As filed with the Securities and Exchange Commission on June 16, 1999
Commission File Number 333-78267
================================================================================
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street N.W.
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ALFORD REFRIGERATED WAREHOUSES, INC.
(Exact name of Registrant as specified in charter)
Texas 1078006 75-2695621
(State of incorporation) (Primary Standard Industrial (IRS Employer
Classification Code Number) Identification No.)
318 Cadiz Street
Dallas, Texas 75207
(214) 426-5151
(Address and telephone number of principal executive
offices and principal place of business or intended
principal place of business)
James C. Williams
318 Cadiz Street
Dallas, Texas 75207
(214) 426-5151
(Name, address and telephone number or agent for service)
=========================================================
Please send copies of all communications to:
J. Rowland Cook
Jenkens & Gilchrist, A Professional Corporation
2200 One American Center
600 Congress Avenue
Austin, Texas 78701
(512) 499-3821
The common stock being sold by Alford will be sold to the public
beginning upon the effectiveness of this registration statement and continuously
thereafter during the offering period. The common stock being sold by selling
shareholders will be sold from time to time upon the effectiveness of this
registration statement as determined by the selling shareholders.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===========================================================================================================================
Proposed Proposed
maximum maximum Amount of
Amount to be offering price aggregate registration
Title of each class of securities to be registered registered per share.* offering price fee
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Common Stock Offered by Alford 1,000,000 $4.50 $4,500,000.00 $1,251.00
- ---------------------------------------------------------------------------------------------------------------------------
Shares of Common Stock Offered by Shareholders 2,900,000 $4.50 $13,050,000.00 $3,627.90
- ---------------------------------------------------------------------------------------------------------------------------
Total 3,900,000 $4.50 $17,550,000.00 $4,878.90
===========================================================================================================================
<FN>
* Calculated only for purposes of calculating the registration fee.
</FN>
</TABLE>
<PAGE>
The registrant amends this registration statement on the date or dates necessary
to delay its effective date until the registrant files a further amendment,
which specifically states that this registration statement is thereafter
effective in accordance with Section 8(a) of the Securities Act of 1933 or until
the registration statement becomes effective on the date the commission, acting
pursuant to said Section 8(a), determines.
<PAGE>
PRELIMINARY PROSPECTUS DATED JUNE 16, 1999
SUBJECT TO COMPLETION
ALFORD REFRIGERATED WAREHOUSES, INC.
3,900,000 SHARES OF COMMON STOCK
Alford is offering to sell 1,000,000 shares of its common stock to the
public on a best efforts, no minimum basis. In addition, shareholders of Alford,
from time to time, may offer to sell 2,900,000 shares of Alford's common stock.
Alford will not receive any of the proceeds from the sale of the common stock by
the selling shareholders.
Alford's common stock is quoted on the pink sheets under the trading
symbol "ALFO." At this time, neither the Nasdaq Stock Market nor any national
securities exchange lists the common stock. There can be no assurance that an
active trading market will develop. See "Risk Factors."
We urge you to read this prospectus carefully since it contains
information that is important to you. Also, pay particular attention to the
"Risk Factors" beginning on page 5.
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the prospectus. Any representation to the contrary is a
criminal offense.
<TABLE>
<CAPTION>
Price to Proceeds to Proceeds to
the Public Alford Selling Shareholders
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $4.50 $4.50 $4.50
TOTAL $17,550,000 $4,500,000 $13,050,000
- ------------------------------------------------------------------------------------------------------------
</TABLE>
No underwriters are involved or are expected to be involved in the
offer or sale of the common stock. Alford will offer the stock it is selling
through its officers, directors, employees and agents, or through registered
broker-dealers, on a best efforts, no minimum basis beginning on the date that
this registration become effective and continuing until all shares are sold or
until Alford determines to terminate the offering. Alford has not made any
arrangements to place the funds in an escrow, trust or similar account. Alford
will not pay any selling commissions to the officers, directors or employees of
Alford for shares of common stock sold by them. See "Plan of Distribution."
The information in this prospectus is not complete and may be changed.
Neither Alford nor the selling shareholders may sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.
The date of this prospectus is June 16, 1999
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
PROSPECTUS SUMMARY INFORMATION....................................................................................1
ALFORD REFRIGERATED WAREHOUSES ...................................................................................1
THE OFFERING......................................................................................................1
RISK FACTORS......................................................................................................2
Alford faces substantial regional and local competition which is likely to increase .....................2
Alford's significant indebtedness may have a negative effect on its operations ..........................2
The loss of one of its larger customers could have an adverse impact on Alford's operations
...............................................................................................2
If all of the selling shareholder shares are not sold, one shareholder will continue to hold a
controlling interest in Alford, and the ability of investors to influence our corporate
activities after the offering will be very limited
...............................................................................................2
The loss or damage to products stored at Alford's facilities could have an adverse impact on Alford
3
Because there is a limited trading market for Alford's common stock, you may have difficulty
valuing and selling Alford's common stock ......................................................3
Regulations affecting Alford may make it more difficult for you to resell its shares.....................3
If you are an affiliate of Alford your ability to sell our shares will be limited .......................3
Future sales of our stock made pursuant to Rule 144, could have an adverse effect on the
prevailing market price of our common stock ....................................................3
The year 2000 issue could adversely effect our business..................................................3
FORWARD-LOOKING INFORMATION.......................................................................................4
Formation................................................................................................4
Bankruptcy...............................................................................................4
Merger with Alford.......................................................................................4
Reorganization...........................................................................................5
SELLING SHAREHOLDERS..............................................................................................6
USE OF PROCEEDS...................................................................................................6
DETERMINATION OF OFFERING PRICE...................................................................................6
PLAN OF DISTRIBUTION..............................................................................................7
Common Stock to be Sold by Alford........................................................................7
Common Stock to be Sold by Selling Shareholders..........................................................7
Regulations Affecting the Price and Marketability of Alford Stock .......................................8
DIVIDENDS.........................................................................................................9
CAPITALIZATION...................................................................................................10
i
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION......................................................................11
Results of Operations...................................................................................11
Three Months Ended March 31, 1999, Compared to Three Months Ended March 31, 1998
..............................................................................................12
Revenues ......................................................................................12
Operating Costs................................................................................12
General and Administrative Expenses............................................................12
Depreciation, Amortization, Rent and Interest..................................................12
Income Tax Expense or Benefit..................................................................13
Liquidity and Capital Resources.........................................................................13
Year Ended December 31, 1998, Compared to Year Ended December 31, 1997..................................13
Revenues ......................................................................................13
Operating Costs................................................................................13
General and Administrative Expenses............................................................14
Depreciation, Amortization, Rent and Interest..................................................14
Income Tax Expense or Benefit..................................................................14
Liquidity and Capital Resources.........................................................................14
Year 2000...............................................................................................15
Fluctuations in Operating Results; Seasonality..........................................................16
Environmental Matters...................................................................................16
Inflation...............................................................................................16
Accounting Matters......................................................................................16
THE BUSINESS....................................................................................................18
The Industry............................................................................................18
Customers...............................................................................................19
Competition; Growth Potential...........................................................................19
Sales and Marketing.....................................................................................19
Suppliers...............................................................................................19
Employees...............................................................................................19
Government Regulation...................................................................................20
Research ...............................................................................................20
Licenses, Permits and Product Registrations.............................................................20
Properties..............................................................................................21
Dallas, Texas..................................................................................21
La Porte, Texas................................................................................22
Richardson, Texas..............................................................................22
Fort Worth, Texas..............................................................................22
Legal Proceedings.......................................................................................22
WHERE YOU CAN GET MORE INFORMATION...............................................................................22
MANAGEMENT.......................................................................................................23
Committees of the Board of Directors....................................................................24
Compensation of Directors and Executive Officers........................................................24
Executive Compensation.........................................................................24
Director Compensation..........................................................................25
PRINCIPAL SHAREHOLDERS...........................................................................................25
ii
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................................................26
DESCRIPTION OF SECURITIES........................................................................................27
General ...............................................................................................27
Common Stock............................................................................................27
Preferred Stock.........................................................................................27
Provisions Having a Possible Anti-takeover Effect ......................................................28
Limitation of Liability of Directors....................................................................28
Bylaw Provisions and Amendment of Bylaws................................................................28
SHARES ELIGIBLE FOR FUTURE SALE..................................................................................29
TRANSFER AGENT...................................................................................................30
LEGAL MATTERS....................................................................................................30
EXPERTS ........................................................................................................37
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS......................................................................F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS..............................................................F-2
CONSOLIDATED BALANCE SHEETS.....................................................................................F-3
CONSOLIDATED STATEMENTS OF OPERATIONS...........................................................................F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY.................................................................F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS...........................................................................F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...............................................................F-7 - F-20
</TABLE>
Dealer Prospectus Deliver Obligation
Until ___________, 1999, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
---------------------
iii
<PAGE>
PROSPECTUS SUMMARY INFORMATION
Please read all of this prospectus carefully. It describes Alford, its
finances and products. Federal and state securities laws require that we include
in this prospectus all important information that investors will need to make an
investment decision. You should rely only on the information contained in this
prospectus to make your investment decision. We have not authorized anyone to
provide you with information that is different from what is contained in this
prospectus. The following is a summary of some of the information contained in
this prospectus. However, you should not rely on the summary but should also
read the more detailed information in this prospectus.
ALFORD REFRIGERATED WAREHOUSES
Alford Refrigerated Warehouses, Inc. is a Texas corporation. It was
originally incorporated in October 1992 under the laws of the state of Delaware.
Alford believes that it is the largest public refrigerated warehousing operation
in the southwest United States. It operates a network of four refrigerated
warehouse facilities in Texas, with a total area of 1,500,000 sq. ft. or
32,000,000 cu. ft. of storage space. The Company's principal executive office is
located at 318 Cadiz Street, Dallas, Texas 75207 and its telephone number is
(214) 426-5151.
THE OFFERING
<TABLE>
<CAPTION>
Type of Security Offered Common Stock, $0.01 par value per share
<S> <C>
Number of Outstanding Shares 7,400,715 shares
Common Stock Offered by Alford 1,000,000 shares
Common Stock Offered by Selling Shareholders 2,900,000 shares
Common Stock Outstanding After Offering 8,400,715 shares
</TABLE>
1
<PAGE>
RISK FACTORS
You should consider the common stock of Alford to be an investment
involving a high degree of risk. You should read this entire prospectus and
carefully consider the risk involved with this investment, including the
following factors.
In addition to other information contained elsewhere in this
Registration Statement, prospective investors should carefully consider the
following in evaluating the Company and its business before purchasing any of
the common stock offered hereby:
Alford faces substantial regional and local competition which is likely to
increase
Alford operates in a competitive environment. Alford's competition in
the public refrigerated warehouse business and for distribution services is
principally regional in nature. In the Dallas/Fort Worth Area, Alford competes
primarily with United States Cold Storage, Inc., CS Integrated-Texas Limited
Partnership, Texas Freezer Company, Inc., A-M-C Warehouses and Americold
Logistics, Inc. In the Houston area, Alford competes primarily with Jacintoport
Corp., Houston Central Industries, Inc., NOCS West Gulf, Inc. and Houston
Refrigerated Services. Alford believes that competition is likely to increase
among these companies which could lead to reduced prices and margins for public
refrigerated warehouse services. Alford also competes with local warehouse
operators in each of its markets, which influences prices charged by Alford in
those markets. Alford also believes that national competitors may become a
competitive factor in the marketplace.
Alford's significant indebtedness may have a negative effect on its operations
Following completion of this offering, indebtedness will comprise a
substantial portion of Alford's consolidated capitalization. Accordingly, a
significant portion of its cash flow from operations is required to service
debt. The extent to which Alford is leveraged could have serious consequences
for the holders of common stock, because it may affect Alford's ability to
respond to changes in general economic conditions or in conditions in sectors to
which Alford's customers belong. Substantially all of Alford's term indebtedness
matures in eight to nine years and must be repaid in full or refinanced by that
time.
The loss of one of its larger customers could have an adverse impact on Alford's
operations
Some of Alford's facilities depend to a large extent upon a small
number of customers or commodities. An interruption or reduction in the business
received from those customers or a reduction in supply or demand of those
customers' commodities could result in a decrease in the sales at Alford's
facilities and result in a decrease in Alford's overall sales.
If all of the selling shareholder shares are not sold, one shareholder will
continue to hold a controlling interest in Alford, and the ability of investors
to influence our corporate activities after the offering will be very limited
Castor Capital Corporation currently holds 93.6% of Alford's
outstanding common stock. Although Castor proposes to sell 2,500,000 shares in
this offering, if it is unsuccessful in selling such shares, it could hold in
the aggregate approximately 78.0% of the outstanding common stock upon
completion of the offering. Consequently, Castor Capital Corporation will be
able to elect all of Alford's Board of Directors and effectively will be able to
control its affairs, policies and activities. In addition, Castor Capital
Corporation will be able to determine or substantially influence the outcome of
2
<PAGE>
any matter submitted to a vote of Alford's shareholders. This concentration of
ownership may have the effect of delaying or preventing a change in control of
Alford.
The loss or damage to products stored at Alford's facilities could have an
adverse impact on Alford
Alford's business involves the handling, storage and distribution of
products belonging to the public. In the event of a fire, flood or other
occurrence, Alford could be held liable for the loss of or damage to stored
products. There is no assurance that Alford would not incur a substantial
liability to the public for loss or damage to stored products, in excess of
applicable insurance coverage limits.
Because there is a limited trading market for Alford's common stock, you may
have difficulty valuing and selling Alford's common stock
There is currently only a very limited market for trading Alford's
common stock and no assurance that an active trading market will develop or, if
established, will be maintained. Alford's common stock does not now, and may
never qualify for listing on the Nasdaq SmallCap Market or any securities
exchange. Consequently, selling our shares will probably be more difficult
because, for example, smaller quantities of shares could be bought and sold, and
transactions could be delayed. See "Description of Securities" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Regulations affecting Alford may make it more difficult for you to resell its
shares
Because of the low price of our common stock and the fact that it is
not listed on The Nasdaq SmallCap Market or any exchange, the shares may be
subject to a number of regulations which may affect the price of the shares and
your ability to sell the shares in the secondary market. See "Regulations
Affecting the Price and Marketability of Alford's Stock."
If you are an affiliate of Alford your ability to sell our shares will be
limited
If you are an affiliate of Alford under the rules and regulations of
the Securities and Exchange Commission you may not sell shares of Alford's
common stock unless you comply with Rule 144 or another exemption from
registration. You will be deemed an affiliate if you are an officer or director
of Alford or if you beneficially own 5% or more of its securities.
Future sales of our stock made pursuant to Rule 144, could have an adverse
effect on the prevailing market price of our common stock
We are unable to predict the effect that sales made under Rule 144 or
otherwise, may have on the then prevailing market price of our common stock. It
is possible that market sales of large amounts of the shares offered in this
prospectus or otherwise (or the potential for those sales even if they do not
actually occur), will have the effect of depressing the market price of our
common stock. See "Description of Securities -- Shares Eligible for Future
Sale."
The year 2000 issue could adversely effect our business
If various third parties do not successfully achieve year 2000
compliance, Alford's business and results of operations could be adversely
affected, resulting from, among other things, Alford's inability to properly
exchange and/or receive data. In addition, if our transfer agent does not
achieve year 2000 compliance, that would have an adverse effect on your ability
3
<PAGE>
to trade the common stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation -- The Year Two Thousand."
FORWARD-LOOKING INFORMATION
Some of the statements contained in this prospectus relate to future
expectations, contain projections of results of operations or financial
conditions or include other forward-looking information. Those statements are
subject to known and unknown risks, uncertainties and other factors that could
cause the actual results to differ materially from those contemplated by the
statements. The forward-looking information is based on various factors and
assumptions. Important factors that may cause actual results to differ from
projections include, for example,
o the success or failure of our efforts to implement our business strategy,
o increased expenses, including utilities,
o the effect of changing economic conditions,
o our ability to attract and retain qualified employees,
o other risks which may be described in this and future filings with the SEC.
Please note that the forward looking statements are made as of the date of
this prospectus and may not be updated to reflect, for example, actual results
or changes in assumptions.
ALFORD REFRIGERATED WAREHOUSES, INC.
Formation
Alford Refrigerated Warehouses, Inc. is a Texas corporation that was
formerly known as Hilltop Acquisition Holding Corporation, and prior to that, as
Optical Acquisition Corp. It was originally incorporated in October 1992 under
the laws of the state of Delaware.
Bankruptcy
Optical Acquisition Corp. filed a bankruptcy petition on September 21, 1995
and filed the First Amended Joint Plan of Reorganization on July 9, 1996. The
United States Bankruptcy Court for the Northern District of Texas, Dallas
Division entered an order approving the plan on August 9, 1996. The plan was
modified pursuant to an order of the court on February 28, 1997.
The plan provided for the liquidation of the company's assets and
distribution of the proceeds to secured, priority and unsecured creditors. The
plan further provided that the company would remain in existence, although all
capital stock outstanding as of the petition date was canceled the company was
reincorporated in the State of Texas in September 1997.
As contemplated in the plan, the company, which had no operations or
significant assets at the time, had undertaken a business strategy to seek out
and consummate an acquisition or merger transaction.
4
<PAGE>
Merger with Alford
On or about December 15, 1998, Hilltop merged with Alford pursuant to
an Agreement and Plan of Merger dated November 23, 1998 by and among Hilltop,
Womack Gilman Investment Services, L.C., Halter Financial Group, Inc. and
Alford. In accordance with the terms of the merger agreement, Alford (formerly
Hilltop) was the surviving corporation. Immediately prior to the merger, Hilltop
amended its Articles of Incorporation to effect a reverse stock split so that
each share of Hilltop's issued and outstanding common stock was automatically
converted into .625 of a fully paid and nonassessable share of Hilltop's common
stock. Pursuant to the terms of the merger agreement, each share of common stock
of Alford was automatically converted into the right to receive 655.1372 shares
of the common stock of the surviving company. In addition, the Articles of
Incorporation and the Bylaws of Alford became the Articles of Incorporation and
Bylaws of the surviving company, the directors and officers of Alford became the
directors and officers of the surviving company, and the surviving company
changed its name to Alford Refrigerated Warehouses, Inc. The transaction is
considered a reverse merger. Application of reverse merger accounting results in
the following:
1. The consolidated financial statements of the combined entity
are issued under the name of the legal parent, Alford
Refrigerated Warehouses, Inc. (formerly Hilltop), but the
entity is considered a continuation of the legal subsidiary,
Alford.
2. As Alford is deemed to be the acquirer for accounting
purposes, its assets and liabilities are included in the
consolidated financial statements of the continuing entity at
their carrying values.
3. Amounts presented in the financial statements for periods
prior to December 1998 are those of Alford, the legal
subsidiary. All shares for periods prior to December 31, 1998,
have been retroactively adjusted as if a stock split had
occurred.
4. Costs related to the transaction were expensed during 1998.
Reorganization
In November 1998, several affiliated entities of Alford were merged
into Alford. These entities, including Robco Industries, Inc. and Alltemp
Logistical Services, LLC are in the same line of business as Alford and, by
virtue of their ultimate ownership, are considered to be entities under common
control with Alford. Accordingly, these mergers were accounted for in the
financial statements in a manner similar to a pooling of interests and the
balance sheets, statements of operations, stockholders' equity and cash flows
give retroactive effect to the mergers as if they occurred as of the beginning
of the earliest period presented. The operations of Robco and Alltemp are
insignificant to total operations of the combined company.
5
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth information, as of June 1, 1999,
regarding the selling shareholders, their recent relationships with Alford and
its affiliates, their ownership of common stock before and after this offering,
and the number of shares to be offered for the account of each. This information
in this table assumes that all shares of common stock held by the selling
shareholders are sold pursuant to this offering and that no additional common
stock is sold or acquired by the selling shareholders:
<TABLE>
<CAPTION>
Number of
Material shares to be
relationships Amount of offered for Amount of
with Alford or common stock selling common stock
affiliates since owned at shareholder's owned at end
Selling Shareholder June 1, 1996 June 1, 1999 account of offering
------------------- ------------- ------------- --------- ------------
<S> <C> <C> <C> <C>
Fort Worth Holdings None 300,000 300,000 -0-
Cold Storage, Inc.
