-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Kb80yw0prM2+bDX3egG3VUsyfv6ZhnAtseLQI+5FZ4V9IMJcAfk+DAT7T4FrFao0 zOuI03iF8LWQTR2Cab0wMg== 0000950136-02-001094.txt : 20020416 0000950136-02-001094.hdr.sgml : 20020416 ACCESSION NUMBER: 0000950136-02-001094 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020415 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ULTRAK INC CENTRAL INDEX KEY: 0000318259 STANDARD INDUSTRIAL CLASSIFICATION: PHOTOGRAPHIC EQUIPMENT & SUPPLIES [3861] IRS NUMBER: 752626358 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-09463 FILM NUMBER: 02611270 BUSINESS ADDRESS: STREET 1: 1301 WATERS RIDGE DRIVE CITY: LEWISVILLE STATE: TX ZIP: 75057 BUSINESS PHONE: 9722809675 MAIL ADDRESS: STREET 1: 1301 WATERS RIDGE DRIVE CITY: LEWISVILLE STATE: TX ZIP: 75057 10-K 1 file001.txt FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (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, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-9463 ULTRAK, INC. (Exact name of registrant as specified in its charter) DELAWARE 75-2626358 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 1301 WATERS RIDGE DRIVE LEWISVILLE, TEXAS 75057 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (972) 353-6500 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01 PAR VALUE Indicate by check mark whether the 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. Yes [X] No [ ] 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 a definitive proxy to be filed or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant, as of March 15, 2002 was $10,702,912. As of that date 1,132 shares of the Registrant's Common Stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE: The aggregate market value of the voting stock held by non-affiliates of the registrant, as of March 15, 2002 was $10,536,026 As of that date 1,132 shares of the Registrant's Common Stock were outstanding. PART I ITEM 1. BUSINESS -------- GENERAL Ultrak, Inc. (the "Company" or "Ultrak") is one of the leading global electronic security companies in the world. Ultrak designs, manufactures, markets, sells and services innovative electronic products and systems for security and surveillance, industrial video and professional audio markets worldwide. These products and systems include high-speed domes, monitors, switchers, quad processors, video management systems, digital and analog recorders, multiplexers, video transmission systems, access control systems, cameras, lenses, observation systems, audio equipment and accessories. Brand names include Ultrak, MaxPro, Exxis, Smart Choice and Phoenix. Customers, defined as end users of Ultrak products and services, range from single location, sole proprietor businesses to universities and government facilities. Sales to the professional security markets are made through the Company's channel partners. Ultrak operates sales, distribution and manufacturing locations worldwide. The Company has sales offices in six U.S. cities as well as offices in Great Britain, Germany, Italy, Poland, Switzerland, Singapore, Australia and South Africa. Ultrak also has active representation through Company sales representatives and systems integrators in China, Canada, Mexico and Brazil. Customers are supported by nine distribution centers worldwide located in Texas, Ohio, Great Britain, Germany, Italy, Poland, Switzerland, Australia and South Africa and manufacturing facilities located in Texas, Ohio and South Africa. The Company was incorporated in Colorado in 1980 and re-incorporated in Delaware in December 1995. In 1997, the Company built a 170,000-square foot warehouse and headquarters facility (the "Headquarters Facility") known as the Ultrak Worldwide Support Center located in the north Dallas suburb of Lewisville, Texas. FOURTH QUARTER 2000 CHARGE Beginning in August 2000, the Company assembled a new management team. The management team included a new President, Chief Financial Officer, Senior Vice Presidents of U.S. Sales, Engineering and International Markets and Vice Presidents of Worldwide Marketing and General Counsel. The team promptly implemented several strategic initiatives as part of a Company-wide restructuring program: o to reduce personnel costs o evaluate sales and engineering resources o emphasize Ultrak-branded product lines o decentralize European warehousing o improve inventory management o develop consistent global marketing strategies o streamline product development process. These strategic initiatives resulted in tremendous changes to the Company and necessitated a significant charge of $42.3 million (the "2000 Special Charge") in the fourth quarter of 2000. The 2000 Special Charge consisted of severance for terminated employees in the United States and Europe, inventory write-offs for non-Ultrak products and returned goods deemed uneconomical to repair, lease terminations and relocation in Europe, as well as write-downs of intangible assets, internal use software, software development costs and other assets. 2 IMPROVEMENTS IN 2001 As a result of the management changes and the new strategic initiatives, the Company improved margins, reduced operating losses, disposed of non-core business units, raised additional equity capital and reduced debt levels. Excluding the effect of the 2000 Special Charge, gross profit improved a total of 1.4%. The margin increase is due to a more efficient slow-moving inventory disposition program as well as a more stabilized and streamlined product development process. In addition to the margin improvements, operating expenses were $11.4 million less in 2001, excluding the effect of the 2000 Special Charge, which in 2001 included $1.6 million in credits, and the $4.5 million loss recorded on the sale of the Headquarters Facility in 2001. Operating losses in 2001 were reduced by $3.5 million from the prior year, excluding the effect of the 2000 Special Charge and the loss recorded on the sale of the Headquarters Facility in 2001, despite a decrease in revenue of almost $40 million. The Company's European operations showed substantial operating improvements in 2001. The Belgium facility that previously housed a centralized European warehouse management and logistics support group was sold in December 2001. All of the inventory at that location was either scrapped or transferred to other European subsidiaries by the end of the second quarter of 2001. French operations were discontinued in 2001 with the sale of the French closed circuit television ("CCTV") inventory and the audio inventory. The sale of that inventory, in addition to the transfer of the French personnel to the acquiring company, allowed the Company to avoid $0.5 million in severance costs. Management expects the sale of the Belgium and French businesses to yield an annual cost savings of $1.5 million. In order to streamline manufacturing operations, the Company closed its manufacturing facility in Australia, but maintains a sales office and service center in that location. Management expects this closure to generate an annual cost savings of $1.0 million. Part of the new strategy created by management was to dispose of non-core business units. Consequently, the Company sold its Industrial Furnace Camera business in July 2001 for $2.6 million. Also, in a sale-and-leaseback transaction, the Headquarters Facility was sold at the end of 2001 for $6.6 million. This lowered the annual financing cost by one-third to $60,000 per month. The Company retains an option to buy back the Headquarters Facility at the end of 24 months for $6.9 million. The mortgage on the building was paid off. The purchase of the Headquarters Facility required that George K. Broady, the Company's Chairman and CEO, execute a personal guarantee in connection with the sale-and-leaseback of the Headquarters Facility. As consideration for this guarantee, the Company's Board of Directors authorized the issuance of common stock purchase warrants to Mr. Broady. See Note D to the Company's Consolidated Financial Statements for additional information on this transaction. In October 2001, the Company received $4.1 million in equity from the private placement of 2.3 million shares of unregistered common stock. The Company reduced its line of credit by $20.4 million in 2001. This was due in part to the $24.0 million of proceeds from the sale of its investment in Detection Systems, Inc. in January 2001. 3 STRATEGIES The basic strategies that the current management team put in place remain unchanged. The priorities are in margin improvement, marketing, distribution channels and international opportunities. o Improving gross profit margin The strategies are focused on improving profit margins. New product launches are oriented toward the higher-margin digital video products, the first comprehensive digital line-up in the industry. Products are engineered to be simpler and more modularized, which should improve manufacturing and distribution efficiency. Aggressive cost cutting measures are being pursued for both in-house and contract manufacturers. Products mixes are shifted toward higher-margin cameras and video switches. o Enhancing marketing and product management While overall spending has been reduced, the Company is investing more in marketing and product management. Emphasis is being made to enhance the market awareness of Ultrak's superior products and services. A more disciplined approach to product management has been instituted to strategically develop the Company's product lines. Profit and loss is now being tracked for each product line to measure profitability and to identify the impact of new marketing initiatives. o Expanding distribution channels Ultrak views the end users of its security solutions as its ultimate customers and delivers these solutions through its channel partners, primarily dealers and installers. Management began inviting groups of dealers and installers to the Company's Headquarters Facility for two days of training and product demonstration ("Dealers' Days") several times throughout the second half of 2001. Dealers' Days generated significant enthusiasm among the Company's channel partners and increased their knowledge of the breadth of Ultrak offerings. Management sees the building of this awareness, substantiated by the successive introductions of new products, as a long-term process to expanding the Company's distribution channels and increasing its revenue opportunities. o Increasing international opportunities Management believes that increased focus on international distribution is an effective use of the Company's resources. Ultrak's international businesses showed significant operating improvements. Management sees more opportunity in distribution outside the US. Significant revenue growth in 2001 was accomplished in Italy, Poland and South Africa. See Note K to the Company's Consolidated Financial Statements for additional information on sales by country. 4 ACQUISITIONS The Company did not consummate any acquisitions in 2001 or 2000. As part of the new strategic initiatives, the priority is to further integrate existing engineering and product development capabilities, acquired through multiple transactions prior to 2000, rather than acquiring additional companies. Ultrak will still consider acquisitions when appropriate opportunities are presented. Effective March 1, 1999, the Company acquired ABM Data Systems, Inc. ("ABM"), based in Austin, Texas, which develops, sells and services computer software for the alarm monitoring security industry, government agencies and proprietary customers and offers support for computer software targeted for the automated security monitoring markets, for 250,000 shares of Common Stock, valued at $1.5 million. Effective April 1, 1999, the Company acquired 100% of the stock of Multi Concepts Systems, SA ("MCS"), a Switzerland based systems integrator of electronic security systems. Total consideration included an initial payment of $405,000 in cash and future contingent payments based upon a percentage of MCS's net income and book value. Effective July 1, 1999, the Company acquired 100% of the stock of MACH Security Sp.z.o.o ("Mach"), based in Szczecin, Poland. Total consideration included an initial payment of $275,000 in cash and future contingent payments based upon a percentage of MACH net income. DIVESTITURES On December 31, 2001, the Company`s French subsidiary sold its CCTV inventory and other intangibles to Bisset Technology Systems ("BTS") for a nominal amount. BTS assumed the transfer of the Company's French CCTV employees. No gain or loss was recorded on this sale. On October 15, 2001, the Company's French subsidiary sold its audio inventory and other intangibles to Audio Club for $312,000. A loss of $175,000 was recognized on this transaction in 2001. On July 27, 2001, the Company sold the industrial furnace camera business to Diamond Power International, Inc. for total cash consideration of $2.6 million. The assets sold consisted primarily of accounts receivable, inventories, fixed assets, patents, trademarks and other intangibles. A gain of $1.3 million was recognized in 2001 on the transaction. On September 13, 2000, the Company sold certain inventory and assets of Monitor Dynamics, Inc. to Ameritron, Inc. for two short-term notes totaling $925,000. These notes were paid in full by October 2001. Ameritron also entered into an agreement to sublease a portion of Ultrak's Rancho Cucamonga facility. No gain or loss was recorded on this sale. On July 1, 2000, the Company sold substantially all of its UK-based business, Intervision Express Ltd. ("Intervision"), to Norbain SD, Ltd. ("Norbain"), a UK-based distributor of CCTV and access control equipment. The Company received approximately $2.1 million in cash for inventory and certain other assets including use of the Intervision trade name. Ultrak retained accounts receivable and the right to sell Ultrak branded products directly to systems integrators and installers in Intervision's previous market of the UK and Ireland. A loss of approximately $840,000 was recognized on the sale. Ultrak granted Norbain distribution exclusivity for Ultrak's Diamond series dome product line and its CCTV products in the UK and Ireland. To maintain its exclusivity, Norbain entered into a distribution and OEM purchase agreement whereby it must buy at least $6.0 million of Ultrak-branded CCTV products and dome systems during the term of the agreement ending on December 31, 2002. As of December 31, 2001, Norbain has purchased $3.2 million pursuant to the terms of the agreement. PRODUCTS AND SERVICES It is the Company's objective to set new standards in quality, performance and value by providing single-source security solutions to its customers in the form of integrated systems. An integrated system includes more than one of the following components controlled from a single device or console: CCTV, networked video, access control, video management and alarm management. Ultrak differentiates itself from the competition through its integration support 5 services provided by its Integrated Systems Group ("ISG") which provides application engineering, design, installation, implementation, training and technical support through its dealer base. The advantages of an integrated system to the end user are numerous. It improves ease of operation, security, health/safety and loss prevention, and also reduces maintenance and training costs. Ultrak's management believes that integrated systems provide customers maximum functionality at competitive prices. Ultrak's integrated systems are found in manufacturing facilities, airports, office complexes, government agencies, hospitals, casinos, retail stores and other organizations. Ultrak sells the following standard products and services to complete its integrated systems offering: o Full line of black-and-white and color cameras o Nitrogen-pressurized cameras and domes for applications where a dirt-free environment is critical o Complete range of lenses o High speed, remote-controlled domes and housings, including the new Z-series, a low cost dome family targeted for cost-conscious applications o Video transmission equipment o Digital processors (quads and multiplexers), switchers and video management systems, including patented video management technology o Time-lapse and digital video recorders o Black and white and color monitors o Ruggedized cameras, monitors and recorders for mobile video applications o Observations systems (monitor, quad process, camera and related accessories packaged in one box) and accessories o Access control systems from single door to multi-station applications over LAN/WAN o Public address and professional audio equipment o Alarm management software for central monitoring and proprietary monitoring stations o ISG services Ultrak relies on OEM relationships to satisfy the majority of its standard products such as cameras, monitors, VCRs and accessories. Most of these products are engineered to Ultrak specifications and undergo thorough technical evaluation prior to release. Dome products are engineered and assembled by Ultrak at its Carroll (Columbus) Ohio facility (the "Ohio Facility"). In 2002, Ultrak is releasing its new line of low-cost domes, the Z- series, which is targeted to retail applications. Ultrak engineers a complete range of access control software from its facility in Rancho Cucamonga, California (the "California Facility") and the Headquarters Facility. Ultrak offers solutions covering a single door through high-security, multiple location networked environments. The Company outsources hardware manufacturing for access control products. In 2002, the Company will introduce its next generation of PointGuard that provides multi-workstation capabilities. The Company will also move forward with its well-known SAFEnet(TM) application offering additional features, new hardware with flash download and the new PB2000 processor board. Video management, marketed under the Maxpro(TM) brand name, is being repositioned to focus on its Mini-Max line of products, aimed at small to mid-sized applications. Ultrak will continue with new releases of Phoenix(TM), its central station and proprietary alarm management solution engineered at its Austin, Texas facility (the "Austin Facility) focusing on video, accounting and service package integration. Through its ISG group, Ultrak also sells system design, integration and support services through its dealers on an as needed basis. Ultrak anticipates that these integration and support services will be a growing revenue source for the Company based on the complexity and changing nature of the Company's products. 6 MARKETING AND SALES Ultrak sells through highly focused selling groups organized around its target markets. These groups include the Professional Security Group ("PSG"), both U.S. and international and the Diversified Sales Group ("DSG"). Ultrak's customer-focused structure allows for individual attention to each target market, quick response to customer needs and early identification of market requirements. The Company reaches each target market through regional sales professionals supported by inside sales executives, product catalogs, direct mail, magazine advertising and industry trade shows. PROFESSIONAL SECURITY GROUP PSG is responsible for sales in the commercial channel. Ultrak provides one point of sales contact to the customer, utilizing regional sales executives who support sales across all product segments including CCTV, access control, video management and alarm management. Customers include banks, schools, casinos, large retail chains and government facilities. These customers include such prominent names as Wal-Mart, American Express, Cartier, John Deere, Caterpillar and MBNA. Regional sales executives receive support from product and market specialists, ISG and inside sales support. ISG also works directly with the dealer/integrator and/or the end user to define requirements, engineer the solution and provide project management of installation and implementation when required. Ultrak has strong relationships with local, regional and national dealer/integrators such as Diebold, and with regional and national distributors, including ADI. In order to increase revenue, the sales effort is spread between end user, dealers/systems integrators, national accounts and distribution. Ultrak believes its role is to establish and solidify its relationship with its channel partners, direct business opportunities to them and provide additional competitive resources to its distributors enabling them to capture more business. Team Ultrak and Ultrak Select, Ultrak's key dealer and distributor programs, are used to reward loyal channel partners with special sales and marketing incentives. Ultrak began actively pursuing the international market in 1995. Ultrak sells its products and systems in a number of countries including Mexico, Brazil, Great Britain, France, Germany, Denmark, India, China, South Korea, Japan, the Philippines and Australia. Since the second quarter of 1996, the Company acquired MAXPRO (Australia), Bisset (France, now divested), VideV (Germany), Intervision (the United Kingdom, now divested), the Videosys Group (Italy), Philtech (South Africa), MCS (Switzerland), Mach (Poland) and established a distribution company in Singapore, which has substantially expanded the Company's presence internationally. See Note K to the Company's Consolidated Financial Statements with respect to business segments. The majority of products are marketed under the Ultrak brand name. PSG competitors include Pelco, Tyco (including Sensormatic), Philips, Lenel, GE/Interlogix and others. There are a number of smaller competitors in the digital video recording market. 7 DIVERSIFIED SALES GROUP CONSUMER/DO-IT-YOURSELF: Small businesses and homeowners are installing video observation systems to replace or supplement conventional alarm systems as the cost of CCTV products decline. The consumer/do-it-yourself security and surveillance market consists of end users who purchase security and surveillance systems and install the systems themselves in their small businesses or homes. Video products sold into this market are characterized by affordability, aesthetic designs, ease of installation/maintenance and mobility. The typical product for this market is a wired or wireless observation system, and consists of a camera, a monitor, a switcher or quad processor and, optionally, a video recorder. These products are available in either black and white or color models. Ultrak markets these products under the Exxis (TM), Focus (TM) and Smart Choice (R)brand names. Consumer/do-it-yourself CCTV products are sold through Ultrak's call center, mass merchandisers, warehouse clubs, electronic retail stores and office product superstores, as well as through retail catalogs. Ultrak's call center also offers after-market sales and technical support through telephonic interface with consumers as well as its e-commerce website, SecurityandMore.com. Competitors in this segment include Lorex, which sells under the Sylvania and Lorex brand names, Mansoor Electronics, sold under the Home Sentinel brand and numerous direct importers. INDUSTRIAL: This business is divided into Industrial Vision Source ("IVS") and Traffic. IVS is a distributor of video products used in various production and manufacturing processes. Manufacturers include Sony, Panasonic, Hitachi, and JVC. The Company sells to this market through systems integrators who assemble and sell equipment that incorporates video cameras. Typical applications include machine vision, computer imaging, robotics, microscopy and high-speed inspection. The use of industrial video offers more precise assessment than human visual inspection and can measure image parameters that are imperceptible to the human eye. These systems are also used to remotely monitor automated assembly lines to ensure that each process on the assembly line is accurately and completely performed. Additional industrial applications are emerging as new equipment is developed and as production automation levels increase. The industrial vision market is heavily dependent on sales to customers in the semiconductor industry. There are numerous competitors in this segment including name brand manufacturers selling direct, importers and other distributors. The Company uses a combination of its own inside sales force and outside representatives to sell these products to dealers and OEM accounts. While most of the sales are made over the telephone, Ultrak representatives also attend industry trade shows to meet with key customers and vendors. Advertising and leads provided by the manufacturers supplement the Company's sales efforts in this area. Ultrak's Traffic division consists primarily of rugged dome products and switching equipment, engineered by Ultrak. Sales are made through a dealers and systems integrators. These products are specific to the traffic-surveillance market. BRANDING Ultrak uses various brand names to minimize market channel conflicts and to differentiate products by features, applications and price. The Company's proprietary brand names, many of which are registered trademarks, include Ultrak (R), Maxpro(TM), Videosys(R), SAFEnet(TM), Pointguard, Exxis(TM), Focus(TM), Smart Choice(R), Phoenix(TM), Industrial Vision Source(TM), Securityandmore.com(TM) and ESS(TM). The vast majority of the products sold by the Company carry Ultrak brand names. The Company also sells brands such as Panasonic, Mitsubishi, and Sony to complete the product line. 8 PRODUCT DESIGN AND DEVELOPMENT In addition to traditional research and development activities, Ultrak's engineering and product development staff worldwide works directly with its customers to design new products and product enhancements, and coordinates with its contract suppliers to manufacture certain Ultrak branded products. Ultrak's engineering staff works with its selling and marketing groups to develop new products and product line extensions, and to promptly respond to customer needs on a worldwide basis. Consequently, Ultrak believes that it can develop technologically superior products with customer-desired performance capabilities that address new applications at lower prices than competitive products. The Company's products are becoming more software-driven to support the integration of technologies and functions into its customers' existing networks. Because of the complex and highly specialized requirements of Ultrak products and systems, Ultrak's engineers are experienced in a wide range of disciplines including charged-coupled device ("CCD") technology, analog and digital signal processing, CCTV management and switching technology, computer based access control technology, facility management technology and high speed dome technology. In addition, the Company's international contract manufacturers employ a number of engineers who are primarily dedicated to research and development efforts of products sold by Ultrak. In 1999, the Company introduced its computer-based SAFEnet NT system, the Windows-NT((R)) version of Ultrak's flagship line of integrated access control and security systems. SAFEnet NT provides a stable, flexible platform for the integration of new functions and technologies. At the end of 2000, Ultrak reintroduced an improved version of PointGuard, its solution to the low to mid-range access control market, and introduced Eurocorder II, its digital video recorder. In the first quarter of 2002, Ultrak released upgrades of SAFEnet NT, including new hardware, and PointGuard for multi-workstations, expanding its range of access control solutions for low to high-end applications. Ultrak will also introduce an expanded line of Z-series domes to cover the entry-level dome market and ruggedized cameras for applications subject to tampering and vandalism. Ultrak will continue its focus on digital recording options using a combination of Ultrak manufactured products and OEM products. Ultrak believes that the market for digital recording is highly fragmented and will require a variety of solutions to meet diverse customer demands and requirements. SUPPLIER RELATIONSHIPS Contract manufacturers produce the majority of Ultrak-branded products. In most of its vendor relationships, the Company believes the relationship is as important to the supplier as it is to the Company. Thus, the Company believes there is a strong, mutually advantageous basis for the trading relationship to continue and grow. See Note G to the Company's Consolidated Financial Statements with regard to Major Customers and Suppliers. Because of foreign production lead times, the Company normally makes purchase commitments to its foreign suppliers three to six months in advance of shipment. Given order lead times, accurate inventory forecasting is critical. Ultrak's objective in 2002 is to continue reducing the working capital utilized in its inventories, making it necessary to work closer with its suppliers to reduce lead times. The Company's primary contract manufacturer is ISO9001 certified. When goods are delivered to Ultrak, a random sampling quality assurance procedure is performed. Selected units are verified for functionality, proper packaging, labeling and documentation, and variations greater than an agreed upon percentage are corrected at the vendor's cost. Ultrak offers a limited warranty on its products. The Company generally warrants that its products will conform to Ultrak's published specifications and be free from defects in materials and workmanship at the time of sale up to a specified period of time. Ultrak also offers extended warranties for sale on its consumer products. 9 Substantially all of the Company's purchases from its non-affiliated contract manufacturers are made in United States Dollars or Euro; most of the remaining purchases are made in Japanese Yen, Australian Dollars, South African Rands and British Pounds. In 2001, the Company was adversely impacted by the strengthening of the U.S. dollar, as its international subsidiaries import products quoted in U.S. dollars or U.S. dollar-linked currencies. OPERATIONS A critical element of the Company's operations is its management information systems. In early 1997, the Company selected SAP, a leading enterprise software system, for its domestic information needs. As of February 1998, the Company had successfully completed the SAP conversion process at the Headquarters Facility. As of July 2000, the Company successfully completed the SAP conversion process at its Ohio Facility and at its Austin Facility, effectively linking all North American sales and manufacturing operations. As previously anticipated, SAP united Ultrak and all of its domestic subsidiaries with a common inventory, sales, accounting/financial and database management system. Through laptop computers, the Ultrak domestic sales team can easily communicate with the host system from any remote location. The Company selected "Exact", a multi-lingual, multi-currency and Euro-compliant software for its European information needs. Most of the Company's European operations are now operational on the "Exact" software and linked together with a common inventory, sales, accounting and financial system. Ultrak's Worldwide Support Center is ISO 9002-1994 registered and transition to the ISO 9000:2000 will be completed by September 2003. All other Ultrak facilities are currently working to obtain ISO 9000:2000 registration. As part of a continuing effort to improve quality, the Company has an internal audit program. Internal auditors are trained to monitor and evaluate the quality of Ultrak's products to ensure their reliability. These products must meet specific requirements and are inspected at least once before they are released to the customer. The auditors report and correct both nonconformance and potential nonconformance by using failure rate data analysis to identify trends. Analysis of these trends helps detect and prevent nonconforming product. Additionally, product line audit data is analyzed to evaluate the quality of the production process. Ultrak believes that one of the keys to its success is its commitment to be responsive and provide excellent service to its customers. Domestic orders are entered into the Company's Lewisville, Texas-based SAP computer system by in-house sales personnel. After the computer system performs an automated check of the customer's account and credit limit, the order is released for shipment. Ultrak ships most items within 24 hours of receipt of the order. The Company's domestic stocking warehouse locations are the Headquarters Facility and the Ohio Facility. Approximately 90% of all domestic shipments are made from the Headquarters Facility. On-time delivery, order accuracy and superior customer service are the key goals for Ultrak's operations. To further its customer service abilities, the Company is currently evaluating new manifest software to provide instant e-mail notification of tracking details for customer shipments. There is also an increased focus on operational performance by reducing slow-moving inventory and improving inventory turnover. This will reduce future carrying costs and improve operating efficiency. In August 2001, Ultrak implemented salesforce.com, an on-line customer relationship management (CRM) tool, within the sales, marketing and technical support organizations. Ultrak uses salesforce.com for sales force automation, customer service and support and marketing automation. With salesforce.com, the Company is able to gather customer information in a central data repository for use in providing accurate sales forecasts, determining vertical market segment strengths, collecting data on product issues for future development and assigning return on investment for specific marketing activities. It also ensures customer transactions are documented, eliminating the concern associated with losing knowledge when a specific employee is not available to assist a customer. Professional in-house repair is also provided through the Headquarters Facility. A key focus for the service center is to provide reliable and economic repair in a professional and timely manner. The service center offers 10 standardized pricing for non-warranty repairs and offers 24-hour to 72-hour repair service to its customers. The Company has also authorized two service centers in Mexico to perform these repairs. Management is evaluating additional locations in Canada and South America. TRAINING The Company considers continuous training of its customers to be critical in an increasingly competitive market. In 2001, the Company's training capabilities were expanded to include formal training certification on the MAX 1000 CCTV switch product in the Las Vegas office. Multiple training sessions on Ultrak's products and systems are held throughout the year with salespeople, customers and field installation technicians attending to learn more about our technology and products. In 2002, training will be expanded to include on-site training for end users and systems integrators, and long distance learning computer-based training programs. Dealers and systems integrators will be required to complete and maintain certification for key Ultrak products, or to utilize ISG to ensure customer satisfaction. BACKLOG Because purchase orders are subject to cancellation or delay by customers with limited or no penalty, the Company's backlog is not necessarily indicative of future revenues or earnings. Since the Company ships most products within 24 hours of receipt of the order, the Company believes that backlog is not a significant measurement of the Company's financial position. INTELLECTUAL PROPERTY As part of its ongoing engineering and development activities, Ultrak seeks patent protection on inventions covering new products and improvements when appropriate. Ultrak currently holds a number of United States and foreign patents and has a number of pending patent applications. Although the Company's patents have value, the Company believes that the success of its business depends more on innovation, sales efforts, superior customer service, technical expertise and knowledge of its personnel and other factors. The Company also relies upon trade secret protection for its confidential and proprietary information. Many of the Company's brands are registered trademarks owned by the Company. COMPETITION The Company faces substantial competition in each of its markets. Significant competitive factors in the Company's markets include price, quality and product performance, breadth of product line, ease of integration and customer service and support. Some of the Company's existing and potential competitors have substantially greater financial, manufacturing, marketing and other resources than the Company. To compete successfully, the Company must continue to make substantial investments in its engineering and development, marketing, sales, customer service and support activities. There can be no assurance that competitors will not develop products that offer price or performance features superior to the Company's products. The Company considers its major competitors to be Tyco (including Sensormatic), Philips, Panasonic, Pelco, Lenel, GE/Interlogix and Samsung. 11 EMPLOYEES As of December 31, 2001, the Company had 545 full-time employees employed worldwide as compared with 568 full-time employees worldwide as of December 31, 2000, at 12 primary locations: o 212 sales and sales support personnel o 93 warehouse and manufacturing personnel o 54 technical and service personnel o 79 engineering and product development personnel o 107 administrative and managerial personnel The Company's future success will depend in large part upon its ability to attract and retain highly skilled technical, managerial, financial and marketing personnel, in a market where such people are in demand. No employee is represented by a union or covered by a collective bargaining agreement and the Company has not experienced a work stoppage or strike. The Company considers its employee relations to be good. ITEM 2. PROPERTIES ---------- The Company moved to the Headquarters Facility in January 1998. The Headquarters Facility is comprised of approximately 170,000 square feet of office and warehouse space located on 14 acres of land in Lewisville, Texas. Prior to the end of 2000, the building was financed through a synthetic lease, therefore keeping the asset and the liability off the balance sheet. In January 2001, the Company elected to pay down the balance of the financing from $11.5 million to $10 million, effectively acquiring the building and the mortgage simultaneously. This amount was subsequently paid down to $6.3 million. The Headquarters Facility was sold in December 2001 for $6.6 million in a sale and lease back transaction. As part of the sale, the Company will lease the Headquarters Facility for a term of 30 months beginning in January 2002 at an annual cost of $720,000. The lease includes an option to purchase the Headquarters Facility for $6.9 million at the end of 24 months. The Company owns its 72,000 square foot manufacturing facility in Carroll (Columbus), Ohio and leases its facility in Rancho Cucamonga, California. The Company also leases additional office/distribution warehouse space in Austin, Texas; Las Vegas, Nevada; Warrington (Manchester), Great Britain; San Vendemiano (Venice), Italy; Dusseldorf, Germany; Crissier (Lausanne), Switzerland; Szczecin, Poland; Perth, Australia; Johannesburg, South Africa and Singapore. The Company established a centralized, European headquarters facility in Antwerp, Belgium in 1999 to coordinate efforts among its foreign operations. Customer service under the centralized structure suffered and the cost to operate this facility proved to be unjustified. In 2001, the Company sold the Belgium headquarters building and discontinued centralized distribution. Inventory was transferred to the Company's European offices located in the Great Britain, Germany, France, Italy, Poland and Switzerland. The Company also relocated its international administrative and financial functions to the Great Britain where it currently maintains a sales and operations facility. The Company considers the above facilities suitable and adequate to meet its requirements. ITEM 3. LEGAL PROCEEDINGS ----------------- The Company's French subsidiary is currently involved in multiple employee suits in France. Some of the employees who were dismissed as part of the restructuring plan implemented in the fourth quarter of 2000 have asserted that they were wrongfully terminated. Although the Company believes these suits will be settled on a favorable basis, a $108,000 provision against future legal costs was recorded in the fourth quarter of 2001. Ultrak is subject to various other legal proceedings and claims, either asserted or unasserted, that can arise in the ordinary course of business. Although the outcome of these claims cannot be predicted with certainty, Ultrak does not believe that any of these existing legal matters will have a material adverse effect on its financial conditions or results of operations. 12 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- At a special meeting held on November 30, 2001, the stockholders approved the exercise by the Company of an option to sell Mr. Niklaus F. Zenger ("Zenger") 293,879 additional shares of Ultrak Common Stock. The Company previously sold Zenger 2,337,700 shares of Common Stock in a private placement for $4,441,630.00 in aggregate proceeds. At the special meeting, stockholders also approved the sale by Mr. George K. Broady ("Broady") of 195,351 shares of the Company's Series A 12% Cumulative Convertible Preferred Stock ("Series A Preferred Stock") to Zenger and the grant of voting control of 1,150,000 shares of the Company's Common Stock owned by Broady to Zenger until June 2002. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS --------------------------------------------------------------------- MARKET PRICE AND DIVIDENDS The Company's $.01 par value common stock ("Common Stock") commenced trading on the NASDAQ Stock Market's NASDAQ National Market ("NASDAQ National Market") on January 18, 1994, under the symbol "ULTK". Before that time, the Common Stock was traded in the over-the-counter market. Prices shown do not include adjustments for retail markups, markdowns or commissions. The following table sets forth the high and low closing prices on the NASDAQ National Market for the periods indicated:
HIGH LOW 2001 ---- --- Fourth quarter $ 2.82$ 1.30 Third quarter 2.52 1.18 Second quarter 3.15 2.19 First quarter 5.88 2.34 2000 Fourth quarter $ 6.50$ 2.81 Third quarter 10.25 5.75 Second quarter 11.88 6.00 First quarter 13.25 6.38
As of March 15, 2002, there were approximately 1,132 holders of record of the Common Stock. The Company has never paid cash dividends on the Common Stock. The Company presently intends to retain future earnings to finance the development and expansion of its business. The declaration in the future of any cash dividends on the Common Stock will be at the discretion of the Board of Directors and will depend upon the earnings, capital requirements and financial position of the Company, general economic conditions and other pertinent factors. Dividends in the amount of $117,210 have been paid annually since the issuance of the Series A Preferred Stock and the Company intends to continue to pay dividends on outstanding shares of Series A Preferred Stock. 13 ITEM 6. SELECTED FINANCIAL DATA ------------------------- The following selected consolidated financial data for the Company as of and for the five fiscal years ended December 31, 2001, have been derived from the consolidated financial statements of the Company and its subsidiaries, which have been audited by Grant Thornton LLP, independent certified public accountants. The selected consolidated financial data includes the effects of businesses acquired in 1997, 1998 and 1999. This data should be read in conjunction with the information set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the Consolidated Financial Statements and related notes which are included elsewhere herein. Consolidated Financial Statements and related notes for 1997 and 1998 are not included. See acquisition and divestiture discussions in Item 1. Because of these transactions, the income statement and balance sheet data presented below may not be comparable from year to year.
