<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 21, 1996.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
ULTRAK, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2626358
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1220 CHAMPION CIRCLE, SUITE 100
CARROLLTON, TEXAS 75006
(972) 280-9675
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
GEORGE K. BROADY
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND PRESIDENT
1220 CHAMPION CIRCLE, SUITE 100
CARROLLTON, TEXAS 75006
(972) 280-9675
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
---------------------
Copies to:
RICHARD L. WAGGONER ALAN J. BOGDANOW
GARDERE & WYNNE, L.L.P. HUGHES & LUCE, L.L.P.
1601 ELM STREET, SUITE 3000 1717 MAIN STREET, SUITE 2800
DALLAS, TEXAS 75201 DALLAS, TEXAS 75201
(214) 999-3000 (214) 939-5500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC. As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SHARES TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value.......... 2,990,000 $32.75 $97,922,500 $33,767
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</TABLE>
(1) Includes 390,000 shares subject to an over-allotment option granted to the
Underwriters.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) on the basis of the average of the high and low
sales prices of the Common Stock on the Nasdaq Stock Market's National
Market on October 15, 1996.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
***************************************************************************
* *
* Information contained herein is subject to completion or amendment. A *
* registration statement relating to these securities has been filed *
* with the Securities and Exchange Commission. These securities may not *
* be sold nor may offers to buy be accepted prior to the time the *
* registration statement becomes effective. This prospectus shall not *
* constitute an offer to sell or the solicitation of an offer to buy *
* nor shall there be any sale of these securities in any State in which *
* such offer, solicitation or sale would be unlawful prior to *
* registration or qualification under the securities laws of any such *
* State. *
* *
***************************************************************************
SUBJECT TO COMPLETION, DATED OCTOBER 21, 1996
PROSPECTUS
2,600,000 SHARES
[ULTRAK LOGO]
COMMON STOCK
Of the 2,600,000 shares of Common Stock, $0.01 par value per share ("Common
Stock"), offered hereby, 2,507,540 shares are being sold by Ultrak, Inc.
(the "Company"), and 92,460 shares are being sold by a stockholder of
the Company (the "Selling Stockholder"). See "Principal and Selling
Stockholder." The Company will not receive any proceeds from the
sale of Common Stock by the Selling Stockholder.
The Common Stock is traded on the Nasdaq Stock Market's National Market
(the "Nasdaq National Market") under the symbol "ULTK." On October 15, 1996, the
last reported sale price of the Common Stock was $32.75 per share. See "Price
Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2) SELLING
STOCKHOLDER
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<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
- -------------------------------------------------------------------------------------------------------
Total(3)................ $ $ $ $
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</TABLE>
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain civil liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of $275,000 payable by the Company.
(3) The Company has granted the Underwriters a 30-day over-allotment option to
purchase up to 390,000 additional shares of Common Stock on the same terms
and conditions as set forth above. If all such shares are purchased by the
Underwriters, the total Price to Public will be $ , the total
Underwriting Discount will be $ and the total Proceeds to Company
will be $ . See "Underwriting."
----------------------
The shares of Common Stock are offered subject to receipt and acceptance by
the several Underwriters, to prior sale, and to the Underwriters' right to
reject any order in whole or in part and to withdraw, cancel or modify the offer
without notice. It is expected that certificates for the shares of Common Stock
will be available for delivery on or about , 1996.
----------------------
[J.C. BRADFORD & CO.] [HOAK BREEDLOVE WESNESKI & CO. LOGO]
, 1996
<PAGE> 3
INSIDE FRONT COVER PAGE
[PICTURE]
A SAMPLING OF ULTRAK'S LOGOS AND TRADEMARKS
GATEFOLD -- INSIDE
PROFESSIONAL SECURITY & SURVEILLANCE
[Picture] Photo, courtesy of Wal-Mart Stores, Inc., depicting Ultrak's CCTV
systems in use.
CONSUMER SECURITY & SURVEILLANCE
[Picture] Photo, courtesy of Staples, Inc, depicting Ultrak's EasyWatch
wireless observation system on Staples' store shelf.
INDUSTRIAL
[Picture] Photo, courtesy of USS/Kobe Steel Company, depicting CCTV systems
in an industrial setting.
MOBILE VIDEO
[Picture] Photo depicting school buses.
TRAFFIC MANAGEMENT
[Picture] Photo depicting camera in high speed dome with pan-tilt-zoom
capabilities above intersection.
DENTAL & MEDICAL
[Picture] Photo depicting dental patient and dentist with Ultrak's UltraCam
monitor.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON NASDAQ IN ACCORDANCE WITH RULE
10B-6A OF THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and consolidated financial
statements, including the notes thereto, appearing elsewhere or incorporated by
reference in this Prospectus. Unless otherwise indicated, (i) all references to
"Ultrak" or to the "Company" include Ultrak, Inc. and its subsidiaries and
predecessor, (ii) all information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option and (iii) all references to $, dollars or
Dollars are references to United States dollars.
THE COMPANY
Ultrak is a leading supplier of closed-circuit television ("CCTV") and
related products in the United States, with a growing presence in international
markets. The Company designs, manufactures, markets and services CCTV and
related products for use in security and surveillance, industrial, mobile video,
traffic management, dental and medical and other applications. Ultrak has grown
rapidly, with sales increasing from $1.8 million in 1987 to $125.0 million for
the twelve months ended September 30, 1996, and is one of the three largest
suppliers of CCTV products in the United States.
The security and surveillance market for CCTV products is expanding because
of the rapid rise in the cost of crime and the resulting desire of businesses
and consumers to protect their facilities, personnel and assets from loss, harm
and false liability claims. The United States CCTV industry for security and
surveillance is projected to have 1996 revenues of $2.4 billion at the end-user
level and is expected to grow by 11% annually through the year 2000, according
to STAT Resources, a market research firm. Industrial uses of CCTV cameras
include machine vision, computer imaging, robotics, high-speed inspection and
monitoring of high-temperature furnaces. The mobile video products market
consists of CCTV systems for mass transit vehicles, school buses, police and
emergency vehicles and vehicles requiring rear vision, such as airport courtesy
buses. Governmental entities use CCTV systems to monitor traffic, allowing them
to modify the sequence of traffic lights, provide up-to-date traffic reports and
more rapidly dispatch police and emergency vehicles. The dental and medical
market consists of intraoral CCTV cameras for dentists and medical vision
applications, such as otoscopes for eardrum examinations and cameras for
microscopy, endoscopy, telemedicine and various surgical applications.
The Company's objective is to become the world leader in the design,
manufacture, marketing and service of CCTV and related products. This objective
includes the development, through internal growth and acquisitions, of a
comprehensive line of technologically advanced CCTV products and a worldwide
marketing organization that can quickly and efficiently bring such products to
market. The Company seeks to achieve this objective by: operating through
focused selling groups organized by target market; working closely with
customers to identify and develop new products faster than its competitors;
relying on contract manufacturers to produce most of its products; providing
innovative products that offer a strong price-value relationship to its
customers; complementing internal growth with acquisitions; and pursuing
international opportunities.
The Company's CCTV products include a broad line of cameras, lenses,
high-speed dome systems, monitors, time-lapse recorders, multiplexers, quad
processors, switchers, wireless video transmission systems, computerized
observation and security systems, control matrix switching systems and
accessories. Other products include access control systems, electronic article
surveillance systems, patient education systems and professional audio products.
The Company's brand names include Ultrak(R), Exxis, Smart Choice(R), Mobile
Video Products(TM), Diamond Electronics(TM), Industrial Vision Source(TM),
MAXPRO, BST and UltraCam(R). The Company also sells brands such as Panasonic,
Mitsubishi, Dedicated Micros and Sony. The Company's net sales of products
bearing Ultrak brand names were 70% and 79% in 1995 and the first nine months of
1996, respectively. During 1995 and the first nine months of 1996, products
accounting for approximately 93% and 85%, respectively, of net sales were
purchased from contract manufacturers.
3
<PAGE> 5
ACQUISITIONS
Acquisitions have contributed significantly to the Company's recent growth.
The Company believes that acquisitions are an effective way to obtain new CCTV
and related products and technologies, add experienced personnel, access
additional channels of distribution, expand into new geographic territories,
diversify its customer base and improve operating efficiencies through economies
of scale. The Company believes that the CCTV industry is consolidating, which
should present additional opportunities for growth through acquisitions. During
1995, the Company completed three acquisitions that expanded its product lines
by adding patented ball cameras, specialized CCTV security and surveillance
systems and a complete range of advanced CCTV accessories.
During 1996, the Company completed the acquisitions of MAXPRO Systems Pty.
Ltd. ("MAXPRO") and Groupe Bisset, s.a. ("Bisset"), and made a minority
investment in Lenel Systems International, Inc. ("Lenel"). MAXPRO and Bisset
collectively had net sales of approximately $16.0 million for the first nine
months of 1996. Effective July 1, 1996, Ultrak acquired approximately 75% of the
outstanding stock of MAXPRO for approximately $8.2 million in cash plus deferred
consideration payable in Common Stock with a minimum value of $900,000. MAXPRO,
a manufacturer and distributor of CCTV products based in Perth, Western
Australia, adds large scale CCTV switching systems to the Company's product line
and enables the Company to enter several new target geographic and customer
markets. MAXPRO's CCTV switching systems consist of sophisticated, matrix video
switching software that is coupled to a computer-controlled security input and
output network. The systems allow a virtually unlimited number of input and
output devices, including cameras, domes, VCRs and access control devices, to
work together seamlessly. MAXPRO's switching systems are the base component of
large CCTV systems, and the acquisition should provide Ultrak with enhanced
opportunities for additional sales of peripherals such as domes, computer-based
control equipment and accessories manufactured by the Company's subsidiary,
Diamond Electronics, Inc. ("Diamond"). MAXPRO's CCTV systems are installed
worldwide in casinos, airports, mines, nuclear power plants, prisons, military
bases, office buildings and city surveillance systems.
In September 1996, Ultrak acquired all of the outstanding share capital of
Bisset, based in Paris and one of France's largest distributors of CCTV
products, for $5.0 million in cash, 289,855 shares of Common Stock and deferred
consideration, including possible earnout consideration. Bisset distributes
products from manufacturers such as Diamond, Mitsubishi, Samsung, Sanyo, Ikegami
and Pentax. It sells to installing dealers and systems integrators and provides
technical support and full warranty repair and service. Bisset also designs,
markets and sells audio equipment including mixers, equalizers, speakers and
public address equipment under its own brand, BST, for the professional audio
market. Bisset provides the Company with a prominent entry into the
strategically important French market and provides the Company with expanded
sales opportunities in Western Europe.
In September 1996, Ultrak acquired approximately 24% of the outstanding
stock of Lenel, a privately-held software company specializing in security
access control based in Fairport, New York, for $2.6 million in cash, and
entered into a worldwide reseller agreement with Lenel. Lenel's flagship
product, OnGuard Plus, is an integrated multimedia security system, offering
identification management, access control and alarm monitoring. The software
provides advanced security and facility management via open systems
architecture, flexibility, modularity and an easy to use Graphical User
Interface (GUI). Lenel sells its products to installing security dealers and
systems integrators. The investment in Lenel and the reseller agreement with
Lenel demonstrate the Company's implementation of its strategy to add access
control products to its CCTV security and surveillance systems.
The Company intends to continue aggressively pursuing growth both
internally and through acquisitions. The Company recently entered into a letter
of intent to acquire a Belgium-based CCTV distributor with net sales of
approximately $5.7 million in 1995 for approximately $400,000 in cash. The
Company is currently engaged in preliminary discussions with several potential
acquisition candidates that present opportunities to expand the Company's
distribution channels, to grow its customer base and to add to its product line.
Although it has no binding commitments to acquire such candidates, management
believes that it is likely in the next few months that the Company may acquire
certain of these candidates. Consideration may be paid in
4
<PAGE> 6
cash, Common Stock or a combination of the two, and any transaction may include
earnout consideration payable in cash, Common Stock or a combination of the two.
Actual expenditures on acquisitions could be significantly more or less than
presently anticipated due to events not presently foreseen by management. There
can be no assurances, however, that the Company will complete any of these
acquisitions or any other acquisition.
THE OFFERING
Common Stock offered by the Company..... 2,507,540 shares
Common Stock offered by Selling
Stockholder............................. 92,460 shares(1)
Common Stock to be outstanding after the
offering................................ 13,223,831 shares(2)
Use of proceeds......................... For repayment of certain
indebtedness incurred in connection
with the acquisition of Bisset and
general corporate purposes,
including potential future
acquisitions. See "Use of
Proceeds."
Nasdaq National Market symbol........... ULTK
- ---------------
(1) Issuable upon exercise of warrants to be exercised at the time of closing of
the offering.
(2) Excludes: (i) 670,426 shares of Common Stock issuable upon exercise of
currently outstanding stock options, including 496,710 shares subject to
currently exercisable options, and (ii) 406,981 shares of Common Stock
issuable upon conversion of outstanding shares of Series A 12% Cumulative
Convertible Preferred Stock, $5.00 par value (the "Series A Preferred
Stock").
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth, for the periods and the dates indicated,
summary consolidated financial data for the three fiscal years ended December
31, 1995, and the nine-month periods ended September 30, 1995 and 1996 and pro
forma consolidated operating data for the fiscal year ended December 31, 1995
and the nine-month period ended September 30, 1996. The summary consolidated
financial data include the effects of businesses acquired in 1994, 1995 and 1996
from the dates of acquisition. The pro forma consolidated operating data give
effect to the acquisitions of Diamond, MAXPRO and Bisset as if they had been
consummated on January 1, 1995. The unaudited selected pro forma condensed
consolidated operating data set forth below are qualified by reference to and
should be read in conjunction with, the historical financial statements of the
Company, Diamond, MAXPRO and Bisset incorporated by reference in this
Prospectus. The pro forma consolidated operating data set forth below do not
give pro forma effect to the acquisitions of Koyo International, Inc. of America
("Koyo") or G.P.S. Standard U.S.A. ("GPS") or the minority investment in Lenel
due to immateriality. The unaudited selected pro forma condensed consolidated
operating data set forth below are not necessarily indicative of the results of
the operations that might have occurred if the transactions had taken place on
such date or of the Company's results of operations for any future period. The
financial statements of MAXPRO and Bisset were converted from Australian Dollars
and French Francs, respectively, using the exchange rates as of September 30,
1996 (1.26 Australian Dollars per one dollar and 5.16 French Francs per one
dollar).
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ ------------------------------
PRO PRO
FORMA FORMA
1993 1994 1995 1995(1) 1995 1996 1996(1)
------- ------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales..................................... $52,412 $79,063 $101,232 $133,443 $72,565 $96,592 $110,383
Cost of sales................................. 39,554 59,350 76,319 96,474 55,111 67,963 76,730
------- ------- -------- -------- ------- ------- --------
Gross profit.................................. 12,858 19,713 24,913 36,969 17,454 28,629 33,653
Marketing and sales expenses.................. 7,025 11,201 13,255 16,321 9,483 13,399 15,061
General and administrative expenses........... 2,178 3,133 5,542 10,844 3,590 6,385 9,682
------- ------- -------- -------- ------- ------- --------
Total operating expenses.............. 9,203 14,334 18,797 27,165 13,073 19,784 24,743
------- ------- -------- -------- ------- ------- --------
Operating profit.............................. 3,655 5,379 6,116 9,804 4,381 8,845 8,910
Other expense................................. 635 1,076 1,881 2,470 1,282 937 896
------- ------- -------- -------- ------- ------- --------
Income from continuing operations before
income taxes................................ 3,020 4,303 4,235 7,334 3,099 7,908 8,014
Income taxes.................................. 382 1,514 1,540 2,947 1,148 2,773 3,039
------- ------- -------- -------- ------- ------- --------
Income from continuing operations............. 2,638 2,789 2,695 4,387 1,951 5,135 4,975
Income (loss) from discontinued operations.... (1,834) (190) -- -- -- -- --
------- ------- -------- -------- ------- ------- --------
Net income............................ 804 2,599 2,695 4,387 1,951 5,135 4,975
Dividend requirements on preferred stock...... 117 117 117 117 88 88 88
------- ------- -------- -------- ------- ------- --------
Net income allocable to common stockholders... $ 687 $ 2,482 $ 2,578 $ 4,270 $ 1,863 $ 5,047 $ 4,887
======= ======= ======== ======== ======= ======= ========
Weighted average shares outstanding........... 6,790 6,819 7,148 8,683 7,089 9,131 10,355
Income per common share from continuing
operations.................................. $ 0.37 $ 0.39 $ 0.36 $ 0.49 $ 0.26 $ 0.55 $ 0.47
Net income per common share................... $ 0.10 $ 0.36 $ 0.36 $ 0.49 $ 0.26 $ 0.55 $ 0.47
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
--------------------------
ACTUAL AS ADJUSTED(2)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................................ $ 1,598 $ 75,850
Working capital.......................................................................... 44,332 122,120
Total assets............................................................................. 91,794 166,470
Short-term debt.......................................................................... 4,024 --
Long-term debt........................................................................... -- --
Stockholders' equity..................................................................... 75,346 153,621
</TABLE>
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(1) See "Selected Pro Forma Condensed Consolidated Operating Data" and notes
related thereto contained elsewhere in this Prospectus.
(2) Adjusted to reflect (i) the sale of 2,507,540 shares of Common Stock offered
by the Company hereby assuming an offering price of $32.75 per share, (ii)
the exercise of warrants to purchase 92,460 shares of Common Stock offered
by the Selling Stockholder and (iii) the anticipated application of the net
proceeds therefrom. See "Use of Proceeds."
6
<PAGE> 8
RISK FACTORS
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such statements are
subject to inherent risks and uncertainties, and actual results could differ
materially from those projected in the forward-looking statements as a result of
certain of the risk factors set forth below and elsewhere in this Prospectus. In
addition to the other information in this Prospectus, the following factors
should be carefully considered in evaluating the Company and its business before
purchasing the Common Stock offered hereby.
DEPENDENCE UPON PRODUCT MANUFACTURERS
Ultrak purchases most of the Ultrak-branded products it markets and sells
from a limited number of non-affiliated contract manufacturers, including 36% in
1995 and 41% in the first nine months of 1996 from one South Korean supplier
(based on a percentage of cost of sales). The Company will continue to depend
substantially upon contract manufacturers in the future. The Company has in the
past and may in the future experience difficulties obtaining, in a timely
manner, certain products. The loss of any one supplier or an inability of
suppliers to provide the Company with the required quantity or quality of
products could have a material adverse effect on Ultrak's business until such
time as an alternate source of supply for such products is found. In addition,
given the time lag between order and receipt of products purchased from
suppliers, accurate forecasting of product demand is especially important. On
occasion, the Company has underestimated, and on other occasions, overestimated,
future demand for particular products. The failure to forecast demand accurately
can result in lower revenue than would otherwise be earned, or, alternatively,
can result in excess inventory that may result in additional carrying costs or
have other negative financial effects. See "Business -- Operations."
IMPACT AND RISKS OF ACQUISITIONS
A significant percentage of the growth in the Company's revenues in 1995
and 1996 was attributable to acquisitions. Approximately 14% of the Company's
pro forma revenues for the nine months ended September 30, 1996 is attributable
to acquisitions, and the Company intends to continue growing in part through
acquisitions. There can be no assurance that future acquisition opportunities
will become available, that future acquisitions can be consummated on favorable
terms or that such acquisitions will contribute to the Company's profitability.
The Company's business strategy to pursue additional acquisitions may require
the Company to incur debt in the future, result in potentially dilutive
issuances of securities or result in increased goodwill, intangible assets and
amortization expense. See "Business -- Strategy," "Business -- Acquisitions" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Successful integration of an acquired company into existing operations can
be difficult and costly. The desired benefits of an acquisition may not be
achieved unless the separate operations of the Company and the acquired company
are successfully combined in an orderly and timely manner. The acquisition and
transition process also may divert substantial management time and attention
from the Company's other operations and activities. Any limitations or
difficulties encountered in the transition process could have a material adverse
effect on the Company's business, financial condition and results of operations.
While the Company has made other acquisitions, the Company has not
previously made two acquisitions as large or geographically diverse as MAXPRO
and Bisset within a single quarter. The Company expects that the business
operations of MAXPRO and Bisset will initially continue in substantially the
same manner as in the past. However, the long-term successful integration of
these two acquired companies may depend on a number of factors, including the
retention of key personnel, the Company's ability to capitalize on cross-
marketing opportunities between the Company and MAXPRO and Bisset, and the
Company's ability to improve operating efficiencies through economies of scale.
7
<PAGE> 9
ABILITY TO ACHIEVE AND MANAGE GROWTH
In addition to growth from acquisitions, the Company has experienced
significant internal growth. The Company's ability to continue its internal
growth will depend on a number of factors, including the availability of working
capital to support such growth, existing and emerging competition, the Company's
ability to maintain sufficient profit margins, and the Company's ability to
adapt its infrastructure and systems to accommodate growth and recruit and train
additional qualified personnel. See "Business -- Strategy."
RISKS OF INTERNATIONAL TRADE
Because a substantial portion of the Company's purchases and sales of
products are made internationally, international trade is important to the
Company's business. International trade is subject to numerous risks, including
labor strikes, shipping delays, political or economic instability, military
action and import duties. There is no assurance that the United States, South
Korea, Japan, France, Australia, Hong Kong, China or other nations will not in
the future impose trade restrictions which could adversely affect the Company's
operations. Currently, the United States imposes a 3% to 6% duty on selected
imported products, and there are no United States quotas on the types of
products distributed by the Company. However, there can be no assurance that
quotas, taxes or further or greater duties or taxes will not be imposed in the
future.
EXCHANGE RATE FLUCTUATIONS
A substantial portion of the Company's purchases and sales occur outside of
the United States. Since the revenues and expenses of the Company's foreign
operations are generally denominated in local currencies, exchange rate
fluctuations between local currencies and the dollar subject the Company to
currency exchange risks with respect to the results of its foreign operations.
Therefore, the Company is subject to these risks to the extent it is unable to
denominate its purchases or sales in dollars or otherwise shift to its customers
or suppliers the risks of currency exchange rate fluctuations. The Company
currently does not engage in currency hedging transactions but may do so in the
future. Therefore, fluctuations in exchange rates may affect the results of the
Company's international operations reported in dollars and the value of such
operations' net assets reported in dollars. Additionally, the results of
operations, financial condition and competitive position of the Company may be
affected by the relative strength of the currencies in countries where its
products are sold. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview."
SUBSTANTIAL DISCRETION OF MANAGEMENT CONCERNING PROCEEDS OF OFFERING
The Company has allocated approximately $3.0 million of the net proceeds of
this offering for specific purposes, with the remaining net proceeds of $75.3
million to be used for general corporate purposes, including potential future
acquisitions. Accordingly, management will have substantial discretion in
spending the net proceeds to be received by the Company. There can be no
assurance that the use of such net proceeds will enhance stockholder value. See
"Use of Proceeds."
DEPENDENCE UPON MAJOR CUSTOMER
During 1995 and the first nine months of 1996, sales to one customer, Sam's
Wholesale Club, a division of Wal-Mart Stores, Inc., accounted for 14% and 13%,
respectively, of the Company's net sales. An unexpected decline or loss of sales
to this customer could have a material adverse effect on the Company.
DEPENDENCE UPON MANAGEMENT AND KEY PERSONNEL
The ability of the Company to continue profitable operations will depend
significantly upon its Chairman of the Board, Chief Executive Officer and
President, George K. Broady; its Executive Vice President and Chief Operating
Officer, James D. Pritchett; its Vice President-Finance and Chief Financial
Officer, Tim D. Torno; and upon certain other key employees of the Company. The
loss of the services of Messrs. Broady, Pritchett, Torno or of any of the
Company's other key employees could have a material adverse effect upon the
Company's business and operations. In addition, the Company's success will be
dependent upon its ability
8
<PAGE> 10
to recruit and retain qualified personnel, including engineering personnel. With
limited exceptions, the Company's employees are generally not subject to written
employment agreements.
PRODUCT DESIGN AND DEVELOPMENT AND MARKET ACCEPTANCE
The Company's business strategy emphasizes the design, development and
commercialization of new CCTV and related products and the enhancement of
existing products. There can be no assurance that the Company will be able to
continue to develop new products, enhance existing products, have new products
manufactured in a commercially viable manner or gain satisfactory market
acceptance for such products. See "Business -- Product Design and Development."
COMPETITION
The Company faces substantial competition in each of its target markets.
Ultrak competes with a number of other companies, ranging from small local firms
to large national and international firms, many of which have substantially
greater financial, management, manufacturing, marketing and other resources than
the Company. See "Business -- Competition."
CONTROL OF THE COMPANY BY PRINCIPAL STOCKHOLDER
George K. Broady, the Chairman of the Board, Chief Executive Officer and
President of the Company, is the beneficial owner of approximately 20% of the
Common Stock and 100% of the Series A Preferred Stock. Each share of the Series
A Preferred Stock has voting rights equal to 16.667 shares of the Common Stock.
Prior to this offering, Mr. Broady controlled over 35% of the votes on all
matters which were submitted to a vote of stockholders of the Company, and Mr.
Broady will continue to control approximately 30% of such votes immediately
after this offering. Although shares controlling a majority of the votes of the
stockholders of the Company are necessary to take corporate action, following
this offering, by virtue of his ownership of shares, Mr. Broady may effectively
control such corporate actions, including the election of directors of the
Company and the approval or disapproval of certain fundamental corporate
transactions, including mergers, liquidation, a "going private" transaction, the
sale of substantially all of the Company's assets and the authorization,
issuance and sale of new securities of the Company, and may delay or prevent a
change in control of the Company. See "Principal and Selling Stockholder" and
"Description of Capital Stock."
PATENTS AND PROPRIETARY RIGHTS
The Company's ability to compete effectively will depend, in part, on its
ability to protect its intellectual property, including its patents, and on its
ability to obtain patents. There can be no assurance that the steps taken by the
Company to protect its intellectual property will be adequate to prevent
misappropriation or that others will not develop competitive technologies or
products. The Company's ability to compete effectively also depends on its
ability to operate without infringing the proprietary rights of others.
Competitors may have been issued patents on, or may obtain additional patents
and proprietary rights relating to, products, technologies or processes
competitive with those of the Company. There can be no assurance that the
Company's outstanding or future patent applications will be approved, that the
Company will in the future develop any proprietary products that are patentable,
that issued patents will provide the Company with adequate protection for its
inventions, technologies or processes or will not be challenged by third
parties, that the patents of others will not impair the ability of the Company
to do business or that others will not independently develop products that are
similar or superior to the Company's products or technologies, duplicate any of
the Company's products or technologies or design around any patents issued to
the Company. See "Business -- Legal Proceedings."
