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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED APRIL 30, 1996
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 1-9078
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THE ALPINE GROUP, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 22-1620387
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1790 BROADWAY
NEW YORK, NEW YORK 10019-1412
(Address of principal (Zip code)
executive offices)
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Registrant's telephone number, including area code 212-757-3333
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Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, par value $.10 per share............................. American Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
S-K is not contained herein, and will not be contained, to the best of the
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. / /
At July 23, 1996, the registrant had 18,281,516 shares of common stock, par
value $.10 per share, outstanding, and the aggregate market value of the
outstanding shares of voting stock held by non-affiliates of the registrant on
such date was $69,047,777.
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PART I
ITEM 1. BUSINESS
GENERAL
The Alpine Group, Inc. (together with its subsidiaries, unless the context
otherwise requires, "Alpine" or the "Company") is a diversified industrial
company principally engaged in the manufacture and sale of copper wire and cable
for the telecommunications industry, specialty refractory products for the iron
and steel, aluminum and glass industries, and data communications and other
electronic products for military and commercial applications. Alpine has
positioned itself as a major participant in these industries through a series of
strategic acquisitions. Alpine entered the copper telecommunications wire and
cable industry with the acquisition (the "Superior Acquisition") in 1993 of
Superior Telecommunications Inc. ("Superior"), formerly Superior TeleTec Inc. On
May 11, 1995, Alpine became one of the two largest North American manufacturers
of copper telecommunications wire and cable products with the acquisition (the
"Alcatel Acquisition") of the U.S. and Canadian copper telecommunications wire
and cable business (the "Alcatel Business") of Alcatel NA Cable Systems, Inc.
and Alcatel Canada Wire, Inc. (collectively, "Alcatel NA"). In November 1995,
Alpine acquired (the "BICC Asset Acquisition") the assets of BICC Philips,
Inc.'s Canadian copper telecommunications wire and cable business (the "BICC
Assets"). In December 1994, Alpine acquired (the "Adience Acquisition") Adience,
Inc. ("Adience"), one of the largest domestic manufacturers and installers of
specialty refractory products. Alpine entered the data communications and
electronics industry with its acquisition of DNE Technologies, Inc. ("DNE") in
February 1992. See Note 6 to Alpine's consolidated financial statements.
TELECOMMUNICATIONS WIRE AND CABLE. Superior is a leading manufacturer of
copper telecommunications wire and cable products for the local loop segment of
the telecommunications network. The local loop is the segment of the
telecommunications network that connects the customer's premises to the nearest
telephone company switch or central office. Copper telecommunications wire and
cable is the most widely used medium for transmission in the local loop, which
comprises approximately 160 million residential and business access lines in the
United States.
Superior manufactures a wide variety of copper telecommunications wire and
cable products, ranging in size from a single twisted pair wire to a 4,200 pair
cable, including hybrid cable products such as coaxial/copper wire and optical
fiber/copper wire combinations. These products are variously configured for
aerial and underground use in the local loop. Superior has also developed high
speed data communication copper wire products, including unshielded twisted pair
("UTP") wire for on-premise applications, such as in computer networks.
Superior's products are sold primarily to the regional Bell operating companies
("RBOCs") and the three major independent telephone companies under multi-year
supply arrangements.
Superior has led a recent consolidation in the copper telecommunications
wire and cable industry by acquiring the Alcatel Business and the BICC Assets.
Through these acquisitions, Superior increased its annual production capacity
from 28 billion conductor feet ("bcf") in one plant to an aggregate of 92 bcf in
four geographically disbursed plants. Due to further industry-wide
consolidation, total industry capacity has been reduced, the number of
manufacturers has declined and the size of the remaining manufacturers has
increased. As a result of this and other factors, Superior has become a key
supplier to certain of the RBOCs and believes that it will continue to be able
to compete effectively as the RBOCs consolidate their vendor base and seek to
stabilize their sources of supply. In addition, the consolidation and increased
demand have led to a recent improvement in the pricing environment for
Superior's products.
REFRACTORIES. Adience is one of the largest U.S. manufacturers and
installers of specialty refractory products, which are used primarily by the
iron and steel industry. Specialty refractory products are consumable materials
used as insulation on surfaces exposed to high temperatures such as those
generated by molten metals. Over the past year, Adience has provided refractory
products and services
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to every integrated steel producer in the United States and Canada, and Adience
believes that it is the only major U.S. manufacturer that provides a full range
of refractory products and installation services to the iron and steel industry.
Adience also manufactures specialty refractory products for use in the
production of aluminum and glass and is one of the few rebuilders of coke ovens
in the United States.
DATA COMMUNICATIONS AND ELECTRONICS. DNE designs and fabricates data
communications equipment, integrated access devices and other electronic
products. DNE is a supplier to the U.S. defense industry of data and voice
multiplexers used in tactical secure military applications. Multiplexers are
integrated access devices that combine several information carrying channels
into one line, thereby permitting simultaneous multiple voice and data
communications over a single line. DNE also produces military avionic products,
including switches, dimmers, relays and other electrical controllers, various
sensors and refueling amplifiers. DNE has reduced its dependence on the defense
market in recent years, primarily through the development of contract subsystem
manufacturing services for commercial and (non-defense) governmental customers.
Although the copper telecommunications wire and cable and refractory
products industries are mature, Alpine believes that ongoing alignment of
productive capacity with market demand, technological developments that have
enhanced the bandwidth capacity of the existing copper wire and cable
telecommunications infrastructure, industry consolidation and Alpine's emphasis
on new, higher margin products will strengthen Alpine's profitability, cash flow
and competitive position. Alpine's strategy in the telecommunications products
business is to: (1) respond to the current and changing needs of its customers'
communications networks and continue to expand its business in the local loop by
continuing to develop, manufacture and sell a full line of copper wire and cable
products; (2) expand its product lines to include transmission media such as
data cable, including UTP products, and hybrid coaxial/copper wire and
fiber/copper products; (3) take advantage of strategic acquisition opportunities
in data cable, the local loop and its other markets; and (4) expand its
international business through increased export sales and the establishment of
joint ventures or similar arrangements and otherwise increase its presence in
international markets. Alpine's strategy in the data communications and
electronics business is to expand its data communications products business by
developing commercial versions of its integrated access devices, which could
potentially require a significant investment of capital, and marketing such
products to the telecommunications industry, including Alpine's
telecommunications wire and cable customers. Alpine's strategy in the
refractories business is to expand the types of products and services that it
supplies to its existing customers; and expand its marketing efforts in order to
sell its products to new domestic and foreign customers.
Alpine was incorporated in New Jersey on May 7, 1957 and reincorporated in
Delaware on February 3, 1987. Its principal executive offices are located at
1790 Broadway, New York, New York 10019-1417 and its telephone number is (212)
757-3333.
TELECOMMUNICATIONS WIRE AND CABLE BUSINESS
COPPER TELECOMMUNICATIONS WIRE AND CABLE INDUSTRY
The telephone network in the United States is comprised of three major
components: the distribution or local loop portion, the trunking portion and the
long distance portion. The local loop portion of the telephone network is
comprised of (i) the connection between a home or business and the nearest
telephone pole or other outside location and (ii) the connection between the
telephone pole or outside location and the nearest telephone company switch,
either at the telephone company's central office or at a remote location. The
trunking portion of the network connects telephone central offices and remote
switch locations to each other and provides some intercity connections, while
the long distance portion of the telephone network also provides the
interconnection between cities. The following diagram represents the use of
copper wire and cable within the typical telephone network architecture.
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Page 3 contains a diagram of the United States telecommunications
infrastructure, including the composition of the distribution, feeder, intercity
trunking and interoffice trunking cables between telephone company central
offices, remote digital switches, office buildings and private residences.
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Copper telecommunications wire and cable is the most widely used medium for
transmission in the local loop, which currently comprises approximately 160
million residential and business access lines in the United States. The
installed base of copper wire and cable in the local loop represents an
investment of over $150 billion that must be maintained by the RBOCs and other
local telephone companies. Although other media, such as optical fiber cable, is
used for trunk lines between central offices, local loop lines continue to be
copper-based. Local loop lines are continually maintained and replaced,
providing a steady demand for copper wire and cable.
The copper telecommunications wire and cable industry manufactures a variety
of cable products, which are used in burial or aerial applications,
predominantly in the local loop. The industry also manufactures several types of
copper telecommunications wire products, including: (i) outside service wire,
which is also referred to as telephone distribution wire, used in direct burial
or aerial applications mainly to connect a home or business to the nearest
telephone pole or other outside location and (ii) inside or premise wire used
within a building to connect various telephone devices to the telephone network.
The basic unit of virtually all copper telecommunications wires and cables
is the "twisted pair," a pair of insulated wires twisted around each other. Both
wires in the pair are used to complete the telephone connection. Twisted pairs
are bundled together to form telephone wires and cables. The basic unit of
measure for copper wire and cable is in billions of conductor feet (bcf), which
is calculated by measuring the length of each insulated wire in a twisted pair.
Based on data published by the U.S. Department of Commerce, Superior
estimates that domestic production of copper telephone cable and outside service
wire was $1.1 billion in 1993. A substantial majority of the copper telephone
cable and outside service wire sold in the United States is purchased by the
RBOCs and other domestic telephone companies. An estimated 5% to 10% of industry
sales are in the export markets. Small amounts of these products are sold to the
military, other government agencies, construction companies and in the homeowner
market. It is estimated that the seven RBOCs (Ameritech Corporation, Bell
Atlantic Corporation, BellSouth Corporation, NYNEX Corporation, Pacific Telesis
Group, SBC Communications, Inc. (formerly Southwestern Bell) and U.S. West,
Inc.) purchase approximately 60% of the copper telephone cable and outside
service wire purchased by U.S. telephone companies, while three major
independent telephone holding companies (Alltel Corporation, GTE Corporation and
Sprint Corporation) purchase an additional 25%, and over 1,200 small local
telephone operating companies purchase the remainder.
Demand for copper telecommunications wire and cable is dependent on several
factors, including the rate at which new lines are installed in homes and
businesses ("access lines"); the level of spending for highways, bridges and
other parts of the infrastructure, which often necessitates installation of new
telephone cables; and the level of general maintenance spending by telephone
companies. The installation of new access lines is in turn dependent on the
level of new construction and, increasingly in recent years, on demand for
second telephone lines and lines dedicated to facsimile machines and computer
modems, which are used for, among other purposes, business communications and
access to the Internet.
Alpine believes that copper will continue to be the transmission medium of
choice in the local loop due to factors such as: the significant investment in
the installed base of copper cable in the local loop which must be maintained by
the RBOCs and other local telephone companies; the significantly lower
installation and maintenance costs of copper compared to optical fiber and other
media; technological advancements that expand the bandwidth of the installed
local loop copper network, such as integrated services digital network,
high-bit-rate digital subscriber line and asymmetric digital subscriber line,
which allow the continued use of copper as the transmission medium for the new
voice, data, video and multi-media uses demanded by customers; and the
increasing demand for new services, which, because of technological advances,
can be supported by a copper-based local loop.
The commercial development of fiber optics has had and is expected to
continue to have an effect on Superior's copper telecommunications wire and
cable business. Optical fiber technology has had a
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major impact on certain components of the telecommunications network where its
utilization is cost-effective, particularly in trunk lines and the long distance
network. To a lesser degree, optical fiber cable has been deployed in certain
high-density feeder applications between telephone company central offices or
remote locations and major distribution points, which has further reduced the
total market for products manufactured by Superior. In the local loop portion of
the telecommunications network, however, copper wire has remained the most
widely used medium for transmission. Telephone companies are evaluating (and in
certain cases installing on a test basis) alternative technologies for providing
video entertainment or other new services, including coaxial and optical fiber
cable. Superior believes, however, that the great majority of businesses and
homes in America will continue to be connected with the telecommunications
infrastructure via a copper-based local loop. Nevertheless, because the
telecommunications industry is undergoing rapid and intense technological
change, it is not possible at this time to predict the impact that these
developments may have on the total demand for copper wire in the local loop. A
relatively small decline in the level of purchases of telecommunications wire
and cable by the RBOCs and other telephone companies could have a
disproportionately adverse effect on the copper telecommunications wire and
cable industry, including Superior.
Wireless technologies such as microwave, satellite and cellular transmission
have had, and will continue to have, an impact on the market for copper
telecommunications wire and cable telecommunications products. In addition,
there can be no assurance that other, newly-developed technologies will not have
an adverse impact on the market for copper telecommunications wire and cable
products.
SUPERIOR'S COPPER WIRE AND CABLE PRODUCTS
Superior manufactures a wide variety of copper telecommunications wire and
cable products. Cable is the transmission medium in the part of the local loop
from a local telephone company's central office to a local switch and from the
switch to a connection adjacent to a home or business location (either at a
telephone pole or another outside location such as a pedestal). Wire is the
transmission medium that runs from the telephone pole or other outside location
adjacent to a home or business to the end user's access device, and may be
either outside or on-premises. Alpine's products include cable, outside wire and
premises wire products, ranging in size from a single twisted pair wire to a
4,200 pair cable. These products are variously configured for aerial and
underground use in the local loop and for on-premise applications.
The basic unit of virtually all copper telecommunications wires and cables
is the "twisted pair," a pair of insulated wires twisted around each other. Both
wires in the pair are used to complete the telecommunications connection.
Twisted pairs are bundled together to form telecommunications wires and cables.
The basic unit of measure for copper wires and cable is in billions of conductor
feet (bcf), which is calculated by measuring the length of each wire in a
twisted pair.
Superior's copper telecommunications cable products range in size and are
differentiated by design variations depending on where the cable is to be
installed. Cable products used for direct underground burial are designed to be
water-resistant and are filled with compounds to prevent moisture from getting
into the cable structure. The individual copper wires in these cables utilize
either a solid polyethylene or polypropylene insulation or cellular polyethylene
covered with a solid polyethylene skin. Cable products used for underground duct
or aerial applications, where water penetration is not a major concern, are
designed with solid polyethylene insulation and no filling compound. The copper
telecommunications cable products normally have metallic shields for electrical
and mechanical protection and electromagnetic shielding of the copper wires, as
well as an outer polyethylene jacket.
Superior's outside service wire products range in size from a single twisted
pair to a six-pair product. Similar to copper cable products, outside service
wire products are designed for both direct burial and aerial applications and
are also manufactured in a variety of designs, including a number of different
metallic shield configurations and several different jacketing materials.
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Superior's copper telecommunications wire for interior use, or premises
wire, generally range in size from a single twisted pair to a four-pair product.
Premises wire is used within buildings to connect telecommunications devices
(telephones, facsimile machines and computer modems) to the telecommunications
network and, in commercial buildings, to establish Local Area Network's
("LAN's"). All of Alpine's premises wire has been listed by Underwriters'
Laboratories, which is required by most local building codes.
An important element of Superior's strategy in the telecommunications wire
and cable business is to expand into performance-enhanced copper-based wire
products that provide opportunities for higher growth and higher margins than
Superior's current product lines. As described below, Superior has introduced
and is in the process of introducing a number of new products in this regard.
In fiscal 1995, Superior introduced a line of UTP copper wire products
designed for high-speed data transmission across private networks. Superior
believes that UTP, which was first introduced into the market in the early 1990s
as an alternative to optical fiber, has become the medium of choice for private
data network communications due to its (i) significant installation and
maintenance cost advantages over optical fiber cable and (ii) its performance
capabilities, which are sufficient to address a substantial portion of the
market for private data networks requiring high-speed transmission rates.
Superior's sales of UTP products, which have been limited due to a lack of
availability of teflon, a component of UTP products, were $4.5 million in fiscal
1996.
Superior also has recently developed or is in the process of developing a
number of other new products, including (i) hybrid products combining
twisted-pair copper wires with coaxial or optical fiber cable for outside
service or on-premise use, (ii) aerial drop non-metallic support products, which
utilize fiberglass yarn and twisted-pair copper wires for outside service use
and (iii) riser products, which are copper wires used inside high-rise buildings
or telephone central offices for LAN-based vertical connections.
MARKETING AND DISTRIBUTION
During fiscal 1996, 90.0% of Superior's net sales were to the RBOCs and
major U.S. independent telephone companies, 1.0% were made outside the United
States and Canada and the remaining 9.0% were made to other telephone companies
in the United States and Canada, construction companies and others.
Superior sells to the RBOCs and other major independent telephone companies
on a direct basis through a sales force of five salespersons. The remainder of
Superior's products are sold through distributors, original equipment
manufacturers and sales representatives and agents, including sales
representatives in South America. Alpine believes that there will be
opportunities for international expansion of its wire and cable business, either
through export sales and the establishment of joint ventures or similar
arrangements.
Superior's sales to telephone companies are generally pursuant to multi-year
supply agreements in which the customer agrees to have Superior supply certain
of the customer's wire or cable needs as the primary supplier during the term of
the agreement. Prior to awarding a contract, customers forecast their needs and
manufacturers such as Superior bid and quote prices based upon the forecasted
order amount, although customers are not obligated to purchase the forecasted
amount or any minimum amount. Superior currently has multi-year agreements with
respect to certain of its wire and cable products with six of the seven RBOCs
and with the three major independent telephone companies. For fiscal 1996, sales
to BellSouth Corporation, North Supply Corporation (Sprint), GTE Corporation,
SBC Communications, Inc. and NYNEX Corporation accounted for 21.5%, 17.2%,
16.1%, 12.8% and 12.5% of Superior's net sales of wire and cable products,
respectively. No other single customer accounted for more than 10% of Superior's
wire and cable sales. Additionally, as is customary in the industry, Superior's
sales to customers other than large telephone companies are primarily on the
"spot" market on the basis of short-term purchase orders. In recent years these
sales have declined as a proportion of total sales.
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MANUFACTURING PROCESS AND QUALITY CONTROL
Copper rod is the base component for most of Superior's wire and cable
products. The manufacturing processes for these products require that the copper
rod be drawn and insulated. Superior purchases copper rod of 5/16" diameter from
third-party suppliers. Superior then "draws" the wire to one of four American
wire gauges ("AWGs"). Wire drawing is the process of reducing the conductor
diameter by pulling the copper rod through a converging die until the specified
AWG is attained. Since the reduction is limited by the breaking strength of the
conductor, this operation is repeated several times internally within the
machine. As the wire becomes smaller, less pulling force is required. Therefore,
machines operating in specific size ranges are required. Take-up containers or
spools are generally large, allowing one person to operate several machines.
Individual copper wires are then typically insulated with plastic compounds
through an extrusion process. Extrusion involves the feeding, melting and
pumping of a compound through a die to shape it in final form as it is applied
to insulate the wire. Superior uses five primary types of insulating material
compounds; high density polyethylene, high density cellular polyethylene foam,
flame retardant polyethylene, fluoropolymers and polyvinyl chloride. Superior
purchases these insulating compounds from a variety of suppliers.
Superior's products also require that the insulated wire be "twisted" so
that two insulated single conductors are combined to create a twisted pair.
Superior's products are often "cabled" or "stranded" so that multiple twisted
pairs of insulated wires are combined to form larger units of multiple pair
cables. Typically, cabling or stranding is done only on large (e.g., 25 or more)
numbers of pairs. Smaller numbers of pairs (e.g., fewer than 25) are not cabled,
but are sent directly for jacketing.
Once insulated, Superior's copper wire and cable products are "jacketed" or
covered through the application of filling, flooding and shielding compounds to
the insulated wire. Products to be installed underground are protected by
metallic shielding (e.g., aluminum and steel) for electrical and mechanical
isolation and by plastic compounds of polyvinyl chloride or polyethylene for
protection against water and other sources of corrosion and interference. After
the wire and cable products are fabricated, they are packaged and shipped either
directly to customers or to distributors.
RAW MATERIALS
The principal raw materials used by Superior in the manufacture of its wire
and cable products are copper, aluminum, bronze, steel and plastics such as
polyethylene and polyvinyl chloride. These raw materials are available from
several sources and Superior has not experienced any shortages in the recent
past.
The cost of copper, the most significant raw material used by Superior in
its wire and cable business, has been subject to considerable volatility over
the past several years. However, this volatility has not had, nor is it expected
to have, an impact on Superior's profitability due to customers' contractual
arrangements that provide for the pass-through of changes in copper costs
through price revisions. Nevertheless, sharp increases in the price of copper
can reduce demand if telephone companies decide to defer their purchases of
copper telecommunications wire and cable products until copper prices decline.
The production of UTP products is dependent upon teflon, which is currently
manufactured by only two producers and is in short supply. As a result, Alpine
is currently evaluating alternative production methods in order to increase the
quantity of production per pound of teflon or to eliminate its requirement.
Until this is resolved or the supply of teflon increases, Alpine will have to
limit its production of UTP products. From time to time, particular plastics
have been difficult to obtain, but in recent years none of these shortages has
required Superior to limit production. The inability of Superior to obtain
sufficient quantities of raw materials could adversely affect its operating
results.
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FOREIGN SALES
Superior's copper wire and cable business has a plant in Winnipeg, Manitoba
that supplies both the Canadian and U.S. markets. Superior's fiscal 1996 copper
wire and cable sales to customers outside the United States and Canada were $3.3
million, or 0.9% of copper wire and cable sales, of which the majority were in
Latin America.
COMPETITION
The copper telecommunications wire and cable business is very competitive.
Superior has three major domestic competitors in the copper telecommunications
wire and cable business: Cable Systems International, Inc., General Cable
Corporation, a subsidiary of Wassall, plc; and Essex Group Incorporated, a
subsidiary of BCP/Essex Holding, Inc. Competition in this market is based on
price, service and quality. Because several RBOCs have adopted policies of
limiting the number of their suppliers and requiring that these suppliers
provide additional services, the degree of competition based on service is
increasing.
DATA COMMUNICATIONS AND ELECTRONICS
PRODUCTS
DNE designs and manufactures data communications equipment, integrated
access devices and electronic equipment for defense, government and commercial
applications. It is the largest supplier to the U.S. defense forces of data and
voice multiplexers used in tactical secure military applications. Multiplexers
are integrated access devices that combine several information-carrying channels
into one line, thereby permitting simultaneous multiple voice and data
communications over a single line. DNE also produces military avionic products,
including switches, dimmers, relays and other electronic controllers, sensors
and refueling amplifiers.
DNE's strategy in this area is to expand its data communications products
business by developing commercial versions of its integrated access devices,
which could potentially require a significant investment of capital, and by
marketing such products to the telecommunications industry, including Alpine's
telecommunications wire and cable customers. DNE has developed and begun
marketing a data and voice multiplexer product for the commercial market.
DNE has reduced its dependence on the defense market in recent years
primarily by taking advantage of opportunities to manufacture equipment on a
contract basis. DNE provides contract manufacturing services for subassembly
equipment to approximately five original equipment manufacturers in the
technology industry and NASA. DNE expects to add additional commercial customers
in the future and to expand its contract manufacturing services business
provided to its existing commercial customers. Sales to NASA are not expected
after the current contract expires in fiscal 1997. In fiscal 1996, DNE's sales
to customers other than the departments of the U.S. government accounted for
36.0% of sales, compared to 42.0% of sales in fiscal 1995.
REFRACTORY PRODUCTS AND SERVICES
GENERAL
Adience is one of the largest manufacturers and installers of specialty
refractory products in the United States. Refractory products are consumable
materials used as insulation on surfaces exposed to high temperatures, such as
those generated by molten metals. The manufacture, installation and maintenance
of specialty refractory products to the iron and steel industry represented over
73% of Adience's fiscal 1996 net sales. Adience is also among the leading
manufacturers in the United States of specialty refractory products for use in
the production of glass and aluminum and is one of the few rebuilders of coke
ovens in the United States.
REFRACTORY PRODUCTS AND SERVICES
Adience manufactures a wide range of refractory products and specializes in
producing refractory materials that are custom designed for specific industrial
applications and customers. The principal products are monolithic (unformed)
refractory materials, slide gates, bottom pour refractories and
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bricks and blocks. Adience also provides installation and maintenance services
for its customers. Monolithic refractory materials are cement-like materials
that are mixed with water on the customer's premises and applied to surfaces
exposed to high temperatures. Slide gates and bottom pour refractories are
pre-formed units that allow the discharge of molten metal from the bottom of the
furnace, rather than from the top, resulting in reduced iron and steel
impurities. Adience manufactures a wide range of bricks and blocks, which are
used to line industrial furnaces. Because of the high temperatures involved in
the manufacturing and movement of molten iron and other molten materials, the
equipment employed in such processes must utilize linings made of refractory
products, which deteriorate and must be repaired or replaced frequently. The
largest customer for Adience's products and services is the iron and steel
industry, followed by the glass, aluminum, cement and co-generation industries.
Certain of Adience's refractory products are used to line furnaces, troughs,
runways and other surfaces exposed to molten glass or the molten tin used in the
float glass method of production. All of these products are manufactured
according to customer specifications. In addition, certain of Adience's
refractory products are distinguished by their resistance to corrosion.
Corrosion resistance is particularly important in the glass industry where,
unlike the steel industry, certain refractory products are designed to last for
up to 10 years.
The manufacturing process for specialty refractory products involves the
mixing and, in some cases, the kiln firing of various raw materials,
particularly fireclays and minerals such as bauxites and aluminas. Adience
operates eight principal refractory plants located near major industrial centers
in the United States and Canada. Adience designs its refractory products for
specific applications and customer needs.
Adience also provides a variety of services, primarily to its iron and steel
customers: it installs refractory products manufactured by it and others; it
provides on-site maintenance of refractory products; and it rebuilds coke ovens.
The ability to react quickly to customer requests for products or installation
and maintenance services is particularly important in the refractory industry
because of the extremely high cost of manufacturing downtime in the iron and
steel industry. Consequently, Adience maintains refractory service facilities
located near its major customers in the United States and Canada. Each facility
has the equipment and skilled staff required for the installation and
maintenance of refractory products. Other personnel required for installation
projects are hired on an as-needed basis from readily available local union
labor pools and are employed by Adience only for the duration of each job.
One of Adience's strategic initiatives in the refractories business is to
extend sales of its refractory products and services into the steel making phase
of the integrated iron and steel mills. Currently, Adience supplies its products
and services primarily to the iron making and handling area of an integrated
iron and steel mill. The steel ladle and continuous casting phases utilize
substantially greater amounts of refractory products than Adience's traditional
area of focus and therefore represent a potential area for growth. To strengthen
Adience's leadership position in the monolithic refractory business, Adience is
also emphasizing the use of shotcrete technology in the installation of its
unformed refractory materials. This technology permits a lower cost and faster
installation of monolithic refractory materials in applications previously
dominated by brick refractories. Adience is developing robotic application
equipment permitting the installation of refractories at higher temperatures
than currently possible, thereby resulting in less facility downtime.
MARKETING AND DISTRIBUTION
The iron and steel industry has historically been the major consumer of
Adience's products and services. For fiscal 1995 and 1996, sales to the iron and
steel industry accounted for 64% and 73%, respectively, of refractory product
net sales. Other customers for Adience's specialty refractory materials are the
glass, aluminum, cement and cogeneration industries. Adience also sells its
refractory products to other refractory contractors and buys refractory products
produced by other manufacturers in performing its contracting services.
9
<PAGE>
Within the iron and steel industry, Adience's principal customers have
traditionally been the largest companies in the industry. USX-US Steel Group,
Inc., Bethlehem Steel Corporation and LTV Steel Company, Inc. together accounted
for approximately 31.0% and 33.6% of the net sales of this business segment for
fiscal 1995 and 1996, respectively. USX-US Steel Group, Inc., alone accounted
for 13.0% and 15.2% of this business segment's net sales during fiscal 1995 and
1996, respectively. Each of the other companies accounted for less than 10% of
this business segment's net sales during such periods. Marketing of Adience's
products and services is conducted by a sales force working out of 15 sales
offices located in 8 states and Canada.
RAW MATERIALS
In manufacturing its specialty refractory products, Adience uses more than
100 different raw materials which come from a variety of sources, the majority
of which are obtained within the United States. Some of the more important raw
materials are alumina, bauxite, silicon carbide, calcium aluminate cements and
clays. The number of sources of supply varies with each raw material. Adience
believes that it is not dependent in its manufacturing processes on any one
source of supply.
FOREIGN SALES
For the year ended April 30, 1996, foreign sales of refractory products
totaled $16.7 million, or 14.7% of refractory product sales. Foreign sales of
refractory products consisted primarily of sales by Adience's Canadian plant.
COMPETITION
In the production of refractory materials, Adience competes with a number of
companies, including North American Refractories Co., Harbison Walker, A.P.
Green Industries, Inc., National Refractories Co. and Premier Refractories &
Chemicals, Inc., some of which are larger than Adience.
Adience's primary competitors in the installation of refractory products are
in-house employees of iron and steel companies and also regional refractory
service contractors which, unlike Adience, do not engage in the production of
such materials. Other major refractory producers typically contract with these
regional companies to install the product, or their customers install the
products themselves. Competition is based primarily on service, price and
product performance. Adience believes that its ability to produce, install and
maintain its refractory products without dependence upon third parties
strengthens its competitive position.
RESEARCH AND DEVELOPMENT
In response to the changing requirements of the telecommunications industry,
Superior has focused its recent product development activities on performance
enhanced copper-based wire products that are designed to meet the existing and
future needs of the telephone companies. Several of these projects have been
undertaken in conjunction with Superior's telephone company customers and
include the development of composite cables that include copper twisted pair
wire and coaxial cable or optical fibers in a single cable construction.
Superior is currently developing shielded twisted pair products and the retail
packaging of certain of its products for on-premise use as well as extensions of
its UTP products, such as patch cords for use in connecting Superior products
within premises and 25-pair UTP cables for certain data transmission
applications. Superior expects to explore new product development opportunities
to meet the evolving needs of its customers.
Constant revisions to industry processes and chemistries require changes in
refractory products to meet customer demand. Adience maintains research and
development facilities for improving existing refractory products and
installation methods and developing new products for existing and new markets.
In order to compete for contracts, DNE frequently invests its own funds on
research and development in order to determine the financial and practical
feasibility of manufacturing the products. DNE is currently in the process of
developing a new multiplexer for secure communications for a U.S. government
agency.
10
<PAGE>
Although Alpine currently holds certain trademarks, licenses and patents,
none is considered to be material to its businesses.
Alpine's research and development expense during fiscal 1994, 1995 and 1996
amounted to $1.2 million, $1.6 million, and $2.5 million, respectively.
EMPLOYEES
As of April 30, 1996, Alpine employed 2,250 people, including 1,485 in the
telecommunications wire and cable business, 560 in the refractories business,
193 in the data communications and electronics business and 12 at Alpine's
corporate offices.
The number of individuals employed in the refractories business does not
reflect members of the building trades, who are hired by Adience as required.
Approximately 279 persons employed in Adience's specialty refractory business
and approximately 412 persons employed in Superior's telecommunications wire and
cable business are represented by unions.
Alpine considers relations with its employees to be satisfactory.
ENVIRONMENTAL MATTERS
Alpine's manufacturing operations are subject to numerous federal, state and
local laws and regulations relating to the storage, handling, emission,
transportation and discharge of hazardous materials and waste products.
Compliance with these laws has not been a material cost to Alpine and has not
had a material effect upon its capital expenditures, earnings or competitive
position. Violation of such laws or regulations, even if inadvertent, could have
an adverse impact on the operations, business or financial results of Alpine.
Operations of Alpine have resulted in releases of hazardous substances at
sites currently or formerly owned or operated by Alpine. Alpine is presently
involved in investigatory and remedial activities at certain sites under the
oversight of state governmental authorities, as described below.
Soil and groundwater at Superior's Brownwood, Texas facility has been found
to be contaminated with volatile organic compounds as a result of operations at
the facility which management believes occurred prior to Superior's acquisition
of the facility. Superior is in the process of obtaining approval for a
remediation plan from the Texas Natural Resource Conservation Commission. Based
upon investigations performed to date, the Company believes that the cost of
this remediation will not be in excess of $0.5 million. Pursuant to an agreement
between Superior and the former owner of the facility, the Company has been
reimbursed for approximately 85% of the costs incurred to date in connection
with the investigation and remediation of this facility, and is entitled to
reimbursement of future expenses at percentages ranging from 85% to 25%
(depending on the time at which such expenses are incurred), subject to an
aggregate expense reimbursement of not less than 75%.
In connection with the sale of a facility in Woburn, Massachusetts formerly
owned by and currently under lease to DNE, low levels of volatile organic
compounds were discovered in shallow groundwater. DNE has assumed responsibility
for this contamination pursuant to an indemnity granted to the purchaser of the
facility, which indemnity is in turn guaranteed by Alpine. This facility has
been designated as a non-priority site by the Massachusetts Department of
Environmental Protection ("MDEP") which granted a waiver to Alpine allowing it
to proceed with further investigation and, if necessary, remediation, of the
groundwater contamination without MDEP oversight, subject to certain conditions.
In accordance with the waiver, investigation and remediation efforts must be
completed by August 1997. Based on the results of a Phase II comprehensive site
assessment completed during May 1996, it appears that no remedial activities are
warranted for this site, but approximately $10,000 may be required to perform
MDEP filing and response actions. Alpine has also assumed responsibility for and
indemnified purchasers against liabilities associated with contamination, if
any, existing at other of its former facilities. In particular, in connection
with the sale of its former East Windsor, Connecticut facility and pursuant to
Connecticut property transfer laws, the Company was required by the Connecticut
Department of Environmental Protection ("CDEP") to
11
<PAGE>
develop a plan to investigate the existence of contamination, if any, at that
facility. The Company has developed and submitted to CDEP the required plan and
is awaiting CDEP approval of the scope of its proposed investigation. Based upon
information available to date, Alpine does not believe the costs associated with
fulfilling its obligations with respect to the East Windsor facility will have a
material adverse effect on its operations, business or financial results.
Certain Adience facilities contain areas which may have been used for the
disposal of waste materials generated by facility operations, some of which may
contain elements or compounds classified as hazardous under environmental laws
or which may otherwise cause environmental contamination. If it is determined
that past disposal practices have resulted in releases of contaminants to soil
or groundwater, remediation of such contamination may be required. If
substantial environmental contamination is found at any or all of the Adience
facilities, this could have a material adverse effect on the operations,
business and financial results of Alpine.
ITEM 2. PROPERTIES
Alpine conducts its operations primarily at the facilities set forth below:
<TABLE>
<CAPTION>
LOCATION SQUARE FOOTAGE LEASED/OWNED
- --------------------------------------------------------- -------------- ----------------------------
<S> <C> <C>
TELECOMMUNICATIONS WIRE AND CABLE
MANUFACTURING FACILITIES
Brownwood, Texas....................................... 328,000 Leased (expires 2013)
(five five-year-renewals)
Winnipeg, Manitoba..................................... 190,000 Owned
Elizabethtown, Kentucky................................ 163,000 Owned
Tarboro, North Carolina................................ 295,000 Owned
CORPORATE OFFICE
Atlanta, Georgia....................................... 20,000 Leased (expires 2001)
</TABLE>
Depending on product mix, capacity in this segment ranges from 85 bcf to 92
bcf. Each facility is operating at utilization rates of between 90% and 95%.
Facilities in this segment are suitable and adequate for the business. Capital
spending plans for the operations in this segment are primarily designed to keep
up with current technology and to increase capacity in existing product lines.
<TABLE>
<S> <C> <C>
REFRACTORIES
MANUFACTURING FACILITIES
Washington, Pennsylvania.................... 201,881 Owned
Snow Shoe, Pennsylvania..................... 171,425 Owned
South Webster, Ohio......................... 125,082 Owned
Crown Point, Indiana........................ 79,116 Owned
Altoona, Pennsylvania....................... 47,260 Owned
Smithville, Ontario......................... 47,000 Owned
Canon City, Colorado........................ 44,286 Owned
Johnstown, Pennsylvania..................... 30,000 Owned
CORPORATE OFFICE
Carnegie, Pennsylvania...................... 77,500 Owned
</TABLE>
The corporate headquarters for Adience's operations are located in a
facility which is also used for warehousing.
Depending on product mix, capacity in this segment ranges from 300,000 to
350,000 tons of refractory products. The facilities are operating at various
utilization rates with an overall utilization of between 45% and 50%. Facilities
in this segment are adequate and suitable for the business. Capital spending
plans are primarily designed to modify existing product lines.
12
<PAGE>
<TABLE>
<S> <C> <C>
DATA COMMUNICATIONS AND ELECTRONICS
Wallingford, Connecticut...................... 155,000 Owned
</TABLE>
DNE's facility is adequate and suitable for the businesses being conducted
and operates at a utilization rate of between 50% and 60%.
The facility in Wallingford, Connecticut is subject to a mortgage held by
the Connecticut Development Authority as security for a $5.0 million loan.
<TABLE>
<CAPTION>
SQUARE FOOTAGE LEASED/OWNED
-------------- ----------------------------
<S> <C> <C>
CORPORATE OFFICES
New York, New York....................................... 5,375 Leased (expires 2002)
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
Adience's J.H. France unit, which was merged into Adience in December 1991,
has been named as a party in approximately 3,000 pending lawsuits, some of which
contain both multiple claimants and multiple defendants, filed in twelve
jurisdictions principally by employees and former employees of certain customers
of J.H. France, alleging in certain cases that a single product, a plastic
insulating cement manufactured more than 20 years ago by J.H. France, caused
them to suffer from asbestosis related diseases and in other cases alleging that
products manufactured or sold by J.H. France caused silica related diseases. The
majority of the lawsuits seek monetary damages ranging from $20,000 to $1.0
million each. J.H. France and its insurance carrier historically have settled
these lawsuits, typically for an average amount per case of less than the
minimum amount stated. Punitive damages have also been claimed in some cases.
In addition to the lawsuits against J.H. France, Adience, as successor in
interest to BMI Inc., has been named a party in approximately 390 pending
lawsuits, some of which contain both multiple claimants and multiple defendants,
filed in the States of Pennsylvania, Ohio, Michigan, West Virginia, Wisconsin,
Kentucky and Indiana, principally by employees and former employees of certain
customers of Adience alleging that products produced by Adience caused
silicosis, not asbestosis, in such persons. The majority of such lawsuits seek
monetary damages ranging from $20,000 each, which is the minimal jurisdictional
requirement for personal injury cases in a majority of such state courts, to
$1.0 million each. Adience and its insurance carriers historically have settled
these lawsuits for an average amount per case of less than the minimum amount
stated. Virtually all such claims and all costs of defense for these cases are
covered by insurance.
The insurance companies which had issued policies covering the J.H. France
cases initially denied coverage for these claims. In June 1993, the Supreme
Court of Pennsylvania held that the insurance policies covering the claims in
these J.H. France cases covered liabilities and defense costs up to the amounts
of the limits of the respective policies, without regard to the period of time
said policies were in effect. As a result of this judicial determination and
based upon Adience's experience in obtaining dismissals or settlements in closed
cases, Adience anticipates, although no assurance can be given, that the
expected costs and liabilities in such pending cases will be adequately covered
by insurance and that the aggregate limits on the insurance policies in effect
exceed the liabilities and defense costs which will be incurred in the 3,000
J.H. France cases and the other 390 cases, for which the scope of coverage has
never been an issue.
Adience's Furnco unit has recently been named, although not effectively
served, as the sole defendant in nine separate lawsuits, each of which contains
one plaintiff (i.e., either husband or husband and wife). At this time,
investigation is continuing as to the nature and extent of such suits, as well
as the extent of insurance coverage therefore.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Alpine did not submit any matter to a vote of securityholders during the
fourth quarter of the fiscal year ended April 30, 1996.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY HOLDER MATTERS
(a) Market Information
Alpine's Common Stock, $0.10 par value (the "Alpine Common Stock"), is
listed on the American Stock Exchange (the "AMEX") under the symbol AGI. The
following table sets forth the range of high and low sales prices for Alpine
Common Stock on the AMEX for fiscal 1995 and 1996.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal 1995
First Quarter............................................................. 7 5/8 4 3/8
Second Quarter............................................................ 8 3/8 5 1/8
Third Quarter............................................................. 6 4 1/8
Fourth Quarter............................................................ 5 7/8 4 5/8
Fiscal 1996
First Quarter............................................................. 6 1/2 4 1/4
Second Quarter............................................................ 6 3/4 4 3/16
Third Quarter............................................................. 5 3/4 3 5/8
Fourth Quarter............................................................ 4 5/8 3 5/16
</TABLE>
(b) Holders
At July 23, 1996, 18,281,516 shares of Alpine Common Stock were issued and
outstanding, and there were approximately 8,000 record holders thereof.
(c) Dividends
Alpine has no recent history of paying dividends and does not intend to
declare dividends on the Alpine Common Stock in the foreseeable future. Certain
provisions of Alpine's debt instruments and of the Company's outstanding
preferred stock have the effect of currently prohibiting Alpine from paying cash
dividends.
ITEM 6. SELECTED FINANCIAL DATA
HISTORICAL FINANCIAL DATA
Set forth below are certain selected historical consolidated financial data
of Alpine. This information should be read in conjunction with the Consolidated
Financial Statements of Alpine and related notes thereto appearing elsewhere
herein and "Item 7. Management's Discussion and Analysis of
14
<PAGE>
Financial Condition and Results of Operations." The selected historical
consolidated financial data for, and as of the end of, each of the fiscal years
in the five-year period ended April 30, 1996 are derived from the audited
consolidated financial statements of Alpine.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 30, (1)
------------------------------------------------------------
1992 1993 1994 1995 1996
--------- ---------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................................... $ 6,786 $ 27,897 $ 68,510 $ 198,135 $ 524,113
Cost of sales..................................... 4,239 15,915 56,250 169,125 453,785
--------- ---------- ----------- ----------- -----------
Gross profit.................................. 2,547 11,982 12,260 29,010 70,328
Selling, general and administrative............... 4,808 10,482 12,168 20,487 35,148
Amortization of goodwill and other intangible
charges.......................................... 283 395 2,292 1,527 2,658
--------- ---------- ----------- ----------- -----------
Operating income (loss)....................... (2,544) 1,105 (2,200) 6,996 32,522
Interest income................................... 484 209 242 345 2,146
Interest expense.................................. (3,127) (2,301) (2,363) (8,197) (27,795)
Other income (expense), net....................... (604) (1,469) (506) 28 22
--------- ---------- ----------- ----------- -----------
Income (loss) from continuing operations
before income taxes.......................... (5,791) (2,456) (4,827) (828) 6,895
Provision for income taxes........................ -- -- (68) (348) (1,676)
--------- ---------- ----------- ----------- -----------
Income (loss) from continuing operations...... (5,791) (2,456) (4,895) (1,176) 5,219
(Loss) from discontinued operations (2)........... (3,082) (8,377) (25,236) (4,868) (2,213)
--------- ---------- ----------- ----------- -----------
Income (loss) before extraordinary item....... (8,873) (10,833) (30,131) (6,044) 3,006
Extraordinary item -- gain (loss) on early
extinguishment of debt (3)....................... 888 (1,262) (47) -- (4,856)
--------- ---------- ----------- ----------- -----------
Net (loss).................................... $ (7,985) $ (12,095) $ (30,178) $ (6,044) $ (1,850)
--------- ---------- ----------- ----------- -----------
--------- ---------- ----------- ----------- -----------
INCOME (LOSS) PER SHARE OF COMMON STOCK:
Continuing operations........................... $ (0.78) $ (0.32) $ (0.38) $ (0.11) $ 0.23
Discontinued operations......................... (0.42) (0.94) (1.78) (0.27) (0.12)
Extraordinary item -- gain (loss) on early
extinguishment of debt......................... .12 (0.14) -- -- (0.27)
--------- ---------- ----------- ----------- -----------
$ (1.08) $ (1.40) $ (2.16) $ (0.38) $ (0.16)
--------- ---------- ----------- ----------- -----------
--------- ---------- ----------- ----------- -----------
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital................................... $ 9,745 $ 7,256 $ 24,594 $ 7,080 $ 50,679
Total assets...................................... 34,312 27,998 113,796 233,778 354,904
Total debt........................................ 19,817 13,637 43,745 119,179 209,777
Preferred stock................................... 5,177 4,677 6,177 17,250 11,758
Total stockholders' equity........................ 5,867 10,602 47,998 44,658 43,136
</TABLE>
- ------------------------
(1) Alpine's results of operations have been significantly impacted by
acquisitions in fiscal 1992, 1994, 1995 and 1996. On February 22, 1992,
Alpine acquired DNE for a cash purchase price of $7.1 million. On November
11, 1993, Alpine acquired Superior for $60.8 million in cash and Alpine
Common Stock. On December 21, 1994, Alpine acquired Adience for $10.7
million in a combination of cash, Alpine 8% preferred stock and PolyVision
Corporation common stock. On May 11, 1995, Alpine's subsidiary, Superior,
completed the Alcatel Acquisition for $103.4 million in cash. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
15
<PAGE>
(2) In July 1995, Alpine completed the spin-off of its information display
segment, PolyVision Corporation, which consisted of Alpine PolyVision Inc.
("APV"), Posterloid Corporation and Information Display Technologies, Inc.
The results of operations for this segment have been reflected as (loss)
from discontinued operations for all periods presented. See Note 5 to
Alpine's Consolidated Financial Statements.
(3) The extraordinary gain (loss) recorded during the fiscal years ended April
1992, 1993, 1994 and 1996 is related to the early extinguishment of debt.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Alpine, through its three subsidiaries, Superior, Adience and DNE, is
engaged in the manufacture and sale of: (1) telecommunications wire and cable
products for the telecommunications industry (Superior), (2) specialty
refractory products for the iron, steel, glass, aluminum, cement and
cogeneration industries (Adience), and (3) data communications and electronics
products and systems for defense, governmental and commercial applications
(DNE).
RESULTS OF OPERATIONS
To facilitate a meaningful comparison between periods, this Management's
Discussion and Analysis focuses on pro forma information for the periods
covered, which management believes provides the most meaningful comparability
among historical periods. Period-to-period comparisons of Alpine's historical
financial information are less relevant to an understanding of Alpine due to the
significance of the Superior Acquisition on November 11, 1993, the Adience
acquisition on December 21, 1994, and the Alcatel Acquisition on May 11, 1995,
all of which were accounted for under the purchase method, with the results from
these operations included in Alpine's consolidated results on a prospective
basis, from the date of their respective acquisitions.
The following comparative table includes operating statement data for Alpine
on an industry segment basis. Such industry segment operating data is presented
on an historical reporting basis for the years ended April 30, 1994, 1995 and
1996. Further, pro forma operating data is included in the table to reflect the
Superior, Adience and Alcatel Acquisitions as if they occurred on May 1, 1993.
Such pro forma data includes the historical results of operations of Alpine, the
historical results of the Alcatel Business, Superior and Adience prior to their
respective acquisition by Alpine, and certain pro forma adjustments as more
fully described in the footnotes accompanying the comparative table below. The
pro forma data is not necessarily indicative of the results that would have been
achieved had such acquisitions actually occurred on May 1, 1993, nor are they
necessarily indicative of Alpine's future results.
In fiscal 1996, 90% of Superior's sales of telecommunications wire and cable
products were made to six of the RBOCs and three major independent telephone
companies. Superior's sales to these customers are generally pursuant to
multi-year supply agreements under which the customer agrees to have Superior
provide certain of the customer's wire or cable needs as a primary supplier
during the term of the agreement. Prior to awarding a contract, customers
specifically forecast their needs and manufacturers such as Superior bid and
quote prices based on the forecasted order amount -- although customers are not
obligated to purchase the forecasted amount or, in most cases, any minimum
amount. These supply agreements provide for the pass-through of copper costs on
specified terms. Generally, the copper price component passed through in each
contract for a particular quarter is based on the average COMEX copper price
over the three-month period ending at or before the beginning of that quarter.
Each month Superior estimates its product deliveries several months into the
future and enters into price commitments with its suppliers for a portion of its
estimated copper rod requirements for delivery on a forward basis. Superior uses
these forward purchase commitments to minimize the differences between its raw
material copper costs charged to cost of sales and the pass-through pricing
charged to its customers.
16
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED APRIL 30,
----------------------------------------------------------------------
1994 1995 1996
---------------------- ---------------------- ----------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA HISTORICAL PRO FORMA
----------- --------- ----------- --------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales
Telecommunications wire and cable............. $ 46.8 $ 311.9 $ 136.6 $ 340.8 $ 384.2 $ 391.8
Data communications and electronics........... 21.7 21.7 27.9 27.9 26.2 26.2
Refractories.................................. -- 98.8 33.6 100.9 113.7 113.7
----- --------- ----------- --------- ----------- ---------
Combined net sales.......................... 68.5 432.4 198.1 469.6 524.1 531.7
----- --------- ----------- --------- ----------- ---------
----- --------- ----------- --------- ----------- ---------
Gross profit (1)(2)
Telecommunications wire and cable............. $ 4.0 $ 34.0 $ 14.2 $ 28.4 $ 39.6 $ 40.3
Data communications and electronics........... 8.3 8.3 8.2 8.2 7.9 7.9
Refractories.................................. -- 15.4 6.6 18.4 22.8 22.8
----- --------- ----------- --------- ----------- ---------
Combined gross profit....................... 12.3 57.7 29.0 55.0 70.3 71.0
----- --------- ----------- --------- ----------- ---------
----- --------- ----------- --------- ----------- ---------
Selling, general and administrative expense (3)
Telecommunications wire and cable............. $ 2.0 $ 5.3 $ 5.1 $ 6.2 $ 8.3 $ 8.4
Data communications and electronics........... 6.6 6.6 6.5 6.5 5.8 5.8
Refractories.................................. -- 16.6 5.7 16.0 15.0 15.0
Corporate..................................... 3.6 3.6 3.2 3.2 6.0 6.0
----- --------- ----------- --------- ----------- ---------
Combined selling, general and administrative
expense.................................... 12.2 32.1 20.5 31.9 35.1 35.2
----- --------- ----------- --------- ----------- ---------
----- --------- ----------- --------- ----------- ---------
Amortization of goodwill (4)
Telecommunications wire and cable............. $ 0.5 $ 1.5 $ 1.0 $ 1.4 $ 1.5 $ 1.4
Data communications and electronics........... 1.8 1.8 -- -- -- --
Refractories.................................. -- 1.5 0.5 1.2 1.2 1.2
----- --------- ----------- --------- ----------- ---------
Combined amortization of goodwill........... 2.3 4.8 1.5 2.6 2.7 2.6
----- --------- ----------- --------- ----------- ---------
----- --------- ----------- --------- ----------- ---------
Operating income (3)
Telecommunications wire and cable............. $ 1.5 $ 27.2 $ 8.1 $ 20.8 $ 29.8 $ 30.5
Data communications and electronics........... (0.1) (0.1) 1.7 1.7 2.1 2.1
Refractories.................................. -- (2.7) 0.4 1.2 6.6 6.6
Corporate..................................... (3.6) (3.6) (3.2) (3.2) (6.0) (6.0)
----- --------- ----------- --------- ----------- ---------
Combined operating income................... (2.2) 20.8 7.0 20.5 32.5 33.2
----- --------- ----------- --------- ----------- ---------
----- --------- ----------- --------- ----------- ---------
<CAPTION>
AS A PERCENTAGE OF NET SALES
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gross margin
Telecommunications wire and cable............. 8.5% 10.9% 10.4% 8.3% 10.3% 10.3%
Data communications and electronics........... 38.2 38.2 29.4 29.4 30.2 30.1
Refractories.................................. -- 15.6 19.6 18.2 20.1 20.1
Combined gross margin....................... 18.0 13.3 14.6 11.7 13.4 13.4
Operating income margin
Telecommunications wire and cable............. 3.2% 8.7% 5.9% 6.1% 7.8% 7.8%
Data communications and electronics........... (0.5) (0.5) 6.1 6.1 8.0 8.0
Refractories.................................. -- (2.7) 1.2 1.2 5.8 5.8
Combined operating income margin............ (3.2) 4.8 3.5 4.4 6.2 6.2
</TABLE>
- ------------------------
(1) Cost of goods sold has been reduced by $3.5 million, $4.5 million and $0.1
million in fiscal 1994, 1995 and 1996, respectively, to reflect changes in
historical depreciation resulting from Alpine's allocation of the purchase
price for the Superior, Adience and Alcatel Acquisitions.
17
<PAGE>
(2) Cost of goods sold has been further reduced by $2.6 million and $2.5 million
in fiscal 1994 and 1995, respectively, to reflect reduced operating expenses
and other charges at Superior and Adience resulting primarily from the
reduction in headcount at the Alcatel Business and inventory write downs at
Adience. At the time of the Adience Acquisition, Alpine management
determined that certain Adience product lines would be discontinued. Adience
recorded a charge to reduce the carrying value of the related inventory to
net realizable value, which charge has been eliminated in the proforma
results presentation.
(3) Selling, general and administrative expense has been adjusted to reflect
changes to historical depreciation expense and eliminate expenses incurred
by Adience, Superior and the Alcatel Business which would not have been
incurred if the related acquisition had occurred on May 1, 1993. The
elimination of these expenses amounted to $14.5 million, $11.2 million and
$0.3 million in fiscal 1994, 1995 and 1996, respectively, of which $12.5
million and $9.1 million, in fiscal 1994 and 1995, respectively, represented
elimination of management fees and allocated administrative fees incurred by
the Alcatel Business.
(4) Amortization of goodwill has been adjusted to reflect changes resulting from
Alpine's allocation of the purchase price for the Superior, Adience and the
Alcatel Acquisitions.
FISCAL 1996 COMPARED TO FISCAL 1995
NET SALES
PRO FORMA BASIS. Fiscal 1996 pro forma net sales were $531.7 million,
representing an increase of $62.1 million, or 13.2%, over fiscal 1995 pro forma
net sales of $469.6 million.
Superior's fiscal 1996 pro forma net sales of $391.8 million increased $51.0
million, or 15.0%, over fiscal 1995 pro forma net sales of $340.8 million.
Approximately $18.0 million of the increase in pro forma net sales was
attributable to the contractual pass through, in the form of increased selling
prices, of higher copper costs in fiscal 1996. Of the remaining $33.0 million
increase in pro forma net sales, approximately $6.0 million resulted from
non-copper based price increases instituted during fiscal 1996 under multi-year
customer supply agreements with the remainder of the increase (approximately
$27.0 million) being the result of higher unit sales volumes.
The price increases instituted during fiscal 1996 related to both outside
plant wire and cable products and reflected a reversal of a trend of lower
market prices experienced in fiscal 1994 and early fiscal 1995. During this
period, industry-wide capacity exceeded demand resulting in a very competitive
market environment. Since such time, reductions in manufacturing capacity
coupled with increasing product demand have resulted in an easing of competitive
pressures and a rise in market prices. The Alcatel Business operations, which
were acquired in May 1995, were particularly impacted by the cycle of lower
market prices in fiscal 1994. This was due to the timing of its contract
expirations and the resulting rebidding and obtaining of new contract awards
during a period of very competitive pricing. Superior, which assumed
responsibility for the Alcatel Business's customer contractual obligations in
connection with the Alcatel acquisition, was successful in obtaining price
increases in fiscal 1996 on a substantial portion of the Alcatel Business
contracts. Additionally, Superior was successful during fiscal 1996 in obtaining
more modest price increases on substantially all of its existing contractual
arrangements. The aforementioned contractual price increases, which were
instituted throughout fiscal 1996, had the most significant impact on
profitability during the third and fourth fiscal quarters of fiscal 1996.
Higher unit sales volumes in fiscal 1996 occurred across all of Superior's
product lines, including cable, wire and premise wire products. The increase in
unit sales volume was attributable to an expansion of multi-year contractual
arrangements under new contract awards with several RBOCs and a major
independent telephone holding company, as well as to a general increased level
of demand for telecommunications wire and cable products.
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DNE's net sales in fiscal 1996 were $26.2 million, which represented a
decline of $1.7 million, or 6.1%, as compared to fiscal 1995. Increase sales in
DNE's contract manufacturing services operations and military data
communications and avionics operations were offset by completion in fiscal 1995
of a major contract with NASA for the manufacture of hardware interface modules.
Adience's fiscal 1996 net sales were $113.7 million, representing an
increase of $12.8 million, or 12.7% over pro forma fiscal 1995 net sales of
$100.9 million. Approximately $6.0 million of the fiscal 1996 pro forma sales
increase was attributable to increased activity in Adience's contracting
services for rebuilding coke ovens and approximately $3.0 million was
attributable to higher sales of refractory block products to the plate glass
industry. The remainder of the fiscal 1996 comparative sales increase resulted
from a number of factors including favorable market conditions with modest
increases in demand, introduction of new products and the entry of new
geographic markets, including international markets.
HISTORICAL BASIS. On an historical basis, Alpine's comparative net sales
grew from $198.1 million in fiscal 1995 to $524.1 million in fiscal 1996, an
increase of $326.0 million. The comparative increase in fiscal 1996 net sales
was attributable to the inclusion of the results of operations of Adience and
the Alcatel Business during substantially all of fiscal 1996, and the increase
in selling prices and unit volume growth in Superior's telecommunications wire
and cable products during fiscal 1996, offset somewhat by the aforementioned
reduction in DNE's net sales.
GROSS PROFIT
PRO FORMA BASIS. Pro forma gross profit in fiscal 1996 was $71.0 million,
representing an increase of $16.0 million, or 29.1%, over fiscal 1995 pro forma
gross profit of $55.0 million. The pro forma gross margin in fiscal 1996 was
13.4% as compared to 11.7% in fiscal 1995.
Superior's pro forma gross profit increased by $11.9 million, or 41.9%, to
$40.3 million in fiscal 1996. Superior's fiscal 1996 pro forma gross margin
increased to 10.3% as compared to 8.3% in fiscal 1995. Superior's gross margin
improved from 8.1% in the first quarter, increasing to 9.2%, 10.6% and 13.3% in
the second, third and fourth quarters, respectively. The continued improvement
in gross margin during fiscal 1996 resulted from: (1) the aforementioned price
increases instituted during fiscal 1996, the primary impact of which was
reflected in the third and fourth quarters of the fiscal year; (2) non-copper
raw material cost reductions, impacting primarily the fourth quarter of fiscal
1996; (3) improved production efficiencies caused by higher production levels;
and (4) cost savings resulting from the completion of the transition of the
Alcatel Business operations during the latter half of the fiscal year.