YEARS ENDED DECEMBER 31 (In thousands, except per share data) ----------------------------------------------------------------------- INCOME STATEMENT DATA: 2001 2000 1999 1998 1997 --------- --------- --------- --------- --------- Net sales.......................................... $ 161,707 $ 199,998 $ 208,201 $ 196,998 $ 177,837 Cost of sales...................................... 111,809 153,436 140,832 134,692 124,304 --------- --------- --------- --------- --------- Gross profit....................................... 49,898 46,562 67,369 62,306 53,533 Selling, general and administrative expenses....... 48,027 71,123 56,677 49,554 45,350 Asset impairment................................... 4,466 19,798 -- -- -- Special charges.................................... -- 1,115 3,875 -- 3,122 Depreciation and amortization...................... 5,311 6,482 5,911 4,667 3,971 --------- --------- --------- --------- --------- Total operating expenses.................... 57,804 98,518 66,463 54,221 52,443 --------- --------- --------- --------- --------- Operating profit (loss)............................ (7,906) (51,956) 906 8,085 1,090 Other income (expense)............................. 5,542 (9,876) 1,052 461 2,953 --------- ---------- --------- --------- --------- Income (loss) from continuing operations before income taxes....................................... (2,364) (61,832) 1,958 8,546 4,043 Incomes tax benefit (expense)...................... 903 4,145 (1,286) (3,589) (1,726) --------- --------- ---------- ---------- ---------- Income (loss) from continuing operations........... (1,461) (57,687) 672 4,957 2,317 Income (loss) from discontinued operations......... -- -- (107) (1,402) 84 --------- --------- --------- ---------- --------- Net income (loss)........................... (1,461) (57,687) 565 3,555 2,401 Dividend requirements on preferred stock........... (117) (117) (117) (117) (117) ---------- ---------- ---------- ---------- ---------- Net income (loss) allocable to common stockholders. $ (1,578) $ (57,804) $ 448 $ 3,438 $ 2,284 ========== ========== ========= ========= ========= Weighted average shares outstanding - diluted...... 12,183 11,686 12,300 14,776 15,224 Income (loss) per common share from continuing operations - diluted............................... $ (0.13) $ (4.95) $ .05 $ 0.34 $ 0.15 ========== ========== ========= ========= ========= Net income (loss) per common share - diluted....... $ (0.13) $ (4.95) $ .04 $ 0.24 $ 0.15 ========== ========== ========= ========= ========= BALANCE SHEET DATA:............................... 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- Working capital.................................... $ 28,223 $ 23,650 $ 79,714 $ 90,192 $ 94,064 Total assets....................................... 121,764 143,497 200,350 196,626 185,256 Short-term debt.................................... 15,821 37,380(1) 1,149 -- -- Long-term debt..................................... 6,600 -- 37,000 37,500 -- Stockholders' equity and equity put options........ 78,773 77,248 132,663 140,030 163,198
1 Due to losses in 2000, the line of credit was reclassified from long-term debt to short-term debt. 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- OVERVIEW The consolidated financial statements include the accounts of Ultrak and its consolidated subsidiaries. The Company is further organized in the U.S. into separate selling divisions - all supported by common administrative functions such as credit, accounting, payroll, purchasing, legal, warehousing, training and computer support services. All significant intercompany balances and transactions among subsidiaries and divisions have been eliminated in consolidation. Product sales are recorded when goods are shipped to the customer. Most of the Company's sales are made to its domestic customers on Net 30 or Net 60 day credit terms after a credit review has been performed to establish creditworthiness and to determine an appropriate credit limit. The Company's international sales are made under varying terms depending upon the creditworthiness of the customer, and include the use of letters of credit, payment in advance of shipment or open trade terms. Cost of sales for most of the Company's products includes the cost of the product shipped plus freight, customs and other costs associated with delivery from foreign contract manufacturers or from domestic suppliers. Cost of sales for products manufactured by Ultrak include material, direct labor and overhead as well as an allocated portion of indirect overhead. Selling, general and administrative costs include salaries, commissions and related benefits, depreciation, telephone, advertising, warranty, printing, product literature, sales promotion, legal, audit and other professional fees, supplies, engineering and travel. The Company's consolidated financial statements are denominated in U.S. dollars and, accordingly, changes in the exchange rate between the Company's subsidiaries' local currencies and the U.S. dollar will affect the conversion of such subsidiaries' financial results into U.S. dollars for purposes of reporting the Company's consolidated financial results. Translation adjustments are reported as a separate component of stockholders' equity A substantial portion of the Company's purchases and sales are derived from operations outside the United States. Since the revenues and expenses of the Company's foreign operations are generally denominated in local currency, exchange rate fluctuations between local currencies and the U.S. dollar subject the Company to currency exchange risks with respect to the results of its foreign operations. Therefore, the Company is subject to these risks to the extent that it is unable to denominate its purchases or sales in U.S. dollars or otherwise shift to its customers or suppliers the effects of currency exchange rate fluctuations. Such fluctuations in exchange rates could have a material adverse effect on the Company's results of operations. The Company did not have any foreign exchange forward or currency option contracts outstanding at December 31, 2001. The following discussion should be read in conjunction with the Consolidated Financial Statements and notes thereto included herein. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Because of the use of estimates inherent in the Company's financial statements, actual results could differ from those estimates. The Company believes the following critical accounting policies are affected by significant judgments and estimates used in the preparation of its consolidated financial statements. 15 Inventory valuation The Company writes down its inventories for estimated obsolescence, returned inventory deemed not economical to repair or discontinued product lines to its estimated net realizable value. The estimate is based upon historical results, current and expected sales trends, the amount of current inventories on hand and market conditions. If market conditions become less favorable than those expected by management, then additional inventory write-downs may be required. Allowance for Doubtful Accounts The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make payments. To estimate this allowance, the Company analyzes the composition of its accounts receivable, historical bad debts, customer concentrations, customer creditworthiness and current economic trends. If the financial condition of the Company's customers were to deteriorate and result in an impairment of their ability to make payments, additional allowances may be required. Goodwill The Company periodically reviews the carrying value of its goodwill when events and circumstances warrant such a review. As of December 31, 2001, the method used by the Company for this review was the estimate of future cash flows. If the carrying value of the Company's goodwill was considered impaired, an impairment charge was recorded for the amount by which the carrying value of the goodwill exceeds its fair value. The Company believes its estimates of future cash flows and fair value were reasonable; however, changes in the estimate of such cash flows and fair value could result in future impairment charges. Effective January 1, 2002, the Company will adopt Statement of Financial Standards (SFAS) No. 142, Goodwill and Intangible Assets. See section captioned "New Accounting Pronouncements." Deferred income taxes Significant management judgment is required in determining the realization of net deferred tax assets and the associated valuation allowance. Due to uncertainties related to the Company's ability to utilize the net deferred tax asset, a valuation allowance has been recorded at December 31, 2001 against a significant portion of the net deferred tax asset balance. Based on results of operations in future periods, the Company may need to adjust the valuation allowance. NEW ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Intangible Assets. SFAS No. 141 is effective for all business combinations completed after June 30, 2001. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001; however, certain provisions of this statement apply to goodwill and other intangible assets acquired between July 1, 2001 and December 31, 2001. Major provisions of these statements and their effective dates are as follows: o all business combinations initiated after June 30, 2001 must use the purchase method of accounting; o intangible assets acquired in a business combination must be recorded separately from goodwill if they arise from contractual or other legal rights or are separable from the acquired entity and can be sold, transferred, licensed, rented or exchanged, either individually or as part of a related contract, asset or liability; o goodwill, as well as intangible assets with indefinite lives, acquired after June 30, 2001, will not be amortized; 16 o effective January 1, 2002, all previously recognized goodwill and intangible assets with indefinite lives will no longer be subject to amortization; o effective January 1, 2002, goodwill and intangible assets with indefinite lives will be tested for impairment annually and whenever there is an impairment indicator; and o all acquired goodwill must be assigned to reporting units for purposes of impairment testing and segment reporting The Company amortized goodwill and intangible assets acquired prior to July 1, 2001 until December 31, 2001. Beginning January 1, 2002, goodwill amortization will no longer be recognized. The Company intends to complete a transitional impairment test of all intangible assets as of March 31, 2002 and a transitional fair value based impairment test of goodwill as of January 1, 2002 by June 30, 2002. Impairment losses, if any, resulting from the transitional testing will be recognized as a cumulative effect of a change in accounting principle. In June 2001, the Financial Accounting Standards Board issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement is effective for fiscal years beginning after June 15, 2002. The Company does not believe that the implementation of this standard will have a material effect on its financial position, results of operations or cash flows. In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement is effective for fiscal years beginning after December 15, 2001. The Company does not believe that the implementation of this standard will have a material effect on its financial position, results of operations or cash flows. RESULTS OF OPERATIONS The following table sets forth the percentage of net sales represented by certain items in the Company's consolidated summary of income for the indicated periods.
YEARS ENDED DECEMBER 31, -------------------------------- 2001 2000 1999 ------ ------ ------ Net sales....................... 100.0% 100.0% 100.0% Cost of sales................... 69.1 76.7 67.6 ------ ------ ------ Gross profit.................... 30.9 23.3 32.4 ------ ------ ------ Selling, general and administrative expenses......... 29.7 35.6 27.2 Depreciation and amortization... 3.3 3.2 2.8 Asset impairment................ 2.8 9.9 -- Special charges................. -- 0.6 1.9 ------ ------ ----- Total operating expenses 35.8 49.3 31.9 ------ ------ ------ Operating profit (loss)......... (4.9) (26.0) 0.4 Other income (expense).......... 3.4 (4.9) 0.5 ------ ------- ------ Income (loss) from continuing operations before income taxes.. (1.5) (30.9) 0.9 Income tax benefit (expense).... 0.6 2.1 (0.6) ------ ------ ------- Income (loss) from continuing operations...................... (0.9) (28.8) 0.3 Discontinued operations, net of tax effects.............. -- -- (0.1) ------ ------ ------- Net income (loss) .............. (0.9)% (28.8)% 0.2% ====== ====== ======
17 YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000 For the year ended December 31, 2001, net sales were $161.7 million, a decrease of $38.3 million (19%) over 2000. This decline is due to the discontinuation of Exxis sales to Sam's Club (see Note G to the Company's Consolidated Financial Statements), the sale of the Industrial Furnace Camera business, the sale of the French CCTV and audio businesses, a world-wide recession and the translation effect of a strong U.S. dollar. Cost of sales were $111.8 million for 2001, a decrease of $41.6 million (27%) over 2000. Gross profit margins increased to 30.9% in 2001 from 23.3% in 2000. Cost of sales for 2000 included $12.4 million in inventory write-offs taken as part of the 2000 Special Charge. These write-offs included $9.5 million in inventory related to discontinued product lines and returned inventory deemed uneconomical to repair. Exclusive of the $12.4 million in inventory write-offs in 2000, gross profit margins increased from 29.5% to 30.9%. A more favorable product mix also contributed to the margin increase. Selling, general and administrative expenses were $48.0 million in 2001, a decrease of $23.0 million (32%) over 2000. These expenses represented 29.7% of net sales in 2001, down from 35.6% in 2000. This decrease can be explained as follows: o $9.5 million for asset impairment charges taken in the fourth quarter of 2000 as part of the 2000 Special Charge (see Note O to the Company's Consolidated Financial Statements for additional detail) o $5.0 million of expense reductions in Belgium during 2001 o $4.2 million of expense reduction in France during 2001 o $2.7 million of worldwide expense reductions during 2001 o $1.6 million of income for recovery of the 2000 Special Charge during 2001 The $1.6 million recovery of the 2000 Special Charge is comprised of the following items: o $0.7 million for the favorable settlement of certain liabilities in Belgium o $0.2 million for higher than expected proceeds on the sale of the Belgium facility o $0.7 million for a change in the estimate of the France restructuring accrual, primarily related to severance obligations, resulting from the sale of the French business As of December 31, 2001, the Company had $0.7 million remaining in restructuring costs: o $0.4 million for closure costs in France o $0.2 million for the severance of one employee in France o $0.1 million for closure costs in Belgium An asset impairment charge of $4.5 million, 2.8% of sales, was taken in 2001 as part of the sale and refinance of the Headquarters Facility. Included in the Company's 2000 results is an asset impairment charge of $19.8 million, 9.9% of net sales, related write downs of goodwill, software development costs and the impairment of internal use software. Continuing losses in France and Germany triggered an impairment review of the long-lived assets in these entities during the fourth quarter of 2000. The Company analyzed projected cash flows and concluded that the entire amount of goodwill, totaling $13.1 million for the two entities was impaired. Based on an evaluation of products under development during the fourth quarter of 2000, $2.0 million in capitalized software development costs, which related to product designs that were abandoned and did not correspond with future product objectives, were written off. This charge also included $2.9 million for the impairment of internal use software. As a result of the outsourcing of the California and Australia manufacturing operations in 2000, it was determined that the costs related to those operations was impaired. 18 Depreciation and amortization expenses were $5.3 million for 2001, a decrease of $1.2 million (18%) over 2000. These expenses represented 3.3% of net sales in 2001, up from 3.2% in 2000. The decrease in depreciation and amortization expense relates to the disposal of fixed assets resulting from the closure of the Belgian and French operations, goodwill impairments in France and Germany and the impairment and disposal of internal use software and capitalized software development costs in the U.S. There were no special charges in 2001, but $1.1 million of special charges were taken in 2000. These charges were for the separation of three former executives from the Company, severance obligations related to the outsourcing of certain manufacturing operations in California and Australia, and a proxy solicitation contest with Detection Systems, Inc., a company in which Ultrak held a 21% ownership stake in 2000. Other income was $5.5 million in 2001, compared with other expenses of $9.9 million in 2000. The other income in 2001 resulted from the $7.7 million gain on the sale of the Company's shares of common stock of Detection Systems, Inc., a $1.3 million gain on the sale of the Industrial Furnace Camera business, offset primarily by interest expense. The expense in 2000 consisted primarily of foreign exchange losses, interest expense and a $0.8 million loss on the sale of Intervision. YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999 For the year ended December 31, 2000, net sales were $200.0 million, a decrease of $8.2 million (4%) over 1999. This decrease is primarily due to the sale of Intervision in July 2000, the scheduled phase-out of the CCTV distribution business in France, and the declining value of the European currencies against the U.S. dollar. Cost of sales were $153.4 million for 2000, an increase of $12.6 million (9%) over 1999. Gross profit margins decreased to 23.3% in 2000 from 32.4% in 1999. This increase in cost of goods sold was primarily due to the inventory write-offs of $12.4 million taken as part of the 2000 Special Charge. These write-offs included $9.5 million in inventory related to discontinued product lines and returned inventory deemed uneconomical to repair. The write-off also provided for $2.9 million of disposals related to the closure of the European distribution center in Belgium, as well as the sale and disposal of the French CCTV and audio product inventory. Selling, general and administrative expenses were $71.1 million in 2000, and increase of $14.4 million (25%) over 2000. Out of the increase, $9.5 million was due to asset impairment charges taken in the fourth quarter of 2000. These charges related to the closure of the European distribution center in Belgium ($3.4 million), additional bad debt provisions ($2.4 million), the sale and disposal of the French CCTV and audio product lines ($2.0 million), severance of 33 employees in the U.S. ($0.6 million) and other write-downs. Depreciation and amortization expenses were $6.5 million for 2000, an increase of $0.6 million (10%) over 1999. Depreciation and amortization expenses for 2000 were 3.2% of net sales, up from 2.8% of net sales in 1999. Included in the Company's 2000 results is an asset impairment charge of $19.8 million, 9.9% of net sales, related write downs of goodwill, software development costs and the impairment of internal use software. Continuing losses in France and Germany triggered an impairment review of the long-lived assets in these entities during the fourth quarter of 2000. The Company analyzed projected cash flows and concluded that the entire amount of goodwill, totaling $13.1 million for the two entities, should be impaired. Based on an evaluation of products under development during the fourth quarter of 2000, $2.0 million in capitalized software development costs, which related to product designs that were abandoned and did not correspond with future product objectives, were written off. This charge also included $2.9 million for the impairment of internal use software. As a result of the outsourcing of the California and Australia manufacturing operations in 2000, it was determined that the costs related to those operations should be impaired. Special charge expenses of $1.1 million were taken in 2000. These expenses relate to the $1.4 million of severance and other charges recorded in the third quarter of 2000. These charges were for the separation of three former executives from the Company, severance obligations related to the outsourcing of certain manufacturing operations in California and Australia, and a proxy solicitation contest with Detection Systems, Inc., a company of which Ultrak held a 21% share in 2000. The remaining amount is an adjustment of $0.3 million for excess reserves as part of the 1999 special charge. This charge consisted of a $3.9 million of severance obligations of $0.8 million and consolidation/centralization of European activities of $3.1 million. 19 Other expenses of $9.9 million were recorded in 2000, compared with other income of $1.1 million in 1999. The other expenses in 2000 included $5.4 million foreign currency losses, losses on sales of investments and other charges taken as part of the 2000 Special Charge. The additional increase in other expenses was attributed to higher interest rates in 2000. The Company also recorded $1.3 million less income on its interest in Detection Systems, Inc. due to lower earnings reported by that company in 2000, compared to 1999. Additional other income items in 1999 included $0.7 million gain on the sale of investments and a $0.4 million gain on foreign currency exchange. LIQUIDITY AND CAPITAL RESOURCES The Company experienced a decline in cash flows from operations in 2001 of $5.1 million, despite a reduction in the net loss of $56.7 million in 2001. Net cash provided by investing activities was $25.2 million in 2001, versus $2.9 million of cash used in investing activities in 2000. Although the large increase in 2001 primarily resulted from the net proceeds on the sale of the shares of Detection Systems, Inc. and the Industrial Furnace Camera business, purchases of fixed assets and capitalized software were $2.0 million in 2001, compared to $5.5 million in capital spending in 2000. This resulted in a $28.1 million increase in the cash provided by investing activities. Net cash used in financing activities was $22.4 million in 2001, compared to negligible cash provided by financing activities in 2000. The most significant differences resulted from $20.4 million of net repayments on the Company's revolving line of credit and repayments of $11.5 million on the mortgage for Headquarters Facility in 2001. These repayments were offset by the proceeds of $6.6 million from the sale of the Headquarters Facility, as well as $4.1 million in proceeds from the issuance of additional Common Stock. At December 31, 2001, the Company had $15.0 million outstanding under its revolving credit facility. The amount outstanding was subsequently reduced to $12.0 million during the first quarter of 2002. During the first three quarters of 2001, the interest rate on the credit facility was adjusted to prime plus a range of 0.0% to 0.75%, depending on the leverage ratio and other conditions, determined on a quarterly basis. As a result of the disputes with lenders described below, interest rates have increased since the end of the third quarter of 2001. The rate was fixed at prime plus 3.25% during the fourth quarter of 2001. Late in the first quarter of 2002, the rate was subsequently increased to a flat 12.00%. The Company also pays a monthly fee of 0.375% per annum based on the average unused borrowing availability under the credit facility. The credit facility contains certain financial and operational covenants, including a maximum leverage ratio, a debt service ratio and minimum net worth amounts. The lenders alleged that the Company violated certain of these covenants at various times during 2001, but subsequently waived the alleged defaults. Subsequent to December 31, 2001, an amendment (the "Eighth Amendment") to the Company's revolving credit facility was signed at the insistence of the lenders (see Exhibit 10.51 to this Form 10-K) that increased the interest rate to 12.00%, reduced the lending commitment from $30 million to $20 million, and accelerated the termination date of the facility from March 31, 2002 to February 28, 2002. The Eighth Amendment also waived certain alleged defaults by the Company under the loan covenants and provided for the payment of certain fees, including fees which the Company believes gave it the right to extend the termination date of the facility back to March 31, 2002. Although the Company paid and the lenders accepted all of the fees prescribed by the Eighth Amendment, the lenders have asserted the Company did not have the right to extend the termination date of the credit facility. Consequently, subsequent to February 28, 2002, the lenders have declared the outstanding balance of the loan to be due, increased the interest rate to 12.00%, refused to advance funds under the credit facility, and reserved the right to commence foreclosure proceedings if their loan is not repaid in full by April 30, 2002. Although the Company believes that the actions of the lenders are unwarranted and in breach of their obligations under the credit facility, it expects to repay the loan before such actions are implemented. 20 The Company has received a financing commitment from a new lender that, combined with the tax refund described below, would repay the existing revolving credit facility and provide sufficient funds for the Company's operations. The Company and the new lender have approved the terms of the loan documents and the new credit facility is expected to close on April 19, 2002, with funding to follow shortly thereafter. The Company expects to receive during the week of April 16, 2002 a federal income tax refund of approximately $6.3 million from the Job Creation and Worker Assistance Act of 2002, signed into law March 9, 2002. This statute allowed the Company to carry back its 2001 net operating losses to the 1996 and 1997 tax years, permitting a refund of federal income taxes previously paid for those years. The act extended the carry back period on net operating losses to five years from two years for losses arising in tax years ending in 2001 and 2002. INFLATION During the years ended December 31, 2001, 2000 and 1999, the cost of property and equipment, lease expense and salaries and wages increased modestly. The increases have not had a material impact on the Company's results of operations during any of the periods. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- The following discussion regarding the Company's market risk includes "forward-looking statements" that involve risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. The Company does not use derivative financial instruments for speculative or trading purposes, but maintains an interest swap agreement to hedge against future rate increases. The Company is exposed to market risk from changes in foreign currency exchange rates and interest rates, which could affect its future results of operations and financial condition. The Company manages its exposure to these risks through its regular operating and financing activities. Foreign exchange The Company has foreign-based operations, primarily in Western Europe, which accounted for 24% of 2001 and 2000 net sales. The strengthening of the U.S. dollar from 2000 to 2001 had a negative impact on sales and gross profit. The majority of inventory purchases were made in U.S. dollars. This appreciation of the U.S. dollar against foreign currencies had an adverse impact of approximately $0.5 million on gross profit in 2001. The Company issues intercompany loans to its foreign subsidiaries denominated in U.S. dollars on a long-term basis, exposing the foreign subsidiaries to the effect of changes in spot exchange rates of their local currency relative to the U.S. dollar. The Company does not regularly use forward-exchange contracts to hedge these exposures. Based on the Company's foreign currency exchange rate exposure for intercompany borrowings of approximately $14.6 million at December 31, 2001, a 10% adverse change in currency rates would increase accumulated other comprehensive loss by approximately $1.5 million. 21 Interest rates The Company's credit arrangements expose it to fluctuations in interest rates. At December 31, 2001, the Company had $15.0 million outstanding under its revolving line of credit, of which $10.0 million provided for interest to be paid quarterly based on a variable rate and $5.0 million provided for a rate fixed by an interest rate agreement. Assuming the debt is refinanced in 2002 and the Company is no longer assessed interest at the default rates, interest rate changes would result in a change in the amount of interest to be paid each quarter. Based upon the borrowings and swap agreements at December 31, 2001, a 10% increase in interest rates would adversely affect the Company's financial position, annual results of operations, or cash flows by approximately $0.1 million. Because the variable rate structure of the debt exposes us to fluctuation in the interest rates, the Company has an interest swap agreement that expires in 2004. The agreement provides for a fixed rate of 6.485% on $5.0 million. FORWARD LOOKING STATEMENTS CERTAIN STATEMENTS CONTAINED OR INCORPORATED IN THIS ANNUAL REPORT ON FORM 10-K, WHICH ARE NOT STATEMENTS OF HISTORICAL FACT CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (THE "REFORM ACT"). FORWARD LOOKING STATEMENTS ARE MADE IN GOOD FAITH BY ULTRAK, INC. PURSUANT TO THE "SAFE HARBOR" PROVISIONS OF THE REFORM ACT. FORWARD LOOKING STATEMENTS MAY INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF ULTRAK, INC. TO DIFFER MATERIALLY FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS, INCLUDING THE TIMELY DEVELOPMENT AND ACCEPTANCE OF NEW PRODUCTS, THE IMPACT OF COMPETITIVE PRODUCTS AND PRICING, FLUCTUATIONS IN OPERATING RESULTS, ABILITY TO INTRODUCE NEW PRODUCTS, TECHNOLOGICAL CHANGES, RELIANCE ON INTELLECTUAL PROPERTY AND OTHER RISKS. MOREOVER, THE OBJECTIVES AND INTENTIONS SET FORTH IN THIS FORM 10-K ARE SUBJECT TO CHANGE DUE TO DOMESTIC, GLOBAL MARKET AND ECONOMIC CONDITIONS BEYOND THE CONTROL OF ULTRAK, INC. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------------------------------------------- The consolidated financial statements of the Company and its subsidiaries that are required by this Item 8 are listed in Part IV under Item 14(a) of this Annual Report on Form 10-K. Such consolidated financial statements are included herein beginning on page F-1. 22 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders Ultrak, Inc. We have audited the accompanying consolidated balance sheets of Ultrak, Inc. and Subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ultrak, Inc. and Subsidiaries as of December 31, 2001 and 2000, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. Dallas, Texas March 1, 2002, except for Note D as to which the date is April 11, 2002 F-1 ULTRAK, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, (in thousands, except share data)
ASSETS 2001 2000 ------ ------ CURRENT ASSETS Cash and cash equivalents $ 3,300 $ 3,751 Investment in Detection Systems, Inc. - 13,909 Trade accounts receivable, less allowance for doubtful accounts of $2,503 and $5,791 at December 31, 2001 and 2000, respectively 25,132 32,232 Inventories 26,255 26,371 Advances for inventory purchases 71 521 Prepaid expenses and other current assets 4,043 4,394 Income tax refundable - 892 Deferred income taxes 6,309 6,337 -------- -------- Total current assets 65,110 88,407 PROPERTY, PLANT AND EQUIPMENT, at cost 33,324 26,886 Less accumulated depreciation and amortization (14,529) (11,885) -------- -------- 18,795 15,001 OTHER ASSETS Goodwill, net of accumulated amortization of $8,124 and $6,636 at December 31, 2001 and 2000, respectively 36,260 39,375 Other 2,095 714 -------- -------- 38,355 40,089 -------- -------- Total assets $122,260 $143,497 ======== ========
F-2 ULTRAK, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - CONTINUED December 31, (in thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY 2001 2000 ------ ------ CURRENT LIABILITIES Accounts payable - trade $ 12,776 $ 13,046 Accrued expenses 5,782 6,168 Accrued restructuring costs 650 5,634 Other current liabilities 1,858 2,529 Line of credit 15,012 35,419 Other debt 809 1,961 -------- -------- Total current liabilities 36,887 64,757 FINANCING OBLIGATION 6,600 - DEFERRED INCOME TAXES - 1,492 COMMITMENTS AND CONTINGENCIES - - STOCKHOLDERS' EQUITY Preferred stock, $5 par value, issuable in series; 2,000,000 shares authorized; Series A, 12% cumulative convertible; 195,351 shares authorized, issued and outstanding 977 977 Common stock, $.01 par value; 20,000,000 shares authorized; 17,494,238 and 15,156,538 shares issued at December 31, 2001 and 2000, respectively 175 152 Additional paid-in capital 162,269 157,914 Accumulated deficit (41,804) (40,226) Accumulated other comprehensive loss (4,161) (2,886) Treasury stock, at cost (3,467,650 shares) (38,683) (38,683) -------- -------- Total stockholders' equity 78,773 77,248 -------- -------- Total liabilities and stockholders' equity $122,260 $143,497 ======== ========
The accompanying notes are an integral part of these statements. F-3 ULTRAK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years ended December 31, (in thousands, except share data)
2001 2000 1999 ------ ------ ------ Net sales $161,707 $199,998 $208,201 Cost of sales (exclusive of depreciation shown separately below) 111,809 153,436 140,832 -------- -------- ----- Gross profit 49,898 46,562 67,369 Other operating costs: Selling, general and administrative 48,027 71,123 56,677 Asset impairment 4,466 19,798 - Special charges - 1,115 3,875 Depreciation and amortization 5,311 6,482 5,911 -------- -------- ----- 57,804 98,518 66,463 -------- -------- ----- Operating profit (loss) (7,906) (51,956) 906 Other income (expense): Interest expense (3,293) (3,743) (2,965) Interest income 35 69 176 Gain (loss) on sale of investments 7,727 (637) 670 Gain (loss) on sale of businesses 1,090 (840) - Foreign exchange gains (losses) (265) (4,637) 377 Equity in income of Detection Systems, Inc. - 554 1,885 Other, net 248 (642) 909 -------- -------- ----- 5,542 (9,876) 1,052 -------- -------- ----- Income (loss) before income taxes (2,364) (61,832) 1,958 Income tax benefit (expense) 903 4,145 (1,286) -------- -------- ----- Income (loss) from continuing operations (1,461) (57,687) 672 Discontinued operations, net of taxes Loss from operations - - (107) -------- -------- ----- NET INCOME (LOSS) (1,461) (57,687) 565 Dividend requirements on preferred stock (117) (117) (117) -------- -------- ----- Net income (loss) allocable to common stockholders $ (1,578) $(57,804) $ 448 ======== ======== =====
F-4 ULTRAK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED Years ended December 31, (in thousands, except per share data)
2001 2000 1999 ------ ------ ------ Income (loss) per share: Continuing operations Basic $(0.13) $(4.95) $ 0.05 ====== ====== ====== Diluted $(0.13) $(4.95) $ 0.05 ====== ====== ====== Discontinued operations Basic $ - $ - $(0.01) ====== ====== ====== Diluted $ - $ - $(0.01) ====== ====== ====== Net income (loss) Basic $(0.13) $(4.95) $ 0.04 ====== ====== ====== Diluted $(0.13) $(4.95) $ 0.04 ====== ====== ====== Number of common shares used in computations: Basic 12,183 11,686 11,645 ====== ====== ====== Diluted 12,183 11,686 12,300 ====== ====== ======
The accompanying notes are an integral part of these statements. F-5 ULTRAK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Years ended December 31, (in thousands, except share data)
Retained Accumulated Preferred Stock Common Stock Additional earnings other -------------------- ------------------- paid-in (accumulated) comprehensive Shares Amount Shares Amount capital deficit) loss -------- ------ -------- ------- --------- ---------- ------ Balance at January 1, 1999 195,351 $977 14,703,138 $147 $153,333 $17,130 $ (967) Comprehensive loss Net income - - - - - - 565 - Other comprehensive loss Foreign currency translation adjustment - - - - - - (2,704) Unrealized loss on investments held for sale, net of tax of $292 - - - - - - (568) Reclassification adjustment for losses included in net income, net of tax effect of $89 - - - - - - 171 Total Acquisition of business - - 250,000 2 1,493 - - Exercise of stock options and warrants - - 28,333 1 68 - - Stock-based compensation - - - - 250 - - Treasury stock purchases - - - - - - - Equity put options expired - - - - 1,564 - - Preferred stock dividends - - - - - (117) - ------- --- ---------- --- ------- ------ ------ Balance at December 31, 1999 195,351 977 14,981,471 150 156,708 17,578 (4,068) Treasury stock ---------------- Shares Amount Total --------- -------- ------- Balance at January 1, 1999 3,013,350 $(32,153) $138,467 Comprehensive loss Net income - - - 565 Other comprehensive loss Foreign currency translation adjustment - - (2,704) Unrealized loss on investments held for sale, net of tax of $292 - - (568) Reclassification adjustment for losses included in net income, net of tax effect of $89 - - 171 ------- Total (2,536) ------- Exercise of stock options and warrants - - 1,495 Stock-based compensation - - 69 Treasury stock purchases - - 250 Equity put options expired 454,300 (6,530) (6,530) Preferred stock dividends - - 1,564 - - (117) --------- ------- ------- Balance at December 31, 1999 3,467,650 (38,683) 132,662
F-6 ULTRAK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - CONTINUED Years ended December 31, (in thousands, except share data)
Retained Accumulated Preferred Stock Common Stock Additional earnings other -------------------- ------------------- paid-in (accumulated) comprehensive - Shares Amount Shares Amount capital deficit) loss -------- ------ -------- ------- --------- ---------- ------ Balance at January 1, 2000 195,351 $977 14,981,471 $150 $156,708 $ 17,578 $(4,068) Comprehensive loss Net loss - - - - - (57,687) - Other comprehensive income (loss) Foreign currency translation adjustment - - - - - - (3,583) Reclassification adjustment for losses included in net loss, net of tax of $292 - - - - - - 568 Reclassification (Note O) - - - - - - 4,197 Total Exercise of stock options and warrants - - 175,067 2 918 - - Stock-based compensation - - - - 25 - - Tax benefit from employee stock transactions - - - - 263 - - Preferred stock dividends - - - - - (117) - ------- --- ---------- --- ------- ------- ------ Balance at December 31, 2000 195,351 977 15,156,538 152 157,914 (40,226) (2,886) Treasury stock -------------------- Shares Amount Total --------- -------- ------- Balance at January 1, 2000 3,467,650 $(38,683) $132,662 Comprehensive loss Net loss - - (57,687) Other comprehensive income (loss) Foreign currency translation adjustment - - (3,583) Reclassification adjustment for losses included in net loss, net of tax of $292 - - 568 Reclassification (Note O) - - 4,197 ------ Total (56,505) ------- Exercise of stock options and warrants - - 920 Stock-based compensation - - 25 Tax benefit from employee stock transactions - - 263 Preferred stock dividends - - (117) --------- ------- ------ Balance at December 31, 2000 3,467,650 (38,683) 77,248
The accompanying notes are an integral part of this statement. F-7 ULTRAK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Years ended December 31, (in thousands, except share data)
Retained Accumulated Preferred Stock Common Stock Additional earnings other -------------------- ------------------- paid-in (accumulated) comprehensive Shares Amount Shares Amount capital deficit) loss -------- ------ -------- ------- --------- ---------- ------ Balance at January 1, 2001 195,351 $977 15,156,538 $152 $157,914 $(40,226) $(2,886) Comprehensive loss Net loss - - - - - (1,461) - Foreign currency translation adjustment - - - - - - (1,275) Total Issuance of common stock, net of issuance costs of $294 - - 2,337,700 23 4,125 - - Warrants issued in connection with building financing - - - - 230 - - Preferred stock dividends - - - - - (117) - --- --- ---------- --- -------- ----- --- Balance at December 31, 2001 195,351 $977 17,494,238 $175 $162,269 $(41,804) $(4,161) ======= === ========== === ======== ======= ====== Treasury stock ----------------- Shares Amount Total ------- ------- ------- Balance at January 1, 2001 3,467,650 $(38,683) $77,248 Comprehensive loss Net loss - - (1,461) Foreign currency translation adjustment - - (1,275) ------ Total (2,736) ------ Issuance of common stock, net of issuance costs of $294 - - 4,148 Warrants issued in connection with building financing - - 230 Preferred stock dividends - - (117) --------- -------- ------- Balance at December 31, 2001 3,467,650 $(38,683) $78,773 ========= ======== =======
The accompanying notes are an integral part of this statement. F-8 ULTRAK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, (in thousands)
2001 2000 1999 ------ ------ ------ Cash flows from operating activities: Net income (loss) $ (1,461) $(57,687) $ 565 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities Loss from discontinued operations - - 107 Loss on disposal of fixed assets 305 428 - Loss (gain) on sale of investments (7,727) 637 (670) Loss (gain) on sale of businesses (1,090) 840 - Equity in income of Detection Systems, Inc. - (554) (1,885) Realized foreign currency translation losses - 4,197 - Depreciation and amortization 5,311 6,482 5,911 Provision for losses on accounts receivable 129 3,556 813 Inventory writedowns 800 12,370 2,178 Deferred income taxes (1,464) (3,015) 676 Asset impairment 4,466 19,798 - Noncash charges reversed (1,600) - - Other noncash expenses - 952 288 Mark-to-market interest rate swap 194 - - Other - (370) - Noncash changes in operating assets and liabilities Trade accounts receivable 6,395 5,353 (4,992) Inventories (2,073) 9,667 (5,460) Advances for inventory purchases 450 1,422 2,935 Prepaid expenses and other current assets 133 (780) 1,698 Income tax refundable 891 (891) - Other assets (1,151) 337 1,981 Accounts payable - trade (399) (3,384) 6,975 Accrued restructuring costs (4,355) 3,885 1,749 Accrued expenses and other current liabilities (873) (1,227) (1,237) ----- ------- ------ Net cash provided by (used in) operating activities (3,119) 2,016 11,632 Cash flows from investing activities: Proceeds from sale of marketable securities - 563 7,777 Purchases of marketable securities - - (4,458) Purchases of common stock of Detection Systems, Inc. - (1) (531) Proceeds from sale of Detection Systems, Inc. common stock 23,176 - - Purchases of property and equipment (1,203) (4,297) (6,183) Software development costs (775) (1,235) (1,692) Proceeds from sale of building 1,515 - - Proceeds from sale of businesses 2,593 2,100 - Acquisitions, net of cash acquired (70) - (680) ------ ------ ------ Net cash provided by (used in) investing activities 25,236 (2,870) (5,767)
F-9 ULTRAK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED Years ended December 31, (in thousands)
2001 2000 1999 ------ ------ ------ Cash flows from financing activities: Proceeds from revolving line of credit $ 9,940 $ 20,000 $ 47,804 Repayments on revolving line of credit (30,347) (21,581) (48,304) Proceeds from other debt - 1,204 1,149 Repayments on other debt (1,152) (393) - Repayments on mortgage loan (11,500) - - Proceeds from financing obligation 6,600 - - Issuance of common stock 4,148 919 69 Purchase of treasury stock - - (6,530) Payment of preferred stock dividends (117) (117) (117) ------- ------- -------- Net cash provided by (used in) financing activities (22,428) 32 (5,929) ------- ------- -------- Net decrease in cash and cash equivalents (311) (822) (64) Effect of exchange rate changes on cash (140) (185) (1,443) Cash provided by discontinued operations - - 1,784 Cash and cash equivalents at beginning of the year 3,751 4,758 4,481 ------- ------- ------- Cash and cash equivalents at end of the year $ 3,300 $ 3,751 $ 4,758 ======= ======= ======= Supplemental cash flow information: Cash paid during the period for: Interest $ 3,465 $ 3,534 $ 2,322 ======= ======= ======= Income taxes $ 462 $ 288 $ 1,204 ===== ===== ======= Supplemental schedule of noncash investing and financing: Purchase of property financed by mortgage $ 11,500 $ - $ - ======== ==== ==== Issuance of warrants in connection with building financing $ 230 $ - $ - ===== ==== ==== Acquisition of businesses Assets acquired $ 3,581 Liabilities assumed (1,228) Common stock issued (1,495) ------- 858 Less cash acquired 178 ------- Net cash paid for acquisitions $ 680 ======
The accompanying notes are an integral part of these statements. F-10 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Ultrak, Inc. (the "Company") is a U.S.-based multinational corporation that designs, manufactures, markets, sells and services electronic products and systems for the security and surveillance, industrial and public address markets worldwide. These products and systems include a broad line of cameras, lenses, high-speed dome systems, monitors, switchers, quad processors, time-lapse recorders, multiplexers, video transmission systems, access control systems, computerized observation and security systems, public address equipment and accessories. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Marketable Securities The Company accounts for its marketable securities, all of which are designated as available for sale, using Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities. Securities available for sale are reported at fair value, with unrealized gains and losses, net of tax, excluded from earnings and reported as a separate component of stockholders' equity. Realized gains and losses on securities available for sale are reported in income in the year of sale. Inventories Inventories are comprised principally of goods held for resale, which are valued at the lower of cost (first-in, first-out) or market. Advances for Inventory Purchases Advances for inventory purchases represent payments in advance for goods purchased primarily from the Far East. Upon receipt of the goods, advances are classified as inventories. Property, Plant and Equipment and Depreciation Property, plant and equipment are carried at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. F-11 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Income (Loss) Per Share The Company computes basic income (loss) per share based on the weighted average number of common shares outstanding. Diluted income per share is computed based on the weighted average number of shares outstanding, plus the number of additional common shares that would have been outstanding if dilutive potential common shares had been issued. Goodwill and Amortization Goodwill resulting from acquisitions is being amortized using the straight-line method over periods ranging from twenty to forty years. Accounting for Impairment of Long-Lived Assets The Company evaluates long-lived assets and intangibles held and used for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Impairment is recognized when the estimated undiscounted cash flows generated by those assets are less than the carrying amounts of such assets. Software Development Costs The Company capitalizes software development costs incurred from the time technological feasibility of the software is established until the software is ready for use in its products. Research and development costs related to software development are expensed as incurred. The capitalized costs relate to software which will become an integral part of the Company's revenue producing products and are amortized in relation to expected revenues from the product up to a maximum of five years. These software development costs are regularly reviewed for impairment, and a loss is recognized when the net realizable value by product falls below the unamortized cost. Internal Use Software The Company capitalizes certain external direct costs of materials and services, internal payroll and payroll related costs and other qualifying costs incurred in connection with developing or obtaining internal software. These costs are amortized over three to eight years. Derivative Financial Instruments Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 established accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and hedging activities. All derivatives, whether designated in hedging relationships or not, are required to be recorded on the balance sheet at fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income and are recognized in the income statement when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings. F-12 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued The interest rate swap is a cash flow hedge; however, it is accounted for as a fair value hedge because the Company had not established its policy for measuring ineffectiveness. As a result, the derivative hedging instrument is being accounted for as an asset or liability, with changes in fair value at each reporting date included in earnings. Stock-Based Compensation The Company accounts for stock-based compensation to employees using the intrinsic value method. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. The Company has adopted disclosure-only provisions of SFAS No. 123 (SFAS 123), Accounting for Stock-Based Compensation. Revenue Recognition Revenue is recognized when a firm sales agreement is in place, delivery has occurred, the price is fixed and determinable and collectibility is reasonably assured. Shipping and Handling Fees Shipping and handling fees charged to customers are reported as revenue and all shipping and handling costs incurred are reported as cost of sales. Foreign Currency Translation Local currencies are considered the functional currencies for the Company's operations outside the United States. Assets and liabilities are translated into U.S. dollars at the rate of exchange in effect at the balance sheet date. Revenues and expenses are translated into U.S. dollars at average monthly exchange rates prevailing during the year. Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (Loss) Comprehensive income (loss) presented in the statement of stockholders' equity consists of net income (loss), foreign currency translation adjustments and unrealized gains and losses on investments held for sale. At December 31, 2001 and 2000, accumulated other comprehensive income (loss) consists entirely of cumulative translation adjustments for foreign currency. Advertising Expense The Company expenses advertising costs as incurred. Total advertising expense was approximately $1.8 million, $2.2 million and $1.7 million, for the years ended December 31, 2001, 2000 and 1999, respectively. F-13 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Income Taxes The Company utilizes the asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future. These amounts are based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Use of Estimates In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. New Accounting Pronouncements In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Intangible Assets. SFAS No. 141 is effective for all business combinations completed after June 30, 2001. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001; however, certain provisions of this statement apply to goodwill and other intangible assets acquired between July 1, 2001 and December 31, 2001. Major provisions of these statements and their effective dates are as follows: o all business combinations initiated after June 30, 2001 must use the purchase method of accounting; o intangible assets acquired in a business combination must be recorded separately from goodwill if they arise from contractual or other legal rights or are separable from the acquired entity and can be sold, transferred, licensed, rented or exchanged, either individually or as part of a related contract, asset or liability; o goodwill, as well as intangible assets with indefinite lives, acquired after June 30, 2001, will not be amortized; o effective January 1, 2002, all previously recognized goodwill and intangible assets with indefinite lives will no longer be subject to amortization; o effective January 1, 2002, goodwill and intangible assets with indefinite lives will be tested for impairment annually and whenever there is an impairment indicator; and F-14 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued o all acquired goodwill must be assigned to reporting units for purposes of impairment testing and segment reporting The Company amortized goodwill related and intangible assets acquired prior to July 1, 2001 until December 31, 2001. Beginning January 1, 2002, quarterly and annual goodwill amortization will no longer be recognized. The Company intends to complete a transitional impairment test of all intangible assets as of March 31, 2002 and a transitional fair value based impairment test of goodwill as of January 1, 2002 by June 30, 2002. Impairment losses, if any, resulting from the transitional testing will be recognized as a cumulative effect of a change in accounting principle. In June 2001, the Financial Accounting Standards Board issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement is effective for fiscal years beginning after June 15, 2002. The Company does not believe that the implementation of this standard will have a material effect on its financial position, results of operations, or cash flows. In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement is effective for fiscal years beginning after December 15, 2001. The Company does not believe that the implementation of this standard will have a material effect on its financial position, results of operations, or cash flows. Reclassifications Certain reclassifications have been made to prior years financial statements to conform to the 2001 presentation. NOTE B - BUSINESS COMBINATIONS AND DIVESTITURES 2001 Divestitures: ULTRAK FRANCE On December 31, 2001, the Company's French subsidiary sold its CCTV inventory and other intangibles to Bisset Technology Systems ("BTS") for a nominal amount. On October 15, 2001, the Company's French subsidiary sold its BST audio product inventory and other intangibles to Audio Club for $312,000. A loss of approximately $175,000 was recorded in connection with the transaction. F-15 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE B - BUSINESS COMBINATIONS AND DIVESTITURES - Continued INDUSTRIAL FURNACE CAMERA BUSINESS On July 27, 2001, the Company sold its industrial furnace camera business to Diamond Power International, Inc. for cash consideration of $2.6 million. The assets sold consist primarily of accounts receivable, inventories, fixed assets, patents, trademarks and other intangibles. The transaction resulted in a gain of $1.3 million. The Industrial Furnace Camera business, currently located in Carroll, Ohio, is a supplier of specialized camera monitoring equipment used in furnace and related industrial applications. 2000 Divestitures: INTERVISION EXPRESS, LTD. On July 1, 2000, the Company sold substantially all assets of its UK-based business, Intervision Express, Ltd. ("Intervision") to Norbain SD, Ltd. ("Norbain"), a UK-based distributor of CCTV and access control equipment. The Company received $2.1 million in cash for inventory and certain other assets, including the use of the Intervision trade name. Ultrak retained the right to sell Ultrak-branded products directly to systems integrators and installers in Intervision's previous market in the UK and Ireland. The Company recognized a loss of $840,000 on the transaction in 2000. The Company also granted Norbain distribution exclusivity for its Diamond-series dome product line and its CCTV products in the UK. To maintain its exclusivity, Norbain must purchase at least $6.0 million of Ultrak-branded products and dome systems through the end of 2002. 1999 Business Combinations: ABM DATA SYSTEMS, INC. Effective March 1, 1999, the Company acquired 100% of the common stock of ABM Data Systems, Inc. ("ABM"), an Austin, Texas based software developer for the alarm-monitoring segment of the security industry. Total consideration was 250,000 shares of registered Ultrak common stock valued at $1.5 million. ABM develops, sells, and services computer software for the alarm monitoring security industry, governmental agencies, and proprietary customers and offers support for computer software targeted for automated security monitoring markets. MULTI CONCEPTS SYSTEMS, SA Effective April 1, 1999, the Company acquired 100% of the stock of Multi Concepts Systems, SA ("MCS"), a Switzerland based systems integrator of electronic security systems. Total consideration included an initial payment of $405,000 in cash and future contingent payments based upon a percentage of MCS income and book value, as defined. MCS has been the largest European reseller and integrator of Ultrak's SAFEnet access control system over the past ten years. F-16 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE B - BUSINESS COMBINATIONS AND DIVESTITURES - Continued MACH SECURITY SP.Z.O.O. Effective July 1, 1999, the Company acquired 100% of the stock of MACH Security Sp.z.o.o. ("Mach"), based in Szczecin, Poland. Mach is one of the largest distributors of CCTV products in Poland. Total consideration included an initial payment of $275,000 in cash and a future contingent payment based upon a percentage of Mach income, as defined. 1999 Divestitures: In March 1999, the Company completed the sale of its 10% interest in a company in Japan for $1.8 million in cash. No pro forma disclosures have been made as the transactions described above are not significant individually or in the aggregate. NOTE C - PROPERTY, PLANT AND EQUIPMENT The components of property, plant and equipment are as follows (in thousands):
