<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A NO. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the year ended December 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
COMMISSION FILE NUMBER 0-10558
ALPHA MICROSYSTEMS
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3108178
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2722 SOUTH FAIRVIEW STREET, SANTA ANA, CA 92704
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (714) 957-8500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant based on the closing sale price of its common stock on March 20, 2000
on the Nasdaq National Market, a date within 60 days prior to the date of
filing, was $91,954,132.
As of March 20, 2000, there were 11,770,129 shares of the registrant's common
stock outstanding.
The purpose of this amendment is to amend Items 10, 11, 12 and 13 to read as set
forth herein.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information concerning the executive officers and
directors of the Company:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Douglas J. Tullio 57 Chairman of the Board of Directors, President and
Chief Executive Officer
Robert O. Riiska 39 Vice President and Chief Financial Officer
John T. DeVito 43 President of Professional Services
Dennis E. Michael 41 Vice President of Marketing
Clarke E. Reynolds 79 Director
Rockell N. Hankin 53 Director
Richard E. Mahmarian 63 Director
Carlos D. DeMatos 47 Director
Benjamin P. Giess 37 Director
Sam Yau 51 Director
</TABLE>
DOUGLAS J. TULLIO, 57, has served as President, Chief Executive Officer and a
Director of the Company since 1991 and as Chairman of the Board since July 1998.
Mr. Tullio also served as Chief Operating Officer from May 1991 to March 1994.
Mr. Tullio joined the Company in January 1990. From 1984 to 1989, he worked for
General Automation, Inc., in the positions of President and member of the Board
of Directors.
ROBERT O. RIISKA, 39, was appointed Chief Financial Officer and Vice President
of Finance of the Company in November 1999. Prior to joining the Company, Mr.
Riiska worked for Morris-Anderson & Associates, Ltd. from March 1991 to November
1999, where he held the position of Regional Partner since January 1998.
Previously, he held the positions of Consulting Manager and Senior Consultant.
From 1983 to 1987 and from 1989 to 1991, Mr. Riiska served in management
consulting and audit capacities with Ernst & Young LLP and its predecessor Ernst
& Whinney.
JOHN T. DEVITO, 43, has served as President of Professional Services since the
acquisition of Delta CompuTec, Inc. in September 1998. Mr. DeVito previously
served as President and Chief Operating Officer of Delta CompuTec Inc. from
April 1995 to August 1998. Previously, he held the position of Vice President
and General Manager of Delta CompuTec, Inc.
DENNIS E. MICHAEL, 41, was named Vice President of Marketing of the Company in
May 1996 and previously held the position of Director of Marketing of the
Company. He served in various marketing management capacities at the Company
between 1983 and 1990 and with AST Research, Inc. from 1990 to 1995.
CLARKE E. REYNOLDS, 79, has served as a director of the Company since 1989 and
as Chairman of the Board of Directors from 1991-1998, as Chief Executive Officer
of the Company from January 1991 to August 1991, as President from November 1990
to May 1991, as Vice Chairman of the Board from October 1990 to May 1991, and as
Chief Operating Officer of the Company from November 1990 to May 1991. Mr.
Reynolds was previously employed by NCR Corporation for over 47 years, during
which time he held a variety of sales and marketing and general management
positions including Vice President Pacific Region, Managing Director and
Chairman of the Board NCR United Kingdom, Vice President NCR Europe and Vice
President Executive Office. Mr. Reynolds
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serves as a Director of Sparta, Inc., which provides a wide range of scientific,
engineering and technical assistance services, primarily for the U.S. military
services and the Department of Defense.
ROCKELL N. HANKIN, 53, has served as a director of the Company since 1987. Mr.
Hankin is chief executive of Hankin & Co. (founded June 1986) and its affiliate
Hankin Investment Banking. The firms provide management consulting and
investment banking services. Mr. Hankin also serves as Vice-Chairman of the
Board of Semtech Corporation (NMS), a manufacturer of electronic components, and
a member of the boards of Techniclone Corporation (NMS), a development stage
pharmaceutical company, and Sparta, Inc., a systems analysis and engineering
company serving primarily the military services and the department of defense.
