<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 28, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission File Number 0-14365
ALPHA TECHNOLOGIES GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 76-0079338
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
750 Lexington Avenue, 27th Floor, New York, New York 10022-1208
(Address of principal executive offices)
(212)-446-5258
(Registrant's telephone number, including area code)
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.03 par value 6,192,441
- ---------------------------- ---------
Class Outstanding at February 29, 1996
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC.
FORM 10-Q
JANUARY 28, 1996
TABLE OF CONTENTS
Page No.
--------
PART I FINANCIAL INFORMATION........................................ 3
CONSOLIDATED BALANCE SHEETS - OCTOBER 29, 1995 AND JANUARY 28, 1996.. 3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE QUARTERS ENDED
JANUARY 29, 1995 AND JANUARY 28, 1996............................... 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED
JANUARY 29, 1995 AND JANUARY 28, 1996.............................. 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS........................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................................... 9
PART II - OTHER INFORMATION.......................................... 12
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - OCTOBER 29, 1995 AND JANUARY 28, 1996
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
October 29, 1995 January 28, 1996
---------------- ----------------
<S> <C> <C>
(Unaudited)
ASSETS
- ------
CURRENT ASSETS:
Cash $ 6,058 $ 4,683
Accounts receivable, net 11,982 10,818
Inventories, net 8,191 8,621
Prepaid expenses 1,119 1,715
-------- --------
Total current assets 27,350 25,837
PROPERTY AND EQUIPMENT, at cost 10,930 12,665
Less - Accumulated depreciation
and amortization 1,313 1,747
-------- --------
Property and equipment, net 9,617 10,918
GOODWILL, net 2,813 2,957
OTHER ASSETS, net 2,476 2,469
-------- --------
$ 42,256 $ 42,181
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable, trade $ 5,166 $ 5,232
Accrued compensation and related
benefits 2,329 1,749
Other accrued liabilities 2,426 2,116
Current portion of long-term debt 850 913
Current portion of other long-term
liabilities 883 871
-------- --------
Total current liabilities 11,654 10,881
LONG-TERM DEBT 9,093 9,408
OTHER LONG-TERM LIABILITIES 1,010 981
MINORITY INTEREST IN CONSOLIDATED 1,736 1,677
SUBSIDIARY
STOCKHOLDERS' EQUITY:
Preferred stock, $100 par value;
shares authorized 180,000 - -
Common stock, $.03 par value;
shares authorized 17,000,000;
issued 6,977,845 at October 29, 1995
and 7,127,845 at January 28, 1996 209 214
Additional paid - in capital 39,114 39,412
Retained deficit (17,459) (17,326)
Cumulative translation adjustment,
net of income taxes - 35
Treasury stock, at cost (935,404
common shares at October 29, 1995
and January 28, 1996) (3,101) (3,101)
-------- --------
18,763 19,234
-------- --------
$ 42,256 $ 42,181
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
3
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTERS ENDED JANUARY 29, 1995 AND JANUARY 28, 1996
(Unaudited)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
January 29, January 28,
1995 1996
------------- -----------
<S> <C> <C>
SALES $11,208 $17,063
COST OF SALES 8,208 13,318
------ -------
Gross profit 3,000 3,745
OPERATING EXPENSES
Research and development 243 334
Selling, general and administrative 2,558 3,065
------ -------
Total operating expenses 2,801 3,399
------ ------
OPERATING INCOME 199 346
INVESTMENT INCOME 11 -
INTEREST AND OTHER INCOME (EXPENSE), net (64) (213)
------ ------
INCOME BEFORE TAXES 146 133
PROVISION FOR INCOME TAXES 51 59
------ ------
INCOME BEFORE MINORITY INTEREST 95 74
MINORITY INTEREST IN LOSSES OF
CONSOLIDATED SUBSIDIARY 6 59
------ ------
NET INCOME $ 101 $ 133
====== ======
PER COMMON AND COMMON EQUIVALENT SHARE:
Income before minority interest $ 0.02 $ 0.01
Minority interest - $ 0.01
------ ------
Net income $ 0.02 $ 0.02
====== ======
SHARES USED IN COMPUTING NET INCOME PER
COMMON EQUIVALENT SHARE 6,590 6,726
====== ======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 29, 1995 AND JANUARY 28, 1996
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
January 29, January 28,
1995 1996
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 101 $ 133
Adjustments to reconcile net
income to net cash (used)
by operating activities:
Deferred income taxes 10 -
Depreciation and amortization 194 510
Minority interest in earnings
of subsidiary (6) (59)
Cumulative translation
adjustment - 35
Changes in assets and liabilities:
(Increase) in marketable
securities -- trading
securities (11) -
Decrease in notes receivable 1,000 -
Decrease in accounts
receivable 232 1,164
(Increase) in inventory (886) (430)
(Increase) in prepaid expenses (70) (596)
(Increase) in goodwill (98) (191)
Increase (decrease) in
accounts payable (140) 66
(Decrease) in accrued
compensation and related
benefits (336) (580)
(Decrease) in other accrued
liabilities (350) (310)
(Decrease) in other long-term
liabilities (306) (41)
------- --------
Total adjustments (767) (432)
------- --------
Net cash (used) by operating
activities (666) (299)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and
equipment, net (767) (1,735)
(Increase) decrease in other
assets, net 2 (22)
------- --------
Net cash (used) by investing
activities (765) (1,757)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common 16 303
stock
Payments to repurchase common stock (1,388) -
Proceeds from debt 9,184 15,018
Payments on debt (7,125) (14,640)
------- --------
Net cash provided by 687 681
financing activities
NET (DECREASE) IN CASH (744) (1,375)
------- --------
CASH, beginning of year 7,406 6,058
------- --------
CASH, end of period $ 6,662 $ 4,683
======= ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
5
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ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION
The consolidated financial statements include the accounts of Alpha Technologies
Group, Inc. ("Alpha" or the "Company") and its wholly- and majority-owned
subsidiaries. All material intercompany transactions and balances have been
eliminated. The Company through its wholly-owned subsidiary, Wakefield
Engineering, Inc. ("Wakefield"), and its 80%-owned subsidiary, Uni-Star
Industries, Inc. ("Uni-Star"), designs, manufactures and sells thermal
management products and connectors. Thermal management products serve the
microprocessor, computer, consumer electronics, transportation and other
industries. Connector products serve the defense, telecommunications,
automotive and aerospace industries.
