<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 25, 1998
Commission File Number 0-14365
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Alpha Technologies Group, Inc.
(Exact name of registrant as specified in its charter)
76-0079338
Delaware (I.R.S. Employer Identification No.)
(State or other jurisdiction of
incorporation or organization)
9465 Wilshire Blvd., Suite 980 90212
Beverly Hills, CA (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code: (310) 385-1494
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Securities registered under Section 12 (b) of the Exchange Act:
None
Securities registered under Section 12 (g) of the Exchange Act:
Common Stock, $.03 par value
(Title of each class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) had been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant.
$9,295,694 at January 29, 1999
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Common Stock, 6,932,285 shares outstanding at January 29, 1999
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<PAGE>
PART I
Item 1. Description of Business.
General
Alpha Technologies Group, Inc. ("Alpha" or the "Company") manufactures
thermal management products, electronic connectors, and custom designed
subsystems.
Thermal management products, principally heat sinks, are primarily
fabricated aluminum extrusions that have high surface area to volume ratios
and are engineered to dissipate unwanted heat generated by electronic
components. As systems become increasingly more powerful and packaging becomes
smaller, the need to dissipate heat becomes more important to the reliability
and functionality of electronic systems. The Company's thermal management
products serve the microprocessor, computer, consumer electronics,
transportation, automotive, industrial controls, factory automation, power
supply, aerospace and defense industries.
Connectors are electro-mechanical devices that permit electronic
subassemblies such as printed circuit boards, power supplies and input-output
wire harnesses/cable assemblies to be coupled and separated. The Company's
connector products include sub-miniature, micro-miniature and ultra-miniature
connectors and cable and/or wire harness connector assemblies, the majority of
which are custom manufactured to meet rigid specifications. The Company's
connector products serve the aerospace, communications, defense, factory
automation, industrial controls, medical electronics, scientific/process
instrumentation and test/measurement industries.
Custom designed subsystems are operational sub-units integrated into major
networks for data transmission, retrieval and transfer. The Company designs,
fabricates and tests custom designed subsystems for the defense industry, the
telecommunications industry and certain commercial markets.
The Company was incorporated as Synercom Technology, Inc., in Texas in 1969,
and was reincorporated in Delaware in 1983. In 1993, the Company began its
transformation from a software company to its current businesses. Since
October 1993, the Company has grown through a combination of acquisitions and
internal growth. In September of 1994, the Company sold the remaining aspects
of its software and related services business. In April 1995, it changed its
name to Alpha Technologies Group, Inc.
The thermal management business is conducted through the Company's wholly-
owned subsidiary, Wakefield Engineering, Inc. ("Wakefield") which includes the
Wakefield-Fall River and Wakefield-Temecula divisions, Wakefield Extrusion
Corp. ("Wakefield Extrusion") and Lockhart Industries, Inc. ("Lockhart"). The
connector business is conducted through the Company's wholly-owned subsidiary,
Uni-Star Industries, Inc. ("Uni-Star"), which does business as Microdot
Connectors, and its foreign subsidiary, Microdot Connectors Europe Ltd. The
manufacturing operation in France, Malco Microdot France SARL, has been
consolidated into the operation in the United Kingdom. However, a sales office
is maintained in France to service its European operations. In early fiscal
1998, the Company's electronics systems business, which operates as Malco, was
transferred from Uni-Star to a newly formed Delaware corporation, Malco
Technologies, Incorporated; which is a wholly owned subsidiary of Alpha. See
"Note 13. Business Segment Information" in Notes to Consolidated Financial
Statements.
<PAGE>
Acquisitions
The following table sets forth the significant acquisitions made by the
Company since October 1993:
<TABLE>
<CAPTION>
Month
Acquired Business
-------- --------
<C> <S>
October 1993 Thermal management operations in Wakefield and Fall River,
Massachusetts (Wakefield)
June 1994 Connector and related product operations in South Pasadena,
California, Colmar, Pennsylvania and Cincinnati, Ohio (Uni-
Star)
August 1994 Thermal management operations in Temecula, California
(Wakefield-Temecula) formerly known as Aham Tor, Inc.
June 1995 Aluminum extrusion operations in Fullerton, California
(Wakefield Extrusion) formerly known as Specialty Extrusion
Ltd.
August 1996 Manufacturer of sophisticated thermal management devices in
Paramount, California (Lockhart)
</TABLE>
Disposition
On June 20, 1997, Uni-Star sold substantially all of the assets and business
of its hermetic connector business in Cincinnati, Ohio, which operated under
the trade name Connector Industries of America ("CIA"). The sale included
certain tangible and intangible assets used in the CIA business 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 Connectors division may continue to sell certain families of custom
hermetic connectors.
The sales price was $2,100,000 plus the assumption by the purchaser of
certain payables and liabilities of the CIA business aggregating approximately
$120,000. The agreement provides for a potential additional payment to the
Company of up to $400,000, due in February, 1999, based on orders booked by
the buyer during the 1998 calendar year by customers of the CIA business. In
January 1999, the purchaser advised the Company that no contingent payment
will be due. The company recognized a gain, excluding the potential additional
payment, on the sale of $610,000 during fiscal 1997.
Thermal Management Segment
General
During the second half of fiscal 1998, the thermal management segment
revenues decreased substantially compared to the first half of fiscal 1998.
Management believes the decrease was primarily the result of a slowdown in the
electronics industry as well as increased competition from Asian manufacturers
which resulted in lower volumes and sales prices for products serving the
personal computer industry. In response to the decreased revenues, the Company
substantially reduced costs to bring them in line with existing sales levels,
primarily by workforce reductions. In addition during September 1998, the
President of the Company's connector subsidiary assumed the additional
responsibilities of the Presidency of the thermal management group.
In the first half of fiscal 1998, the Company completed the consolidation of
the thermal management business. The Wakefield, Massachusetts facility was
closed and consolidated into the Fall River, Massachusetts and Temecula,
California facilities. The Company leased office space in Beverly,
Massachusetts for the thermal management sales, engineering and administrative
staff. In addition, the Company reached an agreement with the landlord of the
Wakefield facility to transfer its remaining lease commitment on the Wakefield
facility to a lease for office space at a building owned by the landlord in
Beverly, Massachusetts. See "Item 2. Description of Property."
2
<PAGE>
Products
The Company designs, manufactures and sells thermal management products for
use in a variety of industries, including the microprocessor, computer,
consumer electronics, transportation, automotive, industrial controls, factory
automation, power supply, aerospace and defense industries.
The Company's principal thermal management products include:
Penguin(TM) Coolers Heat sinks specifically designed to solve
thermal problems for the latest high-speed
microprocessors offered by major manufacturers.
Other microprocessor-specific products include
aluminum impregnated plastic heat sinks, sold
under the Deltem(TM) name. These products are
used in personal computers and servers. Older
versions of Penguin Coolers are used in
embedded microprocessor applications.
Extruded Heat Sinks Heat sinks and heat sink assemblies designed
for high power industrial applications,
including transportation equipment; automotive
and other stereo amplifiers; and bonded fin
heat sinks used by makers of power supplies,
transportation equipment and other industrial
equipment.
Stamped and Low Power Heat Heat sinks designed to dissipate heat generated
Sinks by power semiconductors, transistors,
rectifiers, diodes and other electronic
components used in electronic applications.
Typically, these are smaller components used on
printed circuit boards.
Active Cooling Components These products use air or liquid to dissipate
heat. Air-to-air heat exchangers use fans to
exchange heat with cooler air and are used in
high-performance telecommunications, military
and aerospace systems. These products also
include sophisticated precision formed
fin/fluxless vacuum brazed chassises, heat
exchangers and cold plates used to cool and
protect computer, radar and laser systems for
the aerospace, military and commercial markets.
Liquid cooling systems are used in applications
which require the removal of significantly
greater amounts of heat than can be achieved by
air cooling.
Precision Compression These products are complete mounting clamp and
Mounting Clamp Systems heat sink assembly systems for proper
installation, compression and cooling of high-
power compression pack silicon-controlled
rectifiers. These products are used in
industrial welding, transportation and motor
control systems.
Accessory Products The Company's accessories include high-
performance thermal compounds, adhesives,
interface materials, and other accessories.
Customers
The Company's principal customers of thermal management products are leading
original equipment manufacturers ("OEM's") of electronic equipment, including:
Hewlett-Packard, Rockwell Automation, Harman, SCI, Apple Computer, Pioneer,
Chrysler Corporation, General Electric, Motorola, Gateway, Delco and Martin
Marietta. The thermal management business has over 3,000 customers. No single
customer accounted for greater than 10% of the Company's revenues during its
1997 or 1998 fiscal year.
3
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The Company's thermal management products must meet its OEM customer's
exacting specifications. Some of the Company's thermal management OEM
customers require the Company to qualify as an approved supplier. In order to
so qualify, the Company must satisfy stringent quality control standards and
undergo extensive in-plant inspections of its manufacturing processes,
equipment and quality control systems. In addition, as required by certain of
the Company's automotive customers, the Company's Wakefield-Temecula division
became QS9000 registered (the quality specification required by the automotive
industry). Revenues from such customers have been immaterial through fiscal
1998, however are expected to increase in fiscal 1999.
Sales, Marketing, and Distribution
The Company designs, manufactures and sells both standard and customized
thermal management products. The Company seeks to become a strategic supplier
to its customers and to differentiate itself from its competitors by offering
a higher level of service to its customers. The Company has applications
engineers who are dedicated to providing ongoing technical support. These
engineers provide solutions to customers for their thermal management
problems, answer customers' questions on the use and application of the
Company's products, provide field support to customers and work with certain
key customers to develop new thermal management solutions. The Company
believes the technical services provided by its engineers are an important
factor in its thermal management sales.
The Company sells thermal management products through its in-house sales
personnel and a network of independent manufacturers' representatives and
distributors. In North America, thermal management products sales are
supported by an internal sales support staff of 12 individuals, 26
manufacturers' representatives and 20 distributors. In international markets,
the Company's thermal management products are sold by 11 manufacturers'
representatives and 13 distributors.
In general, the Company's thermal management manufacturers' representatives
and distributors enter into agreements that allow for termination by either
party upon 30 to 90 days notice. Generally, distributors are permitted to
return a small portion of products purchased by them during the term of the
agreements and to return all products (other than obsolete products) purchased
by them upon termination of the agreement by the Company. Historically, the
amount of returns has been insignificant to the Company's business. The
Company's distributors are generally not precluded from marketing competitive
products.
Research and Product Development
The Company's product development strategy continues to focus on engineering
modifications of existing products to provide customers with higher
performance and lower cost products. The Company maintains technical
relationships with certain key customers in order to understand future thermal
management requirements and focuses on developing new or modifying existing
products to meet such requirement. The Company strives to be included on the
recommended vendor list of its customers, however, such recommendation is
typically not exclusive.
During fiscal 1998, the Company also focused some of its research and
development efforts to develop a new product line for the microprocessor
market based on convoluted fin technology. These products are smaller, lighter
and thermally more efficient than current generation heat sinks. While the
Company believes that this product family will gain market acceptance in the
future, to date, the Company's orders for this product have not been
significant.
During fiscal 1996, 1997 and 1998, the Company spent $1,448,000, $1,506,000
and $1,903,000 respectively, on product research and development with respect
to its thermal management products. The Company believes that its technical
capabilities, in conjunction with its relationships with customers, will allow
it to continue to introduce solutions to new thermal management problems
responsively. Due to the aforementioned reductions in workforce, the Company
expects its product research and development expenses to decrease in fiscal
1999.
4
<PAGE>
Competition
The thermal management market is highly competitive. There are many
companies which compete directly with the Company in the thermal management
business and offer products and services similar to those offered by the
Company. In this market, the Company's four principal competitors are Aavid
Thermal Technologies, Inc., Thermalloy, a division of Bowthorpe, plc.,
Foxconn/Foxflow Thermal Technology, Inc. and National Northeast Corp., a
subsidiary of Mestek, Inc. Two of the Company's thermal management competitors
are divisions or subsidiaries of larger corporations and, as such, have
greater financial, marketing, and technical resources than the Company.
Additional competition comes from numerous small machine shops, aluminum
extruders, and other new thermal management companies which typically focus on
a single product and do not offer complete lines of thermal management
products.
Backlog
The thermal management business backlog was approximately $17.4 and $9.1
million on October 26, 1997 and October 25, 1998, respectively. Backlog
typically consists of purchase orders scheduled for shipment within 60 days
following the order date. The Company's backlog at any time is not indicative
of future revenue. However, the Company's thermal management lead times have
decreased from 16 weeks to 8 weeks over the last fiscal year.
Proprietary Rights
The Company applies for patents with respect to its most significant
patentable developments. It owns 18 patents related to its thermal management
products which expire from 2002 to 2016. Management believes that its
competitive position is not dependent on patents and that patent expirations
will not materially adversely affect the Company's competitive position.
Raw Materials
The principal raw material used in the Company's thermal management products
is extruded aluminum. Raw materials represent a significant portion of the
cost of the Company's thermal management products. Prices for raw materials
are based upon market prices at the time of purchase. Historically, the price
of aluminum has experienced substantial volatility. Although thermal
management products are generally shipped within 60 days following the order
date, increases in raw materials prices cannot always be reflected in product
sales prices. All raw materials are readily available from multiple suppliers
at competitive prices. In addition, Wakefield Extrusion, a wholly-owned
subsidiary of Wakefield Engineering, supplies a portion of the Company's needs
for extruded aluminum. The Company does not believe the price volatility for
aluminum represents a significant risk because the raw materials for an order
are usually purchased within a short time after the order is accepted.
Connector Products Segment
Products
The Company designs, manufactures and sells high-reliability sub-miniature,
micro-miniature and ultra-miniature connectors, including connectors sold as
value added cable and/or wire harness assemblies, used in aerospace, military
and high-performance commercial applications. The Company's connector products
are produced in small volumes and are highly customized to meet specific
requirements.
The Company's principal connector products include:
Rectangular Connectors Micro-Miniature and Ultra-Miniature low
frequency signal connectors which are
configured in one to four rows with up to 400
contacts and designed for high reliability
aerospace, military and commercial
applications.
5
<PAGE>
Coaxial Connectors Sub-Miniature, Micro-Miniature, Ultra-
Miniature, and industry standard low to high
frequency signal connectors which are
configured to work with 50, 70 and 93 ohm
coaxial, twin-axial and tri-axial cable.
Coaxial connectors are predominantly used in
communication and test/measurement
instrumentation applications.
Circular Connectors The Company produces custom circular low
frequency signal connectors, including some
custom hermetic connectors.
Cable and Wire The Company manufactures and sells proprietary
and non proprietary wire and cable products
which are generally sold as a value added part
of connector assemblies, including custom
application specific cable and miniature low
noise coaxial cable.
Customers
The Company's principal customers for connector products are OEM's in a
diverse group of industries including: aerospace, communications, defense,
factory automation, industrial controls, medical electronics,
scientific/process instrumentation and test/measurement. The Company's
connector business has over 400 customers including: Boeing North America,
March Electronics, Raytheon Company, Rockwell Collins, Space Systems/Loral,
AT&T, Morey Corporation, PCB Piezotronics, and Lockheed Martin. No single
customer accounted for greater than 10% of the Company's revenue during its
1997 and 1998 fiscal year.
Typically, the Company's connector products must meet OEM customers'
exacting specifications. In addition, many of the customers also require the
Company to qualify as an approved supplier. In order to so qualify, the
connector products segment must satisfy stringent quality control standards
and undergo extensive in-plant inspections of its manufacturing processes,
equipment and quality control systems.
Sales, Marketing, and Distribution
The Company's connector products include both standard and customized
connector products. The Company seeks to become a value-added supplier to its
customers and to differentiate itself from its competitors by offering a
higher level of service and technical sales support to its customers. The
connector products segment has a dedicated team of applications engineers and
technicians providing ongoing technical support. These engineers and
technicians assist customers with their connector designs and problems and
answer customers' questions on the use and application of the Company's
connector products. The Company believes the technical services provided by
its engineers and technicians are an important factor in its connector
products sales and product development efforts.
The Company sells connector products through its in-house sales personnel
and through its network of independent manufacturers' representatives and
distributors. In North America, the connector products segment's four-person
sales force supports fourteen manufacturer's representatives and two
distributors. In international markets, the connector products segment uses
three manufacturers' representatives to market its products in addition to in-
house sales personnel in England and France which market the Company's
products to the European market.
In general, the Company's agreements with its connector products'
manufacturers' representatives and distributors allow either party to cancel
the agreement upon 30 to 90 days notice. Generally, the agreements allow
distributors to exchange a small portion of products purchased by them as part
of a stock rotation program and to return all products (other than obsolete
products) purchased by them upon termination of the agreement by the Company
within the first two years of its effective date. The agreements with the
Company's connector product distributors generally preclude them from
marketing competitive products.
6
<PAGE>
Research and Product Development
The Company's connector product development strategy primarily focuses on
modifying existing products in response to customer needs. The Company
believes that its technical capabilities, in conjunction with collaborative
efforts with customers, will allow it to continue to design products
responsively to meet its customers needs. The Company intends to continue
developing new connector products by modifying and extending its current
products.
Competition
The connector industry is highly fragmented with competition drawn along
very specific product lines. The Company's principal competition in its
connector operations comes from smaller, niche-oriented companies which, like
the Company, focus on low volume customized products. Occasionally, the
Company competes with smaller divisions of larger firms. The Company's
connector competitors include ITT's Cannon division, Glenaire, Labinal's Cinch
division, Microtech, Molex, Cristek, AirBorn, Inc. and Min-e-Con.
Backlog
The Company's connector products backlog was approximately $4.4 and $4.0
million on October 26, 1997 and October 25, 1998, respectively. Backlog
typically consists of purchase orders scheduled for shipment within 90 days.
The Company's backlog at any time is not indicative of future revenue. The
Company has entered into supply agreements with several customers for its
connector products, including Lockheed Martin, Raytheon and Boeing North
America (previously known as Rockwell Aerospace). The agreements generally
provide that, for a term of eighteen months to two years such customer will
purchase all its requirements, if any, for a particular product from the
Company for a fixed price.
Proprietary Rights
The Company applies for patents with respect to its most significant
patentable developments. The Company owns 8 patents related to its connector
products. Management believes that its competitive position is not dependent
on patents and that patent expirations will not materially adversely affect
the Company's competitive position.
Raw Materials
The principal raw materials used in connector products are aluminum, copper,
copper alloy, stainless steel and steel alloy. The Company also uses gold,
plating chemicals, plastics, bar metal and wire in its production of connector
products. These raw materials are subject to market price fluctuation.
However, no single raw material is considered to be a major cost component of
the Company's connector products. All raw materials are readily available from
multiple suppliers at competitive prices.
Environmental Regulations
Several aspects of the Company's operations utilize hazardous materials, the
removal of which is subject to regulation. The Company contracts with licensed
third party waste haulers to remove such hazardous materials. While the
Company believes that it conducts its operations in substantial compliance
with applicable environmental laws and regulations and has all environmental
permits necessary to conduct its business, more stringent environmental
regulations may be enacted in the future, and there can be no assurance that
the Company will not incur significant costs in the future in complying with
such regulations. Local environmental agencies monitor the Company's
operations for ongoing compliance with environmental requirements, and the
Company is required to correct any violations revealed by such monitoring.
Although the Company is periodically subject to notices of violations with
respect to environmental requirements, it is not aware of any violations or
events that would require the Company to incur material cost, nor has the cost
of complying with environmental laws represented a material cost to the
Company. See "Legal Proceedings".
7
<PAGE>
Employees
On October 25, 1998, the Company had 607 employees (603 of whom were full
time). Its thermal management segment had 393 employees (392 of whom were full
time), all in domestic operations, and its connector products segment had 139
employees in domestic operations (all full time) and 20 employees resident
outside the United States (18 full time). In addition, the Company had 8
corporate employees (7 full time). Employees are not represented by a labor
union. Management believes that employee relations are excellent.
Product names mentioned herein are for identification purposes only and may be
trademarks or registered trademarks of their respective companies.
Item 2. Description of Property.
The Company has leases for manufacturing facilities at the following
locations:
<TABLE>
<CAPTION>
Approximate Principal Expiration
Location Square Feet Facility Use Date
- -------- ----------- ------------ ----------
<S> <C> <C> <C>
South Pasadena, California... 74,470 connector May, 2004
products
Temecula, California......... 44,200 thermal management November 2004
products
Fullerton, California........ 15,000 aluminum extrusions for **
thermal management
products
Fall River, Massachusetts.... 81,000 thermal management July 2008
products
Colmar, Pennsylvania......... 52,000 electronic March 2005
subsystems
Paramount, California........ 36,700 thermal management October 1999
products
Paramount, California........ 25,000 thermal management October 1999
products
</TABLE>
- --------
** This lease expired in August 1998. Management is currently negotiating a
new lease with the landlord.
