<PAGE>
Registration No. 333-47556
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Amendment No. 1
To
FORM S-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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Alpha Technologies Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 76-0079338
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
11990 San Vicente Boulevard, Suite 350
Los Angeles, CA 90049
(310) 566-4005
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
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Robert W. Forman, Esq.
Shapiro Forman & Allen LLP
380 Madison Avenue, 24th Floor
New York, NY 10017
(212) 972-4900
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
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Approximate date of commencement of proposed sale to public: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1), check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Title of each Class of Amount Maximum Maximum Amount of
Securities to be to be Offering Price Aggregate Registration
Registered Registered Per Share(1) Offering Price Fee
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<S> <C> <C> <C> <C>
Common Stock, $.03 par
value................. 270,946 $7.25 $1,964,358.50 $1,020.22
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</TABLE>
(1)Pursuant to Rule 457(c) of the Securities Act of 1933, the registration
fee was calculated using the high and low sales price of the common stock of
Alpha Technologies Group, Inc. as reported on the Nasdaq National Market on
October 4, 2000.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8 (a) of
the Securities Act OF 1933, as amended, or until this Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to Section 8 (a), may determine.
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<PAGE>
PROSPECTUS
270,946 Shares
Alpha Technologies Group, Inc.
Common Stock
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We are conducting a rights offering to our stockholders of 270,946 shares of
Common Stock. Under this offering, each stockholder of record as of the close
business on October 25, 2000 will receive one non-transferable subscription
right for each 25 shares of common stock held on October 25, 2000 to purchase
one share of our common stock at $7.25 per share. If you exercise all of your
subscription rights, you may also have the opportunity to purchase additional
shares at the same price.
Stockholders may exercise the subscription rights for a period beginning on
the date hereof and ending at 5 p.m., New York City time, on January 5, 2001.
The expiration date may be extended by the Company to January 15, 2001.
The subscription rights may not be sold or transferred. The subscription
rights will not be listed for trading on any stock exchange or trading market.
Two of our directors have advised us that they intend to exercise their
basic subscription privilege in full, and have further advised us that they
intend to exercise their over-subscription privileges for any and all shares of
common stock not purchased by other stockholders. Accordingly we expect to
receive gross proceeds of $1,964,358.50.
<TABLE>
<CAPTION>
Subscription Proceeds To
Price Our Company(1)
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<S> <C> <C>
Per Share.......................................... $ 7.25 $ 7.25
Total.............................................. $1,964,358.50 $1,964,358.50
</TABLE>
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(1) Before deducting expenses associated with this offering, which we shall
pay. We estimate that these expenses will total approximately $85,000.
Our common stock is quoted on the Nasdaq National Market System under the
trading symbol ATGI. On November 27, 2000, the closing price of a share of our
common stock on Nasdaq was $8.25.
Investing in our common stock involves risks. see "Risk Factors" beginning
on page 24.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
No person has been authorized to give any information or to make any
representations other than those contained in this prospectus, and, if given or
made, such information or representations must not be relied upon as having
been authorized by the Company or any other person. This prospectus does not
constitute an offer to sell or a solicitation of any offer to sell or
solicitation of an offer to buy such securities in any circumstances in which
such offer or solicitation is unlawful. Neither the delivery of this prospectus
nor any sale made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of the Company since
the date hereof or that the information contained herein is correct as of any
time subsequent to its date.
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The date of this Prospectus is November 30, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information on the Company................................................. 3
Our Company.......................................................................... 4
Recent Developments.................................................................. 4
Uncertainty of Forward-Looking Statements............................................ 4
Questions and Answers About the Rights Offering...................................... 5
Summary.............................................................................. 10
Selected Financial Data.............................................................. 13
Management Discussion and Analysis of Operations and Financial Condition............. 13
Pro Forma Financial Information...................................................... 20
Risk Factors......................................................................... 24
Use of Proceeds...................................................................... 26
Determination of Subscription Price.................................................. 26
Description of Capital Stock......................................................... 27
Price Range of Common Stock.......................................................... 28
The Rights Offering.................................................................. 29
Subscription Agent................................................................... 34
Plan of Distribution................................................................. 34
Information Agent.................................................................... 35
Legal Matters........................................................................ 35
Experts.............................................................................. 35
Indemnification of Directors and Officers............................................ 35
Index to Financial Statements........................................................ F-1
</TABLE>
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AVAILABLE INFORMATION ON THE COMPANY
We filed a registration statement on Form S-2 to register with the
Securities and Exchange Commission ("SEC") the shares of our common stock
offered hereby. This prospectus is a part of that registration statement. As
allowed by SEC rules, this prospectus does not contain all of the information
you can find in the registration statement or the exhibits to the registration
statement.
We file annual, quarterly and current reports and other information with the
SEC. You may read and copy any document we file with the SEC at its public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
You may call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Our SEC filings are also available to you free of charge at
the SEC's web site at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The
information incorporated by reference is considered to be part of this
prospectus, and information that we file later with the SEC will automatically
update and supersede the information in this prospectus.
We incorporate by reference the documents listed below and, until this
offering has been completed, any future filings we will make with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934:
1. Annual Report on Form 10-K for the year ended October 31, 1999;
2. Quarterly Reports on Form 10-Q for the quarters ended January 30,
2000, April 30, 2000 and July 30, 2000;
3. Current Report on Form 8-K dated July 28, 2000; and
4. Proxy statement on Schedule 14A for the 2000 Annual Meeting of
Shareholders dated March 6, 2000.
You may request free copies of these filings by writing or telephoning us at
the following address:
Chief Financial Officer
Alpha Technologies Group, Inc.
1155 Dairy Ashford, Suite 216
Houston, TX 77094
(281) 759-7740
You should rely only on the information incorporated by reference or
provided in this prospectus. We have authorized no one to provide you different
information. We are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the front of the
prospectus. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of the sale of our common stock.
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OUR COMPANY
Through our subsidiaries, we are one of the leading manufacturers of thermal
management products in the United States. Thermal management products,
principally heat sinks, are devices made out of 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 functioning of electronic
systems. Our thermal management products serve the microprocessor, computer,
automotive, telecommunication, industrial controls, transportation, power
supply, factory automation, consumer electronics, aerospace and the defense
industries. We conduct our thermal management business through several wholly
owned subsidiaries: Wakefield Engineering, Inc. ("Wakefield"), which includes
the Wakefield-Fall River (Fall River, MA) and Wakefield-Temecula (Temecula, CA)
divisions, Specialty Extrusion Corp. ("Specialty", formerly known as Wakefield
Extrusion Corp.) and Lockhart Industries, Inc. ("Lockhart").
We were incorporated as Synercom Technology, Inc., in Texas in 1969. We
changed the state of incorporation to Delaware in 1983 and in 1995, changed our
corporate name to Alpha Technologies Group, Inc. Our principal executive
offices are located at 11990 San Vicente Boulevard, Suite 350, Los Angeles,
California 90049, (310) 566-4005.
RECENT DEVELOPMENTS
We made several changes to our business recently. In July, 2000, we sold our
connector business (which was called Uni-Star Industries, Inc. and sold
products under the Microdot tradename) to a subsidiary of Tyco Electronics for
approximately $12,300,000. On November 17, 2000, we sold our custom design
subsystems operations, located near Philadelphia, PA for approximately
$2,200,000 in cash and a promissory note in the amount of $300,000 which is due
in three years, to a company formed by the person that was our general manager
of that facility.
As a result of the two transactions described above, we raised approximately
$13,500,000 (net of expenses) which we plan to use to expand our thermal
management business. In that connection, on September 18, 2000, we signed an
agreement to purchase the stock of National Northeast Corporation ("NNE"), a
leading manufacturer of aluminum extrusions and heat sinks, our principal
business. The purchase price for such acquisition is $49,900,000. To fund the
acquisition of NNE, we plan to enter into a loan agreement pursuant to which we
can borrow up to $50,000,000 from Union Bank of California and other banks in
its syndicate, and to use the proceeds of this offering and our cash on hand.
Immediately after the Closing of the NNE Transaction and this Offering, we
anticipate having approximately $10 million in cash on hand and/or availability
under the proposed bank agreement.
We believe the acquisition of NNE will bring new customers and products to
our business. In addition, we expect NNE's state of the art facility will
expand our capacity and extrusion capabilities. We believe this transaction is
an important step in our plans to focus our resources exclusively on building
our thermal management business. If for any reason we do not complete the NNE
Transaction, we will not complete this offering, and we will return any money
submitted by holders of rights.
We urge you to read the financial information about NNE and the pro forma
financial information of the Company which begin on page 20 of this Prospectus.
UNCERTAINTY OF FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. The words "believe,"
"expect," "anticipate," "intend," "estimate," and other expressions that are
predictions of or indicate future events and trends and that do not relate to
historical matters identify forward-looking statements. These statements
include statements regarding our intent, belief or current expectations. You
are cautioned that any forward-looking statements are not guarantees of future
performance and involve a number of risks and uncertainties that may cause our
actual results to differ materially from the results discussed in the forward-
looking statements. In addition to those
4
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factors discussed under "Risk Factors," other factors that could cause actual
results to differ materially from those indicated by the forward-looking
statements are:
. the impact of general economic conditions;
. industry conditions, including competition; and
. capital expenditure requirements;
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, expected or projected. The forward-looking statements
reflect our current views with respect to future events and are subject to
these and other risks, uncertainties and assumptions relating to our
operations, results of operations, growth strategy and liquidity. All
subsequent written and oral forward-looking statements attributable to us or
individuals acting on our behalf are expressly qualified in their entirety by
this paragraph. You should specifically consider the various factors identified
in this prospectus and the documents incorporated by reference herein which
could cause actual results to differ.
QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING
What Is a Rights Offering?
A rights offering is an opportunity for our stockholders to purchase
additional shares of common stock at a fixed price to be determined before the
rights offering begins and in an amount proportional to the stockholders'
existing interests. This rights offering enables our Company to raise
additional capital while enabling you to maintain your current percentage
ownership in our Company.
What Is a Subscription Right?
We are distributing to you at no charge, one subscription right for every 25
shares of common stock that you owned on October 25, 2000. We will not
distribute any fractional subscription rights, but will round the number of
subscription rights you receive down if the fraction is less than .5 and up if
the fraction is .5 or greater. Each subscription right entitles you to purchase
one share of common stock for $7.25. When you "exercise" a subscription right,
you choose to purchase the common stock that the subscription right entitles
you to purchase. You may exercise any number of your subscription rights, or
you may choose not to exercise any subscription rights.
What Is the Basic Subscription Privilege?
The basic subscription privilege of each subscription right entitles you to
purchase one share of our common stock at a subscription price of $7.25.
What Is the Over-subscription Privilege?
We do not expect that all of our stockholders will exercise all of their
basic subscription rights. By extending over-subscription privileges to our
stockholders, we are providing stockholders that exercise all of their basic
subscription privileges with the opportunity to purchase those shares that are
not purchased by other stockholders through the exercise of their basic
subscription privileges. The over-subscription privilege entitles you, if you
fully exercise your basic subscription privilege, to subscribe for additional
shares of common stock not acquired by other holders of rights at the same
subscription price of $7.25 per share.
5
<PAGE>
What Are the Limitations on the Over-subscription Privilege?
We will issue a maximum of 270,946 shares of common stock in this rights
offering. The number of shares available for over-subscription privileges will
be 270,946 minus the number of shares purchased upon exercise of all basic
subscription privileges. If sufficient shares are available, we will seek to
honor the over-subscription requests in full. If the over-subscription requests
exceed the number of shares available, we will allocate the available shares
among stockholders that are over-subscribed in proportion to the number of
shares purchased by those over-subscribing stockholders through the basic
subscription privilege. However, if your pro rata allocation exceeds the number
of shares you requested, you will receive only the number of shares that you
requested, and the remaining shares from your pro rata allocation will be
divided among other stockholders exercising their over-subscription privileges
that have subscribed for additional shares in proportion to the number of
shares purchased by that group of over-subscribing stockholders through the
basic subscription privilege.
Marshall D. Butler, a Director and a principal stockholder of the Company
and Lawrence Butler, Chairman, Chief Executive Officer, a Director and a
principal stockholder of the Company, have indicated that they intend to
purchase any shares that are unsubscribed. See "The Rights Offering--Over
Subscription Privilege" for a more detailed explanation of how we will make
this allocation.
Why Are We Engaging in a Rights Offering?
We are offering the subscription rights to our current stockholders to raise
approximately $2,000,000 in additional capital. Our proposed lenders have
required us to raise additional capital to complete the NNE Transaction.
Instead of selling additional shares of common stock to outside parties, our
Board of Directors has chosen to give you the opportunity to buy more shares
and provide us with additional capital. Of course, we cannot assure you that we
will not need to seek additional financing in the future. If we do not complete
the NNE Transaction, we will not complete this offering, and we will return any
money submitted by shareholders who exercise their rights.
How Many Shares May I Purchase?
You will receive one subscription right for every 25 shares of common stock
that you owned on October 25, 2000. We will not distribute fractional
subscription rights, but will round the number of subscription rights you
receive down to the nearest whole number if the fraction is less than .5 and up
to the nearest whole number if the fraction is .5 or greater. Each subscription
right entitles you to purchase one share of common stock for $7.25.
If you exercise all of the subscription rights that you receive, you may
have the opportunity to purchase additional shares of common stock. On the
accompanying rights exercise agreement, you may request to purchase as many
additional shares as you wish for $7.25 per share. We may honor all of the
over-subscription requests, but if not, you may not be able to purchase as many
shares as you requested on your rights exercise agreement.
How Did We Arrive at the Offering Price per Share?
Our Board of Directors considered several factors in determining the price
at which a share of common stock may be purchased in this rights offering.
These factors include the historic and current market price of the common
stock, our business prospects, our recent and anticipated operating results,
our need for capital, alternatives available to us for raising capital, the
amount of proceeds desired, the pricing of similar transactions, the liquidity
of our common stock, and the need to offer shares at a price that would be
attractive to our investors relative to the current trading price of our common
stock. We did not seek or obtain any opinion of financial advisors or
investment bankers in establishing the subscription price.
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How Do I Exercise My Subscription Rights?
You must properly complete the accompanying rights exercise agreement and
deliver it on to the Subscription Agent before 5 p.m., New York City time, on
January 5, 2001. The address for the Subscription Agent is on page 34. Your
rights exercise agreement must be accompanied by proper payment for each share
that you wish to purchase, including any shares you wish to purchase through
the over-subscription privilege.
What Forms and Payment Are Required to Purchase Shares?
You received along with this prospectus a rights exercise agreement and
instructions on how to purchase shares. You must properly fill out, execute and
deliver the rights exercise agreement along with full payment to American Stock
Transfer & Trust Company, the subscription agent, before the expiration date.
You may also use an alternate procedure called "Notice of Guaranteed Delivery,"
which allows an extra three days to deliver the rights exercise agreement if
full payment is received before the expiration date and a securities broker or
qualified financial institution signs the form to guarantee that the rights
exercise agreement will be timely delivered. See "The Rights Offering--Special
Procedure under Notice of Guaranteed Delivery' Form" on page 31 for further
information regarding this procedure.
What If a Broker, Bank or Other Nominee Is the Record Holder of My Common
Stock?
If you wish to exercise your rights and purchase our common stock, please
promptly contact the broker, bank or other company holding your common stock.
Your broker or other nominee record holder must exercise the rights on your
behalf for shares you wish to purchase or arrange for a rights exercise
agreement to be issued in your name so that you may directly exercise the
rights.
How Long Will the Rights Offering Last?
You will be able to exercise your subscription rights only during a limited
period. IF YOU DO NOT EXERCISE YOUR SUBSCRIPTION RIGHTS BEFORE 5 P.M., NEW YORK
CITY TIME, ON JANUARY 5, 2001, YOUR SUBSCRIPTION RIGHTS WILL EXPIRE. We may, in
our discretion, extend the rights offering until January 15, 2001. In addition,
if the commencement of the rights offering is delayed, the expiration date may
similarly be extended.
After I Exercise My Subscription Rights, Can I Change My Mind?
No. Once you send in your rights exercise agreement and payment, you cannot
revoke the exercise of your subscription rights, even if you later learn
information about us that you consider to be unfavorable. You should not
exercise your subscription rights unless you are certain that you wish to
purchase additional shares of our common stock at a price of $7.25 per share.
Is Exercising My Subscription Rights Risky?
The exercise of your subscription rights involves certain risks. Exercising
your subscription rights means buying additional shares of our common stock,
and you should carefully consider this investment as you would view other
equity investments. Among other things, you should carefully consider the risks
described under the heading "Risk Factors."
What Happens If I Choose Not to Exercise My Subscription Rights?
You will retain your current number of shares of common stock in our company
even if you do not exercise your subscription rights. However, if other
stockholders exercise their subscription rights and you do not exercise your
basic subscription privilege in full, your percentage ownership interest in our
Company will diminish, and your relative voting rights and economic interests
will be diluted.
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Can I Sell or Give Away My Subscription Rights?
No.
Must I Exercise My Subscription Rights?
No.
What Are the Federal Income Tax Consequences of Exercising My Subscription
Rights?
The receipt and exercise of your subscription rights are intended to be
nontaxable. You should seek specific tax advice from your personal tax advisor.
When Will I Receive My New Shares?
If you purchase shares of common stock through this rights offering, you
will receive certificates representing those shares as soon as practicable
after the expiration date.
Can We Cancel the Rights Offering?
Yes. Our Board of Directors may cancel the rights offering at any time on or
before the expiration date, for any reason. If the NNE Transaction does not
close, we will cancel the Rights Offering. If we cancel this rights offering,
we will promptly refund any money that we received from stockholders, without
interest.
How Much Money Will the Company Receive from the Rights Offering?
Our gross proceeds from the rights offering will depend on the number of
shares that are purchased. If we sell all 270,946 shares that may be purchased
upon exercise of the rights offered by this prospectus, then we will receive
proceeds of $1,964,358.50, before deducting expenses payable by us. We estimate
that those expenses will be approximately $85,000. Since two of our principal
stockholders and directors have advised us that they intend to exercise their
basic subscription privileges in full and further intend to exercise their
respective over-subscription privilege to purchase any shares that are
unsubscribed for, we expect to receive proceeds of $1,964,358.50 from the
rights offering, before deducting expenses.
How Will We Use the Proceeds from the Rights Offering?
We will use the proceeds from this rights offering to pay a portion of the
purchase price for the NNE Transaction.
How Many Shares Will Be Outstanding after the Rights Offering?
There were 6,790,823 shares of common stock outstanding as of October 31,
2000. The number of shares of common stock that will be outstanding after this
rights offering will depend on the number of shares that are purchased. If we
sell all of the shares offered by this prospectus, then we will issue 270,946
new shares of common stock during this rights offering, representing a 4%
increase in our outstanding common stock. In that case, we will have 7,061,769
shares of common stock outstanding after this rights offering.