The Company was incorporated under its original corporate name, Synercom
Technology, Inc. in Texas in 1969, as a software company, and was reincorporated
in Delaware in 1983. The shareholders, at the Annual Meeting of the Company on
April 19, 1995, approved a name change of the corporation to Alpha Technologies
Group, Inc.
(2) CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
In the opinion of the Company, the accompanying interim unaudited consolidated
financial statements contain all material adjustments, consisting only of normal
recurring adjustments necessary to present fairly the financial condition, the
results of operations and the changes in cash flows of Alpha Technologies
Group, Inc. and Subsidiaries for interim periods. The results for such interim
periods are not necessarily indicative of results for a full year.
Users of financial information produced for interim periods are encouraged to
refer to the footnotes contained in the Annual Report to Stockholders when
reviewing interim financial results.
(3) INVENTORIES
<TABLE>
<CAPTION>
Inventories consisted of the following on October 29, January 28,
(in thousands): 1995 1996
----------- -----------
<S> <C> <C>
Raw materials and $5,260 $5,096
components
Work in process 1,803 1,903
Finished goods 1,548 2,106
------ ------
8,611 9,105
Valuation reserve (420) (484)
------ ------
$8,191 $8,621
====== ======
</TABLE>
6
<PAGE>
4. LONG-TERM DEBT
Long-term debt consisted of the following on:
<TABLE>
<CAPTION>
October 29, January 28,
1995 1996
----------- -----------
(In Thousands)
<S> <C> <C>
Variable-rate
revolving credit facility
(effective interest rate
of 9.25% at January 28,
1996), interest payable
monthly, principal is
repaid and reborrowed
based on cash requirements $6,104 $ 6,275
Variable-rate revolving credit
commitment (effective interest
rate of 9.00% at January 28,
1996), interest payable monthly,
principal is repaid and
reborrowed based on cash
requirements 1,000 1,300
Variable-rate equipment notes
(effective interest rates of
9.25% at January 28, 1996),
payable in monthly
installments ranging from
$3,444 to $20,833, plus
accrued interest, with
maturities ranging from
October of 1997 through
June of 1999 2,839 2,746
------ -------
9,943 10,321
Less current portion 850 913
------ -------
$9,093 $ 9,408
====== =======
</TABLE>
On January 30, 1996, Wakefield Engineering, Inc. entered into the Second
Amendment to its Loan and Security Agreement dated June 22, 1994 (the "Loan
Agreement"), to increase the revolving credit facility from $7,000,000 to
$9,000,000, to make Specialty Extrusion Corp., a wholly-owned subsidiary of
Wakefield ("Specialty"), a co-borrower under the Loan Agreement and to extend
revolving loans to Specialty and make available to Specialty a $200,000
Equipment Facility Loan which will be used to repay, in part, borrowings from
Wakefield. Interest on the revolving credit facility and equipment loans
accrues at the bank's corporate base rate plus .75% percent. On January 28,
1996, the interest on the bank debt was 9 1/4% per annum. The obligations under
the Loan Agreement are secured by a first lien on and assignment of all of the
assets of the thermal management operations which in aggregate totals
$24,766,000. The Loan Agreement includes various financial covenants with
which, on January 28, 1996, Wakefield was in compliance. On, January 28, 1996,
$6,275,000 was outstanding under the revolving credit facility.
Uni-Star has available a revolving credit commitment of up to $2.5 million and
an equipment acquisition facility of $300,000, which must be borrowed prior to
August 31, 1996, under an accounts receivable loan agreement entered into on
August 31, 1995. The proceeds from the equipment acquisition facility may be
used only for the purchase of capital equipment. Interest on the funds advanced
under the revolving credit commitment ($1,300,000 on January 28, 1996) accrues
at the bank's prime corporate rate plus .50% (9% per annum on January 28, 1996)
and interest on the equipment loans accrues at the bank's prime rate plus .75%
(9 1/4% per annum on January 28, 1996). All Uni-Star credit facilities are
secured by a first lien and assignment of
7
<PAGE>
substantially all Uni-Star's assets,
including its accounts receivable, inventory, equipment and general intangibles.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Sales. Sales for the first quarter of fiscal 1996 were $17,063,000, an increase
of $5,855,000 or 52.2%, compared to sales of $11,208,000 for the first quarter
of fiscal 1995. Thermal management sales increased 61.7% to $12,331,000 for the
1996 quarter from $7,624,000 for the quarter ended January 29, 1995. This
increase was due to internal growth and the inclusion of sales by Specialty
Extrusion Corp., which was acquired in June 1995. The internal growth of sales
from the thermal management business was due to increased sales of Penguin
Coolers, which serve the high performance microprocessor market, and extruded
heat sinks. Virtually every electronic device used today is undergoing
transformations geared toward adding more power, new features and enhanced
portability while simultaneously being packaged in smaller enclosures requiring
more complex thermal management solutions.