Within the past year, he was Chairman of the Board of House of Fabrics (NMS), a
national retail chain, which was merged and a member of the board of Quidel
(NMS). In addition, Mr. Hankin serves on the Board of several privately held
companies.
RICHARD E. MAHMARIAN, 63, has served as a director of the Company since 1995.
Mr. Mahmarian is currently President of REM Associates, a private investment and
consulting service company. He was Chairman of the Board, President, and Chief
Executive Officer of Verification Systems International, Incorporated, which
designs, engineers and manufactures bar code and two-dimensional symbology
quality assurance instruments, from 1997-1998. Prior to its sale in 1996, Mr.
Mahmarian was Vice Chairman of the Board and Executive Vice President of RJS,
Inc., a manufacturer of bar code printers, verification scanners, software, and
consumable products. Mr. Mahmarian had been a principal of RJS, Inc. since 1987,
when it was purchased in a leveraged buyout. Prior to joining RJS, Inc., he held
various management positions for Bell & Howell Company, Northrop Corporation and
NCR Corporation.
CARLOS D. DE MATTOS, 47, has served as a director of the Company since 1999 and
has served as a Director and the Chairman and Chief Executive Officer of
Matthews Studio Equipment Group since January 1995, and prior thereto as the
Co-Chairman and Chief Executive Officer from February 1989 to January 1995. Mr.
De Mattos became Chief Financial Officer of Matthews Studio Equipment Group in
April, 1996. Mr. De Mattos has also been Co-Chairman of the Board and Chief
Financial Officer of Matthews Studio Equipment, Inc. since 1976.
BENJAMIN P. GIESS, 37, has served as a director of the Company since 1999. Mr.
Giess has been employed by Hampshire Equity Partners, formerly known as ING
Equity Partners, and its predecessors and affiliates since 1992 and currently
serves as a Partner responsible for originating, structuring and managing equity
and debt investments. From 1991 to 1992, Mr. Giess worked in the Corporate
Finance Group of ING Capital. From 1990 to 1991, Mr. Giess was employed by the
Corporate Finance Group of General Electric Capital Corporation. Mr. Giess
serves as a director of e.spire Communications, Inc. a Nasdaq company, which is
a competitive local exchange carrier ("CLEC"), as well as Matthews Studio
Equipment Group, a single source provider of production equipment to the
entertainment industry. In addition, Mr. Giess serves on the board of several
privately held companies.
SAM YAU, 51, has served as a director of the Company since 1998. Mr. Yau was
Chief Executive Officer of National Education Corporation from May 1995 to May
1997. From 1993 through 1995 he was Chief Operating Officer of Advacare, a
medical services company.
On August 7, 1998, the Company entered into a Securities Purchase Agreement (the
"Purchase Agreement") with ING Equity Partners II, L.P., now known as Hampshire
Equity Partners II, L.P. ("Hampshire"). As part of the transaction, the Company
agreed to nominate for election to the Board of Directors a total of three
individuals designated by Hampshire. Benjamin P. Giess, Carlos D. De Mattos and
Sam Yau were designated by Hampshire.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended ("Section
16(a)"), requires the Company's directors and executive officers, and persons
who own more than ten percent (10%) of the Company's Common Stock, to file with
the Securities and Exchange Commission and the National Association of
Securities Dealers, Inc. initial reports of ownership and reports of changes in
ownership of Common Stock. Officers, directors and greater than ten-percent
(10%) shareholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the year ended December 31, 1999, all such reports
required pursuant to Section 16(a) by the Company's officers, directors and
greater than ten-percent (10%) beneficial owners were timely filed.