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What If I Have More Questions?
If you have any questions or requests for assistance concerning how to
exercise your rights or if you need additional copies of the offering
documents, please call or write American Stock Transfer & Trust Company at:
59 Maiden Lane
New York, NY 10038
800-937-5449
You will not pay any fees for your questions or requests. If you wish to
call us for additional copies of the offering documents, please call MacKenzie
Partners, Inc., our Information Agent for the Rights Offering at (212) 929-
5500.
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SUMMARY
THIS SUMMARY HIGHLIGHTS SOME OF THE INFORMATION PROVIDED ELSEWHERE IN THIS
PROSPECTUS. THE SUMMARY IS NOT COMPLETE AND MAY NOT PROVIDE ALL INFORMATION YOU
SHOULD CONSIDER BEFORE DECIDING WHETHER OR NOT TO EXERCISE THE RIGHTS. YOU
SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY. CERTAIN PORTIONS OF THIS
PROSPECTUS, SUCH AS "RISK FACTORS," ARE NOT SUMMARIZED BELOW. SEE "RISK
FACTORS" BEGINNING ON PAGE 24.
<TABLE>
<C> <S>
Securities offered and purchase We are offering for purchase 270,946
price.............................. shares of our common stock. The purchase
price of the common stock is $7.25 per
share.
Stockholders receiving rights....... Only stockholders who hold shares of our
common stock on the record date will
receive rights.
Record date......................... October 25, 2000
Expiration date and time............ The rights expire at 5:00 p.m., New York
City time, on January 5, 2001, unless
properly exercised before that time. We
may extend the expiration date upon
notice to the exercise agent to a date
not later than January 15, 2001. If you
do not exercise you rights before the
expiration date, as it may be extended,
your rights will be void and you will not
be able to exercise your rights in the
future.
Number of Rights.................... You will receive one right for each 25
shares of common stock you own on the
record date.
Rights.............................. Each right entitles you to purchase one
share of common stock for $7.25 per
share.
Unsubscribed shares................. Stockholders who exercise rights will be
given additional rights to purchase
unsubscribed shares on a pro rata basis.
Marshall D. Butler and Lawrence Butler,
two of the principal stockholders and
directors of the Company, have indicated
that they intend to purchase any shares
that are unsubscribed for.
Use of proceeds..................... We will use the net proceeds of this
offering to help fund a small portion of
the purchase price for the NNE
Transaction.
Nontransferability of Rights........ The rights are nontransferable.
No revocation....................... If you exercise any rights, you are not
allowed to revoke or change the exercise
or request a refund of monies paid.
Subscription Agent.................. American Stock Transfer & Trust Company
Information Agent................... MacKenzie Partners, Inc.
Procedure for exercising rights..... To exercise rights, you must complete the
rights exercise agreement and deliver it
to the Subscription Agent with full
payment for the stock you elect to
purchase. The Subscription
</TABLE>
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<TABLE>
<C> <S>
Agent must receive the proper forms and
payments on or before the expiration
date. You may deliver the documents and
payments by mail or commercial courier.
If you use regular mail for this purpose,
we recommend using insured, registered
mail. You may use an alternative
"Guaranteed Delivery Procedure" if you
are unable to deliver the rights exercise
agreement before the expiration date.
There are, however, certain requirements
of this procedure. Please see "The Rights
Offering--Special Procedure under "Notice
of Guaranteed Delivery' Form" on page 31
for further information on this
procedure.
Payment adjustments................. If you send a payment that is
insufficient to purchase the number of
shares requested, or if the number of
shares is not specified in the forms you
return, the Subscription Agent will apply
the payment received to exercise rights
to the extent of the payment. If your
payment exceeds the purchase price for
the full exercise of rights, the
Subscription Agent will refund that
excess as soon as practicable. We will
not pay any interest on any payments
received in this offering.
Nominee accounts.................... If you wish to purchase shares in this
offering and your common stock is held by
a securities broker, bank, trust company
or other nominee, you should promptly
contact those record holders and request
that they exercise rights on your behalf.
You may also contact the nominee and
request that the nominee send a separate
rights exercise agreement to you.
If you are a record holder who wishes an
institution such as a broker or bank to
exercise your rights for you, you should
contact that institution promptly to
arrange that method of exercise.
You are responsible for the payment of
any fees that brokers or other persons
holding your common stock may charge.
U.S. income tax consequences........ For United States federal income tax
purposes, we believe that holders of our
common stock will not recognize taxable
income upon the receipt or exercise of
the rights. If you sell the stock you
acquire upon the exercise of your rights,
you will recognize taxable income equal
to the excess of the amount realized over
your basis in the stock. You should
consult your own tax advisor concerning
the tax consequences of this offering
under your own tax situation. For further
information on tax consequences, please
see "The Rights Offering--Certain Federal
Income Tax Consequences" beginning on
page 33.
Stock Certificates.................. We will deliver stock certificates
representing shares of our common stock
to those who purchase shares by
exercising rights as soon as practicable
after the expiration date.
Amendment, extension and We will hold open our rights offering
termination........................ until the expiration date. We may extend
the expiration date. We may amend,
withdraw or terminate our rights offering
at our discretion.
</TABLE>
11
<PAGE>
SELECTED FINANCIAL DATA.
On July 28, 2000, the Company sold (the "Uni-Star Sale") its connector
business, Uni-Star Industries, Inc. ("Uni-Star") to Tyco Electronics
Corporation and Tyco Electronics UK Ltd. The Company received $12,300,000 in
cash, subject to reduction if Uni-Star's Net Assets (as defined in the Stock
Purchase Agreement) are determined to be less than $3,986,000 as of the closing
date. The sale resulted in a gain of approximately $6,478,000, net of state
income tax expense.
On November 17, 2000, the Company sold its subsystems business (Malco
Technologies, Inc.) to a Company formed by the person that was the general
manager of that business. The Company received $2,200,000 in cash and a three
year promissory note in the amount of $300,000. In June, 1997, the Company sold
its hermetic connector business.
Accordingly, the results of operations in the following Selected Financial
Data do not include any information with respect to the businesses sold. In the
consolidated financial statements for the Company which are included in this
document, these businesses are accounted for as discontinued operations.
<TABLE>
<CAPTION>
Nine Months Ended For the Years Ended
-------------------- -----------------------------------------------------------
July 30, August 1, October 31, October 25, October 26, October 27, October 29,
2000 1999 1999 1998 1997 1996 1995
(Restated) (Restated) (Restated) (Restated) (Restated) (Restated)
--------- ---------- ----------- ----------- ----------- ----------- -----------
(In Thousands Except Share and per Share Data)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS(1)
Sales................... $ 43,486 $ 35,652 $ 48,429 $ 58,495 $ 58,294 $ 48,980 $ 43,865
Cost of sales........... 30,683 26,944 36,121 50,360 47,355 38,878 32,905
Gross profit............ 12,803 8,708 12,308 8,135 10,939 10,102 10,960
Income (loss) before
discontinued
operations(2).......... 5,459 1,484 2,656 (4,345) (2,934) (806) 2,247
Income (loss) per share
from continuing
operations:
Basic.................. $ 0.81 $ 0.21 $ 0.38 $ (0.64) $ (0.44) $ (0.13) $ 0.37
Diluted................ $ 0.75 $ 0.21 $ 0.37 $ (0.64) $ (0.44) $ (0.13) $ 0.34
Shares used:
Basic.................. 6,699,610 6,937,127 6,935,778 6,753,752 6,682,106 6,277,585 5,984,584
Diluted................ 7,320,075 7,062,364 7,134,382 6,753,752 6,682,106 6,277,585 6,605,147
BALANCE SHEET DATA(1)
Total assets............ $ 44,362 $ 31,954 $ 32,962 $ 36,125 $ 39,036 $ 42,812 $ 38,340
Stockholders' equity.... $ 31,832 $ 19,057 $ 18,502 $ 16,317 $ 18,801 $ 22,117 $ 18,763
</TABLE>
--------
(1) See Consolidated Financial Statements and Notes to Consolidated Financial
Statements on pages F-1 through F-21.
(2) See "Discontinued Operation" and "Subsequent Events--Discontinued
Operations" in Notes to Consolidated Financial Statements.
12
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
The results of operations have been restated to reflect the results of
operations from Uni-Star, the hermetic connector business and Malco
Technologies, Inc. as discontinued operations. See introductory paragraphs in
"Selected Financial Data". Unless otherwise mentioned, the following discussion
reflects results from continuing operations which includes the thermal
management business and Alpha corporate expenses.
Nine Months to Nine Months Comparison
Net Income. Net income for the first nine months of fiscal 2000 was
$12,880,000 which includes $5,459,000 in income from continuing operations, a
$6,478,000 gain from the sale of the Company's connector business and $943,000
in income from discontinued operations. Net income for the first nine months of
fiscal 1999 was $2,567,000 including $1,484,000 from continuing operations and
$1,083,000 from discontinued operations.
Income from Continuing Operations. The increase in income from continuing
operations is primarily due to the increase in sales and gross margin from the
Company's thermal management business.
Sales. The Company's sales for the first nine months of fiscal 2000
increased 22.0% to $43,486,000 from $35,652,000 for the same period of fiscal
1999. Management believes that the increase in sales is due to the Company's
ability to better serve its thermal management customers including improvements
in customer service, shorter lead times, and better on-time delivery.
Gross Profit. The Company's gross profit as a percentage of total revenues
("gross profit percentage") for the first nine months of fiscal 2000 was 29.4%
compared to 24.4% for the 1999 period. This increase was due to the effects of
programs to forgo lower margin sales, enhance productivity and lower costs. In
addition, the Company has continued to focus on improving manufacturing
efficiencies.
Selling, General and Administrative Expense. Selling, general and
administrative expenses for the nine months of fiscal 2000 were $6,250,000, or
14.3% of sales, compared to $5,971,000, or 16.7% of sales, for the 1999 period
which included $180,000 accrued in the first quarter of 1999 for the
cancellation of a contractual obligation. SG&A expenses (excluding the
additional accrual in 1999), as a percentage of sales, decreased due to higher
sales volume without a proportional increase in SG&A expenses in the first
three quarters of 2000 as compared to the prior year.
Interest and Other Income (Net). Interest expense was $556,000 and $716,000
for the first nine months of fiscal 2000 and 1999, respectively. This decrease
was due to a decrease in the average outstanding borrowing base partially
offset by an increase in the effective interest rate paid on outstanding debt.
The effective interest rate increased due to the market increase in the base
rate used to calculate the interest charged on the Company's debt (See
"Liquidity and Capital Resources" below). The Company recorded other income
(net) for the first nine months of fiscal 2000 of $149,000 which was primarily
a result of a $160,000 reversal of the accrual expensed in prior periods for
environmental litigation related to the Company's Lockhart facility. In April
2000, the parties reached a settlement under which the suit was dismissed.
Provision for Income Tax. Income from continuing operations reflects a
$50,000 state income tax provision. The Company's tax provision is not at
statutory rates due to the Company's utilization of its net operating loss
carryforwards. The Company expects to record a net tax provision of between 15-
20% in the fourth quarter of fiscal 2000 and at the full statutory rate of
between 36-40% for its fiscal 2001.
Gain on sale of discontinued operation. On July 28, 2000, as a result of the
Uni-Star Sale discussed previously, the Company recorded a $6,478,000 gain, net
of income taxes.
13
<PAGE>
Fiscal Year 1999 versus Fiscal Year 1998 Comparison
Net Income/Loss. The Company reported net income for fiscal 1999 of
$4,154,000 which included $2,656,000 related to continuing operations and
$1,498,000 related to discontinued operations. For fiscal 1998, the Company
reported a net loss of $2,783,000 which included a net loss of $4,345,000
related to continuing operations and net income of $1,562,000 related to
discontinued operations.
The net loss reported for 1998 included $99,000 of net charges for
restructuring and other non-recurring costs, 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 stamping
product line. The additional charges recorded in fiscal 1998 are detailed
further below. The improvement in the net results is primarily the result of
improved gross profit and control of operating expenses. See "Gross Profit,
Research and Development and Selling, General and Administrative Expense"
below.
Net income (loss) from Continuing Operations. Net income from continuing
operations for fiscal 1999, which includes results from the thermal management
business and Alpha corporate expenses, was $2,656,000 compared to a net loss of
$4,345,000 for the 1998 period. The loss in fiscal 1998 included 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. Results from operations
improved primarily due to an increase in gross profit margin and a decrease in
operating expenses resulting from the changes implemented at the end of fiscal
1998.
Sales. Sales decreased to $48,429,000 for fiscal 1999 from $58,495,000 for
fiscal 1998. The decrease in sales primarily resulted from the Company's
decision to no longer pursue certain low margin sales opportunities in thermal
management. Consequently, the Company focused its efforts on serving thermal
management customers who typically purchase highly customized products,
including products serving the personal computer industry. These customers
typically utilize the Company's expertise in developing solutions to their
thermal management problems.
Gross Profit. The Company's overall gross profit as a percentage of total
revenues ("gross profit percentage") for fiscal 1999 was 25.4% and 13.9% for
fiscal 1998. Excluding the aforementioned additional inventory reserves
recorded in fiscal 1998 and the write off of toolings, the Company's gross
profit percentage was 16.0% for fiscal 1998. The increase in the gross profit
percentage was due to the effects of programs to forego lower margin sales,
enhance productivity and lower costs. During the fourth quarter of fiscal 1998,
the Company implemented cost reduction measures, primarily a reduction in
workforce, to bring expenses in line with current sales levels. In addition,
the Company increased its focus on manufacturing efficiencies.
Research and Development Expense. Research and development expenses for
fiscal 1999 were $738,000, or 1.5% of sales, compared to $1,903,000, or 3.2% of
sales, for fiscal 1998. The reduction in research and development expenses
resulted from the Company's decision to primarily focus its research and
development efforts on solving customer's current thermal management problems
rather than the development of next generation solutions.
Selling, General and Administrative Expense. Selling, general and
administrative expenses were $8,035,000, or 16.6% of sales. This compares to
$9,660,000, or 16.5% of sales for the prior year period. The $1,625,000
decrease in SG&A expenses for fiscal 1999, compared to the same period of 1998,
is attributable to a reduction in operating expenses, primarily workforce
reductions which occurred during the fourth quarter of fiscal 1998.
Restructuring and Other Expenses. For fiscal 1998, the Company recorded a
credit of $99,000, in net restructuring and other expenses which include
$263,000 in downsizing severance payments and the net reversal of $362,000
accrued in connection with the consolidation of the thermal management
operations.
14
<PAGE>
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.
Interest and Other Income (Net). Interest expense was $898,000 and $970,000
for fiscal 1999 and 1998, respectively. The decrease in interest expense is due
to the decrease in the average borrowing base partially offset by an increase
in the average interest rate paid on outstanding debt.
Fiscal Year 1998 versus Fiscal Year 1997 Comparison
Net Income/Loss. For fiscal 1998, the Company reported a net loss of
$2,783,000 which included a net loss of $4,345,000 related to continuing
operations and net income of $1,562,000 relating to discontinued operations.
The net loss reported for 1998 included $99,000 of net charges for
restructuring and other non-recurring costs, 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 stamping
product line. This compares to net loss for the 1997 fiscal year of $3,352,000
which included (i) a net loss of $2,934,000 from continuing operations,
inclusive of charges for restructuring and other non recurring costs of
$2,208,000 and a charge for additional inventory reserves of $588,000; (ii) a
gain of $610,000 from the sale of its hermetic connector business; and (iii) a
net loss of $1,028,000 related to discontinued operations.
Net income/loss from continuing operations. 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.
The net restructuring and other costs incurred in fiscal 1998 include
$263,000 in reduction in workforce severance payments 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 $2,208,000 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) $180,000 related to
downsizing.
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 canceled. 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
and, since implemented, has not experienced any material loss. 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.
The results of operations, excluding the aforementioned charges, decreased
primarily due to a reduction in the gross profit margin, which is discussed
below.
Sales. The Company's 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
PGC product sales was due to increased competition from Asian manufacturers
resulting in lower quantities and prices. During the last quarter of fiscal
15
<PAGE>
1998, the Company implemented cost reduction measures, primarily a reduction in
workforce, to bring expenses in line with current thermal management sales
levels.
Gross Profit. The Company's gross profit as a percentage of total revenues
("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.
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 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.
Restructuring and Other Expenses. For fiscal 1998, the Company recorded a
credit of $99,000, in net restructuring and other expenses. The restructuring
costs incurred in fiscal 1998 include $263,000 in downsizing severance payments
and the net reversal of $362,000 accrued in connection with the consolidation
of the thermal management operations.
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 $2,208,000, which consisted of $2,028,000 related to the
consolidation of the thermal management operations and $180,000 related to
management changes and downsizing.
Interest and Other Income (Net). Interest income, which was $35,000 in
fiscal 1998 and $124,000 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 $970,000
and $1,003,000 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.
Gain on Sale of 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. No
contingent payment was due to the Company. The Company recognized a gain on the
sale of $610,000 during fiscal 1997.
16
<PAGE>
Income Taxes
On October 31, 1999, the Company had, for tax purposes, remaining NOL
Carryforwards of approximately $16,776,000 available to offset future taxable
income, approximately $288,000 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 2002 to 2018, the investment tax credit and
research and development tax credit carryforwards will expire from 2002 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 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 "Income Taxes"
in Notes to Consolidated Financial Statements.
Liquidity and Capital Resources
At July 30, 2000
On July 30, 2000, the Company had cash of approximately $12,492,000 compared
to $233,000 on October 31, 1999. For the nine months ended July 30, 2000,
$5,216,000 in cash was provided by operating activities and $12,300,000 was
provided from the sale of the Company's connector business. During the first
nine months of fiscal 2000, the Company used $1,367,000 in investing activities
for capital equipment purchases and will spend between $1,500,000 to $2,000,000
in the fourth quarter to improve manufacturing capabilities, add capacity and
to refurbish and upgrade existing machinery. The Company used $4,109,000 to
reduce debt during first nine months of fiscal 2000.
Effective April 16, 1999, the Company and its subsidiaries (hereinafter
referred to as "Borrowers") became parties to a loan and security agreement
(the "Agreement") with a commercial lender. The Agreement provides for
revolving loans of up to $10,500,000, a $5,400,000 term note payable monthly
over five years, and an equipment acquisition facility of up to $3,000,000. The
advances on the revolving loans are based on the eligible accounts receivable
and inventories and the advances on the equipment acquisition facility may be
used only for the purpose of funding capital equipment purchases by the
Borrowers. The maturity date of the Agreement is April 15, 2004. Upon closing
of the NNE Transaction, the Company expects to replace this facility. See
discussion below.
