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U. S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
[X] Annual Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1999
[ ] Transition Report under Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from to
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Commission file number 0-439
American Locker Group Incorporated
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(Exact Name of registrant as specified in its charter)
Delaware 16-0338330
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
608 Allen Street, Jamestown, New York 14701-3966
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) 1-716-664-9600 Securities
registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock Par Value $1.00 Per Share
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No .
--
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained in this form, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
At March 15, 2000, the Registrant had outstanding 2,282,718 shares of its
Common Stock. The aggregate market value of the Registrant's voting stock held
by non-affiliates at this
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date was approximately $9,493,106, based on the closing price per share of
Common Stock on this date of $7.25 as reported on the NASDAQ. Shares of Common
Stock known by the Registrant to be beneficially owned by directors of the
Registrant and officers of the Registrant and other persons reporting beneficial
ownership of 5% or more of Common Stock pursuant to the reporting requirements
of Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), are not included in the computation. The Registrant, however, has made no
determination that such persons are "affiliates" within the meaning of Rule
12b-2 under the Exchange Act.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Stockholders'
Meeting to be held May 16, 2000, are incorporated by reference into Part III.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
American Locker Group Incorporated (the "Company") is engaged primarily in the
sale and rental of lockers. This includes coin, key and electronically
controlled checking lockers and related locks and plastic centralized mail and
parcel distribution lockers. The key controlled checking lockers are sold to the
recreational and transportation industries, bookstores, military posts, law
enforcement agencies, libraries and for export. The electronically controlled
lockers are sold for use as secure storage in the business environment and the
electronically controlled, coin operated lockers are sold for use in
transportation industry and other uses. The plastic centralized mail and parcel
distribution lockers are sold to the United States Postal Service ("USPS") for
use in centralized mail and parcel delivery in new housing and industrial
developments, as well as replacement of older style lockers in existing
locations.
The Company is an engineering, assembling and marketing enterprise which also
manufactures its own mechanical locks for use in its products.
The Company was incorporated on December 15, 1958, as a subsidiary of its former
publicly-owned parent. In April 1964, the Company's shares were distributed to
the stockholders of its former parent, and it became a publicly-held
corporation. From 1965 to 1989, the Company acquired and disposed of a number of
businesses including the disposition of its original voting machine business.
One of the Company's subsidiaries is a party to a Manufacturing Agreement with
Signore, Inc., formerly a wholly owned subsidiary of the Company, to furnish
fabricating, assembly and shipping services. The Agreement, which became
effective January 1, 1990, has been extended and now is for a term expiring
April 30, 2000. The Agreement provides that the cost to the Company for these
services be equal to Signore's standard cost divided by 80%.
Business Segment Information
The Company, including its foreign subsidiary, is engaged in one business: sale
and rental of coin and key or electronically controlled checking lockers and
locks and the sale of plastic centralized mail and parcel distribution lockers.
The Company has developed a range of products to support the United States
Postal Service (USPS) Centralized Delivery program. Outdoor Parcel Lockers
(OPLs) are used by the USPS for delivery of parcels. Since March 1989, the
Company has shipped over 155,000 OPLs to the USPS. Cluster Box Units (CBUs) are
used by the USPS for delivery of letters and parcels and for the collection of
outgoing mail. In November 1994, the Company negotiated a contract to sell Type
Three CBUs in quantity to the United States Postal Service. Type One and Type
Two CBUs are approved and included in the current contract. As of March 5, 2000,
Cluster Box Units with aggregate invoice prices in excess of $90,000,000 have
been shipped to the United States Postal Service pursuant to the 1994 contract
and subsequent contracts. Components of these units are made by outside vendors
and the units are assembled by The Company's wholly-owned
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subsidiary, American Locker Security Systems, Inc. (ALSSI). The units are sold
directly by ALSSI to the United States Postal Service.
The checking lockers are fabricated by Signore Inc. and are marketed in the
United States by ALSSI. Lockers for the Canadian market are manufactured by
Signore Inc. with locks supplied from ALSSI. Lockers are marketed in Canada by
the Canadian Locker Company, Ltd. ("Canadian Locker"), a wholly-owned
subsidiary. These sales are made outright, through salaried employees and
distributors, to customers who need storage facilities requiring a key
controlled lock system in the recreational, governmental and institutional type
industries. Canadian Locker also owns and operates coin operated lockers in air,
bus and rail terminals and retail locations in Canada. ALSSI manufactures the
lock system, which is coin or key controlled and operated, for use in lockers
sold by ALSSI and Canadian Locker. ALSSI also provides nationwide and Canadian
maintenance and repair services with respect to coin operated lockers previously
sold by ALSSI. The Company has developed a coin operated baggage cart system and
is operating the system at one major Canadian airport, one major United States
airport and has sold several cart systems for use in US airports.
Additional information with respect to business segment data, including
significant customers, is disclosed in Note 12 of the financial statements
included in Item 8 of this Form 10-K.
Competition
While the Company is not aware of any reliable trade statistics, it believes
that its subsidiaries, ALSSI and Canadian Locker are the dominant suppliers of
key controlled checking lockers in the United States and Canada. However, the
Company faces more active competition from several other manufacturers of locker
products sold to the United States Postal Service and other purchasers.
Raw Materials
Present sources of supplies and raw materials incorporated into the Company's
metal and plastic lockers and locks are generally considered to be adequate and
are currently available in the market place. The Company's supplier of
polycarbonate plastic which is used in the parcel lockers and CBUs entered this
market in March 1992 and is presently supplying this raw material which meets
strict specifications imposed by the United States Postal Service. In the event
the present supplier declines to continue to supply this material, the Company
would be required to seek an alternate source of supply.
The Company's metal lockers are manufactured by Signore Inc. pursuant to the
Manufacturing Agreement, except for the locks which are manufactured by ALSSI.
Patents
The Company owns a number of patents, none of which it considers material to the
conduct of its business.
4
Employees
The Company and its subsidiaries actively employed 137 individuals on a
full-time basis as of December 31, 1999, in its businesses of whom 47 are in
Canada. The Company considers its relations with its employees to be
satisfactory. None of the Company's employees are represented by a union.
Dependence on Material Customer
During 1999, 1998, and 1997, one customer, the United States Postal Service,
accounted for 74.3%, 76.9%, and 69.2% of net sales, respectively. The loss of
this customer, or a reduction in its orders, could adversely affect the
Company's operations and financial results.
Research and Development
The Company engages in research and development activities relating to new and
improved products as an incident of its normal manufacturing operations in
conjunction with the continuing operations. It expended $26,403, $17,081, and
$48,735, in 1999, 1998, and 1997, respectively, for such activity in its
continuing businesses, which does not include new product development costs.
Compliance with Environmental Laws and Regulations
Based on the information available to it, the Company believes that it is in
compliance with present federal, state and local environmental laws and
regulations.
In December 1998, the Company was named as a defendant in a lawsuit titled
"ROBERTA RAIPORT, ET AL. V. GOWANDA ELECTRONICS CORP. AND AMERICAN LOCKER GROUP,
INC." pending in the State of New York Supreme Court, County of Cattaragus. The
suit involves property located in Gowanda, New York which was sold by the
Company to Gowanda Electronics Corp. prior to 1980. The plaintiffs, current or
former property owners in Gowanda, New York, assert that defendants each
operated machine shops at the site during their respective periods of ownership
and that as a result of such operation soil and groundwater contamination
occurred which has adversely affected the plaintiffs and the value of
plaintiffs' properties. The plaintiffs assert a number of causes of action and
seek compensatory damages of $5,000,000 related to alleged diminution of
property values, $3,000,000 for economic losses and "disruption to plaintiffs'
lives," $10,000,000 for "nuisance, inconveniences and disruption to plaintiffs'
lives," $25,000,000 in punitive damages, and $15,000,000 to establish a "trust
account" for monitoring indoor air quality and other remedies." The Company
believes that its potential liability with respect to this site, if any, is
diminimus. Therefore, based on the information currently available, management
does not believe the outcome of this suit will have a substantial impact on the
Company's operations or financial condition. Defense of this case has been
assumed by the Company's insurance carrier, subject to a customary reservation
of rights.
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General
Backlog of orders is not significant in the Company's business as shipments
usually are made shortly after orders are received. The Company's sales do not
have marked seasonal variations.
Executive Officers of the Company
YEAR FIRST
ASSUMED
NAME AGE OFFICE HELD WITH COMPANY POSITION
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Edward F. Ruttenberg 53 Chairman of the Board and 1998
Chief Executive Officer
Roy J. Glosser 39 President, Chief Operating 1996
Officer and Treasurer
Mr. E.F. Ruttenberg has been employed in his positions since September, 1998.
Prior to that date he served as Vice Chairman of the Company. Mr. Glosser
assumed his position as President and Chief Operating Officer in May 1996 and
became Treasurer in September 1998. Prior to that date, Mr. Glosser served as
Vice President - Operations of the Company since 1995 and has been employed by
the Company since 1992 in operations and product development.
There are no arrangements or understandings pursuant to which any of the
officers were elected as officers, except for an employment contract between the
Company and Roy J. Glosser and an employment contract between the Company and
Edward F. Ruttenberg. Except as provided in such employment contracts, all
officers hold office for one year and until their successors are elected and
qualified; provided, however, that any officer is subject to removal with or
without cause, at any time, by a vote of the majority of the Board of Directors.
There have been no events under any bankruptcy act, no criminal proceedings and
no judgments or injunctions material to the evaluation of the ability and
integrity of any executive officer during the past five years.
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ITEM 2. DESCRIPTION OF PROPERTY
The location and approximate floor space of the Company's principal plants,
warehouses and office facilities are as follows ( * indicates leased facility):
APPROXIMATE
FLOOR SPACE
LOCATION SUBSIDIARY IN SQ. FT. PRODUCTS
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Jamestown, NY Principal Executive Office 37,000* Office space/
American Locker Company, Inc. Assembly and
and American Locker Security Warehouse
Systems, Inc.
Jamestown, NY American Locker Security 30,200* Assembly and
Systems, Inc. Warehouse
Pittsburgh, PA Executive Office 500* Office space
Ellicottville, NY American Locker Security 12,800 Lock manufacturing
Systems, Inc. - Lock Shop service and repair
Toronto, Canadian Locker Company, Ltd. 4,000* Coin-operated lockers
Ontario and locks
Toronto,
Ontario Canadian Locker Company, Ltd. 3,000* Warehouse
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TOTAL 87,500
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The Company believes that its facilities which are of varying ages and types of
construction and the machinery and equipment utilized in such plants are in good
condition and are adequate for its presently contemplated needs. All facilities
are leased except for the Ellicottville facility. The leases on these properties
terminate at various times from 2000 through 2001.
7
ITEM 3. LEGAL PROCEEDINGS
In September 1998 and subsequent months, the Company was named as an additional
defendant in 67 cases pending in state court in Massachusetts and one case
pending in Federal court. The plaintiffs in each such case assert that the
Company manufactured and furnished to various shipyards components containing
asbestos during the period from 1948 to 1972 and that injuries resulted from
exposure to such products. The assets of this division were sold by the Company
in 1973. Based upon investigations conducted by the Company to date, the Company
has discovered no evidence that the former division manufactured or supplied any
products containing asbestos. Therefore, barring the discovery of contrary
evidence, the Company does not anticipate that these actions will have any
substantial impact on the Company's operations or financial condition. Defense
of these cases has been assumed by the Company's insurance carrier, subject to a
customary reservation of rights.
