<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 26, 1996.
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
ULTRAK, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2626358
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
1220 CHAMPION CIRCLE, SUITE 100
CARROLLTON, TEXAS 75006
(214) 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
(214) 280-9675
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
---------------------
Copies to:
<TABLE>
<S> <C>
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
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC. As soon as
practicable after the effective date of this Registration Statement.
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, check the following box: / /
If the registrant elects to deliver its latest annual report to
securityholders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this form, 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. / /
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT OFFERING PRICE AGGREGATE AMOUNT OF
TITLE OF SHARES TO BE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, $0.01 par value 2,530,000 $12.13 $30,688,900 $10,582
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</TABLE>
(1) Includes 330,000 shares subject to an over-allotment option granted to the
Underwriters. See "Underwriting."
(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 National Market on April 22,
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
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING HEADING IN PROSPECTUS
- -------------------------------------------------- -----------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus............................. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus.......................... Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges..... Prospectus Summary; Risk Factors
4. Use of Proceeds.......................... Prospectus Summary; Use of Proceeds;
Capitalization
5. Determination of Offering Price.......... Underwriting
6. Dilution................................. Not Applicable
7. Selling Security Holders................. Principal and Selling Stockholders
8. Plan of Distribution..................... Outside Front Cover Page; Underwriting
9. Description of Securities to be
Registered............................. Dividend Policy; Description of Capital
Stock
10. Interests of Named Experts and Counsel... Legal Matters
11. Information with Respect to the
Registrant............................. Outside Front Cover Page; Prospectus
Summary; Risk Factors; Use of Proceeds;
Dividend Policy; Capitalization;
Selected Consolidated Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management;
Principal and Selling Stockholders;
Description of Capital Stock; Experts;
Consolidated Financial Statements
12. Incorporation of Certain Information by
Reference.............................. Incorporation of Certain Documents by
Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................ Not Applicable
</TABLE>
<PAGE> 3
***************************************************************************
* *
* 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. *
* *
***************************************************************************
PROSPECTUS
SUBJECT TO COMPLETION, DATED APRIL 26, 1996
2,200,000 SHARES
ULTRAK, INC.
COMMON STOCK
Of the 2,200,000 shares of Common Stock, $0.01 par value per share ("Common
Stock"), offered hereby, 2,072,437 shares are being sold by Ultrak, Inc. (the
"Company"), and 127,563 shares are being sold by certain stockholders of the
Company (the "Selling Stockholders"). See "Principal and Selling Stockholders."
The Company will not receive any proceeds from the sale of Common Stock by the
Selling Stockholders.
The Common Stock is traded on the Nasdaq Stock Market's National Market
(the "Nasdaq National Market") under the symbol "ULTK." On April 23, 1996, the
last reported sale price of the Common Stock was $12.50 per share. See "Price
Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 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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PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share....................... $ $ $ $
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Total(3)........................ $ $ $ $
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</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of $260,000 payable by the Company.
(3) The Company has granted the Underwriters a 30-day over-allotment option to
purchase up to 330,000 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.
------------------------------
LOGO LOGO
, 1996.
<PAGE> 4
Inside Front Cover Page
[PICTURE]
A sampling of Ultrak's logos and trademarks
Inside Back Cover Page
[PICTURE]- Operations
A Diamond Electronics, Inc. employee
<PAGE> 5
Gatefold-Inside
Professional Security & Surveillance
- ------------------------------------
Photo, courtesy of Walmart Stores, Inc, depicting Ultrack's CCTU systems in
use.
Consumer Security & Surveillance
- --------------------------------
Photo, courtesy of Staples, Inc, depicting Ultrak's EasyWatch wireless
observation system on staples store shelf.
Industrial Vision
- -----------------
Photo, courtesy of USS/Kobe Steel Company, depicting CCTU systems in an
industrial setting.
Mobile Video
- ------------
Photo depicting school buses.
Traffic Management
- ------------------
Photo depiciting camera in high speed dome with pan-tilt-zoom capabilities
above intersection.
Dental & Medical
- ----------------
Photo depicting dental patient and dentist with Ultrak's UltusCam monitor
<PAGE> 6
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
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."
2
<PAGE> 7
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 and (ii) all information in this Prospectus assumes no exercise of
the Underwriters' over-allotment option.
THE COMPANY
Ultrak is a leading supplier of closed-circuit television ("CCTV") and
related products in the United States. 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
$1.7 million in 1987 to $101.2 million in 1995, 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 had 1995 revenues of $1.4 billion at the end-user level, according
to the SDM 1996 Industry Forecast Study, and is expected to grow by 11% annually
through the year 2000, according to a study performed by Hallcrest Systems.
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. The Company
seeks to achieve this objective by operating through highly focused selling
groups organized by target market; working closely with customers to identify
and develop new products that satisfy customer needs 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; supplementing internal growth through acquisitions; and
aggressively pursuing international opportunities.
The Company's CCTV products include a broad line of cameras, lenses,
high-speed dome systems, monitors, switchers, quad processors, time-lapse
recorders, multiplexers, wireless video transmission systems, computerized
observation and security systems and accessories. The Company's brand names
include Ultrak(R), Exxis(TM), Smart Choice(R), Mobile Video Products(TM),
Diamond Electronics(TM), Industrial Vision Source(TM) 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 64%,
70% and 76% in 1994, 1995 and the first quarter of 1996, respectively. During
1995, the Company purchased approximately 93% of its CCTV products from contract
manufacturers.
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, attract experienced personnel and access
additional channels of distribution. 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 which expanded its product lines -- the CCTV
Division of Koyo International, Inc. of America ("Koyo"), Diamond Electronics,
Inc. ("Diamond") and BLC & Associates, Inc. doing business as G.P.S. Standard
U.S.A. ("GPS"). In March 1995, Ultrak acquired certain assets of the CCTV
division of Koyo, adding the patented ball camera, which is ideal for
3
<PAGE> 8
museum, residential and high-end commercial installations, is attractive 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.
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 (214) 280-9675.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.............. 2,072,437 shares
Common Stock offered by Selling Stockholders..... 127,563 shares(1)
Common Stock to be outstanding after the 9,537,500 shares(2)
offering.......................................
Use of proceeds.................................. To reduce outstanding indebtedness.
See "Use of Proceeds."
Nasdaq National Market symbol.................... ULTK
</TABLE>
- ---------------
(1) All of which are issuable upon exercise of warrants to be exercised at the
time of closing of the offering.
(2) Excludes 765,335 shares of Common Stock issuable upon exercise of currently
outstanding warrants and stock options, including 551,781 shares subject to
warrants and options currently exercisable; and 406,981 shares of Common
Stock issuable upon conversion of outstanding shares of Series A Preferred
Stock.
4
<PAGE> 9
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 five fiscal years ended December 31,
1995, and the three month periods ended March 31, 1995 and 1996. The results of
operations for interim periods are not necessarily indicative of future results.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- ------------------
1991 1992 1993 1994(1) 1995(1) 1995(1) 1996(1)
-------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales...................................... $ 18,004 $28,864 $52,412 $79,063 $101,232 $21,829 $29,674
Cost of sales.................................. 13,390 21,496 39,554 59,350 76,319 16,507 21,245
------- ------- ------- ------- -------- ------- -------
Gross profit................................... 4,614 7,368 12,858 19,713 24,913 5,322 8,429
Marketing and sales expenses................... 1,592 4,579 7,025 11,201 13,255 2,703 4,172
General and administrative expenses............ 2,327 1,510 2,178 3,133 5,542 1,010 1,710
------- ------- ------- ------- -------- ------- -------
Total operating expenses............... 3,919 6,089 9,203 14,334 18,797 3,713 5,882
------- ------- ------- ------- -------- ------- -------
Operating profit............................... 695 1,279 3,655 5,379 6,116 1,609 2,547
Other expense.................................. 224 709 635 1,076 1,881 378 590
------- ------- ------- ------- -------- ------- -------
Income from continuing operations before income
taxes........................................ 471 570 3,020 4,303 4,235 1,231 1,957
Income taxes................................... -- 26 382 1,514 1,540 449 687
------- ------- ------- ------- -------- ------- -------
Income from continuing operations.............. 471 544 2,638 2,789 2,695 782 1,270
Income (loss) from discontinued operations..... -- 294 (1,834) (190) -- -- --
------- ------- ------- ------- -------- ------- -------
Net income............................. 471 838 804 2,599 2,695 782 1,270
Dividend requirements on preferred stock....... 117 117 117 117 117 29 29
------- ------- ------- ------- -------- ------- -------
Net income allocable to common stockholders.... $ 354 $ 721 $ 687 $ 2,482 $ 2,578 $ 753 $ 1,241
======= ======= ======= ======= ======== ======= =======
Weighted average shares outstanding............ 5,864 6,846 6,790 6,819 7,148 6,821 7,636
Income per common share from continuing
operations................................... $ 0.06 $ 0.06 $ 0.37 $ 0.39 $ 0.36 $ 0.11 $ 0.16
Net income per common share.................... $ 0.06 $ 0.11 $ 0.10 $ 0.36 $ 0.36 $ 0.11 $ 0.16
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------
ACTUAL AS ADJUSTED(2)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................................................... $11,218 $ 36,130
Total assets............................................................................. 57,280 57,280
Short-term debt.......................................................................... 26,316 1,404
Long-term debt........................................................................... 1,491 1,491
Stockholders' equity(3).................................................................. 17,491 42,403
</TABLE>
- ---------------
(1) Includes the effects of businesses acquired in 1994 and 1995, as more fully
discussed in Note B to the consolidated financial statements.
(2) Adjusted to reflect (i) the sale of 2,072,437 shares of Common Stock
offered by the Company hereby at an assumed offering price of $12.50 per
share, (ii) the exercise of warrants to purchase 127,563 shares of Common
Stock offered by the Selling Stockholders and (iii) the anticipated
application of the net proceeds therefrom. See "Use of Proceeds."
(3) Issued and outstanding shares of Series A Preferred Stock have a
liquidation preference of $976,755 plus accrued and unpaid dividends.
5
<PAGE> 10
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 the vast majority of the products it markets and sells
from a limited number of non-affiliated contract manufacturers and will continue
to depend substantially upon such manufacturers in the future. In 1995, the
Company purchased products accounting for more than 90% of its sales from third
parties, including 38% from one Korean supplier. 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, 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."
IMPORTATION OF PRODUCTS
The importation of products into the United States and into other
jurisdictions in which the Company's products are sold is subject to numerous
risks, including labor strikes, shipping delays, fluctuations in currency
exchange rates, political or economic instability, military action and import
duties. There is no assurance that the United States, Korea, Japan, Hong Kong or
other governments 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 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. Ultrak imported approximately $34 million, or 45%, of its
purchases in 1995 and $10 million, or 48% in the quarter ended March 31, 1996.
Approximately 95% of the Company's purchases from its non-affiliated
manufacturers are made in United States dollars with the remaining 5% purchased
in Japanese yen. See "Business -- Operations."
DEPENDENCE UPON MAJOR CUSTOMER
Ultrak is dependent upon certain major customers. During 1995, sales to one
customer, Sam's Wholesale Club, a division of Wal-Mart Stores, Inc., accounted
for 14% of the Company's sales. During 1993 and 1994, sales to this customer
accounted for 12% and 17% of the Company's sales, respectively. An unexpected
decline or loss of sales to this customer could have a material adverse effect
on the Company. See "Business -- Significant Customer."
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."
6
<PAGE> 11
ABILITY TO ACHIEVE AND MANAGE GROWTH; ACQUISITION RISKS
The Company has experienced significant growth, principally through
internal growth and acquisitions. The Company's ability to continue its 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. Additionally, there can be no assurance that the
Company will be able to identify suitable acquisition candidates, complete
acquisitions or integrate acquired businesses into its operations successfully.
Once integrated, acquisitions may not perform as expected. The Company is unable
to predict whether or when any prospective acquisition candidate will become
available or the likelihood that any acquisition will be completed. See
"Business -- Strategy" and "Business -- Acquisitions."
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 28% of the
Common Stock and 100% of the Series A 12% Cumulative Convertible Preferred
Stock, $5.00 par value (the "Series A Preferred Stock"), of the Company. Each
share of the Series A Preferred Stock has voting rights equal to 16.667 shares
of the Common Stock. Prior to the offering, Mr. Broady controlled over 46% of
the votes on all matters which were submitted to a vote of stockholders of the
Company, and Mr. Broady will continue to control at least 38% of such votes
immediately after the offering. Although shares controlling a majority of the
votes of the stockholders of the Company are necessary to take corporate action,
following the 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 Stockholders" 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. New patent applications are continually
being filed and pending U.S. applications are confidential until patents are
issued, and thus it is impossible to ascertain all possible patent infringement
problems. 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, or that the patents of
others will not impair the ability of the Company to do business. Furthermore,
there can be no assurance 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.
7
<PAGE> 12
PRODUCT LIABILITY
The Company is currently subject to one product liability claim, which
management believes should be covered by the Company's product liability
insurer. 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.
MARKET CONDITIONS; POSSIBLE VOLATILITY OF STOCK PRICE
The historically low trading volume of the Common Stock makes it
susceptible to substantial market price swings should volume of any size and
frequency occur after the offering. 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. See "Price Range of
Common Stock."
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."
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 might have a material adverse effect upon the
Company's business and operations. In addition, the Company's success will be
dependent upon its ability to recruit and retain qualified personnel, including
engineering personnel. Other than Messrs. Pritchett and Torno, the Company's
employees are generally not subject to written employment agreements.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after
this offering could adversely affect prevailing market prices for shares of
Common Stock. Of the 9.5 million shares that will be outstanding after this
offering, approximately 6.8 million shares, including all of the shares offered
hereby, generally will be eligible for immediate sale in the public market. The
Company's officers and directors and certain of the Company's principal
stockholders owning an aggregate of 2.3 million shares of Common Stock have
agreed not to, directly or indirectly, offer, sell, distribute or otherwise
dispose of any shares of Common Stock for a period of 120 days after the date of
this Prospectus without the prior written consent of the Underwriters.
8
<PAGE> 13
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 Selling Stockholders are
estimated to be $24.9 million after deducting estimated underwriting discounts
and estimated offering expenses to be paid by the Company ($28.8 million if the
Underwriters' over-allotment option is fully exercised), assuming an offering
price of $12.50 per share. The Company will not receive any proceeds from the
sale of Common Stock by the Selling Stockholders.
The Company will use approximately $6.4 million of the net proceeds of the
offering to repay in full its indebtedness under that certain Loan Agreement,
dated July 20, 1992, among Petrus Fund, L.P., the Company and its subsidiaries,
as amended (the "Petrus Loan Agreement"). Mr. Broady's guarantee with respect to
the Petrus Loan Agreement will be released upon repayment of the indebtedness
thereunder. Amounts outstanding under the Petrus Loan Agreement bear interest at
the greater of 8.5% or the Prime Rate plus 2.0% and mature on September 30,
1996. The effective rate of interest under the Petrus Loan Agreement was 10.25%
as of April 22, 1996. The Company will use the remaining net proceeds of the
offering to reduce its short-term indebtedness under that certain Financing and
Security Agreement, dated September 24, 1993, among NationsBank of Texas, N.A.,
the Company and its subsidiaries, as amended (the "NationsBank Financing
Agreement"). Amounts outstanding under the NationsBank Financing Agreement bear
interest, at the Company's option, at (i) the Prime Rate plus a 0.25% or (ii) an
adjusted LIBOR Rate plus 2.5% and mature on July 31, 1997. The effective rate of
interest under the NationsBank Financing Agreement was 7.88% as of April 22,
1996. As of April 22, 1996, the Company's outstanding indebtedness under the
Petrus Loan Agreement was $6.4 million and the outstanding short-term
indebtedness under the NationsBank Financing Agreement was $17.4 million.
