<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 16, 1996.
REGISTRATION NO. 333-07911
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
BALLANTYNE OF OMAHA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3968 22-2485688
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
---------------
4350 MCKINLEY STREET
OMAHA, NEBRASKA 68112
(402) 453-4444
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
RONALD H. ECHTENKAMP
BALLANTYNE OF OMAHA, INC.
4350 MCKINLEY STREET
OMAHA, NEBRASKA 68112
(402) 453-4444
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
MARJORIE SYBUL ADAMS, ESQ. WILLIAM N. DYE, ESQ.
GORDON ALTMAN BUTOWSKY WILLKIE FARR & GALLAGHER
WEITZEN SHALOV & WEIN ONE CITICORP CENTER
114 WEST 47TH STREET 153 EAST 53RD STREET
NEW YORK, NEW YORK 10036 NEW YORK, NEW YORK 10022
(212) 626-0800 (212) 821-8000
---------------
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 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 the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
---------------
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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 July 16, 1996
1,100,000 Shares
[LOGO OF BALLANTYNE OF OMAHA, INC.]
Common Stock
--------------
Ballantyne of Omaha, Inc. (the "Company") hereby offers (the "Offering")
1,100,000 shares of its common stock, $.01 par value (the "Common Stock"). The
Common Stock is listed and traded on the American Stock Exchange (the "AMEX")
under the symbol "BTN." The last sale price of the Common Stock on July 15,
1996, as reported by the AMEX, was $13.125 per share.
--------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
--------------
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.
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<TABLE>
<CAPTION>
Price Underwriting
to Discounts and Proceeds to
Public Commissions (1) Company (2)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................. $ $ $
Total (3)............................. $ $ $
- ------------------------------------------------------------------------------
</TABLE>
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2)Before deducting expenses, estimated to be $470,000, payable by the Company.
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase an aggregate of up to 165,000
additional shares of Common Stock at the Price to Public less Underwriting
Discounts and Commissions, to cover over-allotments, if any. If all such
additional shares are purchased, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."
--------------
The Common Stock is offered by the several Underwriters named herein when, as
and if received and accepted by them, subject to their right to reject orders
in whole or in part and subject to certain other conditions. It is expected
that delivery of certificates for the shares will be made at the offices of
Cowen & Company, New York, New York, on or about , 1996.
--------------
COWEN & COMPANY
L.H. FRIEND, WEINRESS, FRANKSON & PRESSON, INC.
, 1996
<PAGE>
[PICTURES OF VARIOUS MOTION PICTURE THEATRES]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE AMEX OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
"Strong(TM)," "Simplex(TM)," "Century(R)," "Optimax(R)," "Ballantyne(TM),"
"Super Trouper(R)," "Gladiator(TM)," "Roadie(TM)," "Flavor Crisp(R)" and
"Flavor Pit(R)" are trademarks of the Company. ISCO-Optic is a trademark of
ISCO-Optic GmbH.
2
<PAGE>
PROSPECTUS SUMMARY
The following information is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the consolidated
financial statements, including the notes thereto, appearing elsewhere in this
Prospectus. Except as otherwise noted, all information in this Prospectus: (i)
assumes no exercise of the Underwriters' over-allotment option and (ii) gives
effect to the 10% stock distribution effected on March 8, 1996. Unless
otherwise indicated, all references in this Prospectus to the "Company" mean
Ballantyne of Omaha, Inc., a Delaware corporation, and its consolidated
subsidiaries. Certain of the information contained in this summary and
elsewhere in this Prospectus, including under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business,"
including information with respect to the Company's plans and strategy for its
business, are forward-looking statements. For a discussion of important factors
that could cause actual results to differ materially from such forward-looking
statements, see "Risk Factors."
THE COMPANY
Ballantyne of Omaha, Inc. (the "Company") is the leading manufacturer of
commercial motion picture projection equipment and long-range follow spotlights
in the U.S. The Company's broad range of equipment, which can fully outfit and
automate a motion picture projection booth, is used by major motion picture
exhibitors such as AMC Entertainment, Inc., Cinemark USA, Inc., Cineplex Odeon
Corporation and Regal Cinemas, Inc. The Company's products are sold primarily
through a dealer network as well as directly to motion picture exhibitors.
The number of new movie screens has been growing as a result of construction
of multiplex and megaplex movie theatres domestically and internationally.
According to a published industry source, the net number of new indoor
commercial motion picture screens added in the U.S. in 1995 was 1,165,
representing an 11.9% increase over the rate of increase in 1994. The Company
believes that the international market also presents attractive growth
opportunities for sales of its theatre products because the international
market is relatively underserved with motion picture screens and the Company's
international market share is smaller than its domestic market share. The
Company expects that its longstanding emphasis on strong customer relationships
and its recognized brand names will assist the Company's penetration of the
international market as many of its U.S.-based dealers and motion picture
exhibitor customers expand internationally. The Company is seeking to continue
to strengthen and develop its international presence. To better serve the fast-
growing Asian market, in December 1994 the Company acquired Westrex Company,
Asia ("Westrex"), a Hong Kong-based dealer of commercial motion picture
projection equipment.
The Company also manufactures customized motion picture projection equipment
for use in special venues, such as motion simulation rides, large screen format
presentations and other forms of motion picture-based entertainment requiring
visual and multimedia special effects. The Company manufactures customized
equipment for customers such as Imax Corporation, Iwerks Entertainment Inc. and
The Walt Disney Company for use at special venue sites such as IMAX Ridefilm
Simulators, Universal Studios, The Magic Kingdom and EPCOT Center. The Company
believes that its position as a fully-integrated equipment manufacturer enables
it to be more responsive to its customers' specific design requirements, giving
it a competitive advantage over other manufacturers who rely more on outsourced
components.
The Company's long-range follow spotlights are used in sports stadiums such
as the Toronto Sky Dome, the Continental Airlines Arena in the New Jersey
Meadowlands and the Sheffield Arena in the United Kingdom, for special events
such as the 1996 Summer Olympics in Atlanta, and in concert tours by, among
others, the Rolling Stones, R.E.M. and Pink Floyd.
3
<PAGE>
The Company also manufactures a line of commercial food service equipment
which is sold primarily through a dealer network to convenience store and fast
food restaurant operators and to equipment suppliers for resale on a private
label basis. The Company's restaurant equipment business, which was initiated
in the 1960's to supply snack stands at drive-in theatres, utilizes a
manufacturing process complementary to that of its theatre products. Further,
the Company believes that this business offers the potential to sell concession
stand equipment to newly constructed theatres, for which it is already
supplying commercial motion picture projection equipment.
The Company was incorporated in 1976. The Company's principal executive
offices and manufacturing facility are located at 4350 McKinley Street, Omaha,
Nebraska 68112, and its telephone number is (402) 453-4444.
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company..... 1,100,000 shares
Common Stock outstanding after this Of-
fering................................. 5,499,995 shares (1)
Use of proceeds......................... To repay debt, to expand the
Company's manufacturing facility and
for working capital and other
general corporate purposes,
including possible acquisitions.
AMEX symbol............................. BTN
</TABLE>
- --------
(1) Does not include: (i) 434,500 shares of Common Stock issuable upon exercise
of outstanding options under the Company's stock option plans and (ii)
298,100 shares of Common Stock issuable upon exercise of outstanding
warrants and other options to purchase Common Stock. See "Management--
Employee Benefit Plans" and "Description of Capital Stock--Warrants and
Options to Purchase Common Stock."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------------- ---------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
STATEMENT OF INCOME DATA
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $16,828 $18,214 $22,631 $28,758 $38,441 $18,065 $23,858
Cost of sales........... 12,658 13,363 15,864 20,127 27,451 12,791 17,075
Gross profit............ 4,170 4,851 6,767 8,631 10,990 5,275 6,283
Income from operations.. 1,270 1,831 2,944 4,189 5,309 2,474 3,630
Net income.............. 519 876 1,500 2,355 3,040 1,451 1,967
Net income per share
(1).................... 0.45 0.63 0.28 0.41
Weighted average number
of shares outstanding.. 4,400 4,436 4,400 4,781
Pro forma: (2)
Net income............ $ 3,166 $ 2,182
Net income per share.. $ 0.57 $ 0.37
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------
AS
ACTUAL ADJUSTED(3)
BALANCE SHEET DATA ------- -----------
<S> <C> <C>
Working capital............................................. $10,903 $16,296
Total assets................................................ 22,455 27,240
Total debt.................................................. 8,726 555
Stockholders' equity........................................ 7,022 19,979
</TABLE>
- --------
(1) See Note 13 to Consolidated Financial Statements.
(2) Pro forma net income and net income per share assume (i) net proceeds from
the Offering (assuming a public offering price of $13.125 per share) were
available at the beginning of each period presented and the borrowings
under the Norwest Facility (as hereinafter defined) and capital leases were
repaid in full and (ii) the issuance of 1,100,000 shares of Common Stock at
the beginning of each period presented.
(3) As adjusted to reflect the sale by the Company of the 1,100,000 shares of
Common Stock offered hereby (assuming a public offering price of $13.125
per share) and the application of the net proceeds therefrom. See "Use of
Proceeds."
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating an investment in the
Company before purchasing the shares of Common Stock offered hereby.
DEPENDENCE ON MOTION PICTURE SCREEN GROWTH
Because the Company's commercial motion picture projectors have an estimated
useful life of approximately 20 years, the Company's net sales and
profitability are dependent primarily upon growth in the number of motion
picture screens and the renovation and replacement of commercial motion
picture projection equipment in existing theatres. For the years ended
December 31, 1993, 1994 and 1995, approximately 77%, 80% and 87%,
respectively, of the Company's net sales were derived from sales of its
commercial motion picture projection equipment. Although industry analysts
foresee growth in the number of motion picture screens as a result of the
trend toward multiplexing and megaplexing and the introduction of new forms of
motion picture-based entertainment, there can be no assurance that this
expectation will prove accurate. In addition, growth in the number of new
motion picture screens may be adversely affected by the availability of home
entertainment delivery systems. A lack of an increase in motion picture screen
growth would have a material adverse effect upon the Company's results of
operations. See "Business--Motion Picture Exhibition Industry Overview."
COMPETITION
The market for commercial motion picture projection equipment is highly
competitive. In the international market, where the Company has a smaller
market share than in the domestic market, the Company believes that its
largest competitor has significantly greater market share than the Company. In
addition to existing commercial motion picture projection equipment
manufacturers, the Company may also encounter competition from new
competitors, as well as from new types of equipment. No assurance can be given
that the commercial motion picture projection equipment manufactured by the
Company will not become obsolete as technology advances. In addition, the
markets for the Company's long-range follow spotlight and restaurant products
are highly competitive. Competitors of the Company may also have significantly
greater financial resources than the Company which may impede the ability of
the Company to compete effectively. See "Business--Competition."
DEPENDENCE ON KEY MANAGEMENT
The Company's success depends, in substantial part, on the efforts and
abilities of Ronald H. Echtenkamp, the Company's President and Chief Executive
Officer, and John Wilmers, the Company's Executive Vice President, Sales. Mr.
Echtenkamp's employment contract terminates on March 31, 1997, at which time
the Company expects that Mr. Echtenkamp will be appointed Vice Chairman of its
Board of Directors (the "Board") and that Mr. Wilmers will be promoted to
President and Chief Executive Officer. Mr. Wilmers' employment contract
expires on October 15, 1997, and it is contemplated that his contract will be
renegotiated in connection with this promotion. Failure to retain the services
of Messrs. Echtenkamp and Wilmers could have a material adverse effect on the
Company. The Company does not maintain key man life insurance on the lives of
Messrs. Echtenkamp or Wilmers. See "Management--Executive Compensation--
Employment Contracts."
UNCERTAINTIES REGARDING INTERNATIONAL SALES
For the years ended December 31, 1993, 1994 and 1995, the Company generated
net sales to foreign customers of approximately $4.6 million, $6.4 million and
$11.3 million, respectively, which accounted for approximately 20%, 22% and
29% of the Company's total net sales for such years, respectively. These
amounts do not include sales to domestic export dealers and domestic theatre
chains of products which are ultimately exported. The Company expects that
international sales will continue to account for a substantial portion of its
revenues. International sales may be subject to political and economic risks,
including political instability, currency controls, fluctuating exchange rates
with respect to sales not denominated in U.S. dollars and changes in
import/export regulations, tariffs and freight rates. To date, all of the
Company's international sales have been
6
<PAGE>
denominated in U.S. dollars, exclusive of Westrex net sales (approximately
$2.9 million in 1995) which are denominated in Hong Kong dollars. A weakening
in the value of foreign currencies relative to the U.S. dollar could have an
adverse impact on the Company by increasing the effective price of the
Company's products in its international markets. In addition, there can be no
assurance that the Company's international customers will continue to accept
orders denominated in U.S. dollars. To the extent that orders are denominated
in foreign currencies, the Company's reported sales and earnings are more
directly subject to foreign exchange fluctuations. There can be no assurance
that these factors will not adversely affect the Company's international sales
in the future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
LIMITED SOURCE FOR CERTAIN COMPONENTS
The Company does not manufacture certain of its components, including film
platters, lenses and intermittent movement components for its commercial
motion picture projection equipment and the aluminum kettles for its pressure
fryers. Each such component is sourced by the Company from a single contract
manufacturer. Although to date the Company has not experienced any significant
difficulty in obtaining these components, there can be no assurance that
shortages will not arise in the future. The loss of any one or more suppliers
of any such components would have an adverse effect on the Company's business
until alternative supplies could be secured. See "Business--Manufacturing."
POSSIBLE FACILITY EXPANSION DELAYS
The Company anticipates that the growth in its business will require
expansion of its existing Omaha, Nebraska manufacturing facility by mid-1997.
The Company intends to use approximately $2.0 million of the net proceeds of
the Offering to finance this expansion, which is scheduled to begin in the
third quarter of 1996, and to purchase additional capital equipment. If such
expansion is not implemented in a timely manner, the Company may experience
capacity constraints that may increase costs or cause production delays which
could adversely affect the Company's ability to meet order delivery dates and
to accept further orders. See "Business--Manufacturing."
CONTROL BY MAJORITY STOCKHOLDER
Upon completion of this Offering, ARC International Corporation ("ARC"),
will be the beneficial owner of 52.4% of the outstanding shares of Common
Stock (50.9% if the Underwriters' over-allotment option is exercised in full).
ARC, a corporation that acquires and develops companies focused in the
entertainment, leisure and communications industries, holds its Common Stock
through its indirect wholly-owned subsidiary, Canrad of Delaware Inc. ("Canrad
Delaware"). As a result of the level of its beneficial ownership of the Common
Stock, ARC is in a position to control substantially all corporate matters
requiring stockholder approval, including the election of directors and merger
and consolidation proposals, and thereby is in a position to control the
Company. Such control may have the effect of delaying or preventing a change
in control of the Company, including transactions in which stockholders might
otherwise receive a premium for their shares over the market price of such
shares. Currently, two members of the Board are directors and employees of ARC
or its affiliates (other than the Company), and one of such directors has
substantial shareholdings in ARC. In connection with the Company's initial
public offering, Canrad Delaware agreed with the managing underwriters of such
offering to vote, until September 12, 1997, all shares of voting capital stock
of the Company beneficially owned by it in the same proportion as the votes
cast by non-affiliates with respect to any liquidation, and certain mergers or
business combinations involving the Company. See "Management--Directors and
Executive Officers" and "Principal Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Future sales of Common Stock in the public market, or the perception that
such sales could occur, could adversely affect the market price of the Common
Stock or the Company's ability to raise additional capital through sales of
its equity securities. Upon completion of the Offering, in addition to the
1,518,000 shares sold in the Company's initial public offering and the
1,100,000 shares offered hereby, the Company will have: (i) 2,882,000 shares
outstanding owned by Canrad Delaware, a subsidiary of ARC; (ii) 550,000 shares
of Common
7
<PAGE>
Stock reserved for issuance under the Company's stock option plans, of which
434,500 shares are issuable pursuant to currently outstanding options
thereunder; (iii) 298,100 shares of Common Stock issuable pursuant to
outstanding warrants and other options to purchase Common Stock and (iv)
275,000 shares of Common Stock reserved for issuance pursuant to the Company's
employee stock purchase plan. Of the shares of Common Stock owned by Canrad
Delaware, 132,000 shares are subject to options granted to the managing
underwriters of the Company's initial public offering. Of the shares
outstanding or subject to outstanding options, upon completion of the Offering
2,644,090 will be immediately eligible for resale in the public market without
restriction under the Securities Act of 1933, as amended (the "Securities
Act"), and substantially all of the remaining shares will be eligible for
resale in the public market subject to compliance with the applicable
provisions of Rule 144 under the Securities Act. The Company is unable to
predict the effect that sales made under Rule 144, or otherwise, may have on
the then prevailing market price of the Common Stock.
Substantially all of the shares owned by Canrad Delaware, 72,910 shares
currently owned by officers and directors of the Company, 335,500 shares
issuable to officers and directors of the Company pursuant to the Company's
stock option plans and 298,100 shares issuable pursuant to outstanding
warrants and other options to purchase Common Stock are subject to "lock-up"
agreements under which the holders thereof have agreed not to sell or
otherwise dispose of such securities without the prior consent of Cowen &
Company for a period of 90 days after the date of the final Prospectus. The
Company has entered into registration rights agreements with certain holders
of outstanding warrants and options to purchase an aggregate of 402,600 shares
of Common Stock pursuant to which the Company has agreed to register under the
Securities Act the resale of the shares held by such holders. By exercising
the registration rights, subject to certain limitations, such holders could
cause their shares to be registered and sold in the public market.
All of the shares of Common Stock owned by Canrad Delaware as well as the
stock of certain other subsidiaries of ARC (including Cabletel Communications
Corporation ("Cabletel"), whose shares are publicly traded), have been pledged
to Merita Bank Ltd ("Merita Bank") to secure indebtedness of Canrad Delaware's
parent company, Canrad Inc., under a revolving credit facility (the "Canrad
Credit Facility"). The Company has been advised by Canrad Delaware that, as of
June 30, 1996, the principal amount of indebtedness outstanding under the
Canrad Credit Facility was approximately $5.5 million. In the event of a
default under the Canrad Credit Facility, Merita Bank has certain rights as a
secured creditor under the terms of the Canrad Credit Facility to vote and to
sell or otherwise dispose of all or a portion of the pledged shares, including
the Common Stock. Although such shares of Common Stock are subject to the
"lock-up" agreements, Cowen & Company has agreed to consent to sales thereof
by Merita Bank in the event of a default under the Canrad Credit Facility. See
"Management--Employee Benefit Plans," "Description of Capital Stock--Warrants
and Options to Purchase Common Stock" and "Shares Eligible for Future Sale."
UNCERTAINTY OF FUTURE ACQUISITIONS
Although the Company does not currently have any specific acquisition under
consideration, the Company may make acquisitions in the future. Significant
uncertainties accompany any acquisition and its integration with the Company's
existing operations, such that any acquisition could have an adverse effect on
the Company. There can be no assurance that the Company will be able to locate
appropriate acquisition candidates, that any identified candidates will be
acquired or that acquired operations will be effectively integrated or prove
profitable. The Company's revolving credit facility with Norwest Bank
Nebraska, N.A. ("Norwest Bank") currently prohibits the Company from making
acquisitions without the consent of Norwest Bank.
CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation provides for, among other things,
the issuance of 1,000,000 shares of preferred stock. The Board is authorized,
without stockholder approval, to cause the Company to issue such preferred
stock in one or more series and to fix the voting powers and the designations,
preferences and relative, participating, optional or other rights and
restrictions thereof. Accordingly, the Company may issue a series of preferred
stock in the future that will have preference over the Common Stock with
respect to the
8
<PAGE>
payment of dividends and upon the Company's liquidation, dissolution or
winding up or have voting or conversion rights that could adversely affect the
voting power and ownership percentages of the holders of Common Stock. The
Company's Certificate of Incorporation also provides for the affirmative vote
of at least 66 2/3% of all outstanding shares of capital stock entitled to
vote generally in the election of directors, voting as a single class, to
change certain provisions of such Certificate of Incorporation and the
Company's By-Laws, and to change the authority of the Board, without further
action by stockholders, to cause the Company to issue shares of preferred
stock. The Company's Certificate of Incorporation further provides for the
division of the Board into three classes. One class of directors is elected at
each annual meeting of stockholders for three-year terms. The Company's By-
Laws contain certain advance notice requirements relating to stockholder
proposals and stockholder nomination of directors. These provisions, together
with the level of beneficial ownership of the outstanding Common Stock by ARC,
may have the effect of making more difficult or discouraging transactions that
could give stockholders of the Company the opportunity to realize a premium
over the then prevailing market price for their shares of Common Stock. See
"Description of Capital Stock--Preferred Stock" and "--Certain Provisions of
the Company's Certificate of Incorporation and By-Laws" and "Principal
Stockholders."
POSSIBLE VOLATILITY OF STOCK PRICE; LIMITED TRADING VOLUME
The trading price of the Common Stock may be highly volatile and could be
subject to significant fluctuations in response to variations in the Company's
quarterly operating results, general conditions in the industries in which the
Company operates and other factors. In addition, the stock market is subject
to price and volume fluctuations affecting the market price for the stock of
many companies generally, which fluctuations often are unrelated to operating
performance. Although the Common Stock is listed on the AMEX, daily trading
volume of the Common Stock has generally been limited and accordingly the
trading price is more vulnerable to significant fluctuations. See "Price Range
of Common Stock."
9
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,100,000 shares of
Common Stock offered hereby, at an assumed offering price of $13.125 per share
(after deducting underwriting discounts and commissions and offering expenses)
are estimated to be approximately $12,956,875 ($14,970,906 if the
Underwriters' over-allotment option is exercised in full).
The Company intends to use approximately $7.6 million of the net proceeds of
this Offering to repay all of its outstanding indebtedness under its revolving
credit facility with Norwest Bank (the "Norwest Facility"). The Company
established the Norwest Facility in September 1995 in connection with its
initial public offering, at which time it borrowed $8.0 million thereunder and
used the proceeds to pay an $8.0 million dividend to Canrad Delaware, the
Company's then sole stockholder. Amounts outstanding under the Norwest
Facility, which terminates in September 2000, bear interest at Norwest Bank's
National Money Market Rate (8.25% at June 30, 1996).
The Company intends to use approximately $2.0 million of the net proceeds of
this Offering to expand its manufacturing facility in Omaha, Nebraska, through
construction of approximately 20,000 square feet of additional space and the
reclamation of approximately 10,000 square feet of existing unusable space and
to purchase additional capital equipment. In addition, the Company intends to
use approximately $551,600 of the net proceeds of this Offering to repay all
of its outstanding obligations under its five existing capitalized equipment
leases. The weighted average annual interest rate on the capitalized equipment
leases, which have maturity dates ranging from February 1997 to January 2001,
is 8.72%.
The balance of the net proceeds of this Offering will be used for the
Company's working capital and other general corporate purposes, including
possible acquisitions. Pending the foregoing uses, the net proceeds of this
Offering will be invested in short-term, interest bearing securities or money
market investments.
PRICE RANGE OF COMMON STOCK
The Common Stock is listed and traded on the AMEX under the symbol "BTN."
The following table sets forth the high and low last reported sale prices for
the Common Stock as reported by the AMEX for the periods indicated (rounded to
the nearest 1/8):
<TABLE>
<CAPTION>
HIGH LOW
------ -------
<S> <C> <C>
1995
Third Quarter (from September 6)......................... $7 $ 6 1/4
Fourth Quarter........................................... 7 3/8 6
1996
First Quarter............................................ 9 1/4 7
Second Quarter........................................... 17 5/8 8 5/8
Third Quarter (through July 15).......................... 16 1/4 13 1/8
</TABLE>
On July 15, 1996, the last reported sale price for the Common Stock was $13
1/8. As of July 15, 1996, there were approximately 44 holders of record of the
Common Stock.
DIVIDEND POLICY
The Company intends to retain its earnings to assist in financing its
business and does not anticipate paying any dividends on its Common Stock in
the foreseeable future. The Norwest Facility and the Company's industrial
development revenue bond ("IRB") contain certain prohibitions on the payment
of cash dividends. In addition, the underwriting agreement relating to the
Company's initial public offering restricts the payment of cash dividends
until September 1997. The declaration and payment of dividends by the Company
are also subject to the discretion of the Board. Any determination by the
Board as to the payment of dividends in the future will depend upon, among
other things, business conditions and the Company's financial condition and
capital requirements, as well as any other factors deemed relevant by the
Board. The Company paid an $8.0 million dividend to Canrad Delaware in
September 1995 in connection with its initial public offering. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
10
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996, and as adjusted to give effect to the issuance and sale by the
Company of 1,100,000 shares of Common Stock offered hereby, at an assumed
public offering price of $13.125 per share (after deducting underwriting
discounts and commissions and offering expenses), and the application of a
portion of the net proceeds of the Offering to reduce certain of the Company's
indebtedness. See "Use of Proceeds." The table should be read in conjunction
with the Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
Current installments of long-term debt (1)............. $ 879,860 $ 272,096
----------- -----------
Long-term debt, excluding current installments:
7.9% IRB............................................. 282,457 282,457
Revolving credit facility............................ 7,120,000 --
Capital lease obligations............................ 443,825 --
----------- -----------
Total long-term debt............................... 7,846,282 282,457
----------- -----------
Stockholders' equity:
Preferred stock, $.01 par value--1,000,000 shares
authorized,
none issued or outstanding.......................... -- --
Common stock, $.01 par value--10,000,000 shares
authorized,
4,399,995 shares issued and outstanding
(5,499,995 shares as adjusted) (2).................. 44,000 55,000
Additional paid-in capital........................... 5,011,215 17,957,090
Retained earnings...................................... 1,967,282 1,967,282
----------- -----------
Total stockholders equity.......................... 7,022,497 19,979,372
----------- -----------
Total capitalization.............................. $15,748,640 $20,533,925
=========== ===========
</TABLE>
- --------
(1) See Note 5 of Notes to Consolidated Financial Statements.
(2) Excludes 434,500 shares of Common Stock reserved for issuance upon
exercise of outstanding stock options under the Company's stock option
plans and 298,100 shares of Common Stock issuable upon exercise of
outstanding warrants and other options to purchase Common Stock. See
"Management--Employee Benefit Plans" and "Description of Capital Stock--
Warrants and Options to Purchase Common Stock."
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data of the Company
as of December 31, 1992, 1993, 1994 and 1995, and for the years then ended,
have been derived from the consolidated financial statements of the Company.
The consolidated financial statements as of December 31, 1994 and 1995 and for
each of the years in the three-year period ended December 31, 1995, and the
report of the independent public accountants thereon, are included elsewhere
in the Prospectus. The selected consolidated financial data presented as of
December 31, 1991 and June 30, 1996 and for the year ended December 31, 1991
and the six months ended June 30, 1995 and 1996 have been derived from the
Company's unaudited consolidated financial statements. In the opinion of
management, the unaudited consolidated financial statements for such periods
include all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the consolidated financial position and results of
operations for these periods. Results of operations for interim periods are
not necessarily indicative of results to be expected for the full year. The
information should be read in conjunction with the Consolidated Financial
Statements and Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net sales............... $16,828 $18,214 $22,631 $28,758 $38,441 $18,065 $23,858
Cost of sales........... 12,658 13,363 15,864 20,127 27,451 12,791 17,075
------- ------- ------- ------- ------- ------- -------
Gross profit............ 4,170 4,851 6,767 8,631 10,990 5,275 6,783
Operating expenses...... 2,900 3,020 3,823 4,442 5,681 2,801 3,153
------- ------- ------- ------- ------- ------- -------
Income from operations.. 1,270 1,831 2,944 4,189 5,309 2,474 3,630
Interest expense........ 337 316 406 239 277 42 382
------- ------- ------- ------- ------- ------- -------
Income before income
taxes.................. 933 1,515 2,538 3,950 5,032 2,432 3,248
Income taxes............ 414 639 1,038 1,595 1,992 981 1,281
------- ------- ------- ------- ------- ------- -------
Net income.............. $ 519 $ 876 $ 1,500 $ 2,355 $ 3,040 $ 1,451 $ 1,967
======= ======= ======= ======= ======= ======= =======
Net income per share
(1).................... 0.45 0.63 0.28 0.41
Weighted average number
of shares outstanding.. 4,400 4,436 4,400 4,781
Pro forma: (2)
Net income............. $3,166 $2,182
Net income per share... $0.57 $0.37
<CAPTION>
DECEMBER 31, JUNE 30, 1996
--------------------------------------- -------------------
AS
1991 1992 1993 1994 1995 ACTUAL ADJUSTED(3)
------- ------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital......... $ 2,678 $ 3,827 $ 4,773 $ 7,079 $ 8,625 $10,903 $16,296
Total assets............ 10,724 11,127 15,919 16,674 19,828 22,455 27,240
Total debt (4).......... 1,255 1,160 2,317 1,607 8,059 8,726 555
Stockholders' equity
(4).................... 5,284 6,160 7,660 10,015 5,055 7,022 19,979
</TABLE>
- --------
(1) See Note 13 to Consolidated Financial Statements.
(2) Pro forma net income and net income per share assume (i) net proceeds from
the Offering (assuming a public offering price of $13.125 per share) were
available at the beginning of each period presented and the borrowings
under the Norwest Facility and capital leases were repaid in full and (ii)
the issuance of 1,100,000 shares of Common Stock at the beginning of each
period presented.
(3) As adjusted to reflect the sale by the Company of the 1,100,000 shares of
Common Stock offered hereby (assuming a public offering price of $13.125
per share) and the application of the net proceeds therefrom. See "Use of
Proceeds."
(4) Total debt and stockholders' equity at December 31, 1995 reflect the
Company's incurrence of $8.0 million of indebtedness under the Norwest
Facility and the payment by the Company of an $8.0 million dividend to
Canrad Delaware with the proceeds of such indebtedness in connection with
the Company's initial public offering in September 1995.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Prospectus. The following discussion and analysis contains certain
forward-looking statements. For a discussion of important factors that could
cause actual results to differ materially from such forward-looking
statements, including, without limitation, a lack of continued growth in the
number of new motion picture screens, both domestically and internationally,
and political and economic factors associated with international sales, see
"Risk Factors."