PRODUCT LIABILITY
A successful product liability claim brought against the Company in excess
of its product liability insurance coverage could have a material adverse effect
upon the Company's business, operating results and financial condition.
9
<PAGE> 11
MARKET CONDITIONS; POSSIBLE VOLATILITY OF STOCK PRICE
From time to time, there may be significant volatility in the market price
for the Common Stock. The Company is not able to predict the effect on market
prices of the distribution of the shares of Common Stock covered by this
Prospectus. Further, factors such as new product announcements by the Company or
its competitors, quarterly fluctuations in the Company's operating results and
general conditions in the securities markets may have a significant impact on
the market price of the Common Stock. In addition, in recent years the stock
market has experienced extreme price and volume fluctuations. This volatility
has had a significant effect on the market prices of securities issued by many
companies for reasons unrelated to their operating performance. See "Price Range
of Common Stock and Dividend Policy."
ANTI-TAKEOVER PROVISIONS
The shares beneficially owned by Mr. Broady and the Company's other
executive officers, directors and affiliates and certain provisions contained in
the Company's Certificate of Incorporation and By-Laws may have the effect of
discouraging persons from pursuing a non-negotiated takeover of the Company and
preventing certain changes of control. In addition, Section 203 of the Delaware
General Corporation Law, which is applicable to the Company, contains provisions
that restrict certain business combinations with interested stockholders, which
may have the effect of inhibiting a non-negotiated merger or other business
combination involving the Company.
In addition, the Company's Certificate of Incorporation authorizes
2,000,000 shares of Preferred Stock, $5.00 par value. The Company's Preferred
Stock may be issued in series from time to time with such designations, rights,
preferences and limitations as the Board of Directors of the Company may
determine by resolution. The potential exists, therefore, that additional series
of the Company's Preferred Stock might be issued that would grant dividend
preferences and liquidation preferences to preferred stockholders over holders
of the Common Stock. Unless the nature of a particular transaction, applicable
statutes or Nasdaq rules require such approval, the Board of Directors has the
authority to issue Preferred Stock without stockholder approval. The issuance of
Preferred Stock may have the effect of delaying or preventing a change in
control of the Company without any further action by stockholders. See
"Description of Capital Stock."
10
<PAGE> 12
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
in the offering and the exercise of warrants by the Selling Stockholder are
estimated to be $78.3 million after deducting the underwriting discount and
estimated offering expenses to be paid by the Company ($90.4 million if the
Underwriters' over-allotment option is exercised in full), assuming an offering
price of $32.75 per share. The Company will not receive any proceeds from the
sale of Common Stock by the Selling Stockholder.
The Company will use approximately $3.0 million of the net proceeds of the
offering to repay in full its indebtedness under that certain Loan and Security
Agreement, dated July 26, 1996, among NationsBank of Texas, N.A.
("NationsBank"), the Company and its subsidiaries, as amended (the "NationsBank
Financing Agreement"). Borrowings under the NationsBank Financing Agreement have
been used to finance the acquisition of Bisset. Amounts outstanding under the
NationsBank Financing Agreement bear interest, at the Company's option, at (i)
NationsBank's prime rate (the "Prime Rate") minus 0.25% or (ii) an adjusted
LIBOR Rate plus 0.75% and mature on July 26, 1999. The effective rate of
interest under the NationsBank Financing Agreement was 8.0% as of October 15,
1996. The Company intends to leave the NationsBank Financing Agreement in place
once the borrowings thereunder are repaid.
The Company also intends to use certain of the net proceeds of this
offering for general corporate purposes, including sales, marketing and customer
support efforts, expansion of operations and product development. In addition,
the Company may use a portion of the proceeds of this offering for the
acquisition of businesses, products or technologies complementary to the
Company's current business. The Company recently entered into a letter of intent
to acquire a Belgium-based CCTV distributor with net sales of approximately $5.7
million in 1995 for approximately $400,000 in cash. The Company is currently
engaged in preliminary discussions with several potential acquisition candidates
that present opportunities to expand the Company's distribution channels, to
grow its customer base and to add to its product line. Although it has no
binding commitments to acquire such candidates, management believes that it is
likely in the next few months that the Company may acquire certain of these
candidates. There can be no assurances, however, that the Company will complete
any of these acquisitions or any other acquisition.
The Company has not determined the amounts it plans to expend on any of
these uses or the timing of the expenditures. The amounts actually expended for
these uses, if any, are at the discretion of the Company and may vary
significantly depending upon a number of factors, including future revenue
growth and the amount of cash generated by the Company's operations. Pending the
application of such net proceeds for general corporate purposes and for
acquisitions, the Company intends to invest such net proceeds in short-term,
interest-bearing investment grade securities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
11
<PAGE> 13
CAPITALIZATION
The following table sets forth cash and cash equivalents, short term debt
and the Company's capitalization at September 30, 1996, (i) on a historical
basis and (ii) as adjusted to give effect to the sale by the Company of
2,507,540 shares of Common Stock offered hereby at an assumed offering price of
$32.75 per share, the exercise of warrants to purchase 92,460 shares of Common
Stock offered by the Selling Stockholder and the repayment of the indebtedness
incurred in the acquisition of Bisset as described in "Use of Proceeds." The
data set forth below should be read in conjunction with the other financial
information presented elsewhere or incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
------------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents.............................................. $ 1,598 $ 75,850
======= =========
Short-term debt, including current portion of long-term debt........... $ 4,024 $ --
======= =========
Long-term debt, net of current portion................................. -- --
Stockholders' equity:
Preferred Stock, $5.00 par value; 2,000,000 shares authorized;
195,351 shares issued and outstanding............................. 977 977
Common Stock, $0.01 par value; 20,000,000 shares authorized,
10,623,831 shares issued and outstanding(1); 13,223,831 shares
issued and outstanding as adjusted................................ 106 132
Additional paid-in capital........................................... 63,384 141,633
Common Stock to be issued............................................ 2,150 2,150
Less: Treasury stock, 35,000 shares.................................. (246) (246)
Retained earnings.................................................... 8,975 8,975
------- ---------
Total stockholders' equity............................................. 75,346 153,621
-------
Total capitalization................................................... $75,346 $ 153,621
======= =========
</TABLE>
- ---------------
(1) Excludes 670,426 shares of Common Stock issuable upon exercise of currently
outstanding stock options, including 496,710 shares subject to currently
exercisable options.
12
<PAGE> 14
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock commenced trading on the Nasdaq National Market on January
18, 1994 under the symbol "ULTK." Prior to that time, the Common Stock was
traded in the over-the-counter market. Prices shown do not include adjustments
for retail markups, markdowns or commissions. The following table sets forth the
high and low closing prices on the Nasdaq National Market for the periods
indicated:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1994
First quarter.......................................................... $ 8.63 $ 5.75
Second quarter......................................................... 7.13 4.50
Third quarter.......................................................... 7.38 6.50
Fourth quarter......................................................... 8.00 6.38
1995
First quarter.......................................................... $ 7.25 $ 5.63
Second quarter......................................................... 9.50 6.38
Third quarter.......................................................... 7.38 5.63
Fourth quarter......................................................... 6.44 4.75
1996
First quarter.......................................................... $ 9.75 $ 6.38
Second quarter......................................................... 19.38 9.25
Third quarter.......................................................... 29.00 15.63
Fourth quarter (through October 15, 1996).............................. 33.00 27.75
</TABLE>
On October 15, 1996, the last reported sale price for the Common Stock on
the Nasdaq National Market was $32.75. As of September 30, 1996, there were
approximately 1,400 holders of record of the Common Stock.
The Company has never paid cash dividends on the Common Stock. The Company
presently intends to retain earnings to finance the development and expansion of
its business. The declaration in the future of any cash dividends on the Common
Stock will be at the discretion of the Board of Directors and will depend upon
the earnings, capital requirements and financial position of the Company,
general economic conditions and other pertinent factors. The Company intends to
continue to pay dividends on outstanding shares of Series A Preferred Stock, all
of which are owned by George K. Broady, the Chairman, Chief Executive Officer
and President of the Company. Dividends in the amount of $117,210 have been paid
annually to Mr. Broady since the issuance of the Series A Preferred Stock.
13
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected consolidated financial data for the Company as of
and for the five fiscal years ended December 31, 1995, have been derived from
the consolidated financial statements of the Company and its subsidiaries, which
have been audited by Grant Thornton LLP, independent certified public
accountants. The selected consolidated financial data as of and for the nine
months ended September 30, 1995 and 1996, have been derived from the unaudited
consolidated financial statements of the Company and its subsidiaries which, in
the opinion of the Company's management, include all adjustments, consisting
only of normal recurring accruals, necessary for a fair presentation. The
results of operations for an interim period are not necessarily indicative of
future results. The selected consolidated financial data include the effects of
businesses acquired in 1994, 1995 and 1996 from the dates of acquisition. This
data should be read in conjunction with the information set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and related notes
incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales....................................... $18,004 $28,864 $52,412 $79,063 $101,232 $72,565 $96,592
Cost of sales................................... 13,390 21,496 39,554 59,350 76,319 55,111 67,963
------- ------- ------- ------- -------- ------- -------
Gross profit.................................... 4,614 7,368 12,858 19,713 24,913 17,454 28,629
Marketing and sales expenses.................... 1,592 4,579 7,025 11,201 13,255 9,483 13,399
General and administrative expenses............. 2,327 1,510 2,178 3,133 5,542 3,590 6,385
------- ------- ------- ------- -------- ------- -------
Total operating expenses................ 3,919 6,089 9,203 14,334 18,797 13,073 19,784
------- ------- ------- ------- -------- ------- -------
Operating profit................................ 695 1,279 3,655 5,379 6,116 4,381 8,845
Other expense................................... 224 709 635 1,076 1,881 1,282 937
------- ------- ------- ------- -------- ------- -------
Income from continuing operations before
income taxes.................................. 471 570 3,020 4,303 4,235 3,099 7,908
Income taxes.................................... -- 26 382 1,514 1,540 1,148 2,773
------- ------- ------- ------- -------- ------- -------
Income from continuing operations............... 471 544 2,638 2,789 2,695 1,951 5,135
Income (loss) from discontinued operations...... -- 294 (1,834) (190) -- -- --
------- ------- ------- ------- -------- ------- -------
Net income.............................. 471 838 804 2,599 2,695 1,951 5,135
Dividend requirements on preferred stock........ 117 117 117 117 117 88 88
------- ------- ------- ------- -------- ------- -------
Net income allocable to common stockholders..... $ 354 $ 721 $ 687 $ 2,482 $ 2,578 $ 1,863 $ 5,047
======= ======= ======= ======= ======== ======= =======
Weighted average shares outstanding............. 5,864 6,846 6,790 6,819 7,148 7,089 9,131
Income per common share from continuing
operations.................................... $ 0.06 $ 0.06 $ 0.37 $ 0.39 $ 0.36 $ 0.26 $ 0.55
Net income per common share..................... $ 0.06 $ 0.11 $ 0.10 $ 0.36 $ 0.36 $ 0.26 $ 0.55
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
-------------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
------ ------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....................................... $2,949 $ 5,585 $ 4,966 $ 5,676 $ 9,880 $43,845
Total assets.......................................... 8,054 16,199 25,385 36,353 52,955 92,219
Short-term debt....................................... 2,219 7,135 12,875 18,244 24,482 4,024
Long-term debt........................................ 285 285 -- -- 1,535 --
Stockholders' equity.................................. 4,177 6,818 7,541 10,070 16,497 75,346
</TABLE>
14
<PAGE> 16
SELECTED PRO FORMA CONDENSED CONSOLIDATED OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following unaudited selected pro forma condensed consolidated operating
data of the Company for the year ended December 31, 1995 and for the nine months
ended September 30, 1996, give effect to the acquisitions of Diamond, MAXPRO and
Bisset as if they had been consummated on January 1, 1995. The unaudited
selected pro forma condensed consolidated operating data set forth below are
qualified by reference to and should be read in conjunction with, the historical
financial statements of the Company, Diamond, MAXPRO and Bisset incorporated by
reference in this Prospectus. The unaudited selected pro forma condensed
consolidated operating data set forth below do not give pro forma effect to the
acquisitions of Koyo or GPS or the minority investment in Lenel due to
immateriality. The unaudited selected pro forma condensed consolidated operating
data set forth below are not necessarily indicative of the results of the
operations that might have occurred if the transactions had taken place on such
date or of the Company's results of operations for any future period. The
financial statements of MAXPRO and Bisset were converted from Australian Dollars
and French Francs, respectively, using the exchange rates as of September 30,
1996 (1.26 Australian Dollars per one dollar and 5.16 French Francs per one
dollar).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------------------
PRO FORMA PRO FORMA
COMPANY DIAMOND(1) MAXPRO BISSET ADJUSTMENTS CONSOLIDATED
-------- ---------- ------ ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales................................. $101,232 $6,142 $8,784 $17,818 $ (533)(3) $133,443
Cost of sales............................. 76,319 4,163 4,400 12,125 (533)(3) 96,474
-------- ------ ----- ------- -------- --------
Gross profit.............................. 24,913 1,979 4,384 5,693 -- 36,969
Marketing and sales expenses.............. 13,255 877 666 1,523 -- 16,321
General and administrative expenses....... 5,542 572 1,802 2,143 785 (4) 10,844
-------- ------ ----- ------- -------- --------
Total operating expenses.......... 18,797 1,449 2,468 3,666 785 27,165
Operating profit.......................... 6,116 530 1,916 2,027 (785) 9,804
Other expense............................. 1,881 148 (36) 132 345 (5) 2,470
-------- ------ ----- ------- -------- --------
Income before income taxes................ 4,235 382 1,952 1,895 (1,130) 7,334
Income taxes.............................. 1,540 152 570 685 -- 2,947
-------- ------ ----- ------- -------- --------
Net income.............................. 2,695 $ 230 $1,382 $ 1,210 $(1,130) 4,387
====== ====== ======= ========
Dividend requirements on preferred
stock................................... 117 117
-------- --------
Net income allocable to common
stockholders............................ $ 2,578 $ 4,270
======== ========
Weighted average shares outstanding....... 7,148 1,535 (6) 8,683
Net income per common share............... $ 0.36 $ 0.49
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
------------------------------------------------------------------
PRO FORMA PRO FORMA
COMPANY MAXPRO(2) BISSET ADJUSTMENTS CONSOLIDATED
------- --------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales......................................... $96,592 $ 2,726 $11,588 $ (523)(3) $110,383
Cost of sales..................................... 67,963 1,448 7,842 (523)(3) 76,730
------- ------- ------- ------- --------
Gross profit...................................... 28,629 1,278 3,746 -- 33,653
Marketing and sales expense....................... 13,399 428 1,234 -- 15,061
General and administrative expenses............... 6,385 1,156 1,561 580 (4) 9,682
------- ------- ------- ------- --------
Total operating expenses.................. 19,784 1,584 2,795 580 24,743
Operating profit.................................. 8,845 (306) 951 (580) 8,910
Other expense..................................... 937 (106) 105 (40)(5) 896
------- ------- ------- ------- --------
Income before income taxes........................ 7,908 (200) 846 (540) 8,014
Income taxes...................................... 2,773 (38) 304 -- 3,039
------- ------- ------- ------- --------
Net income................................ 5,135 $ (162) $ 542 $ (540) 4,975
======= ======= =========
Dividend requirements on preferred stock.......... 88 88
------- --------
Net income allocable to common stockholders....... $5,047 $ 4,887
====== ========
Weighted average shares outstanding............... 9,131 1,224(6) 10,355
Net income per common share....................... $ 0.55 $ 0.47
</TABLE>
15
<PAGE> 17
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED OPERATING DATA:
(1) Represents the results of operations of Diamond, which was acquired
effective July 1, 1995, for the period from January 1, 1995 to June 30,
1995.
(2) Represents the results of operations of MAXPRO, which was acquired effective
July 1, 1996, for the period from January 1, 1996 to June 30, 1996.
(3) To eliminate sales and cost of sales for sales between Bisset and Diamond.
(4) To reflect amortization of goodwill over 25 years as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
Diamond.................................. $ 12,000 --
MAXPRO................................... 317,000 238,000
Bisset................................... 456,000 342,000
--------- --------
$ 785,000 $580,000
========= ========
</TABLE>
(5) To record the effect of the 25% minority interest in MAXPRO.
(6) To reflect on a pro forma basis the increase in the common and common
equivalent shares outstanding for the following:
- 600,000 shares of Common Stock issued in connection with the acquisition
of Diamond.
- The number of shares of Common Stock that would have been issued to raise
the cash portion of the acquisition price of MAXPRO ($8.2 million) using
the Common Stock price of the May 1996 stock offering ($16.375 per share)
less estimated expenses of 7%, plus a deferred amount payable in shares
of Common Stock with a minimum value of $900,000.
- The number of shares of Common Stock that would have been issued to raise
the cash portion of the acquisition price of Bisset ($5.0 million) using
the Common Stock price of the May 1996 stock offering ($16.375 per share)
less estimated expenses of 7%, plus 289,855 shares of Common Stock issued
on September 26, 1996 and a deferred amount payable in shares of Common
Stock valued at $1,250,000.
The additional shares of Common Stock on a pro forma basis are as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
Diamond................................ 300,000 --
MAXPRO................................. 571,138 560,229
Bisset................................. 663,609 663,609
--------- ---------
1,534,747 1,223,828
========= =========
</TABLE>
(7) The Bisset acquisition includes contingent consideration of up to $2.5
million payable one-half in cash and one-half in Common Stock if net income
exceeds certain levels for the twelve months ended June 30, 1997. If the
additional consideration is earned, the amounts paid will increase goodwill
for the transaction and will be amortized over 24 years.
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The consolidated financial statements include the accounts of Ultrak and
its eight consolidated subsidiaries. The Company is further organized into
separate selling divisions, all supported by common administrative functions
such as credit, accounting, payroll, purchasing, warehousing, training and
computer services. All significant intercompany balances and transactions among
subsidiaries and divisions have been eliminated in consolidation.
The Company has experienced substantial growth in recent years. During the
past eight years, net sales have grown from $1.8 million in 1987 to $101.2
million in 1995, a compound annual growth rate of 66%. Increases in net sales
have come from increased volume of sales of existing products to all of the
markets served by the Company, introduction and sales of new products in the
CCTV and related markets, creation of new selling groups to focus on new CCTV
and related markets and acquisitions of businesses in the CCTV industry.
During 1995, the Company completed three acquisitions. The largest company
acquired was Diamond, a manufacturer of commercial CCTV security and
surveillance systems used by large retailers, of traffic management systems used
by municipalities and of viewing systems used by industry in hazardous settings.
The transaction was accounted for as a purchase and the operations have been
included in the Company's financial statements since July 1, 1995. Diamond's
sales for the six months ended December 31, 1995 were approximately $6.9
million.
In the third quarter of 1996, the Company completed two international
acquisitions and made a minority investment in a third company. Effective July
1, 1996, Ultrak acquired approximately 75% of the outstanding stock of MAXPRO, a
manufacturer of large scale CCTV switching systems based in Perth, Western
Australia. The transaction was accounted for as a purchase and MAXPRO's
operations have been included in the Company's financial statements since the
date of acquisition. On September 26, 1996, Ultrak acquired all of the
outstanding share capital of Bisset, a distributor of CCTV and professional
audio products based in Paris, France. The transaction was accounted for as a
purchase and Bisset's operations will be included in the Company's financial
statements beginning October 1, 1996. On September 6, 1996, Ultrak acquired
approximately 24% of the outstanding stock of Lenel, a domestic security access
control software company. The Company accounts for its investment in Lenel using
the equity method.
Product sales are recorded when goods are shipped to the customer. Most of
the Company's sales are made to its domestic customers on net 30 day credit
terms after a credit review has been performed to establish creditworthiness and
to determine an appropriate credit line. The Company's international sales are
made under varying terms depending upon the creditworthiness of the customer,
and include the use of letters of credit, payment in advance of shipment or open
trade terms. Sales to one customer accounted for approximately 14% and 13% of
total sales during 1995 and the nine months ended September 30, 1996,
respectively.
Cost of sales for most of the Company's products includes the cost of the
product shipped plus freight, customs and other costs associated with delivery
from foreign contract manufacturers or from domestic suppliers. Cost of sales
for products manufactured by Ultrak includes direct labor and overhead as well
as an allocated portion of indirect overhead.
Marketing and sales expenses are costs related to the Company's sales
efforts, which include costs incurred by both direct employees of the Company
and independent sales representatives. Marketing and sales expenses consist
primarily of salaries, commissions and related benefits, depreciation,
telephone, advertising, warranty, printing, product literature, sales promotion
and travel-related costs.
General and administrative expenses include costs of all corporate and
general administrative functions that support the existing selling divisions as
well as provide the infrastructure for future growth. General and administrative
expenses consist primarily of salaries and related benefits of executive,
administrative,
17
<PAGE> 19
operations and engineering, research and development personnel, legal, audit and
other professional fees, depreciation, supplies, other engineering costs and
travel-related costs. During 1995, the Company added new corporate management in
several areas to help facilitate and manage its growth.
Engineering, research and product development costs are included in general
and administrative expenses and consist primarily of salaries, overhead and
material costs associated with the development of new products offered by the
Company. All such costs are expensed when incurred. The Company's investment in
engineering, research and product development increased significantly during
1995, and has continued to increase on an absolute basis in 1996.
During 1995 and the nine months ended September 30, 1996, the Company
incurred legal costs associated with a patent infringement lawsuit and the
enforcement of rights it obtained from a patent acquired during 1995, and the
Company expects to continue incurring such costs until the lawsuit is resolved.
See "Business -- Legal Proceedings."
The Company's consolidated financial statements are denominated in dollars
and, accordingly, changes in the exchange rate between the Company's
subsidiaries' local currency and the dollar will affect the conversion of such
subsidiaries' financial results into dollars for purposes of reporting the
Company's consolidated financial results. Conversion adjustments will be
reported as a separate component of stockholders' equity. To date, such
adjustments have not been material to the Company's financial statements.
A substantial portion of the Company's purchases and sales are derived from
operations outside the United States. Since the revenues and expenses of the
Company's foreign operations are generally denominated in local currency,
exchange rate fluctuations between local currencies and the dollar subject the
Company to currency exchange risks with respect to the results of its foreign
operations. Therefore, the Company is subject to these risks to the extent it is
unable to denominate its purchases or sales in dollars or otherwise shift to its
customers or suppliers the effects of currency exchange rate fluctuations. The
Company currently does not engage in currency hedging transactions but may do so
in the future. Such fluctuations in exchange rates could have a material adverse
effect on the Company's results of operations.
The following discussion should be read in conjunction with the
Consolidated Financial Statements and notes thereto incorporated by reference in
this Prospectus.
RESULTS OF OPERATIONS
The following table sets forth the percentage of net sales represented by
certain items in the Company's consolidated summary of income for the indicated
periods.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------- -------------------------
PRO PRO
FORMA FORMA
1993 1994 1995 1995 1995 1996 1996
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.............................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.......................................... 75.5 75.1 75.4 72.3 75.9 70.4 69.5
----- ----- ----- ---- ----- ----- ----
Gross profit........................................... 24.5 24.9 24.6 27.7 24.1 29.6 30.5
Marketing and sales expenses........................... 13.4 14.2 13.1 12.2 13.1 13.9 13.6
General and administrative expenses.................... 4.2 3.9 5.5 8.1 4.9 6.6 8.8
----- ----- ----- ---- ----- ----- ----
Total operating expenses....................... 17.6 18.1 18.6 20.3 18.0 20.5 22.4
----- ----- ----- ---- ----- ----- ----
Operating profit....................................... 6.9 6.8 6.0 7.4 6.1 9.1 8.1
Other expense.......................................... 1.2 1.4 1.8 1.9 1.8 1.0 0.8
----- ----- ----- ---- ----- ----- ----
Income from continuing operations before income
taxes................................................ 5.7 5.4 4.2 5.5 4.3 8.1 7.3
Income taxes........................................... 0.7 1.9 1.5 2.2 1.6 2.8 2.8
----- ----- ----- ---- ----- ----- ----
Income from continuing operations...................... 5.0 3.5 2.7 3.3 2.7 5.3 4.5
Loss from discontinued operations...................... (3.5) (0.2) -- -- -- -- --
----- ----- ----- ---- ----- ----- ----
Net income............................................. 1.5% 3.3% 2.7% 3.3% 2.7% 5.3% 4.5%
===== ===== ===== ==== ===== ===== ====
</TABLE>
18
<PAGE> 20
Nine Months Ended September 30, 1996, Compared to Nine Months Ended September
30, 1995
For the nine months ended September 30, 1996, net sales were $96.6 million,
an increase of $24.0 million (33%) over the same period in 1995. This increase
for the nine months ended September 30, 1996 was due to the effect of the
acquisitions of Diamond and MAXPRO, sales of new products introduced during 1996
and increased volume of sales of existing CCTV products to most of the markets
served by the Company.
Cost of sales was $68.0 million, an increase of $12.9 million (23%) over
the same period in 1995. Gross profit margins on net sales increased to 29.6%
for the nine months ended September 30, 1996 from 24.1% for the same period in
1995. This increase was due to increased sales levels of Ultrak-branded
products, cost reductions realized in 1996 on certain Ultrak-branded products,
the effect of the acquisitions of Diamond and MAXPRO (the manufactured products
of which carry higher gross profit margins than other products sold by the
Company) and higher margins earned on new products introduced during 1996.
Marketing and sales expenses were $13.4 million, an increase of $3.9
million (41%) over the same period in 1995. Marketing and sales expenses for the
nine months ended September 30, 1996 were 13.9% of net sales, up from 13.1% for
the same period in 1995. This increase was due to the effect of acquisitions
during 1995 and 1996 and the effect in 1996 of hiring additional sales, sales
support and marketing personnel in anticipation of new product introductions and
resulting sales activities, as well as the increased travel, printing, product
literature, advertising and promotion costs associated with the introduction of
new products.
General and administrative expenses were $6.4 million, an increase of $2.8
million (78%) over the same period in 1995. General and administrative expenses
for the nine months ended September 30, 1996 were 6.6% of net sales, up from
4.9% of net sales for the same period in 1995. This increase was primarily the
result of (i) the acquisitions in 1995 and 1996, including Diamond and MAXPRO,
which maintain certain separate administrative functions and have greater
research and development costs, as a percent of net sales, than Ultrak's other
operations, and (ii) the hiring of additional research and development and
administrative staff to support the anticipated growth in sales.
Other expenses were $937,000, a decrease of $346,000 (27%) from the same
period in 1995. This decrease was due primarily to lower interest expense
resulting from the repayment of bank and other lender borrowings in June 1996.