PRICE RANGE OF COMMON STOCK
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 (through April 23, 1996)........................... 12.50 9.25
</TABLE>
On April 23, 1996, the last reported sale price for the Common Stock on the
Nasdaq National Market was $12.50. As of April 23, 1996, there were
approximately 1,600 holders of record of the Common Stock.
9
<PAGE> 14
DIVIDEND POLICY
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 NationsBank
Financing Agreement prohibits the payment of cash dividends on the Common Stock.
The Company does intend to continue to pay dividends on its outstanding shares
of the Series A Preferred Stock, all of which are owned by George K. Broady, the
Chairman, Chief Executive Officer and President of the Company. Series A
Preferred Stock dividends in the amount of $117,210 have been paid annually to
Mr. Broady since the issuance of such preferred stock.
10
<PAGE> 15
CAPITALIZATION
The following table sets forth the Company's capitalization at March 31,
1996, (i) on a historical basis and (ii) as adjusted to give effect to the sale
by the Company of 2,072,437 shares of Common Stock offered hereby at an assumed
public offering price of $12.50 per share, the exercise of warrants to purchase
127,563 shares of Common Stock offered by the Selling Stockholders and the
application of the net proceeds therefrom as described in "Use of Proceeds." The
data set forth below should be read in conjunction with the other financial
information presented elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt, including current portion of long-term debt........... $26,316 $ 1,404
======= =======
Long-term debt, net of current portion................................. 1,491 1,491
Stockholders' equity(1):
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,
7,327,500 shares issued and outstanding; 9,527,500 shares issued
and outstanding as
adjusted.......................................................... 73 95
Additional paid-in capital........................................... 11,519 36,409
Less: Treasury Stock, 35,000 shares at March 31, 1996................ (246) (246)
Retained earnings.................................................... 5,168 5,168
------- -------
Total stockholders' equity............................................. 17,491 42,403
------- -------
Total capitalization................................................... $18,982 $43,894
======= =======
</TABLE>
- ---------------
(1) Excludes 902,898 shares of Common Stock issuable upon exercise of
outstanding warrants and stock options, including 688,344 shares subject to
exercisable warrants and options.
11
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following 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 public accountants. The selected consolidated
financial data as of and for the three months ended March 31, 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. 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 thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- ------------------
1991 1992 1993 1994(1) 1995(1) 1995(1) 1996(1)
------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales....................................... $18,004 $28,864 $52,412 $79,063 $101,232 $21,829 $29,674
Cost of sales................................... 13,390 21,496 39,554 59,350 76,319 16,507 21,245
------- ------- ------- ------- -------- ------- -------
Gross profit.................................... 4,614 7,368 12,858 19,713 24,913 5,322 8,429
Marketing and sales expenses.................... 1,592 4,579 7,025 11,201 13,255 2,703 4,172
General and administrative expenses............. 2,327 1,510 2,178 3,133 5,542 1,010 1,710
------- ------- ------- ------- -------- ------- -------
Total operating expenses................ 3,919 6,089 9,203 14,334 18,797 3,713 5,882
------- ------- ------- ------- -------- ------- -------
Operating profit................................ 695 1,279 3,655 5,379 6,116 1,609 2,547
Other expense................................... 224 709 635 1,076 1,881 378 590
------- ------- ------- ------- -------- ------- -------
Income from continuing operations before income
taxes......................................... 471 570 3,020 4,303 4,235 1,231 1,957
Income taxes................................ -- 26 382 1,514 1,540 449 687
------- ------- ------- ------- -------- ------- -------
Income from continuing operations............... 471 544 2,638 2,789 2,695 782 1,270
Income (loss) from discontinued operations...... -- 294 (1,834) (190) -- -- --
------- ------- ------- ------- -------- ------- -------
Net income.............................. 471 838 804 2,599 2,695 782 1,270
Dividend requirements on preferred stock........ 117 117 117 117 117 29 29
------- ------- ------- ------- -------- ------- -------
Net income allocable to common stockholders..... $ 354 $ 721 $ 687 $ 2,482 $ 2,578 $ 753 $ 1,241
======= ======= ======= ======= ======== ======= =======
Weighted average shares outstanding............. 5,864 6,846 6,790 6,819 7,148 6,821 7,636
Income per common share from continuing
operations.................................... $ 0.06 $ 0.06 $ 0.37 $ 0.39 $ 0.36 $ 0.11 $ 0.16
Net income per common share..................... $ 0.06 $ 0.11 $ 0.10 $ 0.36 $ 0.36 $ 0.11 $ 0.16
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
-------------------------------------------------- ------------------
1991 1992 1993 1994(1) 1995(1) 1995(1) 1996(1)
------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................... $2,949 $ 5,585 $ 4,966 $ 5,676 $ 9,880 $ 6,237 $11,218
Total assets...................................... 8,054 16,199 25,385 36,353 52,955 36,112 57,280
Short-term debt................................... 2,219 7,135 12,875 18,244 24,482 17,882 26,316
Long-term debt.................................... 285 285 -- -- 1,535 -- 1,491
Stockholders' equity(2)........................... 4,177 6,818 7,541 10,070 16,497 10,823 17,491
</TABLE>
- ---------------
(1) Includes the effects of businesses acquired in 1994 and 1995, as more fully
discussed in Note B to the consolidated financial statements.
(2) Issued and outstanding shares of Series A Preferred Stock have a liquidation
preference of $976,755 plus accrued and unpaid dividends.
12
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The consolidated financial statements include the accounts of Ultrak and
its six wholly owned 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 $1.7 million in 1987 to $101.2
million in 1995, a compound annual growth rate of 67%. 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 has been accounted for as a purchase and the operations have
been included in the Company's statement of income since July 1, 1995. Diamond's
sales for the six months ended December 31, 1995 were approximately $7.0
million.
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. During 1995, approximately 5% of the
Company's sales were to foreign markets and a majority of such sales were made
on a letter of credit basis. Sales to one customer accounted for approximately
14% and 7% of total sales during 1995 and the quarter ended March 31, 1996,
respectively.
Cost of sales for most of the Company's products includes only 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. Given existing product
pricing and product costs, the Company believes that its gross profit margin
should increase during 1996 as compared to 1995 if, as expected, a higher
percentage of its sales are manufactured by Diamond, sales of other Ultrak
branded products increase, cost reductions on certain Ultrak branded products
are realized and new higher margin products are introduced.
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 are
primarily salaries, commissions and related benefits, depreciation, telephone,
advertising, warranty, printing, product literature, sales promotion costs and
travel related costs.
General and administrative expenses are 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 are primarily salaries and related benefits of executive,
administrative, 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 grouped with
general and administrative expenses and include 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
13
<PAGE> 18
engineering, research and product development increased significantly during
1995 and it is expected to increase on an absolute basis in 1996.
During 1995 and the quarter ended March 31, 1996, the Company incurred
legal costs associated with a patent infringement lawsuit and to pursue
enforcement of rights it obtained from a patent acquired during 1995. See
"Business -- Legal Proceedings".
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with the Consolidated
Financial Statements and notes thereto included elsewhere in this Prospectus.
RESULTS OF OPERATIONS
The following table sets forth the percentage of sales represented by
certain items in the Company's consolidated summary of income for the indicated
periods.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------ ---------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net sales............................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales......................................... 75.5 75.1 75.4 75.6 71.6
----- ----- ----- ----- -----
Gross profit.......................................... 24.5 24.9 24.6 24.4 28.4
Marketing and sales expenses.......................... 13.4 14.2 13.1 12.4 14.1
General and administrative expenses................... 4.2 3.9 5.5 4.6 5.7
----- ----- ----- ----- -----
Total operating expenses.................... 17.6 18.1 18.6 17.0 19.8
----- ----- ----- ----- -----
Operating profit...................................... 6.9 6.8 6.0 7.4 8.6
Other expense......................................... 1.2 1.4 1.8 1.7 2.0
----- ----- ----- ----- -----
Income from continuing operations before income
taxes............................................... 5.7 5.4 4.2 5.7 6.6
Income taxes.......................................... 0.7 1.9 1.5 2.1 2.3
----- ----- ----- ----- -----
Income from continuing operations..................... 5.0 3.5 2.7 3.6 4.3
Loss from discontinued operations..................... (3.5) (0.2) -- -- --
----- ----- ----- ----- -----
Net income............................................ 1.5% 3.3% 2.7% 3.6% 4.3%
===== ===== ===== ===== =====
</TABLE>
Quarter Ended March 31, 1996, Compared to Quarter Ended March 31, 1995
For the quarter ended March 31, 1996, net sales were $29.7 million, an
increase of $7.8 million (36%) over the same period in 1995. This increase was
due to the effect of the acquisition of Diamond (50%), increased volume of sales
of existing CCTV products to most of the markets served by the Company (35%) and
sales of new products introduced during 1996 (15%).
Cost of sales was $21.2 million for the quarter ended March 31, 1996, an
increase of $4.7 million (29%) over the same period in 1995. Gross profit
margins on net sales increased to 28.4% in 1996 from 24.4% in 1995. This
increase was due to increased relative sales levels of Ultrak branded products
by most of the selling divisions, cost reductions realized in 1996 on certain
Ultrak branded products, the effect of the acquisition of Diamond (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 $4.2 million for the quarter ended March
31, 1996, an increase of $1.5 million (54%) over the same period in 1995.
Marketing and sales expenses for the quarter ended March 31, 1996 were 14.1% of
net sales, up from 12.4% for the same period in 1995. The increase was due to
the effect of acquisitions during 1995 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 and increased sales activity Company-wide.
14
<PAGE> 19
General and administrative expenses were $1.7 million for the quarter ended
March 31, 1996, an increase of $700,000 (69%) over the same period in 1995.
General and administrative costs for the quarter ended March 31, 1996 were 5.7%
of net sales, up from 4.6% of net sales for the same period in 1995. This
increase was a result of the acquisitions in 1995, increased engineering,
research and product development costs incurred and the hiring of additional
purchasing, operations and other administrative staff to support the anticipated
growth in sales.
Other expenses were $590,000 for the quarter ended March 31, 1996, an
increase of $212,000 (56%) over the same period in 1995. This increase was due
primarily to increased interest rates on higher levels of bank and other lender
borrowings.
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 (31%), increased volume of sales of existing
CCTV products to all of the markets that the Company serves (32%) and sales of
new products introduced during 1995 (37%).
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 margins on net sales decreased slightly to 24.6%
in 1995 from 24.9% in 1994. This overall 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.
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 (70%) to increased volume of sales of existing CCTV products to all of
the markets that the Company serves. New products introduced by the Company
during 1994 contributed approximately 30% of the increase in sales.
Cost of sales was $59.3 million for 1994, an increase of $19.8 million
(50%) over 1993. This increase was comparable to the overall increase in sales.
Gross margins on sales 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, due to additional administrative staff and
related costs necessary to support the increase in sales.
15
<PAGE> 20
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 computers 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 decrease in cash for the quarter ended March 31, 1996
of approximately $131,000. Cash used in operating activities in the first
quarter of 1996 was approximately $1.5 million, primarily consisting of
increases in accounts and notes receivable, inventory and advances for inventory
purchases required by the higher sales activity, offset partially by increases
in trade accounts payable. Cash used in investing activities consisted of
approximately $161,000 in purchases of property and equipment. Cash provided by
financing activities was approximately $1.5 million consisting of borrowings on
the Company's bank and other lender revolving lines of credit, offset by the
purchase of approximately $246,000 in treasury stock and the payment of
preferred stock dividends.
The Company had a net increase in cash for the year ended December 31, 1995
of approximately $664,000. Cash used in operating activities during 1995 was
approximately $3.0 million. Operations did not provide cash primarily because of
increases in accounts and notes receivable and inventory required by the
significantly higher sales volume. Cash used in investing activities was
approximately $2.1 million for capital expenditures and business acquisitions.
Cash provided by financing activities was approximately $5.8 million, consisting
of net borrowings from the Company's bank and other lenders.
The Company had a net increase in cash for the year ended December 31, 1994
of approximately $142,000. Cash used in operating activities during 1994 was
approximately $3.5 million, primarily consisting of increases in accounts
receivable, inventory and advances for inventory required by the significantly
higher sales volume. Cash used in investing activities was approximately $1.9
million for property and equipment and acquisitions of businesses. Cash provided
by financing activities was approximately $5.6 million, consisting of net
borrowings from the Company's bank and other lenders.
As of March 31, 1996, the Company had unused available revolving lines of
credit totaling approximately $865,000. The Company was in compliance with its
loan covenants as of March 31, 1996.
The Company believes that internally generated funds, available borrowings
under the credit facilities, 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. The NationsBank Financing Agreement
requires that the Company obtain the lender's written consent prior to
consummating an acquisition.
16
<PAGE> 21
QUARTERLY RESULTS
The following table sets forth certain quarterly income statement data for
each of the Company's last two fiscal years and the quarter ended March 31,
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 was 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 1996
------------------------------------- ------------------------------------- -------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <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 $29,674
Gross profit.......................... 4,164 4,928 5,279 5,341 5,322 5,323 6,809 7,459 8,429
Operating profit...................... 1,123 1,467 1,593 1,196 1,609 1,166 1,607 1,734 2,547
Net income............................ 628 826 809 337 782 486 683 744 1,270
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income per share.................. $ 0.09 $ 0.12 $ 0.11 $ 0.04 $ 0.11 $ 0.07 $ 0.09 $ 0.10 $ 0.16
======= ======= ======= ======= ======= ======= ======= ======= =======
Gross profit.......................... 23.4% 25.9% 24.5% 25.8% 24.4% 23.9% 24.0% 26.0% 28.4%
Operating profit...................... 6.3 7.7 7.4 5.8 7.4 5.2 5.7 6.0 8.6
Net income............................ 3.5 4.3 3.8 1.6 3.6 2.2 2.4 2.6 4.3
</TABLE>
17
<PAGE> 22
BUSINESS
GENERAL
Ultrak is a leading supplier of CCTV and related products in the United
States. 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. By operating through
highly focused selling groups organized by target market, working closely with
customers to identify and develop products that satisfy customer needs faster
than its competitors and following certain other strategies, the Company has
generated rapid growth, with sales increasing from $1.7 million in 1987 to
$101.2 million in 1995. 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.
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, system 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 1995 national retail security survey performed
by the University of Florida indicated that the average retail inventory
shrinkage rate was 1.83% of total retail sales. Likewise, business and insurer
costs for employee and customer personal injury liability claims have increased
significantly. Moreover, the FBI's 1993 Uniform Crime Report stated that there
were approximately 2.8 million burglaries in the United States in 1993. 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 other 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. 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 and dealers which
specialize in the sale and installation of CCTV equipment. Professionally
installed CCTV systems are used in retail stores, banks, warehouses, office
buildings, industrial sites, government facilities and, increasingly, in
private homes.
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The United States CCTV industry for security and surveillance had 1995
revenues of $1.4 billion at the end-user level, according to the SDM
Magazine 1996 Industry Forecast Study, most of which was generated through
professional channels. This market is expected to grow by 11% annually from
1991 through the year 2000, according to a study performed by Hallcrest
Systems, a market research firm. 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.