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
net sales represented by certain items reflected in the Company's statement of
income:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
--------------------------------- ------------
1991 1992 1993 1994 1995 1995 1996
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................. 75.2 73.4 70.1 70.0 71.4 70.8 71.6
Gross profit.................. 24.8 26.6 29.9 30.0 28.6 29.2 28.4
Operating expenses............ 17.2 16.6 16.9 15.4 14.8 15.5 13.2
Income from operations........ 7.6 10.0 13.0 14.6 13.8 13.7 15.2
Net income.................... 3.1 4.8 6.6 8.2 7.9 8.0 8.2
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1995
Net sales for the six months ended June 30, 1996 (the "1996 Period")
increased 32.1% to approximately $23.9 million from approximately $18.1
million for the six months ended June 30, 1995 (the "1995 Period"). The
following table sets forth comparative consolidated net sales of theatre
products and restaurant products for the respective periods:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
-----------------------
1995 1996
----------- -----------
<S> <C> <C>
Theatre Products.................................. $16,467,600 $22,698,900
Restaurant Products............................... 1,598,200 1,159,000
----------- -----------
Total Net Sales................................... $18,065,800 $23,857,900
=========== ===========
</TABLE>
Net sales of theatre products increased approximately $6.2 million or 37.8%
for the 1996 Period as compared to the 1995 Period. Net sales of commercial
motion picture projection equipment increased approximately $6.1 million or
39.9%, and net sales of follow spotlights increased approximately $102,000 or
10.9%. The majority of the increase in net sales of commercial motion picture
projection equipment was attributable to increased sales of such equipment to
foreign customers and to domestic customers for end users expanding into
foreign markets. Net sales of replacement parts increased approximately
$400,000 or 17.0% for the 1996 Period as compared to the 1995 Period.
Net sales of restaurant products decreased approximately $439,200, due in
part to a loss of one customer account by one of the Company's major
restaurant products customers.
Gross profit as a percentage of net sales decreased to 28.4% for the 1996
Period from 29.2% for the 1995 Period. The decrease is primarily attributable
to a greater percentage of lower margin theatre products sold in the 1996
Period as compared to the 1995 Period.
Operating expenses increased approximately $351,300 or 12.5% for the 1996
Period as compared to the 1995 Period. However, as a percentage of net sales,
such expenses decreased to 13.2% for the 1996 Period from 15.5% for the 1995
Period as a result of an increase in net sales of theatre products without a
proportional significant increase in selling costs (which include advertising,
travel and personnel expenses).
13
<PAGE>
Interest expense was approximately $381,800 for the 1996 Period as compared
to approximately $41,400 for the 1995 Period. This increase reflects the
interest expense attributable to the incurrence of $8.0 million of
indebtedness in September 1995 under the Norwest Facility in connection with
the Company's initial public offering. See "--Liquidity and Capital
Resources."
The effective tax rate was 39.4% for the 1996 Period as compared to the
statutory rate of 34.0%. The difference relates to the effect of state income
taxes and the non-deductibility of certain intangible expenses, principally
goodwill.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
Net sales for 1995 increased 33.7% to approximately $38.4 million from
approximately $28.8 million for 1994. The following table sets forth
comparative consolidated net sales of theatre products and restaurant products
for the respective periods:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995
----------- -----------
<S> <C> <C>
Theatre Products.................................. $25,731,200 $35,440,400
Restaurant Products............................... 3,027,200 3,001,000
----------- -----------
Total Net Sales................................... $28,758,400 $38,441,400
=========== ===========
</TABLE>
Net sales of theatre products increased approximately $9.7 million or 37.7%
for 1995 as compared to 1994. Net sales of commercial motion picture
projection equipment increased approximately $10.2 million or 43.8%, and net
sales of follow spotlights decreased approximately $485,000 or 19.7%. The
majority of the increase in sales of commercial motion picture projection
equipment was attributable to increased sales of such equipment to foreign
customers and to domestic customers for end users expanding into foreign
markets. Net export sales of theatre products increased approximately $2.2
million or 35.5% as compared to 1994. Net sales of replacement parts increased
from approximately $4.7 million in 1994 to approximately $4.9 million in 1995.
Net sales of theatre products in 1995 includes a full year of net sales of
Westrex, which was acquired on December 2, 1994.
Net sales of restaurant products remained relatively consistent between the
respective periods, which is due in part to the Company's historical focus on
the growth of its theatre products business.
Gross profit as a percentage of net sales decreased to 28.6% in 1995 from
30.0% in 1994. The decrease is primarily due to a full year of net sales of
Westrex, whose products have a lower gross profit margin than the Company's
non-Westrex theatre products.
Operating expenses increased approximately $1.2 million or 27.9% for 1995 as
compared to 1994. However, as a percentage of net sales, such expenses
decreased to 14.8% in 1995 from 15.4% in 1994 as a result of an increase in
net sales of theatre products without a proportional significant increase in
selling costs. In terms of the dollar increase in such expenses, 1995 includes
a full twelve months of operating expenses of Westrex, and also includes
amounts paid under the Company's profit sharing plan which reflects increased
operating income. See Note 14 to Consolidated Financial Statements. Also
included in these amounts is a management fee paid by the Company to Canrad
Inc. of approximately $300,000 for 1995 and $241,200 for 1994.
Interest expense was approximately $227,300 for 1995 as compared to
approximately $238,700 for 1994. Included in interest expense for 1994 is
approximately $129,700 of an allocation of interest charged by Canrad Inc.
relating to the collar agreement which expired on October 2, 1994. See "--
Previous Interest Collar Agreement" and Note 9 to Consolidated Financial
Statements. Non-allocated interest expense increased to approximately $277,300
for 1995 from approximately $109,000 for 1994. This increase resulted from
$8.0 million of indebtedness incurred in September 1995 under the Norwest
Facility in connection with the Company's initial public offering.
The effective tax rate was 39.6% for 1995 as compared to the statutory rate
of 34.0%. The difference relates to the effect of state income taxes and the
non-deductibility of certain intangible expenses, principally goodwill.
14
<PAGE>
YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE YEAR ENDED DECEMBER 31, 1993
Net sales for 1994 increased 27.1% to approximately $28.8 million from
approximately $22.6 million for 1993. The following table sets forth
comparative consolidated net sales of theatre products and restaurant products
for the respective periods:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1993 1994
----------- -----------
<S> <C> <C>
Theatre Products.................................. $19,581,000 $25,731,200
Restaurant Products............................... 3,049,800 3,027,200
----------- -----------
Total Net Sales................................... $22,630,800 $28,758,400
=========== ===========
</TABLE>
Net sales of theatre products increased approximately $6.2 million or 31.4%
for 1994 as compared to 1993. Net sales of commercial motion picture
projection equipment increased approximately $5.9 million or 34.3%, and net
sales of follow spotlights increased by approximately $212,700 or 9.5%. The
majority of the increase in net sales of commercial motion picture equipment
was attributable to net sales of such equipment to foreign customers and to
domestic customers for end users expanding into foreign markets. Net export
sales of theatre products increased by approximately $1.7 million or 39.0%
from 1993. Net sales of replacement parts increased from approximately $3.8
million in 1993 to approximately $4.7 million in 1994. Net sales of theatre
products in 1994 includes a full year of net sales of products of the Cinema
Products Division of Optical Radiation Corporation ("ORC"), which was acquired
on March 1, 1993, and the net sales of Westrex for the month of December 1994.
Net sales of restaurant products remained relatively consistent between the
respective periods, which is due in part to the Company's historical focus on
the growth of its theatre products business.
Gross profit as a percentage of net sales remained constant at 30.0% for
both periods. In addition, gross profit as a percentage of net sales of
theatre products and restaurant products remained consistent between the
respective periods.
Operating expenses increased approximately $619,300 or 16.2% for 1994 as
compared to 1993. However, as a percentage of net sales, such expenses
decreased to 15.4% in 1994 from 16.9% in 1993 as a result of an increase in
net sales of theatre products without a proportional significant increase in
selling costs. In terms of the dollar increase of such expenses, 1994 includes
a full twelve months of operating expenses of the Cinema Products Division of
ORC, and also includes amounts paid under the Company's profit sharing plan
which reflects increased operating income. See Note 14 to Consolidated
Financial Statements. Also included in these amounts is a management fee paid
by the Company to Canrad Inc. of approximately $241,200 for 1994 and $231,400
for 1993. The 1993 period benefitted from the collection of approximately
$185,000 in accounts receivable which had previously been written off as
uncollectible in 1991.
Interest expense was approximately $238,700 for 1994 as compared to
approximately $405,900 for 1993. Included in interest expense is approximately
$129,700 for 1994 and $212,700 for 1993 of allocations charged by Canrad Inc.
relating to the collar agreement which expired on October 2, 1994. See "--
Previous Interest Collar Agreement" and Note 9 to Consolidated Financial
Statements. Non-allocated interest expense decreased to approximately $109,000
for 1994 from approximately $193,200 for 1993. This decrease resulted from the
reduction of indebtedness incurred in connection with the acquisition of the
Cinema Products Division of ORC.
The effective tax rate was 40.4% as compared to the statutory rate of 34.0%.
The difference relates to the effect of state income taxes and the non-
deductibility of certain intangible expenses, principally goodwill.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the completion of the Company's initial public offering, the
Company relied upon the overall lending facility of Canrad Inc., a subsidiary
of ARC and an indirect parent of the Company, for acquisition financing, which
lending facility was secured in part by a lien on, and a security interest in,
substantially all of the Company's assets. Coincident with the completion of
its initial public offering, the Company's assets were
15
<PAGE>
released from securing the obligations of Canrad Inc. under such lending
facility and have been used to secure the Company's obligations under the
Norwest Facility. Acquisitions were financed primarily through operating loans
from Canrad Inc., long-term loans from the selling companies and the Company's
cash flow.
In September 1995, the Company entered into the Norwest Facility with
Norwest Bank. The Norwest Facility initially provides for a borrowing
commitment of up to $10.0 million. The commitment will reduce by $500,000 on
the first and second anniversary dates of such facility and $1.0 million on
the third and fourth anniversary dates thereof. The entire amount outstanding
under the Norwest Facility will mature on the fifth anniversary date thereof.
Amounts repaid under the Norwest Facility will be available for reborrowing.
Borrowings outstanding under the Norwest Facility bear interest, payable
monthly, at a rate equal to Norwest Bank's National Money Market Rate, as
announced from time to time (8.25% at June 30, 1996).
Coincident with the completion of the Company's initial public offering, the
Company borrowed $8.0 million under the Norwest Facility. This borrowing was
applied to repay existing indebtedness owed by Canrad Inc. to Merita Bank.
With the exception of certain manufacturing equipment subject to financing
leases, substantially all of the Company's assets have been used to secure the
Norwest Facility. The loan agreement governing the Norwest Facility contains
certain restrictive covenants which include, among other things, a prohibition
on the payment of cash dividends and requirements relating to current, debt
service coverage and total debt to tangible net worth ratios and tangible net
worth. The IRB, the letter of credit securing the IRB and the underwriting
agreement for the Company's initial public offering also contain certain
restrictive covenants which include, among other things, a prohibition on the
payment of cash dividends.
Long-term indebtedness, including the current portion, increased during 1995
by approximately $6.5 million to approximately $8.1 million at December 31,
1995 and increased during the first six months of 1996 by approximately
$666,700 to approximately $8.7 million. Total indebtedness at June 30, 1996,
was comprised as follows: (i) $460,600 outstanding pursuant to the 7.9% IRB;
(ii) $551,600 outstanding pursuant to capital lease obligations relating to
manufacturing equipment bearing interest at rates between 8.125% and 9.1%
payable through January 2001; (iii) $93,900 outstanding pursuant to the non-
compete agreement payable to ORC with imputed interest of 10% maturing in
March 1997 and (iv) approximately $7.6 million outstanding pursuant to the
Norwest Facility.
The principal reason for the net increase in outstanding borrowings during
1995 was the $8.0 million borrowing under the Norwest Facility on September
13, 1995 to repay existing indebtedness owed by Canrad Inc. to Merita Bank. As
of December 31, 1995, the Company had repaid $910,000 of such borrowing. New
long-term debt also includes a new capital lease obligation of approximately
$129,000 relating to the acquisition of manufacturing equipment. In 1995, the
Company repaid approximately $180,200 of principal on the IRB and $476,200 on
the promissory note payable in connection with the Westrex acquisition.
The principal reasons for the increase in outstanding borrowings during the
six months ended June 30, 1996 were approximately $530,000 from borrowings
under the Norwest Facility and a capital lease for the purchase of
manufacturing equipment in the amount of approximately $382,300. These
increases were offset by payments of approximately: (i) $94,100 pursuant to a
non-compete agreement with ORC, (ii) $95,600 pursuant to the 7.9% IRB and
(iii) $55,900 pursuant to capital lease obligations.
Historically, the Company has funded its working capital requirements
through cash flow generated by its operations. Net cash provided (used) by
operating activities for the years ended December 31, 1993, 1994 and 1995 and
the six months ended June 30, 1996 was approximately $3.1 million, $3.4
million, $2.4 million and
16
<PAGE>
$(63,000), respectively. For the six months ended June 30, 1995, net cash
provided by operating activities was approximately $662,700. The decrease in
net cash provided by operating activities was due primarily to increases in
net income, inventory and trade receivables and a decrease in income taxes
payable. Prior to its initial public offering, the Company did not pay
quarterly estimated taxes and therefore had significantly higher cash tax
payments during the six months ended June 30, 1996.
The Company anticipates that internally generated funds, together with the
proceeds of the Offering and borrowings under the Norwest Facility, will be
sufficient to meet its anticipated working capital needs. The Company has no
material commitments for capital expenditures. The Company expects that it
will have capital expenditures of approximately $900,000 in 1996. Typically,
the Company's manufacturing equipment is acquired through lease-purchase
programs.
The Company expects to spend approximately $2.0 million to expand its
manufacturing facility and to purchase additional capital equipment. Such
expansion is scheduled to begin in the third quarter of 1996.
The Company does not engage in any currency hedging activities in connection
with its foreign operations and sales.
SEASONALITY
Generally, the Company's business exhibits a moderate level of seasonality
as sales of theatre products typically increase during the second and fourth
quarters. The Company believes that such increased sales reflect seasonal
increases in the construction of new motion picture screens in anticipation of
the summer and Christmas movie seasons.
INFLATION
The Company believes that the relatively moderate rates of inflation in
recent years have not had a significant impact on its net sales or
profitability. Historically, the Company has been able to offset any
inflationary effects by either increasing prices or improving cost
efficiencies.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Company has adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets
to be Disposed Of" (SFAS 121). The adoption of this accounting standard did
not have a material effect on the Company's consolidated financial position.
The FASB issued Statement No. 123, "Accounting for Stock-Based
Compensation," which becomes effective for transactions entered into after
December 15, 1995. The Company, as permitted by Statement No. 123, has not
adopted the recognition of this statement when accounting for stock-based
compensation. The Company believes any requirements in connection with such
statement will not have a material effect on the Company's consolidated
financial position.
PREVIOUS INTEREST COLLAR AGREEMENT
Prior to the Company's initial public offering, the Company participated in
the borrowing facility of Canrad Inc. In order to offset the negative effects
that a significant rise in interest rates would have had on its operations,
Canrad Inc. entered into a four-year, $10.0 million London InterBank Offering
Rate (LIBOR) interest collar agreement with Merita Bank, its principal lender,
on October 2, 1990 (the "Collar Agreement"). In the event that LIBOR exceeded
10% during the four-year period, Merita Bank was required to reimburse Canrad
Inc. an amount equal to the spread between LIBOR and 10% on the equivalent of
$10.0 million. In the event that LIBOR was less than 7% during the four-year
period, Canrad Inc. was required to reimburse Merita Bank an amount equal to
the spread between LIBOR and 7% on the equivalent of $10.0 million. For the
years ended December 31, 1993 and 1994, LIBOR rates were below 7%, resulting
in required payments from Canrad Inc. to Merita Bank. Canrad Inc. charged the
operating results of each of its subsidiaries, including the Company, with a
portion of the required payments. Such charges were based upon the ratio of
each subsidiary's net sales to total Canrad Inc. net sales. The Collar
Agreement expired on October 2, 1994. Canrad Inc. did not purchase another
interest rate swap, and the Company does not intend to purchase any interest
rate swap agreement in connection with the Norwest Facility.
17
<PAGE>
BUSINESS
THE COMPANY
The Company is the leading manufacturer of commercial motion picture
projection equipment and long-range follow spotlights in the U.S. The
Company's broad range of equipment, which can fully outfit and automate a
motion picture projection booth, is used by major motion picture exhibitors
such as AMC Entertainment, Inc., Cinemark USA, Inc., Cineplex Odeon
Corporation and Regal Cinemas, Inc. The Company's products are sold primarily
through a dealer network as well as directly to motion picture exhibitors.
The number of new movie screens has been growing as a result of construction
of multiplex and megaplex movie theatres domestically and internationally.
According to a published industry source, the net number of new indoor
commercial motion picture screens added in the U.S. in 1995 was 1,165,
representing an 11.9% increase over the rate of increase in 1994. The Company
believes that the international market also presents attractive growth
opportunities for sales of its theatre products because the international
market is relatively underserved with motion picture screens and the Company's
international market share is smaller than its domestic market share. The
Company expects that its longstanding emphasis on strong customer
relationships and its recognized brand names will assist the Company's
penetration of the international market as many of its U.S.-based dealers and
motion picture exhibitor customers expand internationally. The Company is
seeking to continue to strengthen and develop its international presence. To
better serve the fast-growing Asian market, in December 1994 the Company
acquired Westrex, a Hong Kong-based dealer of commercial motion picture
projection equipment.
The Company also manufactures customized motion picture projection equipment
for use in special venues, such as motion simulation rides, large screen
format presentations and other forms of motion picture-based entertainment
requiring visual and multimedia special effects. The Company manufactures
customized equipment for customers such as Imax Corporation, Iwerks
Entertainment Inc. and The Walt Disney Company for use at special venue sites
such as IMAX Ridefilm Simulators, Universal Studios, The Magic Kingdom and
EPCOT Center. The Company believes that its position as a fully-integrated
equipment manufacturer enables it to be more responsive to its customers'
specific design requirements, giving it a competitive advantage over other
manufacturers who rely more on outsourced components.
The Company's long-range follow spotlights are used in sports stadiums such
as the Toronto Sky Dome, the Continental Airlines Arena in the New Jersey
Meadowlands and the Sheffield Arena in the United Kingdom, for special events
such as the 1996 Summer Olympics in Atlanta, and in concert tours by, among
others, the Rolling Stones, R.E.M. and Pink Floyd.
The Company also manufactures a line of commercial food service equipment
which is sold primarily through a dealer network to convenience store and fast
food restaurant operators and to equipment suppliers for resale on a private
label basis. The Company's restaurant equipment business, which was initiated
in the 1960's to supply snack stands at drive-in theatres, utilizes a
manufacturing process complementary to that of its theatre products. Further,
the Company believes that this business offers the potential to sell
concession stand equipment to newly constructed theatres, for which it is
already supplying commercial motion picture projection equipment.
The Company's business was founded in 1932. Since that time, the Company has
manufactured and supplied equipment and services to the commercial motion
picture projection industry. In 1983, the Company acquired the assets of the
Simplex Projector Division of the National Screen Services Corporation,
thereby expanding its commercial motion picture projection equipment business.
The Company further expanded its commercial motion picture projection
equipment business with the 1993 acquisition of the business of the Cinema
Products Division of ORC. This division designs, manufactures and sells
commercial motion picture projection equipment on a worldwide basis and
distributes ISCO-Optic lenses to the theatre and audio visual industries in
North America. In December 1994, the Company increased its presence in the
international
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marketplace with the acquisition of Westrex, which provides the Company with a
strategic Far Eastern location and greater access to the expanding economies
of the Pacific Rim.
The Company believes that the recognized brand names of its theatre products
and its customer service philosophy, combined with its ability to design,
adapt and manufacture customized commercial motion picture projection
equipment to its customers' specifications, have enabled the Company to
anticipate its customers' needs and to develop and maintain strong customer
relationships.
MOTION PICTURE EXHIBITION INDUSTRY OVERVIEW
The motion picture theatre industry celebrated its 100th anniversary in
1995. Despite the emergence of new forms of home entertainment delivery
systems, such as home video and network, syndicated, pay and direct broadcast
television, attendance at motion picture theatres has been increasing recently
as the public continues to recognize the advantages of viewing a movie on a
large screen with superior audio-visual quality, and as a shared experience in
a public forum. Moreover, increases in domestic motion picture ticket prices
have historically remained below annual increases in the overall cost of
living so that the movie-going experience remains an inexpensive form of
entertainment relative to other out-of-home entertainment options.
At the same time, as new sources of in-home entertainment encourage motion
picture exhibitors to become more consumer oriented, the Company believes that
exhibitors will continue to build higher quality theatres with more screens
per location. The development of multiplex theatres, which have multiple
screens to provide a wider range of film choices than traditional single
screen theatres, is a trend which began in the U.S. in the mid-1980s. More
recently, domestic theatre exhibitors have accelerated the addition of new
screens and in certain cases have begun developing megaplex theatres, which
have an even larger number of screens (17-24 screens per complex in some
cases). Motion picture exhibitors are also converting theatre lobby and
concession areas into restaurants and coffee bars in order to better provide
for a customer's evening entertainment needs. These theatres have become
anchor tenants in commercial retail locations that attract traffic in
combination with restaurants and shopping centers. Further, in the domestic
market, motion picture exhibitors are also introducing new motion picture-
based entertainment attractions at multiplexes and megaplexes such as motion
simulation rides and 3-D and 360 degree films on large screens.
The trend toward multiplexing is also accelerating in the international
marketplace. While the domestic motion picture exhibition industry continues
to be the primary distribution channel for new motion picture releases,
international demand for U.S.-produced films is encouraging the production of
more films each year. Increased demand is evidenced by the growth of the
international motion picture exhibition industry, where the market is
relatively underserved. According to an industry publication, in 1994, the
number of motion picture screens per million people was approximately 102 for
the U.S. as compared to approximately 30 for each of Hong Kong and Taiwan.
U.S.-based exhibitors are entering the international market with plans to
build modern multiplexes in response to increased movie theatre attendance.
Japan, Hong Kong, Taiwan and China, as well as South America and Europe,
represent attractive expansion opportunities for theatre exhibitors.
Special venue-based entertainment is an emerging market for exhibitors.
These special venues require sophisticated display equipment which provide
state-of-the-art visual and multimedia experiences. Special venues include
virtual reality motion simulation rides for sites such as location-based
entertainment centers, shopping malls, casinos, theme parks and expositions
and large screen formats for sites such as multiplexes and megaplexes,
museums, zoos, national parks and theme parks.
BUSINESS STRATEGY
The Company's business strategy is to leverage its relationships with its
domestic customers to address domestic and international expansion
opportunities driven by the growth in movie theatre multiplexing. Further, the
Company believes that the specialty venue market presents a new, complementary
market opportunity for which the Company can leverage its manufacturing
expertise. The Company also believes that its replacement
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part sales will grow as it continues to attract new customers and serve its
existing customers. The Company's key strategies are to:
.Expand International Presence. Since the trend toward multiplexing of
motion picture theatres has extended to the international market, sales
of the Company's products to international end users is becoming
increasingly important to the Company. Net sales to foreign customers,
primarily of theatre products, increased from approximately $4.6 million
in 1993 to approximately $11.3 million in 1995 (excluding sales to
domestic export dealers and domestic theatre chains of products which are
ultimately exported). The Company believes that its smaller international
market share presents attractive growth opportunities for sales of its
theatre products. The Company intends to seek a greater market share for
its products internationally by working with its domestic dealers and
U.S.-based motion picture exhibitor customers as they expand abroad. The
Company is seeking to continue to strengthen and develop its
international presence through its international dealer network. The
Company's sales force will continue to travel extensively worldwide to
market the Company's products. The Company believes that through these
efforts it is well-positioned to expand its brand name recognition and
market share internationally.
.Emphasize Customer Service. The Company seeks to develop and maintain
strong customer relationships by offering a wide variety of standardized
commercial theatre and restaurant equipment, working closely with its
customers to fully understand their needs and furnishing value-added
services such as (i) design and engineering expertise to develop products
(often designed to customer specifications) that are high-quality,
reliable and innovative, (ii) prompt order fulfillment and delivery and
(iii) after-sale technical support and emergency service. The Company
further supports its products through its replacement parts business,
which represents an additional source of income for the Company that will
benefit from the increase in the installation of new equipment but is
less dependent on new screen construction.
.Leverage Manufacturing and Design Expertise. The Company's position as a
fully integrated manufacturer enables it to develop, design and customize
its products to meet customer specifications, and to respond quickly to
customers' requests for replacement parts and repair. The Company
believes that its manufacturing capabilities, combined with its emphasis
on customer service, have contributed to retaining strong customer
relationships and developing new business in its traditional theatre
equipment markets. In addition, the Company's design and engineering
capabilities have been an advantage in developing products for the
special venue market.
.Expand Special Venue Business. The Company believes that there is
increasing consumer demand for motion simulation rides, large screen
format presentations and other forms of motion picture-based
entertainment which use visual and multimedia special effects. The
Company is seeking to become a leading provider of state-of-the-art
special venue products by capitalizing on its ability to customize such
products as a result of its in-house design capabilities and its
integrated manufacturing operations. Although sales of special venue
products currently represent only a small percentage of the Company's net
sales, the Company believes that increasing public demand for such
products and the increased publicity generally associated with special
venue products create an attractive opportunity for future growth.
.Explore Strategic Acquisitions. The Company continues to explore
opportunities to acquire companies which complement its marketing, sales
and manufacturing expertise, as well as companies which provide
opportunities for geographical expansion of its dealer network.
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PRODUCTS AND MARKETING
THEATRE PRODUCTS
Motion Picture Projection Equipment
The Company is the leading manufacturer of commercial motion picture
projection equipment in the U.S. The Company's commercial motion picture
projection equipment consists of 35mm and 70mm motion picture projectors,
combination 35/70mm projectors, xenon lamphouses and power supplies, a console
system combining a lamphouse and power supply into a single cabinet, soundhead
reproducers and related products such as film handling equipment and sound
systems. The Company's commercial motion picture projection equipment is
marketed under the industrywide recognized trademarks of Strong(TM),
Simplex(TM), Century(R), Optimax(R) and Ballantyne(TM). The Company's
commercial motion picture projection equipment may be sold as an integrated
system with other components manufactured by the Company or individually. The
Company's commercial motion picture projection equipment can fully outfit and
automate a motion picture projection booth.
The Company's lamphouse consoles are unique to the industry in that they
incorporate a solid state power supply which allows for a broader range of
wattages, thereby reducing operating costs, as compared to inefficient copper
and iron power transformers. The Company's lamphouse consoles incorporate all
elements required for quality film presentations while requiring minimum booth
floor space.
The Company's film handling equipment consists of either a three- or five-
deck platter and a make-up table which allow the reels of a full length motion
picture to be spliced together, thereby eliminating the need for an operator
to change reels during the showing of the motion picture.
Pursuant to a distribution agreement with IscoOptic GmbH of Germany, the
Company has the exclusive right to distribute ISCO-Optic lenses in North
America. Under the distribution agreement, the Company's exclusive right
continues through 2001, subject to the attainment of minimum sales quotas
(which the Company has historically exceeded), and thereafter is automatically
renewed for successive two-year periods until terminated by either party upon
12 months' prior notice. ISCO-Optic lenses have developed a reputation for
delivering high image quality and resolution over the entire motion picture
screen. In addition to incorporating the ISCO-Optic lenses into its own
equipment, the Company distributes ISCO-Optic lenses to customers with
operations in the theatre and audio visual industries. ISCO-Optic lenses have
a leading market share in the U.S. commercial motion picture projector lens
market and have won two Academy Awards for technical achievement.
The Company integrates sound processors manufactured by others, such as
Dolby and Ultrastereo, into its projection consoles. In addition, the Company
distributes the DSS Cinema Sound Processor (the "DSS System"), which is
designed as a low-cost, full-featured backup system for digital sound
processors. The DSS System operates with all digital sound processors, thereby
providing an analog default backup. The Company believes that the DSS System
provides more features at a lower cost than competitive models.
In 1995, one theatre products customer, National Cinema Supply, accounted
for approximately 10% of the Company's total net sales. No customer accounted
for 10% of the Company's total net sales in 1993 or 1994.
Replacement Parts
The Company has a significant installed base of motion picture projectors.
Although these projectors have an average useful life in excess of 20 years,
periodic replacement of components is required as a matter of routine
maintenance. The Company believes that growth in the installed base of
commercial motion picture projectors should result in increased net sales of
replacement parts for the Company's commercial motion picture projection
equipment. Replacement part sales represent a recurring revenue source for the
Company which is less dependent on new screen construction. Net sales of the
Company's replacement parts for this equipment and long-range follow
spotlights were approximately $3.8 million, $4.7 million and $4.9 million in
1993, 1994 and 1995, respectively.
Special Venue Products
The Company is becoming increasingly involved in the development of
commercial projection equipment for incorporation into special venue products
such as virtual reality motion simulation rides and large screen format
presentations. The Company has sold customized commercial motion picture
equipment directly to
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special venue customers such as The Walt Disney Company, Imax Corporation and
Iwerks Entertainment, Inc. for use at special venue sites such as the Magic
Kingdom, EPCOT Center, IMAX Ridefilm Simulators, Universal Studios and Busch
Gardens. The Company works closely with its customers to develop, design and
engineer customized projection equipment to accommodate various formats
required for the special venue industry. The Company manufactures 4, 5, 8 and
10 perforation 35 mm and 70 mm projection systems for large-screen, simulation
ride and planetarium applications and for other venues that require special
effects. The Company's ability as a fully integrated manufacturer enables it
to work closely with its customers from initial concept and design through
manufacturing to the customers' specifications. The Company believes that its
reputation for responsiveness and quality provides a competitive advantage in
these new markets.