Year Ended December 31, 1995, Compared with Year Ended December 31, 1994
For the year ended December 31, 1995, net sales were $101.2 million, an
increase of $22.2 million (28%) over 1994. This increase was due to the effect
of new acquisitions during 1995, increased volume of sales of existing CCTV
products to all of the markets that the Company serves and sales of new products
introduced during 1995.
Cost of sales was $76.3 million for 1995, an increase of $17.0 million
(29%) over 1994. This increase was comparable to the overall increase in sales
between the two periods. Gross profit margins decreased slightly to 24.6% in
1995 from 24.9% in 1994. This decrease was due to price competition in the CCTV
market, offset partially by the effect of higher margins on new products and
products marketed by companies acquired during 1995.
Marketing and sales expenses were $13.3 million for 1995, an increase of
$2.1 million (18%) over 1994. This increase was due to the effect in 1995 of new
acquisitions and the effect of hiring additional CCTV sales and support staff as
well as the increased travel and related costs incurred to support the increased
level of business. Marketing and sales expenses during 1995 were 13.1% of net
sales, down from 14.2% of net sales during 1994.
General and administrative expenses were $5.5 million for 1995, an increase
of $2.4 million (77%) over 1994. General and administrative expenses during 1995
were 5.5% of net sales, up from 3.9% of net sales during 1994. This increase was
due to the effect in 1995 of new acquisitions, the creation of a separate
engineering, research and product development function and the hiring of
additional purchasing, operations and other administrative staff and related
costs necessary to support the increased level of business.
19
<PAGE> 21
Other expenses were $1.9 million for 1995, an increase of $805,000 (75%)
over 1994. The increase was due primarily to increased interest rates on higher
borrowings outstanding during the year.
Year Ended December 31, 1994, Compared with Year Ended December 31, 1993
For the year ended December 31, 1994, sales from continuing operations were
$79.1 million, an increase of $26.7 million (51%) over 1993. This growth was due
primarily to increased volume of sales of existing CCTV products to all of the
markets that the Company serves, and, in part, to new products introduced by the
Company during 1994.
Cost of sales was $59.4 million for 1994, an increase of $19.8 million
(50%) over 1993. This increase was comparable to the overall increase in sales.
Gross profit margins increased to 24.9% in 1994 from 24.5% in 1993, primarily
because of new product sales at higher margins, offset somewhat by price
competition in the CCTV market.
Marketing and sales expenses were $11.2 million for 1994, an increase of
$4.2 million (59%) over 1993. This increase was due to additional CCTV sales and
sales support staff and related costs incurred to support the increased level of
CCTV sales, travel and related costs and increased marketing, advertising and
promotional costs.
General and administrative expenses were $3.1 million for 1994, an increase
of $1.0 million (44%) from 1993. This increase was due to the addition of
administrative staff and related costs incurred to support the increase in
sales.
Other expenses were $1.1 million for 1994, an increase of $441,000 (69%)
over 1993. This increase was due primarily to increased interest costs on
borrowings offset partially by interest income on notes receivable.
On July 22, 1993, the Company announced that it would discontinue its
personal computer products business segment and concentrate its resources on the
CCTV business segment. As a result of this decision, the operations and net
assets of the personal computer business segment have been classified as
discontinued operations for all periods presented.
During 1994, the Company recorded an additional provision of $190,000, net
of income tax benefit, to reflect costs of dissolution of the personal computer
business, as well as provision for expected settlement costs of the remaining
lawsuit relating to the discontinued operations.
Sales included in discontinued operations for 1994 and 1993 were $111,000
and $19.2 million, respectively (not included in net sales reported from
continuing operations above).
LIQUIDITY AND CAPITAL RESOURCES
The Company had a net increase in cash for the nine months ended September
30, 1996 of approximately $292,000. Net cash used in operating activities for
the period was approximately $8.9 million, primarily consisting of increases in
accounts and notes receivable, inventory and advances for inventory purchases
required by increased sales and decreases in trade accounts payable arising from
the Company's decision to actively pursue early payment to earn discounts. Net
cash used in investing activities was approximately $13.1 million consisting of
purchases of property and equipment and cash payments made for acquisitions. Net
cash provided by financing activities was approximately $22.3 million consisting
of net proceeds from the sale of Common Stock in a public offering, offset by
the repayment of borrowings on bank and other lender revolving lines of credit,
the purchase of approximately $246,000 in treasury stock and the payment of
dividends on the Series A Preferred Stock.
On July 26, 1996, the Company entered into a three-year credit facility
with a bank. The credit facility initially provides up to $20.0 million in
revolving credit with interest at the Prime Rate minus 0.25% or LIBOR plus 0.75%
payable quarterly. Borrowings under the facility are collateralized by
substantially all assets of the Company. The credit facility contains certain
restrictive covenants and conditions, including debt to cash flow, tangible net
worth and fixed charge coverage ratios.
20
<PAGE> 22
As of September 30, 1996, the Company had unused available revolving lines
of credit under its bank facility totaling approximately $16.0 million. The
Company was in compliance with all of its covenants as of October 15, 1996.
The Company believes that internally generated funds, available borrowings
under the credit facility, current amounts of cash and the net proceeds from the
sale of Common Stock offered hereby will be sufficient to meet its presently
anticipated needs for working capital, capital expenditures and acquisitions, if
any, for at least the next 12 months.
QUARTERLY RESULTS
The following table sets forth certain quarterly income statement data for
each of the Company's last two fiscal years and the first three quarters of
1996, shown in thousands except per share data, and the percentage of net sales
represented by gross profit, operating profit and net income. The quarterly
income statement data set forth below were derived from unaudited consolidated
financial statements of the Company and its subsidiaries which, in the opinion
of the Company's management, include all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation.
<TABLE>
<CAPTION>
1994 1995
---------------------------------------- ----------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................... $17,809 $19,032 $21,525 $20,697 $21,829 $22,306 $28,429 $28,668
Gross profit................. 4,164 4,928 5,279 5,341 5,322 5,323 6,809 7,459
Operating profit............. 1,123 1,467 1,593 1,196 1,609 1,166 1,607 1,734
Net income................... 628 826 809 337 782 486 683 744
Net income per share......... $ 0.09 $ 0.12 $ 0.11 $ 0.04 $ 0.11 $ 0.07 $ 0.09 $ 0.10
As a percentage of net sales:
Gross profit................. 23.4% 25.9% 24.5% 25.8% 24.4% 23.9% 24.0% 26.0%
Operating profit............. 6.3 7.7 7.4 5.8 7.4 5.2 5.7 6.0
Net income................... 3.5 4.3 3.8 1.6 3.6 2.2 2.4 2.6
<CAPTION>
1996
-----------------------------
FIRST SECOND THIRD
QUARTER QUARTER QUARTER
------- ------- -------
<S> <C> <C> <C>
Net sales.................... $29,674 $31,766 $35,152
Gross profit................. 8,429 9,124 11,076
Operating profit............. 2,547 2,712 3,586
Net income................... 1,270 1,535 2,330
Net income per share......... $ 0.16 $ 0.17 $ 0.21
As a percentage of net sales:
Gross profit................. 28.4% 28.7% 31.5%
Operating profit............. 8.6 8.5 10.2
Net income................... 4.3 4.8 6.6
</TABLE>
21
<PAGE> 23
BUSINESS
GENERAL
Ultrak is a leading supplier of CCTV and related products in the United
States, with a growing presence in international markets. The Company designs,
manufactures, markets and services CCTV and related products for use in security
and surveillance, industrial, mobile video, traffic management, dental and
medical and other applications. Primarily by operating through highly focused
selling groups organized by target market and working closely with customers to
identify and develop products faster than its competitors, the Company has
generated rapid growth, with sales increasing from $1.8 million in 1987 to
$125.0 million for the twelve months ended September 30, 1996. Ultrak is one of
the three largest suppliers of CCTV products in the United States, and its
objective is to become the world's leading supplier of such products.
The Company was incorporated in Colorado in 1980 and reincorporated in
Delaware in December 1995. The Company's principal executive offices are located
at 1220 Champion Circle, Suite 100, Carrollton, Texas 75006 and its telephone
number is (972) 280-9675.
INDUSTRY BACKGROUND AND MARKETS SERVED
CCTV is a system of relaying video and audio signals from a camera to a
monitor or a recording device. The term CCTV refers to a closed-circuit system
sending signals to select receivers compared to a system broadcasting signals to
the general public. While CCTV is mostly associated with crime detection and
prevention, CCTV applications have expanded well beyond security uses. For
example, CCTV is now used for industrial, mobile video, traffic management,
dental and medical applications and monitoring of infants and the infirm. CCTV
products are sold to distributors, installing dealers, certain end users, mass
merchants, specialty retailers, systems integrators and governmental entities.
The security and surveillance market segment is expanding primarily because
of the rapid rise in the cost of crime and the resulting desire of businesses
and consumers to protect their facilities, personnel and assets from loss, harm
and false liability claims. The 1996 national retail security survey performed
by the University of Florida indicated that 1995 retail inventory shrinkage rate
was 1.87% of total retail sales. Likewise, business and insurer costs for
employee and customer personal injury liability claims have increased
significantly. Moreover, the FBI's 1994 Uniform Crime Report stated that there
were approximately 2.7 million burglaries in the United States in 1994. CCTV is
an effective way to deter or record criminal activity such as employee theft,
shoplifting and burglary, and fraudulent "slip-and-fall" claims and other
property damage or destruction. Technological developments have increased the
use of CCTV systems for security and surveillance by expanding the capabilities
while reducing the costs of such systems.
The use of CCTV systems for other applications also arises from the desire
of businesses or organizations to more closely monitor some form of activity. In
these applications, CCTV is used as a tool to observe or record precision,
remote or high speed activities. The development of smaller and better quality
cameras, higher definition monitors and more advanced accessories have helped
facilitate increased use of CCTV systems in a wide range of applications.
Each of the major CCTV markets, as defined by the Company, is described
below.
Security and Surveillance
The security and surveillance market consists of two major
segments -- professional and consumer.
- Professional CCTV systems can be very simple or tremendously complex.
While a convenience store might employ a system consisting of a single
camera and monitor, an airport system would likely include hundreds of
cameras, monitors and video recorders along with computer-based control
equipment and video multiplexers. These systems are typically sold
through professional distributors, dealers and systems integrators which
specialize in the sale and installation of CCTV equipment. Professionally
installed CCTV systems are used in retail stores, banks, warehouses,
office buildings,
22
<PAGE> 24
industrial sites, government facilities, casinos, mines, airports,
prisons and, increasingly, in private homes.
The United States CCTV industry for security and surveillance is
projected to have 1996 revenues of $2.4 billion at the end-user level,
according to STAT Resources, most of which was generated through
professional channels. This market is expected to grow by 11% annually
through the year 2000, according to the same study. Another study,
performed by Frost & Sullivan, a market intelligence firm, estimates an
annual growth rate of 16% for the period from 1994 through the year
2001. CCTV suppliers are only now beginning to serve the residential
market for professionally installed CCTV systems.
- The consumer security and surveillance market segment consists of those
applications in which end users purchase security and surveillance
systems and install the systems themselves in their small businesses or
homes. CCTV products sold into this market are characterized by
affordability, aesthetically appealing designs, ease of installation and
maintenance and mobility. The typical consumer market CCTV system
consists of a camera, monitor, switcher and, optionally, a video
recorder, which system can be wired or wireless. Consumer CCTV products
are sold through mass merchandisers, wholesale clubs, electronic retail
stores and office and juvenile product superstores, as well as through
retail catalogs. According to the United States Census Bureau, there were
approximately 5.1 million businesses with less than 100 employees and 95
million households in the United States in 1993.
Industrial
CCTV cameras are used for machine vision, computer imaging, robotics,
high-speed inspection and monitoring of high-temperature furnaces. Cameras are
used in integrated circuit lead bonders, surface mount pick-and-place equipment,
automated assembly lines, bottling plants, nuclear reactors and steel mills.
CCTV-based machine vision offers more precise assessment than human visual
inspection, and can measure image parameters which are imperceptible to the
human eye. CCTV systems are also used to remotely monitor automated assembly
lines to ensure that each process on the assembly line is accurately and
completely performed.
Cameras used in industrial applications face stringent resolution and speed
requirements. They must operate in poor and changing lighting situations and
hazardous environments. The types of cameras used in industrial environments
vary widely, depending on application. They range from miniature board-level
cameras with pinhole lenses and high image resolution levels to cameras mounted
in water-cooled steel enclosures. In this market, CCTV products are typically
purchased by systems integrators who assemble and sell equipment incorporating
vision to manufacturers who use the equipment in their production processes.
New industrial applications are emerging as new equipment is developed and
as production automation levels increase. According to Frost & Sullivan, the
market for cameras for manufacturing applications is expected to grow at a
compound annual rate of 15% through 1999.
Mobile Video
The mobile video products market consists of CCTV systems for mass transit
vehicles, school buses, police and emergency vehicles and vehicles requiring
rear vision, such as airport courtesy buses. Through the use of CCTV products,
the activities of those in or near mass transit vehicles, school buses and
police and emergency vehicles can be monitored and recorded. Additional
information, such as the speed of the vehicle and when brake, stop and emergency
warning lights are in use, can also be recorded. Rear-vision mobile video
products allow the driver of any large vehicle to see the activity or obstacles
at the rear of the vehicle. CCTV systems sold to the mobile video products
market typically consist of a high-resolution camera with built-in microphone
and a specially-designed rugged system housing and, optionally, a monitor or
video recorder.
The public school bus market alone consists of over 400,000 buses,
according to School Transportation News, an industry publication. According to
the American Public Transit Association, there were approxi-
23
<PAGE> 25
mately 67,500 public transit vehicles in use in the United States in 1994, and
the markets for police and emergency vehicles are also sizeable, reflecting the
increasing opportunities for new applications for CCTV products.
Traffic Management
The traffic management market, consisting of governmental entities and
agencies, is a relatively new CCTV market in the United States. By installing
cameras on light poles, signal lights, buildings or other structures to monitor
critical intersections or stretches of highways, traffic control operators can
intervene from a central control room by modifying the sequence of traffic
lights, or by providing up-to-date traffic information through changeable
message signs and local radio stations. In the event of an accident, police and
emergency vehicles can be dispatched more quickly. CCTV systems also enable
transportation authorities to count vehicles on highways and at intersections,
important information necessary for long-term road-planning. As side benefits,
reductions in traffic congestion and delays reduce fuel consumption and improve
air quality. CCTV products can also be used to assist in determining
responsibility for traffic accidents and ensuring compliance with vehicle
licensing procedures.
Dental and Medical
The dental and medical market consists of intraoral CCTV cameras for the
dental market and medical vision applications, such as otoscopes for eardrum
examinations and cameras for microscopy, endoscopy, telemedicine and various
surgical applications.
CCTV products assist dentists in diagnosing problems for patients and help
in explaining the proposed treatment to the patient, thereby increasing the rate
of patient acceptance of proposed treatments. By means of a video printer,
dentists can print pictures of the patient's teeth, providing documentation for
insurance and legal purposes, as well as for the dentist's patient file. The
primary dental target market for CCTV systems consists of the approximately
113,000 general dentistry practitioners, about 70% of whom currently do not own
an intraoral camera system, according to a survey conducted for Dental Products
Report in 1995. According to the same survey, 53% of the surveyed dentists have
considered or are considering buying an intraoral camera.
Telemedicine is an emerging CCTV application that allows doctors to study
images over long distances using regular telephone or cellular phone lines,
microwave signals and even satellite links to examine patients in ambulances and
instruct paramedics on emergency treatment. Rural areas with few hospitals can
also benefit from telemedicine by bringing patient and specialist together
through video link. Frost & Sullivan has estimated that the market for cameras
in medical applications will grow at a compound annual growth rate of 13%
through 1999.
Other Markets
Other emerging markets and applications for products used in conjunction
with CCTV include:
- Electronic Article Surveillance ("EAS") -- a theft-prevention system used
in retail stores. When the EAS system triggers an alarm, a CCTV camera
automatically records the shoplifter leaving the store with the stolen
goods.
- Access control systems -- computer-controlled systems which
electronically activate door locks. When an individual enters a pass code
or swipes a card through an entry device mounted near the door, a CCTV
camera activates and records the person. CCTV systems are often used with
access control systems to monitor individuals entering or leaving a
facility and to provide a video record of alarm events generated by the
access control system. The systems are used primarily at commercial
facilities because they provide a much higher level of physical security
and management control than traditional keys and mechanical door locks.
- Radar systems used to record vehicle speeds -- systems that can be
combined with police CCTV systems. When the radar detects a speeding
vehicle, the video system automatically activates to record the speeding
vehicle.
24
<PAGE> 26
International
The Company believes that the international potential for CCTV and related
products is at least equal to the U.S. market. In general, the same types of
products are used worldwide. Acceptance and penetration levels of CCTV products
vary depending on the market and application. In Japan and Western Europe, the
CCTV market currently consists primarily of high-end systems; therefore, the
current limited use of simpler consumer and small-business applications offers
future growth potential. In other international markets, the CCTV market is
largely underdeveloped, providing growth opportunities in a wide range of
applications.
The European market for CCTV products is fragmented and highly competitive.
There are many small and mid-sized suppliers in each country, many of which are
limited in their growth potential because they cannot offer the right product
mix, or because they do not have the resources to expand into other countries.
Given these limitations, certain of these companies may pursue joint ventures or
business combinations as a way to expand their future growth potential.
According to a 1994 study performed by Frost & Sullivan, the European CCTV
market was $940 million in 1992, with a projected annual growth rate of 14%
through 1997.
The Japanese CCTV market is expanding. The market is dominated by large
Japanese companies such as Panasonic, Mitsubishi, Ikegami and others who sell
directly or reach installing dealers through their own distributors.
STRATEGY
Ultrak's objective is to become the world leader in the design,
manufacture, marketing and service of CCTV and related products. This objective
includes the development, through internal growth and acquisitions, of a
comprehensive line of technologically advanced CCTV products and a worldwide
marketing organization that can quickly and efficiently bring such products to
market. The Company seeks to achieve this objective through the following
strategies:
Highly focused sales and marketing. The Company operates through focused
selling groups organized by target market. The Company believes that this
focused approach permits the selling groups to respond more quickly to customer
needs, identify and pursue market opportunities, achieve better market
penetration and increase market share. As the Company enters into new markets
for its existing and new products, new selling groups are created or acquired to
address these new markets, leveraging the Company's corporate infrastructure.
See "-- Marketing and Sales."
Customer-driven product development. The Company's highly focused sales and
marketing strategy allows the selling groups to work closely with customers to
understand their needs. Based on the information collected by the selling
groups, the Company's engineering staff, working independently and with the
engineering staffs of the Company's contract manufacturers, identifies and
develops new products that will satisfy these needs. Ultrak believes that this
method has enabled it to develop innovative products responsive to customer
needs faster than its competitors. See "-- Product Design and Development."
Cost-effective product design and production. The Company utilizes contract
manufacturers to augment its product design efforts and to cost-effectively
manufacture products. The CCTV industry is characterized by technological change
and, to remain competitive, the ability to develop and manufacture
cost-effective products is vital. The Company believes that, by relying on
contract manufacturers to produce most of its products, it is able to avoid
significant capital expenditures for manufacturing equipment, gain access to
technologically advanced production equipment, take advantage of the engineering
resources of its contract manufacturers and concentrate its resources on
engineering, marketing and sales. See "-- Product Design and Development."
Delivery of innovative, value-oriented products. Ultrak seeks to provide
innovative products that offer a strong price-value relationship to its
customers. The Company endeavors to offer products that deliver greater or
differentiated operating features at highly competitive prices. The Company's
strategy of selling through multiple distribution channels results in increased
sales of its products, thereby lowering unit production costs. See
"-- Products."
25
<PAGE> 27
Growth through acquisitions. The Company anticipates that it will continue
to complement its internal growth, both in number of products and distribution
channels, through acquisitions. The Company has found that acquisitions are an
effective means of adding experienced personnel and obtaining or expanding
technologies, products and markets. In the third quarter of 1996, the Company
completed two acquisitions and made a minority investment in one company, adding
products to broaden its product offerings and providing entry into new target
geographic and customer markets. The Company continues to evaluate opportunities
for acquisitions or joint ventures. See "-- Acquisitions."
Expansion of international sales. The Company is aggressively pursuing
international opportunities for its products. The Company began its
international marketing effort in 1995 and has significantly expanded its
international presence through the recent acquisitions of MAXPRO (Australia) and
Bisset (France). The Company believes that, based on the results of these
initial efforts, the international potential for its products is substantial in
regards to efficient distribution, marketing, profitability and new product
introduction. See "-- Marketing and Sales."
ACQUISITIONS
Acquisitions have contributed significantly to the Company's recent growth.
The Company believes that acquisitions are an effective way to obtain new CCTV
and related products and technologies, add experienced personnel, access
additional channels of distribution, expand into new geographic territories,
diversify its customer base and improve operating efficiencies through economies
of scale. The Company believes that the CCTV industry is in the process of
consolidating, which should present additional opportunities for growth through
acquisitions. During 1995, the Company completed three acquisitions, and thus
far in 1996 the Company completed two acquisitions and made a minority
investment in one company.
1995 Acquisitions -- Koyo, Diamond and GPS
In March 1995, Ultrak acquired certain assets of the CCTV division of Koyo,
adding the patented ball camera, which is ideal for museum, residential and
high-end commercial installations and offers a high level of performance and
installation simplicity. In July 1995, Ultrak acquired Diamond, a manufacturer
of commercial video CCTV security and surveillance systems used by large
retailers and municipalities and of viewing systems used by industry in
hazardous settings. The Diamond acquisition added industrial viewing equipment
and high speed dome-mounted camera systems. In November 1995, Ultrak acquired
GPS, adding a complete range of advanced CCTV accessories, including camera
housings, mounting brackets, camera pan-and-tilt mechanisms, perimeter
protection systems and software-driven camera control systems. Diamond was
acquired for $3.8 million in Common Stock and Koyo and GPS were acquired for
aggregate consideration of approximately $1.5 million in cash and Common Stock.
Diamond's net sales during its last full fiscal year prior to the acquisition
were approximately $11.8 million and Koyo's and GPS's net sales prior to their
acquisitions were immaterial.
MAXPRO
Effective July 1, 1996, Ultrak acquired approximately 75% of the
outstanding stock of MAXPRO in exchange for approximately $8.2 million in cash,
plus deferred consideration payable in Common Stock with a minimum value of
$900,000 payable over a two-year period ending August 1, 1998. The Company also
has a right of first refusal with respect to the remainder of the outstanding
stock of MAXPRO. MAXPRO, a manufacturer and distributor of CCTV products based
in Perth, Western Australia, adds large scale CCTV switching systems to the
Company's product line and enables the Company to enter several new target
geographic and customer markets. MAXPRO's CCTV switching systems consist of
sophisticated, matrix video switching software that is coupled to a
computer-controlled security input and output network. The systems allow a
virtually unlimited number of input and output devices, including cameras,
domes, VCRs and access control devices, to work together seamlessly. MAXPRO's
systems are the base component of large CCTV systems, and the acquisition should
provide Ultrak with enhanced opportunities for additional sales of peripherals
such as domes, computer-based control equipment and accessories manufactured by
Diamond. MAXPRO's CCTV systems are installed worldwide in casinos, airports,
mines, nuclear power plants, prisons,
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military bases, office buildings and city surveillance systems. The three
founders of MAXPRO active in its operations have entered into employment
agreements with MAXPRO whereby they will remain actively involved in its
day-to-day operations.
MAXPRO established a U.S. sales office in Las Vegas in February 1996 and,
since the close of the acquisition, this office, working with Ultrak selling
groups, has sold integrated Ultrak CCTV systems to several customers including
Harrah's Casino in Las Vegas. MAXPRO's installation sites include London's
Heathrow Airport, the Singapore Airport, major casinos in Australia including
the Sydney Harbour Casino, downtown streets in the city of Perth, prisons and
one of the world's largest diamond mines. In addition, MAXPRO has installations
in Indonesia, Ireland, Malaysia, New Zealand, Thailand, Taiwan and South Africa.
The product has applications in any industry that requires surveillance
utilizing video or alarm monitoring.
MAXPRO's net sales were approximately $8.0 million for the twelve months
ended June 30, 1996.
Bisset
In September 1996, Ultrak acquired all of the outstanding share capital of
Bisset, based in Paris and one of France's largest distributors of CCTV
products, for $5.0 million in cash, 289,855 shares of Common Stock, $2.5 million
in deferred consideration payable in cash and Common Stock and up to an
additional $2.5 million payable in cash and Common Stock, if certain pre-tax
income levels are attained by Bisset over a one-year period beginning July 1,
1996. Bisset distributes products from manufacturers such as Diamond,
Mitsubishi, Samsung, Sanyo, Ikegami and Pentax. It sells to installing dealers
and systems integrators and provides technical support and full warranty repair
and service. Bisset also designs, markets and sells audio equipment including
mixers, equalizers, speakers and public address equipment under its own brand,
BST, for the professional audio market. Bisset provides the Company with a
prominent entry into the strategically important French market and provides the
Company with expanded sales opportunities in Western Europe. The two former
owners of Bisset active in its operations have entered into employment
agreements with Bisset whereby they will remain actively involved in its
day-to-day operations.
Bisset's net sales were approximately $17.8 million for the year ended
December 31, 1995.
Lenel
In September 1996, Ultrak acquired approximately 24% of the outstanding
stock of Lenel, a privately-held software company specializing in security
access control based in Fairport, New York, for $2.6 million in cash.
Additionally, Ultrak received a warrant that enables it to increase its equity
ownership in Lenel over time and signed a reseller agreement with Lenel whereby
Ultrak is a worldwide reseller of Lenel's products (excluding Norway and
Sweden). Ultrak also has a right of first refusal with respect to the stock of
Lenel's founders and has the right to designate one director of Lenel (and one
additional director for each five additional directors serving on Lenel's Board
of Directors). Lenel's flagship product, OnGuard Plus, is an integrated
multimedia security system, offering identification management, access control
and alarm monitoring. The software, which runs on Windows, Windows 95 and
Windows NT platforms, provides advanced security and facility management via
open systems architecture, flexibility, modularity and an easy to use Graphical
User Interface (GUI). The investment in Lenel and the reseller agreement with
Lenel demonstrate the Company's implementation of its strategy to add access
control products to its CCTV security and surveillance systems. Lenel sells its
products to installing security dealers and systems integrators. Installation
sites include Yale University, the University of Rochester and the Bank of
Norway. The two founders of Lenel have entered into employment agreements with
Lenel whereby they will remain actively involved in its day-to-day operations.
Lenel's net sales were less than $1.0 million for 1995. The Company
accounts for its investment in Lenel using the equity method.