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ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth for each of the Company's executive officers
earning in excess of $100,000 during the year ended December 31, 1999,
compensation allocated or paid on or before April 1, 2000, for services in all
capacities with the Company and its subsidiaries during the year ended December
31, 1999.
<TABLE>
<CAPTION>
Annual Compensation All Other Compensation
--------------------------------------------- ----------------------
Securities
Name and Other Annual Underlying
Principal Position Year* Salary($) Bonus($) Compensation ($) Options/(#)(1)
------------------ ----- --------- -------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Douglas J. Tullio 1999 336,667 90,000 ** 100,000
President, CEO and 1998* 290,001 110,000 ** 436,237
Chairman of the Board of FY98 267,310 100,000 ** 100,000
Directors
Jeffrey J. Dunnigan (2) 1999 137,852 -- ** --
Vice President Finance 1998* 122,091 39,600 ** 75,000
and CFO and Secretary FY98
John F. Glade (3) 1999 131,171 -- ** --
Vice President, 1998* 120,016 15,000 ** 20,000
Engineering and FY98 120,016 5,000 ** --
Manufacturing,
Dennis E. Michael 1999 122,674 22,000 ** 20,000
Vice President of 1998* 99,532 31,500 ** 30,000
Marketing FY98 92,092 20,000 ** 50,000
John T. DeVito (4) 1999 120,000 58,428 ** 20,000
President, Professional 1998*
Services FY98
</TABLE>
- -------------
* Historically the Company's fiscal year ended in February. In December
1998, the Company adopted a calendar fiscal year. Information for 1998
reflects the period from January 1, 1998, through December 31, 1998 and
includes the Transition Period from February 23, 1998, to December 31,
1998. Information for FY 1998 reflects the Company's prior fiscal year
period from February 24, 1997 to February 22, 1998.
** Aggregate amount does not exceed 10% of the total of annual salary and
bonus reported for the named executive officer.
(1) All options were granted under the 1993 Alpha Microsystems Employee
Stock Option Plan and the 1998 Stock Option and Awards Plan.
(2) Mr. Dunnigan resigned as Vice President, Chief Financial Officer,
effective November 12, 1999. Mr. Dunnigan's employment with the Company
did not commence until late in fiscal 1998, and his total compensation
in fiscal 1998 was less than $100,000.
(3) Mr. Glade resigned as Vice President, Engineering and Manufacturing, on
January 31, 2000, concurrent with the sale to R.E. Mahmarian
Enterprises, LLC.
(4) Mr. DeVito's employment with the Company did not commence until late in
fiscal 1998, and his total compensation in fiscal 1998 was less than
$100,000.
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STOCK OPTION GRANTS
The following table provides information on stock options granted under the 1998
Alpha Microsystems Employee Stock Option Plan to the executive officers named in
the Summary Compensation Table.
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1999 (1)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------- VALUE AT ASSUMED
PERCENT OF TOTAL ANNUAL RATES OF STOCK
OPTIONS/SARS PRICE APPRECIATION FOR
NUMBER OF GRANTED TO OPTION TERM
SECURITIES EMPLOYEES IN MARKET ------------------
UNDERLYING YEAR ENDED EXERCISE OF PRICE ON
OPTIONS/SARS DECEMBER 31, BASE PRICE DATE OF EXPIRATION
NAME GRANTED (#) 1999 ($/SH) GRANT DATE 5% ($) 10% ($)
- ---- ----------- ------------ ------ ----- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Douglas J. Tullio
Chairman, President 50,000 10% $5.6875 $5.6875 2/22/2009 $179,000 $453,000
and CEO `
Jeffrey J. Dunnigan 50,000 10% $5.6875 $5.6875 2/22/2009 $179,000 $453,000
John F. Glade 20,000 4% $5.6875 $5.6875 2/22/2009 $ 71,600 $181,200
Dennis E. Michael 30,000 6% $5.6875 $5.6875 2/22/2009 $107,400 $271,800
John T. DeVito 40,000 8% $5.6875 $5.6875 2/22/2009 $143,200 $362,400
</TABLE>
(1) All options were granted under the 1998 Stock Option and Award Plan.
