SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from Not Applicable to
Commission file number 1-6016
THE ALLEN GROUP INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 38-0290950
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
25101 Chagrin Boulevard, Suite 350, Beachwood, Ohio 44122
(Address of Principal Executive Offices) (Zip Code)
(Registrant's Telephone Number, Including Area Code) 216-765-5818
NOT APPLICABLE
Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report
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 the number of shares outstanding of each of the issuer's
classes of common stock:
Outstanding at
Class of Common Stock April 28, 1995
Par value $1.00 per share 26,111,429
Exhibit Index is on page 14 of this report.
Page 1 of 19 Pages.
THE ALLEN GROUP INC.
TABLE OF CONTENTS
Page
No.
PART I. Financial Information:
Item 1 - Financial Statements:
Consolidated Condensed Balance Sheets -
March 31, 1995 and December 31, 1994 3
Consolidated Statements of Income -
Three Months Ended March 31, 1995
and 1994 4
Consolidated Condensed Statements of
Cash Flows - Three Months Ended
March 31, 1995 and 1994 5
Notes to Consolidated Condensed
Financial Statements 6 - 8
Item 2 - Management's Discussion and
Analysis of Financial Condition and
Results of Operations 9 - 11
PART II. Other Information:
Item 5 - Other Information 12
Item 6 - Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit Index 14
<TABLE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
THE ALLEN GROUP INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in Thousands)
<CAPTION>
March 31, December 31,
1995 1994
(Unaudited)
(Note 6)
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $ 41,697 $ 55,240
Accounts receivable (Note 2) 84,421 63,117
Receivable from joint venture 895 857
Inventories (Note 3) 67,500 58,316
Prepaid expenses 900 661
Total current assets 195,413 178,191
Property, plant and equipment, net 71,682 56,860
Net investments in and advances to
joint venture 24,039 24,411
Investment in FOR.E.M. S.p.A. (Note 6) - 8,458
Excess of cost over net assets of
businesses acquired 67,122 56,525
Other assets 38,410 33,271
TOTAL ASSETS $396,666 $357,716
LIABILITIES:
Current Liabilities:
Notes payable and current maturities
of long-term obligations $ 11,759 $ 154
Accounts payable 32,694 26,568
Accrued expenses 37,142 37,955
Income taxes payable 8,955 2,675
Deferred federal income taxes 2,603 2,899
Total current liabilities 93,153 70,251
Long-term debt (Note 7) 51,094 44,910
Other liabilities and deferred credits 21,965 18,374
TOTAL LIABILITIES 166,212 133,535
STOCKHOLDERS' EQUITY
Common stock 29,170 29,146
Paid-in capital 162,344 161,644
Retained earnings 62,646 56,902
Translation adjustments 50 23
Less: Treasury stock (at cost) (17,391) (17,479)
Unearned compensation (4,620) (4,310)
Minimum pension liability adjustment (1,745) (1,745)
TOTAL STOCKHOLDERS' EQUITY 230,454 224,181
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $396,666 $357,716
See accompanying notes to the Consolidated Condensed Financial Statements.
</TABLE>
<TABLE>
THE ALLEN GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands)
(Unaudited)
<CAPTION> Three Months Ended
March 31
1995 1994
<S> <C> <C>
SALES $ 92,078 $ 76,942
Costs and Expenses:
Cost of Sales (66,487) (54,249)
Selling, General and
Administrative Expenses (13,501) (12,485)
Equity in Loss of Joint Venture (406) (694)
Interest and Financing Expenses:
Interest Expense (896) (1,046)
Interest Income 618 500
INCOME BEFORE TAXES 11,406 8,968
Provision for Income Taxes (4,350) (3,578)
NET INCOME $ 7,056 $ 5,390
EARNINGS PER COMMON SHARE (Primary
and Fully Diluted) (Note 4) $.27 $.21
Average common and common equivalent
shares outstanding 26,561 25,934
See accompanying notes to the Consolidated Condensed Financial Statements.