J.B. Financial None 100,000 100,000 -0-
Castor Capital * 6,551,372 2,500,000 4,051,372
Corporation
<FN>
*The sole shareholder of Castor Capital Corporation is the Robichaud Family Trust, of which Joseph Y.
Robichaud, chief executive officer of Alford, is trustee. In addition, Mr. Robichaud is chairman and chief
executive officer of Castor.
</FN>
</TABLE>
USE OF PROCEEDS
If all shares offered by Alford are sold by Alford directly and without
the use of selling agents, Alford should net approximately $4,460,000 after
deducting estimated offering expenses. However, Alford may contact registered
broker-dealers to act as selling agents and in connection with such sales will
pay fees or commissions not in excess of those normal for transactions of this
type. Of the net proceeds, Alford will use up to $2,000,000 to repay existing
indebtedness and the remainder for general working capital purposes and,
depending on the timing of receipt of the proceeds, for Alford's two currently
contemplated real estate acquisition.
DETERMINATION OF OFFERING PRICE
Although Alford's common stock trades on the pink sheets, management
does not believe that recent trading prices accurately reflect the value of the
common stock. Among the factors Alford considered in setting the offering price
of $4.50 per share were prevailing market conditions, the price-earnings ratio
of publicly traded companies that Alford believes are comparable to Alford, the
current state of Alford's development, and other factors Alford believed were
relevant.
6
<PAGE>
PLAN OF DISTRIBUTION
Alford is offering 1,000,000 of common stock to the public for cash on
a best efforts, no minimum basis. In addition, the selling shareholders, from
time to time, propose and offer to sell 2,900,000 shares of Alford common stock.
Of these, 2,500,000 shares will be sold by Castor Capital Corporation, an
affiliate of the Company. Castor does not intend to sell its shares unless and
until Alford has sold its 1,000,000 shares.
Common Stock to be Sold by Alford
No underwriters have been engaged by Alford in connection with the
offering. However, Alford may arrange for brokers, dealers or agents to
participate in sales in consideration of commissions payable by Alford in
amounts to be negotiated which are not expected to exceed those customary in the
types of transactions involved. Any broker, dealer or agent participating in the
distribution of shares of common stock may be deemed to be an "underwriter"
within the meaning of Section 2(11) of the Securities Act. Any commissions or
discounts paid to any such broker, dealer or agent my be deemed to be
underwriting commissions or discounts under the securities laws.
The offer and sale of stock by Alford will commence promptly upon the
date of this prospectus, will be made on a continuous basis and will continue
until all of the shares are sold or until Alford determines to terminate further
sales under this offering. The shares will be offered on a best efforts basis,
meaning that there is no preexisting contractual commitment for any person to
purchase these shares. To the extent Alford offers the common stock it is
selling through Alford's existing trading markets, the common stock will be
offered at a fixed price as set forth on the cover page of this prospectus.
Common Stock to be Sold by Selling Shareholders
The selling shareholders may offer all or a portion of their shares of common
stock at various times in one or more of the following transactions:
o in the pink sheets at prevailing market prices,
o if Alford qualifies for listing on Nasdaq, on Nasdaq at prevailing market
prices,
o otherwise than at prevailing market prices or negotiated prices, or
o in a combination of the above transactions (any of which may involve
crosses and block transactions).
The selling shareholders may effect transactions by selling the shares
of the common stock to or through broker-dealers, and broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
selling shareholders and/or the purchasers of the shares for which the
broker-dealers act as agents or to whom they may sell as principal, or both.
Alford is not aware as of the date of this prospectus of any agreements between
any of the selling shareholders and any broker-dealers with respect to the sale
of the common stock offered by the selling shareholders pursuant to this
prospectus. In connection with the distribution of shares or otherwise, the
selling shareholders may enter into hedging transactions with broker-dealers. In
connection with these transactions, broker-dealers may engage in short sales of
the shares in the course of hedging the positions they assume with selling
shareholders. The selling shareholders may also enter into option or other
transactions with broker-dealers which require the delivery to the broker-dealer
of the shares described in this prospectus, which the broker-dealer may resell
pursuant to this prospectus. the selling shareholders may also pledge the shares
to a broker or dealer and, upon a default, the broker or dealer may effect sales
of the pledged shares pursuant to this prospectus.
The selling shareholders and any broker, dealer or other agent
executing sell orders on behalf of the selling shareholders may be deemed to be
"underwriters" within the meaning of the Securities Act, in which event
commissions received by the broker, dealer or agent and profit on any resale of
7
<PAGE>
the shares may be deemed to be underwriting commissions under the Security Act.
Any commissions received by a broker, dealer or agent may be in excess of
customary compensation. The shares may also be sold, if applicable, in
accordance with Section 4(1) of the Securities Act or Rule 144 and Rule 145
under the Securities Act.
Information as to whether any underwriter who may be selected by the
selling shareholders, or any other broker-dealer, is acting as principal or
agent for the selling shareholders, the compensation to be received by
underwriters who may be selected by the selling shareholders, or any
broker-dealer, acting as principal or agent for the selling shareholders and the
compensation to be received by other broker-dealers, will, to the extent
required, be set forth in a supplement to this prospectus. Any dealer or broker
participating in any distribution of the shares may be required to deliver a
copy of this prospectus, including the prospectus supplement, if any, to any
person who purchases any of the shares from or through such dealer or broker.
Alford will pay all expenses of registration incurred in connection
with the offering. The selling shareholders will be responsible for all selling
and other expenses incurred by the selling shareholders.
The selling shareholders will be subject to applicable provisions of
the Exchange Act and the rules and regulations thereunder, including without
limitation, Rule 102 under Regulation M, which may limit the timing of purchases
and sales of any shares of the common stock by the selling shareholders. Rule
102 under Regulation M provides, with some exceptions, that it is unlawful for a
selling shareholder or its affiliated purchaser to, directly or indirectly, bid
for or purchase or attempt to induce any person to bid for or purchase, for an
account in which the selling shareholder or affiliated purchaser has a
beneficial interest in any securities that are the subject of the distribution
during the applicable restricted period under Regulation M. All of the foregoing
may affect the marketability of the common stock. Alford will require each
selling shareholder and his or her broker if applicable, to provide a letter
that acknowledges his compliance with Regulation M under the Exchange Act before
authorizing the transfer of the selling shareholder's shares.
It is anticipated that the selling shareholders may offer all of the
shares for sale. Further, because it is possible that a significant number of
shares could be sold at the same time, these sales, or the possibility of these
sales, may have a depressive effect on the market price of Alford's common
stock. No assurance can be given as to the liquidity of the trading market for
the common stock.
Except as specifically set forth herein, none of the selling
shareholders has, or within the past three years has had, any position, office
or other material relationship with Alford or any of its predecessors or
affiliates.
It is expected that Alford will spend a total of approximately $40,000
for legal fees, accounting fees, printing and other costs involved in the
offering.
Regulations Affecting the Price and Marketability of Alford Stock
Because of the low price of our common stock and the fact that it is
not listed on The Nasdaq SmallCap Market or any exchange, the shares may be
subject to a number of regulations which may affect the price of the shares and
your ability to sell the shares in the secondary market.
For example, Rule 15g-9 under the Securities Exchange Act may affect
the ability of broker-dealers to sell the shares and may affect your ability to
sell the common stock in the secondary market. Rule 15g-9 generally applies to
shares that are not listed on The Nasdaq SmallCap Market or any stock exchange.
8
<PAGE>
The rule imposes additional sales practice requirements on broker-dealers that
sell low-priced securities to persons other than established customers and
institutional accredited investors. For transactions covered by this rule, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction.
In addition, because the penny stock rules probably will apply to our
shares, investors in this offering probably will find it more difficult to sell
their securities. The Securities and Exchange Commission's regulations define a
penny stock to be any equity security that has a market price or exercise price
of less than $5.00 per share, subject to some exceptions. The penny stock rules
require a broker-dealer to deliver a standardized risk disclosure document
prepared by the Securities and Exchange Commission, to provide the customer with
additional information including current bid and offer quotations for the penny
stock, the compensation of the broker-dealer and its salesperson in the
transaction, monthly account statements showing the market value of each penny
stock held in the customer's account, and to make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
requirements probably will reduce the level of trading activity in the secondary
market for the common stock and may severely and adversely affect the ability of
broker-dealers to sell our securities.
DIVIDENDS
The Company has not paid any dividends on its common stock and does not
anticipate paying any dividends in the foreseeable future. The Company's bank
loan agreements prohibit the payment of any dividends without the bank's
consent.
9
<PAGE>
CAPITALIZATION
The following table shows the capitalization as of March 31, 1999, and
as adjusted to reflect the results of Alford's offer of stock in this
prospectus, assuming all 1,000,000 of the new shares offered by Alford are sold
and (ii) the issuance in May, 1999, of 400,000 shares to the selling
shareholders. (These 400,000 shares were issued in connection with the purchase
of Alford's Fort Worth facility. We discuss this transaction in greater detail
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Three Months Ended March 31, 1999 Compared to Three Months Ended
March 31, 1998 -- Liquidity and Capital Resources."
<TABLE>
<CAPTION>
March 31, 1999
----------------------
Actual As Adjusted
------ -----------
(in thousands)
<S> <C> <C>
Long-term debt, net of current portion $15,463 $13,463
Stockholder's equity:
Preferred stock, par value $0.01 per share,
5,000,000 shares authorized, none issued - -
Common stock, par value $0.01 per share, 50,000,000 shares authorized,
issued 7,000,715, actual, 50,000,000 shares authorized, issued
8,400,715, as
adjusted 70 84
Additional paid in capital 5,032 9,878
Retained earnings 344 344
------- -------
Total Stockholder's equity $ 5,446 $10,306
------- -------
Total capitalization $20,909 $23,769
------- -------
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
With the exception of historical information, the matters discussed in
this prospectus are "forwardlooking statements" as that term is defined in
Section 21E of the Securities Exchange Act of 1934. Alford cautions you that
actual results could differ materially from those expected by Alford depending
on the outcome of a number of factors, including, without limitation, adverse
changes in the market for Alford's services. You are cautioned not to place
undue reliance on any forward-looking statement. All forwardlooking statements
speak only as of the date of this filing. Alford does not have any obligations
to update or otherwise make any revisions to these statements to reflect events
or circumstances after the date of this filing, including, without limitation,
changes in Alford's business strategy or planned capital expenditures, or to
reflect the occurrence of unanticipated events.
Unless otherwise noted, reference to 1997 and 1998 are to the years
ended December 31 of each year.
Results of Operations
The following table sets forth unaudited information for the periods
indicated, including the dollar amount and percentage of revenues and pre-tax
net income derived from each of the Company's segments (warehouse locations).
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
December 31,
1998 1997 March 31, 1999
------------------------------------------------- ----------------------------------------------------
REVENUES:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dallas $ 9,411,480 53.3% $ 8,129,544 52.1% $2,112,677 58.9% $2,106,422 51.7%
Richardson (1) 2,264,779 12.8% 1,899,151 12.2% 467,313 13.0% 502,612 12.3%
Fort Worth (2) 1,110,884 6.3% 1,005,607 6.4% 269,791 7.5% 259,039 6.4%
La Porte (3) 2,771,127 15.7% 2,500,846 16.0% 665,491 18.5% 674,924 16.6%
Other (4) 2,093,671 11.9% 2,076,258 13.3% 73,430 2.1% 529,383 13.0%
----------- ------ ----------- ------ ---------- ------ ---------- ------
$17,651,941 100.0% $15,611,406 100.0% $3,588,702 100.0% $4,072,380 100.0%
=========== ------ =========== ====== ========== ====== ========== ======
NET INCOME (LOSS):
Dallas $ 1,500,682 127.8% $ 802,032 585.8% $ 210,995 558.2% $ 323,408 182.7%
Richardson (1) 213,996 18.2% 127,413 93.1% 5,807 15.4% 32,814 18.5%
Fort Worth (2) 120,465 10.3% 67,454 49.3% 10,882 28.8% 26,189 14.8%
La Porte (3) 15,012 1.3% (64,734) (47.3%) (18,633) (49.3%) (27,293) (15.4%)
Other (4) (675,879) (57.6%) (795,261) (580.9%) (171,252) (453.1%) (178,128) (100.6%)
----------- ------ ----------- ------ ---------- ------ ---------- ------
$ 1,174,276 100.0% $ 136,904 100.0% $ 37,799 100.0% $ 176,990 100.0%
=========== ====== =========== ====== ========== ====== ========== ======
<FN>
- ---------------------
(1) Richardson began operations on 12/05/96 under Alford's management.
11
<PAGE>
(2) Fort Worth began operations on 1/02/97 under Alford's management.
(3) La Porte was leased and operated up to February 6, 1998 by Alltemp
Logistical Services, LLC which was owned 100% by Mr. Michael Oros, who is
now the President of Alford. Alltemp was sold to Alford's parent which then
exercised an option to purchase the La Porte facility. Alford then leased
the facility beginning February 6, 1998. On November 30, 1998 Alford's
parent contributed its ownership interest in Alltemp to Alford. The
contribution was treated as a merger with an entity under common control.
Accordingly, Alltemp's operations are presented as if the contribution
occurred January 1, 1997.
(4) Includes revenues or losses of a facility in Houston, which was
discontinued in 1998 and expenses associated with the corporate office
(accounting, legal, data processing and administrative).
</FN>
</TABLE>
Three Months Ended March 31, 1999, Compared to Three Months Ended March 31, 1998
Revenues
The Company recorded a net income of $37,799, or $.01 per share for 1999,
as compared to a net profit of $176,990, or $.03 per share for 1998.
Total revenues for the three months ended March 31, 1999 were $3,588,702, a
decrease of $483,678, or 11.9%, compared to revenues of $4,072,380 for the three
months ended March 31, 1998. This decrease in revenues is due primarily to
having discontinued the operation in Houston in 1998. All warehouse locations
maintained approximately the same revenues for 1999 with the exception of
Richardson which decreased by $35,299, or 7.0%.
Operating Costs
Operating costs decreased by $214,868, or 7.9% from 1998 to 1999, due
primarily to the decrease in costs associated with the Houston facility of
$325,741. This overall decrease is generally made up of the net of the following
increases and decreases:
- Wages and benefits remained stable, however the decrease of $176,516 from
the discontinued operation in Houston was offset by an increase in wages at the
Dallas facility of $79,655 and an overall increase in the cost of health and
workers' compensation insurance premiums.
- Utilities decreased by $51,198, or 9.3% primarily due to the discontinued
operation in Houston.
- Insurance decreased by $11,803, or 15.3% primarily due to the favorable
renewal of insurance premiums.
- The remaining decrease in operating costs was due to a multitude of
smaller decreases which on an individual basis are not material.
General and Administrative Expenses
General and administrative expenses increased by $40,947, or 18.5%. This
increase was primarily due to an increase in legal and professional fees of
$38,254, or 57.8%. These fees are associated with legal representation to assist
the Company with the filing a Form 10-SB with the Securities and Exchange
Commission and other matters relating to the reverse merger and preparation for
listing on the NASDAQ stock exchange.
Depreciation, Amortization, Rent and Interest
Depreciation expense increased in the three months ended March 31, 1999 to
$200,757 from $182,551 in 1998 due primarily to the effect of assets acquired in
the last three quarters of 1998. Rent expense decreased by $158,078, or 42.1%
from the three months ended March 31, 1998 to the three months ended March 31,
12
<PAGE>
1999. This decrease was primarily due to the termination of the lease on the
facility in Houston. Interest expense was $356,537 in the three months ended
March 31, 1999, as compared to $325,333 in the three months ended March 31,
1998. This increase of $31,204, or 9.6% was due primarily to the assumption of
$5,400,000 of long-term debt for the purchase of La Porte which occurred in
February of 1998.
Income Tax Expense or Benefit
Income tax expense includes the current federal tax expense and the effect
of deferred taxes related primarily to the difference between book and tax
depreciation on property, plant and equipment. For the three months ended March
31, 1999 and March 31, 1998, the Company recorded income tax expense of $16,666
and $78,564, respectively. The change from 1998 to 1999 is due primarily to
decrease in income before income taxes.
The Company establishes valuation allowances when necessary, in accordance
with the provisions of SFAS 109, "Accounting for Income Taxes", to reduce
deferred tax assets to the amount expected to be realized. Based upon future
income projections, the Company expects to realize the net asset.
Liquidity and Capital Resources
**1 At March 31, 1999, the Company's working capital ratio was .8 to 1
compared to 1.2 to 1 at March 31, 1998. The Company had a working capital
deficit of $740,046 at March 31, 1999, as compared to working capital of
$454,187 at March 31, 1998. The decrease in the Company's working capital ratio
and working capital is primarily due to decreases in cash and cash equivalents
of $809,338 and increases in accrued charges of $150,209 and current maturities
of long-term debt of $105,604.
**2 Net cash provided by operating activities for 1999 totaled $763,717
as compared to $1,264,022 for the three months ended March 31, 1998. The
decrease in net cash provided by operating activities is comprised of the
following factors: net income was $37,799 in 1999 as compared to $176,990 in
1998; deferred tax expense was $15,577 in 1999 as compared to $126,418 in 1998;
prepaid expenses increased $10,584 in 1999 as compared to a decrease of $105,122
in 1998; other assets decreased by only $10,451 in 1999 as compared to $223,493
in 1998; and property taxes payable decreased $355,532 in 1999 as compared to
$31,081 in 1998. These decreases were partially offset by a decrease in accounts
receivable of $436,788 in 1999 as compared to $215,887 in 1998.
**3 Capital expenditures for 1999 were $42,085, compared to $1,131,467 for
1998. The capital expenditures for 1998 included the cash paid on the purchase
of the La Porte facility.
The Company has a line of credit which provides up to $2,500,000, of which
the Company had borrowed $1,340,774 at March 31, 1999. The borrowing base on the
line of credit fluctuates based on reports submitted by the Company to the
lender on an as needed basis. The availability at any time is determined by a
calculation of 80% of the eligible accounts receivable submitted plus 20% of the
cash receipts collected since the last report. The line of credit expires on
December 3, 2001.
**4 Net cash used in financing activities for 1999 totaled $798,788 as
compared to net cash provided by financing activities of $262,580 in 1998, a net
change of $1,061,368. The Company paid $208,603 on the line of credit in 1999 as
compared to receiving $777,951 in advances in 1998. Cash was used to make
principal payments on debt of $388,710 and advances to an affiliate of $201,475
as compared to $244,443 and $270,928 respectively in 1998.
**5 The Company believes that cash flow will be adequate to fund the
Company's working capital requirements.
On May 26, 1999, Alford purchased the Fort Worth facility from Fort Worth
Cold Storage Holdings, Inc. for $2.1 million in cash, provided by a first
mortgage on the property, and 400,000 shares of Alford common stock. The Company
closed this transaction on May 26, 1999. Fort Worth Cold Storage subsequently
sold 100,000 of the shares, and Castor Capital Corporation, an affiliate of
Alford, has entered into an agreement to purchase the remaining 300,000 shares
for $500,000.00. Although Alford issued a note to Fort Worth Cold Storage
Holdings in the principal amount of $500,000.00, this note will be cancelled
upon Castor's purchase of the 300,000 shares. Alternatively, if Alford pays the
note directly, it will receive the 300,000 shares back from Fort Worth Cold
Storage Holdings. The Company has executed an "Exclusive Option Contract" for
the purchase of the Richardson facility for $6,000,000. The option period will
expire on February 22, 2000.
Year Ended December 31, 1998, Compared to Year Ended December 31, 1997
**6 Unless otherwise noted, references to 1997 and 1998 are to the years
ended December 31 of each year.
Revenues
Alford recorded a net profit of $813,276, or $.12 per share for 1998, as
compared to a net profit of $141,497, or $.02 per share for 1997.
Total revenues for 1998 were $17,651,941, an increase of $2,040,535, or
13.1%, compared to revenues of $15,611,406 for 1997. This increase in revenues
is comprised primarily of the following components: Dallas revenues increased by
$1,281,936, or 15.8%; Richardson revenues increased by $365,628, or 19.3%; Fort
Worth revenues increased by $105,277, or 10.5%; and La Porte revenues increased
by $270,281, or 10.8%. Revenues from the facility in Houston, which was
discontinued in 1998, decreased marginally from 1997.