All options granted become exercisable as follows: 25% on each
anniversary date of the grant beginning February 23, 2000. In the event
that the employment of optionee shall be terminated, otherwise than by
reason of death or permanent disability or misconduct, the option and
all rights terminate three months from the date of termination of
employment.
YEAR-END VALUES OF OUTSTANDING STOCK OPTIONS
The following table provides information with respect to the executive officers
named in the Summary Compensation Table concerning unexercised stock options
held as of the end of the Company's year ended December 31, 1999.
YEAR ENDED DECEMBER 31, 1999 OPTION/VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
NUMBER OF UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED DECEMBER 31, 1999(#) DECEMBER 31, 1999($)
ON EXERCISE VALUE --------------------------- ----------------------------
NAME (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------ --------- ------------ ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Douglas J. Tullio -- -- 540,998 190,239 $1,287,776 $389,725
Jeffrey J. Dunnigan 31,250 $96,694 -- -- -- --
John F. Glade -- -- 27,500 20,000 $ 64,766 --
Dennis E. Michael -- -- 62,500 67,500 $ 172,344 $116,719
John T. DeVito -- -- 25,000 115,000 $ 48,438 $145,313
</TABLE>
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COMPENSATION OF DIRECTORS
Directors who are employees of the Company do not receive additional
compensation for acting as a member of the Board of Directors or any committee
thereof. Outside directors do not receive cash compensation for acting as a
member of the Board of Directors or any committee thereof; however, each outside
director has agreed to accept his director fees in the form of stock options
pursuant to nonemployee director provisions under the 1998 Stock Option and
Awards Plan. In addition, directors are reimbursed for their reasonable travel
expenses incurred for attendance at such meetings.
EMPLOYMENT AGREEMENTS AND GUARANTEED SEVERANCE PAYMENTS
The Company entered into an Amended and Restated Employment Agreement effective
September 1, 1998 with Mr. Tullio as a condition to the Initial Closing of the
ING Securities Purchase Agreement dated August 7, 1998. Such employment
agreement is for a term of four years and establishes an annual base salary for
Mr. Tullio of $300,000, to be adjusted on each anniversary date to be an amount
greater than the average salary but less than the maximum salary for chief
executive officers of comparable companies. Additionally, the agreement provides
that Mr. Tullio shall be considered for a bonus at the end of each fiscal year
in the form of cash, stock options, stock grants or other non-cash compensation
of up to 40% of his base salary based upon performance and in the sole
discretion of the Board. Pursuant to such employment agreement, if Mr. Tullio's
agreement terminates prior to the end of the term as a result of his death or
disability, he or his estate shall be entitled to continuing payment of his base
salary then in effect for 365 days following his termination, or through the
last day of the term of the agreement if earlier. Further, if the Company
terminates Mr. Tullio's employment other than for cause, he shall be entitled to
receive an amount equal to his base salary for the immediately preceding fiscal
year plus the average of his bonus compensation over the Company's two
immediately preceding fiscal years. If Mr. Tullio's employment terminates,
voluntarily or involuntarily, as a result of a "change in control" of the
Company during the term of his employment, he shall be entitled to a lump sum
severance payment equal to his base salary for the Company's immediately
preceding eighteen months plus the average of his bonus compensation over the
Company's two immediately preceding fiscal years, and to the extent not
prohibited by the terms of the applicable plan and applicable law, all of his
stock options shall become fully vested and be exercisable on a cashless
exercise basis. The term "change in control" means any of the following: (a)
merger or consolidation of the Company; (b) sale of all or substantially all of
the assets of the Company; or (c) sale of more than 50% of the outstanding
Common Stock of the Company by any person or persons. In the event of Mr.