On July 30, 2000, there was no outstanding balance on the revolving credit
facility. Interest accrues on the revolving credit facility at the prime rate
announced by First Union National Bank plus .25% (9.75% per annum on July 30,
2000). There is an unused line fee equal to .5% per annum on the difference
between $10,500,000 and the average daily outstanding principal balance of
Revolving Loans during each month payable monthly in arrears on the first day
of each month. The $5,400,000 term note accrues interest at the prime rate
announced by First Union National Bank plus .25% (9.75% per annum on July 30,
2000) and is payable in fifty-nine (59) equal monthly installments of $90,000
beginning April 30, 1999 and a final installment equal to all unpaid principal
on March 31, 2004, together, in each instance, with interest thereon to the
date of payment. On July 30, 2000, $3,550,000 was outstanding on the term loan
and there were no borrowings on the equipment acquisition facility. In
connection with the sale of Uni-Star and the release of Uni-Star as a borrower
under the credit facilities, on July 28, 2000, the Company made a $500,000
payment on the term loan. The obligations under the Agreement are secured by a
first lien on and assignment of all of the assets of the Borrowers which in
aggregate total $44,362,000 on July 30, 2000.
In connection with the NNE Transaction, the Company proposes to enter into a
loan agreement with Union Bank of California and other financial institutions,
which will be part of a syndicate put together by Union Bank, to borrow up to
$50,000,000 of which $35,000,000 will be a five year Term Loan and up to
$15,000,000 of which will be a revolving facility on which advances are based
upon accounts receivable. This loan will replace the credit facility entered
into on April 16, 1999. Upon closing of the NNE transaction and
17
<PAGE>
related loan agreement and the payoff of the Company's existing credit
facility, the Company will incur an extraordinary charge due to the early
extinguishment of debt of approximately $388,000, net of tax.
Working capital (which excludes amounts due under the revolving credit
facility) on July 30, 2000 was $21,197,000 compared to $11,353,000 on October
31, 1999. The increase in working capital during the first nine months of
fiscal 2000 is primarily due to proceeds derived from the sale of the Company's
connector business. The Company believes its currently available cash,
anticipated cash flow from operations and availability under its credit
facility is sufficient to fund its operations in the near-term.
At October 31, 1999
On October 31, 1999, the Company had cash of approximately $233,000 compared
to $880,000 on October 25, 1998. For the fiscal year ended October 31, 1999,
$6,547,000 was provided by operating activities primarily from net income. Cash
provided by operations includes a $1,920,000 decrease in inventory, a
$1,074,000 decrease in accounts payable and a $696,000 decrease in other
liabilities. During fiscal 1999, $883,000 was used in investing activities
including capital equipment purchases of $986,000 which were made to improve
manufacturing capabilities and to refurbish and upgrade existing machinery. The
Company used $6,311,000 in financing activities in fiscal year 1999 to reduce
debt by $4,315,000, to fund debt issue costs of $393,000 and to repurchase
385,800 shares of the Company's common stock for $1,637,000.
Effective April 16, 1999, the Company and its subsidiaries (hereinafter
referred to as "Borrowers") became parties to a loan and security agreement
(the "Agreement") with a commercial lender. The Agreement provides for
revolving loans of up to $10,500,000, a $5,400,000 term note payable monthly
over five years, and an equipment acquisition facility of up to $1,000,000 for
fiscal 1999. An additional $2,000,000 of Equipment Loans will be made available
to Borrowers if the Borrower's earnings before provision for income taxes,
excluding all extraordinary and nonrecurring items, equals or exceeds $1.00 for
the fiscal year ending October 31, 1999, or for any fiscal year thereafter. The
advances on the revolving loans are based on the eligible accounts receivable
and inventories and the advances on the equipment acquisition facility may be
used only for the purpose of funding capital equipment purchases by the
Borrowers. The maturity date of the Agreement is April 15, 2004.
On October 31, 1999, $2,799,000 was outstanding on the revolving credit
facility with interest accruing at the prime rate announced by First Union
National Bank plus .5% (8.75% per annum on October 31, 1999). There is an
unused line fee equal to .5% per annum on the difference between $10,500,000
and the average daily outstanding principal balance of Revolving Loans during
each month payable monthly in arrears on the first day of each month. The
$5,400,000 term note accrues interest at the prime rate announced by First
Union National Bank plus .5% (8.75% per annum on October 31, 1999) and is
payable in fifty-nine (59) equal monthly installments of $90,000 beginning
April 30, 1999 and a final installment equal to all unpaid principal on March
31, 2004, together, in each instance, with interest thereon to the date of
payment. On October 31, 1999, $4,860,000 was outstanding on the term loan and
no borrowings on the equipment acquisition facility. The obligations under the
Agreement are secured by a first lien on and assignment of all of the assets of
the Borrowers which in aggregate total $34,849,000 on October 31, 1999.
The Company believes that its currently available cash, anticipated cash
flow from operations and availability under credit facilities is sufficient to
fund its operations in the near-term.
Anticipated Liquidity at Closing of Offering
The Company has approximately $15 million of cash on hand as of the date
hereof and expects to raise approximately $2 million in this Offering. Under
its proposed agreement with Union Bank, it intends to borrow $35 million under
a term loan facility and $5 million under a revolving facility at the closing
of the NNE Transaction. As of such closing, the Company expects to have the
ability to borrow an additional $10 million. The Company anticipates that it
will need approximately $55.3 million to consummate the NNE Transaction
18
<PAGE>
for the purchase price (including fees and expenses) and to retire the
Company's existing term loan. Immediately after the closing, the Company
expects to have approximately $10 million in cash and/or borrowing
availability. Management believes that such cash and borrowing availability is
sufficient to fund the Company's operations following closing.
Quantitative and Qualitative Disclosures About Market Risk
In April 1999, the Company and its subsidiaries entered into a loan and
security agreement with a commercial lender. Currently, interest accrues at the
prime rate announced by First Union National Bank plus .5% (8.75% per annum on
October 31, 1999). Based on the results of operations experienced in fiscal
1999, effective February 1, 2000, interest will accrue at the prime rate
announced by First Union National Bank plus .25%. The average interest rate
experienced on outstanding debt subsequent to this agreement was 8.75%. The
Company is not currently engaged in any derivative financial instrument to
manage its interest rate risk.
19
<PAGE>
PRO FORMA FINANCIAL INFORMATION
Alpha Technologies Group, Inc. Pro Forma Financial Statements
The results of operations for the Company's connector business, which was
sold on July 28, 2000, and its subsystems business, which was sold on November
17, 2000, are not reflected in the accompanying pro forma consolidated
financial statements since these businesses are classified as discontinued
operations. Previously, these businesses were reported as the "Connector
Segment" and "Subsystems Segment" for reporting purposes.
On September 18, 2000, the Company signed a definitive agreement to purchase
the stock of National Northeast Corporation ("NNE"). The purchase price for all
of the stock and the repayment of NNE debt is $49,900,000.
The unaudited pro forma consolidated balance sheet as of July 30, 2000 gives
effect to the purchase of NNE and the sale of the Company's sub-systems
business as if both had occurred on July 30, 2000. The unaudited pro forma
consolidated statements of operations for the fiscal year ended October 31,
1999 and for the nine months ended July 30, 2000 assumes that the purchase of
NNE and the sale of the connector business and subsystems business occurred on
October 25, 1998. The unaudited pro forma financial information presented
herein does not purport to represent what Alpha's actual results of operations
would have been had the transactions occurred on those dates nor does it
project Alpha's results of operations for any future period.
The unaudited pro forma consolidated balance sheet of Alpha as of July 30,
2000 has been derived from the unaudited historical financial statements of
Alpha as of July 30, 2000 and of NNE as of June 30, 2000. The unaudited pro
forma consolidated statement of operations for the nine months ended July 30,
2000 has been derived from the unaudited historical financial statements of
Alpha as of July 30, 2000 and of NNE for the six months ended June 30, 2000 and
the three months ended December 31, 1999.
The unaudited pro forma consolidated statement of operations for the fiscal
year ended October 31, 1999 has been derived from the audited financial
statements of Alpha for the fiscal year ended October 31, 1999 and the audited
financial statements of NNE for the fiscal year ended December 31, 1999.
The unaudited pro forma financial statements contain certain adjustments
that are directly attributable to the sale of the Company's connector and
subsystems businesses and the purchase of NNE. The unaudited pro forma
consolidated statements of operations do not include any adjustments related to
potential savings from synergies that the Company expects to result from the
acquisition of NNE.
A preliminary allocation of the purchase price has been made to major
categories of assets and liabilities in the Pro Forma Financial Statements
based on available information. The actual allocation of purchase price and the
resulting effect on income from operations may differ significantly from the
pro forma amounts included. These pro forma adjustments represent Alpha's
preliminary determination of purchase accounting adjustments and are based upon
available information and certain assumptions that the Company believes to be
reasonable. Consequently, the amounts reflected in the Pro Forma Financial
Statements are subject to change, and the final amounts may differ
substantially.
20
<PAGE>
PRO FORMA FINANCIAL INFORMATION
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
Pro Forma Consolidated Balance Sheet--July 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Adjustments
-----------------------
Alpha National
Restated Northeast
Historical Corporation (a) Other Pro Forma
---------- --------------- ------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash.................... $12,492 -- (12,000)(b) $ 492
Accounts receivable,
net.................... 9,461 5,582 15,043
Inventory, net.......... 6,289 5,636 11,925
Net assets of
discontinued
operation.............. 1,947 -- (1,947)(e) --
Prepaid expenses and
other.................. 939 214 1,000 (c) 2,153
------- ------- ------- -------
Total current assets.. 31,128 11,432 (12,947) 29,613
Property and Equipment, at
cost:
Manufacturing equipment,
leasehold improvements,
furniture, fixtures and
other.................. 19,532 25,748 (7,160)(b) 38,120
Less accumulated
depreciation........... 10,279 7,601 (7,601)(b) 10,279
------- ------- ------- -------
Total property and
equipment, net....... 9,253 18,147 441 27,841
Goodwill, net............. 1,747 7,700 18,384 (b) 27,831
Other assets, net......... 2,234 10 (10)(b) 2,234
------- ------- ------- -------
Total Assets.......... $44,362 $37,289 $ 5,868 $87,519
======= ======= ======= =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable,
trade.................. $ 5,519 $ 5,129 $10,648
Accrued compensation and
related benefits....... 1,617 225 1,842
Other accrued
liabilities............ 1,715 933 (933)(b) 1,715
Current portion--debt... 1,080 4,597 323 (b&c) 6,000
------- ------- ------- -------
Total current
liabilities.......... 9,931 10,884 (610) 20,205
Revolving Credit
Facility................. -- 4,588 (c) 4,588
Long-term debt............ 2,470 8,570 17,960 (c) 29,000
Other long-term
liabilities.............. 129 1,816 (1,816)(b) 129
Stockholders' Equity...... 31,832 16,019 (14,254)(b,c&d) 33,597
------- ------- ------- -------
Total Liabilities and
Stockholders'
Equity............... $44,362 $37,289 $ 5,868 $87,519
======= ======= ======= =======
</TABLE>
--------
(a) National Northeast Balance Sheet as of June 30, 2000
(b) To record the purchase of National Northeast
(c) To reflect the proceeds of the new credit facilities and payoff of current
financing, including the early termination fee.
(d) To record the proceeds from the issuance of common stock pursuant to this
rights offering
(e) This business was sold on November 17, 2000, the cash proceeds of $2.2m are
reflected in the above proforma.
21
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended October 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Adjustments
-----------------------
Alpha National
Restated Northeast Pro
Historical Corporation (a) Other Forma
---------- --------------- ------- -------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
SALES....................... $48,429 $30,477 $78,906
COST OF SALES............... 36,121 25,793 (425)(b) 61,489
------- ------- ------- -------
Gross profit.............. 12,308 4,684 425 17,417
OPERATING EXPENSES:
Research and development.. 738 453 1,191
Selling, general and
administrative........... 8,035 3,263 680 (c&d) 11,978
------- ------- ------- -------
Total operating
expenses............... 8,773 3,716 680 13,169
------- ------- ------- -------
OPERATING INCOME (LOSS)..... 3,535 968 (255) 4,248
INTEREST INCOME (EXPENSE),
net........................ (898) (1,169) (2,397)(e) (4,464)
OTHER INCOME (EXPENSE),
net........................ 19 (12) 7
------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME
TAXES...................... 2,656 (213) (2,652) (209)
PROVISION (BENEFIT) FOR
INCOME TAXES............... -- (64) 64 (f) --
------- ------- ------- -------
INCOME (LOSS) FROM
CONTINUING OPERATIONS...... $ 2,656 $ (149) $(2,716) $ (209)
======= ======= ======= =======
NET (LOSS) INCOME
(CONTINUING OPERATIONS) PER
COMMON SHARE
BASIC..................... $ 0.38 $ (0.03)
------- -------
DILUTED................... $ 0.37 $ (0.03)
------- -------
SHARES USED IN PER SHARE
COMPUTATION PER SHARE
BASIC..................... 6,936 271 (g) 7,207
------- -------
DILUTED................... 7,134 271 (g) 7,405
------- -------
</TABLE>
--------
(a) To record the historical statement of income for NNE for its year ended
December 31, 1999.
(b) Adjusted to reduce the depreciation expense based on the difference between
the expense recorded by NNE and the expense computed based on the purchase
price allocated to manufacturing equipment.
(c) To reverse the corporate administration charge from prior owner of NNE
($255)
(d) To record additional amortization of goodwill as a result of purchase of
NNE ($935), goodwill is amortized over 20 years.
(e) Adjusted to increase interest expense on funds used to acquire NNE, net of
proceeds from the sale of the connector and subsystems businesses and net
of the proceeds from this offering.
(f) To reverse tax benefit from NNE loss
(g) To reflect impact of stock issuance pursuant to this offering.
22
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months Ended July 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Adjustments
-----------------------
National
Alpha Northeast Pro
Historical Corporation (a) Other Forma
---------- --------------- ------- -------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
SALES....................... $43,486 $26,174 $69,660
COST OF SALES............... 30,683 21,380 (695)(b) 51,368
------- ------- ------- -------
Gross profit.............. 12,803 4,794 695 18,292
OPERATING EXPENSES:
Research and development.. 637 271 908
Selling, general and
administrative........... 6,250 2,716 466 (c&d) 9,432
------- ------- ------- -------
Total operating
expenses............... 6,887 2,987 466 10,340
------- ------- ------- -------
OPERATING INCOME (LOSS)..... 5,916 1,807 229 7,952
INTEREST INCOME (EXPENSE),
net........................ (556) (995) (2,058)(e) (3,609)
OTHER INCOME (EXPENSE),
net........................ 149 (7) 142
------- ------- ------- -------
INCOME BEFORE INCOME TAXES.. 5,509 805 (1,829) 4,485
PROVISION FOR INCOME TAXES.. 50 351 (401)(f) --
------- ------- ------- -------
INCOME FROM CONTINUING
OPERATIONS................. $ 5,459 $ 454 $(1,428) $ 4,485
======= ======= ======= =======
NET INCOME (CONTINUING
OPERATIONS) PER COMMON
SHARE
BASIC..................... $ 0.81 $ 0.64
------- -------
DILUTED................... $ 0.75 $ 0.59
------- -------
SHARES USED IN PER SHARE
COMPUTATION PER SHARE
BASIC..................... 6,700 271 (g) 6,971
------- -------
DILUTED................... 7,320 271 (g) 7,591
------- -------
</TABLE>
--------
(a) To record the historical statement of income for the nine months ended June
30, 2000.
(b) Adjusted to reduce the depreciation expense based on the difference between
the expense recorded by NNE and the expense computed based on the purchase
price allocated to manufacturing equipment.
(c) To reverse the corporate administration charge from prior owner of NNE
($253)
(d) To record additional amortization of goodwill as a result of purchase of
NNE ($719) goodwill is amortized over 20 years.
(e) Adjusted to increase interest expense on funds used to acquire NNE, net of
proceeds from the sale of the connector and subsystems businesses and net
of the proceeds from this offering.
(f) To reverse tax provision due to Alpha's NOL use.
(g) To reflect impact of stock issuance pursuant to this offering.
23
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following risk factors
in addition to other information set forth in this Prospectus before making a
decision to purchase any of the securities offered hereby.
Fluctuations in Operating Results
The Company's operating results are affected by a number of factors, many of
which are outside the Company's control. These factors have in the past and
could in the future materially and adversely affect net sales, gross margins
and profitability. They include: the volume and timing of orders received;
competitive pricing pressures; changes in the mix of products sold; potential
cancellation or rescheduling of orders; changes in the level of customer
inventories of the Company's products; the timing of new product and
manufacturing process technology introductions by the Company or its
competitors; availability of manufacturing capacity; and market acceptance of
enhanced products introduced by the Company. Additionally, the Company's growth
and results of operations are currently being, have in the past been and could
in the future be, adversely affected by downturns in the industries it serves.
Dependence Upon Key Members of Management
The success of the Company is largely dependent on the efforts of Lawrence
Butler, Chairman and Chief Executive Officer and Robert Streiter, President and
Chief Operating Officer of the Company, respectively. The loss of their
services could have a material adverse effect on the Company's business and
prospects. The Company entered into employment agreements with Lawrence Butler
and with Robert Streiter. We have a key man life insurance policy on the life
of Robert Streiter for $5,000,000.
Integration of NNE
We must integrate the operations of NNE with our existing operations in
order to enhance revenue, realize cost savings and achieve anticipated
operating efficiencies. The integration of the management, personnel,
operations and facilities of NNE could involve unforeseen difficulties. These
difficulties could disrupt our ongoing business, distract our management and
employees, and increase our expenses, which could have a material adverse
effect on our business, financial condition and operating results.
Quality Control Standards
The Company's products are incorporated into high technology products
manufactured by original equipment manufacturers ("OEMs") and, accordingly,
must meet exacting specifications. A substantial portion of the Company's 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 intensive in-plant inspections of its manufacturing processes,
equipment and quality control systems. There can be no assurance that the
Company will be able to meet future customer quality requirements.
Competition
Supplying components for use in electronic products is highly competitive.
Competition is based on many factors, including product quality and
reliability, timely delivery, price and ability to develop customer-specific
products solutions to thermal management. Many companies offer products and
services similar to those offered by the Company. The Company's principal
competitor is Aavid Thermal Technologies, Inc. There can be no assurance that
competitors will not develop products that are superior to the Company's
products. Further, there can be no assurance that the Company will not
experience additional price competition, and that such competition may not
adversely affect the Company's financial position and results of operations.
