<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 July 27, 1997
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 organization)
9465 Wilshire Boulevard, Suite 980, Beverly Hills, California 90212
-------------------------------------------------------------------
(Address of principal executive offices)
(310)-385-1494
--------------
(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 6,687,180
---------------------------- ---------
Class Outstanding at September 5, 1997
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC.
FORM 10-Q
JULY 27, 1997
TABLE OF CONTENTS
Page No.
--------
PART I FINANCIAL INFORMATION................................................ 3
CONSOLIDATED BALANCE SHEETS - OCTOBER 27, 1996 AND JULY 27, 1997............. 3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE QUARTERS AND NINE
MONTHS ENDED JULY 28, 1996 AND JULY 27, 1997................................ 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
JULY 28, 1996 AND JULY 27, 1997............................................ 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.................................................. 14
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--OCTOBER 27, 1996 AND JULY 27, 1997
(In Thousands, Except Share and Per Share Data)
Restated
October 27, JULY 27,
1996 1997
---------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 3,935 $ 2,994
Accounts receivable, net 12,060 11,867
Inventories, net 10,566 8,847
Net Assets of discontinued operation (Footnote 2) 1,198 -
Prepaid expenses 1,111 1,155
------- -------
Total current assets 28,870 24,863
PROPERTY AND EQUIPMENT, at cost 16,114 17,152
Less--Accumulated depreciation and amortization 3,129 5,076
------- -------
Property and equipment, net 12,985 12,076
GOODWILL, net 2,964 2,902
OTHER ASSETS, net 2,028 2,523
------- -------
$46,847 $42,364
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade $ 5,456 $ 5,580
Accrued compensation and related benefits 1,626 1,297
Other accrued liabilities 2,479 2,505
Revolving credit facilities 11,023 7,723
Current portion of long-term debt 679 3,669
Current portion of other long-term liabilities 863 562
------- -------
Total current liabilities 22,126 21,336
LONG-TERM DEBT 2,207 -
OTHER LONG-TERM LIABILITIES 397 505
STOCKHOLDERS' EQUITY:
Preferred stock, $100 par value; shares
authorized 180,000 - -
Common stock, $.03 par value; shares authorized
17,000,000; issued 7,681,733 at October 27, 1996
and 7,695,733 at July 27, 1997 230 231
Additional paid-in capital 43,474 43,509
Retained deficit (17,758) (19,403)
Cumulative translation adjustment, net of income taxes (32) (96)
Treasury stock, at cost (1,017,981 common shares at
October 27, 1996 and 1,008,553 on July 27, 1997) (3,797) (3,718)
------- -------
22,117 20,523
------- -------
$46,847 $42,364
======= =======
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 AND NINE MONTHS ENDED
JULY 28, 1996 AND JULY 27, 1997
(Unaudited)
(In Thousands, Except Per Share Data)
Quarter Ended Nine Months Ended
-------------------- ------------------
Restated Restated
July 28, July 27, July 28, July 27,
1996 1997 1996 1997
------- ------- ------- -------
SALES $15,973 $19,313 $49,287 $56,026
COST OF SALES 12,711 15,291 38,659 46,343
------- ------- ------- -------
Gross profit 3,262 4,022 10,628 9,683
OPERATING EXPENSES
Research and development 366 396 1,073 1,131
Selling, general and administrative 3,144 3,255 9,247 9,646
Other 455 252 455 466
------- ------- ------- -------
Total operating expenses 3,965 3,903 10,775 11,243
------- ------- ------- -------
OPERATING INCOME (703) 119 (147) (1,560)
INTEREST AND OTHER INCOME
(EXPENSE), net (211) (247) (565) (749)
------- ------- ------- -------
INCOME (LOSS) BEFORE TAXES (914) (128) (712) (2,309)
PROVISION (BENEFIT) FOR INCOME TAXES (67) - 61 -
------- ------- ------- -------
INCOME (LOSS) BEFORE MINORITY INTEREST (847) (128) (773) (2,309)
MINORITY INTEREST IN INCOME OF
CONSOLIDATED SUBSIDIARY (56) - (21) -
GAIN ON SALE OF DISCONTINUED OPERATION
net of income taxes - 610 - 610
INCOME (LOSS) FROM DISCONTINUED OPERATION,
net of income taxes 163 (30) 335 54
------- ------- ------- -------
NET INCOME (LOSS) ($740) $452 ($459) (1,645)
======= ======= ======= =======
PER COMMON AND COMMON EQUIVALENT SHARE:
Income (loss) before minority
interest ($0.11) $0.07 ($0.07) ($0.25)
Minority interest ($0.01) - - -
------- ------- ------- -------
Net income (loss) ($0.12) $0.07 ($0.07) ($0.25)
======= ======= ======= =======
SHARES USED IN COMPUTING NET INCOME
(LOSS) PER COMMON EQUIVALENT SHARE 6,200 6,748 6,156 6,679
======= ======= ======= =======
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 NINE MONTHS ENDED JULY 28, 1996
AND JULY 27, 1997
(Unaudited)
(In Thousands)
Restated
July 28, July 27,
1996 1997
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) ($459) ($1,645)
Adjustments to reconcile net (loss) to net cash (used)
by operating activities:
Depreciation and amortization 1,578 2,238
Minority interest in earnings of subsidiary 21 -
Cumulative translation adjustment (7) (65)
Gain on sale of discontinued operation - (610)
Income from discontinued operation (335) (54)
Changes in assets and liabilities:
Decrease in accounts receivable 883 193
(Increase) decrease in inventories (1,775) 1,719
(Increase) in prepaid expenses (359) (44)
Increase in accounts payable 1,010 109
Decrease in accrued compensation and related benefits (817) (339)
(Decrease) in other accrued liabilities (522) (333)
(Decrease) in other long-term liabilities (531) (793)
------ ------
Total adjustments (854) 2,021
------ ------
Net cash provided (used) by continuing operations (1,313) 376
Net cash provided by discontinued operation 199 313
------ ------
Net cash provided (used) by operating activities (1,114) 689
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of discontinued operation (Footnote 2) - 2,100
Purchase of property and equipment, net (3,021) (1,231)
Change in goodwill (243) (58)
Decrease in other assets, net 202 40
------ ------
Net cash provided (used) by investing activities (3,062) 851
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 341 36
Proceeds (payments) of debt, net 1,996 (2,517)
------ ------
Net cash provided by financing activities 2,337 (2,481)
NET (DECREASE) IN CASH (1,839) (941)
------ ------
CASH, beginning of period 6,058 3,935
------ ------
CASH, end of period $4,219 $2,994
====== ======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
5
<PAGE>
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-owned subsidiaries. All
material intercompany transactions and balances have been eliminated. The
Company through its wholly-owned subsidiaries, Wakefield Engineering, Inc.