Tullio's termination, under certain circumstances the Company is also obligated
to continue to provide medical and dental benefits for periods ranging from
twelve to 18 months.
The Company has also entered into an Employment Agreement effective September 1,
1998 with Mr. DeVito. Such employment agreement is for a term of four years and
establishes an annual base salary for Mr. DeVito of $120,000, to be adjusted on
each anniversary date to be an amount greater than the average salary but less
than the maximum salary for vice presidents of professional service groups of
comparable companies. Additionally, the agreement provides that Mr. DeVito shall
be considered for a bonus at the end of each fiscal year in the form of cash,
stock options, stock grants or other non-cash compensation of up to 6% of the
net operating profit of the Professional Services division, which shall in no
case exceed 100% of his base salary, and shall be based on the performance of
the Professional Services division and determined in the sole discretion of the
Board. Pursuant to such employment agreement, if Mr. DeVito's agreement
terminates prior to the end of the term as a result of his death or disability,
he or his estate shall be entitled to continuing payment of his base salary then
in effect for 365 days following his termination, or through the last day of the
term of the agreement if earlier. Further, if the Company terminates Mr.
DeVito's employment other than for cause, he shall be entitled to receive an
amount equal to his base salary for the immediately preceding fiscal year plus
the average of his bonus compensation over the Company's two immediately
preceding fiscal years. If Mr. DeVito's employment terminates, voluntarily or
involuntarily, as a result of a "change in control" of the Company during the
term of his employment, he shall be entitled to monthly severance payments for
twelve (12) months following the effective date of such termination equal to his
base salary for the Company's immediately preceding fiscal year plus the average
of his bonus compensation over the Company's two immediately preceding fiscal
years, and to the extent not prohibited by the terms of the applicable plan and
applicable law, all of his stock options shall become fully vested and be
exercisable on a cashless exercise basis. The term "change in control" means any
of the following: (a) merger or consolidation of the Company; (b) sale of all or
substantially all of the assets of the Company; or (c) sale of more than 50% of
the outstanding Common Stock of the Company by any person or persons.
The Company has also entered into an Employment Agreement effective November 26,
1999 with Mr. Riiska. The agreement is not for any specified term as either
party may terminate the employment relationship at any time in accordance with
the terms of the agreement. Such employment agreement establishes an annual base
salary for Mr. Riiska of $160,004, to be adjusted from time to time in the
discretion of the Board. Additionally, the agreement provides that Mr. Riiska
shall be considered for a bonus at the end of each fiscal year of up to 30% of
his base salary based upon performance of the Company and in the sole discretion
of the Board. Pursuant to such employment agreement, under certain
circumstances, if Mr. Riiska is terminated, voluntarily or involuntarily, as a
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result of a "change in control" of the Company during the term of his
employment, he shall be entitled to monthly severance payments for twelve (12)
months following the effective date of such termination equal to his base salary
for the Company's immediately preceding fiscal year, and to the extent not
prohibited by the terms of the applicable plan and applicable law, all of his
stock options shall become fully vested. The term "change in control" means any
of the following: (a) merger or consolidation of the Company; (b) sale of all or
substantially all of the assets of the Company; or (c) sale of more than 50% of
the outstanding Common Stock of the Company by any person or persons. The
severance payments are based upon the base salary paid to Mr. Riiska during the
previous fiscal year (excluding any non-cash compensation).
INDEMNIFICATION AGREEMENTS
The Company has entered into indemnification agreements with its directors and
certain key officers which provide such individuals with contractual
indemnification rights. Such indemnification agreements apply retroactively as
well as prospectively to any actions taken by the indemnified parties while
serving as officers or directors of the Company. Such indemnification agreements
also provide that the Company shall indemnify such persons to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the indemnification agreement, the Company's Articles of
Incorporation, the Company's Bylaws or by statute.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee for the year ended December 31 1999, was
composed of Messrs. Mahmarian, Reynolds, Giess and De Mattos. Mr. Mahmarian
serves as Chairman of the Compensation Committee.