Management believes that these facilities are in good condition suitable for
the purposes for which they are used. The Company has office space for its
thermal management sales, engineering and administrative functions in Beverly,
Massachusetts and for its corporate staff in Houston, Texas, Beverly Hills,
California and New York, New York.
Item 3. Legal Proceedings.
During 1997, Aerospace Aluminum Heat Treating, Inc. ("AAHT") instituted an
action in the United States District Court for the Central District of
California against Soco-Lynch Corporation and the Company's Lockhart
subsidiary. AAHT operates a facility neighboring Lockhart's facility in
Paramount, California. The complaint alleges that Lockhart released certain
hazardous chemicals into the ground, and that some of these chemicals have
contaminated the ground and/or groundwater below the AAHT facility and an
adjoining property. The complaint also alleges that Soco-Lynch is a supplier
of industrial chemicals, and that Soco-Lynch spilled certain chemicals at the
AAHT facility. The plaintiff has claimed that its damages are between $200,000
and $750,000. To date, the Company has incurred $160,000 in the defense of
this litigation. Preliminary investigation indicates that the underground
water flows in a direction that would not support AAHT's claims. In addition,
because of the depth of the groundwater, even if AAHT's claim were
supportable, the Company believes that any release by Lockhart would predate
the Company's ownership of Lockhart. The former owner of Lockhart agreed to
indemnify the Company against such claims, and has been put on notice of
AAHT's complaint. Such
8
<PAGE>
indemnification obligations are payable in shares of the Company's common
stock, which are currently held in escrow, and are to be valued at $9 per
share. Some discovery has been concluded and additional discovery may be
taken. A non-binding mediation was held on January 21, 1999. No resolution was
reached, but the parties agreed to further testing and to attempt to negotiate
a settlement thereafter. If the parties are unable to resolve the litigation
through negotiation, additional discovery and a trial may be necessary. The
Company cannot evaluate the likelihood of an unfavorable outcome or estimate
the amount or range of potential loss, if any. Lockhart intends to vigorously
defend this action.
On August 5, 1998, an attorney for a group called California Community
Health Advocates wrote a letter to Lockhart Industries alleging that the
Lockhart was in violation of the California Safe Drinking Water Act,
California Health and Safety Code secs. 25249 et seq. (commonly known as
Proposition 65) because of its alleged failure to post certain notices and to
provide certain warnings to neighboring businesses and residents. If all of
these allegations were true, Lockhart could be subjected to penalties of up to
$2,500 per day. In response, Lockhart has agreed to undertake efforts to
reduce or eliminate its use of certain chemicals, and to provide appropriate
warnings for past and current usage of such chemicals, as a way of shielding
itself from such claims in the future. The Company cannot predict the future
cost or liability, if any, with respect to these allegations.
Other than as set forth above, there are no material pending legal
proceedings against the Company and, to the Company's knowledge, no such
proceedings are threatened.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted during the fourth quarter of fiscal 1998 to a vote
of the holders of the Company's common stock, through the solicitation of
proxies or otherwise.
9
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Market for Common Stock
The Company's common stock is traded on The Nasdaq Stock Market, National
Market System (NMS) under the symbol ATGI. Through the facilities of the
NASDAQ/NMS reporting system, actual sales prices of the Company's common stock
are available.
The following table sets forth the high and low sales prices of the
Company's common stock as reported on the NASDAQ National Market System for
each full quarterly period within the Company's two most recent fiscal years:
<TABLE>
<CAPTION>
1997 High Low
---- ------ ---
<S> <C> <C>
First Quarter.............................................. 5 3 5/8
Second Quarter............................................. 4 2 5/8
Third Quarter.............................................. 3 7/8 2 9/16
Fourth Quarter............................................. 5 5/8 3 1/2
<CAPTION>
1998 High Low
---- ------ ---
<S> <C> <C>
First Quarter.............................................. 4 3/4 3 1/2
Second Quarter............................................. 5 1/2 3 3/4
Third Quarter.............................................. 5 1/4 3 5/16
Fourth Quarter............................................. 3 1/4 1 1/2
</TABLE>
Holders of Record
On December 31, 1998, there were approximately 196 holders of record and
approximately 2,000 beneficial owners of the Company's common stock.
Dividends
The Company has paid no cash dividends on its common stock during fiscal
years 1997 and 1998. The Board of Directors of the Company does not intend to
pay cash dividends on its common stock in the foreseeable future.
10
<PAGE>
Item 6. Selected Financial Data.
The Company entered its current business in October 1993 by acquiring a
thermal management business and has subsequently acquired several operations
in the thermal management and connector business. See "Acquisitions" in Item
1. Description of Business--General. The results of such acquired businesses
are reflected on the following table from the date of acquisition. In
September 1994, the Company sold its software business; and in June 1997, the
Company sold its hermetic connector business. The Results of Operations in the
following table do not include any information with respect to such businesses
sold.
<TABLE>
<CAPTION>
For the Years Ended
-----------------------------------------------------------
October 31, October 29, October 27, October 26, October 25,
1994 1995 1996 1997 1998
----------- ----------- ----------- ----------- -----------
(In Thousands Except per Share Data)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS(1)
Sales................... $ 29,167 $ 61,451 $ 67,070 $ 75,665 $ 77,045
Cost of sales........... 19,901 44,461 52,651 61,726 63,773
Gross profit............ 9,266 16,790 14,419 13,939 13,272
Income (loss) before
discontinued
operations(2).......... 2,812 3,692 (617) (4,016) (2,783)
Per common and common
equivalent share income
(loss) from continuing
operations............. $ 0.44 $ 0.56 $ (0.10) $ (0.60) $ (0.41)
Shares used............. 6,343,604 6,605,147 6,277,585 6,682,106 6,753,752
BALANCE SHEET DATA(1)
Working capital......... $ 15,947 $ 15,938 $ 6,744 $ 10,331 $ 9,099
Total assets............ 31,478 42,101 46,847 41,378 38,675
Total debt.............. 3,902 9,943 13,909 9,557 11,974
Stockholders' equity.... 16,544 18,763 22,117 18,801 16,317
</TABLE>
- --------
(1) See Consolidated Financial Statements and Notes to Consolidated Financial
Statements on pages F-3 through F-18.
(2) See "Note 2. Acquisitions" and "Note 3. Discontinued Operation" in Notes
to Consolidated Financial Statements.
Item 7. Management's Discussion and Analysis of Operations and Financial
Condition.
Forward Leading Statements
In conjunction with the provisions of the "Safe Harbor" section of the
Private Securities Litigation Reform Act of 1995, this Annual Report on Form
10-K may contain forward-looking statements pertaining to future anticipated
projected plans, performance and developments, as well as other statements
relating to future operations. All such forward-looking statements are
necessarily 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 the Company, including,
but not limited to, the impact of competitive products and pricing, product
demand and market acceptance, new product development, reliance on key
strategic alliances, availability of raw materials, fluctuations in operating
results, ability to retain and attract personnel including management and
other risks detailed herein and in the Company's other filings with the
Securities and Exchange Commission.
11
<PAGE>
Item 7. Management's Discussion and Analysis of Operations and Financial
Condition--continued
Overview
The Company entered the thermal management business in October 1993 by
acquiring Wakefield and entered the connector products business in June 1994
by purchasing the Interconnect Systems Division of Microdot Inc. The following
table sets forth the significant acquisitions and dispositions made by the
Company during the last three fiscal years:
<TABLE>
<CAPTION>
Date
Acquired Business Predecessor's Name
-------- -------- ------------------
<C> <S> <C>
August 1996 Thermal management operations in Lockhart Industries, Inc.
Paramount, California (Lockhart)
<CAPTION>
Date Sold Business Trade Name
--------- -------- ----------
<C> <S> <C>
June 1997 Hermetic connector operation in Connector Industries of America
Cincinnati, Ohio (CIA)
</TABLE>
The results of operations of the businesses acquired are included in the
Company's consolidated results of operations only since their respective
acquisition dates. In June 1997, the Company sold its hermetic connector
business which was located in Cincinnati, Ohio. The consolidated financial
statements of the Company for the fiscal year ended October 26, 1997 report
separately the gain on the sale and the results of operations of such
discontinued operation. Such operation is not included in the following
discussion and prior year numbers have been restated to exclude the effects of
discontinued operations.
Results of Operations
Fiscal Year 1998 versus Fiscal Year 1997 Comparison
Net Income/Loss. The Company reported a net loss for the 1998 fiscal year of
$2,783,000 which included net charges for restructuring and other non
recurring costs of $127,000, a charge for additional inventory reserves of
$926,000, and a $269,000 charge to write off toolings used in the
manufacturing of certain products within the thermal management segment's
stamping product line. This compares to net loss for the 1997 fiscal year of
$3,352,000 which included charges for restructuring and other non recurring
costs of $2,494,000, a charge for additional inventory reserves of $588,000,
and a gain of $610,000 from the sale of its hermetic connector business.
During the second half of fiscal 1998, thermal management revenues decreased
substantially compared to the first half of fiscal 1998. In response to the
decrease in revenues, the Company reduced costs to bring them in line with
existing sales levels primarily by workforce reductions. As a result, the
thermal management business was profitable in the first quarter of fiscal
1999.
The net restructuring and other costs incurred in fiscal 1998 include
$339,000 in reduction in workforce severance payments, $150,000 in estimated
costs to close the Company's connector operation in France, and the net
reversal of $362,000 accrued in connection with the consolidation of the
thermal management operations begun in the fourth quarter of 1997. The
$2,494,000 in restructuring and other charges reported in fiscal 1997 included
(i) $2,028,000 related to the closing of the Company's manufacturing facility
in Wakefield, Massachusetts and the consolidation of the thermal management
operations into the Fall River, Massachusetts and Temecula, California
facilities, and (ii) $466,000 related to downsizing and management changes
throughout the Company.
The additional inventory reserves recorded in fiscal 1998 were recognized
primarily to reserve the costs of certain slow moving products within the
thermal management business's stamping product line and to reserve for
products purchased for an order which was cancelled. The Company continues to
market other products in the stamping product line. The Company has
implemented policies and procedures to reduce its risk of loss on cancellation
of orders. The additional inventory reserves recorded in fiscal 1997 were
recognized to fully reserve the costs of certain custom thermal management
products that were built in anticipation of orders that have not been
received.
12
<PAGE>
Item 7. Management's Discussion and Analysis of Operations and Financial
Condition--continued
In fiscal 1998, the thermal management segment reported a net loss, before
the allocation of Alpha corporate expenses ("corporate allocation"), of
$3,160,000 including a charge for additional inventory reserves of $926,000, a
$269,000 charge to write off toolings used in the manufacturing of certain
products within the stamping product line, severance payments of $263,000 and
the net reversal of $362,000 accrued in connection with the consolidation of
the thermal management operations begun in the fourth quarter of 1997. The net
loss from thermal management operations for fiscal 1997, before corporate
allocation, was $1,786,000, inclusive of $2,028,000 related to the closing of
the Wakefield facility and $172,000 related to downsizing of the thermal
management operations. The results of operations, excluding the aforementioned
charges, decreased primarily due to a reduction in the gross profit margin,
which is discussed below.
For fiscal 1998, net income from the connector products segment, before
corporate allocation, was $889,000 inclusive of $150,000 in estimated expenses
accrued for the closure of the French manufacturing facility and $76,000 in
severance payments at the connector operation in South Pasadena, CA. The net
loss from the connector products segment for fiscal 1997, before corporate
allocation, was $1,133,000 including $166,000 related to management changes
and downsizing. The increase in the results of operations in fiscal 1998
compared to fiscal 1997 was primarily due to an increase in gross profit,
which is discussed below.
Net income from the subsystems segment, before corporate allocation, was
$573,000 for fiscal 1998. The net loss from the subsystems segment for fiscal
1997, before corporate allocation, was $49,000 including $120,000 related to
restructuring. The increase in the results of operations in fiscal 1998
compared to fiscal 1997 was primarily due to an increase in gross profit,
which improved due to the shift to outsourcing various manufacturing
processes.
Sales. The Company's sales for fiscal 1998 increased $1,380,000, or 1.8%, to
$77,045,000 from $75,665,000 for fiscal 1997. Thermal management sales were
$58,495,000 and $58,294,000 for fiscal 1998 and 1997, respectively. During the
third and fourth quarter of fiscal 1998, the Company experienced a substantial
decrease in bookings and sales for Penguin(TM) cooler ("PGC") heat sinks and
extruded heat sinks. For fiscal 1998, PGC product sales decreased by 16.6%.
Management believes that the decrease in thermal management sales was due to
the slowdown in the electronics industry and increased competition from Asian
manufacturers resulting in lower quantities and prices. During the last
quarter of fiscal 1998, the Company implemented cost reduction measures,
primarily a reduction in workforce, to bring expenses in line with current
thermal management sales levels.
Connector sales were $12,579,000 during the 1998 fiscal year compared to
$11,880,000 during the prior fiscal year, a 5.9% increase. Management believes
that this increase was primarily caused by increased demand and improved
selling efforts by its independent representatives and distributors.
Gross Profit. The Company's overall gross profit as a percentage of total
revenues ("gross profit percentage") for fiscal 1998 was 17.1% compared to
18.4% for 1997 fiscal year. The thermal management segment's gross profit
percentage was 13.9% and 18.8% for fiscal 1998 and 1997, respectively.
Excluding the aforementioned additional inventory reserves recorded in fiscal
1997 and 1998 and the write off of toolings, the Company's thermal management
gross profit percentage was 16.0% and 19.8% for fiscal 1998 and 1997,
respectively. Thermal management gross profit percentage was adversely
impacted by the aforementioned substantial reduction in third and fourth
quarter sales and margins on PGC and extruded heat sink products without a
corresponding decrease in overhead. The Company implemented significant cost
reduction measures, primarily workforce reductions, in the fourth quarter of
fiscal 1998 to reduce its operating costs and bring expenses in line with
current sales levels.
The connector products segment's gross profit percentage increased to 28.7%
for fiscal 1998 from 17.2% for fiscal 1997. This increase is attributable to
an increase in manufacturing efficiencies due to more consistent monthly sales
levels and a decrease in operating expenses.
13
<PAGE>
Item 7. Management's Discussion and Analysis of Operations and Financial
Condition--continued
Research and Development Expense. Research and development expense includes
the cost of enhancing existing products and, to a lesser extent, the cost of
developing new products. Research and development expenses, wholly
attributable to the thermal management segment, were $1,903,000 and $1,506,000
for fiscal 1998 and 1997, respectively. The increase of $397,000 in research
and development expenses was primarily due to an increase in engineering staff
as well as an increase in licensing fees for engineering software. For fiscal
1997, the Company received a one-year waiver of licensing fees for a software
application used in engineering.
During fiscal 1998, the Company focused some of its research and development
efforts to develop a new product line for the microprocessor market based on
convoluted fin technology. These products are smaller, lighter and thermally
more efficient than current generation heat sinks. While the Company believes
that this product family will gain market acceptance in the future, to date,
the Company's orders for this product have not been significant.
Restructuring and Other Expenses. For fiscal 1998, the Company recorded
$127,000, in net restructuring and other expenses. The restructuring costs
incurred in fiscal 1998 include $339,000 in downsizing severance payments,
$150,000 in estimated costs to close the Company's connector operation in
France, and the net reversal of $362,000 accrued in connection with the
consolidation of the thermal management operations.
During the third quarter of fiscal 1998, management began the consolidation
of the connector segment's European operations. The Company's connector
operation in England will now manufacture connectors for its European
customers. However, a sales office will be maintained in France.
The Company reached an agreement, during fiscal 1998, with the landlord of
the Wakefield facility to transfer its remaining lease commitment on this
facility to a lease for office space owned by the same landlord in Beverly,
Massachusetts. As part of the charge for the consolidation of its Wakefield
and Fall River, Massachusetts plants, the Company had previously provided for
the sublease of this facility at less than the Company's lease commitment. Due
to the agreement with the landlord, the Company reversed $362,000 of this
accrual. The Company does not expect to incur any additional material charges
related to this consolidation. During fiscal 1997, the Company incurred
restructuring charges of $2,494,000, which consisted of $2,028,000 related to
the consolidation of the thermal management operations and $466,000 related to
management changes and downsizing. See "Consolidation of Thermal Management
Operations" in Item 1. Description of Business--Thermal Management Segment.
Interest and Other Income (Net). Interest income, which was $67,000 in
fiscal 1998 and $125,000 in fiscal 1997, was earned on cash held by the
Company. The decrease in interest income was primarily attributable to a
decrease in the average cash balance invested. Interest expense was $1,011,000
and $1,173,000 for fiscal 1998 and fiscal 1997, respectively. This decrease
was due to a lower average borrowing base and a decrease in the average
interest rate paid on outstanding debt.
Discontinued Operation. On June 20, 1997, the Company sold substantially all
of the assets and business of its hermetic connector business in Cincinnati,
Ohio, which operated under the trade name Connector Industries of America.
The sales price was $2,100,000 plus the assumption by the purchaser of
certain payables and liabilities of the CIA business aggregating approximately
$120,000. The agreement provides for a potential additional payment to the
Company of up to $400,000, due in February, 1999, based on orders booked by
the buyer during the 1998 calendar year by customers of the CIA business. In
January 1999, the purchaser advised the Company that no contingent payment
will be due. The Company recognized a gain, excluding the potential additional
payment, on the sale of $610,000 during fiscal 1997.
Fiscal Year 1997 versus Fiscal Year 1996 Comparison
Net Income/Loss. The Company reported a net loss for the 1997 fiscal year of
$3,352,000 which included charges for restructuring and other non recurring
costs of $2,494,000, a charge for additional inventory reserves
14
<PAGE>
Item 7. Management's Discussion and Analysis of Operations and Financial
Condition--continued
of $588,000, and a gain of $610,000 from the sale of its hermetic connector
business. This compares to net loss of $299,000 for the 1996 fiscal year which
included $406,000 of other charges.
The $2,494,000 in restructuring and other charges reported in fiscal 1997
included (i) $2,028,000 related to the closing of the Company's manufacturing
facility in Wakefield, Massachusetts and the consolidation of the thermal
management operations into the Fall River, Massachusetts and Temecula,
California facilities, and (ii) $466,000 related to downsizing and management
changes throughout the Company. The additional inventory reserves were
recognized to fully reserve the costs of certain custom thermal management
products that were built in anticipation of orders that have not been
received. The $406,000 of other charges recorded in fiscal 1996 related to the
settlement of a cancelled purchase commitment, costs related to an acquisition
effort that was terminated and severance payments.
The net loss from thermal management operations for fiscal 1997, before the
allocation of Alpha corporate expenses ("corporate allocation"), was
$1,786,000, inclusive of $2,028,000 related to the closing of the Wakefield
facility and $172,000 related to downsizing of the thermal management
operations. Exclusive of these charges, the thermal management business would
have reported net income of $414,000, before corporate allocation. In fiscal
1996, the thermal management segment reported net income, before corporate
allocation, of $276,000 including a charge for severance payments of $140,000.
The results of operations, excluding the aforementioned charges, decreased
primarily due to a reduction in the gross profit margin, which is discussed
below.
The net loss from the connector products segment for fiscal 1997, before
corporate allocation, was $1,133,000 including $166,000 related to management
changes and downsizing. For fiscal 1996, net income from the connector
products segment, before corporate allocation, was $390,000. The decrease in
the results of operations in fiscal 1997 compared to fiscal 1996 was primarily
due to reduced revenues and gross profit, which is discussed below.
Sales. The Company's sales for fiscal 1997 increased $8,595,000, or 12.8%,
to $75,665,000 from $67,070,000 for fiscal 1996. Thermal management sales
increased 19.0% to $58,294,000 for fiscal 1997 from $48,980,000 for fiscal
1996. The increase in thermal management sales was due to internal growth of
4.5% and the inclusion of $8,317,000 in sales by Lockhart, which was acquired
in August 1996. In fiscal 1996, the Company recorded revenues from Lockhart of
$1,133,000 for the 2 month period it owned this business. Internal thermal
management sales increased primarily due to higher sales of Penguin Cooler
Heat Sinks ("PGC"), which dissipate heat generated by microprocessors used in
personal computers. Sales of PGC increased approximately 15.3% in fiscal 1997
compared to fiscal 1996.