("Wakefield") and Uni-Star Industries, Inc. ("Uni-Star"), designs, manufactures
and sells thermal management products and connectors. The Company's thermal
management products, principally heat sinks, dissipate heat generated by
electronic components and serve the microprocessor, computer, consumer
electronics, transportation, power supply, aerospace and defense industries.
The Company's sub-miniature, micro-miniature and ultra-miniature connector
products and its backplane/midplane-type assemblies, the majority of which are
custom manufactured to meet rigid specifications, serve the aerospace,
automotive, communications, defense, factory automation, industrial controls,
medical electronics, scientific/process instrumentation and test/measurement
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 Company changed its name to Alpha Technologies Group,
Inc. on April 19, 1995.
(2) RESTATED AND CONSOLIDATED FINANCIAL STATEMENTS
In June 1997, the Company sold substantially all of the assets and business of
it's hermetic connector business located in Cincinnati, Ohio, which operated
under the trade name Connector Industries of America ("CIA") to a privately
owned company. Accordingly to improve comparability, the 1996 financial
statements have been restated to reclassify (i) the assets and liabilities of
such business to "Net Assets of Discontinued Operation" and (ii) the results of
such business to "income (loss) from discontinued operation."
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.
6
<PAGE>
(3) INVENTORIES
Inventories consisted of the following on Restated
(in thousands): October 27, July 27,
1996 1997
--------- ---------
Raw materials and components $ 5,757 5,513
Work in process 2,486 2,696
Finished goods 3,425 2,444
------- -------
11,668 10,653
Valuation reserve (1,102) (1,806)
------- -------
$10,566 $ 8,847
======= =======
(4) REVOLVING CREDIT FACILITIES AND OTHER DEBT
Revolving Credit Facilities and other debt consisted of the following on:
October 27, July 27,
1996 1997
---- ----
(In Thousands)
Variable-rate revolving credit facility $ 9,823 $ 6,554
(effective interest rates of 7.97% and
8.75% on July 27, 1997), interest payable monthly,
principal is repaid and reborrowed based on
cash requirements
Variable-rate revolving credit commitment 1,200 1,169
(effective interest rate of 11.00% on
July 27, 1997), interest payable monthly,
principal is repaid and reborrowed based on
cash requirements
Variable-rate equipment notes 2,886 3,669
(effective interest rates of 8.75% and 8.85%
on July 27, 1997), payable in monthly installments
of $22,619 and $37,500 plus accrued
interest, with maturities during October 2001 and
October 2003 ------ ------
13,909 11,392
Less current portion 11,702 11,392
------ ------
$ 2,207 $ --
====== ======
On July 1, 1997, Wakefield amended its credit facilities. Currently, Wakefield,
and its wholly owned subsidiaries, Specialty Extrusion Corp. ("Specialty"), and
Lockhart Industries, Inc. ("Lockhart"), are parties to a loan and security
agreement, as amended ("the Loan Agreement") with a commercial lender. Pursuant
to the Loan Agreement, Wakefield, Specialty, and Lockhart have a revolving
credit line, based upon accounts receivable and inventory, of up to $9,000,000;
are parties to term loans in the original amount of $2,250,000 and $1,900,000.
On July 27, 1997, $6,554,000 was drawn on the revolving credit facility.
Interest on $5,750,000 of the revolving credit facility accrues at the relevant
adjusted LIBOR rate plus 2.5% (7.97% per annum on July 27, 1997), and the
remainder of the revolving credit facility accrues
7
<PAGE>
at the bank's prime rate plus .5% (8.75% per annum on July 27, 1997). There is
an unused line fee equal to .5% per annum on the difference between $9,000,000
and the average daily outstanding principal balance of Revolving Loans during
each of the Company's fiscal quarters payable quarterly in arrears on the first
day of each fiscal quarter. The $2,250,000 term note accrues interest at 8.75%
per annum and is payable in fifty-nine (59) equal monthly installments of
$37,500 commencing December 1, 1996 and a final installment equal to all unpaid
principal on October 11, 2001, together, in each instance, with interest thereon
to the date of payment. On July 27, 1997, $1,950,000 was outstanding on the
$2,250,000 term loan. The $1,900,000 term loan accrues interest at 8.85%, and is
payable in eighty-three (83) equal monthly installments of $22,619 commencing
December 1, 1996 and a final installment equal to all unpaid principal on
October 29, 2003, together, in each instance, with interest thereon to the date
of payment. On July 27, 1997, $1,719,048 was outstanding on the $1,900,000 term
note. 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 total $28,841,000. On July 1, 1997, Wakefield's credit facilities
expiration was extended to January 1, 1998.