CONSUMER. 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; these
systems 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 system 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, cameras
for manufacturing applications generated approximately $230 million in revenue
in 1992, and the market 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. According to the American Public
Transit Association, there were approximately 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.
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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, the
dispatch of police and emergency vehicles can be accelerated. 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 Dental Products Report. According to a
survey conducted by Dental Products Report in 1995, 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 estimated in 1992 that the market for
cameras in medical applications would grow from $222 million in 1992 to $529
million in 1999, a compound annual growth rate of 13%.
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. Whenever an individual enters a pass
code or swipes a card through an entry device mounted near the door, a
CCTV camera turns on 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.
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International
The Company believes that the international potential for CCTV and related
products is at least equal to the U.S. market. Acceptance and penetration levels
of CCTV products vary somewhat depending on the market and application. In Japan
and Western Europe, the CCTV market consists primarily of installations of
high-end systems, with lower penetration of simpler consumer and small business
applications offering growth potential. In other international markets, the CCTV
market is largely underdeveloped, providing growth opportunities in a wide range
of applications.
STRATEGY
Ultrak's objective is to become the world leader in the design,
manufacture, marketing and service of CCTV and related products. 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 more quickly respond to customer
needs, quickly identify and pursue market opportunities, achieve better market
penetration and increase market share. As the Company develops new markets for
its existing and new products, new selling groups are created 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
produce 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 its
core engineering, marketing and sales strengths. 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."
Growth through acquisitions. The Company anticipates that it will
complement its internal growth, both in number of products and in markets,
through acquisitions. The Company has found that acquisitions are an effective
means of obtaining technical personnel and obtaining or expanding technologies,
products and markets. In 1995, the Company completed three acquisitions, adding
products to broaden its product offerings. 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 believes that, based on the results
of these initial efforts, the international potential for its products is
substantial. See "-- Marketing and Sales."
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.
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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 professional security and surveillance customer market consists of
three tiers: wholesale distributors of CCTV equipment, dealers who install the
systems and certain end users. Ultrak maintains three distinct selling groups
that target each of these market channels. These selling groups focus on their
respective channels and are free to cater to the specific requirements of their
customer base. The Company minimizes conflicts between these different market
tiers by maintaining strict pricing rules and marketing guidelines for each
selling group and open communication with customers. 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 period from 1991 through the year
2000.
The Company continually attempts to develop services and marketing tools to
enhance the efforts of each of its selling groups. 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 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.
The Company uses different brand names for products sold through each of
its selling groups to maximize market penetration of each selling group,
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 and
UltraCam. Seventy-six percent of the products sold by the Company in the first
quarter of 1996 carried Ultrak brand names. The Company also sells brands such
as Panasonic, Mitsubishi, Dedicated Micros and Sony.
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 has 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 levels.
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
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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 system 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
(multi-operatory intraoral camera systems).
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,
Korea, Japan, The Philippines and Australia. While its international marketing
efforts are still in an early stage, 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. The Company anticipates that, during 1996
and 1997, the scope of the international selling group will be expanded.
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 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.
The Company believes that one of the major accomplishments of the
engineering and development group has been the recent design and initial test 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. The Company
intends to target large retailers and other end users who require extensive
surveillance systems for DAVE products. The Company expects to introduce
products utilizing the DAVE technology in the second half of 1996.
As of March 31, 1996, the Company had a full-time engineering staff of 24
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 in excess of 50 engineers who are primarily dedicated to
research and development efforts of products sold by Ultrak.
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PRODUCTS
The Company's motto, "Quality Products That Make a Difference," summarizes
the Company's strategy of developing reliable 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 its
1995 acquisitions of Diamond, the CCTV Division of Koyo and GPS, Ultrak offers a
well-rounded line of Ultrak branded CCTV products. The Company's brand names
include Ultrak, Exxis, Smart Choice, Mobile Video Products, Diamond Electronics,
Industrial Vision Source 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 64%, 70% and 76% in 1994, 1995 and the
first quarter of 1996, respectively.
The Company's CCTV products include a broad line of cameras, lenses,
high-speed dome systems, monitors, switchers, quad processors, time-lapse
recorders, multiplexers, wireless video transmission systems, computerized
observation and security systems and accessories.
Ultrak's product categories can generally be divided into components and
systems, and include the following:
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 tamper, 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. 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
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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.
Systems
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 transmit 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.
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.
DAVE system. In the Company's view, its DAVE technology represents a
significant innovation in CCTV design. Products based on the DAVE technology
will allow many cameras to be connected to a single coaxial cable, thereby
significantly reducing the installation cost of large CCTV systems. DAVE
products will also offer a significant reduction in the cost of the control and
display equipment for large systems as compared to standard multiplexer
technology. Ultrak expects to beta-site test the first DAVE products in May 1996
with product deliveries expected to begin in the second half of 1996.
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.
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Other
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.
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. Ultrak began test marketing a new
EAS system in late 1995. The Company believes that the system 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.
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, attract experienced personnel and access
additional channels of distribution. 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 which expanded its product lines. 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, is attractive 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.
OPERATIONS
Through the use of non-affiliated contract manufacturers to manufacture
products representing over 90% of its net sales of Ultrak 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 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 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 used. 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."
Approximately 95% of the Company's purchases from its non-affiliated
manufacturers are made in United States dollars with the remaining 5% purchased
in Japanese yen. To date, the Company has not been materially adversely affected
by fluctuations in the valuation of the Japanese yen. It is expected that the
Company will continue to purchase the vast majority of its products in United
States dollars.
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A critical element of the Company's 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 sales locations are linked real time through
a nationwide network which allows for orders to be entered and shipped from
multiple locations.
Ultrak believes that one of the keys to its success is its commitment to
provide excellent response and service to its customers. Orders can be entered
into the Company's 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 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 stocking warehouse locations are Carrollton (Dallas), Texas;
Broomfield (Denver), Colorado; Annapolis, Maryland; southern California; Carroll
(Columbus), Ohio; and Chicago, Illinois. Currently, approximately 85% of all
shipments are made from the Carrollton, Texas warehouse.
To ensure complete customer service and satisfaction, Ultrak offers leasing
services through its Financial Services group, and after-sale service through
its Closed-Circuit Service group 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. 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 main 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 March 31, 1996, the Company had
approximately $4.0 million, $6.7 million and $6.4 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 typically ships 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. 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 know-how of its personnel and
other factors. The Company also relies upon trade secret protection for its
confidential and proprietary information.
27
<PAGE> 32
MANUFACTURING
During 1995, approximately 7% of the Company's revenues were attributable
to CCTV products manufactured at the Company's Carroll (Columbus), Ohio
manufacturing facility. The Company believes that this facility meets 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.
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 March 31, 1996, the Company had 309 full-time employees employed at
six primary locations and five field sales offices, of which 118 were sales and
sales support personnel, 81 were warehouse/manufacturing personnel, 31 were
technical/service personnel, 24 were engineering and product development
personnel and 55 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 located in approximately 69,000 square feet
of leased office and warehouse space in Carrollton, Texas, pursuant to a lease
expiring in May 1999. The Company plans to expand the office and warehouse space
at its headquarters and has entered into an option to purchase land and is
currently negotiating the construction of a new office and warehouse facility it
will lease or buy. If the Company decides to purchase the facility, it would
likely finance such purchase on a long-term basis. The Company also leases
additional office/warehouse space in Broomfield, Colorado; Annapolis, Maryland;
Fort Lauderdale, Florida; Atlanta, Georgia; Chicago, Illinois and southern
California.
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<PAGE> 33
The Company owns its 72,000 square foot manufacturing facility in Carroll
(Columbus), Ohio. The Company believes that its Ohio manufacturing facility is
adequate to meet the Company's present and anticipated manufacturing needs for
products which it currently manufactures.
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 in the initial
stages. 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 in 1994 were nominal and in 1995
were approximately $240,000. 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.
29
<PAGE> 34
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..................... 57 Chairman of the Board, Chief Executive
Officer and President
James D. Pritchett................... 49 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).................... 56 Director
Charles C. Neal(1)................... 37 Director
Robert F. Sexton(1).................. 61 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.
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 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.
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. in New York, New York, performing investment banking,
general corporate finance and mergers and acquisitions services for a variety of
clients. Mr. Neal is also a director of several privately held companies. 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.
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.
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<PAGE> 35
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.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information concerning the
beneficial ownership of the Common Stock, as of March 31, 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) each 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 SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO THE OFFERING SHARES AFTER THE OFFERING
NAME OF ---------------------- BEING ----------------------
BENEFICIAL OWNER(1) NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------------------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
George K. Broady(2).................. 2,190,435 27.8% -- 2,190,435 21.7%
James D. Pritchett(3)................ 161,995 2.2% -- 161,995 1.7%
Tim D. Torno(4)...................... 54,349 * -- 54,349 *
William C. Lee....................... 29,667 * -- 29,667 *
Charles C. Neal(5)................... 156,909 2.1% -- 156,909 1.6%
Petrus Fund, L.P.(6)................. 239,594 3.2% 100,000 139,594 1.4%
Sherry R. Pate(7).................... 7,540 * 7,540 -- --
RBC, Inc.(8)......................... 20,023 * 20,023 -- --
Robert F. Sexton(9).................. 103,066 1.4% -- 103,066 1.1%
All executive officers and directors
as a group (six persons)(2)(10).... 2,696,421 33.4% -- 2,696,421 26.3%
</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 46% of the voting power of all
outstanding shares of capital stock. Mr. Broady's address is 1220 Champion
Circle, Suite 100, Carrollton, Texas 75006.
(3) Includes 124,166 shares issuable upon exercise of stock options currently
exercisable or exercisable within 60 days held by Mr. Pritchett.
(4) Includes 53,750 shares issuable upon exercise of stock options currently
exercisable or exercisable within 60 days held by Mr. Torno.
(5) 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.
(6) Includes 192,460 shares of Common Stock issuable upon exercise of a warrant
issued to Petrus Fund, L.P. pursuant to the Petrus Loan Agreement.
(7) Comprised of 7,540 shares of Common Stock issuable upon exercise of a
warrant.
(8) Comprised of 20,023 shares of Common Stock issuable upon exercise of a
warrant.
31
<PAGE> 36
(9) Includes 5,556 shares owned by Mr. Sexton's wife.
(10) Includes options to purchase an aggregate of 177,916 shares held by Messrs.
Pritchett and Torno.
DESCRIPTION OF CAPITAL STOCK
The Company has authorized capital stock consisting of 20,000,000 shares of
the 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 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" and "Risk Factors -- Preferred Stock."
32
<PAGE> 37
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 Securities Corp. as representatives of the several Underwriters
(the "Representatives"), have agreed, severally, to purchase from the Company
and the Selling Stockholders, 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 Securities Corp. ....................................................
---------
Total........................................................... 2,200,000
=========
</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 Stockholders 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 330,000 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 2,200,000 shares are being offered.
The Company, the directors and executive officers of the Company, the
Selling Stockholders 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 120 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
Stockholders 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.
33
<PAGE> 38
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.
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, Chicago, Illinois 60601; and New York Regional
Office, 75 Park Place, Fourteenth Floor, New York, New York 10007. 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. 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., 1935 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.
34
<PAGE> 39
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated by reference in this Prospectus: Annual Report on Form 10-K for the
year ended December 31, 1995 and Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996.
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 validity 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 for
and as of the fiscal years ended December 31, 1993, 1994 and 1995 included in
this Prospectus and the Registration Statement have been audited by Grant
Thornton LLP, independent certified public accountants, as stated in their
reports thereon appearing elsewhere herein and in the Registration Statement,
and are so included in reliance on such reports given upon the authority of that
firm as experts in auditing and accounting.
The consolidated financial statements of Diamond and subsidiary for and as
of the fiscal years ended January 2, 1994 and January 1, 1995 included in this
Prospectus and the Registration Statement have been audited by Norman, Jones,
Enlow & Co., independent certified public accountants, as stated in their
reports thereon appearing elsewhere herein and in the Registration Statement,
and are so included in reliance on such reports given upon the authority of that
firm as experts in auditing and accounting.
35
<PAGE> 40
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS OF ULTRAK, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants.................................... F-2
Consolidated Balance Sheets, December 31, 1994 and 1995 and March 31, 1996
(unaudited)......................................................................... F-3
Consolidated Statements of Income, Years Ended December 31, 1993, 1994 and 1995 and
the three months ended March 31, 1995 and 1996 (unaudited).......................... F-4
Consolidated Statement of Stockholders' Equity, Years Ended December 31, 1993, 1994
and 1995 and the three months ended March 31, 1996 (unaudited)...................... F-5
Consolidated Statements of Cash Flows, Years Ended December 31, 1993, 1994 and 1995
and the three months ended March 31, 1995 and 1996 (unaudited)...................... F-6
Notes to Consolidated Financial Statements............................................ F-7
FINANCIAL STATEMENTS OF DIAMOND ELECTRONICS AND SUBSIDIARY
Independent Auditors' Report.......................................................... F-15
Consolidated Balance Sheets, January 2, 1994 and January 1, 1995...................... F-16
Consolidated Statements of Income, Years ended January 2, 1994 and January 1, 1995 and
the three months ended March 31, 1994 and 1995 (unaudited).......................... F-17
Consolidated Statements of Changes in Stockholders' Equity, Years ended January 2,
1994 and January 1, 1995............................................................ F-18
Consolidated Statements of Cash Flows, Years ended January 2, 1994 and January 1, 1995
and the three months ended March 31, 1994 and 1995 (unaudited)...................... F-19
Notes to Consolidated Financial Statements............................................ F-20
</TABLE>
F-1
<PAGE> 41
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
We have audited the accompanying consolidated balance sheets of Ultrak,
Inc. and Subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Ultrak, Inc.