Spotlights
The Company is the leading manufacturer of long-range follow spotlights in
the U.S. These spotlights are high-intensity general use illumination products
designed for both permanent installations and touring applications. The
Company's long-range follow spotlights consist of eight basic models ranging
in output from 400 watts to 3,000 watts. The Company's 400 watt spotlight
model, which has a range of 20 to 150 feet, is compact, portable and
appropriate for small venues and truss mounting. The Company's 3,000 watt
spotlight model, which has a range of 300 to 600 feet, is a high-intensity
xenon light spotlight appropriate for large theatres, arenas and stadiums. All
of the Company's long-range follow spotlights employ a variable focal length
lens system which increases the intensity of the light beam as it is narrowed
from flood to spot. The Company's long-range follow spotlights are marketed
under the Strong(TM) trademark under recognized brand names such as Super
Trouper(R), Gladiator(TM) and Roadie(TM).
The Company sells its long-range follow spotlights through dealers to
equipment rental companies, arenas, stadiums, theme parks, theatres and
auditoriums. The Company's spotlight products are used in, among other venues,
the Toronto SkyDome, the United Center in Chicago, the Hoosier Dome, the
Continental Airlines Arena in the New Jersey Meadowlands and the Sheffield
Arena in the United Kingdom, as well as at special venue sites such as the
1996 Summer Olympics in Atlanta, Georgia and in world tours by, among others,
the Rolling Stones, R.E.M. and Pink Floyd.
RESTAURANT PRODUCTS
The Company's restaurant product line was initiated in the 1960s with the
development of a pressure fryer to supply snack stands at drive-in theatres.
The Company's restaurant product line consists of commercial food service
equipment, principally pressure fryers, barbecue/slow roast ovens and
rotisserie ovens. The Company's pressure fryers account for the majority of
its commercial food service equipment net sales. The Company's restaurant
product line is marketed under the Flavor Crisp(R) and Flavor Pit(R)
trademarks. The Company's rotisserie oven is capable of roasting chicken or
other rotisserie foods. In addition to roasting the product, the rotisserie
oven displays the product as it is roasting which serves as a countertop point
of sale display. The rotisserie oven employs a vertical design which enables
it to fit in a limited amount of kitchen or countertop space. The Company's
gas-fired pressure fryers comply with the requirements of the American Gas
Association, and its electric pressure fryers and barbecue/slow cooking ovens
comply with the requirements of Underwriters Laboratory.
The Company's commercial food service equipment is supplemented by
seasonings, marinades and barbecue sauces manufactured to the Company's
specifications by The Golden Dipt Company and other food product contractors,
and by mesquite and hickory woods, paper serving products and point of
purchase displays. By offering a complete line of commercial food service
equipment, such as pressure fryers, and related items, seasonings and
marinades, and paper serving products, the Company is able to provide
customers with a complete merchandising program which includes food
preparation, presentation, promotion and packaging.
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The Company sells its restaurant product line through dealers primarily to
independent convenience store/fast food restaurant operators. The Company also
sells its pressure fryers to equipment suppliers directly, on a private label
basis, for resale to major chains such as Pathmark and Wal-Mart for use in
their delicatessens and sit-down eateries.
SALES, MARKETING AND CUSTOMER SERVICE
The Company markets and sell its products primarily through a dealer network
and directly to end users. The Company employs seven sales and marketing
professionals, five customer service personnel and two technical support
personnel, based in the U.S., and two sales and marketing professionals and
six customer service/technical support personnel based at Westrex in Hong
Kong. The Company also services its customers in large part through its dealer
network. Sales and marketing professionals principally develop business by
maintaining regular, personal customer contact, including conducting site
visits, while customer service and technical support functions are primarily
centralized and dispatched when needed. The Company anticipates that it will
add one to two sales and marketing professionals as it executes its
international sales plan. In addition, the Company also markets its products
in trade publications such as Film Journal and Box Office and by participating
in annual major industry trade shows such as ShowWest in Las Vegas, ShowEast
in Atlantic City, CineAsia in Singapore and Cinema Expo in Europe.
The Company's sales and marketing professionals have extensive experience
with the Company's product lines. Each of the Company's U.S.-based commercial
motion picture projection equipment sales and marketing professionals have at
least 15 years of industry experience and have long-term relationships with
many current and potential customers. By virtue of these relationships, the
Company can anticipate marketplace demand, and alter its production schedule
accordingly. The Company believes that its continuing sales and marketing
focus on anticipating and addressing customer needs and providing consistent,
high-level service has enabled it to become the industry market leader.
Foreign sales, primarily of theatre products, principally to customers in
Canada, Mexico, Europe and Asia, were approximately $4.6 million, $6.4 million
and $11.3 million for the calendar years 1993, 1994 and 1995, respectively.
Such amounts do not include sales to domestic dealers of both theatre and
restaurant products and theatre chains of products which are ultimately
exported. See "Risk Factors--Uncertainties Regarding International Sales."
The Company provides a warranty to end users of substantially all of its
products, which generally covers a period of twelve months, but may be
extended under certain circumstances and for certain products. Under the
Company's warranty policy, the Company will repair or replace defective
products or components at its election. Costs of warranty service and product
replacements have not been material to the Company's financial results.
BACKLOG
At December 31, 1994 and December 31, 1995, the Company had backlogs of
approximately $3.2 million and $4.9 million, respectively. At June 30, 1995
and June 30, 1996, the Company had backlogs of approximately $4.9 million and
$8.4 million, respectively. Such backlogs consisted of orders received with a
definite shipping date. The Company believes that the backlog is not seasonal
in nature. Backlog figures are not necessarily indicative of sales or income
for any full twelve-month period.
MANUFACTURING
All of the Company's manufacturing operations are conducted at its Omaha,
Nebraska manufacturing facility. These manufacturing operations consist
primarily of engineering, quality control, testing, material planning,
machining, fabricating, assembly, and packaging and shipping. The Company
believes that Omaha's central location has served to reduce the Company's
transportation costs and delivery times of products to the East and West
Coasts of the U.S. The Company's manufacturing strategy is to (i) minimize
costs through manufacturing efficiencies, (ii) employ flexible assembly
processes that allow the Company to customize
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certain of its products and adjust the relative mix of theatre and restaurant
products to meet demand, (iii) reduce labor costs through the increased use of
computerized numerical control machines for the machining of products and (iv)
use outside contractors as necessary to meet increased customer demand. In
order to react effectively to customer demand and to avoid shipment delays,
the Company seeks to maintain an inventory of components, materials and
assembled products in quantities sufficient to meet approximately four months
of expected sales.
The Company currently manufactures the majority of the components used in
its products. The Company believes that its integrated manufacturing
operations help maintain the high quality of its products and its ability to
customize products to customer specifications. The principal raw materials and
components used in the Company's manufacturing processes include aluminum,
solid state electronic sub-assemblies and sheet metal. The Company utilizes a
single contract manufacturer for each of its film platters, intermittent
movement components and lenses for its commercial motion picture projection
equipment and aluminum kettles for its pressure fryers. Although to date the
Company has not experienced any significant difficulty in obtaining these
components, there can be no assurance that shortages will not arise in the
future. The loss of any one or more of such contract manufacturers would have
an adverse effect on the Company until alternative manufacturing arrangements
could be secured. The Company is not dependent upon any one contract
manufacturer or supplier for the balance of its raw materials and components.
The Company believes that there are adequate alternative sources of such raw
materials and components of sufficient quality and quantity. See "Risk
Factors--Limited Source for Certain Components."
The Company anticipates that the growth in its business will require
expansion of its existing manufacturing facility by mid-1997. The Company
intends to use approximately $2.0 million of the net proceeds from the
Offering to finance this expansion, which is scheduled to begin in the third
quarter of 1996, and to purchase additional capital equipment.
QUALITY CONTROL
The Company believes that its design standards, quality control procedures,
and the quality standards for the materials and components used in its
products have contributed significantly to the reputation of its products for
high performance and reliability. The Company has implemented a quality
control program for its theatre and restaurant product lines which is designed
to ensure compliance with the Company's manufacturing and assembly
specifications and the requirements of its customers. Essential elements of
this program are the inspection of materials and components received from
suppliers and the monitoring and testing of all of the Company's products
during various stages of production and assembly.
RESEARCH AND DEVELOPMENT
The Company's ability to compete successfully depends, in part, upon its
continued close work with its existing and new customers. The Company focuses
its research and development efforts on the development of new products based
on its customers' requirements, including the development of products used for
special venues. The Company believes that the introduction of more special
venue products will provide opportunity for further growth, both domestically
and internationally.
COMPETITION
Although the Company has the leading position in the domestic motion picture
projection equipment market, the domestic and international markets for
commercial motion picture projection equipment are highly competitive. Major
competitors for the Company's motion picture projection equipment include
Christie Electric Corporation, Cinemeccanica SpA and Kinoton GmbH. In addition
to existing motion picture equipment manufacturers, the Company may also
encounter competition from new competitors, as well as from new types of
equipment. No assurance can be given that the equipment manufactured by the
Company will not become obsolete as technology advances. Certain of the
Company's competitors for its motion picture projection equipment have
significantly greater resources than the Company. The Company competes in the
commercial motion picture projection equipment industry primarily on the basis
of quality, fulfillment and delivery, price, after-sale technical support and
product customization capabilities. The Company's ability as a fully
integrated manufacturer enables it to work closely with its customers from
initial concept and design through manufacturing to the customers'
specifications.
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The markets for the Company's long-range follow spotlight and restaurant
products are highly competitive. The Company competes in the long-range follow
spotlight industry primarily on the basis of quality, price and product line
variety. The Company competes in the restaurant products industry primarily on
the basis of price and equipment design. Certain of the Company's competitors
for its long-range follow spotlights and restaurant products have
significantly greater resources than the Company.
PATENTS AND TRADEMARKS
The Company owns or otherwise has rights to trademarks used in conjunction
with the sale of its products. The following trademarks are considered
significant in terms of the current and contemplated operations of the
Company: "Strong(TM)," "Simplex(TM)," "Century(R)," "Optimax(R),"
"Ballantyne(TM)," "Super Trouper(R)," "Gladiator(TM)," "Roadie(TM)," "Flavor
Crisp(R)" and "Flavor Pit(R)". These trademarks are protected by registration
or common law widely throughout the world. The Company's registered trademarks
expire between the years 2002 and 2008. ISCO-Optic is a trademark of IscoOptic
GmbH.
The Company believes that its success will not be dependent upon patent
protection, but rather upon its scientific and engineering "know-how" and
research and production techniques. To the knowledge of the Company, there are
no claims or suits threatened, pending or contemplated against it for
infringement of any patents or trademarks.
PROPERTIES
The Company's headquarters and manufacturing facility are located at 4350
McKinley Street, Omaha, Nebraska, where it leases a building consisting of
approximately 140,000 square feet on approximately 10.5 acres. The Company has
the right to purchase the facility and the real property upon which it is
located, upon its payment of the outstanding principal of, accrued interest
on, and redemption premium applicable to the IRB, plus certain other expenses,
applicable taxes and an additional nominal fee. The premises are used for
offices and for the manufacture, assembly and distribution of its products.
The Company intends to utilize a portion of the net proceeds of the Offering
to convert 10,000 square feet of such facility which are currently unusable
for manufacturing into usable space and add an additional 20,000 square feet
of manufacturing space to such facility. In addition, the Company leases a
sales office in San Dimas, California and a marketing, distribution and
service facility in Hong Kong.
EMPLOYEES
As of June 30, 1996, the Company had a total of 198 employees of which three
were executive officers, 12 were managerial or supervisory personnel, 102 were
manufacturing or production personnel, 12 were product engineering, design and
development personnel, and 69 were administrative, sales, service or
warehousing and shipping employees. The Company is not a party to any
collective bargaining agreement and believes that its relationship with its
employees is good.
LEGAL PROCEEDINGS
The Company is involved from time to time in litigation arising out of its
operations in the normal course of business. As of the date of this
Prospectus, there were no material pending legal proceedings to which the
Company was a party or to which any of its properties were subject.
ENVIRONMENTAL MATTERS
The Company is in material compliance with Federal, state and local
provisions regulating the discharge of materials into the environment or
otherwise relating to protection of the environment. The Company believes that
continued compliance will not have a material effect upon the future capital
expenditures, earnings or competitive position of the Company. The Company
does not anticipate any material capital expenditures for environmental
control facilities during 1996.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Arnold S. Tenney (1)................. 53 Chairman of the Board and Director
Ronald H. Echtenkamp (1)............. 62 President, Chief Executive Officer and
Director
John Wilmers......................... 51 Executive Vice President, Sales and
Director
Colin G. Campbell (1)(2)............. 40 Director
Jeffrey D. Chelin (2)................ 45 Director
Marshall S. Geller................... 57 Director
Yale Richards (1)(2)................. 74 Director
Brad J. French....................... 43 Chief Financial Officer, Secretary and
Treasurer
</TABLE>
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Arnold S. Tenney has been a director of the Company since 1988 and its
Chairman of the Board since 1992. Mr. Tenney has been the President and
Chairman of the Board of ARC since 1978. See "Principal Stockholders." Mr.
Tenney is a director and the Chairman of Cabletel, a Canadian cable television
parts distribution company that is an affiliate of ARC. ARC and Cabletel are
both publicly-traded companies. Mr. Tenney is also Chairman of the Board of
Canrad Inc.
Ronald H. Echtenkamp has been a director of the Company since 1993, its
President since 1981 and its Chief Executive Officer since 1991. Mr.
Echtenkamp joined the Company as National Sales Manager for Restaurant
Products in 1969 and was appointed Vice President of Marketing for Restaurant
and Theatre Products in 1979. Mr. Echtenkamp is a member of the Society of
Motion Picture and Television Engineers, Motion Picture Pioneers, Nebraska
Variety Club, Theatre Equipment Association, National Restaurant Association
and National Food Equipment Manufacturers.
John Wilmers has been a director of the Company since September 1995 and
Executive Vice President, Sales since 1992. Mr. Wilmers joined the Company in
1981 as National Sales Manager for Theatre Products. He was promoted to Vice
President in 1988. He is past President of the Theatre Equipment Association,
a member of the Nebraska Variety Club and a sustaining member of the Society
of Motion Picture and Television Engineers.
Colin G. Campbell has been a director of the Company since August 1995. Mr.
Campbell is a self-employed businessman based in Toronto, Ontario who has
provided financial advisory and consulting services through his company, The
Castlestone Company, to corporate clients since September 1993. From August
1990 to August 1993, Mr. Campbell provided similar services through another
consulting firm, The Highbridge Group, a company of which Mr. Campbell was an
owner. Prior to becoming self-employed in August 1990, Mr. Campbell spent
eleven years in various commercial and investment banking positions with
several Canadian financial institutions, including Citibank Canada's venture
capital subsidiary.
Jeffrey D. Chelin has been a director of the Company since June 1995. Mr.
Chelin is the Vice President-Finance and Chief Financial Officer of ARC and
has served in that capacity since March 1992. From 1986 until February 1992,
Mr. Chelin served as Controller and Assistant Secretary of ARC. Mr. Chelin has
been a member of the board of directors of ARC since October 1986. He is
responsible for the overall financial management of ARC and its subsidiaries.
Mr. Chelin also serves as a director and the Treasurer and Secretary of
Cabletel.
Marshall S. Geller has been a director of the Company since January 1996.
Mr. Geller is Chairman and Chief Executive Officer of Geller & Friend Capital
Partners, Inc. ("Geller & Friend"), a merchant banking firm, and has served in
such capacity since 1995. Mr. Geller was managing partner of Golenberg &
Geller, Inc.
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from 1991 through 1995. On May 31, 1995, Las Vegas Major League Sports, Inc.,
a corporation of which Mr. Geller was a director and a controlling
shareholder, filed a petition for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. Mr. Geller currently serves as a director of Hexcel Corp.,
Players International, Inc., Styles on Video, Inc., Dycam, Inc. and Value
Vision, International, Inc. Mr. Geller is a shareholder of L.H. Friend,
Weinress, Frankson & Presson, Inc., one of the Representatives of the
Underwriters of this Offering.
Yale Richards has been a director of the Company since September 1995. Since
October 1994, Mr. Richards has been a senior partner in the law firm of Marks
Clare & Richards located in Omaha, Nebraska. From 1979 to September 1994, Mr.
Richards was a partner in the law firm of Richards Riekes & Zabin located in
Omaha, Nebraska. Mr. Richards has been engaged in the private practice of law
in Nebraska since 1947. Mr. Richards also has served as counsel to the Theatre
Equipment Association since 1971.
Brad J. French joined the Company in 1990 as Controller and was named
Secretary and Treasurer in 1992. Mr. French was named Chief Financial Officer
of the Company in January 1996. Prior to joining the Company, Mr. French held
several accounting positions with Hanovia Lamp Inc., a subsidiary of Canrad
Inc.
Under the Company's Certificate of Incorporation, the Board is divided into
three classes. Messrs. Tenney and Geller are Class I directors, Messrs.
Echtenkamp, Chelin and Richards are Class II directors, and Messrs. Wilmers
and Campbell are Class III directors. The terms of the Class I, Class II and
Class III directors expire at the annual meeting of stockholders to be held in
1999, 1997 and 1998, respectively. Officers are elected annually by the Board
and serve at the discretion of the Board.
The managing underwriters of the Company's initial public offering have the
right, until the earlier of September 9, 2000 or until the JW Charles Option
(as hereinafter defined) has been exercised in full, to designate a nominee
for election to the Board or, in lieu thereof, to have a representative attend
all Board meetings. The Company and its current directors (except Mr. Geller),
its executive officers and Canrad Delaware have agreed to vote their shares of
Common Stock in favor of any such nominee. To date, no such nominee has been
designated. See "Principal Stockholders--Possible Changes in Control."
BOARD POLICY REGARDING RELATED PARTY TRANSACTIONS
The Board has adopted a policy providing that (i) any contract or
transaction material to the Company, between the Company or any of its
subsidiaries and ARC or any of its Affiliates, or in which ARC or any of its
Affiliates has a financial interest, and any decisions regarding the
modification, renewal or enforcement of the terms of any such contract or
transaction, to the extent such contract or transaction is executed or such
modification, renewal or enforcement is effected subsequent to July 10, 1996
or (ii) the declaration of any dividend on the Common Stock of the Company
subsequent to July 10, 1996, must be approved by a majority of the Company's
Independent Directors. For the purpose of such policy, an "Affiliate" of ARC
means (a) any individual corporation, partnership, association, trust, estate
or other entity or organization that directly or indirectly controls, is
controlled by or is under direct or indirect common control with ARC
(excluding the Company or any of its subsidiaries) or (b) any officer,
director or employee of ARC or any of its Affiliates (excluding the Company or
any of its subsidiaries), and "Independent Director" means a director of the
Company who is not an Affiliate of ARC.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company, ARC or Canrad Inc. are not
compensated for serving as directors. Directors who are not employees of the
Company, ARC or Canrad Inc. are paid $600 for attendance at meetings of the
Board and $300 for all meetings of the Board held by teleconference. Directors
of the Company are reimbursed for out-of-pocket expenses incurred in carrying
out their duties as directors. Outside directors are entitled to participate
in the Company's Outside Directors Stock Option Plan. See "--Employee Benefit
Plans--Outside Directors Plan."
27
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth compensation paid or awarded by the Company
to the executive officers of the Company during the last three years for
services rendered to the Company. Mr. Tenney, Chairman of the Board of the
Company, received no compensation from the Company during the last three
years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------- ------------
SECURITIES
NAME AND PRINCIPAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
------------------ ---- -------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Ronald H. Echtenkamp,... 1995 $198,000(2) $215,000 82,500 $4,500
President and Chief Ex- 1994 198,000(2) 175,000 25,000(3) 4,500
ecutive Officer
1993 150,577 80,139 -- 4,517
John Wilmers,........... 1995 135,000 100,786 44,000 4,050
Executive Vice Presi- 1994 127,500 85,000 -- 3,825
dent, Sales
1993 119,423 36,000 -- 3,583
Brad J. French,......... 1995 79,000 40,000 22,000 2,370
Chief Financial 1994 75,000 35,000 -- 2,250
Officer,
Secretary and Treasurer 1993 70,304 23,000 -- 2,109
</TABLE>
- --------
(1) Consists of amounts paid by the Company pursuant to the Company's
Retirement and Savings Plan. See "--Employee Benefit Plans--Retirement and
Savings Plan."
(2) Salary includes $48,000 which has been deferred pursuant to Mr.
Echtenkamp's employment contract.
(3) Represents an option to purchase common shares of ARC at an exercise price
of $3.00 per share until February 14, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information with respect to stock
options granted to the Company's executive officers during 1995 pursuant to
the Company's Stock Option Plan:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (1)
- ---------------------------------------------------------------------------------- -----------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE PRICE
OPTIONS GRANTED TO EMPLOYEES IN ($/SH) EXPIRATION
NAME (#) FISCAL YEAR (2) DATE 5%($) 10%($)
- ------------------------ --------------- --------------- -------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Ronald H. Echtenkamp.... 82,500 21.4% $5.91 09-06-05 $ 306,633 $ 777,150
John Wilmers............ 44,000 11.4 5.91 09-06-05 163,538 414,437
Brad J. French.......... 22,000 5.7 5.91 09-06-05 81,769 207,218
</TABLE>
- --------
(1) The dollar amounts under these columns are the result of calculations at
the 5% and 10% rates set by the Securities and Exchange Commission (the
"Commission") and are not intended to forecast possible future
appreciation of the price of the Common Stock.
(2) The options were granted at an exercise price equal to the fair market
value of the Common Stock on the date of the grant. The options have a ten
year term and vested on the date they were granted.
28
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information with respect to
unexercised options during fiscal year 1995. No options were exercised during
1995.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-
OPTIONS AT FISCAL YEAR MONEY OPTIONS AT FISCAL
END (#) YEAR END ($)
---------------------- -------------------------
NAME EXERCISABLE EXERCISABLE
------------------------- ---------------------- -------------------------
<S> <C> <C>
Ronald H. Echtenkamp..... 82,500 117,150
25,000(1) --
John Wilmers............. 44,000 62,480
Brad J. French........... 22,000 31,240
</TABLE>
- --------
(1) Represents an option to purchase common shares of ARC at an exercise price
of $3.00 per share until February 14, 1998.
Employment Contracts
Mr. Echtenkamp is employed full-time pursuant to an employment agreement
with the Company which terminates on March 31, 1997. Mr. Echtenkamp's
employment agreement provides for basic annual compensation of $150,000,
entitles Mr. Echtenkamp to receive up to 40% of the annual bonus pool
established pursuant to the Profit Sharing Plan and provides for deferred
compensation in the amount of $5,000 per month for twenty-four months after
the termination of Mr. Echtenkamp's employment. The employment agreement
restricts Mr. Echtenkamp from competing against the Company in the U.S. for a
period of three years following the termination or expiration of such
agreement and further contains certain anti-solicitation and confidentiality
provisions. Following the termination of his employment, it is anticipated
that Mr. Echtenkamp will be offered the opportunity to serve as Vice Chairman
of the Board and as a consultant to the Company upon terms and conditions to
be negotiated.
Mr. Wilmers is employed full-time pursuant to an employment agreement with
the Company. The term of such agreement expires in October 1997 and thereafter
renews automatically for additional one year periods unless terminated as
provided in such agreement. Upon the sale of the Company, whether by a sale of
stock or assets, the employment agreement is automatically extended for a
period ending five years from the date of such sale. Mr. Wilmers' current base
level of compensation is $135,000. The employment agreement restricts Mr.
Wilmers from competing against the Company in the U.S. for a period of three
years following the termination or expiration of such agreement and further
contains certain anti-solicitation and confidentiality provisions.
EMPLOYEE BENEFIT PLANS
Profit Sharing Plan
Messrs. Echtenkamp, Wilmers and French participate in a management and sales
bonus plan (the "Profit Sharing Plan") pursuant to which such employees are
entitled to earn cash bonuses if the Company achieves specific levels of
operating profit that are established by the Board. The calculation of the
annual bonus pool is subject to the approval of the Board or the Compensation
Committee of the Board. The distribution of the pool among members of
management is at the sole discretion of Mr. Echtenkamp, the Company's
President and Chief Executive Officer. Currently, Mr. Echtenkamp is entitled
to receive no more than 40% of the pool and each participant may not receive
an amount in excess of 150% of such participant's base salary. Amounts paid to
Messrs. Echtenkamp, Wilmers and French pursuant to the Profit Sharing Plan are
included in the Summary Compensation Table.
Retirement and Savings Plan
Effective January 1, 1987, the Company adopted a Retirement and Savings Plan
(the "Retirement and Savings Plan"), which is a combination savings and profit
sharing plan designed to qualify under Section 401 of the U.S. Internal
Revenue Code of 1986, as amended (the "Code"), including the provisions of
Section 401(k). All full-time employees of the Company who are at least
twenty-one years old and who have completed one
29
<PAGE>
year of service are eligible to participate in the Retirement and Savings
Plan. Each participant may contribute an amount up to 6% of such participant's
salary to the matching portion of the Retirement and Savings Plan, and such
participant may make supplemental contributions up to an additional 9% of such
participant's salary. These supplemental contributions are not eligible for
matching contributions from the Company. The Company's matching contribution
is $0.50 for each dollar contributed by the participant to the matching
portion of the Retirement and Savings Plan. In addition, the Company may
elect, at the discretion of the Board, to contribute an additional amount. All
contributions to the Retirement and Savings Plan are nonforfeitable. For 1995,
no participant was permitted to contribute more than $9,240 to the Retirement
and Savings Plan.
Benefits may be distributed to participants or their beneficiaries, as the
case may be, in the event of a participant's death, retirement or other
termination of service, or, if the participant so requests, on reaching age 59
1/2. Participants may be eligible to withdraw benefits in case of hardship.
Contributions to the Plan made by the Company on behalf of Messrs.
Echtenkamp, Wilmers and French are included in the Summary Compensation Table.
Stock Option Plan
In September 1995, the Company adopted a stock option plan which provides
for the granting of incentive stock options ("ISOs") within the meaning of
Section 422 of the Code and for the granting of non-qualified stock options
("NQSOs") to employees, officers and directors and such other persons
rendering substantial services to the Company and its subsidiaries (the "Stock
Option Plan"). Only employees of the Company or any of its subsidiaries are
eligible to receive ISOs. The Company has reserved for issuance 440,000 shares
of Common Stock under the Stock Option Plan (subject to adjustment as
described below).
The Stock Option Plan is administered by a committee (the "Stock Option Plan
Committee") consisting of not less than a number of "disinterested persons"
(as such term is defined in Rule 16b-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) who are also "outside directors"
(within the meaning of Section 162(m) of the Code) so as to qualify the Stock
Option Committee to administer the Stock Option Plan as contemplated by Rule
16b-3 and Section 162(m), respectively. The members of the Stock Option Plan
Committee are not permitted to participate in the Stock Option Plan.
Subject to the express terms of the Stock Option Plan, the Stock Option Plan
Committee has the authority to administer the Stock Option Plan in its sole
and absolute discretion, including, but not limited to, the authority to
construe and interpret the Stock Option Plan and the authority to determine
the eligible individuals who shall be granted options and the number of
options to be granted, the vesting period, if any, for all options granted,
the date on which any option becomes first exercisable, the number of shares
of Common Stock subject to each option, the exercise price for the shares of
Common Stock subject to each option and whether the option to be granted is an
ISO or a NQSO.
The per share exercise price of ISOs granted under the Stock Option Plan
cannot be less than the fair market value of a share of Common Stock on the
date of grant (110% of fair market value in the case of an ISO granted to any
person who, at the time the ISO is granted, owns (or is considered as owning
within the meaning of Section 424(d) of the Code) stock possessing more than
10% of the total combined voting powers of all classes of stock of the Company
or any parent or subsidiary (a "10% Owner")). With respect to NQSOs, the per
share exercise price will be determined by the Stock Option Plan Committee on
the date of grant, but will not be less than 85% of the fair market value of a
share of Common Stock on the date of grant. Each option shall vest and become
first exercisable as determined by the Stock Option Plan Committee. The terms
of options granted under the Stock Option Plan may not exceed ten years (or
five years for any incentive stock option granted to a 10% Owner).
In the event of a Change of Control (as defined in the Stock Option Plan),
unless otherwise determined by the Stock Option Plan Committee at the time of
grant or by amendment (with the holder's consent) of such grant,
30
<PAGE>
all options not vested on or prior to the effective time of any such Change of
Control shall immediately vest as of such effective time. The Stock Option
Plan Committee in its discretion may make provisions for the assumption of
outstanding options, or the substitution for outstanding options of new
incentive awards covering the stock of a successor corporation or a parent or
subsidiary thereof, with appropriate adjustments as to the number and kind of
shares and prices so as to prevent dilution or enlargement of rights. The
Stock Option Plan contains customary anti-dilution provisions which provide
that in the event of a recapitalization, a change in the outstanding capital
stock of the Company or certain other events, an adjustment shall be made, as
determined by the Stock Option Plan Committee in its sole discretion, in the
aggregate number of shares of Common Stock available for issuance under the
Stock Option Plan, the number of shares of Common Stock available for any
individual awards, and the number and exercise price of shares of Common Stock
subject to outstanding options under the Stock Option Plan.
Options granted under the Stock Option Plan are not assignable or
transferable except by will or the laws of descent and distribution. The Stock
Option Plan may be amended, suspended or terminated by the Board, except that:
(i) any revision or amendment that would cause the Stock Option Plan to fail
to comply with Rule 16b-3 of the Exchange Act, Sections 422 or 162(m) of the
Code or any other requirement of applicable law or regulation if not approved
by stockholders shall not be effective until such stockholder approval is
obtained; and (ii) no such action may impair rights under a previously granted
option unless consented to in writing by such option holder. No options may be
granted under the Stock Option Plan after its tenth anniversary but options
theretofore granted may extend beyond such date.
