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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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<S> <C>
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
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FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NO. 1-13906
BALLANTYNE OF OMAHA, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 47-0587703
(State of incorporation) (I.R.S. Employer Identification No.)
4350 MCKINLEY STREET, OMAHA, NEBRASKA 68112
(Address of principal executive offices)
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Registrant's telephone number, including area code: (402) 453-4444
Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.01
par value
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
Indicate by check mark whether Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
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<S> <C>
Yes /X/ No / /
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As of March 16, 1998, 9,040,896 shares of Common Stock of Ballantyne of
Omaha, Inc., were outstanding and the aggregate market value of such Common
Stock held by nonaffiliates (based upon the closing price of the stock on the
NYSE) was approximately $117,863,000.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the Annual Meeting of Stockholders to be held May 27,
1998--Part III.
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PART I
ITEM 1. BUSINESS
GENERAL
Ballantyne of Omaha, Inc. (the "Company") is a leading developer,
manufacturer and distributor of commercial motion picture equipment and
long-range follow spotlights in the U.S. and abroad. The Company's product lines
are distributed on a worldwide basis through a network of over 200 domestic and
international dealers to major movie exhibitors, ride simulation operators and
sports arena and amusement park operators. The Company's broad range of both
standard and custom-made equipment can completely outfit and automate a motion
picture projection booth and is currently being used by major motion picture
exhibitors such as AMC Entertainment, Inc., Regal Cinemas, Inc., Act III
Theatres, Inc., Cinemark USA, Inc. and Cineplex Odeon Corporation. As a major
supplier of motion picture equipment to the theatre exhibitors, the Company has
benefited directly from both the domestic and international growth in motion
picture screens.
The Company believes that its position as a fully-integrated equipment
manufacturer enables it to be more responsive to its customers' specific design
requirements, thereby giving it a competitive advantage over other manufacturers
who rely more on outsourcing components. In addition, the Company believes its
expertise in engineering, manufacturing, prompt order fulfillment, delivery,
after-sale technical support and emergency service have allowed the Company to
build and maintain strong customer relationships.
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. These customers include Imax Corporation,
The Walt Disney Company and Electrosonic Systems, Inc. The Company helped
pioneer the special venue market more than 20 years ago by working with its
customers to design and build customized projection systems featuring special
effects.
The Company's long-range follow spotlights are used for both permanent
installations and touring applications. During 1997, the Company complemented
its long-range follow spotlights product line with the acquisition of
substantially all of the net assets of Xenotech, Inc. ("Xenotech") and
Sky-Tracker of America, Inc. ("Sky-Tracker"). Xenotech is a leading manufacturer
and supplier of high intensity searchlights and computer-based lighting systems
for the motion picture production, television, live entertainment, theme park
and architectural industries. Sky-Tracker sells and rents computer and manually
operated high intensity searchlights. Sky-Tracker and Xenotech were merged
together into the Strong-Xenotech division of the Company and operate out of a
facility in North Hollywood, California.
The Company also manufactures commercial food service equipment, which is
sold to convenience store and fast food restaurant operators and to equipment
suppliers for resale on a private label basis.
The Company's principal objective is to increase its leading U.S. market
share and its established international presence. In order to achieve this
objective, the Company is pursuing a number of strategies including (i)
expanding its presence outside the U.S. by leveraging its relationships with
domestic customers who are aggressively expanding internationally and building
relationships with international theatre exhibitors, (ii) developing and
maintaining strong customer relationships through fully understanding customer
needs and furnishing value-added services and (iii) making strategic
acquisitions of complementary or related niche market products.
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
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of the business of the Cinema Products Division of ORC. That division
manufactured the Century-Registered Trademark- projector and distributed
ISCO-Optic lenses to the theatre and audio visual industries in North America.
In December 1994, the Company increased its presence in the international
marketplace with the acquisition of Westrex Company, Asia ("Westrex"), which
provides the Company with a strategic Far Eastern location and greater access to
the expanding economies of the Pacific Rim.
RECENT CORPORATE DEVELOPMENTS
On December 5, 1997, the Company began trading on the New York Stock
Exchange ("NYSE"). The Company believes the NYSE provides a global forum for
increasing the Company's visibility and liquidity among investors.
During January 1998, the Company acquired for cash, Sky-Tracker of Florida,
Inc. ("Sky-Tracker of Florida"), a rental agent and distributor of high
intensity promotional searchlights. Sky-Tracker of Florida will be merged into
the Company's Xenotech division and will have operations in Florida and Georgia.
MOTION PICTURE EXHIBITION INDUSTRY OVERVIEW
The motion picture theatre industry has experienced competition from in-home
sources of entertainment in recent years, forcing theatre exhibitors to build
higher quality theatres with more screens per location in order to lure
consumers to theatres. As a result, U.S. theatre exhibitors have begun
developing multiple screen theatres to provide a more consumer friendly
destination and a wider range of film choices than traditional single screen
theatres. More recently, domestic theatre exhibitors have accelerated the
addition of new screens and in many cases, have begun developing "multiplex" or
"megaplex" theatres which have an even larger number of screens per location
(sometimes as many as 30 screens). Coupled with wide body seats and stadium
seating, these new generation theatres offer patrons a new and invigorating
moviegoing experience. The Company believes the outlook for such multiplexing
and megaplexing remains promising as many domestic markets still lack modern,
high quality theatre complexes and commercial real estate developers
increasingly view such facilities as attractive anchor tenants that enhance
consumer traffic.
Domestically, the theatre exhibitors' strategy is to focus on growth and
increased market share by building new, multiplex theatres in their key markets,
while expanding and refurbishing their existing high traffic locations.
According to GLOBAL FILM EXHIBITION AND DISTRIBUTION (-C- 1996), published by
Baskerville, a media and communications market research firm, there were more
than 28,500 screens in the U.S. at the end of 1996 and this number is expected
to increase by approximately 1,900 net new screens through the year 2000.
Internationally, as box office revenues from abroad continue to grow at a rapid
rate, domestic theatre exhibitors are building multiplex theatres in strategic
international markets. According to Dodona Research, a U.K.-based media market
research firm, there were more than 20,000 screens in Europe at the end of 1996
and the number of net screens is expected to increase by approximately 2,000
through the year 2000.
According to Baskerville, annual box office revenues outside of North
America now exceed box office revenues generated in the domestic marketplace.
Internationally, there are many markets which have either an undersupply of
screens or existing screens which are not consistent with today's high standards
of multiplex design and amenities. There are also emerging markets with
improving demographics and economic growth that present opportunities for the
development of theatrical exhibition. Theatre exhibitors are trying to leverage
their expertise as premier film exhibition companies and capitalize on the vast
opportunities for growth that exist in the global marketplace.
The trend toward multiplexing or megaplexing is also accelerating
internationally. The international marketplace is one which has historically
been underserved. According to Baskerville, in 1996 the number of motion picture
screens per million people was 107.9 for the U.S. as compared to 8.5 for Asia
Pacific, 12.5 for Latin America and 43.5 for Europe. U.S.-based theatre
exhibitors are rapidly entering the
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international markets with plans to build modern multiplexes and megaplexes in
response to increased movie theatre attendance. According to Screen Digest
Limited, a U.K.-based media and consulting firm, the number of multiplex
theatres in Europe in 1997 will increase to approximately 3,900, as compared to
approximately 2,200 multiplexes in 1993, representing a four-year compounded
annual growth rate of 15.4%.
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 principal objective is to increase its leading U.S. market
share and its established international presence. The Company's strategy
combines the following key elements:
EXPAND INTERNATIONAL PRESENCE. As rapid construction of new multiple screen
motion picture theatres has extended to the international market, sales of the
Company's products to international end users are becoming increasingly
important to the Company. Net sales to foreign customers, primarily of theatre
products, increased from $11.3 million in 1995 to $18.5 million in 1997
including sales by Westrex (excluding sales to domestic export dealers of both
theatre and restaurant products and domestic theatre chains of products which
are ultimately exported). The Company believes that its smaller international
market share represents an attractive growth opportunity, as 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. In addition, the Company is seeking to continue to strengthen and
develop its international presence through its international dealer network and
the Company's sales force will continue to travel extensively worldwide to
market the Company's products. The Company believes that as a result of these
efforts, it is well-positioned to expand its brand name recognition and
international market share.
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)
expertise in engineering and manufacturing high-quality, reliable and innovative
products (often designed to customer specifications), (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 recurring income that is less
dependent on new screen construction. The Company believes that one of its
competitive advantages is its superior customer service which has resulted in
strong, long-lasting customer relationships.
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
integrated manufacturing capabilities allow it to rapidly increase its
manufacturing capacity, thereby providing it with a competitive advantage in
meeting its customers' accelerating delivery schedules. In addition, its
manufacturing capabilities, combined with its emphasis on customer service, have
contributed to retaining strong customer relationships and developing new
business opportunities and products in both the traditional theatre equipment
market and the special venue market.
EXPLORE STRATEGIC ACQUISITIONS. The Company has historically been
successful in identifying and acquiring complementary businesses, which have
been profitable for its core operations. The Company plans to continue to
explore opportunities to acquire companies which complement its sales and
marketing
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and manufacturing expertise, as well as companies which provide opportunities
for geographical expansion of its dealer network and product line expansion.
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.
EXPAND SPECIALTY LIGHTING DIVISION. The Company intends to consolidate the
fragmented specialty entertainment lighting industry through complementary
acquisitions. In addition, the Company expects to leverage its existing customer
and distribution network to grow this division internally.
PRODUCTS
MOTION PICTURE PROJECTION EQUIPMENT
The Company is a leading developer, manufacturer and distributor of
commercial motion picture projection equipment in the U.S. and abroad. 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-Registered Trademark-,
Optimax-Registered Trademark-, and Ballantyne-TM-. The Company's commercial
motion picture projection equipment may be sold individually or as an integrated
system with other components manufactured by the Company. 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
wattage's, 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-deck or
five-deck platter and a make-up table which allows 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 ISCO-Optic 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 does not have any
similar right outside of North America.
The Company does not manufacture sound processors, but rather 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 to be a low-
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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.
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, in most cases with parts manufactured by the Company. 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 were $4.9
million, $6.1 million and $7.3 million for 1995, 1996 and 1997, 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 special venue customers such as Imax Corporation, The Walt
Disney Company and Electrosonic Systems, Inc. for use at special venue sites
such as the Magic Kingdom, EPCOT Center, IMAX Ridefilms 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
manufacturers 4, 5, 8 and 10 perforation 35mm and 70mm 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 quality and responsiveness provides a
competitive advantage in these growing markets.
SPOTLIGHT AND OTHER ILLUMINATION PRODUCTS
The Company is a leading developer, manufacturer and distributor of
long-range follow spotlights in the U.S. and abroad. 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-Registered Trademark-, 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 RCA Dome in Indianapolis,
the Continental Airlines Arena in the New Jersey Meadowlands and Sheffield Arena
in the United Kingdom, as well as at special venue sites such as the 1996 Summer
Olympics and in world tours by, among others, the Rolling Stones, R.E.M. and
Pink Floyd. During 1997, the Company complemented its long-range follow
spotlights product line with the acquisition of substantially all of the net
assets of Xenotech and Sky-Tracker.
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Xenotech is a leading manufacturer and supplier (through both rental and
outright sale) of high intensity searchlights and computer-based lighting
systems for the motion picture production, television, live entertainment, theme
park and architectural industries. Since its founding in 1986, Xenotech's
specialty illumination products have been used in numerous feature films
including BATMAN, TERMINATOR I, TERMINATOR II and INDEPENDENCE DAY. Xenotech's
products have also been used at live performances such as the Super Bowl
half-time shows and are currently illuminating such venues as the Luxor Hotel
Casino and the Stratosphere Hotel and Casino in Las Vegas, Nevada. Xenotech
markets its products directly to customers in North America, Europe, South
America and the Pacific Rim.
Sky-Tracker is a leading producer of computer and manually operated high
intensity searchlights. Sky-Tracker's products have been used at Walt Disney
World, Universal Studios, various Olympic Games and also have been used by
touring musical acts such as The Rolling Stones and Van Halen.
The Company believes that it can expand Xenotech's and Sky-Tracker's
revenues without incurring significant additional expense by utilizing the
Company's existing domestic and international dealer network to sell these
products. In addition, certain previously outsourced components for their
products are expected to be manufactured by the Company at its facility in
Omaha, Nebraska. The Company's Xenotech products are marketed under the
Xenotech-TM- and Britelights-Registered Trademark- trademarks, while Sky-Tracker
products are marketed under the Sky-Tracker-TM- trademark.
RESTAURANT PRODUCTS
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-Registered Trademark- and
Flavor-Pit-Registered Trademark- trademarks. The Company's commercial food
service equipment is supplemented by seasonings, marinades and barbecue sauces
manufactured to the Company's specifications by various food product
contractors, and by mesquite and hickory woods, paper serving products and point
of purchase displays.
The Company sells its restaurant product line through dealers, who sell
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 sells its product primarily through a network of
over 200 domestic and international dealers to major movie exhibitors, ride
simulation operators, and sports arenas and amusement park operators. The
Company also sells directly to end users. The Company employs seven sales and
marketing professionals, seven customer service personnel and six 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 has at
least 15 years of industry experience and has long-term relationships
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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.
For the years ended December 31, 1995, 1996 and 1997, sales to National
Cinema Supply represented approximately 10%, 16% and 20% of consolidated net
revenues, respectively.
BACKLOG
At December 31, 1996 and 1997, the Company had backlogs of $10.0 million and
$12.7 million, respectively. Such backlogs consisted of orders received with a
definite shipping date. The Company believes that its 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, except for those relating to
Xenotech and Sky-Tracker products, are conducted at its Omaha, Nebraska
manufacturing facility. The Company recently converted 10,000 square feet of its
Omaha, Nebraska manufacturing facility into usable manufacturing space and added
an additional 20,000 square feet of manufacturing space to such facility. The
Company's 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 certain
of its products and adjust the relative mix of 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.
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 the Company has not to date
experienced a significant difficulty in obtaining these components, no assurance
can be given that shortages will not arise in the future. The loss of any one or
more of such contract manufacturers could have a short-term adverse effect on
the Company until alternative manufacturing arrangements were secured. The
Company is not dependant 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
quantity and quality.
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 lighting 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.
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WARRANTY POLICY
The Company provides a warranty to end users of substantially all of its
products, which generally covers a period of 12 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 consolidated financial position and
consolidated results of operations.
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 a 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 markets for the Company's long-range follow spotlight, other
illumination and restaurant products are also highly competitive. The Company
competes in the illumination 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, other illumination
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-Registered Trademark-,"
"Optimax-Registered Trademark-," "Ballantyne-TM-," "Super
Trouper-Registered Trademark-," "Gladiator-TM-," "Roadie-TM-,"
"Britelights-Registered Trademark-," "Xenotech-TM-," "Sky-Tracker-TM-," "Flavor
Crisp-Registered Trademark-," and "Flavor Pit-Registered Trademark-." These
trademarks are protected by registration or common law in the U.S. The
"Century-Registered Trademark-"trademark is also protected by registration and
common law in the People's Republic of China, the United Kingdom and Australia.
