourse Debt. Section 7.19. Restricted Investments and Contingent Obligations. Allen Group and its Subsidiaries shall not make, retain or have outstanding a Restricted Investment (including, without limitation, those listed on Schedule 7.19 hereto) or a Contingent Obligation to the extent that the sum of all Restricted Investments and all Contingent Obligations (other than Restricted Investments in the MARTA Group and Contingent Obligations solely supporting obligations of the MARTA Group) of Allen Group and its Subsidiaries (other than the MARTA Group), 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. -39- 45 Section 7.20. Investments in MARTA. The aggregate amount of the Restricted Investments on a consolidated basis of Allen Group and its Subsidiaries in the MARTA Group (calculated without revaluing such investment based on the MARTA Group income or loss) may not exceed at any time the lesser of (i) 50% of Adjusted Consolidated Net Worth and (ii) $80,000,000. Section 7.21. Subsidiary Debt. No Subsidiary (except members of the MARTA Group) shall incur any Debt or any Guaranty of Indebtedness of any other Person of the type described in clauses (i)-(v) or (viii) of the definition of Debt except (x) Debt to Allen Group or any other Subsidiary (except members of the MARTA Group) 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 Adjusted Consolidated 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 a 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, 7.14(b) and 7.15-7.20; (c) default by a Borrower in the observance or performance of the covenant set forth in Section 7.21, which is not remedied within ninety (90) days; (d) default by a Borrower (i) 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 (ii) 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 Borrowers 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 a Borrower or any Subsidiary or (ii) default shall occur under any indenture, agreement or other instrument under which any Indebtedness or Contingent Obligation of a Borrower or any Subsidiary 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 -40- 46 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 a Borrower, or in any statement or certificate furnished pursuant hereto or pursuant to any other Credit Document by a 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) Allen Group or any Subsidiary 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 Allen Group or any Subsidiary or any substantial part of any of their Property, or a proceeding described in Section 8.1(g)(v) shall be instituted against Allen Group or any Subsidiary, and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of sixty (60) days; (i) Allen Group shall fail at any time to own 94% (on a fully diluted basis) of the Voting Stock of the MARTA Group directly or indirectly through one or more Subsidiaries in which it holds 94% or more of the Voting Stock; (j) Allen Group or any Subsidiary 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; (k) either 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 either Borrower, any ERISA Affiliate, any plan administrator or any combination of -41- 47 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 either 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; (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 Allen Group (a "Change of Control"); or (m) an "event of default" (as defined therein) shall occur under any Bond Document, if it permits the Bond Letter of Credit Issuer to declare an early expiration date for a Bond Letter of Credit, accelerate the Bonds secured by a Bond Letter of Credit, not reinstate any interest component of a Bond Letter of Credit or take any similar action or remedy under a Reimbursement Agreement. 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 relevant Borrower, (a) if so directed by the Required Banks, terminate the remaining Commitments to such Borrower and all other obligations of the Banks to such Borrower 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 of such Borrower 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 Allen Group immediately pay to the Agent the full amount then available for drawing under each or any Letter of Credit, and Allen Group agrees to immediately make such payment and acknowledges and agrees that the Banks would not have an adequate remedy at law for failure by Allen Group to honor any such demand and that the Agent, for the benefit of the Banks, shall have the right to require Allen Group 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 a 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. A notice under clauses (a) or (b) of this Section 8.2, or both, may be delivered to one or to both Borrowers depending on the instructions of the Required Banks. Section 8.3. Bankruptcy Defaults. When any Event of Default described in subsection (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, -42- 48 the obligation of the Banks to extend further credit pursuant to any of the terms hereof shall immediately terminate, and Allen Group shall immediately pay to the Agent the full amount then available for drawing under all outstanding Letters of Credit, Allen Group acknowledging that the Banks would not have an adequate remedy at law for failure by Allen Group to honor any such demand and that the Banks, and the Agent on their behalf, shall have the right to require Allen Group to specifically perform such undertaking whether or not any drawings or other demands for payment 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, Allen Group 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 an Issuing Bank, and to the payment of the unpaid balance of any Loans (whether direct Loans to Allen Group or Loans to MARTA, which are all guaranteed by Allen Group pursuant to Section 11 hereof) and all other obligations of Allen Group 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 Banks and the other Banks. If and when requested by Allen Group, 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 Allen Group to the Agent, the Issuing Bank or the other Banks; provided, however, that if (i) Allen Group 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 Allen Group any remaining amounts held in the Account. (c) As security for the payment when due of all of the Obligations, Allen Group hereby pledges and assigns to the Agent for the benefit of the Agent and the Banks (including the Issuing Banks), and grants to the Agent for the benefit of the Agent and the Banks (including the Issuing Banks), 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. -43- 49 Section 8.5. Bond Letters of Credit. In addition to the remedies otherwise described in this Section 8 or in any other Credit Document or Bond Document, upon the occurrence of an Event of Default hereunder, the Agent, at the request of the Required Banks, shall direct the Bond Letter of Credit Issuer to exercise one or more of the following rights and remedies: (a) give notice of the occurrence of an Event of Default hereunder (or of an "event of default" under the applicable Reimbursement Agreement) to the applicable Trustee directing an acceleration, redemption or tender of the applicable Bonds, thereby causing the applicable Bond Letter of Credit to terminate the number of days thereafter specified in such Bond Letter of Credit; (b) if permitted under the terms of the applicable Bond Letter of Credit, give notice that an amount drawn under a Bond Letter of Credit to pay interest on Bonds will not be reinstated; and/or (c) pursue any rights and remedies provided to the Issuing Bank and/or the Agent under the Bond Documents. Each Bank acknowledges that if the notice described in clause (b) of the preceding sentence is not delivered on a timely basis, the interest component of the applicable Bond Letter of Credit will reinstate in accordance with its terms. Section 8.6. Notice of Default. (a) By Agent. The Agent shall give notice to the Borrowers under Section 8.1(d) hereof promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof. (b) For Issuing Banks. No Issuing Bank shall be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, unless such Issuing Bank shall have received written notice from the Agent (or, with respect to a Default or Event of Default under Section 8.1(m), from any party to a Bond Document, which notice shall then promptly be delivered by the Issuing Bank to the Agent). The Bond Letter of Credit Issuer shall take such action with respect to such Default or Event of Default under the Reimbursement Agreements and the Bond Documents as shall be requested by the Agent in accordance with Section 8.5; provided that unless and until such Issuing Bank shall have received any such request, such Issuing Bank may (but shall not be obligated to) take such action, or refrain from taking such action, concerning such Default or Event of Default as it shall deem advisable and in the best interest of the Banks, except any action resulting in the acceleration, redemption or mandatory tender of any Bonds or the nonreinstatement of the interest component of any Bond Letter of Credit, which shall only be taken at the request of the Agent acting on the instructions of the Required Banks. Section 8.7. Expenses. The Borrowers agree to pay to the Agent and each Bank, and any other holder of any Note outstanding hereunder, all expenses incurred or paid by the Agent or such Bank or any such holder, including reasonable attorneys' fees (which may be in-house attorneys) and court costs, in connection with any Default or Event of Default 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 -44- 50 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 Borrowers 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 relevant Borrower(s) 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 relevant Borrower or Borrowers 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 Borrowers and the Banks, whereupon until the Agent notifies the Borrowers that the circumstances giving rise to such suspension no longer exist, which notification the Agent shall promptly give the Borrowers 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 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 -45- 51 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 Borrowers 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 an 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 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 Borrowers shall pay to such Bank such additional amount or amounts as will compensate such Bank for such reduction. -46- 52 (c) A certificate of a Bank setting forth such amount or amounts as shall be necessary to compensate such Bank or the corporation controlling it as specified in subsection (b) above shall be delivered to the Borrowers (with a copy to the Agent) and shall be conclusive absent manifest error. The Borrowers shall be obligated to pay each Bank the amount shown as due on any such certificate delivered by it within 10 Business Days after their 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 or gives notice under Section 9.1 that it will not fund or maintain Eurodollar Loans, the Borrowers may require, at their expense, such Bank to assign (in accordance with Section 12.12 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 Borrowers (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 Borrowers shall have received the written consent of the Agent and Issuing Banks (other than the affected Issuing Bank in the case of an assignment by it in such capacity), which consent shall not be unreasonably withheld, to such assignment and (iii) the Borrowers 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 Borrowers thereof (with a copy to the Agent). Failure on the part of any Bank so to notify the Borrowers 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 of its branches, offices or affiliates as it may from time to time elect and designate in a written notice to the Borrowers 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 -47- 53 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 either Borrower or any Affiliate of a 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, 8.3 and 8.6(a). 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 any 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 any 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 Agreement, any other Credit Document or any Credit Event; (ii) the performance or observance of any of the covenants or agreements of either 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, any 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 any Issuing Bank makes any representation of any kind or character with respect to any -48- 54 such matter mentioned in this sentence. Neither the Agent nor any 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 any 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 each 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, any 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 Borrowers in the manner set forth herein. It shall be the responsibility of each Bank to keep itself informed as to the creditworthiness of the Borrowers 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 Borrowers, 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 Borrowers 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 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 Borrowers. Upon any such resignation, the Required Banks shall have the right to appoint a successor Agent with the consent of the Borrowers. 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 -49- 55 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. ALLEN GROUP GUARANTEE. Section 11.1. The Guarantee. To induce the Banks to provide the several credits described herein, Allen Group hereby unconditionally and irrevocably guarantees to the Banks, the Issuing Banks, the Agent, and to each of them, the due and punctual payment of all present and future indebtedness of MARTA evidenced by or arising out of this Agreement, the Notes of MARTA or any other Credit Documents, including, but not limited to, the due and punctual payment of principal of and interest on the Notes of MARTA and the due and punctual payment of all other sums now or hereafter owed by MARTA under the Credit Documents as and when the same shall become due and payable, whether at their stated maturity, by acceleration or otherwise, according to the terms hereof and thereof. In case of failure by MARTA punctually to pay any indebtedness guaranteed hereby, Allen Group hereby unconditionally agrees to make such payment or to cause such payment to be made punctually as and when the same shall become due and payable, whether at stated maturity, by acceleration or otherwise, and as if such payment were made by MARTA. Section 11.2. Guarantee Unconditional. The obligations of Allen Group as guarantor under this Section 11 shall be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by: (a) any extension, renewal, settlement, compromise, waiver or release in respect of any obligation of MARTA under this Agreement, any Note or any other Credit Document by operation of law or otherwise; (b) any modification or amendment of or supplement to this Agreement, any Note or any other Credit Document (it being understood that Allen Group hereunder must consent to any modification, amendment or supplement to this Agreement, its Notes or any other Credit Document to which it is a party); (c) any change in the corporate existence, structure or ownership of, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting MARTA or its assets or any resulting release or discharge of any obligation of MARTA contained in this Agreement, any Note or any other Credit Document; (d) the existence of any claim, set-off or other rights which Allen Group may have at any time against the Agent, any Issuing Bank, any Bank or any other Person, whether or not arising in connection with a Credit Document, provided that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim; -50- 56 (e) any invalidity or unenforceability relating to or against MARTA for any reason of this Agreement, any Note or any other Credit Document, or any provision of applicable law or regulation purporting to prohibit the payment by MARTA of the principal of or interest on any Note or any other amount payable by it under this Agreement or any other Credit Document; or (f) any other act or omission to act or delay of any kind by the Agent, any Issuing Bank, any Bank or any other Person (other than an express accord and satisfaction between a Bank or the Agent and Allen Group in so far as it expressly discharges an obligation) or any other circumstance whatsoever that might, but for the provisions of this paragraph, constitute a legal or equitable discharge of the obligations of Allen Group under this Section 11. Section 11.3. Discharge Only Upon Payment in Full; Reinstatement in Certain Circumstances. Allen Group's obligations under this Section 11 shall remain in full force and effect until the commitments to MARTA are terminated and the principal of and interest on the Notes of MARTA and all other amounts payable by MARTA under this Agreement, any Note and all other Credit Documents shall have been paid in full. If at any time any payment of the principal of or interest on any Note or any other amount payable by MARTA under this Agreement or any other Credit Document is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of MARTA, or otherwise, Allen Group's obligations under this Section 11 with respect to such payment shall be reinstated at such time as though such payment had become due but had not been made at such time. Section 11.4. Waivers. (a) General. Allen Group irrevocably waives acceptance hereof, presentment, demand, protest and any notice not provided for herein, as well as any requirement that at any time any action be taken by the Agent, any Issuing Bank, any other Bank or any other Person against MARTA or any other Person. (b) Subrogation. Allen Group will not exercise any rights it may acquire by way of subrogation by any payment made hereunder, or otherwise, until all the Obligations owed by MARTA shall have been paid in full subsequent to the Termination Date. If any amount shall be paid to Allen Group on account of such subrogation rights at any time prior to the later of (x) the payment in full of the Obligations and all other amounts payable by such Guarantor hereunder and (y) the Termination Date, such amount shall be held in trust for the benefit of the Agent and the Banks and shall forthwith be paid to the Agent or be credited and applied upon the Obligations, whether matured or unmatured, in accordance with the terms of this Agreement. Section 11.5. Stay of Acceleration. If acceleration of the time for payment of any amount payable by MARTA under this Agreement, any Note or any other Credit Document is stayed upon the insolvency, bankruptcy or reorganization of MARTA, all such amounts otherwise subject to acceleration under the terms of this Agreement shall nonetheless be payable by Allen Group hereunder forthwith on demand by Agent made at the request of the Required Banks. -51- 57 Section 11.6. Removal of MARTA. Allen Group may at any time remove MARTA as a Borrower hereunder, without any need for the consent of any Bank or MARTA, by paying or causing MARTA to pay all Obligations hereunder owed by MARTA and directing that the MARTA Revolving Commitments are terminated. Thereupon, MARTA shall have no right to borrow hereunder, this Agreement shall automatically be considered amended so that all references to Borrowers are references to Allen Group as the sole Borrower hereunder, and the Guarantee in this Section 11 shall terminate except to the extent it may be reinstated pursuant to Section 11.3. SECTION 12. MISCELLANEOUS. Section 12.1. Withholding Taxes. (a) Payments Free of Withholding. Except as otherwise required by law and subject to Section 12.1(b) hereof, each payment by either 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 such Borrower is domiciled, any jurisdiction from which such Borrower makes any payment, or any political subdivision or taxing authority thereof or therein. If any such withholding is so required, the relevant 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 relevant Borrower shall reimburse the Agent or such Bank for that payment on demand in the currency in which such payment was made. If a 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 a 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. (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 each Borrower and (except for -52- 58 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 each 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 a 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 a Borrower or the 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 Borrowers 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 Borrowers or Agent any form or certificate that such Bank is obligated to submit pursuant to subsection (b) of this Section 12.1 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 Borrowers and Agent of such fact and, without affecting either 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 12.2. 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 12.3. 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. Section 12.4. Documentary Taxes. Each Borrower agrees that it will pay any documentary, stamp or similar taxes payable in respect to this Agreement, any Note of its or (in the case of Allen Group) any Letter of Credit, including interest and penalties, in the -53- 59 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 12.5. 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 12.6. 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 or 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 12.7. 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 12.8. 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 or telecopier number set forth below or such other address or telecopier number as such party may hereafter specify by notice to the Agent and the Borrowers, 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 Borrowers to: -54- 60 For Allen Group: The Allen Group Inc. 25101 Chagrin Boulevard Beachwood, Ohio 44122 Attention: Treasurer (with a copy to General Counsel) Telephone: 216-765-5805 Telecopy: 216-765-0410 For MARTA: c/o The Allen Group Inc. 25101 Chagrin Boulevard Beachwood, Ohio 44122 Attention: Treasurer (with a copy to General Counsel) Telephone: 216-765-5805 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 12.8 or on the signature pages hereof and a confirmation of such telecopy has been received by the sender, (ii) if given by mail, five (5) days after such communication is deposited in the mail, registered with return receipt requested, addressed as aforesaid or (iii) 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 12.9. 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 12.10. Successors and Assigns. This Agreement shall be binding upon each 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. Neither Borrower may assign any of its rights or obligations hereunder without the written consent of all of the Banks, subject to Section 7.13. Section 12.11. 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 -55- 61 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 12.11, and the Agent 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 relevant 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. Section 12.12. Assignment of Commitments by Banks. Each Bank shall have the right at any time, with the prior consent of each Issuing Bank and the Agent, which shall not be unreasonably withheld, to sell, assign, transfer or negotiate all or any part of its Commitments (including the same percentage of its Notes, outstanding Loans, participations in Letters of Credit and its other extensions of credit to each Borrower 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 Commitments of at least $5,000,000; the same Percentage of the assigning Bank's Commitments to Allen Group and MARTA must be assigned; the Percentage so assigned shall remain constant, not vary by its terms, and shall be the same for all Sections of this Agreement; and assignments from a Bank to one of its affiliates do not require the consent of either Issuing Agent or the Agent. Upon any such assignment, its notification to the Agent, and (except in the case of an assignment by a Bank to an affiliate) the payment to the Agent of a $2,500 recordation and administration fee, any such assignee shall become a Bank for all purposes hereunder to the extent of the Commitments 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 12.13. 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) each Borrower (or only Allen Group in the case of Section 11), (b) the Required Banks, and (c) if the rights or duties of an 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 12.13 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; (ii) no amendment or waiver pursuant to this Section shall, unless signed by each Bank, change the provisions of this Section 12.13, the definition of Required Banks, or any condition precedent set forth in Section 6 hereof or the provisions of -56- 62 Sections 8.1(g), 8.1(h), 8.3 or 9, or affect the number of Banks required to take any action under this Agreement; and (iii) the Bond Letter of Credit Issuer may enter into any amendment or modification of, or may waive compliance with the terms of any Bond Document (other than an Indenture), without the consent of any Bank; provided that without the consent of all the Banks, the Bond Letter of Credit Issuer shall not execute any instrument agreeing to any amendment or modification of, or waiver of compliance with any Reimbursement Agreement or Bond Document, (i) which would (A) reduce the principal of, or interest on, any L/C Obligation, (B) postpone the due date for any payment of principal of, or interest on, any L/C Obligation, (C) extend the termination date of a Bond Letter of Credit beyond the Termination Date, (D) increase the amount of any Bond Letter of Credit or otherwise increase in any material manner the obligations of the Participating Banks, or (E) release or otherwise adversely affect the interests of the Participating Banks in any collateral granted under any Reimbursement Agreement or Bond Document, or (ii) after the occurrence of a Default or Event of Default of which it has notice as provided in Section 8.6(b); provided that (i) at least thirty (30) days before extending the termination date of any Bond Letter of Credit the Bond Letter of Credit Issuer shall notify the Agent, which will then notify each Bank, of such proposed extension and (ii) the Bond Letter of Credit Issuer will not waive any "event of default" arising under any Reimbursement Agreement or Bond Document without the consent of the Required Banks. Section 12.14. Headings. Section headings used in this Agreement are for reference only and shall not affect the construction of this Agreement. Section 12.15. Legal Fees and Indemnification. The Borrowers agree 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 Borrowers further agree 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 Borrowers, upon demand by the Agent or a Bank at any time, shall reimburse the Agent or such 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 Borrowers 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 -57- 63 than one separate law firm for the Banks and the Agent (which shall be selected by the Agent after consultation with the Borrowers), (ii) the Agent and each Bank shall consult with the Borrowers from time to time at the request of the Borrowers regarding the conduct of the defense in any such proceeding and will cooperate with the Borrowers in their joining as parties to any such proceeding to the extent the Borrowers are permitted by law to join such litigation, and (iii) the Borrowers shall not be obligated to pay an amount of any settlement entered into without their consent (which shall not be unreasonably withheld). The obligations of the Borrowers under this Section 12.15 shall survive the termination of this Agreement. Section 12.16. 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 12.17. 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 12.18. Termination of 1994 Credit Agreement and MARTA Loan Facilities. Allen Group and each of the Banks hereunder that is a party to the 1994 Credit Agreement consents to the termination of the "Commitments" on the Effective Date, notwithstanding the notice requirements for such termination set forth in Section 1.12 of the 1994 Credit Agreement. Because such Banks hereunder constitute the "Required Banks" under the 1994 Credit Agreement, the 1994 Credit Agreement shall terminate and all amounts payable thereunder, including accrued and unpaid commitment fees payable under Section 2.1(a) thereof, shall be payable on the Effective Date. MARTA and each of the three Banks party to separate $20,000,000 loan facilities (i.e. Bank of America Illinois, Bank of Montreal, and Society National Bank) with MARTA agree that each such loan facility to which it is a party is terminated on the Effective Date with all amounts owing thereunder payable as provided therein. Section 12.19. Nature of Borrower Obligations. The obligations of each Borrower under its Notes are several, not joint, subject to Allen Group's Guarantee of MARTA's obligations under its Notes set forth in Section 11. Wherever herein the Borrowers, rather than only an individual Borrower, undertake a payment obligation, such obligation is joint and several, and each Borrower agrees that its joint and several obligation to make such payment is absolute and unconditional in the same manner as set forth in Section 11.2 for Allen Group's Guarantee. -58- 64 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 December 18, 1995. THE ALLEN GROUP INC. By /s/ James L. LePorte ------------------------------- Its Vice President, Treasurer --------------------------- & Controller --------------------------- By /s/ Robert G. Paul ------------------------------- Its President and CEO --------------------------- MARTA TECHNOLOGIES, INC. By /s/ James L. LePorte, ------------------------------- Its Vice President, Treasurer --------------------------- & Controller --------------------------- By /s/ Robert G. Paul ------------------------------- Its President and CEO --------------------------- Accepted and Agreed to as of the day and year last above written. Address and Amount of Commitments: Address: 115 S. LaSalle Street BANK OF MONTREAL, CHICAGO Chicago, Illinois 60603 BRANCH, in its individual Attn: Erin Keyser capacity as a Bank and as Agent Telecopy: (312) 750-4314 Telephone: (312) 750-5943 By /s/ Erin M. Keyser ----------------------------- Its Director -------------------------- Allen Group Revolving Commitment: $18,788,179.91 MARTA Revolving Commitment: $15,102,040.82 Participation in Bond Letters of Credit: $3,109,779.27 Percentage: 25.17006803% Lending Offices: 115 S. LaSalle Street Chicago, IL 60603 -59- 65 Address: 231 S. LaSalle Street BANK OF AMERICA ILLINOIS, in its Chicago, IL 60697 capacities as a Bank, as an Attn: Paul B. Higdon Issuing Bank, and as Co-Agent Telecopy: (312) 987-5833 Telephone: (312) 828-7952 By /s/ Paul B. Higdon ----------------------------- Its Managing Director -------------------------- Allen Group Revolving Commitment: $12,694,716.16 MARTA Revolving Commitment: $10,204,081.63 Participation in Bond Letters of Credit: $2,101,202.21 Percentage: 17.00680272% Lending Offices: 231 S. LaSalle Street Chicago, IL 60697 -60- 66 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/ Lawrence A. Mack Allen Group Revolving Commitment: $12,694,716.16 ---------------------- MARTA Revolving Commitment: $10,204,081.63 Its Vice President Participation in Bond Letters of Credit: $2,101,202.21 ------------------- Percentage: 17.00680272% Lending Offices: 127 Public Square Cleveland, OH 44114-1306 -61- 67 BAYERISCHE VEREINSBANK AG, CHICAGO BRANCH Address: 333 W. Wacker Drive, Suite 680 Chicago, Illinois 60606 Attn: Kendal Baker, Vice President By /s/ Kendal Baker Telecopy: (312) 368-8615 ----------------------- Telephone: (312) 368-3313 Its Vice President Allen Group Revolving Commitment: $7,616,829.69 -------------------- MARTA Revolving Commitment: $6,122,448.98 By /s/ Martin J. O'Malley Participation in Bond Letters of Credit: $1,260,721.33 ---------------------- Percentage: 10.20408163% Its Vice President ------------------- Lending Offices: 333 W. Wacker Drive, Suite 680 Chicago, IL 60606 -62- 68 DRESDNER BANK AG, New York and Grand Cayman Branches, in its Address: 75 Wall Street capacities as a Bank and as an New York, New York 10005 Issuing Bank Attn: Deborah Slusarczyk By /s/ Deborah Slusarczyk Telecopy: (212) 429-2524 -------------------------------- Telephone: (212) 429-2244 Its Vice President ----------------------------- By /s/ Robert Grella -------------------------------- Its Vice President ----------------------------- Allen Group Revolving Commitment: $7,616,829.69 MARTA Revolving Commitment: $6,122,448.98 Participation in Bond Letters of Credit: $1,260,721.33 Percentage: 10.20408163% Lending Offices: Domestic Rate Loans: 75 Wall Street New York, New York 10005 Eurodollar Loans: Grand Cayman Branch c/o New York Branch 75 Wall Street New York, New York 10005 -63- 69 NATIONSBANK OF TEXAS, N.A. Address: 901 Main Street 64th Floor Dallas, Texas 75202 By /s/ W. Hutchinson McClendon, IV -------------------------------- Attn: W. Hutchinson McClendon, IV Its Senior Vice President Telecopy: (214) 508-9390 ----------------------------- Telephone: (214) 508-0996 Allen Group Revolving Commitment: $7,616,829.69 MARTA Revolving Commitment: $6,122,448.98 Participation in Bond Letters of Credit: $1,260,721.33 Percentage: 10.20408163% Lending Offices: 901 Main Street 64th Floor Dallas, Texas 75202 -64- 70 NBD BANK Address: 611 Woodward Detroit, Michigan 48266 Attn: Andy Strait Telecopy: (313) 225-3269 Telephone: (313) 225-3300 By /s/ Andrew W. Strait ---------------------- Allen Group Revolving Commitment: $7,616,829.69 Its Vice President MARTA Revolving Commitment: $6,122,448.98 ------------------- Participation in Bond Letters of Credit: $1,260,721.33 Percentage: 10.20408163% Lending Offices: 611 Woodward Detroit, Michigan 48266 -65- 71 EXHIBIT A NOTICE OF PAYMENT REQUEST [Name of Bank] [Date] [Address] Attention: Reference is made to the Credit Agreement dated as of December_18, 1995 among The Allen Group Inc., MARTA Technologies, 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. [Allen Group 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 Allen Group 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 _________________________________ 72 EXHIBIT B NOTE U.S. $___________________ __________________, 199__ FOR VALUE RECEIVED, the undersigned ___________________________________, a ________________________ corporation (the "Borrower"), promises to pay to the order of ________________________________________________ (the "Bank") on the Termination Date of the hereinafter defined Credit Agreement at the principal office of Bank of Montreal in Chicago, Illinois, in immediately available funds, the principal sum of _____________________________________ Dollars ($_________________) 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 December 18, 1995, 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. 73 The Borrower hereby waives demand, presentment, protest or notice of any kind hereunder. ______________________________________ By____________________________________ Its_________________________________ -2- 74 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 Vice President, Secretary and General Counsel of The Allen Group Inc. and Vice President and Secretary of MARTA Technologies, Inc. (each a "Borrower" and collectively the "Borrowers"), and I have acted as counsel for the Borrowers 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 December 18, 1995, among the Borrowers and the Banks and Agent named therein (the "Credit Agreement"), executed by the Borrowers and the Notes issued by the Borrowers 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 Borrowers and the Subsidiaries, certificates of public officials and officers of the Borrowers and the 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. Each 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, such Borrower and its subsidiaries taken as a whole, or its ability to perform any of its obligations under any of the Credit Documents. 2. Each of the Borrowers has the corporate power and authority to execute, deliver and perform the Credit Documents to which it is a party, to borrow thereunder, and (in the case of Allen Group) to apply for the Letters of Credit. Each of the Borrowers 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, in the case of Allen Group, 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 75 or in respect of, any Person is required in connection with the execution, delivery, performance, validity or enforceability of any of the Credit Documents, any borrowings thereunder or the Applications for the Letters of Credit. 3. Each Credit Document has been duly executed and delivered on behalf of each Borrower party thereto, and such Credit Documents (assuming due authorization, execution and delivery by the other parties thereto) constitute valid and binding obligations of each relevant Borrower, enforceable against each relevant 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 each Borrower party thereto, 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 either 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 either 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 either Borrower or any Subsidiary 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 either Borrower and its subsidiaries taken as a whole. 6. Neither Borrower is 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- 76 EXHIBIT D COMPLIANCE CERTIFICATE This Compliance Certificate is furnished to Bank of Montreal as Agent pursuant to that certain Credit Agreement dated as of December 18, 1995, by and among The Allen Group Inc., MARTA Technologies, 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 a Default or Event of Default during or at the end of the period ending [INSERT FISCAL PERIOD END DATE COVERED BY CERTIFICATE], except as set forth below; 4. The representations and warranties contained in Section 5 of the Credit Agreement are true and correct in all material respects as though made on the date of this Compliance Certificate, except as set forth below; and 5. 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 paragraphs 3 and 4 by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which The Allen Group Inc. 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___. ___________________________________________ 77 SCHEDULE 1 TO COMPLIANCE CERTIFICATE Compliance Calculations for Credit Agreement dated as of December 18, 1995 Calculation as of ___________, 19__ A. Fixed Charge Coverage Ratio (Section 7.15) ------------------------------------------ (all computations covering four fiscal quarter period ending with the fiscal quarter covered by this Certificate)
1. (a) Net Income $_______________ (b) Income Tax Expense $_______________ (c) Interest Expense $_______________ (d) Interest Income $_______________ (e) Sum of Lines 1(a)-(c) $______________ minus Line 1(d) 2. (a) Net Interest Expense (Line 1(c) minus Line 1(d)) $_______________ (b) Dividends Paid or Accrued on Preferred Stock $_______________ (c) Expense for operating leases of real property (other than for MARTA Group or "synthetic leases") $_______________ (d) Imputed interest component of Capitalized Lease Obligations $_______________ (e) Imputed interest component of lease expense under "synthetic leases" $_______________ (f) Sum of Lines 2(a), (b), (d) and (e) plus any positive difference between Line 2(c) and $4,000,000 $______________
78
3. Ratio of Line 1(e) to Line 2(f) (Line 3 is required to be equal or be greater than 2.00 to 1.00) ________to_______ B. Consolidated Tangible Net Worth (Section 7.16) ---------------------------------------------- 1. (a) Consolidated Book Net Worth _______________ (b) Redeemable Preferred Stock _______________ (c) Intangibles _______________ (d) Consolidated Tangible Net Worth (Line 1(a) minus Lines 1(b) and (c)) $_______________ (Line 1(d) is required to be equal to or greater than $80,000,000) C. Adjusted Consolidated Net Worth (Section 7.17) ---------------------------------------------- 1. (a) Consolidated Book Net Worth _______________ (b) Subordinated Debt _______________ (But not more than 25% of Line 1(a)) (c) Redeemable Preferred Stock _______________ (d) Adjusted Consolidated Net Worth (Line 1(a) plus Line 1(b) minus Line 1(c)) ______________ 2. (a) All positive Consolidated Net Income for any fiscal quarter after September 30, 1995 ________________ (b) Proceeds from issuance of capital stock after September 30, 1995 _______________ (c) Amount of redemptions of common stock after September 30, 1995 _______________ (d) 75% of Line 2(a), plus 75% of Line 2(b), minus lesser of Line 2(c) and $50,000,000 ________________
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(e) Line 2(d) plus $160,000,000 ______________ (Line 1(d) is required to be equal to or greater than Line 2(e)) D. Funded Debt to Cash Flow Ratios (Section 7.18) ---------------------------------------------- 1. (a) Total Funded Debt (including Non-Recourse Debt and Hedging Loans) $______________ (b) Debt of MARTA Group not supported by Guaranties (other than Completion Guaranties) from non-members of MARTA Group $______________ (c) Lesser of 25% of (x) Capitalized Costs of MARTA Projects supported by Completion Guaranties from non-members of MARTA Group and (x) maximum dollar liability under such Completion Guaranties (calculated separately for each MARTA Project and summed) $_______________ (d) Non-Recourse Debt of MARTA Group $______________ (e) Hedging Loans (but not exceeding $15,000,000) $______________ (f) Amount by which Line 1(c) exceeds recourse Debt financing MARTA Project (calculated separately for each MARTA Project and summed) $______________ (g) Line 1(a) minus Line 1(b) plus Line 1(c) minus Line 1(e) ["Non-MARTA Funded Debt"] $______________ (h) Line 1(a) minus Line 1(d) minus Line 1(e) plus Line 1(f) ["Total Funded Debt"] $_____________
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2. (a) Consolidated Net Income for four fiscal quarter period ending with fiscal quarter covered by this Compliance Certificate $_____________ (b) Portion of Line 2(a) derived from MARTA Group $_____________ (c) Cash Dividends Received from MARTA Group $_____________ (d) Portion of Line 2(b) derived from Non-Recourse Projects $_____________ (e) Extraordinary and "unusual or non-recurring" gains or losses $_____________ (f) Portion of Line 2(e) derived from MARTA Group $_____________ (g) Portion of Line 2(f) derived from Non-Recourse Projects $_____________ (h) Depreciation Expense $_____________ (i) Portion of Line 2(h) derived from MARTA Group $_____________ (j) Portion of Line 2(i) derived from Non-Recourse Projects $_____________ (k) Non-cash amortization expense $_____________ (l) Portion of Line 2(k) derived from MARTA Group $_____________ (m) Portion of Line 2(l) derived from Non-Recourse Projects $_____________ (n) Sum of Lines 2(a), 2(g), 2(h) and 2(k) $_____________ (o) Sum of Lines 2(d), 2(e), 2(j) and 2(m) $_____________
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(p) Line 2(n) minus Line 2(o) ["Total Cash Flow"] $_____________ (q) Sum of Lines 2(a), 2(c), 2(f), 2(h) and 2(k) $_____________ (r) Sum of Lines 2(b), 2(e), 2(i) and 2(l) $_____________ (s) Line 2(q) minus Line 2(r) ["Non-MARTA Cash Flow"] $_____________ (t) Ratio of Line 1(g) to Line 2(s) _______to________ (Is required to be no greater than 5.0 to 1.0) (u) Ratio of Line 1(h) to Line 2(p) _______to________ (Is required to be no greater than 7.0 to 1.0) E. Restricted Investments and Contingent Obligations (Section 7.19) ---------------------------------------------------------------- 1. Restricted Investments (not in or by MARTA Group) $_________________ 2. Contingent Obligations (not supporting MARTA Group obligations) $_________________ 3. Total of Line 1 and Line 2 $_________________ (Line 3 is required to be less than or equal to $10,000,000 plus 35% of Adjusted Consolidated Net Worth) F. Investments in MARTA (Section 7.20) 1. Investments in MARTA Group $_________________ 2. (a) 50% of Adjusted Consolidated Net Worth $_________________ (b) $80,000,000 $_________________ The lesser of a and b: $_______________
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(Line 1 is required to not exceed line 2) G. Subsidiary Debt (Section 7.21) 1. Total Debt and Guaranties owed by Subsidiaries (except MARTA Group) to third parties including MARTA Group and including Hedging Loans $_________________ 2. Hedging Loans owed by Subsidiaries $_________________ 3. 10% of Adjusted Consolidated Net Worth $_________________
(Line 1 minus Line 2 is required to not exceed Line 3) -6- 83 SCHEDULE 1.2(C) SCHEDULE OF BOND LETTERS OF CREDIT
Bond Letter of Credit Bond Letter of Credit Face Amount as of Reimbursement Number December 18, 1995 Agreement ------ ----------------- --------- 72893 $4,118,357(a) December 18, 1995 (As Restated and Amended) 72993 $5,147,945(b) December 18, 1995 (As Restated and Amended) 73193 $3,088,767(c) December 18, 1995 ----------- (As Restated and Amended) $12,355,069 (a) Such Letter of Credit backs up the Industrial Revenue Bonds (The Allen Group Project) Series 1985 of the Michigan Strategic Fund. (b) Such Letter of Credit backs up the Industrial Revenue Bonds (The Allen Group Project) Series 1985 of the County of Cuyahoga, Ohio. (c) Such Letter of Credit backs up the Industrial Revenue Bonds (The Allen Group Project) Series 1987 of the County of Cuyahoga, Ohio.