24
<PAGE>
Technological Changes
The markets for the Company's products are characterized by technological
advances, changes in customer requirements, product introductions and evolving
industry standards. The Company believes that its future success will depend,
in part, on its ability to continue to develop and market products and product
enhancements cost-effectively, which will require continued expenditures for
product engineering, sales and marketing. There can be no assurance that the
Company will be able to modify its products to meet its customers' needs or
that its markets will accept the Company's product offerings.
Raw Materials Cost
The principal raw material used in thermal management products is aluminum.
Raw materials represent a significant portion of the cost of the Company's
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. The Company does not
believe its risk in respect to raw materials price volatility is significant
since the raw materials for an order are usually purchased within a short
period of time after the order is accepted.
Control by Management and Certain Directors
Members of Management and the Board of Directors, individually and through
partnerships controlled by certain members of Management and the Board,
assuming all shares offered hereby are sold, will continue to beneficially own
at least 33% of the currently outstanding shares of Common Stock. By virtue of
such ownership and their positions with the Company, Marshall D. Butler and
Lawrence Butler may have the practical ability to determine the election of all
directors and control the outcome of substantially all matters submitted to the
Company's stockholders. Such concentration of ownership could have the effect
of making it more difficult for a third party to acquire, or discourage a third
party from seeking to acquire, control of the Company.
Environmental Considerations
The Company's manufacturing operations are subject to environmental laws and
regulations which govern waste water discharges, air emissions and the handling
and disposal of solid and hazardous wastes and the remediation of the
contamination associated with the disposal of such wastes.
Potential Anti-Takeover Effects of Delaware Law; Possible Issuances of
Preferred Stock
Certain provisions of the Delaware law could delay, impede or make more
difficult a merger, tender offer or proxy contest involving the Company, even
if such events could be beneficial to the interests of the stockholders. Such
provisions could limit the price that certain investors might be willing to pay
in the future for shares of Common Stock. In addition, shares of preferred
stock can be issued by the Board of Directors without stockholder approval on
such terms as the Board may determine. The rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any preferred stock that may be issued in the future. Moreover,
although the ability to issue preferred stock may provide flexibility in
connection with possible acquisitions and other corporate purposes, such
issuance may make it more difficult for a third party to acquire, or may
discourage a third party from acquiring, a majority of the voting stock of the
Company.
Dilution; Discount from Market Price
Holders who do not exercise their Subscription Privileges in full will
realize a dilution in their percentage voting interest and ownership interest
in future net earnings, if any, of the Company to the extent that Rights
25
<PAGE>
are exercised by other Holders. Marshall D. Butler and Larry Butler have each
informed the Company that he intends to exercise his Basic Subscription
Privilege and to fully exercise the Oversubscription Privilege. Assuming such
individuals fully subscribe to their Basic Subscription Privilege, no other
Rights were exercised, and they fully subscribe to the Oversubscription
Privilege, Management (including Messrs. Butler) would collectively own
approximately 36% of the Company's voting common stock. In addition, the
Subscription Price represents discount of approximately 14% from the closing
price of the common stock of the Company on November 27, 2000 and could result
in a reduction in the market price for the Company's common stock.
Possible Extension of Expiration Date
The Company has reserved the right to extend the Expiration Date to as late
as January 15, 2001. Funds deposited in payment of the Subscription Price may
not be withdrawn and no interest will be paid thereon to Holders.
USE OF PROCEEDS
The net proceeds from the Rights Offering are estimated to be approximately
$1,900,000 after the payment of expenses associated with the Offering and
assuming the Rights Offering is fully subscribed. Such proceeds will be used to
pay a small portion of the purchase price for the NNE Transaction.
DETERMINATION OF SUBSCRIPTION PRICE
In determining the price at which a share of common stock may be purchased
in this rights offering, the Board of Directors considered several factors
including the historic and current market price of the common stock, our
business prospects, our recent and anticipated operating results, our need for
capital, alternatives available to us for raising capital, the amount of
proceeds desired, the pricing of similar transactions, the liquidity of our
common stock and the need to offer shares at a price that would be attractive
to our investors relative to the current trading price of our common stock. We
did not seek or obtain any opinion of financial advisors or investment bankers
in establishing the subscription price.
On November 27, 2000, the last reported sales price of our common stock on
Nasdaq was $8.25 per share. We do not intend to list the rights on Nasdaq or
any exchange.
26
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Common Stock
The authorized capital stock of the Company includes 17,000,000 shares of
common stock, par value $.03 per share, and 180,000 shares of Preferred Stock,
par value $100 per share. Holders of common stock have no preemptive rights.
The outstanding shares of common stock are fully paid and non-assessable.
Holders of common stock are entitled to dividends when, as and if declared by
the Board of Directors of the Company out of any funds legally available to the
Company for that purpose.
Holders of common stock are entitled to one vote per share held of record
with respect to all matters submitted to a vote of the stockholders. There is
no cumulative voting for the election of directors, who are elected annually to
one-year terms. Directors are elected by a plurality; all other matters require
the affirmative vote of a majority of the votes cast the meeting.
Preferred Stock
The Company is authorized to issue 180,000 shares of Preferred Stock, par
value $100 per share, and to establish and issue shares of Preferred Stock in
series and to fix, determine and vary the voting rights, designations,
preferences, qualifications, privileges, options, conversion rights and other
special rights of each series of Preferred Stock. As of the date of this
Prospectus no shares of Preferred Stock were issued and outstanding.
Certain Provisions of Delaware Law
The Company is subject to Section 203 of Delaware General Corporation Law,
which prohibits a Delaware corporation from engaging in a wide range of
specified transactions with any interested stockholder, defined to include,
among others, any person or entity who in the previous three years obtained 15%
or more of any class or series of stock entitled to vote in the election of
directors, unless, among other exceptions, the transaction is approved by (i)
the Board of Directors prior to the date the interested stockholder obtained
such status or (ii) the holders of two-thirds of the outstanding shares of each
class or series owned by the interested stockholder.
27
<PAGE>
PRICE RANGE OF COMMON STOCK
The following table sets forth the high and low sales prices of the
Company's common stock as reported on the NASDAQ for each full quarterly period
within the Company's three most recent fiscal years.
<TABLE>
<CAPTION>
High Low
-------- -------
<S> <C> <C>
1998
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
<CAPTION>
High Low
-------- -------
<S> <C> <C>
1999
First Quarter.................................................. 2 1 1/4
Second Quarter................................................. 3 1/2 1 11/16
Third Quarter.................................................. 5 3 5/16
Fourth Quarter................................................. 5 3/4 3 7/8
<CAPTION>
High Low
-------- -------
<S> <C> <C>
2000
First Quarter.................................................. 7 5 1/4
Second Quarter................................................. 8 5 3/8
Third Quarter.................................................. 16 6 15/16
Fourth Quarter................................................. 16 13/16 9 3/16
</TABLE>
Holders of Record
On October 25, 2000, there were approximately 158 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 1998, 1999 and fiscal year 2000. The Board of Directors of the Company
does not intend to pay cash dividends on its common stock in the foreseeable
future.
28
<PAGE>
THE RIGHTS OFFERING
Terms of the Rights Offering
The terms of the rights offering are as follows:
. Only holders of record of our common stock at the close of business on
the record date may exercise rights. You are a record holder only if your
name is registered as a common stockholder as of the record date.
. The record date is October 25, 2000.
. We are conducting this rights offering of 270,946 shares of our common
stock. If, as of October 25, 2000, you held shares of our common stock,
we have granted you one non-transferable right for each 25 shares of
common stock held on the record date. We will not distribute any
fractional subscription rights but will round the number of subscription
rights you receive down if the fraction is less than .5 and up if the
fraction is .5 or greater. Each right will entitle you to purchase one
share of common stock for $7.25 per share.
. If your common stock is held in a brokerage, bank or other custodial or
nominee account, you should promptly send the rights exercise agreement
to your broker or other person holding your stock to exercise your
rights. Your broker or other person holding your stock is the record
holder and will have to act on your behalf for you to exercise your
rights. We have asked the brokers and other nominee holders of our common
stock to contact you to obtain your rights exercise agreement concerning
the rights you are entitled to exercise.
. We will not pay interest on funds you deliver to exercise your rights,
regardless of whether the funds are used to purchase common stock or are
returned for any reason.
American Stock Transfer & Trust Company is acting as the subscription agent
for this offering under an agreement with us.
All rights exercise agreements, payments of the purchase price, nominee
holder certifications, and notices of guaranteed delivery must be delivered to
the Subscription Agent as follows:
American Stock Transfer & Trust Co.
59 Maiden Lane
New York, NY 10038
The Subscription Agent's facsimile number (for eligible institutions only)
is (718) 234-5001. The telephone number for confirmation of receipt of
facsimiles only is (800) 937-5449.
We will pay the fees and expenses of the Subscription Agent. We have also
agreed to indemnify the Subscription Agent against certain liabilities in
connection with this offering.
The Rights
You will receive one right for each 25 shares of common stock that you own.
We will not distribute any fractional subscription rights but will round the
number of subscription rights you receive down if the fraction is less than .5
and up if the fraction is .5 or greater. A separate certificate evidencing the
rights will not be delivered to you.
As of October 25, 2000 we had outstanding 6,773,659 shares of our common
stock. Because we have granted one right for each 25 shares, we granted in the
aggregate 270,946 rights.
Stockholders who exercise rights will be given additional rights to purchase
unsubscribed shares.
29
<PAGE>
We have sent you a rights exercise agreement along with this prospectus and
related instructions to exercise your rights. To exercise your rights, you must
fill out and sign the rights exercise agreement and timely deliver it along
with full payment for the common stock you wish to purchase to the Subscription
Agent.
A depository bank, trust company or securities broker or dealer that is a
record holder for more than one beneficial owner of common stock may divide or
consolidate rights exercise agreements to represent shares held on the record
date by their beneficial owners upon properly notifying the Subscription Agent.
Purchase Price
The purchase price for the common stock in the offering is $7.25 per share,
payable in cash.
When the Rights Offering Expires
The rights expire at 5:00 p.m., New York City time, on January 5, 2001
unless properly exercised before that time. We may extend the expiration date
upon notice to the exercise agent to a date not later than January 15, 2001.
After the expiration date, no one can exercise rights.
To exercise rights in a timely manner, the Subscription Agent must actually
receive before the expiration date your properly executed and completed rights
exercise agreement (or a form of "Notice of Guaranteed Delivery," see "The
Rights Offering--Special Procedure under "Notice of Guaranteed Delivery' Form"
on page 31), together with full payment for all shares you wish to purchase.
How to Exercise Your Rights
You should read carefully the rights exercise agreement and other forms and
related instructions that accompany this prospectus. You should call promptly
the Subscription Agent with any questions you may have regarding how to
exercise your rights.
You may exercise your rights by delivering to the Subscription Agent at the
address specified in this prospectus and in the instructions accompanying this
prospectus before the expiration time:
. the properly completed and executed rights exercise agreement that
evidence your rights, and
. payment of the purchase price in full for each share of common stock you
wish to purchase.
Please do not send the rights exercise agreement or related forms to us.
Please send the properly completed and executed rights exercise agreement with
full payment to the Subscription Agent.
How You Should Pay When You Exercise Your Rights
To timely exercise your rights, the Subscription Agent must receive the
purchase price before the expiration time in the form of:
. a certified or cashier's check or bank draft drawn upon a U.S. bank, or a
U.S. postal money order, payable to the American Stock Transfer & Trust
Company;
. a personal check that must have cleared payment;
. a wire transfer of funds to the account maintained by the Subscription
Agent for this offering at:
Chase Manhattan Bank
ABA # 021000021
Account # 323-83-8685
For the Account of: American Stock Transfer & Trust Company
As Agent for Alpha Technologies Group, Inc.
30
<PAGE>
Funds paid by uncertified personal check may take at least five business
days to clear. Thus, if you pay the purchase price by means of an uncertified
personal check, you should make payment sufficiently in advance of the
expiration date to ensure that your check actually clears and the Subscription
Agent receives your payment before that time. We are not responsible for any
delay in payment by you. We recommend that you consider payment by means of a
certified or cashier's check, money order or wire transfer of funds.
Special Procedure under "Notice of Guaranteed Delivery" Form
If you wish to exercise your rights but are not sure whether the
Subscription Agent will actually receive your executed rights exercise
agreement before the expiration time, as an alternative, you may exercise your
rights by causing all of the following to occur within the time frame noted:
1) The Subscription Agent must receive full payment for all shares you
desire to purchase before the expiration time.
2) The Subscription Agent must receive a properly executed "Notice of
Guaranteed Delivery" substantially in the form we distributed to you
along with this prospectus before the expiration time.
3) Both you and one of the following must execute the "Notice of Guaranteed
Delivery": a member firm of a registered national securities exchange, a
NASD member, a commercial bank or trust company having an office or
correspondent in the United States, or other eligible guarantor
institution qualified under a guarantee program acceptable to the
Subscription Agent. The cosigning institution must guarantee in the
notice of guaranteed delivery that the rights exercise agreement will be
delivered to the Subscription Agent within three NYSE trading days after
the date of the notice. You must also provide in the notice other
relevant details concerning your exercise of rights.
4) The Subscription Agent must receive your properly completed and executed
rights exercise agreement with any required signature guarantee within
three NYSE trading days after the date of the related notice of
guaranteed delivery.
You may deliver a notice of guaranteed delivery to the Subscription Agent in
the same manner as the rights exercise agreement at the address set forth on
page 34 or by facsimile transmission (718) 234-5001. To confirm facsimile
deliveries, please call 800-937-5449.
You may obtain additional copies of the form of notice of guaranteed
delivery upon request from the Subscription Agent, whose address and telephone
number is set forth on page 34.
What Happens If You Provide Incomplete Forms or Make an Insufficient or Excess
Payment
If you do not indicate the number of rights being exercised, or do not
forward sufficient payment for the number of rights that you indicate are being
exercised, then we are entitled to accept the subscription forms and payment
for the maximum number of rights that may be exercised based on the actual
payment delivered. We will return any payment not applied to the purchase of
shares under these procedures to those who made these payments as soon as
practicable by mail.
What Happens If You Exercise Less than All of Your Rights
If you subscribe for fewer than all of the shares represented by your
rights, your remaining rights are nontransferable and can be issued to our
other common stockholders. You may not sell your remaining rights.
Instructions to Nominee Holders
If you are a broker, trustee or depository for securities or other nominee
holder of common stock for beneficial owners of the common stock, we request
you contact the beneficial owners as soon as possible to obtain instructions
and related certifications concerning their rights. We have included along with
this
31
<PAGE>
prospectus a suggested form of letter of instructions from nominee holders to
beneficial owners. Our request is discussed further in that form.
If instructed by beneficial owners, nominee holders should complete
appropriate rights exercise agreements on behalf of those owners and submit the
agreement on a timely basis to the Subscription Agent with the proper payment.
Nominee holders bear the risk of loss on delivery of rights exercise agreements
and payments. Nominee holders bear all risk of the method of delivery to the
Subscription Agent of rights exercise agreement and payments of the purchase
price.
If you send rights exercise agreements and payments by mail, we urge you to
send these by registered mail, properly insured, with return receipt requested,
and to allow a sufficient number of days to ensure delivery to the Subscription
Agent and clearance of payment before the expiration time.
Because uncertified personal checks may take at least five business days to
clear, we strongly urge you to pay, or arrange for payment, by means of
certified or cashier's check, money order or wire transfer of funds.
We Resolve All Procedural and Other Questions
We will resolve all questions concerning the timeliness, validity, form and
eligibility of any exercise of rights. Our resolution will be final and
binding. We may in our sole discretion waive any defect or irregularity, or
permit a defect or irregularity to be corrected within such time as we may
determine, or reject the purported exercise of any right because of any defect
or irregularity.
We will not consider rights exercise agreements as received or accepted
until we have waived or you have cured all irregularities within the time
period we determine in our sole discretion. Neither we nor the Subscription
Agent have any duty to notify you of any defect or irregularity in your
submission of rights exercise agreements or any other required documents.
Neither we nor the Subscription Agent will incur any liability for failure to
notify you of any defect or irregularity. We reserve the right to reject your
exercise of rights if it does not comply with the terms of this offering or is
not in proper form.
If You Have Any Questions or Need Assistance Concerning Exercising Your Rights
If you have any questions or requests for assistance concerning the method
of exercising your rights, or if you need additional copies of this prospectus,
forms of instructions or the notice of guaranteed delivery, please contact the
Subscription Agent at American Stock Transfer & Trust Co., 59 Maiden Lane, New
York, NY 10038 telephone: (800) 937-5449. You will not pay any fees for your
questions or requests for assistance or documents. You may contact MacKenzie
Partners, Inc. our Information Agent for this Rights Offering, at 156 Fifth
Avenue, New York, NY 10010 telephone (212) 929-5500 for additional copies, free
of charge, of this prospectus, forms of instructions or the notice of
guaranteed delivery. You may contact us at Alpha Technologies Group, Inc., 1155
Dairy Ashford, Suite 216, Houston, TX 77094 telephone: (281)759-7740,
attention: Chief Financial Officer.
You Cannot Revoke Your Exercise of Rights
Once you have exercised your rights, you may not revoke or change your
exercise.
Procedures for Nominees Who Are DTC Participants
We anticipate that you may exercise your rights through the facilities of
the Depository Trust Company, generally known as "DTC."
32
<PAGE>
We Will Not Make Adjustments to Outstanding Stock Options
We will not, as a result of this offering, adjust the option price of any
option reserved for issuance under our stock option plan for employees and
other eligible participants.
Amendment, Extension and Withdrawal
We may amend, withdraw or terminate this offering at any time at our
discretion. We may extend the expiration date.
Issuance of Stock Certificates
Separate certificates evidencing the rights will not be issued. We will
issue stock certificates for common stock purchased in this offering as soon as
practicable after the expiration date. The Subscription Agent will deliver
subscription payments to us only after the offering is completed and we have
issued stock certificates to those who exercised rights.
Until the Subscription Agent receives proper notice from us to issue stock
certificates to stockholders, the Subscription Agent has no obligation to issue
such stock certificates. Thereafter, the Subscription Agent will prepare for
issuance such stock certificates as promptly as practicable.
If you exercise rights, you will have no rights as a stockholder of those
shares you purchased until we issue you stock certificates representing the
shares you purchased. We will register shares purchased by your exercise of
rights in the name of the person exercising the rights.
Certain Federal Income Tax Consequences
General. This section discusses certain federal income tax consequences of
this Offering to beneficial owners of our common stock upon distribution of the
rights. This discussion is based on the Internal Revenue Code of 1986, as
amended, (the "Code"), the Treasury regulations promulgated thereunder,
judicial authority, and current administrative rulings and practice, all of
which are subject to change prospectively or retroactively.