The Company's registered trademarks expire between the years 1998 and 2008.
ISCO-Optic is a trademark of Isco-Optic GmbH. Sky-Tracker also owns a patent on
certain of its products which expire in 1998. The Company is currently in the
process of applying for an extension.
The Company believes that its success will not be dependent upon patent and
trademark 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.
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EMPLOYEES
As of March 16, 1998, the Company had a total of 298 employees of which 3
were executive officers, 24 were managerial or supervisory personnel, 149 were
manufacturing or production personnel, 21 were product engineering, design and
development personnel, and 101 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.
ENVIRONMENTAL MATTERS
The Company's operations involve the handling and use of substances that are
subject to Federal, state and local environmental laws and regulations that
impose limitations on the discharge of pollutants into the soil, air and water
and establish standards for their storage and disposal. A risk of environmental
liabilities is inherent in manufacturing activities. The Company believes that
it is in material compliance with environmental laws, but there can be no
assurance that future additional environmental compliance or remediation
obligations will not arise or that such operations could not have a material
adverse effect on the Company. The Company does not anticipate any material
capital expenditures for environmental matters during 1998.
ITEM 2. PROPERTIES
The Company's headquarters and main manufacturing facility are located at
4350 McKinley Street, Omaha, Nebraska, where it owns a building consisting of
approximately 160,000 square feet on approximately 12.0 acres. The premises are
used for offices and for the manufacture, assembly and distribution of its
products, other than those included within the Xenotech and Sky-Tracker product
line. The Company recently converted 10,000 square feet of such facility into
usable manufacturing space and added an additional 20,000 square feet of
manufacturing space to such facility. During 1997, the Company repaid the
Industrial Revenue Bonds that originally financed the facility. The Company's
manufacturing facility for Xenotech and Sky-Tracker products is located at 7348
Bellaire Avenue, North Hollywood, California, where it leases a building
consisting of approximately 24,500 square feet on approximately one acre. The
Company also leases a marketing, distribution and service facility in Hong Kong
and sales and rental offices in Orlando, Florida, Atlanta, Georgia and Seattle,
Washington.
10
<PAGE>
ITEM 3. 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 document,
there were no material pending legal proceedings to which the Company was a
party or to which any of its properties were subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal 1997, no issues were submitted to a vote
of stockholders.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS'
MATTERS
The Common Stock is listed and traded on the NYSE under the symbol "BTN".
Prior to December 5, 1997, the Company was listed on the American Stock Exchange
(the "AMEX"). The following table sets forth the high and low per share sale
price for the Common Stock as reported by the NYSE and 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)...... $ 4 5/8 $ 4 1/8
Fourth Quarter........................ 4 7/8 4
1996
First Quarter......................... 6 1/8 4 5/8
Second Quarter........................ 11 3/4 5 3/4
Third Quarter......................... 10 7/8 7 3/8
Fourth Quarter........................ 13 1/4 9 1/4
1997
First Quarter......................... 16 3/8 12 1/4
Second Quarter........................ 18 3/8 14
Third Quarter......................... 22 1/2 17
Fourth Quarter........................ 19 11/16 15
</TABLE>
On March 16, 1998 the last reported per share sale price for the Common
Stock was $16 7/8. At March 16, 1998, there were 126 holders of record of the
Common Stock and the Company had 9,040,896 shares of Common Stock, outstanding.
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 contains certain prohibitions on the
payment of cash dividends. 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.
ITEM 6. SELECTED FINANCIAL DATA
The following selected historical consolidated financial data of the Company
as of December 31, 1993, 1994, 1995, 1996 and 1997, and for the years then
ended, have been derived from the consolidated financial statements of the
Company. The information should be read in conjunction with the consolidated
financial
11
<PAGE>
statements and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
document.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSAND, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net revenues............................................... $ 22,631 $ 28,758 $ 38,441 $ 51,754 $ 70,205
Cost of revenues........................................... 15,864 20,127 27,451 36,397 49,480
--------- --------- --------- --------- ---------
Gross profit............................................. 6,767 8,631 10,990 15,357 20,725
Operating expenses......................................... 3,823 4,442 5,681 7,047 9,171
--------- --------- --------- --------- ---------
Income from operations................................... 2,944 4,189 5,309 8,310 11,554
Net interest (income) expense.............................. 406 239 277 364 (254)
--------- --------- --------- --------- ---------
Income before income taxes............................... 2,538 3,950 5,032 7,946 11,808
Income taxes............................................... 1,038 1,595 1,992 2,909 4,099
--------- --------- --------- --------- ---------
Net income............................................... $ 1,500 $ 2,355 $ 3,040 $ 5,037 $ 7,709
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income per share (1)
Basic.................................................... $ 0.30 $ 0.42 $ 0.68 $ 0.88
Diluted.................................................. $ 0.30 $ 0.42 $ 0.63 $ 0.82
Weighted average shares
Basic.................................................... 6,600 6,600 7,368 8,796
Diluted.................................................. 6,600 6,629 7,934 9,416
BALANCE SHEET DATA:
Working capital............................................ $ 4,773 $ 7,079 $ 8,625 $ 19,742 $ 27,403
Total assets............................................... 15,919 16,674 19,828 32,462 46,753
Total debt (2)............................................. 2,317 1,607 8,059 458 242
Total stockholders' equity (2)............................. 7,660 10,015 5,055 24,029 35,623
</TABLE>
- ------------------------
(1) See Note 2b, 2l and 11 to Notes to Consolidated Financial Statements.
(2) Total debt and total 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 a $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.
ITEM 7. 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
document. The following discussion and analysis contain certain forward-looking
statements.
The following table sets forth, for the periods indicated, the percentage of
net revenues represented by certain items reflected in the Company's
consolidated statements of income:
12
<PAGE>
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
Net revenues........................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues....................................................... 70.1 70.0 71.4 70.3 70.5
Gross profit........................................................... 29.9 30.0 28.6 29.7 29.5
Operating expenses..................................................... 16.9 15.4 14.8 13.6 13.1
Income from operations................................................. 13.0 14.6 13.8 16.1 16.4
Net income............................................................. 6.6 8.2 7.9 9.7 11.0
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
Net revenues for 1996 increased $13.3 million or 34.6% to $51.8 million from
$38.4 million for 1995. The following table shows comparative net revenues of
theatre products and restaurant products for the respective periods:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
<S> <C> <C>
1995 1996
------------- -------------
Theatre and lighting products.................................. $ 35,440,400 $ 49,387,700
Restaurant products............................................ 3,001,000 2,366,200
------------- -------------
Total net revenues............................................. $ 38,441,400 $ 51,753,900
------------- -------------
------------- -------------
</TABLE>
Net sales of theatre products increased $13.9 million or 39.4% for 1996 as
compared to 1995. Net sales of commercial motion picture projection equipment
increased $13.8 million or 41.1% and net sales of follow spotlights increased
$183,900 or 9.3%. The majority of the increase in net sales of commercial motion
picture projection equipment was attributable to increased sales of such
equipment to domestic customers. Net sales of replacement parts increased $1.2
million or 24.5% to $6.1 million for 1996 from $4.9 million in 1995.
Net sales of restaurant products decreased $634,800. This decrease was due
in part to the loss of two customer accounts.
Gross profit as a percentage of net revenues increased to 29.7% in 1996 from
28.6% in 1995. The increase was attributable to improved efficiencies realized
by purchasing and manufacturing due to an increase in production volume.
Operating expenses increased $1.4 million or 24.1% for 1996 as compared to
1995. However, as a percentage of net revenues, operating expenses decreased to
13.6% in 1996 from 14.8% in 1995, as a result of a greater increase in net
revenues without a proportional increase in selling costs. In terms of the
dollar increase in such expenses, 1996 included amounts paid under the Company's
profit sharing plan which reflects increased operating income and additional
expenses incurred for a full year operating as a public company. Also included
in these amounts was a management fee paid by the Company to Canrad, Inc., an
indirect, wholly-owned subsidiary of ARC International, Inc. of $300,000 for
1996 and 1995.
Interest expense amounted to $363,500 for 1996 as compared to $277,300 for
1995. Included in interest expense was interest incurred from the Norwest
Facility.
The effective tax rate was 36.6% for 1996 as compared to the statutory rate
of 34.0%. The difference relates to the effects of state income taxes and the
non-deductibility of certain intangible expenses, principally goodwill.
13
<PAGE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
Net revenues for 1997 increased 35.7% to $70.2 million from $51.8 million
for 1996. The following table sets forth comparative consolidated net revenues
of theatre and lighting and restaurant products for the respective years:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
<S> <C> <C>
1996 1997
------------- -------------
Theatre and lighting products.................................. $ 49,387,700 $ 67,666,800
Restaurant products............................................ 2,366,200 2,538,300
------------- -------------
Total net revenues............................................. $ 51,753,900 $ 70,205,100
------------- -------------
------------- -------------
</TABLE>
The increase for 1997 reflects higher revenues from the sale of theatre
products and the sale and rental of lighting products. The increase in theatre
products reflects increased sales of commercial motion picture projector
equipment which rose $11.8 million or 31.8%. This increase was mainly
attributable to increased sales of such equipment to domestic customers,
however, sales to foreign customers, for all products, rose $4.4 million or
31.3% to $18.5 million in 1997 from $14.1 million in 1996. Also contributing to
the increase in theatre sales were higher sales of ISCO-Optic lenses and
replacement parts. Sales of ISCO-Optic lenses increased $1.9 million or 44.6% to
$6.4 million from $4.5 million in 1996, while sales of replacement parts
increased $1.2 million or 19.6% to $7.3 million from $6.1 million in 1996. These
increases reflect the continued demand for theatre products and a higher
installed base of motion picture projectors. Net revenues from lighting products
increased $3.2 million or 148.5% from $2.2 million in 1996 to $5.4 million in
1997. The increase primarily reflects the acquisition of Xenotech in the second
quarter of 1997 and the acquisition of Sky-Tracker in the third quarter of 1997.
The remaining increase in lighting products was attributable to an increase in
sales of follow spotlights which increased approximately $231,000 over 1996.
Net sales of restaurant products increased by $258,394 or 13.9%, mainly due
to an increase in the sales of pressure fryers and accessories.
Gross profit as a percentage of net revenues remained relatively constant
from year to year. The increase attributable to improved efficiencies was offset
by greater console sales, which carry a lower margin.
Operating expenses increased $2.1 million or 30.1% for 1997 as compared to
1996. However, as a percentage of net revenues, such expenses decreased to 13.1%
in 1997 from 13.6% in 1996 as a result of an increase in net revenues from
theatre products without a proportional increase in selling and general and
administrative expenses.
Interest expense decreased to $31,902 from $473,627 in 1996 reflecting the
repayment of the Company's Industrial Revenue Bonds in March 1997 and the
absence of borrowings under the Company's line of credit. Interest income rose
$175,813 to $285,932 for 1997 compared to $110,119 in 1996. The increase was
attributed to more excess cash during 1997 compared to 1996 which was a direct
result of more cash flow from operations and from proceeds from the equity
offering in August of 1996.
The Company's effective tax rate for 1997 was 34.7% compared to 36.6 % for
1996. The decline from 1996 reflects a lower state income tax related to the
state of Nebraska's "Throwback" law in which only a portion of the Company's
sales are subject to Nebraska taxes. The difference between the Company's
effective tax rate and the Federal statutory rate of 34.0% reflects the
non-deductibility of certain intangible assets, principally goodwill and the
impact of state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had $241,761 of long-term debt. The debt
relates entirely to non-compete agreements set up to be paid in installments.
14
<PAGE>
During August 1997, the Company amended its line of credit with Norwest Bank
N.A. (the "Norwest Facility"). The Norwest Facility was initially for $10
million but was reduced by $500,000 on the first anniversary date and then was
to be reduced thereafter each year by either $500,000 or $1,000,000 through the
fourth anniversary date. The amended agreement keeps the line of credit at $10
million until maturity. 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 (8.5% at December 31, 1997). Amounts
repaid under the Norwest Facility will be available for reborrowing. All of the
Company's assets secure the Norwest Facility. The Norwest Facility agreement
contains certain restrictive covenants which include, among other things, a
prohibition on the payment of cash dividends and requirements relating to
current debt, current debt service coverage and total debt to tangible net worth
ratios and tangible net worth.
Historically, the Company has funded its working capital requirements
through cash flow generated by its operations. Net cash provided by operating
activities for the years ended December 31, 1995, 1996 and
1997 was $1.9 million, $0.9 million and $5.3 million, respectively. The increase
in net cash provided by operating activities was due primarily to increases in
net income and accounts payable offset by increases in accounts receivables and
inventories.
The Company anticipates that internally generated funds and borrowings under
the Norwest Facility will be sufficient to meet its working capital needs. The
Company expects that it will have capital expenditures of $1.2 million in 1998.
Net cash used in investing activities was $4.7 million for 1997 compared to
$1.0 million in 1996. Investing activities for 1997 reflect the acquisition of
Xenotech and Sky-Tracker in the second and third quarters of 1997, respectively.
The remaining increase was due primarily to the expansion of the Company's main
plant facility during the spring of 1997 which was designed to increase plant
capacity.
Net cash provided by financing activities was $1.1 million for 1997 compared
to $5.9 million in 1996. The decrease was due primarily to the August 1, 1996
equity offering in which the Company received $13.7 million. The decrease was
offset to a degree since the Company paid off the majority of its long-term debt
in 1996, as shown by repayments of long-term debt of $7.9 million in 1996
compared to approximately $836,000 in 1997. In addition, the Company received
$1.8 million from the exercise of certain stock options during 1997.
The Company does not engage in any currency hedging activities in connection
with its foreign operations and sales. To date, all of the Company's
international sales rentals have been denominated in U.S. dollars, exclusive of
Westrex sales, which are denominated in Hong Kong dollars.
SEASONALITY
Generally, the Company's business exhibits a moderate level of seasonality
as sales of theatre products typically increase during the third 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 revenues or
profitability. Historically, the Company has been able to offset any
inflationary effects by either increasing prices or improving cost efficiencies.
YEAR 2000
During 1997, the Company developed a plan to deal with the Year 2000 problem
and began converting its computer systems to be Year 2000 compliant. The plan
provides for the conversion efforts to
15
<PAGE>
be completed by the end of 1999. The Year 2000 problem is the result of computer
programs being written using two digits rather than four to define the
applicable year. The total cost of the project is being funded through operating
cash flows. The Company is expensing all costs associated with these system
changes as the costs are incurred. As of December 31, 1997, an immaterial amount
has been expensed and the total estimated costs of the Year 2000 problem is
expected to be immaterial.
