-----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, U7swqT5GYtbP6UaGoZ6bjONyCa5xO5amBfBFLCUZndPQP83mwRmcn3FKl4gTB5P0 Xh/mjT31bQcgkNzGjgoRBQ== 0000950152-98-002155.txt : 19980323 0000950152-98-002155.hdr.sgml : 19980323 ACCESSION NUMBER: 0000950152-98-002155 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980320 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLEN TELECOM INC CENTRAL INDEX KEY: 0000003721 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 380290950 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-06016 FILM NUMBER: 98569367 BUSINESS ADDRESS: STREET 1: 25101 CHAGRIN BLVD # 350 CITY: BEACHWOOD STATE: OH ZIP: 44122-5619 BUSINESS PHONE: 2167655818 FORMER COMPANY: FORMER CONFORMED NAME: ALLEN GROUP INC DATE OF NAME CHANGE: 19920703 10-K405 1 ALLEN TELECOM INC. FORM 10-K405 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- FORM 10-K ANNUAL REPORT 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 For the fiscal year ended December 31, 1997 ----------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------- ------------- Commission file number 1-6016 --------- ALLEN TELECOM 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 Exchange Preferred Stock Purchase Rights New York Stock Exchange Pacific Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days: Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] As of March 4, 1998, there were 27,291,743 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 4, 1998) of the Registrant's Common Stock held by nonaffiliates of the Registrant was $443,306,634. Exhibit Index is on pages 17 to 25 of this Report. DOCUMENTS INCORPORATED BY REFERENCE Annual Report to Stockholders for fiscal year ended December 31, 1997 incorporated by reference into Parts I, II and IV hereof. Proxy Statement dated March 19, 1998 for Annual Meeting of Stockholders to be held May 1, 1998 incorporated by reference into Part III hereof. 2 ALLEN TELECOM INC. ------------------ FORM 10-K --------- (For the fiscal year ended December 31, 1997) TABLE OF CONTENTS -----------------
Page ---- PART I Item 1 - Business 3 Item 2 - Properties 7 Item 3 - Legal Proceedings 7 Item 4 - Submission of Matters to a Vote of Security Holders 7 Executive Officers of The Registrant 8 PART II Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters 10 Item 6 - Selected Financial Data 10 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 7A - Quantitative and Qualitative Disclosures about Market Risk 10 Item 8 - Financial Statements and Supplementary Data 10 Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 10 PART III Item 10 - Directors and Executive Officers of the Registrant 11 Item 11 - Executive Compensation 11 Item 12 - Security Ownership of Certain Beneficial Owners and Management 11 Item 13 - Certain Relationships and Related Transactions 11 PART IV Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K 12 SIGNATURES 15 EXHIBIT INDEX 17
-2- 3 ALLEN TELECOM INC. ------------------ FORM 10-K --------- PART I ------ ITEM 1 - BUSINESS ----------------- GENERAL - ------- Allen Telecom Inc. ("Allen Telecom", 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 February 28, 1997, the name of the Company was changed from The Allen Group Inc. to Allen Telecom Inc., upon the merger of its wholly owned subsidiary, Allen Telecom Group, Inc. with and into the Company. There have been no 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. The Company is a major supplier of site management products, system expansion and optimization products, mobile and base station antennas, and engineering services to the worldwide wireless communications market. Many of the major wireless system infrastructure vendors incorporate components or subsystems from Allen Telecom's Worldwide Site Products division. The Company is the world's largest supplier of cell site subsystems, supplying many different customized modules that are incorporated in original equipment manufacturer ("OEM") cell sites. Site products include sophisticated filters which ensure that incoming signals are received and outgoing signals are transmitted clearly and without interference, duplexers, which are stationed at most cell site transceivers to allow one antenna to be used for both transmission and reception of radio signals simultaneously, and low noise, tower mounted, multicarrier and power amplifiers which enhance the reception of weak signals or boost outgoing signals. Allen Telecom also manufacturers auto-tune combiners, which adjust instantly and automatically to new frequencies as the system is modified, among other products. The Company's Systems products support both coverage and capacity enhancement for GSM, TDMA, CDMA and analogue wireless carriers. Products include high power and low power repeaters to fill coverage gaps caused by obstructions such as mountains, tunnels, and buildings, and fiber optic-based radio frequency distribution systems such as its Britecell(TM) product. Indoor coverage systems are provided using coaxial cable or fiber as a means of distribution, including its Distributed Indoor Coverage Extension System ("DICE(TM)"), as well as a cable-based indoor system for smaller, lower cost installations such as in its CableStar(TM) product. The Company also has developed a range of test equipment and post processing software to test and optimize wireless networks such as its Analyzer(TM), Surveyor(TM) and Illuminator(TM) products. Allen Telecom has also increased its investment to develop and bring to market a geolocation technology to provide carriers with the equipment and software to locate subscribers in their system who dial 911 in emergency situations. Allen Telecom is the leading North American supplier of base station antennas to the global wireless OEMs and wireless service providers. Products include antennas in frequency bands to cover all of the traditional analogue cellular networks as well as the newer digital services and PCS. New models for the PCS market include, for example, the Decibel TripleTree(TM) which incorporates all six of the antennas required for a three sector site all in a single 12 inch diameter housing. The Company is a leading supplier of mobile automobile antennas, which operate on both cellular and PCS frequencies, as well as antennas for Global Positioning System ("GPS") mapping. Allen Telecom's Frequency Planning, Systems Design and Related Services product line is a leading supplier of frequency planning and coordinating services as well as system design and field engineering services -3- 4 for the wireless and PCS markets. The Company provides consulting services to assist with determining the appropriate system in light of the coverage required, topography, and area demographics. Allen Telecom's engineering expertise in spectrum sharing, microwave interconnectivity, microwave migration and cell system design has enabled it to obtain orders from most major PCS carriers. The Company's spectrum sharing software, comprised of IQ.Clear(R), currently is licensed in most major domestic PCS markets, and its IQ.Link(TM) software for microwave interconnection is operational in several European PCS systems. The Company's IQ.Analyzer(TM) product allows carriers to optimize networks as a PC-based post-processing and field data analysis tool. International sales of the Company are approximately 60% of its total sales. The Company's export sales from the United States are primarily to major wireless telecommunications companies and are typically payable in U.S. dollars. European-based sales are primarily to major European OEMs and cellular or PCS operators in local currencies. The Company has sales/engineering offices in sixteen countries around the world. The Company sees no significantly greater financial risk as a result of the greater proportion of its international business than that of its domestic operations. Allen Telecom's wireless products generally are manufactured or assembled by the Company. Outside of the United States, the Company's manufacturing operations are in Italy, Germany, France, Mexico and Australia. Allen Telecom's European operations outsource a substantial portion of product manufacturing labor to third parties. Wireless telecommunications engineering services are provided principally at one central facility and at customer locations. Products are sold directly through commissioned sales employees or through distributors and sales representatives to OEMs, common carriers and other large users of telecommunications products. In 1996, the Company decided to exit the centralized automotive emissions testing business operated by its MARTA Technologies, Inc. subsidiary. The Company determined that the disposition of this business will allow it to fully devote management and financial resources to its expanding wireless communications product lines. Additional information regarding this development is incorporated herein by reference to Note 9 "Acquisitions and Dispositions," of the Notes to Consolidated Financial Statements" on pages 24 and 25, and to the "Discontinued Operations" section of "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 30 of Allen Telecom's 1997 Annual Report to Stockholders, a copy of which is filed as Exhibit 13 to this Annual Report. WORKING CAPITAL - --------------- The Company's products consist of 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 increase in sales, has increased the working capital needs of the Company's business. In 1996, the Company entered into an agreement and made an equity investment in Nextwave Inc. ("Nextwave") in the amount of $5,000,000. Nextwave has agreed to purchase from the Company $50,000,000 of equipment and services through December 31, 2001. In connection with this purchase commitment, subject to certain preconditions that have not yet occurred, the Company will make available up to $50,000,000 of product financing in the form of secured, interest-bearing loans to be used solely to finance the purchase price of the equipment and services supplied by the Company, of which approximately $2,000,000 has been purchased and financed to date. The Company believes that its existing credit lines and continued positive cash flow from operations provide sufficient flexibility for this arrangement. Additional information regarding this agreement is incorporated herein by reference to the third paragraph of Note 5 "Commitment and Contingencies" of the Notes to the Consolidated Financial Statements on Page 20 of Allen Telecom's 1997 Annual Report to Stockholders, a copy of which is filed as Exhibit 13 to this Annual Report. -4- 5 COMPETITION - ----------- In each of Allen Telecom's product lines, 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 and importers. In its other product lines, the Company believes that it is among the major manufacturers and that competition is widely distributed. Allen Telecom's principal methods of competition include performance, service, warranty, market availability, product research and development, innovation and price. In certain of its product lines, the Company has augmented its own resources through licensing agreements with companies possessing complementary resources and technologies. The demand for equipment and services is primarily a function of the development of new and expanded wireless communications systems throughout the world, and Allen Telecom's ability to develop new products and technologies related to system coverage and capacity and components for other manufacturers' wireless communications systems. MAJOR CUSTOMERS - --------------- There is no single customer the loss of which would have a material adverse effect on the Company. However, four major telecommunications equipment companies accounted for approximately 22% (none individually greater than 10%) of sales in 1997. The balance of the Company's sales were widely distributed among many customers. BACKLOG - ------- The approximate order backlog as of December 31, 1997 and 1996 are as follows (amounts in thousands):
1997 1996 ---- ---- Wireless Communications Backlog ................. $115,176 $108,741 Backlog not expected to be filled within one year (489) (1,935) -------- -------- Backlog expected to be filled in 1998 fiscal year $114,687 $106,806 ======== ========
As previously noted, the Company entered into an agreement and made an equity investment in Nextwave in the amount of $5,000,000. Nextwave has agreed to purchase from the Company $50,000,000 of equipment and services through December 31, 2001. This purchase commitment has been excluded from the above-mentioned order backlog amounts. As previously noted, the Company has decided to exit the centralized automotive emissions testing business. Total backlog for this business was approximately $119,000,000 at December 31, 1997, of which approximately $23,000,000 is expected to be filled within one year. PRODUCTION, RAW MATERIALS AND SUPPLIES - -------------------------------------- In addition to manufacturing certain products, Allen Telecom also assembles at its facilities certain components manufactured for it by non-affiliated companies. The principal materials used in the production of Allen Telecom's products are electronic components, steel, aluminum, copper and plastics. These materials are purchased regularly from several producers and have been generally available in sufficient quantities to meet Allen Telecom's requirements, although occasionally shortages have occurred. The Company believes that the supplies of materials through the end of 1998 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 -5- 6 of these items would materially affect its business considered as a whole, 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 Telecom. RESEARCH AND DEVELOPMENT - ------------------------ The Company engages in research and development activities (substantially all of which are Company-sponsored) as part of its ongoing business. The Company emphasizes the development of new technologies, products and software for the wireless telecommunications markets. Currently, these development activities are not expected to require a material investment in assets. For information concerning these expenditures, see "Research and Development Costs" in Note 1 of Notes to Consolidated Financial Statements on page 17 of Allen Telecom's 1997 Annual Report to Stockholders, a copy of which is filed as Exhibit 13 to this Annual 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 20 of Allen Telecom's 1997 Annual Report to Stockholders, a copy of which is filed as Exhibit 13 to this Annual Report. EMPLOYEES - --------- As of December 31, 1997, Allen Telecom had a total of approximately 3,300 employees. SEASONAL TRENDS - --------------- Generally, the Company's sales are not subject to significant seasonal variations; however, its sales and earnings tend to be lower in the first fiscal quarter due to lower outdoor installations of its products in the northern climates. INDUSTRY SEGMENTS, CLASSES OF PRODUCTS, FOREIGN OPERATIONS AND EXPORT SALES - --------------------------------------------------------------------------- Information relating to the Company's classes of similar products or services, foreign and domestic operations and export sales is incorporated herein by reference to "Geographic Data" in Note 8 of the Notes to Consolidated Financial Statements on pages 22 and 23, and the information presented in the charts on pages 28 and 29, of Allen Telecom's 1997 Annual Report to Stockholders, a copy of which is filed as Exhibit 13 to this Annual Report. With the opportunities presented by the rapid deployment of wireless telecommunications systems throughout the world, the Company has seen extensive growth in international markets. The Company's export sales have increased to $104 million in 1997. This growth and the growth in non-European opportunities for our European produced products have encouraged the Company to continue to expand the size and number of its international sales and service offices. In the opinion of management, any financial risks inherent in Allen Telecom's existing foreign operations and sales are not substantially different than the financial risks inherent in its domestic operations. -6- 7 ITEM 2 - PROPERTIES ------------------- At December 31, 1997, Allen Telecom's continuing operations were conducted in 37 facilities in 15 states and 18 foreign countries. Allen Telecom's wireless communications operations occupy approximately 999,000 square feet of space for manufacturing, assembly, warehousing, research and development, sales and administrative offices. Approximately 649,000 square feet are rented under operating leases. The Company's principal manufacturing facilities are located in Ohio, Texas, Virginia, Italy, Germany, France, Australia and Mexico. Information concerning the square footage of the Company's properties at December 31, 1997 is as follows (amounts in thousands):
Domestic Foreign -------- ------- Owned Leased Owned Leased Total ----- ------ ----- ------ ----- Wireless communications 168 544 182 105 999 Discontinued centralized automotive emissions testing business 26 127 -- -- 153 --- --- --- --- ----- Total 194 671 182 105 1,152 === === === === =====
Allen Telecom's machinery, plants, warehouses and offices are in good condition, and are reasonably suited and adequate for the purposes for which they are presently used and generally are fully utilized. Domestic leased facilities for the discontinued centralized automotive emissions testing business include approximately 100,000 square feet under a capital lease arrangement. In addition to the above, the Company owns a manufacturing facility of 84,000 square feet relating to a previously discontinued operation (which is leased to a third party), along with a manufacturing facility of 80,000 square feet which is not in use and is held for sale. ITEM 3 - LEGAL PROCEEDINGS -------------------------- The information required by this Item is incorporated herein by reference to the fourth paragraph of Note 5, "Commitments and Contingencies", on page 20, and the tenth and eleventh paragraphs of Note 9, "Acquisitions and Dispositions" on page 24, of the Notes to Consolidated Financial Statements of Allen Telecom's 1997 Annual Report to Stockholders, a copy of which is filed as Exhibit 13 to this Annual Report. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ------------------------------------------------------------ Not applicable. -7- 8 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 Telecom, their ages and business experience during at least the last five years. ROBERT G. PAUL - President and Chief Executive Officer; age 56. 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 former subsidiary, Orion Industries, Inc. (a predecessor of the Company's wholly owned subsidiary, Allen Telecom Group, Inc. ("ATG"), which was merged into the Company in February 1997), 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 the Company in 1974. Mr. Paul was appointed Vice President-Finance and Administration of the Antenna Specialists Company division of Allen Telecom's former subsidiary, Orion Industries, Inc. in 1976, its Vice President-Operations in 1977 and its President in 1978, while continuing as a Vice President of the Company. ERIK H. VAN DER KAAY - Executive Vice President; age 57. Mr. van der Kaay joined the Company in 1990 as President of the Antenna Specialists Company division of the Company's former subsidiary, Orion Industries, Inc., and was President of ATG from June 1993 until its merger into the Company in February 1997. He was elected Vice President of the Company in February 1993 and was promoted to Executive Vice President in February 1997. Prior to joining Allen Telecom, 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. ROBERT A. YOUDELMAN - Executive Vice President, Chief Financial Officer and Assistant Secretary; age 56. Mr. Youdelman joined the Company in 1977 as Director of Taxes and was elected Vice President-Taxation in February 1980. In December 1989, he was elected Senior Vice President-Finance, Chief Financial Officer and Assistant Secretary of the Company and was promoted to Executive Vice President in February 1997. Mr. Youdelman is an attorney. PETER G. DEVILLIERS - Vice President; age 44. Mr. deVilliers joined the Company in July 1992 upon the acquisition by the Company of Alliance Telecommunications Corporation ("Alliance"), Dallas, Texas, where he served as Vice President-Marketing and Sales since joining Alliance in March 1991. Mr. deVilliers served as Vice President-Strategic Planning for ATG upon the merger of Alliance into ATG in June 1993 until February 1997. In February 1997, he was elected Vice President of Allen Telecom. JAMES L. LEPORTE, III - Vice President, Treasurer and Controller; age 43. 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. Mr. LePorte was elected Controller of the Company in April 1988; a Vice President in December 1990; and Treasurer of the Company in September 1995. -8- 9 MCDARA P. FOLAN, III - Vice President, Secretary and General Counsel; age 39. 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 Telecom, 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 Telecom hold office until the first meeting of directors following the annual meeting of stockholders and until their successors have been elected and qualified. -9- 10 PART II ------- ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ------------------------------------------------------------------------------ The information required by this Item is incorporated herein by reference to the last paragraph of Note 2, "Financing," of the Notes to Consolidated Financial Statements on page 18, and to "Exchange Listings," "Market Price Range of Common Stock," "Dividends Declared On Common Stock" and "Stockholders" on the inside back cover of the Registrant's 1997 Annual Report to Stockholders, a copy of which is filed as Exhibit 13 to this Annual Report. ITEM 6 - SELECTED FINANCIAL DATA -------------------------------- The information required by this Item is incorporated herein by reference to "Five Year Summary of Operations" on page 32, and to "Dividends Declared on Common Stock" on the inside back cover, of the Registrant's 1997 Annual Report to Stockholders, a copy of which is filed as Exhibit 13 to this Annual 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 28 to 31 of the Registrant's 1997 Annual Report to Stockholders, a copy of which is filed as Exhibit 13 to this Annual Report. 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 made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements regarding the Company's future performance and financial results are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements. Allen Telecom's 1997 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q contain certain detailed factors that could cause the Company's actual results to materially differ from forward-looking statements by the Company, including, among others, the costs and timetable for new product development, the health and economic stability of the world and national markets, the uncertain level of purchases by current and prospective customers of the Company's products and services, the impact of competitive products and pricing, the potential impacts of the Company's attempts to sell its discontinued operations in the automotive vehicle emissions testing business, the pace and success of development of geolocation systems and the ultimate market value of the Company's investments in telecommunications ventures. ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK -------------------------------------------------------------------- This Item is not applicable for the fiscal year ending December 31, 1997 as the Company's total market capitalization is less than $2.5 billion. 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 12 to 15, to the Notes to Consolidated Financial Statements on pages 16 to 26, and to the "Report of Independent Accountants" on page 27, of the Registrant's 1997 Annual Report to Stockholders, a copy of which is filed as Exhibit 13 to this Annual Report. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON --------------------------------------------------------- ACCOUNTING AND FINANCIAL DISCLOSURE ----------------------------------- Not applicable. -10- 11 PART III -------- ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT -------------------------------------------------------- The information required by this Item relating to the Company's executive officers is included on pages 8 to 9 hereof under "EXECUTIVE OFFICERS OF THE REGISTRANT" and is incorporated herein by reference to "EXECUTIVE COMPENSATION AND TRANSACTIONS WITH MANAGEMENT - Employment, Termination of Employment and Change of Control Arrangements" on pages 14 to 16 of the Registrant's definitive proxy statement dated March 19, 1998 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 19, 1998 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 5 to 18, of the Registrant's definitive proxy statement dated March 19, 1998 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 18 to 20 of the Registrant's definitive proxy statement dated March 19, 1998 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 18 of the Registrant's definitive proxy statement dated March 19, 1998 and filed with the Securities and Exchange Commission pursuant to Section 14(a) of the Securities Exchange Act of 1934. -11- 12 PART IV ------- ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K -------------------------------------------------------------------------- (a)(1) FINANCIAL STATEMENTS OF THE REGISTRANT -------------------------------------- The Consolidated Financial Statements of the Registrant listed below, together with the Report of Independent Accountants, dated February 13, 1998, are incorporated herein by reference to pages 12 to 27 of the Registrant's 1997 Annual Report to Stockholders, a copy of which is filed as Exhibit 13 to this Annual Report. Consolidated Statements of Income for the Years Ended December 31, 1997, 1996 and 1995 Consolidated Balance Sheets at December 31, 1997 and 1996 Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements Report of Independent Accountants (2) FINANCIAL STATEMENT SCHEDULES ----------------------------- The following additional information should be read in conjunction with the Consolidated Financial Statements of the Registrant described in Item 14(a)(1) above: FINANCIAL STATEMENT SCHEDULES OF THE REGISTRANT ----------------------------------------------- Report of Independent Accountants, on page 13 of this Annual Report, relating to the financial statement schedule Valuation and Qualifying Accounts Schedule, on page 14 of this Annual Report Schedules other than the schedule listed above are omitted because they are not required or are not applicable. (3) EXHIBITS* -------- The information required by this Item relating to Exhibits to this Annual Report is included in the Exhibit Index on pages 17 to 25 hereof. (b) REPORTS ON FORM 8-K ------------------- None. - -------- *A copy of any of the Exhibits to this Annual Report will be furnished to persons who request a copy upon the payment of a fee of $.25 per page to cover the Company's duplication and handling expenses. -12- 13 REPORT OF INDEPENDENT ACCOUNTANTS --------------------------------- To the Board of Directors and Stockholders of Allen Telecom Inc.: Our report on the consolidated financial statements of Allen Telecom Inc. has been incorporated by reference in this Annual Report on Form 10-K from page 27 of the 1997 Annual Report to Stockholders of Allen Telecom 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 12 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 13, 1998 -13- 14 ALLEN TELECOM INC. ------------------ SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS --------------------------------------------- FOR THE THREE YEARS ENDED DECEMBER 31, 1997 ------------------------------------------- (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: 1997 $1,610 796 - 472 (1) $1,934 ====== === = ======== ====== 1996 $1,232 825 - 447 (1) $1,610 ====== === = ======== ====== 1995 $1,684 592 - 1,044 (1)(2) $1,232 ====== === = ======= ====== Inventory Reserves: 1997 $7,362 8,646 - 8,401 (3) $7,607 ====== ===== = ======= ====== 1996 $7,758 8,913 - 9,309 (3) $7,362 ====== ===== = ======= ====== 1995 $7,979 7,738 - 7,959 (3) $7,758 ====== ===== = ======= ======
(1) Represents the write-off of uncollectible accounts, less recoveries. (2) Includes the elimination of related balances for its Truck Products Business spun off in 1995. (3) Represents the write-off of inventory, less recoveries. 14 15 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 19, 1998 -------------- 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 19, 1998 --------------------------------------------- Robert G. Paul, President, Chief Executive Officer and Director (Principal Executive Officer) /s/ Robert A. Youdelman March 19, 1998 --------------------------------------------- Robert A. Youdelman, Senior Vice President- Finance (Principal Financial Officer) /s/ James L. LePorte March 19, 1998 --------------------------------------------- James L. LePorte, Vice President, Treasurer and Controller (Principal Accounting Officer) /s/ Philip W. Colburn March 19, 1998 --------------------------------------------- Philip W. Colburn, Chairman of the Board and Director /s/ Jill K. Conway March 19, 1998 --------------------------------------------- Jill K. Conway, Director
15 16
/s/ Albert H. Gordon March 19, 1998 --------------------------------------------- Albert H. Gordon, Director /s/ William O. Hunt March 19, 1998 --------------------------------------------- William O. Hunt, Director /s/ J. Chisholm Lyons March 19, 1998 --------------------------------------------- J. Chisholm Lyons, Director /s/ John F. McNiff March 19, 1998 --------------------------------------------- John F. McNiff, Director /s/ Charles W. Robinson March 19, 1998 --------------------------------------------- Charles W. Robinson, Director /s/ William M. Weaver, Jr. March 19, 1998 --------------------------------------------- William M. Weaver, Jr., Director
16 17
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 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).................. - (c) 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) ................. - (d) Certificate of Ownership and Merger Merging Allen Telecom Group, Inc. into The Allen Group Inc. (filed as Exhibit Number 3(i) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1996 (Commission file number 1-6016) and incorporated herein by reference).......................................... - (e) Certificate of Designation, Preferences and Rights of Series C Junior Participating Preferred Stock ...................................... - (f) By-Laws, as amended through December 4, 1997............................... 26 (4) Instruments defining the rights of security holders - (a) Rights Agreement, dated as of January 20, 1998, between the Registrant and Harris Trust Company of New York, as Rights Agent (filed as Exhibit Number 4.1 to Registrant's Form 8-K Current Report dated January 5, 1998 (Commission file number 1-6016) and incorporated herein by reference) ............................. - (b) Amended and Restated Credit Agreement, dated as of November 11, 1996, among the Registrant, MARTA Technologies, Inc., the Banks signatories thereto, and Bank of Montreal, as agent (filed as Exhibit Number 4 to Registrant's Form 10-Q Quarterly Report for the quarterly period ended September 30, 1996 (Commission file number 1-6016) and incorporated herein by reference)........................ - (c) Note Purchase Agreement, dated as of November 1, 1997, among the Registrant and the insurance companies signatories thereto.............. 42 Additional information concerning Registrant's long-term debt is set forth in Note 2, "Financing," of the Notes to Consolidated Financial Statements on page 17 of Registrant's 1997 Annual Report to Stockholders, a copy of which is filed as Exhibit 13 to this Report. Other than the Credit Agreement and Note Purchase Agreement
17 18 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) Allen Telecom 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 Telecom 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 Telecom 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) .......................................... - (e) Amendment, dated as of February 28, 1997, to the Allen Telecom 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, 1996 (Commission file number 1-6016) and incorporated herein by reference)............................................................ - (f) Form of Restricted Stock Agreement pursuant to the Allen Telecom 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)............................................... - (g) Allen Telecom 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)............................................................ -
18 19 (h) Amendment to the Allen Telecom 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).............................................................. - (i) Second Amendment to the Allen Telecom 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).. - (j) Third Amendment to the Allen Telecom 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) ....................................................................... - (k) Fourth Amendment to the Allen Telecom 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)........................................................................ - (l) Fifth Amendment to the Allen Telecom Inc. 1992 Stock Plan, dated as of February 28, 1997 (filed as Exhibit Number 10(l) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1996 (Commission File number 1-6016) and incorporated herein by reference)................................................. - (m) Form of Restricted Stock Agreement pursuant to Allen Telecom Inc. 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) ............................. - (n) Form of Restricted Stock Agreement pursuant to Allen Telecom Inc. 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)............................................. - (o) 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) ............................................ - (p) Amendment to Restricted Stock Agreements pursuant to 1992 Stock Plan (Salary Increase Deferral), dated April 25, 1997 (filed as Exhibit Number 10 to Registrant's Form 10-Q Quarterly Report for the quarter ended March 31, 1997 (Commission file number 1-6016) and incorporated herein by reference)........................................................................ -
19 20 (q) Amendment to 1992 Restricted Stock Agreements pursuant to 1992 Stock Plan (Salary Increase Deferral), dated February 17, 1998........................................................................... 141 (r) 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) ............................................. - (s) Form of Non-Qualified Option to Purchase Stock granted to certain directors of the Registrant on February 19, 1997 (filed as Exhibit Number 10(q) to Registrant's Form 10-K Annual Report for the Fiscal year ended December 31, 1996 (Commission filed number 1-6016) and incorporated herein by reference)...................................... - (t) Allen Telecom 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) ........................................................................ - (u) First Amendment, dated as of February 28, 1997, to the Allen Telecom Inc. 1994 Non-Employee Directors Stock Option Plan (filed as Exhibit Number 10(s) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1996 (Commission file number 1-6016) and incorporated herein by reference).............. - (v) Second amendment, dated as of February 17, 1998, to the Allen Telecom Inc. 1994 Non-Employee Directors Stock Option Plan......................... 142 (w) Form of Non-Qualified Option to Purchase Stock pursunt to the Allen Telecom 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................................ - (x) Allen Telecom 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) .............................. - (y) Amendment, dated as of February 28, 1997, to the Allen Telecom Inc. Amended and Restated Key Management Deferred Bonus Plan (filed as Exhibit Number 10(v) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1996 (Commission file number 1-6016) and incorporated herein by reference)............................................................... - (z) Form of Restricted Stock Agreement pursuant to the Allen Telecom Inc. 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).......................... -
20 21 (aa) 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).......................................... - (bb) 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)................................................................. - (cc) Allen Telecom Inc. Master Discretionary Severance Pay Plan, effective January 1, 1993 (filed as Exhibit Number 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).......................................... - (dd) First Amendment, dated as of February 28, 1997, to the Allen Telecom Inc. Master Discretionary Severance Pay Plan (filed as Exhibit Number 10(aa) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1996 (Commission file number 1-6016) and incorporated herein by reference).................. - (ee) Allen Telecom Inc. 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).............................. - (ff) Amendment, dated May 14, 1991, to the Allen Telecom Inc. Key Employee Severance Policy adopted by the Registrant on November 3, 1987 (filed as Exhibit Number 10(n) to Registrant's Form 1-K Annual Report for the fiscal year ended December 31, 1992 (Commission file number 1-6016) and incorporated herein by reference).......................................... - (gg) Amendment No. 2, dated February 22, 1996, to the Allen Telecom Inc. Key Employee Severance Policy (filed as Exhibit Number 10(x) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1995 (Commission file number 1-6016) and incorporated herein by reference).................. - (hh) Amendment No. 3, dated as of September 12, 1996, to the Allen Telecom Inc. Key Employee Severance Policy (filed as Exhibit Number 10 to Registrant's Form 10-Q Quarterly Report for the quarter ended September 30, 1996 (Commission file Number 1-6016) and incorporated herein by reference)....................... - (ii) Amendment No. 4, dated as of February 28, 1997, to the Allen Telecom Inc. Key Employee Severance Policy (filed as Exhibit Number 10(ff) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1996 (Commission file number 1-6016) and incorporated herein by reference)....................... -
21 22 (jj) Employment Agreement, dated June 28, 1998, 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).......................................... - (kk) 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)....................................................... - (ll) Amendment, dated as of February 26, 1991, of Employment Agreement, dated June 28, 1998, 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)....................................................... - (mm) Amendment 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)...................................... - (nn) First Amendment to Amended and Restated Post Employment Consulting Agreement, dated as of February 19, 1997, between the Registrant and Philip Wm. Colburn (filed as Exhibit Number 10(kk) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1996 (Commission file number 1-6016) and incorporated herein by reference)....................... - (oo) 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).......................................... - (pp) Amendment, dated as of August 1, 1997, of Amended and Restated Supplemental Pension Benefit Agreement, dated as of December 20, 1990, between the Registrant and Philip Wm. Colburn........................ 143 (qq) 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 106016) and incorporated herein by reference).................. - (rr) 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)....................................................... -
22 23 (ss) 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)....................... - (tt) 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)....................... - (uu) Amendment, dated as of August 1, 1997 of Supplemental Pension Benefit Agreement, dated as of December 6, 1983 between the Registrant and J. Chisholm Lyons............................... 146 (vv) 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)................................................................. - (ww) 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).................. - (xx) 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).............................. - (yy) Supplemental Target Pension Benefit Agreement, dated as of January 1, 1996, between the Registrant and Robert G. Paul (filed as Exhibit Number (kk) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1995 (Commission file number 1-6016) and incorporated herein by reference)................................................................. - (zz) Amendment, dated as of August 1, 1997, of Supplemental Target Pension Benefit Agreement, dated as of January 1, 1996, between the Registrant and Robert G. Paul.................................. 148 (aaa) 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)....................................................... -
23 24 (bbb) Allen Telecom Inc. Deferred Compensation Plan, effective December 1, 1995 (filed as Exhibit Number 10(mm) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1995 (Commission file number 1-6016) and incorporated herein by reference)...................................... - (ccc) First Amendment to the Allen Telecom Inc. Deferred Compensation Plan dated as of February 28, 1997 (filed as Exhibit Number 10(ww) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1996 (Commission file number 1-6016) and incorporated herein by reference).................. - (ddd) Allen Telecom Inc. Restoration Plan, effective January 1, 1996 (filed as Exhibit Number 10(nn) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1995 (Commission file number 1-6016) and incorporated herein by reference)................................................................. - (eee) First Amendment to the Allen Telecom Inc. Restoration Plan, dated as of February 28, 1997 (filed as Exhibit Number 10(yy) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1996 (Commission file number 1-6016) and incorporated herein by reference).............................. - (fff) Comsearch Division Supplemental Savings Plan, effective January 1, 1995 (filed as Exhibit Number 10(oo) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1995 (Commission file number 1-6016) and incorporated herein by reference).............................................................. - (ggg) First Amendment to the Comsearch Division Supplemental Savings Plan, dated as of February 28, 1997 (filed as Exhibit Number 10(aaa) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1996 (Commission file number 1-6016) and incorporated herein by reference)...... - (hhh) Form of Supplemental Target Pension Benefit Agreement, dated as of January 1, 1996, entered into by the Registrant with certain executive and divisional officers (filed as Exhibit Number 10(pp) to Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1995 (Commission file number 1-6016) and incorporated herein by reference)...................................... - (iii) Form of Amendment, dated as of August 1, 1997, of Supplemental Target Pension Benefit Agreement, dated as of January 1, 1996, entered into by the Registrant with certain executive and divisional officers................................................................... 151 (jjj) Allen Telecom Inc. Executive Benefit Plan, as amended and restated effective October 15, 1997........................................ 154 (11) Statement re Computation of Earnings Per Common Share............................... 175 (13) 1997 Annual Report to Stockholders*................................................. 176