The Company intends to continue aggressively pursuing growth both
internally and through acquisitions. The Company recently entered into a letter
of intent to acquire a Belgium-based CCTV distributor with net sales of
approximately $5.7 million in 1995 for approximately $400,000 in cash. The
Company is currently engaged in preliminary discussions with several potential
acquisition candidates that present opportunities to
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expand the Company's distribution channels, to grow its customer base and to add
to its product line. Although it has no binding commitments to acquire such
candidates, management believes that it is likely in the next few months that
the Company may acquire certain of these candidates. Consideration may be paid
in cash, Common Stock or a combination of the two, and any transaction may
include earnout consideration payable in cash or Common Stock or a combination
of the two. Actual expenditures on acquisitions could be significantly more or
less than presently anticipated due to events not presently foreseen by
management. There can be no assurances, however, that the Company will complete
any of these acquisitions or any other acquisition.
MARKETING AND SALES
Ultrak operates through highly focused selling groups organized according
to Ultrak's target markets: security and surveillance, industrial, mobile video,
traffic management and dental and medical applications. Ultrak's
customer-focused structure allows for individual attention to each target
market, quick response to customer needs and early identification of market
requirements and new product ideas. Generally, the Company reaches each target
market through regional sales professionals supported by telemarketing,
catalogs, direct mail, magazine advertising and industry trade shows.
The Company uses different brand names for products sold through each of
its selling groups to maximize market penetration of each selling group, to
minimize market channel conflicts and to differentiate products by features,
applications and price. The Company's brand names include Ultrak, Exxis, Smart
Choice, Mobile Video Products, Diamond Electronics, Industrial Vision Source,
MAXPRO, BST and UltraCam. Seventy-nine percent of the products sold by the
Company in the first nine months of 1996 carried Ultrak brand names. The Company
also sells brands such as Panasonic, Mitsubishi, Dedicated Micros and Sony.
The professional security and surveillance customer market consists of
three tiers: wholesale distributors of CCTV equipment, dealers and systems
integrators who install systems and certain end users. Ultrak has historically
maintained three distinct selling groups that target each of these market
channels. These selling groups focused on their respective channels and were
free to cater to the specific requirements of their customer base. The Company
minimized conflicts between these different market tiers by maintaining strict
pricing rules and marketing guidelines for each selling group and open
communication with customers. As a result of its expanding product line and
desire to minimize potential future channel conflicts, the Company is in the
process of combining these three selling groups into one consolidated selling
group. While the Company will continue to serve each of these three market
tiers, management believes that streamlining the manner in which it serves them
will result in operating efficiencies and stronger relationships with installing
dealers and systems integrators. The professional security and surveillance
market is Ultrak's largest market. Ultrak's sales to the professional market
increased by 27% in 1995, exceeding the 11% average growth rate projected by
Hallcrest Systems for the professional market through the year 2000.
The Company continually attempts to develop services and marketing tools to
enhance the efforts of each of its marketing personnel. For example, as part of
its customer-driven sales approach, Ultrak has designed and developed its CCTV
Designer(TM) software, a new software system that allows Ultrak's installing
dealers to design complex CCTV systems with very little technical knowledge.
This proprietary system capitalizes on Ultrak's technical knowledge and improves
the efficiency of the selling process. Once an installing dealer has used the
CCTV Designer software, the dealer places a call to Ultrak's host computer which
configures the system using Ultrak components. In addition, Ultrak arranges
third party leasing services for its business customers. The ability to present
leasing as an option to customers is an important selling tool -- it makes the
equipment more affordable, helps close sales and enables the customer to
maintain the most up-to-date equipment and the newest CCTV technology.
In the consumer security and surveillance market, Ultrak helped pioneer the
retailing of CCTV equipment for sale directly to the consumer. The Company
addresses this market by offering video observation kits (both wired and
wireless) designed and packaged specifically for small business and residential
applications. These products are sold under the Exxis label at Sam's Wholesale
Clubs and under the Smart Choice and other labels elsewhere. The Company was the
first to introduce wireless CCTV systems for sale to
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the consumer market; these products are sold under the BabyCam(TM) trademark to
the juvenile products market, and under the EasyWatch(TM) trademark to the
general surveillance market. Uses of the EasyWatch system include the remote
monitoring of reception areas in small businesses, entranceways and pool areas,
and "keeping an eye on" the infirm. Retailers offering Ultrak products to
consumers include wholesale clubs, mass retailers, office product superstores
and electronics superstores. The consumer security and surveillance market is
Ultrak's second largest market.
Ultrak sells products to the industrial market through its Industrial
Vision Source group. Sales to this market are made primarily through direct
marketing, consisting primarily of telemarketing and direct mail. As a division
of Ultrak, Industrial Vision Source benefits from Ultrak's engineering support
and purchasing power, which provides an advantage over its known competitors in
this market. With the backing of its engineering staff, the Company provides
custom camera solutions for OEM applications. The Company maintains a large
inventory of products on hand, allowing it to ship most products within 24 hours
of receipt of the order, resulting in high customer satisfaction.
Sales to the mobile video market are made by Ultrak's Mobile Video Products
group. The Company primarily markets its products in this market through a
network of dealers that target customers, including school districts, police and
fire departments and other owners of fleets of transportation vehicles. During
1995, Ultrak developed a special line of transit bus observation systems that
allow up to four cameras to be recorded onto one tape by means of a multiplexer.
During 1995, Ultrak purchased United States Patent No. 5,319,394 covering
"Systems for Recording and Modifying Behavior of Passenger [sic] in Passenger
Vehicles." Ultrak is now licensing this patent to other manufacturers of school
and transit bus video systems, and believes it has become a leader in the market
covered by the patent.
Ultrak targets the traffic management market through Diamond. Diamond
markets its traffic management products primarily through direct marketing to
governmental entities and systems integrators. For example, Diamond sold its
CCTV domes directly to the city of Columbus, Ohio for installation at major
intersections. Diamond also sold a system to Montgomery County, Maryland, which
uses the Company's domes to monitor traffic; scenes recorded by these domes can
be viewed by county residents on a special cable TV channel.
Ultrak markets its UltraCam intraoral camera to dentists through an
extensive dealer network. These dealers specialize in products for the dental
market. The Company believes that this method allows it to maximize sales growth
with a minimum of overhead, and views this network as a competitive advantage
since most of the Company's competitors in this market have direct sales forces.
Additionally, the Company believes that UltraCam is the market leader in
intraoral camera systems for dental offices with more than one treatment room.
Ultrak began actively pursuing the international market in 1995. In 1995
and early 1996, Ultrak sold its products in a number of countries including
Mexico, Brazil, Argentina, England, France, Germany, Denmark, India, China,
South Korea, Japan, The Philippines and Australia. The Company believes that the
international potential for its products is at least equal to the United States
market. In late 1995, the Company created a separate selling group to focus on
the Far Eastern markets. Other international markets are reached through the
efforts of the existing domestic selling groups. In the third quarter of 1996,
the Company acquired MAXPRO and Bisset, which will substantially expand the
Company's presence internationally.
PRODUCT DESIGN AND DEVELOPMENT
Ultrak's engineering and product development staff works directly with its
customers to design new products and product enhancements, and coordinates with
its contract suppliers to manufacture certain Ultrak branded products. Ultrak
has developed a strong engineering staff to work with its selling and marketing
groups to develop new products and product line extensions that promptly respond
to customer needs. As a result, Ultrak believes that it can develop
technologically superior products with customer-desired performance capabilities
that address new applications at lower prices than competitive products. For
example, the Company introduced some of the first wireless CCTV systems
available for sale to the consumer market, sold under the BabyCam and EasyWatch
trademarks. Further, in 1995 the Company developed one of the first
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integrated color video observation systems, an observation system for transit
bus applications, a rear vision observation system for large vehicles and a line
of cost-competitive quad systems. Both MAXPRO and Lenel also have engineering
and product development staffs that are substantially responsible for the
development of their products. Bisset also is responsible for designing its
audio products.
The Company believes that one of the major accomplishments of the
engineering and development group has been the recent design and development of
the DAVE(TM) (Duplex Analog Video Encoding) technology, a system designed to
provide complete, continuous video coverage of large areas by employing a large
array of cameras connected to a single loop of coaxial cable. DAVE is targeted
for sale to large retailers and other end users who require extensive
surveillance systems. Management expects commercial installations of DAVE
products to commence in the first half of 1997.
Diamond announced the development of the SmartScan III system in the third
quarter of 1996, a major upgrade of its high speed pan & tilt dome system. The
SmartScan III system, which fits into 6" or 9" dome housings, is substantially
faster and quieter than Diamond's current surveillance systems because it is
smaller and has been developed with a unique mechanical design. The Company
believes it is the fastest system currently available on the market. Management
expects SmartScan III to be available for commercial installation in the first
half of 1997.
Developed by MAXPRO's engineering group, the MAX-1000 CCTV management
system was first introduced in 1988. In order to ensure that the highest
functionality can be realized from new technologies in peripheral equipment, the
development of the MAX-1000 is ongoing: new hardware is developed and introduced
every year, and the software is now in its fourth generation.
Bisset designs the audio equipment it sells under the BST brand name. The
equipment is manufactured in the Far East by contract manufacturers. Bisset
endeavors to offer the most innovative products with the newest features
available in the French audio market. Bisset's product design and development
efforts are currently focused on expanding its product offering for the public
address (PA) market, a market that is synergistic with the CCTV market because
it is often the same dealer who installs the CCTV and PA systems.
As of September 30, 1996, the Company had a full-time engineering staff of
38 employees compared to four as of December 31, 1994. Because of the complex
and highly specialized requirements of Ultrak products, these employees are
experienced in a wide range of engineering disciplines including charged-couple
device ("CCD") technology, analog and digital signal processing and systems
integration. In addition, the Company's primary international contract
manufacturer employs a number of engineers who are primarily dedicated to
research and development efforts of products sold by Ultrak. As a result of the
acquisition of MAXPRO, the Company has added nine full-time engineers.
PRODUCTS
The Company's motto, "Quality Products That Make a Difference," summarizes
the Company's strategy of developing technologically advanced and cost-effective
products that are unique and solve customers' specific needs or problems.
Through in-house product development, and with the product lines the Company
obtained through acquisitions, Ultrak offers a broad line of Ultrak branded CCTV
products. The Company's brand names include Ultrak, Exxis, Smart Choice, Mobile
Video Products, Diamond Electronics, Industrial Vision Source, MAXPRO, BST and
UltraCam. The Company also sells brands such as Panasonic, Mitsubishi, Dedicated
Micros and Sony. The Company's net sales of products bearing Ultrak brand names
were 70% and 79% in 1995 and the first nine months of 1996, respectively.
The Company's CCTV products include a broad line of cameras, lenses,
high-speed dome systems, monitors, time-lapse recorders, multiplexers, quad
processors, switchers, wireless video transmission systems, computerized
observation and security systems, control matrix switching systems and
accessories. Other products include access control systems, electronic article
surveillance systems, patient education systems and professional audio products.
Ultrak's CCTV product categories can generally be divided into components
and systems, and include the following:
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Components
Cameras. Today's cameras all use CCD's, a type of integrated circuit, to
sense the light emitted by a scene. Ultrak sells a complete line of general
purpose cameras, including a patented ball camera which was made available by
the 1995 acquisition of Koyo's CCTV division, as well as covert cameras.
Specialized camera features include color imaging, low-light sensitivity, high
resolution, back light compensation and miniature size.
Lenses. Much like high-grade photographic cameras, most CCTV cameras are
not sold with a lens installed. Users select from an array of fixed focal length
and zoom lenses to fit their application. Some lenses include motors to operate
the zoom feature by remote control. Ultrak offers lenses from all major lens
manufacturers.
Camera housings. Camera housings protect cameras from tampering, dust,
dirt, water, extreme temperature and other hazards of the environment. Ultrak
offers a complete line of Ultrak brand housings and mounting hardware, including
a line of unique, low-cost housings made from a new polymer compound called
UltraDur(TM).
Pan-and-Tilts. "Pan-and-tilts" are motorized robotic devices which support
a CCTV camera and allow it to be pointed by remote control. Typically, a
pan-and-tilt device can move a camera at a rate of up to 60 degrees per second.
Ultrak acquired its own line of pan-and-tilt products, including control
systems, with the acquisitions of GPS and Diamond.
Domes. A dome is a camera enclosure shaped like a sphere. Typically, the
dome includes a pan-and-tilt mechanism as described above. Some domes, such as
those manufactured by Diamond, include fast, compact pan-and-tilt mechanisms
which can move cameras very rapidly -- pan speeds of up to 125 degrees per
second and tilt speeds of up to 60 degrees per second. Ultrak's domes are
available in four different finishes (clear, smoked, silver and gold) and are
frequently used in retail stores and highway systems.
Monitors. Ultrak offers black-and-white and color video monitors with
screen sizes ranging from 9 inches to 32 inches. Professional-grade CCTV
monitors typically offer higher resolution than basic television sets.
Video recorders. Professional grade VCR's offer much longer useful lives
than their consumer equivalents. Longer recording times are achieved by
recording fewer pictures per second than standard television consumer recorders.
In addition to offering its own recorders, the Company markets and sells
Mitsubishi recorders based on a long-term strategic partnership arrangement with
Mitsubishi.
Multiplexers. Video multiplexers allow the images from multiple cameras to
be recorded on a single video tape; most units also control the display of
multiple pictures on a single monitor. During playback, the multiplexer ensures
that only images from the desired cameras are displayed. Most multiplexers can
accept input from up to 16 cameras. Ultrak offers multiplexers from all major
manufacturers.
Quad processors. Quad processors "split" the monitor's image into four
"windows," each capable of displaying an image from a different camera. Quads
are an economical solution to the problem of viewing and recording multiple
cameras in relatively small systems. In early 1996, Ultrak introduced a family
of new quad observation systems, which Ultrak believes offers superior
performance at lower cost.
Switchers. Video switchers allow the input to a monitor or video recorder
to be selected from one of many cameras. Small switchers are the most economical
way to route the images from multiple cameras to a monitor but have the
disadvantage, unlike quad processors and multiplexers, of only displaying one
image at a time. Sophisticated switchers are used in very large systems that
eclipse the capacity of multiplexers and quad processors. Ultrak offers a line
of competitive switchers, as well as large switchers as part of integrated dome
systems.
Illuminators. Ultrak offers both LED and infrared illuminators that allow
cameras to "see" in complete darkness. Such systems are ideal for the covert use
of CCTV at night and in areas where light cannot be tolerated, such as in
hospital patient rooms.
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Systems
Control Matrix Video Systems. The acquisition of MAXPRO added sophisticated
computer-controlled matrix video switching systems to the Company's product
line. MAXPRO's CCTV switching systems consist of sophisticated, matrix video
switching software that is coupled to a computer-controlled security input and
output network. The systems allow a virtually unlimited number of output
devices, including cameras, domes, VCRs and access control devices, to work
together seamlessly.
DAVE technology system. In the Company's view, its DAVE technology
represents a significant innovation in CCTV design. Products based on the DAVE
technology allow many cameras to be connected to a single coaxial cable, thereby
significantly reducing the installation cost of large CCTV systems. DAVE
products also offer a significant reduction in the cost of the control and
display equipment for large systems as compared to standard multiplexer
technology. Management expects commercial installations of DAVE products to
commence in the first half of 1997.
Video transmission systems. Video transmission systems allow pictures from
CCTV systems to be transmitted over great distance through telephone lines. Such
systems are useful to verify the cause of alarms at remote locations and for
general surveillance of unmanned and high-value facilities. Ultrak currently
sells video transmission systems manufactured by several suppliers.
VisiTrak(TM) system. The VisiTrak system is one of a new generation of
computer-based control systems entering the market. The VisiTrak system
automatically commands a remote pan-and-tilt camera to lock on and follow a
moving object within a spotter camera's view.
Intraoral camera systems. Ultrak's intraoral camera systems, sold under the
UltraCam trademark, consist of a miniature camera mounted in a wand, a color
video monitor, a color video printer and a mobile cart. Ultrak's UltraCam
intraoral camera is one of the most advanced and complete vision systems in the
dental market. The system can easily be expanded to cover dental offices with
multiple treatment rooms.
Video observation systems. A video observation system typically consists of
one or more cameras and a monitor with built-in switcher or quad, sold together
as an easy-to-install kit system.
Wireless observation systems. Ultrak's wireless observation systems, sold
under the BabyCam and EasyWatch trademarks, consist of a small camera with a
built-in microphone that transmits image and sound to a lightweight, portable
monitor.
School and transit bus observation systems. These observation systems,
designed specifically to meet the needs of the passenger transportation market,
typically consist of one or more rugged cameras, a video recorder to record the
activity and a heavy gauge steel housing for the VCR.
RearVision(TM) system. Ultrak's RearVision system consists of a small,
rugged camera that can be mounted on the back of any large vehicle, and a small
monitor mounted on the dashboard of the vehicle.
Other
Access Control Computer Software. The investment in Lenel added a line of
software for security access control systems that offers features such as
multimedia identification management, access control and alarm monitoring. The
software provides advanced security and facility management via open systems
architecture, flexibility, modularity and easy to use Graphical User Interface
(GUI).
Electronic Article Surveillance. EAS systems are used by retailers to
protect merchandise from shoplifters. Small tags are attached to the merchandise
and, if not deactivated or removed by a clerk, will set off an audible alarm
when the merchandise is taken from the store. In 1996, Ultrak began marketing a
new EAS system that the Company believes offers certain advantages over its
competitors' systems: it is easy to set up, requires no adjustments, has a
higher detection rate and a lower false alarm rate. Ultrak has integrated the
EAS system with CCTV to augment the audible alarm with a video record of the
shoplifter leaving the store with the stolen merchandise.
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Patient education system. Ultrak offers a CD-based patient education system
(UltraView(TM)) that is marketed and sold to dentists along with the intraoral
camera system. It allows patients to learn about various dental related topics
while waiting for the dentist or hygienist.
Audio Products. The acquisition of Bisset provided the addition of a line
of audio products including mixers, equalizers, speakers and public address
equipment under Bisset's own brand, BST, for the professional audio market.
OPERATIONS
Through the use of non-affiliated contract manufacturers that manufacture
most of its branded products, the Company is able to focus its efforts on
design, engineering, product development, sales and marketing and customer
service. The Company purchases products from suppliers in the United States and
imports other products from contract manufacturers in South Korea, Japan,
England, Hong Kong, Taiwan and China. The Company has exclusive and
non-exclusive sales and marketing rights for certain of the CCTV products it
sells, including certain CCTV cameras and systems manufactured in Japan and
South Korea. The Company believes that its relationships with its suppliers are
good. In most of these relationships, the Company believes that the relationship
is as important to the supplier as it is to the Company. Thus, the Company
believes that there is a strong, mutually advantageous basis for the trading
relationship to continue and grow.
Delivery times for products imported into the United States vary from one
week to two months, depending on the mode of transportation. Because of foreign
production lead times, the Company normally makes purchase commitments to these
foreign suppliers three to six months in advance of shipment. Therefore,
management believes it is necessary for the Company to commit to and carry
larger levels of inventory than would be necessary if it used only domestic
suppliers. Given order lead times, accurate inventory forecasting is critical.
See "Risk Factors -- Dependence upon Product Manufacturers."
Substantially all of the Company's purchases from its non-affiliated
manufacturers are made in United States dollars with the remaining purchases
made in Japanese yen and English pounds. To date, the Company has not been
materially adversely affected by fluctuations in the valuation of the yen or
pound. It is expected that the Company will continue to purchase the vast
majority of its products in United States dollars.
A critical element of the Company's domestic operations is its management
information systems. The systems include sales order, materials requirements
planning (MRP) and accounting applications. Substantially all inventory,
accounts receivable, purchasing, payroll and other corporate business functions
are controlled through this integrated computer system located in its
Carrollton, Texas headquarters. All domestic sales locations are linked real
time through a nationwide network which allows for orders to be entered and
shipped from multiple locations.
Both MAXPRO and Bisset have management information systems with features
that include sales order, materials equipment planning and accounting
applications; however, the Company does not have access on-line to such systems
from its headquarters. While the Company believes that the MAXPRO and Bisset
systems are currently sufficient, the Company is evaluating the possibility of
implementing a new management information system for each company, which would
allow the Company access from its headquarters and real time communications
between the Company and its international operations.
Ultrak believes that one of the keys to its success is its commitment to
provide excellent response and service to its customers. Domestic orders can be
entered into the Company's Carrollton, Texas-based computer system either
directly by the customer through electronic data interchange, by traveling sales
representatives using laptop computers or by in-house sales personnel. After the
computer system performs an automated check of the customer's account and credit
limit, the order is released to be shipped from available inventory at one of
the six domestic stocking warehouse locations. Because the Company maintains a
relatively large inventory of products, it ships most items within 24 hours of
receipt of the order. The Company's domestic stocking warehouse locations are
Carrollton (Dallas), Texas; Broomfield (Denver), Colorado; Annapolis, Maryland;
Poway (San Diego), California; and Carroll (Columbus), Ohio. Approximately 85%
of all domestic shipments are made from the Carrollton, Texas warehouse. Bisset
also
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maintains a relatively large inventory of products and is able to ship most
items promptly after the receipt of an order. Because both Diamond and MAXPRO
manufacture substantially all of their products, the shipment of their products
generally occurs within four weeks after the receipt of an order depending on
the size and complexity of the order.
To ensure complete customer service and satisfaction, Ultrak offers third
party leasing services and after-sale service for all equipment sold by the
Company.
Ultrak offers a limited warranty on all products shipped. The Company
warrants that its products will conform with Ultrak's published specifications
and be free from defects in materials and workmanship. For products sold under
the Ultrak name, the Company offers a two-year warranty on cameras, most
monitors, observation systems and quad processors. For all other Ultrak
equipment, a warranty of one year is offered. For equipment sold under the Smart
Choice label, the warranty offered is one year on parts and 90 days on labor.
For equipment sold under the Diamond label, the warranty offered is one year on
parts and labor; Diamond also offers extended on-site warranty and service
contracts nationwide. For equipment sold under the MAXPRO label, the warranty
offered is one year on parts and labor. Ultrak specifically disclaims any
liability for personal injury or property loss by burglary, robbery, fire or
otherwise and disclaims any warranty that its products will provide adequate
warning or protection or that its products will not be compromised or
circumvented. The Company makes no warranty for products sold under third party
brand names (although the warranty, if any, of the product's manufacturer may
apply).
When goods are delivered to Ultrak, a random sampling quality assurance
procedure is performed. Selected units are verified for functionality, proper
packaging, labeling and documentation. The Company's primary contract
manufacturer is ISO9001 certified. The quality assurance procedures in the
Company's Ohio plant comply with ISO9001 specifications.
BACKLOG
As of December 31, 1994 and 1995 and September 30, 1996, the Company had
approximately $3.9 million, $6.7 million and $8.0 million, respectively, in
order backlog which it considered to be firm. Because purchase orders are
subject to cancellation or delay by customers with limited or no penalty, the
Company's backlog is not necessarily indicative of future revenues or earnings.
Since the Company ships most products within 24 hours of receipt of the order,
the Company believes that backlog is not a significant measurement of the
Company's financial position.
INTELLECTUAL PROPERTY
As part of its ongoing engineering and development activities, Ultrak seeks
patent protection on inventions covering new products and improvements when
appropriate. Ultrak currently holds a number of United States patents and has a
number of pending patent applications. MAXPRO has two pending international
patent applications and has applied for six international trademarks. Although
the Company's patents have value, the Company believes that the success of its
business depends more on innovation, sales efforts, technical expertise and
knowledge of its personnel and other factors. The Company also relies upon trade
secret protection for its confidential and proprietary information.
MANUFACTURING
On a pro forma basis for the twelve months ended December 31, 1995
approximately 9.8% of the Company's revenues were attributable to CCTV products
manufactured at the Company's Carroll (Columbus), Ohio manufacturing facility
and approximately 6.6% were attributable to MAXPRO branded products manufactured
at its Perth, Western Australia manufacturing facility. The Company believes
that these facilities meet its current and anticipated manufacturing needs for
the products which it currently manufactures. In addition, Ultrak's product
development staff designs and coordinates with its contract suppliers to
manufacture certain of its Ultrak branded products as well as coordinates and
supervises the assembly and packaging of certain other products by its own
employees.
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COMPETITION
The Company faces substantial competition in each of its target markets.
Significant competitive factors in the Company's markets include price, quality
and performance, breadth of product line and customer service and support. Some
of the Company's existing and potential competitors have substantially greater
financial, manufacturing, marketing and other resources than the Company. To
compete successfully, the Company must continue to make substantial investments
in its engineering and development, marketing, sales, customer service and
support activities. There can be no assurance that competitors will not develop
products that offer price or performance features superior to those of the
Company's products.
The Company considers its major competitors to be the CCTV operations of
Sensormatic Electronics Corporation, Burle (part of Philips Communication &
Security Systems, Inc.), Checkpoint Systems, Inc., Panasonic and Vicon
Industries, Inc.
EMPLOYEES
As of September 30, 1996, the Company had 411 full-time employees employed
at seven primary locations and seven field sales offices, of which 154 were
sales and sales support personnel, 108 were warehouse/manufacturing personnel,
51 were technical/service personnel, 38 were engineering and product development
personnel and 60 were administrative and managerial personnel.
The Company's future success will depend in large part upon its ability to
attract and retain highly skilled technical, managerial, financial and marketing
personnel, who are in great demand. No employee is represented by a union or
covered by a collective bargaining agreement, and the Company has not
experienced a work stoppage or strike. The Company considers its employee
relations to be good.
The Company has a formal employee partnership philosophy that the Company
believes contributes significantly to its success. During monthly "partners'
meetings," all employee-partners are informed about the state of the Company and
key events that took place during the preceding month and given the opportunity
to ask questions, make suggestions and comment.
The Company's employee partnership philosophy statement is as follows:
Everyone working at Ultrak is considered to be a partner. Each
employee-partner pitches in to get the job done, is encouraged to grow both
professionally and personally, is recognized for individual achievement,
and works in a cheerful and friendly team environment. There is no room for
prima donnas or hierarchies. All employee-partners share in the Company's
profits. Ultrak extends its partnership philosophy to its suppliers and
customers as well.
FACILITIES
The Company's headquarters are currently located in approximately 69,000
square feet of leased office and warehouse space in Carrollton, Texas, pursuant
to a lease expiring in May 1999. Although the Company believes this facility is
adequate to meet its present needs, the Company has leased on a short-term basis
additional office space and has purchased approximately 14 acres of land in
Lewisville, Texas for the construction of an approximately 140,000 square foot
new office and warehouse facility it intends to sell to a financing institution
and leaseback under an operating lease. The Company also leases additional
office/warehouse space in Broomfield, Colorado; Annapolis, Maryland; Fort
Lauderdale, Florida; Atlanta, Georgia; Chicago, Illinois; Poway (San Diego),
California and Paris, France.