RECENT ACCOUNTING PRONOUNCEMENTS
In June of 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" which establishes standards for the reporting and display of
comprehensive income and its components. The Statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in the financial statements that is displayed
with the same prominence as other financial statements. This Statement is
effective for fiscal periods beginning after December 15, 1997. The Company
believes that the adoption of the Statement will not have a significant effect
on its financial statements.
Also in June of 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information" which establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires these enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. This
Statement is effective for financial statements for periods beginning after
December 15, 1997. In the initial year of application, comparative information
for earlier years is to be restated. The Company does not expect its disclosure
requirements to materially change.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
16
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
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.
In connection with our audits of the consolidated financial statements, we have
also audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule 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, 1996 and 1997, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion the related 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.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Omaha, Nebraska
January 23, 1998
17
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Consolidated Financial Statements PAGE
-----
<S> <C>
Consolidated Balance Sheets--
December 31, 1996 and 1997.......................................................... 19
Consolidated Statements of Income--Years ended
December 31, 1995, 1996 and 1997.................................................... 20
Consolidated Statements of Stockholders' Equity--Years ended
December 31, 1995, 1996 and 1997.................................................... 21
Consolidated Statements of Cash Flows--Years ended
December 31, 1995, 1996 and 1997.................................................... 22
Notes to Consolidated Financial Statements
Years ended December 31, 1995, 1996 and 1997........................................ 23
Financial Statement Schedule Supporting
Consolidated Financial Statements
Schedule--Valuation and Qualifying Accounts......................................... 35
All other schedules have been omitted as the required information is inapplicable or
the information is included in the consolidated financial statements or related
notes.
</TABLE>
18
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 6,042,593 $ 7,701,507
Accounts receivable (less allowance for doubtful accounts of $143,000 in 1996 and
$215,823 in 1997............................................................... 9,090,616 11,728,231
Inventories...................................................................... 11,901,123 17,445,632
Recoverable income taxes......................................................... -- 490,766
Deferred income taxes............................................................ 501,025 626,133
Other current assets............................................................. 103,702 118,028
------------- -------------
Total current assets........................................................... 27,639,059 38,110,297
Plant and equipment, net........................................................... 3,863,809 7,399,990
Other assets, net.................................................................. 959,352 1,242,211
------------- -------------
Total assets................................................................... $ 32,462,220 $ 46,752,498
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt........................................... $ 308,107 $ 70,000
Accounts payable................................................................. 5,759,722 8,351,392
Accrued expenses................................................................. 1,749,023 2,286,001
Income taxes payable............................................................. 79,754 --
------------- -------------
Total current liabilities...................................................... 7,896,606 10,707,393
Deferred income taxes.............................................................. 386,472 250,315
Long-term debt, excluding current installments..................................... 150,195 171,761
Stockholders' equity:
Preferred stock, par value $.01 per share; authorized 1,000,000 shares, none
outstanding.................................................................... -- --
Common stock, par value $.01 per share; authorized 25,000,000 shares; issued and
outstanding 8,569,769 shares in 1996 and 9,032,396 shares in 1997.............. 85,698 90,324
Additional paid-in capital....................................................... 18,906,556 22,786,673
Retained earnings................................................................ 5,036,693 12,746,032
------------- -------------
Total stockholders' equity..................................................... 24,028,947 35,623,029
------------- -------------
Total liabilities and stockholders' equity..................................... $ 32,462,220 $ 46,752,498
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net revenues........................................................ $ 38,441,396 $ 51,753,864 $ 70,205,111
Cost of revenues.................................................... 27,450,688 36,396,527 49,480,113
------------- ------------- -------------
Gross profit.................................................... 10,990,708 15,357,337 20,724,998
Operating expenses:
Selling........................................................... 2,401,337 2,711,744 3,350,758
General and administrative........................................ 3,279,738 4,335,709 5,819,876
------------- ------------- -------------
Total operating expenses........................................ 5,681,075 7,047,453 9,170,634
------------- ------------- -------------
Income from operations.......................................... 5,309,633 8,309,884 11,554,364
Interest income..................................................... -- 110,119 285,932
Interest expense.................................................... (277,323) (473,627) (31,902)
------------- ------------- -------------
Net interest income (expense)................................... (277,323) (363,508) 254,030
------------- ------------- -------------
Income before income taxes...................................... 5,032,310 7,946,376 11,808,394
Income taxes........................................................ 1,991,985 2,909,683 4,099,055
------------- ------------- -------------
Net income...................................................... $ 3,040,325 $ 5,036,693 $ 7,709,339
------------- ------------- -------------
Net income per share:
Basic............................................................. $ 0.42 $ 0.68 $ 0.88
------------- ------------- -------------
------------- ------------- -------------
Diluted........................................................... $ 0.42 $ 0.63 $ 0.82
------------- ------------- -------------
------------- ------------- -------------
Weighted average shares outstanding:
Basic............................................................. 6,600,000 7,368,312 8,796,384
------------- ------------- -------------
------------- ------------- -------------
Diluted........................................................... 6,629,008 7,933,538 9,416,142
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
PREFERRED COMMON ADDITIONAL RETAINED
STOCK STOCK PAID-IN-CAPITAL EARNINGS TOTAL
----------- --------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994.................. -- $ 60,000 $ 3,602,714 $ 6,352,176 $ 10,014,890
Net income.................................... -- -- -- 3,040,325 3,040,325
Cash dividend paid............................ -- -- -- ( 8,000,000) ( 8,000,000)
Issuance of 10% stock distribution declared
January 23, 1996, payable March 8, 1996..... -- 6,000 1,386,501 ( 1,392,501) --
----- --------- ------------- ------------- -------------
Balance at December 31, 1995.................. -- 66,000 4,989,215 -- 5,055,215
Net income.................................... -- -- -- 5,036,693 5,036,693
Issuance of 1,897,500 shares of common stock
August 1, 1996, net of offering expenses.... -- 18,975 13,631,812 -- 13,650,787
Issuance of 57,750 shares of common stock upon
exercise of stock options................... -- 578 226,922 -- 227,500
Issuance of 14,543 shares of common stock
under the employees stock purchase plan..... -- 145 58,607 -- 58,752
----- --------- ------------- ------------- -------------
Balance at December 31, 1996.................. -- 85,698 18,906,556 5,036,693 24,028,947
Net Income.................................... -- -- -- 7,709,339 7,709,339
Issuance of 456,050 shares of common stock
upon exercise of stock options -- 4,560 1,840,322 -- 1,844,882
Issuance of 6,577 shares of common stock under
the employees stock purchase plan -- 66 60,705 -- 60,771
Income tax benefit related to stock option
plans....................................... -- -- 1,979,090 -- 1,979,090
----- --------- ------------- ------------- -------------
Balance at December 31, 1997.................. -- $ 90,324 $22,786,673 $ 12,746,032 $ 35,623,029
----- --------- ------------- ------------- -------------
----- --------- ------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income......................................................... $ 3,040,325 $ 5,036,693 $ 7,709,339
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation of plant and equipment.............................. 371,818 470,040 783,338
Other amortization............................................... 139,919 137,080 218,434
Deferred income taxes............................................ (172,189) 14,901 (261,265)
Changes in assets and liabilities, net of assets acquired:
Accounts receivables............................................. (1,720,755) (3,377,475) (2,210,958)
Inventories...................................................... (1,443,621) (2,594,966) (4,676,096)
Other current assets............................................. 2,499 (51,829) (2,326)
Accounts payable................................................. 1,210,988 2,083,256 2,069,566
Accrued expenses................................................. (439,051) 164,944 294,212
Income taxes payable............................................. 882,015 (986,778) 1,352,094
Other assets..................................................... (7,039) 5,882 (5,420)
------------- ------------- -------------
Net cash provided by operating activities........................ 1,864,909 901,748 5,270,918
------------- ------------- -------------
Cash flows from investing activities:
Purchase of net assets -- -- (1,150,000)
Capital expenditures............................................... (244,108) (1,016,930) (3,531,913)
------------- ------------- -------------
Net cash used in investing activities............................ (244,108) (1,016,930) (4,681,913)
------------- ------------- -------------
Cash flows from financing activities:
Repayments of long-term debt and revolving credit facility......... (1,676,635) (7,983,436) (835,744)
Cash dividend paid................................................. (8,000,000) -- --
Proceeds from revolving credit facility............................ 8,000,000 -- --
Net proceeds from equity offering.................................. -- 13,650,787 --
Proceeds from employee stock purchase plan......................... -- 58,752 60,771
Proceeds from exercise of stock options............................ -- 227,500 1,844,882
------------- ------------- -------------
Net cash provided by (used in) financing activities.............. (1,676,635) 5,953,603 1,069,909
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents............. (55,834) 5,838,421 1,658,914
Cash and cash equivalents at beginning of year....................... 260,006 204,172 6,042,593
------------- ------------- -------------
Cash and cash equivalents at end of year............................. $ 204,172 $ 6,042,593 $ 7,701,507
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
1. COMPANY
Ballantyne of Omaha, Inc., a Delaware corporation ("Ballantyne" or the
"Company"), and its wholly-owned subsidiaries, Strong Westrex, Inc., Ballantyne
Fabricators, Inc., Xenotech Rental Corp. and Flavor Crisp of America, Inc.,
design, develop, manufacture and distribute commercial motion picture equipment,
lighting systems 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. Approximately 22.8% of the Company's common stock is owned by Canrad of
Delaware, Inc. ("Canrad") 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.
B. STOCK DISTRIBUTION AND SPLIT
The Company's Board of Directors declared a 3-for-2 stock split of the
Company's common stock on January 29, 1997. The stock split was in the form of a
50% common stock dividend payable March 5, 1997 to shareholders of record on
February 10, 1997. As a result of the stock split, Ballantyne's outstanding
shares of common stock increased to approximately 8,569,769 at December 31,
1996. Per share data have been restated to reflect this stock split as of the
earliest period presented. The Company's Board of Directors declared a 10% stock
distribution on January 23, 1996, which was issued on March 8, 1996, to
shareholders of record on February 9, 1996. This stock distribution resulted in
the issuance of 600,000 shares of common stock. Per share data have been
restated to reflect these stock distributions as of the earliest period
presented. The stock distribution was 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.
C. 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.
D. GOODWILL AND OTHER INTANGIBLES
The Company capitalizes and includes in other assets the excess of cost over
the fair value of assets of businesses acquired ("Goodwill"), the present value
of non-compete agreements and the costs of acquiring patents on its products.
These assets are stated at cost less accumulated amortization and are being
amortized on a straight-line basis over the expected periods to be benefited, 3
to 25 years. Accumulated amortization as of December 31, 1996 and 1997 amounted
to $1,052,542 and $1,254,435, respectively. The Company assesses and would
recognize any deficiency of the recoverability of Goodwill by determining
23
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
whether the amortization of the asset balance over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
operations.
E. PLANT AND EQUIPMENT
Significant expenditures for the replacement or expansion of plant and
equipment are capitalized. Depreciation of plant and equipment is provided over
the estimated useful lives of the respective assets using the straight-line
method.
F. INCOME TAXES
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.
G. REVENUE RECOGNITION
The Company recognizes revenue from product sales upon shipment to the
customer. Revenues related to equipment rental and services are recognized as
earned over the terms of the contracts.
H. RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations in the period
incurred. Such costs charged to operations amounted to approximately $363,000,
$485,000 and $647,000 for the years ended December 31, 1995, 1996 and 1997,
respectively.
I. 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 instruments could be exchanged
into a current transaction between willing parties. Cash and cash equivalents,
accounts receivable, debt and accounts payable reported in the consolidated
balance sheets equal or approximate fair values.
J. 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.
24
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
K. CASH AND CASH EQUIVALENTS
All highly liquid financial instruments with maturities of three months or
less from the date of purchase are classified as cash equivalents in the
consolidated balance sheets and statements of cash flows.
L. EARNINGS PER COMMON SHARE
Earnings per share of common stock have been computed on the basis of the
weighted average number of shares of common stock outstanding after giving
effect to equivalent common shares from dilutive stock options. Net income per
share for the year ended December 31, 1995 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 1995, with no repayment made during 1995. In
February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
128 "Earnings Per Share" which revised the calculation and presentation
provisions of Accounting Principles Board ("APB") Opinion 25 and related
interpretations. SFAS No. 128, which was effective for periods ending after
December 15, 1997, requires companies to present both currently and
retroactively, basic earning per share and diluted earnings per share instead of
primary and fully-diluted earnings per share which was previously required under
APB Opinion 25. Accordingly, earnings per share for all periods presented have
been restated to apply the provisions of SFAS No. 128. Diluted earnings per
share includes an increase in the weighted average shares outstanding for
dilutive stock options of 29,008, 565,226 and 619,758 for 1995, 1996 and 1997,
respectively. Had the Company reported earnings per share under the previous APB
Opinion 25, primary earnings per share for the years ended December 31, 1995,
1996 and 1997, would have been $0.42, $0.62 and $0.82, respectively. For the
years ended December 31, 1995, 1996 and 1997, fully diluted earnings per share
was not materially different from primary earnings per share. Share information
and per share prices have been adjusted for the stock distribution and stock
split.
M. IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of", on
January 1, 1996. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
N. RECLASSIFICATIONS
Certain of the 1995 and 1996 amounts have been reclassified to conform with
the 1997 presentation.
25
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
3. EQUITY OFFERINGS
On June 30, 1997, the Company completed a public offering pursuant to a
Registration Statement on Form S-3 (the "S-3 Offering"). Pursuant to the S-3
Offering, Canrad sold 1,932,860 shares of Ballantyne common stock to the public
at the price of $16.875 per share. In addition, Canrad granted the Underwriters
an option to purchase an aggregate of up to 333,729 additional shares of common
stock at $16.875 per share less underwriting discounts and commissions to cover
over-allotments, if any. The underwriters purchased all 333,729 shares. While
the Company did not offer any shares or pay any expenses incurred in the S-3
Offering, the Company did receive approximately $1,146,000 from the exercise of
a warrant and certain stock options, which in aggregate totaled 280,750 shares
and were sold in connection with the S-3 Offering.
On August 1, 1996, the Company completed an offering of its shares of
capital stock pursuant to a Registration Statement on Form S-1 (the "Offering").
Pursuant to the Offering, the Company sold 1,100,000 shares of common stock to
the public at the price of $12.125 per share. In addition, the Company granted
the Underwriters an option, exercisable until August 31, 1996, to purchase an
aggregate of up to 165,000 additional shares of common stock at $12.125 per
share less underwriting discounts and commissions, to cover over-allotments, if
any. The Underwriters purchased all 165,000 shares on August 16, 1996. The net
proceeds to the Company from the Offering were $13,650,787.