DNE's gross profit for fiscal 1996 was $7.9 million, representing a decline
of $0.3 million, or 3.7%, as compared to fiscal 1995. The reduction in DNE's
fiscal 1996 gross profit was attributable to lower net sales, the effect of
which was partially offset by a slight increase in DNE's fiscal 1996 gross
margin of 30.1% as compared to 29.4% in fiscal 1995.
Adience's pro forma gross profit increased by $4.4 million, or 23.9%, to
$22.8 million in fiscal 1996. Adience's pro forma gross margin increased to
20.1% for fiscal 1996 as compared to 18.2% for fiscal 1995 . The comparative pro
forma gross margin improvement in fiscal 1996 was due primarily to the
elimination of unprofitable product lines and cost reductions in Adience's
specialty block division, and a proportional increase in revenues from Adience's
coke oven rebuilding division which generates higher gross margins as compared
to Adience's other divisions.
HISTORICAL BASIS. On an historical basis, gross profit increased from $29.0
million in fiscal 1995 to $70.3 million in fiscal 1996, representing an increase
of $41.3 million, or 142%. During this same period, the gross margin declined
from 14.6% to 13.4%. The comparative increase in fiscal 1996 gross profit was
directly attributable to the inclusion of the Alcatel Business and Adience
during substantially all of fiscal 1996. Similarly, the decline in gross margin
was due to the inclusion of these acquired operations which operate in
relatively lower gross margin markets as compared to DNE.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A EXPENSES")
PRO FORMA BASIS. Pro forma SG&A expenses in fiscal 1996 were $35.2 million,
an increase of $3.3 million, or 10.3%, as compared to fiscal 1995.
Superior's pro forma SG&A expenses in fiscal 1996 were $8.4 million as
compared to fiscal 1995 pro forma SG&A expenses of $6.2 million. This increase
was attributable to a number of factors, including duplicative transitionary
data processing charges associated with the Alcatel acquisition, higher expenses
associated with the development and support of data processing system upgrades,
expansion of international and other marketing activities associated with new
product lines and entering new geographic markets and/or increase in inside
sales and marketing staff to support the overall increase in sales demand.
DNE's SG&A expenses declined by $0.7 million or 10.8%, to $5.8 million in
fiscal 1996. This reduction was due primarily to a reorganization of DNE's sales
and marketing efforts and the elimination of overhead associated with activities
in non-strategic product lines and markets.
Adience's SG&A expenses of $15.0 million declined $1.0 million, or 6.3%, as
compared to fiscal 1995 pro forma SG&A expenses of $16.0 million. Adience's
lower SG&A expenses in fiscal 1996 resulted from reductions in corporate
staffing in fiscal 1996 associated with the completion of an overall corporate
reorganization, and a reduction in sales and marketing staff associated with a
consolidation of its sales force across product lines and markets.
HISTORICAL BASIS. On an historical basis, SG&A expenses increased from
$20.5 million in fiscal 1995 to $35.1 million in fiscal 1996. The principal
cause for the increase in SG&A expenses was the inclusion of Adience's
operations for the entire fiscal 1996 periods, incremental SG&A expenses
resulting from the growth in operations due to Superior's acquisition of the
Alcatel Business and the overall increase in corporate activities.
OPERATING INCOME.
PRO FORMA BASIS. On a pro forma basis, operating income for fiscal 1996
increased $12.7 million, or 62.0%, from $20.5 million during fiscal 1995 to
$33.2 million during fiscal 1996.
Superior's pro forma operating income reflected an increase of $9.7 million
for fiscal 1996. Such increase was due to higher sales and higher gross margins
(particularly during the third and fourth fiscal quarters of 1996), offset
somewhat by higher SG&A expenses.
DNE's income in fiscal 1996 of $2.1 million increased $0.3 million or 23.5%
from fiscal 1995 with such increase due primarily to administrative expense and
overhead cost reductions.
Adience's pro forma operating income improved from $1.2 million in fiscal
1995 to $6.6 million in fiscal 1996. Adience's improved operating profit was
attributable to higher sales, reductions in cost and overhead and elimination of
unprofitable product lines.
The aggregate increase in comparative pro forma operating income at Alpine's
operating subsidiaries for fiscal 1996 of $15.5 million (an increase of 65.4%)
was partially offset by a comparative increase in fiscal 1996 corporate expenses
of $2.8 million.
HISTORICAL BASIS. On an historical basis, operating income increased from
$7.0 million in fiscal 1995 to $32.5 million for fiscal 1996, an increase of
$25.5 million. The comparative increase in fiscal 1996 operating income was
attributable to the inclusion of the operations of the Alcatel Business and
Adience's operations in fiscal 1996, along with unit sales volume and price
increases in the telecommunications wire and cable operations.
20
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NET INTEREST EXPENSE
During fiscal 1996, Alpine incurred net interest expense of $25.6 million as
compared to net interest expense of $7.9 million in fiscal 1995. The increase in
interest expense was due primarily to interest cost associated with debt assumed
in the Adience acquisition and debt incurred in connection with the Alcatel
acquisition.
As described in Note 9 to Alpine's Consolidated Financial Statements, on
July 21, 1995, Alpine refinanced a substantial portion of its debt by the
placement of $153.0 million of Senior Secured Notes due 2003 (net proceeds after
discount, commissions and expenses amounted to $135.0 million) and by entering
into an $85.0 million revolving credit facility (of which $48.6 million was
drawn at April 30, 1996). Management believes that the refinancing, if reflected
on a pro forma basis, would not have had a material impact on net interest
expense in the current fiscal year.
INCOME TAX EXPENSE
Alpine did not incur any regular federal income tax expense in fiscal 1996
or 1995. However, Alpine did incur federal alternative minimum tax expense,
state income tax expense and foreign tax expense (subject to the potential
future benefit of foreign tax credits) during such periods with such amounts
reflected as income tax expense in the statement of operations.
DISCONTINUED OPERATIONS
On June 14, 1995, Alpine distributed to its stockholders (the "PolyVision
Spin-Off") shares of common stock of its information display subsidiary,
PolyVision Corporation ("PolyVision"). Alpine currently owns approximately 19%
of the outstanding PolyVision common stock and 98% of its preferred stock.
PolyVision had net sales of $35.6 million for the fiscal year ended April 30,
1996. Prior to the PolyVision Spin-Off, two Alpine subsidiaries, Alpine
PolyVision, Inc. ("APV") and Posterloid Corporation ("Posterloid"), were merged
into subsidiaries of PolyVision (the "PolyVision Merger"). For all periods
presented herein, PolyVision, APV and Posterloid are reflected as discontinued
operations.
Loss from discontinued operations for fiscal 1996 amounted to $2.2 million,
net of tax, which included, among other things, a one-time $1.6 million charge
related to certain contractual employee termination matters associated with the
aforementioned distribution of Polyvision. In fiscal 1995, loss from
discontinued operations amounted to $4.9 million. Such charges in fiscal 1995
included the accrual of operating losses expected to be incurred by APV and
Posterloid through the anticipated date of the Polyvision Spin-Off.
EXTRAORDINARY LOSS
During fiscal 1996, Alpine incurred an extraordinary loss from
extinguishment of debt of $5.1 million, offset by an extraordinary gain of $0.3
million, net of tax. The extraordinary loss related primarily to the write-off
of unamortized deferred loan fees associated with debt that was repaid in
conjunction with the refinancing described in Note 9 to Alpine's Consolidated
Financial Statements. The extraordinary gain reflected the discounted redemption
in August 1995 of a $2.5 million subordinated note payable.
FISCAL 1995 COMPARED TO FISCAL 1994
NET SALES
PRO FORMA BASIS. Fiscal 1995 pro forma net sales were $469.6 million,
representing an increase of $37.2 million, or 8.6%, as compared to fiscal 1994.
Superior's pro forma net sales for fiscal 1995 of $340.8 million, were $28.9
million, or 9.3%, greater than fiscal 1994 pro forma net sales of $311.9
million. However, a majority of the fiscal 1995 sales increase ($27.0 million)
was attributable to the pass-through of higher copper cost during fiscal 1995.
Excluding the impact of such higher copper costs, Superior's comparative fiscal
1995 pro forma
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net sales were relatively flat. During fiscal 1995, Superior's stand-alone
historical operations (excluding the pro forma impact of the Alcatel Business)
actually reflected a $29.6 million, or 27.6%, increase in net sales. This
increase in net sales from Superior's stand-alone historical operations included
a $16.0 million increase in sales of wire products, which increase included the
impact of two new multi-year supply agreements for outside plant wire products
and increased sales of premise wire products (including UTP). Sales growth in
fiscal 1995 from Superior's historical operations also included a $5.0 million
increase in outside plant cable product sales, again resulting from new
multi-year supply agreement awards.
The stand-alone historical operations of the Alcatel Business in fiscal 1995
reflected a decline in net sales of $19.0 million after eliminating the impact
of the higher copper cost pass-through. This decline resulted from a decrease in
both sales volume and selling prices. The decrease in sales volume, estimated at
$10.0 million, was the result of the loss of two major RBOC contracts in the
latter part of fiscal 1994 (a portion of which was awarded to Superior), and
reflected a trend in the RBOC market towards the concentration of supplier
relationships. Partially offsetting the reduction in sales volume from the
aforementioned RBOC contracts, was the impact of higher sales in the spot market
and the impact of two new multi-year supply agreements entered into by the
Alcatel Business in the first half of fiscal 1995. However, the general weak
market conditions that existed during the first half of fiscal 1995 (May 1994 -
October 1994), resulted in such new business being booked at lower selling
prices, the impact of which on net sales was estimated at approximately $8.0
million in fiscal 1995.
DNE's net sales in fiscal 1995 increased by $6.2 million, or 28.6%, to $27.9
million. This increase was attributable to the aforementioned NASA contract
which accounted for $7.0 million in fiscal 1995 revenue. Net sales of data
communications and avionics products to the military declined in fiscal 1995 to
$15.9 million as compared to $18.6 million in fiscal 1994. The decline in
military product sales was offset by growth in commercial contract manufacturing
revenues of approximately $3.5 million in fiscal 1995.
Adience's pro forma net sales during fiscal 1995 were $100.9 million
representing an increase of $2.1 million, or 2.1%, as compared to pro forma net
sales of $98.8 million during fiscal 1994. The increase was due to increased
sales of Alpine's specialty products and services, particularly monolithic
(unformed) refractories, as well as an increase in rebuilding services for coke
ovens, partially offset by a decrease in sales of maintenance services. Sales of
refractory bricks to the iron and steel industry declined due to the
discontinuation of numerous unprofitable product lines. Sales of block to the
flat plate glass industry remained essentially unchanged.
HISTORICAL BASIS. On an historical basis, net sales increased from $68.5
million in fiscal 1994 to $198.1 million in fiscal 1995, an increase of $129.6
million or 189%. This increase was primarily attributable to the inclusion of
Superior's operations for a full year in fiscal 1995 as compared to
approximately five and one half months of Superior's operations included in the
fiscal 1994 results, as well as the inclusion in fiscal 1995 of approximately
four months of the operations of Adience.
GROSS PROFIT
PRO FORMA BASIS. Pro forma gross profit for fiscal 1995 as compared to
fiscal 1994 declined by $2.7 million to $55.0 million. The pro forma gross
margin for this period declined from 13.4% in fiscal 1994 to 11.7% in fiscal
1995.
Superior's pro forma gross profit in fiscal 1995 of $28.4 million reflected
a decline of $5.6 million as compared to fiscal 1994. During this same period,
the gross margin declined from 10.9% in fiscal 1994 to 8.3% in fiscal 1995. As
was the case with net sales in fiscal 1995, there was a notable distinction
between the trend in gross profit and gross margin for Superior's stand-alone
historical operations as compared to the Alcatel Business stand-alone historical
operations. In fiscal 1995, Superior's stand-alone historical operations
reflected an increase in gross profit of $4.3 million (a 44.0% increase over
fiscal 1994). During this same period, the gross margin from Superior's
historical operations increased to 10.4% in fiscal 1995 from 9.2% in fiscal
1994. The improvement in gross
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<PAGE>
margin from Superior's historical operations in fiscal 1995 was the result of:
(i) the increase in, and the higher proportion of, outside plant wire and
premise wire sales which typically generate higher percentage margins than
outside plant cable sales; (ii) the increase in overall product demand in the
latter half of fiscal 1995 and the reduction in industry-wide capacity resulting
in higher pricing on products not subject to multi-year supply agreements; and
(iii) higher production volumes which resulted in a proportional reduction in
the fixed cost component of cost of goods sold.
The fiscal 1995 gross profit for the historical operations of the Alcatel
Business declined by $10.1 million as compared to fiscal 1994. The gross margin
for this same period declined from 10.4% to 5.5% (7.5% if adjusted to exclude
the impact of the pass-through of higher copper costs). The reduction in the
Alcatel Business historical gross profit and gross margin during fiscal 1995 was
the result of the replacement of lost contract business with spot market sales
and business under new supply agreements in the latter half of fiscal 1994,
which was during a period of extremely competitive market pricing.
During fiscal 1995, DNE's gross profit remained relatively unchanged at $8.2
million. During this same period, DNE's gross margin declined from 38.2% in
fiscal 1994 to 29.4% in fiscal 1995. A change in product mix from primarily
higher margin military products in fiscal 1994 to a mix of military products and
lower margin commercial and government contract manufacturing services caused
this decline.
Adience's pro forma gross profit for fiscal 1995 was $18.4 million,
representing an increase of $3.0 million, or 19.5%, from pro forma gross profit
of $15.4 million for fiscal 1994. The pro forma gross margin increased to 18.2%
during fiscal 1995, as compared to 15.6% during fiscal 1994. The improvement in
pro forma gross margin during fiscal 1995 was the result of management efforts
to: (1) discontinue unprofitable product lines, (2) increase product prices, (3)
increase productivity through headcount reductions, (4) consolidate operations,
and (5) continue to focus on higher margin products such as monolithic and
bottom pour refractories and slidegates.
HISTORICAL BASIS. On an historical basis, gross profit increased from $12.3
million in fiscal 1994 to $29.0 million in fiscal 1995. This increase was due to
the inclusion of Superior's and Adience's operations in Alpine's historical
results in fiscal 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
PRO FORMA BASIS. Fiscal 1995 pro forma SG&A expenses were $31.9 million,
which were comparable to fiscal 1994 pro forma SG&A expenses of $32.1 million.
Superior's pro forma SG&A expenses in fiscal 1995 were $6.2 million, an
increase of $0.9 million over fiscal 1994 pro forma SG&A expenses. This increase
reflected higher marketing and engineering expenses associated with the
expansion of Superior's product lines into the premise wire markets and the
growth in revenues in Superior's traditional wire and cable products and
markets.
DNE's SG&A expenses in fiscal 1995 as compared to fiscal 1994 were basically
flat at $6.5 million.
Adience's pro forma SG&A expenses during fiscal 1995 were $16.0 million, as
compared to $16.6 million during fiscal 1994, a decrease of 3.8%. This decrease
resulted from reductions in corporate overhead and insurance expense, partially
offset by increased personnel expense in the sales, research and development and
other areas.
HISTORICAL BASIS. On an historical basis, fiscal 1995 SG&A expenses
increased by $8.3 million to $20.5 million. This increase was due to the same
factors that gave rise to the increase in net sales and gross profit as
discussed above.
OPERATING INCOME
PRO FORMA BASIS. Fiscal 1995 comparative pro forma operating income
declined by $0.3 million or 1.4%, to $20.5 million. This decline was due to
lower comparative pro forma gross profit in fiscal
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1995 which was attributable to lower sales volumes and gross margins in the
historical operations of the Alcatel Business during such period, offset by
improved gross margins and gross profit in Adience's operations.
HISTORICAL BASIS. In fiscal 1995 the historical operating income was $7.0
million as compared to a fiscal 1995 operating loss of $2.2 million. This
improvement was due to the inclusion of Superior's operations and, to a lesser
degree, Adience's operations in fiscal 1995.
INTEREST EXPENSE
Net interest expense in fiscal 1995 was $7.9 million, representing an
increase of $5.8 million over fiscal 1994 net interest expense of $2.1 million.
The acquisition of Adience during fiscal 1995 and the inclusion of a full year
of Superior's operations resulted in an increase in interest expense of $4.5
million which, along with a $1.2 million increase in corporate interest expense,
accounted for substantially all of the increase.
LOSS FROM DISCONTINUED OPERATIONS
As previously discussed, the loss from discontinued operations in fiscal
1995 and 1994 of $4.9 million and $25.2 million, respectively, related primarily
to losses incurred by APV during such period. The loss in fiscal 1994 included a
$21.7 million non cash charge related to the acquisition of minority ownership
interest in APV which was accounted for, and expensed as, purchased research and
development.
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 1996, Alpine generated $38.4 million in cash flow from continuing
operating activities, approximately $17.2 million of which represented
reductions in net working capital deployed, including a $8.2 million reduction
in accounts receivable. Partially offsetting cash flow from continuing operating
activities was $1.0 million of cash used for discontinued operations. Cash flow
used for investing activities of $126.4 million included $103.4 million used in
connection with the Alcatel Acquisition, $6.2 million invested in marketable
securities, $3.1 million loaned to PolyVision, $5.4 million related to the BICC
Asset Acquisition and $6.2 million in other capital expenditures. Cash provided
by financing activities of $74.6 million included net borrowings from the sale
of the Alcatel Acquisition Notes and the refinancing of a significant portion of
Alpine's debt (both of which are more fully described below), partially offset
by $12.6 million in capitalized financing costs related to the Alcatel
Acquisition Notes and the aforementioned refinancing, $3.7 million used for open
market repurchases of Alpine Common Stock, and $0.7 million in preferred stock
dividends.
During fiscal 1996 Alpine completed the Alcatel Acquisition, consummated a
refinancing of a significant portion of its debt, and completed the PolyVision
Spin-Off. These transactions have had a material impact on Alpine's financial
condition and liquidity.
The Alcatel Acquisition was completed on May 11, 1995, and included a
purchase price of $103.4 million which was paid in cash and was financed by the
issuance of the $140.0 million Alcatel Acquisition Notes, due in 1997 (see Notes
6 and 9 to Alpine's Consolidated Financial Statements).
On July 21, 1995, Alpine completed a refinancing which included the
placement of $153.0 million principal amount of Senior Secured Notes ("Senior
Notes") (net proceeds after discount and expenses amounted to $135.0 million)
due in 2003. Alpine also entered into an $85.0 million revolving credit facility
("Credit Facility") of which $48.6 million was outstanding at April 30, 1996.
Proceeds from the Senior Notes and the Credit Facility along with a portion of
cash reserves were used to (1) redeem the Alcatel Acquisition Notes, (2) redeem
at a discount $44.1 million in face amount of Adience's 11% Senior Notes, (3)
repay $31.8 million in short-term borrowings, and (4) redeem, repay, or reduce
other outstanding indebtedness of Alpine. At April 30, 1996, Alpine's capital
structure included $209.8 million of long-term debt (including current
maturities of $2.1 million) and stockholders' equity of $43.1 million (including
$11.8 million of convertible preferred stock). At April 30, 1996, Alpine did not
have any short-term borrowings.
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With respect to debt maturities, the refinancing eliminated $31.8 million of
short-term borrowings due within the next 12 months and redeemed entirely the
Alcatel Acquisition Notes which were due in 1997. This debt was replaced with
the Senior Notes and the Credit Facility, neither of which have any principal
payment requirements until their respective maturities (2000 with respect to the
Credit Facility and 2003 with respect to the Senior Notes). Debt remaining after
the refinancing, other than the Senior Notes and the Credit Facility, amounted
to $20.1 million at April 30, 1996, with required principal payments in the next
12 months of $2.1 million and aggregate required principal payments over the
next 5 years of $5.1 million.
Alpine believes the aforementioned refinancing has had a positive impact on
its financial condition and liquidity by substantially lengthening the
maturities on its debt while creating liquidity through funds availability under
its Credit Facility.
With respect to liquidity, Alpine's excess consolidated availability under
its Credit Facility (based on eligible accounts receivable and inventory)
amounted to approximately $26.0 million as of April 30, 1996 which, when
combined with cash and marketable securities, resulted in total cash and credit
availability of approximately $34.8 million. While the Credit Facility does
include sublimit restrictions on outstanding borrowings allocated to Alpine's
principal subsidiaries (Superior, Adience and DNE), such sublimits are not
expected to negatively impact, over the next 12 months or in future years, the
liquidity of Superior, Adience or DNE. There are also no restrictions on
utilizing borrowings under the Credit Facility to pay interest on the Senior
Notes or any of Alpine's other debt so long as Alpine is in compliance with its
related loan covenants.
With respect to commitments, Alpine projects that cash interest expense over
the next 12 months will approximate $24-$25 million which, when combined with
principal repayment requirements, will result in total annual debt service
requirements (principal and interest) of approximately $27.7 million. Further,
the Company also expects to invest, on an annual recurring basis, approximately
$6-$9 million in capital expenditures. Accordingly, Alpine expects its total
capital commitments and debt service requirements over the next 12 months to
approximate $30-$34 million.
Alpine intends to fund its capital expenditure and debt service commitments
from funds generated from operations. The Company has experienced significant
growth in its operating cash flow during fiscal 1996 due to (1) the impact of
the Alcatel Acquisition, (2) improvements in Adience's operating results, and
(3) subject to certain commitments discussed below, the elimination of the
negative cash flow impact of funding development expenses associated with
Alpine's APV activities which was included in the PolyVision Spin-off. During
fiscal 1996, Alpine generated earnings before interest, taxes, depreciation, and
amortization ("EBITDA") of $45.8 million ($46.4 million on a pro forma basis,
assuming the Alcatel Acquisition occurred as of May 1, 1995). Accordingly,
Alpine expects to be able to fund all of its anticipated operating commitments
on an annual basis from internally generated cash flow without using existing
cash reserves or excess availability under the Credit Facility, except to fund
seasonal working capital fluctuations.
In connection with the PolyVision Spin-off, Alpine entered into an
arrangement pursuant to which Alpine agreed to lend to PolyVision, from time to
time prior to May 24, 1997, up to $5.0 million to be used by PolyVision to fund
its working capital needs. Borrowings under the agreement are unsecured and bear
interest at a market rate. The principal balance outstanding is due on May 24,
2005, subject to mandatory prepayment of principal and interest from the net
cash proceeds of any public or private equity offering or debt financing
completed by PolyVision at any time prior to maturity. Alpine's obligation to
lend such funds to PolyVision is subject to a number of conditions, including
review by Alpine of the proposed use of such funds by PolyVision. As of April
30, 1996, Alpine had advanced approximately $3.1 million to PolyVision under
this arrangement, with a remaining commitment for funding of approximately $1.9
million. Alpine believes its existing cash and credit availability will be
sufficient to fund this remaining commitment without materially affecting
Alpine's overall liquidity.
25
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Alpine's consolidated financial statements at April 30, 1995 and 1996 and
for each of the three years in the period ended April 30, 1996 and the report of
the independent accountants thereon and financial statement schedules required
under Regulation S-X are submitted herein as a separate section following Item
14 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information required by this Item is incorporated herein by reference to
Alpine's definitive Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A within 120 days after the end of the
fiscal year covered by this report ("Alpine's Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to
Alpine's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference to
Alpine's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference to
Alpine's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1), (a)(2) See the separate section of this report following Item 14
for a list of financial statements and schedules filed herewith.
(a)(3) Exhibits as required by Item 601 of Regulation S-K are listed in
Item 14(c) below.
(b) The Company did not file any Reports on Form 8-K during the fourth
quarter of fiscal 1996.
ITEM 14(C) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<S> <C>
2(a) Asset Purchase Agreement, dated as of March 17, 1995 by and among Alcatel NA Cable Systems, Inc.,
Alcatel Canada Wire, Inc. Superior Cable Corporation and Superior Teletec Inc. (the "Alcatel
Acquisition Agreement") (incorporated herein by reference to Exhibit 1 to the Current Report on Form
8-K of Alpine dated May 24, 1995)
2(b)* Agreement Regarding Certain Employee Benefit Plans, amending the Alcatel Acquisition Agreement, dated
June 10, 1996
2(c) Amendment dated May 11, 1995 to Asset Purchase Agreement by and among Alcatel NA Cable Systems, Inc.,
Alcatel Canada Wire, Inc., Superior Cable Corporation and Superior Teletec Inc. (incorporated herein
by reference to Exhibit 2 to the Current Report on Form 8-K of Alpine dated May 24, 1995)
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<S> <C>
2(d) Agreement and Plan of Merger, dated as of December 21, 1994, as amended, by and among Information
Display Technology, Inc., IDT PolyVision Acquisition Corp., IDT Posterloid Acquisition Corp., The
Alpine Group, Inc., Alpine/PolyVision, Inc. and Posterloid Corporation (incorporated herein by
reference to Exhibit 2 to Amendment No. 1 to Alpine's Statement on Schedule 13D relating to its
beneficial ownership of equity securities of Information Display Technology, Inc. dated December 28,
1994)
2(e) Amendment to the Agreement and Plan of Merger, dated as of December 21, 1994, by and among Information
Display Technology, Inc., IDT PolyVision Acquisition Corp., IDT Posterloid Acquisition Corp., The
Alpine Group, Inc., Alpine/PolyVision, Inc. and Posterloid Corporation (incorporated herein by
reference to Exhibit 1 to Amendment No. 2 to Alpine's Statement on Schedule 13D relating to its
beneficial ownership of equity securities of Information Display Technology Inc. dated May 5, 1995)
2(f) Amended and Restated Stock Purchase Agreement, dated as of October 11, 1994, by and among The Alpine
Group, Inc. and certain stockholders of Adience, Inc. ("Adience") as listed therein, as amended
(incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated
January 5, 1995)
3(a) Certificate of Incorporation of Alpine (incorporated herein by reference to Exhibit 3(a) to the Annual
Report on Form 10-K of Alpine for the year ended April 30, 1995 (the "1995 10-K"))
3(b) Amendment to the Certificate of Incorporation of Alpine (incorporated herein by reference to Exhibit
3(aa) of Post-Effective Amendment No. 1 to the Registration Statement on Form S-3 (Registration No.
33-53434) of Alpine, as filed with the Commission on May 12, 1993)
3(c) Certificate of the Powers, Designations, Preferences and Rights of the 9% Cumulative Convertible
Preferred Stock of Alpine (incorporated herein by reference to Exhibit 1 to the Quarterly Report on
Form 10-Q of Alpine for the quarter ended January 31, 1989)
3(d) Certificate of the Powers, Designations, Preferences and Rights of the 9% Cumulative Convertible Senior
Preferred Stock of Alpine (incorporated herein by reference to Exhibit 3(c) to the Annual Report on
Form 10-K of Alpine for the fiscal year ended April 30, 1992 ("1992 10-K"))
3(e) Certificate of the Powers, Designations, Preferences and Rights of the 8.5% Cumulative Convertible
Senior Preferred Stock of Alpine (incorporated herein by reference to Exhibit 3(e) to the Annual
Report on Form 10-K of Alpine for the fiscal year ended April 30, 1994)
3(f) Certificate of the Powers, Designations, Preferences and Rights of the 8% Cumulative Convertible Senior
Preferred Stock of the Company (incorporated herein by reference to Exhibit 3(f) to the 1995 10-K)
3(g) By-laws of Alpine (incorporated herein by reference to Exhibit 3(g) to the 1995 10-K)
4(a) Indenture, dated as of October 1, 1986, between Alpine and Manufacturers Hanover Trust Company
("MHTC"), as trustee, relating to the 13 1/2% Senior Subordinated Debentures due 1996 of the Company
(incorporated herein by reference to Exhibit 4 to Amendment No. 2 to the Registration Statement on
Form S-1 (Registration No. 33-7709) of Alpine, as filed with the Commission on October 3, 1986)
4(b) First Supplemental Indenture to the above Indenture, dated as of February 3, 1989, between Alpine and
MHTC, as trustee (incorporated herein by reference to Exhibit 4(b) to the 1995 10-K)
4(c) Second Supplemental Indenture to the above Indenture, dated as of October 31, 1989, between Alpine and
MHTC, as trustee (incorporated herein by reference to Exhibit 4(c) to the 1995 10-K)
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<S> <C>
4(d) Indenture, dated as of October 31, 1989, between Alpine and IBJ Schroder Bank & Trust Company ("IBJ"),
as trustee, relating to the Convertible Secured Senior Subordinated Notes due July 31, 1996, of Alpine
(incorporated herein by reference to Exhibit 4(d) to the 1995 10-K)
4(e) First Supplemental Indenture to the above Indenture, dated as of March 28, 1991, between Alpine and
IBJ, as trustee (incorporated herein by reference to Exhibit 4 to the Current Report on Form 8-K of
Alpine dated April 10, 1991 (the "April 1991 8-K"))
4(f) Second Supplemental Indenture to the above Indenture, dated as of April 10, 1992, between Alpine and
IBJ, as trustee (incorporated herein by reference to Exhibit 4(f) to the 1992 10-K)
4(g) Indenture, dated as of June 30, 1993, between Adience, Inc. ("Adience") and IBJ, as trustee
(incorporated herein by reference to Registration Statement No. 33-72024 of Adience, Inc.)
10(a) Amended and Restated 1984 Restricted Stock Plan of Alpine (incorporated herein by reference to Exhibit
10.5 to Form S-4 (Registration No. 33-9978) of Alpine, as filed with the Commission on October 5, 1993
(the "S-4 Registration Statement")
10(b) Amended and Restated 1987 Long Term Equity Incentive Plan of Alpine (incorporated herein by reference
to Exhibit 10.4 to the S-4 Registration Statement)
10(c) Stock Purchase Agreement, dated February 14, 1992, by and between Alpine and Dataproducts Corporation,
relating to the purchase of shares of capital stock of DNE (incorporated herein by reference to
Exhibit 1 to the Current Report on Form 8-K of Alpine dated March 2, 1992 (the "March 1992 8-K"))
10(d) Loan Agreement, dated as of February 13, 1992, by and among Alpine, DNE and the Connecticut Development
Authority (incorporated herein by reference to Exhibit 3 to the March 1992 8-K)
10(e) Agreement and Plan of Merger by and between Alpine and Superior TeleTec Inc., dated as of June 17, 1993
and amended on September 24, 1993 (incorporated herein by reference to Exhibit 2 to the S-4
Registration Statement)
10(f) Exchange Agreement, dated June 17, 1993 by and among Alpine, PV Partners, Suez Ventures, EUROC, and
Samuel Montagu Finance (incorporated herein by reference to Exhibit 10.1 to the S-4 Registration
Statement)
10(j) Lease Agreement by and between ALP(TX) QRS 11-28, Inc., and Superior TeleTec Transmission Products,
Inc., dated as of December 16, 1993 (incorporated herein by reference to Exhibit (i) to the Quarterly
Report on Form 10-Q of Alpine for the Quarter ended January 31, 1994)
10(k) Amended and Restated Debt Exchange Agreement, dated as of October 11, 1994, among Alpine and certain
debtholders of Adience as listed therein (as amended through April 14, 1995) (incorporated herein by
reference to Exhibit 10(k) to the 1995 10-K)
10(l) Note Purchase Agreement by and among Alpine, Superior TeleTec, Inc., Superior Cable Corporation and
Nomura International Trust Company (incorporated herein by reference to Exhibit 3 to Alpine's Current
Report on Form 8-K dated May 24, 1995)
10(m) Letter Agreement, dated May 24, 1995, by and between Alpine and PolyVision Corporation ("PolyVision")
relating to $5,000,000 credit commitment (incorporated herein by reference to Exhibit 10(m) to 1995
10-K)
10(o) First Amendment to Lease Agreement, dated as of May 10, 1995, by and between ALP (TX) QRS 11-28, Inc.
and Superior Teletec Inc. (incorporated herein by reference to Exhibit 10(o) to the 1995 10-K)
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<S> <C>
10(p) Purchase Agreement, dated as of July 14, 1995, by and among Alpine, Adience, Superior
Telecommunications Inc., Superior Cable Corporation, Merrill Lynch & Co., Nomura Securities
International, Inc. and First Albany Corporation (incorporated herein by reference to Exhibit 10(p) to
the 1995 10-K)
10(q)* Employment Agreement, dated as of April 26, 1996, by and between Alpine and Steven S. Elbaum
10(r)* Employment Agreement, dated as of April 26, 1996, by and between Alpine and Stewart H. Wahrsager
10(s)* Employment Agreement, dated as of April 26, 1996, by and between Alpine and Bragi F. Schut
10(t)* Employment Agreement, dated as of April 26, 1996, by and between Alpine and Stephen M. Johnson
10(u)* Employment Agreement, dated as of April 26, 1996, by and between Alpine and David S. Aldridge
10(v) Second Amendment to Lease Agreement, dated as of July 21, 1995, by and between ALP(TX) QRS H-28, Inc.
and Superior Telecommunications Inc. (incorporated herein by reference to Exhibit 10(x) to the 1995
10-K)
10(w) Loan and Security Agreement, dated as of July 21, 1995, by and between Alpine, Shawmut Capital
Corporation, Nationsbank of Georgia, N.A., and Creditanstalt Corporation Finance, Inc. (incorporated
herein by reference to Exhibit 10(y) to the 1995 10-K)
10(x) Amendment dated as of June 30, 1995, to Amended and Restated Debt Exchange Agreement dated as of
October 11, 1984, among Alpine and certain debtholders of Adience, as listed therein (incorporated
herein by reference to Exhibit 10(bb) to the 1995 10-K)
10(y) Supplemental Indenture, dated as of July 21, 1995, to Indenture by and between Adience and IBJ dated as
of June 30, 1993 (incorporated herein by reference to Exhibit 10(cc) to the 1995 10-K)
10(z) Indenture, dated as of July 15, 1995, by and among Alpine, Adience, Superior Telecommunications Inc.,
Superior Cable Corporation and Marine Midland Bank ("Marine Midland"), as trustee (incorporated herein
by reference to Exhibit 10(ee) to the 1995 10-K)
10(aa) Pledge Agreement, dated as of July 21, 1995, by and between Alpine and Marine Midland (incorporated
herein by reference to Exhibit 10(ff) to the 1995 10-K)
12 Computation of ratio of earnings to fixed charges.
21* List of Subsidiaries
23(a)* Consent of Arthur Andersen LLP
27* Financial Data Schedule
28* Alpine is herewith filing as exhibits the following financial statements relating to Alpine's
subsidiaries, Superior and Adience, each of which has guaranteed Alpine's 12 1/2% Senior Secured Notes
due 2003, and the stock of each of which subsidiaries has been pledged to secure such Notes.
</TABLE>
ADIENCE, INC.
Consolidated Financial Statements:
Consolidated balance sheets at April 30, 1995 and April 30, 1996
Consolidated statements of operations for the period from December 21,
1994 to April 30, 1995 and the year ended April 30, 1996.
Consolidated statement of stockholder's equity for the period from
December 21, 1994 to April 30, 1995 and the year ended April 30, 1996.
29
<PAGE>
Consolidated statements of cash flows for the period from December 21,
1994 to April 30, 1995 and the year ended April 30, 1996.
Notes to consolidated financial statements
SUPERIOR TELECOMMUNICATIONS INC.
Consolidated Financial Statements:
Consolidated balance sheets at April 30, 1995 and April 28, 1996
Consolidated statements of operations and retained earnings for the
period from November 11, 1993 to May 1, 1994 and the years ended April 30,
1995 and April 28, 1996.
Consolidated statements of cash flows for the period from November 11,
1993 to May 1, 1994 and the years ended April 30, 1995 and April 28, 1996.
Notes to consolidated financial statements
- ------------------------
*Filed herewith.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 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.
Dated: July , 1996
THE ALPINE GROUP, INC.
By:
-----------------------------------
Steven S. Elbaum
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
Chairman of the Board and Chief
- ------------------------------------------- Executive Officer (principal July 26, 1996
Steven S. Elbaum executive officer)
Vice President and Treasurer
- ------------------------------------------- (principal financial and July 26, 1996
David S. Aldridge accounting officer)
- -------------------------------------------
Kenneth G. Byers, Jr. Director July 26, 1996
- -------------------------------------------
Randolph Harrison Director July 26, 1996
- -------------------------------------------
John C. Jansing Director July 26, 1996
- -------------------------------------------
Ernest C. Janson, Jr. Director July 26, 1996
- -------------------------------------------
James R. Kanely Director July 26, 1996
- -------------------------------------------
Gene E. Lewis Director July 26, 1996
- -------------------------------------------
Bragi F. Schut Director July 26, 1996
</TABLE>
31
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
<TABLE>
<S> <C>
Report of independent public accountants............................................. F-2
Consolidated balance sheets at April 30, 1995 and 1996............................... F-3
Consolidated statements of operations for the years ended April 30, 1994, 1995 and
1996................................................................................ F-4
Consolidated statements of stockholders' equity for the three years ended April 30,
1996................................................................................ F-5
Consolidated statements of cash flows for the years ended April 30, 1994, 1995 and
1996................................................................................ F-8
Notes to consolidated financial statements........................................... F-10
SCHEDULE:
Schedule I -- Condensed Financial Information of Registrant (Parent Company)......... F-35
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Alpine Group, Inc.:
We have audited the accompanying consolidated balance sheets of The Alpine
Group, Inc. ("Alpine") (a Delaware corporation) and subsidiaries as of April 30,
1995 and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended April 30, 1996. These consolidated financial statements and the financial
statement schedule referred to below are the responsibility of Alpine's
management. Our responsibility is to express an opinion on these consolidated
financial statements and the financial statement schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The Alpine Group, Inc. and subsidiaries as of April 30, 1995 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended April 30, 1996 in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Atlanta, Georgia
June 14, 1996
F-2
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
APRIL 30,
--------------------
1995 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................ $ 15,546 $ 1,119
Marketable securities................................................ 1,495 7,713
Accounts receivable (less allowance for doubtful accounts of $956 in
1995 and $506 in 1996).............................................. 41,255 60,670
Inventories.......................................................... 35,242 68,990
Other current assets................................................. 5,347 7,850
--------- ---------
Total current assets............................................... 98,885 146,342
Property, plant, and equipment, net.................................... 52,240 99,425
Long-term investments and other assets................................. 16,941 26,403
Goodwill and other intangibles, net.................................... 65,712 82,734
--------- ---------
Total assets....................................................... $ 233,778 $ 354,904
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings................................................ $ 33,135 $ --
Current portion of long-term debt.................................... 2,022 2,132
Accounts payable..................................................... 31,655 53,167
Accrued expenses..................................................... 24,993 40,364
--------- ---------
Total current liabilities.......................................... 91,805 95,663
--------- ---------
Long-term debt, less current portion................................... 84,022 207,645
--------- ---------
Other long-term liabilities............................................ 7,560 6,632
--------- ---------
Adience acquisition obligation......................................... 5,733 1,828
--------- ---------
Commitments and contingencies
Stockholders' equity:
8% cumulative convertible preferred stock at liquidation value....... 11,823 9,831
9% cumulative convertible preferred stock at liquidation value....... 1,927 1,927
8.5% cumulative convertible preferred stock at liquidation value..... 3,500 --
Common stock, $.10 par value; authorized 25,000,000 shares;
17,429,141 shares issued in 1995 and 19,307,012 shares issued in
1996................................................................ 1,743 1,931
Capital in excess of par value....................................... 103,114 113,843
Cumulative translation adjustment.................................... 144 (82)
Accumulated deficit.................................................. (76,050) (78,998)
--------- ---------
46,201 48,452
Less: shares of common stock in treasury, at cost; 1995, 233,290
shares; 1996, 1,025,496 shares........................................ (1,229) (4,806)
Receivable from stockholders......................................... (314) (510)
--------- ---------
Total stockholders' equity........................................... 44,658 43,136
--------- ---------
Total liabilities and stockholders' equity......................... $ 233,778 $ 354,904
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-------------------------------
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Net sales................................................... $ 68,510 $ 198,135 $ 524,113
Cost of goods sold.......................................... 56,250 169,125 453,785
--------- --------- ---------
Gross profit.............................................. 12,260 29,010 70,328
Selling, general and administrative......................... 12,168 20,487 35,148
Amortization of goodwill and other intangible charges....... 2,292 1,527 2,658
--------- --------- ---------
Operating income (loss)................................... (2,200) 6,996 32,522
Interest income............................................. 242 345 2,146
Interest expense............................................ (2,363) (8,197) (27,795)
Other income (expense), net................................. (506) 28 22
--------- --------- ---------
Income (loss) from continuing operations before income
taxes.................................................... (4,827) (828) 6,895
Provision for income taxes.................................. (68) (348) (1,676)
--------- --------- ---------
Income (loss) from continuing operations.................. (4,895) (1,176) 5,219
Loss from discontinued operations........................... (25,236) (4,868) (2,213)
--------- --------- ---------
Income (loss) before extraordinary item................... (30,131) (6,044) 3,006
Extraordinary (loss) on early extinguishment of debt........ (47) -- (4,856)
--------- --------- ---------
Net (loss).............................................. (30,178) (6,044) (1,850)
Preferred stock dividends................................... 414 801 1,098
--------- --------- ---------
(Loss) applicable to common stock......................... $ (30,592) $ (6,845) $ (2,948)
--------- --------- ---------
--------- --------- ---------
Income (loss) per share of common stock:
Continuing operations..................................... $ (0.38) $ (0.11) $ 0.23
Discontinued operations................................... (1.78) (0.27) (0.12)
Extraordinary (loss) on early extinguishment of debt...... -- -- (0.27)
--------- --------- ---------
Net (loss) per share of common stock.................... $ (2.16) $ (0.38) $ (0.16)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED APRIL 30, 1996
<TABLE>
<CAPTION>
8.5%
CUMULATIVE
9% CUMULATIVE CONVERTIBLE
CONVERTIBLE PREFERRED
COMMON STOCK CAPITAL PREFERRED STOCK STOCK
------------------------- IN EXCESS ------------------------- -----------
SHARES AMOUNT OF PAR SHARES AMOUNT SHARES
----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1993............... 10,435,922 $ 1,044 $ 43,961 4,677 $ 4,677 --
Compensation expense related to stock
options and grants..................... 419
Dividends on preferred stock............
Issuance of stock in subsidiary......... 27
Shares issued pursuant to employment
agreements............................. 4,974 48
Exercise of stock options............... 298,905 30 966
Exercise of warrant..................... 50,000 5 145
Conversion of convertible notes......... 82,403 8 308
Issuance of 8.5% cumulative convertible
preferred stock........................ (300) 5,000
Conversion of convertible preferred
stock.................................. 553,884 55 3,445 (2,000) (2,000) (1,500)
Shares issued in connection with the
early extinguishment of debt........... 15,715 2 179
Shares issued for directors' fees....... (10)
Acquisition of Alpine PolyVision, Inc.
minority interest...................... 2,164,099 217 19,260
Acquisition of Superior
Telecommunications, Inc................ 4,467,610 447 41,145
Net (loss) for the year ended April 30,
1994...................................
----------- ----------- ----------- ----------- ----------- -----------
Balance at April 30, 1994............... 18,073,512 $ 1,808 $ 109,593 2,677 $ 2,677 3,500
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
TREASURY STOCK RECEIVABLE
ACCUMULATED ------------------------- FROM
AMOUNT DEFICIT SHARES AMOUNT STOCKHOLDER TOTAL
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1993............... -- $ (38,613) (36,227) $ (153) $ (314) $ 10,602
Compensation expense related to stock
options and grants..................... 419
Dividends on preferred stock............ (414) (414)
Issuance of stock in subsidiary......... 27
Shares issued pursuant to employment
agreements............................. 48
Exercise of stock options............... 996
Exercise of warrant..................... 150
Conversion of convertible notes......... 316
Issuance of 8.5% cumulative convertible
preferred stock........................ 5,000 4,700
Conversion of convertible preferred
stock.................................. (1,500)
Shares issued in connection with the
early extinguishment of debt........... 181
Shares issued for directors' fees....... 21,716 92 82
Acquisition of Alpine PolyVision, Inc.
minority interest...................... 19,477
Acquisition of Superior
Telecommunications, Inc................ 41,592
Net (loss) for the year ended April 30,
1994................................... (30,178) (30,178)
----------- ----------- ----------- ----------- ----------- -----------
Balance at April 30, 1994............... $ 3,500 $ (69,205) (14,511) $ (61) $ (314) $ 47,998
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
FOR THE THREE YEARS ENDED APRIL 30, 1996
<TABLE>
<CAPTION>
9% CUMULATIVE 8% CUMULATIVE
CAPITAL CONVERTIBLE CONVERTIBLE
COMMON STOCK IN PREFERRED STOCK PREFERRED STOCK
---------------------- EXCESS ------------------- -------------------
SHARES AMOUNT OF PAR SHARES AMOUNT SHARES AMOUNT
----------- -------- --------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1994..... 18,073,512 $ 1,808 $ 109,593 2,677 $ 2,677 -- --
Compensation expense related
to stock options and
grants....................... 114,579 11 377
Dividends on preferred
stock........................
Foreign currency
translation..................
Conversion of convertible
preferred stock.............. 140,000 14 736 (750) (750)
Conversion of convertible
notes........................ 7,165 1 40
Exercise of stock options..... 93,885 9 247
Shares issued for directors'
fees......................... 21
Purchase of treasury stock....
Exchange of common stock for
preferred stock.............. (1,000,000) (100) (7,900) 160,000 8,000
Acquisition of Adience,
Inc.......................... 82,267 4,113
Repurchase of preferred
stock........................ (5,787) (290)
Net (loss) for the year ended
April 30, 1995...............
----------- -------- --------- -------- -------- -------- --------
Balance at April 30, 1995..... 17,429,141 $ 1,743 $ 103,114 1,927 $ 1,927 236,480 $ 11,823
----------- -------- --------- -------- -------- -------- --------
----------- -------- --------- -------- -------- -------- --------
<CAPTION>
8.5% CUMULATIVE
CONVERTIBLE
PREFERRED STOCK FOREIGN TREASURY STOCK RECEIVABLE
------------------- ACCUMULATED CURRENCY ------------------- FROM
SHARES AMOUNT DEFICIT TRANSLATION SHARES AMOUNT STOCKHOLDERS TOTAL
-------- -------- ---------- ---------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1994..... 3,500 $ 3,500 $ (69,205) -- (14,511) $ (61) $ (314) $ 47,998
Compensation expense related
to stock options and
grants....................... 388
Dividends on preferred
stock........................ (801) (801)
Foreign currency
translation.................. 144 144
Conversion of convertible
preferred stock..............
Conversion of convertible
notes........................ 41
Exercise of stock options..... 256
Shares issued for directors'
fees......................... 10,221 43 64
Purchase of treasury stock.... (229,000) (1,211) (1,211)
Exchange of common stock for
preferred stock..............
Acquisition of Adience,
Inc.......................... 4,113
Repurchase of preferred
stock........................ (290)
Net (loss) for the year ended
April 30, 1995............... (6,044) (6,044)
-------- -------- ---------- ----- -------- -------- ---------- --------
Balance at April 30, 1995..... 3,500 $ 3,500 $ (76,050) $ 144 (233,290) $(1,229) $ (314) $ 44,658
-------- -------- ---------- ----- -------- -------- ---------- --------
-------- -------- ---------- ----- -------- -------- ---------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
FOR THE THREE YEARS ENDED APRIL 30, 1996
<TABLE>
<CAPTION>
9% CUMULATIVE 8% CUMULATIVE
CAPITAL CONVERTIBLE CONVERTIBLE
COMMON STOCK IN PREFERRED STOCK PREFERRED STOCK
---------------------- EXCESS ------------------- -------------------
SHARES AMOUNT OF PAR SHARES AMOUNT SHARES AMOUNT
----------- -------- --------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1995..... 17,429,141 $ 1,743 $ 103,114 1,927 $ 1,927 236,480 $ 11,823
Compensation expense related
to stock options and
grants....................... 123,584 12 591
Loans to stockholders.........
Dividends on preferred
stock........................
Foreign currency
translation..................
Conversion of convertible
preferred stock.............. 737,476 74 3,804
Conversion of convertible
notes........................ 51,483 5 246
Exercise of stock options..... 46,060 5 115
Shares issued for directors'
fees......................... (18)
Purchase of treasury stock....
Retirement of Adience 11%
Senior Notes................. 44,900 2,244
Adience acquisition and debt
exchange reset............... 919,268 92 4,945 (84,731) (4,236)
PolyVision merger and
distribution................. 1,046
Net (loss) for the year ended
April 30, 1996...............
----------- -------- --------- -------- -------- -------- --------
Balance at April 30, 1996..... 19,307,012 $ 1,931 $ 113,843 1,927 $ 1,927 196,649 $ 9,831
----------- -------- --------- -------- -------- -------- --------
----------- -------- --------- -------- -------- -------- --------
<CAPTION>
8.5% CUMULATIVE
CONVERTIBLE
PREFERRED STOCK FOREIGN TREASURY STOCK RECEIVABLE
------------------- ACCUMULATED CURRENCY ------------------- FROM
SHARES AMOUNT DEFICIT TRANSLATION SHARES AMOUNT STOCKHOLDERS TOTAL
-------- -------- ---------- ---------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1995..... 3,500 $ 3,500 $ (76,050) $ 144 (233,290) $(1,229) $ (314) $ 44,658
Compensation expense related
to stock options and
grants....................... 603
Loans to stockholders......... (196) (196)
Dividends on preferred
stock........................ (1,098) (1,098)
Foreign currency
translation.................. (226) (226)
Conversion of convertible
preferred stock.............. (3,500) (3,500) 378
Conversion of convertible
notes........................ 5,000 20 271
Exercise of stock options..... 120
Shares issued for directors'
fees......................... 11,042 59 41
Purchase of treasury stock.... (808,248) (3,656) (3,656)
Retirement of Adience 11%
Senior Notes................. 2,244
Adience acquisition and debt
exchange reset............... 801
PolyVision merger and
distribution................. 1,046
Net (loss) for the year ended
April 30, 1996............... (1,850) (1,850)
-------- -------- ---------- ---------- -------- -------- ---------- --------
Balance at April 30, 1996..... -- -- $ (78,998) $ (82) (1,025,496) $(4,806) $ (510) $ 43,136
-------- -------- ---------- ---------- -------- -------- ---------- --------
-------- -------- ---------- ---------- -------- -------- ---------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-------------------------------
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations............................ $ (4,895) $ (1,176) $ 5,219
Adjustments to reconcile income (loss) to net cash provided by (used
for) operations:
Depreciation and amortization..................................... 4,425 6,169 12,566
Amortization of deferred financing costs and accretion of debt
discount......................................................... 232 885 2,564
Compensation expense related to stock options and grants.......... 497 388 603
Other, net........................................................ 651 30 271
Change in assets and liabilities, net of effects from companies
acquired:
Accounts receivable............................................... (3,409) (8,001) 8,165
Inventories....................................................... 2,157 (3,164) (975)
Other current assets.............................................. 31 (659) (187)
Other assets...................................................... (95) (2,126) (268)
Accounts payable and accrued expenses............................. (219) 11,123 9,966
Other long-term liabilities....................................... 224 (288) 454
--------- --------- ---------
Cash provided by (used for) continuing operations................... (401) 3,181 38,378
--------- --------- ---------
(Loss) from discontinued operations................................. (25,236) (4,868) (2,213)
Adjustments to reconcile (loss) to net cash (used for) discontinued
operations:
Depreciation and amortization..................................... 1,032 746 --
Loss recognized on purchase of R&D and other related charges...... 21,312 -- --
Change in net assets.............................................. (74) (11) 1,257
--------- --------- ---------
Cash (used for) discontinued operations........................... (2,966) (4,133) (956)
--------- --------- ---------
Cash provided by (used for) operating activities...................... (3,367) (952) 37,422
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures for continuing operations...................... (1,565) (2,275) (6,228)
Capital expenditures for acquisition of BICC assets................. -- -- (5,447)
Capital expenditures for discontinued operations.................... (397) (360) --
Acquisitions, net of cash acquired.................................. (19,197) 802 (105,216)
(Investment in) proceeds from sale of marketable securities......... (1,268) 477 (6,218)
Advances to PolyVision Corporation.................................. -- -- (3,086)
Other............................................................... -- 124 (222)
--------- --------- ---------
Cash (used for) investing activities.................................. (22,427) (1,232) (126,417)
--------- --------- ---------
Cash flows from financing activities:
Short-term borrowings (repayments).................................. (118) 20,685 (21,000)
Borrowings under revolving credit facilities, net................... 7,271 (1,530) 16,643
Long-term borrowings of continuing operations....................... 17,034 636 281,726
Long-term borrowings of discontinued operations..................... 690 -- --
Repayments of long-term borrowings of continuing operations......... (3,771) (3,408) (185,776)
Repayments of long-term borrowings of discontinued
operations......................................................... (54) (70) --
Proceeds from exercise of stock options............................. 1,072 256 120
Capitalized financing costs......................................... -- -- (12,573)
Issuance of preferred stock, net.................................... 4,278 -- --
Dividends on preferred stock........................................ (414) (505) (720)
Purchase of treasury shares......................................... -- (1,211) (3,656)
Other............................................................... 27 370 (196)
--------- --------- ---------
Cash provided by financing activities................................. 26,015 15,223 74,568
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents.................. 221 13,039 (14,427)
Cash and cash equivalents at beginning of year........................ 2,286 2,507 15,546
--------- --------- ---------
Cash and cash equivalents at end of year.............................. $ 2,507 $ 15,546 $ 1,119
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-------------------------------
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Supplemental Disclosures:
Cash interest paid................................................ $ 1,579 $ 5,615 $ 19,810
--------- --------- ---------
Noncash investing and financing activities:
Exchange of common stock for preferred stock:
Preferred stock acquired........................................ $ 3,500 $ 750 $ 7,736
--------- --------- ---------
Dividends on preferred stock exchanged.......................... $ 451
---------
Common stock issued............................................. $ 3,500 $ 750 $ 8,915
--------- --------- ---------
Exchange of preferred stock for common stock:
Common stock acquired........................................... $ 8,000
---------
Preferred stock issued.......................................... $ 8,000
---------
Preferred stock issued in connection with the retirement of
Adience 11% Senior Notes......................................... $ 2,244
---------
Common stock issued in connection with the acquisition of minority
interest in Alpine Polyvision, Inc............................... $ 19,477
---------
Common stock issued in connection with the purchase of an R&D
partnership interest............................................. $ 1,251
---------
Common stock of a subsidiary issued in connection with the
purchase of an R&D partnership]interest.......................... $ 1,664
---------
Acquisition of businesses:
Assets, net of cash acquired...................................... $ (93,018) $(107,837) $(126,127)
Common stock issued............................................... 41,592 -- --
Preferred stock issued............................................ -- 4,113 --
Contingent consideration.......................................... -- 5,733 --
Liabilities assumed............................................... 32,229 98,793 22,718
--------- --------- ---------
Net cash (paid) received.......................................... $ (19,197) $ 802 $(103,409)
--------- --------- ---------
Conversion of notes and exchange of debentures:
Conversions and retirements of debt............................... $ 625 $ 38 $ 300
--------- --------- ---------
Fair value of common stock issued................................. $ 674 $ 41 $ 251
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-9
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
The accompanying consolidated financial statements include the accounts of
The Alpine Group, Inc. ("Alpine") and its subsidiaries (collectively "Alpine" or
the "Company", unless the content otherwise requires). Alpine's consolidated
financial statements are prepared in accordance with generally accepted
accounting principles which requires that management make estimates and
assumptions that affect the reported amounts. Actual results could differ from
those estimates. Alpine was incorporated in New Jersey on May 7, 1957 and
reincorporated in Delaware on February 3, 1987.
The consolidated financial statements include all majority-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated.
Alpine conducts business in three industry segments: telecommunication wire
and cable products (through Superior Telecommunications Inc. -- "Superior");
refractory products (through Adience Inc. -- "Adience") and data communications
and electronics (through DNE Systems Inc. -- "DNE"). Superior is a leading
manufacturer of copper telecommunication wire and cable products for the local
loop segment of the telecommunications network. The local loop is the segment of
the telecommunications network that connects the customer's premises to the
nearest telephone company switch or central office. Superior contributed more
than 70% of Alpine's fiscal 1996 consolidated revenues. Adience is one of the
largest U.S. manufacturers and installers of specialty refractory products,
which are used primarily by the iron and steel industry. Specialty refractory
products are consumable materials used as insulation on surfaces exposed to high
temperatures such as those generated by molten metals. Adience contributed more
than 20% of Alpine's fiscal 1996 consolidated revenues. DNE develops and
manufactures data communications and other equipment, including multiplexers for
defense, government and commercial applications and provides contract
manufacturing services to the electronics industry. DNE's revenues comprised
less than 10% of Alpine's fiscal 1996 consolidated revenues.
CONTRACT REVENUE RECOGNITION
Revenues related to certain of DNE's and Adience's long-term contracts are
recognized by the percentage of completion method measured on the basis of costs
incurred to estimated total costs which approximates contract performance to
date. Provisions for losses on uncompleted contracts are made if it is
determined that a contract will ultimately result in a loss. Recognized revenue
is that percentage of total contractual revenue that incurred costs to date bear
to estimated total costs after giving effect to the most recent estimates of
costs to complete. All other revenues are recognized when the products are
delivered or services performed.
CASH AND CASH EQUIVALENTS
All highly liquid investments purchased with a maturity at acquisition of 90
days or less are considered to be cash equivalents.
INVENTORIES
Inventories, other than inventoried costs relating to DNE's long- term
contracts, are stated at the lower of cost or market, using the first-in,
first-out (FIFO) or average cost method. Inventoried costs relating to DNE's
long-term contracts and programs are stated at actual production cost, including
factory overhead, initial tooling and other related nonrecurring costs, reduced
by the cost related to revenue recognized. Included in the accompanying
consolidated balance sheets are inventories of DNE relating to contracts and
programs having production cycles longer than one year.
F-10
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are provided over
the estimated useful lives of the assets using the straight-line method. The
estimated lives are as follows:
<TABLE>
<S> <C>
Buildings and improvements................................ 5 to 32 years
Machinery and equipment................................... 3 to 12 years
</TABLE>
Maintenance and repairs are charged to expense as incurred. Long-term
improvements are capitalized as additions to property, plant and equipment. Upon
retirement, or other disposal, the asset cost and related accumulated
depreciation are removed from the accounts and the net amount, less any
proceeds, is charged or credited to income.