See "Item 1. Business - Compliance with Environmental Laws and Regulations."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders, by means of
solicitation of proxies or otherwise, during the fourth quarter of 1999.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's shares of Common Stock (Par Value $1.00 per share) are not listed
on any exchange, but are traded on the over-the-counter market and quotations
are reported by the National Association of Security Dealers, Inc. through their
Automated Quotation System (NASDAQ) on the National Market System. The trading
symbol is ALGI. The following table shows the range of the low and high sale
prices for each of the calendar quarters indicated.
PER COMMON SHARE
MARKET PRICE
DIVIDEND
1998 HIGH LOW DECLARED
---- ---- ---- --------
First Quarter $12.75 $ 6.188 $0.00
Second Quarter 39.00 11.50 0.00
Third Quarter 37.75 10.50 0.00
Fourth Quarter 30.75 18.00 0.00
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Total $0.00
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1999 HIGH LOW DECLARED
---- ---- ---- --------
First Quarter $26.00 $13.25 $0.00
Second Quarter 14.25 6.375 0.00
Third Quarter 9.62 5.25 0.00
Fourth Quarter 8.75 5.125 0.00
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Total $0.00
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As of March 14, 2000, the Company had 1,350 security holders of record.
By agreement with its principal lender, the Company's ability to declare future
dividends is restricted. See Note 4 to the financial statements included in Item
8 of this Form 10-K.
9
ITEM 6. ELECTED FINANCIAL DATA
The following table sets forth selected historical financial data of the Company
as of, and for the years ended December 31, 1999, 1998, 1997, 1996, and 1995.
The financial data set forth below should be read in conjunction with the
information under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included in Item 7 of this Form 10-K and the
Financial Statements of the Company and the notes thereto included in Item 8 of
this Form 10-K.
1999 1998 1997 1996 1995
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Sales $34,950,104 $45,011,327 $29,295,533 $22,517,589 $23,677,940
Income before income taxes 4,395,208 7,103,364 3,454,508 1,819,184 2,747,478
Income taxes 1,771,407 2,788,822 1,342,033 674,352 956,909
Net income 2,623,801 4,314,542 2,112,475 1,144,832 1,790,569
Earnings per share - basic (2) 1.11 1.78 0.72 0.35 0.53
Earnings per share - diluted (2) 1.09 1.70 0.70 0.35 0.52
Weighted average common shares
outstanding - basic (2) 2,363,338 2,420,078 2,909,788 3,232,408 3,381,424
Weighted average common shares
outstanding - diluted (2) 2,402,108 2,542,684 3,000,128 3,307,876 3,442,328
Dividends declared 0.00 0.00 0.00 0.00 0.00
Interest expense 153,861 231,875 181,678 208,827 166,289
Depreciation expense 636,047 646,379 600,632 622,392 404,006
Expenditures for property, plant and equipment 1,915,139 536,819 520,358 234,621 1,232,604
YEAR-END POSITION
Total assets 15,179,069 13,469,516 11,263,725 10,020,078 10,106,185
Long-term debt, including current portion 2,034,324 733,333 3,094,000 1,300,000 900,000
Stockholders' equity 10,107,210 9,264,056 4,919,145 5,358,147 4,464,066
Stockholders' equity per share of common stock (1) 4.44 3.82 2.04 1.67 1.36
(2)
Common shares outstanding at year-end (2) 2,277,118 2,422,772 2,405,780 3,200,096 3,274,500
Number of employees 137 135 120 134 137
(1) Based on shares outstanding at year-end.
(2) All years presented have been restated to reflect the impact of a
four-for-one stock distribution during 1998.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations - 1999 Compared to 1998
Consolidated sales in 1999 totaled $34,950,000, a 22% decrease from sales of
$45,011,000 in 1998. Income before income taxes in 1999 declined 38% to
$4,395,000 compared to $7,103,000 in 1998. Sales of the Company's plastic
Cluster Box Units (CBUs) to the United States Postal Service (USPS) decreased
23% to $25,969,000 in 1999 from $33,611,000 in 1998. Revenues from the Company's
other locker products, primarily the sale and rental of metal coin and key
electronically controlled lockers, decreased 23% to $8,442,000 in 1999 from
$11,038,000 in 1998. During 1999, the Company expanded its luggage cart business
for airport terminals by commencing service at the Detroit Metropolitan Airport.
The luggage cart business generated revenue of approximately $539,000 in 1999
compared to $362,000 in 1998.
The decline in sales of plastic lockers resulted from a decline in the total
number of CBUs sold to the USPS in 1999 as compared to 1998 and also to lower
selling prices per unit. As a result of the USPS accumulation of CBU inventories
in 1998 and the USPS operating losses associated with deferring a postal rate
increase, the USPS purchased fewer CBUs in 1999. The Company believes that the
long-term outlook for CBU volume remains favorable in light of the continued
USPS commitment to the CBU program and its resulting operating cost reduction
benefits. Despite the decline in CBU orders received by the Company in 1999, the
Company has maintained its dominant share of the CBU market.
The Company's present contract with the USPS covers all three types of CBUs and
the Outdoor Parcel Locker (OPL). The contract was originally awarded March 27,
1996 and the USPS has exercised three one-year options which have extended the
contract to mid-April 2000. The USPS has advised the Company that it will
exercise the fourth one year option which will extend the contract to mid-April
2001. Prices and quantities under the anticipated contract renewal have not been
finalized and are subject to negotiation. Effective September 15, 1999, the USPS
announced it had discontinued the purchase of Neighborhood Delivery and
Collection Box Units (NDCBUs). The CBU is a modernization of the NDCBU which the
USPS had purchased for over 20 years and is an integral part of the USPS
delivery cost reduction program identified as Centralized Delivery. Therefore, a
positive impact to long-term CBU volume is anticipated as a result of
replacement of older NDCBUs. The Company believes its CBU product line continues
to represent the best value when all factors including price, quality of design
and construction, long-term durability and service are considered.
Sales of the Company's other locker products decreased due to a general decrease
in demand across all markets served by the Company as well as increased
competition.
The Company is addressing the decline in volume in its other locker products
through several initiatives. The Company has introduced a new plastic coin
operated locker designed for high corrosion environments. In addition, the
Company is reviewing and redesigning its international distribution methods, in
an effort to increase international sales activity. The Company also plans to
increase its efforts to further penetrate the airport luggage cart market during
2000.
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Consolidated cost of sales as a percentage of sales increased to 71.8% in 1999
compared to 70.0% in 1998. The increase was the result of the lower unit sales
of the Company's products, primarily the CBUs, as well as CBU price concessions.
Selling, administrative and general expenses of $5,652,000 during 1999 decreased
14% from $6,608,000 in 1998. The decrease is primarily the result of two unusual
1998 expenses. In 1998, Roy J. Glosser, President and Chief Operating Officer
was granted and exercised stock appreciation rights which resulted in $327,000
of additional compensation expense. The Company also expensed $400,000 to
provide for the entire obligation under the supplemental executive retirement
program (SERP) as a result of the death of the former chairman and chief
executive officer of the Company. The remaining decrease in 1999 compared to
1998 is due to lower selling expenses as a result of the decrease in sales
volume.
Interest expense decreased to $154,000 in 1999 from $232,000 in 1998. The
decrease in 1999 is due to lower average outstanding debt during 1999 as
compared to 1998. The increase in long-term debt at December 31, 1999 compared
to December 31, 1998 is due to the Company entering into a term loan during June
1999 which increased long-term debt by $1,500,000.
Results of Operations - 1998 Compared to 1997
In 1998, consolidated sales of $45,011,000 increased 54% over 1997 sales of
$29,296,000. Income before income taxes increased 106% to $7,103,000 in 1998
compared to $3,455,000 in 1997. Sales of the Company's plastic lockers to the
United States Postal Service (USPS) increased 76% to $33,611,000 in 1998 from
$19,112,000 in 1997. Revenues from the Company's other non-plastic locker
products increased 12% to $11,401,000 in 1998 from $10,183,000 in 1997.
During 1998 the Company delivered approximately 34,000 CBUs (all three types
combined) and approximately 8,000 OPLs. The USPS instituted and maintained a
procurement policy as of October 1997 that limited the purchase of NDCBUs (the
steel predecessor to plastic or aluminum CBUs) in relation to the new CBUs. As
stated above, in September 1999, the USPS entirely discontinued the purchase of
NDCBUs. Shipments of CBUs by the Company increased dramatically in 1998 due to
execution of the policy limiting the purchase of NDCBUs and the Company's
ability to maintain its dominant market share position.
Consolidated cost of sales as a percentage of sales was consistent at 70.0% in
1998 and 1997. Gross margin gains due to higher volume efficiencies on Cluster
Box Units (CBUs) were offset by price concessions to the USPS.
Selling, administrative and general expenses of $6,608,000 during 1998 increased
29% from the $5,120,000 in 1997. The two unusual items described above,
accounted for approximately $727,000 of the $1,488,000 increase in selling,
administrative and general expenses. The remainder of the increase in selling,
administrative and general expense includes increased costs for compensation,
selling expenses, freight, and legal expenses. The previously disclosed
settlement with the remaining plaintiff of Derr et al v. American Locker Group
Inc., 94-CV-05155(M), for a monetary sum of $400,000 was fully reserved and had
no effect on the Company's results of operations in 1998.
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Interest income increased to $103,000 in 1998 compared to $51,000 in 1997 due to
improvements in daily cash management procedures and higher balances available
for overnight investment.
Interest expense increased to $232,000 in 1998 from $182,000 in 1997. The
increase in interest expense relates to higher average outstanding debt in 1998.
However, in October 1998 the Company retired $1,813,000 of debt related to the
repurchase of a large block of Company stock in 1997.
Liquidity and Sources of Capital
The Company's liquidity is reflected in the ratio of current assets to current
liabilities or current ratio and its working capital. The current ratio was 4.68
to 1 and 3.94 to 1 at December 31, 1999 and 1998, respectively. Working capital,
or the excess of current assets over current liabilities was $9,973,000 and
$9,117,000 at December 31, 1999 and 1998, respectively. The increase in working
capital resulted primarily from operations. In 1999, the Company's operations
generated $4,994,000 of cash.
In June 1999 the Company entered into a new term loan, which provides for
borrowing up to $3,000,000. The Company may draw under this facility until June
30, 2000. The Company borrowed $1,500,000 under this facility during 1999, and
used the proceeds, together with cash from operations, to repurchase 221,650
shares of common stock of the Company for $2,367,000.
The Company's policy is to maintain modern equipment and adequate capacity.
During 1999, 1998 and 1997, the Company expended $1,915,000, $537,000, and
$520,000, respectively, for capital additions. Capital expenditures in all three
years were financed principally from operations.
The Company expects that cash generated from operations in 2000 will be adequate
to fund the needs for working capital, capital expenditures and debt payments.
However, if necessary, the Company has a $3,000,000 revolving bank
line-of-credit available to assist in satisfying future operating cash needs.