</TABLE>
<TABLE>
THE ALLEN GROUP INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Amounts In Thousands)
(Unaudited)
<CAPTION> Three Months Ended
March 31,
1995 1994
<S> <C> <C>
Cash (used) provided by operating
activities $ (800) $ 5,910
Cash flows from investing activities:
Capital expenditures (4,286) (2,016)
Sales and retirements of fixed assets 18 40
Capital expenditures relating to
centralized emissions inspection
programs (6,260) (3,040)
Capitalized software product costs (460) (504)
Acquisition of business, net of
$7,701 cash acquired (Note 6) (610) -
Cash used by investing activities (11,598) (5,520)
Cash flows from financing activities:
Net repayments of long-term debt (88) (1,112)
Dividends paid (1,312) (1,041)
Exercise of stock options 5 13
Treasury stock sold to employee
benefit plans 250 126
Cash used by financing activities (1,145) (2,014)
Net cash used (13,543) (1,624)
Cash at beginning of year 55,240 11,173
Cash at end of period $ 41,697 $ 9,549
See accompanying notes to the Consolidated Condensed Financial Statements.
</TABLE>
THE ALLEN GROUP INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. General:
In the opinion of management of The Allen Group Inc. (the
"Company"), the accompanying unaudited consolidated condensed
interim financial statements reflect all adjustments necessary to
present fairly the financial position of the Company as of March 31,
1995 and the results of its operations and cash flows for the
periods ended March 31, 1995 and 1994. The results of operations
for such interim periods are not necessarily indicative of the
results for the full year. The year-end 1994 consolidated condensed
balance sheet was derived from audited financial statements, but
does not include all disclosures required by generally accepted
accounting principles. For further information, refer to the
consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended December
31, 1994.
Certain reclassifications have been made to the financial statements
to conform to the 1995 method of presentation.
2. Accounts Receivable:
Accounts receivable are net of the following allowances for doubtful
accounts (amounts in thousands):
<TABLE>
<CAPTION> March 31, December 31,
1995 1994
<S> <C> <C>
Allowance for doubtful
accounts $ 1,721 $ 1,684
3. Inventories:
Inventories consisted of the following (amounts in thousands):
March 31, December 31,
1995 1994
Raw Materials $33,755 $29,581
Work-In-Process 20,610 19,433
Finished Goods 13,135 9,302
$67,500 $58,316
</TABLE>
4. Earnings Per Common Share:
The primary earnings per common share calculations are based upon
the weighted average number of common and common equivalent shares
outstanding during each period. The calculations also include, if
dilutive, the incremental number of common shares issuable on a pro
forma basis upon exercise of employee stock options, assuming the
proceeds are used to repurchase outstanding common shares at the
average market price during the period.
The calculation of fully diluted earnings per common share begins
with the primary calculation but further reflects, if dilutive, the
conversion of the convertible debentures into common shares at the
beginning of the period. This calculation resulted in no reportable
dilution for the periods ended March 31, 1995 and 1994.
5. Supplemental Cash Flow Disclosures:
Depreciation expense, included in "Cash (used) provided by operating
activities", in the Consolidated Condensed Statements of Cash Flows
amounted to $2,057,000 and $1,731,000 for the periods ended March
31, 1995 and 1994, respectively.
Information with respect to cash paid during the periods for
interest and income taxes is as follows:
<TABLE>
<CAPTION> Three Months
Ended
March 31,
1995 1994
<S> <C> <C>
Interest paid $1,290 $1,190
Interest capitalized 93 64
Income taxes paid (refunded) 1,819 (288)
</TABLE>
6. Acquisition:
On March 17, 1995, the Company acquired an additional 40% interest
in FOR.E.M. S.p.A. ("FOREM") located in Milan, Italy; the Company
had previously acquired an initial 40% of FOREM in December 1994.
The purchase price for the 80% ownership interest aggregated
approximately $16,769,000 in cash, and includes certain costs of
acquisition. Pursuant to the terms of the acquisition, the former
shareholders of FOREM may earn additional purchase price based upon
earnings. The remaining 20% of FOREM's outstanding stock is subject
to certain put/call arrangements between the Company and the
sellers. The purchase price for this remaining 20% ownership
interest is based upon a formula relative to future earnings.
This acquisition has been accounted for under the purchase method of
accounting; accordingly, the Company's consolidated financial
position as of March 31, 1995 reflects the acquisition of FOREM.
Results of operations for FOREM prior to the latest share
acquisition (reported under the equity method of accounting) was not
significant. To facilitate preparation of financial statements on
a timely basis, FOREM's financial position and results of operations
will be reported and included in the Company's consolidated
financial statements on a two-month delayed basis.