This discussion is limited to U.S. taxpayers who hold our common stock and
any common stock acquired upon exercise of the rights as capital assets
(generally property held for investment within the meaning of Section 1221 of
the Code). This discussion does not include any tax consequences under state,
local and foreign law. Financial institutions, broker-dealers, nominee holders
of our stock, life insurance companies, tax-exempt organizations and possibly
other types of taxpayers may be subject to special provisions of the tax law or
subject to other tax considerations not discussed below.
Distribution of Rights to Holders of The Common Stock. You should not be
required to recognize taxable income upon the receipt of the rights.
Tax Basis of Rights Distributed to the Holders of the Common Stock. The tax
basis of rights distributed to a holder of the common stock should be zero,
unless either (i) the fair market value of the rights, on the date of
distribution, is 15% or more of the fair market value (on the date of
distribution) of the common stock held as of the time or (ii) the holder
elects, with his or her federal income tax return for this year, to allocate
the tax basis of such common stock to the rights. In such case, the tax basis
in the common stock should be allocated between the stock and the rights in
proportion to the fair market value of each as of the date of the rights
distribution.
YOU ARE URGED TO CONSULT WITH YOUR PERSONAL TAX ADVISOR REGARDING THE PROPER
TREATMENT OF THE RECEIPT OF, AND YOUR TAX BASIS IN, THE RIGHTS YOU RECEIVE.
33
<PAGE>
Exercise of The Rights; Basis And Holding Period of The Common Stock. You
should not recognize any gain or loss upon your exercise of rights. Your basis
in the common stock acquired through your exercise of rights should be equal to
the sum of the purchase price for the common stock acquired by exercise of the
rights and your basis in the rights (if any). The holding period for this
common stock should begin on the date you exercise the rights.
Expiration of Rights. If the rights we are distributing to you expire
unexercised, you will not recognize any gain or loss, the stock rights will be
treated as having no basis, and no adjustment will be made to the basis of your
common stock.
Sale of Shares. If you exercise rights and acquire shares of our common
stock, you generally should recognize gain or loss upon the sale of these
shares in an amount equal to the difference between the amount realized and
your basis in the shares. Gain or loss from an asset held more than one year
will generally be taxable as long-term capital gain or loss.
THIS SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY. YOU SHOULD CONSULT
YOUR OWN TAX ADVISORS REGARDING THE CONSEQUENCES OF THE RIGHTS OFFERING TO YOUR
PARTICULAR TAX SITUATION, INCLUDING STATE, FOREIGN AND LOCAL INCOME AND OTHER
TAX LAWS.
SUBSCRIPTION AGENT
The Company has appointed American Stock Transfer & Trust Company as
Subscription Agent for the Rights Offering. The Subscription Agent's address,
which is the address to which the Rights Exercise Agreement and payment of the
Subscription Price should be delivered, as well as the address to which Notice
of Guaranteed Delivery must be delivered, and the Subscription Agent's
telephone number and facsimile number, are:
American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
800-937-5449
The Company will pay the fees and expenses of the Subscription Agent, and
has also agreed to indemnify it from any liability which it may incur in
connection with the Rights Offering.
PLAN OF DISTRIBUTION
The Common stock offered hereby is being offered by the Company pursuant to
the issuance of Rights directly to holders of shares of common stock on the
Record Date. Certain employees, officers or directors of the Company may
solicit responses from Holders to the Rights Offering, but such individuals
will not receive any commissions or compensation for such services other than
their normal employment compensation. MacKenzie Partners, Inc., the Information
Agent for this Rights Offering, may solicit responses from the Holders. The
Company will pay the fees and expenses of the Information Agent, and has also
agreed to indemnify it from any liability which it may incur in connection with
the Rights Offering.
The Company intends to distribute Rights and copies of this Prospectus to
stockholders of record on the Record Date promptly following the effective date
of the Registration Statement of which this Prospectus forms a part.
Holders who desire to subscribe for the purchase of shares of common stock
in the Rights Offering are urged to complete, date and sign the Rights Exercise
Agreement and return it to the Subscription Agent on or before the Expiration
Date, together with payment in full of shares should be directed to the
Subscription Agent.
34
<PAGE>
INFORMATION AGENT
The Company has appointed MacKenzie Partners, Inc. as Information Agent for
the Rights Offering. Any questions or requests for additional copies of this
Prospectus, the Instructions or the Notice of Guaranteed Delivery may be
directed to the Information Agent at the telephone number and address below.
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, NY 10010
(212) 929-5500
The Company will pay the fees and expenses of the Information Agent and has
also agreed to indemnify the Information Agent from certain liabilities in
connection with the Rights Offering.
LEGAL MATTERS
The validity of the authorization and issuance of the securities offered
hereby are being passed upon for Company by Shapiro Forman & Allen LLP, 380
Madison Avenue, 24th Floor, New York, New York 10017. Shapiro Forman & Allen
has from time to time performed and may in the future perform legal services
for certain shareholders of the Company.
EXPERTS
The consolidated financial statements of Alpha Technologies Group, Inc. for
October 31, 1999 and the period then ended and the financial statements of
National Northeast Corporation for December 31, 1999 and 1998 and for each of
the years in the three year period ended December 31, 1999 appearing in this
Prospectus have been audited by Grant Thornton LLP independent accountants as
set forth in their reports thereon appearing elsewhere herein, and are included
in reliance on the reports of Grant Thornton LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Alpha Technologies Group, Inc. for
October 25, 1998 and October 26, 1997 and the periods then ended appearing in
this Prospectus have been audited by Arthur Andersen LLP independent
accountants as set forth in their report thereon appearing elsewhere herein,
and are included in reliance on the report of Arthur Andersen LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
INDEMNIFICATION OF DIRECTORS AND OFFICERS --
DISCLOSURE OF COMMISSION'S POSITION ON INDEMNIFICATION
Under provisions of the Company's Certificate of Incorporation, any person
made a party to any lawsuit by reason of being a director or officer of the
Company, or any parent or subsidiary thereof, may be indemnified by the Company
to the full extent authorized by the General Corporation Law of the State of
Delaware.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable.
35
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC., AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
For Alpha Technologies Group, Inc.:
Report of Independent Public Accountants (Grant Thornton)................. F-2
Report of Independent Public Accountants (Arthur Andersen)................ F-3
Consolidated Balance Sheets--July 30, 2000 (unaudited), October 31, 1999
(restated) and October 25, 1998 (restated)............................... F-4
Consolidated Statements of Operations--For the nine months ended July 30,
2000 (unaudited) and August 1, 1999 (unaudited and restated) and for the
fiscal years ended October 31, 1999, October 25, 1998 and October 26,
1997 (all restated) ..................................................... F-5
Consolidated Statements of Stockholders' Equity--For the nine months ended
July 30, 2000 (unaudited) and for the fiscal years ended October 31,
1999, October 25, 1998 and October 26, 1997.............................. F-6
Consolidated Statements of Cash Flows--For the nine months ended July 30,
2000 (unaudited) and August 1, 1999 (unaudited and restated) and for the
fiscal years ended October 31, 1999, October 25, 1998 and October 26,
1997 (all restated)...................................................... F-7
Notes to Consolidated Financial Statements (restated)..................... F-8
For National Northeast Corporation:
Report of Independent Public Accountants (Grant Thornton)................. F-22
Balance Sheets--June 30, 2000 (unaudited), December 31, 1999 and 1998..... F-23
Statements of Income--For the six months ended June 30, 2000 and 1999
(unaudited) for the years ended December 31, 1999, 1998 and 1997......... F-25
Statements of Stockholders' Equity--For the six months ended June 30, 2000
(unaudited) and for the years ended December 31, 1999, 1998 and 1997..... F-26
Statements of Cash Flows--For the six months ended June 30, 2000 and 1999
(unaudited) for the years ended December 31, 1999, 1998 and 1997......... F-27
Notes to Financial Statements............................................. F-28
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Alpha Technologies Group, Inc.
We have audited the accompanying consolidated balance sheet of Alpha
Technologies Group, Inc. (a Delaware corporation) and Subsidiaries as of
October 31, 1999 and the related consolidated statements of operations,
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 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 31, 1999, and the
consolidated results of their operations and their consolidated cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States.
We have also audited Schedule II for the year ended October 31, 1999. In our
opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
As described in Note 17, the accompanying consolidated balance sheet as of
October 31, 1999 and the related consolidated statements of operations,
stockholders' equity and cash flows for the year then ended have been restated.
/s/ Grant Thornton LLP
-------------------------------
Houston, Texas
December 15, 1999, except for Note 17 as to
which the date is July 28, 2000
F-2
<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 sheet of Alpha
Technologies Group, Inc. (a Delaware corporation) and subsidiaries as of
October 25, 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the two 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 25, 1998, and
the results of their operations and their cash flows for each of the two 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 17 as to which the
date is July 28, 2000
F-3
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and per Share Data)
<TABLE>
<CAPTION>
July 30, October 31, October 25,
2000 1999 1998
----------- ----------- -----------
(Unaudited) (Restated) (Restated)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................ $12,492 $ 233 $ 880
Accounts receivable, net of allowance of
$261, $298 and $410..................... 9,461 7,092 6,608
Inventories, net......................... 6,289 5,004 5,735
Net assets of discontinued operations.... 1,947 6,061 6,924
Prepaid expenses......................... 939 700 436
------- -------- --------
Total current assets................... 31,128 19,090 20,583
PROPERTY AND EQUIPMENT, net................ 9,253 9,698 11,177
GOODWILL, net.............................. 1,747 1,883 2,039
OTHER ASSETS, net.......................... 2,234 2,291 2,326
------- -------- --------
TOTAL ASSETS........................... $44,362 $ 32,962 $ 36,125
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade.................. $ 5,519 $ 3,836 $ 4,910
Accrued compensation and related
benefits................................ 1,617 1,325 1,037
Current portion of other liabilities..... 1,715 1,496 1,720
Current portion of long-term debt........ 1,080 1,080 961
------- -------- --------
Total current liabilities.............. 9,931 7,737 8,628
REVOLVING CREDIT FACILITY.................. -- 2,799 8,180
LONG-TERM DEBT............................. 2,470 3,780 2,833
OTHER LIABILITIES.......................... 129 144 167
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 8,095,899 at
July 30, 2000; 7,940,838 at October 25,
1998; and 7,959,007 at October 31, 1999... 243 239 238
Additional paid-in capital................. 44,252 43,828 43,781
Retained deficit........................... (6,859) (19,739) (23,893)
Accumulated other comprehensive income
(loss).................................... -- (22) (91)
Treasury stock, at cost (1,394,353 common
shares at July 30, 2000 and October 31,
1999 and 1,008,553 at October 25, 1998)... (5,804) (5,804) (3,718)
------- -------- --------
Total stockholders' equity............. 31,832 18,502 16,317
------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY.............................. $44,362 $ 32,962 $ 36,125
======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Shares and per Share Data)
<TABLE>
<CAPTION>
For the Nine Months For the Years Ended
---------------------- -----------------------------------
July 30, August 1, October 31, October 25, October 26,
2000 1999 1999 1998 1997
----------- ---------- ----------- ----------- -----------
(Unaudited
and
(Unaudited) Restated) (Restated) (Restated) (Restated)
<S> <C> <C> <C> <C> <C>
SALES................... $ 43,486 $ 35,652 $ 48,429 $ 58,495 $ 58,294
COST OF SALES........... 30,683 26,944 36,121 50,360 47,355
--------- --------- --------- --------- ---------
Gross profit.......... 12,803 8,708 12,308 8,135 10,939
OPERATING EXPENSES
Research and
development.......... 637 559 738 1,903 1,506
Selling, general and
administrative....... 6,250 5,971 8,035 9,660 9,336
Restructuring and
other................ -- -- -- (99) 2,208
--------- --------- --------- --------- ---------
Total operating
expenses........... 6,887 6,530 8,773 11,464 13,050
--------- --------- --------- --------- ---------
OPERATING INCOME
(LOSS)................. 5,916 2,178 3,535 (3,329) (2,111)
INTEREST INCOME......... -- -- -- 35 124
OTHER INCOME (EXPENSE),
net.................... 149 22 19 (81) 56
INTEREST EXPENSE........ (556) (716) (898) (970) (1,003)
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE
INCOME TAXES........... 5,509 1,484 2,656 (4,345) (2,934)
PROVISION FOR (BENEFIT
FROM) INCOME TAXES:
CURRENT............... 50 -- 34 -- --
DEFERRED.............. -- -- (34) -- --
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE
DISCONTINUED
OPERATIONS............. 5,459 1,484 2,656 (4,345) (2,934)
INCOME (LOSS) FROM
DISCONTINUED
OPERATIONS, net of
income tax effect...... 943 1,083 1,498 1,562 (1,028)
GAIN ON SALE OF
DISCONTINUED OPERATION,
net of income tax
effect................. 6,478 -- -- -- 610
--------- --------- --------- --------- ---------
Net income (loss)... $ 12,880 $ 2,567 $ 4,154 $ (2,783) $ (3,352)
========= ========= ========= ========= =========
EARNINGS (LOSS) PER
COMMON SHARE
BASIC
Income (loss) before
discontinued
operations........... $ 0.81 $ 0.21 $ 0.38 $ (0.64) $ (0.44)
Income (loss) from
discontinued
operations........... 0.14 0.16 0.22 0.23 (0.15)
Gain on sale of
discontinued
operation............ 0.97 -- -- -- 0.09
--------- --------- --------- --------- ---------
Net income (loss)... $ 1.92 $ 0.37 $ 0.60 $ (0.41) $ (0.50)
========= ========= ========= ========= =========
DILUTED
Income (loss) before
discontinued
operations........... $ 0.75 $ 0.21 $ 0.37 $ (0.64) $ (0.44)
Income (loss) from
discontinued
operations........... 0.13 0.15 0.21 0.23 (0.15)
Gain on sale of
discontinued
operation............ 0.88 -- -- -- 0.09
--------- --------- --------- --------- ---------
Net income (loss)... $ 1.76 $ 0.36 $ 0.58 $ (0.41) $ (0.50)
========= ========= ========= ========= =========
SHARES USED IN COMPUTING
NET INCOME (LOSS) PER
COMMON SHARE
BASIC................... 6,699,610 6,937,127 6,935,778 6,753,752 6,682,106
========= ========= ========= ========= =========
DILUTED................. 7,320,075 7,062,364 7,134,382 6,753,752 6,682,106
========= ========= ========= ========= =========
</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 STOCKHOLDERS' EQUITY
For the Nine Months Ended July 30, 2000 (Unaudited) and
For the Years Ended October 31, 1999, October 25, 1998 and October 26, 1997
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Treasury Stock Total
---------------- Paid In Retained Comprehensive ------------------ Stockholder's
Shares Amount Capital (Deficit) Income (Loss) Shares Amount Equity
--------- ------ ---------- --------- ------------- --------- ------- -------------
(In Thousands, Except Shares)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, October 27,
1996................... 7,681,733 $230 $43,474 $(17,758) $(32) 1,017,981 $(3,797) $22,117
Comprehensive income
(loss):
Net loss................ -- -- -- (3,352) -- -- -- (3,352)
Cumulative translation
adjustments............ -- -- -- -- (93) -- -- (93)
-------
Comprehensive income
(loss)................. -- -- -- -- -- -- -- (3,445)
Issuance to employees
pursuant to stock
option plans........... 19,000 1 53 -- -- -- -- 54
Acquisition of Lockhart
Industries, Inc. ...... -- -- -- -- -- (9,428) 79 79
Purchase of Uni-Star
Industries, Inc.
minority interest...... -- -- (4) -- -- -- -- (4)
--------- ---- ------- -------- ---- --------- ------- -------
BALANCE, October 26,
1997................... 7,700,733 231 43,523 (21,110) (125) 1,008,553 (3,718) 18,801
Comprehensive income
(loss):
Net loss................ -- -- -- (2,783) -- -- -- (2,783)
Cumulative translation
adjustments............ -- -- -- -- 34 -- -- 34
-------
Comprehensive income
(loss)................. -- -- -- -- -- -- -- (2,749)
Issuance to employees
pursuant to stock
option plans........... 91,834 3 215 -- -- -- -- 218
Acquisition of Lockhart
Industries, Inc........ 148,271 4 (4) -- -- -- -- --
Compensation associated
with stock options..... -- -- 47 -- -- -- -- 47
--------- ---- ------- -------- ---- --------- ------- -------
BALANCE, October 25,
1998................... 7,940,838 238 43,781 (23,893) (91) 1,008,553 (3,718) 16,317
Comprehensive income
(loss):
Net income.............. -- -- -- 4,154 -- -- -- 4,154
Cumulative translation
adjustments............ -- -- -- -- 69 -- -- 69
-------
Comprehensive income
(loss)................. -- -- -- -- -- -- -- 4,223
Issuance to employees
pursuant to stock
option plans........... 18,169 1 33 -- -- -- -- 34
Stock repurchases....... -- -- -- -- -- 385,800 (2,086) (2,086)
Compensation associated
with stock options..... -- -- 14 -- -- -- -- 14
--------- ---- ------- -------- ---- --------- ------- -------
BALANCE, October 31,
1999................... 7,959,007 $239 $43,828 $(19,739) $(22) 1,394,353 $(5,804) $18,502
(Unaudited)
Comprehensive income
(loss):
Net income.............. -- -- -- 12,880 -- -- -- 12,880
Cumulative translation
adjustments............ -- -- -- -- 22 -- -- 22
-------
Comprehensive income
(loss)................. -- -- -- -- -- -- -- 12,902
Issuance to employees
pursuant to stock
option plans........... 136,892 4 187 -- -- -- -- 191
Compensation associated
with stock options..... -- -- 237 -- -- -- -- 237
--------- ---- ------- -------- ---- --------- ------- -------
BALANCE, July 30, 2000.. 8,095,899 $243 $44,252 $ (6,859) $ -- 1,394,353 $(5,804) $31,832
========= ==== ======= ======== ==== ========= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months For the Years Ended
---------------------- -----------------------------------
July 30, August 1, October 31, October 25, October 26,
2000 1999 1999 1998 1997
----------- ---------- ----------- ----------- -----------
(Unaudited
and
(Unaudited) Restated) (Restated) (Restated) (Restated)
(In Thousands)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss)....... $ 12,880 $ 2,567 $ 4,154 $ (2,783) $ (3,352)
Adjustments to reconcile
net income (loss) to
net cash provided by
(used in) operating
activities:
Depreciation and
amortization.......... 1,977 1,924 2,600 2,525 2,258
(Gain) loss on
sale/disposal of
equipment............. -- 9 (13) 331 --
Gain on sale of
discontinued
operation............. (6,478) -- -- -- (610)
Cumulative translation
adjustments........... 15 86 (7) 34 (93)
Stock option
compensation expense.. -- 56 14 47 --
Deferred income taxes.. -- -- (34) -- --
Net cash provided by
(used in) discontinued
operations............ 181 622 (250) (246) (863)
Changes in assets and
liabilities:
(Increase) decrease in
accounts receivable... (2,369) (123) (484) 2,119 293
(Increase) decrease in
inventories........... (1,285) 1,451 1,920 1,156 988
(Increase) decrease in
prepaid expenses...... (264) (374) 129 457 (25)
Increase (decrease) in
accounts payable,
trade................. 987 (1,791) (1,074) (332) 349
Increase (decrease) in
accrued compensation
and related benefits.. 292 137 288 (171) 389
Increase (decrease) in
other liabilities..... (720) (600) (696) (2,221) 365
-------- -------- -------- -------- --------
Net cash provided by
(used in) operating
activities............ 5,216 3,964 6,547 916 (301)
-------- -------- -------- -------- --------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Proceeds from business
divestitures........... 12,300 -- -- -- 2,100
Change in goodwill...... -- -- -- -- (39)
Purchase of property and
equipment.............. (1,367) (512) (986) (4,236) (1,258)
Proceeds from sale of
property and
equipment.............. -- 81 96 71 --
(Increase) decrease in
other assets, net...... 28 2 7 -- 91
-------- -------- -------- -------- --------
Net cash provided by
(used in) investing
activities............ 10,961 (429) (883) (4,165) 894
-------- -------- -------- -------- --------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of common stock........ 191 31 34 218 50
Payments to repurchase
common stock........... -- -- (1,637) -- --
Payments for debt issue
cost................... -- -- (393) -- --
Proceeds from revolving
credit lines........... 49,752 43,131 59,426 70,917 42,198
Payments on revolving
credit lines........... (52,551) (49,124) (64,806) (67,935) (46,823)
Proceeds from term
debt................... -- 5,400 5,400 920 2,770
Payments on term debt... (1,310) (4,064) (4,335) (1,485) (661)
-------- -------- -------- -------- --------
Net cash provided by
(used in) financing
activities............ (3,918) (4,626) (6,311) 2,635 (2,466)
-------- -------- -------- -------- --------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ 12,259 (1,091) (647) (614) (1,873)
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF YEAR...... 233 1,387 880 1,494 3,367
-------- -------- -------- -------- --------
CASH AND CASH
EQUIVALENTS AT END OF
YEAR................... $ 12,492 $ 296 $ 233 $ 880 $ 1,494
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
Alpha Technologies Group, Inc. ("Alpha" or the "Company") derives its
revenues from thermal management products, principally heat sinks, which
dissipate heat generated by electronic components. The Company's products
serve the microprocessor, computer, automotive, telecommunication, industrial
controls, transportation, power supply, factory automation, consumer
electronics, aerospace and defense industries.