The Company owns its 72,000 square foot manufacturing facility in Carroll
(Columbus), Ohio and leases its 9,900 square foot manufacturing facility in
Perth, Western Australia. The Company believes that its Ohio manufacturing
facility and Australian manufacturing facility are adequate to meet the
Company's present and anticipated manufacturing needs for products that it
currently manufactures.
35
<PAGE> 37
LEGAL PROCEEDINGS
The Company is not aware of any material pending or threatened legal
proceedings to which the Company is or may be a party. The Company knows of no
other legal proceedings pending or threatened or judgments entered against any
director or officer of the Company in their capacity as such.
On June 16, 1995, P.A.T. Co. and Kustom Signals, Inc., each a Kansas
corporation, filed suit against Ultrak in the United States District Court for
the District of Kansas (P.A.T. Co. and Kustom Signals, Inc., Plaintiffs v.
Ultrak, Inc., Defendant), claiming unspecified damages for, and seeking
injunctive relief against, patent infringement, trademark infringement, common
law infringement and unfair competition relating to The Witness(TM) product, a
vehicle mounted surveillance and video recording system. The plaintiffs charged
that Ultrak has infringed upon their Patent Nos. 4,789,904 ("Vehicle Mounted
Surveillance and Video Taping System") and 4,949,186 ("Vehicle Mounted
Surveillance System"). Ultrak has denied the allegations and asserted
affirmative defenses of non-infringement, invalidity and unenforceability, and
asserted counterclaims of monopolization and attempt to monopolize, conspiracy
to monopolize and unfair competition. Discovery in the case is substantially
complete and the case is expected to go to trial in 1997. There can be no
assurance that the Company will prevail in this litigation, or that the Company
will be able to license any valid or infringed patent on reasonable terms, if at
all, if the Company does not prevail. The Company's total sales of The Witness
product were approximately $100,000, $250,000 and $380,000 in 1994, 1995 and for
the nine months ended September 30, 1996, respectively. In the opinion of the
Company's management, if the legal proceeding described above is determined
adversely to the Company, it should not have a material adverse effect upon the
Company's business, financial position or results of operations.
36
<PAGE> 38
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
----------------------------------------- --- ---------------------------------------
<S> <C> <C>
George K. Broady......................... 58 Chairman of the Board, Chief Executive
Officer and President
James D. Pritchett....................... 50 Executive Vice President, Chief
Operating Officer and Director
Tim D. Torno............................. 39 Vice President-Finance, Secretary,
Treasurer and Chief Financial Officer
William C. Lee(1)........................ 57 Director
Charles C. Neal(1)....................... 37 Director
Robert F. Sexton(1)...................... 61 Director
Roland Scetbon........................... 51 Director
</TABLE>
- ---------------
(1) Member of the Audit and Compensation Committees.
George K. Broady became Chairman of the Board, President and Chief
Executive Officer of the Company in March 1991. From 1988 to 1991, Mr. Broady
was the President and owner of Geneva Merchant Bankers of Dallas, Texas. Prior
to 1988, Mr. Broady was Chairman and Chief Executive Officer of Network Security
Corporation, a company that he founded in 1970. Mr. Broady received his Bachelor
of Science degree (cum laude) from Iowa State University in 1960.
James D. Pritchett joined the Company in September 1988 as Chief Operating
Officer. He was elected Director in August 1989 and became Executive Vice
President in October 1991. From October 1980 to September 1988, Mr. Pritchett
was Executive Vice President and Chief Operating Officer of Booth, Inc., a
manufacturer of electronic equipment. Mr. Pritchett received his Bachelor of
Science degree in Mechanical Engineering from the University of Texas at
Arlington in 1969, and his Masters of Science degree in Mechanical Engineering
in 1972 from Southern Methodist University.
Tim D. Torno has been the Vice President-Finance, Secretary, Treasurer and
Chief Financial Officer of the Company since August 1988. From May 1980 to
August 1988, Mr. Torno was employed by KPMG Peat Marwick in Denver, New York and
Corpus Christi, Texas, in various capacities, including senior manager. Mr.
Torno received a Bachelor of Business Administration degree in Accounting (cum
laude) from Texas A & M University in 1979 and a Masters of Business
Administration degree (with honors) in 1993 from the University of Phoenix,
Denver, Colorado and is a Certified Public Accountant.
William C. Lee became a director of the Company in May 1994. Mr. Lee has
been the Senior Vice President of the Annuity Board of the Southern Baptist
Convention, a pension and insurance management company, since July 1991. Mr. Lee
served as a Managing Director of Geneva Merchant Bankers of Dallas, Texas from
1989 until 1991. Mr. Lee earned his Bachelor of Business Administration degree
from Texas A & M University in 1962 and his Masters of Business Administration
degree from Southern Methodist University in 1966 and is a Certified Public
Accountant.
Charles C. Neal became a Director of the Company in May 1994. Mr. Neal has
been President of Chas. A. Neal & Company of Miami, Oklahoma, a company which
owns interests in oil and gas properties and in various corporations in several
industries, including banking, since 1989. From 1985 to 1989, Mr. Neal was with
Merrill Lynch & Co. Mr. Neal received his Bachelor of Arts degree in Economics
from the University of Oklahoma in 1981 and a Juris Doctor/Masters of Business
Administration degree from the University of Chicago Law School and Graduate
School of Business in 1985.
37
<PAGE> 39
Robert F. Sexton became a Director of the Company in May 1995. Mr. Sexton
has been President of Bakery Associates, Inc., a company which brokers bakery
packaging goods, since 1983. From 1973 to 1983, Mr. Sexton was Executive Vice
President and a director of Campbell Taggart, Inc., a baking company. Mr. Sexton
is also a director of Republic Gypsum Company, a New York Stock Exchange-listed
manufacturer and distributor of paperboard. Mr. Sexton earned his Bachelor of
Business Administration degree in Industrial Management in 1956 from the
University of Texas.
Roland Scetbon became a Director of the Company in September 1996. Mr.
Scetbon was one of the two principal owners of Bisset and has served as
President and Managing Director of Bisset since the Company purchased it in
September 1996. Prior to that time, Mr. Scetbon had been associated with Bisset
since 1966, most recently serving as President. Mr. Scetbon's election as a
Director of the Company was in conjunction with the acquisition of Bisset.
38
<PAGE> 40
PRINCIPAL AND SELLING STOCKHOLDER
The following table sets forth certain information concerning the
beneficial ownership of the Common Stock, as of September 30, 1996, by (a) each
person known by the Company to own beneficially more than 5% of the outstanding
Common Stock, (b) each of the directors and executive officers of the Company,
(c) the Selling Stockholder and (d) all executive officers and directors as a
group. See "Risk Factors -- Control of the Company by Principal Stockholder."
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED SHARES BENEFICIALLY
PRIOR TO THE OWNED
OFFERING SHARES AFTER THE OFFERING
-------------------- BEING --------------------
BENEFICIAL OWNER(1) NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------------------------------------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
George K. Broady(2)........................... 2,190,435 19.6% -- 2,190,435 15.9%
James D. Pritchett(3)......................... 161,996 1.5 -- 161,996 1.2
Roland Scetbon(4)............................. 131,944 1.2 131,944 1.0
Tim D. Torno(5)............................... 53,750 * -- 53,750 *
William C. Lee................................ 29,667 * -- 29,667 *
Charles C. Neal(6)............................ 156,909 1.5 -- 156,909 1.2
Petrus Fund, L.P.(7).......................... 92,460 * 92,460 -- *
Robert F. Sexton(8)........................... 103,066 1.0 -- 103,066 *
All executive officers and directors as a
group (seven persons)(9).................... 2,827,767 24.9% -- 2,827,767 20.3%
</TABLE>
- ---------------
* less than 1%
(1) Except as otherwise indicated, the persons named in the table possess sole
voting and investment power with respect to all shares shown as beneficially
owned.
(2) Includes 166,667 shares held by a trust for the benefit of members of Mr.
Broady's extended family, of which Mr. Broady serves as sole trustee,
148,851 shares issuable upon exercise of stock options currently exercisable
or exercisable within 60 days and 406,981 shares issuable upon conversion of
shares of the Series A Preferred Stock owned by Mr. Broady. Mr. Broady
disclaims beneficial ownership of the shares of Common Stock owned by the
trust. Mr. Broady owns all 195,351 outstanding shares of Series A Preferred
Stock and each share of Series A Preferred Stock has 16.667 votes on all
matters submitted to a vote of stockholders. Through his ownership of Common
Stock and the Series A Preferred Stock prior to the offering, Mr. Broady
controlled over 35% of the voting power of all outstanding shares of capital
stock, and following the offering will control approximately 30% of the
voting power. Mr. Broady's address is 1220 Champion Circle, Suite 100,
Carrollton, Texas 75006.
(3) Includes 124,167 shares issuable upon exercise of stock options currently
exercisable or exercisable within 60 days held by Mr. Pritchett.
(4) All of the shares are owned by Frida, S.A., a corporation owned by Mr.
Scetbon.
(5) Includes 53,750 shares issuable upon exercise of stock options currently
exercisable or exercisable within 60 days held by Mr. Torno.
(6) Comprised of 9,650 shares owned by Pantheon, Incorporated, a corporation
owned by Mr. Neal and his wife, and 147,259 shares owned by Chas. A. Neal &
Company, a corporation of which Mr. Neal is President.
(7) Comprised of 92,460 shares of Common Stock issuable upon exercise of a
warrant issued to Petrus Fund, L.P.
(8) Includes 5,556 shares owned by Mr. Sexton's wife.
(9) Includes options to purchase an aggregate of 326,768 shares held by Messrs.
Broady, Pritchett and Torno.
39
<PAGE> 41
DESCRIPTION OF CAPITAL STOCK
The Company has authorized capital stock consisting of 20,000,000 shares of
Common Stock, $0.01 par value, and 2,000,000 shares of Preferred Stock, $5.00
par value.
COMMON STOCK
All outstanding shares of Common Stock are, and the shares of Common Stock
offered hereby when issued and paid for will be, fully paid and nonassessable.
All holders of Common Stock have full voting rights and are entitled to one vote
for each share held of record on all matters submitted to a vote of the
stockholders. Votes may not be cumulated in the election of directors.
Stockholders have no preemptive or subscription rights. The Common Stock is
neither redeemable nor convertible, and there are no sinking fund provisions.
Holders of shares of Common Stock are entitled to dividends when, as and if
declared by the Board of Directors from funds legally available therefor and are
entitled, upon liquidation, to share ratably in all assets remaining after
payment of liabilities. See "Dividend Policy." The rights of holders of Common
Stock will be subject to the preferential rights of the Series A Preferred Stock
and any preferential rights of any Preferred Stock which may be issued in the
future.
The transfer agent and registrar for the Common Stock is Securities
Transfer Corp.
PREFERRED STOCK
Subject to Nasdaq National Market rules, the Board of Directors of the
Company is authorized (without any further action by the stockholders) to issue
Preferred Stock in one or more series and to fix the voting rights, liquidation
preferences, dividend rates, conversion rights, redemption rights and terms,
including sinking fund provisions, and certain other rights and preferences.
Satisfaction of any dividend preferences of outstanding Preferred Stock would
reduce the amount of funds available for the payment of dividends on the Common
Stock. Also, holders of Preferred Stock would normally be entitled to receive a
preference payment in the event of any liquidation, dissolution or winding-up of
the Company before any payment is made to the holders of the Common Stock. In
addition, under certain circumstances, the issuance of Preferred Stock may
render more difficult or tend to discourage a merger, tender offer or proxy
contest, the assumption of control by a holder of a large block of the Company's
securities or the removal of incumbent management. The Board of Directors of the
Company, without stockholder approval, may issue Preferred Stock with voting and
conversion rights which could adversely affect the holders of Common Stock.
The Company's Board of Directors has designated 195,351 shares of Preferred
Stock as Series A Preferred Stock, all of which is owned by Mr. Broady. Holders
of the Series A Preferred Stock are entitled to preferential dividends payable
quarterly and accruing at a rate of $0.15 per share per fiscal quarter. Upon
liquidation, dissolution or winding up of the Company, holders of Series A
Preferred Stock are entitled to receive the original purchase price of $5.00 per
share plus any unpaid dividends accruing to that date in preference to holders
of the Common Stock. Each share of Series A Preferred Stock is convertible into
2.083 shares of Common Stock at the option of the holder. Each share of Series A
Preferred Stock has voting rights equal to 16.667 shares of Common Stock on all
matters submitted to a vote of stockholders. See "Risk Factors -- Control of the
Company by Principal Stockholder."
40
<PAGE> 42
UNDERWRITING
Pursuant to the Underwriting Agreement, and subject to the terms and
conditions thereof, the Underwriters named below, acting through J.C. Bradford &
Co. and Hoak Breedlove Wesneski & Co. as representatives of the several
Underwriters (the "Representatives"), have agreed, severally, to purchase from
the Company and the Selling Stockholder, the number of shares of Common Stock
set forth below opposite their respective names:
<TABLE>
<CAPTION>
NUMBER OF
NAME OF UNDERWRITER SHARES
--------------------- ----------
<S> <C>
J.C. Bradford & Co. ..........................
Hoak Breedlove Wesneski & Co. ................
----------
Total...............................
==========
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions therein set forth, to purchase all shares of Common Stock
offered hereby if any of such shares are purchased.
The Company and the Selling Stockholder have been advised by the
Representatives that the Underwriters propose initially to offer the shares of
Common Stock to the public at the public offering price set forth on the cover
page of this Prospectus and to certain dealers at such price less a concession
not in excess of $ per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After this offering, the price to public and such
concessions may be changed.
The offering of the shares of Common Stock is made for delivery when, as
and if accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offer without notice. The Underwriters
reserve the right to reject any order for the purchase of the shares.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of the effectiveness of the offering, to
purchase up to 390,000 shares of Common Stock to cover over-allotments, if any.
To the extent the Underwriters exercise this option, each of the Underwriters
will have a firm commitment to purchase approximately the same percentage
thereof which the number of shares of Common Stock to be purchased by it shown
on the table above bears to the total number of shares in such table, and the
Company will be obligated, pursuant to the option, to sell such shares to the
Underwriters. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the shares of Common Stock
offered hereby. If purchased, the Underwriters will sell these additional shares
on the same terms as those on which the 2,600,000 shares are being offered.
The Company, the directors and executive officers of the Company and
certain other principal stockholders have agreed with the Representatives not to
offer, sell or otherwise dispose of any of the Common Stock owned by them prior
to the expiration of 90 days from the date of the effectiveness of the offering,
without the prior written consent of the Representatives, except with respect to
the grant and the exercise of stock options granted or to be granted under the
Company's stock option plans.
The Underwriting Agreement provides that the Company and the Selling
Stockholder will indemnify the Underwriters and controlling persons, if any,
against certain liabilities, including liabilities under the Securities Act, or
will contribute to payments that the Underwriters or any such controlling
persons may be required to make in respect thereof.
41
<PAGE> 43
In connection with this offering, certain Underwriters and selling group
members who in the past have acted as market makers in the Common Stock may
engage in passive market making activities in the Common Stock on the Nasdaq
National Market in accordance with Rule 10b-6A under the Exchange Act.
Underwriters and other participants in the distribution of the Common Stock
generally are prohibited during a specified time period (the "qualifying
period") determined in light of the timing of the distribution, from bidding for
or purchasing the Common Stock or a related security except to the extent
permitted under applicable rules, primarily Rules 10b-6 and 10b-6A. Rule 10b-6A
allows, among other things, an Underwriter or member of the selling group for
the Common Stock to effect "passive market making" transactions on the Nasdaq
National Market in the Common Stock during the qualifying period at a price that
does not exceed the highest independent bid for that security at the time of the
transaction. Such a passive market maker must not display a bid for the subject
security at a price in excess of the highest independent bid, and generally must
lower its bid if all independent bids are lowered. Moreover, the passive market
maker's net purchases of such security on each day of the qualifying period
shall not exceed 30% of its average daily trading volume during a reference
period preceding the distribution.
J.C. Bradford & Co. and Hoak Securities Corp. served as managing
underwriters in a public offering of Common Stock by the Company in May 1996.
Subsequent to that offering, Hoak Breedlove Wesneski & Co. purchased certain
assets and assumed certain liabilities of Hoak Securities Corp.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the following
Regional Offices of the Commission: Chicago Regional Office, Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60601; and New
York Regional Office, 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such material may also be obtained at prescribed rates from the
Public Reference Section of the Commission at its principal office at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549 or on the Internet at
http://www.sec.gov. The Common Stock is traded on the Nasdaq National Market and
certain of the Company's reports, proxy materials and other information may be
available for inspection at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
This Prospectus, which constitutes a part of a registration statement (the
"Registration Statement") filed by the Company with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"), omits certain of the
information set forth in the Registration Statement. Reference is hereby made to
the Registration Statement and to the exhibits thereto for further information
with respect to the Company and the securities offered hereby. Statements
contained herein concerning the provisions of such documents are necessarily
summaries of such documents, and each such statement is qualified in its
entirety by reference to the copy of the applicable document filed with the
Commission, although the Company believes such summaries accurately describe all
material provisions of such documents. Copies of the Registration Statement and
the exhibits thereto are on file at the offices of the Commission and may be
obtained upon payment of the fee prescribed by the Commission, or may be
examined without charge at the public reference facilities of the Commission
described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated by reference in this Prospectus: (i) Annual Report on Form 10-K for
the year ended December 31, 1995; (ii) Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1996, June 30, 1996 and September 30, 1996; (iii) Form
8-K dated August 23, 1996, with respect to the acquisition of MAXPRO; (iv) Form
8-K dated October 11, 1996, as such Form 8-K was amended by the Company's Form
8-K/A (Amendment No. 1),
42
<PAGE> 44
with respect to the acquisition of Bisset; and (v) that portion of the Company's
Prospectus dated May 30, 1996 (which also forms a part of the Company's
Registration Statement on Form S-2, Registration No. 333-02891), that contains
the financial statements of Diamond and the report thereon by Norman, Jones,
Enlow & Co.
Each document filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to termination
of the offering shall be deemed incorporated by reference in this Prospectus and
to be made a part hereof from the date of filing of such document. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is incorporated or deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will furnish without charge to each person to whom a copy of
this Prospectus is delivered, upon written or oral request, a copy of any or all
of the documents incorporated by reference as a part of the Registration
Statement (other than exhibits to such documents, unless such exhibits are
specifically incorporated by reference into the documents that this Prospectus
incorporates). Requests should be directed to the principal executive office of
the Company, 1220 Champion Circle, Suite 100, Carrollton, Texas 75006,
Attention: Investor Relations, telephone number (214) 280-9355.
LEGAL MATTERS
The legality of the issuance of the shares of Common Stock covered by this
Prospectus will be passed upon for the Company by Gardere & Wynne, L.L.P.,
Dallas, Texas and for the Underwriters by Hughes & Luce, L.L.P., Dallas, Texas.
EXPERTS
The consolidated financial statements of the Company and subsidiaries as of
December 31, 1994 and 1995, and for each of the three years in the period ended
December 31, 1995 incorporated by reference herein have been audited by Grant
Thornton LLP, independent certified public accountants, as stated in their
report thereon incorporated by reference herein, and are incorporated by
reference in reliance upon the authority of that firm as experts in accounting
and auditing.
The consolidated financial statements of Diamond and subsidiary as of
January 2, 1994 and January 1, 1995 and for the two years then ended
incorporated by reference herein have been audited by Norman, Jones, Enlow &
Co., independent certified accountants, as stated in their report thereon
incorporated by reference herein, and are incorporated by reference in reliance
upon the authority of that firm as experts in accounting and auditing.
The financial statements of MAXPRO as of and for the fiscal year ended June
30, 1996 incorporated by reference herein have been audited by Grant Thornton,
chartered accountants, as stated in their report thereon incorporated by
reference herein, and are incorporated by reference in reliance on such report
given upon the authority of that firm as experts in accounting and auditing.
The financial statements of MAXPRO as of and for the fiscal year ended June
30, 1995 incorporated by reference herein have been audited by KPMG, chartered
accountants, as stated in their report thereon incorporated by reference herein
and are incorporated by reference in reliance upon the authority of that firm as
experts in accounting and auditing.
The financial statements of Bisset as of December 31, 1994 and 1995 and for
each of the years then ended incorporated by reference herein have been audited
by Grant Thornton LLP, independent certified public accountants, as stated in
their report thereon incorporated by reference herein, and are incorporated by
reference in reliance upon the authority of that firm as experts in accounting
and auditing.
43
<PAGE> 45
[PICTURE]
MAXPRO
inside of a casino
[PICTURE]
BISSET
products in use
DAVE TECHNOLOGY
logo and products
<PAGE> 46
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALES MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCE IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 11
Capitalization........................ 12
Price Range of Common Stock and
Dividend Policy..................... 13
Selected Consolidated Financial
Data................................ 14
Selected Pro Forma Condensed
Consolidated Operating Data......... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 22
Management............................ 37
Principal and Selling Stockholder..... 39
Description of Capital Stock.......... 40
Underwriting.......................... 41
Available Information................. 42
Incorporation of Certain Documents by
Reference........................... 42
Legal Matters......................... 43
Experts............................... 43
</TABLE>
================================================================================
================================================================================
2,600,000 SHARES
[ULTRAK LOGO]
COMMON STOCK
----------------------
PROSPECTUS
----------------------
[J.C. BRADFORD & CO.]
[HOAK BREEDLOVE WESNESKI & CO. LOGO]
, 1996
================================================================================
<PAGE> 47
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses in connection with the offering
described in this Registration Statement will be as follows. All of the amounts,
except the SEC registration fee, NASD fee and the Nasdaq National Market listing
fee, are estimates.
<TABLE>
<CAPTION>
ITEM AMOUNT
------------------------------------------------------------------------ --------
<S> <C>
SEC registration fee.................................................... $ 33,767
NASD fee................................................................ 10,293
Nasdaq National Market listing fee...................................... 17,500
Legal fees and expenses................................................. 75,000
Accounting fees and expenses............................................ 30,000
Printing expenses....................................................... 75,000
Fees and expenses for qualification under state securities laws
(including legal fees)................................................ 10,000
Transfer agent's and registrar's fees and expenses...................... 10,000
Miscellaneous........................................................... 13,440
--------
Total......................................................... $275,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by the Delaware General Corporation Law, the Registrant's
By-Laws provide that the directors and officers of the Registrant shall be
indemnified by the Registrant against certain liabilities that those persons may
incur in their capacities as directors or officers. Furthermore, the
Registrant's Certificate of Incorporation eliminates the liability of directors
of the Registrant, under certain circumstances, to the maximum extent permitted
by the Delaware General Corporation Law.
The Underwriting Agreement to be filed as Exhibit 1.1 hereto contains
reciprocal agreements of indemnity between the Registrant and the underwriters
as to certain liabilities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"), and in certain circumstances provides
for indemnification of the Registrant's directors and officers.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<C> <S>
*1.1 -- Form of Underwriting Agreement
4.1 -- Form of certificate representing shares of the Common Stock
(incorporated by reference to Exhibit 4.1 to the Registrant's Form
S-2 Registration Statement No. 333-02891)
*5.1 -- Legal opinion of Gardere & Wynne, L.L.P. regarding legality of
securities being registered
*23.1 -- Consent of Grant Thornton LLP
*23.2 -- Consent of Norman, Jones, Enlow & Co.
*23.3 -- Consent of Grant Thornton
*23.4 -- Consent of KPMG
</TABLE>
II-1
<PAGE> 48
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<C> <S>
*23.5 -- Consent of Gardere & Wynne, L.L.P. (included in Exhibit 5.1)
*24.1 -- Power of attorney (set forth on page II-3)
</TABLE>
- ---------------
* Filed herewith
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. If a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 49
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas on the 21st day of October,
1996.
ULTRAK, INC.
By: /s/ GEORGE K. BROADY
------------------------------
George K. Broady
Chief Executive Officer and
President
Each of the undersigned hereby appoints George K. Broady and Tim D. Torno
and each of them (with full power to act alone) as attorneys and agents for the
undersigned, with full power of substitution, for and in the name, place and
stead of the undersigned, to sign and file with the Securities and Exchange
Commission under the Securities Act of 1933 this Registration Statement, any
related Registration Statement pursuant to Rule 462(b) of the Securities and
Exchange Commission, any and all amendments and exhibits to this or such other
Registration Statement and any and all applications, instruments and other
documents to be filed with the Securities and Exchange Commission pertaining to
the registration of the securities covered hereby and thereby, with full power
and authority to do and perform any and all acts and things whatsoever requisite
or desirable.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------------------------- ----------------------------- -----------------
<C> <S> <C>
/s/ GEORGE K. BROADY Chairman of the Board, Chief October 21, 1996
- --------------------------------------------- Executive Officer and
George K. Broady President (Principal
Executive Officer)
/s/ JAMES D. PRITCHETT Executive Vice President and October 21, 1996
- --------------------------------------------- Director
James D. Pritchett
/s/ TIM D. TORNO Vice President-Finance, October 21, 1996
- --------------------------------------------- Secretary, Treasurer and
Tim D. Torno Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ WILLIAM C. LEE Director October 21, 1996
- ---------------------------------------------
William C. Lee
/s/ CHARLES C. NEAL Director October 21, 1996
- ---------------------------------------------
Charles C. Neal
/s/ ROBERT F. SEXTON Director October 21, 1996
- ---------------------------------------------
Robert F. Sexton
Director
- ---------------------------------------------
Roland Scetbon
</TABLE>
II-3
<PAGE> 50
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- -------------------- ------------------------------------------------------------------------
<C> <S>
*1.1 -- Form of Underwriting Agreement
4.1 -- Form of certificate representing shares of the Common Stock
(incorporated by reference to Exhibit 4.1 to the Registrant's Form
S-2 Registration Statement No. 333-02891)
*5.1 -- Legal Opinion of Gardere & Wynne, L.L.P. regarding legality of
securities being registered
*23.1 -- Consent of Grant Thornton LLP
*23.2 -- Consent of Norman, Jones, Enlow & Co.
*23.3 -- Consent of Grant Thornton
*23.4 -- Consent of KPMG
*23.5 -- Consent of Gardere & Wynne, L.L.P. (included in Exhibit 5.1)
*24.1 -- Power of attorney (set forth on Page II-3 of the Registration
Statement)
</TABLE>
- ---------------
* Filed herewith
<PAGE> 1
EXHIBIT 1.1
ULTRAK, INC.
2,600,000 Shares
of
Common Stock
UNDERWRITING AGREEMENT
[October , 1996]
--
J.C. BRADFORD & CO.