Connector sales were $11,880,000 during the 1997 fiscal year compared to
$13,087,000 during the prior fiscal year, a 9.2% decrease. This decrease was
primarily caused by low backlog at the beginning of the year causing
throughput and manufacturing scheduling problems at the South Pasadena
facility. During the year, the backlog at this facility has increased from
$2.5 million to $3.9 million and management has focused on improving
productivity. The increased backlog has enabled this facility to better plan
monthly production and increase monthly shipments during the year. The backlog
has increased due to the replacement of sales representative firms not meeting
their sales commitment, instituting detailed three-day training sessions for
all sales representatives and hiring three distributors.
Gross Profit. The Company's overall gross profit as a percentage of total
revenues ("gross profit percentage") for fiscal 1997 was 18.4% compared to
21.5% for 1996 fiscal year. The thermal management segment's gross profit
percentage was 18.8% and 20.6% for fiscal 1997 and 1996, respectively.
Excluding the aforementioned additional inventory reserves recorded in fiscal
1997, the company's thermal management gross profit percentage was 19.8% for
fiscal 1997. Thermal management gross profit percentage was further adversely
impacted by higher sales of PGC products, which carry a lower gross profit
margin than the average of other thermal management products, increased
aluminum costs and competitive pricing pressures.
15
<PAGE>
Item 7. Management's Discussion and Analysis of Operations and Financial
Condition--continued
The connector products segment's gross profit percentage decreased to 17.2%
for fiscal 1997 from 28.2% for fiscal 1996. This decrease is attributable to
the aforementioned manufacturing inefficiencies and decreased sales volume.
Research and Development Expense. Research and development expense includes
the cost of enhancing existing products and, to a lesser extent, the cost of
developing new products. Research and development expenses, wholly
attributable to the thermal management segment, were $1,506,000 and $1,448,000
for fiscal 1997 and 1996, respectively. Excluding Lockhart, research and
development expenses for the 1997 and 1996 fiscal years were $1,107,000 and
$1,423,000, respectively. The decrease of $316,000 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. For fiscal 1997, the
Company received a one-year waiver of licensing fees for a software
application used in engineering.
Selling, General and Administrative Expense. Selling, general and
administrative expenses for the year ended October 26, 1997 were $12,931,000,
or 17.1% of sales, compared to $12,344,000, or 18.4% of sales, for the year
ended October 27, 1996. SG&A expenses as a percentage of sales decreased due
to the inclusion of Lockhart which has a lower SG&A percentage of sales than
the overall Company's percentage.
Restructuring and Other Expenses. During fiscal 1997, the Company incurred
restructuring charges of $2,494,000, which consisted of $2,028,000 related to
the consolidation of the thermal management operations and $466,000 related to
management changes and downsizing. See "Consolidation of Thermal Management
Operations" in Item 1. Description of Business--Thermal Management Segment.
Interest and Other Income (Net). Interest income, which was $125,000 in
fiscal 1997 and $213,000 in 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 $1,173,000
and $1,073,000 for fiscal 1997 and fiscal 1996, respectively. This increase
was due to a higher average borrowing base and an increase in the interest
rate paid on outstanding debt.
Discontinued Operation. On June 20, 1997, the Company sold substantially all
of the assets and business of its hermetic connector business in Cincinnati,
Ohio, which operated under the trade name Connector Industries of America
("CIA").
The sales price was $2,100,000 plus the assumption by the purchaser of
certain payables and liabilities of the CIA business aggregating approximately
$120,000. The agreement provides for a potential additional payment to the
Company of up to $400,000 based on orders booked by the buyer during the 1998
calendar year by customers of the CIA business. In January 1999, the purchaser
advised the Company that no contingent payment was due. The company recognized
a gain, excluding the potential additional payment, on the sale of $610,000
during fiscal 1997.
Income Taxes
On October 25, 1998, the Company had, for tax purposes, remaining NOL
Carryforwards of approximately $20,223,000 available to offset future taxable
income, approximately $312,000 of unused investment and research and
development tax credits available to offset future Federal income taxes, and
approximately $230,000 of alternative minimum tax credits. The NOL
Carryforwards will expire from 1999 to 2018, the investment tax credit and
research and development tax credit carryforwards will expire from 1999 to
2005, and the alternative minimum tax credit has no expiration. All
carryforwards are subject to review and possible adjustment by the Internal
Revenue Service. In addition, Section 382 of the Internal Revenue Code
significantly limits the amount of NOL Carryforwards usable by a corporation
following a more than 50% change in ownership of the
16
<PAGE>
Item 7. Management's Discussion and Analysis of Operations and Financial
Condition--continued
corporation during a three-year period. It is possible that subsequent
transactions involving the Company's capital stock could result in such a
limitation. See "Note 11. Income Taxes" in Notes to Consolidated Financial
Statements.
Year 2000
The Company continues to use its existing staff to comprehensively review
existing systems and equipment that need to be updated or changed as a result
of the Year 2000. To date, the Company's staff has determined that some
personal computer software requires upgrading and has begun the process of
making its systems year 2000 compliant. Based on current estimates, the costs
related to these upgrades are immaterial. The Company's computerized
production equipment is also being systematically evaluated for compliance.
The Company is in contact with its vendors and customers and no major problem
has been discovered to date. In fiscal 1999, the Company will prepare a
contingency plan.
Liquidity and Capital Resources
On October 25, 1998, the Company had cash of approximately $1,387,000
compared to $1,707,000 on October 26, 1997. Existing cash, cash provided from
operating activities, and borrowings under the Company's credit facilities
were used for purchases of capital equipment.
During fiscal 1998, $2,044,000 was provided from operating activities. Cash
was primarily provided from a decrease in accounts receivable, partially
offset by a decrease in accounts payable, accrued compensation and other
liabilities. Capital equipment purchases of $5,079,000 were made to improve
manufacturing capabilities, to replace existing machinery which had reached
its end of life, and to upgrade manufacturing computer systems.
Effective December 31, 1997, Wakefield, Wakefield Extrusion, Lockhart and
Malco (hereinafter referred to as "Borrowers") became parties to a loan
agreement, as amended (the "Agreement") with a commercial bank which provided
for revolving loans of up to $9,000,000, with the ability to increase upon
request to $12,000,000, and an equipment acquisition facility of $3.2 million.
The advances on the revolving loans were based on the eligible accounts
receivable and inventories of Borrowers. The advances on the equipment
acquisition facility may be used only for the purpose of funding capital
equipment purchases by the Borrowers. In addition, there are two term loans
existing under the Agreement in the original amounts of $2,250,000 and
$1,900,000. The original maturity date on this Agreement was December 31,
1999.
On October 25, 1998, $8,180,000 was drawn on the revolving credit facility
with interest accruing on $7,000,000 at the relevant adjusted LIBOR rate plus
2.5% (8.188% per annum on October 25, 1998) and the remainder at the banks
prime rate plus .5% (prime plus 1% after November 12, 1998) or 8.5% per annum
on October 25, 1998. There is an unused line fee equal to .5% per annum on the
difference between $10,000,000, or $9,000,000 after January 31, 1999, 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
beginning 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 October 25, 1998, $1,387,500 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 beginning 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 October 25, 1998, $1,379,763
was outstanding on the $1,900,000 term note. The equipment acquisition
facility accrues interest at the banks prime rate plus .75% (8.75% per annum
on October 25, 1998) and is payable in 84 equal monthly installments of
$10,952 beginning January 1999. On October 25, 1998, $920,000 was outstanding
on the equipment acquisition facility. The obligations under the Loan
Agreement are secured by a first lien on and assignment of all of the assets
of Borrowers which in aggregate total $36,010,000.
17
<PAGE>
Item 7. Management's Discussion and Analysis of Operations and Financial
Condition--continued
As a result of the fourth quarter net loss, the Company was not in
compliance with the financial convenants included in the Agreement. In
November 1998, the Company and the commercial bank reached an agreement
whereby the Company pledged the assets of its connector subsidiary, Uni-Star,
to provide additional collateral under the Agreement. In February 1999, the
Company and the commercial bank agreed to reduce the revolving loan commitment
to $9,000,000, reduced the percentage advanced on accounts receivable and
inventory, and agreed to new covenants. The Company does not believe that
these reductions will have a material adverse effect on its business. The
Company is reviewing proposals from several lenders and is in receipt of a
commitment from one lender. The Company intends to evaluate each of the
proposals and negotiate the most favorable relationship it can obtain to
replace its current commercial lender.
The Company has entered into interest swap agreements as a means of managing
its interest rate exposure. The agreements effectively fixed the interest rate
on floating rate debt at a rate of 8.75% for a notional principal amount of
$2,250,000 through November 1, 2001, and at a rate of 8.85% for a notional
principal amount of $1,900,000 through October 29, 2003. On October 25, 1998,
the carrying value of the related debt approximated the fair value of the debt
including the swap agreements. Net amounts paid or received are reflected in
interest expense.
Working capital on October 25, 1998 was $9,099,000 compared to $10,331,000
on October 26, 1997. The Company believes that it will be able to replace its
current commercial lender prior to the credit facilities maturity date. With
its currently available cash, anticipated cash flow from operations and
availability under a new credit facility, the Company believes it will be able
to fund its operations in the near-term.
Item 8. Financial Statements and Supplementary Data.
Financial statements and supplementary data required pursuant to this Item
are presented on pages F-3 through F-18 and pages S-1 through S-5 of this
report.
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
During the twenty-four month period preceding October 25, 1998, the Company
has neither changed accountants nor had disagreements with its accountants on
any matter of accounting principles or practices, financial statement
disclosure or auditing scope and procedures.
18
<PAGE>
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons of the
Registrant.
The current members of the Board of Directors were most recently elected at
the 1998 Shareholder Meeting of Stockholders for a term of one year, and until
their successors are duly elected and qualified or until their earlier death,
resignation or removal. The members, their ages and certain other information
about each of them are set forth below.
<TABLE>
<CAPTION>
Principal Occupation for Past Five
Name Age Years
---- --- ----------------------------------
<C> <C> <S>
Marshall D. Butler............... 72 Chairman of the Board of Alpha since
April 26, 1993, and Director of Alpha
since April 2, 1993. From September
22, 1994 through April 19, 1995, Mr.
Butler served as Chief Executive
Officer of Alpha. He has served as a
director of AVX Corporation, a
manufacturer of ceramic capacitors and
a subsidiary of Kyocera Corporation,
since 1973. Mr. Butler served as Chief
Executive Officer of AVX Corporation
from December 1973 until his
retirement on April 1, 1993. Mr.
Butler was a director of Kyocera
Corporation from January 1990 through
June 1995. Mr. Butler has been a
director of Mass Mutual Corporate
Investors and Mass Mutual
Participation Investors since 1989.
Mr. Butler is the father of Lawrence
Butler. Member of the Executive and
Compensation Committees.
Lawrence Butler.................. 36 Mr. Butler has been President and Chief
Executive Officer of Alpha since April
19, 1995. He has served as a Director
since, and was an executive vice
president of Alpha from, September
1994. He has been director, president
and sole shareholder of Camelia Group,
Inc., the general partner of Dot.Com
Partners, L.P., f/k/a Steel Partners,
L.P. (private investment partnership),
a Delaware limited partnership
("Dot.Com"), since 1990. Lawrence
Butler is Marshall Butler's son.
Member of the Executive Committee.
Donald K. Grierson............... 64 Served as Vice-Chairman of the Board of
Alpha from April 1993 through April
1995. From December 7, 1988 until
April 26, 1993, Mr. Grierson served as
Chairman of the Board of Alpha. He has
been a director of Alpha since
February 1, 1988. Since 1991, Mr.
Grierson has also served as President
and Chief Executive Officer of ABB
Vetco Gray Inc., which designs,
manufactures, sells and services
highly engineered exploration and
production equipment used by the
worldwide oil and gas industry,
primarily for offshore applications.
Mr. Grierson currently serves as a
director of Parametric Technology
Inc., a developer and marketer of
software products for the automation
of the mechanical design process.
Member of the Stock Option Committee.
</TABLE>
19
<PAGE>
Item 10. Directors, Executive Officers, Promoters and Control Persons of the
Registrant--continued
<TABLE>
<CAPTION>
Principal Occupation for Past Five
Name Age Years
---- --- ----------------------------------
<C> <C> <S>
Frederic A. Heim................. 72 Director of Alpha since April 2, 1993.
Mr. Heim, a private investor, served
as a director of Encino Savings and
Loan, Van Nuys, California, from 1991
through 1994. He was a co-founder
and, from 1981 to 1990, a director
and Executive Vice President of
Computer Memories Incorporated, which
manufactured computer disk drives.
Member of Audit, Stock Option and
Compensation Committees.
Dr. Kenneth W. Rind.............. 63 Director of the Company since April
1995. Since 1981, Dr. Rind has been a
partner in various venture capital
firms. Dr. Rind is currently a
director of Vasomedical, Inc., a
medical technology company and ESC
Medical Systems, Ltd., a medical
equipment manufacturer. Member of
Audit and Stock Option Committees.
</TABLE>
The current executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Marshall D. Butler............... 72 Chairman of the Board
Lawrence Butler.................. 36 President and Chief Executive Officer
Johnny J. Blanchard.............. 40 Secretary, Treasurer and Chief
Financial Officer
Robert C. Streiter............... 38 President, Wakefield Engineering Inc.
and Uni-Star Industries, Inc.
</TABLE>
Each officer of the Company holds office until his successor shall be duly
elected and qualified or until his earlier death, resignation or removal.
Mr. Blanchard has been Chief Financial Officer of the Company since
September 1994; from December 1989, he was Controller of the Company; and from
October 1988, he was General Accounting Manager of the Company. Mr. Blanchard
is a Certified Public Accountant.
Mr. Streiter joined Uni-Star, as President on March 23, 1998 and assumed the
additional responsibility as President of Wakefield Engineering, Inc. on
September 21, 1998. Prior to joining Alpha, Mr. Streiter served in various
management capacities for the past ten years at AVX Filters Corporation, Sun
Valley, California.
20
<PAGE>
Item 11. Executive Compensation
The following table sets forth the compensation paid or accrued for services
rendered in all capacities on behalf of the Company during the last three
fiscal years to the Company's "Named Executive Officers", the only executive
officers who received compensation in excess of $100,000 during the fiscal
year ended October 25, 1998.
<TABLE>
<CAPTION>
Long Term
Compensation
----------------
Annual Compensation Awards
--------------------------- ----------------
Securities
Name and Principal Fiscal Underlying All Other
Position Year Salary ($) Bonus ($) Other Options/SARs (#) Compensation
------------------ ------ ---------- --------- ----- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence Butler......... 1998 170,208 -- -- 80,000(2) 12,306(3)
President and Chief
Executive 1997 185,833 -- -- 25,000(2) 11,400(3)
Officer(1) 1996 180,000 -- -- -- 4,050(3)
Marshall D. Butler...... 1998 59,375 -- -- -- --
Chairman of the Board 1997 75,000 -- -- -- --
1996 112,500 -- -- -- --
Robert C. Streiter...... 1998 76,924 37,500 -- 100,000(5) 2,308(6)
President-UniStar
Industries, Inc.
Acting President-
Wakefield
Engineering, Inc.(4)
Michael A. Hoffmann..... 1998 143,366 -- -- 44,930(9)
President--Wakefield.. 1997 150,000 27,541 -- 85,000(8) 7,865(9)
Engineering, Inc.(7)
</TABLE>
- --------
(1) On April 19, 1995, Lawrence Butler became President and Chief Executive
Officer of the Company with a salary of $180,000 per annum. In September
1995, Mr. Butler entered into a three-year employment agreement with the
Company. Effective September 1, 1997, Mr. L. Butler's salary increased to
$215,000 per annum. See "Employment Agreements".
(2) On August 19, 1997, Mr. L. Butler was granted 16,695 incentive stock
options which are exercisable at $3.9875 per share and 8,305 non-qualified
stock options which are exercisable at $3.625 per share. All options were
granted under the Company's stock option plan. On the date of the grant,
the fair market value of the shares was $3.625. On January 15, 1998, Mr.
L. Butler was granted 25,220 incentive stock options which are exercisable
at $3.875 per share and 54,780 non-qualified stock options which are
exercisable at $4.2625 per share. All options were granted under the
Company's stock option plan. On the date of the grant, the fair market
value of the shares was $3.875.
(3) Represents car allowance of $7,200; employer 401(k) matching contribution
of $4,500 for 1998; represents car allowance of $6,900; employer 401(k)
matching contribution of $4,500 for 1997, and a 401(k) matching
contribution of $4,050 for 1996.
(4) Mr. Streiter joined Uni-Star as President on March 23, 1998 and assumed
the additional responsibility of President of Wakefield on September 21,
1998.
(5) On April 14, 1998 Mr. Streiter was granted 15,000 incentive stock options
which are exercisable at the fair market value on such date, $4.5938. On
October 21, 1998 Mr. Streiter was granted 85,000 incentive stock options
which are exercisable at the fair market value on such date, $1.8750.
(6) Represents 401(k) matching contributions.
(7) Mr. Hoffman ceased serving as President of Wakefield in September, 1998.
(8) These options have been canceled as Mr. Hoffman ceased being employed by
the Company on October 31, 1998.
(9) Represents car allowance of $4,571, employer 401(k) matching contribution
of $5,455, and severance payments of $34,904 including unused accrued
vacation time for 1998. Represents car allowance of $4,490 and employer
401(k) matching contribution of $3,375 for 1997.
21
<PAGE>
Item 11. Executive Compensation--continued
Option/SAR Grants in Last Fiscal Year
The following table sets forth information regarding grants of stock options
to the Named Executive Officers during the last fiscal year. No SARs were
granted during the last fiscal year.
<TABLE>
<CAPTION>
Potential
Realizable
Value at
Assumed Annual
Rates of Stock
% of Appreciation
Options/SARs for Option
Granted to Term ($)
Employees --------------
Options/SARs During Exercise Expiration 5% Per 10% Per
Name Granted Fiscal Year Price/Share Date Year Year
---- ------------ ------------ ----------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Lawrence Butler......... 25,220 5.62% 3.8750 1/14/2003 27,000 59,664
54,780 12.21% 4.2650 1/14/2003 37,420 108,367
Robert C. Streiter...... 15,000 3.34% 4.5938 4/13/2003 19,038 42,068
85,000 18.95% 1.8750 10/20/2003 44,032 97,300
</TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year Ended October 25, 1998 and
FY-End Option Values
The following table sets forth information regarding each exercise of stock
options during the fiscal year ended October 25, 1998 by the Named Executive
Officers and the fiscal year-end value of unexercised options held by such
persons.
<TABLE>
<CAPTION>
Value Unexercised In-the-
Shares Number of Unexercised Money Options
Acquired Value # Options at FY-End (#) at FY-End
on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Lawrence Butler......... -0- -0- 303,333/96,667 $0/$0
Marshall Butler......... -0- -0- 86,667/38,333 $0/$0
Robert C. Streiter...... -0- -0- 0/100,000 $0/$0
</TABLE>
Employment Agreements
On September 29, 1995, the Company and Mr. L. Butler entered into a three
year employment agreement (the "Agreement"). Under the Agreement, Mr. Butler
is entitled to a base annual salary of $180,000 for the first year of the term
with annual reviews of such base salary by the Board of Directors. In
addition, the Agreement provides for an annual bonus based on the Company's
earnings from continuing operations, less minority interest and before
provision for income taxes.
Effective March 23, 1998, the Company's Uni-Star subsidiary entered into a
one year employment agreement with Robert C. Streiter, pursuant to which Mr.
Streiter is to serve as Uni-Star's president. Under the agreement, Mr.
Streiter is to receive an annual salary of $125,000, participate in the
Company's bonus plan, and receive options to purchase 15,000 shares of the
Company's common stock pursuant to the Company's 1994 Stock Option Plan.
Retirement Plans
The Company has adopted a 401-K Savings/Stock Purchase Plan (the "401-K
Plan") pursuant to which employees of the Company, including officers and
directors who are full-time employees, may elect to contribute up to 6% of
their salaries with the Company contributing an amount equal to one-half the
employee's contribution. The amounts contributed by the Company vest over the
first five (5) years of a person's employment with the Company. Employees may
also contribute certain additional amounts of their salaries to the 401-K Plan
without matching contributions by the Company. Income on the amounts held in
the 401-K Plan is not subject to Federal income tax until withdrawal. Amounts
held in the 401-K Plan are generally distributable to an employee upon normal
retirement at age 59 or upon the death or disability of the employee. The
Company does not maintain any pension plans.
22
<PAGE>
Item 11. Executive Compensation--continued
Stock Option Plans and Agreement
While the Company currently has stock options outstanding under four plans:
1981 and 1984 Incentive Stock Option Plans and the 1985 and 1994 Stock Option
Plans (collectively, the "Stock Option Plans"), options may only be granted
under the 1994 Plan.