The increases of 15.8% in Dallas and 19.3% in Richardson are due to a
higher utilization of space at each facility. The current senior management team
began working on an aggressive revenue building program when they joined Alford
in December 1996. Continued increases are projected for 1999 as Alford continues
its efforts to increase utilization. The Fort Worth facility has approximately
30% of the warehouse space leased to a tenant, which accounted for approximately
32% of the revenues for 1998 and 25% of the revenues for 1997. The revenue
earning capability of this facility is stabilized by this constant flow of
revenue and increases in revenue are more dependant on the efficient utilization
of the remaining warehouse capacity. La Porte came under current management's
control in February 1998. Although the revenue increases from 1997 to 1998
exceeded 10%, management believes that the true earning capability of La Porte
will not be realized until at least 1999.
Operating Costs
Operating costs increased by $754,843, or 7.0% from 1997 to 1998, due
primarily to the increase in related sales. This overall increase is generally
made up of the net of the following increases and decreases:
- Wages and benefits increased by $643,320, or 11.6% primarily due to
increases in warehouse utilization which in turn necessitated increased
employment levels.
13
<PAGE>
- Utilities increased by $261,986, or 11.1% primarily due to the
abnormally high outside temperatures during 1998 which contributed to
increased consumption of electricity.
- Insurance decreased by $56,512, or 14.6% primarily due to the
consolidation of La Porte under corporate insurance policies in 1998.
- The remaining decrease in operating costs was due to a multitude of
smaller decreases which on an individual basis are not material.
General and Administrative Expenses
General and administrative expenses decreased by $267,622, or 20.3%. This
decrease was primarily due to a decrease in legal and professional fees of
$226,514, or 57.4%.
Depreciation, Amortization, Rent and Interest
Depreciation expense increased in 1998 to $776,569 from $545,732 in 1997
due primarily to the purchase of La Porte and the capitalization of lease assets
and obligations. Rent expense decreased by $146,424, or 8.5% from 1997 to 1998.
This decrease was primarily due to the purchase of La Porte in 1998 and the
closing of the leased facility in Houston. Interest expense was $1,462,318 in
1998, as compared to $1,030,789 in 1997. This increase of $431,529, or 41.9% was
due primarily to the assumption of $5,400,000 of long-term debt for the purchase
of La Porte and the higher utilization of the line of credit.
Income Tax Expense or Benefit
Income tax expense or benefit includes the current federal tax expense or
benefit and the effect of deferred taxes related primarily to the difference
between book and tax depreciation on property, plant and equipment. For the
years ended December 31, 1998 and December 31, 1997, Alford recorded income tax
expense of $361,000 and an income tax benefit of $4,593, respectively. The
change from 1998 to 1997 is due to an increase in taxable income and deferred
tax expense related to the utilization of net operating losses which became
available in 1998 after the merger with Robco.
Alford establishes valuation allowances when necessary, in accordance with
the provisions of SFAS 109, "Accounting for Income Taxes," to reduce deferred
tax assets to the net deferred tax asset expected to be realized. Alford had
potential net operating loss carryforward of approximately $8,332,000 and
$9,703,000 for the years ended December 31, 1998 and December 31, 1997,
respectively. A valuation allowance of $1,676,000 exists for both years for net
operating loss carryforwards not anticipated to be realized before expiration.
Based upon future income projections, Alford expects to realize the net asset.
Liquidity and Capital Resources
At December 31, 1998, the Company's working capital ratio was .9 to 1 compared
to 1.3 to 1 at December 31, 1997. The Company had a working capital deficit of
$241,219 at December 31, 1998, as compared to working capital of $681,778 at the
end of 1997. The decrease in the Company's working capital ratio and working
14
<PAGE>
capital is primarily due to decreases in cash and cash equivalents of $337,047
and federal income tax receivable at $127,629 and increases in property taxes
payable at $294,704 and current maturities of long-term debt in the amount of
$384,285. These decreases are offset in party by an increase in accounts
receivable of $188,443. The increase in accounts receivable and property taxes
payable are primarily due to addition of La Porte in 1998. The increase in
current maturities of long-term debt is primarily due to the assumption of a
note payable of $5,400,000 for the purchase of La Porte and the capitalization
of lease assets and obligations of $1,191,228.
Net cash provided by operating activities for 1998 totaled $2,119,211 as
compared to net cash used in operating activities of $91,878 for the year ended
1997. The increase in net cash provided by operating activities is comprised of
the following factors: net income was $813,276 in 1998 as compared to $141,497
in 1997; depreciation expense was $776,569 in 1998 as compared to $545,732 in
1997; deferred tax expense was $296,000 in 1998 as compared to deferred tax
benefit of $6,593 in 1997; prepaid expense decreased $459,058 in 1998 as
compared to $294,517 in 1997; accounts payable increased $116,068 in 1998 as
compared to a decrease of $87,826 in 1997; and property taxes payable increased
$294,704 in 1998 as compared to $186,158 in 1997. These increases were partially
offset by a decrease in notes payable of $522,254 in 1998 as compared to
$280,659 in 1997. In 1997 there were other material decreases in net cash
provided by operating activities due to an increase in deposits and escrows of
$552,506 and an increase in other assets of $511,827. There was no material
change in these categories in 1998.
Capital expenditures for 1998 were $1,417,965, compared to $746,579 for
1997. The increase of $671,386 was due primarily to the cash paid on the
purchase of the La Porte facility.
The Company has a line of credit which provides up to $2,500,000, of which
the Company had borrowed $1,549,377 at December 31, 1998. The borrowing base on
the line of credit fluctuates based on reports submitted by the Company to the
lender on an as needed basis. The availability at any time is determined by a
calculation of 80% of the eligible accounts receivable submitted plus 20% of the
cash receipts collected since the last report. The line of credit expires on
December 3, 2001.
Net cash used in financing activities for 1998 totaled $1,038,293 as
compared to net cash provided by financing activities of $697,062 in 1997, a net
change of $1,735,355. Financing activities in 1997 included mortgage financing
on the Dallas facility for $8,100,000 and a term loan of $1,207,160. The Company
also received $678,165 in advances on the line of credit. Cash was used to make
principal payments on debt of $5,758,195 and advances to an affiliate of
$3,922,472. In 1998 financing activities consisted of advances on the line of
credit in the amount of $1,021,212. Cash was used to make principal payments on
debt of $1,261,464 and advances to an affiliate of $798,041.
During 1998, the Company's parent assumed $2,600,000 of the notes payable
outstanding as of January 1, 1998 as a settlement of a portion of the notes
payable due to the Company. The Company has guaranteed this obligation which
totaled $2,350,000 at December 31, 1998. The Company believes that the
collateral pledged by its parent is adequate to cover the debt in case of a
default and has not recorded a liability in the financial statements related to
this guarantee.
The company believes that cash flow supplemented by the Company's positive
cash position will be adequate to fund the Company's working capital require-
ments.
Year 2000
The Company, like many companies, faces the "Year 2000" issue. This is a
result of computer programs being written using two digits rather than four to
define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations, including, among other things a temporary
inability to process transactions or engage in similar normal business
activities. The Company recognizes that it must take action to ensure that its
operations will not be adversely impacted by Year 2000 software failures.
The Company has conducted a comprehensive review of its computer systems to
identify the impact of the "Year 2000" issue. The Company has developed a plan
to address the problem and is currently implementing the changes identified in
the plan. During 1998 the Company replaced one of its computer processors to
handle the Year 2000 compliant software. The software used by the Company is
provided by a third party who has assured the company that its latest version is
15
<PAGE>
Year 2000 compliant. The fees associated with the licensing of the latest
version were paid in 1996. Implementation of the software is expected late in
the second quarter of 1999. The remaining costs associated with the
implementation are not expected to have a material effect on the Company or its
results of operations. The total cost associated with the remediation plan is
currently estimated to be less than $180,000, most of which was incurred in 1996
and 1998.
The Company has maintained correspondence with many of the Company's
significant customers and suppliers. To date, the Company is not aware of any
third party customer or supplier with a "Year 2000" issue that would materially
impact the Company's results of operations, liquidity or capital resources.
However, the Company has no means of ensuring that all third parties will be
"Year 2000" ready.
The Company has reviewed its non-information technology and systems that
may include embedded chips for Year 2000 compliance. The Company's assessments
indicate that due to the nature of the Company's operations, these technology
systems do not represent an area of material risk relative to Year 2000
readiness.
Fluctuations in Operating Results; Seasonality
Generally sales volumes are lowest at the beginning of the fiscal year and
grow steadily to a peak in the fourth quarter.
Environmental Matters
The Company is not aware of any environmental liability relating to its
facilities or operations that would have a material adverse effect on the
Company, its business, assets or results of operations.
Inflation
Inflation has not historically had a material effect on the Company's
operations, and is not expected to have a material impact on the Company in the
future.
Accounting Matters
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information". SFAS No.
131 establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected financial information about operating
segments in interim financial reports to shareholders. It also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. The disclosure requirements of SFAS No. 131 are effective
for financial statements for financial years beginning after June 15, 2000. The
Company has complied with the disclosure requirements of SFAS No. 131 in its
financial statements for fiscal year ended December 31, 1998 and December 31,
1997.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". This statement
standardized the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an entity
recognize those items as assets or liabilities in the statement of financial
position and measure them at fair value. The statement generally provides for
matching the timing of gain or loss recognition on the hedging instrument with
the recognition of (a) the changes in fair value of hedged asset or liabilities
that are attributable to the hedged risk or (b) the earnings effect of the
16
<PAGE>
hedged forecasted transaction. The statement is effective for all fiscal
quarters for all fiscal years beginning after June 15, 2000, with early
application encouraged, and shall not be applied retroactively to financial
statements of prior periods. Adoption of SFAS No. 133 is expected to have no
effect on the Company's financial statements.
17
<PAGE>
THE BUSINESS
Alford believes that it is the largest public refrigerated warehousing
operation in the southwest United States. Alford operates a network of four
strategically located refrigerated warehouse facilities in Texas, with a total
area of 1,500,000 sq. ft. or 32,000,000 cu. ft. of storage space. Alford's
principal executive office is located at 318 Cadiz Street, Dallas, Texas 75207
and its telephone number is (214) 426-5151.
Alford's public warehouse business consists of providing customers, which
include food processors, distributors, wholesalers and retailers, with
temperature controlled storage services and a full range of logistics management
and other value-added services such as (i) blast freezing of fresh products,
(ii) repackaging and labeling of food products, (iii) order picking and load
consolidation, (iv) cross-docking, (v) container handling, (vi) importing and
exporting services, (vii) USDA approved storage and inspection services, and
(viii) Federal Government inspected facility for export.
Alford is a third party service provider and as such does not purchase the
inventory that it stores. When Alford receives products for storage, it provides
the customer with a nonnegotiable warehouse receipt. At that time, the customer
pays for one month of storage and handling based upon the type and amount of
product accepted at the beginning of the 30 day period. Alford's inventory
control system monitors the product by type of product and by lot number. To
remove any product from storage, the customer places an order with Alford,
Alford removes the product from the warehouse for the customer and provides the
customer with a bill of lading. If there is any product remaining in storage at
the end of the 30 day period, Alford bills the customer for an additional 30
days of storage.
In addition to its public warehouse business, Alford leases refrigerated
space to approximately 28 tenants who manage their own inventory and logistics
functions and use their own equipment and personnel. In almost all cases, the
tenant pays all of the expenses, except for utilities and property taxes which
are included in the rent. The terms of the leases may be month to month or as
long as five years. Alford does not allow tenants to make any special
modifications to the leased space without Alford's prior approval. For the year
ended December 31, 1998 public warehouse customers represented over 93% of
Alford's revenue, the remainder of which was attributable to leased space. For
the year ended December 31, 1997, public warehouse customers represented
approximately 92% of Alford's revenue.
Alford is designing and planning the construction of a 4,000,000 cubic foot
addition to its Cadiz Street facility in Dallas, Texas. Alford anticipates that
the new addition will contain a blast freezing capacity of 400,000 lbs. per day
and storage at -20(degree)F.
The Industry
The public refrigerated warehousing industry provides refrigerated
warehousing, inventory management and logistics services to food processors,
distributors and retailers of frozen and chilled foods during the period between
production and consumption. In the food industry, there is a period between
production and consumption as well as a continuing shift by individual food
processors, distributors and retailers from owning their refrigerated storage
facilities to outsourcing their warehousing requirements, inventory management
and logistics functions to operators of public refrigerated warehousing
businesses who are generally more economical providers of such services.
Historically, public refrigerated warehousing growth has been steady and
non-cyclical. Although the overall U.S. food industry has been growing at the
rate of population growth, according to a U.S. Department of Agriculture report
dated January of 1998, the public refrigerated warehousing industry has been
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<PAGE>
growing more rapidly than the population, at an average compound annual growth
rate of 4.5% per year over the past 10 years.
Customers
Alford had approximately 600 customers during the three months ended March
31, 1999, the 12 months ended December 31, 1998 and the 12 months ended December
31, 1997. Alford's customers include a broad base of national, regional and
local food processors, distributors, wholesalers and retailers. The current
customer base includes Pilgrim's Pride, Nabisco Food, M & M Mars, Kroger Co.,
Maple Leaf Foods, Borden Dairy, Chef America, Dairy Farmers of America and many
others. During the twelve months ended December 31, 1998, no customer accounted
for more than 10% of Alford's revenues. During the twelve months ended December
31, 1997, Nabisco Food accounted for approximately 12% of Alford's revenues.
Competition; Growth Potential
The United States public refrigerated warehousing market is highly
fragmented. According to the International Association of Refrigerated
Warehouses, the 10 largest public refrigerated warehousing firms represent less
than 40% of the available public refrigerated warehousing space. Public
refrigerated warehousing facilities in the United States are typically owned by
strong local or regional operators with one to four facilities representing two
to 14 million cubic feet of public refrigerated warehousing space which, on
average, generate direct profit contribution margins of 40%. Many of these
companies are family-owned businesses without successors active in the
management of the business. Based on past experience with such owners and the
dynamics of the industry, the Company believes that many of these businesses can
be acquired at attractive cash flow multiples.
Sales and Marketing
Alford's marketing and sales efforts are integrated across all levels of
management. Senior management has the responsibility for major customers,
including all national accounts. In addition, customers in each region are
serviced by regional general managers who work with sales and marketing
professionals to plan and execute regional business development strategies. At
the local level, individual facility managers are responsible for developing and
maintaining long-term relationships with customers.
Alford's management and sales professionals are aggressively pursuing
business development opportunities that arise from natural market growth as
sales of frozen foods increase and the trend towards the use of public
refrigerated warehouse services continues. Management believes that by taking an
active role in the management and coordination of its customers' inventories and
by providing a broader range of logistics services, the Company will maintain
its competitive advantage over the long term.
Suppliers
Alford's largest expenses are labor and utilities. It is not dependent upon
any one supplier for raw materials. The majority of Alford's maintenance
services are provided primarily by its own employees.
Employees
As of March 31, 1999, Alford had a total of 188 employees, all of whom are
full-time employees. Of these employees, approximately 136 were employed at the
Dallas, Texas facility which includes its corporate offices, 28 were employed at
the La Porte facility, 17 were employed at the Richardson facility and seven
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<PAGE>
were employed at the Fort Worth facility. None of the employees are represented
by a labor union.
Government Regulation
Alford's operations are subject to federal, state and local laws,
regulations and ordinances relating to the storage, handling, emission,
transportation and discharge of certain materials and various other health and
safety matters. These laws include the Clean Air Act, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, and the Resource
Conservation and Recovery Act. For example, Alford uses anhydrous ammonia in its
operations. In addition, Alford uses a type of refrigerant which is no longer
being produced because of government regulations. Alford is in the process of
modifying its equipment and believes that all of its equipment will be able to
use a new type of refrigerant by the end of 1999. Alford's operations also are
governed by laws and regulations relating to workplace safety and worker health,
principally the Occupational Safety and Health Act and the regulations
thereunder.
Governmental authorities have the power to enforce compliance with their
regulations, and violators may be subject to fines, injunctions or both. Alford
believes that it is currently in substantial compliance with all such applicable
laws and regulations. Alford cannot at this time estimate the impact of any
increased regulation on Alford's operations, future capital expenditure
requirements or the cost of compliance.
In addition to regulating Alford directly, Alford's customers are subject
to certain regulations relating to the import and export of food products.
Alford maintains an approved USDA inspection room on site at three of its four
facilities for the benefit of its customers.
Research
Alford generally does not spend any material amount of its resources on
research and development. Rather, it is a member of the Refrigeration Research
and Education Foundation which is an organization that was founded in 1943 as a
scientific and educational foundation for the following purposes:
o advance the application of refrigeration technology for better
preservation of food and commodities;
o develop and support research in the science of refrigeration;
o cooperate with government and private institutions in research
activities;
o train and educate refrigerated warehouse/distribution personnel; and
o establish and make available a repository of scientific information
specific to the industry.
Licenses, Permits and Product Registrations
Alford uses certain licenses and registrations in its operations. For
example, Alford has a perpetual license for the use of certain software from
Maves International Software, Inc. Alford uses this software for inventory
control and financial reporting. Alford is not required to pay any additional
royalties on the software, however, Alford periodically purchases upgrades to
the software.
In addition, Alford Distribution Services, Inc., a wholly owned subsidiary
of Alford is licensed by the Texas Alcoholic Beverage Commission to store
products containing alcohol. Alford Distribution Services is required to post a
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bond each year to maintain this license which is subject to revocation,
modification and renewal each year by the commission.
For the benefit of its customers, Alford maintains a room at three of its
four facilities that is approved by the USDA for use in connection with the
inspection of food products.
Alford's trademark, a penguin, is registered with the patent trademark
office. This registration is periodically subject to renewal.
Properties
Set forth below is information with respect to Alford's principal
properties. The industry measures space in cubic feet instead of square feet
because cost projections include facility height to account for refrigeration
and stacked cooled product. Alford believes that all of these properties are
adequately insured, in good condition and suitable for their anticipated future
use.
<TABLE>
<CAPTION>
Lease
Location Primary Use Approximate Size Owned/Lease Expiration Date
- -------- ----------- ---------------- ----------- ---------------
<S> <C> <C> <C> <C>
Dallas, Texas Corporate office 24,000,000 cubic Owned N/A
& Warehouse feet on 52 acres
La Porte, Texas Warehouse 4,500,000 cubic feet Owned N/A
on 32.3 acres
Richardson, Texas Warehouse 3,200,000 cubic feet Leased Dec. 31,2007
on 12.4 acres
Fort Worth, Texas Warehouse 1,550,000 cubic feet Owned N/A
on 13.5 acres
</TABLE>
Dallas, Texas
Alford has 18 tenants at its Dallas, Texas facility. Of these, no tenant
occupies ten percent or more of the rentable cubic footage of the facility.
Alford itself uses a majority of the total cubic feet of the facility as a
public refrigerated warehouse. A majority of the Dallas, Texas facility is used
for refrigerated warehousing purposes. The remainder is used for public dry
storage and for Alford's corporate offices.
The Dallas, Texas facility is subject to a 10 year fixed rate mortgage in
the original principal amount of $8,100,000 which accrues interest at 8.4% per
year. As of January 20, 1999, Alford owed approximately $7,893,859 on the
mortgage which matures on or about October 1, 2007. At that time, assuming no
prepayments, Alford will owe approximately $5,682,578.
Alford currently plans to begin construction in 1999 on a 4,000,000
cubic-foot addition to its facility in Dallas, Texas. The estimated cost of the
improvements is approximately $8,000,000 which amount most likely will be
financed by a conventional mortgage or sale of convertible debentures in
addition to cash flow and the issuance of Alford's common shares.
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<PAGE>
La Porte, Texas
Alford has three tenants at its La Porte facility. Of these, no tenant
occupies ten percent or more of the rentable cubic footage of the facility.
Alford itself uses a majority of the total cubic feet of the facility as a
public refrigerated warehouse.
This property is subject to a 10 year fixed rate mortgage in the original
principal amount of $5,400,000 which accrues interest at 8.36% per year. As of
January 20, 1999, Alford owed approximately $5,352,494 on the mortgage which
matures on or about March 1, 2008. At that time, assuming no prepayments, Alford
will owe approximately $4,511,799.
Richardson, Texas
Alford has three subtenants at its Richardson facility. Alford has executed
an exclusive option contract for the purchase of this property for $6,000,000.
Alford has received a term sheet from a bank, subject to due diligence, to
finance the purchase of the property in an amount up to 70% of the property's
appraised value. Alford hopes to close this transaction by the end of the third
quarter of 1999.