HOAK BREEDLOVE WESNESKI & CO.
As Representatives of the Several Underwriters
c/o J.C. Bradford & Co.
J.C. Bradford Financial Center
330 Commerce Street
Nashville, Tennessee 37201
Ladies and Gentlemen:
Ultrak, Inc., a Delaware corporation (the "Company"), and certain
stockholders of the Company identified on Schedule I hereto (the "Selling
Stockholders") propose to sell to the several underwriters named in Schedule II
hereto (the "Underwriters"), for whom you are acting as the representatives
(the "Representatives"), 2,507,540 and 92,460 shares, respectively (the "Firm
Shares"), of common stock, par value $.01 per share ("Common Stock"), of the
Company. The 2,600,000 shares of Common Stock are referred to herein as the
"Firm Shares." The Company proposes to grant to the Underwriters an option to
purchase up to 390,000 additional shares of Common Stock (the "Option Shares"),
as provided for in Section 3 of this Agreement solely for the purpose of
covering over-allotments in connection with the distribution and sale of the
Firm Shares. The Underwriters, severally and not jointly, are willing to
purchase the Firm Shares set forth opposite their respective names on Schedule
II hereto and their pro rata share of the Option Shares in the event the
Representatives elect to exercise the over-allotment option in whole or in
part. The Firm Shares and the Option Shares purchasable pursuant to this
Agreement are collectively referred to herein as the "Shares."
<PAGE> 2
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the Underwriters that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), a registration statement on Form S-3
(Registration No. 333-_____), including the related preliminary
prospectus relating to the Shares, and has filed one or more amendments
thereto. Copies of such registration statement and any amendments,
including any post-effective amendments, and all forms of the related
prospectuses contained therein and any supplements thereto, have been
delivered to you. Such registration statement, including the
prospectus, Part II, all financial schedules and exhibits thereto, and
all information deemed to be a part of such Registration Statement
pursuant to Rule 430A and Rule 434 under the Securities Act, as amended
at the time when it shall become effective, and any Registration
Statement filed pursuant to Rule 462(b) under the Securities Act (a
"Rule 462(b) Registration Statement") are herein referred to as the
"Registration Statement," and the prospectus included as part of the
Registration Statement on file with the Commission that discloses all
the information that was omitted from the prospectus on the effective
date pursuant to Rule 430A or Rule 434 of the Rules and Regulations (as
defined below) and in the form filed pursuant to Rule 424(b) under the
Securities Act is herein referred to as the "Final Prospectus." The
prospectus included as part of the Registration Statement on the date
when the Registration Statement became effective is referred to herein
as the "Effective Prospectus." Any prospectus included in the
Registration Statement and in any amendment thereto prior to the
effective date of the Registration Statement is referred to herein as a
"Preliminary Prospectus." For purposes of this Agreement, "Rules and
Regulations" mean the rules and regulations promulgated by the
Commission under either the Securities Act or the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), as applicable.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus, at the time of filing thereof, complied with the
requirements of the Securities Act and the Rules and Regulations, and
did not include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; except that the foregoing does not apply to
statements or omissions made in reliance upon and in conformity with
written information furnished to the Company by any Underwriter
specifically for use therein (it being understood that the only
information so provided is the information included in the last
paragraph on the cover page, the last two paragraphs on page two and in
the first, third, fourth and eighth paragraphs under the caption
"Underwriting" in the Final Prospectus). When the Registration
Statement becomes effective and at all times subsequent thereto up to
and including the First Closing Date (as hereinafter defined), (i) the
Registration Statement, the Effective Prospectus and Final Prospectus
and any amendments or supplements thereto will contain all statements
which are required to be stated therein in accordance with the
Securities Act, the Exchange Act and the Rules and Regulations and will
comply with the requirements of the Securities
2
<PAGE> 3
Act, the Exchange Act and the Rules and Regulations, and (ii) neither
the Registration Statement, the Effective Prospectus nor the Final
Prospectus nor any amendment or supplement thereto will include any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they are made, not
misleading; except that the foregoing does not apply to statements or
omissions made in reliance upon and in conformity with written
information furnished to the Company by any Underwriter specifically for
use therein (it being understood that the only information so provided
is the information included in the last paragraph on the cover page, the
last two paragraphs on page two and in the first, third, fourth and
eighth paragraphs under the caption "Underwriting" in the Final
Prospectus).
(c) The Company and each subsidiary of the Company (as used
herein, the term "subsidiary" includes any corporation, joint venture,
or partnership in which the Company or any subsidiary of the Company has
50% or greater ownership interest) is duly organized and validly
existing and in good standing under the laws of its jurisdiction of
incorporation, with full power and authority (corporate and other, as
the case may be) to own its properties and conduct its business as now
conducted and is duly qualified or authorized to do business and is in
good standing in all jurisdictions wherein the nature of its business or
the character of property owned or leased may require it to be qualified
or authorized to do business, except for jurisdictions in which the
failure to so qualify would not have a material adverse effect on the
Company and its subsidiaries, taken as a whole. The Company and its
subsidiaries hold all licenses, consents and approvals, and have
satisfied all eligibility and other similar requirements imposed by
federal and state regulatory bodies, administrative agencies or other
governmental bodies, agencies or officials, except where the failure to
do so could not reasonably be expected to have a material adverse effect
on the business, condition (financial or otherwise), prospects, net
worth or results of operations of the Company and its subsidiaries,
taken as a whole. Each of the Company's subsidiaries, other than Maxpro
Systems Pty. Ltd. ("Maxpro") and Groupe Bisset, s.a. ("Bisset"), is set
forth on Exhibit 21.1 to the Company's Form 10-K for the year ended
December 31, 1995.
(d) The capitalization of the Company as of September 30, 1996
is as set forth under the caption "Capitalization" in the Effective
Prospectus and the Final Prospectus, and the Company's capital stock
conforms to the description thereof contained under the caption
"Description of Capital Stock" in the Effective Prospectus and the Final
Prospectus. All the issued shares of capital stock of the Company have
been duly authorized and validly issued, are fully paid and
nonassessable. None of the issued shares of capital stock of the
Company have been issued in violation of any preemptive or similar
rights. The Shares have been duly and validly authorized and, upon
issuance and delivery and payment therefor in the manner herein
described, will be validly issued, fully paid and nonassessable. Upon
the effective date of the offering of the Shares, there will be no
preemptive rights or other rights to subscribe for or to purchase, or
any restriction upon the transfer of, any shares of Common Stock
pursuant to the Company's Certificate of Incorporation, bylaws or other
governing documents or any agreement or
3
<PAGE> 4
other instrument to which the Company is a party or by which it may be
bound except as described in the Effective Prospectus and the Final
Prospectus and except for restrictions on transfer imposed under
applicable securities laws. Except as disclosed in the Effective
Prospectus and the Final Prospectus, and except for registration rights
held by Petrus Fund, L.P. with respect to 92,460 shares of Common Stock
in the aggregate, neither the filing of the Registration Statement nor
the offer or sale of the Shares as contemplated by this Agreement gives
rise to any rights for or relating to the registration of any shares of
Common Stock or any other securities of the Company. The Underwriters
will receive good and marketable title to the Shares to be issued and
delivered hereunder by the Company, free and clear of all liens, claims,
encumbrances, security interests, restrictions, stockholders'
agreements, voting trusts or other claims of third parties whatsoever.
(e) As of the date hereof, all of the outstanding shares of
capital stock or equity interests of the Company's subsidiaries are
owned by the Company, directly or indirectly through another subsidiary,
free and clear of all liens, claims, encumbrances, security interests,
restrictions, stockholder agreements, voting trusts or other claims of
third parties. There are no preemptive rights or other rights to
subscribe for or purchase, or any restriction upon the transfer of any
shares of capital stock of the Company's subsidiaries pursuant to any
subsidiary's charter, bylaws, or other governing documents or any
agreement or other instruments to which such subsidiary is a party.
(f) All offers and sales by the Company of its securities
prior to the date hereof were at all relevant times made pursuant to an
effective registration statement under and in compliance with the
registration requirements of the Securities Act, or at all relevant
times were exempt from the registration requirements of the Securities
Act and were the subject of an available exemption from the registration
requirements of the applicable state securities or Blue Sky laws.
(g) The Company has full legal right, power and authority to
enter into this Agreement and to sell and deliver the Shares to the
Underwriters as provided herein, and this Agreement has been duly
authorized, executed and delivered by the Company and constitutes a
valid and binding agreement of the Company enforceable against the
Company in accordance with its terms, except to the extent rights to
indemnity hereunder may be limited by federal or state laws or the
public policy underlying such laws. No consent, approval, authorization
or order of any court or governmental agency or body or third party is
required for the performance of this Agreement by the Company or the
consummation by the Company of the transactions contemplated hereby,
except such as have been obtained and such as may be required by the
National Association of Securities Dealers, Inc. ("NASD") or under the
Securities Act, or state securities or Blue Sky laws in connection with
the purchase and distribution of the Shares by the Underwriters. The
issue and sale of the Shares to be sold by the Company, the Company's
performance of this Agreement and the consummation of the transactions
contemplated hereby will not result in a breach or violation of, or
conflict with, any of the terms and provisions of, or constitute a
default by the Company under, any indenture, mortgage, deed of trust,
loan
4
<PAGE> 5
agreement, lease or other agreement or instrument to which the Company
or any of its subsidiaries is a party or to which any of their
properties is subject, the Certificate of Incorporation or bylaws of the
Company or any statute or any judgment, decree, order, rule or
regulation of any court or governmental agency or body applicable to the
Company or any of its subsidiaries or any of their properties. The
Company is not in violation of its Certificate of Incorporation or
bylaws or any law, administrative rule or regulation or arbitrator's or
administrative or court decree, judgment or order or in violation or
default (there being no existing state of facts which with notice or
lapse of time or both would constitute a default) in the performance or
observance of any obligation, agreement, covenant or condition contained
in any contract, indenture, deed of trust, mortgage, loan agreement,
note, lease, agreement or other instrument or permit to which it is a
party or by which it or any of its properties is or may be bound, other
than violations and defaults which could not reasonably be expected to
have a material adverse effect on the business, condition (financial or
otherwise), prospects, net worth or results of operations of the Company
and its subsidiaries, taken as a whole.
(h) The consolidated financial statements and the related
notes of the Company, Diamond Electronics, Inc. ("Diamond"), Maxpro and
Bisset incorporated by reference in the Registration Statement, the
Effective Prospectus and the Final Prospectus present fairly the
financial position, results of operations and changes in financial
position and cash flow of the Company, Diamond, Maxpro and Bisset at the
dates and for the periods to which they relate and have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated. The financial and
statistical data set forth in the Effective Prospectus and the Final
Prospectus under the captions "Prospectus Summary," "Use of Proceeds,"
"Capitalization," "Selected Consolidated Financial Data," "Selected Pro
Forma Condensed Consolidated Operating Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations,"
"Business" and "Principal and Selling Stockholders" fairly presents the
information set forth therein on the basis stated in the Effective
Prospectus and the Final Prospectus. Grant Thornton LLP, Grant
Thornton, chartered accountants (Perth, Australia), KPMG, chartered
accountants (Perth, Australia) and Norman, Jones, Enlow & Co., whose
reports appear in the Effective Prospectus and the Final Prospectus, are
independent accountants as required by the Securities Act and the Rules
and Regulations.
(i) Subsequent to September 30, 1996, neither the Company nor
any of its subsidiaries has sustained any material loss or interference
with its or their business or properties from fire, flood, hurricane,
earthquake, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action,
order or decree, which is not disclosed in the Effective Prospectus and
the Final Prospectus; and subsequent to the respective dates as of which
information is given in the Registration Statement, the Effective
Prospectus and the Final Prospectus, (i) neither the Company nor any of
its subsidiaries has incurred any material liabilities or obligations,
direct or contingent, or entered into any material transactions not in
the ordinary course of business, and (ii) there has not been any change
in the capital stock, partnership interests,
5
<PAGE> 6
joint venture interests, long-term debt, obligations under capital
leases or short-term borrowings of the Company, other than in the
ordinary course of business, or any issuance of options, warrants or
rights to purchase the capital stock of the Company, or any adverse
change, or any development involving a prospective adverse change, in
the general affairs, management, business, condition (financial or
otherwise), prospects, net worth or results of operations of the Company
and its subsidiaries, taken as a whole, except in each case as described
in or contemplated by the Effective Prospectus and the Final Prospectus.
(j) Except as described in the Effective Prospectus and the
Final Prospectus, there is no pending, or to the knowledge of the
Company, threatened action, suit, proceeding, inquiry or investigation,
to which the Company or any of its subsidiaries or any of the Company's
officers or directors is a party, or to which the property of the
Company or any of its subsidiaries is subject, before or brought by any
court or governmental agency or body, wherein an unfavorable decision,
ruling or finding could prevent or materially hinder the consummation of
this Agreement or could have a material adverse effect on the business
condition (financial or otherwise), prospects, net worth or results of
operations of the Company and its subsidiaries, taken as a whole.
(k) There are no contracts or other documents required by the
Securities Act or by the Rules and Regulations to be described in the
Registration Statement, the Effective Prospectus or the Final Prospectus
or to be filed as exhibits to the Registration Statement which have not
been described or filed as required.
(l) Except as described in the Effective Prospectus and the
Final Prospectus, the Company and its subsidiaries have good title to
all real and material personal property owned by them, free and clear of
all liens, claims, charges, encumbrances or defects except those
reflected in the financial statements hereinabove described or those
which could not reasonably be expected to have a material adverse effect
on the business, condition (financial or otherwise), prospects, net
worth or results of operations of the Company and its subsidiaries,
taken as a whole. The real and personal property and buildings referred
to in the Effective Prospectus and the Final Prospectus that are leased
from others by the Company or its subsidiaries are held under valid,
subsisting and enforceable leases. The Company and its subsidiaries own
or lease all such properties as are necessary to their operations as now
conducted.
(m) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any
differences.
6
<PAGE> 7
(n) The Company and each of its subsidiaries have filed all
federal, state and local income, excise and franchise tax returns
required to be filed through the date hereof and have paid all taxes
shown as due therefrom; and there is no tax deficiency that has been,
nor does the Company or any of its subsidiaries have knowledge of any
tax deficiency which is likely to be asserted against the Company or any
of its subsidiaries, which if determined adversely could materially and
adversely affect the earnings, assets, affairs, business prospects or
condition (financial or otherwise) of the Company and its subsidiaries,
taken as a whole.
(o) The Company and each of its subsidiaries operate their
businesses in conformity in all material respects with all applicable
statutes, common laws, ordinances, decrees, orders, rules and
regulations of governmental bodies. The Company and each of its
subsidiaries have all material licenses, approvals or consents to
operate their businesses in all locations in which such businesses are
currently being operated, and neither the Company nor any of its
subsidiaries is aware of any existing or imminent matter that may
materially adversely impact any of their operations or business
prospects other than as specifically disclosed in the Effective
Prospectus and the Final Prospectus. No director, officer, or to the
Company's knowledge, agent or employee of the Company or any of its
subsidiaries, any other person associated with or acting for or on
behalf of the Company or any of its subsidiaries, has directly or
indirectly made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback, or other payment to any person, private or public,
regardless of form, whether in money, property, or services (x) to
obtain favorable treatment in securing business, (y) to pay for
favorable treatment for business obtained, or (z) to obtain special
concessions or for special concessions already obtained for or in
respect of the Company.
(p) Neither the Company nor any of its subsidiaries has failed
to file with the applicable regulatory authorities any statement,
report, information or form required by any applicable law, regulation
or order where the failure to file the same would have a material
adverse effect on the Company and its subsidiaries, taken as a whole, or
on their respective abilities to conduct business in any state; all such
filings or submissions were in material compliance with applicable laws
when filed and no deficiencies have been asserted by any regulatory
commission, agency or authority with respect to such filings or
submissions. Neither the Company nor any of its subsidiaries has failed
to maintain in full force and effect any material license or permit
necessary or proper for the conduct of their respective businesses, or
received any notification that any revocation or limitation thereof is
threatened or pending, and, except as disclosed in the Effective
Prospectus and the Final Prospectus, there is not pending any change
under any law, regulation, license or permit which could materially
adversely affect any of their respective businesses, operations,
properties or business prospects. Neither the Company nor any of its
subsidiaries has received any notice of violation of or been threatened
with a charge of violating and are not, to the best of their knowledge,
under investigation with respect to a possible violation of any
provision of any law, regulation or order.
7
<PAGE> 8
(q) Except as disclosed in the Effective Prospectus and the
Final Prospectus, no labor dispute exists with the Company's or any of
its subsidiaries' employees or is imminent which could reasonably be
expected to have a material adverse effect on the business, condition
(financial or otherwise), prospects, net worth or results of operations
of the Company and its subsidiaries, taken as a whole. Neither the
Company nor any of its subsidiaries is aware of any existing or imminent
labor disturbance by any of their employees which could reasonably be
expected to have a material adverse effect on the business, condition
(financial or otherwise), prospects, net worth or results of operation
of the Company and its subsidiaries, taken as a whole.
(r) Except as disclosed in the Effective Prospectus and the
Final Prospectus, the Company owns or possesses, or can acquire on
reasonable terms, the patents, licenses, copyrights, trademarks, service
marks and trade names presently employed by it in connection with the
businesses now operated by it, and neither the Company nor any of its
subsidiaries has received any notice of infringement of or conflict with
asserted rights of others with respect to any of the foregoing which,
alone or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, could reasonably be expected to have a material
adverse effect on the business, condition (financial or otherwise),
prospects, net worth or results of operations of the Company and its
subsidiaries, taken as a whole.
(s) Neither the Company nor any of the directors, officers, or
to the Company's knowledge, employees or agents of the Company, have
taken and will not take, directly or indirectly, any action designed to
cause or result in, or which has constituted or which might be expected
to constitute, stabilization or manipulation of the price of the Common
Stock.
(t) There has been no storage, disposal, generation,
manufacture, refinement, transportation, handling or treatment of
hazardous substances by the Company or any of its subsidiaries (or, to
the knowledge of the Company, any of its or their predecessors in
interest) at, upon or from any of the property now or previously owned
or leased by the Company or any of its subsidiaries in violation of any
applicable law, ordinance, rule, regulation, order, judgment, decree or
permit or which could reasonably be expected to require remedial action
under any applicable law, ordinance, rule, regulation, order, judgment,
decree or permit, except for any violation or remedial action which
could not be reasonably likely to have, singularly or in the aggregate
with all such violations and remedial actions, a material adverse effect
on the business, condition (financial or otherwise), prospects,
properties, net worth or results of operations of the Company and its
subsidiaries, taken as a whole; there has been no material spill,
discharge, leak, emission, injection, escape, dumping or release of any
kind onto such property or of any hazardous substances due to or caused
by the Company or any of its subsidiaries or with respect to which the
Company or any of its subsidiaries had knowledge, except for any such
spill, discharge, leak, emission, injection, escapes, dumpings or
releases which would not be reasonably likely to have, singularly or in
the aggregate with all such spills, discharges, leaks, emissions,
injections, escapes, dumpings or releases, a material adverse
8
<PAGE> 9
effect on the business, condition (financial or otherwise), prospects,
net worth or results of operations of the Company and its subsidiaries,
taken as a whole; and the term "hazardous substances" shall have the
meaning specified in any applicable local, state, federal and foreign
laws or regulations with respect to environmental protection.
(u) The Company and its subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and
in such amounts as management believes is appropriate to the business of
the Company and its subsidiaries; all such policies of insurance
insuring the Company and its subsidiaries or their respective
businesses, assets, employees, officers and directors are in full force
and effect; the Company and its subsidiaries are in compliance with the
terms of such policies and instruments in all material respects; and
there are no claims by the Company or any of its subsidiaries under any
such policy or instrument as to which any insurance company is denying
liability or defending under a reservation of rights clause.
(v) The Company is not, will not become as a result of the
transactions contemplated hereby, and does not intend to conduct its
business in a manner that would cause it to become, an "investment
company" or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940.
(w) The Shares have been duly authorized for quotation on The
NASDAQ Stock Market's National Market, subject to notice of issuance.
2. Representations and Warranties of the Selling Stockholders. Each
of the Selling Stockholders, severally and not jointly, represents and warrants
to each Underwriter and agrees as follows that:
(a) Such Selling Stockholder at the First Closing Date (as
defined herein) will have valid and marketable title to the Shares set
forth in Schedule I to be sold by such Selling Stockholder, free and
clear of any liens, claims, encumbrances or equities (other than as
imposed by the Securities Act or this Agreement), and full right, power
and authority to effect the sale and delivery of such Shares; and upon
the delivery of and payment for the Shares to be sold by such Selling
Stockholder pursuant to this Agreement, valid and marketable title
thereto, free and clear of any liens, claims, encumbrances or equities,
will be transferred to the Underwriters.
(b) Such Selling Stockholder has duly executed and delivered
the Custody Agreement and Power of Attorney in the form previously
delivered to the Representatives, appointing George K. Broady and Tim D.
Torno, and each of them as each Selling Stockholder's attorney-in-fact
(the "Attorney-in-Fact") and as custodian (the "Custodian"). The
Attorney-in-Fact is authorized to execute, deliver and perform this
Agreement on behalf of such Selling Stockholder, to deliver the Shares
to be sold by such Selling Stockholder hereunder, to accept payment
therefor and otherwise to act on behalf of such Selling Stockholder in
connection with this Agreement. If the Selling Stockholder's shares are
issuable pursuant to a warrant agreement, the Selling
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<PAGE> 10
Stockholder has delivered to the Custodian the original warrant
agreement, and the Attorney-in-Fact is authorized to exercise the
warrant on behalf of the Selling Stockholder subject to the terms of the
Custody Agreement and Power of Attorney in order to deliver the Shares
to be sold by such Selling Stockholder hereunder. Certificates, in
suitable form for transfer by delivery or accompanied by duly executed
instruments of transfer or assignment in blank, representing the Shares
to be sold by such Selling Stockholder hereunder have been (or if
issuable pursuant to a warrant agreement, will be) deposited with the
Custodian pursuant to the Custody Agreement for the purpose of delivery
pursuant to this Agreement. Such Selling Stockholder agrees that the
shares of Common Stock underlying a warrant agreement and to be sold
hereunder or represented by the certificates on deposit with the
Custodian are subject to the interest of the Underwriters hereunder,
that the arrangements made for such custody and the appointment of the
Attorney-in-Fact are to that extent irrevocable, and that the
obligations of such Selling Stockholder hereunder shall not be
terminated except as provided in this Agreement and the Custody
Agreement. If such Selling Stockholder should die or become
incapacitated or if any other event should occur, before the delivery of
the Shares of such Selling Stockholder hereunder, the certificates for
such Shares deposited with the Custodian shall be delivered by the
Custodian in accordance with the terms and conditions of this Agreement
as if such death, incapacity or other event had not occurred, regardless
of whether the Custodian or the Attorney-in-Fact shall have received
notice thereof.
(c) Such Selling Stockholder, acting through his duly
authorized Attorney-in-Fact, has duly executed and delivered this
Agreement and the Custody Agreement and Power of Attorney; this
Agreement constitutes a legal, valid and binding obligation of such
Selling Stockholder, all authorizations and consents necessary for the
execution and delivery of this Agreement and the Custody Agreement and
Power of Attorney on behalf of such Selling Stockholder and for the sale
and delivery of the Shares to be sold by such Selling Stockholder
hereunder have been given, except as may be required by the Securities
Act or state securities laws; and such Selling Stockholder has the legal
capacity and full right, power and authority to execute this Agreement
and the Custody Agreement and Power of Attorney.
(d) The performance of this Agreement and the Custody
Agreement and Power of Attorney and the consummation of the transactions
contemplated hereby and thereby by such Selling Stockholder will not
result in a breach or violation of, or conflict with, any of the terms
of provisions of, or constitute a default by such Selling Stockholder
under, any indenture, mortgage, deed of trust, trust (constructive or
other), loan agreement, lease, franchise, license or other agreement or
instrument to which such Selling Stockholder or any of his or its
properties is bound, or any statute, judgment, decree, order, rule or
regulation of any court or governmental agency or body applicable to
such Selling Stockholder or any of his or its properties.
(e) Such Selling Stockholder has not distributed nor, other
than as permitted by the Securities Act and the Rules and Regulations,
will distribute any prospectus or
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<PAGE> 11
other offering material in connection with the offer and sale of the
Shares other than any Preliminary Prospectus filed with the Commission
or the Final Prospectus or other material permitted by the Securities
Act.
(f) For a period of 90 days from the effective date of the
Registration Statement, such Selling Stockholder will not, directly or
indirectly, sell, offer to sell, grant any option for the sale of, or
otherwise dispose of any shares of Common Stock, other than to the
Underwriters pursuant to this Agreement, without the prior written
consent of the Representatives.
(g) Without having undertaken to determine independently the
accuracy or completeness of either the representations and warranties of
the Company contained herein or the information contained in the
Registration Statement, including the Preliminary Prospectus, such
Selling Stockholder has no reason to believe that the representations
and warranties of the Company contained in Section 1 of this Agreement
are not true and correct. Such Selling Stockholder has reviewed and is
familiar with the Registration Statement as originally filed with the
Commission and the Preliminary Prospectus contained therein. Such
Selling Stockholder has no knowledge of any untrue statement of a
material fact regarding such Selling Stockholder or any omission of a
material fact regarding such Selling Stockholder necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading; such Selling Stockholder is not
prompted to sell the Shares to be sold by such Selling Stockholder's
knowledge of any material non-public information concerning the Company
or any of its subsidiaries.
(h) At the time the Registration Statement becomes effective
(i) such parts of the Registration Statement and any amendments and
supplements thereto as specifically refer to such Selling Stockholder
will not contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) such parts of the Effective
Prospectus and Final Prospectus as specifically refer to such Selling
Stockholder will not include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(i) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory body, administrative or
other governmental body is necessary in connection with the execution
and delivery of this Agreement by such Selling Stockholder, and the
consummation by him of the transactions herein contemplated (other than
as required by the Securities Act, state securities laws and the NASD).
(j) Any certificates signed by or on behalf of such Selling
Stockholder as such and delivered to the Representatives or to counsel
for the Representatives shall be
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<PAGE> 12
deemed a representation and warranty by such Selling Stockholder to each
Underwriter as to the matters covered thereby.
(k) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Stockholder agrees to deliver to you prior to
or at the First Closing Date (as hereinafter defined) a properly
completed and executed United States Treasury Department Form W-9 (or
other applicable form or statement specified by Treasury Department
regulations in lieu thereof).
(l) Such Selling Stockholder will not take, directly or
indirectly, any action designed to cause or result in, or which might
constitute or be expected to constitute, stabilization or manipulation
of the price of the Common Stock.