GOODWILL AND OTHER INTANGIBLES
The excess of the purchase price over the net identifiable assets of
businesses acquired by Alpine is amortized ratably over periods not exceeding 30
years. Accumulated amortization of goodwill intangibles at April 30, 1995, and
1996 was $2.3 million and $5.0 million, respectively. Alpine periodically
reviews goodwill and other intangibles to assess recoverability from future
operations using undiscounted cash flows, in accordance with the provisions of
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The adoption of this statement had no effect on Alpine's consolidated financial
position or results of operations as of, or for the years ended, April 30, 1995
and 1996. During fiscal 1994, Alpine expensed $1.5 million of unamortized
intangible assets relating to a DNE product line which was not forecasted to
generate sufficient income to recover the carrying value of such intangible
asset.
DEFERRED FINANCING COSTS
The costs incurred in connection with certain debt financings are included
in the consolidated balance sheets in long-term investments and other assets and
are being amortized through the relevant maturity dates of the outstanding debt.
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of Alpine's foreign
subsidiaries are measured using local currency as the functional currency.
Assets and liabilities of operations denominated in foreign currencies are
translated into U.S. dollars at exchange rates in effect at year-end, while
revenues and expenses are translated at average exchange rates prevailing during
the year. The resulting translation gains and losses are charged directly to
cumulative translation adjustment, a component of stockholders' equity, and are
not included in net income until realized through sale or liquidation of the
investment. Foreign exchange gains and losses incurred on foreign currency
transactions are included in net income.
CONCENTRATIONS OF CREDIT RISK
During fiscal 1994, 1995, and 1996, sales to the six regional Bell operating
companies and three major independent telephone companies represented 74%, 78%,
and 90%, respectively, of Superior's net sales. At April 30, 1995 and 1996,
accounts receivable from these customers were $14.0 million, and $41.9 million,
respectively.
At April 30, 1995 and 1996, Adience accounts receivable from customers in
the iron and steel industry were $10.7 million and $13.1 million, respectively.
F-11
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications have been made to the 1994 and 1995 consolidated
financial statements to conform with the 1996 presentation.
2. INVESTMENTS
Effective May 1, 1993, Alpine began accounting for its investments in
accordance with Statement of Financial Accounting Standards No. 115 "Accounting
for Certain investments in Debt and Equity Securities" ("SFAS No. 115"). This
statement requires that the Company's investments in equity securities be
classified as "trading securities" or "available for sale securities". The
Company's short-term investments are comprised of marketable securities, all
classified as trading securities. In accordance with SFAS No. 115, net
unrealized holding gains and losses are included in net earnings and net
realized gains and losses are determined on the specific identification cost
basis. The Company's long-term equity investment in PolyVision Corporation
("PolyVision") (see Note 6) is classified as an equity security available for
sale and in accordance with SFAS No. 115 unrealized gains and losses, if any,
would be included as a component of stockholders' equity until realized. The
adoption of this statement did not have a material impact on Alpine's
consolidated financial position or results of operations for the year ended
April 30, 1994.
3. INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Raw materials....................................................... $ 11,969 $ 14,885
Work in process..................................................... 8,716 14,870
Finished goods...................................................... 14,557 39,235
--------- ---------
$ 35,242 $ 68,990
--------- ---------
--------- ---------
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
1995 1996
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Land.............................................................. $ 2,547 $ 4,408
Buildings and improvements........................................ 16,853 26,755
Machinery and equipment........................................... 39,774 84,712
--------- -----------
59,174 115,875
Less: accumulated depreciation.................................... 6,934 16,450
--------- -----------
$ 52,240 $ 99,425
--------- -----------
--------- -----------
</TABLE>
Depreciation expense for the years ended April 30, 1994, 1995 and 1996 was
$2.1 million, $4.6 million, and $9.9 million, respectively.
5. DISCONTINUED OPERATIONS
In fiscal 1995, Alpine adopted a plan to dispose of its information display
segment consisting of its interest in Alpine PolyVision, Inc. ("APV") and
Posterloid Corporation ("Posterloid") resulting in the historical financial
statements of Alpine being restated to reflect these operations as discontinued.
In May 1995, APV and Posterloid were merged (the "PolyVision Merger") into
PolyVision Corporation
F-12
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. DISCONTINUED OPERATIONS (CONTINUED)
("PolyVision") (formerly Information Display Technology, Inc.), a subsidiary of
Adience (See Note 6). Prior to the merger Alpine's ownership in PolyVision, APV
and Posterloid was 70%, 98% and 100%, respectively.
Following the PolyVision Merger, Alpine owned 98% of PolyVision's
outstanding preferred stock with a liquidation preference of $25.0 million and
94% of the outstanding PolyVision common stock. In accordance with FASB
Technical Bulletin 85-5, the increase in equity ownership from 70% to 94% was
recorded as the acquisition of a minority interest at its estimated fair value.
Because the minority interest was acquired by an Alpine subsidiary issuing
stock, and because Alpine subsequently distributed to its stockholders most of
the PolyVision common stock owned by it, the excess of the fair value of the
minority interest acquired over the book value of the interests given up in APV
and Posterloid, has been added, net of tax impact, directly to capital surplus.
On June 14, 1995, Alpine distributed to its stockholders 73% of the
outstanding PolyVision common stock (the "PolyVision Spin-Off"). This
distribution, when combined with shares of PolyVision common stock used as
partial consideration in connection with the Adience Acquisition and the
retirement of the Adience 11% Senior Secured Notes (the "Adience Senior Notes")
(see Notes 6 and 9), resulted in the ownership by Alpine of less than 20% of the
outstanding shares of PolyVision common stock. Accordingly, Alpine is accounting
for its remaining PolyVision investment at its fair value as a security
available-for-sale, which amount ($11.5 million at April 30, 1996) is included
in long-term investments and other assets in the accompanying balance sheet.
Because the shares of PolyVision common stock distributed had a negative book
value, Alpine's stockholders' equity was not reduced by the PolyVision Spin-Off.
During fiscal 1996 the Company recorded a loss from discontinued operations
of $2.2 million, net of applicable taxes. The loss included a one-time $1.6
million charge related to certain contractual employee termination matters
associated with the distribution of PolyVision.
6. ACQUISITIONS
ALCATEL ACQUISITION
On May 11, 1995, Alpine completed the acquisition (the "Alcatel
Acquisition") of the U.S. and Canadian copper wire and cable business (the
"Alcatel Business") of Alcatel NA Cable Systems, Inc. and Alcatel Canada Wire,
Inc. (collectively, "Alcatel NA"), which was financed with the proceeds of the
sale by Superior of $140.0 million aggregate principal amount of notes (the
"Alcatel Acquisition Notes"). The Alcatel Acquisition Notes were subsequently
redeemed with the proceeds of Alpine's refinancing (see Note 9).
The following reflects the allocation of the purchase price to the net
assets of the Alcatel Business based upon the estimated fair values of such
assets:
<TABLE>
<CAPTION>
AMOUNT
-------------
(IN
THOUSANDS)
<S> <C>
Acquisition cost........................................................... $ 103,409
Less, historical book value of net assets at May 11, 1995.................. (80,909)
Write-up of property, plant and equipment.................................. (5,718)
Accrual of Alcatel employee relocation and severance costs................. 500
-------------
Acquisition goodwill....................................................... $ 17,282
-------------
-------------
</TABLE>
The acquisition cost of $103.4 million includes $102.9 million paid in cash
to Alcatel NA, and acquisition expenses of approximately $500,000.
F-13
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. ACQUISITIONS (CONTINUED)
The Alcatel Acquisition has been accounted for using the purchase method,
and accordingly, the results of operations of the Alcatel Business are included
in the Company's consolidated results on a prospective basis from the date of
the acquisition. Goodwill is being amortized over 30 years.
ADIENCE ACQUISITION
On December 21, 1994, Alpine acquired 82.3% of the outstanding common stock
of Adience which, when combined with Adience common stock previously purchased
by Alpine, resulted in Alpine owning 87.2% of Adience's outstanding common stock
on such date (the "Adience Acquisition"). Initial consideration paid in the
Adience Acquisition consisted of 82,267 shares of Alpine's 8% cumulative
convertible senior preferred stock ("8% Preferred Stock"), with a liquidation
preference of $4.1 million, 170,615 shares of PolyVision common stock and $2.6
million in cash which included payment of expenses associated with the
acquisition. On July 21, 1995, Alpine acquired the remaining 12.8% of Adience
common stock for $1.8 million in cash.
The terms under which the aforementioned PolyVision common stock was
delivered by Alpine to the Adience stockholders included a valuation reset under
certain conditions. The valuation reset required Alpine to deliver additional
consideration payable at the option of Alpine in either Alpine 8% Preferred
Stock, additional shares of PolyVision common stock, or a combination of both.
The valuation reset is payable in an amount equal to 170,615 (the number of
PolyVision common shares originally delivered), multiplied by the difference
(the "Valuation Difference"), if any, between $33.60 and the greater of: (1) the
average closing price for a share of PolyVision common stock on the 20 trading
days preceding August 1, 1995, and (2) $11.25 per share.
During fiscal 1996, certain of the former Adience stockholders agreed to
exchange 39,825 shares of the 8% Preferred Stock received in the Adience
Acquisition and terminate the right to receive $1.9 million in additional
consideration payable under the aforementioned valuation reset, in consideration
for the issuance by Alpine of 491,184 shares of Alpine common stock and the
delivery of 129,542 additional shares of PolyVision common stock. The excess of
the amount of valuation reset consideration due ($1.9 million) over the fair
market value of the consideration issued in this transaction was accounted for
as a reduction in the purchase price for Adience's common stock.
Also in connection with the Adience Acquisition, Alpine entered into a debt
exchange agreement with the holders of a majority of Adience's 11% Senior Notes.
The debt exchange agreement, which was completed on July 21, 1995, resulted in
Alpine retiring $44.1 million aggregate principle amount of Adience's 11% Senior
Notes ($40.1 million recorded amount) for $35.3 million in cash, 44,900 shares
of 8% Preferred Stock with a liquidation preference of $2.2 million, and 66,801
shares of PolyVision common stock, subject to a valuation reset under certain
conditions. The valuation reset required Alpine to deliver to the former Adience
note holders an amount equal to 66,801 multiplied by the Valuation Difference
(as defined above). On October 31, 1995, the former Adience note holders agreed
to exchange the 44,900 shares of 8% Preferred Stock received in the debt
exchange and terminate the right to receive $1.5 million in value under the
valuation reset, in consideration for the issuance by Alpine of 428,084 shares
of Alpine common stock and the delivery of 121,929 additional shares of
PolyVision common stock. The difference between the recorded value of the
Adience 11% Senior Notes and the value of the exchange consideration paid or
issued by Alpine in the debt exchange has been recorded as a reduction in the
purchase price for Adience's common stock.
PRO FORMA FINANCIAL DATA
Unaudited condensed pro forma results of operations which give effect to the
Alcatel Acquisition and Adience Acquisition as if both transactions had occurred
on May 1, 1994 are presented below. The
F-14
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. ACQUISITIONS (CONTINUED)
pro forma amounts reflect acquisition related purchase accounting adjustments,
including adjustments to depreciation and amortization expense. The pro forma
financial information does not purport to be indicative of either the results of
operations that would have occurred had the acquisitions taken place at the
beginning of the periods presented or of future results of operations.
<TABLE>
<CAPTION>
PRO FORMA
(UNAUDITED)
------------------------
1995 1996
----------- -----------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net sales.................................................................. $ 469,572 $ 531,634
Income (loss) from continuing operations before income taxes............... (5,888) 6,973
Income (loss) from continuing operations before extraordinary item......... (6,236) 5,297
(Loss) from discontinued operations........................................ (4,868) (2,213)
Extraordinary (loss) on early extinguishment of debt....................... -- (4,856)
Net (loss)................................................................. (11,104) (1,772)
Income (loss) per share of common stock:
Continuing operations.................................................... $ (0.42) $ 0.22
Discontinued operations.................................................. (0.27) (0.12)
Extraordinary (loss) on early extinguishment of debt..................... -- (0.27)
Net (loss)................................................................. (0.69) (0.17)
</TABLE>
SUPERIOR ACQUISITION
On November 9, 1993, Alpine's stockholders approved an Agreement and Plan of
Merger pursuant to which Superior's parent merged into Alpine, resulting in
Superior becoming a wholly-owned subsidiary of Alpine. Alpine paid approximately
$19.2 million in cash (including approximately $2.2 million in merger-related
expenses), issued 4,467,610 shares of its common stock (subject to adjustments
for redemption of fractional shares) and assumed existing stock options as
consideration for the merger.
The merger was accounted for using the purchase method and, accordingly,
Superior's results of operations have been included in Alpine's consolidated
results on a prospective basis from the date of the merger. The total purchase
price paid for Superior (including merger related expenses) amounted to $60.8
million and has been allocated to the fair market value of Superior's assets and
liabilities as of the merger date resulting in goodwill of approximately $29.3
million. Goodwill is being amortized on a straight line basis over 30 years.
F-15
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM INVESTMENTS AND OTHER ASSETS
Long-term investments and other assets consist of the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Investment in PolyVision (a).................................................. $ 11,202 $ 11,502
Advances to PolyVision (b).................................................... -- 3,086
Deferred financing charges (net of accumulated amortization).................. 2,561 8,483
Other assets.................................................................. 3,178 3,332
--------- ---------
$ 16,941 $ 26,403
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(a) Reflects the investment in PolyVision remaining after the PolyVision
spin-off. Alpine's investment in PolyVision consists of $25.0 million face
amount of PolyVision 8% preferred stock and PolyVision common stock.
(b) In connection with the PolyVision Merger, Alpine entered into an agreement
with PolyVision pursuant to which Alpine agreed to lend to PolyVision from
time to time prior to May 24, 1997, up to $5.0 million to be used by
PolyVision to fund its working capital needs. Borrowings under the agreement
are unsecured and bear interest at a rate reflecting Alpine's cost of funds
(13.0% at April 30, 1996). The principal balance outstanding is due on May
24, 2005, subject to mandatory prepayment of principal and interest, in
whole or in part, from the net cash proceeds of any public or private equity
or debt financing by PolyVision at any time before maturity. Alpine's
obligation to lend such funds to PolyVision is subject to a number of
conditions, including review by Alpine of the proposed use of such funds by
PolyVision.
8. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Accrued wages, salaries and employee benefits................................. $ 5,172 $ 7,854
Accrued insurance............................................................. 5,673 10,693
Accrued interest.............................................................. 5,608 5,770
Other accrued expenses........................................................ 14,148 16,047
--------- ---------
$ 24,993 $ 40,364
--------- ---------
--------- ---------
</TABLE>
9. DEBT
On July 21, 1995 Alpine completed a refinancing of a substantial portion of
its then outstanding debt. The refinancing was completed with the proceeds from
the placement of $153.0 million principal amount of 12.25% Senior Secured Notes
(the "Senior Notes") and an $85.0 million revolving credit facility (the "Credit
Facility") entered into in conjunction with the Senior Note placement. The
principal use of proceeds from the Senior Notes and Credit Facility included,
(i) repayment of the Alcatel Acquisition Notes (see Note 6), (ii) repayment of
$21.0 million face amount of 13.5% Senior Secured Notes, (iii) repayment of the
outstanding balance under subsidiary revolving credit facilities, and (iv) $35.3
million used to retire $44.1 million aggregate principled amount of Adience's
11% Senior Notes (see Note 6).
In connection with the aforementioned refinancing the Company recognized an
extraordinary charge of $4.9 million, net of taxes of $279,000 on the early
extinguishment of debt.
F-16
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. DEBT (CONTINUED)
At April 30, 1995 and 1996, long-term debt consists of the following:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
12.25% Senior Secured Notes due 2003 (face value $153,000,000) (a)................... $ -- $ 141,070
Revolving credit facility (b)........................................................ -- 48,654
10% Convertible Senior Subordinated Notes (face value $1,104,000, and $804,000 at
April 30, 1995 and 1996, respectively) (c).......................................... 860 804
Adience 11% Senior Secured Notes due in 2002 (face value $49,079,000 and $4,989,000
at April 30, 1995 and 1996, respectively) (d)....................................... 44,386 4,674
Mortgage loan (e).................................................................... 5,297 4,996
Lease finance obligations (f)........................................................ 5,967 5,853
Subsidiary revolving credit facilities............................................... 29,505 --
13.5% Senior Secured Notes (face value $21,000,000).................................. 20,790 --
13.5% Senior Subordinated Debentures................................................. 1,551 --
Term loan............................................................................ 5,386 --
Subordinated note (g)................................................................ 2,469 --
Other................................................................................ 2,968 3,726
----------- -----------
Total debt....................................................................... 119,179 209,777
Less: short-term borrowings and current portion...................................... 35,157 2,132
----------- -----------
Long-term debt................................................................... $ 84,022 $ 207,645
----------- -----------
----------- -----------
</TABLE>
At April 30, 1996, the fair value of Alpine's debt is estimated to be $226.1
million with such estimates based on the quoted market prices for the same or
similar issues or on the current rates offered to Alpine for debt of the same
remaining maturities.
The aggregate maturities of long-term debt for the five years subsequent to
April 30, 1996, are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
- -------------------------------------------------------------------------
<S> <C>
1997.................................................................... $ 2,132
1998................................................................... 1,068
1999................................................................... 749
2000................................................................... 561
2001................................................................... 50,378
</TABLE>
- ------------------------
(a) The Senior Notes are due 2003 and pay interest semiannually on January 15
and July 15 of each year. The Senior Notes were issued at a price of 91.74%
and the discount is being added to the recorded amount through maturity
utilizing the effective interest method. The Senior Notes are secured by a
pledge of the capital stock of Superior and Adience and are guaranteed by
certain subsidiaries of Alpine.
(b) Interest on the Credit Facility is payable monthly at a rate of LIBOR plus
2.25% or prime plus 0.375% (8.1% at April 30, 1996). Borrowings under the
facility are subject to a borrowing base determined as a percentage of
eligible accounts receivable and inventory (as defined). As of April 30,
1996, total borrowing availability amounted to approximately $81.0 million.
Loans under the Credit Facility are guaranteed by Superior and Adience and
are secured by substantially all of Alpine's assets, other than capital
stock of its subsidiaries, real estate, and other fixed assets. The facility
terminates in July 2000.
F-17
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. DEBT (CONTINUED)
(c) The Convertible Senior Subordinated Notes due July 31, 1996 pay interest
semi-annually on January 31 and July 31 of each year and are convertible
into Alpine common stock through July 31, 1996 at a conversion price of
$4.92 per share. The original issue discount is added to the recorded amount
through maturity utilizing the effective interest method. During fiscal
1996, holders of $237,000 recorded amount of Notes ($300,000 face amount)
exchanged such notes for 51,483 shares of Alpine common stock. During fiscal
1995, holders of $29,500 recorded amount ($37,750 face amount) exchanged
such notes for 7,165 shares of Alpine common stock. During fiscal 1994,
holders of $498,000 recorded amount ($833,750 face amount) exchanged such
notes for 133,886 shares of Alpine common stock.
(d) The Adience 11% Senior Secured Notes are due in 2002 and are redeemable at
the option of Adience after December 15, 1997 and pay interest semi-annually
on June 15 and December 15. The Adience Senior Notes are secured by a lien
on substantially all of the assets of Adience.
(e) The mortgage loan is payable by DNE to the Connecticut Development Authority
("CDA"). The loan is guaranteed by Alpine and collateralized by DNE's real
estate, machinery and equipment. The loan is payable March 2002 and is
subject to a 20-year amortization schedule. The interest rate is 7.25%
through February 28, 1999 and the higher of 7.25% or the yield on U.S.
Treasury securities with the same maturity thereafter.
(f) The lease finance obligations result from the sale/leaseback of two
properties during fiscal 1994 which, because of Alpine's continuing
involvement in the form of repurchase options, have been recorded under the
finance method. The lease finance obligations at April 30, 1996 consist of:
(a) $5.0 million related to the sale/leaseback of Superior's manufacturing
facility and (b) $853,000 related to the sale/leaseback of a manufacturing
facility owned by DNE.
The Superior sale/leaseback transaction included a sales price of $5.0
million and net cash proceeds (after fees and expenses) of $4.5 million. The
term of the leaseback is twenty years, with five additional option terms (at
Superior's election) of five years each. Superior has a one time option to
repurchase the property during the eleventh year of the lease term at the
greater of the property's Fair Market Value (as defined in the lease) or
$5.0 million plus related ancillary costs. Annual lease payments are
approximately $630,000, and are subject to adjustments based on changes in
short-term interest rates (monthly) and increases in the consumer price
index (on a triannual basis). Until the repurchase option expires or is
exercised, all lease payments will be reflected as interest expense. The
related asset, which is being depreciated over its estimated useful life,
has a net carrying value of $6.9 million as of April 30, 1996 and is
classified as property, plant and equipment in the consolidated balance
sheet.
The DNE sale/leaseback transaction included a sales price of $1.3 million
and a lease term of nine years. Alpine has an option to repurchase the
property during the fourth and fifth years of the lease term for $1.3
million plus ancillary costs; however, the lessor may elect to terminate the
lease in lieu of accepting such repurchase offer. Annual lease payments are
$178,000 and are subject to annual adjustments based on increases in the
consumer price index. As of April 30, 1996, remaining total lease payments
amounted to $1.1 million, of which $853,000 will be applied against
principal and $209,000 will be recorded as interest expense. The related
asset, which is being depreciated over the term of the lease and has a net
carrying value of $785,000 as of April 30, 1996, is classified in long-term
investments and other assets in the consolidated balance sheet.
(g) The subordinated note payable to the previous owner of DNE was redeemed in
August 1995 at a discount.
F-18
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. DEBT (CONTINUED)
Alpine's indentures and credit agreements contain certain covenants which,
among other matters, restrict or limit the ability of Alpine to pay dividends
and incur indebtedness. Alpine must also maintain certain ratios regarding
working capital, interest coverage, debt service, leverage and net worth, among
other restrictions.
10. INCOME (LOSS) PER SHARE
The computation of fully diluted net loss per share was antidilutive in each
of the periods presented; therefore, the amounts reported for primary and fully
diluted are the same. Net income (loss) per share was determined by dividing net
loss, as adjusted, by applicable weighted average shares outstanding. The loss
was adjusted by the aggregate amount of dividends on Alpine's preferred stock
which amounted to $414,000, $801,000 and $1.1 million in fiscal 1994, 1995 and
1996, respectively. The number of shares used in computing (loss) per share was
14,156,143, 17,857,905 and 17,987,219 in fiscal 1994, 1995 and 1996,
respectively.
11. STOCK OPTIONS AND RESTRICTED STOCK PLAN
Under Alpine's 1987 Long-Term Equity Incentive Plan (the "Plan"), 2,440,215
shares of common stock are reserved for issuance. There were 1,065,000 and
27,561 shares of common stock available under the Plan for granting of options
at April 30, 1995 and 1996, respectively. Participation in the Plan is limited
generally to key employees and directors of Alpine and its subsidiaries. The
Plan provides for grants of incentive and non-incentive stock options. In
addition to options, the Plan permits the grant of stock appreciation rights
(SARs) and phantom stock units (Units). Under the Plan, options are not
exercisable in the first year nor after ten years from the date of grant and no
option may be granted after October 1997. Where the exercise price of stock
options granted under the Plan is less than the market value of Alpine common
stock at the date of grant, non-cash compensation expense is recorded based on
the difference between the exercise price and market value. This non-cash charge
is amortized over the vesting period of the options and is included in selling,
general and administrative expense.
During fiscal 1994, Alpine exchanged options to purchase 482 shares of
common stock of a subsidiary for options to purchase 150,000 shares of Alpine
common stock at an exercise price of $3.00 per share.
During fiscal 1994, in conjunction with the acquisition of Superior (see
Note 6), Alpine assumed Superior's obligations with respect to options issued
and outstanding prior to the merger, resulting in the conversion of Superior
options into options to purchase 268,853 shares of Alpine common stock.
F-19
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCK OPTIONS AND RESTRICTED STOCK PLAN (CONTINUED)
The following table summarizes stock option activity for fiscal 1994, 1995
and 1996:
<TABLE>
<CAPTION>
SHARES PRICE RANGE
----------- ---------------
<S> <C> <C>
Outstanding at April 30, 1993......................................... 1,545,333 $ 1.00-$ 9.88
Exercised........................................................... (311,405) $ 1.00-$ 8.82
Granted............................................................. 516,500 $ 3.00-$12.00
Superior options assumed............................................ 268,853 $ 2.88-$ 8.63
Canceled............................................................ (98,000) $ 7.50-$10.75
-----------
Outstanding at April 30, 1994......................................... 1,921,281 $ 2.50-$12.00
Exercised........................................................... (193,885) $ 1.75-$ 6.77
Canceled............................................................ (11,500) $ 6.60-$10.75
-----------
Outstanding at April 30, 1995......................................... 1,715,896 $ 2.50-$12.00
Exercised........................................................... (80,816) $ 2.05-$ 3.33
Canceled............................................................ (132,528) $ 2.46-$ 6.66
Adjustment for PolyVision Spin-Off.................................. 361,059
Granted............................................................. 1,368,133 $ 3.75-$ 5.13
-----------
Outstanding at April 30, 1996......................................... 3,231,744 $ 2.05-$ 9.84
-----------
-----------
</TABLE>
In November 1995, the exercise price of stock options outstanding and the
number of Alpine shares which such options were exercisable into were adjusted
to reflect the effect of the PolyVision Spin-Off.
At April 30, 1996, 1,659,913 options were exercisable, which options expire
between February 1997 and May 2006. The average exercise price for all
outstanding options at April 30, 1996 was $4.73 per share.
Alpine also has a Restricted Stock Plan under which a maximum of 600,000
shares of Alpine common stock have been reserved for issuance. At April 30,
1996, there are 161,678 shares available for issuance. During fiscal 1996,
non-cash compensation expense of $603,000 was recorded representing the market
value of Alpine common stock issued under the Restricted Stock Plan, amortized
over the applicable vesting period related to the grants.
12. POSTRETIREMENT HEALTH CARE BENEFITS
Superior provides postretirement employee health care benefits for certain
employees. The policy provides each employee and spouse, upon reaching normal or
early retirement and upon achieving certain minimum service requirements, a
fixed monthly benefit for the purchase of Superior-sponsored health care
insurance. The amount of the fixed monthly benefit will not be increased in the
future, notwithstanding medical-based inflation cost increases.
F-20
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. POSTRETIREMENT HEALTH CARE BENEFITS (CONTINUED)
The postretirement health care benefit obligation which is included in
long-term liabilities in the accompanying balance sheets, consisted of the
following at April 30, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Retirees.............................................................. $ 733 $ 427
Fully eligible active plan participants............................... 164 284
Other active plan participants........................................ 596 571
--------- ---------
1,493 1,282
Unrealized net gain from past experiences and change in assumptions... -- 211
--------- ---------
$ 1,493 $ 1,493
--------- ---------
--------- ---------
</TABLE>
Net periodic postretirement benefit cost includes the following components
for fiscal 1994, 1995 and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
----- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost for benefits earned...................................... $ 24 $ 45 $ 45
Interest cost on accumulated postretirement benefit obligation........ 37 118 117
--- ----- -----
$ 61 $ 163 $ 162
--- ----- -----
--- ----- -----
</TABLE>
An increase in the health care cost trend assumptions would not change the
annual expense or obligation amounts as the employer cost is effectively capped.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 6.5%, 8% and 7.75% for fiscal 1994, 1995
and 1996, respectively.
13. DEFINED CONTRIBUTION RETIREMENT PLANS
The Company sponsors several defined contribution plans covering
substantially all U.S. employees. These plans provide for limited company
matching of participants' contributions. Alpine's contributions to these plans
during fiscal 1994, 1995, and 1996 were $240,000, $516,000, and $808,000,
respectively.
14. DEFINED BENEFIT RETIREMENT PLANS
Certain employees of Adience and Superior participate in various defined
benefit retirement plans. These plans generally provide for payment of benefits,
based on the employee's length of service and earnings. In connection with the
Alcatel acquisition (see Note 6), Superior is evaluating alternative retirement
planning options and, in substantially all cases, participation in these plans
has been frozen. Expense recorded by Superior for fiscal year 1996 service under
these plans was approximately $442,000.
Superior sponsors a defined benefit pension plan for employees of its
Canadian manufacturing facility also previously owned by Alcatel. Benefits under
the plan are based on length of service. Plan assets and the projected benefit
obligations for service to date for the plan aggregate approximately $2.3
million. Net periodic pension costs are not material to the consolidated
financial statements.
Plan assets and projected benefit obligations for service to date for
Adience's defined benefit pension plans aggregated approximately $7.2 million
and $6.8 million at April 30, 1995 and 1996,
F-21
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. DEFINED BENEFIT RETIREMENT PLANS (CONTINUED)
respectively. Net periodic pension costs for the year ended April 30, 1996 are
not material to the consolidated financial statements. Plan assets are invested
in cash, short-term investments, equities, and fixed income instruments.
The actuarial present value of the projected benefit obligation at April 30,
1996 and 1995 was determined using weighted average discount rates of 7.5% to
8.0%. The expected long-term rate of return on plan assets was 7.5% and 8.0% at
April 30, 1995 and 1996, respectively. Plan assets are invested in cash,
short-term investments, equities and fixed income instruments.
Certain union employees of Adience and its subsidiary are covered by
multi-employer defined benefit retirement plans. Expense relating to these plans
amounted to $0.4 million and $1.6 million for the year ended April 30, 1995 and
1996, respectively.
15. INCOME TAXES
The provision for taxes on income from continuing operations, net of
utilization of net operating
losses, is comprised of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Federal:
Current.......................................................... $ -- $ -- $ 213
Deferred......................................................... -- 122 --
State:
Current.......................................................... 20 316 909
Deferred......................................................... 48 (148) 129
Foreign:
Current.......................................................... -- 58 349
Deferred......................................................... -- -- 76
--------- --------- ---------
$ 68 $ 348 $ 1,676
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-22
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. INCOME TAXES (CONTINUED)
A reconciliation of Alpine's income (loss) from continuing operations before
income taxes for financial statement purposes to its Federal taxable income
(loss) from continuing operations for the years ended April 30, 1994, 1995, and
1996 is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) from continuing operations before income taxes for
financial statement purposes......................................... $ (4,827) $ (828) $ 6,895
--------- --------- ---------
Differences between income (loss) from continuing operations before
income taxes for financial statement purposes and taxable income
(loss):
Permanent differences:
Amortization of goodwill and other intangible charges............. 2,292 1,527 2,372
Net income of foreign subsidiary.................................. -- (114) 30
Non-deductible business expenses.................................. 49 225 492
Other............................................................. (359) (84) (34)
Net changes in temporary differences:
Stock options and stock grants.................................... 421 320 (365)
Real estate valuation and related provisions...................... (1,682) (530) (82)
Sale/leaseback.................................................... (1,914) (10) --
Amortization of intangibles....................................... 765 (83) (202)
Depreciation...................................................... 450 1,097 (269)
Inventory......................................................... (279) (2,711) 1,835
Employee benefits................................................. (401) (356) 439
Other items, net.................................................. 485 236 473
--------- --------- ---------
Net differences................................................. (173) (483) 4,689
--------- --------- ---------
Taxable income (loss) from continuing operations...................... $ (5,000) $ (1,311) $ 11,584
--------- --------- ---------
--------- --------- ---------
</TABLE>
At April 30, 1996, Alpine had unused net operating loss carryforwards of
approximately $8.0 million that can be used to offset future taxable income.
These loss carryforwards do not include the Adience pre-acquisition loss
carryforwards discussed below. The net operating loss carryforwards expire in
various amounts from fiscal years 2003 to 2010 as follows:
<TABLE>
<CAPTION>
OPERATING
LOSS
-------------
(IN
THOUSANDS)
<S> <C>
2003................................................................. $ 844
2004................................................................. 3,177
2005................................................................. 232
2010................................................................. 3,700
-------------
$ 7,953
-------------
-------------
</TABLE>
Alpine has entered into certain transactions that have resulted in ownership
changes under Section 382 of the Internal Revenue Code of 1986 which imposes
annual limitations on the amount of future taxable income which may be offset by
Alpine's pre-change net operating loss carryforward. The unused portion of the
annual limitations for any year may be carried forward to increase the annual
limitation in succeeding years.
F-23
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. INCOME TAXES (CONTINUED)
As further discussed in Note 6, Alpine acquired Adience on December 21,
1994. Accordingly, from that date Adience was included in Alpine's consolidated
federal tax return. At December 21, 1994, Adience had net operating loss
carryforwards aggregating approximately $19.7 million. Such carryforwards are
available to offset Alpine's future consolidated taxable income subject to the
imposition of an annual limitation on the amount of taxable income of Alpine
which may be offset by net operating loss carryforwards of Adience that were
generated prior to December 20, 1994.
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," requires the recognition of deferred tax assets and liabilities for both
the expected future tax impact of temporary differences arising from assets and
liabilities whose tax bases are different from financial statement amounts, and
for the expected future tax benefit to be derived from tax loss carryforwards.
The statement also requires that a valuation allowance be established if it is
more likely than not that all or a portion of deferred tax assets will not be
realized. Realization of the future tax benefits is dependent on Alpine's
ability to generate taxable income within the carryforward period and the
periods in which net temporary differences reverse. No assurance can be given
that sufficient taxable income will be generated for utilization of the net
operating loss carryforwards and reversal of temporary differences.
Items that result in deferred tax assets (liabilities) and the related
valuation allowance at April 30, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Inventory................................................................... $ 1,198 $ 1,921
Sale/leaseback.............................................................. 1,923 1,927
Accruals not currently deductible for tax................................... 6,103 8,991
Compensation expense related to unexercised stock options and stock
grants..................................................................... 1,218 1,146
Tax net operating loss carryforwards........................................ 17,195 13,839
Tax capital loss carryforwards.............................................. 1,200 --
Alternative minimum tax credit carryforwards 419 738
Foreign tax credit carryforwards............................................ 275 275
Depreciation................................................................ (13,376) (13,643)
Long-term investments....................................................... -- (3,196)
Other....................................................................... 780 482
---------- ----------
16,935 12,480
Less: valuation allowance................................................... (17,536) (16,178)
---------- ----------
Net deferred tax liability.................................................. $ (601) $ (3,698)
---------- ----------
---------- ----------
</TABLE>
The deferred tax liability of $601,000 and $3.7 million at April 30, 1995
and 1996, respectively, includes $601,000 and $502,000, relating to the state
and foreign tax impact of certain temporary differences. The remaining $3.2
million deferred tax liability at April 30, 1996 relates to the tax effect of
the difference between the tax basis and financial statement basis of the
Company's equity investment in PolyVision (see Note 7). The deferred tax
liability is included in other long-term liabilities in the accompanying
consolidated balance sheet.
Alpine's tax returns for years subsequent to 1980 have not been reviewed by
the Internal Revenue Service (the "IRS"). Availability of the net operating loss
carryforwards might be challenged by the IRS upon examination of such returns
which could affect the availability of such carryforwards
F-24
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. INCOME TAXES (CONTINUED)
incurred prior or subsequent to the aforementioned change in ownership or both.
Alpine believes, however, that the IRS challenges that would limit the
utilization of net operating loss carryforwards will not have a material adverse
effect on Alpine's financial position.
16. COMMITMENTS AND CONTINGENCIES
Total rent expense under cancelable and non-cancelable operating leases was
$483,000, $1.4 million, and $2.8 million for the years ended April 30, 1994,
1995, and 1996, respectively.
At April 30, 1996, future minimum lease payments under non-cancelable
operating leases are as follows:
<TABLE>
<CAPTION>
REAL AND
PERSONAL
PROPERTY
-------------
(IN
THOUSANDS)
<S> <C>
Fiscal Year:
1997............................................................... $ 1,281
1998............................................................... 1,000
1999............................................................... 757
2000............................................................... 630
2001............................................................... 472
-------------
$ 4,140
-------------
-------------
</TABLE>
Approximately 30.7% of the Company's total labor force is covered by
collective bargaining agreements. Two collective bargaining agreements
representing 8.9% of Alpine's total labor force will expire within one year.
Adience's J.H. France unit, which was merged into Adience in December 1991,
has been named as party in approximately 3,000 pending lawsuits, some of which
contain both multiple claimants and multiple defendants, filed in twelve
jurisdictions principally by employees and former employees of certain customers
of J.H. France, alleging in certain cases that a single product, a plastic
insulating cement manufactured more than 20 years ago by J.H. France, caused
them to suffer from asbestosis related diseases and in other cases alleging that
products manufactured or sold by J.H. France, caused silica related diseases.
The majority of the lawsuits seek monetary damages ranging from $20,000 to $1.0
million each. J.H. France and its insurance carrier have historically settled
these lawsuits, typically for an average amount per case of less than the
minimum amount stated. Punitive damages have also been claimed in some cases.
In addition to the lawsuits against J.H. France, Adience, as successor in
interest to BMI, has been named a party in approximately 390 pending lawsuits,
some of which contain both multiple claimants and multiple defendants, filed in
the States of Pennsylvania, Ohio, Michigan, West Virginia, Wisconsin, Kentucky
and Indiana, principally by employees and former employees of certain customers
of Adience alleging that products produced by Adience caused silicosis, not
asbestosis, in such persons. The majority of such lawsuits seek monetary damages
ranging from $20,000 each, which is the minimal jurisdictional requirement for
personal injury cases in a majority of such state courts, to $1.0 million each.
Adience and its insurance carriers have historically settled these lawsuits for
an average amount per case of less than the minimum amount stated. Virtually all
such claims and all costs of defense for these cases are covered by insurance.
The insurance companies which had issued policies covering the J.H. France
cases initially denied coverage for these claims. In June 1993, the Supreme
Court of Pennsylvania held that the insurance
F-25
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
policies covering the claims in these J.H. France cases covered liabilities and
defense costs up to the amounts of the limits of the respective policies,
without regard to the period of time said policies were in effect. As a result
of this judicial determination and based upon Adience's experience in obtaining
dismissals or settlements in closed cases, Adience anticipates, although no
assurance can be given, that the expected costs and liabilities in such pending
cases will be adequately covered by insurance and that the aggregate limits on
the insurance policies in effect exceed the liabilities and defense costs which
will be incurred in the 3,000 J.H. France cases and the other 390 cases, for
which the scope of coverage has never been an issue.
Adience's Furnco unit has recently been named, although not effectively
served, as the sole defendant in nine separate lawsuits, each of which contains
one plaintiff (i.e., either husband or husband and wife). At this time,
investigation is continuing as to the nature and extent of such suits, as well
as the extent of insurance coverage therefor.
Alpine is subject to other legal proceedings and claims which have primarily
arisen in the ordinary course of business and have not been finally adjudicated.
Certain executives of the Company have employment contracts which generally
provide minimum base salaries aggregating approximately $1.6 million, cash
bonuses based on the Company's achievement of certain performance objectives,
discretionary stock options and restricted stock grants (see Note 11), and
certain retirement and other employee benefits. Further, in the event of
termination or voluntary resignation for good reason accompanied by a change in
control of the Company, as defined, such employment agreements provide for
severance payments equal to two times annual cash compensation, and the
continuation for stipulated periods of other benefits, as defined.
In the opinion of management, based on its examination of such matters and
discussions with counsel, the ultimate resolution of all pending or threatened
litigation, claims and assessments will have no material adverse effect upon
Alpine's consolidated financial position, liquidity or results of operations.
17. RELATED PARTY TRANSACTIONS
In March 1994, Steib & Company, ("Steib"), an investment partnership in
which two Alpine officers have a majority interest, purchased 5.8% of Adience
common stock at a price 20% higher than paid by Alpine for its purchase of 4.9%
of Adience common stock in December 1993. In January 1995, following completion
of Alpine's purchase of an additional 82.3% of Adience common stock, including
the common stock owned by Steib, Alpine reimbursed Steib for costs incurred by
Steib in connection with its investment in Adience common stock. In connection
with these transactions, Steib agreed to terminate a three-year advisory
agreement with Adience and voluntarily surrender options to purchase 7.2% of
Adience common stock at $1.25 per share.
Prior to fiscal 1994, certain of the executive officers and directors of
Alpine held direct and indirect ownership interests in APV. As a result of an
exchange transaction, the equity ownership in APV was converted into Alpine
common stock or options to acquire common stock. Pursuant to the exchange
transaction, an investment company in which Alpine's Chairman and Chief
Executive Officer was the managing general partner, received 907,504 shares of
Alpine common stock, and two officers of Alpine received an aggregate 687,554
shares of Alpine common stock and 50,000 options to purchase Alpine common stock
for $3.00 per share, all in exchange for their respective APV ownership
interests.
F-26
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. RELATED PARTY TRANSACTIONS (CONTINUED)
During fiscal 1988, Alpine loaned certain officers $463,000 relating to the
exercise of stock options of which $163,000 has been repaid. The unpaid balance,
which is deducted from stockholders' equity and is repayable in Alpine common
stock, bears interest at prime plus 0.5% and is payable in July 1996.
18. PREFERRED STOCK
Alpine has authorized 500,000 shares of preferred stock with a par value of
$1.00 per share. The preferred stock may be issued at the discretion of the
Board of Directors in one or more series with differing terms, limitations and
rights.
At April 30, 1996 Alpine has outstanding, 196,649 shares of 8% Cumulative
Convertible Senior Preferred Stock ("8% Preferred Stock"), 1,750 shares of 9%
Cumulative Convertible Senior Preferred Stock ("9% Senior Preferred Stock") and
177 shares of 9% Cumulative Convertible Preferred Stock ("9% Preferred Stock").
The 8% Preferred Stock has a liquidation value of $50 per share while each of
the other series has a liquidation value of $1,000 per share. During fiscal
1996, 84,731 shares of 8% Senior Preferred Stock plus accrued dividends were
retired in connection with the valuation reset under the Adience acquisition and
debt exchange (see Note 6). Also during 1996, 3,500 shares of 8.5% cumulative
convertible senior preferred stock plus accrued dividends were converted through
negotiated conversions into 737,476 shares of Alpine common stock. During fiscal
1995, 750 shares of 9% Preferred Stock plus accrued dividends were converted
through negotiated conversions for 140,000 shares of Alpine common stock. During
fiscal 1994, 1,500 shares of the 8.5% Preferred Stock and 2,000 shares of the 9%
Senior Preferred Stock plus accrued dividends were converted through negotiated
conversions into 553,884 shares of Alpine common stock.
The 9% Senior Preferred Stock is senior in ranking to holders of Alpine's
common stock, 8% Preferred Stock and the 9% Preferred Stock. Each share is
convertible at any time into shares of Alpine common stock at a conversion price
of $7.90 per share, subject to customary adjustments. Alpine may redeem the
stock, in whole or in part, at a price equal to the liquidation value (i) during
the period commencing three years from and ending on the seventh year after the
date of issuance, if for any 30 trading days within a period of 45 consecutive
trading days ending five (5) days prior to the date of the notice of such
redemption, the market price of Alpine's common stock equals or exceeds one
hundred forty percent (140%) of the conversion price, or (ii) subsequent to the
seventh year after issuance of the preferred stock.
The 8% Preferred Stock ranks senior to the 9% Preferred Stock but junior to
the issued and outstanding 9% Senior Preferred Stock. The shares are convertible
at any time into Alpine common stock (subject to customary adjustment) at a
conversion price of $6.125 per share, except for 160,000 shares issued in
connection with the exchange of 1.0 million shares of Alpine common stock during
fiscal 1995 which have a conversion price of $4.52 per share. Alpine may redeem
the 8% Preferred Stock for $50 per share plus accrued dividends, if any, at any
time after the third anniversary of the date of issuance.
The 9% Senior Preferred Stock carries 100 votes per share and the 8%
Preferred Stock is entitled to vote that number of shares into which the shares
are convertible. The 8% Preferred Stock and the 9% Senior Preferred Stock vote
as a single class with Alpine's common stock on all matters submitted to
stockholders. In addition, the 9% Senior Preferred Stock is entitled to vote as
a separate class in the event of any proposal to (i) amend any of the principal
terms of the preferred stock; (ii) authorize, create, issue or sell any class of
stock senior to or on a parity with the 9% Senior Preferred Stock as to
dividends or liquidation preference; or (iii) merge into or consolidate with, or
sell all or substantially
F-27
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. PREFERRED STOCK (CONTINUED)
all of the assets of Alpine to another entity. The holders of not less than
66 2/3% of the 8% Preferred Stock and the 9% Senior Preferred Stock must approve
any transaction subject to the class voting rights.
The 9% Preferred Stock is convertible into 105 1/2 shares of common stock,
subject to customary adjustments. Alpine may redeem the stock at any time, in
whole or in part at a price equal to the liquidation value per share.
19. SEGMENT INFORMATION
Alpine conducts business in three segments: telecommunications wire and
cable products (through Superior, acquired in November 1993, and the Alcatel
Business, acquired in May 1995); refractories (through Adience, acquired in
December 1994); and data communications and electronics (through DNE, acquired
in February, 1992).
F-28
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. SEGMENT INFORMATION (CONTINUED)
The following provides information about each business segment as of April
30, 1994, 1995, and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales (a):
Telecommunications wire and cable.............................. $ 46,857 $ 136,578 $ 384,237
Refractories................................................... -- 33,650 113,700
Data communications and electronics............................ 21,653 27,907 26,176
----------- ----------- -----------
$ 68,510 $ 198,135 $ 524,113
----------- ----------- -----------
----------- ----------- -----------
Operating income (loss):
Telecommunications wire and cable.............................. $ 1,625 $ 8,128 $ 29,885
Refractories................................................... -- 383 6,558
Data communications and electronics............................ (75) 1,710 2,039
Corporate...................................................... (3,750) (3,225) (5,960)
----------- ----------- -----------
$ (2,200) $ 6,996 $ 32,522
----------- ----------- -----------
----------- ----------- -----------
Identifiable assets at year end:
Telecommunications wire and cable.............................. $ 89,687 $ 98,785 $ 226,282
Refractories................................................... -- 104,300 97,028
Data communications and electronics............................ 15,340 16,820 18,020
Corporate (b).................................................. 8,769 13,873 13,574
----------- ----------- -----------
$ 113,796 $ 233,778 $ 354,904
----------- ----------- -----------
----------- ----------- -----------
Depreciation and amortization expense:
Telecommunications wire and cable.............................. $ 1,562 $ 3,570 $ 7,575
Refractories................................................... -- 1,670 4,207
Data communications and electronics............................ 2,697 872 732
Corporate...................................................... 166 57 52
----------- ----------- -----------
$ 4,425 $ 6,169 $ 12,566
----------- ----------- -----------
----------- ----------- -----------
Capital expenditures (c):
Telecommunications wire and cable.............................. $ 420 $ 1,388 $ 9,337
Refractories................................................... -- 426 1,767
Data communications and electronics............................ 1,140 394 449
Corporate...................................................... 5 67 122
----------- ----------- -----------
$ 1,565 $ 2,275 $ 11,675
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
(a) (i) Two customers in the telecommunications wire and cable segment
accounted for 30% and 16% of net sales in fiscal 1995 and five
customers accounted for 22%, 17%, 16%, 13% and 13% of sales in fiscal
1996.
(ii) Three customers in the refractories segment accounted for 31% and 34%
of net sales in fiscal 1995 and 1996, respectively, of which one
accounted for 13.5% and 15% in fiscal 1995 and 1996, respectively.
(iii) The data communications and electronics segment has historically been
dependent on government funding of programs in which it participates.
Significant changes in the levels of
F-29
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. SEGMENT INFORMATION (CONTINUED)
funding for such programs could have a materially adverse effect on the
segment. Sales to agencies of the U.S. government were 86.4%, 82.3%,
and 66.4% of net sales of this segment for fiscal 1994, 1995, and 1996,
respectively.
(b) Includes investment in PolyVision.
(c) During fiscal 1996 Superior acquired certain Canadian assets of BICC
Phillips for $5.4 million, which amount is reflected in capital
expenditures.
20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL 1995 QUARTER ENDED
-------------------------------------------------------------
JULY 31 OCTOBER 31 JANUARY 31 APRIL 30 YEAR
--------- ------------- ----------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
Net sales........................................ $ 39,330 $ 40,552 $ 45,900 $ 72,353 $ 198,135
Gross profit..................................... 5,685 5,278 6,355 11,692 29,010
Operating income................................. 1,888 1,411 840 2,857 6,996
Income (loss) from continuing operations......... 838 249 (1,954) (309) (1,176)
(Loss) from discontinued operations.............. (826) (4,042)(a) -- -- (4,868)
--------- ------------- ----------- --------- -----------
Net income (loss)............................ $ 12 $ (3,793) $ (1,954) $ (309) $ (6,044)
--------- ------------- ----------- --------- -----------
--------- ------------- ----------- --------- -----------
Income (loss) per share of common stock:
Continuing operations.......................... $ 0.04 $ 0.01 $ (0.12) $ (0.04) $ (0.11)
Discontinued operations........................ (0.05) (0.22) -- -- (0.27)
--------- ------------- ----------- --------- -----------
Net (loss)................................... $ (0.01) $ (0.21) $ (0.12) $ (0.04) $ (0.38)
--------- ------------- ----------- --------- -----------
--------- ------------- ----------- --------- -----------
</TABLE>
(a) Includes a $3.0 million pretax provision for estimated losses through the
disposition date.
<TABLE>
<CAPTION>
FISCAL 1995 QUARTER ENDED
---------------------------------------------------------------
JULY 31 OCTOBER 31 JANUARY 31 APRIL 30 YEAR
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
Net sales.......................................... $ 128,784 $ 136,252 $ 119,504 $ 139,573 $ 524,113
Gross profit....................................... 16,328 16,523 15,708 21,769 70,328
Operating income................................... 7,753 7,711 6,426 10,632 32,522
Income from continuing operations.................. 1,354 981 221 2,663 5,219
(Loss) from discontinued operations................ (379) (1,834) -- -- (2,213)
Extraordinary gain (loss) on early extinguishment
of debt........................................... (5,180) 324 -- -- (4,856)
----------- ----------- ----------- ----------- -----------
Net income (loss).............................. $ (4,205) $ (529) $ 221 $ 2,663 $ (1,850)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Income (loss) per share of common stock:
Continuing operations............................ $ 0.06 $ 0.04 $ -- $ 0.13 $ 0.23
Discontinued operations.......................... (0.02) (0.11) -- -- (0.12)
Extraordinary gain (loss) on early extinguishment
of debt......................................... (0.30) 0.02 -- -- (0.27)
----------- ----------- ----------- ----------- -----------
Net income (loss).............................. $ (0.26) $ (0.05) $ -- $ 0.13 $ (0.16)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
21. SUBSIDIARY GUARANTEES
On July 21, 1995, Alpine issued and sold $153,000,000 principal amount of
12.25% Senior Secured Notes (the "Senior Notes") (see Note 9). The Senior Notes
are fully and unconditionally guaranteed
F-30
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
21. SUBSIDIARY GUARANTEES (CONTINUED)
on a senior secured basis by Superior and Adience (wholly owned subsidiaries of
Alpine) and Superior Cable Corp. (a wholly owned subsidiary of Superior
Telecommunications Inc.) The Adience subsidiary guarantee, however, is
subordinated in right of payment to $5.0 million of Adience's 11% Senior Secured
Notes outstanding. The subsidiary guarantees rank pari passu in right of payment
with other senior debt of Alpine (including the Credit Facility) and other
senior debt of the subsidiary guarantors. The subsidiary guarantors have also
guaranteed the indebtedness outstanding under Alpine's Credit Facility (see Note
9). The Senior Notes, however, are effectively subordinated to the loans and
subsidiary guarantees under the Credit Facility and to other secured debt of
Alpine and the subsidiary guarantors to the extent of the assets securing the
Credit Facility or such other secured debt.
There are no contractual restrictions on the ability of the subsidiaries to
make distributions to Alpine to service indebtedness, including interest
payments on the Senior Notes. Separate financial statements and related
disclosures for the subsidiary guarantors are included herein as exhibits. The
following condensed consolidating information presents condensed financial
statements as of April 30, 1995, and 1996 of (a) Alpine on a parent company
basis with its investments in subsidiaries accounted for under the equity method
(Parent Company), (b) the combined subsidiary guarantors, (c) the combined
subsidiary non-guarantors, and (d) Alpine on a consolidated basis.