On August 30, 1995, Uni-Star entered into an Accounts Receivable Loan Agreement
which included a revolving credit commitment in the aggregate principal amount
of $2,500,000 of which $1,169,000 was drawn on at July 27, 1997. Uni-Star also
entered into an equipment term loan in the amount of $750,000 and an equipment
acquisition facility of $300,000. The equipment term loan was repayable in 48
equal monthly installments of principal of $15,625 plus accrued interest,
payable on the first day of each month beginning October 1, 1995. On September
17, 1996, Uni-Star amended the loan agreement to extend its termination date to
April 30, 1997. On May 9, 1997, Uni-Star amended the agreements to extend the
expiration date to August 31, 1997. In addition, the amendment reduced the
revolving credit commitment from $2.5 million to $1.9 million and amended the
interest on the revolving credit facility, the equipment term loan, and
equipment acquisition facility to accrue at the bank's prime rate plus 2.0% for
May 1997, 2.25% for June 1997, 2.5% for July 1997 and 2.75% for August 1997. In
connection with the sale of CIA, on June 21, 1997, Uni-Star paid off the
equipment term loan and equipment acquisition facility. In addition, the
revolving credit facility was reduced to $1.5 million. Uni-Star's variable rate
revolving credit commitment is secured by a first lien and assignment of
substantially all of its assets, including without limitation, accounts
receivable, inventory, equipment and general intangibles which in aggregate
totals $8,809,000. The Company is currently negotiating with another commercial
lender to replace Uni-Star's existing revolving loan agreement and to obtain a
new term loan.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Quarter to Quarter Comparison
Sales. Sales for the third quarter of fiscal 1997 were $19,313,000, an increase
of $3,340,000 or 20.9%, compared to sales of $15,973,000 for the third quarter
of fiscal 1996. Thermal management sales increased 27.5% to $14,890,000 for the
1997 quarter from $11,681,000 for the quarter ended July 28, 1996. The increase
in thermal management sales for the quarter was due to internal growth of 8.8%
and the inclusion of $2,183,000 in sales by Lockhart Industries, Inc., which was
acquired in August 1996. Internal thermal management sales increased primarily
due to the higher sales of Penguin Cooler Heat Sinks, which dissipate heat
generated by microprocessors used in personal computers. The Company
anticipates the demand for Penguin Cooler Heat Sinks will continue to increase.
Connector sales (excluding hermetic connectors sold by Uni-Star CIA division)
were $4,423,000 during the third quarter of fiscal 1997 compared to $4,292,000
during the third quarter of the prior fiscal year, a 3.1% increase.
Gross Profit. The Company's overall gross profit as a percentage of total
revenues ("gross profit percentage") for the quarter ended July 27, 1997 was
20.8% versus 20.4% for the quarter ended July 28, 1996. Wakefield's gross profit
percentage for the quarter was 21.1% versus 18.1% for the third quarter of
fiscal 1996. Wakefield's gross profit percentage increased due to higher sales
volume. Uni-Star's gross profit percentage was 20.0% versus 26.9% for the third
quarter of fiscal 1996. Gross profit margins for connector sales by Uni-Star's
Microdot facility decreased due to manufacturing inefficiencies and an increase
in sales of rectangular products which carry a lower gross profit percentage
than coaxial, and circular connectors. Uni-Star's gross profit margins also
decreased due to lower sales volume at the Company's Malco facility.
Research and Development Expense. Research and development expenses for the
third quarter of fiscal 1997 were $396,000 compared to $366,000 for the third
quarter of fiscal 1996. Excluding Lockhart, research and development expenses
for the quarter would have decreased to $301,000. The decrease in research and
development expenses was primarily due to a decrease in engineering staff as
well as a decrease in licensing fees for engineering software at Wakefield.
Selling, General and Administrative Expense. Selling, general and
administrative (SG&A) expenses for the third quarter of fiscal 1997 were
$3,255,000, or 16.9% of sales, compared to $3,144,000, or 19.7% of sales, for
the third quarter of fiscal 1996. Excluding Lockhart, SG&A expenses for the
1997 quarter were $3,066,000 or 17.9% of sales. The decrease in SG&A expenses
as a percentage of sales was attributable to increased sales volume without a
proportional increase in SG&A expenses and the
9
<PAGE>
inclusion of Lockhart, which has a lower SG&A percentage of sales than the
overall Company's (excluding Lockhart) percentage.
Other Operating Expenses. Other operating expenses consisted of $120,000
related to the downsizing at the Company's Malco facility including severance
costs and the write off of net book value of certain equipment. This facility
will now focus on its subsystems business and will outsource various
manufacturing processes. In addition, the company recorded other operating
expenses of $132,000 related to severance and other costs recorded in connection
with a management change at Uni-Star.
Interest and Other Income (Net). Interest income, which was $43,000 in the
third quarter of fiscal 1997 and $63,000 in the third quarter of fiscal 1996,
was earned on cash held at the parent level. Interest expense was $305,000 and
$295,000 for the quarters ended July 27, 1997 and July 28, 1996, respectively.
This increase was due to a higher borrowing base and an increase in the interest
rate on outstanding debt.
Income Taxes. The company fully reserved the deferred income tax benefit
resulting from the net loss for the quarter ended July 27, 1997.The income tax
benefit for the quarter ended July 28, 1996 was $67,000 which included a federal
income tax benefit of $30,000, a state income tax benefit of $41,000 and foreign
income tax expense of $4,000. For the third quarter of 1996, the provision
for federal income taxes includes the benefit of net operating loss
carryforwards.
Minority Interest. For the quarter ended July 28, 1996, the minority interest
(the 20% of the Uni-Star business not acquired by the Company) 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 now owns 100% of the outstanding common
stock of Uni-Star.