December 31, ------------------------ Useful lives 2001 2000 -------------- ------ ------ Machinery and equipment 3 - 7 years $ 10,012 $ 9,123 Furniture and fixtures 3 - 7 years 2,586 2,499 Internal use software 3 - 8 years 6,668 7,443 Software development costs 3 - 5 years 3,005 2,421 Buildings and land 20 - 30 years 11,053 5,400 -------- -------- 33,324 26,886 Accumulated depreciation and amortization (14,529) (11,885) -------- -------- $ 18,795 $ 15,001 ======== ========
NOTE D - FINANCING ARRANGEMENTS Line of Credit At December 31, 2001 and 2000, the Company had $15.0 million and $35.4 million outstanding, respectively, under a credit facility. During the first quarter of 2001, the credit facility was reduced from $45 million to $30.0 million. The facility provides for interest payable quarterly at prime plus a range of 0.00% to 0.75% or LIBOR plus a range of 2.25% to 2.75%, depending on the leverage ratio, as defined, for the quarter. The credit facility contains certain restrictive financial and operational covenants and conditions, including a maximum leverage ratio, a debt service ratio and minimum net worth amounts. The Company pays a monthly unused fee of .375% per annum and borrowings are collateralized by substantially all assets of the Company. At December 31, 2001, the Company was in violation of certain loan covenants and the interest rate was increased to the base rate plus 3.25%, or 8%. F-17 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE D - FINANCING ARRANGEMENTS - Continued In February 2002, an amendment (the "Eighth Amendment") to the Company's credit facility was signed at the insistence of the lenders that increased the interest rate to 12%, reduced the lending commitment from $30 million to $20 million, and shortened the termination date of the facility from March 31, 2002 to February 28, 2002. The Eighth Amendment also waived certain alleged defaults by the Company under the loan covenants and provided for the payment of certain fees, including fees which the Company believes gave it the right to extend the termination date of the facility back to March 31, 2002. Although the Company paid and the lenders accepted all of the fees prescribed by the amendment, the lenders have asserted that the Company did not have the right to extend the termination date of the credit facility. Consequently, in March 2002, the lenders have declared the outstanding balance of the loan to be due, refused to advance funds under the credit facility, and reserved the right to commence foreclosure if the loan is not repaid by April 30, 2002. Although the Company believes that the actions of the lenders are unwarranted and in breach of their obligations under the credit facility, it expects to repay the loan before such actions are initiated. The Company has received a financing commitment from a new lender that, combined with a tax refund in excess of $6 million to be received by April 16, 2002, will allow the existing revolving credit facility to be repaid and provide sufficient funds for the Company's operations. The Company and the new lender have approved the terms of the loan documents and the new credit facility is expected to close on April 19, 2002, with funding to follow shortly thereafter. Financing Obligation During 1998, the Company's Worldwide Corporate headquarters located in Lewisville, Texas was built. Through December 31, 2000, the Company leased its facility under a synthetic lease classified for book purposes as an operating lease. In January 2001, the Company terminated its lease and purchased its corporate headquarters facility from the lessor for $11.5 million. In December 2001, the building and the surrounding 14 acres of land were sold to Briarwood Capital Corporation for $6.6 million. The Company will leaseback the building and land at a cost of $60,000 per month for a term of 30 months beginning in January 2002. The lease includes an option to purchase the building and land for $6.9 million at the end of 24 months. Accordingly, this transaction has been accounted for as a financing transaction. The Company has recorded the proceeds from the sale as a financing obligation, classified the lease payments as interest expense and continues to carry the land and building on its books and record depreciation. The difference between the net book value and sales proceeds, which totals $4,466,000, has been recorded in the accompanying statements of operations as an asset impairment. In connection with the financing transaction, the Company granted warrants to purchase 200,000 shares of the Company's common stock to the Company's Chairman and Chief Executive Officer. Additionally, the Company granted warrants to purchase 100,000 shares of the Company's common stock to Briarwood Capital Corporation. See Note E regarding details of the warrants. F-18 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE D - FINANCING ARRANGEMENTS - Continued Other Debt The Company has other financing arrangements ($0.4 million) in Belgium which consist of various term loans collateralized by automobiles and computer software. These loans have been classified as current liabilities as a result of management's decision to withdraw from Belgium and their intention to repay these obligations. The Company has overdraft facility agreements for certain European subsidiaries up to $1.8 million. At December 31, 2001, there is $0.4 million outstanding under these agreements. Interest Rate Swap At December 31, 2001, the Company has an interest rate swap to limit the effect of increases in interest rates. The swap has a notional amount of $5 million and expires February 2004. The effect of this agreement is to limit the Company's interest rate exposure by fixing the interest rate at 6.485%. At December 31, 2001, the swap had a fair value of $194,000 and is included in other current liabilities. NOTE E - STOCKHOLDERS' EQUITY Preferred Stock The Series A preferred stock earns dividends at the rate of 12% per annum, payable quarterly. All dividends accrue whether or not such dividends have been declared and whether or not there are profits, surplus, or other funds of the Company legally available for payment. The Company may at any time redeem all or any portion of the Series A Preferred Stock then outstanding at the liquidation value of $5.00 per share plus unpaid dividends. The holder of the Series A Preferred Stock may convert any or all of the 195,351 preferred shares into shares of the Company's common stock at any time at a conversion rate equal to 2.08 shares of common stock per preferred share or a total of 406,981 shares of common stock. On October 23, 2001, George K. Broady, Chairman and CEO of Ultrak, Inc., announced that he had contracted to sell all of his Ultrak preferred stock holdings (195,351 shares of Series A 12% convertible preferred stock). Each of the preferred shares is entitled to voting rights equal to 16.667 shares of common stock or a total of voting rights equal to 3,255,915 common shares. Mr. Broady has also granted the buyer a voting proxy on 1,150,000 shares of Ultrak common stock until June 2002. This transaction was completed on January 16, 2002. F-19 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE E - STOCKHOLDERS' EQUITY - Continued Warrants In connection with a personal guarantee given for the building and land financing (see Note D), the Company's Board of Directors granted warrants to the Company's Chairman and Chief Executive Officer to purchase 200,000 shares of common stock at an exercise price of $1.64 per share. The market price of the Company's common stock at the date of grant was $1.43. These warrants expire three years from the grant date and were valued at $130,000. In addition, the Company is obligated to reimburse the Chairman for up to $70,000 of payroll and income taxes related to the warrants. The fair value of these warrants was estimated using the Black-Scholes option pricing model with the following assumptions: expected volatility of 84 percent, a risk-free interest rate of 3.0 percent, no dividend yield and an expected life of two years. On December 13, 2001, the Board of Directors granted Briarwood Capital Corporation (see Note D) warrants to purchase 100,000 shares of common stock at an exercise price of $1.55 per share. These warrants expire ten years from the grant date and were valued at $100,000. The fair value of the warrants was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions: expected volatility of 81 percent, a risk-free interest rate of 4.4 percent, no dividend yield and an expected life of five years. On October 19, 2001, in connection with the private placement of common stock (see below), the Board of Directors granted the placement agent, an unrelated third party, a warrant to purchase 200,000 shares of common stock at $1.25 per share. This warrant expires one year from the grant date. Private Placement of Common Stock On October 18, 2001, the Company completed a private placement to a foreign individual of 2,337,700 unregistered shares of Ultrak common stock for net proceeds of $4.1 million. On October 28, 2001, the Company exercised an option to sell an additional 293,879 shares of Ultrak common stock to this party for $1.90 per share, subject to stockholder approval which was obtained at a special stockholders meeting held on November 30, 2001. This option transaction has not yet closed. F-20 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE F - STOCK-BASED COMPENSATION Tender Offer On June 11, 2001, the Company filed a Tender Offer Statement ("TO") to exchange all options held by option holders who had not received options after December 9, 2000 (the "Eligible Options") for new options (the "New Options") to purchase shares of common stock to be granted under the 1988 Plan. The number of shares of common stock subject to the New Options will be based on the number of shares of common stock subject to the Eligible Options that are accepted for exchange and cancelled at the exchange ratio as follows:
Eligible Option Exercise Price New Options to be Issued Up to $6.62 1 New Option per 1 Eligible Option (1:1) $6.63 to $8.25 0.75 New Option per 1 Eligible Option (0.75:1) $8.26 and above 0.50 New Option per 1 Eligible Option (0.5:1)
159,980 stock options were tendered in connection with the exchange. On January 14, 2002, the Company granted 106,215 New Options at an exercise price of $1.49 pursuant to the tender offer. Stock Options The Company's 1988 Nonqualified Stock Option Plan (the "1988 Plan"), amended on June 11, 2001, provides for grants of options for up to 2,200,000 shares and the 1997 Incentive Stock Option Plan (the "1997 Plan") provides for grants of options for up to 400,000 shares. Shares under the 1997 Plan are awarded based upon the Company achieving one or more definitive performance measurements for a fiscal year, including minimum levels of economic value added, minimum levels of market value added or attainment of the financial budget. The 1997 Plan is a formula-based plan administered by the Compensation Committee of the Board of Directors. Option grants under the 1997 Plan are limited to 1% of the outstanding common stock of the Company. At December 31, 2001 and 2000, 1,041,896 and 289,012 shares were available for grant under the 1988 Plan and the 1997 Plan. Option exercise prices are equal to the market price at the date of grant. Shares under grant generally become exercisable in five equal annual installments beginning one year after the date of grant, and expire after ten years. Shares in the 1988 Plan granted since June 1, 2001 are exercisable in three equal annual installments beginning one year after the date of grant. F-21 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE F - STOCK-BASED COMPENSATION - Continued If the Company recognized compensation expense under SFAS No. 123, based upon the fair value at the grant date for options granted under the 1988 Plan and 1997 Plan, the Company's net income (loss) from continuing operations and income (loss) per share would be reduced (increased) to the pro forma amounts indicated as follows (in thousands, except per share data):
Year ended December 31, ----------------------------------------- 2001 2000 1999 ------ ------ ---- Net income (loss) from continuing operations: As reported $(1,461) $(57,687) $672 Pro forma $(2,606) $(59,289) $253 Basic income (loss) per share from continuing operations: As reported $(0.13) $(4.95) $0.05 Pro forma $(0.22) $(5.07) $0.01 Diluted income (loss) per share from continuing operations: As reported $(0.13) $(4.95) $0.05 Pro forma $(0.22) $(5.07) $0.01
The fair value of these options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: expected volatility of 55 to 80 percent; risk-free interest rates of 4.5 to 6.5 percent; no dividend yield; and expected lives of seven years. Information with respect to options outstanding at December 31, 2001 and changes for the three years then ended is as follows:
2001 2000 1999 --------------------- --------------------- ---------------------- Weighted Weighted Weighted average average average exercise exercise exercise Shares price Shares price Shares price -------- ------- -------- ------- -------- ------- Outstanding at beginning of year 1,118,569 $7.31 953,972 $6.56 859,170 $9.94 Granted 620,851 1.89 627,500 8.23 360,500 6.15 Exercised - - (166,065) 5.46 (28,333) 2.43 Forfeited (602,934) 6.72 (296,838) 7.80 (237,365) 18.91 -------- -------- --------- Outstanding at end of year 1,136,486 $4.72 1,118,569 $7.31 953,972 $6.56 ========= ==== ========= ==== ======== ==== Options exercisable at end of year 200,936 $8.45 344,410 $5.83 490,549 $5.83 ======= ==== ======= ==== ======== ====
Weighted average fair value per share of options granted for 2001, 2000 and 1999 was $1.13, $5.71 and $3.89, respectively. F-22 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE F - STOCK-BASED COMPENSATION - Continued Additional information about stock options outstanding at December 31, 2001 is summarized as follows:
Options outstanding Options exercisable --------------------------------------- ------------------------- Weighted average Weighted Weighted remaining average average Number contractual exercise Number exercise Range of exercise prices outstanding life price exercisable price ------------------------ ----------- ------ ------- ----------- ------- $0.01 to $1.19 100,000 9.7 years $ 1.18 - $ - $1.20 to $5.62 525,351 9.7 years 2.06 1,200 5.42 $5.63 to $9.00 291,533 7.0 years 6.32 124,073 6.05 $9.01 to $13.50 183,360 7.9 years 9.28 45,472 9.34 $13.51 to $20.00 36,242 5.1 years 17.10 30,191 17.10 --------- ------- 1,136,486 200,936 ========= =======
In January 2002, the Company granted 630,915 stock options under the 1988 Plan to employees, including 106,215 stock options pursuant to the tender offer, at exercise prices ranging from $1.42 to $1.49. NOTE G - MAJOR CUSTOMERS AND SUPPLIERS One of the Company's customers accounted for approximately 14% of total sales during 2001 and 13% of total sales during 2000. Loss of this customer may have a material adverse effect on operations. Another major customer, Sam's Club, accounted for approximately 11%, 14%, and 13% of total sales in 2001, 2000 and 1999, respectively. In October 2001, Sam's Club discontinued carrying a substantial portion of Company's products. The Company purchased 17% of its products from one contract manufacturer during 2001 and in excess of 20% in 2000 and 1999. Although there are a limited number of manufacturers of the Company's products, management believes there are suppliers who could provide similar products on comparable terms. A change in suppliers could cause a delay in and a possible loss of sales. NOTE H - COMMITMENTS AND CONTINGENCIES Leases The Company leases office and warehouse space and data processing equipment under long-term, noncancelable leases. F-23 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE H - COMMITMENTS AND CONTINGENCIES - Continued Minimum future rental payments for all long-term, noncancelable operating leases are presented below (in thousands): Year ending December 31, 2002 $1,672 2003 1,007 2004 393 2005 279 2006 266 Thereafter 839 ------ $4,456 ====== Total rent expense was as follows (in thousands): 2001 $2,866 2000 2,574 1999 2,704 Litigation The Company is a defendant in various lawsuits arising in the ordinary course of business. Management is of the opinion that all such matters are without merit or are of such a kind, or involve such amounts, as would not have a significant effect on the consolidated financial position, results of operations or cash flows of the Company if disposed unfavorably. NOTE I - INCOME TAXES The provision (benefit) for taxes consists of the following (in thousands): Year ended December 31, ----------------------------------------- 2001 2000 1999 ------ ------ ------ Federal Current $ 140 $(1,476) $ 597 Deferred (1,338) (4,397) 742 State 41 (464) 82 Foreign 254 2,192 (135) ------- ------- ------ $ (903) $(4,145) $1,286 ======= ======= ====== F-24 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE I - INCOME TAXES - Continued Income (loss) before provision (benefit) from taxes consists of the following (in thousands): Year ended December 31, ----------------------------------------- 2001 2000 1999 ------ ------ ------ United States $(2,270) $(37,491) $2,330 Foreign (94) (24,341) (372) ------- -------- ------ $(2,364) $(61,832) $1,958 ======= ======== ====== The Company's effective income tax rate differed from the U.S. Federal statutory rate as follows:
Year ended December 31, --------------------------------------- 2001 2000 1999 ---- ---- ---- U.S. Federal statutory rate (34.0)% (34.0)% 34.0% State tax effect 0.5 (0.8) 2.5 Goodwill amortization and impairment 17.5 8.5 20.8 Tax benefit of foreign restructuring (409.9) - - Other nondeductible expenses 2.8 0.1 3.5 Rate differential for foreign taxes 19.8 4.1 - Change in valuation allowance, exclusive of items not affecting income tax expense (benefit) 362.2 15.2 - Other, net 2.9 0.2 4.9 ---- ---- ---- (38.2)% (6.7)% 65.7% ====== ===== ====
The components of deferred tax assets and liabilities are as follows (in thousands):
December 31, ------------------------ 2001 2000 ------ ------ Deferred tax assets: Inventories $ 742 $ 3,948 Accounts receivable 341 821 Accrued expenses 696 608 Net operating loss carryforwards 17,204 1,346 Foreign deferred tax assets 8,444 8,515 Other, net 1,888 1,539 ------ ------ Gross deferred tax assets 29,315 16,777
F-25 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE I - INCOME TAXES - Continued
December 31, ------------------------ 2001 2000 ------ ------ Deferred tax liabilities: Property, plant and equipment $ (1,045) $(2,469) Investment in Detection Systems, Inc. - (1,031) -------- ------- Gross deferred tax liabilities (1,045) (3,500) Valuation allowance (21,961) (8,432) ------- ------- Net deferred tax asset $ 6,309 $ 4,845 ======= ======= Current deferred tax assets $ 6,309 $ 6,337 Non-current deferred tax liabilities - (1,492) ------- ------- $ 6,309 $ 4,845 ======= =======
At December 31, 2001, the Company had Federal, state and foreign net operating loss carryforwards of approximately $48,400,000, $23,500,000 and $31,200,000, respectively. Federal net operating loss carryforwards expire in 2021. The state net operating loss carryforwards expire in 2005 to 2021. Substantially all foreign net operating loss carryforwards do not expire. The Company maintains a valuation allowance to adjust the total deferred tax assets to net realizable value in accordance with SFAS No. 109. In the fourth quarter of 2001, as a result of certain tax restructuring actions of its foreign subsidiaries and a reevaluation of the realizability of income tax benefits from future operations, the Company reduced its deferred tax valuation allowance by $1,150,000. The Company considered positive evidence supported by historical levels of taxable income, estimates of future taxable income, and expiration periods of net operating loss carryforwards, among other things, in making this evaluation and concluding that it is more likely than not that the Company will realize the benefit of its net deferred tax asset. Ultimate realization of the deferred tax asset is dependent upon, among other factors, the Company's ability to generate sufficient taxable income within carryforward periods (2005 to 2021) and is subject to change depending on tax laws in effect in years in which carryforwards are used. F-26 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE J - INVESTMENT IN DETECTION SYSTEMS, INC. In January 2001, the Company tendered its 21% interest in Detection Systems, Inc. for $24.0 million, which represented a price of $18 per share. The total gain on sale of this investment was $7.7 million, net of $0.8 million in commissions to the Company's Chairman and Chief Executive Officer. The Company accounted for its investment in Detection Systems, Inc. under the equity method and the Company's share of earnings was included in income in 2000 and 1999. The difference between the Company's cost and the underlying equity in Detection Systems, Inc. of approximately $1.6 million represented goodwill. NOTE K - SEGMENT DISCLOSURE AND FOREIGN OPERATIONS The Company has four business segments: United States-Professional Security Group (US-PSG), Diversified Sales Group (DSG), International-Professional Security Group (International-PSG), and Supply. The segments are differentiated by the customers serviced as follows: US-PSG This segment consists of sales in the United States to professional security dealers, distributors, installers and certain large end users of professional security products. DSG This segment sells video and security products to industrial markets and consumers. This segment includes all sales to Sam's Clubs, which discontinued carrying the Company's Exxis security products in its stores when the Ultrak-related commitments to its suppliers were satisfied in October of 2001. International-PSG This segment consists of sales to professional security dealers, distributors, installers and certain large end users of professional security products outside the United States. Supply This segment sells to the US-PSG and International-PSG segments products and systems manufactured by the Company's Ohio and California facilities. The Company's underlying accounting records are maintained on a legal entity basis for government and public reporting requirements. Segment disclosures are on a performance basis consistent with internal management reporting. The Company evaluates performance based on earnings from continuing operations before income taxes and other income and expense. The Corporate column includes corporate overhead related items. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (Note A). F-27 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE K - SEGMENT DISCLOSURE AND FOREIGN OPERATIONS - Continued The following tables provide financial data by segment for the years ended December 31, 2001, 2000 and 1999 (in thousands):
US International 2001 PSG DSG PSG Supply Corporate Total ---- --------- --------- --------- --------- --------- --------- Total revenue ................................. $ 70,479 $ 47,577 $ 52,649 $ 27,629 $ 1,499 $ 199,833 Intersegment revenue .......................... (402) -- (10,443) (26,529) (752) (38,126) --------- --------- --------- --------- --------- --------- Revenue from external customers .................................. $ 70,077 $ 47,577 $ 42,206 $ 1,100 $ 747 $ 161,707 ========= ========= ========= ========= ========= ========= Gross profit .................................. $ 22,367 $ 12,960 $ 13,309 $ 146 $ 1,116 $ 49,898 Selling, general and administrative expenses .................... 13,365 4,564 12,679 1,319 16,100 48,027 Asset impairment .............................. -- -- -- -- 4,466 4,466 Depreciation and amortization expense .................................... 396 159 380 246 4,130 5,311 --------- --------- --------- --------- --------- --------- Operating profit (loss) ....................... $ 8,606 $ 8,237 $ 250 $ (1,419) $ (23,580) $ (7,906) ========= ========= ========= ========= ========= ========= Total assets .................................. 18,145 9,659 23,008 13,333 57,619 121,764 Capital additions ............................. 32 2 592 189 1,163 1,978 2000 ---- Total revenue ................................. $ 91,401 $ 60,411 $ 76,622 $ 24,395 $ 6 $ 252,835 Intersegment revenue .......................... (968) -- (29,427) (22,442) -- (52,837) --------- --------- --------- --------- --------- --------- Revenue from external customers .................................. $ 90,433 $ 60,411 $ 47,195 $ 1,953 $ 6 $ 199,998 ========= ========= ========= ========= ========= ========= Gross profit (loss) ........................... $ 23,460 $ 11,406 $ 14,897 $ (1,077) $ (2,124) $ 46,562 Selling, general and administrative expenses..................... 21,565 5,282 28,541 915 14,820 71,123 Asset impairment .............................. -- -- 15,420 -- 4,378 19,798 Special charges ............................... -- -- -- 159 956 1,115 Depreciation and amortization expense .................................... 650 276 755 114 4,687 6,482 --------- --------- --------- --------- --------- --------- Operating profit (loss) ....................... $ 1,245 $ 5,848 $ (29,819) $ (2,265) $ (26,965) $ (51,956) ========= ========= ========= ========= ========= ========= Total assets .................................. 35,969 16,362 27,977 11,644 51,545 143,497 Capital additions ............................. 2,722 (89) 1,007 657 1,235 5,532
F-28 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE K - SEGMENT DISCLOSURE AND FOREIGN OPERATIONS - Continued
US International 1999 PSG DSG PSG Supply Corporate Total ---- ----- ----- ----- -------- --------- ------- Total revenue $92,508 $53,188 $ 81,675 $ 22,556 $ - $249,927 Intersegment revenue (1,512) - (17,658) (22,556) - (41,726) ------- --- ------- ------- --- ------- Revenue from external customers $90,996 $53,188 $ 64,017 $ - $ - $208,201 ====== ====== ======= === === ======= Gross profit $29,820 $14,947 $ 21,041 $ 399 $ 1,162 $ 67,369 Selling, general and administrative expenses 18,125 5,723 18,657 966 13,206 56,677 Special charges 876 213 2,036 - 750 3,875 Depreciation and amortization expense 3,401 1,775 673 62 - 5,911 ------- ------- ------ ------ --------- ------ Operating profit (loss) $ 7,418 $ 7,236 $ (325) $ (629) $(12,794) $ 906 ======= ======= ====== ====== ======== ===== Total assets 48,475 27,700 46,531 14,099 63,546 200,351 Capital additions 2,386 1,422 2,375 - 1,692 7,875
Sales by geographic area were as follows (in thousands):
Year ended December 31, ----------------------------------------- 2001 2000 1999 ------ ------ ------ United States $119,430 $152,803 $144,185 Italy 10,537 8,989 10,798 United Kingdom 6,837 6,924 16,853 Germany 6,730 9,484 11,302 France 4,644 8,023 14,378 Poland 3,618 2,003 527 South Africa 3,617 3,103 3,549 Australia 3,068 4,404 5,418 Switzerland 1,950 1,867 604 Other 1,276 2,398 587 ------- ------- -------- Total revenues $161,707 $199,998 $208,201 ======== ======== ========
F-29 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE L - INCOME (LOSS) PER SHARE Following is a reconciliation of basic and diluted earnings (loss) per share from continuing operations (in thousands, except share and per share data):
2001 2000 1999 ----------------------------- ------------------------------ ------------------------------ Loss Loss Income allocable to Per allocable to Per allocable to Per common share common share common share stockholders Shares amount stockholders Shares amount stockholders Shares amount ------------ ------ ------ ------------ ------ ------ ------------ ------ ------ Income (loss) from continuing operations allocable to common stockholders $(1,578) 12,183,401 $(0.13) $(57,804) 11,686,049 $(4.95) $555 11,644,941 $0.05 ====== ===== Effect of dilutive securities Contingently issuable shares - - - - - 98,773 Stock options - - - - - 149,587 Convertible preferred stock - - - - 117 406,981 ------- ---------- -------- ---------- ---- ---------- Income (loss) from continuing operations allocable to common stockholders after assumed conversions $(1,578) 12,183,401 $(0.13) $(57,804) 11,686,049 $(4.95) $672 12,300,282 $0.05 ======= ========== ====== ======== ========== ====== ==== ========== =====
For the years ended December 31, 2001 and 2000, respectively, no stock options were included in the computation of diluted loss per share because the effect would have been antidilutive. For the year ended December 31, 1999, 201,503 stock options were outstanding but not included in the computation of diluted income per share because the option exercise prices were greater than the average market price of the common shares and, therefore, the effect would have been antidilutive. NOTE M - UNAUDITED QUARTERLY OPERATING RESULTS Unaudited quarterly operating results for the years ended December 31, 2001 and 2000 are as follows (in thousands):
First Second Third Fourth 2001: Quarter Quarter Quarter Quarter ----- ------- ------- ------- ------- Sales $44,418 $40,167 $40,045 $ 37,077 Gross profit 13,304 13,614 11,643 11,337 Net income (loss) 6,614 (889) (423) (6,763) Income (loss) per share: Basic $0.56 $(0.08) $(0.04) $(0.50) Diluted 0.54 (0.08) (0.04) (0.50)
F-30 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE M - UNAUDITED QUARTERLY OPERATING RESULTS - Continued
First Second Third Fourth 2000: Quarter Quarter Quarter Quarter ----- ------- ------- ------- ------- Sales $52,134 $53,919 $47,265 $ 46,680 Gross profit 16,186 16,669 14,025 (318) Net income (loss) (428) 69 (3,803) (53,525) Income (loss) per share: Basic $(0.04) $ - $(0.33) $(4.58) Diluted (0.04) - (0.33) (4.58)
See Note O for detail of 2000 special charges. NOTE N - DISCONTINUED OPERATIONS The Company sold Dental Vision Direct, Inc. on August 5, 1998 and completed the disposal in 1999. The Company had no revenues, expenses, or gains from discontinued operations in 2001 and 2000. In 1999, revenues and loss from operations, net of tax benefit of $55,000, totaled $616,000 and $(107,000), respectively. NOTE O - SPECIAL CHARGES AND CHANGES IN ESTIMATES 2001 Write-down of Assets During 2001, the Company wrote down the carrying value of certain of its inventories by $800,000. F-31 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE O - SPECIAL CHARGES AND CHANGES IN ESTIMATES - Continued 2000 Special Charges - Fourth Quarter During the fourth quarter of 2000, the Company, in conjunction with changes in key management personnel, made several changes in its strategic plan which resulted in significant expenses. Additionally, based on this new strategic direction, certain assets were assessed for impairment. The charges to income related to these items are summarized as follows (in thousands): Closure of European distribution center $ 7,246 Goodwill impairment - France 10,103 Goodwill impairment - Germany 2,985 Closure of business - France 2,686 Inventory write-downs 9,521 Severance - United States 561 Software development costs 1,985 Impairment of internal use software 2,899 Foreign currency losses 4,197 Other 105 ------- $42,288 ======= Closure of European Distribution Center During 1998 and 1999, the Company opened a European distribution center located in Antwerp, Belgium. The purpose of the distribution center was to consolidate purchasing, reduce overhead and create efficiencies. Because of declining sales and operational difficulties, the Company concluded in the fourth quarter 2000 its European distribution center strategy would not be successful. Therefore, the Company evaluated the net realizable value of its European distribution center assets and wrote off and/or wrote down assets that could not be fully recovered or utilized in the other European operations. These consisted of inventory costs ($2,705,000), personnel ($667,000), fixed assets ($1,187,000) and lease termination and other exit costs ($2,687,000). The personnel costs provided for the termination of its 13 employees. During 2001, the Company negotiated favorable settlement of certain liabilities provided for at December 31, 2000 as well as selling its facility in Belgium for higher than expected proceeds. These actions resulted in reduction of selling, general and administrative expenses of $950,000 in 2001. The Company still has approximately $90,000 at December 31, 2001 accrued for final closure costs. F-32 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE O - SPECIAL CHARGES AND CHANGES IN ESTIMATES - Continued Goodwill Impairment/Closure of Business - France The Company's continuing losses in France triggered an impairment review in 2000 of its long-lived assets. This decision and the lack of resulting future cash flows in France caused the Company to conclude all associated goodwill, amounting to $10,103,000, was impaired. The primary components of the closure costs involved personnel costs ($1,081,000), writeoffs of fixed assets, accounts receivable and other assets ($1,101,000) and other exit costs ($504,000). The personnel costs provided for termination of its 24 employees. The 2000 accruals were based on a liquidation of the business in France; however, the Company was able to sell the French business in 2001. The sale of the French business resulted in a change in estimate of the restructuring accrual of $650,000. At December 31, 2001, the Company has liabilities remaining for severance to one employee ($177,000) and other final settlement costs ($383,000). The net effect on operations in 2001 was a reduction of selling, general and administrative expenses of $650,000. Goodwill Impairment - Germany As a result of the unsuccessful European centralization strategy and continuing losses in Germany, management performed an impairment review of its long-lived assets at its German subsidiary in 2000. As a result of this analysis, the Company concluded, based on future undiscounted cash flows, that the entire amount of goodwill should be written off. Inventory Write Downs Inventory write downs are related to discontinued product lines and returned inventory which management has deemed the refurbishing to not be economic. Severance - United States In 2000, the Company determined certain United States positions would no longer be necessary. As a result, severance compensation was accrued in the fourth quarter of 2000 for 33 employees. Software Development Costs The Company evaluated products under development during the fourth quarter 2000. Based on this review, capitalized software development costs were written off relating to product designs that were abandoned and did not correspond with future product objectives. Impairment of Internal Use Software As a result of the outsourcing of certain manufacturing operations in 2000, it was determined that internal use software costs related to those operations was impaired. F-33 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE O - SPECIAL CHARGES AND CHANGES IN ESTIMATES - Continued Foreign Currency Losses Foreign currency losses in 2000 of $4,196,630 are related to foreign currency translation losses that were realized upon the sale or closure of foreign operations. Summary Details of the charges are as follows (in thousands):
Amount Accrued 2001 Amount Accrued 2000 Non-cash paid in December 31, charge paid in December 31, charge portion cash 2000 (credit) cash 2001 ------- --------- ------- ----------- -------- ------- ------------ Asset impairments $19,798 $(19,798) $ - $ - $ - $ - $ - Inventory charges 12,370 (12,370) - - - - - Foreign currency losses 4,197 (4,197) - - - - - Employee severance and termination benefits 2,327 - (255) 2,073 (1,253) (643) 177 Leased facilities and other termination costs 3,191 - - 3,191 (347) (2,371) 473 Other 405 (404) - - - - - ------- -------- ----- ------ ------- ------- ---- $42,288 $(36,769) $(255) $5,264 $(1,600) $(3,014) $650 ======= ======== ===== ====== ======= ======= ====
Also, there were other charges in the fourth quarter of 2000 for bad debt provisions, other asset write-downs and sales of investments totaling $4.8 million. The losses (credits) have been allocated to the 2001 and 2000 statements of operations as follows (in thousands):
2001 2000 ------ ------ Cost of sales $ - $12,370 General and administrative (1,600) 9,488 Asset impairment charges - 19,798 Foreign exchange losses - 4,197 Loss on sale of investments - 637 Other expenses - 600 ------- ------- $(1,600) $47,090 ======= =======
F-34 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE O - SPECIAL CHARGES AND CHANGES IN ESTIMATES - Continued 2000 Special Charges - Third Quarter Special charges of $1,361,000 were incurred in the quarter ended September 30, 2000. These charges included severance obligations of the Company related to the separation of three former executives and severance obligations related to the outsourcing of manufacturing operations in California and Australia. Additionally, costs associated with the proxy contest with Detection Systems, Inc. were recorded. The detail of these charges is as follows (in thousands):
Accrued at Accrued at 2000 December 31, December 31, Charge Settled 2000 Settled 2001 ------ ------- ------------ ------- ------------ Severance $584 $(220) $364 $(364) $ - California outsourcing 84 (78) 6 (6) - Australia outsourcing 75 (75) - - - Detection Systems, Inc. Proxy Contest 618 (618) - - - ------ ----- ---- ----- --- $1,361 $(991) $370 $(370) $ - ====== ===== ==== ===== ===
During 2001, $47,000 of amounts accrued at December 31, 2000 were credited to selling, general and administrative expenses due to favorable settlement. 1999 Special Charges During the first quarter of 1999, the Company incurred charges totaling $750,000 related to severance obligations. During the second quarter of 1999, the Company incurred charges totaling $3,125,000 pertaining to restructuring costs for (1) its four European locations including costs for employee severance, terminating leases, and consolidation of all purchasing, shipping, and billing activity to Antwerp, Belgium and (2) closing costs of three United States sales and distribution offices. The Company's exit plan commenced in June 1999 and provided for the termination of 54 employees (19 employees in the United States and 35 employees in Europe). The exit plan was completed in 2000 and resulted in the termination of 19 employees in the United States and 35 employees in Europe. Upon completion of the exit plan in October 2000, the Company had approximately $250,000 remaining for leased facilities and other termination costs. This amount has been presented as a credit under the caption "special charges" in the 2000 statement of operations. F-35 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE O - SPECIAL CHARGES AND CHANGES IN ESTIMATES - Continued The restructuring charge and the amount settled are as follows (in thousands):
Accrued at December 31, Charge Settled 2000 ------ -------- ------------ Severance and other related employee costs $2,608 $(2,608) $ - Leased facilities and other termination costs 1,267 (1,267) - ------ ------- --- $3,875 $(3,875) $ - ====== ======= ===
Change in Estimate During the fourth quarter of 1999, the Company increased its allowance for doubtful accounts for its European and South African subsidiaries by approximately $1.0 million. NOTE P - FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair value of financial instruments has been determined using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company would realize in a current market exchange. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practical to estimate that value. Cash, cash equivalents, accounts receivable, accounts payable, line of credit, and other debt are carried at cost, which approximates their fair value based on the short maturities of these instruments and the variable rates on the line of credit. The Company's financing obligation of $6.6 million approximates its fair value as the transaction was completed in December 2001. The Company uses an interest rate swap arrangement to manage exposure to interest rate fluctuations. The differential paid or received on interest rate swap agreements is recognized as an adjustment to interest expense in the period incurred or earned. The fair value of the interest rate swap at December 31, 2001 is approximately $194,000 and included in other current liabilities in the balance sheet. F-36 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE -------------------------------------------------------------- Board of Directors and Stockholders Ultrak, Inc. In connection with our audit of the consolidated financial statements of Ultrak, Inc. and Subsidiaries referred to in our report dated March 1, 2002, which is included in Part IV of this Form 10-K, we have also audited Schedule II for each of the three years in the period ended December 31, 2001. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein. Dallas, Texas March 1, 2002 SCHEDULE II ULTRAK, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS Years ended December 31, 2001, 2000 and 1999 (in thousands)
Balance at Charged Balance at Beginning Charged to to other End Description of Period Operations Accounts Deductions of Period ----------- ----------- ---------- -------- ---------- ----------- Allowance for doubtful trade accounts Year ended December 31, 2001 $5,791 $ 129 $(105)(1) $(3,312)(2) $ 2,503 Year ended December 31, 2000 2,402 3,556 - (1) (167)(2) 5,791 Year ended December 31, 1999 1,658 813 23 (1) (92)(2) 2,402 Deferred tax valuation allowance Year ended December 31, 2001 $8,432 $13,529 $ - $ - $21,961 Year ended December 31, 2000 - 8,432 - - 8,432
Notes - ----- (1) Balances recorded from business combinations and other. (2) Balances written off. S-2 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND --------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- None. 23 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -------------------------------------------------- There is hereby incorporated by reference the information regarding the Company's directors to appear under the caption "Election of Directors" in the Company's proxy statement for its 2002 Annual Meeting of Stockholders (the "2002 Proxy Statement"), which the Company expects to file with the Securities and Exchange Commission on or about April 30, 2002. See also the list of the Company's executive officers and related information under "Directors and Executive Officers" in Part I of the 2002 Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION ---------------------- There is hereby incorporated by reference the information to appear under the captions "Election of Directors" and "Executive Compensation and Other Information" in the 2002 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -------------------------------------------------------------- There is hereby incorporated by reference the information with respect to security ownership to appear under the caption "Security Ownership of Principal Stockholders and Management" in the 2002 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ---------------------------------------------- There is hereby incorporated by reference the information to appear under the caption "Executive Compensation and Other Information - Certain Transactions" in the 2002 Proxy Statement. 24 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K --------------------------------------------------------------- (a) Financial Statement Schedules filed as part of this Annual Report on Form 10-K. Financial Statements: Report of Independent Certified Public Accountants. Consolidated Balance Sheets as of December 31, 2001, and 2000. Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999. Consolidated Statement of Stockholders' Equity for the years ended December 31, 2001, 2000 and 1999. Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999. Notes to Consolidated Financial Statements. Additional financial information pursuant to the requirements of Form 10-K: Report of Independent Certified Public Accountants on Schedule Schedule II - Valuation and Qualifying Accounts Schedules not listed above have been omitted because they are either not applicable or the required information has been provided elsewhere in the Consolidated Financial Statements or notes thereto. (b) Reports on Form 8-K A Current Report on Form 8-K was filed with the Securities and Exchange Commission on November 1, 2001 reporting the private placement of 2,337,700 shares of the Company's Common Stock to Niklaus Zenger for a per share cash price of $1.90, and the announcement by George K. Broady that he had contracted to (a) sell his 195,351 shares of Series A 12% Convertible Preferred Stock (the "Preferred Stock") to Mr. Zenger and/or Mr. Zenger's assigns (these shares of the Preferred Stock represent 3,255,915 votes), and (b) grant Mr. Zenger a voting proxy on 1,150,000 shares of Mr. Broady's Common Stock for a period of approximately 8 months. (c) Exhibits
3.1 Certificate of Incorporation of the Company (filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995) 3.2 By-Laws of the Company (filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995) 4.1 Form of certificate representing shares of the Common Stock (filed as Exhibit 4.1 the Company's Registration Statement on Form S-2, Registration No. 333-02891) 10.7 Ultrak, Inc. Incentive Stock Option Plan (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997) 10.13 Credit Agreement, dated as of February 16, 1999, among Ultrak, Inc., Bank One, Texas, N.A. and Certain Lenders (filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998) 25 10.18 First Amended and Restated Credit Agreement between Ultrak, Inc., Bank One of Texas, N.A. and Certain Lenders, dated August 12, 1999 (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999) 10.21 First Amendment to First Amended and Restated Credit Agreement between Ultrak, Inc., Bank One of Texas, N.A. and Certain Lenders, dated November 12, 1999 (filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999) 10.22 Second Amendment to First Amended and Restated Credit Agreement between Ultrak, Inc., Bank One of Texas, N.A. and Certain Lenders, dated January 31, 2000 (filed as Exhibit 10.22 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999) 10.23 Third Amendment to First Amended and Restated Credit Agreement between Ultrak, Inc., Bank One of Texas, N.A. and Certain Lenders, dated February 29, 2000 (filed as Exhibit 10.23 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999) 10.25 Amended and Restated Credit Agreement between Ultrak Operating, L.P., American National Bank and Trust Company of Chicago and Certain Lenders, dated March 22, 2000 (filed as Exhibit 10.25 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000) 10.26 First Amended and Restated Credit Agreement among Ultrak Operating, L.P., American National Bank and Trust Company of Chicago and Harris Trust Savings Bank, dated May 17, 2000 (filed as Exhibit 10.26 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000) 10.28 Fourth Amendment and Continuation of Waivers effective March 1, 2001 between Ultrak Operating, L.P., American National Bank and Trust Company of Chicago and Harris Trust Savings Bank (filed as Exhibit 10.28 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000) 10.29 Fifth Amendment and Continuation of Waivers dated March 28, 2001 between Ultrak Operating, L.P., American National Bank and Trust Company of Chicago and Harris Trust Savings Bank (filed as Exhibit 10.29 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000) 10.30 Employment Agreement, effective January 1, 2001, between the Company and Peter Beare (filed as Exhibit 10.30 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000) 10.33 Sixth Amendment to First Amended and Restated Credit Agreement between Ultrak Operating, L.P., Ultrak, Inc., American National Bank and Trust Company of Chicago and Harris Trust Savings Bank, dated April 6, 2001 (filed as Exhibit 10.33 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001) 10.34 Seventh Amendment and Waiver to the First Amended and Restated Credit Agreement between Ultrak Operating, L.P., Ultrak, Inc., American National Bank and Trust Company of Chicago and Harris Trust Savings Bank, dated May 15, 2001 (filed as Exhibit 10.34 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001) 10.35 Eighth Amendment to Operative Agreements between Ultrak Operating LP, Ultrak, Inc., First Security Bank, National Association, Wells Fargo Bank Texas, National Association and Bank One, N.A. dated May 30, 2001 (filed as Exhibit 10.35 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001) 26 10.36 Waiver - Minimum Excess Availability of the First Amended and Restated Credit Agreement between Ultrak Operating, LP, Ultrak, Inc., American National Bank and Trust Company of Chicago and Harris Trust and Savings Bank, dated July 20, 2001 (filed as Exhibit 10.36 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001) 10.37 Ninth Amendment to Operative Agreements between Ultrak Operating LP, Ultrak, Inc., First Security Bank, National Association, Wells Fargo Bank Texas, National Association and Bank One, N.A. dated September 27, 2001 (filed as Exhibit 10.37 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001) *10.38 Tenth Amendment to Operative Agreements between Ultrak Operating LP, Ultrak, Inc., First Security Bank, National Association, Wells Fargo Bank Texas, National Association and Bank One, N.A. dated November 9, 2001 *10.39 Pledge Agreement dated as of November 14, 2001 between Ultrak Operating, LP and Wells Fargo Bank Texas, National Association 10.40 Tender Offer Statement under Section 14(d)(1) or 13(e)(1) of the Securities Exchange Act of 1934 (filed on Schedule TO-1 dated June 11, 2001) 10.41 Tender Offer Statement under Section 14(d)(1) or 13(e)(1) of the Securities Exchange Act of 1934, Amendment No. 1 (filed on Schedule TO-1/A dated June 29, 2001) 10.42 Stock Purchase Agreement dated September 27, 2001, between Ultrak, Inc. and Niklaus Zenger (filed as Item 5 on the Company's 8-K filing dated October 23, 2001) *10.43 Amended and Restated to Ultrak, Inc 1988 Non-Qualified Stock Option Plan, adopted by the Board as of June 1, 2001 *10.44 Employment Agreement, effective January 1, 2002, between the Company and Wendy Diddell *10.45 Employment Agreement effective January 1, 2002, between the Company and Chris Sharng *10.46 Severance Agreement dated as of December 4, 2001, between Ultrak Operating, LP, Ultrak, Inc. and George K. Broady *10.47 Amendment No. 1 to Ultrak, Inc. 1988 Non-Qualified Stock Option Plan (As Amended and Restated Effective June 1, 2001) effective as of December 4, 2001 *10.48 Contract of Sale between Ultrak Operating, L.P. and Briarwood Capital Corporation, dated December 13, 2001 *10.49 Guaranty Reimbursement Agreement dated December 17, 2001 between Ultrak, Inc. and George K. Broady *10.50 Warrant Agreement dated January 14, 2002 between Ultrak, Inc. and George K. Broady *10.51 Eighth Amendment and Waiver to the First Amended and Restated Credit Agreement between Ultrak Operating, L.P., Ultrak, Inc., American National Bank and Trust Company of Chicago and Harris Trust Savings Bank, dated February 6, 2001 *21.1 Subsidiaries of the Company
- ------------ * Exhibits 10.38, 10.39, 10.43, 10.44, 10.45, 10.46, 10.47, 10.48, 10.49, 10.50, 10.51 and 21.1 are filed herewith. 27 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 on the 12th day of April, 2002. ULTRAK, INC. By /s/ George K. Broady ---------------------- George K. Broady Chairman and Chief Executive Officer 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.