Outside Directors Plan
In September 1995, the Company adopted an outside directors stock option
plan (the "Outside Directors Plan") which provides for the granting of NQSOs
to each director of the Company who: (i) is neither an employee nor an officer
of the Company or any subsidiary or affiliate of the Company on the date of
the grant of an option; and (ii) has not elected to decline to participate in
the Outside Directors Plan pursuant to an irrevocable one-time election made
within 30 days after first becoming a director. Three directors currently
qualify as participants under the Outside Directors Plan. The Company has
reserved for issuance 110,000 shares of Common Stock under the Outside
Directors Plan (subject to adjustment as described below).
The Outside Directors Plan is administered by a committee (the "Outside
Directors Plan Committee") currently consisting of two individuals, Messrs.
Chelin and French. Members of the Outside Directors Plan Committee are not
entitled to participate in the Outside Directors Plan. Subject to the limits
imposed by the terms of the Outside Directors Plan, the Outside Directors Plan
Committee has the power to administer the Outside Directors Plan in its sole
and absolute discretion; provided, however, that the Outside Directors Plan
Committee has no authority to grant NQSOs, to determine the number of shares
of Common Stock subject to NQSOs or the price at which each share of Common
Stock covered by a NQSO may be purchased pursuant to the Outside Directors
Plan.
Pursuant to the terms of the Outside Directors Plan, amendments to which
were approved June 11, 1996, any person who is a non-employee director after
the effective date of the Outside Directors Plan shall be granted NQSOs to
purchase 16,500 shares of Common Stock (subject to adjustment as described
below) on the business day following such effective date. With respect to any
non-employee director who first becomes a member of the Board after the
effective date of the Outside Directors Plan, NQSOs shall be granted to
purchase 16,500 shares of Common Stock on the business day following his
election to the Board. Additional NQSOs to purchase 16,500 shares of Common
Stock will be granted automatically to each non-employee director on the next
business day after the third consecutive Annual Meeting of the Company's
Shareholders ("Annual Meeting") following his initial election to the Board
and on the next business day after every third Annual Meeting thereafter,
provided that the non-employee director is a member of the Board on the date
of such grant. NQSOs shall be granted in the aforesaid manner until the date
on which shares of Common Stock available for grant shall no longer be
sufficient to permit grants of NQSOs covering 16,500 shares of Common Stock to
be made to
31
<PAGE>
each non-employee director entitled to a grant as of such date, in which event
the shares of Common Stock then available for grant shall be allocated on a
pro rata basis among the non-employee directors entitled to a grant of NQSOs
as of such date. All NQSOs granted to non-employee directors vest and become
first exercisable at the rate of (i) 5,500 shares of Common Stock on the next
succeeding business day following such non-employee director's initial
election to the Board and (ii) 5,500 at the next business day after each
Annual Meeting thereafter. Each NQSO will have a term of five years from the
date of grant and will have a per share exercise price equal to the fair
market value of a share of Common Stock on the date of grant. This provision
may not be amended more than once every six months, other than to comply with
changes in the Code or ERISA.
In the event of a Change of Control (as defined in the Outside Directors
Plan), unless otherwise determined by the Outside Directors Plan Committee at
the time of grant or by amendment (with the holder's consent) of such grant,
all NQSOs not vested on or prior to the effective time of any such Change of
Control shall immediately vest as of such effective time. The Outside
Directors Plan Committee in its discretion may make provisions for the
assumption of outstanding NQSOs, or the substitution for outstanding NQSOs of
new incentive awards covering the stock of a successor corporation or a parent
or subsidiary thereof, with appropriate adjustments as to the number and kind
of shares and prices so as to prevent dilution or enlargement of rights;
provided, however, that no such adjustment shall be made if the adjustment
would cause the Outside Directors Plan to fail to comply with the "formula
award" exception, as set forth in Rule 16b-3(c)(2)(ii) under the Exchange Act,
for grants of NQSOs to non-employee directors. The Outside Directors Plan
contains customary anti-dilution provisions which provide that in the event of
any recapitalization, change in the Company's outstanding capital stock, or
certain other events, an adjustment shall be made, as determined by the
Outside Directors Plan Committee in its sole discretion, in the aggregate
number of shares of Common Stock available for issuance under the Outside
Directors Plan, the number of shares of Common Stock available for any
individual awards, and the number and exercise price of shares of Common Stock
subject to outstanding NQSOs under the Outside Directors Plan, provided,
however, that no such adjustment shall be made if the adjustment would cause
the Outside Directors Plan to fail to comply with the "formula award"
exception, as set forth in Rule 16b-3(c)(2)(ii) under the Exchange Act.
NQSOs are not assignable or transferable except by will or the laws of
descent and distribution. The Outside Directors Plan may be amended, suspended
or terminated by the Board, except that: (i) any revision or amendment that
would cause the Outside Directors Plan to fail to comply with Rule 16b-3 of
the Exchange Act or any other requirement of applicable law or regulation if
not approved by stockholders shall not be effective until stockholder approval
is obtained; and (ii) no such action may impair rights under a previously
granted NQSO unless consented to in writing by such option holder. No options
may be granted under the Outside Directors Plan after its tenth anniversary
but NQSOs theretofore granted may extend beyond such date.
Employee Stock Purchase Plan
In October 1995, the Company adopted an employee stock purchase plan (the
"Employee Stock Purchase Plan") which qualifies as an "employee stock purchase
plan" under Section 423 of the Code. The purpose of the Employee Stock
Purchase Plan is to provide a method by which employees may purchase shares of
Common Stock on a discounted basis through payroll deductions. The Company has
reserved for issuance 275,000 shares of Common Stock under the Employee Stock
Purchase Plan (subject to adjustment as described below). All employees of the
Company whose customary employment is twenty hours or more per week and who
have been in the continuous employ of the Company for at least ninety days are
eligible to participate in the Employee Stock Purchase Plan. Notwithstanding
the foregoing, employees who own 5% or more of the Common Stock of the Company
are not eligible to participate in the Employee Stock Purchase Plan.
The Employee Stock Purchase Plan will be comprised of five consecutive
twelve-month offering periods (each, an "Offering Period"), each commencing on
the first business day in November for each of the years 1995 through 1999 and
ending on the last business day in October for each of the years 1996 through
2000. At
32
<PAGE>
the end of each Offering Period, each eligible employee who has elected to
participate in the Employee Stock Purchase Plan shall receive shares of Common
Stock in an amount determined by dividing the employee's accumulated payroll
deductions made during the Offering Period (which deductions are restricted to
a maximum of ten percent (10%) of an employee's salary) by 85% of the average
high and low market prices of a share of Common Stock on the AMEX on the first
day or the last day of the Offering Period, whichever is lower. The maximum
number of shares that may be purchased by an employee in any Offering Period
is 1,100 (subject to adjustment as described below).
The Employee Stock Purchase Plan is administered by a committee (the
"Employee Stock Purchase Plan Committee") consisting of no less than two
members of the Board. Members of the Employee Stock Purchase Plan Committee
who are eligible employees will be permitted to participate in the Employee
Stock Purchase Plan. The Employee Stock Purchase Plan contains customary anti-
dilution provisions which provide that in the event of a recapitalization, a
change in the outstanding capital stock of the Company and certain other
events, an adjustment shall be made, as determined by the Employee Stock
Purchase Plan Committee, in the number and/or kind of shares which are subject
to purchase under outstanding options, the stock price applicable to such
outstanding options, and the number and/or kind of shares which may be offered
in each subsequent Offering Period.
33
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of July 15, 1996, information regarding
the beneficial ownership of the Company's Common Stock by: (i) all persons
known by the Company to own beneficially more than 5% of its outstanding
Common Stock; (ii) each director and executive officer of the Company; and
(iii) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES
NAME AND ADDRESS OF BENEFICIALLY PERCENT OF CLASS PERCENT OF CLASS
BENEFICIAL OWNER OWNED (1) PRIOR TO OFFERING (2) AFTER OFFERING (2)
------------------- ------------ -------------------- -----------------
<S> <C> <C> <C>
ARC International Corpo-
ration................. 2,882,000 (3) 65.5% 52.4%
4000 Chesswood Drive
Downsview, Ontario
Canada M3J 2B9
Arnold S. Tenney........ 122,650 (4) 2.7 2.2
Ronald H. Echtenkamp.... 96,800 (5) 2.2 1.7
John Wilmers............ 47,500 (6) 1.1 *
Colin G. Campbell....... 11,000 (7) * *
Jeffrey D. Chelin....... 16,500 (8) * *
Marshall S. Geller...... 76,560 (9) 1.7 1.4
Yale Richards........... 13,200 (10) * *
Brad J. French.......... 24,200 (11) * *
All Directors and Execu-
tive Officers as a
group
(8 persons)............ 408,410 (12) 8.6 7.0
</TABLE>
- --------
* Less than 1%
(1) In connection with the Company's initial public offering, Canrad Delaware
and Messrs. Tenney, Echtenkamp, Wilmers, Campbell, Chelin and Richards
entered into an agreement with the managing underwriters of such offering
to vote, during the two-year period ending September 12, 1997, all shares
of voting capital stock of the Company beneficially owned by him or it in
the same proportion as the votes cast by persons other than such named
persons voting shares of the same class or series with respect to any
liquidation, merger or business combination in which the Company is not
the surviving entity, or the sale by the Company of all or substantially
all of its assets.
(2) Based upon 4,399,995 shares of Common Stock outstanding prior to the
Offering and 5,499,995 shares of Common Stock outstanding after the
Offering. Each named person and all directors and executive officers as a
group are deemed to be the beneficial owners of shares of Common Stock
that may be acquired within 60 days upon exercise of stock options.
Accordingly, the number of shares and percentage set forth next to the
name of such person and all directors and executive officers as a group
include the shares of Common Stock issuable upon presently exercisable
stock options. However, the shares of Common Stock so issuable upon such
exercise by any such person are not included in calculating the
percentage of Common Stock beneficially owned by any other stockholder.
(3) Such shares are owned directly by Canrad Delaware, an indirect wholly-
owned subsidiary of ARC. Includes 132,000 shares subject to the JW
Charles Option (as hereinafter defined).
(4) Includes 27,500 shares of Common Stock held indirectly by Mr. Tenney
through Arnmart Investments Limited, a corporation controlled by Mr.
Tenney and members of his family, 11,000 shares of Common Stock owned
directly by Mr. Tenney, 1,650 shares owned indirectly by Mr. Tenney
through his wife and 82,500 shares purchasable pursuant to presently
exercisable stock options. Does not include 2,882,000 shares owned
beneficially by ARC.
(5) Includes 14,300 shares of Common Stock owned directly by Mr. Echtenkamp
and 82,500 shares purchasable pursuant to presently exercisable stock
options.
(6) Includes 3,500 shares of Common Stock owned directly by Mr. Wilmers and
44,000 shares purchasable pursuant to presently exercisable stock
options.
(7) Includes 11,000 shares purchasable pursuant to presently exercisable
stock options.
(8) Includes 16,500 shares of Common Stock purchasable pursuant to presently
exercisable stock options.
(9) Includes 10,560 shares of Common Stock held directly by Mr. Geller,
55,000 shares issuable upon exercise of an option granted to Geller &
Friend of which Mr. Geller is CEO and Chairman and 11,000 shares
purchasable pursuant to presently exercisable stock options.
(10) Includes 2,200 shares owned directly by Mr. Richards and 11,000 shares
purchasable pursuant to presently exercisable stock options.
(11) Includes 2,200 shares of Common Stock owned directly by Mr. French and
22,000 shares purchasable pursuant to presently exercisable stock
options.
(12) Includes 72,910 shares of Common Stock owned by directors and executive
officers and 335,500 shares purchasable pursuant to presently exercisable
stock options.
34
<PAGE>
POSSIBLE CHANGES IN CONTROL
Currently, ARC beneficially owns a majority of the Company's outstanding
Common Stock. Subsequent to the Offering, ARC will continue to beneficially
own 52.4% of the Company's outstanding Common Stock (50.9% if the
Underwriters' over-allotment option is exercised in full) and will continue to
control the Company. However, as a result of the arrangements described below,
as well as the potential exercise of outstanding options and warrants to
purchase Common Stock, ARC may in the future own beneficially less than a
majority of the Common Stock, and may no longer control the Company. See
"Description of Capital Stock--Warrants and Options to Purchase Common Stock."
The shares of Common Stock beneficially owned by ARC, and held directly by
Canrad Delaware, are pledged to Merita Bank to secure Canrad Inc.'s
obligations under the Canrad Credit Facility. In the event of a default under
the Canrad Credit Facility, Merita Bank has certain rights as a secured
creditor under the terms of the Canrad Credit Facility to vote and to sell or
otherwise dispose of such pledged shares. See "Shares Eligible For Future
Sale."
In connection with the Company's initial public offering, Canrad Delaware
granted options to the representatives of the underwriters of the Company's
initial public offering (the "JW Charles Option") to purchase from Canrad
Delaware up to an aggregate of 132,000 shares of Common Stock at an exercise
price per share of $7.21, subject to adjustments for stock dividends, stock
splits, reclassifications, reorganizations, consolidations, mergers or similar
events. The JW Charles Option is exercisable from September 6, 1996 until
September 6, 2000. The Company has agreed to register under the Securities Act
the resale of the Common Stock underlying the JW Charles Option. See "Shares
Eligible For Future Sale."
CERTAIN TRANSACTIONS
MANAGEMENT AGREEMENT
The Company is a party to a management agreement (the "Management
Agreement") with Canrad Inc., a subsidiary of ARC, pursuant to which Canrad
Inc. provides services to the Company relating to overall management and
strategic planning and direction, banking negotiations, treasury functions,
investor relations, securities regulatory compliance, employee and general
business insurance programs and asset acquisitions and sales. Pursuant to the
Management Agreement, Canrad Inc. also makes available to the Company the
services of Arnold S. Tenney, as Chairman of the Board. The Management
Agreement provides that Mr. Tenney will share primary responsibility with the
Company's Chief Executive Officer with respect to overall management and
strategic planning and direction, the identification, analysis and
consummation of acquisitions and investor relations. As compensation for its
services, Canrad Inc. is entitled to receive a monthly fee of $25,000 and
reimbursement for its identifiable reasonable out-of-pocket expenses incurred
in connection with the performance of services under the Management Agreement.
The Management Agreement provides for an initial term of five years and
thereafter is automatically renewed for successive one-year periods until
terminated by either party upon 90 days' prior notice. During the initial term
of the Management Agreement, which expires on September 12, 2000, the payment
terms thereof may not be amended without the consent of the managing
underwriters of the Company's initial public offering. In 1995, the Company
paid $300,000 to Canrad Inc. under the Management Agreement. See Note 9 to
Consolidated Financial Statements.
CANRAD DIVIDEND
Concurrently with the Company's initial public offering in September 1995,
the Company paid a cash dividend of $8.0 million to Canrad Delaware, an
indirect subsidiary of ARC and the Company's former sole stockholder, which
amount was used to repay Canrad Inc.'s outstanding indebtedness under its
revolving credit facility with Merita Bank.
THE GELLER OPTION
The Company has granted to Geller & Friend an option to purchase 55,000
shares of Common Stock at a per share exercise price of $6.59 as consideration
for strategic financial services provided to the Company by
35
<PAGE>
Geller & Friend. The option is currently exercisable and expires on December
22, 2000. Marshall Geller, a director of the Company, is Chairman and Chief
Executive Officer of Geller & Friend and is a shareholder of L.H. Friend,
Weinress, Frankson & Presson, Inc., one of the Representatives of the
Underwriters of this Offering. See "Description of Capital Stock--Warrants and
Options to Purchase Common Stock."
INSURANCE COVERAGE
The Company is included in group health and business insurance programs
maintained by ARC and Canrad Inc. for all companies controlled by ARC and
Canrad Inc. The group health insurance plan is a self-insured minimum premium
plan that is administered through the Connecticut General Life Insurance
Company. The group health insurance plan provides for specific stop loss
coverage in the amount of $75,000 per employee per plan year and aggregate
stop loss based upon the head count of those covered under the plan, including
the Company's employees and certain ARC retirees. The aggregate stop loss
level for the group health insurance plan for the May 1, 1996 to April 30,
1997 plan year is approximately $915,000. The Company is charged premiums
which are a set dollar amount based on its monthly head count for the minimum
premium, stop loss and plan administration portions of the program and its
aggregate salary for long-term disability and term life coverage. The Company
is also charged for its claims incurred pursuant to the program.
The business insurance program provides coverage for workers' compensation
and employers liability, general liability, including products and completed
operations, property, automobile, umbrella and directors and officers
liability. The Company's portion of the business insurance premium is
calculated and charged to operations based upon its allocated share of the
coverage provided to that of the entire Canrad Inc. group. Such allocations
are based primarily upon aggregate payrolls, net sales, asset values and
number of automobiles. Most of the policies require annual audit and
adjustment of deposit premiums for differences between estimated values upon
which deposit premiums have been calculated and actual results. An additional
premium is assessed in circumstances where actual values exceed estimated
values and a premium credit is issued for instances where the estimated values
exceed the actual values.
INTERCOMPANY PAYABLE
The Company, through its intercompany account with Canrad Inc., borrowed
$2.9 million in 1993 for its acquisition of the Cinema Products Division of
ORC, and its operations have been charged, for certain allocated expenses,
including management fees, interest expense and income taxes, totalling
approximately $1.5 million, $1.9 million and $1.5 million for the years ended
December 31, 1993, 1994 and 1995, respectively. In addition, the intercompany
account was charged for the Company's pro rata share of the cost of certain
services that have been purchased on a consolidated basis, including health
and business insurance and certain professional services. The Company
reimburses these items using cash generated from its operations.
OTHER
Yale Richards, a director of the Company, is a senior partner of Marks Clare
& Richards, a law firm which performs legal services for the Company from time
to time.
DESCRIPTION OF CAPITAL STOCK
The total number of shares the Company is authorized to issue is 11,000,000,
consisting of 10,000,000 shares of Common Stock, par value $.01 per share, and
1,000,000 shares of Preferred Stock, par value $.01 per share. As of July 15,
1996, there were 4,399,995 shares of Common Stock outstanding and no shares of
Preferred Stock outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by the stockholders. There is no
cumulative voting with respect to the election of directors, with the result
that the holders of a majority of the shares of Common Stock voting for the
election of directors can elect all of
36
<PAGE>
the directors then up for election. The holders of Common Stock are entitled
to receive dividends, subject to the senior rights of preferred stockholders,
when, as and if declared by the Board out of funds legally available therefor.
In the event of liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to share ratably in all assets remaining
which are available for distribution to them after payment of liabilities and
after provision has been made for each class of stock having preference over
the Common Stock. Holders of shares of Common Stock, as such, have no
conversion, preemptive or other subscription rights, and there are no
redemption provisions applicable to the Common Stock. All of the outstanding
shares of Common Stock are, and, upon completion of the Offering, all shares
of Common Stock offered hereby will be, duly authorized, fully paid and
nonassessable.
The Delaware General Corporation Law provides that stockholders may take
action without the holding of a meeting by written consent or consents signed
by the holders of a majority of the outstanding shares of the capital stock of
the Company entitled to vote thereon. Prompt notice of the taking of any
action without a meeting by less than unanimous consent of the stockholders
will be given to those stockholders who do not consent in writing to the
action. The purposes of this provision are to facilitate action by
stockholders and to reduce the corporate expense associated with annual and
special meetings of stockholders. Upon completion of this Offering, ARC will
beneficially own 52.4% of the outstanding Common Stock (50.9% if the
Underwriters' over-allotment option is exercised in full). Accordingly, ARC
will be in a position to control the voting results of certain actions
required or permitted to be taken by stockholders of the Company, including
the election of directors without the holding of a meeting. Pursuant to the
rules and regulations of the Commission, if stockholder action is taken by
written consent, the Company will be required to send each stockholder
entitled to vote on the matter acted on, but whose consent was not solicited,
an information statement containing information substantially similar to that
which would have been contained in a proxy statement.
WARRANTS AND OPTIONS TO PURCHASE COMMON STOCK
As partial consideration for providing certain financial assistance in
connection with the Company's acquisition of the Cinema Products Division of
ORC, on September 12, 1995, the Company issued to Merita Bank a warrant (the
"Merita Warrant") to purchase up to 215,600 shares of Common Stock at a per
share exercise price equal to $5.91. The Merita Warrant first becomes
exercisable on October 12, 1996 and expires on September 12, 2000. The Company
has granted Geller & Friend an option to purchase 55,000 shares of Common
Stock at an exercise price of $6.59 per share as consideration for strategic
financial services provided to the Company by Geller & Friend. The option is
currently exercisable and terminates on December 22, 2000. The Company has
granted to Jaffoni & Collins Incorporated an option to purchase 27,500 shares
of Common Stock at an exercise price of $6.36 per share as consideration for
investor relations and financial relations services provided to the Company.
The option vests on a pro rata basis over the 12 month period beginning on
September 19, 1995 and ending on August 19, 1996. The option terminates on
October 7, 1999. See "Certain Transactions--The Geller Option" and "Shares
Eligible for Future Sale."
PREFERRED STOCK
The Board is authorized, without further approval or action by the
stockholders, to issue shares of Preferred Stock in one or more series and to
determine the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and number of shares
constituting any series of Preferred Stock or the designation of such series.
The rights of the holders of Common Stock will generally be subject to the
prior rights of the holders of any outstanding shares of Preferred Stock with
respect to dividends, liquidation preferences and other matters. Among other
things, the Preferred Stock could be issued by the Company to raise capital or
finance acquisitions. The Preferred Stock could have certain anti-takeover
effects under certain circumstances. The issuance of shares of Preferred Stock
could enable the Board to render more difficult or discourage an attempt to
obtain control of the Company by means of a merger, tender offer or other
business combination transaction directed at the Company by, among other
things, placing shares of Preferred Stock with investors who might align
themselves with the Board, issuing new shares to dilute stock ownership of a
person or entity seeking control of the Company or creating a class or series
of Preferred Stock with class voting rights.
The Company has no current plans to issue any shares of its Preferred Stock.
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<PAGE>
DELAWARE ANTI-TAKEOVER LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. Section 203 provides, with certain exceptions, that a
Delaware corporation may not engage in certain business combinations with a
person or affiliate or associate of such person who is an "interested
stockholder" for a period of three years from the date such person became an
interested stockholder unless: (i) the transaction resulting in the acquiring
person's becoming an interested stockholder, or the business combination, is
approved by the board of directors of the corporation before the person becomes
an interested stockholder; (ii) the interested stockholder acquires 85% or more
of the outstanding voting stock of the corporation in the same transaction
which makes it an interested stockholder (excluding shares owned by directors
who are also officers, and excluding certain employee stock option plans); and
(iii) on or after the date the person becomes an interested stockholder, the
business combination is approved by the corporation's board of directors and by
the holders of at least 66 2/3% of the corporation's outstanding voting stock
at an annual or special meeting, excluding shares owned by the interested
stockholder. Except as otherwise specified in Section 203, an "interested
stockholder" is defined as (a) any person that is the owner of 15% or more of
the outstanding voting stock of the corporation, (b) any person that is an
affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation at any time within the three
year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder, or (c) the
affiliates and associates of any such person. By restricting the ability of the
Company to engage in business combinations with an interested person, the
application of Section 203 to the Company may provide a barrier to hostile or
unwanted takeovers. Under Delaware law, the Company could have opted out of
Section 203 but elected to be subject to its provisions.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BY-LAWS
Classified Board of Directors. The Company's Certificate of Incorporation and
By-Laws provide that the Board shall be divided into three classes of directors
serving staggered terms. One class of directors will be elected at each annual
meeting of stockholders for a three-year term. See "Management--Directors and
Executive Officers." Thus, at least two annual meetings of stockholders,
instead of one, generally will be required to change the majority of the Board.
Directors can be removed from office only for cause and only by the affirmative
vote of at least 66 2/3% of the then outstanding shares of capital stock
entitled to vote generally in the election of directors, voting as a single
class. Vacancies on the Board may be filled only by the remaining directors and
not the stockholders. The foregoing provisions may have the effect of making it
more difficult to acquire control of the Company by means of a hostile tender
offer, open market purchases, a proxy contest or otherwise.
Requirements for Advance Notification of Stockholder Nomination and
Proposals. The Company's By-Laws require 60 to 90 days' notice to the Company
with regard to stockholder proposals and the nomination, other than by or at
the direction of the Board or a committee thereof, of candidates for election
as directors. Such notice must provide specified information, including
information regarding the ownership of Common Stock by the person giving the
notice, information regarding the proposal or the nominees and information
regarding the interest of the proponent in the proposal or the nominations.
Special Meetings of Stockholders. The Company's Certificate of Incorporation
and By-Laws provides that special meetings of stockholders of the Company may
only be called by the Chairman of the Board, the President or a majority of the
then authorized number of directors. This provision precludes stockholders from
calling a special meeting and taking actions opposed by the Board.
Limitation of Director Liability. The Company's Certificate of Incorporation
limits the liability of directors to the Company or its stockholders to the
fullest extent permitted by Delaware law. Specifically, under current Delaware
law, a director will not be personally liable for monetary damages for breach
of the director's fiduciary
38
<PAGE>
duty of care as a director, except liability (i) for a breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts
or omissions by a director not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for liability arising under
Section 174 of the Delaware General Corporation Law (relating to the
declaration of dividends and purchase or redemption of shares in violation of
the Delaware General Corporation Law) or (iv) for any transaction from which
the director derived an improper personal benefit. The inclusion of this
provision in the Company's Certificate of Incorporation may have the effect of
reducing the likelihood of derivative litigation against directors and may
discourage or deter stockholders or management from bringing a lawsuit against
directors for breach of their duty of care.
Supermajority Provisions. The Company's Certificate of Incorporation
provides that the vote of the Board or the affirmative vote of at least 66
2/3% of the then outstanding shares of capital stock entitled to vote
generally in the election of directors, voting as a single class, is required
to amend, repeal or alter any of the Company's By-Laws or the foregoing
provisions contained in the Company's Certificate of Incorporation.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, LLC whose address is 120 Broadway, 13th Floor, New York,
New York 10274.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Common Stock in the public market, or the perception that
such sales could occur, could adversely affect the market price of the Common
Stock or the Company's ability to raise additional capital through sales of
its equity securities. Upon completion of this Offering, in addition to the
1,518,000 shares of Common Stock sold in the Company's initial public offering
and the 1,100,000 shares offered hereby, the Company will have: (i) 2,882,000
shares owned by Canrad Delaware; (ii) 550,000 shares of Common Stock reserved
for issuance upon the exercise of options under the Stock Option Plan and the
Outside Directors Plan, of which 434,500 are subject to options outstanding as
of the date of this Prospectus; (iii) an aggregate of 298,100 shares of Common
Stock issuable pursuant to the Merita Warrant, the option held by Geller &
Friend and the option held by Jaffoni & Collins Incorporated and (iv) 275,000
shares of Common Stock reserved for issuance pursuant to the Employee Stock
Purchase Plan, none of which have been issued as of the date of this
Prospectus. Of the shares of Common Stock owned by Canrad Delaware, 132,000
shares are subject to the JW Charles Option. Of the shares outstanding or
subject to outstanding options, upon completion of the Offering, 2,644,090
will be immediately eligible for resale in the public market without
restriction under the Securities Act, and the 2,882,000 shares owned by Canrad
Delaware (other than the 132,000 shares subject to the JW Charles Option), the
72,910 shares currently owned by officers and directors of the Company and the
335,500 shares subject to outstanding vested options granted to directors and
officers of the Company will be eligible for resale in the public market
subject to compliance with the applicable provisions of Rule 144 under the
Securities Act.
All of the shares owned by Canrad Delaware (other than the 132,000 shares
subject to the JW Charles Option), 72,910 shares currently owned by officers
and directors of the Company, 335,500 shares issuable to officers and
directors of the Company pursuant to the Company's stock option plans and
298,100 shares issuable pursuant to outstanding warrants and other options to
purchase Common Stock are subject to "lock-up" agreements under which the
holders thereof have agreed not to sell or otherwise dispose of such
securities without the prior consent of Cowen & Company for a period of 90
days after the date of the final Prospectus.
In general, under Rule 144 as currently in effect, a stockholder, including
an "affiliate" of the Company as that term is defined in Rule 144
("Affiliate"), who has beneficially owned his or her restricted securities (as
that term is defined in Rule 144) for at least two years from the later of the
date such securities were acquired from the Company or (if applicable) the
date they were acquired from an Affiliate is entitled to sell, within any
three-month period, a number of such shares that does not exceed the greater
of 1% of the then outstanding shares of Common Stock (55,000 shares
immediately after this Offering) or the average weekly trading volume in the
Common Stock during the four calendar weeks preceding the date on which notice
of such sale was filed under
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<PAGE>
Rule 144, provided certain requirements concerning availability of public
information, manner of sale and notice of sale are satisfied. In addition,
under Rule 144(k), if a period of at least three years has elapsed between the
later of the date restricted securities were acquired from the Company or (if
applicable) the date they were acquired from an Affiliate of the Company, a
stockholder who is not an Affiliate of the Company at the time of sale and has
not been an Affiliate of the Company for at least three months prior to the
sale is entitled to sell the shares immediately without compliance with the
foregoing requirements under Rule 144. The Commission has proposed an
amendment to Rule 144 which would reduce by one year the holding period for
shares subject to Rule 144 to be eligible for sale in the public market.
The Company has filed registration statements on Form S-8 under the
Securities Act to register all shares of Common Stock issuable under the Stock
Option Plan, the Outside Directors Plan and the Stock Purchase Plan. Shares
issued upon the exercise of stock options will be eligible for resale in the
public market without restriction, subject to Rule 144 limitations applicable
to Affiliates and the "lock-up" agreements noted above.
All of the shares of Common Stock owned by Canrad Delaware as well as the
stock of certain other subsidiaries of ARC (including Cabletel) have been
pledged to Merita Bank to secure indebtedness of Canrad Inc. under the Canrad
Credit Facility. The Company has been advised by Canrad Delaware that, as of
June 30, 1996, the principal amount of indebtedness outstanding under the
Canrad Credit Facility was approximately $5.5 million. In the event of a
default under the Canrad Credit Facility, Merita Bank has certain rights as a
secured creditor under the terms of the Canrad Credit Facility to vote and to
sell or otherwise dispose of the pledged shares, including all or a portion of
the shares of Common Stock. Although such shares are subject to the "lock-up"
agreements, Cowen & Company has agreed to consent to sales thereof by Merita
Bank in the event of a default under the Canrad Credit Facility.