Connector sales were $4,732,000 during the first quarter of fiscal 1996 compared
to $3,584,000 during the first quarter of the prior fiscal year. This increase
is primarily attributable to sales by the Company's international operations.
International sales of connector products are supported by two facilities
located in England and France, which assemble and sell micro-miniature
connectors for the European market. These operations were established in June
and July of 1995.
Gross Profit. The Company's overall gross profit as a percentage of total
revenues ("gross profit percentage") for the quarter ended January 28, 1996 was
21.9% versus 26.8% for the quarter ended January 29, 1995. The decrease in
gross profit percentage was primarily due to a significant increase in sales of
Penguin Coolers, which have a lower gross profit percentage than the Company's
average, and the inclusion in the 1996 period of Specialty's sales, which also
have lower gross profit margins. In addition the gross profit percentage from
connector sales decreased slightly in the first quarter of fiscal 1996 versus
the first quarter of 1995 due to a change in the mix of products sold.
Research and Development Expense. Research and development expenses for the
first quarter of fiscal 1996 were $334,000 compared to $243,000 for the first
quarter of fiscal 1995. This increase was due primarily to an increase in
engineering staff as well as new licensing costs for engineering software in the
thermal management business.
Selling, General and Administrative Expense. Selling, general and
administrative expenses for the first quarter of fiscal 1996 were $3,065,000, or
18.0% of sales, compared to $2,558,000, or 22.8% of sales, for the first
9
<PAGE>
quarter of fiscal 1995. The decrease of selling, general and administrative
expenses as a percentage of sales was primarily attributable to increased sales
volume without a proportional increase in selling, general and administrative
expenses.
Interest and Other Income (Net). Interest income, which was $57,000 in the
first quarter of fiscal 1996 and $79,000 in the first quarter of fiscal 1995,
was earned on excess cash. Interest expense was $260,000 and $138,000 for the
quarters ended January 28, 1996 and January 29, 1995, respectively. This
increase was due to a higher borrowing base.
Income Taxes. The provision for income taxes for the quarter ended January 28,
1996, was $59,000 which included state income tax expense of $25,000 and foreign
income tax expense of $34,000. Provision for state and foreign income taxes was
booked for profitable operations in various locations. For the quarter ended
January 29, 1995, the income tax provision included federal income taxes of
$13,000 and state income taxes of $38,000.
Minority Interest. The minority interest not acquired by the Company related to
the Uni-Star business was included in income before provision for income taxes
on the consolidated statement of operations and as a separate item on the
consolidated balance sheet and statement of cash flows. The Company owns 80% of
the outstanding common stock of Uni-Star.
Liquidity and Capital Resources
On January 28, 1996, the Company had cash of approximately $4,683,000 compared
to $6,058,000 on October 29, 1995. Existing cash plus advances under the
Wakefield and Uni-Star loan agreements and funds received from the issuance of
common stock upon the exercise of stock options were used for operating
activities and for purchases of capital equipment.
For the three months ended January 28, 1996, $299,000 were used to fund
operations, primarily to increase inventories and prepaid expenses and to
decrease accrued liabilities. This use of funds was partially offset by
collections on accounts receivable. In addition to operating activities,
$1,735,000 were used to purchase capital equipment including machinery, to
increase manufacturing capacity in the thermal management business and to
improve efficiency in the connector business, and tooling to expand the low
power heat sink product line.
On January 30, 1996, Wakefield Engineering, Inc. entered into the Second
Amendment to its Loan and Security Agreement dated June 22, 1994 (the "Loan
Agreement"), to increase the revolving credit facility from $7,000,000 to
$9,000,000, to make Specialty Extrusion Corp., a wholly-owned subsidiary of
Wakefield ("Specialty"), a co-borrower under the Loan Agreement and to extend
revolving loans to Specialty and make available to Specialty a $200,000
Equipment Facility Loan which will be used to repay, in part, borrowings from
10
<PAGE>
Wakefield. Interest on the revolving credit facility and equipment loans
accrues at the bank's corporate base rate plus .75% percent. On January 28,
1996, the interest on the bank debt was 9 1/4% per annum. The obligations under
the Loan Agreement are secured by a first lien on and assignment of all of the
assets of the thermal management operations which in aggregate totals
$24,766,000. The Loan Agreement includes various financial covenants with
which, on January 28, 1996, Wakefield was in compliance. On, January 28, 1996,
$6,275,000 was outstanding under the revolving credit facility.
Uni-Star has available a revolving credit commitment of up to $2.5 million and
an equipment acquisition facility of $300,000, which must be borrowed prior to
August 31, 1996, under an accounts receivable loan agreement entered into on
August 31, 1995. The proceeds from the equipment acquisition facility may be
used only for the purchase of capital equipment. Interest on the funds advanced
under the revolving credit commitment ($1,300,000 on January 28, 1996) accrues
at the bank's prime corporate rate plus .50% (9% per annum on January 28, 1996)
and interest on the equipment loans accrues at the bank's prime rate plus .75%
(9 1/4% per annum on January 28, 1996). All Uni-Star credit facilities are
secured by a first lien and assignment of substantially all Uni-Star's assets,
including its accounts receivable, inventory, equipment and general intangibles.