A summary of the net assets of FOREM acquired is as follows (amounts
in thousands):
Cash $ 7,701
Accounts Receivable 12,428
Inventories 7,178
Fixed Assets 12,599
Excess of cost over net assets acquired 11,006
Other assets 619
Accounts payable and accrued expenses (12,570)
Debt (17,876)
Other liabilities (4,316)
$16,769
The Company has made its best estimate, based on information
available at the present time, to allocate the purchase price based
on the fair market value of the assets and liabilities acquired.
Certain estimates inherent in these valuations are likely to change
or have not been completed or formalized at this time and may result
in some adjustment of the recorded assets and liabilities acquired,
including the excess of cost over net assets acquired. Such excess
is being amortized over a 20-year period.
7. Redemption of Convertible Debentures:
The Board of Directors of the Company approved the redemption on May
31, 1995, of the remaining $4,915,000 of Convertible Subordinated
Debentures, Series A and B, due July 30, 1999, which were issued in
1992 in connection with the Company's acquisition of Alliance
Telecommunications Corporation. Holders of these debentures will
have the right, until May 24, 1995, to convert the debentures into
a total of 351,641 shares of the Company's common stock at the
conversion price of $13.9702, plus the accrued and unpaid interest
on such debentures through the date of conversion. To the extent
such debentures are not converted, the holders would be entitled to
receive the redemption price of 106% of the outstanding principal
amount of each debenture plus the accrued and unpaid interest to the
redemption date.
THE ALLEN GROUP INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the three months ended March 31, 1995, The Allen Group Inc.
("the Company") reported net income of $7,056,000 ($.27 per common
share) compared to $5,390,000 ($.21 per common share) during the
comparable 1994 period.
The increase in earnings is due primarily to increased sales in the
Mobile Communications and Truck Products segments and lower general
corporate expenses offset, in part, by increased operating losses in the
centralized automotive emissions inspection product line and higher
engineering costs of the Mobile Communications segment. In the first
quarter of 1995, research and development expenses in the Mobile
Communications product lines were up an additional $1.2 million (65%)
over the 1994 first quarter, and the Company expects research and
development spending to continue at this increased level through the
rest of the year.
Sales:
Consolidated sales from continuing operations by industry segment
were:
<TABLE>
<CAPTION> Three Months
Ended
March 31,
($ Millions)
1995 1994
<S> <C> <C>
Mobile Communications $58.6 $48.5
Truck Products 32.8 27.7
Centralized Automotive
Emissions Testing .7 .7
$92.1 $76.9
</TABLE>
Mobile Communications sales grew by $10.1 million (20.8%) during the
three months ended March 31, 1995 over the comparable period in 1994.
Site management product sales, base station antenna sales and higher
sales of frequency planning services were the primary reasons for the
increase.
Truck Products sales increased by $5.1 million (18.4%) for the three
months ended March 31, 1995 compared to the same period last year. This
increase is primarily attributable to higher crew cab sales. Production
levels of the crew cab during the first quarter of 1995 was 16% above
the average level for 1994.
Centralized Automotive Emissions Testing sales consist of revenues
from the Company's MARTA Technologies, Inc. ("MARTA") subsidiary. This
industry continues to be burdened by unsettled political and
implementation issues which have delayed programs previously awarded and
the bidding and award of new programs. The operating results of MARTA
were approximately $1 million lower than the comparable results for the
first quarter of 1994 due to the delays in the State of Maryland and El
Paso region of Texas programs. The Maryland program has since begun
operations as of May 2, 1995. We expect that with the Maryland program
now operational, MARTA should operate at break-even levels, or a small
profit, for each of the remaining quarters of 1995.
On May 2, 1995, the State of Texas enacted legislation that could
provide for a cancellation of the existing centralized IM 240 emissions
inspection programs throughout Texas, including the El Paso, Texas
program contracted with MARTA. This legislation directed the Governor
of Texas to enter into negotiations with the U.S. Federal Environmental
Protection Agency (EPA) as to the impact such legislation would have on
the state's federal clean air emissions credits, and provided the
Governor wide latitude in determining what type of emissions test
program would be enacted based on the results of these negotiations. In
addition, the State of Texas has made a request to the EPA to exempt the
El Paso region from emissions testing requirements; no determination has
yet been made. MARTA believes its existing contract provides for
appropriate compensation should this program be substantially changed or
cancelled, subject to the appropriation of funds by the State. MARTA
plans to pursue all remedies available to protect its interests
regarding its contract with the State of Texas. At the present time, it
is not possible to predict the outcome of future actions or decisions by
the State of Texas or EPA.