Fort Worth, Texas
As of December 31, 1998, Alford had four tenants at its Ft. Worth facility.
Of these, Kroger Co. accounted for approximately 30% of the space in the
facility. The lease between Alford and Kroger Co. is for a one year term with
provisions for annual renewal.
On May 26, 1999 Alford purchased the Fort Worth facility from Fort Worth
Cold Storage Holdings, Inc. for $2.1 million in cash, provided for by a first
mortgage on the property, and 400,000 shares of Alford common stock. Fort Worth
Cold Storage subsequently sold 100,000 of the shares, and Castor Capital
Corporation, an affiliate of Alford, has entered into an agreement to purchase
the remaining 300,000 shares for $500,000.00. Although Alford issued a note to
Fort Worth Cold Storage Holdings in the principal amount of $500,000.00, this
note will be cancelled upon Castor's purchase of the 300,000 shares.
Alternatively, if Alford pays the note directly, it will receive the 300,000
shares back from Fort Worth Cold Storage Holdings.
Legal Proceedings
Alford is not a party to any legal actions or proceedings that it believes
will have a material adverse effect on its business, results of operations or
financial position.
WHERE YOU CAN GET MORE INFORMATION
If you want more information, write or call us at:
Alford Refrigerated Warehouses, Inc.
318 Cadiz Street
Dallas, Texas 75207
Telephone: (214) 426-5151
Our fiscal year ends on December 31. We presently are required to file
annual, quarterly and current reports, proxy statements and other information
with the Securities and Exchange Commission, and to furnish our shareholders
annual reports containing audited financial statements and other appropriate
reports. You may read and copy any reports, statements or other information we
file at the SEC's public reference room in Washington D.C. You can request
copies of these documents, upon payment of a duplicating fee by writing to the
SEC. You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. Our SEC filings are also available to the
public on the SEC Internet site at http://www.sec.gov.
This prospectus contains information concerning Alford as of December 31,
1998 unless another date is specified. The delivery of this prospectus at any
time does not constitute a representation that the information contained in it
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<PAGE>
is correct as of any other date, and the delivery of this prospectus shall not
imply that there has not been a change in the business or affairs of Alford
since that date. No dealer, salesman or other person has been authorized to
furnish information or to make any representations other than what is set forth
in this prospectus. You should not rely on any information or representation
other than the information set forth in this prospectus.
MANAGEMENT
Set forth below is certain information regarding the directors, executive
officers and significant employees of Alford. Each of the directors of Alford
will serve until the next annual meeting of shareholders or until his successor
is elected and qualified. Executive officers of Alford are elected by the Board
of Directors to hold office until their respective successors are elected and
qualified.
Name Age Position(s)
Alton M. Adams 60 Chief Executive Officer
Michael A. Oros 63 President
James C. Williams 41 Vice President, Chief
Financial Officer,
Secretary, Treasurer
and Director
Joseph Y. Robichaud 71 Director
Kenneth M. Tomilson 65 Director
Set forth below is a description of the backgrounds of the directors,
executive officers and significant employees of Alford.
Joseph Y. Robichaud has served as a Director of Alford since December 1996
and from March 1994 to July 1995. Mr. Robichaud is also on the board of
directors and serves as the chairman and chief executive officer of Castor
Capital Corporation. From 1966 to 1995, Mr. Robichaud was chairman and,
indirectly, principal shareholder of Odyssey Industries, Inc., which was the
sole shareholder of Associated Freezers of Canada, Inc., an operating company in
the business of owning and operating frozen food warehousing facilities in
Canada and Australia. In 1994, a dispute arose between Odyssey and its bank
lender concerning currency exchange rates affecting the repayment of Odyssey's
loan. At the request of the bank, a receiver was appointed for Odyssey and the
receiver subsequently placed Odyssey into bankruptcy and sold the profitable
operations of Associated Freezers of Canada, Inc. Mr. Robichaud received his
Bachelor of Science degree in Civil Engineering from the University of New
Brunswick in 1950. Mr. Robichaud is the brother-in-law of Mr. Tomilson.
Kenneth M. Tomilson has served as a Director of Alford since December 1996.
Mr. Tomilson is also the president of Castor Capital Corporation and has served
in that position since 1995. From 1964 to the present, Mr. Tomilson has served
as president of Engineering Design & Construction Managers Ltd. which provides
design services, engineering, construction supervision and management for low
and high-rise residential, commercial and industrial buildings, food processing
and refrigerated warehousing. Prior to 1995, Mr. Tomilson was vice president and
a director of Odyssey Industries, Inc. In 1994, a dispute arose between Odyssey
and its bank lender concerning currency exchange rates affecting the repayment
of Odyssey's loan. At the request of the bank, a receiver was appointed for
Odyssey and the receiver subsequently placed Odyssey into bankruptcy and sold
the profitable operations of Associated Freezers of Canada, Inc. Mr. Tomilson is
a member of The Canadian Standards Association Technical Committee responsible
for setting standards and formulating codes for mechanical refrigeration in
Canada. Mr. Tomilson graduated from the University of New Brunswick with a
Bachelor of Science degree in Civil Engineering in 1958. Mr. Tomilson is the
brother-in-law of Mr. Robichaud and is also the brother-in-law of Mr. Adams.
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<PAGE>
Alton M. Adams has served as the Chief Executive Officer of Alford since
January 1997. Mr. Adams also currently serves as vice president of Castor
Capital Corporation, a position which he has held since September 1995. From
April 1995 to April 1996, Mr. Adams served as president of Polar Corp
International. From 1984 to 1995, he served as president of Associated Freezers
of Canada, Inc., and during that time, was also a director of Odyssey
Industries, Inc., which was the sole shareholder of Associated Freezers of
Canada, Inc. In 1994, a dispute arose between Odyssey and its bank lender
concerning currency exchange rates affecting the repayment of Odyssey's loan. At
the request of the bank, a receiver was appointed for Odyssey and the receiver
subsequently placed Odyssey into bankruptcy and sold the profitable operations
of Associated Freezers of Canada, Inc. Mr. Adams graduated from the University
of New Brunswick with a Bachelor of Science degree in Electrical Engineering in
1960, earned a master of science degree in 1963 in Electrical Engineering from
Queen's University and a master of arts degree in Political Science from
Canadian Forces Staff College in 1968.
Michael A. Oros has served as President of Alford since January 1997. He
also served as its chief operating officer from January 1997 until December
1998. From 1986 until 1996, Mr. Oros served as president and chief operating
officer of Associated Freezers, Inc. Mr. Oros is a member of International
Association of Refrigerated Warehousemen, the North Texas Warehouse Association,
the American Frozen Food Institute, the Meat Importers Council, the Southwest
Meat Association and the National Frozen Food Association.
James C. Williams has served as Vice President, Chief Financial Officer,
Secretary and Treasurer of Alford since December 1996. Prior to that time, from
October 1995 until April 1997, Mr. Williams served as vice president of finance
for Castor Capital Corporation and from June 1987 until October 1995 as the
controller for Associated Freezers of Canada, Inc. Mr. Williams is on the Maves
Advisory Board. He graduated from the University of Waterloo Co-op Program in
1982 with a bachelor of mathematics degree. Mr. William's degree included a
major in mathematics and minors in computer science and accounting.
Due to the broad experience of Alford's executive officers, directors and
key personnel in the refrigerated warehousing industry, Alford does not believe
that the loss of any one of them would have a material adverse effect on its
business. None of the executive officers currently have an employment agreement
with Alford, however, Mr. Adams has a consulting contract which automatically
renews on an annual basis and provides for a fee of $8,000 per month for
services rendered.
Committees of the Board of Directors
The Board of Directors does not have any committees at this time.
Compensation of Directors and Executive Officers
Executive Compensation
The following table sets forth the cash and non-cash compensation paid by
Alford to its chief executive officer and its most highly compensated executive
officers receiving more than $100,000 for services to Alford for the fiscal
years ended December 31, 1998, 1997 and 1996. Other than the persons named
below, none of Alford's other officers or directors received cash or non-cash
compensation in excess of $100,000 for the fiscal year ended December 31, 1998.
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<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
Name and ------------------------------- ------------ All Other
Principal Position Year Salary Bonus Options Compensation(1)
- ------------------ ---- ------ ------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Mr. Adams 1998 - - - 96,000
Chief Executive Officer 1997 - - - 96,000
1996 N/A - - -
Mr. Oros 1998 100,000 25,000 - -
President 1997 100,000 25,000 - -
1996 N/A - - -
<FN>
- -----------------------------
(1) These amounts were paid pursuant to a consulting contract and were paid by
Alford directly to Mr. Adams in 1997 and to Castor Capital Corporation
which paid Mr. Adams in 1998.
</FN>
</TABLE>
In addition to the officers listed above, Mr. George Gilman served as the
president and secretary of Hilltop Acquisition Holding Corporation from February
18, 1998 until December 15, 1998 when it merged with Alford. Mr. Timothy T.
Halter served as president and secretary of Hilltop Acquisition Holding
Corporation prior to Mr. Gilman. Neither Mr. Gilman nor Mr. Halter received any
compensation for services rendered to Hilltop from 1996 through 1998.
Director Compensation
Directors who are employees of Alford will not receive additional
compensation for serving as directors. Independent directors will receive an
annual fee to be established by the Board of Directors and a fee of $500 for
attending each meeting of the Board of Directors or any committee of the Board
of Directors. All directors will be reimbursed for out-of-pocket expenses
incurred in attending meetings and for other expenses incurred in performing in
their capacity as directors.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of the date of this
prospectus, and as adjusted to reflect the sale by Alford of 1,000,000 shares
and the sale by Castor Capital Corporation of 2,500,000 shares, with regard to
the beneficial ownership of common stock by (i) each person known to Alford to
be the beneficial owner of 5% or more of its outstanding common stock, (ii) the
officers and directors of Alford individually, and (iii) the officers and
directors of Alford as a group. All addresses are in care of Alford, 318 Cadiz
Street, Dallas, Texas 75207.
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<TABLE>
<CAPTION>
Name Number of Shares Owned Actual As Adjusted
<S> <C> <C> <C>
Joseph Y. Robichaud(1) 6,551,372 93.6% 48.2%
Castor Capital Corporation 6,551,372 93.6% 48.2%
Directors and executive 6,551,372 93.6% 48.2%
officers as a group (5 persons)
<FN>
- -------------------------
(1) All of these shares are held by Castor Capital Corporation. The sole
shareholder of Castor is the Robichaud Family Trust, of which Mr. Robichaud
is the trustee. Mr. Robichaud is also the chairman and chief executive
officer of Castor.
</FN>
</TABLE>
Castor Capital Corporation is the owner of approximately 93.6% of the
outstanding shares of the common stock (48.2% assuming the sale of all 1,000,000
shares offered by Alford and all 2,500,000 shares offered by Castor) and as such
is able to elect the board of directors and determine the outcome of other
matters requiring shareholder action without the concurrence of any other
shareholder. The sole shareholder of Castor Capital Corporation is the Robichaud
Family Trust, of which Mr. Robichaud is trustee. Mr. Robichaud is also the
chairman and chief executive officer of Castor.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On or about December 1, 1996, Alford entered into an agreement with Canfina
AG, a company organized under the laws of Switzerland, and J. Eichmann to repay
existing loans to Canfina AG in the original principal amount of $6,700,000 and
to purchase all of the shares of stock of Alford owned by Mr. J Eichmann in
exchange for $2,000,000. As of December 1, 1996, Mr. Eichmann owned 5,000 shares
(the equivalent of 3,275,686 shares after the reverse merger) or 50% of the
issued and outstanding capital stock of Alford. On or about December 4, 1997,
Alford paid to Mr. Eichmann $2,000,000 in exchange for rights to the Eichmann
shares using funds obtained through a term note and line of credit. Alford's
rights to the Eichmann shares were subsequently transferred by Alford to
Alford's parent, Castor Capital Corporation, in exchange for a $2,000,000 note
receivable. On or about December 15, 1998, in connection with the reverse merger
of Alford with and into Hilltop, the Eichmann shares were converted into
3,275,686 shares of the surviving corporation, all of which are being held in
escrow pending the final payment due to Mr. Eichmann in December 2001. As of
March 31, 1999 and December 31, 1998, the outstanding principal balance on the
note was $2,287,500 and $2,350,000 respectively. Castor Capital Corporation has
assumed the liability for this note.
On or about February 6, 1998, Alford leased a warehouse facility in La
Porte, Texas at market rates from La Porte Properties, LLC, a Texas limited
liability company, which was a wholly owned subsidiary of Alltemp Logistical
Services, L.L.C., a Texas limited liability company. At that time, Alltemp was a
wholly owned subsidiary of Castor Capital Corporation. Effective November 30,
1998, Alltemp was merged with and into Alford.
In 1997, Alford made two loans to its parent, Castor Capital Corporation.
On or about September 17, 1997, Alford loaned Castor $1,500,000, and on or about
December 4, 1997, Alford loaned Castor $2,000,000. Each of these loans is
evidenced by a promissory note bearing interest at a rate of eight percent per
annum. The notes are due December 31, 2000 and December 31, 2002. As of March
31, 1999, the total amount of principal and interest payable to Alford by Castor
pursuant to these two notes was $1,710,442. Mr. Robichaud, a Director of Alford,
is the trustee of the Robichaud Family Trust which is the sole shareholder of
Castor Capital Corporation.
26
<PAGE>
In 1997 and 1998, Alford paid to Associated Freezers, Inc. an aggregate of
$475,903 for the rights to certain trademarks consisting of a penguin and the
name Associated Freezers, Inc. At that time, Associated Freezers, Inc. was
indirectly owned 100% by Mr. Robichaud. Effective November 30, 1998, Associated
Freezers, Inc. was merged with and into its parent which was then merged with
and into Alford.
Engineering Design & Construction Managers Ltd. is a company which
specializes in the design, construction and maintenance of refrigerated
warehouse facilities. Engineering Design is owned in equal proportions by Mr.
Robichaud, Mr. Tomilson, Mr. Adams and Mr. Paul Haines. It has provided
maintenance services to Alford for which it billed Alford on a per diem basis.
Alford and Engineering Design are in the process of formalizing a new agreement
which was made effective as of January 1, 1999. Pursuant to this new five year
maintenance contract, Engineering Design will provide professional engineering
and maintenance services for Alford's four facilities for a fee of $200,000 per
year.
Castor Capital Corporation owns approximately 93.6% of Alford's issued and
outstanding common stock. Assuming the sale by Alford of all 1,000,000 shares it
is offering pursuant to this offering and Castor's sale of all 2,500,000 shares
it is offering, its ownership would drop to 48.2%. Mr. Robichaud, a Director of
Alford, is the trustee of the Robichaud Family Trust which owns all of the
issued and outstanding stock of Castor Capital Corporation.
DESCRIPTION OF SECURITIES
General
Alford's authorized capital stock consists of 50,000,000 shares of common
stock and 5,000,000 shares of preferred stock, par value $.01 per share.
Common Stock
Each share of common stock entitles the holder thereof to one vote on all
matters on which holders are permitted to vote. No shareholder has any
preemptive right or other similar right to purchase or subscribe for any
additional securities issued by Alford, and no shareholder has any right to
convert common stock into other securities. No shares of common stock are
subject to redemption or to any sinking fund provisions. All of the outstanding
shares of common stock are fully paid and nonassessable.
Subject to rights of holders of preferred stock, if any, the holders of
shares of common stock are entitled to dividends when, as and if declared by the
Board of Directors from funds legally available therefor and, upon liquidation,
to a pro rata share in any distribution to shareholders. Alford does not
anticipate declaring or paying any cash dividends on the Common Stock in 1999.
Alford's current bank loan agreement requires the bank's prior written consent
for the payment of dividends.
Preferred Stock
Pursuant to Alford's Amended and Restated Articles of Incorporation, the
Board of Directors has the authority, without further shareholder approval, to
provide for the issuance of up to 5,000,000 shares of preferred stock in one or
more series and to determine the dividend rights, conversion rights, voting
rights, rights and terms of redemption, liquidation preferences, the number of
shares constituting any such series and the designation of such series. Because
the Board of Directors has the power to establish the preferences and rights of
each series, it may afford the holders of any preferred stock preferences,
powers and rights (including voting rights) senior to the rights of the holders
27
<PAGE>
of common stock. No shares of preferred stock are currently outstanding.
Although Alford has no present intention to issue shares of preferred stock, the
issuance of shares of preferred stock, or the issuance of rights to purchase
such shares, may have the effect of delaying, deferring or preventing a change
in control of Alford.
Provisions Having a Possible Anti-takeover Effect
Alford's Amended and Restated Articles of Incorporation and Bylaws contain
certain provisions that are intended to enhance the likelihood of continuity and
stability in the composition of the Board of Directors of Alford and in the
policies formulated by the Board and to discourage certain types of transactions
which may involve an actual or threatened change of control of Alford. The
provisions are designed to reduce the vulnerability of Alford to an unsolicited
proposal for a takeover of Alford or an unsolicited proposal for the
restructuring or sale of all or part of Alford. The provisions also are intended
to discourage certain tactics that may be used in proxy fights.
The Board will have the authority, without further action by the
shareholders, to issue up to 5,000,000 shares of Alford's preferred stock in one
or more series and to fix the rights, preferences, privileges and restrictions
thereof, and to issue over 41,599,285 additional shares of common stock. The
issuance of Alford's preferred stock or additional shares of common stock could
adversely affect the voting power of the holders of common stock and could have
the effect of delaying, deferring or preventing a change in control of Alford.
Limitation of Liability of Directors
The Amended and Restated Articles of Incorporation provide that, to the
fullest extent permitted by applicable law, a director of Alford shall not be
liable to Alford or its shareholders for monetary damages for an act or omission
in the director's capacity as a director. This provision does not eliminate the
duty of care, and, in appropriate circumstances, equitable remedies such as
injunctive or other forms of non-monetary relief will remain available under
Texas law. In addition, each director will continue to be subject to liability
for breach of the director's duty of loyalty to Alford, for acts or omissions
not in good faith or involving intentional misconduct, for knowing violations of
law, for actions leading to improper personal benefit to a director and for acts
or omissions for which a director is made expressly liable by applicable
statute, such as the improper payment of dividends. The limitations on liability
provided for in the Amended and Restated Articles of Incorporation do not
restrict the availability of non-monetary remedies and do not affect a
director's responsibility under any other law, such as the federal securities
laws or state or federal environmental laws. Alford believes that these
provisions will assist Alford in attracting and retaining qualified individuals
to serve as executive officers and directors.
The inclusion of these provisions in the Amended and Restated Articles of
Incorporation, may have the effect of reducing the likelihood of derivative
litigation against directors and may discourage or deter shareholders or
management from bringing a lawsuit against directors for breach of their duty of
care, even though such an action, if successful, might otherwise have benefitted
Alford and its shareholders.
Bylaw Provisions and Amendment of Bylaws
The Board of Directors of Alford, acting by a majority of directors then in
office, may fill any vacancy or newly created directorship, provided that the
Board of Directors may not fill more than two newly created directorships
between successive annual meetings of the shareholders. The Bylaws provide that
a special meeting of the shareholders may be called only by the President, the
Chairman of the Board of Directors, or the holders of not less than ten percent
of all shares entitled to vote at such meeting. The Bylaws provide that the
power to amend or repeal the Bylaws or to adopt new Bylaws is vested in the
28
<PAGE>
Board of Directors, but is subject to the right of the shareholders to amend or
repeal the Bylaws or to adopt new Bylaws.
29
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, Alford will have outstanding 8,400,715
shares of common stock. The 3,900,000 shares of common stock proposed to be sold
in the offering will be freely tradeable in the public market without
restriction or further registration under the Securities Act, except for any
shares acquired by "affiliates" of Alford as that term is defined in Rule 144
("Rule 144") promulgated under the Securities Act. Of the remaining 4,500,715
shares of common stock of Alford to be outstanding following this offering,
4,143,372 are deemed to be "restricted securities" within the meaning of Rule
144 and may be publicly resold only if registered under the Securities Act or
sold in accordance with an eligible exemption from registration, such as Rule
144. Of the restricted shares, 92,000 will be available for resale in the public
market commencing on or about December 1999, subject to certain volume and other
restrictions under Rule 144. The remaining restricted shares are held by
affiliates of the Company.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated), including an affiliate of Alford,
who beneficially owns restricted securities acquired from Alford or an affiliate
of Alford at least one year prior to the sale is entitled to sell within any
three-month period a number of shares that does not exceed the greater of the
following:
o 1% of the then outstanding shares of common stock, and
o the average weekly reported trading volume of the common stock during the
four calendar weeks immediately preceding the date on which notice of such
sale is filed with the Securities and Exchange Commission, provided manner
of sale and notice requirements and requirements as to the availability of
current public information concerning Alford are satisfied.