NAME TITLE DATE /s/George K. Broady Chairman of the Board and Chief -------------------------------- Executive Officer George K. Broady (Principal Executive Officer) /s/ Chris Sharng Senior Vice President-Finance, -------------------------------- Secretary, Treasurer and Chief Chris Sharng Financial Officer (Principal Financial and Accounting Officer) /s/ Peter D. Beare Director -------------------------------- Peter D. Beare /s/ Alastair J.A.B. Gunning Director -------------------------------- Alastair J.A.B. Gunning /s/ Ronald F. Harnisch Director -------------------------------- Ronald F. Harnisch /s/ Bryan C. Tate Director -------------------------------- Bryan C. Tate /s/ Michael G. Morris Director -------------------------------- Michael G. Morris /s/ Gerard Codeluppi Director --------------------------------- Gerard Codeluppi /s/ Niklaus F. Zenger Director --------------------------------- Niklaus F. Zenger
28 EX-10.38 3 file002.txt TENTH AMENDMENT TO OPERATIVE AGREEMENTS TENTH AMENDMENT TO OPERATIVE AGREEMENTS This Tenth Amendment to Operative Agreements dated effective as of November 9, 2001 (this "Amendment"), is by and among ULTRAK OPERATING, L.P., a Texas limited partnership (the "Lessee" or the "Construction Agent"), ULTRAK, INC., a Delaware corporation (the "Guarantor"), FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking association, not individually (in its individual capacity, the "Trust Company"), except as expressly stated herein, but solely as the Owner Trustee under the Ultrak Trust 1996-1 (the "Owner Trustee," the "Borrower" or the "Lessor"), WELLS FARGO BANK TEXAS, NATIONAL ASSOCIATION (successor to Wells Fargo Bank (Texas), National Association, "Wells Fargo") and BANK ONE, NA ("Bank One"), as lenders (subject to the definition of Lenders in Appendix A to the Participation Agreement, individually, a "Lender" and collectively, the "Lenders") and Wells Fargo, as administrative agent for the Lenders (in such capacity, the "Agent"). RECITALS: A. The parties hereto are parties to various Operative Agreements providing for a tax retention operating lease financing for Lessee and Guarantor, each dated as of March 31, 1997 (as amended, restated or modified from time to time, the "Operative Agreements"); B. The parties hereto (each an "Amendment Party") desire that the Operative Agreements be amended to change certain definitions, to add certain definitions and change certain other provisions; and C. The Lenders have advised Lessee, Guarantor, and Owner Trustee (collectively, the "Debtors"; and by their execution hereof the Debtors acknowledge) that an Event of Default exists under the Operative Agreements as a result of Debtors' failure to deliver the Compliance Certificate for the quarter ending September 30, 2001 (the "CC Default"). The Lenders have also advised Debtors that, as of September 30, 2001, various Events of Default exist under the Operative Agreements, including but not limited to: (i) Section 6.01 (Leverage Ratio) of the Guaranty Agreement for the periods ended June 30, 2000, September 30, 2000, December 31, 2000, March 31, 2001, June 30, 2001 and September 30, 2001; (ii) Section 6.02 (Debt Service Coverage Ratio) of the Guaranty Agreement for the periods ended September 30, 2000, December 31, 2000, March 31, 2001, June 30, 2001 and September 30, 2001; and (iii) Section 6.03 (Minimum Net Worth) of the Guaranty Agreement for the periods ended December 31, 2000, March 31, 2001, June 30, 2001 and September 30, 2001 (all the foregoing and other defaults existing prior to September 30, 2001, collectively, the "Other Defaults"; and together with the CC Defaults, collectively, the "Existing Defaults"). Without limiting the effect of any such Events of Default, such Events of Default constitute Guaranty Events of Default, Lease Events of Default, and Credit Agreement Events of Default under the terms of the Guaranty Agreement, the Lease, and the Credit Agreement, respectively. D. The Debtors have requested that the Lenders forbear from exercising its available rights and remedies arising as a result of the Existing Defaults and the Lenders are willing to forebear from exercising its available rights and remedies, upon and subject to the terms and conditions set forth in this Agreement. E. The Amendment Parties are willing to provide for and consent to such amendments and forbearance subject to the terms and provisions of this Amendment. NOW, THEREFORE, BE IT RESOLVED THAT, in consideration of the premises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE 1 Definitions Section 1.1 Definitions. Capitalized terms used in this Amendment, and not otherwise defined herein, shall have the same meanings as used in the Participation Agreement included as one of the Operative Agreements and in Appendix A to such Participation Agreement, as the same may have been or hereafter be amended or otherwise modified from time to time, including by this Amendment. ARTICLE 2 Amendments Section 2.1 Existing Definitions. Effective as of the date hereof, the following definitions appearing in Appendix A to the Participation Agreement are hereby amended to read in their entirety as follows: "ABR", from and after the date of the Tenth Amendment to Operative Agreements, shall mean, and in all instances constitute a reference to, a fixed rate of 14% per annum. "Maturity Date" shall mean December 17, 2001. "Tenth Amendment to Operative Agreements" means the Tenth Amendment to Operative Agreements dated as of November 9, 2001, among certain parties to the Participation Agreement, Wells Fargo and Bank One. Section 2.2 Amendment to Section 2.8 of the Credit Agreement. Effective as of the date hereof, Section 2.8 of the Credit Agreement is hereby amended and restated to read in its entirety as follows: (b) If an Event of Default shall occur, the Loans outstanding hereunder from time to time shall bear interest at a rate per annum which is the highest interest rate permitted by applicable law (as of the date of the Tenth Amendment to Operative Agreements, 18%), in each case from the date of such Event of Default until the same is cured, waived as provided in Section 9.1 or the Agent and the Lenders agree to forbear in respect of such Event of Default. Section 2.3 Interest Rates. For the avoidance of doubt, from and after the date of the Tenth Amendment to Operative Agreements, all amounts payable as interest on the Loans, all payments of Basic Rent and all other amounts in any manner or fashion tied to, based upon, or designed to reflect payment of interest on the Loans shall be at the rate of 14% per annum and no such interest, yield, rent, etc. will be based upon the "ABR" (as such term was used prior to the Tenth Amendment), "Eurodollar Rate" or "LIBOR Rate" or any margin in excess thereof; provided that any default rate of interest (e.g. ss. 2.8(b) of the Credit Agreement) shall be calculated at the highest interest rate permitted by applicable law for commercial loans of the size outstanding under the Operative Agreements, subject to any usury or other limitations. No election shall be available under any circumstances for the Borrower or the Lessor to elect any rate of interest or rent rate based on the "ABR" (as such term was used prior to the Tenth Amendment), "Eurodollar Rate" or the "LIBOR Rate". ARTICLE 3 Forbearance and Additional Covenants. Section 3.1 Additional Covenant. The Borrower agrees as follows: (a) Borrower shall pledge, as additional Collateral, Money Market Account No._______________ maintained with Wells Fargo in the amount of $500,000 (the "Money Market Account"); (b) The Borrower shall endeavor to obtain a commitment letter (the "Commitment Letter") from a lending institution showing a commitment to repay all accrued and unpaid interest, outstanding principal, expenses and other amounts owing on the Loans (the "Refinancing"), and such Commitment Letter shall not contain any conditions that Borrower cannot reasonably be expected to satisfy. (c) If the Commitment Letter is not obtained on or prior to November 30, 2001, the Agent, in its sole discretion, may liquidate the Money Market Account and apply the funds received therefrom toward the repayment of the Loans in such order and manner as the Lenders elect; (d) If the Commitment Letter is obtained on or prior to November 30, 2001, all proceeds of the Refinancing shall be applied toward the repayment of all accrued and unpaid interest, outstanding principal, expenses and other amounts owing, until the Loans are paid in full; and (e) Net proceeds of all borrowings (other than those pursuant to the Amended and Restated Credit Agreement among the Lessee, the Guarantor, and American National Bank and Trust Company of Chicago, dated March 22, 2000, as the same has been and may hereafter be amended from time to time (the "Revolver"), equity investments and asset sales (other than sales of collateral securing the Revolver) by Lessee or any Subsidiary shall be applied to the repayment of the Loans in such order and manner as the Lenders may elect. Section 3.2 Forbearance. Subject to the terms and provisions of this Agreement, the Lenders agree, until December 17, 2001 or such earlier time as the Forbearance is terminated as provided in Section 3.3 below (the "Termination Date"), to forbear from exercising any of its rights and remedies arising under the Operative Agreements or otherwise as a result of the Existing Defaults (the "Forbearance"). Section 3.3 Termination of Forbearance; Etc.. This Amendment does not constitute a waiver or forbearance with respect to any Event of Default other than the Existing Defaults. In addition, failure to obtain the Commitment Letter shall also constitute an Event of Default under the Operative Agreements. In the event that prior to the Termination Date any further Event of Default occurs under the Operative Agreements (i.e., other than the Existing Defaults), then the Lenders shall have the right and option, in their discretion and without notice to the Debtors or any Subsidiary guarantors, to (i) terminate the Forbearance, (ii) refuse to extend additional credit to the Borrowers under the Operative Agreements, and (iii) exercise any and all of the rights and remedies under the Operative Agreements or otherwise arising as a result of such Event of Default or the Existing Defaults. In the event that the Loans are not paid in full on or before December 17, 2001, Borrower shall be obligated (and Guarantor shall guaranty) to pay pro rata to the Lenders a failure fee in the aggregate amount of $25,000. Section 3.4 Tolling. All periods of limitations specified by statutes and all defenses of laches or waiver as to the Existing Default will be tolled and otherwise suspended during the period from the date hereof through the date which is ninety (90) days after the Termination Date. Section 3.5 Confirmation of Rights by the Borrowers. As an additional material inducement to the Lenders to enter into this Amendment, the Debtors hereby confirm the debts, duties, obligations, liabilities, representations, warranties, rights, titles, powers, and privileges existing by virtue of the Operative Agreements or otherwise, until all of the obligations evidenced by the Operative Agreements, or otherwise, have been paid in full, and hereby agree that this Amendment shall not in any way or manner release, waive, discharge, affect, change, modify, or impair, and the Debtors hereby affirm, the debts, duties, obligations, liabilities, representations, warranties, rights, titles, powers, and privileges existing by virtue of, arising under or out of, in connection with or relating to the Operative Agreements, or otherwise. ARTICLE 4 Ratifications, Representations and Warranties Section 4.1 Ratifications. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Operative Agreements and, except as expressly modified and superseded by this Amendment, the terms and provisions of the Operative Agreements are ratified and confirmed and shall continue in full force and effect. Each Amendment Party that is a party to each thereof agrees that each of the Operative Agreements, as amended hereby, shall continue to be legal, valid, binding and enforceable in accordance with their respective terms. Section 4.2 Representations and Warranties. Lessee, Borrower and Guarantor each hereby represents and warrants to the Lenders that: (i) the execution, delivery and performance of this Amendment and any and all other documents executed and/or delivered in connection herewith or therewith (collectively, the "Amendment Documents") have been authorized by all requisite action on the part of Lessee, Borrower and Guarantor and will not violate the certificate or articles of incorporation, partnership agreement or bylaws of Lessee, Borrower or Guarantor; (ii) the representations and warranties contained in the Operative Agreements, as amended hereby, are true and correct on and as of the date hereof as though made on and as of the date hereof (except to the extent that such representations and warranties were expressly, in the Operative Agreements, made only in reference to a specific date); (iii) except for the Existing Defaults, no Default or Event of Default has occurred and is continuing; (iv) each of Lessee, Borrower and Guarantor is in full compliance with all covenants and agreements contained in the Operative Agreements, as amended hereby; and (v) Lessee and Guarantor have consulted with their tax advisors and public accountants concerning the amendments and requirements made in accordance with this Amendment (and all prior Amendments and previous payments) and the effect, if any, they may have on the characterization of the transactions governed by the Operative Agreements and any resulting tax liability and Lessee and Guarantor have determined to enter into this Amendment with the other Amendment Parties on an arms-length basis and regardless of any such tax consequences (which shall be for the sole account of Lessee and Guarantor). ARTICLE 5 Miscellaneous Section 5.1 Conditions to Effectiveness. This Amendment shall be effective upon the execution hereof by each Amendment Party and upon delivery to the Lenders of each of the following documents and compliance with the following requirements: (a) Resolutions of Boards of Directors. Resolutions of the Board of Directors of each of Lessee, Borrower, Guarantor and each Domestic Subsidiary certified by its Secretary or an Assistant Secretary which authorize its execution, delivery and performance of, as applicable, this Amendment, the Ratification of the Domestic Subsidiary Guaranties, the Pledge Agreement (defined below), each other Amendment Document to which it is or is to be a party and all documents evidencing other necessary corporate or other action or necessary governmental or other approvals with respect to this Amendment, the Ratification of the Domestic Subsidiaries Guarantees, the Pledge Agreement, and the other Amendment Documents; (b) Incumbency Certificate. A certificate of incumbency certified by the Secretary or an Assistant Secretary of each of Lessee, Borrower, Guarantor and each Domestic Subsidiary certifying the names of its officers (i) who are authorized to sign this Amendment, and as applicable, the Pledge Agreement, and the other Amendment Documents (including the certificates contemplated herein) together with specimen signatures of each such officer and (ii) who will, until replaced by other officers duly authorized for that purpose, act as its representative for the purposes of signing documentation and giving notices and other communications in connection with this Amendment, the Amendment Documents, the Operative Agreements, the Pledge Agreement, and the transactions contemplated hereby and thereby; (c) Copies of Organizational Documents. Certified copies of any amendments of or other changes to the charter documents of Lessee, Borrower, Guarantor or any Domestic Subsidiary since November 30, 2000; (d) Forbearance Fee. Borrower shall have paid pro rata to the Lenders a forbearance fee in the aggregate amount of $50,000 (the "Forbearance Fee"), $25,000 of which shall be credited to accrued but unpaid interest (provided that Lessee provides, on or before November 30, 2001, the Commitment Letter). (e) Principal Payment. Borrower shall have paid a minimum of $500,000 in reduction of the principal balance of the Loans on or before November 15, 2001; (f) Pledge Agreement. Borrower shall have executed a Pledge Agreement (the "Pledge Agreement"), pledging the Money Market Account as Collateral for the Loans and its other Obligations under the Operative Agreements; and (g) Attorneys' Fees and Expenses. The costs and expenses of Agent and all the Lenders (including attorneys' fees) shall have been paid in full. Section 5.2 Survival of Representations and Warranties. All representations and warranties made in this Amendment or any of the other Operative Agreements (including any document furnished in connection with this Amendment) shall survive the execution and delivery of this Amendment, and no investigation by Lenders shall affect the representations and warranties or the right of Lenders to rely upon them. Section 5.3 Reference to Operative Agreements. Each of the Operative Agreements and any and all other agreements, documents, or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Operative Agreements, as amended hereby and by the Amendment Documents, including, without limitation, the Domestic Subsidiary Guaranties, are hereby amended so that any reference in such Operative Agreements and other documents and agreements to any of the Operative Agreements shall mean a reference to such Operative Agreement as amended hereby or thereby. Section 5.4 Expense of the Lenders. As provided in the Operative Agreements, Borrower agrees to pay on demand all costs and expenses incurred by Agent and the Lenders in connection with the preparation, negotiation, execution or enforcement of this Amendment and the other documents executed pursuant hereto, including, without limitation, title and survey costs, legal fees, appraisal review fees and environmental review fees. Section 5.5 Severability. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. Section 5.6 Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. Section 5.7 Successors and Assigns. This Amendment is binding upon and shall inure to the benefit of Amendment Parties and their respective successors and assigns, except none of Lessee, Borrower or Guarantor may assign or transfer any of their rights or obligations hereunder without the prior written consent of the Lenders. Section 5.8 Counterparts. This Amendment may be executed in one or more counterparts, and on telecopy counterparts each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same agreement. Section 5.9 Effect of Waiver; Forbearance of Certain Defaults. No consent or waiver, express or implied, by the Lenders to or for any breach of or deviation from any covenant, condition or duty by Lessee, Borrower or Guarantor shall be deemed a consent or waiver to or of any other breach of the same or any other covenant, condition or duty. Effective only upon receipt by Agent of this Amendment executed by each Person named below and fulfillment of the conditions to effectiveness set forth in Section 5.1 above, this Amendment shall become notice to Guarantor that Agent and the Lenders hereby agree to forbear from exercising their rights and remedies arising by reason of the Existing Defaults as more fully set forth, and subject to the limitation of Article 3 hereof. Except as stated above, (i) this waiver is not a consent or waiver in respect of any existing or future Events of Default or Defaults or a waiver of Lenders' rights to insist upon Guarantor's compliance with its obligations under each Operative Agreement and (ii) each Operative Agreement is unchanged and continues in full force and effect. Section 5.10 Complete Release of Lenders and Others. Each of Lessee and Guarantor hereby unconditionally release and forever discharge the Lenders, the Agent, and each of their successors, assigns, agents, directors, officers, employees, affiliates and attorneys (collectively, the "Indemnities") from all Claims (as defined below) and jointly and severally agree to indemnify the Indemnities, and hold them harmless from any and all claims, losses, causes of action, costs, and expenses of every kind or character in connection with the Claims, the Existing Default, or any other breach of any Operative Agreements. As used in this Agreement, the term "Claims" means any and all possible claims, demands, actions, causes of actions, costs, expenses, and liabilities whatsoever, known or unknown, at law or in equity, originating in whole or in part, on or before the date of this Amendment, which Lessee or Guarantor, or any of their agents, employees, subsidiaries or affiliates may now or hereafter have against the Indemnities, if any, and irrespective of whether any such Claims arise out of contract, tort, violation of laws, or regulations, or otherwise in connection with any of the Operative Agreements, including, without limitation, any contracting for, charging, taking, reserving, collecting, or receiving interest in excess of the maximum rate or interest chargeable under applicable law and any loss, cost, or damage, of any kind or character, arising out of or in any way connected with or in any way resulting from the acts, actions, or omissions of the Indemnities, including, without limitation, any breach of fiduciary duty, breach of any duty of fair dealing, breach of confidence, breach of funding commitment, undue influence, duress, economic coercion, conflict of interest, negligence, bad faith, malpractice, violations of the Racketeer Influenced and Corrupt Organizations Act, intentional or negligent infliction of mental distress, tortious interference with contractual relations, tortious interference with corporate governance or prospective business advantage, breach of contract, deceptive trade practices, libel, slander, conspiracy, or any claim for wrongfully accelerating the Notes or wrongfully attempting to foreclose on any collateral, but in each case only to the extent permitted by applicable law. Each of Lessee and Guarantor agrees that the Lenders and/or the Agent have no fiduciary or similar obligations to Lessee or Guarantor and that their relationships are strictly that of creditor and debtor. This release is accepted by the Lenders and/or the Agent pursuant to this Agreement and shall not be construed as an admission of liability by the Lenders and/or the Agent. Lessee and Guarantor represent and warrant that they are the current legal and beneficial owner of all Claims, if any, released hereby and have not assigned, pledged, or contracted to assign or pledge any such Claim to any other person. Section 5.11 Headings. The headings, captions, and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment. Section 5.12 Cooperation. Lessee and Guarantor will cooperate fully with the Agent's property appraiser and its environmental consultant by permitting reasonable access to, and supplying information about, the Property. Section 5.13 ENTIRE AGREEMENT. THIS AMENDMENT, THE AMENDMENT DOCUMENTS AND ALL OTHER INSTRUMENTS, DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH THIS AMENDMENT EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDING, WHETHER WRITTEN OR ORAL, RELATING TO THIS AMENDMENT, AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment effective as of the date first written above. ULTRAK OPERATING, L.P., a Texas ULTRAK, INC., as the Guarantor limited partnership, as the Construction Agent and as the Lessee By: ---------------------------------- By: Ultrak G.P., Inc., its sole Name: general partner -------------------------------- Title: By: ------------------------------ ---------------------------------- Name: WELLS FARGO BANK TEXAS, -------------------------------- NATIONAL ASSOCIATION, as a Lender and Title: as the Agent ------------------------------ By: WELLS FARGO BANK NORTHWEST, NATIONAL ---------------------------------- ASSOCIATION (formerly and as the Name: Agent First Security Bank, National -------------------------------- Association), not individually, Title: except as expressly stated herein, ------------------------------ but solely as the Owner Trustee under the Ultrak Trust 1996-1 BANK ONE, NA, as a Lender By: ---------------------------------- By: Name: ---------------------------------- -------------------------------- Name: Title: -------------------------------- ------------------------------ Title: ------------------------------ RATIFICATION Each of the undersigned parties hereby expressly (i) acknowledges the terms of the foregoing Tenth Amendment; (ii) ratifies and affirms its obligations under its Subsidiary Guaranty Agreement dated March 22, 2000; and (iii) acknowledges, renews, and extends its continued liability under such Subsidiary Guaranty Agreement and agrees that such Subsidiary Guaranty Agreement remains in full force and effect with respect to the Lessee Obligations (as such term is defined in such Subsidiary Guaranty Agreement), as amended. The foregoing acknowledgment and ratification shall be evidenced by signing and dating in the spaces provided below. ULTRAK GP, INC. By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Date: ------------------------------------ ULTRAK LP, INC. By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Date: ------------------------------------ DIAMOND ELECTRONICS, INC. By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Date: ------------------------------------ MONITOR DYNAMICS, INC. By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Date: ------------------------------------ ABM DATA SYSTEMS, INC. By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Date: ------------------------------------ SECURITY WARRANTY, INC. By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- EX-10.39 4 file003.txt PLEDGE AGREEMENT PLEDGE AGREEMENT THIS PLEDGE AGREEMENT (the "Agreement") dated as of November 14, 2001, is by and between ___________________________________, a ______________ (the "Pledgor") whose address is _________________________________________________ and WELLS FARGO BANK TEXAS, NATIONAL ASSOCIATION, a national banking association, as agent for itself and Lenders party to the Operative Agreements (defined below) (in such capacity, the "Secured Party"). R E C I T A L S: A. ULTRAK OPERATING, L.P., a Texas limited partnership (the "Lessee" or the "Construction Agent"), ULTRAK, INC., a Delaware corporation (the "Guarantor"), FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking association, not individually (in its individual capacity, the "Trust Company"), except as expressly stated herein, but solely as the Owner Trustee under the Ultrak Trust 1996-1 (the "Owner Trustee," the "Borrower" or the "Lessor"), Secured Party, WELLS FARGO BANK TEXAS, NATIONAL ASSOCIATION, and BANK ONE, NA ("Bank One"), as Lenders (subject to the definition of Lenders in Appendix A to the Participation Agreement, individually, a "Lender" and collectively, the "Lenders") are parties to various Operative Agreements providing for a tax retention operating lease financing for Lessee and Guarantor, each dated as of March 31, 1997 (as amended, restated or modified from time to time, the "Operative Agreements"). Capitalized terms used in this Agreement, and not otherwise defined herein, shall have the same meanings as used in the Operative Agreements. B. Pursuant to the Operating Agreements, the Lenders have severally agreed to make Loans to the Borrower upon the terms and subject to the conditions set forth therein, to be evidenced by the Notes issued by the Borrower under the Credit Agreement. C. Secured Party has conditioned its obligations under the Operating Agreements upon the execution and delivery of this Agreement by Pledgor. NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I Security Interest and Pledge Section 1.1. Security Interest and Pledge. As collateral security for the prompt payment in full when due of all amounts owing under the Loans (whether at stated maturity, by acceleration, or otherwise) and all present and future Obligations of Pledgor under the Operative Agreements, Pledgor hereby pledges and grants to Secured Party a first priority security interest in the following property (such property being hereinafter sometimes called the "Collateral"): (a) Pledgor's Money Market Account #_________, maintained with Secured Party, in the amount of $500,000; and (b) all products, proceeds, revenues, distributions, dividends, stock dividends, securities, and other property, rights, and interests that Pledgor receives or is at any time entitled to receive on account of the same. ARTICLE II Representations and Warranties Pledgor represents and warrants to Secured Party that: Section 2.1. Title. Pledgor owns, legally and beneficially, the Collateral free and clear of any Lien, security interest, pledge, claim, or other encumbrance or any right or option on the part of any third Person to purchase or otherwise acquire the Collateral or any part thereof, except for the security interest granted hereunder. Pledgor has the unrestricted right to pledge the Collateral as contemplated hereby. Section 2.2. First Priority Perfected Security Interest. This Agreement creates in favor of Secured Party a first priority perfected security interest in the Collateral. There are no conditions precedent to the effectiveness of this Agreement that have not been fully and permanently satisfied. ARTICLE III Affirmative and Negative Covenants Pledgor covenants and agrees with Secured Party that: Section 3.1. Encumbrances. Pledgor shall not create, permit, or suffer to exist, and shall defend the Collateral against, any Lien, security interest, or other encumbrance on the Collateral except the pledge and security interest of Secured Party hereunder, and shall defend Pledgor's rights in the Collateral and Secured Party's security interest in the Collateral against the claims of all Persons. Section 3.2. Sale of Collateral. Pledgor shall not sell, assign, or otherwise dispose of the Collateral or any part thereof without the prior written consent of Secured Party. Section 3.3. Further Assurances. At any time and from time to time, upon the request of Secured Party, and at the sole expense of Pledgor, Pledgor shall promptly execute and deliver all such further instruments and documents and take such further action as Secured Party may deem necessary or desirable to preserve and perfect its security interest in the Collateral and carry out the provisions and purposes of this Agreement, including, without limitation, the execution and filing of such financing statements as Secured Party may require. A carbon, photographic, or other reproduction of this Agreement or of any financing statement covering the -2- Collateral or any part thereof shall be sufficient as a financing statement and may be filed as a financing statement. The Pledgor authorizes the Secured Party to file one or more financing or continuation statements, and amendments thereto relating to the Collateral without the signature of Pledgor where permitted by law. Section 3.4. Notification. Pledgor shall promptly notify Secured Party of (i) any Lien, security interest, encumbrance, or claim made or threatened against the Collateral, or (ii) any condition or change that could have a Material Adverse Effect on the Collateral ARTICLE IV Rights of Secured Party and Pledgor Section 4.1. Power of Attorney. Pledgor hereby irrevocably constitutes and appoints Secured Party and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead and in the name of Pledgor or in its own name, from time to time in Secured Party's discretion, to take any and all action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement and, without limiting the generality of the foregoing, hereby gives Secured Party the power and right on behalf of Pledgor and in its own name to do any of the following (subject to the rights of Pledgor under Section 4.3 hereof), without notice to or the consent of Pledgor: (i) to demand, sue for, collect, or receive in the name of Pledgor or in its own name, any money or property at any time payable or receivable on account of or in exchange for any of the Collateral and, in connection therewith, endorse checks, notes, drafts, acceptances, money orders, or any other instruments for the payment of money under the Collateral; (ii) to pay or discharge taxes, Liens, security interests, or other encumbrances levied or placed on or threatened against the Collateral; (iii) (A) to receive payment of and receipt for any and all monies, claims, and other amounts due and to become due at any time in respect of or arising out of any Collateral; and (B) to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Secured Party were the absolute owner thereof for all purposes, and to do, at Secured Party's option and Pledgor's expense, at any time, or from time to time, all acts and things which Secured Party deems necessary to protect, preserve, or realize upon the Collateral and Secured Party's security interest therein. This power of attorney is a power coupled with an interest and shall be irrevocable. Secured Party shall be under no duty to exercise or withhold the exercise of any of the rights, powers, privileges, and options expressly or implicitly granted to Secured Party in this Agreement, and shall not be liable for any failure to do so or any delay in doing so. Secured Party shall not be liable for any act or omission or for any error of judgment or any mistake of fact or law in its individual capacity or in its capacity as attorney-in-fact except acts or omissions -3- resulting from its willful misconduct. This power of attorney is conferred on Secured Party solely to protect, preserve, and realize upon its security interest in the Collateral. Section 4.2. Assignment by Secured Party. Secured Party may at any time and from time to time assign the Obligations and any portion thereof and/or the Collateral and any portion thereof, and the assignee shall be entitled to all of the rights and remedies of Secured Party under this Agreement in relation thereto. Section 4.3. Remedies Related to the Collateral. Notwithstanding anything to the contrary in this Agreement, the terms and conditions of that certain Tenth Amendment to Operative Agreements, executed on or about the date hereof, by and among Lessee, Guarantor, Pledgor, Secured Party and various Lenders, controls as it relates to the Collateral, and specifically, the Secured Party may not liquidate the Collateral and apply the funds received therefrom toward repayment of the Loans until the earlier of (i) failure to deliver the Commitment Letter on or before November 30, 2001, or (ii) failure to repay all accrued and unpaid interest, outstanding principal, expenses and other amounts owing on the Loans on or before December 17, 2001. ARTICLE V Default Section 5.1. Rights and Remedies. If any Event of Default shall occur, Secured Party shall have the following rights and remedies: (i) In addition to all other rights and remedies granted to Secured Party in this Agreement and in any other instrument or agreement securing, evidencing, or relating to the Obligations, Secured Party shall have all of the rights and remedies of a secured party under the Uniform Commercial Code as adopted by the State of Texas. Without limiting the generality of the foregoing, Secured Party may (A) without demand or notice to Pledgor, collect, receive, or take possession of the Collateral or any part thereof, (B) sell or otherwise dispose of the Collateral, or any part thereof, in one or more parcels at public or private sale or sales, at Secured Party's offices or elsewhere, for cash, on credit, or for future delivery, and/or (C) bid and become a purchaser at any sale free of any right or equity of redemption in Pledgor, which right or equity is hereby expressly waived and released by Pledgor. Pledgor agrees that Secured Party shall not be obligated to give more than ten (10) days written notice of the time and place of any public sale or of the time after which any private sale may take place and that such notice shall constitute reasonable notice of such matters. Secured Party shall not be obligated to make any sale of the Collateral regardless of notice of sale having been given. Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Pledgor shall be liable for all expenses of retaking, holding, preparing for sale, or the like, and all attorneys' fees and other expenses incurred by Secured Party in connection with the collection of the Obligations and the enforcement of Secured Party's rights under this Agreement, all of which expenses and -4- fees shall constitute additional Obligations secured by this Agreement. Secured Party may apply the Collateral against the Obligations in such order and manner as Secured Party may elect in its sole discretion. Pledgor shall remain liable for any deficiency if the proceeds of any sale or disposition of the Collateral are insufficient to pay the Obligations. Pledgor waives all rights of marshalling in respect of the Collateral.. (ii) Secured Party may cause any or all of the Collateral held by it to be transferred into the name of Secured Party or the name or names of Secured Party's nominee or nominees. (iii) Secured Party may collect or receive all money or property at any time payable or receivable on account of or in exchange for any of the Collateral, but shall be under no obligation to do so. (iv) Secured Party shall have the right, but shall not be obligated to, exercise or cause to be exercised all voting, consensual, and other powers of ownership pertaining to the Collateral, and Pledgor shall deliver to Secured Party. (v) On any sale of the Collateral, Secured Party is hereby authorized to comply with any limitation or restriction with which compliance is necessary, in the view of Secured Party's counsel, in order to avoid any violation of applicable law or in order to obtain any required approval of the purchaser or purchasers by any applicable governmental authority. ARTICLE VI Miscellaneous Section 6.1. Expenses; Indemnification. Pledgor agrees to pay on demand all costs and expenses incurred by Secured Party in connection with the preparation, negotiation, and execution of this Agreement and any and all amendments, modifications, and supplements hereto. Pledgor agrees to pay and to hold Secured Party harmless from and against all fees and all excise, sales, stamp, and other taxes payable in connection with this Agreement or the transactions contemplated hereby. Pledgor hereby indemnifies Secured Party and each affiliate thereof and their respective officers, directors, employees, attorneys, and agents from, and holds each of them harmless against, any and all losses, liabilities, claims, damages, penalties, judgments, costs, and expenses (including attorneys' fees) to which any of them may become subject which directly or indirectly arise from or relate to (i) the negotiation, execution, delivery, performance, administration, or enforcement of this Agreement, (ii) any of the transactions contemplated by this Agreement, (iii) any breach by Pledgor of any representation, warranty, covenant, or other agreement contained in this Agreement, or (iv) any investigation, litigation, or other proceeding, including, without limitation, any threatened investigation, litigation, or other proceeding relating to any of the foregoing. Without limiting any provision of this Agreement or any other instrument, or agreement securing, evidencing, or relating to the Obligations or any part thereof, it is the express intention of the parties hereto that each person or entity to be indemnified under this Section shall be indemnified from and held harmless against any and all -5- losses, liabilities, claims, damages, penalties, judgments, costs, and expenses (including attorneys' fees) arising out of or resulting from the sole or contributory negligence of the person or entity to be indemnified. Section 6.2. No Waiver; Cumulative Remedies. No failure on the part of Secured Party to exercise and no delay in exercising, and no course of dealing with respect to, any right, power, or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power, or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power, or privilege. The rights and remedies provided for in this Agreement are cumulative and not exclusive of any rights and remedies provided by law. Section 6.3. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Pledgor and Secured Party and their respective heirs, successors, and assigns, except that Pledgor may not assign any of its rights or obligations under this Agreement without the prior written consent of Secured Party. Section 6.4. AMENDMENT; ENTIRE AGREEMENT. THIS AGREEMENT EMBODIES THE FINAL, ENTIRE AGREEMENT BETWEEN THE PARTIES HERETO AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES HERETO. The provisions of this Agreement may be amended or waived only by an instrument in writing signed by the parties hereto. Section 6.5. Notices. All notices and other communications provided for in this Agreement shall be given or made by telex, telegraph, telecopy, cable, or in writing and telexed, telecopied, telegraphed, cabled, mailed by certified mail return receipt requested, or delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof; or, as to any party at such other address as shall be designated by such party in a notice to the other party given in accordance with this Section. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telex or telecopy, subject to telephone confirmation of receipt, or delivered to the telegraph or cable office, subject to telephone confirmation of receipt, or when personally delivered or, in the case of a mailed notice, when duly deposited in the mails, in each case given or addressed as aforesaid. Section 6.6. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas and the applicable laws of the United States of America. Section 6.7. Headings. The headings, captions, and arrangements used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement. -6- Section 6.8. Survival. All representations and warranties made in this Agreement shall survive the execution and delivery of this Agreement, and no investigation by Secured Party shall affect the representations and warranties of Pledgor herein or the right of Secured Party to rely upon them. Section 6.9. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 6.10. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Section 6.11. Construction. Pledgor and Secured Party acknowledge that each of them has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review this Agreement with its legal counsel and that this Agreement shall be construed as if jointly drafted by Pledgor and Secured Party. Section 6.12. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, PLEDGOR HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF SECURED PARTY IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] -7- IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first written above. PLEDGOR: , ---------------------------------------- By: -------------------------------------- Name: Title: Address for Notices: ----------------------------------------- ----------------------------------------- Fax No.: --------------------------------- Telephone No.: --------------------------- Attention: ------------------------------- SECURED PARTY: WELLS FARGO BANK TEXAS, NATIONAL ASSOCIATION, as Agent By: -------------------------------------- Name: Title: Address for Notices: 1000 Louisiana, 4th Floor Houston, Texas 77002 Fax No.: (713) 739-1076 Telephone No.: (713) 319-1406 Attention: Ronald P. Christenson Vice President -8- EX-10.40 5 file004.txt SCHEDULE TO SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------------------- SCHEDULE TO (Rule 13e-4) Tender Offer Statement under Section 14(d)(1) or 13(e)(1) of the Securities Exchange Act of 1934 ----------------------------- ULTRAK, INC. (Name of the Subject Company (Issuer)) -------------------------------------- ULTRAK, INC. (Name of Filing Person (Offeror)) Options Under the Ultrak, Inc. 1988 Non-Qualified Stock Option Plan, as amended, to Purchase Common Stock, par value $0.01 per share. (Title of Class of Securities) 903898 40 1 (CUSIP Number of Class of Securities) (Underlying Common Stock) Chris Sharng Senior Vice President Ultrak, Inc. 1301 Waters Ridge Drive Lewisville, Texas 75057 Telephone: (972) 353-6500 ------------------------------ (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of Filing Person ------------------------------ Copy to: Richard L. Waggoner, Esq. Gardere Wynne Sewell LLP 3000 Thanksgiving Tower 1601 Elm Street Dallas, Texas 75201-4761 Telephone: (214) 999-4510 Calculation of Filing Fee Transaction Valuation* Amount of Filing Fee $6,978,583.20 $1,395.72 *Calculated solely for purposes of determining the filing fee. This amount assumes that options to purchase 1,002,670 shares of common stock of Ultrak, Inc. having a weighted average exercise price of $6.96 as of June 6, 2001 will be exchanged pursuant to this offer. The amount of the filing fee, calculated in accordance with Rule 0-11 of the Securities Exchange Act of 1934, as amended, equals 1/50th of one percent of the value of the transaction. [_] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form of Schedule and the date of its filing. Amount Previously Paid: Not Applicable. Form or Registration No.: Not Applicable. Filing party: Not Applicable. Date filed: Not Applicable. [_] Check if the filing relates solely to preliminary communications made before the commencement of a tender offer. [_] Check the appropriate boxes below to designate any transactions to which the statement relates [_] third party tender offer subject to Rule 14d-1. [X] issuer tender offer subject to Rule 13e-4. [_] going private transaction subject to Rule 13e-3. [_] amendment to Schedule 13D under Rule 13d-2. Check the following box if the filing is a final amendment reporting the results of the tender offer. [_] ITEM 1. Summary Term Sheet. The information set forth under "Summary Term Sheet" in the Offer to Exchange, dated June 11, 2001 (the "Offer to Exchange"), attached hereto as Exhibit (a)(1)(A), is incorporated herein by reference. ITEM 2. Subject Company Information. (a) The name of the issuer is Ultrak, Inc., a Delaware corporation (the "Company"). The Company's principal executive offices are located at 1301 Waters Ridge Drive, Lewisville, Texas 75057, and its telephone number is (972) 353-6500. The information set forth in the Offer to Exchange under "Information Concerning Ultrak" is incorporated herein by reference. (b) This Tender Offer Statement on Schedule TO (this "Schedule TO") relates to an offer by the Company to exchange all options held by option holders who have not received options after December 9, 2000 (the "Eligible Options") outstanding under the Ultrak, Inc. 1988 Non-Qualified Stock Option Plan, as amended (the "1988 Plan"), to purchase shares of the Company's common stock, par value $.01 per share (the "Common Stock"), for new options (the "New Options") to purchase shares of the Common Stock to be granted under the 1988 Plan, upon the terms and subject to the conditions described in the Offer to Exchange and the related Letter of Transmittal. The Letter of Transmittal and the Offer to Exchange, as they may be amended from time to time, are together referred to as the "Offer". The number of shares of Common Stock subject to the New Options will be based on the number of shares of Common Stock subject to the Eligible Options that are accepted for exchange and cancelled (the "Cancelled Options") and the exercise price per share of the Cancelled Options and shall be calculated pursuant to the following:
Eligible Option Exercise Price New Options to be Issued (New Option: Eligible Option) ------------------------------ ------------------------------------------------------ Up to $6.62 1 New Option per 1 Eligible Option (1:1) $6.63 to $8.25 .75 New Option per 1 Eligible Option (.75:1) $8.26 and above .50 New Option per 1 Eligible Option (.5:1)
The information set forth in the Offer to Exchange under "Summary Term Sheet," "Introduction," Section 1 ("Number of Options; Expiration Date"), Section 5 ("Acceptance of Options for Exchange and Issuance of New Options") and Section 8 ("Source and Amount of Consideration; Terms of New Options") is incorporated herein by reference. (c) Trading Market and Price. The information set forth in the Offer to Exchange under Section 7 ("Price Range of Common Stock Underlying the Options") is incorporated herein by reference. ITEM 3. Identity and Background of Filing Person. (a) The information set forth under Item 2(a) above is incorporated herein by reference. ITEM 4. Terms of the Transaction. (a) The information set forth in the Offer to Exchange under "Summary Term Sheet," "Introduction," Section 1 ("Number of Options; Expiration Date"), Section 3 ("Procedures for Tendering Options"), Section 4 ("Withdrawal Rights"), Section 5 ("Acceptance of Options for Exchange and Issuance of New Options"), Section 6 ("Conditions of the Offer"), Section 8 ("Source and Amount of Consideration; Terms of New Options"), Section 11 ("Status of Options Acquired by Us in the Offer; Accounting Consequences of the Offer"), Section 12 ("Legal Matters; Regulatory Approvals"), Section 13 ("Material Federal Income Tax Consequences"), and Section 14 ("Extension of Offer; Termination; Amendment") is incorporated herein by reference. (b) Not applicable. ITEM 5. Past Contacts, Transactions, Negotiations and Agreements. (e) The information set forth in the Offer to Exchange under Section 10 ("Interests of Directors and Officers; Transactions and Arrangements Concerning the Options") is incorporated herein by reference. ITEM 6. Purposes of the Transaction and Plans or Proposals. (a) The information set forth in the Offer to Exchange under Section 2 ("Purpose of the Offer") is incorporated herein by reference. (b) The information set forth in the Offer to Exchange under Section 5 ("Acceptance of Options for Exchange and Issuance of New Options") and Section 11 ("Status of Options Acquired by Us in the Offer; Accounting Consequences of the Offer") is incorporated herein by reference. (c) The information set forth in the Offer to Exchange under Section 2 ("Purpose of the Offer") is incorporated herein by reference. ITEM 7. Source and Amount of Funds or Other Consideration. (a) The information set forth in the Offer to Exchange under Section 8 ("Source and Amount of Consideration; Terms of New Options") and Section 15 ("Fees and Expenses") is incorporated herein by reference. (b) The information set forth in the Offer to Exchange under Section 6 ("Conditions of the Offer") is incorporated herein by reference. (d) Not applicable. ITEM 8. Interests in Securities of the Subject Company. (a) Not applicable. (b) The information set forth in the Offer to Exchange under Section 10 ("Interests of Directors and Officers; Transactions and Arrangements Concerning the Options") is incorporated herein by reference. ITEM 9. Persons/Assets, Retained, Employed, Compensated or Used. (a) Not applicable. Item 10. Financial Statements. (a) Not applicable. (b) Not applicable. ITEM 11. Additional Information. (a) The information set forth in the Offer to Exchange under Section 10 ("Interests of Directors and Officers; Transactions and Arrangements Concerning the Options") and Section 12 ("Legal Matters; Regulatory Approvals") is incorporated herein by reference. (b) Not applicable. ITEM 12. Exhibits. (a) (1) (A) Offer to Exchange, dated June 11, 2001 (a) (1) (B) Form of Letter of Transmittal (a) (1) (C) Form of Letter to Eligible Option Holders (b) Not applicable. (d) (1) Ultrak, Inc. 1988 Non-Qualified Stock Option Plan, as amended (d) (2) Form of Non-Qualified Stock Option Agreement pursuant to Ultrak, Inc. 1988 Non-Qualified Stock Option Plan (g) Not applicable. (h) Not applicable. ITEM 13. Information Required by Schedule 13E-3. Not applicable. SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Schedule TO is true, complete and correct. Dated: June 11, 2001 ULTRAK, INC. By: /s/ Chris Sharng ------------------ Chris Sharng Senior Vice President, Chief Financial Officer & Secretary EXHIBIT INDEX Exhibit Number Description (a) (1)(A) Offer to Exchange, dated June 11, 2001 (a) (1)(B) Form of Letter of Transmittal (a) (1)(C) Form of Letter to Option Holders (d) (1) Ultrak, Inc. 1988 Non-Qualified Stock Option Plan, as amended (d) (2) Form of Non-Qualified Stock Option Agreement pursuant to Ultrak, Inc. 1988 Non-Qualified Stock Option Plan ULTRAK, INC. OFFER TO EXCHANGE OPTIONS UNDER THE ULTRAK, INC. 1988 NON- QUALIFIED STOCK OPTION PLAN HELD BY OPTION HOLDERS WHO HAVE NOT RECEIVED OPTIONS AFTER DECEMBER 9, 2000 THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M., LEWISVILLE, TEXAS TIME, ON JULY 10, 2001 UNLESS THE OFFER IS EXTENDED. Ultrak, Inc. is offering to exchange outstanding options that are held by option holders who have not received options after December 9, 2000 (the "eligible options") to purchase shares of our common stock granted under the Ultrak, Inc. 1988 Non-Qualified Stock Option Plan (the "1988 Plan") for new options we will grant under the 1988 Plan. We have been informed by three of our eight executive officers and directors that they presently intend to tender certain of their eligible options in the offer. We have been informed by the other five of our eight executive officers and directors that they presently do not intend to tender any of their eligible options in the offer (one of whom received a stock option grant under the 1988 Plan after December 9, 2000 and is ineligible to tender options in the offer). We are making the offer upon the terms and subject to the conditions set forth in this offer to exchange and in the related letter of transmittal (which together, as they may be amended from time to time, constitute the "offer"). The number of shares of common stock subject to the new options to be granted to each option holder will be based on the number of shares subject to the eligible options tendered by such option holder and accepted for exchange and the exercise price of the eligible options and shall be calculated as follows:
Eligible Option Exercise Price New Options to be Issued (New Option: Eligible Option) ------------------------------ ------------------------------------------------------ Up to $6.62 1 new option per 1 eligible option (1:1) $6.63 to $8.25 .75 new option per 1 eligible option (.75:1) $8.26 and above .50 new option per 1 eligible option (.5:1)
Subject to the terms and conditions of this offer, we will grant the new options on or about the first business day which is at least six months and two days after the date we cancel the eligible options accepted for exchange. You may only tender eligible options for all or none of the shares of common stock subject to each of your eligible option agreements. All tendered eligible options accepted by us pursuant to the offer will be cancelled. The offer is not conditioned upon a minimum number of eligible options being tendered. The offer is subject to conditions that we describe in section 6 of this offer to exchange. If you tender eligible options for exchange as described in the offer, and we accept your tendered options, then, subject to the terms of this offer, we will grant you new options under the 1988 Plan, subject to applicable laws and regulations, and a new option agreement with you. The exercise price per share of the new options will be equal to the fair market value of our common stock on the day of the grant of the new options. The new options will vest in equal annual amounts over a three-year period beginning on the grant date of the new options. (i) ALTHOUGH OUR BOARD OF DIRECTORS HAS APPROVED THE OFFER, NEITHER WE NOR OUR BOARD OF DIRECTORS MAKES ANY RECOMMENDATION AS TO WHETHER YOU SHOULD TENDER OR REFRAIN FROM TENDERING YOUR ELIGIBLE OPTIONS FOR EXCHANGE. YOU MUST MAKE YOUR OWN DECISION WHETHER OR NOT TO TENDER YOUR ELIGIBLE OPTIONS. WE HAVE BEEN INFORMED BY THREE OF OUR EIGHT EXECUTIVE OFFICERS AND DIRECTORS THAT THEY PRESENTLY INTEND TO TENDER CERTAIN OF THEIR ELIGIBLE OPTIONS IN THE OFFER. WE HAVE BEEN INFORMED BY THE OTHER FIVE OF OUR EIGHT EXECUTIVE OFFICERS AND DIRECTORS THAT THEY PRESENTLY DO NOT INTEND TO TENDER ANY OF THEIR ELIGIBLE OPTIONS IN THE OFFER (ONE OF WHOM RECEIVED A STOCK OPTION GRANT UNDER THE 1988 PLAN AFTER DECEMBER 9, 2000 AND IS INELIGIBLE TO TENDER OPTIONS IN THE OFFER). Shares of our common stock are quoted on the NASDAQ National Market under the symbol "ULTK." On June 6, 2001, the last reported sale price during regular trading hours of our common stock on the NASDAQ National Market was $2.72 per share. WE RECOMMEND THAT YOU OBTAIN CURRENT MARKET QUOTATIONS FOR OUR COMMON STOCK BEFORE DECIDING WHETHER OR NOT TO TENDER YOUR ELIGIBLE OPTIONS. THIS OFFER TO EXCHANGE HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS OFFER TO EXCHANGE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. You should direct questions about the offer or requests for assistance or for additional copies of this offer to exchange or the letter of transmittal to D'Lene Sandleback, Ultrak, Inc., 1301 Waters Ridge Drive, Lewisville, Texas 75057. IMPORTANT If you wish to tender your eligible options for exchange, you must complete and sign the letter of transmittal in accordance with its instructions, and mail or otherwise deliver it and any other required documents to us at Ultrak, Inc., 1301 Waters Ridge Drive, Lewisville, Texas 75057, Attn: D'Lene Sandleback. We are not making the offer to, nor will we accept any tender of options from or on behalf of, option holders in any jurisdiction in which the offer or the acceptance of any tender of options would not be in compliance with the laws of such jurisdiction. However, we may, at our discretion, take any actions necessary for us to make the offer to option holders in any such jurisdiction. WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON OUR BEHALF AS TO WHETHER YOU SHOULD TENDER OR REFRAIN FROM TENDERING YOUR ELIGIBLE OPTIONS PURSUANT TO THE OFFER. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFER OTHER THAN THE INFORMATION AND REPRESENTATIONS CONTAINED IN THIS DOCUMENT OR IN THE RELATED LETTER OF TRANSMITTAL. IF ANYONE MAKES ANY RECOMMENDATION OR REPRESENTATION TO YOU OR GIVES YOU ANY INFORMATION, YOU MUST NOT RELY UPON THAT RECOMMENDATION, REPRESENTATION OR INFORMATION AS HAVING BEEN AUTHORIZED BY US. (ii) TABLE OF CONTENTS SUMMARY TERM SHEET.............................................................1 INTRODUCTION...................................................................7 THE OFFER......................................................................8 1. NUMBER OF OPTIONS; EXPIRATION DATE........................................8 2. PURPOSE OF THE OFFER......................................................9 3. PROCEDURES FOR TENDERING OPTIONS.........................................10 4. WITHDRAWAL RIGHTS........................................................11 5. ACCEPTANCE OF OPTIONS FOR EXCHANGE AND ISSUANCE OF NEW OPTIONS...........12 6. CONDITIONS OF THE OFFER..................................................13 7. PRICE RANGE OF COMMON STOCK UNDERLYING THE OPTIONS.......................14 8. SOURCE AND AMOUNT OF CONSIDERATION; TERMS OF NEW OPTIONS.................15 9. INFORMATION CONCERNING ULTRAK............................................18 10. INTERESTS OF DIRECTORS AND OFFICERS; TRANSACTIONS AND ARRANGEMENTS CONCERNING THE OPTIONS...................................................19 11. STATUS OF OPTIONS ACQUIRED BY US IN THE OFFER; ACCOUNTING CONSEQUENCES OF THE OFFER................................................20 12. LEGAL MATTERS; REGULATORY APPROVALS......................................21 13. MATERIAL FEDERAL INCOME TAX CONSEQUENCES.................................21 14. EXTENSION OF OFFER; TERMINATION; AMENDMENT...............................22 15. FEES AND EXPENSES........................................................23 16. ADDITIONAL INFORMATION...................................................23 17. MISCELLANEOUS............................................................24 (iii) SUMMARY TERM SHEET The following are answers to some of the questions that you may have about the offer. We urge you to read carefully the remainder of this offer to exchange and the accompanying letter of transmittal because the information in this summary is not complete, and additional important information is contained in the remainder of this offer to exchange and the letter of transmittal. We have included page references to the remainder of this offer to exchange where you can find a more complete description of the topics in this summary. WHAT SECURITIES ARE WE OFFERING TO EXCHANGE? o We are offering to exchange stock options held by option holders who have not received options after December 9, 2000 that are outstanding under our 1988 Non-Qualified Stock Option Plan (the "1988 Plan") for new options under our 1988 Plan. We refer to these options in this offer to exchange as the "eligible options." (Page 7) o We are not offering to exchange any stock options outstanding under the Ultrak, Inc. 1997 Incentive Stock Option Plan (the "1997 Plan"). Existing options outstanding under the 1997 Plan are not covered by the offer. WHY ARE WE MAKING THE OFFER? o One key to our success is the retention and motivation of our employees and non-employee directors. The offer provides an opportunity for us to offer our employees and non-employee directors a valuable incentive to stay with our company. Some of our outstanding options, whether they are currently exercisable, have exercise prices that are significantly higher than the current market price of our common stock. We believe these options are unlikely to be exercised in the foreseeable future. By making this offer to exchange outstanding eligible options for new options that will have an exercise price equal to the market value of our common stock on the grant date, we intend to provide our employees and non-employee directors with the benefit of owning options that over time may have a greater potential to increase in value, create better performance incentives for employees and non-employee directors and thereby maximize shareholder value. (Page 9) WHAT ARE THE CONDITIONS TO THE OFFER? o The offer is not conditioned upon a minimum number of eligible options being tendered. The conditions are described in Section 6. (Page 13) WHO IS ELIGIBLE TO PARTICIPATE IN THE OFFER? o The offer is available to option holders under the 1988 Plan who have not received options after December 9, 2000. We have been informed by three of our eight executive officers and directors that they presently intend to tender certain of their eligible options in the offer. We have been informed by the other five of our eight executive officers and directors that they presently do not intend to tender any of their eligible options in the offer (one of whom received a stock option grant under the 1988 Plan after December 9, 2000 and is ineligible to participate in the offer). As of June 6, 2001, options to purchase 1,002,670 shares of our 1 common stock had been granted and were outstanding under the 1988 Plan with an average exercise price of $6.96 per share. (Page 7) ARE THERE ANY ELIGIBILITY REQUIREMENTS THAT YOU MUST SATISFY AFTER THE EXPIRATION DATE OF THE OFFER TO RECEIVE THE NEW OPTIONS? o In general, to receive a grant of new options under the offer and under the terms of our 1988 Plan, you must remain an employee or non-employee director (whichever you are now) of our company through the date we grant the new options. As discussed below, subject to the terms of this offer, we will grant the new options on or about the first business day which is at least six months and two days after the date we cancel the eligible options accepted for exchange. If, for any reason, you do not remain an employee or non-employee director of our company through the date we grant the new options, you will not receive any new options or other consideration in exchange for your tendered options that have been accepted for exchange. (Page 17) HOW MANY NEW OPTIONS WILL YOU RECEIVE IN EXCHANGE FOR YOUR TENDERED OPTIONS? o Provided you meet the eligibility requirements and subject to the terms of this offer, we will grant you new options to purchase that number of shares of our common stock based on the number of shares of common stock subject to the eligible options you tender and the exercise price of the eligible options you tender and such number of new options will be calculated in accordance with the following:
Eligible Option Exercise Price New Options to be Issued (New Option: Eligible Option) --------------- ------------------------------------------------------ Up to $6.62 1 new option per 1 eligible option (1:1) $6.63 to $8.25 .75 new option per 1 eligible option (.75:1) $8.26 and above .50 new option per 1 eligible option (5:1)
o Eligible options granted under our 1988 Plan and exchanged for new options will be replaced with options granted under our 1988 Plan, unless prevented by law or applicable regulations. All new options will be subject to a new option agreement between you and us, which will be in substantially the same form as the option agreement or agreements for your current eligible options except for the vesting schedule and the exercise price, as explained more fully below. You must execute the new option agreement prior to receiving the new options. WHEN WILL YOU RECEIVE YOUR NEW OPTIONS? o We will not grant the new options until on or about the first business day that is at least six months and two days after the date we cancel the eligible options accepted for exchange. Our board of directors will select the actual grant date for the new options. If we cancel tendered options on July 10, 2001, which is the scheduled expiration date of the offer, then we expect that the new options will not be granted until January 14, 2002. (Page 17) 2 WHY WON'T YOU RECEIVE YOUR NEW OPTIONS IMMEDIATELY AFTER THE EXPIRATION DATE OF THE OFFER? o If we were to grant the new options on any date which is earlier than six months and one day after the date we cancel the eligible options accepted for exchange, we have been advised by our accountants that we would be required for financial reporting purposes to record compensation expense against our earnings. Our accountants have advised us further that by deferring the grant of the new options for at least six months and two days, we will not have to record a compensation expense. (Page 20) IF YOU TENDER OPTIONS IN THE OFFER, WILL YOU BE ELIGIBLE TO RECEIVE OTHER OPTION GRANTS BEFORE YOU RECEIVE YOUR NEW OPTIONS? o If we accept eligible options you tender in the offer, we may defer until the grant date of your new options our grant to you of other options for which you may otherwise be eligible before the new option grant date. We may defer the grant to you of these other options if we determine it is necessary for us to do so to avoid incurring compensation expense against our earnings because of accounting rules that could apply to these interim option grants as a result of the offer. (Page 12) WILL YOU BE REQUIRED TO GIVE UP ALL YOUR RIGHTS TO THE CANCELLED OPTIONS? o Yes. Once we have accepted eligible options tendered by you, your eligible options will be cancelled and you will no longer have any rights under those options. (Page 12) WHAT WILL THE EXERCISE PRICE OF THE NEW OPTIONS BE? o The exercise price of the new options will be equal to the last reported sale price during regular trading hours of our common stock on the Nasdaq National Market on the day we grant the new options, which is currently expected to be January 14, 2002. Accordingly, we cannot predict the exercise price of the new options. The exercise prices of the outstanding options under the 1988 Plan range from $2.40 per share to $18.25 per share. The average exercise price for all 1,002,670 options outstanding under the 1988 Plan is $6.96 per share This average price for the outstanding options under the 1988 Plan is significantly higher than the current market price of our common stock, which was $2.72 per share on June 6, 2001. However, because we will not grant new options until at least six months and two days after the date we cancel the eligible options accepted for exchange, the new options may have a higher exercise price than some or all of your current options. We recommend that you obtain current market quotations for our common stock before deciding whether or not to tender your eligible options. (Page 15) WHEN WILL THE NEW OPTIONS VEST? o The new options will vest annually in equal annual amounts over a three-year period. However, the three-year vesting schedule of the new options will not begin until the grant date of those options. Therefore, even if the eligible options you tender are fully vested, none of the new options you receive will be vested and the new options will be subject to a three-year vesting period. (Page 17) 3 DOES THE COMMENCEMENT OF A NEW VESTING PERIOD UNDER THE NEW OPTIONS MEAN THAT YOU WOULD HAVE TO WAIT A LONGER PERIOD BEFORE YOU CAN PURCHASE COMMON STOCK UNDER YOUR EXISTING OPTIONS? o Yes. Because any new options you receive will not be vested, you will lose the benefits of any vesting under eligible options you tender in the offer. As described above, no portion of the new options we grant will be immediately vested, even if the eligible options you tender for exchange are fully or partially vested. Note that existing options have a five-year vesting schedule and the new options have a three-year vesting schedule. The three-year vesting schedule of the new options will not begin until the grant date of those options. Because the new options will not begin vesting until the grant date, which is at least six months and two days after the date we cancel tendered options, you will not be able to purchase our common stock upon exercise of any of the new options until at least eighteen months and two days after the cancellation date. (Page 8) WHAT IF WE ENTER INTO A MERGER OR OTHER SIMILAR TRANSACTION? o It is possible that, prior to the grant of new options, we might effect or enter into an agreement such as a merger or other similar transaction. These types of transactions could have substantial effects on our stock price, including potentially substantial appreciation in the price of our common stock. Depending on the structure of such a transaction, tendering option holders might be deprived of any further price appreciation in the common stock associated with the new options. For example, if our stock was acquired in a cash merger, the fair market value of our stock, and hence the price at which we grant the new options, would likely be a price at or near the cash price being paid for the common stock in the transaction, yielding limited or no financial benefit to a recipient of the new options for that transaction. In addition, in the event of an acquisition of our company for stock, tendering option holders might receive options to purchase shares of a different issuer. We are also reserving the right, in the event of a merger or similar transaction, to take any actions we deem necessary or appropriate to complete a transaction that our board of directors believes is in the best interest of our company and our shareholders. This could include terminating your right to receive replacement options under this offer to exchange. If we were to terminate your right to receive replacement options under this offer in connection with such a transaction, employees and non-employee directors who have tendered options for cancellation pursuant to this offer would not receive options to purchase securities of the acquiror or any other consideration for their tendered options. (Page 13) ARE THERE OTHER CIRCUMSTANCES WHERE YOU WOULD NOT BE GRANTED NEW OPTIONS? o Yes. Even if we accept your tendered options, we will not issue new options to you if we are prohibited by applicable law or regulations from doing so. We will use reasonable efforts to avoid such a prohibition, but if it is applicable on the new grant date, you will not be granted a new option. 4 IF YOU CHOOSE TO TENDER AN OPTION WHICH IS ELIGIBLE FOR EXCHANGE, DO YOU HAVE TO TENDER ALL THE SHARES IN THAT OPTION? o Yes. We are not accepting partial tenders of eligible options. Accordingly, you may tender one or more of your eligible option grants, but you may only tender all of the shares subject to that eligible option or none of those shares. For example, if you hold an option under the 1988 Plan to purchase 5,000 shares of our common stock at an exercise price of $10.00 per share and an option under the 1988 Plan to purchase 2,000 shares of our common stock at $12.00 per share, you have four alternatives: (1) you may tender none of your eligible options, (2) you may tender eligible options with respect to all 5,000 shares under the first option grant, (3) you may tender eligible options with respect to all 2,000 shares under the second option grant, or (4) you may tender eligible options for all 7,000 shares under both option grants. You may not tender options with respect to just 3,000 shares (or any other partial amount) under the first option grant. (Page 13) WHAT HAPPENS TO ELIGIBLE OPTIONS THAT YOU CHOOSE NOT TO TENDER OR THAT ARE NOT ACCEPTED FOR EXCHANGE? o Nothing. Eligible options that you choose not to tender for exchange or that we do not accept for exchange remain outstanding and retain their current exercise price and current vesting schedule. WILL YOU HAVE TO PAY TAXES IF YOU EXCHANGE YOUR ELIGIBLE OPTIONS IN THE OFFER? o If you exchange your current eligible options for new options, you will not be required under current law to recognize income for federal income tax purposes at the time of the exchange. We believe that the exchange will be treated as a non-taxable exchange. Further, at the grant date of the new options, you will not be required under current law to recognize income for federal income tax purposes. The grant of options is not recognized as taxable income. We recommend that you consult with your own tax advisor to determine the tax consequences of tendering options pursuant to the offer. (Page 21) YOUR CURRENT ELIGIBLE OPTIONS ARE NON-QUALIFIED STOCK OPTIONS, WILL YOUR NEW OPTIONS BE NON-QUALIFIED STOCK OPTIONS? o Yes. Your current eligible options are non-qualified stock options and your new options will also be granted as non-qualified stock options. Under the 1988 Plan, only non-qualified stock options may be granted. (Page 18) WHEN DOES THE OFFER EXPIRE? CAN THE OFFER BE EXTENDED, AND IF SO, HOW WILL YOU BE NOTIFIED IF IT IS EXTENDED? o The offer expires on July 10, 2001, at 5:00 p.m., Lewisville, Texas time, unless it is extended by us. We may, in our discretion, extend the offer at any time, but we cannot assure you that the offer will be extended or, if extended, for how long. If the offer is extended, we will make a public announcement of the extension no later than 9:00 a.m., Lewisville, Texas time, on the next business day following the previously scheduled expiration of the offer period. (Page 22) 5 HOW DO YOU TENDER YOUR ELIGIBLE OPTIONS? o If you decide to tender your eligible options, you must deliver, before 5:00 p.m., Lewisville, Texas time, on July 10, 2001 (or such later date and time as we may extend the expiration of the offer), a properly completed and duly executed letter of transmittal and any other documents required by the letter of transmittal to Ultrak, Inc., 1301 Waters Ridge Drive, Lewisville, Texas 75057, Attn: D'Lene Sandleback. This is a one-time offer, and we will strictly enforce the tender offer period. We reserve the right to reject any or all tenders of options that we determine are not in appropriate form or that we determine are unlawful to accept. Subject to our rights to extend, terminate and amend the offer, we currently expect that we will accept all properly tendered options promptly after the expiration of the offer. (Page 11) DURING WHAT PERIOD OF TIME MAY YOU WITHDRAW PREVIOUSLY TENDERED OPTIONS? o You may withdraw your tendered options at any time before the offer expires at 5:00 p.m., Lewisville, Texas time, on July 10, 2001. If the offer is extended by us beyond that time, you may withdraw your tendered options at any time until the extended expiration of the offer. In addition, although we currently intend to accept validly tendered eligible options promptly after the expiration of this offer, if we have not accepted your tendered options by August 7, 2001, you may withdraw your tendered options at any time after August 7, 2001. To withdraw tendered options, you must deliver to us a written notice of withdrawal, or a facsimile thereof, with the required information while you still have the right to withdraw the tendered options. Once you have withdrawn options, you may re-tender options only by again following the delivery procedures described above. (Page 11) WHAT DO WE AND THE BOARD OF DIRECTORS THINK OF THE OFFER? o Although our board of directors has approved the offer, neither we nor our board of directors makes any recommendation as to whether you should tender or refrain from tendering your eligible options. You must make your own decision whether or not to tender eligible options. We have been informed by three of our eight executive officers and directors that they presently intend to tender certain of their eligible options in the offer. We have been informed by the other five of our eight executive officers and directors that they presently do not intend to tender any of their eligible options in the offer (one of whom received a stock option grant under the 1988 Plan after December 9, 2000 and is ineligible to tender options in the offer). (Plan 10) WHOM CAN YOU TALK TO IF YOU HAVE QUESTIONS ABOUT THE OFFER? o For additional information or assistance, you should contact: D'Lene Sandleback Ultrak, Inc. 1301 Waters Ridge Drive Lewisville, Texas 75057 (972) 353-6455 6 INTRODUCTION Ultrak, Inc. is offering to exchange outstanding options that are held by option holders who have not received options after December 9, 2000 (the "eligible options") to purchase shares of our common stock granted under the Ultrak, Inc. 1988 Non-Qualified Stock Option Plan (the "1988 Plan") for new options we will grant under our 1988 Plan. We have been informed by three of our eight executive officers and directors that they presently intend to tender certain of their eligible options in the offer. We have been informed by the other five of our eight executive officers and directors that they presently do not intend to tender any of their eligible options in the offer (one of whom received a stock option grant under the 1988 Plan after December 9, 2000 and is ineligible to tender any options in the offer). We are making the offer upon the terms and subject to the conditions set forth in this offer to exchange and in the related letter of transmittal (which together, as they may be amended from time to time, constitute the "offer"). The number of shares of common stock subject to new options to be granted to each option holder will be based on the number of shares subject to the eligible options tendered by such option holder and accepted for exchange and the exercise price of the eligible options tendered and such number of new options will be calculated as follows:
Eligible Option Exercise Price New Options to be Issued (New Option: Eligible Option) - ------------------------------ ------------------------------------------------------ Up to $6.62 1 new option per 1 eligible option (1:1) $6.63 to $8.25 .75 new option per 1 eligible option (.75:1) $8.26 and above .50 new option per 1 eligible option (.5:1)
We will not grant the new options until on or about the first business day that is at least six months and two days after the date we cancel the eligible options accepted for exchange. Our board of directors will select the actual grant date for the new options, but we currently expect the new options to be issued on January 14, 2002 (unless we extend the offer beyond July 10, 2001). We are not accepting partial tenders of eligible options. Accordingly, you may only tender eligible options for all or none of the shares of common stock subject to each of your eligible option agreements. The offer is not conditioned upon a minimum number of eligible options being tendered. The offer is subject to conditions which we describe in section 6 of this offer to exchange. If you tender eligible options granted under our 1988 Plan for exchange, subject to the terms of this offer you will be granted new options under our 1988 Plan, unless prevented by law or applicable regulations. A new option agreement will be entered into between us and you. The exercise price of the new options will be equal to the last sale price during regular trading hours of our common stock on the Nasdaq National Market the day of the grant of the new options. The new options will vest in equal annual amounts over a three-year period beginning on the grant date of the new options. As of June 6, 2001, options to purchase 1,002,670 shares of our common stock were issued and outstanding under our 1988 Plan. Of these options, the exercise prices ranged from $2.40 per share to $18.25 per share and the average exercise price was $6.96 per share. All eligible options accepted by us pursuant to the offer will be cancelled. 7 THE OFFER 1. NUMBER OF OPTIONS; EXPIRATION DATE. Upon the terms and subject to the conditions of the offer, we will exchange for new options to purchase common stock under our 1988 Plan all outstanding options under the 1988 Plan that are held by option holders who have not received options after December 9, 2000 and are properly tendered and not validly withdrawn in accordance with section 4 before the "expiration date," as defined below. We have been informed by three of our eight executive officers and directors that they presently intend to tender certain of their eligible options in the offer. We have been informed by the other five of our eight executive officers and directors that they presently do not intend to tender any of their eligible options in the offer (one of whom received a stock option grant under the 1988 Plan after December 9, 2000 and is ineligible to tender options in the offer). We will not accept partial tenders of your eligible options. Therefore, you may tender eligible options for all or none of the shares subject to each of your eligible option agreements. If your eligible options are properly tendered and accepted for exchange, the options will be cancelled and, subject to the terms of this offer, you will be entitled to receive new options to purchase the number of shares of our common stock calculated based on the number of shares subject to the eligible options that you tendered, subject to adjustments for any stock splits, stock dividends and similar events, calculated as follows:
Eligible Option Exercise Price New Options to be Issued (New Option: Eligible Option) ------------------------------ ------------------------------------------------------ Up to $6.62 1 new option per 1 eligible option (1:1) $6.63 to $8.25 .75 new option per 1 eligible option (.75:1) $8.26 and above .50 new option per 1 eligible option (.5:1)