and Subsidiaries as of December 31, 1995 and 1994, and the consolidated results
of their operations and their consolidated cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
GRANT THORNTON LLP
Dallas, Texas
February 19, 1996
F-2
<PAGE> 42
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS
Cash................................................ $ 642,241 $ 1,306,482 $ 1,175,931
Trade accounts receivable, less allowance for
doubtful accounts of $323,772, $481,104 and
$645,815 at December 31, 1994 and 1995, and March
31, 1996, respectively........................... 10,743,091 15,619,459 16,836,399
Notes receivable.................................... 253,771 288,968 620,097
Inventories......................................... 14,396,438 21,293,216 23,193,274
Advances for inventory purchases.................... 5,381,437 5,038,951 6,160,601
Prepaid expenses and other current assets........... 178,698 313,460 586,238
Deferred income taxes (Note G)...................... 362,988 943,046 943,046
----------- ----------- -----------
Total current assets........................ 31,958,664 44,803,582 49,515,586
PROPERTY, PLANT AND EQUIPMENT, at cost................ 2,966,619 5,694,265 5,969,607
Less accumulated depreciation and amortization...... (995,226) (1,576,366) (1,923,269)
----------- ----------- -----------
1,971,393 4,117,899 4,046,338
GOODWILL, net of accumulated amortization of $135,467,
$212,894 and $244,903 at December 31, 1994 and 1995,
and March 31, 1996, respectively.................... 1,259,969 2,470,839 2,438,830
NOTES RECEIVABLE...................................... 984,208 1,152,048 875,901
OTHER ASSETS.......................................... 178,456 410,427 403,223
----------- ----------- -----------
$36,352,690 $52,954,795 $57,279,878
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable -- trade........................... $ 6,531,779 $ 6,988,550 $ 9,050,547
Notes payable (Note C).............................. 18,244,183 24,301,147 26,135,151
Current maturities of long-term debt (Note C)....... -- 180,960 180,960
Accrued expenses.................................... 664,740 1,613,925 1,083,254
Federal and state income taxes payable.............. 343,973 954,716 562,933
Other current liabilities........................... 497,627 884,410 1,285,021
----------- ----------- -----------
Total current liabilities................... 26,282,302 34,923,708 38,297,866
LONG-TERM DEBT (Note C)............................... -- 1,534,548 1,490,798
COMMITMENTS AND CONTINGENCIES (Note F)................ -- -- --
STOCKHOLDERS' EQUITY (Note D)
Preferred stock, $5 par value, issuable in series;
2,000,000 shares authorized; Series A, 12%
cumulative convertible, 195,351 shares
authorized, issued and outstanding............... 976,755 976,755 976,755
Common stock, $.01 par value (no par in 1994);
20,000,000 shares authorized; 6,555,619,
7,326,935 and 7,327,500 shares issued and
outstanding at December 31, 1994, 1995, and March
31, 1996, respectively........................... 73,254 73,269 73,275
Additional paid-in capital.......................... 7,213,747 11,518,801 11,518,795
Retained earnings................................... 1,806,632 3,927,714 5,168,456
Less treasury stock, at cost -- 35,000 shares....... -- -- (246,067)
----------- ----------- -----------
Total stockholders' equity.................. 10,070,388 16,496,539 17,491,214
----------- ----------- -----------
$36,352,690 $52,954,795 $57,279,878
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 43
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEARS ENDED DECEMBER 31, 31,
---------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales........................ $52,411,971 $79,062,711 $101,232,305 $21,829,162 $29,674,027
Cost of sales.................... 39,553,514 59,349,708 76,319,278 16,507,084 21,244,887
----------- ----------- ------------ ----------- -----------
Gross profit........... 12,858,457 19,713,003 24,913,027 5,322,078 8,429,140
Other operating costs:
Marketing and sales............ 7,025,514 11,201,460 13,254,921 2,702,955 4,171,735
General and administrative..... 2,177,923 3,132,856 5,542,529 1,010,457 1,710,573
----------- ----------- ------------ ----------- -----------
9,203,437 14,334,316 18,797,450 3,713,412 5,882,308
----------- ----------- ------------ ----------- -----------
Operating profit....... 3,655,020 5,378,687 6,115,577 1,608,666 2,546,832
Other expense (income):
Interest expense............... 693,655 1,091,400 1,840,489 396,829 565,026
Other, net..................... (59,038) (15,245) 40,502 (19,555) 25,144
----------- ----------- ------------ ----------- -----------
634,617 1,076,155 1,880,991 377,274 590,170
----------- ----------- ------------ ----------- -----------
Income from continuing operations
before income taxes............ 3,020,403 4,302,532 4,234,586 1,231,392 1,956,662
Income taxes (Note G)............ 381,543 1,513,020 1,539,529 449,459 686,618
----------- ----------- ------------ ----------- -----------
Income from continuing
operations..................... 2,638,860 2,789,512 2,695,057 781,933 1,270,044
Discontinued operations, net of
tax effects (Note H):
Loss from operations........... (289,489) -- -- -- --
Provision for loss on
disposal.................... (1,544,881) (190,000) -- -- --
----------- ----------- ------------ ----------- -----------
(1,834,370) (190,000) -- -- --
----------- ----------- ------------ ----------- -----------
NET INCOME............. 804,490 2,599,512 2,695,057 781,933 1,270,044
Dividend requirements on
preferred stock (Note D)....... (117,210) (117,210) (117,210) (29,302) (29,302)
----------- ----------- ------------ ----------- -----------
Net income allocable to common
stockholders................... $ 687,280 $ 2,482,302 $ 2,577,847 $ 752,631 $ 1,240,742
========== ========== =========== ========== ==========
Income per common share:
Continuing operations.......... $ .37 $ .39 $ .36 $ .11 $ .16
========== ========== =========== ========== ==========
Net income..................... $ .10 $ .36 $ .36 $ .11 $ .16
========== ========== =========== ========== ==========
Number of weighted average common
and common equivalent shares
outstanding.................... 6,789,872 6,818,999 7,147,904 6,821,027 7,635,659
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 44
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
THREE
YEARS ENDED DECEMBER 31, MONTHS ENDED
------------------------------------------ MARCH 31,
1993 1994 1995 1996
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
(UNAUDITED)
COMMON STOCK
Beginning of period.................. $ 70,968 $ 72,489 $ 73,254 $ 73,269
Change in par value.................. -- -- (39,714) --
Acquisitions of businesses........... -- -- 39,457 --
Other................................ -- -- -- 6
Exercise of stock options and
warrants.......................... 1,521 765 272 --
----------- ---------- ----------- -----------
End of period........................ $ 72,489 $ 73,254 $ 73,269 $ 73,275
=========== ========== =========== ===========
ADDITIONAL PAID-IN CAPITAL
Beginning of period.................. $ 7,132,910 $7,167,765 $ 7,213,747 $ 11,518,801
Change in par value.................. -- -- 39,714 --
Acquisitions of businesses........... -- -- 4,238,462 --
Other................................ -- -- -- (6)
Exercise of stock options and
warrants.......................... 34,855 45,982 26,878 --
----------- ---------- ----------- -----------
End of period........................ $ 7,167,765 $7,213,747 $11,518,801 $ 11,518,795
=========== ========== =========== ===========
RETAINED EARNINGS (ACCUMULATED DEFICIT)
Beginning of period.................. $(1,362,950) $ (675,670) $ 1,806,632 $ 3,927,714
Preferred stock dividends............ (117,210) (117,210) (117,210) (29,302)
Accumulated deficit of pooled company
(Note B).......................... -- -- (456,765) --
Net income........................... 804,490 2,599,512 2,695,057 1,270,044
----------- ---------- ----------- -----------
End of period........................ $ (675,670) $1,806,632 $ 3,927,714 $ 5,168,456
=========== ========== =========== ===========
COMMON SHARES
Beginning of period.................. 6,495,848 6,538,352 6,555,619 7,326,935
Acquisitions of businesses........... -- -- 762,816 --
Other................................ -- -- -- 565
Exercise of stock options and
warrants.......................... 42,504 17,267 8,500 --
----------- ---------- ----------- -----------
End of period........................ 6,538,352 6,555,619 7,326,935 7,327,500
=========== ========== =========== ===========
PREFERRED SHARES
Beginning and end of period.......... 195,351 195,351 195,351 195,351
=========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 45
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.............................. $ 804,490 $ 2,599,512 $ 2,695,057 $ 781,933 $ 1,270,044
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization......... 252,275 447,280 890,987 137,957 264,167
Provision for losses on accounts
receivable.......................... 228,814 532,344 49,114 28,450 86,334
Provision for inventory
obsolescence........................ 102,295 52,408 411,915 98,219 163,263
Deferred income taxes................. (590,000) 227,012 (152,782) -- --
Changes in operating assets and
liabilities:
Accounts and notes receivable....... (3,753,654) (3,705,743) (3,140,518) (442,590) (1,634,403)
Inventories......................... (5,216,355) (3,360,827) (4,145,192) (1,247,075) (2,063,321)
Advances for inventory purchases.... (182,169) (2,871,341) 342,486 1,596,897 (1,121,650)
Prepaid expenses and other current
assets........................... 21,132 (77,803) (82,284) (243,553) (272,778)
Noncurrent notes and other assets... (477,489) (346,847) (84,681) (129,321) 283,351
Accounts payable.................... 3,019,574 2,124,485 (677,814) (585,068) 2,061,997
Other notes payable................. (5,543) (285,000) -- -- --
Accrued expenses and other current
liabilities...................... (12,625) 945,218 875,300 (45,825) (521,843)
Net assets of discontinued
operations....................... 642,103 197,125 -- -- --
----------- ----------- ----------- ----------- -----------
Net cash used in operating
activities..................... (5,167,152) (3,522,177) (3,018,412) (49,976) (1,484,839)
Cash flows from investing activities:
Purchases of property and equipment..... (699,311) (1,346,369) (1,055,055) (200,967) (160,597)
Acquisitions of businesses, net of cash
acquired.............................. -- (573,000) (1,016,633) -- --
Decrease in net assets of discontinued
operations............................ 163,563 -- -- -- --
----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities..................... (535,748) (1,919,369) (2,071,688) (200,967) (160,597)
Cash flows from financing activities:
Net borrowings on notes payable......... 5,460,881 5,654,144 5,844,401 (361,996) 1,790,254
Proceeds from exercise of stock
options............................... 36,376 46,747 27,150 -- --
Purchase of treasury stock.............. -- -- -- -- (246,067)
Payment of preferred stock dividends.... (117,210) (117,210) (117,210) (29,302) (29,302)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities........... 5,380,047 5,583,681 5,754,341 (391,298) 1,514,885
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash........... (322,853) 142,135 664,241 (642,241) (130,551)
Cash at beginning of period............... 822,959 500,106 642,241 642,241 1,306,482
----------- ----------- ----------- ----------- -----------
Cash at end of period..................... $ 500,106 $ 642,241 $ 1,306,482 -- $ 1,175,931
=========== =========== =========== =========== ===========
Supplemental cash flow information:
Cash paid during the year for:
Interest.............................. $ 684,933 $ 1,109,361 $ 1,812,415 $ 423,778 $ 597,377
=========== =========== =========== =========== ===========
Income taxes.......................... $ 91,269 $ 804,158 $ 1,431,581 $ 409,212 $ 714,000
=========== =========== =========== =========== ===========
Supplemental schedule of noncash investing
and financing activities:
Acquisition of businesses
Assets acquired....................... $ 573,000 $ 8,490,799
Liabilities assumed................... -- (3,640,455)
Common stock issued................... -- (3,804,000)
----------- -----------
573,000 1,046,344
Less cash acquired.................... -- 29,711
----------- -----------
Net cash paid for acquisitions... $ 573,000 $ 1,016,633
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 46
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
NOTE A -- NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Consolidation
The accompanying consolidated financial statements include the accounts of
Ultrak, Inc. and its subsidiaries (the "Company"). All significant intercompany
balances and transactions have been eliminated in consolidation.
Effective December 29, 1995, the Company was reincorporated in the state of
Delaware.
Nature of Operations
The Company designs, manufactures, markets and services closed circuit
television ("CCTV") and related products for use in security and surveillance,
industrial, mobile video, traffic management, dental and medical and other
applications. The Company's products include a broad line of cameras, lenses,
high-speed dome systems, monitors, switchers, quad processors, time-lapse
recorders, multiplexers, wireless video transmission systems, computerized
observation and security systems and accessories which are sold principally to
customers in the United States. Foreign customers account for less than 10% of
revenue.
Inventories
Inventories are comprised principally of goods held for resale, which are
valued at the lower of cost (first-in, first-out) or market.
Advances for Inventory
Advances for inventory represent payments in advance for goods purchased
primarily from the Far East. Upon receipt of the goods, advances are classified
as inventories.
Property, Plant and Equipment and Depreciation
Property, plant and equipment are carried at cost. The provision for
depreciation is computed using the straight-line method over the estimated
useful lives of the assets.
Goodwill and Amortization
Goodwill resulting from acquisitions is being amortized using the
straight-line method over periods ranging from twenty to forty years. On an
ongoing basis, management reviews the valuation and amortization of goodwill to
determine possible impairment by comparing the carrying value to the
undiscounted future cash flows of the related business unit.
Income Taxes
Deferred income taxes are determined using the liability method, under
which deferred tax assets and liabilities are determined based on differences
between financial accounting and tax bases of assets and liabilities.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities
F-7
<PAGE> 47
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
NOTE A -- NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- CONTINUED
and disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments with original maturities of three months or less
to be cash equivalents. At the balance sheet dates, there were no cash
equivalents.
Income Per Common Share
Income per common share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding during the
period. Common equivalent shares result from the assumed issuance of shares
under the Company's incentive stock option plan and for stock purchase warrants
when dilutive. Fully-diluted income per share, which gives effect to assumed
conversion of the Series A preferred stock, is the same as primary income per
share.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash, trade receivables and
payables, notes receivable and debt, which has variable rates. The fair value of
all instruments approximates the carrying value.
Reclassifications
Certain reclassifications have been made to prior years to conform with the
1995 presentation.
Interim Financial Statements
Information in the accompanying consolidated financial statements and notes
to the consolidated financial statements for the interim periods is unaudited.
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and Article 10 of Regulation S-X. Accordingly, they do not include
all the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the interim periods
are not necessarily indicative of the results that may be expected for the full
year.
Statement of Financial Accounting Standard No. 123 (SFAS 123) "Accounting
for Stock-Based Compensation", is effective for 1996. As permitted by SFAS 123,
the Company has elected to continue to account for stock-based compensation
under pre-existing accounting standards. The pro forma disclosures required
pursuant to this election for the three months ended March 31, 1995 and 1996
have not been presented because the effect on net income of the provisions of
SFAS 123 is not material. Since the number of stock options that may be granted
in the future is not predictable, the effect that SFAS 123 would have on future
periods is not known.
F-8
<PAGE> 48
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
NOTE B -- BUSINESS COMBINATIONS
JAK Pacific Video Warranty and Repair Services, Inc.:
Effective April 1, 1994, the Company acquired 56% of the outstanding common
stock of JAK Pacific Video Warranty and Repair Services, Inc. ("JAK"), a
California corporation, for total cash consideration of $573,000. The
transaction was accounted for as a purchase. The operations of JAK have been
included in the Company's statements of income beginning April 1, 1994. JAK is
engaged in sales, service and warranty repairs of closed circuit television
products.
During 1995, the Company exercised its option to acquire the remaining 44%
of the common stock of JAK for cash consideration of $500,000. Goodwill is being
amortized over 20 years by the straight-line method.
Koyo's U.S. CCTV Division:
On March 15, 1995, the Company signed an agreement with Koyo International,
Inc. of America ("Koyo") to purchase certain assets of Koyo's U.S. CCTV
division. Under the agreement, the Company acquired all of Koyo's inventory,
patent rights, customer lists and certain tooling for cash of approximately
$416,000 plus a $100,000 minimum payment due under a royalty agreement. The
agreement provides for royalties of up to 2% of the net selling price of
products produced under license from Koyo. Goodwill is being amortized over 20
years by the straight-line method.
Diamond Electronics, Inc.:
On July 13, 1995, the Company acquired all of the outstanding shares of
common stock of Diamond Electronics, Inc. ("Diamond"), in exchange for 600,000
registered shares of the Company's common stock valued at $3,804,000. Costs
capitalized in conjunction with the acquisition were approximately $130,000. The
shareholders of Diamond are entitled to receive an additional 50,000 shares of
the Company's common stock if the market price is less than $8.00 per share for
the ten business days prior to July 13, 1996.
Diamond is a manufacturer of commercial video CCTV security and
surveillance systems used by large retailers, and of hazardous viewing systems
used by industry and municipalities. The transaction has been accounted for as a
purchase, and the operations of Diamond have been included in the Company's
statement of income since July 1, 1995. Goodwill is being amortized over 25
years by the straight-line method.