24 25 (21) Subsidiaries of the Registrant...................................................... 212 (23) Consent of Independent Accountants.................................................. 214 (27) Financial Data Schedule............................................................. 215 * 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 12 to 27 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. 25 EX-3.F 2 EXHIBIT 3(F) 1 As amended and restated through Exhibit 3(f) December 4, 1997 ALLEN TELECOM INC. * * * * * * * B Y - L A W S * * * * * * * ARTICLE I OFFICES Section 1. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETING OF STOCKHOLDERS Section 1. All meetings of the stockholders for the election of directors shall be held in the offices of the corporation in Beachwood, Ohio, or at such other place either within or without the State of Delaware as shall be designated from time to time by the board of directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual meetings of stockholders, commencing with the year 1974, shall be held on the fourth Tuesday in April if not a legal holiday, and if a legal holiday, then on the next secular day following, at 10:00 A.M., or at such other date and time as shall be designated from time to time by the board of directors and stated in the notice of the meeting, at which they shall elect a board of directors by a plurality vote, which may or may not be by written ballot as determined by the board of directors, and transact such other business as may properly be brought before the meeting. Section 3. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting at least ten (10) days before the date of the meeting. 2 Section 4. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 5. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the chairman of the board or president and shall be called by the chairman of the board, president or secretary at the request in writing of a majority of the board of directors, or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Section 6. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called shall be given at least ten (10) days before the date of the meeting, to each stockholder entitled to vote at such meeting. Section 7. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 8. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting, at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 9. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the 2 3 statutes or of the certificate of incorporation, a different vote is required in which case such express provision shall govern and control the decision of such question. Section 10. Each stockholder shall at every meeting of the stockholders be entitled to one (1) vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three (3) years from its date, unless the proxy provides for a longer period. Section 11. Whenever the vote of stockholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action, by any provision of the statutes, the meeting and vote of stockholders may be dispensed with if all of the stockholders who would have been entitled to vote upon the action if such meeting were held shall consent in writing to such corporate action being taken; or if the certificate of incorporation authorizes the action to be taken with the written consent of the holders of less than all of the stock who would have been entitled to vote upon the action if a meeting were held, then on the written consent of the stockholders having not less than such percentage of the number of votes as may be authorized in the certificate of incorporation; provided that in no case shall the written consent be by the holders of stock having less than the minimum percentage of the vote required by statute for the proposed corporate action, and provided that prompt notice must be given to all stockholders of the taking of corporate action without a meeting and by less than unanimous written consent. Section 12. In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the board of directors. Any stockholders of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the secretary, request the board of directors to fix a record date. The board of directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the board of directors within ten (10) days following the receipt of such a request, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the board of directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of stockholders meetings are recorded, to the attention of the secretary of the corporation. Delivery shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the board of directors and prior action by the board of directors is required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the board of directors adopts the resolution taking such prior action. 3 4 Section 13. In advance of any meeting of stockholders, the board of directors may appoint three or more inspectors of election, who need not be stockholders, as to the matters to be submitted to a vote at any such meeting. The inspectors of election shall (i) determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies, (ii) receive votes or ballots, (iii) hear and determine all challenges and questions arising in any way in connection with the right to vote, (iv) count and tabulate all votes and (v) determine and report to the meeting the results. The inspectors shall take an oath that they will perform their duties impartially, in good faith, and to the best of their ability and as expeditiously as is practical. In the absence of appointment by the board of directors, the inspectors may be appointed by the chairman of the board or the president. ARTICLE III DIRECTORS Section 1. The number of directors which shall constitute the whole board shall be not less than three (3) nor more than fifteen (15), as may be designated from time to time by the board of directors. The directors shall be elected at the annual meeting of stockholders, except as provided in Section 2 of this Article, and each director elected shall hold office until his successor is elected and qualified. Directors need not be stockholders. Section 2. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent (10%) of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. Section 3. The business of the corporation shall be managed by its board of directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these by-laws directed or required to be exercised or done by the stockholders. 4 5 THE CHAIRMAN OF THE BOARD Section 4. The board of directors may choose a chairman of the board who shall hold the position until his or her successor is chosen and qualifies and who may be removed at any time by the affirmative vote of a majority of the board of directors. Any vacancy occurring in the position of chairman of the board may be filled by the board of directors. The chairman of the board shall preside at all meetings of the board of directors and stockholders, and shall have such other powers and duties as may from time to time be prescribed by the board of directors, upon written directions given to him or her pursuant to resolutions duly adopted by the board of directors. The chairman of the board shall not be an officer of the corporation. THE VICE CHAIRMAN OF THE BOARD Section 5. The board of directors may choose a vice chairman of the board who shall hold the position until his or her successor is chosen and qualifies and who may be removed at any time by the affirmative vote of a majority of the board of directors. Any vacancy occurring in the position of vice chairman of the board may be filled by the board of directors. The vice chairman of the board shall perform the duties of the chairman of the board in the absence of the chairman or in the event of his or her inability or refusal to act, and also shall perform such other duties as the board of directors may from time to time prescribe. The vice chairman of the board shall not be an officer of the corporation. MEETINGS OF THE BOARD OF DIRECTORS Section 6. The board of directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware. Section 7. The first meeting of each newly elected board of directors shall be held without other notice than this by-law immediately after and at the same place as the annual meeting of stockholders. In the event such meeting is not held at said time and place, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors or as shall be specified in a written waiver signed by all the directors. Section 8. Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board. Section 9. Special meetings of the board of directors for any purpose or purposes may be called by the chairman of the board or president, and the chairman of the board, president or the secretary shall call a special meeting upon request of two directors. If given personally, by telephone or by telegram, the notice shall be given at least the day prior to the meeting. Notice may be given by mail if it is mailed at least five days before the meeting. In the event of an emergency which in the judgment of the chairman of the board or president requires immediate action, a special meeting may 5 6 be convened without notice, consisting of those directors who are immediately available by telephone and can be joined in the meeting by conference telephone. The actions taken at such a meeting shall be valid if at least a quorum of the directors participates either personally or by conference telephone. Section 10. At all meetings of the board, a majority of the total number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the board of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 11. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. COMMITTEES OF DIRECTORS Section 12. The board of directors may, by resolution passed by a majority of the whole board, designate one (1) or more committees, each committee to consist of one (1) or more of the directors of the corporation. The board may designate one (1) or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution, shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; provided, however, that in the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Section 13. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. COMPENSATION OF DIRECTORS Section 14. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the 6 7 corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. ARTICLE IV NOTICES Section 1. Whenever, under the provisions of the statutes or of the certificate of incorporation or of these by-laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram. Section 2. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorporation or of these by-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V OFFICERS Section 1. The officers of the corporation shall be chosen by the board of directors and shall be a president, a vice-president, a secretary, a treasurer and a controller. The board of directors may also choose a chief executive officer, a chief operating officer, a chief financial officer, additional vice-presidents, including senior vice-presidents, group vice-presidents and assistant vice-presidents, and one (1) or more assistant secretaries, assistant treasurers and assistant controllers. Any number of offices may be held by the same person, unless the certificate of incorporation or these by-laws otherwise provide. Section 2. The board of directors at its first meeting after each annual meeting of stockholders shall choose a president, one (1) or more vice-presidents, a secretary, a treasurer and a controller. Section 3. The board of directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board. Section 4. The salaries of all officers and agents of the corporation shall be fixed by the board of directors. 7 8 Section 5. The officers of the corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors. Any vacancy occurring in any office of the corporation shall be filled by the board of directors. THE PRESIDENT Section 6. The president shall have general and active management of the business of the corporation and shall see that all orders and resolutions of the board of directors are carried into effect, and in the absence of the chairman of the board and the vice chairman of the board or in the event of their inability or refusal to act shall preside at all meetings of the stockholders and the board of directors. Section 7. He shall possess the power to sign all certificates, contracts and other instruments which may be authorized by the board of directors, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. CHIEF EXECUTIVE OFFICER Section 8. The board of directors may from time to time appoint a chief executive officer who shall, subject to the control of the board of directors, have responsibility for the general supervision of all aspects of the business of the corporation and corporate development, expansion and contraction and long-range planning of the corporation, including, without limitation, the acquisition, development and disposition of facilities necessary to implement the foregoing. The chief executive officer shall have and exercise such further powers and duties as may be specifically delegated or vested in him from time to time by these by-laws or by the board of directors. He shall possess the power to sign all certificates, contracts and other instruments which may be authorized by the board of directors, except where required or permitted by law to be otherwise signed and executed and except where 8 9 the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. The chief executive officer may combine his duties with those of any other office assigned to him by the board of directors. CHIEF OPERATING OFFICER Section 9. The board of directors may from time to time appoint a chief operating officer who shall, subject to the control of the board of directors, have responsibility for the operations and functioning of the corporation=s operating units and programs and the allocation among the corporation=s operating units and programs of other officers and principal executive personnel of the corporation. The chief operating officer shall also perform such other duties and have such other powers as may be assigned to him by the board of directors. He shall possess the power to sign all certificates, contracts and other instruments which may be authorized by the board of directors, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. The chief operating officer may combine his duties with those of any other office assigned to him by the board of directors. CHIEF FINANCIAL OFFICER Section 10. The board of directors may from time to time appoint a chief financial officer who shall, subject to the control of the board of directors, have responsibility for the corporation=s finances and financial planning, the allocation among the corporation=s operating units and programs of the corporation=s financial resources and the corporation=s internal accounting, auditing and financial controls. The chief financial officer shall also perform such other duties and have such other powers as may be assigned to him by the board of directors. He shall possess the power to sign all certificates, contracts and other instruments which may be authorized by the board of directors, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. The chief financial officer may combine his duties with those of any other office assigned to him by the board of directors. THE SENIOR VICE-PRESIDENTS AND VICE-PRESIDENTS Section 11. In the absence of the president or in the event of his inability or refusal to act, the senior vice-president or vice-president (or in the event there be more than one (1) senior vice-president or vice-president, the senior vice-presidents or vice-presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. They shall possess the power to sign all certificates, contracts and other instruments which may be authorized by the board of directors, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. The senior vice-presidents and vice-presidents shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE SECRETARY AND ASSISTANT SECRETARIES Section 12. The secretary shall attend all meetings of the board of directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the board of directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors or president, under whose supervision he shall be. He shall have custody of the corporate seal of the corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The board of directors may give 9 10 general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. Section 13. The assistant secretary, or if there be more than one (1), the assistant secretaries in the order determined by the board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE TREASURER AND ASSISTANT TREASURERS Section 14. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. Section 15. He shall disburse the funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the president and the board of directors, at its regular meetings, or when the board of directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation. Section 16. If required by the board of directors, he shall give the corporation a bond (which shall be renewed every six (6) years) in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. Section 17. The assistant treasurer, or if there shall be more than one (1), the assistant treasurers in the order determined by the board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE CONTROLLER AND ASSISTANT CONTROLLERS Section 18. The controller shall have the custody of the accounting records of the corporation and shall keep full and accurate accounts of the financial condition and results of operations of the corporation in books belonging to the corporation and shall maintain the accounting and internal control systems of the corporation and implement the corporation=s policies and procedures with respect to internal accounting and auditing and financial controls. 10 11 Section 19. The controller shall render to the president and the board of directors, at its regular meetings, or when the board of directors so requires, financial statements reflecting the results of operations and financial condition of the corporation. Section 20. The assistant controller, or if there shall be more than one (1), the assistant controllers in the order determined by the board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the controller or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the controller and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. ARTICLE VI INDEMNIFICATION Section 1. INDEMNIFICATION IN ACTIONS OTHER THAN IN AN ACTION BY OR IN THE RIGHT OF THE CORPORATION. To the full extent permitted by Delaware law from time to time in effect and subject to the provisions of Section 3 of this Article, the corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys= fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Section 2. INDEMNIFICATION IN ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. To the full extent permitted by Delaware law from time to time in effect and subject to the provisions of Section 3 of this Article, the corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys= fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and 11 12 except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Section 3. DETERMINATION OF CONDUCT. Any indemnification under Sections 1 and 2 of this Article (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in said Sections 1 and 2. Such determination shall be made (1) by a majority of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (2) if there are no such directors, or if such directors so direct, by independent legal counsel (compensated by the corporation) in a written opinion, or (3) by the stockholders. Section 4. RIGHT TO PAYMENT OF EXPENSES. To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys= fees) actually and reasonably incurred by him in connection therewith. Section 5. PAYMENT OF EXPENSES IN ADVANCE. Expenses (including attorneys' fees) incurred by an officer or director in defending a civil, criminal, administrative or investigative action, suit or proceeding, or threat thereof, may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Article. Such expenses (including attorneys= fees) incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the board of directors deems appropriate. Section 6. NON-EXCLUSIVITY. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. The term corporation as used in this Article shall include the Michigan predecessor of the corporation. Section 7. INSURANCE. The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the 12 13 corporation would have the power to indemnify him against such liability under the provisions of this Article or of Section 145 of the General Corporation Law. Section 8. RIGHTS TO CONTINUE. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 9. CONDITIONAL INDEMNIFICATION FOR CERTAIN PROCEEDINGS. Notwithstanding anything in this Article to the contrary, (i) no director, officer, employee or agent shall be entitled to indemnification pursuant to this Article in connection with any action, suit or proceeding initiated by such person unless the board of directors has authorized or consented to the initiation of such action, suit or proceeding, and (ii) in the event that the corporation has entered into an indemnification agreement with a director or officer, approved by the board of directors, and the terms of any provision of such agreement conflict with any terms set forth in this Article VI, the provision set forth in such agreement shall govern.. ARTICLE VII CERTIFICATES OF STOCK Section 1. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by, the chairman or vice-chairman of the board of directors or the president or a vice-president and the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation, certifying the number of shares owned by him in the corporation. Certificates may be issued for partly paid shares and in such case upon the face or back of the certificates issued to represent any such partly paid shares, the total amount of the consideration to be paid therefor, and the amount paid thereon shall be specified. Section 2. Where a certificate is countersigned (1) by a transfer agent other than the corporation or its employee, or (2) by a registrar other than the corporation or its employee, any other signature on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. 14 LOST CERTIFICATES Section 3. The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. TRANSFERS OF STOCK Section 4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. FIXING RECORD DATE Section 5. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at the meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. REGISTERED STOCKHOLDERS Section 6. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. 14 15 ARTICLE VIII GENERAL PROVISIONS DIVIDENDS Section 1. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Section 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. CHECKS Section 3. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. FISCAL YEAR Section 4. The fiscal year of the corporation begins on the first day of January and ends on the thirty-first day of December in each year. SEAL Section 5. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words ACorporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. 15 16 ARTICLE IX AMENDMENTS Section 1. These by-laws may be altered, amended or repealed or new by-laws may be adopted by the stockholders or by the board of directors, when such power is conferred upon the board of directors by the certificate of incorporation, at any regular meeting of the stockholders or of the board of directors or at any special meeting of the stockholders or of the board of directors if notice of such alteration, amendment, repeal or adoption of new by-laws be contained in the notice of such special meeting. 16 EX-4.C 3 EXHIBIT 4(C) 1 CONFORMED COPY Exhibit 4(c) ------------ ================================================================================ ALLEN TELECOM INC. $150,000,000 Senior Notes Issuable In Series $9,000,000 6.60% Senior Notes, Series 1997-A due November 14, 2003 $47,000,000 6.65% Senior Notes, Series 1997-B due November 14, 2007 $9,000,000 6.74% Senior Notes, Series 1997-C due November 14, 2007 --------- NOTE PURCHASE AGREEMENT --------- Dated as of November 1, 1997 ================================================================================ Series 1997-A PPN: 018091 A* 9 Series 1997-B PPN: 018091 A@ 7 Series 1997-C PPN: 018091 A# 5 2
TABLE OF CONTENTS Section Page - ------- ---- 1. AUTHORIZATION OF NOTES...................................................................................1 1.1. Amount; Establishment of Series.................................................................1 1.2. The Series 1997 Notes...........................................................................2 2. SALE AND PURCHASE OF SERIES 1997 NOTES...................................................................3 3. CLOSING..................................................................................................3 4. CONDITIONS TO CLOSING....................................................................................3 4.1. Representations and Warranties..................................................................3 4.2. Performance; No Default.........................................................................3 4.3. Compliance Certificates.........................................................................4 4.4. Opinions of Counsel.............................................................................4 4.5. Purchase Permitted By Applicable Law, etc.......................................................4 4.6. Sale of Other Series 1997 Notes.................................................................4 4.7. Payment of Special Counsel Fees.................................................................5 4.8. Private Placement Number........................................................................5 4.9. Changes in Corporate Structure..................................................................5 4.10. Proceedings and Documents.......................................................................5 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................5 5.1. Organization; Power and Authority...............................................................5 5.2. Authorization, etc..............................................................................6 5.3. Disclosure......................................................................................6 5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates................................6 5.5. Financial Statements............................................................................7 5.6. Compliance with Laws, Other Instruments, etc....................................................7 5.7. Governmental Authorizations, etc................................................................8 5.8. Litigation; Observance of Agreements, Statutes and Orders.......................................8 5.9. Taxes...........................................................................................8 5.10. Title to Property; Leases.......................................................................9 5.11. Licenses, Permits, etc..........................................................................9 5.12. Compliance with ERISA...........................................................................9 5.13. Private Offering by the Company................................................................10 5.14. Use of Proceeds; Margin Regulations............................................................10 5.15. Existing Indebtedness; Future Liens............................................................11 5.16. Foreign Assets Control Regulations, etc........................................................11 5.17. Status under Certain Statutes..................................................................11
i 3 5.18. Environmental Matters..........................................................................12 6. REPRESENTATIONS OF THE PURCHASERS.......................................................................12 6.1. Purchase for Investment........................................................................12 6.2. Source of Funds................................................................................13 7. INFORMATION AS TO COMPANY...............................................................................14 7.1. Financial and Business Information.............................................................14 7.2. Officer's Certificate..........................................................................17 7.3. Inspection.....................................................................................17 8. PREPAYMENT OF THE SERIES 1997 NOTES.....................................................................18 8.1. Required Prepayments...........................................................................18 8.2. Optional Prepayments with Make-Whole Amount....................................................18 8.3. Allocation of Partial Prepayments..............................................................19 8.4. Maturity; Surrender, etc.......................................................................19 8.5. Purchase of Series 1997 Notes..................................................................19 8.6. Make-Whole Amount..............................................................................19 9. AFFIRMATIVE COVENANTS...................................................................................21 9.1. Compliance with Law............................................................................21 9.2. Insurance......................................................................................21 9.3. Maintenance of Properties......................................................................21 9.4. Payment of Taxes and Claims....................................................................22 9.5. Corporate Existence, etc.......................................................................22 10. NEGATIVE COVENANTS......................................................................................22 10.1. Consolidated Indebtedness; Indebtedness of Restricted Subsidiaries.............................22 10.2. Liens..........................................................................................23 10.3. Sale of Assets.................................................................................24 10.4. Mergers, Consolidations, etc...................................................................25 10.5. Disposition of Stock of Restricted Subsidiaries................................................26 10.6. Designation of Unrestricted and Restricted Subsidiaries........................................26 10.7. Nature of Business.............................................................................26 10.8. Transactions with Affiliates...................................................................27 11. EVENTS OF DEFAULT.......................................................................................27 12. REMEDIES ON DEFAULT, ETC................................................................................29 12.1. Acceleration...................................................................................29 12.2. Other Remedies.................................................................................30 12.3. Rescission.....................................................................................30 12.4. No Waivers or Election of Remedies, Expenses, etc..............................................30 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES...........................................................30 13.1. Registration of Notes..........................................................................30
ii 4
13.2. Transfer and Exchange of Notes.................................................................31 13.3. Replacement of Notes...........................................................................31 14. PAYMENTS ON SERIES 1997 NOTES...........................................................................32 14.1. Place of Payment...............................................................................32 14.2. Home Office Payment............................................................................32 15. EXPENSES, ETC...........................................................................................32 15.1. Transaction Expenses...........................................................................32 15.2. Survival.......................................................................................33 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT............................................33 17. AMENDMENT AND WAIVER....................................................................................33 17.1. Requirements...................................................................................33 17.2. Solicitation of Holders of Series 1997 Notes...................................................34 17.3. Binding Effect, etc............................................................................34 17.4. Series 1997 Notes held by Company, etc.........................................................34 18. NOTICES.................................................................................................35 19. REPRODUCTION OF DOCUMENTS...............................................................................35 20. CONFIDENTIAL INFORMATION................................................................................36 21. SUBSTITUTION OF PURCHASER...............................................................................37 22. MISCELLANEOUS...........................................................................................37 22.1. Successors and Assigns.........................................................................37 22.2. Payments Due on Non-Business Days..............................................................37 22.3. Severability...................................................................................37 22.4. Construction...................................................................................37 22.5. Counterparts...................................................................................38 22.6. Governing Law..................................................................................38 SCHEDULE A -- Information Relating to Purchasers SCHEDULE B -- Defined Terms SCHEDULE B-1 -- Existing Investments SCHEDULE 4.9 -- Changes in Corporate Structure SCHEDULE 5.3 -- Disclosure Materials
iii 5 SCHEDULE 5.4 -- Subsidiaries of the Company and Ownership of Subsidiary Stock SCHEDULE 5.5 -- Financial Statements SCHEDULE 5.8 -- Certain Litigation SCHEDULE 5.11 -- Licenses, Permits, etc. SCHEDULE 5.14 -- Use of Proceeds SCHEDULE 5.15 -- Existing Indebtedness SCHEDULE 10.2 -- Existing Liens EXHIBIT 1.1-A -- Form of Senior Note EXHIBIT 1.1-B -- Form of Supplement EXHIBIT 1.2(a) -- Form of Series 1997-A Senior Note EXHIBIT 1.2(b) -- Form of Series 1997-B Senior Note EXHIBIT 1.2(c) -- Form of Series 1997-C Senior Note EXHIBIT 4.4(a) -- Form of Opinion of Counsel for the Company EXHIBIT 4.4(b) -- Form of Opinion of Special Counsel for the Purchasers
iv 6 ALLEN TELECOM INC. 25101 Chagrin Boulevard #350 Beachwood, Ohio 44122-5619 (216) 765-5800 Fax: (216) 765-0410 $150,000,000 Senior Notes Issuable In Series $9,000,000 6.60% Senior Notes, Series 1997-A, due November 14, 2003 $47,000,000 6.65% Senior Notes, Series 1997-B due November 14, 2007 $9,000,000 6.74% Senior Notes, Series 1997-C due November 14, 2007 Dated as of November 1, 1997 TO EACH OF THE PURCHASERS LISTED IN THE ATTACHED SCHEDULE A: Ladies and Gentlemen: ALLEN TELECOM INC., a Delaware corporation (the "COMPANY"), agrees with you as follows: 1. AUTHORIZATION OF NOTES. 1.1. AMOUNT; ESTABLISHMENT OF SERIES. The Company is contemplating the issue and sale of up to $150,000,000 aggregate principal amount of its Senior Notes issuable in series (THE "NOTES", such term to include any such Notes issued in substitution therefor pursuant to Section 13 of this Agreement). The Notes will be substantially in the form set out in Exhibit 1.1-A, with such changes therefrom, if any, as may be approved by the purchasers of such Notes, or series thereof, and the Company. Certain capitalized terms used in this Agreement are defined in Schedule B; 7 references to a "SCHEDULE" or an "EXHIBIT" are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement. The Notes may be issued in one or more series. Each series of Notes, other than the initial series, will be issued pursuant to a supplement to this Agreement (a "SUPPLEMENT") in substantially the form of Exhibit 1.1-B, and will be subject to the following terms and conditions: (a) the designation of each series of Notes shall distinguish the Notes of one series from the Notes of all other series; (b) the Notes of each series shall rank pari passu with each other series of the Notes and with the Company's other outstanding unsecured Indebtedness that has not been expressly subordinated to any other Indebtedness of the Company; (c) each series of Notes shall be dated the date of issue, bear interest at such rate or rates, mature on such date or dates, be subject to such mandatory prepayments on the dates and with the Make-Whole Amounts, if any, as are provided in the Supplement under which such Notes are issued, and shall have such additional or different conditions precedent to closing and such additional or different representations and warranties or other terms and provisions as shall be specified in such Supplement; (d) except to the extent provided in foregoing clauses (a) through (c), all of the provisions of this Agreement shall apply to the Notes of each series; and (e) the issuance of any subsequent series of Notes shall not dilute or otherwise affect the relative priority or other rights of the holders of the Series 1997 Notes or in any way affect the percentages of Series 1997 Notes required to approve an amendment or effectuate a waiver under the provisions of Section 17 or the percentages of Series 1997 Notes required to accelerate the Series 1997 Notes or rescind such an acceleration under the provisions of Section 12.1 or 12.3. The Purchasers of the Series 1997 Notes need not purchase subsequent series of Notes. 1.2. THE SERIES 1997 NOTES. The Company has authorized, as the initial series of Notes hereunder, the issue and sale of $9,000,000 aggregate principal amount of Notes to be designated as its 6.60% Senior Notes, Series 1997-A, due November 14, 2003 (the "SERIES 1997-A NOTES"), $47,000,000 aggregate principal amount of Notes to be designated as its 6.65% Senior Notes, Series 1997-B, due November 14, 2007 (the "SERIES 1997-B NOTES"), and $9,000,000 aggregate principal amount of Notes to be designated as its 6.74% Senior Notes, Series 1997-C, due November 14, 2007 (the "SERIES 1997-C NOTES") (the Series 1997-A Notes, the Series 1997-B Notes and the Series 1997-C Notes are collectively referred to as the "SERIES 1997 NOTES", such term to include any such Notes issued in substitution therefor pursuant to Section 13 of this Agreement). The Series 1997 Notes shall be substantially in the forms set out in Exhibits 1.2(a), (b) and (c), respectively, with such changes therefrom, if any, as may be approved by you and the Company. 2 8 2. SALE AND PURCHASE OF SERIES 1997 NOTES. Subject to the terms and conditions of this Agreement, the Company will issue and sell to you and each of the other purchasers named in Schedule A (the "OTHER PURCHASERS"), and you and the Other Purchasers will purchase from the Company, at the Closing provided for in Section 3, Series 1997 Notes in the series and principal amount specified opposite your names in Schedule A at the purchase price of 100% of the principal amount thereof. Your obligation hereunder and the obligations of the Other Purchasers are several and not joint obligations and you shall have no liability to any Person for the performance or non-performance by any Other Purchaser hereunder. 3. CLOSING. The sale and purchase of the Series 1997 Notes to be purchased by you and the Other Purchasers shall occur at the offices of Gardner, Carton & Douglas, Quaker Tower, Suite 3400, 321 North Clark Street, Chicago, Illinois 60610 at 9:00 a.m., Chicago time, at a closing (the "CLOSING") on November 10, 1997 or on such other Business Day thereafter on or prior to November 30, 1997 as may be agreed upon by the Company and you and the Other Purchasers. At the Closing the Company will deliver to you the Series 1997 Notes to be purchased by you in the form of a single Series 1997 Note (or such greater number of Series 1997 Notes in denominations of at least $500,000 as you may request) dated the date of the Closing and registered in your name (or in the name of your nominee), against delivery by you to the Company or its order of immediately available funds in the amount of the purchase price therefor by wire transfer of immediately available funds for the account of the Company to account number 1663327 at Harris Bank, 115 South LaSalle Street, Chicago, Illinois, ABA No. 071000288. If at the Closing the Company shall fail to tender such Series 1997 Notes to you as provided above in this Section 3, or any of the conditions specified in Section 4 shall not have been fulfilled to your satisfaction, you shall, at your election, be relieved of all further obligations under this Agreement, without thereby waiving any rights you may have by reason of such failure or such nonfulfillment. 4. CONDITIONS TO CLOSING. Your obligation to purchase and pay for the Series 1997 Notes to be sold to you at the Closing is subject to the fulfillment to your satisfaction, prior to or at the Closing, of the following conditions: 4.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company in this Agreement shall be correct when made and at the time of the Closing. 4.2. PERFORMANCE; NO DEFAULT. The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to 3 9 or at the Closing and after giving effect to the issue and sale of the Series 1997 Notes (and the application of the proceeds thereof as contemplated by Schedule 5.14) no Default or Event of Default shall have occurred and be continuing. Neither the Company nor any Subsidiary shall have entered into any transaction since the date of the Memorandum that would have been prohibited by Sections 10.1 through 10.8 had such Sections applied since such date. 4.3. COMPLIANCE CERTIFICATES. (a) OFFICER'S CERTIFICATE. The Company shall have delivered to you an Officer's Certificate, dated the date of the Closing, certifying that the conditions specified in Sections 4.1, 4.2 and 4.9 have been fulfilled. (b) SECRETARY'S CERTIFICATE. The Company shall have delivered to you a certificate certifying as to the resolutions attached thereto and other corporate proceedings relating to the authorization, execution and delivery of the Series 1997 Notes and the Agreement. 4.4. OPINIONS OF COUNSEL. You shall have received opinions in form and substance satisfactory to you, dated the date of the Closing (a) from McDara P. Folan III, Vice President, Secretary and General Counsel, of the Company, covering the matters set forth in Exhibit 4.4(a) and covering such other matters incident to the transactions contemplated hereby as you or your counsel may reasonably request (and the Company instructs its counsel to deliver such opinion to you) and (b) from Gardner, Carton & Douglas, your special counsel in connection with such transactions, substantially in the form set forth in Exhibit 4.4(b) and covering such other matters incident to such transactions as you may reasonably request. 4.5. PURCHASE PERMITTED BY APPLICABLE LAW, ETC. On the date of the Closing your purchase of Series 1997 Notes shall (i) be permitted by the laws and regulations of each jurisdiction to which you are subject, without recourse to provisions (such as Section 1405(a)(8) of the New York Insurance Law) permitting limited investments by insurance companies without restriction as to the character of the particular investment, (ii) not violate any applicable law or regulation (including, without limitation, Regulation G, T or X of the Board of Governors of the Federal Reserve System) and (iii) not subject you to any tax, penalty or liability under or pursuant to any applicable law or regulation, which law or regulation was not in effect on the date hereof. If requested by you, you shall have received an Officer's Certificate certifying as to such matters of fact as you may reasonably specify to enable you to determine whether such purchase is so permitted. 4.6. SALE OF OTHER SERIES 1997 NOTES. Contemporaneously with the Closing the Company shall sell to the Other Purchasers and the Other Purchasers shall purchase the Series 1997 Notes to be purchased by them at the Closing as specified in Schedule A. 4 10 4.7. PAYMENT OF SPECIAL COUNSEL FEES. Without limiting the provisions of Section 15.1, the Company shall have paid on or before the Closing the fees, charges and disbursements of your special counsel referred to in Section 4.4, to the extent reflected in a statement of such counsel rendered to the Company at least one Business Day prior to the Closing. 4.8. PRIVATE PLACEMENT NUMBER. A Private Placement number issued by Standard & Poor's CUSIP Service Bureau (in cooperation with the Securities Valuation Office of the National Association of Insurance Commissioners) shall have been obtained for the Series 1997 Notes by Gardner, Carton & Douglas. 4.9. CHANGES IN CORPORATE STRUCTURE. Except as specified in Schedule 4.9, the Company shall not have changed its jurisdiction of incorporation or been a party to any merger or consolidation and shall not have succeeded to all or any substantial part of the liabilities of any other entity, at any time following the date of the most recent financial statements referred to in Schedule 5.5. 4.10. PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be satisfactory to you and your special counsel, and you and your special counsel shall have received all such counterpart originals or certified or other copies of such documents as you or they may reasonably request. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to you that: 5.1. ORGANIZATION; POWER AND AUTHORITY. The Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has the corporate power and authority to own or hold under lease the properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and deliver this Agreement and the Series 1997 Notes and to perform the provisions hereof and thereof. 5 11 5.2. AUTHORIZATION, ETC. This Agreement and the Series 1997 Notes have been duly authorized by all necessary corporate action on the part of the Company, and this Agreement constitutes, and upon execution and delivery thereof each Series 1997 Note will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 5.3. DISCLOSURE. The Company, through its agent, BancAmerica Robertson Stephens, has delivered to you and each Other Purchaser a copy of a Private Placement Memorandum, dated October 1997 (the "MEMORANDUM"), relating to the transactions contemplated hereby. The Memorandum fairly describes, in all material respects, the general nature of the business and principal properties of the Company and its Subsidiaries. Except as disclosed in Schedule 5.3, this Agreement, the Memorandum, the documents, certificates or other writings delivered to you by or on behalf of the Company in connection with the transactions contemplated hereby and the financial statements listed in Schedule 5.5, taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made. Except as disclosed in the Memorandum or as expressly described in Schedule 5.3, or in one of the documents, certificates or other writings identified therein, or in the financial statements listed in Schedule 5.5, since December 31, 1996, there has been no change in the financial condition, operations, business or properties of the Company or any Restricted Subsidiary except changes that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. There is no fact known to the Company that could reasonably be expected to have a Material Adverse Effect that has not been set forth herein or in the Memorandum or in the other documents, certificates and other writings delivered to you by or on behalf of the Company specifically for use in connection with the transactions contemplated hereby. 5.4. ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES; AFFILIATES. (a) Schedule 5.4 contains (except as noted therein) complete and correct lists (i) of the Company's Subsidiaries, showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, and the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by the Company and each other Subsidiary, (ii) of the Company's Affiliates, other than Subsidiaries, and (iii) of the Company's directors and senior officers. Each Subsidiary listed in Schedule 5.4 is designated a Restricted Subsidiary by the Company. 6 12 (b) All of the outstanding shares of capital stock or similar equity interests of each Restricted Subsidiary shown in Schedule 5.4 as being owned by the Company and its Restricted Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by the Company or another Restricted Subsidiary free and clear of any Lien (except as otherwise disclosed in Schedule 5.4). (c) Each Restricted Subsidiary identified in Schedule 5.4 is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each such Restricted Subsidiary has the corporate or other power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact. (d) No Restricted Subsidiary is a party to, or otherwise subject to any legal restriction or any agreement (other than this Agreement, the agreements listed on Schedule 5.4 and customary limitations imposed by corporate law statutes) restricting the ability of such Restricted Subsidiary to pay dividends out of profits or make any other similar distributions of profits to the Company or any of its Restricted Subsidiaries that owns outstanding shares of capital stock or similar equity interests of such Restricted Subsidiary. 5.5. FINANCIAL STATEMENTS. The Company has delivered to you and each Other Purchaser copies of the financial statements of the Company and its Subsidiaries listed on Schedule 5.5. All of said financial statements (including in each case the related schedules and notes) fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries as of the respective dates specified in such Schedule and the consolidated results of their operations and cash flows for the respective periods so specified and have been prepared in accordance with GAAP consistently applied throughout the periods involved except as set forth in the notes thereto (subject, in the case of any interim financial statements, to normal year-end adjustments). 5.6. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC. The execution, delivery and performance by the Company of this Agreement and the Series 1997 Notes will not (i) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of the Company or any Restricted Subsidiary under, any Material agreement, or corporate charter or by-laws, to which the Company or any Restricted Subsidiary is bound or by which the Company or any Restricted Subsidiary or any of their respective properties may be bound or affected, (ii) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to the Company or any 7 13 Restricted Subsidiary or (iii) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Company or any Restricted Subsidiary. 5.7. GOVERNMENTAL AUTHORIZATIONS, ETC. No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by the Company of this Agreement or the Series 1997 Notes. 5.8. LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS. (a) Except as disclosed in Schedule 5.8, there are no actions, suits or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any Restricted Subsidiary or any property of the Company or any Restricted Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Authority that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (b) Neither the Company nor any Restricted Subsidiary is in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority or is in violation of any applicable law, ordinance, rule or regulation (including without limitation Environmental Laws) of any Governmental Authority, which default or violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 5.9. TAXES. The Company and its Restricted Subsidiaries have filed all tax returns that are required to have been filed in any jurisdiction, and have paid all taxes shown to be due and payable on such returns and all other taxes and assessments levied upon them or their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (i) the amount of which is not individually or in the aggregate Material or (ii) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which the Company or a Restricted Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP. The Company knows of no basis for any other tax or assessment that could reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of the Company and its Restricted Subsidiaries in respect of Federal, state or other taxes for all fiscal periods are adequate under GAAP. The Federal income tax liabilities of the Company and its Subsidiaries have been determined by the Internal Revenue Service and paid for all fiscal years up to and including the fiscal year ended December 31, 1995. 8 14 5.10. TITLE TO PROPERTY; LEASES. The Company and its Restricted Subsidiaries have good and sufficient title to the properties that they own or purport to own and that individually or in the aggregate are Material, including all such properties reflected in the most recent audited balance sheet referred to in Section 5.5 or purported to have been acquired by the Company or any Restricted Subsidiary after said date (except as sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens prohibited by this Agreement. All leases that individually or in the aggregate are Material are valid and subsisting and are in full force and effect in all material respects. 5.11. LICENSES, PERMITS, ETC. Except as disclosed in Schedule 5.11, (a) the Company and its Restricted Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names, or rights thereto, that individually or in the aggregate are Material, without known material conflict with the rights of others; (b) to the best knowledge of the Company, no product of the Company infringes in any material respect any license, permit, franchise, authorization, patent, copyright, service mark, trademark, trade name or other right owned by any other Person; and (c) to the best knowledge of the Company, there is no Material violation by any Person of any right of the Company or any of its Restricted Subsidiaries with respect to any patent, copyright, service mark, trademark, trade name or other right owned or used by the Company or any of its Restricted Subsidiaries. 5.12. COMPLIANCE WITH ERISA. (a) The Company and each ERISA Affiliate have operated and administered each Plan in compliance with all applicable laws except for such instances of noncompliance as have not resulted in and could not reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans (as defined in Section 3 of ERISA), and no event, transaction or condition has occurred or exists that could reasonably be expected to result in the incurrence of any such liability by the Company or any ERISA Affiliate, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions or to Section 401(a)(29) or 412 of the Code, other than such liabilities or Liens as would not be individually or in the aggregate Material. 9 15 (b) The present value of the aggregate benefit liabilities under each of the Plans (other than Multiemployer Plans), determined as of the end of such Plan's most recently ended plan year on the basis of the actuarial assumptions used to determine the actuarial accrued liability on an on-going funding basis in such Plan's most recent actuarial valuation report, did not exceed the aggregate current value of the assets of such Plan allocable to such benefit liabilities by a Material amount. The term "BENEFIT LIABILITIES" has the meaning specified in section 4001 of ERISA and the terms "CURRENT VALUE" and "PRESENT VALUE" have the meaning specified in section 3 of ERISA. (c) The Company and its ERISA Affiliates have not incurred withdrawal liabilities (and are not subject to contingent withdrawal liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer Plans that have not been paid, or if contingent, that individually or in the aggregate are Material. (d) The expected postretirement benefit obligation (determined as of the last day of the Company's most recently ended fiscal year in accordance with Financial Accounting Standards Board Statement No. 106, without regard to liabilities attributable to continuation coverage mandated by section 4980B of the Code) of the Company and its Subsidiaries is not Material or has been disclosed in the most recent audited consolidated financial statements of the Company and its Subsidiaries. (e) The execution and delivery of this Agreement and the issuance and sale of the Series 1997 Notes hereunder will not involve any transaction that is subject to the prohibitions of section 406 of ERISA or in connection with which a tax could be imposed pursuant to section 4975(c)(1)(A)-(D) of the Code. The representation by the Company in the first sentence of this Section 5.12(e) is made in reliance upon and subject to the accuracy of your representation in Section 6.2 as to the sources of the funds used to pay the purchase price of the Series 1997 Notes to be purchased by you. 5.13. PRIVATE OFFERING BY THE COMPANY. Neither the Company nor anyone acting on its behalf has offered the Series 1997 Notes or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any person other than you, the Other Purchasers and not more than 54 other Institutional Investors, each of which has been offered the Series 1997 Notes at a private sale for investment. Neither the Company nor anyone acting on its behalf has taken, or will take, any action that would subject the issuance or sale of the Series 1997 Notes to the registration requirements of Section 5 of the Securities Act. 5.14. USE OF PROCEEDS; MARGIN REGULATIONS. The Company will apply the proceeds of the sale of the Series 1997 Notes as set forth in Schedule 5.14. No part of the proceeds from the sale of the Series 1997 Notes hereunder will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation G of the Board of Governors of the Federal Reserve System (12 CFR 207), or for the purpose of buying or carrying or trading in any securities under such 10 16 circumstances as to involve the Company in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin stock does not constitute more than 1.0% of the value of the consolidated assets of the Company and its Subsidiaries and the Company does not have any present intention that margin stock will constitute more than 1.0% of the value of such assets. As used in this Section, the terms "MARGIN STOCK" and "PURPOSE OF BUYING OR CARRYING" shall have the meanings assigned to them in said Regulation G. For purposes of the foregoing, margin stock shall not include common stock of the Company held in its treasury. 