84 SCHEDULE 5.2 SCHEDULE OF SUBSIDIARIES OF THE ALLEN GROUP INC. The following is a list of the Subsidiaries of The Allen Group Inc. (Delaware, 02-03-69), 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.
Name of Corporation State/Country 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 Germany 09-29-70 100 The Allen Group International Sales Corp. Barbados 09-15-94 100 Allen Telecom Canada, Inc. (2) Ontario 04-14-93 80 Allen Telecom Group, Inc. Delaware 10-26-88 100 Alven Capital Corporation (3) Delaware 11-10-93 57.26 Antenna Specialists Co., Inc. Delaware 10-07-88 100 Antespec, S.A. de C.V. Mexico 11-14-88 100 Decibel Mobilcom GmbH (1) Germany 07-28-90 100 Decibel Mobilcom Limited (1) England 01-31-91 100 Grayson Electronics Company (4) Virginia 09-03-86 80 RF Micro Devices, Inc. North Carolina 02-27-92 14.7 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 Hong Kong 09-07-73 100 (1) Orion Industries, Inc. Japan (1) Japan 09-73 100 Orion Industries Taiwan Limited Taiwan 10-73 100 (1)
85 Allen Telecom Group (Italia) S.r.l. Italy 11-14-94 100 FOR.E.M. S.p.A. (5) Italy 10-10-72 80 FOREM France S.a.r.l. (6) France 1993 96 FOREM U.K. Ltd. (7) U.K. 1988 65 MIKOM G.m.b.H. (8) Germany 05-07-85 62 Mitras Ltd. (9) Hungary 1992 60 Allen Telecom Group Limited (1) U.K. 05-08-72 100 MARTA Technologies, Inc. Delaware 10-14-92 100 Sponmech Limited U.K. 12-22-76 33.3 Turnkey Wireless Solutions, Inc. Delaware 10-31-94 10 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) 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. (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) 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. (5) 40% of the outstanding capital stock of this Subsidiary is owned by Allen Telecom Group (Italia) S.r.1., which also owns options to acquire the remaining 60%. (6) 96% of the outstanding capital stock of this subsidiary is owned by FOR.E.M. S.p.A. and the remaining 4% is owned by senior management of FOREM France S.a.r.1. (7) 65% of the outstanding capital stock of this subsidiary is owned by FOR.E.M. S.p.A. and the remaining 35% is owned by senior management of FOREM U.K. Ltd. (8) 62% of the outstanding capital stock of this subsidiary is owned by FOR.E.M. S.p.A. and the remaining 38% is owned by the managing director of MIKOM G.m.b.H.
-2- 86 (9) 60% of the outstanding capital stock of this subsidiary is owned by MIKOM G.m.b.H. and the remaining 40% is owned by senior management of Mitras Ltd. -3- 87 SCHEDULE 5.7 SCHEDULE OF TAXES * The Company is currently being audited by the IRS relating to the Company's U.S. Tax Returns for the years ending 1990 - 1992. 88 SCHEDULE 5.12 SCHEDULE OF ENVIRONMENTAL NOTICES 1. Notice in September 1983 from U. S - Environmental Protection Agency regarding waste disposal by the former Wilson Engineering division of former Allen Automated Systems Company division of The Allen Group Inc. at Berlin & Ferro Liquid Incineration Inc., Swartz Creek, Michigan. EPA requested a $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 was 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 paid $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 former Crown divisions 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 MINIMUS 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. Any future liability arising out of or relating to this matter has been assumed by TransPro,. Inc. in connection with the spinoff distribution of TransPro common stock to The Allen Group Inc.'s stockholders. 4. Notice in April 1987 from Illinois Environmental Protection Agency that the former 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 89 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 to 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 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 records 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. Any liability arising out of or relating to this matter has been assumed by TransPro, Inc. in connection with the spinoff distribution of TransPro common stock to The Allen Group Inc.'s stockholders. 5. Lawsuit in August 1983 by two landowners in Canada against the former 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 Is 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 Michigan Department of Natural Resources. The plan was 2 90 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 Industrial Site Risk Assessment Cleanup Criteria. Allen is working with Warzyn and the Michigan Department of Natural Resources to determine what further remediation of the site, if any, is necessary to meet the new cleanup criteria. This matter is being handled by Troy Tayler of Fausone, Taylor & Bohn, L.L.P. 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 the former 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 paid a civil penalty in the amount of $15,000 and conducted two audits to demonstrate G&O's compliance with the Connecticut Hazardous Waste Management Regulations. This matter was handled by Mark Zimmerman of Updike, Kelley & Spellacy, P.C. Any future liability arising out of or relating to this matter has been assumed by TransPro, Inc. in connection with the spinoff distribution of TransPro common stock to The Allen Group Inc.'s stockholders. 8. Notice dated June 11, 1992 from U.S. Environmental Protection Agency identifying the former 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 MINIMUS Committee of the Group negotiated actively with the EPA to set out the terms of an early DE MINIMUS settlement. In April 1994, Allen entered into a Consent Decree settlement agreement, and paid $1,624 in settlement of this claim. The contacts for the PRP Steering Committee of the Group were Rob Kirsch and Paul Wallace of Hale & Dorr in Boston, Massachusetts, and the attorney for small waste generators was Harlan Doliner of Goldstein 3 91 & Manello in Boston, Massachusetts. Any future liability arising out of or relating to this matter has been assumed by TransPro, Inc. in connection with the spinoff distribution of TransPro common stock to The Allen Group Inc. Is stockholders. 9. Notice dated October 1, 1986, from State of Ohio Environmental Protection Agency ("OEPA") to the former 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 agreement 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 property that PCB contamination is on the property. This matter is belong handled by Ralph Amiet of Buckingham, Doolittle & Burroughs in Wooster, Ohio. Any future liability arising out of or relating to this matter has been assumed by TransPro, Inc. in connection with the spinoff distribution of TransPro common stock to The Allen Group Inc.'s stockholders. 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. 4:94CV139 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. Sections 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. Allen has joined the DE MINIMIS PRP group in this matter. In January 1995, Allen entered into a Consent Decree settlement agreement with the State of Michigan, and paid $1,444 in settlement of the State's claim. Allen expects to settle the remaining claims against it in this matter in the near future for approximately $75,000. 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 4 92 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. Any future liability arising out of or relating to this matter has been assumed by TransPro, Inc. in connection with the spinoff distribution of TransPro common stock to The Allen Group Inc's stockholders. 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 former G&O Manufacturing Company division of The Allen Group Inc. 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. Any future liability arising out of or relating to this matter has been assumed by TransPro, Inc. in connection with the spinoff distribution of TransPro common stock to The Allen Group Inc's stockholders. 5 93 SCHEDULE 5.15 SCHEDULE OF OUTSTANDING LONG TERM DEBT 1. Letter of Credit in the amount of $4,118,357 entered into with Dresdner Bank AG backing up Industrial Revenue Bonds (The Allen Group Project) Series 1985 of the Michigan Strategic Fund. 2. Letter of Credit in the amount of $5,147,945 entered into with Dresdner Bank AG backing up Industrial Revenue Bonds (The Allen Group Project) Series 1985 of the County of Cuyahoga, Ohio. 3. Letter of Credit in the amount of $3,088,767 entered into with Dresdner Bank AG backing up Industrial Revenue Bonds (The Allen Group Project) Series 1987 of the County of Cuyahoga, Ohio. 4. Note Agreement dated February 16, 1993, for the $15,000,000 8.13% Guaranteed Series B Senior Notes due February 16, 2003 between The Allen Group Inc. and The Variable Annuity Life Insurance Company. 5. Allen guarantee in the amount of $1,000,000 in favor of the Florida Department of Transportation supporting the performance bond for MARTA's Jacksonville Program to the State of Florida. 6. Allen guarantee in the amount of $4,899,500 in favor of the State of Maryland supporting the $4,899,500 performance bond for MARTA's Maryland Program. 7. Allen guarantee in the amount of $1,250,000 in favor of the Texas Air Control supporting the $1,250,000 performance bond for MARTA's Texas Program. 8. Letter of Credit in the amount of $8,236,712 entered into with Dresdner Bank AG backing up Industrial Development Revenue Bonds (The Allen Group Project) Series 1985 of the City of Wooster, Ohio. 9. FOREM S.P.A. long term credit agreement with Industry Ministry of Italy for research and development needs. Interest rate fixed at 7.3%. Outstanding balance at 9/30/95 was Lira 292 million, due 1/1/98. 10. FOREM S. P.A. long term credit agreement with Industry. Ministry of Italy for research and development needs. Interest rate fixed at 4.5%. Outstanding balance at 9/30/95 was Lira 1,421 million, due 7/1/00. 11. FOREM S.P.A. long term credit agreement with Industry Ministry of Italy for research and development needs. Interest rate fixed at 11.28%. Outstanding balance at 9/30/95 was Lira 597 million, due 1/16/00. 94 12. FOREM S.P.A. long term credit agreement with Industry Ministry of Italy for research and development needs . Variable interest rate currently at 2.115%. Outstanding balance at 9/30/95 was Lira 1, 144 million, due 3/18/07. 13. FOREM S.P.A. long term credit agreement with Industry Ministry of Italy for research and development needs. Variable interest rate currently at 2.3175%. Outstanding balance at 9/30/95 was Lira 881 million. 14. FOREM S.P.A. long term credit with Interbanca secured by a first mortgage on building. Variable interest rate currently at 7.8%. Outstanding balance at 9/30/95 was Lira 2,067 million, due 7/26/00. 15. FOREM S.P.A. long term credit agreement with Industry Ministry of Italy for research and development needs. Fixed interest rate at 7.7%. Outstanding balance at-9/30/95 was Lira 546 million, due 2/25/98. 16. Mikom GmbH long term credit agreement with Deutsche Bank. Outstanding balance at 9/30/95 was DM 501,389. 17. Mikom GmbH long term credit agreement with Deutsche Bank. Outstanding balance at 9/30/95 was DM 893,200. 18. Mikom GmbH long term credit agreement with Bayerische Vereinsbank AG. Outstanding balance at 9/30/95 was DM 411,000. 19. Mikom GmbH long term credit agreement with Dresdner Bank AG. Outstanding balance at 9/30/95 was DM 414,000. 20. MARTA performance bond in the amount of $700,000 in favor of the Ohio Environmental Protection Agency for MARTA's Ohio I/M 240 Program. 21. MARTA performance bond in the amount $300,000 in favor of Ohio Environmental Development Limited Partnership for MARTA's Ohio I/M 240 Program. 22. MARTA performance bond in the amount of $134,750 in favor of Prince George County, Maryland for MARTA's Maryland Program. 23. Allen guaranty in the amount of DM 50,000 (est. US $ 35,000) in favor of Lease Plan in Germany resulting from the sale of lease receivables from Allen GmBH to Lease Plan. 24. Letter of Credit in the amount of $1,332,000 in favor of Travelers Indemnity Company covering Allen Group's reserves for casualty insurance. 25. Letter of Credit in the amount of $300,000 in favor of The Zurich Insurance Company (U.S. Branch) covering Allen Group's reserves for casualty insurance. 2 95 26. Letter of Credit in the amount of $350,000 in favor of the Home Insurance Company covering Allen Group's reserves for casualty insurance. 27. Allen Group guaranty in the amount of $4,000,000 in favor of Bayersiche Vereinsbank, Milan, Italy branch resulting from the purchase agreement between Allen Group and FOREM Sp.A. This guaranty covers the incremental amounts to FOREM based on the performance of FOREM. 28. MARTA capitalized lease with an aggregate principal amount of $219,560 at September 30, 1995. 3 96 SCHEDULE 7.9 SCHEDULE OF OUTSTANDING LIENS Liens securing the following Indebtedness: 1. 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. 2. 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. 3. 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. 4. Long term note secured by a mortgage on plant and equipment of FOREM in favor of InterBanca. Total Lira 5,167,948,550 or $3,236,058 using an f/x rate of 1,597. 5. Reimbursement Agreements described in Section 1.2(c). 6. Long term note in the initial amount of DM 1,340,000 secured by a mortgage on the Mikom building in favor of Deutsche Bank. Mortgage deed dated April 4, 1989. 97 SCHEDULE 7.19 SCHEDULE OF RESTRICTED INVESTMENTS AND CONTINGENT OBLIGATIONS Restricted Investments - ---------------------- * National Rubber 4,344,000 * RF Micro Devices 3,201,359 --------- TOTAL RESTRICTED INVESTMENTS 7,545,359 Contingent obligations - ---------------------- * The Company is self-insured for health care, worker's 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 worker's compensation and liability policies for amounts in excess of reserves established by the Company. N/A * In connection with the sale of National Rubber, the Company remains as guarantor under certain long-term leases. Such leases have been assigned to the purchasing company. 738, 400 * Various environmental related liabilities as described in schedule 5.12. N/A * The Company has assigned to TransPro, Inc. the Floating Rate Monthly Demand Industrial Development Revenue Bonds (The Allen Group Inc. Project - 1983 Series) of the Connecticut Development Authority and associated instruments, in the initial aggregate amount of $5 million. 5,000,000 EX-10.KK 3 EXHIBIT 10(KK) 1 EXHIBIT 10(kk) SUPPLEMENTAL TARGET PENSION BENEFIT AGREEMENT THIS AGREEMENT made as of the ____ day of ____________, 1996, between THE ALLEN GROUP INC., a Delaware corporation (the "Company"), having its principal executive offices at Beachwood, Ohio and ROBERT G. PAUL, of Cleveland Heights, Ohio ("Executive"). RECITALS -------- A. Executive is the President and Chief Executive Officer of the Company and has been employed by the Company in a key executive capacity since 1970, and it is expected that he will continue to contribute substantially to the growth and success of the Company during his employment by it; and in order to assure to the Company the continued benefit of the experience and advice and the ability and services of the Executive, the Company and the Executive entered into an Employment Agreement providing for the continued employment of the Executive as Chief Executive Officer of the Company upon the terms and conditions therein set forth (hereinafter referred to as the "Employment Agreement"); B. The Company maintains a tax-qualified retirement plan for employees designated as The Allen Group Inc. Corporate Retirement Plan (the "Pension Plan"), which is intended to meet the requirements of a "qualified plan" under the Internal Revenue Code of 1986, as amended (the "Code"), and a nonqualified retirement plan for certain employees designated as The Allen Group Inc. Restoration Plan (the "Restoration Plan"), which is intended to supplement benefits payable under the Pension Plan by restoring benefits that cannot be provided under the Pension Plan because of limitations imposed under the Internal Revenue Code and because of reductions in compensation pursuant to The Allen Group Inc. Deferred Compensation Plan; C. This Agreement is intended to provide an aggregate level of pension benefits to the Executive which exceeds the benefits payable to the Executive under the Pension Plan and the Restoration Plan. NOW, THEREFORE, in consideration of the premises and of the Executive's services and significant contributions to the Company, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.1. Words and phrases used herein with initial capital letters which are defined in the Pension Plan are used herein as so defined, unless otherwise specifically defined 2 2 herein or the context clearly indicates otherwise. The following words and phrases when used in this Agreement with initial capital letters shall have the following respective meanings, unless the context clearly indicates otherwise: SECTION 1.1(1). "401(k) PLAN BENEFIT" shall mean the account balance attributable to employer matching contributions that the Executive would have had as of the date of determination under The Allen Group Inc. Employee Before-Tax Savings Plan if the Company had made the maximum employer matching contributions permissible under such plan for the Executive for each year and such contributions had accumulated at the rate of 8% compounded annually. SECTION 1.1(2). "401(k) PLAN BENEFIT OFFSET" shall mean a single life annuity, payable monthly, that is the actuarial equivalent of the Executive's 401(k) Plan Benefit as of the date of determination hereunder. For this purpose, actuarial equivalence shall be determined using the actuarial assumptions that would be used under the Pension Plan as of the date of determination hereunder to calculate a lump sum distribution. SECTION 1.1(3). "ACCELERATING EVENT" shall mean the occurrence of any of the following at any time after the date the Executive ceases to be the Chief Executive Officer of the Company: (a) The quarterly financial statement of the Company indicates that the tangible net worth of the Company and its subsidiaries taken as a whole (calculated in accordance with generally accepted accounting principles), is less than $90,000,000, provided that such tangible net worth at the time the Executive ceased to be Chief Executive Officer was at least $130,000,000 or, if such tangible net worth at the time the Executive ceased to be Chief Executive Officer was less than $130,000,000, the tangible net worth of the Company declines by $40,000,000; or (b) The Company breaches any material provision of this Agreement including, without limitation, failure by the Company to make timely payment of any Supplemental Pension Benefit, and failure by the Company to rectify such breach within thirty (30) days after written notice of such breach is given to the Company by the Executive; or (c) The Company makes a general assignment for the benefit of creditors or the Company's indebtedness under any loan agreement(s) with its principal lending bank or group of banks is accelerated; or (d) A proceeding under the federal Bankruptcy Code (or a similar state law) is instituted by or against the Company and, if such proceeding is instituted against the Company, is consented to or acquiesced in by the Company or the Company fails 3 3 for a period of sixty (60) days after the commencement thereof to use its best efforts to obtain the dismissal thereof; or (e) A receiver or trustee in bankruptcy is appointed for the Company. SECTION 1.1(4). "ACTUAL PENSION PLAN BENEFIT" shall mean the amount of the monthly benefit in fact payable to the Executive or his Beneficiary under the Pension Plan. SECTION 1.1(5). "BENEFICIARY" shall mean the person designated by the Executive on a form provided by the Committee to receive the Death Benefit upon the Executive's death. SECTION 1.1(6). "BOARD" shall mean the Board of Directors of the Company. SECTION 1.1(7). "CAUSE" shall have the meaning set forth in Section 4.1(b). SECTION 1.1(8). "CHANGE IN CONTROL" shall mean the occurrence of any of the following: (1) 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 all 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; (2) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company (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 (1), (3) or (4) of this section) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-third (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; (3) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than (a) 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 4 4 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 (b) 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 (4) 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. SECTION 1.1(9). "CODE" shall mean the Internal Revenue Code of 1986, as it has been and may be amended from time to time. SECTION 1.1(10). "COMMENCEMENT DATE" shall mean the first day as of which a Supplemental Target Pension Benefit is payable hereunder. SECTION 1.1(11). "COMMITTEE" shall mean the Management Compensation Committee of the Board of Directors of the Company. SECTION 1.1(12). "COMPETITIVE OPERATION" shall have the meaning set forth in Section 4.1(a). SECTION 1.1(12). "DEATH BENEFIT" shall mean the benefit determined under Section 3.1 of this Agreement. SECTION 1.1(13). "DISABILITY BENEFIT" shall mean the Supplemental Target Pension Benefit determined under Section 2.3 of this Agreement. SECTION 1.1(14). "DISABILITY PLAN" shall mean The Allen Group Inc. Group Long Term Disability Insurance Plan (including supplemental disability insurance benefits provided for the Executive thereunder). SECTION 1.1(15). "DISABLED" shall mean the Executive's inability to perform the material duties, in an undiminished capacity, of his own occupation. SECTION 1.1(16). "EMPLOYMENT AGREEMENT" shall mean the Employment Agreement between the Executive and the Company dated June 25, 1991, as such agreement may be amended from time to time, and any agreement that replaces or supersedes such agreement. SECTION 1.1(17). "FIVE-YEAR AVERAGE EARNINGS" shall have the same meaning given to such term under the Pension Plan, but without regard to (i) the limitations set forth in Sections 401(a)(17) and 414(q)(6) of the Code and (ii) any reductions in the amount of the Executive's base pay or bonus pursuant to The 5 5 Allen Group, Inc. Deferred Compensation Plan or any other similar nonqualified deferred compensation plan maintained by the Company. SECTION 1.1(18). "GOOD REASON" shall have the same meaning given to such term under the Employment Agreement. SECTION 1.1(19). "GROSS BENEFIT" shall mean a monthly amount equal to one-twelfth of 1.733% of the Executive's Five Year Average Earnings, multiplied by the number of his years of Credited Service, not in excess of thirty (30) years, as of his Commencement Date. SECTION 1.1(20). "PENSION PLAN" shall mean The Allen Group Inc. Corporate Retirement Plan as such plan may be amended from time to time. SECTION 1.1(21). "RESTORATION PLAN" shall mean The Allen Group Inc. Restoration Plan as such plan may be amended from time to time. SECTION 1.1(22). "RESTORATION PLAN BENEFIT" shall mean the amount of the monthly benefit payable to or with respect to the Executive under the Restoration Plan. SECTION 1.1(23). "SOCIAL SECURITY BENEFIT" shall mean the estimated primary Social Security benefit payable on a monthly basis to the Executive upon the date of his termination of employment or, if he terminates his employment prior to his attainment of age 62, upon his attainment of age 62, based on the Social Security law in effect on the date of the termination of employment of the Executive, without cost of living adjustments or increases in the Social Security taxable wage base after such date, and assuming that the Executive has no future Social Security earnings following his date of termination of employment. The Social Security Benefit hereunder shall be calculated as of the date of determination hereunder and shall not be subject to later modification even if the Executive's actual Social Security award differs from the Social Security Benefit hereunder. SECTION 1.1(24). "SUPPLEMENTAL TARGET PENSION BENEFIT" shall mean the retirement benefit payable to or with respect to the Executive under this Agreement. ARTICLE II TARGET BENEFITS SECTION 2.1. NORMAL RETIREMENT. (a) If the Executive retires on or after his attainment of age 65, he shall be entitled to receive a monthly Supplemental Target Pension Benefit, expressed as a single life annuity commencing on the first day of the month following his retirement, equal to (A) his 6 6 Gross Benefit, reduced by (B) the sum of the following: (i) the Actual Pension Plan Benefit payable to the Executive as a single life annuity commencing on the Commencement Date; (ii) the Restoration Plan Benefit payable to the Executive as a single life annuity commencing on the Commencement Date; (iii) the Executive's 401(k) Plan Benefit Offset as of the Commencement Date; and (iv) the Executive's Social Security Benefit payable as a single life annuity commencing on the Commencement Date. (b) Subject to Sections 2.5 and 2.6, a Supplemental Target Pension Benefit payable to the Executive pursuant to this Section shall commence on the first day of the month following the Executive's retirement. SECTION 2.2. EARLY RETIREMENT. (a) If the Executive terminates employment before he becomes entitled to a benefit under Section 2.1, he shall be entitled to receive a monthly Supplemental Target Pension Benefit, expressed as a single life annuity commencing on the date determined pursuant to subsection (b) of this Section (without regard to Sections 2.5 and 2.6), equal to (A) his Gross Benefit, reduced by (B) four-twelfths of one percent (4/12%) per month for each month (if any) by which the Commencement Date precedes the month in which he attains (or would attain) age 65, and further reduced by (C) the sum of the following: (i) the Actual Pension Plan Benefit payable to the Executive as a single life annuity commencing on the Commencement Date; (ii) the Restoration Plan Benefit payable to the Executive as a single life annuity commencing on the Commencement Date; (iii) the Executive's 401(k) Plan Benefit Offset as of the Commencement Date; and (iv) for each month after the later of the Commencement Date or the Executive's attainment of age 62, the Executive's Social Security Benefit payable as a single life annuity commencing on the later of the Commencement Date or the Executive's attainment of age 62. (b) Subject to Sections 2.5 and 2.6, a Supplemental Target Pension Benefit payable to the Executive pursuant to this Section shall commence on the first day of any month elected by the Executive after the later of the Executive's retirement date or the Executive's attainment of age 55, provided that (i) payment of such benefit shall commence at the same time as payments of the Executive's Actual Pension Plan Benefit commence under the Pension Plan and (ii) payment of such benefit shall commence no later than the first day of the month following the Executive's attainment of age 65. SECTION 2.3. DISABILITY BENEFIT. (a) If the Executive becomes Disabled, he shall be entitled to a Disability Benefit, expressed as a single life annuity commencing on the date determined pursuant to subsection (b) of this Section (without regard to Sections 2.5 and 2.6), equal to (A) his Gross Benefit, reduced by (B) four-twelfths of one percent (4/12%) per month for each month (if any) by which the Commencement Date precedes the month in which he attains (or would attain) age 65, 7 7 further reduced by (C) the sum of the following: (i) for each month after the later of the Commencement Date or the Executive's attainment of age 55, the Actual Pension Plan Benefit payable to the Executive as a single life annuity commencing on the later of the Commencement Date or the Executive's attainment of age 55; (ii) for each month after the later of the Commencement Date or the Executive's attainment of age 55, the Restoration Plan Benefit payable to the Executive as a single life annuity commencing on the later of the Commencement Date or the Executive's attainment of age 55; (iii) the Executive's 401(k) Plan Benefit offset as of the Commencement Date; and (iv) for each month after the later of the Commencement Date or the Executive's attainment of age 62, the Executive's Social Security Benefit payable as a single life annuity commencing on the later of the Commencement Date or the Executive's attainment of age 62. (b) Subject to Sections 2.5 and 2.6, a Disability Benefit payable to the Executive pursuant to this Section shall commence on the first day of any month after the termination of all benefits payable to the Executive under the Disability Plans, as elected by the Executive, provided that payment of the Disability Benefit shall commence no later than the first day of the month following the later of (i) the Executive's attainment of age 65 or (ii) the termination of all benefits payable to the Executive under the Disability Plans. SECTION 2.4. MAXIMUM BENEFIT. In no event shall the amount of the Executive's Supplemental Target Pension Benefit exceed an annual amount of $250,000 reduced by four-twelfths of one percent (4/12%) for each month (if any) by which the Executive's Supplemental Target Pension Benefit commences before the Executive's attainment of age 65. SECTION 2.5. DURATION OF PAYMENTS. (a) Subject to Section 2.6 and subsections (b) and (c) of this Section, the Executive's Supplemental Target Pension Benefit, once commenced, shall continue to be paid on the first day of each month until (and shall terminate with the payment made on) the first day of the month in which the Executive's death occurs. (b) Notwithstanding subsection (a) of this Section, the Executive's Disability Benefit shall terminate upon the Executive's recovery from his Disability. Upon termination of his Disability Benefit, the Executive shall be restored to his position under this Agreement prior to his Disability, and the Executive shall be entitled either to resume participation in this Agreement (if he is reemployed by the Company in a position entitling him to so participate), or to receive such other benefits as he may be eligible for under the terms of this Agreement based on his Credited Service at the time of his Disability. (c) Notwithstanding the foregoing, in the event of (i) the occurrence of an Accelerating Event or (ii) the termination 8 8 of the Executive's employment within the two-year period following a Change in Control either by the Executive for Good Reason or by the Company (A) other than for Cause or (B) because the Executive is Disabled, the Supplemental Target Pension Benefit accrued but unpaid as of the date of the Accelerating Event or such termination of employment shall become immediately payable and shall be paid in the form of a lump sum payment equal to the present value of such accrued but unpaid Supplemental Target Pension Benefit. Such lump sum amount shall be calculated by using the interest rate and other actuarial assumptions of the Pension Plan used to determine lump sum equivalents thereunder in effect on the date of the Accelerating Event or such termination of employment. If the event triggering a lump sum payment under this subsection is a termination of employment within two years following a Change in Control, the Executive's accrued but unpaid Restoration Plan Benefit shall be transferred to and paid under this Agreement and shall not be applied as an offset or reduction against the Executive's Gross Benefit, notwithstanding the other provisions of this Agreement. SECTION 2.6. FORM OF PAYMENT. (a) Subject to Section 2.5, the Supplemental Target Pension Benefit or Disability Benefit to which the Executive is entitled hereunder shall be payable in the form of a single life annuity, unless the Executive elects an optional form of benefit pursuant to subsection (b) of this Section. (b) The Executive may elect to receive his Supplemental Target Pension Benefit or Disability Benefit in any of the optional forms of benefit payment available under the Pension Plan at the Commencement Date. Spousal consent shall not be required in order for the Executive to elect any such optional form. Each optional form shall be the actuarial equivalent of the Supplemental Target Pension Benefit or Disability Benefit payable as a single life annuity, actuarial equivalence being determined by using the interest rate and other actuarial assumptions of the Pension Plan used to determine actuarial equivalent payment options thereunder. ARTICLE III DEATH BENEFIT SECTION 3.1. AMOUNT OF DEATH BENEFIT. (a) If the Executive dies prior to commencement of benefit payments under this Agreement, his designated Beneficiary shall be entitled to receive a monthly benefit, payable for the Beneficiary's life, equal to: (1) the survivor annuity portion of the Executive's Gross Benefit, stated as a joint and 50% survivor annuity, commencing as of the later of the date of the Executive's death or the date he would have attained age 55, with the 9 9 designated Beneficiary as his contingent annuitant, reduced by (2) the sum of: (A) the actuarial equivalent, stated as a single life annuity payable at the time death benefits commence under this Agreement, of the amount, if any, paid from the Pension Plan to the designated death beneficiary under the Pension Plan, plus (B) the actuarial equivalent, stated as a single life annuity payable at the time death benefits commence under this Agreement, of the amount paid from The Allen Group Inc. Restoration Plan to the designated death beneficiary under such plan, plus (C) the actuarial equivalent, stated as a single life annuity payable at the time death benefits commence under this Agreement, of the Executive's 401(k) Plan Benefit, plus (D) for each month after the earliest month for which the designated Beneficiary is entitled to receive a portion of the Executive's primary Social Security Benefit, the estimated benefit, if any, the designated Beneficiary is to receive from Social Security that is attributable to the Executive's employment and earnings history with the Company. SECTION 3.2. TIME OF PAYMENTS. Subject to Section 2.4(c), if the Beneficiary is the recipient of death benefit payments under the Pension Plan, the Beneficiary's Death Benefit under this Agreement shall commence at the same time as benefits commence to such Beneficiary under the Pension Plan. If the Beneficiary is not the recipient of death benefit payments under the Pension Plan, the Death Benefit payable under this Agreement shall commence as of the first day of the month following the later of the date of the Executive's death or the date he would have attained age 55. The Beneficiary may select a later date for benefit commencement hereunder in which case the Death Benefit will be actuarially adjusted to reflect such later commencement. ARTICLE IV FORFEITURE SECTION 4.1. FORFEITURE. (a) All rights to receive any Supplemental Target Pension Benefits (other than Supplemental Pension Target Benefits already paid in the event of forfeiture under subparagraph (ii) below) under this Agreement will be forfeited if, but only if: 10 10 (i) the term of the Executive's employment with the Company shall be terminated by the Company for Cause; or (ii) during the period prior to, and for two (2) years following, the date of termination of the Executive's employment with the Company, (A) the Executive shall have, without the written consent of the Board, (I) directly or indirectly, whether as principal, agent, stockholder, employee, consultant or in any other capacity, engaged in or had a financial interest in any company or enterprise which is in substantial competition with any business actively conducted by the Company or any of its subsidiaries (a "Competitive Operation"), provided, however, that this paragraph shall not be deemed to preclude or limit the Executive's right to own not to exceed three percent (3%) of the stock or other securities of any corporation, the shares of which are registered under Section 12 of the Securities Exchange Act of 1934, or (II) hired for any personal or business purpose any person who is an employee (other than a clerical, administrative or secretarial employee) of the Company at the date of such hiring or who was such within six (6) months prior thereto, and the Secretary of the Company, pursuant to resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board, obtained at a meeting called for the purpose after notice to the Executive and an opportunity for him to be heard, shall have given written notice to the Executive that he is participating in a Competitive Operation or has hired a person described in the preceding clause (II), as the case may be, and the Executive shall have neither ceased to participate in the Competitive Operation nor discontinued the employment of such person, as the case may be, within thirty (30) days from his receipt of such notice or diligently taken all reasonable steps to cease to participate in the Competitive Operation or to discontinue the employment of such person during such thirty (30) day period and thereafter, or (B) the Executive shall have, without the written consent of the Board, disclosed or communicated to any person, firm or corporation any information not generally available to the public concerning any of the Company's inventions, experimental developments, secret processes, or confidential or trade secrets of the Company, except as may be reasonably necessary or appropriate in connection with the performance by the Executive of his duties to the Company, and such disclosure or communication results in material injury to the Company, and there shall have been delivered to the Executive a certified copy of a resolution of the Board adopted by the affirmative vote of not less than a majority of the entire membership of the Board obtained at a meeting called and held for that purpose and at which the Executive was given an opportunity to be heard, finding that the Executive was guilty of conduct set forth in the foregoing clauses (A) or (B), specifying the particulars thereof in detail. (b) For purposes of this Agreement, the term of the Executive's employment with the Company shall be considered to have been terminated for "Cause" only 11 11 (i) if the Executive willfully shall have failed to substantially perform his duties to the Company, except by reason of total or partial incapacity due to accident or physical or mental illness; (ii) if the Executive shall have engaged in or performed an act or acts of dishonesty constituting a felony under the laws of the United States or any state thereof or Canada or any province thereof and resulting or intended to result directly