Under Rule 144(k), a person who has not been an affiliate of Alford for a period
of three months preceding a sale of securities by him, and who beneficially owns
restricted securities acquired from Alford or an affiliate of Alford at least
two years prior to the sale, would be entitled to sell the shares without regard
to volume limitations, manner of sale provisions, notification requirements or
requirements as to the availability of current public information concerning
Alford.
Shares held by persons who are deemed to be affiliates of Alford, including
any shares acquired by affiliates in the offering, are subject to volume
limitations, manner of sale provisions, notification requirements and
requirements as to the availability of current public information concerning
Alford, regardless of how long the shares have been owned or how they were
reacquired. In addition, the sale of any restricted securities beneficially
owned by an affiliate of Alford and not registered under the Securities Act is
subject to the one-year holding requirement of Rule 144. As defined in Rule 144,
an affiliate of an issuer is a person that directly or indirectly through the
use of one or more intermediaries, controls, or is controlled by, or is under
common control with, such issuer. Approximately 48.2% of the common stock of
Alford after the distribution will be beneficially owned by Castor Capital
Corporation, an affiliate of Alford. These shares will be regarded as
unrestricted shares held by an affiliate and therefor subject to the provisions
of Rule 144, other than the holding period requirement of Rule 144(d). If Castor
Capital Corporation ceases to be an affiliate of Alford those shares would be
marketable under Rule 144(k) three months thereafter.
Prior to the offering, the common stock has been traded on the pink sheets.
No prediction can be made as to the effect, if any, that the sale of shares or
the availability of shares for sale will have on the market price prevailing
from time to time. Nevertheless, sales of substantial amounts of the common
stock in the public market could adversely affect prevailing market prices and
the ability of Alford to raise equity capital in the future.
30
<PAGE>
TRANSFER AGENT
Alford's transfer agent is Securities Transfer Corporation, 16910 Dallas
Parkway, Suite 100, Dallas, Texas 75248.
LEGAL MATTERS
Jenkens & Gilchrist, A Professional Corporation, 600 Congress Avenue, Suite
2200, Austin, Texas 78701, has acted as legal counsel to Alford in connection
with this prospectus and related matters.
EXPERTS
The financial statements and schedules included in this prospectus and in
the registration statement have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their reports appearing elsewhere herein and in the registration statement, and
are included in reliance upon such reports given upon the authority of said firm
as experts in auditing and accounting.
31
<PAGE>
FINANCIAL STATEMENTS
Index to Consolidated Financial Statements
Report of Independent Certified Public Accountants F-2
Consolidated balance sheets of December 31, 1998 and 1997 and
March 31, 1999 (unaudited) F-3
Consolidated statements of operations for the years ended
December 31, 1998 and 1997 and for the three months
ended March 31, 1999 (unaudited) F-4
Consolidated statements of stockholders' equity for the years
ended December 31, 1998 and 1997 and for the months
ended March 31, 1999 (unaudited) F-5
Consolidated statements of cash flows for the years ended
December 31, 1998 and 1997 and for the three months
ended March 31, 1999 (unaudited) F-6
Notes to consolidated financial statements F-7 - F-20
F-1
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors of
Alford Refrigerated Warehouses, Inc.
We have audited the accompanying consolidated balance sheets of Alford
Refrigerated Warehouses, Inc. and Subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the years then ended. 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. The financial
statements give retroactive effect to certain mergers which occurred in 1998 as
described in Note 1 to the financial statements.
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 presentation of the financial
statements. 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 Alford
Refrigerated Warehouses, Inc. and Subsidiaries as of December 31, 1998 and 1997,
and the consolidated results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
BDO Seidman, LLP
March 9, 1999
Dallas, Texas
F-2
<PAGE>
<TABLE>
<CAPTION>
ALFORD REFRIGERATED WAREHOUSES, INC.
Consolidated Balance Sheets
Note (1)
December 31, March 31,
----------------------------------------------------
1998 1997 1999
- --------------------------------------------------------------------------------------------------------------------
(unaudited)
Assets
<S> <C> <C> <C>
Current
Cash and cash equivalents (Note 7) $ 109,517 $ 446,564 $ 32,361
Accounts receivable 2,008,239 1,819,796 1,571,451
Prepaid expense 250,045 313,281 459,899
Income tax receivable (Note 4) 6,000 133,629 6,000
Escrows (Note 5) 522,072 474,657 205,386
- -------------------------------------------------------------------------------------------------------------------
Total current assets 2,895,873 3,187,927 2,275,097
- -------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net (Notes 3 and 5) 18,757,679 11,525,055 18,599,008
Due from affiliates (Note 2) 2,213,079 4,015,038 2,414,554
Deferred tax asset, net (Note 4) 221,961 579,961 206,384
Other assets 454,178 342,357 443,727
Deposits 173,640 178,966 220,898
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 24,716,410 $ 19,829,304 $ 24,159,668
- -------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current
Accounts payable $ 555,491 $ 439,423 $ 809,541
Property taxes payable 666,747 372,043 311,216
Accrued charges 724,671 862,353 663,239
Notes payable (Note 5) 117,768 144,200 273,261
Current maturities of long-term debt (Note 5) 1,072,415 688,130 957,886
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 3,137,092 2,506,149 3,015,143
- -------------------------------------------------------------------------------------------------------------------
Deferred revenue 224,308 158,112 234,500
Long-term debt, less current maturities (Notes 2 and 5) 14,396,572 11,851,093 14,122,391
Line of credit (Note 5) 1,549,377 728,165 1,340,774
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 19,307,349 15,243,519 18,712,808
- -------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 6)
Stockholders' equity (Notes 1 and 10):
Preferred stock, par value $0.01 per share;
5,000,000 shares authorized; none issued - - -
Common stock, par value $0.01 per share;
50,000,000 shares authorized; issued 7,000,715
in 1998 and 6,552,087 in 1997 70,007 65,521 70,007
Additional paid-in capital 5,032,395 5,026,881 5,032,395
Retained earnings (deficit) 306,659 (506,617) 344,458
- -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 5,409,061 4,585,785 5,446,860
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 24,716,410 $ 19,829,304 $ 24,159,668
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
ALFORD REFRIGERATED WAREHOUSES, INC.
Consolidated Statements of Operations
Note (1)
Years ended December 31, Three months ended March 31,
---------------------------------------------------------
1998 1997 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
Warehouse Revenues (Note 7) $ 17,651,941 $ 15,611,406 $ 3,588,702 $ 4,072,380
- ---------------------------------------------------------------------------------------------------------------------
Operating costs 11,611,227 10,856,384 2,497,410 2,712,278
Direct Profit Contribution 6,040,714 4,755,022 1,091,292 1,360,102
- ---------------------------------------------------------------------------------------------------------------------
General and Administrative Expenses 1,050,422 1,318,044 262,033 221,086
Depreciation, Rent and Interest Expenses:
Depreciation 776,569 545,732 200,757 182,551
Rent 1,577,129 1,723,553 217,500 375,578
Interest 1,462,318 1,030,789 356,537 325,333
- ---------------------------------------------------------------------------------------------------------------------
Total Depreciation, Rent and Interest Expenses 3,816,016 3,300,074 774,794 883,462
- ---------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 1,174,276 136,904 54,465 255,554
Income Tax Expense (Benefit) (Note 4) 361,000 (4,593) 16,666 78,564
- ---------------------------------------------------------------------------------------------------------------------
Net Income $ 813,276 $ 141,497 $ 37,799 $ 176,990
- ---------------------------------------------------------------------------------------------------------------------
Basic and Diluted Earnings Per Share -
Net income $ 0.12 $ 0.02 $ 0.01 $ 0.03
- ---------------------------------------------------------------------------------------------------------------------
Weighted Average -
Common shares used in computing earnings per share 6,572,982 6,552,087 7,000,715 6,552.087
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
ALFORD REFRIGERATED WAREHOUSES, INC.
Consolidated Statements of Stockholders' Equity
Note (1)
Common Stock Additional Retained
----------------------------- Paid-in Earnings Stockholders'
Shares Amount Capital (Deficit) Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 6,552,087 $ 65,521 $ 5,026,881 $ (648,114) $ 4,444,288
Net income - - - 141,497 141,497
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 6,552,087 65,521 5,026,881 (506,617) 4,585,785
Issuance of 448,628 shares in
connection with reverse merger (Note 1) 448,628 4,486 5,514 - 10,000
Net income - - - 813,276 813,276
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 7,000,715 70,007 5,032,395 306,659 5,409,061
Net income, three months ended March 31,
1999 (unaudited) - - - 37,799 37,799
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1999 (unaudited) 7,000,715 $ 70,007 $ 5,032,395 $ 344,458 $ 5,446,860
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
ALFORD REFRIGERATED WAREHOUSES, INC.
Consolidated Statements of Cash Flows
Note (1)
Increase (Decrease) in Cash and Cash Equivalents
Years ended December 31, Three months ended March 31,
------------------------- ----------------------------
1998 1997 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
Operating Activities:
Net income $ 813,276 $ 141,497 $ 37,799 $ 176,990
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation expense 776,569 545,732 200,757 182,551
Deferred income taxes 296,000 (6,593) 15,577 126,418
Changes in operating assets and liabilities:
Accounts receivable (188,443) (98,230) 436,788 215,887
Prepaid expenses 459,058 294,517 (10,584) 105,122
Deposits and escrows (42,089) (552,506) 269,428 303,850
Income tax receivable 127,629 97,047 0 58,629
Other assets (39,821) (511,827) 10,451 223,493
Accounts payable 116,068 (87,826) 254,050 294,321
Property taxes payable 294,704 186,158 (355,531) (31,081)
Accrued charges (37,682) 91,641 (61,432) (249,323)
Notes payable (522,254) (280,659) (43,777) (190,683)
Deferred revenue 66,196 89,171 10,192 47,848
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 2,119,211 (91,878) 763,718 1,264,022
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Used In Investing Activities -
Capital expenditures (1,417,965) (746,579) (42,086) (1,131,467)
- ---------------------------------------------------------------------------------------------------------------------
Financing Activities:
Due from affiliates (798,041) (3,922,472) (201,475) (270,928)
Funds borrowed 1,021,212 10,377,729 (0) 777,951
Principal payments on debt (1,261,464) (5,758,195) (597,313) (244,443)
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (1,038,293) 697,062 (798,788) 262,580
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (337,047) (141,395) (77,156) 395,135
Cash and cash equivalents, beginning of year 446,564 587,959 109,517 446,564
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 109,517 $ 446,564 $ 32,361 $ 841,699
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
The accompanying consolidated financial statements of Alford Refrigerated
Warehouses, Inc. and consolidated entities (the "Company") have been prepared in
conformity with generally accepted accounting principles, the most significant
of which are described in Note 1 "Summary of Significant Accounting Policies".
These, along with the remainder of the Notes to Consolidated Financial
Statements, are an integral part of the consolidated financial statements. The
data presented in the Notes to Consolidated Financial Statements are as of
December 31 of each year and for the year then ended, unless otherwise
indicated. Certain balances for 1997 have been reclassified to conform to the
1998 presentation. Shares and per share data have been restated for the reverse
stock split effected December 1998, as discussed in the following section,
"Description of the Merger with Alford."
1. Summary of
Significant
Accounting
Policies
Description of
the Merger
with Alford
Alford Refrigerated Warehouses, Inc., a Texas corporation
formerly known as Hilltop Acquisition Holding Corporation,
and prior to that, as Optical Acquisition Corp. (the
"Company"), was originally incorporated in October 1992
under the laws of the state of Delaware.
The Company filed a bankruptcy petition on September 21,
1995 and filed the First Amended Joint Plan of
Reorganization (the "Plan") on July 9, 1996. The United
States Bankruptcy Court for the Northern District of Texas,
Dallas Division (the "Court") entered an order approving the
Plan on August 9, 1996. The Plan was modified pursuant to an
order of the Court on February 28, 1997.
The Plan provided for the liquidation of the Company's
assets and distribution of the proceeds to secured, priority
and unsecured creditors. The Plan further provided that the
Company would remain in existence, although all capital
stock outstanding as of the Petition Date was canceled The
Company was reincorporated in the State of Texas in
September 1997.
As contemplated in the Plan, the Company, which had no
operations or significant assets at the time, had undertaken
a business strategy to seek out and consummate an
acquisition or merger transaction.
On or about December 15, 1998, the Company merged with
Alford Refrigerated Warehouses, Inc. ("Alford") pursuant to
an Agreement and Plan of Merger dated November 23, 1998 by
and among Hilltop, Womack Gilman Investment Services, L.C.,
Halter Financial Group, Inc. and Alford (the "Merger
Agreement"). In accordance with the terms of the Merger
Agreement, Alford was the surviving corporation. Immediately
prior to the merger, Hilltop amended its Articles of
Incorporation to effect a reverse stock split so that each
F-7
<PAGE>
share of Hilltop's issued and outstanding common stock was
automatically converted into .625 of a fully paid and
nonassessable share of Hilltop's common stock. Pursuant to
the terms of the Merger Agreement, each share of common
stock of Alford was automatically converted into the right
to receive 655.1372 shares of the common stock of the
Company. In addition, the Articles of Incorporation and the
Bylaws of Alford became the Articles of Incorporation and
Bylaws of the Company, the directors and officers of Alford
became the directors and officers of the Company, and the
Company changed its name to Alford Refrigerated Warehouses,
Inc. The transaction is considered a reverse merger.
Application of reverse merger accounting results in the
following:
1. The consolidated financial statements of the combined
entity are issued under the name of the legal parent,
Alford Refrigerated Warehouses, Inc. (formerly
Hilltop), but the entity is considered a continuation
of the legal subsidiary, Alford.
2. As Alford is deemed to be the acquirer for accounting
purposes, its assets and liabilities are included in
the consolidated financial statements of the continuing
entity at their carrying values.
3. Amounts presented for periods prior to December 1998
are those of Alford, the legal subsidiary. All shares
for periods prior to December 31, 1998, have been
retroactively adjusted as if a stock split had
occurred.
4. Costs related to the transaction with the Company were
expensed during 1998.
Merger of
Affiliated
Entities
with Alford
In November 1998, certain affiliated entities of Alford were
merged into Alford. These entities, including Robco
Industries, Inc. ("Robco") and Alltemp Logistical Services,
LLC ("Alltemp") are in the same line of business as the
Company and, by virtue of their ultimate ownership, are
considered to be entities under common control with the
Company. Accordingly, these mergers were accounted for in a
manner similar to a pooling of interests and the balance
sheets, statements of operations, stockholders' equity and
cash flows give retroactive effect to the mergers as if they
occurred as of the beginning of the earliest period
presented. The operations of Robco and Alltemp are
insignificant to total operations.
Description of
Business and
Revenue
Recognition
The Company's public warehouse business consists of
providing customers, which include food processors,
distributors, wholesalers and retailers, with temperature
controlled storage services and a full range of logistics
management and other value-added services such as (i) blast
freezing of fresh products, (ii) repackaging and labeling of
food products, (iii) order picking and load consolidation,
(iv) cross docking , (v) container handling, (vi) importing
and exporting services, (vii) USDA approved storage and
F-8
<PAGE>
inspection services, and (viii) Federal Government inspected
facility for export.
The Company is a third party service provider and as such
does not purchase the inventory that it stores. When the
Company receives products for storage, it provides the
customer with a nonnegotiable warehouse receipt. At that
time, the customer pays for one month of storage and
handling based upon the type and amount of product accepted
at the beginning of the 30 day period. The prepayment is
accounted for as deferred revenue. The Compan y's inventory
control system monitors the product by type of product and
by lot number. In order to remove any product from storage,
the customer places an order with the Company, the Company
removes the product from the warehouse for the customer and
provides the customer with a bill of lading. Revenue is
recognized ratably throughout the storage period and billed
monthly.
In addition to its public warehouse business, the Company
leases refrigerated space to approximately 28 tenants who
manage their own inventory and logistics functions and
utilize their own equipment and personnel. In almost all
cases, the tenant pays all of the expenses, except for
utilities and property taxes which are included in the rent.
The terms of the leases may be month to month or as long as
five years. The Company does not allow tenants to make any
special modifications to the leased space without the
Company's prior approval. For the year ended December 31,
1998, public warehouse cus tomers represented over 93
percent of the Company's revenue, the remainder of which was
attributable to leased space.
Basis of
Presentation
The consolidated financial statements include the accounts
of Alford Refrigerated Warehouses, Inc. and its wholly owned
subsidiaries: Alford Logistical Services, Inc. ("ALS"),
Thermix Corporation ("Thermix"), Specialty Processing
Corporation ("SPC"), Alford Terminal Warehouses, Inc.
("ATW"), Alford Distribution Services, Inc. ("ADS"), Cadiz
Properties, Inc. ("Cadiz"), and La Porte Properties, LLC
("LPP"). All intercompany transac tions and balances have
been eliminated.
Set forth below is information with respect to certain of
the Company's properties. The industry measures space in
cubic feet instead of square feet because cost projections
include facility height to account for refrigeration and
stacked cooled product.
<TABLE>
<CAPTION>
Approximate Lease
Primary Size Owned/ Expiration
Location Use (Unaudited) Lease Date
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dallas, Texas Corporate office 24,000,000 cubic Owned N/A
& Warehouse feet on 52 acres
La Porte, Texas Warehouse 4,500,000 cubic Owned N/A
feet on 32.3 acres
Richardson, Texas Warehouse 3,200,000 cubic Leased Dec. 31, 2007
feet on 12.4 acres
Fort Worth, Texas Warehouse 1,550,000 cubic Leased Jan. 31, 2000
feet on 13.5 acres
</TABLE>
F-9
<PAGE>
Interim
Financial
Information
Cash and Cash
Equivalents
The financial information as of March 31, 1999 and for the
three months ended March 31, 1998 and 1999 is unaudited. In
the opinion of management, such information contains all
adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the
results for such periods. Results for interim periods are
not necessarily indicative of results to be expected for an
entire year.
For purposes of reporting the consolidated statements of
cash flows, the Company considers all highly liquid
investments purchased with an original maturity of three
months or less to be cash equivalents.
Property, Plant
and Equipment
Property, plant and equipment are stated at cost, less
accumulated depreciation. The cost of additions and
improvements are capitalized, while maintenance and repairs
are charged to expense when incurred.
Depreciation of property, plant and equipment is calculated
using the straight-line method. The estimated depreciable
lives range from three to seven years for most machinery and
equipment and 31.5 years for buildings.
Leased property meeting certain criteria is capitalized and
the present value of the related lease payments is recorded
as a liability. Amortization of capitalized leased assets is
computed on the straight-line method over the term of the
lease.
Realization of long-lived assets is periodically assessed by
the Company to determine if an impairment of the carrying
value of the assets has occurred. If impairment exists, an
impairment loss is recognized, by a charge against earnings,
equal to the amount by which the carrying amount of the
asset exceeds the fair value of the asset. If impairment of
an asset is recognized, the carrying amount of the asset is
reduced by the amount of the impairment, and a new cost for
the asset is established. Such new cost is depreciated over
the asset's remaining useful life.
Income Taxes
The Company used the asset and liability approach for
accounting for income taxes. Deferred income taxes are
recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities
and their financial reporting amounts at each year-end based
on enacted tax laws and statutory tax rates applicable to
the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount
F-10
<PAGE>
exected to be realized. Income tax expense is the tax
payable for the period and the change during the period in
deferred tax assets and liabilities.
Use
of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles (GAAP) 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 results
could differ from these estimates.
Earnings Per
Share
Income per share is computed based upon the weighted average
number of shares of Common Stock outstanding during each
year adjusted for the reverse stock split effected November
1998. The Company adopted SFAS 128, Earnings Per Share,
effective for 1997. The adoption had no impact on the
financial statements of the Company.
Supplementary pro forma net income per share for the year
ended December 31, 1998 and the three months ended March 31,
1999 of $0.12 and $0.03, respectively, is based upon the
weighted number of shares of common stock used in the
calculation of pro forma net income per share increased by
the sale of 444,444 shares at the offering price of $4.50
per share, the proceeds of which would be used to repay
approximately $2,000,000 of the Company's existing debt.