Impact of Inflation and Changing Prices
Although inflation has been low in recent years, it is still a factor in the
economy and the Company continues to seek ways to mitigate its impact. To the
extent permitted by competition, the Company passes increased costs on to its
customers by increasing sales prices over time. Specifically, the Company does
have the ability to modify its contract with the USPS regarding sales prices in
the event of a significant price increase for materials subject however to
competitive situations. In respect to its other products, both steel and
plastic, the Company expects that any raw material price changes would be
reflected in adjusted sales prices.
The Company intends to seek ways to control the administrative overhead
necessary to successfully run the business. By controlling these costs, the
Company can continue to
13
competitively price its products with other top quality locker manufacturers and
distributors.
The Company has used the LIFO method of accounting for its inventories since
1974. This method matches current costs with current revenues and during an
inflationary period, reduces reported income but improves cash flow due to a
reduction of taxes based on income.
Interest Rate Risks
The interest rate on the Company's long-term debt is based upon the prime
interest rate; accordingly the Company is exposed to interest rate risk. Based
upon the Company's outstanding long-term debt at December 31, 1999, a 1%
increase in interest rates would result in an increase to interest expenses of
approximately $20,000.
Effect of New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The intended use of the
derivative and its designation as either (1) a hedge of the exposure to changes
in the fair value of a recognized asset or liability or a firm commitment (a
fair value hedge), (2) a hedge of the exposure to variable cash flows of a
forecasted transaction (a cash flow hedge), or (3) a hedge of the foreign
currency exposure of a net investment in a foreign operation (a foreign currency
hedge), will determine when the gains or losses on the derivatives are to be
reported in earnings and when they are to be reported as a component of other
comprehensive income. This new standard must be adopted for year 2001 financial
reporting. At this time, management does not believe that the pronouncement will
impact the Company's financial statements.
Year 2000
The Company did not experience any disruptions, internally or externally, from
Year 2000 issues. The total expenditures for Year 2000 issues, mainly hardware,
software and implementation consulting fees, were approximately $250,000.
Safe Harbor Statement under the Private Securities Litigation Reform Act Of 1995
Forward-looking statements in this report, including without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties including without limitation the following: (i) the Company's
plans, strategies, objectives, expectations, and intentions are subject to
change at any time at the discretion of the Company, (ii) the Company's plans
and results of operations will be affected by the Company's ability to manage
its growth and inventory, and (iii) other risks and uncertainties indicated from
time to time in the Company's filings with the Securities and Exchange
Commission.
14
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required is reported under "Impact of Inflation and Changing
Prices" and "Interest Rate Risk" in Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations.
15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Auditors
Board of Directors and Stockholders
American Locker Group Incorporated and Subsidiaries
We have audited the accompanying consolidated balance sheets of American Locker
Group Incorporated and Subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1999. Our audits
also included the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of the
management of the Company. Our responsibility is to express an opinion on these
financial statements and schedule 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 consolidated financial position of American Locker
Group Incorporated and Subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ Ernst & Young LLP
Buffalo, New York
February 15, 2000
16
American Locker Group Incorporated and Subsidiaries
Consolidated Balance Sheets
December 31
1999 1998
--------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 3,285,983 $ 1,188,007
Accounts and notes receivable, less allowance for
doubtful accounts of $222,000 in 1999 and $216,000 in1998
3,814,185 4,062,802
Inventories 4,973,269 6,312,131
Prepaid expenses 125,581 150,808
Deferred income taxes 481,163 501,477
--------------------------------------------
Total current assets 12,680,181 12,215,225
Property, plant and equipment:
Land 500 500
Buildings 390,953 388,795
Machinery and equipment 10,309,324 8,408,983
--------------------------------------------
10,700,777 8,798,278
Less allowance for depreciation (8,290,534) (7,681,632)
--------------------------------------------
2,410,243 1,116,646
Deferred income taxes 88,645 137,645
--------------------------------------------
Total assets $ 15,179,069 $ 13,469,516
============================================
17
December 31
1999 1998
--------------------------------------------
Liabilities and stockholders' equity Current liabilities:
Accounts payable $ 1,410,948 $ 1,574,809
Commissions, salaries, wages and taxes thereon 311,172 639,822
Other accrued expenses 610,947 600,582
Federal, state and foreign income taxes payable 49,432 82,941
Current portion of long-term debt 325,000 200,000
--------------------------------------------
Total current liabilities 2,707,499 3,098,154
Long-term obligations:
Long-term debt 1,708,324 533,333
Pension and other benefits 656,036 573,973
--------------------------------------------
2,364,360 1,107,306
Stockholders' equity:
Common stock, $1 par value:
Authorized shares-- 4,000,000
Issued shares -- 2,498,768 -1999 and 2,422,772 - 1998
Outstanding shares -- 2,277,118 - 1999,
2,422,772 - 1998 2,498,768 2,422,772
Other capital 538,455 74,867
Retained earnings 9,600,788 6,976,987
Treasury stock at cost (221,650 shares) (2,367,966) -
Accumulated other comprehensive income (162,835) (210,570)
--------------------------------------------
Total stockholders' equity 10,107,210 9,264,056
--------------------------------------------
Total liabilities and stockholders' equity $ 15,179,069 $ 13,469,516
============================================
18
American Locker Group Incorporated and Subsidiaries
Consolidated Statements of Income
Year ended December 31
1999 1998 1997
-----------------------------------------------------------
Net sales $ 34,950,104 $ 45,011,327 $ 29,295,533
Cost of products sold 25,099,003 31,493,280 20,533,950
-----------------------------------------------------------
9,851,101 13,518,047 8,761,583
Selling, administrative and general expenses 5,652,262 6,608,376 5,119,905
-----------------------------------------------------------
4,198,839 6,909,671 3,641,678
Interest income 96,057 102,826 51,270
Other income (expense) - net 254,173 322,742 (56,762)
Interest expense (153,861) (231,875) (181,678)
-----------------------------------------------------------
Income before income taxes 4,395,208 7,103,364 3,454,508
Income taxes 1,771,407 2,788,822 1,342,033
-----------------------------------------------------------
Net income $ 2,623,801 $ 4,314,542 $ 2,112,475
===========================================================
Earnings per share of common stock:
Basic $1.11 $ 1.78 $ .72
===========================================================
Diluted $1.09 $ 1.70 $ .70
===========================================================
Dividends per share of common stock: $0.00 $ 0.00 $0.00
===========================================================
See accompanying notes.
19
American Locker Group Incorporated and Subsidiaries
Consolidated Statements of Stockholders' Equity
Accumulated
Other Total
Common Other Retained Treasury Comprehensive Stockholders'
Stock Capital Earnings Stock Income Equity
-------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $ 3,200,096 $ 1,083,330 $ 1,189,308 $ - $ (114,587) $ 5,358,147
Comprehensive income:
Net income - - 2,112,475 - - 2,112,475
Other comprehensive income:
Foreign currency translation - - - - (34,493) (34,493)
Total comprehensive income 2,077,982
Common stock purchased and
retired (794,316 shares) (794,316) (1,083,330) (639,338) - - (2,516,984)
-------------------------------------------------------------------------------------------------
Balance at December 31, 1997
2,405,780 - 2,662,445 - (149,080) 4,919,145
Comprehensive income:
Net income - - 4,314,542 - - 4,314,542
Other comprehensive income:
Foreign currency translation - - - - (61,490) (61,490)
Total comprehensive income 4,253,052
Common stock issued (17,000 shares) 17,000 8,063 - - - 25,063
Tax benefit of exercised stock
options - 66,894 - - - 66,894
Common stock purchased and
retired (8 shares) (8) (90) - - - (98)
-------------------------------------------------------------------------------------------------
Balance at December 31, 1998 2,422,772 74,867 6,976,987 - (210,570) 9,264,056
Comprehensive income:
Net income - - 2,623,801 - - 2,623,801
Other comprehensive income:
Foreign currency translation - - - - 47,735 47,735
Total comprehensive income 2,671,536
Common stock issued (76,000 shares) 76,000 (21,375) - - - 54,625
Tax benefit of exercised stock
options - 485,000 - - - 485,000
Common stock purchased for
treasury (221,650 shares) - - - (2,367,966) - (2,367,966)
Common stock purchased and retired
(4 shares) (4) (37) - - - (41)
-------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $ 2,498,768 $ 538,455 $ 9,600,788 $(2,367,966) $ (162,835) $ 10,107,210
=================================================================================================
See accompanying notes.
20
Consolidated Statements of Cash Flows
Year ended December 31
1999 1998 1997
------------------------------------------------------
Operating activities
Net income $ 2,623,801 $ 4,314,542 $ 2,112,475
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 630,047 646,379 600,632
Loss on disposition of property, plant and equipment - 1,265 490
Deferred income taxes (credits) 69,314 (57,139) (7,467)
Pension and other benefits 84,863 311,613 58,040
Change in assets and liabilities:
Accounts and notes receivable 263,872 438,478 (1,164,644)
Inventories 1,338,862 (2,675,794) (296,860)
Prepaid expenses 25,805 (62,058) 7,603
Accounts payable and accrued expenses (493,590) 687,462 154,526
Income taxes 451,491 182,350 (3,529)
------------------------------------------------------
Net cash provided by operating activities 4,994,465 3,787,098 1,461,266
Investing activities
Purchase of property, plant and equipment (1,915,139) (536,819) (520,358)
Proceeds from sale of property, plant and equipment - 9,426 3,702
------------------------------------------------------
Net cash used in investing activities (1,915,139) (527,393) (516,656)
Financing activities
Net repayment under line of credit - (850,000) (275,000)
Long-term debt borrowings 1,500,000 - 3,315,000
Long-term debt payments (200,000) (2,360,667) (1,521,000)
Common stock issued 54,625 25,063 -
Common stock purchased for treasury (2,367,966) - -
Common stock purchased and retired (41) (98) (2,516,984)
------------------------------------------------------
Net cash used in financing activities (1,013,382) (3,185,702) (997,984)
Effect of exchange rate changes on cash 32,032 (40,041) (21,803)
------------------------------------------------------
Net increase (decrease) in cash 2,097,976 33,962 (75,177)
Cash and cash equivalents at beginning of year 1,188,007 1,154,045 1,229,222
------------------------------------------------------
Cash and cash equivalents at end of year $ 3,285,983 $ 1,188,007 $ 1,154,045
======================================================
Supplemental cash flow information: Cash paid during the year for:
Interest $ 143,032 $ 240,600 $ 172,953
======================================================
Income taxes $ 1,250,602 $ 2,665,587 $ 1,345,562
======================================================
See accompanying notes.
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
American Locker Group Incorporated and Subsidiaries
December 31, 1999
1. BASIS OF PRESENTATION
CONSOLIDATION AND BUSINESS DESCRIPTION
The consolidated financial statements include the accounts of American Locker
Group Incorporated and its subsidiaries (the Company), all of which are
wholly-owned. Intercompany accounts and transactions have been eliminated in
consolidation. The Company is primarily engaged in one business: coin and key or
electronically controlled metal and plastic centralized mail and parcel
distribution lockers and locks. The Company sells to customers throughout North
America as well as internationally.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash includes currency on hand and demand deposits with financial institutions.
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
INVENTORIES
Inventories are valued principally at the lower of cost or market, cost
determined by the last-in, first-out method.