As of October 25, 1998, the number of shares available for future grant
under the 1994 Plan was 299,500, and as of such date the Company had
outstanding options to acquire an aggregate of 1,560,900 shares of Common
Stock under all Stock Option Plans.
Compensation of Directors
On January 15, 1998, the Company's Board of Directors approved an amendment
to the Company's 1994 Stock Option Plan to provide for the annual grant (for
the next three years) of options to purchase 10,000 shares to each director
who is not an employee of the Company. Directors who are officers of or
consultants to the Company will not receive any additional compensation for
serving on the Board of Directors or its committees. Previously, the
compensation plan provided for payment to directors who are not officers of or
consultants to the Company of $1,000 for each meeting of the Board of
Directors or any of its committees attended in person (plus reimbursement of
travel expenses) and $250 for each telephonic meeting in which a Director
participates.
Compensation Committee Interlocks and Insider Participation
The Board has a Compensation Committee, which currently consists of Marshall
D. Butler and Frederic A. Heim. For services as Chairman of the Board of
Directors, Marshall Butler received compensation of $59,375 during the last
fiscal year.
Compensation Committee Report
The compensation paid to Lawrence Butler for the fiscal year ended October
25, 1998 was determined pursuant to his employment agreement which was entered
into on September 29, 1995. The agreement provides for a base annual salary,
subject to annual review, of $180,000, plus a bonus based on the Company
achieving certain approved targeted earnings. Prior to determining Mr.
Butler's salary, the Committee reviewed available surveys of compensation
packages for chief executives in the electronics components manufacturing
industry. The Committee recommended an increase to Mr. L. Butler's salary of
$35,000 for effective beginning in fiscal 1997. Mr. L. Butler was not entitled
to, and did not receive, a bonus for fiscal 1998. Mr. L. Butler was granted
options to purchase 80,000 shares of the Company's common stock during the
year ended October 25, 1998.
It is the Committee's policy to provide its executive officers with a
moderately competitive salary and for incentives in the form of a stock
options and cash bonuses tied to targeted earnings. The Committee believes
that Mr. L. Butler's employment agreement reflects these policies.
Marshall D. Butler
Frederic A. Heim
23
<PAGE>
Performance Graph
The graph below compares the cumulative total shareholder's return of the
common stock of the Company for the last five years with the NASDAQ Composite
Index and the Standard & Poor's Electronic Components and Parts Manufacturers.
The graph assumes the value of the fixed investment was $100 on October 31,
1993, and that all dividends were reinvested.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
NASDAQ Industry
Measurement Period Alpha Composite Group
------------------ ----- --------- --------
<S> <C> <C> <C>
October 31, 1993....................................... 100 100 100
October 31, 1994....................................... 174 100 102
October 31, 1995....................................... 352 133 126
October 31, 1996....................................... 161 157 181
October 31, 1997....................................... 157 205 235
October 31, 1998....................................... 59 227 304
</TABLE>
24
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth as of January 31, 1999, the number and
percentage of outstanding shares of Common Stock of the Company owned
beneficially, within the meaning of Rule 13d-3 promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act"), by (i) each stockholder
known by the Company to own more than 5% of the outstanding shares of Common
Stock; (ii) each director and nominee of the Company; (iii) each named
executive officer; and (iv) all directors, nominees and executive officers, as
a group. Except as otherwise specified, the named beneficial owner has sole
voting and investment power.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percent of
Name and Address of Beneficial Owners(1) Ownership(2) Class(2)
- ---------------------------------------- ----------------- ----------
<S> <C> <C>
Marshall D. Butler(3)(4)....................... 621,300 8.8%
Lawrence Butler(5)............................. 1,214,059 16.7%
Donald K. Grierson(6).......................... 210,000 3.0%
Frederic A. Heim(3)(7)......................... 40,000 *
Dr. Kenneth W. Rind(8)......................... 80,000 1.1%
Dot.Com Partners, L.P.(9)...................... 850,060 12.3%
Robert C. Streiter(10)......................... 30,000 *
Dimensional Fund Advisors Inc.................. 415,900 6.2%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401(11)
Wellington Management(12)...................... 405,000 5.8%
75 State Street
Boston, MA 02109
Lockhart Family Trust(13)...................... 355,678 5.1%
32551 Azores Road
Dana Point, CA 92629
All Directors and Executive Officers as a Group
(7 Persons)(14)............................... 2,599,137 34.4%
</TABLE>
- --------
* Constitutes less than 1%
(1) Unless otherwise indicated, the address of each beneficial owner is c/o
Alpha Technologies Group, Inc., 9465 Wilshire Blvd. Suite 980, Beverly
Hills, CA 90212.
(2) Includes shares deemed to be beneficially owned by such persons or
entities pursuant to Rule 13d-3 promulgated under the Exchange Act because
they have the right to acquire such shares within 60 days upon the
exercise of options or similar rights or because such persons or entities
have or share investment or voting power.
(3) Does not include shares owned by Dot.Com of which Mr. M. Butler and Mr.
Heim are each limited partners. Messrs. Butler and Heim disclaim
beneficial ownership of such shares.
(4) Includes 125,000 shares which Mr. M. Butler has the right to acquire upon
the exercise of stock options within 60 days.
(5) Includes 850,060 shares owned by Dot.Com, 15,000 shares owned by a Trust
of which Mr. L. Butler is trustee and 329,999 shares which Mr. L. Butler
has the right to acquire upon the exercise of stock options within 60
days.
(6) Includes 10,000 shares which Mr. Grierson has the right to acquire upon
the exercise of stock options within 60 days.
(7) Includes 35,000 shares which Mr. Heim has the right to acquire upon the
exercise of stock options within 60 days.
(8) Includes 70,000 shares which Mr. Rind has the right to acquire upon the
exercise of stock options within sixty days.
(9) Shares owned by Dot.Com are also included in the number of shares reported
as beneficially owned by Mr. L. Butler.
25
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management--
continued
(10) Address is c/o Uni-Star Industries, Inc., 306 Pasadena Ave, South
Pasadena, CA 91030. Includes 5,000 shares that Mr. Streiter has the right
to acquire upon exercise of stock options within sixty days. Includes
10,000 shares owned by Mr. Streiter's spouse, Mr. Streiter disclaims
beneficial ownership of such shares.
(11) Dimensional Fund Advisors Inc. ownership as reported on Nasdaq-online.com
as of February 1, 1999.
(12) Wellington Management Company, LLP ownership as reported on Nasdaq-
online.com as of February 1, 1999.
(13) Lockhart Family Trust Ownership as shown on the Company's stock ledger as
maintained by American Stock Transfer & Trust Company, the Company's
transfer agent.
(14) Includes 622,99 shares which individuals in the group have the right to
acquire upon the exercise of stock options which are exercisable within
60 days, 850,060 shares held by Dot.Com, 15,000 shares owned by a trust
of which Mr. L. Butler is trustee.
Item 13. Certain Relationships and Related Transactions.
There were no transactions since the beginning of the Company's last fiscal
year requiring disclosure pursuant to Item 404 of Regulation S-K.
26
<PAGE>
PART IV
Item 14. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
Exhibit
No.
-------
<C> <S>
3.1 --Certificate of Incorporation of the Company, as amended.(1)(2)(3)
3.2 --By-laws of the Company.(4)
10.1 --Registrant's 1984 Incentive Stock Option Plan, together with
amendments thereto.(2)
10.2 --Registrant's 1985 Stock Option Plan, together with amendments
thereto.(2)(5)(6)(7)(8)
10.3 --Registrant's 401-K Plan as amended.(9)(18)
10.4 --Standard Industrial/Commercial Single-Tenant Lease dated as of June
1, 1994 by and between Pasadena Industrial Associates and Uni- Star
Industries, Inc.(11)
10.5 --Lease Agreement dated as of January 1995 by and between Robert L.
Byers and Joyce F. Byers and Uni-Star Industries, Inc.(11)
10.6(a) --Assignment and Assumption Agreement dated November 4, 1998 by and
among Malco division of Uni-Star Industries, Inc., Malco, Inc., and
Robert L. Byers and Joyce F. Byers. (Filed Herewith)
10.6(b) --Second Lease Amendment Agreement dated November 5, 1998 by and
between Malco, Inc., and Robert L. Byers and Joyce F. Byers. (Filed
Herewith)
10.7 --Registrant's 1994 Stock Option Plan as amended and restated.(3)(19)
10.8 --Loan and Security Agreement dated as of June 22, 1994 entered into
by and between Shawmut Bank, N.A. and Wakefield Engineering, Inc.
together with amendments thereto. (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 Issuer, who hereby undertakes to file such exhibits upon request
of the Commission.)(10)(11)(12)(13)(14)(15)(16)
10.8(a) --Seventh Amendment to Loan and Security Agreement dated November 12,
1998 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 have not been
filed by the Issuer, who hereby undertakes to file such exhibits
upon request of the Commission) (Filed Herewith)
10.8(b) --Eighth Amendment to Loan and Security Agreement dated January 31,
1999 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 have not been
filed by the Issuer, who hereby undertakes to file such exhibits
upon request of the Commission) (Filed Herewith)
10.8(c) --Nineth Amendment to Loan and Security Agreement dated February 8,
1999 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 have not been
filed by the Issuer, who hereby undertakes to file such exhibits
upon request of the Commission) (Filed Herewith)
10.9 --Employment Agreement with Lawrence Butler dated September 29,
1995.(3)
10.10 --Indenture of Lease Agreement dated as of December 20, 1994 by and
between Richard J. Tobin, as Trustee of JLN Realty Trust, under
Declaration of Trust dated June 15, 1981 and filed with Bristol
County Fall River District Registry of Deeds Land Court Records as
Document 12977, and Wakefield Engineering, Inc.(3)
10.10(a) --Lease modification and extension agreement date February 4, 1998 by
and between Richard J. Tobin as Trustee u/d/t dated June 15, 1981
and entitled "J L N Realty Trust" and Wakefield Engineering, Inc.
(18)
</TABLE>
27
<PAGE>
Item 14. Exhibits and Reports on Form 8-K--continued
<TABLE>
<CAPTION>
Exhibit
No.
-------
<C> <S>
10.11 --Industrial Space Lease dated as of September 29, 1995 by and between
Rancon Income Fund I and Wakefield Engineering, Inc.(3)
10.12 --Agreement and Plan of Merger dated as of August 14, 1996 by and
among Alpha Technologies Group, Inc., Lockie Acquisition Corp.,
Lockhart Industries, Inc., Eldon H. Lockhart and Marjorie D.
Lockhart. (The exhibits and schedules to the Agreement and Plan of
Merger and listed on page v of the Table of Contents of such
Agreement. Such exhibits and schedules have not been filed by the
Issuer, who hereby undertakes to file such exhibits upon request of
the Commission.)(15)
10.13 --Employment agreement dated March 23, 1998 between Robert Streiter
and Uni-Star Industries, Inc. (18)
10.14 --Lease dated October 31, 1979 by and between Landcee Investment Co.
and Lockhart Industries, Inc. together with addendum and amendments
thereto.(15)
10.15 --Lease dated August 29, 1984 by and between Garfield-Pacific
Development Co. and Lockhart Industries, Inc., together with
addendums and amendments thereto.(15)
10.16 --Lease dated April 30, 1998 between Cummings Properties Management,
Inc. and Wakefield Engineering, Inc.(18)
10.17 --International Swap Dealers Association, Inc. Master Agreement dated
as of October 23, 1996 between Fleet National Bank and Wakefield
Engineering, Inc.; Lockhart Industries, Inc.; Specialty Extrusion
Corp.(15)
10.18 --Asset Purchase Agreement dated as of June 20, 1997 by and between
Sealtron, Inc. and Uni-Star Industrial, Inc. (The exhibits and
schedules have not been filed by the Registrant, who hereby
undertakes to file such exhibits upon request of the Commission.)(17)
11 --Computation of net income per share. (Filed Herewith)
21 --Subsidiaries of Registrant. (Filed Herewith)
23.1(a) --Consent of Arthur Andersen LLP. (Filed Herewith)
23.1(b) --Consent of Arthur Andersen LLP. (Filed Herewith)
27 --Financial Data Schedule. (Filed Herewith)
</TABLE>
- --------
(1) Incorporated herein by reference to the Registrant's Registration
Statement on Form S-1 (Reg. No. 33-2979), which became effective March 7,
1986.
(2) Incorporated herein by reference to the Registrant's Registration
Statement on Form S-8, filed September 28, 1987 (Reg. No. 33-17359).
(3) Incorporated herein by reference to the Company's Annual Report on Form
10-KSB for the year ended October 29, 1995.
(4) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended October 31, 1991.
(5) Incorporated herein by reference to the Registrant's Registration
Statement on Form S-8, filed March 17, 1988 (Reg. No. 33-20706).
(6) Incorporated herein by reference to the Registrant's Registration
Statement on Form S-8, filed June 30, 1989 (Reg. No. 33-29636).
(7) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended October 31, 1990.
(8) Incorporated herein by reference to the Registrant's Registration
Statement on Form S-8, filed June 23, 1992 (Reg. No. 33-48663).
(9) Incorporated herein by reference to the Registrant's Registration
Statement on Form S-8, filed January 29, 1987 (Reg. No. 33-11627).
28
<PAGE>
Item 14. Exhibits and Reports on Form 8-K--continued
(10) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended October 26, 1997.
(11) Incorporated herein by reference to the Company's Annual Report on Form
10-KSB for the year ended October 31, 1994.
(12) Incorporated herein by reference to the Company's Form 10-QSB for the
quarterly period ended April 30, 1995 filed on June 14, 1995.
(13) Incorporated herein by reference to the Company's Form 10-QSB for the
quarterly period ended January 28, 1996 filed on March 13, 1996.
(14) Incorporated herein by reference to the Company's Form 10-QSB for the
quarterly period ended April 28, 1996 filed on June 12, 1996.
(15) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended October 27, 1996 filed on January 27, 1997.
(16) Incorporated herein by reference to the Company's Form 10-Q for the
quarterly period ended July 27, 1997 filed on June 11, 1997.
(17) Incorporated herein by reference to the Company's Form 8-K dated June 20,
1997, filed on or about July 3, 1997.
(18) Incorporated herein by reference to the Company's Form 10-Q for the
quarterly period ended April 26, 1998 filed on June 10, 1998.
(19) Incorporated herein by reference to the Company's Proxy Statement filed
February 23, 1998
Reports on Form 8-K
No report on Form 8-K was filed during the fourth quarter of the year ended
October 25, 1998.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
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.
Date: February 8, 1999 By: /s/ Lawrence Butler
----------------------------------
Lawrence Butler
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
<TABLE>
<S> <C>
</TABLE>
Signature Title Date
/s/ Marshall D. Butler Chairman of the
- ----------------------------------- Board
(Marshall D. Butler)
/s/ Lawrence Butler Chief Executive
- ----------------------------------- Officer and
(Lawrence Butler) Director (Principal
Executive Officer)
/s/ Johnny J. Blanchard Chief Financial February 8,
- ----------------------------------- Officer (Principal 1999
(Johnny J. Blanchard) Financial and
Accounting Officer)
/s/ Donald K. Grierson Director
- -----------------------------------
(Donald K. Grierson)
/s/ Frederic A. Heim Director
- -----------------------------------
(Frederic A. Heim)
/s/ Kenneth W. Rind Director
- -----------------------------------
<TABLE> (Kenneth W. Rind)
<S> <C>
</TABLE>
30
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Financial Statements:
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets--October 26, 1997 and October 25, 1998....... F-3
Consolidated Statements of Operations--For the Years Ended October 27,
1996, October 26, 1997 and October 25, 1998............................. F-4
Consolidated Statements of Stockholders' Equity--For the Years Ended
October 27, 1996,
October 26, 1997 and October 25, 1998................................... F-5
Consolidated Statements of Cash Flows--For the Years Ended October 27,
1996, October 26, 1997 and October 25, 1998............................. F-6
Notes to Consolidated Financial Statements............................... F-7
Financial Statement Schedules:
Condensed Financial Information.......................................... S-1
Valuation and Qualifying Accounts........................................ S-5
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Alpha Technologies Group, Inc.
We have audited the accompanying consolidated balance sheets of Alpha
Technologies Group, Inc. (a Delaware corporation) and subsidiaries as of
October 26, 1997 and October 25, 1998, and the related consolidated statements
of operations, stockholders' equity and cash flows for each of the three years
in the period ended October 25, 1998. These consolidated financial statements
and the schedules referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Alpha Technologies Group, Inc. and subsidiaries as of October 26, 1997 and
October 25, 1998, and the results of their operations and their cash flows for
each of the three years in the period ended October 25, 1998 in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The Financial Statement
Schedules listed in Part II-Item 8 are presented for purposes of complying
with the Securities and Exchange Commission's rules and are not a required
part of the basic consolidated financial statements. The Financial Statement
Schedules have been subjected to the auditing procedures applied in our audits
of the basic consolidated financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic consolidated financial statements taken as a
whole.
/s/ Arthur Andersen LLP
Houston, Texas
December 4, 1998, except
with respect to the matters
discussed in Note 6 as to which
the date is February 8, 1999.
F-2
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 26, 1997 and October 25, 1998
(In Thousands, Except Share and per Share Data)
<TABLE>
<CAPTION>
October 26, October 25,
ASSETS 1997 1998
------ ----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash................................................. $ 1,707 $ 1,387
Accounts receivable, net of reserves of $328 and $524
(Note 6)............................................ 11,766 8,671
Inventories, net (Notes 4 and 6)..................... 9,781 9,546
Prepaid expenses (Note 6)............................ 1,140 623
------- -------
Total current assets............................... 24,394 20,227
PROPERTY AND EQUIPMENT, at cost (Note 6):
Manufacturing equipment, leasehold improvements,
furniture, fixtures and other....................... 17,341 21,360
Less--Accumulated depreciation and amortization...... 5,656 8,005
------- -------
Property and equipment, net.......................... 11,685 13,355
GOODWILL, net (Note 6)................................. 2,878 2,714
OTHER ASSETS, net (Notes 6 and 11)..................... 2,421 2,379
------- -------
TOTAL ASSETS....................................... $41,378 $38,675
======= =======
LIABILITIES AND STOCKHOLDERS EQUITY
-----------------------------------
CURRENT LIABILITIES:
Accounts payable, trade.............................. $ 6,179 $ 5,808
Accrued compensation and related benefits (Note 5)... 1,810 1,777
Current portion of other liabilities (Note 5)........ 4,580 2,582
Current portion of long-term debt (Note 6)........... 1,494 961
------- -------
Total current liabilities.......................... 14,063 11,128
REVOLVING CREDIT FACILITY (Note 6)..................... 5,198 8,180
LONG-TERM DEBT (Note 6)................................ 2,865 2,833
OTHER LIABILITIES (Note 5)............................. 451 217
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' EQUITY (Notes 7, 8, 9 and 10):
Preferred stock, $100 par value; shares authorized
180,000............................................. -- --
Common stock, $.03 par value; shares authorized
17,000,000;
issued 7,700,733 at October 26, 1997 and 7,940,838 at
October 25, 1998.................................... 231 238
Additional paid-in capital........................... 43,523 43,781
Retained deficit..................................... (21,110) (23,893)
Cumulative translation adjustments................... (125) (91)
Treasury stock, at cost (1,008,553 common shares at
October 26,1997 and at October 25,1998)............. (3,718) (3,718)
------- -------
Total stockholders' equity......................... 18,801 16,317
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $41,378 $38,675
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended October 27 1996, October 26, 1997 and October 25, 1998
(In Thousands, Except Share and per Share Data)
<TABLE>
<CAPTION>
October 27, October 26, October 25,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
SALES (Note 2, 3 and 13)................ $ 67,070 $ 75,665 $ 77,045
COST OF SALES........................... 52,651 61,726 63,773
---------- ---------- ----------
Gross profit........................ 14,419 13,939 13,272
OPERATING EXPENSES:
Research and development.............. 1,448 1,506 1,903
Selling, general and administrative... 12,344 12,931 13,219
Restructuring and other............... 406 2,494 127
---------- ---------- ----------
Total operating expenses............ 14,198 16,931 15,249
---------- ---------- ----------
OPERATING INCOME (LOSS) (Note 13)....... 221 (2,992) (1,977)
INTEREST AND OTHER INCOME (EXPENSE), net
(Note 6 and 13)........................ (778) (1,024) (806)
---------- ---------- ----------
LOSS BEFORE TAXES....................... (557) (4,016) (2,783)
PROVISION FOR INCOME TAXES (Note 11):
Current............................... 60 -- --
Deferred.............................. -- -- --
---------- ---------- ----------
Total provision for income taxes.... 60 -- --
---------- ---------- ----------
LOSS BEFORE DISCONTINUED OPERATION...... (617) (4,016) (2,783)
GAIN ON SALE OF DISCONTINUED OPERATION,
net of income tax effect (Note 3)...... -- 610 --
INCOME FROM DISCONTINUED OPERATION, net
of income tax effect (Note 3).......... 318 54 --
---------- ---------- ----------
NET LOSS................................ $ (299) $ (3,352) $ (2,783)
========== ========== ==========
PER COMMON AND COMMON EQUIVALENT SHARE
(Notes
3 and 10)
Loss before discontinued operation...... $ (0.10) $ (0.60) $ (0.41)
Gain on sale of discontinued operation.. -- 0.09 0.00
Income from discontinued operation...... 0.05 0.01 0.00
---------- ---------- ----------
Net loss................................ $ (0.05) $ (0.50) $ (0.41)
========== ========== ==========
SHARES USED IN COMPUTING NET LOSS PER
COMMON EQUIVALENT SHARE................ 6,277,585 6,682,106 6,753,752
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended October 27 1996, October 26, 1997 and October 25, 1998
(In Thousands, Except Shares)
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
---------------- Paid In Retained ------------------
Shares Amount Capital (Deficit) Other Shares Amount
--------- ------ ---------- --------- ----- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 29,
1995................... 6,977,845 $209 $39,114 $(17,459) -- 935,404 $(3,101)
Net (loss).............. -- -- -- (299) -- -- --
Issuance to employees
pursuant to stock
option plans (Note 9).. 158,332 5 336 -- -- -- --
Acquisition of Lockhart
Industries, Inc. (Note
2) .................... 280,556 8 2,355 -- -- -- --
Purchase of Uni-Star
Industries, Inc.