Gain from sale of operation. The gain from sale of operation of $610,000
relates to the sale of the Company's hermetic connector business which was sold
in June of 1997. The hermetic connector business operated under the name
Connector Industries of America ("CIA") and was sold for $2,100,000 in cash and
a contingent payment of up to $400,000, plus the assumption of liabilities
aggregating approximately $154,000. The gain does not take into consideration
the contingent payment, which is based upon orders received by the purchaser of
CIA during calendar year 1998 from CIA customers.
Net Income/Loss. Net income for the quarter was $452,000 which reflected income
from continuing operations of $124,000, prior to the effects of other operating
expenses which totaled $252,000, and an after tax gain of $610,000 from the sale
in June of the Company's hermetic connector business. This compares to a net
loss of $740,000 for last year's third quarter, which included a loss from
continuing operations of $392,000 prior to restructuring and other cost totaling
$455,000. Income from continuing operations improved due to an increase in
revenues and gross margins in the core thermal management business as well as
the inclusion of Lockhart in the results for the fiscal 1997 quarter.
10
<PAGE>
Nine Months to Nine Months Comparison
Sales. Sales for the first nine months of fiscal 1997 increased $6,739,000, or
13.7%, to $56,026,000 from $49,287,000 for the comparable period of fiscal 1996.
Thermal management sales increased 20.2% to $43,465,000 for the 1997 period from
$36,150,000 for the first nine months of fiscal 1996. The increase in thermal
management sales for the nine month period was due to internal growth of 3.4%
and the inclusion of $6,097,000 in sales by Lockhart Industries, Inc., which was
acquired in August 1996. Internal thermal management sales increased primarily
due to the higher sales of Penguin Cooler Heat Sinks, which dissipate heat
generated by microprocessors used in personal computers. The Company believes
that demand for Penguin Cooler Heat Sinks will continue to increase. These
increases were partially offset by lower sales of extruded heat sinks.
Connector sales were $12,561,000 during the nine months ended July 27, 1997
compared to $13,137,000 during the first nine months of the prior fiscal year, a
4.4% decrease, which was primarily caused by delays in programs by certain
customers and a shift to turn-key cable and connector assemblies which have
longer lead times.
Gross Profit. The Company's overall gross profit as a percentage of total
revenues for the nine months ended July 27, 1997 was 17.3% compared to 21.6% for
the nine months ended July 28, 1996. Wakefield's gross profit percentage for the
nine months ended July 27, 1996 was 17.8% versus 21.1% for the same period of
last year. Excluding the additional inventory reserves recorded in the first
quarter, Wakefield's gross profit percentage was 19.1% for the nine month
period. The additional inventory reserves were recognized to fully reserve the
costs of certain custom products that were built in anticipation of orders that
have not been received. Wakefield's gross profit percentage was adversely
impacted by higher sales of Penguin Cooler Heat Sinks which carry a lower gross
profit margin than Wakefield's other product lines. In addition to this change
in Wakefield's product mix, the increase in aluminum costs, competitive pricing
pressure, and the aforementioned inventory reserves negatively impacted the
thermal management business's gross profit margins for the year to date period.
Uni-Star's gross profit percentage for the first nine months of fiscal 1997 was
15.6% versus 22.8% for the same period of last year. Gross profit margins for
connector sales decreased due to lower sales volume and manufacturing
inefficiencies.
Research and Development Expense. Research and development expenses were
$1,131,000 and $1,073,000 for the first nine months of fiscal 1997 and 1996,
respectively. Excluding Lockhart, research and development expenses for the
year to date were $849,000. The decrease in research and development expenses
was primarily due to a decrease in engineering staff as well as a decrease in
licensing fees for engineering software at Wakefield.
11
<PAGE>
Selling, General and Administrative Expense. Selling, general and administrative
expenses for the nine months ended July 27, 1997 were $9,646,000, or 17.2% of
sales, compared to $9,247,000, or 18.8% of sales, for the nine months ended
July 28, 1996. Excluding Lockhart, SG&A expenses for the year to date period
were $9,020,000 or 18.1% of sales. The decrease in SG&A expenses as a percentage
of sales was attributable to increased sales volume without a proportional
increase in SG&A and the inclusion of Lockhart which has a lower SG&A percentage
of sales than the overall Company's (excluding Lockhart) percentage.
Other Operating Expenses. Other operating expenses of $466,000 were recognized
during the nine months ended July 27, 1997. These expenses consisted of the
aforementioned $252,000 and $214,000 booked in the first quarter of fiscal 1997
related to downsizing severance payments.
Interest and Other Income (Net). Interest income, which was $98,000 in the
first nine months of fiscal 1997 and $175,000 in the comparable period of fiscal
1996, was earned on cash held at the parent level. The decrease in interest
income was primarily attributable to a decrease in the average cash balance
invested. Interest expense was $936,000 and $821,000 for the nine months ended
July 27, 1997 and July 28, 1996, respectively. This increase was due to a
higher borrowing base and an increase in the interest rate paid on outstanding
debt.
Income Taxes. The company fully reserved the deferred income tax benefit
resulting from the net loss for the nine months ended July 27, 1997. The
provision for income taxes for the nine months ended July 28, 1996, was $61,000
which consisted only of foreign income tax expense.
Minority Interest. For the nine months ended July 28, 1996, the minority
interest (the 20% of the Uni-Star business not acquired by the Company) 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 now owns 100% of the outstanding
common stock of Uni-Star.
Net Income/Loss. Net loss for the first nine months of the fiscal year was
$1,645,000 which included a net loss from continuing operations (after
restructuring, additional inventory reserves, and other charges) of $2,309,000.
This compares to net loss of $459,000 for the nine months ended July 28, 1996,
which included an net loss from continuing operations of $773,000. The decrease
in net income was primarily attributable to the aforementioned decrease in gross
profit and the additional inventory reserves recorded in the first quarter of
fiscal 1997.