or indirectly in gain or personal enrichment at the expense of the Company; (iii) if the Executive shall have, without the written consent of the Board, participated in a Competitive Operation or shall have hired a person described in paragraph Section 4.1(a)(ii)(A)(II) above or shall not have promptly disclosed to the Company all inventions, discoveries, processes and improvements relating to the business of the Company or any of its subsidiaries made or conceived by him during the term of his employment by the Company or shall not have executed such instruments and documents reasonably requested by the Company to transfer and/or assign all rights therein to the Company, and the Secretary of the Company, pursuant to resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board, obtained at a meeting called for the purpose after notice to the Executive and an opportunity for him to be heard, shall have given written notice to the Executive that he is participating in a Competitive Operation or has hired a person described in Section 4.1(a)(ii)(A)(II) or has failed to perform all of his obligations relating to the inventions, discoveries, processes and improvements described above, as the case may be, and the Executive shall have neither ceased to participate in the Competitive Operation nor discontinued the employment of such person nor performed his obligations relating to such inventions, discoveries, processes and improvements, as the case may be, within thirty (30) days of his receipt of such notice nor diligently taken all reasonable steps to cease to participate in the Competitive Operation or to discontinue the employment of such person or to perform such obligations during such thirty (30) day period and thereafter; or (iv) if the Executive shall have, without the written consent of the Board, disclosed or communicated to any person, firm or corporation any information not generally available to the public concerning any of the Company's inventions, experimental developments, secret processes, or confidential or trade secrets of the Company, except as may be reasonably necessary or appropriate in connection with the performance by the Executive of his duties to the Company, and such disclosure or communication results in material injury to the Company; and there shall have been delivered to the Executive a certified copy of a resolution of the Board adopted by the affirmative vote 12 12 of not less than a majority of the entire membership of the Board obtained at a meeting called and held for that purpose and at which the Executive was given an opportunity to be heard, finding that the Executive was guilty of conduct set forth in subparagraphs (i), (ii), (iii) or (iv) above, specifying the particulars thereof in detail. Anything in this Subsection 4.1 to the contrary notwithstanding, the employment of the Executive shall in no event be considered to have been terminated by the Company for Cause if termination of his employment took place (v) as the result of bad judgment or negligence on the part of the Executive other than willful misconduct or gross negligence, (vi) for any act or omission in respect of which a determination could properly be made that the Executive met the applicable standard of conduct prescribed for indemnification or reimbursement of payment of expenses of an officer or director under the By-Laws or Certificate of Incorporation of the Company or the laws of the State of Delaware or for directors' and officers' liability insurance of the Company, in each case as in effect at the time of such act of omission, (vii) as the result of an act or omission which occurred more than twelve (12) calendar months prior to the Executive's having been given notice of termination for such act or omission unless the commission of such act or such omission was not or could not reasonably have been, at the time of such commission or omission, known to at least one-third of the members of the Board, in which case more than twelve (12) calendar months from the date that the commission of such act or such omission was or could reasonably have been so known, or (viii) as the result of a continuing course of action which commenced and was or could reasonably have been known to at least one-third of the members of the Board more than twelve (12) calendar months prior to notice having been given to the Executive of the termination of his employment. SECTION 4.2 The provisions of Section 4.1(a) shall not apply if the employment of the Executive with the Company is involuntarily terminated other than for Cause. ARTICLE V AMENDMENT AND TERMINATION SECTION 5.1. AMENDMENT. The Board of Directors of the Company and the Executive may, at any time, agree to amend any or all of the provisions of this Agreement. Any such amendment shall be expressed in a written instrument executed by an appropriate officer of the Company and by the Executive and shall become effective as of the date designated in such instrument or, if no such date is specified, on the date of its execution. SECTION 5.2. TERMINATION. (a) The Board of Directors of the Company does hereby reserve the right to terminate this Agreement at any time without the consent of the Executive, his 13 13 Beneficiary or any other person. Such termination shall be expressed in an instrument executed by an appropriate officer of the Company and shall become effective as of the date designated in such instrument, or if no date is specified, on the date of its execution. (b) Upon any termination of this Agreement, the Executive's Supplemental Target Pension Benefit shall be determined and distributed to him (or his Beneficiary) as otherwise provided in Article II. SECTION 5.3. LIMITATIONS ON AMENDMENT AND TERMINATION. Notwithstanding the foregoing provisions of this Article, no amendment or termination of this Agreement shall, without the consent of the Executive (or, in the case of his death, his Beneficiary), adversely affect the vested Supplemental Target Pension Benefit under this Agreement of the Executive or Beneficiary as such Benefit exists on the date of such amendment or termination. SECTION 5.4. EFFECT OF TERMINATION. Notwithstanding any provision of this Agreement to the contrary, in the event of a termination of this Agreement, the Company, in its sole and absolute discretion, shall have the right to accelerate the time and/or manner of distribution of benefits in pay status hereunder, including, without limitation, by providing for the payment of a single lump sum payment (i) to the Executive if he is employed as of the date of termination of this Agreement or (ii) to the Executive or his Beneficiary if either is then entitled to benefit payments, in an amount equal to the Actuarial Equivalent of such remaining unpaid benefit. If the effect on the Executive of the payment of any such lump sum amount is to increase the sum of the highest marginal federal, state and local income tax rates that apply to such lump sum payment over the sum of the highest such rates that would apply to the Executive's receipt of his Supplemental Target Pension Benefit in the form of a single life annuity, the Company shall make an additional lump sum payment to the Executive in an amount sufficient, on an after-tax basis, to eliminate such effect. ARTICLE VI MISCELLANEOUS SECTION 6.1. LIMITATION ON RIGHTS OF THE EXECUTIVE AND BENEFICIARIES - NO LIEN. This Agreement is an unfunded, nonqualified plan and the entire cost of this Agreement shall be paid from the general assets of the Company. No trust has been established for the Executive or Beneficiaries. No liability for the payment of benefits under this Agreement shall be imposed upon any officer, director, employee, or stockholder of the Company. Nothing contained herein shall be deemed to create a lien in favor of the Executive or Beneficiary on any assets of the Company. The Company shall have no obligation to purchase 14 14 any assets that do not remain subject to the claims of the creditors of the Company for use in connection with this Agreement. Each Executive and Beneficiary shall have the status of a general unsecured creditor of the Company and shall have no right to, prior claim to, or security interest in, any assets of the Company. SECTION 6.2. NONALIENATION. No right or interest of the Executive or his Beneficiary under this Agreement shall be anticipated, assigned (either at law or in equity) or alienated by the Executive or his Beneficiary, nor shall any such right or interest be subject to attachment, garnishment, levy, execution or other legal or equitable process or in any manner be liable for or subject to the debts of the Executive or Beneficiary. If the Executive or Beneficiary shall attempt to or shall alienate, sell, transfer, assign, pledge or otherwise encumber his benefits under this Agreement or any part thereof, or if by reason of his bankruptcy or other event happening at any time such benefits would devolve upon anyone else or would not be enjoyed by him, then the Company may terminate his interest in any such benefit and hold or apply it to or for his benefit or the benefit of his spouse, children or other person or persons in fact dependent upon him, or any of them, in such a manner as the Company may deem proper; provided, however, that the provisions of this sentence shall not be applicable to the surviving spouse of any deceased Executive if the Company consents to such inapplicability, which consent shall not unreasonably be withheld. SECTION 6.3. EMPLOYMENT RIGHTS. Employment rights shall not be enlarged or affected hereby. The Company shall continue to have the right to discharge or retire the Executive, with or without cause. SECTION 6.4. ADMINISTRATION OF AGREEMENT. (a) The Committee shall be responsible for the general administration of this Agreement and for carrying out the provisions hereof. The Committee shall interpret where necessary, in its reasonable and good faith judgment, the provisions of this Agreement and, except as otherwise provided in the Agreement, shall determine the rights and status of the Executive and Beneficiaries hereunder (including, without limitation, the amount of any Supplemental Target Pension Benefit to which the Executive or Beneficiary may be entitled under this Agreement). (b) The Committee may, from time to time, delegate all or part of the administrative powers, duties and authorities assigned to it under this Agreement to such person or persons, office or committee as it shall select. SECTION 6.5. CLAIMS PROCEDURE. Whenever there is denied, whether in whole or in part, a claim for benefits under 15 15 this Agreement filed by any person (herein referred to as the "Claimant"), the Committee shall transmit a written notice of such decision to the Claimant, which notice shall be written in a manner calculated to be understood by the Claimant and shall contain a statement of the specific reasons for the denial of the claim and a statement advising the Claimant that, within 60 days of the date on which he receives such notice, he may obtain review of such decision in accordance with the procedures hereinafter set forth. Within such 60-day period, the Claimant or his authorized representative may request that the claim denial be reviewed by filing with the Committee a written request therefor, which request shall contain the following information: (a) the specific portions of the denial of his claim which the Claimant requests the Committee to review; (b) a statement by the Claimant setting forth the basis upon which he believes the Committee should reverse the previous denial of his claim for benefits and accept his claim as made; and (c) any written material which the Claimant desires the Committee to examine in its consideration of his position as stated pursuant to Subsection (b) above. Within 60 days of the date the Claimant files the written request for review, the Committee shall conduct a full and fair review of the decision denying the Claimant's claim for benefits. Within 60 days of the date of such review, the Committee shall render its written decision on review, written in a manner calculated to be understood by the Claimant, specifying the reasons and the Agreement provisions upon which its decision was based. SECTION 6.6. EFFECT ON OTHER BENEFITS. Benefits payable to or with respect to the Executive under the Pension Plan, the Restoration Plan or any other Company-sponsored (qualified or nonqualified) plan, if any, are in addition to those provided under this Agreement. SECTION 6.7. PAYMENT TO GUARDIAN. If a benefit payable hereunder is payable to a minor, to a person declared incompetent or to a person incapable of handling the disposition of his property, the Company may direct payment of such benefit to the legal guardian or legal representative of such minor, incompetent or person. The Company may require such proof of incompetency, minority, incapacity or guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge the Company from all liability with respect to such benefit. SECTION 6.8. EFFECT OF QUALIFIED DOMESTIC RELATIONS ORDER. In the event that any portion of the Executive's benefit under the Pension Plan is allocated to an alternate payee 16 16 pursuant to the terms of a qualified domestic relations order, the Executive's Supplemental Target Pension Benefit hereunder shall be calculated without taking into account such allocation. In no event may an alternate payee receive a distribution or an allocation of any portion of a Supplemental Target Pension Benefit hereunder. SECTION 6.9. WITHHOLDING/TAXES. To the extent required by applicable law, the Company shall withhold from the Supplemental Target Pension Benefit any taxes required to be withheld therefrom by a federal, state or local government. SECTION 6.10. EXPENSES. The Company shall pay all expenses incurred in the administration and operation of this Agreement. SECTION 6.11. ARBITRATION; LEGAL EXPENSES. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators in Cleveland, Ohio, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrators' award in any court having jurisdiction. The expense of such arbitration, as well as all other reasonable legal fees and expenses incurred by the Executive in connection with the resolution of any dispute arising under this Agreement, shall be borne by the Company. SECTION 6.12. GOVERNING LAW. This Agreement shall be regulated, construed and administered under the laws of the State of Ohio, except when preempted by federal law. SECTION 6.13. GENDER AND NUMBER. For purposes of interpreting the provisions of this Agreement, the masculine gender shall be deemed to include the feminine, the feminine gender shall be deemed to include the masculine, and the singular shall include the plural, unless otherwise clearly required by the context. SECTION 6.14. SEVERABILITY. If any provision of this Agreement or the application thereof to any circumstances(s) or person(s) is held to be invalid by a court of competent jurisdiction, the remainder of the Agreement and the application of such provision to other circumstances or persons shall not be affected thereby. SECTION 6.15. NOTICES. All notices required or permitted to be given under this Agreement shall be given in writing and shall be deemed sufficiently given if delivered by and/or mailed by registered or certified mail, return receipt requested, to his residence at 1965 Mornington Lane, Suite 14, Cleveland Heights, Ohio 44106, in the case of the Executive, and to its principal executive offices at 25101 Chagrin Boulevard, Beachwood, Ohio 43122-4169, Attention: Secretary, in the case of 17 17 the Company. Either party may by like notice to the other party change the address at which it is to receive notices hereunder. SECTION 6.16. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the Company, its successors and assigns, and the Executive, his heirs, executors, administrators and legal representatives. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. SECTION 6.17. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes, with respect to such subject matter, all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto (except such plans adopted by the Company which apply to other employees as well as to the Executive, such as the Company's Pension Plan, Restoration Plan or Deferred Compensation Plan); and any prior agreement (or portion thereof) of the parties hereto in respect of the subject matter contained herein (including, without limitation, Sections 7(d)(vii) and 7(d)(viii) of the Employment Agreement and the entirety of the Supplemental Pension Benefit Agreement between the Company and the Executive dated June 25, 1991) is hereby terminated and cancelled. IN WITNESS WHEREOF, The Allen Group Inc. has caused this Supplemental Target Pension Benefit Agreement to be signed by its proper officer and Executive has hereunto set his hand this _____ day of ________________, 1996. ATTEST: THE ALLEN GROUP INC. ______________________________ By:___________________________ Secretary Title: WITNESS: ______________________________ ______________________________ ROBERT G. PAUL EX-10.MM 4 EXHIBIT 10(MM) 1 EXHIBIT 10 (mm) THE ALLEN GROUP INC. DEFERRED COMPENSATION PLAN (EFFECTIVE DECEMBER 1, 1995) 2 THE ALLEN GROUP INC. DEFERRED COMPENSATION PLAN The Allen Group Inc. does hereby establish the Allen Group Inc. Deferred Compensation Plan on the terms and conditions hereinafter set forth. ARTICLE I PREFACE SECTION 1.1. EFFECTIVE DATE. The effective date of this Plan is December 1, 1995. SECTION 1.2. PURPOSE OF THE PLAN. The purpose of this Plan is to provide for certain highly compensated and management employees of the Employers a vehicle for deferring compensation. SECTION 1.3. GOVERNING LAW. This Plan shall be regulated, construed and administered under the laws of the State of Ohio, except when preempted by federal law. SECTION 1.4. GENDER AND NUMBER. For purposes of interpreting the provisions of this Plan, the masculine gender shall be deemed to include the feminine, the feminine gender shall be deemed to include the masculine, and the singular shall include the plural unless otherwise clearly required by the context. ARTICLE II DEFINITIONS The following words and phrases shall have the following respective meanings for purposes of this Plan. SECTION 2.1. ACCOUNT shall mean the record maintained by the Employer in accordance with Section 3.2. 3 2 SECTION 2.2. BASE SALARY shall mean an Executive's base salary in effect on January 1 of each Plan Year (including, for this purpose, any salary reductions caused as a result of participation in (a) an Employer-sponsored plan which is governed by Section 401(k) or 125 of the Internal Revenue Code or (b) this Plan). SECTION 2.3. BENEFICIARY shall mean the person or persons designated by the Participant as his Beneficiary under this Plan, in accordance with the provisions of Article VII hereof. SECTION 2.4. BONUS. An Executive's Bonus for a Plan Year is the annual cash incentive bonus which is earned with respect to services performed by the Executive during such Plan Year, whether or not such Bonus is actually paid to the Executive during such Plan Year. The Management Compensation Committee of the Company's Board of Directors may designate other bonus amounts payable under bonus programs hereafter established for Executives as amounts to be treated as "Bonus" hereunder. SECTION 2.5. CHANGE IN CONTROL shall mean any of the following: (a) If 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; or 4 3 (b) If, during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company (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 Subsection (a), (c) or (d) of this Section) 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 a majority thereof; or (c) If 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 a similar transaction) in which no "person" (as defined in Subsection (a) above) acquires more than 30% of the combined voting power of the Company's then outstanding securities; or (d) If 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. SECTION 2.6. COMMITTEE shall mean the Employee Before-Tax Savings Plan Committee, as appointed from time to time under The Allen Group Inc. Employee Before-Tax Savings Plan. SECTION 2.7. COMPANY shall mean The Allen Group Inc. SECTION 2.8. CONTROLLED GROUP shall mean the Company and each other entity the employees of which, together with the employees of the Company, are required to be treated as if they were employed by a single employer under Section 414 of the Internal Revenue Code. 5 4 SECTION 2.9. DEFERRED COMPENSATION BENEFIT shall mean a Deferred Compensation Benefit (as described in Article III) which is payable to or with respect to a Participant under this Plan. SECTION 2.10. EMPLOYER shall mean the Company and any other Controlled Group member that adopts the Plan with the written consent of the Company. SECTION 2.11. EXECUTIVE DEFERRALS shall mean the amounts described in Section 3.1(a) hereof. SECTION 2.12. EXECUTIVE shall mean, for a particular Plan Year, an Employee of an Employer whose participation herein is approved by the Committee. It is intended generally that to be eligible to participate herein the Executives shall be employees who are covered by the Company's qualified pension or savings plan and whose Base Salary exceeds $100,000. SECTION 2.13. INSOLVENT. For purposes of this Plan, an Employer shall be considered Insolvent at such time as it (a) is unable to pay its debts as they mature, or (b) is subject to a pending voluntary or involuntary proceeding as a debtor under the United States Bankruptcy Code. SECTION 2.14. INTEREST PERCENTAGE FACTOR. For a particular month, the Prime Rate of the Bank of America (or such other bank as the Committee from time to time may designate) as of the last business day of the preceding calendar month minus 1%. In no event, however, will the Interest Percentage Factor be less than 4% or more than 10%. 6 5 SECTION 2.15. PARTICIPANT shall mean any Executive who makes Executive Deferrals hereunder. SECTION 2.16. PLAN shall mean The Allen Group Inc. Deferred Compensation Plan, as herein set out or as duly amended. SECTION 2.17. PLAN YEAR shall mean each calendar year commencing with the 1995 calendar year. SECTION 2.18. RETIREMENT shall mean the voluntary termination of an Executive's employment on or after the later of the date on which the Executive attains age 55 and the date the Executive completes 10 years of "Continuous Service" (as defined in The Allen Group, Inc. Corporate Retirement Plan). SECTION 2.19. UNFORESEEABLE EMERGENCY shall mean an event which results (or will result) in severe financial hardship to the Participant as a consequence of an unexpected illness or accident or loss of the Participant's property due to casualty or other similar extraordinary or unforeseen circumstances out of the control of the Participant. ARTICLE III DEFERRED COMPENSATION BENEFITS SECTION 3.1. DEFERRED COMPENSATION BENEFITS. (a) AMOUNT OF EXECUTIVE DEFERRALS. Each Executive may, by written notice to the Committee (in accordance with rules established by the Committee), direct his Employer to reduce his Base Salary and/or Bonus as described in the following sentences and to credit the amount of any such reduction (collectively, the "Executive Deferrals") to the Account described in Section 3.2 at 7 6 the times described therein. Each Executive may at any time direct his Employer to reduce his Base Salary which is payable for services yet to be performed by a specified dollar amount or percentage (not exceeding 25% of Base Salary for any Plan Year). In addition, prior to December 31 of any Plan Year, each Executive may direct his Employer to reduce his Bonus for such Plan Year by a specified dollar amount or percentage (not exceeding 50% of any such Bonus). (b) DEFERRAL PERIOD. (i) Each deferral election described in Subsection (a) above shall also contain the Executive's election regarding the time or times of the payment or commencement of payment of the portion of his Account to which such election applies (the "Payment Date" or "Payment Dates"). Any deferral election may designate up to five (5) separate Payment Dates, but in no event may an Executive designate more than five (5) Payment Dates for all Executive Deferrals under the Plan. In addition, notwithstanding the Payment Date(s) elected by the Executive, all Executive Deferrals shall be paid or commence to be paid to the Executive upon the earlier of (A) as soon as practicable after the date on which he ceases to be an employee of a Controlled Group member for any reason (including disability, death or the termination of an Employer's membership in the Controlled Group) other than Retirement or (B) immediately following the date of a Change in Control. If an Executive elects installment payments 8 7 under Section 3.1(c)(ii), all such installment payments must commence on the same Payment Date. (ii) Notwithstanding the Payment Date(s) elected by the Executive, the payment of all or any portion of the Executive's Account will be deferred to the extent that any amount payable under the Plan, when added to any other compensation received or to be received by the Executive in the same calendar year, would not be deductible for federal income tax purposes by the Executive's Employer by reason of Section 162(m) of the Internal Revenue Code (the "Code"). The amount to be deferred will equal the amount that otherwise would not be deductible by reason of Section 162(m) of the Code, but in no event shall exceed the total amount otherwise payable to the Executive hereunder. The deferred amount shall be paid at the earliest possible time during the first succeeding calendar year (or years) in which such amount, when added to all other compensation received or to be received by the Executive in such calendar year, would not be non-deductible by reason of Section 162(m) of the Code. (c) FORM OF PAYMENT. Each deferral election described in Subsection (a) above shall also contain the Executive's election regarding the form of payment of the portion of his Account to which such election applies. In each election form, the Executive may elect to receive payment of the portion of his Account to which such election applies in one or a combination of the following forms: 9 8 (i) a lump sum payment; or (ii) annual installment payments for a period not exceeding ten years, with each installment being based on the value of the portion of the Account subject to such election on the date on which such installment is to be paid and being a fraction of such value in which the numerator is one and the denominator is the total number of remaining installments to be paid. Notwithstanding the foregoing, (1) in the event of a Change in Control, all unpaid Deferred Compensation Benefits (whether payable as a lump sum or in installments) shall be paid in the form of a lump sum payment, and (2) the same payout period must be elected with respect to all installment payments elected by an Executive under the Plan. (d) EFFECT AND DURATION OF DEFERRAL ELECTION. Any direction by an Executive to make Executive Deferrals hereunder shall be effective with respect to the Base Salary otherwise payable to the Executive and the Bonus earned by the Executive during the period to which the direction relates, and the Executive shall not be eligible to receive such Executive Deferrals on the date they would otherwise be payable. Instead, such Executive Deferrals shall be credited to the Executive's Account as provided in Section 3.2. Except as specifically provided herein or in an election form, any directions made in accordance with Subsections (a)(i), (b) or (c) above shall be irrevocable and shall remain in effect for subsequent Plan Years unless changed or terminated by the Executive by written notice to the Committee, on a form provided by the Committee, prior to 10 9 the first day of such subsequent Plan Year. Notwithstanding the foregoing, an Executive's direction to make Executive Deferrals hereunder shall automatically terminate on the earlier of the date (i) the Executive ceases employment with the Employers, (ii) on which the Executive's Employer is deemed Insolvent, (iii) the Executive is no longer eligible to make Executive Deferrals hereunder, (iv) the Plan is terminated or (v) of a Change in Control. SECTION 3.2. PARTICIPANT'S ACCOUNTS. Each Employer shall establish and maintain on its books an Account for each Participant which shall contain the following entries: (a) Credits to an Account for the Executive Deferrals described in Section 3.1, which shall be credited to the Account at the time such Deferrals would otherwise have been paid to the Executive; (b) Credits to the same Accounts for the earnings described in Article IV, which shall continue until the Account has been distributed to the Participant or his Beneficiary; and (c) Debits for any distributions made from the Account. ARTICLE IV EARNINGS SECTION 4.1. EARNINGS. At the end of each calendar month, the Account of each Participant shall be credited with an amount determined by applying one-twelfth of the Interest 11 10 Percentage Factor to such Participant's Account balance at the beginning of such month. The Account of a Participant who has terminated employment with the Controlled Group shall be credited with earnings as described in this Section until the Account has been distributed in full. ARTICLE V VESTING A Participant shall always be 100% vested in his Account hereunder. ARTICLE VI DISTRIBUTION OF BENEFITS TO PARTICIPANTS SECTION 6.1. TIME AND MANNER OF PAYMENT. (a) TIMING. Except as otherwise provided or permitted by the Plan, the Deferred Compensation Benefit shall be paid (or commence to be paid) to the Participant on the Payment Date(s) specified in the Participant's deferral election form pursuant to Section 3.1(b). (b) FORM. Except as otherwise provided or permitted by the Plan, the Deferred Compensation Benefit shall be distributed to the Participant in the form specified in the Participant's deferral election form pursuant to section 3.1(c). (c) UNFORESEEABLE EMERGENCY DISTRIBUTIONS. Notwithstanding the foregoing, the Committee may at any time, upon written request of the Participant, cause to be paid to such Participant an amount equal to all or any part of such Participant's Account if the Committee determines, in its 12 11 absolute discretion based on such reasonable evidence that it shall require, that such a payment or payments is necessary for the purpose of alleviating the consequences of an Unforeseeable Emergency occurring with respect to the Participant. Payments of amounts because of an Unforeseeable Emergency shall be permitted only to the extent reasonably necessary to satisfy the emergency need. Any Executive whose eligibility to make before-tax contributions to The Allen Group Inc. Employee Before-Tax Savings Plan has been suspended because he has taken a hardship withdrawal from such plan shall not be eligible to make Executive Deferrals under this Plan for the period of his suspension from such plan. (d) SMALL SUB-ACCOUNTS. Notwithstanding the foregoing, in the event that a Participant's Account does not exceed $20,000 at the time of the Participant's termination of employment with the Controlled Group, such Account shall automatically be paid to him in a single lump sum payment as soon as practicable following his termination of employment. (e) TAXES. The Employer shall deduct from the payments hereunder any taxes required by law to be withheld therefrom. SECTION 6.2. LIABILITY FOR PAYMENT/EXPENSES. Each Employer shall be liable for the payment of the Deferred Compensation Benefits which are payable hereunder to its employees. Expenses of administering the Plan shall be paid by the Employers, as directed by the Company. 13 12 ARTICLE VII BENEFICIARIES SECTION 7.1. BENEFICIARY DESIGNATIONS. A designation of a Beneficiary hereunder may be made only by an instrument (in form acceptable to the Committee) signed by the Participant and filed with the Committee prior to the Participant's death. In the absence of such a designation and at any other time when there is no existing Beneficiary designated hereunder, the Beneficiary of a Participant shall be his surviving spouse or, if none, his estate. A person designated by a Participant as his Beneficiary who or which ceases to exist shall not be entitled to any part of any payment thereafter to be made to the Participant's Beneficiary unless the Participant's designation specifically provided to the contrary. If two or more persons designated as a Participant's Beneficiary are in existence with respect to a single Deferred Compensation Benefit, the amount of any payment to the Beneficiary under this Plan shall be divided equally among such persons unless the Participant's designation specifically provided to the contrary. SECTION 7.2. CHANGE IN BENEFICIARY. A Participant may, at any time and from time to time, change a Beneficiary designation hereunder without the consent of any existing Beneficiary or any other person. Any change in Beneficiary shall be made by giving written notice thereof to the Committee and any change shall be effective only if received by the Committee prior to the death of the Participant. 14 13 SECTION 7.3. DISTRIBUTIONS TO BENEFICIARIES. (a) AMOUNT OF BENEFITS. The Deferred Compensation Benefit payable to a Participant's Beneficiary under this Plan shall be equal to such Participant's Deferred Compensation Account balance on the date of the distribution of the Account to the Beneficiary. (b) TIME AND MANNER OF PAYMENT. The Deferred Compensation Benefit payable to a Beneficiary under this Plan shall be paid in the form of a lump sum payment as soon as practicable following the death of the Participant. ARTICLE VIII MISCELLANEOUS SECTION 8.1. LIABILITY OF EMPLOYER. Nothing in this Plan shall constitute the creation of a trust or other fiduciary relationship between an Employer and any Participant, Beneficiary or any other person. SECTION 8.2. LIMITATION ON RIGHTS OF PARTICIPANTS AND BENEFICIARIES - NO LIEN. The Plan is designed to be an unfunded, nonqualified plan. Nothing contained herein shall be deemed to create a trust or lien in favor of any Participant or Beneficiary on any assets of an Employer. The Employers shall have no obligation to purchase any assets that do not remain subject to the claims of the creditors of the Employers for use in connection with the Plan. No Participant or Beneficiary or any other person shall have any preferred claim on, or any beneficial ownership interest in, any assets of the Employers prior to the 15 14 time that such assets are paid to the Participant or Beneficiary as provided herein. Each Participant and Beneficiary shall have the status of a general unsecured creditor of the Employers. SECTION 8.3. NO GUARANTEE OF EMPLOYMENT. Nothing in this Plan shall be construed as guaranteeing future employment to Participants. Except as otherwise set forth in a written agreement between an Executive and an Employer, a Participant continues to be an employee of an Employer solely at the will of such Employer subject to discharge at any time, with or without cause. SECTION 8.4. PAYMENT TO GUARDIAN. If a benefit payable hereunder is payable to a minor, to a person declared incompetent or to a person incapable of handling the disposition of his property, the Committee may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or person. The Committee may require such proof of incompetency, minority, incapacity or guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge the Employers from all liability with respect to such benefit. SECTION 8.5. ASSIGNMENT. No right or interest under this Plan of any Participant or Beneficiary shall be assignable or transferable in any manner or be subject to alienation, anticipation, sale, pledge, encumbrance or other legal process or in any manner be liable for or subject to the debts or liabilities of the Participant or Beneficiary. 