The holder of the Merita Warrant or of the 215,600 shares of Common Stock
issuable upon exercise of the Merita Warrant (the "Merita Shares"), has the
right, subject to certain exceptions and limitations, on one occasion after
October 12, 1996, to demand registration of the Merita Shares under the
Securities Act. In addition, in the event the Company proposes to register any
of its securities under the Securities Act, such holder will have the right,
subject to certain exceptions and limitations, to have the Merita Shares
included in the registration statement filed by the Company. The Company has
agreed that, in the event of any registration of the Merita Shares, it will
pay certain expenses associated therewith and indemnify the holder thereof and
certain related persons against liabilities incurred in connection with such
registration, including liabilities arising under the Securities Act. The
holders of the JW Charles Option or of the 132,000 shares of Common Stock
purchasable thereunder have the right, subject to certain exceptions and
limitations, on two occasions after September 6, 1996, to demand registration
of such shares under the Securities Act. In addition, such holders have the
right, subject to certain exceptions and limitations, to include their shares
in registration statements filed by the Company at any time during the seven
years following September 6, 1995. The Company and Canrad Delaware have agreed
to pay certain expenses associated therewith and indemnify the holders thereof
and certain related persons against liabilities incurred in connection with
such registration, including liabilities arising under the Securities Act.
Geller & Friend is entitled to demand on two separate occasions during the
five years following December 22, 1995 that the Company register under the
Securities Act the shares of Common Stock issuable pursuant to the option
granted by the Company to Geller & Friend, subject to certain blackout
periods. See "Description of Capital Stock--The Geller Option." By exercising
their registration rights, subject to certain limitations, such holders could
cause their shares to be registered and sold in the public market.
The Company can make no prediction as to the effect, if any, that sales of
shares of Common Stock or the availability of shares for sale will have on the
market price prevailing from time to time. Nevertheless, sales of substantial
amounts of the Common Stock in the public market could adversely affect the
market price of the Common Stock and could impair the Company's future ability
to raise capital or make acquisitions through an offering of its equity
securities.
40
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement dated as of
the date hereof (the "Underwriting Agreement"), the Company has agreed to sell
to each of the Underwriters named below, for whom Cowen & Company and L.H.
Friend, Weinress, Frankson & Presson, Inc. are acting as representatives (the
"Representatives"), and each of the Underwriters has severally agreed to
purchase from the Company the respective number of shares of Common Stock set
forth opposite the name of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
NAME COMMON STOCK
---- ------------
<S> <C>
Cowen & Company..............................................
L.H. Friend, Weinress, Frankson & Presson, Inc. .............
Total...................................................... 1,100,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters are
committed to purchase all of the shares of Common Stock offered hereby (other
than those covered by the over-allotment option described below), if any of
such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the 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 re-allow, a
concession not in excess of $ per share to certain brokers and
dealers. After the shares of Common Stock are released for sale to the public,
the offering price and other selling terms may from time to time be varied by
the Representatives.
The Company has granted the Underwriters an option, exercisable for up to 30
days after the date of this Prospectus, to purchase up to an aggregate of
165,000 additional shares of Common Stock to cover over-allotments, if any. If
the Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them as shown in the foregoing table bears to the 1,100,000 shares of Common
Stock offered hereby. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the 1,100,000 shares of
Common Stock offered hereby.
Pursuant to an agreement with the Company, Geller & Friend, an affiliate of
L.H. Friend, Weinress, Frankson & Presson, Inc., provides certain financial
advisory services to the Company, for which it received an option to purchase
shares of Common Stock. See "Certain Transactions--The Geller Option" and
"Description of Capital Stock--Warrants and Options to Purchase Common Stock."
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act and to contribute
to payments that the Underwriters may be required to make in respect thereof.
The Company, the Company's officers and directors and certain stockholders
and option holders have agreed not to offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or any right to acquire
Common Stock for a period of 90 days after the date of this Prospectus without
the prior written consent (which consent may be given without notice to the
Company's shareholders or other public announcement) of Cowen & Company.
Except as described with respect to shares of Common Stock pledged in
connection with the Canrad Credit Facility, Cowen & Company has advised the
Company that it has no present intention of releasing any of the Company's
stockholders or option holders from such lock-up agreements until the
expiration of such 90-day period. See "Shares Eligible for Future Sale."
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales in excess of 5% of the shares offered hereby to any
accounts over which they exercise discretionary authority.
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<PAGE>
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby will be passed
upon for the Company by Gordon Altman Butowsky Weitzen Shalov & Wein, New
York, New York. Certain legal matters in connection with the Offering will be
passed upon for the Underwriters by Willkie Farr & Gallagher, New York, New
York.
EXPERTS
The consolidated financial statements and schedule of Ballantyne of Omaha,
Inc. as of December 31, 1995 and 1994 and for each of the years in the three-
year period ended December 31, 1995, have been included herein and in the
registration statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith, is required to file reports, proxy statements and
other information with the Commission. Copies of such reports and other
information as filed by the Company can 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: Midwest Regional Office, Citicorp Center,
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and Northeastern
Regional Office, 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material can be obtained at prescribed rates from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549. Such material may also be accessed electronically by means of the
Commission's home page on the Internet at http://www.sec.gov. The Common Stock
is listed on the AMEX. Reports, proxy statements and other information
concerning the Company may be inspected at the AMEX, 86 Trinity Place, New
York, New York 10006.
The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all amendments, exhibits, schedules and supplements
thereto, the "Registration Statement"), of which this Prospectus forms a part,
covering the Common Stock to be sold pursuant to this Offering. As permitted
by the rules and regulations of the Commission, this Prospectus omits certain
information, exhibits and undertakings contained in the Registration
Statement. Such additional information, exhibits and undertakings can be
inspected at and obtained from the Commission at the above-referenced address.
For additional information with respect to the Company, the Common Stock and
related matters and documents, reference is made to the Registration
Statement. Statements contained herein concerning any such document are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement. Each such
statement is qualified in its entirety by such reference.
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<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and December 31, 1995
and (unaudited) June 30, 1996 .......................................... F-3
Consolidated Statements of Income for the years ended December 31, 1993,
1994 and 1995 and (unaudited) six months ended June 30, 1995 and 1996 .. F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1993, 1994 and 1995 and (unaudited) six months ended June
30, 1996 ............................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994 and 1995 and (unaudited) six months ended June 30, 1995 and
1996 ................................................................... F-6
Notes to Consolidated Financial Statements--Years ended December 31,
1993, 1994 and 1995 and (unaudited) six months ended June 30, 1995 and
1996 ................................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Ballantyne of Omaha, Inc.
We have audited the accompanying consolidated financial statements of
Ballantyne of Omaha, Inc. and subsidiaries as listed in the accompanying
index. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ballantyne
of Omaha, Inc. and subsidiaries at December 31, 1994 and 1995, and the results
of their operations and their cash flows for each of the years in the three-
year period ended December 31, 1995, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Omaha, Nebraska
January 19, 1996
F-2
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash..................................... $ 260,006 $ 204,172 $ 211,030
Trade receivables, less allowance for re-
ceivables of $100,000 in 1994, $118,033
in 1995 and $108,682 in 1996............ 3,992,386 5,713,141 7,139,825
Inventories.............................. 7,862,536 9,306,157 10,112,844
Deferred income taxes.................... 336,993 515,926 515,926
Other current assets..................... 54,372 51,873 122,763
----------- ----------- -----------
Total current assets................. 12,506,293 15,791,269 18,102,388
Property, plant and equipment, at cost:
Land..................................... 313,500 313,500 313,500
Building and improvements................ 1,585,162 1,596,281 1,624,296
Machinery and equipment.................. 2,831,559 3,193,963 3,739,462
----------- ----------- -----------
4,730,221 5,103,744 5,677,258
Less accumulated depreciation............ 1,797,307 2,169,125 2,390,877
----------- ----------- -----------
Net property, plant and equipment.... 2,932,914 2,934,619 3,286,381
Goodwill, other intangibles and other as-
sets, net............................... 1,235,194 1,102,314 1,066,150
----------- ----------- -----------
$16,674,401 $19,828,202 $22,454,919
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Intercompany payable to parent........... $ 692,866 $ 135,588 $ 112,236
Current installments of long-term debt... 754,360 839,508 879,860
Accounts payable......................... 2,469,032 3,680,020 4,546,898
Accrued expenses......................... 1,326,710 1,444,937 1,407,680
Income taxes payable..................... 184,517 1,066,532 252,944
----------- ----------- -----------
Total current liabilities............ 5,427,485 7,166,585 7,199,668
----------- ----------- -----------
Deferred income taxes...................... 379,728 386,472 386,472
Long-term debt, excluding current install-
ments..................................... 852,298 7,219,930 7,846,282
Stockholder's equity
Preferred stock, par value $.01 per
share; authorized 1,000,000 shares, no
shares issued or outstanding............ -- -- --
Common stock, par value $.01 per share;
authorized 10,000,000 shares; Issued and
outstanding--4,399,995 shares in 1996,
4,400,000 shares in 1995 and 4,000,000
shares in 1994.......................... 40,000 44,000 44,000
Additional paid-in capital............... 3,622,714 5,011,215 5,011,215
Retained earnings........................ 6,352,176 -- 1,967,282
----------- ----------- -----------
Total stockholders' equity........... 10,014,890 5,055,215 7,022,497
----------- ----------- -----------
Commitments and contingencies -- -- --
$16,674,401 $19,828,202 $22,454,919
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
----------------------------------- -----------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............... $22,630,753 $28,758,446 $38,441,396 $18,065,803 $23,857,860
Cost of Sales........... 15,864,173 20,127,039 27,450,688 12,790,689 17,075,185
----------- ----------- ----------- ----------- -----------
6,766,580 8,631,407 10,990,708 5,275,114 6,782,675
Selling expenses........ 2,161,400 2,298,961 2,401,337 1,243,887 1,270,766
General and
administrative
expenses............... 1,430,192 1,902,137 2,979,738 1,407,430 1,731,836
Management fee charged
by parent.............. 231,441 241,188 300,000 150,000 150,000
----------- ----------- ----------- ----------- -----------
Income from
operations........... 2,943,547 4,189,121 5,309,633 2,473,797 3,630,073
Interest expense........ 193,189 108,977 277,323 41,415 381,771
Interest expense charged
by parent.............. 212,750 129,690 -- -- --
----------- ----------- ----------- ----------- -----------
Income before income
taxes................ 2,537,608 3,950,454 5,032,310 2,432,382 3,248,302
Income taxes............ 1,037,382 1,595,614 1,991,985 981,551 1,281,020
----------- ----------- ----------- ----------- -----------
Net income............ $ 1,500,226 $ 2,354,840 $ 3,040,325 $ 1,450,831 $ 1,967,282
=========== =========== =========== =========== ===========
Net income per share.... $ 0.45 $ 0.63 $ 0.28 $ 0.41
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID- RETAINED
STOCK STOCK IN CAPITAL EARNINGS TOTAL
--------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1992.................... -- $ 40,000 $3,622,714 $2,497,110 $6,159,824
Net income............... -- -- -- 1,500,226 1,500,226
----- -------- ---------- ---------- ----------
Balance at December 31,
1993.................... -- 40,000 3,622,714 3,997,336 7,660,050
Net income............... -- -- -- 2,354,840 2,354,840
----- -------- ---------- ---------- ----------
Balance at December 31,
1994.................... -- 40,000 3,622,714 6,352,176 10,014,890
Cash dividend paid....... -- -- -- (8,000,000) (8,000,000)
Net income............... -- -- -- 3,040,325 3,040,325
Issuance of 10% stock
distribution declared
January 23, 1996, pay-
able March 8, 1996...... -- 4,000 1,388,501 (1,392,501) --
----- -------- ---------- ---------- ----------
Balance at December 31,
1995.................... -- 44,000 5,011,215 -- 5,055,215
Net income............... -- -- -- 1,967,282 1,967,282
----- -------- ---------- ---------- ----------
Balance at June 30, 1996
(unaudited).............
Total.................. -- $ 44,000 $5,011,215 $1,967,282 $7,022,497
===== ======== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............ $1,500,226 $2,354,840 $3,040,325 $1,450,831 $1,967,282
Adjustment to
reconcile net income
to net cash provided
by operating
activities:
Depreciation of
plant and
equipment.......... 330,356 344,434 371,818 203,841 221,752
Other amortization.. 176,034 186,909 139,919 69,958 26,154
Deferred income
taxes.............. (88,716) (86,821) (172,189) -- --
Changes in assets and
liabilities of net
assets acquired
Trade receivables... 368,972 276,012 (1,720,755) (1,808,909) (1,426,684)
Inventories......... (286,861) (175,335) (1,443,621) (54,170) (806,687)
Other current
assets............. 4,876 9,502 2,499 (103,372) (70,890)
Accounts payable.... 791,606 21,135 1,210,988 833,961 866,878
Accrued expenses.... 323,325 492,813 118,227 64,403 (37,257)
Income taxes
payable............ 11,439 10,076 882,015 (16,839) (813,538)
Goodwill, other
intangibles and
other assets....... (9,918) (15,918) (7,039) 22,963 10,010
---------- ---------- ---------- ---------- ----------
Net cash provided by
operating activities... 3,121,339 3,417,647 2,422,187 662,667 (62,980)
---------- ---------- ---------- ---------- ----------
Cash flows from
investing activities:
Purchase of net
assets............... -- (100,000) -- -- --
Capital expenditures.. (294,594) (246,784) (244,108) (89,470) (191,261)
---------- ---------- ---------- ---------- ----------
Net cash used in
investing
activities......... (294,594) (346,784) (244,108) (89,470) (191,261)
Cash flows from
financing activities:
Repayments of long-
term debt............ (870,346) (1,282,960) (1,676,635) (485,943) (245,549)
Cash dividend paid.... -- -- (8,000,000) -- --
Proceeds from
revolving credit
facility............. -- -- 8,000,000 -- 530,000
Change in intercompany
payable to parent.... (2,019,918) (1,555,048) (557,278) (34,406) (23,352)
---------- ---------- ---------- ---------- ----------
Net cash used in
financing
activities......... (2,890,264) (2,838,008) (2,233,913) (520,349) 261,099
---------- ---------- ---------- ---------- ----------
Net increase (decrease)
in cash................ (63,519) 232,855 (55,834) 52,848 6,858
Cash at beginning of
period................. 90,670 27,151 260,006 260,006 204,172
---------- ---------- ---------- ---------- ----------
Cash at end of period... $ 27,151 $ 260,006 $ 204,172 $ 312,854 $ 211,030
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
1. THE COMPANY
Ballantyne of Omaha Inc., a Delaware corporation ("Ballantyne" or the
"Company"), and its wholly owned subsidiaries, Strong International Inc. and
Arnolds Inc., design, develop, manufacture and distribute commercial motion
picture equipment, follow spotlights and restaurant equipment. The Company's
products are distributed worldwide through a domestic and international dealer
network and are sold to major movie exhibition companies, sports arenas,
auditoriums, amusement parks, special venues, restaurants, supermarkets and
convenience food stores. A majority of the Company's common stock is owned by
Canrad of Delaware Inc. ("Canrad Delaware"), which is an indirect wholly-owned
subsidiary of ARC International Corporation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies upon which the accompanying consolidated
financial statements are based are summarized as follows:
a. Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation.
The unaudited financial information as of June 30, 1996 and for the six
months ended June 30, 1995 and 1996 have been prepared in conformity with
generally accepted accounting principles and include all adjustments which
are, in the opinion of management, necessary to a fair presentation of the
results for the interim periods presented. All such adjustments are, in the
opinion of management, of a normal, recurring nature.
b. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and include appropriate elements of material, labor and manufacturing
overhead.
c. Goodwill and Other Intangibles
The excess of cost over the carrying value of assets of business acquired is
stated at cost less accumulated amortization and is being amortized on a
straight-line basis over the expected periods to be benefitted, 5 to 25 years.
Accumulated amortization as of December 31, 1994 and 1995 amounted to $536,771
and $584,875, respectively and $608,930 as of June 30, 1996. The Company
assesses and would recognize any deficiency of the recoverability of this
intangible asset by determining whether the amortization of the asset balance
over its remaining life can be recovered through undiscounted future operating
cash flows of the acquired operations.
Other intangibles, including a noncompete agreement, are stated at cost less
accumulated amortization and are amortized on a straight-line basis over the
estimated useful lives or stated contract terms which include periods ranging
from 4 to 17 years. Accumulated amortization as of December 31, 1994 and 1995
amounted to $234,557 and $326,370, respectively, and $372,278 as of June 30,
1996.
F-7
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
d. Depreciation
Depreciation of plant and equipment is provided over the estimated useful
lives of the respective assets using the straight-line method. Charges are
made to operations in amounts sufficient to write off the cost of such assets
over their estimated useful lives.
e. Consolidated Income Tax Return
Prior to September 6, 1995, the results of operations of the Company for
both Federal and Nebraska state income tax purposes were included in the
consolidated returns of ARC USA Corporation, the parent company of Canrad Inc.
(See Note 3). Income tax expense for the periods prior to September 6, 1995
with respect to the Federal and Nebraska state income tax returns are
allocations from Canrad Inc., and are determined as if the Company was a
separate taxable entity.
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date.
f. Revenue Recognition
The Company recognizes revenue from product sales upon shipment to the
customer.
g. Research and Development
Research and development costs are charged to operations in the period
incurred. Such costs charged to operations amounted to $330,471, $326,338, and
$362,690 for the years ended December 31, 1993, 1994 and 1995, respectively,
and $162,298 and $206,570 for the six months ended June 30, 1995 and 1996,
respectively.
h. Fair Value of Financial Instruments
Statement of Financial Accounting Standards SFAS No. 107 "Disclosure about
Fair Value of Financial Instruments" defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a
current transaction between willing parties. Cash, trade receivables,
intercompany payable to parent, debt and accounts payable reported in the
consolidated balance sheets equal or approximate fair values.
i. Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
3. INITIAL PUBLIC OFFERING
On September 6, 1995, the Company completed an initial public offering (the
"IPO") pursuant to which Canrad Delaware, the holder of record of all of the
outstanding common shares of Ballantyne prior to the IPO sold 1,200,000 shares
of Ballantyne common stock to the public at an IPO price of $6.50. On October
2, 1995, an additional 180,000 common shares of Ballantyne were sold by Canrad
Delaware at the IPO price of $6.50.
F-8
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In connection with the IPO, on June 30, 1995, the Company effected a
400,000-to-1 stock exchange which has been given retroactive effect in the
accompanying consolidated financial statements. The authorized common stock of
Ballantyne was increased from 100,000 shares to 10,000,000 shares and the 10
issued shares increased to 4,000,000 shares. As a result, $40,000 was
transferred from additional paid-in capital to common stock.
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials and supplies.................. $5,759,452 $6,708,016 $ 7,299,451
Work in process............................. 1,379,727 1,167,433 1,526,420
Finished goods.............................. 723,357 1,430,708 1,286,973
---------- ---------- -----------
$7,862,536 $9,306,157 $10,112,844
========== ========== ===========
5. LONG-TERM DEBT
Long-term debt consists of the following:
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Industrial Development Revenue Bond, bearing
interest at 7.9% due in monthly
installments of $19,336, including
principal and interest, maturing, October
1988. The bond is secured by the Company's
facility and letters of credit............. $ 736,412 $ 556,194 $ 460,615
$10,000,000 revolving credit facility with
Norwest Bank Nebraska, N.A., bearing
interest at prime (8.50% at December 31,
1995) due September 30, 2000. The credit
facility is secured by substantially all of
the Company's assets....................... -- 7,090,000 7,620,000
Capital lease obligations bearing interest
rates ranging from 8.125% to 9.1%, payable
in varying monthly installments, with final
maturation date of January 2001............ 145,397 225,229 551,589
Promissory note payable to Litton, payable
in monthly installments of $50,000 through
September 1, 1995, with a final payment of
$26,166 due on October 1, 1995. This note
was issued pursuant to the purchase of
Westrex Company, Asia...................... 476,166 -- --
Note payable to Optical Radiation
Corporation, with imputed interest of 10%,
payable in annual installments of $100,000,
including principal and interest, maturing
March 1997................................. 248,683 188,015 93,938
---------- ---------- -----------
Total Long-Term Debt........................ 1,606,658 8,059,438 8,726,142
Less current
installments of long-term 754,360 839,508 879,860
debt.................................
---------- ---------- -----------
Long-term debt, excluding current
installments............................... $ 852,298 $7,219,930 $ 7,846,282
========== ========== ===========
</TABLE>
The Norwest Bank Nebraska, N.A. (Norwest Bank) revolving credit facility
initially provides for a borrowing commitment of up to $10,000,000. The
commitment will reduce by $500,000 on the first and second anniversary dates
of such facility and $1,000,000 on the third and fourth anniversary dates
thereof. The entire
F-9
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
amount outstanding under the Norwest Bank revolving credit facility will
mature on the fifth anniversary date of such facility. Amounts repaid under
the Norwest Bank revolving credit facility are available for reborrowing. The
Company initially borrowed $8,000,000 under the facility for a dividend
payment to Canrad Delaware. The Norwest Bank revolving credit facility
contains certain restrictive covenants which include, among other matters, a
prohibition on the payment of cash dividends and requirements relating to
working capital, current ratios, debt service ratios, total debt to tangible
net worth ratios and tangible net worth. At December 31, 1995, the Company was
in compliance with the covenants.
The Industrial Development Revenue Bond agreement and the letter of credit
securing the agreement contain certain restrictive covenants which include,
among other matters, requirements relating to working capital, net worth,
maintenance of debt-to-equity, interest coverage and current ratios and a
restriction on the payment of cash dividends. The Company was in compliance
with such covenants or has obtained appropriate waivers with respect to the
IPO and the dividend. The letter of credit is for approximately $699,200 at
December 31, 1995. Such amount reduces as monthly payments are made. The
annual commission with respect to the letter of credit is 1.375% of the
average outstanding balance.
Capitalized lease obligations relate to equipment having a net book value at
December 31, 1995 of approximately $274,500.
Annual maturities of long-term debt, including the capitalized lease
obligations and assuming that amounts advanced pursuant to the revolving
credit facility are repaid to comply with reductions in facility
commitments, are as follows: 1996--$839,508; 1997--$848,253; 1998--$1,216,465;
1999--$1,049,210; and 2000--$4,106,002.
6. INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------- -------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal............... $ 912,098 $1,350,460 $1,846,255 $773,162 $1,051,808
State................. 214,000 331,975 292,639 208,389 229,212
Foreign............... -- -- 25,280 -- --
Deferred--Federal..... (88,716) (86,821) (172,189) -- --
---------- ---------- ---------- -------- ----------
$1,037,382 $1,595,614 $1,991,985 $981,551 $1,281,020
========== ========== ========== ======== ==========
The actual tax expense differs from the "expected" tax expense (computed by
applying the U.S. Federal corporate tax rate of 34% to income before income
taxes) as follows:
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------- -------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Computed "expected" tax
expense................ $ 862,787 $1,343,154 $1,710,985 $827,010 $1,104,423
State income taxes, net
of Federal benefit..... 141,240 219,105 193,142 137,537 151,280
Goodwill and other non-
deductible
amortization........... 33,355 33,355 16,356 8,178 8,892
Other non-deductible
expenses............... -- -- 98,668 8,826 16,425
Varying rate of foreign
income................. -- -- (27,166) -- --
---------- ---------- ---------- -------- ----------
$1,037,382 $1,595,614 $1,991,985 $981,551 $1,281,020
========== ========== ========== ======== ==========
</TABLE>
F-10
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The deferred tax liability and deferred tax assets were comprised of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1995
-------- --------
<S> <C> <C>
Deferred tax liability--Depreciation..................... $379,728 $386,472
Deferred tax assets:
Inventory reserves..................................... 206,773 326,641
Group insurance........................................ 32,300 30,903
Accounts receivable reserve............................ 34,000 40,131
Other.................................................. 63,920 118,251
-------- --------
336,993 515,926
-------- --------
Net deferred tax asset (liability)....................... $(42,735) $129,454
======== ========
</TABLE>
There was no valuation allowance for deferred tax assets at December 31,
1994 or 1995. Based upon the scheduled reversal of deferred tax liabilities,
projected future taxable income and tax planning strategies, management
believes it is more likely than not the Company will realize the benefits of
deferred tax assets as of December 31, 1995.
7. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures to the consolidated statements of cash flows are as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------- -------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest paid.......... $ 405,939 $ 238,667 $ 225,773 $ 41,415 $ 379,290
========== ========== ========== ======== ==========
Income taxes paid...... $1,021,768 $1,578,104 $1,282,159 $981,551 $2,094,558
========== ========== ========== ======== ==========
</TABLE>
Other noncash activities in 1995 and 1996 included approximately $129,400
and $382,300, respectively, of additional capital lease obligations in
exchange for equipment. Other noncash activities in 1994 included the
incurrence of approximately $476,200 of long-term debt for the purchase of
Westrex. In addition, the Company incurred approximately $96,000 of additional
capital lease obligations in exchange for equipment. In 1993, the Company
incurred approximately $2,027,400 of long-term debt and $2,900,000 of an
intercompany loan for the purchase of the Cinema Products Division; and
increases to equipment and accumulated depreciation of approximately $243,600
and $97,400, respectively.
8. PENSION AND RETIREMENT PLANS
The Company sponsors a defined contribution plan (the "Plan") for all
employees. Pursuant to the provisions of the Plan, employees may defer up to
6% of their compensation. The Company will match 50% of the amount deferred.
An additional amount of up to 9% of the employee's compensation for the year
may also be deferred with no matching contribution by the Company. The
contributions made to the Plan by the Company for the years ended December 31,
1993, 1994 and 1995 amounted to $76,489, $83,625, and $91,984, respectively
and $45,674 and $48,077 for the six months ended June 30, 1995 and 1996,
respectively.
F-11
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. RELATED PARTY TRANSACTIONS
Canrad Inc. provides certain services to its subsidiaries on a corporate
basis. Such services include, but are not limited to, strategic planning,
acquisition assistance, procurement of capital and debt arrangements, securing
health and business insurance coverages and payment of medical claims, audit
and income tax planning and other matters. In addition, interest expense
relating to an interest rate collar agreement, which expired in October 1994
and has not been renewed, has been allocated by Canrad Inc. to each of its
subsidiaries. Such interest expense was charged to operations as incurred.
Corporate expenses incurred and the interest relating to the interest collar
agreement have been divided among Canrad Inc.'s subsidiaries primarily on the
ratio of the subsidiary's net sales to consolidated net sales of Canrad Inc.
Management of Canrad Inc. believes that this method of allocation is a
reasonable method of splitting its corporate expenses and interest expense
relating to the interest rate collar agreement among its subsidiaries.
The following amounts were charged to operations of Ballantyne by Canrad
Inc.:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------- -----------------
1993 1994 1995 1995 1996
---------- ---------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Management fees............ $ 231,441 $ 241,188 $ 300,000 $150,000 $150,000
Interest expense........... 212,750 129,690 -- -- --
Federal and Nebraska state
income taxes.............. 1,012,382 1,553,639 1,225,211 955,591 --
</TABLE>
The intercompany payable to parent reflects the following activities:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------- SIX MONTHS ENDED
1993 1994 1995 JUNE 30, 1996
----------- ----------- ----------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance at beginning of
year................... $ 1,367,832 $ 2,247,914 $ 692,866 $135,588
Management fees......... 231,441 241,188 300,000 150,000
Interest expense........ 212,750 129,690 -- --
Income tax expense...... 1,012,382 1,553,639 1,225,211 --
Intercompany payable for
insurance premiums and
claims paid............ 753,128 1,213,281 1,244,742 711,663
Funding to purchase
Cinema Products
Division............... 2,900,000 -- -- --
Other................... 240,381 132,154 22,769 2,168
Repayments of amounts
loaned................. (4,470,000) (4,825,000) (3,350,000) (887,183)
----------- ----------- ----------- --------
Balance at end of year.. $ 2,247,914 $ 692,866 $ 135,588 $112,236
=========== =========== =========== ========
</TABLE>
The Company purchased certain components, principally xenon short arc bulbs
for use as the light source in its projection and spotlight products from
Hanovia Lamp Inc. ("Hanovia"), an affiliated company. On January 31, 1995,
Hanovia sold its xenon short arc bulb product line to ORC, which continues to
meet the needs of the Company respecting such products. Such purchases from
Hanovia amounted to $143,264, $186,789 and $21,717 for the years ended
December 31, 1993, 1994 and 1995, respectively.
The Company also sells certain components, primarily power supplies, to
Hanovia. Such sales amounted to $32,964, $28,725 and $12,443 for the years
ended December 31, 1993, 1994 and 1995, respectively and none for the six
months ended June 30, 1996.
One member of the Board of Directors, who was appointed during 1995, serves
as outside counsel for the Company. Fees paid to the Board Member's firm in
1995 were not significant.
F-12
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. ACQUISITIONS
a. Purchase of Cinema Products Division
On March 19, 1993, the Company acquired certain net assets, primarily
accounts receivable and inventories, of the Cinema Products Division of
Optical Radiation Corporation ("ORC") for a purchase price of approximately
$4,511,200. The purchase, which was effective as of March 1, 1993, was made
through advances totalling $2,900,000 from Canrad and a note in the amount of
approximately $1,611,200 to ORC. The purchase price has been assigned to the
assets acquired based upon the fair market value of such assets. No goodwill
was recorded in connection with the acquisition. The Cinema Products Division
designs, manufactures, sells and services commercial motion picture projection
equipment and commercial slide show projection equipment and distributes ISCO-
Optic lenses to the theater and audio visual industries in North America.
In addition, the Company entered into a five-year noncompete agreement with
ORC. The agreement is for a total of $500,000 payable by Ballantyne in equal
installments of $100,000. The present value of the noncompete payments,
approximately $416,900, has been included as part of the total purchase price.