The following unaudited pro forma information for 1994 and 1995 presents a
summary of consolidated results of operations of the Company and Diamond as if
the acquisition had occurred at the beginning of the respective periods, giving
effect to the amortization of goodwill and certain other adjustments:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1994 1995
----------- ------------
<S> <C> <C>
Net sales................................................ $90,568,402 $107,374,308
Income from continuing operations........................ 3,090,966 3,064,428
Net income............................................... $ 2,900,966 $ 3,064,428
=========== ============
Income per common share from continuing operations....... $ .42 $ .41
=========== ============
Net income per common share.............................. $ .39 $ .41
=========== ============
</TABLE>
The pro forma effect of the acquisitions of JAK and Koyo is not
significant.
F-9
<PAGE> 49
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
NOTE B -- BUSINESS COMBINATIONS -- CONTINUED
G.P.S. Standard U.S.A.:
Effective November 29, 1995, the Company acquired 100 percent of the
outstanding capital stock of BLC & Associates, Inc., doing business as G.P.S.
Standard U.S.A. ("GPS"), for 176,470 shares of registered common stock of the
Company. GPS is a manufacturer of surveillance camera housings, pan and tilt
devices, matrix switchers and other advanced software driven camera control
systems. The transaction was accounted for as a pooling of interests effective
December 1, 1995. Results of operations for periods prior to the date of
acquisition have not been restated to reflect the combined operations due to
immateriality.
NOTE C -- NOTES PAYABLE AND LONG-TERM DEBT
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
$20.0 million revolving line of credit from a
bank, due July 31, 1997; interest at prime
(8.75% at December 31, 1995) plus .25% or
LIBOR (5.82% at December 31, 1995) plus
2.50% payable monthly; collateralized by
substantially
all assets................................. $11,735,392 $17,478,730 $19,487,447
$7.0 million revolving line of credit from an
investment company, due September 30, 1996;
interest at the greater of 8.5% or prime
plus 2.0% payable monthly; collateralized
by inventory............................... 6,508,791 6,822,417 6,647,704
----------- ----------- -----------
$18,244,183 $24,301,147 $26,135,151
=========== =========== ===========
</TABLE>
At December 31, 1995 and March 31, 1996, the Company had unused available
revolving lines of credit totaling approximately $2.7 million and $865,000,
respectively.
Long-term debt as of December 31, 1995 and March 31, 1996 consists of a
bank loan due on July 31, 1997 which bears interest at prime plus .25% or LIBOR
plus 2.50% and is collateralized by real estate and equipment. Principal
payments of $14,583 are due monthly with $1,414,590 due upon maturity.
The following are scheduled maturities of long-term debt at December 31,
1995:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C> <C>
1996............................................. $ 180,960
1997............................................. 1,534,548
----------
$1,715,508
==========
</TABLE>
Debt is guaranteed in part ($8,000,000) by the principal stockholder of the
Company. The credit agreements contain certain restrictive covenants and
conditions, including debt to tangible net worth ratios, current ratios and
working capital ratios. At December 31, 1995, the Company did not meet certain
of these covenants on its bank debt and has obtained waivers of the violations.
The weighted average interest rate for notes payable for the years ended
December 31, 1994 and 1995 was 8.16% and 9.50%, respectively.
F-10
<PAGE> 50
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
NOTE D -- STOCKHOLDERS' EQUITY
Preferred Stock
The Series A preferred stock earns dividends at the rate of 12% per annum,
beginning January 1, 1991, payable quarterly. All dividends accrue whether or
not such dividends have been declared and whether or not there are profits,
surplus, or other funds of the Company legally available for payment.
The Company may at any time redeem all or any portion of the Series A
preferred stock then outstanding at the liquidation value of $5.00 per share
plus unpaid dividends. A holder of Series A preferred stock may convert all or
any of the shares into shares of the Company's common stock at any time at a
conversion rate equal to the original purchase price of $5.00 plus any unpaid
dividends, the sum of which is divided by $2.40.
Holders of Series A preferred stock are entitled to vote on all matters
submitted to a vote of stockholders. Each Series A preferred share is entitled
to voting rights equal to 16.667 shares of common stock.
Nonqualified Stock Option Plan
The 1988 Nonqualified Stock Option Plan provides for options to be granted
covering 833,334 shares of common stock. Shares under grant generally become
exercisable in five equal annual installments beginning one year after the date
of grant, and expire after ten years.
Option exercise prices are set by the Compensation Committee of the Board
of Directors on the date of grant at the approximate market price of the
Company's common stock.
Details of stock options are as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OPTION PRICE
--------- --------------
<S> <C> <C>
Options outstanding -- January 1, 1994.................... 500,226 $1.20 -- $7.50
Granted................................................. 47,500 4.50 -- 6.88
Forfeited............................................... (14,167) 3.75 -- 6.00
Exercised............................................... (600) 2.40
------- -------------
Options outstanding -- December 31, 1994.................. 532,959 1.20 -- 7.50
Granted................................................. 146,750 5.63 -- 7.00
Forfeited............................................... (4,334) 2.40 -- 7.50
Exercised............................................... (8,500) 2.40 -- 6.50
------- -------------
Options outstanding -- December 31, 1995.................. 666,875 $1.20 -- $7.50
Granted................................................. 6,000 $6.38 -- $9.63
Forfeited............................................... -- --
Exercised............................................... -- --
------- -------------
Options outstanding -- March 31, 1996 (unaudited)......... 672,875 $1.20 -- $9.63
======= =============
Options exercisable -- December 31, 1995.................. 406,468 $1.20 -- $7.50
======= =============
Options exercisable -- March 31, 1996 (unaudited)......... 458,321 $1.20 -- $7.50
======= =============
</TABLE>
Stock Warrants
In connection with the $7.0 million line of credit (Note C), the Company
granted to the lender warrants to purchase a total of 200,000 shares of
restricted common stock at a price of $8.00 per share, subject to certain
adjustments. The warrant agreement expires November 30, 1996 and no warrants
have been exercised to date.
F-11
<PAGE> 51
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
NOTE E -- MAJOR CUSTOMERS AND SUPPLIERS
One customer accounted for more than 10% of revenue in each of the three
years ended December 31, 1995. Sales to that customer were:
<TABLE>
<S> <C>
1995............................................ $13,945,000
1994............................................ 13,202,000
1993............................................ 6,380,000
</TABLE>
Loss of this customer could have a material adverse effect on the
operations of the Company.
Approximately 38% of the Company's purchases of materials in 1995 were from
one supplier. Although there are a limited number of manufacturers of the
Company's products, management believes there are suppliers who could provide
similar products on comparable terms. A change in suppliers could cause a delay
and a possible loss of sales, which could affect operating results adversely.
NOTE F -- COMMITMENTS AND CONTINGENCIES
The Company has entered into operating leases for office and warehouse
space and data processing equipment.
Minimum future rental payments for all long-term, noncancelable operating
leases are presented below:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C> <C>
1996............................................. $ 489,000
1997............................................. 409,000
1998............................................. 328,000
1999............................................. 168,000
2000............................................. 38,000
----------
$1,432,000
==========
</TABLE>
Total rent expense charged to operations is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
$266,717 $473,502 $468,770
======== ======== ========
</TABLE>
At December 31, 1995, the Company was a defendant in lawsuits arising in
the ordinary course of business. In the opinion of management, the lawsuits will
not have a material adverse effect upon the Company's business, financial
position or results of operations.
F-12
<PAGE> 52
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
NOTE G -- INCOME TAXES
The provision for taxes on income from continuing operations consists of
the following:
<TABLE>
<CAPTION>
1993 1994 1995
--------- ---------- ----------
<S> <C> <C> <C>
Federal
Current...................................... $ 613,105 $1,081,435 $1,629,374
Deferred..................................... (266,892) 227,012 (152,782)
State.......................................... 35,330 204,573 62,937
--------- ---------- ----------
$ 381,543 $1,513,020 $1,539,529
========= ========== ==========
</TABLE>
The Company's effective income tax rate differed from the Federal statutory
rate as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1993 1994 1995
----- ---- ----
<S> <C> <C> <C>
U.S. Federal statutory rate............................... 34.0% 34.0% 34.0%
State taxes, net of Federal benefit....................... 1.0 3.1 1.0
Reduction in deferred tax asset valuation allowance....... (4.5) -- --
Net operating loss carryforward recognized................ (18.4) (3.7) (1.5)
Other, net................................................ .6 1.8 2.9
----- ---- ----
12.7% 35.2% 36.4%
===== ==== ====
</TABLE>
The components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
---------- -----------
<S> <C> <C>
Deferred tax assets:
Inventory............................................... $ 156,854 $ 560,717
Accounts receivable..................................... 156,416 155,439
Accrued expenses........................................ 98,489 259,114
Net operating loss carryforward......................... 177,026 174,935
--------- ---------
588,785 1,150,205
Valuation allowance..................................... (133,804) (68,970)
--------- ---------
454,981 1,081,235
Deferred tax liabilities:
Depreciation............................................ (78,331) (83,702)
Other................................................... (13,662) (54,487)
--------- ---------
(91,993) (138,189)
--------- ---------
$ 362,988 $ 943,046
========= =========
</TABLE>
As of December 31, 1995, the Company has available net operating loss
carryforwards of approximately $500,000 which are available to reduce future
taxable income by approximately $60,000 per year through 2002. A valuation
allowance of $68,970 has been provided to reduce a portion of the deferred tax
assets related to these carryforwards.
F-13
<PAGE> 53
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
NOTE H -- DISCONTINUED OPERATIONS
On July 22, 1993, the Company announced that it would discontinue its
personal computer products (PC) business segment and concentrate its resources
on the CCTV business segment. As a result of this decision, the operations and
net assets of the PC business segment are classified as discontinued operations.
Sales included in discontinued operations for the year ended December 31,
1993 were $19,232,836. The loss from discontinued operations is net of tax
benefits of $145,106 in 1993, and the provision for loss on disposal in 1994 and
1993 is net of tax benefits of $98,000 and $774,368, respectively.
NOTE I -- UNAUDITED QUARTERLY OPERATING RESULTS
Unaudited quarterly operating results for the years ended December 31, 1994
and 1995 are as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1994:
Sales....................... $17,808,683 $19,032,217 $21,524,735 $20,697,076
Gross profit................ 4,164,245 4,928,373 5,278,902 5,341,483
Income (loss) from
Continuing operations.... 628,057 825,511 999,428 336,516
Discontinued
operations............. -- -- (190,000) --
----------- ----------- ----------- -----------
Net income.................. 628,057 825,511 809,428 336,516
=========== =========== =========== ===========
Net income per share........ $ .09 $ .12 $ .11 $ .04
=========== =========== =========== ===========
1995:
Sales....................... $21,829,162 $22,305,871 $28,429,494 $28,667,778
Gross profit................ 5,322,078 5,322,858 6,809,054 7,459,037
Net income.................. 781,933 485,744 683,162 744,218
=========== =========== =========== ===========
Net income per share........ $ .11 $ .07 $ .09 $ .10
=========== =========== =========== ===========
</TABLE>
F-14
<PAGE> 54
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Diamond Electronics, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Diamond
Electronics, Inc. and Subsidiary as of January 1, 1995 and January 2, 1994, and
the related consolidated statements of income, changes in shareholders' equity
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Diamond
Electronics, Inc. and Subsidiary as of January 1, 1995 and January 2, 1994, and
the consolidated results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ NORMAN, JONES, ENLOW & CO.
Columbus, Ohio
March 17, 1995
F-15
<PAGE> 55
DIAMOND ELECTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 1,
1994 1995
---------- ----------
<S> <C> <C>
Current assets
Cash.............................................................. $ 38,291 $ 30,549
Trade accounts receivable -- net.................................. 1,349,055 2,203,670
Inventories....................................................... 1,910,908 2,370,557
Prepaid expenses and other........................................ 63,492 32,529
Deferred income tax benefit....................................... 482,100 316,090
---------- ----------
Total current assets...................................... 3,843,846 4,953,395
Property, plant and equipment -- net................................ 1,795,405 1,763,920
Other assets........................................................ 8,785 49,373
---------- ----------
Total assets.............................................. $5,648,036 $6,766,688
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable..................................................... $1,122,217 $1,167,162
Current portion of long-term debt................................. 115,999 105,960
Accounts payable.................................................. 485,659 875,852
Accrued payroll and taxes......................................... 125,320 148,952
Accrued commissions............................................... 90,075 130,891
Accrued expenses.................................................. 83,023 222,072
---------- ----------
Total current liabilities................................. 2,022,293 2,650,889
Long-term debt, less current portion................................ 592,033 884,548
Deferred income taxes............................................... 20,300 13,204
---------- ----------
Total liabilities......................................... 2,634,626 3,548,641
Shareholders' equity
Convertible preferred stock, par value $100 per share,
authorized -- 4,000 shares, issued and outstanding -0- and
4,000 shares................................................... 400,000 --
Common stock, no par value; authorized -- 11,996,000 shares,
issued and outstanding -- 4,706,326 and 4,476,267 shares....... 3,010,088 3,189,084
Paid-in capital................................................... 20,000 120,000
Retained earnings (deficit)....................................... (416,678) (91,037)
---------- ----------
Total shareholders' equity................................ 3,013,410 3,218,047
---------- ----------
Total liabilities and shareholders' equity................ $5,648,036 $6,766,688
========== ==========
Book value per common share......................................... $ .58 $ .68
========== ==========
</TABLE>
See notes to financial statements.
F-16
<PAGE> 56
DIAMOND ELECTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE 52 WEEKS ENDED THREE MONTHS
-------------------------- ENDED MARCH 31,
JANUARY 2, JANUARY 1, -------------------------
1994 1995 1994 1995
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales................................ $9,367,799 $11,774,691 $2,321,700 $2,959,586
Cost of goods sold....................... 6,426,955 8,009,468 1,591,691 2,017,935
---------- ----------- ---------- ----------
Gross profit................... 2,940,844 3,765,223 730,009 941,651
Operating expenses
Selling................................ 1,393,840 1,882,860 430,517 430,613
General and administrative............. 884,223 936,488 217,831 262,004
Research and development............... 139,462 184,504 37,119 58,545
Interest............................... 199,516 193,392 39,226 43,180
---------- ----------- ---------- ----------
2,617,041 3,197,244 724,693 794,342
---------- ----------- ---------- ----------
Income from operations................... 323,803 567,979 5,316 147,309
Other income (expenses).................. 60,342 (28,817) (862) (8,206)
---------- ----------- ---------- ----------
Income before income taxes and cumulative
effect adjustment...................... 384,145 539,162 4,454 139,103
Income taxes
Currently payable...................... 5,976 54,622 1,693 53,780
Deferred............................... 148,300 158,899 -- --
---------- ----------- ---------- ----------
154,276 213,521 1,693 53,780
---------- ----------- ---------- ----------
Income before cumulative effect
adjustment............................. 229,869 325,641 2,761 85,323
Cumulative effect adjustment for the
change in income tax accounting........ 610,100 -- -- --
---------- ----------- ---------- ----------
Net income..................... $ 839,969 $ 325,641 $ 2,761 $ 85,323
========== =========== ========== ==========
Earnings per share
Income (loss) before cumulative effect
adjustment.......................... $ .05 $ .07 $ 0.00 $ 0.02
Cumulative effect adjustment........... .14 -- -- --
---------- ----------- ---------- ----------
Net income.......................... $ .19 $ .07 $ 0.00 $ 0.02
========== =========== ========== ==========
</TABLE>
See notes to financial statements.