All new options will be subject to the terms of our 1988 Plan depending on applicable laws and regulations, and to a new option agreement between us and you. If, for any reason, you do not remain an employee or non-employee director of our company (whichever you are now) through the date we grant the new options, you will not receive any new options or other consideration in exchange for your tendered options that have been accepted for exchange. This means that if you quit, with or without a good reason, or die or we terminate your employment, with or without cause, prior to the date we grant the new options, you will not receive anything for the options that you tendered and we cancelled. The term "expiration date" means 5.00 p.m., Lewisville, Texas time, on July 10, 2001, unless we, in our discretion, have extended the period of time during which the offer will remain open, in which event the term "expiration date" refers to the latest time and date at which the offer, as so extended, expires. See section 14 for a description of our rights to extend, delay, terminate and amend the offer. If we decide to take any of the following actions, we will publish notice or otherwise inform you in writing of such action: (a) we increase or decrease the amount of consideration offered for the eligible options; or 8 (b) we decrease the number of options eligible to be tendered in the offer. If the offer is scheduled to expire at any time earlier than the tenth business day from, and including, the date that notice of such increase or decrease is first published, sent or given in the manner specified in section 14, we will extend the offer so that the offer is open at least 10 business days following the publication, sending or giving of such notice. We will also notify you of any other material change in the information contained in this offer to exchange. For purposes of the offer, a "business day" means any day other than a Saturday, Sunday or federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, eastern time. 2. PURPOSE OF THE OFFER. We issued the options outstanding under our 1988 Plan to: o provide our employees and non-employee directors an opportunity to acquire or increase a proprietary interest in us, thereby creating a stronger incentive to expend maximum effort for our growth and success; and o encourage our employees to continue their employment with us. One key to our success is the retention and motivation of our employees and non-employee directors. The offer provides an opportunity for us to offer our employees and non-employee directors a valuable incentive to stay with our company. Some of our outstanding options, whether or not they are currently exercisable, have exercise prices that are significantly higher than the current market price of our common stock. We believe these options are unlikely to be exercised in the foreseeable future. By making this offer to exchange outstanding eligible options for new options that will have an exercise price equal to the market value of our common stock on the grant date, we intend to provide our employees and non-employee directors with the benefit of owning options that over time may have a greater potential to increase in value, create better performance incentives for employees and non-employee directors and thereby maximize shareholder value. Because we will not grant new options until at least six months and two days after the date we cancel the eligible options accepted for exchange, the new options may have a higher exercise price than some or all of our current outstanding options. We may engage in transactions in the future with other companies which could significantly change our structure, ownership, organization or management or the make-up of our board of directors, and which could significantly effect the price of our stock. If we engage in such a transaction or transactions prior to the date we grant the new options, our stock price could increase (or decrease), and the exercise price of the new options could be higher (or lower) than the exercise price of eligible options you elect to have cancelled as part of this offer. As is outlined in section 8, the exercise price of any new options granted to you in return for your tendered options will be at the fair market value of our common stock on the date of that grant. You will be at risk of any such increase in our stock price during the period prior to the grant date of the new options for these or any other reasons. 9 We are also reserving the right, in the event of a merger or similar transaction, to take any actions we deem necessary or appropriate to complete a transaction that our board of directors believes is in the best interest of our company and our shareholders. This could include terminating your right to receive replacement options under this offer to exchange. If we were to terminate your right to receive replacement options under this offer in connection with such a transaction, employees and non-employee directors who have tendered options for cancellation pursuant to this offer would not receive options to purchase securities of the acquiror or any other consideration for their tendered options. Subject to the foregoing, and except as otherwise disclosed in this offer to exchange or in our filings with the SEC, we presently have no plans or proposals that relate to or would result in: (a) an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving our company; (b) any purchase, sale or transfer of a material amount of our assets; (c) any material change in our present dividend rate or policy, or our indebtedness or capitalization; (d) any change in our present board of directors or management, including a change in the number or term of directors or to fill any existing board vacancies or to change any executive officer's material terms of employment; (e) any other material change in our corporate structure or business; (f) our common stock not being authorized for quotation in an automated quotation system operated by a national securities association; (g) our common stock becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Securities Exchange Act; (h) the suspension of our obligation to file reports pursuant to Section 15(d) of the Securities Exchange Act; (i) the acquisition by any person of an amount of our securities or the disposition of an amount of any of our securities; or (j) any change in our certificate of incorporation or bylaws, or any actions which may impede the acquisition of control of us by any person. Neither we nor our board of directors makes any recommendation as to whether you should tender or refrain from tendering your eligible options, nor have we authorized any person to make any such recommendation. You are urged to evaluate carefully all of the information in this offer to exchange and to consult your own investment and tax advisors. You must make your own decision whether or not to tender your eligible options for exchange. 3. PROCEDURES FOR TENDERING OPTIONS. 10 Proper Tender of Options. To validly tender your eligible options pursuant to the offer, you must, in accordance with the terms of the letter of transmittal, properly complete, duly execute and deliver to us the letter of transmittal, or a facsimile thereof, along with any other required documents. We must receive all of the required documents at 1301 Waters Ridge Drive, Lewisville, Texas 75057, Attn: D'Lene Sandleback, before the expiration date. THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING LETTERS OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS, IS AT YOUR ELECTION AND RISK. IF DELIVERY IS BY MAIL, WE RECOMMEND THAT YOU USE REGISTERED MAIL WITH RETURN RECEIPT REQUESTED AND PROPERLY INSURE YOUR PACKAGE. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ENSURE TIMELY DELIVERY. Determination of Validity; Rejection of Options; Waiver of Defects; No Obligation to Give Notice of Defects. We will determine, in our discretion, all questions as to the form of documents and the validity, form, eligibility, including time of receipt, and acceptance of any tender of options. Our determination of these matters will be final and binding on all parties. We reserve the right to reject any or all tenders of options that we determine are not in appropriate form or that we determine are unlawful to accept. Otherwise, we will accept properly and timely tendered eligible options that are not validly withdrawn. We also reserve the right to waive any of the conditions of the offer or any defect or irregularity in any tender with respect to any particular options or any particular option holder. No tender of options will be deemed to have been properly made until all defects or irregularities have been cured by the tendering option holder or waived by us. Neither we nor any other person is obligated to give notice of any defects or irregularities in tenders, nor will anyone incur any liability for failure to give any such notice. This is a one-time offer, and we will strictly enforce the offer period. Our Acceptance Constitutes an Agreement. Your tender of eligible options pursuant to the procedures described above constitutes your acceptance of the terms and conditions of the offer. OUR ACCEPTANCE FOR EXCHANGE OF YOUR ELIGIBLE OPTIONS TENDERED BY YOU PURSUANT TO THE OFFER WILL CONSTITUTE A BINDING AGREEMENT BETWEEN US AND YOU UPON THE TERMS AND SUBJECT TO THE CONDITIONS OF THE OFFER. Subject to our rights to extend, terminate and amend the offer, we currently expect that we will accept promptly after the expiration of the offer all properly tendered eligible options that have not been validly withdrawn. 4. WITHDRAWAL RIGHTS. You may only withdraw your tendered options in accordance with the provisions of this section 4. You may withdraw your tendered options at any time before 5:00 p.m., Lewisville, Texas time, on July 10, 2001. If the offer is extended by us beyond that time, you may withdraw your tendered options at any time until the extended expiration of the offer. In addition, unless we accept your tendered options for exchange before 12:00 midnight, eastern time, on August 7, 2001, you may withdraw your tendered options at any time after August 7, 2001. 11 To validly withdraw tendered options, an option holder must deliver to us at the address set forth in section 3 above a written notice of withdrawal, or a facsimile thereof, with the required information, while the option holder still has the right to withdraw the tendered options. The notice of withdrawal must specify the name of the option holder who tendered the options to be withdrawn, the grant date, exercise price and total number of option shares subject to each option to be withdrawn, and the number of option shares to be withdrawn. Except as described in the following sentence, the notice of withdrawal must be executed by the option holder who tendered the options to be withdrawn exactly as such option holder's name appears on the option agreement or agreements evidencing such options. If the signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or another person acting in a fiduciary or representative capacity, the signer's full title and proper evidence of the authority of such person to act in such capacity must be indicated on the notice of withdrawal. You may not rescind any withdrawal, and any options you withdraw will thereafter be deemed not properly tendered for purposes of the offer, unless you properly re-tender those options before the expiration date by following the procedures described in section 3. Neither we nor any other person is obligated to give notice of any defects or irregularities in any notice of withdrawal, nor will anyone incur any liability for failure to give any such notice. We will determine, in our discretion, all questions as to the form and validity, including time of receipt, of notices of withdrawal. Our determination of these matters will be final and binding. 5. ACCEPTANCE OF OPTIONS FOR EXCHANGE AND ISSUANCE OF NEW OPTIONS. Upon the terms and subject to the conditions of the offer and as promptly as practicable following the expiration date, we will accept for exchange and cancel eligible options properly tendered and not validly withdrawn before the expiration date. Subject to the terms and conditions of this offer, if your options are properly tendered and accepted for exchange, these options will be cancelled as of the date of our acceptance and you will be granted new options on or about the first business day that is at least six months and two days after the date we cancel the options accepted for exchange. Subject to the terms and conditions of this offer, if your eligible options are properly tendered and accepted for exchange on July 10, 2001, the scheduled expiration date of the offer, you will be granted new options on January 14, 2002. If we accept and cancel options properly tendered for exchange after July 10, 2001, the grant day on which the new options will be granted will be similarly delayed. If we accept options you tender in the offer, we may defer until the first business day that is at least six months and two days after we cancel the eligible options accepted for exchange any grant to you of other options for which you may be eligible before the new option grant date. We may defer the grant to you of these other options if we determine it is necessary for us to do so to avoid incurring compensation expense against our earnings because of accounting rules that could apply to these interim option grants as a result of the offer. Any such grant of these other options is in the discretion of the board of directors and subject to compliance with law and market prices prevailing at the time of the grants. Any such actual grants of these other options will therefore be made when, as and if declared by the board of directors. Your new options will entitle you to purchase a number of shares of our common stock which is based on the number of shares subject to the eligible options you tender, as adjusted for any 12 stock splits, stock dividends and similar events, and the exercise price of the eligible options tendered and such number of new options will be calculated as follows:
Eligible Option Exercise Price New Options to be Issued (New Option: Eligible Option) ------------------------------ ------------------------------------------------------ Up to $6.62 1 new option per 1 eligible option (1:1) $6.63 to $8.25 .75 new option per 1 eligible option (.75:1) $8.26 and above .50 new option per 1 eligible option (.5:1)
If, for any reason, you are not an employee or non-employee director of our company (whichever you are now) through the date we grant the new options, you will not receive any new options or other consideration in exchange for your tendered options that have been accepted for exchange. We will not accept partial tenders of your eligible option grants. Accordingly, you may only tender eligible options for all or none of the shares of common stock subject to each of your eligible option agreements. For purposes of the offer, we will be deemed to have accepted for exchange eligible options that are validly tendered and not properly withdrawn as, if and when we give oral or written notice to D'Lene Sandleback or to the option holders of our acceptance for exchange of such options, which notice may be made by press release. Subject to our rights to extend, terminate and amend the offer, we currently expect that we will accept promptly after the expiration of the offer all properly tendered options that are not validly withdrawn. Promptly after we accept tendered options for exchange, we will send each tendering option holder a letter indicating the number of shares subject to the options that we have accepted for exchange and cancelled, and, subject to the terms and conditions of this offer, the corresponding number of shares that will be subject to the new options and the date on which the new options should be granted. 6. CONDITIONS OF THE OFFER. Notwithstanding any other provision of the offer, we will not be required to accept any eligible options tendered for exchange, and we may terminate or amend the offer, or postpone our acceptance and cancellation of any options tendered for exchange, in each case, subject to Rule 13e-4(f) (5) under the Securities Exchange Act, if at any time on or after June 11, 2001, and prior to the expiration date any of the following events has occurred, or has been determined by us to have occurred, and, in our reasonable judgment in any such case and regardless of the circumstances giving rise thereto, including any action or omission to act by us, the occurrence of such event or events makes it inadvisable for us to proceed with the offer or with such acceptance and cancellation of options tendered for exchange: (a) there shall have been threatened or instituted or be pending any action or proceeding by any governmental, regulatory or administrative agency or authority that directly or indirectly challenges the making of the offer, the acquisition of some or all of the tendered options pursuant to the offer, or the issuance of new options, or otherwise relates in any manner to the offer, or that, in our reasonable judgment, could materially and adversely affect our business, condition, income, operations or prospects or materially impair the contemplated benefits of the offer to us; 13 (b) there shall have been any action threatened, pending or taken, or approval withheld, or any statute, rule, regulation, judgment, order or injunction threatened, proposed, sought, promulgated, enacted, entered, amended, enforced or deemed to be eligible to the offer or us, by any court or any authority, agency or tribunal that, in our reasonable judgment, would or might directly or indirectly: (1) make the acceptance for exchange of, or issuance of new options for, some or all of the tendered options illegal or otherwise restrict or prohibit consummation of the offer or that otherwise relates in any manner to the offer; (2) delay or restrict our ability, or render us unable, to accept for exchange, or issue new options for, some or all of the tendered options; (3) materially impair the contemplated benefits of the offer to us; or (4) materially and adversely affect our business, condition, income, operations or prospects or materially impair the contemplated benefits of the offer to us; (c) there shall have occurred any change, development, clarification or position taken in generally accepted accounting standards that could or would require us to record compensation expense against our earnings in connection with the offer for financial reporting purposes; (d) a tender or exchange offer with respect to some or all of our common stock, or a merger or acquisition proposal for us, shall have been proposed, announced or made by another person or entity or shall have been publicly disclosed; (e) any change or changes shall have occurred in our business, condition, assets, income, operations, prospects or stock ownership that, in our reasonable judgment, is or may be material to us or may materially impair the contemplated benefits of the offer to us. The conditions to the offer are for our benefit. We may assert them in our discretion regardless of the circumstances giving rise to them prior to the expiration date. We may waive them, in whole or in part, at any time and from time to time prior to the expiration date, in our discretion, whether or not we waive any other condition to the offer. our failure at any time to exercise any of these rights will not be deemed a waiver of any such rights. The waiver of any of these rights with respect to particular facts and circumstances will not be deemed a waiver with respect to any other facts and circumstances. Any determination we make concerning the events described in this section 6 will be final and binding upon all persons. 7. PRICE RANGE OF COMMON STOCK UNDERLYING THE OPTIONS. Our common stock is quoted on the Nasdaq National Market under the symbol "ULTK." The following table shows, for the periods indicated, the high and low sales prices per share of our common stock as reported by the Nasdaq National Market: 14
HIGH LOW ---- --- April 1, 2001 through June 6, 2001............................................................. $3.15 $2.19 Quarter ended March 31, 2001................................................................... 5.88 2.34 Quarter ended December 31, 2000................................................................ 6.50 2.81 Quarter ended September 30, 2000............................................................... 10.25 5.75 Quarter ended June 30, 2000.................................................................... 11.88 6.00 Quarter ended March 31, 2000................................................................... 13.25 6.38 Quarter ended December 31, 1999................................................................ 7.75 4.75 Quarter ended September 30, 1999............................................................... 7.75 5.69 Quarter ended June 30, 1999.................................................................... 6.75 5.50
As of June 6, 2001, the last reported sale price during regular trading hours of our common stock, as reported by the Nasdaq National Market, was $2.72 per share. WE RECOMMEND THAT YOU OBTAIN CURRENT MARKET QUOTATIONS FOR OUR COMMON STOCK BEFORE DECIDING WHETHER OR NOT TO TENDER YOUR OPTIONS. 8. SOURCE AND AMOUNT OF CONSIDERATION; TERMS OF NEW OPTIONS. Consideration. We will issue new options to purchase common stock under our 1988 Plan, subject to applicable laws and regulations, in exchange for the outstanding eligible options properly tendered and accepted for exchange by us which will be cancelled. The number of shares of common stock subject to the new options to be granted to each option holder will be based on the number of shares subject to the eligible options tendered by such option holder and accepted by us for exchange, as adjusted for any stock splits, reverse stock splits, stock dividends and similar events, and the exercise price of the eligible options tendered and such number of new options will be calculated as follows:
Eligible Option Exercise Price New Options to be Issued (New Option: Eligible Option) ------------------------------ ------------------------------------------------------ Up to $6.62 1 new option per 1 eligible option (1:1) $6.63 to $8.25 .75 new option per 1 eligible option (.75:1) $8.26 and above .50 new option per 1 eligible option (.5:1)
If we receive and accept tenders of all outstanding options (some of which are not eligible to participate in the offer) subject to the terms and conditions of this offer we will grant new options to purchase up to 1,002,670 shares of our common stock. The common stock issuable upon exercise of these new options would equal approximately 8.6% of the 11,688,888 shares of our common stock outstanding as of June 6, 2001. Terms of New Options. The new options will be granted under our 1988 Plan subject to applicable laws and regulations. A new option agreement will be entered into between us and each option holder who has tendered options in the offer for every new option granted. Except with respect to the exercise price, the vesting schedule and the vesting commencement date and as 15 otherwise specified in the offer, the terms and conditions of the new options will be substantially the same as the terms and conditions of the options tendered for exchange. Because we will not grant new options until on or about the first business day that is at least six months and two days after the date we cancel the eligible options accepted for exchange, the new options may have a higher exercise price than some or all of the eligible options, including as a result of a significant corporate event. The following description summarizes the material terms of our 1988 Plan and the options granted under them. General. The number of shares of common stock subject to our 1988 Plan is 2,200,000, including an increase from 1,700,000 shares to 2,200,000 shares that was approved by our shareholders on June 1, 2001. There are currently options to purchase 1,002,670 shares of our common stock outstanding under the 1988 Plan. Our 1988 Plan only permits the granting of options that are not incentive stock options as described in the Internal Revenue Code. Administration. Our 1988 Plan is administered by the compensation committee of our board of directors. The compensation committee is composed of no fewer than three directors who are intended to be "nonemployee directors" as defined in Rule 16b-3 under the Securities Exchange Act and "outside directors" for purposes of Section 162(m) of the Internal Revenue Code. The members of the compensation committee are appointed by the board of directors to serve for such terms as the board of directors may determine by resolution. The board of directors may remove any member of the compensation committee or reconstitute the compensation committee with other directors, subject to the requirements of Rule 16b-3. Term. The term of each option will be fixed by the compensation committee and may not exceed ten years from the grant date. The new options to be granted pursuant to the offer will have a term of ten years from the grant date. Termination. Options issued under our 1988 Plan generally will expire ten years after the grant date. Except as your option agreement otherwise provides, your options will terminate following the termination of your employment, unless the options are exercised, to the extent that they were exercisable immediately before such termination (a) immediately if you are terminated for cause, (b) within thirty (30) days of termination without cause, (c) within three (3) months after retirement with the Company's consent and (d) as set forth in the following sentence if termination results from death or disability. In the event that the termination of your employment is by reason of permanent or total disability or death, you, or your executors, administrators, legatees or distributees of your estate, may exercise any option held by you at the date of your employment termination, whether or not the option was exercisable immediately before such termination, for twelve (12) months from the date of death or termination for disability. This right to exercise options will extend to the earlier of the expiration of the option term or one year after the date of the termination of your employment by reason of permanent and total disability or death. The termination of your option under the circumstances specified in this section will result in the termination of your interests in our 1988 Plan. In addition, your option may terminate, together with our 1998 Plan and all other outstanding options issued to other employees, following the occurrence of certain "corporate transaction" events, as described below. Exercise Price. The exercise price of each option will be determined by the Compensation Committee, but will not be less than 100% of the fair market value of a share of our common stock on the date of the grant. The exercise price of the new options to be granted pursuant to the offer will 16 be equal to the last reported sale price during regular trading hours of our common stock on the Nasdaq National Market on the grant date. Vesting and Exercise. In general, the Compensation Committee will determine at what time or times each option may be exercised. The new options granted pursuant to the offer will vest in equal annual amounts over a three-year period beginning on the grant date of the new options. Assuming the date we cancel the options accepted for exchange is July 10, 2001, which is the scheduled expiration date of the offer, and you are granted new options on January 14, 2002, your right to exercise the new options will (assuming you continuously remain an employee of the Company or a non-employee director of the Company) vest one-third annually on January 14, 2003, January 14, 2004, and January 14, 2005. Payment of Exercise Price. You may exercise your options, in whole or in part, by delivery of a written notice to us on any business day at the address listed on your exercise notice, which specifies the number of shares for which the option is being exercised and which is accompanied by payment in full of the eligible exercise price. The permissible methods of payment of the option exercise price generally are the following: o delivery of certified or official bank check or the equivalent thereof acceptable to us; o tender property including, but not limited to, shares of Common Stock of the Company with a fair market value at least equal to the aggregate Option price for the Option Shares to be acquired; or o a combination of the foregoing methods. Corporate Transaction. In the event of a "corporate transaction," if your option is not assumed by or replaced with new options or a cash incentive program of the successor corporation, your option will automatically become fully vested and exercisable immediately prior to the date of such corporate transaction. Upon the consummation of a corporate transaction in which your option is not assumed or replaced by the successor corporation, your option will terminate. A "corporate transaction" event means any of the following events: o our dissolution or liquidation; o a merger, consolidation or reorganization in which we are not the surviving entity; o the sale, lease, exchange or other disposition of substantially all of our assets other than sale of contracts for financing purposes; or o acquisition by any person of beneficial ownership of securities possessing more than fifty percent (50%) of the total combined voting power of our outstanding securities. Termination of Employment. If, for any reason, you are not an employee or non-employee director of our company from the date you tender eligible options through the date we grant the new options, you will not receive any new options or any other consideration in exchange for your tendered options that have been accepted for exchange. This means that if you quit, with or without good reason, or die, or we 17 terminate your employment, with or without cause, prior to the date we grant the new options, you will not receive anything for the options that you tendered and we cancelled. Transferability of Options. New options may not be transferred. During your lifetime, only you, or your guardian or legal representative in the case of your incapacity or incompetency, may exercise options granted to you. Registration of Option Shares. We previously registered under the Securities Act most of the shares of common stock issuable upon exercise of options under our 1988 Plan on a registration statement on Form S-8. Due to the recent increase in the shares subject to the 1988 Plan to 2,200,000 shares, the additional shares of common stock issuable upon exercise of options under our 1988 Plan will be registered under the Securities Act as soon as practicable. As a result, all shares of common stock issuable upon exercise of all new options to be granted pursuant to the offer will be registered under the Securities Act. Unless you are one of our affiliates, you will be able to sell the shares of our common stock you acquire upon exercise of the new options free of any transfer restrictions under applicable securities laws. NOTE THAT ONLY NON-QUALIFIED OPTIONS MAY BE ISSUED UNDER THE 1988 PLAN. INCENTIVE STOCK OPTIONS MAY NOT BE ISSUED UNDER THE 1988 PLAN. Federal Income Tax Consequences of Non-Qualified Stock Options. Under current law, an option holder will not realize taxable income upon the grant of a non-qualified option. However, when an option holder exercises a non-qualified option, the difference between the exercise price of the option and the fair market value of the shares subject to the non-qualified option on the date of exercise will be compensation income taxable to the option holder. We will be entitled to a deduction equal to the amount of compensation income taxable to the option holder if we comply with eligible reporting requirements. If you tender shares in payment of part or all of the exercise price of a non-qualified stock option, no gain or loss will be recognized with respect to the shares tendered, and you will be treated as receiving an equivalent number of shares pursuant to the exercise of the option in a nontaxable exchange. The tax basis of the shares tendered will be treated as the substituted tax basis for an equivalent number of shares received, and the new shares will be treated as having been held for the same holding period as the holding period that expired with respect to the transferred shares. The difference between the aggregate exercise price and the aggregate fair market value of the shares received pursuant to the exercise of the option will be taxed as ordinary income, just as if you had paid the exercise price in cash. Our statements in this offer to exchange concerning our 1988 Plan and the new options are merely summaries and do not purport to be complete. The statements are subject to, and are qualified in their entirety by reference to, all provisions of our 1988 Plan and the form of option agreement under the 1988 Plan. Please contact us at 1301 Waters Ridge Drive, Lewisville, Texas 75057 (telephone: (372) 353-6455), to receive a copy of our 1988 Plan and the form of option agreement thereunder. We will promptly furnish you copies of these documents at our expense. 9. INFORMATION CONCERNING ULTRAK. 18 We are one of the leading electronic security companies in the world. We design, manufacture, market, sell and service innovative electronic products and systems for security and surveillance, industrial video and professional audio markets worldwide. These products and systems include high-speed domes, monitors, switchers, quad processors, video management systems, digital and analog recorders, multiplexers, video transmission systems, access control systems, cameras, lenses, observations systems, audio equipment and accessories. Brand names include Ultrak, Diamond Electronics, Maxpro, Exxis, Smart Choice, Phoenix and BST. Customers, defined as end users of our products and services, range from single location mom-and-pop businesses to universities and government facilities. Sales to the professional security markets are through the company's channel partners. We operate sales, distribution and manufacturing locations worldwide. We have sales offices in six U.S. cities as well as offices in England, France, German, Italy, Poland, Switzerland, Singapore, Australia, and South Africa. We also have active representation through company sales representatives and systems integrators in China, Canada, Mexico and Brazil. Our customers are supported by eight distribution centers worldwide and manufacturing facilities located in the United States, Australia and South Africa. We were originally incorporated in Colorado in 1980 and reincorporated in Delaware in December 1995. Our principal executive offices are located at 1301 Waters Ridge Drive, Lewisville, Texas 75057, and our telephone number at that address is (972) 353-6455. The financial information included in our annual report on Form 10-K for the fiscal year ended December 31, 2000 and our quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2001 is incorporated herein by reference. See "Additional Information" beginning on page 23 for instructions on how you can obtain copies of our SEC filings, including filings that contain our financial statements. 10. INTERESTS OF DIRECTORS AND OFFICERS; TRANSACTIONS AND ARRANGEMENTS CONCERNING THE OPTIONS. A list of our eight executive officers and directors is attached to this offer as Schedule A. As of June 6, 2001, our eight executive officers and directors as a group held options outstanding under our 1988 Plan to purchase a total of 530,851 shares of our common stock, which represented approximately 61% of options outstanding under the 1988 Plan as of that date. We have been informed by three of our eight executive officers and directors that they presently intend to tender certain of their eligible options in the offer. We have been informed by the other five of our eight executive officers and directors that they presently do not intend to tender any of their eligible options in the offer (one of whom received a stock option grant under the 1988 Plan after December 9, 2000 and is ineligible to tender options in the offer). Set forth below is a table setting forth the outstanding option grants to our eight executive officers and directors under the 1988 Plan:
Option Exercise Date of Exercised Optionee Grant Price Grant (Y or N)/Shares - -------- ----- ----- ----- --------------- Peter Beare 12,000 7.125 6-2-00 N Peter Beare 50,000 5.9375 9-14-00 N 19 Option Exercise Date of Exercised Optionee Grant Price Grant (Y or N)/Shares - -------- ----- ----- ----- --------------- George K. Broady 50,000 5.625 2-24-95 N George K. Broady 100,000 9.25 1-24-00 N George K. Broady 32,000 7.125 6-2-00 N George K. Broady 138,851 2.73 6-1-01 N Vincent Broady 20,000 9.25 1-24-00 N Wendy Diddell 10,000 6.19 3-29-99 Y-2000 Wendy Diddell 5,000 9.25 1-24-00 N Wendy Diddell 30,000 7.125 6-2-00 N Malcolm Gudis 20,000 9.25 1-24-00 N Charles Neal 20,000 9.25 1-24-00 N Robert Sexton 20,000 9.25 1-24-00 N Chris Sharng 25,000 6.25 10-2-00 N
Except as otherwise described above, there have been no transactions in options to purchase our common stock or in our common stock which were effected during the 60 days prior to June 11, 2001 by us or, to our knowledge, by any executive officer, director or affiliate of our company. 11. STATUS OF OPTIONS ACQUIRED BY US IN THE OFFER; ACCOUNTING CONSEQUENCES OF THE OFFER. Eligible options we acquire pursuant to the offer will be cancelled and the shares of common stock subject to those eligible options will be returned to the pool of shares available for grants of new options under our 1988 Plan, subject to applicable laws and regulations. To the extent such shares are not fully reserved for issuance upon exercise of the new options to be granted in connection with the offer, the shares will be available for future awards to employees and other eligible plan participants without further shareholder action, except as required by applicable law or the rules of the Nasdaq National Market or any other securities quotation system or any stock exchange on which our common stock is then quoted or listed. We have been advised by our accountants that we will not incur any compensation expense solely as a result of the transactions contemplated by the offer because we will not grant any new options until a business day that is at least six months and two days after the date that we accept and cancel options tendered for exchange and the exercise price of all new options will equal the market value of the common stock on the date we grant the new options. We may incur compensation expense, however, if we grant an option to a tendering option holder that has an exercise price per share less than the exercise price of any options tendered for exchange and such grant is before the first business day that is at least six months and two days after the date we cancel the eligible options accepted for exchange. Our grant of those options to the 20 tendering option holder would be treated for financial reporting purposes as a variable award to the extent that the number of shares subject to the newly granted options is equal to or less than the number of the option holder's tendered option shares. In this event, we would be required to record as compensation expense the amount by which the market value of the shares subject to the newly granted options exceeds the exercise price of those shares. This compensation expense would accrue as a charge to our earnings over the vesting period of the newly granted options. We would adjust this compensation expense periodically during the vesting period based on increases or decreases in the market value of the shares subject to the newly granted options. 12. LEGAL MATTERS; REGULATORY APPROVALS. We are not aware of any license or regulatory permit that appears to be material to our business that might be adversely affected by our exchange of options and issuance of new options as contemplated by the offer, or of any approval or other action by any government or governmental, administrative or regulatory authority or agency, domestic or foreign, that would be required for the acquisition or ownership of our options as contemplated herein. Should any such approval or other action be required, we presently contemplate that we will seek such approval or take such other action. We cannot assure you that any such approval or other action, if needed, would be obtained or would be obtained without substantial conditions or that the failure to obtain any such approval or other action might not result in adverse consequences to our business. Our obligation under the offer to accept tendered options for exchange and to issue new options for tendered options is subject to the conditions described in section 6. If we are prohibited by applicable laws or regulations from granting new options, we will not grant any new options. We are unaware of any such prohibition at this time, and we will use reasonable efforts to effect the grant, but if the grant is prohibited we will not grant any new options and you will not get any other consideration for the options you tendered. 13. MATERIAL FEDERAL INCOME TAX CONSEQUENCES. The following is a general summary of the material federal income tax consequences of the exchange of eligible options pursuant to the offer. This discussion is based on the Internal Revenue Code, its legislative history, Treasury Regulations thereunder and administrative and judicial interpretations thereof as of the date of the offer, all of which are subject to change, possibly on a retroactive basis. This summary does not discuss all of the tax consequences that may be relevant to you in light of your particular circumstances, nor is it intended to be applicable in all respects to all categories of option holders. The option holders who exchange outstanding eligible options for new options will not be required to recognize income for federal income tax purposes at the time of the exchange. We believe that the exchange will be treated as a non-taxable exchange. At the grant date of the new options, the option holders will not be required to recognize additional income for federal income tax purposes. The grant of options is not recognized as taxable income. WE RECOMMEND THAT YOU CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN THE OFFER. 21 14. EXTENSION OF OFFER; TERMINATION; AMENDMENT. We expressly reserve the right, in our discretion, at any time and from time to time, and regardless of whether or not any event set forth in section 6 has occurred or is deemed by us to have occurred, to extend the period of time during which the offer is open and thereby delay the acceptance for exchange of any options by giving oral or written notice of such extension to the option holders or making a public announcement thereof. We also expressly reserve the right, in our reasonable judgment, prior to the expiration date to terminate or amend the offer and to postpone our acceptance and cancellation of any options tendered for exchange upon the occurrence of any of the conditions specified in section 6, by giving oral or written notice of such termination or postponement to the option holders or making a public announcement thereof. Our reservation of the right to delay our acceptance and cancellation of options tendered for exchange is limited by Rule 13e-4(f)(5) promulgated under the Securities Exchange Act, which requires that we must pay the consideration offered or return the options tendered promptly after termination or withdrawal of a tender offer. Subject to compliance with applicable law, we further reserve the right, in our discretion, and regardless of whether any event set forth in section 6 has occurred or is deemed by us to have occurred, to amend the offer in any respect, including, without limitation, by decreasing or increasing the consideration offered in the offer to option holders or by decreasing or increasing the number of options being sought in the offer. Amendments to the offer may be made at any time and from time to time by public announcement of the amendment. In the case of an extension, the amendment must be issued no later than 9:00 a.m., Lewisville, Texas time, on the next business day after the last previously scheduled or announced expiration date. Any public announcement made pursuant to the offer will be disseminated promptly to option holders in a manner reasonably designated to inform option holders of such change. Without limiting the manner in which we may choose to make a public announcement, except as required by applicable law, we have no obligation to publish, advertise or otherwise communicate any such public announcement other than by making a press release to the Dow Jones News Service. If we materially change the terms of the offer or the information concerning the offer, or if we waive a material condition of the offer, we will extend the offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(3) under the Securities Exchange Act. These rules require that the minimum period during which an offer must remain open following material changes in the terms of the offer or information concerning the offer, other than a change in price or a change in percentage of securities sought, will depend on the facts and circumstances, including the relative materiality of such terms or information. If we decide to take any of the following actions, we will publish notice or otherwise inform you in writing of such action: (a) we increase or decrease the amount of consideration offered for the eligible options; (b) we decrease the number of options eligible to be tendered in the offer; or 22 (c) we increase the number of options eligible to be tendered in the offer by an amount that exceeds 2% of the shares of common stock issuable upon exercise of the options that are subject to the offer immediately prior to the increase. If the offer is scheduled to expire at any time earlier than the tenth business day from, and including, the date that notice of such increase or decrease is first published, sent or given in the manner specified in section 14, we will extend the offer so that the offer is open at least 10 business days following the publication, sending or giving of notice. For purposes of the offer, a "business day" means any day other than a Saturday, Sunday or federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, eastern time. 15. FEES AND EXPENSES. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of eligible options pursuant to this offer to exchange. 16. ADDITIONAL INFORMATION. We have filed with the SEC a Tender Offer Statement on Schedule TO, of which this offer to exchange is a part, with respect to the offer. This offer to exchange does not contain all of the information contained in the Schedule TO and the exhibits to the Schedule TO. We recommend that you review the Schedule TO, including its exhibits, and the following materials which we have filed with the SEC before making a decision on whether to tender your options: (a) our annual report on Form 10-K for our fiscal year ended December 31, 2000, filed with the SEC on April 2, 2001; and (b) our quarterly report, filed with the on Form 10-Q for our fiscal quarter ended March 31, 2001, filed with the SEC on May 15, 2001. The SEC file number for these filings is 0-9463. These filings, our other annual, quarterly and current reports, our proxy statements and our other SEC filings may be examined, and copies may be obtained, at the following SEC public reference rooms:
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street Room 1024 Suite 1300 Suite 1400 Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661
You may obtain information on the operation of the public reference rooms by calling the SEC at 1-800-SEC-0330. Our SEC filings are also available to the public on the SEC's Internet site at http://www.sec.gov. 23 Our common stock is quoted on the Nasdaq National Market under the symbol "ULTK," and our SEC filings can be read at the following Nasdaq address: Nasdaq Operations 1735 K Street, N.W. Washington, D.C. 20006 We will also provide without charge to each person to whom a copy of this offer to exchange is delivered, upon the written or oral request of any such person, a copy of any or all of the documents to which we have referred you, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference into such documents). Requests should be directed to: Ultrak, Inc. Attention: D'Lene Sandleback 1301 Waters Ridge Drive Lewisville, Texas 75057 or by telephoning us at (972) 353-6455 between the hours of 9:00 a.m. and 5:00 p.m., Lewisville, Texas time. As you read the foregoing documents, you may find some inconsistencies in information from one document to another. If you find inconsistencies between the documents, or between a document and this offer to exchange, you should rely on the statements made in the most recent document. The information contained in this offer to exchange about us should be read together with the information contained in the documents to which we have referred you. 17. MISCELLANEOUS. This offer to exchange and our SEC reports referred to above include "forward-looking statements." When used in this offer to exchange, the words "anticipate," "believe," "estimate," "expect," "intend" and "plan" as they relate to our company or our management are intended to identify these forward-looking statements. All statements by us regarding our expected future financial position and operating results, our business strategy, our financing plans and expected capital requirements, forecasted trends relating to our services or the markets in which we operate and similar matters are forward looking statements. The documents we filed with the SEC, including our annual report on Form 10-K filed on April 2, 2001, discuss some of the risks that could cause our actual results to differ from those contained or implied in the forward-looking statements. These risks include dependence on new product development, rapid technological and market change and risks related to future growth and rapid expansion. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. We are not aware of any jurisdiction where the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction where the making of the offer is not in compliance with any valid applicable law, we will make a good faith effort to comply with such law. 24 If, after such good faith effort, we cannot comply with such law, the offer will not be made to, nor will tenders be accepted from or on behalf of, the option holders residing in such jurisdiction. WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON OUR BEHALF AS TO WHETHER YOU SHOULD TENDER OR REFRAIN FROM TENDERING YOUR ELIGIBLE OPTIONS PURSUANT TO THE OFFER. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THE INFORMATION AND REPRESENTATIONS CONTAINED IN THIS DOCUMENT OR IN THE RELATED LETTER OF TRANSMITTAL. IF ANYONE MAKES ANY RECOMMENDATION OR REPRESENTATION TO YOU OR GIVES YOU ANY INFORMATION, YOU MUST NOT RELY UPON THAT RECOMMENDATION, REPRESENTATION OR INFORMATION AS HAVING BEEN AUTHORIZED BY US. Ultrak, Inc. June 11, 2001 25 SCHEDULE A INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF ULTRAK, INC. The directors and executive officers of Ultrak, Inc. and their positions and offices as of June 6, 2001, are set forth in the following table:
NAME POSITION AND OFFICES HELD - ---- ------------------------- George K. Broady Chairman of the Board and Chief Executive Officer Peter D. Beare President and Chief Operating Officer Wendy S. Diddell Senior Vice President Chris T. Sharng Senior Vice President, Chief Financial Officer and Secretary George Vincent Broady Director Malcolm J. Gudis Director Charles C. Neal Director Robert F. Sexton Director
The address of each director and executive officer listed above is c/o Ultrak, Inc., 1301 Waters Ridge Drive, Lewisville, Texas 75057. Exhibit (a)(1)(B) LETTER OF TRANSMITTAL TO TENDER OPTIONS TO PURCHASE SHARES OF COMMON STOCK HELD BY OPTION HOLDERS WHO HAVE NOT RECEIVED OPTIONS AFTER DECEMBER 9, 2000 FOR NEW OPTIONS UNDER THE ULTRAK, INC. 1988 NON-QUALIFIED STOCK OPTION PLAN PURSUANT TO THE OFFER TO EXCHANGE DATED JUNE 11, 2001 THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M., LEWISVILLE, TEXAS TIME, ON JULY 10, 2001, UNLESS THE OFFER IS EXTENDED. To: D'Lene Sandleback Ultrak, Inc. 1301 Waters Ridge Drive Lewisville, Texas 75057 Telephone: (972) 353-6455 Facsimile: (972) 353-6750 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY --------------- Pursuant to the terms and subject to the conditions of the Offer to Exchange dated June 11, 2001 and this Letter of Transmittal, I hereby tender the following options (the "Eligible Option Shares") to purchase shares of common stock, par value $.01 per share, outstanding under the Ultrak, Inc. 1988 Non-Qualified Stock Option Plan (to validly tender such options you must complete the following table according to instructions 2 and 3 of this Letter of Transmittal):
- ---------------------------------------- -------------------------------------- -------------------------------------- Grant Date of Shares under Total Number of Tendered Option(1) Exercise Price of Option Shares Subject to Option - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- --------------------------------------
(1) List each option on a separate line even if more than one option was issued on the same grant date. To Ultrak, Inc.: Upon the terms and subject to the conditions set forth in the Offer to Exchange dated June 11, 2001 (the "Offer to Exchange"), my receipt of which I hereby acknowledge, and in this Letter of Letter of Transmittal - Page 1 Transmittal (this "Letter" which, together with the Offer to Exchange, as they may be amended from time to time, constitutes the "Offer"), I, the undersigned, hereby tender to Ultrak, Inc., a Delaware corporation (the "Company"), the options to purchase shares ("Eligible Option Shares") of common stock, par value $.01 per share, of the Company (the "Common Stock") specified in the table on page 1 of this Letter (the "Eligible Options") in exchange for "New Options," which are new options to purchase shares of Common Stock in an amount based on the number of Eligible Option Shares subject to the Eligible Options that I tender hereby and the exercise price of the Eligible Options that I tender hereby and shall be calculated in accordance with the following formula:
Eligible Option Exercise Price New Options to be Issued (New Option: Eligible Option) ------------------------------ ------------------------------------------------------ Up to $6.62 1 new option per 1 eligible option (1:1) $6.63 to $8.25 .75 new option per 1 eligible option (.75:1) $8.26 and above .50 new option per 1 eligible option (.5:1)
All New Options will vest annually in equal annual amounts over a three-year period beginning on the date the Company grants the New Options. The exercise price of the New Options will he equal to the last reported sale price during regular trading of shares of the Common Stock on the NASDAQ National Market on the day of the grant of the New Options. In addition, all New Options will be subject to the terms of the Ultrak, Inc. 1988 Non-Qualified Stock Option Plan (the "1988 Plan") depending on applicable laws and regulations, and to a new option agreement between the Company and the undersigned. Subject to, and effective upon, the Company's acceptance for exchange of the Eligible Options tendered herewith in accordance with the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), I hereby sell, assign and transfer to, or upon the order of, the Company all right, title and interest in and to all of the Eligible Options that I am tendering hereby. I acknowledge that the Company has advised me to consult with my own advisors as to the consequences of participating or not participating in the Offer. I agree that this Letter is an amendment to the option agreement or agreements to which the Eligible Options I am tendering hereby are subject. I hereby represent and warrant that I have full power and authority to tender the Eligible Options tendered hereby and that, when and to the extent such Eligible Options are accepted for exchange by the Company, such Eligible Options will be free and clear of all security interests, liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to the sale or transfer thereof, other than pursuant to the applicable option agreement, and such Eligible Options will not be subject to any adverse claims. Upon request, I will execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the exchange of the Eligible Options I am tendering hereby. All authority herein conferred or agreed to be conferred shall not he affected by, and shall survive, my death or incapacity, and all of my obligations hereunder shall be binding upon my heirs, personal representatives, successors and assigns. Except as stated in the Offer, this tender is irrevocable. By execution hereof, I understand that tenders of Eligible Options pursuant to the procedure described in Section 3 of the Offer to Exchange and in the instructions to this Letter will constitute my acceptance of the terms and conditions of the Offer. The Company's acceptance for exchange of Letter of Transmittal - Page 2 Eligible Options tendered pursuant to the Offer will constitute a binding agreement between the Company and me upon the terms and subject to the conditions of the Offer. I acknowledge that upon the Company's acceptance of Eligible Options tendered by me pursuant to the Offer, such Eligible Options shall be cancelled and I shall have no right to purchase stock under the terms and conditions of such cancelled options after the date of the Company's acceptance. I acknowledge that the New Options I will receive (1) will not be granted until on or about the first business day that is at least six months and two days after the date the Eligible Options tendered hereby are accepted for exchange and cancelled and (2) will be subject to the terms and conditions set forth in a new option agreement between the Company and me that will be forwarded to me. I also acknowledge that I must be an employee or non-employee director of the Company on the date the New Options are granted and otherwise be eligible under the Company's stock incentive plan on the date the New Options are granted in order to receive New Options. I further acknowledge that, if I am not an employee or non-employee director of the Company on the date the New Options are granted, I will not receive any New Options or any other consideration for the Eligible Options that I tender and that are accepted for exchange pursuant to the Offer. The name and social security number of the registered holder of the Eligible Options tendered hereby appear below exactly as they appear on the option agreement or agreements representing such Eligible Options. The Eligible Options that I am tendering represent all of the Eligible Option Shares subject to each such Eligible Option. In the appropriate boxes of the table on page 1, I have listed for each Eligible Option the grant date, the exercise price, and the total number of Eligible Option Shares subject to the Eligible Option (all of which I am tendering). I understand that I may tender all of my options outstanding under the 1988 Plan and that I am not required to tender any of such options in the Offer. I also understand that all of such Eligible Options properly tendered prior to the "Expiration Date" (as defined in the following sentence) and accepted and not properly withdrawn will be exchanged for New Options, upon the terms and subject to the conditions of the Offer, including the conditions described in Sections 1 and 6 of the Offer to Exchange. The term "Expiration Date" means 5:00 p.m., Lewisville, Texas time, on July 10, 2001, unless and until the Company, in its discretion, has extended the period of time during which the Offer will remain open, in which event the term "Expiration Date" refers to the latest time and date at which the Offer, as so extended, expires. I recognize that, under certain circumstances set forth in the Offer to Exchange, the Company may terminate or amend the Offer and postpone its acceptance and cancellation of any Eligible Options tendered for exchange. In any such event, I understand that the Eligible Options delivered herewith but not accepted for exchange will be returned to me at the address indicated below. THE OFFER IS NOT BEING MADE TO (NOR WILL TENDERS OF OPTIONS BE ACCEPTED FROM OR ON BEHALF OF) HOLDERS IN ANY JURISDICTION IN WHICH THE MAKING OR ACCEPTANCE OF THE OFFER WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION. All capitalized terms used in this Letter but not defined shall have the meaning ascribed to them in the Offer to Exchange. I have read, understand and agree to all of the terms and conditions of the Offer. Letter of Transmittal - Page 3 HOLDER PLEASE SIGN BELOW (See Instructions 1 and 4) You must complete and sign the following exactly as your name appears on the option agreement or agreements evidencing the Eligible Options you are tendering. If the signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or another person acting in a fiduciary or representative capacity, please set forth the signer's full title and include with this Letter proper evidence of the authority of such person to act in such capacity. SIGNATURE OF OWNER X_______________________________________________________________________________ (Signature of Holder or Authorized Signatory) Date:__________________, 2001 Name:___________________________________________________________________________ (Please Print) Capacity:_______________________________________________________________________ Address:________________________________________________________________________ (Please include ZIP code) Telephone No. (with area code):_________________________________________________ Tax ID/Social Security No.:_____________________________________________________ Letter of Transmittal - Page 4 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. Delivery of Letter of Transmittal. A properly completed and duly executed original of this Letter (or a facsimile thereof), and any other documents required by this Letter, must be received by the Company at its address set forth on the front cover of this Letter on or before the Expiration Date. THE METHOD BY WHICH YOU DELIVER ANY REQUIRED DOCUMENTS IS AT YOUR OPTION AND RISK, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE COMPANY. IF YOU ELECT TO DELIVER YOUR DOCUMENTS BY MAIL, THE COMPANY RECOMMENDS THAT YOU USE REGISTERED MAIL WITH RETURN RECEIPT REQUESTED AND THAT YOU PROPERLY INSURE THE DOCUMENTS. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ENSURE TIMELY DELIVERY. Tenders of Eligible Options made pursuant to the Offer may be withdrawn at any time prior to the Expiration Date. If the Offer is extended by the Company beyond that time, you may withdraw your tendered options at any time until the extended expiration of the Offer. In addition, although the Company currently intends to accept your validly tendered Eligible Options promptly after the expiration of the Offer, unless the Company accepts your tendered Eligible Options before 12:00 midnight, eastern time, on August 7, 2001, you may withdraw your tendered Eligible Options at any time after August 7, 2001. To withdraw tendered Eligible Options you must deliver a written notice of withdrawal, or a facsimile thereof, with the required information to the Company while you still have the right to withdraw the tendered Eligible Options. Withdrawals may not be rescinded and any Eligible Options withdrawn will thereafter be deemed not properly tendered for purposes of the Offer unless such withdrawn Eligible Options are properly re-tendered prior to the Expiration Date by following the procedures described above. 1. The Company will not accept any alternative, conditional or contingent tenders. All tendering Option Holders, by execution of this Letter (or a facsimile of it), waive any right to receive any notice of the acceptance of their tender, except as provided for in the Offer to Exchange. 2. Inadequate Space. If the space provided herein is inadequate, the information requested by the first table in this Letter regarding the Eligible Options to be tendered should be provided on a separate schedule attached hereto. 3. Tenders. If you intend to tender options pursuant the Offer, you must complete the table on page 1 of this Letter by providing the following information for each Eligible Option that you intend to tender: grant date, exercise price and total number of Eligible Option Shares subject to the Eligible Option. The Company will not accept partial tenders of Eligible Options. Accordingly, you may tender all or none of the Eligible Options Shares subject to the Eligible Options you decide to tender. 4. Signatures on This Letter of Transmittal. If this Letter is signed by the holder of the Eligible Options, the signature must correspond with the name as written on the face of the Letter of Transmittal - Page 5 option agreement or agreements to which the Eligible Options are subject without alteration, enlargement or any change whatsoever. If this Letter is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to the Company of the authority of such person so to act must be submitted with this Letter. 5. Requests for Assistance or Additional Copies. Any questions or requests for assistance, as well as requests for additional copies of the Offer to Exchange or this Letter may be directed to D'Lene Sandleback, at the address and telephone number given on the front cover of this Letter. Copies will be furnished promptly at the Company's expense. 6. Irregularities. All questions as to the number of Eligible Option Shares subject to Eligible Options to be accepted for exchange, and the validity, form, eligibility (including time of receipt) and acceptance for exchange of any tender of Eligible Options will be determined by the Company in its discretion, which determinations shall be final and binding on all parties. The Company reserves the right to reject any or all tenders of Eligible Options the Company determines not to be in proper form or the acceptance of which may, in the opinion of the Company's counsel, be unlawful. The Company also reserves the right to waive any of the conditions of the Offer and any defect or irregularity in the tender of any particular Eligible Options, and the Company's interpretation of the terms of the Offer (including these instructions) will be final and binding on all parties. No tender of Eligible Options will be deemed to be properly made until all defects and irregularities have been cured or waived. Unless waived, any defects or irregularities in connection with tenders must be cured within such time as the Company shall determine. Neither the Company nor any other person is or will be obligated to give notice of any defects or irregularities in tenders, and no person will incur any liability for failure to give any such notice. IMPORTANT: THIS LETTER (OR A FACSIMILE COPY THEREOF) TOGETHER WITH ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE COMPANY, ON OR PRIOR TO THE EXPIRATION DATE. 7. Important Tax Information. You should refer to Section 13 of the Offer to Exchange, which contains important tax information. Letter of Transmittal - Page 6 [Ultrak Logo] Exhibit (a)(1)(C) Ultrak, Inc. 1301 Waters Ridge Drive Lewisville, Texas 75057 June 11, 2001 Dear Option Holder: As you are aware, Ultrak's stock is currently trading below the option price of most of the outstanding options granted under the 1988 Non-Qualified Stock Option Plan (the "1988 Plan"). I am pleased to inform you that Ultrak's Board of Directors has approved a stock option cancellation program, pursuant to which the Board intends to offer new stock options under the 1988 Plan (the "New Options"). The Board plans to issue the New Options to any current 1988 Plan stock option holder who has not received options after December 9, 2000 that agrees to cancel all or a portion of the current stock options that were granted previously under the 1988 Plan (the "Cancelled Options"). The stock option cancellation program is not being offered to any option holder who received a stock option grant under the 1988 Plan on or after December 9, 2000. The stock option cancellation program does not apply to outstanding stock options under the 1997 Incentive Stock Option Plan. The attached Offer to Exchange and Letter of Transmittal describe the cancellation program and should be carefully reviewed. Note that the offer expires at 5:00 p.m., Lewisville, Texas time, on July 10, 2001 unless the offer is extended. The Company intends to grant the New Options as soon as reasonably possible after the first date on which (as determined by the Company) such options may be granted without incurring an accounting expense with respect to such grants. Based on the Board's understanding of the current financial accounting rules, the New Options could not be granted prior to six months and two days from the date that the Cancelled Options are cancelled. The Company's stock option cancellation program is intended to provide employees who have not received options after December 9, 2000 an opportunity to cancel all unexercised Ultrak stock options granted under the 1988 Plan and receive New Options in the future with new option prices. The option exercise price for the New Options will be the fair market value of Ultrak's stock on the date the New Options are granted. In addition, Ultrak's Shareholders approved an amendment to the 1988 Plan (the "Amendment") on June 1, 2001 that reduced the vesting period for new options granted under the 1988 Plan from five years to three years Letter to Option Holders- Page 1 The Board intends that the number of New Options you would receive would depend on the option price of the Cancelled Options. The New Options will be granted on the following basis: (1) For option prices of Cancelled Options up to $6.62 per share, the exchange ratio would be 1 for 1 (optionee would receive 1 new option in exchange for 1 Cancelled Option). (2) For option prices of Cancelled Options between $6.63 per share and $8.25 per share, the exchange ratio would be .75 for 1 (optionee would receive 3/4 of a new option in exchange for 1 Cancelled Option). (3) For option prices of Cancelled Options of $8.26 per share and above, the exchange ratio would be .5 for 1 (optionee would receive 1/2 of a new option in exchange for 1 Cancelled Option). Cancellation of your current options involves certain risks. You should carefully consider the matters discussed in the attached Offer to Exchange and this letter before electing to cancel your options. What are the primary risks in canceling your options? o Risk--It is not known if the terms of the New Options will be more favorable than the terms of the Cancelled Options. The option price of the New Options will be the market price of Ultrak's Common Stock as of the close of business on the date the New Options are granted. It is impossible to predict the future price of Ultrak stock. o Risk--Since the grant of the New Options would be a new grant, you would start a new vesting period. o Risk--If Ultrak does not employ you (or you are not a non-employee director) on the date the New Options are granted, you will not receive New Options. o Risk--Apart from the risk that the New Options may have a higher option exercise price, it is possible that Ultrak's stock price may increase temporarily before the grant date of the New Options. In that case, you might have been able to exercise some of your vested Cancelled Options and sell the resulting stock at a profit, even if the stock price were to again decline after your exercise. By agreeing to cancel your current options, you forego the opportunity to profit from exercise of your vested Cancelled Options. ALTHOUGH OUR BOARD OF DIRECTORS HAS APPROVED THE OFFER, NEITHER WE NOR OUR BOARD OF DIRECTORS MAKES ANY RECOMMENDATION AS TO WHETHER YOU SHOULD TENDER OR REFRAIN FROM TENDERING YOUR ELIGIBLE OPTIONS FOR EXCHANGE. YOU MUST MAKE YOUR OWN DECISION WHETHER OR NOT TO TENDER YOUR ELIGIBLE OPTIONS. WE HAVE BEEN INFORMED BY THREE OF OUR EIGHT EXECUTIVE OFFICERS AND DIRECTORS THAT THEY PRESENTLY INTEND TO TENDER CERTAIN OF THEIR ELIGIBLE OPTIONS IN THE OFFER. WE HAVE BEEN INFORMED BY THE OTHER FIVE OF OUR EIGHT EXECUTIVE OFFICERS AND Letter to Option Holders- Page 2 DIRECTORS THAT THEY PRESENTLY DO NOT INTEND TO TENDER ANY OF THEIR ELIGIBLE OPTIONS IN THE OFFER (ONE OF WHOM RECEIVED A STOCK OPTION GRANT UNDER THE 1988 PLAN AFTER DECEMBER 9, 2000 AND IS INELIGIBLE TO TENDER ANY OPTIONS IN THE OFFER). If you are eligible to participate and wish to cancel all or a portion of your stock options granted under the 1988 Plan and be eligible to receive grants of New Options, you must complete, sign and properly and timely return the attached Letter of Transmittal so that it is received on or before the deadline. If you decide not to cancel your current options under the 1988 Plan, you need not do anything and your stock options will remain unchanged. Should you have any questions, please contact D'Lene Sandleback at dlene.sandleback@ultrak.com or by telephone at 972-353-6455. Sincerely, Peter D. Beare President of Ultrak, Inc. Letter to Option Holders- Page 3 Exhibit (d)(1) (Restated to include all amendments through June 1, 2001) ULTRAK, INC. 1988 NON-QUALIFIED STOCK OPTION PLAN 1. Purpose. The purpose of this 1988 Stock Option Program (this "Program") is to provide a means by which certain employees of Ultrak, Inc. and its Affiliates (the "Company") may be given an opportunity to purchase common stock of the Company ("Common Stock"). This Program is intended to advance the interests of the Company by encouraging stock ownership on the part of certain employees, by enabling the Company to secure and retain the services of highly qualified persons and by providing employees with an additional incentive to advance the success of the Company. For purposes of this Program, Affiliate shall mean any subsidiary corporation of the Company as defined in Sections 425(e) and 425(f) of the Internal Revenue Code of 1986, as amended (the "Code"). Affiliation shall refer to a group of Affiliates. 2. Stock Subject to Option. Subject to adjustment as provided in Sections 4(f) and 4(h) hereof, options under this Program ("Options") may be granted by the Company from time to time to purchase up to an aggregate of 2,200,000 shares of the Company's authorized but unissued Common Stock, provided that the number of shares that may be granted to any employee under this Program shall be reasonable in relation to the purpose of this Program. Shares that by reason of the expiration of an Option or otherwise are no longer subject to purchase pursuant to an Option granted under this Program may be re-Optioned under this Program. The Company shall not be required, upon the exercise of any such Option, to issue or deliver any shares of Common Stock prior to the completion of any such exemption, registration or other qualification of such shares under state or Federal law, rule or regulation as the Company shall determine to be necessary or desirable. 3. Participants. All employees of the Company may be granted Options under this Program. An employee of the Company shall mean any (i) person employed full-time for whom the Company is obligated to provide W-2 Forms under the Code, and who is designated in writing, at time of employment, as a full-time employee and (ii) other person past, present or future designated in writing, by the President of the Company to have been or be the equivalent of an employee. 4. Terms and Conditions of Options. The Committee (as that term is defined in Section 5) may grant Options from time to time pursuant to this Program. Such Options shall be evidenced by written agreements substantially in the form of the Stock Option Agreement which is attached hereto as Appendix A, and shall not be inconsistent with this Program. Shares of stock that may be purchased under an Option granted pursuant to this Program shall sometimes hereinafter be referred to as "Option Shares". Nothing in this Program or an Option granted hereunder shall govern the employment rights and duties between the option holder ("Optionee") and the Company or Affiliate. Neither this Program, nor ULTRAK, INC. 1988 NON-QUALIFIED STOCK OPTION PLAN - Page 1 any grant or exercise pursuant thereto, shall constitute an employment agreement among such parties. (a) Option Price. The Option price for each Option Share shall be determined by the Committee from time to time. (b) Term of Option. Notwithstanding any other provision of this Program, each Option granted under this Program shall expire not more than ten years from the earlier of the date of employment of Optionee or the date the Option is granted except as provided in Sections 4(e), 4(f), 4(g) and 4(h) under which Options may expire or terminate at an earlier date. (c) Exercise of Option. Each Option shall be exercisable at any time during the term of the Option to the extent of the total number of shares covered by the Option multiplied by thirty-three and one-third percent (33 1/3%) and by the number of years of service (as defined below) of the Optionee. The term "years of service" means the period from the Date of Grant (unless express provision is made otherwise in Optionee's Employment Agreement or in any other written agreement between the Company and the Optionee) through each anniversary thereafter of the Optionee's continuous employment with the Company. Notwithstanding the foregoing, an Optionee shall be entitled to exercise the total number of shares covered by an Option if (i) Optionee dies or becomes disabled while employed by the Company; (ii) the Company is dissolved or liquidated; (iii) the Company is merged, consolidated or reorganized, and the Company is not the surviving entity; (iv) substantially all property and assets of the Company are sold or otherwise disposed of in a context other than sale of contracts for financing purposes; (v) a "Fifty Percent Acquisition" (as defined below) occurs; (vi) if the Committee or the Company's Board of Directors (the "Board") approves otherwise; or (vii) if Optionee is terminated (but not for cause) and his Employment Agreement so provides. A "Fifty Percent Acquisition" means a purchase or other acquisition by any individuals or entity including, but not limited to corporations, partnerships or other business organizations, whereby such individual or entity owns, immediately after, but not before, such purchase or other acquisition, more than fifty percent (50%) of the total combined voting power of the outstanding stock of the Company. (d) Manner of Exercise. Shares of Common Stock purchased upon exercise of Options shall at the time of purchase be paid for in full. To the extent that the right to purchase shares has accrued hereunder, Options may be exercised from time to time by written notice to the Company stating the full number of shares with respect to which an Option is being exercised and the time of delivery thereof, which shall be at least fifteen days after the giving of such notice unless an earlier date shall have been mutually agreed upon, accompanied by full payment for the shares by one of the following (or combination thereof) selected ULTRAK, INC. 1988 NON-QUALIFIED STOCK OPTION PLAN - Page 2 for the Optionee by the Company in its sole discretion: (i) certified or official bank check or the equivalent thereof acceptable to the Company; or (ii) tendering property including, but not limited to, shares of Common Stock with a fair market value at least equal to the aggregate Option price for the Option Shares to be acquired. Where the Optionee exercises his Options by tendering Common Stock, the fair market value of such shares as of the date of the tendering of the Common Stock is received by the Company (the "date of exercise") shall be established in good faith by the Board. In setting the fair market value for any property tendered other than Common Stock as of the date of exercise, due regard shall be given to all facts and circumstances. If an active market exists for the Common Stock, the lowest published, closing, bid price on the date of exercise shall be accepted by the Board and the Optionee as conclusively establishing the fair market value. If an active market does not exist at the date of exercise, an Optionee may condition his exercise on the Board establishing a fair market value equal to or above the amount specified in the Optionee's written notice. Any Common Stock tendered which is not used to satisfy payment for the exercise of an Option shall be returned to the Optionee. At the time of delivery of payment, the Company shall, without imposing any stock transfer or issue tax on the Optionee (or other person entitled to exercise the Option), deliver to the Optionee (or to such other person) at the principal office of the Company, or such other place as shall be mutually agreed upon, a certificate or certificates for such shares; provided, however, that the time of delivery may be postponed by the Company for such period as may be required for it with reasonable diligence to comply with any requirements of law. In the event the Common Stock issuable upon exercise of an Option is not registered under the Securities Act of 1933 (the "Act"), then the Company at the time of exercise will require, in addition, that the registered owner deliver an Investment Representation Letter in the form attached hereto as Appendix B to the Company and the Company will cause a legend to be placed on the certificate for such Common Stock restricting the transfer of same. There shall be no obligation or duty for the Company to register under the Act the Common Stock issuable under exercise of the Options. (e) Termination of Employment. (1) In the event that Optionee's employment by the Company shall terminate with cause (as defined below and in any written employment agreement with Optionee), the Options granted to the Optionee pursuant to this Program shall terminate immediately. In the event that Optionee's employment by the Company shall terminate without cause the Optionee shall have the right to exercise his Option at any time within 30 days after such termination to the extent he was entitled to exercise the same immediately prior to the termination (unless express provision is made otherwise in any written Employment Agreement with Optionee allowing Optionee to exercise his Option as to the total number of shares covered by such Option). ULTRAK, INC. 1988 NON-QUALIFIED STOCK OPTION PLAN - Page 3 Termination with "cause" means that the Company terminates the Optionee's employment with the Company under any of the following circumstances: (i) where there has been a material breach by the Optionee of any of the terms of any employment contract; or (ii) where the Optionee is guilty of fraud or embezzlement, or has conducted himself or herself in a way punishable as a felony; or (iii) Optionee has engaged in conduct constituting or exhibiting malfeasance, gross negligence, gross incompetence, or moral turpitude; or (iv) Optionee suffers from drug or alcohol abuse or addiction that could, in the opinion of the Board, either (A) materially impair the Optionee's ability to perform his duties or (B) injure the assets, properties, operations or business reputation of the Company. Termination without cause means any termination including, but not limited to, the Optionee's voluntary resignation or the Optionee's transfer to a Company Affiliate, which is not with cause and to which the provisions of Sections 4(e)(2) (Death and Disability), 4(e)(3) (Retirement) and 4(g) (Dissolution, etc., of the Issuer of Option Stock) do not apply. (2) In the event that Optionee shall die while in the employment of the Company or if Optionee's employment by the Company is terminated because Optionee has become disabled within the meaning of Section 105(d)(4) of the Code, Optionee, Optionee's estate, or beneficiary shall have the right to exercise Optionee's Options at any time within twelve (12) months from the date of death of Optionee or termination of Optionee's employment due to disability, as the case may be, to the extent of the total number of shares covered by the Option. Notwithstanding the foregoing, the provisions of this Section 4(e)(2) shall be subject to Sections 4(h) (Adjustment of Option Upon Reorganization) and 4(g)) (Dissolution, etc., of Issuer of Option Stock) as may earlier terminate the Option. (3) In the event that termination of employment is due to retirement with the consent of his employer, the Optionee shall have the right to exercise Optionee's Option at any time within three (3) months after such retirement to the extent he was entitled to exercise the same immediately prior to retirement. Notwithstanding the foregoing, the provisions of this Section 4(e)(3) shall be subject to Section 4(h) (Adjustment of Option Upon Reorganization) and 4(g) (Dissolution, etc., of Issuer of Option Stock) as may earlier terminate the Option. ULTRAK, INC. 1988 NON-QUALIFIED STOCK OPTION PLAN - Page 4 (f) Adjustment of Options on Recapitalization. The aggregate number of shares of Common Stock for which Options may be granted to persons participating under this Program, the number of shares covered by each such Option and the exercise price per share for each such Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from the subdivision or consolidation of shares, or the payment of a stock dividend after the date of grant of the Option, or other increase in such shares effected without receipt of consideration by the Company; provided, however, that any Options to purchase fractional shares resulting from any such adjustment shall be eliminated. (g) Dissolution, Sale of Assets or Stock of Issuer of Option Stock. In the event of the: (i) dissolution or liquidation of the Company; (ii) merger, consolidation or reorganization of the Company where the Company is not the surviving entity; (iii) sale, lease, exchange or other form of disposition of substantially all property and assets of the Company other than sale of contracts for financing purposes; or (iv) a Fifty Percent Acquisition, the Options granted hereunder shall terminate as of a date to be fixed by the Committee, provided that not less than thirty (30) days' prior written notice of the date so fixed shall be given to the Optionee, and the Optionee shall have the right, during the period of thirty (30) days preceding such termination of the Option, to exercise Optionee's Option to the extent of the total shares covered by the Option. Notwithstanding the foregoing, the provisions of this Section shall be subject to Section 4(h) (Adjustment of Options Upon Reorganization) if the Optionee receives notice under Section 4(h) (Adjustment of Options Upon Reorganization) at a time earlier than the notice provided for herein. (h) Adjustment of Options Upon Certain Reorganization. (1) If the Company shall at any time merge or consolidate with or into another corporation without the sale of substantially all assets or the sale of more than fifty percent (50%) of the Common Stock and (A) the Company is not the surviving entity, or (B) the Company is the surviving entity and the holders of Common Stock are required to exchange their shares for property any/or securities, the holder of each Option will thereafter receive, upon the exercise thereof, the securities and/or property to which a holder of the number of shares of Common Stock then deliverable upon the exercise of such Option would have been entitled to receive upon such merger or consolidation, and the Company shall take such steps in connection with such merger or consolidation as may be necessary to assure that the provisions of this Program shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or property thereafter deliverable upon the exercise of such Option. (2) The resulting Affiliation following any reorganization may at any time, in its sole discretion, tender substitute Options as it may deem appropriate. However, in no event may the substitute Options entitle the Optionee to ULTRAK, INC. 1988 NON-QUALIFIED STOCK OPTION PLAN - Page 5 any fewer shares (or at any greater aggregate price) or any less other property than the Optionee would be entitled to under the immediately preceding paragraph upon an exercise of the Options held prior to the substitution of the new Option. (i) Rights as a Shareholder. The Optionee shall have no rights as a shareholder with respect to any shares of Common Stock held under Option until the date of issuance of the stock certificates to Optionee for such shares. Except as provided in Section 4(f) (Adjustment of Options on Recapitalization), no adjustment shall be made for dividends or other rights for which the record date is prior to the date of such issuance. (j) Time of Granting Options. The Date of Grant of an Option shall be determined by the Committee, but no Option shall be effective unless and until the Optionee executes a written Stock Option Agreement substantially in the form attached hereto as Appendix A covering such Option. (k) Stock Legend. Certificates evidencing shares of the Company's Common Stock purchased upon the exercise of Options issued under this Program shall be endorsed with a legend in substantially the following form if such Common Stock is not registered: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES ACT OF ANY STATE. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED FOR VALUE, PLEDGED, HYPOTHECATED OR OTHERWISE ENCUMBERED IN THE ABSENCE OF AN (a) EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 AND/OR THE SECURITIES ACT OF ANY STATE OR (b) OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT THE SALE OR TRANSFER IS EXEMPT FROM REGISTRATION UNDER SUCH ACT OR ACTS. 5. Administration. (a) This Program shall be administered by a Compensation Committee (the "Committee") consisting of not less than three (3) individuals to be appointed by the Board. The Board may, from time to time, remove members from or add members to the Committee. Vacancies in the Committee, however caused, shall be filled by the Board. The Committee shall select one of its members as chairman and shall hold meetings at such times and places as it may determine. The Committee may appoint a secretary and, subject to the provisions of this Program and to policies determined by the Board, may make such rules and regulations for the conduct of its business as it shall deem advisable. A majority of the Committee shall constitute a quorum. All action of the Committee shall be ULTRAK, INC. 1988 NON-QUALIFIED STOCK OPTION PLAN - Page 6 taken by a majority of its members. Any action may be taken by a written instrument signed by a majority of the members, and action so taken shall be fully as effective as if it had been taken by a vote of the majority of the members at a meeting duly called and held. The Board may act in lieu of the Committee and shall act in lieu of the Committee at any time the Committee is not instituted or convened. (b) Subject to the express terms and conditions of this Program, the Committee shall have full power to grant Options under this Program, to construe or interpret this Program, to prescribe, amend, rescind and waive rules and regulations relating to it and to make all other determination necessary or advisable for its administration. (c) Subject to the provisions of Sections 3 and 4 hereof, the Committee may, from time to time, (1) determine (i) which employees of the Company shall be granted Options under this Program, (ii) the number and exercise price of Option Shares subject to each Option, and (iii) the time or times at which Options shall be granted, (2) grant Options under this Program and (3) waive any term or condition of an Option. (d) The Committee shall report to the Board of Directors the names of employees granted Options and the number of Option Shares subject to, and the terms and conditions of, each Option. (e) No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to this Program or to any Option. 6. Effective Date. The effective date of this Program is April 15, 1988. 7. Amendments. The Board may, from time to time, alter, amend, suspend, or discontinue this Program, or alter or amend any and all Stock Option Agreements granted thereunder; provided, however, that no such action of the Board may alter the provisions of this Program so as to alter any outstanding Stock Option Agreement to the detriment of the Optionee without his consent. 8. Use of Proceeds. The proceeds from the sale of Common Stock pursuant to the exercise of Options will be used for the Company's general corporate purposes. 9. Authorization. This Program was previously adopted, authorized and implemented by the Board as of April 15, 1988. This restated Program contains all amendments and modifications to the Program through June 1, 2001. ULTRAK, INC. 1988 NON-QUALIFIED STOCK OPTION PLAN - Page 7 Exhibit (d)(2) ULTRAK, INC. NON-QUALIFIED STOCK OPTION AGREEMENT Grant of Option. Pursuant to the Ultrak, Inc. 1988 Non-Qualified Stock Option Plan (the "Plan") of Ultrak, Inc. (the "Company") and its subsidiaries, the Company grants to ------------------ (the "Option Holder") a non-qualified option to purchase from the Company a total of _______ shares of Common Stock, $.01 par value ("Common Stock"), of the Company at $__.__ per share (being at least the fair market value per share of the Common Stock on the date of this grant), in the amounts, during the periods and upon the terms and conditions set forth in this Agreement. This option is not intended to constitute an incentive stock option within the meaning of Section 422 of the Internal Revenue Code. Time of Exercise. Except only as specifically provided elsewhere in this Agreement, this option is exercisable in the following cumulative installments: First Installment. Up to one-third of the total optioned shares at any time after one year from the date of grant. Second Installment. Up to an additional one-third of the total optioned shares at any time after two years from the date of grant. Third Installment. Up to an additional one-third of the total optioned shares at any time after three years from the date of grant. If an installment covers a fractional share, such installment will be rounded off to the next highest share, except the final installment, which will be for the balance of the total optioned shares. Except as otherwise provided in Section 6, in the event of the Option Holder's termination of employment or directorship for any reason, this option will be exercisable only to the extent that the Option Holder could have exercised it on the date of his termination of employment or directorship. 1. Exercise of Option. The exercise of this option shall entitle the Option Holder to purchase shares of Common Stock of the Company. If requested by the Option Holder and approved by the Company, the Option Holder may exercise this option or any portion hereof by tendering shares of Common Stock, in lieu of cash payment for the option shares being purchased, with the number of shares tendered to be determined by the fair market value per share of the Common Stock on the date of exercise, as determined by the Company. 