The Company believes that its currently available cash, anticipated cash flow
from operations and availability under credit facilities should be sufficient to
fund its operations in the near-term.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.23 Second Amendment to Loan and Security Agreement dated as of June 22,
1994 entered into by and between Fleet National Bank of Massachusetts
and Wakefield Engineering, Inc.
11.1 Statement re Computation of Per Share Earnings for the quarters ended
January 29, 1995 and January 28, 1996.
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports for Form 8-K filed by the Company during the quarter
ended January 28, 1996.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Alpha Technologies Group, Inc.
------------------------------
(Registrant)
Date: March 12, 1996 By: /s/ Lawrence Butler
----------------------------- ---------------------------------
Lawrence Butler
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 12, 1996 By: /s/ Johnny J. Blanchard
----------------------------- ---------------------------------
Johnny J. Blanchard
Chief Financial Officer (Principal
Financial and Accounting Officer)
13
<PAGE>
EXHIBIT INDEX
Exhibit Page No.
10.23 Second Amendment to Loan and Security Agreement dated as of June 22, 1994
entered into by and between Fleet National Bank of Massachusetts and
Wakefield Engineering, Inc.
.
11.1 Statement re Computation of Per Share Earnings for the quarters
ended January 29, 1995 and January 28, 1996.
27 Financial Data Schedule.
14
<PAGE>
Exhibit 10.23
WAKEFIELD ENGINEERING, INC.
60 Audubon Road
Wakefield, MA 01880
As of January 30, 1996
FLEET NATIONAL BANK OF MASSACHUSETTS
f/k/a Shawmut Bank, N.A.
One Federal Street
Boston, MA 02211
Re: Second Amendment to Loan Agreement
Ladies and Gentlemen:
Reference is made to the Loan and Security Agreement dated June 22, 1994,
as amended by the First Amendment thereto dated May 5, 1995 (together the "Loan
Agreement") and all promissory notes, agreements, documents and instruments
entered into by Wakefield Engineering, Inc. (the "Borrower") and any other
person or obligor pursuant thereto (collectively, the "Loan Documents") with or
for the benefit of Fleet National Bank of Massachusetts (f/k/a Shawmut Bank,
N.A.) ("Bank"). Except as otherwise defined herein, capitalized terms used
herein shall have the meanings given them in the Loan Agreement. This Second
Amendment to Loan Agreement is referred to as the "Second Amendment".
Background. The Borrower which owns Specialty Extrusion Corp., a California
corporation ("Specialty") which acquired substantially all of the assets of
Specialty Extrusion, Ltd., and has requested that the Bank agree to make
Specialty a co-borrower under the Loan Agreement and extend Revolving Loans to
Specialty. In addition, the Borrower has requested that the Bank increase the
limit on Revolving Loans that may be made to the Borrower and Specialty and make
available a $200,000 Equipment Facility Loan to Specialty to repay, in part, a
loan made by Wakefield that was used to acquire certain equipment.
Subject to the satisfaction of the terms and conditions hereof, Bank and
Borrower have agreed that the Loan Agreement shall be amended as follows:
1. Specialty Designated as Additional Borrower. Specialty is, and hereby
shall be, a Borrower under the Loan Agreement, jointly and severally with
Wakefield Engineering, Inc. ("Wakefield") with respect to all now existing and
hereafter Obligations and all references to Borrower in the Loan Agreement shall
mean Wakefield and Specialty, jointly and severally.
<PAGE>
Fleet Capital Corporation
January 30, 1996
Page 2
Throughout the Loan Agreement and other Loan Documents all references to the
singular shall also mean the plural and all references to the plural shall also
mean the singular.
2. Amendments to the Loan Agreement.
2.1. Section 1, Certain Definitions, is hereby amended as follows:
(a) The definition of "Borrowing Base" is deleted and the following is
inserted in place thereof:
"Borrowing Base" means the sum of the following (as shown on
Bank's records at any time):
(a) eighty-five percent (85%) of the unpaid face amount of
Wakefield's Eligible Accounts; PLUS
(b) the lesser of (A) $3,000,000 or (B) fifty-five percent (55%)
of the first-in, first-out cost or market value, whichever is
lower, of Wakefield's Eligible Inventory; PLUS
(c) as to Specialty the lesser of (i) $1,500,000.00 and (ii) the
sum of (A) eighty-five percent (85%) of the unpaid face amount of
Specialty's Eligible Accounts plus (B) the lesser of (1) all
outstanding Revolving Loans made in respect of Specialty's
Eligible Accounts or (2) fifty-five percent (55%) of the first-
in, first-out or market value, whichever is lower, of Specialty's
Eligible Inventory.
PROVIDED THAT Bank at all times reserves the right exercisable in
Bank's reasonable credit judgment, based on circumstances then
existing, to adjust any of the percentages on the amounts set
forth above upon fifteen (15) days notice to Borrower.
(b) The definition of Excess Availability is amended by deleting
the number "$7,000,000" contained therein and substituting in
lieu thereof the number "$9,000,000".
(b) The definition of Termination Date is amended by deleting the
words and number "May 5, 1997" contained therein and substituting in lieu
thereof the words and number "April 30, 1997".