PROPERTIES AND DEPRECIATION
Property, plant and equipment are stated at cost. Depreciation is computed by
the straight-line and declining-balance methods for financial reporting purposes
and by accelerated methods for income tax purposes. Estimated useful lives for
financial reporting purposes are 30 years for buildings and 3 to 12 years for
machinery and equipment.
REVENUE RECOGNITION
Revenue is recognized at the point of passage of title, which is at the time of
shipment to the customer. Less than three percent of the Company's revenues were
derived from sales to distributors. No distributor stocks a material inventory
of the Company's products and no distributor has the right to return.
22
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company accounts for income taxes using the liability method in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109").
EARNINGS PER SHARE
The Company reports earnings per share in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). Under SFAS 128
basic earnings per share excludes any dilutive effects of stock options, whereas
diluted earnings per share assumes exercise of stock options, when dilutive,
resulting in an increase in outstanding shares.
FOREIGN CURRENCY
The assets and liabilities of the Company's foreign subsidiary are translated to
U.S. dollars at current exchange rates. Income statement amounts are translated
using the average exchange rate for the year. The gains and losses resulting
from the changes in exchange rates from year to year have been reported in other
comprehensive income. The effect on the statements of income of transaction
gains and losses is insignificant for all years presented.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. The Company incurred $332,000,
$310,000 and $289,000 in advertising costs during 1999, 1998 and 1997,
respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts and notes
receivable, accounts payable, and accrued liabilities approximate fair value due
to the short-term maturities of these assets and liabilities. The carrying
amounts of the Company's long-term debt also approximate fair value since the
interest rates are adjusted based upon changes in the prime interest rate.
STOCK-BASED COMPENSATION
The Company accounts for stock options granted under its stock-based
compensation plan in accordance with the intrinsic value based method of
accounting as prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), as allowed under
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). Accordingly, no compensation cost for stock options
is recognized because the number of options granted is fixed and the exercise
price of the stock options equals the market price of the underlying stock on
the date of the grant.
23
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 amounts reported in the financial statements and the accompanying
notes. Actual results could differ from those estimates.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The intended use of the derivative and its
designation as either (1) a hedge of the exposure to change in the fair value of
a recognized assets or liability or a firm commitment (a fair value hedge), (2)
a hedge of the exposure to variable cash flows of a forecasted transaction (a
cash flow hedge), or (3) a hedge of the foreign currency exposure of a net
investment in a foreign operation (a foreign currency hedge), will determine
when the gains or losses on the derivatives are to be reported in earnings and
when they are to be reported as a component of other comprehensive income.
This new standard must be adopted for year 2001 financial reporting. Management
has determined that it does not have current transactions that would require
reporting under SFAS 133.
3. INVENTORIES
Inventories consist of the following:
December 31
1999 1998
---------------------------------------
Finished products $ 1,363,889 $ 1,763,210
Work-in-process 1,856,704 2,023,542
Raw materials 2,373,527 2,985,888
---------------------------------------
5,594,120 6,772,640
Less allowance to reduce to LIFO basis (620,851) (460,509)
---------------------------------------
Net inventories $ 4,973,269 $ 6,312,131
=======================================
24
4. DEBT
Long-term debt consists of the following:
December 31
1999 1998
---------------------------------------
Note payable to bank, unsecured,
payable through August 31, 2002 at
$16,667 per month plus interest at
prime plus 0.15% $ 533,324 $ 733,333
Note payable to bank, unsecured,
with interest at prime, payable
in equal monthly principal amounts
from August 2000 through July 2005,
provides for borrowing up to
$3,000,000
1,500,000 -
---------------------------------------
Total long-term debt 2,033,324 733,333
Less current portion 325,000 200,000
---------------------------------------
Long-term portion $ 1,708,324 $ 533,333
=======================================
The credit agreement underlying the notes payable to bank requires compliance
with certain covenants and has restrictions on the payment of dividends. The
Company was in compliance with the terms of the agreement in connection with the
notes payable at December 31, 1999.
Based upon the outstanding balances at December 31, 1999, the required principal
payments on long-term obligations in each of the years through final maturity
are as follows:
2000 $ 325,000
2001 500,000
2002 433,324
2003 300,000
2004 300,000
2005 175,000
The Company has a $3,000,000 unsecured line of credit agreement with a bank with
interest at the prime rate (8.5% at December 31, 1999.) There were no borrowings
outstanding under the line of credit at December 31, 1999.
5. OPERATING LEASES
The Company leases several operating facilities and vehicles under
non-cancelable operating leases. Future minimum lease payments consist of the
following at December 31, 1999:
2000 $ 302,000
2001 253,000
----------------
$ 555,000
================
25
5. OPERATING LEASES (CONTINUED)
Rent expense amounted to approximately $322,000, $252,000 and $360,000 in 1999,
1998 and 1997, respectively.
6. INCOME TAXES
For financial reporting purposes, income before income taxes includes the
following components:
1999 1998 1997
-------------------------------------------------------
United States $ 4,286,818 $ 7,055,116 $ 3,475,062
Foreign income (loss) 108,390 48,248 (20,554)
-------------------------------------------------------
$ 4,395,208 $ 7,103,364 $ 3,454,508
=======================================================
Significant components of the provision for income taxes are as follows:
1999 1998 1997
-------------------------------------------------------
Current:
Federal $ 1,386,855 $ 2,431,419 $ 1,162,327
State 266,557 390,548 199,227
Foreign 48,681 23,954 (12,054)
-------------------------------------------------------
Total current 1,702,093 2,845,921 1,349,500
Deferred:
Federal 58,917 (48,569) (6,347)
State 10,397 (8,570) (1,120)
-------------------------------------------------------
69,314 (57,139) (7,467)
-------------------------------------------------------
$ 1,771,407 $ 2,788,782 $ 1,342,033
=======================================================
The differences between the federal statutory rate and the effective tax rate as
a percentage of income before taxes are as follows:
1999 1998 1997
-----------------------------------------------
Statutory income tax rate 34% 34% 34%
State and foreign income taxes 5 4 3
Other permanent differences 1 1 2
-----------------------------------------------
40% 39% 39%
===============================================
Differences between accounting rules and tax laws cause differences between the
bases of certain assets and liabilities for financial reporting purposes and tax
purposes. The tax effects of these differences, to the extent they are
temporary, are recorded as deferred tax assets and liabilities. Significant
components of the Company's deferred tax assets and liabilities at December 31
are as follows:
26
1999 1998
------------------------------------
Deferred tax liabilities:
Property, plant and equipment $ 220,796 $ 139,422
Prepaid expenses and other 85,005 91,036
------------------------------------
Total deferred tax liabilities 305,801 230,458
Deferred tax assets:
Postretirement benefits 58,301 61,936
Pension costs 289,663 253,654
Allowance for doubtful accounts 46,283 84,360
Accrued expenses 110,476 105,102
Other employee benefits 28,608 34,256
Inventory costs 342,278 330,272
------------------------------------
Total deferred tax assets 875,609 869,580
------------------------------------
Net deferred tax assets $ 569,808 $ 639,122
====================================
Current deferred tax asset $ 481,163 $ 501,477
Long-term deferred tax asset 88,645 137,645
------------------------------------
$ 569,808 $ 639,122
====================================
The Company does not provide deferred taxes for amounts that could result from
the remittance of undistributed earnings of the Company's foreign subsidiary
since it is generally the Company's intention to reinvest these earnings
indefinitely. Undistributed earnings that could be subject to additional income
taxes if remitted was approximately $1,004,000 at December 31, 1999. If such
dividends were to be remitted, foreign tax credits available under present law
would reduce the amount of U.S. taxes payable.
7. PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company and its subsidiaries have a defined benefit pension plan covering
substantially all employees. Benefits for the salaried employees are based on
specified percentages of the employees annual compensation. The benefits for
hourly employees are based on stated amounts for each year of service. The
plan's assets are invested in fixed interest rate group annuity contracts with
an insurance company.
In addition to the Company's defined benefit plan, the Company provides a life
insurance benefit to substantially all employees upon retirement. Retirees
eligible to participate in this plan have their life insurance premiums paid on
their behalf by the Company. The insurance premiums related to this plan are
paid annually.
The following table sets forth the changes in benefit obligation, changes in
plan assets, the funded status and the accrued benefit cost recognized in the
consolidated balance sheets at December 31, 1999 and 1998.
27
7. PENSION AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
PENSION BENEFITS OTHER BENEFITS
1999 1998 1999 1998
-----------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning
of year $ 2,123,786 $ 2,089,481 $ 72,284 $ 133,302
Service cost 177,064 142,888 1,415 1,332
Interest cost 147,538 134,961 5,623 4,594
Actuarial (gain) loss (151,581) 92,463 (5,141) (61,644)
Benefits paid (99,091) (336,007) (5,089) (5,300)
-----------------------------------------------------------------------
Benefit Obligation At End of Year 2,197,716 2,123,786 69,092 72,284
CHANGE IN PLAN ASSETS
Fair value of plan assets at
beginning of year 1,825,209 1,911,849 - -
Actual return on plan assets 126,914 126,330 - -
Employer contribution - 123,037 5,089 5,300
Benefits paid (99,091) (336,007) (5,089) (5,300)
-----------------------------------------------------------------------
Fair value of plan assets at end of year 1,853,052 1,825,209 - -
Funded status (344,664) (298,577) (69,092) (72,284)
Unrecognized net transition asset (316,974) (423,015) - -
Unrecognized net actuarial loss (gain) 288,202 457,665 (65,661) (64,350)
Unrecognized prior service cost 2,268 2,693 - -
-----------------------------------------------------------------------
Accrued benefit cost $ (371,168) $ (261,234) $ (134,753) $ (136,634)
=======================================================================
PENSION BENEFITS OTHER BENEFITS
1999 1998 1999 1998
-----------------------------------------------------------------------
COMPONENTS OF NET PERIODIC
BENEFIT COST
Service cost $ 177,064 $ 142,888 $ 1,415 $ 1,332
Interest cost 147,538 134,961 5,623 4,594
Expected return on plan assets (124,677) (121,896) - -
Amortization of unrecognized net
transition asset (106,041) (106,041) - -
Net actuarial loss (gain) 15,645 11,413 (3,830) (3,830)
Amortization of prior service cost 425 425 - -
-----------------------------------------------------------------------
Net periodic benefit cost $ 109,954 $ 61,750 $ 3,208 $ 2,096
=======================================================================
28
7. PENSION AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
PENSION BENEFITS OTHER BENEFITS
1999 1998 1999 1998
--------------------------------------
Weighted average assumptions
as of December 31
Discount rate 7.50% 6.75% 7.50% 6.75%
Expected return on plan assets 7.00% 7.00% - -
Rate of compensation increase 5.50% 4.75% - -
Effective January 1, 1998, the Company implemented a Supplemental Executive
Retirement Plan. During 1998, the Company recorded an expense of approximately
$400,000 in accordance with the plan provisions, as a result of the death of the
Company's chief executive officer. The Plan provides for monthly payments to the
former executive's widow for the remainder of her life. Based upon actuarial
calculations, the projected liability under the plan is approximately $352,000
at December 31, 1999 and is recorded as other accrued expenses and pension and
other benefits in the consolidated balance sheets.