The Cincinnati program remains scheduled to commence operations in
early 1996. The Northern Kentucky program, originally scheduled to
begin January 1, 1996, will likely be delayed as the State of Kentucky
is reviewing the effect of the EPA's changing mandates on planned and
implemented programs. Kentucky has requested MARTA to limit its
activities to the search for suitable test station locations, but not to
enter into any contractual arrangements to lease or purchase property
until the state resolves its issues with the EPA.
Operating Income: Overall gross margins on product sales
approximated 27.8% and 29.5% for the three months ended March 31, 1995
and 1994, respectively. The decrease in gross margins reflects
increased spending by the Company's Mobile Communications segment for
research and development and increases in other new product engineering
expenditures. This decrease is offset, in part, by improved margins in
the Company's Truck Products segment. Selling, general and
administrative expenses were 14.7% and 16.2% of product sales for the
three months ended March 31, 1995 and 1994, respectively. This improved
ratio is attributable to the spreading of fixed costs on higher sales
and lower general corporate compensation items in the first quarter of
1995.
Joint Venture Operations: For the three months ended March 31,
1995, the Company reported an equity loss from its joint venture of
$406,000, compared to $694,000 for the three months ended March 31,
1994. Results for the periods presented are attributable to GO/DAN
Industries ("GDI"), a 50/50 partnership accounted for under the equity
method. Such losses are due to the seasonality of GDI's business which
is traditionally weakest in the first quarter.
Interest and Financing Expense: The lower interest expense in 1995,
when compared with 1994, reflects the repayment of $7,265,000 of long-
term debt in early 1994 offset, in part, by higher borrowing rates for
the Company's outstanding industrial revenue bonds. The increase in
interest income reflects higher income from the investment of cash
generated from operations. The majority of the Company's cash is
invested in short-term, tax-exempt securities which has the impact of
lowering the net interest income yield compared to what might otherwise
be expected from comparable pre-tax instruments.
Income Taxes: The Company's effective income tax rate for the three
months ended March 31, 1995 and 1994 was 38.1% and 39.9%, respectively,
and reflects the inclusion of the full statutory rate for U.S. Federal
taxes of 35% plus applicable state and local taxes for both periods.
LIQUIDITY AND CAPITAL RESOURCES
As set forth in the Consolidated Condensed Statements of Cash Flows,
the Company used $800,000 in cash from operations for the three months
ended March 31, 1995 compared to cash generated from operations of $5.9
million for the comparable period in 1994. The significant decrease in
cash flow is principally due to increased investment in higher trade
accounts receivable and inventory levels as a result of higher sales
volume in 1995.
At March 31, 1995, the Company held $41.7 million in cash and
equivalents. Approximately $34 million of these funds are invested in
highly liquid investments with maturities of three months or less and
are composed primarily of investments in money market funds, bankers
acceptances and Dutch auction, tax exempt securities which were afforded
one of the two highest ratings by nationally recognized ratings firms.
The remainder was held in cash.
On March 17, 1995, the Company acquired an additional 40% interest
in FOREM, an Italian telecommunications equipment manufacturer, for
approximately $8.3 million in cash financed through internally generated
funds. See Note 6 of Notes to Consolidated Condensed Financial
Statements for additional information, including a summarization of the
assets and liabilities acquired, which account for the several
significant increases in the March 31, 1995 Consolidated Condensed
Balance Sheet when compared with December 31, 1994.
On April 28, 1995, the Company issued a Notice of Redemption of its
Convertible Subordinated Debentures due July 30, 1999 issued in
connection with the acquisition of Alliance Telecommunications
Corporation in 1992. See Note 7 of Notes to Consolidated Condensed
Financial Statements and Item 5 on page 12 of this report for additional
information.
The Company believes that continued profitability, cash and short-
term investments and available unused credit lines of $93.1 million, as
well as unused credit lines for MARTA of $60 million, will provide
sufficient liquidity to fund future growth, expansion and acquisitions.
PART II - OTHER INFORMATION
Item 5 - Other Information
On April 28, 1995 the Company issued a Notice of Redemption of
Convertible Subordinated Debentures, Series A and B, Due July 30, 1999.
A copy of the Redemption Notice is filed as Exhibit 99 to this Report.
See Note 7 of Notes to Consolidated Condensed Financial Statements for
additional information.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Statement re computation of earnings per common share.
(27) Financial Data Schedule (EDGAR Filing Only).