minority interest (Note
2)..................... 265,000 8 1,669 -- -- 82,577 (696)
Cumulative translation
adjustments............ -- -- -- -- (32) -- --
--------- ---- ------- -------- ---- --------- -------
BALANCE, October 27,
1996................... 7,681,733 230 43,474 (17,758) (32) 1,017,981 (3,797)
Net (loss).............. (3,352)
Issuance to employees
pursuant to stock
option plans (Note 9).. 19,000 1 53 -- -- -- --
Acquisition of Lockhart
Industries, Inc. (Note
2)..................... -- -- -- -- -- (9,428) 79
Purchase of Uni-Star
Industries, Inc.
minority interest (Note
2)..................... -- -- (4) -- -- -- --
Cumulative translation
adjustments............ -- -- -- -- (93) -- --
--------- ---- ------- -------- ---- --------- -------
BALANCE, October 26,
1997................... 7,700,733 231 43,523 (21,110) (125) 1,008,553 (3,718)
Net (loss).............. (2,783)
Issuance to employees
pursuant to stock
option plans (Note 9).. 91,834 3 215 -- -- -- --
Acquisition of Lockhart
Industries, Inc. (Note
2)..................... 148,271 4 (4) -- -- -- --
Compensation associated
with stock options..... 47
Cumulative translation
adjustments............ -- -- -- -- 34 -- --
--------- ---- ------- -------- ---- --------- -------
BALANCE, October 25,
1998................... 7,940,838 $238 $43,781 $(23,893) $(91) 1,008,553 $(3,718)
========= ==== ======= ======== ==== ========= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended October 27, 1996, October 26, 1997 and October 25, 1998
(In Thousands)
<TABLE>
<CAPTION>
October 27, October 26, October 25,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................. $ (299) $(3,352) $(2,783)
Adjustments to reconcile net loss to net
cash provided (used) by operating
activities:
Depreciation and amortization (Note
13).................................... 2,172 2,829 3,163
Loss on sale/disposal of equipment...... -- -- 252
Gain on sale of discontinued operation
(Note 3)............................... -- (610) --
Income from discontinued operation (Note
3)..................................... (318) (54) --
Cumulative translation adjustments...... (32) (93) 34
Stock Option Compensation Expense....... -- -- 47
Changes in assets and liabilities net of
effects from acquisitions:
(Increase) decrease in accounts
receivable............................. (9) 294 3,095
(Increase) decrease in inventories...... (2,065) 785 235
(Increase) decrease in prepaid
expenses............................... (119) (29) 517
Increase (decrease) in accounts payable,
trade.................................. (113) 706 (371)
Increase (decrease) in accrued
compensation and related benefits...... (704) 174 (33)
Increase (decrease) in other
liabilities............................ (730) 333 (2,112)
------- ------- -------
Total adjustments..................... (1,918) 4,335 4,827
------- ------- -------
Net cash provided (used) by continuing
operations........................... (2,217) 983 2,044
Net cash provided by discontinued
operation (Note 3)................... 237 313 --
------- ------- -------
Net cash provided (used) by operating
activities........................... (1,980) 1,296 2,044
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds (expenditures) for business
acquisitions and divestitures(Note 3).. (479) 2,100 --
Change in goodwill...................... (176) (83) (67)
Purchase of property and equipment (Note
13).................................... (3,770) (1,420) (5,079)
Proceeds from sale of property and
equipment.............................. -- -- 155
------- ------- -------
(Increase) decrease in other assets,
net.................................... (25) 181 (8)
------- ------- -------
Net cash (used) by investing
activities........................... (4,450) 778 (4,999)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock
(Note 9)............................... 341 50 218
Proceeds from revolving credit lines
(Note 6)............................... 54,896 43,916 70,917
Payments on revolving credit lines (Note
6)..................................... (50,977) (49,741) (67,935)
Proceeds from term debt (Note 6)........ 2,574 2,770 920
Payments on term debt (Note 6).......... (2,527) (1,297) (1,485)
------- ------- -------
Net cash provided (used) by financing
activities........................... 4,307 (4,302) 2,635
NET (DECREASE) IN CASH AND CASH
EQUIVALENTS.............................. (2,123) (2,228) (320)
------- ------- -------
CASH AND CASH EQUIVALENTS, beginning of
year..................................... 6,058 3,935 1,707
------- ------- -------
CASH AND CASH EQUIVALENTS, end of period.. $ 3,935 $ 1,707 $ 1,387
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
Alpha Technologies Group, Inc. ("Alpha" or the "Company") primarily derives
its revenues from two business segments: thermal management and connectors.
Thermal management products, principally heat sinks, which dissipate heat
generated by electronic components, serve the microprocessor, computer,
consumer electronics, transportation, automotive, industrial controls, factory
automation power supply, aerospace and defense industries. Sub-miniature,
micro-miniature and ultra-miniature connectors and cable and/or wire harness
connector assemblies, the majority of which are custom manufactured to meet
rigid specifications, serve the aerospace, communications, defense, factory
automation, industrial controls, medical electronics, scientific/process
instrumentation and test/measurement industries. In addition, the Company
operates a business that designs, fabricates and tests custom designed
electronic systems for the military, telecommunications industry and certain
commercial markets.
Principles of Consolidation
The consolidated financial statements include the accounts of Alpha and its
wholly-owned subsidiaries. All material intercompany transactions and balances
have been eliminated. These changes had no impact on previously reported
results of operations or stockholders' equity. As more fully described in Note
3--Discontinued Operation, prior years numbers have been restated, through
reclassification, to discontinue the hermetic connector business sold in
June 1997.
Revenue Recognition
Revenue from product sales is recognized upon shipment to the customer.
Use of Estimates and Other Uncertainties
The preparation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash, trade
receivables, trade payables and debt instruments. The book values of these
instruments are considered to be representative of their respective fair
values.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
Property and Equipment
The cost of property and equipment is depreciated using the straight-line
method for financial reporting purposes over the estimated useful lives of
such assets, ranging from three to ten years. Leasehold improvements are
amortized on a straight-line basis over the related lease term.
F-7
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Significant Accounting Policies--(Continued)
Goodwill
Goodwill represents the excess of cost over fair value of net assets
acquired and is being amortized over 15 years using the straight-line method.
The accumulated amortization on October 26, 1997 and October 25, 1998 was
approximately $632,000 and $863,000, respectively. Amortization expense of
approximately $209,000, $248,000 and $231,000 was recorded in fiscals 1996,
1997 and 1998, respectively.
Stock-Based Compensation
The Financial Accounting Standards Board issued SFAS 123, "Accounting for
Stock Based Compensation" during October 1995. The new standard establishes a
fair value approach to valuing stock options awarded to its employees as
compensation. The Company has elected, as permitted by the new standard, to
continue to follow its intrinsic value based method of accounting for stock
options consistent with Accounting Principals Board No. 25, "Accounting for
Stock Issued to Employees" (APB25). The intrinsic method measures compensation
cost for stock options as the excess, if any, of the quoted market price of
the Company's stock at the measurement date over the exercise price.
Income Taxes
The Company adopted SFAS No. 109, "Accounting for Income Taxes," ("Statement
109") on November 1, 1993. Under the asset and liability method of Statement
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using current enacted
tax rates. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the results of
operations in the period that includes the enactment date.
Foreign Currency Translation
Assets and liabilities of the Company's foreign operations are translated
into U. S. dollars at the current exchange rate in effect at the balance sheet
date, and revenues and expenses are translated at the average exchange rate
for the period in accordance with SFAS No. 52, "Foreign Currency Translation".
Resulting translation adjustments are reported as a separate component of
stockholders' equity.
Interest Rate Swap Agreement
The Company has entered into interest swap agreements as a means of managing
its interest rate exposure. The agreements effectively fixed the interest rate
on floating rate debt at a rate of 8.75% for a notional principal amount of
$2,250,000 through November 1, 2001, and at a rate of 8.85% for a notional
principal amount of $1,900,000 through October 29, 2003. On October 25, 1998,
the carrying value of the related debt approximated the fair value of the debt
including the swap agreements. Net amounts paid or received are reflected in
interest expense.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") Number 130 ("SFAS 130")
"Reporting Comprehensive Income"; and in February 1998, FASB issued SFAS 132
"Employers' Disclosures about Pensions and Other Post Retirement Benefits".
The Company is required to adopt these standards for its fiscal year 1999.
Management believes that the adoption of SFAS 130 and SFAS 132 in fiscal 1999
will not have a material effect on the preparation of and results of the
Company's consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". The Company is required to adopt this for fiscal its
year 2000. Management believes that the adoption of SFAS 133 will not have a
material effect on the preparation of and the results of the Company's
consolidated financial statements.
F-8
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Acquisitions
On September 3, 1996, the Company purchased the 20% minority interest of
Uni-Star Industries, Inc. ("Uni-Star") for 265,000 shares of its common stock.
Uni-Star is now a wholly-owned subsidiary of the Company.
On August 21, 1996, the Company, through a newly-organized, wholly-owned
subsidiary, Lockie Acquisition Corp. ("LAC"), purchased all of the outstanding
stock of Lockhart Industries, Inc. ("LII"), a thermal management company,
pursuant to an Agreement and Plan of Merger dated as of August 14, 1996 (the
"Merger Agreement"). Pursuant to the Merger Agreement, the Company issued
280,556 shares of its common stock in exchange for all of the issued and
outstanding common stock of LII. Based upon decreases in LII's working capital
prior to the acquisition and collection of accounts receivable, the purchase
price was reduced by 73,149 shares of the Company's common stock. The number
of shares issued was subject to increase in the event that the Company's
common stock was not trading at $9 or more two years from the date of closing.
Accordingly, on September 23, 1998, the Company issued an additional 148,271
shares of its common stock. Following the merger, the Company transferred all
of LAC's shares to Wakefield Engineering, Inc. ("Wakefield"), a wholly-owned
subsidiary of the Company, and changed LAC's name to Lockhart Industries, Inc.
("Lockhart"). In addition, Wakefield paid off an aggregate of $506,000 of
LII's debt. The acquisition was accounted for as a purchase transaction, as
such, the purchase price was allocated to the assets acquired and liabilities
assumed. The operating results of Lockhart have been included in the Company's
consolidated results of operations since its acquisition.
3. Discontinued Operation
In June 1997, substantially all of the assets and business of the Company's
hermetic connector business in Ohio were sold for $2,100,000, with a potential
additional payment on February 15, 1999 of up to $400,000 based on orders
booked by the buyer. In January 1999, the purchaser advised the Company that
no contingent payment will be due The sale resulted in a gain of approximately
$610,000, net of income tax expense of $12,000 and reserves primarily related
to leased premises. The results of operations for the Company's hermetic
connector business are reflected in the accompanying consolidated financial
statements as discontinued operation.
Summary operating results of the discontinued operation prior to the
sale are as follows for the fiscal years ended:
<TABLE>
<CAPTION>
October 27, October 26,
1996 1997
----------- -----------
(In Thousands)
<S> <C> <C>
Revenues............................................ $3,167 $2,031
Costs and expenses.................................. 2,849 1,977
------ ------
Net income (loss)................................... $ 318 $ 54
====== ======
</TABLE>
4. Inventories
Inventories consisted of the following on:
<TABLE>
<CAPTION>
October 26 October 25,
1997 1998
---------- -----------
(In Thousands)
<S> <C> <C>
Raw materials and components......................... $5,537 $6,187
Work in process...................................... 3,785 3,194
Finished goods....................................... 2,328 2,564
------ ------
11,650 11,945
Valuation reserve.................................... (1,869) (2,399)
------ ------
$9,781 $9,546
====== ======
</TABLE>
F-9
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Accrued Compensation and Related Benefits and Other Liabilities
Accrued compensation and related benefits consisted of the following
on:
<TABLE>
<CAPTION>
October 26, October 25,
1997 1998
----------- -----------
(In Thousands)
<S> <C> <C>
Accrued salaries and wages.......................... $ 711 $ 950
Other............................................... 1,099 827
------ ------
$1,810 $1,777
====== ======
</TABLE>
Other liabilities consisted of the following on:
<TABLE>
<CAPTION>
October 26, October 25,
1997 1998
----------- -----------
(In Thousands)
<S> <C> <C>
Accrued restructuring costs......................... $1,715 $ 105
Accrued commissions................................. 1,013 787
Other............................................... 2,303 1,907
------ ------
5,031 2,799
Less: current portion............................... (4,580) (2,582)
------ ------
$ 451 $ 217
====== ======
</TABLE>
The accrued restructuring costs represent an estimate of the remaining costs
to close the manufacturing facility in Wakefield, Massachusetts and
consolidate production of its thermal management products in its other
existing facilities.
6. Debt and Revolving Credit Facilities
Debt and revolving credit facilities consisted of the following on:
<TABLE>
<CAPTION>
October 26, October 25,
1997 1998
----------- -----------
(In Thousands)
<S> <C> <C>
Variable-rate revolving credit facility (effective
interest rates of 8.188% and 8.5% at October 25,
1998), interest payable monthly, principal is
repaid and re-borrowed based on cash
requirements*..................................... $5,198 $ 8,180
Variable-rate term notes (effective interest rates
of 8.75% to 8.85% at October 25, 1998), payable in
monthly installments ranging from $22,619 to
$37,500, plus accrued interest*................... 3,489 2,766
Equipment acquisition facility (effective interest
Rate of 8.75% on October 25, 1998, payable in 84
monthly installments of $10,952 , plus accrued
interest* ........................................ -- 920
Other.............................................. 870 108
------ -------
9,557 11,974
Less current portion............................... (1,494) 961
------ -------
$8,063 $11,013
====== =======
</TABLE>
- --------
* The Debt and revolving credit facilities all mature on December 31, 1999.
F-10
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Debt and Revolving Credit Facilities--(Continued)
Effective December 31, 1997, Wakefield, Wakefield Extrusion, Lockhart and
Malco (hereinafter referred to as "Borrowers") became parties to a loan
agreement, as amended (the "Agreement") with a commercial bank which provided
for revolving loans of up to $9,000,000, with the ability to increase upon
request to $12,000,000, and an equipment acquisition facility of $3.2 million.
The advances on the revolving loans were based on the eligible accounts
receivable and inventories of Borrowers. The advances on the equipment
acquisition facility may be used only for the purpose of funding capital
equipment purchases by the Borrowers. In addition, there are two term loans
existing under the Agreement in the original amounts of $2,250,000 and
$1,900,000. The original maturity date on this Agreement was December 31,
1999.
On October 25, 1998, $8,180,000 was drawn on the revolving credit facility
with interest accruing on $7,000,000 at the relevant adjusted LIBOR rate plus
2.5% (8.188% per annum on October 25, 1998) and the remainder at the banks
prime rate plus .5% (prime plus 1% after November 12, 1998) 8.5% per annum on
October 25, 1998. There is an unused line fee equal to .5% per annum on the
difference between $10,000,000, or $9,000,000 after January 31, 1999, 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
beginning 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 October 25, 1998, $1,387,500 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 beginning 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 October 25, 1998, $1,379,763
was outstanding on the $1,900,000 term note. The equipment acquisition
facility accrues interest at the banks prime rate plus .75% (8.75% per annum
on October 25, 1998) and is payable in 84 equal monthly installments of
$10,952 beginning January 1999. On October 25, 1998, $920,000 was outstanding
on the equipment acquisition facility. The obligations under the Loan
Agreement are secured by a first lien on and assignment of all of the assets
of Borrowers which in aggregate total $36,010,000.
As a result of the fourth quarter net loss, the Company was not in
compliance with the financial covenants included in the Agreement. In November
1998, the Company and the commercial bank reached an agreement whereby the
Company pledged the assets of its connector subsidiary, Uni-Star, to provide
additional collateral under the Agreement. In February 1999, the Company and
the commercial bank agreed to reduce the revolving loan commitment to
$9,000,000, to reduce the percentage advanced on accounts receivable and
inventory, and agreed to new covenants. The Company does not believe that
these reductions will have a material adverse effect on its business. The
Company is reviewing proposals from several lenders and is in receipt of a
commitment from one lender. The Company intends to evaluate each of the
proposals and negotiate the most favorable relationship it can obtain to
replace its current commercial lender.
Cash paid for interest on all outstanding debt amounted to approximately
$898,000 in fiscal year 1996, approximately $1,172,000 in fiscal year 1997 and
approximately $1,011,000 in fiscal year 1998.
F-11
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Debt and Revolving Credit Facilities--(Continued)
Aggregate payments of debt and revolving credit facilities outstanding as of
October 25, 1998 for the next five years are summarized below:
<TABLE>
<CAPTION>
Fiscal Years Amount
------------ --------------
(In thousands)
<S> <C>
1999.................................................... $ 961
2000.................................................... 11,013
2001.................................................... --
2002.................................................... --
2003.................................................... --
Thereafter.............................................. --
-------
$11,974
=======
</TABLE>
Management intends to refinance the revolving credit facility and the
revolving credit commitment at or prior to December 31, 1999.
7. Preferred Stock
On October 26, 1997 and October 25, 1998, the Company had authorized 180,000
shares of unissued, preferred stock with a par value of $100 per share. The
Board of Directors has the authority to issue such preferred stock and to set
the terms thereof, including the dividend rate, conversion rights, redemption
rights, voting rights and liquidation preferences. There are no shares of
preferred stock outstanding as of October 25, 1998.
8. Repurchase of Common Stock
In September of 1994, the Board of Directors of the Company approved a plan
to purchase up to $2,500,000 of the Company's common stock. Pursuant to the
stock repurchase plan, the Company purchased 83,000 shares of common stock
during fiscal year 1994 at an aggregate price of $374,137. During fiscal year
1995, 391,155 shares of common stock were purchased at an aggregate price of
$2,118,173. This repurchase program has been completed.
9. Stock Option Plans
The Company has in effect nonqualified and incentive stock option plans
under which shares are available for exercise. As of October 25, 1998, the
Board of Directors has reserved 1,560,900 shares of common stock for issuance
under the plans. The prices at which substantially all stock options
outstanding have been granted have been equal to or in excess of the fair
market value of the Company's stock at the time of the grant. These options
vest over periods up to five years. On October 25, 1998, there were 299,500
shares available for future grants.