<PAGE>
Fleet Capital Corporation
January 30, 1996
Page 3
2.2 Section 2, Loans is amended by deleting the words and number "(x) Seven
Million Dollars ($7,000,000.00)" in the last sentence of the Section and
substituting in lieu thereof the following:
"(x)(A) with respect to Wakefield, $7,500,000.00 and (B) with respect
to Specialty, $1,500,000.00,"
2.3 Section 4(n) is amended to add the following location to the list of
locations set forth therein:
1580 East Kimberly Avenue
Fullerton, California 92634
2.4 Section 8(a) of the Loan Agreement is amended by deleting the Section
in its entirety and by substituting in place thereof the following:
"(a) Tangible Capital Base. Permit its Tangible Capital Base to be
less than the following amounts at the end of the respective periods (measured
in fiscal quarters) set forth below:
Period Minimum Tangible Capital Base
------ -----------------------------
3 months ending January 28, 1996 $5,000,000
6 months ending April 28, 1996 $6,000,000
9 months ending July 28, 1996 $7,000,000
12 months ending October 27, 1996 $8,000,000
3 months ending January 26, 1997 $9,000,000
2.5. Section 8(b) is amended by deleting the Section in its entirety and
inserting in place thereof the following:
"8(b) Debt Service and Unfinanced Capital Expenditures Coverage Ratio.
Permit the ratio of the aggregate of (A)(i) EBITDA minus (ii) unfinanced capital
expenditures and minus (iii) permitted payments on Subordinated Indebtedness and
any permitted Dividends to (B) the sum of (i) interest expense and (ii) CMLTD
for any fiscal quarter of the Borrower to be less than 1.00 to 1.00 at the end
of any fiscal quarter of Borrower through and inclusive of the fiscal quarter
ending April 30, 1996, 1.25 to 1.00 at the end of any fiscal quarter for the
fiscal quarters of Borrower ending on July 31, 1996 and October 31, 1996 and
1.50 to 1.00 at the end of any fiscal quarter thereafter. The one-time repayment
of up to $1,000,000 of subordinated debt to
<PAGE>
Fleet Capital Corporation
January 30, 1996
Page 4
Alpha made in connection with the Second Amendment shall not be included in the
foregoing computation."
2.6. Section 8(e) of the Loan Agreement is amended by deleting the number
"2.00" contained herein and substituting in lieu thereof the number "1.50".
2.7. Section 8(f) of the Loan Agreement is amended by deleting the Section
in its entirety and substituting in lieu thereof the following:
"(f) Interest Coverage Ratio. Permit the ratio of (i) Borrower's EBIT
for each fiscal quarter to (ii) Borrower's interest expense for each fiscal
quarter to be less than 2.00 to 1.00."
3. Grant of Security Interest. As security for the prompt performance,
observance and payment in full of all Obligations, Specialty hereby grants to
Bank a continuing security interest in and lien on all assigns, transfers, sets
over and pledges to the Bank all property of Specialty whether now owned by
Specialty or hereafter acquired or existing, and wherever located (collectively,
the "Collateral"), including without limitation:
(a.) all Accounts;
(b.) all Inventory;
(c.) all Equipment;
(d.) all General Intangibles;
(e.) all Instruments and Documents;
(f.) all Related Collateral; and
(g.) all accessions to and additions to, substitutions for, replacements,
products and Proceeds to any and all of the foregoing.
The term "Collateral" shall also refer to any other property in which Bank is
granted a Lien to secure any of the Obligations pursuant to an agreement
supplemental hereto or otherwise (whether or not such agreement makes reference
to the Loan Agreement or the Obligations of Borrower thereunder).
4. Representations and Warranties.
To induce Bank to enter into this Second Amendment, each Borrower jointly
and severally warrants, represents and covenants to Bank that:
<PAGE>
Fleet Capital Corporation
January 30, 1996
Page 5
(a) Organization and Qualification. Each Borrower is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Each Borrower is duly qualified or is
authorized to do business and is in good standing as a foreign corporation in
all states and jurisdictions in which the failure of such Borrower to be so
qualified would have a material adverse effect on the financial condition,
business or properties of such Borrower.
(b) Corporate Power and Authority. Each Borrower is duly authorized and
empowered to enter into, execute, deliver and perform this Second Amendment, and
each of the Loan Documents to which it is a party. The execution, delivery and
performance of this Second Amendment and each of the other Loan Documents have
been duly authorized by all necessary corporate action and do not and will not
(i) require any consent or approval of the shareholders of any Borrower; (ii)
contravene any Borrower's charter or by-laws; (iii) violate, or cause any
Borrower to be in default under, any provision of any law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award in effect
having applicability to such Borrower; (iv) result in a breach of or constitute
a default under any indenture or loan or credit agreement or any other
agreement, lease or instrument to which any Borrower is a party or by which such
Borrower's properties may be bound or affected; or (v) result in, or require,
the creation or imposition of any Lien (other than Permitted Liens) upon or with
respect to any of the properties now owned or hereafter acquired by any
Borrower.
(c) Legally Enforceable Agreement. This Second Amendment and each of the
other Loan Documents when delivered under this Second Amendment will be, a
legal, valid and binding obligation of each Borrower, enforceable against each
Borrower in accordance with its respective terms subject to bankruptcy,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally.
(d) No Material Adverse Change. Since December 31, 1995, the date of the
last financial statements provided by the Borrower to the Bank, there has been
no material adverse change in the condition, financial or otherwise, of Borrower
as shown on the consolidated balance sheet thereof as of such date and no change
in the aggregate value of property and assets owned by Borrower, except changes
in the ordinary course of business, none of which individually or in the
aggregate has been materially adverse.
(e) Continuous Nature of Representations and Warranties. Each
representation and warranty contained in the Loan Agreement and the other Loan
Documents remains accurate, complete and not misleading in any material respect
on the date of this Second Amendment, except for representations and warranties
that explicitly relate to an earlier date and changes in the nature of
Borrower's business or operations that would render the information in any
exhibit attached thereto either inaccurate, incomplete or misleading, so long as
Bank has consented to such changes or such changes are expressly permitted by
the Loan Agreement.