16 15 SECTION 8.6. SEVERABILITY. If any provision of this Plan or the application thereof to any circumstance(s) or person(s) is held to be invalid by a court of competent jurisdiction, the remainder of the Plan and the application of such provision to other circumstances or persons shall not be affected thereby. ARTICLE IX ADMINISTRATION OF PLAN SECTION 9.1. ADMINISTRATION. (a) IN GENERAL. The Plan shall be administered by the Committee. The Committee shall have sole and absolute discretion to interpret where necessary all provisions of the Plan (including, without limitation, by supplying omissions from, correcting deficiencies in, or resolving inconsistencies or ambiguities in, the language of the Plan), to determine the rights and status under the Plan of Participants, Executives, or other persons, to resolve questions or disputes arising under the Plan and to make any determinations with respect to the benefits payable under the Plan and the persons entitled thereto as may be necessary for the purposes of the Plan. The Committee's determination of the rights of any employee or former employee hereunder shall be final and binding on all persons, subject only to the claims procedures outlined in Section 9.3 hereof. (b) DELEGATION OF DUTIES. The Committee may delegate any of its administrative duties, including, without limitation, duties with respect to the processing, review, investigation, 17 16 approval and payment of Deferred Compensation Benefits, to a named administrator or administrators. SECTION 9.2. REGULATIONS. The Committee shall promulgate any rules and regulations it deems necessary in order to carry out the purposes of the Plan or to interpret the provisions of the Plan; provided, however, that no rule, regulation or interpretation shall be contrary to the provisions of the Plan. The rules, regulations and interpretations made by the Committee shall, subject only to the claims procedure outlined in Section 9.3 hereof, be final and binding on all persons. SECTION 9.3. CLAIMS PROCEDURES. The Committee shall determine the rights of any employee or former employee to any Deferred Compensation Benefits hereunder. Any employee or former employee who believes that he has not received the Deferral Benefits to which he is entitled under the Plan may file a claim in writing with the Committee. The Committee shall, no later than 90 days after the receipt of a claim (plus an additional period of 90 days if required for processing, provided that notice of the extension of time is given to the claimant within the first 90 day period), either allow or deny the claim in writing. If a claimant does not receive written notice of the Committee's decision on his claim within the above-mentioned period, the claim shall be deemed to have been denied in full. 18 17 A denial of a claim by the Committee, wholly or partially, shall be written in a manner calculated to be understood by the claimant and shall include: (a) the specific reasons for the denial; (b) specific reference to pertinent Plan provisions on which the denial is based; (c) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and (d) an explanation of the claim review procedure. A claimant whose claim is denied (or his duly authorized representative) may within 60 days after receipt of denial of a claim file with the Committee a written request for a review of such claim. If the claimant does not file a request for review of his claim within such 60-day period, the claimant shall be deemed to have acquiesced in the original decision of the Committee on his claim. If such an appeal is so filed within such 60 day period, the Company (or its delegate) shall conduct a full and fair review of such claim. During such review, the claimant shall be given the opportunity to review documents that are pertinent to his claim and to submit issues and comments in writing. The Company shall mail or deliver to the claimant a written decision on the matter based on the facts and the pertinent provisions of the Plan within 60 days after the receipt of the request for review (unless special circumstances require an extension of up to 60 additional days, in which case written 19 18 notice of such extension shall be given to the claimant prior to the commencement of such extension). Such decision shall be written in a manner calculated to be understood by the claimant, shall state the specific reasons for the decision and the specific Plan provisions on which the decision was based and shall, to the extent permitted by law, be final and binding on all interested persons. If the decision on review is not furnished to the claimant within the above-mentioned time period, the claim shall be deemed to have been denied on review. SECTION 9.4. REVOCABILITY OF COMMITTEE/COMPANY ACTION. Any action taken by the Committee or the Company with respect to the rights or benefits under the Plan of any employee or former employee shall be revocable by the Committee or the Company as to payments not yet made to such person, and acceptance of any Deferred Compensation Benefits under the Plan constitutes acceptance of and agreement to the Committee's or the Company's making any appropriate adjustments in future payments to such person (or to recover from such person) any excess payment or underpayment previously made to him. SECTION 9.5. AMENDMENT. (a) The Board of Directors of the Company may at any time (without the consent of any Employer) amend any or all of the provisions of this Plan, except that (i) no such amendment may (1) reduce the balance of any Participant's Account as of the date of such amendment, (2) change the time or form of distribution from a Participant's Account or (3) change the 20 19 provisions of the Plan applicable to a Participant's Account upon a Change in Control, without the prior written consent of such Participant, and (ii) no such amendment may suspend the crediting of earnings on the balance of a Participant's Account, until the entire balance of such Account has been distributed. Any amendment shall be in the form of a written instrument executed by an officer of the Company pursuant to a resolution adopted by the Board of Directors. Subject to the foregoing provisions of this Section, such amendment shall become effective as of the date specified in such instrument or, if no such date is specified, on the date of its execution. (b) If, at any time, (i) there is a suspension of the crediting of earnings on the balance of a Participant's Account or a reduction below 4% in the rate at which earnings are credited on the balance of a Participant's Account or (ii) any Executive does not receive a distribution of his Account at the time such distribution is scheduled to commence or be made (other than by reason of Section 3.1(b)(ii)), then all Deferred Compensation Benefits may at the election of the Executive, become immediately due and payable in the form of lump sum payments. SECTION 9.6. TERMINATION. The Board of Directors of the Company (without the consent of any Employer), in its sole discretion, may terminate this Plan at any time and for any reason whatsoever, except that (i) no such termination may (1) reduce the balance of any 21 20 Participant's Account as of the date of such termination or (2) change the provisions of the Plan applicable to a Participant's Account upon a Change in Control, without the prior written consent of such Participant, and (ii) no such termination may suspend the crediting of earnings on the balance of a Participant's Account, until the entire balance of such Account has been distributed. Any such termination shall be expressed in the form of a written instrument executed by an officer of the Company pursuant to a resolution adopted by the Board of Directors. Subject to the foregoing provisions of this Section, such termination shall become effective as of the date specified in such instrument or, if no such date is specified, on the date of its execution. Written notice of any termination shall be given to the Participants as soon as practicable after the instrument is executed. Executed this 1st day of December, 1995. THE ALLEN GROUP INC. By: __________________________________ Title: EX-10.NN 5 EXHIBIT 10(NN) 1 EXHIBIT 10 (nn) THE ALLEN GROUP INC. RESTORATION PLAN WHEREAS, The Allen Group Inc. (the "Company") has established The Allen Group Inc. Corporate Retirement Plan (the "Pension Plan"), a qualified defined benefit pension plan; and WHEREAS, Sections 401(a)(17) and 415 of the Internal Revenue Code of 1986, as amended, place certain limitations on the amount of benefits that would otherwise be made available under the Pension Plan for certain participants; and WHEREAS, benefits under the Pension Plan are computed on the basis of compensation which excludes deferrals made by Pension Plan participants pursuant to a nonqualified deferred compensation plan sponsored by the Company; and WHEREAS, the Company now desires to provide the benefits which would otherwise have been payable to such participants under the Pension Plan except for such limitations and exclusions from income, in consideration of services performed and to be performed by such participants for the Company and certain related corporations. NOW, THEREFORE, the Company hereby adopts and publishes this Restoration Plan, which shall contain the following terms and conditions: ARTICLE I PREFACE SECTION 1.1. EFFECTIVE DATE. The effective date of this Plan is January 1, 1996 (the "Effective Date"). SECTION 1.2. PURPOSE OF THE PLAN. The purpose of this Plan is to provide additional retirement benefits for certain management and highly compensated employees of the Company (and other participating Employers). SECTION 1.3. GOVERNING LAW. This Plan shall be regulated, construed and administered under the laws of the State of Ohio, except when preempted by federal law. SECTION 1.4. GENDER AND NUMBER. For purposes of interpreting the provisions of this Plan, the masculine gender shall be deemed to include the feminine, the feminine gender shall be deemed to include the masculine, and the singular shall include the plural, unless otherwise clearly required by the context. 2 2 SECTION 1.5. SEVERABILITY. If any provision of this Plan or the application thereof to any circumstances(s) or person(s) is held to be invalid by a court of competent jurisdiction, the remainder of the Plan and the application of such provision to other circumstances or persons shall not be affected thereby. ARTICLE II DEFINITIONS SECTION 2.1. Words and phrases used herein with initial capital letters which are defined in the Pension Plan are used herein as so defined, unless otherwise specifically defined herein or the context clearly indicates otherwise. The following words and phrases when used in this Plan with initial capital letters shall have the following respective meanings, unless the context clearly indicates otherwise: SECTION 2.1(1). "ACCELERATING EVENT" shall mean the occurrence of any of the following: (a) Breach by the Company of any material provision of this Plan including, without limitation, failure by the Company to make timely payment of any Supplemental Pension Benefit, and failure by Allen to rectify such breach within thirty (30) days after written notice of such breach is given to the Company by an affected Participant, provided that an event described in this Section 2.1(1)(a) shall constitute an Accelerating Event only for a Participant affected by any such breach; (b) The Company making a general assignment for the benefit of creditors; (c) A proceeding under the federal Bankruptcy Code (or a similar state law) is instituted by or against the Company and, if such proceeding is instituted against the Company, is consented to or acquiesced in by the Company or the Company fails for a period of sixty (60) days after the commencement thereof to use its best efforts to obtain the dismissal thereof; or (d) A receiver or trustee in bankruptcy is appointed for the Company. SECTION 2.1(2). "ACTUAL PENSION PLAN BENEFIT" shall mean the amount of the monthly benefit in fact payable to the Participant or his Beneficiary under the Pension Plan. SECTION 2.1(3). "BENEFICIARY" shall mean the person named at the time the Supplemental Pension Benefit becomes payable as 3 3 being entitled to receive, following a Participant's death, part or all of a pension or other benefit payable with respect to the Participant under the Pension Plan. SECTION 2.1(4). "CHANGE IN CONTROL" shall mean the occurrence of any of the following: (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 percent or more of the combined voting power of the Company's then outstanding securities; (b) during any period of two consecutive years (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board of Directors of the Company (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 subsection) 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 percent 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 percent 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 4 4 sale or disposition by the Company of all or substantially all of the Company's assets. SECTION 2.1(5). "CODE" shall mean the Internal Revenue Code of 1986, as it has been and may be amended from time to time. SECTION 2.1(6). "Committee" shall mean the Committee designated under the Pension Plan. SECTION 2.1(7). "CODE LIMITATIONS" shall mean the limitations imposed by Sections 401(a)(17) and 415 of the Code, or any successor(s) thereto, on the amount of the benefits which may be payable to a Participant from the Pension Plan. SECTION 2.1(8). "EARNINGS REDUCTION" shall mean the amount of a Participant's base pay or bonus which is deferred pursuant to The Allen Group Inc. Deferred Compensation Plan and any other similar nonqualified deferred compensation plan maintained by the Company. SECTION 2.1(9). "EMPLOYER(S)" shall mean the Company and/or any other member of the Controlled Group which shall adopt this Plan pursuant to Section 5.4. SECTION 2.1(10). "INSTRUMENT OF ADOPTION" shall mean an Instrument referred to in Section 5.4 by which an Employer other than the Company evidences its adoption of the Plan. SECTION 2.1(11). "PARTICIPANT" shall mean each Employee of an Employer whose Actual Pension Plan Benefit is reduced by reason of the Code Limitations or an Earnings Reduction. Each person who becomes a Participant under this Plan shall be notified in writing of such fact by the Company. SECTION 2.1(12). "PENSION PLAN" shall mean The Allen Group Inc. Corporate Retirement Plan as such plan may be amended from time to time. SECTION 2.1(13). "PLAN" shall mean The Allen Group Inc. Restoration Plan, as it may be amended from time to time. SECTION 2.1(14). "SUPPLEMENTAL PENSION BENEFIT" shall mean the retirement benefit determined under Section 3.1. ARTICLE III SUPPLEMENTAL PENSION BENEFIT SECTION 3.1. AMOUNT OF SUPPLEMENTAL PENSION BENEFIT. The Supplemental Pension Benefit payable to a Participant or the Beneficiary of a deceased Participant shall be a monthly retirement benefit equal to the difference between (a) the amount of the 5 5 monthly benefit payable to the Participant or his Beneficiary under the Pension Plan, determined under the Pension Plan as in effect on the date of the Participant's termination of employment with the Controlled Group (and payable in the same optional form as his Actual Pension Plan Benefit) but calculated as if the Pension Plan did not contain the Code Limitations and as if there was no Earnings Reduction with respect to the Participant and (b) the amount of the Actual Pension Plan Benefit. SECTION 3.2. TIME OF PAYMENT. (a) A Participant's (or Beneficiary's) Supplemental Pension Benefit shall commence at the same time and under the same conditions as the benefits payable to the Participant (or Beneficiary) under the Pension Plan. (b) Notwithstanding the foregoing, in the event of the occurrence of an Accelerating Event, the Supplemental Pension Benefit shall become immediately payable and shall be paid in the form of a lump sum payment equal to the present value of the Participant's Supplemental Pension Benefit (expressed as a single life annuity) as of the date of the Accelerating Event. Such lump sum amount shall be calculated by using the interest rate and other actuarial assumptions of the Pension Plan used to determine lump sum actuarial equivalents thereunder in effect on the date of the Accelerating Event. In the case of a Participant who has not attained age 55 as of the date of an Accelerating Event, his Supplemental Pension Benefit as of the date of the Accelerating Event shall be determined by reducing his Supplemental Pension Benefit accrued to the date of the Accelerating Event that would be payable commencing at age 55 to its actuarial equivalent as of the date of the Accelerating Benefit using the same actuarial assumptions used to develop early retirement reduction factors in the Pension Plan. SECTION 3.3. FORM OF PAYMENT. Subject to Section 3.2(b), the Supplemental Pension Benefit shall be payable in the same form and for the same duration as the benefits payable to the Participant (or Beneficiary) under the Pension Plan. SECTION 3.4. LIABILITY FOR PAYMENT. The Employer by which the Participant was employed at the time of his termination of employment with the Controlled Group shall pay the Supplemental Pension Benefit to the Participant and/or his Beneficiary, but such Employer's liability hereunder shall be limited to its proportionate share of such Supplemental Pension Benefit, determined as hereinafter provided. If the Participant's Pension Benefits payable to the Participant and/or his Beneficiary under the Pension Plan are based on the Participant's employment with more than one Employer, the amount of the Supplemental Pension Benefit shall be shared by all such Employers (by reimbursement to the Employer making such payment) in such manner as shall be determined by the Company, taking into consideration the Participant's Credited Service and 6 6 Annual Compensation paid by each such Employer and as will permit the deduction (for purposes of federal income taxes) by each such Employer of its portion of the payments made and to be made hereunder. ARTICLE IV VESTING AND FORFEITURE SECTION 4.1. VESTING. Subject to Section 4.2, a Participant shall be vested in his Supplemental Pension Plan Benefit in accordance with the vesting provisions of the Pension Plan. SECTION 4.2. TRANSFER OF CERTAIN BENEFITS FOLLOWING CHANGE IN CONTROL. Upon the termination of the employment of a Participant who also is a party to a Supplemental Target Pension Benefit Agreement with his Employer, within the two year period following a Change in Control, either by the Participant for Good Reason or by the Participant's Employer other than (i) for Cause or (ii) because the Participant is Disabled (as the terms "Good Reason", "Cause" and "Disabled" are defined in such Supplemental Target Pension Benefit Agreement), such Participant's Supplemental Pension Benefit and all rights thereto shall be transferred to and paid pursuant to the Participant's Supplemental Target Pension Benefit Agreement. ARTICLE V MISCELLANEOUS SECTION 5.1. LIMITATION ON RIGHTS OF PARTICIPANTS AND BENEFICIARIES - NO LIEN. This Plan is an unfunded, nonqualified plan and the entire cost of this Plan shall be paid from the general assets of one or more of the Employers. No trust has been established for the Participants or Beneficiaries. No liability for the payment of benefits under the Plan shall be imposed upon any officer, director, employee, or stockholder of an Employer. Nothing contained herein shall be deemed to create a lien in favor of any Participant or Beneficiary on any assets of any Employer. The Employers shall have no obligation to purchase any assets that do not remain subject to the claims of the creditors of the Employers for use in connection with the Plan. Each Participant and Beneficiary shall have the status of a general unsecured creditor of the Employers and shall have no right to, prior claim to, or security interest in, any assets of the Company or any Employer by reason of this Plan. SECTION 5.2. NONALIENATION. No right or interest of a Participant or his Beneficiary under this Plan shall be anticipated, assigned (either at law or in equity) or alienated by the Participant or his Beneficiary, nor shall any such right or interest 7 7 be subject to attachment, garnishment, levy, execution or other legal or equitable process or in any manner be liable for or subject to the debts of any Participant or Beneficiary. If any Participant or Beneficiary shall attempt to or shall alienate, sell, transfer, assign, pledge or otherwise encumber his benefits under the Plan or any part thereof, or if by reason of his bankruptcy or other event happening at any time such benefits would devolve upon anyone else or would not be enjoyed by him, then the Company may terminate his interest in any such benefit and hold or apply it to or for his benefit or the benefit of his spouse, children or other person or persons in fact dependent upon him, or any of them, in such a manner as the Company may deem proper; provided, however, that the provisions of this sentence shall not be applicable to the surviving spouse of any deceased Participant if the Company consents to such inapplicability, which consent shall not unreasonably be withheld. SECTION 5.3. EMPLOYMENT RIGHTS. Employment rights shall not be enlarged or affected hereby. The Employers shall continue to have the right, subject to applicable law, to discharge or retire a Participant, with or without cause. SECTION 5.4. INSTRUMENT OF ADOPTION. Any member of the Controlled Group may become an Employer hereunder with the written consent of the Company if it executes an "Instrument of Adoption" evidencing its adoption of the Plan and files a copy thereof with the Company. Such Instrument of Adoption may be subject to such terms and conditions as the Company requires or approves. An Employer who ceases to exist or who is no longer a member of the Controlled Group shall automatically cease being a participating Employer hereunder on the date of such event, and Participants who are employed by such an Employer shall thereupon cease accruing any additional benefits hereunder but shall be entitled to all benefits accrued up to such date. SECTION 5.5. ADMINISTRATION OF PLAN. (a) The Committee shall be responsible for the general administration of the Plan and for carrying out the provisions hereof and, for purposes of the Employee Retirement Income Security Act of 1974, as amended. The Company shall be the plan sponsor and the plan administrator. The Committee shall interpret where necessary, in its reasonable and good faith judgment, the provisions of the Plan and, except as otherwise provided in the Plan, shall determine the rights and status of Participants and Beneficiaries hereunder (including, without limitation, the amount of any Supplemental Pension Benefit to which a Participant or Beneficiary may be entitled under the Plan). (b) The Committee may, from time to time, delegate all or part of its administrative powers, duties and authorities to such person or persons, office or committee as it shall select. 8 8 SECTION 5.6. CLAIMS PROCEDURE. Whenever there is denied, whether in whole or in part, a claim for benefits under the Plan filed by any person (herein referred to as the "Claimant"), the plan administrator shall transmit a written notice of such decision to the Claimant, which notice shall be written in a manner calculated to be understood by the Claimant and shall contain a statement of the specific reasons for the denial of the claim and statement advising the Claimant that, within 60 days of the date on which he receives such notice, he may obtain review of such decision in accordance with the procedures hereinafter set forth. Within such 60-day period, the Claimant or his authorized representative may request that the claim denial be reviewed by filing with the plan administrator a written request therefor, which request shall contain the following information: (a) the specific portions of the denial of his claim which the Claimant requests the plan administrator to review; (b) a statement by the Claimant setting forth the basis upon which he believes the plan administrator should reverse the previous denial of his claim for benefits and accept his claim as made; and (c) any written material which the Claimant desires the plan administrator to examine in its consideration of his position as stated pursuant to Subsection (b) above. Within 60 days of the date the Claimant files the written request for review, the plan administrator shall designate a named fiduciary to conduct a full and fair review of the decision denying the Claimant's claim for benefits. Within 60 days of the date of such review, the named fiduciary shall render its written decision on review, written in a manner calculated to be understood by the Claimant, specifying the reasons and Plan provisions upon which its decision was based. SECTION 5.7. EFFECT ON OTHER BENEFITS. Benefits payable to or with respect to a Participant under the Pension Plan or any other Employer-sponsored (qualified or nonqualified) plan, if any, are in addition to those provided under this Plan. SECTION 5.8. PAYMENT TO GUARDIAN. If a benefit payable hereunder is payable to a minor, to a person declared incompetent or to a person incapable of handling the disposition of his property, the Company may direct payment of such benefit to the legal guardian or legal representative of such minor, incompetent or person. The Company may require such proof of incompetency, minority, incapacity or guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge the Employers from all liability with respect to such benefit. 9 9 SECTION 5.9. EFFECT OF QUALIFIED DOMESTIC RELATIONS ORDER. In the event that any portion of a Participant's benefit under the Pension Plan is allocated to an alternate payee pursuant to the terms of a qualified domestic relations order, the Participant's Supplemental Pension Benefit hereunder shall be calculated without taking into account such allocation. In no event may an alternate payee receive a distribution or an allocation of any portion of a Supplemental Pension Benefit hereunder. SECTION 5.10. WITHHOLDING/TAXES. To the extent required by applicable law, the Company shall withhold from the Supplemental Pension Benefit any taxes required to be withheld therefrom by a federal, state or local government. SECTION 5.11. EXPENSES. The Company shall pay all expenses incurred in the administration and operation of the Plan. SECTION 5.12. ARBITRATION; LEGAL EXPENSES. Any dispute or controversy arising under or in connection with this Plan shall be settled exclusively by arbitration, conducted before a panel of three arbitrators in Cleveland, Ohio, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrators' award in any court having jurisdiction. The expense of such arbitration, as well as all other reasonable legal fees and expenses incurred by the Participant in connection with the resolution of any dispute arising under this Plan, shall be borne by the Participant unless the Participant is successful, in which case such expenses and legal fees shall be borne by the Company. A Participant shall be considered successful if the arbitrators rule in his favor as to some or all of his claim. SECTION 5.13. SUCCESSORS AND ASSIGNS. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform the obligations under this Plan in the same manner and to the same extent that the Company would be required to perform them if no such succession had taken place. ARTICLE VI AMENDMENT AND TERMINATION SECTION 6.1. AMENDMENT. The Board of Directors of the Company does hereby reserve the right to amend, at any time, any or all of the provisions of the Plan for all Employers, without the consent of any other Employer or any Participant, Beneficiary or any other person. Any such amendment shall be expressed in an instrument executed by an appropriate officer of the Company and shall become effective as of the date designated in such instrument or, if no such date is specified, on the date of its execution. 10 10 SECTION 6.2. TERMINATION. (a) The Board of Directors of the Company does hereby reserve the right to terminate the Plan at any time for any or all Employers, without the consent of any other Employer or of any Participant, Beneficiary or any other person. Such termination shall be expressed in an instrument executed by an appropriate officer of the Company and shall become effective as of the date designated in such instrument, or if no date is specified, on the date of its execution. Any other Employer which shall have adopted the Plan may, with the written consent of the Board of Directors of the Company, elect separately to withdraw from the Plan and such withdrawal shall constitute a termination of the Plan as to it, but it shall continue to be an Employer for the purposes hereof as to Participants or Beneficiaries to whom it owes obligations hereunder. Any such withdrawal and termination shall be expressed in an instrument executed by an officer of the terminating Employer and shall become effective as of the date designated in such instrument or, if no date is specified, on the date of its execution. Notwithstanding the foregoing, if an Employer ceases to exist or is no longer a member of the Controlled Group, such action shall automatically constitute a termination of the Plan as to such Employer. (b) Upon any termination of the Plan, each affected Participant's Supplemental Pension Benefit shall be determined and distributed to him (or his Beneficiary) as otherwise provided in Article III. SECTION 6.3. LIMITATIONS ON AMENDMENT AND TERMINATION. Notwithstanding the foregoing provisions of this Article, no amendment or termination of the Plan shall, without the consent of the Participant (or, in the case of his death, his Beneficiary), adversely affect the vested Supplemental Pension Benefit under the Plan of any Participant or Beneficiary as such Benefit exists on the date of such amendment or termination. SECTION 6.4. EFFECT OF AMENDMENT AND TERMINATION. Notwithstanding any provision of the Plan to the contrary, in the event of a termination of the Plan, the Company, in its sole and absolute discretion, shall have the right to accelerate the time and/or manner of distribution of Supplemental Pension Benefits accrued hereunder (including Supplemental Pension Benefits payable to Participants who are then retired and receiving Supplemental Pension Benefits) including, without limitation, by providing for the payment of a single lump sum payment to each Participant or Beneficiary entitled to Supplemental Pension Benefits in an amount equal to the present value of such Supplemental Pension Benefits. Such lump sum amount shall be calculated by using the interest rate and other actuarial assumptions of the Pension Plan used to determine lump sum Actuarial Equivalents thereunder in effect on the date of determination. If the effect on a Participant of the payment of any such lump sum amount is to increase the sum of the 11 11 highest marginal federal, state and local income tax rates that apply to such lump sum payment over the sum of the highest such rates that would apply to the Participant's receipt of his Supplemental Pension Benefit in the form of a single life annuity, the Company shall make an additional lump sum payment to the Participant in an amount sufficient, on an after-tax basis, to eliminate such effect. 12 12 IN WITNESS WHEREOF, The Allen Group Inc. has executed this Restoration Plan this _____ day of ________________, 1996. THE ALLEN GROUP INC. By:____________________________ Title: EX-10.OO 6 EXHIBIT 10(OO) 1 EXHIBIT 10 (oo) COMSEARCH DIVISION SUPPLEMENTAL SAVINGS PLAN (EFFECTIVE JANUARY 1, 1996) 2 COMSEARCH DIVISION SUPPLEMENTAL SAVINGS PLAN Allen Telecom Group, Inc. does hereby establish the Comsearch Division Supplemental Savings Plan on the terms and conditions hereinafter set forth. ARTICLE I PREFACE SECTION 1.1. EFFECTIVE DATE. The effective date of this Plan is January 1, 1996. SECTION 1.2. PURPOSE OF THE PLAN. The purpose of this Plan is to provide for certain highly compensated and management employees of the Company the benefits they would have received under the profit sharing portion of the Savings Plan with respect to services rendered on and after January 1, 1994 but for (1) the limitations under the Savings Plan as a result of Sections 401(a)(17) and 415 of the Code and (2) the deferral of compensation under The Allen Group Inc. Deferred Compensation Plan. SECTION 1.3. GOVERNING LAW. This Plan shall be regulated, construed and administered under the laws of the State of Ohio, except when preempted by federal law. SECTION 1.4. GENDER AND NUMBER. For purposes of interpreting the provisions of this Plan, the masculine gender shall be deemed to include the feminine, the feminine gender shall be deemed to include the masculine, and the singular shall 3 2 include the plural unless otherwise clearly required by the context. SECTION 1.5. REFERENCES TO SAVINGS PLAN. References in this Plan to Sections or other provisions of the Savings Plan shall be deemed to refer also to any successor provisions thereto. ARTICLE II DEFINITIONS Except as otherwise provided in this Plan, terms defined in the Savings Plan shall have the same meanings when used herein, unless a different meaning is clearly required in the context of this Plan. In addition, the following words and phrases shall have the following respective meanings for purposes of this Plan: SECTION 2.1. ACCOUNT shall mean the record maintained by the Company in accordance with Section 3.2. SECTION 2.2. ALLEN shall mean The Allen Group Inc. SECTION 2.3. BENEFICIARY shall mean the person or persons entitled to receive the Participant's account under the Savings Plan following the Participant's death. SECTION 2.4. COMMITTEE shall mean the Employee Before-Tax Savings Plan Committee, as appointed from time to time under the Savings Plan. SECTION 2.5. COMPANY shall mean Allen Telecom Group, Inc. 4 3 SECTION 2.6. COMPENSATION shall have the same meaning as under the Savings Plan, except that Compensation shall include any "Executive Deferrals" under The Allen Group Inc. Deferred Compensation Plan. SECTION 2.7. CONTROLLED GROUP shall mean the Company and each other entity the employees of which, together with the employees of the Company, are required to be treated as if they were employed by a single employer under Section 414 of the Internal Revenue Code. SECTION 2.8. EXECUTIVE shall mean, for a particular Plan Year, an employee of the Comsearch Division of the Company (a) for whom Additional Employer Contributions under the Savings Plan are limited by Section 401(a)(17) or 415 of the Code or (b) who elects to make "Executive Deferrals" under The Allen Group Inc. Deferred Compensation Plan. SECTION 2.9. INSOLVENT. For purposes of this Plan, the Company shall be considered Insolvent at such time as it (a) is unable to pay its debts as they mature, or (b) is subject to a pending voluntary or involuntary proceeding as a debtor under the United States Bankruptcy Code. SECTION 2.10. INTEREST PERCENTAGE FACTOR. For a particular month, the Prime Rate of the Bank of America (or such other bank as the Committee from time to time may designate) as of the last business day of the preceding calendar month 5 4 minus 1%. In no event, however, will the Interest Percentage Factor be less than 4% or more than 10%. SECTION 2.11. PARTICIPANT shall mean any Executive employed by the Company on or after January 1, 1996 who receives an allocation of a Supplemental Profit Sharing Benefit to his Account hereunder. SECTION 2.12. PLAN shall mean the Comsearch Division Supplemental Savings Plan, as herein set out or as duly amended. SECTION 2.13. PLAN YEAR shall mean each calendar year commencing with the 1994 calendar year. SECTION 2.14. SAVINGS PLAN shall mean The Allen Group Inc. Employee Before-Tax Savings Plan, as such plan may be amended from time to time. SECTION 2.15. SUPPLEMENTAL PROFIT SHARING BENEFIT shall mean any amount which is payable to or with respect to a Participant under this Plan. SECTION 2.16. SUPPLEMENTAL PROFIT SHARING CONTRIBUTION shall have the meaning set forth in Section 3.1. ARTICLE III SUPPLEMENTAL PROFIT SHARING BENEFITS SECTION 3.1. SUPPLEMENTAL PROFIT SHARING BENEFITS. (a) AMOUNT. At the time described in Section 3.2(a), the Company shall credit to the Account of each Executive an amount (the "Supplemental Profit Sharing Contribution") equal to the excess, if any, of (i) the amount of the Additional Employer 6 5 Contribution which would have been made to the Savings Plan on behalf of the Executive for the Plan Year pursuant to Section 4.2A of the Savings Plan if (1) the Savings Plan did not contain the limitations imposed under Sections 401(a)(17) and 415 of the Code and (2) the term "Compensation" (as defined in Section 2.6 hereof) were used for purposes of determining the amount of the Additional Employer Contributions under the Savings Plan, OVER (ii) the amount of the Additional Employer Contributions which are actually made to the Savings Plan on behalf of the Executive for such Plan Year. (b) CESSATION. Notwithstanding the foregoing, the Company's obligation to credit Supplemental Profit Sharing Benefits to an Executive's Account hereunder shall automatically terminate on the earlier of the date (i) on which the Company is deemed Insolvent, (ii) the Executive is no longer eligible to participate herein or (iii) the Plan is terminated. SECTION 3.2. PARTICIPANT'S ACCOUNTS. The Company shall establish and maintain on its books an Account for each Executive which shall contain the following entries: (a) Credits to the Executive's Account for the Supplemental Profit Sharing Contributions described in Section 3.1, which shall be credited to the Executive's Account as of the time the Additional Employer Contributions are otherwise credited to the Executive's Account under the Savings Plan; 7 6 (b) Credits to the Executive's Account for the earnings described in Article IV, which shall continue until the Account has been distributed to the Executive or his Beneficiary; and (c) Debits for any distributions made from the Account. ARTICLE IV EARNINGS SECTION 4.1. EARNINGS. As of the end of each calendar month, the Account of each Participant shall be credited with an amount determined by applying one-twelfth of the Interest Percentage Factor to such Participant's Account balance as of the beginning of such month. The Account of a Participant who has terminated employment with the Controlled Group shall be credited with earnings as described in this Section until the Account has been distributed in full. ARTICLE V VESTING SECTION 5.1. VESTING. A Participant shall become vested in his Account under this Plan in accordance with the provisions of Section 10.1(b) of the Savings Plan (relating to the vesting of Additional Employer Contributions under the Savings Plan). ARTICLE VI DISTRIBUTION OF BENEFITS TO PARTICIPANTS 8 7 SECTION 6.1. TIME AND MANNER OF PAYMENT. (a) A Participant's Supplemental Profit Sharing Benefit shall be paid to him, as soon as practicable following the Participant's termination of employment with the Controlled Group, in a single lump sum in cash in an amount equal to the Participant's Account balance on the date of payment. (b) TAXES. The Company shall deduct from any such payment any taxes required by law to be withheld therefrom. SECTION 6.2. LIABILITY FOR PAYMENT/EXPENSES. The Company shall be liable for the payment of the Supplemental Profit Sharing Benefits. Expenses of administering the Plan shall be paid by the Company. ARTICLE VII BENEFICIARIES SECTION 7.1. DISTRIBUTIONS TO BENEFICIARIES. (a) AMOUNT OF BENEFITS. The Supplemental Profit Sharing Benefit payable to a Participant's Beneficiary under this Plan shall be equal to such Participant's Account balance on the date of the distribution of the Account to the Beneficiary. (b) TIME AND MANNER OF PAYMENT. The Supplemental Profit Sharing Benefit payable to a Beneficiary under this Plan shall be paid in the form of a lump sum payment as soon as practicable following the death of the Participant. (c) TAXES. The Company shall deduct from any such payment any taxes required by law to be withheld therefrom. 9 8 ARTICLE VIII MISCELLANEOUS SECTION 8.1. LIABILITY OF COMPANY. Nothing in this Plan shall constitute the creation of a trust or other fiduciary relationship between the Company and any Participant, Beneficiary or any other person. SECTION 8.2. LIMITATION ON RIGHTS OF PARTICIPANTS AND BENEFICIARIES - NO LIEN. The Plan is designed to be an unfunded, nonqualified plan. Nothing contained herein shall be deemed to create a trust or lien in favor of any Participant or Beneficiary on any assets of the Company. The Company shall have no obligation to purchase any assets that do not remain subject to the claims of the creditors of the Company for use in connection with the Plan. No Participant or Beneficiary or any other person shall have any preferred claim on, or any beneficial ownership interest in, any assets of the Company prior to the time that such assets are paid to the Participant or Beneficiary as provided herein. Each Participant and Beneficiary shall have the status of a general unsecured creditor of the Company. SECTION 8.3. NO GUARANTEE OF EMPLOYMENT. Nothing in this Plan shall be construed as guaranteeing future employment to Participants. Except as otherwise set forth in a written agreement between an Executive and the Company, a Participant continues to be an employee of the Company solely at the will of the Company subject to discharge at any time, with or without cause. 