Other Event. On August 21, 1997, the company announced that it will close its
manufacturing facility in Wakefield, Massachusetts and consolidate the
production of its thermal management products in its Fall River, Massachusetts
and Temecula, California facilities, which have lower operating costs than the
Wakefield facility. The transfer of orders from the Wakefield facility will
occur over several months to insure a seamless transition for the Company's
customers. These steps are expected to reduce operating
12
<PAGE>
costs by approximately $1,600,000 annually, and the Company expects to record a
restructuring charge in the current fiscal year associated with the plant
closing of approximately $2,000,000.
Liquidity and Capital Resources
On July 27, 1997, the Company had cash of approximately $2,994,000 compared to
$3,935,000 on October 27, 1996. Upon the closing of the currently contemplated
loan agreement for Uni-Star, the Company anticipates that it will increase its
cash position by approximately $700,000. Cash provided from operations and
existing cash was used to reduce debt and for purchases of capital equipment.
For the nine months ended July 27, 1997, $689,000 was provided by operations,
primarily due to a decrease in inventories and prepaid expenses. Capital
equipment purchases of $1,231,000 were made, principally at Wakefield, to
improve manufacturing abilities and to replace existing machinery which had
reached its end of life.
Uni-Star's loan agreement expired on April 30, 1997. On May 9, 1997, Uni-Star
and its lender amended the agreement to extend the expiration date to August 31,
1997. In addition, the amendment reduced the revolving credit commitment from
$2.5 million to $1.9 million and amended the interest rate on outstanding
amounts to the bank's prime rate plus 2.0% for May 1997, 2.25% for June 1997,
2.5% for July 1997 and 2.75% for August 1997. On June 21, 1997, Uni-Star paid
off the equipment term loan and equipment acquisition facility. In addition, the
revolving credit facility was reduced to $1.5 million in connection with the
sale of CIA. Management does not anticipate that the decrease in the revolving
credit commitment will have an adverse impact on Uni-Star's business. The
Company is negotiating with a financial institution to refinance this facility
which it anticipates closing by the end of September.
The Company has entered into an extension of the Wakefield loan agreement until
January 1, 1998. The Company anticipates renewing such facility at that time for
a longer term.
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 and the aforementioned restructuring in the near-term.
In conjunction with the new "Safe Harbor" section of the Private Securities
Litigation Reform Act of 1995,this form 10Q may contain forward-looking
statements relating to future operations. All such forward-looking statements
are only estimates of future results and there can be no assurance that actual
results will not materially differ from expectations. Further information on
potential factors which could affect Alpha Technologies Group, Inc. are included
in the company's form 10K filed with the Securities and Exchange Commission.
13
<PAGE>
PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.26 Letter agreement between Uni-Star Industries, Inc. and City National
Bank dated June 19, 1997
10.27 Fifth Amendment to Loan and Security Agreement dated July 1, 1997
entered into by and between Fleet National Bank of Massachusetts and
Wakefield Engineering, Inc (The exhibits and schedules to the Loan
and Security Agreement/Amendment are listed on the last page of such
documents. Such exhibits and schedules have not been filed by the
Registrant, who hereby undertakes to file such exhibits upon request
of the Commission.) (Filed Herewith)
11.1 Statement re Computation of Per Share Earnings for the quarters
and nine months ended July 28, 1996 and July 27, 1997.
27 Financial Data Schedule
_______________
(b) Reports on Form 8-K
The Company filed a Form 8-K, dated June 20, 1997, reporting that on June
20, 1997 Uni-Star Industries, Inc. ("Uni-Star" or "Seller"), a wholly-owned
subsidiary of Alpha Technologies Group, Inc. ("Alpha" or the "Registrant"), sold
substantially all of the assets and business of Seller's hermetic connector
business (the "Business") located in Cincinnati, Ohio, which operated under the
trade name Connector Industries of America ("CIA") to a privately owned company
(the "Buyer"). The sale included CIA's accounts receivable, inventory,
machinery, equipment, tools, business machines, office furniture and fixtures
and certain intangibles including but not limited to customer lists, trade names
and engineering designs and the agreement by Uni-Star and Alpha and certain of
their affiliates not to engage in the hermetic connector business for five years
except that Uni-Star's Microdot division may continue to sell certain families
of hermetic connectors. Uni-Star's Microdot division is located in South
Pasadena, California.
Seller received $2,100,000, in cash, at closing and Buyer assumed certain
payables and liabilities of the Business aggregating approximately $154,000.
The Sale provides for a potential additional payment to Seller of up to $400,000
based on orders booked by the Buyer during the 1998 calendar year by customers
of the Business. The purchase price was a negotiated amount between Buyer and
Seller.
14
<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: September 10, 1997 By: /s/ Lawrence Butler
----------------------- -------------------------
Lawrence Butler
President and Chief Executive Officer
(Principal Executive Officer)
Date: September 10, 1997 By: /s/ Johnny J. Blanchard
----------------------- -------------------------
Johnny J. Blanchard
Chief Financial Officer
(Principal Financial and
Accounting Officer)
15
<PAGE>
EXHIBIT INDEX
Exhibit Page No.
- ------- --------
10.26 Letter agreement between Uni-Star Industries, Inc. and
City National Bank dated June 19, 1997
10.27 Fifth Amendment to Loan and Security Agreement dated
July 1, 1997 entered into by and between Fleet National Bank
of Massachusetts and Wakefield Engineering, Inc. (The exhibits
and schedules to the Loan and Security Agreement/Amendment are
listed on the last page of such documents. Such exhibits and
schedules have not been filed by the Registrant, who hereby
undertakes to file such exhibits upon request of the Commission.)