<PAGE>
Fleet Capital Corporation
January 30, 1996
Page 6
(f) Perfection Certificate. The attached Perfection Certificate
(Exhibit C hereto) is true, accurate and complete in all respects.
5. Conditions Precedent.
Notwithstanding any other provision of this Second Amendment or any of
the other Loan Documents, and without affecting in any manner the rights of Bank
under the other sections of this Second Amendment, this Second Amendment shall
not be effective as to Bank unless and until each of the following conditions
has been and continues to be satisfied:
(a) Documentation. Bank shall have received, in form and substance
satisfactory to Bank and its counsel, a duly executed copy of this Second
Amendment, the endorsements by Specialty to the Notes in the form attached as
Exhibit A hereto, the Unlimited Guaranty of each of Wakefield and Specialty in
the form of Exhibit B hereto, the completed Perfection Certificate in the form
of Exhibit C hereto, the UCC-1 Financing Statements of Specialty, together with
such additional documents, instruments and certificates as Bank and its counsel
shall require in connection therewith, all in form and substance satisfactory to
Bank and its counsel.
(b) No Default. No Event of Default shall exist.
(c) No Litigation. Except as previously disclosed to and consented to by
Bank, no action, proceeding, investigation, regulation or legislation shall have
been instituted, threatened or proposed before any court, governmental agency or
legislative body to enjoin, restrain or prohibit, or to obtain damages in
respect of, or which is related to or arises out of the Loan Agreement or this
Second Amendment or the consummation of the transactions contemplated thereby or
hereby.
6. Acknowledgement of Obligations.
Each Borrower hereby (1) reaffirms and ratifies all of the promises,
agreements, covenants and obligations to Bank under or in respect of the Loan
Agreement and other Loan Documents as amended hereby and (2) acknowledges that
it is unconditionally liable for the punctual and full payment of all
Obligations, including, without limitation, all charges, fees, expenses and
costs (including reasonable attorneys' fees and expenses) under the Loan
Documents, as amended hereby, and that it has no defenses, counterclaims or
setoffs with respect to full, complete and timely payment and performance of all
Obligations.
7. Confirmation of Liens.
Each Borrower acknowledges, confirms and agrees that the Loan Documents,
as amended hereby, are effective to grant to Bank duly perfected, valid and
enforceable first priority security interests and liens in the Collateral
described therein, except for Permitted Liens, and that the locations for such
Collateral specified in the Loan Documents have not changed except
<PAGE>
Fleet Capital Corporation
January 30, 1996
Page 7
as provided herein. Borrower further acknowledges and agrees that all
Obligations of Borrower are and shall be secured by the Collateral.
8. Miscellaneous.
--------------
Except as set forth herein, the undersigned confirms and agrees that the Loan
Documents remain in full force and effect without amendment or modification of
any kind. The execution and delivery of this Second Amendment by Bank shall not
be construed as a waiver by Bank of any Default or Event of Default under the
Loan Documents. This Second Amendment, together with the Loan Agreement and
other Loan Documents, constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior dealings,
correspondence, conversations or communications between the parties with respect
to the subject matter hereof. This Second Amendment and the transactions
hereunder shall be deemed to be consummated in the Commonwealth of Massachusetts
and shall be governed by and interpreted in accordance with the laws of that
state. This Second Amendment and the agreements, instruments and documents
entered into pursuant hereto or in connection herewith shall be "Loan Documents"
under and as defined in the Loan Agreement. Lender consents to the use of the
proceeds of the $200,000 Equipment Facility Loan to Specialty to repay
indebtedness owing to Wakefield and up to $1,000,000 in a one-time repayment of
subordinated debt to Alpha.
Executed under seal on the date set forth above.
ATTEST: WAKEFIELD ENGINEERING, INC.
By: /s/ James J. Polakiewicz
- ---------------------------------- -------------------------------------
Name: James J. Polakiewicz
------------------------------
Title: Vice President--Finance
------------------------------
ATTEST: SPECIALTY EXTRUSION CORP.
/s/ Barbara Wade By: /s/ Johnny J. Blanchard
- ---------------------------------- -------------------------------------
Name: Johnny J. Blanchard
------------------------------
Title: Treasurer
------------------------------
<PAGE>
Fleet Capital Corporation
January 30, 1996
Page 8
Accepted in ________, _______________________
on _________________ ____, 199__
FLEET NATIONAL BANK OF
MASSACHUSETTS
f/k/a Shawmut Bank, N.A.
By: _________________________________________
Name: __________________________________
Title: __________________________________
<PAGE>
EXHIBIT A
PERFECTION CERTIFICATE
The undersigned, the chief executive or financial officer of Specialty
Extrusion Corp., a California corporation (the "Borrower"), hereby certifies
with reference to the Second Amendment to Loan Agreement dated as of January 30,
1996, between the Borrower, Wakefield Engineering, Inc. and Fleet National Bank
of Massachusetts f/k/a Shawmut Bank, N.A., as Lender (terms defined therein
being used herein as therein defined), to the Lender and each Lender as follows:
1. Names. (a) The exact corporate name of the Borrower as it appears in its
articles of organization is as follows:
Specialty Extrusion Corp.
(b) Set forth below is each other corporate name the Borrower has had since
its organization, together with the date of the relevant change:
Specialty Acquisition Corp.