F-17
<PAGE> 57
DIAMOND ELECTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE 52 WEEKS ENDED JANUARY 1, 1995 AND
THE 52 WEEKS ENDED JANUARY 2, 1994
<TABLE>
<CAPTION>
COMMON STOCK SHAREHOLDERS'
PREFERRED COMMON PURCHASE PAID-IN ACCUMULATED EQUITY
STOCK STOCK WARRANTS CAPITAL DEFICIT (DEFICIT)
--------- --------- ------------ -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 29, 1991................... $ 44,450 $1,784,340 $ 20,000 $ -- $(2,427,452) $ (578,662)
Common stock warrants expired 12/31/92..... (20,000) 20,000 --
Existing preferred stock canceled in
Chapter 11 reorganization plan........... (44,450) (44,450)
New convertible preferred stock issued in
Chapter 11 reorganization plan........... 400,000 400,000
New common stock issued in Chapter 11
reorganization
plan..................................... 1,203,272 1,203,272
Net income for the year.................... 1,170,805 1,170,805
--------- ---------- --------- -------- ----------- ------------
Balance January 3, 1993...................... 400,000 2,987,612 -- 20,000 (1,256,647) 2,150,965
Issuance of common stock................... 22,476 22,476
Net income for the year.................... 839,969 839,969
--------- ---------- -------- -------- ----------- -----------
Balance January 2, 1994...................... 400,000 3,010,088 -- 20,000 (416,678) 3,013,410
Redemption of convertible preferred
stock.................................... (400,000) 100,000 (300,000)
Issuance of common stock for stock
grants................................... 29,000 29,000
Issuance of common stock................... 149,996 149,996
Net income for the year.................... 325,641 325,641
--------- ---------- -------- -------- ----------- -----------
Balance January 1, 1995...................... $ -- $3,189,084 $ -- $120,000 $ (91,037) $ 3,218,047
========= ========== ======== ======== =========== ===========
</TABLE>
See notes to financial statements.
F-18
<PAGE> 58
DIAMOND ELECTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE 52 WEEKS ENDED THREE MONTHS
------------------------- ENDED MARCH 31,
JANUARY 2, JANUARY 1, -----------------------
1994 1995 1994 1995
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Income less extraordinary items........... $ 839,969 $ 325,641 $ 2,761 $ 85,323
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation........................... 174,899 174,433 43,725 51,300
Amortization........................... -- 17,000 -- --
Loss on sale of equipment.............. -- 1,936 -- --
(Increase) decrease in
Trade accounts receivable.............. 88,909 (854,615) (40,043) 515,998
Inventories............................ (562,974) (459,649) (712,412) (343,803)
Other current assets................... 30,569 30,963 3,554 (3,149)
Deferred income tax benefit............ (482,100) 166,010 -- 51,250
Increase (decrease) in
Accounts payable....................... 86,213 390,193 67,016 76,934
Accrued payroll and taxes.............. 53,128 23,632 -- --
Accrued commissions.................... (7,276) 40,816 (28,871) (68,418)
Other current liabilities.............. (121,674) 289,045 532,033 62,134
Deferred income taxes.................. 20,300 (7,096) -- 3,394
--------- --------- --------- ---------
Net cash provided (used) by operating
activities............................. 119,963 138,309 (132,237) 430,963
--------- --------- --------- ---------
Cash flows from investing activities
Capital expenditures...................... (59,769) (146,539) (39,921) --
Acquisition of other assets............... -- (57,587) (11,409) --
Proceeds from sale of equipment........... -- 1,655 -- (59,218)
--------- --------- --------- ---------
Net cash (used) by investing activities..... (59,769) (202,471) (51,330) (59,218)
--------- --------- --------- ---------
Cash flows from financing activities
Additional borrowings (repayments) under
short-term revolving line of credit
(post-petition)........................ (146,767) 44,945 362,343 (384,753)
Principal payments on bank term loan...... (169,052) (93,184) (34,200) (24,952)
Principal payments on other notes
payable................................ (61,159) (32,429) -- --
Increase term loan on bank refinancing.... -- 408,088 -- --
Issuance of common stock.................. 22,476 29,000 -- 41,202
Redemption of convertible preferred
stock.................................. -- (300,000) -- --
--------- --------- --------- ---------
Net cash (used) by financing activities..... (354,502) 56,420 328,143 (368,503)
--------- --------- --------- ---------
Net increase (decrease) in cash............. (294,308) (7,742) 144,576 3,242
Cash at beginning of period................. 332,599 38,291 38,291 30,549
--------- --------- --------- ---------
Cash at end of period....................... $ 38,291 $ 30,549 $ 182,867 $ 33,791
========= ========= ========= =========
Supplemental disclosures
Interest paid............................. $ 193,989 $ 190,239 $ 41,117 $ 42,158
========= ========= ========= =========
Income taxes paid......................... $ 10,756 $ 17,664 $ 525 $ 950
========= ========= ========= =========
</TABLE>
See notes to financial statements.
F-19
<PAGE> 59
DIAMOND ELECTRONICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Diamond Electronics, Inc. and Subsidiary (the Company) manufactures, sells
and installs closed circuit television (CCTV) systems. The CCTV systems are used
primarily for surveillance in retail and environmental settings.
Basis of Accounting
The Company's policy is to prepare its financial statements on the accrual
basis of accounting in accordance with generally accepted accounting principles.
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the balance sheet and revenues and expenses for the period. Actual
results could differ from those estimates.
Depreciation
The cost of property, plant and equipment is depreciated over the estimated
useful lives of the related assets. Depreciation is computed on the
straight-line method for financial reporting purposes and on the Modified
Accelerated Cost Recovery System for income tax purposes.
Accounting Year
The Company determines its fiscal year on a 52-53 week basis. The fiscal
year ends on the Sunday closest to December 31.
Goodwill
Goodwill represents the excess of the cost of companies acquired over the
fair value of their net assets at dates of acquisition and is being amortized on
the straight-line method over periods of five to seven years. Amortization
expense charged to operations for the years ended January 1, 1995 and January 2,
1994 was $-0- and $-0-, respectively.
Computation of goodwill are as follows:
<TABLE>
<CAPTION>
JANUARY
2, JANUARY
1994 1, 1995
--------- ---------
<S> <C> <C>
Goodwill -- Diamond.......................................... $ 103,751 $ 103,751
Goodwill -- Polymatrix....................................... 240,394 240,394
--------- ---------
344,145 344,145
Accumulated amortization..................................... (344,145) (344,145)
--------- ---------
$ -- $ --
========= =========
</TABLE>
Non-Compete Agreement
This agreement represents the amount paid for non-competition by the
sellers of Alpha Electronics, Inc. The company wrote off the original amount of
$10,000 during the period ended January 1, 1995, due to no future benefit.
Warranty Cost
The Company accrues product warranty costs based upon sales levels,
warranty terms and actual experience. Product warranty expense was $156,299 and
$29,816 for the years ended January 1, 1995 and January 2, 1994, respectively.
The accrued product warranty liability was $77,000 and $27,000 at January 1,
1995 and January 2, 1994, respectively.
F-20
<PAGE> 60
DIAMOND ELECTRONICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Research and Development
The costs associated with new product research and development are expensed
as incurred. Research and development expense was $184,504 and $139,462 for the
years ended January 1, 1995 and January 2, 1994, respectively.
Revenue Recognition
The Company recognizes revenues on contracts as shipments are made.
Basis of Consolidation
The accompanying consolidated statements include the accounts of Diamond
Electronics, Inc. and its wholly owned subsidiary, Alpha CCTV, Inc. All
intercompany accounts and transactions have been eliminated in consolidation.
Inventories
Inventories are stated at the lower of cost (determined by first-in,
first-out method) or market.
Book Value and Earnings Per Share
Book value per share is based upon the number of common shares outstanding
at January 1, 1995 and January 2, 1994. Earnings per share are based upon the
weighted average number of common shares outstanding during the year.
2. ACCOUNTS RECEIVABLE
The following is a summary of receivables:
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 1,
1994 1995
---------- ----------
<S> <C> <C>
Trade accounts.............................................. $1,588,055 $2,337,785
Allowance for doubtful accounts............................. (239,000) (134,115)
---------- ----------
$1,349,055 $2,203,670
========== ==========
</TABLE>
At January 1, 1995 and January 2, 1994, all accounts receivable were
pledged as collateral in connection with bank loans.
3. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 1,
1994 1995
---------- ----------
<S> <C> <C>
Raw materials and component parts........................... $ 688,633 $1,213,785
Work in process............................................. 1,222,275 1,156,772
---------- ----------
$1,910,908 $2,370,557
========== ==========
</TABLE>
At January 1, 1995 and January 2, 1994, all inventories were pledged as
collateral in connection with bank loans.
F-21
<PAGE> 61
DIAMOND ELECTRONICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
The following is a summary of property, plant and equipment:
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 1,
1994 1995
----------- -----------
<S> <C> <C>
Land...................................................... $ 58,600 $ 58,600
Buildings................................................. 2,138,654 2,138,654
Machinery and equipment................................... 1,292,935 1,434,672
Furniture and fixtures.................................... 32,354 32,354
----------- -----------
3,522,543 3,664,280
Accumulated depreciation.................................. (1,727,138) (1,900,360)
----------- -----------
$ 1,795,405 $ 1,763,920
=========== ===========
</TABLE>
Depreciation expense charged to operations was $174,899 and $174,433 in
1993 and 1994, respectively.
All property, plant and equipment is pledged as collateral for bank loans.
The useful lives of property, plant and equipment for purposes of computing
depreciation are:
<TABLE>
<S> <C>
Buildings............................................................. 10 - 30 years
Machinery and equipment............................................... 3 - 7 years
Furniture and fixtures................................................ 3 - 7 years
</TABLE>
5. NOTES PAYABLE
Short-term notes payable consist of the following:
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 1,
1994 1995
---------- ----------
<S> <C> <C>
Revolving credit agreement.................................. $1,122,217 $1,167,162
========== ==========
</TABLE>
The revolving credit agreement and note payable are with a bank, have the
same collateral pledged, and are subject to the same loan covenants as the note
payable to the bank as further described in note 6 with a balance of $966,667 at
January 1, 1995. The revolving credit agreement bears interest at 1/4% above
the prime rate with interest payable monthly, with the outstanding balance due
June 30, 1997. The revolving credit agreement provides for borrowings up to
$2,500,000 limited to a borrowing base. At January 1, 1995, the borrowing base
of $2,437,102 was computed as the sum of 85% of eligible receivables, plus the
lesser of $1,000,000 or a percent of inventory ranging from 25%-55%.
At January 1, 1995, the Company had $1,269,940 of unused line of credit
with a bank to be drawn upon as needed with interest at 1/4% above the prime
rate.
F-22
<PAGE> 62
DIAMOND ELECTRONICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
The following is a summary of long-term debt:
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 1,
1994 1995
---------- ----------
<S> <C> <C>
Note payable to bank in monthly installments of $8,550,
including interest at 10.5% through June 1, 1994. On June 15,
1994 the unpaid balance of the note plus accrued interest is
due.......................................................... $651,762 $ --
Note payable to taxing agencies due at various dates (six years
from assessment date) in equal quarterly installments with
interest at the statutory rate............................... 56,270 23,841
Note payable to bank in monthly installments of $8,333,
including interest at prime plus 1/2% through August 1,
2001. At January 1, 1995, the prime rate was 8.5%............ -- 966,667
-------- --------
708,032 990,508
Current maturities included in current liabilities............. (115,999) (105,960)
-------- --------
$592,033 $884,548
======== ========
</TABLE>
The revolving credit agreement, the note payable to bank above, and the
note payable to bank described in note 5, have the first mortgage on real estate
and substantially all other assets of the Company pledged as collateral.
Following are maturities of long-term debt for each of the next five years:
<TABLE>
<CAPTION>
YEAR AMOUNT
-------------------------------------------------- --------
<S> <C>
1995.............................................. $105,960
1996.............................................. 105,960
1997.............................................. 105,960
1998.............................................. 105,961
1999.............................................. 99,996
Thereafter........................................ 466,671
--------
$990,508
========
</TABLE>
7. INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS
109). SFAS 109 is an asset and liability approach that requires the recognition
of deferred tax assets and liabilities for the expected future tax consequences
of events that have been recognized in the Company's financial statements or tax
returns. In estimating future tax consequences, SFAS 109 generally considers all
expected future events other than enactments of changes in the tax law or rates.
Previously, the Company used the Accounting Principles Board Opinion No. 11
"Accounting For Income Taxes" (APB 11) income statement approach that focused on
calculating deferred tax expense. Under APB 11, recognition of deferred tax
assets was not permitted. Effective January 4, 1993, the Company adopted SFAS
109. The cumulative effect of the change in accounting principle is included in
determining net income for the year ended January 2, 1994. Financial statements
for prior years have not been restated.
F-23
<PAGE> 63
DIAMOND ELECTRONICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES -- (CONTINUED)
Deferred tax liabilities (assets) are comprised of the following:
<TABLE>
<CAPTION>
JANUARY JANUARY
2, 1,
1994 1995
--------- ---------
<S> <C> <C>
Inventory.................................................... $(252,800) $(214,746)
Bad debts.................................................... (97,000) (51,902)
Warranties................................................... (10,400) (39,474)
Loss carryforwards........................................... (121,600) --
Other........................................................ (300) (9,968)
--------- ---------
Net current deferred tax assets.................... (482,100) (316,090)
--------- ---------
Capital lease................................................ (14,700) --
Depreciation................................................. 35,000 13,204
--------- ---------
Net long-term deferred tax liabilities............. 20,300 13,204
--------- ---------
$(461,800) $(302,886)
========= =========
</TABLE>
The information above is presented to show the composition of the deferred
tax liabilities (assets) for the years ended January 1, 1995 and January 2,
1994.
The Company's income tax expense differs from the amount computed if the
federal statutory rate were applied to income from continuing operations
primarily because of expenses deductible for financial reporting purposes that
are not deductible for tax purposes.
At January 1, 1995, the Company has available unused operating loss
carryforwards of $-0-.
8. CONVERTIBLE PREFERRED STOCK
The convertible preferred stock is noncumulative, nonparticipating and is
convertible into shares of common stock at the option of the holder. There were
4,000 shares authorized, -0- and 4,000, issued and outstanding at January 1,
1995 and January 2, 1994, respectively. The shares were redeemed during the year
by the Company.
9. COMMITMENTS AND CONTINGENCIES
Under the terms of a loan agreement with a bank, the Company is required
to:
- Maintain minimum net worth of $2,050,000, cash flow coverage ratio of 1.3
to 1 and a maximum financial leverage ratio of 1.9 to 1.
- Pay commitment fees of 1/4% each month on unused portions of debt.
In addition, the agreement provides that the Company will not, without
prior written consent from the bank:
- pay cash dividends or incur stock redemptions.
- pay loans, advances or investments of any kind greater than $20,000.
- merge or consolidate or be merged or consolidated.
- Encumber, mortgage or grant a security interest in any asset.
- Sell or dispose of any assets outside the normal course of business.
F-24
<PAGE> 64
DIAMOND ELECTRONICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- Incur capital expenditures in excess of $150,000 per year.
- Enter into any sale and lease back transactions.
At January 1, 1995, the Company was in compliance with all covenants.
10. EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) salary savings plan (Plan), covering all
employees meeting certain eligibility requirements. Under the Plan, the Company
is required to contribute to the Plan amounts equal to 10% of the employee's
first 4% of voluntary contributions. The Company's contributions to the Plan
were $8,429 and $7,481 during 1994 and 1993, respectively.