10 9 SECTION 8.4. PAYMENT TO GUARDIAN. If a benefit payable hereunder is payable to a minor, to a person declared incompetent or to a person incapable of handling the disposition of his property, the Committee may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or person. The Committee may require such proof of incompetency, minority, incapacity or guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge the Company from all liability with respect to such benefit. SECTION 8.5. ASSIGNMENT. No right or interest under this Plan of any Participant or Beneficiary shall be assignable or transferable in any manner or be subject to alienation, anticipation, sale, pledge, encumbrance or other legal process or in any manner be liable for or subject to the debts or liabilities of the Participant or Beneficiary. SECTION 8.6. SEVERABILITY. If any provision of this Plan or the application thereof to any circumstance(s) or person(s) is held to be invalid by a court of competent jurisdiction, the remainder of the Plan and the application of such provision to other circumstances or persons shall not be affected thereby. 11 10 ARTICLE IX ADMINISTRATION OF PLAN SECTION 9.1. ADMINISTRATION. (a) IN GENERAL. The Plan shall be administered by the Committee. The Committee shall have sole and absolute discretion to interpret where necessary all provisions of the Plan (including, without limitation, by supplying omissions from, correcting deficiencies in, or resolving inconsistencies or ambiguities in, the language of the Plan), to determine the rights and status under the Plan of Participants, Executives, or other persons, to resolve questions or disputes arising under the Plan and to make any determinations with respect to the benefits payable under the Plan and the persons entitled thereto as may be necessary for the purposes of the Plan. The Committee's determination of the rights of any employee or former employee hereunder shall be final and binding on all persons, subject only to the claims procedures outlined in Section 9.3 hereof. (b) DELEGATION OF DUTIES. The Committee may delegate any of its administrative duties, including, without limitation, duties with respect to the processing, review, investigation, approval and payment of Supplemental Profit Sharing Benefits, to a named administrator or administrators. SECTION 9.2. REGULATIONS. The Committee shall promulgate any rules and regulations it deems necessary in order to carry out the purposes of the Plan or to interpret the provisions of the Plan; provided, however, that no rule, 12 11 regulation or interpretation shall be contrary to the provisions of the Plan. The rules, regulations and interpretations made by the Committee shall, subject only to the claims procedure outlined in Section 9.3 hereof, be final and binding on all persons. SECTION 9.3. CLAIMS PROCEDURES. The Committee shall determine the rights of any employee or former employee to any Supplemental Profit Sharing Benefits hereunder. Any employee or former employee who believes that he has not received the Supplemental Profit Sharing Benefits to which he is entitled under the Plan may file a claim in writing with the Committee. The Committee shall, no later than 90 days after the receipt of a claim (plus an additional period of 90 days if required for processing, provided that notice of the extension of time is given to the claimant within the first 90 day period), either allow or deny the claim in writing. If a claimant does not receive written notice of the Committee's decision on his claim within the above-mentioned period, the claim shall be deemed to have been denied in full. A denial of a claim by the Committee, wholly or partially, shall be written in a manner calculated to be understood by the claimant and shall include: (a) the specific reason(s) for the denial; (b) specific reference to pertinent Plan provisions on which the denial is based; 13 12 (c) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and (d) an explanation of the claim review procedure. A claimant whose claim is denied (or his duly authorized representative) may within 60 days after receipt of denial of a claim file with the Committee a written request for a review of such claim. If the claimant does not file a request for review of his claim within such 60-day period, the claimant shall be deemed to have acquiesced in the original decision of the Committee on his claim. If such an appeal is so filed within such 60 day period, the Company (or its delegate) shall conduct a full and fair review of such claim. During such review, the claimant shall be given the opportunity to review documents that are pertinent to his claim and to submit issues and comments in writing. The Company (or its delegates) shall mail or deliver to the claimant a written decision on the matter based on the facts and the pertinent provisions of the Plan within 60 days after the receipt of the request for review (unless special circumstances require an extension of up to 60 additional days, in which case written notice of such extension shall be given to the claimant prior to the commencement of such extension). Such decision shall be written in a manner calculated to be understood by the claimant, shall state the specific reason(s) for the decision and 14 13 the specific Plan provision(s) on which the decision was based and shall, to the extent permitted by law, be final and binding on all interested persons. If the decision on review is not furnished to the claimant within the above-mentioned time period, the claim shall be deemed to have been denied on review. SECTION 9.4. REVOCABILITY OF COMMITTEE/COMPANY ACTION. Any action taken by the Committee or the Company with respect to the rights or benefits under the Plan of any employee or former employee shall be revocable by the Committee or the Company as to payments not yet made to such person, and acceptance of any Supplemental Profit Sharing Benefits under the Plan constitutes acceptance of and agreement to the Committee's or the Company's making any appropriate adjustments in future payments to such person (or to recover from such person) any excess payment or underpayment previously made to him. SECTION 9.5. AMENDMENT OR TERMINATION OF PLAN. (a) The Board of Directors of the Company may at any time amend any or all of the provisions of this Plan or terminate the Plan in its entirety, except that no such amendment or termination may (i) reduce the balance of any Participant's Account as of the date of such amendment or termination or (ii) defer the time of distribution from a Participant's Account. Any amendment or termination of the Plan shall be expressed in a written instrument executed by an officer of the Company on the order of the Board of Directors. Subject to the foregoing 15 14 provisions of this Section, any such amendment or termination of the Plan shall become effective as of the date specified in such instrument or, if no such date is specified, on the date of its execution. Written notice of any such amendment or termination shall be given to the Participants as soon as practicable after the instrument is executed. (b) If, at any time, (i) there is a suspension of the crediting of earnings on the balance of a Participant's Account or a reduction below 4% in the rate at which earnings are credited on the balance of a Participant's Account or (ii) any Executive does not receive a distribution of his Account at the time such distribution is scheduled to commence or be made, then all Supplemental Profit Sharing Benefits may, at the election of the Executive, become immediately due and payable in the form of a lump sum cash payment. Executed this ______ day of ___________, 1996. ALLEN TELECOM GROUP, INC. By: -------------------------------- Title: EX-10.PP 7 EXHIBIT 10(PP) 1 EXHIBIT 10 (pp) FORM DOCUMENT SUPPLEMENTAL TARGET PENSION BENEFIT AGREEMENT THIS AGREEMENT made as of the ____ day of ____________, ______, between THE ALLEN GROUP INC., a Delaware corporation (the "Company"), having its principal executive offices at Beachwood, Ohio and ____________________, of Cleveland Heights, Ohio ("Executive"). RECITALS A. The Executive has been and is employed by the Company in a key executive capacity, and it is expected that he will continue to contribute to the growth and success of the Company during his employment by it. B. The Company maintains a tax-qualified retirement plan for employees designated as The Allen Group Inc. Corporate Retirement Plan (the "Pension Plan"), which is intended to meet the requirements of a "qualified plan" under the Internal Revenue Code of 1986, as amended (the "Code"), and a nonqualified retirement plan for certain employees designated as The Allen Group Inc. Restoration Plan (the "Restoration Plan"), which is intended to supplement benefits payable under the Pension Plan by restoring benefits that cannot be provided under the Pension Plan because of limitations imposed under the Internal Revenue Code and because of reductions in compensation pursuant to The Allen Group Inc. Deferred Compensation Plan; C. This Agreement is intended to provide an aggregate level of pension benefits to the Executive which exceeds the benefits payable to the Executive under the Pension Plan and the Restoration Plan. NOW, THEREFORE, in consideration of the premises and of the Executive's services and significant contributions to the Company, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.1. Words and phrases used herein with initial capital letters which are defined in the Pension Plan are used herein as so defined, unless otherwise specifically defined 2 2 herein or the context clearly indicates otherwise. The following words and phrases when used in this Agreement with initial capital letters shall have the following respective meanings, unless the context clearly indicates otherwise: SECTION 1.1(1). "401(k) PLAN BENEFIT" shall mean the account balance attributable to employer matching contributions that the Executive would have had as of the date of determination under The Allen Group Inc. Employee Before-Tax Savings Plan if the Company had made the maximum employer matching contributions permissible under such plan for the Executive for each year and such contributions had accumulated at the rate of 8% compounded annually. SECTION 1.1(2). "401(k) PLAN BENEFIT OFFSET" shall mean a single life annuity, payable monthly, that is the actuarial equivalent of the Executive's 401(k) Plan Benefit as of the date of determination hereunder. For this purpose, actuarial equivalence shall be determined using the actuarial assumptions that would be used under the Pension Plan as of the date of determination hereunder to calculate a lump sum distribution. SECTION 1.1(3). "ACCELERATING EVENT" shall mean the occurrence of any of the following at any time after the date the Executive ceases to be a senior executive officer: (a) The quarterly financial statement of the Company indicates that the tangible net worth of the Company and its subsidiaries taken as a whole (calculated in accordance with generally accepted accounting principles), is less than $90,000,000, provided that such tangible net worth at the time the Executive ceased to be a senior executive officer was at least $130,000,000 or, if such tangible net worth at the time the Executive ceased to be a senior executive officer was less than $130,000,000, the tangible net worth of the Company declines by $40,000,000; or (b) The Company breaches any material provision of this Agreement including, without limitation, failure by the Company to make timely payment of any Supplemental Pension Benefit, and failure by the Company to rectify such breach within thirty (30) days after written notice of such breach is given to the Company by the Executive; or (c) The Company makes a general assignment for the benefit of creditors or the Company's indebtedness under any loan agreement(s) with its principal lending bank or group of banks is accelerated; or (d) A proceeding under the federal Bankruptcy Code (or a similar state law) is instituted by or against the Company and, if such proceeding is instituted against the Company, is consented to or acquiesced in by the Company or the Company fails 3 3 for a period of sixty (60) days after the commencement thereof to use its best efforts to obtain the dismissal thereof; or (e) A receiver or trustee in bankruptcy is appointed for the Company. SECTION 1.1(4). "ACTUAL PENSION PLAN BENEFIT" shall mean the amount of the monthly benefit in fact payable to the Executive or his Beneficiary under the Pension Plan. SECTION 1.1(5). "BENEFICIARY" shall mean the person designated by the Executive on a form provided by the Committee to receive the Death Benefit upon the Executive's death. SECTION 1.1(6). "BOARD" shall mean the Board of Directors of the Company. SECTION 1.1(7). "CAUSE" shall have the meaning set forth in Section 4.1(b). SECTION 1.1(8). "CHANGE IN CONTROL" shall mean the occurrence of any of the following: (1) 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 all 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; (2) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company (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 (1), (3) or (4) of this section) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-third (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; (3) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than (a) 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 4 4 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 (b) 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 (4) 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. SECTION 1.1(9). "CODE" shall mean the Internal Revenue Code of 1986, as it has been and may be amended from time to time. SECTION 1.1(10). "COMMENCEMENT DATE" shall mean the first day as of which a Supplemental Target Pension Benefit is payable hereunder. SECTION 1.1(11). "COMMITTEE" shall mean the Management Compensation Committee of the Board of Directors of the Company. SECTION 1.1(12). "COMPETITIVE OPERATION" shall have the meaning set forth in Section 4.1(a). SECTION 1.1(12). "DEATH BENEFIT" shall mean the benefit determined under Section 3.1 of this Agreement. SECTION 1.1(13). "DISABILITY BENEFIT" shall mean the Supplemental Target Pension Benefit determined under Section 2.4 of this Agreement. SECTION 1.1(14). "DISABILITY PLAN" shall mean The Allen Group Inc. Group Long Term Disability Insurance Plan (including supplemental disability insurance benefits provided for the Executive thereunder). SECTION 1.1(15). "DISABLED" shall mean the Executive's inability to perform the material duties, in an undiminished capacity, of his own occupation. SECTION 1.1(16). "FIVE-YEAR AVERAGE EARNINGS" shall have the same meaning given to such term under the Pension Plan, but without regard to (i) the limitations set forth in Sections 401(a)(17) and 414(q)(6) of the Code and (ii) any reductions in the amount of the Executive's base pay or bonus pursuant to The Allen Group, Inc. Deferred Compensation Plan or any other similar nonqualified deferred compensation plan maintained by the Company. 5 5 SECTION 1.1(17). "GOOD REASON" shall have the same meaning given to such term under the Severance Agreement. SECTION 1.1(18). "GROSS BENEFIT" shall mean a monthly amount equal to one-twelfth of 1.733% of the Executive's Five Year Average Earnings, multiplied by the number of his years of Credited Service, not in excess of thirty (30) years, as of his Commencement Date. SECTION 1.1(19). "PENSION PLAN" shall mean The Allen Group Inc. Corporate Retirement Plan as such plan may be amended from time to time. SECTION 1.1(20). "RESTORATION PLAN" shall mean The Allen Group Inc. Restoration Plan as such plan may be amended from time to time. SECTION 1.1(21). "RESTORATION PLAN BENEFIT" shall mean the amount of the monthly benefit payable to or with respect to the Executive under the Restoration Plan. SECTION 1.1(22). "SEVERANCE AGREEMENT" shall mean the "key employee severance agreement" between the Executive and the Company dated __________ __, 19__ as such agreement may be amended from time to time, and any agreement that replaces or supersedes such agreement. SECTION 1.1(23). "SOCIAL SECURITY BENEFIT" shall mean the estimated primary Social Security benefit payable on a monthly basis to the Executive upon the date of his termination of employment or, if he terminates his employment prior to his attainment of age 62, upon his attainment of age 62, based on the Social Security law in effect on the date of the termination of employment of the Executive, without cost of living adjustments or increases in the Social Security taxable wage base after such date, and assuming that the Executive has no future Social Security earnings following his date of termination of employment. The Social Security Benefit hereunder shall be calculated as of the date of determination hereunder and shall not be subject to later modification even if the Executive's actual Social Security award differs from the Social Security Benefit hereunder. SECTION 1.1(24). "SUPPLEMENTAL TARGET PENSION BENEFIT" shall mean the retirement benefit payable to or with respect to the Executive under this Agreement. 6 6 ARTICLE II TARGET BENEFITS SECTION 2.1. NORMAL RETIREMENT. (a) If the Executive retires on or after his attainment of age 65, he shall be entitled to receive a monthly Supplemental Target Pension Benefit, expressed as a single life annuity commencing on the first day of the month following his retirement, equal to (A) his Gross Benefit, reduced by (B) the sum of the following: (i) the Actual Pension Plan Benefit payable to the Executive as a single life annuity commencing on the Commencement Date; (ii) the Restoration Plan Benefit payable to the Executive as a single life annuity commencing on the Commencement Date; (iii) the Executive's 401(k) Plan Benefit Offset as of the Commencement Date; and (iv) the Executive's Social Security Benefit payable as a single life annuity commencing on the Commencement Date. (b) Subject to Sections 2.6 and 2.7, a Supplemental Target Pension Benefit payable to the Executive pursuant to this Section shall commence on the first day of the month following the Executive's retirement. SECTION 2.2. EARLY RETIREMENT. (a) If the Executive terminates employment after the completion of 10 years of Continuous Service but before he becomes entitled to a benefit under Section 2.1, he shall be entitled to receive a monthly Supplemental Target Pension Benefit, expressed as a single life annuity commencing on the date determined pursuant to subsection (b) of this Section (without regard to Sections 2.6 and 2.7), equal to (A) his Gross Benefit, reduced by (B) four-twelfths of one percent (4/12%) per month for each month (if any) by which the Commencement Date precedes the month in which he attains (or would attain) age 65, and further reduced by (C) the sum of the following: (i) the Actual Pension Plan Benefit payable to the Executive as a single life annuity commencing on the Commencement Date; (ii) the Restoration Plan Benefit payable to the Executive as a single life annuity commencing on the Commencement Date; (iii) the Executive's 401(k) Plan Benefit Offset as of the Commencement Date; and (iv) for each month after the later of the Commencement Date or the Executive's attainment of age 62, the Executive's Social Security Benefit payable as a single life annuity commencing on the later of the Commencement Date or the Executive's attainment of age 62. (b) Subject to Sections 2.6 and 2.7, a Supplemental Target Pension Benefit payable to the Executive pursuant to this Section shall commence on the first day of any month elected by the Executive after the later of the Executive's retirement date or the Executive's attainment of age 55, provided that (i) payment of such benefit shall commence at the same time as payments of the Executive's Actual Pension Plan Benefit commence under the Pension Plan and (ii) payment of such benefit shall commence no later than the first day of the month following the Executive's attainment of age 65. 7 7 SECTION 2.3. DEFERRED BENEFIT. (a) If the Executive terminates employment following the completion of 5 years of Continuous Servivce but prior to the completion of 10 years of Continuous Service, he shall be entitled to receive a Supplemental Target Pension Benefit, expressed as a single life annuity commencing on the date determined pursuant to subsection (b) of this Section (without regard to Sections 2.6 and 2.7), equal to (A) his Gross Benefit, reduced by (B) the sum of the following: (i) the benefit that would be or would have been payable to the Executive as a single life annuity under the Pension Plan commencing on the Commencement Date; (ii) the Restoration Plan Benefit that would be or would have been payable to the Executive as a single life annuity under the Restoration Plan commencing on the Commencement Date; (iii) the Executive's 401(k) Plan Benefit Offset as of the Commencement Date; and (iv) the Executive's Social Security Benefit that would be or would have been payable as a single life annuity commencing on the Commencement Date. (b) Subject to Sections 2.6 and 2.7, a Supplemental Target Pension Benefit payable to the Executive pursuant to this Section shall commence on the first day of the month after the Executive's attainment of age 65. SECTION 2.4. DISABILITY BENEFIT. (a) If the Executive becomes Disabled following completion of five years of Continuous Service, he shall be entitled to a Disability Benefit, expressed as a single life annuity commencing on the date determined pursuant to subsection (b) of this Section (without regard to Sections 2.6 and 2.7), equal to (A) his Gross Benefit, reduced by (B) four-twelfths of one percent (4/12%) per month for each month (if any) by which the Commencement Date precedes the month in which he attains (or would attain) age 65, further reduced by (C) the sum of the following: (i) for each month after the later of the Commencement Date or the Executive's attainment of age 55, the Actual Pension Plan Benefit payable to the Executive as a single life annuity commencing on the later of the Commencement Date or the Executive's attainment of age 55; (ii) for each month after the later of the Commencement Date or the Executive's attainment of age 55, the Restoration Plan Benefit payable to the Executive as a single life annuity commencing on the later of the Commencement Date or the Executive's attainment of age 55; (iii) the Executive's 401(k) Plan Benefit offset as of the Commencement Date; and (iv) for each month after the later of the Commencement Date or the Executive's attainment of age 62, the Executive's Social Security Benefit payable as a single life annuity commencing on the later of the Commencement Date or the Executive's attainment of age 62. (b) Subject to Sections 2.6 and 2.7, a Disability Benefit payable to the Executive pursuant to this Section shall commence on the first day of any month after the termination of all benefits payable to the Executive under the Disability Plans, 8 8 as elected by the Executive, provided that payment of the Disability Benefit shall commence no later than the first day of the month following the later of (i) the Executive's attainment of age 65 or (ii) the termination of all benefits payable to the Executive under the Disability Plans. SECTION 2.5. MAXIMUM BENEFIT. In no event shall the amount of the Executive's Supplemental Target Pension Benefit exceed an annual amount of $250,000 reduced by four-twelfths of one percent (4/12%) for each month (if any) by which the Executive's Supplemental Target Pension Benefit commences before the Executive's attainment of age 65. SECTION 2.6. DURATION OF PAYMENTS. (a) Subject to Section 2.7 and subsections (b) and (c) of this Section, the Executive's Supplemental Target Pension Benefit, once commenced, shall continue to be paid on the first day of each month until (and shall terminate with the payment made on) the first day of the month in which the Executive's death occurs. (b) Notwithstanding subsection (a) of this Section, the Executive's Disability Benefit shall terminate upon the Executive's recovery from his Disability. Upon termination of his Disability Benefit, the Executive shall be restored to his position under this Agreement prior to his Disability, and the Executive shall be entitled either to resume participation in this Agreement (if he is reemployed by the Company in a position entitling him to so participate), or to receive such other benefits as he may be eligible for under the terms of this Agreement based on his Credited Service at the time of his Disability. (c) Notwithstanding the foregoing, in the event of (i) the occurrence of an Accelerating Event or (ii) the termination of the Executive's employment within the two-year period following a Change in Control either by the Executive for Good Reason or by the Company (A) other than for Cause or (B) because the Executive is Disabled, the Supplemental Target Pension Benefit accrued but unpaid as of the date of the Accelerating Event or such termination of employment shall become immediately payable and shall be paid in the form of a lump sum payment equal to the present value of such accrued but unpaid Supplemental Target Pension Benefit. Such lump sum amount shall be calculated by using the interest rate and other actuarial assumptions of the Pension Plan used to determine lump sum equivalents thereunder in effect on the date of the Accelerating Event or such termination of employment. If the event triggering a lump sum payment under this subsection is a termination of employment within two years following a Change in Control, the Executive's accrued but unpaid Restoration Plan Benefit shall be transferred to and paid under this Agreement and shall not be applied as an offset or reduction against the Executive's Gross Benefit, notwithstanding the other provisions of this Agreement. 9 9 SECTION 2.7. FORM OF PAYMENT. (a) Subject to Section 2.6, the Supplemental Target Pension Benefit or Disability Benefit to which the Executive is entitled hereunder shall be payable in the form of a single life annuity, unless the Executive elects an optional form of benefit pursuant to subsection (b) of this Section. (b) The Executive may elect to receive his Supplemental Target Pension Benefit or Disability Benefit in any of the optional forms of benefit payment available under the Pension Plan at the Commencement Date. Spousal consent shall not be required in order for the Executive to elect any such optional form. Each optional form shall be the actuarial equivalent of the Supplemental Target Pension Benefit or Disability Benefit payable as a single life annuity, actuarial equivalence being determined by using the interest rate and other actuarial assumptions of the Pension Plan used to determine actuarial equivalent payment options thereunder. ARTICLE III DEATH BENEFIT SECTION 3.1. AMOUNT OF DEATH BENEFIT. (a) If the Executive dies following the completion of five years of Continuous Service, but prior to commencement of benefit payments under this Agreement, his designated Beneficiary shall be entitled to receive a monthly benefit, payable for the Beneficiary's life, equal to: (1) the survivor annuity portion of the Executive's Gross Benefit, stated as a joint and 50% survivor annuity, commencing as of the later of the date of the Executive's death or the date he would have attained age 55, with the designated Beneficiary as his contingent annuitant, reduced by (2) the sum of: (A) the actuarial equivalent, stated as a single life annuity payable at the time death benefits commence under this Agreement, of the amount, if any, paid from the Pension Plan to the designated death beneficiary under the Pension Plan, plus (B) the actuarial equivalent, stated as a single life annuity payable at the time death benefits commence under this Agreement, of the amount paid from The Allen Group Inc. Restoration Plan to the designated death beneficiary under such plan, plus (C) the actuarial equivalent, stated as a single life annuity payable at the time death benefits 10 10 commence under this Agreement, of the Executive's 401(k) Plan Benefit, plus (D) for each month after the earliest month for which the designated Beneficiary is entitled to receive a portion of the Executive's primary Social Security Benefit, the estimated benefit, if any, the designated Beneficiary is to receive from Social Security that is attributable to the Executive's employment and earnings history with the Company. SECTION 3.2. TIME OF PAYMENTS. Subject to Section 2.5(c), if the Beneficiary is the recipient of death benefit payments under the Pension Plan, the Beneficiary's Death Benefit under this Agreement shall commence at the same time as benefits commence to such Beneficiary under the Pension Plan. If the Beneficiary is not the recipient of death benefit payments under the Pension Plan, the Death Benefit payable under this Agreement shall commence as of the first day of the month following the later of the date of the Executive's death or the date he would have attained age 55. The Beneficiary may select a later date for benefit commencement hereunder in which case the Death Benefit will be actuarially adjusted to reflect such later commencement. ARTICLE IV FORFEITURE SECTION 4.1. FORFEITURE. (a) All rights to receive any Supplemental Target Pension Benefits (other than Supplemental Pension Target Benefits already paid in the event of forfeiture under subparagraph (ii) below) under this Agreement will be forfeited if, but only if: (i) the term of the Executive's employment with the Company shall be terminated by the Company for Cause; or (ii) during the period prior to, and for two (2) years following, the date of termination of the Executive's employment with the Company, (A) the Executive shall have, without the written consent of the Board, (I) directly or indirectly, whether as principal, agent, stockholder, employee, consultant or in any other capacity, engaged in or had a financial interest in any company or enterprise which is in substantial competition with any business actively conducted by the Company or any of its subsidiaries (a "Competitive Operation"), provided, however, that this paragraph shall not be deemed to preclude or limit the Executive's right to own not to exceed three percent (3%) of the stock or other securities of any corporation, the shares of which are registered under Section 12 of the Securities Exchange Act of 1934, or (II) hired for any personal or business purpose any person who is an employee (other than a clerical, administrative or secretarial employee) of the Company at the date of such 11 11 hiring or who was such within six (6) months prior thereto, and the Secretary of the Company, pursuant to resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board, obtained at a meeting called for the purpose after notice to the Executive and an opportunity for him to be heard, shall have given written notice to the Executive that he is participating in a Competitive Operation or has hired a person described in the preceding clause (II), as the case may be, and the Executive shall have neither ceased to participate in the Competitive Operation nor discontinued the employment of such person, as the case may be, within thirty (30) days from his receipt of such notice or diligently taken all reasonable steps to cease to participate in the Competitive Operation or to discontinue the employment of such person during such thirty (30) day period and thereafter, or (B) the Executive shall have, without the written consent of the Board, disclosed or communicated to any person, firm or corporation any information not generally available to the public concerning any of the Company's inventions, experimental developments, secret processes, or confidential or trade secrets of the Company, except as may be reasonably necessary or appropriate in connection with the performance by the Executive of his duties to the Company, and such disclosure or communication results in material injury to the Company, and there shall have been delivered to the Executive a certified copy of a resolution of the Board adopted by the affirmative vote of not less than a majority of the entire membership of the Board obtained at a meeting called and held for that purpose and at which the Executive was given an opportunity to be heard, finding that the Executive was guilty of conduct set forth in the foregoing clauses (A) or (B), specifying the particulars thereof in detail. (b) For purposes of this Agreement, the term of the Executive's employment with the Company shall be considered to have been terminated for "Cause" only (i) if the Executive willfully shall have failed to substantially perform his duties to the Company, except by reason of total or partial incapacity due to accident or physical or mental illness; (ii) if the Executive shall have engaged in or performed an act or acts of dishonesty constituting a felony under the laws of the United States or any state thereof or Canada or any province thereof and resulting or intended to result directly or indirectly in gain or personal enrichment at the expense of the Company; (iii) if the Executive shall have, without the written consent of the Board, participated in a Competitive Operation or shall have hired a person described in paragraph Section 4.1(a)(ii)(A)(II) above or shall not have promptly disclosed to the Company all inventions, discoveries, processes and improvements relating to the business of the Company or any 12 12 of its subsidiaries made or conceived by him during the term of his employment by the Company or shall not have executed such instruments and documents reasonably requested by the Company to transfer and/or assign all rights therein to the Company, and the Secretary of the Company, pursuant to resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board, obtained at a meeting called for the purpose after notice to the Executive and an opportunity for him to be heard, shall have given written notice to the Executive that he is participating in a Competitive Operation or has hired a person described in Section 4.1(a)(ii)(A)(II) or has failed to perform all of his obligations relating to the inventions, discoveries, processes and improvements described above, as the case may be, and the Executive shall have neither ceased to participate in the Competitive Operation nor discontinued the employment of such person nor performed his obligations relating to such inventions, discoveries, processes and improvements, as the case may be, within thirty (30) days of his receipt of such notice nor diligently taken all reasonable steps to cease to participate in the Competitive Operation or to discontinue the employment of such person or to perform such obligations during such thirty (30) day period and thereafter; or (iv) if the Executive shall have, without the written consent of the Board, disclosed or communicated to any person, firm or corporation any information not generally available to the public concerning any of the Company's inventions, experimental developments, secret processes, or confidential or trade secrets of the Company, except as may be reasonably necessary or appropriate in connection with the performance by the Executive of his duties to the Company, and such disclosure or communication results in material injury to the Company; and there shall have been delivered to the Executive a certified copy of a resolution of the Board adopted by the affirmative vote of not less than a majority of the entire membership of the Board obtained at a meeting called and held for that purpose and at which the Executive was given an opportunity to be heard, finding that the Executive was guilty of conduct set forth in subparagraphs (i), (ii), (iii) or (iv) above, specifying the particulars thereof in detail. Anything in this Subsection 4.1 to the contrary notwithstanding, the employment of the Executive shall in no event be considered to have been terminated by the Company for Cause if termination of his employment took place (v) as the result of bad judgment or negligence on the part of the Executive other than willful misconduct or gross negligence, (vi) for any act or omission in respect of which a determination could properly be made that the Executive met the applicable standard of conduct prescribed for indemnification or reimbursement of payment of expenses of an officer or director under the By-Laws or Certificate of Incorporation of the Company or the laws of the 13 13 State of Delaware or for directors' and officers' liability insurance of the Company, in each case as in effect at the time of such act of omission, (vii) as the result of an act or omission which occurred more than twelve (12) calendar months prior to the Executive's having been given notice of termination for such act or omission unless the commission of such act or such omission was not or could not reasonably have been, at the time of such commission or omission, known to at least one-third of the members of the Board, in which case more than twelve (12) calendar months from the date that the commission of such act or such omission was or could reasonably have been so known, or (viii) as the result of a continuing course of action which commenced and was or could reasonably have been known to at least one-third of the members of the Board more than twelve (12) calendar months prior to notice having been given to the Executive of the termination of his employment. SECTION 4.2 The provisions of Section 4.1(a) shall not apply if the employment of the Executive with the Company is involuntarily terminated other than for Cause. ARTICLE V AMENDMENT AND TERMINATION SECTION 5.1. AMENDMENT. The Board of Directors of the Company and the Executive may, at any time, agree to amend any or all of the provisions of this Agreement. Any such amendment shall be expressed in a written instrument executed by an appropriate officer of the Company and by the Executive and shall become effective as of the date designated in such instrument or, if no such date is specified, on the date of its execution. SECTION 5.2. TERMINATION. (a) The Board of Directors of the Company does hereby reserve the right to terminate this Agreement at any time without the consent of the Executive, his Beneficiary or any other person. Such termination shall be expressed in an instrument executed by an appropriate officer of the Company and shall become effective as of the date designated in such instrument, or if no date is specified, on