On September 6, 1995, the Company completed the initial public offering of
its shares of common stock pursuant to its Registration Statement on Form S-1
(the "IPO"). Pursuant to the IPO, Canrad, the holder of record of all of the
outstanding shares of capital stock of Ballantyne, sold 1,200,000 shares of
Ballantyne common stock to the public at an IPO price of $ 6.50. In connection
with the IPO, on June 30, 1995, the Company effected a 400,000-to-1 stock
exchange. 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. In addition, the Company is authorized to issue up to 1,000,000 shares
of preferred stock, $.01 par value.
On October 2, 1995, an additional 180,000 shares of Ballantyne were sold by
Canrad at the IPO price of $6.50.
Share information and per share prices have not been adjusted for the stock
distribution or stock split for the above offerings.
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C>
1996 1997
------------- -------------
Raw materials and supplies..................................... $ 8,888,123 $ 13,857,783
Work in process................................................ 2,184,945 2,451,078
Finished goods................................................. 828,055 1,136,771
------------- -------------
$ 11,901,123 $ 17,445,632
------------- -------------
------------- -------------
</TABLE>
26
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
5. PLANT AND EQUIPMENT
Plant and equipment include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C>
1996 1997
------------- -------------
Land........................................................... $ 313,500 $ 313,500
Buildings and improvements..................................... 1,958,772 3,344,292
Machinery and equipment........................................ 4,230,702 7,139,044
------------- -------------
6,502,974 10,796,836
Less accumulated depreciation.................................. 2,639,165 3,396,846
------------- -------------
Net plant and equipment.................................. $ 3,863,809 $ 7,399,990
------------- -------------
------------- -------------
</TABLE>
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C>
1996 1997
------------- -------------
Industrial Development Revenue Bonds.
Paid in full during 1997..................................... $ 361,193 $ --
Non-compete contracts, payable in annual installments of
$70,000 including imputed interest of 8.5%, due through
September 30, 1999 and $50,000 due through April 1, 2002..... -- 241,761
Note payable to Optical Radiation Corporation.
Paid in full during 1997..................................... 97,109 --
------------- -------------
Total long-term debt..................................... 458,302 241,761
Less current installments of long-term debt.................... 308,107 70,000
------------- -------------
Long-term debt, excluding current installments........... $ 150,195 $ 171,761
------------- -------------
------------- -------------
</TABLE>
27
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
6. LONG-TERM DEBT (CONTINUED)
Annual maturities of long-term debt at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---------------------------------------------------------------------------------- ----------
<S> <C>
1998.............................................................................. $ 70,000
1999.............................................................................. 70,000
2000.............................................................................. 50,000
2001.............................................................................. 50,000
2002.............................................................................. 50,000
----------
290,000
Less amounts representing imputed interest........................................ (48,239)
----------
Present value of non-compete contracts............................................ $ 241,761
----------
----------
</TABLE>
As of December 31, 1997, the Company has a $10 million line of credit with
Norwest Bank, N.A. (the "Norwest Facility"). There were no borrowings on the
line of credit as of December 31, 1996 and 1997. 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 (8.5% at
December 31, 1997). All of the Company's assets secure the Norwest Facility. The
Norwest Facility agreement contains certain restrictive covenants which include,
among other things, a prohibition on the payment of cash dividends and
requirements relating to current debt, current debt service coverage and total
debt to tangible net worth ratios and tangible net worth. The Company was in
compliance with such covenants at December 31, 1997.
7. INCOME TAXES
The provisions for income taxes consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
<S> <C> <C> <C>
1995 1996 1997
------------ ------------ ------------
Current:
Federal............................................................... $ 1,846,255 $ 2,623,375 $ 4,124,265
State................................................................. 292,639 267,400 237,000
Foreign............................................................... 25,280 4,007 (945)
Deferred--Federal....................................................... (172,189) 14,901 (261,265)
------------ ------------ ------------
$ 1,991,985 $ 2,909,683 $ 4,099,055
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
28
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
7. INCOME TAXES (CONTINUED)
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:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
<S> <C> <C> <C>
1995 1996 1997
------------ ------------ ------------
Computed "expected" tax expense......................................... $ 1,710,985 $ 2,701,768 $ 4,014,854
State income taxes, net of Federal benefit.............................. 193,142 176,484 156,420
Non-deductible amortization............................................. 16,356 16,356 16,356
Other................................................................... 71,502 15,075 (88,575)
------------ ------------ ------------
$ 1,991,985 $ 2,909,683 $ 4,099,055
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Deferred tax assets and the deferred tax liability were comprised of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1996 1997
---------- ----------
Deferred tax assets:
Inventory reserves...................................................................... $ 299,025 $ 441,929
Accounts receivable reserve............................................................. 48,620 73,380
Other................................................................................... 153,380 174,533
---------- ----------
Total deferred assets................................................................. 501,025 689,842
Deferred tax liability:
Depreciation and amortization........................................................... 386,472 314,024
---------- ----------
Net deferred tax asset................................................................ $ 114,553 $ 375,818
---------- ----------
---------- ----------
</TABLE>
There was no valuation allowance for deferred tax assets as of December 31,
1996 or 1997. 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, 1997.
8. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures to the consolidated statements of cash flows are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
<S> <C> <C> <C>
1995 1996 1997
------------ ------------ ------------
Interest paid....................................... $ 225,773 $ 353,039 $ 32,126
------------ ------------ ------------
Income taxes paid................................... $ 1,282,159 $ 3,878,500 $ 3,072,840
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Other noncash activities in 1995 included approximately $129,400 of
additional capital lease obligations in exchange for equipment. Other noncash
activities in 1996 included approximately $382,300 of additional capital lease
obligations for equipment. Other noncash activities in 1997 included recording
the present value of non-compete contracts for approximately $248,000 and an
income tax benefit relating to the Company's stock option plans for
approximately $1,979,090.
29
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
9. RELATED PARTY TRANSACTIONS
Amounts charged to operations of Ballantyne by Canrad were management fees
of $300,000, $300,000 and $225,000 for the years ended December 31, 1995, 1996
and 1997, respectively and $1,225,211 for Federal and state income taxes for the
year ended December 31, 1995. Included in accrued expenses are payables to
Canrad of $93,140 and $110,524 as of December 31, 1996 and 1997.
One member of the Board of Directors serves as General Counsel for the
Company. Fees paid to the Board Member's firm in 1995, 1996 and 1997 were not
significant.
10. ACQUISITIONS
Effective April 1, 1997, the Company purchased certain net assets, primarily
accounts receivable, inventories and fixed assets of Xenotech, Inc. ("Xenotech")
for cash of $750,000. The Company also assumed liabilities of $1,175,897. The
purchase price has been assigned to the assets acquired and liabilities assumed
based upon the fair market value of such assets and liabilities. No Goodwill was
recorded in connection with the acquisition. Xenotech produces, sells and rents
a complete line of stationary searchlights and computer operated lighting
systems for motion picture production, television, live entertainment, theme
parks and architectural industries. In addition, the Company entered into a
5-year non-compete agreement with Xenotech's founder and sole proprietor. The
agreement is for a total of $250,000 payable by the Company in equal
installments of $50,000. The present value of the non-compete payments has been
included in other assets and long-term debt in the accompanying consolidated
balance sheets.
During September of 1997, the Company acquired certain assets of Sky-Tracker
of America, Inc. ("Sky-Tracker") for cash of approximately $400,000. In
connection with the purchase, the Company recorded approximately $167,000 of
Goodwill which will be amortized over 5 years. In addition, the Company entered
into a 3 year non-compete agreement with the owner of Sky-Tracker. The agreement
is for a total of $60,000 payable in equal installments and is included in other
assets and long-term debt in the accompanying consolidated balance sheets.
These acquisitions have been accounted for as purchases and, accordingly,
the Company's consolidated financial statements reflect the operations of the
acquired companies subsequent to the effective date of the acquisitions.
The allocations of these purchase prices are as follows:
<TABLE>
<S> <C>
Accounts receivable............................................. $ 426,657
Inventories..................................................... 868,413
Other current assets............................................ 12,000
Plant and equipment............................................. 787,606
Other assets.................................................... 479,332
Accounts payable................................................ (522,104)
Accrued expenses................................................ (242,766)
Income taxes payable............................................ (56,476)
Long-term debt.................................................. (602,662)
---------
Cash paid....................................................... $1,150,000
---------
---------
</TABLE>
If the above business combinations had occurred on January 1, 1995, the pro
forma operations of the Company would not have been materially different than
that reported in the accompanying consolidated statements of income.
30
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMON 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 466,000 shares of Ballantyne common stock have been reserved for
issuance pursuant to these Plans at December 31, 1997. 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. The tax effect of income tax deductions related to compensation
expense under these and other plans are credited to additional paid-in capital.
Information as to shares subject to stock option plans is as follows:
<TABLE>
<CAPTION>
NUMBER EXERCISE PRICE WEIGHTED AVERAGE
OF OPTIONS PER OPTION EXERCISE PRICE
---------- -------------- -----------------
<S> <C> <C> <C>
Options outstanding at December 31, 1994........................... -- -- --
Granted............................................................ 750,750 $ 3.94-4.39 $ 4.01
---------- -------------- ------
Options outstanding at December 31, 1995........................... 750,750 $ 3.94-4.39 $ 4.01
Granted............................................................ 24,750 4.85 4.85
Exercised.......................................................... (57,750) $ 3.94 $ 3.94
---------- -------------- ------
Options outstanding at December 31, 1996........................... 717,750 3.94-4.85 4.04
Granted............................................................ 126,500 12.75-18.00 16.31
Exercised.......................................................... (348,050) 3.94-4.85 4.05
---------- -------------- ------
Options outstanding at December 31, 1997........................... 496,200 3.94-18.00 6.17
---------- -------------- ------
---------- -------------- ------
Exercisable options at December 31, 1997........................... 496,200 $ 3.94-18.00 $ 6.17
---------- -------------- ------
---------- -------------- ------
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AT DECEMBER 31,
1997 EXERCISABLE AT DECEMBER 31, 1997
--------------------------------------- -------------------------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
REMAINING EXERCISE REMAINING EXERCISE
RANGE OF OPTION NUMBERS CONTRACTUAL PRICE PER NUMBER OF CONTRACTUAL PRICE PER
EXERCISE PRICE OF OPTIONS LIFE OPTION OPTIONS LIFE OPTION
- -------------------------------------------- ----------- ------------- ----------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
$3.94 to 4.85............................... 369,700 7.02 4.00 369,700 7.02 4.00
$12.75 to 18.00............................. 126,500 9.46 16.31 126,500 9.46 16.31
----------- --- ----- --------- --- -----
$3.94 to 18.00.............................. 496,200 7.64 7.14 496,200 7.64 7.14
----------- --- ----- --------- --- -----
----------- --- ----- --------- --- -----
</TABLE>
31
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMON STOCK (CONTINUED)
The Company has 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 1,000 shares of
Ballantyne common stock in any offering period. At December 31, 1997, 133,728
shares of Ballantyne common stock have been reserved pursuant to the Employee
Stock Purchase Plan.
B. WARRANTS
The Company has granted Merita Bank, Ltd., the primary lending bank of
Canrad, a warrant to purchase 323,400 shares of Ballantyne common stock. During
1997, Merita Bank, Ltd. exercised 108,000 shares under its warrant. The
remaining shares are fully exercisable at $3.94 per share at December 31, 1997.
The number of shares under warrant and the per share price have been adjusted
for the effect of the 10% stock distribution issued on March 8, 1996 and the
3-for-2 stock split issued March 5, 1997.
C. ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans and the exercise price of all options issued have
equaled the market value of the stock on the date of grant. Accordingly, no
compensation cost has been recognized for any of the aforementioned stock
compensation plans. Had compensation cost for the Company's stock compensation
plans been determined consistent with FASB Statement No. 123, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net income
As reported....................................... $ 3,040,325 $ 5,036,693 $ 7,709,339
Pro forma......................................... 2,450,563 3,843,285 7,136,263
Basic earnings per share
As reported....................................... $ 0.42 $ 0.68 $ 0.88
Pro forma......................................... $ 0.33 $ 0.52 $ 0.81
Diluted earnings per share
As reported....................................... $ 0.42 $ 0.63 $ 0.82
Pro forma......................................... $ 0.33 $ 0.48 $ 0.76
</TABLE>
32
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMON STOCK (CONTINUED)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model made with the following weighted average
assumptions:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Risk-free interest rate............................. 6.15% 6.15% 6.15%
Dividend yield...................................... 0% 0% 0%
Expected volatility................................. 75% 75% 75.7%
Expected life in years
Incentive and non-incentive stock option plans.... 10 10 10
Other stock option plans.......................... 3-5 3-5 3-5
</TABLE>
All per share and number of share information have been adjusted for the 10%
stock distribution as well as the 3-for-2 stock split issued on March 5, 1997.
Per share and number of share information have also been adjusted for the
implementation of SFAS No. 128.
D. AMENDMENTS
On June 10, 1997, the stockholders of the Company approved an amendment to
the Company's Certificate of Incorporation to increase the authorized common
stock from 10,000,000 shares to 25,000,000 shares.
The stockholders of the Company also approved an amendment to the 1995 Stock
Option Plan to increase the number of shares that may be issued under the plan
from 660,000 shares to 1,060,000 shares.
12. COMMITMENTS, CONTINGENCIES, CONCENTRATIONS AND LEASES
A. 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 $538,247, $913,676
and $1,127,795 for 1995, 1996 and 1997, respectively. The amounts payable of
$913,676 and $1,125,256 at December 31, 1996 and 1997, respectively, 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, $24,000 and $0 for the years ended December 31, 1995, 1996 and 1997,
respectively. During 1997, this person retired and received $45,000 in payments.
B. 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
33
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. COMMITMENTS, CONTINGENCIES, CONCENTRATIONS AND LEASES (CONTINUED)
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,
1995, 1996 and 1997 amounted to $91,984, $99,826 and $150,577, respectively.
C. CONCENTRATIONS
For the years ended December 31, 1995, 1996 and 1997 sales to one customer
represented approximately ten percent (10%), sixteen percent (16%) and twenty
percent (20%) of consolidated net revenues, respectively. The balance in
accounts receivable owed by this customer was $1,062,100 at December 31, 1996
and $1,912,551 at December 31, 1997. 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.
Sales to foreign customers were approximately $11,300,000, $14,100,000 and
$18,500,000 for 1995, 1996 and 1997, respectively. These sales were principally
to customers in Mexico, Canada, Europe and Asia. To minimize credit risk, the
Company generally requires sales to foreign customers be guaranteed by letter of
credit or are shipped C.O.D.
D. LEASES
The Company leases manufacturing facilities and office space from the former
owner of Xenotech, now a Company employee. The lease expires on March 31, 2002
with the Company having the option to renew the lease for one additional
five-year term. The Company expects to renew or replace this lease in the
ordinary course of business. Future minimum lease payments for the five years
subsequent to December 31, 1997 are as follows: 1998--$123,480; 1999--$123,480;
2000--$123,480; 2001--$123,480 and 2002--$30,870.