11. PLAN OF REORGANIZATION
On July 30, 1991, the Company filed petitions for relief under Chapter 11
of the federal bankruptcy laws in the United States Bankruptcy Court for the
Southern District of Ohio -- Eastern Division.
On December 15, 1992, the Bankruptcy Court confirmed the Company's plan of
reorganization. The confirmed plan provided for the following:
Secured Debt
The holder of approximately $2,630,000 of secured debt (secured by a
perfected, first priority security interest in substantially all of the
Company's assets) received the following instruments in exchange for their
notes: (a) $49,691 secured note payable in monthly installments of $5,521
commencing February 1, 1993, through September 1, 1993, with interest at prime
plus 2% per annum, secured by first liens on property, plant and equipment with
the balance due on September 15, 1993, (b) $820,814 secured note payable in
monthly installments of $8,550 commencing on February 1, 1993, through June 1,
1994, with interest at 10.5% per annum, secured by same assets as above with the
balance due on June 15, 1994, (c) $1,900,000 line of credit with interest
payable monthly at prime plus 2% per annum commencing on December 1, 1992
through June 1, 1994 with the balance due June 15, 1994.
Priority Tax Claims
Payroll, withholding and real and personal property taxes of $67,738 are
payable in equal quarterly installments commencing March 15, 1993, through
December 15, 1998 with interest at the statutory rate.
Unsecured Promissory Note
The holder of $1,000,000 unsecured promissory note received 4,000 shares of
$100 par noncumulative, nonparticipating, preferred stock, convertible into 19%
of the new outstanding common stock.
General Unsecured
The holders of approximately $1,511,000 of general unsecured claims
received the following for their claims: (a) cash in the amount of $0.10 for
each dollar of their claim; or (b) shares of common stock in the amount of 1/3
share for each dollar of their claim. Total cash payable and shares issued for
these claims were $77,607 and 245,042 shares, respectively.
Post-petition Financing
The pledgers of $199,000 of post-petition financing received 1,990,000
shares of the new issue outstanding common stock.
F-25
<PAGE> 65
DIAMOND ELECTRONICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Common Stock
The holders of approximately 1,350,000 outstanding shares of the Company's
existing common stock retain their shares and receive a right to buy one new
share of common stock for every share owned for $.25 per share. Each share
purchased will carry two warrants which expire December 15, 2002. The exercise
price of the warrants shall be $.50 and $.75 callable by the Company with 90
days notice at $.05 per warrant.
Preferred Stock
The holder of 2,100 outstanding shares of the Company's existing preferred
stock received 500,000 shares of the new issue outstanding common stock.
Board of Directors
The six members of the Board of Directors of the Company who have provided
services to the Company relating to the Chapter 11 case received 300,000 shares
of the new outstanding common stock and 300,000 options to buy shares of common
stock. There were no options exercised in 1993 or 1994.
Unsecured Wages and Benefits
The holders of the $48,738 unsecured wages and benefits received the
following for their claims: (a) $11,574 cash payment on December 15, 1992; (b)
$37,164 cash payment in August of 1991.
The Company did not meet the criteria for fresh start accounting.
Therefore, the Company accounted for the reorganization as follows:
- All liabilities are stated at the post-petition amount as allowed by the
Court, if applicable.
- Income, expense, realized gains and losses directly associated with the
reorganization were segregated and presented as reorganization items or
extraordinary items in the statement of operations.
12. LEASES
The Company leases office equipment, manufacturing equipment and delivery
vehicles under operating leases expiring in various years through 1996.
Minimum future rental payments under noncancelable operating leases having
remaining terms in excess of one year as of January 1, 1995, for each of the
next five years and in the aggregate are:
<TABLE>
<CAPTION>
AMOUNT
-------
<S> <C>
1995....................................................................... $22,332
1996....................................................................... 4,934
-------
Total minimum future rental payments............................. $27,266
=======
</TABLE>
Rental expense under all operating leases was $55,795 and $45,364 for 1994
and 1993, respectively.
Certain operating leases provide for renewal options for periods of one
year at their fair rental value at the time of renewal in the normal course of
business, operating leases are generally renewed or replaced by other leases.
F-26
<PAGE> 66
DIAMOND ELECTRONICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. RELATED PARTY TRANSACTIONS
A certain shareholder has guaranteed bank obligations under a standby
letter of credit as follows:
<TABLE>
<CAPTION>
PERIOD
-------
<S> <C>
December 16, 1992 through June 15, 1993.................................... $40,000
June 16, 1993 through December 15, 1993.................................... $25,000
Thereafter................................................................. $ --
</TABLE>
A corporation which provides the Company with management services is owned
by a member of the board of directors. The Company paid management fees of
approximately $44,557 and $31,000 during 1994 and 1993, respectively.
14. SUBSEQUENT EVENT
On February 9, 1995, NASDAQ-Listed Ultrak, Inc. and Diamond Electronics,
Inc. signed a letter of intent whereby Ultrak, Inc. would acquire all the
outstanding common stock of Diamond Electronics, Inc. The purchase price would
be 600,00 shares of newly issued registered Ultrak, Inc. common stock, plus
additional shares if certain future Ultrak, Inc. closing stock prices are met.
It is intended that the stock of Diamond Electronics, Inc. be exchange on a
tax-free basis pursuant to a reorganization described in Section 368 of the
Internal Revenue Code.
Diamond Electronics, Inc.'s Board of Directors and Shareholders are
expected to approve the transaction in order to allow both Ultrak, Inc. and
Diamond Electronics, Inc. to have executed a definitive merger agreement by
April 15, 1995.
15. STOCK WARRANTS
In connection with a rights offering in March 1993, stockholders received
two warrants for each share purchased. There are warrants to purchase 48,893
shares with an exercise price of $.50 and warrants to purchase another 48,893
shares with an exercise price of $.75. The warrant agreement expires December
2002 and no warrants have been exercised. The warrants are callable at $.05
warrant on a 90 day notice.
16. STOCK OPTIONS
Under the terms of its stock option plan, options to purchase shares of the
company's common stock are granted at a price equal to the market price of the
stock at the date of the grant. Following is a summary of transactions:
<TABLE>
<S> <C>
Options outstanding -- January 3, 1993
Granted during the year.................................................. 71,000
Forfeited during the year................................................ --
Exercised during the year (at a price of $.25 per share)................. (41,000)
--------
Options outstanding -- January 3, 1994..................................... 30,000
Granted during the year.................................................. 50,000
Forfeited during the year................................................ --
Exercised during the year (at a price of $.58 per share)................. (50,000)
--------
Options outstanding -- January 1, 1995..................................... 30,000
========
Options exercisable -- January 1, 1995..................................... 30,000
========
</TABLE>
F-27
<PAGE> 67
DIAMOND ELECTRONICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. CASH FLOWS
Cash flows from operations for the year ended January 1, 1995 not disclosed
on the face of the cash flow statement were as follows:
<TABLE>
<S> <C>
Customer deposits converted to common stock............................... $149,996
========
Cost of equipment......................................................... $ 4,801
Less: accumulated depreciation............................................ (1,210)
--------
Net book value............................................................ 3,591
Proceeds from sale of equipment........................................... 1,655
--------
Loss on sale of equipment................................................. $ 1,936
========
</TABLE>
F-28
<PAGE> 68
[Picture]-Engineering
Engineering design
Diagrams of types fo CCTV Systems
<PAGE> 69
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 AND
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 ANY OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 9
Price Range of Common Stock........... 9
Dividend Policy....................... 10
Capitalization........................ 11
Selected Consolidated Financial
Data................................ 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 13
Business.............................. 18
Management............................ 30
Principal and Selling Stockholders.... 31
Description of Capital Stock.......... 32
Underwriting.......................... 33
Available Information................. 34
Incorporation of Certain Documents by
Reference........................... 35
Legal Matters......................... 35
Experts............................... 35
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,200,000 SHARES
ULTRAK, INC.
COMMON STOCK
----------------------
PROSPECTUS
----------------------
LOGO
LOGO
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 70
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 and the Nasdaq National Market listing fee, are
estimates.
<TABLE>
<CAPTION>
ITEM AMOUNT
-------------------------------------------------------------------------- --------
<S> <C>
SEC registration fee...................................................... $ 10,582
NASD fee.................................................................. 3,569
Nasdaq National Market listing fee........................................ 17,500
Legal fees and expenses................................................... 100,000
Accounting fees and expenses.............................................. 25,000
Printing expenses......................................................... 70,000
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............................................................. 13,349
--------
Total........................................................... $260,000
========
</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
- ---------- ----------------------------------------------------------------------------------
<S> <C>
*1.1 -- Form of Underwriting Agreement
4.1 -- Form of certificate representing shares of the Common Stock
5.1 -- Legal Opinion of Gardere & Wynne, L.L.P. regarding legality of securities being
registered
10.1 -- Loan Agreement, dated as of July 20, 1992, among the Company, CCTV Source
International, Inc., Loss Prevention Electronics Corporation and Petrus Fund,
L.P. (filed as Exhibit 3 to the Company's Current Report on Form 8-K dated June
15, 1992)
10.2 -- Warrant Purchase Agreement, dated as of July 20, 1992, among the Company,
George K. Broady and Petrus Fund, L.P. (filed as Exhibit 4 to the Registrant's
Current Report on Form 8-K dated June 15, 1992)
10.3 -- First Amendment to Loan Agreement, dated as of October 4, 1993, among the
Company, CCTV Source International, Inc., Loss Prevention Electronics
Corporation, and Petrus Fund, L.P. (with related Restated Revolving Credit
Note) (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K dated
October 4, 1993)
</TABLE>
II-1
<PAGE> 71
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ---------- ----------------------------------------------------------------------------------
<S> <C>
10.4 -- Security Agreement, dated as of October 4, 1993, between Exxis Technologies,
Inc. and Petrus Fund, L.P. (filed as Exhibit 10.4 to the Company's Current
Report on Form 8-K dated October 4, 1993)
10.5 -- Security Agreement, dated as of October 4, 1993, between Dental Vision Direct,
Inc. and Petrus Fund, L.P. (filed as Exhibit 10.5 to the Company's Current
Report on Form 8-K dated October 4, 1993)
10.6 -- Second Amendment to Warrant Purchase Agreement, dated as of October 4, 1993,
among the Company, George K. Broady and Petrus Fund, L.P. (filed as Exhibit
10.3 to the Company's Current Report on Form 8-K dated October 4, 1993)
10.7 -- Second Amendment to Loan Agreement, executed November 1, 1994 to be effective
as of October 4, 1994, between the Company and Petrus Fund, L.P. (filed as
Exhibit 10.2 to the Company's Current Report on Form 8-K dated November 14,
1994)
10.8 -- Third Amendment to Warrant Purchase Agreement, executed November 11, 1994 to be
effective as of October 4, 1994, among the Company, George K. Broady and Petrus
Fund, L.P. (filed as Exhibit 10.3 to the Company's Current Report on Form 8-K
dated November 14, 1994)
10.9 -- Third Amendment to Loan Agreement, dated as of December 29, 1995, between the
Company and Petrus Fund, L.P. (filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996)
10.10 -- Fourth Amendment to Loan Agreement, dated as of March 29, 1996, between the
Company and Petrus Fund, L.P. (filed as Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996)
10.11 -- Fourth Amendment to Warrant Purchase Agreement, dated as of March 29, 1996,
among the Company, George K. Broady, and Petrus Fund, L.P. (filed as Exhibit
10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1996)
10.12 -- Financing and Security Agreement, dated as of September 24, 1993, among
NationsBank, the Company, Loss Prevention Electronics Corporation, CCTV Source
International, Inc., and Dental Vision Direct, Inc. (filed as Exhibit 10.1 to
the Company's Current Report on Form 8-K dated October 4, 1993)
10.13 -- First Amendment to Financing and Security Agreement, dated effective October
31, 1994, among NationsBank, the Company, Loss Prevention Electronics
Corporation, CCTV Source International, Inc. and Dental Vision Direct, Inc.
(filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated
November 14, 1994)
10.14 -- Second Amendment to Financing and Security Agreement, dated as of February 9,
1995, among NationsBank, the Company, Loss Prevention Electronics Corporation,
CCTV Source International, Inc. and Dental Vision Direct, Inc. (filed as
Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995)
10.15 -- Third Amendment to Financing and Security Agreement, dated effective as of July
18, 1995, among NationsBank, the Company, Dental Vision Direct, Inc., Exxis
Technologies, Inc., JAK Pacific Video Warranty and Repair Services, Inc. and
Diamond Electronics, Inc. (filed as Exhibit 10.16 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995)
10.16 -- Fourth Amendment to Financing and Security Agreement, dated effective as of
December 29, 1995, among NationsBank, the Company, Dental Vision Direct, Inc.,
Diamond Electronics, Inc., JAK Pacific Video Warranty and Repair Services, Inc.
and Ultrak Operating, L.P. (filed as Exhibit 10.18 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995)
</TABLE>
II-2
<PAGE> 72
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ---------- ----------------------------------------------------------------------------------
<S> <C>
10.17 -- Ultrak, Inc. 1988 Non-Qualified Stock Option Plan (filed as Exhibit 10.6 to the
Company's Registration Statement on Form S-1, Registration No. 55-3-31110)
10.18 -- Amendment No. 2 to Ultrak, Inc. 1988 Non-Qualified Stock Option Plan (filed as
Exhibit 10 to the Company's Current Report on Form 8-K dated December 28, 1993)
10.19 -- Agreement and Plan of Reorganization, dated as of April 28, 1995, among Diamond
Electronics, Inc., the shareholders of Diamond signing the Agreement, the
Company and Diamond Purchasing Corp. (filed as Annex A to the Company's Form
S-4 dated June 28, 1995)
10.20 -- Employment Agreement, dated May 25, 1995, between the Company and James D.
Pritchett (filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995)
10.21 -- Employment Agreement, dated May 25, 1995, between the Company and Tim D. Torno
(filed as Exhibit 10.22 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995)
11.1 -- Computation of Per Share Data
*23.1 -- Consent of Grant Thornton LLP
*23.2 -- Consent of Norman, Jones, Enlow & Co.
23.3 -- Consent of Gardere & Wynne, L.L.P. (included in Exhibit 5.1)
24.1 -- Power of attorney (set forth on page II-5)
</TABLE>
- ---------------
* filed herewith
ITEM 17. UNDERTAKINGS.
(a) 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.
(b) 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-3
<PAGE> 73
(c) If the Underwriters do not exercise their option to purchase additional
shares of Common Stock to cover over-allotments, if any, or if such option is
partially exercised, the Registrant hereby undertakes to file a post-effective
amendment to the Registration Statement deregistering all such shares as to
which such option shall not have been exercised.
II-4
<PAGE> 74
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas on the 26th day of April,
1996.
ULTRAK, INC.
By: /s/ GEORGE K. BROADY
---------------------------------
George K. Broady
Chief Executive Officer and
President
POWER OF ATTORNEY
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 any and all amendments and exhibits
to this 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, 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 and in the
capacities indicated on the 26th day of April, 1996.
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------------------------- -------------------------------- -----------------
<S> <C> <C>
/s/ GEORGE K. BROADY Chairman of the Board, Chief April 26, 1996
- --------------------------------------------- Executive Officer and President
George K. Broady (Principal Executive Officer)
/s/ JAMES D. PRITCHETT Executive Vice President and April 26, 1996
- --------------------------------------------- Director
James D. Pritchett
/s/ TIM D. TORNO Vice President-Finance, Secretary, April 26, 1996
- --------------------------------------------- Treasurer and Chief Financial
Tim D. Torno Officer (Principal Financial
and Accounting Officer)
/s/ WILLIAM C. LEE Director April 26, 1996
- ---------------------------------------------
William C. Lee
/s/ CHARLES C. NEAL Director April 24, 1996
- ---------------------------------------------
Charles C. Neal
/s/ ROBERT F. SEXTON Director April 24, 1996
- ---------------------------------------------
Robert F. Sexton
</TABLE>
II-5
<PAGE> 1
ULTRAK, INC.