F-31
<PAGE>
THE ALPINE GROUP, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 30, 1995
------------------------------------------------------------------
PARENT SUBSIDIARY SUBSIDIARY ELIMINATING
COMPANY GUARANTORS NON-GUARANTORS ENTRIES CONSOLIDATED
---------- ----------- -------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales................................... $ 166,561 $ 31,574 $ 198,135
Cost of goods sold.......................... 146,670 22,455 169,125
---------- ----------- -------------- ----------- ------------
Gross profit.............................. 19,891 9,119 29,010
Selling, general and administrative
expenses................................... $ 2,992 10,233 7,262 20,487
Amortization of goodwill.................... 1,527 1,527
---------- ----------- -------------- ----------- ------------
Operating income (loss)................... (2,992) 8,131 1,857 6,996
Interest (expense), net..................... (1,316) (5,714) (822) (7,852)
Other income (expense)...................... (531) 328 231 28
Allocated charges........................... 111 (111)
---------- ----------- -------------- ----------- ------------
Income from continuing operations before
income tax............................... (4,728) 2,745 1,155 (828)
Equity in income of subsidiaries............ (3,266) 107 $ 3,159
---------- ----------- -------------- ----------- ------------
(7,994) 2,852 1,155 3,159 (828)
Income tax (expense) benefit................ 1,950 (2,217) (81) (348)
---------- ----------- -------------- ----------- ------------
Income (loss) from continuing
operations............................... (6,044) 635 1,074 3,159 (1,176)
(Loss) from discontinued operations......... (4,868) (4,868)
---------- ----------- -------------- ----------- ------------
Net income (loss)......................... $ (6,044) $ 635 $ (3,794) $ 3,159 $ (6,044)
---------- ----------- -------------- ----------- ------------
---------- ----------- -------------- ----------- ------------
<CAPTION>
FISCAL YEAR ENDED APRIL 30, 1996
------------------------------------------------------------------
PARENT SUBSIDIARY SUBSIDIARY ELIMINATING
COMPANY GUARANTORS NON-GUARANTORS ENTRIES CONSOLIDATED
---------- ----------- -------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales................................... $ 485,065 $ 39,048 $ 524,113
Cost of goods sold.......................... 425,852 27,933 453,785
---------- ----------- -------------- ----------- ------------
Gross profit.............................. 59,213 11,115 70,328
Selling, general and administrative
expenses................................... $ 5,960 20,820 8,368 35,148
Amortization of goodwill.................... 2,802 $ (144) 2,658
---------- ----------- -------------- ----------- ------------
Operating income (loss)................... (5,960) 35,591 2,747 144 32,522
Interest (expense), net..................... (19,214) (6,093) (342) (25,649)
Other income (expense)...................... (33) 55 22
Intercompany interest....................... 18,517 (18,183) (334)
---------- ----------- -------------- ----------- ------------
Income from continuing operations before
income tax............................... (6,690) 11,315 2,126 144 6,895
Equity in income of subsidiaries............ 3,685 545 -- (4,230)
---------- ----------- -------------- ----------- ------------
(3,005) 11,860 2,126 (4,086) (6,895)
Income tax (expense) benefit................ 5,421 (6,028) (1,069) (1,676)
---------- ----------- -------------- ----------- ------------
Income from continuing operations......... 2,416 5,832 1,057 (4,086) 5,219
(Loss) from discontinued operations......... (2,213) (2,213)
---------- ----------- -------------- ----------- ------------
Income before extraordinary item............ 203 5,832 1,057 (4,086) 3,006
Extraordinary gain (loss) on early
extinguishment of debt................... (2,053) (2,969) 166 (4,856)
---------- ----------- -------------- ----------- ------------
Net income (loss)........................... $ (1,850) $ 2,863 $ 1,223 $ (4,086) $ (1,850)
---------- ----------- -------------- ----------- ------------
---------- ----------- -------------- ----------- ------------
</TABLE>
F-31
<PAGE>
THE ALPINE GROUP, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
AS OF APRIL 30, 1995
-------------------------------------------------------------------
PARENT SUBSIDIARY SUBSIDIARY ELIMINATING
COMPANY GUARANTORS NON-GUARANTORS ENTRIES CONSOLIDATED
----------- ----------- -------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Assets
Current assets............................ $ 15,006 $ 67,045 $ 18,022 $ (1,188) $ 98,885
Property, plant and equipment, net........ 114 47,544 4,582 52,240
Goodwill, net............................. 70,100 (4,388) 65,712
Investment in and advances to
subsidiaries............................. 59,556 4,972 (64,528)
Other non-current assets.................. 2,738 18,687 (2,903) (1,581) 16,941
----------- ----------- -------------- ----------- ------------
Total assets............................ $ 77,414 $ 203,376 $ 24,673 $ (71,685) $ 233,778
----------- ----------- -------------- ----------- ------------
----------- ----------- -------------- ----------- ------------
Liabilities and stockholders' equity
Current liabilities....................... $ 24,489 $ 59,547 $ 7,793 $ (24) $ 91,805
Long-term debt............................ 2,534 73,023 8,465 84,022
Other non-current liabilities............. 5,733 14,190 651 (7,281) 13,293
Equity.................................... 44,658 56,616 7,764 (64,380) 44,658
----------- ----------- -------------- ----------- ------------
Total liabilities and stockholders'
equity................................. $ 77,414 $ 203,376 $ 24,673 $ (71,685) $ 233,778
----------- ----------- -------------- ----------- ------------
----------- ----------- -------------- ----------- ------------
<CAPTION>
AS OF APRIL 30, 1996
-------------------------------------------------------------------
PARENT SUBSIDIARY SUBSIDIARY ELIMINATING
COMPANY GUARANTORS NON-GUARANTORS ENTRIES CONSOLIDATED
----------- ----------- -------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Assets
Current assets............................ $ 8,924 $ 124,489 $ 17,417 $ (4,488) $ 146,342
Property, plant and equipment, net........ 146 94,793 4,486 99,425
Goodwill, net............................. 86,561 (3,827) 82,734
Investment in and advances to
subsidiaries............................. 217,564 (161,063) (2,474) (54,027)
Other non-current assets.................. 23,666 2,030 707 26,403
----------- ----------- -------------- ----------- ------------
Total assets............................ $ 250,300 $ 146,810 $ 20,136 $ (62,342) $ 354,904
----------- ----------- -------------- ----------- ------------
----------- ----------- -------------- ----------- ------------
Liabilities and stockholders' equity
Current liabilities....................... $ 12,413 $ 78,582 $ 5,883 $ (1,215) $ 95,663
Long-term debt............................ 189,847 12,349 5,449 207,645
Other non-current liabilities............. 4,904 10,695 676 (7,815) 8,460
Equity.................................... 43,136 45,184 8,128 (53,312) 43,136
----------- ----------- -------------- ----------- ------------
Total liabilities and stockholders'
equity................................. $ 250,300 $ 146,810 $ 20,136 $ (62,342) $ 354,904
----------- ----------- -------------- ----------- ------------
----------- ----------- -------------- ----------- ------------
</TABLE>
F-32
<PAGE>
THE ALPINE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 30, 1995
-----------------------------------------------------------------
PARENT SUBSIDIARY SUBSIDIARY ELIMINATING
COMPANY GUARANTORS NON-GUARANTORS ENTRIES CONSOLIDATED
--------- ----------- -------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations.... $ (6,044) $ 635 $ 1,074 $ 3,159 $ (1,176)
Adjustments to reconcile income (loss) to
net cash provided by (used for) continuing
operations:
Depreciation, amortization and other
non-cash charges........................... 647 5,857 938 7,442
Changes in assets and liabilities........... (986) (2,854) 755 (3,085)
Cash used for discontinued operations....... (4,133) (4,133)
--------- ----------- ------- ----------- ------------
Cash flows provided by (used for) operating
activities................................... (6,383) 3,638 (1,366) 3,159 (952)
--------- ----------- ------- ----------- ------------
Cash flows from investing activities:
Acquisition, net of cash.................... (2,424) 3,226 802
Capital expenditures........................ (67) (1,768) (440) (2,275)
Other....................................... 2,777 (2,536) 241
--------- ----------- ------- ----------- ------------
Cash flows provided by (used for) investing
activities................................... 286 (1,078) (440) (1,232)
--------- ----------- ------- ----------- ------------
Cash flows from financing activities:
Repayments of long-term borrowings.......... (2,263) (1,215) (3,478)
Short-term borrowings....................... 20,685 20,685
Intercompany transactions................... (1,647) 557 4,249 3,159
Borrowings (repayments) under revolving
credit facilities, net..................... (2,157) 627 (1,530)
Other....................................... (1,472) 928 90 (454)
--------- ----------- ------- ----------- ------------
Cash flows provided by (used for) financing
activities................................... 17,566 (2,935) 3,751 (3,159) 15,223
--------- ----------- ------- ----------- ------------
Net increase (decrease) in cash and cash
equivalents.................................. 11,469 (375) 1,945 13,039
--------- ----------- ------- ----------- ------------
Cash and cash equivalents at the beginning of
the period................................... 1,830 4 673 2,507
--------- ----------- ------- ----------- ------------
Cash and cash equivalents at the end of the
period....................................... $ 13,299 $ (371) $ 2,618 $ -- $ 15,546
--------- ----------- ------- ----------- ------------
--------- ----------- ------- ----------- ------------
</TABLE>
F-33
<PAGE>
THE ALPINE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 30, 1996
---------------------------------------------------------------------
PARENT SUBSIDIARY SUBSIDIARY ELIMINATING
COMPANY GUARANTORS NON-GUARANTORS ENTRIES CONSOLIDATED
------------ ------------ -------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Income from continuing operations....... $ 2,416 $ 5,832 $ 1,057 $ (4,086) $ 5,219
Adjustments to reconcile income to net
cash provided by (used for) continuing
operations:
Depreciation, amortization and other
non-cash charges..................... 2,675 12,359 843 (144) 15,733
Changes in assets and liabilities..... 3,663 16,797 (3,034) 17,426
Cash used for discontinued
operations........................... (956) (956)
------------ ------------ ------- ----------- ------------
Cash flows provided by (used for)
operating activities..................... 7,798 34,988 (1,134) (4,230) 37,422
------------ ------------ ------- ----------- ------------
Cash flows from investing activities:
Acquisition, net of cash................ (103,409) (103,409)
Proceeds from (investments in)
marketable securities.................. (6,218) (6,218)
Capital expenditures.................... (122) (5,381) (725) (6,228)
Investment in PolyVision................ (3,086) (3,086)
Other................................... (3,157) (5,669) 1,250 (7,576)
------------ ------------ ------- ----------- ------------
Cash flows provided by (used for)
investing activities..................... (12,583) (114,459) 525 (126,517)
------------ ------------ ------- ----------- ------------
Cash flows from financing activities:
Long-term borrowings.................... 140,357 141,317 52 281,726
Repayments of long-term borrowings...... (1,701) (181,425) (2,650) (185,776)
Short-term borrowings................... (21,000) (21,000)
Intercompany transactions............... (169,926) 163,299 2,397 4,230
Borrowings (repayments) under revolving
credit facilities, net................. 58,099 (40,334) (1,122) 16,643
Other................................... (13,660) (3,365) 100 (16,925)
------------ ------------ ------- ----------- ------------
Cash flows provided by (used for)
financing activities..................... (7,831) 79,492 (1,223) 4,230 74,668
------------ ------------ ------- ----------- ------------
Net increase (decrease) in cash and cash
equivalents.............................. (12,616) 21 (1,832) (14,427)
------------ ------------ ------- ----------- ------------
Cash and cash equivalents at the beginning
of the period............................ 13,299 (371) 2,618 15,546
------------ ------------ ------- ----------- ------------
Cash and cash equivalents at the end of
the period............................... $ 683 $ (350) $ 786 $ -- $ 1,119
------------ ------------ ------- ----------- ------------
------------ ------------ ------- ----------- ------------
</TABLE>
F-34
<PAGE>
SCHEDULE 1
THE ALPINE GROUP, INC.
(PARENT COMPANY)
CONDENSED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
APRIL 30,
----------------------
1995 1996
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................................................. $ 13,299 $ 683
Marketable securities.................................................................. 1,495 7,713
Other current assets................................................................... 212 528
--------- -----------
Total current assets................................................................. 15,006 8,924
Advances and loans to subsidiaries....................................................... 7,503 163,816
Investment in consolidated subsidiaries.................................................. 52,053 53,748
Property, plant and equipment, net....................................................... 114 146
Long-term investments and other assets................................................... 2,738 23,666
--------- -----------
TOTAL ASSETS............................................................................. $ 77,414 $ 250,300
--------- -----------
--------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings.................................................................. $ 20,790 $ --
Current portion of long-term debt...................................................... 150 804
Accounts payable....................................................................... 744 324
Accrued expenses....................................................................... 2,805 11,285
--------- -----------
Total current liabilities............................................................ 24,489 12,413
--------- -----------
Long-term debt, less current portion..................................................... 2,534 189,847
--------- -----------
Other long-term liabilities.............................................................. -- 3,076
--------- -----------
Adience acquisition obligation........................................................... 5,733 1,828
--------- -----------
Stockholders' equity:
8% Cumulative Convertible Preferred Stock at liquidation value......................... 11,823 9,831
9% Cumulative Convertible Preferred Stock at liquidation value......................... 1,927 1,927
8.5% Cumulative Convertible Preferred Stock at liquidation value....................... 3,500 --
Common stock, $.10 par value; authorized 25,000,000 shares; issued: 1995, 17,429,141
shares; 1996, 19,307,012 shares....................................................... 1,743 1,931
Capital in excess of par value......................................................... 103,114 113,843
Cumulative translation adjustment...................................................... 144 (82)
Accumulated deficit.................................................................... (76,050) (78,998)
--------- -----------
46,201 48,452
Less shares in treasury, at cost:
1995, 233,290 shares; 1996, 1,025,496 shares........................................... (1,229) (4,806)
Receivable from stockholders........................................................... (314) (510)
--------- -----------
Total stockholders' equity........................................................... 44,658 43,136
--------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY................................................. $ 77,414 $ 250,300
--------- -----------
--------- -----------
</TABLE>
F-35
<PAGE>
SCHEDULE 1
(CONTINUED)
THE ALPINE GROUP, INC.
(PARENT COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------------
1994 1995 1996
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Interest income............................................................. $ 105 $ 345 $ 1,357
Intercompany interest....................................................... -- -- 18,517
Corporate charges........................................................... 360 111 --
---------- --------- ---------
465 456 19,874
---------- --------- ---------
Expenses:
General and administrative.................................................. 3,750 2,992 5,960
Interest expense............................................................ 484 1,661 20,571
Other expense............................................................... 445 531 33
---------- --------- ---------
4,679 5,184 26,564
---------- --------- ---------
(4,214) (4,728) (6,690)
---------- --------- ---------
Equity in net income (loss) of subsidiaries before extraordinary item (a)..... (25,917) (1,316) 6,893
---------- --------- ---------
Income (loss) before extraordinary item....................................... (30,131) (6,044) 203
Extraordinary (loss) on early extinguishment of debt.......................... (47) -- (2,053)
---------- --------- ---------
Net (loss).................................................................. $ (30,178) $ (6,044) $ (1,850)
---------- --------- ---------
---------- --------- ---------
</TABLE>
- ------------------------
(a) Equity in net income (loss) of subsidiaries before extraordinary item
includes losses from discontinued operations of $25.2 million, $4.9 million
and $2.2 million in fiscal 1994, 1995 and 1996, respectively. (See Note 5 to
the consolidated financial statements.)
F-36
<PAGE>
SCHEDULE 1
(CONTINUED)
THE ALPINE GROUP, INC.
(PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------------------
1994 1995 1996
---------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash provided by (used for) operating activities............................ $ (2,566) $ (6,383) $ 7,798
---------- --------- ------------
Cash flows from investing activities:
Capital expenditures...................................................... (5) (67) (122)
Acquisitions, net of cash acquired........................................ (17,000) (2,424) --
Investment in/sale of subsidiaries........................................ 773 -- (3,157)
Proceeds from (investment in) marketable securities....................... (1,268) 477 (6,218)
Dividends received from subsidiaries...................................... 17,610 2,000 --
Loan to PolyVision Corporation............................................ -- -- (3,086)
Other..................................................................... -- 300 --
---------- --------- ------------
Cash provided by (used for) investing activities............................ 110 286 (12,583)
---------- --------- ------------
Cash flows from financing activities:
Short-term borrowings (repayments)........................................ (118) 20,685 (21,000)
Borrowings under revolving credit facility................................ -- -- 58,099
Long-term borrowings...................................................... 123 -- 140,357
Repayments of long-term borrowings........................................ -- -- (1,701)
Capitalized financing costs............................................... -- -- (9,208)
Dividends on preferred stock.............................................. (414) (505) (720)
Proceeds from stock options exercised..................................... 1,072 256 120
Advances and loans to subsidiaries, net................................... (1,809) (1,659) (169,926)
Issuance of preferred stock (net)......................................... 4,700 -- --
Purchase of treasury shares............................................... -- (1,211) (3,656)
Other..................................................................... -- -- (196)
---------- --------- ------------
Cash provided by (used for) financing activities............................ 3,554 17,566 (7,831)
---------- --------- ------------
Net increase (decrease) in cash and cash equivalents........................ 1,098 11,469 (12,616)
Cash and cash equivalents at beginning of year.............................. 732 1,830 13,299
---------- --------- ------------
Cash and cash equivalents at end of year.................................... $ 1,830 $ 13,299 $ 683
---------- --------- ------------
---------- --------- ------------
Supplemental cash flow disclosures:
Interest paid............................................................. $ 376 $ 1,287 $ 13,973
---------- --------- ------------
---------- --------- ------------
</TABLE>
F-37
<PAGE>
SCHEDULE 1
(CONTINUED)
THE ALPINE GROUP, INC.
(PARENT COMPANY)
APPENDIX A
<TABLE>
<CAPTION>
APRIL 30,
----------------------
1995 1996
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Long-term debt consists of:
12.25% Senior Secured Notes due 2003 face value $153,000,000(a)....................... $ $ 141,070
Revolving credit facility (a)......................................................... -- 48,654
13.5% Senior Subordinated Debentures (a).............................................. 1,551 --
10% Convertible Senior Subordinated Notes due July 31, 1996 ($1,104,000 and $804,500
face value at April 30, 1995 and 1996, respectively) (a)............................. 860 804
Other................................................................................. 273 123
--------- -----------
2,684 190,651
Less, current portion................................................................... 150 804
--------- -----------
$ 2,534 $ 189,847
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(a) See Note 9 to the consolidated financial statements
Minimum current maturities of long-term debt outstanding as of April 30,
1996, are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- --------------------------------------------------------------- ---------
<S> <C>
1997........................................................... $ 804
1998........................................................... --
1999........................................................... --
2000........................................................... --
2001........................................................... $ 48,654
</TABLE>
F-38
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated June 14, 1996 included in this Form 10-K, into The Alpine
Group, Inc.'s previously filed Registration Statements on Forms S-8 (File Nos.
2-70015 and 33-62544) and on Forms S-3 (File Nos. 33-30246 and 33-53434).
Arthur Andersen LLP
Atlanta, Georgia
July 26, 1996
F-39
<PAGE>
EXHIBIT 28
ADIENCE, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF APRIL 30, 1995 AND 1996
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Adience, Inc.:
We have audited the accompanying consolidated balance sheets of Adience,
Inc. (a Delaware Corporation and wholly owned subsidiary of The Alpine Group,
Inc.) and Subsidiary as of April 30, 1995 and 1996 and the related consolidated
statements of operations, stockholder's equity and cash flows for the period
from December 21, 1994 to April 30, 1995 and for the year ended April 30, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these combined 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 financial position of Adience, Inc. and Subsidiary
as of April 30, 1995 and 1996, and the results of their operations and their
cash flows for the period from December 21, 1994 to April 30, 1995 and the year
ended April 30, 1996 in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Pittsburgh, Pennsylvania
June 7, 1996
2
<PAGE>
ADIENCE, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
APRIL 30,
----------------------
1995 1996
----------- ---------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................... $ 1,974 $ 412
Accounts receivable (less allowance for doubtful accounts of $897,000 in 1995 and
$340,000 in 1996).................................................................. 17,983 17,183
Inventories......................................................................... 9,547 11,264
Other current assets................................................................ 6,188 5,668
----------- ---------
Total current assets.............................................................. 35,692 34,527
----------- ---------
Property, plant and equipment, net.................................................... 22,082 22,751
Goodwill, net......................................................................... 38,163 38,030
Net assets of discontinued operations................................................. 8,030 --
Note receivable from affiliate........................................................ -- 2,049
Other long-term assets................................................................ 2,080 1,603
----------- ---------
Total assets...................................................................... $ 106,047 $ 98,960
----------- ---------
----------- ---------
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
<S> <C> <C>
Current liabilities:
Short-term borrowings............................................................... $ 14,387 $ --
Current portion of long-term debt................................................... 714 844
Accounts payable.................................................................... 8,722 7,909
Accrued expenses and other liabilities.............................................. 19,492 18,203
----------- ---------
Total current liabilities......................................................... 43,315 26,956
----------- ---------
Notes payable to parent............................................................... -- 54,908
----------- ---------
Due to parent......................................................................... -- 6,133
----------- ---------
Payable to affiliate.................................................................. 3,583 --
----------- ---------
Long-term debt, less current portion.................................................. 47,213 6,258
----------- ---------
Other long-term liabilities........................................................... 3,076 2,968
----------- ---------
Commitments and contingencies
Stockholder's equity:
Common stock, par value $0.01; 20,000,000 shares authorized, 10,100,000 shares
issued at April 30, 1995........................................................... 101 --
Common stock, par value $1.00; 1,000 shares authorized, 10 shares issued at April
30, 1996........................................................................... -- --
Additional paid-in capital.......................................................... 12,303 5,710
Cumulative translation adjustment................................................... 144 132
Accumulated deficit................................................................. (3,688) (4,105)
----------- ---------
Total stockholder's equity........................................................ 8,860 1,737
----------- ---------
Total liabilities and stockholder's equity........................................ $ 106,047 $ 98,960
----------- ---------
----------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
ADIENCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM DECEMBER 21, 1994 TO APRIL 30, 1995
AND THE YEAR ENDED APRIL 30, 1996
<TABLE>
<CAPTION>
1995 1996
--------- -----------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Net sales............................................................................. $ 33,650 $ 113,700
Cost of goods sold.................................................................... 27,011 90,931
--------- -----------
Gross profit........................................................................ 6,639 22,769
Selling, general, and administrative expense.......................................... 5,742 14,965
Amortization of goodwill.............................................................. 515 1,246
--------- -----------
Operating income.................................................................... 382 6,558
Interest income....................................................................... 42 217
Interest expense...................................................................... (2,836) (8,452)
Other income, net..................................................................... 286 289
--------- -----------
(Loss) before income tax expense and extraordinary item............................. (2,126) (1,388)
Income tax expense.................................................................... (58) (375)
--------- -----------
(Loss) before extraordinary item.................................................... (2,184) (1,763)
Extraordinary (loss) on early extinguishment of debt.................................. -- (158)
--------- -----------
Net (loss).......................................................................... $ (2,184) $ (1,921)
--------- -----------
--------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
4
<PAGE>
ADIENCE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE PERIOD FROM DECEMBER 21, 1994 TO APRIL 30, 1996
<TABLE>
<CAPTION>
ADDITIONAL RETAINED FOREIGN TOTAL
COMMON PAID IN EARNINGS CURRENCY STOCKHOLDER'S
STOCK CAPITAL (DEFICIT) TRANSLATION EQUITY
----------- ----------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 21, 1994........................ $ 101 $ 12,303 $ (1,504) $ 10,900
Net (loss)........................................... (2,184) (2,184)
Cumulative translation adjustment.................... $ 144 144
----------- ----------- --------- ----- ------------
Balance at April 30, 1995.......................... 101 12,303 (3,688) 144 8,860
Purchase accounting adjustment....................... (2,505) (2,505)
Recapitalization..................................... (101) 101 --
Acquisition of minority interest..................... 1,596 1,504 3,100
Dividend............................................. (5,785) (5,785)
Net (loss)........................................... (1,921) (1,921)
Cumulative translation adjustment.................... (12) (12)
----------- ----------- --------- ----- ------------
Balance at April 30, 1996.......................... $ -- $ 5,710 $ (4,105) $ 132 $ 1,737
----------- ----------- --------- ----- ------------
----------- ----------- --------- ----- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
5
<PAGE>
ADIENCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM DECEMBER 21, 1994 TO APRIL 30, 1995
AND THE YEAR ENDED APRIL 30, 1996
<TABLE>
<CAPTION>
1995 1996
--------- ----------
<S> <C> <C>
(IN THOUSANDS)
Cash flows from operating activities:
Net (loss) before extraordinary item................................................. $ (2,184) $ (1,763)
Adjustments to reconcile net (loss) to net cash (used for) operating activities:
Depreciation and amortization...................................................... 1,621 4,207
Amortization of deferred financing costs........................................... 260 184
Change in assets and liabilities:
Accounts receivable.............................................................. (2,520) 702
Inventories...................................................................... 139 (1,717)
Other current assets............................................................. (509) (564)
Accounts payable and accrued expenses............................................ (85) (7,168)
Other............................................................................ (145) 23
--------- ----------
Cash (used for) operating activities................................................... (3,423) (6,096)
--------- ----------
Cash flows from investing activities:
Capital expenditures................................................................. (160) (1,767)
Other................................................................................ (124) (338)
--------- ----------
Cash (used for) investing activities................................................... (284) (2,105)
--------- ----------
Cash flows from financing activities:
Borrowings (repayments) under revolving line of credit, net.......................... 1,919 (14,387)
Borrowings from (advances to) parent................................................. (100) 58,913
Advances to affiliates............................................................... -- (2,049)
Long-term borrowings................................................................. 636 --
Repayment of long-term borrowings.................................................... -- (35,838)
--------- ----------
Cash provided by financing activities.................................................. 2,455 6,639
--------- ----------
Net (decrease) in cash and cash equivalents.......................................... (1,252) (1,562)
Cash at beginning of period............................................................ 3,226 1,974
--------- ----------
Cash at end of period.................................................................. $ 1,974 $ 412
--------- ----------
Supplemental disclosures:
Cash interest paid during the period (including interest paid to parent)............. $ 902 $ 7,120
--------- ----------
Cash paid during the period for income taxes......................................... $ 76 $ 344
--------- ----------
Non-cash investing and financing activities:
Debt retired in exchange for parent company preferred stock.......................... $ 2,245
----------
Dividend paid to parent in the form of a property distribution....................... $ 5,785
----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
6
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
On December 21, 1994, The Alpine Group, Inc. ("Alpine") acquired 82.3% of
Adience Inc. ("Adience") outstanding common stock which when combined with
Adience common stock previously purchased by Alpine, resulted in Alpine owning
87.2% of Adience's outstanding common stock on such date (the "Adience
Acquisition"). On July 21, 1995, in connection with a recapitalization, Alpine
acquired the remaining 12.8% of Adience common stock.
Adience is engaged in the manufacture, sale, installation and maintenance of
specialty refractory products. Refractory products are used in virtually every
industrial process requiring heating or containment at a high temperature of a
solid, liquid or gas. Refractory products are ceramic materials used as
insulation on surfaces that are exposed to high temperatures. Adience also
provides installation and maintenance services in connection with its specialty
refractory products to the steel, aluminum, glass, petrochemical and other
non-ferrous industries.
Adience consists of three refractory units: BMI-FRANCE, Findlay and Furnco.
BMI-FRANCE engages in the manufacture, sale, installation and maintenance of
specialty unformed refractory products and bricks. Findlay manufactures and
sells specialty refractory block used in the production of glass and glass
products. Furnco is engaged in the rebuilding, repair and maintenance of coke
ovens.
Adience's wholly-owned subsidiary, Adience Canada, Inc. ("Adience Canada"),
owns and operates its own headquarters and refractory manufacturing facility in
Ontario, Canada, from where it markets Adience's full range of products
throughout Canada.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Adience and its wholly-owned subsidiary Adience Canada. All significant
intercompany accounts and transactions have been eliminated from the
consolidated financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those estimates.
CASH AND CASH EQUIVALENTS
Adience considers all highly liquid investments with a maturity of 90 days
or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market with cost determined
on the first-in, first-out (FIFO) or average cost method.
7
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The components of inventories are:
<TABLE>
<CAPTION>
APRIL 30, APRIL 30,
1995 1996
----------- ---------
<S> <C> <C>
(IN THOUSANDS)
Raw materials........................................................ $ 3,037 $ 3,799
Work in process...................................................... 1,488 1,654
Finished goods....................................................... 5,022 5,811
----------- ---------
$ 9,547 $ 11,264
----------- ---------
----------- ---------
</TABLE>
REVENUE RECOGNITION
Revenues related to certain of Adience's long-term contracts are recognized
by the percentage of completion method measured on the basis of costs incurred
to estimated total costs which approximates contract performance to date.
Provisions for losses on uncompleted contracts are made if it is determined that
a contract will ultimately result in a loss. Recognized revenue is that
percentage of total contractual revenue that incurred costs to date bear to
estimated total costs after giving effect to the most recent estimates of costs
to complete. All other revenues are recognized when the products are delivered
or services performed.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost less accumulated
depreciation. Depreciation expense is provided over the estimated useful lives
using the straight-line method. Amortization of assets under capital leases is
included in depreciation expense. Improvements to existing equipment that
materially extend the life of properties are capitalized as incurred.
Maintenance and repairs are charged to expense as incurred and amounted to
$2.0 million for the period ended April 30, 1995 and $5.2 million for the year
ended April 30, 1996.
GOODWILL
The excess of the purchase price over net identifiable assets acquired is
amortized ratably over 30 years on the straight-line method. Goodwill is
periodically reviewed to access recoverability from future operations using
undiscounted cash flows, in accordance with the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Impairments
would be recognized in operating results if a permanent diminution in value
occurred.
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of Adience Canada is
measured using local currency as the functional currency. Assets and liabilities
of operations denominated in foreign currencies are translated into U.S. dollars
at exchange rates in effect at year-end, while revenues and expenses are
translated at average exchange rates prevailing during the year. The resulting
translation gains and losses are charged directly to cumulative translation
adjustment, a component of stockholders' equity, and are not included in net
income until realized through sale or liquidation of the investment. Foreign
exchange gains and losses incurred on foreign currency transactions are included
in net income.
CONCENTRATIONS OF CREDIT RISK
At April 30, 1995 and 1996, accounts receivable from customers in the steel
and steel-related industries total approximately $11.5 million and $13.1
million, respectively.
8
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. CONTRACTS IN PROGRESS
The status of costs, billings and estimated earnings on uncompleted
construction contracts was as follows:
<TABLE>
<CAPTION>
COSTS AND ESTIMATED BILLINGS IN EXCESS
EARNINGS IN EXCESS OF COSTS AND
OF BILLINGS ESTIMATED EARNINGS TOTAL
------------------- ------------------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
April 30, 1995:
Costs and estimated earnings........................ $ 994 $ 491 $ 1,485
Billings............................................ 41 656 697
------- ----- ---------
$ 953 $ 165 $ 788
------- ----- ---------
April 30, 1996
Costs and estimated earnings........................ $ 1,274 $ 14 $ 1,288
Billings............................................ 110 23 133
------- ----- ---------
$ 1,164 $ 9 $ 1,155
------- ----- ---------
------- ----- ---------
</TABLE>
3. SHORT TERM BORROWINGS
On July 21, 1995, Adience's revolving credit facility was repaid.
Termination fees of $158,000 associated with repayment of the revolving credit
facility were recorded as an extraordinary loss on the early extinguishment of
debt.
4. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 30,
1995 1996
--------- -----------
<S> <C> <C>
(IN THOUSANDS)
11% Senior Secured Notes due 2002 (face value $49,079,000 and $4,988,000 at
April 30, 1995 and 1996, respectively) (a).................................... $ 45,496 $ 4,675
Capital lease obligations (b).................................................. 621 1,025
Notes payable with monthly installments of principal and interest of $22,000
through December 1997, interest at 10%........................................ 587 378
Industrial Development Authority Note with monthly installments of principal
and interest of $2,000 through March 2010, interest at 2%..................... 343 321
Machinery and equipment loan with monthly installments of principal and
interest of $5,000 through March 2002, interest at 2%......................... 361 308
Other (interest ranges from 10.25% to 13%)..................................... 519 395
--------- -----------
47,927 7,102
Less: current portion of long-term debt........................................ 714 844
--------- -----------
$ 47,213 $ 6,258
--------- -----------
--------- -----------
</TABLE>
At April 30, 1996, the fair value of Adience's long-term debt approximated
its recorded value based on quoted market prices for the same or similar issues
or on current rates offered to Adience for debt of the same remaining
maturities.
9
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT (CONTINUED)
Principal maturities of long-term debt obligations for the years ended April
30, are as follows (in thousands):
<TABLE>
<S> <C>
1997................................................. $ 844
1998................................................. 707
1999................................................. 361
2000................................................. 143
2001................................................. 105
</TABLE>
(a) The Senior Secured Notes have an annual interest rate of 11% and were issued
under an indenture agreement dated as of June 30, 1993. The Senior Secured
Notes are redeemable at the option of Adience after December 15, 1997. The
Senior Secured Notes are not guaranteed by Adience Canada. The Senior
Secured Notes are secured by a lien on all of Adience's assets, subject to
certain conditions. Adience, on a consolidated basis, has certain
restrictive covenants which are customary for such financings including,
among other things, limitations on additional indebtedness and limitations
on asset sales.
On July 21, 1995, Adience redeemed $44.1 million face value of the Senior
Secured Notes (see Note 10).
(b) Property, plant and equipment at April 30, 1995 and 1996 includes equipment,
automobiles and trucks under capital lease obligations with a net book value
of $1.5 million and $1.8 million, respectively. During the year ended April
30, 1996 Adience entered into capital lease obligations amounting to
$810,000.
5. DISCONTINUED OPERATIONS
As of December 21, 1994 Alpine and Information Display Technology, Inc.
("IDT"), formerly a majority-owned subsidiary of Adience, entered into an
Agreement and Plan of Merger, which provided for the merger of Alpine's
information display group (a business segment of Alpine), comprised of Alpine
PolyVision, Inc. ("APV") and Posterloid Corporation ("Posterloid"), with and
into two separate wholly-owned subsidiaries of IDT formed for the purpose of
acquiring APV and Posterloid. To effectuate the merger in fiscal 1996, a portion
of Adience's equity interest in IDT was distributed to Alpine as a dividend in
kind, with the remainder distributed as part of the Senior Secured Notes
redemption (see Note 10). In addition, the balance of the amounts due IDT
(classified in the April 30, 1995 balance sheet as "Payable to affiliate") was
assigned to Alpine. Further, the balance sheet at April 30, 1995 reflects the
net assets of IDT as "Net assets of discontinued operations."
6. RESEARCH AND DEVELOPMENT EXPENSE
Adience incurred research and development expense of $366,000 and $1,116,000
for the period ended April 30, 1995 and the year ended April 30, 1996,
respectively.
7. INCOME TAXES
Net (loss) income before income taxes, and extraordinary item consisted of:
<TABLE>
<CAPTION>
APRIL 30, APRIL 30,
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Domestic............................................................. $ (2,291) $ (2,308)
Canadian............................................................. 165 920
--------- ---------
$ (2,126) $ (1,388)
--------- ---------
--------- ---------
</TABLE>
10
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
Federal, foreign, and state income tax expense (benefit) consisted of the
following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 30,
1995 1996
----------- -----------
<S> <C> <C>
(IN THOUSANDS)
Current:
Federal/state....................................................... $ (822) $ 636
Foreign............................................................. 48 305
----------- -----------
Total current......................................................... (774) 941
----------- -----------
Deferred:
Federal/State....................................................... 822 (536)
Foreign............................................................. 10 70
Other............................................................... -- (100)
----------- -----------
Total deferred........................................................ 832 (566)
----------- -----------
Total income tax provision............................................ $ 58 $ 375
----------- -----------
----------- -----------
</TABLE>
A reconciliation of income tax expense reported in the accompanying
statements of operations to the amount of income tax expense that would result
from applying the federal statutory rate of 34% to income before income tax
expense and extraordinary item for the periods presented is as follows:
<TABLE>
<CAPTION>
APRIL 30, APRIL 30,
1995 1996
----------- ---------
<S> <C> <C>
(IN THOUSANDS)
Expected Federal income tax expense (benefit) at Federal statutory
tax rate $ (723) $ (472)
Increase (decreases):
Effect of Canadian income taxes.................................... 58 407
Change in valuation allowance...................................... 162 (1,800)
Amortization of goodwill........................................... 175 424
Deferred gain related to IDT....................................... 426 --
Extinquishment of debt............................................. -- 1,989
Other items........................................................ (40) (173)
----------- ---------
$ 58 $ 375
----------- ---------
----------- ---------
</TABLE>
11
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
Deferred tax liabilities (assets) are comprised of the following at April
30, 1996 and 1995:
<TABLE>
<CAPTION>
APRIL 30, APRIL 30,
1995 1996
---------- ----------
<S> <C> <C>
(IN THOUSANDS)
Property, plant and equipment..................................... $ 4,968 $ 4,827
Pension accrual................................................... 270 270
Other............................................................. -- 112
---------- ----------
Gross deferred tax liabilities.................................. 5,238 5,209
---------- ----------
Inventory......................................................... (329) (260)
Insurance and benefit accruals.................................... (4,019) (5,090)
Bad debt reserve.................................................. (382) (181)
State income and sales/use tax liability.......................... (25) (50)
Environmental liability........................................... (518) (475)
NOL carryforwards................................................. (10,426) (9,890)
Foreign tax credits............................................... (276) (276)
Minimum tax credits............................................... (402) (402)
Other............................................................. (507) (486)
---------- ----------
Gross deferred tax assets....................................... (16,884) (17,110)
Valuation allowance............................................... 11,848 12,117
---------- ----------
Net deferred tax liability...................................... $ 202 $ 216
---------- ----------
---------- ----------
</TABLE>
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes", requires the recognition of deferred tax assets and liabilities for both
the expected future tax impact of temporary differences arising from assets and
liabilities whose tax bases are different from financial statement amounts, and
for the expected future tax benefit to be derived from tax loss carryforwards.
The statement also requires that a valuation allowance be established if it is
more likely than not that all or a portion of deferred tax assets will not be
realized. Realization of the future tax benefits is dependent on Adience's
ability to generate taxable income within the periods in which net temporary
differences reverse.
As of April 30, 1996, Adience has a net operating loss carryforward for
domestic federal income tax purposes of approximately $19.7 million which will
expire in 2009, 2010 and 2011. Minimum tax and foreign tax credits of $678,000
are also available to offset federal income tax liabilities to the extent that
regular tax exceeds tentative minimum tax in subsequent years. Effective
December 21, 1994, as part of the Adience acquisition, Adience had an ownership
change, as defined by Section 382 of the Internal Revenue Code, which may limit
Adience's ability to utilize the pre-ownership change portion of its net
operating loss carryforwards. An examination of Adience's consolidated U.S.
income tax returns for 1988 through 1993 is currently underway. Any resulting
adjustments for those years may impact Adience's net operating loss
carryforwards. Management believes that the recorded liability is adequate to
cover the final assessment.
8. EMPLOYEE BENEFITS
During 1992, Adience initiated a 401(k) Savings Plan. This plan covers
substantially all non-bargaining employees, who meet minimum age and service
requirements. Adience matches employee contributions of up to 8 percent of
compensation at a rate of 25 percent. Amounts charged against income totaled
$173,000 and $369,000 for the period ended April 30, 1995 and the year ended
April 30, 1996, respectively.
12
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. EMPLOYEE BENEFITS (CONTINUED)
Adience and its subsidiary maintain various defined benefit pension plans
covering substantially all hourly employees. The plans provide pension benefits
based on the employee's years of service or the average salary for a specific
number of years of service. Adience's funding policy is to make annual
contributions to the extent deductible for federal income tax purposes.
Plan assets and projected benefit obligations for service to date for
Adience's defined benefit pension plans aggregated approximately $6.8 million
and $7.2 million at April 30, 1995 and 1996, respectively. The components of net
periodic pension cost for the year ended April 30, 1996 is not material to the
consolidated financial statements. Plan assets are invested in cash, short-term
investments, equities, and fixed income instruments. The actuarial present value
of the projected benefit obligation at April 30, 1995 and 1996 was determined
using a weighted average discount rate of 7.5%. The expected long-term rate of
return on plan assets was 7.5% and 8.0% at April 30, 1995 and 1996,
respectively.
Certain union employees of Adience and its subsidiary are covered by
multi-employer defined benefit retirement plans. Expense relating to these plans
amounted to $0.4 million and $1.6 million for the period ended April 30, 1995
and the year ended April 30, 1996, respectively.
In December 1990, the Financial Accounting Standards Board issued SFAS No.
106 "Employers' Accounting for Post-retirement Benefits Other Than Pensions"
(SFAS No. 106), that requires that the projected future cost of providing
post-retirement benefits, such as health care and life insurance, be recognized
as an expense as employees render service instead of when the benefits are paid.
Adience currently provides only life insurance benefits to certain of its hourly
and salaried employees on a fully insured basis. Adoption of SFAS No. 106 did
not have a material impact on Adience's consolidated financial statements. In
November 1992, the Financial Accounting Standards Board issued new rules that
require that the projected future cost of providing post-employment benefits be
recognized as an expense as employees render service instead of when the
benefits are paid. Adience believes its accrual for post-employment benefits is
adequate.
9. COMMITMENTS AND CONTINGENCIES
Adience leases certain buildings, machinery, and equipment under both short-
and long-term lease arrangements. Future minimum lease commitments under
non-cancelable operating leases are not significant. Rental expense approximated
$634,000 and $2,058,000 for the period ended April 30, 1995 and the year ended
April 30, 1996, respectively.
Adience's J.H. France unit, which was merged into Adience in December 1991,
has been named as party in approximately 3,000 pending lawsuits, some of which
contain both multiple claimants and multiple defendants, filed in twelve
jurisdictions principally by employees and former employees of certain customers
of J.H.France, alleging in certain cases that a single product, a plastic
insulating cement manufactured more than 20 years ago by J.H.France, caused them
to suffer from asbestosis related diseases and in other cases alleging that
products manufactured or sold by J.H.France, caused silica related diseases. The
majority of the lawsuits seek monetary damages ranging from $20,000 to $1.0
million each. J.H.France and its insurance carrier have historically settled
these lawsuits, typically for an average amount per case of less than the
minimum amount stated. Punitive damages have also been claimed in some cases.
In addition to the lawsuits against J.H.France, Adience, as successor in
interest to BMI, has been named a party in approximately 390 pending lawsuits,
some of which contain both multiple claimants and multiple defendants, filed in
the States of Pennsylvania, Ohio, Michigan, West Virginia, Wisconsin, Kentucky
and Indiana, principally by employees and former employees of certain customers
of Adience alleging that products produced by Adience caused silicosis, not
asbestosis, in such persons.
13
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The majority of such lawsuits seek unstated monetary damages ranging from
$20,000 each, which is the minimal jurisdictional requirement for personal
injury cases in a majority of such state courts, to $1.0 million each. Adience
and its insurance carriers have historically settled these lawsuits for an
average amount per case of less than the minimum amount stated. Virtually all
such claims and all costs of defense for these cases are covered by insurance.
The insurance companies which had issued policies covering the J.H.France
cases initially denied coverage for these claims. In June 1990, the Supreme
Court of Pennsylvania held that the insurance policies covering the claims in
these J.H. France cases covered liabilities and defense costs up to the amounts
of the limits of the respective policies, without regard to the period of time
said policies were in effect. As a result of this judicial determination and
based upon Adience's experience in obtaining dismissals or settlements in closed
cases, Adience anticipates, although no assurance can be given, that the
expected costs and liabilities in such pending cases will be adequately covered
by insurance and that the aggregate limits on the insurance policies in effect
exceed the liabilities and defense costs which will be incurred in the 3,000
J.H.France cases and the other 390 cases, for which the scope of coverage has
never been an issue.
Adience's Furnco unit has recently been named, although not effectively
served, as the sole defendant in nine separate lawsuits, each of which contains
one plaintiff (i.e., either husband or husband and wife). At this time,
investigation is continuing as to the nature and extent of such suits, as well
as the extent of insurance coverage therefor.
Adience is subject to other legal proceedings and claims which have
primarily arisen in the ordinary course of business and have not been finally
adjudicated.
In the opinion of management, based on its examination of such matters and
discussions with counsel, the ultimate resolution of all pending or threatened
litigation, claims and assessments will not have a material adverse effect upon
Adience's consolidated financial position, liquidity or results of operations.
10. RELATED PARTY TRANSACTIONS
On July 21, 1995, Alpine completed the placement of $153 million of 12.25%
Senior Secured Notes (the "Alpine Notes") and entered into an $85 million credit
facility (the "Credit Facility") . The Alpine Notes and Credit Facility are
guaranteed by Adience and Superior Telecommunications Inc. ("Superior"), another
subsidiary of Alpine. The Alpine Notes are also secured by a pledge of the
capital stock of Superior and Adience.
In connection with the placement of the Senior Notes and the closing of the
Credit Facility, Adience entered into financing arrangements with Alpine whereby
Alpine advanced funds to Adience. The proceeds of the funds advanced were used
to redeem $44.1 million face value of 11% Senior Secured Notes and the Adience
credit facility (see Note 4) plus accrued interest and to fund working capital
requirements. At April 30, 1996 Adience is indebted to Alpine under notes
payable amounting to $61.0 million related to such financing arrangements.
Such notes payable to Alpine include:
(1) An $49.0 million note payable due in 2003 (subject to certain
mandatory prepayment requirements), with interest payable semiannually at an
annual rate of 14%; and
(2) $4.7 million in borrowings under a revolving credit facility between
Alpine and Adience due in 2000, with interest payable monthly at the greater
of prime plus 0.375% or LIBOR plus
14
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. RELATED PARTY TRANSACTIONS (CONTINUED)
2.25%. Borrowings from Alpine by Adience under the revolving credit facility
are subject to a borrowing base determined as a percentage of eligible
accounts receivable and inventory. The revolving credit facility is secured
by a pledge of Adience's accounts receivable and inventory.
(3) $2.4 million in subordinated notes due in 2003 with interest at 12%.
Total interest expense charged by Alpine to Adience under the aforementioned
financing arrangements amounted to approximately $5.8 million for the year ended
April 30, 1996.
In November 1995, Adience entered into a note agreement whereby Adience
Canada advanced approximately $2.0 million to Superior Cable Corporation,
Superior's Canadian subsidiary. The advance bears interest at 8%.
Alpine allocates certain direct expenses to its subsidiaries, the most
significant of which is insurance expense which is allocated based upon
projected payrolls, property values and forecasted losses. Such allocated costs
totaled $1.3 million for the year ended April 30, 1996 and were applied as an
increase in the amount Due to parent. There were no such allocations for the
period ended April 30, 1995.
15
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC.
AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF THE ALPINE GROUP, INC.)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF APRIL 30, 1995 AND APRIL 28, 1996
TOGETHER WITH AUDITORS' REPORT
16
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF THE ALPINE GROUP, INC.)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF APRIL 30, 1995 AND APRIL 28, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of independent public accountants................................................................... 18
Consolidated financial statements
Consolidated balance sheets as of April 30, 1995 and April 28, 1996...................................... 19
Consolidated statements of operations and retained earnings for the period from November 11, 1993 to May
1, 1994 and for the years ended April 30, 1995 and April 28, 1996....................................... 20
Consolidated statements of cash flows for the period from November 11, 1993 to May 1, 1994 and for the
years ended April 30, 1995 and April 28, 1996........................................................... 21
Notes to consolidated financial statements................................................................. 22
</TABLE>
17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Superior Telecommunications Inc.:
We have audited the accompanying consolidated balance sheets of Superior
Telecommunications Inc. (a Georgia Corporation and wholly-owned subsidiary of
The Alpine Group, Inc.) and Subsidiary as of April 30, 1995 and April 28, 1996
and the related consolidated statements of operations and retained earnings and
cash flows for the period from November 11, 1993 to May 1, 1994 and for the
years ended April 30, 1995 and April 28, 1996. 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 financial position of Superior Telecommunications
Inc. and subsidiary as of April 30, 1995 and April 28, 1996 and the results of
their operations and their cash flows for the period from November 11, 1993 to
May 1, 1994 and for the years ended April 30, 1995 and April 28, 1996 in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
June 7, 1996
18
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
APRIL 30, APRIL 28,
1995 1996
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................... $ 4 $ 11
Accounts receivable (less allowance for doubtful accounts of $40,000 in 1995 and
$151,000 in 1996).................................................................. 18,268 47,936
Inventories......................................................................... 19,665 51,721
Other current assets................................................................ 1,041 4,656
--------- -----------
Total current assets.............................................................. 38,978 104,324
--------- -----------
Property, plant and equipment, net.................................................... 26,132 72,877
Goodwill, net......................................................................... 32,161 48,414
Due from parent....................................................................... -- 15,103
Other long-term assets................................................................ 1,017 431
--------- -----------
Total assets...................................................................... $ 98,288 $ 241,149
--------- -----------
--------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt................................................... $ 1,600 $ --
Accounts payable.................................................................... 16,281 43,464
Accrued expenses and other liabilities.............................................. 3,640 11,164
--------- -----------
Total current liabilities......................................................... 21,521 54,628
--------- -----------
Notes payable to parent............................................................... -- 122,154
--------- -----------
Note payable to affiliate............................................................. -- 1,981
--------- -----------
Long-term debt, less current portion.................................................. 25,320 6,170
--------- -----------
Deferred income taxes................................................................. 5,693 5,893
--------- -----------
Other long-term liabilities........................................................... 1,493 1,493
--------- -----------
Commitments and contingencies
Stockholder's equity:
Common stock, par value $.01; 10,000 shares authorized, 1,000 shares issued......... -- --
Additional paid-in capital.......................................................... 41,144 41,144
Cumulative translation adjustment................................................... -- (215)
Retained earnings................................................................... 3,117 7,901
--------- -----------
Total stockholder's equity........................................................ 44,261 48,830
--------- -----------
Total liabilities and stockholder's equity........................................ $ 98,288 $ 241,149
--------- -----------
--------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE PERIOD FROM NOVEMBER 11, 1993 TO MAY 1, 1994
AND FOR THE YEARS ENDED APRIL 30, 1995 AND APRIL 28, 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales............................................................. $ 46,857 $ 136,578 $ 384,237
Cost of goods sold.................................................... 42,849 122,428 344,565
----------- ------------- --------------
Gross profit........................................................ 4,008 14,150 39,672
Selling, general, and administrative expense.......................... 1,950 5,010 8,375
Amortization of goodwill.............................................. 433 1,124 1,556
----------- ------------- --------------
Operating income.................................................... 1,625 8,016 29,741
Interest expense, net................................................. (1,097) (2,878) (16,118)
----------- ------------- --------------
Income before income tax expense and extraordinary item............. 528 5,138 13,623
Income tax expense.................................................... (332) (2,217) (6,028)
----------- ------------- --------------
Income before extraordinary item.................................... 196 2,921 7,595
Extraordinary (loss) on early extinguishment of debt, net............. -- -- (2,811)
----------- ------------- --------------
Net income.......................................................... 196 2,921 4,784
Retained earnings at beginning of period.............................. -- 196 3,117
----------- ------------- --------------
Retained earnings at end of period.................................... $ 196 $ 3,117 $ 7,901
----------- ------------- --------------
Income per share of common stock:
Income before extraordinary item.................................... $ 196.00 $ 3,117.00 $ 7,595.00
Extraordinary (loss) on early extinguishment of debt................ -- -- (2,811.00)
----------- ------------- --------------
Net income per share of common stock.................................. $ 196.00 $ 3,117.00 $ 4,784.00
----------- ------------- --------------
----------- ------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM NOVEMBER 11, 1993 TO MAY 1, 1994
AND FOR THE YEARS ENDED APRIL 30, 1995 AND APRIL 28, 1996
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income before extraordinary item........................................ $ 196 $ 2,921 $ 7,595
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................. 1,563 3,714 7,719
Amortization of deferred financing costs.................................. 124 253 360
Deferred income taxes..................................................... 332 90 (1,300)
Change in assets and liabilities:
Accounts receivable..................................................... (3,119) (4,024) (526)
Inventories............................................................. 1,098 (2,260) 717
Other current assets.................................................... 169 (142) 41
Accounts payable........................................................ 571 4,629 12,296
Accrued expenses and other liabilities.................................. (381) 317 860
--------- --------- ------------
Cash provided by operating activities......................................... 553 5,498 27,762
--------- --------- ------------
Cash flows from investing activities:
Proceeds from equipment sales............................................... 43 33 276
Acquisitions, net of cash acquired.......................................... -- -- (103,409)
Capital expenditures........................................................ (420) (1,388) (3,890)
Capital expenditure from acquisition of BICC assets......................... -- -- (5,447)
Capitalized merger costs.................................................... (2,203) (316) --
Other....................................................................... 12 150 (160)
--------- --------- ------------
Cash used for investing activities............................................ (2,568) (1,521) (112,630)
--------- --------- ------------
Cash flows from financing activities:
Borrowings (repayments) under revolving line of credit, net................. 1,628 (2,033) (16,500)
Borrowings from parent...................................................... -- -- 106,977
Borrowings from affiliate................................................... -- -- 1,981
Long-term borrowings........................................................ 5,000 -- 141,369
Repayment of long-term borrowings........................................... (3,300) (2,314) (145,587)
Capitalized financing costs................................................. (1,315) (15) (3,365)
Other....................................................................... -- 385 --
--------- --------- ------------
Cash provided by (used for) financing activities.............................. 2,013 (3,977) 84,875
--------- --------- ------------
Net (decrease) increase in cash and cash equivalents.......................... (2) -- 7
--------- --------- ------------
Cash at beginning of period................................................... 6 4 4
--------- --------- ------------
Cash at end of period......................................................... $ 4 $ 4 $ 11
--------- --------- ------------
Supplemental disclosures:
Cash interest paid during the period including interest paid to parent........ $ 738 $ 2,825 $ 16,512
--------- --------- ------------
Cash paid during the period for income taxes.................................. $ -- $ 228 $ 237
--------- --------- ------------
Noncash investing and financing activities:
Acquisition of business:
Assets, net of cash acquired.............................................. $ 126,127
Liabilities assumed....................................................... (22,718)
------------
Net cash paid........................................................... $ 103,409
------------
------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
Prior to November 11, 1993, Superior Telecommunications Inc. (the "Company")
was a wholly-owned subsidiary of Superior TeleTec Inc. On November 11, 1993 (the
"Merger Date"), Superior TeleTec Inc. merged with The Alpine Group, Inc.
("Alpine") resulting in the Company becoming a wholly-owned subsidiary of
Alpine.
The Company is engaged in the manufacture and sale of copper wire and cable
for the telecommunications industry.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, Superior Cable Corporation,
(collectively, "Superior"). All significant intercompany accounts and
transactions have been eliminated.
CASH AND CASH EQUIVALENTS
Superior considers all highly liquid investment purchases with a maturity of
90 days or less to be cash equivalents.
FISCAL PERIODS
Superior operates on a fiscal year ending on the Sunday closest to April 30,
which coincides with Alpine's fiscal year end. The accompanying financial
statements include the period from the Merger Date through May 1, 1994 and the
fiscal years ended April 30, 1995 and April 28, 1996.
INVENTORIES
Inventories are stated at the lower of cost or market, using the first-in,
first-out ("FIFO") method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is provided over the estimated useful lives of the
assets using the straight-line method. The estimated useful lives are as
follows:
<TABLE>
<CAPTION>
Building and improvements........................... 10 to 30 years
<S> <C>
Machinery and equipment............................. 3 to 12 years
</TABLE>
Maintenance and repairs are charged to expense as incurred. Long-term
improvements are capitalized as additions to property, plant and equipment. Upon
retirement or other disposal, the asset cost and related accumulated
depreciation are removed from the accounts.
GOODWILL
The excess of the purchase price over the net identifiable assets of
businesses acquired is amortized ratably over periods not exceeding 30 years.
Accumulated amortization of goodwill at April 30, 1995 and April 28, 1996 was
$1.6 million and $3.1 million, respectively. Superior periodically reviews
goodwill and other intangibles to assess recoverability from future operations
using undiscounted cash flows, in accordance with the provision of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets to Be Disposed Of". Impairments would be recognized in
operating results if a permanent diminution in value occurred. The adoption of
this statement had no effect on Superior's consolidated financial position or
results of operations as of or for the years ended April 30, 1995 or April 28,
1996.
22
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of Superior's foreign
subsidiary are measured using local currency as the functional currency. The
assets and liabilities of the operations denominated in a foreign currency are
translated into U.S. dollars at the exchange rate in effect at year-end, while
revenues and expenses are translated at average exchange rates prevailing during
the year. The resulting translation gains and losses are charged directly to
cumulative translation adjustment, a component of stockholder's equity, and are
not included in net income until realized through sale or liquidation of the
investment.
CONCENTRATIONS OF CREDIT RISK
Sales to the six regional Bell operating companies and three major
independent telephone companies represented 74%, 78% and 90% of Superior's net
sales for the periods ended May 1, 1994, April 30, 1995, and April 28, 1996,
respectively. Accounts receivable from these customers were $14.1 million and
$43.1 million at April 30, 1995 and April 28, 1996, respectively.
RECLASSIFICATION
Certain reclassifications have been made to the 1994 and 1995 consolidated
financial statements to conform with the 1996 presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Raw materials....................................................... $ 6,879 8,669
Work in process..................................................... 4,325 9,807
Finished goods...................................................... 8,461 33,245
--------- ---------
$ 19,665 $ 51,721
--------- ---------
--------- ---------
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Land................................................................ $ 926 $ 2,768
Building and improvements........................................... 6,600 16,025
Machinery and equipment............................................. 22,319 63,882
--------- ---------
29,845 82,675
Less accumulated depreciation....................................... 3,713 9,798
--------- ---------
$ 26,132 $ 72,877
--------- ---------
--------- ---------
</TABLE>
Depreciation expense for the periods ended May 1, 1994, April 30, 1995 and
April 28, 1996 was $1.1 million, $2.6 million and $6.2 million, respectively.
23
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. ALCATEL ACQUISITION
On May 11, 1995, Superior completed the acquisition of the U.S. and Canadian
copper wire and cable business of Alcatel NA Cable Systems, Inc. and Alcatel
Canada Wire, Inc. ("Alcatel NA", collectively) which was financed with the
proceeds of the sale by Superior of $140.0 million aggregate principal amount of
notes (the "Alcatel Acquisition Notes"). The Alcatel Acquisition Notes were
subsequently redeemed with the proceeds of funds advanced by Alpine (see Note
7). The following reflects the allocation of the purchase price of net assets
based upon the estimated fair values of such assets (in thousands):
<TABLE>
<S> <C>
Acquisition cost................................................. $ 103,409
Less historical book value of net assets at May 11, 1995......... (80,909)
Write-up of property, plant and equipment........................ (5,718)
Accrual of Alcatel employee relocation and severance costs....... 500
---------
Acquisition goodwill............................................. $ 17,282
---------
---------
</TABLE>
The acquisition cost of $103.4 million included $102.9 million paid in cash
to Alcatel NA and acquisition expenses of approximately $500,000.
The acquisition has been accounted for using the purchase method, and
accordingly, the results of operations of the acquired business are included in
Superior's results on a prospective basis from the date of acquisition.
Unaudited condensed pro forma results of operations for the years ended April
30, 1995 and April 28, 1996. which give effect to the acquisition as if the
transaction had occurred on May 1, 1994 are presented below. The pro forma
amounts reflect acquisition-related purchase accounting adjustments, including
adjustments to depreciation and amortization expense. The pro forma financial
information does not purport to be indicative of either the results of
operations that would have occurred had the acquisition taken place at the
beginning of the period or of future results of operations.
<TABLE>
<CAPTION>
PRO FORMA
(UNAUDITED)
------------------------
1995 1996
----------- -----------
<S> <C> <C>
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Net sales........................................................ $ 340,756 $ 391,758
Income before income tax expense and extraordinary item.......... 5,249 13,701
Income before extraordinary item................................. 3,149 7,673
Net income....................................................... 3,149 4,862
Income per share of common stock:
Income before extraordinary item............................... $ 315.00 $ 767.00
Net income..................................................... 315.00 456.00
</TABLE>
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Accrued wages, salaries and benefits................................. $ 938 $ 5,098
Other accrued expenses............................................... 2,702 6,066
--------- ---------
$ 3,640 $ 11,164
--------- ---------
--------- ---------
</TABLE>
24
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Lease finance obligation (a)......................................... $ 5,000 $ 5,000
Promissory note (b).................................................. -- 1,170
Revolving credit loan (c)............................................ 16,534 --
Term loan (c)........................................................ 5,386 --
--------- ---------
Total debt........................................................... 26,920 6,170
Less current maturities.......................................... 1,600 --
--------- ---------
Long-term debt....................................................... $ 25,320 $ 6,170
--------- ---------
--------- ---------
</TABLE>
At April 28, 1996, the fair value of Superior's long-term debt approximated
its recorded value based on quoted market prices for the same or similar issues
or on current rates offered to Superior for debt of the same remaining
maturities.
- ------------------------
(a) The lease finance obligation resulted from a sale/leaseback of Superior's
manufacturing facility in December 1993 which, due to Superior's continuing
involvement in the form of a repurchase option, has been recorded under the
finance method. The sale/leaseback transaction included a sales price of
$5.0 million and net cash proceeds (after fees and expenses) of
approximately $4.5 million. The term of the leaseback is 20 years, with 5
additional option terms (at Superior's election) of 5 years each. Superior
has a one time option to repurchase the property during the eleventh year of
the lease term at the greater of the property's fair market value (as
defined in the lease) or $5.0 million plus related ancillary costs. Annual
lease payments are approximately $630,000 and are subject to adjustments
based on changes in short term interest rates (monthly) and increases in the
consumer price index (on a triennial basis). Until the repurchase option
expires or is exercised, all lease payments will be reflected as interest
expense. The related asset, which is being depreciated over its estimated
useful life, has a net carrying value of $6.9 million at April 28, 1996 and
is classified as land and buildings in the accompanying balance sheet.
(b) The promissory note is payable to BICC Phillips, Inc. from whom Superior
acquired certain wire and cable manufacturing assets on November 28, 1995.
The note does not bear interest and is due on December 31, 1996. The note
will be repaid from borrowings under Superior's revolving credit facility
(see Note 7).
(c) The revolving credit loan and term loan represented borrowings by Superior
under credit facilities which were repaid during fiscal 1996 from the
proceeds of the Alcatel Acquisition Notes (see Note 4).
7. RELATED PARTY TRANSACTIONS
On July 21, 1995, Alpine completed the placement of $153 million of 12.25%
Senior Secured Notes (the "Alpine Notes") and entered into an $85 million credit
facility (the "Credit Facility"). The Alpine Notes and Credit Facility are
guaranteed by Superior and Adience, Inc. ("Adience"), another subsidiary of
Alpine. The Alpine Notes are also secured by a pledge of the capital stock of
Superior and Adience.
In connection with the placement of the Senior Notes and the closing of the
Credit Facility, Superior entered into financing arrangements with Alpine
whereby Alpine advanced funds to Superior. The proceeds of the funds advanced
were used to redeem the Alcatel Acquisition Notes (see
25
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. RELATED PARTY TRANSACTIONS (CONTINUED)
Note 4) plus accrued interest and to fund working capital requirements. At April
28, 1996 Superior is indebted to Alpine under notes payable amounting to $122.2
million related to such financing arrangements.