5.15. EXISTING INDEBTEDNESS; FUTURE LIENS. (a) Except as described therein, Schedule 5.15 sets forth a complete and correct list of all outstanding Indebtedness of the Company and its Restricted Subsidiaries as of September 30, 1997, since which date there has been no Material change in the amounts, interest rates, sinking funds, installment payments or maturities of the Indebtedness of the Company or its Restricted Subsidiaries. Neither the Company nor any Restricted Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Indebtedness of the Company or such Restricted Subsidiary that is outstanding in an aggregate principal amount in excess of $5,000,000 and no event or condition exists with respect to any Indebtedness of the Company or any Restricted Subsidiary that is outstanding in an aggregate principal amount in excess of $5,000,000 and that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Indebtedness to become due and payable before its stated maturity or before its regularly scheduled dates of payment. (b) Except as disclosed in Schedule 5.15, neither the Company nor any Restricted Subsidiary has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien not permitted by Section 10.2. 5.16. FOREIGN ASSETS CONTROL REGULATIONS, ETC. Neither the sale of the Series 1997 Notes by the Company hereunder nor its use of the proceeds thereof will violate the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto. 5.17. STATUS UNDER CERTAIN STATUTES. Neither the Company nor any Restricted Subsidiary is subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as amended, the Interstate Commerce Act, as amended by the ICC Termination Act, as amended, or the Federal Power Act, as amended. 11 17 5.18. ENVIRONMENTAL MATTERS. Neither the Company nor any Restricted Subsidiary has knowledge of any liability or has received any notice of any liability, and no proceeding has been instituted asserting any liability against the Company or any of its Restricted Subsidiaries or any of their respective real properties now owned, leased or operated by any of them or other assets nor, to the knowledge of the Company or any Restricted Subsidiary, has any such proceeding been instituted against any of their respective real properties formerly owned, for damage to the environment or violation of any Environmental Laws, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect. Except as otherwise disclosed to you in writing, (a) neither the Company nor any Restricted Subsidiary has knowledge of any facts that would give rise to any liability for violation of Environmental Laws or damage to the environment emanating from, occurring on or in any way related to real properties now or, to the Company's or such Restricted Subsidiary's knowledge, formerly owned, leased or operated by any of them or to other assets or their use, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect; (b) neither the Company nor any of its Restricted Subsidiaries has stored any Hazardous Materials on real properties now or formerly owned, leased or operated by any of them and has not disposed of any Hazardous Materials in a manner contrary to any Environmental Laws in each case in any manner that could reasonably be expected to result in a Material Adverse Effect; and (c) all buildings on all real properties now owned, leased or operated by the Company or any of its Restricted Subsidiaries are in compliance with applicable Environmental Laws, except where failure to comply could not reasonably be expected to result in a Material Adverse Effect. 6. REPRESENTATIONS OF THE PURCHASERS. 6.1. PURCHASE FOR INVESTMENT. You represent that you are purchasing the Series 1997 Notes to be purchased by you for your own account or for one or more separate accounts maintained by you or for the account of one or more pension or trust funds and not with a view to the distribution thereof, provided that the disposition of your or their property shall at all times be within your or their control. You understand that the Series 1997 Notes to be purchased by you have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that the Company is not required to register the Series 1997 Notes. 12 18 6.2. SOURCE OF FUNDS. You represent that at least one of the following statements is an accurate representation as to each source of funds (a "SOURCE") to be used by you to pay the purchase price of the Series 1997 Notes to be purchased by you hereunder: (a) if you are an insurance company, the Source does not include assets allocated to any separate account maintained by you in which any employee benefit plan (or its related trust) has any interest, other than a separate account that is maintained solely in connection with your fixed contractual obligations under which the amounts payable, or credited, to such plan and to any participant or beneficiary of such plan (including any annuitant) are not affected in any manner by the investment performance of the separate account; or (b) the Source is either (i) an insurance company pooled separate account, within the meaning of Prohibited Transaction Exemption ("PTE") 90-1 (issued January 29, 1990), or (ii) a bank collective investment fund, within the meaning of the PTE 91-38 (issued July 12, 1991) and, except as you have disclosed to the Company in writing pursuant to this paragraph (b), no employee benefit plan or group of plans maintained by the same employer or employee organization beneficially owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or (c) the Source constitutes assets of an "investment fund" (within the meaning of Part V of the QPAM Exemption) managed by a "qualified professional asset manager" or "QPAM" (within the meaning of Part V of the QPAM Exemption), no employee benefit plan's assets that are included in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, exceed 20% of the total client assets managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a person controlling or controlled by the QPAM (applying the definition of "control" in Section V(e) of the QPAM Exemption) owns a 5% or more interest in the Company and (i) the identity of such QPAM and (ii) the names of all employee benefit plans whose assets are included in such investment fund have been disclosed to the Company in writing pursuant to this paragraph (c); or (d) the Source is a governmental plan; or (e) the Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of which has been identified to the Company in writing pursuant to this paragraph (e); or (f) the Source does not include assets of any employee benefit plan, other than a plan exempt from the coverage of ERISA; or 13 19 (g) the Source is an "insurance company general account" as such term is defined in the Department of Labor Prohibited Transaction Class Exemption 95-60 (issued July 12, 1995) ("PTE 95-60") and there is no "employee benefit plan" with respect to which the aggregate amount of such general account's reserves and liabilities for the contracts held by or on behalf of such employee benefit plan and all other employee benefit plans maintained by the same employer (and affiliates thereof as defined in Section V(a)(1) of PTE 95-60) or by the same employee organization (in each case determined in accordance with the provisions of PTE 95-60) exceeds 10% of the total reserves and liabilities of such general account (as determined under PTE 95-60) (exclusive of separate account liabilities) plus surplus as set forth in the National Association of Insurance Commissioners Annual Statement filed with the state of domicile of such Purchaser. As used in this Section 6.2, the terms "EMPLOYEE BENEFIT PLAN", "GOVERNMENTAL PLAN", "PARTY IN INTEREST" and "SEPARATE ACCOUNT" shall have the respective meanings assigned to such terms in Section 3 of ERISA. 7. INFORMATION AS TO COMPANY. 7.1. FINANCIAL AND BUSINESS INFORMATION The Company shall deliver to each holder of Notes that is an Institutional Investor: (a) QUARTERLY STATEMENTS -- within 60 days after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), duplicate copies of, (i) a consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarter, and (ii) consolidated statements of income, changes in stockholders' equity and cash flows of the Company and its Subsidiaries, for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by a Senior Financial Officer as fairly presenting, in all material respects, the financial position of the companies being reported on and their results of operations and cash flows, subject to changes resulting from year-end adjustments, provided that delivery within the time period specified above of copies of the Company's Quarterly Report on Form 10-Q prepared in compliance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 7.1(a); 14 20 (b) ANNUAL STATEMENTS -- within 120 days after the end of each fiscal year of the Company, duplicate copies of, (i) a consolidated balance sheet of the Company and its Subsidiaries, as at the end of such year, and (ii) consolidated statements of income, changes in stockholders' equity and cash flows of the Company and its Subsidiaries, for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances, provided that the delivery within the time period specified above of the Company's Annual Report on Form 10-K for such fiscal year (together with the Company's annual report to shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act) prepared in accordance with the requirements therefor and filed with the Securities and Exchange Commission, together with such accountant's opinion, shall be deemed to satisfy the requirements of this Section 7.1(b); (c) UNRESTRICTED SUBSIDIARIES -- if, at the time of delivery of any financial statements pursuant to Section 7.1(a) or (b), Unrestricted Subsidiaries (other than MARTA Technologies, Inc.) account for more than 10% of (i) the consolidated total assets of the Company and its Subsidiaries reflected in the balance sheet included in such financial statements or (ii) the consolidated revenues of the Company and its Subsidiaries reflected in the consolidated statement of income included in such financial statements, an unaudited balance sheet for all Unrestricted Subsidiaries taken as whole as at the end of the fiscal period included in such financial statements and the related unaudited statements of income, stockholders' equity and cash flows for such Unrestricted Subsidiaries for such period, together with consolidating statements reflecting all eliminations or adjustments necessary to reconcile such group financial statements to the consolidated financial statements of the Company and its Subsidiaries; (d) SEC AND OTHER REPORTS -- promptly upon their becoming available, one copy of (i) each financial statement, report, notice or proxy statement sent by the Company or any Restricted Subsidiary to public securities holders generally, and (ii) each regular or periodic report, each registration statement (without exhibits except as expressly requested by such holder), and each prospectus and all amendments thereto filed by the Company or any Restricted Subsidiary with the Securities and Exchange Commission and of all press releases and other statements made available generally by 15 21 the Company or any Restricted Subsidiary to the public concerning developments that are Material; (e) NOTICE OF DEFAULT OR EVENT OF DEFAULT -- promptly, and in any event within five days after a Responsible Officer obtains actual knowledge of the existence of any Default or Event of Default or that any Person has given any notice or taken any action with respect to a claimed default hereunder or that any Person has given any notice or taken any action with respect to a claimed default of the type referred to in Section 11(f), a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto; (f) ERISA MATTERS -- promptly, and in any event within five days after a Responsible Officer becoming aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the Company or an ERISA Affiliate proposes to take with respect thereto: (i) with respect to any Plan, any reportable event, as defined in section 4043(b) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the date hereof; or (ii) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; or (iii) any event, transaction or condition that could result in the incurrence of any liability by the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, could reasonably be expected to have a Material Adverse Effect; (g) NOTICES FROM GOVERNMENTAL AUTHORITY -- promptly, and in any event within 30 days of receipt thereof, copies of any notice to the Company or any Restricted Subsidiary from any Federal or state Governmental Authority relating to any order, ruling, statute or other law or regulation that could reasonably be expected to have a Material Adverse Effect; (h) REQUESTED INFORMATION -- with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or properties of the Company or any of its Subsidiaries or relating to the ability of the 16 22 Company to perform its obligations hereunder and under the Notes as from time to time may be reasonably requested by any such holder of Notes; and (i) SUPPLEMENTS TO AGREEMENT -- in the event an additional series of Notes is, or is proposed to be, issued under this Agreement, promptly, and in any event within 10 Business Days after execution and delivery thereof, a true copy of the Supplement pursuant to which such Notes are to be, or were, issued. 7.2. OFFICER'S CERTIFICATE. Each set of financial statements delivered to a holder of Notes pursuant to Section 7.1(a) or (b) shall be accompanied by a certificate of a Senior Financial Officer setting forth: (a) COVENANT COMPLIANCE -- the information (including detailed calculations) required in order to establish whether the Company was in compliance with the requirements of Section 10.1 through Section 10.5, inclusive, during the quarterly or annual period covered by the statements then being furnished (including with respect to each such Section, where applicable, the calculations of the maximum or minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Sections, and the calculation of the amount, ratio or percentage then in existence); and (b) EVENT OF DEFAULT -- a statement that such officer has reviewed the relevant terms hereof and has made, or caused to be made, under his or her supervision, a review of the transactions and conditions of the Company and its Restricted Subsidiaries from the beginning of the quarterly or annual period covered by the statements then being furnished to the date of the certificate and that such review shall not have disclosed the existence during such period of any condition or event that constitutes a Default or an Event of Default or, if any such condition or event existed or exists (including any such event or condition resulting from the failure of the Company or any Restricted Subsidiary to comply with any Environmental Law), specifying the nature and period of existence thereof and what action the Company shall have taken or proposes to take with respect thereto. 7.3. INSPECTION. The Company will permit the representatives of each holder of Notes that is an Institutional Investor: (a) NO DEFAULT -- if no Default or Event of Default then exists, at the expense of such holder and upon reasonable prior notice to the Company, to visit the principal executive office of the Company, to discuss the affairs, finances and accounts of the Company and its Restricted Subsidiaries with the Company's officers and (with the consent of the Company, which consent will not be unreasonably withheld) to visit the other offices and properties of the Company and each Restricted Subsidiary, all at such reasonable times and as often as may be reasonably requested in writing; and 17 23 (b) DEFAULT -- if a Default or Event of Default then exists, at the expense of the Company and upon reasonable prior notice to the Company, to visit the principal executive office of the Company, to discuss the affairs, finances and accounts of the Company and its Restricted Subsidiaries with the Company's officers, and (with the consent of the Company, which consent will not be unreasonably withheld) its independent public accountants, and (with the consent of the Company, which consent will not be unreasonably withheld) to visit the other offices and properties of the Company and each Restricted Subsidiary, all at such reasonable times and as often as may be reasonably requested in writing. 8. PREPAYMENT OF THE SERIES 1997 NOTES. 8.1. REQUIRED PREPAYMENTS. The Series 1997-A Notes are subject to required prepayment on November 14, 2001 and on each November 14 thereafter to and including November 14, 2002, on which dates the Company will prepay $3,000,000 principal amount (or such lesser principal amount as shall then be outstanding) of the Series 1997-A Notes, at par, without payment of the Make-Whole Amount or any premium. The Series 1997-B Notes are subject to required prepayment on November 14, 2002 and on each November 14 thereafter to and including November 14, 2006, on which dates the Company will prepay $7,833,333 principal amount (or such lesser principal amount as shall then be outstanding) of the Series 1997-B Notes, at par, without payment of the Make-Whole Amount or any premium. The Series 1997-C Notes are not subject to required prepayment. 8.2. OPTIONAL PREPAYMENTS WITH MAKE-WHOLE AMOUNT. The Company may, at its option, upon notice as provided below, prepay at any time all, or from time to time any part of, the Series 1997 Notes, in an amount not less than $2,000,000 in the aggregate in the case of a partial prepayment, at 100% of the principal amount so prepaid, plus the Make-Whole Amount determined for the prepayment date with respect to such principal amount. The Company will give each holder of Series 1997 Notes written notice of each optional prepayment under this Section 8.2 not less than 30 days and not more than 60 days prior to the date fixed for such prepayment. Each such notice shall specify such date, the aggregate principal amount of the Series 1997 Notes to be prepaid on such date, the principal amount of each Series 1997 Note held by such holder to be prepaid (determined in accordance with Section 8.3), and the interest to be paid on the prepayment date with respect to such principal amount being prepaid, and shall be accompanied by a certificate of a Senior Financial Officer as to the estimated Make-Whole Amount due in connection with such prepayment (calculated as if the date of such notice were the date of the prepayment), setting forth the details of such computation. Two Business Days prior to such prepayment, the Company shall deliver to each holder of Series 1997 Notes a certificate of a Senior Financial Officer specifying the calculation of such Make-Whole Amount as of the specified prepayment date. 18 24 8.3. ALLOCATION OF PARTIAL PREPAYMENTS. In the case of each partial prepayment of the Series 1997 Notes, the principal amount of the Series 1997 Notes to be prepaid shall be allocated among all of the Series 1997 Notes at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called for prepayment. Each such partial prepayment pursuant to Section 8.2 shall be applied first to the payment due on such Series 1997 Notes at final maturity and thereafter to any required prepayments on such Series 1997 Notes, in inverse order of maturity. 8.4. MATURITY; SURRENDER, ETC. In the case of each prepayment of Series 1997 Notes pursuant to this Section 8, the principal amount of each Series 1997 Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such principal amount accrued to such date and the applicable Make-Whole Amount, if any. From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the interest and Make-Whole Amount, if any, as aforesaid, interest on such principal amount shall cease to accrue. Any Series 1997 Note paid or prepaid in full shall be surrendered to the Company and canceled and shall not be reissued, and no Series 1997 Note shall be issued in lieu of any prepaid principal amount of any Series 1997 Note. 8.5. PURCHASE OF SERIES 1997 NOTES. The Company will not, and will not permit any Affiliate to, purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of the outstanding Series 1997 Notes except upon the payment or prepayment of the Series 1997 Notes in accordance with the terms of this Agreement and the Series 1997 Notes. The Company will promptly cancel all Series 1997 Notes acquired by it or any Affiliate pursuant to any payment, prepayment or purchase of Series 1997 Notes pursuant to any provision of this Agreement and no Series 1997 Notes may be issued in substitution or exchange for any such Series 1997 Notes. 8.6. MAKE-WHOLE AMOUNT. The term "MAKE-WHOLE AMOUNT" means, with respect to any Series 1997 Note, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Series 1997 Note over the amount of such Called Principal, provided that the Make-Whole Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings: "CALLED PRINCIPAL" means, with respect to any Series 1997 Note, the principal of such Series 1997 Note that is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires. 19 25 "DISCOUNTED VALUE" means, with respect to the Called Principal of any Series 1997 Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on the Series 1997 Notes is payable) equal to the Reinvestment Yield with respect to such Called Principal. "REINVESTMENT YIELD" means, with respect to the Called Principal of any Series 1997 Note, .50% over the yield to maturity implied by (i) the yields reported, as of 10:00 A.M. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as the "PX1 Screen" on the Bloomberg Financial Market Service (or such other display as may replace the PX1 Screen on Bloomberg Financial Market Service) for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or (ii) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable, the Treasury Constant Maturity Series Yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield will be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between (1) the actively traded U.S. Treasury security with the maturity closest to and greater than the Remaining Average Life and (2) the actively traded U.S. Treasury security with the maturity closest to and less than the Remaining Average Life. "REMAINING AVERAGE LIFE" means, with respect to any Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum of the products obtained by multiplying (a) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (b) the number of years (calculated to the nearest one-twelfth year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. "REMAINING SCHEDULED PAYMENTS" means, with respect to the Called Principal of any Series 1997 Note, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date, PROVIDED that if such 20 26 Settlement Date is not a date on which interest payments are due to be made under the terms of the Series 1997 Notes in question, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 8.2 or 12.1. "SETTLEMENT DATE" means, with respect to the Called Principal of any Series 1997 Note, the date on which such Called Principal is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires. 9. AFFIRMATIVE COVENANTS. The Company covenants that so long as any of the Notes are outstanding: 9.1. COMPLIANCE WITH LAW. The Company will, and will cause each Subsidiary to, comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including Environmental Laws, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 9.2. INSURANCE. The Company will, and will cause each Restricted Subsidiary to, maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated. 9.3. MAINTENANCE OF PROPERTIES. The Company will and will cause each Restricted Subsidiary to maintain and keep, or cause to be maintained and kept, their respective properties in good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, provided that this Section shall not prevent the Company or any Restricted Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and the Company has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 21 27 9.4. PAYMENT OF TAXES AND CLAIMS. The Company will, and will cause each Subsidiary to, file all tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies imposed on them or any of their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent and all claims for which sums have become due and payable that have or might become a Lien on properties or assets of the Company or any Subsidiary, provided that neither the Company nor any Subsidiary need pay any such tax or assessment or claims if (i) the amount, applicability or validity thereof is contested by the Company or such Subsidiary on a timely basis in good faith and in appropriate proceedings, and the Company or a Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of the Company or such Subsidiary or (ii) the nonpayment of all such taxes and assessments in the aggregate could not reasonably be expected to have a Material Adverse Effect. 9.5. CORPORATE EXISTENCE, ETC. Subject to Section 10.4, the Company will at all times preserve and keep in full force and effect its corporate existence. Subject to Sections 10.3 and 10.4, the Company will at all times preserve and keep in full force and effect the corporate existence of each Restricted Subsidiary (unless merged into the Company or a Restricted Subsidiary) and all rights and franchises of the Company and its Restricted Subsidiaries unless, in the good faith judgment of the Company, the termination of or failure to preserve and keep in full force and effect such corporate existence, right or franchise could not, individually or in the aggregate, have a Material Adverse Effect. 10. NEGATIVE COVENANTS. The Company covenants that so long as any of the Series 1997 Notes are outstanding: 10.1. CONSOLIDATED INDEBTEDNESS; INDEBTEDNESS OF RESTRICTED SUBSIDIARIES. The Company will not permit: (a) Consolidated Indebtedness to exceed 65% of Consolidated Total Capitalization at any time; and (b) Any Restricted Subsidiary to incur any Indebtedness if, after giving effect thereto and to the application of the proceeds therefrom, Priority Debt outstanding would exceed 20% of Consolidated Total Capitalization. 22 28 10.2. LIENS. The Company will not, and will not permit any Restricted Subsidiary to, permit to exist, create, assume or incur, directly or indirectly, any Lien on its properties or assets, whether now owned or hereafter acquired (unless, concurrently with the incurrence, assumption or creation of such Lien, the Company makes, or causes to be made, effective provision whereby the Series 1997 Notes are equally and ratably secured by a Lien on the same property or assets), except: (a) Liens existing on property or assets of the Company or any Restricted Subsidiary as of the date of this Agreement that are described in Schedule 10.2; (b) Liens for taxes, assessments or governmental charges not then due and delinquent or the nonpayment of which is permitted by Section 9.4; (c) encumbrances in the nature of leases, subleases, zoning restrictions, easements, rights of way and other rights and restrictions of record on the use of real property and defects in title arising or incurred in the ordinary course of business, which, individually and in the aggregate, do not materially impair the use or value of the property or assets subject thereto; (d) Liens incidental to the conduct of business or the ownership of properties and assets (including landlords', lessors', carriers', warehousemen's, mechanics', materialmen's and other similar liens) and Liens to secure the performance of bids, tenders, leases or trade contracts, or to secure statutory obligations (including obligations under workers compensation, unemployment insurance and other social security legislation), surety or appeal bonds or other Liens of like general nature incurred in the ordinary course of business and not in connection with the borrowing of money; (e) any attachment or judgment Lien, unless the judgment it secures has not, within 60 days after the entry thereof, been discharged or execution thereof stayed pending appeal, or has not been discharged within 60 days after the expiration of any such stay; (f) Liens securing Indebtedness of a Restricted Subsidiary to the Company or to another Restricted Subsidiary and Liens securing Indebtedness of the Company to a Restricted Subsidiary; (g) Liens (i) existing on property at the time of its acquisition by the Company or a Restricted Subsidiary and not created in contemplation thereof, whether or not the Indebtedness secured by such Lien is assumed by the Company or a Restricted Subsidiary; or (ii) on property created contemporaneously with its acquisition or within 180 days of the acquisition or completion of construction thereof to secure or provide for all or a portion of the purchase price or cost of construction of such property after the date of Closing; or (iii) existing on property of a Person at the time such Person is merged or consolidated with, or becomes a Restricted Subsidiary of, or substantially all of its assets 23 29 are acquired by, the Company or a Restricted Subsidiary and not created in contemplation thereof; PROVIDED that in the case of clauses (i), (ii) and (iii) such Liens do not extend to additional property of the Company or any Restricted Subsidiary and that the aggregate principal amount of Indebtedness secured by each such Lien does not exceed the cost of acquisition or construction of the property subject thereto; (h) Liens resulting from extensions, renewals or replacements of Liens permitted by paragraphs (a), (f) and (g), PROVIDED that (i) there is no increase in the principal amount or decrease in maturity of the Indebtedness secured thereby at the time of such extension, renewal or replacement, (ii) any new Lien attaches only to the same property theretofore subject to such earlier Lien and (iii) immediately after such extension, renewal or replacement no Default or Event of Default would exist; and (i) Additional Liens securing Indebtedness not otherwise permitted by paragraphs (a) through (h) above, provided that, at the time of creation, assumption or incurrence thereof and immediately after giving effect thereto and to the application of the proceeds therefrom, Priority Debt outstanding does not exceed 20% of Consolidated Total Capitalization. Notwithstanding the foregoing, this Section 10.2 shall not apply to the discontinued operations of the Company related to MARTA Technologies, Inc., as shown on the Company's balance sheet dated as of June 30, 1997. 10.3. SALE OF ASSETS. Except as permitted by Section 10.4, the Company will not, and will not permit any Restricted Subsidiary to, sell, lease, transfer or otherwise dispose of, including by way of merger (collectively a "DISPOSITION"), any assets, including capital stock of Restricted Subsidiaries, in one or more transactions, to any Person, other than (a) Dispositions in the ordinary course of business, (b) Dispositions by the Company to a Restricted Subsidiary or by a Restricted Subsidiary to the Company or another Restricted Subsidiary or (c) other Dispositions not otherwise permitted by this Section 10.3, provided that the aggregate net book value of all assets so disposed of in any fiscal year pursuant to this Section 10.3(c) does not exceed 15% of Consolidated Total Assets as of the end of the immediately preceding fiscal year. Notwithstanding the foregoing, the Company may, or may permit any Restricted Subsidiary to, make a Disposition and the assets subject to such Disposition shall not be subject to or included in the foregoing limitation and computation contained in clause (c) of the preceding sentence to the extent that (x) such assets are leased back by the Company or any Restricted Subsidiary, as lessee, within 180 days of the Disposition thereof, or (y) the net proceeds from such Disposition are within one year of such Disposition (A) reinvested in productive assets by the Company or a Restricted Subsidiary consistent with Section 10.7 (and in no event in assets relating to a discontinued operation at the time of reinvestment) or (B) applied to the payment or prepayment of any outstanding Indebtedness of the Company or any Restricted Subsidiary that is not subordinated to the Series 1997 Notes. Any prepayment of Series 1997 Notes pursuant to this Section 10.3 shall be in accordance with Sections 8.2 and 8.3, without regard to the minimum 24 30 prepayment requirements of Section 8.2. Furthermore, this Section 10.3 shall not apply to the discontinued operations of the Company related to MARTA Technologies, Inc., as shown on the Company's balance sheet dated as of June 30, 1997. 10.4. MERGERS, CONSOLIDATIONS, ETC. The Company will not, and will not permit any Restricted Subsidiary to, consolidate with or merge with any other Person or convey, transfer, sell or lease all or substantially all of its assets in a single transaction or series of transactions to any Person except that: (a) The Company may consolidate or merge with any other Person or convey, transfer, sell or lease all or substantially all of its assets in a single transaction or series of transactions to any Person, provided that: (i) the successor formed by such consolidation or the survivor of such merger or the Person that acquires by conveyance, transfer, sale or lease of all or substantially all of the assets of the Company as an entirety, as the case may be, shall be a solvent corporation organized and existing under the laws of the United States, any State thereof (including the District of Columbia) or Canada or any province thereof, and, if the Company is not such corporation, such corporation (x) shall have executed and delivered to each holder of any Series 1997 Notes its assumption of the due and punctual performance and observance of each covenant and condition of this Agreement and the Series 1997 Notes and (y) shall have caused to be delivered to each holder of any Series 1997 Notes an opinion of independent counsel reasonably satisfactory to the Required Holders, to the effect that all agreements or instruments effecting such assumption are enforceable in accordance with their terms and comply with the terms hereof; (ii) the successor formed by such consolidation or the survivor of such merger or the Person that acquires by conveyance, transfer, sale or lease all or substantially all of the assets of the Company as an entirety, as the case may be, could incur immediately thereafter $1.00 of additional Indebtedness without violating Section 10.1; (iii) immediately before and after giving effect to such transaction, no Default or Event of Default shall exist; and (b) Any Restricted Subsidiary may (x) merge into the Company (provided that the Company is the surviving corporation) or another Restricted Subsidiary or (y) sell, transfer or lease all or any part of its assets to the Company or another Restricted Subsidiary, or (z) merge or consolidate with, or sell, transfer or lease all or substantially all of its assets to, any Person in a transaction that is permitted by Section 10.3 or, as a result of which, such Person becomes an Restricted Subsidiary; PROVIDED in each instance 25 31 set forth in clauses (x) through (z) that, immediately before and after giving effect thereto, there shall exist no Default or Event of Default; No such conveyance, transfer, sale or lease of all or substantially all of the assets of the Company shall have the effect of releasing the Company or any successor corporation that shall theretofore have become such in the manner prescribed in this Section 10.4 from its liability under this Agreement or the Series 1997 Notes. 10.5. DISPOSITION OF STOCK OF RESTRICTED SUBSIDIARIES. The Company (i) will not permit any Restricted Subsidiary to issue its capital stock, or any warrants, rights or options to purchase, or securities convertible into or exchangeable for, such capital stock, to any Person other than the Company or another Restricted Subsidiary, and (ii) will not, and will not permit any Restricted Subsidiary to, sell, transfer or otherwise dispose of any shares of capital stock of a Restricted Subsidiary if such sale would be prohibited by Section 10.3. If a Restricted Subsidiary at any time ceases to be such as a result of a sale or issuance of its capital stock, any Liens on property of the Company or any other Restricted Subsidiary securing Indebtedness owed to such Restricted Subsidiary, which is not contemporaneously repaid, together with such Indebtedness, shall be deemed to have been incurred by the Company or such other Restricted Subsidiary, as the case may be, at the time such Restricted Subsidiary ceases to be a Restricted Subsidiary. 10.6. DESIGNATION OF UNRESTRICTED AND RESTRICTED SUBSIDIARIES. The Company may designate any Restricted Subsidiary as an Unrestricted Subsidiary and any Unrestricted Subsidiary as a Restricted Subsidiary; provided that, (a) if such Subsidiary initially is a Restricted Subsidiary, then such Restricted Subsidiary may be subsequently designated as an Unrestricted Subsidiary and such Unrestricted Subsidiary may be subsequently designated as a Restricted Subsidiary, but no further changes in designation may be made, (b) if such Subsidiary initially is an Unrestricted Subsidiary, then such Unrestricted Subsidiary may be subsequently designated as a Restricted Subsidiary and such Restricted Subsidiary may be subsequently designated as an Unrestricted Subsidiary, but no further changes in designation may be made, and (c) immediately before and after designation of a Restricted Subsidiary as an Unrestricted Subsidiary there exists no Default or Event of Default. 10.7. NATURE OF BUSINESS. The Company will not, and will not permit any Restricted Subsidiary to, engage in any business if, as a result, the general nature of the business in which the Company and its Restricted Subsidiaries, taken as a whole, would then be engaged would be substantially changed from the general nature of the business in which the Company and its Restricted Subsidiaries, taken as a whole, are engaged on the date of this Agreement. As of the date of this Agreement, the Company and its Restricted Subsidiaries manufacture and sell wireless telecommunications equipment, products and services as described in the Memorandum. 26 32 10.8. TRANSACTIONS WITH AFFILIATES. The Company will not and will not permit any Restricted Subsidiary to enter into directly or indirectly any Material transaction or Material group of related transactions (including the purchase, lease, sale or exchange of properties of any kind or the rendering of any service) with any Affiliate (other than the Company or another Restricted Subsidiary), except upon fair and reasonable terms no less favorable to the Company or such Restricted Subsidiary than would be obtainable in a comparable arm's-length transaction with a Person not an Affiliate. 11. EVENTS OF DEFAULT. An "EVENT OF DEFAULT" shall exist if any of the following conditions or events shall occur and be continuing: (a) the Company defaults in the payment of any principal or Make-Whole Amount, if any, on any Series 1997 Note when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise; or (b) the Company defaults in the payment of any interest on any Series 1997 Note for more than five Business Days after the same becomes due and payable; or (c) the Company defaults in the performance of or compliance with any term contained in Section 7.1(e) or Sections 10.1 through 10.8; or (d) the Company defaults in the performance of or compliance with any term contained herein (other than those referred to in paragraphs (a), (b) and (c) of this Section 11) and such default is not remedied within 30 days after the earlier of (i) a Responsible Officer obtaining actual knowledge of such default and (ii) the Company receiving written notice of such default from any holder of a Series 1997 Note; or (e) any representation or warranty made in writing by or on behalf of the Company or by any officer of the Company in this Agreement or in any writing furnished in connection with the transactions contemplated hereby proves to have been false or incorrect in any material respect on the date as of which made; or (f) (i) the Company or any Restricted Subsidiary is in default (as principal or as guarantor or other surety) in the payment of any principal of or premium or make-whole amount or interest on any Indebtedness that is outstanding in an aggregate principal amount in excess of 5% of Adjusted Consolidated Net Worth (as of the end of the most recently completed fiscal period of the Company) beyond any period of grace provided with respect thereto or (ii) the Company or any Restricted Subsidiary is in default in the performance of or compliance with any term of any evidence of any Indebtedness that is outstanding in an aggregate principal amount in excess of 5% of Adjusted Consolidated Net Worth (as of the end of the most recently completed fiscal period of the Company) or of any mortgage, indenture or other agreement relating thereto or any other condition exists, and as a consequence of such default or condition such 27 33 Indebtedness has become, or has been declared, due and payable before its stated maturity or before its regularly scheduled dates of payment; or (g) the Company or any Material Restricted Subsidiary (i) is generally not paying, or admits in writing its inability to pay, its debts as they become due, (ii) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency, reorganization, moratorium or other similar law of any jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, (v) is adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for the purpose of any of the foregoing; or (h) a court or governmental authority of competent jurisdiction enters an order appointing, without consent by the Company or any Material Restricted Subsidiary, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company or any Material Restricted Subsidiary, or any such petition shall be filed against the Company or any Material Restricted Subsidiary and such petition shall not be dismissed within 60 days; or (i) a final judgment or judgments for the payment of money aggregating in excess of 5% of Adjusted Consolidated Net Worth (as of the end of the most recently completed fiscal period of the Company) are rendered against one or more of the Company and its Material Restricted Subsidiaries, which judgments are not, within 60 days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 60 days after the expiration of such stay; or (j) if (i) any Plan shall fail to satisfy the minimum funding standards of ERISA or the Code for any plan year or part thereof or a waiver of such standards or extension of any amortization period is sought or granted under section 412 of the Code, (ii) a notice of intent to terminate any Plan shall have been or is reasonably expected to be filed with the PBGC or the PBGC shall have instituted proceedings under ERISA section 4042 to terminate or appoint a trustee to administer any Plan or the PBGC shall have notified the Company or any ERISA Affiliate that a Plan may become a subject of any such proceedings, (iii) the aggregate "amount of unfunded benefit liabilities" (within the meaning of section 4001(a)(18) of ERISA) under all Plans, determined in accordance with Title IV of ERISA, shall exceed 5% of Adjusted Consolidated Net Worth (as of the end of the most recently completed fiscal period of the Company), (iv) the Company or any ERISA Affiliate shall have incurred or is reasonably expected to incur any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, (v) the Company or any ERISA Affiliate withdraws 28 34 from any Multiemployer Plan, or (vi) the Company or any Subsidiary establishes or amends any employee welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of the Company or any Subsidiary thereunder; and any such event or events described in clauses (i) through (vi) above, either individually or together with any other such event or events, could reasonably be expected to have a Material Adverse Effect. As used in Section 11(j), the terms "EMPLOYEE BENEFIT PLAN" and "EMPLOYEE WELFARE BENEFIT PLAN" shall have the respective meanings assigned to such terms in Section 3 of ERISA. 12. REMEDIES ON DEFAULT, ETC. 12.1. ACCELERATION. (a) If an Event of Default with respect to the Company described in paragraph (g) or (h) of Section 11 (other than an Event of Default described in clause (i) of paragraph (g) or described in clause (vi) of paragraph (g) by virtue of the fact that such clause encompasses clause (i) of paragraph (g)) has occurred, all the Series 1997 Notes then outstanding shall automatically become immediately due and payable. (b) If any other Event of Default has occurred and is continuing, any holder or holders of more than 33% in principal amount of the Series 1997 Notes at the time outstanding may at any time at its or their option, by notice or notices to the Company, declare all the Series 1997 Notes then outstanding to be immediately due and payable. (c) If any Event of Default described in paragraph (a) or (b) of Section 11 has occurred and is continuing, any holder or holders of Series 1997 Notes at the time outstanding affected by such Event of Default may at any time, at its or their option, by notice or notices to the Company, declare all the Series 1997 Notes held by it or them to be immediately due and payable. Upon any Series 1997 Notes becoming due and payable under this Section 12.1, whether automatically or by declaration, such Series 1997 Notes will forthwith mature and the entire unpaid principal amount of such Series 1997 Notes, plus (x) all accrued and unpaid interest thereon and (y) the Make-Whole Amount determined in respect of such principal amount (to the full extent permitted by applicable law), shall all be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived. The Company acknowledges, and the parties hereto agree, that each holder of a Series 1997 Note has the right to maintain its investment in the Series 1997 Notes free from repayment by the Company (except as herein specifically provided for) and that the provision for payment of a Make-Whole Amount by the Company in the event that the Series 1997 Notes are prepaid or are accelerated as a result of an Event of Default, is intended to provide compensation for the deprivation of such right under such circumstances. 29 35 12.2. OTHER REMEDIES. If any Default or Event of Default has occurred and is continuing, and irrespective of whether any Notes have become or have been declared immediately due and payable under Section 12.1, the holder of any Note at the time outstanding may proceed to protect and enforce the rights of such holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise. 12.3. RESCISSION. At any time after any Series 1997 Notes have been declared due and payable pursuant to clause (b) or (c) of Section 12.1, the holders of not less than 68% in principal amount of the Series 1997 Notes then outstanding, by written notice to the Company, may rescind and annul any such declaration and its consequences if (a) the Company has paid all overdue interest on the Series 1997 Notes, all principal of and Make-Whole Amount, if any, on any Series 1997 Notes that are due and payable and are unpaid other than by reason of such declaration, and all interest on such overdue principal and Make-Whole Amount, if any, and (to the extent permitted by applicable law) any overdue interest in respect of the Series 1997 Notes, at the Default Rate, (b) all Events of Default and Defaults, other than non-payment of amounts that have become due solely by reason of such declaration, have been cured or have been waived pursuant to Section 17, and (c) no judgment or decree has been entered for the payment of any monies due pursuant hereto or to the Series 1997 Notes. No rescission and annulment under this Section 12.3 will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon. 12.4. NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC. No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder's rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any Note upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. Without limiting the obligations of the Company under Section 15, the Company will pay to the holder of each Note on demand such further amount as shall be sufficient to cover all costs and expenses of such holder incurred in any enforcement or collection under this Section 12, including, without limitation, reasonable attorneys' fees, expenses and disbursements. 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES. 13.1. REGISTRATION OF NOTES. The Company shall keep at its principal executive office a register for the registration and registration of transfers of Notes. The name and address of each holder of one or more Notes, each transfer thereof and the name and address of each transferee of one or more 31 36 Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Note that is an Institutional Investor, promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Notes. 13.2. TRANSFER AND EXCHANGE OF NOTES. Upon surrender of any Note at the principal executive office of the Company for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Note or his attorney duly authorized in writing and accompanied by the address for notices of each transferee of such Note or part thereof), the Company shall execute and deliver, at the Company's expense (except as provided below), one or more new Notes (as requested by the holder thereof) of the same series in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to such Person as such holder may request and shall be substantially in the form of the Note established for such series. Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes. Notes shall not be transferred in denominations of less than $500,000, PROVIDED that if necessary to enable the registration of transfer by a holder of its entire holding of Notes, one Note may be in a denomination of less than $500,000. Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed to have made the representation set forth in Section 6.2. 13.3. REPLACEMENT OF NOTES. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note (which evidence shall be, in the case of an Institutional Investor, notice from such Institutional Investor of such ownership and such loss, theft, destruction or mutilation), and (a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it (PROVIDED that if the holder of such Note is, or is a nominee for, an original Purchaser or another Institutional Investor holder of a Note with a minimum net worth of at least $50,000,000, such Person's own unsecured agreement of indemnity shall be deemed to be satisfactory), or (b) in the case of mutilation, upon surrender and cancellation thereof, the Company at its own expense shall execute and deliver, in lieu thereof, a new Note of the same series, dated and bearing interest from the date to which interest shall have been paid on 31 37 such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon. 14. PAYMENTS ON SERIES 1997 NOTES. 14.1. PLACE OF PAYMENT. Subject to Section 14.2, payments of principal, Make-Whole Amount, if any, and interest becoming due and payable on the Series 1997 Notes shall be made in Chicago, Illinois at the principal office of Bank of America National Trust & Savings Association in such jurisdiction. The Company may at any time, by notice to each holder of a Series 1997 Note, change the place of payment of the Series 1997 Notes so long as such place of payment shall be either the principal office of the Company in such jurisdiction or the principal office of a bank or trust company in such jurisdiction. 