34
<PAGE>
SCHEDULE
BALLANTYNE OF OMAHA, INC.
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO AMOUNTS BALANCE
BEGINNING COSTS AND WRITTEN AT END
OF YEAR EXPENSES OFF (1) OF YEAR
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1997 -
Allowance for doubtful accounts................................ $ 143,000 187,110 114,287 215,823
---------- ----------- ---------- ----------
Year ended December 31, 1996 -
Allowance for doubtful accounts................................ $ 118,003 63,995 38,998 143,000
---------- ----------- ---------- ----------
Year ended December 31, 1995 -
Allowance for doubtful accounts $ 100,000 21,600 3,597 118,003
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
</TABLE>
- ------------------------
(1) The deductions from reserves are net of recoveries.
35
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from the Ballantyne of Omaha, Inc. Proxy Statement
for the Annual Meeting of Stockholders to be held May 27, 1998, under the
captions ELECTION OF DIRECTORS, LIST OF CURRENT EXECUTIVE OFFICERS OF THE
COMPANY, and ADDITIONAL INFORMATION--Compliance with Section 16(a) of the
Securities Exchange Act of 1934.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the Ballantyne of Omaha, Inc. Proxy Statement
for the Annual Meeting of Stockholders to be held May 27, 1998, under the
caption EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the Ballantyne of Omaha, Inc. Proxy Statement
for the Annual Meeting of Stockholders to be held May 27, 1998, under the
captions GENERAL INFORMATION and ELECTION OF DIRECTORS.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Ballantyne of Omaha, Inc. Proxy Statement
for the Annual Meeting of Stockholders to be held May 27, 1998, under the
caption CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
36
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE NO.
-----------
<S> <C> <C> <C>
a. The following documents are filed as part of this report:
1. Financial Statements:
An Index to the Financial Statements filed as a part of this report is contained in
Item 8
Financial Statements of the Registrant's subsidiaries are omitted because the
Registrant is primarily an operating company and the subsidiaries are wholly owned
b. Reports on Form 8-K filed for the three months ended December 31, 1997
1. None
c. Exhibits (Numbered in accordance with Item 601 of Regulation S-K):
2.5 Asset Purchase Agreement dated April 1, 1997 between the Company and Xenotech, Inc.
(incorporated by reference to Exhibit 2.5 to the Form 10-Q for the quarter ended June
30, 1997)
2.6 Asset Purchase Agreement dated September 8, 1997 between the Company and Sky-Tracker
of America, Inc. (incorporated by reference to Exhibit 2.6 to the Form 10-Q for the
quarter ended September 30, 1997)
2.7 Asset Purchase Agreement dated January 29, 1998 between the Company and Sky-Tracker of
Florida, Inc.......................................................................... 41
3.1 Certificate of Incorporation as amended through July 20, 1995 (incorporated by
reference to Exhibits 3.1 and 3.3 to the Registration Statement on Form S-1, File No.
33-93244) (the "Form S-1")
3.1.1 Amendment to the Certificate of Incorporation (incorporated by reference to Exhibit
3.1.1 to Form 10-Q for the quarter ended June 30, 1997)
3.2 Bylaws of the Company as amended through August 24, 1995 (incorporated by reference to
Exhibit 3.2 to the Form S-1)
4.2 Loan Agreement dated August 30, 1995, as amended November 24, 1995 between the Company
and Norwest Bank, N.A. (incorporated by reference to Exhibit 4.2 to the Company's
Annual Report on Form 10-K filed for the year ended December 31, 1995) (the "1995 Form
10-K")
4.3 Amendment to Loan Agreement dated August 29, 1997 between the Company and Norwest Bank
Nebraska, N.A. (incorporated by reference to Exhibit 4.3 to the Form 10-Q for the
quarter ended September 30, 1997)
10.1 Employment Agreement between the Company and Ronald H. Echtenkamp dated October 1,
1991 (incorporated by reference to Exhibit 10.1 to the Form S-1) *
10.1.1 Amendment to Employment Agreement between the Company and Ronald H. Echtenkamp dated
March 18, 1994 (incorporated by reference to Exhibit 10.2 to the Form S-1) *
</TABLE>
37
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
<TABLE>
<CAPTION>
PAGE NO.
-----------
<S> <C> <C> <C>
10.1.2 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 Form S-1)*
10.1.3 Third Amendment dated January 20, 1997 to Employment Agreement between the Company and
Ronald H. Echtenkamp (incorporated by reference to Exhibit 10.1.3 to Form 10-K for the
year ended December 31, 1996) (the "1996 10-K") *
10.1.5 Consulting Agreement dated December 22, 1997 between the Company and Ronald H.
Echtenkamp*........................................................................... 58
10.3 Employment Agreement between the Company and John Wilmers dated October 15, 1991
(incorporated by reference to Exhibit 10.3 to the Form S-1) *
10.3.1 Extension 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 for the quarter
ended June 30, 1996) *
10.3.2 Employment Agreement between the Company and John Wilmers dated January 1, 1997
(incorporated by reference to the 1996 Form 10-K) *
10.3.3 Employment Agreement between the Company and Ray F. Boegner dated November 20, 1996
(incorporated by reference to Exhibit 10.3.3 to the Form 10-Q for the quarter ended
March 31, 1997) *
10.3.4 Employment Agreement between the Company and Richard Hart dated April 1, 1997
(incorporated by reference to Exhibit 10.3.4 to the Form 10-Q for the quarter ended
June 30, 1997) *
10.3.5 Non-competition Agreement between the Company and Richard Hart (incorporated by
reference to Exhibit 10.3.5 to the Form 10-Q for the quarter ended June 30, 1997) *
10.3.6 Consulting Agreement between the Company and Marlowe A. Pichel (incorporated by
reference to Exhibit 10.3.6 to Form 10-Q for the quarter ended September 30, 1997) *
10.3.7 Non-competition Agreement between the Company and Marlowe A. Pichel (incorporated by
reference to Exhibit 10.3.7 to Form 10-Q for the quarter ended September 30, 1997) *
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 Form S-1)
10.7 Form of 1995 Stock Option Plan (incorporated by reference to Exhibit 10.7 to the Form
S-1)
10.7.1 Amendment to Stock Option Agreement (incorporated by reference to Exhibit 10.16 to the
Form 10-Q for the quarter ended June 30, 1997)
10.8 Form of 1995 Outside Directors Stock Option Plan as amended as of June 11, 1996
(incorporated by reference to Exhibit 10.8 to the Form S-1)
</TABLE>
38
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
<TABLE>
<CAPTION>
PAGE NO.
-----------
<S> <C> <C> <C>
10.8.1 Amendment to 1995 Outside Directors Stock Option Plan, as amended through July 8, 1996
(incorporated by reference to Exhibit 10.8 to the Form 10-Q for the quarter ended June
30, 1996)
10.9 Form of 1995 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.9
to the Form S-1)
10.9.1 Amendment to the 1995 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 10.9.1 to the 1996 Form 10-K)
10.10 Form of Management Services Agreement by and between the Company and Canrad, Inc.
(incorporated by reference to Exhibit 10.10 to the Form S-1) *
10.10.1 Amendment to Management Services Agreement by and between the Company and Canrad, Inc.
dated July 1, 1997 *.................................................................. 60
10.11 Profit Sharing Plan (incorporated by reference to Exhibit 10.11 to the Form S-1)
10.11.1 Amendment to the Profit Sharing Plan (incorporated by reference to Exhibit 10.11.1 to
the 1996 Form 10-K)
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 1995 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
for the quarter ended June 30, 1996)
11 Computation of earnings per share (included in Financial Statements)
21 Registrant owns 100% of the outstanding capital stock of the following subsidiaries:
</TABLE>
<TABLE>
<CAPTION>
JURISDICTION
OF
NAME INCORPORATION
----------------------------------------------------------------- -------------
<S> <C> <C> <C> <C> <C>
a. Strong Westrex, Inc. Nebraska
b. Xenotech Rental Corp. Nebraska
c. Flavor Crisp of America, Inc. Nebraska
d. Ballantyne Fabricators, Inc. Nebraska
</TABLE>
<TABLE>
<S> <C> <C> <C>
23 Consent of KPMG Peat Marwick LLP..................................... 61
27 Financial Data Schedule (for SEC information only)
</TABLE>
* Management contract or compensatory plan.
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BALLANTYNE OF OMAHA, INC.
<TABLE>
<S> <C> <C> <C>
/s/ John Wilmers /s/ Brad French
------------------------------------- -------------------------------------
John Wilmers, President, Brad French, Secretary, Treasurer,
By: Chief Executive Officer, and Director By: and Chief Financial Officer
Date: March 26, 1998 Date: March 26, 1998
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C> <C>
/s/ Arnold S. Tenney /s/ Ronald H. Echtenkamp
-------------------------------------- --------------------------------------
Arnold S. Tenney, Chairman and Ronald H. Echtenkamp,
By: Director By: Vice-Chairman and Director
Date: March 26, 1998 Date: March 26, 1998
</TABLE>
<TABLE>
<S> <C> <C> <C>
/s/ Jeffrey D. Chelin /s/ Colin G. Campbell
-------------------------------------- --------------------------------------
By: Jeffrey D. Chelin, Director By: Colin G. Campbell, Director
Date: March 26, 1998 Date: March 26, 1998
</TABLE>
<TABLE>
<S> <C> <C> <C>
/s/ Yale Richards /s/ Marshall Geller
-------------------------------------- --------------------------------------
By: Yale Richards, Director By: Marshall Geller, Director
Date: March 26, 1998 Date: March 26, 1998
</TABLE>
40
<PAGE>
ASSET
PURCHASE AGREEMENT
PARTIES
This Agreement is made and entered into as of the 29th day of January, 1998,
by and between SKY-TRACKER OF FLORIDA, INC., of 1006 Savage Court, Longwood,
Florida 32750, and SKY-TRACKER OF GEORGIA, INC., of 3367 Hospital Road, Suite G,
Chamblee, Georgia 30341, both Florida corporations (both of which hereinafter
collectively referred to as the "Seller"), JEROME P. ROSS of 620 Daron Ct.,
Winter Springs, Florida 32708 (the "Stockholder"), and BALLANTYNE OF OMAHA,
INC., 4350 McKinley Street, Omaha, Nebraska 68112, a Delaware corporation (the
"Buyer").
RECITALS:
A. Stockholder is the Owner of all the issued and outstanding capital stock
of Seller.
B. Seller owns certain Assets which it uses in its business for the
marketing, distribution, leasing, and sale of lighting equipment.
C. Buyer desires to purchase from Seller, and Seller desires to sell to
Buyer, substantially all of such assets, and substantially all of the
business of Seller, subject to the assumption of certain liabilities of
the Seller, upon the terms and conditions of this Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
I. DEFINITIONS
For all purposes of this agreement, the following terms shall have the
following definitions:
A. "Accounts Receivable" shall mean all open, unpaid amounts due from
customers of Seller as of the date of Closing, or becoming due at any time
thereafter. A true and correct list of Accounts Receivable items as of the
Closing date, specifically indentifying any accounts or amounts in dispute, is
attached hereto as Exhibit 1. Seller shall provide to Buyer at Closing a true
and correct list of Accounts Receivable items as of the date of Closing,
particularly identifying any accounts or amounts known to be in dispute.
B. "Assumed Liabilities" shall mean:
1. All open purchase orders of Seller pertaining to its business;
provided, however, that Buyer shall not assume any open purchase orders
entered into after December 31, 1997, not in the ordinary course of
business. A true and correct list of such current Purchase Orders, as of the
date of Closing, is attached hereto as Exhibit 2.
2. All obligations of Seller under existing promotional display
contracts or other lease arrangements pertaining to the lease of lighting
equipment to Seller's customers; provided, however, that Buyer shall not
assume any obligations of Seller under promotional display contracts or
other lease arrangements entered into after December 31, 1997, not in the
ordinary course of business. A true and correct list of such promotional
display contracts and other lease arrangements, as of the date of Closing,
is attached hereto as Exhibit 3. Seller shall provide to Buyer at Closing a
true and correct list of promotional display contracts and other lease
arrangements, as of the date of Closing.
3. All express Warranty obligations (as defined herein) on any lighting
equipment sold or leased by Seller. True and correct copies of Seller's
Warranty Agreements are attached hereto as Exhibit 4.
41
<PAGE>
4. Seller's liabilities and obligations under those certain lease
Agreements, attached hereto respectively as Exhibit 5 and 6, with respect to
its current facilities located at:
a. 1006 Savage Court
Longwood, Florida 32750
(Exhibit 5), and
b. 3367 Hospital Road, Suite G
Chamblee, Georgia 30341
(Exhibit 6).
5. a. All liability to collect and pay state sales taxes on rental
income or sales income, but only on amounts actually collected by Buyer
after Closing.
b. All personal property taxes which are applicable to the Purchased
Assets shall be prorated to the date of Closing.
6. Notwithstanding any other provision contained herein, Assumed
Liabilities shall not include:
a. Any federal, state or local income, sales, use, franchise, or any
other tax payable with respect to the Purchased Assets, or
operations of Seller for any period prior to the Closing date.
b. Any liability or obligation related to any Assets of Seller not
being purchased by Buyer.
c. Any accounts payable for the purchase of inventory, furniture,
fixtures, equipment and supplies, or for expenses incurred prior to
the date of Closing.
d. Any liability or obligation of Seller arising in connection with the
negotiation, preparation and execution of this Agreement and the
transactions contemplated hereby.
e. Any liability or obligation arising prior to the Closing with
respect to any of Seller's employees, agents or independent
contractors, whether or not subsequently employed by Buyer.
f. Any claim or injury to person or property occurring prior to the
date of Closing of any nature whatsoever in connection with the
business or operations of Seller, or relating to any products sold
or leased by Seller.
g. Any liability or obligation arising out of any breach by Seller
and/or Stockholder of any provision of any agreement, contract or
other commitment.
h. Any liability or obligation, including accrued interest, from the
Seller to the Stockholder.
i. Any intercompany liabilities between Sky-Tracker of Georgia, Inc.
and Sky-Tracker of Florida, Inc.
j. Any liability or obligation of Seller and/or Stockholder for
equipment loans, including but not limited to Seller's loan
liability to Nations Bank of Florida, N.A.
k. Any liabilities other than those expressly assumed by Buyer hereby.
C. "Balance Sheet" shall mean the unaudited Balance Sheet of Seller as of
December 31, 1997, a copy of which is attached hereto as Exhibit 7, which
Balance Sheet has been prepared in accordance with sound accounting practices
applied on a consistent basis. Said Balance Sheet consists of separate Balance
Sheets of each of Sky-Tracker of Georgia, Inc. and Sky-Tracker of Florida, Inc.