(99) Notice of Redemption of Convertible Subordinated
Debentures, Series A and B, Due July 30, 1999,
dated April 28, 1995.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter for
which this report is filed.
SIGNATURES
Pursuant to the requirements 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)
Date: May 5, 1995 By: /s/ Robert A. Youdelman
Robert A. Youdelman
Senior Vice President-Finance
(Chief Financial Officer)
Date: May 5, 1995 By: /s/ James L. LePorte
James L. LePorte
Vice President and Controller
(Principal Accounting Officer)
THE ALLEN GROUP INC.
EXHIBIT INDEX
Page
Exhibit Number:
(11) Statement re computation of earnings per
common share........................................... 15
(27) Financial Data Schedule (EDGAR Filing Only)............ 16
(99) Notice of Redemption of Convertible Subordinated
Debentures, Series A and B, Due July 30, 1999,
dated April 28, 1995................................... 17
<TABLE>
EXHIBIT 11
THE ALLEN GROUP INC.
EARNINGS PER COMMON SHARE DATA
(Amounts in Thousands)
Net income and common shares used in the calculations of earnings per common
share were computed as follows:
<CAPTION> Three Months
Ended
March 31,
1995 1994
<S> <C> <C>
Income:
Net income applicable to
common stock - primary $ 7,056 $ 5,390
Adjustments for Fully Diluted:
Convertible debenture interest 74 74
Net income applicable to
common stock - fully diluted $ 7,130 $ 5,464
Common Shares:
Weighted average outstanding
common shares 25,392 25,321
Common stock equivalents 1,169 613
Common shares - primary 26,561 25,934
Common shares issuable for:
Stock options 29 -
Conversion of debentures 351 359
Common shares - fully diluted 26,941 26,293
The calculation of fully diluted earnings per common share is submitted in
accordance with Regulation S-K Item 601(b)(11) although not required for
income statement presentation because it results in dilution of less than 3
percent.
</TABLE>
EXHIBIT 27
FINANCIAL DATA SCHEDULE
EXHIBIT 99
THE ALLEN GROUP INC.
25101 Chagrin Boulevard
Beachwood, OH 44122
_______________________
NOTICE OF REDEMPTION OF
CONVERTIBLE SUBORDINATED DEBENTURES,
SERIES A AND B, DUE JULY 30, 1999
To the Holders of April 28, 1995
Convertible Subordinated Debentures,
Series A and B, due July 30, 1999:
NOTICE IS HEREBY GIVEN that, pursuant to Section 3 of the
Convertible Subordinated Debentures, Series A and B, due July 30,
1999 (the "Debentures") of The Allen Group Inc., a Delaware
corporation (the "Company"), and resolutions duly adopted by the
Board of Directors of the Company, the Company will redeem on May
31, 1995 (the "Redemption Date"), all of the outstanding Debentures
at the redemption price of 106 percent of the outstanding principal
amount of each Debenture plus the accrued and unpaid interest on
such Debenture to the Redemption Date. On the Redemption Date, the
Redemption Price will become due and payable on each Debenture and
interest thereon will cease to accrue on and after such date;
provided, however, that pursuant to the terms of the Series B
Debentures, the due date for payment of the portion of the Series
B Debentures which remains subject to offset shall be extended to
the date which is three business days after the first date on which
such payment can be made without reducing the principal balance of
the Series B Debentures to an amount less than the amount then
subject to offset.
As a result of calling the Debentures for redemption, the
Debentures will not be convertible into shares of Common Stock, par
value $1 per share, of the Company (the "Common Stock") from and
after the close of business on May 24, 1995. Until such date, each
Debenture is convertible into that number of shares of Common Stock
determined by dividing the principal amount of such Debenture, or
such portion thereof surrendered for conversion, by the Conversion
Price of $13.9702 and rounded to the nearest 1/100 of a share.
Each holder should consult with his or her tax advisor with respect
to the tax consequences of the conversion or redemption of his or
her Debentures.
The right of a holder to convert his or her Debentures into
Common Stock is a valuable right. For example, based on the
closing market price of $22.00 per share for the Common Stock on
the New York Stock Exchange on April 27, 1995, the holder of a
Debenture in the principal amount of $1,000, if converted, would
receive 71.58 shares of Common Stock having an aggregate closing
market value on such date of $1,574.76, plus the accrued and unpaid
interest on such Debenture. On the other hand, if such Debenture
were not converted into Common Stock, the holder of such Debenture
would be entitled to receive on the Redemption Date the redemption
price of $1,060 plus the accrued and unpaid interest on such
Debenture in the amount of $20.17. The market price for the Common
Stock, however, can vary widely. Accordingly, in reaching a
decision as to the desirability of conversion, each holder should
consult with his or her financial advisor. Conversion may be
effected as set forth below.