(c) Except as set forth in Schedule 1, the Borrower has not changed its
identity or corporate structure in any way within the past five years. [Changes
in identity or corporate structure would include mergers, consolidations and
acquisitions, as well as any change in the form, nature or jurisdiction of
corporate organization. If any such change has occurred, include in Schedule 1
the information required by paragraphs 1, 2 and 3 of this certificate as to each
acquire or constituent party to a merger or consolidation.]
Specialty Acquisition Corp. acquired Specialty Extrusion Ltd.
(d) The following is a list of all other names (including trade names or
similar appellations) used by the Borrower or any of its divisions or other
business units at any time during the past five years:
See 1(b)
2. Current Locations: (a) The chief executive office of the Borrower is
located at the following address:
<TABLE>
<CAPTION>
Mailing Address County State
- --------------- ------ -----
<S> <C> <C>
Orange California
</TABLE>
1
<PAGE>
(b) The following are all the locations where the Borrower maintains any books
or records relating to any Accounts:
See 2(A)
(c) The following are all the places of business of the Borrower not
identified above:
None
(d) The following are all the locations where the Borrower maintains any
Inventory not identified above:
None
(e) The following are the names and addresses of all Persons other than the
Borrower which have possession of any of the Borrower's Inventory:
None
3. Prior Locations. (a) Set forth below is the information required by
subparagraphs (a), (b) and (c) of paragraph 2 with respect to each location or
place of business maintained by the Borrower at any time during the past five
years:
None
(b) Set forth below is the information required by subparagraphs (d) and (e)
of paragraph 2 with respect to each location or bailee where or with whom
Inventory has been lodged at any time during the past four months:
None
4. File Search Reports. Attached hereto as Schedule 4(a) is a true copy of a
file search report from the Uniform Commercial Code filing officer in each
jurisdiction identified in paragraph 2 or 3 above with respect to each name set
forth in paragraph 1 above. Attached
2
<PAGE>
hereto as Schedule 4(b) is a true copy of each financing statement or other
filing identified in such file search reports.
See attached report.
IN WITNESS WHEREOF, I have hereunto set my hands this 30th day of January,
1996.
SPECIALTY EXTRUSION CORP.
By: /s/ Johnny J. Blanchard
----------------------------------
Name: Johnny J. Blanchard
Title: Treasurer
3
<PAGE>
AMENDMENT NO. 2
TO REVOLVING CREDIT NOTE
Reference is made to the Revolving Credit Note originally dated June 23, 1994
issued by the undersigned as amended by Amendment No. 1 thereto dated May 5,
1995 (the "Note").
FOR VALUE RECEIVED, the undersigned agrees that the Note is amended as
follows:
1. The heading of the Note is amended by deleting the number "$7,000,000.00"
and substituting in lieu thereof the number "$9,000,000.00".
2. The Note is amended by deleting the words and number "SEVEN MILLION DOLLARS
($7,000,000.00)" on the fourth line of the Note and substituting in lieu thereof
the words and number "NINE MILLION DOLLARS ($9,000,000.00)".
3. The Note is amended to provide that Specialty Extrusion Corp., a California
corporation, is a Maker of the Note jointly and severally with Wakefield
Engineering, Inc.
4. Except as set forth herein the undersigned jointly and severally
acknowledge and confirm that the Note remains in full force and effect without
amendment or modification of any kind.
Executed under seal on this 30th day of January, 1996.
WAKEFIELD ENGINEERING, INC.
By: /s/ James J. Polakiewicz
-------------------------------------
Name: James J. Polakiewicz
------------------------------
Title: Vice President--Finance
------------------------------
SPECIALTY EXTRUSION
CORP.
By: /s/ Johnny J. Blanchard
-------------------------------------
Name: Johnny J. Blanchard
------------------------------
Title: Treasurer
------------------------------
<PAGE>
EQUIPMENT FACILITY NOTE
$200,000.00 Boston, Massachusetts
January 30, 1996
FOR VALUE RECEIVED, the undersigned ("Maker"), hereby promises to pay to the
order of Fleet National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.) with a
place of business at One Federal Street, Boston, Massachusetts 02211 ("Bank"),
the sum of Two Hundred Thousand Dollars ($200,000.00) together with interest on
the unpaid principal amount from time to time outstanding prior to maturity at a
fluctuating rate per annum equal to the sum of the Corporate Base Rate plus
three quarters of one percent (3/4 of 1%). The principal amount hereof shall be
repaid in thirty-five (35) equal monthly installments of Five Thousand Five
Hundred Fifty-Five and 55/100 Dollars ($5,555.55), payable on the first day of
each month commencing March 1, 1996 through and a final, thirty-sixth (36th)
installment equal to all unpaid principal and accrued and unpaid interest on
February 1, 1999. Interest shall be paid monthly, in arrears, on the first day
of each month commencing February 1, 1996.
After maturity (whether by acceleration or otherwise), interest shall be payable
on the unpaid principal balance from time to time outstanding at a rate per
annum equal to the interest rate otherwise applicable hereunder plus three
percent (3%), until fully paid. Any payment hereunder not paid within ten (10)
days after the date such payment is due shall be subject to a late charge equal
to five percent (5%) of the amount overdue.