Such notes payable to Alpine include:
(1) An $88.9 million note payable due in 2003 (subject to certain
mandatory prepayment requirements), with interest payable semiannually at an
annual rate of 14%; and
(2) $33.3 million in borrowings under a revolving credit facility
between Alpine and Superior due in 2000, with interest payable monthly at
prime plus 0.375% or LIBOR plus 2.25%. Borrowings from Alpine by Superior
under the revolving credit facility are subject to a borrowing base
determined as a percentage of eligible accounts receivable and inventory.
The revolving credit facility is secured by a pledge of Superior's accounts
receivable and inventory.
In connection with the redemption of the Alcatel Acquisition Notes, Superior
recognized a $2.8 million extraordinary loss, net of taxes of $2.0 million, on
the early extinguishment of debt during the year ended April 28, 1996.
Total interest expense charged by Alpine to Superior under the
aforementioned financing arrangements amounted to approximately $12.4 million
for the year ended April 28, 1996.
In November 1995, Superior entered into a note agreement whereby Adience's
Canadian subsidiary advanced approximately $2.0 million to Superior Cable
Corporation, Superior's Canadian subsidiary. The advance bears interest at 8%
and is payable on demand.
The due from parent in the accompanying balance sheet is comprised of a
non-interest bearing receivable from Alpine which arose primarily from funds
advanced by Superior in connection with Alpine's debt refinancing.
Alpine allocates certain direct expenses to its subsidiaries, the most
significant of which is insurance expense which is allocated based upon
projected payrolls, property values and forecasted losses. Such allocated costs
totaled $1.8 million for the year ended April 28, 1996 and were applied as a
reduction of amounts due from parent.
8. INCOME TAXES
For Federal income tax purposes, Superior's taxable income is included as
part of a consolidated federal return filed by Alpine. Superior does, however,
file separate state income tax returns. Superior accounts for income taxes on a
stand-alone basis, as if it filed a separate Federal return, with any current
Federal income taxes due being reflected as a payable to Alpine.
26
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
U.S. income tax expense (benefit) for the periods ended May 1, 1994, April
30, 1995 and April 28, 1996 consists of the following:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Current:
Federal....................................................... $ -- $ 1,830 $ 6,569
State......................................................... -- 297 759
--------- --------- ---------
-- 2,127 7,328
Deferred:
Federal....................................................... 288 78 (1,160)
State......................................................... 44 12 (140)
--------- --------- ---------
332 90 (1,300)
--------- --------- ---------
Total income tax expense........................................ $ 332 $ 2,217 $ 6,028
--------- --------- ---------
--------- --------- ---------
</TABLE>
Due to losses incurred in its foreign operations which were acquired in
fiscal 1996, no foreign income taxes were recorded for the year ended April 28,
1996.
A reconciliation of income tax expense reported in the accompanying
statements of operations to the amount of income tax expense that would result
from applying the federal statutory rate of 34% to income before income tax
expense and extraordinary item for the periods ended May 1, 1994, April 30, 1995
and April 28, 1996 is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Expected income tax expense at Federal statutory tax rate................. $ 179 $ 1,747 $ 4,632
Nondeductible goodwill amortization....................................... 147 382 383
State income tax expense, net of Federal tax benefit...................... 29 204 408
Net tax loss of foreign subsidiary........................................ -- -- 327
Other, net................................................................ (23) (116) 278
--------- --------- ---------
Total income tax expense.............................................. $ 332 $ 2,217 $ 6,028
--------- --------- ---------
--------- --------- ---------
</TABLE>
At April 28, 1996, Superior had foreign net operating loss carryforwards of
$1,486,000 generated by its wholly-owned foreign subsidiary, Superior Cable
Corporation ("SCC"). Such carryforwards are available to offset SCC's future
taxable income through fiscal year 2002.
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes", requires the recognition of deferred tax assets and liabilities for both
the expected future tax impact of temporary differences arising from assets and
liabilities whose tax bases are different from financial statement amounts, and
for the expected future tax benefit to be derived from tax loss carryforwards.
The statement also requires that a valuation allowance be established if it is
more likely than not that all or a portion of deferred tax assets will not be
realized. Realization of the future tax benefits is dependent on Superior's
ability to generate taxable income within the periods in which net temporary
differences reverse.
27
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
Items that result in deferred tax assets (liabilities) and the related
valuation allowance at April 30, 1995 and April 28, 1996 are as follows:
<TABLE>
<CAPTION>
CURRENT LONG-TERM
-------------------- --------------------
1995 1996 1995 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Depreciation and amortization.................................. $ -- $ -- $ (8,118) $ (8,450)
Sale / leaseback............................................... $ -- $ -- 1,734 1,708
Accruals not currently deductible for tax...................... 314 1,276 691 626
Inventory reserves............................................. 309 539 -- --
Inventory cost capitalization.................................. 121 443 -- --
Tax net operating loss carryforwards........................... -- -- -- 550
Other.......................................................... 15 -- -- --
--------- --------- --------- ---------
759 2,258 (5,693) (5,566)
Less valuation allowance................................... -- -- -- (327)
--------- --------- --------- ---------
$ 759 $ 2,258 $ (5,693) $ (5,893)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
9. NET INCOME PER SHARE
Net income per share is derived by dividing net income by the weighted
average number of shares of common stock outstanding during the year. For the
periods ended May 1, 1994, April 30, 1995 and April 28, 1996, the number of
shares used in computing net income per share was 1,000.
10. DEFINED CONTRIBUTION RETIREMENT PLANS
Superior maintains profit sharing plans with 401(k) components for the
benefit of certain of its employees. The profit sharing component of the plans
allow for discretionary contributions, whereas the 401(k) components provide for
employee contributions through salary reduction election with certain mandatory
employer matching contributions. For the periods ended May 1, 1994, April 30,
1995 and April 28, 1996, Superior made or accrued matching contributions of
$60,000, $211,000 and $228,000, respectively.
11. DEFINED BENEFIT RETIREMENT PLANS
During fiscal 1996, certain employees of Superior participated in various
defined benefit retirement plans sponsored by Alcatel NA. These plans generally
provide for payment of benefits, commencing at retirement between the ages of 55
and 65, based on the employee's length of service and earnings. In connection
with the Alcatel acquisition, Superior is evaluating alternative retirement
planning options and, in substantially all cases, participation in these plans
has been frozen. Expense recorded for fiscal year 1996 service under these plans
was approximately $304,000.
During fiscal 1996, Superior also sponsored a defined benefit pension plan
for employees of one of its manufacturing facilities previously owned by Alcatel
NA. Benefits under that plan, which were also based on length of service and
earnings, were frozen effective December 31, 1995 and the plan was replaced with
a defined contribution plan. The amount charged to pension expense for fiscal
year 1996 under the plan was $138,000. The accrued pension liability related to
this plan was $67,000 at April 30, 1996 and is included in accrued liabilities
in the accompanying balance sheet.
In addition, Superior sponsored a defined benefit pension plan for employees
of its Canadian manufacturing facility also previously owned by Alcatel NA.
Benefits under the plan are based on length of service. The amount charged for
pension expense for fiscal year 1996 under the plan was $58,000.
28
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. DEFINED BENEFIT RETIREMENT PLANS (CONTINUED)
The following table shows the plans' funded status and the amount recognized
in the balance sheet at April 30, 1996:
<TABLE>
<S> <C>
Accumulated benefit obligation (100% vested)................... $2,105,000
----------
Projected benefit obligation................................... $2,314,000
Fair value of plan assets...................................... 2,388,000
----------
Plan assets in excess of projected benefit obligation.......... 74,000
Unrecognized net (gain) loss................................... (74,000)
----------
Prepaid pension cost....................................... $ 0
----------
----------
</TABLE>
A discount rate of 8% and an expected long-term rate of return on net assets
of 8% were assumed for the above actuarial calculations.
12. POSTRETIREMENT HEALTH CARE BENEFITS
Superior provides postretirement health care benefits for certain employees.
The policy provides each employee and spouse, upon reaching normal or early
retirement and upon achieving certain minimum service requirements, a fixed
monthly benefit for the purchase of Superior-sponsored health care insurance.
The amount of the monthly benefit will not be increased in the future,
notwithstanding medical-based inflation cost increases.
The accumulated postretirement health care benefit obligation which is
included in long-term liabilities in the accompanying balance sheet, consists of
the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Retirees.............................................................. $ 733 $ 427
Fully eligible active plant participants.............................. 164 284
Other active plan participants........................................ 596 571
--------- ---------
1,493 1,282
Unrealized net gain from past experience and changes in assumption.... -- 211
--------- ---------
$ 1,493 $ 1,493
--------- ---------
--------- ---------
</TABLE>
Net periodic postretirement health care benefit costs includes the following
components for the periods ended May 1, 1994, April 30, 1995 and April 28, 1996:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Service cost on benefits earned....................................... $ 24 $ 45 $ 45
Interest cost on accumulated postretirement benefit obligation........ 37 118 117
--- --------- ---------
$ 61 $ 163 $ 162
--- --------- ---------
--- --------- ---------
</TABLE>
An increase in the health care cost trend assumptions would not change the
annual expense or obligation amounts as the employer cost is effectively capped.
The weighted average discount rate used in determining the accumulated post
retirement benefit obligation was 6.5%, 8% and 7.75% for the periods ended May
1, 1994, April 30, 1995 and April 28, 1996, respectively.
29
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. MAJOR CUSTOMERS
Two customers accounted for 26% and 14%, and 30% and 16% of revenues for the
periods ended May 1, 1994 and April 30, 1995, respectively. Five customers
accounted for 22%, 17%, 16%, 13% and 13% of revenues for the year ended April
28, 1996.
14. COMMITMENTS AND CONTINGENCIES
As of April 28, 1996, future minimum lease payments under noncancelable
operating leases are as follows (in thousands):
<TABLE>
<S> <C>
Fiscal year ending April:
1997..................................................... $ 513
1998..................................................... 400
1999..................................................... 380
2000..................................................... 371
2001..................................................... 320
Thereafter............................................... 53
---------
$ 2,037
---------
---------
</TABLE>
For the periods ended May 1, 1994, April 30, 1995 and April 28, 1996,
Superior's rental and lease expense was $288,000, $555,000 and $668,000,
respectively.
Approximately 28% of Superior's total labor force is covered by collective
bargaining agreements. One collective bargaining agreement representing 11% of
Superior's total labor force will expire within one year.
Soil and groundwater at Superior's Brownwood, Texas facility has been found
to be contaminated with volatile organic compounds as a result of operations at
the facility which management believes occurred prior to the acquisition of the
facility. Superior is in the process of obtaining approval for a remediation
plan from the Texas Natural Resource Conservation Commission. Based upon
investigations performed to date, Superior believes the cost of this remediation
will not be in excess of $500,000. Pursuant to an agreement between Superior and
the former owner of the facility, Superior has been reimbursed for approximately
85% of the costs incurred to date in connection with the investigation and
resulting remediation of this facility, and is entitled to reimbursement of
future expenses at percentages ranging from 85% to 25% (depending on the time at
which such expenses are incurred), subject to an aggregate expense reimbursement
of not less than 75%.
Superior is subject to other legal proceedings and claims which have
primarily arisen in the ordinary course of business and have not been finally
adjudicated.
In the opinion of management, based on its examination of such matters and
discussions with counsel, the ultimate resolution of all pending or threatened
litigation, claims and assessments will have no material adverse affect upon
Superior's financial position, liquidity or results of operations.
30
<PAGE>
AGREEMENT REGARDING
CERTAIN EMPLOYEE BENEFIT PLANS
THIS AGREEMENT (the "AGREEMENT") is made and entered into as of the 10th
day of June, 1996 by and among ALCATEL NA CABLE SYSTEMS, INC., a Delaware
corporation with its principal place of business in Hickory, North Carolina,
U.S.A. (the "U.S. SELLER"), ALCATEL CANADA WIRE INC., an Ontario corporation
with its principal place of business in North York, Ontario, Canada (the
"CANADIAN SELLER"), SUPERIOR TELECOMMUNICATIONS INC., formerly known as Superior
Teletec Inc., a Georgia corporation with its principal place of business in
Atlanta, Georgia, U.S.A. (the "U.S. PURCHASER"), and SUPERIOR CABLE CORPORATION,
an Ontario Corporation with its principal place of business in Ontario, Canada
(the "CANADIAN PURCHASER").
W I T N E S E T H:
WHEREAS, the parties hereto entered into that certain Asset Purchase
Agreement dated as of March 17, 1995, as amended pursuant to that certain
Amendment to Asset Purchase Agreement dated as of May 11, 1995 (collectively,
the "ASSET PURCHASE AGREEMENT"); and
WHEREAS, the U.S. Purchaser has advised the U.S. Seller that, due to events
following the Closing under the Asset Purchase Agreement, the U.S. Purchaser
desires to amend the Asset Purchase Agreement upon the terms and conditions set
forth herein, and the U.S. Seller is willing to make such amendments upon such
terms and conditions; and
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained and intending to be legally bound, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 IN GENERAL. Certain capitalized terms used herein are
defined at various places in the text of this Agreement and in Section 1.02
hereof. All capitalized terms used in this Agreement which are not defined
herein shall have the meanings set forth in the Asset Purchase Agreement.
Section 1.02 ADDITIONAL DEFINITIONS. The following capitalized terms
shall have the following meanings:
(a) "Accrued Benefit" shall mean the accrued benefit as defined in the
applicable pension plan document. The Accrued Benefit for any U.S. Seller
Employee who was disabled as of the Closing Date and who has not been employed
by the U.S. Purchaser
-1-
<PAGE>
on or prior to the date of this Agreement shall be determined as if such
employee satisfied the definition of disability, as defined pursuant to the
terms of the applicable pension plan, as of the Closing Date and continued to
satisfy such definition until he or she would attain normal retirement age under
the applicable pension plan.
(b) "Annuity Contract" shall mean either (i) an individual
non-participating guaranteed annuity contract or (ii) an individual annuity
certificate issued in the name of an individual annuitant evidencing his rights
in a non-participating guaranteed group annuity contract; provided that, in each
case, such annuity contract shall be issued by a highly rated insurance company
selected by the U.S. Seller in accordance with the standards set forth in
Department of Labor Interpretative Bulletin Section 2509.95-1.
(c) "Closing Date" shall mean May 11, 1995.
(d) "Present Value" shall mean the amount determined based upon the
applicable mortality table described in Revenue Ruling 95-6 and the applicable
interest rate published in the Internal Revenue Bulletin for the month preceding
the beginning of the calendar year in which the lump sum payment is made. For
determining lump sum payments distributed in 1996, such applicable interest rate
shall be 6.06%.
ARTICLE II
TERMINATION AND AMENDMENT OF CERTAIN PROVISIONS
Effective as of the date hereof, Section 7.02(c) and Section 7.02(d) of the
Asset Purchase Agreement are terminated, and no party hereto shall have any
further rights or obligations thereunder. Effective as of the date hereof, the
definition of "U.S. Seller Benefit Plan" shall not include the Alcatel NA Cable
Systems, Inc. Hourly Pension Plan or the Alcatel NA Cable Systems, Inc. Salaried
Pension Plan.
ARTICLE III
ALTERNATIVE ARRANGEMENTS
Section 3.01 NON-UNION HOURLY PENSION PLAN.
(a) As soon as practicable following the date hereof, the U.S. Seller
shall cause each U.S. Seller Employee who is identified on EXHIBIT A hereto
(collectively, the "NON-UNION HOURLY EMPLOYEES") to have a fully (100%) vested
nonforfeitable right to such employee's Accrued Benefit, if any, as of the
Closing Date, under the Alcatel NA Cable Systems, Inc. Hourly Pension Plan (the
"U.S. SELLER'S NON-UNION HOURLY PENSION PLAN"), and shall cause the U.S.
Seller's Non-Union Hourly Pension Plan
-2-
<PAGE>
to pay to each Non-Union Hourly Employee his or her Accrued Benefits thereunder
when and as provided in such plan, as amended pursuant to Section 3.01(c)
hereof, and as provided in Section 3.01(d) hereof. Notwithstanding the
foregoing or any other term of this Agreement to the contrary, the U.S. Seller
shall not cause any Non-Union Hourly Employee that is rehired by the U.S. Seller
prior to the distribution of his or her Accrued Benefit as provided in this
Section 3.01 to receive such a distribution.
(b) The U.S. Purchaser shall, within ten (10) days following the date of
this Agreement, distribute the notice attached as EXHIBIT B hereto to each
Non-Union Hourly Employee.
(c) As soon as practicable following the date hereof, the U.S. Seller
shall amend the U.S. Seller's Non-Union Hourly Pension Plan to add a single lump
sum payment and an immediate early retirement annuity option as optional forms
of distribution from such plan in addition to the irrevocable annuity forms of
distribution already provided for therein. Such single lump sum payment shall
be equal to the Present Value, as of the date of distribution, of the
participant's Accrued Benefit under the U.S. Seller's Non-Union Hourly Pension
Plan as of the Closing Date. The U.S. Seller shall keep the U.S. Purchaser
advised as to the status of the foregoing amendment to the U.S. Seller's
Non-Union Hourly Pension Plan and, upon request, shall furnish to the U.S.
Purchaser copies of the documentation related thereto. The U.S. Seller shall
consider any recommendations made by the U.S. Purchaser in connection with such
plan amendment.
(d) As soon as practicable following the effective date of the amendment
to the U.S. Seller's Non-Union Hourly Pension Plan described in Section 3.01(c)
above, the U.S. Seller shall, pursuant to forms substantially in the form of
EXHIBIT C hereto, inform each Non-Union Hourly Employee of his or her Accrued
Benefit under such plan and the forms of distributions available thereunder, and
shall solicit a form of distribution (I.E., a lump sum or an annuity contract)
(along with any applicable waivers and spousal consents) from each such
participant. As soon as practicable after collecting and processing any
applicable elections, waivers, and consents, the U.S. Seller shall cause the
U.S. Seller's Non-Union Hourly Pension Plan to distribute to each Non-Union
Hourly Employee his or her Accrued Benefit in the form of a single lump sum
payment or an irrevocable Annuity Contract in accordance with his or her
election (the date on which the first such distribution is made is referred to
herein as the "FIRST NON-UNION HOURLY PENSION BENEFIT DISTRIBUTION DATE" and the
date on which the last such distribution is made is referred to herein as the
"FINAL NON-UNION HOURLY PENSION BENEFIT DISTRIBUTION DATE"); provided, however,
if the Present Value of the Accrued Benefit of such a participant does not
exceed $3,500, then such participant shall automatically receive a single lump
sum payment of his or her Accrued Benefit. In the event that any applicable
election, waiver, or consent with respect to a given participant is not received
by the U.S. Seller within ninety (90) days of the
-3-
<PAGE>
distribution of such election, waiver, and consent forms, an irrevocable Annuity
Contract will be purchased for each such participant.
The U.S. Seller shall keep the U.S. Purchaser advised as to the status of
the distribution of benefits required by this Section 3.01(d) and as to the
selection of an insurance company as the issuer of the Annuity Contracts to be
included in such distribution. The U.S. Seller shall consider any
recommendation regarding the selection of any such insurance company made by the
U.S. Purchaser.
(e) The U.S. Purchaser shall pay to the U.S. Seller, at the time and in
the manner provided in Section 3.01(f) below, an amount (the "NON-UNION
DISTRIBUTION COST") determined as follows:
(i) the aggregate of (A) all amounts distributed in the form of lump
sum payments pursuant to Section 3.01(d) hereof, and (B) the total cost of
all Annuity Contracts distributed pursuant to Section 3.01(d) hereof; LESS
(ii) $390,098 (the "NON-UNION HOURLY PENSION BENEFIT AMOUNT") which
represents the projected benefit obligation under U.S. Seller's Non-Union
Hourly Pension Plan, determined as of the Closing Date, with respect to the
Non-Union Hourly Employees covered under such plan as calculated in
accordance with Statement of Financial Accounting Standards No. 87 based on
the assumptions utilized by the U.S. Seller for financial statement
footnote disclosure purposes as of December 31, 1994; LESS
(iii) an amount equal to 8% per annum of the Non-Union Hourly Pension
Benefit Amount for the period from the Closing Date through the First
Non-Union Hourly Pension Benefit Distribution Date.
The Non-Union Distribution Cost shall be zero if the sum of the amounts
described in Sections 3.01(e)(ii) and (iii) above equals or exceeds the amount
described in Section 3.01(e)(i) above (such excess, if any, is referred to
herein as the "NON-UNION EXCESS AMOUNT").
(f) Within ten (10) days following the Final Non-Union Hourly Pension
Benefit Distribution Date, the U.S. Seller shall notify the U.S. Purchaser (the
"NON-UNION DISTRIBUTION COST NOTICE") of the amount of the Non-Union
Distribution Cost. Within five (5) days following its receipt of the Non-Union
Distribution Cost Notice, the U.S. Purchaser shall pay the Non-Union
Distribution Cost set forth in such Non-Union Distribution Cost Notice to the
U.S. Seller via wire transfer of immediately available funds to an account
designated by the U.S. Seller.
If the Non-Union Distribution Cost is zero and there is a Non-Union Excess
Amount, the U.S. Seller shall pay such Non-Union Excess Amount to the U.S.
Purchaser within ten (10) days
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following the Final Non-Union Hourly Pension Benefit Distribution Date.
(g) Within ten (10) days following the Final Non-Union Hourly Pension
Benefit Distribution Date, the U.S. Seller shall notify the U.S. Purchaser of
the aggregate amount of all legal, actuarial and other administrative costs and
expenses (excluding any allocation of the internal overhead cost of the U.S.
Seller in connection with the performance of this Agreement by the U.S. Seller)
incurred by the U.S. Seller or its Affiliates, or where appropriate, the U.S.
Seller's Non-Union Hourly Pension Plan, prior to or on the Final Non-Union
Hourly Pension Benefit Distribution Date (i) to accomplish or in connection with
the distribution of Accrued Benefits from the U.S. Seller's Non-Union Hourly
Pension Plan as provided for herein or (ii) in connection with the negotiation
and preparation of this Agreement or any documents related hereto. Immediately
upon its receipt of such notice, the U.S. Purchaser shall pay to the U.S.
Seller, via wire transfer of immediately available funds to an account
designated by the U.S. Seller, the amount set forth therein. Furthermore, at
any time following the Final Non-Union Hourly Pension Benefit Distribution Date,
the U.S. Seller may notify the U.S. Purchaser in writing of any additional
amounts of legal, actuarial and other administrative costs and expenses
(excluding any allocation of the internal overhead cost of the U.S. Seller in
connection with the performance of this Agreement by the U.S. Seller) incurred
by the U.S. Seller or its Affiliates, or, where appropriate, the U.S. Seller's
Non-Union Hourly Pension Plan, subsequent to the Final Non-Union Hourly Pension
Benefit Distribution Date (i) to accomplish or in connection with the
distribution of Accrued Benefits from the U.S. Seller's Non-Union Hourly Pension
Plan as provided for herein or (ii) in connection with the negotiation and
preparation of this Agreement or any documents related hereto. Immediately upon
its receipt of such notice, the U.S. Purchaser shall pay to the U.S. Seller, via
wire transfer of immediately available funds to an account designated by the
U.S. Seller, the amount set forth therein.
Section 3.02 SALARIED PENSION PLAN.
(a) As soon as practicable following the date hereof, the U.S. Seller
shall cause each U.S. Seller Employee who is identified on EXHIBIT D hereto
(collectively, the "SALARIED EMPLOYEES") to have a fully (100%) vested
nonforfeitable right to such employee's Accrued Benefit, if any, as of the
Closing Date, under the Alcatel NA Cable Systems, Inc. Salaried Pension Plan
(the "U.S. SELLER'S SALARIED PENSION PLAN"), and shall cause the U.S. Seller's
Salaried Pension Plan to pay to each Salaried Employee his or her Accrued
Benefits thereunder when and as provided in such plan, as amended pursuant to
Section 3.02(c) hereof, and as provided in Section 3.02(d) hereof.
Notwithstanding the foregoing or any other term of this Agreement to the
contrary, the U.S. Seller shall not cause any Salaried Employee that is rehired
by the U.S. Seller prior to the
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distribution of his or her Accrued Benefit as provided in this Section 3.02 to
receive such a distribution.
(b) The U.S. Purchaser shall, within ten (10) days following the date of
this Agreement, distribute the notice attached as EXHIBIT E hereto to each
Salaried Employee.
(c) As soon as practicable following the date hereof, the U.S. Seller
shall amend the U.S. Seller's Salaried Pension Plan to add a single lump sum
payment and an immediate early retirement annuity as optional forms of
distribution from such plan in addition to the irrevocable annuity forms of
distribution already provided for therein. Such single lump sum payment shall
be equal to the Present Value, as of the date of distribution, of the
participant's Accrued Benefit under the U.S. Seller's Salaried Pension Plan as
of the Closing Date. The U.S. Seller shall keep the U.S. Purchaser advised as
to the status of the foregoing amendment to the U.S. Seller's Salaried Pension
Plan and, upon request, shall furnish to the U.S. Purchaser copies of the
documentation related thereto. The U.S. Seller shall consider any
recommendations made by the U.S. Purchaser in connection with such plan
amendment.
(d) As soon as practicable following the effective date of the amendment
to the U.S. Seller's Salaried Pension Plan described in Section 3.02(c) above,
the U.S. Seller shall, pursuant to forms substantially in the form of EXHIBIT F
hereto, inform each Salaried Employee of his or her Accrued Benefit under such
plan and the forms of distributions available thereunder, and shall solicit a
form of distribution (I.E., a lump sum or an annuity contract) (along with any
applicable waivers and spousal consents) from each such participant. As soon as
practicable after collecting and processing any applicable elections, waivers,
and consents, the U.S. Seller shall cause the U.S. Seller's Salaried Pension
Plan to distribute to each Salaried Employee his or her Accrued Benefit in the
form of a single lump sum payment or an irrevocable Annuity Contract in
accordance with his or her election (the date on which the first such
distribution is made is referred to herein as the "FIRST SALARIED PENSION
BENEFIT DISTRIBUTION DATE" and the date on which the last such distribution is
made is referred to herein as the "FINAL SALARIED PENSION BENEFIT DISTRIBUTION
DATE"); provided, however, if the Present Value of the Accrued Benefit of such a
participant does not exceed $3,500, then such participant shall automatically
receive a single lump sum payment of his or her Accrued Benefit. In the event
that any applicable election, waiver, or consent with respect to a given
participant is not received by the U.S. Seller within ninety (90) days of the
distribution of such election, waiver, and consent forms, an irrevocable Annuity
Contract will be purchased for each such participant.
The U.S. Seller shall keep the U.S. Purchaser advised as to the status of
the distribution of benefits required by this Section 3.02(d) and as to the
selection of an insurance company as the issuer of the Annuity Contracts to be
included in such
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distribution. The U.S. Seller shall consider any recommendation regarding the
selection of any such insurance company made by the U.S. Purchaser.
(e) The U.S. Purchaser shall pay to the U.S. Seller, at the time and in
the manner provided in Section 3.02(f) below, an amount (the "SALARIED
DISTRIBUTION COST") determined as follows:
(i) the aggregate of (A) all amounts distributed in the form of lump
sum payments pursuant to Section 3.02(d) hereof and (B) the total cost of
all Annuity Contracts distributed pursuant to Section 3.02(d) hereof; LESS
(ii) $1,144,113 (the "SALARIED PENSION BENEFIT AMOUNT") which
represents the projected benefit obligation under U.S. Seller's Salaried
Pension Plan, determined as of the Closing Date, with respect to the
Salaried Employees covered under such plan as calculated in accordance with
Statement of Financial Accounting Standards No. 87 based on the assumptions
utilized by the U.S. Seller for financial statement footnote disclosure
purposes as of December 31, 1994; LESS
(iii) an amount equal to 8% per annum of the Salaried Pension Benefit
Amount for the period from the Closing Date through the First Salaried
Pension Benefit Distribution Date.
The Salaried Distribution Cost shall be zero if the sum of the amounts
described in Sections 3.02(e)(ii) and (iii) above equals or exceeds the amount
described in Section 3.02(e)(i) above (such excess, if any, is referred to
herein as the "SALARIED EXCESS AMOUNT").
(f) Within ten (10) days following the Final Salaried Pension Benefit
Distribution Date, the U.S. Seller shall notify the U.S. Purchaser (the
"SALARIED DISTRIBUTION COST NOTICE") of the amount of the Salaried Distribution
Cost. Within five (5) days following its receipt of the Salaried Distribution
Cost Notice, the U.S. Purchaser shall pay the Salaried Distribution Cost set
forth in such Salaried Distribution Cost Notice to the U.S. Seller via wire
transfer of immediately available funds to an account designated by the U.S.
Seller.
If the Salaried Distribution Cost is zero and there is a Salaried Excess
Amount, the U.S. Seller shall pay such Salaried Excess Amount to the U.S.
Purchaser within ten (10) days following the Final Salaried Pension Benefit
Distribution Date.
(g) Within ten (10) days following the Final Salaried Pension Benefit
Distribution Date, the U.S. Seller shall notify the U.S. Purchaser of the
aggregate amount of all legal, actuarial and other administrative costs and
expenses (excluding any allocation of the internal overhead cost of the U.S.
Seller in connection with the performance of this Agreement by the U.S.
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Seller) incurred by the U.S. Seller or its Affiliates, or where appropriate, the
U.S. Seller's Salaried Pension Plan, prior to or on the Final Salaried Pension
Benefit Distribution Date (i) to accomplish or in connection with the
distribution of Accrued Benefits from the U.S. Seller's Salaried Pension Plan as
provided for herein or (ii) in connection with the negotiation and preparation
of this Agreement or any documents related hereto. Immediately upon its receipt
of such notice, the U. S. Purchaser shall pay to the U.S. Seller, via wire
transfer of immediately available funds to an account designated by the U.S.
Seller, the amount set forth therein. Furthermore, at any time following the
Final Salaried Pension Benefit Distribution Date, the U.S. Seller may notify the
U.S. Purchaser in writing of any additional amounts of legal, actuarial and
other administrative costs and expenses (excluding any allocation of the
internal overhead cost of the U.S. Seller in connection with the performance of
this Agreement by the U.S. Seller) incurred by the U.S. Seller or its
Affiliates, or, where appropriate, the U.S. Seller's Salaried Pension Plan,
subsequent to the Final Salaried Pension Benefit Distribution Date (i) to
accomplish or in connection with the distribution of Accrued Benefits from the
U.S. Seller's Salaried Pension Plan as provided for herein or (ii) in connection
with the negotiation and preparation of this Agreement or any documents related
hereto. Immediately upon its receipt of such notice, the U.S. Purchaser shall
pay to the U.S. Seller, via wire transfer of immediately available funds to an
account designated by the U.S. Seller, the amount set forth therein.
ARTICLE IV
INDEMNIFICATION; ADDITIONAL LIMITATION
Section 4.01 INDEMNIFICATION BY U.S. PURCHASER. In addition to and
separate from the indemnification provided pursuant to the Asset Purchase
Agreement, the U.S. Purchaser shall indemnify and hold harmless the U.S. Seller,
its Affiliates, any and all officers, directors, employees and agents of the
U.S. Seller or any of its Affiliates, the U.S. Seller's Non-Union Hourly Pension
Plan, the U.S. Seller's Salaried Pension Plan, the trustees of both such plans
and the administrative committees of both such plans from and against any and
all Losses suffered or incurred by any such Person or plan as a result of or
arising out of:
(i) The failure of the U.S. Purchaser to perform any covenant or
agreement of the U.S. Purchaser under this Agreement; or
(ii) Any claim or action by any U.S. Seller Employee (or any
beneficiary thereof) or by any other third party (including, without
limitation, any Governmental Authority) as a result of or arising out of
(A) the decision of the U.S. Purchaser to request an amendment to its
obligations under Section 7.02(c) of the Asset Purchase Agreement as
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originally contained therein, (B) the execution and performance of this
Agreement by the parties hereto including, without limitation, the amendment of
the U.S. Seller's Non-Union Hourly Pension Plan and the distribution of the
Accrued Benefits of the Non-Union Hourly Employees from such plan, in each case
as provided herein, (C) the selection of the insurance company or companies that
issue any Annuity Contracts distributed pursuant to Section 3.01, or (D) the
failure of any such insurance company to comply with the terms of any such
Annuity Contracts; provided that no Person or plan shall be entitled to
indemnification pursuant to this Section 4.01(ii) with respect to Losses caused
by the gross negligence or intentional misconduct of such Person or plan; or
(iii) Any claim or action by any U.S. Seller Employee (or any
beneficiary thereof) or by any other third party (including, without
limitation, any Governmental Authority) as a result of or arising out of
(A) the decision of the U.S. Purchaser to request an amendment to its
obligations under Section 7.02(d) of the Asset Purchase Agreement as
originally contained therein, (B) the execution and performance of this
Agreement by the parties hereto including, without limitation, the
amendment of the U.S. Seller's Salaried Pension Plan and the distribution
of the Accrued Benefits of the Salaried Employees from such plan, in each
case as provided herein, (C) the selection of the insurance company or
companies that issue any Annuity Contracts distributed pursuant to Section
3.02, or (D) the failure of any such insurance company to comply with the
terms of any such Annuity Contracts; provided that no Person or plan shall
be entitled to indemnification pursuant to this Section 4.01(iii) with
respect to Losses caused by the gross negligence or intentional misconduct
of such Person or plan.
Section 4.02 INDEMNIFICATION BY U.S. SELLER. In addition to and separate
from the indemnification provided pursuant to the Asset Purchase Agreement,
subject to Section 4.03 hereof, the U.S. Seller shall indemnify and hold
harmless the U.S. Purchaser, its Affiliates, and any and all officers,
directors, employees and agents of the U.S. Purchaser or any of its Affiliates
from and against any and all Losses suffered or incurred by any such Person as a
result of or arising out of the failure of the U.S. Seller to perform any
covenant or agreement of the U.S. Seller under this Agreement.
Section 4.03 ADDITIONAL LIMITATION. Notwithstanding any other term of
this Agreement, the U.S. Seller shall have no obligation to indemnify and hold
harmless any Person pursuant to Section 4.02 hereof or otherwise from or against
any Losses resulting from the failure of the U.S. Seller to perform any covenant
or agreement under this Agreement if at the time such performance is required
(i) the U.S. Seller is prohibited from completing such performance by an
injunction or other equitable
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remedy issued by a court of competent jurisdiction at the request of or on
behalf of any U.S. Seller Employee or any beneficiary thereof or (ii) any U.S.
Seller Employee or beneficiary thereof has filed an action or request with any
court of competent jurisdiction seeking an order or other equitable relief from
such court (A) prohibiting the U.S. Seller, the U.S. Seller's Non-Union Hourly
Pension Plan or the U.S. Seller's Salaried Pension Plan from complying with one
or more provisions of this Agreement or (B) causing the U.S. Seller, the U.S.
Seller's Non-Union Hourly Pension Plan or the U.S. Seller's Salaried Pension to
comply with one or more provisions of Section 7.01(c) or Section 7.02(d) of the
Asset Purchase Agreement as in effect immediately prior to the date hereof.
Section 4.04 NOTICE OF INDEMNITY CLAIMS. In the event any Person (the
"INDEMNIFIED PERSON") should have a claim under this Article IV against any
other Person (the "INDEMNIFYING PERSON") the Indemnified Person shall give
written notice regarding the details pertaining to such claim, including copies
of all relevant information and documents (collectively, an "INDEMNITY NOTICE"),
to the Indemnifying Person within a period of thirty (30) days following the
discovery of the claim by the Indemnified Person (the "CLAIM NOTICE PERIOD").
The failure by the Indemnified Person to give the Indemnity Notice to the
Indemnifying Person within the Claim Notice Period shall not impair the
Indemnified Person's rights hereunder except to the extent that such
Indemnifying Person demonstrates that he has been irreparably prejudiced
thereby.
ARTICLE V
ADJUSTMENT DUE TO ERRORS IN EMPLOYEE CENSUS DATA
Section 5.01 REQUEST FOR RECALCULATION. Each of the U.S. Seller and the
U.S. Purchaser shall have the right to request the application of this Article V
by so notifying the other such party in writing within thirty (30) days
following the expiration of both the Final Non-Union Hourly Pension Benefit
Distribution Date and the Final Salaried Pension Benefit Distribution Date,
provided that the party making such request has a reasonable basis for believing
that either (or both) of the following is accurate:
(i) There was an error in the employee census data which was used by
William M. Mercer Incorporated ("MERCER") as the basis of its determination
of the Non-Union Hourly Pension Benefit Amount pursuant to Section
7.02(c)(iii) of the Asset Purchase Agreement, as originally drafted, and,
if such Non-Union Hourly Pension Benefit Amount were recalculated based
upon the correct employee census data (and otherwise as originally
calculated), such recalculated amount would vary from $390,098 by more than
$11,702; or
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(ii) There was an error in the employee census data which was used by
Mercer as the basis of its determination of the Salaried Pension Benefit
Amount pursuant to Section 7.02(d)(iii) of the Asset Purchase Agreement, as
originally drafted, and, if such Salaried Pension Benefit Amount were
recalculated based upon the correct employee census data (and otherwise as
originally calculated), such recalculated amount would vary from $1,144,113
by more than $34,323.
Any notice given pursuant to this Section 5.01 shall specify that such notice is
based upon Section 5.01(i), Section 5.01(ii) or both such Sections.
Section 5.02 ADJUSTMENT. If a request is made for the application of
this Article V pursuant to Section 5.01, Mercer shall be retained immediately by
the U.S. Seller to perform the following services as expeditiously as possible:
(i) The recalculation described in Section 5.01(i) above, if such
request is made based solely upon that Section (such recalculated amount is
referred to herein as the "RECALCULATED NON-UNION HOURLY PBO AMOUNT");
(ii) The recalculation described in Section 5.01(ii) above, if such
request is made based solely upon that Section (such recalculated amount is
referred to herein as the "RECALCULATED SALARIED PBO AMOUNT"); and
(iii) The recalculations described in Sections 5.01(i) and (ii) above,
if such request is based on both such Sections.
In the event the Recalculated Non-Union Hourly PBO Amount exceeds $401,800,
the U.S. Seller shall pay the amount of such excess to the U.S. Purchaser within
five (5) days following the determination of such excess by Mercer. In the
event the Recalculated Non-Union Hourly PBO Amount is less than $378,396, the
U.S. Purchaser shall pay the amount of such shortfall to the U.S. Seller within
five (5) days following the determination of such excess.
In the event the Recalculated Salaried PBO Amount exceeds $1,178,436, the
U.S. Seller shall pay the amount of such excess to the U.S. Purchaser within
five (5) days following the determination of such excess by Mercer. In the
event the Recalculated Salaried PBO Amount is less than $1,109,790, the U.S.
Purchaser shall pay the amount of such shortfall to the U.S. Seller within five
(5) days following the determination of such excess.
Section 5.03 ACTUARIAL FEES. The fees and expenses charged by Mercer in
connection with this Article V shall be paid as follows:
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(i) Solely by the party making the request under Section 5.01, if no
payments are required under Section 5.02; or
(ii) Equally by the U.S. Seller and the U.S. Purchaser, if any payment
is required under Section 5.02.
ARTICLE VI
MISCELLANEOUS
Section 6.01 SURVIVAL. The parties hereto agree that their respective
representations, warranties, covenants and agreements contained in this
Agreement shall survive the execution hereof and the consummation of the
transactions contemplated hereby.
Section 6.02 CONFIDENTIALITY. Except as otherwise required by law, no
party hereto shall disclose the existence of this Agreement or the terms hereof
to any Person. Notwithstanding the foregoing, this Section 6.02 shall not apply
to any disclosure pursuant to any notice or form attached as an Exhibit hereto.
Section 6.03 NO IMPLIED AMENDMENT. Except as expressly provided in this
Agreement, the Asset Purchase Agreement shall not be modified, amended or deemed
to be modified or amended by this Agreement.
Section 6.04 ENTIRE AGREEMENT. This Agreement supersedes all prior
discussions and agreements among the parties hereto with respect to the subject
matter hereof and contains the sole and entire agreement among such parties with
respect to the subject matter hereof.
Section 6.05 WAIVER; REMEDIES. Any term or condition of this Agreement
may be waived at any time by the party that is entitled to the benefit thereof,
but no such waiver shall be effective unless set forth in a written instrument
duly executed by or on behalf of the party waiving such term or condition. No
waiver by any party of any term or condition of this Agreement, in any one or
more instances, shall be deemed to be or construed as a waiver of the same or
any other term or condition of this Agreement on any future occasion.
Section 6.06 AMENDMENT. This Agreement may be amended, supplemented or
modified only by a written instrument duly executed by or on behalf of each
party hereto.
Section 6.07 BENEFITS AND BINDING EFFECT. Neither this Agreement nor any
right, interest or obligation hereunder may be assigned by any party hereto
without the prior written consent of the other parties hereto and any attempt to
do so will be void. Subject to the preceding sentence, this Agreement is
binding
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upon, inures to the benefit of and is enforceable by the parties hereto and
their respective successors and assigns.
Section 6.08 CAPTIONS. The captions used in this Agreement have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.
Section 6.09 EXHIBITS AND SCHEDULES. All exhibits and schedules referred
to in this Agreement, all attachments to exhibits or schedules, and any other
attachment to this Agreement are hereby incorporated by reference into this
Agreement and hereby are made a part of this Agreement as if set out in full
herein.
Section 6.10 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the Laws of the State of North Carolina applicable
to a contract executed and performed in such State, without giving effect to the
conflicts of laws principles thereof.
Section 6.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
Section 6.12 SEVERABILITY. Any provision of this Agreement which 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 not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 6.13 NO THIRD PARTY BENEFICIARY. Except for those Persons and
plans which are not parties hereto that are given rights as provided in Article
IV hereof, this Agreement shall not confer any rights or remedies upon any
person or entity other than the parties hereto and their respective successors
and permitted assigns.
Section 6.14 NOTICES. All notices, requests and other communications
hereunder shall be in writing and shall be deemed to have been duly given when
provided in accordance with Section 16.01 of the Asset Purchase Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
pursuant to Section 16.07 of the Asset Purchase Agreement as of the date first
above written.
SELLERS:
ALCATEL NA CABLE SYSTEMS, INC.
By:_________________________
Name:_______________________
Title:______________________
ALCATEL CANADA WIRE INC.
By:_________________________
Name:_______________________
Title:______________________
PURCHASERS:
SUPERIOR TELECOMMUNICATIONS INC.,
f/k/a Superior Teletec Inc.
By:_________________________
Name:_______________________
Title:______________________
SUPERIOR CABLE CORPORATION
By:_________________________
Name:_______________________
Title:______________________
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The undersigned joins in this Agreement as a party hereto for the purpose of
agreeing to the terms hereof as required by Section 16.07 of the Asset Purchase
Agreement.
THE ALPINE GROUP, INC.,
a Delaware corporation
By:_________________________
Name:_______________________
Title:______________________
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EMPLOYMENT AGREEMENT
This AGREEMENT dated as of the 26th day of April, 1996, between The Alpine
Group, Inc., a Delaware corporation (the "Company"), and Steven S. Elbaum (the
"Executive").
The Board of Directors of the Company (the "Board") recognizes that the
Executive's contribution to the future growth and success of the Company is
expected to be substantial. Whereas the Executive has served as the Chief
Executive Officer of the Company since 1984; and whereas the Executive and the
Company are parties to an Employment Agreement dated as of September 8, 1993 (as
the same may have been amended from time to time, the "Old Agreement"). The
Board desires to provide for the continued employment of the Executive with the
Company which the Board has determined will reinforce and encourage the
continued attention and dedication of the Executive to the Company as a member
of the Company's management, in the best interest of the Company and its
shareholders. The Executive is willing to commit himself to serve the Company,
on the terms and conditions herein provided.
Moreover, the Board has determined that it is in the best interests of the
Company and its shareholders to assure that the Company will have the continued
dedication of the Executive, notwithstanding the possibility, threat or
occurrence of a Change of Control (as defined below) of the Company. The Board
believes it is imperative to diminish the inevitable distraction of the
Executive by virtue of the personal uncertainties and risks created by a pending
or threatened Change of Control and to encourage the Executive's full attention
and dedication to the Company currently and in the event of any threatened or
pending Change of Control, and to provide the Executive with compensation and
benefits arrangements upon a Change of Control which ensure that the
compensation and benefits expectations of the Executive will be satisfied and
which are competitive with those of other corporations.
In order to effect the foregoing, the Company and the Executive wish to
amend and restate the Old Agreement by entering into this Agreement on the terms
and conditions set forth below. Accordingly, in consideration of the premises
and the respective covenants and agreements of the parties herein contained, and
intending to be legally bound hereby, the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive, and
the Executive hereby agrees to serve the Company, on the terms and conditions
set forth herein.
<PAGE>
2. TERM.
(a) The employment of the Executive by the Company hereunder
commenced on September 8, 1993 (the "Commencement Date") and will continue in
effect (i) until either party gives notice to the other, as provided in Section
8(d), that it does not wish to continue the Executive's employment hereunder or
(ii) unless terminated as provided in Sections 8(a), (b), (c) or (d). The
"Term" shall be the period commencing on the date hereof and ending on the
earlier to occur of the events specified in clause (i) or (ii) of the preceding
sentence.
(b) Notwithstanding paragraph (a) above or the provisions of Section
8(d), the Company hereby agrees to continue the Executive in its employ, and the
Executive hereby agrees to remain in the employ of the Company subject to the
terms and conditions of this Agreement, during any Transition Period. For
purposes of this Agreement, the Term shall, unless otherwise specified, include
any Transition Period.
3. CERTAIN DEFINITIONS. (a) A "COC Transition Date" shall mean a date
during the Term (as defined in Section 2) on which a Change of Control (as
defined in Section 4) occurs. Anything in this Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (ii) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of this Agreement the "COC Transition Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) A "Transition Period" is a period commencing on a COC Transition
Date and ending on the third anniversary of such date. If a subsequent COC
Transition Date is determined to occur during a Transition Period, then such
Transition Period shall continue until the third anniversary of such subsequent
COC Transition Date. If a subsequent COC Transition Date occurs after the
expiration of a Transition Period, a new Transition Period will commence on such
date and end on the third anniversary thereof.
(c) Notwithstanding anything to the contrary in this Agreement, for
purposes of calculating payments under Section 13(f), "Applicable Bonus" means
the higher of (i) the Highest Recent Bonus (as defined in Section 13(b)(i)) and
(ii) the Annual Bonus (as defined in Section 6(b)) paid or payable, including
any bonus or portion thereof which has been earned but deferred (and annualized
for any fiscal year consisting of less than twelve full months or during which
the Executive was employed for less than twelve full months), for the most
recently
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completed fiscal year during the Term, if any (the "Recent Annual Bonus") (such
higher amount being referred to as the "Highest Annual Bonus"). For purposes of
calculating payments under all sections of this Agreement other than Section
13(f), Applicable Bonus means the Recent Annual Bonus.
(d) A "Stock Option" is an option to purchase a number of shares of
stock of the Company at a fixed exercise price granted to the Executive by the
Company, whether or not exercisable.
4. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of voting
securities of the Company where such acquisition causes such Person to own more
than 20% or more of the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
for purposes of this subsection (a), the following acquisitions shall not be
deemed to result in a Change of Control: (i) any acquisition directly from the
Company, (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company or (iv) any acquisition by any
corporation pursuant to a transaction that complies with clauses (i), (ii) and
(iii) of subsection (c) below; and provided, further, that if any Person's
beneficial ownership of the Outstanding Company Voting Securities reaches or
exceeds more than 20% as a result of a transaction described in clause (i) or
(ii) above, and such Person subsequently acquires beneficial ownership of
additional voting securities of the Company, such subsequent acquisition shall
be treated as an acquisition that causes such Person to own more than 20% or
more of the Outstanding Company Voting Securities; or
(b) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or
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threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board; or
(c) The consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another corporation ("Business
Combination"); excluding, however, such a Business Combination pursuant to which
(i) all or substantially all of the individuals and entities who were the
beneficial owners of the Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more than
50% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation that as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Voting
Securities, (ii) no Person (excluding any employee benefit plan (or related
trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, more than 20% or more
of, respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
5. POSITION AND DUTIES.
(a) The Executive shall serve as Chief Executive Officer and
Chairman of the Board of Directors of the Company with the responsibility and
authority to manage and supervise the Company's operations in the ordinary
course of its business and shall have such responsibilities, duties and
authority as are generally associated with each such position and as may from
time to time be assigned to the Executive by the Board that are consistent with
such responsibilities, duties and authority, provided, that the Executive shall
at all times be senior to every other employee and director of the Company and
its affiliates. The Executive's services shall be per-
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formed primarily at the Company's headquarters office in the New York City
metropolitan area.
(b) During the Term, and excluding any periods of vacation and sick
leave to which the Executive is entitled, the Executive agrees to devote
reasonable attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Term it shall not be a violation of this Agreement
for the Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or teach at
educational institutions and (C) manage personal investments, so long as such
activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement and are not directly competitive with the operating businesses of
the Company's subsidiaries. The Company shall continue to nominate the
Executive as a director of the Company during the term hereof consistent with
the Company's By-Laws.
6. COMPENSATION AND RELATED MATTERS.
(a) SALARY. (i) During the Term, the Company shall pay to the
Executive an annual base salary (the "Annual Base Salary") at a rate not less
than $419,000 or such higher rate as may from time to time be determined by the
Board, such salary to be paid in substantially equal installments in accordance
with the normal payroll practice of the Company. The Executive's salary will be
reviewed at least annually and shall be increased pursuant to such review by a
percentage no less than the percentage increase in the consumer price index, as
published by Bureau of Labor Statistics of the U.S. Department of Labor, for the
calendar year immediately preceding such review (the "CPI Percentage"). Any
increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so increased.
(b) ANNUAL BONUS. In addition to the Annual Base Salary, the Company
will pay the Executive an annual cash bonus (the "Annual Bonus") within 90 days
following the last day of the Company's fiscal year for which the Annual Bonus
is awarded in an amount, if any, determined in accordance with and otherwise
calculated in the manner set forth in the "Annual Cash Bonus Incentive" section
of Schedule 1 attached hereto, as the same may be amended from time to time in
the discretion of the Compensation Committee of the Company's Board of Directors
(the "Compensation Committee").
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(c) STOCK OPTIONS. On the Commencement Date, the Company granted the
Executive 30,000 Stock Options (the "Initial options") to purchase 30,000 shares
of common stock of the Company (the "Company Stock"), as subsequently adjusted
in accordance with the adjustments made by the Compensation Committee on
November 10, 1995, having exercise prices per share equal to the following
percentages of the average of the high and low sales prices of the Company Stock
on the American Stock Exchange on the Commencement Date and become exercisable
in the following amounts and on the following dates:
No. of Shares Exercise Price First Exercisable
- ------------- -------------- -----------------
9,150 86.058% Upon the 1st Anniversary of the
Commencement Date
9,150 86.058% Upon the 2nd Anniversary of the
Commencement Date
9,150 90.156% Upon the 3rd Anniversary of the
Commencement Date
9,150 94.254% Upon the 4th Anniversary of the
Commencement Date
Such Initial Options are intended to be "incentive stock options" and were
granted under the Company's 1987 Equity Incentive Plan, as amended, and are
evidenced by the Company's standard stock option agreement.
In the event of termination of employment (i) by the Executive other
than because of death or for Good Reason, prior to the fourth anniversary of the
Commencement Date or (ii) by the Company for Cause, all Stock Options
(including, without limitation, the Initial Options) not theretofore exercisable
will lapse and be forfeited. In the event the Executive's employment is
terminated for any other reason prior to the fourth anniversary of the
Commencement Date all Stock options (including, without limitation, the Initial
Options) not theretofore exercisable will thereupon become exercisable. Except
as provided in Section 11 each Stock Option will expire 10 years after it is
granted.
(d) RESTRICTED STOCK GRANT. On the Commencement Date, the Company
granted to the Executive 100,000 shares of the Company's Stock pursuant to the
Restricted Stock Plan, as amended, which restricted shares have been set aside
in the custody, control and possession of the Company and have and will be
released to the Executive at the rate of 25,000 shares on each anniversary of
the Commencement Date, provided that, in the event Executive's employment is
terminated for Cause or by Executive without Good Reason, prior to the fourth
anniversary of the Commencement Date, then the scheduled releases on any
subsequent anniversary of the Commencement Date shall be can-
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celled and all shares of Restricted Stock not theretofore released shall be
forfeited by the Executive and shall be cancelled and retired by the Company.
In consideration of the grant described in this Section 6(d), Executive
agrees to and shall release the Company from any and all claims he may have
relating to anti-dilution adjustments to which he is entitled under the Stock
Option Agreement dated December 5, 1984 between the Executive and the Company.
(e) FURTHER RESTRICTED STOCK GRANT. The Company has made a further
grant to the Executive of 50,000 shares of Company Stock pursuant to the
Restricted Stock Plan, as amended, which restricted shares have been set aside
in the custody, control and possession of the Company and are released to the
Executive at the rate of 10,000 shares on May 1, 1995 and September 8, 1995,
1996, 1997 and 1998, provided that, in the event the Executive's employment is
terminated for Cause or by Executive without Good Reason prior to the fifth
anniversary of the Commencement Date, the total number of restricted shares to
be released to the Executive shall be 50,000 multiplied by a fraction the
numerator of which is the number of months the Executive is employed by the
Company from and after the Commencement Date and the denominator of which is 60.
Any and all shares not theretofore released shall be forfeited by the Executive
and cancelled and retired by the Company.
(f) TAX LOAN. Not less than 10 days prior to the due date of the
Executive's federal income tax return for every taxable year of the Executive in
which his income tax liability is increased by or as a result of the matters
contained in Sections 6(d) or 6(e) the Company will lend to the Executive an
amount equal to such increased tax liability. The Company and the Executive
shall enter into an appropriate agreement providing for the repayment by the
Executive of such loan, which agreement shall provide that (i) if the principal
amount of such loan (together with the aggregate outstanding amount of other
loans between the Company and the Executive) exceeds the de minimis amount set
forth in Section 7872(c)(3) of the Internal Revenue Code of 1986, as amended
(the "Code") (or any successor provision thereto), then such loan shall bear
interest at a rate not less than the applicable Federal rate determined in
accordance with Section 7872(f)(2) (or any successor provision) of the Code, and
(ii) if the Executive disposes of any of the shares of Company Stock prior to
the fifth anniversary of the Commencement Date, the principal balance of the
loan shall become immediately due and payable to the extent of the proceeds of
such disposition.
(g) EXPENSES. During the term of the Executive's employment
hereunder, the Executive shall be entitled to receive prompt reimbursement for
all reasonable and customary expenses incurred by the Executive in performing
services hereunder,
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including (i) all expenses of travel and living expenses while away from home or
business or at the request of and in the service of the Company and (ii) an
automobile and a driver, plus all expenses of maintaining and operating the
automobile, provided that all such expenses are accounted for in accordance with
the policies and procedures established by the Company, or a monthly cash
allowance in lieu thereof.
(h) WELFARE BENEFITS. During the Term, the Executive and/or the
Executive's family, as the case may be, shall be eligible for participation in
and shall receive all benefits under welfare benefit plans, practices, policies
and programs provided by the Company and its affiliated companies (including,
without limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to the most
senior executives of the Company and its affiliated companies, but in no event
shall such plans, practices, policies and programs provide the Executive with
benefits which are materially less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive as of the date hereof or, if more favorable to the Executive, those
provided generally at any time to other peer executives of the Company and its
affiliated companies. As used in this Agreement, the term "affiliated
companies" shall include any company controlled by, controlling or under common
control with the Company.
(i) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Term, the
Executive shall be entitled to participate in all incentive, savings and
retirement plans, practices, policies and programs applicable generally to
the most senior executives of the Company and its affiliated companies,
including without limitation the Long Term Incentive Award program applicable
to the Executive set forth on Schedule 1 (the "LTI Award"). In addition, the
Company covenants to adopt on or before February 1, 1997, and to name the
Executive as a participant in, a Senior Executive Retirement Plan
substantially in the form as set forth in Exhibit A attached hereto.
(j) FRINGE BENEFITS. During the Term:
(i) The Company shall reimburse the Executive for the reasonable
expenses incurred by the Executive in undergoing an annual physical examination
by a licensed physician.
(ii) The Company shall reimburse the Executive for membership fees,
dues and special assessments incurred by the Executive in connection with his
membership in a country club.
(iii) The Company shall reimburse the Executive for the reasonable
expenses incurred by the Executive in connection with obtaining professional tax
and financial planning advice.
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(k) VACATION. During the Term, the Executive shall be entitled to
paid vacation of four weeks per year, any unused portion of which shall be
forfeited as of the end of each year.
(l) DISABILITY OFFSET. Payments made to the Executive pursuant to
this Section 6 shall be reduced by the sum of the amounts, if any, payable to
the Executive at or prior to the time of any such payment under disability
benefit plans of the Company or under the Social Security disability insurance
program, and which amounts were not previously applied to reduce any such
payments.
7. OFFICES. Subject to Section 5, the Executive agrees to serve without
additional compensation, if elected or appointed thereto, as a director of the
Company and any of its subsidiaries and in one or more executive offices of any
of the Company's subsidiaries, provided that the Executive is indemnified for
serving in any and all such capacities.
8. TERMINATION. The Executive's employment hereunder may be terminated
only under the following circumstances:
(a) DEATH OR DISABILITY. The Executive's employment shall terminate
automatically upon the Executive's death during the Term. If the Company
determines in good faith that Disability of the Executive has occurred during
the Term (pursuant to the definition of Disability set forth below), it may give
to the Executive written notice in accordance with Section 18 of this Agreement
of its intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" shall mean the absence of the Executive
from the Executive's duties with the Company on a full-time basis for 180
consecutive business days (or such shorter period as will suffice for the
Executive to qualify for full disability benefits under the applicable
disability insurance policy or policies of the Company) as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers and reasonably
acceptable to the Executive or the Executive's legal representative.