14.2. HOME OFFICE PAYMENT. So long as you or your nominee shall be the holder of any Series 1997 Note, and notwithstanding anything contained in Section 14.1 or in such Series 1997 Note to the contrary, the Company will pay all sums becoming due on such Series 1997 Note for principal, Make-Whole Amount, if any, and interest by the method and at the address specified for such purpose below your name in Schedule A, or by such other method or at such other address as you shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such Series 1997 Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of any Series 1997 Note, you shall surrender such Series 1997 Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office or at the place of payment most recently designated by the Company pursuant to Section 14.1. Prior to any sale or other disposition of any Series 1997 Note held by you or your nominee you will, at your election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Series 1997 Note to the Company in exchange for a new Series 1997 Note or Series 1997 Notes pursuant to Section 13.2. The Company will afford the benefits of this Section 14.2 to any Institutional Investor that is the direct or indirect transferee of any Series 1997 Note purchased by you under this Agreement and that has made the same agreement relating to such Series 1997 Note as you have made in this Section 14.2. 15. EXPENSES, ETC. 15.1. TRANSACTION EXPENSES. Whether or not the transactions contemplated hereby are consummated, the Company will pay all reasonable costs and expenses (including reasonable attorneys' fees of a special counsel and, if reasonably required, local or other counsel) incurred by you and each Other Purchaser or holder of a Series 1997 Note in connection with such transactions and in connection with any amendments, waivers or consents under or in respect of this Agreement or 32 38 the Series 1997 Notes (whether or not such amendment, waiver or consent becomes effective), including, without limitation: (a) the reasonable costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement or the Series 1997 Notes or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement or the Series 1997 Notes, or by reason of being a holder of any Series 1997 Note, and (b) the reasonable costs and expenses, including financial advisors' fees, incurred in connection with the insolvency or bankruptcy of the Company or any Subsidiary or in connection with any work-out or restructuring of the transactions contemplated hereby and by the Series 1997 Notes. The Company will pay, and will save you and each other holder of a Series 1997 Note harmless from, all claims in respect of any fees, costs or expenses if any, of brokers and finders (other than those retained by you). 15.2. SURVIVAL. The obligations of the Company under this Section 15 will survive the payment or transfer of any Series 1997 Note, the enforcement, amendment or waiver of any provision of this Agreement or the Series 1997 Notes, and the termination of this Agreement. 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Notes, the purchase or transfer by you of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any subsequent holder of a Note, regardless of any investigation made at any time by or on behalf of you or any other holder of a Note. All statements contained in any certificate or other instrument delivered by or on behalf of the Company pursuant to this Agreement shall be deemed representations and warranties of the Company under this Agreement. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between you and the Company and supersede all prior agreements and understandings relating to the subject matter hereof. 17. AMENDMENT AND WAIVER. 17.1. REQUIREMENTS. This Agreement and the Series 1997 Notes may be amended, and the observance of any term hereof or of the Series 1997 Notes may be waived (either retroactively or prospectively), with (and only with) the written consent of the Company and the Required Holders, except that (a) no amendment or waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term (as it is used therein), will be effective as to you unless consented to by you in writing, and (b) no such amendment or waiver may, without the written consent of the holder of each Series 1997 Note at the time outstanding affected thereby, (i) subject to the provisions of Section 12 relating to acceleration or rescission, change the amount or time of any prepayment or payment of principal of, or reduce the rate or change the time of payment or method of computation of interest or of the Make-Whole Amount on, the 33 39 Series 1997 Notes, (ii) change the percentage of the principal amount of the Series 1997 Notes the holders of which are required to consent to any such amendment or waiver, or (iii) amend any of Sections 8, 11(a), 11(b), 12, 17 or 20. 17.2. SOLICITATION OF HOLDERS OF SERIES 1997 NOTES. (a) SOLICITATION. The Company will provide each holder of the Series 1997 Notes (irrespective of the amount of Series 1997 Notes then owned by it) with sufficient information, sufficiently far in advance of the date a decision is required, to enable such holder to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the provisions hereof or of the Series 1997 Notes. The Company will deliver executed or true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this Section 17 to each holder of outstanding Series 1997 Notes promptly following the date on which it is executed and delivered by, or receives the consent or approval of, the requisite holders of Series 1997 Notes. (b) PAYMENT. The Company will not directly or indirectly pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security, to any holder of Series 1997 Notes as consideration for or as an inducement to the entering into by any holder of Series 1997 Notes or any waiver or amendment of any of the terms and provisions hereof unless such remuneration is concurrently paid, or security is concurrently granted, on the same terms, ratably to each holder of Series 1997 Notes then outstanding even if such holder did not consent to such waiver or amendment. 17.3. BINDING EFFECT, ETC. Any amendment or waiver consented to as provided in this Section 17 applies equally to all holders of Series 1997 Notes and is binding upon them and upon each future holder of any Series 1997 Note and upon the Company without regard to whether such Series 1997 Note has been marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. No course of dealing between the Company and the holder of any Series 1997 Note nor any delay in exercising any rights hereunder or under any Series 1997 Note shall operate as a waiver of any rights of any holder of such Series 1997 Note. As used herein, the term "THIS AGREEMENT" or "THE AGREEMENT" and references thereto shall mean this Agreement as it may from time to time be amended or supplemented. 17.4. SERIES 1997 NOTES HELD BY COMPANY, ETC. Solely for the purpose of determining whether the holders of the requisite percentage of the aggregate principal amount of Series 1997 Notes then outstanding approved or consented to any amendment, waiver or consent to be given under this Agreement or the Series 34 40 1997 Notes, or have directed the taking of any action provided herein or in the Series 1997 Notes to be taken upon the direction of the holders of a specified percentage of the aggregate principal amount of Series 1997 Notes then outstanding, Series 1997 Notes directly or indirectly owned by the Company or any of its Affiliates shall be deemed not to be outstanding. 18. NOTICES. All notices and communications provided for hereunder shall be in writing and sent (a) by telecopy if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid). Any such notice must be sent: (i) if to you or your nominee, to you or it at the address specified for such communications in Schedule A, or at such other address as you or it shall have specified to the Company in writing, (ii) if to any other holder of any Note, to such holder at such address as such other holder shall have specified to the Company in writing, or (iii) if to the Company, to the Company at its address set forth at the beginning hereof to the attention of the General Counsel or Treasurer, or at such other address as the Company shall have specified to the holder of each Note in writing. Notices under this Section 18 will be deemed given only when actually received. 19. REPRODUCTION OF DOCUMENTS. This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed, (b) documents received by you at the Closing (except the Notes themselves), and (c) financial statements, certificates and other information previously or hereafter furnished to you, may be reproduced by you by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and you may destroy any original document so reproduced. The Company agrees and stipulates that, to the extent permitted by applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by you in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This Section 19 shall not prohibit the Company or any other holder of Notes from contesting any such reproduction to the same extent that it could contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction. 35 41 20. CONFIDENTIAL INFORMATION. For the purposes of this Section 20, "CONFIDENTIAL INFORMATION" means information delivered to you by or on behalf of the Company or any Subsidiary in connection with the transactions contemplated by or otherwise pursuant to this Agreement that is proprietary in nature and that was clearly marked or labeled or otherwise adequately identified (in writing with respect to Confidential Information delivered subsequent to the date of Closing) when received by you as being confidential information of the Company or such Subsidiary, PROVIDED that such term does not include information that (a) was publicly known or otherwise known to you prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by you or any person acting on your behalf, (c) otherwise becomes known to you other than through disclosure by the Company or any Subsidiary or (d) constitutes financial statements delivered to you under Section 7.1 that are otherwise publicly available. You will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by you in good faith to protect confidential information of third parties delivered to you, provided that you may deliver or disclose Confidential Information to (i) your directors, trustees, officers, employees, agents, attorneys and affiliates (to the extent such disclosure reasonably relates to the administration of the investment represented by your Notes), (ii) your financial advisors and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 20, (iii) any other holder of any Note, (iv) any Institutional Investor to which you sell or offer to sell such Note or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (v) any Person from which you offer to purchase any security of the Company (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (vi) any federal or state regulatory authority having jurisdiction over you, (vii) the National Association of Insurance Commissioners or any similar organization, or any nationally recognized rating agency that requires access to information about your investment portfolio or (viii) any other Person to which such delivery or disclosure may be necessary or appropriate (w) to effect compliance with any law, rule, regulation or order applicable to you, (x) in response to any subpoena or other legal process, (y) in connection with any litigation to which you are a party or (z) if an Event of Default has occurred and is continuing, to the extent you may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under your Notes and this Agreement. Each holder of a Note, by its acceptance of a Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 20 as though it were a party to this Agreement. On reasonable request by the Company in connection with the delivery to any holder of a Note of information required to be delivered to such holder under this Agreement or requested by such holder (other than a holder that is a party to this Agreement or its nominee), such holder will enter into an agreement with the Company embodying the provisions of this Section 20. 36 42 21. SUBSTITUTION OF PURCHASER. You shall have the right to substitute any one of your affiliates as the purchaser of the Series 1997 Notes that you have agreed to purchase hereunder, by written notice to the Company, which notice shall be signed by both you and such affiliate, shall contain such affiliate's agreement to be bound by this Agreement and shall contain a confirmation by such affiliate of the accuracy with respect to it of the representations set forth in Section 6. Upon receipt of such notice, wherever the word "you" is used in this Agreement (other than in this Section 21), such word shall be deemed to refer to such affiliate in lieu of you. In the event that such affiliate is so substituted as a purchaser hereunder and such affiliate thereafter transfers to you all of the Series 1997 Notes then held by such affiliate, upon receipt by the Company of notice of such transfer, wherever the word "you" is used in this Agreement (other than in this Section 21), such word shall no longer be deemed to refer to such affiliate, but shall refer to you, and you shall have all the rights of an original holder of the Series 1997 Notes under this Agreement. 22. MISCELLANEOUS. 22.1. SUCCESSORS AND ASSIGNS. All covenants and other agreements contained in this Agreement by or on behalf of any of the parties hereto bind and inure to the benefit of their respective successors and assigns (including, without limitation, any subsequent holder of a Series 1997 Note) whether so expressed or not. 22.2. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or the Series 1997 Notes to the contrary notwithstanding, any payment of principal of or Make-Whole Amount or interest on any Series 1997 Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the interest payable on such next succeeding Business Day. 22.3. SEVERABILITY. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction. 22.4. CONSTRUCTION. Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse 37 43 compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. 22.5. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. 22.6. GOVERNING LAW. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Illinois excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. * * * * * 38 44 If you are in agreement with the foregoing, please sign the form of agreement on the accompanying counterpart of this Agreement and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, ALLEN TELECOM INC. By: /s/ James L. LePorte III --------------------------------- Name: James L. LePorte III Title: Vice President 39 45 The foregoing is agreed to as of the date thereof. THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY By: /s/ A. Kipp Koester ------------------------------------------- Name: A. Kipp Koester Title: Vice President GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY By: /s/ Wayne T. Hoffmann By: /s/ James G. Lowery ------------------------------------------- ------------------------------------------ Name: Wayne T. Hoffmann Name: James G. Lowery Title: Vice President, Investments Title: Assistant Vice President, Investments AMERICAN FAMILY LIFE INSURANCE COMPANY By: /s/ Phillip Hannifan ------------------------------------------- Name: Phillip Hannifan Title: Investment Director CONNECTICUT GENERAL LIFE INSURANCE COMPANY By CIGNA Investments, Inc. By: /s/ James R. Kuzemchak ------------------------------------------- Name: James R. Kuzemchak Title: Managing Director CONNECTICUT GENERAL LIFE INSURANCE COMPANY, on behalf of one or more separate accounts By CIGNA Investments, Inc. By: /s/ James R. Kuzemchak ------------------------------------------- Name: James R. Kuzemchak Title: Managing Director
40 46 PAN-AMERICAN LIFE INSURANCE COMPANY By: /s/ F. Anderson Stone ------------------------------------------- Name: F. Anderson Stone Title: Vice President, Corporate Securities BERKSHIRE LIFE INSURANCE COMPANY By: /s/ Ellen I. Whittaker ------------------------------------------- Name: Ellen I. Whittaker Title: Investment Officer 41 47 SCHEDULE A ---------- INFORMATION RELATING TO PURCHASERS Principal Amount of Notes to be Purchased --------------------------------------------- Name of Purchaser Series 1997-A Series 1997-B Series 1997-C - ----------------- ------------- ------------- ------------- THE NORTHWESTERN MUTUAL $22,000,000 $9,000,000 LIFE INSURANCE COMPANY (1) All payments by wire transfer of immediately available federal funds to: Bankers Trust Company 16 Wall Street Insurance Unit - 4th Floor New York, NY 10005 ABA #0210-0103-3 For the account of: The Northwestern Mutual Life Insurance Company Account No. 00-000-027 with sufficient information to identify the source of the transfer, the amount of interest, principal or premium, the series of Notes and the PPN (2) All notices of payments and written confirmations of such wire transfers: The Northwestern Mutual Life Insurance Company 720 East Wisconsin Avenue Milwaukee, WI 53202 Attention: Investment Operations Facsimile: (414) 299-5714 (3) All other communications: The Northwestern Mutual Life Insurance Company 720 East Wisconsin Avenue Milwaukee, WI 53202 Attention: Securities Department Facsimile: (414) 299-7124 Schedule A 48 (4) Address for delivery of Notes: The Northwestern Mutual Life Insurance Company 720 East Wisconsin Avenue Milwaukee, WI 53202 Attention: John E. Dunn Tax Identification Number: 39-0509570 2 Schedule A 49 SCHEDULE A ---------- INFORMATION RELATING TO PURCHASERS Principal Amount of Notes to be Purchased ------------------------------------------------- Name of Purchaser Series 1997-A Series 1997-B Series 1997-C - ----------------- ------------- ------------- ------------- GREAT-WEST LIFE & ANNUITY $10,000,000 INSURANCE COMPANY (1) All payments by wire transfer of immediately available federal funds to: ABA #091-000-019 NW MPLS/TRUST CLEARING ACCT #08-40-245 ATTN: Acct #12468800 Special Instructions: (a) security description (PPN #), (b) allocation of payment between principal and interest, and (c) confirmation of principal balance. (2) All notices of payments and written confirmations of such wire transfers: Norwest Bank Minnesota, N.A. 733 Marquette Avenue, Investors Bldg., 5th Floor Minneapolis, Minnesota 55479-0047 Telecopier: (612) 667-4187 Attention: Income Collections (3) All other communications: Great-West Life & Annuity Insurance Company 8515 East orchard road 3rd Floor, Tower 2 Englewood, Colorado 80111 Attention: Corporate Finance Investments Telecopier: (303) 689-6193 3 Schedule A 50 (4) Address for delivery of Notes: Norwest Bank Minnesota, N.A. 733 Marquette Avenue, 5th Floor Minneapolis, Minnesota 55479-0047 Attention: Security Clearance Tax Identification Number: 84-0467907 4 Schedule A 51 SCHEDULE A ---------- INFORMATION RELATING TO PURCHASERS Principal Amount of Notes to be Purchased ------------------------------------------------ Name of Purchaser Series 1997-A Series 1997-B Series 1997-C - ----------------- ------------- ------------- ------------- AMERICAN FAMILY LIFE $7,000,000 INSURANCE COMPANY Nominee Name in which Notes are to be issued: BAND & Co. (1) All payments by wire transfer of immediately available federal funds to: Firstar Bank Milwaukee, N.A. Account of Firstar Trust Company ABA #075000022 For Credit to Account #112-950-027 Trust Account #000018012500 for Life Portfolio Attn: Accounting Department Each such wire transfer shall set forth the name of the Company, the full title (including the coupon rate and final maturity date) of the Notes, the due date, and application among principal and interest of the payment being made. (2) All notices of payments and written confirmations of such wire transfers: American Family Life Insurance Company 6000 American Parkway Madison, WI 53783-0001 Attn: Investment Division - Private Placements (3) All other communications: American Family Life Insurance Company 6000 American Parkway Madison, WI 53783-0001 Attn: Investment Division - Private Placements 5 Schedule A 52 (4) Address for delivery of Notes: Firstar Bank of Madison 1 South Pinckney Street Madison, WI 53703 Attn: Business Custody Tax Identification Number: 39-6040365 6 Schedule A 53 SCHEDULE A ---------- INFORMATION RELATING TO PURCHASERS Principal Amount of Notes to be Purchased ---------------------------------------------- Name of Purchaser Series 1997-A Series 1997-B Series 1997-C - ----------------- ------------- ------------- ------------- CONNECTICUT GENERAL LIFE $2,500,000 INSURANCE COMPANY 2,500,000 2,000,000 Nominee Name in which Notes are to be issued: CIG & Co. (1) All payments by Federal Funds wire transfer of immediately available funds to: Chase NYC/CTR/ BNF=CIGNA Private Placements/AC=9009001802 ABA# 021000021 with the following accompanying information: OBI=[name of company; description of security; interest rate; maturity date; PPN; due date and application (as among principal, premium and interest of the payment being made); contact name and phone] (2) Notices related to payments: CIG & Co. c/o CIGNA Investments, Inc. Attention: Securities Processing - S-309 900 Cottage Grove Road Hartford, CT 06152-2309 CIG & Co. c/o CIGNA Investments, Inc. Attention: Private Securities - S-307 Operations Group 900 Cottage Grove Road Hartford, CT 06152-2307 Fax: (860) 726-7203 7 Schedule A 54 with a copy to: Chase Manhattan Bank, N.A. Private Placement Servicing P.O. Box 1508 Bowling Green Station New York, NY 10081 Attention: CIGNA Private Placements Fax: (212) 552-3107/1005 (3) All other communications: CIG & Co. c/o CIGNA Investments, Inc. Attention: Private Securities Division - S-307 James R. Kuzemchak 900 Cottage Grove Road Hartford, CT 06152-2307 Fax: (860) 726-7203 Tax Identification Number: 13-3574027 8 Schedule A 55 SCHEDULE A ---------- INFORMATION RELATING TO PURCHASERS Principal Amount of Notes to be Purchased Name of Purchaser Series 1997-A Series 1997-B Series 1997-C - ----------------- ------------- ------------- ------------- CONNECTICUT GENERAL LIFE $2,000,000 INSURANCE COMPANY, on behalf of one or more separate accounts Nominee Name in which Notes are to be issued: CIG & Co. (1) All payments by Federal Funds wire transfer of immediately available funds to: Chase NYC/CTR/ BNF=CIGNA Private Placements/AC=9009001802 ABA# 021000021 with the following accompanying information: OBI=[name of company; description of security; interest rate; maturity date; PPN; due date and application (as among principal, premium and interest of the payment being made); contact name and phone] (2) Notices related to payments: CIG & Co. c/o CIGNA Investments, Inc. Attention: Securities Processing - S-309 900 Cottage Grove Road Hartford, CT 06152-2309 CIG & Co. c/o CIGNA Investments, Inc. Attention: Private Securities - S-307 Operations Group 900 Cottage Grove Road Hartford, CT 06152-2307 Fax: (860) 726-7203 9 Schedule A 56 with a copy to: Chase Manhattan Bank, N.A. Private Placement Servicing P.O. Box 1508 Bowling Green Station New York, NY 10081 Attention: CIGNA Private Placements Fax: (212) 552-3107/1005 (3) All other communications: CIG & Co. c/o CIGNA Investments, Inc. Attention: Private Securities Division - S-307 James R. Kuzemchak 900 Cottage Grove Road Hartford, CT 06152-2307 Fax: (860) 726-7203 Tax Identification Number: 13-3574027 10 Schedule A 57 SCHEDULE A ---------- INFORMATION RELATING TO PURCHASERS Principal Amount of Notes to be Purchased ---------------------------------------------- Name of Purchaser Series 1997-A Series 1997-B Series 1997-C - ----------------- ------------- ------------- ------------- PAN-AMERICAN LIFE INSURANCE $5,000,000 COMPANY (1) All payments by wire transfer of immediately available federal funds to: PAN-AMERICAN LIFE INSURANCE COMPANY Account #1100-29496 First National Bank of Commerce ABA #065000029 210 Barone Street New Orleans, LA 70112 identifying the issue by PPN and description of security, and providing complete details, including breakdown of interest and principal. (2) All notices of payments and written confirmations of such wire transfers: Pan-American Life Insurance Company Attn: Bond & Stock Accounting - 28th Floor 601 Poydras Street New Orleans, LA 70130 Fax: (504) 566-3459 (3) All other communications: Pan-American Life Insurance Company Attn: Investment Department - 28th Floor 601 Poydras Street New Orleans, LA 70130 11 Schedule A 58 (4) Address for delivery of Notes: Pan-American Life Insurance Company Attn: Marylyn Andree - 28th Floor 601 Poydras Street New Orleans, LA 70130 Tax Identification Number: 72-0281240 12 Schedule A 59 SCHEDULE A ---------- INFORMATION RELATING TO PURCHASERS Principal Amount of Notes to be Purchased ------------------------------------------------ Name of Purchaser Series 1997-A Series 1997-B Series 1997-C - ----------------- ------------- ------------- ------------- BERKSHIRE LIFE INSURANCE $3,000,000 COMPANY (1) All payments by wire transfer of immediately available federal funds to: Berkshire Life Insurance Company Account Number 002-4-020877 The Chase Manhattan Bank, N.A. ABA #021000021 with sufficient information (including issuer, PPN, interest rate, maturity and whether payment is of principal, premium or interest) to identify the source and application of such funds. (2) All notices of payments and written confirmations of such wire transfers: Berkshire Life Insurance Company Attention: Securities Department 700 South Street Pittsfield, MA 01201 Facsimile: (413) 443-9397 Telephone: (413) 499-4321 (3) All other communications: Berkshire Life Insurance Company Attention: Securities Department 700 South Street Pittsfield, MA 01201 Facsimile: (413) 443-9397 Telephone: (413) 499-4321 Taxpayer Identification Number: 04-1083480 13 Schedule A 60 SCHEDULE B ---------- DEFINED TERMS ------------- As used herein, the following terms have the respective meanings set forth below or set forth in the Section hereof following such term: "ADJUSTED CONSOLIDATED NET WORTH" means, as of any date, consolidated stockholders' equity of the Company and its Restricted Subsidiaries on such date, determined in accordance with GAAP, less the amount by which outstanding Restricted Investments on such date exceed 20% of the sum on such date of Consolidated Indebtedness and consolidated stockholders equity of the Company and its Restricted Subsidiaries determined in accordance with GAAP. "AFFILIATE" means, at any time, and with respect to any Person, (a) any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person, and (b) any Person beneficially owning or holding, directly or indirectly, 20% or more of any class of voting or equity interests of the Company or any Subsidiary or any corporation of which the Company and its Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly, 20% or more of any class of voting or equity interests. As used in this definition, "CONTROL" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless the context otherwise clearly requires, any reference to an "Affiliate" is a reference to an Affiliate of the Company. "BUSINESS DAY" means (a) for the purposes of Section 8.6 only, any day other than a Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed, and (b) for the purposes of any other provision of this Agreement, any day other than a Saturday, a Sunday or a day on which commercial banks in Chicago, Illinois or New York City are required or authorized to be closed. "CAPITAL LEASE" means, at any time, a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP. "CLOSING" is defined in Section 3. "CODE" means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time. "COMPANY" means Allen Telecom Inc., a Delaware corporation. Schedule B 61 "CONFIDENTIAL INFORMATION" is defined in Section 20. "CONSOLIDATED INDEBTEDNESS" means, as of any date, Indebtedness of the Company and its Restricted Subsidiaries as of such date determined on a consolidated basis in accordance with GAAP. "CONSOLIDATED TOTAL ASSETS" means, as of any date, the assets and properties of the Company and its Restricted Subsidiaries as of such date determined on a consolidated basis in accordance with GAAP. "CONSOLIDATED TOTAL CAPITALIZATION" means, as of any date, the sum of Consolidated Indebtedness and Adjusted Consolidated Net Worth as of such date. "DEFAULT" means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default. "DEFAULT RATE" means that rate of interest that is the greater of (i) 2% per annum above the rate of interest stated in clause (a) of the first paragraph of the Notes or (ii) 2% over the rate of interest publicly announced by Bank of America National Trust & Savings Association in Chicago, Illinois as its "base" or "prime" rate. "ENVIRONMENTAL LAWS" means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but not limited to those related to hazardous substances or wastes, air emissions and discharges to waste or public systems. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect. "ERISA AFFILIATE" means any trade or business (whether or not incorporated) that is treated as a single employer together with the Company under section 414 of the Code. "EVENT OF DEFAULT" is defined in Section 11. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles as in effect from time to time in the United States of America. 2 Schedule B 62 "GOVERNMENTAL AUTHORITY" means (a) the government of (i) the United States of America or any State or other political subdivision thereof, or (ii) any jurisdiction in which the Company or any Subsidiary conducts all or any part of its business, or which asserts jurisdiction over any properties of the Company or any Subsidiary, or (b) any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any such government. "GUARANTY" means, with respect to any Person, any obligation (except the endorsement 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 of any other Person in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by such Person: (a) to purchase such indebtedness or obligation or any property constituting security therefor; (b) to advance or supply funds (i) for the purchase or payment of such indebtedness or obligation, or (ii) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such indebtedness or obligation; (c) to lease properties or to purchase properties or services primarily for the purpose of assuring the owner of such indebtedness or obligation of the ability of any other Person to make payment of the indebtedness or obligation; or (d) otherwise to assure the owner of such indebtedness or obligation against loss in respect thereof. In any computation of the indebtedness or other liabilities of the obligor under any Guaranty, the indebtedness or other obligations that are the subject of such Guaranty shall be assumed to be direct obligations of such obligor. "HAZARDOUS MATERIAL" means any and all pollutants, toxic or hazardous wastes or any other substances that might pose a hazard to health or safety, the removal of which may be required or the generation, manufacture, refining, production, processing, treatment, storage, 3 Schedule B 63 handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage, or filtration of which is or shall be restricted, prohibited or penalized by any applicable law (including, without limitation, asbestos, urea formaldehyde foam insulation and polycholorinated biphenyls). "HOLDER" means, with respect to any Note, the Person in whose name such Note is registered in the register maintained by the Company pursuant to Section 13.1. "INDEBTEDNESS" with respect to any Person means, at any time, without duplication, (a) its liabilities for borrowed money; (b) its liabilities for the deferred purchase price of property acquired by such Person (excluding accounts payable and other accrued liabilities arising in the ordinary course of business, but including all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property); (c) all liabilities appearing on its balance sheet in accordance with GAAP in respect of Capital Leases; (d) all liabilities for borrowed money secured by any Lien with respect to any property owned by such Person (whether or not it has assumed or otherwise become liable for such liabilities); and (e) any Guaranty of such Person with respect to liabilities of a type described in any of clauses (a) through (d) hereof. Indebtedness of any Person shall include all obligations of such Person of the character described in clauses (a) through (e) to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is deemed to be extinguished under GAAP. Indebtedness of the Company or a Restricted Subsidiary shall not include Indebtedness of the Company to a Restricted Subsidiary or Indebtedness of a Restricted Subsidiary to the Company or to another Restricted Subsidiary. "INSTITUTIONAL INVESTOR" means (a) any original purchaser of a Note, (b) any holder of a Note holding more than $2,000,000 in aggregate principal amount of the Notes, and (c) any bank, trust company, savings and loan association or other financial institution, any pension plan, any investment company, any insurance company, any broker or dealer, or any other similar financial institution or entity, regardless of legal form. "INVESTMENTS" means all investments made, in cash or by delivery of property, directly or indirectly, by any Person, in any other Person or property, whether by acquisition of 4 Schedule B 64 shares of capital stock, indebtedness or other obligations or securities or by loan, advance, capital contribution or otherwise. "LIEN" means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capital Lease, upon or with respect to any property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements). "MAKE-WHOLE AMOUNT" is defined in Section 8.6. "MATERIAL" means material in relation to the business, operations, affairs, financial condition, assets or properties of the Company and its Restricted Subsidiaries taken as a whole. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the business, operations, affairs, financial condition, assets or properties of the Company and its Restricted Subsidiaries taken as a whole, or (b) the ability of the Company to perform its obligations under this Agreement and the Series 1997 Notes, or (c) the validity or enforceability of this Agreement or the Series 1997 Notes. "MATERIAL RESTRICTED SUBSIDIARY" means, as of the date of determination, any Restricted Subsidiary the assets or revenues of which account for more than 5% of Consolidated Total Assets at the end of the most recently ended fiscal period or more than 5% of the consolidated revenues of the Company and its Restricted Subsidiaries for the most recently completed four fiscal quarters. "MEMORANDUM" is defined in Section 5.3. "MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA). "NOTES" is defined in Section 1.1. "OFFICER'S CERTIFICATE" means a certificate of a Senior Financial Officer or of any other officer of the Company whose responsibilities extend to the subject matter of such certificate. "OTHER PURCHASERS" is defined in Section 2. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto. 5 Schedule B 65 "PERSON" means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof. "PLAN" means an "employee benefit plan" (as defined in section 3(3) of ERISA) that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability. "PRIORITY DEBT" means, as of any date, the sum (without duplication) of (a) Indebtedness of Restricted Subsidiaries on such date and (b) Indebtedness of the Company and its Restricted Subsidiaries secured by Liens permitted by Section 10.2(i) on such date. "PROPERTY" or "PROPERTIES" means, unless otherwise specifically limited, real or personal property of any kind, tangible or intangible, choate or inchoate. "PURCHASER" means each purchaser listed in Schedule A. "QPAM EXEMPTION" means Prohibited Transaction Class Exemption 84-14 issued by the United States Department of Labor. "REQUIRED HOLDERS" means, at any time, the holders of at least a majority in principal amount of the Series 1997 Notes at the time outstanding (exclusive of Series 1997 Notes then owned by the Company or any of its Affiliates). "RESPONSIBLE OFFICER" means any Senior Financial Officer and any other officer of the Company with responsibility for the administration of the relevant portion of this agreement. "RESTRICTED INVESTMENTS" means all Investments of the Company and its Restricted Subsidiaries, other than: (a) property or assets to be used or consumed in the ordinary course of business; (b) assets arising from the sale of goods or services in the ordinary course of business; (c) Investments in Restricted Subsidiaries or in any Person that, as a result thereof, becomes a Restricted Subsidiary; 6 Schedule B 66 (d) Investments existing as of the date of this Agreement that are listed in the attached Schedule B-1; (e) Investments in treasury stock; (f) Investments in: (i) obligations, maturing within five years from the date of acquisition, of or fully guaranteed by (A) the United States of America or an agency thereof or (B) Canada or a province thereof; (ii) state or municipal securities (including auction rate floaters and variable rate demand Notes), having an effective maturity within one year from the date of acquisition, which are rated in one of the top two rating classifications by at least one nationally recognized rating agency; (iii) certificates of deposit or banker's acceptances maturing within one year from the date of acquisition of or issued by Bank of America National Trust & Savings Association or other commercial banks whose long-term unsecured debt obligations (or the long-term unsecured debt obligations of the bank holding company owning all of the capital stock of such bank) are rated in one of the top two rating classifications by at least one nationally recognized rating agency; (iv) commercial paper maturing within 270 days from the date of issuance which, at the time of acquisition, is rated in one of the top two rating classifications by at least one credit rating agency of recognized national standing; (v) repurchase agreements, having a term of not more than 90 days and fully collateralized with obligations of the type described in clause (i), with a bank satisfying the requirements of clause (iii); (vi) money market instrument programs that are properly classified as current assets in accordance with GAAP; and (vii) loans or advances not in excess of .5% of Adjusted Consolidated Net Worth made in the ordinary course of business to officers, directors and employees for incidental expenses; For purposes of this Agreement, an Investment shall be valued in accordance with GAAP. "RESTRICTED SUBSIDIARY" means any Subsidiary (a) of which at least a majority of the voting securities are owned by the Company and/or one or more Wholly-Owned Restricted Subsidiaries and of which the Company has management control and (b) that the Company has 7 67 designated a Restricted Subsidiary by notice in writing (including designation in Section 5.4) given to the holders of the Notes. "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time. "SENIOR FINANCIAL OFFICER" means the chief financial officer, principal accounting officer, treasurer or comptroller of the Company. "SERIES 1997 NOTES" is defined in Section 1.2. "SERIES 1997-A NOTES" is defined in Section 1.2. "SERIES 1997-B NOTES" is defined in Section 1.2. "SERIES 1997-C NOTES" is defined in Section 1.2. "SOURCE" is defined in Section 6.2 "SUBSIDIARY" means, as to any Person, any corporation, association or other business entity in which such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such entity, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries (unless such partnership can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a "Subsidiary" is a reference to a Subsidiary of the Company. "SUPPLEMENT" is defined in Section 1.1. "THIS AGREEMENT" OR "THE AGREEMENT" is defined in Section 17.3. "UNRESTRICTED SUBSIDIARY" means any Subsidiary of the Company that is not designated a Restricted Subsidiary. "WHOLLY-OWNED SUBSIDIARY" means, at any time, any Subsidiary 100% of all of the equity interests (except directors' qualifying shares) and voting interests of which are owned by any one or more of the Company and the Company's other Wholly-Owned Subsidiaries at such time. 8 Schedule B 68 SCHEDULE B-1 ------------ EXISTING INVESTMENTS RF Micro Devices, Inc. $18,310,580 Nextwave 6,600,290 Windata 3,129,493 National Rubber 4,344,220 Telecom Wireless Solutions, Inc. Under 100K C-Com, spol. s.r.o. Under 100K
Schedule B-1 69 SCHEDULE 4.9 ------------ CHANGES IN CORPORATE STRUCTURE None Schedule 4.9 70 SCHEDULE 5.3 ------------ DISCLOSURE MATERIALS None Schedule 5.3 71 SCHEDULE 5.4(i,ii) ------------------ SUBSIDIARIES AND OWNERSHIP -------------------------- OF SUBSIDIARY STOCK ------------------- The following is a list of the subsidiaries of Allen Telecom 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 OF NAME OF CORPORATION INCORPORATION DATE % - ------------------- ------------- ---- - The Allen Group Canada Limited Ontario, Canada 04-19-72 100 The Allen Group Internat'l Sales Corp. Barbados 09-15-94 100 The Allen Group International, Inc. Delaware 07-19-73 100 The Allen Group GmbH Germany 09-29-70 100 Allen Telecom Canada, Inc. Ontario 04-14-93 100 Allen Telecom (France) S.A. (2) France 04-09-97 100 Telia S.A. (3) France 10-19-90 62 FOREM S.r.l. Italy 11-14-94 100 FOREM France S.a.r.l. (4) France 1993 99 FOREM (UK) Limited U.K. 1988 100 Mikom G.m.b.H. (5) Germany 05-07-85 62 Mikom Vertriebs und Austria 10-18-96 60 Service GmbH (6) Mitras Ltd. (7) Hungary 1992 60 C-com, spol. s.r.o. Czeckoslovakia 02-26-96 25 Allen Telecom Group Limited (1) U.K. 05-08-72 100 Allen Telecom (Holdings) Pty Limited Australia 07-18-96 100 Allen Telecom (Australia) Pty Limited Australia 07-23-96 100 Allen Telecom (Hong Kong) Limited (8) Hong Kong 04-25-97 100 Allen Telecom Investments, Inc. Delaware 04-01-97 100 Allen Telecom (Singapore) Pte Limited Singapore 06-03-97 100 Allen Telecomunicadoes do Brasil Ltda (9) Brazil 11-95 100 Antenna Specialists Co., Inc. Delaware 10-07-88 100 Antespec, S.A. de C.V. Mexico 11-14-88 100 Comsearch Holdings Inc. Delaware 08-22-97 100 Decibel Mobilcom GmbH (1) Germany 07-28-90 100 Decibel Mobilcom Limited (1) England 01-31-91 100 MARTA Technologies, Inc. Delaware 10-14-92 100 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 Signal Science, Incorporated California 09-25-74 100 Tekmar Sistemi S.r.l. (10) Italy 09-20-80 64.3
Schedule 5.4(i,ii) 72 (1) These subsidiaries are not significant in the aggregate and are no longer active. (2) Of the 2,500 shares issued and outstanding, 2,494 shares are owned by Allen Telecom Inc., 1 share is owned by Allen Telecom Investments, Inc. and the remaining 5 shares are owned in name only by Allen employees. (3) Of the 10,000 shares issued and outstanding, 6,196 shares are owned by Allen Telecom (France) S.A., 4 shares are owned by Allen employees, and Allen Telecom (France) SA. owns options to acquire the remaining 3,800 shares. (4) 99% of the outstanding capital stock of this subsidiary is owned by FOR.E.M. S.r.l. and the remaining 1% is owned by senior management of FOREM France S.a.r.l. (5) 62% of the outstanding capital stock of this subsidiary is owned by FOR.E.M. S.r.l. and the remaining 38% is owned by the managing director of Mikom G.m.b.H. (6) 60% of the outstanding capital stock is owned by Mikom G.m.b.H. and the remaining 40% is owned by the partners of Mikom G.m.b.H. in the venture. (7) 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. (8) Of the 1,000 shares issued and outstanding, 999 shares are owned by Allen Telecom Inc. and 1 share is owned by Allen Telecom Investments, Inc. (9) 99% of the outstanding capital stock of this subsidiary is owned by Allen Telecom Inc. and the remaining 1% is owned by Allen Telecom Investments, Inc. (10) 64.3% of the outstanding capital stock of this subsidiary is owned by Allen Telecom, Inc. which also owns options to acquire the remaining 35.7%. 73 SCHEDULE 5.4(iii) ----------------- SUBSIDIARIES AND OWNERSHIP OF SUBSIDIARY STOCK OFFICERS OF ALLEN TELECOM INC. ------------------------------ Philip Wm. Colburn Chairman of the Board* J. Chisholm Lyons Vice Chairman of the Board* Robert G. Paul President and Chief Executive Officer Rober A. Youdelman Executive Vice President, Chief Financial Officer and Assistant Secretary Erik H. van der Kaay Executive Vice President James L. LePorte, III Vice President, Treasurer and Controller McDara P. Folan, III Vice President, Secretary and General Counsel Peter G. deVilliers Vice President Alan J. Amira Assistant Secretary John K. Burk Assistant Controller Dale W. Horn Assistant Secretary Roger L. Schroeder Assistant Treasurer and Assistant Secretary * Not officers or employees of the Company under the By-Laws Schedule 5.4(iii) 74 SCHEDULE 5.4(iii) ----------------- SUBSIDIARIES AND OWNERSHIP OF SUBSIDIARY STOCK DIRECTORS OF ALLEN TELECOM INC. ------------------------------- Philip Wm. Colburn Jill K. Conway Albert H. Gordon William O. Hunt J. Chisholm Lyons John F. McNiff Robert G. Paul Charles W. Robinson William M. Weaver, Jr. Schedule 5.4(iii) 75 SCHEDULE 5.5 ------------ FINANCIAL STATEMENTS December 31, 1992 Audited Annual Financial Statements December 31, 1993 Audited Annual Financial Statements December 31, 1994 Audited Annual Financial Statements December 31, 1995 Audited Annual Financial Statements December 31, 1996 Audited Annual Financial Statements March 31, 1997 Unaudited Quarterly Financial Statements June 30, 1997 Unaudited Quarterly Financial Statements September 30, 1997 Unaudited Quarterly Financial Statements Schedule 5.5 76 SCHEDULE 5.8 ------------ LITIGATION None. Schedule 5.8 77 SCHEDULE 5.11 ------------- LICENSES, PERMITS, ETC. None. SCHEDULE 5.11 78 SCHEDULE 5.14 ------------- USE OF PROCEEDS 1) Repayment of the Note Agreement in the amount of $15 million plus Prepayment Premium between Allen and the Variable Annuity Life Insurance Company (AMGEN). 2) Repayment of borrowings under the Company's domestic revoling credit agreement of $30 million. 3) Payment of the final pay-out relating to the purchase agreement between Allen and Forem S.P.A. expected to occur in January 1998 at an amount of approximately $16-$20 million. 4) General Corporate Purposes Schedule 5.14 79 SCHEDULE 5.15 ------------- EXISTING INDEBTEDNESS 9/30/97 1. Variable Rate Industrial Revenue Bond in the amount of $4,000,000 entered into with Dresdner Bank AG, Series 1985 of the Michigan Strategic Fund, due 2025. 2. Variable Rate Industrial Revenue Bond in the amount of $5,000,000 entered into with Dresdner Bank AG, Series 1985 of the County of Cuyahoga, Ohio, due 2015. 3. Variable Rate Industrial Revenue Bond in the amount of $3,000,000 entered into with Dresdner Bank AG, Series 1987 of the County of Cuyahoga, Ohio, due 2012. 4. Variable Rate Industrial Revenue Bond in the amount of $3,500,000 entered into with Dresdner Bank AG, Series 1996 of the County of Bedford, Virginia, due 2016. 5. Note Agreement dated February 16, 1993, for the $15,000,000 8.13% Guaranteed Series B Senior Notes due February 16, 2003 between Allen and The Variable Annuity Life Insurance Company. 6. 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 7/31/97 was Lira 101 million, due 1998. 7. 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 7/31/97 was Lira 1,089 million, due 2000. 8. 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 7/31/97 was Lira 471 million, due 2000. 9. FOREM S.P.A. long term credit agreement with Industry Ministry of Italy for research and development needs. Interest rate fixed at 8.46%. Outstanding balance at 7/31/97 was Lira 1,145 million, due 2007. 10. FOREM S.P.A. long term credit agreement with Industry Ministry of Italy for research and development needs. Interest rate fixed at 9.27%. Outstanding balance at 7/31/97 was Lira 1,122 million, due 2008. 11. FOREM S.P.A. long term credit with Interbanca secured by a first mortgage on building. Variable interest rate currently at 7.45%. Outstanding balance at 7/31/97 was Lira 1,550 million, due 2000. 80 12. FOREM S.P.A. long term credit agreement with Industry Ministry of Italy for research and development needs. Fixed interest rate at 7.75%. Outstanding balance at 7/31/97 was Lira 297 million, due 1998. 13. FOREM S.P.A. long term credit agreement with Industry Ministry of Italy for research and development needs. Fixed interest rate at 3.70%. Outstanding balance at 7/31/97 was Lira 2,640 million, due 2004. 14. Forem S.P.A. short term borrowings for working capital and foreign currency hedges from various Italian banks. Outstanding balance at 7/31/97 was Lira 10,475 million. 15. Mikom GmbH long term credit agreement with Deutsche Bank, fixed interest rate at 4.65%. Outstanding balance at 7/31/97 was DM 2,849 million, due 2002. 16. Mikom GmbH long term credit agreement with Bayerische Vereinsbank AG, fixed interest rate at 9.50%. Outstanding balance at 7/31/97 was DM 307 thousand, due 2000. 17. Mikom GmbH long term credit agreement with Dresdner Bank AG, fixed interest rate at 6.80%. Outstanding balance at 7/31/97 was DM 113,286 thousand, due 1998. 18. Mikom GmbH long term credit agreement with Deutsche Bank, fixed interest rate at 3.50%. Outstanding balance at 7/31/97 was DM 670 thousand, due 2003. 19. Allen guaranty in the amount of $16,611,025 in favor of Bayersiche Vereinsbank, Milan, Italy branch resulting from the purchase agreement between Allen and FOREM S.P.A. This guaranty relates to the remaining pay-out to FOREM based on the financial performance of FOREM during fiscal year 1997. 20. MARTA capitalized lease relating to the Ohio program with an aggregate principal amount of $14,143,020 at September 30, 1997. 21. Allen's long-term domestic revolving credit agreement with Bank of Montreal as the facility's agent dated November 11, 1996. Outstanding balance at 9/30/97 was $30,000,000. 81 SCHEDULE 10.2 ------------- EXISTING LIENS 9/30/97 Liens securing the following Indebtedness: 1. Long term note in the amount of Lira 1,550,395,365 secured by a mortgage on plant and equipment of FOREM in favor of InterBanca. 2. Long term note in the amount of DM 669,800 secured by a mortgage on the original Mikom building in favor of Deutsche Bank. 3. Long term note in the amount of DM 2,848,631 secured by a mortgage on the new Mikom building in favor of Deutsche Bank. 4. Second Amended and Restated Reimbursement and Security Agreement, dated as of December 18, 1995, between Allen and Dresdner Bank AG, New York Branch, relating to County of Cuyahoga, Ohio $3,000,000 Floating Rate Demand Industrial Development Revenue Bonds (Series 1987). 5. Second Amended and Restated Reimbursement and Security Agreement, dated as of December 18, 1995, between Allen and Dresdner Bank, New York Branch, relating to County of Cuyahoga, Ohio $5,000,000 Floating Rate Demand Industrial Development Revenue Bonds (Series 1985). 6. Reimbursement and Security Agreement, dated as of August 1, 1996, between Allen and Dresdner Bank, New York Branch, relating to Industrial Development Authority of The County of Bedford, Virginia $3,500,000 Revenue Bonds (Series 1996). 7. Second Amended and Restated Reimbursement and Security Agreement, dated as of December 18, 1995, between Allen and Dresdner Bank, New York Branch, relating to Michigan Strategic Fund $4,000,000 Industrial Development Revenue Bonds (Series 1985). Schedule 10.2 82 EXHIBIT 1.1-A ------------- [FORM OF NOTE] ALLEN TELECOM INC. [____]% SENIOR NOTE, SERIES [___], DUE [__________, ____] No. [_____] [Date] $[_______] PPN[______________] FOR VALUE RECEIVED, the undersigned, ALLEN TELECOM INC. (herein called the "Company"), a corporation organized and existing under the laws of the State of Delaware, promises to pay to [ ], or registered assigns, the principal sum of $[ ] on [ ], [ ], with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of [____]% per annum from the date hereof, payable semiannually, on [______] [____] and [______][____] in each year, commencing with the [______] [____] or [______] [____] next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreement referred to below), payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) [_____]% or (ii) 2% over the rate of interest publicly announced by Bank of America National Trust & Savings Association from time to time in Chicago, Illinois as its "base" or "prime" rate. Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at the principal office of Bank of America National Trust & Savings Association in Chicago, Illinois or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreement referred to below. This Note is one of a series of Senior Notes (herein called the "Notes") issued pursuant to a Note Purchase Agreement dated as of November 1, 1997 [and a Supplement thereto dated as of [ ], [ ]](as from time to time further amended and supplemented, the "Note Purchase Agreement"), between the Company and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreement and (ii) to have made the representation set forth in Section 6.2 of the Note Purchase Agreement. Exhibit 1.1-A 83 This Note is a registered Note and, as provided in the Note Purchase Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary. [The Company will make required prepayments of principal on the dates and in the amounts specified in the Note Purchase Agreement.] This Note is [also] subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreements but not otherwise. If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreement. This Note will be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Illinois excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. ALLEN TELECOM INC. By: ------------------------------- Title: ---------------------------- 2 Exhibit 1.1-A 84 EXHIBIT 1.1-B ------------- [FORM OF SUPPLEMENT] SUPPLEMENT TO NOTE PURCHASE AGREEMENT THIS SUPPLEMENT is entered into as of [ ], [ ] (this "SUPPLEMENT") between Allen Telecom Inc., a Delaware corporation (the "COMPANY"), and the Purchasers listed in the attached Schedule A (the "PURCHASERS"). R E C I T A L S --------------- A. The Company has entered into a Note Purchase Agreement dated as of November 1, 1997 with the purchasers listed in Schedule A thereto [and one or more supplements or amendments thereto] (as heretofore amended and supplemented, the "NOTE PURCHASE AGREEMENT"); and B. The Company desires to issue and sell, and the Purchasers desire to purchase, an additional series of Notes (as defined in the Note Purchase Agreement) pursuant to the Note Purchase Agreement and in accordance with the terms set forth below; NOW, THEREFORE, the Company and the Purchasers agree as follows: 1. AUTHORIZATION OF THE NEW SERIES OF NOTES. The Company has authorized the issue and sale of $[ ] aggregate principal amount of Notes to be designated as its [__]% Senior Notes, Series [ ], due [ ], [ ] (the "SERIES [ ] NOTES", such term to include any such Notes issued in substitution therefor pursuant to Section 13 of the Note Purchase Agreement). The Series [ ] Notes shall be substantially in the form set out in Exhibit 1, with such changes therefrom, if any, as may be approved by you and the Company. 2. SALE AND PURCHASE OF SERIES [ ] NOTES. Subject to the terms and conditions of this Supplement and the Note Purchase Agreement, the Company will issue and sell to each of the Purchasers, and the Purchasers will purchase from the Company, at the Closing provided for in Section 3, Series [ ] Notes in the principal amount specified opposite their respective names in Schedule A at the purchase price of 100% of the principal amount thereof. The obligations of the Purchasers hereunder are several and not joint obligations and no Purchaser shall have any liability to any Person for the performance or non-performance by any other Purchaser hereunder. Exhibit 1.1-B 85 3. CLOSING. The sale and purchase of the Series [ ] Notes to be purchased by the Purchasers shall occur at the offices of Gardner, Carton & Douglas, Quaker Tower, Suite 3400, 321 North Clark Street, Chicago, Illinois 60610 at 9:00 a.m., Chicago time, at a closing (the "CLOSING") on [ ], [ ] or on such other Business Day thereafter on or prior to [ ], [ ] as may be agreed upon by the Company and the Purchasers. At the Closing the Company will deliver to each Purchaser the Series [ ] Notes to be purchased by it in the form of a single Note (or such greater number of Series [ ] Notes in denominations of at least $500,000 as such Purchaser may request) dated the date of the Closing and registered in its name (or in the name of its nominee), against delivery by such Purchaser to the Company or its order of immediately available funds in the amount of the purchase price therefor by wire transfer of immediately available funds for the account of the Company to account number [__________] at [_________________] Bank, [INSERT BANK ADDRESS, ABA NUMBER FOR WIRE TRANSFERS, AND ANY OTHER RELEVANT WIRE TRANSFER INFORMATION]. If at the Closing the Company shall fail to tender such Series [ ] Notes to a Purchaser as provided above in this Section 3, or any of the conditions specified in Section 4 of the Note Purchase Agreement, as modified or expanded by Section 4 hereof, shall not have been fulfilled to such Purchaser's satisfaction, such Purchaser shall, at its election, be relieved of all further obligations under this Agreement, without thereby waiving any rights it may have by reason of such failure or such nonfulfillment. 4. CONDITIONS TO CLOSING. Each Purchasers obligation to purchase and pay for the Series [ ] Notes to be sold to it at the Closing is subject to the fulfillment to its satisfaction, prior to or at the Closing, of the conditions set forth in Section 4 of the Note Purchase Agreement, as hereafter modified, and to the following additional conditions: [Set forth any modifications and additional conditions.] 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to the Purchasers that each of the representations and warranties contained in Section 5 of the Note Purchase Agreement is true and correct as of the date hereof (i) except that all references to "Purchaser" and "you" therein shall be deemed to refer to the Purchasers hereunder, all references to "this Agreement" shall be deemed to refer to the Note Purchase Agreement as supplemented by this Supplement, and all references to "Notes" therein shall be deemed to include the Series [ ] Notes, and (ii) except for changes to such representations and warranties or the Schedules referred to therein, which changes are set forth in the attached Schedule 5. 6. REPRESENTATIONS OF THE PURCHASERS. Each Purchaser confirms to the Company that the representations set forth in Section 6 of the Note Purchase Agreement are true and correct as to such Purchaser. 2 Exhibit 1.1-B 86 7. MANDATORY PREPAYMENT OF THE SERIES [ ] NOTES. [The Series [ ] Notes are not subject to mandatory prepayment by the Company.] [On [ ], [ ] and on each [ ] thereafter to and including [ ], [ ] the Company will prepay $[ ] principal amount (or such lesser principal amount as shall then be outstanding) of the Series [ ] Notes at par and without payment of the Make-Whole Amount or any premium.] 8. APPLICABILITY OF NOTE PURCHASE AGREEMENT. Except as otherwise expressly provided herein (and expressly permitted by the Note Purchase Agreement), all of the provisions of the Note Purchase Agreement are incorporated by reference herein and shall apply to the Series [ ] Notes as if expressly set forth in this Supplement. IN WITNESS WHEREOF, the Company and the Purchasers have caused this Supplement to be executed and delivered as of the date set forth above. ALLEN TELECOM INC. By: --------------------- Title: ------------------ [ADD PURCHASER SIGNATURE BLOCKS] 3 Exhibit 1.1-B 87 Schedule A to Supplement ------------- INFORMATION RELATING TO PURCHASERS Principal Amount of Series Name and Address of Purchaser [ ] Notes to be Purchased - ----------------------------- --------------------------- [NAME OF PURCHASER] $ (1) All payments by wire transfer of immediately available funds to: with sufficient information to identify the source and application of such funds. (2) All notices of payments and written confirmations of such wire transfers: (3) All other communications: 4 Exhibit 1.1-B 88 Schedule 5 to Supplement ------------- EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES 5 Exhibit 1.1-B 89 Exhibit 1 to Supplement ---------- [FORM OF SERIES [ ] NOTE] 6 Exhibit 1.1-B 90 EXHIBIT 1.2(a) -------------- [FORM OF SERIES 1997-A NOTE] ALLEN TELECOM INC. 6.60% Senior Note, Due November 14, 2003 No. [_____] [Date] $[_______] PPN[______________] FOR VALUE RECEIVED, the undersigned, ALLEN TELECOM INC. (herein called the "Company"), a corporation organized and existing under the laws of the State of Delaware, promises to pay to [ ], or registered assigns, the principal sum of $[ ] on November 14, 2003, with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of 6.60% per annum from the date hereof, payable semiannually, on May 14 and November 14 in each year, commencing with the May 14 or November 14 next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreement referred to below), payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 8.60% or (ii) 2% over the rate of interest publicly announced by Bank of America National Trust & Savings Association from time to time in Chicago, Illinois as its "base" or "prime" rate. Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at the principal office of Bank of America National Trust & Savings Association in Chicago, Illinois or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreement referred to below. This Note is one of a series of Notes (herein called the "Notes") issued pursuant to a Note Purchase Agreement, dated as of November 1, 1997 as from time to time amended and supplemented, the "Note Purchase Agreement"), between the Company and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreement and (ii) to have made the representation set forth in Section 6.2 of the Note Purchase Agreement. Exhibit 1.2(a) 91 This Note is a registered Note and, as provided in the Note Purchase Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary. The Company will make required prepayments of principal on the dates and in the amounts specified in the Note Purchase Agreement. This Note is also subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreement but not otherwise. If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreement. This Note will be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Illinois excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. ALLEN TELECOM INC. By: --------------------------- Title: ------------------------ 2 Exhibit 1.2(a) 92 EXHIBIT 1.2(b) -------------- [FORM OF SERIES 1997-B NOTE] ALLEN TELECOM INC. 6.65% Senior Note, Due November 14, 2007 No. [_____] [Date] $[_______] PPN[______________] FOR VALUE RECEIVED, the undersigned, ALLEN TELECOM INC. (herein called the "Company"), a corporation organized and existing under the laws of the State of Delaware, promises to pay to [ ], or registered assigns, the principal sum of $[ ] on November 14, 2007, with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of 6.65% per annum from the date hereof, payable semiannually, on May 14 and November 14 in each year, commencing with the May 14 or November 14 next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreement referred to below), payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 8.65% or (ii) 2% over the rate of interest publicly announced by Bank of America National Trust & Savings Association from time to time in Chicago, Illinois as its "base" or "prime" rate. Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at the principal office of Bank of America National Trust & Savings Association in Chicago, Illinois or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreement referred to below. This Note is one of a series of Notes (herein called the "Notes") issued pursuant to a Note Purchase Agreement, dated as of November 1, 1997 as from time to time amended and supplemented, the "Note Purchase Agreement"), between the Company and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreement and (ii) to have made the representation set forth in Section 6.2 of the Note Purchase Agreement. Exhibit 1.2(b) 93 This Note is a registered Note and, as provided in the Note Purchase Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary. The Company will make required prepayments of principal on the dates and in the amounts specified in the Note Purchase Agreement. This Note is also subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreement but not otherwise. If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreement. This Note will be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Illinois excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. ALLEN TELECOM INC. By: ---------------------------- Title: ------------------------- 2 Exhibit 1.2(b) 94 EXHIBIT 1.2(c) -------------- [FORM OF SERIES 1997-C NOTE] ALLEN TELECOM INC. 6.74% Senior Note, Due November 14, 2007 No. [_____] [Date] $[_______] PPN[______________] FOR VALUE RECEIVED, the undersigned, ALLEN TELECOM INC. (herein called the "Company"), a corporation organized and existing under the laws of the State of Delaware, promises to pay to [ ], or registered assigns, the principal sum of $[ ] on November 14, 2007, with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of 6.74% per annum from the date hereof, payable semiannually, on May 14 and November 14 in each year, commencing with the May 14 or November 14 next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreement referred to below), payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 8.74% or (ii) 2% over the rate of interest publicly announced by Bank of America National Trust & Savings Association from time to time in Chicago, Illinois as its "base" or "prime" rate. Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at the principal office of Bank of America National Trust & Savings Association in Chicago, Illinois or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreement referred to below. This Note is one of a series of Notes (herein called the "Notes") issued pursuant to a Note Purchase Agreement, dated as of November 1, 1997 as from time to time amended and supplemented, the "Note Purchase Agreement"), between the Company and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreement and (ii) to have made the representation set forth in Section 6.2 of the Note Purchase Agreement. Exhibit 1.2(c) 95 This Note is a registered Note and, as provided in the Note Purchase Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary. This Note is subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreement but not otherwise. If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreement. This Note will be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Illinois excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. ALLEN TELECOM INC. By: ------------------------------ Title: --------------------------- 2 Exhibit 1.2(c) 96 EXHIBIT 4.4(a) -------------- FORM OF OPINION OF COUNSEL TO THE COMPANY The opinion of McDara P. Folan III, Vice President, General Counsel, of the Company, shall be to the effect that: 1. Each of the Company and each Subsidiary incorporated under the laws of the United States or any state thereof, including the District of Columbia, is a corporation duly incorporated, validly existing in good standing under the laws of the state of its incorporation, and each has all requisite corporate power and authority to own and operate its properties, to carry on its business as now conducted, and, in the case of the Company, to enter into and perform the Note Purchase Agreement and to issue and sell the Series 1997 Notes. 2. Each of the Company and each Subsidiary is duly qualified or licensed and in good standing as a foreign corporation authorized to do business in each jurisdiction where the nature of its or their businesses or the character of its or their properties makes such qualification or licensing necessary, except where such failure to be so qualified or licensed would not have a Material Adverse Effect. 3. The Note Purchase Agreement and the Series 1997 Notes have been duly authorized by proper corporate action on the part of the Company, have been duly executed and delivered by an authorized officer of the Company, constitute the legal, valid and binding agreements of the Company, and, assuming Illinois law is identical to Ohio law, are enforceable in accordance with their terms, except to the extent that enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws of general application relating to or affecting the enforcement of the rights of creditors or by equitable principles, regardless of whether enforcement is sought in a proceeding in equity or at law. 4. The offering, sale and delivery of the Series 1997 Notes do not require the registration of the Series 1997 Notes under the Securities Act of 1933, as amended, or the qualification of an indenture under the Trust Indenture Act of 1939, as amended. 5. No authorization, approval or consent of, and no designation, filing, declaration, registration and/or qualification with, any Governmental Authority is necessary or required in connection with the execution, delivery and performance by the Company of the Note Purchase Agreement or the offering, issuance and sale by the Company of the Series 1997 Notes. 6. The issuance and sale of the Series 1997 Notes by the Company, the performance of the terms and conditions of the Series 1997 Notes and the Note Purchase Agreement and the Exhibit 4.4(a) 97 execution and delivery of the Note Purchase Agreement do not conflict with, or result in any breach or violation of any of the provisions of, or constitute a default under, or result in the creation or imposition of any Lien on, the property of the Company or any Subsidiary pursuant to the provisions of (i) the Restated Certificate of Incorporation, as amended, or Restated By-laws of the Company, as amended, or the charter or by-laws of any Subsidiary, each as amended, (ii) any loan agreement or evidence of Indebtedness known to such counsel to which the Company or any Subsidiary is a party or by which any of them or their property is bound or may be affected, (iii) any other agreement or instrument known to such counsel to which the Company or any Subsidiary is a party or by which any of them or their property is bound or may be affected, (iv) any law (including usury laws) or regulation applicable to the Company, or (v) any order, writ, injunction or decree known to such counsel of any court or Governmental Authority applicable to the Company or any Subsidiary. 7. All of the issued and outstanding shares of capital stock of each Subsidiary incorporated in the United States or any state thereof, including the District of Columbia, have been duly and validly issued, are fully paid and nonassessable and are owned of record by the Company free and clear of any perfected pledge or, to the knowledge of such counsel, any other perfected Lien. 8. There are no actions, suits or proceedings pending, or, to such counsel's knowledge, threatened against, or affecting the Company or any Subsidiary, at law or in equity or before or by any Governmental Authority, that are likely to result, individually or in the aggregate, in a Material Adverse Effect. 9. Neither the Company nor any Subsidiary is (i) a "public utility company" or a "holding company," or an "affiliate" or a "subsidiary company" of a "holding company," or an "affiliate" of such a "subsidiary company," as such terms are defined in the Public Utility Holding Company Act of 1935, as amended (the "1935 Act"), (ii) a "public utility" as defined in the Federal Power Act, as amended, or (iii) an "investment company" or an "affiliated person" thereof, as such terms are defined in the Investment Company Act of 1940, as amended (the "1940 Act"). 10. The issuance of the Series 1997 Notes and the intended use of the proceeds of the sale of the Series 1997 Notes do not violate or conflict with Regulation G, T or X of the Board of Governors of the Federal Reserve System. The opinion of Mr. Folan shall cover such other matters relating to the sale of the Series 1997 Notes as the Purchasers may reasonably request. With respect to matters of fact on which such opinion is based, such counsel shall be entitled to rely on appropriate certificates of public officials and officers of the Company and with respect to matters governed by the laws of any jurisdiction other than the United States of America, the Delaware General Corporation Law and the laws of the State of Ohio, such counsel may rely upon the opinions of counsel deemed (and stated in their opinion to be deemed) by him to be competent and reliable. 2 Exhibit 4.4(a) 98 EXHIBIT 4.4(b) -------------- FORM OF OPINION OF SPECIAL COUNSEL TO THE PURCHASERS The opinion of Gardner, Carton & Douglas, special counsel to the Purchasers, shall be to the effect that: 1. The Company is a corporation organized and validly existing in good standing under the laws of the State of Delaware, with all requisite corporate power and authority to enter into the Agreement and to issue and sell the Series 1997 Notes. 2. The Agreement and the Series 1997 Notes have been duly authorized by proper corporate action on the part of the Company, have been duly executed and delivered by an authorized officer of the Company, and constitute the legal, valid and binding agreements of the Company, enforceable in accordance with their terms, except to the extent that enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws of general application relating to or affecting the enforcement of the rights of creditors or by equitable principles, regardless of whether enforcement is sought in a proceeding in equity or at law. 3. Based upon the representations set forth in the Agreement, the offering, sale and delivery of the Series 1997 Notes do not require the registration of the Series 1997 Notes under the Securities Act of 1933, as amended, nor the qualification of an indenture under the Trust Indenture Act of 1939, as amended. 4. The issuance and sale of the Series 1997 Notes and compliance with the terms and provisions of the Series 1997 Notes and the Agreement will not conflict with or result in any breach of any of the provisions of the Certificate of Incorporation or By-Laws of the Company. 5. No approval, consent or withholding of objection on the part of, or filing, registration or qualification with, any governmental body, Federal or state, is necessary in connection with the execution and delivery of the Note Purchase Agreement or the Series 1997 Notes. The opinion of Gardner, Carton & Douglas also shall state that the opinion of McDara Folan, Vice President, General Counsel, of the Company, delivered to you pursuant to the Agreement, is satisfactory in form and scope to Gardner, Carton & Douglas, and, in its opinion, the Purchasers and it are justified in relying thereon and shall cover such other matters relating to the sale of the Series 1997 Notes as the Purchasers may reasonably request. Exhibit 4.4(b) EX-10.Q 4 EXHIBIT 10(Q) 1 EXHIBIT 10(q) ------------- AMENDMENT TO RESTRICTED STOCK AGREEMENTS PURSUANT TO 1992 STOCK PLAN (SALARY INCREASE DEFERRAL) RESOLVED, that the Agreements dated April 28, 1992, as subsequently amended on February 22, 1995 and April 27, 1997, between the Corporation and each of Robert G. Paul, Erik H. van der Kaay, Robert A. Youdelman and James L. LePorte, III, be amended by deleting the current last three Average Net Income targets of $.96, $1.08 and $1.20 set forth in paragraph 3(a)(iii) of such Agreements and inserting therefor the following Average Net Income targets: $1.03, $1.15 and $1.27; and FURTHER RESOLVED, that the officers of the Corporation, and each of them, hereby are authorized to do and perform any and all acts and to execute and deliver any and all documents, amendments, agreements or other instruments as they may deem necessary or advisable to effectuate the foregoing resolutions, and any actions taken by the officers of the Corporation, or any of them, in furtherance of the foregoing resolutions hereby are ratified and confirmed as the actions of the Corporation. February 17, 1998 EX-10.V 5 EXHIBIT 10(V) 1 EXHIBIT 10(v) ------------- SECOND AMENDMENT TO ALLEN TELECOM INC. 1994 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN ALLEN TELECOM INC., a Delaware corporation (the "Company"), hereby adopts this Second Amendment to the Allen Telecom Inc. 1994 Non-Employee Directors Stock Option Plan (the "Plan"), effective as of the close of business on February 17, 1998. WHEREAS, the Board of Directors of the Company has adopted a resolution at its meeting held on February 17, 1998 to increase the number of options to purchase shares of Common Stock granted under the Plan to each Non-Employee Director each year as Formula Awards (as such terms are defined under the Plan) from 1,000 to 3,000; NOW, THEREFORE, Section 5(a) of the Plan hereby is amended by deleting the number "1,000" and inserting therefor the number "3,000." All other provisions of the Plan shall remain unchanged and in full force and effect. EXECUTED on this 17th day of February, 1998. ALLEN TELECOM INC. By: /s/ McDara P. Folan, III ------------------------ McDara P. Folan, III Vice President, Secretary and General Counsel EX-10.P.P 6 EXHIBIT 10(PP) 1 Exhibit 10(pp) AMENDMENT OF SUPPLEMENTAL PENSION BENEFIT AGREEMENT -------------------------------------- THIS AMENDING AGREEMENT made as of the 1st day of August, 1997 by and between ALLEN TELECOM INC., a Delaware Corporation, ("Allen") having its principal executive offices at Beachwood, Ohio, and PHILIP W. COLBURN, of Los Angeles, California ("Colburn"). RECITALS -------- A. Allen maintains a retirement plan for employees designated as the Allen Telecom 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 B. Allen and Colburn have heretofore entered into a Supplemental Pension Benefit Agreement, dated as of December 6, 1983 as amended by certain provisions of the Employment Agreement between Allen and Colburn, dated as of June 28, 1988, and by an Amending Agreement, dated as of December 5, 1989, and as further amended and restated by an Amended and Restated Supplemental Pension Benefit Agreement, dated as of December 20, 1990, and as further amended and restated by an Amended and Restated Supplemental Pension Benefit Agreement dated as of February 27, 1992 (such Supplemental Pension Benefit Agreement, as amended hereinafter referred to as the "Pension Agreement"), which is intended to provide an aggregate level of pension benefits to Colburn which exceed the qualified benefits payable under the Pension Plan, whether or not such Pension Plan benefits are limited in amount by provisions of the Code affecting qualified plans only; and C. Colburn's employment by Allen terminated on December 31, 1991 and he elected early retirement under the Pension Plan and an optional form of payment under the Pension Plan. NOW, THEREFORE, in consideration of the premises and of Colburn's services and significant contributions to Allen, the parties hereto agree as follows: 1 2 I. Paragraph 3 of the Pension Agreement is hereby amended by the addition of the following new subsection at the end thereof: "(d) Colburn may elect to receive his remaining Supplemental Pension Benefit in a single cash lump sum payment. If Colburn so elects, the amount to be paid to him shall be equal to the actuarial present value of all remaining Supplemental Pension Benefit payments calculated as of the date of such payment reduced by ten percent (10%). The remaining ten percent (10%) of the actuarial present value of all remaining Supplemental Pension Benefit payments shall be forfeited." II. Paragraph 4 of the Pension Agreement is hereby amended in its entirety to read as follows: "4. Allen shall not be required to fund, or otherwise segregate assets to be used for payment of the Supplemental Pension Benefits hereunder. Allen may, in its sole discretion, establish a trust to hold funds or other property to be used in payment of Supplemental Pension Benefits hereunder; provided, however, that any funds or other property contained therein shall remain liable for the claims of Allen's general creditors. The obligations which Allen incurs hereunder may be satisfied only out of its general corporate funds. Nothing contained herein, and no action taken pursuant to the provisions of this Pension Agreement, shall create or be construed to create a trust of any kind or a fiduciary relationship between Allen and Colburn, his designated beneficiary or any other person." *.*.*.*.* Except as herein specifically amended the Pension Agreement is ratified and confirmed. This Amending Agreement and the Pension Agreement as previously amended and restated shall be read, interpreted and construed as a single agreement. 2 3 IN WITNESS WHEREOF, Allen Telecom Inc. has caused this Amending Agreement to be signed by its proper officer and Colburn has hereunto set his hand this 1st day of August, 1997. ATTEST ALLEN TELECOM INC. By: - ----------------------- ------------------------------- Secretary Title: ---------------------------- WITNESS: PHILIP W. COLBURN /s/ /s/ Philip W. Colburn - ----------------------- ---------------------------------- EX-10.U.U 7 EXHIBIT 10(UU) 1 Exhibit 10(uu) -------------- AMENDMENT OF SUPPLEMENTAL PENSION BENEFIT AGREEMENT -------------------------------------- THIS AMENDING AGREEMENT made as of the 1st day of August, 1997 by and between ALLEN TELECOM INC., a Delaware Corporation, ("Allen") having its principal executive offices at Beachwood, Ohio, and J. CHISHOLM LYONS, of Burlington, Ontario, Canada ("Lyons"). RECITALS -------- A. Allen maintains a retirement plan for employees designated as the Allen Telecom 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 B. Allen and Lyons have previously entered into a Supplemental Pension Benefit Agreement, dated as of December 6, 1983 (the "Pension Agreement") and amended as of December 20, 1990, intended to provide an aggregate level of non-qualified and qualified pension benefits payable under the Pension Plan, whether or not such Pension Plan benefits are limited in amount by provisions of the Code affecting qualified plans only. NOW, THEREFORE, in consideration of the premises and of Lyons' services and significant contributions to Allen, the parties hereto agree as follows: I. Paragraph 3 of the Pension Agreement is hereby amended by the addition of a new paragraph following the first paragraph thereof as follows: "Lyons may elect to receive his remaining Supplemental Pension Benefit in a single cash lump sum payment. If Lyons so elects, the amount to be paid to him shall be equal to the actuarial present value of all remaining Supplemental Pension Benefit payments calulated as of the date of such payment reduced by ten percent (10%). The remaining ten percent (10%) of the actuarial present value of all remaining Supplemental Pension Benfit payments shall be forfeited." 1 2 II. Paragraph 4 of the Pension Agreement is hereby amended in its entirety to read as follows: "4. Allen shall not be required to fund, or otherwise segregate assets to be used for payment of the Supplemental Pension Benefits hereunder. Allen may, in its sole discretion, establish a trust to hold assets or other property to be used in payment of Supplemental Pension Benefits hereunder; provided, however, that any funds or other property contained therein shall remain liable for the claims of Allen's general creditors. The obligations which Allen incurs hereunder may be satisfied only out of its general corporate funds. Nothing contained herein, and no action taken pursuant to the provisions of this Pension Agreement, shall create or be construed to create a trust of any kind or a fiduciary relationship between Allen and Lyons, his designated beneficiary or any other person." *.*.*.*.* Except as herein specifically amended the Pension Agreement is ratified and confirmed. This Amending Agreement and the Pension Agreement as previously amended shall be read, interpreted and construed as a single agreement. IN WITNESS WHEREOF, Allen Telecom Inc. has caused this Amending Agreement to be signed by its proper officer and Lyons has hereunto set his hand this 1st day of August, 1997. ATTEST ALLEN TELECOM INC. By: - ----------------------- ------------------------------- Secretary Title: ---------------------------- WITNESS: J. Chisholm Lyons /s/ /s/ J. Chisholm Lyons - ----------------------- ---------------------------------- EX-10.Z.Z 8 EXHIBIT (ZZ) 1 Exhibit 10(zz) -------------- AMENDMENT OF SUPPLEMENTAL TARGET PENSION BENEFIT AGREEMENT --------------------------------------------- THIS AMENDING AGREEMENT made as of the 1st day of August, 1997 by and between ALLEN TELECOM INC., a Delaware Corporation, (the "Company") having its principal executive offices at Beachwood, Ohio, and Robert G. Paul, of Cleveland (the "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; and B. The Company maintains a tax-qualified retirement plan for employees designated as the Allen Telecom 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 the limitations imposed under the Internal Revenue Code and because of reductions in compensation pursuant to The Allen Group Inc. Deferred Compensation Plan; and C. The Company and the Executive previously entered into a Supplemental Target Pension Benefit Agreement (the "Pension Agreement") intended to provide an aggregate level of non-qualified and qualified pension benefits to the Executive which exceed the benefits provided 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: I. Article I of the Pension Agreement is hereby amended by the addition of the following new Section thereto: "SECTION 1.1(16.1). "EXECUTIVE BENEFIT PLAN" shall mean the Allen Telecom Inc. Executive Benefit Plan." II. 2 Section 2.4 of the Pension Agreement is hereby amended in its entirety to read as follows: "SECTION 2.5. MAXIMUM BENEFIT. (a) 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. (b) In the event the Executive receives or becomes entitled to receive a benefit under the Executive Benefit Plan (the "EBP Benefit"), the Executive's Supplemental Target Pension Benefit shall be offset and reduced in accordance with this subsection to take into account the value of the EBP Benefit received by the Executive. The offset described in the preceding sentence shall be calculated as follows. First, the EBP Benefit shall be increased by interest for the period from the date of the payment of the EBP Benefit to the date of commencement of benefit payments hereunder at the rate in effect under the Pension Plan for determining Actuarial Equivalent values for lump sum payment purposes at the time of the payment of the EBP Benefit. The EBP Benefit, as so increased, is referred to below as the "Increased EBP Benefit". Second, the Increased EBP Benefit shall be converted into an annuity, payable in the same form and for the same duration as the benefit payable to the Executive under the Pension Agreement before the application of this subsection, that is the Actuarial Equivalent of the Increased EBP Benefit amount, and such Actuarial Equivalent shall be subtracted from the Executive's Supplemental Target Pension Benefit." III. Section 2.6 of the Pension Agreement is hereby amended by the addition of the following new subsection at the end thereof: "(c) Subsequent to the Executive's Benefit Commencement Date, the Executive may elect to receive his remaining Supplemental Pension Benefit in a single cash lump sum payment. If the Executive so elects, the amount to be paid to him shall be equal to the actuarial present value of all remaining Supplemental Pension Benefit payments calculated as of the date of such payment reduced by ten percent (10%). The remaining ten percent (10%) of the actuarial present value of all remaining Supplemental Pension Benefit payments shall be forfeited." 3 IV. Section 6.1 of the Pension Agreement is hereby amended in its entirety to read as follows: "SECTION 6.1. LIMITATION ON RIGHTS OF THE EXECUTIVE AND BENEFICIARIES - NO LIEN. This Agreement is an unfunded, unsecured, nonqualified plan and the entire cost of this Agreement shall be paid from the general assets of the Company. The Company, in its sole discretion, may establish a trust to hold funds or other property to be used in payment of benefits under this Agreement; provided, however, that any funds or other property contained therein shall remain liable for the claims of the Company's general creditors. 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." *.*.*.*.* Except as herein specifically amended the Pension Agreement is ratified and confirmed. This Amending Agreement and the Pension Agreement shall be read, interpreted and construed as a single agreement. IN WITNESS WHEREOF, Allen Telecom Inc. has caused this Amending Agreement to be signed by its proper officer and Executive has hereunto set his hand this 1st day of August, 1997. ATTEST ALLEN TELECOM INC. By: - ------------------------ ----------------------- Secretary Title: --------------------- WITNESS: - ------------------------ ----------------------- EX-10.I.I.I 9 EXHIBIT 10(III) 1 Exhibit 10(iii) --------------- AMENDMENT OF SUPPLEMENTAL TARGET PENSION BENEFIT AGREEMENT --------------------------------------------- THIS AMENDING AGREEMENT made as of the ___ day of _________________ , 1997 by and between ALLEN TELECOM INC., a Delaware Corporation, (the "Company") having its principal executive offices at Beachwood, Ohio, and , of _____________________(the "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; and B. The Company maintains a tax-qualified retirement plan for employees designated as the Allen Telecom 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 the limitations imposed under the Internal Revenue Code and because of reductions in compensation pursuant to The Allen Group Inc. Deferred Compensation Plan; and C. The Company and the Executive previously entered into a Supplemental Target Pension Benefit Agreement (the "Pension Agreement") intended to provide an aggregate level of non-qualified and qualified pension benefits to the Executive which exceed the benefits provided 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 of the Pension Agreement is hereby amended by the addition of the following new Section thereto: "SECTION 1.1(16.1). "Executive Benefit Plan" shall mean the Allen Telecom Inc. Executive Benefit Plan." Section 2.5 of the Pension Agreement is hereby amended in its entirety to read as follows: 2 "SECTION 2.5. MAXIMUM BENEFIT. (a) 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. (b) In the event the Executive receives or becomes entitled to receive a benefit under the Executive Benefit Plan (the "EBP Benefit"), the Executive's Supplemental Target Pension Benefit shall be offset and reduced in accordance with this subsection to take into account the value of the EBP Benefit received by the Executive. The offset described in the preceding sentence shall be calculated as follows. First, the EBP Benefit shall be increased by interest for the period from the date of the payment of the EBP Benefit to the date of commencement of benefit payments hereunder at the rate in effect under the Pension Plan for determining Actuarial Equivalent values for lump sum payment purposes at the time of the payment of the EBP Benefit. The EBP Benefit, as so increased, is referred to below as the "Increased EBP Benefit". Second, the Increased EBP Benefit shall be converted into an annuity, payable in the same form and for the same duration as the benefit payable to the Executive under the Pension Agreement before the application of this subsection, that is the Actuarial Equivalent of the Increased EBP Benefit amount. Third, such Actuarial Equivalent shall be subtracted from the Executive's Supplemental Target Pension Benefit." Section 2.7 of the Pension Agreement is hereby amended by the addition of the following new subsection at the end thereof: "(c) Subsequent to the Executive's Benefit Commencement Date, the Executive may elect to receive his remaining Supplemental Pension Benefit in a single cash lump sum payment. If the Executive so elects, the amount to be paid to him shall be equal to the Actuarial Equivalent present value of all remaining Supplemental Pension Benefit payments calculated as of the date of such payment reduced by ten percent (10%). The remaining ten percent (10%) of the Actuarial Equivalent present value of all remaining Supplemental Pension Benefit payments shall be forfeited." Section 6.1 of the Pension Agreement is hereby amended in its entirety to read as follows: "SECTION 6.1. LIMITATION ON RIGHTS OF THE EXECUTIVE AND BENEFICIARIES - NO LIEN. This Agreement is an unfunded, unsecured, nonqualified plan and the entire cost of this Agreement shall be paid from the general assets of the Company. The Company, in its sole discretion, may establish a trust to hold funds or other property to be used in payment of benefits under this Agreement; provided, however, that any funds or other property contained therein shall remain liable for the claims of the Company's general creditors. No liability for the payment of benefits under this Agreement shall be imposed upon any officer, director, employee, or stockholder of the Company. Nothing -2- 3 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." *.*.*.*.* Except as herein specifically amended the Pension Agreement is ratified and confirmed. This Amending Agreement and the Pension Agreement shall be read, interpreted and construed as a single agreement. IN WITNESS WHEREOF, Allen Telecom Inc. has caused this Amending Agreement to be signed by its proper officer and Executive has hereunto set his hand this _______day of ____________, 1997. ATTEST ALLEN TELECOM INC. By: - ------------------------ ----------------------- Secretary Title: --------------------- WITNESS: - ------------------------ ----------------------- EX-10.J.J.J 10 EXHIBIT 10(JJJ) 1 Exhibit 10(jjj) --------------- ALLEN TELECOM INC. EXECUTIVE BENEFIT PLAN AS AMENDED AND RESTATED EFFECTIVE OCTOBER 15, 1997 Copyright (C) 1996 By Compensation Resource Group, Inc. All Rights Reserved 2
TABLE OF CONTENTS ----------------- Article Page ------- ---- ARTICLE 1 DEFINITIONS ----------- ARTICLE 2 SELECTION, ENROLLMENT AND ELIGIBILITY 2.1 SELECTION BY COMMITTEE ............................................... 5 2.2 ENROLLMENT REQUIREMENTS .............................................. 5 2.3 ELIGIBILITY; COMMENCEMENT OF PARTICIPATION ........................... 5 ARTICLE 3 VESTING; ACCOUNT BALANCE ------------------------ 3.1 VESTING IN CHANGE IN CONTROL BENEFIT ................................. 5 3.2 FORFEITURE ........................................................... 6 3.3 ACCOUNT BALANCE ...................................................... 6 ARTICLE 4 BENEFITS -------- 4.1 CHANGE IN CONTROL BENEFIT ............................................ 6 4.2 EMPLOYER BENEFIT ..................................................... 7 4.3 WITHHOLDING AND PAYROLL TAXES ........................................ 7 4.4 ALLOCATION OF CERTAIN FORFEITED BENEFITS TO RESERVE ACCOUNT .......... 7 ARTICLE 5 BENEFICIARY ----------- 5.1 BENEFICIARY .......................................................... 7 5.2 BENEFICIARY DESIGNATION; CHANGE; SPOUSAL CONSENT ..................... 7 5.3 ACKNOWLEDGMENT ....................................................... 8 5.4 NO BENEFICIARY DESIGNATION ........................................... 8 5.5 DOUBT AS TO BENEFICIARY .............................................. 8 5.6 DISCHARGE OF OBLIGATIONS ............................................. 8
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ARTICLE 6 TERMINATION, AMENDMENT OR ------------------------- MODIFICATION OF THE PLAN ------------------------ 6.1 TERMINATION, AMENDMENT OR MODIFICATION PRIOR TO ONE YEAR BEFORE CHANGE IN CONTROL .................................................... 8 6.2 TERMINATION, AMENDMENT OR MODIFICATION WITHIN ONE YEAR BEFORE CHANGE IN CONTROL OR FOLLOWING CHANGE IN CONTROL ..................... 9 6.3 TERMINATION OF PLAN AGREEMENT ........................................ 9 ARTICLE 7 OTHER BENEFITS AND AGREEMENTS ----------------------------- 7.1 COORDINATION WITH OTHER BENEFITS ...................................... 9 ARTICLE 8 TRUST ----- 8.1 ESTABLISHMENT OF THE TRUST ........................................... 9 8.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST .......................... 9 8.3 ACCOUNTS ............................................................. 10 ARTICLE 9 INSURANCE POLICIES ------------------ 9.1 POLICIES ............................................................. 11 9.2 DOCUMENTS REQUIRED BY INSURER ........................................ 11 ARTICLE 10 ADMINISTRATION -------------- 10.1 COMMITTEE DUTIES ..................................................... 12 10.2 AGENTS ............................................................... 12 10.3 BINDING EFFECT OF DECISIONS .......................................... 12 10.4 INDEMNITY OF COMMITTEE ............................................... 12 10.5 EMPLOYER INFORMATION ................................................. 12 ARTICLE 11 CLAIMS PROCEDURES ----------------- 11.1 PRESENTATION OF CLAIM ................................................ 12 11.2 NOTIFICATION OF DECISION ............................................. 13 11.3 REVIEW OF A DENIED CLAIM ............................................. 13 11.4 DECISION ON REVIEW ................................................... 13 11.5 LEGAL ACTION ......................................................... 14
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ARTICLE 12 MISCELLANEOUS ------------- 12.1 UNSECURED GENERAL CREDITOR .......................................... 14 12.2 EMPLOYER'S LIABILITY ................................................ 14 12.3 NONASSIGNABILITY .................................................... 14 12.4 NOT A CONTRACT OF EMPLOYMENT ........................................ 14 12.5 FURNISHING INFORMATION .............................................. 15 12.6 TERMS ............................................................... 15 12.7 CAPTIONS ............................................................ 15 12.8 GOVERNING LAW ....................................................... 15 12.9 VALIDITY ............................................................ 15 12.10 NOTICE .............................................................. 15 12.11 SUCCESSORS .......................................................... 16 12.12 SPOUSE'S INTEREST ................................................... 16 12.13 INCOMPETENT ......................................................... 16 12.14 DISTRIBUTION IN THE EVENT OF TAXATION ............................... 16