the date of its execution. (b) Upon any termination of this Agreement, the Executive's Supplemental Target Pension Benefit shall be determined and distributed to him (or his Beneficiary) as otherwise provided in Article II. SECTION 5.3. LIMITATIONS ON AMENDMENT AND TERMINATION. Notwithstanding the foregoing provisions of this Article, no amendment or termination of this Agreement shall, without the consent of the Executive (or, in the case of his death, his Beneficiary), adversely affect the vested Supplemental Target Pension Benefit under this Agreement of the Executive or 14 14 Beneficiary as such Benefit exists on the date of such amendment or termination. SECTION 5.4. EFFECT OF TERMINATION. Notwithstanding any provision of this Agreement to the contrary, in the event of a termination of this Agreement, the Company, in its sole and absolute discretion, shall have the right to accelerate the time and/or manner of distribution of benefits in pay status hereunder, including, without limitation, by providing for the payment of a single lump sum payment (i) to the Executive if he is employed as of the date of termination of this Agreement or (ii) to the Executive or his Beneficiary if either is then entitled to benefit payments, in an amount equal to the Actuarial Equivalent of such remaining unpaid benefit. If the effect on the Executive of the payment of any such lump sum amount is to increase the sum of the highest marginal federal, state and local income tax rates that apply to such lump sum payment over the sum of the highest such rates that would apply to the Executive's receipt of his Supplemental Target Pension Benefit in the form of a single life annuity, the Company shall make an additional lump sum payment to the Executive in an amount sufficient, on an after-tax basis, to eliminate such effect. ARTICLE VI MISCELLANEOUS SECTION 6.1. LIMITATION ON RIGHTS OF THE EXECUTIVE AND BENEFICIARIES - NO LIEN. This Agreement is an unfunded, nonqualified plan and the entire cost of this Agreement shall be paid from the general assets of the Company. No trust has been established for the Executive or Beneficiaries. No liability for the payment of benefits under this Agreement shall be imposed upon any officer, director, employee, or stockholder of the Company. Nothing contained herein shall be deemed to create a lien in favor of the Executive or Beneficiary on any assets of the Company. The Company shall have no obligation to purchase any assets that do not remain subject to the claims of the creditors of the Company for use in connection with this Agreement. Each Executive and Beneficiary shall have the status of a general unsecured creditor of the Company and shall have no right to, prior claim to, or security interest in, any assets of the Company. SECTION 6.2. NONALIENATION. No right or interest of the Executive or his Beneficiary under this Agreement shall be anticipated, assigned (either at law or in equity) or alienated by the Executive or his Beneficiary, nor shall any such right or interest be subject to attachment, garnishment, levy, execution or other legal or equitable process or in any manner be liable for or subject to the debts of the Executive or Beneficiary. If the Executive or Beneficiary shall attempt to or shall alienate, sell, transfer, assign, pledge or otherwise encumber his benefits under this Agreement or any part thereof, or if by reason of his 15 15 bankruptcy or other event happening at any time such benefits would devolve upon anyone else or would not be enjoyed by him, then the Company may terminate his interest in any such benefit and hold or apply it to or for his benefit or the benefit of his spouse, children or other person or persons in fact dependent upon him, or any of them, in such a manner as the Company may deem proper; provided, however, that the provisions of this sentence shall not be applicable to the surviving spouse of any deceased Executive if the Company consents to such inapplicability, which consent shall not unreasonably be withheld. SECTION 6.3. EMPLOYMENT RIGHTS. Employment rights shall not be enlarged or affected hereby. The Company shall continue to have the right to discharge or retire the Executive, with or without cause. SECTION 6.4. ADMINISTRATION OF AGREEMENT. (a) The Committee shall be responsible for the general administration of this Agreement and for carrying out the provisions hereof. The Committee shall interpret where necessary, in its reasonable and good faith judgment, the provisions of this Agreement and, except as otherwise provided in the Agreement, shall determine the rights and status of the Executive and Beneficiaries hereunder (including, without limitation, the amount of any Supplemental Target Pension Benefit to which the Executive or Beneficiary may be entitled under this Agreement). (b) The Committee may, from time to time, delegate all or part of the administrative powers, duties and authorities assigned to it under this Agreement to such person or persons, office or committee as it shall select. SECTION 6.5. CLAIMS PROCEDURE. Whenever there is denied, whether in whole or in part, a claim for benefits under this Agreement filed by any person (herein referred to as the "Claimant"), the Committee shall transmit a written notice of such decision to the Claimant, which notice shall be written in a manner calculated to be understood by the Claimant and shall contain a statement of the specific reasons for the denial of the claim and a statement advising the Claimant that, within 60 days of the date on which he receives such notice, he may obtain review of such decision in accordance with the procedures hereinafter set forth. Within such 60-day period, the Claimant or his authorized representative may request that the claim denial be reviewed by filing with the Committee a written request therefor, which request shall contain the following information: (a) the specific portions of the denial of his claim which the Claimant requests the Committee to review; 16 16 (b) a statement by the Claimant setting forth the basis upon which he believes the Committee should reverse the previous denial of his claim for benefits and accept his claim as made; and (c) any written material which the Claimant desires the Committee to examine in its consideration of his position as stated pursuant to Subsection (b) above. Within 60 days of the date the Claimant files the written request for review, the Committee shall conduct a full and fair review of the decision denying the Claimant's claim for benefits. Within 60 days of the date of such review, the Committee shall render its written decision on review, written in a manner calculated to be understood by the Claimant, specifying the reasons and the Agreement provisions upon which its decision was based. SECTION 6.6. EFFECT ON OTHER BENEFITS. Benefits payable to or with respect to the Executive under the Pension Plan, the Restoration Plan or any other Company-sponsored (qualified or nonqualified) plan, if any, are in addition to those provided under this Agreement. SECTION 6.7. PAYMENT TO GUARDIAN. If a benefit payable hereunder is payable to a minor, to a person declared incompetent or to a person incapable of handling the disposition of his property, the Company may direct payment of such benefit to the legal guardian or legal representative of such minor, incompetent or person. The Company may require such proof of incompetency, minority, incapacity or guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge the Company from all liability with respect to such benefit. SECTION 6.8. EFFECT OF QUALIFIED DOMESTIC RELATIONS ORDER. In the event that any portion of the Executive's benefit under the Pension Plan is allocated to an alternate payee pursuant to the terms of a qualified domestic relations order, the Executive's Supplemental Target Pension Benefit hereunder shall be calculated without taking into account such allocation. In no event may an alternate payee receive a distribution or an allocation of any portion of a Supplemental Target Pension Benefit hereunder. SECTION 6.9. WITHHOLDING/TAXES. To the extent required by applicable law, the Company shall withhold from the Supplemental Target Pension Benefit any taxes required to be withheld therefrom by a federal, state or local government. SECTION 6.10. EXPENSES. The Company shall pay all expenses incurred in the administration and operation of this Agreement. 17 17 SECTION 6.11. ARBITRATION; LEGAL EXPENSES. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators in Cleveland, Ohio, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrators' award in any court having jurisdiction. The expense of such arbitration, as well as all other reasonable legal fees and expenses incurred by the Executive in connection with the resolution of any dispute arising under this Agreement, shall be borne by the Company. SECTION 6.12. GOVERNING LAW. This Agreement shall be regulated, construed and administered under the laws of the State of Ohio, except when preempted by federal law. SECTION 6.13. GENDER AND NUMBER. For purposes of interpreting the provisions of this Agreement, the masculine gender shall be deemed to include the feminine, the feminine gender shall be deemed to include the masculine, and the singular shall include the plural, unless otherwise clearly required by the context. SECTION 6.14. SEVERABILITY. If any provision of this Agreement or the application thereof to any circumstances(s) or person(s) is held to be invalid by a court of competent jurisdiction, the remainder of the Agreement and the application of such provision to other circumstances or persons shall not be affected thereby. SECTION 6.15. NOTICES. All notices required or permitted to be given under this Agreement shall be given in writing and shall be deemed sufficiently given if delivered by and/or mailed by registered or certified mail, return receipt requested, to his residence at ________________________________, in the case of the Executive, and to its principal executive offices at 25101 Chagrin Boulevard, Beachwood, Ohio 43122-4169, Attention: Secretary, in the case of the Company. Either party may by like notice to the other party change the address at which it is to receive notices hereunder. SECTION 6.16. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the Company, its successors and assigns, and the Executive, his heirs, executors, administrators and legal representatives. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. SECTION 6.17. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the parties hereto in respect of 18 18 the subject matter contained herein and supersedes, with respect to such subject matter, all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto (except such plans adopted by the Company which apply to other employees as well as to the Executive, such as the Company's Pension Plan, Restoration Plan or Deferred Compensation Plan); and any prior agreement (or portion thereof) of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled. IN WITNESS WHEREOF, The Allen Group Inc. has caused this Supplemental Target Pension Benefit Agreement to be signed by its proper officer and Executive has hereunto set his hand this _____ day of ________________, _______. ATTEST: THE ALLEN GROUP INC. ______________________________ By: --------------------------- Secretary Title: WITNESS: ______________________________ ______________________________ ___________________, EXECUTIVE EX-10.X 8 EXHIBIT 10(X) 1 EXHIBIT 10 (x) THE ALLEN GROUP INC. Key Employee Severance Policy Amendment No. 2 The second sentence of the first paragraph of The Allen Group Inc. Key Employee Severance Policy is hereby amended and restated in its entirety to read as follows: "For purposes of this Policy, a key employee shall be any employee of the Company (other than any employee of one of the Company's foreign subsidiaries) who holds or at any time held stock options granted under the Company's 1982 Stock Plan, 1992 Stock Plan, or any successor plan thereto, or any employee of the Company designated by the Management Compensation Committee of the Board of Directors of the Company, unless any such employee is covered by an employment or severance agreement with the Company or, as an employee of the Company or one of its domestic subsidiaries, is eligible to receive severance under the laws or general business practices of any foreign country." February, 1996 EX-11 9 EXHIBIT 11 1 EXHIBIT 11 STATEMENT RE COMPUTATION OF EARNINGS PER COMMON SHARE NET INCOME AND COMMON SHARES USED IN CALCULATION OF EARNINGS PER COMMON SHARE FOR THE FIVE YEARS ENDED DECEMBER 31, 1995 WERE COMPUTED AS FOLLOWS (AMOUNTS IN THOUSANDS):
For the Years Ended December 31, ------------------------------------------------------------------------- Earnings: 1991 1992 1993 1994 1995 - -------- ------------------------------------------------------------------------- Net Income $17,482 $15,340 $24,127 $29,194 $32,639 Less preferred stock dividends(1) (4,025) (4,025) (2,180) - - ------ ------ ------ ------ ------ Net income applicable to common stock (primary and fully diluted) $13,457 $11,315 $21,947 $29,194 $32,639 ====== ====== ====== ====== ====== Common Shares:(2) - ------------- Weighted average shares outstanding during each year 18,517 19,177 22,302 25,574 26,166 Shares issuable upon assumed exer- cise of stock options 223 503 638 496 754 ------ ------ ------ ------ ------ Common shares - primary 18,740 19,680 22,940 26,070 26,920 Adjustment for full dilution: Incremental stock options 30 30 65 44 50 Convertible securities(3) - - 3,405 356 125 ------ ------ ------ ------ ------ Common shares - assuming full dilution 18,770 19,710 26,410 26,460 27,095 ====== ====== ====== ====== ======
(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 4,579,230 shares 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/or outstanding convertible subordinated debentures into Common Stock resulted in no reportable dilution for purposes of calculating fully diluted earnings per common share for each year in the periods ended December 31, 1991 through 1995. EX-13 10 EXHIBIT 13 1 EXHIBIT 13 SEGMENT SALES AND INCOME (amounts in millions)
Product Line Sales 1995 1994 1993 1992 1991 - ---------------------------------------------------------------------------------- Mobile Communications* Systems Products $ 95.1 $ 76.1 $ 62.4 $ 51.3 $ 20.7 Site Management and Other Non-Antenna Products 112.9 53.0 49.1 29.3 31.5 Mobile and Base Antennas 73.8 68.7 57.2 42.4 28.4 Frequency Planning, Systems Design and Related Services 24.8 15.7 14.9 5.7 -- --------------------------------------------- 306.6 213.5 183.6 128.7 80.6 - ---------------------------------------------------------------------------------- CENTRALIZED AUTOMOTIVE EMISSIONS INSPECTIONS 8.8 2.8 2.7 .4 - - ---------------------------------------------------------------------------------- Total Sales $ 315.4 $216.3 $186.3 $129.1 $ 80.6 - ---------------------------------------------------------------------------------- Operating Income 1995 1994 1993 1992 1991 Mobile Communications** $ 55.9 $ 39.9 $ 34.6 $ 34.9 $ 21.1 Centralized Automotive Emissions Inspections (2.9) (1.2) (1.0) - - Equity in Loss of JointVenture -- -- -- (.1) (.3) --------------------------------------------- Operating Income 53.0 38.7 33.6 34.8 20.8 Financing Costs (1.8) (1.3) (2.2) (1.2) (.7) General Corporate Expenses (3.4) (6.7) (6.8) (8.0) (11.5) Income Before Taxes --------------------------------------------- and Minority Interests $ 47.8 $ 30.7 $ 24.6 $ 25.6 $ 8.6 - ----------------------------------------------------------------------------------
* In 1995, the Company acquired on additional 40% interest in FOR.E.M. S.p.A.; accordingly, the Company's sales include those of FOREM. and its majority owned subsidiary, Mikom G.m.b.H., beginning in the second quarter of 1995. In 1992, the Campany purchased Alliance Telecommunications Corporation; accordingly, sales include those of Alliance since the July 30, 1992 acquisition date. ** Includes amortization of goodwill in the amount of $2,087,000, $1,635,000, $1,642,000 and $632,000 in 1995, 1994, 1993 and 1992, respectively. 14 2 CONSOLIDATED [amounts in thousands, except per share data]
For the years ended December 31, 1995, 1994 & 1993 1995 1994 1993 Sales $ 315,377 $ 216,313 $ 186,371 COST AND EXPENSES: Cost of sales 196,119 129,085 110,943 Selling, general and administrative expenses 52,614 46,362 40,710 Research and development and new product engineering costs (Note 1) 17,006 8,865 7,886 INTEREST AND FINANCING EXPENSES: Interest income 1,407 1,163 1,057 Interest expense (3,228) (2,457) (3,247) ------------------------------------------------ INCOME BEFORE TAXES AND MINORITY INTERESTS 47,817 30,707 24,642 PROVISION FOR INCOME TAXES (Note 7) (19,270) (10,973) (661) ------------------------------------------------ INCOME BEFORE MINORITY INTERESTS 28,547 19,734 23,981 MINORITY INTERESTS (3,027) (523) (518) ------------------------------------------------ Income from Continuing Operations 25,520 19,211 23,463 - ------------------------------------------------------------------------------------------------------------ DISCONTINUED OPERATIONS (Note 9) Income from discontinued operations 7,852 9,983 1,498 Spin-off transaction costs (733) -- -- Loss on disposal of discontinued operation -- -- (2,936) ----------------------------------------------- INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 32,639 29,194 22,025 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES (Note 7) -- -- 2,102 - ----------------------------------------------------------------------------------------------------------- Net Income $ 32,639 $ 29,194 $ 24,127 - ----------------------------------------------------------------------------------------------------------- NET INCOME APPLICABLE TO COMMON STOCK $ 32,639 $ 29,194 $ 21,947 - ----------------------------------------------------------------------------------------------------------- Earnings per Common Share (Primary fully and diluted): Income from continuing operations $ .95 $ .74 $.93 Discontinued operations: Income from discontinued operations .30 .38 .06 Spin-off transaction costs (.03) -- -- Loss on disposal of discontinued operation -- -- (.13) Cumulative effect of change in accounting for income taxes -- -- .10 ----------------------------------------------- Net Income $ 1.22 $ 1.12 $ .96 ----------------------------------------------- Average common and common equivalent shares outstanding 26,900 26,100 22,900 - ------------------------------------------------------------------------------------------------------------
The Notes are an integral part of these statements. 15 3 CONSOLIDATED BALANCE SHEETS
[amounts in thousands] December 31, 1995 & 1994 1995 1994 Assets: CURRENT ASSETS: Cash and equivalents $ 15,706 $ 55,240 Accounts receivable, less allowance for doubtful accounts 1995, $1,232,000; 1994,$1,684,000 82,015 63,974 Inventories (Note 1) 70,152 58,316 Other current assets 9,941 661 ----------------------------- TOTAL CURRENT ASSETS 177,814 178,191 - ----------------------------------------------------------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT, AT COST, less accumulated depreciation and amortization (Note 1) 77,124 56,860 - ----------------------------------------------------------------------------------------------------------------------------------- OTHER ASSETS: Net investments in and advances to joint venture - 24,411 Investment in FOR.E.M. S.p.A - 8,458 Excess of cost over net assets of businesses acquired (Note 1) 68,310 56,525 Other assets (Note 3) 40,317 33,271 ----------------------------- Total Assets $ 363,565 $ 357,716 - ----------------------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity: CURRENT LIABILITIES: Notes payable and current maturities of long-term obligations (Note 2) $ 8,741 $ 154 Accounts payable 34,299 26,568 Accrued expenses (including accrued wages and commissions- 1995, $9,323,000; 1994, $7,422,000) 25,444 37,955 Income taxes payable (Note 7) 10,163 2,675 Deferred income taxes (Note 7) 5,796 2,899 ----------------------------- Total Current Liabilities 84,443 70,251 - ----------------------------------------------------------------------------------------------------------------------------------- Long-Term Debt (Note 2) 47,058 44,910 Other Liabilities and Deferred Credits (Note 3) 21,687 18,374 ----------------------------- Total Liabilities 153,188 133,535 - ----------------------------------------------------------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES (Note 5) - ----------------------------------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY (Note 4): Common stock, par value $1.00; authorized - 50,000,000 shares; issued - 1995, 29,595,000; 1994, 29,146,000; outstanding - 1995, 26,560,000; 1994, 26,107,000 29,595 29,146 Paid-in capital 168,632 161,644 Retained earnings 34,948 56,902 Translation adjustments 102 23 Less: Treasury stock-common shares, at cost, 1995, 3,035,000; 1994, 3,039,000 shares (18,746) (7,479) Unearned compensation (3,794) (4,310) Minimum pension liability adjustment (360) (1,745) ----------------------------- TOTAL STOCKERHOLDERS' EQUITY 210,377 224,181 - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 363,565 $ 357,716 - -----------------------------------------------------------------------------------------------------------------------------------
The Notes are an integral part of these statements. 16 4 CONSOLIDATED STATEMENTS OF CASH FLOWS
[amounts in thousands] For the Years Ended December 31, 1995, 1994 & 1993 1995 1994 1993 Cash Flows from Operating Activities: Income from continuing operations: $ 25,520 $ 19,211 $ 23,463 Accounting change -- -- 2,102 ----------------------------------------- 25,520 19,211 25,565 Adjustments to reconcile income to net cash flow: Depreciation and amortization of fixed assets 8,896 4,257 3,364 Amortization of goodwill 2,175 1,723 1,742 Amortization of capitalized software product costs 2,706 1,561 1,294 Other amortization 1,341 3,252 1,281 Deferred income taxes 7,041 (1,807) (925) Changes in operating assets and liabilities: Receivables (24,097) (3,534) (6,791) Inventories (13,653) (1,393) (13,291) Accounts payable and accrued expenses (4,162) 6,560 (6,672) Income taxes payable (2,812) 16,401 (1,422) Other, net (3,537) 397 1,876 --------------------------------------------- Cash (used) provided by operating activities (582) 46,628 6,021 - ------------------------------------------------------------------------------------------------------------------------------ Cash Flows from Investing Activities: Capital expenditures (16,829) (6,410) (6,466) Centralized emissions inspection programs: Program related expenditures (14,421) (36,746) (4,252) Program payment received -- 37,261 -- Capitalized software product costs (4,483) (2,165) (1,912) Proceeds from sale of automotive diagnostics and lease financing businesses -- 19,737 21,000 Sales and retirements of fixed assets 170 24 64 Investments in and loans to telecommunication ventures (1,077) (259) (2,838) Acquisition of FOR.E.M. S.p.A., net of cash acquired (671) (8,458) - --------------------------------------- Cash (used) provided by investing activities (37,311) 2,984 5,596 - ------------------------------------------------------------------------------------------------------------------------------ Cash Flows from Financing Activities: Net repavinnents of notes payable and long-term debt (4,888) (7,383) (1,661) Dividends paid (3,942) (4,431) (4,023) Cash distributed in spin-off transaction (4,002) -- -- Exercise of stock options 566 80 1,936 Treasury stock sold to employee benefit plans 1,435 854 671 ---------------------------------------- Cash used by financing activities (10,831) (10,880) (3,077) - ------------------------------------------------------------------------------------------------------------------------------ CASH PROVIDED (USED) BY DISCONTINUED OPERATIONS 9,190 5,335 (1,792) - ------------------------------------------------------------------------------------------------------------------------------- Total Company ( Decrease) Increase in Cash (39,534) 44,067 6,748 Cash at beginning of year 55,240 11,173 4,425 ---------------------------------------- Cash at end of year $ 15,706 $ 55,240 $ 11,173 - ------------------------------------------------------------------------------------------------------------------------------
The Notes are an integral part of these statements. 17 5 CONSOLIDATED
[amounts in thousands] For the Years Ended December 31, 1995, 1994 & 1993 Preferred Common Paid-in Retained Translation Treasury Unearned Stock Stock Capital Earnings Adjustment Stock Compensation 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) -- -- -- Preferrred stock redemption (2,300) 2,290 911 (1,174) -- -- -- Two-for-one stock split -- 14,436 (14,436) -- -- -- -- Conversion of convertible 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 operation -- -- -- -- 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) Net Income -- -- -- 29,194 -- -- -- Cash dividends -- -- -- (4,431) -- -- -- Exercise of stock options -- 17 87 (24) -- Treasury' stock reissued, 54,504 common shares, at cost -- -- 393 -- -- 461 -- Restricted shares issued, net -- 71 1,089 -- -- -- (1,159) Remeasurement of restricted shares -- -- 44 -- -- -- (44) Amortization of unearned compensation -- -- -- -- -- -- 1,723 Acceleration of restricted shares -- -- -- -- -- -- 1,362 Stock option tax benefits -- -- 42 -- -- -- -- Other -- -- -- (532) -- -- -- Adjustment from translating foreign financial statements into U.S. dollars -- -- -- -- 113 -- -- - --------------------------------------------------------------------------------------------------------------------------------- Balance December 31, 1994 -- 29,146 161,644 56,902 23 (17,479) (4,310) Net Income -- -- -- 32,639 -- -- -- Cash dividends -- -- -- (3,942) -- -- -- Net assets distributed to Transpro (Note 9) -- -- -- (50,651) -- -- -- Exercise of stock options -- 72 463 -- -- 31 -- Conversion of convertible debentures -- 355 4,623 -- -- -- -- Treasury stock reissued, 61,781 common shares, at cost -- -- 998 -- -- 437 -- Restricted shares issued, net -- 22 324 -- -- (1,735) (346) Remeasurement of restricted shares -- -- 18 -- -- -- (18) Amortization of unearned compenation -- -- -- -- -- -- 880 Stock option tax benefits -- -- 562 -- -- -- -- Adjustment from translating foreign financial statements into U.S. dollars -- -- -- -- 79 -- -- ---------------------------------------------------------------------------------- Balance December 31, 1995 $ -- $ 29,595 $ 168,632 $ 34,948 $ 102 $ (18,746) $ (3,794) - --------------------------------------------------------------------------------------------------------------------------------- The Notes are an integral part of these statements
18 6 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. Accounting Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Basis of Consolidation: The Company's consolidated financial statements include the accounts of all wholly owned and majority owned subsidiaries. Investments in companies in which ownership interests range from twenty to fifty percent and the Company exercises significant influence over operating and financial policies are accounted for using the equity method. Other investments are accounted for using the cost method. Intercompany accounts and transactions have been eliminated. To facilitate preparation of financial statements the Company's European operations are included in the consolidated financial statements on a two-month delayed basis. Cash and Cash Equivalents: Cash equivalents consist of temporary bank deposits and money market instruments with an original maturity of three months or less at the date of purchase. The Company invests its excess cash in bank deposits, money market and tax-exempt securities which are afforded one of the the two highest ratings by nationally recognized ratings firms. Excess of Cost Over Net Assets of Businesses Acquired (Goodwill): The excess of investments in consolidated subsidiaries over the net asset value at acquisition is being amortized on a straight-line basis over periods not exceeding forty years. The Company's policy is to evaluate the excess of cost over the net assets of businesses acquired based on an evaluation of such factors as the occurrence of a significant adverse event or change in the environment in which the business operates or if the expected future net cash flows (undiscounted and without interest) would become less than the carrying amount of the asset. An impairment loss would be recorded in the period such determination is made based on the fair value of the related businesses. The Company's existing goodwill relates principally to the Company's Mobile Communications segment. 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 (first-in, first-out) or market. Inventories consisted of the following at December 31, 1995 and 1994 (amounts in thousands):
1995 1994 Raw material $36,809 $29,581 Work-in-process 21,310 19,433 Finished goods 12,033 9,302 ----------------- $70,152 $58,316 ===================================
The Company's inventories relate to its Mobile Communications segment. Certain of these inventories pertain to the production of sophisticated equipment which could be subject to technological obsolescence. The Company maintains and periodically revises reserves for excess inventory based on the most current information available of anticipated usage requirements. Property, Plant ainind 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. The provision for amortization of leasehold improvements and assets held under capital leases is based on the term of the lease or the estimated useful lives, whichever is shorter. Property, plant and equipment consisted of the following at December 31, 1995 and 1994 (amounts in thousands):
1995 1994 Land and improvements $ 4,241 $ 4,207 Buildings 22,370 30,004 Machinery and equipment 51,984 57,775 Leasehold improvments 3,066 2,670 Land and buildings under capital lease 16,375 -- ------------------ 98,036 94,656 Less accumulated depreciation and amortization (20,912) (37,796) ------------------ $77,124 $56,860 - -----------------------------------------------------------
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 costs 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 ten to twenty years. In 1995,1994 and 1993, approximately $4,483,000, $2,165,000 and $1,912,000, respectively, of these costs were capitalized and approximately $2,706,000, $1,561,000 and $1,294,000, respectively, were amortized. 19 7 NOTES to Consolidated Financial Statements Software License Revenue: Revenues from software licenses for the Company's frequency planning, Systems design and related services business 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: 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 ten years. Research and Development Costs: Expenditures relating to the development of new products and processes, including significant improvements to existing products, are expensed as incurred. Research and development expenses were $13,453,000, $7,700,000 and $5,327,000 in 1995,1994 and 1993, respectively. In addition, the Company incurred other engineering expenses relating to new product development (that do not meet the accounting definition of "Research and Development") in the amount of $3,553,000, $1,165,000 and $2,559,000 in 1995, 1994 and 1993, respectively. Stock Based Compensation: The Company accounts for stock based compensation awards pursuant to Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," which prescribes the use of the intrinsic value based method. See Note 4 for additional information. Income Taxes: The Company accounts for income taxes in accordance with the provisions of Statement of Financial Accounting Standard No. 109 ("SFAS 109"), "Accounting for Income Taxes." SFAS 109 has been applied prospectively from the January 1, 1993 adoption date. 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 in 1993) 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 proceeds are used to repurchase outstanding shares at the average market price during the year. The calculations of fully diluted earnings per common share begin with the primary calculations but further reflect, if dilutive, the pro forma effect of the conversion of the then outstanding preferred stock and convertible debentures (redeemed in 1995 and 1993) into common stock at the beginning of the year and such incremental stock option shares should the market price of common stock at year-end exceed the average price. This calculation resulted in no reportable dilution for the years 1995, 1994 and 1993. Other: The 1994 and 1993 financial statements have been reclassified to conform to the 1995 presentation. Note 2: Financing
Long-term obligations consisted of the following (amounts in thousands): 1995 1994 Foreign credit agreement borrowings $ 6,687 $ -- Convertible subordinated debentures -- 4,970 Industrial revenue bonds: 7.5% bonds -- 750 Floating rate bonds due 2015 - 2025 12,000 25,000 Note payable to insurance company 15,000 15,000 Capital lease obligation 16,375 -- Other 115 326 Unamortized debt expense (701) (990) -------------------- 49,476 45,064 Less current maturities (2,418) (154) -------------------- $ 47,058 $ 44,910 =============================================================
The Company maintains a domestic revolving credit agreement in the aggregate amount of $147,000,000 expiring December 18, 1999. Of this total, $60,000,000 has been specifically designated for use by the Company's wholly-owned subsidiary, MARTA Technologies, Inc. ("MARTA"), and an additional $12,000,000 has been designated for the issuance of letters of credit. Interest may be determined on a LIBOR or prime rate basis at the Company's option. The Company has agreed to pay a commitment fee varying from 1/8 - 1/2 of 1% per annum on the unused portion of the commitment. At December 31, 1995, there were no outstanding borrowings under this agreement. The Company also has short-term credit lines utilized bv its European subsidiaries. At year-end, direct borrowings under these agreements totaled $6,323,000; an additional $959,000 remained unused. These credit lines, due to expire November 10, 1996, bear interest based on LIBOR. In late 1995, the Company completed negotiations with a consortium of international banks to obtain additional credit lines. Beginning in fiscal 1996, such credit lines will total $11,300,000. Foreign credit agreement borrowings indude long-term arrangements at fixed and variable rates with the Industry' Ministry of Italy, totaling $1,832,000 (due 1996 - 2000) and $1,271,000 (due 1998 - 2009), respectively, and variable rate borrowings with various international banks of $3,584,000 (due 1996 - 2003). Further, two of the aforementioned arrangements are mortgage notes, in which the Company has pledged the respective land and buildings as collateral. These facilities had an aggregate net book value of $9,476,000 at December 31, 1995. During 1995, the average interest rate for all foreign credit arrangements approximated 5.78%. 20 8 NOTES to Consolidated Financial Statements In May, 1995, the Company called for the redemption of the remaining Convertible Subordinated Debentures, issued in 1992 in connection with the acquisition of Alliance Telecommunications Corporation; such debentures were converted into 351,834 shares of the Company's common stock. 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 5.07% at December 31, 1995. The average interest rate for all industrial revenue borrowings approximated 3.85% during 1995. At December 31, 1995, the Company had outstanding a $15,000,000 borrowing from an insurance company which bears interest at a fixed rate of 8.13% per annum, and is due in installments of $5,000,000 in each year 2001 through 2003. The Note Agreement contains covenants and restrictions similar to the Company's revolving credit agreement. In connection with one of its emissions inspection programs, the Company has entered a lease agreement under which it will lease the land and inspection facilities for an initial lease term equal to the program life of ten years. The lease agreement contains an extension agreement such that if the inspection program is extended, the lease is automatically extended to run concurrently with the program life. For financial reporting purposes the lease has been classified as a capital lease; accordingly, an obligation and related asset of approximately $16,375,000, have been recorded at December 31,1995. The aggregate maturities of long-term obligations for the years 1996 through 2000 are as follows (amounts in thousands): 1996 1997 1998 1999 2000 $2,418 $2,398 $2,372 $2,247 $2,404 - ----------------------------------------------------------------------------- The Company's borrowing agreements include various restrictive covenants as to the amount and type of indebtedness, investments and guarantees, maintenance of net worth, the purchase or redemption of the Company's shares and the disposition of assets of the Company not in the ordinary course of business. Note 3: Other Assets and Liabilities
Other assets consisted of the following (amounts in thousands): 1995 1994 Capitalized computer software and database files $12,645 $10,869 Deferred start-up and pre-operating costs 6,100 5,238 Investment in specialty rubber products business 4,344 4,344 Unliquidated assets of discontinued operations 3,282 2,227 Investement in telecommunication company, at cost 2,778 1,701 Prepaid pension costs 2,244 1,481 Other 8,924 7,411 ----------------- $40,317 $33,271 =======================================================================================
Other liabilities and deferred credits consisted of the following (amounts in thousands):
1995 1994 Minority interests $ 7,376 $ 2,148 Deferred income taxes 5,549 1,596 Long-term pension liabilities 3,637 6,289 Accrued postretirement benefits 1,599 3,112 Casualty self insurance reserves 860 2,334 Deferred compensation liabilities 207 763 Other 2,459 2,132 --------------- $21,687 $18,374 =====================================================