(b) CAUSE. The Company may terminate the Executive's employment
during the Term for Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties pursuant to this Agreement (other than
any such failure resulting from incapacity due to physical or mental ill-
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<PAGE>
ness), after a written demand for substantial performance is delivered to
the Executive by the Board which specifically identifies the manner in
which the Board believes that the Executive has not substantially performed
the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the
Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the advice of counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company. The cessation of
employment of the Executive shall not be deemed to be for Cause unless and until
there shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after reasonable notice is provided to the Executive and the Executive
is given an opportunity, together with counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, the Executive is guilty of
the conduct described in subparagraph (i) or (ii) above, and specifying the
particulars thereof in detail.
(c) TERMINATION BY THE EXECUTIVE FOR GOOD REASON. The Executive's
employment may be terminated by the Executive for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean:
a. the assignment to the Executive of any duties inconsistent with
the Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as the Chairman and
Chief Executive Officer of the Company as contemplated by Section 5(a) of
this Agreement, or any other action by the Company which results in a
diminution in such position, authority, duties or responsibilities,
excluding for this purpose isolated, insubstantial and inadvertent
action(s) not taken in bad faith and remedied by the Company promptly after
receipt of notice thereof given by the Executive;
b. any failure by the Company to comply with any of the provisions
of Section 6 or Section 13(a) or (b) of this Agreement, other than
isolated, insubstantial and inadvertent failure(s) not occurring in bad
faith and remedied
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by the Company promptly after receipt of notice thereof given by the
Executive;
c. the Company's requiring the Executive to be based at any office
or location other than as provided in Section 5(a) hereof;
d. any termination by the Company of the Executive's employment
otherwise than as expressly permitted by this Agreement; or
e. any failure by the Company to comply with and satisfy Section
17(a) of this Agreement.
For purposes of this Section 8(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
(d) TERMINATION ELECTION. Subject to the provisions of Section 2(b):
(i) A notice to Executive by the Company will constitute an election
by the Company to terminate the Executive's employment pursuant to Section 2(a)
60 days following the date of delivery of the notice;
(ii) A notice to the Company by the Executive will constitute an
election by the Executive to terminate Executive's employment pursuant to
Section 2(a) 90 days following the date of delivery of the notice;
(iii) In no event, however, shall the Term of the Executive's
employment hereunder extend beyond the end of the month in which the Executive's
sixty-fifth (65th) birthday occurs.
(e) NOTICE OF TERMINATION. Any termination of the Executive's
employment by the Company or by the Executive (other than termination by reason
of the Executive's death) shall be communicated by written Notice of Termination
to the other party hereto in accordance with Section 18 hereof. For purposes of
this Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon (ii)
to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date. The good faith failure by the Executive or the Company to
set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from
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asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(f) DATE OF TERMINATION. "Date of Termination" shall mean (i) if the
Executive's employment is terminated by reason of death or Disability, the date
of death of the Executive or the Disability Effective Date, as the case may be,
(ii) if the Executive's employment is terminated for Cause, the date specified
in the Notice of Termination, and (iii) if the Executive's employment is
terminated by either of the elections pursuant to Section 8(d) above, the
applicable date of termination determined under Section 8(d) above, and (iv) if
the Executive's employment is terminated for any other reason, the date on which
a Notice of Termination is given; provided, however, that, if within thirty (30)
days after any Notice of Termination is given the party receiving such Notice of
Termination notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be the date on which the dispute is
finally determined, either by mutual written agreement of the parties, by a
binding and final arbitration award or by a final judgment, order or decree of a
court of competent jurisdiction (the time for appeal therefrom having expired
and no appeal having been perfected).
9. COMPENSATION UPON TERMINATION.
(a) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability during the Term, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations (as defined in Section 13(f)(i)a.) and the timely payment
or provision of Other Benefits (as defined in Section 13(f)(iv)). Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination. Notwithstanding the foregoing, the Company shall
maintain, at the Company's sole expense, in full force and effect, for the
continued benefit of the Executive for twelve months following the Disability
Effective Date, all employee welfare benefit plans and programs in which the
Executive was entitled to participate immediately prior to the Disability
Effective Date provided that the Executive's continued participation is possible
under the general terms and provisions of such plans and programs. In the event
that the Executive's participation in any such plan or program is barred, the
Company shall arrange to provide the Executive with benefits substantially
similar to those which the Executive would otherwise have been entitled to
receive under such plans and programs from which his continued participation is
barred.
(b) DEATH. If the Executive's employment is terminated by reason of
the Executive's death during the Term, this Agreement shall terminate without
further obligations to the Executive's legal representatives under this
Agreement, other than for (i) payment of Accrued Obligations (as defined in Sec-
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tion 13(f)(i)a.), calculated as if the Executive's employment had continued for
a period of 12 months following the date of death; and (ii) the timely payment
or provision of Other Benefits (as defined in Section 13(f)(iv)). Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
(c) CAUSE. If the Executive's employment shall be terminated for
Cause during the Term, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the Executive
(x) his Annual Base Salary through the Date of Termination, (y) the amount of
any compensation previously deferred by the Executive, and (z) Other Benefits,
in each case to the extent theretofore unpaid.
(d) VOLUNTARY TERMINATION. If the Executive voluntarily terminates
employment during the Term, excluding a termination for Good Reason, this
Agreement shall terminate without further obligations to the Executive, other
than for Accrued Obligations and the timely payment or provision of Other
Benefits. In such case, all Accrued Obligations shall be paid to the Executive
in a lump sum in cash within 30 days of the Date of Termination.
(e) TERMINATION ELECTION BY COMPANY; TERMINATION BY EXECUTIVE FOR
GOOD REASON. If the Executive's employment is terminated by the Company under
Section 8(d)(i) hereof or by the Executive under Section 8(c) hereof: (i) the
Company shall pay to the Executive a lump sum in cash within ten days of the
Date of Termination in an amount equal to the sum of (x) the product of the sum
of the Annual Base Salary in effect immediately prior to termination plus the
Applicable Bonus times either (A) two, if the Termination Date occurs prior to
the fifth anniversary of the Commencement Date or (B) one and one-half, if the
Termination Date occurs on or after the fifth anniversary of the Commencement
Date plus (y) the Accrued Obligations (as defined in Section 13(f)(i)a.), (ii)
with respect to each current three-year LTI Award performance cycle in effect as
of the Date of Termination, the Company shall grant to the Executive a number of
fully vested and exercisable Stock Options equal to the product of (x) the
"standard performance stock option grant" set forth in Section V.B.(ii) of
Schedule I as adjusted in accordance with the conversion matrix included as
Attachment D thereof, based on performance as of the Date of Termination as
determined in good faith by the Company (but which performance level shall, for
purposes of determining the appropriate conversion percentage, in no event be
lower than the performance as of the close of the Company's most recently
completed fiscal year) times (y) a fraction, the numerator of which is the
number of whole months elapsed since the commencement of the relevant three-year
LTI Award performance cycle, and the denominator of which is 36, with an
exercise price per share equal to the fair market value of a share of Parent
Stock on the date of grant
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(the foregoing grant of Stock Options described in this clause (ii) shall
hereinafter be referred to as the "Accrued LTI Performance Award"), and (iii)
the Company shall continue to comply with its obligations under Section 6(f).
10. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 22, shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program of or
any contract or agreement with the Company or any of its affiliated companies at
or subsequent to the Date of Termination shall be payable in accordance with
such plan, policy, practice or program or contract or agreement except as
explicitly modified by this Agreement.
11. STOCK OPTIONS AND COMPANY STOCK.
(a) In the event of the Executive's death, whether his death occurs
during or after the Term of this Agreement, all unexercised and exercisable
Stock Options will be assigned to his Estate.
(b) In the event of the termination of the employment of the
Executive for any reason, all unexercised and exercisable Stock Options must be
exercised by him, or his estate (or heir(s)) as the case may be, before the
second anniversary of the termination of his employment, but in no event after
the tenth anniversary of the date of grant thereof, any such Stock Options not
exercised by that date will lapse immediately thereafter.
(c) In the Event of any change in the number of issued shares of
Company Stock resulting from a subdivision or consolidation of shares or other
capital adjustment, or the payment of a stock dividend, or other increase or
decrease in such shares, then appropriate adjustments in the terms of any
unexercised Stock Options shall be made by the Company.
12. FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement. Unless the
Executive's Termination of employment gives rise to a right to payments and
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benefits described in Section 13, if the Executive secures other employment, any
benefits the Company is required to provide to the Executive following
termination of the Executive's employment shall be secondary to those provided
by another employer (if any). However, if the Executive's employment is
terminated such that the Executive has a right to payments and benefits under
Section 13, such amounts shall not be reduced whether or not the Executive
obtains other employment.
13. CHANGE OF CONTROL PROVISIONS. The following provisions of this
Section 13 shall apply notwithstanding any contrary or inconsistent provision in
any other section of this Agreement, and all other provisions of this Agreement,
to the extent they may be contrary to or inconsistent with the provisions of
this Section 13, are hereby made subject to the provisions of this Section 13,
which shall be paramount in all respects, PROVIDED, however, that the provisions
of Section 3(c) shall apply, where applicable.
(a) POSITION AND DUTIES. During any Transition Period, the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of those held,
exercised and assigned at any time during the 120-day period immediately
preceding the latest COC Transition Date, and the Executive's services shall be
performed at the location or locations where or in the manner in which the
Executive was employed immediately preceding a COC Transition Date or at the
Company's headquarters in the New York City metropolitan area.
(b) COMPENSATION AND RELATED MATTERS.
(i) ANNUAL BONUS. For each fiscal year ending during any Transition
Period, the Company shall pay to the Executive an Annual Bonus in cash at least
equal to the Executive's highest cash bonus under the Company's annual cash
bonus program, or any comparable cash bonus under any predecessor or successor
plan, for the last three full fiscal years prior to the latest COC Transition
Date (the "Highest Recent Bonus"). Each such Annual Bonus shall be paid no
later than 60 days following the commencement of the fiscal year next following
the fiscal year for which the Annual Bonus is awarded, unless the Executive
shall elect to defer the receipt of such Annual Bonus.
(ii) WELFARE BENEFITS. During any Transition Period, the benefits to
which the Executive and/or the Executive's family are entitled to pursuant to
Section 6(h) shall be no less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day period immediately preceding the latest
COC Transition Date or, if more favorable to the Executive, those provided
generally at any time after the
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latest COC Transition Date to any other executive of the Company and its
affiliated companies.
(iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During any Transition
Period, the plans, practices, policies and programs in which the Executive is
entitled to participate pursuant to Section 6(i) shall provide the Executive
with incentive opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit opportunities, in each
case, at least as favorable, in the aggregate, as the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as of the date hereof or if more
favorable to the Executive, those provided generally at any time to any other
executive of the Company and its affiliated companies.
(iv) FRINGE BENEFITS. During any Transition Period, the Executive
shall be entitled to fringe benefits, including, without limitation, the
benefits described in Section 6(j), in accordance with the most favorable plans,
practices, programs and policies of the Company and its affiliated companies in
effect for the Executive at any time during the 120-day period immediately
preceding the latest COC Transition Date or, if more favorable to the Executive,
as in effect generally at any time thereafter with respect to any other
executive of the Company and its affiliated companies.
(v) OFFICE AND SUPPORT STAFF. During any Transition Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the latest COC Transition Date or, if
more favorable to the Executive, as provided generally at any time thereafter
with respect to any other executive of the Company and its affiliated companies.
(vi) VACATION. During any Transition Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans, policies,
programs and practices of the Company and its affiliated companies as in effect
for the Executive at any time during the 120-day period immediately preceding
the latest COC Transition Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to any other executive of
the Company and its affiliated companies.
(c) GOOD REASON. Anything in this Agreement to the contrary
notwithstanding, a termination by the Executive for any reason during the 30-day
period immediately following the date which is six months after any COC
Transition Date shall be
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deemed to be a termination for Good Reason for all purposes of this Agreement.
For purposes of this Section 13(c) and Section 8(c), in the event a Business
Combination takes place, "Chief Executive Officer of the Company" shall refer to
the Executive's position as Chief Executive Officer of the corporation resulting
from such Business Combination (including, without limitation, a corporation
which as a result of such transaction owns the Company or all or substantially
all of the Company's assets either directly or through one or more
subsidiaries).
(d) COMPENSATION UPON TERMINATION FOR DISABILITY. If the Executive's
employment is terminated by reason of the Executive's Disability during any
Transition Period, then with respect to the provision of Other Benefits, the
term Other Benefits as utilized in Section 9(a) shall include, and the Executive
shall be entitled after the Disability Effective Date to receive, disability and
other benefits at least equal to the most favorable of those generally provided
by the Company and its affiliated companies to disabled executives and/or their
families in accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect generally with respect to any other
executives and their families at any time during the 120-day period immediately
preceding the latest COC Transition Date or, if more favorable to the Executive
and/or the Executive's family, as in effect at any time thereafter generally
with respect to other peer executives of the Company and its affiliated
companies and their families.
(e) COMPENSATION UPON TERMINATION BY DEATH. If the Executive's death
occurs during any Transition Period, then with respect to the provision of other
Benefits, the term Other Benefits as utilized in Section 9(b) shall include,
without limitation, and the Executive's estate and/or beneficiaries shall be
entitled to receive, benefits at least equal to the most favorable benefits
provided by the Company and its affiliated companies to the estates and
beneficiaries of the most senior executives of the Company and its affiliated
companies under such plans, programs, practices and policies relating to death
benefits, if any, as in effect with respect to any other executive and their
beneficiaries at any time during the 120-day period immediately preceding the
latest COC Transition Date or, if more favorable to the Executive's estate
and/or the Executive's beneficiaries, as in effect on the date of the
Executive's death with respect to any other executive of the Company and its
affiliated companies and their beneficiaries.
(f) COMPENSATION UPON TERMINATION BY THE COMPANY WITHOUT CAUSE OR FOR
GOOD REASON. If, during any Transition Period, the Company shall terminate the
Executive's employment other than for Cause or Disability or the Executive shall
terminate employment for Good Reason:
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(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
a. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid,
(2) the product of (x) the Applicable Bonus and (y) a fraction, the
numerator of which is the number of days in the current fiscal year
through the Date of Termination, and the denominator of which is 365
and (3) any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any
accrued vacation pay, in each case to the extent not theretofore paid
(the sum of the amounts described in clauses (1), (2), and (3) shall
be referred to in this Agreement as the "Accrued Obligations"); and
b. the amount equal to the product of (1) three and (2)
the sum of (x) the Executive's Annual Base Salary and (y) the Highest
Annual Bonus; and
c. an amount equal to the excess of (a) the actuarial
equivalent of the benefit under the Company's defined benefit
retirement plans, including any excess or supplemental retirement plan
in which the Executive participates (together, the "Retirement Plans")
(utilizing actuarial assumptions no less favorable to the Executive
than those in effect under the Retirement Plans immediately prior to
the latest COC Transition Date), which the Executive would receive if
the Executive's employment continued for three years after the Date of
Termination assuming for this purpose that all accrued benefits are
fully vested, and, assuming that the Executive's compensation in each
of the three years is that required by Section 6(a) and Section 6(b),
over (b) the actuarial equivalent of the Executive's actual benefit
(paid or payable), if any, under the Retirement Plans as of the Date
of Termination;
(ii) for two years after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to those which would
have been provided to them in accordance with the plans, programs,
practices and policies described in Section 6(h) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
any other executive of the Company and its affiliated companies and their
families, provided, however, that if the Executive becomes reemployed
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with another employer and is eligible to receive medical or other welfare
benefits under another employer provided plan, the medical and other
welfare benefits described herein shall be secondary to those provided
under such other plan during such applicable period of eligibility. For
purposes of determining eligibility (but not the time of commencement of
benefits) of the Executive for retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be considered to have
remained employed until two years after the Date of Termination and to have
retired on the last day of such period;
(iii) the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall
be selected by the Executive in his sole discretion, and which shall
include the provision of reasonable office space and secretarial
assistance;
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies (such other amounts
and benefits shall be referred to in this Agreement as the "Other
Benefits");
(v) the Company shall grant to the Executive the Accrued LTI
Performance Award, as defined in Section 9(e), and the Company shall cause
all Stock Options and Company Stock held by or for the benefit of the
Executive to become immediately fully vested and/or exercisable;
(vi) the Company shall forgive the outstanding notes set forth on
Schedule 2 evidencing indebtedness which the Executive owes to the Company
as of the Date of Termination, and in consideration for such forgiveness
the Executive covenants not to engage, whether directly, indirectly, or by
reason of equity interests in any other entity, in any direct or indirect
competition with the operating businesses of the Company or its
subsidiaries for a period of five years following the Date of Termination;
and
(vii) the Company shall forgive all outstanding indebtedness of the
Executive to the Company under any loan arrangements or agreements entered
into by the Company and the Executive pursuant to Section 6(e) hereof.
14. LEGAL FEES.
(a) Following any termination of the Executive's employment that
gives rise to a right to payments and benefits
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under Section 13, the Company shall pay as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive may reasonably
incur as a result of any contest (regardless of the outcome thereof) by the
Company, the Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Code.
(b) Following any termination of the Executive's employment other
than a termination of employment described in paragraph (a), above, the Company
shall promptly reimburse the Executive, to the extent permitted by law, for all
reasonable legal fees and expenses reasonably incurred by the Executive as a
result of any contest by the Company or the Executive of the validity or
enforceability of, or liability under, any provisions of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus in
each case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Code, provided, that such
reimbursement shall be limited to fees and expenses incurred in connection with
the contest of issues on which the Executive substantially prevails.
15. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 15) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the
foregoing provisions of this Section 15(a), if it shall be determined that the
Executive is entitled to a Gross-Up Payment, but that the Payments do not exceed
110% of the greatest amount (the "Reduced Amount") that could be paid to
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the Executive such that the receipt of Payments would not give rise to any
Excise Tax, then no Gross-Up Payment shall be made to the Executive and the
Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 15(c), all determinations
required to be made under this Section 15, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Arthur
Andersen LLP or such other certified public accounting firm as may be designated
by the Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder).
All fees and expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant to this Section 15, shall
be paid by the Company to the Executive within five days of the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon the Company and the Executive. As a result of the uncertainty
in the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 15(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
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(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively
to contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 15(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(c) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 15(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's
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complying with the requirements of Section 15(c)) promptly pay to the Company
the amount of such refund (together with any interest paid or credited thereon
after taxes applicable thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 15(c), a determination is
made that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
16. NONCOMPETITION.
(a) So long as the Executive is employed by the Company under this
Agreement and unless this Agreement is terminated for any reason, the Executive
agrees not to enter into competitive endeavors.
(b) During the Term and any period thereafter during which or in
respect of which the Executive receives payments from the Company under Section
9 or Section 13, the Executive shall hold in a fiduciary capacity for the
benefit of the Company all secret or confidential information, knowledge or data
relating to the Company or any of its affiliated companies, and their respective
businesses, which shall have been obtained by the Executive during the
Executive's employment by the Company or any of its affiliated companies and
which shall not be or become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this Agreement).
After termination of the Executive's employment with the Company, the Executive
shall not, without the prior written consent of the Company or as may otherwise
be required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 16 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under Section 13 of this Agreement.
17. SUCCESSORS; BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of the Agreement and
shall
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entitle the Executive to compensation from the Company in the same amount and on
the same terms as he would be entitled to hereunder if he terminated his
employment for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in the Agreement, "Company" shall mean
the Company as herein before defined and any successor to its business and/or
assets as aforesaid which executes and delivers the agreement provided for in
this Section 17 or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devises and legatees. If the Executive should die while any amounts would still
be payable to him hereunder if he had continued to live, all such amounts unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the Executive's devise, legatee, or other designee or, if there be
no such designee, to the Executive's estate.
18. NOTICE. For the purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
Mr. Steward S. Elbaum
136 Fells Road
Essex Fells, NJ 07021
If to the Company:
The Alpine Group, Inc.
1790 Broadway
15th Floor
New York, NY 10019-1412
Attention: Chief Executive Officer
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
19. MISCELLANEOUS. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such officer of the Company as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any
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breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of New York without regard to its conflicts of law principles.
20. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
21. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
22. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto and any prior agreement
of the parties hereto in respect of the subject matter contained herein is
hereby terminated and cancelled, provided, however, that this Agreement should
not supersede any existing benefit or agreement which provides such benefit,
including, without limitation, life or disability insurance agreements and
retirement plans currently in effect.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
THE ALPINE GROUP, INC.
By:/s/Bragi F. Schut (SEAL)
-------------------------------
Name: Bragi F. Schut
Title: Executive Vice President
ATTEST: EXECUTIVE
/s/Stewart H. Wahrsager, Esq. /s/Steven S. Elbaum (SEAL)
- ----------------------------- --------------------------
Steven S. Elbaum
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SCHEDULE ONE
THE ALPINE GROUP, INC.
SENIOR MANAGEMENT COMPENSATION
AND
INCENTIVE PROGRAM
I. NAME: Steve Elbaum
II. POSITION: Chairman, Chief Executive Officer
III. ANNUAL CASH BONUS INCENTIVE:
A. Your standard annual cash bonus incentive (as a percentage of your
base salary) is 50%.
B. The actual annual cash bonus incentive paid will be determined based
on your "Weighted Overall Annual Performance" (WOAP). A worksheet for
calculating WOAP is included as Attachment A.
C. WOAP will be based on: (1) quantitative financial performance for the
fiscal year (weighted at 75%), and (2) subjective assessment of job
performance (weighted at 25%).
D. The financial performance component will be based on EBITDA return on
net assets (the "Return Ratio") for FY96.
For FY96 financial performance measurement, the actual Return Ratio
will be measured against: (1) FY96 budget (and weighted 67%), and (2)
FY95 pro forma results (and weighted 33%). Attachment B includes the
Return Ratio for the FY96 budget and the FY95 pro forma results.
Attachment C includes current year performance against budget.
E. The actual annual cash bonus incentive will be calculated by
converting your standard bonus to an actual bonus, based on your WOAP
and the conversion matrix included on Attachment D.
F. As previously discussed with you, a component of your annual cash
bonus incentive award may be paid in shares of Company stock under
terms and conditions previously described to you.
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IV. LONG TERM INCENTIVE AWARD:
A. Long term incentives are intended to be awarded annually; however any
such awards are totally at the discretion of the Compensation
Committee.
B. Your long term incentive award for FY96 consists of the following:
(i) Basic stock option grant of 106,800 shares
(ii) Standard performance stock option grant: 106,800 shares
C. Basic stock option grant - major provisions:
(i) Grant date: November 15, 1995
(ii) Exercise price: $5.25 per share (FMV on Grant Date)
(iii) Vesting provisions: 33% per year
(iv) Vesting start date: May 1, 1995
(v) Term of option: 10 years
D. Performance stock option grant - major provisions:
(i) Standard performance stock option grants are adjusted based on
the actual weighted average 3-year Return Ratio as compared to
the targeted 3-year Return Ratio (see Attachment E). The number
of shares of the standard performance stock option grant will be
adjusted at the end of the 3-year period (end of FY98) based
again on the conversion matrix included as Attachment D
(ii) Vesting: 3-year cliff
(iii) Exercise price per share: $5.25
(iv) Option term: 10 years
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EMPLOYMENT AGREEMENT
This AGREEMENT dated as of the 26th day of April, 1996, between The Alpine
Group, Inc., a Delaware corporation (the "Company"), and Stewart H. Wahrsager
(the "Executive").
The Board of Directors of the Company (the "Board") recognizes that the
Executive's contribution to the future growth and success of the Company is
expected to be substantial. Whereas the Executive has served as a Senior Vice
President, Corporate Secretary and General Counsel of the Company since January
1, 1996. Whereas the Board desires to provide for the continued employment of
the Executive with the Company which the Board has determined will reinforce and
encourage the continued attention and dedication of the Executive to the Company
as a member of the Company's management, in the best interest of the Company and
its shareholders. Whereas the Executive is willing to commit himself to serve
the Company, on the terms and conditions herein provided.
Moreover, the Board has determined that it is in the best interests of the
Company and its shareholders to assure that the Company will have the continued
dedication of the Executive, notwithstanding the possibility, threat or
occurrence of a Change of Control (as defined below) of the Company. The Board
believes it is imperative to diminish the inevitable distraction of the
Executive by virtue of the personal uncertainties and risks created by a pending
or threatened Change of Control and to encourage the Executive's full attention
and dedication to the Company currently and in the event of any threatened or
pending Change of Control, and to provide the Executive with compensation and
benefits arrangements upon a Change of Control which ensure that the
compensation and benefits expectations of the Executive will be satisfied and
which are competitive with those of other corporations.
In order to effect the foregoing, the Company and the Executive wish to
enter into this Agreement on the terms and conditions set forth below.
Accordingly, in consideration of the premises and the respective covenants and
agreements of the parties herein contained, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive, and
the Executive hereby agrees to serve the Company, on the terms and conditions
set forth herein.
<PAGE>
2. TERM.
(a) The employment of the Executive by the Company hereunder
commenced on January 1, 1996 (the "Commencement Date") and will continue in
effect (i) until either party gives notice to the other, as provided in Section
8(d), that it does not wish to continue the Executive's employment hereunder or
(ii) unless terminated as provided in Sections 8(a), (b), (c) or (d). The
"Term" shall be the period commencing on the date hereof and ending on the
earlier to occur of the events specified in clause (i) or (ii) of the preceding
sentence.
(b) Notwithstanding paragraph (a) above or the provisions of Section
8(d), the Company hereby agrees to continue the Executive in its employ, and the
Executive hereby agrees to remain in the employ of the Company subject to the
terms and conditions of this Agreement, during any Transition Period. For
purposes of this Agreement, the Term shall, unless otherwise specified, include
any Transition Period.
3. CERTAIN DEFINITIONS. (a) A "COC Transition Date" shall mean a date
during the Term (as defined in Section 2) on which a Change of Control (as
defined in Section 4) occurs. Anything in this Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (ii) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of this Agreement the "COC Transition Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) A "Transition Period" is a period commencing on a COC Transition
Date and ending on the third anniversary of such date. If a subsequent COC
Transition Date is determined to occur during a Transition Period, then such
Transition Period shall continue until the third anniversary of such subsequent
COC Transition Date. If a subsequent COC Transition Date occurs after the
expiration of a Transition Period, a new Transition Period will commence on such
date and end on the third anniversary thereof.
(c) Notwithstanding anything to the contrary in this Agreement, for
purposes of calculating payments under Section 13(f), "Applicable Bonus" means
the higher of (i) the Highest Recent Bonus (as defined in Section 13(b)(i)) and
(ii) the Annual Bonus (as defined in Section 6(b)) paid or payable, including
any bonus or portion thereof which has been earned but deferred (and annualized
for any fiscal year consisting of less than twelve full months or during which
the Executive was employed for less than twelve full months), for the most
recently
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completed fiscal year during the Term, if any (the "Recent Annual Bonus") (such
higher amount being referred to as the "Highest Annual Bonus"). For purposes of
calculating payments under all sections of this Agreement other than Section
13(f), Applicable Bonus means the Recent Annual Bonus.
(d) A "Stock Option" is an option to purchase a number of shares of
stock of the Company at a fixed exercise price granted to the Executive by the
Company, whether or not exercisable.
4. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of voting
securities of the Company where such acquisition causes such Person to own more
than 20% or more of the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
for purposes of this subsection (a), the following acquisitions shall not be
deemed to result in a Change of Control: (i) any acquisition directly from the
Company, (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company or (iv) any acquisition by any
corporation pursuant to a transaction that complies with clauses (i), (ii) and
(iii) of subsection (c) below; and provided, further, that if any Person's
beneficial ownership of the Outstanding Company Voting Securities reaches or
exceeds more than 20% as a result of a transaction described in clause (i) or
(ii) above, and such Person subsequently acquires beneficial ownership of
additional voting securities of the Company, such subsequent acquisition shall
be treated as an acquisition that causes such Person to own more than 20% or
more of the Outstanding Company Voting Securities; or
(b) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or
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threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board; or
(c) The consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another corporation ("Business
Combination"); excluding, however, such a Business Combination pursuant to which
(i) all or substantially all of the individuals and entities who were the
beneficial owners of the Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more than
50% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation that as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Voting
Securities, (ii) no Person (excluding any employee benefit plan (or related
trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, more than 20% or more
of, respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
5. POSITION AND DUTIES.
(a) The Executive shall serve as a Senior Vice President, Corporate
Secretary and General Counsel of the Company with such responsibilities, duties
and authority as are from time to time assigned to the Executive by the Chief
Executive Officer or the Board. The Executive shall be the chief legal officer
of the Company and report directly to the Executive Vice President of the
Company. The Executive's duties shall be performed primarily at the Company's
headquarters office in the New York City metropolitan area.
(b) During the Term, and excluding any periods of vacation and sick
leave to which the Executive is entitled, the
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Executive agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Term it shall not be a violation of this Agreement
for the Executive to (A) serve on corporate, civic or charitable boards or
committees, provided that the Chief Executive Officer of the Company first
approves of such service, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement and are not directly competitive with the operating businesses of
the Company's subsidiaries.
6. COMPENSATION AND RELATED MATTERS.
(a) SALARY. (i) During the Term, the Company shall pay to the
Executive an annual base salary (the "Annual Base Salary") at a rate not less
than $150,000 or such higher rate as may from time to time be determined by the
Board, such salary to be paid in substantially equal installments in accordance
with the normal payroll practice of the Company. The Executive's salary will be
reviewed at least annually and shall be increased pursuant to such review by a
percentage no less than the percentage increase in the consumer price index, as
published by Bureau of Labor Statistics of the U.S. Department of Labor, for the
calendar year immediately preceding such review (the "CPI Percentage"). Any
increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so increased.
(b) ANNUAL BONUS. In addition to the Annual Base Salary, the Company
will pay the Executive an annual cash bonus (the "Annual Bonus") within 90 days
following the last day of the Company's fiscal year for which the Annual Bonus
is awarded in an amount, if any, determined in accordance with and otherwise
calculated in the manner set forth in the "Annual Cash Bonus Incentive" section
of Schedule 1 attached hereto, as the same may be amended from time to time in
the discretion of the Compensation Committee of the Company's Board of Directors
(the "Compensation Committee").
(c) STOCK OPTIONS. On January 2, 1996, the Company granted the
Executive 13,333 Stock Options (the "Initial Options") to purchase shares of
common stock of the Company ("Company Stock"), at an exercise price per share of
$4.50 and becoming exercisable in three equal annual installments on the first,
second and third anniversaries of December 1, 1995.
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In the event of termination of employment (i) by the Executive other
than because of death or for Good Reason, prior to the fourth anniversary of the
Commencement Date or (ii) by the Company for Cause, all Stock Options
(including, without limitation, the Initial Options) not theretofore exercisable
will lapse and be forfeited. In the event the Executive's employment is
terminated for any other reason prior to the fourth anniversary of the
Commencement Date all Stock options (including, without limitation, the Initial
Options) not theretofore exercisable will thereupon become exercisable. Except
as provided in Section 11 each Stock Option will expire 10 years after it is
granted.
(d) RESTRICTED STOCK GRANT. On January 2, 1996, the Company granted
to the Executive 10,000 shares of the Company's Stock pursuant to the Restricted
Stock Plan, as amended, which restricted shares have been set aside in the
custody, control and possession of the Company and will be released to the
Executive at the rate of 3,333 shares on each of the first two anniversaries
thereof, provided that in the event Executive's employment is terminated for
Cause or by Executive without Good Reason, prior to the fourth anniversary of
the Commencement Date, then all subsequent scheduled releases shall be cancelled
and all shares of Restricted Stock not theretofore released shall be forfeited
by the Executive and shall be cancelled and retired by the Company.
(e) TAX LOAN. Not less than 10 days prior to the due date of the
Executive's federal income tax return for every taxable year of the Executive in
which his income tax liability is increased by or as a result of the matters
contained in Sections 6(d), the Company will lend to the Executive an amount
equal to such increased tax liability. The Company and the Executive shall
enter into an appropriate agreement providing for the repayment by the Executive
of such loan, which agreement shall provide that (i) if the principal amount of
such loan (together with the aggregate outstanding amount of other loans between
the Company and the Executive) exceeds the de minimis amount set forth in
Section 7872(c)(3) of the Internal Revenue Code of 1986, as amended (the "Code")
(or any successor provision thereto), then such loan shall bear interest at a
rate not less than the applicable Federal rate determined in accordance with
Section 7872(f)(2) (or any successor provision) of the Code, and (ii) if the
Executive disposes of any of the shares of Company Stock prior to the fifth
anniversary of the Commencement Date, the principal balance of the loan shall
become immediately due and payable to the extent of the proceeds of such
disposition.
(f) EXPENSES. During the term of the Executive's employment
hereunder, the Executive shall be entitled to receive prompt reimbursement for
all reasonable and customary expenses incurred by the Executive in performing
services hereunder, including (i) all expenses of travel and living expenses
while
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away from home or business or at the request of and in the service of the
Company and (ii) an automobile, plus all expenses of maintaining and operating
the automobile, provided that all such expenses are accounted for in accordance
with the policies and procedures established by the Company, or a monthly cash
allowance in lieu thereof.
(g) WELFARE BENEFITS. During the Term, the Executive and/or the
Executive's family, as the case may be, shall be eligible for participation in
and shall receive all benefits under welfare benefit plans, practices, policies
and programs provided by the Company and its affiliated companies (including,
without limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies, but in no event shall
such plans, practices, policies and programs provide the Executive with benefits
which are materially less favorable, in the aggregate, than the most favorable
of such plans, practices, policies and programs in effect for the Executive as
of the date hereof or, if more favorable to the Executive, those provided
generally at any time to other peer executives of the Company and its affiliated
companies. As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common control with the
Company.
(h) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Term, the
Executive shall be entitled to participate in all incentive, savings and
retirement plans, practices, policies and programs applicable generally to other
peer executives of the Company and its affiliated companies, including without
limitation the Long Term Incentive Award program applicable to the Executive set
forth on Schedule 1 (the "LTI Award"). In addition, the Company covenants to
adopt on or before February 1, 1997, and to name the Executive as a participant
in, a Senior Executive Retirement Plan substantially in the form as set forth in
Exhibit A attached hereto.
(i) FRINGE BENEFITS. During the Term:
(i) The Company shall reimburse the Executive for the reasonable
expenses incurred by the Executive in undergoing an annual physical examination
by a licensed physician.
(ii) The Company shall reimburse the Executive for the reasonable
expenses incurred by the Executive in connection with obtaining professional tax
and financial planning advice.
(j) VACATION. During the Term, the Executive shall be entitled to
paid vacation of four weeks per year, any unused portion of which shall be
forfeited as of the end of each year. In addition, the Executive shall be
allowed paid absences from
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his duties during such times as the Executive shall in good faith identify are
required by his religion.
(k) DISABILITY OFFSET. Payments made to the Executive pursuant to
this Section 6 shall be reduced by the sum of the amounts, if any, payable to
the Executive at or prior to the time of any such payment under disability
benefit plans of the Company or under the Social Security disability insurance
program, and which amounts were not previously applied to reduce any such
payments.
7. OFFICES. Subject to Section 5, the Executive agrees to serve without
additional compensation, if elected or appointed thereto, as a director of the
Company and any of its subsidiaries and in one or more executive offices of any
of the Company's subsidiaries, provided that the Executive is indemnified for
serving in any and all such capacities.
8. TERMINATION. The Executive's employment hereunder may be terminated
without any breach of this Agreement only under the following circumstances:
(a) DEATH OR DISABILITY. The Executive's employment shall terminate
automatically upon the Executive's death during the Term. If the Company
determines in good faith that Disability of the Executive has occurred during
the Term (pursuant to the definition of Disability set forth below), it may give
to the Executive written notice in accordance with Section 18 of this Agreement
of its intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" shall mean the absence of the Executive
from the Executive's duties with the Company on a full-time basis for 180
consecutive business days (or such shorter period as will suffice for the
Executive to qualify for full disability benefits under the applicable
disability insurance policy or policies of the Company) as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers and reasonably
acceptable to the Executive or the Executive's legal representative.
(b) CAUSE. The Company may terminate the Executive's employment
during the Term for Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties pursuant to this Agreement (other than
any such failure resulting from incapacity due to physical or mental ill-
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ness), after a written demand for substantial performance is delivered to
the Executive by the Board or the Company's Chief Executive Officer which
specifically identifies the manner in which the Board or the Chief
Executive Officer believes that the Executive has not substantially
performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the
Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than a majority of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after reasonable notice is provided to the Executive and the Executive
is given an opportunity, together with counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, the Executive is guilty of
the conduct described in subparagraph (i) or (ii) above, and specifying the
particulars thereof in detail.
(c) TERMINATION BY THE EXECUTIVE FOR GOOD REASON. The Executive's
employment may be terminated by the Executive for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean:
a. the assignment to the Executive of any duties materially
inconsistent with the Executive's position (including status, titles and
reporting requirements), authority, duties or responsibilities as
contemplated by Section 5(a) of this Agreement, or any other action by the
Company which results in a material diminution in such position, authority,
duties or responsibilities, excluding for this purpose isolated and
inadvertent action(s) not taken in bad faith and remedied by the Company
promptly after receipt of notice thereof given by the Executive;
b. any material failure by the Company to comply with any of the
provisions of Section 6 or Section 13(a) or (b) of this Agreement, other
than isolated and inadvertent failure(s) not occurring in bad faith and
remedied by the
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Company promptly after receipt of notice thereof given by the Executive;
c. the Company's requiring the Executive to be based at any office
or location other than as provided in Section 5(a) hereof;
d. any termination by the Company of the Executive's employment
otherwise than as expressly permitted by this Agreement; or
e. any failure by the Company to comply with and satisfy Section
17(a) of this Agreement.
(d) TERMINATION ELECTION. Subject to the provisions of Section 2(b):
(i) A notice to Executive by the Company will constitute an election
by the Company to terminate the Executive's employment pursuant to Section 2(a)
60 days following the date of delivery of the notice;
(ii) A notice to the Company by the Executive will constitute an
election by the Executive to terminate Executive's employment pursuant to
Section 2(a) 90 days following the date of delivery of the notice;
(iii) In no event, however, shall the Term of the Executive's
employment hereunder extend beyond the end of the month in which the Executive's
sixty-fifth (65th) birthday occurs.
(e) NOTICE OF TERMINATION. Any termination of the Executive's
employment by the Company or by the Executive (other than termination by reason
of the Executive's death) shall be communicated by written Notice of Termination
to the other party hereto in accordance with Section 18 hereof. For purposes of
this Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon (ii)
to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date. The good faith failure by the Executive or the Company to
set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
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(f) DATE OF TERMINATION. "Date of Termination" shall mean (i) if the
Executive's employment is terminated by reason of death or Disability, the date
of death of the Executive or the Disability Effective Date, as the case may be,
(ii) if the Executive's employment is terminated for Cause, the date specified
in the Notice of Termination, and (iii) if the Executive's employment is
terminated by either of the elections pursuant to Section 8(d) above, the
applicable date of termination determined under Section 8(d) above, and (iv) if
the Executive's employment is terminated for any other reason, the date on which
a Notice of Termination is given; provided, however, that, if within thirty (30)
days after any Notice of Termination is given the party receiving such Notice of
Termination notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be the date on which the dispute is
finally determined, either by mutual written agreement of the parties, by a
binding and final arbitration award or by a final judgment, order or decree of a
court of competent jurisdiction (the time for appeal therefrom having expired
and no appeal having been perfected).
9. COMPENSATION UPON TERMINATION.
(a) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability during the Term, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations (as defined in Section 13(f)(i)a.) and the timely payment
or provision of Other Benefits (as defined in Section 13(f)(iv)). Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination. Notwithstanding the foregoing, the Company shall
maintain, at the Company's sole expense, in full force and effect, for the
continued benefit of the Executive for twelve months following the Disability
Effective Date, all employee welfare benefit plans and programs in which the
Executive was entitled to participate immediately prior to the Disability
Effective Date provided that the Executive's continued participation is possible
under the general terms and provisions of such plans and programs. In the event
that the Executive's participation in any such plan or program is barred, the
Company shall arrange to provide the Executive with benefits substantially
similar to those which the Executive would otherwise have been entitled to
receive under such plans and programs from which his continued participation is
barred.
(b) DEATH. If the Executive's employment is terminated by reason of
the Executive's death during the Term, this Agreement shall terminate without
further obligations to the Executive's legal representatives under this
Agreement, other than for (i) payment of Accrued Obligations (as defined in
Section 13(f)(i)a.), calculated as if the Executive's employment had continued
for a period of 12 months following the date of death; and (ii) the timely
payment or provision of Other Ben-
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efits (as defined in Section 13(f)(iv)). Accrued Obligations shall be paid to
the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination.
(c) CAUSE. If the Executive's employment shall be terminated for
Cause during the Term, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the Executive
(x) his Annual Base Salary through the Date of Termination, (y) the amount of
any compensation previously deferred by the Executive, and (z) Other Benefits,
in each case to the extent theretofore unpaid.
(d) VOLUNTARY TERMINATION. If the Executive voluntarily terminates
employment during the Term, excluding a termination for Good Reason, this
Agreement shall terminate without further obligations to the Executive, other
than for Accrued Obligations and the timely payment or provision of Other
Benefits. In such case, all Accrued Obligations shall be paid to the Executive
in a lump sum in cash within 30 days of the Date of Termination.
(e) TERMINATION ELECTION BY COMPANY; TERMINATION BY EXECUTIVE FOR
GOOD REASON. If the Executive's employment is terminated by the Company under
Section 8(d)(i) hereof or by the Executive under Section 8(c) hereof: (i) the
Company shall pay to the Executive a lump sum in cash within ten days of the
Date of Termination in an amount equal to the sum of (x) the product of the sum
of the Annual Base Salary in effect immediately prior to termination plus the
Applicable Bonus times either (A) one and one-half, if the Termination Date
occurs prior to the third anniversary of the Commencement Date, or (B) one, if
the Termination Date occurs after the third anniversary of the Commencement
Date, plus (y) the Accrued Obligations (as defined in Section 13(f)(i)a.), (ii)
with respect to each current three-year LTI Award performance cycle in effect as
of the Date of Termination, the Company shall grant to the Executive a number of
fully vested and exercisable Stock Options equal to the product of (x) the
"standard performance stock option grant" set forth in Section V.B.(ii) of
Schedule I as adjusted in accordance with the conversion matrix included as
Attachment D thereof, based on performance as of the Date of Termination as
determined in good faith by the Company (but which performance level shall, for
purposes of determining the appropriate conversion percentage, in no event be
lower than the performance as of the close of the Company's most recently
completed fiscal year) times (y) a fraction, the numerator of which is the
number of whole months elapsed since the commencement of the relevant three-year
LTI Award performance cycle, and the denominator of which is 36, with an
exercise price per share equal to the fair market value of a share of Parent
Stock on the date of grant (the foregoing grant of Stock Options described in
this clause (ii) shall hereinafter be referred to as the "Accrued LTI
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Performance Award"), and (iii) the Company shall continue to comply with its
obligations under Section 6(f).
10. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 22, shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program of or
any contract or agreement with the Company or any of its affiliated companies at
or subsequent to the Date of Termination shall be payable in accordance with
such plan, policy, practice or program or contract or agreement except as
explicitly modified by this Agreement.
11. STOCK OPTIONS AND COMPANY STOCK.
(a) In the event of the Executive's death, whether his death occurs
during or after the Term of this Agreement, all unexercised and exercisable
Stock Options will be assigned to his Estate.
(b) In the event of the termination of the employment of the
Executive for any reason, all unexercised and exercisable Stock Options must be
exercised by him, or his estate (or heir(s)) as the case may be, before the
second anniversary of the termination of his employment, but in no event after
the tenth anniversary of the date of grant thereof, any such Stock Options not
exercised by that date will lapse immediately thereafter.
(c) In the Event of any change in the number of issued shares of
Company Stock resulting from a subdivision or consolidation of shares or other
capital adjustment, or the payment of a stock dividend, or other increase or
decrease in such shares, then appropriate adjustments in the terms of any
unexercised Stock Options shall be made by the Company.
12. FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement. Unless the
Executive's Termination of employment gives rise to a right to payments and
benefits described in Section 13, if the Executive secures other employment, any
benefits the Company is required to provide to
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the Executive following termination of the Executive's employment shall be
secondary to those provided by another employer (if any). However, if the
Executive's employment is terminated such that the Executive has a right to
payments and benefits under Section 13, such amounts shall not be reduced
whether or not the Executive obtains other employment.
13. CHANGE OF CONTROL PROVISIONS. The following provisions of this
Section 13 shall apply notwithstanding any contrary or inconsistent provision in
any other section of this Agreement, and all other provisions of this Agreement,
to the extent they may be contrary to or inconsistent with the provisions of
this Section 13, are hereby made subject to the provisions of this Section 13,
which shall be paramount in all respects, PROVIDED, however, that the provisions
of Section 3(c) shall apply, where applicable.
(a) POSITION AND DUTIES. During any Transition Period, the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of those held,
exercised and assigned at any time during the 120-day period immediately
preceding a COC Transition Date, and the Executive's services shall be performed
at the location where the Executive was employed immediately preceding a COC
Transition Date or at the Company's headquarters in the New York City
metropolitan area.
(b) COMPENSATION AND RELATED MATTERS.
(i) ANNUAL BONUS. For each fiscal year ending during any Transition
Period, the Company shall pay to the Executive an Annual Bonus in cash at least
equal to the Executive's highest cash bonus under the Company's annual cash
bonus program, or any comparable cash bonus under any predecessor or successor
plan, for the last three full fiscal years prior to the latest COC Transition
Date (the "Highest Recent Bonus"). Each such Annual Bonus shall be paid no
later than 60 days following the commencement of the fiscal year next following
the fiscal year for which the Annual Bonus is awarded, unless the Executive
shall elect to defer the receipt of such Annual Bonus.
(ii) WELFARE BENEFITS. During any Transition Period, the benefits to
which the Executive and/or the Executive's family are entitled to pursuant to
Section 6(h) shall be no less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day period immediately preceding the latest
COC Transition Date or, if more favorable to the Executive, those provided
generally at any time after the latest COC Transition Date to other peer
executives of the Company and its affiliated companies.
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(iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During any Transition
Period, the plans, practices, policies and programs in which the Executive is
entitled to participate pursuant to Section 6(i) shall provide the Executive
with incentive opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit opportunities, in each
case, at least as favorable, in the aggregate, as the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as of the date hereof or if more
favorable to the Executive, those provided generally at any time to other peer
executives of the Company and its affiliated companies.
(iv) FRINGE BENEFITS. During any Transition Period, the Executive
shall be entitled to fringe benefits, including, without limitation, the
benefits described in Section 6(j), in accordance with the most favorable plans,
practices, programs and policies of the Company and its affiliated companies in
effect for the Executive at any time during the 120-day period immediately
preceding the latest COC Transition Date or, if more favorable to the Executive,
as in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(v) OFFICE AND SUPPORT STAFF. During any Transition Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the latest COC Transition Date or, if
more favorable to the Executive, as provided generally at any time thereafter
with respect to other peer executives of the Company and its affiliated
companies.
(vi) VACATION. During any Transition Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans, policies,
programs and practices of the Company and its affiliated companies as in effect
for the Executive at any time during the 120-day period immediately preceding
the latest COC Transition Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies. In addition, the Executive shall be
allowed paid absences from his duties during such times as the Executive shall
in good faith identify are required by his religion.
(c) GOOD REASON. During any Transition Period, for purposes of this
Agreement, "Good Reason" shall mean:
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(i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, titles and
reporting requirements), authority, duties or responsibilities as
contemplated by Sections 5(a) or 13(a) of this Agreement, or any other
action by the Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose isolated,
insubstantial and inadvertent action(s) not taken in bad faith and remedied
by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of the provisions
of Section 6 or Section 13(a) or (b) of this Agreement, other than
isolated, insubstantial and inadvertent failure(s) not occurring in bad
faith and remedied by the Company promptly after receipt of notice thereof
given by the Executive;
(iii) the Company's requiring the Executive to be based at any office
or location other than as provided in Sections 5(a) or 13(a) hereof;
(iv) any termination by the Company of the Executive's employment
otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section
17(a) of this Agreement.
For purposes of this Section 13(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive. A termination by the
Executive for any reason during the 30-day period immediately following the date
which is six months after any COC Transition Date shall be deemed to be a
termination for Good Reason for all purposes of this Agreement.
(d) COMPENSATION UPON TERMINATION FOR DISABILITY. If the Executive's
employment is terminated by reason of the Executive's Disability during any
Transition Period, then with respect to the provision of Other Benefits, the
term Other Benefits as utilized in Section 9(a) shall include, and the Executive
shall be entitled after the Disability Effective Date to receive, disability and
other benefits at least equal to the most favorable of those generally provided
by the Company and its affiliated companies to disabled executives and/or their
families in accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect generally with respect to the most
senior executives and their families at any time during the 120-day period
immediately preceding the latest COC Transition Date or, if more favorable to
the Executive and/or the Executive's family, as in effect at any time thereafter
generally with respect to other peer executives of the Company and its
affiliated companies and their families.
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(i) COMPENSATION UPON TERMINATION BY DEATH. If the Executive's death
occurs during any Transition Period, then with respect to the provision of Other
Benefits, the term Other Benefits as utilized in Section 9(b) shall include,
without limitation, and the Executive's estate and/or beneficiaries shall be
entitled to receive, benefits at least equal to the most favorable benefits
provided by the Company and its affiliated companies to the estates and
beneficiaries of the most senior executives of the Company and its affiliated
companies under such plans, programs, practices and policies relating to death
benefits, if any, as in effect with respect to the most senior executives and
their beneficiaries at any time during the 120-day period immediately preceding
the latest COC Transition Date or, if more favorable to the Executive's estate
and/or the Executive's beneficiaries, as in effect on the date of the
Executive's death with respect to other peer executives of the Company and its
affiliated companies and their beneficiaries.
(e) COMPENSATION UPON TERMINATION BY THE COMPANY WITHOUT CAUSE OR FOR
GOOD REASON. If, during any Transition Period, the Company shall terminate the
Executive's employment other than for Cause or Disability or the Executive shall
terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
a. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid,
(2) the product of (x) the Applicable Bonus and (y) a fraction, the
numerator of which is the number of days in the current fiscal year
through the Date of Termination, and the denominator of which is 365
and (3) any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any
accrued vacation pay, in each case to the extent not theretofore paid
(the sum of the amounts described in clauses (1), (2), and (3) shall
be referred to in this Agreement as the "Accrued Obligations"); and
b. the amount equal to the product of (1) two and (2) the
sum of (x) the Executive's Annual Base Salary and (y) the Highest
Annual Bonus; and
c. an amount equal to the excess of (a) the actuarial
equivalent of the benefit under the Company's defined benefit
retirement plans, including any excess or supplemental retirement plan
in which the Executive participates (together, the "Retirement Plans")
(utilizing actuarial assumptions no less favorable to the Executive
than those in effect under
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the Retirement Plans immediately prior to the latest COC Transition
Date), which the Executive would receive if the Executive's employment
continued for two years after the Date of Termination assuming for
this purpose that all accrued benefits are fully vested, and, assuming
that the Executive's compensation in both of the two years is that
required by Section 6(a) and Section 6(b), over (b) the actuarial
equivalent of the Executive's actual benefit (paid or payable), if
any, under the Retirement Plans as of the Date of Termination;
(ii) for two years after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to those which would
have been provided to them in accordance with the plans, programs,
practices and policies described in Section 6(h) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies and their
families, provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other welfare
benefits under another employer provided plan, the medical and other
welfare benefits described herein shall be secondary to those provided
under such other plan during such applicable period of eligibility. For
purposes of determining eligibility (but not the time of commencement of
benefits) of the Executive for retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be considered to have
remained employed until two years after the Date of Termination and to have
retired on the last day of such period;
(iii) the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall
be selected by the Executive in his sole discretion, and which shall
include the provision of reasonable office space and secretarial
assistance, provided, that the Company's responsibility under this clause
(iii) shall be limited to $30,000;
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies (such other amounts
and benefits shall be referred to in this Agreement as the "Other
Benefits");
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(v) the Company shall grant to the Executive the Accrued LTI
Performance Award, as defined in Section 9(e), and the Company shall cause
all Stock Options and Company Stock held by or for the benefit of the
Executive to become immediately fully vested and/or exercisable;
(vi) the Company shall forgive all outstanding indebtedness of the
Executive to the Company under any loan arrangements or agreements entered
into by the Company and the Executive pursuant to Section 6(e) hereof.
14. LEGAL FEES.
(a) Following any termination of the Executive's employment that
gives rise to a right to payments and benefits under Section 13, the Company
shall pay as incurred, to the full extent permitted by law, all legal fees and
expenses which the Executive may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Company, the Executive or others of
the validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (including as a result of any
contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Code.
(b) Following any termination of the Executive's employment other
than a termination of employment described in paragraph (a), above, the Company
shall promptly reimburse the Executive, to the extent permitted by law, for all
reasonable legal fees and expenses reasonably incurred by the Executive as a
result of any contest by the Company or the Executive of the validity or
enforceability of, or liability under, any provisions of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus in
each case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Code, provided, that such
reimbursement shall be limited to fees and expenses incurred in connection with
the contest of issues on which the Executive substantially prevails.
15. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 15) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
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the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the
foregoing provisions of this Section 15(a), if it shall be determined that the
Executive is entitled to a Gross-Up Payment, but that the Payments do not exceed
110% of the greatest amount (the "Reduced Amount") that could be paid to the
Executive such that the receipt of Payments would not give rise to any Excise
Tax, then no Gross-Up Payment shall be made to the Executive and the Payments,
in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 15(c), all determinations
required to be made under this Section 15, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Arthur
Andersen LLP or such other certified public accounting firm as may be designated
by the Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder).
All fees and expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant to this Section 15, shall
be paid by the Company to the Executive within five days of the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon the Company and the Executive. As a result of the uncertainty
in the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 15(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
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(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively
to contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 15(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis,
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from any Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any extension of
the statute of limitations relating to payment of taxes for the taxable year of
the Executive with respect to which such contested amount is claimed to be due
is limited solely to such contested amount. Furthermore, the Company's control
of the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled to settle
or contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(c) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 15(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 15(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Section 15(c), a determination
is made that the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
16. NONCOMPETITION.
(a) So long as the Executive is employed by the Company under this
Agreement and unless this Agreement is terminated for any reason, the Executive
agrees not to enter into competitive endeavors.
(b) During the Term and any period thereafter during which or in
respect of which the Executive receives payments from the Company under Section
9 or Section 13, the Executive shall hold in a fiduciary capacity for the
benefit of the Company all secret or confidential information, knowledge or data
relating to the Company or any of its affiliated companies, and their respective
businesses, which shall have been obtained by the Executive during the
Executive's employment by the Company or any of its affiliated companies and
which shall not be or become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this Agreement).
After termination of the Executive's employment with the Company, the Executive
shall not, without the prior written consent of the Company or as may otherwise
be required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
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designated by it. In no event shall an asserted violation of the provisions of
this Section 16 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under Section 13 of this Agreement.
17. SUCCESSORS; BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of the Agreement and
shall entitle the Executive to compensation from the Company in the same amount
and on the same terms as he would be entitled to hereunder if he terminated his
employment for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in the Agreement, Company shall mean
the Company as herein before defined and any successor to its business and/or
assets as aforesaid which executes and delivers the agreement provided for in
this Section 17 or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devises and legatees. If the Executive should die while any amounts would still
be payable to him hereunder if he had continued to live, all such amounts unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the Executive's devise, legatee, or other designee or, if there be
no such designee, to the Executive's estate.
18. NOTICE. For the purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
Mr. Steward H. Wahrsager
1393 East 21 Street
Brooklyn, NY 11210
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If to the Company:
The Alpine Group, Inc.
1790 Broadway
15th Floor
New York, NY 10019-1412
Attention: Chief Executive Officer
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
19. MISCELLANEOUS. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such officer of the Company as may be
authorized by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of New York without regard to its conflicts of law principles.
20. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
21. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
22. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officers employee or representative of any party hereto; and any prior agreement
of the parties hereto in respect of the subject matter contained herein is
hereby terminated and cancelled, provided, however, that this Agreement should
not supersede any existing benefit or agreement which provides such benefit,
including, without limitation, life or disability insurance agreements and
retirement plans currently in effect.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
ATTEST: THE ALPINE GROUP, INC.
/s/Bragi F. Schut By:/s/Steven S. Elbaum (SEAL)
- ----------------- -----------------------------------------
A'st S'cty Name: S. Elbaum
Title: Chmn & CEO
ATTEST: EXECUTIVE
/s/Bragi F. Schut /s/Stewart H. Wahrsager
- ----------------- --------------------------------------------
A'st S'cty Stewart H. Wahrsager
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SCHEDULE ONE
THE ALPINE GROUP, INC.
SENIOR MANAGEMENT COMPENSATION
AND
INCENTIVE PROGRAM
I. NAME: Steward H. Wahrsager
II. POSITION: Senior Vice President, Corporate Secretary and General Counsel
III. ANNUAL CASH BONUS INCENTIVE:
A. Your standard annual cash bonus incentive (as a percentage of your
base salary) is 30%.
B. The actual annual cash bonus incentive paid will be determined based
on your "Weighted Overall Annual Performance" (WOAP). A worksheet for
calculating WOAP is included as Attachment A.
C. WOAP will be based on: (1) quantitative financial performance for the
fiscal year (weighted at 75%), and (2) subjective assessment of job
performance (weighted at 25%).
D. The financial performance component will be based on EBITDA return on
net assets (the "Return Ratio") for FY96 for the Alpine Group on a
consolidated basis.
For FY96 financial performance measurement, the actual Return Ratio
will be measured against: (1) FY96 budget (and weighted 67%), and (2)
FY95 pro forma results (and weighted 33%). Attachment B includes the
Return Ratio for the FY96 budget and the FY95 pro forma results.
Attachment C includes current year performance against budget.
E. The actual annual cash bonus incentive will be calculated by
converting your standard bonus to an actual bonus, based on your WOAP
and the conversion matrix included on Attachment D.
F. As previously discussed with you, a component of your annual cash
bonus incentive award may be paid in shares of Company stock under
terms and conditions previously described to you.
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G. Your FY96 bonus will be prorated based on your period of employment
during the current fiscal year (January 2, 1996 to April 30, 1996).