During 1999 the Company established a defined contribution 401(k) plan for the
benefit of its full-time employees. Employees may contribute on a pre-tax basis,
a portion of their salary up to IRS limits to the Plan. The Company matches a
portion of the employees' contribution. The Company recorded expense of
approximately $12,000 in connection with its contribution to the plan during
1999.
8. CAPITAL STOCK
The Certificate of Incorporation, as amended, authorizes 4,000,000 shares of
common stock, 1,000,000 shares of convertible preferred stock and 200,000 shares
of Series A Junior Participating Preferred Stock.
9. STOCK OPTIONS
In 1999, the Company adopted the American Locker Group Incorporated Stock
Incentive Plan, permitting the Company to provide incentive compensation of the
types commonly known as incentive stock options, stock options and stock
appreciation rights. The price of option shares or appreciation rights granted
under the plan shall not be less than the fair market value of common stock on
the date of grant, and the term of the stock option or appreciation right shall
not exceed ten years from date of grant. Upon exercise of a stock appreciation
right granted in connection
29
9. STOCK OPTIONS (CONTINUED)
with a stock option, the optionee shall surrender the option and receive payment
from the Company of an amount equal to the difference between the option price
and the fair market value of the shares applicable to the options surrendered on
the date of surrender. Such payment may be in shares, cash or both at the
discretion of the Company's Stock Option-Executive Compensation Committee. Prior
to 1999, the Company issued stock options and stock appreciation rights under a
1988 plan. The 1988 plan expired in 1999, as such no further options can be
granted under the 1988 plan. As of December 31, 1999, options with respect to
57,000 shares remained outstanding under the 1988 plan.
During 1998, the Company recorded approximately $327,000 of expense related to
stock appreciation rights that were granted and exercised. At December 31, 1999,
1998 and 1997, there were no stock appreciation rights outstanding.
Pro forma information regarding net income and earnings per share is required by
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" ("SFAS 123"), and has been determined as if the Company had
accounted for its employee stock options under the fair value method of SFAS
123. The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1999: risk-free interest rates of 7.0%; dividend yields of 0.0;
volatility factors of the expected market price of the Company's common stock of
.70; and a weighted-average expected life of the option of 5 years. The
pro-forma effect on earnings for the year ended December 31, 1999 is as follows:
net income $2,455,803; basic earnings per share $1.04, and diluted earnings per
share $1.02. The pro-forma effect on earnings for the year ended December 31,
1997 is as follows: net income $2,069,635; basic earnings per share $.71 and
diluted earnings per share $.69. The 1998 net income and earnings per share
would not have been impacted, since no stock options were granted in 1998, and
the options granted in 1997, vested immediately.
The per share fair value of the options granted in 1999 using these assumptions
was $4.35.
30
9. STOCK OPTIONS (CONTINUED)
A summary of the activity in the Company's Employee Option Plan and related
information for the years ended December 31 follows:
1999 1998 1997
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise Price
Options Price Options Price Options
----------------------------------------------------------------------------------------
Outstanding -
Beginning of year 133,000 $ 1.45 162,000 $ 1.55 102,000 $ .81
Exercised and
Surrendered (76,000) .72 (29,000) 2.03 -
-
Granted 57,000 6.98 - - 60,000 2.81
=========================================================================================
Outstanding -
end of year 114,000 $ 5.11 133,000 $ 1.45 162,000 $ 1.55
=========================================================================================
Exercisable -
end of year 114,000 133,000 162,000
======= ======= =======
The exercise prices for options outstanding as of December 31, 1999 were as
follows: $1.063 - 13,000 shares, $2.813 - 44,000 shares, $6.50 - 57,000 shares
and $8.875 - 10,000 shares. The weighted-average remaining contractual life of
those options is 7.6 years.
At December 31, 1999, 83,000 options remain available for future issuance under
the 1999 plan.
10. SHAREHOLDER RIGHTS PLAN
In November 1999, the Company adopted a Shareholder Rights Agreement and
declared a dividend distribution of one Right for each outstanding share of
common stock. Under certain conditions, each right may be exercised to purchase
one one-hundredth of a share of Series A Junior Participating Preferred Stock at
a price of $40 ("Purchase Price"), subject to adjustment. The Right will be
exercisable only if a person or group (an "Acquiring Person") has acquired
beneficial ownership of 20% or more of the outstanding common stock, or ten
business days (subject to prior extension of the period by the Board) following
the commencement of a tender or exchange offer for 20% or more of such
outstanding common stock. The Rights Plan includes certain exceptions from the
definitions of Acquiring Person and beneficial ownership to take into account
the existing ownership of common shares by members of one family. If any person
31
10. SHAREHOLDER RIGHTS PLAN (CONTINUED)
becomes an Acquiring Person, each Right will entitle its holder to receive, upon
exercise of the Right, such number of common shares determined by (A)
multiplying the current Purchase Price by the number of one one-hundredth of a
preferred share for which a right is now exercisable and dividing that product
by (B) 50% of the current market price of the common shares.
In addition, if the Company is acquired in a merger or other business
combination transaction, each Right will entitle its holder to receive, upon
exercise, that number of the acquiring Company's common shares having a market
value of twice the exercise price of the Right. The Company will be entitled to
redeem the Rights at $.01 per Right at any time prior to the earlier of the
expiration of the Rights in November 2009 or the time that a person becomes an
Acquiring Person. The Rights do not have voting or dividend rights, and until
they become exercisable, have no dilutive effect on the Company's earnings.
11. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share for the years ended December 31:
1999 1998 1997
--------------------------------------------------------
Numerator:
Net income $ 2,623,801 $4,314,542 $2,112,475
Denominator:
Denominator for basic earnings per share - weighted
average shares outstanding 2,420,078 2,909,788
2,363,338
Effect of dilutive securities:
Employee stock options 38,770 122,606 90,340
---------------------------------------------------------
Denominator for diluted earnings per share -
weighted average shares out- standing and assumed
conversions 2,402,108 2,542,684 3,000,128
=========================================================
Basic earnings per share $ 1.11 $ 1.78 $ .72
=========================================================
Diluted earnings per share $ 1.09 $ 1.70 $ .70
=========================================================
12. GEOGRAPHIC AND CUSTOMER CONCENTRATION DATA
The Company primarily operates in one line of business, sale and rental of
lockers. This includes coin and key electronically controlled checking lockers
and locks and sale of plastic centralized mail and parcel distribution lockers.
32
12. GEOGRAPHIC AND CUSTOMER CONCENTRATION DATA (CONTINUED)
The Company sells to customers in the United States, Canada and other foreign
locations. Net sales to external customers are as follows:
1999 1998 1997
------------------------------------------------------
United States customers $ 32,596,075 $ 41,735,153 $ 26,170,616
Foreign customers 2,354,029 3,276,174 3,124,917
------------------------------------------------------
$ 34,950,104 $ 45,011,327 $ 29,295,533
======================================================
Sales to the U.S. Postal Service represented 74.3%, 76.9% and 69.2% of net sales
in 1999, 1998, and 1997, respectively.
At December 31, 1999 and 1998, the Company had secured receivables from a
customer under a time payment arrangement totaling $63,000 and $76,000,
respectively. At December 31, 1999, the Company had unsecured trade receivables
from governmental agencies of $2,416,000 and from customers considered to be
distributors of $192,000 (including a United Kingdom distributor of $133,000).
Other concentrations of credit risk with respect to trade accounts receivable
are limited due to the large number of entities comprising the Company's
customer base and their dispersion across many different industries. The Company
generally does not require collateral for trade accounts receivable.
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly results of operations
for the years ended December 31, 1999 and 1998:
1999
--------------------------------------------------------------
Three Months Ended
March 31 June 30 September 30 December 31
--------------------------------------------------------------
Net sales $ 7,857,688 $ 10,029,123 $ 7,761,363 $ 9,301,930
==============================================================
Gross profit 2,323,713 2,890,548 2,327,709 2,309,131
==============================================================
Net income 591,807 911,546 502,159 618,289
==============================================================
Earnings per
share - Basic .24 .37 .22 .27
==============================================================
Earnings per
share - Diluted .23 .37 .22 .27
==============================================================
==============================================================
33
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)
1999
--------------------------------------------------------------
Three Months Ended
March 31 June 30 September 30 December 31
--------------------------------------------------------------
Net sales $ 9,789,657 $ 11,604,876 $ 15,422,935 $ 8,193,859
==============================================================
Gross profit $ 3,046,600 $ 3,646,128 $ 4,105,444 $ 2,719,875
==============================================================
Net income $ 929,896 $ 1,246,408 $ 1,233,507 $ 904,731
==============================================================
Earnings per
share - Basic $ .38 $ .52 $ .51 $ .37
==============================================================
Earnings per
share - Diluted $ .37 $ .49 $ .48 $ .36
==============================================================
The Company's accounting practice for interim periods provides for possible
accounting adjustments at year end. In 1999, such adjustments resulted in
decreasing fourth quarter pretax income by $216,000 for inventory costs. In 1998
such adjustments resulted in increasing fourth quarter pretax income by $240,000
for inventory costs, decreasing fourth quarter pretax income by $150,000 for
accounts receivable allowances and increasing fourth quarter pretax income by
$74,000 for liability reserves. In 1997 such adjustments resulted in increasing
fourth quarter pretax income by $177,000 for inventory costs, increasing net
income by $58,000 for income tax expense, and decreasing fourth quarter pretax
income by $58,000 for pension costs.
14. RELATED PARTIES
One Director of the Company is a stockholder and director of Rollform of
Jamestown Inc., a rollforming company. One of the Company's subsidiaries
purchased $218,000, $283,000, and $114,000 of fabricated parts from Rollform of
Jamestown, Inc. in 1999, 1998, and 1997, respectively, at prices that the
Company believes are at arms length.
15. CONTINGENCIES
In September 1998 and subsequent months, the Company was named as an additional
defendant in over 67 cases pending in state court in Massachusetts and one case
pending in Federal court. The plaintiffs in each such case assert that the
Company manufactured and furnished to various shipyards components containing
asbestos during the period from 1948 to 1972 and that injuries resulted from
exposure to such products. The assets of this division were sold by the Company
in 1973. Based upon investigations conducted by the Company to date, the Company
has discovered no evidence that the former division manufactured or supplied any
products containing asbestos. Therefore, barring the discovery of contrary
evidence, the Company does not anticipate that these actions will have any
substantial impact on the Company's operations or financial condition. Defense
of these cases has been assumed by the Company's insurance carrier, subject to a
customary reservation of rights.
34
15. CONTINGENCIES (CONTINUED)
In December 1998, the Company was named as a defendant in a lawsuit titled
"ROBERTA RAIPORT, ET AL. V. GOWANDA ELECTRONICS CORP. AND AMERICAN LOCKER GROUP,
INC." pending in the State of New York Supreme Court, County of Cattaragus. The
suit involves property located in Gowanda, New York which was sold by the
Company to Gowanda Electronics Corp. prior to 1980. The plaintiffs, current or
former property owners in Gowanda, New York, assert that defendants each
operated machine shops at the site during their respective periods of ownership
and that as a result of such operation soil and groundwater contamination
occurred which has adversely affected the plaintiffs and the value of
plaintiffs' properties. The plaintiffs assert a number of causes of action and
seek compensatory damages of $5,000,000 related to alleged diminution of
property values, $3,000,000 for economic losses and "disruption to plaintiffs'
lives," $10,000,000 for "nuisance, inconveniences and disruption to plaintiffs'
lives," $25,000,000 in punitive damages, and $15,000,000 to establish a "trust
account" for monitoring indoor air quality and other remedies." The Company
believes that its potential liability with respect to this site, if any, is de
minimis. Therefore, based on the information currently available, management
does not believe the outcome of this suit will have a substantial impact on the
Company's operations or financial condition. Defense of this case has been
assumed by the Company's insurance carrier, subject to a customary reservation
of rights.