iii 5 ALLEN TELECOM INC. EXECUTIVE BENEFIT PLAN As Amended and Restated Effective October 15, 1997 Allen Telecom Inc. hereby amends and restates the Allen Telecom Inc. Executive Benefit Plan, effective October 15, 1997, on the terms hereinafter set forth. PURPOSE The purpose of this Plan is to provide specified benefits for the purpose of motivating and retention of a select group of management and highly compensated employees who contribute materially to the continued growth, development, and future success of Allen Telecom Inc., a Delaware corporation (the "Company"). The Plan generally is intended to provide benefits to covered employees in the event of a "Change of Control" of the Company (as defined herein) and is not intended to constitute an "employee pension benefit plan" within the meaning of Section (3)(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Benefits, if payable under the Plan, generally will be payable prior to termination of employment. ARTICLE 1 DEFINITIONS For purposes hereof, unless otherwise clearly apparent from the context, the following phrases or terms shall have the following indicated meaning: 1.1 "Administrative Account" shall mean an account established in accordance with Section 8.3(a)(ii) below. 1.2 "Beneficiary" shall mean one or more persons, trusts, estates or other entities, designated in accordance with Article 5 below, that are entitled to receive benefits under this Plan upon the death of a Participant. 1.3 "Beneficiary Designation Form" shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to designate one or more Beneficiaries. 1.4 "Board" shall mean the Board of Directors of the Company. 1 6 1.5 "Change in Control" shall mean the occurrence of any of the following with respect to the Company: (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; (d) The stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; (e) The Company voluntarily files a petition for bankruptcy under federal bankruptcy law, or an involuntary bankruptcy petition is filed against the 2 7 Company under federal bankruptcy law, which involuntary petition is not dismissed within 120 days of the filing; (f) The Company makes a general assignment for the benefit of creditors; or (g) The Company seeks or consents to the appointment of a trustee, receiver, liquidator or similar person. 1.6 "Change in Control Benefit" shall mean the benefit set forth in Section 4.1 below. 1.7 "Claimant" shall have the meaning set forth in Section 11.1 below. 1.8 "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. 1.9 "Committee" shall mean the administrative committee appointed to manage and administer the Plan in accordance with the provisions of Article 10 below. 1.10 "Company" shall mean Allen Telecom Inc., a Delaware corporation. 1.11 "Disability" shall mean a period of disability during which a Participant qualifies for benefits under the Employer's long-term disability program by which the Participant is covered. 1.12 "Effective Date" shall mean August 1, 1997. 1.13 "Employer" shall mean the Company and any other subsidiary that adopts the Plan with the consent of the Company. 1.14 "Employer Benefit" shall mean the benefit set forth in Section 4.2 or 4.4 below. 1.15 "Forfeiture" shall mean a forfeiture of a Participant's rights to benefits under this Plan as set forth in Section 3.2 below. 1.16 "Insurer" shall mean the insurance company or companies that issue one or more Policies. 1.17 "Participant" shall mean any employee of an Employer (a) who is selected to participate in the Plan, (b) who elects to participate in the Plan, (c) who signs a Plan Agreement and a Beneficiary Designation Form, (d) whose signed Plan Agreement and Beneficiary Designation Form are accepted by the Committee, and (e) whose Plan Agreement has not terminated. 1.18 "Participant's Account" shall mean an account established in accordance with Section 8.3(a)(i) below. 3 8 1.19 "Plan" shall mean the Allen Telecom Inc. Executive Benefit Plan, which is defined by this instrument and by each Plan Agreement, all as may be amended from time to time. 1.20 "Plan Agreement" shall mean a written agreement, as may be amended from time to time, which is entered into by and between an Employer and a Participant. Each Plan Agreement executed by a Participant shall provide for the entire benefit to which such Participant is entitled under the Plan, and the Plan Agreement bearing the latest date of acceptance by the Committee shall govern such entitlement. 1.21 "Plan Year" shall, for the first Plan Year, begin on August 1, 1997, and end on December 31, 1997. For each Plan Year thereafter, the Plan Year shall begin on January 1 of each year and continue through December 31 of that year. 1.22 "Policy" or "Policies" shall mean the policy or policies issued in the name of the Trustee in accordance with the terms and conditions of this Plan and each respective Plan Agreement. 1.23 "Reserve Account" shall mean an account established in accordance with Section 8.3(a)(iii) below. 1.24 "Retirement," "Retires" or "Retired" shall mean a Participant's severance from employment from all Employers for any reason other than a leave of absence, death or Disability on or after the later of Participant's (a) attaining age 65, or (b) fifth anniversary of participation in the Allen Telecom Inc. Corporate Retirement Plan. 1.25 "Supplemental Retirement Plan" or "Supplemental Retirement Plans" shall mean, as the context requires, the Allen Telecom Inc. Restoration Plan, each Supplemental Target Pension Benefit Agreement entered into between the Company and a Participant and each other nonqualified deferred compensation plan or arrangement designated by the Committee as a Supplemental Retirement Plan for purposes of this Plan. 1.26 "Termination of Employment" shall mean the ceasing of employment with all Employers, voluntarily or involuntarily, for any reason other than Retirement, Disability, death or an authorized leave of absence. 1.27 "Trust" shall mean the trust established pursuant to that certain Trust Agreement for the Allen Telecom Inc. Executive Benefit Plan, dated as of August 1, 1997, between the Company and the Trustee, as may be amended from time to time. 1.28 "Trustee" shall mean the trustee named in the Trust and any successor trustee. 1.29 "Vesting Date" shall mean the date upon which a Participant becomes 100% vested in his or her Change in Control Benefit in accordance with Section 3.1 below. 4 9 ARTICLE 2 SELECTION, ENROLLMENT AND ELIGIBILITY 2.1 SELECTION BY COMMITTEE. Participation in the Plan shall be limited to a select group of management and highly compensated employees of the Employers. From that group, the Committee shall select, in its sole discretion, employees to participate in the Plan. 2.2 ENROLLMENT REQUIREMENTS. As a condition to participation, each selected employee shall complete, execute and return to the Committee a Plan Agreement and a Beneficiary Designation Form. In addition, the Committee, in its sole discretion, shall establish from time to time such other enrollment requirements as it determines are necessary. 2.3 ELIGIBILITY; COMMENCEMENT OF PARTICIPATION. Provided an employee selected to participate in the Plan has met all enrollment requirements set forth in this Plan and required by the Committee, that employee shall commence participation in the Plan on the date specified by the Committee. If a selected employee fails to meet all such requirements prior to that date, that employee shall not be eligible to participate in the Plan until the completion of those requirements. ARTICLE 3 VESTING; ACCOUNT BALANCE 3.1 VESTING IN CHANGE IN CONTROL BENEFIT. Subject to Section 3.2 below: (a) General Rule. If a Participant has not forfeited his or her benefits pursuant to Section 3.2(a)(i) below, or experienced a Termination of Employment, prior to 90 days prior to a Change in Control, the Participant shall become 100% vested in his or her Change in Control Benefit on the date six months following the Change in Control (the "Vesting Date"). (b) Early Vesting. If at any time on or after 90 days prior to a Change in Control and prior to the Vesting Date a Participant Retires, dies, suffers a Disability or experiences an involuntarily termination of employment with all Employers, the Participant (or the Participant's Beneficiary in the event of the Participant's death) shall become 100% vested in his or her Change in Control Benefit on the later of (i) the date of the Change in Control or (ii) the date of such Retirement, death, Disability or involuntary termination of employment, and such date (rather than the date six months following a Change in Control) shall be considered the "Vesting Date" for purposes of this Plan. 5 10 3.2 FORFEITURE. Notwithstanding Section 3.1 above, a Participant shall forfeit any right to benefits under this Plan in accordance with this Section 3.2: (a) A Participant shall forfeit any right to benefits under this Plan if he or she: (i) Retires, dies, suffers a Disability, or experiences a Termination of Employment, in each case prior to 90 days before a Change in Control, or receives lump sum distributions from the Supplemental Retirement Plans that permanently ends his or her participation in the Supplemental Retirement Plans (a "Termination Distribution") at any time; or (ii) Voluntarily terminates his or her employment (other than by Retirement or Disability) with all of his or her Employers or receives a Termination Distribution from the Supplemental Retirement Plans at any time on or after the date of a Change in Control and prior to the date six months following the Change in Control. (b) A Participant receiving payments or other partial distributions from the Supplemental Retirement Plans before his or her Vesting Date described in Section 3.1(a) hereof shall forfeit a portion of his or her Change in Control Benefit which bears the same proportion to all of such benefit as the payment or partial distribution bears to his or her total interest in the Supplemental Retirement Plans. 3.3 ACCOUNT BALANCE. Within 60 days of the end of each Plan Year, each Participant shall receive a statement setting forth the balance of his or her Participant's Account as of the end of that Plan Year. ARTICLE 4 BENEFITS 4.1 CHANGE IN CONTROL BENEFIT. (a) Eligibility. On the Vesting Date, the Participant or the Participant's Beneficiary, as the case may be, shall become entitled to the "Change in Control Benefit" described in Section 4.1(b). (b) Benefit and Payment. The "Change in Control Benefit" shall be a dollar amount that is equal to the fair market value of the assets allocated to and held in the Participant's Account as of the Vesting Date. This benefit shall be paid to the Participant, or his or her Beneficiary, within 90 days of the Vesting Date. 6 11 4.2 EMPLOYER BENEFIT. (a) Eligibility. Subject to Section 4.4 below, the Participant's Employer shall be entitled to the Employer Benefit if and to the extent a Participant forfeits his or her Change in Control Benefit under Section 3.2 above. (b) Benefit and Payment. Subject to Section 4.4 below, the "Employer Benefit" shall be a distribution of the assets allocated to and held in the Participant's Account as of the date of the event described in Section 3.2 above after taking in account any distributions made or to be made in accordance with Section 4.1 above, plus any earnings allocated to that account from that date to the date of payment of the Employer Benefit. This benefit shall be paid to the Participant's Employer within 120 days of January 1 of the Plan Year following that event. 4.3 WITHHOLDING AND PAYROLL TAXES. The Trustee shall withhold from any and all benefit payments made under this Article 4, all federal, state and local income, employment and other taxes required to be withheld in connection with the payment of benefits hereunder, in amounts to be determined in the sole discretion of the Participant's Employer. 4.4 ALLOCATION OF CERTAIN FORFEITED BENEFITS TO RESERVE ACCOUNT. Notwithstanding Section 4.2 above, if upon the occurrence of an event described in Section 3.2 the Account of the Participant involved holds a fractional interest in a Policy, such interest in such Policy shall be reallocated to the Reserve Account rather than distributed as an Employer Benefit. If at any time the Reserve Account holds 100% of the interests in a Policy as a result of the application of the preceding sentence, such Policy shall be distributed to the appropriate Employers as an Employer Benefit as soon as reasonably practical. ARTICLE 5 BENEFICIARY 5.1 BENEFICIARY. Each Participant shall have the right, at any time, to designate his or her Beneficiary (both primary as well as contingent) to receive any benefits payable under the Plan to a Beneficiary upon the death of a Participant. 5.2 BENEFICIARY DESIGNATION; CHANGE; SPOUSAL CONSENT. A Participant shall designate his or her Beneficiary by completing and signing the Beneficiary Designation Form, and returning it to the Committee or its designated agent. A Participant shall have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Committee's rules and procedures, as in effect from time to time. If the Participant names someone other than his or her spouse as a Beneficiary, a spousal consent, in the form designated by 7 12 the Committee, must be signed by that Participant's spouse and returned to the Committee. Upon the acceptance by the Committee of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be canceled. The Committee shall be entitled to rely on the last Beneficiary Designation Form filed by the Participant and accepted by the Committee before his or her death. 5.3 ACKNOWLEDGMENT. No designation or change in designation of a Beneficiary shall be effective until received, accepted and acknowledged in writing by the Committee or its designated agent. 5.4 NO BENEFICIARY DESIGNATION. If a Participant fails to designate a Beneficiary as provided in Sections 5.1, 5.2 and 5.3 above, or if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant's benefits, then the Participant's designated Beneficiary shall be deemed to be his or her surviving spouse. If the Participant has no surviving spouse, the benefits remaining under the Plan to be paid to a Beneficiary shall be payable to the executor or personal representative of the Participant's estate. 5.5 DOUBT AS TO BENEFICIARY. If the Committee has any doubt as to the proper Beneficiary to receive payments pursuant to this Plan, the Committee shall have the right, exercisable in its discretion, before a Change in Control, to cause the Trustee to withhold such payments until this matter is resolved to the Committee's satisfaction. 5.6 DISCHARGE OF OBLIGATIONS. The payment of benefits under the Plan to a Beneficiary shall fully and completely discharge all Employers and the Committee from all further obligations under this Plan with respect to the Participant, and that Participant's Plan Agreement shall terminate upon such full payment of benefits. ARTICLE 6 TERMINATION, AMENDMENT OR MODIFICATION OF THE PLAN 6.1 TERMINATION, AMENDMENT OR MODIFICATION PRIOR TO ONE YEAR BEFORE CHANGE IN CONTROL. Subject to Section 6.2, each Employer reserves the right to terminate, amend or modify the Plan or any related Plan Agreement, in whole or in part, with respect to Participants whose services are retained by that Employer. Notwithstanding the foregoing, no termination, amendment or modification shall be effective to decrease or reduce a Participant's potential benefits under this Plan below the balance in his or her Participant's Account as of the effective date of the termination, amendment or modification. 8 13 6.2 TERMINATION, AMENDMENT OR MODIFICATION WITHIN ONE YEAR BEFORE CHANGE IN CONTROL OR FOLLOWING CHANGE IN CONTROL. Within one year before a Change in Control and thereafter, neither the Company, any subsidiary of the Company nor any corporation, trust or other person that succeeds to all or any substantial portion of the assets of the Company shall have the right to terminate, amend or modify the Plan and/or any Plan Agreement in effect prior to such Change in Control, and all benefits under the Plan and any such Plan Agreement shall thereafter be paid in accordance with the terms of the Plan and such Plan Agreement, as in effect immediately prior to such Change in Control. If the Plan is terminated, amended, or modified within one year before a Change in Control, such termination, amendment or modification shall be considered void as of the date of the termination, amendment or modification. Any provision of this Plan or any Plan Agreement to the contrary shall be construed in accordance with this Section 6.2. 6.3 TERMINATION OF PLAN AGREEMENT. Absent the earlier termination, modification or amendment of the Plan, or a Participant's Forfeiture of his or her benefits under this Plan, the Plan Agreement of any Participant shall terminate upon the full payment of the applicable benefit provided under Article 4. ARTICLE 7 OTHER BENEFITS AND AGREEMENTS 7.1 COORDINATION WITH OTHER BENEFITS. The benefits provided for a Participant and Participant's Beneficiary under the Plan are in addition to any other benefits available to such Participant under any other plan or program for employees. The Plan shall supplement and shall not supersede, modify or amend any other such plan or program except as may otherwise be expressly provided. ARTICLE 8 TRUST 8.1 ESTABLISHMENT OF THE TRUST; PREMIUMS. The Company shall establish the Trust and the Employers shall, at least annually, transfer over to the Trust such assets, if any, as the Company determines, in its sole discretion, to contribute or cause to be contributed to the Trust prior to a Change in Control. The Committee may direct, prior to a Change in Control, payment of any and all Policy premiums and other costs relating to insurance policies owned by the Trust. In addition, if the Trust incurs any tax liability, the Employers shall contribute to the Trust sufficient funds to allow the Trustee to pay any such tax liability. 8.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the Plan and each Plan Agreement shall govern the rights of a Participant to receive distributions pursuant to the Plan. The provisions of the Trust shall govern the rights of the 9 14 Trustee, Participant and a Participant's Beneficiary as to the assets of the Trust. The Employers shall at all times remain liable to carry out their obligations under the Plan. The Employers and the Trustee shall cooperate with each other as is necessary to minimize the Trust's tax liability. 8.3 ACCOUNTS. (a) The Trustee shall establish and maintain the following separate accounts: (i) A "Participant's Account" for each Participant (A) to which the Employers' contributions, or a portion thereof, may be allocated and held, (B) to which the earnings on amounts held pursuant to (A) shall be allocated and held, (C) to which amounts from the Reserve Account may be allocated and held, and (D) to which the earnings on amounts held pursuant to (C) shall be allocated and held, the assets of which are to be used to pay the Change in Control Benefit or the Employer Benefit in accordance with this Plan and the Trust; (ii) An "Administrative Account" for the administrative expenses of the Trust to which a portion of the Employers' contributions and earnings thereon and the Reserve Account and earnings and gains thereon may be allocated to and held, the assets of which are to be used to pay the administrative expenses, including all taxes, of the Trust in accordance with the terms and provisions of this Plan and the Trust that are not paid directly by the Employers; and (iii) A "Reserve Account" to which shall be allocated (i) the gains constituting, in the case of a Policy (or a portion thereof) on the life of a Participant that is allocated to the Participant's Account of another Participant, the excess of the life insurance proceeds of such Policy over the cash value thereof (appropriately pro rated in the case of a Policy fractional interests in which are allocated to more than one Participant's Accounts) and (ii) fractional interests in Policies pursuant to Section 4.4 above. Assets so allocated to and held in the Reserve Account shall be allocated or reallocated to other Participant's Accounts or the Administrative Account, or shall be distributed as an Employer Benefit, in accordance with the terms of the Plan. (b) Prior to a Change in Control, the Committee shall, in its sole discretion, direct the Trustee in writing as to the allocation of (i) the Employers' contributions to the accounts described in Section 8.3(a) above, (ii) the earnings on the Employer's contributions held in the accounts described in Section 8.3(a) above, and (iii) gains allocated to the Reserve Account in accordance with Section 8.3(d) below or fractional interests in Policies allocated to the Reserve Account in accordance with Section 4.4. After a 10 15 Change in Control, the Trustee shall make such allocations in accordance with the terms of the Plan and the Trust. Notwithstanding the foregoing, and except for a payment of benefits in accordance with Article 4 or a Forfeiture of benefits, a Participant's Account balance shall not be reduced. (c) Each of the accounts described in Section 8.3(a) above shall qualify for and be treated as a separate share under Code Section 663(c). (d) Notwithstanding the foregoing, for purposes of this Plan, in the case of a Policy (or a portion thereof) on the life of a Participant that is allocated to the Participant's Account of another Participant: (i) In the event of the death of the Participant whose life is insured by such Policy, the excess of the life insurance proceeds of the Policy over the cash value thereof on the date of death of such Participant (appropriately pro rated in the case of a Policy fractional interests in which are allocated to more than one Participant's Accounts) shall constitute a gain allocable to the Reserve Account; and (ii) The additions to the cash value thereof (appropriately pro rated in the case of a Policy fractional interests in which are allocated to more than one Participant's Accounts) shall constitute income allocable to the Account to which such Policy (or a portion thereof) has (except for the right to such gain) been allocated. ARTICLE 9 INSURANCE POLICIES 9.1 POLICIES. The Committee may direct the Trustee in writing to acquire one or more Policies in the Trustee's name. The Trustee shall be the sole and absolute owner and beneficiary of each Policy, with all rights of an owner and beneficiary, including without limitation, the right to surrender Policies for their cash surrender values and to take one or more loans against one or more Policies. Notwithstanding the foregoing, the Trustee shall exercise its ownership rights in each Policy only in accordance with the terms of this Plan, the respective Plan Agreements and the Trust. 9.2 DOCUMENTS REQUIRED BY INSURER. The Trustee, the Participant's Employer and the Participant shall sign such documents and provide such information as may be required from time to time by the Insurer. 11 16 ARTICLE 10 ADMINISTRATION 10.1 COMMITTEE DUTIES. This Plan shall be administered by a Committee which shall consist of the Board or such committee as the Board shall appoint. Members of the Committee may be Participants under this Plan. The Committee shall also have the sole and absolute discretion and authority to (i) make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan, and (ii) interpret where necessary all provisions of this Plan (including, without limitation, by supplying omissions from, correcting deficiencies in, or resolving inconsistencies in, the language of this Plan), as may arise in connection with the Plan. Any individual serving on the Committee who is a Participant shall not vote or act on any matter relating solely to himself or herself. When making a determination or calculation, the Committee shall be entitled to rely on information furnished by a Participant or the Company. 10.2 AGENTS. In the administration of this Plan, the Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit (including acting through a duly appointed representative) and may from time to time consult with counsel who may be counsel to any Employer. 10.3 BINDING EFFECT OF DECISIONS. The decision or action of the Committee with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Plan. 10.4 INDEMNITY OF COMMITTEE. All Employers shall indemnify and hold harmless the members of the Committee against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Plan, except in the case of willful misconduct by the Committee or any of its members. 10.5 EMPLOYER INFORMATION. To enable the Committee to perform its functions, each Employer shall supply full and timely information to the Committee on all matters relating to the compensation of its Participants, the date and circumstances of the Retirement, Disability, death or Termination of Employment of its Participants, and such other pertinent information as the Committee may reasonably require. ARTICLE 11 CLAIMS PROCEDURES 11.1 PRESENTATION OF CLAIM. Any Participant or Beneficiary of a deceased Participant (such Participant or Beneficiary being referred to below as a "Claimant") may deliver to the Committee a written claim for a determination with respect to the amounts 12 17 distributable to such Claimant from the Plan. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within 60 days after such notice was received by the Claimant. All other claims must be made within 180 days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant. 11.2 NOTIFICATION OF DECISION. The Committee shall consider a Claimant's claim within 60 days of receipt of that claim, and shall notify the Claimant in writing: (a) that the Claimant's requested determination has been made, and that the claim has been allowed in full; or (b) that the Committee has reached a conclusion contrary, in whole or in part, to the Claimant's requested determination, and such notice must set forth in a manner calculated to be understood by the Claimant: (i) the specific reason(s) for the denial of the claim, or any part of it; (ii) the specific reference(s) to pertinent provisions of the Plan upon which such denial was based; (iii) 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 (iv) an explanation of the claim review procedure set forth in Section 11.3 below. 11.3 REVIEW OF A DENIED CLAIM. Within 60 days after receiving a notice from the Committee that a claim has been denied, in whole or in part, a Claimant (or the Claimant's duly authorized representative) may file with the Committee a written request for a review of the denial of the claim. Thereafter, but not later than 30 days after the review procedure began, the Claimant (or the Claimant's duly authorized representative): (a) may review pertinent documents; (b) may submit written comments or other documents; and/or (c) may request a hearing, which the Committee, in its sole discretion, may grant. 11.4 DECISION ON REVIEW. The Committee shall render its decision on review promptly, and not later than 60 days after the filing of a written request for review of the denial, unless a hearing is held or other special circumstances require additional time, in which case the Committee's decision must be rendered within 120 days after such 13 18 date. Such decision must be written in a manner calculated to be understood by the Claimant, and it must contain: (a) specific reasons for the decision; (b) specific reference(s) to the pertinent Plan provisions upon which the decision was based; and (c) such other matters as the Committee deems relevant. 11.5 LEGAL ACTION. A Claimant's compliance with the foregoing provisions of this Article 11 is a mandatory prerequisite to a Claimant's right to commence any legal action with respect to any claim for benefits under this Plan. ARTICLE 12 MISCELLANEOUS 12.1 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interest or claims in any property or assets of an Employer. Any and all of an Employer's assets shall be, and remain, the general, unpledged and unrestricted assets of the Employer. An Employer's obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future. 12.2 EMPLOYER'S LIABILITY. An Employer's liability for the payment of benefits shall be defined only by the Plan and the Plan Agreement, as entered into between the Employer and a Participant. An Employer shall have no obligation to a Participant under the Plan except as expressly provided in the Plan and his or her Plan Agreement. 12.3 NONASSIGNABILITY. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are expressly declared to be unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency or be transferable to a spouse as a result of a property settlement or otherwise. 12.4 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between any Employer and the Participant. Such employment is hereby acknowledged to be an "at will" 14 19 employment relationship that can be terminated at any time for any reason, with or without cause, unless expressly provided in a written employment agreement. Nothing in this Plan shall be deemed to give a Participant the right to be employed in the service of any Employer, or to interfere with the right of any Employer to discipline or discharge the Participant at any time. 12.5 FURNISHING INFORMATION. A Participant will cooperate with the Committee by furnishing any and all information requested by the Committee and take such other actions as may be requested in order to facilitate the administration of the Plan and the payments of benefits hereunder, including but not limited to taking such physical examinations as the Committee may deem necessary. 12.6 TERMS. Whenever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply. 12.7 CAPTIONS. The captions of the articles, sections and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions. 12.8 GOVERNING LAW. The provisions of this Plan shall be construed and interpreted according to the laws of the State of Ohio. 12.9 VALIDITY. In case any provision of this Plan shall be illegal, invalid or ineffective for any reason, said illegality, invalidity or ineffectiveness shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal, invalid and/or ineffective provision had never been inserted herein. 12.10 NOTICE. Any notice or filing required or permitted to be given to the Committee under this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail or recognized overnight courier, to the address below: Allen Telecom Inc. 25101 Chagrin Boulevard Beachwood, OH 44122-5169 Attention: General Counsel Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Participant. 15 20 12.11 SUCCESSORS. The provisions of this Plan shall bind and inure to the benefit of the Participant's Employer and its successors and assigns and the Participant, the Participant's Beneficiaries, and their permitted successors and assigns. 12.12 SPOUSE'S INTEREST. The interest in the benefits hereunder of a spouse of a Participant who has predeceased the Participant shall automatically pass to the Participant and shall not be transferable by such spouse in any manner, including but not limited to such spouse's will, nor shall such interest pass under the laws of intestate succession. 12.13 INCOMPETENT. If the Committee determines in its discretion that a benefit under this Plan is to be paid to a minor, a person declared incompetent or to a person incapable of handling the disposition of that person's 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 incapable person. The Committee may require proof of minority, incompetency, incapacity or guardianship, as it may deem appropriate prior to distribution of the benefit. Any payment of a benefit shall be a payment for the account of the Participant and the Participant's Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Plan for such payment amount. 12.14 DISTRIBUTION IN THE EVENT OF TAXATION. If, for any reason, all or any portion of a Participant's benefit under this Plan becomes taxable to the Participant prior to the Vesting Date, a Participant may petition the Committee, if prior to a Change in Control, or the Trustee, after a Change in Control, for a distribution of assets sufficient to meet the Participant's tax liability (including additions to tax, penalties and interest). Upon the grant of such a petition, which grant shall not be unreasonably withheld, the Trustee shall distribute to the Participant from the Trust immediately available funds in an amount equal to that Participant's federal, state and local tax liability associated with such taxation, which liability shall be measured by using that Participant's then current highest federal, state and local marginal tax rate, 16 21 plus the rates or amounts for the applicable additions to tax, penalties and interest. If the petition is granted, the tax liability distribution shall be made within 90 days of the date when the Participant's petition is granted. IN WITNESS WHEREOF the Company has signed this Plan document as of the 24th day of November, 1997. ALLEN TELECOM INC. By: /s/ McDara P. Folan, III ------------------------------ Its: Vice President ----------------------------- 17 EX-11 11 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, 1997 WERE COMPUTED AS FOLLOWS (AMOUNTS IN THOUSANDS). THE 1993 THROUGH 1996 COMPUTATIONS HAVE BEEN RESTATED TO CONFORM TO THE PROVISIONS OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128, "EARNINGS PER SHARE".
FOR THE YEARS ENDED DECEMBER 31, ----------------------------------------------------- 1993 1994 1995 1996 1997 -------- -------- -------- -------- -------- Earnings: - --------- Net Income $ 24,127 $ 29,194 $ 32,639 $ 13,066 $ 23,349 Less preferred stock dividends (1) (2,180) -- -- -- -- -------- -------- -------- -------- -------- Net income applicable to common stock - Basic $ 21,947 $ 29,194 $ 32,639 $ 13,066 $ 23,349 Add: Preferred stock dividends 2,180 -- -- -- -- Convertible debenture interest 693 296 -- -- -- -------- -------- -------- -------- -------- Net income applicable to Common stock - Diluted $ 24,820 $ 29,490 $ 32,639 $ 13,066 $ 23,349 ======== ======== ======== ======== ======== Common Shares: - -------------- Weighted average common Shares outstanding - Basic 22,302 25,574 26,166 26,470 26,920 Additional common shares issuable for: Assumed exercise of stock options 638 496 754 590 420 Convertible securities 3,410 356 125 -- -- -------- -------- -------- -------- -------- Common shares - Diluted 26,350 26,426 27,045 27,060 27,340 ======== ======== ======== ======== ========
(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. EX-13 12 EXHIBIT 13 1 Exhibit 13 ALLEN TELECOM INC. 1997 ANNUAL REPORT 2 BOARD OF DIRECTORS PHILIP WM. COLBURN Chairman of the Board, Allen Telecom Inc. J. CHISHOLM LYONS Vice Chairman of the Board, Allen Telecom Inc., Counsel to Smith Lyons, Toronto, Ontario, Canada JILL K. CONWAY Visiting Scholar, Program in Science, Technology and Society, Massachusetts Institute of Technology, Cambridge, Massachusetts ALBERT H. GORDON Advisor and Director, Deltec, Inc., New York, New York WILLIAM O. HUNT Chairman of the Board, Chief Executive Officer and Director, Intellicall Inc. Dallas, Texas JOHN F. MCNIFF Vice President - Finance and Director, Dover Corporation, New York, New York ROBERT G. PAUL President and Chief Executive Officer, Allen Telecom Inc. CHARLES W. ROBINSON Chairman, Robinson & Associates Inc., Santa Fe, New Mexico WILLIAM M. WEAVER, JR. Limited Partner Emeritus, Alex, Brown & Sons Incorporated, New York, New York MANAGEMENT ROBERT G. PAUL President and Chief Executive Officer ERIK H. VAN DER KAAY Executive Vice President ROBERT A. YOUDELMAN Executive Vice President and Chief Financial Officer MCDARA P. FOLAN, III Vice President, Secretary and General Counsel JAMES L. LEPORTE, III Vice President, Treasurer and Controller PETER DE VILLIERS Vice President, Strategic Development ANDREA CASINI Managing Director, Tekmar Sistemi S.r.l. KENTON S. DAY President, Signal Science, Incorporated TERRY N. GARNER President, Grayson Wireless Division F. KIM GORYANCE President, Antenna Specialists Division PETER MAILANDT President, Decibel Products Division JEAN-LOUIS MESPLE'-DUFOUR Chairman, Telia S.A. GOFFREDO MODENA Managing Director, FOREM. S.r.l. MICHAEL K. MORIN President, Comsearch CHRISTOPHER H. MORTON President, Allen Telecom Systems Division KARL-HEINZ SCHMIDT Managing Director, Mikom G.m.b.H. GIANPIERO VILLA President, Worldwide Site Products 3
THE YEAR AT A GLANCE 1997 1996 FINANCIAL HIGHLIGHTS Sales $432,508,000 $369,498,000 Income Before Income Taxes and Minority Interests $ 46,713,000 $ 46,526,000 Income From Continuing Operations $ 23,981,000 $ 20,556,000 Net Income $ 23,349,000 $ 13,066,000 Return On Equity 9.4% 6.0% - -------------------------------------------------------------------------------- FINANCIAL POSITION, YEAR-END: Stockholders' Equity $260,822,000 $225,951,000 Working Capital $111,015,000 $ 94,378,000 Shares Outstanding 27,298,000 26,763,000 - -------------------------------------------------------------------------------- PER COMMON SHARE: Basic: Income From Continuing Operations $ .89 $ .78 Net Income $ .87 $ .50 Diluted: Income From Continuing Operations $ .88 $ .76 Net Income $ .86 $ .48 Book Value per share $ 9.55 $ 8.44 - --------------------------------------------------------------------------------
TABLE OF CONTENTS The Year at a Glance 1 Letter to Shareholders 2 Business Review 5 Consolidated Financial Statements 12 Notes to Consolidated Financial Statements 16 Management's Discussion and Analysis of Financial Condition and Results of Operations 28 Five-year Summary of Operations 32 Directors and Management Inside front cover Shareholder Information Inside back cover SAFE HARBOR CAUTIONARY STATEMENT Statements included in this Annual Report which are not historical in nature are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements regarding the Company's future performance and financial results are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements. Allen Telecom's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q contain certain detailed factors that could cause the Company's actual results to materially differ from forward-looking statements made by the Company, including, among others, the costs and timetable for new product development, the health and economic stability of the world and national markets, the uncertain level of purchases by current and prospective customers of the Company's products and services, the impact of competitive products and pricing, the potential impacts of the Company's attempts to sell its discontinued operations in the vehicle emissions testing business, and the ultimate market value of the Company's investments in telecommunications ventures. 4 2 LETTER TO SHAREHOLDERS The major focus of this year's annual report is on the products and services of the Company. It describes products that have led to our success, products that are expected to contribute to our future success, as well as when and how our Company's products are utilized in the wireless communications industry. Therefore, our comments in this letter will be focused on other aspects of the Company that we feel are important to you. We experienced another year of substantial growth in 1997. Worldwide revenues for Allen Telecom in 1997 were $433 million, up 17% from the $369 million in 1996. The growth in Allen Telecom's total revenue is shown on the accompanying chart. Our international growth rate was far stronger, growing from $207 to $258 million, or 25% as compared to domestic growth from $162 million to $175 million, or 8%. Since we are not always certain which of our products are re-shipped by our domestic customers to their overseas customers, these figures are conservative with regards to a final overseas destination of our products. This pattern of growth is consistent with the fact that wireless telecommunications systems outside the U.S. are being developed at a much faster pace than in the U.S. Income from continuing operations in 1997 was $30 million or $1.10 per common share before the special charge related to the discontinuance of two products ($.22 per common share) and an extraordinary charge for refinancing our long-term debt ($.02 per common share). Income from continuing operations in 1996 was $23 million ($.86 per common share) before a one time write-off of acquired in-process research and development costs. The special charge in 1997 covered the write-off of assets, severance pay and expenses connected with our decision to discontinue the development and sale of the Company's wireless PBX product and IQ. SignumTM RF planning tool, as well as the rationalization of our domestic site management and systems businesses. In the case of the product write-offs, we did not believe that the cost of their continued development and support was warranted when compared to the prospects for their future success. The wireless system subscriber base is continuing to grow in the U.S. even though the infrastructure is more mature than in most other parts of the world. During 1997, approximately 10 million new subscribers (a growth rate of 23%) were added to the U.S. subscriber base. Since we benefit most when new wireless communications systems are built, or new infrastructure is added to provide additional coverage, the growth of international markets is more important to us than the adding of new subscribers in the U.S. The growth rate of international subscribers, estimated to be 50% during 1997, is a much greater driver to Allen Telecom's sales. [Photo] Robert G. Paul (left) and Philip Wm. Colburn 5 3
SALES FROM CONTINUING OPERATIONS amounts in millions of dollars 93 94 95 96 97 $183.6 $213.5 $306.6 $369.5 $432.5
The growth in the international subscriber base varies from country to country, but it is substantial. In many of the lesser developed countries, the wireless telephone system is being used to expand significantly the total telecom infrastructure that those countries require for their economic development. The wireless system can often be deployed faster and at less cost in many geographic regions as compared to laying and stringing the copper and fiber optic cable necessary for wired telephone systems. In more developed countries, it is often the desire for flexibility and immediate communications that fosters the growth in wireless usage. Enhanced safety is another reason given, particularly among U.S. consumers, for buying wireless telephones, although often it is convenience that causes increased usage once it is purchased. The building of Personal Communications Services (PCS) networks in the U.S. has not had the expected impact on equipment suppliers (including Allen Telecom). While the A and B Block licensees have built a significant portion of their systems, they have used roaming agreements and partnerships to reduce the heavy capital investments which would have resulted from more extensive systems of their own. This trend, coupled with the very limited buildout thus far of the C, D, E and F Block licensees, has meant fewer opportunities for Allen Telecom equipment sales. Our PCS sales in 1997 increased approximately 9% from 1996. During 1997, the Company's gross profit margins, before the special charge, improved slightly over the prior year, despite decreasing unit prices in a number of our product lines. To offset the price reductions, we have used product redesigns and enhanced manufacturing efficiencies to maintain our profit margins. The Company also was able to reduce its selling, general and administrative expenses as a percent of sales before the special charge when compared to 1996. These improvements, along with lower tax rates, have permitted the Company to spend more on research and development and still increase net income before the various charges. Research and development and new product engineering continues to be the lifeblood of a company like Allen Telecom. R&D spending has increased in almost every product segment of the Company as we continue to find promising opportunities for new products. Our R&D spending increased from $21 million and 5.7% of sales in 1996 to $30 million and 7.0% of sales in 1997, continuing a trend as seen on the table to the right. 1997 represented our largest increase due to the more technical nature of some of our recent products. The project that received the largest research and development spending increase over 1996 was the approximately $2.3 million spent during 1997 on the Company's geolocation product. This product is being developed to meet the government mandated requirements that by the year 2001 wireless carriers be able to identify the specific location of a wireless user who is making an emergency call (911). This product will make it possible to immediately and automatically forward the location information to the emergency dispatcher network just as happens now when a 911 call is placed on a wireline phone. At present, there is no method to locate the cellular or wireless caller when making an emergency 911 call. In some locations, emergency networks have refused to take a 911 call from a wireless telephone because of the confusion that can result. Our R&D efforts on this product will increase further in 1998 as we prepare for field testing during the year. We believe this will be a very large market, reaching $2.5 billion, and the technology we are developing should allow us to be a participant in that market. The Company continues to evaluate whether to develop internally or acquire those new products and technologies which are necessary to properly service our OEM and carrier customers. We continue to make key acquisitions to enhance our product offerings and technologies. During 1997, the company acquired Telia S.A., a small French based manufacturer of power amplifiers. Its technology encompasses everything from Class A single channel power amplifiers to highly linear, multi-channel,
RESEARCH & DEVELOPMENT AND NEW PRODUCT ENGINEERING COSTS amounts in millions of dollars 93 94 95 96 97 $7.9 $8.9 $17.0 $21.0 $30.4
as a percent of sales 93 94 95 96 97 4.3% 4.2% 5.5% 5.7% 7.0%
6 4 power amplifiers with significant power handling capability. As with a number of our other acquisitions, we believe that the marriage of its technology and Allen Telecom's distribution organization can improve its revenues and image in the international marketplace. To enhance our geolocation technology, we acquired from Raytheon intellectual property and a small development team of engineers who have had experience integrating geolocation with a cellular network. We also acquired the assets and intellectual property pertaining to cable-based, in-building, wireless communications systems. This product line, named "Cable Star," has expanded our fiber-based, in-building coverage products to provide for maximum flexibility in engineering solutions for our customers. During the year, we purchased the remaining 20% of FOREM that we did not previously own (which effectively also increased our ownership in its 62% owned Mikom GmbH subsidiary), primarily for cash. The growth in sales and profits of FOREM and Mikom since their acquisition in 1994, have been exceptional, and the acquisition of this minority ownership will allow us to integrate FOREM with other elements of Allen Telecom. We have promoted the general manager of FOREM to be president of our Worldwide Site Products business. This will assist us in the integration of our worldwide manufacturing, design and customer support services, consistent with the worldwide nature of the customer base for this product segment. The Company's investment in RF Micro Devices (RFMD), originally made in 1992, was enhanced significantly during 1997. The Company's total investment of approximately $3 million has resulted in Allen Telecom owning approximately one million shares of RFMD. RFMD went public in June of 1997 at $12 per share, and has traded between $9 3/4 and $23 3/4 per share since the public offering. While the economic dislocations in certain Southeast Asian countries may have some impact on the speed of continued deployment of their wireless telephone systems, we believe this is a short-term impact that will not alter the longer-term trends. Allen Telecom's strategy is to continue to add both internally and through acquisition the full range of products and services necessary to become an essential partner with our customers, wireless telecommunications OEMs and carriers. The obstacles that must be overcome by our customers vary depending on whether carriers are in the deployment, expansion, optimization or enhancement stages of their system development. It is Allen Telecom's intent to ensure its product offering is essential to the carriers' success at each of these different stages. The very real needs being filled by the wireless communication industry give us every reason to believe this will continue to be a growth industry and one in which we will maintain a vital and successful role. /s/ Philip Wm. Colburn Philip Wm. Colburn Chairman of the Board /s/ Robert G. Paul Robert G. Paul President and Chief Executive Officer
INCOME BEFORE TAXES AND MINORITY INTERESTS amounts in millions of dollars 93 94 95 96 97 $24.5 $31.5 $50.4 $46.5 $46.7
7 5 [Graphics] GRAYSON ILLUMINATOR(TM) FOR NETWORK DRIVE TESTING ALLEN TELECOM'S EVOLUTIONARY ROLE: A PRODUCT TIMELINE Allen Telecom supplies a variety of equipment and services to the worldwide wireless infrastructure market. Through its various divisions and subsidiaries, the Company participates in every stage in the evolution of a wireless service. By conducting early research and development of products embracing emerging technologies and future applications, by providing components to the original equipment manufacturers (OEMs) and equipment and services to the carriers, and through the supply of products for network performance engineering, Allen Telecom participates in every level of a system life. To address this global market, we have established manufacturing facilities in seven countries on four continents. To serve our customers, the Company has created a network of 31 sales and engineering support offices around the world. [Graphics] RESEARCH AND DEVELOPMENT FOR FUTURE PRODUCT APPLICATIONS 8 6 RESEARCH AND DEVELOPMENT - [Graphics] DESIGNING NEW WIRELESS INVESTING IN THE FUTURE TELECOMMUNICATIONS SYSTEMS The provision of new wireless services begins with a vision of how new technologies can be applied to create voice and data services for the business enterprise and consumer marketplace of the future. Well before Allen Telecom ships products or provides services, the process begins with the development of new technologies, products, and software for the market. This process may take as long as two years or more for complex systems and as little as a few months for more simple products. Time to market has become a critical factor with development intervals being constantly compressed. A good illustration of this pre-deployment research and development is our current geolocation development project. Although many new cellular and PCS users cite personal safety as the principal driver for the purchase of a wireless telephone, today's systems are not able to determine where a call originates. This situation contrasts sharply with wireline services, where public safety organizations are immediately able to determine exact address locations through a vast computer database. The Federal Communications Commission recently mandated that by the year 2001 all providers of wireless phone services will have to provide the exact location where an emergency 911 call originates within the network. In late 1996, Allen Telecom purchased Signal Science, Incorporated (SSI), and during 1997 we stepped up investment in geolocation technology to provide carriers with the equipment and software to locate subscribers in their system who dial 911 in emergency situations. This project involves developing new equipment to be placed at existing cell sites to determine the triangulation location of an incoming signal at three cell sites, a technique originally developed for the U.S. military. This information is then routed to the appropriate public safety answering point. Our Grayson Wireless division and SSI anticipate participating in this significant developing market. When communities began objecting to new antenna towers, the PCS and cellular carriers challenged our Decibel Products division to develop smaller, less obtrusive, and more aesthetically pleasing antennas. In the original cellular systems, at least two antennas separated by a physical space of about ten feet were required to provide adequate reception of portable phone signals. The first goal was to develop a single antenna to replace the two antennas while providing similar performance. Through innovative engineering, Decibel Products perfected a design that encompassed different polarizations within the same housing. [Graphics] DECIBEL TRIPLETREE(TM) DUAL POLARIZED BASE STATION ANTENNA 9 7 These dual polarization diversity designs were then shrunk to fit three of these antennas within a single fixture to provide the most unobtrusive antenna possible. It is foreseen that this product will be used in most future PCS installations. With the drive for smaller equipment at cellular base stations, the Worldwide Site Products division has embarked on a development to create ever smaller components which the OEMs use in their cell sites. The ultimate goal is to shrink the size of a base station from the original four or five filing cabinets to about the profile of a personal computer. Where previously the receive and transmit paths of signals were separated and routed by a series of discrete components which each occupy a significant amount of space, the formidable task is to merge and miniaturize them into a single subsystem. Today the various filters, isolators, low noise amplifiers, and control systems are integrated and are less than 10% of the size of previous designs. As wireless systems evolve, we are certain that the demands of our OEM and carrier customers will constantly challenge our ingenuity, creativity, and resourcefulness. A new third generation of digital wireless communications, designated by the acronym 3G, is presently under consideration which will provide voice and Internet Protocol data access. Although its deployment is probably three years away, we are already developing products for these future applications. SYSTEM DESIGN AND PLANNING New wireless systems around the world are now allocated frequencies either through an auction or sealed bid process. In order to prepare for this process, an aspirant new service provider has to generate a rough system design to determine the cost of the overall infrastructure so that this can be considered in the bid for the license. Our Comsearch division begins to play a role in this process. They provide consulting services to assist with determining the appropriate system in light of the coverage required, topography, and area demographics. Upon license award to a new carrier, the task of actually designing and planning the system commences. Comsearch has the tools and the experienced engineering personnel to provide the new carrier with the design and layout of the system to be built. Their expertise includes vast experience in all of the air interface standards, including AMPS, ETACS, GSM, TDMA, CDMA, as well as all the established PCS formats. With attention to the projected capacity required by the carrier, the network is laid out and ideal locations chosen for the cell sites. This process is an extremely complex task as multiple variables such as interference, signal propagation, terrain, handoff from cell to cell, and equipment selection need to be factored into the layout. [Graphics] ENGINEERING MICROWAVE NETWORKS WITH IQ-LINK (TM) [Graphics] 9-1-1 GEOLOCATION TECHNOLOGY FOR EMERGENCY 911 SYSTEMS 10 8 [Graphics] TOWER MOUNTED AMPLIFIER IMPROVES SYSTEM PERFORMANCE The microwave paths to connect cell sites to the mobile switching system also have to be designed in consideration of the available frequencies, the distance, and interference with other existing paths. This design phase usually runs for approximately six months prior to the commencement of system construction, and endures through system activation. Although infrastructure construction intervals have recently become highly compressed, it usually takes about one year of build out before subscribers can be activated on a new system. CELL SITE SUBSYSTEMS When system construction commences, the first activity is to build the cell sites which usually contain equipment manufactured by Allen Telecom. Almost all of the major wireless system infrastructure vendors incorporate components or subsystems from Allen Telecom companies in their designs. Since our customers are now truly global in their operations, we have recently created a new Worldwide Site Products division which is the combination of FOREM in Italy and the Allen Telecom Site Products division in the U.S. Allen Telecom's Worldwide Site Products division is the world's largest supplier of cell site subsystems, supplying many different customized modules which are incorporated into OEM cell site racks. Sophisticated filters ensure that the incoming signals are received clearly and without interference, and that outgoing signals are transmitted without interference to the resident or any other system. Duplexers at each cell site transceiver allow one antenna to be used for both transmission and reception of radio signals simultaneously to reduce the number of antennas on the tower. Low noise amplifiers and tower mounted amplifiers are included in the receive path to enhance the reception of weak signals, and power dividers feed each receiver in the base station. In the transmit path, combiners connect all of the transmitters to a single output so that each transmitter does not require an individual antenna. Our FOREM and Decibel Products divisions supply large quantities of auto-tune combiners, which adjust instantly and automatically to new frequencies as the system is modified. The specifications and requirements for these products have become most stringent as systems have transitioned from an analogue to a digital air interface and the world's airwaves have become more congested. Power amplifiers at the cell sites boost the outgoing signals. Traditionally the technology has permitted only one signal to be amplified by a single amplifier. Recent advances in semiconductor technology now allow more sophisticated amplifiers to boost more than one signal economically and at high power levels. These amplifiers, usually referred to as feed forward, for the specific interference mitigation mechanism, require complex design technology to be efficient and reliable. Allen Telecom's recently acquired Telia S.A. subsidiary has developed a family of feed forward amplifiers and supplies them to some of the leadingdigital system OEMs for incorporation into their base stations. [Graphics] DB DIRECTOR(R) ADJUSTABLE DOWNTILT ANTENNA 11 9 [Graphics]DUAL BAND CELLULAR/PCS VEHICULAR ANTENNA CELL SITE ANTENNAS Adjacent to the equipment shelter a tower is constructed to raise the antennas so that they can provide adequate coverage. Our Decibel Products division is the leading North American supplier of base station antennas to the global wireless OEMs and wireless service providers. Where an OEM is providing a turnkey system installation, antennas are usually supplied as part of the turnkey package. As service providers become more sophisticated in their system engineering expertise, they take on more of the expansion responsibility themselves, and begin to purchase antennas directly from Decibel Products. Decibel manufactures antennas in frequency bands to cover all of the traditional analogue cellular networks (AMPS and ETACS), as well as the newer digital services for iDEN, CDMA, TDMA, GSM, DCS1800, and PCS. Depending on the specific system configuration, a cell site is usually divided into three sectors of 120 degrees. Traditional systems employ one individual transmit antenna and two separate receive antennas for each sector. With recent innovations, this number has been condensed to either two antennas or a single highly complex array which provides the functionality of the previous traditional implementations. Many different antenna models are required to address the wide variety of frequency bands, cell radii, topologies, and interference characteristics. Aesthetics and antenna size have become important considerations, with carriers demanding the smallest possible profile with the best possible performance. To achieve this result, new designs have been created which today allow antennas half the physical size of predecessor products. Market pressure has resulted in products which contain dramatically less parts, simpler assembly techniques, and leading edge materials. Presently under consideration is the assembly of some of these antennas in Europe, South America, and Asia to provide local support to our global customers. New models for the PCS market include the Decibel TripleTreeTM, which incorporates all six of the antennas required for a three sector cell site into a single twelve-inch diameter housing. To further address the requirement for fewer antennas on towers, dual frequency antennas have been developed to allow multiple carriers to use a single antenna. The Diversity MasterTM antenna has also been introduced for cellular carriers who wish to install fewer antennas at their existing cell sites. Many subscribers prefer to have a phone installed in the car for safe operation while driving. Many of these installations use mobile antennas from our Antenna Specialists division. Recent advances include antennas which operate on both cellular and PCS frequencies, as well as antennas for Global Positioning System (GPS) mapping and cellular. SYSTEM OPTIMIZATION Once a new system has been activated, there are a multitude of system optimization activities which are required as subscribers are added onto the network. In today's competitive environment, where generally at least two and sometimes as many as eight systems compete, coverage is critical. Incomplete network coverage quickly causes subscribers to transfer to another provider. Allen Telecom's Mikom G.m.b.H. subsidiary and the U.S.