IV. LONG TERM INCENTIVE AWARD:
A. Long term incentives are intended to be awarded annually; however any
such awards are totally at the discretion of the Compensation
Committee.
B. Your long term incentive award for FY96 consists of the following:
(i) Basic stock option grant of 13,333 shares
(ii) Standard performance stock option grant: 37,400 shares
C. Basic stock option grant - major provisions:
(i) Grant date: January 2, 1996
(ii) Exercise price: $4.50 per share (FMV on Grant Date)
(iii) Vesting provisions: 33% per year
(iv) Vesting start date: December 1, 1995
(v) Term of option: 10 years
D. In fiscal 1997, and annually thereafter you will continue to be
eligible to participate in Alpine's Long Term Incentive Award program.
Such program may include: (i) basic stock option grants; and/or (ii)
performance stock option grants (see (E) below); and/or (iii) other
forms of long term incentive awards.
As previously explained to you, you were not included in the standard
performance stock option grant program for FY96, however, for purposes
of application of Section 9(e)(ii) of the Employment Agreement to
which this Schedule is attached, the number of standard performance
option grant shares for your job classification was set at 22,000 for
such fiscal year.
E. Performance stock option grant - major provisions:
(i) Standard performance stock option grants are adjusted based on
the actual weighted average 3-year Return Ratio as compared to
the targeted 3-year Return Ratio. The number of shares of the
standard performance stock option grant will be
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adjusted at the end of the 3-year period based again on the
conversion matrix included as Attachment D
(ii) Vesting: 3-year cliff
(iii) Option term: 10 years
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EMPLOYMENT AGREEMENT
This AGREEMENT dated as of the 26th day of April, 1996, between The Alpine
Group, Inc., a Delaware corporation (the "Company"), and Bragi F. Schut (the
"Executive").
The Board of Directors of the Company (the "Board") recognizes that the
Executive's contribution to the future growth and success of the Company is
expected to be substantial. Whereas the Executive has served as an Executive
Vice President of the Company since 1986, and the Board desires to provide for
the continued employment of the Executive with the Company; and whereas the
Executive and the Company are parties to an Employment Agreement dated as of
September 8, 1993 (as the same may have been amended from time to time, the "Old
Agreement"). The Board desires to provide for the continued employment of the
Executive with the Company which the Board has determined will reinforce and
encourage the continued attention and dedication of the Executive to the Company
as a member of the Company's management, in the best interest of the Company and
its shareholders. The Executive is willing to commit himself to serve the
Company, on the terms and conditions herein provided.
Moreover, the Board has determined that it is in the best interests of the
Company and its shareholders to assure that the Company will have the continued
dedication of the Executive, notwithstanding the possibility, threat or
occurrence of a Change of Control (as defined below) of the Company. The Board
believes it is imperative to diminish the inevitable distraction of the
Executive by virtue of the personal uncertainties and risks created by a pending
or threatened Change of Control and to encourage the Executive's full attention
and dedication to the Company currently and in the event of any threatened or
pending Change of Control, and to provide the Executive with compensation and
benefits arrangements upon a Change of Control which ensure that the
compensation and benefits expectations of the Executive will be satisfied and
which are competitive with those of other corporations.
In order to effect the foregoing, the Company and the Executive wish to
amend and restate the Old Agreement by entering into this Agreement on the terms
and conditions set forth below. Accordingly, in consideration of the premises
and the respective covenants and agreements of the parties herein contained, and
intending to be legally bound hereby, the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive, and
the Executive hereby agrees to serve the Company, on the terms and conditions
set forth herein.
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2. TERM.
(a) The employment of the Executive by the Company hereunder
commenced on September 8, 1993 (the "Commencement Date") and will continue in
effect (i) until either party gives notice to the other, as provided in Section
8(d), that it does not wish to continue the Executive's employment hereunder or
(ii) unless terminated as provided in Sections B(a), (b), (c) or (d). The
"Term" shall be the period commencing on the date hereof and ending on the
earlier to occur of the events specified in clause (i) or (ii) of the preceding
sentence.
(b) Notwithstanding paragraph (a) above or the provisions of Section
8(d), the Company hereby agrees to continue the Executive in its employ, and the
Executive hereby agrees to remain in the employ of the Company subject to the
terms and conditions of this Agreement, during any Transition Period. For
purposes of this Agreement, the Term shall, unless otherwise specified, include
any Transition Period.
3. CERTAIN DEFINITIONS. (a) A "COC Transition Date" shall mean a date
during the Term (as defined in Section 2) on which a Change of Control (as
defined in Section 4) occurs. Anything in this Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (ii) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of this Agreement the "COC Transition Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) A "Transition Period" is a period commencing on a COC Transition
Date and ending on the third anniversary of such date. If a subsequent COC
Transition Date is determined to occur during a Transition Period, then such
Transition Period shall continue until the third anniversary of such subsequent
COC Transition Date. If a subsequent COC Transition Date occurs after the
expiration of a Transition Period, a new Transition Period will commence on such
date and end on the third anniversary thereof.
(c) Notwithstanding anything to the contrary in this Agreement, for
purposes of calculating payments under Section 13(f), "Applicable Bonus" means
the higher of (i) the Highest Recent Bonus (as defined in Section 13(b)(i)) and
(ii) the Annual Bonus (as defined in Section 6(b)) paid or payable, including
any bonus or portion thereof which has been earned but deferred (and annualized
for any fiscal year consisting of less than twelve full months or during which
the Executive was employed for less than twelve full months), for the most
recently
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completed fiscal year during the Term, if any (the "Recent Annual Bonus") (such
higher amount being referred to as the "Highest Annual Bonus"). For purposes of
calculating payments under all sections of this Agreement other than Section
13(f), Applicable Bonus means the Recent Annual Bonus.
(d) A "Stock Option" is an option to purchase a number of shares of
stock of the Company at a fixed exercise price granted to the Executive by the
Company, whether or not exercisable.
4. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of voting
securities of the Company where such acquisition causes such Person to own more
than 20% or more of the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
for purposes of this subsection (a), the following acquisitions shall not be
deemed to result in a Change of Control: (i) any acquisition directly from the
Company, (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company or (iv) any acquisition by any
corporation pursuant to a transaction that complies with clauses (i), (ii) and
(iii) of subsection (c) below; and provided, further, that if any Person's
beneficial ownership of the Outstanding Company Voting Securities reaches or
exceeds more than 20% as a result of a transaction described in clause (i) or
(ii) above, and such Person subsequently acquires beneficial ownership of
additional voting securities of the Company, such subsequent acquisition shall
be treated as an acquisition that causes such Person to own more than 20% or
more of the Outstanding Company Voting Securities; or
(b) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or
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threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board; or
(c) The consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another corporation ("Business
Combination"); excluding, however, such a Business Combination pursuant to which
(i) all or substantially all of the individuals and entities who were the
beneficial owners of the Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more than
50% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation that as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Voting
Securities, (ii) no Person (excluding any employee benefit plan (or related
trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, more than 20% or more
of, respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
5. POSITION AND DUTIES.
(a) The Executive shall serve as an Executive Vice President and
member of the Board of Directors of the Company with such responsibilities,
duties and authority as are from time to time assigned to the Executive by the
Chief Executive Officer or the Board. The Executive's duties shall be
performed primarily at the Company's headquarters office in the New York City
metropolitan area.
(b) During the Term, and excluding any periods of vacation and sick
leave to which the Executive is entitled, the Executive agrees to devote
reasonable attention and time during
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normal business hours to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to the Executive
hereunder, to use the Executive's reasonable best efforts to perform faithfully
and efficiently such responsibilities. During the Term it shall not be a
violation of this Agreement for the Executive to (A) serve on corporate, civic
or charitable boards or committees, provided that the Chief Executive Officer of
the Company first approves of such service, (B) deliver lectures, fulfill
speaking engagements or teach at educational institutions and (C) manage
personal investments, so long as such activities do not significantly interfere
with the performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement and are not directly competitive with
the operating businesses of the Company's subsidiaries.
6. COMPENSATION AND RELATED MATTERS.
(a) SALARY. (i) During the Term, the Company shall pay to the
Executive an annual base salary (the "Annual Base Salary") at a rate not less
than $230,000 or such higher rate as may from time to time be determined by the
Board, such salary to be paid in substantially equal installments in accordance
with the normal payroll practice of the Company. The Executive's salary will be
reviewed at least annually and shall be increased pursuant to such review by a
percentage no less than the percentage increase in the consumer price index, as
published by the Bureau of Labor Statistics of the U.S. Department of Labor, for
the calendar year immediately preceding such review (the "CPI Percentage"). Any
increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so increased.
(b) ANNUAL BONUS. In addition to the Annual Base Salary, the Company
will pay the Executive an annual cash bonus (the "Annual Bonus") within 90 days
following the last day of the Company's fiscal year for which the Annual Bonus
is awarded in an amount, if any, determined in accordance with and otherwise
calculated in the manner set forth in the "Annual Cash Bonus Incentive" section
of Schedule 1 attached hereto, as the same may be amended from time to time in
the discretion of the Compensation Committee of the Company's Board of Directors
(the "Compensation Committee").
(c) STOCK OPTIONS. On the Commencement Date, the Company granted the
Executive 15,000 Stock Options (the "Initial options") to purchase shares of
common stock of the Company ("Company Stock"), as subsequently adjusted in
accordance with the adjustments made by the Compensation Committee on November
10, 1995, having exercise prices per share equal to the following percentages of
the average of the high and low sales
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prices of the Company Stock on the American Stock Exchange on the Commencement
Date and become exercisable in the following amounts and on the following dates:
No. of Shares Exercise Price First Exercisable
- ------------- -------------- -----------------
4,575 86.058% Upon the 1st Anniversary of
the Commencement Date
4,575 86.058% Upon the 2nd Anniversary of
the Commencement Date
4,575 90.156% Upon the 3rd Anniversary of
the Commencement Date
4,575 94.254% Upon the 4th Anniversary of
the Commencement Date
Such Initial Options are intended to be "incentive stock options" and were
granted under the Company's 1987 Equity Incentive Plan, as amended, and are
evidenced by the Company's standard stock option agreement.
In the event of termination of employment (i) by the Executive other
than because of death or for Good Reason, prior to the fourth anniversary of the
Commencement Date or (ii) by the Company for Cause, all Stock Options
(including, without limitation, the Initial Options) not theretofore exercisable
will lapse and be forfeited. In the event the Executive's employment is
terminated for any other reason prior to the fourth anniversary of the
Commencement Date all Stock options (including, without limitation, the Initial
Options) not theretofore exercisable will thereupon become exercisable. Except
as provided in Section 11 each Stock Option will expire 10 years after it is
granted.
(d) RESTRICTED STOCK GRANT. On the Commencement Date, the Company
granted to the Executive 25,000 shares of the Company's Stock pursuant to the
Restricted Stock Plan, as amended, which restricted shares have been set aside
in the custody, control and possession of the Company and have and will be
released to the Executive at the rate of 6,250 shares on each anniversary of the
Commencement Date, provided that in the event Executive's employment is
terminated for Cause or by Executive without Good Reason, prior to the fourth
anniversary of the Commencement Date, then the scheduled releases on any
subsequent anniversary of the Commencement Date shall be cancelled and all
shares of Restricted Stock not theretofore released shall be forfeited by the
Executive and shall be cancelled and retired by the Company.
(e) ANNUITY PAYMENTS. The Company shall pay $283,500
to the Executive in fifteen annual installments of $18,900 each starting on the
date the Executive reaches age 60 and ending on
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the date the Executive reaches age 74, provided that, in the event the
Executive's employment is terminated by the Company for Cause or by the
Executive without Good Reason prior to the fifth anniversary of the Commencement
Date, the amount of each such annual installment shall be multiplied by a
fraction the numerator of which is the number of months the Executive is
employed by the Company from and after the Commencement Date and the denominator
of which is 60.
(f) TAX LOAN. Not less than 10 days prior to the due date of the
Executive's federal income tax return for every taxable year of the Executive in
which his income tax liability is increased by or as a result of the matters
contained in Sections 6(d) or 6(e) the Company will lend to the Executive an
amount equal to such increased tax liability. The Company and the Executive
shall enter into an appropriate agreement providing for the repayment by the
Executive of such loan, which agreement shall provide that (i) if the principal
amount of such loan (together with the aggregate outstanding amount of other
loans between the Company and the Executive) exceeds the de minimis amount set
forth in Section 7872(c)(3) of the Internal Revenue Code of 1986, as amended
(the "Code") (or any successor provision thereto), then such loan shall bear
interest at a rate not less than the applicable Federal rate determined in
accordance with Section 7872(f)(2) (or any successor provision) of the Code, and
(ii) if the Executive disposes of any of the shares of Company Stock prior to
the fifth anniversary of the Commencement Date, the principal balance of the
loan shall become immediately due and payable to the extent of the proceeds of
such disposition.
(g) EXPENSES. During the term of the Executive's employment
hereunder, the Executive shall be entitled to receive prompt reimbursement for
all reasonable and customary expenses incurred by the Executive in performing
services hereunder, including (i) all expenses of travel and living expenses
while away from home or business or at the request of and in the service of the
Company and (ii) an automobile, plus all expenses of maintaining and operating
the automobile, provided that all such expenses are accounted for in accordance
with the policies and procedures established by the Company, or a monthly cash
allowance in lieu thereof.
(h) WELFARE BENEFITS. During the Term, the Executive and/or the
Executive's family, as the case may be, shall be eligible for participation in
and shall receive all benefits under welfare benefit plans, practices, policies
and programs provided by the Company and its affiliated companies (including,
without limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to the most
senior executives of the Company and its affiliated companies, but in no event
shall such plans, practices, policies and programs
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<PAGE>
provide the Executive with benefits which are materially less favorable, in the
aggregate, than the most favorable of such plans, practices, policies and
programs in effect for the Executive as of the date hereof or, if more favorable
to the Executive, those provided generally at any time to any other executive
(except for the Chief Executive Officer) of the Company and its affiliated
companies. As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common control with the
Company.
(i) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Term, the
Executive shall be entitled to participate in all incentive, savings and
retirement plans, practices, policies and programs applicable generally to the
most senior executives of the Company and its affiliated companies, including
without limitation the Long Term Incentive Award program applicable to the
Executive set forth on Schedule 1 (the "LTI Award"). In addition, the Company
covenants to adopt on or before February 1, 1997, and to name the Executive as a
participant in, a Senior Executive Retirement Plan substantially in the form as
set forth in Exhibit A attached hereto.
(j) FRINGE BENEFITS. During the Term:
(i) The Company shall reimburse the Executive for the reasonable
expenses incurred by the Executive in undergoing an annual physical examination
by a licensed physician.
(ii) The Company shall reimburse the Executive for the reasonable
expenses incurred by the Executive in connection with obtaining professional tax
and financial planning advice.
(k) VACATION. During the Term, the Executive shall be entitled to
paid vacation of four weeks per year, any unused portion of which shall be
forfeited as of the end of each year.
(l) DISABILITY OFFSET. Payments made to the Executive pursuant to
this Section 6 shall be reduced by the sum of the amounts, if any, payable to
the Executive at or prior to the time of any such payment under disability
benefit plans of the Company or under the Social Security disability insurance
program, and which amounts were not previously applied to reduce any such
payments.
7. OFFICES. Subject to Section 5, the Executive agrees to serve without
additional compensation, if elected or appointed thereto, as a director of the
Company and any of its subsidiaries and in one or more executive offices of any
of the Company's subsidiaries, provided that the Executive is indemnified for
serving in any and all such capacities.
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8. TERMINATION. The Executive's employment hereunder may be terminated
without any breach of this Agreement only under the following circumstances:
(a) DEATH OR DISABILITY. The Executive's employment shall terminate
automatically upon the Executive's death during the Term. If the Company
determines in good faith that Disability of the Executive has occurred during
the Term (pursuant to the definition of Disability set forth below), it may give
to the Executive written notice in accordance with Section 18 of this Agreement
of its intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" shall mean the absence of the Executive
from the Executive's duties with the Company on a full-time basis for 180
consecutive business days (or such shorter period as will suffice for the
Executive to qualify for full disability benefits under the applicable
disability insurance policy or policies of the Company) as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers and reasonably
acceptable to the Executive or the Executive's legal representative.
(b) CAUSE. The Company may terminate the Executive's employment
during the Term for Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties pursuant to this Agreement (other than
any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered
to the Executive by the Board or the Company's Chief Executive Officer
which specifically identifies the manner in which the Board or the Chief
Executive Officer believes that the Executive has not substantially
performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the
Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions
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<PAGE>
of the Chief Executive Officer or a senior officer of the Company or based upon
the advice of counsel for the Company shall be conclusively presumed to be done,
or omitted to be done, by the Executive in good faith and in the best interests
of the Company. The cessation of employment of the Executive shall not be
deemed to be for Cause unless and until there shall have been delivered to the
Executive a copy of a resolution duly adopted by the affirmative vote of not
less than a majority of the entire membership of the Board at a meeting of the
Board called and held for such purpose (after reasonable notice is provided to
the Executive and the Executive is given an opportunity, together with counsel,
to be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
(c) TERMINATION BY THE EXECUTIVE FOR GOOD REASON. The Executive's
employment may be terminated by the Executive for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean:
a. the assignment to the Executive of any duties materially
inconsistent with the Executive's position (including status, titles and
reporting requirements), authority, duties or responsibilities as
contemplated by Section 5(a) of this Agreement, or any other action by the
Company which results in a material diminution in such position, authority,
duties or responsibilities, excluding for this purpose isolated and
inadvertent action(s) not taken in bad faith and remedied by the Company
promptly after receipt of notice thereof given by the Executive;
b. any material failure by the Company to comply with any of the
provisions of Section 6 or Section 13(a) or (b) of this Agreement, other
than isolated and inadvertent failure(s) not occurring in bad faith and
remedied by the Company promptly after receipt of notice thereof given by
the Executive;
c. the Company's requiring the Executive to be based at any office
or location other than as provided in Section 5(a) hereof;
d. any termination by the Company of the Executive's employment
otherwise than as expressly permitted by this Agreement; or
e. any failure by the Company to comply with and satisfy Section
17(a) of this Agreement.
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(d) TERMINATION ELECTION. Subject to the provisions of Section 2(b):
(i) A notice to Executive by the Company will constitute an election
by the Company to terminate the Executive's employment pursuant to Section 2(a)
60 days following the date of delivery of the notice;
(ii) A notice to the Company by the Executive will constitute an
election by the Executive to terminate Executive's employment pursuant to
Section 2(a) 90 days following the date of delivery of the notice;
(iii) In no event, however, shall the Term of the Executive's
employment hereunder extend beyond the end of the month in which the Executive's
sixty-fifth (65th) birthday occurs.
(e) NOTICE OF TERMINATION. Any termination of the Executive's
employment by the Company or by the Executive (other than termination by reason
of the Executive's death) shall be communicated by written Notice of Termination
to the other party hereto in accordance with Section 18 hereof. For purposes of
this Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon (ii)
to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date. The good faith failure by the Executive or the Company to
set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(f) DATE OF TERMINATION. "Date of Termination" shall mean (i) if the
Executive's employment is terminated by reason of death or Disability, the date
of death of the Executive or the Disability Effective Date, as the case may be,
(ii) if the Executive's employment is terminated for Cause, the date specified
in the Notice of Termination, and (iii) if the Executive's employment is
terminated by either of the elections pursuant to Section 8(d) above, the
applicable date of termination determined under Section 8(d) above, and (iv) if
the Executive's employment is terminated for any other reason, the date on which
a Notice of Termination is given; provided, however, that, if within thirty (30)
days after any Notice of Termination is given the party receiving such Notice of
Termination notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be the date on
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<PAGE>
which the dispute is finally determined, either by mutual written agreement of
the parties, by a binding and final arbitration award or by a final judgment,
order or decree of a court of competent jurisdiction (the time for appeal
therefrom having expired and no appeal having been perfected).
9. COMPENSATION UPON TERMINATION.
(a) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability during the Term, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations (as defined in Section 13(f)(i)a.) and the timely payment
or provision of Other Benefits (as defined in Section 13(f)(iv)). Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination. Notwithstanding the foregoing, the Company shall
maintain, at the Company's sole expense, in full force and effect, for the
continued benefit of the Executive for twelve months following the Disability
Effective Date, all employee welfare benefit plans and programs in which the
Executive was entitled to participate immediately prior to the Disability
Effective Date provided that the Executive's continued participation is possible
under the general terms and provisions of such plans and programs. In the event
that the Executive's participation in any such plan or program is barred, the
Company shall arrange to provide the Executive with benefits substantially
similar to those which the Executive would otherwise have been entitled to
receive under such plans and programs from which his continued participation is
barred.
(b) DEATH. If the Executive's employment is terminated by reason of
the Executive's death during the Term, this Agreement shall terminate without
further obligations to the Executive's legal representatives under this
Agreement, other than for (i) payment of Accrued Obligations (as defined in
Section 13(f)(i)a.), calculated as if the Executive's employment had continued
for a period of 12 months following the date of death; and (ii) the timely
payment or provision of Other Benefits (as defined in Section 13(f)(iv)).
Accrued Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
(c) CAUSE. If the Executive's employment shall be terminated for
Cause during the Term, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the Executive
(x) his Annual Base Salary through the Date of Termination, (y) the amount of
any compensation previously deferred by the Executive, and (z) Other Benefits,
in each case to the extent theretofore unpaid.
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(d) VOLUNTARY TERMINATION. If the Executive voluntarily terminates
employment during the Term, excluding a termination for Good Reason, this
Agreement shall terminate without further obligations to the Executive, other
than for Accrued Obligations and the timely payment or provision of Other
Benefits. In such case, all Accrued Obligations shall be paid to the Executive
in a lump sum in cash within 30 days of the Date of Termination.
(e) TERMINATION ELECTION BY COMPANY; TERMINATION BY EXECUTIVE FOR
GOOD REASON. If the Executive's employment is terminated by the Company under
Section 8(d)(i) hereof or by the Executive under Section 8(c) hereof: (i) the
Company shall pay to the Executive a lump sum in cash within ten days of the
Date of Termination in an amount equal to the sum of (x) the product of the sum
of the Annual Base Salary in effect immediately prior to termination plus the
Applicable Bonus times either (A) one and one-half, if the Termination Date
occurs prior to the fifth anniversary of the Commencement Date or (B) one, if
the Termination Date occurs on or after the fifth anniversary of the
Commencement Date plus (y) the Accrued Obligations (as defined in Section
13(f)(i)a.), (ii) with respect to each current three-year LTI Award performance
cycle in effect as of the Date of Termination, the Company shall grant to the
Executive a number of fully vested and exercisable Stock Options equal to the
product of (x) the "standard performance stock option grant" set forth in
Section V.B.(ii) of Schedule I as adjusted in accordance with the conversion
matrix included as Attachment D thereof, based on performance as of the Date of
Termination as determined in good faith by the Company (but which performance
level shall, for purposes of determining the appropriate conversion percentage,
in no event be lower than the performance as of the close of the Company's most
recently completed fiscal year) times (y) a fraction, the numerator of which is
the number of whole months elapsed since the commencement of the relevant three-
year LTI Award performance cycle, and the denominator of which is 36, with an
exercise price per share equal to the fair market value of a share of Parent
Stock on the date of grant (the foregoing grant of Stock Options described in
this clause (ii) shall hereinafter be referred to as the "Accrued LTI
Performance Award"), and (iii) the Company shall continue to comply with its
obligations under Section 6(f).
10. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 23, shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program of or
any
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contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
11. STOCK OPTIONS AND COMPANY STOCK.
(a) In the event of the Executive's death, whether his death occurs
during or after the Term of this Agreement, all unexercised and exercisable
Stock Options will be assigned to his Estate.
(b) In the event of the termination of the employment of the
Executive for any reason, all unexercised and exercisable Stock Options must be
exercised by him, or his estate (or heir(s)) as the case may be, before the
second anniversary of the termination of his employment, but in no event after
the tenth anniversary of the date of grant thereof, any such Stock Options not
exercised by that date will lapse immediately thereafter.
(c) In the Event of any change in the number of issued shares of
Company Stock resulting from a subdivision or consolidation of shares or other
capital adjustment, or the payment of a stock dividend, or other increase or
decrease in such shares, then appropriate adjustments in the terms of any
unexercised Stock Options shall be made by the Company.
12. FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement. Unless the
Executive's Termination of employment gives rise to a right to payments and
benefits described in Section 13, if the Executive secures other employment, any
benefits the Company is required to provide to the Executive following
termination of the Executive's employment shall be secondary to those provided
by another employer (if any). However, if the Executive's employment is
terminated such that the Executive has a right to payments and benefits under
Section 13, such amounts shall not be reduced whether or not the Executive
obtains other employment.
13. CHANGE OF CONTROL PROVISIONS. The following provisions of this
Section 13 shall apply notwithstanding any contrary or inconsistent provision in
any other section of this Agreement, and all other provisions of this Agreement,
to the
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extent they may be contrary to or inconsistent with the provisions of this
Section 13, are hereby made subject to the provisions of this Section 13, which
shall be paramount in all respects, PROVIDED, however, that the provisions of
Section 3(c) shall apply, where applicable.
(a) POSITION AND DUTIES. During any Transition Period, the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of those held,
exercised and assigned at any time during the 120-day period immediately
preceding a COC Transition Date, and the Executive's services shall be performed
at the location where the Executive was employed immediately preceding a COC
Transition Date at the Company's headquarters in the New York City metropolitan
area.
(b) COMPENSATION AND RELATED MATTERS.
(i) ANNUAL BONUS. For each fiscal year ending during any Transition
Period, the Company shall pay to the Executive an Annual Bonus in cash at least
equal to the Executive's highest cash bonus under the Company's annual cash
bonus program, or any comparable cash bonus under any predecessor or successor
plan, for the last three full fiscal years prior to the latest COC Transition
Date (the "Highest Recent Bonus"). Each such Annual Bonus shall be paid no
later than 60 days following the commencement of the fiscal year next following
the fiscal year for which the Annual Bonus is awarded, unless the Executive
shall elect to defer the receipt of such Annual Bonus.
(ii) WELFARE BENEFITS. During any Transition Period, the benefits to
which the Executive and/or the Executive's family are entitled to pursuant to
Section 6(h) shall be no less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day period immediately preceding the latest
COC Transition Date or, if more favorable to the Executive, those provided
generally at any time after the latest COC Transition Date to any other
executive (except for the Chief Executive Officer) of the Company and its
affiliated companies.
(iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During any Transition
Period, the plans, practices, policies and programs in which the Executive is
entitled to participate pursuant to Section 6(i) shall provide the Executive
with incentive opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that
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such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, at least as favorable, in the aggregate, as the
most favorable of those provided by the Company and its affiliated companies for
the Executive under such plans, practices, policies and programs as of the date
hereof or if more favorable to the Executive, those provided generally at any
time to any other executive (except for the Chief Executive Officer) of the
Company and its affiliated companies.
(iv) FRINGE BENEFITS. During any Transition Period, the Executive
shall be entitled to fringe benefits, including, without limitation, the
benefits described in Section 6(j), in accordance with the most favorable plans,
practices, programs and policies of the Company and its affiliated companies in
effect for the Executive at any time during the 120-day period immediately
preceding the latest COC Transition Date or, if more favorable to the Executive,
as in effect generally at any time thereafter with respect to any other
executive (except for the Chief Executive Officer) of the Company and its
affiliated companies.
(v) OFFICE AND SUPPORT STAFF. During any Transition Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the latest COC Transition Date or, if
more favorable to the Executive, as provided generally at any time thereafter
with respect to any other executive (except for the Chief Executive Officer) of
the Company and its affiliated companies.
(vi) VACATION. During any Transition Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans, policies,
programs and practices of the Company and its affiliated companies as in effect
for the Executive at any time during the 120-day period immediately preceding
the latest COC Transition Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to any other executive
(except for the Chief Executive Officer) of the Company and its affiliated
companies.
(c) GOOD REASON. During any Transition Period, for purposes of this
Agreement, "Good Reason" shall mean:
a. the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, titles and
reporting requirements), authority, duties or responsibilities as
contemplated by Sections 5(a) or 13(a) of this Agreement, or any other
action by the Company which results in a diminution in
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such position, authority, duties or responsibilities, excluding for this
purpose isolated, insubstantial and inadvertent action(s) not taken in bad
faith and remedied by the Company promptly after receipt of notice thereof
given by the Executive;
b. any failure by the Company to comply with any of the provisions
of Section 6 or Section 13(a) or (b) of this Agreement, other than
isolated, insubstantial and inadvertent failure(s) not occurring in bad
faith and remedied by the Company promptly after receipt of notice thereof
given by the Executive;
c. the Company's requiring the Executive to be based at any office
or location other than as provided in Sections 5(a) or 13(a) hereof;
d. any termination by the Company of the Executive's employment
otherwise than as expressly permitted by this Agreement; or
e. any failure by the Company to comply with and satisfy Section
17(a) of this Agreement.
For purposes of this Section 13(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive. A termination by the
Executive for any reason during the 30-day period immediately following the date
which is six months after any COC Transition Date shall be deemed to be a
termination for Good Reason for all purposes of this Agreement.
(i) COMPENSATION UPON TERMINATION FOR DISABILITY. If the Executive's
employment is terminated by reason of the Executive's Disability during any
Transition Period, then with respect to the provision of Other Benefits, the
term Other Benefits as utilized in Section 9(a) shall include, and the Executive
shall be entitled after the Disability Effective Date to receive, disability and
other benefits at least equal to the most favorable of those generally provided
by the Company and its affiliated companies to disabled executives and/or their
families in accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect generally with respect to the most
senior executives and their families at any time during the 120-day period
immediately preceding the latest COC Transition Date or, if more favorable to
the Executive and/or the Executive's family, as in effect at any time thereafter
generally with respect to any other executive (except for the Chief Executive
Officer) of the Company and its affiliated companies and their families.
(ii) COMPENSATION UPON TERMINATION BY DEATH. If the Executive's
death occurs during any Transition Period, then with respect to the provision of
other Benefits, the term Other Benefits as utilized in Section 9(b) shall
include, without
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limitation, and the Executive's estate and/or beneficiaries shall be entitled to
receive, benefits at least equal to the most favorable benefits provided by the
Company and its affiliated companies to the estates and beneficiaries of the
most senior executives of the Company and its affiliated companies under such
plans, programs, practices and policies relating to death benefits, if any, as
in effect with respect to the most senior executives and their beneficiaries at
any time during the 120-day period immediately preceding the latest COC
Transition Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to any other executive (except for the Chief Executive Officer) of
the Company and its affiliated companies and their beneficiaries.
(d) COMPENSATION UPON TERMINATION BY THE COMPANY WITHOUT CAUSE OR FOR
GOOD REASON. If, during any Transition Period, the Company shall terminate the
Executive's employment other than for Cause or Disability or the Executive shall
terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
a. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid,
(2) the product of (x) the Applicable Bonus and (y) a fraction, the
numerator of which is the number of days in the current fiscal year
through the Date of Termination, and the denominator of which is 365
and (3) any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any
accrued vacation pay, in each case to the extent not theretofore paid
(the sum of the amounts described in clauses (1), (2), and (3) shall
be referred to in this Agreement as the "Accrued Obligations"); and
b. the amount equal to the product of (1) two and one-half
and (2) the sum of (x) the Executive's Annual Base Salary and (y) the
Highest Annual Bonus; and
c. an amount equal to the excess of (a) the actuarial
equivalent of the benefit under the Company's defined benefit
retirement plans, including any excess or supplemental retirement plan
in which the Executive participates (together, the "Retirement Plans")
(utilizing actuarial assumptions no less favorable to the Executive
than those in effect under the Retirement Plans immediately prior to
the latest COC Transition Date), which the Executive would receive if
the Executive's employment continued for two
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and one-half years after the Date of Termination assuming for this
purpose that all accrued benefits are fully vested, and, assuming that
the Executive's compensation in during the two and one-half year
period is that required by Section 6(a) and Section 6(b), over (b) the
actuarial equivalent of the Executive's actual benefit (paid or
payable), if any, under the Retirement Plans as of the Date of
Termination;
(ii) for two and one-half years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
benefits to the Executive and/or the Executive's family at least equal to
those which would have been provided to them in accordance with the plans,
programs, practices and policies described in Section 6(h) of this
Agreement if the Executive's employment had not been terminated or, if more
favorable to the Executive, as in effect generally at any time thereafter
with respect to any other executive (except for the Chief Executive
Officer) of the Company and its affiliated companies and their families,
provided, however, that if the Executive becomes reemployed with another
employer and is eligible to receive medical or other welfare benefits under
another employer provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility. For purposes of determining
eligibility (but not the time of commencement of benefits) of the Executive
for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained employed until
two years after the Date of Termination and to have retired on the last day
of such period;
(iii) the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall
be selected by the Executive in his sole discretion, and which shall
include the provision of reasonable office space and secretarial
assistance;
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies (such other amounts
and benefits shall be referred to in this Agreement as the "Other
Benefits");
(v) the Company shall grant to the Executive the Accrued LTI
Performance Award, as defined in Section 9(e), and the Company shall cause
all Stock Options and Company
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Stock held by or for the benefit of the Executive to become immediately
fully vested and/or exercisable;
(vi) the Company shall forgive all outstanding indebtedness of the
Executive to the Company under any loan arrangements or agreements entered
into by the Company and the Executive pursuant to Section 6(e) hereof.
14. LEGAL FEES.
(a) Following any termination of the Executive's employment that
gives rise to a right to payments and benefits under Section 13, the Company
shall pay as incurred, to the full extent permitted by law, all legal fees and
expenses which the Executive may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Company, the Executive or others of
the validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (including as a result of any
contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Code.
(b) Following any termination of the Executive's employment other
than a termination of employment described in paragraph (a), above, the Company
shall promptly reimburse the Executive, to the extent permitted by law, for all
reasonable legal fees and expenses reasonably incurred by the Executive as a
result of any contest by the Company or the Executive of the validity or
enforceability of, or liability under, any provisions of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus in
each case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Code, provided, that such
reimbursement shall be limited to fees and expenses incurred in connection with
the contest of issues on which the Executive substantially prevails.
15. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 15) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the
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Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section 15(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the Payments do not exceed 110% of the greatest
amount (the "Reduced Amount") that could be paid to the Executive such that the
receipt of Payments would not give rise to any Excise Tax, then no Gross-Up
Payment shall be made to the Executive and the Payments, in the aggregate, shall
be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 15(c), all determinations
required to be made under this Section 15, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Arthur
Andersen LLP or such other certified public accounting firm as may be designated
by the Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder).
All fees and expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant to this Section 15, shall
be paid by the Company to the Executive within five days of the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon the Company and the Executive. As a result of the uncertainty
in the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 15(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
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(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively
to contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 15(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis,
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from any Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any extension of
the statute of limitations relating to payment of taxes for the taxable year of
the Executive with respect to which such contested amount is claimed to be due
is limited solely to such contested amount. Furthermore, the Company's control
of the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled to settle
or contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(c) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 15(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 15(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Section 15(c), a determination
is made that the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
16. NONCOMPETITION.
(a) So long as the Executive is employed by the Company under this
Agreement and unless this Agreement is terminated for any reason, the Executive
agrees not to enter into competitive endeavors.
(b) During the Term and any period thereafter during which or in
respect of which the Executive receives payments from the Company under Section
9 or Section 13, the Executive shall hold in a fiduciary capacity for the
benefit of the Company all secret or confidential information, knowledge or data
relating to the Company or any of its affiliated companies, and their respective
businesses, which shall have been obtained by the Executive during the
Executive's employment by the Company or any of its affiliated companies and
which shall not be or become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this Agreement).
After termination of the Executive's employment with the Company, the Executive
shall not, without the prior written consent of the Company or as may otherwise
be required by law or legal process, communicate or divulge any such
information,
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knowledge or data to anyone other than the Company and those designated by it.
In no event shall an asserted violation of the provisions of this Section 16
constitute a basis for deferring or withholding any amounts otherwise payable to
the Executive under Section 13 of this Agreement.
17. SUCCESSORS; BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of the Agreement and
shall entitle the Executive to compensation from the Company in the same amount
and on the same terms as he would be entitled to hereunder if he terminated his
employment for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in the Agreement, Company shall mean
the Company as herein before defined and any successor to its business and/or
assets as aforesaid which executes and delivers the agreement provided for in
this Section 17 or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devises and legatees. If the Executive should die while any amounts would still
be payable to him hereunder if he had continued to live, all such amounts unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the Executive's devise, legatee, or other designee or, if there be
no such designee, to the Executive's estate.
18. NOTICE. For the purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
Mr. Bragi F. Schut
172 Pacific Street
Brooklyn, NY 11201
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If to the Company:
The Alpine Group, Inc.
1790 Broadway
15th Floor
New York, NY 10019-1412
Attention: Chief Executive Officer
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
19. MISCELLANEOUS. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such officer of the Company as may be
authorized by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of New York without regard to its conflicts of law principles.
20. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
21. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
22. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officers employee or representative of any party hereto; and any prior agreement
of the parties hereto in respect of the subject matter contained herein is
hereby terminated and cancelled, provided, however, that this Agreement should
not supersede any existing benefit or agreement which provides such benefit,
including, without limitation, life or disability insurance agreements and
retirement plans currently in effect.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
ATTEST: THE ALPINE GROUP, INC.
/s/Stewart H. Wahrsager, Esq. By:/s/Steven S. Elbaum (SEAL)
- ----------------------------- ----------------------
Name:
Title:
ATTEST: EXECUTIVE
/s/Stewart H. Wahrsager, Esq. /s/Bragi F. Schut (SEAL)
- ----------------------------- --------------------
Bragi F. Schut
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SCHEDULE ONE
THE ALPINE GROUP, INC.
SENIOR MANAGEMENT COMPENSATION
AND
INCENTIVE PROGRAM
I. NAME: Bragi Schur
II. POSITION: Executive Vice President
III. ANNUAL CASH BONUS INCENTIVE:
A. Your standard annual cash bonus incentive (as a percentage of your
base salary) is 40%.
B. The actual annual cash bonus incentive paid will be determined based
on your "Weighted Overall Annual Performance" (WOAP). A worksheet for
calculating WOAP is included as Attachment A.
C. WOAP will be based on: (1) quantitative financial performance for the
fiscal year (weighted at 75%), and (2) subjective assessment of job
performance (weighted at 25%).
D. The financial performance component will be based on EBITDA return on
net assets (the "Return Ratio") for FY96.
For FY96 financial performance measurement, the actual Return Ratio
will be measured against: (1) FY96 budget (and weighted 67%), and (2)
FY96 pro forma results (and weighted 33%). Attachment B includes the
Return Ratio for the FY96 budget and the FY95 pro forma results.
Attachment C includes current year performance against budget.
E. The actual annual cash bonus incentive will be calculated by
converting your standard bonus to an actual bonus, based on your WOAP
and the conversion matrix included on Attachment D.
F. As previously discussed with you, a component of your annual cash
bonus incentive award may be paid in shares of Company stock under
terms and conditions previously described to you.
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IV. LONG TERM INCENTIVE AWARD:
A. Long term incentives are intended to be awarded annually; however any
such awards are totally at the discretion of the Compensation
Committee.
B. Your long term incentive award for FY96 consists of the following:
(i) Basic stock option grant: 37,400 shares
(ii) Standard performance stock option grant: 37,400 shares
C. Basic stock option grant - major provisions:
(i) Grant date: November 15, 1995
(ii) Exercise price: $5.25 per share (FMV on Grant Date)
(iii) Vesting provisions: 33% per year
(iv) Vesting start date: May 1, 1995
(v) Term of option: 10 years
D. Performance stock option grant - major provisions:
(i) Standard performance stock option grants are adjusted based on
the actual weighted average 3-year Return Ratio as compared to
the targeted 3-year Return Ratio (see Attachment E). The number
of shares of the standard performance stock option grant will be
adjusted at the end of the 3-year period (end of FY98) based
again on the conversion matrix included as Attachment D
(ii) Vesting: 3-year cliff
(iii) Exercise price per share: $5.25
(iv) Option term: 10 years
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EMPLOYMENT AGREEMENT
This AGREEMENT dated as of the 26th day of April, 1996, between The Alpine
Group, Inc., a Delaware corporation (the "Company"), and Stephen M. Johnson (the
"Executive").
The Board of Directors of the Company (the "Board") recognizes that the
Executive's contribution to the future growth and success of the Company is
expected to be substantial. Whereas the Executive has served as an Executive
Vice President of the Company since November 1, 1995 and previously served as
President of Adience, Inc. ("Adience"), and the Board desires to provide for the
continued employment of the Executive with the Company. The Board desires to
provide for the continued employment of the Executive with the Company which the
Board has determined will reinforce and encourage the continued attention and
dedication of the Executive to the Company as a member of the Company's
management, in the best interest of the Company and its shareholders. The
Executive is willing to commit himself to serve the Company, on the terms and
conditions herein provided.
Moreover, the Board has determined that it is in the best interests of the
Company and its shareholders to assure that the Company will have the continued
dedication of the Executive, notwithstanding the possibility, threat or
occurrence of a Change of Control (as defined below) of the Company. The Board
believes it is imperative to diminish the inevitable dis-
traction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
In order to effect the foregoing, the Company and the Executive wish to
enter into this Agreement on the terms and conditions set forth below.
Accordingly, in consideration of the premises and the respective covenants and
agreements of the parties herein contained, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive, and
the Executive hereby agrees to serve the Company, on the terms and conditions
set forth herein.
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2. TERM.
(a) The employment of the Executive by the Company hereunder
commenced on September 8, 1993 (the "Commencement Date") and will continue in
effect (i) until either party gives notice to the other, as provided in Section
8(d), that it does not wish to continue the Executive's employment hereunder or
(ii) unless terminated as provided in Sections B(a), (b), (c) or (d). The
"Term" shall be the period commencing on the date hereof and ending on the
earlier to occur of the events specified in clause (i) or (ii) of the preceding
sentence. The Employment Agreement dated April 21, 1994 between Executive and
Adience is hereby terminated in all respects and all respective rights and
obligations thereunder cancelled.
(b) Notwithstanding paragraph (a) above or the provisions of Section
8(d), the Company hereby agrees to continue the Executive in its employ, and the
Executive hereby agrees to remain in the employ of the Company subject to the
terms and conditions of this Agreement, during any Transition Period. For
purposes of this Agreement, the Term shall, unless otherwise specified, include
any Transition Period.
3. CERTAIN DEFINITIONS. (a) A "COC Transition Date" shall mean a date
during the Term (as defined in Section 2) on which a Change of Control (as
defined in Section 4) occurs. Anything in this Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (ii) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of this Agreement the "COC Transition Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) A "Transition Period" is a period commencing on a COC Transition
Date and ending on the third anniversary of such date. If a subsequent COC
Transition Date is determined to occur during a Transition Period, then such
Transition Period shall continue until the third anniversary of such subsequent
COC Transition Date. If a subsequent COC Transition Date occurs after the
expiration of a Transition Period, a new Transition Period will commence on such
date and end on the third anniversary thereof.
(c) Notwithstanding anything to the contrary in this Agreement, for
purposes of calculating payments under Section 13(f), "Applicable Bonus" means
the higher of (i) the Highest Recent Bonus (as defined in Section 13(b)(i)) and
(ii) the Annual Bonus (as defined in Section 6(b)) paid or payable, including
any bonus or portion thereof which has been earned but
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deferred (and annualized for any fiscal year consisting of less than twelve full
months or during which the Executive was employed for less than twelve full
months), for the most recently completed fiscal year during the Term, if any
(the "Recent Annual Bonus") (such higher amount being referred to as the
"Highest Annual Bonus"). For purposes of calculating payments under all
sections of this Agreement other than Section 13(f), Applicable Bonus means the
Recent Annual Bonus.
(d) A "Stock Option" is an option to purchase a number of shares of
stock of the Company at a fixed exercise price granted to the Executive by the
Company, whether or not exercisable.
4. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of voting
securities of the Company where such acquisition causes such Person to own more
than 20% or more of the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
for purposes of this subsection (a), the following acquisitions shall not be
deemed to result in a Change of Control: (i) any acquisition directly from the
Company, (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company or (iv) any acquisition by any
corporation pursuant to a transaction that complies with clauses (i), (ii) and
(iii) of subsection (c) below; and provided, further, that if any Person's
beneficial ownership of the Outstanding Company Voting Securities reaches or
exceeds more than 20% as a result of a transaction described in clause (i) or
(ii) above, and such Person subsequently acquires beneficial ownership of
additional voting securities of the Company, such subsequent acquisition shall
be treated as an acquisition that causes such Person to own more than 20% or
more of the Outstanding Company Voting Securities; or
(b) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such
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individual whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of directors
or other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
(c) The consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another corporation ("Business
Combination"); excluding, however, such a Business Combination pursuant to which
(i) all or substantially all of the individuals and entities who were the
beneficial owners of the Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more than
50% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation that as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Voting
Securities, (ii) no Person (excluding any employee benefit plan (or related
trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, more than 20% or more
of, respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
5. POSITION AND DUTIES.
(a) The Executive shall serve as an Executive Vice President and
Chief Operating Officer of the Company with such responsibilities, duties and
authority as are from time to time assigned to the Executive by the Chief
Executive Officer or the Board. The Executive's duties shall be
performed primarily at the Company's headquarters office in the New York City
metropolitan area, PROVIDED, however, that the Executive shall be obligated to
travel to the locations of the Company's
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facilities as reasonably required to monitor the operations thereof.
(b) During the Term, and excluding any periods of vacation and sick
leave to which the Executive is entitled, the Executive agrees to devote
reasonable attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Term it shall not be a violation of this Agreement
for the Executive to (A) serve on corporate, civic or charitable boards or
committees, provided that the Chief Executive Officer of the Company first
approves of such service, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement.
6. COMPENSATION AND RELATED MATTERS.
(a) SALARY. (i) During the Term, the Company shall pay to the
Executive an annual base salary (the "Annual Base Salary") at a rate not less
than $294,000 or such higher rate as may from time to time be determined by the
Board, such salary to be paid in substantially equal installments in accordance
with the normal payroll practice of the Company. The Executive's salary will be
reviewed at least annually and shall be increased pursuant to such review by a
percentage no less than the percentage increase in the consumer price index, as
published by Bureau of Labor Statistics of the U.S. Department of Labor, for the
calendar year immediately preceding such review (the "CPI Percentage"). Any
increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so increased.
(b) ANNUAL BONUS. In addition to the Annual Base Salary, the Company
will pay the Executive an annual cash bonus (the "Annual Bonus") within 90 days
following the last day of the Company's fiscal year for which the Annual Bonus
is awarded in an amount, if any, determined in accordance with and otherwise
calculated in the manner set forth in the "Annual Cash Bonus Incentive" section
of Schedule 1 attached hereto, as the same may be amended from time to time in
the discretion of the Compensation Committee of the Company's Board of Directors
(the "Compensation Committee").
(c) STOCK OPTIONS. On November 11, 1995, the Company granted the
Executive 25,000 Stock Options (the "Ini-
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<PAGE>
tial options") to purchase shares of common stock of the Company ("Company
Stock") at an exercise price per share of $5.125 and becoming exercisable in
four equal annual installments on the first, second, third and fourth
anniversaries of November 11, 1995.
In the event of termination of employment (i) by the Executive other
than because of death or for Good Reason, prior to the fourth anniversary of the
Commencement Date or (ii) by the Company for Cause, all Stock Options
(including, without limitation, the Initial Options) not theretofore exercisable
will lapse and be forfeited. In the event the Executive's employment is
terminated for any other reason prior to the fourth anniversary of the
Commencement Date all Stock options (including, without limitation, the Initial
Options) not theretofore exercisable will thereupon become exercisable. Except
as provided in Section 11 each Initial Option will expire 10 years after it is
granted.
(d) RESTRICTED STOCK GRANT. On the Commencement Date, the Company
granted to the Executive 30,000 shares of the Company's Stock pursuant to the
Restricted Stock Plan, as amended, which restricted shares have been set aside
in the custody, control and possession of the Company and have and will be
released to the Executive at the rate of 7,500 shares on each anniversary of the
Commencement Date, provided that in the event Executive's employment is
terminated for Cause or by Executive without Good Reason, prior to the fourth
anniversary of the Commencement Date, then the scheduled releases on any
subsequent anniversary of the Commencement Date shall be cancelled and all
shares of Restricted Stock not theretofore released shall be forfeited by the
Executive and shall be cancelled and retired by the Company.
(e) ADIENCE OPTIONS. As of the Commencement Date, all options
previously granted to the Executive to acquire shares of Adience common stock
were cancelled in all respects.
(f) TAX LOAN. Not less than 10 days prior to the due date of the
Executive's federal income tax return for every taxable year of the Executive in
which his income tax liability is increased by or as a result of the matters
contained in Sections 6(d), the Company will lend to the Executive an amount
equal to such increased tax liability. The Company and the Executive shall
enter into an appropriate agreement providing for the repayment by the Executive
of such loan, which agreement shall provide that (i) if the principal amount of
such loan (together with the aggregate outstanding amount of other loans between
the Company and the Executive) exceeds the de minimis amount set forth in
Section 7872(c)(3) of the Internal Revenue Code of 1986, as amended (the "Code")
(or any successor provision thereto), then such loan shall bear interest at a
rate not less than the applicable Federal rate determined in accordance with
Section 7872(f)(2) (or any successor provi-
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sion) of the Code, and (ii) if the Executive disposes of any of the shares of
Company Stock prior to the third anniversary of the Commencement Date, the
principal balance of the loan shall become immediately due and payable to the
extent of the proceeds of such disposition.
(g) EXPENSES. During the term of the Executive's employment
hereunder, the Executive shall be entitled to receive prompt reimbursement for
all reasonable and customary expenses incurred by the Executive in performing
services hereunder, including (i) all expenses of travel and living expenses
while away from home or business or at the request of and in the service of the
Company and (ii) an automobile, plus all expenses of maintaining and operating
the automobile, provided that all such expenses are accounted for in accordance
with the policies and procedures established by the Company, or a monthly cash
allowance in lieu thereof.
(h) WELFARE BENEFITS. During the Term, the Executive and/or the
Executive's family, as the case may be, shall be eligible for participation in
and shall receive all benefits under welfare benefit plans, practices, policies
and programs provided by the Company and its affiliated companies (including,
without limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies, but in no event shall
such plans, practices, policies and programs provide the Executive with benefits
which are materially less favorable, in the aggregate, than the most favorable
of such plans, practices, policies and programs in effect for the Executive as
of the date hereof or, if more favorable to the Executive, those provided
generally at any time to other peer executive (except for the Chief Executive
Officer) of the Company and its affiliated companies. As used in this
Agreement, the term "affiliated companies" shall include any company controlled
by, controlling or under common control with the Company.
(i) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Term, the
Executive shall be entitled to participate in all incentive, savings and
retirement plans, practices, policies and programs applicable generally to other
peer executives of the Company and its affiliated companies, including without
limitation the Long Term Incentive Award program applicable to the Executive set
forth on Schedule 1 (the "LTI Award"). In addition, the Company covenants to
adopt on or before February 1, 1997, and to name the Executive as a participant
in, a Senior Executive Retirement Plan substantially in the form as set forth in
Exhibit A attached hereto.
(j) FRINGE BENEFITS. During the Term:
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(i) The Company shall reimburse the Executive for the reasonable
expenses incurred by the Executive in undergoing an annual physical examination
by a licensed physician.
(ii) The Company shall reimburse the Executive for the reasonable
expenses incurred by the Executive in connection with obtaining professional tax
and financial planning advice.
(k) VACATION. During the Term, the Executive shall be entitled to
paid vacation of four weeks per year, any unused portion of which shall be
forfeited as of the end of each year.
(l) DISABILITY OFFSET. Payments made to the Executive pursuant to
this Section 6 shall be reduced by the sum of the amounts, if any, payable to
the Executive at or prior to the time of any such payment under disability
benefit plans of the Company or under the Social Security disability insurance
program, and which amounts were not previously applied to reduce any such
payments.
7. OFFICES. Subject to Section 5, the Executive agrees to serve without
additional compensation, if elected or appointed thereto, as a director of the
Company and any of its subsidiaries and in one or more executive offices of any
of the Company's subsidiaries, provided that the Executive is indemnified for
serving in any and all such capacities.
8. TERMINATION. The Executive's employment hereunder may be terminated
without any breach of this Agreement only under the following circumstances:
(a) DEATH OR DISABILITY. The Executive's employment shall terminate
automatically upon the Executive's death during the Term. If the Company
determines in good faith that Disability of the Executive has occurred during
the Term (pursuant to the definition of Disability set forth below), it may give
to the Executive written notice in accordance with Section 18 of this Agreement
of its intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" shall mean the absence of the Executive
from the Executive's duties with the Company on a full-time basis for 180
consecutive business days (or such shorter period as will suffice for the
Executive to qualify for full disability benefits under the applicable
disability insurance policy or policies of the Company) as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers and reasonably
acceptable to the Executive or the Executive's legal representative.
8
<PAGE>
(b) CAUSE. The Company may terminate the Executive's employment
during the Term for Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties pursuant to this Agreement (other than
any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered
to the Executive by the Board or the Company's Chief Executive Officer
which specifically identifies the manner in which the Board or the Chief
Executive Officer believes that the Executive has not substantially
performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the
Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than a majority of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after reasonable notice is provided to the Executive and the Executive
is given an opportunity, together with counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, the Executive is guilty of
the conduct described in subparagraph (i) or (ii) above, and specifying the
particulars thereof in detail.
(c) TERMINATION BY THE EXECUTIVE FOR GOOD REASON. The Executive's
employment may be terminated by the Executive for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean:
a. the assignment to the Executive of any duties materially
inconsistent with the Executive's position (including status, titles and
reporting requirements), authority, duties or responsibilities as
contemplated by Section 5(a) of this Agreement, or any other action by the
Company which results in a material diminution in such
9
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position, authority, duties or responsibilities, excluding for this purpose
isolated and inadvertent action(s) not taken in bad faith and remedied by
the Company promptly after receipt of notice thereof given by the
Executive;
b. any material failure by the Company to comply with any of the
provisions of Section 6 or Section 13(a) or (b) of this Agreement, other
than isolated and inadvertent failure(s) not occurring in bad faith and
remedied by the Company promptly after receipt of notice thereof given by
the Executive;
c. the Company's requiring the Executive to be based at any office
or location other than as provided in Section 5(a) hereof;
d. any termination by the Company of the Executive's employment
otherwise than as expressly permitted by this Agreement; or
e. any failure by the Company to comply with and satisfy Section
17(a) of this Agreement.
(d) TERMINATION ELECTION. Subject to the provisions of Section 2(b):
(i) A notice to Executive by the Company will constitute an election
by the Company to terminate the Executive's employment pursuant to Section 2(a)
60 days following the date of delivery of the notice;
(ii) A notice to the Company by the Executive will constitute an
election by the Executive to terminate Executive's employment pursuant to
Section 2(a) 90 days following the date of delivery of the notice;
(iii) In no event, however, shall the Term of the Executive's
employment hereunder extend beyond the end of the month in which the Executive's
sixty-fifth (65th) birthday occurs.
(e) NOTICE OF TERMINATION. Any termination of the Executive's
employment by the Company or by the Executive (other than termination by reason
of the Executive's death) shall be communicated by written Notice of Termination
to the other party hereto in accordance with Section 18 hereof. For purposes of
this Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon (ii)
to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termina-
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tion date. The good faith failure by the Executive or the Company to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(f) DATE OF TERMINATION. "Date of Termination" shall mean (i) if the
Executive's employment is terminated by reason of death or Disability, the date
of death of the Executive or the Disability Effective Date, as the case may be,
(ii) if the Executive's employment is terminated for Cause, the date specified
in the Notice of Termination, and (iii) if the Executive's employment is
terminated by either of the elections pursuant to Section 8(d) above, the
applicable date of termination determined under Section 8(d) above, and (iv) if
the Executive's employment is terminated for any other reason, the date on which
a Notice of Termination is given; provided, however, that, if within thirty (30)
days after any Notice of Termination is given the party receiving such Notice of
Termination notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be the date on which the dispute is
finally determined, either by mutual written agreement of the parties, by a
binding and final arbitration award or by a final judgment, order or decree of a
court of competent jurisdiction (the time for appeal therefrom having expired
and no appeal having been perfected).
9. COMPENSATION UPON TERMINATION.
(a) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability during the Term, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations (as defined in Section 13(f)(i)a.) and the timely payment
or provision of Other Benefits (as defined in Section 13(f)(iv)). Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination. Notwithstanding the foregoing, the Company shall
maintain, at the Company's sole expense, in full force and effect, for the
continued benefit of the Executive for twelve months following the Disability
Effective Date, all employee welfare benefit plans and programs in which the
Executive was entitled to participate immediately prior to the Disability
Effective Date provided that the Executive's continued participation is possible
under the general terms and provisions of such plans and programs. In the event
that the Executive's participation in any such plan or program is barred, the
Company shall arrange to provide the Executive with benefits substantially
similar to those which the Executive would otherwise have been entitled to
receive under such plans and programs from which his continued participation is
barred.
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(b) DEATH. If the Executive's employment is terminated by reason of
the Executive's death during the Term, this Agreement shall terminate without
further obligations to the Executive's legal representatives under this
Agreement, other than for (i) payment of Accrued Obligations (as defined in
Section 13(f)(i)a.), calculated as if the Executive's employment had continued
for a period of 12 months following the date of death; and (ii) the timely
payment or provision of Other Benefits (as defined in Section 13(f)(iv)).
Accrued Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
(c) CAUSE. If the Executive's employment shall be terminated for
Cause during the Term, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the Executive
(x) his Annual Base Salary through the Date of Termination, (y) the amount of
any compensation previously deferred by the Executive, and (z) Other Benefits,
in each case to the extent theretofore unpaid.
(d) VOLUNTARY TERMINATION. If the Executive voluntarily terminates
employment during the Term, excluding a termination for Good Reason, this
Agreement shall terminate without further obligations to the Executive, other
than for Accrued Obligations and the timely payment or provision of Other
Benefits. In such case, all Accrued Obligations shall be paid to the Executive
in a lump sum in cash within 30 days of the Date of Termination.