35
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants on accounting
and financial disclosures during 1999 or 1998.
PART III
Item 10, 11, 12 and 13 will be contained in American Locker Group Incorporated's
Annual Proxy Statement, incorporated herein by reference, which will be filed
within 120 days after year-end.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The documents filed as part of this report are as follows:
1. Financial Statements
2. Financial Statement Schedules
See Index to Financial Statements and Financial Statement
Schedules
All other consolidated financial schedules are omitted
because they are inapplicable, not required or the
information is excluded elsewhere in the consolidated
financial statements or the notes thereto.
3. Exhibits
(a) Exhibits required by Item 601 of Regulation S-K are
submitted as a separate section herein immediately
following the "Exhibit Index".
(b) Reports on Form 8-K filed in the fourth quarter of 1999.
(i) Report on Form 8-K filed on November 20, 1999.
36
American Locker Group Incorporated
Index to Financial Statements and Financial Statement Schedules
The financial statements together with the report of Ernst & Young LLP dated
February 15, 2000, is included in Item 8 Financial Statments and Supplementary
Data in the Annual Report on Form 10-K.
Financial Schedules for the years 1999, 1998 and 1997:
Valuation and Qualifying Accounts on page 38.
37
Schedule II
American Locker Group Incorporated
Valuation and Qualifying Accounts
Balance at the Charged to
Beginning of Costs and Write-offs/ Balance at
Year Description Period Expense Recoveries End of Period
- ---------------------------------------------------------------------------------------------------------
1999 Allowance for Doubtful Accounts $216,000 $ 12,000 ($ 6,000) $222,000
1998 Allowance for Doubtful Accounts 439,000 12,000 (235,000) 216,000
1997 Allowance for Doubtful Accounts 386,000 137,000 ( 84,000) 439,000
38
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMERICAN LOCKER GROUP INCORPORATED
/s/Edward F. Ruttenberg
-----------------------
Edward F. Ruttenberg
Chairman and Chief Executive
Officer
/s/Wayne L. Nelson
-----------------------
Wayne L. Nelson
Principal Accounting Officer and Assistant Secretary
March 22, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/Edward F. Ruttenberg Chairman, Chief Executive Officer March 22, 2000
- ----------------------- and Director
Edward F. Ruttenberg
/s/Roy J. Glosser President, Chief Operating March 22, 2000
- ----------------------- Officer, Treasurer and Director
Roy J. Glosser
/s/Alan H. Finegold Director March 22, 2000
- -----------------------
Alan H. Finegold
/s/Thomas Lynch IV Director March 22, 2000
- -----------------------
Thomas Lynch, IV
/s/James E. Ruttenberg Director March 22, 2000
- -----------------------
James E. Ruttenberg
/s/Jeffrey C. Swoveland Director March 22, 2000
- ------------------------
Jeffrey C. Swoveland
/s/Donald I. Dussing, Jr. Director March 22, 2000
- -------------------------
Donald I. Dussing, Jr.
39
EXHIBIT INDEX
Prior Filing or Sequential Page
EXHIBIT NO. No. Herein
- ----------- ----------
3.1 Certificate of Incorporation of American Locker Exhibits to Form 10-K for Year
Group Incorporated ended December 31, 1980
3.2 Amendment to Certificate of Incorporation changing Form 10-C filed May 6, 1985
name of company
3.3 Amendment to Certificate of Incorporation limiting Exhibit to Form 10-K for year ended
liability of Directors and Officers December 31, 1987
3.4 By-laws of American Locker Group Incorporated as Exhibit to Form 10-K for year ended
amended and restated December 31, 1985
3.5 Certificate of Designations of Series Page
A Junior Participating Preferred Stock -----
Amendment to By-laws of American Locker Group Exhibit to Form 10-K for year ended
3.6 Incorporated dated January 15, 1992 December 31, 1991
3.7 Amendment to Bylaws dated March 3, 1999 Exhibit to Form 10-K for year ended
December 31, 1998
3.8 Amendment to Bylaws dated November 19, 1999 Page
-----
10.1 American Locker Group Incorporated 1988 Stock Exhibit to Form 10-K for year ended
Incentive Plan December 31, 1988
10.2 First Amendment dated March 28, 1990 to American Exhibit to Form 10-K for year ended
Locker Group Incorporated 1988 Stock Incentive December 31, 1989
Plan
10.3 Form of Indemnification Agreement between American Exhibit to Form 10-K for year ended
Locker Group Incorporated and its directors and December 31, 1987
officers
10.4 Corporate Term Loan Agreement between American Exhibit to Form 10-K for year ended
Locker Group Incorporated and Manufacturers and December 31, 1991
Traders Trust Company covering $2,400,000 loan
40
10.5 Approved Line of Credit from Manufacturers and Exhibit to Form 10-K for year ended
Traders Trust Company to American Locker Group December 31, 1990
Incorporated in the amount of $1,000,000
10.6 Amendment Agreement dated May 1, 1994 between Exhibit to Form 10-KSB for year
Manufacturing and Traders Trust Company and ended December 31, 1994
American Locker Group Incorporated [Increase in
Term Loan to $1,850,000]
10.7 Amendment Agreement dated March 12, 1996 between Exhibit to Form 10-KSB for year
Manufacturing and Traders Trust Company and ended December 31, 1995
American Locker Group Incorporated [Increase in
Term Loan to $1,800,000]
10.8 Employment Agreement between American Locker Group Exhibit to Form 10-GSB for quarter
Incorporated and Roy J. Glosser ended June 30, 1996
10.8 Amendment dated as of March 3, 1999 to Employment Exhibit to Form 10-KSB for year
Agreement between American Locker Group ended December 31, 1998
Incorporated and Roy J. Glosser
10.9 Manufacturing Agreement dated as of December 29, Exhibit to Form 8-K dated
1989 between American Locker Security Systems Inc. January 11, 1990
and Signore, Inc.
10.10 First Amendment dated May 3, 1995 to Manufacturing Exhibit to Form 10-KSB for year
Agreement dated as of December 29, 1989 between ended December 31, 1995
American Locker Security Systems Inc. and Signore
Inc.
10.11 Second Amendment dated March 15, 1996 to Exhibit to Form 10-KSB for the year
Manufacturing Agreement dated as of December 29, ended December 31, 1995
1989 between American Locker Security Systems Inc.
and Signore Inc.
10.12 Third Amendment dated May 21, 1996 to Exhibit to Form 10-QSB for the
Manufacturing Agreement dated as of December 29, quarter ended June 30, 1996
1989 between American Locker Security Systems Inc.
and Signore Inc.
41
10.14 Contract dated March 27, 1996 between the U.S. Exhibit to Form 10-QSB for the
Postal Service and American Locker Security quarter ended March 31, 1996
Systems, Inc.
10.15 Modification #MO3 to USPS Contract Exhibits to Form 10-QSB for the
#072368-96-B-0741 dated April 16, 1997 quarter ended March 31, 1997
10.17 Fourth Amendment to Manufacturing Agreement dated Exhibits to Form 10-QSB for the
as of May 20, 1997 between American Locker quarter ended June 30, 1997
Security Systems, Inc. and Signore, Inc.
10.18 Fifth Amendment to Manufacturing Agreement dated Exhibit to Form 10-QSB for quarter
May 19, 1998 between American Locker Security ended June 30, 1998
Systems, Inc. and Signore, Inc.
10.18 Amendment dated August 22, 1997 to Corporate Term Exhibit to Form 10-QSB for the
Loan Agreement dated August 30, 1991 between quarter ended September 30, 1997
American Locker Group Incorporated and
Manufacturers and Traders Trust Company
10.19 Modification M05 to USPS Contract Exhibit to Form 10-QSB for the
#072368-96-B-0741, dated October 9, 1997, which quarter ended September 30, 1997
replaces steel pedestals with aluminum pedestals
for American Locker Outdoor Parcel Lockers
10.20 Modification M06 to USPS Contract Exhibit to Form 10-QSB for the
#072368-96-B-0741, dated October 23, 1997 quarter ended September 30, 1997
regarding prices and minimum quantities through
April 14, 1998
10.20 Modification M07 to USPS Contract Exhibit to Form 10-QSB for quarter
#072368-96-B-0741, dated April 14, 1998 regarding ended March 31, 1998
prices and minimum quantities
10.21 Modification #M010 to USPS Contract Exhibit to Form 10-QSB for the
#072368-96-B-0741, dated May 6, 1999 quarter ended March 31, 1999
10.22 Sixth Amendment to Manufacturing Agreement dated Exhibit to Form 10-QSB for the
May 13, 1999 between American Locker Security quarter ended June 30, 1999
System, Inc. as Signore, Inc.
42
10.23 American Locker Group Incorporated 1999 Stock Exhibit to Form 10-QSB for the
Incentive Plan quarter ended June 30, 1999
10.24 Amendment dated June 9, 1999 between American Exhibit to Form 10-QSB for the
Locker Group Incorporated and Manufacturers and quarter ended June 30, 1999
Traders Trust Company
10.25 Rights Agreement dated November 19, 1999 between Exhibit to Form 8-K dated November
American Locker Group Incorporated and Chase 18, 1999
Mellon Shareholder Services LLC
10.26 Form of American Locker Group Incorporated Exhibit 10.21 to Form 10-QSB for
Supplemental Executive Retirement Benefit Plan year ending December 31, 1998
10.27 Employment Agreement dated November 19, 1999 Page
between American Locker Group Incorporated and -----
Edward F. Ruttenberg
10.28 Form of Option Agreement under 1999 Stock Page
Incentive Plan -----
22.1 List of Subsidiaries Page
-----
27.1 1999 Financial Data Schedule Page
-----
43
CERTIFICATE OF DESIGNATIONS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
AMERICAN LOCKER GROUP INCORPORATED
(Pursuant to Section 151 of the
Delaware General Corporation Law)
American Locker Group Incorporated, a corporation organized and
existing under the General Corporation Law of the State of Delaware (hereinafter
called the "Corporation"), hereby certifies that the following resolution was
adopted by the Board of Directors of the Corporation as required by Section 151
of the General Corporation Law at a meeting duly called and held on November 18,
1999.
RESOLVED, that, pursuant to the authority granted to and vested in
the Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Certificate
of Incorporation, the Board of Directors hereby creates a series of Preferred
Stock, par value $1.00 (the "Preferred Stock"), of the Corporation and hereby
states the designation and number of shares and fixes the relative rights,
preferences, and limitations thereof as follows:
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall
be designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be 200,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion or exchange of any outstanding securities issued by the
Corporation convertible into or exchangeable for shares of Series A Preferred
Stock.