The acquisition has been treated as a purchase and, accordingly, the
Company's consolidated financial statements reflect the operations of the
Cinema Products Division beginning March 1, 1993. Assuming the acquisition had
occurred at the beginning of 1993, the unaudited pro forma condensed results
of operations for 1993 would have been as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-----------------
<S> <C>
Net sales........................ $23,698,143
===========
Net income....................... $ 1,533,939
===========
</TABLE>
The effect of the acquisition on net income per share is not significant.
The unaudited pro forma financial information presented is not necessarily
indicative of the results of operations that would have occurred had the
acquisition been effective at the beginning of 1993.
b. Purchase of Westrex Company, Asia
On December 2, 1994, the Company acquired certain net assets, primarily
accounts receivable and inventories, of Westrex Company, Asia (Westrex), a
wholly owned subsidiary of Litton Systems Inc. (Litton), for a purchase price
of approximately $576,200. The purchase was made for $100,000 in cash and a
note in the amount of approximately $476,200 to Litton. From its Hong Kong
location, Westrex sells and services theater equipment in Hong Kong and other
countries of the Pacific rim. In 1994, annual revenues of Westrex were
approximately $2,500,000. No goodwill was recorded in connection with the
acquisition. This acquisition has been treated as a purchase and, accordingly,
the Company's consolidated financial statements reflect the operations of
Westrex beginning December 1, 1994.
11. INDUSTRY SEGMENT INFORMATION
The Company's operations are conducted principally through two segments:
Theater and Restaurant. Theater operations include the design, manufacture,
assembly and sale of motion picture projectors, xenon lamphouses and power
supplies, sound systems, follow spotlights and the sale of film handling
equipment and lenses. Restaurant includes the design, manufacture, assembly
and sale of pressure fryers, smoke ovens and rotisseries and sale of
seasonings, marinades and barbecue sauces, mesquite and hickory woods and
point of purchase displays.
F-13
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Export sales, principally to customers in Mexico, Canada, Europe and Asia,
were $4,613,838, $6,150,771 and $8,390,207, for 1993, 1994 and 1995,
respectively. Sales to one customer represented approximately ten percent
(10%) of consolidated net sales in the year ended December 31, 1995. The
balance in trade accounts receivable of $957,000 was owed by this customer at
December 31, 1995. No one customer represented more than 10% of consolidated
net sales for the years ended December 31, 1993 and 1994. Financial
instruments which potentially expose the Company to a concentration of credit
risk principally consist of accounts receivable. The Company sells products to
a large number of customers in many different geographic regions. To minimize
credit concentration risk, the Company performs ongoing credit evaluations of
its customers' financial condition.
It should be noted that industry segment information may be of limited
usefulness in comparing an industry segment of the Company with a similar
industry segment of another enterprise.
Selected information by major industry segment is summarized below for the
years ended December 31, 1993 and 1994: The Restaurant segment does not
represent 10% of combined revenue, operating profit or identifiable assets in
1995.
<TABLE>
<CAPTION>
DECEMBER 31, 1993 THEATRE RESTAURANT TOTAL
----------------- ----------- ---------- -----------
<S> <C> <C> <C>
Net Sales................................... $19,580,933 $3,049,820 $22,630,753
=========== ========== ===========
Operating income............................ $ 2,840,570 $ 102,977 $ 2,943,547
=========== ========== ===========
Interest expense............................ $ 405,939
===========
Income before income taxes.................. $ 2,537,608
===========
Depreciation and amortization:
Plant and equipment....................... $ 297,330 $ 33,026 $ 330,356
=========== ========== ===========
Other..................................... $ 170,802 $ 5,232 $ 176,034
=========== ========== ===========
Identifiable assets......................... $14,269,636 $1,648,881 $15,918,517
=========== ========== ===========
Capital expenditures........................ $ 265,125 $ 29,469 $ 294,594
=========== ========== ===========
<CAPTION>
DECEMBER 31, 1994 THEATRE RESTAURANT TOTAL
----------------- ----------- ---------- -----------
<S> <C> <C> <C>
Net Sales................................... $25,731,253 $3,027,193 $28,758,446
=========== ========== ===========
Operating income............................ $ 4,123,846 $ 65,275 $ 4,189,121
=========== ========== ===========
Interest expense............................ $ 238,667
===========
Income before income taxes.................. $ 3,950,454
===========
Depreciation and amortization:
Plant and equipment....................... $ 309,991 $ 34,443 $ 344,434
=========== ========== ===========
Other..................................... $ 181,677 $ 5,232 $ 186,909
=========== ========== ===========
Identifiable assets......................... $14,915,128 $1,759,273 $16,674,401
=========== ========== ===========
Capital expenditures........................ $ 212,502 $ 34,282 $ 246,784
=========== ========== ===========
</TABLE>
F-14
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. CAPITAL STOCK
a. Option Plans
The Company has adopted a 1995 Incentive and Non-Incentive Stock Option Plan
and a 1995 Non-Employee Directors Non-Incentive Stock Option Plan (the
"Plans"). A total of 550,000 shares of Ballantyne common stock have been
reserved for issuance pursuant to these Plans. The 1995 Stock Option Plan
provides for the granting of incentive and non-incentive stock options. The
1995 Outside Directors Stock Option Plan provides for the granting of non-
incentive stock options only. The per share exercise price of incentive stock
options may not be less than 100% of the fair market value of a share of
Ballantyne common stock on the date of grant (110% of fair market value in the
case of an incentive stock option granted to any person who, at the time the
incentive stock option is granted, owns (or is considered as owning within the
meaning of Section 424(d) of the Internal Revenue Code of 1986, as amended)
stock possessing more than 10% of the total combined voting powers of all
classes of stock of the Company or any parent or subsidiary). With respect to
non-incentive stock options, the per share exercise price may not be less than
85% of the fair market value of a share of Ballantyne common stock on the date
of grant.
In 1995, the Company has granted options covering an aggregate of 418,000
shares of Ballantyne common stock to certain officers, directors and employees
of the Company exercisable at a price per share of $5.91. None of the options
is exercisable at December 31, 1995. The number of shares under option and the
per share option price have been adjusted for the effect of the 10% stock
distribution issued on March 8, 1996. There were no stock options exercised in
the years ended December 31, 1993, 1994 or 1995.
The Company also adopted the 1995 Employee Stock Purchase Plan. The employee
stock purchase plan provides for the purchase of shares of Ballantyne common
stock by eligible employees at a per share purchase price equal to 85% of the
fair market value of a share of Ballantyne common stock at either the
beginning or end of the offering period, as defined, whichever is lower.
Purchases are made through payroll deductions of up to 10% of each
participating employee's salary and participants are limited to purchasing
1,100 shares of Ballantyne common stock in any offering period. 275,000 shares
of Ballantyne common stock have been reserved pursuant to the employee stock
purchase plan. The number of shares under option has been adjusted for the
effect of the 10% stock distribution issued on March 8, 1996.
b. Warrants
The Company has granted Merita Bank Ltd., the primary lending bank of Canrad
Inc., a warrant to purchase 215,600 shares of Ballantyne common stock. The
warrant is exercisable at a per share price of $5.91. All shares subject to
the warrant are exercisable at December 31, 1995. The number of shares under
warrant and the per share warrant price have been adjusted for the effect of
the 10% stock distribution issued on March 8, 1996.
c. Change of Control
A substantial portion of the shares of Ballantyne common stock owned by
Canrad Delaware are pledged to secure Canrad Inc.'s obligation under a credit
facility provided by Merita Bank Ltd. During the period, if any, that one or
more events of default shall have occurred and are continuing under such
credit facility, Merita Bank Ltd. shall have the right to sell all or any
portion of such pledged shares at one or more public or private sales called
and conducted in any manner permitted by the New York Uniform Commercial Code.
The sale of all or a substantial portion of such pledged shares could result
in a change of control of Ballantyne.
F-15
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. NET INCOME PER SHARE
Net income per share is based on the weighted average number of common
shares outstanding. The effects of the assumed exercise of outstanding stock
options and warrants have been included in the income per share calculation
for the period that the shares were assumed issued using the treasury stock
method. Net income per share also reflects the effect of the assumed interest
expense less related tax effects of the $8,000,000 borrowing pursuant to the
Norwest Bank revolving credit facility which is assumed to be outstanding as
of the beginning of the earliest period presented, with no repayment being
made during such period. Weighted average shares outstanding amounted to
4,400,000 for the years ended December 31, 1993 and 1994 and 4,436,229 for the
year ended December 31, 1995. Prior to the IPO, the Company was a wholly owned
subsidiary of Canrad Delaware. Therefore, net income per share is presented
only for 1994 and 1995.
The Company's Board of Directors declared a 10% stock distribution on
January 23, 1996, which issued on March 8, 1996, to shareholders of record on
February 9, 1996. This stock distribution resulted in the issuance of 400,000
shares of common stock. Per share data have been restated to reflect these
stock distributions as of the earliest period presented. The stock
distribution is not considered a distribution of earnings except to the extent
that the Company has retained earnings, but rather had the effect of
increasing the number of outstanding shares.
14. COMMITMENTS AND CONTINGENCIES
The Company has in place a profit sharing plan for key management employees.
Amounts due pursuant to the plan are based upon the attainment of specific
operating levels that are established by the Board of Directors. Amounts
charged to operations pursuant to the profit sharing plan amounted to
$219,139, $425,052 and $538,247 for 1993, 1994 and 1995, respectively, and
$230,382 and $325,002 for the six months ended June 30, 1995 and 1996,
respectively. The amounts payable of $425,052 at December 31, 1994 and
$538,247 at December 31, 1995 are included in accrued expenses in the
accompanying consolidated balance sheets.
During 1994, the Company entered into a deferred compensation agreement with
its President and Chief Executive Officer providing for monthly payments of
$5,000 commencing with his date of retirement or death and continuing for
twenty four months thereafter. Deferred compensation expense was approximately
$48,000 for the years ended December 31, 1994 and 1995, respectively. No
amounts payable under the agreement are vested.
F-16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representations in connection with the Offering
other than those contained in this Prospectus, and, if given or made, such
information or representations must not be relied upon as having been
authorized by the Company or the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
other than the shares of Common Stock offered hereby, nor does it constitute an
offer to sell or a solicitation of an offer to buy any of the securities
offered hereby, to any person in any jurisdiction in which such an offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstance, create any implication that
there has been no change in the affairs of the Company or that the information
contained herein is correct as of any date subsequent to the date hereof.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary ........................................................ 3
Risk Factors............................................................... 6
Use of Proceeds............................................................ 10
Price Range of Common Stock................................................ 10
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................................................................. 26
Principal Stockholders..................................................... 34
Certain Transactions....................................................... 35
Description of Capital Stock............................................... 36
Shares Eligible for Future Sale............................................ 39
Underwriting............................................................... 41
Legal Matters.............................................................. 42
Experts.................................................................... 42
Additional Information..................................................... 42
Index to Consolidated Financial Statements................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,100,000 Shares
[LOGO OF BALLANTYNE OF OMAHA, INC.]
Common Stock
--------------
PROSPECTUS
--------------
COWEN & COMPANY
L.H. FRIEND, WEINRESS, FRANKSON & PRESSON, INC.
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses (other than underwriting discounts and commissions)
expected to be incurred in connection with the sale of the Common Stock
described in this Registration Statement are as follows:
<TABLE>
<S> <C>
SEC Registration Fee........................................... $ 6,544
NASD Filing Fee................................................ 2,398
AMEX Listing Fee............................................... 17,500
Printing and Engraving Expenses................................ 120,000
Blue Sky Fees and Expenses..................................... 15,000
Legal Fees and Expenses........................................ 250,000
Accounting Fees and Expenses................................... 50,000
Miscellaneous Expenses......................................... 8,558
--------
Total........................................................ $470,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is incorporated under the laws of the State of Delaware. Each of
Section 145 of the Delaware General Corporation Law, as amended (the "DGCL"),
Article EIGHTH of the Company's Certificate of Incorporation and Article VIII
of the Company's By-Laws contains indemnification provisions. Set forth below
is the text of Article EIGHTH of the Company's Certificate of Incorporation
and Article VIII of the Company's By-Laws (which contains the mandatory
indemnification provisions of Section 145 of the DGCL).
Article EIGHTH of the Company's Certificate of Incorporation, as amended,
provides as follows:
EIGHTH: A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law; (iii) under Section 174 of the Delaware General
Corporation Law; or (iv) for any transaction from which the director derived
an improper personal benefit. If the Delaware General Corporation Law is
amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of
the Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or
modification.
Article VIII of the Company's By-Laws provides as follows:
Section 1. Right to Indemnification.
Each person who was or is made a party or is threatened to be made a party
to or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a director or an officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as
a director, officer, employee or agent, shall be indemnified and held harmless
by the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification
II-1
<PAGE>
rights than such law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys'
fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith; provided, however, that, except as provided in Section 3 of this
ARTICLE VIII with respect to proceedings to enforce rights to indemnification,
the Corporation shall indemnify any such indemnitee in connection with a
proceeding (or part thereof) initiated by such indemnitee only if such
proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation.
Section 2. Right to Advancement of Expenses.
The right to indemnification conferred in Section 1 of this ARTICLE VIII
shall include the right to be paid by the Corporation the expenses (including
attorneys' fees) incurred in defending any such proceeding in advance of its
final disposition (hereinafter an "advancement of expenses"); provided,
however, that, if the Delaware General Corporation Law requires, an
advancement of expenses incurred by an indemnitee in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only upon delivery to the Corporation of
an undertaking (hereinafter an "undertaking"), by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal (hereinafter a "final adjudication") that such indemnitee is not
entitled to be indemnified for such expenses under this Section 2 or
otherwise. The rights to indemnification and to the advancement of expenses
conferred in Sections 1 and 2 of this ARTICLE VIII shall be contract rights
and such rights shall continue as to an indemnitee who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
Section 3. Right of Indemnitee to Bring Suit.
If a claim under Section 1 or 2 of this ARTICLE VIII is not paid in full by
the Corporation within sixty (60) days after a written claim has been received
by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty (20) days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in
any such suit, or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the
indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (ii) in any suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
Corporation shall be entitled to recover such expenses upon a final
adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither the
failure of the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the indemnitee has not
met such applicable standard of conduct, shall create a presumption that the
indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this ARTICLE VIII or otherwise shall be on the
Corporation.
Section 4. Non-Exclusivity of Rights.
The rights to indemnification and to the advancement of expenses conferred
in this ARTICLE VIII shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, the Corporation's
Certificate of Incorporation or By-Laws, agreement, vote of stockholders or
disinterested directors or otherwise.
II-2
<PAGE>
Section 5. Insurance.
The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under
the Delaware General Corporation Law.
Section 6. Indemnification of Employees and Agents of the Corporation.
The Corporation may, to the extent authorized from time to time by the Board
of Directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article with respect to the indemnification and
advancement of expenses of directors and officers of the Corporation.
The Company is included under a directors and officers liability insurance
policy (the "Policy") issued to ARC International Corporation by CIGNA
Insurance Company of Canada which insures against losses suffered by directors
and officers of the Company and its subsidiaries (i.e., an entity in which the
Company owns at least fifty percent (50%) of the voting shares) in respect of
claims made against the directors and officers for acts committed while acting
on behalf of the Company. The Policy also provides an indemnity for the
Company against losses suffered by it as a result of the Company having
indemnified, pursuant to applicable corporate indemnity statutes, persons
insured under the Policy.
Coverage under the Policy is limited to $3,000,000 (Canadian) in respect of
each loss (including defense costs) and $3,000,000 (Canadian) in respect of
each Policy year. The Policy is subject to a deductible for each loss ranging
from $0 to $500,000 (Canadian) depending upon the type of loss; all claims
resulting from a single act are considered to be one loss. Losses resulting
from claims made in connection with a public offering of securities by the
Company are subject to a deductible of $500,000 (Canadian).
Exclusions from coverage include, among other things, profits made from the
purchase or sale of securities of the Company prohibited by Section 16(b) of
the Securities Exchange Act of 1934, as amended.
The Underwriters will undertake to indemnify and hold harmless the Company,
its directors, each of its officers who signed this Registration Statement,
and each person, if any, who controls the Company within the meaning of
Section 15 of the Securities Act of 1933, as amended, against any and all
loss, liability, claim, damage and expense described in the Underwriting
Agreement (to be filed as Exhibit 1 to this Registration Statement), as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in this Registration Statement in
reliance upon and in conformity with written information furnished to the
Company by the Underwriters expressly for use in this Registration Statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On March 19, 1993, the Registrant issued a promissory note in the principal
amount of $500,000 to Optical Radiation Corporation ("ORC") in partial
consideration for the sale by ORC to the Registrant of the Cinema Products
Division of ORC and in partial consideration for certain agreements entered
into by the parties to such transaction. On December 2, 1994, the Registrant
issued a promissory note in the principal amount of approximately $476,200 to
Litton Systems Inc. ("Litton") in connection with Registrant's acquisition of
certain net assets of Westrex Company, Asia, a wholly-owned subsidiary of
Litton. No underwriter was employed by the Registrant in connection with the
issuance and sale of such securities.
As partial consideration for providing certain financial assistance in
connection with the Company's acquisition of Cinema Products Division of ORC,
on September 12, 1995, the Company issued to Merita Bank, a lender of its
indirect parent Conrad, Inc., a warrant (the "Merita Warrant") to purchase up
to 215,600 shares of Common Stock at a per share exercise price equal to
$5.91. The Company has granted Geller & Friend an option to purchase 55,000
share of Common Stock at an exercise price of $6.59 per share as consideration
for
II-3
<PAGE>
strategic financial services provided to the Company by Geller & Friend. The
Company has granted to Jaffoni & Collins Incorporated an option to purchase
27,500 shares of Common Stock at an exercise price of $6.36 per share as
consideration for investor relations and financial relations services provided
to the Company.
The Registrant claims that the issuance and sale of the foregoing securities
were exempt from registration under the Securities Act pursuant to Section
4(2) thereof, as such issuance involved no public offering and the securities
were acquired for investment and not with a view to distribution.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Asset Purchase Agreement dated January 26, 1993 between the Com-
pany and Optical Radiation Corporation (incorporated by reference
to Exhibit 2.1 to the Registration Statement on Form S-1, File
No. 33-93244 (the "IPO Registration Statement")).
2.2 Amendment to the Asset Purchase Agreement dated January 26, 1993
between the Company and Optical Radiation Corporation (incorpo-
rated by reference to Exhibit 2.2 to the IPO Registration State-
ment).
2.3 Purchase and Sale Agreement dated as of December 2, 1994 by and
among the Company, Strong International, Inc., Litton Systems,
Inc. and Westrex Company, Asia (incorporated by reference to Ex-
hibit 2.3 to the IPO Registration Statement).
2.4 Agreement and Plan of Merger dated June 7, 1995 by and between
Ballantyne of Omaha, Inc., a Nebraska corporation and the Company
(incorporated by reference to Exhibit 2.4 to the IPO Registration
Statement).
3.1 Certificate of Incorporation (incorporated by reference to Exhibit
3.1 to the IPO Registration Statement).
3.2 By-Laws of the Company (incorporated by reference to Exhibit 3.2
to the IPO Registration Statement).
4.1 Trust Indenture dated as of September 1, 1988 by and between the
County of Douglas, Nebraska and FirstTier Bank, National Associa-
tion, Omaha (incorporated by reference to Exhibit 4.1 to the IPO
Registration Statement).
4.2 Loan Agreement dated August 30, 1995, as amended as of November
24, 1995, between the Company and Norwest Bank Nebraska, N.A.
(incorporated by reference to Exhibit 4.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995
(the "Form 10-K")).
5.1 Opinion of Gordon Altman Butowsky Weitzen Shalov & Wein (previ-
ously filed).
10.1 Employment Agreement between the Company and Ronald H. Echtenkamp
dated October 1, 1991 (incorporated by reference to Exhibit 10.1
to the IPO Registration Statement).
10.2 Amendment to Employment Agreement between the Company and Ronald
H. Echtenkamp dated March 18, 1994 (incorporated by reference to
Exhibit 10.2 to the IPO Registration Statement).
10.3 Employment Agreement between the Company and John Wilmers dated
October 15, 1991 (incorporated by reference to Exhibit 10.3 to
the IPO Registration Statement).
10.4 Lease and Agreement dated September 1, 1988 by and between County
of Douglas, Nebraska and the Company (incorporated by reference
to Exhibit 10.4 to the IPO Registration Statement).
10.5 Guaranty Agreement dated September 1, 1988 between the Company and
FirstTier Bank, National Association, Omaha (incorporated by ref-
erence to Exhibit 10.5 to the IPO Registration Statement).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.6 Distributorship Agreement dated as of March 1, 1992 between ISCO-
Optic Gmbh and the Company (incorporated by reference to Exhibit
10.6 to the IPO Registration Statement).
10.7 Form of 1995 Stock Option Plan (incorporated by reference to Ex-
hibit 10.7 to the IPO Registration Statement).
10.8 1995 Outside Directors Stock Option Plan, as amended through July
8, 1996 (incorporated by reference to Exhibit 10.8 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996 (the "Form 10-Q")).
10.9 Form of 1995 Employee Stock Purchase Plan (incorporated by refer-
ence to Exhibit 10.9 to the IPO Registration Statement).
10.10 Form of Management Services Agreement by and between the Company
and Canrad Inc. (incorporated by reference to Exhibit 10.10 to
the IPO Registration Statement).
10.11 Profit Sharing Plan (incorporated by reference to Exhibit 10.11 to
the IPO Registration Statement).
10.12 Second Amendment dated July 20, 1995 to Employment Agreement be-
tween the Company and Ronald H. Echtenkamp (incorporated by ref-
erence to Exhibit 10.12 to the IPO Registration Statement).
10.13 Letter of Engagement dated December 22, 1995, between the Company
and Geller & Friend Capital Partners, Inc., including 50,000
share stock option (incorporated by reference to Exhibit 10.13 to
the Form 10-K).
10.14 Stock Option Agreement dated as of September 19, 1995 between the
Company and Jaffoni & Collins Incorporated (incorporated by ref-
erence to Exhibit 10.14 to the Form 10-Q).
10.15 Stock Option Agreement dated as of December 22, 1995 between the
Company and Geller & Friend Capital Partners, Inc. (incorporated
by reference to Exhibit 10.15 to the Form 10-Q).
10.16 Extension Agreement to Employment Agreement between the Company
and John Wilmers dated July 8, 1996 (incorporated by reference to
Exhibit 10.16 to the Form 10-Q).
11.1 Computation of net earnings per share (included in Consolidated
Financial Statements).
21.1 List of Subsidiaries (incorporated by reference to Exhibit 21.1 to
the IPO Registration Statement).
23.1 Consent of Gordon Altman Butowsky Weitzen Shalov & Wein (included
in Opinion filed as Exhibit 5.1).
23.2 Consent of KPMG Peat Marwick LLP.
24.1 Powers of Attorney (previously filed).
27 Financial Data Schedule (previously filed).
</TABLE>
(b) Financial Statement Schedule:
Schedule II--Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or not
required, or because the information required therein is included in the
financial statements or the notes thereto.
ITEM 17. UNDERTAKINGS.
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 provisions described in Item 14 above 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. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-5
<PAGE>
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in the
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
of 1933, 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.
The undersigned registrant hereby further undertakes to provide to the
underwriter at the closing specified in the underwriting agreements
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THIS REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF OMAHA, STATE OF NEBRASKA, ON JULY 16, 1996.
Ballantyne of Omaha, Inc.
/s/ Ronald H. Echtenkamp
By: _________________________________
RONALD H. ECHTENKAMP
PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
* Chairman of the
- ------------------------------------- Board and Director July 16, 1996
ARNOLD S. TENNEY
/s/ Ronald H. Echtenkamp President, Chief
- ------------------------------------- Executive Officer July 16, 1996
RONALD H. ECHTENKAMP and Director
(Principal
Executive Officer)
* Executive Vice
- ------------------------------------- President--Sales July 16, 1996
JOHN WILMERS and Director
* Secretary, Treasurer
- ------------------------------------- and Chief Financial July 16, 1996
BRAD FRENCH Officer (Principal
Financial Officer)
* Director
- ------------------------------------- July 16, 1996
COLIN G. CAMPBELL
* Director
- ------------------------------------- July 16, 1996
JEFFREY D. CHELIN
* Director
- ------------------------------------- July 16, 1996
MARSHALL GELLER
* Director
- ------------------------------------- July 16, 1996
YALE RICHARDS
/s/ Ronald H. Echtenkamp
*By: ___________________________
RONALD H. ECHTENKAMP
ATTORNEY-IN-FACT
II-7
<PAGE>
SCHEDULE II
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE CHARGED
AT TO COSTS AMOUNTS
BEGINNING AND WRITTEN BALANCE AT
OF YEAR EXPENSES OFF (1) END OF YEAR
--------- -------- ------- -----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1993--
Allowance for doubtful accounts......... $118,521 $24,000 $34,694 $107,827
======== ======= ======= ========
Year Ended December 31, 1994--
Allowance for doubtful accounts......... $107,827 $14,442 $22,269 $100,000
======== ======= ======= ========
Year Ended December 31, 1995--
Allowance for doubtful accounts......... $100,000 $21,600 $ 3,567 $118,033
======== ======= ======= ========
Six Months Ended June 30, 1996--
Allowances For doubtful accounts........ $118,033 $14,010 $23,361 $108,682
======== ======= ======= ========
</TABLE>
- --------
(1) The deductions from reserves are net of recoveries.
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Asset Purchase Agreement dated January 26, 1993 between the Company
and Optical Radiation Corporation (incorporated by reference to
Exhibit 2.1 to the Registration Statement on Form S-1, File No. 33-
93244 (the "IPO Registration Statement")).
2.2 Amendment to the Asset Purchase Agreement dated January 26, 1993
between the Company and Optical Radiation Corporation (incorporated
by reference to Exhibit 2.2 to the IPO Registration Statement).
2.3 Purchase and Sale Agreement dated as of December 2, 1994 by and among
the Company, Strong International, Inc., Litton Systems, Inc. and
Westrex Company, Asia (incorporated by reference to Exhibit 2.3 to
the IPO Registration Statement).
2.4 Agreement and Plan of Merger dated June 7, 1995 by and between
Ballantyne of Omaha, Inc., a Nebraska corporation and the Company
(incorporated by reference to Exhibit 2.4 to the IPO Registration
Statement).
3.1 Certificate of Incorporation (incorporated by reference to Exhibit 3.1
to the IPO Registration Statement).
3.2 By-Laws of the Company (incorporated by reference to Exhibit 3.2 to
the IPO Registration Statement).
4.1 Trust Indenture dated as of September 1, 1988 by and between the
County of Douglas, Nebraska and FirstTier Bank, National Association,
Omaha (incorporated by reference to Exhibit 4.1 to the IPO
Registration Statement).
4.2 Loan Agreement dated August 30, 1995, as amended as of November 24,
1995, between the Company and Norwest Bank Nebraska, N.A.
(incorporated by reference to Exhibit 4.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995 (the
"Form 10-K")).
5.1 Opinion of Gordon Altman Butowsky Weitzen Shalov & Wein (previously
filed).
10.1 Employment Agreement between the Company and Ronald H. Echtenkamp
dated October 1, 1991 (incorporated by reference to Exhibit 10.1 to
the IPO Registration Statement).
10.2 Amendment to Employment Agreement between the Company and Ronald H.
Echtenkamp dated March 18, 1994 (incorporated by reference to Exhibit
10.2 to the IPO Registration Statement).
10.3 Employment Agreement between the Company and John Wilmers dated
October 15, 1991 (incorporated by reference to Exhibit 10.3 to the
IPO Registration Statement).
10.4 Lease and Agreement dated September 1, 1988 by and between County of
Douglas, Nebraska and the Company (incorporated by reference to
Exhibit 10.4 to the IPO Registration Statement).
10.5 Guaranty Agreement dated September 1, 1988 between the Company and
FirstTier Bank, National Association, Omaha (incorporated by
reference to Exhibit 10.5 to the IPO Registration Statement).
10.6 Distributorship Agreement dated as of March 1, 1992 between ISCO-Optic
Gmbh and the Company (incorporated by reference to Exhibit 10.6 to
the IPO Registration Statement).
10.7 Form of 1995 Stock Option Plan (incorporated by reference to Exhibit
10.7 to the IPO Registration Statement).
10.8 1995 Outside Directors Stock Option Plan, as amended through July 8,
1996 (incorporated by reference to Exhibit 10.8 to the Company's
Quarterly Report on form 10-Q for the quarter ended June 30, 1996
(the "Form 10-Q")).
10.9 Form of 1995 Employee Stock Purchase Plan (incorporated by reference
to Exhibit 10.9 to the IPO Registration Statement).
10.10 Form of Management Services Agreement by and between the Company and
Canrad Inc. (incorporated by reference to Exhibit 10.10 to the IPO
Registration Statement).
10.11 Profit Sharing Plan (incorporated by reference to Exhibit 10.11 to the
IPO Registration Statement).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.12 Second Amendment dated July 20, 1995 to Employment Agreement between
the Company and Ronald H. Echtenkamp (incorporated by reference to
Exhibit 10.12 to the IPO Registration Statement).
10.13 Letter of Engagement dated December 22, 1995, between the Company and
Geller & Friend Partners, Inc., including 50,000 share stock option
(incorporated by reference to Exhibit 10.13 to the Form 10-K).
10.14 Stock Option Agreement dated as of September 19, 1995 between the
Company and Jaffoni & Collins Incorporated (incorporated by reference
to Exhibit 10.14 to the Form 10-Q).
10.15 Stock Option Agreement dated as of December 22, 1995 between the
Company and Geller & Friend Capital Partners, Inc. (incorporated by
reference to Exhibit 10.15 to the Form 10-Q).
10.16 Extension Agreement to Employment Agreement between the Company and
John Wilmers dated July 8, 1996 (incorporated by reference to Exhibit
10.16 to the Form 10-Q).
11.1 Computation of net earnings per share (included in Consolidated
Financial Statements).
21.1 List of Subsidiaries (incorporated by reference to Exhibit 21.1 to the
IPO Registration Statement).
23.1 Consent of Gordon Altman Butowsky Weitzen Shalov & Wein (included in
Opinion filed as Exhibit 5.1).