F-12
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Stock Option Plans--(Continued)
The following table summarizes activity and outstanding options under the
plans:
<TABLE>
<CAPTION>
Weighted
Shares Average
Under Option Exercise Price
------------ --------------
<S> <C> <C>
Outstanding on October 29, 1995................. 1,247,000 $4.23
Granted-Option Price=FMV...................... 373,000 6.98
Forfeited..................................... (283,334) 8.98
Exercised..................................... (158,332) 2.15
--------- -----
Outstanding on October 27, 1996................. 1,178,334 4.26
Granted-Option Price=FMV...................... 240,305 4.03
Granted-Option Price>FMV...................... 16,695 4.03
Forfeited..................................... (192,834) 4.58
Exercised..................................... (19,000) 2.84
--------- -----
Outstanding on October 26, 1997................. 1,223,500 4.13
Granted-Option Price=FMV...................... 393,720 3.34
Granted-Option Price>FMV...................... 54,780 4.26
Forfeited..................................... (318,785) 4.14
Exercised..................................... (91,815) 2.66
--------- -----
Outstanding on October 25, 1998................. 1,261,400 $4.00
========= =====
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------------------------------------
Weighted
Range of Outstanding Average Weighted Exercisable Weighted
Exercise As of Remaining Average as of Average
Prices 10/25/98 Contractual Life Exercise Price 10/25/98 Exercise Price
-------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$1.00-
$2.00 200,600 4.8 Years $1.85 20,600 $1.65
$2.01-
$3.00 157,000 4.6 Years $2.62 154,834 $2.61
$3.01-
$4.00 205,220 4.4 Years $3.69 110,004 $3.59
$4.01-
$5.00 397,080 2.7 Years $4.57 156,977 $4.51
$5.01-
$6.00 301,500 1.6 Years $5.59 301,500 $5.59
--------- -------
1,261,400 3.3 Years $4.00 743,915 $4.34
========= =======
</TABLE>
In October of 1996, the Board of Directors authorized a reduction in the
exercise price of each outstanding, unvested option to purchase shares of
common stock granted in fiscal 1996, to an amount equal to the fair market
value of the common stock on such date. The re-pricing has been treated as the
surrender and cancellation of outstanding stock options in conjunction with
the grant of replacement options with an exercise price of $4.56 per share.
On October 21, 1998, the Board of Directors authorized the replacement of
options for certain outstanding options issued to employees, who were not
executive officers or directors of the Company, subject to the election by the
employee. The replacement options will have an exercise price equal to the
fair market value of the common stock on such date and would vest 1/3
immediately and the remainder over two years. Since the replacement requires
an election by the optionee, the above tables and accompanying information do
not reflect any replacements during fiscal year 1998. The replacements will be
reflected at the time the optionee's election is received by the Company.
F-13
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Stock Option Plans--(Continued)
On January 15, 1998, the Board of Directors of the Company authorized an
increase in the shares issuable under the 1994 Stock Option Plan by 325,000
which was subsequently approved by shareholder vote. In addition, on April 21,
1998, the shareholders approved an amendment to the 1994 Stock Option Plan to
provide for an automatic grant of 10,000 options to each non-employee director
at the annual meetings held in 1998, 1999 and 2000. Such options will be
exercisable at the fair market value of the shares on the date of grant, will
vest in one year, and will be exercisable for five years from the date of
grant.
For fiscal 1998, $47,000 was recognized as expense for options issued to
non-employees under the Company's stock option plans. Pro forma information
regarding net income and earnings per share is required by SFAS 123 and has
been determined as if the Company has accounted for options issued to
employees under the fair value method of that statement. The fair value of
these options was estimated at the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions for
fiscal 1996 and 1997: expected volatility 47.39%, risk free interest rate of
6%, expected option life of 5 years, and no expected dividends. The weighted
average assumptions used for fiscal 1998 were: expected volatility 51.72%,
risk free interest rate of 5.11%, expected option life of 4.5 years, and no
expected dividends. In addition, adjustments were made for assumed
cancellations.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
For pro forma disclosures, the estimated fair value of the options is
amortized to expense over the options' vesting period. If the fair value based
method of accounting defined in SFAS 123 had been applied, the Company's net
loss and net loss per share would have been increased by approximately
$228,000, or $0.04 per share, in fiscal 1996, $325,000, or $0.05 per share, in
fiscal 1997, and $472,000, or $0.07 per share, in fiscal 1998. The estimated
weighted average fair value of options granted during fiscal 1996, 1997 and
fiscal 1998 was $4.16, $1.97, and $1.63, respectively. This pro forma
information is not meant to be representative of the effects on reported net
income for future years, because as provided by SFAS 123, only the effects of
awards granted after the Company's 1995 fiscal year are considered in the pro
forma calculation.
10. Net Loss Per Share
Net loss per common share was computed using the weighted average number of
shares of common stock outstanding during each year. For fiscal year 1996,
1997 and 1998, common equivalent shares were not considered in the computation
as their effect would have been antidilutive.
F-14
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. Income Taxes
Loss before income taxes was as follows for the fiscal years ended:
<TABLE>
<CAPTION>
October 27, October 26, October 25,
1996 1997 1998
----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C>
Domestic................................ $(678) $(3,711) $(2,527)
Foreign................................. 121 (305) (256)
----- ------- -------
$(557) $(4,016) $(2,783)
===== ======= =======
</TABLE>
The provision (benefit) for income taxes were as follows for the
fiscal years ended:
<TABLE>
<CAPTION>
October 27, October 26, October 25,
1996 1997 1998
----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C>
Federal income tax...................... $(69) $(1,365) $(946)
State income tax........................ -- -- --
Foreign income tax...................... 60 -- --
---- ------- -----
(9) (1,365) (946)
Valuation reserve provided
(Statement 109)........................ 69 1,365 946
---- ------- -----
$ 60 $ -- $ --
==== ======= =====
</TABLE>
The differences in the income taxes provided for and the amounts
determined by applying the Federal statutory rate to income before
taxes of the Company are summarized as follows:
<TABLE>
<CAPTION>
October 27, October 26, October 25,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Federal income statutory rate......... (34.0%) (34.0%) (34.0%)
State income taxes, net of federal
income tax benefit................... -- -- --
Valuation reserve provided............ 34.0% 34.0% 34.0%
Foreign income taxes.................. 29.4% -- --
----- ----- -----
29.4% -- --
===== ===== =====
</TABLE>
F-15
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. Income Taxes--(Continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities and their changes during
the year ended October 25, 1998 were as follows:
<TABLE>
<CAPTION>
Deferred
October 26, (Provision) October 25,
1997 Benefit 1998
----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C>
Deferred Tax Assets:
Net operating loss carryforwards..... $5,601 $1,275 $6,876
Tax credits.......................... 585 (43) 542
Accrued liabilities.................. 993 (636) 357
Other................................ 1,188 264 1,452
------ ------ ------
Total gross deferred tax assets...... 8,367 860 9,227
Less: Valuation allowance............ (5,655) (819) (6,474)
------ ------ ------
Net deferred tax asset............... 2,712 41 2,753
====== ====== ======
Deferred Tax Liabilities:
Amortization and depreciation........ (853) (160) (1,013)
Other................................ (147) 119 (28)
------ ------ ------
Total deferred tax liabilities....... (1,000) (41) (1,041)
------ ------ ------
Net deferred tax asset............... $1,712 $ 0 $1,712
====== ====== ======
</TABLE>
Due to the Company's historical results of operations, a valuation allowance
has been provided for the deferred tax assets. Because the Company generated
taxable income and was able to utilize net operating loss carryforwards during
fiscal 1994 and 1995 and forecasted future profitability which increased the
likelihood of the future realization of the net deferred tax asset, the
Company reversed $1,360,000 and $1,820,000, respectively, of the valuation
allowance. During fiscal 1998 the increase in the net deferred tax asset was
the result of $819,000 related to the tax effects of temporary differences
which were entirely offset by an increase in the valuation allowance.
On October 25, 1998, the Company had, for tax purposes, net operating loss
carryforwards of approximately $20,223,000, unused investment and research and
development tax credits of approximately $312,000, and $230,000 of alternative
minimum tax credits available to offset future taxable income and Federal
income taxes. The net operating loss carryforwards will expire from 1999 to
2018, the investment tax credit and research and development tax credit
carryforwards will expire from 1999 to 2005, and the alternative minimum tax
credit has no expiration.
All carryforwards are subject to review and possible adjustment by the
Internal Revenue Service. In compliance with the Tax Reform Act of 1986,
investment tax credits carried forward were reduced by 35%. The Company's
ability to utilize the net operating loss carryforwards to offset alternative
minimum taxable income is limited to 90% for tax years after fiscal 1987.
Additionally, Section 382 of the Internal Revenue Code limits the amounts of
net operating loss carryforwards usable by a corporation following a more than
50 percentage point change in ownership of the corporation during a three-year
period. It is possible that subsequent transactions involving the Company's
capital stock could result in such a limitation. As of October 25, 1998,
Management does not believe that a 50 percentage point change in ownership has
occurred during a three year period.
During fiscal year 1996, cash paid for income taxes amounted to
approximately $194,000.
F-16
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. Commitments and Contingencies
The Company has operating lease commitments for certain office equipment and
manufacturing, administrative and support facilities. Minimum lease payments
under noncancellable leases on October 25, 1998 are as follows:
<TABLE>
<CAPTION>
Operating
Fiscal Years Leases
------------ --------------
(In Thousands)
<S> <C>
1999........................................ $ 2,134
2000........................................ 1,846
2001........................................ 1,746
2002........................................ 1,642
2003........................................ 1,574
Thereafter.................................. 3,130
-------
Minimum lease payments....................... $12,072
=======
</TABLE>
Rent expense (exclusive of operating expenses and net of sublease rents) for
all operating leases was approximately $1,556,000, $1,594,161 and $1,584,000
in fiscal 1996, 1997 and 1998, respectively.
13. Business Segment Information
Summarized financial information by business segment for the years
ended:
<TABLE>
<CAPTION>
October 27, October 26, October 25,
1996 1997 1998
----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C>
Net sales by business segment:
Thermal management products......... $48,980 $58,294 $58,495
Connector products.................. 13,087 11,880 12,579
Subsystems.......................... 5,003 5,491 5,971
------- ------- -------
$67,070 $75,665 $77,045
======= ======= =======
Net sales by geographic area:
Sales to Customers Within the
Continental US..................... $60,405 $68,237 $68,450
Exports From the US to Unaffiliated
Customers.......................... 4,413 5,508 6,836
International Sales by Foreign
Operations......................... 2,252 1,920 1,759
------- ------- -------
$67,070 $75,665 $77,045
======= ======= =======
Transfers to international
operations from US:................ $ 669 $ 483 $ 296
======= ======= =======
Operating income:
Thermal management products......... $ 1,363 $ (774) $(2,096)
Connector products.................. 707 (933) 666
Subsystems.......................... (242) (48) 586
Corporate........................... (1,607) (1,237) (1,133)
------- ------- -------
$221 $(2,992) $(1,977)
======= ======= =======
Interest expense:
Thermal management products......... $ 858 $ 1,003 $ 970
Connector products.................. 215 170 15
Subsystems.......................... -- -- 26
------- ------- -------
$ 1,073 $ 1,173 $ 1,011
======= ======= =======
</TABLE>
F-17
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Business Segment Information--(Continued)
<TABLE>
<CAPTION>
October 27, October 26, October 25,
1996 1997 1998
----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C>
Total assets:
Thermal management products......... $30,678 $28,944 $26,535
Connector products.................. 7,382 6,653 6,046
Subsystems.......................... 2,470 2,394 3,428
Corporate........................... 5,119 3,387 2,666
Net assets of discontinued
operation.......................... 1,198 -- --
------- ------- -------
$46,847 $41,378 $38,675
======= ======= =======
Total assets:
Within the US....................... 45,262 39,862 37,508
Within France and England........... 1,585 1,516 1,167
------- ------- -------
$46,847 $41,378 $38,675
======= ======= =======
Depreciation and amortization:
Thermal management products......... $ 1,627 $ 2,235 $ 2,501
Connector products.................. 377 429 488
Subsystems.......................... 141 142 150
Corporate........................... 27 23 24
------- ------- -------
$ 2,172 $ 2,829 $ 3,163
======= ======= =======
Capital Expenditures:
Thermal management products......... $ 2,587 $ 1,235 $ 4,231
Connector products.................. 1,115 162 585
Subsystems.......................... 48 -- 258
Corporate........................... 20 23 5
------- ------- -------
$ 3,770 $ 1,420 $ 5,079
======= ======= =======
</TABLE>
F-18
<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
ALPHA TECHNOLOGIES GROUP, INC.
(Parent Company Only)
CONDENSED BALANCE SHEETS--OCTOBER 26, 1997 AND OCTOBER 25, 1998
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
October 26, October 25,
ASSETS 1997 1998
------ ----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash................................................. $ 1,406 $ 719
Accounts receivable.................................. 55 70
Prepaid expenses..................................... 105 55
------- -------
Total current assets............................... 1,566 844
INVESTMENT IN AND RECEIVABLES FROM SUBSIDIARIES........ 16,234 14,348
OTHER ASSETS, net...................................... 1,804 1,783
------- -------
TOTAL ASSETS......................................... $19,604 $16,975
======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable, trade.............................. $ 21 $ 57
Accrued compensation and related benefits............ 32 141
Other accrued liabilities............................ 750 460
------- -------
Total current liabilities.......................... 803 658
OTHER LONG-TERM LIABILITIES............................ -- --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $100 par value; shares authorized
180,000............................................. -- --
Common stock, $.03 par value; shares authorized
17,000,000; issued 7,700,733 at October 26, 1997 and
7,940,838 at October 25, 1998....................... 231 238
Additional paid-in capital........................... 43,523 43,781
Retained deficit..................................... (21,110) (23,893)
Cumulative translation adjustments................... (125) (91)
Treasury stock, at cost (1,008,553 common shares at
October 26, 1997 and October 25, 1998).............. (3,718) (3,718)
------- -------
Total stockholders' equity......................... 18,801 16,317
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $19,604 $16,975
======= =======
</TABLE>
S-1
<PAGE>
SCHEDULE I (continued)
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
ALPHA TECHNOLOGIES GROUP, INC.
(Parent Company Only)
CONDENSED STATEMENTS OF OPERATIONS
For the Years Ended October 27, 1996, October 26, 1997 and October 25, 1998
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
October 27, October 26, October 25,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
INCOME AND (EXPENSE)
Interest, investment and other income,
net.................................... $ 209 $ 189 $ 48
Equity in earning of subsidiaries, net
of taxes............................... 783 (2,304) (1,743)
Corporate general and administrative.... (1,201) (1,237) (1,133)
Other operating expense................. (256) -- --
--------- --------- ---------
LOSS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES............................. (465) (3,352) (2,828)
BENEFITS FOR INCOME TAXES................. 166 -- 45
--------- --------- ---------
NET LOSS.................................. $ (299) $ (3,352) $ (2,783)
========= ========= =========
PER COMMON AND COMMON EQUIVALENT SHARE
Net loss................................ $(0.05) $(0.50) $(0.41)
========= ========= =========
SHARES USED IN COMPUTING NET LOSS PER
SHARE.................................... 6,277,585 6,682,106 6,753,752
========= ========= =========
</TABLE>
S-2
<PAGE>
SCHEDULE I (continued)
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
ALPHA TECHNOLOGIES GROUP, INC.
(Parent Company Only)
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended October 27, 1996, October 26, 1997 and October 25, 1998
(In Thousands, Except Shares)
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
---------------- Paid-in Retained -------------------
Shares Amount Capital Deficit Other Shares Amount
--------- ------ ---------- --------- ----- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 29,
1995................... 6,977,845 $209 $39,114 $ (17,459) -- 935,404 $ (3,101)
Net loss............... -- -- -- (299) -- -- --
Issuance to employees
pursuant stock option
plans................. 158,332 5 336 -- -- -- --
Acquisition of Lockhart
Industries, Inc....... 280,556 8 2,355 -- -- 82,577 (696)
Purchase of Uni-Star
Industries, Inc.
minority interest..... 265,000 8 1,669 -- -- -- --
Other.................. -- -- -- -- (32) -- --
--------- ---- ------- --------- ----- --------- --------
BALANCE, OCTOBER 27,
1996................... 7,681,733 230 43,474 (17,758) (32) 1,017,981 (3,797)
Net loss............... -- -- -- (3,352) -- -- --
Issuance to employees
pursuant stock option
plans................. 19,000 1 53 -- -- -- --
Acquisition of Lockhart
Industries, Inc....... -- -- -- -- -- (9,428) 79
Purchase of Uni-Star
Industries, Inc.
minority interest..... -- -- (4) -- -- -- --
Cumulative translation
adjustment............ -- -- -- -- (93) -- --
--------- ---- ------- --------- ----- --------- --------
BALANCE, OCTOBER 26,
1997................... 7,700,733 231 43,523 (21,110) (125) 1,008,553 (3,718)
Net loss............... -- -- -- (2,783) -- -- --
Issuance to employees
pursuant stock option
plans................. 91,834 3 215 -- -- -- --
Acquisition of Lockhart
Industries, Inc....... 148,271 4 (4) -- -- -- --
Compensation associated
with stock options.... 47
Cumulative translation
adjustment............ -- -- -- -- 34 -- --
--------- ---- ------- --------- ----- --------- --------
BALANCE, OCTOBER 25,
1998................... 7,940,838 $238 $43,781 $ (23,893) $(91) 1,008,553 $ (3,718)
--------- ---- ------- --------- ----- --------- --------
</TABLE>
S-3
<PAGE>
SCHEDULE I
(continued)
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
ALPHA TECHNOLOGIES GROUP, INC.
(Parent Company Only)
CONDENSED STATEMENTS OF CASH FLOWS
For the Years Ended October 27, 1996, October 26, 1997 and October 25, 1998
(In Thousands)
<TABLE>
<CAPTION>
October 27, October 26, October 25,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES... $(1,727) $(1,415) $(1,069)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of discontinued
operations.............................. -- -- --
Purchase of marketable securities--
available for sale...................... -- -- --
Proceeds from sale of marketable
securities--available for sale.......... -- -- --
Advances to subsidiaries, net............ (638) (315) 143
(Increase) decrease in other assets,
net..................................... (15) (67) 21
------- ------- -------
Net cash (used) by investing
activities............................ (653) (382) 164
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock... 341 50 218
Payments to repurchase common stock...... -- -- --
------- ------- -------
Net cash provided by financing
activities............................ 341 50 218
NET DECREASE IN CASH AND CASH EQUIVALENTS.. (2,039) (1,747) (687)
------- ------- -------
CASH AND CASH EQUIVALENTS, beginning of
year...................................... 5,192 3,153 1,406
------- ------- -------
CASH AND CASH EQUIVALENTS, end of year..... $ 3,153 $ 1,406 $ 719
======= ======= =======
</TABLE>
S-4
<PAGE>
SCHEDULE II
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expense Deductions Period
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Reserve for doubtful accounts
deducted from accounts
receivable in the balance
sheet--
1998........................ $ 327,888 $ 208,178 $ 11,840(1) $ 524,226
1997........................ 279,665 279,771 231,548(1) 327,888
1996........................ 266,917 267,459 254,711(1) 279,665
Reserve for obsolete inventory
deducted from inventories in
the balance sheet--
1998........................ $1,868,704 $1,815,095 $1,285,626(2) $2,398,173
1997........................ 1,102,260 2,122,091 1,355,647(2) 1,868,704
1996........................ 419,855 964,767 282,362(2) 1,102,260
Reserve for Wakefield facility
consolidation
1998........................ $1,749,983 $ (362,000) $1,282,919(3) $ 105,064
Reserve for European
consolidation
1998........................ $ -- $ 150,000 $ 114,510 $ 35,490
</TABLE>
- --------
(1) Uncollectible accounts written off, net of recoveries.
(2) Obsolete inventory written off at cost, net of value recovered.
(3) Primarily severance and equipment write offs.
S-5
<PAGE>
Exhibit 10.6(a)
ASSIGNMENT AND ASSUMPTION AGREEMENT
Agreement made as of the last date endorsed hereon, but effective as
of the First (1st) day of November, 1997 ("Effective Date") by and among MALCO
DIVISION OF UNI-STAR INDUSTRIES, INC. ("Uni-Star"), MALCO, INC. ("Malco") and
ROBERT L. BYERS AND JOYCE F. BYERS, HIS WIFE, ("Lessor")
BASIS OF AGREEMENT
A. By Lease Agreement dated December 7th, 1994, as amended by Lease
Amendment Agreement Dated April 28th, 1995 (collectively, the "Lease"), Lessor
leased to Uni-Star, who hired from Lessor, a portion of that certain property
known and numbered 94 County Line Road, Montgomery Township, Montgomery County,
Pennsylvania (the "Premises") for a term ending March 31, 2000, unless extended
or previously terminated, as set forth in the Lease.
B. Uni-Star desires to assign the Lease to Malco, as of the Effective
Date, with the consent of Lessor, and Malco desires to assume Uni-Star's
obligations and rights under the Lease as of the Effective Date.