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. As more fully described in Note 3--Discontinued
Operations and Note 17--Subsequent Events--Discontinued Operations, prior year
numbers have been restated, through reclassification, to discontinue the
hermetic connector business sold in June 1997, the connector business sold in
July 2000, and the subsystems business which is held for sale and is expected
to be sold in the near future.
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.
Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and money market accounts
as well as highly liquid investments with initial maturities of less than
three months.
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.
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 for continuing operations on October 31, 1999 and
October 25, 1998 was approximately $841,000 and $660,000, respectively, and
total accumulated amortization was $1,105,000 and $863,000, respectively.
Amortization expense for continuing operations of
F-8
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Significant Accounting Policies--(Continued)
approximately $181,000, $173,000 and $190,000 was recorded in fiscals 1999,
1998 and 1997, respectively and total amortization expense of approximately
$249,000, $231,000 and $248,000 was recorded in fiscals 1999, 1998 and 1997,
respectively.
Long-Lived Assets
The Company reviews the valuation of long lived assets whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. An impairment loss would be recognized when estimated future
cash flows expected to result from the use of the asset and/or its disposition
is less than its carrying amount. The Company has not identified any such
impairment loss.
Comprehensive Income
Effective October 26, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," which requires
an entity to report and display comprehensive income and its components.
Comprehensive income includes net earnings, plus other comprehensive income.
The Company's other comprehensive income consists of foreign currency
translation adjustments.
Stock-Based Compensation
The Financial Accounting Standards Board issued SFAS 123, "Accounting for
Stock Based Compensation" during October 1995. The 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" (APB 25). 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 accounts for income taxes under the asset and liability method.
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. 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. Resulting translation adjustments are reported as other
comprehensive income (loss).
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133") and in July 1999 issued Statement of
Financial Accounting Standards No. 137 "Accounting for Derivative Instruments
and Hedging Activities--Deferral of the Effective Date of FASB Statement No.
133, and Amendment of FASB Statement No. 133" ("SFAS 137"). SFAS 137 delayed
the effective date for SFAS 133 to fiscal years
F-9
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Significant Accounting Policies--(Continued)
beginning after June 15, 2000. The Company is required to adopt this for its
fiscal year 2001. Management believes that the adoption of these pronouncements
will not have a material effect on the Company's consolidated financial
position or results of operations.
Interim Financial Information--July 30, 2000 and August 1, 1999 Consolidated
Financial Statements
In management's opinion the accompanying consolidated financial statements
contain all adjustments necessary to present fairly the financial position as
of July 30, 2000 and the related results of operations and cash flows for the
nine months ended July 30, 2000 and August 1, 1999 of the Company and its
wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in preparation of the consolidated financial
statements.
Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted for the period ended July 30, 2000
and August 1, 1999, pursuant to the rules and regulations of the Securities and
Exchange Commission. Information as of July 30, 2000 or for the nine months
ended July 30, 2000 and August 1, 1999 is unaudited.
2. Acquisitions
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. On October 29, 1999,
pursuant to a Stock Purchase Agreement, the Company acquired 350,000 shares of
its common stock from the former owners of its Lockhart subsidiary for
$1,476,096. The acquired shares were issued as consideration for the purchase
of the Lockhart subsidiary in August 1996. As part of the Agreement, the
Company released the former owners from the indemnification provisions related
to the purchase of the Lockhart business.
3. Discontinued Operations
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. No contingent payment was 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 a discontinued operation. Prior to the
sale, for the fiscal year ended October 26, 1997, the discontinued operation
had revenues of $2,031,000, costs and expenses of $1,977,000 and net income of
$54,000. See also Note 17--Subsequent Events--Discontinued Operations.
F-10
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Inventories
Inventories consisted of the following on:
<TABLE>
<CAPTION>
October 31, October 25,
1999 1998
----------- -----------
(In Thousands)
<S> <C> <C>
Raw materials and components......................... $ 2,260 $ 2,542
Work in process...................................... 1,882 2,200
Finished goods....................................... 2,023 2,314
------- -------
6,165 7,056
Valuation reserve.................................... (1,161) (1,321)
------- -------
$ 5,004 $ 5,735
======= =======
5. Property and Equipment
Property and equipment consisted of the following on:
<CAPTION>
October 31, October 25,
1999 1998
----------- -----------
(In Thousands)
<S> <C> <C>
Machinery & equipment................................ $17,019 $16,361
Leasehold improvements............................... 1,146 1,031
------- -------
18,165 17,392
Accumulated depreciation and amortization............ (8,467) (6,215)
------- -------
$ 9,698 $11,177
======= =======
6. Accrued Compensation and Related Benefits
Accrued compensation and related benefits consisted of the following on:
<CAPTION>
October 31, October 25,
1999 1998
----------- -----------
(In Thousands)
<S> <C> <C>
Accrued compensation................................. $ 825 $ 473
Other................................................ 500 564
------- -------
$ 1,325 $ 1,037
======= =======
7. Other Liabilities
Other liabilities consisted of the following on:
<CAPTION>
October 31, October 25,
1999 1998
----------- -----------
(In Thousands)
<S> <C> <C>
Accrued commissions.................................. $ 343 $ 679
Other................................................ 1,297 1,208
------- -------
1,640 1,887
Less: current portion................................ (1,496) (1,720)
------- -------
$ 144 $ 167
======= =======
</TABLE>
F-11
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Debt and Revolving Credit Facilities
Debt and revolving credit facilities consisted of the following on:
<TABLE>
<CAPTION>
October 31, October 25,
1999 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...................................... $ -- $ 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.................... -- 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
Variable-rate revolving credit facility (effective
interest rate of 8.75% on October 31, 1999),
interest payable monthly, principal is repaid and
re-borrowed based on cash requirements............ 2,799 --
Variable-rate term note (effective interest rate of
8.75% on October 31, 1999), payable in monthly
installments of $90,000 plus accrued interest..... 4,860 --
Other.............................................. 320 108
------- -------
7,979 11,974
Less amount reflected in net assets of discontinued
operations........................................ (320) --
Less current portion............................... (1,080) (961)
------- -------
$ 6,579 $11,013
======= =======
</TABLE>
Effective April 16, 1999, the Company and its subsidiaries (hereinafter
referred to as "Borrowers") became parties to a loan and security agreement
(the "Agreement") with a commercial lender. The Agreement provides for
revolving loans of up to $10,500,000, a $5,400,000 term note payable monthly
over five years, and an equipment acquisition facility of up to $1,000,000 for
fiscal 1999. An additional $2,000,000 of equipment loans will be made available
to Borrowers if the Borrower's earnings before provision for income taxes,
excluding all extraordinary and nonrecurring items, equals or exceeds $1.00 for
the fiscal year ending October 31, 1999, or for any fiscal year thereafter. The
advances on the revolving loans are based on the eligible accounts receivable
and inventories and the advances on the equipment acquisition facility may be
used only for the purpose of funding capital equipment purchases by the
Borrowers. The maturity date of the Agreement is April 15, 2004.
On October 31, 1999, $2,800,000 was outstanding on the revolving credit
facility with interest accruing at the prime rate announced by First Union
National Bank plus .5% (8.75% per annum on October 31, 1999). There is an
unused line fee equal to .5% per annum on the difference between $10,500,000
and the average daily outstanding principal balance of Revolving Loans during
each month payable monthly in arrears on the first day of each month. The
$5,400,000 term note accrues interest at the prime rate announced by First
Union National Bank plus .5% (8.75% per annum on October 31, 1999) and is
payable in fifty-nine (59) equal monthly installments of $90,000 beginning
April 30, 1999 and a final installment equal to all unpaid principal on March
31, 2004, together, in each instance, with interest thereon to the date of
payment. On October 31, 1999, $4,860,000 was outstanding on the term loan and
no borrowings on the equipment acquisition facility. The obligations under the
Agreement are secured by a first lien on and assignment of all of the assets of
the Borrowers which in aggregate total $34,849,000 on October 31, 1999.
F-12
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Debt and Revolving Credit Facilities--(Continued)
Cash paid for interest on all outstanding debt amounted to approximately:
<TABLE>
<CAPTION>
October October October
1999 1998 1997
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Continuing Operations................................ $1,215 $ 970 $1,003
Discontinued Operations.............................. 60 41 170
------ ------ ------
Total.............................................. $1,275 $1,011 $1,173
====== ====== ======
</TABLE>
The amount paid in fiscal 1999 includes $393,000 in debt issue costs,
including origination fees, incurred in connection with the refinancing of the
Company's credit facilities. These fees will be expensed over the term of the
agreement.
Aggregate payments of debt and revolving credit facilities outstanding as of
October 31, 1999 for the next five years are summarized below:
<TABLE>
<CAPTION>
Continuing Discontinued
Fiscal Years Operations Operations Total
------------ ---------- ------------ ------
(In Thousands)
<S> <C> <C> <C>
2000.......................................... $1,080 $140 $1,220
2001.......................................... 1,080 155 1,235
2002.......................................... 1,080 25 1,105
2003.......................................... 1,080 -- 1,080
2004.......................................... 3,339 -- 3,339
------ ---- ------
$7,659 $320 $7,979
====== ==== ======
</TABLE>
9. Preferred Stock
On October 25, 1998 and October 31, 1999, 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 31, 1999.
10. Repurchase of Common Stock
In October 1999, the Board of Directors of the Company approved a plan to
purchase up to $500,000 of the Company's common stock in the open market.
Pursuant to the stock repurchase plan, the Company purchased 35,800 shares of
common stock during fiscal year 1999 at an aggregate price of $161,011.
On October 29, 1999, pursuant to a Stock Purchase Agreement, the Company
acquired 350,000 shares of its common stock from the former owners of its
Lockhart subsidiary. The acquired shares were issued as consideration for the
purchase of the Lockhart subsidiary in August 1996. As part of the Agreement,
the Company released the former owners from the indemnification provisions
related to the purchase of the Lockhart business. A $449,000 indemnification
liability was established representing the difference between the market value
of the shares repurchased of $1,975,000 and the consideration paid of
$1,476,000 to the former owners.
F-13
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. Stock Option Plans
The Company has in effect nonqualified and incentive stock option plans
under which shares are available for exercise. As of October 31, 1999, the
Board of Directors has reserved 1,758,099 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 31, 1999, there were 416,949
shares available for future grants.
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 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
Granted-Option Price = FMV..................... 581,276 3.09
Granted-Option Price > FMV..................... 26,274 4.95
Forfeited...................................... (509,631) 3.99
Exercised...................................... (18,169) 1.88
--------- -----
Outstanding on October 31, 1999.................. 1,341,150 $3.66
========= =====
Exercisable as of:
October 31, 1999............................... 780,640 $3.77
October 25, 1998............................... 735,733 $4.03
October 26, 1997............................... 794,515 $3.96
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------------------------
Weighted
Average Weighted
Range of Outstanding Remaining Weighted Exercisable Average
Exercise As of Contractual Average as of Exercise
Prices 10/31/99 Life Exercise Price 10/31/99 Price
-------- ----------- ----------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.00 - $2.00 372,900 3.9 Years $1.85 187,308 $1.85
$2.01 - $3.00 195,750 3.9 Years $2.55 150,000 $2.61
$3.01 - $4.00 160,220 3.8 Years $3.69 102,672 $3.62
$4.01 - $5.00 244,780 4.0 Years $4.54 70,660 $4.66
$5.01 - $6.00 367,500 1.8 Years $5.48 270,000 $5.57
--------- -------
1,341,150 3.3 Years $3.66 780,640 $3.77
========= =======
</TABLE>
F-14
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. Stock Option Plans--(Continued)
In October 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 granted replacement options for
certain outstanding options issued to employees, who were not executive
officers or directors of the Company. 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. The
replacement has been treated as the surrender and cancellation of the original
outstanding stock options in conjunction with the grant of replacement options.
On March 30, 1999, the Board of Directors of the Company authorized an
increase in the shares issuable under the 1994 Stock Option Plan by 300,000
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 and 1999, $47,000 and $14,000, respectively, 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 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. The weighted average assumptions used for fiscal
1999 were: expected volatility 74.5%, risk free interest rate of 5.78%,
expected option life of 4.0 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
$325,000, or $0.05 per basic and diluted share, in fiscal 1997, $472,000, or
$0.07 per basic and diluted share, in fiscal 1998, and $516,000 or $0.07 per
basic and diluted share, in fiscal 1999. The estimated weighted average fair
value of options granted during fiscal 1997, 1998 and fiscal 1999 was $1.97,
$1.63, and $2.32, 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.
F-15
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. Net Income (Loss) Per Share
Basic net income (loss) per common share is computed by dividing income
(loss) available to common shareholders by the weighted average number of
shares of common stock outstanding during each year. Diluted earnings per
common share are calculated to give effect to stock options outstanding during
the period. The treasury stock method is used to calculate dilutive shares and
reduces the gross number of dilutive shares by the number of shares purchasable
from the proceeds of the options assumed to be exercised. For fiscal year 1998
and 1997, potentially dilutive shares were not considered in the computation as
their effect would have been antidilutive. The amounts used in calculating
basic and dilutive earnings per share and the amounts that would have been used
in fiscal 1998 and 1997 were:
<TABLE>
<CAPTION>
October 31, October 25, October 26,
1999 1998 1997
----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C>
Income(loss) used in basic and diluted
EPS:
Income (loss) from continuing
operations............................ $2,656 $(4,345) $(2,934)
Gain on sale of discontinued
operation............................. -- -- 610
Income from discontinued operation..... 1,498 1,562 (1,028)
------ ------- -------
Net income (loss) available to common
share holders....................... $4,154 $(2,783) $(3,352)
====== ======= =======
Shares:
Weighted average common shares
outstanding--used in basic EPS........ 6,936 6,754 6,682
Net dilutive potential common shares
issuable on exercise of stock
options............................... 198 106 98
------ ------- -------
Weighted average common shares and
dilutive potential common shares--used
in dilutive EPS....................... 7,134 6,860 6,780
====== ======= =======
</TABLE>
13. Income Taxes
Income (loss) before income taxes was as follows for the fiscal years ended:
<TABLE>
<CAPTION>
October 31, October 25, October 26,
1999 1998 1997
----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C>
Domestic................................. $4,489 $(2,527) $(3,657)
Foreign (Discontinued)................... (335) (256) (305)
------ ------- -------
$4,154 $(2,783) $(3,962)
Less: Discontinued operations............ 1,498 1,562 (1,028)
------ ------- -------
Continuing operations.................... $2,656 $(4,345) $(2,934)
====== ======= =======
</TABLE>
F-16
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Income Taxes--(Continued)
The provision (benefit) for income taxes was as follows for the fiscal years
ended:
<TABLE>
<CAPTION>
October 31, October 25, October 26,
1999 1998 1997
----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C>
Federal income tax....................... $ 1,526 $(946) $(1,365)
State income tax......................... 267 -- --
Foreign income tax....................... -- -- --
------- ----- -------
1,793 (946) (1,365)
Valuation allowance provided............. (1,793) 946 1,365
------- ----- -------
$ -- $ -- $ --
======= ===== =======
</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 31, October 25, October 26,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Federal income statutory rate.......... 34.0 % (34.0)% (34.0)%
State income taxes, net of federal
income tax benefit.................... 5.9 % -- --
Valuation allowance provided........... (39.9)% 34.0 % 34.0 %
Foreign income taxes................... -- -- --
----- ----- -----
-- -- --
===== ===== =====
</TABLE>
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 31, 1999 were as follows:
<TABLE>
<CAPTION>
Deferred
October 31, (Provision) October 25,
1999 Benefit 1998
----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C>
Deferred Tax Assets:
Net operating loss carryforwards...... $ 5,704 $(1,172) $ 6,876
Tax credits........................... 518 (24) 542
Accrued liabilities................... 105 (252) 357
Other................................. 1,269 (183) 1,452
------- ------- -------
Total gross deferred tax assets..... 7,596 (1,631) 9,227
Less: Valuation allowance............. (4,792) 1,682 (6,474)
------- ------- -------
Net deferred tax asset................ 2,804 51 2,753
Deferred Tax Liabilities:
Amortization and depreciation......... (1,058) (45) (1,013)
Other................................. -- 28 (28)
------- ------- -------
Total deferred tax liabilities........ (1,058) (17) (1,041)
------- ------- -------
Net deferred tax asset.............. $ 1,746 $ 34 $ 1,712
======= ======= =======
</TABLE>
Due to the Company's historical results of operations, a valuation allowance
has been provided for the deferred tax assets. The valuation allowance
decreased by $1,682,000 in fiscal 1999, increased by $819,000 in fiscal 1998,
and increased by $559,000 in fiscal 1997. During fiscal 1999, the net deferred
tax asset decreased by $1,682,000 due to the utilization of prior net operating
loss carryforwards.