(e) TERMINATION ELECTION BY COMPANY; TERMINATION BY EXECUTIVE FOR
GOOD REASON. If the Executive's employment is terminated by the Company under
Section 8(d)(i) hereof or by the Executive under Section 8(c) hereof: (i) the
Company shall pay to the Executive a lump sum in cash within ten days of the
Date of Termination in an amount equal to the sum of (x) the product of the sum
of the Annual Base Salary in effect immediately prior to termination plus the
Applicable Bonus times either (A) one and one-half, if the Termination Date
occurs prior to the third anniversary of the Commencement Date or (B) one, if
the Termination Date occurs on or after the third anniversary of the
Commencement Date plus (y) the Accrued Obligations (as defined in Section
13(f)(i)a.), (ii) with respect to each current three-year LTI Award performance
cycle in effect as of the Date of Termination, the Company shall grant to the
Executive a number of fully vested and exercisable Stock Options equal to the
product of (x) the "standard performance stock option grant" set forth in
Section V.B.(ii) of Schedule I as adjusted in accordance with the conversion
matrix included as Attachment D thereof, based on performance as of the Date of
Termination as determined in good faith by the Company (but which performance
level shall, for purposes of determining the appropriate conversion percentage,
in no event be lower than the performance as of the close of the Company's most
recently
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completed fiscal year) times (y) a fraction, the numerator of which is the
number of whole months elapsed since the commencement of the relevant three-year
LTI Award performance cycle, and the denominator of which is 36, with an
exercise price per share equal to the fair market value of a share of Parent
Stock on the date of grant (the foregoing grant of Stock Options described in
this clause (ii) shall hereinafter be referred to as the "Accrued LTI
Performance Award"), and (iii) the Company shall continue to comply with its
obligations under Section 6(f).
10. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 22, shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program of or
any contract or agreement with the Company or any of its affiliated companies at
or subsequent to the Date of Termination shall be payable in accordance with
such plan, policy, practice or program or contract or agreement except as
explicitly modified by this Agreement.
11. STOCK OPTIONS AND COMPANY STOCK.
(a) In the event of the Executive's death, whether his death occurs
during or after the Term of this Agreement, all unexercised and exercisable
Stock Options will be assigned to his Estate.
(b) In the event of the termination of the employment of the
Executive for any reason, all unexercised and exercisable Stock Options must be
exercised by him, or his estate (or heir(s)) as the case may be, before the
second anniversary of the termination of his employment, but in no event after
the tenth anniversary of the date of grant thereof, any such Stock Options not
exercised by that date will lapse immediately thereafter.
(c) In the Event of any change in the number of issued shares of
Company Stock resulting from a subdivision or consolidation of shares or other
capital adjustment, or the payment of a stock dividend, or other increase or
decrease in such shares, then appropriate adjustments in the terms of any
unexercised Stock Options shall be made by the Company.
12. FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim,
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right or action which the Company may have against the Executive or others. In
no event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement. Unless the Executive's Termination of
employment gives rise to a right to payments and benefits described in Section
13, if the Executive secures other employment, any benefits the Company is
required to provide to the Executive following termination of the Executive's
employment shall be secondary to those provided by another employer (if any).
However, if the Executive's employment is terminated such that the Executive has
a right to payments and benefits under Section 13, such amounts shall not be
reduced whether or not the Executive obtains other employment.
13. CHANGE OF CONTROL PROVISIONS. The following provisions of this
Section 13 shall apply notwithstanding any contrary or inconsistent provision in
any other section of this Agreement, and all other provisions of this Agreement,
to the extent they may be contrary to or inconsistent with the provisions of
this Section 13, are hereby made subject to the provisions of this Section 13,
which shall be paramount in all respects, PROVIDED, however, that the provisions
of Section 3(c) shall apply, where applicable.
(a) POSITION AND DUTIES. During any Transition Period, the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of those held,
exercised and assigned at any time during the 120-day period immediately
preceding a COC Transition Date, and the Executive's services shall be performed
at the location where the Executive was employed immediately preceding a COC
Transition Date at the Company's headquarters in the New York City metropolitan
area.
(b) COMPENSATION AND RELATED MATTERS.
(i) ANNUAL BONUS. For each fiscal year ending during any Transition
Period, the Company shall pay to the Executive an Annual Bonus in cash at least
equal to the Executive's highest cash bonus under the Company's annual cash
bonus program, or any comparable cash bonus under any predecessor or successor
plan, for the last three full fiscal years prior to the latest COC Transition
Date (the "Highest Recent Bonus"). Each such Annual Bonus shall be paid no
later than 60 days following the commencement of the fiscal year next following
the fiscal year for which the Annual Bonus is awarded, unless the Executive
shall elect to defer the receipt of such Annual Bonus.
(ii) WELFARE BENEFITS. During any Transition Period, the benefits to
which the Executive and/or the Executive's family are entitled to pursuant to
Section 6(h)
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shall be no less favorable, in the aggregate, than the most favorable of such
plans, practices, policies and programs in effect for the Executive at any time
during the 120-day period immediately preceding the latest COC Transition Date
or, if more favorable to the Executive, those provided generally at any time
after the latest COC Transition Date to other peer executives of the Company and
its affiliated companies.
(iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During any Transition
Period, the plans, practices, policies and programs in which the Executive is
entitled to participate pursuant to Section 6(i) shall provide the Executive
with incentive opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit opportunities, in each
case, at least as favorable, in the aggregate, as the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as of the date hereof or if more
favorable to the Executive, those provided generally at any time to other peer
executives of the Company and its affiliated companies.
(iv) FRINGE BENEFITS. During any Transition Period, the Executive
shall be entitled to fringe benefits, including, without limitation, the
benefits described in Section 6(j), in accordance with the most favorable plans,
practices, programs and policies of the Company and its affiliated companies in
effect for the Executive at any time during the 120-day period immediately
preceding the latest COC Transition Date or, if more favorable to the Executive,
as in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(v) OFFICE AND SUPPORT STAFF. During any Transition Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the latest COC Transition Date or, if
more favorable to the Executive, as provided generally at any time thereafter
with respect to other peer executives of the Company and its affiliated
companies.
(vi) VACATION. During any Transition Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans, policies,
programs and practices of the Company and its affiliated companies as in effect
for the Executive at any time during the 120-day period immediately preceding
the latest COC Transition Date or, if more favorable to the Executive, as in
effect generally at any time thereafter
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with respect to other peer executives of the Company and its affiliated
companies.
(c) GOOD REASON. During any Transition Period, for purposes of this
Agreement, "Good Reason" shall mean:
a. the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, titles and
reporting requirements), authority, duties or responsibilities as
contemplated by Sections 5(a) or 13(a) of this Agreement, or any other
action by the Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose isolated,
insubstantial and inadvertent action(s) not taken in bad faith and remedied
by the Company promptly after receipt of notice thereof given by the
Executive;
b. any failure by the Company to comply with any of the provisions
of Section 6 or Section 13(a) or (b) of this Agreement, other than
isolated, insubstantial and inadvertent failure(s) not occurring in bad
faith and remedied by the Company promptly after receipt of notice thereof
given by the Executive;
c. the Company's requiring the Executive to be based at any office
or location other than as provided in Sections 5(a) or 13(a) hereof;
d. any termination by the Company of the Executive's employment
otherwise than as expressly permitted by this Agreement; or
e. any failure by the Company to comply with and satisfy Section
17(a) of this Agreement.
For purposes of this Section 13(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive. A termination by the
Executive for any reason during the 30-day period immediately following the date
which is six months after any COC Transition Date shall be deemed to be a
termination for Good Reason for all purposes of this Agreement.
(i) COMPENSATION UPON TERMINATION FOR DISABILITY. If the Executive's
employment is terminated by reason of the Executive's Disability during any
Transition Period, then with respect to the provision of Other Benefits, the
term Other Benefits as utilized in Section 9(a) shall include, and the Executive
shall be entitled after the Disability Effective Date to receive, disability and
other benefits at least equal to the most favorable of those generally provided
by the Company and its affiliated companies to disabled executives and/or their
families in accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect generally
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with respect to the most senior executives and their families at any time during
the 120-day period immediately preceding the latest COC Transition Date or, if
more favorable to the Executive and/or the Executive's family, as in effect at
any time thereafter generally with respect to other peer executives of the
Company and its affiliated companies and their families.
(ii) COMPENSATION UPON TERMINATION BY DEATH. If the Executive's
death occurs during any Transition Period, then with respect to the provision of
other Benefits, the term Other Benefits as utilized in Section 9(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and its affiliated companies to the estates and
beneficiaries of the most senior executives of the Company and its affiliated
companies under such plans, programs, practices and policies relating to death
benefits, if any, as in effect with respect to the most senior executives and
their beneficiaries at any time during the 120-day period immediately preceding
the latest COC Transition Date or, if more favorable to the Executive's estate
and/or the Executive's beneficiaries, as in effect on the date of the
Executive's death with respect to other peer executives of the Company and its
affiliated companies and their beneficiaries.
(d) COMPENSATION UPON TERMINATION BY THE COMPANY WITHOUT CAUSE OR FOR
GOOD REASON. If, during any Transition Period, the Company shall terminate the
Executive's employment other than for Cause or Disability or the Executive shall
terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
a. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid,
(2) the product of (x) the Applicable Bonus and (y) a fraction, the
numerator of which is the number of days in the current fiscal year
through the Date of Termination, and the denominator of which is 365
and (3) any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any
accrued vacation pay, in each case to the extent not theretofore paid
(the sum of the amounts described in clauses (1), (2), and (3) shall
be referred to in this Agreement as the "Accrued Obligations"); and
b. the amount equal to the product of (1) two and (2) the
sum of (x) the Executive's Annual Base Salary and (y) the Highest
Annual Bonus; and
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c. an amount equal to the excess of (a) the actuarial
equivalent of the benefit under the Company's defined benefit
retirement plans, including any excess or supplemental retirement plan
in which the Executive participates (together, the "Retirement Plans")
(utilizing actuarial assumptions no less favorable to the Executive
than those in effect under the Retirement Plans immediately prior to
the latest COC Transition Date), which the Executive would receive if
the Executive's employment continued for two years after the Date of
Termination assuming for this purpose that all accrued benefits are
fully vested, and, assuming that the Executive's compensation in both
of the two years is that required by Section 6(a) and Section 6(b),
over (b) the actuarial equivalent of the Executive's actual benefit
(paid or payable), if any, under the Retirement Plans as of the Date
of Termination;
(ii) for two years after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to those which would
have been provided to them in accordance with the plans, programs,
practices and policies described in Section 6(h) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies and their
families, provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other welfare
benefits under another employer provided plan, the medical and other
welfare benefits described herein shall be secondary to those provided
under such other plan during such applicable period of eligibility. For
purposes of determining eligibility (but not the time of commencement of
benefits) of the Executive for retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be considered to have
remained employed until two years after the Date of Termination and to have
retired on the last day of such period;
(iii) the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall
be selected by the Executive in his sole discretion, and which shall
include the provision of reasonable office space and secretarial
assistance, provided that the Company's responsibility under this clause
(iii) shall be limited to $30,000;
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(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies (such other amounts
and benefits shall be referred to in this Agreement as the "Other
Benefits");
(v) the Company shall grant to the Executive the Accrued LTI
Performance Award, as defined in Section 9(e), and the Company shall cause
all Stock Options and Company Stock held by or for the benefit of the
Executive to become immediately fully vested and/or exercisable;
(vi) the Company shall forgive all outstanding indebtedness of the
Executive to the Company under any loan arrangements or agreements entered
into by the Company and the Executive pursuant to Section 6(e) hereof.
14. LEGAL FEES.
(a) Following any termination of the Executive's employment that
gives rise to a right to payments and benefits under Section 13, the Company
shall pay as incurred, to the full extent permitted by law, all legal fees and
expenses which the Executive may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Company, the Executive or others of
the validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (including as a result of any
contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Code.
(b) Following any termination of the Executive's employment other
than a termination of employment described in paragraph (a), above, the Company
shall promptly reimburse the Executive, to the extent permitted by law, for all
reasonable legal fees and expenses reasonably incurred by the Executive as a
result of any contest by the Company or the Executive of the validity or
enforceability of, or liability under, any provisions of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus in
each case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Code, provided, that such
reimbursement shall be limited to fees and expenses incurred in connection with
the contest of issues on which the Executive substantially prevails.
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15. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 15) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the
foregoing provisions of this Section 15(a), if it shall be determined that the
Executive is entitled to a Gross-Up Payment, but that the Payments do not exceed
110% of the greatest amount (the "Reduced Amount") that could be paid to the
Executive such that the receipt of Payments would not give rise to any Excise
Tax, then no Gross-Up Payment shall be made to the Executive and the Payments,
in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 15(c), all determinations
required to be made under this Section 15, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Arthur
Andersen LLP or such other certified public accounting firm as may be designated
by the Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder).
All fees and expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant to this Section 15, shall
be paid by the Company to the Executive within five days of the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon the Company and the Executive. As a result of the uncertainty
in
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the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 15(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively
to contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 15(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and con-
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ferences with the taxing authority in respect of such claim and may, at its sole
option, either direct the Executive to pay the tax claimed and sue for a refund
or contest the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the statute
of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(c) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 15(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 15(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Section 15(c), a determination
is made that the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
16. NONCOMPETITION.
(a) So long as the Executive is employed by the Company under this
Agreement and unless this Agreement is terminated for any reason, the Executive
agrees not to enter into competitive endeavors.
(b) During the Term and any period thereafter during which or in
respect of which the Executive receives payments from the Company under Section
9 or Section 13, the Executive shall hold in a fiduciary capacity for the
benefit of the Com-
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pany all secret or confidential information, knowledge or data relating to the
Company or any of its affiliated companies, and their respective businesses,
which shall have been obtained by the Executive during the Executive's
employment by the Company or any of its affiliated companies and which shall not
be or become public knowledge (other than by acts by the Executive or
representatives of the Executive in violation of this Agreement). After
termination of the Executive's employment with the Company, the Executive shall
not, without the prior written consent of the Company or as may otherwise be
required by law or legal process, communicate or divulge any such information,
knowledge or data to anyone other than the Company and those designated by it.
In no event shall an asserted violation of the provisions of this Section 16
constitute a basis for deferring or withholding any amounts otherwise payable to
the Executive under Section 13 of this Agreement.
17. SUCCESSORS; BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of the Agreement and
shall entitle the Executive to compensation from the Company in the same amount
and on the same terms as he would be entitled to hereunder if he terminated his
employment for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in the Agreement, Company shall mean
the Company as herein before defined and any successor to its business and/or
assets as aforesaid which executes and delivers the agreement provided for in
this Section 17 or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devises and legatees. If the Executive should die while any amounts would still
be payable to him hereunder if he had continued to live, all such amounts unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the Executive's devise, legatee, or other designee or, if there be
no such designee, to the Executive's estate.
18. NOTICE. For the purposes of this Agreement, notices, demands and all
other communications provided for in this
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Agreement shall be in writing and shall be deemed to have been duly given when
delivered or (unless otherwise specified) mailed by United States certified or
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Mr. Stephen M. Johnson
353 White Oak Shade Road
New Canaan, CT 06840
If to the Company:
The Alpine Group, Inc.
1790 Broadway
15th Floor
New York, NY 10019-1412
Attention: Chief Executive Officer
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
19. MISCELLANEOUS. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such officer of the Company as may be
authorized by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of New York without regard to its conflicts of law principles.
20. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
21. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
22. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements,
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promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officers employee or representative
of any party hereto; and any prior agreement of the parties hereto in respect of
the subject matter contained herein is hereby terminated and cancelled,
provided, however, that this Agreement should not supersede any existing benefit
or agreement which provides such benefit, including, without limitation, life or
disability insurance agreements and retirement plans currently in effect.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
ATTEST: THE ALPINE GROUP, INC.
/s/Stewart H. Wahrsager, Esq. By:/s/Steven S. Elbaum (SEAL)
- ----------------------------- ----------------------
Name:
Title:
ATTEST: EXECUTIVE
/s/Stewart H. Wahrsager, Esq. /s/Stephen M. Johnson
- ----------------------------- -------------------------
Stephen M. Johnson
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SCHEDULE ONE
THE ALPINE GROUP, INC.
SENIOR MANAGEMENT COMPENSATION
AND
INCENTIVE PROGRAM
I. NAME: Steve Johnson
II. POSITION: Executive Vice President-
Chief Operating Officer
III. ANNUAL CASH BONUS INCENTIVE:
A. Your standard annual cash bonus incentive (as a percentage of your
base salary) is 45%.
B. The actual annual cash bonus incentive paid will be determined based
on your "Weighted Overall Annual Performance" (WOAP). A worksheet for
calculating WOAP is included as Attachment A.
C. WOAP will be based on: (1) quantitative financial performance for the
fiscal year (weighted at 75%), and (2) subjective assessment of job
performance (weighted at 25%).
D. The financial performance component will be based on EBITDA return on
net assets (the "Return Ratio") for FY96.
For FY96 financial performance measurement, the actual Return Ratio
will be measured against: (1) FY96 budget (and weighted 67%), and (2)
FY95 pro forma results (and weighted 33%). Attachment B includes the
Return Ratio for the FY96 budget and the FY95 pro forma results.
Attachment C includes current year performance against budget.
E. The actual annual cash bonus incentive will be calculated by
converting your standard bonus to an actual bonus, based on your WOAP
and the conversion matrix included on Attachment D.
F. As previously discussed with you, a component of your annual cash
bonus incentive award may be paid in shares of Company stock under
terms and conditions previously described to you.
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G. Your FY96 bonus will be prorated based on your period of employment in
your current job position during the fiscal year (October 31, 1995 to
April 30, 1996).
IV. LONG TERM INCENTIVE AWARD:
A. Long term incentives are intended to be awarded annually; however any
such awards are totally at the discretion of the Compensation
Committee.
B. Your long term incentive award for FY96 consists of the following:
(i) Basic stock option grant of 25,000 shares
C. Basic stock option grant - major provisions:
(i) Grant date: October 31, 1995
(ii) Exercise price: $5.125 per share (FMV on Grant Date)
(iii) Vesting provisions: 33% per year
(iv) Vesting start date: October 31, 1995
(v) Term of option: 10 years
D. In fiscal 1997, and annually thereafter you will continue to be
eligible to participate in Alpine's Long Term Incentive Award program.
Such program may include: (i) basic stock option grants; and/or (ii)
performance stock option grants (see (E) below); and/or (iii) other
forms of long term incentive awards.
As previously explained to you, you were not included in the standard
performance stock option grant program for FY96, however, for purposes
of application of Section 9 (e)(ii) of the Employment Agreement to
which this Schedule is attached, the number of standard performance
option grant shares for your job classification was set at 73,800 for
such fiscal year.
E. Performance stock option grant - major provisions:
(i) Standard performance stock option grants are adjusted based on
the actual weighted average 3-year Return Ratio as compared to
the targeted 3-year Return Ratio. The number of shares of the
standard performance stock option grant will be adjusted at the
end of the 3-year
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period based again on the conversion matrix included as
Attachment D
(ii) Vesting: 3-year cliff
(iii) Option term: 10 years
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EMPLOYMENT AGREEMENT
This AGREEMENT dated as of the 26th day of April, 1996, between The Alpine
Group, Inc., a Delaware corporation (the "Company"), and David S. Aldridge (the
"Executive").
The Board of Directors of the Company (the "Board") recognizes that the
Executive's contribution to the future growth and success of the Company is
expected to be substantial. Whereas the Executive has served as a Senior Vice
President and the Chief Financial Officer of the Company since November 10,
1993, and the Board desires to provide for the continued employment of the
Executive with the Company; and whereas the Executive and the Company are
parties to an Employment Agreement dated as of November 10, 1993 (as the same
may have been amended from time to time, the "Old Agreement"). The Board
desires to provide for the continued employment of the Executive with the
Company which the Board has determined will reinforce and encourage the
continued attention and dedication of the Executive to the Company as a member
of the Company's management, in the best interest of the Company and its
shareholders. The Executive is willing to commit himself to serve the Company,
on the terms and conditions herein provided.
Moreover, the Board has determined that it is in the best interests of the
Company and its shareholders to assure that the Company will have the continued
dedication of the Executive, notwithstanding the possibility, threat or
occurrence of a Change of Control (as defined below) of the Company. The Board
believes it is imperative to diminish the inevitable distraction of the
Executive by virtue of the personal uncertainties and risks created by a pending
or threatened Change of Control and to encourage the Executive's full attention
and dedication to the Company currently and in the event of any threatened or
pending Change of Control, and to provide the Executive with compensation and
benefits arrangements upon a Change of Control which ensure that the
compensation and benefits expectations of the Executive will be satisfied and
which are competitive with those of other corporations.
In order to effect the foregoing, the Company and the Executive wish to
amend and restate the Old Agreement by entering into this Agreement on the terms
and conditions set forth below. Accordingly, in consideration of the premises
and the respective covenants and agreements of the parties herein contained, and
intending to be legally bound hereby, the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive, and
the Executive hereby agrees to serve the Company
<PAGE>
from the Company's offices in Atlanta, Georgia, on the terms and conditions set
forth herein.
2. TERM.
(a) The employment of the Executive by the Company hereunder
commenced on November 10, 1993 (the "Commencement Date") and will continue in
effect i. until either party gives notice to the other, as provided in Section
8(d), that it does not wish to continue the Executive's employment hereunder or
ii. unless terminated as provided in Sections B(a), (b), (c) or (d). The "Term"
shall be the period commencing on the date hereof and ending on the earlier to
occur of the events specified in clause (i) or (ii) of the preceding sentence.
(b) Notwithstanding paragraph (a) above or the provisions of Section
8(d), the Company hereby agrees to continue the Executive in its employ, and the
Executive hereby agrees to remain in the employ of the Company subject to the
terms and conditions of this Agreement, during any Transition Period. For
purposes of this Agreement, the Term shall, unless otherwise specified, include
any Transition Period.
3. CERTAIN DEFINITIONS. (a) A "COC Transition Date" shall mean a date
during the Term (as defined in Section 2) on which a Change of Control (as
defined in Section 4) occurs. Anything in this Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (ii) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of this Agreement the "COC Transition Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) A "Transition Period" is a period commencing on a COC Transition
Date and ending on the third anniversary of such date. If a subsequent COC
Transition Date is determined to occur during a Transition Period, then such
Transition Period shall continue until the third anniversary of such subsequent
COC Transition Date. If a subsequent COC Transition Date occurs after the
expiration of a Transition Period, a new Transition Period will commence on such
date and end on the third anniversary thereof.
(c) Notwithstanding anything to the contrary in this Agreement, for
purposes of calculating payments under Section 13(f), "Applicable Bonus" means
the higher of (i) the Highest Recent Bonus (as defined in Section 13(b)(i)) and
(ii) the Annual Bonus (as defined in Section 6(b)) paid or payable, including
any bonus or portion thereof which has been earned but
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deferred (and annualized for any fiscal year consisting of less than twelve full
months or during which the Executive was employed for less than twelve full
months), for the most recently completed fiscal year during the Term, if any
(the "Recent Annual Bonus") (such higher amount being referred to as the
"Highest Annual Bonus"). For purposes of calculating payments under all
sections of this Agreement other than Section 13(f), Applicable Bonus means the
Recent Annual Bonus.
(d) A "Stock Option" is an option to purchase a number of shares of
stock of the Company at a fixed exercise price granted to the Executive by the
Company, whether or not exercisable.
4. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of voting
securities of the Company where such acquisition causes such Person to own more
than 20% or more of the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
for purposes of this subsection (a), the following acquisitions shall not be
deemed to result in a Change of Control: (i) any acquisition directly from the
Company, (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company or (iv) any acquisition by any
corporation pursuant to a transaction that complies with clauses (i), (ii) and
(iii) of subsection (c) below; and provided, further, that if any Person's
beneficial ownership of the Outstanding Company Voting Securities reaches or
exceeds more than 20% as a result of a transaction described in clause (i) or
(ii) above, and such Person subsequently acquires beneficial ownership of
additional voting securities of the Company, such subsequent acquisition shall
be treated as an acquisition that causes such Person to own more than 20% or
more of the Outstanding Company Voting Securities; or
(b) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such
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individual whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of directors
or other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
(c) The consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another corporation ("Business
Combination"); excluding, however, such a Business Combination pursuant to which
(i) all or substantially all of the individuals and entities who were the
beneficial owners of the Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more than
50% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation that as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Voting
Securities, (ii) no Person (excluding any employee benefit plan (or related
trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, more than 20% or more
of, respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
5. POSITION AND DUTIES.
(a) The Executive shall serve as a Senior Vice President and the
Chief Financial Officer of the Company with such responsibilities, duties and
authority as are from time to time assigned to the Executive by the Chief
Executive Officer or the Board. The Executive's duties shall be
performed primarily at the Company's offices in Atlanta, Georgia, or any office
or location within the Atlanta metropolitan area.
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<PAGE>
(b) During the Term, and excluding any periods of vacation and sick
leave to which the Executive is entitled, the Executive agrees to devote
reasonable attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Term it shall not be a violation of this Agreement
for the Executive to (A) serve on corporate, civic or charitable boards or
committees, provided that the Chief Executive Officer of the Company first
approves of such service, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement.
6. COMPENSATION AND RELATED MATTERS.
(a) SALARY. (i) During the Term, the Company shall pay to the
Executive an annual base salary (the "Annual Base Salary") at a rate not less
than $184,000 or such higher rate as may from time to time be determined by the
Board, such salary to be paid in substantially equal installments in accordance
with the normal payroll practice of the Company. The Executive's salary will be
reviewed at least annually and shall be increased pursuant to such review by a
percentage no less than the percentage increase in the consumer price index, as
published by the Bureau of Labor Statistics of the U.S. Department of Labor, for
the calendar year immediately preceding such review (the "CPI Percentage"). Any
increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so increased.
(b) ANNUAL BONUS. In addition to the Annual Base Salary, the Company
will pay the Executive an annual cash bonus (the "Annual Bonus") within 90 days
following the last day of the Company's fiscal year for which the Annual Bonus
is awarded in an amount, if any, determined in accordance with and otherwise
calculated in the manner set forth in the "Annual Cash Bonus Incentive" section
of Schedule 1 attached hereto, as the same may be amended from time to time in
the discretion of the Compensation Committee of the Company's Board of Directors
(the "Compensation Committee").
(c) STOCK OPTIONS. On the Commencement Date, the Company granted the
Executive 50,000 Stock Options (the "Initial options") to purchase shares of
common stock of the Company ("Company Stock"), as adjusted in accordance with
the adjustments made by the Compensation Committee on November 10,
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<PAGE>
1995, having exercise prices per share equal to 86.05% of the average of the
high and low price of the Company's Stock on the American Stock Exchange during
the trading day prior to the Commencement Date.
In accordance with the adjustments made by the Compensation Committee
on November 10, 1995, the Initial Options become exercisable by the Executive in
the following amounts on the following dates:
15,250 Upon the 1st Anniversary of the Commencement Date
30,500 Upon the 2nd Anniversary of the Commencement Date
45,750 Upon the 3rd Anniversary of the Commencement Date
61,000 Upon the 4th Anniversary of the Commencement Date
In the event of termination of employment (i) by the Executive other
than because of death or for Good Reason, prior to the fourth anniversary of the
Commencement Date or (ii) by the Company for Cause, all Stock Options
(including, without limitation, the Initial Options) not theretofore exercisable
will lapse and be forfeited. In the event the Executive's employment is
terminated for any other reason prior to the fourth anniversary of the
Commencement Date all Stock options (including, without limitation, the Initial
Options) not theretofore exercisable will thereupon become exercisable. Except
as provided in Section 11 each Initial Option will expire 10 years after it is
granted.
(d) RESTRICTED STOCK GRANT. On the Commencement Date, the Company
granted to the Executive 25,000 shares of the Company's Stock pursuant to the
Restricted Stock Plan, as amended, which restricted shares have been set aside
in the custody, control and possession of the Company and have and will be
released to the Executive at the rate of 6,250 shares on each anniversary of the
Commencement Date, provided that in the event Executive's employment is
terminated for Cause or by Executive without Good Reason, prior to the fourth
anniversary of the Commencement Date, then the scheduled releases on any
subsequent anniversary of the Commencement Date shall be cancelled and all
shares of Restricted Stock not theretofore released shall be forfeited by the
Executive and shall be cancelled and retired by the Company.
(e) FURTHER RESTRICTED STOCK GRANT. The Company made a further grant
to the Executive of 16,786 shares of Company Stock pursuant to the Restricted
Stock Plan, as amended, which restricted shares have been set aside in the
custody, control
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and possession of the Company and released to the Executive at the rate of 3,358
shares on November 10, 1994 and 3,357 shares on November 10, 1995, 1996, 1997
and 1998, provided that, in the event the Executive's employment is terminated
by the Company for Cause or by Executive without Good Reason prior to the fifth
anniversary of the Commencement Date, the total number of restricted shares to
be released to the Executive shall be 16,786 multiplied by a fraction the
numerator of which is the number of months the Executive is employed by the
Company from and after the Commencement Date and the denominator of which is 60.
Any and all unreleased shares shall be forfeited by the Executive and cancelled
and retired by the Company
(f) INCOME TAX INDEMNIFICATION. Not less than 10 days prior to the
due date of the Executive's federal income tax return for every taxable year of
the Executive in which his income tax liability is affected by the matters
contained in Section 6(d) or 6(e), the Company will pay to the Executive an
amount necessary to indemnify and hold harmless the Executive from (i) any and
all federal, state or local income tax, excise taxes or other liability or
payment shown to be due or arising from or related to the matters contained in
Section 6(d) or 6(e) and (ii) any additional income or excise taxes arising from
or related to the reimbursement provided for in preceding clause (i). The
Executive will timely furnish the Company with a written statement prepared by
the Executive's certified public accountant setting forth the amount of the
required payment and the due date or dates of such tax liability.
(g) EXPENSES. During the term of the Executive's employment
hereunder, the Executive shall be entitled to receive prompt reimbursement for
all reasonable and customary expenses incurred by the Executive in performing
services hereunder, including (i) all expenses of travel and living expenses
while away from home or business or at the request of and in the service of the
Company and (ii) an automobile, plus all expenses of maintaining and operating
the automobile, provided that all such expenses are accounted for in accordance
with the policies and procedures established by the Company, or a monthly cash
allowance in lieu thereof.
(h) WELFARE BENEFITS. The Company agrees to assume all obligations
of Superior TeleTec Inc. ("STT") to the Executive or his beneficiary, as the
case may be, under STT's Supplemental Retirement Plan ("SERP"), including those
obligations stated in Section 5.15 of the Merger Agreement dated June 17, 1993
between STT and the Company. Further, the Company agrees to make all premium
payments required on that certain UNUM executive disability policy maintained on
behalf of the Executive. During the Term, the Executive and/or the Executive's
family, as the case may be, shall be eligible for participation in and shall
receive all benefits under welfare benefit plans, practices, policies and
programs provided by the Company and its affiliated companies (including,
without
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limitation, medical, prescription, dental, disability, salary continuance,
employee life, group life, accidental death and travel accident insurance plans
and programs) to the extent applicable generally to the other peer executives of
the Company and its affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with benefits which are
materially less favorable, in the aggregate, than the most favorable of such
plans, practices, policies and programs in effect for the Executive as of the
date hereof or, if more favorable to the Executive, those provided generally at
any time to other peer executives of the Company and its affiliated companies.
As used in this Agreement, the term "affiliated companies" shall include any
company controlled by, controlling or under common control with the Company.
(i) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Term, the
Executive shall be entitled to participate in all incentive, savings and
retirement plans, practices, policies and programs applicable generally to other
peer executives of the Company and its affiliated companies, including without
limitation the Long Term Incentive Award program applicable to the Executive set
forth on Schedule 1 (the "LTI Award"). In addition, the Company covenants to
adopt on or before February 1, 1997, and to name the Executive as a participant
in, a Senior Executive Retirement Plan substantially in the form as set forth in
Exhibit A attached hereto.
(j) FRINGE BENEFITS. During the Term:
i. The Company shall reimburse the Executive for the reasonable
expenses incurred by the Executive in undergoing an annual physical examination
by a licensed physician.
ii. The Company shall reimburse the Executive for the reasonable
expenses incurred by the Executive in connection with obtaining professional tax
and financial planning advice.
(k) VACATION. During the Term, the Executive shall be entitled to
paid vacation of four weeks per year, any unused portion of which shall be
forfeited as of the end of each year.
(l) DISABILITY OFFSET. Payments made to the Executive pursuant to
this Section 6 shall be reduced by the sum of the amounts, if any, payable to
the Executive at or prior to the time of any such payment under disability
benefit plans of the Company or under the Social Security disability insurance
program, and which amounts were not previously applied to reduce any such
payments.
7. OFFICES. Subject to Section 5, the Executive agrees to serve without
additional compensation, if elected or appointed thereto, as a director of the
Company and any of its subsidiaries and in one or more executive offices of any
of the
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Company's subsidiaries, provided that the Executive is indemnified for serving
in any and all such capacities.
8. TERMINATION. The Executive's employment hereunder may be terminated
without any breach of this Agreement only under the following circumstances:
(a) DEATH OR DISABILITY. The Executive's employment shall terminate
automatically upon the Executive's death during the Term. If the Company
determines in good faith that Disability of the Executive has occurred during
the Term (pursuant to the definition of Disability set forth below), it may give
to the Executive written notice in accordance with Section 18 of this Agreement
of its intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" shall mean the absence of the Executive
from the Executive's duties with the Company on a full-time basis for 180
consecutive business days (or such shorter period as will suffice for the
Executive to qualify for full disability benefits under the applicable
disability insurance policy or policies of the Company) as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers and reasonably
acceptable to the Executive or the Executive's legal representative.
(b) CAUSE. The Company may terminate the Executive's employment
during the Term for Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties pursuant to this Agreement (other than
any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered
to the Executive by the Board or the Company's Chief Executive Officer
which specifically identifies the manner in which the Board or the Chief
Executive Officer believes that the Executive has not substantially
performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the
Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or
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omission was in the best interests of the Company. Any act, or failure to act,
based upon authority given pursuant to a resolution duly adopted by the Board or
upon the instructions of the Chief Executive Officer or a senior officer of the
Company or based upon the advice of counsel for the Company shall be
conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company. The cessation of
employment of the Executive shall not be deemed to be for Cause unless and until
there shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than a majority of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after reasonable notice is provided to the Executive and the Executive
is given an opportunity, together with counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, the Executive is guilty of
the conduct described in subparagraph (i) or (ii) above, and specifying the
particulars thereof in detail.
(c) TERMINATION BY THE EXECUTIVE FOR GOOD REASON. The Executive's
employment may be terminated by the Executive for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean:
i. the assignment to the Executive of any duties materially
inconsistent with the Executive's position (including status, titles and
reporting requirements), authority, duties or responsibilities as
contemplated by Section 5(a) of this Agreement, or any other action by the
Company which results in a material diminution in such position, authority,
duties or responsibilities, excluding for this purpose isolated and
inadvertent action(s) not taken in bad faith and remedied by the Company
promptly after receipt of notice thereof given by the Executive;
ii. any material failure by the Company to comply with any of the
provisions of Section 6 or Section 13(a) or (b) of this Agreement, other
than isolated and inadvertent failure(s) not occurring in bad faith and
remedied by the Company promptly after receipt of notice thereof given by
the Executive;
iii. the Company's requiring the Executive to be based at any office
or location other than as provided in Section 5(a) hereof;
iv. any termination by the Company of the Executive's employment
otherwise than as expressly permitted by this Agreement; or
v. any failure by the Company to comply with and satisfy Section
17(a) of this Agreement.
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(d) TERMINATION ELECTION. Subject to the provisions of Section 2(b):
i. A notice to Executive by the Company will constitute an election
by the Company to terminate the Executive's employment pursuant to Section 2(a)
60 days following the date of delivery of the notice;
ii. A notice to the Company by the Executive will constitute an
election by the Executive to terminate Executive's employment pursuant to
Section 2(a) 90 days following the date of delivery of the notice;
iii. In no event, however, shall the Term of the Executive's
employment hereunder extend beyond the end of the month in which the Executive's
sixty-fifth (65th) birthday occurs.
(e) NOTICE OF TERMINATION. Any termination of the Executive's
employment by the Company or by the Executive (other than termination by reason
of the Executive's death) shall be communicated by written Notice of Termination
to the other party hereto in accordance with Section 18 hereof. For purposes of
this Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon (ii)
to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date. The good faith failure by the Executive or the Company to
set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(f) DATE OF TERMINATION. "Date of Termination" shall mean (i) if the
Executive's employment is terminated by reason of death or Disability, the date
of death of the Executive or the Disability Effective Date, as the case may be,
(ii) if the Executive's employment is terminated for Cause, the date specified
in the Notice of Termination, and (iii) if the Executive's employment is
terminated by either of the elections pursuant to Section 8(d) above, the
applicable date of termination determined under Section 8(d) above, and (iv) if
the Executive's employment is terminated for any other reason, the date on which
a Notice of Termination is given; provided, however, that, if within thirty (30)
days after any Notice of Termination is given the party receiving such Notice of
Termination notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be the date on which
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the dispute is finally determined, either by mutual written agreement of the
parties, by a binding and final arbitration award or by a final judgment, order
or decree of a court of competent jurisdiction (the time for appeal therefrom
having expired and no appeal having been perfected).
9. COMPENSATION UPON TERMINATION.
(a) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability during the Term, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations (as defined in Section 13(f)(i)a.) and the timely payment
or provision of Other Benefits (as defined in Section 13(f)(iv)). Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination. Notwithstanding the foregoing, the Company shall
maintain, at the Company's sole expense, in full force and effect, for the
continued benefit of the Executive for twelve months following the Disability
Effective Date, all employee welfare benefit plans and programs in which the
Executive was entitled to participate immediately prior to the Disability
Effective Date provided that the Executive's continued participation is possible
under the general terms and provisions of such plans and programs. In the event
that the Executive's participation in any such plan or program is barred, the
Company shall arrange to provide the Executive with benefits substantially
similar to those which the Executive would otherwise have been entitled to
receive under such plans and programs from which his continued participation is
barred.
(b) DEATH. If the Executive's employment is terminated by reason of
the Executive's death during the Term, this Agreement shall terminate without
further obligations to the Executive's legal representatives under this
Agreement, other than for (i) payment of Accrued Obligations (as defined in
Section 13(f)(i)a.), calculated as if the Executive's employment had continued
for a period of 12 months following the date of death; and (ii) the timely
payment or provision of Other Benefits (as defined in Section 13(f)(iv)).
Accrued Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
(c) CAUSE. If the Executive's employment shall be terminated for
Cause during the Term, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the Executive
(x) his Annual Base Salary through the Date of Termination, (y) the amount of
any compensation previously deferred by the Executive, and (z) Other Benefits,
in each case to the extent theretofore unpaid; provided, however, that nothing
shall effect Executive's rights and the Company's obligations under the SERP.
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(d) VOLUNTARY TERMINATION. If the Executive voluntarily terminates
employment during the Term, excluding a termination for Good Reason, this
Agreement shall terminate without further obligations to the Executive, other
than for Accrued Obligations and the timely payment or provision of Other
Benefits. In such case, all Accrued Obligations shall be paid to the Executive
in a lump sum in cash within 30 days of the Date of Termination.
(e) TERMINATION ELECTION BY COMPANY; TERMINATION BY EXECUTIVE FOR
GOOD REASON. If the Executive's employment is terminated by the Company under
Section 8(d)(i) hereof or by the Executive under Section 8(c) hereof: (i) the
Company shall pay to the Executive a lump sum in cash within ten days of the
Date of Termination in an amount equal to the sum of (x) the product of the sum
of the Annual Base Salary in effect immediately prior to termination plus the
Applicable Bonus times either (A) one and one-half, if the Termination Date
occurs prior to the fifth anniversary of the Commencement Date or (B) one, if
the Termination Date occurs on or after the fifth anniversary of the
Commencement Date plus (y) the Accrued Obligations (as defined in Section
13(f)(i)a.), (ii) with respect to each current three-year LTI Award performance
cycle in effect as of the Date of Termination, the Company shall grant to the
Executive a number of fully vested and exercisable Stock Options equal to the
product of (x) the "standard performance stock option grant" set forth in
Section V.B.(ii) of Schedule I as adjusted in accordance with the conversion
matrix included as Attachment D thereof, based on performance as of the Date of
Termination as determined in good faith by the Company (but which performance
level shall, for purposes of determining the appropriate conversion percentage,
in no event be lower than the performance as of the close of the Company's most
recently completed fiscal year) times (y) a fraction, the numerator of which is
the number of whole months elapsed since the commencement of the relevant three-
year LTI Award performance cycle, and the denominator of which is 36, with an
exercise price per share equal to the fair market value of a share of Parent
Stock on the date of grant (the foregoing grant of Stock Options described in
this clause (ii) shall hereinafter be referred to as the "Accrued LTI
Performance Award"), and (iii) the Company shall continue to comply with its
obligations under Section 6(f).
10. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 22, shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program of or
any contract or agreement with the Company or any of its affiliated
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companies at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program or contract or agreement
except as explicitly modified by this Agreement.
11. STOCK OPTIONS AND COMPANY STOCK.
(a) In the event of the Executive's death, whether his death occurs
during or after the Term of this Agreement, all unexercised and exercisable
Stock Options will be assigned to his Estate.
(b) In the event of the termination of the employment of the
Executive for any reason, all unexercised and exercisable Stock Options must be
exercised by him, or his estate (or heir(s)) as the case may be, before the
second anniversary of the termination of his employment, but in no event after
the tenth anniversary of the date of grant thereof, any such Stock Options not
exercised by that date will lapse immediately thereafter.
(c) In the Event of any change in the number of issued shares of
Company Stock resulting from a subdivision or consolidation of shares or other
capital adjustment, or the payment of a stock dividend, or other increase or
decrease in such shares, then appropriate adjustments in the terms of any
unexercised Stock Options shall be made by the Company.
12. FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement. Unless the
Executive's Termination of employment gives rise to a right to payments and
benefits described in Section 13, if the Executive secures other employment, any
benefits the Company is required to provide to the Executive following
termination of the Executive's employment shall be secondary to those provided
by another employer (if any). However, if the Executive's employment is
terminated such that the Executive has a right to payments and benefits under
Section 13, such amounts shall not be reduced whether or not the Executive
obtains other employment.
13. CHANGE OF CONTROL PROVISIONS. The following provisions of this
Section 13 shall apply notwithstanding any contrary or inconsistent provision in
any other section of this Agreement, and all other provisions of this Agreement,
to the
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extent they may be contrary to or inconsistent with the provisions of this
Section 13, are hereby made subject to the provisions of this Section 13, which
shall be paramount in all respects, PROVIDED, however, that the provisions of
Section 3(c) shall apply, where applicable.
(a) POSITION AND DUTIES. During any Transition Period, the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of those held,
exercised and assigned at any time during the 120-day period immediately
preceding a COC Transition Date, and the Executive's services shall be performed
at the location where the Executive was employed immediately preceding a COC
Transition Date or any office or location within 35 miles of such location.
(b) COMPENSATION AND RELATED MATTERS.
i. ANNUAL BONUS. For each fiscal year ending during any Transition
Period, the Company shall pay to the Executive an Annual Bonus in cash at least
equal to the Executive's highest cash bonus under the Company's annual cash
bonus program, or any comparable cash bonus under any predecessor or successor
plan, for the last three full fiscal years prior to the latest COC Transition
Date (the "Highest Recent Bonus"). Each such Annual Bonus shall be paid no
later than 60 days following the commencement of the fiscal year next following
the fiscal year for which the Annual Bonus is awarded, unless the Executive
shall elect to defer the receipt of such Annual Bonus.
ii. WELFARE BENEFITS. During any Transition Period, the benefits to
which the Executive and/or the Executive's family are entitled to pursuant to
Section 6(h) shall be no less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day period immediately preceding the latest
COC Transition Date or, if more favorable to the Executive, those provided
generally at any time after the latest COC Transition Date to other peer
executives of the Company and its affiliated companies.
iii. INCENTIVE, SAVINGS AND RETIREMENT PLANS. During any Transition
Period, the plans, practices, policies and programs in which the Executive is
entitled to participate pursuant to Section 6(i) shall provide the Executive
with incentive opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit opportunities, in each
case, at least as favorable, in the aggregate, as the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as of the date hereof or if more
favorable to the Executive, those provided
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generally at any time to other peer executives of the Company and its affiliated
companies.
iv. FRINGE BENEFITS. During any Transition Period, the Executive
shall be entitled to fringe benefits, including, without limitation, the
benefits described in Section 6(j), in accordance with the most favorable plans,
practices, programs and policies of the Company and its affiliated companies in
effect for the Executive at any time during the 120-day period immediately
preceding the latest COC Transition Date or, if more favorable to the Executive,
as in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
v. OFFICE AND SUPPORT STAFF. During any Transition Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the latest COC Transition Date or, if
more favorable to the Executive, as provided generally at any time thereafter
with respect to other peer executives of the Company and its affiliated
companies.
vi. VACATION. During any Transition Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans, policies,
programs and practices of the Company and its affiliated companies as in effect
for the Executive at any time during the 120-day period immediately preceding
the latest COC Transition Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
(c) GOOD REASON. During any Transition Period, for purposes of this
Agreement, "Good Reason" shall mean:
i. the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, titles and
reporting requirements), authority, duties or responsibilities as
contemplated by Sections 5(a) or 13(a) of this Agreement, or any other
action by the Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose isolated,
insubstantial and inadvertent action(s) not taken in bad faith and remedied
by the Company promptly after receipt of notice thereof given by the
Executive;
ii. any failure by the Company to comply with any of the provisions
of Section 6 or Section 13(a) or (b) of this Agreement, other than
isolated, insubstantial and inadvertent failure(s) not occurring in bad
faith and rem-
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edied by the Company promptly after receipt of notice thereof given by the
Executive;
iii. the Company's requiring the Executive to be based at any office
or location other than as provided in Sections 5(a) or 13(a) hereof;
iv. any termination by the Company of the Executive's employment
otherwise than as expressly permitted by this Agreement; or
v. any failure by the Company to comply with and satisfy Section
17(a) of this Agreement.
For purposes of this Section 13(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive. A termination by the
Executive for any reason during the 30-day period immediately following the date
which is six months after any COC Transition Date shall be deemed to be a
termination for Good Reason for all purposes of this Agreement.
(d) COMPENSATION UPON TERMINATION FOR DISABILITY. If the Executive's
employment is terminated by reason of the Executive's Disability during any
Transition Period, then with respect to the provision of Other Benefits, the
term Other Benefits as utilized in Section 9(a) shall include, and the Executive
shall be entitled after the Disability Effective Date to receive, disability and
other benefits at least equal to the most favorable of those generally provided
by the Company and its affiliated companies to disabled executives and/or their
families in accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect generally with respect to the most
senior executives and their families at any time during the 120-day period
immediately preceding the latest COC Transition Date or, if more favorable to
the Executive and/or the Executive's family, as in effect at any time thereafter
generally with respect to any other peer executives of the Company and its
affiliated companies and their families.
(e) COMPENSATION UPON TERMINATION BY DEATH. If the Executive's death
occurs during any Transition Period, then with respect to the provision of other
Benefits, the term Other Benefits as utilized in Section 9(b) shall include,
without limitation, and the Executive's estate and/or beneficiaries shall be
entitled to receive, benefits at least equal to the most favorable benefits
provided by the Company and its affiliated companies to the estates and
beneficiaries of the most senior executives of the Company and its affiliated
companies under such plans, programs, practices and policies relating to death
benefits, if any, as in effect with respect to the most senior executives and
their beneficiaries at any time during the 120-day period immediately preceding
the latest COC Transition Date or, if more favorable to the Executive's estate
and/or the Executive's beneficiaries, as in effect on the date
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of the Executive's death with respect to any other peer executives of the
Company and its affiliated companies and their beneficiaries.
(f) COMPENSATION UPON TERMINATION BY THE COMPANY WITHOUT CAUSE OR FOR
GOOD REASON. If, during any Transition Period, the Company shall terminate the
Executive's employment other than for Cause or Disability or the Executive shall
terminate employment for Good Reason:
i. the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
a. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid,
(2) the product of (x) the Applicable Bonus and (y) a fraction, the
numerator of which is the number of days in the current fiscal year
through the Date of Termination, and the denominator of which is 365
and (3) any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any
accrued vacation pay, in each case to the extent not theretofore paid
(the sum of the amounts described in clauses (1), (2), and (3) shall
be referred to in this Agreement as the "Accrued Obligations"); and
b. the amount equal to the product of (1) two and (2) the
sum of (x) the Executive's Annual Base Salary and (y) the Highest
Annual Bonus; and
c. an amount equal to the excess of (a) the actuarial
equivalent of the benefit under the Company's defined benefit
retirement plans, including any excess or supplemental retirement plan
in which the Executive participates (together, the "Retirement Plans")
(utilizing actuarial assumptions no less favorable to the Executive
than those in effect under the Retirement Plans immediately prior to
the latest COC Transition Date), which the Executive would receive if
the Executive's employment continued for two years after the Date of
Termination assuming for this purpose that all accrued benefits are
fully vested, and, assuming that the Executive's compensation in both
of the two years is that required by Section 6(a) and Section 6(b),
over (b) the actuarial equivalent of the Executive's actual benefit
(paid or payable), if any, under the Retirement Plans as of the Date
of Termination;
ii. for two years after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan,
program, practice or
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policy, the Company shall continue benefits to the Executive and/or the
Executive's family at least equal to those which would have been provided
to them in accordance with the plans, programs, practices and policies
described in Section 6(h) of this Agreement if the Executive's employment
had not been terminated or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies and their families,
provided, however, that if the Executive becomes reemployed with another
employer and is eligible to receive medical or other welfare benefits under
another employer provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility. For purposes of determining
eligibility (but not the time of commencement of benefits) of the Executive
for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained employed until
two years after the Date of Termination and to have retired on the last day
of such period;
iii. the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall
be selected by the Executive in his sole discretion, and which shall
include the provision of reasonable office space and secretarial
assistance, provided, that the Company's responsibility under this clause
(iii) shall be limited to $30,000;
iv. to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies (such other amounts
and benefits shall be referred to in this Agreement as the "Other
Benefits");
v. the Company shall grant to the Executive the Accrued LTI
Performance Award, as defined in Section 9(e), and the Company shall cause
all Stock Options and Company Stock held by or for the benefit of the
Executive to become immediately fully vested and/or exercisable;
14. LEGAL FEES.
(a) Following any termination of the Executive's employment that
gives rise to a right to payments and benefits under Section 13, the Company
shall pay as incurred, to the full extent permitted by law, all legal fees and
expenses which the Executive may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Company, the Executive or others of
the validity or enforceability of, or li-
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ability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Code.
(b) Following any termination of the Executive's employment other
than a termination of employment described in paragraph (a), above, the Company
shall promptly reimburse the Executive, to the extent permitted by law, for all
reasonable legal fees and expenses reasonably incurred by the Executive as a
result of any contest by the Company or the Executive of the validity or
enforceability of, or liability under, any provisions of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus in
each case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Code, provided, that such
reimbursement shall be limited to fees and expenses incurred in connection with
the contest of issues on which the Executive substantially prevails.
15. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 15) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the
foregoing provisions of this Section 15(a), if it shall be determined that the
Executive is entitled to a Gross-Up Payment, but that the Payments do not exceed
110% of the greatest amount (the "Reduced Amount") that could be paid to the
Executive such that the receipt of Payments would not give rise to any Excise
Tax, then no Gross-Up Payment shall be made to the Executive and the Payments,
in the aggregate, shall be reduced to the Reduced Amount.
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(b) Subject to the provisions of Section 15(c), all determinations
required to be made under this Section 15, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Arthur
Andersen LLP or such other certified public accounting firm as may be designated
by the Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder).
All fees and expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant to this Section 15, shall
be paid by the Company to the Executive within five days of the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon the Company and the Executive. As a result of the uncertainty
in the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 15(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
i. give the Company any information reasonably requested by the
Company relating to such claim,
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ii. take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
ii: cooperate with the Company in good faith in order effectively to
contest such claim, and
iv. permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 15(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(c) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 15(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 15(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable
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thereto). If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 15(c), a determination is made that the Executive
shall not be entitled to any refund with respect to such claim and the Company
does not notify the Executive in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
16. NONCOMPETITION.
(a) So long as the Executive is employed by the Company under this
Agreement and unless this Agreement is terminated for any reason, the Executive
agrees not to enter into competitive endeavors.
(b) During the Term and any period thereafter during which or in
respect of which the Executive receives payments from the Company under Section
9 or Section 13, the Executive shall hold in a fiduciary capacity for the
benefit of the Company all secret or confidential information, knowledge or data
relating to the Company or any of its affiliated companies, and their respective
businesses, which shall have been obtained by the Executive during the
Executive's employment by the Company or any of its affiliated companies and
which shall not be or become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this Agreement).
After termination of the Executive's employment with the Company, the Executive
shall not, without the prior written consent of the Company or as may otherwise
be required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 16 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under Section 13 of this Agreement.
17. SUCCESSORS; BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of the Agreement and
shall entitle the Executive to compensation from the Company in the same amount
and on the same terms as he would be entitled to hereunder if he terminated his
employment for Good Reason,
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except that for purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Date of Termination. As
used in the Agreement, Company shall mean the Company as herein before defined
and any successor to its business and/or assets as aforesaid which executes and
delivers the agreement provided for in this Section 17 or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devises and legatees. If the Executive should die while any amounts would still
be payable to him hereunder if he had continued to live, all such amounts unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the Executive's devise, legatee, or other designee or, if there be
no such designee, to the Executive's estate.
18. NOTICE. For the purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
Mr. David S. Aldridge
3815 Vermont Road
Atlanta, GA 30319
If the Company:
The Alpine Group, Inc.
1790 Broadway
15th Floor
New York, NY 10019-1412
Attention: Chief Executive Officer
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
19. MISCELLANEOUS. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such officer of the Company as may be
authorized by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or
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conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of New York without
regard to its conflicts of law principles.
20. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
21. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
22. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officers employee or representative of any party hereto; and any prior agreement
of the parties hereto in respect of the subject matter contained herein is
hereby terminated and cancelled, provided, however, that this Agreement should
not supersede any existing benefit or agreement which provides such benefit,
including, without limitation, life or disability insurance agreements and
retirement plans currently in effect provided further, that nothing in this
Agreement shall affect in any way whatsoever the rights and entitlements of the
Executive and/or the Executive's beneficiaries pursuant to the SERP.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
ATTEST: THE ALPINE GROUP, INC.
/s/Stewart H. Wahrsager, Esq. By:/s/Steven S. Elbaum (SEAL)
- ----------------------------- ----------------------
Name:
Title:
ATTEST: EXECUTIVE
/s/Stewart H. Wahrsager, Esq. /s/David S. Aldridge
- ----------------------------- -------------------------
David S. Aldridge
25
<PAGE>
SCHEDULE ONE
THE ALPINE GROUP, INC.
SENIOR MANAGEMENT COMPENSATION
AND
INCENTIVE PROGRAM
I. NAME: David Aldridge
II. POSITION: Chief Financial Officer
III. ANNUAL CASH BONUS INCENTIVE:
A. Your standard annual cash bonus incentive (as a percentage of your
base salary) is 35%.
B. The actual annual cash bonus incentive paid will be determined based
on your "Weighted Overall Annual Performance" (WOAP). A worksheet for
calculating WOAP is included as Attachment A.
C. WOAP will be based on: (1) quantitative financial performance for the
fiscal year (weighted at 75%), and (2) subjective assessment of job
performance (weighted at 25%).
D. The financial performance component will be based on EBITDA return on
net assets (the "Return Ratio") for FY96.
For FY96 financial performance measurement, the actual Return Ratio
will be measured against: (1) FY96 budget (and weighted 67%), and (2)
FY95 pro forma results (and weighted 33%). Attachment B includes the
Return Ratio for the FY96 budget and the FY95 pro forma results.
Attachment C includes current year performance against budget.
E. The actual annual cash bonus incentive will be calculated by
converting your standard bonus to an actual bonus, based on your WOAP
and the conversion matrix included on Attachment D.
F. As previously discussed with you, a component of your annual cash
bonus incentive award may be paid in shares of Company stock under
terms and conditions previously described to you.
26
<PAGE>
IV. LONG TERM INCENTIVE AWARD:
A. Long term incentives are intended to be awarded annually; however any
such awards are totally at the discretion of the Compensation
Committee.
B. Your long term incentive award for FY96 consists of the following:
(i) Basic stock option grant: 37,400 shares
(ii) Standard performance stock option grant: 37,400 shares
C. Basic stock option grant - major provisions:
(i) Grant date: November 15, 1995
(ii) Exercise price: $5.25 per share (FMV on Grant Date)
(iii) Vesting provisions: 33% per year
(iv) Vesting start date: May 1, 1995
(v) Term of option: 10 years
D. Performance stock option grant - major provisions:
(i) Standard performance stock option grants are adjusted based on
the actual weighted average 3-year Return Ratio as compared to
the targeted 3-year Return Ratio (see Attachment E). The number
of shares of the standard performance stock option grant will be
adjusted at the end of the 3-year period (end of FY98) based
again on the conversion matrix included as Attachment D
(ii) Vesting: 3-year cliff
(iii) Exercise price per share: $5.25
(iv) Option term: 10 years
27
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES (DIRECT AND INDIRECT)
Name Jurisdiction
DNE Systems, Inc. Delaware
DNE Technologies, Inc. Delaware
DNE Manufacturing and Service Company Delaware
Adience, Inc. Delaware
Adience Canada, Inc. Ontario, Canada
Superior Telecommunications, Inc. Georgia
Superior Cable Corporation Ontario, Canada
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated June 14, 1996 included in this Form 10-K, into The Alpine
Group, Inc.'s previously filed Registration Statements on Forms S-8 (File Nos.
2-70015 and 33-62544) and on Forms S-3 (File Nos. 33-30246 and 33-53434).
Arthur Andersen LLP
Atlanta, Georgia
July 26, 1996
F-39
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