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. As of the Effective Date, Uni-Star hereby assigns its rights and
delegates its obligations under the Lease to Malco. Lessor hereby consents to
said assignment.
2. Malco hereby accepts the assignment of the Lease and assumes the
obligations of Uni-Star under the Lease. From and after the Effective Date, all
references in the Lease to "Lessee" shall mean Malco.
3. Uni-Star and Malco have adjusted between themselves all
installments of Minimum Annual Rent under Article 3 of the Lease and all
Additional Rent under Article 4 of the Lease for periods commencing from and
after the Effective Date. As of the Effective Date, Malco shall be responsible
for all unpaid installments of Minimum Annual Rent accruing pursuant to Article
3 of the Lease and all unpaid Additional Rent accruing pursuant to Article 4 of
the Lease.
4. Uni-Star hereby assigns, transfers and sets over to Malco all of
its right, title and interest in the security deposit held by Lessor, in
accordance with the terms of Article 17 of the Lease.
5. Malco acknowledges that the Lease contains Article 23 (M)
authorizing LESSOR TO CONFESS JUDGMENT AGAINST MALCO FOR THE RECOVERY BY LESSOR
OF POSSESSION OF THE PREMISES upon the expiration of the then current term or
earlier termination or surrender thereof.
<PAGE>
6. Uni-Star agrees, notwithstanding this Agreement, and the
amendments to the terms of the Lease set forth herein, that Uni-Star shall not
be relieved of any liability or responsibility under the terms of the Lease
accruing on or prior to the Effective Date by reason of its assignment to Malco.
Lessor hereby releases, remises and forever discharges Uni-Star from all
liability under the Lease accruing after the Effective Date, except as otherwise
set forth herein.
7. All of the terms and conditions of the Lease not inconsistent
herewith shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the dates last below written, but effective as of the Effective Date,
intending to be legally bound.
MALCO DIVISION OF UNI-STAR INDUSTRIES, INC.
By: /s/ David Prettyman
-------------------------
Dated: 11/5/98 Its: General Manager
------- -------------------------
MALCO, INC.
By: /s/ David Prettyman
-------------------------
Dated: 11/5/98 Its: General Manager
------- -------------------------
/s/ Robert L. Byers (SEAL)
- ------------------------
ROBERT L BYERS
/s/ Joyce F. Byers (SEAL)
- ------------------------
JOYCE F. BYERS
Dated: 11/4/98
-------
<PAGE>
Exhibit 10.6(b)
SECOND LEASE AMENDMENT AGREEMENT
AGREEMENT dated as of the last day endorsed hereon by the between
ROBERT L. BYERS AND JOYCE F. BYERS, HIS WIFE ("Lessor")
AND
MALCO, INC., a corporation ("Lessee")
BASIS OF AGREEMENT
A. By Lease dated December 7, 1994, as amended by Lease Amendment
Agreement ("Lease Amendment Agreement") dated April 28, 1995 (collectively, the
"Lease"), Lessor leased to MALCO DIVISION OF UNI-STAR INDUSTRIES, INC. Lessee's
Assignor a portion of a building (the "Building") situate 94 County Line Road,
Montgomery Township, Montgomery County, Pennsylvania, consisting of Thirty Seven
Thousand (37,000) square feet more or less (the "Space") for a term ending on
March 31, 2000, unless renewed or previously terminated, as set forth in the
Lease. By Assignment and Assumption Agreement bearing even date, but effective
as of November 1, 1997, Malco Division of Uni-Star Industries, Inc. assigned the
Lease to Lessee, which assumed the same.
B. Lessee desires to lease from Lessor and Lessor desires to lease to
Lessee the balance of the 52,000 square foot Building, consisting of 15,000
square feet, more or less (the "Additional Adjacent Space"). For purposes
hereof, the Space and Additional Adjacent Space combined shall be referred to
collectively as the "Further Enlarged Premises".
C. Lessee desires to lease the Further Enlarged Premises from Lessor
under the terms and conditions set forth in the Lease as amended and
supplemented by this Agreement and Lessor desires to lease the same to Lessee.
NOW THEREFORE, the parties hereto, intending to be legally bound
hereby agree as follows:
1. Effective Date.
As between the parties, this Agreement shall be in full force and
effect upon execution hereof by both parties, the date of last execution (or
October 1, 1998, whichever occurs first) being referred to as the "Effective
Date". From and after the Effective Date, wherever the term "Lease" appears in
the Lease and in this Agreement, said term shall mean the Lease, as amended and
supplemented by the Second Lease Amendment Agreement.
<PAGE>
2. Further Enlarged Premises.
From and after October 1, 1998, and during the Extended Term of the
Lease (as hereinafter defined), Lessor hereby demises and leases to Lessee and
Lessee hereby hires from Lessor the Further Enlarged Premises, together with the
exclusive right to park on the Lot and full right of ingress and egress through
and across the exterior portions of the Lot to and from the Further Enlarged
Premises. This Paragraph amends Article 3 of the Lease Amendment Agreement in
its entirety. From and after October 1, 1998, wherever the terms "Premises" or
"Enlarged Premises" appear in the Lease, said terms shall mean the "Further
Enlarged Premises".
3. Extended Term.
The term of the Lease is hereby extended for an "Extended Term" of six
(6) years, six (6) months, commencing October 1, 1998, and ending March 31,
2005, at 11:59 p.m., prevailing time, unless previously terminated or renewed,
as set forth herein. From and after October 1, 1998, all references to "term"
in the Lease shall mean the Extended Term.
4. Minimum Annual Rent.
From and after October 1, 1998, Article 4 of the Lease Amendment
Agreement is deleted in its entirety and the following substituted therefor:
"(A) For purposes hereof, the term `Lease Year' shall mean each
consecutive period of twelve (12) months commencing on the Effective
Date and each yearly anniversary of the Effective Date during the term
hereof.
(B) The minimum annual rent (`Minimum Annual Rent'), payable by
Lessee to Lessor during the period commencing October 1, 1998, and
ending on March 31, 2000, at 11:59 p.m., shall be computed at the rate
of One Hundred Eighty-Nine Thousand Eight Hundred Dollars
($189,800.00) per Lease Year, lawful money of the United States of
America, payable in monthly installments in advance during the said
period in sums of Fifteen Thousand Eight Hundred Sixteen Dollars and
Sixty-Seven Cents ($15,816.67) on the first day of each month during
said period, the first installment to be paid on or before October 1,
1998.
(C) The Minimum Annual Rent payable by Lessee to Lessor during
the period commencing April 1, 2000, and ending on March 31, 2005, at
11:59 p.m., shall be computed at the rate of Two Hundred Eight
Thousand Dollars ($208,000.00) per Lease Year, the lawful money of the
United States of America, payable in monthly installments in advance
during said period in sums of Seventeen Thousand Three Hundred Thirty-
Three Dollars and Thirty-Three Cents ($17,333.33) on the first day of
each month during said period, the first installment to be paid on or
before April 1, 2000."
<PAGE>
5. Increased "Agreed Percentage".
Commencing October 1, 1998, the Agreed Percentage, as defined
in the Lease, shall be increased from 71% to 100%.
6. Destruction of Premises.
Article 8 (A) of the Lease Agreement dated December 7, 1994, is
amended and supplemented to read as follows, effective on the Effective Date:
"8. A. Total Destruction of Premises.
In the event the Premises is totally destroyed or so damaged
by fire or other casualty, covered by policies of insurance carried by
Lessor, that in Lessor's opinion, the same cannot be repaired and
restored within ninety (90) days from the happening of such injury,
the current term of this Lease shall absolutely cease and determine
and the Minimum Annual Rent and Additional Rent shall abate for the
balance of the term. Nothing contained herein shall be construed to
affect Lessor's right to collect the proceeds of rental value
insurance on the Building."
7. Consumer Price Index.
Paragraph 25 (B) of the Lease Agreement dated December 7, 1994, is
amended to provide that the Adjustment Index shall be the CPI U for the month of
August, 2004, and the Base Index shall be the CPI U for the month of August,
1997.
8. Ratification.
(A) PARAGRAPH 23 (M) OF THE LEASE AGREEMENT OF DECEMBER 7, 1994, SETS
FORTH A WARRANT OF AUTHORITY FOR ANY PROTHONOTARY OR ATTORNEY OF A COURT OF
RECORD TO CONFESS JUDGMENT AGAINST THE LESSEE FOR POSSESSION OF THE PREMISES
UPON THE EXPIRATION OF THE TERM OF THE LEASE. IN GRANTING THIS WARRANT OF
ATTORNEY TO CONFESS JUDGMENT AGAINST THE LESSEE, THE LESSEE, FOLLOWING
CONSULTATION WITH (OR DECISION NOT TO CONSULT) SEPARATE COUNSEL FOR THE LESSEE
AND WITH KNOWLEDGE OF THE LEGAL EFFECT THEREOF, HEREBY KNOWINGLY, INTENTIONALLY,
VOLUNTARILY AND UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS THE LESSEE HAS OR MAY
HAVE TO PRIOR NOTICE AND AN OPPORTUNITY FOR HEARING UNDER THE RESPECTIVE
CONSTITUTIONS AND LAWS OF THE UNITED STATES OF AMERICA, THE COMMONWEALTH OF
PENNSYLVANIA OR ELSEWHERE. IT IS SPECIFICALLY ACKNOWLEDGED BY THE LESSEE THAT
THE LESSOR HAS RELIED ON THIS WARRANT OF ATTORNEY IN EXECUTING THIS SECOND LEASE
AMENDMENT AGREEMENT AND AS AN INDUCEMENT TO GRANT FINANCIAL ACCOMMODATIONS
HEREINUNDER TO THE LESSEE.
LESSEE EXPRESSLY WARRANTS AND REPRESENTS THAT THE ABOVE-DESCRIBED
WARRANT OF ATTORNEY TO CONFESS JUDGMENT HAS BEEN AUTHORIZED EXPRESSLY BY PROPER
ACTION OF THE BOARD OF DIRECTORS OF LESSEE.
<PAGE>
(B) Every provision of the Lease not inconsistent with the terms
hereof is hereby ratified and confirmed and including, without limiting the
generality of the foregoing, Article 23 (M) which permits the Lessor to CONFESS
JUDGMENT FOR THE RECOVERY BY LESSOR OF POSSESSION OF THE FURTHER ENLARGED
PREMISES upon the expiration of the then current term of the Lease. The parties
hereto acknowledge and agree that nothing contained herein can be construed to
impair in any manner whatsoever Lessor's ability to confess judgment against the
Lessee for the recovery of possession of the Further Enlarged Premises pursuant
to the terms of the Lease, upon expiration of the then current term.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
intending to be legally bound, on the day and year last below written.
/s/ Robert L. Byers (Seal)
--------------------------
Robert L. Byers
Dated: 11/5/98
-------
/s/ Joyce F. Byers (Seal)
--------------------------
Joyce F. Byers
MALCO, INC.
a corporation
Dated: 11/5/98 By: /s/ David Prettyman
------- ------------------------
President
(CORPORATE SEAL)
<PAGE>
Exhibit 10.8(a)
WAKEFIELD ENGINEERING, INC.
100 Cummings Center, Suite 157H
Beverly, MA 01915
As of November 12, 1998
FLEET NATIONAL BANK
One Federal Street
Boston, MA 02109
Re: Seventh 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, a Fourth Amendment thereto dated as of October 11, 1996, a Fifth
Amendment thereto dated as of July 1, 1997, and a Sixth Amendment thereto dated
as of December 31, 1997 (together the "Loan Agreement") and all promissory
notes, agreements, documents and instruments entered into by Wakefield
Engineering, Inc. ("Wakefield"), Wakefield Extrusion Corp. ("WEC"), Lockhart
Industries, Inc. ("Lockhart") and Malco, Inc. ("Malco") and any other person or
obligor pursuant thereto (collectively, the "Loan Documents") with or for the
benefit of Fleet National Bank ("Bank"). Except as otherwise defined herein,
capitalized terms used herein shall have the meanings given them in the Loan
Agreement. This Seventh Amendment to Loan Agreement is referred to as the
"Seventh Amendment".
Background. Borrowers have requested that Bank agree to accept Uni-Star
Industries, Inc., a Delaware corporation ("Uni-star") as a co-borrower. Bank
has requested that Borrowers agree to shorten the maturity of the credit
facilities and agree to certain other changes to the Loan Agreement.
Accordingly, Bank and Borrowers agree as follows, subject to the terms and
conditions hereof:
1. Uni-Star Designated as Additional Borrower. Uni-Star is, and hereby shall
be, a Borrower under the Loan Agreement and other Loan Documents, jointly and
severally with Wakefield, WEC, Lockhart and Malco, with respect to all now
existing and hereafter existing or created Obligations and all references to
Borrower or Borrowers in the Loan Agreement shall mean Wakefield, WEC, Lockhart,
Malco and Uni-Star, jointly and severally.
<PAGE>
Fleet National Bank
As of November 12, 1998
Page 2
2. Amendments to Loan Agreement. 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) Amendment to Definition of Borrowing Base. The definition of Borrowing
Base is amended to add the following in clause (b)(ii) after "$4,500,000.00" and
prior to the semi-colon (;)"(exclusive of Uni-Star Inventory)" and to add the
following clause (d) thereto:
"(d) as to Uni-Star, the lesser of (i) $500,000 or (ii) thirty-five
percent (35%) of the cost or market value, whichever is lower, of all Eligible
Inventory of Uni-Star;"
(b) Amendment to Revolving Loan Limit. The definition of Revolving Loan
Limit is amended to delete "Nine Million Dollars ($9,000,000.00)" and to replace
it with "Ten Million Dollars ($10,000,000.00)".
(c) Amendment to Definition of Termination Date. The definition of
Termination Date is amended to delete "December 31, 1999" and to replace it with
"May 31, 1999, provided, however, that if prior to January 31, 1999 the
Borrowers do not enter into a definitive and binding agreement providing, to the
satisfaction of the Bank, for the sale of substantially all the assets and/or
stock of Wakefield on or before May 31, 1999 and, in connection with such
transaction, the repayment in full of all of the Obligations, the Termination
Date will be January 31, 1999.
(d) Interest Rates Adjustment. Subsections 2(d)(i)A and 2(d)(i)(B) of the
Loan Agreement are deleted and replaced with the following:
"(A) For each Prime Rate Advance, the Prime Rate plus one percent (1%),
and
(B) For each LIBOR Rate Advance, the Adjusted LIBOR Rate for the applicable
Interest period selected by Borrower in accordance with this Agreement plus
three and one-half percent (350 basis points)."
(e) Section 8 of the Loan Agreement is amended to delete Section (p) and to
substitute in place thereof the following:
"(p) Subordinated Indebtedness. Borrowers shall not make, directly or
indirectly, any payment of principal, interest or other amounts on the
Subordinated Indebtedness due to Alpha or pay any management fee to Alpha,
except that Borrowers may pay reimbursements for life insurance, AD&D insurance,
long term disability insurance, commercial package insurance, workman's
compensation insurance, and health insurance payments for the ex-president of
Lockhart totaling not more than $181,000 in the aggregate through January 31,
1999, and $423,000 in the aggregate through May 31, 1999.."
3. Grant of Security Interest. As security for the prompt performance,
observance and payment in full of all Obligations, Uni-Star hereby grants to
Bank a continuing security interest in and lien on and assigns, transfers, sets
over and pledges to the Bank all property of Uni-Star
<PAGE>
Fleet National Bank
As of November 12, 1998
Page 3
whether now owned by Uni-Star 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. Amendment Fees.
Borrowers agree to pay the Bank fees as follows:
(a) On the date hereof, an amendment fee of $20,000, fully earned as of
the date hereof;
(b) If the conditions to the extension of the Termination Date from
January 31, 1999 to May 31, 1999 as set forth in the definition of Termination
Date are satisfied, Bank will earn a $100,000 extension fee on January 31, 1999,
which fee shall be due and payable on the first to occur of the termination of
the Bank's commitment to make Loans or May 31, 1999.
5. Representations and Warranties.
To induce Bank to enter into this Seventh 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
<PAGE>
Fleet National Bank
As of November 12, 1998
Page 4
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 Seventh
Amendment, and each of the Loan Documents to which it is a party. The
execution, delivery and performance of this Seventh 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 Seventh Amendment and each of
the other Loan Documents delivered under this Seventh 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 October 25, 1998, 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 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 Seventh 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.
<PAGE>
Fleet National Bank
As of November 12, 1998
Page 5
6. Conditions Precedent.
Notwithstanding any other provision of this Seventh Amendment or any of
the other Loan Documents, and without affecting in any manner the rights of Bank
under the other sections of this Seventh Amendment, this Seventh 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 Seventh
Amendment, the Fifth Amended and Restated Revolving Credit Note in the form
attached as Exhibit A hereto, the First Amended and Restated Equipment Facility
Note in the form attached as Exhibit B hereto, the Amendment to Subordination
Agreement with Alpha in the form attached as Exhibit C hereto, the Perfection
Certificate of Uni-Star in the form of Exhibit D hereto, the Guaranty Agreement
by Uni-Star in the form of Exhibit E 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. Other than any existing or prospective Events of
Default that Borrowers have disclosed to Bank on the date hereof, 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 Seventh Amendment or the consummation of the transactions contemplated
thereby or hereby.
7. 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. Each Borrower confirms and agrees that at November 12, 1998 the
outstanding principal balances of and accrued interest on the Loans and the fees
owed to Bank were as set forth on Exhibit F hereto.
8. 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
<PAGE>
Fleet National Bank
As of November 12, 1998
Page 6
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.
9. Uni-Star Accounts Remittances. Bank agrees that Uni-Star shall not be
required to cause remittances on Uni-Star Accounts to be paid to a lock box and
blocked account under the dominion of the Bank until the first to occur of (a)
an Event of Default occurs and is continuing under the Loan Agreement or (b) the
availability of the Borrowers (the difference between the outstanding Loans and
credit extensions and the Borrowing Base) is less than 100,000 for three (3)
consecutive days.
10. 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 Seventh Amendment
by Bank shall not be construed as a waiver by Bank of any existing or hereafter
occurring Default or Event of Default under the Loan Documents. This Seventh
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 Seventh 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 Seventh 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.
Executed under seal on the date set forth above.
ATTEST: WAKEFIELD ENGINEERING, INC.
/s/ Sheila Papez By: /s/ Lawrence Butler
- ------------------------------- ------------------------------
Name: Lawrence Butler
----------------------------
Title:
---------------------------
ATTEST: WAKEFIELD EXTRUSION CORP.
/s/ Sheila Papez By: /s/ Lawrence Butler
- ------------------------------- -------------------------------
Name: Lawrence Butler
----------------------------
Title:
---------------------------
<PAGE>
Fleet National Bank
As of November 12, 1998
Page 7
ATTEST: LOCKHART INDUSTRIES, INC.
/s/ Sheila Papez By: /s/ Lawrence Butler
- ------------------------------- -------------------------------
Name: Lawrence Butler
----------------------------
Title:
---------------------------
ATTEST: MALCO, INC.
/s/ Sheila Papez By: /s/ Lawrence Butler
- ------------------------------- -------------------------------
Name: Lawrence Butler
----------------------------
Title: President and CEO
---------------------------
ATTEST: UNI-STAR INDUSTRIES, INC.
/s/ Sheila Papez By: /s/ Lawrence Butler
- ------------------------------- -------------------------------
Name: Lawrence Butler
----------------------------
Title:
---------------------------
Accepted in Boston, Massachusetts
as of November 12, 1998
FLEET NATIONAL BANK
By: /s/ Carolyn H. LoRusso
-----------------------------
Name: Carolyn H. LoRusso
-------------------------
Title: Vice President
------------------------
<PAGE>
EXHIBIT 10.8(b)
WAKEFIELD ENGINEERING, INC.
100 Cummings Center, Suite 157H
Beverly, MA 01915
As of January 31, 1999
FLEET NATIONAL BANK
One Federal Street
Boston, MA 02109
Re: Eighth 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, a Fourth Amendment thereto dated as of October 11, 1996, a Fifth
Amendment thereto dated as of July 1, 1997, a Sixth Amendment thereto dated as
of December 31, 1997, and a Seventh Amendment thereto dated November 12, 1998
(together the "Loan Agreement") and all promissory notes, agreements, documents
and instruments entered into by Wakefield Engineering, Inc. ("Wakefield"),
Wakefield Extrusion Corp. ("WEC"), Lockhart Industries, Inc. ("Lockhart"),
Malco, Inc. ("Malco") and Uni-Star Industries, Inc. ("Uni-Star") and any other
person or obligor pursuant thereto (collectively, the "Loan Documents") with or
for the benefit of Fleet National Bank ("Bank"). Except as otherwise defined
herein, capitalized terms used herein shall have the meanings given them in the
Loan Agreement. This Eighth Amendment to Loan Agreement is referred to as the
"Eighth Amendment".