2. Related
Party
Transactions
On December 1, 1996, the Company entered into an agreement
("the Agreement") with Canfina AG and J. Eichmann to repay
existing loans and to purchase Mr. Eichmann's Company stock.
The Agreement terms consisted of the following:
$1,700,000 loan repayment to Canfina AG on December 31, 1996
$3,000,000 loan repayment to Canfina AG on June 11, 1997
$2,000,000 payment to Mr. Eichmann no later than December
13, 1997 in consideration for his shares of Company stock
(see below).
$2,600,000 term note due December 2001 secured by shares of
the Company's common stock held in escrow (Note 4).
The Company made the first payment of $1,700,000 as
scheduled. On September 15, 1997, the Company modified the
Agreement with Mr. Eichmann whereby the interest rate on the
$2,600,000 note increased from 8 percent to 9 percent in
exchange for an extension on the due date of the $3,000,000
payment. The second payment of $3,000,000 due to Mr.
Eichmann was made by use of certain proceeds from an
$8,100,000 loan from Morgan Guaranty Trust Company of New
York. On December 4, 1997, the Company paid Mr. Eichmann
$2,000,000 in exchange for rights to his shares in
accordance with the Agreement using funds obtained through a
term note and line of credit with Nations Credit Commercial
Corporation (Note 5). These rights were assigned to the
Company's parent, Castor Capital Corporation ("Castor") in
exchange for a $2,000,000 note receivable (see below).
During 1998, Castor assumed $2,600,000 of the aforementioned
amounts due Eichmann as settlement of a portion of the notes
payable due the Company.
During 1998, the Company advanced Castor a total of
$834,868. As a part of the aforementioned settlement of the
Castor notes payable due the Company, $771,509 of these
advances were settled.
F-11
<PAGE>
On February 5, 1998, the Company loaned an affiliate
$714,362 as evidenced by a promissory note payable to the
Company at the rate of 8 percent per annum due December 31,
1999. During November 1998, the $714,362 receivable was
eliminated upon the merger of the affiliated entity with
Alford.
The Company's due from affiliates consists of the following
at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
December 31, March 31,
----------------------------------------------------
Description 1998 1997 1999
- ------------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
8% promissory note from Castor, secured by 500,000 shares of the Company
common stock, balance of principal and accrued interest due December
31, 2002 $ 1,676,655 $ 2,007,452 $ 1,710,442
8% unsecured promissory note from Castor, balance of principal and accrued
interest due December 31, 2000 - 1,534,521 -
Advances to Castor 396,424 333,065 564,112
Advances to affiliate 140,000 140,000 140,000
- ------------------------------------------------------------------------------------------------------------------------------------
$ 2,213,079 $ 4,015,038 $ 2,414,554
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3. Property,
Plant and
Equipment
The Company's property, plant and equipment consists of the
following:
F-12
<PAGE>
<TABLE>
<CAPTION>
December 31, March 31,
----------------------------------------------------
1998 1997 1999
- ------------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
Land $ 4,939,136 $ 4,265,389 $ 4,939,136
Building 12,707,043 7,183,415 12,731,890
Machinery and equipment 2,656,873 2,036,283 2,674,112
Machinery and equipment
under capital leases 1,595,040 403,812 1,595,040
- ------------------------------------------------------------------------------------------------------------------------------------
21,898,092 13,888,899 21,940,178
Less accumulated depreciation 3,140,413 2,363,844 3,341,170
- ------------------------------------------------------------------------------------------------------------------------------------
Total $18,757,679 $11,525,055 $18,599,008
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Depreciation expense for the years ended December 31, 1997
and 1998 and the three months ended March 31, 1998 and 1999
was $545,732, $776,569, $182,551 and $200,757 respectively
Included in accumulated depreciation is $307,184, $240,385
and $40,500 of accumulated depreciation related to machinery
and equipment under capital leases at March 31, 1999,
December 31, 1998 and 1997, respectively.
4. Income
Taxes
Income tax expense (benefit) for the years ended December
31, 1998 and 1997 was as follows:
1998 1997
------------------------------------------------------------
Current tax expense $ 65,000 $ 2,000
Deferred tax expense (benefit) 296,000 (6,593)
------------------------------------------------------------
Total tax expense (benefit) $361,000 $(4,593)
------------------------------------------------------------
A reconciliation between the actual income tax expense and
income taxes computed by applying the statutory federal
income tax rate to earnings before income taxes follows:
1998 1997
------------------------------------------------------------
Computed income taxes, at 34 percent $399,000 $ 51,000
Change in valuation allowance -- (57,593)
Franchise taxes 16,000 2,000
Other, net (54,000) --
------------------------------------------------------------
$361,000 $ (4,593)
------------------------------------------------------------
The net deferred tax asset is partially offset by a deferred
tax liability which consists primarily of the difference
between book and tax depreciation on property, plant and
equipment. Differences between book and tax depreciation
F-13
<PAGE>
were approximately $2,763,000 and $3,081,000 at December 31,
1998 and 1997, respectively. The deferred tax liability was
calculated at the federal tax rate of 34 percent.
The net deferred tax asset includes amounts relating to the
carryforward of prior year net operating losses (NOL) which
have expiration dates ranging from 2003 through 2006. At
December 31, 1998 and 1997, the Company had potential NOL
carryforwards of approximately $8,332,000 and $9,703,000,
respectively. A valuation allowance of $1,676,000 exists for
both years for NOL carryforwards not anticipated to be
realized before expiration. Management believes realization
of the entire net asset is more likely than not based on
future income projections. The deferred tax asset was
calculated at the federal tax rate of 34 percent.
The Company's estimated effective tax rate for the three
months ended March 31, 1999 was approximately 31%. This rate
is lower than the Federal and State statutory rates due to
various immaterial differences between book income and
taxable income.
5. Notes
Payable,
Long-
Term
Debt, and
Line of
Credit
Notes payable consist of various notes due to insurers with
principal totaling $117,768 and $144,200 at December 31,
1998 and 1997, respectively. The notes accrue interest at
various rates; principal and interest are due monthly.
The Company's long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, March 31,
----------------------------------------------------
Description 1998 1997 1999
- ------------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
8.4% Morgan Guaranty Trust Company of New York note, monthly payments of
principal and interest of $69,782, remaining balance of principal and
accrued interest due October, 2007, secured by the land and
improvements and certain other property and equipment
at the Company's Cadiz Street facility. $ 7,908,283 $ 8,073,745 $ 7,864,708
8.36% Amresco Capital, L.P. note, monthly payments of principal and interest
of $42,974, remaining balance of principal and interest due March,
2008, secured by the land and improvements and certain other property
and equipment at the Company's La Porte, Texas facility. 5,355,641 - 5,338,588
Obligations under capital leases,
maturity dates ranging from 1999
through 2002. 1,086,504 419,475 971,571
F-14
<PAGE>
Nations Credit Commercial Corporation term note, prime plus 5% (12.75% at
December 31, 1998), monthly principal payments of $20,119 plus accrued
interest, remaining principal and accrued interest due December 3,
2001, secured by selected equipment and guaranties from Castor, ALS,
Thermix, SPC, ATW, and ADS. 965,760 1,207,160 905,410
Other 152,799 238,843 -
9% J. Eichmann note, quarterly principal payments from second to fifth
year of $62,500, remaining principal and accrued interest due December
2001, secured by common stock held in escrow (Note 2). - 2,600,000 -
- ------------------------------------------------------------------------------------------------------------------------------------
15,468,987 12,539,223 15,080,277
Current maturities (1,072,415) (688,130) (957,886)
- ------------------------------------------------------------------------------------------------------------------------------------
$14,396,572 $11,851,093 $14,122,391
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Maturities of long-term debt follows:
Year ended December 31,
- --------------------------------------------------------------------------------
1999 $ 1,072,415
2000 814,894
2001 1,020,587
2002 445,376
2003 350,639
Thereafter 11,765,076
- --------------------------------------------------------------------------------
$ 5,468,987
- --------------------------------------------------------------------------------
Included in the above maturities of long-term debt are
capital lease principal payments of approximately $443,000
in 1999, $280,000 in 2000, $241,000 in 2001 and $123,000 in
2002.
The Morgan Guaranty Trust Company of New York ("Morgan")
note requires the establishment of certain escrow accounts.
Morgan restricts the use of the funds to the designated
purpose of the accounts in accordance with the terms of the
note.
F-15
<PAGE>
The loan agreement with Nations Credit Commercial
Corporation ("Nations") contains various restrictive
covenants. Certain covenants were in technical default at
December 31, 1998. The Company obtained waivers pertaining
to these defaults from Nations permitting the payments made
to affiliates during 1998 and the capital additions in
excess of allowed limits, as restricted by the loan
agreement.
Effective January 1, 1998, Castor assumed the $2,600,000
note payable to Eichmann (see Note 2). The Company
guaranteed the repayment of the note payable to Eichmann.
The Company has a line of credit with Nations Credit
Commercial Corporation which provides up to $2,500,000
through December 3, 2001 at prime (7.75 percent at December
31, 1998) plus 5 percent. Interest is payable monthly, and
all unpaid but accrued interest and principal is due at
maturity. The line of credit is secured by guaranties from
Castor, ALS, Thermix, SPC, ATW, and ADS.
Subsequent to March 31, 1999 the Company incurred additional
debt, associated with the purchase of the Fort Worth
facility, in the amount of $2,600,000 of which $2,100,000 is
due May 1, 2002. The remaining $500,000 is due May 19, 2000.
Castor has an agreement with the Seller of the Fort Worth
facility to purchase the common shares of Alford held in the
Seller's name for $500,000 on or before May 19, 2000, at
which time the $500,000 note will be canceled. The
additional debt is secured by a first and second lien on the
Fort Worth property.
6. Commitments
and
Contingencies
The Company rents certain real estate and equipment under
operating leases. The leases do not provide for any
significant renewals; and, except for insignificant leases
and as discussed below, there are no existing purchase
options. Rent expense was $1,577,129, $1,723,553 , $375,578
and $217,500 for the years ended December 31, 1998 and 1997
and the three months ended March 31, 1998 and 1999,
respectively.
Future minimum rental payments required under operating
leases that have initial or remaining noncancelable lease
terms in excess of one year at December 31, 1998, were:
Year ended December 31, Amount
------------------------------------------------------------
1999 $ 881,130
2000 630,384
2001 600,000
2002 600,000
2003 600,000
Thereafter 2,400,000
------------------------------------------------------------
$ 5,711,514
------------------------------------------------------------
From time to time, in the normal course of business, the
Company is a party to various matters of litigation.
Management is of the opinion that the eventual resolution of
these matters will not have a material adverse effect on the
Company.
The Company has guaranteed an obligation of Castor to Mr. J.
Eichmann (see Note 5). At March 31, 1999 and December 31,
1998, this obligation totaled $2,287,500 and $2,350,000,
respectively. No liability has been recorded in the
financial statements related to this guarantee.
F-16
<PAGE>
On May 26, 1999, Alford purchased the Fort Worth facility
from Fort Worth Cold Storage Holdings, Inc. for $2.1 million
in cash, provided by a first mortgage on the property, and
400,000 shares of Alford common stock. Fort Worth Cold
Storage subsequently sold 100,000 of the shares, and Castor
Capital Corporation, an affiliate of Alford, has entered
into an agreement to purchase the remaining 300,000 shares
for $500,000.00. Although Alford issued a note to Fort Worth
Cold Storage Holdings in the principal amount of
$500,000.00, this note will be cancelled upon Castor's
purchase of the 300,000 shares. Alternatively, if Alford
pays the note directly, it will receive the 300,000 shares
back from Fort Worth Cold Storage Holdings. The Company has
executed an "Exclusive Option Contract" for the purchase of
the Richardson facility for $6,000,000. The option period
will expire on February 22, 2000.
7. Concentration
of Credit Risk
At March 31, 1999, December 31, 1998 and 1997, the Company
had bank deposits in excess of federally insured limits of
approximately $-0-, $45,000 and $134,000, respectively.
The Company derived 12 and 10 percent of its revenue from
two customers, respectively, in 1997. During 1998, no single
customer provided greater than 10 percent of the Company's
revenues. The Company closely monitors the creditworthiness
of its customers and does not believe that it is dependent
upon any single customer.
8. Supplemental
Cash Flow
Information
Cash paid for interest during the years ended December 31,
1998 and 1997 and the three months ended March 31, 1998 and
1999 was approximately $1,385,000 $800,000, $300,000 and
$275,000, respectively. Cash paid for income taxes during
the three months ended March 31, 1999 and 1998 and the years
ended December 31, 1998 and 1997 was approximately $20,000,
$6,000, $6,000 and $-0-, respectively.
Noncash investing and financing activity during 1998 and
1997 consists of the following:
<TABLE>
<CAPTION>
December 31, March 31,
----------------------------------------------------
1998 1997 1999
- ------------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
Financing of various insurance policies (Note 5) $ 395,822 $ 418,022 $ 199,270
Capitalization of leased assets and obligations (Note 5) 1,191,228 403,812 -
Debt reduction in exchange for receivable reduction (Note 2) 2,600,000 - -
Assumption of debt related to acquisition of property, plant and equipment in
LaPorte, Texas 5,400,000 - -
Issuance of common shares for services, pursuant to merger agreement 10,000 - -
</TABLE>
9. Rental
Income
Under
Operating
Leases
The Company's operations include the leasing of space to
third parties in the Company's commercial warehouses. The
following is a schedule of minimum future rental income on
non-cancelable operating leases at December 31, 1998:
F-17
<PAGE>
Year ended December 31, Amount
------------------------------------------------------------
1999 $ 519,262
2000 99,215
2001 73,685
2002 39,600
2003 3,300
------------------------------------------------------------
$ 735,062
------------------------------------------------------------
10. Description
of
Securities
Each share of Common Stock entitles the holder thereof to
one vote on all matters on which holders are permitted to
vote. No shareholder has any preemptive right or other
similar right to purchase or subscribe for any additional
securities issued by the Company, and no shareholder has any
right to convert Common Stock into other securities. No
shares of Common Stock are subject to redemption or to any
sinking fund provisions. All of the outstanding shares of
Common Stock are fully paid and nonassessable.
Subject to rights of holders of Preferred Stock, if any, the
holders of shares of Common Stock are entitled to dividends
when, as and if declared by the Board of Directors from
funds legally available therefor and, upon liquidation, to a
pro rata share in any distribution to shareholders. The
Company does not anticipate declaring or paying any cash
dividends on the Common Stock in 1999. The Company must
obtain approval from its lenders prior to paying dividends
in order to remain in compliance with various loan
covenants.
Pursuant to the Company's Amended and Restated Articles of
Incorporation, the Board of Directors has the authority to
provide for the issuance of up to 5,000,000 shares of
Preferred Stock in one or more series and to determine the
dividend rights, conversion rights, voting rights, rights
and terms of redemption, liquidation preferences, the number
of shares constituting any such series and the designation
of such series. Because the Board of Directors has the power
to establish the preferences and rights of each series, it
may afford the holders of any Preferred Stock preferences,
powers and rights (including voting rights) senior to the
rights of the holders of Common Stock. No shares of
Preferred Stock are currently outstanding.
11. Segment
Information
Alford Refrigerated Warehouses, Inc. has four reportable
segments consisting of one cold storage public warehouse in
each segment. Each warehouse is identified and referred to
by the city in which the warehouse is located: Dallas,
Richardson, Fort Worth and La Porte. The reportable segments
are strategic business units which are managed separately as
independent profit centers. The services from which each
reportable segment derives its revenues are fundamentally
the same, the storage and handling of refrigerated product.
The accounting policies of the segments are the same as
those described in the summary of significant accounting
policies. The Company measures segment profit as income
F-18
<PAGE>
before income taxes and extraordinary items. There are no
intersegment sales or transfers.
The "Other" category includes results from a location which
ceased operations in November 1998 and expenses for the
corporate office.
<TABLE>
<CAPTION>
Fiscal year ended Consolidated
December 31, 1998 Dallas Richardson Ft. Worth La Porte Subtotal Other Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 9,411,480 $ 2,264,779 $ 1,110,884 $ 2,771,127 $ 15,558,270 $ 2,093,671 $ 17,651,941
Depreciation and
amortization 451,867 12,591 15,433 254,624 734,515 42,054 776,569
Interest expense 1,029,172 - - 414,425 1,443,597 18,721 1,462,318
Rent expense - 818,217 267,500 20,000 1,105,717 471,412 1,577,129
Segment profit 1,500,682 213,996 120,465 15,012 1,850,155 (675,879) 1,174,276
Segment gross
property, plant
and equipment 13,849,675 323,940 294,661 6,818,201 21,286,477 611,615 21,898,092
Fiscal year ended Consolidated
December 31, 1997 Dallas Richardson Ft. Worth La Porte Subtotal Other Total
- --------------------------------------------------------------------------------------------------------------------------------
Revenues $ 8,129,544 $ 1,899,151 $ 1,005,607 $ 2,500,846 $ 13,535,148 $ 2,076,258 $ 15,611,406
Depreciation and
amortization 388,035 15,204 43,112 42,328 488,679 57,053 545,732
Interest expense 815,864 - - 2,570 818,434 212,355 1,030,789
Rent expense - 622,117 225,000 426,436 1,273,553 450,000 1,723,553
Segment profit 802,032 127,413 67,454 (64,734) 932,165 (795,261) 136,904
Segment gross
property, plant
and equipment 12,564,663 286,042 291,173 137,325 13,279,203 609,696 13,888,899
Three months ended Consolidated
March 31, 1999 Dallas Richardson Ft. Worth La Porte Subtotal Other Total
- --------------------------------------------------------------------------------------------------------------------------------
(unaudited)
Revenues $ 2,112,677 $ 467,313 $ 269,791 $ 665,491 $ 3,515,272 $ 73,430 $ 3,588,702
Depreciation and
amortization 121,546 2,048 572 76,588 200,754 3 200,757
Interest expense 240,360 - - 111,747 352,107 4,430 356,537
Rent expense - 150,000 67,500 - 217,500 - 217,500
Segment profit 210,995 5,807 10,882 (18,633) 209,051 (171,252) 37,799
Three months ended Consolidated
March 31, 1998 Dallas Richardson Ft. Worth La Porte Subtotal Other Total
- --------------------------------------------------------------------------------------------------------------------------------
(unaudited)
Revenues $ 2,106,422 $ 502,612 $ 259,039 $ 674,924 $ 3,542,997 $ 529,383 $ 4,072,380
Depreciation and
amortization 112,967 3,148 3,858 52,176 172,149 10,402 182,551
Interest expense 249,026 - - 69,982 319,008 6,325 325,333
Rent expense - 163,911 65,000 20,000 248,911 126,667 375,578
Segment profit 323,408 32,814 26,189 (27,293) 355,118 (178,128) 176,990
</TABLE>
F-19
<PAGE>
12. Fair Value
of Financial
Instruments
The methods and assumptions used to estimate the fair value
of each class of financial instrument are as follows:
Cash and cash equivalents, trade receivables, certain other
current assets, notes payable, accounts payable, and current
maturities of long-term debt. The carrying amounts
approximate fair value because of the short maturity of
these instruments.
Long-term receivables. The fair value of long-term
receivables was based on discounted cash flows or other
specific instrument analysis.