(Filed Herewith)
11.1 Statement re Computation of Per Share Earnings for the quarters
and nine months ended July 28, 1996 and July 27, 1997.
27 Financial Data Schedule
___________
16
<PAGE>
EXHIBIT 10.26
CITY NATIONAL BANK
Special Assets Department
606 S. Olive Street, 20th Floor
Los Angeles, California 90014
(213) 347-2526
June 19, 1997
VIA FACSIMILE
Uni-Star Industries, Inc.
306 Pasadena Avenue
South Pasadena, CA 91030
Attention: Ernest Hartland, President
RE: ACCOUNTS RECEIVABLE LOAN AGREEMENT, BY AND BETWEEN UNI-STAR
INDUSTRIES, INC. ("BORROWER") AND CITY NATIONAL BANK ("CNB"), DATED AS OF AUGUST
30, 1995, AS AMENDED ("CREDIT AGREEMENT") AND TERM LOANS 24426 AND 96802
(COLLECTIVELY, THE "NOTES")
Dear Mr. Hartland:
In connection with the proposed sale by Borrower of the assets and some of
the liabilities of Connector Industries of America, Johnny Blanchard requested
that CNB release its lien on the assets of Connector Industries of America. CNB
hereby agrees to release its security interest in one CNC Traub machine and all
of the assets of Connector Industries of America upon payment to CNB of
$920,161.21, on June 20, 1997, to be applied as follows:
Obligation Principal Interest Total
Notes 24426 $ 62,000.08 $ 353.75 $ 62,353.83
Note 96802 $421,875.00 $2,402.94 $424,277.94
Credit Agreement $433,529.44 $ 0 $433,529.44
Total $920,161.21
Additionally, such release is conditioned upon your concurrent agreement to the
following modifications of the Notes and Credit Agreement, as amended. In
consideration of CNB's agreement to release assets and continue to forebear,
Borrower hereby agrees to all of the following:
1. The Revolving Credit Commitment will be reduced by $400,000 to $1,500,000.
The Borrowing Base will be modified as follows:
A) i) Seventy percent (70%) of Eligible Accounts from the closing date of the
sale of Connector Industries to 8/31/97. The foregoing percentage is
conditioned upon the maintenance of the existing dilution rate of no more than
eight percent (8%) as provided in Section 9.1.11.
In no event shall the Borrowing Base exceed the Revolving Credit Commitment.
The terms, Revolving Credit Commitment, Eligible Accounts and Dilution Rate
(except as amended in the prior paragraph) are defined in the Credit Agreement.
2. All principal and interest outstanding under the Notes will be repaid in
full on or before the closing date of the sale of Connector Industries of
America. Amounts repaid under the Notes will not be available for re-borrowing.
<PAGE>
3. RELEASE. Borrower intends and agrees that this Agreement will be effective
as a full, final and general release of and from all matters covered
herein. In furtherance thereof, Borrower acknowledges that Borrower is
familiar with, and that Borrower's attorney of record, if any, has advised
Borrower of, California Civil Code (S)1542, which provides as follows:
A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
execution of the release, which if known by him must have
materially affected his settlement with the debtor.
Borrower expressly waives and releases any right or benefit which Borrower
has or may in the future have under California Civil Code (S)1542 to the
fullest extent that such rights or benefits may be lawfully waived and
released. Further, Borrower acknowledges that Borrower may hereafter
discover facts different from or in addition to those facts now known or
believed by Borrower to be true with respect to any or all of the matters
covered by this Agreement, and agrees that this Agreement will nevertheless
be binding and remain in full and complete force and effect.
Please be advised that CNB reserves all of its rights and remedies with
respect to (a) all currently existing Events of Default, and (b) all Events of
Default that arise after the date of this letter or due to any material adverse
change in the business, operations or conditions, financial or otherwise, of
Borrower since the date of the last financial statements received by CNB.
Except as expressly amended herein, all of the terms and conditions of the Notes
and Credit Agreement shall remain unchanged and in full force and effect.
Further, nothing in this Agreement obligates CNB to extend the termination date
of the Credit Agreement beyond August 31, 1997.
Please indicate your agreement with the foregoing by signing the enclosed
copy where indicated, and returning the same to my attention. Please be advised
that CNB's agreement to release its security interest in the assets of Connector
Industries of America shall not become effective until CNB has received a copy
of this letter executed by Borrower. Capitalized terms not defined herein shall
have the meaning given them in the Notes and Credit Agreement, as amended.
In the event that Connector Industries of America is not sold, this
agreement shall be non-binding between the parties.
Please call me if you have any questions relating to this matter.
<PAGE>
Very truly yours,
Gregory J. Meis
Vice President
AGREED TO AND ACCEPTED ON BEHALF OF
Uni-Star Industries, Inc., BY:
/s/ Ernest Hartland
__________________________
Ernest Hartland, President
/s/ Johnny J. Blanchard
________________________________________
Johnny J. Blanchard, Assistant Secretary
<PAGE>
EXHIBIT 10.27
WAKEFIELD ENGINEERING, INC.
60 Audubon Road
Wakefield, MA 01880
As of July 1, 1997
FLEET NATIONAL BANK
One Federal Street
Boston, MA 02110
Re: Fifth 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, a Second Amendment
thereto dated as of January 30, 1996, a Third Amendment thereto dated as of
March 29, 1996 and a Fourth Amendment thereto dated as of October 11, 1996
(together the "Loan Agreement") and all promissory notes, agreements, documents
and instruments entered into by Wakefield Engineering, Inc. ("Wakefield"),
Specialty Extrusion Corp. ("Specialty") and Lockhart Industries, Inc.
("Lockhart") and any other person or obligor pursuant thereto (collectively, the
"Loan Documents") with or for the benefit of Fleet National Bank (f/k/a Fleet
National Bank of Massachusetts) ("Bank"). Except as otherwise defined herein,
capitalized terms used herein shall have the meanings given them in the Loan
Agreement. This Fifth Amendment to Loan Agreement is referred to as the "Fifth
Amendment".