Background. Borrowers have requested that Bank agree to extend the maturity
of the credit facilities and agree to certain other changes to the Loan
Agreement. Accordingly, Bank and Borrowers agree as follows, subject to the
terms and conditions hereof:
1. Amendments to Loan Agreement. 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) Amendment to Definition of Borrowing Base. The definition of Borrowing
Base is deleted and replaced with the following:
<PAGE>
"`Borrowing Base' means the sum of the following (as shown on the
Bank's records at any time):
(a) (i) for the period from January 31, 1999 through February 18, 1999,
eighty-five percent (85%) of the unpaid face value of all Eligible
Accounts, (ii) for the period from February 19, 1999 through February 28,
1999, eighty-three percent (83%) of the unpaid face value of all Eligible
Accounts and (iii) from March 1, 1999 and thereafter, eighty percent (80%)
of the unpaid face value of Eligible Accounts, PLUS
(b) for Eligible Inventory exclusive of Uni-Star Eligible Inventory, the
lesser of (i) (A) for the period from January 31, 1999 through February 28,
1999, fifty-five percent (55%) of the first-in, first-out cost or market
value, whichever is lower, of all such Eligible Inventory, (B) for the
period from March 1, 1999 through March 31, 1999, fifty-three percent (53%)
of the first-in, first-out cost or market value, whichever is lower, of all
such Eligible Inventory, and (C) from April 1, 1999 and thereafter, fifty
percent (50%) of the first-in, first-out cost or market value, whichever is
lower, of all such Eligible Inventory, or (ii) $4,000,000.00, PLUS
(c) as to Uni-Star Eligible Inventory, the lesser of (i) $500,000 or (ii)
thirty-five percent (35%) of the first-in, first-out cost or market value,
whichever is lower, of all Eligible Inventory of Uni-Star; LESS
(d) the face amount of all letters of credit issued by the Bank on behalf
of any Borrower, with the maximum amount of such letters of credit not to
exceed $1,000,000.00, and the estimated amount of the exposure under any
interest rate swap agreements in effect with respect to any of the
Obligations, plus all Bank's customary fees and charges with respect to the
foregoing;
PROVIDED that Bank at all times reserves the right, exercisable in Bank's
reasonable credit judgment, based upon circumstances then existing, to
adjust any of the percentages or the amounts set forth above upon fifteen
(15) days' notice to Borrower."
(b) Amendment to Revolving Loan Limit. The definition of Revolving Loan
Limit is amended to delete "Ten Million Dollars ($10,000,000.00)" and to replace
it with "Nine Million Dollars ($9,000,000.00)".
(c) Amendment to Definition of Termination Date. The definition of
Termination Date is deleted and replaced with the following:
"`Termination Date' shall mean the first to occur of (i) the
termination by Lender on or after an Event of Default of its commitments to
make Loans and extend letters of credit under this Agreement or (ii) April
30, 1999."
(d) Interest Rates. Borrowers acknowledge and agree that all rights to
elect to convert Prime Rate Advances into LIBOR Rate Advances or to extend any
outstanding LIBOR
<PAGE>
Rate Advances have terminated as of January 31, 1999 and no further LIBOR Rate
Advances shall be made to Borrowers pursuant the Loan Agreement or otherwise.
3. Earnings/Loss Covenant. Borrowers covenant and agree that the consolidated
pretax earnings (loss) of the Borrowers as determined in accordance with GAAP
exclusive of extraordinary and nonrecurring gains ("Earnings") shall not, for
any calendar month commencing with the calendar month ending January 31, 1999,
be less than -$100,000 and that the cumulative fiscal year to date Earnings at
the end of any calendar month commencing with the calendar month ending January
31, 1999 shall not be less than $650,000.
4. Amendment Fee. Borrowers agree to pay the Bank on the date hereof, an
amendment fee of $75,000, which fee shall be fully earned and nonrefundable.
5. Representations and Warranties.
To induce Bank to enter into this Eighth 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 Eighth Amendment, and
each of the Loan Documents to which it is a party. The execution, delivery and
performance of this Eighth 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 Eighth Amendment and each of the
other Loan Documents delivered under this Eighth 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.
<PAGE>
(d) No Material Adverse Change. Since December 31, 1998, 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 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 Eighth 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.
6. Conditions Precedent.
Notwithstanding any other provision of this Eighth Amendment or any of the
other Loan Documents, and without affecting in any manner the rights of Bank
under the other sections of this Eighth Amendment, this Eighth 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 Eighth
Amendment, the Sixth 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, 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. Other than any existing or prospective Events of Default
that Borrowers have disclosed to Bank on the date hereof, 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
Eighth Amendment or the consummation of the transactions contemplated thereby or
hereby.
7. 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
<PAGE>
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. Each Borrower confirms and agrees that at
January 31, 1999 the outstanding principal balances of and accrued interest on
the Loans and the fees owed to Bank were as set forth on Exhibit C hereto.
8. 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.
9. Uni-Star Accounts Remittances. Uni-Star agrees that all remittances on Uni-
Star Accounts shall be paid to a lock box and blocked account under the dominion
of the Bank upon the first to occur of (a) an Event of Default occur and
continuing under the Loan Agreement or (b) the borrowing availability of the
Borrowers (the difference between the outstanding Loans and credit extensions
and the Borrowing Base) shall be less than 100,000 for three (3) consecutive
days.
10. 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 Eighth Amendment by Bank shall
not be construed as a waiver by Bank of any existing or hereafter occurring
Default or Event of Default under the Loan Documents. This Eighth 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 Eighth 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
Eighth 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/ Sheila Papez By: /s/ Lawrence Butler
- -------------------------- -----------------------------
Name:
------------------------
Title:
-----------------------
ATTEST: WAKEFIELD EXTRUSION CORP.
/s/ Sheila Papez By: /s/ Lawrence Butler
- -------------------------- -----------------------------
Name:
------------------------
Title:
-----------------------
ATTEST: LOCKHART INDUSTRIES, INC.
/s/ Sheila Papez By: /s/ Lawrence Butler
- -------------------------- -----------------------------
Name:
------------------------
Title:
-----------------------
ATTEST: MALCO, INC.
/s/ Sheila Papez By: /s/ Lawrence Butler
- -------------------------- -----------------------------
Name:
------------------------
Title:
-----------------------
ATTEST: UNI-STAR INDUSTRIES, INC.
/s/ Sheila Papez By: /s/ Lawrence Butler
- -------------------------- -----------------------------
Name:
------------------------
Title:
-----------------------
<PAGE>
Accepted in Boston, Massachusetts
as of January 31, 1999
FLEET NATIONAL BANK
By: /s/ Carolyn H. LoRusso
----------------------------
Name: Carolyn H. LoRusso
-----------------------
Title: Vice President
----------------------
<PAGE>
EXHIBIT 10.8(c)
WAKEFIELD ENGINEERING, INC.
100 Cummings Center, Suite 157H
Beverly, MA 01915
As of February 8, 1999
FLEET NATIONAL BANK
One Federal Street
Boston, MA 02109
Re: Ninth 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, a Fourth Amendment thereto dated as of October 11, 1996, a Fifth
Amendment thereto dated as of July 1, 1997, a Sixth Amendment thereto dated as
of December 31, 1997, a Seventh Amendment thereto dated November 12, 1998, and
an Eighth Amendment thereto dated January 31, 1999 (together the "Loan
Agreement") and all promissory notes, agreements, documents and instruments
entered into by Wakefield Engineering, Inc. ("Wakefield"), Wakefield Extrusion
Corp. ("WEC"), Lockhart Industries, Inc. ("Lockhart"), Malco, Inc. ("Malco") and
Uni-Star Industries, Inc. ("Uni-Star") and any other person or obligor pursuant
thereto (collectively, the "Loan Documents") with or for the benefit of Fleet
National Bank ("Bank"). Except as otherwise defined herein, capitalized terms
used herein shall have the meanings given them in the Loan Agreement. This
Ninth Amendment to Loan Agreement is referred to as the "Ninth Amendment".
Background. Borrowers have requested that Bank agree to extend the
maturity of the credit facilities and agree to certain other changes to the Loan
Agreement. Accordingly, Bank and Borrowers agree as follows, subject to the
terms and conditions hereof:
1. Amendments to Loan Agreement. Subject to the satisfaction of the terms and
conditions hereof, Bank and Borrowers have agreed that the Loan Agreement shall
be amended as follows:
<PAGE>
(a) Amendment to Definition of Borrowing Base. The definition of Borrowing
Base is deleted and replaced with the following:
"`Borrowing Base' means the sum of the following (as shown on the Bank's
records at any time):
(a) (i) for the period from January 31, 1999 through February 18, 1999,
eighty-five percent (85%) of the unpaid face value of all Eligible
Accounts, (ii) for the period from February 19, 1999 through February 28,
1999, eighty-three percent (83%) of the unpaid face value of all Eligible
Accounts, (iii) for the period from March 1, 1999 through May 14, 1999,
eighty percent (80%) the ("Accounts Advance Rate") of the unpaid face value
of Eligible Accounts, (iv) on May 15, 1999 and on the first day and
fifteenth day of each calendar month thereafter the Accounts Advance Rate
shall be reduced by 2% until such time as the Accounts Advance Rate equals
seventy-five percent (75%), (v) for the period from November 15, 1999
through November 30, 1999, the Accounts Advance Rate shall be seventy-three
percent (73%), (vi) for the period from December 1, 1999 through December
15, 1999, the Accounts Advance Rate shall be seventy-one percent (71%) and
(vii) on December 15, 1999 and thereafter the Accounts Advance Rate shall
be seventy percent (70%); PLUS
(b) for Eligible Inventory exclusive of Uni-Star Eligible Inventory, the
lesser of (i) (A) for the period from January 31, 1999 through February 28,
1999, fifty-five percent (55%) of the first-in, first-out cost or market
value, whichever is lower, of all such Eligible Inventory, (B) for the
period from March 1, 1999 through March 31, 1999, fifty-three percent (53%)
of the first-in, first-out cost or market value, whichever is lower, of all
such Eligible Inventory, (C) for the period from April 1, 1999 through
April 30, 1999, fifty percent (50%) (the "Inventory Advance Rate") of the
first-in, first-out cost or market value, whichever is lower, of all such
Eligible Inventory and (D) on the first day and sixteenth day of each
calendar month thereafter commencing May 1, 1999, the Inventory Advance
Rate Shall reduce by 2% until such time as the Inventory Advance Rate
equals 30%, or (ii) $4,000,000.00, PLUS
(c) as to Uni-Star Eligible Inventory, the lesser of (i) $500,000 or (ii)
thirty-five percent (35%) (the "Uni-Star Inventory Advance Rate") of the
first-in, first-out cost or market value, whichever is lower, of all
Eligible Inventory of Uni-Star on the first day and sixteenth day of each
calendar month thereafter commencing May 1, 1999, the Inventory Advance
Rate shall reduce by 2% until such time as the Inventory Advance Rate
equals 25%; LESS
(d) the face amount of all letters of credit issued by the Bank on behalf
of any Borrower, with the maximum amount of such letters of credit not to
exceed $1,000,000.00, and the estimated amount of the exposure under any
interest rate swap agreements in effect with respect to any of the
Obligations, plus all Bank's customary fees and charges with respect to the
foregoing;
<PAGE>
PROVIDED that Bank at all times reserves the right, exercisable in Bank's
reasonable credit judgment, based upon circumstances then existing, to
adjust any of the percentages or the amounts set forth above upon fifteen
(15) days' notice to Borrower."
(b) Amendment to Definition of Termination Date. The definition of
Termination Date is deleted and replaced with the following:
"`Termination Date' shall mean the first to occur of (i) the
termination by Lender on or after an Event of Default of its commitments to
make Loans and extend letters of credit under this Agreement or (ii)
December 31, 1999."
3. Additional Covenants.
(a) Borrowers covenant and agree that the consolidated pretax earnings
(loss) of the Borrowers as determined in accordance with GAAP exclusive of
extraordinary and nonrecurring gains ("Earnings") shall not, for any calendar
month commencing with the calendar month ending January 31, 1999 and ending with
the calendar month ending April 30, 1999, be less than -$100,000 and that the
cumulative fiscal year to date Earnings at the end of any calendar month
commencing with the calendar month ending January 31, 1999 and ending with the
calendar month ending April 30, 1999 shall not be less than $650,000.
(b) Borrowers covenant and agree, for each calendar month commencing May 1,
1999, that the Earnings of the Borrowers for each such month shall not be less
than eighty percent (80%) of the Earnings set forth on the operating budget of
the Borrowers attached as Exhibit D hereto.
4. Commitment Fee. Borrowers shall pay to the Bank a commitment fee of $25,000
for each month or portion thereof after April 30, 1999 that the Obligations
remain outstanding and the Bank's commitments under the Loan Agreement remain in
effect, payable in advance and fully earned and nonrefundable on the first day
of each calendar month commencing on May 1, 1999 and continuing until the
Obligations are paid in full and the Bank's commitments under the Loan Agreement
are terminated.
5. Amendment Fee. Borrower shall pay to the Bank an amendment fee of $10,000
which shall be paid and fully earned and nonrefundable on the date of the Ninth
Amendment.
6. Representations and Warranties.
To induce Bank to enter into this Ninth 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
<PAGE>
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 Ninth Amendment, and
each of the Loan Documents to which it is a party. The execution, delivery and
performance of this Ninth 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 Ninth Amendment and each of the
other Loan Documents delivered under this Ninth 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, 1998, 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 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 Ninth 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.
7. Conditions Precedent.
Notwithstanding any other provision of this Ninth Amendment or any of the
other Loan Documents, and without affecting in any manner the rights of Bank
under the other sections of this Ninth Amendment, this Ninth Amendment shall not
be effective as to Bank unless and until each of the following conditions has
been and continues to be satisfied:
<PAGE>
(a) Documentation. Bank shall have received, in form and substance
satisfactory to Bank and its counsel, a duly executed copy of this Ninth
Amendment, the Seventh 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, 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. Other than any existing or prospective Events of Default
that Borrowers have disclosed to Bank on the date hereof, 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
Ninth Amendment or the consummation of the transactions contemplated thereby or
hereby.
8. 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. Each Borrower confirms and agrees that at February 5, 1999 the
outstanding principal balances of and accrued interest on the Loans and the fees
owed to Bank were as set forth on Exhibit C hereto.
9. 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.
10. Uni-Star Accounts Remittances. Uni-Star agrees that all remittances on Uni-
Star Accounts shall be paid to a lock box and blocked account under the dominion
of the Bank upon the first to occur of (a) an Event of Default occur and
continuing under the Loan Agreement or (b) the borrowing availability of the
Borrowers (the difference between the outstanding Loans and credit extensions
and the Borrowing Base) shall be less than 100,000 for three (3) consecutive
days.
<PAGE>
11. 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 Ninth Amendment by Bank shall
not be construed as a waiver by Bank of any existing or hereafter occurring
Default or Event of Default under the Loan Documents. Nothing herein shall
limit or restrict the Borrowers right under the Loan Agreement to prepay the
Obligations at any time without premium or penalty provided that in connection
with any such prepayment the Borrowers indefeasibly pay in full all Obligation
by immediately available funds including, without limitation, all make-whole
payments on any outstanding LIBOR Loans and amounts due on any outstanding
interest rate swap transaction and provide cash collateral to Bank in a manner
and amount satisfactory to Bank to secure payment on all amounts relating to any
outstanding letters of credit. This Ninth 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 Ninth 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 Ninth 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.
Executed under seal on the date set forth above.
ATTEST: WAKEFIELD ENGINEERING, INC.
Sheila Papez By: /s/ Lawrence Butler
- ------------ -------------------
Name: Lawrence Butler
---------------
Title:
ATTEST: WAKEFIELD EXTRUSION CORP.
Sheila Papez By: /s/ Lawrence Butler
- ------------ -------------------
Name: Lawrence Butler
---------------
Title:
<PAGE>
ATTEST: LOCKHART INDUSTRIES, INC.
Sheila Papez By: /s/ Lawrence Butler
- ------------ -------------------
Name: Lawrence Butler
---------------
Title:
ATTEST: MALCO, INC.
Sheila Papez By: /s/ Lawrence Butler
- ------------ -------------------
Name: Lawrence Butler
---------------
Title:
ATTEST: UNI-STAR INDUSTRIES, INC.
Sheila Papez By: /s/ Lawrence Butler
- ------------ -------------------
Name: Lawrence Butler
---------------
Title:
Accepted in Boston, Massachusetts
as of February 8, 1999
FLEET NATIONAL BANK
By: /s/ Carolyn H. LoRusso
----------------------------
Name: Carolyn H. LoRusso
------------------
Title: Vice President
--------------
<PAGE>
EXHIBIT 11
ALPHA TECHNOLOGIES GROUP, INC., AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
For the Years Ended October 27, 1996, October 26, 1997
And October 25, 1998
(In Thousands, Except per Share Date)
<TABLE>
<CAPTION>
Year Ended
------------------------------------------
October 27, October 26, October 25,
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Shares:
Weighted average common shares outstanding 6,278 6,682 6,754
Net common shares issuable on exercise of
stock options -- -- --
------- ------- -------
Weighted average common and common equivalent
shares outstanding 6,278 6,682 6,754
======= ======= =======
Loss before income from discontinued operation $ (617) $(4,016) $(2,783)
Gain on sale of discontinued operation -- 610 --
Income from discontinued operation 318 54 --
------- ------- -------
Net loss $ (299) $(3,352) $(2,783)
======= ======= =======
Basic net loss per common and common
equivalent share:
Loss before income from discontinued operation $ (0.10) $ (0.60) $ (0.41)
Gain on sale of discontinued operation -- 0.09 --
Income from discontinued operation .05 0.01 --
------- ------- -------
Basic net loss $ (0.05) $ (0.50) $ (0.41)
======= ======= =======
Diluted net loss per common and common
equivalent share:
Loss before income from discontinued operation $ (0.10) $ (0.60) $ (0.41)
Gain on sale of discontinued operation -- 0.09 --
Income from discontinued operation .05 0.01 --
------- ------- -------
Diluted net loss $ (0.05) $ (0.50) $ (0.41)
======= ======= =======
</TABLE>
<PAGE>
EXHIBIT 21
Alpha Technologies Group, Inc
Subsidiaries of the Registrant
Wakefield Engineering, Inc. (Incorporated in Delaware)
Wakefield Extrusion, Inc. (Incorporated in California)
Lockhart Industries, Inc. (Incorporated in California)
Uni-Star Industries, Inc. (Incorporated in Delaware, does business as Microdot
Connectors)
Microdot Connectors Europe, Ltd (Organized in the United Kingdom)
Malco Technologies, Inc. (Incorporated in Delaware)
<PAGE>
EXHIBIT 23.1(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of this Form 10-K.
/s/ Arthur Andersen LLP
Houston, Texas
February 8, 1999
<PAGE>
EXHIBIT 23.1(b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report included in this Form 10-K, into the Company's Form S-
8 Registration Statements filed on January 29, 1987 (Reg. No. 33-11627);
September 28, 1987 (Reg. No. 33-17359); March 17, 1988 (Reg. No. 33-20706);
June 30, 1989 (Reg. No. 33-29636); June 23, 1992 (Reg. No. 33-48663); and
April 30, 1996 (Reg. No. 333-03001); and S-3 Registration Statement filed on
August 16, 1996 (Reg. No. 333-10311).
/s/ Arthur Andersen LLP
Houston, Texas
February 8, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AS OF OCTOBER 25, 1998 AND CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 25, 1998
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-25-1998
<PERIOD-START> OCT-27-1997
<PERIOD-END> OCT-25-1998
<CASH> 1,387
<SECURITIES> 0
<RECEIVABLES> 8,671
<ALLOWANCES> 524
<INVENTORY> 9,546
<CURRENT-ASSETS> 20,227
<PP&E> 21,360
<DEPRECIATION> 8,005
<TOTAL-ASSETS> 38,675
<CURRENT-LIABILITIES> 22,141
<BONDS> 0
238
0
<COMMON> 0
<OTHER-SE> 16,079
<TOTAL-LIABILITY-AND-EQUITY> 38,675
<SALES> 77,045
<TOTAL-REVENUES> 77,045
<CGS> 63,773
<TOTAL-COSTS> 63,773
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,011
<INCOME-PRETAX> (2,783)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,783)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,783)
<EPS-PRIMARY> (0.41)
<EPS-DILUTED> (0.41)
</TABLE>