The carrying amounts and fair values of long-term notes
receivable were as follows:
December 31, March 31,
-----------------------------------------
1998 1997 1999
------------------------------------------------------------
(unaudited)
Carrying amount $ 1,676,655 $ 3,541,973 $ 1,710,442
Fair value 1,615,000 3,412,000 1,647,000
------------------------------------------------------------
Long-term debt. The carrying amounts of the Company's bank
borrowings under its revolving credit agreement approximates
fair value because the interest rate is based on floating
rates identified by reference to market rates. The fair
values of the Company's other long-term debt either
approximate carrying value or are estimated based on quoted
market prices for the same or similar issues or on the
current rates offered to the Company for debt of the same
remaining maturities. The carrying amounts and fair values
of long-term debt at March 31, 1999, December 31, 1998 and
1997 were as follows:
December 31, March 31,
-----------------------------------------
1998 1997 1999
------------------------------------------------------------
(unaudited)
Carrying amount $ 14,396,572 $ 11,851,093 $ 14,122,391
Fair value 14,253,000 11,700,000 13,981,000
F-20
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. Indemnification of Directors and Officers
The Amended and Restated Articles of Incorporation provide that the
Company shall indemnify any person who was, is or is threatened to be made a
named defendant in a proceeding because the person (i) is or was a director or
officer of the Corporation or (ii) while a director or officer of the
Corporation, is or was serving as a director, officer, partner, or other
functionary of another corporation, partnership or other enterprise, to the
fullest extent that a corporation may grant indemnification to a director under
the Texas Business Corporation Act. Article 2.01-1 of the Texas Business
Corporation Act (the "TBCA") provides that a corporation may indemnify any
director or officer provided that the director or officer (i) conducted himself
in good faith, (ii) reasonably believed (a) in the case of conduct in his
official capacity, that his conduct was in the corporation's best interests or
(b) in all other cases, that his conduct was at least not opposed to the
corporation's best interests and (iii) in the case of any criminal proceeding,
had no reasonable cause to believe his conduct was unlawful. Subject to certain
exceptions, a director or officer may not be indemnified if the person is found
liable to the corporation or if the person is found liable on the basis that he
improperly received a personal benefit. Under Texas law, reasonable expenses
incurred by a director or officer may be paid or reimbursed by the corporation
in advance of a final disposition of the proceeding after the corporation
receives a written affirmation by the director or officer of his good faith
belief that he has met the standard of conduct necessary for indemnification and
a written undertaking by or on behalf of the director or officer to repay the
amount if it is ultimately determined that the director or officer is not
entitled to indemnification by the corporation. Texas law requires a corporation
to indemnify an officer or director against reasonable expenses incurred in
connection with a proceeding in which he is named a defendant or respondent
because he is or was a director or officer if he is wholly successful in defense
of the proceeding.
Texas law permits a corporation to purchase and maintain insurance or
another arrangement on behalf of any person who is or was a director or officer
against any liability asserted against him and incurred by him in such a
capacity or arising out of his status as such a person, whether or not the
corporation would have the power to indemnify him against that liability under
Article 2.02-1 of the TBCA. The Company has directors' and officers' liability
insurance policies to cover certain liabilities of directors and officers
arising out of claims based on certain acts or omissions by them in their
capacity as directors or officers.
The above discussion is not intended to be exhaustive and is qualified in
its entirety by such statute and the Company's Amended and Restated Articles of
Incorporation and bylaws, respectively.
ITEM 25. Other Expenses of Issuance and Distribution
Following are the estimated expenses which will be incurred by Alford with
respect to the distribution of the common stock.
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission Registration Fee ...................................................$ 4,878.90
Printing and Engraving..................................................................................$ 2,500.00
Fees of Transfer Agent..................................................................................$ 500.00
Legal Fees and Expenses.................................................................................$ 15,000.00
Accountant's Fees and Expenses..........................................................................$ 20,000.00
-----------
$ 42,878.90
===========
</TABLE>
II-1
<PAGE>
ITEM 26. Recent Sales of Unregistered Securities
Pursuant to the First Amended Joint Plan of Reorganization entered into on
July 9, 1996, as modified, the Company issued an aggregate of 187,701 shares of
Common Stock to certain of its creditors on various dates in 1996. Such shares
were issued in accordance with Section 1145 under the United States Bankruptcy
Code and the transaction was thus exempt from the registration requirements of
Section 5 of the Securities Act of 1933 (the "Securities Act").
Effective December 15, 1998, the Company issued to Castor Capital
Corporation, the sole stockholder of Alford, an aggregate of 6,551,372 shares of
Common Stock in exchange for an aggregate of 10,000 shares of common stock of
Alford pursuant to the Merger Agreement. Castor Capital Corporation is a
sophisticated, knowledgeable investor able to bear the economic risk of an
investment in these shares of Common Stock. The Company relied on Section 4(2)
of the Securities Act because the transaction did not involve a public offering
and was thus exempt from the registration requirements of the Securities Act. No
underwriters were used in connection this transaction.
Effective in December 1998, the Company issued to Mr. Art Beroff 92,000
shares of Common Stock as a finders fee. Mr. Art Beroff is a sophisticated,
knowledgeable investor able to bear the economic risk of an investment in these
shares of Common Stock. The Company relied on Section 4(2) of the Securities Act
because the transaction did not involve a public offering and was thus exempt
from the registration requirements of the Securities Act. No underwriters were
used in connection with this transaction.
On May 26, 1999, Alford issued 400,000 shares to Fort Worth Cold Storage
Holdings, Inc. in connection with the purchase of its Fort Worth facility. Fort
Worth Cold Storage Holdings is a sophisticated, knowledgeable investor able to
bear the economic risk of an investment in these shares of Common Stock. The
Company relied on Section 4(2) of the Securities Act because the transaction did
not involve a public offering and was thus exempt from the registration
requirements of the Securities Act. No underwriters were used in connection with
this transaction.
ITEM 27. Exhibits and Financial Statement Schedules
(a) The financial statements filed as part of this Registration Statement
in Item 13 are listed in the Index to Financial Statements contained in such
Item.
(b) The following documents are filed as exhibits to this Registration
Statement:
2.1 First Amended Joint Plan of Reorganization dated July 9, 1996 as modified
and clarified to date (incorporated by reference as Exhibit 2.1 of Alford's
registration statement on Form 10-SB (No. 000-25351 dated February 4, 1999)
2.2 Agreement and Plan of Merger dated November 23, 1998 by and between Hilltop
Acquisition Holding Corporation, Womack Gilman Investment Services, L.C.,
Halter Financial Group, Inc. and Alford Refrigerated Warehouses, Inc.
(incorporated by reference as Exhibit 2.2 of Alford's registration
statement on Form 10-SB (No. 000-25351 dated February 4, 1999)
3(i) Restated Articles of Incorporation (with amendments) (incorporated by
reference as Exhibit 3(i) of Alford's registration statement on Form 10-SB
(No. 000-25351 dated February 4, 1999)
3(ii)Amended and Restated Bylaws (incorporated by reference as Exhibit 3(ii)
of Alford's registration statement on Form 10-SB (No. 000-25351 dated
February 4, 1999)
4.1 Form of Common Stock Certificate (incorporated by reference as Exhibit 4.1
of Alford's registration statement on Form 10-SB (No. 000-25351 dated
February 4, 1999)
5.1 Opinion of Jenkens & Gilchirst, A Professional Corporation
II-2
<PAGE>
10.1 Fixed Rate Note dated September 15, 1997 between Cadiz Properties, Inc.,
and Morgan Guaranty Trust Company of New York (incorporated by reference as
Exhibit 10.1 of Alford's registration statement on Form 10-SB (No.
000-25351 dated February 4, 1999)
10.2 Fixed Rate Note dated February 6, 1998 between La Porte Properties, L.L.C.,
and Amresco Capital, L.P. (incorporated by reference as Exhibit 10.2 of
Alford's registration statement on Form 10-SB (No. 000-25351 dated February
4, 1999)
10.3 Consulting Agreement dated January 1, 1997 between Alford Refrigerated
Warehouses, Inc. and Alton M. Adams, P. Eng. (incorporated by reference as
Exhibit 10.3 of Alford's registration statement on Form 10-SB (No.
000-25351 dated February 4, 1999)
10.4 Purchase and Sale Agreement executed on or about January 19, 1999 between
Alford Refrigerated Warehouses, Inc. and Fort Worth Cold Storage Holdings,
Inc. (incorporated by reference as Exhibit 10.4 of Alford's registration
statement on Form 10-SB (No. 000-25351 dated February 4, 1999)
10.5 Consulting Agreement dated March 29, 1999 between Alford Refrigerated
Warehouses, Inc. and Engineering Design and Construction Managers Limited
(incorporated by reference as Exhibit 10.5 of Alford's registration
statement on (No. 000-25351 dated February 4, 1999)
10.6 Stock Purchase and Escrow Agreement dated May 20, 1999 between Castor
Capital Corporation, Fort Worth Cold Storage Holdings, Inc., Alford Refrig-
erated Warehouses, Inc. and Carter Mannix Breedlove & Company.
21.1 Subsidiaries of the Company (incorporated by reference as Exhibit 21.1 of
Alford's registration statement on Form 10-SB (No. 000-25351 dated February
4, 1999)
23.1 Consent of Jenkens & Gilchrist, A Professional Corporation - contained in
Exhibit 5.1
23.2 Consent of BDO Seidman, LLP
27 Financial Data Schedule
ITEM 28. Undertakings
The undersigned registrant hereby undertakes:
A. To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in
the registration statement; and notwithstanding the forgoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission under Rule 424(b)
if, in the aggregate, the changes in the volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculations of Registration
Fee" table in the effective registration statement.
(iii)Include any additional or changed material information on the
plan of distribution.
II-3
<PAGE>
B. For determining liability under the Securities Act of 1933, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
C. File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
D. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the small business issuer under the foregoing provisions or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the small business issuer of expenses incurred or paid by a director,
officer or controlling person of the small business issuer in the successful
defense of any action, suit, or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by a controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement or amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Dallas and State of Texas on the 16th day of
June, 1999.
ALFORD REFRIGERATED WAREHOUSES, INC.
By: /s/ James C. Williams
-------------------------------------------------------
James C. Williams
Vice President, Chief Financial Officer, and Secretary
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement or amendment has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/Alton M. Adams* Chief Executive Officer June 16, 1999
- ------------------------
Alton M. Adams
/s/Michael A. Oros* President June 16, 1999
- ------------------------
Michael A. Oros
/s/James C. Williams Vice President, Chief June 16, 1999
- ------------------------ Financial Officer, Secretary,
James C. Williams Treasurer and Director
/s/Joseph Y. Robichaud* Director June 16, 1999
- ------------------------
Joseph Y. Robichaud
/s/Kenneth M. Tomilson* Director June 16, 1999
- ------------------------
Kenneth M. Tomilson
<FN>
*by James C. Williams, as attorney-in-fact
</FN>
</TABLE>
II-5
Jenkens & Gilchrist
a professional corporation
2200 One American Center
600 Congress Avenue
Austin, Texas 78701
(512) 499-3800
Telecopier (512) 404-3520
DALLAS, TEXAS
(214) 855-4500
HOUSTON, TEXAS
(713) 951-3300
LOS ANGELES, CALIFORNIA
WRITER'S DIRECT DIAL NUMBER (310) 820-8800
J. Rowland Cook
(512) 499-3821 SAN ANTONIO, TEXAS
(210) 246-5000
WASHINGTON, D.C.
(212) 326-1500
June 16, 1999
Alford Refrigerated Warehouses, Inc.
318 Cadiz Street
Dallas, Texas 75207
Re: Alford Refrigerated Warehouses, Inc.
Registration Statement on Form SB-2
(File No. 333-78267)
Ladies and Gentlemen:
On June 15, 1999, Alford Refrigerated Warehouses, Inc., a Texas
corporation (the "Company"), filed with the Securities and Exchange Commission
("Commission") a Pre- Effective Amendment Number 1 to Registration Statement on
Form SB-2 (the "Registration Statement"), under the Securities Act of 1933, as
amended (the "Act"), relating to the offer and sale by the Company of an
aggregate of 3,900,000 shares of common stock, $.01 par value per share (the
"Shares"). We have acted as counsel to the Company in connection with the
preparation and filing of the Registration Statement.
In connection therewith, we have examined and relied upon the original or
copies, certified to our satisfaction, of (i) the Articles of Incorporation and
the Bylaws of the Company, in each case as amended to date, (ii) copies of
resolutions of the Board of Directors of the Company authorizing the offering
and the issuance of the shares to be sold by the Company and related matters,
(iii) the Registration Statement, and all exhibits thereto, and (iv) such other
documents and instruments as we have deemed necessary for the expression of
opinions herein contained. In making the foregoing examinations, we have assumed
the genuineness of all signatures and the authenticity of all documents
submitted to us as originals, and the conformity to original documents of all
documents submitted to us as certified or photostatic copies. As to various
questions of fact material to this opinion, we have relied, to the extent we
deem reasonably appropriate, upon representations or certificates of officers or
directors of the Company and upon documents, records and instruments furnished
to us by the Company, without independent check or verification of their
accuracy.
Based upon the foregoing examination, we are of the opinion that the Shares
have been duly and validly authorized and are legally issued, fully paid and
nonassessable.
<PAGE>
Jenkens & Gilchrist
a professional corporation
Alford Refrigerated Warehouses, Inc.
June 16, 1999
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement. In
giving such consent, we do not admit that we come within the category of persons
whose consent is required by Section 7 of the Act or the rules and regulations
of the Commission thereunder.
Respectfully submitted,
JENKENS & GILCHRIST,
A Professional Corporation
By: /s/ J. Rowland Cook
------------------------------
J. Rowland Cook
Authorized Signatory
STOCK PURCHASE AND ESCROW AGREEMENT
THIS AGREEMENT dated as of May 20, 1999, is made by and between CASTOR
CAPITAL CORPORATION, an Ontario corporation (hereinafter "Buyer" or "Castor"),
FORT WORTH COLD STORAGE HOLDINGS, INC., an Ontario corporation (hereinafter
"Seller" or "FWCS"), ALFORD REFRIGERATED WAREHOUSES, INC., a Texas corporation
(hereafter "ARW"), and CARTER MANNIX BREEDLOVE & COMPANY ("Agent" or "Escrow
Agent").
W I T N E S S E T H:
WHEREAS, ARW has executed that certain Note dated of even date herewith
in the original principal amount of $500,000.00 (the "Note") and issued certain
shares of ARW common stock to Seller in connection with ARW's purchase of real
property from Seller; and
WHEREAS, Castor has executed that certain Unconditional Guaranty of
even date herewith guaranteeing all of ARW's obligations under the Note; and
WHEREAS, the Seller owns and will own on the Closing Date (as
hereinafter defined) 300,000 shares of the outstanding common stock, issued by
ARW in connection with the Note, represented by Original Certificates No. ARW
201 and ARW 203; and
WHEREAS, the Seller desires to sell to the Buyer, or its assignee, and
the Buyer desires to acquire from the Seller, all of the shares of stock
described above owned by Seller (hereinafter the "Shares") in connection with
the satisfaction of the Note and subject to the conditions set forth herein; and
WHEREAS, Seller, Buyer and ARW desire to appoint the Agent as Escrow
Agent under the terms and conditions set forth herein.
1
<PAGE>
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and covenants herein contained, the parties hereby
agree as follows:
1. Purchase and Sale.
(a) Assets Sold.
The Buyer does hereby agree to purchase and the Seller hereby agrees to
sell, transfer and convey to the Buyer, or its assignee, at closing in
accordance with Paragraph 16 hereof all of the following property, rights and
claims of Seller (the "Assets"):
(1) All of the Shares;
(2) All of Seller's interests or rights in or claims against ARW, or
any one or more of them, if any, in addition to the Shares, as of the Closing
Date, of whatsoever nature or kind, whether now known or unknown, and whether
based upon an ownership interest or property right, an express or implied
contract, a legal duty, a claim or right arising from or based upon any act,
omission, breach of any legal duty or violation of statute by ARW, or by any of
their respective officers, directors, employees, agents or representatives, of
any kind whatsoever; and
(3) The Note.
(b) Consideration. In exchange for the sale and conveyance of
the Assets hereunder, and in reliance upon the representations and warranties of
the Seller contained herein, the Buyer agrees to pay Seller on the Closing Date
the sum of (i) $500,000.00, and (ii) the sum of $125.00/day for each day elapsed
after the date of this Agreement prior to the Closing Date. The amount
calculated under this subsection (ii) shall be payable on the first day of each
month occurring after the date hereof, commencing June 1, 1999. On the Closing
Date, the Buyer shall pay any
2
<PAGE>
amount so calculated after receiving credit for all amounts previously paid as
provided herein plus all outstanding principal and any other accrued interest.
(c) Certificates. The Seller agrees to deliver or cause the
Shares to be delivered to the Buyer or its assignee on or before the Closing
Date and after receipt of all amounts due and owing under the Agreement or Note.
The certificate or certificates representing the Shares shall be duly endorsed
in blank by the Seller, or accompanied by stock powers duly executed in blank.
The Seller agrees to cure or to cause to be cured any deficiencies with respect
to the endorsement of the certificates representing the Shares or with respect
to the stock powers accompanying any such shares.
(d) Bill of Sale. After receipt of all amounts due and owing
under the Agreement or Note, the Seller agrees to convey all of the other Assets
to Buyer at the Closing by the execution and delivery of a bill of sale, or
other instrument of transfer, in form and substance acceptable to Buyer and to
endorse the Note as directed by Buyer.
2. The Closing. Unless this Agreement shall have been earlier
terminated pursuant to Section 26 hereof, the closing of the transactions
provided for in Section 1 of this Agreement (herein called the "Closing") shall
take place at the offices of Jenkens & Gilchrist, a Professional Corporation,
1445 Ross Avenue, Suite 3200, Dallas, Texas 75202-2799, on or before one year
following the date of the Agreement, or at such earlier date or place as Buyer
may notify Seller of in writing by delivery of ten (10) business days prior
written notice. The date of the Closing is referred to in this Agreement as the
"Closing Date." In the event Buyer fails to perform its obligations hereunder,
Seller may demand performance from ARW within two (2) business days from
delivery of written notice to
3
<PAGE>
ARW. Upon ARW's failure to perform its obligations under the Note within two (2)
business days after receipt of demand from Seller, Seller may demand delivery of
the Shares from the Escrow Agent as provided in Paragraph 16 hereof. Upon
payment in full of the Note, Seller shall deliver same to ARW inscribed "Paid in
Full."
3. Appointment of Escrow Agent. ARW, FWCS and Castor hereby appoints
the Agent as the escrow agent under this Agreement and Escrow Agent hereby
accepts such appointment.
4. Deposit. ARW has delivered herewith to the Escrow Agent 100,000
shares of ARW common stock, Original Certificate No. ARW 201 and 200,000 shares
of ARW common stock, Original Certificate No. ARW 203, each issued in the name
of FWCS (collectively, the"Shares") to be held by Agent in accordance with the
terms hereof. Subject to and in accordance with the terms and conditions hereof,
Escrow Agent agrees that it shall hold in escrow and release or distribute the
Shares.
5. The Shares. Upon delivery of the Shares by ARW to Escrow Agent, ARW
shall immediately cause the books of ARW and ARW's stock transfer agent to
record the issuance of the Shares by ARW to FWCS. ARW covenants and agrees to
provide satisfactory evidence of the performance of this issuance on or before
ten (10) business days following the effective date hereof.
6. Scope of Undertaking. Escrow Agent's duties and responsibilities in
connection with this Agreement shall be purely ministerial and shall be limited
to those expressly set forth in this Agreement. Escrow Agent is not a principal,
participant or beneficiary in any transaction
4
<PAGE>
underlying this Agreement and shall have no duty to inquire beyond the terms and
provisions hereof. Escrow Agent shall have no responsibility or obligation of
any kind in connection with this Agreement or the Shares and shall not be
required to deliver the Shares or any part thereof or take any action with
respect to any matters that might arise in connection therewith, other than to
receive, hold and deliver the Shares as herein provided. Without limiting the
generality of the foregoing, it is hereby expressly agreed and stipulated by the
parties hereto that Escrow Agent shall not be required to exercise any
discretion thereunder and shall have no investment or management responsibility
except as otherwise expressly provided herein. Escrow Agent shall not be liable
for any error in judgment, any act or omission, any mistake of law or fact, or
for anything it may do or refrain from doing in connection herewith, except for,
subject to Paragraph 7 hereof, its own willful misconduct or gross negligence.
It is the intention of the parties hereto that Escrow Agent shall never be
required to use, advance or risk its own funds or otherwise incur financial
liability in the performance of any of its duties or the exercise of any of its
rights and powers hereunder.