Background. Borrowers have requested that Bank agree to waive their
noncompliance with certain financial covenants and extend the maturity date for
the credit facilities provided under the Loan Agreement. Lender has agreed to
the request by the Borrowers subject to the terms and conditions hereof.
1. Subject to the terms and conditions hereof, the Lender waives the Borrowers
noncompliance with the financial covenants in Sections 8(a) through (f) of the
Loan Agreement at and prior to June 30, 1997.
<PAGE>
2. Subject to the satisfaction of the terms and conditions hereof, Bank and
Borrower have agreed that the Loan Agreement shall be amended as follows:
(a) Amendments to Definitions.
(1) Definition of Borrowing Base. The definition of "Borrowing Base"
in Section 1 of the Agreement is amended to delete "$5,500,000.00" from clause
(b)(ii) thereof and to replace it with "$4,500,000.00".
(2) Definition of Eligible Accounts. The definition of Eligible
Accounts is amended to add the following clause (h) thereto:
(h) for account debtors that are not located in the United
States, Canada or Puerto Rico or one of the pre-approved multi-national Account
Debtors listed on Exhibit I to the Fifth Amendment hereto, the account debtor
has delivered to Borrower an irrevocable letter of credit in form and from a
bank acceptable to Lender in an amount sufficient to cover the Account or the
Account is otherwise satisfactory to Lender, in its discretion; and"
(3) Definition of Revolving Loan Limit. The definition of Revolving
Loan Limit is amended to delete "$12,500,000.00" and to replace it with
"$9,000,000.00".
(4) Definition of Termination Date. The definition of Termination
Date is amended to delete "April 30, 1997" and to replace it with "January 1,
1998".
(b) Amendments to Section 2(c). Section 2(c)(i) is amended to provide that
Equipment Loans shall be made to the Borrowers only upon the approval thereof by
the Lender, in its discretion.
(c) Interest Rates Amendment. Subsections 2(d)(i) (A) and (B) of the Loan
Agreement are hereby deleted and the following is substituted in place thereof:
"(A) For each Prime Rate Advance, the Prime Rate plus one half
of one percent (1/2%), and
(B) For each LIBOR Rate Advance, the relevant Adjusted LIBOR
Rate for the applicable Interest Period selected by Borrower in
conformity with this Agreement plus 250 basis points."
The foregoing interest rate adjustment is not applicable to the Term Loans
and Equipment Loans.
<PAGE>
(d) Unused Line Fee Amendment. Section 2 is amended to add the following
Section 2(h):
"(h) Unused Line. The Borrowers shall pay to the Bank an unused line
fee equal to one half of one percent (1/2%) per annum on the difference between
$9,000,000 and the average daily outstanding principal balance of Revolving
Loans during each fiscal quarter, payable quarterly in arrears on the first day
of each fiscal quarter of Borrowers."
(g) Financial Covenants Amendments.
(1) 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 Borrowers' Tangible Capital
Base to be less than the following amounts at the end of the respective periods
set forth below:
Date Minimum Tangible Capital Base
---- -----------------------------
May 25, 1997 $ 6,900,000
June 29, 1997 $ 7,100,000
July 27, 1997 $ 7,200,000
August 24, 1997 $ 7,300,000
September 28, 1997 $ 7,500,000
October 26, 1997 $ 7,700,000
For purposes of calculating Tangible Capital Base, all Subordinated
Indebtedness hereafter provided to the Borrowers by Alpha and subject to the
Subordination Agreement between Alpha and Bank shall be added to the Minimum
Tangible Capital Base amounts set forth above.
(2) 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 (A) the aggregate of (i) EBITDA minus (ii) unfinanced
capital expenditures, minus (iii) cash taxes, and minus (iv) permitted payments
on Subordinated Indebtedness and any permitted Dividends to (B) the sum of (i)
interest expense and (ii) CMLTD of the Borrower to be less than .85 to 1.00 for
the six months ending July 27, 1997 and 1.10 to 1.00 for the nine months ending
October 26, 1997."
(3) Section 8(c) Senior Debt to Tangible Capital Base Ratio is
amended by deleting the Section in its entirety.
(4) Section 8(d) of the Loan Agreement is deleted in its entirety
and the following is inserted in lieu thereof.
<PAGE>
(d) Earnings. Permit Borrowers' Net Earnings before taxes to be
less than the amount set forth below for the respective periods set forth below:
Period Amount
------ ------
Month ending May 25, 1997 $ 28,000
Month ending June 29, 1997 $ 60,000
Month ending July 27, 1997 $ 10,000
Month ending August 24, 1997 $ 139,000
Month ending September 28, 1997 $ 280,000
Month ending October 26, 1997 $ 209,000
Cumulative total for the three fiscal
quarters ending October 26, 1997 $ 756,000
Month ending November 23, 1997 $ 101,000
Month ending December 28, 1997 $ 15,000
provided that the failure of the Borrower to satisfy the amount required above
for any month shall not constitute an Event of Default if the cumulative amount
to such month equals or exceeds the cumulative amount set forth above.
(5) Section 8(e) of the Loan Agreement is deleted in its entirety and the
following is substituted in lieu thereof:
(e) Current Ratio. Permit Borrowers' current ratio at any month end
to be less than 1.00 to 1.00.
(6) Section 8(f), Interest Coverage Ratio, is deleted in its entirety and
the following is inserted in place thereof.