-based Systems division provide products which provide both coverage and capacity enhancement. Repeaters fill coverage gaps caused by obstructions such as hills, mountains, tunnels, and buildings. [Graphics] PCS DUPLEXER/AMPLIFIER FOR DIGITAL BASE STATIONS [Graphics] HIGH POWER FEED FORWARD LINEAR AMPLIFIER 12 10 [Graphics] ANALYZER(TM) IMPROVES WIRELESS NETWORK PERFORMANCE Their function is to take signals from an area with coverage and retransmit into areas where no coverage exists. They can also be linked to a base station by means of fiber optic cable. Mikom specializes in the GSM 900/1800/1900 services, and their customers are the definitive list of GSM carriers worldwide. They have helped carriers provide coverage in airports, underground parking garages, exhibition complexes, tunnels, and valleys, as well as behind mountains and down city canyons. Repeaters in GSM systems can be low power inexpensive units or higher power models with complex functionality. A high level of engineering implementation and design support is required to properly implement repeaters into a network. To provide this service, Mikom maintains a team of skilled engineers to assist GSM carriers. In certain cases, Mikom even installs coverage augmentation systems on a turnkey basis for carriers. An illustration of how Mikom's products have provided increased capacity is the Hannover Trade Fair complex in Germany consisting of more than 25 separate halls. Instead of installing a base station in each hall, a lesser number of base stations were installed in a central location, and each hall covered by a repeater fed with fiber optic cable. Among recent developments are repeaters that cover more than one band such as ETACS and GSM or GSM 900 and 1800. The Allen Telecom Systems division focuses on providing solutions for the analogue, CDMA and TDMA carriers in the Americas and Asia. All of the existing cellular carriers in the Americas have chosen either TDMA or CDMA for their digital migration path, and in Asia CDMA has been embraced along with GSM. In Korea all of the services will be CDMA, while in Hong Kong there is a mixture of GSM and CDMA systems. Through dedicated engineering support personnel, the Systems division has assisted many carriers with the provision of coverage expansion products. Once the outdoor environment is seamlessly covered, the focus of the carriers then turns to indoor coverage. It is considered a key competitive issue for a wireless service to operate in restaurants, hotels, hospitals, office buildings, stores, and shopping malls. Within Allen Telecom, a family of products has been developed to provide carriers with solutions to this unique challenge. The BriteCellTM from Allen Telecom's Tekmar Sistemi S.r.l. subsidiary is a fiber optic based radio frequency distribution system designed to provide indoor [Graphics] MIKOM SOLAR-POWERED GSM REPEATER [Graphics] BRITECELL(TM) FIBEROPTIC INDOOR COVERAGE SYSTEM 13 11 coverage where multiple services and longer distances are involved. The Distributed Indoor Coverage Extension (DICE) system from Mikom uses coaxial cable, fiber, or off-air as a means of distribution within buildings, and the Cable Star product from the Allen Systems division is cable based for smaller, lower cost installations. NETWORK PERFORMANCE ENGINEERING Once a wireless network is up and running, it is imperative that the carrier knows how the system is performing, and the level of service being provided to the subscriber base. It is also important to determine the level of service in relation to competitor networks. Our Grayson Wireless division has developed a range of test equipment and post processing software to do precisely this function. Using this equipment a carrier can gather many different data parameters from the network off the air and then process it into meaningful statistics to determine the performance of the system from the perspective of the subscriber. The quality of the signal from and to the portable phone can be measured as well as the coverage of, and handoff points between, cells. Busy cells, incomplete calls, dropped calls, and interference from adjacent cells can be quantified. These measurements can be made for all areas within the geographic footprint of the system so that the carrier can engineer the capacity and coverage for optimum performance. Similar measurements can also be made on competitor's systems to decide which network has significant advantages. THE FUTURE In the realm of wireless jargon the early analogue AMPS, ETACS, and NMT systems are considered to have been first generation. ETACS has subsequently migrated toward the European GSM standard, and AMPS has moved toward the TDMA and CDMA based digital protocols. The International Telecommunications Union, under the United Nations umbrella, is hoping to establish 3G (third generation) as a new single standard for the wireless networks of the future. If successful, this migration will herald the next generation of wireless system that all existing systems will migrate to. As we move into an increasingly wireless world the future looks bright, and at Allen Telecom we are only bounded by our ingenuity and determination to succeed. GLOSSARY NMT Nordic Mobile Telephone System, an analogue system developed as a Scandinavian standard in the late 1970s. AMPS Advanced Mobile Phone System, an analogue standard developed by Bell Labs in the U.S. in the late 1970s. ETACS Enhanced Total Access Communication System, developed in Europe based upon the American AMPS standard. TDMA Time Division Multiple Access, a digital technique where a number of time slots are allocated on the same channel to provide greater capacity. GSM Global System for Mobile Communications, a European standard developed to provide compatibility throughout Europe. CDMA Code Division Multiple Access, a digital spread spectrum system where information is sent with attached codes. PCS Personal Communication Services, a wireless service for consumers. iDEN(R) * Integrated Digital Enhanced Network, a digital system developed by Motorola and used by carriers such as Nextel. DCS1800/1900 GSM service at higher frequencies, also referred to as Personal Communication Networks. 3G Third Generation wireless standard, presently being discussed at the International Telecommunications Union (ITU) * iDEN is a registered trade-mark of Motorola, Inc. [Graphics] TWO CHANNEL EAC-850(TM) CDMA REPEATER 14 12
CONSOLIDATED STATEMENTS OF INCOME allen telecom inc. - (amounts in thousands, except per share data) For the years ended December 31, 1997, 1996 & 1995 1997 1996 1995 SALES $ 432,508 $ 369,498 $ 306,556 Costs and Expenses: Cost of sales 281,591 238,401 189,103 Selling, general and administrative expenses 70,786 58,101 47,908 Research and development and product engineering costs 30,367 21,023 17,006 Write-off of acquired in-process research and development costs -- 2,662 -- Interest and Financing Expenses: Interest expense (4,505) (3,773) (3,505) Interest income 1,454 988 1,407 - --------------------------------------------------------------------------------------------------------- Income Before Taxes and Minority Interests 46,713 46,526 50,441 Provision for Income Taxes (17,723) (19,665) (20,138) - --------------------------------------------------------------------------------------------------------- Income Before Minority Interests 28,990 26,861 30,303 Minority Interests (5,009) (6,305) (3,027) - --------------------------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS 23,981 20,556 27,276 ========================================================================================================= Discontinued Operations: Income (loss) from discontinued operations: Automotive and truck products business -- -- 7,119 Emissions testing business -- (3,766) (1,756) Loss for disposal of emissions testing business -- (3,724) -- - --------------------------------------------------------------------------------------------------------- Income Before Extraordinary Item 23,981 13,066 32,639 Extraordinary Item - Extinguishment of Debt (632) -- -- ========================================================================================================= NET INCOME $ 23,349 $ 13,066 $ 32,639 ========================================================================================================= EARNINGS PER COMMON SHARE Basic: Income from continuing operations $ .89 $ .78 $ 1.05 Discontinued Operations: Income (loss) from discontinued operations: Automotive and truck products business -- -- .27 Emissions testing business -- (.14) (.07) Loss for disposal of emissions testing business -- (.14) -- Extraordinary item - extinguishment of debt (.02) -- -- - --------------------------------------------------------------------------------------------------------- Net Income $ .87 $ .50 $ 1.25 ========================================================================================================= Diluted:Income from continuing operations $ .88 $ .76 $ 1.02 Discontinued Operations: Income (loss) from discontinued operations: Automotive and truck products business -- -- .27 Emissions testing business -- (.14) (.07) Loss for disposal of emissions testing business -- (.14) -- Extraordinary item - extinguishment of debt (.02) -- -- - --------------------------------------------------------------------------------------------------------- Net Income $ .86 $ .48 $ 1.22 ========================================================================================================= Weighted average common shares outstanding: Basic 26,920 26,470 26,170 - --------------------------------------------------------------------------------------------------------- Diluted 27,340 27,060 27,040 - ---------------------------------------------------------------------------------------------------------
THE NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. 15 13
CONSOLIDATED BALANCE SHEETS allen telecom inc. - (amounts in thousands) For the years ended December 31, 1997 & 1996 1997 1996 ASSETS Current Assets: Cash and cash equivalents $ 30,775 $ 23,879 Accounts receivable, less allowance for doubtful accounts 1997, $1,934,000; 1996, $1,610,000 105,714 93,409 Inventories 93,768 71,304 Current assets of discontinued emissions testing business 1,034 3,332 Other current assets 10,745 7,256 - ---------------------------------------------------------------------------------------------------------------------------- Total Current Assets 242,036 199,180 - ---------------------------------------------------------------------------------------------------------------------------- Property, Plant and Equipment, at cost, less accumulated depreciation and amortization 60,543 51,942 Other Assets: Excess of cost over net assets of businesses acquired 126,923 75,502 Assets of discontinued emissions testing business 32,329 42,031 Other 52,602 41,857 - ---------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 514,433 $ 410,512 ============================================================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes payable and current maturities of long-term obligations $ 6,119 $ 5,998 Accounts payable 75,195 36,639 Accrued expenses (including accrued wages and commissions - 1997, $13,980,000; 1996, $14,663,000) 35,261 37,991 Income taxes payable 13,197 19,830 Deferred income taxes 1,249 4,344 - ---------------------------------------------------------------------------------------------------------------------------- Total Current Liabilities 131,021 104,802 - ---------------------------------------------------------------------------------------------------------------------------- Long-Term Debt 97,915 49,957 Deferred Income Taxes 6,818 8,872 Other Liabilities 17,857 20,930 - ---------------------------------------------------------------------------------------------------------------------------- Total Liabilities 253,611 184,561 ============================================================================================================================ Commitments and Contingencies (Note 5) -- -- - ---------------------------------------------------------------------------------------------------------------------------- Stockholders' Equity: Common Stock, par value $1.00; authorized - 50,000,000 shares; issued - 1997, 29,746,000; 1996, 29,614,000; outstanding - 1997, 27,298,000; 1996, 26,763,000 29,746 29,614 Paid-in capital 180,538 170,945 Retained earnings 70,091 46,742 Translation adjustments (5,354) (304) Unrealized appreciation on investment securities 5,561 -- Less: Treasury stock - common shares, at cost, 1997, 2,448,000 shares; 1996, 2,851,000 shares (16,992) (17,932) Unearned compensation (2,768) (2,908) Minimum pension liability adjustment -- (206) - ---------------------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity 260,822 225,951 - ---------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 514,433 $ 410,512 ============================================================================================================================
THE NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. 16 14
CONSOLIDATED STATEMENTS OF CASH FLOWS allen telecom inc. - (amounts in thousands) For the years ended December 31, 1997, 1996 & 1995 1997 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES Income from continuing operations $23,981 $20,556 $27,276 Extraordinary item - extinguishment of debt (632) - - - ---------------------------------------------------------------------------------------------------------------------------- 23,349 20,556 27,276 Adjustments to reconcile income to net cash flow: Depreciation 12,808 11,666 8,280 Amortization of goodwill 3,404 2,432 2,088 Amortization of capitalized software 2,950 2,383 2,659 Other amortization 571 2,006 1,015 Deferred income taxes (8,157) (2,849) 6,338 Non-cash charge for acquired in-process research and development - 2,662 - Non-cash loss on write-off of capital assets 6,337 - - Gain on sale of investment (1,696) - - Changes in operating assets and liabilities: Receivables (14,309) (13,362) (21,996) Inventories (23,954) (85) (13,653) Accounts payable and accrued expenses 16,627 7,879 1,016 Income taxes payable (1,712) 17,095 (2,812) Other, net 1,814 3,229 (3,341) - ----------------------------------------------------------------------------------------------------------------------------- Cash provided by operating activities 18,032 53,612 6,870 ============================================================================================================================= CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (22,247) (17,457) (16,829) Capitalized software product costs (5,307) (4,745) (4,386) Sales and retirements of fixed assets 845 62 170 Investments in telecommunications companies (44,426) (16,909) (1,748) - ----------------------------------------------------------------------------------------------------------------------------- Cash used by investing activities (71,135) (39,049) (22,793) ============================================================================================================================= CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term borrowings 65,381 (2,129) (4,882) Repayment of long-term notes (15,000) - - Dividends paid - - (3,942) Exercise of stock options 1,428 239 566 Treasury stock sold to employee benefit plans 1,651 1,572 1,435 Cash reclassified to assets held for spin-off distribution - - (4,002) - ----------------------------------------------------------------------------------------------------------------------------- Cash provided (used) by financing activities 53,460 (318) (10,825) ============================================================================================================================= Net cash provided (used) by discontinued operations 7,808 (6,072) (12,786) ============================================================================================================================= NET CASH PROVIDED (USED) 8,165 8,173 (39,534) Effect of exchange rate changes on cash (1,269) - - Cash and cash equivalents at beginning of year 23,879 15,706 55,240 - ----------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $30,775 $23,879 $15,706 - -----------------------------------------------------------------------------------------------------------------------------
THE NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. 17 15
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY allen telecom, inc. - (amounts in thousands) Unrealized Appreciation Common Paid-In Retained Translation on Investment For the years ended December 31, 1997, 1996 & 1995 Stock Capital Earnings Adjustments Securities - ------------------------------------------------------------------------------------------------------------------------------ BALANCE DECEMBER 31, 1994 $ 29,146 $ 161,644 $ 56,902 $ 23 $ -- Net income -- -- 32,639 -- -- Cash dividends -- -- (3,942) -- -- Net assets distributed in TransPro spin-off -- -- (50,651) -- -- Exercise of stock options 72 463 -- -- -- Conversion of convertible debentures 355 4,623 -- -- -- Treasury stock reissued, 61,781 common shares, at cost -- 998 -- -- -- Restricted shares issued, net 22 324 -- -- -- Remeasurement of restricted shares -- 18 -- -- -- Amortization of unearned compensation -- -- -- -- -- Stock option tax benefits -- 562 -- -- -- Minimum pension liability adjustment -- -- -- -- -- Adjustment from translating foreign financial statements into U.S. dollars -- -- -- 79 -- ============================================================================================================================== Balance December 31, 1995 29,595 168,632 34,948 102 -- Net income -- -- 13,066 -- -- Exercise of stock options 36 293 -- -- -- Treasury stock reissued, 94,339 common shares, at cost -- 883 -- -- -- Restricted shares cancelled (17) (270) -- -- -- Amortization of unearned compensation -- -- -- -- -- Stock option tax benefits -- 82 -- -- -- Stock issued in acquisitions -- 1,325 -- -- -- TransPro dividend adjustment -- -- (1,272) -- -- Minimum pension liability adjustment -- -- -- -- -- Adjustment from translating foreign financial statements into U.S. dollars -- -- -- (406) -- Other -- -- -- -- -- ============================================================================================================================== BALANCE DECEMBER 31, 1996 29,614 170,945 46,742 (304) -- Net income -- -- 23,349 -- -- Exercise of stock options 110 1,889 -- -- -- Treasury stock reissued, 92,268 common shares, at cost -- 969 -- -- -- Restricted shares issued, net 22 393 -- -- -- Amortization of unearned compensation -- -- -- -- -- Stock option tax benefits -- 653 -- -- -- Stock issued in acquisitions -- 5,716 -- -- -- Minimum pension liability adjustment -- -- -- -- -- Adjustment from translating foreign financial statements into U.S. dollars -- -- -- (5,050) -- Unrealized appreciation on investment securities -- -- -- -- 5,561 Other -- (27) -- -- -- - ------------------------------------------------------------------------------------------------------------------------------ Balance December 31, 1997 $ 29,746 $ 180,538 $ 70,091 ($ 5,354) $ 5,561 ==============================================================================================================================
The Notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY allen telecom inc. - (amounts in thousands) Minimum Pension Treasury Unearned Liability For the years ended December 31, 1997, 1996 & 1995 Stock Compensation Adjustment - ----------------------------------------------------------------------------------------------- BALANCE DECEMBER 31, 1994 Net income ($ 17,479) ($4,310) ($1,745) Cash dividends -- -- -- Net assets distributed in TransPro spin-off -- -- -- Exercise of stock options 31 -- 822 Conversion of convertible debentures -- -- -- Treasury stock reissued, 61,781 common shares, at cost 437 -- -- Restricted shares issued, net -- -- Remeasurement of restricted shares (1,735) (346) -- Amortization of unearned compensation -- (18) -- Stock option tax benefits -- 880 -- Minimum pension liability adjustment -- -- -- Adjustment from translating foreign -- -- 563 financial statements into U.S. dollars -- -- -- =============================================================================================== Balance December 31, 1995 (18,746) (3,794) (360) Net income -- -- -- Exercise of stock options (90) -- -- Treasury stock reissued, 94,339 common shares, at cost 689 -- -- Restricted shares cancelled -- 271 -- Amortization of unearned compensation -- 615 -- Stock option tax benefits -- -- -- Stock issued in acquisitions 265 -- -- TransPro dividend adjustment -- -- -- Minimum pension liability adjustment -- -- 154 Adjustment from translating foreign financial statements into U.S. dollars -- -- -- Other (50) -- -- =============================================================================================== BALANCE DECEMBER 31, 1996 (17,932) (2,908) (206) Net income -- -- -- Exercise of stock options (571) -- -- Treasury stock reissued, 92,268 common shares, at cost 682 -- -- Restricted shares issued, net -- (541) -- Amortization of unearned compensation -- 681 -- Stock option tax benefits -- -- -- Stock issued in acquisitions 798 -- -- Minimum pension liability adjustment -- -- 206 Adjustment from translating foreign financial statements into U.S. dollars -- -- -- Unrealized appreciation on investment securities -- -- -- Other 31 -- -- - ----------------------------------------------------------------------------------------------- BALANCE DECEMBER 31, 1997 ($16,992) ($2,768) $ -- ===============================================================================================
The Notes are an integral part of these statements. 18 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS allen telecom inc. 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 amounts reported in the financial statements and accompanying notes. 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. Other investments (all of which are less than 20% owned) are accounted for using the cost method. Intercompany accounts and transactions have been eliminated. To facilitate preparation of financial statements, the Company's principal European operations are included in the consolidated financial statements on a two-month delayed basis. Revenue Recognition: Revenues are recorded at the time products are shipped or services are performed. 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. 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 two highest ratings by nationally recognized ratings firms. 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, 1997 and 1996 (amounts in thousands):
1997 1996 Raw material $49,583 $36,869 Work-in-process 24,505 19,256 Finished goods 19,680 15,179 - -------------------------------------------- $93,768 $71,304
Certain of these inventories pertain to the production of sophisticated equipment that 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. Investments: The Company owns common stock and warrants in RF Micro Devices, Inc. ("RFMD"), which completed an initial public offering of its common stock on June 3, 1997. The Company accounts for this investment using Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which requires certain debt and equity instruments be adjusted to fair value at the end of each accounting period. Accordingly, at December 31, 1997, the investment is carried at fair value of $12,668,000 (included in "Other assets") as determined by RFMD's published NASDAQ closing price of $12.625. The Company's investment is currently subject to certain trading restrictions. The Company has 954,278 common shares and 36,412 warrants classified as available-for-sale. These common shares and warrants have an aggregate fair value of $12,366,000 and a cost basis of $2,778,000, resulting in an unrealized holding gain of $9,588,000. Unrealized appreciation in the amount of $5,561,000, after related income tax effect, is included in Stockholders' Equity as "Unrealized appreciation on investment securities" as it is the Company's intent to treat the securities as a long-term investment. Property, Plant and Equipment: Property, plant and equipment is recorded at cost, less accumulated depreciation and amortization. Land improvements, buildings and machinery and equipment are depreciated over their estimated useful lives under the straight-line method. The provision for amortization of leasehold improvements is based on the term of the related lease or the estimated useful lives, whichever is shorter. Property, plant and equipment consisted of the following at December 31, 1997 and 1996 (amounts in thousands):
1997 1996 Land and improvements $ 2,702 $2,315 Buildings 26,658 22,843 Machinery and equipment 73,000 52,039 Leasehold improvements 4,904 4,465 - --------------------------------------------- 107,264 81,662 Less accumulated depreciation and amortization (46,721) (29,720) - --------------------------------------------- $60,543 $51,942
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. The Company reviews the amounts capitalized for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable. In 1997, 1996 and 1995, approximately $5,307,000, $4,745,000, and $4,386,000, respectively, of these costs were capitalized and approximately $ 2,950,000, $2,383,000, and $2,659,000, respectively, were amortized (excluding impairment writedown in 1997 of $5,955,000). 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 goodwill for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss, if required, would be recorded in the period such determination is made based on the fair value of the related businesses. 19 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. 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 $26,137,000, $18,059,000, and $13,453,000 in 1997, 1996, and 1995, 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 $4,230,000, $2,964,000, and $3,553,000 in 1997, 1996, and 1995, 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," and its related interpretations which prescribe the use of the intrinsic value based method. Accordingly, no compensation cost has been recognized for its fixed stock option plans. However, the Company has adopted the disclosure requirements of Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation." See Note 4 for additional information. Income Taxes: The Company accounts for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." 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: In the fourth quarter of 1997, the Company adopted the provisions of Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share," which specifies the computation, presentation, and disclosure requirements of earnings per common share. Basic earnings per share are based on the weighted average number of common shares outstanding during the period. Diluted earnings per common share are based on the weighted average number of common shares outstanding during the period plus, 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 1996 and 1995 computations and presentation of earnings per common share have been restated to conform to the provisions of this statement. A reconciliation of the Basic and Diluted per share computations are provided below (in thousands):
1997 1996 1995 Common Shares: Weighted average common shares outstanding - Basic 26,920 26,470 26,170 Additional common shares issuable for stock options 420 590 870 - ----------------------------------------------------------------- Common shares - Diluted 27,340 27,060 27,040
NOTE 2: FINANCING Long-term obligations consisted of the following (amounts in thousands): 1997 1996 Credit agreement borrowings $ 7,081 $ 7,120 Floating rate industrial revenue bonds due 2012 - 2025 15,500 15,500 Senior notes payable due 2001 - 2007 65,000 - 8.13% fixed rate note payable to insurance company - 15,000 Capital lease obligation 13,934 15,502 Other 564 223 Unamortized debt expense (1,137) (645) - ------------------------------------------------------ 100,942 52,700 Less current maturities (3,027) (2,743) - ------------------------------------------------------ $ 97,915 $ 49,957
In 1997, the Company issued $65,000,000 of unsecured notes in a private placement transaction. These notes have a weighted average life of 7 1/2 years and a weighted average interest rate of 6.65%. The notes rank equally with the Company's other unsecured indebtedness. A portion of the proceeds was used to prepay the $15,000,000 note payable to an insurance company. As a result of such prepayment, the difference between the call premium and costs of reacquisition and the net carrying amount of the debt in the amount of $996,000, or $.02 per share after related tax benefit, has been reported as an "Extraordinary Item" in the Consolidated Statements of Income. The Company maintains a domestic revolving credit agreement in the aggregate amount of $100,000,000 expiring December 18, 1999. Of this total, $17,500,000 has been utilized for the issuance of letters of credit relating principally to the Company's industrial revenue bonds. The balance of funds available under the revolving credit agreement may be utilized for borrowings or other letters of credit; however, a maximum of $20,000,000 may be allocated to such letters of credit. At December 31, 1997, $82,500,000 was available under this agreement. 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. The Company also has short-term credit lines utilized by its European subsidiaries. At year-end, direct borrowings under these agreements totaled $3,092,000; an additional $22,708,000 remained unused. These credit lines bear interest based on LIBOR. Foreign long-term debt includes long-term arrangements at fixed and variable rates with the Industry Ministry of Italy totaling $1,618,000 (due 1998 - 2008), and variable rate borrowings with various international banks of $5,463,000 (due 1998 - 2004). Further, two of the aforementioned arrangements are mortgage notes, under which the Company has pledged the respective land and buildings as collateral. These facilities had an aggregate net book value of $6,870,000 at year-end 1997. During 1997, the average interest rate for all foreign credit arrangements approximated 6.89%. 20 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS allen telecom inc. The floating rate industrial revenue bonds bear interest at rates based upon a short-term tax exempt bond index, as defined in the bonds, which approximated 3.72% at December 31, 1997. The average interest rate for all industrial revenue borrowings approximated 3.90% during 1997. In connection with one of its discontinued emissions testing business programs, the Company has a lease agreement under which it leases the land and inspection facilities for an initial lease term equal to the program life expiring on December 31, 2005. The lease agreement contains an extension provision 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 $15,283,000 is recorded at December 31, 1997. The aggregate maturities of long-term obligations for the years 1998 through 2002 are as follows (amounts in thousands):
1998 1999 2000 2001 2002 - ---------------------------------------- $3,027 $2,409 $2,739 $5,020 $14,473
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): 1997 1996 Capitalized computer software and database files $10,949 $14,550 Investments in telecommunication companies 23,337 7,827 Investment in specialty rubber products business 4,344 4,344 Assets held for sale 2,710 3,217 Prepaid pension costs 2,299 3,070 Other 8,963 8,849 - ------------------------------------------------------ $52,602 $41,857
Other liabilities consisted of the following (amounts in thousands): 1997 1996 Minority interests $ 7,253 $10,633 Long-term pension liabilities 4,891 4,382 Accrued post-retirement benefits 1,576 1,609 Other 4,137 4,306 - -------------------------------------------------------- $17,857 $20,930
NOTE 4: CAPITAL STOCK AND STOCK COMPENSATION PLANS 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. The Company has adopted the "disclosure-only" provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation", ("SFAS No. 123") but applies Accounting Principles Board Opinion No. 25 ("APB 25") and related interpretations for the accounting of its Stock Plans. The Company has two active plans, the 1992 Stock Plan and the 1994 Non-Employee Directors Stock Option Plan. The 1982 Stock Plan, under which options still remain outstanding, was terminated in 1992. The Company's 1992 Stock Plan provides for the granting of options (and restricted shares as discussed below) to key employees as determined by the Management Compensation Committee of the Board of Directors. The total number of options for which the Company may grant options and award restricted shares of common stock under the 1992 Stock Plan 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, have a ten-year term whereby 50% of the option shares vest after two years and an additional 25% in each of years three and four. 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 the shares covered by such portion of the option in lieu of issuing shares upon exercise. There were no exercises of stock appreciation rights in 1997, 1996 and 1995. Pursuant to the 1994 Non-Employee Directors Stock Option Plan, the total number of shares to be issued may not exceed 278,528 shares. From 1994 through 1997, each Non-Employee Director who previously had not been employed by the Company automatically received an option to purchase 1,000 shares of common stock ("Formula Awards"). At its meeting held February 17, 1998, the Board of Directors amended the plan to increase the number of options granted under the Formula Awards to 3,000 per year. No Non-Employee Director who previously has been employed by the Company is eligible to receive Formula Awards. Shares granted under the 1994 Plan have a ten-year term and vest in the same manner as the 1992 Stock Plan, subject to certain accelerated vesting upon the cessation of service. 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. 21 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the status of outstanding stock options as of December 31, 1997:
STOCK OPTIONS OUTSTANDING ------------------------------------- WEIGHTED AVERAGE STOCK OPTION EXERCISABLE ---------------------- -------------------------------- RANGE OF CONTRACTUAL EXERCISE WEIGHTED AVERAGE EXERCISE PRICES SHARES LIFE PRICE SHARES EXERCISE PRICE $ 4.18 to $10.77 496,808 2.5 years $ 5.47 496,808 $ 5.47 $11.28 to $19.97 838,139 7.8 years $16.01 329,230 $14.99 $20.00 to $28.00 633,756 8.1 years $21.39 107,936 $22.05 - ------------------------------------------------------------------------------------------------ $ 4.18 to $28.00 1,968,703 6.6 years $15.08 933,974 $10.72
Stock option activity for the three years ended December 31, 1997 is summarized as follows:
Weighted Average Exercise Shares Price Balance, December 31, 1994 1,222,505 $ 9.95 Granted (weighted average fair value $11.10) 331,762 $ 21.58 Exercised (85,766) $ 6.66 Terminated and canceled (80,575) $ 18.36 - ---------------------------------------------------- Balance, December 31, 1995 1,387,926 $ 12.44 Granted (weighted average fair value $10.15) 391,400 $ 20.39 Exercised (37,545) $ 8.84 Terminated and canceled (32,317) $ 20.21 - ---------------------------------------------------- Balance, December 31, 1996 1,709,464 $ 14.19 Granted (weighted average fair value $9.97) 498,500 $ 18.11 Exercised (146,872) $ 12.07 Terminated and cancelled (92,389) $ 19.61 - ---------------------------------------------------- Balance, December 31, 1997 1,968,703 $ 15.08
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for stock option grants: expected volatility of 47% and 40%, risk free interest rates of 6.38% and 6.42%, and expected lives of 6.2 years and 6.1 years for 1997 and 1996, respectively. The calculations assume no future dividend payments for grants in both 1997 and 1996. Restricted stock awards made to date under the 1992 Stock Plan were issued at no cash cost to the recipients; however, such employees generally agreed to forego salary increases and new stock option grants for a period of two years, other than for exceptional promotions. The restricted shares generally vest in 25% increments in the seventh, eight, 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. Restricted shares are subject to forfeiture in certain circumstances as defined in the 1992 Stock Plan. Restricted stock activity for the three years ended December 31, 1997 is summarized as follows:
Shares Balance, December 31, 1994 557,869 Granted (weighted average fair value $25.00) 35,783 Vested (211,794) Terminated and canceled (61,253) - ---------------------------------------------- Balance, December 31, 1995 320,605 Granted - Vested (28,347) Terminated and canceled (17,328) - ---------------------------------------------- Balance, December 31, 1996 274,930 Granted (weighted average fair value $18.94) 40,000 Vested (11,848) Terminated and cancelled (17,626) - ---------------------------------------------- Balance, December 31, 1997 285,456
Unearned compensation with respect to restricted shares, 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 is shorter. Compensation expense with respect to restricted shares amounted to $424,000 in 1997, $382,000 in 1996, and $391,000 in 1995. At December 31, 1997 and 1996, 2,962,027 and 2,996,262 common shares, respectively, were reserved for outstanding stock options and for future grants of stock options and restricted shares under all Stock Plans. In addition, 500,000 shares of Series C Junior Participating Preferred Stock are authorized for issuance under the Company's Stockholder Rights Plan at January 20, 1998. If the Company had elected to recognize compensation cost for its stock based compensation plans based on the fair value at the grant dates for awards under those plans in accordance with SFAS 123, net income and earnings per common share would have been reduced to the pro forma amounts below (amounts in thousands, except per share data):
1997 1996 1995 Net income: As reported $23,349 $13,066 $32,639 Pro forma $21,562 $11,794 $31,726 Earnings per common share, Basic: $.87 $.50 $1.25 Pro forma $.80 $.45 $1.21 Diluted: As reported $.86 $.48 $1.22 Pro forma $.80 $.44 $1.19
22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS allen telecom inc. NOTE 5: COMMITMENTS AND CONTINGENCIES The Company's leases consist primarily of facilities and equipment and expire principally between 1998 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 1997, $3,900,000 in 1996, and $4,200,000 in 1995. Future minimum payments under noncancelable leases as of December 31, 1997 were as follows (amounts in thousands):
Operating Capitalized Leases Lease 1998 $4,190 $2,246 1999 3,460 2,450 2000 3,150 2,450 2001 2,850 2,450 2002 2,110 2,450 Thereafter 3,100 7,350 - ----------------------------------------- Total minimum lease payments $18,860 19,396 - ----------------------------------------- Less: amount representing interest (5,462) - ----------------------------------------- Present value of future minimum lease payments including current maturities of $1,274 $13,934
The Company is self-insured for health care and workers compensation up to predetermined amounts above which third party insurance applies. For years 1996 and 1997, the Company is fully insured through third party insurance for general liability and product liability and was, in 1995, self-insured up to predetermined amounts above which third party insurance applies. The Company is contingently liable to insurance carriers under its workers compensation and liability policies and has provided a letter of credit in favor of these carriers in the amount of $1,591,000. In 1996, the Company entered into an agreement to make an equity investment of $5,000,000 in Nextwave Telecom Inc. ("Nextwave"), and whereby Nextwave agreed to purchase $50,000,000 of equipment and services over a five-year period from the Company. In connection with this agreement, subject to certain preconditions that have not yet occurred, the Company has agreed to provide secured product financing in addition to its investment. At December 31, 1997, the Company had outstanding approximately $2,000,000 of receivables with Nextwave. In early 1997, the U.S. Government suspended interest payments on license fees due from certain companies, such as Nextwave, who were awarded telecommunications licenses under a competitive auction bid process. Subsequently, the Federal Communications Commission ("FCC") provided alternatives for these capital constrained C Block licensees, which may enable these carriers to obtain the financing needed to build out their systems or to return some, or all, of their licenses to the FCC for re-auction. While it is not clear which alternative, or alternatives, will be chosen by Nextwave, a decision is anticipated in 1998. At this time, the Company believes that there has been no impairment in the carrying value of its investment in and receivable from Nextwave. 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, results of operations or cash flow 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. As more fully described in Note 9, "Acquisitions and Dispositions," the Company's MARTA Technologies, Inc. subsidiary which operates its discontinued centralized automotive emissions testing programs, is engaged in litigation with the States of Ohio and Kentucky in connection with emissions testing programs. 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 identified potential environmental damage at one formerly occupied manufacturing facility. In this regard, the Company has engaged a contractor to evaluate the site and determine the cost, if any, to resolve environmental damage at this site. While the ultimate cost cannot yet be specifically determined, the Company currently believes the costs of remediation will not exceed $100,000. In addition, the Company had 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 settled in 1997 for approximately $3,000. The Company also 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, 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 consolidated financial position, results of operations or liquidity of the Company. 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6: PENSION AND EMPLOYEE BENEFIT PLANS The Company has noncontributory pension plans covering the majority of its full-time domestic 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 the plan covering hourly employees typically provides 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. Net periodic pension cost of continuing operations for the Company's plans included the following components (amounts in thousands):
1997 1996 1995 Service cost benefits earned during the year $1,204 $1,165 $ 926 Interest cost on the projected benefit obligation 2,051 2,143 2,487 Actual income on plan assets (5,602) (3,474) (5,781) Net settlement gain -- -- (2,135) Net amortization and deferral 3,576 1,509 3,193 - -------------------------------------------------------------------- Net periodic pension cost (benefit) $ 1,229 $1,343 ($1,310)
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 a spin-off (see Note 9). Plan assets consist principally of equity securities (including 92,000 common shares of the Company). The following tables set forth the plans' combined funded status, at December 31, 1997 and 1996 (amounts in thousands):
Assets Benefits Exceed Exceed Benefits Assets 1997: Actuarial present value of benefit obligations: Vested benefits $ 20,654 $ 6,951 Nonvested benefits 1,099 260 - ---------------------------------------------------------- Accumulated benefit obligations 21,753 7,211 Effect of projected future compensation levels 1,942 435 - ---------------------------------------------------------- Projected benefit obligations 23,695 7,646 Plan assets at fair market value 25,331 2,755 - ---------------------------------------------------------- Projected benefit obligations less than (in excess of) plan assets 1,636 (4,891) Gain due to actual experience varying from actuarial assumptions (73) (941) Prior service cost not yet recognized in pension cost (125) 1,992 Transition liability (asset) on adoption of new accounting standard to be recognized in the future (194) 5 Adjustment required to recognize minimum liability - (621) - ---------------------------------------------------------- Prepaid (accrued) pension cost $ 1,244 ($4,456) 1996: Actuarial present value of benefit obligations: Vested benefits $17,972 $7,301 Nonvested benefits 894 408 - ---------------------------------------------------------- Accumulated benefit obligations 18,866 7,709 Effect of projected future compensation levels 1,590 1,047 - ---------------------------------------------------------- Projected benefit obligations 20,456 8,756 Plan assets at fair market value 20,948 3,022 - ---------------------------------------------------------- Projected benefit obligations less than (in excess of) plan assets 492 (5,734) Loss due to actual experience varying from actuarial assumptions 1,595 252 Prior service cost not yet recognized in pension cost (133) 2,140 Transition liability (asset) on adoption of new accounting standard to be recognized in the future (252) 10 Adjustment required to recognize minimum liability - (1,355) - ---------------------------------------------------------- Prepaid (accrued) pension cost $ 1,702 ($4,687)
Assumptions used in determining pension cost for the plan are: 1997 1996 Discount rate 7 1/4% 7 1/2% Expected rate of increase in compensation 5% 5 1/2% Expected long-term rate of return on plan assets 9 3/4% 9%
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 insurance benefits from continuing operations are as follows (amounts in thousands):
1997 1996 1995 Net periodic cost: Service cost benefits attributed to service during period $ 6 $ 15 $ 12 Interest cost on accumulated post-retirement benefit obligation 110 110 108 Amortization of gain (3) (2) (7) - ----------------------------------------------------------------- Net postretirement health care cost $ 113 $ 123 $ 113
The components of the accumulated postretirement benefit obligations (all of which are unfunded) are as follows (in thousands): 1997 1996 1995 Retirees $1,319 $1,103 $1,173 Fully eligible active plan participants 96 102 78 Other active plan participants 87 141 302 Unrecognized net gain 74 263 46 - ------------------------------------------------------- Accumulated postretirement benefit obligations $1,576 $1,609 $1,599
The actuarial calculation assumed a health care cost trend rate of 9.6% for 1997 (13.2% in 1996 and 13.7% in 1995). In 1997, the assumed trend rate was reduced based on the most current data. The assumed rate decreases approximately .4% per year through the year 2010 to 5.0% 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 $54,000 and increase net periodic cost by $5,400. The weighted average discount rate used in determining the accumulated postretirement benefit obligations was 7.25% in 1997, 7.50% in 1996, and 7.25% in 1995, respectively. 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS allen telecom inc.