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the rights of the holders of any shares of any series
of Preferred Stock (or any similar stock) ranking prior and superior to
the Series A Preferred Stock with respect to dividends, the holders of
shares of Series A Preferred Stock, in preference to the holders of shares
of Common Stock, par value $1.00 per share (the "Common Stock"), of the
Corporation and of any other junior stock, shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on the
first day of March, June, September and December in each year (each such
date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series A Preferred Stock, in
an amount per share (rounded to the nearest cent) equal to the greater of
(a) $.40 or (b) subject to the provision for adjustment hereinafter set
forth, 100 times the aggregate per share amount of all cash dividends and
100 times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions, other
than a dividend payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock since the immediately preceding Quarterly
Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share
of Series A Preferred Stock. In the event the Corporation shall at any
time declare or pay any dividend on the Common Stock payable in shares of
Common Stock or effect a subdivision or combination or consolidation of
the outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the amount
to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock); provided,
that, in the event no dividend or distribution shall have been declared on
the Common Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a dividend
of $.40 per share on the Series A Preferred Stock shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment
Date next preceding the date of issue of such shares, unless the date of
issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin
to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record
date for the determination of holders of shares of Series A Preferred
Stock entitled to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends paid
on the shares of Series A Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares
shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record
date for the determination of holders of shares of Series A Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the
date fixed for the payment thereof.
- 2 -
Section 3. VOTING RIGHTS. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to
100 votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time declare or pay
any dividend on the Common Stock payable in shares of Common Stock or
effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment
of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the number of votes per
share to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein, in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock, or
by law, the holders of shares of Series A Preferred Stock and the holders
of shares of Common Stock and any other capital stock of the Corporation
having general voting rights shall vote together as one class on all
matters submitted to a vote of stockholders of the Corporation.
(C) Except as set forth herein or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting rights
and their consent shall not be required (except to the extent they are
entitled to vote with holders of the Common Stock as set forth herein) for
taking any corporate action.
Section 4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred
Stock outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends or make any other distributions
on any shares of stock ranking junior (as to dividends) to the
Series A Preferred Stock;
(ii) declare or pay dividends or make any other distributions
on any shares of stock ranking on a parity (as to dividends) with
the Series A Preferred Stock, except dividends paid ratably on the
Series A Preferred Stock and all such parity stock on which
dividends are payable and in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled;
- 3 -
(iii) redeem, purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock; provided, that the Corporation may at any time redeem,
purchase or otherwise acquire shares of any such junior stock in
exchange for shares of any stock of the Corporation ranking junior
(either as to dividends or upon dissolution, liquidation or winding
up) to the Series A Preferred Stock; or
(iv) redeem, purchase or otherwise acquire for consideration
any shares of Series A Preferred Stock or any shares of stock
ranking on a parity with the Series A Preferred Stock, except in
accordance with a purchase offer made in writing or by publication
(as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and
classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares
of stock of the Corporation unless the Corporation could, under paragraph
(A) of this Section 4, purchase or otherwise acquire such shares at such
time and in such manner.
Section 5. REACQUIRED SHARES. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized and unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Certificate of Incorporation or in any other Certificate of Designations
creating a series of Preferred Stock or any similar stock or otherwise required
by law.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP.
Upon any liquidation, dissolution or winding up of the Corporation,
no distribution shall be made (1) to the holders of shares of stock ranking
junior (upon liquidation, dissolution or winding up) to the Series A Preferred
Stock unless, prior thereto, the holders of shares of Series A Preferred Stock
shall have received $40 per share, plus an amount equal to the accrued and
unpaid dividends and distributions thereon, whether or not declared, to the date
of such payment; provided, that the holders of shares of Series A Preferred
Stock shall be entitled to receive an aggregate amount per share, subject to the
provision for adjustment hereinafter set forth, equal to 100 times the aggregate
amount to be distributed per share to holders of shares of Common Stock, or (2)
to the holders of shares of stock ranking on a parity (upon liquidation,
dissolution or winding up) with the Series A Preferred Stock, except
distributions made ratably on the Series A Preferred Stock and all such parity
stock in proportion to the total amounts to which the holders of all such shares
are entitled upon such liquidation, dissolution or winding up. In the event the
Corporation shall at any time declare or pay any dividend on the Common Stock
- 4 -
payable in shares of Common Stock or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
aggregate amount to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under the proviso in clause (1) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 7. CONSOLIDATION, MERGER. ETC. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. NO REDEMPTION. The shares of Series A Preferred Stock
shall not be redeemable.
Section 9. RANK. The Series A Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets, junior to
all other series of the Preferred Stock.
Section 10. AMENDMENT. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the shares of Series A
Preferred Stock so as to affect them adversely without the affirmative vote of
the holders of at least two-thirds of the outstanding shares of Series A
Preferred Stock, voting together as a single class.
IN WITNESS WHEREOF, this Certificate of Designations is executed on
behalf of the Corporation by its Chairman of the Board and attested by its
Secretary this 18th day of November, 1999.
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Attest: AMERICAN LOCKER GROUP INCORPORATED
/s/ Charles E. Harris /s/ Edward F. Ruttenberg
- ------------------------------------ ------------------------------
Title: Secretary Title: Chairman and Chief
Executive Officer
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Exhibit 3.8
Amendment to By-Laws
Section 5 of Article II of the By-Laws of the Corporation was
amended and restated to read as follows:
Section 5. Special Meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or
by the certificate of incorporation, may be called by the
President or Chairman or pursuant to a resolution approved by
a majority of the board of directors. Such request shall state
the purpose or purposes of the proposed meeting.
Exhibit 10.27
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made as of the 18th day of November, 1999, by and
between AMERICAN LOCKER GROUP INCORPORATED, a Delaware corporation (the
"Company"), and EDWARD F. RUTTENBERG, an individual residing in Pittsburgh,
Pennsylvania (the "Executive"),
WITNESSETH:
WHEREAS, the Company wishes to assure itself of the services of the
Executive for the period provided in this Agreement, and the Executive is
willing to serve in the employ of the Company on a full-time basis for such
period upon the terms and conditions set forth below;
WHEREAS, the Executive's association with the Company has given and
will continue to give him access to and familiarity with confidential
information concerning the Company, including, but not limited to, operating and
business methods and developments and customer information and relationships;
and
WHEREAS, the Company would be irreparably injured if the Executive
were to disclose any of the confidential information concerning the Company
which the Executive has or may acquire.
NOW, THEREFORE, in consideration of the premises; and all the terms
and conditions contained herein, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby agrees to and hereby does employ the
Executive for the term of this Agreement to render services to the Company and
in connection therewith to perform such duties as the Executive may reasonably
be directed to perform from time to time by the Board of Directors of the
Company (the "Board"). During the period of his employment hereunder, the
Executive shall substantially devote his business time, attention, skill, and
efforts to the faithful performance of his duties hereunder and shall use his
best endeavors diligently to promote the business and welfare of the Company,
provided that the Executive may continue to serve as an Officer and Director of
Rollform of Jamestown, Inc.
(b) The Executive hereby accepts such employment and agrees
faithfully to perform to the best of his ability the duties described above.
2. TERM. The Company hereby agrees to employ the Executive in
the capacities and upon the terms and conditions set forth herein for a period
commencing on
November 18, 1999 at 12:00 noon Eastern Daylight Time and terminating on
November 18, 2002 (the "Employment Period"), unless sooner terminated pursuant
to Section 6 hereof.
3. COMPENSATION. In consideration of the Executive's agreements
contained herein and as compensation to the Executive for the performance of the
services required hereunder, during the Employment Period the Company shall pay
or grant to the Executive the following salary and other compensation and
benefits:
(a) a base salary, payable semi-monthly, of not less than
$14,583.34 per month, as determined from time to time by the Board or an
appropriate committee thereof; provided, however, that the Executive's base
salary shall be periodically reviewed by the Board and may be increased if the
Board determines that an increase is appropriate on the basis of the types of
actions it generally takes into account in increasing the salaries of the
executive officers of the Company; and
(b) such other and additional benefits, including any long
term incentive plans, as may from time to time be applicable to the Executive,
which shall be relatively commensurate to benefits accorded other executives of
the Company.
The Executive shall also be entitled during the Employment
Period to participate in any pension, life insurance, accidental death benefit,
medical and hospital insurance plans and programs of the Company in existence
for the benefit of its employees generally and for which he qualifies, and such
other employee benefit plans and programs which the Company provides to its
employees generally in accordance with the practices of the Company as such
practices are in effect from time to time.
4. RENEWAL OF EMPLOYMENT.
(a) Upon termination of the Employment Period, the Company may
elect, with the approval of the Executive, to extend Executive's employment
hereunder on a year-to-year basis, (each such one year extension being referred
to as a "Renewal Term" and the time period of all Renewal Terms being referred
to as the "Extended Employment Period"). If the Company elects not to extend
Executive's employment hereunder at the end of the Employment Period or any
Renewal Period, the Company agrees to continue to pay to the Executive the
salary and benefits called for hereunder for a period ending on the sooner of
(i) twelve months from the end of the Employment Period or Renewal Term, if
applicable, or (ii) acceptance by the Executive of other employment, or (iii)
acceptance by the Executive of paid consulting work.
(b) All of the terms and conditions of this Agreement shall
continue in full force and effect during the Extended Employment Period, if any.
5. DISABILITY. In the event of the permanent disability of
Executive as determined for purposes of disability payment under Federal Social
Security, the Company shall pay the Executive 100% of his base salary at the
rate then in effect for a period of six months from the date of disability and
at the rate of 60% thereafter for the balance of the term of this
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Agreement. Such payments shall be reduced by any payments to which the Executive
is entitled under any disability plan then maintained by the Company and by any
payments to which the Executive is entitled under the Federal Social Security
disability program.
6. CONFIDENTIALITY. The Executive agrees:
(a) To keep secret all confidential matters of the Company and
its affiliates, and not to disclose them to anyone outside the Company or its
affiliates, either during or after his employment with the Company, except with
the Company's prior written consent or as required by law; and
(b) To deliver promptly to the Company on termination of the
Employment Period all memoranda, notes, records, reports and other documents
(and all copies thereof) with respect to any such confidential matters and other
proprietary information which the Executive may then possess or have under his
control and not to engage in competition with the Company during the term of
this Agreement and for a period of one year thereafter.
7. NONCOMPETITION.
(a) Executive agrees that Executive will not, in the
continental United States and during the term of this Agreement and for a period
of one year thereafter, by himself or in partnership or as an equity owner or in
conjunction with or as a consultant, unpaid adviser, manager or agent of any
other person, firm, corporation or other entity, either directly or indirectly,
undertake or carry on or be engaged or have any financial or other interest in,
or in any other manner, advise or assist any person, firm, corporation or other
entity engaged or interested in, selling products or services of the nature sold
by the Company.
(b) Executive agrees and warrants that the covenants contained
herein are reasonable, that valid consideration has been and will be received
therefor and that the agreements set forth herein are the result of arms-length
negotiations between the parties hereto. Executive acknowledges that in the
event of a violation of the covenants contained in this paragraph, the Company's
damages will be difficult to ascertain and the Company's remedy at law will be
inadequate. Accordingly, Executive agrees that the Company shall be entitled to
specific performance of such covenants and to an injunction to prevent any
continuing violation thereof.