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ITEM 12. SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table contains certain information as of April 24, 2000, as to
each director, each individual included in the Summary Compensation Table, all
officers and directors as a group and each person who, to the knowledge of the
Company, was the beneficial owner of 5% or more of the outstanding shares of
Common Stock. Persons named in the following table have sole voting and
investment powers with respect to all shares shown as beneficially owned by
them, subject to community property laws where applicable, and other information
contained in the footnotes to the table. Information with respect to beneficial
ownership is based on the Company's Common Stock records and data supplied to
the Company by its shareholders.
<TABLE>
<CAPTION>
Amount and Nature of Percent
Title of Class Name of Beneficial Owner Beneficial Ownership(1) of Class
- -------------- ------------------------ ----------------------- --------
<S> <C> <C> <C>
Voting Preferred Stock Hampshire Equity Partners II, L.P. 1 (2) 100.0
Common Stock Hampshire Equity Partners II, L.P. 10,059,674 (2) 43.4
Common Stock Carlos D. De Mattos 95,028 *
Common Stock John T. DeVito 41,819 *
Common Stock Jeffrey J. Dunnigan 15,086 *
Common Stock Benjamin P. Giess 10,059,674 (2) (3) 43.4
Common Stock John F. Glade 204,200 (4) 1.4
Common Stock Rockell N. Hankin 178,875 1.3
Common Stock Richard E. Mahmarian 210,375 1.5
Common Stock Dennis E. Michael 71,759 *
Common Stock Clarke E. Reynolds 194,875 1.4
Common Stock Douglas J. Tullio 660,106 4.5
Common Stock Sam Yau 87,272 *
Common Stock All directors and officers as a group 11,599,783 45.1
(10 persons)(5)
</TABLE>
* Does not exceed 1% of the outstanding shares of the voting securities
of the Company.
(1) Includes shares issuable upon exercise of options and warrants which
are presently exercisable or will become exercisable on or before June
23, 2000, in the following amounts: Hampshire Equity Partners II, L.P.:
9,064,274; De Mattos: 91,428; DeVito: 35,000; Dunnigan: 5,000,
Giess(3): 9,064,274, Hankin: 134,542; Mahmarian: 142,042; Michael,
70,000; Reynolds: 132,042; Tullio: 593,737; Yau: 87,272; and by all
officers and directors as a group: 10,350,337.
(2) Hampshire Equity Partners II, L.P.'s (formerly known as ING Equity
Partners II, L.P). ownership of one (1) share of Voting Preferred Stock
entitles it to cast votes equivalent to the number of shares it has the
right to acquire pursuant to outstanding warrants which as of June 14,
2000 is 8,816,446 shares of Common Stock. Additionally, ING owns 2,500
shares of Class A1 Preferred Stock, 5,500 shares of Class A2 Preferred
Stock, 7,000 shares of Class B1 Preferred Stock, 5,000 shares of Class
C1 Preferred Stock, and 391 shares of Class E Preferred Stock. The
address of Hampshire Equity Partners II, L.P. is 520 Madison Avenue,
New York, New York 10022-4213.
(3) Mr. Giess disclaims beneficial ownership of the shares which are held
by Hampshire Equity Partners II, L.P. and described in footnote (2) as
well as shares for which he has been granted options as a director. Mr.
Giess is prohibited from realizing any direct benefit from the option
shares and holds the option shares for the benefit of Hampshire Equity
Partners II, L.P. Mr. Giess is an executive officer of Lexington Equity
Partners II, Inc., which is the general partner of Lexington Equity
Partners II, L.P., the general partner of Hampshire Equity Partners II,
L.P.; however, the Company has been advised that Mr. Giess does not
exercise sole or shared voting or dispositive power with respect to the
share of Voting Preferred Stock, the Preferred Stock or the outstanding
warrants held by Hampshire Equity Partners II, L.P. described in
footnote (2).