Interest and fees shall be calculated on the basis of a 360-day year times the
actual number of days elapsed. At Bank's discretion, all payments will be
applied first to unpaid accrued interest, then to principal, and then any
balance to any charges, costs, expenses or late fees outstanding. "Corporate
Base Rate," as used herein, shall mean for any day the rate on such day as
designated by Bank as its corporate base rate. Any change in rate resulting from
a change in the Corporate Base Rate shall become effective as of the day on
which such change in the Corporate Base Rate becomes effective. In no event
shall interest payable hereunder exceed the highest rate permitted by applicable
law. To the extent any interest received by Bank exceeds the maximum amount
legally permitted, such payment shall be credited to principal, and any excess
remaining after full payment of principal shall be refunded to Maker. This Note
evidences an Equipment Facility Loan under that certain Loan and Security
Agreement, as amended, (the "Agreement") dated the date hereof between Maker and
Bank and is secured by and entitled to the benefits of the provisions of the
Agreement and any other instruments or documents executed in connection
therewith. The principal of this note is subject to prepayment in the manner and
to the extent provided in the Agreement. If an Event of Default (as defined in
the Agreement) occurs, the entire balance of principal, accrued interest, and
any and all other fees and charges payable hereunder may become immediately due
and payable in the manner and with the effect provided in the Agreement.
As security for the payment and performance of Maker's obligations or the
obligations of any guarantor or endorser hereof to the Bank or any holder hereof
("Holder") now existing or hereafter arising, Holder is hereby granted a lien
and security interest in and to any and all
1
<PAGE>
deposits or other sums at any time credited by or due from Holder to Maker or
any guarantor or endorser, whether in regular or special depository accounts or
otherwise, and all moneys, securities and other property and the proceeds
thereof, now or hereafter held or received by Holder, whether for safekeeping,
custody, pledge, collection or otherwise. Upon the failure of Maker, or any
guarantor or endorser hereof, to pay any amount hereunder when due, in
addition to and not in limitation of any and all rights and remedies of the
Holder hereunder or otherwise, all of such rights and remedies being cumulative,
Holder may set off any such deposits, other sums, moneys, securities and other
property and the proceeds thereof against any or all of the obligations of
Maker, guarantors or endorsers to Holder, without prior notice or demand, and
regardless of whether or not such obligations are secured by any other
collateral, and regardless of the adequacy of any such other collateral.
Maker agrees to pay all costs and expenses, including, without limitation,
reasonable attorneys' fees and expenses incurred, or which may be incurred, by
Holder in connection with the negotiation, documentation, administration (as
provided in the Loan Agreement), enforcement and collection of this note and any
other agreements, instruments and documents executed in connection herewith.
Maker and all guarantors and endorsers hereby waive presentment, demand, notice,
protest, and all other demands and notices in connection with the delivery,
acceptance, performance and enforcement of this note, and assent to extensions
of the time of payment or forbearance or other indulgence without notice. No
delay or omission of Holder in exercising any right or remedy hereunder shall
constitute a waiver of any such right or remedy. Acceptance by Holder of any
payment after demand shall not be deemed a waiver of such demand. A waiver on
one occasion shall not operate as a bar to or waiver of any such right or remedy
on any future occasion.
All payments required to be made hereunder shall be made to the Bank at its
office at One Federal Street, Boston, Massachusetts 02211 or such other address
as the Bank or any Holder may designate.
This instrument shall be governed by Massachusetts law.
Executed as an instrument under seal as of the date first above written.
WITNESS: SPECIALTY EXTRUSION CORP.
/s/ Barbara Wade By: /s/ Johnny J. Blanchard
- -------------------------- -------------------------------------
Barbara Wade Name: Johnny J. Blanchard
Title: Treasurer
2
<PAGE>
Exhibit 11.1
ALPHA TECHNOLOGIES GROUP, INC., AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
FOR THE QUARTERS ENDED JANUARY 29, 1995 AND JANUARY 28, 1996
(Unaudited)
(In Thousands, Except per Share Date)
<TABLE>
<CAPTION>
January 29, January 28,
1995 1996
----------- -----------
<S> <C> <C>
Shares:
Weighted average common shares 6,099 6,077
outstanding
Net common shares issuable on
exercise of stock options 491 649
------ ------
Weighted average common and common
equivalent shares outstanding 6,590 6,726
====== ======
Income before minority interest $ 95 $ 74
Minority interest 6 59
------ ------
Net income $ 101 $ 133
====== ======
Net income per common and common
equivalent share:
Income before minority interest $ 0.02 $ 0.01
Minority interest -- 0.01
------ ------
Net income $ 0.02 $ 0.02
====== ======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET-JANUARY 28, 1996 AND CONSOLIDATED STATEMENT OF INCOME FOR THE
THREE MONTHS ENDED JANUARY 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-27-1996
<PERIOD-START> OCT-30-1995
<PERIOD-END> JAN-28-1996
<CASH> 4,683
<SECURITIES> 0
<RECEIVABLES> 11,041
<ALLOWANCES> 223
<INVENTORY> 8,621
<CURRENT-ASSETS> 25,837
<PP&E> 12,665
<DEPRECIATION> 1,747
<TOTAL-ASSETS> 42,181
<CURRENT-LIABILITIES> 10,881
<BONDS> 9,408
0
0
<COMMON> 214
<OTHER-SE> 19,020
<TOTAL-LIABILITY-AND-EQUITY> 42,181
<SALES> 17,063
<TOTAL-REVENUES> 17,063
<CGS> 13,318
<TOTAL-COSTS> 13,318
<OTHER-EXPENSES> 3,399
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 213
<INCOME-PRETAX> 133
<INCOME-TAX> 59
<INCOME-CONTINUING> 133
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 133
<EPS-PRIMARY> .02
<EPS-DILUTED> 0
</TABLE>