F-17
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Income Taxes--(Continued)
On October 31, 1999, the Company had, for tax purposes, net operating loss
carryforwards of approximately $16,776,000, unused investment and research and
development tax credits of approximately $288,000, 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 2002 to
2018, the investment tax credit and research and development tax credit
carryforwards will expire from 2002 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 31, 1999,
management does not believe that a 50 percentage point change in ownership has
occurred during a three year period.
Cash paid for income taxes for approximately:
<TABLE>
<CAPTION>
October 31, October 25, October 26,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Continuing Operations.................... $ 96,000 -- --
Discontinued Operations.................. 50,000 $28,000 --
-------- ------- --------
Total.................................. $146,000 $28,000 --
======== ======= ========
</TABLE>
14. 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 31, 1999 are as follows:
<TABLE>
<CAPTION>
Total
Continuing Discontinued Operating
Fiscal Years Operations Operations Leases
------------ ---------- ------------ ---------
(In Thousands)
<S> <C> <C> <C>
2000...................................... $1,515 $ 648 $ 2,163
2001...................................... 1,431 635 2,066
2002...................................... 1,357 625 1,981
2003...................................... 1,207 620 1,828
2004...................................... 1,128 424 1,552
Thereafter................................ 1,746 81 1,827
------ ------ -------
Minimum lease payments.................... $8,384 $3,033 $11,417
====== ====== =======
</TABLE>
Rent expense (exclusive of operating expenses and net of sublease rents) for
operating leases for continuing operations was approximately $1,140,000,
$1,067,000 and $1,064,000 in fiscal 1999, 1998 and 1997, respectively. Total
rent expense (exclusive of operating expenses and net of sublease rents) for
all operating leases was approximately $1,692,000, $1,584,000 and $1,594,000 in
fiscal 1999, 1998 and 1997, respectively.
F-18
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. Commitments and Contingencies--(Continued)
The Company is engaged in various lawsuits, the outcome of which cannot
presently be determined. In the opinion of management, losses, if any,
resulting from these lawsuits will not have a material effect on the Company's
consolidated financial statements.
15. Retirement Plans
The Company sponsors a defined contribution plan which is available to all
domestic employees. This plan provides for employer contributions based on
employee participation. The total expense under the plan was:
<TABLE>
<CAPTION>
October 31, October 25, October 26,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Continuing Operations.................... $231,000 $327,000 $293,000
Discontinued Operations.................. 113,000 125,000 148,000
-------- -------- --------
Total.................................. $344,000 $452,000 $441,000
======== ======== ========
</TABLE>
16. Business Segment Information
<TABLE>
<CAPTION>
October 31, October 25, October 26,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales by geographic area:
Sales to Customers Within the
Continental US........................ $44,690 $53,032 $53,666
Exports From the US to Unaffiliated
Customers............................. 3,739 5,463 4,628
------- ------- -------
Total Sales.......................... $48,429 $58,495 $58,294
======= ======= =======
</TABLE>
17. Subsequent Events--Discontinued Operations
On July 28, 2000, pursuant to a Stock Purchase Agreement (the "Agreement"),
the Company sold its connector business, Uni-Star Industries, Inc. ("Uni-Star"
or the "Business") to Tyco Electronics Corporation and Tyco Electronics UK Ltd.
(the "Buyer"). The sale included 100% of the outstanding stock of Uni-Star
Industries, Inc. and Microdot Connectors Europe, Ltd. (a wholly owned UK
subsidiary of Uni-Star) and the agreement by Alpha and certain of their
affiliates not to engage in the connector business for five years.
Alpha received $12,300,000, in cash subject to reduction if Uni-Star's Net
Assets (as defined in the Stock Purchase Agreement) is determined to be less
than $3,986,000 as of the closing date. The purchase price was a negotiated
amount between Buyer and Seller. The sale resulted in a gain of approximately
$6,478,000, net of state income tax expense of $640,000. The tax provision
recorded on the gain on sale is not at statutory rates due to the Company's
utilization of its net operating loss carryforwards.
In addition, the board has approved the sale of the Company's subsystems
business (Malco Technologies, Inc.). Accordingly, the results of operations for
the Company's connector business which was sold and its sub-systems business
are reflected in the accompanying consolidated financial statements as
discontinued operations. Previously these businesses were reported as the
"Connector Segment" and "Subsystems segment" for reporting purposes.
F-19
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
17. Subsequent Events--Discontinued Operations--(Continued)
Summary operating results of the discontinued operations are as followed for
the fiscal year ended:
Connector Operations--Sold July 28, 2000
<TABLE>
<CAPTION>
October 31, October 25, October 26,
1999 1998 1997
----------- ----------- -----------
(in thousands)
<S> <C> <C> <C>
Sales................................... $10,623 $12,579 $11,809
Costs and expenses...................... 9,635 11,590 12,842
------- ------- -------
Net income (loss) of discontinued
operation............................ $ 988 $ 989 $(1,033)
======= ======= =======
Subsystems Operations Held For Sale
<CAPTION>
October 31, October 25, October 26,
1999 1998 1997
----------- ----------- -----------
(in thousands)
<S> <C> <C> <C>
Sales................................... $ 6,168 $ 5,971 $ 5,562
Costs and expenses...................... 5,658 5,398 5,611
------- ------- -------
Net income (loss) of discontinued
operation............................ $ 510 $ 573 $ (49)
======= ======= =======
</TABLE>
No income tax provision was provided in income from discontinued operations
due to the Company's use of its net operating loss carryforwards.
Summary Balance Sheet Data For Connector Operation--Sold July 28, 2000
<TABLE>
<CAPTION>
October 31, October 25,
1999 1998
----------- -----------
<S> <C> <C>
Current assets....................................... $3,212 $4,018
Property plant and equipment......................... 1,515 1,827
Non-current assets................................... 244 201
Current liabilities.................................. (836) (1,383)
Non-current liabilities.............................. (149) (50)
------ ------
$3,986 $4,613
====== ======
Summary Balance Sheet Data For Subsystem Operation Held For Sale
<CAPTION>
October 31, October 25,
1999 1998
----------- -----------
<S> <C> <C>
Current assets....................................... $2,248 $2,550
Property plant and equipment......................... 249 351
Non-current assets................................... 480 527
Current liabilities.................................. (818) (1,117)
Non-current liabilities.............................. (84) --
------ ------
$2,075 $2,311
====== ======
</TABLE>
F-20
<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>
ALL OPERATIONS
Allowance for doubtful
accounts deducted from
accounts receivable in the
balance sheet--
1999........................ $ 524,226 $ -- $ 100,260(1) $ 423,966
1998........................ 327,888 208,178 11,840(1) 524,226
1997........................ 279,665 279,771 231,548(1) 327,888
Allowance for obsolete
inventory deducted from
inventories in the balance
sheet--
1999........................ $2,398,173 $ 502,309 $ 510,447(2) $2,390,035
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
Allowance for Wakefield
facility consolidation
1999........................ $ 105,064 $ -- $ 98,028 $ 7,036
1998........................ 1,749,983 (362,000) 1,282,919(3) 105,064
Allowance for European
consolidation
1999........................ $ 35,490 $ -- $ 35,490 $ --
1998........................ -- 150,000 114,510 35,490
CONTINUING OPERATIONS
Allowance for doubtful
accounts deducted from
accounts receivable in the
balance sheet--
1999........................ $ 410,254 $ -- $ 112,354(1) $ 297,900
1998........................ 240,808 188,575 19,129(1) 410,254
1997........................ 89,534 404,776 253,502(1) 240,808
Allowance for obsolete
inventory deducted from
inventories in the balance
sheet--
1999........................ $1,320,745 309,000 468,379(2) 1,161,366
1998........................ 748,356 1,237,481 665,092(2) 1,320,745
1997........................ 566,070 1,395,095 1,212,809(2) 748,356
Allowance for Wakefield
facility consolidation
1999........................ $ 105,064 $ -- $ 98,028 $ 7,036
1998........................ 1,749,983 (362,000) 1,282,919(3) 105,064
</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.
F-21
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders'
National Northeast Corporation
We have audited the accompanying balance sheets of National Northeast
Corporation as of December 31, 1999 and 1998, and the related statements of
income, shareholders' equity, and cash flows for each of the years in the three
year period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of National Northeast
Corporation as of December 31, 1999 and 1998, and the results of its operations
and its consolidated cash flows for each of the years in the three year period
ended December 31, 1999 in conformity with accounting principles generally
accepted in the United States.
/s/ Grant Thornton LLP
-------------------------------
Boston, Massachusetts
September 22, 2000
F-22
<PAGE>
NATIONAL NORTHEAST CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited) (Audited)
----------- ---------------
As of December
June 30, 31,
2000 1999 1998
----------- ------- -------
(Amounts in thousands)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash............................................. $ 0 $ 0 $ 0
Accounts Receivable--less allowances of $250,
$107 and $154................................... 5,582 4,987 4,548
Inventories...................................... 5,636 3,052 2,849
Other Current Assets............................. 214 193 139
------- ------- -------
Total Current Assets........................... 11,432 8,232 7,536
Property and Equipment--net........................ 18,147 18,963 16,143
Other Assets and Deferred Charges--net............. 10 10 10
Excess of Cost over Net Assets of Acquired
Companies......................................... 7,700 7,885 8,253
------- ------- -------
Total Assets................................... $37,289 $35,090 $31,942
======= ======= =======
</TABLE>
See Accompanying Notes to Financial Statements
F-23
<PAGE>
NATIONAL NORTHEAST CORPORATION
BALANCE SHEETS--(Continued)
As of December 31,
<TABLE>
<CAPTION>
(Unaudited) (Audited)
----------- ----------------
As of December
June 30, 31,
2000 1999 1998
----------- ------- -------
(Amounts in thousands)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Revolving Loan Payable to Mestek, Inc.......... $ 4,597 $ 7,346 $ 2,329
Current Portion of Long-Term Debt.............. -- 19 43
Accounts Payable............................... 5,129 1,882 3,912
Other Accrued Liabilities...................... 1,158 346 450
------- ------- -------
Total Current Liabilities.................... 10,884 9,593 6,734
Deferred Tax Liability........................... 1,816 1,544 1,008
Long-Term Debt................................... 8,570 8,570 8,593
------- ------- -------
Total Liabilities............................ 21,270 19,707 16,335
------- ------- -------
Shareholders' Equity:
Common Stock................................... 11,841 11,841 11,841
Retained Earnings.............................. 5,126 4,490 4,639
Treasury Shares, at cost (80, 80 and 70 common
shares, respectively)......................... (948) (948) (873)
------- ------- -------
Total Shareholders' Equity................... 16,019 15,383 15,607
------- ------- -------
Total Liabilities and Shareholders' Equity.. $37,289 $35,090 $31,942
======= ======= =======
</TABLE>
See Accompanying Notes to Financial Statements.
F-24
<PAGE>
NATIONAL NORTHEAST CORPORATION
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Unaudited) (Audited)
------------------- -----------------------------
For the six-months For the years
ended June 30, ended December 31,
------------------- -----------------------------
2000 1999 1999 1998 1997
--------- --------- -------- --------- --------
(Dollars in thousands, Except Earnings Per
Common Share)
<S> <C> <C> <C> <C> <C>
Net Revenues................ $ 18,876 $ 15,391 $ 30,477 $ 32,278 $ 29,645
Cost of Goods Sold.......... 14,881 12,398 25,793 24,876 23,198
--------- --------- -------- --------- --------
Gross Profit................ 3,995 2,993 4,684 7,402 6,447
Selling Expense............. 953 1,048 1,968 1,586 1,294
General and Administrative
Expense.................... 1,127 703 1,295 1,689 2,054
Engineering Expense......... 166 198 453 619 396
--------- --------- -------- --------- --------
Operating Profit............ 1,749 1,044 968 3,508 2,703
Interest Expense............ 675 574 1,169 659 473
Other Income (Expense),
Net........................ 4 5 (12) (33) (31)
--------- --------- -------- --------- --------
Income (Loss) Before Income
Taxes...................... 1,070 465 (213) 2,816 2,199
Income Taxes (Benefit)...... 434 189 (64) 1,073 898
--------- --------- -------- --------- --------
Net Income (Loss)........... $ 636 $ 276 $ (149) $ 1,743 $ 1,301
========= ========= ======== ========= ========
Basic and Diluted Earnings
(Loss) per Common
Share:................... $ 691.30 $ 296.48 $(160.73) $1,874.19 $1391.44
========= ========= ======== ========= ========
Basic and Diluted Weighted
Average Shares
Outstanding.............. 920 930 927 930 935
========= ========= ======== ========= ========
</TABLE>
See Accompanying Notes to Financial Statements.
F-25
<PAGE>
NATIONAL NORTHEAST CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31,
<TABLE>
<CAPTION>
Common Paid In Retained Treasury
Stock Capital Earnings Shares Total
------ ------- -------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance--December 31, 1996............ $ 0 $11,841 $1,595 $(603) $12,833
Net Income............................ 1,301 1,301
Common Stock Repurchased..............
--- ------- ------ ----- -------
Balance--December 31, 1997............ 0 11,841 2,896 (603) 14,134
Net Income............................ 1,743 1,743
Common Stock Repurchased.............. (270) (270)
--- ------- ------ ----- -------
Balance--December 31, 1998............ 0 11,841 4,639 (873) 15,607
Net Loss.............................. (149) (149)
Common Stock Repurchased.............. (75) (75)
--- ------- ------ ----- -------
Balance--December 31, 1999............ 0 11,841 4,490 (948) 15,383
Net Income............................ 636 636
Common Stock Repurchased..............
--- ------- ------ ----- -------
Balance--June 30, 2000................ $ 0 $11,841 $5,126 $(948) $16,019
=== ======= ====== ===== =======
</TABLE>
See Accompanying Notes to Financial Statements.
F-26
<PAGE>
NATIONAL NORTHEAST CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited) (Audited)
-------------------- ----------------------
For the six- months For the years
ended June 30, ended December 31,
-------------------- ----------------------
2000 1999 1999 1998 1997
--------- --------- ------ ------ ------
(Dollars in thousands, Except Earnings
Per Common Share)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating
Activities:
Net Income (Loss).............. $ 636 $ 276 $ (149) $1,743 $1,301
Adjustments to Reconcile Net
Income to
Net Cash Provided by Operating
Activities:
Depreciation and Amortization.. 1,355 875 2,275 2,058 1,815
Provision for Losses on
Accounts Receivable, net of
write-offs.................... 143 (54) (47) (37) (26)
Changes in assets and
liabilities net of effects of
acquisitions and dispositions:
Accounts Receivable........... (738) (261) (391) 264 (1,309)
Inventory..................... (2,584) (1,117) (204) (843) 76
Other Current Assets.......... (21) (273) (54) (19) (4,269)
Accounts Payable.............. 3,247 (1,743) (2,030) (512) 1,534
Other Accrued Liabilities..... 1,085 383 432 346 575
--------- --------- ------ ------ ------
Net Cash (Used in) Provided by
Operating Activities............ 3,123 (1,900) (168) 3,000 (303)
Cash Flows from Investing
Activities:
Capital Expenditures (net of
dispositions)................. (355) (3,422) (4,727) (7,907) (4,826)
--------- --------- ------ ------ ------
Net Cash Used in Investing
Activities...................... (355) (3,422) (4,727) (7,907) (4,826)
Cash Flows from Financing
Activities:
Net Borrowings Under Revolving
Credit Agreement.............. (2,749) 5,345 5,017 1,950 (76)
Principal Payments Under Long
Term Debt Obligations......... (19) (23) (46) (43) (89)
Proceeds from Issuance of Long
Term Debt..................... 3,000 5,570
Repurchase of Common Stock..... -- -- (76) -- (276)
--------- --------- ------ ------ ------
Net Cash (Used in) Provided by
Financing Activities............ (2,749) (5,322) 4,895 4,907 5,129
--------- --------- ------ ------ ------
Net Increase (Decrease) in Cash
and Cash Equivalents............ -- -- -- -- --
Cash--Beginning of Year.......... -- -- -- -- --
--------- --------- ------ ------ ------
Cash--End of Year................ $ -- $ -- $ -- $ -- $ --
========= ========= ====== ====== ======
</TABLE>
See Accompanying Notes to Financial Statements.
F-27
<PAGE>
NATIONAL NORTHEAST CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements include the accounts of National Northeast
Corporation (the Company). As of December 31, 1999, the Company was owned
approximately 90% by Mestek, Inc., a publicly traded company, and is included
in Mestek's Consolidated Financial Statements. The Company is an extruder and
fabricator of aluminum.
Use of Estimates
The preparation of 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 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.
Revenue recognition
Revenue is recognized at the time of shipment.
Inventories
Inventories are valued at the lower of cost or market. The cost of
inventories are determined by the last-in, first-out (LIFO) method.
Property and equipment
Property and equipment are carried at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the assets or the life of the lease, if shorter. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation are
removed from the accounts and any resulting gain or loss is reflected in income
for the period. The cost of maintenance and repairs is charged to income as
incurred; significant improvements are capitalized.
Excess of Cost Over Net Assets of Acquired Companies (Goodwill)
The Company amortizes goodwill on the straight-line basis over the estimated
period to be benefited. The Company's acquisition by Mestek, Inc. and other
investors on October 28, 1995 resulted in goodwill of approximately $9,216,000,
which is being amortized over 25 years. The Company continually evaluates the
carrying value of goodwill. Any impairments would be recognized when the
expected undiscounted future operating cash flows derived from the underlying
acquired businesses is less than the carrying value of the goodwill.
Accumulated amortization of goodwill was $1,331,000, $962,000 and $1,516,000 at
December 31, 1999, 1998 and June 30, 2000, respectively.
Advertising Expense
Advertising costs are charged to operations as incurred. Such charges
aggregated $194,000, $70,000 and $131,000, for the years ended December 31,
1999, 1998, and 1997, respectively and $33,385 and $89,272 for the six months
ended June 30, 2000 and 1999, respectively.