(4) Includes 156,200 shares held in a revocable trust of which Mr. Glade
and his wife, Alana L. Glade, are sole trustees. Mr. and Mrs. Glade,
acting jointly, have the power to vote and dispose of such shares.
(5) Does not include shares held by Mr. Glad or Mr. Dunnigan, who are no
longer officers of the Company.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective on January 31, 2000, the Company sold substantially all of the assets
associated with the Company's managed services division and the computer
hardware manufacturing division to R.E. Mahmarian Enterprises, LLC, which is
owned by Richard E. Mahmarian, a current member of the Company's Board of
Directors, for consideration of approximately $3.2 million, consisting primarily
of liabilities that were assumed by R.E. Mahmarian Enterprises, LLC. The Company
also received a ten percent contingent interest in gross cash and non-cash
proceeds that may be received by R.E. Mahmarian Enterprises, LLC upon the
occurrence of certain liquidity events. The financial terms of this transaction
were negotiated by management of the Company and R.E. Mahmarian Enterprises,
LLC, and the sale of the managed services division and the computer hardware
manufacturing division to R.E. Mahmarian Enterprises, LLC was approved by a
special committee of the Board of Directors. In addition, the Company received
an opinion from its investment bankers that the consideration received in the
transaction was fair from a financial point of view. The assets sold included
certain accounts receivable, prepaid expenses, other current and non-current
assets, inventories, fixed assets, information technology service contracts and
capitalized software development costs. The Company also agreed to (1) grant
R.E. Mahmarian Enterprises, LLC the right to use the name "Alpha Microsystems"
and associated logos, marks and trade dress, (2) transfer the rights to the
trade names, logos and trademarks associated with divisions that were sold, and
(3) enter into a five-year license agreement providing the right to internally
use the Company's NQL Solutions technology. Additionally, the Company agreed to
sublease a portion of its Santa Ana, California facility to R.E. Mahmarian
Enterprises, LLC at the same rent as is paid by the Company.
On March 15, 2000, the Company and R.E. Mahmarian Enterprises, LLC entered into
a second amendment to the original asset purchase agreement whereby R.E.
Mahmarian Enterprises, LLC assumed the remaining outstanding accounts payable of
the managed services division and the computer hardware manufacturing division
and has agreed to pay the Company $500,000 in cash in exchange for the remaining
accounts receivable of the managed services division and the computer hardware
manufacturing division purchased earlier from the Company. The terms were
negotiated by management of the Company and approved by the Board of Directors.
In March of 2000, the Company privately placed 2,342,000 shares of its
restricted Common Stock for a total placement of $14,637,500. The private
placement was led by Hampshire Equity Partners II, L.P., whose investment
represented approximately $6,221,000 of the total placement amount. Hampshire
Equity Partners II, L.P. has been the beneficial owner of five percent (5%) or
more of the Company's voting securities since August 7, 1998. The Common Stock
was priced at $6.25 per share, which represented an 11% discount from the
preceding 30-day average closing price of the Common Stock, calculated on March
18, 2000, when the Company signed the engagement letter for the private
placement. The terms were negotiated by management of the Company and approved
by the Board. The Company intends to file a registration statement in connection
with these shares.
Effective November 18, 1999, Hampshire Equity Partners II. L.P. purchased an
additional $5.0 million of exchangeable redeemable preferred stock. The
investment constituted the third tranche of an agreement originally announced in
August 1998, which was amended to permit the proceeds to be used to (i) repay a
$2.5 million outstanding balance under the Company's revolving line of credit
facility, (ii) provide $500,000 to fund the separation of the Company's internet
software business from its IT services business; and (iii) permit an additional
$1.9 million to be used as working capital.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: April 28,2000 ALPHA MICROSYSTEMS
By: /s/ DOUGLAS J. TULLIO
------------------------------------
Douglas J. Tullio
President, Chief Executive Officer
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