2,200,000 Shares
of
Common Stock
UNDERWRITING AGREEMENT
[May __ , 1996]
J.C. BRADFORD & CO.
HOAK SECURITIES CORP.
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
shareholders of the Company identified on Schedule I hereto (the "Selling
Shareholders") propose to sell to the several underwriters named in Schedule II
hereto (the "Underwriters"), for whom you are acting as the representatives
(the "Representatives"), 2,072,437 and 127,563 shares, respectively (the "Firm
Shares"), of common stock, par value $.01 per share ("Common Stock"), of the
Company. The 2,200,000 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 330,000 additional shares of Common Stock, respectively (the
"Option Shares"), as provided for in Section 3 of this Agreement for the
purpose of covering over-allotments. 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."
1
<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-2 (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 and in the
first, third and fourth 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
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<PAGE> 3
with the requirements of the Securities 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 and in the
first, third and fourth 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, in each case as material to the conduct of the business in which
it is engaged as described in the Effective Prospectus and the Final
Prospectus. Each of the Company's subsidiaries is set forth on Exhibit 21
to the Registration Statement.
(d) The capitalization of the Company as of March 31, 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 recapitalization described under the
caption "Plan of Recapitalization" in the Effective Prospectus and the
Final Prospectus was effected in compliance with all applicable laws. 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 other instrument to which the Company is a party or by which
it may be bound except as
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<PAGE> 4
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,
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, shareholders' 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
in the percentages set forth on Exhibit 21 to the Registration Statement,
directly or indirectly through another subsidiary, free and clear of all
liens, claims, encumbrances, security interests, restrictions, shareholder
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 of the Company's 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. 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 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 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
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<PAGE> 5
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 included 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 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 and Operating
Data," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and "Principal Stockholders" fairly
presents the information set forth therein on the basis stated in the
Effective Prospectus and the Final Prospectus. Grant Thornton LLP, whose
report appears 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 March 31, 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, 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, prospects, financial
position, net worth or results of operations of the Company, except in each
case as described in or contemplated by the Effective Prospectus and the
Final Prospectus.
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<PAGE> 6
(j) There is not pending, or to the knowledge of the Company
threatened, any 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 and marketable
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. 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.
(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.
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<PAGE> 7
(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.
(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 materially adversely
affect the Company. Neither the Company nor any of its subsidiaries is
aware of any existing or imminent labor disturbance by any of their
employees which could be expected to materially adversely affect the
condition (financial or otherwise), results of operations, properties,
affairs, management, business affairs or business prospects 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,
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<PAGE> 8
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, would result in any material
adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects 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 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; 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
8
<PAGE> 9
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 National Market System, subject to notice of issuance.
2. Representations and Warranties of the Selling Shareholders. Each
of the Selling Shareholders, severally and not jointly, represents and warrants
to each Underwriter and agrees as follows that:
(a) Such Selling Shareholder at the First Closing Date or at
the Option Closing Date (as such closing dates are defined herein), as the
case may be, will have valid and marketable title to the Shares set forth
in Schedule I to be sold by such Selling Shareholder, 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 Shareholder 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 Shareholder 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 Shareholder'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 Shareholder, to deliver the Shares to
be sold by such Selling Shareholder hereunder, to accept payment therefor
and otherwise to act on behalf of such Selling Shareholder in connection
with this Agreement. 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
Shareholder hereunder have been deposited with the Custodian pursuant to
the Custody Agreement for the purpose of delivery pursuant to this
Agreement. Such Selling Shareholder agrees that the shares of Common Stock
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 Shareholder
hereunder shall not be terminated except as provided in this Agreement and
the Custody Agreement. If such Selling Shareholder should die or become
incapacitated or if any other event should occur, before the delivery of
the Shares of such Selling Shareholder hereunder, the certificates for such
Shares deposited with the Custodian shall be delivered by the Custodian in
accordance
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<PAGE> 10
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 Shareholder, 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 Shareholder, 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 Shareholder and for the sale and delivery of the Shares to be
sold by such Selling Shareholder hereunder have been given, except as may
be required by the Securities Act or state securities laws; and such
Selling Shareholder 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 Shareholder 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 Shareholder 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 Shareholder 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 Shareholder or any
of his or its properties.
(e) Such Selling Shareholder has not distributed nor, other
than as permitted by the Securities Act and the Rules and Regulations, will
distribute any prospectus or 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 120 days from the effective date of the
Registration Statement, such Selling Shareholder 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) To the knowledge of such Selling Shareholder, the
representations and warranties of the Company contained in Section 1 of
this Agreement are true and correct; such Selling Shareholder has reviewed
and is familiar with the Registration Statement as originally filed with
the Commission and the Preliminary Prospectus contained therein. The
Preliminary Prospectus does not include an untrue statement of a material
fact regarding each Selling Shareholder or omit to state a material fact
regarding each Selling Shareholder necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; such Selling Shareholder is
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<PAGE> 11
not prompted to sell the Shares to be sold by such Selling Shareholder'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 Shareholder 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
Shareholder 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 Shareholder, 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
Shareholder as such and delivered to the Representatives or to counsel for
the Representatives shall be deemed a representation and warranty by such
Selling Shareholder 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 Shareholder 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 Shareholder 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 Shareholders
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
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<PAGE> 12
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 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
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 Shareholders 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 custodian for the Selling Shareholders 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
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<PAGE> 13
similarly delivered by or on behalf of the Company and the custodian for
the Selling Shareholders 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 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
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<PAGE> 14
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.
(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.
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<PAGE> 15
(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 shareholders 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 120 days from the
effective date of the Registration Statement, the Company will not, and the
Company has provided agreements executed by each of its executive officers
and directors and all 5% or greater beneficial owners of the Company's
outstanding Common Stock providing that for a period of 120 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.
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<PAGE> 16
(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 and each of the Selling Shareholders agree
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 for quotation of the
outstanding shares of Common Stock on the NASDAQ National Market System, (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 Shareholder 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
Shareholders 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 Shareholders. Neither the Company nor the Selling Shareholders
shall in any event be liable to any of the Underwriters for the loss of
anticipated profits from the transactions covered by this Agreement.
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<PAGE> 17
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
Shareholders 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 Shareholders 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
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 Shareholders, 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.
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(ii) Each of the Company's subsidiaries has been duly
organized and 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 in the amounts set forth on Exhibit 21 to
the Registration Statement, free and clear of liens, claims,
encumbrances, security interests, voting trusts or other defects
of title whatsoever. All interests in partnership subsidiaries of
the Company are owned beneficially and of record in the
percentages set forth on Exhibit 21 to the Registration Statement,
free and clear of liens, claims, encumbrances, security interests,
or other defects of title whatsoever. 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 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 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, shareholders agreements and
voting trusts whatsoever. The capital stock of the Company and
the Shares conform to the description thereof contained in the
Final Prospectus. All offers and sales of the Company's
securities prior to the date hereof were at all relevant times
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.
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<PAGE> 19
(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 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 to which the Company or any
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of its subsidiaries is a party or to which their properties are
subject and which is material to the Company and its subsidiaries,
taken as a whole, or of the Certificate of Incorporation or bylaws
of the Company.
(viii) To the best knowledge of such counsel, none of
the Company or any of its subsidiaries is in violation of any law,
ordinance, administrative or governmental rule or regulation
applicable to the Company or any of its subsidiaries and material
to the Company and its subsidiaries, taken as a whole, or any
decree of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries.
(ix) 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 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.
(x) 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.
(xi) This Agreement and the Custody Agreement and
Power of Attorney have been duly executed and delivered by or on
behalf of each of the Selling Shareholders and constitute valid
and binding agreements of such Selling Shareholders 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
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limited by federal or state securities laws or the public policy
underlying such laws.
(xii) The sale of the Shares to be sold by each Selling
Shareholder hereunder and the compliance by such Selling
Shareholder with all of the provisions of this Agreement, the
Custody Agreement and the Power of Attorney and the consummation
of the transactions herein and therein contemplated will not
conflict with or result in a breach or violation of any terms or
provisions of, or constitute a default under any material
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to which such
Selling Shareholder is a party or by which such Selling
Shareholder is bound or to which any of the property or assets of
such Selling Shareholder is subject, or any statute, order, rule
or regulation of any court or governmental agency or body known to
such counsel to be applicable to such Selling Shareholder or the
property of such Selling Shareholder.
(xiii) No consent, approval, authorization or order of
any court or governmental agency or body is required for the
consummation of the transactions contemplated by this Agreement in
connection with the Shares to be sold by each Selling Shareholder
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.
(xiv) Each of the Selling Shareholders has the full
right, power and authority to sell, transfer and deliver such
Shares pursuant to this Agreement. By delivery of a certificate
or certificates therefor, the Selling Shareholders will transfer
to the Underwriters valid and marketable title to such shares,
free and clear of any pledge, lien, security interest, charge,
claim, equity, or encumbrance of any kind.
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 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
and public officials.
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(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, in form and substance satisfactory to
the Representatives, stating that they are independent public accountants
with respect to the Company within the meaning of the Securities Act and
the applicable Rules and Regulations, and to the effect that:
(i) In their opinion, the financial statements
audited by them and included in the Registration Statement comply
as to form in all material respects with the applicable accounting
requirements of the Securities 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" and "SELECTED CONSOLIDATED
FINANCIAL AND 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 included
in the Final Prospectus or previously reported on by them;
(iii) On the basis of a reading of the latest available
interim consolidated financial statements (unaudited) of the
Company, a reading of the minute books of the Company, inquiries
of officials of the Company responsible for financial and
accounting matters and other specified procedures, all of which
have been agreed to by the Representatives, nothing came to their
attention that caused them to believe that:
(A) The amounts included in the Preliminary
Prospectus and the Final Prospectus under the captions
"PROSPECTUS SUMMARY" and "SELECTED CONSOLIDATED FINANCIAL AND
OPERATING DATA" for the three fiscal years ended December 31,
1993, 1994 and 1995, do not agree with the corresponding
amounts in the audited financial statements included in the
Final Prospectus previously reported on by them;
(B) At a specified date not more than five
days prior to the date of delivery of such respective letter,
there was any change in the
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<PAGE> 23
capital stock, decline in shareholders' 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
consolidated balance sheet included 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
(C) 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 five days prior to the date of delivery of
such respective letter, there were any decreases in total
revenues 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, 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 the Company or to analyses and schedules prepared by the Company
from its detailed accounting records.
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 shareholders' 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 total net
revenues or net earnings of the Company, in each case as compared with the
corresponding period of the prior year.
(f) 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;
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<PAGE> 24
(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 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.
(g) The representations and warranties of each Selling
Shareholder in Section 2 of this Agreement shall be true and correct as of
the Closing Date and such Selling Shareholders shall deliver to the
Representatives a certificate to that effect, dated the Closing Date,
signed by such Selling Shareholder or his or its duly appointed
attorney-in-fact.
(h) 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 unadvisable 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.
(i) The Shares have been duly authorized for quotation on The
NASDAQ National Market System, 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.
24
<PAGE> 25
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) The Company and each of the Selling Shareholders,
severally and not jointly, agree 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
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 Shareholders 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 and in the first, third
and fourth paragraphs under the caption "Underwriting" in any Preliminary
Prospectus and the Final Prospectus and the Effective Prospectus).
(b) Each Underwriter, severally and not jointly, will
indemnify and hold harmless each of the Selling Shareholders 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 Shareholders or Company or any
such director, officer or controlling person may become subject, under the
Securities Act or otherwise,
25
<PAGE> 26
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 and in the
first, third and fourth 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 to be represented by
separate counsel, and in that event the fees and expenses of separate
counsel shall be paid by the indemnifying party.
Neither the Company nor any of the Selling Shareholders will, without prior
written consent of each Representative, 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 such Underwriter is a
party to such claim, action, suit or proceeding), unless such settlement,
compromise or consent includes an unconditional release of such Underwriter
from all liability arising out of such claim, action, suit or proceeding (or
related cause of action or portion thereof).
26
<PAGE> 27
(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 Shareholders or is
insufficient to hold harmless an indemnified party, then the Company and
the Selling Shareholders shall contribute to the damages paid by the
Underwriters, and the Underwriters shall contribute to the damages paid by
the Company and the Selling Shareholders 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 Shareholders 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. 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.
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
27
<PAGE> 28
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 Shareholders. If the Selling Shareholders
shall fail to sell and deliver the number of Firm Shares or Option Shares, as
the case may be, that the Selling Shareholders 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 Shareholders have defaulted, or (b) elect to purchase
the Firm Shares and the Option Shares that the Company and the non-defaulting
Selling Shareholders 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 Shareholder 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
Shareholders 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 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.
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<PAGE> 29
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 Shareholder shall have
failed, refused or been unable to perform any agreement on the part of the
Company or such Selling Shareholder 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
Shareholders 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.
15. Miscellaneous. This Agreement shall inure to the benefit of and
be binding upon the several Underwriters, the Company, the Selling Shareholders
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
Shareholders 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 Shareholders 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
29
<PAGE> 30
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 Shareholders 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 Shareholders and each of the several Underwriters.
30
<PAGE> 31
Very truly yours,
ULTRAK, INC.
By:
------------------------------------
Title:
---------------------------------
SELLING SHAREHOLDERS
By:
------------------------------------
Attorney-in-Fact for each of the
Selling Shareholders listed in
Schedule I hereto
Confirmed and accepted as of the
date first above written.
J.C. BRADFORD & CO.
HOAK SECURITIES CORP.
For themselves and as Representatives
of the several Underwriters
J.C. BRADFORD & CO.
By:
----------------------------------------
Title:
------------------------------------
HOAK SECURITIES CORP.
By:
----------------------------------------
Title:
------------------------------------
31
<PAGE> 32
SCHEDULE I
SELLING SHAREHOLDERS
<TABLE>
<CAPTION>
Number of Firm Shares
Name to be Sold
- -------------------------------- ---------------------
<S> <C>
Petrus Fund L.P. 100,000
RBC, Inc. 20,023
Sherry R. Pate 7,540
-------
TOTAL 127,563
=======
</TABLE>
SCHEDULE I
<PAGE> 33
SCHEDULE II
UNDERWRITERS
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriter to Be Purchased
----------- ---------------------
<S> <C>
J.C. Bradford & Co.
Hoak Securities Corp.
---------
TOTAL 2,200,000
=========
</TABLE>
SCHEDULE II
<PAGE> 1
EXHIBIT 23.1
We have issued our report dated February 19, 1996, accompanying the
financial statements of Ultrak, Inc. and Subsidiaries contained in the
Registration Statement and Prospectus. We consent to the use of the
aforementioned report 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
April 26, 1996
<PAGE> 1
EXHIBIT 23.2
We have issued our report dated March 17, 1995, accompanying the financial
statements of Diamond Electronics, Inc. and Subsidiary contained in the
Registration Statement and Prospectus. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus, and to the
use of our name as it appears under the caption "Experts".
NORMAN, JONES, ENLOW & CO.
Columbus, Ohio
April 26, 1996