D. "Contract" shall mean any of Seller's open agreements, promotional
display contracts, leases, contracts, purchase orders, lease agreements or
commitments, sales orders, or other commitments that shall exist as of the date
hereof, a true and correct list of all of which is attached hereto as Exhibit 8,
and those entered into thereafter by Seller in the ordinary course of business.
42
<PAGE>
E. "Fixtures and Equipment" shall mean all of the shop equipment, tools,
vehicles, parts, trailers, furniture, fixtures, computers, and all other
equipment and fixtures owned by Seller, including all lighting equipment held by
Seller for sale or lease to its customers, a true and correct list of which is
attached hereto as Exhibit 9. This term shall also include all rights to any
equipment that would be a part of Seller's Equipment held for resale or lease,
except that is in the possession of third parties such as dealers, resellers,
lessees, or end users, if any, which belong to Seller and which do not
constitute Accounts Receivable. A list of Seller's loan and lease equipment is
attached hereto as Exhibit 10.
F. "Purchased Assets" shall mean all of the following Assets as of the date
of the Closing pertaining exclusively to Seller's business, except those Assets
specifically excluded herein:
1. All customer deposits;
2. All Accounts Receivable;
3. All Contract rights of Seller;
4. All Fixtures and Equipment;
5. All inventory;
6. All Books and Records of Seller pertaining to the Purchased Assets;
7. All trademarks, trade names, patents, patent applications and
interests thereunder, licenses, including patent licenses, copyrights and
copyright licenses pertaining to the Purchased Assets, a true and correct
list of which is attached hereto as Exhibit 11;
8. Any and all other assets of any kind or nature whatsoever related
exclusively to the assets and business of Seller, except any assets
specifically excluded herein; and
9. All prepaid rents under customer leases and promotional display
contracts. All rents from existing customer leases and promotional display
contracts shall be prorated to the date of Closing.
10. Purchased Assets shall specifically exclude all cash, bank accounts,
liquid assets and bank deposits of Seller which are not customer deposits or
prepaid rents.
G. "Warranty" shall mean all warranty obligations of Seller, pertaining to
any lighting equipment sold or leased by Seller, which are based on express
warranties only. Buyer does not assume any liability with respect to any implied
warranty or any liability which shall be in the nature of personal injury or
property damage or other consequential damages, except as stated herein.
H. "Financial Statements" shall mean the Balance Sheet, Income Statements
and all other exhibits and representations herein containing financial
information pertinent to the Purchased Assets.
I. In connection with the Books and Records of Seller, such original Books
and Records shall be retained by the Seller. Buyer, at its expense, shall have
access to and the right to make photocopies of any or all of such Books and
Records, at any time, upon reasonable advance notice to Seller.
II. SALE OF ASSETS
A. At Closing, Seller shall sell, assign, transfer, convey and deliver to
Buyer the Purchased Assets, free and clear of all liabilities, obligations,
liens, security interests and encumbrances of any kind, except those liabilities
expressly assumed by Buyer herein.
B. At Closing, Buyer agrees that it will accept and assume the Assumed
Liabilities, by its execution and delivery to Seller of a separate Assumption
Agreement.
C. At Closing, Buyer shall either wire transfer the Purchase Price to
Seller's bank account or pay the Purchase Price to Seller in cash or certified
funds, as the Seller shall direct.
43
<PAGE>
D. At Closing, each party shall deliver to the other party or parties, all
agreements, documents, resolutions, certificates, of goods standing, and other
instruments required to be provided by such party hereunder.
III. CLOSING
The Closing of the sale (the "Closing") shall take place on or before
January 29, 1998, or on such other date the parties shall otherwise agree. At
the Closing, Seller shall deliver to Buyer such bills of sale, endorsements,
assignments, and other good and sufficient instruments of transfer and
conveyance as shall be effective to vest in the Buyer good and marketable title
to the Purchased Assets as provided in this Agreement.
IV. PURCHASE PRICE
The Purchase Price shall be Five Hundred Seventy-five Thousand Dollars
($575,000).
V. ALLOCATION OF PURCHASE PRICE
The allocation of the Purchase Price among the Purchased Assets is set forth
on Exhibit 12, attached hereto. Such allocation is made in accordance with the
provisions of Sections 1060 of the Internal Revenue Code of 1986, as amended
(the "Code"), and shall be binding upon Buyer and Seller for all purposes
(including financial accounting purposes, financial and regulatory reporting
purposes, and tax purposes). Buyer and Seller also each agree to file IRS Form
8594 consistent with the foregoing and in accordance with Section 1060 of the
Code.
VI. FURTHER ASSURANCES
From time to time, at the request of any party hereto, whether at or after
the Closing and without further consideration, Buyer, Seller and/or Stockholder
will execute and deliver such further instruments of conveyance and transfer and
take such other action as the requesting party reasonably may require more
effectively to convey and transfer to Buyer any of the Purchased Assets, or to
more effectively fulfill any other obligation of any party hereunder.
VII. PAYMENT OF SALES AND SIMILAR TAXES
Buyer will pay all transfer and documentary taxes, if any, payable in
connection with the transfer and deliveries to be made to Buyer hereunder.
VIII. EMPLOYEES OF SELLER
It is Buyer's intention to retain in the employment of Buyer certain
employees of Seller at the present rate of compensation of such employees;
provided, however, that such expression of the Buyer's intention shall not be
construed as imposing any binding legal obligation on the Buyer to retain any
employee or employees of Seller in the employ of Buyer upon and after the
Closing, nor as to the terms of such employment.
IX. EMPLOYMENT OF STOCKHOLDER
A. Buyer shall employ Stockholder effectively immediately upon the Closing
of the transactions herein contemplated, on the terms and conditions of the
Employment Agreement which is attached hereto as Exhibit 13. Stockholder shall
be employed by Buyer for a term of five (5) years at an annual base salary of
One Hundred Thousand Dollars ($100,000). At Closing, Buyer and Stockholder shall
enter into a written Employment Agreement in the form and of the content of
Exhibit 13, attached hereto, the terms and conditions of which are incorporated
herein by this reference.
44
<PAGE>
B. In further consideration of Stockholder entering into the Employment
Agreement referenced in subparagraph A above, Buyer shall grant to Stockholder
the right and option to purchase Five Thousand (5,000) shares of the common
stock of Buyer, pursuant to Buyer's 1995 Stock Option Plan, as the same has been
amended, and on the terms and conditions set forth in the Stock Option Agreement
attached hereto as Exhibit 14 (the "Stock Option Agreement"), the terms and
conditions of which are incorporated herein by this reference. The exercise
price under said Stock Option Agreement shall be determined in accordance with
the terms and conditions of the Buyer's 1995 Stock Option Plan, as amended, and
shall be the average of the highest and lowest market price of a share of the
common stock of Buyer on the date of Closing. Subject to the provisions of
Section 9(g) of Buyer's 1995 Stock Option Plan, Employee may exercise his
options in any chosen increments during the term of such options. At Closing,
Buyer and Stockholder shall execute the Stock Option Agreement.
X. REPRESENTATIONS AND WARRANTIES OF SELLER AND STOCKHOLDER
Seller and Stockholder represent, warrant and covenant to and with Buyer as
follows:
A. Seller is comprised of corporations duly organized, validly existing and
in good standing under the laws of the respective states of their incorporation,
which have full corporate power and authority to conduct their business as it is
presently being conducted and to own, sell and convey their properties and
Assets.
B. Copies of Sellers Certificates of Incorporation and all amendments
thereof to date, certified by the Secretaries of State of their respective
states of incorporation, and of Seller's Bylaws as amended to date, have been
delivered to Buyer and are complete and correct as of the date of this
Agreement. At the Closing, Seller shall deliver to Buyer Certificates of Good
Standing.
C. Seller has all necessary corporate power and authority and has taken all
corporate action necessary to enter into this Agreement, to consummate the
transactions contemplated hereby and to perform its obligations hereunder. This
Agreement has been duly executed and delivered by Seller and constitutes a
legal, valid and binding obligation of Seller, enforceable against Seller in
accordance with its respective terms.
D. Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby will result in (1) a
violation of or a conflict with any of the provisions of the Certificates of
Incorporation or Bylaws of Seller, (2) a breach of, or a default under, any term
or provision of any contract, agreement, indebtedness, lease, commitment,
license, franchise, permit, authorization or concession to which Seller is a
party, which breach or default would have a material adverse effect on the
business or financial condition of Seller or its ability to consummate the
transactions contemplated hereby, or (3) a violation by Seller of any statute,
rule, regulation, ordinance, code, order, judgment, writ, injunction, decree or
award, which violation would have a material adverse effect on the business or
financial condition of Seller or its ability to consummate the transactions
contemplated hereby.
E. Neither Seller nor Stockholder knows of, and has been informed of, any
consent, approval or authorization of, or declaration, filing or registration
with any governmental or regulatory authority, or any other person or entity
which is required to be made or obtained by Seller in connection with the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby, except the approval of Seller's Board of
Directors.
F. Neither Seller, Stockholder, nor any affiliates of Seller has entered
into or will enter into any contract, agreement, arrangement, or understanding
with any person or firm which will result in the obligation of Buyer or any
Stockholder to pay any finder's fee, brokerage commission or similar payment in
connection with the transactions contemplated hereby.
G. Seller currently has and will have and will transfer to Buyer at Closing,
good and marketable title to all of the Purchased Assets, free and clear of all
mortgages, pledges, liens, security interests, conditional
45
<PAGE>
sales agreements, charges, encumbrances, restrictions and equities, except those
mortgages, pledges, liens, security interests and other liabilities expressly
assumed by Buyer hereunder, and except for any landlord lien imposed by law or
any lease agreement which Buyer is assuming under the terms of this Purchase
Agreement.
H. Except as described in Exhibit 15, there are no material actions, suits,
claims, proceedings or investigations pending or, to the best knowledge of
Seller, threatened against or afflicting the Purchased Assets, at law or in
equity, or before or by any federal, state, municipal or other governmental
court, department, commission, board, bureau, agency or instrumentality. Prior
to the Closing, either (1) Seller shall have resolved the matters disclosed in
Exhibit 15, or (2) Buyer and Seller shall agree as to how such matters will be
handled.
I. The Assets being purchased hereunder by Buyer constitute substantially
all of the Assets of Seller.
J. Other than as set forth in this Agreement or the Exhibits hereto, there
are no material liabilities or obligations, secured or unsecured, whether
accrued, absolute, contingent, unasserted or otherwise, effecting the Purchased
Assets. Unless consented to by Buyer in writing, no liabilities have been or
will be incurred since December 31, 1997, except in the ordinary course of
business. Seller has no liabilities or obligations whatsoever, either accrued,
absolute, contingent or otherwise, which are not reflected or provided for in
the Financial Statements except (i) those arising after the date of the Balance
Sheet which are in the ordinary course of business, in each case in normal
amounts and none of which is materially adverse, and (ii) as and to the extent
specifically described in the Schedules hereto.
K. Seller and Stockholder have disclosed to Buyer all facts known by Seller
and Stockholder to be material to the Assets to be acquired by Buyer pursuant to
this Agreement. No written representation or warranty by the Seller or the
Stockholder in this Agreement or any written statement or certificate furnished
or to be furnished to the Buyer pursuant hereto, contains or will contain any
untrue statement of a material fact known to Seller or Stockholder, or omits or
will omit to state a material fact known to Seller or Stockholder necessary to
make the statements contained therein not misleading. During the period from the
date of this Agreement to the Closing date, Seller represents and covenants that
its business shall in all respects continue to be operated only in the ordinary
course. Seller and Stockholder shall give prompt notice to Buyer with respect to
any material changes in the operation of the business and any matter or event
which comes to the attention of Seller or Stockholder and which, if it had
occurred as of the date hereof, would constitute a material breach of the
representations and warranties of Seller and/or Stockholder contained in this
Agreement.
L. All tangible personal property, Equipment and Fixtures included within
the Purchased Assets or required to be used in the ordinary course of Seller's
business are in operating condition as of the date of Closing. Subject to the
immediately preceding sentence, the condition of the Equipment and Fixtures
shall be assumed to be accepted "as is" by the Buyer after the Buyer shall have
inspected all such Equipment and Fixtures.
M. All Financial Statements provided to Buyer pursuant to this Agreement and
all Exhibits hereto are accurate in all material respects; and all other
financial data relating to the Purchased Assets given by Seller to Buyer was
accurate in all material respects as to what it was represented to be when given
to Buyer.
N. The Accounts Receivable of Seller arose from bona fide transactions in
the ordinary course of business and to the best of Seller's knowledge and belief
are valid and collectible in the ordinary course of business, except for a
reasonable allowance for bad debts which reflects a rate of bad debts based upon
the recent experience of the corporation's collections and receivables.
Notwithstanding anything herein to the contrary, Seller makes no representations
or warranties pertaining to the collectability of the Accounts Receivable, and
the uncollectability thereof shall not affect the Purchase Price to be paid
hereunder and shall not create any liability of the Seller and Stockholder under
the indemnification of the Seller in this
46
<PAGE>
Agreement. Seller may collect the Accounts Receivable up to the date of Closing
and upon collection thereof they shall be deemed to be cash and excluded from
the assets to be purchased hereunder.
O. Seller is not a party to any collective bargaining agreement. There are
no controversies between Seller and any of its employees which might reasonably
be expected to materially adversely affect the conduct of its business, or any
unresolved labor union grievances or unfair labor practice or labor arbitration
proceedings pending or threatened relating to its business, and there are not
any organizational efforts presently being made or threatened involving any of
Seller's employees. Seller has not received notice of any claim that Seller has
not complied with any laws relating to the employment of labor, including any
provisions thereof relating to wages, hours, collective bargaining, the payment
of social security and similar taxes, equal employment opportunity, employment
discrimination and employment safety, or that Seller is liable for any arrears
of wages or any taxes or penalties for failure to comply with any of the
forgoing.
P. Seller is not a party to any contract of employment, either expressed or
implied, with any of its existing employees.
Q. The execution and delivery of this Agreement to Buyer and the
consummation of the transactions contemplated hereby have been duly authorized
by Seller's Board of Directors.
R. Exhibit 16 sets forth a complete and correct list and description of all
of the policies of liability, property, workers' compensation, and all other
forms of insurance or bonds carried by Seller for the benefit of or in
connection with the Purchased Assets and the business of Seller.
S. All representations and warranties contained in this Article X shall be
construed as being made jointly and severally by Sky-Tracker of Florida, Inc.,
Sky-Tracker of Georgia, Inc. and Stockholder.
47
<PAGE>
Exhibit 2.7 - con't
XI. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
A. Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has full corporate power
and authority to conduct its business as it is presently being conducted and to
own and lease its properties and Assets.