Note 4: 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 29,1995, the Company completed the spin-off of its truck products business (See Note 9). In connection therewith, the Company's stock plans were amended to reflect the dilution caused by the Spin-off. Where appropriate, all share and per share data have been amended to reflect this. The Company has three stock plans, the 1982 Stock Plan, the 1992 Stock Plan and the 1994 Non-Employee Directors Stock Option Plan. The 1982 Stock Plan was terminated in 1992 and was replaced by the 1992 Stock Plan; however, certain stock options and restricted shares of the Company's Common Stock under the 1982 Stock Plan were awarded prior to the termination and remain outstanding, The Company awarded 273,025 restricted shares under the 1982 Stock Plan, and at December 31, 1995, 240,816 of these restricted shares have vested. Vesting of such shares is subject to the restriction that the Company reports net income per common share, before extraordinary and certain other nonoperating items, of 10% or more in excess of the net income target for the most recent preceding year during which restricted shares vested. The remaining 32,209 shares will vest on April 1,19%. The Company's 1992 Stock Plan provides for the granting of options and restricted shares of Common Stock to key employees. In 1995, the stockholders approved an amendment to increase the number of shares available from 1,000,000 to 2,000,000 shares, such shares were subsequently adjusted for the Spin-off. At December 31, 1995, the total number of shares for which the Company may grant options and award restricted shares of the Company's Common Stock cannot exceed 2,228,221 shares, subject to certain adjustments. Options are awarded at a price not less than the fair market value on the date the option is granted. Options may contain stock appreciation rights under which the Company, upon request of the optionee, may at its discretion, 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 21 9 NOTES to Consolidated Financial Statements 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 1995,1994 and 1993. Restricted stock awards made to date under the 1992 Stock Plan were issued at no cash cost to the recipients; however, such employees have agreed to forego salary increases and new stock option grants for a period of two years, other than for exceptional promotions. Generally, the restricted shares vest in 25% increments in the seventh, eighth, ninth and tenth year from the year of award. An accelerated vesting schedule may be triggered if certain performance targets are achieved. Specifically, the vesting of 50% of such shares may be accelerated (but not sooner than three years from the award year) based upon the average sale price of the Company's stock price during a period of 91 consecutive calendar days exceeding specified target levels. The remaining 50% of such shares may be accelerated based on average earnings per common share over three consecutive fiscal years exceeding specified target levels beginning with the award year. At December 31, 1995, the Company had awarded 420,758 restricted shares, inducing 15,000 shares awarded in 1995, 31,202 shares awarded in 1994, and 133,500 shares awarded in 1993. During 1995, 34,870 restricted shares were canceled. To date, the Company has recognized the vesting of 216,068 restricted shares on an accounting basis, of which, 100,475 shares were issued to certain restricted shareholders who qualified for accelerated vesting in accordance with stock price targets set forth in the restricted stock agreements under the 1992 Stock Plan. Restricted shares are subject to forfeiture in certain circumstances as defined in the Plans. Unearned compensation, with respect to the 1992 Stock Plan awards, representing the fair value of the restricted shares at date of award, is charged to income over a ten-year period or over the period of actual vesting whichever period is shorter. The amount of unearned compensation expense for the restricted stock awarded under the 1982 Plan is charged to income based on the fair market value of such shares at the time the net income targets are met. Compensation expense with respect to all restricted shares amounted to $391,000 in 1995, $2,794,000 in 1994 and $1,183,000 in 1993. In 1994, the stockholders of the Company approved the adoption of the 1994 Non-Employee Directors Stock Option Plan. The total number of shares to be issued under this plan may not exceed 278,528 shares. Each year, each Non-Employee Director who previously has not been employed by the Company will autumatically receive an option to purchase 1,000 shares of Common stock ("Formula Awards"). No Non-Employee Director who previously has been employed by the Company is eligible to receive Formula Awards. However, Non-Employee Directors who have been previously employed by the Company are eligible to receive discretionary awards of options to purchase shares of common stock. At December 31, 1995, the Company had granted options for 242,874 shares under this Plan which includes 12,254 shares awarded during 1995 and 230,620 shares awarded in 1994. The remaining 34,654 shares are reserved for future awards. In addition to the 1994 Non-Employee Directors Stock Option Plan, the Board of Directors granted to non-employee directors options to purchase 90,898 shares of common stock held in treasury at $5.25 per share. During 1995, 1994 and 1993, 9,800, 2,000 and 17,600 options, respectively, were exercised under the directors stock option plan. At December 31, 1995, options for 61,498 shares remain outstanding and are all exercisable. These options expire in 1999. With respect to employees of the Company, options to purchase 631,603 shares were exercisable on December 31, 1995 and 1,181,405 shares were available for grant of future options. Options outstanding at December 31, 1995 are exercisable at various dates through the year 2005. Option activity for the three years ended December 31, 1995 is summarized as follows:
Number Option of Shares Price Range Balance outstanding December 31, 1992 1,031,062 $ 4.66 to $12.57 Granted 38,010 $15.13 to $25.81 Exercised (345,710) $ 4.66 to $11.93 Terminated and canceled (18,150) $ 5.45 to $ 7.84 ------------------------------ Balance outstanding December 31, 1993 705,202 $ 4.66 to $25.81 Granted 415,500 $15.75 to $21.88 Exercised (19,301) $ 4.66 to $ 7.84 Terminated and canceled (4,000) $ 12.00 ------------------------------ Balance outstanding December 31, 1994 1,097,401 $ 4.66 to $25.81 Granted 301,700 $22.00 to $28.00 Spin-off adjustement 141,956 $ 4.18 to $20.76 Exercised (80,806) $ 4.18 to $22.25 Terminated and canceled (72,325) $ 7.84 to $23.13 ------------------------------ Balance outstanding December 31, 1995 1,387,926 $ 4.18 to $28.00 - ------------------------------------------------------------------------------
At December 31, 1995 and 1994, 2,847,859 and 1,368,924 common shares, respectively, were reserved for outstanding stock options and for future grants of stock options and restricted shares. In addition, 125,000 shares of Series B Junior Participating Preferred Stock are authorized for issuance under the Company's Stockholder Rights Plan. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No.123 ("SFAS 123"), Accounting for Stock Based Compensation, which established accounting and reporting standards for stock based employee compensation plans effective in 1996. SFAS 123 encourages entities to adopt the new method ("fair value based method") of accounting; however, it also allows an entity to continue to measure compensation cost prescribed under existing rules ("intrinsic value based method"). Such entities who elect to remain on this method must make certain pro forma disclosures in fiscal year 1996 as if the new fair value method had been applied. At this time, the Company does not expect to adopt the recognition provisions of SFAS 123 and will adopt the required disclosures in 1996. 22 10 NOTES to Consolidated Financial Statements Note 5: Commitments and Contingencies The Company's leases consist primarily of facilities and equipment and expire principally between 1996 and 2005. 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 $4,600,000 in 1995, $3,000,000 in 1994, and $3,900,000 in 1993. Future minimum payments under noncancelable leases as of December 31, 1995 were as follows (amounts in thousands):
Operating Capitalized Leases Lease 1996 $ 4,470 $ 2,450 1997 3,370 2,450 1998 2,670 2,450 1999 2,220 2,450 2000 2,050 2,450 Thereafter 6,730 12,250 ------------------------- Total minimum lease payments $21,510 24,500 ------- Less: amount representing interest (8,125) -------- Present value of future minimum lease payments including current maturities of $1,181 $16,375 - ------------------------------------------------------------------
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 $1,982,000. 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. In connection with the sale of its former specialty rubber products operations and spin-off of its Truck Products business, the Company remains as guarantor or remains contingently liable under certain long-term leases or other obligations assigned to the purchasing/spun-off 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. The Company's Centralized Emissions testing business continues to be hampered by an unsettled political climate and various program implementation problems. For the current status of these programs, see the "Centralized Automotive Emissions Inspection" section of the "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 33 of this Annual Report. 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 one industrial site. This action was dismissed on a motion for summary judgment, and the dismissal has been appealed to the United States Court of Appeals for the Sixth Circuit. In addition, the Company settled one environmental matter in 1995 for approximately $70,000, and has submitted a remedial action plan to the Michigan Department of Natural Resources with respect to one other site. The Company believes it is reasonably possible that environmental related liabilities may exist with respect to one industrial site formerly occupied by the Company. Based upon environmental site assessments and the remedial action plan discussed above, 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, results of operations or liquidity of the Company. Note 6: 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 typically provide benefits based on 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. 23 11 NOTES to Consolidated Financial Statements Net periodic pension cost of continuing operations for the Company's plans included the following components (amounts in thousands):
1995 1994 1993 Service cost benefits earned during the year $ 926 $ 1,311 $ 1,610 Interest cost on the projected benefit obligation 2,487 3,282 3,196 Actual income on plan assets (5,781) (1,469) Settlement (gains) costs (2,135) 35 549 Net amortization and deferral 3,193 (2,050) 4,642 ------------------------------ Net periodic pension (benefit) cost (1,310) 1,109 2347 Less allocated to discontinued operations -- (414) (977) ------------------------------- $(1,310) $ 695 $ 1,370
In 1995, the Company experienced a settlement gain in the amount of approximately $2,208,000 ($1,325,000 after related deferred income taxes); this net gain was credited to retained earnings in connection with the Spin-off. (See Note 9). 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, 1995 and 1994 (amounts in thousands):
Plans Whose Plans Whose Assets Accumulated Exceed Benefits Accumulated Exceed Benefits Assets 1995: Actuarial present value of benefit obligations: Vested benefits $ 17,564 $ 9,870 Nonvested benefits 558 94 ------------------------- Accumulated benefit obligation 18,122 9,964 Effect of projected future compensation levels 1,384 -- ------------------------- Projected benefit obligations 19,506 9,964 Plan assets at fair market value 20,860 5,622 ------------------------- Projected benefit obligation less than (in excess of) plan assets 1,354 (4,342) Loss due to actual experience varying from actuarial assumptions 1,207 606 Prior service cost not yet recognized in pension cost (141) 156 Transition liability (asset) on adoption of new accounting standard to be recognized in the future (330) 15 Adjustment required to recognize minimum liability -- (777) --------------------------- Prepaid (accrued) pension cost $ 2,090 $ (4,342) - -----------------------------------------------------------------------------------
Plans Whose Plans Whose Assets Accumulated Exceed Benefits Accumulated Exceed Benefits Assets 1994: Actuarial present value of benefit obligations: Vested benefits $ 22,922 $ 15,783 Nonvested benefits 451 314 ------------------------- Accumulated benefit obligation 23,373 16,097 Effect of projected future compensation levels 1,930 ------------------------- Projected benefit obligations 25,303 16,097 Plan assets at fair market value 27,677 10,577 ------------------------- Projected benefit obligation less than (in excess of) plan assets 2,374 (5,520) (Gain) loss due to actual experience varying from actuarial assumptions (959) 2,608 Prior service cost not yet recognized in pension cost (185) 549 Transition liability (asset) on adoption of new accounting standard to be recognized in the future (611) 76 Adjustement required to recognize minimum liability -- (3,233) ------------------------- Prepaid (accrued) pension cost $ 619 $ (5,520) - ---------------------------------------------------------------------------------
Assumptions used in determining pension cost for the plans are: 1995 1994 Discount rate 7 1/4% - 8% 7 1/2% - 10% Expected rate of increase in compensation 5 1/2% 5 1/2% Expected long-term rate of return on plan assets 9% 9%
The discount rates used by the Company in 1995 are 7 1/4% for all U.S. pension plans and 7 1/2% and 8% (the termination rate) for its Canadian plans which will be terminated in 1996. The Company provides health care and life insurance benefits for certain retired employees who reach retirement age while working for the Company. The components of the expense for postretirement health care and life benefits from continuing operations are as follows (amounts in thousands);
1995 1994 1993 Net periodic cost: Service cost benefits attributed to service during peried $ 12 $ 182 $ 222 Interest cost on accumulated post- retirement benefit obligation 108 348 417 Amortization of (gain) loss (7) 51 --------------------------- Net postretirement benefit cost $ 113 $ 581 $ 639 Less allocated to discontinued operations -- (451) (433) --------------------------- $ 113 $ 130 $ 206 - ------------------------------------------------------------------------
24 12 NOTES to Consolidated Financial Statements The components of the accumulated postretirement benefit obligation (all of which are unfunded) are as follows (in thousands):
1995 1994 1993 Retirees $ 1,173 $ 1,742 $1,562 Fully eligible active plan participants 78 123 286 Other active plan participants 302 1,346 3,965 Unrecognized net gain (loss) 46 (99) (944) Accumulated postretirement benefit ------------------------------- obligation $ 1,599 $ 3,112 $ 4,869 - ----------------------------------------------------------------------------
The actuarial calculation assumes a 13.7% increase in the health care cost trend rate for 1995 (14.1% in 1994 and 14.6% in 1993). 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 $89,000 and increase net periodic cost by $8,000. The weighted average discount used in determining the accumulated postretirement benefit obligation was 7.25% in 1995, 8.25% in 1994 and 7.25% in 1993, respectively. In addition, the Company negotiated and modified certain postretirement pension obligations in prior years which resulted in actuarially based net gains. The Company reported a gain of $1,855,000 (of which, $1,365,000 was included in income from discontinued operations) and $580,000 (all of which is included in income from discontinued operations) in 1994 and 1993, respectively. The Company had a deferred bonus plan for select key management employees, including officers, which was terminated as of the end of 1994. The related bonus payments are paid 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 and may be subject to forfeiture in certain circumstances. As a result of the plan's cessation, the Company continues to pay the outstanding bonus awards over the remaining vesting terms. The bonus awards accrued for 1994 and 1993 were $485,000 and $463,000, respectively. Bonus awards for 1994 are to be paid 50% in restricted stock and 50% in cash. Bonus awards for 1993 and 1992 are to be paid 60% in restricted stock and 40% in cash; all prior awards were earned in cash. Note 7: Income Taxes Information with respect to income taxes in continuing operations is as follows (amounts in thousands):
1995 1994 1993 Provision (Benefit) for income taxes: Current: Federal $ 3,936 $ 11,342 $ -- Foreign 7,323 -- 121 State and local 970 1,438 1,465 --------------------------------- 12,229 12,780 1,586 --------------------------------- Deferred: Federal 5,876 (1,807) (1,050) Foreign 868 -- -- State and local 297 -- 125 --------------------------------- 7,041 (1,807) (925) --------------------------------- $ 19,270 $ 10,973 $ 661 --------------------------------- Income before taxes and minority interests: Domestic $ 33,012 $ 34,098 $ 28,887 Foreign 14,805 (3,391) (4,425) --------------------------------- $ 47,817 $ 30,707 $ 24,642 - -------------------------------------------------------------------------------
A reconciliation of the provision for income taxes at the Federal statutory rate of 35% to the reported tax provisions is as follows (amounts in thousands):
1995 1994 1993 Provision computed at the Federal statutory rate $ 16,736 $ 10,747 $ 8,624 State and local income taxes, net of Federal income tax benefit 824 935 1,033 Net higher (lower) tax rates on foreign income 4,166 (471) (682) Benefit of foreign sales corporation (1,523) (434) -- Tax benefit from utilization of U.S. net operating loss carryforward to reduce income tax expense -- -- (7,202) Tax benefit from recognition of future benefit of U.S. net operating loss carry forward - -- -- (1,050) Impact of minority interests (1,059) (183) (181) Other 126 379 119 -------------------------------------- $ 19,270 $ 10,973 $ 661 - ---------------------------------------------------------------------------------------
25 13 NOTES to Consolidated Financial Statements The following table summarizes the Company's total provision (benefit) for income taxes (amounts in thousands):
1995 1994 1993 Continuing operations $ 19,270 $ 10,973 $ 661 Discontinued operations 4,540 6,742 2,822 Cumulative effect of accounting Change -- -- (2,102) Tax Benefit of carry-forward allocated to goodwill -- (1,330) (6,160) Allocated to equity: Stock options (509) (42) (1,649) Pension gain (loss) from business disposition and other pension items 1,164 (940) -- ------------------------------------- $ 24,465 $ 15,403 $ (6,428) - -----------------------------------------------------------------------------
The components of deferred tax assets (liabilities) are comprised of the following as of December 31, 1995 and 1994 (amounts in thousands):
1995 1994 Gross deferred tax assets: Inventory $ 3,732 $ 3,545 Pensions and deferred compensation 1,838 4,523 Tax credit carryforwards 2,986 2,907 Product warranty claims 861 1,696 Other 2,067 1,985 ---------------------- 11,484 14,656 ---------------------- Gross deferred tax liabilities: Intangible Assets (6,820) (4,981) Depreciation (1,082) (2,989) Unremitted foreign earnings (2,154) (4,721) Plant closings and costs of discontinued operations (1,719) -- Deferred start-up costs (1,811) -- Other (8,355) (6,460) ---------------------- (21,941) (19,151) ---------------------- Net deferred tax liabilities $(10,457) $ (4,495) - --------------------------------------------------------------------
Deferred tax assets and (liabilities) are recorded in the consolidated balance sheet as follows (amounts in thousands):
1995 1994 Other current assets $ 888 $ -- Current liabilities - deferred income taxes (5,796) (2,899) Other liabilities and deferred credits (5,549) (1,596) ------------------------- $ (10,457) $ (4,495) - -----------------------------------------------------------------------------------
During 1995 and 1994, general business tax credits of approximately $359,000 and $300,000, respectively, generated in the respective year, were used to reduce the provision for income taxes. None were utilized in 1993. At December 31, 1995, the Company has available business tax credits in the aggregate amount of approximately $944,000 to reduce future federal income tax liabilities; such tax credits expire during the period 2008 through 2010. The Company also has alternative minimum tax credits in the amount of $2,042,000 available to reduce future federal income tax liabilities. United States income taxes are not provided on undistributed earnings of the Company's foreign subsidiaries because of the intent to reinvest these earnings. The amount of undistributed earnings which are considered to be indefinitely reinvested is approximately $3,600,000 at December 31, 1995. While the amount of federal income taxes, if such earnings are distributed in the future, cannot now be determined it is expected such taxes may be reduced by tax credits and other deductions. The Internal Revenue Service ("IRS") is currently auditing the Company's tax returns filed for years 1991 and 1992. The last completed audit of the Company's U.S. tax returns by the IRS covered income tax returns through 1980. Note 8: 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 32 to 35 of this Annual Report and are an integral part of these statements. The distribution of the Company's geographic operations is as follows (amounts in thousands):
1995 1994 1993 Sales and Income Sales: United States $ 254,031 $ 211,237 $ 180,083 Canada 6,112 2,068 445 Europe 55,234 3,008 5,843 ------------------------------------ $ 315,377 $ 216,313 $ 186,371 - ------------------------------------------------------------------------------- Operating Income: United States $ 37,764 $ 38,896 $ 33,774 Canada (56) 33 (104) Europe 15,304 (256) (95) ------------------------------------ 53,012 38,673 33,575 Financing costs (1,821) (1,294) (2,190) General corporate expenses (3,374) (6,672) (6,743) ------------------------------------ $ 47,817 $ 30,707 $ 24,642 - ------------------------------------------------------------------------------- Assets United States, including Mexican Maquiladora $ 282,439 $ 339,135 $ 311,726 Canada 6,700 8,835 10,225 Europe 74,426 9,746 2,687 ------------------------------------ $ 363,565 $ 357,716 $ 324,638 - -------------------------------------------------------------------------------
26 14 NOTES to Consolidated Financial Statements Export sales of continuing operations were $98,205,000, $62,175,000 and $48,260,000 in 1995, 1994 and 1993, 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 in income from continuing operations included a gain of $34,000 in 1995 and losses of $32,000 and $47,000 in 1994 and 1993, respectively. Note 9: Acquisitions and Dispositions On September 8,1995, the Company's Board of Directors declared a spin-off distribution of 100% of the common shares of a newly formed wholly owned subsidiary, TransPro, Inc. ("TransPro") to the Company's common shareholders of record at the close of business on September 29, 1995 (the "Spin-off"). Common shares were distributed on the basis of one share of TransPro common stock for every four shares of the Company's common stock. Prior to the Spin-off, the Company contributed to TransPro cash, the ownership interests in the net assets and liabilities of its Crown and G&O Manufacturing Company divisions and the stock of AHTP II, Inc. and Allen Heat Transfer Products, Inc., which owned the Company's 50% partnership joint venture interest in GO/DAN Industries ("GDI"). These entities comprised the Company's Truck Products Business (the "Business"). Following the distribution, TransPro became an independent, publicly traded corporation. On September 29, immediately prior to the Spin-off, the Company caused GDI to redeem the remaining ownership interest from the Company's other joint venture partner, Handy & Harman, thereby making GDI an indirect, wholly owned partnership of the Company Handy & Harman received $24,750,000 in cash consideration for its interests in GDI. TransPro financed its additional investment in GDI through borrowings under the term loan portion of its new credit facility. In connection with the Spin-off, the Company has presented the Business as a discontinued operation in the Consolidated Statements of Income. The Company charged the net assets transferred to TransPro (which includes GDI on a fully consolidated basis as a result of the aforementioned redemption on September 29,1995) against its retained earnings. A summary of the net assets distributed is as follows (amounts in thousands): Cash $ 4,002 Accounts receivable 41,650 Inventories 46,963 Other current assets 3,728 Property, plant and equipment 36,186 Other assets 7,590 Accounts payable and accrued expenses (35,552) Long-term debt (45,666) Other liabilities (8,250) --------- $ 50,651 - ---------------------------------------------------------------------------
Summarized income statement information relating to the Business' results of operations (as reported in discontinued operations) is as follows (amounts in thousands, except per share data):
Years Ended December 31, 1995* 1994 1993 Sales $ 92,933 $115,039 $ 93,660 Operating income 9,726 16,113 9,442 Equity in earnings of joint venture 2,219 1,368 407 Net income 7,852 9,983 6,061 Income per common share .30 .38 26 *The fiscal year 1995 includes results of operations for the nine month period ended September 30, 1995 and excludes transaction costs of $733,000 (after related income taxes of $467,000) related to the distribution of the Business. Further, results of operations are net of allocated interest of $205,000, $402,000 and $718,000 in 1995,1994 and 1993, respectively.
On March 17, 1995, the Company acquired an additional 40% interest in FOR.E.M. S.p.A. ("FOREM"), a manufacturer of wireless telecommunications products located in Agrate Brianza (Milan), Italy. FOREM owns 62% of Mikom G.m.b.H., located in Buchdorf, (Munich) Germany. The Company had previously acquired an initial 40% of FOREM in December 1994. The purchase price for the 80% ownership interest has aggregated approximately $20,352,000 and includes certain costs of acquisition. Pursuant to the terms of the acquisition, the former shareholders of FOREM may earn additional purchase price based upon earnings (including $3,469,000 earned in 1995). The remaining 20% of FOREM's outstanding stock is subject to certain put/call arrangements between the Company and the sellers. The purchase price for this remaining 20% ownership interest is based upon a formula relative to future earnings. This acquisition has been accounted for under the purchase method of accounting. Results of operations for FOREM prior to the latest share acquisition (reported under the equity method of accounting) were not significant.
A summary of the net assets of FOREM acquired is as follows (amounts in thousands): Cash $ 7,701 Accounts Receivable 12,429 Inventories 7,178 Fixed Assets 12,860 Excess of cost over net assets acquired 13,875 Other assets 618 Accounts payable and accrued expenses (12,570) Debt (17,877) Other liabilities (3,862) --------- $ 20,352 - ------------------------------------------------------------
27 15 NOTES to Consolidated Financial Statements Pro forma combined sales from continuing operations of the Company and FOREM for 1995 and 1994 (assuming the acquisition was effected on November 1, 1993) would have been approximately $330,000,000 and $256,000,000, respectively. Pro forma combined income from continuing operations for 1995 and 1994 would have been approximately $26,100,000 ($.97 per share) and $18,900,000 ($.72 per 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 FOREM taken place on such date or of future results of operations of the combined businesses under the ownership of the Company. 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. The Company accounted for this transaction as a discontinued operation. Pursuant to the sale agreement, the Company also will receive non-competition payments for a three-year period through June 1996. Such payments are recorded by the Company when earned and amounted to $1,555,000, $1,760,000 and $880,000 in 1995, 1994 and 1993, respectively. Net manufacturing sales and lease finance revenues of the sold businesses were $25,879,000 and $6,845,000, respectively, through June 10,1993. Results of discontinued operations are net of allocated interest of $253,000 and also includes allocated income tax expense of $35,000. 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 stock-holders' equity, as well as transaction costs related to the sale. Note 10: Fair Values of Financial Instruments Financial Accounting Standards Board ("FASB") Statements No.107, "Disclosure about Fair Value of Financial Instruments," and No.119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments," are part of a continuing process by the FASB to improve information regarding 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 Statements. 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 or its investment in a telecommunications company 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 recorded at December 31,1995 were not impaired and reflect the corresponding fair values. No dividends were paid on these investments. Long-Term Debt: The fair values of the Company's 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: 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. In addition, the Company entered into a foreign currency contract, in December 1995, to offset the impact of currency rate changes against certain assets and liabilities of its Canadian subsidiary. The fair value of such contract is based on quoted market prices of comparable contracts. The carrying amounts and fair values of the Company's financial instruments at December 31,1995 and 1994 are as follows (amounts in thousands):
Carrying Amount Fair Value 1995 Cash and cash equivalents $15,706 $15,706 Non-current investments 7,122 7,122 Long-term debt 50,177 49,315 Off balance sheet financial instruments: Letters of credit 1,982 1,982 Foreign currency contract 4,469 4,472 - -------------------------------------------------------------- 1994 Cash and cash equivalents $55,240 $55,240 Investment securities: Non-current investment 6,045 6,045 Investment in Joint Venture 24,411 24,411 Long-term debt 46,054 46,054 Letters of credit 6,938 6,938 - --------------------------------------------------------------
28 16 NOTES to Consolidated Financial Statements Note 11: Unaudited Quarterly Finacial Data Quarterly financial data are summarized as follows (amounts in thousands, except per share amounts):
March 31 June 30 Sept. 30 Dec. 31 1995 Sales $59,265 $88,880 $83,300 $83,932 ------------------------------------- Gross profit $22,813 $32,728 $33,588 $30,129 ------------------------------------- Income from continuing operations $ 4,687 $ 6,504 $ 7,608 $ 6,721 ------------------------------------- Income from discontinued operations $ 2,369 $ 2,886 $ 1,864 $ -- ------------------------------------- Net income $ 7,056 $ 9,390 $ 9,472 $ 6,721 ------------------------------------- Earnings per common share: Primary and Fully Diluted: Continuing operations $ .18 $ .24 $ .28 $ .25 ------------------------------------- Discontinued operations $ .09 $ .11 $ .07 $ -- ------------------------------------- Net Income $ .27 $ .35 $ .35 $ .25 - ---------------------------------------------------------------------------- 1994 Sales $49,196 $52,072 $55,230 $59,815 ------------------------------------- Gross profit $19,392 $22,070 $22,658 $23,108 ------------------------------------- Income from continuing operations $ 4,260 $ 3,817 $ 5,445 $ 5,689 ------------------------------------- Income from discontinued operations $ 1,130 $ 2,655 $ 3,123 $ 3,075 ------------------------------------- Net income $ 5,390 $ 6,472 $ 8,568 $ 8,764 ------------------------------------- Earnings per common share: Primary and Fully Diluted: Continuing operations $ .16 $ .15 $ .21 $ .22 ------------------------------------- Discontinued operations $ .05 $ .10 $ .12 $ .11 ------------------------------------- Net Income $ .21 $ .25 $ .33 $ .33 - ----------------------------------------------------------------------------
Note 12: Supplemental Cash Flow Disclosure During 1995, the following non-cash transactions were effected and are not reflected in the Consolidated Statement of Cash Flows: The Company recorded fixed assets and a related capital lease obligation in the amount of $16,375,000 in connection with leasing land and facilities for one of its emissions inspection programs. On September 29, 1995, the Company completed the largely non-cash spin-off of 100% of the common shares of TransPro (See Note 9). In May, 1995, the Company called for the redemption of the outstanding $4,917,000 of Convertible Subordinated Debentures. Subsequent thereto, holders converted such debentures into 351,834 shares of Common Stock. The Company had no significant non-cash transactions in 1994. During 1993, the following non-cash transactions were effected: On June 11, 1993, the Company sold its Allen Testproducts and Lease Financing operations. In conjunction with the sale, the Company received an installment note receivable of $19,737,000 and the purchaser assumed $56,300,000 of Leasing indebtedness. Approximately $11,453,000 of convertible debentures were converted into 877,269 shares of Common Stock. The Company declared a two-for-one stock split, which was paid on October 18, 1993. The Company exercised its redemption rights on its convertible Preferred Stock prior to the planned redemption date in July, 1993. This action resulted in the conversion of 2,289,615 shares of Preferred Stock into 4,579,230 shares of Common Stock. Information with respect to cash paid during the year for interest and taxes is as follows:
1995 1994 1993 Interest paid $3,840,000 $3,600,000 $4,210,000 Interest capitalized 440,000 970,000 -- Income taxes paid 18,890,000 240,000 2,930,000 - ------------------------------------------------------------
29 17 REPORT of Independent Accountants of Management 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, 1995 and 1994, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. 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, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31,1995 in conformity with generally accepted accounting principles. As described in Note 1 to the Consolidated Financial Statements, the Company adopted the provisions of Statement of Financial Accounting Standards No 109, "Accounting for Income Taxes,"in 1993. /s/ Coopers & Lybrand L.L.P. - --------------------------- Cleveland, Ohio February 16, 1996 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 or 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 accounts, 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, actual results could differ from these estimates. 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 - ------------------------------------- Robert G. Paul President and Chief Executive Offleer /s/ Robert A. Youdelman - ------------------------------------- Robert A. Youdelman Senior Vice President-Finance, Chief Financial Officer /s/ James L. LePorte, III - ------------------------------------- James L. LePorte, III Vice President Treasurer & Controller, Chief Accounting Officer 30 18 FIVE-YEAR SUMMARY 0F OPERATIONS
(amounts in thousands, except per share data) Five Years Ended December 31, 1995 1995 1994 1993 1992 1991 Operating Results: Sales $ 315,377 $ 216,313 $ 186,371 $ 129,079 $ 80,559 Cost of sales 196,119 129,085 110,943 66,686 40,813 Selling, general and administrative expenses 52,614 46,362 40,710 31,045 27,603 Research and development and new product engineering 17,006 8,865 7,886 4,487 2,611 Interest and financing expense 1,821 1,294 2,190 1,165 666 Loss from joint venture -- -- -- (96) (250) ----------------------------------------------------------------- Income before taxes and minority interests 47,817 30,707 24,642 25,600 8,616 Provision for income taxes 19,270 10,973 661 1,279 1,605 ----------------------------------------------------------------- Income before minority interests 28,547 19,734 23,981 24,321 7,011 Minority interests (3,027) (523) (518) (608) (201) ----------------------------------------------------------------- Income from Continuing Operations 25,520 19,211 23,463 23,713 6,810 Discontinued Operations: Income (loss) from discontinued operations 7,119 9,983 1,498 (5,606) 10,631 Gain (loss) on sale of discontinued businesses -- -- (2,936) -- 41 Cumulative Effect of Accounting Changes -- -- 2,102 (2,767) -- ----------------------------------------------------------------- Net Income $ 32,639 $ 29,194 $ 24,127 $ 15,340 $ 17,482 - -------------------------------------------------------------------------------------------------------------------------- Net income applicable to common stock $ 32,639 $ 29,194 $ 21,947 $ 11,315 $ 13,457 - -------------------------------------------------------------------------------------------------------------------------- Earnings (Loss) Per Common Share (Primary and Fully Diluted): From continuing operations $ .95 $ .74 $ .93 $ 1.00 $ .15 Discontinued operations: Income (loss) from discontinued operations .27 .38 .06 (.29) .57 Loss on sale of discontinued businesses -- -- (.13) -- -- Cumulative effect of accounting changes -- -- .10 (.14) -- ----------------------------------------------------------------- Net income per common share $ 1.22 $ 1.12 $ .96 $ .57 $ .72 - -------------------------------------------------------------------------------------------------------------------------- Financial Condition: Total assets: Manufacturing $ 363,565 $ 357,716 $ 324,638 $ 304,111 $ 217,291 Lease financing -- -- -- 83,811 90,661 Total company 363,565 357,716 324,638 387,922 307,952 Working capital - Manufacturing 93,371 107,940 71,808 67,013 84,112 Current ratio - Manufacturing 2.11 2.54 2.22 1.96 2.71 Total debt: Manufacturing 55,799 45,064 52,597 68,083 25,398 Lease financing -- -- -- 63,151 67,943 Total company 55,799 45,064 52,597 128,177 85,127 Stockholder equity 210,377 224,181 195,161 159,339 141,807 Debt to equity ratio; Manufacturing .27 .20 .27 .47 .20 Lease financing -- -- -- 4.90 5.17 Total company .27 .20 .27 .81 .60 Book value per common share 7.92 8.59 7.52 5.08 4.48 Shares outstanding at year end 26,560 26,107 25,964 20,058 18,832 Return on stockholders' equity 14.7% 14.1% 12.6% 13.5% 13.0% Capital expenditures 24,498 14,833 11,360 6,653 4,976 Depreciation 8,896 7,477 6,611 6,701 6,325 Number of employees 2,800 2,700 2,500 3,000 2,400 - -------------------------------------------------------------------------------------------------------------------------- All per share data have been restated to reflect stock dividends and stock splits.