Treasury shares
Common stock held in the Company's treasury has been recorded at cost.
F-28
<PAGE>
NATIONAL NORTHEAST CORPORATION
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Earnings per common share
Basic earnings (loss) per share have been computed using the weighted
average number of common shares outstanding.
Income Taxes
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 enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Comprehensive Income
For the periods ended December 31, 1999 and December 31, 1998 and June 30,
2000, respectively, the components of other comprehensive income were not
material.
Certain Risks & Concentrations
Significant concentration of credit risk is with trade receivables, which is
somewhat mitigated due to the Company's diversity of regions and customers.
Reclassification
Reclassifications are made periodically to previously issued financial
statements to conform with the current year presentation.
New Accounting Pronouncements
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB 101"),
"Revenue Recognition in Financial Statements". SAB 101 summarizes certain of
the SEC's views in applying generally accepted accounting principles to revenue
recognition in financial statements. In March 2000, the SEC issued SAB 101A, to
defer for one quarter the effective date of implementation of SAB 101 with
earlier application encouraged. In June 2000, the SEC issued SAB 101B which
defers the effective date of implementation of SAB 101 to the fourth fiscal
quarter of fiscal 2001. The Company does not believe adoption will have a
material impact on its financial statements.
Interim Financial Information (Unaudited)
The financial information as of June 30, 2000 and for the six month periods
ending June 30, 2000 and 1999 is unaudited, but includes all adjustments,
consisting only of normal and recurring accruals, that management considers
necessary for a fair presentation of its results of operations, financial
position and cash flows. Results for the six month period ended June 30, 2000
are not necessarily indicative of results to be expected for the full fiscal
year 2000 or any other future period.
F-29
<PAGE>
NATIONAL NORTHEAST CORPORATION
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
2. INVENTORIES
Inventories consisted of the following at
<TABLE>
<CAPTION>
(Unaudited) (Audited)
----------- --------------
June 30, December 31,
2000 1999 1998
----------- ------ ------
(amounts in thousands)
<S> <C> <C> <C>
Finished Goods...................................... $4,116 $1,987 $1,372
Work-in-progress.................................... 855 832 978
Raw Materials....................................... 747 286 562
------ ------ ------
5,718 3,105 2,912
Less provision for LIFO method of valuation......... (82) (53) (63)
------ ------ ------
$5,636 $3,052 $2,849
====== ====== ======
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following :
<TABLE>
<CAPTION>
(Unaudited) (Audited)
----------- ----------------
June 30, December 31 Depreciation
2000 1999 1998 Useful Lives
----------- ------- ------- ------------
(amounts in thousands)
<S> <C> <C> <C> <C> <C>
Land............................. $ 320 $ 320 $ 320
Building......................... 4,386 4,323 2,086 10-40 Years
Equipment........................ 21,042 20,822 18,422 3-10 Years
------- ------- -------
25,748 25,465 20,828
Accumulated Depreciation......... (7,601) (6,502) (4,685)
------- ------- -------
$18,147 $18,963 $16,143
======= ======= =======
</TABLE>
The above amounts include $235,000, $6,806,000 and $127,000, at December 31,
1999 and 1998 and June 30, 2000 respectively, in assets that had not yet been
placed in service by the Company. No depreciation was recorded in the related
periods for these assets.
Depreciation expense was $1,906,000, $1,689,000, and $1,445,000, for the
years ended December 31, 1999, 1998, and 1997, respectively and $1,172,000 and
$691,000 for the six months ended June 30, 2000 and 1999, respectively.
Amortization expense was $369,000, $369,000, and $370,000 for the years ended
December 31, 1999, 1998, and 1997 and $185,000 and $184,000 for the six months
ended June 30, 2000 and 1999, respectively.
F-30
<PAGE>
NATIONAL NORTHEAST CORPORATION
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
4. LONG TERM DEBT
Long-Term Debt consisted of the following:
<TABLE>
<CAPTION>
(Unaudited) (Audited)
----------- --------------
June 30, December 31,
2000 1999 1998
----------- ------ ------
(amounts in thousands)
<S> <C> <C> <C>
Revolving Credit Note and Loan Agreement............ $ 4,597 $7,346 $2,329
Other Bonds and Notes Payable....................... 8,570 8,570 8,570
Other Notes Payable................................. -- 19 66
------- ------ ------
13,167 15,935 10,965
Less Current Maturities............................. (4,597) (7,365) (2,372)
------- ------ ------
$ 8,570 $8,570 $8,593
======= ====== ======
</TABLE>
Revolving Loan Agreement--The Company executed a Revolving Credit Note and
Loan Agreement on January 1, 1997 with its parent company, Mestek, Inc. The
Agreement provides $10 million of unsecured revolving credit capacity and is a
"demand" facility. Borrowings under the Agreement bear interest at a floating
rate based on the prime rate of interest as announced from time to time by
Fleet, a commercial bank.
Notes Payable Lexington--The Company is obligated under three promissory
notes payable to Lexington Business Trust, a Massachusetts Business Trust
controlled by Mestek, Inc. as follows:
<TABLE>
<CAPTION>
Date Amount Interest Maturity Date
---- --------- --------------- -----------------
<S> <C> <C> <C>
February 1, 1997................ 4,000,000 Fleet prime + 1% December 31, 2001
July 10, 1997................... 1,570,000 Fleet prime + 1% July 10, 2002
February 13, 1998............... 3,000,000 Fleet prime + 1% February 13, 2003
</TABLE>
Cash paid for interest was $1,169,000, $659,000, and $473,000, during the
years ended December 31, 1999, 1998, and 1997, respectively and $675,000 and
$574,000 for the six months ended June 30, 2000 and 1999, respectively.
Maturities of debt in each of the next five years are as follows:
<TABLE>
<S> <C>
2000.............................................................. $7,365,000
2001.............................................................. $4,000,000
2002.............................................................. $1,570,000
2003.............................................................. $3,000,000
2004.............................................................. $ 0
</TABLE>
The fair value of the Company's long-term debt is estimated based on the
current interest rates offered to the Company for debt of the same remaining
maturities. Management believes the carrying value of debt approximates its
fair value as of December 31, 1999 and June 30, 2000.
5. SHAREHOLDERS' EQUITY
The Company has authorized common stock of 2,000, shares with no par value.
1,000 shares have been issued of which 80 have been acquired as treasury shares
as of December 31, 1999. 820 of the remaining 920 issued and outstanding common
shares are owned by Mestek, Inc.
F-31
<PAGE>
NATIONAL NORTHEAST CORPORATION
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
6. INCOME TAXES
Income tax expense (benefit) consisted of the following:
<TABLE>
<CAPTION>
Unaudited Audited
---------- ------------------
For the
six months
ended June Year ended
30, December 31,
---------- ------------------
2000 1999 1999 1998 1997
---- ----- ----- ------ ----
(amounts in thousands)
<S> <C> <C> <C> <C> <C>
Federal Income Tax:
Current..................................... $178 $(168) $(576) $ 766 $ 81
Deferred.................................... 157 323 509 178 630
State Income Tax:
Current..................................... 40 (8) (27) 101 31
Deferred.................................... 59 42 30 22 156
---- ----- ----- ------ ----
Income Taxes.................................. $434 $ 189 $ (64) $1,073 $898
==== ===== ===== ====== ====
</TABLE>
Total income tax expense from operations differed from "expected " income
tax expense, computed by applying the U.S. federal income tax rate of 35% to
(loss) earnings before income tax, as follows:
<TABLE>
<CAPTION>
Unaudited Audited
---------------- -----------------
For the
six months Year ended
ended June 30, December 31,
---------------- -----------------
2000 1999 1999 1998 1997
------- ------- ---- ------ ----
(amounts in thousands)
<S> <C> <C> <C> <C> <C>
Computed "expected" income tax.......... $ 375 $ 163 ($75) $ 986 $770
State income tax, net of federal tax
benefit................................ 64 22 2 84 121
Other--net.............................. (5) 4 9 3 7
------- ------- ---- ------ ----
Income Taxes (Benefit).................. $ 434 $ 189 ($64) $1,073 $898
======= ======= ==== ====== ====
</TABLE>
A deferred income tax (expense) benefit results from temporary timing
differences in the recognition of income and expense for income tax and
financial reporting purposes. The components of and changes in the net deferred
tax assets (liabilities) which give rise to this deferred income tax (expense)
benefit for the years ended December 31, 1999, 1998, and 1997 and June 30, 2000
are as follows:
<TABLE>
<CAPTION>
Unaudited Audited
--------- -----------------------
June 30, December 31,
--------- -----------------------
2000 1999 1998 1997
--------- ------- ------- -----
(amounts in
thousands)
<S> <C> <C> <C> <C>
Deferred Tax Assets:
Compensated Absences.................. 12 10 0 0
Inventory Valuation................... 38 20 18 37
Accounts Receivable Valuation......... 85 20 (24) 73
State Tax Operating Loss Carry
forward.............................. 0 4 0 0
------- ------- ------- -----
Total Deferred Tax Assets........... 135 54 6 110
Deferred Tax Liabilities:
Prepaid Expenses...................... (37) (16) 0 (45)
Depreciation and Amortization......... (1,914) (1,582) (1,002) (714)
------- ------- ------- -----
Total Deferred Tax Liabilities...... (1,951) (1,598) (1,002) (759)
------- ------- ------- -----
Net Deferred Tax Assets
(Liabilities)...................... ($1,816) ($1,544) ($1,008) ($649)
======= ======= ======= =====
</TABLE>
F-32
<PAGE>
NATIONAL NORTHEAST CORPORATION
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
At December 31, 1999, the Company has state tax operating loss carry
forwards of approximately $119,000 which are available to reduce future income
taxes payable, subject to applicable "carry forward" rules and limitations.
These losses begin to expire after the year 2014.
Cash paid for income taxes was $83,000, $730,000, and $160,000 for the
years ended December 31, 1999, 1998 and 1997 respectively and $218,000 and
$42,000 for the six months ended June 30, 2000 and 1999, respectively.
7. LEASES
During 1999, 1998, and 1997 and June 30, 2000, the Company leased real
property as follows:
<TABLE>
<CAPTION>
Date December 31,
of Basic 1999 Minimum
Lease Term Annual Rental Future Rentals
------ ----- ------------- --------------
<S> <C> <C> <C> <C>
65 Manchester St.................. 3/1/92 5+1yr $60,000 0
Lawrence, MA
1201 American Superior Blvd. ..... 6/1/94 6yrs $70,400 29,333
Winterhaven, FLA
</TABLE>
The Company also leases certain vehicles and items of office equipment.
Rent expense for all operating leases, was $114,000, $118,000, and $168,000
for the years ended December 31, 1999, 1998 and 1997, respectively and $64,000
and $98,000 for the six months ended June 30, 2000 and 1999, respectively.
Future minimum lease payments under all non-cancelable leases as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Operating
Year Ending December 31, Leases
------------------------ ---------
<S> <C>
2000............................................................... 99,646
2001............................................................... 55,428
2002............................................................... 37,952
2003............................................................... 22,140
2004............................................................... 22,140
After 2005......................................................... --
---------
Total minimum lease payments $ 237,306
=========
</TABLE>
8. EMPLOYEE BENEFIT PLANS
The Company participates with the qualified 401(k) Plan for salaried
employees maintained by its parent company, Mestek, Inc. Eligible participants
may elect to have up to fifteen percent (15%) of their compensation withheld,
up to the maximum allowed by the Internal Revenue Code. Participants may also
elect to make nondeductible voluntary contributions up to an additional ten
percent (10%) of their gross earnings each year within the legal limits. The
Company contributes $0.25 of each $1.00 deferred by participants and deposited
to the Plan not to exceed one and five tenths percent (1.5%) of an employee's
compensation. The Company does not match any amounts for withholdings from
participants in excess of six percent (6%) of their compensation or for any
nondeductible voluntary contributions. Contributions are funded on a current
basis. Contributions to the Plan were $16,408, $13,205, and $8,578 for the
years ended December 1999, 1998, and 1997, respectively and $6,690 and $8,752
for the six months ended June 30, 2000 and 1999, respectively.
F-33
<PAGE>
NATIONAL NORTHEAST CORPORATION
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
The Company maintains bonus plans for its officers and other key employees.
The plans generally allow for annual bonuses for individual employees based
upon the operating results of the Company in excess of a percentage of the
Company's investment. The Company maintains an employment agreement with its
president.
None of the Company's employees are covered under collective bargaining
agreements, during the years ended December 31, 1997, 1998, and 1999 and during
the six months ended June 30, 2000.
9. COMMITMENTS AND CONTINGENCIES
The Company is subject to legal actions and proceedings in which various
monetary claims are asserted. Management, after consultation with its corporate
counsel and outside counsel, does not anticipate that any ultimate liability
arising out of all such litigation and proceedings will have a material adverse
effect on the financial condition of the Company.
The Company is subject to numerous laws and regulations that govern the
discharge and disposal of materials into the environment. Liabilities for
environmental remediation and/or restoration are recorded when it is probable
that obligations have been incurred and the amounts can be reasonably
estimated. The Company is not aware, at present, of any material administrative
or judicial proceedings against the Company arising under any federal, state or
local environmental protection laws or regulations (Environmental Laws). A
claim has been made, however, against the Company in relation to an
environmental cleanup undertaken by the owner of the Lawrence, Massachusetts's
facility, which the Company leased prior to March of 1998. Based on the
information presently available to it, management does not believe that the
cost of addressing any of the releases will have a material adverse effect on
the Company's financial position or the results of operations.
10. SEGMENT INFORMATION
The Company has only one reportable segment, the extrusion and fabrication
of aluminum products.
11. RELATED PARTY TRANSACTIONS
The Company's principal shareholder is Mestek, Inc., a publicly traded
company listed on the New York Stock Exchange. Mestek provides substantially
all of the Company's working capital through the credit facilities described in
Note 4 to these Financial Statements. Under the Company's cash management
practices all cash receipts, net of cash disbursements, are applied on a daily
basis against the Revolving Loan Agreement described in Note 4. Mestek also
provides certain management services for which a corporate management fee,
representing the Companies proportionate share of common expenses, is charged
on an annual basis. The Company has historically filed consolidated federal
income tax return with Mestek and Mestek, accordingly, has charged the Company
for its proportionate share of the consolidated federal income tax liability
paid by Mestek each year.
Product sales to Mestek and its affiliates were $2,409,415, $1,257,222, and
$1,055,542 during the years 1999, 1998, and 1997, respectively and $1,334,423
and $1,034,290 for the six months ended June 30, 2000 and 1999, respectively.
Accounts Receivable from Mestek and its affiliates were $549,625, $178,770, and
$65,895, as of December 31, 1999, 1998, and 1997, respectively and $430,013 and
$254,064 at June 30, 2000 and 1999, respectively.
12. SUBSEQUENT EVENT
On September 19, 2000, Mestek announced the execution of a definitive
agreement to sell its 90% interest in National Northeast Corporation to Alpha
Technologies Group, Inc.
F-34
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
<TABLE>
<S> <C>
SEC Registration Fee............................................. $ 1,020.22
Subscription Agent's fees and expenses........................... 7,500
Information Agent's fees and expenses............................ 5,000
Printing fees.................................................... 20,000
Legal fees and expenses.......................................... 25,000
Accounting fees and expenses..................................... 25,000
----------
Total.......................................................... $83,520.22
==========
</TABLE>
--------
The foregoing, except for the Securities and Exchange Commission
registration fee are estimates.
Item 15. Indemnification of Directors and Officers
Section 145(a) of the General Corporation Law of Delaware (the "DGCL")
empowers a corporation to indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, employee or agent of the corporation or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be in, or
not opposed to, the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no cause to believe his conduct was
unlawful.
Subsection 145(b) of the DGCL empowers a corporation to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person acted in
any of the capacities set forth above, against expenses actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted under similar standards, except that no indemnification may be
made in respect to any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall determine that despite the adjudication of liability such person
is fairly and reasonably entitled to indemnity for such expenses which the
court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or
proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith, and that indemnification provided for by Section 145
shall not be deemed exclusive of any other rights to which the indemnified
party may be entitled. It empowers the corporation to purchase and maintain
insurance on behalf of a director or officer of the corporation against any
liability asserted against him or incurred by him in any such capacity or
arising out of his status as such whether or not the corporation would have the
power to indemnify him against such liabilities under Section 145.
II-1
<PAGE>
The Company's certification of incorporation, as amended and restated,
provides:
The Corporation shall, to the fullest extent permitted by Section 145 of
the General Corporation Law of Delaware, as the same may be amended and
supplemented, indemnify any and all persons whom it shall have power to
indemnify under said section.
The Company has entered into indemnification agreements with each director
providing for indemnification to the fullest extent permitted by Delaware law.
Item 16. Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
5 Opinion of Shapiro Forman & Allen LLP.*
23.1 Consent of Grant Thornton LLP.*
23.2 Consent of Arthur Andersen LLP*
23.3 Consent of Shapiro Forman & Allen LLP.***
24.1 Power of Attorney.**
27 Financial Data Schedule*
99.1 Form of Letter to Stockholders.*
99.2 Form of Letter from Brokers or other Nominees to Beneficial Owners
of Common Stock.*
99.3 Form of Letter to Nominees*
99.4 Form of Notice of Guaranteed Delivery.*
99.5 Subscription Agency Agreement.*
99.6 Form of Rights Exercise Agreement.*
99.7 Form of Instructions*
</TABLE>
--------
*Filed herewith
**Previously filed.
***Included in Exhibit 5.
Item 17. Undertakings.
A. The undersigned registrant hereby undertakes:
(1.) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement; Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low
or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
Provided, however, that paragraphs (A)(1)(i) and (A)(1)(ii) shall not apply
if the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
II-2
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
B. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in New York, New York on November 30, 2000.
Alpha Technologies Group, Inc.
/s/ Johnny J. Blanchard
By: _________________________________
Chief Financial Officer
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman, Chief Executive November 30, 2000
______________________________________ Officer and Director
Lawrence Butler (Principal Executive
Officer)
* Chief Operating Officer, November 30, 2000
______________________________________ President and Director
Robert C. Streiter
/s/ Johnny J. Blanchard Chief Financial Officer November 30, 2000
______________________________________ (Principal Financial and
Johnny J. Blanchard Accounting Officer)
* Director November 30, 2000
______________________________________
Marshall D. Butler
* Director November 30, 2000
______________________________________
Donald K. Grierson
* Director November 30, 2000
______________________________________
Frederic A. Heim
* Director November 30, 2000
______________________________________
Kenneth W. Rind
/s/ Johnny J. Blanchard
*By: _________________________________
Attorney in Fact
</TABLE>
II-5