B. Copies of Buyer's Certificate of Incorporation and all amendments thereof
to date, certified by the Secretary of State of Delaware, and of Buyer's Bylaws
as amended to date, have been delivered to Seller and are complete and correct
as of the date of this Agreement.
C. Buyer has all necessary corporate power and authority and has taken all
corporate action necessary to enter into this Agreement, to consummate the
transactions contemplated hereby and to perform its obligations hereunder. This
Agreement has been duly executed and delivered by Buyer and constitutes a legal,
valid and binding obligation of Buyer, enforceable against Buyer in accordance
with its respective terms.
D. Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby will result in (1) a
violation of or a conflict with any of the provisions of the Certificate of
Incorporation or Bylaws of Buyer, (2) a breach of, or a default under, any term
or provision of any contract, agreement, indebtedness, lease, commitment,
license, franchise, permit, authorization or concession to which Buyer is a
party, which breach or default would have a material adverse effect on the
business or financial condition of Buyer or its ability to consummate the
transactions contemplated hereby, or (3) a violation by Buyer of any statute,
rule, regulation, ordinance, code, order, judgement, writ, injunction, decree or
award, which violation would have a material adverse effect on the business or
financial condition of Buyer or its ability to consummate the transactions
contemplated hereby.
E. Buyer knows of no and has not been informed of any consent, approval or
authorization of, or declaration, filing or registration with any governmental
or regulatory authority, or any other person or entity which is required to be
made or obtained by Buyer in connection with the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby, except the Buyer may be required to file an 8-K report with
the Securities Exchange Commission within fifteen (15) days after Closing. To
the extent that there are any registration, disclosure or other requirements
imposed by the Securities Exchange Commission with respect to the transactions
contemplated hereby, Buyer shall be responsible for compliance with any such
requirements, at Buyer's expense.
F. Neither Buyer nor any affiliate of Buyer has entered into or will enter
into any contract, agreement, arrangement, or understanding with any person or
firm which will result in the obligation of Seller or Stockholder to pay any
finder's fee, brokerage commission or similar payment in connection with the
transactions contemplated hereby.
XII. COVENANTS OF SELLER, STOCKHOLDER, AND BUYER
Seller and Stockholder covenant with Buyer, and Buyer covenants with Seller
and Stockholder as follows:
A. Seller shall assign to Buyer all transferable manufacturer, supplier or
contractor warranties or guaranties respecting any of the Purchased Assets.
B. Effective upon the Closing of the transactions contemplated hereby,
Seller shall no longer use, in any respect, the name or terms "Sky-Tracker,"
"Sky-Tracker of Florida, Inc." or "Sky-Tracker of Georgia, Inc." without the
express written consent of Buyer. Within three (3) months after Closing, Seller
shall either be dissolved or shall change its corporate name to a name which
bears no resemblance to the name
48
<PAGE>
EXHIBIT 2.7 - CON'T
"Sky-Tracker," "Sky-Tracker of Florida, Inc." or "Sky-Tracker of Georgia, Inc."
and thereafter shall never use a name or names which shall be similar to such
name or names.
C. Seller shall not use, in any respect, the name, terms, or items listed in
Exhibit 11 hereto without the express written consent of Buyer.
D. Except as otherwise requested by Buyer, and without making any commitment
on its behalf, Seller will use its best efforts to preserve its business intact;
and use its best efforts to preserve for Buyer the goodwill of the suppliers,
customers, and others having business relations with Seller prior to Closing.
Until the Closing, Seller shall not acquire any capital assets. In addition,
until Closing, Seller shall make no purchases or sales of Equipment items, or
enter into any contract or transactions, without the consent of Buyer in
writing, except in the ordinary course of its business.
E. Buyer shall approve any public announcement and/or press release
concerning this transaction. No public announcement shall be made by either
party until Closing or thereafter.
XIII. BULK SALES
A. Seller agrees to cooperate with Buyer in complying with any applicable
Bulk Sales provisions of the Uniform Commercial Codes of the states of Florida
and Georgia relating to bulk transfers in connection with the transactions
contemplated by this Agreement. If Buyer shall waive the applicable provisions
of such Bulk Sales Laws, Seller and Stockholder shall indemnify and hold Buyer
harmless from any damages, losses or expenses (including reasonable attorneys'
fees) suffered by Buyer from any claim which may be asserted against Buyer by
creditors of Seller for obligations not assumed by Buyer hereunder which results
from noncompliance with said Bulk Sales Laws.
B. In connection with Paragraph A of this Article, Buyer hereby waives the
applicable provisions of any such Bulk Sales Laws.
XIV. ACTIONS BY SELLER AND BUYER AFTER THE CLOSING
A. Seller and Buyer agree that so long as any books, records and files
relating to the business, Assets or operations of the Seller, to the extent that
they pertain to the operations prior to the Closing date relating to the
Purchased Assets, remain in existence and available, Buyer (at its expense)
shall have the right to inspect and to make copies of the same at any time
during business hours for any proper purpose with reasonable advance notice.
Seller further agrees that it shall preserve and maintain all of its books and
records relating to the Purchased Assets for a period of at least five (5) years
following the date of Closing.
B. On and after the Closing date, Seller and Buyer will take all appropriate
action and execute all documents, instruments or conveyances of any kind which
may be reasonably necessary or advisable to carry out any of the provisions
hereof.
VX. INDEMNIFICATIONS
A. BY SELLER AND STOCKHOLDER: It is specifically acknowledged that Buyer
does not assume and will not be responsible for any liabilities of Seller,
except as may be expressly stated herein. Effective as of the Closing date,
Seller and Stockholder shall indemnify and hold harmless Buyer against and in
respect of:
1. All liabilities and obligations of, or claims against, Seller not
expressly assumed by Buyer in this Agreement, including but not limited to:
all obligations of Seller not reflected on Seller's Balance Sheet dated
December 31, 1997; all sales, income and other tax liabilities, except those
expressly assumed by Buyer pursuant to this Agreement; all employment
contracts of Seller; all employment claims against Seller, including claims
of discrimination or unfair labor practices or of any other nature, whether
accruing prior to or subsequent to Closing, relating to any present or
former
49
<PAGE>
EXHIBIT 2.7 - CON'T
employee of Seller while he/she was an employee of Seller, and any claims of
employees of Seller to have any entitlement of employment with Buyer, unless
said claims are based upon an agreement pursuant to which said employees are
expressly retained by Buyer after the employee has submitted an employment
application to Buyer.
2. Any damage or deficiency resulting from any material
misrepresentation, material breach of warranty, or material nonfulfillment
of any agreement on the part of Seller and/or the Stockholder under this
Agreement or from any material misrepresentation in or omission from any
certificate or other instruments furnished or to be furnished to Buyer under
this Agreement.
3. Any damages, losses or expenses (including reasonable attorney fees)
suffered by Buyer from any claim which may be asserted against Buyer by
creditors of Seller for obligations not assumed by Buyer under this
Agreement which result from noncompliance with the Bulk Sales Laws of the
States of Florida or Georgia. Seller and Stockholder shall execute and
deliver to Buyer, at Closing, a separate Indemnification Agreement
containing the terms of this provision.
B. BY BUYER: Buyer agrees that, on and after the date hereof, it shall
indemnify and save and hold harmless Seller and Stockholder from and against any
and all damages incurred in connection with or arising out of or resulting from
(1) any material breach of any covenant or warranty, or the inaccuracy of any
representation, made by Buyer in or pursuant to this Agreement; (2) any
liability, obligation or commitment of Buyer relating in any way to the
Purchased Assets or Assumed Liabilities; or (3) any claim, liability, obligation
or commitment of any nature which is specifically assumed by Buyer pursuant to
this Agreement. Buyer shall execute and deliver to Seller and Stockholder, at
Closing, a separate Indemnification Agreement containing the terms of this
provision.
C. INDEMNIFICATION: Immediately upon receiving notice of any claim giving
rise to indemnification hereunder, the indemnitee shall give prompt written
notice to the indemnitor of such claim. Such notice shall state the indemnitor's
right to defend against such claim, and shall contain all information pertaining
to such claim so as not to materially prejudice indemnitor's ability to defend
against or settle such claim. The parties agree that the indemnitee shall
cooperate with the indemnitor in connection with its defense of any claims
subject to indemnification hereunder. In the event of a material breach of this
provision by the indemnitee, the indemnity with respect to such matter shall be
nullified.
D. MINIMUM AMOUNT: Notwithstanding anything herein to the contrary,
payment from the indemnitor hereunder shall be made only in the event and to the
extent that the total claims subject to indemnification by an indemnitor
hereunder shall exceed Ten Thousand Dollars ($10,000).
XVI. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligations of Buyer to purchase the Purchased Assets from Seller are
subject to the satisfaction, on or before the Closing date, of all of the
following conditions, which conditions may be waived in writing by Buyer:
A. The representations and warranties of Seller and Stockholder contained in
this Agreement shall have been true in all material respects when made and, in
addition, shall be true in all material respects on and as of the Closing date
with the same force and effect as though made on and as of the Closing date.
B. Seller and Stockholder shall have, or have caused to be, performed and
observed, in all material respects, all obligations and agreements hereunder and
shall have complied with all covenants and conditions contained in this
Agreement to be performed and complied with by them at or prior to the Closing
date.
C. If, prior to the Closing date, any material part of the Purchased Assets
is damaged by fire, other casualty, or any cause or activity not attributable to
or under the control of Buyer, Seller shall give Buyer
50
<PAGE>
EXHIBIT 2.7 - CON'T
written notice thereof and Buyer may, at its option, terminate this Agreement by
written notice of such election given to Seller no later than five (5) working
days after receipt of Seller's notice, and upon giving such notice, both parties
shall be fully discharged from all duties hereunder and all obligations hereof.
However, if Buyer shall not so elect, or if an immaterial part of the Assets is
damaged, then Seller hereby assigns to Buyer all of its rights, title and
interest in and to any and all insurance proceeds payable by reason of such
destruction or damage to the Purchased Assets and Seller hereby agrees to pay
Buyer a sum equal to the deductible amount provided in such policies to the
extent necessary to correct such damages.
D. There shall not have been, between the date of this Agreement and the
Closing date, any materially adverse change in any of the Purchased Assets or
the current operations of Seller.
E. Seller and Stockholder shall have furnished Buyer with such certificates
in form and substance reasonably satisfactory to counsel for Buyer as may be
reasonably requested by counsel for Buyer to evidence compliance with the
conditions set forth in this Section.
F. Either (1) Seller shall have resolved the matters disclosed in Exhibit
15, or (2) Buyer and Seller shall have agreed as to how those matters will be
handled.
G. Buyer shall have received the necessary consents to assume and/or extend
the Lease Agreement referred to in Article I herein, on terms and conditions
which are acceptable to counsel for Buyer.
H. At or prior to the Closing, Buyer and Stockholder shall have executed the
Employment Agreement as provided in Article IX herein.
I. Buyer shall have received approval from its Board of Directors for
consummation of this transaction on the terms and conditions contained herein.
J. Seller and Stockholder shall have delivered to Buyer such corporate
resolutions of Seller and consents of Stockholder as shall evidence the due
authorization of all of the transactions contemplated herein.
K. At or prior to the Closing, Seller and Stockholder shall have executed
the Non-Competition Agreement as provided in Article XIX herein.
XVII. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligation of Seller to sell the Purchased Assets under this Agreement
to Buyer is subject to the satisfaction, on or before the Closing date, of all
of the following conditions, which conditions may be waived in writing by
Seller:
A. The representations and warranties of Buyer contained in this Agreement
shall have been true in all material respects when made and, in addition, shall
be true in all material respects on and as of the Closing date with the same
force and effect as though made on and as of the Closing date.
B. Buyer shall have, or have caused to be, performed and observed, in all
material respects, all covenants, agreements and conditions hereof to be
performed or observed by Buyer at or before the Closing.
C. Seller shall have received approval from its Board of Directors for
consummation of this transaction on the terms and conditions contained herein.
D. Buyer shall have furnished Seller with such certificates in form and
substance reasonably satisfactory to counsel for Seller as may be reasonably
requested by counsel for Seller to evidence compliance with the conditions set
forth in this Section.
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<PAGE>
EXHIBIT 2.7 - CON'T
E. Either (1) Seller shall have resolved the matters disclosed in Exhibit
15, or (2) Buyer and Seller shall have agreed as to how those matters will be
handled.
F. At or prior to the Closing, Buyer and Stockholder shall have executed the
Employment Agreement as provided in Article IX herein.
XVIII. NONASSIGNMENT
Neither this Agreement nor any of the rights or obligations hereunder may be
assigned by any party without the prior written consent of the other parties.
Subject to the foregoing, this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns, and
no other person shall have any right, benefit or obligation hereunder, as a
third-party beneficiary or otherwise.
IX. NON-COMPETITION AGREEMENT
At the Closing, Stockholder and Seller shall execute and deliver to the
Buyer a Non-Competition Agreement in the form of Exhibit 17 hereto. The
effectiveness of this Agreement and of the Non-Competition Agreement will be
contingent upon the execution of the other.
XX. EXPENSES
Except as otherwise provided in this Agreement, each party shall pay its
respective expenses, taxes, charges and liabilities incurred in connection with
or arising out of this Agreement, including, without limitation thereto, counsel
fees, accounting fees, and other expenses related to the assignment and delivery
of the Purchased Assets to Buyer.
XXI. NOTICES
Unless otherwise provided herein, any notices, request, instruction or other
document to be given hereunder by either party to the other shall be in writing
and delivered personally or mailed by certified mail, postage prepaid, return
receipt requested (such mailed notice to be effective on the date such receipt
is acknowledged or refused), as follows:
<TABLE>
<S> <C>
IF TO SELLER: Sky-Tracker of Florida, Inc.
Sky-Tracker of Georgia, Inc.
P. O. Box 520757
Longwood, FL 32752
WITH COPY TO: Moran & Shams, P.A.
Maurice Shams, Esq.
111 North Orange Ave., Suite
1200
P.O. Box 472
Orlando, FL 32802-0472
IF TO STOCKHOLDER: Mr. Jerome P. Ross
620 Daron Court
Winter Springs, FL 32708
</TABLE>
52
<PAGE>
EXHIBIT 2.7 - CON'T
<TABLE>
<S> <C>
WITH COPY TO: Moran Shams, P.A.
Maurice Shams, Esq.
111 North Orange Ave., Suite
1200
P.O. Box 472
Orlando, FL 32802-0472
IF TO BUYER: Ballantyne of Omaha, Inc.
Attn: John P. Wilmers
4350 McKinley Street
Omaha, NE 68112
WITH COPY TO: Marks Clare & Richards
David P. Wilson, Esq.
11605 Miracle Hills Dr., Suite
300
Omaha, NE 68154
</TABLE>
or at such other address or designation as is provided by one party to the other
in writing.