23.2 Consent of KPMG Peat Marwick LLP.
24.1 Powers of Attorney (previously filed).
27 Financial Data Schedule (previously filed).
</TABLE>
<PAGE>
EXHIBIT 1.1
1,100,000 SHARES
BALLANTYNE OF OMAHA, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
August __, 1996
COWEN & COMPANY
L.H. FRIEND, WEINRESS, FRANKSON
& PRESSON, INC.
As Representatives of the several Underwriters
c/o Cowen & Company
Financial Square
New York, New York 10005
Dear Sirs:
1. Introductory. Ballantyne of Omaha, Inc., a Delaware corporation
------------
(the "Company"), proposes to sell, pursuant to the terms of this Agreement, to
the several underwriters named in Schedule A hereto (the "Underwriters," or,
each, an "Underwriter"), an aggregate of 1,100,000 shares of Common Stock, par
value $.01 per share (the "Common Stock"), of the Company. The aggregate of
1,100,000 shares so proposed to be sold is hereinafter referred to as the "Firm
Stock." The Company also proposes to sell to the Underwriters, upon the terms
and conditions set forth in Section 3 hereof, up to an additional 165,000 shares
of Common Stock (the "Optional Stock"). The Firm Stock and the Optional Stock
are hereinafter collectively referred to as the "Stock." Cowen & Company
("Cowen") and L.H. Friend, Weinress, Frankson & Presson, Inc. ("L.H. Friend")
are acting as representatives of the several Underwriters and in such capacity
are hereinafter referred to as the "Representatives."
2. Representations and Warranties of the Company. The Company
----------------------------------------------
represents and warrants to, and agrees with, the several Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-
07911) in the form in which it became or becomes effective and also in
such form as it may be when any post-effective amendment thereto shall
become effective with respect to the Stock, including any preeffective
prospectuses included as part of the
<PAGE>
registration statement as originally filed or as part of any amendment
or supplement thereto, or filed pursuant to Rule 424 under the
Securities Act of 1933, as amended (the "Securities Act"), and the
rules and regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission") thereunder, copies of which
(including all documents incorporated by reference therein) have
heretofore been delivered to you, has been carefully prepared by the
Company in conformity with the requirements of the Securities Act and
has been filed with the Commission under the Securities Act; one or
more amendments to such registration statement, including in each case
an amended preeffective prospectus, copies of which amendments
(including all documents incorporated by reference therein) have
heretofore been delivered to you, have been so prepared and filed. If
it is contemplated, at the time this Agreement is executed, that a
post-effective amendment to the registration statement will be filed
and must be declared effective before the offering of the Stock may
commence, the term "Registration Statement" as used in this Agreement
means the registration statement as amended by said post-effective
amendment. The term "Registration Statement" as used in this Agreement
shall also include any registration statement relating to the Stock
that is filed and declared effective pursuant to Rule 462(b) under the
Securities Act. The term "Prospectus" as used in this Agreement means
the prospectus in the form included in the Registration Statement, or
(A) if the prospectus included in the Registration Statement omits
information in reliance on Rule 430A under the Securities Act and such
information is included in a prospectus filed with the Commission
pursuant to Rule 424(b) under the Securities Act, the term
"Prospectus" as used in this Agreement means the prospectus in the
form included in the Registration Statement as supplemented by the
addition of the Rule 430A information contained in the prospectus
filed with the Commission pursuant to Rule 424(b) and (B) if
prospectuses that meet the requirements of Section 10(a) of the
Securities Act are delivered pursuant to Rule 434 under the Securities
Act, then (i) the term "Prospectus" as used in this Agreement means
the "prospectus subject to completion" (as such term is defined in
Rule 434(g) under the Securities Act) as supplemented by (a) the
addition of Rule 430A information or other information contained in
the form of prospectus delivered pursuant to Rule 434(b)(2) under the
Securities Act or (b) the information
-2-
<PAGE>
contained in the term sheets described in Rule 434(b)(3) under the
Securities Act and (ii) the date of such prospectuses shall be deemed
to be the date of the term sheets. The term "Preeffective Prospectus"
as used in this Agreement means the prospectus subject to completion
in the form included in the Registration Statement at the time of the
initial filing of the Registration Statement with the Commission, and
as such prospectus shall have been amended from time to time prior to
the date of the Prospectus.
(b) The Commission has not issued or threatened to issue
any order preventing or suspending the use of any Preeffective
Prospectus, and, at its date of issue, each Preeffective Prospectus
conformed in all material respects with the requirements of the
Securities Act and did not include any 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, in light of the
circumstances under which they were made, not misleading; and, when
the Registration Statement becomes effective and at all times
subsequent thereto up to and including the Closing Dates, the
Registration Statement and the Prospectus and any amendments or
supplements thereto contained and will contain all material statements
and information required to be included therein by the Securities Act
and conformed and will conform in all material respects to the
requirements of the Securities Act and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto,
included or 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 under which they were made, not misleading; provided,
however, that the foregoing representations, warranties and agreements
shall not apply to information contained in or omitted from any
Preeffective Prospectus or the Registration Statement or the
Prospectus or any such amendment or supplement thereto in reliance
upon, and in conformity with, written information furnished to the
Company by or on behalf of any Underwriter, directly or through you,
specifically for use in the preparation thereof; there is no
franchise, lease, contract, agreement or document required to be
described in the Registration Statement or Prospectus or to be filed
as an exhibit to the Registration Statement which is not described or
filed therein as required; and all descriptions of any such
franchises,
-3-
<PAGE>
leases, contracts, agreements or documents contained in the
Registration Statement are accurate and complete descriptions of such
documents in all material respects.
(c) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, and
except as set forth or contemplated in the Prospectus, neither the
Company nor any of its subsidiaries has incurred any material
liabilities or obligations, direct or contingent, nor entered into any
transactions not in the ordinary course of business, and there has not
been any material adverse change in the condition (financial or
otherwise), properties, business, management, prospects, net worth or
results of operations of the Company and its subsidiaries considered
as a whole, or, except for the exercise of outstanding options or
warrants described in the Prospectus and borrowings under the
Company's revolving credit agreement (as described in the Prospectus)
in accordance with past practice, any change in the capital stock,
short-term or long-term debt of the Company and its subsidiaries
considered as a whole.
(d) The financial statements, together with the related
notes and schedules, set forth in the Prospectus and elsewhere in the
Registration Statement fairly present, on the basis stated in the
Registration Statement, the financial position and the results of
operations and changes in financial position of the Company and its
consolidated subsidiaries at the respective dates or for the
respective periods therein specified. Such statements and related
notes and schedules have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis except as
may be set forth in the Prospectus. The selected financial and
statistical data set forth in the Prospectus under the caption
"Selected Consolidated Financial Data" fairly present, on the basis
stated in the Registration Statement, the information set forth
therein.
(e) KPMG Peat Marwick LLP, who have expressed their opinion
on the audited financial statements and related schedules included in
the Registration Statement and the Prospectus are independent public
accountants as required by the Securities Act and the Rules and
Regulations.
-4-
<PAGE>
(f) The Company and each of its subsidiaries have been duly
organized and are validly existing and in good standing as
corporations under the laws of their respective jurisdictions of
organization, with power and authority (corporate and other) to own or
lease their properties and to conduct their businesses as described in
the Prospectus. The Company is and each of its subsidiaries are in
possession of and operating in compliance with all franchises, grants,
authorizations, licenses, permits, easements, consents, certificates
and orders required for the conduct of its business, all of which are
valid and in full force and effect; and the Company is and each of
such subsidiaries are duly qualified to do business and in good
standing as foreign corporations in all other jurisdictions where
their ownership or leasing of properties or the conduct of their
businesses requires such qualification where failure to so qualify
would have a material adverse effect on the Company or such subsidiary
or constitute a waiver of material rights of the Company or such
subsidiary. The Company has and each of its subsidiaries have all
requisite power and authority, and all necessary consents, approvals,
authorizations, orders, registrations, qualifications, licenses and
permits of and from all public regulatory or governmental agencies and
bodies to own, lease and operate its properties and conduct its
business as now being conducted and as described in the Registration
Statement and the Prospectus, and no such consent, approval,
authorization, order, registration, qualification, license or permit
contains a materially burdensome restriction not adequately disclosed
in the Registration Statement and the Prospectus. The Company owns
all of the issued and outstanding capital stock of Strong
International Inc., Flavor Crisp of America, Inc., Arnolds, Inc. and
Ballantyne Fabricators, Inc., and does not own or control, directly or
indirectly, any other corporations, partnerships, limited liability
companies, associations or other entities.
(g) The Company's authorized and outstanding capital stock
is on the date hereof, and will be on the Closing Dates, as set forth
under the heading "Capitalization" in the Prospectus; the outstanding
shares of common stock of the Company conform to the description
thereof in the Prospectus, have been duly authorized and validly
issued and are fully paid and nonassessable, are duly listed on the
American Stock Exchange and have been issued in compliance with all
federal and state securities laws and were not issued
-5-
<PAGE>
in violation of or subject to any preemptive rights or similar rights
to subscribe for or purchase securities. Except as disclosed in and or
contemplated by the Prospectus and the financial statements of the
Company and related notes thereto included in the Prospectus, the
Company does not have outstanding any options or warrants to purchase,
or any preemptive rights or other rights to subscribe for or to
purchase any securities or obligations convertible into, or any
contracts or commitments to issue or sell, shares of its capital stock
or any such options, rights, convertible securities or obligations,
except for options granted subsequent to the date of information
provided in the Prospectus pursuant to the Company's employee and non-
employee director stock option and employee stock purchase plans as
disclosed in the Prospectus. The description of the Company's stock
option and other stock plans or arrangements, and the options or other
rights granted or exercised thereunder, as set forth in the
Prospectus, accurately and fairly presents the information required to
be shown with respect to such plans, arrangements, options and rights.
All outstanding shares of capital stock of each subsidiary have been
duly authorized and validly issued, and are fully paid and
nonassessable and are owned directly by the Company or by another
wholly owned subsidiary of the Company free and clear of any liens,
encumbrances, equities or claims.
(h) The Stock to be issued and sold by the Company to the
Underwriters hereunder has been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will
be duly and validly issued, fully paid and nonassessable and free of
any preemptive or similar rights and will conform to the description
thereof in the Prospectus.
(i) Except as set forth in the Prospectus, there are no
legal or governmental proceedings pending to which the Company or any
of its subsidiaries or affiliates is a party or of which any property
of the Company or any subsidiary or affiliate is subject, which, if
determined adversely to the Company or any such subsidiary or
affiliate, might individually or in the aggregate (i) prevent or
adversely affect the transactions contemplated by this Agreement, (ii)
suspend the effectiveness of the Registration Statement, (iii) prevent
or suspend the use of the Preeffective Prospectus in any jurisdiction
or (iv) result in a material adverse change in the condition
-6-
<PAGE>
(financial or otherwise), properties, business, management, prospects,
net worth or results of operations of the Company and its subsidiaries
considered as a whole; and to the best of the Company's knowledge no
such proceedings are threatened or contemplated against the Company or
any subsidiary or affiliate by governmental authorities or others.
The Company is not a party nor subject to the provisions of any
material injunction, judgment, decree or order of any court,
regulatory body or other governmental agency or body. The description
of the Company's litigation under the heading "Legal Proceedings" in
the Prospectus is true, complete and correct and complies with the
Rules and Regulations.
(j) The execution, delivery and performance of this
Agreement and the consummation of the transactions herein contemplated
will not result in a breach or violation of any of the terms or
provisions of or constitute a default under any indenture, mortgage,
deed of trust, note agreement or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which it
or any of its properties is or may be bound, the Certificate or
Articles of Incorporation, By-laws or other organizational documents
of the Company or any of its subsidiaries, or any law, order, rule or
regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of
their properties or will result in the creation of a lien.
(k) No consent, approval, authorization or order of any
court or governmental agency or body is required for the consummation
by the Company of the transactions contemplated by this Agreement,
except such as may be required by the National Association of
Securities Dealers, Inc. (the "NASD") or under the Securities Act or
the securities or "Blue Sky" laws of any jurisdiction in connection
with the purchase and distribution of the Stock by the Underwriters.
(l) The Company has the full corporate power and authority
to enter into this Agreement and to perform its obligations hereunder
(including to issue, sell and deliver the Stock), and this Agreement
has been duly and validly authorized, executed and delivered by the
Company and is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except
to the
-7-
<PAGE>
extent that rights to indemnity and contribution hereunder may be
limited by federal or state securities laws or the public policy
underlying such laws.
(m) The Company and its subsidiaries are in all material
respects in compliance with, and conduct their businesses in
conformity with, all applicable federal, state, local and foreign
laws, rules and regulations or any court or governmental agency or
body; to the knowledge of the Company, otherwise than as set forth in
the Registration Statement and the Prospectus, no prospective change
in any of such federal or state laws, rules or regulations has been
adopted which, when made effective, would have a material adverse
effect on the operations of the Company and its subsidiaries. In the
ordinary course of business, employees of the Company conduct periodic
reviews of the effect of Environmental Laws (as defined below) on the
business operations and properties of the Company and its
subsidiaries, in the ordinary course of which they seek to identify
and evaluate associated costs and liabilities. Except as disclosed in
the Registration Statement, the Company and its subsidiaries are in
compliance with all applicable existing federal, state, local and
foreign laws and regulations relating to the protection of human
health or the environment or imposing liability or requiring standards
of conduct concerning any Hazardous Materials ("Environmental Laws"),
except for such instances of noncompliance which, either singly or in
the aggregate, would not have a material adverse effect. The term
"Hazardous Material" means (i) any "hazardous substance" as defined by
the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, (ii) any "hazardous waste" as defined by the
Resource Conservation and Recovery Act, as amended, (iii) any
petroleum or petroleum product, (iv) any polychlorinated biphenyl and
(v) any pollutant or contaminant or hazardous, dangerous or toxic
chemical, material, waste or substance regulated under or within the
meaning of any other Environmental Law.
(n) The Company and its subsidiaries have filed all
necessary federal, state, local and foreign income, payroll, franchise
and other tax returns and have paid all taxes shown as due thereon or
with respect to any of their properties, and there is no tax
deficiency that has been, or to the knowledge of the Company is likely
to be, asserted against the Company or any of its subsidiaries or any
of their respective
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<PAGE>
properties or assets that would adversely affect the financial
position, business or operations of the Company and its subsidiaries.
(o) No person or entity has the right to require
registration of shares of Common Stock or other securities of the
Company because of the filing or effectiveness of the Registration
Statement, except for persons and entities who have expressly waived
such right or who have been given proper notice and have failed to
exercise such right within the time or times required under the terms
and conditions of such right. Except as described in the Prospectus,
no person or entity has the right to require registration of shares of
Common Stock or other securities of the Company.
(p) Neither the Company nor any of its officers, directors
or affiliates has taken or will take, directly or indirectly, any
action designed or intended to stabilize or manipulate the price of
any security of the Company, or which caused or resulted in, or which
might in the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any security of the
Company.
(q) The Company has provided you with all financial
statements since December 31, 1990 to the date hereof that are
available to the officers of the Company, including financial
statements for the six months ended June 30, 1996 and the month of
July 1996.
(r) The Company and its subsidiaries own or possess rights
to use all patents, trademarks (including "Strong," "Simplex,"
"Century," "Optimax," "Ballantyne," "Super Trouper," "Gladiator,"
"Roadie," "Flavor Crisp," "Flavor Pit" and "ISCO-Optic"), trademark
registrations, service marks, service mark registrations, tradenames,
copyrights, licenses, inventions, trade secrets and rights described
in the Prospectus as being owned by them or any of them or necessary
for the conduct of their respective businesses, and the Company is not
aware of any claim to the contrary or any challenge by any other
person to the rights of the Company and its subsidiaries with respect
to the foregoing. The Company's business as now conducted and as
proposed to be conducted does not and will not infringe or conflict
with in any material respect patents, trademarks, service marks, trade
names, copyrights, trade secrets, licenses or other intellectual
property or franchise rights of any
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<PAGE>
person. No claim has been made against the Company alleging the
infringement by the Company of any patent, trademark, service mark,
tradename, copyright, trade secret, license in or other intellectual
property right or franchise right of any person.
(s) The Company and its subsidiaries have performed all
material obligations required to be performed by them under all
contracts required by Item 601(b)(10) of Regulation S-K under the
Securities Act to be filed as exhibits to the Registration Statement,
and neither the Company nor any of its subsidiaries nor any other
party to such contract is in default under or in breach of any such
obligations. Neither the Company nor any of its subsidiaries has
received any notice of such default or breach.
(t) The Company is not involved in any labor dispute nor is
any such dispute threatened. Except as described in the Prospectus,
the Company is not aware that (A) any executive, key employee or
significant group of employees of the Company or any subsidiary plans
to terminate employment with the Company or any such subsidiary or (B)
any such executive or key employee is subject to any noncompete,
nondisclosure, confidentiality, employment, consulting or similar
agreement that would be violated by the present or proposed business
activities of the Company and its subsidiaries. Neither the Company
nor any subsidiary has or expects to have any liability for any
prohibited transaction or funding deficiency or any complete or
partial withdrawal liability with respect to any pension, profit
sharing or other plan which is subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), to which the
Company or any subsidiary makes or ever has made a contribution and in
which any employee of the Company or any subsidiary is or has ever
been a participant. With respect to such plans, the Company and each
subsidiary are in compliance in all material respects with all
applicable provisions of ERISA.
(u) The Company has obtained the written agreement
described in Section 8(h)(vii) of this Agreement from each of its
officers, directors and holders of Common Stock or options to purchase
Common Stock listed on Schedule B hereto.
(v) The Company and its subsidiaries have, and the Company
and its subsidiaries as of the Closing
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Dates will have, good and marketable title in fee simple to all real
property and good and marketable title to all personal property owned
or proposed to be owned by them which is material to the business of
the Company or of its subsidiaries, in each case free and clear of all
liens, encumbrances and defects except such as are described in the
Prospectus or such as would not have a material adverse effect on the
Company and its subsidiaries considered as a whole; and any real
property and buildings held under lease by the Company and its
subsidiaries or proposed to be held after giving effect to the
transactions described in the Prospectus are, or will be as of the
Closing Dates, held by them under valid, subsisting and enforceable
leases with such exceptions as would not have a material adverse
effect on the Company and its subsidiaries considered as a whole, in
each case except as described in or contemplated by the Prospectus.
(w) Except to the extent the Company and its affiliates
are self-insured as described in the Prospectus, the Company and its
subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as
are customary in the businesses in which they are engaged or propose
to engage after giving effect to the transactions described in the
Prospectus; and neither the Company nor any subsidiary of the Company
has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to
continue their business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the
earnings, business or operations of the Company and its subsidiaries
considered as a whole, except as described in or contemplated by the
Prospectus.
(x) Other than as contemplated by this Agreement, there is
no broker, finder or other party that is entitled to receive from the
Company any brokerage or finder's fee or other fee or commission as a
result of any of the transactions contemplated by this Agreement.
(y) The Company has complied with all provisions of Section
517.075 Florida Statutes (Chapter 92-198; Laws of Florida).
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(z) The Company and each of its subsidiaries 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.
(aa) Neither the Company nor any of its subsidiaries nor
any employee or agent of the Company or any of its subsidiaries has
made any payment of funds of the Company or any of its subsidiaries or
received or retained any funds in violation of any law, rule or
regulation, which payment, receipt or retention of funds is of a
character required to be disclosed in the Prospectus.
(bb) Neither the Company nor any of its subsidiaries is an
"investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of
1940, as amended.
(cc) To the best of the Company's knowledge, the Company
and each of its subsidiaries has paid all tariff, custom, import,
export and other duties required to be paid by it (if any) in
connection with the exportation of products from the country of
manufacture, the importation of products into the United States, the
exportation of products from the United States and the importation of
products into another country and has provided all appropriate
authorities with the requisite information, all of which, to the best
of the Company's knowledge, is true and correct, necessary for the
proper determination of the foregoing.
(dd) Each certificate signed by any officer of the Company
and delivered to the Underwriters or counsel for the Underwriters
shall be deemed to be a representation and warranty by the Company as
to the matters covered thereby.
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<PAGE>
3. Purchase by, and Sale and Delivery to, Underwriters--Closing
------------------------------------------------------------
Dates. The Company agrees to sell to the Underwriters the Firm Stock, and on
- -----
the basis of the representations, warranties, covenants and agreements herein
contained, but subject to the terms and conditions herein set forth, the
Underwriters agree, severally and not jointly, to purchase the Firm Stock from
the Company, the number of shares of Firm Stock to be purchased by each
Underwriter being set opposite its name in Schedule A, subject to adjustment in
accordance with Section 12 hereof.
The purchase price per share to be paid by the Underwriters to the
Company will be $ per share (the "Purchase Price").
------
The Company will deliver the Firm Stock to the Representatives for the
respective accounts of the several Underwriters (in the form of definitive
certificates, issued in such names and in such denominations as the
Representatives may direct by notice in writing to the Company given at or prior
to 12:00 Noon, New York Time, on the second full business day preceding the
First Closing Date (as defined below) or, if no such direction is received, in
the names of the respective Underwriters or in such other names as Cowen may
designate (solely for the purpose of administrative convenience) and in such
denominations as Cowen may determine, against payment of the aggregate Purchase
Price therefor by certified or official bank check or checks in Clearing House
funds (next day funds), payable to the order of the Company, all at the offices
of Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New
York, New York 10022. The time and date of the delivery and closing shall be at
10:00 a.m., New York Time, on August __, 1996, in accordance with Rule 15c6-1
under the Securities Exchange Act of 1934, as amended. The time and date of
such payment and delivery are herein referred to as the "First Closing Date."
The Closing Date and the location of delivery of, and the form of payment for,
the Firm Stock may be varied by agreement between the Company and Cowen. The
Closing Date may be postponed pursuant to the provisions of Section 12.
The Company shall make the certificates for the Stock available to the
Representatives for examination on behalf of the Underwriters not later than
10:00 a.m., New York Time, on the business day preceding the First Closing Date
at the offices of Cowen & Company, Financial Square, New York, New York 10005.
It is understood that Cowen or L.H. Friend, individually and not as
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment to the Company on behalf of any Underwriter or Underwriters, for
the
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Stock to be purchased by such Underwriter or Underwriters. Any such payment
by Cowen or L.H. Friend shall not relieve such Underwriter or Underwriters from
any of its or their other obligations hereunder.
The several Underwriters agree to make an initial public offering of
the Firm Stock at the initial public offering price as soon after the
effectiveness of the Registration Statement as in their judgment is advisable.
The Representatives shall promptly advise the Company of the making of the
initial public offering.
For the purpose of covering any over-allotments in connection with the
distribution and sale of the Firm Stock as contemplated by the Prospectus, the
Company hereby grants to the Underwriters an option to purchase, severally and
not jointly, up to an aggregate of 165,000 shares of Optional Stock. The price
per share to be paid for the Optional Stock shall be the Purchase Price. The
option granted hereby may be exercised as to all or any part of the Optional
Stock at any time, and from time to time, not more than thirty (30) days
subsequent to the effective date of this Agreement. No Optional Stock shall be
sold and delivered unless the Firm Stock previously has been, or simultaneously
is, sold and delivered. The right to purchase the Optional Stock or any portion
thereof may be surrendered and terminated at any time upon notice by the
Underwriters to the Company.
The option granted hereby may be exercised by the Underwriters by
giving written notice from Cowen to the Company setting forth the number of
shares of the Optional Stock to be purchased by them and the date and time for
delivery of and payment for the Optional Stock. Each date and time for delivery
of and payment for the Optional Stock (which may be the First Closing Date, but
not earlier) is herein called the "Option Closing Date" and shall in no event be
earlier than two (2) business days nor later than ten (10) business days after
written notice is given. (The Option Closing Date and the First Closing Date
are herein called the "Closing Dates.") Optional Stock shall be purchased from
the Company for the account of each Underwriter in the same proportion as the
number of shares of Firm Stock set forth opposite such Underwriter's name in
Schedule A hereto bears to the total number of shares of Firm Stock (subject to
adjustment by the Underwriters to eliminate odd lots). Upon exercise of the
option by the Underwriters, the Company agrees to sell to the Underwriters the
number of shares of Optional Stock set forth in the written notice of exercise
and the Underwriters agree, severally and not jointly and subject to the terms
and conditions herein set forth, to purchase the number of such shares
determined as aforesaid.
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<PAGE>
The Company will deliver the Optional Stock to the Underwriters (in
the form of definitive certificates, issued in such names and in such
denominations as the Representatives may direct by notice in writing to the
Company given at or prior to 12:00 Noon, New York Time, on the second full
business day preceding the Option Closing Date or, if no such direction is
received, in the names of the respective Underwriters or in such other names as
Cowen may designate (solely for the purpose of administrative convenience) and
in such denominations as Cowen may determine, against payment of the aggregate
Purchase Price therefor by certified or official bank check or checks in
Clearing House funds (next day funds), payable to the order of the Company all
at the offices of Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd
Street, New York, New York 10022. The Company shall make the certificates for
the Optional Stock available to the Underwriters for examination not later than
10:00 a.m., New York Time, on the business day preceding the Option Closing Date
at the offices of Cowen & Company, Financial Square, New York, New York 10005.
The Option Closing Date and the location of delivery of, and the form of payment
for, the Option Stock may be varied by agreement between the Company and Cowen.
The Option Closing Date may be postponed pursuant to the provisions of Section
12.
4. Covenants and Agreements of the Company. The Company covenants
---------------------------------------
and agrees with the several Underwriters that:
(a) The Company will (i) if the Company and the
Representatives have determined not to proceed pursuant to Rule 430A,
use its best efforts to cause the Registration Statement to become
effective, (ii) if the Company and the Representatives have determined
to proceed pursuant to Rule 430A, use its best efforts to comply with
the provisions of and make all requisite filings with the Commission
pursuant to Rule 430A and Rule 424 of the Rules and Regulations and
(iii) if the Company and the Representatives have determined to
deliver Prospectuses pursuant to Rule 434 of the Rules and
Regulations, to use its best efforts to comply with all the applicable
provisions thereof. The Company will advise the Representatives
promptly as to the time at which the Registration Statement becomes
effective, will advise the Representatives promptly of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any proceedings for
that purpose, and will use its best efforts to prevent the issuance of
any such stop order and to obtain as soon as possible the lifting
thereof, if issued. The Company will advise the Representatives
promptly of the receipt
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<PAGE>
of any comments of the Commission or any request by the Commission for
any amendment of or supplement to the Registration Statement or the
Prospectus or for additional information and will not at any time file
any amendment to the Registration Statement or supplement to the
Prospectus which shall not previously have been submitted to the
Representatives a reasonable time prior to the proposed filing thereof
or to which the Representatives shall reasonably object in writing or
which is not in compliance with the Securities Act and the Rules and
Regulations.
(b) The Company will prepare and file with the Commission,
promptly upon the request of the Representatives, any amendments or
supplements to the Registration Statement or the Prospectus which in
the opinion of the Representatives may be necessary to enable the
several Underwriters to continue the distribution of the Stock and
will use its best efforts to cause the same to become effective as
promptly as possible.
(c) If at any time after the effective date of the
Registration Statement when a prospectus relating to the Stock is
required to be delivered under the Securities Act any event relating
to or affecting the Company or any of its subsidiaries occurs as a
result of which the Prospectus or any other prospectus as then in
effect would include an untrue statement of a material fact, or omit
to state any material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Securities Act, the Company will promptly notify
the Representatives thereof and will prepare an amended or
supplemented prospectus which will correct such statement or omission;
and in case any Underwriter is required to deliver a prospectus
relating to the Stock nine (9) months or more after the effective date
of the Registration Statement, the Company upon the request of the
Representatives and at the expense of such Underwriter will prepare
promptly such prospectus or prospectuses as may be necessary to permit
compliance with the requirements of Section 10(a)(3) of the Securities
Act.
(d) The Company will deliver to the Representatives, at or
before the Closing Dates, signed copies of the Registration Statement,
as originally
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<PAGE>
filed with the Commission, and all amendments thereto, including all
financial statements and exhibits thereto and will deliver to the
Representatives such number of copies of the Registration Statement,
including such financial statements but without exhibits, and all
amendments thereto, as the Representatives may reasonably request. The
Company will deliver or mail to or upon the order of the
Representatives, from time to time until the effective date of the
Registration Statement, as many copies of the Preeffective Prospectus
as the Representatives may reasonably request. The Company will
deliver or mail to or upon the order of the Representatives on the
date of the initial public offering, and thereafter from time to time
during the period when delivery of a prospectus relating to the Stock
is required under the Securities Act, as many copies of the
Prospectus, in final form or as thereafter amended or supplemented as
the Representatives may reasonably request; provided, however, that
the expense of the preparation and delivery of any prospectus required
for use nine (9) months or more after the effective date of the
Registration Statement shall be borne by the Underwriters required to
deliver such prospectus.
(e) The Company will make generally available to its
shareholders as soon as practicable, but not later than fifteen (15)
months after the effective date of the Registration Statement, an
earnings statement which will be in reasonable detail (but which need
not be audited) and which will comply with Section 11(a) of the
Securities Act, covering a period of at least twelve (12) months
beginning after the "effective date" (as defined in Rule 158 under the
Securities Act) of the Registration Statement.
(f) The Company will cooperate with the Representatives to
enable the Stock to be registered or qualified for offering and sale
by the Underwriters and by dealers under the securities laws of such
jurisdictions as the Representatives may designate and at the request
of the Representatives will make such applications and furnish such
consents to service of process or other documents as may be required
of it as the issuer of the Stock for that purpose; provided, however,
that the Company shall not be required to qualify to do business or to
file a general consent (other than that arising out of the offering or
sale of the Stock) to service of process in any such jurisdiction
where it is not now so subject. The
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<PAGE>
Company will, from time to time, prepare and file such statements and
reports as are or may be required of it as the issuer of the Stock to
continue such qualifications in effect for so long a period as the
Representatives may reasonably request for the distribution of the
Stock. The Company will advise the Representatives promptly after the
Company becomes aware of the suspension of the qualifications or
registration of (or any such exception relating to) the Common Stock
of the Company for offering, sale or trading in any jurisdiction or of
any initiation or threat of any proceeding for any such purpose, and
in the event of the issuance of any orders suspending such
qualifications, registration or exception, the Company will, with the
cooperation of the Representatives use its best efforts to obtain the
withdrawal thereof.
