-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NKcBqL/7U05Fq+MK/+hmTc1XjRqlltVgPLDBERT+rvT9Opk/crzqh1xybD8vpqub 1K0bWFktBbAozsi8eUTxSA== 0000898431-00-000088.txt : 20000324 0000898431-00-000088.hdr.sgml : 20000324 ACCESSION NUMBER: 0000898431-00-000088 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000323 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN LOCKER GROUP INC CENTRAL INDEX KEY: 0000008855 STANDARD INDUSTRIAL CLASSIFICATION: PARTITIONS, SHELVING, LOCKERS & OFFICE AND STORE FIXTURES [2540] IRS NUMBER: 160338330 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-00439 FILM NUMBER: 576785 BUSINESS ADDRESS: STREET 1: 608 ALLEN STREET CITY: JAMESTOWN STATE: NY ZIP: 14701 BUSINESS PHONE: 7166649600 MAIL ADDRESS: STREET 1: 608 ALLEN STREET CITY: JAMESTOWN STATE: NY ZIP: 14701 FORMER COMPANY: FORMER CONFORMED NAME: AVM CORP DATE OF NAME CHANGE: 19850520 10-K 1 FORM 10-K 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 ------- ------- Commission file number 0-439 American Locker Group Incorporated - -------------------------------------------------------------------------------- (Exact Name of registrant as specified in its charter) Delaware 16-0338330 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 608 Allen Street, Jamestown, New York 14701-3966 - -------------------------------------------------------------------------------- (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 ----------------------------------------- Securities registered under Section 12(g) of the Exchange Act: Common Stock Par Value $1.00 Per Share - -------------------------------------------------------------------------------- (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 1 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. 2 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 3 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. 5 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 - -------------------------------------------------------------------------------- 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. 6 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 - -------- --------- ----------- -------- 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 ------- TOTAL 87,500 =======
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. 8 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 ----- Total $0.00 ===== 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 ----- Total $0.00 =====
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 ---- ---- ---- ---- ---- 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.
10 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. 11 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. 12 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 ============================================
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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 ============================================
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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.
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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.
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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. - 5 - Attest: AMERICAN LOCKER GROUP INCORPORATED /s/ Charles E. Harris /s/ Edward F. Ruttenberg - ------------------------------------ ------------------------------ Title: Secretary Title: Chairman and Chief Executive Officer - 6 - 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 - 2 - 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. - 3 - 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 - 4 - 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 - 5 - 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 - 6 - 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). - 2 - 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 - 3 - 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. EX-27 2 FDS AMERICAN LOCKER GROUP INCORPORATED 12/31/99
5 EXHIBIT 27.1 AMERICAN LOCKER GROUP INCORPORATED FINANCIAL DATA SCHEDULE DECEMBER 31, 1999 This schedule contains summary financial information extracted from SEC Form 10-K and is qualified in its entirety by reference to such financial statements. 0000008855 AMERICAN LOCKER GROUP INCORPORATED 1 U.S. DOLLARS 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 1.0000 3,285,983 0 3,814,185 222,000 4,973,269 12,680,181 10,700,777 8,290,534 15,179,069 2,707,499 1,708,324 0 0 2,498,768 7,608,442 15,179,069 34,950,104 35,300,334 25,099,003 25,099,003 0 12,000 153,861 4,395,208 1,771,407 2,623,801 0 0 0 2,623,801 1.11 1.09
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