XXII. CHOICE OF LAW
This Agreement shall be construed, interpreted and the rights of the parties
determined in accordance with the laws of the State of Nebraska (without
reference to the choice of law provisions of Nebraska law).
XXIII. SURVIVAL OF WARRANTIES AND REPRESENTATIONS
The representations, warranties and covenants of the parties hereto
contained herein, or in any certificates or other documents delivered prior to
or at the Closing, shall not be deemed waived or otherwise affected by any
investigation theretofore made by either party. Each and every representation,
warranty and covenant of Seller, Stockholder, and Buyer under the
indemnification provisions set forth in Article XV herein shall survive the
Closing date and remain operative and in full force and effect as herein
provided. All representations and warranties of Seller and Stockholder made
under Article X herein, and any indemnification of Buyer for any breach thereof
under Article XV, shall survive the Closing, but shall be of no further force
and effect after one (1) year following the Closing date; provided, however,
that the representations and warranties made by Seller and Stockholder under
Paragraphs G and H of Article X, any indemnification of Buyer for any breach
thereof under Article XV, and Seller's and Stockholder's liability for any
pre-Closing tax liability, for any taxes whatsoever, shall survive the Closing
and remain operative and in full force and effect. All representations and
warranties of Buyer under Article XI, and any indemnification of Seller and
Stockholder for any breach thereof under Article XV, shall survive the Closing,
but shall be of no further force and effect after one (1) year following the
date of Closing.
XXIV. ENTIRE AGREEMENT; AMEDMENTS AND WAIVERS
This Agreement, together with all exhibits and schedules hereto, constitutes
the entire agreement between the parties pertaining to the subject matter hereof
and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written. No supplement, modification or waiver of
this Agreement shall be binding unless executed in writing by the party to be
bound thereby. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a wavier of any other provision hereof (whether or
not similar), nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided.
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<PAGE>
EXHIBIT 2.7 - CON'T
XXV. MULTIPLE COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together constitute one and the
same instrument.
XXVI. INVALIDITY
In the event that any one or more of the provisions contained in this
Agreement or in any other instrument referred to herein shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, then to the
maximum extent permitted by law, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement or any other such
instrument.
XXVII. TITLES
The titles, captions, or headings of the Articles and Sections herein are
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
XXVIII. PUBLICITY
Except as specified in Article XII(E) hereof, neither party shall issue any
press release or make any public statement regarding the transactions
contemplated hereby, without the prior approval of the other party, and the
parties hereto shall issue a mutually acceptable press release as soon as
practicable after the execution and delivery of this Agreement.
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<PAGE>
EXHIBIT 2.7-CON'T
XXIX. CONFIDENTIAL INFORMATION
In connection with the negotiation of this Agreement, each party
acknowledges that it has had access to confidential information relating to the
other party. Each party shall treat such information as confidential, preserve
the confidentiality thereof and not duplicate or make use of any other such
information, except to advisors, consultants, lenders and affiliates in
connection with the transactions contemplated hereby or pursuant to or as
required by law. If the transaction is not closed, each party shall return to
the other all confidential information in tangible form, belonging or relating
to the other party or provide a certificate of destruction of such material
acceptable to the other party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed on their respective behalf, by their respective officers thereunto duly
authorized, on this 29th day of January, 1998.
"SELLER"
<TABLE>
<S> <C>
SKY-TRACKER OF FLORIDA, INC. SKY-TRACKER OF GEORGIA, INC.
a Florida corporation a Florida corporation
By /s/ Jerome P. Ross By /s/ Jerome P. Ross
- ------------------------------------------- -------------------------------------------
Title: President Title: President
- ------------------------------------------- -------------------------------------------
"Stockholder" "Buyer"
BALLANTYNE OF OMAHA, INC.
a Delaware corporation
/s/ Jerome P. Ross By /s/ Brad French
- ------------------------------------------- -------------------------------------------
Jerome P. Ross Brad French
Chief Financial Officer
</TABLE>
55
<PAGE>
EXHIBIT 2.7-CON'T
<TABLE>
<S> <C> <C> <C>
STATE OF FLORIDA )
) ss.
COUNTY OF Orange )
</TABLE>
The foregoing instrument was acknowledged before me this 29th day of
January, 1998, by JEROME P. ROSS, President of SKY-TRACKER OF FLORIDA, INC., a
Florida corporation, on behalf of the corporation. He is PERSONALLY KNOWN to me
or has produced as identification.
<TABLE>
<S> <C> <C> <C>
/s/ Maurice Shams
-------------------------------------------
Notary Public
STATE OF FLORIDA )
) ss.
COUNTY OF Orange )
</TABLE>
The foregoing instrument was acknowledged before me this 29th day of
January, 1998, by JEROME P. ROSS, President of SKY-TRACKER OF GEORGIA, INC., a
Florida corporation, on behalf of the corporation. He is PERSONALLY KNOWN to me
or has produced as identification.
<TABLE>
<S> <C> <C> <C>
/s/ Maurice Shams
-------------------------------------------
Notary Public
STATE OF FLORIDA )
) ss.
COUNTY OF Orange )
</TABLE>
The foregoing instrument was acknowledged before me this 29th day of
January, 1998, by JEROME P. ROSS, Stockholder. He is PERSONALLY KNOWN to me or
has produced as identification.
<TABLE>
<S> <C> <C> <C>
/s/ Maurice Shams
-------------------------------------------
Notary Public
STATE OF FLORIDA )
) ss.
COUNTY OF Orange )
</TABLE>
The foregoing instrument was acknowledged before me this 29th day of
January, 1998, by BRAD FRENCH, Chief Financial Officer of BALLANTYNE OF OMAHA,
INC., a Delaware corporation, on behalf of the corporation. He is PERSONALLY
KNOWN to me or has produced as identification.
<TABLE>
<S> <C> <C> <C>
/s/ Maurice Shams
-------------------------------------------
Notary Public
</TABLE>
56
<PAGE>
EXHIBIT 2.7-CON'T
ASSETS PURCHASE AGREEMENT
EXHIBIT LIST
1. Accounts Receivable
2. Purchase Order
3. Promotional Display Contracts
4. Warranties
5. Longwood Lease
6. Georgia Lease
7. Unaudited Balance Sheets
8. List of Contracts (2,3,5 & 6)
9. Fixtures and Equipment
10. Loan and Lease Equipment
11. Trademarks - Internet
12. Allocation of Purchase Price
13. Employment Agreement
14. Stock Option Agreement
15. Claims
16. Policies of Insurance
17. Non-Competition Agreement
57
<PAGE>
Exhibit 10.1.5
CONSULTING AGREEMENT
THIS AGREEMENT made and entered into this 22nd day of December, 1997, by and
between Ballantyne of Omaha, Inc., ("Ballantyne"), a Delaware corporation with
its principal offices at 4350 McKinley Street, Omaha, Nebraska 68112 (the
"Company"), and Ronald H. Echtenkamp, an individual residing at 4434 South 163rd
Street, Omaha, Nebraska 68135 ("Echtenkamp").
WITNESSETH
WHEREAS, Echtenkamp has been a key employee of Ballantyne for many years,
and retired from the office of President of the Company on March 31, 1997; and
WHEREAS, since March 31, 1997, Echtenkamp has served the Company as a
consultant and as Vice-Chairman of the Board of Directors; and
WHEREAS, the Company wishes to continue to have the benefit of Echtenkamp's
experience, counsel and advice in the operation of its business, and wishes to
retain him as a consultant, and Echtenkamp is agreeable thereto.
NOW, THEREFORE, it is agreed by and between the parties hereto, as follows:
1. ENGAGEMENT AS CONSULTANT. Company hereby engages Echtenkamp as a
consultant for a term beginning January 1, 1998, and terminating on December 31,
1998, and Echtenkamp hereby accepts such engagement.
2. ACTIVITIES OF CONSULTANT. During the term of this Agreement, Echtenkamp
will assist the Company in the continued operation of its business, and will
render counsel and advice, and such other services as the Company desires, with
the particular assignment of pursuing and negotiating acquisitions of other
businesses. During this period, Echtenkamp will continue to serve as
Vice-Chairman of the Board. It is contemplated that Echtenkamp will devote five
(5) days of his time per month to the business of the Company.
3. COMPENSATION. As compensation for his services to be rendered to the
Company, the Company will compensate Echtenkamp at the rate of Four Thousand
Five Hundred Dollars ($4,500.00) per month. In addition, Echtenkamp will be
reimbursed for all out-of-pocket expenses incurred on behalf of the Company. If
Echtenkamp shall devote more than sixty (60) days of his time on behalf of the
Company during the term of this Contract, he will be paid additional
compensation at the rate of Seven Hundred Dollars ($700.00) per day.
4. OFFICE. Echtenkamp will maintain his office at premises other than the
offices of the Company, but will be entitled to use secretarial services
provided by the Company.
5. INSURANCE. As additional consideration for the services to be performed
by Echtenkamp, the Company agrees to provide him Executive Retirement
Supplemental Insurance, including prescription drug coverage, for himself and
his spouse after they reach the age of sixty-five (65) years, for which the
Employee will pay up to Seventy-Five ($75.00) each for himself and his spouse
per month.
6. RESTRICTIVE COVENANTS. Echtenkamp agrees to continue to be bound by the
provisions of Sections 8, 9 and 10 of his Employment Contract dated October 1,
1991, as though they were a part of this Consulting Agreement, and the
provisions thereof are incorporated herein by this reference.
7. TAXES. The Company shall withhold income and FICA taxes from
Echtenkamp's compensation, and report same to the Internal Revenue Service on
Form 941.
8. MISCELLANEOUS. The following miscellaneous provisions shall apply to
this Agreement:
58
<PAGE>
EXHIBIT 10.1.5
A. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding between the parties with respect to the
subject matter hereof, and supercedes all prior agreements and
understandings, oral and written, between the parties with respect
thereto. The Agreement may be amended or supplemented at any time only by
an instrument in writing signed by both of the parties.
B. APPLICABLE LAW. This Agreement shall be construed and enforced
in accordance with the laws of the State of Nebraska.
C. BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective personal
representatives, heirs, successors and assigns, except that the
obligations of Echtenkamp hereunder may not be assigned.
D. NOTICES. Any notice requires or permitted to be given under this
Agreement shall be sufficient if in writing and sent to the other party
by certified mail, return receipt requested, to the address for such
party set forth above.
E. HEADINGS. The headings of the sections herein are for
convenience only and shall not be construed as in any manner defining,
limiting, or describing the scope or intent of the particular sections to
which they refer, or as affecting the meaning or construction of the
language in the body of such sections.
IN WITNESS WHEREOF, the parties hereto have set their hands the date first
above written.
<TABLE>
<S> <C> <C>
BALLANTYNE OF OMAHA, INC.
By: /s/ JOHN P. WILMERS
-----------------------------------------
John P. Wilmers
PRESIDENT
/s/ RONALD H. ECHTENKAMP
-----------------------------------------
Ronald H. Echtenkamp
</TABLE>
59
<PAGE>
EXHIBIT 10.10.1
AMENDMENT NO. 1
TO
MANAGEMENT SERVICES AGREEMENT
Amendment No. 1 to Management Services Agreement dated as of July 1, 1997
("Amendment") by and between BALLANTYNE OF OMAHA, INC., a Delaware corporation
("Ballantyne") and CANRAD INC., a Delaware corporation ("Canrad").
WITNESSETH:
WHEREAS, Ballantyne and Canrad are parties to a Management Services
Agreement dated as of September 12, 1995 (the "Agreement"); and
WHEREAS, Ballantyne and Canrad desire to amend the Agreement with respect to
the amount of a certain fee due thereunder;
NOW, THEREFORE, in consideration of the promises and mutual covenants and
agreements hereinafter set forth, the parties hereto, desiring to be legally
bound, do hereby agree as follows:
1. Section 3.1 of the Agreement is hereby amended and restated in its
entirety as follows:
3.1 Management Fee. In consideration of the services to be rendered by
Canrad hereunder, Ballantyne shall pay to Canrad a monthly fee of $12,500
(the "Management Fee"), together with any relevant sales taxes during each
year that this Agreement remains in effect. The Management Fee shall be paid
in arrears within ten (10) days after the end of each month included within
the term of this Agreement.
2. Except as expressly amended hereby, all of the terms and conditions of
the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused the execution of this
Amendment as of the date first above written.
<TABLE>
<S> <C> <C>
BALLANTYNE OF OMAHA, INC.
By: /s/ ARNOLD S. TENNEY
-----------------------------------------
Arnold S. Tenney
Chairman of the Board
CANRAD INC.
By: /s/ ARNOLD S. TENNEY
-----------------------------------------
Arnold S. Tenney
Chairman of the Board
</TABLE>
60
<PAGE>
EXHIBIT 23
ACCOUNTANTS' CONSENT
The Board of Directors
Ballantyne of Omaha, Inc.:
We consent to incorporation by reference in the Registration Statements (No.
333-03849 and 33-93244) on Form S-8 and (No. 333-22357) on Form S-3 of
Ballantyne of Omaha, Inc. of our report dated January 23, 1998, relating to the
consolidated balance sheets of Ballantyne of Omaha, Inc. and subsidiaries as of
December 31, 1996 and 1997, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1997, and related schedule, which report appears in
the December 31, 1997 Annual Report on Form 10-K of Ballantyne of Omaha, Inc.
(Signed)
KPMG Peat Marwick LLP
Omaha, Nebraska
March 26, 1998
61
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 7,701,507 6,042,593
<SECURITIES> 0 0
<RECEIVABLES> 11,944,054 9,233,616
<ALLOWANCES> 215,823 143,000
<INVENTORY> 17,445,632 11,901,123
<CURRENT-ASSETS> 38,110,297 27,639,059
<PP&E> 10,796,836 6,502,974
<DEPRECIATION> 3,396,846 2,639,165
<TOTAL-ASSETS> 46,752,498 32,462,220
<CURRENT-LIABILITIES> 10,707,393 7,896,606
<BONDS> 171,761 150,195
0 0
0 0
<COMMON> 90,324 85,698
<OTHER-SE> 35,532,705 23,943,249
<TOTAL-LIABILITY-AND-EQUITY> 46,752,498 32,462,220
<SALES> 70,205,111 51,753,864
<TOTAL-REVENUES> 70,205,111 51,753,864
<CGS> 49,480,113 36,396,527
<TOTAL-COSTS> 49,480,113 36,396,527
<OTHER-EXPENSES> 8,983,524 6,983,458
<LOSS-PROVISION> 187,110 63,995
<INTEREST-EXPENSE> 31,902 363,508
<INCOME-PRETAX> 11,808,394 7,946,376
<INCOME-TAX> 4,099,055 2,909,683
<INCOME-CONTINUING> 7,709,339 5,036,693
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,709,339 5,036,693
<EPS-PRIMARY> $0.88 $0.68
<EPS-DILUTED> $0.82 $0.63
</TABLE>