3. Purchase, Sale and Delivery of the Shares.
(a) On the basis of the representations, warranties,
agreements and covenants herein contained and subject to the terms and
conditions herein set forth, the Company and the Selling Stockholders
agree, as provided in the introductory paragraph, to sell to each of the
Underwriters, and each of the Underwriters, severally and not jointly,
agrees to purchase at a purchase price of $__.___ per share, the number
of Firm Shares set forth opposite such Underwriter's name in Schedule II
hereto, plus such additional number of Firm Shares which such
Underwriter may become obligated to purchase pursuant to Section 9
hereof.
(b) The Company also grants to the Underwriters an option to
purchase, solely for the purpose of covering over-allotments in the sale
of Firm Shares, all or any portion of the Option Shares at the purchase
price per share set forth above. The option granted hereby may be
exercised as to all or any part of the Option Shares at any time (but
only once) within 30 days after the date the Registration Statement
becomes effective. The Underwriters shall not be under any obligation
to purchase any Option Shares prior to the exercise of such option. The
option granted hereby may be exercised by the Underwriters by the
Representatives giving written notice to the Company setting forth the
number of Option Shares to be purchased and the date and time for
delivery of and payment for such Option Shares and stating that the
Option Shares referred to therein are to be used solely for the purpose
of covering over-allotments in connection with the distribution and sale
of the Firm Shares. If such notice is given prior to the First Closing
Date (as defined herein), the date set forth therein for such delivery
and payment shall not be earlier than two full business days thereafter
or the First Closing Date, whichever occurs later. If such notice is
given on or after the First Closing Date, the date set forth therein for
such delivery and payment shall not be earlier than three full business
days thereafter. In either event, the date so set forth shall not be
more than 15 full business days after the date of such notice. The date
and time set forth in such notice is herein called the "Option Closing
Date." Upon exercise of the option, the Company shall become obligated
to
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<PAGE> 13
issue and sell to the Underwriters, and, subject to the terms and
conditions herein set forth, the Underwriters shall become obligated to
purchase, for the account of each Underwriter, from the Company, the
number of Option Shares specified in such notice. Option Shares shall
be purchased for the accounts of the Underwriters in proportion to the
number of Firm Shares set forth opposite such Underwriter's name in
Schedule II hereto, except that the respective purchase obligations of
each Underwriter shall be adjusted so that no Underwriter shall be
obligated to purchase fractional Option Shares.
(c) Certificates in definitive form for the Firm Shares that
each Underwriter has agreed to purchase hereunder shall be delivered by
or on behalf of the Company and the Selling Stockholders to the
Underwriters for the account of such Underwriter against payment by such
Underwriter or on its behalf of the purchase price therefor by
certified, official bank or New York Clearing House funds check payable
in next day funds to the order of the Company and the custodians for the
Selling Stockholders at the offices of J.C. Bradford & Co. ("Bradford"),
330 Commerce Street, Nashville, Tennessee 37201, or at such other place
as may be agreed upon by Bradford and the Company, at 10:00 A.M.,
Nashville time, on the third full business day after this Agreement
becomes effective, or at such other time not later than the seventh full
business day thereafter as the Representatives and the Company may
determine, such time of delivery against payment being herein referred
to as the "First Closing Date." The First Closing Date and the Option
Closing Date are herein individually referred to as the "Closing Date"
and collectively referred to as the "Closing Dates." Certificates in
definitive form for the Option Shares which each Underwriter shall have
agreed to purchase hereunder shall be similarly delivered by or on
behalf of the Company on the Option Closing Date. The certificates in
definitive form for the Shares to be delivered will be in good delivery
form and in such denominations and registered in such names as Bradford
may request not less than 48 hours prior to the First Closing Date or
the Option Closing Date, as the case may be. Such certificates will be
made available for checking and packaging at a location in Nashville,
Tennessee or New York, New York, as may be designated by the
Representatives, at least 24 hours prior to the First Closing Date or
the Option Closing Date, as the case may be. It is understood that the
Representatives may (but shall not be obligated to) make payment on
behalf of any Underwriter or Underwriters for the Shares to be purchased
by such Underwriter or Underwriters. No such payment shall relieve such
Underwriter or Underwriters from any of its or their obligations
hereunder.
4. Offering by the Underwriters. After the Registration Statement
becomes effective, the several Underwriters propose to offer for sale to the
public the Firm Shares and any Option Shares that may be sold at the price and
upon the terms set forth in the Final Prospectus.
5. Covenants of the Company. The Company covenants and agrees with
each of the Underwriters that:
(a) The Company shall comply with the provisions of and make
all requisite filings with the Commission pursuant to Rules 424, 430A
and 434 of the Rules and Regulations and to notify you promptly (in
writing, if requested) of all such filings. The
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<PAGE> 14
Company shall notify you promptly of any request by the Commission for
any amendment of or supplement to the Registration Statement, the
Effective Prospectus or the Final Prospectus or for additional
information; the Company shall prepare and file with the Commission,
promptly upon your request, any amendments of or supplements to the
Registration Statement, the Effective Prospectus or the Final Prospectus
which, in your opinion, based on the advice of your legal counsel, may
be necessary or advisable in connection with the distribution of the
Shares; and the Company shall not file any amendment of or supplement to
the Registration Statement, a Rule 462(b) Registration Statement, the
Effective Prospectus or the Final Prospectus which is not approved by
you after reasonable notice thereof. The Company shall advise you
promptly of the issuance by the Commission or any jurisdiction or other
regulatory body of any stop order or other order suspending the
effectiveness of the Registration Statement, suspending or preventing
the use of any Preliminary Prospectus, a Rule 462(b) Registration
Statement, the Effective Prospectus or the Final Prospectus or
suspending the qualification of the Shares for offering or sale in any
jurisdiction, or of the institution of any proceedings for any such
purpose; and the Company shall use its best efforts to prevent the
issuance of any stop order or other such order and, should a stop order
or other such order be issued, to obtain as soon as possible the lifting
thereof.
(b) The Company will take or cause to be taken, in cooperation
with the Representatives and counsel to the Underwriters, all necessary
action and furnish to whomever you direct such information as may be
reasonably required in qualifying the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as the
Underwriters may designate and will continue such qualifications in
effect for as long as may be reasonably necessary to complete the
distribution of the Shares. The foregoing notwithstanding, the Company
shall not be required to qualify as a foreign corporation or to take any
action which would subject it to general service of process in any
jurisdiction where it is not presently qualified or where it would be
subject to taxation as a foreign corporation.
(c) Within the time during which a Final Prospectus relating
to the Shares is required to be delivered under the Securities Act, the
Company shall comply with all requirements imposed upon it by the
Securities Act, as now and hereafter amended, and by the Rules and
Regulations, as from time to time in force, so far as is necessary to
permit the continuance of sales of or dealings in the Shares as
contemplated by the provisions hereof and the Final Prospectus. If
during such period any event occurs as a result of which the Final
Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances then
existing, not misleading, or if during such period it is necessary to
amend the Registration Statement or supplement the Final Prospectus to
comply with the Securities Act, the Company shall promptly notify you
and shall amend the Registration Statement or supplement the Final
Prospectus (at the expense of the Company) so as to correct such
statement or omission or effect such compliance.
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<PAGE> 15
(d) The Company will furnish without charge to the
Representatives and make available to the Underwriters copies of the
Registration Statement (four of which shall be signed and shall be
accompanied by all exhibits, including any that are incorporated by
reference, which have not previously been furnished), each Preliminary
Prospectus, the Effective Prospectus and the Final Prospectus, and all
amendments and supplements thereto, including any prospectus or
supplement prepared after the effective date of the Registration
Statement, in each case as soon as available and in such quantities as
the Underwriters may reasonably request.
(e) The Company will (i) deliver to you at such office or
offices as you may designate as many copies of the Preliminary
Prospectus and Final Prospectus as you may reasonably request, and (ii)
for a period of not more than nine months after the Registration
Statement becomes effective, send to the Underwriters as many additional
copies of the Final Prospectus and any supplement thereto as you may
reasonably request.
(f) The Company shall make generally available to its security
holders, in the manner contemplated by Rule 158(b) under the Securities
Act, as promptly as practicable and in any event no later than 45 days
after the end of its fiscal quarter in which the first anniversary of
the effective date of the Registration Statement occurs, an earnings
statement satisfying the provisions of Section 11(a) of the Securities
Act covering a period of at least 12 consecutive months beginning after
the effective date of the Registration Statement.
(g) The Company will apply the net proceeds from the sale of
the Shares as set forth under the caption "Use of Proceeds" in the Final
Prospectus and will timely file reports on Form SR with the Commission
in accordance with Rule 463 of the Securities Act or any successor
provision.
(h) During a period of five years from the effective date of
the Registration Statement, the Company will furnish to the
Representatives copies of all reports and other communications
(financial or other) furnished by the Company to its Stockholders and,
as soon as available, copies of any reports or financial statements
furnished or filed by the Company to or with the Commission, NASDAQ or
any national securities exchange on which any class of securities of the
Company may be listed.
(i) The Company will, from time to time, after the effective
date of the Registration Statement, file with the Commission such
reports as are required by the Securities Act, the Exchange Act and the
Rules and Regulations, and shall also file with state securities
commissions in states where the Shares have been sold by you (as you
shall have advised us in writing) such reports as are required to be
filed by the securities acts and the regulations of those states.
(j) Except pursuant to this Agreement or with the prior
written consent of the Representatives, for a period of 90 days from the
effective date of the Registration Statement, the Company will not, and
the Company has provided agreements executed by
15
<PAGE> 16
each of its executive officers and directors and certain beneficial
owners of the Company's outstanding Common Stock as designated by the
Representatives providing that for a period of 90 days from the
effective date of the Registration Statement, such person or entity will
not, directly or indirectly, offer for sale, sell, grant any options
(other than pursuant to existing employee benefit plans and agreements,
other existing compensation agreements and existing stock options),
rights or warrants with respect to any shares of Common Stock,
securities convertible into Common Stock or any other capital stock of
the Company, or otherwise dispose of any shares of Common Stock or such
other securities or capital stock.
(k) If at any time during the 25 day period after the
Registration Statement is declared effective, any rumor, publication or
event relating to or affecting the Company shall occur as a result of
which, in your opinion, the market price for the Shares has been or is
likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Final Prospectus), the Company will, after written notice from you
advising it as to the effect set forth above, prepare, consult with you
concerning the substance of and disseminate a press release or other
public statement, reasonably satisfactory to you, responding to or
commenting on such rumor, publication or event.
(l) The Company will not take, directly or indirectly, any
action designed to cause or result in, or which might constitute or be
expected to constitute, stabilization or manipulation of the price of
the Common Stock.
(m) If the Company elects to rely on Rule 462(b), the Company
shall both file a Rule 462(b) Registration Statement with the Commission
in compliance with Rule 462(b) and pay the applicable fees in accordance
with Rule 111 under the Securities Act by the earlier of (i) 10:00 p.m.
Eastern Time on the date hereof and (ii) the time confirmations are sent
or given, as specified by Rule 462(b)(2).
6. Expenses. The Company agrees with the Underwriters that (a)
whether or not the transactions contemplated by this Agreement are consummated
or this Agreement becomes effective or is terminated, the Company will pay all
fees and expenses incident to the performance of the obligations of the Company
hereunder, including, but not limited to, (i) the Commission's registration
fee, (ii) the expenses of printing (or reproduction) and distributing the
Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), each Preliminary Prospectus, the Effective
Prospectus, the Final Prospectus, any amendments or supplements thereto, and
this Agreement and other underwriting documents, including Underwriters'
Questionnaires, Underwriters' Powers of Attorney, Blue Sky Memoranda and
Agreements Among Underwriters, (iii) fees and expenses of accountants and
counsel for the Company, (iv) expenses of registration or qualification of the
Shares under state Blue Sky and securities laws, including the fees and
disbursements of counsel to the Underwriters in connection therewith, (v)
filing fees paid or incurred by the Underwriters and related fees and expenses
of counsel to the Underwriters in connection with filings with the NASD, (vi)
expenses of registration of the outstanding shares of Common Stock under the
Exchange Act and inclusion
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<PAGE> 17
for quotation of the outstanding shares of Common Stock on The NASDAQ Stock
Market's National Market, (vii) all travel, lodging and reasonable living
expenses incurred by the Company in connection with marketing, dealer and other
meetings attended by the Company and the Underwriters in marketing the Shares,
(viii) the costs and charges of the Company's transfer agent and registrar and
the cost of preparing the certificates for the Shares, and (ix) all other costs
and expenses incident to the performance of their obligations hereunder not
otherwise provided for in this Section; and (b) all out-of-pocket expenses,
including counsel fees, disbursements and expenses, incurred by the
Underwriters in connection with investigating, preparing to market and
marketing the Shares and proposing to purchase and purchasing the Shares under
this Agreement, will be borne and paid by the Company if the sale of the Shares
provided for herein is not consummated by reason of (i) the termination of this
Agreement by the Company pursuant to Section 13(a), or (ii) by reason of
termination of this Agreement by the Underwriters pursuant to Sections
13(b)(ii) or because of any failure or refusal on the part of the Company or
any Selling Stockholder to comply with the terms or fulfill any of the
conditions of this Agreement. The provisions of this Section shall not affect
any agreement that the Company and the Selling Stockholders may have for the
sharing of such costs and expenses; provided, however, the Underwriters may
deem the Company to be the primary obligor with respect to all costs, fees, and
expenses to be paid hereunder by the Company and the Selling Stockholders.
Neither the Company nor the Selling Stockholders shall in any event be liable
to any of the Underwriters for the loss of anticipated profits from the
transactions covered by this Agreement.
7. Conditions of the Underwriters' Obligations. The respective
obligations of the Underwriters to purchase and pay for the Firm Shares and
Option Shares, shall be subject, in their reasonable discretion, to the
accuracy of the representations and warranties of the Company and the Selling
Stockholders herein as of the date hereof and as of the Closing Date as if made
on and as of the Closing Date, to the accuracy of the statements of the
Company's officers made pursuant to the provisions hereof, to the performance
by the Company and the Selling Stockholders of all of their covenants and
agreements hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective not later than 5:30 P.M.,
Washington, D.C. time, on the day following the date of this Agreement,
or such later time and date as shall have been consented to by the
Representatives and all filings required by Rules 424, 430A and 434 of
the Rules and Regulations shall have been made; if the Company has
elected to rely on Rule 462(b), the Rule 462(b) Registration Statement
shall have become effective not later than the earlier of (i) 9:00 p.m.
Nashville time on the date hereof, and (ii) the time confirmations are
sent or given, as specified by Rule 462(b)(2), or at such later time and
date as may be approved by the Underwriters; no stop order suspending
the effectiveness of the Registration Statement shall have been issued
and no proceedings for that purpose shall have been instituted or
threatened or, to the knowledge of the Company or the Underwriters,
shall be contemplated by the Commission; any request of the Commission
for additional information (to be included in the Registration Statement
or the Final Prospectus or otherwise) shall have been complied with to
your satisfaction; and the
17
<PAGE> 18
NASD, upon review of the terms of the public offering of the Shares,
shall not have objected to such offering, such terms or the
Underwriters' participation in the same.
(b) No Underwriter shall have advised the Company that the
Registration Statement, Preliminary Prospectus, the Effective Prospectus
or Final Prospectus, or any amendment or any supplement thereto,
contains an untrue statement of fact which, in your judgment, is
material, or omits to state a fact which, in your judgment, is material
and is required to be stated therein or necessary to make the statements
therein not misleading and the Company shall not have cured such untrue
statement of fact or stated a statement of fact required to be stated
therein.
(c) The Representatives shall have received an opinion, dated
the Closing Date, from Gardere & Wynne, L.L.P., counsel for the Company
and the Selling Stockholders, to the effect that:
(i) The Company has been duly organized and is
validly existing and in good standing as a corporation under the
laws of the State of Delaware, with corporate power and authority
to own its properties and conduct its business as now conducted.
To the best knowledge of such counsel, the Company is duly
qualified to do business as a foreign corporation in good
standing in all jurisdictions where the failure to so qualify
would have a material adverse effect upon the Company and its
subsidiaries, taken as a whole.
(ii) Each of the Company's subsidiaries is
validly existing under the laws of its jurisdiction of
incorporation or organization, as applicable, with the corporate
or partnership power and authority to own its properties and
conduct its business as now conducted. The issued and
outstanding shares of capital stock of the Company's corporate
subsidiaries have been duly and validly authorized and issued,
are fully paid and nonassessable, and are owned beneficially and
of record by the Company free and clear of liens, claims,
encumbrances, security interests, voting trusts or other defects
of title whatsoever, except as disclosed in the Effective
Prospectus and the Final Prospectus. All interests in
partnership subsidiaries of the Company are owned beneficially
and of record by the Company free and clear of liens, claims,
encumbrances, security interests, or other defects of title
whatsoever, except as disclosed in the Effective Prospectus and
the Final Prospectus. Each subsidiary of the Company is duly
qualified to do business in all jurisdictions where the failure
to so qualify would have a material adverse effect upon the
Company and its subsidiaries, taken as a whole.
(iii) As of the dates specified therein, the
Company had authorized and issued capital stock as set forth
under the caption "Capitalization" in the Final Prospectus. All
of the outstanding shares of the capital stock of the Company
have been duly authorized and are validly issued, fully paid and
nonassessable, and the Shares have been duly authorized, and upon
issuance
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<PAGE> 19
thereof and payment therefor as provided herein, will be validly
issued, fully paid and nonassessable; none of the issued shares
have been issued in violation of or subject to any preemptive
rights provided for by law or by the Company's Certificate of
Incorporation. There are no preemptive rights or other rights to
subscribe for or to purchase, or any restriction upon the
transfer of, the Shares pursuant to the Company's Certificate of
Incorporation, bylaws or other governing documents or any
agreement or other instrument known to such counsel after
reasonable investigation and inquiry to which the Company is a
party or by which it may be bound except as described in the
Effective Prospectus and Final Prospectus and except for
restrictions on transfer imposed under applicable securities
laws. Neither the filing of the Registration Statement nor the
offer or sale of the Shares as contemplated by this Agreement
gives rise to any rights for or relating to the registration of
any shares of Common Stock or any other securities of the
Company. The Underwriters will receive good and marketable title
to the Shares to be issued and delivered by the Company pursuant
to this Agreement, free and clear of all liens, encumbrances,
claims, security interests, restrictions, Stockholders agreements
and voting trusts whatsoever. The capital stock of the Company
and the Shares conform to the description thereof contained in
the Final Prospectus. Since September 1991, when such counsel
undertook representation of the Company, all offers and sales by
the Company of the Company's securities at all relevant times
were duly registered or exempt from the registration requirements
of the Securities Act and were duly registered or the subject of
an exemption from the registration requirements of applicable
state securities or Blue Sky laws.
(iv) No consent, approval, authorization or order
of any court or governmental agency or body or third party is
required for the performance of this Agreement by the Company or
the consummation by the Company of the transactions contemplated
hereby, except such as have been obtained under the Securities
Act and such as may be required by the NASD and under state
securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the several Underwriters. The
performance of this Agreement by the Company and the consummation
by the Company of the transactions contemplated hereby will not
conflict with or result in a breach or violation by the Company
of any of the terms or provisions of, or constitute a default by
the Company under, any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument known to such
counsel to which the Company is a party or to which the Company
or its properties is subject and which is material to the
Company, the Certificate of Incorporation or bylaws of the
Company, any statute, or any judgment, decree, order, rule or
regulation known to such counsel of any court or governmental
agency or body applicable to the Company or its properties.
(v) The Company has full legal right, power and
authority to enter into this Agreement and to issue, sell and
deliver the Shares to be sold by it
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<PAGE> 20
to the Underwriters as provided herein, and this Agreement has
been duly authorized, executed and delivered by the Company and
constitutes the valid and legally binding obligation of the
Company enforceable against the Company in accordance with its
terms, except as enforceability may be limited by general
equitable principles, bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer, fraudulent conveyance or other
laws affecting creditors' rights generally, and except as rights
to indemnity may be limited by federal or state securities laws
or the public policy underlying such laws.
(vi) Except as described in the Final Prospectus,
there is not pending, or to the best knowledge of such counsel,
threatened, any action, suit, proceeding, inquiry or
investigation, to which the Company or any of its subsidiaries is
a party, or to which the property of the Company or any of its
subsidiaries is subject, before or brought by any court or
governmental agency or body, which, if determined adversely to
the Company or any of its subsidiaries, could result in any
material adverse change in the business, financial position, net
worth or results of operations, or could materially adversely
affect the properties or assets, of the Company and its
subsidiaries, taken as a whole.
(vii) To the best knowledge of such counsel, no
default exists, and no event has occurred which with notice or
after the lapse of time to cure or both, would constitute a
default, in the due performance and observance of any term,
covenant or condition of any indenture, mortgage, deed of trust,
loan agreement, lease or other agreement or instrument listed as
an exhibit to the Registration Statement, or of the Certificate
of Incorporation or bylaws of the Company.
(viii) The Registration Statement and all
post-effective amendments thereto have become effective under the
Securities Act, and, to the best knowledge of such counsel, no
stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose
have been instituted or are threatened, pending or contemplated
by the Commission. All filings required by Rules 424, 430A and
434 of the Rules and Regulations have been made; the Registration
Statement, the Effective Prospectus and Final Prospectus, and any
amendments or supplements thereto (except for the financial
statements and schedules included therein as to which such
counsel need express no opinion), as of their respective
effective or issue dates, complied as to form in all material
respects with the requirements of the Securities Act and the
Rules and Regulations; the descriptions in the Registration
Statement, the Effective Prospectus and the Final Prospectus of
statutes, regulations, legal and governmental proceedings, and
contracts and other documents are accurate in all material
respects and present fairly the information required to be
stated; and there are no pending or (to the best knowledge of
such counsel) threatened legal or governmental proceedings,
statutes or regulations required to be described in the Final
Prospectus which are not described as required or any contracts
or
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<PAGE> 21
documents known to such counsel of a character required to be
described in the Registration Statement or the Final Prospectus
or to be filed as exhibits to the Registration Statement which
are not described and filed as required.
(ix) The Company is not, and will not be as a
result of the consummation of the transactions contemplated by
this Agreement, an "investment company" within the meaning of the
Investment Company Act of 1940.
(x) This Agreement and the Custody Agreement and
Power of Attorney have been duly authorized (in the case of
corporate or partnership Selling Stockholders), executed and
delivered by or on behalf of each of the Selling Stockholders and
constitute valid and binding agreements of such Selling
Stockholders in accordance with their terms, except as
enforceability may be limited by applicable equitable principles
or by bankruptcy, insolvency, moratorium, reorganization or
similar laws from time to time in effect affecting the
enforcement of creditors' rights, and except as rights to
indemnity may be limited by federal or state securities laws or
the public policy underlying such laws.
(xi) No consent, approval, authorization or order
of any regulatory, administrative or other governmental body is
required for the consummation of the transactions contemplated by
this Agreement in connection with the Shares to be sold by each
Selling Stockholder hereunder, except which have been duly
obtained and in full force and effect, such as have been obtained
under the Securities Act and such as may be required under state
securities or Blue Sky laws in connection with the purchase and
distribution of such Shares by the Underwriters, as to which such
counsel need express no opinion.
(xii) Each of the Selling Stockholders has the
full right, power and authority to sell, transfer and deliver
such Shares pursuant to this Agreement. To the best knowledge of
such counsel, upon the delivery of a payment for the Shares to be
sold by the Selling Stockholders pursuant to this Agreement as
herein contemplated, and assuming each Underwriter takes delivery
without knowledge of any adverse claims, such Underwriter will be
a bona fide purchaser with respect to such Shares within the
meaning of Article VIII of the UCC and will acquire all rights of
the Selling Stockholder in such Shares, free and clear of all
adverse claims.
In addition to the matters set forth above, such opinion shall also
include a statement to the effect that such counsel has participated in
conferences with officers and other representatives of the Company,
representatives of the independent public accountants of the Company,
representatives of the Underwriters and their counsel at which the contents of
the Registration Statement, the Effective Prospectus and the Final Prospectus
and related matters were discussed, that nothing has come to the attention of
such counsel which leads them to believe that the
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<PAGE> 22
Registration Statement, the Effective Prospectus and the Final Prospectus or
any amendment or supplement thereto contains an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading (except that such
counsel need express no view as to financial statements, schedules and other
financial information included therein). In rendering such opinion, counsel
may rely as to matters of fact, to the extent counsel deems proper, on
certificates of responsible officers of the Company, the subsidiaries, the
Selling Stockholders and public officials.
(d) The Underwriters shall have received an opinion or
opinions, dated the Closing Date, of Hughes & Luce, L.L.P., counsel for
the Underwriters, with respect to the Registration Statement and the
Final Prospectus, and such other related matters as the Underwriters may
require, and the Company shall have furnished to such counsel such
documents as they may reasonably request for the purpose of enabling
them to pass upon such matters.
(e) The Representatives shall have received from Grant
Thornton LLP, a letter dated the date hereof and, at the Closing Date, a
second letter dated the Closing Date (and, in the event of the
Underwriters' exercise of the over-allotment option referred to in
Section 3(b) hereof, a third letter dated and delivered on the Option
Closing Date), in form and substance satisfactory to the
Representatives, stating that they are independent public accountants
with respect to the Company and its consolidated subsidiaries within the
meaning of the Securities Act, the Exchange Act and the applicable Rules
and Regulations, that the answer to Item 10 of Form S-3 set forth in the
Registration Statement is correct insofar as it relates to them, and to
the effect that:
(i) In their opinion, the financial statements
audited by them and incorporated by reference in the Registration
Statement comply as to form in all material respects with the
applicable accounting requirements of the Securities Act, the
Exchange Act and the published Rules and Regulations and are
presented in accordance with generally accepted accounting
principles;
(ii) The unaudited selected financial information
included in the Preliminary Prospectus and the Final Prospectus
under the captions "PROSPECTUS SUMMARY," "SELECTED CONSOLIDATED
FINANCIAL DATA" AND "SELECTED PRO FORMA CONDENSED CONSOLIDATED
OPERATING DATA" for each of the fiscal years ended December 31,
1993, 1994 and 1995, agrees with the corresponding amounts in the
audited consolidated financial statements incorporated by
reference in the Final Prospectus;
(iii) On the basis of a reading of the latest
available interim consolidated financial statements (unaudited)
of the Company and its consolidated subsidiaries, a reading of
the minute books of the Company and its consolidated
22
<PAGE> 23
subsidiaries, inquiries of officials of the Company and its
consolidated subsidiaries responsible for financial and
accounting matters and other specified procedures, nothing came
to their attention that caused them to believe that:
(A) The Company's unaudited consolidated
financial statements incorporated by reference in the
Registration Statement do not comply as to form in all
material respects with the applicable accounting
requirements of the Securities Act, the Exchange Act and
the published Rules and Regulations or are not presented
in accordance with generally accepted accounting
principles consistent with the basis for the corresponding
amounts in the audited consolidated financial statements
of the Company incorporated by reference into the
Registration Statement;
(B) The amounts included in the
Preliminary Prospectus and the Final Prospectus under the
captions "PROSPECTUS SUMMARY," "SELECTED CONSOLIDATED
FINANCIAL DATA" AND "SELECTED PRO FORMA CONDENSED
CONSOLIDATED OPERATING DATA" for the nine months ended
September 30, 1996 do not agree with the corresponding
amounts in the unaudited financial statements of the
Company and its consolidated subsidiaries for such period;
(C) At a specified date not more than
three days prior to the date of delivery of such
respective letter, there was any change in the capital
stock, decline in stockholders' equity or increase in
long-term debt and capital lease obligations of the
Company, in each case as compared with amounts shown in
the latest balance sheets incorporated by reference in the
Final Prospectus, except in each case for changes,
decreases or increases which the Final Prospectus
discloses have occurred or may occur or which are
described in such letters; and
(D) For the period from the closing date
of the latest consolidated statements of earnings included
in the Effective Prospectus and the Final Prospectus to a
specified date not more than three days prior to the date
of delivery of such respective letter, there were any
decreases in net sales or net earnings in each case as
compared with the corresponding period of the preceding
year, except in each case for decreases which the Final
Prospectus discloses have occurred or may occur or which
are described in such letter.