(g) The Company will furnish to its shareholders annual
reports containing financial statements certified by independent
public accountants and with quarterly summary financial information in
reasonable detail which may be unaudited. During the period of five
(5) years from the date hereof, the Company will deliver to the
Representatives and, upon request, to each of the other Underwriters,
as soon as they are available, copies of each Annual Report of the
Company (containing the balance sheet of the Company as of the close
of such fiscal year and statements of income, stockholders' equity and
cash flows for the year then ended and the opinion thereon of the
Company's independent public accountants) and each other report or
communication furnished by the Company to its shareholders and will
deliver to the Representatives, (i) as soon as they are available,
copies of any other reports (financial or other) which the Company
shall publish or otherwise make available to any of its shareholders
as such, (ii) as soon as they are available, copies of each proxy
statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q,
Report on Form 8-K or other report or financial statements furnished
to or filed with the Commission, the NASD or securities exchange and
(iii) from time to time such other information concerning the Company
as you may reasonably request. So long as the Company has active
subsidiaries, such financial statements will be on a consolidated
basis to the extent the accounts of the Company and its subsidiaries
are consolidated in reports furnished to its shareholders generally.
Separate financial statements shall be furnished for all subsidiaries
whose accounts are not consolidated
-18-
<PAGE>
but which at the time are significant subsidiaries as defined in the
Rules and Regulations.
(h) The Company will use its best efforts to list, subject
to official notice of issuance, on the American Stock Exchange, the
Stock to be issued and sold by the Company.
(i) The Company will maintain a transfer agent and
registrar for its Common Stock.
(j) The Company will not offer, sell, assign, transfer,
encumber, contract to sell, grant an option to purchase or otherwise
dispose of any shares of Common Stock or securities convertible into
or exercisable or exchangeable for Common Stock (including, without
limitation, Common Stock of the Company which may be deemed to be
beneficially owned by the undersigned in accordance with the Rules and
Regulations) during the ninety (90) days following the date on which
the price of the Common Stock to be purchased by the Underwriters is
set, other than the Company's sale of Common Stock hereunder and the
Company's issuance of Common Stock upon the exercise of warrants and
stock options which are presently outstanding and described in the
Prospectus.
(k) The Company will apply the net proceeds from the sale
of the Stock as set forth in the description under "Use of Proceeds"
in the Prospectus, which description complies in all respects with the
requirements of Item 504 of Regulation S-K.
(m) The Company will supply you with copies of all
correspondence to and from, and all documents issued to and by, the
Commission in connection with the registration of the Stock under the
Securities Act.
(n) Prior to the Closing Dates the Company will furnish to
you, as soon as they have been prepared, copies of any unaudited
interim consolidated financial statements of the Company and its
subsidiaries for any periods subsequent to the periods covered by the
financial statements appearing in the Registration Statement and the
Prospectus.
(o) Prior to the Closing Dates the Company will issue no
press release or other communications directly or indirectly and hold
no press conference with respect to the Company or any of its
subsidiaries,
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<PAGE>
the financial condition, results of operation, business, prospects,
assets or liabilities of any of them, or the offering of the Stock,
without your prior written consent. For a period of twelve (12) months
following the Closing Date, the Company will use its best efforts to
provide to you copies of each press release or other public
communications with respect to the financial condition, results of
operations, business, prospects, assets or liabilities of the Company
reasonably promptly after the public issuance thereof.
5. Payment of Expenses. (a) The Company will pay (directly or by
-------------------
reimbursement) all costs, fees and expenses incurred in connection with expenses
incident to the performance of its obligations under this Agreement and in
connection with the transactions contemplated hereby, including but not limited
to (i) all expenses and taxes incident to the issuance and delivery of the Stock
to the Representatives; (ii) all expenses incident to the registration of the
Stock under the Securities Act; (iii) the costs of preparing stock certificates
(including printing and engraving costs); (iv) all fees and expenses of the
registrar and transfer agent of the Stock; (v) all necessary issue, transfer and
other stamp taxes in connection with the issuance and sale of the Stock to the
Underwriters; (vi) fees and expenses of the Company's counsel and the Company's
independent accountants; (vii) all costs and expenses incurred in connection
with the preparation, printing filing, shipping and distribution of the
Registration Statement, each Preeffective Prospectus and the Prospectus
(including all exhibits and financial statements) and all amendments and
supplements provided for herein, the "Agreement Among Underwriters" between the
Representatives and the Underwriters, the Master Selected Dealers' Agreement,
the Underwriters' Questionnaire and the Blue Sky memoranda and this Agreement;
(viii) all filing fees, attorneys' fees and expenses incurred by the Company or
the Underwriters in connection with exemptions from the qualifying or
registering (or obtaining qualification or registration of) all or any part of
the Stock for offer and sale and determination of its eligibility for investment
under the Blue Sky or other securities laws of such jurisdictions as the
Representatives may designate; (ix) all fees and expenses paid or incurred in
connection with filings made with the NASD; and (x) all other costs and expenses
incident to the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section.
(b) In addition to its other obligations under Section 6(a) hereof,
the Company agrees that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
(i) any statement or
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<PAGE>
omission or any alleged statement or omission or (ii) any breach or inaccuracy
in its representations and warranties, it will reimburse each Underwriter on a
quarterly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
obligation to reimburse each Underwriter for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, each Underwriter shall promptly return
it to the Company, together with interest, compounded daily, determined on the
basis of the prime rate (or other commercial lending rate for borrowers of the
highest credit standing) announced from time to timed by Citibank, N.A., New
York, New York (the "Prime Rate"). Any such interim reimbursement payments which
are not made to an Underwriter in a timely manner as provided below shall bear
interest at the Prime Rate from the due date for such reimbursement. This
expense reimbursement agreement will be in addition to any other liability which
the Company may otherwise have.
(c) In addition to its other obligations under Section 6(b) hereof,
each Underwriter severally agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged statement
or omission, described in Section 6(b) hereof which relates to information
furnished to the Company pursuant to Section . hereof, it will reimburse the
Company (and, to the extent applicable, each officer, director or controlling
person on a quarterly basis for all reasonable legal or other expenses incurred
in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company (and, to the extent
applicable, each officer, director or controlling person) for such expenses and
the possibility that such payments might later be held to have been improper by
a court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company (and, to the
extent applicable, each officer, director or controlling person shall promptly
return it to the Underwriters together with interest, compounded daily,
determined on the basis of the Prime Rate. Any such interim reimbursement
payments which are not made to the Company within thirty (30) days of a request
for reimbursement shall bear interest at the Prime Rate from the date of such
request. This indemnity agreement will be in addition to any liability which
such Underwriter may otherwise have.
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<PAGE>
(d) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in paragraph (b) and/or (c) of
this Section 5, including the amounts of any requested reimbursement payments
and the method of determining such amounts, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Such an arbitration would be limited to the operation of
the interim reimbursement provisions contained in paragraph (b) and/or (c) of
this Section 5 and would not resolve the ultimate propriety or enforceability of
the obligation to reimburse expenses which is created by the provisions of
Section 6.
6. Indemnification and Contribution. (a) The Company agrees to
--------------------------------
indemnify and hold harmless each Underwriter and each person, if any, who
controls such Underwriter within the meaning of the Securities Act and the
respective officers, directors, partners, employees, representatives and agents
of each of such Underwriter (collectively, the "Underwriter Indemnified Parties"
and, each, an "Underwriter Indemnified Party"), against any losses, claims,
damages, liabilities or expenses (including the reasonable cost of investigating
and defending against any claims therefor and counsel fees incurred in
connection therewith), joint or several, which may be based upon the Securities
Act, or any other statute or at common law, on the ground or alleged ground that
any Preeffective Prospectus, the Registration Statement or the Prospectus (or
any Preeffective Prospectus, the Registration Statement or the Prospectus as
from time to time amended or supplemented) includes or allegedly includes an
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, unless
such statement or omission was made in reliance upon, and in conformity with,
written information furnished to the Company by any Underwriter, directly or
through the Representatives, specifically for use in the preparation thereof;
provided, that with respect to any untrue statement or omission or alleged
untrue statement or omission made in any Preeffective Prospectus, the indemnity
agreement contained in this subsection (a) shall not inure to the benefit of any
Underwriter Indemnified Party from whom the person asserting any such losses,
claims, damages,
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<PAGE>
liabilities or expenses purchased the shares of Stock concerned to the extent
that any such loss, claim, damage, liability or expense of such Underwriter
Indemnified Party results from the fact that a copy of the Prospectus was not
sent or given to such person at or prior to the written confirmation of the sale
of such shares of Stock to such person as required by the Securities Act and if
the untrue statement or omission concerned has been corrected in the Prospectus,
unless such failure to deliver was the result of the breach by the Company of
Section 4(c) or 4(d) hereof. The Company will be entitled to participate at its
own expense in the defense or, if it so elects, to assume the defense of any
suit brought to enforce any such liability, but if the Company elects to assume
the defense, such defense shall be conducted by counsel chosen by it. In the
event the Company elects to assume the defense of any such suit and retain such
counsel, any Underwriter Indemnified Parties, defendant or defendants in the
suit, may retain additional counsel but shall bear the fees and expenses of such
counsel unless (i) the Company shall have specifically authorized the retaining
of such counsel or (ii) the parties to such suit include any such Underwriter
Indemnified Parties, and the Company and such Underwriter Indemnified Parties at
law or in equity have been advised by counsel to the Underwriters that one or
more legal defenses may be available to it or them which may not be available to
the Company, in which case the Company shall not be entitled to assume the
defense of such suit notwithstanding its obligation to bear the fees and
expenses of such counsel. This indemnity agreement is not exclusive and will be
in addition to any liability which the Company might otherwise have and shall
not limit any rights or remedies which may otherwise be available at law or in
equity to each Underwriter Indemnified Party.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its directors, each of its officers who have signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Securities Act (collectively, the "Company Indemnified
Parties") against any losses, claims, damages, liabilities or expenses
(including, unless the Underwriter or Underwriters elect to assume the defense,
the reasonable cost of investigating and defending against any claims therefor
and counsel fees incurred in connection therewith), joint or several, which
arise out of or are based in whole or in part upon the Securities Act, the
Exchange Act or any other federal, state, local or foreign statute or
regulation, or at common law, on the ground or alleged ground that any
Preeffective Prospectus, the Registration Statement or the Prospectus (or any
Preeffective Prospectus, the Registration Statement or the Prospectus, as from
time to time amended and supplemented) includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
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<PAGE>
circumstances in which they were made, not misleading, but only insofar as any
such statement or omission was made in reliance upon, and in conformity with,
written information furnished to the Company by such Underwriter, directly or
through the Representatives, specifically for use in the preparation thereof.
Such Underwriter shall be entitled to participate at its own expense in the
defense, or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but, if such Underwriter elects to assume the
defense, such defense shall be conducted by counsel chosen by it. In the event
that any Underwriter elects to assume the defense of any such suit and retain
such counsel, the Company Indemnified Parties and any other Underwriter or
Underwriters or controlling person or persons, defendant or defendants in the
suit, shall bear the fees and expenses of any additional counsel retained by
them, respectively. The Underwriter against whom indemnity may be sought shall
not be liable to indemnify any person for any settlement of any such claim
effected without such Underwriter's consent. This indemnity agreement is not
exclusive and will be in addition to any liability which such Underwriter might
otherwise have and shall not limit any rights or remedies which may otherwise be
available at law or in equity to any Company Indemnified Party.
(c) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages,
liabilities or expenses (or actions in respect thereof) referred to herein, then
each indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Stock. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law, then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is appropriate
to reflect not only such relative benefits but also the relative fault of the
Company on the one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault
shall be determined by
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<PAGE>
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Underwriters
agree that it would not be just and equitable if contribution were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above. The amount paid or payable by
an indemnified party as a result of the losses, claims, damages, liabilities or
expenses (or actions in respect thereof) referred to above shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating, defending, settling or compromising any
such claim. Notwithstanding the provisions of this subsection (c), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the shares of the Stock underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. The
Underwriters' obligations to contribute are several in proportion to their
respective underwriting obligations and not joint. 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.
(d) Each party indemnified under the provisions of Sections 6(a) or
6(b) agrees that, upon the service of a summons or other initial legal process
upon it in any action or suit instituted against it or upon its receipt of
written notification of the commencement of any investigation or inquiry of, or
proceedings against, it in respect of which indemnity may be sought on account
of any indemnity agreement contained in such paragraphs, it will promptly give
written notice (herein called the "Notice") of such service or notification to
the party or parties from whom indemnification may be sought hereunder. No
indemnification provided for in such paragraphs shall be available to any party
who shall fail so to give the Notice if the party to whom such Notice was not
given was unaware of the action, suit, investigation, inquiry or proceedings to
which the Notice would have related to the extent such indemnifying party was
materially prejudiced by the failure to give the Notice, but the omission to
notify such indemnifying party or parties of any such service or notification
shall not relieve such indemnifying party or parties from any liability which it
or they may have to the indemnified
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<PAGE>
party for contribution or otherwise than on account of its indemnity agreement
contained in Sections 6(a) or 6(b).
7. Survival of Indemnities, Representations, Warranties, etc. The
----------------------------------------------------------
respective indemnities, covenants, agreements, representations, warranties and
other statements of the Company and the several Underwriters, as set forth in
this Agreement or made by them respectively, pursuant to this Agreement, shall
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter, the Company or any of its officers or directors or
any controlling person, and shall survive delivery of and payment for the Stock.
8. Conditions of Underwriters' Obligations. The respective
---------------------------------------
obligations of the several Underwriters hereunder shall be subject to the
accuracy, at and (except as otherwise stated herein) as of the date hereof and
at and as of the Closing Dates, of the representations and warranties made
herein by the Company, to compliance at and as of the Closing Dates by the
Company with its covenants and agreements herein contained and other provisions
hereof to be satisfied at or prior to the Closing Dates, and to the following
additional conditions:
(a) The Registration Statement shall have become effective
and no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated
or, to the knowledge of the Company or the Representatives, shall be
threatened by the Commission, and any request for additional
information on the part of the Commission (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been
complied with to the reasonable satisfaction of the Representatives.
Any filings of the Prospectus, or any supplement thereto, required
pursuant to Rule 424(b) or Rule 434 of the Rules and Regulations,
shall have been made in the manner and within the time period required
by Rule 424(b) and Rule 434 of the Rules and Regulations, as the case
may be.
(b) The Representatives shall have been satisfied that
there shall not have occurred any change prior to the Closing Dates in
the condition (financial or otherwise), properties, business,
management, prospects, net worth or results of operations of the
Company and its subsidiaries considered as a whole, or any change in
the capital stock, short-term or long-term debt of the Company and its
subsidiaries considered as a whole, such that (i) the Registration
Statement or the Prospectus, or any amendment or
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<PAGE>
supplement thereto, contains an untrue statement of fact which, in the
opinion of the Representatives, is material, or omits to state a fact
which, in the opinion of the Representatives, is required to be stated
therein or is necessary to make the statements therein not misleading,
or (ii) it is unpracticable in the reasonable judgment of the
Representatives to proceed with the public offering or purchase the
Stock as contemplated hereby.
(c) The Representatives shall be satisfied that no legal or
governmental action, suit or proceeding affecting the Company which is
material and adverse to the Company or which affects or may affect the
Company's ability to perform their respective obligations under this
Agreement shall have been instituted or threatened and there shall
have occurred no material and adverse development in any existing such
action, suit or proceeding.
(d) At the time of execution of this Agreement, the
Representatives shall have received from KPMG Peat Marwick LLP,
independent certified public accountants, a letter, dated the date
hereof, in form and substance satisfactory to the Underwriters.
(e) The Representatives shall have received from KPMG Peat
Marwick LLP, independent certified public accountants, letters, dated
the Closing Dates, to the effect that such accountants reaffirm, as of
the Closing Dates, and as though made on the Closing Dates, the
statements made in the letter furnished by such accountants pursuant
to paragraph (d) of this Section 8.
(f) The Representatives shall have received from (i) Gordon
Altman Butowsky Weitzen Shalov & Wein, counsel for the Company,
opinions, dated the Closing Dates, to the effect set forth in Exhibit
I hereto, and (ii) Foley and Lardner, special intellectual property
counsel for the Company, opinions, dated the Closing Dates, to the
effect set forth in Exhibit II hereto.
(g) The Representatives shall have received from Willkie
Farr & Gallagher, counsel for the Underwriters, their opinion or
opinions dated the Closing Dates with respect to the incorporation of
the Company, the validity of the Stock, the Registration Statement and
the Prospectus and such other related matters as it may reasonably
request, and the Company
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<PAGE>
shall have furnished to such counsel such documents as they may
request for the purpose of enabling them to pass upon such matters.
(h) The Representatives shall have received a certificate,
dated the Closing Dates, of the chief executive officer or the
President and the chief financial or accounting officer of the Company
to the effect that:
(i) No stop order suspending the effectiveness of the
Registration Statement has been issued, and, to the best of the
knowledge of the signers, no proceedings for that purpose have
been instituted or are pending or contemplated under the
Securities Act;
(ii) Neither any Preeffective Prospectus, as of its
date, nor the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, as of the time when the
Registration Statement became effective and at all times
subsequent thereto up to the delivery of such certificate,
included any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(iii) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, and except as set forth or contemplated in the
Prospectus, neither the Company nor any of its subsidiaries has
incurred any material liabilities or obligations, direct or
contingent, nor entered into any material transactions not in the
ordinary course of business and there has not been any material
adverse change in the condition (financial or otherwise),
properties, business, management, prospects, net worth or results
of operations of the Company and its subsidiaries considered as a
whole, or, except for the exercise of outstanding options or
warrants described in the Prospectus and borrowings under the
Company's revolving credit agreement (as described in the
Prospectus) in accordance with past practice, any change in the
capital stock, short-term or
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<PAGE>
long-term debt of the Company and its subsidiaries considered as
a whole;
(iv) The representations and warranties of the Company
in this Agreement are true and correct at and as of the Closing
Dates, and the Company has complied with all the agreements and
performed or satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing Dates; and
(v) Since the respective dates as of which information
is given in the Registration Statement and the Prospectus, and
except as disclosed in or contemplated by the Prospectus, (i)
there has not been any material adverse change or a development
involving a material adverse change in the condition (financial
or otherwise), properties, business, management, prospects, net
worth or results of operations of the Company and its
subsidiaries considered as a whole; (ii) the business and
operations conducted by the Company and its subsidiaries have not
sustained a loss by strike, fire, flood, accident or other
calamity (whether or not insured) of such a character as to
interfere materially with the conduct of the business and
operations of the Company and its subsidiaries considered as a
whole; (iii) no legal or governmental action, suit or proceeding
is pending or threatened against the Company which is material
and adverse to the Company, whether or not arising from
transactions in the ordinary course of business, or which may
materially and adversely affect the transactions contemplated by
this Agreement; and (iv) the Company has not declared or paid any
dividend, or made any other distribution, upon its outstanding
capital stock payable to stockholders of record on a date prior
to the Closing Date.
(vi) The Company shall have furnished to the
Representatives such additional certificates as the Representatives
may have reasonably requested as to the accuracy, at and as of the
Closing Dates, of the representations and warranties made herein by it
and as to compliance at and as of the Closing Dates by it with its
covenants and agreements herein contained and other provisions hereof
to be satisfied at or prior to the Closing Dates, and as to
satisfaction of the other
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<PAGE>
conditions to the obligations of the Underwriters hereunder.
(vii) Cowen shall have received the written agreements of
the officers, directors and holders of Common Stock or warrants or
options to purchase Common Stock listed in Schedule B that each will
not offer, sell, assign, transfer, encumber, contract to sell, grant
an option to purchase or otherwise dispose of (except for certain
exceptions provided therein relating to shares subject to the JW
Charles Option and upon the foreclosure of shares pledged to Merita
Bank, both as described in the Prospectus) any shares of Common Stock
or warrants or options to purchase Common Stock (including, without
limitation, Common Stock of the Company which may be deemed to be
beneficially owned by the undersigned in accordance with the Rules and
Regulations) during the ninety (90) days following the date of the
final Prospectus.
All opinions, certificates, letters and other documents will be in
compliance with the provisions hereunder only if they are reasonably
satisfactory in form and substance to the Representatives. The Company will
furnish to the Representatives conformed copies of such opinions, certificates,
letters and other documents as the Representatives shall reasonably request. If
any of the conditions hereinabove provided for in this Section shall not have
been satisfied when and as required by this Agreement, this Agreement may be
terminated by the Representatives by notifying the Company of such termination
in writing or by telegram at or prior to the Closing Dates, but Cowen shall be
entitled to waive any of such conditions.
9. Effective Date. This Agreement shall become effective immediately
--------------
as to Sections 5, 6, 7, 9, 10, 11, 13, 14, 15, 16 and 17 and, as to all other
provisions, at 11:00 a.m. New York City time on the first full business day
following the effectiveness of the Registration Statement or at such earlier
time after the Registration Statement becomes effective as the Representatives
may determine on and by notice to the Company or by release of any of the Stock
for sale to the public. For the purposes of this Section 9, the Stock shall be
deemed to have been so released upon the release for publication of any
newspaper advertisement relating to the Stock or upon the release by you of
telegrams (i) advising Underwriters that the shares of Stock are released for
public offering or (ii) offering the Stock for sale to securities dealers,
whichever may occur first.
10. Termination. This Agreement (except for the provisions of
-----------
Section 5) may be terminated by the Company at any
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<PAGE>
time before it becomes effective in accordance with Section 9 by notice to the
Representatives and may be terminated by the Representatives at any time before
it becomes effective in accordance with Section 9 by notice to the Company. In
the event of any termination of this Agreement under this or any other provision
of this Agreement, there shall be no liability of any party to this Agreement to
any other party, other than as provided in Sections 5, 6 and 11 and other than
as provided in Section 12 as to the liability of defaulting Underwriters.
This Agreement may be terminated after it becomes effective by the
Representatives by notice to the Company (i) if at or prior to the First Closing
Date or the Option Closing Date trading in securities on any of the New York
Stock Exchange, American Stock Exchange, the NASDAQ National Market System,
Chicago Board of Options Exchange, Chicago Mercantile Exchange or Chicago Board
of Trade shall have been suspended or minimum or maximum prices shall have been
established on any such exchange or market, or a banking moratorium shall have
been declared by New York or United States authorities; (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market; (iii) if at or prior to the First Closing Date or the
Option Closing Date there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power or of any other
insurrection or armed conflict involving the United States or (B) any change in
financial markets or any calamity or crisis which, in the reasonable judgment of
the Representatives, makes it impractical or inadvisable to offer or sell the
Firm Stock or Optional Stock, as applicable on the terms contemplated by the
Prospectus; (iv) if there shall have been any development or prospective
development involving particularly the business or properties or securities of
the Company or any of its subsidiaries or the transactions contemplated by this
Agreement, which, in the reasonable judgment of the Representatives, makes it
impracticable or inadvisable to offer or deliver the Firm Stock or the Optional
Stock, as applicable on the terms contemplated by the Prospectus; (v) if there
shall be any litigation or proceeding, pending or threatened, which, in the
reasonable judgment of the Representatives, makes it impracticable or
inadvisable to offer or deliver the Firm Stock or Optional Stock, as applicable,
on the terms contemplated by the Prospectus; or (vi) if there shall have
occurred any of the events specified in the immediately preceding clauses (i) -
(v) together with any other such event that makes it, in the reasonable judgment
of the Representatives, impractical or inadvisable to offer or deliver the Firm
Stock or Optional Stock, as applicable on the terms contemplated by the
Prospectus.
11. Reimbursement of Underwriters. Notwithstanding any other
-----------------------------
provisions hereof, if this Agreement shall not become
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<PAGE>
effective by reason of any election of the Company pursuant to the first
paragraph of Section 10 or shall be terminated by the Representatives under
Section 8 or Section 10, the Company will bear and pay the expenses specified in
Section 5 hereof and, in addition to its obligations pursuant to Section 6
hereof, the Company will reimburse the reasonable out-of-pocket expenses of the
several Underwriters (including reasonable fees and disbursements of counsel for
the Underwriters) incurred in connection with this Agreement and the proposed
purchase of the Stock, and promptly upon demand the Company will pay such
amounts to you as Representatives.
12. Substitution of Underwriters. If any Underwriter or Underwriters
----------------------------
shall default in its or their obligations to purchase shares of Stock hereunder
and the aggregate number of shares which such defaulting Underwriter or
Underwriters agreed but failed to purchase does not exceed ten percent (10%) of
the total number of shares underwritten, the other Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder, to
purchase the shares which such defaulting Underwriter or Underwriters agreed but
failed to purchase. If any Underwriter or Underwriters shall so default and the
aggregate number of shares with respect to which such default or defaults occur
is more than ten percent (10%) of the total number of shares underwritten and
arrangements satisfactory to the Representatives and the Company for the
purchase of such shares by other persons are not made within forty-eight (48)
hours after such default, this Agreement shall terminate.
If the remaining Underwriters or substituted Underwriters are required
hereby or agree to take up all or part of the shares of Stock of a defaulting
Underwriter or Underwriters as provided in this Section 12, (i) the Company
shall have the right to postpone the Closing Dates for a period of not more than
five (5) full business days in order that the Company may effect whatever
changes may thereby be made necessary in the Registration Statement or the
Prospectus, or in any other documents or arrangements, and the Company agrees
promptly to file any amendments to the Registration Statement or supplements to
the Prospectus which may thereby be made necessary, and (ii) the respective
numbers of shares to be purchased by the remaining Underwriters or substituted
Underwriters shall be taken as the basis of their underwriting obligation for
all purposes of this Agreement. Nothing herein contained shall relieve any
defaulting Underwriter of its liability to the Company or the other Underwriters
for damages occasioned by its default hereunder. Any termination of this
Agreement pursuant to this Section 12 shall be without liability on the part of
any non-defaulting Underwriter or the Company, except for expenses to be paid or
reimbursed pursuant to Section 5 and except for the provisions of Section 6.
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<PAGE>
13. Notices. All communications hereunder shall be in writing and,
-------
if sent to the Underwriters shall be mailed, delivered or telegraphed and
confirmed to you, as their Representatives c/o Cowen & Company at Financial
Square, New York, New York 10005, with a copy to counsel to Willkie Farr &
Gallagher, One Citicorp Center, 153 East 53rd Street, New York, New York 10022,
Attention: William N. Dye, except that notices given to an Underwriter pursuant
to Section 6 hereof shall be sent to such Underwriter at the address furnished
by the Representatives, in each case, with a copy as provided above, or, if sent
to the Company, shall be mailed, delivered or telegraphed and confirmed c/o
Ballantyne of Omaha, Inc., 4350 McKinley Street, Omaha, Nebraska 68112,
Attention: Chief Executive Officer, with a copy to Gordon Altman Butowsky
Weitzen Shalov & Wein, 114 West 47th Street, New York, New York 10036,
Attention: Marjorie Sybul Adams.
14. Successors. This Agreement shall inure to the benefit of and be
----------
binding upon the several Underwriters, the Company and their respective
successors and legal representatives. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person other than the
persons mentioned in the preceding sentence any legal or equitable right, remedy
or claim under or in respect of this Agreement, or any provisions herein
contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person; except that the representations, warranties,
covenants, agreements and indemnities of the Company contained in this Agreement
shall also be for the benefit of the person or persons, if any, who control any
Underwriter or Underwriters within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, and the indemnities of the several
Underwriters shall also be for the benefit of each director of the Company, each
of its officers who has signed the Registration Statement and the person or
persons, if any, who control the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act.
15. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the State of New York without regard to
its principles of conflicts of laws.
16. Authority of the Representatives. In connection with this
--------------------------------
Agreement, you will act for and on behalf of the several Underwriters, and any
action taken under this Agreement by Cowen, as Representative, will be binding
on all the Underwriters.
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<PAGE>
17. Partial Unenforceability. The invalidity or unenforceability of
------------------------
any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
18. General. This Agreement constitutes the entire agreement of the
-------
parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company and the Representatives.
19. Counterparts. This Agreement may be signed in two (2) or more
------------
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
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<PAGE>
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter and your acceptance shall constitute a binding agreement
between us.
Very truly yours,
BALLANTYNE OF OMAHA, INC.
By:____________________________
President
Accepted and delivered in
New York, New York as of the
date first above written.
COWEN & COMPANY
L.H. FRIEND, WEINRESS,
FRANKSON & PRESSON, INC.
Acting on their own behalf
and as Representatives of several
Underwriters referred to in the
foregoing Agreement.
By: Cowen Incorporated,
its general partner
By:______________________________
Title:
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<PAGE>
SCHEDULE A
Number of
Number of Shares of
Shares of Optional
Firm Stock Stock
To Be To Be
Name Purchased Purchased
---- --------- ---------
Cowen & Company...............
L.H. Friend, Weinress,
Frankson & Presson, Inc. ...
--------- -------
1,100,000 165,000
Total......................... ========= =======
<PAGE>
SCHEDULE B
ARC International Corporation
ARC U.S.A., Inc.
Arnold S. Tenney
Arnmart Investments Limited
Canrad Inc.
Canrad Of Delaware Inc.
Colin G. Campbell
Jeffrey D. Chelin
Ronald H. Echtenkamp
Brad French
Marshall S. Geller
Geller & Friend Capital Partners, Inc.
Jaffoni & Collins Incorporated
Merita Bank Ltd.
Yale Richards
John Wilmers
<PAGE>
EXHIBIT 23.2
ACCOUNTANTS' CONSENT
The Board of Directors
Ballantyne of Omaha, Inc.:
The audits referred to in our report, dated January 19, 1996, included the
related financial statement schedule as of December 31, 1995, and for each of
the years in the three-year period ended December 31, 1995, included in the
Registration Statement. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on
this financial statement schedule based on our audits. In our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.
KPMG Peat Marwick LLP
Omaha, Nebraska
July 15, 1996