(c) If any of the provisions of or covenants contained in this
Section 7 is hereafter construed to be invalid or unenforceable in any
jurisdiction, the same shall not affect the remainder of the provisions or the
enforceability thereof in any other jurisdiction, which shall be given full
effect, without regard to the invalidity or unenforceability in such other
jurisdiction. If any of the provisions of or covenants contained in this Section
7 is held to be unenforceable in any jurisdiction because of the duration or
geographical scope thereof, the parties agree that the court making such
determination shall have the power to reduce the duration or geographical scope
of such provision or covenant and, in its reduced form, said provision or
covenant shall be enforceable; provided, however, that the determination of such
court shall not affect the enforceability of this Section 7 in any other
jurisdiction.
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8. TERMINATION. Notwithstanding any other provision of this
Agreement, the Executive's employment hereunder and his compensation, bonuses
and other benefits shall terminate and cease to accrue forthwith upon: (i) his
death; or (ii) his disability (which shall be defined as his inability to
perform his duties hereunder for an aggregate period of six months or more out
of any consecutive twelve month period during the Employment Period); or (iii)
by the Company for cause, as hereinafter defined. For purposes of this
Agreement, "Cause" shall mean (a) intentional breach of this Agreement, or (b)
intentional breach of a fiduciary duty owed to the Company involving personal
profit, material, persistent and intentional dereliction, habitual drunkenness,
habitual use of unprescribed narcotic drugs, or (c) failure to perform the
duties set forth in this Agreement, which failure remains uncured thirty (30)
days after written notice thereof from the Board of Directors of the Company, or
(d) failure to perform stated duties owed to the Company which causes material
harm or damage to the Company, or (e) conviction of Executive of a felony. For
purposes of the foregoing, no act, or failure to act shall be considered
"intentionally done" or "willfully done" unless done, or omitted to be done, in
bad faith and without reasonable belief that such action or omission was in the
best interest of the Company.
9. TRIGGER EVENT. In the event of a Trigger Event during the term
of this Agreement, the Company shall pay to the Executive a special bonus, in
addition to all other compensation hereunder, equal to two times the sum of his
base salary at the rate in effect on the closing of such Trigger Event plus the
annual bonus, if any, received with respect to the most recently completed
fiscal year of the Company. Such special bonus shall be payable promptly after
the occurrence of such Trigger Event but shall be disregarded in the computation
of benefits under the profit sharing or any other benefit or incentive plan of
the Company. For the purposes of this paragraph, a Trigger Event shall mean the
occurrence of the event described in subsection (i) below and one or more of the
events described in subsection (ii) below: (i) any Rights issued under the
American Locker Group Incorporated Stock Rights Agreement dated November 18,
1999 become exercisable under terms of such Rights Agreement, as amended and in
effect from time to time, and (ii) the occurrence of any of the following: (a) a
substantial reduction in the base salary, benefits or perquisites provided the
Executive; (b) a relocation of the Company's principal place of business to a
location which is more than 50 miles from its current location in Jamestown, New
York; or (c) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's current position with the Company (including
status, offices, titles and reporting requirements), or any action by the
Company which results in diminution in such position, or the Employee's current
authority, duties or responsibilities, but excluding for this purpose any
isolated, insubstantial and inadvertent action not taken in bad faith and which
is remedied by the Company, promptly after receipt of written notice thereof
given by the Executive in accordance with this Agreement.
10. EFFECT OF PRIOR AGREEMENTS. This Agreement contains the entire
understanding between the parties hereto and supersedes any prior employment
agreement, arrangement or understanding between the Executive and the Company.
11. CONSOLIDATION, MERGER, OR SALE OF ASSETS. Nothing in this
Agreement shall preclude the Company from consolidating or merging into or with,
or transferring all or substantially all of its assets to, another corporation
which assumes this Agreement and all
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obligations and undertakings of the Company hereunder. Upon such a
consolidation, merger, or transfer of assets and assumption, the term "Company"
as used herein shall mean such corporation and this Agreement shall continue in
full force and effect.
12. GENERAL PROVISIONS.
(a) Nonassignability. Neither this Agreement nor any right
or interest hereunder shall be assignable by the Executive, his beneficiaries,
or legal representatives without the Company's prior written consent; provided,
however, that nothing in this Section 12(a) shall preclude (i) the Executive
from designating a beneficiary to receive any benefit payable hereunder upon his
death, or (ii) the executors, administrators, or other legal representatives of
the Executive or his estate from assigning any rights hereunder to the person or
persons entitled thereto.
(b) Binding Agreement. This Agreement shall be binding upon,
and inure to the benefit of, the Executive and the Company and their respective
permitted successors and assigns.
(c) Amendment of Agreement. This Agreement may not be
modified or amended except by an instrument in writing signed by the parties
hereto.
(d) Waiver. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement, except by written instrument of
the party charged with such waiver or estoppel. No such written waiver shall be
deemed a continuing waiver unless specifically stated therein, and each such
waiver shall operate only as to the specific term or condition waived and shall
not constitute a waiver of such term or condition for the future or as to any
act other than that specifically waived.
(e) Headings. The headings of sections herein are included
solely for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
(f) Notices. Any and all notices required to be sent
pursuant to the terms of this Agreement shall be sent registered or certified
mail or personally delivered to the parties hereto at the following addresses or
such other addresses as they may designate in writing:
If to the Executive:
Edward F. Ruttenberg
5864 Aylesboro Avenue
Pittsburgh, PA 15217
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If to the Company:
American Locker Group Incorporated
608 Allen Street
Jamestown, New York 14702
(g) Governing Law. This Agreement has been executed in the
Commonwealth of Pennsylvania and its validity, interpretation, performance, and
enforcement shall be governed by the laws of New York.
(h) Enforceability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
and unenforceable provision were omitted.
WITNESS the due execution hereof as of the day and year first above
written.
ATTEST: AMERICAN LOCKER GROUP INCORPORATED
By: /s/ Charles E. Harris By: /s/ Roy J. Glosser
------------------------- ------------------------------
Title: Secretary Title: President, Chief Executive
Officer and Treasurer
EXECUTIVE:
/s/ Edward F. Ruttenberg
-----------------------------------
Edward F. Ruttenberg
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Exhibit 10.28
OPTION AGREEMENT
THIS AGREEMENT is made as of the 13th day of May, 1999 by and between
AMERICAN LOCKER GROUP INCORPORATED (The "Company") and the undersigned optionee
("Optionee").
WITNESSETH
WHEREAS, pursuant to the American Locker Group Incorporated 1999 Stock
Incentive Plan (the "Plan"), the Stock Option - Executive Compensation Committee
of the Board of Directors of the Company (the "Committee") has authorized the
granting to Optionee of an option to purchase the number of shares of Common
Stock of the Company specified in Paragraph 1 hereof, at the price specified
therein, such option to be for the term and upon the terms and conditions
hereinafter stated.
NOW, THEREFORE, in consideration of the undertakings of the parties hereto
contained herein, it is hereby agreed:
1. NUMBER OF SHARES; OPTION PRICE. Pursuant to said action of the
Committee, the Company hereby grants to Optionee the option ("Option") to
purchase, upon and subject to the terms and conditions of said Plan, all or any
part of 10,000 shares of Common Stock of the Company for cash or Common Stock of
the Company at the price of $8.875 per share. It is intended that this Option
shall not be an incentive stock option as defined by Section 422 of the Code.
2. TERM. This Option shall expire on the day before the tenth anniversary
of the date hereof unless such Option shall have been terminated prior to that
date in accordance with the provisions of the Plan or this Agreement.
3. VESTING. This Option shall vest in the following percentages on the
respective dates set forth below, and shall be exercisable on or after such
dates, as follows:
VESTING DATE TOTAL PERCENT OF OPTION VESTED
------------ ------------------------------
May 13, 2000 100%
The Option shall thereafter remain wholly exercisable for the term specified in
Paragraph 2 hereof, provided that Optionee is then and has continuously been in
the employ of the Company or a Subsidiary; subject, however, to the provisions
of Paragraph 5 hereof. The term "Subsidiary" as used herein has the meaning set
forth in the Plan.
4. EXERCISE. The Option may be exercised by written notice delivered to
the Company stating the number of shares with respect to which the Option is
being exercised, together with a check made payable to the Company in the amount
of the purchase price of such shares and/or shares of Common Stock of the
Company having a Fair Market Value (as defined in the Plan) as of the date of
exercise equal to the aggregate purchase price of the shares as to which the
Option is being exercised. Only whole shares may be purchased.
5. EXERCISE ON TERMINATION OF EMPLOYMENT. In the event Optionee shall
cease to be employed by the Company or a Subsidiary, Optionee's right to
exercise his options, if any, shall be governed by Section 6.03(e) of the Plan.
6. NONTRANSFERABILITY. This Option may not be assigned or transferred
except by will or by the laws of descent and distribution, and may be exercised
only by Optionee during his lifetime, and after his death by his representative
or by the person entitled hereto under his will or the laws of intestate
succession.
7. OPTIONEE NOT A SHAREHOLDER. Optionee shall have no rights as a
shareholder with respect to the Common Stock of the Company covered by this
Option until the date of issuance of a stock certificate or stock certificates
to him upon exercise of the Option. Except as may be provided in the Plan, no
adjustment will be made for dividends or other rights for which the record date
is prior to the date such stock certificate or certificates are issued.
8. MODIFICATION AND TERMINATION. The rights of Optionee are subject to
modification and termination in certain events as provided in the Plan.
9. PLAN GOVERNS. This agreement and the Option evidenced hereby are made
and granted pursuant to the Plan and are in all respects limited by and subject
to the express terms and provisions of that Plan, as it may be amended from time
to time and construed by the Committee.
10. NOTICES. All notices to the Company shall be addressed to the
Secretary of the Company at the principal office of the Company at 608 Allen
Street, Jamestown, NY 14702, and all notices to Optionee shall be addressed to
Optionee at the address of Optionee on file with the Company or its
Subsidiaries, or to such other address as either may designate to the other in
writing. A notice shall be deemed to be duly given if and when enclosed in a
properly addressed sealed envelope deposited, postage prepaid, with the United
States Postal Service. In lieu of giving notice by mail as aforesaid, written
notices under this Agreement may be given by personal delivery to Optionee or to
the Secretary of the Company (as the case may be).
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
AMERICAN LOCKER GROUP INCORPORATED
By: /s/ Roy J. Glosser
------------------------------------------
President, Chief Operating Officer and
Treasurer
Optionee:
/s/ Edward F. Ruttenberg
-----------------------------------------------
Edward F. Ruttenberg
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Exhibit 22.1
List of Subsidiaries
The following companies are subsidiaries of the Company and are included in the
consolidated financial statements of the Company:
Jurisdiction Of Percentage of Voting
Name Organization Securities Owned
- -------------------- --------------- --------------------
American Locker Security Delaware 100%
Systems, Inc. 100%
American Locker Company, Inc. Delaware
American Locker Company of Dominion of Canada 100%(1)
Canada, Ltd.
Canadian Locker Company, Ltd. Dominion of Canada 100%(2)
American Locker Security Virgin Islands 100%(1)
Systems International
(1) Owned by American Locker Security Systems, Inc.
(2) Owned by American Locker Company of Canada, Ltd.