(iv) They have carried out certain specified
procedures, not constituting an audit, with respect to certain
amounts, percentages and financial information specified by you
which are derived from the general accounting records of the
Company or its consolidated subsidiaries, which appear in the
Effective Prospectus and the Final Prospectus, and have compared
and agreed such amounts, percentages and financial information
with the accounting records
23
<PAGE> 24
of the Company or its consolidated subsidiaries or to analyses
and schedules prepared by the Company or its consolidated
subsidiaries from their detailed accounting records.
(v) On the basis of a reading of the unaudited
pro forma financial statements incorporated by reference in the
Registration Statement and the unaudited pro forma condensed
consolidated operating data for the year ended December 31, 1995
and the nine months ended September 30, 1996 included in the
Preliminary Prospectus and the Final Prospectus, a reading of the
minutebooks of the Company, inquiries of officials of the Company
responsible for financial and accounting matters and other
specified procedures, they proved the arithmetic accuracy of the
application of the pro forma adjustments to the historical
amounts in the unaudited pro forma condensed consolidated
operating data. In addition, nothing came to their attention
that caused them to believe that the unaudited pro forma
financial statements incorporated by reference in the
Registration Statement or the condensed consolidated operating
data included in the Preliminary Prospectus and the Final
Prospectus do not comply as to form in all material respects with
the applicable accounting requirement of Rule 11-02 of Regulation
S-X, and that the pro forma adjustments have not been properly
applied to the historical amounts in the compilation of those
statements.
In the event that the letters to be delivered referred to above set forth any
such changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that the Underwriters shall have determined,
after discussions with officers of the Company responsible for financial and
accounting matters and with Grant Thornton LLP, that such changes, decreases or
increases as are set forth in such letters do not reflect a material adverse
change in the stockholders' equity or long-term debt of the Company as compared
with the amounts shown in the latest consolidated balance sheets of the Company
included in the Final Prospectus, or a material adverse change in net sales or
net earnings of the Company, in each case as compared with the corresponding
period of the prior year.
(f) The letters referred to in subparagraph (e) above shall
include a statement with respect to Maxpro to the effect that:
(i) The selected financial information included
in the Preliminary Prospectus and the Final Prospectus under the
captions "PROSPECTUS SUMMARY," SELECTED CONSOLIDATED FINANCIAL
DATA" AND "SELECTED PRO FORMA CONDENSED CONSOLIDATED OPERATING
DATA" was derived from the audited financial statements of Maxpro
for the years ended June 30, 1995 and 1996 and Maxpro's general
ledger;
(ii) The unaudited selected financial information
of Maxpro included in the Preliminary Prospectus and the Final
Prospectus under the caption "SELECTED PRO FORMA CONDENSED
CONSOLIDATED OPERATING DATA " for the fiscal year ended December
31, 1995, agrees with the
24
<PAGE> 25
corresponding amounts in Maxpro's audited financial statements
incorporated by reference in the Final Prospectus or previously
reported on by them;
(iii) They have carried out certain specified
procedures, not constituting an audit, with respect to certain
amounts, percentages and financial information specified by you
which are derived from the general accounting records of Maxpro,
which appear in the Effective Prospectus and the Final
Prospectus, and have compared and agreed such amounts,
percentages and financial information with the accounting records
of Maxpro or to analyses and schedules prepared by Maxpro from
its detailed accounting records.
(g) At their discretion, the Representatives shall have received from
Grant Thornton, chartered accountants (Perth, Australia) and KPMG,
charter accountants (Perth, Australia), letters dated the date hereof
and, at the Closing Date, letters dated the Closing Date (and, in the
event of the Underwriters' exercise of the over- allotment option
referred to in Section 3(b) hereof, letters dated and delivered on the
Option Closing Date), in form and substance satisfactory to the
Representatives, containing statements and information of the type
ordinarily included in accountant's "comfort letters" to underwriters
with respect to the financial statements and certain financial and
statistical information regarding Maxpro contained in the Registration
Statement, for which comfort has not otherwise been obtained from Grant
Thornton LLP.
(h) There shall have been furnished to the Representatives a
certificate, dated the Closing Date and addressed to you, signed by the
Chief Executive Officer and by the Chief Financial Officer of the
Company to the effect that:
(i) the representations and warranties of the
Company in Section 1 of this Agreement are true and correct, as
if made at and as of the Closing Date, and the Company has
complied with all the agreements and satisfied all the conditions
on its part to be performed or satisfied at or prior to the
Closing Date;
(ii) no stop order suspending the effectiveness
of the Registration Statement has been issued, and no proceedings
for that purpose have been initiated or are pending, or to their
knowledge, threatened under the Securities Act;
(iii) they have carefully examined the
Registration Statement, the Effective Prospectus and the Final
Prospectus, and any amendments or supplements thereto, and such
documents do not include any untrue statement of a material fact
or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading; and
(iv) since the effective date of the Registration
Statement, there has occurred no event (other than with respect
to the information contained under
25
<PAGE> 26
the caption "Underwriting") required to be set forth in an
amendment or supplement to the Registration Statement, the
Effective Prospectus or the Final Prospectus which has not been
so set forth.
(i) The representations and warranties of each Selling
Stockholder in Section 2 of this Agreement shall be true and correct as
of the Closing Date and such Selling Stockholders shall deliver to the
Representatives a certificate to that effect, dated the Closing Date,
signed by such Selling Stockholder or his or its duly appointed
attorney-in-fact.
(j) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Final Prospectus, and
except as stated therein, the Company has not sustained any material
loss or interference with its business or properties from fire, flood,
hurricane, earthquake, accident or other calamity, whether or not
covered by insurance, or from any labor dispute or any court or
governmental action, order or decree, or become a party to or the
subject of any litigation which is material to the Company, nor shall
there have been any material adverse change, or any development
involving a prospective material adverse change, in the business,
properties, key personnel, capitalization, net worth, results of
operations or condition (financial or other) of the Company, which loss,
interference, litigation or change, in your judgment shall render it
inadvisable to commence or continue the offering of the Shares at the
offering price to the public set forth on the cover page of the
Prospectus or to proceed with the delivery of the Shares.
(k) The Shares have been duly authorized for quotation on The
NASDAQ Stock Market's National Market, subject to notice of issuance.
All such opinions, certificates, letters and documents delivered
pursuant to this Agreement will comply with the provisions hereof only if they
are reasonably satisfactory to the Representatives and their counsel. The
Company shall furnish to the Representatives such conformed copies of such
opinions, certificates, letters and documents in such quantities as the
Representatives shall reasonably request.
The respective obligations of the Underwriters to purchase and pay for
the Option Shares shall be subject, in their discretion, to each of the
foregoing conditions to purchase the Firm Shares, except that all references to
the "Closing Date" shall be deemed to refer to the Option Closing Date, if it
shall be a date other than the Closing Date.
8. Indemnification and Contribution.
(a) Each of the Company and the Selling Stockholders,
severally and not jointly, agrees to indemnify and hold harmless each
Underwriter, and each person, if any, who controls any Underwriter
within the meaning of the Securities Act, against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter or
controlling person may become subject under the Securities Act or
otherwise, insofar as
26
<PAGE> 27
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based in whole or in part upon any untrue
statement or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Effective
Prospectus or Final Prospectus, or any amendment or supplement thereto,
or in any Blue Sky application or other written information furnished by
the Company filed in any state or other jurisdiction in order to qualify
any or all of the Shares under the securities laws thereof (a "Blue Sky
Application") or arise out of or are based upon the omission or alleged
omission to state in the Registration Statement, any Preliminary
Prospectus, the Effective Prospectus or Final Prospectus or any
amendment or supplement thereto or any Blue Sky Application a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter and each
such controlling person for any legal or other expenses reasonably
incurred by such Underwriter or such controlling person in connection
with investigating or defending any such loss, claim, damage, liability
or action as such expenses are incurred; provided, however, that the
Company and the Selling Stockholders will not be liable in any such case
to the extent that any such loss, claim, damage, or liability arises out
of or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement, the
Preliminary Prospectus, the Effective Prospectus or Final Prospectus or
such amendment or such supplement or any Blue Sky Application in
reliance upon and in conformity with written information furnished to
the Company by any Underwriter specifically for use therein (it being
understood that the only information so provided by the Underwriters is
the information included in the last paragraph on the cover page, the
last two paragraphs on page two and in the first, third, fourth and
eighth paragraphs under the caption "Underwriting" in any Preliminary
Prospectus and the Final Prospectus and the Effective Prospectus); and
provided further, that the Company will not be liable in any case to the
extent that any such loss, claim, damage, or liability arises out of or
is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement, the
Preliminary Prospectus, the Effective Prospectus or Final Prospectus or
any amendment or such supplement or any Blue Sky Application in reliance
upon and in conformity with written information furnished to the Company
by any Selling Stockholder specifically for use therein; and provided
further, that the Company and the Selling Stockholders will not be
liable in any case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission in the Registration
Statement, the Preliminary Prospectus, the Effective Prospectus or Final
Prospectus and if, such Underwriter previously having been furnished by
or on behalf of the Company with copies of such document as so amended
or supplemented, thereafter fails to deliver such document as so amended
or supplemented, prior to or concurrently with the sale of the Shares to
the person asserting such loss, claim, damage or liability who purchased
the Shares which are the subject thereof from such Underwriter, provided
that the Company delivered such documents, as amended or supplemented,
to the Underwriters on a timely basis to permit such delivery. In no
event, however, shall any Selling Stockholder be obligated to indemnify
the Underwriters under this Section 8(a) in an amount exceeding the
product of (i) the number of shares sold by such Selling Stockholder and
(ii) the price
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<PAGE> 28
per share paid to such Selling Stockholder by the Underwriters pursuant
hereto. This indemnity agreement will be in addition to any liability
that the Company or the Selling Stockholders may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless each of the Selling Stockholders and the
Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company
within the meaning of the Securities Act against any losses, claims,
damages or liabilities to which the Selling Stockholders or Company or
any such director, officer or controlling person may become subject,
under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Effective Prospectus or Final Prospectus, or any
amendment or supplement thereto, or any Blue Sky Application, or arise
out of or are based upon the omission or the alleged omission to state
in the Registration Statement, any Preliminary Prospectus, the Effective
Prospectus or Final Prospectus or any amendment or supplement thereto or
any Blue Sky Application a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to
the Company by any Underwriter specifically for use therein (it being
understood that the only information so provided is the information
included in the last paragraph on the cover page, the last two
paragraphs on page two and in the first, third, fourth and eighth
paragraphs under the caption "Underwriting" in any Preliminary
Prospectus and in the Effective Prospectus and the Final Prospectus);
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, including
governmental proceedings, such indemnified party will, if a claim in
respect thereof is to be made against the indemnifying party under this
Section 8 notify the indemnifying party of the commencement thereof; but
the omission so to notify the indemnifying party will not relieve it
from any liability which it may have to any indemnified party otherwise
than under this Section 8. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein, and to the extent that it may wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party;
and after notice from the indemnifying party to such indemnified party
of its election to so assume the defense thereof, the indemnifying party
will not be liable to such indemnified party under this Section 8 for
any legal or other expenses subsequently incurred by such indemnified
party in connection with the defense thereof other than reasonable costs
of investigation except that the indemnified party shall have the right
to employ separate counsel if, in its reasonable judgment, it is
advisable for the indemnified party and any other Underwriter
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<PAGE> 29
to be represented by separate counsel, and in that event the fees and
expenses of separate counsel shall be paid by the indemnifying party.
The indemnifying party will not, without prior written consent of the
indemnified party, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action, suit or proceeding (or related
cause of action or portion thereof) in respect of which indemnification may be
sought hereunder (whether or not the indemnified party is a party to such
claim, action, suit or proceeding), unless such settlement, compromise or
consent includes an unconditional release of the indemnified party from all
liability arising out of such claim, action, suit or proceeding (or related
cause of action or portion thereof).
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in the
preceding part of this Section 8 is for any reason held to be
unavailable to the Underwriters, the Company, or the Selling
Stockholders or is insufficient to hold harmless an indemnified party,
then the Company and the Selling Stockholders shall contribute to the
damages paid by the Underwriters, and the Underwriters shall contribute
to the damages paid by the Company and the Selling Stockholders
provided, however, that no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. In determining the amount of contribution
to which the respective parties are entitled, there shall be considered
the relative benefits received by each party from the offering of the
Shares (taking into account the portion of the proceeds of the offering
realized by each), the parties' relative knowledge and access to
information concerning the matter with respect to which the claim was
asserted, the opportunity to correct and prevent any statement or
omission, and any other equitable considerations appropriate under the
circumstances. The Company, the Selling Stockholders and the
Underwriters agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation (even
if the Underwriters were treated as one entity for such purpose). No
Underwriter or person controlling such Underwriter shall be obligated to
make contribution hereunder which in the aggregate exceeds the
underwriting discount applicable to the Shares purchased by such
Underwriter under this Agreement, less the aggregate amount of any
damages which such Underwriter and its controlling persons have
otherwise been required to pay in respect of the same or any similar
claim. No Selling Stockholder shall be obligated to make contribution
hereunder which in the aggregate exceeds the product of (i) the number
of shares sold by such Selling Stockholder and (ii) the price per share
paid to such Selling Stockholder by the Underwriters pursuant hereto.
The Underwriters' obligations to contribute hereunder are several in
proportion to their respective underwriting obligations and not joint.
For purposes of this Section, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the Securities Act shall
have the same rights to contribution as such Underwriter, and each
director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act, shall
have the same rights to contribution as the Company.
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<PAGE> 30
9. Default of Underwriters. If any Underwriter defaults in its
obligation to purchase Shares hereunder and if the total number of Shares which
such defaulting Underwriter agreed but failed to purchase is ten percent or
less of the total number of Shares to be sold hereunder, the non-defaulting
Underwriters shall be obligated severally to purchase (in the respective
proportions which the number of Shares set forth opposite the name of each
non-defaulting Underwriter in Schedule II hereto bears to the total number of
Shares set forth opposite the names of all the non-defaulting Underwriters),
the Shares which such defaulting Underwriter or Underwriters agreed but failed
to purchase. If any Underwriter so defaults and the total number of Shares
with respect to which such default or defaults occur is more than ten percent
of the total number of Shares to be sold hereunder, and arrangements
satisfactory to the other Underwriters and the Company for the purchase of such
Shares by other persons (who may include the non-defaulting Underwriters) are
not made within 36 hours after such default, this Agreement, insofar as it
relates to the sale of the Shares, will terminate without liability on the part
of the non-defaulting Underwriters or the Company except for (i) the provisions
of Section 8 hereof, and (ii) the expenses to be paid or reimbursed by the
Company pursuant to Section 6. As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 9. Nothing herein shall relieve a defaulting Underwriter from
liability for its default.
10. Default by the Selling Stockholders. If the Selling Stockholders
shall fail to sell and deliver the number of Firm Shares that the Selling
Stockholders are obligated to sell, the Representatives may, at their option,
by notice to the Company, either (a) require the Company to sell and deliver
such number of shares of Common Stock as to which the Selling Stockholders have
defaulted, or (b) elect to purchase the Firm Shares and the Option Shares that
the Company and the non-defaulting Selling Stockholders have agreed to sell
pursuant to this Agreement. In the event of a default under this Section that
does not result in the termination of this Agreement, either the
Representatives or the Company shall have the right to postpone the First
Closing Date or Option Closing Date for a period not exceeding seven days in
order to effect any required changes in the Registration Statement or
Prospectus or in any other documents or arrangements. No action taken pursuant
to this Section shall relieve the Company or the Selling Stockholder so
defaulting from liability, if any, in respect of such default.
11. Survival Clause. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Selling
Stockholders and the Company, its officers and the Underwriters set forth in
this Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement shall remain in full force and effect, regardless of (i) any
investigation made by or on behalf of the Company, any of its officers or
directors, any Underwriter or any controlling person, and (ii) delivery of and
payment for the Shares. The respective agreements, covenants, indemnities and
other statements set forth in Section 6 and Section 8 hereof shall remain in
full force and effect, regardless of any termination or cancellation of this
Agreement.
12. Effective Date. This Agreement shall become effective at
whichever of the following times shall first occur: (i) at 11:30 A.M.,
Washington, D.C. time, on the next full
30
<PAGE> 31
business day following the date on which the Registration Statement becomes
effective or (ii) at such time after the Registration Statement has become
effective as the Representatives shall release the Firm Shares for sale to the
public; provided, however, that the provisions of Sections 6, 8, 10 and 11
hereof shall at all times be effective. For purposes of this Section 12, the
Firm Shares shall be deemed to have been so released upon the release by the
Representatives for publication, at any time after the Registration Statement
has become effective, of any newspaper advertisement relating to the Firm
Shares or upon the release by the Representatives of telegrams offering the
Firm Shares for sale to securities dealers, whichever may occur first.
13. Termination.
(a) The Company's obligations under this Agreement may be
terminated by the Company by notice to the Representatives at any time
before it becomes effective in accordance with Section 12 hereof.
(b) This Agreement may be terminated by the Representatives by
notice to the Company (i) at any time before it becomes effective in
accordance with Section 12 hereof; (ii) in the event that at or prior to
the First Closing Date the Company or any Selling Stockholder shall have
failed, refused or been unable to perform any agreement on the part of
the Company or such Selling Stockholder to be performed hereunder or any
other condition to the obligations of the Underwriters hereunder is not
fulfilled; (iii) if at or prior to the Closing Date trading in
securities on the New York Stock Exchange, the American Stock Exchange
or the over-the-counter market shall have been suspended or materially
limited or minimum or maximum prices shall have been established on
either of such Exchanges or such market, or a banking moratorium shall
have been declared by Federal or state authorities; (iv) if at or prior
to the Closing Date trading in securities of the Company shall have been
suspended; or (v) if there shall have been such a material change in
general economic, political or financial conditions or if the effect of
international conditions on the financial markets in the United States
shall be such as, in your reasonable judgment, makes it inadvisable to
commence or continue the offering of the Shares at the offering price to
the public set forth on the cover page of the Prospectus or to proceed
with the delivery of the Shares.
(c) Termination of this Agreement pursuant to this Section 13
shall be without liability of any party to any other party other than as
provided in Sections 6 and 8 hereof.
14. Notices. All communications hereunder shall be in writing and,
if sent to any of the Underwriters, shall be mailed or delivered or telegraphed
and confirmed in writing to the Representatives in care of J.C. Bradford & Co.,
J.C. Bradford Financial Center, 330 Commerce Street, Nashville, Tennessee
37201, Attention: Kirk Lundblade, or if sent to the Company or the Selling
Stockholders shall be mailed, delivered or telegraphed and confirmed in writing
to the Company at 1220 Champion Circle, Suite 100, Carrollton, Texas 75006,
Attention: George Broady.
31
<PAGE> 32
15. Miscellaneous. This Agreement shall inure to the benefit of and
be binding upon the several Underwriters, the Company, the Selling Stockholders
and their respective successors and legal representatives. Nothing expressed
or mentioned in this Agreement is intended or shall be construed to give any
other person any legal or equitable right, remedy or claim under or in respect
of this Agreement. This Agreement and all conditions and provisions hereof are
intended to be for the sole and exclusive benefit of the Company, the Selling
Stockholders and the several Underwriters and for the benefit of no other
person except that (i) the representations and warranties of the Company and
the Selling Stockholders contained in this Agreement shall also be for the
benefit of any person or persons who control any Underwriter within the meaning
of Section 15 of the Securities Act, and (ii) the indemnities by the
Underwriters shall also be for the benefit of the directors of the Company,
officers of the Company who have signed the Registration Statement and any
person or persons who control the Company within the meaning of Section 15 of
the Securities Act. No purchaser of Shares from any Underwriter will be deemed
a successor because of such purchase. The validity and interpretation of this
Agreement shall be governed by the laws of the State of Tennessee. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument. You hereby represent and warrant to the Company and the Selling
Stockholders that you have authority to act hereunder on behalf of the several
Underwriters, and any action hereunder taken by you will be binding upon all
the Underwriters.
If the foregoing is in accordance with your understanding of our
agreement, please indicate your acceptance thereof in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
between the Company, each of the Selling Stockholders and each of the several
Underwriters.
32
<PAGE> 33
Very truly yours,
ULTRAK, INC.
By:
----------------------------------------
Title:
-------------------------------------
SELLING STOCKHOLDERS
By:
----------------------------------------
Attorney-in-Fact for each of the Selling
Stockholders listed in Schedule I hereto
Confirmed and accepted as of the
date first above written.
J.C. BRADFORD & CO.
HOAK BREEDLOVE WESNESKI & CO.
For themselves and as Representatives
of the several Underwriters
J.C. BRADFORD & CO.
By:
---------------------------------------
Title:
------------------------------------
HOAK BREEDLOVE WESNESKI & CO.
By:
---------------------------------------
Title:
------------------------------------
33
<PAGE> 34
SCHEDULE II
UNDERWRITERS
<TABLE>
<CAPTION>
Number of Firm
Shares to Be
Underwriter Purchased
----------------------------------- ---------------
<S> <C>
J.C. Bradford & Co.
Hoak Breedlove Wesneski & Co.
TOTAL 2,600,000
===============
</TABLE>
SCHEDULE II
<PAGE> 35
SCHEDULE I
SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
Number of Firm
Name Shares to be Sold
--------------------------------- -----------------
<S> <C>
Petrus Fund, L.P. 92,460
------
TOTAL 92,460
=================
</TABLE>
SCHEDULE I
<PAGE> 1
EXHIBIT 5.1
[GARDERE & WYNNE, L.L.P. LETTERHEAD]
(214) 999-4510
October 21, 1996
Ultrak, Inc.
1220 Champion Circle, Suite 100
Carrollton, Texas 75006
Gentlemen:
We have served as counsel for Ultrak, Inc., a Delaware corporation (the
"Company"), in connection with the Registration Statement on Form S-3 (the
"Registration Statement"), filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, covering the proposed public
offering of 2,507,540 shares of Common Stock, $0.01 par value, of the Company
(the "Common Stock") to be issued and sold by the Company (the "Company
Shares"), 92,460 shares of the Common Stock to be sold by a stockholder of the
Company (the "Selling Stockholder Shares") and, subject to the exercise of an
over-allotment option granted by the Company, an additional 390,000 shares of
the Common Stock to be issued and sold by the Company (the "Additional Shares").
With respect to the foregoing, we have examined such documents and
questions of law as we have deemed necessary to render the opinions expressed
below. Based upon the foregoing, we are of the opinion that the Company Shares,
the Selling Stockholder Shares and the Additional Shares, when sold, issued, and
delivered in the manner and for the consideration stated in the Prospectus
constituting part of the Registration Statement and in the Underwriting
Agreement described in the Registration Statement, will be duly authorized,
validly issued, fully paid, and nonassessable.
We consent to the use of this opinion as Exhibit 5.1 to the Registration
Statement and to the use of our name in the Registration Statement and in the
Prospectus included therein under the heading "Legal Matters."
Very truly yours,
GARDERE & WYNNE, L.L.P.
By:
------------------------------
Richard L. Waggoner, Partner
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 19, 1996, accompanying the financial
statements of Ultrak, Inc. and subsidiaries included in the Annual Report and
Form 10-K of Ultrak, Inc. for the year ended December 31, 1995, and our report
dated October 18, 1996, accompanying the financial statements of Groupe Bisset
S.A., included in Form 8-K/A dated October 11, 1996, which are incorporated by
referenced in the Registration Statement and Prospectus. We consent to the
incorporation by reference of said reports in the Registration Statement and
Prospectus and to the use of our name as it appears under the caption
"Experts."
GRANT THORNTON LLP
Dallas, Texas
October 21, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 17, 1995 accompanying the consolidated
financial statements of Diamond Electronics, Inc. and Subsidiary appearing in
the S-2 of Ultrak, Inc. effective May 30, 1996 which is incorporated by
reference in this Registration Statement. We consent to the incorporation by
reference in the Registration Statement of the aforementioned reports and to
the use of our name as it appears under the caption "Experts."
NORMAN, JONES, ENLOW & CO.
Columbus, Ohio
October 21, 1996
<PAGE> 1
[GRANT THORNTON LETTERHEAD]
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated 7 August 1996 accompanying the financial
statements of Maxpro Systems Pty Ltd appearing in Form 8-K filed on 23 August
1996, for the year ended 30 June 1996, which is incorporated by reference in
this Registration Statement. We consent to the incorporation by reference in
the Registration Statement of the aforementioned report and to the use of our
name as it appears under caption "Experts".
/s/ GRANT THORNTON
GRANT THORNTON
PERTH, AUSTRALIA
21 OCTOBER 1996
<PAGE> 1
EXHIBIT 23.4
[KPMG LETTERHEAD]
CONSENT OF CHARTERED ACCOUNTS
We have issued our report dated 15 November 1995 accompanying the financial
statements of Maxpro Systems Pty Ltd appearing in Form 8-K filed on August 23,
1996 for the year ended June 30, 1995 which is incorporated by reference in this
Registration Statement. We consent to the incorporation by reference in the
Registration Statement of the aforementioned report and to the use or our name
as it appears under caption "Experts."
KPMG
Chartered Accountants
Perth Australia
October 21, 1996