31 19 Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations
Overview ($ millions 1995 1994 1993 Sales $ 315.4 $ 216.3 $ 186.3 Income before taxes and minority interests 47.8 30.7 24.6 Income from continuing operations 25.5 19.2 23.5 Net income 32.6 29.2 22.0 Total assets 363.6 357.7 324.6 Capital expenditures 24.5 14.8 11.4 Depreciation 8.9 7.5 6.6 ===============================================================
Sales and income before taxes and minority interests increased by 46% and 56%, respectively, over 1994. The increase in sales and income is due in large measure to the 80% acquisition of Italy based FOR.E.M. S.p.A. and its majority owned German subsidiary, Mikom G.m.b.H. (collectively referred to herein as 'FOREM'), manufacturers of wireless telecommunications products, which contributed $55 million in sales for the nine-month period in which they are included in the Company's consolidated statement of income. The balance of the Company's sales growth is primarily due to increased sales of the Company's existing mobile communications product lines. The increase in sales in 1994 as compared with 1993 was primarily due to the continued strong growth of the systems products and mobile and base antennas product lines of the Mobile Communications segment. In 1994, income before taxes and minority interests increased due to higher sales; however, this was more than offset by a significantly higher provision for income taxes. This increase in income tax expense was a result of the recognition, in 1993, of the Company's remaining U.S. tax loss carryforwards and resultant accrual of a full effective tax rate in 1994. As a result of the higher tax provision, income from continuing operations in 1994 of $19.2 million ($.74 per common share) declined from the 1993 earnings level of $23.5 million ($.93 per common share). The higher proportionate decline in earnings per common share than otherwise indicated by the level of decline in income from continuing operations was due to higher average common and common equivalent shares outstanding. This higher level of shares was a result of the conversion of the Company's convertible preferred stock and a portion of its convertible debentures into common shares during the latter part of 1993. Mobile Communications
(In millions) 1995 1994 1993 Sales $ 306.6 $ 213.5 $ 183.6 Operating income 55.9 39.9 34.6 Identifiable assets 277.9 195.1 184.7 Capital expenditures 16.8 6.5 6.4 Depreciation 8.3 3.6 2.7 ========================================================
Sales of systems products increased $19 million (25%) to $95.1 million while in 1994 sales grew $13.7 million (22%) to $76.1 million. Sales in 1993 were $62.4 million. The increase in sales is largely attributable to the addition of FOREM's repeater products which added $16 million of sales in 1995. In addition, demand for the Company's Extend-A-Cell and microcell products was strong; however, the emphasis in sales has, as anticipated, shifted from domestic to international markets. Increased sales in the international markets in 1995 more than offset a decline in domestic sales. The Company expects international sales growth of systems products to outpace domestic growth in 1996. The Company introduced its new SmartCell product in the latter part of 1995, which is anticipated to provide incremental sales in 1996. In 1994, the domestic market continued a strong build-out of cellular systems, particularly in rural areas; however, during the latter part of 1994, the Company began to see indications that domestic demand was peaking which, as indicated above, was realized in 1995. Site management and other non-antenna products sales increased $59.9 million, to $112.9 million, over the 1994 levels of $53.0 million and 1993 sales of $49.1 million. The FOREM acquisition in 1995 accounted for $39 million of the increase in sales. In December 1994, the Company acquired a 40% interest in FOREM and subsequently increased its ownership to 80% in early 1995. Beginning February 1, 1995, the Company consolidated the results of operations of FOREM; accordingly, results of operations include those of FOREM for the nine months ended October 31, 1995. FOREM's results of operations are included on a two-month lag basis in order to facilitate the timely preparation of financial statements. (Also, see Note 9 of Notes to Consolidated Financial Statements.) The inclusion of FOREM is expected to expand the overall international market share as the Allen Telecom Group companies share marketing and product strategies. In 1994, sales of site management products increased $3.9 million (8%) over 1993. While the Company achieved some success with new customers, sales were negatively impacted by price reductions taken on certain of its filter products in 1994. Sales of the mobile and base station antennas product line increased $5.1 million (7%) to $73.8 million in 1995, which increase was to a lesser degree than 1994, where sales grew $11.5 million to $68.7 million (20%) over 1993's level of $57.2 million. The base station antenna business performed well in 1995 as a result of the upgrading of base stations from analog to digital technology, which was often accompanied by upgraded new antennas, and penetration of new export markets, China in particular. The frequency planning, systems design and related services product line grew significantly in 1995 as sales increased $9.1 million (58%) to $24.8 million. This is as compared to a $.8 million (5%) increase in 1994 to $15.7 million. Sales in 1993 were $14.9 million. The 1995 sales increase reflects the high demand for engineering and consulting services for personal communication systems ("PCS"). This business, operated by the Company's Comsearch division, does consulting work with nearly all major PCS operators. As a result, this business should 32 20 Management's Discussion and Analysis of Financial Condition and Results of Operations continue to see excellent sales growth throughout 1996. The modest increase in sales in 1994 was related primarily to higher frequency planning services pertaining to the build-out of digital cellular systems. During 1995, international sales of the Company's Mobile Communications segment increased substantially and is now more than 50% of total sales. The Company's export sales from the U.S. are primarily to major wireless telephony companies, and are typically payable in U.S. dollars. FOREM's sales are primarily in Europe to major European OEMs and cellular or PCS operators in local currencies. The Company sees no significantly greater risk as a result of the greater proportion of international business. Operating income of the Mobile Communications segment increased to $55.9 million in 1995 as compared with $39.9 and $34.6 million in 1994 and 1993, respectively. The increase in operating income in 1995 is primarily due to the acquisition of FOREM, which contributed $15.3 million to operating income. Domestic operating income was adversely affected by significantly higher research and development, new product and software development costs for new PCS products and the next generation of SmartCell products, as well as lower margins on systems products. The increase in operating income in 1994, compared with 1993, reflects the growth in sales and would have been higher except that this segment incurred charges of $2.0 million relating to certain telecommunication venture investments. The minority interests as set forth in the Consolidated Statements of Income of $3.0, $.5 and $.5 million for 1995, 1994 and 1993, respectively, relate entirely to the Mobile Communications segment. The substantial increase in 1995 relates to the outstanding 20% minority ownership interest in FOR.E.M. S.p.A. and a 38% minority interest in its subsidiary, Mikom G.m.b.H. Centralized Automotive Emissions Inspections
(In millions) 1995 1994 1993 Sales $ 8.8 $ 2.8 $ 2.7 Operating loss (2.9) (1.2) (1.0) Identifiable assets 47.3 14.8 9.1 Capital expenditures 7.7 5.9 .7 Depreciation .6 .6 .5 ====================================================
This business segment is operated by the Company's MARTA Technologies, Inc. ("MARTA") subsidiary. In 1994 and 1993, MARTA's sole source of revenue was its Jacksonville, Florida emissions testing program. In 1993, MARTA was awarded emissions testing contracts for the State of Maryland and the El Paso region of Texas, and in 1994, was awarded programs for the Cincinnati region of Ohio and in Northern Kentucky. The Maryland program, originally scheduled to begin operations on January 1, 1995, was delayed and revenue generating operations began on May 1, 1995. This program accounted for the increase in sales in 1995 over 1994. MARTA's contract with the State of Texas was, as discussed more fully below, officially terminated in January 1996. On February 1, 1995, this program had been suspended prior to start-up (along with similar programs for another contractor in Dallas and Houston). The Cincinnati program officially began full revenue generating operations on January 1, 1996 and should begin to favorably affect operating results in 1996 with revenues anticipated to be in the range of $10-$11 million. The Northern Kentucky program, also originally scheduled to begin operations on January 1, 1996, was delayed by the State in early 1995 and continues to remain uncertain as the State reviews its options for implementation of an emissions inspection program. In the latter part of 1995, Kentucky and MARTA re-initiated negotiations for a nine to ten year program; these negotiations are continuing. As indicated above, MARTA's contract with the State of Texas was terminated, which allows the Company to formally proceed with the settlement and damage provisions set forth in its contract with the State. The Company continues to believe that its contract provides for appropriate compensation, and anticipates filing a claim with the State early in 1996. The recorded carrying value of its investment in the El Paso program is approximately $7.9 million at December 31, 1995. Although MARTA continues to incur certain costs (in particular, interest on the carrying value of its investment), these costs are, for financial reporting purposes, being expensed as incurred and will be included in the claim filed with the State. MARTA will pursue all remedies available to protect its interest regarding its investment in the program; however, it is not possible at this time to predict the ultimate outcome of the settlement process or the timing of the receipt of any funds related thereto which would be subject to appropriation by the State of Texas. It is possible that this process would continue into fiscal year 1997 before a resolution is reached. Programs for emissions testing as mandated by the Federal Environmental Protection Agency ("EPA") pursuant to the 1990 amendments to the Federal Clean Air Act continue to be hampered by an unsettled political climate and various implementation problems which have delayed programs previously awarded and the bidding and awarding of new programs. Even with respect to MARTA's existing operations in Jacksonville, Maryland and Cincinnati, there exists proposed legislation, or the discussion of legislation, to change, amend or cancel programs. Given recent history, both for MARTA and other industry contract operators, there is no certainty that the future might not bring substantial changes in this business. However, several states, such as California, Georgia and New Jersey, appear to be moving forward with the bidding of new emissions test programs. MARTA believes it is well positioned, both in terms of experience and financial viability, to be a significant competitor in the centralized emissions testing industry. MARTA's operating losses reflect the incurrence of bidding costs and the build-up in organization structure for future programs. Results for 1995 were also adversely affected by start-up problems in Maryland and Texas. In 1994, the loss is offset, in part, by a $1.1 million gain from the construction phase of the Maryland program, relating primarily to the interest savings from financing the design and construction of facilities. The increase in identifiable assets in 1995 relates principally to the cost of equipment and the capitalization of the leased facilities, pursuant to a capitalized lease obligation for the Cincinnati, Ohio program. 21 Management's Discussion and Analysis of Financial Condition and Results of Operations
Financing Costs (In millions) 1995 1994 1993 Interest and financing expense: Interest expense $ (3.2) $ (2.5) $ (3.2) Interest income 1.4 1.2 1.1 ========================================================
Interest expense increased in 1995, compared with 1994, due primarily to the acquisition and inclusion of FOREM. Higher interest income relates to the investment of funds generated late in 1994 and invested throughout 1995 and interest income of FOREM offset, in part, by the elimination of interest income on the note received in the sale of the Company's automotive diagnostic equipment business in 1993. Interest expense declined in 1994, compared with 1993, due to the conversion of the Company's convertible subordinated debentures into common stock during the third quarter of 1993 and lower interest rates. The increase in interest income in 1994 reflects an increase in investment income pertaining to the generation of cash from operations offset, in part, by lower interest income earned on the proceeds of a note received in the sale of the Company's automotive diagnostic equipment business in 1993. This note (which was prepaid in May 1994) bore interest at a higher rate than subsequent investment yields. During 1995 and 1994, a majority of the Company's domestic cash was invested in tax-exempt securities, which has the impact of lowering the net interest yield as compared with comparable pre-tax instruments.
General Corporate (In millions) 1995 1994 1993 General corporate expenses, net $ (3.4) $ (6.7) $ (6.8) Corporate identifiable assets 38.4 73.5 55.9 ============================================================
Lower general corporate expenses in 1995, as compared with 1994, reflects principally significantly lower amortization of unearned compensation relating to restricted stock plans, which amounted to $.4 million in 1995 as compared with $3.1 and $1.3 million in 1994 and 1993, respectively, as well as lower general corporate insurance costs. In 1996, the amortization of unearned compensation is expected to more closely approximate the 1995 amount. General corporate expenses are net of income from a non-competition agreement in the amount of $1.6, $1.8 and $.8 million in 1995, 1994 and 1993, respectively. The agreement pursuant to which these payments are made expires in June 1996. The slight decline in general corporate expenses in 1994, as compared with 1993, reflects generally lower corporate office expenses and the higher aforementioned non-competition payments, offset, in part, by the increased amortization of unearned compensation on restricted stock. Corporate identifiable assets consist of cash, unliquidated assets remaining from the sale of businesses and other general corporate assets. The decline in Corporate assets in 1995 from 1994 relates primarily to the reduction in cash utilized to finance the growth of the business. The increase in assets in 1994, compared with 1993, related principally to increased cash generated from profitable operations and the collection of an outstanding $19.7 million note received from the sale of the automotive diagnostic equipment business in 1993.
Income Taxes ($ millions) 1995 1994 1993 Provision for income taxes $ 19.3 $ 11.0 $ .7 Effective tax rate 40.3% 35.7% 2.7% ======================================================
The effective tax rate in 1995 is higher than 1994 due in large measure to the inclusion of FOREM, which carries a tax burden of approximately 55%, offset, in part, by the tax benefits attributable to the Company's foreign sales corporation. In 1994, the Company began accruing U.S. Federal income taxes at the full statutory rate as a result of having recognized all of its remaining tax loss carryforwards in 1993. The lower tax rate in 1993 reflects the benefit of utilizing such U.S. net operating loss carryforwards to reduce U.S. income tax expense, offset, in part, by the impact of state and local taxes. The 1993 tax provision was further reduced by approximately $1.1 million ($.04 per common share), representing the tax benefit of the Company's remaining U.S. net operating loss carryforwards. Such benefit was subsequently realized in 1994. In addition, the Company has recorded certain other deferred tax assets which were offset against the excess of cost over the net assets of businesses acquired ($1.3 million in 1994 and $6.2 million in 1993) and other deferred tax assets relating to the bargain purchase element of employee stock option exercises which were credited to stockholders' equity of approximately $.5, $.1 and $1.6 million in 1995, 1994 and 1993, respectively. With the inclusion of FOREM for the full year 1996, which carries a high tax rate on income, it is quite possible the effective tax rate in 1996 could exceed that of 1995. See Note 7 of Notes to Consolidated Financial Statements for additional information. Other Information Spin-off of TransPro Inc. On September 29, 1995, the Company completed the spin-off of its automotive and truck products business (including its GO/DAN Industries joint venture) to a newly formed public company, TransPro, Inc. (the "Spin-off"). The primary purpose of the Spin-off was to enable both the Company and TransPro to independently pursue their own strategies and objectives. The Company recognized that no significant synergies existed between the Company and TransPro in terms of their respective operations, customer base or distribution networks. The Company is currently employing a business strategy that involves, among other things, the expansion of its telecommunications equipment business, through both strategic acquisitions and capital expenditure programs. In its pursuit of strategic acquisitions, the Company believes that the Spin-off will enable it to use its common stock as an acquisition currency, thereby effectively reducing the cost of such acquisitions to the Company. The Spin-off also will enable TransPro to independently pursue its own business strategies and objectives, and establish its own criteria for making capital investments and/or strategic acquisitions. In addition, TransPro will gain an independent, direct access to the capital markets. 22 Management's Discussion and Analysis of Financial Condition and Results of Operations This transaction was accounted for as a discontinued operation in the Company's Consolidated Statement of Income. See Note 9 of Notes to Consolidated Financial Statements. Inflation The overall impact of the low rate of inflation in recent years has had no significant impact on the Company. 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 5 of Notes to Consolidated Financial Statements for additional information.
Liquidity and Capital Resources ($ millions) 1995 1994 1993 Total Debt $ 55.8 $ 45.1 $ 52.6 Stockholders' equity 210.4 224.2 195.2 Debt to equity ratio .3:1 .2:1 .3:1 ==================================================
In 1995, the Company had a net cash utilization of $.6 million from continuing operations as compared with a cash generation of $46.6 and $6.0 million in 1994 and 1993, respectively. The decline in cash generation in 1995 as compared with 1994, despite an increase in income from continuing operations to $25.5 million from $19.2 million, reflects a $42 million investment in working capital to support sales growth, particularly in Europe and international markets, as well as approximately $19 million in income tax payments. In 1995, the Company also invested nearly $36 million in capital expenditures (Mobile Communications and Centralized Emissions Testing segments) and software development costs for new products, particularly in the PCS area. All of these were financed through the use of internally generated funds and available cash investments. The significant cash generation in 1994, as compared with 1993, reflects the strength of earnings, as well as the one-time cash savings attributable to the utilization of remaining U.S. net operating loss carryforwards to reduce cash tax payments. These loss carryforwards contributed approximately $15.5 million to cash flow. Further, the Company received $19.7 million of proceeds from a note received in connection with the sale of a business in 1993. While the Truck Products business was a positive contributor to cash flow, the Company does not anticipate that the Spin-off will have any affect on liquidity or capital resources. The Spin-off was accounted for as a dividend ($50.7 million) and is the reason for the decline in stockholders' equity from 1994 to 1995. With respect to strategic acquisitions, the Company believes the Spin-off will enable it to use its common stock as an acquisition currency. Further, the Board of Directors has decided to discontinue cash dividends on common stock for the foreseeable future after payment of the September 1995 dividend, in order to retain cash for investments to support growth in the Mobile Communications segment. As described in Note 2 of Notes to Consolidated Financial Statements, the Company entered into a new revolving credit agreement which provides for borrowings of up to $75 million for the Company and $60 million for MARTA, none of which were utilized at December 31, 1995. The agreement expires in December 1999 and provides for continued financial flexibility to fund growth and expansion. The future capital needs of the Company will be directed toward continued penetration and expansion in the wireless communications industry, both internally and through strategic alliances and acquisitions. Capital expenditures in 1995 for the Mobile Communications segment aggregated $16.8 million and are estimated to approximate $18 million in 1996, of which $2.5 million was committed at December 31, 1995. The significant increase in capital expenditures in 1995 reflects the increase in productive capacity necessitated by the increase in sales volume, both domestically and at FOREM. The potential capital requirements with regard to MARTA are dependent upon the successful award of programs, and their scheduled start-up dates. In 1995, MARTA substantially completed the Cincinnati, Ohio program and all but two of the thirteen test facilities were brought on-line by December 31, 1995; MARTA expects to incur approximately $1.0 million to complete the start-up of these facilities. The land and building for the Cincinnati program were acquired, constructed and financed by an independent third party developer. MARTA has leased the facilities from the developer under a ten-year capital lease in the amount of $16.4 million, which accounts for the Company's increased debt level over 1994. MARTA is presently considering the use of low cost (approximately 7%) bond financing in the amount of approximately $11 million to finance its equipment and start-up cost investment for the Cincinnati program to be repaid over the remaining program life. At December 31, 1995 MARTA had no other significant commitments with respect to program expenditures. The Company has $60 million of credit lines available for MARTA and may seek third party asset based financing in respect to future programs. The Company believes that continued profitability and available unused credit lines provide sufficient liquidity to fund future growth, expansion and acquisitions. 23 SHAREHOLDER INFORMATION Exchange Listings Common Stock (Ticker Symbol - ALN) New York Stock Exchange Pacific Stock Exchange Transfer Agent and Registrar Harris Trust Company of New York P.O. Box A3504 Chicago, Illinois 60690 Stock Price Range
(dollars per share) 1991 $ 4.50 $10.00 1992 $ 9.44 $15.00 1993 $12.94 $29.19 1994 $13.50 $25.63 1995 $21.25 $39.38
Market Price Range of Common Stock
1995 1994 1993 High Low High Low High Low 1st Quarter 25 1/2 21 1/4 18 3/4 13 1/2 17 1/16 12 15/16 2nd Quarter 29 5/8 22 0/0 18 3/8 14 0/0 23 1/16 16 0/0 3rd Quarter 39 3/8 29 1/8 22 1/4 15 3/4 29 3/16 20 3/4 4th Quarter 35 21 7/8 25 5/8 19 3/8 29 15 1/4 ----------------------------------------------------------------
Auditors Coopers & Lybrand L.L.P. 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. Information concerning the Company can also be found on the Internet at http://www.allengroup.com. 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 nagard to any position for which the employee or applicant for employment is qualified. Stockholders As of March 1, 1996, The Allen Group Inc. had outstanding 26,577,795 shares of Common Stock owned by 2,139 holders of record. Aronnal Stockholders' Meeting The Annual Meeting of Stockholders will be held at the Cleveland Marriott Society Center, 127 Public Square, Cleveland, Ohio on Tuesday, April 23, 1996 at 9:30 a.m. Dividends Declared On Common Stock
1995 1994 1993 1992 1991 1st Quarter $.05 $.04 $.03 $.025 - 23d Quarter $.05 $.04 $.03 $.025 - 3rd Quarter $.05 $.04 $.03 $.025 $.023 4th Quarter - $.05 $.04 $ .03 $023 - -----------------------------------------------------------
24 Board of Directors GEORGE A. CHANDLER ALBERT H. GORDON JOHN F. MCNIFF Business Consultant Advisory Director Vice President - Finance Princeton, New Jersey Investment Banking Division Dover Corporation, of PaineWebber Incorporated, New York, New York PHILIP WM. COLBURN New York, New York Chairman of the Board ROBERT G. PAUL The Allen Group Inc. WILLIAM O. HUNT President and Chairman of the Board Chief Executive Officer, JILL K. CONWAY Chief Executive Officer The Allen Group Inc. Visiting Scholar, and President, Intellicall Inc. Program in Science, and Vice Chairman of the Board, CHARLES W. ROBINSON Technology and Society, Hogan Systems, Inc., Chairman, Massachusetts Institute of Technology, Dallas, Texas Robinson & Associates Inc., Cambridge, Massachusetts Sante Fe, New Mexico J. CHISHOLM LYONS Vice Chairman of the Board, WILLIAM M. WEAVER, JR. The Allen Group Inc., Limited Partner Emeritus Counsel to Smith Lyons, Alex, Brown & Sons Incorporated, Toronto, Ontario, Canada New York, New York The Company and its Board of Directors note with sadness the untimely passing in 1995, of its long time director, colleague and friend Richard S. Vokey. He served on the Board of Directors for 18 years. We shall miss him. MANAGEMENT PHILIP WM. COLBURN ROBERT A. CAMERON PETER MAILANDT Chairman of the Board President, President, Site Products Division Decibel Products Division ROBERT G. PAUL President and JERRY W. CARTER GOFFREDO MODENA Chief Executive Officer President, Managing Director MARTA Technologies, Inc. FOR.E.M.S.p.A. ROBERT A. YOUDELMAN Senior Vice President- Finance TERRY N. GARNER MICHAEL K. MORIN Chief Financial Officer President, President, Grayson Electronics Company Comsearch MCDARA P. FOLAN, III Vice President, Secretary F. KIM GORYANCE CHRISTOPHER H. MORTON and General Counsel President, President, Antenna Specialists Division Allen Telecom Systems Division JAMES L. LEPORTE, III Vice President, Treasurer and Controller JOHN P. KEPPLE KARL-HEINZ SCHMIDT Chief Operating Officer Managing Director, ERIK H. VAN DER KAAY and Executive Vice President Mikom G.m.b.H. Vice President and President of Allen Telecom Group, Inc. of Allen Telecom Group, Inc.
EX-21 11 EXHIBIT 21 1 Exhibit 21 ---------- SUBSIDIARIES OF THE ALLEN GROUP INC. ------------------------------------ The following is a list of the subsidiaries of The Allen Group Inc. (Delaware, 02-03-69), 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.
State/Country Name of Corporation of Incorporation Date % - ------------------- ---------------- ---- -- The Allen Group Canada Limited (1) Ontario, Canada 04-19-72 100 The Allen Group International, Inc. (1) Delaware 07-19-73 100 The Allen Group GmbH (1) Germany 09-29-70 100 The Allen Group Internat'l Sales Corp. Barbados 09-15-94 100 Allen Telecom Canada, Inc. (2) Ontario 04-14-93 80 Allen Telecom Group, Inc. Delaware 10-26-88 100 Alven Capital Corporation (1) (3) Delaware 11-10-93 57.26 Antenna Specialists Co., Inc. Delaware 10-07-88 100 Antespec, S.A. de C.V. Mexico 11-14-88 100 Decibel Mobilcom GmbH (1) Germany 07-28-90 100 Decibel Mobilcom Limited (1) England 01-31-91 100 Grayson Electronics Company (4) Virginia 09-03-86 80 RF Micro Devices, Inc. North Carolina 02-27-92 12.4 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 Orion Industries, Inc. Japan (1) Japan 09-73 100 Orion Industries Taiwan Limited (1) Taiwan 10-73 100 Allen Telecom Group (Italia) S.r.l. Italy 11-14-94 100 FOR.E.M. S.p.A. (5) Italy 10-10-72 80 FOREM France S.a.r.l. (6) France 1993 96 FOREM U.K. Ltd. (7) U.K. 1988 65 MIKOM G.m.b.H. (8) Germany 05-07-85 62 Mitras Ltd. (9) Hungary 1992 60 Allen Telecomunicadoes do Brasil Ltda. (10) Brazil 11-95 100 MARTA Technologies, Inc. Delaware 10-14-92 100 Allen Telecom Group Limited (1) U.K. 05-08-72 100 Turnkey Wireless Solutions, Inc. Delaware 10-31-94 10 276017 Ontario Limited (1) Ontario, Canada 09-11-73 100
2 (1) These subsidiaries are not significant in the aggregate and are no longer active. (2) 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. (3) On a fully diluted basis, 57.26% of the outstanding capital stock is owned by Allen Telecom Group, Inc., 19.35% is owned by Rose Investors and 23.39% is owned by Philadelphia Ventures. (4) 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. (5) 80% of the outstanding capital stock of this subsidiary is owned by Allen Telecom Group (Italia) S.r.l., which also owns options to acquire the remaining 20%. (6) 96% of the outstanding capital stock of this subsidiary is owned by FOR.E.M. S.p.A. and the remaining 4% is owned by senior management of FOREM France S.a.r.l. (7) 65% of the outstanding capital stock of this subsidiary is owned by FOR.E.M. S.p.A. and the remaining 35% is owned by senior management of FOREM U.K. Ltd. (8) 62% of the outstanding capital stock of this subsidiary is owned by FOR.E.M. S.p.A. and the remaining 38% is owned by the managing director of MIKOM G.m.b.H. (9) 60% of the outstanding capital stock of this subsidiary is owned by MIKOM G.m.b.H. and the remaining 40% is owned by senior management of Mitras Ltd. (10) 95% of the outstanding capital stock of this subsidiary is owned by Allen Telecom Group, Inc. and the remaining 5% is owned by The Allen Group Inc. EX-23 12 EXHIBIT 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. 33-58951, 33-53499, 33-53487, 33-52420, 33-8658 and 2-99919) and the related Prospectuses of The Allen Group Inc. of (a) our report dated February 16, 1996 on our audits of the consolidated financial statements of The Allen Group Inc. as of December 31, 1995 and 1994 and for the years ended December 31, 1995, 1994, 1993, which report has been incorporated by reference in this Annual Report on Form 10-K from the 1995 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 30 therein, and (b) our report dated February 16, 1996 on our audits of the financial statement schedule for the years ended December 31, 1995, 1994 and 1993 of The Allen Group Inc., which report appears on page 14 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". COOPERS & LYBRAND L.L.P. Cleveland, Ohio March 29, 1996 EX-27 13 EXHIBIT 27
5 1,000 YEAR DEC-31-1995 DEC-31-1995 15,706 0 83,247 (1,232) 70,152 177,814 98,036 (20,912) 363,565 84,443 47,058 29,595 0 0 180,782 363,565 315,377 315,377 (196,119) (196,119) (69,540) (80) (1,821) 47,817 (19,270) 25,520 7,119 0 0 32,639 1.22 1.22
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