"(f) Capital Expenditures. Borrowers shall not incur Capital
Expenditures in excess of the amounts set forth below for the respective periods
set forth below:
Period Amount
------ ------
Fiscal quarter ending July 27, 1997 $ 425,000
Fiscal quarter ending October 26, 1997 $ 360,000
Two fiscal quarters ending October 26, 1997 $ 785,000
<PAGE>
(h) Section 8 of the Loan Agreement is amended to add a new
Section (p)
"(p) Subordinated Indebtedness. Borrower shall not make,
directly or indirectly, any payment of principal, interest or other amounts on
the Subordinated Indebtedness due to Alpha which on the date hereof exceeds
$7,325,000.00."
4. Representations and Warranties.
To induce Bank to enter into this Fifth Amendment, each Borrower
jointly and severally warrants, represents and covenants to Bank that:
(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 Fifth Amendment,
and each of the Loan Documents to which it is a party. The execution, delivery
and performance of this Fifth 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 Fifth Amendment and each of
the other Loan Documents delivered under this Fifth 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 June 29, 1997, the date of the
last financial statements provided by the Borrowers to the Bank, there has been
no material adverse change in the condition, financial or otherwise, of
Borrowers as shown on the consolidated balance sheet thereof as of such date and
no change in the aggregate value of property and assets
<PAGE>
owned by Borrowers, 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 Fifth Amendment, except for representations and warranties
that explicitly relate to an earlier date and changes in the nature of
Borrowers' 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.
5. Conditions Precedent.
Notwithstanding any other provision of this Fifth Amendment or any of
the other Loan Documents, and without affecting in any manner the rights of Bank
under the other sections of this Fifth Amendment, this Fifth 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 Fifth
Amendment, the Third Amended and Restated Revolving Credit Note in the form
attached as Exhibit A hereto, the Amendment to Subordination Agreement with
Alpha in the form attached as Exhibit B hereto, 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 Fifth Amendment or the consummation of the transactions contemplated
thereby or hereby.
(d) Amendment Fee. The Borrowers have paid to Lender on July 1, 1997
a nonrefundable amendment fee of $35,000.
6. Acknowledgment 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.
<PAGE>
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 as
provided herein. Each Borrower further acknowledges and agrees that all
Obligations of Borrowers 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 Fifth Amendment by
Bank shall not be construed as a waiver by Bank of any Default or Event of
Default under the Loan Documents. This Fifth 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 Fifth 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. Any reference in any of the Loan Documents to Lender shall
be deemed to be a reference to the Bank. This Fifth 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.
<PAGE>
Executed under seal on the date set forth above.
ATTEST: WAKEFIELD ENGINEERING, INC.
/s/ Michael Bent By: /s/ Johnny J. Blanchard
_____________________________ ________________________________
Name:___________________________
Title:__________________________
ATTEST: SPECIALTY EXTRUSION CORP.
/s/ Michael Bent By: /s/ Johnny J. Blanchard
_____________________________ ________________________________
Name:___________________________
Title:__________________________
ATTEST: LOCKHART INDUSTRIES, INC.
/s/ Michael Bent By: /s/ Johnny J. Blanchard
_____________________________ ________________________________
Name:___________________________
Title:__________________________
Accepted in Boston, Massachusetts
on _____________ __, 1997
FLEET NATIONAL BANK
By:__________________________
Name:_____________________
Title:____________________
<PAGE>
EXHIBITS TO FIFTH AMENDMENT TO LOAN AGREEMENT
Exhibit A Third Amended and Restated Revolving Credit Note
Exhibit B Subordination Agreement
Exhibit I Pre-Approved Multi-National Account Debtors
<PAGE>
EXHIBIT 11.1
ALPHA TECHNOLOGIES GROUP, INC., AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
FOR THE QUARTERS AND NINE MONTHS ENDED JULY 28, 1996 AND JULY 27, 1997
(Unaudited)
(In Thousands, Except per Share Date)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
--------------------------- ---------------------------
July 28, July 27, July 28, July 27,
1996 1997 1996 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares:
Weighted average common shares outstanding 6,200 6,687 6,156 6,679
Net common shares issuable on exercise of
stock options -- 61 -- --
------------ ------------ ------------ ------------
Weighted average common and common equivalent
shares outstanding 6,200 6,748 6,156 6,679
============ ============ ============ ============
Income before minority interest $ (684) $ 452 $ (438) $ (1,645)
Minority interest (56) -- (21) --
------------ ------------ ------------ ------------
Net income $ (740) $ 452 $ (459) $ (1,645)
============ ============ ============ ============
Net income per common and common equivalent share:
Income before minority interest $ (0.11) $ 0.07 $ (0.07) $ (0.25)
Minority interest (0.01) -- -- --
------------ ------------ ------------ ------------
Net income $ (0.12) $ 0.07 $ (0.07) $ (0.25)
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET - JULY 27, 1997 AND CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
NINE MONTHS ENDED JULY 27, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-26-1997
<PERIOD-START> OCT-28-1996
<PERIOD-END> JUL-27-1997
<CASH> 2,994
<SECURITIES> 0
<RECEIVABLES> 11,867
<ALLOWANCES> 0
<INVENTORY> 8,847
<CURRENT-ASSETS> 24,863
<PP&E> 17,152
<DEPRECIATION> 5,076
<TOTAL-ASSETS> 42,364
<CURRENT-LIABILITIES> 21,336
<BONDS> 0
0
0
<COMMON> 231
<OTHER-SE> 20,292
<TOTAL-LIABILITY-AND-EQUITY> 42,364
<SALES> 56,026
<TOTAL-REVENUES> 56,026
<CGS> 46,343
<TOTAL-COSTS> 46,343
<OTHER-EXPENSES> 11,243
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 749
<INCOME-PRETAX> (2,309)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,309)
<DISCONTINUED> 664
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,645
<EPS-PRIMARY> (.25)
<EPS-DILUTED> (.25)
</TABLE>