7. Reliance; Liability. Escrow Agent may rely on, and shall not be
liable for acting or refraining from acting upon, any written notice,
instruction or request or other paper furnished to it hereunder or pursuant
hereto and believed by it to have been signed or presented by the proper party
or parties. Escrow Agent shall be responsible for holding and disbursing the
Shares pursuant to this Agreement; provided, however, that in no event shall
Escrow Agent be liable for any lost profits, lost savings or other special,
exemplary, consequential or incidental damages in excess of Escrow Agent's fee
hereunder and provided, further, that Escrow Agent shall have no
5
<PAGE>
liability for any loss arising from any cause beyond its control, including, but
not limited to, the following: (a) acts of God, force majeure, including,
without limitation, war (whether or not declared or existing), revolution,
insurrection, riot, civil commotion, accident, fire, explosion, stoppage of
labor, strikes and other differences with employees; (b) the act, failure or
neglect of any other party or any agent or correspondent or any other person
selected by Escrow Agent; (c) any delay, error, omission or default of any mail,
courier, telegraph, cable or wireless agency or operator, or (d) the acts or
edicts of any government or governmental agency or other group or entity
exercising governmental powers. Escrow Agent is not responsible or liable in any
manner whatsoever for the sufficiency, correctness, genuineness or validity of
the subject matter of this Agreement or any part hereof or for the transaction
or transactions requiring or underlying the execution of this Agreement, the
form or execution hereof or for the identity or authority of any person
executing this Agreement or any part hereof or depositing the Shares.
Notwithstanding the foregoing, Escrow Agent covenants to act in good faith in
performance of its duties.
8. Right of Interpleader. Should any controversy arise involving the
parties hereto or any of them or any other person, firm or entity with respect
to this Agreement or the Shares, or should a substitute escrow agent fail to be
designated, or if Escrow Agent should be in doubt as to what action to take,
Escrow Agent shall have the right, but not the obligation, either to (a)
withhold delivery of the Shares until the controversy is resolved, the
conflicting demands are withdrawn or its doubt is resolved or (b) institute a
petition for interpleader in any court of competent jurisdiction to determine
the rights of the parties hereto. In the event Escrow Agent is a party to any
dispute, Escrow Agent shall have the additional right to refer such controversy
6
<PAGE>
to binding arbitration. Should a petition for interpleader be instituted, or
should Escrow Agent be threatened with litigation or become involved in
litigation or binding arbitration in any manner whatsoever in connection with
this Agreement or the Shares, then, as between (a) all parties on the one hand
and (b) Escrow Agent on the other, ARW and Castor hereby jointly and severally
agree to reimburse Escrow Agent for its attorneys' fees and any and all other
expenses, losses, costs and damages incurred by Escrow Agent in connection with
or resulting from such threatened or actual litigation or arbitration prior to
any disbursement hereunder. Any such interpleader action shall be strictly
limited to matters arising under this Agreement. All periods of notice in
connection therewith shall take due account of the fact that certain parties
hereto do not reside in the United States and may be required to travel
significant distance in order to attend court proceedings or participate in
discovery.
9. Indemnification. ARW and Castor hereby jointly and severally
indemnify Escrow Agent, its officers, directors, partners, employees and agents
(each herein called an "Indemnified Party") against, and hold each Indemnified
Party harmless form, any and all expenses, including, without limitation,
attorneys' fees and court costs, losses, costs, damages and claims, including,
but not limited to, costs of investigation, litigation and arbitration, tax
liability and loss on investments suffered or incurred by any Indemnified Party
in connection with or arising from or out of this Agreement, except such acts or
omissions as may result from the willful misconduct or gross negligence of such
Indemnified Party. IT IS THE EXPRESS INTENT OF EACH OF THE PARTIES TO INDEMNIFY
AND HOLD HARMLESS THE INDEMNIFIED PARTIES
7
<PAGE>
FROM THEIR OWN NEGLIGENT ACTS OR OMISSIONS, PROVIDED SAID ACTIONS WERE IN GOOD
FAITH OF ESCROW AGENT.
10. Compensation and Reimbursement of Expenses. ARW hereby agrees to
pay Escrow Agent for its services hereunder the sum of $2,500.00, and to pay all
expenses incurred by Escrow Agent in connection with the performance of its
duties and enforcement of its rights hereunder and otherwise in connection with
the preparation, operation, administration and enforcement of this Agreement,
including, without limitation, attorneys' fees, brokerage costs and related
expenses incurred by Escrow Agent.
11. Lien. ARW hereby grants to Escrow Agent a lien upon, and security
interest in, all its right, title and interest in and to the Shares being held
by the Escrow Agent as security for the payment and performance of its
obligations owing to Escrow Agent hereunder, including, without limitation, its
obligations of payment, indemnity and reimbursement provided for hereunder.
12. Choice of Laws; Cumulative Rights. This Agreement shall be
construed under, and governed by, the laws of the State of Texas, excluding,
however, (a) its choice of law rules and (b) the portions of the Texas Trust
Code Sec. 111.001, et seq. of the Texas Property Code concerning fiduciary
duties and liabilities of trustees. All of Escrow Agent's rights hereunder are
cumulative of any other rights it may have at law, in equity or otherwise. The
parties hereto agree that the forum for resolution of any dispute arising under
this Agreement shall be Dallas County, Texas, and each of the parties hereby
consents, and submits itself, to the jurisdiction of any state or federal court
sitting in Dallas County, Texas.
8
<PAGE>
13. Severability. If one or more of the provisions hereof shall for any
reason be held to be invalid, illegal or unenforceable in any respect under
applicable law, such invalidity, illegality or unenforceability shall not affect
any other provisions hereof, and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein, and
the remaining provisions hereof shall be given full force and effect, and any
invalid, illegal or unenforceable provision shall be revised so as to make it
legal, valid and enforceable so as to effectuate the intent of the parties
hereto.
14. Termination. This Agreement shall terminate upon (a) disbursement
of all the Shares in accordance with Paragraph 16 hereof, and (b) unless Escrow
Agent shall otherwise elect, full and final payment of all amounts required to
be paid to the Escrow Agent hereunder (whether fees, expenses, costs or
otherwise); provided, however, that in the event all such amounts required to be
paid to Escrow Agent by ARW hereunder are not fully and finally paid prior to
termination, the provisions of Paragraph 26 hereof shall survive the termination
hereof and, provided further, that the second and third sentences of Paragraph 7
hereof and the provisions of Paragraph 8 hereof shall, in any event, survive the
termination hereof.
15. General. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. This Agreement and any affidavit, certificate,
instrument, agreement or other document required to be provided hereunder may be
executed in two or more counterparts, each of which shall be deemed an original,
but all of which taken together shall constitute but one and the same
instrument. Unless the context shall otherwise require, the singular shall
include the plural and
9
<PAGE>
vice-versa, and each pronoun in any gender shall include all other genders. The
terms and provisions of this Agreement constitute the entire agreement among the
parties hereto in respect of the subject matter hereof, and neither (a) the
other parties on the one hand nor (b) Escrow Agent on the other has relied on
any representations or agreements of the other, except as specifically set forth
in this Agreement. This Agreement or any provision hereof may be amended,
modified, waived or terminated only by written instrument duly signed by the
parties hereto. This Agreement shall inure to the benefit of, and be binding
upon, the parties hereto and their respective heirs, devisees, executors,
administrators, personal representatives, successors, trustees, receivers and
permitted assigns. This Agreement is for the sole and exclusive benefit of all
parties and the Escrow Agent, and nothing in this Agreement, express or implied,
is intended to confer or shall be construed as conferring upon any other person
any rights, remedies or any other type or types of benefits.
16. Release of Deposit.
a. The Escrow Agent shall release and distribute the
Shares to FWCS upon certification by FWCS that (1) ARW
has defaulted on any of its material obligations under
the Note or the Deed of Trust or Buyer has defaulted on
any of its material obligations under this Agreement,
including, but not limited to, ARW's failure to pay the
Note or comply with the material provisions of the Loan
Documents, or failure to amend its current SB-2
registration statement in include the Shares and
failure of the registration to become effective on or
before 270 days from the date of this Agreement,
10
<PAGE>
and (2) Castor has failed to perform under its
Guaranty of the Note within two (2) business days of
receipt of written request thereof by Seller.
b. The Escrow Agent shall release and distribute
Certificate No. ARW 203 of the Shares to Castor or
its nominee upon certification by Castor and FWCS of
payment to FWCS of the consideration due under this
Agreement and shall deliver Certificate No. ARW 201
of the Shares to ARW;
c. The Escrow Agent shall release and distribute the
Shares to ARW upon written certification by ARW and
written confirmation by FWCS of performance by ARW of
its obligations under the Note.
17. Representations and Warranties. The parties hereto represent and
warrant that this Agreement constitutes a legal, valid and binding agreement and
that all parties have the authority to execute this Agreement in the stated
capacity. ARW represents that the Shares are validly issued and non-assessable
and that ARW is duly authorized to issue the Shares and perform the actions
contemplated by this Agreement.
18. Stock Power. FWCS shall deliver to the Escrow Agent stock powers
with respect to the Shares fully executed in blank.
19. ARW covenants and agrees to amend its current SB-2 registration
statement within 30 days from the date hereof to include the Shares covered
hereby. In the event the registration statement registering certain shares of
ARW on NASDAQ Small Cap National Market System, including the Shares covered by
this Agreement, is not effective on or before February 19, 2000, ARW shall be
deemed to be in default of the Note and FWCS shall be authorized to, inter alia,
11
<PAGE>
execute all of its rights and remedies set forth herein including, but not
limited to, taking possession of the Shares and causing same to be issued in the
name of FWCS, or its assigns and exercise its rights and remedies under the
Note, Deed of Trust and the Guaranty.
20. The Shares shall be held by the Escrow Agent under ARW's tax
identification number until such time as the Shares are disbursed in accordance
with Paragraph 16 hereof.
21. In the event ARW and Castor breach any material obligations
hereunder or under the Note, the Guaranty or the Deed of Trust (collectively,
the "Loan Documents"), said event or events shall constitute an event of default
hereunder and under the Loan Documents and FWCS shall be entitled to exercise
all of its rights and remedies hereunder and under the Loan Documents,
including, but not limited to, taking possession of the Shares and retaining
said Shares for its own account (including the unrestricted right of sale or
transfer), and FWCS may require Castor to purchase the Shares for all amounts
due hereunder and under the Loan Documents plus legal fees, expenses and court
costs.
22. In the event the bid price for ARW common stock ever falls below
$1.67 per share or in the event the Shares of ARW are merged into that of
another entity or there is a reverse stock split and the value of the Shares
falls below all amounts due under the Note, ARW covenants and agrees to issue
and deliver additional shares to Escrow Agent (in minimum increments of 10,000
shares) so that the number of Shares held by Escrow Agent hereunder multiplied
by the bid price of ARW common stock exceeds the outstanding balance due Seller
hereunder and under the Loan Documents.
12
<PAGE>
23. Conditions to Obligations of the Buyer. The obligations of the
Buyer under Section 1 of this Agreement shall, at the option of the Buyer, be
subject only to the following conditions:
(a) Seller's Representations and Warranties True at Closing.
The Buyer shall not have discovered any material error, misstatement or omission
in the representations and warranties made by the Seller in Section 17 hereof,
the representations and warranties made by the Seller in Section 17 of this
Agreement shall be true on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of such date;
each and all of the material agreements and covenants of the Seller to be
performed or complied with on or before the Closing Date pursuant to the terms
hereof shall have been performed or complied with by the Closing Date.
(b) Absence of Restraint. No order to restrain, enjoin or
otherwise prevent the consummation of this Agreement or transactions in
connection herewith shall have been entered and, on the Closing Date, there
shall not be any pending or threatened litigation in any court, or any
proceeding by or before any governmental commission, board or agency, with a
view to seeking to restrain or prohibit consummation of the transactions
contemplated hereby or in which divestiture, rescission or significant damages
are sought in connection with the transactions contemplated hereby, and no
investigation by any governmental agency shall be pending or threatened which
might result in any such litigation or other proceeding arising from any
improper act or omission of Seller.
24. Conditions to Obligations of the Seller. The obligations of the
Seller under Section l of this Agreement shall, at the option of the Seller, be
subject only to the following conditions:
13
<PAGE>
(a) Delivery of the Consideration. At the Closing Buyer shall
timely deliver the consideration for the sale generally described in Section
1(b) above.
(b) Absence of Restraint. No order to restrain, enjoin or
otherwise prevent the consummation of this Agreement or transactions in
connection herewith shall have been entered and, on the Closing Date, there
shall not be any pending or threatened litigation in any court, or any
proceeding by or before any governmental commission, board or agency, with a
view to seeking to restrain or prohibit consummation of the transactions
contemplated hereby or in which divestiture, rescission or significant damages
are sought in connection with the transactions contemplated hereby, and no
investigation by any governmental agency shall be pending or threatened which
might result in any such litigation or other proceeding. Notwithstanding the
foregoing, in the event there is any order preventing the transfer of the Shares
as contemplated by this Agreement, said event shall be deemed a default
hereunder and Seller shall be entitled to exercise all of its rights and
remedies hereunder and under the Loan Documents.
25. Nature of Statements and Survival of Representations and Warranties
of Seller. Regardless of any investigation at any time made by or on behalf of
the Buyer or of any information the Buyer may have in respect thereof, all
covenants, agreements, representations and warranties made by the Seller shall
survive the Closing Date for a period of sixty (60) days.
26. Termination. This Agreement:
(a) may be terminated by the mutual written consent of the
Seller and Buyer;
(b) may be terminated by the Seller if a default shall be made
by the Buyer in the observance or in the due and timely
performance by the Buyer of any of the covenants of the
14
<PAGE>
Buyer herein contained or in the Loan Documents, or if there
shall have been a breach by the Buyer of any of the
warranties and representations of the Buyer herein
contained, or if the conditions of this Agreement or the
Loan Documents to be complied with or performed by the Buyer
or ARW at or before the Closing shall not have been timely
complied with or performed at the time required for such
compliance or performance and such noncompliance or
nonperformance shall not have been waived by the Seller.
In the event of termination by the Seller as provided above in
subsection (b), written notice thereof shall be given to the other parties at
least five (5) business days prior to the effective date of termination which
shall be explicitly stated in such written notice. The termination of this
Agreement pursuant to the foregoing provisions of this section 26 shall be
cumulative of any and all other remedies which any party may have for breach of
contract or warranty with respect thereto. Notwithstanding any other provision
of this Agreement to the contrary, it is expressly agreed that either Seller or
Buyer shall be entitled to specific performance so long as the party seeking
specific performance is not in default of any material provision hereof.
27. Miscellaneous
(a) Expenses. Whether or not the transactions contemplated
hereby shall be consummated, each of the parties will pay all costs and expenses
of its performance of and compliance with this Agreement, other than all fees
and expenses of the Escrow Agent, which shall be borne by ARW; provided,
however, that in the event Buyer or ARW breaches any of its obligations
hereunder or under the Loan Documents, Seller shall be entitled to all expenses
arising from such breach, including, but not limited to, court costs and
reasonable attorneys' fees.
15
<PAGE>
(b) Notices. All notices, requests, demands and other
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given upon receipt if personally
delivered, or if mailed, first class, registered or certified mail, postage
prepaid, three days after mailing in the United States mails to the parties at
the following addresses or at such other address as shall be given in writing by
any party to the other:
(1) if to the Seller to:
Fort Worth Cold Storage Holdings, Inc.
c/o
L. E. Creel, III Esq.
Creel, Sussman & Moore
5949 Sherry Lane, Suite 525
Dallas, Texas 75225
(2) if to the Buyer to:
Castor Capital Corporation
3500 Dufferin Street, Suite 300
Downsview, Ontario, Canada M3K 1N2
(3) if to ARW to:
James C. Williams
318 Cadiz Street
Dallas, TX 75207
with a copy to:
J. Scott Rose, Esq.
Jenkens & Gilchrist
1400 Frost Bank Tower
100 West Houston Street
San Antonio, Texas 78205
(c) Post-Closing Actions. The Seller shall deliver or cause to
be delivered to the Buyer on the Closing Date, and at such other times and
places as shall be reasonably agreed on, such
16
<PAGE>
additional instruments as the Buyer may reasonably request for the purpose of
carrying out this Agreement. The Buyer shall deliver or cause to be delivered to
the Seller on the Closing Date, and at such other times and places as shall be
reasonably agreed on by the parties, such additional instruments as the Seller
may reasonably request for the purpose of carrying out this Agreement.
Notwithstanding the foregoing, Seller shall not be responsible or liable for any
actions relating to the registration or transfer of the Shares and ARW and Buyer
covenant and agree to timely perform all necessary actions relating thereto and
to indemnify Seller from all costs, claims and liabilities arising therefrom.
(d) Assignment. Seller may not assign its rights under this
Agreement without first giving Buyer written notice thereof not less than five
(5) business days prior to such assignment.
(e) Successors Bound. Subject to the provisions of
paragraph(d) of this Section l, this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns. No obligations of ARW or Buyer may be assigned without the express
written consent of Seller.
(f) Section and Paragraph Headings. The section and paragraph
headings in this Agreement are for reference purposes only and shall not be
deemed to constitute a part of this Agreement or used to construe the meaning of
this Agreement.
(g) Gender. The masculine includes the feminine and the neuter
and the singular includes the plural where necessary to give effect to this
Agreement.
(h) Amendment. This Agreement may be amended only by an
instrument in writing executed by the parties hereto.
17
<PAGE>
(i) Entire Agreement. This Agreement and any exhibits, annexes
or schedules attached hereto and the documents specifically referred to herein,
including the Loan Documents, constitute the entire agreement, understanding,
representations and warranties of the parties hereto with respect to the
transactions contemplated hereby, and supersede all prior agreements,
arrangements and understandings related to the subject matter hereof. No
representation, promise, inducement or statement of intention has been made by
any party hereto which is not embodied in this Agreement, in the exhibits,
schedules or annexes attached hereto, if any, or in the written statements,
certificates or other documents delivered pursuant hereto or in connection with
the transaction contemplated hereby, including the Loan Documents, and no party
hereto shall be bound by or liable for any alleged representation, promise,
inducement or statement of intention not so set forth. The terms, provisions,
covenants, representations, warranties or conditions hereof may be waived only
by a written instrument executed by the party waiving compliance. The failure of
any party at any time or times to require performance of any provision hereof
shall in no manner affect the right to enforce the same. No waiver by any party
of any condition, or of the breach of any term, provision, covenant,
representation or warranty contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be or construed as a
further or continuing waiver of any such condition or breach or a waiver of any
other condition or of the breach of any other term, provision, covenant,
representation or warranty.
(j) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.
18
<PAGE>
(k) Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Texas, is fully
performable in Dallas County, Texas and venue for resolution of any dispute
arising hereunder or in connection herewith shall lie exclusively in Dallas
County, Texas.
IN WITNESS WHEREOF, this Agreement has been duly executed by the Seller
and by the Buyer as of the date first above written.
SELLER:
------
FORT WORTH COLD STORAGE
HOLDINGS, INC.
By: /s/
------------------------------
Its: ATTORNEY IN FACT
BUYER:
-----
CASTOR CAPITAL CORPORATION
By: /s/ J. Robichaud
------------------------------
Its: CHAIRMAN AND CEO
PARTY:
-----
ALFORD REFRIGERATED WAREHOUSES, INC.
By: /s/ James Williams
------------------------------
Its: VICE PRESIDENT - FINANCE
AGENT:
-----
CARTER MANNIX BREEDLOVE & COMPANY
By: /s/ Michael L. Carter
------------------------------
Its: PRESIDENT
19
Consent of Independent Certified Public Accountants
Alford Refrigerated Warehouses, Inc.
Dallas, Texas
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement (Form SB-2 Amendment No. 1) of our reported dated March
9, 1999, relating to the consoldated financial statements of Alford Warehouses,
Inc. which is contained in the Prospectus.
We also consent to the reference to us under the caption "Experts" in the Pros-
pectus.
/s/ BDO Seidman, LLP
------------------------------
BDO Seidman, LLP
Dallas, Texas
June 15, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule for Alford Refrigerated Warehouses, Inc.
</LEGEND>
<CIK> 0001078006
<NAME> Alford Refrigerated Warehouses, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 32,361
<SECURITIES> 0
<RECEIVABLES> 1,571,451
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,275,097
<PP&E> 21,940,178
<DEPRECIATION> 3,341,170
<TOTAL-ASSETS> 24,159,668
<CURRENT-LIABILITIES> 18,095,420
<BONDS> 0
0
0
<COMMON> 70,007
<OTHER-SE> 5,376,853
<TOTAL-LIABILITY-AND-EQUITY> 24,159,668
<SALES> 0
<TOTAL-REVENUES> 3,588,702
<CGS> 0
<TOTAL-COSTS> 3,534,237
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 356,537
<INCOME-PRETAX> 54,465
<INCOME-TAX> 16,666
<INCOME-CONTINUING> 37,799
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,799
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