The conversion right provided in Section 2 of the Debentures
shall be exercised by the holder of a Debenture by the surrender of
such Debenture to the Company at any time on or before the close of
business on May 24, 1995 at the Company's offices at 25101 Chagrin
Boulevard, Beachwood, Ohio 44122, Attention: Secretary, accompanied
by (1) written notice in the form annexed to the Debenture that the
holder thereof elects to convert the Debenture or a portion thereof
and specifying the amount to be converted and the name (with
address) in which a certificate for Common Stock is to be issued,
and (2) with respect to the Series B Debentures only, the
"Alternate Security" required to be delivered to the Company
pursuant to Section 2.4 of the Series B Debentures. Alternate
Security can be in the form of a letter of credit or a cash deposit
in an amount equal to 69.4 percent of the face amount of the Series
B Debenture being converted.
If the Alternate Security is a cash deposit under $5,000, the
holder of the Series B Debenture desiring to convert that Debenture
must submit to the Company a certified or cashier's check in the
amount of the cash deposit, together with a Security Agreement (a
copy of which is enclosed herewith) signed by the holder. The
Security Agreement provides that the Company will hold the cash
deposit in its general accounts as Alternate Security and that the
Company may reduce the amount of the cash deposit to the same
extent it could have taken an offset against the Series B
Debenture.
If the Alternate Security is a cash deposit over $5,000, the
holder of the Series B Debenture desiring to convert that Debenture
must submit to the Company a certified or cashier's check in the
amount of the cash deposit, together with the following documents
(copies of which are enclosed herewith) signed by the holder: (1)
Letter of Authorization, (2) Form W-9 and (3) Security Agreement.
The Company has arranged for interest bearing accounts to be opened
at Harris Trust and Savings Bank for cash deposits in excess of
$5,000. The account will be in the name of "The Allen Group Inc.,
F/B/O [Name of Holder]". Pursuant to the Letter of Authorization
and Security Agreement, the Company will be the sole authorized
signer for each account, and the interest on the cash deposits
contained in each account will be paid directly to the holder. The
Company will be able to draw from each account to the same extent
it could have taken an offset against the Series B Debenture.
If the Alternate Security is a letter of credit, the holder of
the Series B Debenture desiring to convert must submit to the
Company a Letter of Credit (substantially in the form enclosed
herewith) from a bank with assets of at least $500,000,000. The
form of the letter of credit provides for multiple draws by the
Company to the same extent it could have taken an offset against
the Series B Debenture.
HOLDERS OF THE DEBENTURES WHO DESIRE TO CONVERT MUST SUBMIT
THEIR DEBENTURES AND THE DOCUMENTS REQUIRED TO EFFECT SUCH
CONVERSION, AS DESCRIBED ABOVE, BEFORE THE CLOSE OF BUSINESS ON
WEDNESDAY, MAY 24, 1995.
HOLDERS OF THE DEBENTURES WHO DO NOT CONVERT THEIR DEBENTURES
BY MAY 24, 1995 ARE HEREBY NOTIFIED TO DELIVER AND SURRENDER THEIR
DEBENTURES TO THE COMPANY BY MAIL OR BY HAND DURING NORMAL BUSINESS
HOURS AT THE COMPANY'S OFFICES AT 25101 CHAGRIN BOULEVARD,
BEACHWOOD, OHIO 44122, ATTENTION: SECRETARY, ON OR BEFORE THE
REDEMPTION DATE OF MAY 31, 1995, AND ON SUCH DATE, THEY WILL BECOME
ENTITLED TO RECEIVE THE REDEMPTION PRICE OF 106 PERCENT OF THE
OUTSTANDING PRINCIPAL AMOUNT OF EACH DEBENTURE SURRENDERED PLUS THE
ACCRUED AND UNPAID INTEREST ON SUCH DEBENTURE TO THE REDEMPTION
DATE, LESS THE PRINCIPAL AMOUNT OF SERIES B DEBENTURES WHICH
REMAINS SUBJECT TO OFFSET.
By Order of the Board of Directors,
McDara P. Folan, III
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
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0
0
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</TABLE>