NOTE 7: INCOME TAXES Information with respect to income taxes in continuing operations is as follows (amounts in thousands): 1997 1996 1995 Income before taxes and minority interests: Domestic $ 5,351 $ 9,472 $ 35,636 Foreign 41,362 37,054 14,805 - ------------------------------------------------------------------------ $ 46,713 $ 46,526 $ 50,441 Provision (Benefit) for income taxes: Current: Federal $ 2,247 $ 2,764 $ 5,550 Foreign 22,867 19,170 7,323 State and local 766 580 927 - ------------------------------------------------------------------------ 25,880 22,514 13,800 - ------------------------------------------------------------------------ Deferred: Federal (5,275) (2,054) 5,173 Foreign (542) 108 868 State and local (2,340) (903) 297 - ------------------------------------------------------------------------ (8,157) (2,849) 6,338 - ------------------------------------------------------------------------ $ 17,723 $ 19,665 $ 20,138
A reconciliation of the provision for income taxes at the U.S. Federal statutory rate of 35% to the reported tax provisions is as follows (amounts in thousands):
1997 1996 1995 Provision computed at the U.S. Federal statutory rate $ 16,350 $ 16,284 $ 17,654 State and local income taxes, net of Federal income tax effect (1,023) (210) 796 Net higher tax rates on foreign income 7,016 6,082 3,304 Benefit of foreign sales corporation and other tax credits (2,115) (2,055) (1,881) Tax effect of write-off of non-deductible acquired in-process research and development cost -- 932 -- Other, net (2,505) (1,368) 265 - -------------------------------------------------------------- $ 17,723 $ 19,665 $ 20,138
The following table summarizes the Company's total provision (benefit) for income taxes (amounts in thousands): 1997 1996 1995 Continuing operations $ 17,723 $ 19,665 $ 20,138 Discontinued operations -- (3,780) 3,672 Extraordinary item (364) -- -- Tax benefit of carryforward allocated to goodwill 6,085 -- -- Allocated to equity: Unrealized appreciation on investment securities 4,027 -- -- Stock options (653) (82) (509) Pension gain (loss) from business disposition and other pension items 149 112 1,164 - -------------------------------------------------------------- $ 26,967 $ 15,915 $ 24,465
The components of deferred tax assets (liabilities) are comprised of the following as of December 31, 1997 and 1996 (amounts in thousands): 1997 1996 Gross deferred tax assets: Inventory $ 4,854 $ 3,599 Pensions and deferred compensation 2,419 2,000 Tax credit carryforwards 1,575 1,480 Product warranty claims 1,735 1,108 Net operating loss carryforwards 3,116 -- Other 3,875 2,005 - --------------------------------------------------------- 17,574 10,192 - --------------------------------------------------------- Gross deferred tax liabilities: Intangible assets (3,455) (8,497) Depreciation (2,686) (1,205) Unremitted foreign earnings -- (1,500) Unrealized appreciation on investment securities (4,027) -- Deferred start-up costs (2,309) (2,924) Other (5,920) (8,350) - ---------------------------------------------------------- (18,397) (22,476) - ---------------------------------------------------------- Net deferred tax liabilities ($ 823) ($12,284)
Deferred tax assets (liabilities) are recorded in the consolidated balance sheets as follows (amounts in thousands): 1997 1996 Other current assets $ 7,244 $ 932 Current liabilities - deferred income taxes (1,249) (4,344) Long-term deferred income taxes (6,818) (8,872) - ----------------------------------------------- ($ 823) ($12,284)
During 1997, 1996, and 1995, general business tax credits of approximately $700,000, $470,000, and $359,000 generated in the respective year were used to reduce the provision for income taxes. At December 31, 1997, the Company has available alternative minimum tax credits in the amount of $405,000 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 $35,000,000 at December 31, 1997. While the amount of federal income taxes, if such earnings are distributed in the future, cannot now be determined, such taxes may be reduced by tax credits and other deductions. NOTE 8: INDUSTRY SEGMENT AND GEOGRAPHIC DATA The distribution of the Company's geographic operations is as follows (amounts in thousands):
1997 1996 1995 Sales: United States $ 272,346 $ 249,084 $ 251,322 Italy 117,607 92,284 37,806 Germany 48,622 43,013 21,702 Other 69,309 45,119 15,754 Less inter- geographic sales (75,376) (60,002) (20,028) - ----------------------------------------------------------------- $ 432,508 $ 369,498 $ 306,556 Operating Income: United States$ 5,319 $ 11,850 $ 37,291 Italy 19,823 17,163 8,651 Germany 14,636 14,405 6,218 Other 9,986 5,893 379 - ----------------------------------------------------------------- 49,764 49,311 52,539 Financing costs (3,051) (2,785) (2,098) - ----------------------------------------------------------------- $ 46,713 $ 46,526 $ 50,441 Assets: United States $ 305,740 $ 293,191 $ 282,439 Italy 143,618 72,794 52,718 Germany 31,291 24,163 14,458 Other 33,784 20,364 13,950 - ------------------------------------------------------------------ $ 514,433 $ 410,512 $ 363,565
25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS allen telecom inc. U.S. export sales of continuing operations were $103,855,000, $86,542,000, and $98,205,000 in 1997, 1996, and 1995, respectively. The aggregate net currency transaction and translation amounts in income from continuing operations included gains of $126,000, $126,000, and $34,000 in 1997, 1996, and 1995, respectively. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information." This Statement redefines the way publicly held companies report information about segments and is effective for the fiscal year ending December 31, 1998. Based on the Company's initial assessment of this new accounting pronouncement it has determined that it will likely have two segments - Wireless Telecommunications Equipment (comprising its Systems, Site Management and Other Non-antenna Products and Mobile and Base Antennas product lines) and Wireless Telecommunications Engineering Services (comprising its Frequency Planning, Systems Design and Related Services product line). However, the Wireless Telecommunications Engineering Services segment is not expected to be a "Reportable Segment" since the operating results and assets are anticipated to be less than 10% of the total Company. The Company therefore does not believe that the changes in disclosure as a result of this new Statement will significantly change its financial statement disclosure presentation. NOTE 9: ACQUISITIONS AND DISPOSITIONS In June 1997, the Company acquired the remaining 20% minority interest in FOR.E.M. S.p.A. ("FOREM"), and now owns 100% of FOREM. FOREM is a leading manufacturer of filters, combiners, and tower mounted amplifiers for GSM cellular and DCS 1800 wireless communications systems. This acquisition also increased the effective ownership of FOREM's 62% owned subsidiary, Mikom G.m.b.H. In a series of transactions to acquire this 20% minority interest, the Company has paid $31,297,000 in cash through December 31, 1997 and 261,014 shares of the Company's common stock with an aggregate value of approximately $6,000,000. The final purchase price was contingent upon the net income of FOREM's 1997 fiscal year. At December 31, 1997, the Company has recorded the estimated liability (included in accounts payable) for this final cash payment in the amount of approximately $26,400,000 paid in 1998. In April 1997, the Company acquired 62% of the stock of Telia S.A., ("Telia") for a purchase price comprised of approximately $3,000,000 in cash and shares of the Company's stock. This transaction was recorded under the purchase method of accounting. Telia, located in France, is a manufacturer of highly linear power amplifiers for the wireless communications industry with sales of approximately $5,000,000. The final purchase price is contingent upon the net income of Telia's 1997 fiscal year. At December 31, 1997, the Company has recorded the estimated liability (included in accounts payable) for this final payment in the amount of approximately $830,000. The remaining shares of Telia, which are held by senior Telia management, are subject to put and call options, which provide for a purchase price based upon future operating results. In September 1996, the Company acquired, in exchange for 83,964 shares of its common stock, 100% of Signal Science, Incorporated ("SSI"). In addition, the selling shareholders may receive further contingent cash consideration based on sales over an eight-year period (none of which has been earned). The Company accounted for the acquisition under the purchase method. In addition, the Company incurred a one-time non-cash charge relating to the write-off of purchased in-process research and development costs of $2,662,000. SSI's primary business is research and development projects involving special purpose radio signal equipment for telecommunications applications. In May 1996, the Company acquired a 64.3% interest in Tekmar Sistemi S.r.l. ("Tekmar"), an Italian company that produces fiber optic modules used predominately in the wireless telecommunications and cable television markets for cash and 9,783 shares of common stock. Senior management of Tekmar owns the remaining 35.7% ownership interest. The Company has the right, pursuant to certain put and call options, to acquire the remaining minority interest of Tekmar over a five-year period. Further, in May 1996, the Company acquired the remaining 20% minority interest of its Grayson Wireless subsidiary for cash. Pro forma results of operations for these acquisitions have not been presented because the impact is not significant to results of operations. Pro forma combined sales from continuing operations of the Company and FOREM for 1995 (assuming the acquisition was effected prior to 1995) would have been approximately $330,000,000. Pro forma combined income from continuing operations for 1995 would have been approximately $26,100,000 ($1.04 per share). 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 an earlier date. 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS allen telecom inc. In 1996, the Company decided to exit the centralized automotive emissions testing business operated by its MARTA Technologies, Inc. ("Marta") subsidiary. The Company previously had entered into an agreement for sale of Marta's centralized emissions testing program in Cincinnati, Ohio. However, in 1997, due to the uncertainty of legislative and administrative actions in defining the future direction of the program and other contractual matters the parties were unable to reach agreement on the financial and other terms and jointly decided to terminate the agreement. The Company will continue to endeavor to sell Marta's operating programs, or operate them until termination of the respective contracts, and will not bid upon, or seek new emissions testing programs. The State of Maryland program currently runs through April 30, 1999, and the State has an option for a one-year extension. The contract for the Jacksonville, Florida program runs through March 31, 2000. Marta will continue to operate these programs pursuant to its contractual commitments pending any disposal. In 1997, Marta settled its claims with the State of Texas for the terminated El Paso, Texas program. As a result of the settlement and subsequent disposal of the related equipment and facilities Marta no longer has any interest in the Texas program. As a result of the termination of the agreement for sale, Marta moved forward with and reopened the Cincinnati, Ohio program for testing in early 1998. The initial term of the Ohio program runs through December 31, 2005. In connection with the initial suspension of the contract by the Ohio Environmental Protection Agency ("Ohio EPA") and its Director, Marta was granted a preliminary injunction on September 23, 1996 and a permanent injunction on November 19, 1997 against Ohio EPA and its Director enjoining them from, (i) conducting a hearing regarding termination of the contract (ii) terminating the Ohio contract and (iii) prohibiting Marta from performing its obligations under the Ohio contract. On December 31, 1997, Marta filed a lawsuit against Ohio EPA and its Director in an amount not less than $40,000,000 claiming damages for Ohio EPA's unilateral and illegal suspension of the program and numerous other actions which will, in the future, increase costs to operate the program and/or reduce the amount of revenues the State was contractually obligated to provide. Subsequent thereto, the State counterclaimed, denied Marta's allegations and demanded $10,000,000 in liquidated damages, contract damages and/or civil penalties as a result of Marta's alleged failure to meet the terms of the contract. In the opinion of management, based on the advice of counsel, it cannot predict the outcome of these lawsuits, and the Company has not recorded any asset or liability with respect thereto. Marta is also in litigation with the State of Kentucky in connection with the effective cancellation of a contract to operate the centralized automotive testing program in Northern Kentucky. The recorded carrying amount of the investment in the Kentucky program is approximately $900,000. The Company has presented the centralized automotive emissions testing business as a discontinued operation in the Consolidated Financial Statements. A summary of the non-current assets of the business is as follows (amounts in thousands):
1997 1996 Cincinnati, Ohio program: Land and buildings under capital lease $15,283 $15,283 Testing equipment and other assets 14,188 14,100 Carrying value of El Paso, Texas assets -- 7,892 Other, net 2,858 4,756 - -------------------------------------------------------------------------------- $32,329 $42,031
Discontinued operations include management's best estimate of the loss for the ultimate disposal of the emissions testing business. Actual results could differ from these estimates and are dependent upon the continuing efforts to sell or operate existing programs, and resolution of claims and litigation with the States of Ohio and Kentucky. In September 1995, the Company spun off 100% of the common shares of a newly formed wholly owned subsidiary, TransPro, Inc. ("TransPro") to the Company's common shareholders (the "Spin-off"). TransPro comprised the Company's Truck Products Business. Following the distribution, TransPro became an independent, publicly traded corporation. In connection with the Spin-off, the Company has presented the Truck Products Business as a discontinued operation in the Consolidated Financial Statements. 27 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Summarized income statement information relating to the results of discontinued operations is as follows (amounts in thousands, except per share data):
Years Ended December 31, 1996 1995 --------------------- Marta Marta TransPro Sales $ 14,914 $ 8,821 $ 92,933 Operating Income (loss) (5,627) (2,624) 9,726 Equity in earnings of joint venture -- -- 2,219 Net income (loss) (3,766) (1,756) 7,852 Earnings (loss) per common share (Basic and Diluted) (.14) (.07) .30
In 1997, the residual operations of Marta were not material in relation to the continuing operations of the Company. The fiscal year 1995 results of operations for TransPro are for the nine-month period ended September 30, 1995 and excludes transaction costs of $733,000 (after related income taxes of $467,000). Further, results of operations for TransPro are net of allocated interest of $205,000 and $402,000 in 1996 and 1995, respectively. Results of operations for Marta are net of allocated interest (income) of $1,243,000, and $(277,000) in 1996 and 1995, respectively. 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: One of the Company's investments in telecommunications companies is carried at fair market value, based on its quoted stock price at December 31, 1997. 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 other investments in telecommunications companies 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, 1997 were not impaired and reflect the corresponding fair values. 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. The Company enters into foreign currency contracts to offset the impact of currency rate changes against certain assets related to accounts receivable. The fair value of such contracts are based on quoted market prices of comparable contracts. The carrying amounts and fair values of the Company's financial instruments at December 31, 1997 and 1996 are as follows (amounts in thousands): Carrying Fair Amount Value 1997 Cash and cash equivalents $ 30,775 $ 30,775 Non-current investments 34,700 34,700 Long-term debt 105,171 106,732 Off balance sheet financial instruments: Letters of credit 1,591 1,591 Foreign currency net sales contracts 6,889 6,909 1996 Cash and cash equivalents $ 23,879 $ 23,879 Non-current investments 12,171 14,054 Long-term debt 53,345 54,294 Off balance sheet financial instruments: Letters of credit 1,881 1,881 Foreign currency net sales contracts 15,682 15,798 28 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS allen telecom inc. NOTE 11: UNAUDITED QUARTERLY FINANCIAL DATA In the fourth quarter of 1997, the Company recorded a special pre-tax charge in the amount of $9,650,000, or $.22 per common share after related tax effects. This charge relates to the discontinuance of product development and marketing efforts on two products (wireless PBX equipment and RF cell site planning tool), including the write-off of related assets, and the cost of employee severance related to a reduction in its Cleveland based workforce. Quarterly financial data are summarized as follows (amounts in thousands, except per share amounts):
March 31 June 30 Sept. 30 Dec. 31 1997 Sales $ 102,503 $ 108,859 $ 111,389 $ 109,757 - ----------------------------------------------------------------------------------------------------------------- Gross profit 36,541 38,182 40,533 35,661 - ----------------------------------------------------------------------------------------------------------------- Income from continuing operations 7,026 6,734 7,930 2,291 - ----------------------------------------------------------------------------------------------------------------- Extraordinary item - extinguishment of debt -- -- -- (632) - ----------------------------------------------------------------------------------------------------------------- Net income 7,026 6,734 7,930 1,659 - ----------------------------------------------------------------------------------------------------------------- Earnings per common share Basic and Diluted: Continuing operations .26 .25 .29 .08 - ----------------------------------------------------------------------------------------------------------------- Extraordinary item - extinguishment of debt -- -- -- (.02) - ----------------------------------------------------------------------------------------------------------------- Net income .26 .25 .29 .06 - ----------------------------------------------------------------------------------------------------------------- 1996 Sales $ 84,469 $ 88,459 $ 95,010 $ 101,560 - ----------------------------------------------------------------------------------------------------------------- Gross profit 28,928 31,559 32,206 38,404 - ----------------------------------------------------------------------------------------------------------------- Income from continuing operations 4,682 5,702 3,497 6,675 - ----------------------------------------------------------------------------------------------------------------- Loss from discontinued operations (437) (565) (6,488) -- - ----------------------------------------------------------------------------------------------------------------- Net income (loss) 4,245 5,137 (2,991) 6,675 - ----------------------------------------------------------------------------------------------------------------- Earnings per common share Basic and Diluted: Continuing operations .18 .21 .13 .25 - ----------------------------------------------------------------------------------------------------------------- Discontinued operations (.02) (.02) (.24) -- - ----------------------------------------------------------------------------------------------------------------- Net income .16 .19 (.11) .25 - -----------------------------------------------------------------------------------------------------------------
NOTE 12: SUPPLEMENTAL CASH FLOW DISCLOSURE During 1997, the following non-cash transactions were effected and are not reflected in the Consolidated Statement of Cash Flows: As described in Note 9, in 1997 the Company acquired 62% of Telia and the remaining 20% minority interest in FOREM, in exchange for, in part, 289,389 shares of its common stock. As described in Note 1, the Company owns common stock and warrants in RF Micro Devices, Inc., which completed an initial public offering of its common stock on June 3, 1997. In accordance with the provisions of SFAS 115, the Company has increased its investment value to reflect its current trading value on December 31, 1997 of $12,668,000. Unrealized appreciation in the pretax amount of $9,588,000 ($5,561,000 after related income tax effect) is included in Stockholders' Equity as "Unrealized appreciation on investment securities." During 1996, the following non-cash transactions were effected and are not reflected in the Consolidated Statement of Cash Flows: As described in Note 9, in 1996 the Company acquired 100% of Signal Science, Incorporated and 64.3% of Tekmar Sistemi S.r.l in exchange for, in part, 93,747 shares of its common stock. 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 now discontinued emissions testing programs. On September 29, 1995, the Company completed the largely non-cash spin-off distribution of 100% of the common shares of TransPro. In May, 1995, the Company called for redemption the outstanding $4,917,000 of its Convertible Subordinated Debentures issued in 1992 in connection with the acquisition of Alliance Telecommunications Corporation. Subsequent thereto, holders of these debentures converted such debentures into 351,834 shares of the Company's common stock. Information with respect to cash paid during the year for interest and taxes is as follows:
1997 1996 1995 Interest Paid $ 4,097,000 $ 4,907,000 $ 3,840,000 Interest Capitalized 220,000 -- 440,000 Income taxes paid, net 27,514,000 1,778,000 18,890,000
29 REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF ALLEN TELECOM INC. We have audited the accompanying consolidated balance sheets of Allen Telecom Inc. as of December 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. 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 Allen Telecom Inc. as of December 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. Cleveland, Ohio, February 13, 1998 REPORT OF MANAGEMENT TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF ALLEN TELECOM 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 accountants, the Company periodically reviews these systems and controls and compliance therewith. The Audit Committee of the Board of Directors, comprised entirely of non-employee 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. /s/ Robert G. Paul Robert G. Paul President and Chief Executive Officer /s/ Robert A. Youdelman Robert A. Youdelman Executive Vice President and Chief Financial Officer /s/ James L. LePorte James L. LePorte, III Vice President, Treasurer & Controller, Chief Accounting Officer 30 28 management's discussion and analysis of financial condition and results of operation RESULTS OF OPERATIONS OVERVIEW
($ millions) 1997 1996 1995 Sales $432.5 $369.5 $306.6 Operating income (before special charges discussed below) 59.4 52.0 52.5 Income before taxes and minority interests 46.7 46.5 50.4 Income from continuing operations 24.0 20.6 27.3 Net income 23.3 13.1 32.6 Total assets 514.4 410.5 363.6 Capital expenditures 22.2 17.5 16.8 Depreciation 12.8 11.7 8.3
The increase in sales in 1997 to $432.5 million, or 17% over 1996, was due primarily to continued growth of international sales which increased approximately $51 million, or 25%. The Site Management and Systems product lines benefited particularly from this growth. The 21% increase in sales in 1996 to $369.5 million was also due to the growth of international sales, increasing $54 million, or 35% compared to 1995. The balance was due primarily to domestic sales. Operating income, representing income before financing costs and special charges (as discussed below) increased $7.4 million, or 14% over 1996. This is attributable principally to the growth of the Site Management Products and Base Station Antenna businesses, improved product margins and the spreading of fixed costs on higher sales. In the fourth quarter of 1997, the Company recorded special charges of $9.6 million ($6.0 million after related income taxes or $.22 per common share) relating to the discontinuance of product development and marketing efforts on two products, wireless PBX equipment and an RF planning tool, including the write-off of assets and the cost of employee severance. Operating income in 1996, excludes the one-time non-cash charge for acquired in-process research and development incurred in connection with an acquisition in the amount of $2.7 million or $.10 per common share. The decline in operating income of $.5 million from 1995 is due in large part to the cessation of royalty payments made under a noncompetition agreement which expired in June 1996. Income from continuing operations increased $3.4 million in 1997, as compared with 1996; however, both 1997 and 1996 results included the aforementioned special write-offs. Excluding these special charges, income from continuing operations increased $6.7 million in 1997, and earnings per common share increased from $.86 to $1.10 per share. These earnings increased due to the higher margins noted above. In addition, the Company's tax provision was $1.9 million lower in 1997 versus 1996. Net income increased from $13.1 million in 1996 to $23.3 million in 1997. This increase is due primarily to the elimination of the $7.5 million of after tax losses recorded in 1996 for the discontinued emissions testing business. Income from continuing operations declined $6.7 million in 1996, as compared with 1995, due to the aforementioned write-off of acquired in-process research and development costs of $2.7 million and a $3.3 million increase in minority interest expense relating to the then outstanding 20% minority interest in FOREM and its 38% minority interest in Mikom G.m.b.H. Income from continuing operations was also adversely affected in 1996 by a higher effective tax rate. The decline in net income from $32.6 million in 1995 to $13.1 million in 1996 reflects both the $7.5 million of after tax losses for the discontinued emissions testing business and the impact of the elimination of the spun off automotive and truck products business, which earned $7.1 million in profits in 1995 through the September 29, 1995 spin-off date. Sales Sales of Systems Products (which generally are comprised of booster and repeater products for cellular and PCS systems, test and measurement products, as well as indoor coverage products) increased 18% in 1997 to $111.0 million, as compared with $94.1 million in 1996. Sales were impacted primarily by higher shipments of test and measurement products to domestic PCS and international markets. The Systems business also continued to be successful with its non-frequency translating repeaters in Europe and other international markets. The most successful of these repeater products utilize GSM technology, which has gained worldwide acceptance as a cellular standard. In addition, the Company was positively affected by the April 1997 acquisition of Telia, S.A., a manufacturer of highly linear power amplifiers which contributed $5.1 million in sales. Offsetting these increases, in part, was a decrease in domestic Systems sales, due to lower shipments of its Extend-A-Cell(R) frequency translating repeater and microcell products. Sales of Systems Products were down slightly at $94.1 million in 1996 compared with $95.1 million in 1995. Sales were impacted primarily by significantly lower shipments of the Company's Extend-A-Cell(R), principally in domestic markets. Offsetting this decline, in part, was the success of non-frequency translating repeaters in Europe and other international markets. In addition, sales of system test and measurement products
SALES OF SYSTEM PRODUCTS ($ millions) 93 $ 62.4 94 $ 76.1 95 $ 95.1 96 $ 94.1 97 $111.0
SALES OF SITE MANAGEMENT AND OTHER NON-ANTENNA PRODUCTS ($ millions) 93 $ 49.1 94 $ 53.0 95 $112.9 96 $159.3 97 $197.3
SALES OF MOBILE AND BASE ANTENNAS ($ millions) 93 $ 57.2 94 $ 68.2 95 $ 73.8 96 $ 80.6 97 $ 88.5
SALES OF FREQUENCY PLANNING, SYSTEMS DESIGN AND RELATED SERVICES ($ millions) 93 $14.9 94 $15.7 95 $24.8 96 $35.5 97 $35.7
31 29 management's discussion and analysis of financial condition and results of operation increased significantly in 1996 over 1995 as they obtained higher market share with domestic PCS carriers. Sales of Site Management and Other Non-antenna products (which include tower mounted amplifiers, filters, combiners and duplexers) increased to $197.3 million, or 24% over 1996 sales of $159.3 million. This increase follows the 1996 sales increase of $46.4 million, or 41% over 1995. The continued large increases in sales reflect strong market presence in Europe and the worldwide acceptance of GSM technology, where the Company has a strong market share with original equipment manufacturers ("OEMs"). Sales of Mobile and Base Antennas increased to $88.5 million in 1997, a 10% increase over 1996. The increase resulted from sales of base station antennas. However, this increase was partially offset by a decline in mobile antenna sales, as consumers continue to shift purchases from mobile cellular telephones, where the Company has significant market share, to portable cellular phones. The Company does not manufacture portable antennas. Sales increased to $80.6 million in 1996, or 9.2%, over 1995. The increase resulted from sales of base station antennas in new PCS markets. However, as in 1997, this sales increase was partially offset by a decline in mobile antenna sales. Sales of the Frequency Planning, Systems Design and Related Services product line increased only 1% in 1997 to $35.7 million, as compared with $35.5 million in 1996 due to declining sales of engineering services for PCS systems. This business provides engineering and consulting services with nearly all major PCS operators. In 1996, sales increased to $35.5 million, or 43%, over 1995, due to strong demand for engineering services to domestic PCS carriers. In 1997, international sales constituted approximately 60% of total sales, compared with 56% in 1996, and 50% in 1995. Export sales from the U.S. are primarily to major wireless telephony companies, and are typically payable in U.S. dollars. European sales are primarily to major OEMs and wireless operators in European currencies. The Company sees no significantly greater risk in the operation of its business as a result of this proportion of international business. In 1997, approximately 11% of direct sales were to Asian markets. However, only about 3% of direct sales were to countries significantly affected by the recent economic and currency rate crisis in certain Asian countries, notably Indonesia, Korea, Thailand and the Philippines. In addition, to date, sales do not appear to have been significantly affected in these Asian countries, although the Company is aware of certain orders that have been deferred by prospective customers. While direct sales of products to these countries is not significant, it is difficult to discern how much of OEM sales ultimately end up in these countries. Accordingly, it is difficult to assess the near term impact, although the Company does expect its rate of sales growth to slow in 1998 due to the ripple effect of the recent Asian fiscal problems. At December 31, 1997, the Company had an order backlog of approximately $115 million, up from approximately $109 million at December 31, 1996.
Operations ($ millions) 1997 1996 1995 Gross profit margin, as a percent of sales 34.9% 35.5% 38.3% Operating expenses, as a percent of sales 15.6% 15.1% 14.9% Research and development and new product engineering costs: Amount $30.4 $21.0 $17.0 As a percent of sales 7.0% 5.7% 5.5% Amortization of goodwill 3.4 2.4 2.1 Minority interests 5.0 6.3 3.0
Gross profit margins declined in 1997 as compared with 1996. However, excluding the aforementioned special charges for the discontinuance of product development efforts on two products, gross profit margin would have been 35.8%, a small increase over 1996. This was due to slightly improved margins in the Base Station Antenna and Systems businesses, offset by continuing pricing pressures, particularly in the Frequency Planning and Site Management product lines. The gross profit margin decrease in 1996 versus 1995 was due primarily to changes in product mix and pricing pressure. Operating expenses (which consist of selling, general and administrative expenses, but exclude amortization of goodwill) increased in 1997, due primarily to the aforementioned special charges. In addition, the Company realized a before tax gain on the sale of a partial ownership interest in Columbia Spectrum Management, L.P., in the amount of $1.6 million, or $.03 per common share after related income tax effects. This gain is included in selling, general and administrative expenses. Excluding the above-mentioned special charges and gain on investment, operating expenses would have been 14.6% and are within normal operating ranges. The decline in percentage of such expenses in 1997 represents the spreading of fixed costs on higher sales. The increase in operating expense percentage in 1996, as compared with 1995, is due primarily to the cessation of royalty payments made under a prior noncompetition agreement. In the past few years, the Company has significantly increased its research and development and new product engineering costs in order to keep pace with the technological advances in the industry. The Company anticipates that this trend will continue as PCS and cellular systems are implemented and expanded and the Company strives to develop ancillary products, including software products, for the wireless telephony industry. The increase in amortization of goodwill, and corresponding decrease in minority interest expense, as compared with 1996, is a result of the acquisition of the remaining 20% minority interest in FOREM in May 1997 (see Note 9 of the Notes to Consolidated Financial Statements and Liquidity and Capital Resources below). Future results of operations will no longer include minority interest expense relating to FOREM. However, the Company will continue to record minority interest expense with respect to FOREM's 62% owned subsidiary, Mikom G.m.b.H., and other minority owned subsidiaries. In 1996, the increase in minority interest expense related directly to the strong performance of the Company's European subsidiaries. 32 30 management's discussion and analysis of financial condition and results of operations FINANCING COSTS
($ millions) 1997 1996 1995 Financing expenses: Interest expense $ (4.5) $ (3.8) $ (3.5) Interest income 1.5 1.0 1.4
The increase in interest expense in 1997 over 1996 is primarily related to increased credit line borrowings as a result of significant investments made by the Company (see Liquidity and Capital Resources). The increase in interest expense in 1996, as compared with 1995, was due primarily to the acquisition and inclusion of FOREM. Lower interest income in 1996, when compared with 1995, reflects lower domestic investment income as a result of lower average cash levels.
INCOME TAXES ($ millions) 1997 1996 1995 Provision for income taxes $ 17.7 $19.7 $20.1 Effective tax rate 37.9% 42.3% 39.9%
The lower effective tax rate in 1997, as compared with 1996, is due to a higher proportion of tax benefits attributable to the Company's foreign sales corporation, which has reduced U.S. income taxes payable through favorable tax treatment accorded certain export sales, and business tax and other credits available to reduce U.S. income taxes payable. These benefits were offset, in part, by higher tax rates on European source income. The higher effective tax rate in 1996, as compared with 1995 is due to the higher proportion of such European earnings, which carried a higher tax burden than the U.S. statutory rate of 35%. These higher tax rates were offset, in part, by the tax benefits attributable to the foreign sales corporation. With the continued success of the European operations, which carry the higher tax burden, it is possible that the effective tax rate in 1998 could exceed that of 1997. DISCONTINUED OPERATIONS As more fully discussed in Note 9 of the Notes to Consolidated Financial Statements, the Company decided in 1996 to exit the emissions testing business operated by its MARTA Technologies, Inc. ("Marta") subsidiary. The Company determined that this decision would allow it to fully devote management and financial resources to its expanding wireless telecommunications product lines. The Company previously had entered into an agreement for the sale of Marta's centralized emissions testing program in Cincinnati, Ohio. However, in 1997, the parties were unable to reach agreement on the terms and jointly decided to terminate the agreement (including the possible sale of the Jacksonville, Florida program). The Company will continue to endeavor to sell Marta's programs, or operate them until termination of the respective contracts, and will not bid upon, or seek new emissions testing programs. In 1997, Marta settled its claims with the State of Texas for the terminated El Paso, Texas program. As a result, Marta received $12.4 million from the settlement and subsequent sale and disposal of the equipment and facilities. This is the reason for the reduction in "Assets of discontinued emissions testing business" on the Consolidated Balance Sheet. On December 31, 1997, Marta filed a lawsuit against the Ohio Environmental Protection Agency ("Ohio EPA") and its Director in an amount not less than $40 million claiming damages for Ohio EPA's suspension of the Cincinnati, Ohio program in August 1996 and numerous other actions which will, in the future, impact costs and revenues. On January 30, 1998, the State counterclaimed, denied Marta's allegations and demanded $10 million in liquidated damages, contract damages and/or civil penalties as a result of Marta's alleged failure to meet the terms of the contract. In the opinion of management, based on the advice of counsel, it is too early to predict the outcome of these lawsuits, and the Company has not recorded any asset or liability with respect thereto. Discontinued operations include management's best estimate of the loss from the disposal of the Marta business. Actual results could differ from these estimates and are dependent on, among other things, the continuing efforts to sell or operate existing programs. In addition, it is not possible to predict the outcome of the aforementioned Ohio litigation or litigation with the State of Kentucky for the effective cancellation of Marta's contract in Northern Kentucky. IMPACT OF THE "YEAR 2000 ISSUE" The "Year 2000 Issue" is the result of computer systems that were programmed in prior years using a two-digit representation for the year. Consequently, in the year 2000, date-sensitive computer programs may interpret the date "00" as 1900 rather than 2000. The Company's operating units have completed an initial assessment of the systems affected by the Year 2000 Issue, and have formulated action plans to correct or replace these programs by December 31, 1998. The Company will be required to modify or replace several internally developed software programs, along with purchased software packages used internally and in some of its products. The Company has communicated with its significant customers, and has determined that it has limited exposure for products it has sold. The Company will use both internal and external resources to modify programs, and will upgrade where necessary packaged programs. Estimates of the total remaining cost of the year 2000 project have not yet been finalized, but are not expected to have a material adverse effect on future operating results or cash flows. 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. (See also Note 5 of Notes to Consolidated Financial Statements.) 33 31 management's discussion and analysis of financial condition and results of operations LIQUIDITY AND CAPITAL RESOURCES
($ millions) 1997 1996 1995 Cash flow from operations $ 18.0 $ 53.6 $ 6.9 Total debt 104.0 56.0 55.8 Stockholders' equity 260.8 226.0 210.4 Debt to equity ratio .4:1 .2:1 .3:1
The significant decrease in cash flow from operations in 1997, as compared with 1996, is due primarily to an increased investment in working capital of approximately $16.1 million and $24 million in tax payments made principally by the Company's European subsidiaries. In 1996, the Company generated cash of $53.6 million from continuing operations as compared with $6.9 million in 1995. The significant increase during 1996, as compared with 1995, despite lower income from continuing operations, was due in large measure to a $29 million lower level of investment in working capital in 1996 (despite significantly higher sales) than experienced in 1995. In addition, the Company received a refund of certain income taxes paid in 1995 in the amount of $8.0 million. The Company continued to make significant investments in the wireless telecommunications industry both in capital improvements ($27.6, $22.2 and $21.2 million in 1997, 1996, and 1995, respectively) and investments in telecommunications companies ($44.4, $16.9, and $1.7 million in 1997, 1996, and 1995, respectively). The large increase in investments in 1997, over the prior two years, represents principally the purchase of the outstanding 20% minority interest in FOREM and the acquisition of 62% of Telia. These purchases are also the principal reason for the increase in "Excess of cost over net assets of businesses acquired" in the Consolidated Balance Sheet. In 1997, the Company borrowed $65.0 million in a private placement transaction. These notes bear interest at a weighted average interest rate of approximately 6.65% and have an average outstanding life of 7.5 years. The Company believes this longer term financing strategy is consistent with its investing activities and also afforded it an opportunity to take advantage of lower interest rates. In this connection, the Company decided to prepay certain borrowings with a portion of the proceeds, in the amount of $15.0 million, which bore interest at the rate of 8.13%. This resulted in a prepayment premium of $1.0 million, or $.02 per common share after related income tax effects, and has been reported as an "Extraordinary item" in the Consolidated Statement of Income. The Company continues to maintain a $100 million domestic credit line. At December 31, 1997, no amounts were borrowed under this agreement and, after exclusion for amounts designated for letters of credit, approximately $82.5 million was available for use. This agreement expires in December 1999. In 1996, the Company entered into an agreement to make an equity investment of $5 million in Nextwave Telecom Inc. ("Nextwave"), and whereby Nextwave agreed to purchase $50 million of equipment and services over a five-year period from the Company. In connection with this agreement, subject to certain preconditions that have not yet occurred, the Company has agreed to provide secured product financing in addition to its $5.0 million investment. At December 31, 1997, the Company had outstanding approximately $2.0 million of receivables with Nextwave. In early 1997, the U.S. Government suspended interest payments on license fees due from certain companies, such as Nextwave, who were awarded telecommunications licenses under a competitive auction bid process. Subsequently, the Federal Communications Commission ("FCC") provided alternatives for these capital constrained C Block licensees, which may enable these carriers to obtain the financing needed to build out their systems or to return some, or all, of their licenses to the FCC for re-auction. While it is not clear which alternative, or alternatives, will be chosen by Nextwave, a decision is anticipated in 1998. At this time, the Company believes that there has been no impairment in the aggregate carrying value of its investment in Nextwave. The increase in other assets in the Consolidated Balance Sheet is due primarily to common shares and warrants of RF Micro Devices, Inc. ("RFMD"). RFMD completed an initial public offering of its common stock in 1997. At December 31, 1997, the value of these assets has been adjusted to reflect current market value of approximately $12.4 million. Likewise, the unrealized appreciation in the amount of $9.6 million ($5.6 million, after related income tax effect,) is included in Stockholders' Equity as "Unrealized appreciation on investment securities," as it is the Company's intent to treat the securities as a long-term investment. The Company's investment is currently subject to certain trading restrictions. In 1997, the Company generated cash from its discontinued Marta operations in the amount of $7.8 million as compared with cash usages of $6.1 and $12.8 million in 1996 and 1995, respectively. The cash generation in 1997 was due to the settlement of claims with the State of Texas and subsequent sale and disposal of the related assets, which generated $12.4 million in cash. The Company anticipates future net cash usages from these operations subject to disposal of programs or the settlement of outstanding litigation. Future capital needs will be directed toward continued penetration and expansion in the wireless communications industry, both internally and through strategic alliances and acquisitions. In early 1998, the Company made a payment in connection with the last 20% acquisition of FOREM in the amount of $26.4 million (included in accounts payable in the Consolidated Balance Sheet which accounts for the significant increase in that item over 1996). The cash needs of this payment were met by utilization of available cash investments and lines of credit. Capital expenditures in 1998 are estimated at $24 million, of which $1.4 million was committed at December 31, 1997. These proposed capital expenditures reflect the increase in productive capacity necessitated by the increase in sales volume, both domestically and in Europe. The Company believes that continued profitability and available unused credit lines provide sufficient liquidity to fund future growth, expansion, and acquisitions. 34 32 five year summary of operations allen telecom inc.-(amounts in thousands, except per share data)
Five years ended December 31, 1997 1997 1996 1995 1994 1993 OPERATING RESULTS Sales $432,508 $369,498 $306,556 $213,517 $183,638 Cost of sales 281,591 238,401 189,103 127,160 109,040 Selling, general and administrative expenses 70,786 58,101 47,908 44,252 40,452 Research & development and new product engineering 30,367 21,023 17,006 8,865 7,886 Write-off of in-process research and development - 2,662 - - - Net interest and financing expense 3,051 2,785 2,098 1,785 1,805 - ----------------------------------------------------------------------------------------------------------------------------- Income before taxes and minority interests 46,713 46,526 50,441 31,455 24,455 Provision for income taxes 17,723 19,665 20,138 11,191 671 - ----------------------------------------------------------------------------------------------------------------------------- Income before minority interest 28,990 26,861 30,303 20,264 23,784 Minority interests (5,009) (6,305) (3,027) (523) (518) - ----------------------------------------------------------------------------------------------------------------------------- Income from continuing operations 23,981 20,556 27,276 19,741 23,266 Discontinued operations: Income (loss) from discontinued operations - (3,766) 5,363 9,453 1,695 Loss for disposal - (3,724) - - (2,936) Cumulative effect of accounting change - - - - 2,102 Extraordinary item - extinguishment of debt (632) - - - - - ----------------------------------------------------------------------------------------------------------------------------- Net income $ 23,349 $ 13,066 $ 32,639 $ 29,194 $ 24,127 - ----------------------------------------------------------------------------------------------------------------------------- Net income applicable to common stock $ 23,349 $ 13,066 $ 32,639 $ 29,194 $ 21,947 ============================================================================================================================= Earnings Per Common Share: Basic: Income from continuing operations $ .89 $ .78 $1.05 $ .77 $ .94 Discontinued operations: Income (loss) from discontinued operations - (.14) .20 .37 .08 Loss for disposal of discontinued businesses - (.14) - - (.13) Cumulative effect of accounting change - - - - .09 Extraordinary item - extinguishment of debt (.02) - - - - - ----------------------------------------------------------------------------------------------------------------------------- Earnings per Common Share - Basic $ .87 $ .50 $1.25 $1.14 $ .98 ============================================================================================================================= Diluted: Income from continuing operations $ .88 $ .76 $1.02 $ .76 $ .91 Discontinued operations: Income (loss) from discontinued operations - (.14) .20 .36 .06 Loss for disposal of discontinued businesses - (.14) - - (.11) Cumulative effect of accounting change - - - - .08 Extraordinary item - extinguishment of debt (.02) - - - - - ----------------------------------------------------------------------------------------------------------------------------- Earnings per Common Share - Diluted $ .86 $ .48 $1.22 $1.12 $ .94 ============================================================================================================================= FINANCIAL CONDITION Total assets $514,433 $410,512 $363,565 $357,716 $324,638 Working capital 111,015 94,378 93,371 107,940 71,808 Current ratio 1.85 1.90 2.11 2.54 2.22 Total debt 104,034 55,955 55,799 45,064 52,597 Stockholders' equity 260,822 225,951 210,377 224,181 195,161 Debt to equity ratio .40 .25 .27 .20 .27 Book value per common share 9.55 8.44 7.92 8.59 7.52 Shares outstanding at year end 27,298 26,763 26,570 26,107 25,964 Return on stockholders' equity 9.4% 6.0% 14.7% 14.1% 12.6% Capital expenditures 22,247 20,992 24,498 14,833 11,360 Depreciation 12,808 12,231 8,896 7,477 6,611 Number of employees 3,300 2,900 2,800 2,700 2,500
All per share data have been restated to reflect stock dividends and stock spilts. 35 Shareholder information EXCHANGE LISTINGS Common Stock (Ticker Symbol - ALN) New York Stock Exchange Pacific Exchange. TRANSFER AGENT AND REGISTRAR Harris Trust Company of New York 600 Superior Avenue East, Suite 600 Cleveland, OH 44114-2650 (800)942-5909 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 Allen Telecom 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.allentelecom.com. AFFIRMATIVE ACTION POLICY It is the policy of Allen Telecom Inc. that all employee will be judged on the basis of qualifications and ability, without regard to age, sex, race, creed, color or national origin, in all personnel actions. No employee or applicant for employment will receive discriminatory treatment because of physical or mental handicap in regard to any position for which the employee or applicant for employment is qualified. STOCKHOLDERS As of March 4, 1998, Allen Telecom Inc. had outstanding 27,291,743 shares of Common Stock owned by 1765 holders of record. ANNUAL STOCKHOLDER'S MEETING The Annual Meeting of Stockholders will be held at the Cleveland Marriott at Key Center, 127 Public Square, Cleveland, Ohio on Friday, May 1, 1998 at 9:30 a.m.
Stock Price Range (dollars per share) 93 94 95 96 97 $12.94 $13.50 $21.25 $14.00 $16.00 $29.19 $25.63 $39.38 $28.75 $30.00
MARKET PRICE RANGE OF COMMON STOCK (dollars per share)
1997 1996 1995 High Low High Low High Low - ----------------------------------------------------------------------- 1st Quarter 26 3/8 16 23 1/4 16 7/8 25 1/2 21 1/4 2nd Quarter 24 1/8 16 1/2 28 3/4 18 7/8 29 5/8 22 3rd Quarter 29 1/8 18 3/4 22 1/2 14 39 3/8 29 1/8 4th Quarter 30 16 23 3/4 14 3/4 35 21 7/8
DIVIDENDS DECLARED ON COMMON STOCK 1997 1996 1995 1994 1993 - -------------------------------------------------------------------------- 1st Quarter - - $.05 $.04 $.03 2nd Quarter - - $.05 $.04 $.03 3rd Quarter - - $.05 $.04 $.03 4th Quarter - - - $.04 $.03
EX-21 13 EXHIBIT 21 1 Exhibit 21 SUBSIDIARIES OF THE ALLEN TELECOM INC. -------------------------------------- The following is a list of the subsidiaries of Allen Telecom 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 OF NAME OF CORPORATION INCORPORATION DATE % - ------------------- ------------- ---- - The Allen Group Canada Limited Ontario, Canada 04-19-72 100 The Allen Group Internat'l Sales Corp. Barbados 09-15-94 100 The Allen Group International, Inc. Delaware 07-19-73 100 The Allen Group GmbH Germany 09-29-70 100 Allen Telecom Canada, Inc. Ontario 04-14-93 100 Allen Telecom (France) S.A. (2) France 04-09-97 100 Telia S.A. (3) France 10-19-90 62 Allen Telecom GmbH Germany 07-28-90 100 Allen Telecom Group Limited (1) U.K. 05-08-72 100 Allen Telecom (Holdings) Pty Limited Australia 07-18-96 100 Allen Telecom (Australia) Pty Limited Australia 07-23-96 100 Allen Telecom (Hong Kong) Limited (4) Hong Kong 04-25-97 100 Allen Telecom Investments, Inc. Delaware 04-01-97 100 Allen Telecom (Mauritius) Holdings Ltd. Mauritius 11-25-97 100 Decibel Products (Guangzhou) Ltd. China 01-19-98 100 Allen Telecom (Singapore) Pte Limited Singapore 06-03-97 100 Allen Telecomunicadoes do Brasil Ltda (5) Brazil 11-95 100 Antenna Specialists Co., Inc. Delaware 10-07-88 100 Antespec, S.A. de C.V. Mexico 11-14-88 100 ATI International, Inc. Delaware 12-10-97 100 Comsearch Holdings Inc. Delaware 08-22-97 100 Telespectro de Mexico, S.A. de C.V. Mexico 11-97 100 Decibel Mobilcom Limited (1) England 01-31-91 100 FOREM S.r.l. Italy 11-14-94 100 FOREM France S.a.r.l. (6) France 1993 99 FOREM (UK) Limited U.K. 1988 100 Mikom G.m.b.H. (7) Germany 05-07-85 62 Mikom Vertriebs und Service GmbH Austria 10-18-96 60 (8) Mitras Ltd. (9) Hungary 1992 60 C-com, spol. s.r.o. Czechoslovakia 02-26-96 25 MARTA Technologies, Inc. Delaware 10-14-92 100 Orion Far East Management Inc. (1) Delaware 07-16-81 100
2
STATE/COUNTRY OF NAME OF CORPORATION INCORPORATION DATE % - ------------------- ------------- ---- - 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 RF Micro Devices, Inc. North Carolina 02-27-92 8.2 Signal Science, Incorporated California 09-25-74 100 Tekmar Sistemi S.r.l. (10) Italy 09-20-80 64.3 Telecom Wireless Solutions, Inc. Delaware 10-31-94 19 WINDATA Inc. (11) Delaware 06-05-90 19.9
(1) These subsidiaries are not significant in the aggregate and are no longer active. (2) Of the 2,500 shares issued and outstanding, 2,494 shares are owned by Allen Telecom Inc., 1 share is owned by Allen Telecom Investments, Inc. and the remaining 5 shares are owned in name only by Allen employees. (3) Of the 10,000 shares issued and outstanding, 6,196 shares are owned by Allen Telecom (France) S.A., 4 shares are owned by Allen employees, and Allen Telecom (France) SA. owns options to acquire the remaining 3,800 shares. (4) Of the 1,000 shares issued and outstanding, 999 shares are owned by Allen Telecom Inc. and 1 share is owned by Allen Telecom Investments, Inc. (5) 99% of the outstanding capital stock of this subsidiary is owned by Allen Telecom Inc. and the remaining 1% is owned by Allen Telecom Investments, Inc. (6) 99% of the outstanding capital stock of this subsidiary is owned by FOR.E.M. S.p.A. and the remaining 1% is owned by senior management of FOREM France S.a.r.l. (7) 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. (8) 60% of the outstanding capital stock is owned by Mikom G.m.b.H. and the remaining 40% is owned by the partners of Mikom G.m.b.H. in the venture. (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) 64.3% of the outstanding capital stock of this subsidiary is owned by Allen Telecom, Inc. which also owns options to acquire the remaining 35.7%. (11) Allen Telecom Inc. has subscribed to a 19.9% interest in WINDATA Inc. and also owns an option to acquire the remaining 80.1%. 17-Mar-98 EX-23 14 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. 33-13467) and on the Registration Statements on Form S-8 (File Nos. 33-58951, 33-53499, 33-53487, 33-5240, 33-8658 and 2-99919) and the related Prospectuses of Allen Telecom Inc. of (a) our report dated February 13, 1998 on our audits of the consolidated financial statements of Allen Telecom Inc. as of December 31, 1997 and 1996 and for the years ended December 31, 1997, 1996 and 1995, which report has been incorporated by reference in this Annual Report on Form 10-K from the 1997 Annual Report to Stockholders of Allen Telecom Inc. (a copy of which is filed as Exhibit 13 to this Report) and appears on page 27 therein, and (b) our report dated February 13, 1998 on our audits of the financial statement schedule for the years ended December 31, 1997, 1996 and 1995 of Allen Telecom Inc., which report appears on page 13 in this Annual Report on Form 10-K. We also consent to the references to our firm in the above-mentioned Prospectuses under the caption "EXPERTS". COOPERS & LYBRAND L.L.P. Cleveland, Ohio March 19, 1998 EX-27.1 15 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ALLEN TELECOM'S DECEMBER 31, 1997 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1997 DEC-31-1997 30,775 0 107,648 (1,934) 93,768 242,036 107,264 (46,721) 514,433 131,021 97,915 0 0 29,746 231,076 514,433 432,508 432,508 (281,591) (281,591) (100,357) (796) (3,051) 46,713 (17,723) 23,981 0 (632) 0 23,349 .87 .86 The Earnings per Share amounts have been restated to conform to the provisions of Statement of Financial Accounting Standards No. 128, "Earnings per Share". We have replaced primary and fully diluted amounts with basic and diluted per share amounts, respectively.
EX-27.2 16 EXHIBIT 27.2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ALLEN TELECOM'S MARCH 31, 1997, JUNE 30, 1997, AND SEPTEMBER 30, 1997 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS 6-MOS 9-MOS DEC-31-1997 DEC-31-1997 DEC-31-1997 MAR-31-1997 JUN-30-1997 SEP-30-1997 18,628 22,586 16,081 0 0 0 100,393 106,845 108,615 (1,610) (1,680) (1,726) 74,831 81,186 85,119 202,345 216,041 218,899 84,338 90,561 102,695 (31,973) (34,838) (44,567) 414,791 471,279 474,737 103,574 112,972 108,363 48,769 78,376 77,442 0 0 0 0 0 0 29,662 29,663 29,701 202,007 223,920 231,129 414,791 471,279 474,737 102,503 211,362 322,751 102,503 211,362 322,751 (65,962) (136,639) (207,495) (65,962) (136,639) (207,495) (21,314) (45,258) (70,002) (131) (169) (219) 520 (1,269) (2,176) 14,707 28,363 26,109 (6,180) (11,300) (16,750) 7,026 13,760 21,690 0 0 0 0 0 0 0 0 0 7,026 13,760 21,690 .26 .51 .80 .26 .51 .80 The Earnings per Share amounts have been restated to conform to the provisions of Statement of Financial Standards No. 128, "Earnings per Share". We have replaced primary and fully diluted amounts with basic and diluted per share ammounts, respectively.
EX-27.3 17 EXHIBIT 27.3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ALLEN TELECOM'S MARCH 31, 1996, JUNE 30, 1996, SEPTEMBER 30, 1996, AND DECEMBER 31, 1996 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS 6-MOS 9-MOS 12-MOS DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996 MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996 21,307 11,707 19,577 23,879 0 0 0 0 89,410 97,640 89,639 95,019 (1,477) (1,724) (1,840) (1,610) 73,028 74,547 73,953 71,304 185,974 185,471 186,763 199,180 96,362 101,382 76,122 81,662 (23,906) (27,242) (26,160) (29,720) 373,728 380,344 384,938 410,512 84,536 91,703 92,970 104,802 52,712 47,419 51,326 49,957 0 0 0 0 0 0 0 0 29,598 29,611 29,614 29,614 184,391 190,349 189,818 196,337 373,728 380,344 384,938 410,512 89,870 183,417 267,938 369,498 89,870 183,417 267,938 369,498 (60,185) (121,747) (175,245) (238,401) (60,185) (121,747) (175,245) (238,401) (19,149) (39,252) (59,628) (81,786) (60) (145) (290) (825) (1,242) (2,359) (2,336) (2,785) 9,234 19,914 30,439 46,526 (3,917) (8,318) (12,742) (19,665) 4,245 9,382 13,881 20,556 0 0 (7,490) (7,550) 0 0 0 0 0 0 0 0 4,245 9,382 6,391 13,066 .16 .35 .24 .50 .16 .35 .24 .48 The Earnings per Share amounts have been restated to conform to the provisions of Statement of Financial Accounting Standards No. 128, "Earnings per Share". We have replaced primary and fully diluted amounts with basic and diluted per share amounts, respectively.
EX-27.4 18 EXHIBIT 27.4
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ALLEN TELECOM'S DECEMBER 31, 1995 CONSOLIDATED FINANCIAL STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS 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 0 0 29,595 180,782 363,565 315,377 315,377 (196,119) (196,119) (69,540) (80) (1,821) 47,817 (19,270) 25,520 7,119 0 0 32,639 1.25 1.22 The Earnings per Share amounts have been restated to conform to the provisions of Statement of Financial Accounting Standards No. 128, "Earnings per Share". We have replaced primary and fully diluted amounts with basic and diluted per share amounts, respectively.
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