2. Subject to Plan. This option and the grant and exercise thereof are subject to the terms and conditions of the Plan, which is incorporated herein by reference and made a part hereof, but the terms of the Plan shall not be considered an enlargement of any benefits under this Agreement. In addition, this option is subject to any rules and regulations promulgated pursuant to the Plan, now or hereafter in effect. ULTRAK, INC. NON-QUALIFIED STOCK OPTION AGREEMENT - Page 1 3. Term. This option will terminate at the first of the following: (a) 5 p.m. on ___________, 20__ (b) 5 p.m. on the date one year following the date the Option Holder's employment or directorship with the Company and its subsidiaries terminates by reason of the Option Holder's death or disability (within the meaning of Section 22(e)(3) of the Internal Revenue Code). (c) 5 p.m. on the date the Option Holder's employment or directorship with the Company and its subsidiaries terminates with "cause." For purposes of this option, an Option Holder's employment or directorship shall be deemed terminated with cause if the Company terminates his employment or directorship because of (i) a material breach by the Option Holder of any of the terms of his employment contract, if any; (ii) his conviction for fraud or embezzlement, or because he has conducted himself in any way punishable as a felony; (iii) his engaging in conduct constituting or exhibiting malfeasance, gross negligence, gross incompetence or moral turpitude; or (iv) his suffering from drug or alcohol abuse or addiction that could, in the opinion of the Company, materially impair his ability to perform his duties or injure the assets, properties, operations or business reputation of the Company. (d) 5 p.m. on the date 30 days following the date the Option Holder's employment or directorship with the Company and its subsidiaries terminates for any reason whatsoever other than death, disability or with cause. 4. Who May Exercise. During the lifetime of the Option Holder, this option may be exercised only by the Option Holder. If the Option Holder dies or becomes disabled (within the meaning of Section 22(e)(3) of the Internal Revenue Code) prior to the termination date specified in Section 5 hereof without having totally exercised the option, this option may be exercised, to the extent of the total remaining shares that have not been purchased by exercise by the Option Holder prior to the date of his death or disability at any time prior to the earlier of the dates specified in Section 5(a) and 5(b) hereof by (i) the Option Holder's estate or a person who acquired the right to exercise the option by bequest or inheritance or by reason of the death of the Option Holder in the event of the Option Holder's death; or (ii) the Option Holder or his personal representative in the event of the Option Holder's disability, subject to the other terms of this Agreement, the Plan and applicable laws, rules and regulations. For purposes of this Agreement, the Company shall determine the date of disability of the Option Holder. 5. Restrictions on Exercise. This option: (a) may be exercised only with respect to full shares and no fractional share of stock shall be issued; ULTRAK, INC. NON-QUALIFIED STOCK OPTION AGREEMENT - Page 2 (b) may not be exercised in whole or in part and no cash or certificates representing shares subject to such option shall be delivered, if any requisite approval or consent of any government authority of any kind having jurisdiction over the exercise of options shall not have been secured; and (c) may be exercised only if at all times during the period beginning with the date of the granting of the option and ending on the date 30 days prior to the date of exercise the Option Holder was an employee or director of either the Company or a subsidiary of the Company; provided, if the Option Holder's continuous employment or directorship is terminated (i) with cause, the option will terminate as provided in Section 5(c); (ii) by disability, the option may be exercised in accordance with Section 6, or (iii) by death, or if the Option Holder dies within said 30-day period, the option may be exercised in accordance with Section 6. 6. Manner of Exercise. Subject to such administrative regulations as the Board of Directors of the Company or the Compensation Committee thereof may from time to time adopt, the Option Holder or beneficiary shall, in order to exercise this option: (a) provide written notice of exercise to the Company, accompanied by payment in full of the appropriate exercise price and any applicable tax withholding as provided in Section 12 below, in United States dollars before issuance of such shares. Notice shall be provided by submitting the Ultrak Option Exercise Request Form attached hereto and specifying the number of shares of Common Stock for which the Option is being exercised. (b) give written notice to the Company of the exercise price and the number of shares for which he is requesting approval from the Company to tender other shares of Common Stock in exchange for option shares. Any notice shall include an undertaking to furnish or execute such documents as the Company in its discretion shall deem necessary (i) to evidence such exercise, in whole or in part, of the option evidenced by this Agreement; (ii) to determine whether registration is then required under the Securities Act of 1933, or any other law, as then in effect; and (iii) to comply with or satisfy the requirements of the Securities Act of 1933, or any other law, as then in effect. In addition, if an exercise under paragraph (b) above is requested, the notice shall include an undertaking to tender to the Company (i) promptly after receipt of denial by the Company of the paragraph (b) request, full payment in United States dollars of the option exercise price for the shares being purchased hereunder; or (ii) promptly after receipt of approval by the Company of exercise of this option or portion thereof by payment of Common Stock, full payment in Common Stock in exchange for the shares being purchased hereunder. In addition, the Option Holder shall tender payment of the amount as may be requested pursuant to Section 12 by the Company for the purpose of satisfying its liability to withhold federal, state or local income or other taxes incurred by reason of the exercise of this option. The Company shall advise the Option Holder or beneficiary in writing, within ten business days after the first Board of Directors meeting following the date of exercise, whether the Company ULTRAK, INC. NON-QUALIFIED STOCK OPTION AGREEMENT - Page 3 approves the exchange of Common Stock for option stock being purchased. The Company must receive full payment in United States dollars or the appropriate number of shares of Common Stock, whichever applies, of the option exercise price within five business days after the date of the Company's notice, unless the Company extends the time of payment. 7. Non-Assignability. This option is not assignable or transferable by the Option Holder except by will or by the laws of descent and distribution. 8. Rights of Stockholder. The Option Holder will have no rights as a stockholder with respect to any shares covered by this option until the issuance of a certificate or certificates to the Option Holder for the shares. Except as otherwise provided in Section 9 hereof, no adjustment shall be made for dividends or other rights for which the record date is prior to the issuance of such certificate or certificates. 9. Capital Adjustments; Antidilution. The number of shares of Common Stock covered by this option, and the option price thereof, shall be subject to such adjustment as the Board of Directors of the Company deems appropriate to reflect any stock dividend, stock split, share combination, exchange of shares, recapitalization, merger, consolidation, separation, reorganization, liquidation or the like, of or by the Company. In the event the Company shall be a party to any merger, consolidation or corporate reorganization, as the result of which the Company shall be the surviving corporation the rights and duties of the Option Holder and the Company shall not be affected in any manner. In the event the Company shall sell all or substantially all of its assets or shall be a party to any merger, consolidation or corporate reorganization, as the result of which the Company shall not be the surviving corporation, or in the event any other person or entity may make a tender or exchange offer for stock of the Company whereby such other person or entity would own more than 50% of the outstanding Common Stock of the Company (the surviving corporation, purchaser, or tendering corporation being collectively referred to as the "Purchaser", and the transaction being collectively referred to as the "Transaction"), then the Company may, at its election, (a) reach an agreement with the Purchaser that the Purchaser will assume the obligations of the Company under the option; (b) reach an agreement with the Purchaser that the Purchaser will convert the option into an option of at least equal value as to stock of the Purchaser; or (c) not later than twenty days prior to the effective date of such Transaction, notify the Option Holder that his option is accelerated and afford to the Option Holder a right for ten days after the date of such notice to exercise any then unexercised portion of the option whether or not such option shall then be exercisable under the terms of this Agreement. Within such ten-day period, the Option Holder may exercise any unexercised portion of the option as he may desire and deposit with the Company the requisite cash to purchase in full and not in installments the Common Stock thereby exercised (or comply with Section 8 with respect to exercising this option by tendering shares of Common Stock in lieu of each payment for the optioned shares being purchased), in which case the Company shall, prior to the effective date of the Transaction, issue all Common Stock thus exercised which shall be treated as issued stock for purposes of the Transaction. 10. Law Governing. This Agreement is intended to be performed in the State of Texas and shall be construed and enforced in accordance with and governed by the internal laws of such State. ULTRAK, INC. NON-QUALIFIED STOCK OPTION AGREEMENT - Page 4 11. Date of Grant. The date of grant of this option is ____________, 20__. 12. Withholding. It shall be a condition to the obligation of the Company to issue or transfer shares of stock upon exercise of this option that the Option Holder pay to the Company, upon the Company's demand, such amount as may be requested by the Company for the purpose of satisfying its liability to withhold federal, state or local income or other taxes incurred by reason of the exercise of this option. If the amount requested is not paid, then the Company may refuse to issue or transfer shares of stock upon exercise of this option. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer and the Option Holder, to evidence his consent and approval of all the terms hereof, has duly executed this Agreement, as of the date specified in Section 11 hereof. ULTRAK, INC. By:_____________________________ Its:________________________ THE UNDERSIGNED OPTION HOLDER ACKNOWLEDGES AND AGREES THAT INFORMATION REGARDING COMPENSATION, INCLUDING, BUT NOT LIMITED TO, THE GRANTING OF STOCK OPTIONS TO OPTION HOLDER, IS HIGHLY PERSONAL AND CONFIDENTIAL AND SHOULD NOT BE DISCUSSED OR SHARED AMONG OTHER EMPLOYEES. FURTHERMORE, OPTION HOLDER AGREES TO HOLD IN CONFIDENCE AND NOT TO DIRECTLY OR INDIRECTLY REVEAL, REPORT, DISCLOSE OR OTHERWISE DISCUSS SUCH CONFIDENTIAL INFORMATION WITH OR TO ANY OTHER EMPLOYEES. VIOLATION OF THIS POLICY MAY SUBJECT OPTION HOLDER TO DISCIPLINARY ACTION, UP TO AND INCLUDING TERMINATION. OPTION HOLDER FURTHER AGREES TO ABIDE BY ANY OTHER POLICIES AND PROCEDURES RELATING TO SUCH INFORMATION AS IMPLEMENTED AND/OR AMENDED FROM TIME TO TIME BY THE COMPANY. THE UNDERSIGNED OPTION HOLDER HEREBY ACCEPTS THIS OPTION AND ITS TERMS AND CONDITIONS AND THE BENEFITS OF THE PLAN. By______________________________ (Option Holder) ULTRAK, INC. NON-QUALIFIED STOCK OPTION AGREEMENT - Page 5 [Attachment B to Ultrak, Inc. 1988 Non-Qualified Stock Option Plan] INVESTMENT REPRESENTATION LETTER In connection with the acquisition of the securities of Ultrak, Inc. (the "Company") by the Undersigned, the Undersigned hereby agrees, acknowledges, warrants and represents to the Company, its counsel, the Company's transfer agent and all federal and state regulatory authorities that the Undersigned: (a) Understands that the securities being acquired hereunder have not been registered under the Securities Act of 1933 (the "Act") or the securities laws of any state and will be issued in reliance on Section 4(2) of the Act and other appropriate federal exemptions and appropriate state exemptions. (b) Has obtained such information relative to the Company and the Undersigned's proposed investment therein as the Undersigned requested through discussions with representatives of the Company and otherwise; (c) Understands that all documents, records and books and all information pertaining to this investment which the Undersigned deemed material to making an informed investment decision have been made available for inspection by the Undersigned's attorney and/or Purchaser Representative and the Undersigned; that the books and records of the Company will continue to be available upon notice to the Company at reasonable business hours at its principal place of business; and that the Undersigned is in a position as regards the company, which based upon the Undersigned's employment, family relationship or economic bargaining power, enabled and enables the Undersigned to obtain information regarding the Company in order to evaluate the merits and risks of this investment; (d) Has been informed that the Undersigned's investment is a high risk investment, and no representations can or have been made to the Undersigned with respect to the future success of the Company. In evaluating such investment the Undersigned has consulted with the Undersigned's own investment and/or legal and/or tax advisor to the extent that the Undersigned deems advisable and has relied solely upon the counsel of the Undersigned's advisors. (e) Understands that there is a limited public market for the securities acquired by the Undersigned hereunder and that there can be no assurance that such a market will ever develop. (f) Is sufficiently experienced in financial and business matters to be capable of evaluating the merits and risks of the Undersigned's investment, and to make an informed decision relating thereto or the Undersigned has utilized the services of a Purchaser Representative and together they are sufficiently experienced in financial and business matters and are capable of evaluating the merits and risks of the Undersigned's investment, and to make an informed decision relating thereto. (g) Understands that no state or federal government authority has made any finding or determination relating to the fairness for investment of the securities in the Company and that no 1 state or federal government authority has recommended or endorsed, or will recommend or endorse, these securities. (h) Considers this investment a suitable investment for the Undersigned. (i) Has no need for any liquidity in the Undersigned's investment for an indefinite period of time. The Undersigned understands that the Undersigned must bear the economic risk of the investment for an indefinite period of time because the securities being purchased hereunder have not been registered under the Act and, therefore, cannot be sold unless they are subsequently registered under the Act (and the securities laws of the Undersigned's state of residence, if applicable) or an exemption from such registration is available. (j) Can afford a complete loss of the investment and can afford to hold the securities being purchased hereunder for an indefinite period of time. (k) Acknowledges that the securities being acquired by the Undersigned are being acquired for investment purposes only within the meaning of the Act, and not with the intention of assigning any participation or interest therein, and not with a view to the distribution thereof. No securities will be sold, assigned or otherwise transferred unless a registration statement under the Act (and the securities laws of the Undersigned's state of residence, if applicable) with respect thereto is in effect, or the Company has received a written opinion of counsel satisfactory to the Company that, after an investigation of the relevant facts which shall be recited in such opinion such counsel is of the opinion that such sale, assignment or transfer does not involve a transaction requiring registration thereof under the Act (and the securities laws of the Undersigned's state of residence, if applicable) governing resales of securities acquired from an issuer or an affiliate of an issuer thereof. (l) Acknowledges that the Company will restrict the transfer of the securities in accordance with the foregoing representations and the Undersigned agrees that all certificates representing securities in the Company will be endorsed with the following legend or a substantially equivalent legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES ACT OF ANY STATE. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED FOR VALUE, PLEDGED, HYPOTHECATED OR OTHERWISE ENCUMBERED IN THE ABSENCE OF AN (a) EFFECTIVE REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND/OR THE SECURITIES ACT OF ANY STATE OR (b) OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT THE SALE OR TRANSFER IS EXEMPT FROM REGISTRATION UNDER SUCH ACT OR ACTS." and with such other or further legends as may be required by the Undersigned's state of residence. Further, the Undersigned agrees that a Stop Transfer Order prohibiting transfer of the securities will be placed by the Company with its Stock Transfer Agent. 2 (m) Understands that the Company is under no obligation to register or otherwise qualify the securities purchased by the Undersigned hereunder or take any other action necessary to make an exemption from registration available. (n) Acknowledges that the Undersigned has signed this as a condition to exercising options issued to the Undersigned pursuant to the Company's 1988 Non-Qualified Stock Option Plan. IN WITNESS WHEREOF, this Investment Representation Letter is signed by the Undersigned on the ______ day of ________________, ______. ___________________________________________ Signature of the Undersigned ________________________________________________________________________________ Name ________________________________________________________________________________ Address in bona fide State of resident ________________________________________________________________________________ Address for communication (if difference from above) ________________________________ ____________________________________ Phone Number Social Security Number _____________________________ Number of Securities Acquired 3 ------------------- STATE OF______________________________ ) ) ss. COUNTY OF_____________________________ ) The foregoing instrument was acknowledged before me this ____ day of _____, _____. _____________________________________ Notary Public Address _____________________________________ _____________________________________ My Commission Expires: ______________________ 4 ULTRAK STOCK OPTION EXERCISE REQUEST FORM YOU MAY FAX OR EMAIL THIS FORM TO INITIATE PROCESSING OF YOUR EXERCISE REQUEST. HOWEVER, A FORM WITH YOUR ORIGINAL SIGNATURE MUST BE RECEIVED IN HAND BEFORE WE WILL AUTHORIZE THE ISSUANCE OF SHARE CERTIFICATES. FAX TO: D'LENE SANDLEBACK (972) 353-6750 or EMAIL: dlene.sandleback@ultrak.com YOU MUST ATTACH A COPY OF YOUR SIGNED OPTION GRANT AGREEMENT WHEN SUBMITTING THIS FORM. NAME:_______________________________________________ CHECK ONE: ____________ CURRENT EMPLOYEE ___________ FORMER EMPLOYEE ____________ NON-EMPLOYEE/DIRECTOR MAILING ADDRESS:_______________________________________________________________ DAYTIME PHONE NUMBER: ( ) _______________ NAME OF BROKERAGE FIRM: ______________________________________________ BROKER/AGENT AND PHONE/FAX NUMBER: ____________________________________________ SOCIAL SECURITY #: ___________________________ NO. OF SHARES TO BE EXERCISED STRIKE PRICE DATE OF ISSUANCE - ----------------------------- ------------ ---------------- You may choose to pick up share certificates directly from Ultrak's Transfer Agent or have them delivered. Please provide specific instructions below for delivery of share certificates: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THERE IS A $15.00 FEE FOR EACH CERTIFICATE TO BE PAID BY THE OPTION HOLDER. OVERNIGHT OR LOCAL COURIER CHARGES ARE THE DIRECT RESPONSIBILITY OF OPTION HOLDER. EXPRESS PROCESSING MAY INVOLVE ADDITIONAL FEES PAYABLE DIRECTLY TO THE TRANSFER AGENT. TRANSFER AGENT: Securities Transfer Corporation, 2591 Dallas Parkway, Suite 102, Frisco, TX 75034, ATTN: George Johnson (469) 633-0101 and Fax (469) 633-0088. NO ELECTRONICE TRANSFER OR DWAC AVAILABLE FOR TRANSFER OF ULTRAK SHARES. 1 OPTION HOLDERS ARE RESPONSIBLE FOR PAYMENT OF THE EXERCISE PRICE AND ANY APPLICABLE WITHHOLDING TAXES TO ULTRAK PRIOR TO ISSUANCE OF SHARE CERTIFICATES. UPON RECEIPT OF THIS FORM WE WILL CONFIRM THE EXERCISE TERMS AND NOTIFY YOU OF THE WITHHOLDING TAX AMOUNT TO BE PAID. PLEASE ALLOW FOR 1-2 BUSINESS DAYS FOR ULTRAK TO PROVIDE THIS INFORMATION. I acknowledge these terms for exercising my right to purchase shares of Ultrak Common Stock and ask that the Company process my request. SIGNATURE:_____________________________ DATE:_____________________ 2 EX-10.41 6 file005.txt AMENDMENT NO. 1 TO SCHEDULE TO SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------------------- SCHEDULE TO (Rule 13e-4) Tender Offer Statement under Section 14(d)(1) or 13(e)(1) of the Securities Exchange Act of 1934 (Amendment No. 1) ----------------------------- ULTRAK, INC. (Name of the Subject Company (Issuer)) -------------------------------------- ULTRAK, INC. (Name of Filing Person (Offeror)) Options Under the Ultrak, Inc. 1988 Non-Qualified Stock Option Plan, as amended, to Purchase Common Stock, par value $0.01 per share. (Title of Class of Securities) 903898 40 1 (CUSIP Number of Class of Securities) (Underlying Common Stock) Chris Sharng Senior Vice President Ultrak, Inc. 1301 Waters Ridge Drive Lewisville, Texas 75057 Telephone: (972) 353-6500 ------------------------------ (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of Filing Person) ------------------------------ Copy to: Richard L. Waggoner, Esq. Gardere Wynne Sewell LLP 3000 Thanksgiving Tower 1601 Elm Street Dallas, Texas 75201-4761 Telephone: (214) 999-4510 [__] Check if the filing relates solely to preliminary communications made before the commencement of a tender offer. [__] Check the appropriate boxes below to designate any transactions to which the statement relates [_] third party tender offer subject to Rule 14d-1. [X] issuer tender offer subject to Rule 13e-4. [_] going private transaction subject to Rule 13e-3. [_] amendment to Schedule 13D under Rule 13d-2. Check the following box if the filing is a final amendment reporting the results of the tender offer. [__] INTRODUCTORY STATEMENT This Amendment No. 1 amends and supplements the Tender Offer Statement on Schedule TO (the "Schedule TO") filed with the Securities and Exchange Commission on June 11, 2001, relating to our offer to exchange options to purchase shares of our Common Stock, par value $0.01 per share, held by option holders who have not received options after December 9, 2000 under our 1998 Non-Qualified Stock Option Plan, as amended (our "1998 Plan"), for new options to purchase shares of our Common Stock to be granted under our 1988 Plan upon the terms and subject to conditions described in our Offer to Exchange dated June 11, 2001 and the related Letter of Transmittal. Item 10. Financial Statements. Item 10 of the Schedule TO is hereby amended and supplemented to read in its entirety as follows: The financial statements, including the notes thereto, in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (pages F-1 through F-32) and in the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2001 (pages 3 through 12), which are attached as exhibits to the Supplement, dated June 28, 1001, to the Company's Offer to Exchange, dated June 11, 2001 (which Supplement is attached as Exhibit (a)(1)(D) hereto) are incorporated herein by reference. ITEM 12. Exhibits. Item 12 of the Schedule TO is hereby amended and restated to read in its entirety as follows so as to add Exhibit (a)(1)(D) attached hereto: (a)(1)(A)* Offer to Exchange, dated June 11, 2001 (a)(1)(B)* Form of Letter of Transmittal (a)(1)(C)* Form of Letter to Eligible Option Holders (a)(1)(D) Supplement, dated June 28, 2001, to Offer to Exchange, dated June 11, 2001 (b) Not applicable (d)(1)* Ultrak, Inc. 1988 Non-Qualified Stock Option Plan, as amended (d)(2)* Form of Non-Qualified Stock Option Agreement pursuant to Ultrak, Inc. 1988 Non Qualified Stock Option Plan (g) Not applicable (h) Not applicable - ---------------------- * Previously filed. SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Amendment No. 1 to the Schedule TO is true, complete and correct. Dated: June 28, 2001 ULTRAK, INC. By: /s/ Chris Sharng ----------------------- Chris Sharng Senior Vice President, Chief Financial Officer and Secretary EXHIBIT INDEX Exhibit Number Description -------------- ----------- (a)(1)(D) Supplement, dated June 28, 2001, to Offer to Exchange, dated June 11, 2001 EX-10.42 7 file006.txt STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated September 27, 2001, is between Ultrak, Inc., a Delaware corporation (the "Company"), and Niklaus Zenger ("Purchaser"). RECITALS. The Company is a public company in the United States with certain of its Common Stock (the "Stock") registered with the United States Securities and Exchange Commission (the "SEC") and listed on the NASDAQ National Market System. At the closing of the transactions contemplated by this Agreement (the "Closing"), the Company desires to sell to Purchaser, and Purchaser desires to acquire from the Company, 2,337,700 authorized but unissued shares of the Stock (the "Purchased Shares") in exchange for $4,441,630.00 (the "Purchase Price"). Purchaser understands that the Purchased Shares have not been registered with the SEC and are not freely transferable. NOW THEREFORE, in consideration of the premises and the respective covenants and agreements contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby covenant and agree as follows: 1. Purchase. Subject to the terms hereof, on the Closing Date (as hereinafter defined), the Company shall sell and deliver to Purchaser, and Purchaser agrees to purchase from the Company, the Purchased Shares. 2. Purchase Price. As consideration for the Purchased Shares, Purchaser shall pay the Company the Purchase Price at the Closing in immediately available funds. 3. Closing. The Closing shall be held at the offices of the Company in Lewisville, Texas, at 10:00 a.m., local time, on the date hereof (the "Closing Date"). At the Closing, each party shall execute and deliver each document required to consummate this Agreement. The Company shall deliver a certificate or certificates representing the Purchased Shares. 4. Additional Shares. The Company, at the Company's option, may elect, for thirty (30) days from the date hereof, to obtain all approvals necessary (including NASDAQ approval) to sell Purchaser up to an additional 293,879 shares of the Stock (the "Additional Shares") at a price per Additional Share of $1.90 payable in cash. All of Purchaser's representations herein shall apply to both the Purchased Shares and any Additional Shares. 5. Representations of the Company. The Company represents and warrants to Purchaser that: (a) The Company is a corporation duly organized, validly existing, and in good standing under Delaware law. The Company has full corporate power and authority to perform this Agreement. (b) The execution, delivery, and performance by the Company of this Agreement has been duly authorized and approved by all necessary corporate action on the part of the Company. This Agreement has been duly executed and delivered by the Company, and is the legal, valid, and binding obligation of the Company, and is enforceable against the Company in accordance with its terms, subject to laws affecting generally the enforcement of creditors' rights and to general principles of equity. (c) The execution and deliver of this Agreement, and the consummation of the transactions contemplated by this Agreement, will not result in a breach or violation of, or constitute a default under (i) the Certificate of Incorporation or Bylaws of the Company or (ii) any agreement or instrument to which the Company is a party or by which the Company is bound. (d) Other than filings with the SEC and NASDAQ and the consent of the Company's lenders, no authorization, consent, approval, permit, or license of, or filing with, any governmental or public body or authority or any other person or entity is required to authorize, or is required in connection with the Company's execution, delivery, and performance of this Agreement. (e) The Company has furnished to Purchaser (i) the Company's annual report on Form 10-K for the year ended December 31, 2000, (ii) the Company's annual report to stockholders for the year ended December 31, 2000, (iii) the Company's definitive proxy statement for the June 1, 2001 annual meeting of the Company's stockholders, and (iv) the Company's Form 10-Q for the quarters ended March 31, 2001 and June 30, 2001 (collectively, the "SEC Filings"). The Company represents that all of the SEC Filings were timely filed and in accordance with the SEC's rules and regulations. 6. Representations of Purchaser. Purchaser hereby represents and warrants to the Company as follows: (a) Purchaser is an individual and in good standing under the laws of the Switzerland. Purchaser has all requisite power and authority to perform this Agreement. (b) The execution, delivery, and performance by Purchaser of this Agreement has been duly authorized and approved by all necessary action on the part of Purchaser. This Agreement has been duly executed and delivered by Purchaser, and is the legal, valid, and binding obligation of Purchaser, and is enforceable against Purchaser in accordance with its terms, subject to laws affecting generally the enforcement of creditors' rights and to general principles of equity. (c) The execution and delivery of this Agreement, and the consummation of the transactions contemplated by this Agreement, will not result in a breach or violation of or constitute a default under or pursuant to (i) the [charter documents] [formation documents] of Purchaser or (ii) any agreement or instrument to which Purchaser is a party or by which Purchaser is bound. (d) Other than a filing with the SEC following the Closing, no authorization, consent, approval, permit, or license of, or filing with, any governmental or public body or authority or any other person or entity is required to authorize, or is required in connection with Purchaser's execution, delivery, and performance of this Agreement. (e) There are no claims for any broker or similar fees in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by or on behalf of Purchaser or Purchaser's affiliates. (f) Purchaser hereby represents and warrants to, and covenants with, the Company that: (i) Purchaser has reviewed the SEC Filings. The Company has given Purchaser the opportunity to review any of the Company's other filings with the SEC. (ii) In connection with the issuance to Purchaser of the Purchased Shares, Purchaser hereby acknowledges and understands that the Purchased Shares have not been registered under the United States Securities Act of 1933, as amended (the "Federal Act"), the Texas Securities Act, as amended (the "Texas Act"), or any securities acts of any other state or country (the "Other Acts"), that the Purchased Shares are being issued to Purchaser in reliance upon one or more exemptions from registration contained in the Federal Act, the Texas Act, and the Other Acts, and that the Company's reliance on such exemptions is based in part upon the representations made herein by Purchaser. (iii) Purchaser hereby represents to the Company that Purchaser is acquiring the Purchased Shares solely for Purchaser's own account for investment and not with a view to, or for offer or sale in connection with, the unregistered "distribution" of all or any part of the Purchased Shares within the meaning of the Federal Act. Purchaser represents that he has no current intention to sell, convey, dispose of, or otherwise distribute any interest in or risk related to the Purchased Shares. Purchaser acknowledges and agrees that this transaction has not been reviewed or approved by the SEC or any other governmental agency or department. (iv) Purchaser hereby acknowledges that the provisions of Rule 144 promulgated under the Federal Act ("Rule 144") are not now available for the public resale of the Purchased Shares and that Purchaser has no right to have the Purchased Shares registered under the Federal Act to permit them to be resold. Purchaser also hereby acknowledges that, as a result of the foregoing, Purchaser must hold the Purchased Shares for at least one (1) year from issuance (unless subsequently registered prior to that time) assuming the entire risk of investment therein for that period of time, until and unless (A) the Purchased Shares are subsequently registered under the Federal Act, (B) the Purchased Shares may be sold under Rule 144, or (C) an exemption from registration is available at the time of resale of the Purchased Shares. Purchaser is aware of the provisions of Rule 144 which permits limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for such shares, the availability of certain current public information about the issuer of such shares, the resale occurring not less than one year after acquisition, the sale being through a "broker's transaction" or in transactions directly with a "market maker" (as provided by Rule 144(f)) and the number of shares being sold during any three-month period not exceeding specified limitations (unless the sale is within the requirements of Rule 144(k)). (v) Purchaser hereby represents to the Company that Purchaser has such knowledge and experience in financial and business matters that Purchaser is capable of evaluating the merits and risks of investing in the Purchased Shares and that Purchaser is able to bear the economic risk, including a total loss, of such an investment. Purchaser understands and has fully considered for purposes of this investment the risks of this investment and that, because of the restrictions on transfer, it may not be possible for Purchaser to liquidate Purchaser's investment in the Purchased Shares in the case of emergency. (vi) Purchaser acknowledges and agrees that Purchaser is acquiring the Purchased Shares without being offered or furnished any offering literature or prospectus other than the SEC Filings. Purchaser hereby acknowledges that Purchaser has had access to all information, which Purchaser considers necessary or advisable to enable Purchaser to make an informed decision concerning the acquisition of the Purchased Shares. Purchaser is acquiring the Purchased Shares based solely on Purchaser's review of the SEC Filings and Purchaser's investigation of, and satisfaction with, the Company's current and anticipated financial condition and assets and not based on any oral representations of any individual. Purchaser confirms that Purchaser and Purchaser's representatives and advisors have been given the opportunity to ask questions of, and to receive answers from, persons acting on behalf of the Company concerning the business and prospects of the Company and to obtain any additional information, to the extent such persons possess such information or can acquire it without unreasonable effort or expense and without breach of confidentiality obligations, necessary to verify the accuracy of the information set forth in the SEC Filings. (vii) Purchaser understands that Purchaser must not, and Purchaser agrees that Purchaser will not, sell, transfer, assign, encumber, or otherwise dispose of the Purchased Shares or any interest therein, unless prior thereto Purchaser has delivered to the Company, and the Company has accepted as satisfactory, an opinion of experienced and competent counsel to the effect that such proposed sale, transfer, assignment, encumbrance, or disposition will not constitute or result in any violation of the Federal Act, the Texas Act, the Other Acts, or any other applicable statute relating to the disposition of securities. (viii) Purchaser understands and agrees that there may be typed or otherwise printed on the certificates representing the Purchased Shares, and any other securities issued in respect of the Purchased Shares upon any stock split, stock dividend, recapitalization, merger, consolidation, or similar event, a legend referring to the foregoing restriction upon disposition, such legend to be substantially in the following form (in addition to any other legends required by applicable law): THE PURCHASED SHARES EVIDENCED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR UNDER ANY APPLICABLE STATE LAW, AND SUCH PURCHASED SHARES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OR OTHERWISE DISPOSED OF UNLESS A REGISTRATION STATEMENT UNDER THE ACT WITH RESPECT TO SUCH DISPOSITION SHALL THEN BE IN EFFECT OR UNLESS THE PERSON REQUESTING THE TRANSFER OF SUCH PURCHASED SHARES SHALL FURNISH, WITH RESPECT TO SUCH TRANSFER, AN OPINION OP COUNSEL (BOTH COUNSEL AND OPINION TO BE SATISFACTORY TO THE CORPORATION) TO THE EFFECT THAT SUCH SALE, TRANSFER, ASSIGNMENT, OR DISPOSITION WILL NOT INVOLVE ANY VIOLATION OF THE ACT OR ANY APPLICABLE STATE LAW. (ix) Purchaser also understands that the Company's Transfer Agent, the keeper of the Company's stock transfer books and records, has been instructed not to transfer the Purchased Shares except upon the Company's instructions for one (1) year from issuance (and transfers during the second year after issuance must be in accordance with Rule 144) and that the Company will take such other steps as the Company deems necessary to prevent the transfer of the Purchased Shares in the absence of compliance with the foregoing restrictions. (x) Purchaser represents to the Company that Purchaser is an "accredited investor" under Rule 501 of Regulation D of the Federal Act, and that the sale of the Purchased Shares to Purchaser is predicated, in part, on Regulation D, which addresses the limited sale of unregistered securities. (xi) Purchaser acknowledges that Purchaser has received certain financial projections for the Company (the "Financial Projections"). Purchaser understands that there is no guarantee or assurance that the Company's operations will meet the Financial Projections. Purchaser further understands that the Financial Projections are subject to a number of factors, most of which are outside the Company's control. The Financial Projections involve risks and uncertainties and actual results may differ materially from the Financial Projections, Investor acknowledges that the Financial Projections should not be relied upon as indicative of the Company's future performance. 7. Notices. All notices and communications under this Agreement shall be in writing and shall be deemed to have been duly given if (a) delivered personally, (b) sent by third party courier or overnight delivery service, or (c) sent by telecopy (with receipt confirmed), to parties at the address set forth opposite their signature. Any such notice shall be deemed to have been given and received on (i) the date so delivered, if delivered personally, (ii) the next business day after delivery to such third party courier or overnight delivery service, if sent by third party courier or overnight delivery service for next day delivery, or (iii) the date of the confirmation, if sent by telecopy. 8. Entire Agreement. This Agreement constitutes the entire agreement and understanding between the parties relating to the subject matter hereof and supersedes all prior agreements, communications, and arrangements, whether oral, written, or inferred, among the parties relating to the subject matter hereof. This Agreement may not be modified, in whole, or. in part, except by a written instrument executed by each party hereto. 9. Governing Law. This Agreement shall be governed by Texas law without regard to the conflict of law principles thereof. 10. Severability. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under any current or future law, such provision shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision never comprised a part hereof, and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable provision, there shall be added automatically as part of this Agreement, a provision as similar in its terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid, and enforceable. 11. Miscellaneous. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument and taxed signature pages to this Agreement shall be fully binding and enforceable without requiring the manually executed signature page(s) to this Agreement. Time is of the essence with respect to the time periods set forth or referred to in this Agreement. Except as otherwise set forth herein, all fees, costs, and expenses incurred in connection with the Transactions shall be paid by the party incurring such fees, costs, and expenses. No party to this Agreement may sell, transfer, assign, pledge, or hypothecate its rights, interests, or obligations under this Agreement without the consent of the other party. This Agreement shall inure to the benefit of, be binding upon, and be enforceable by the parties hereto and their respective successors and permitted assigns. The waiver of any breach of any term or condition of this Agreement shall not be deemed to constitute the waiver of any other breach of the same or any other term or condition. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date first written above. ULTRAK, INC. Address: 1301 Waters Ridge Drive Lewisville, Texas 75057 Telecopy No._________________ Attn:________________________ By: /s/ Karen S. Austin ---------------------------------- Its: Vice President - General Counsel --------------------------------- Niklaus Zenger Address Mr. Niklaus Zenger, Rossliweg 12 CH-4538 Oberbipp, Switzerland Telecopy No._____________________ Attn:____________________________ By:/s/ Niklaus Zenger --------------------------------- Its: -------------------------------- EX-10.43 8 file007.txt 1988 NON-QUALIFIED STOCK OPTION PLAN AMENDMENT NO. 6 TO ULTRAK, INC. 1988 NON-QUALIFIED STOCK OPTION PLAN This Amendment No. 6 amends the Ultrak, Inc. 1988 Non-Qualified Stock Option Plan adopted by the Board of Directors (the "Board") of Ultrak, Inc., a Delaware corporation (the "Company"), on April 15, 1988, as amended effective November 1, 1991, December 28, 1993, September 27, 1996, March 30, 1999 and January 24, 2000 (the "Plan"). WITNESSETH WHEREAS, the Plan provided that the Company may grant options to purchase up to an aggregate of 5,000,000 shares of the Company's Common Stock, no par value ("Common Stock"), pursuant to the Plan; and WHEREAS, Section 4(f) of the Plan provides that the number of shares of Common Stock for which options may be granted to persons participating under the Plan shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from the subdivision or consolidation of shares of Common Stock; and WHEREAS, on December 17, 1993 the stockholders of the Company approved, effective December 28, 1993, a one for six reverse stock split in the form of a reclassification of the Company's Common Stock and, as a result, the authorized number of shares of Common Stock under the Plan was revised from 5,000,000 to 833,334; and WHEREAS, pursuant to Section 7 of the Plan, on September 27, 1996, the Board approved an increase in the number of authorized shares of Common Stock under the Plan from 833,334 to 1,000,000; and WHEREAS, pursuant to Section 7 of the Plan, on March 30, 1999, the Board approved an increase in the number of authorized shares of Common Stock under the Plan from 1,000,000 to 1,200,000; and WHEREAS, pursuant to Section 7 of the Plan, on January 24, 2000, the Board approved an increase in the number of authorized shares of Common Stock under the Plan from 1,200,000 to 1,700,000; and WHEREAS, pursuant to Section 7 of the Plan, on March 29, 2001, the Board approved, effective June 1, 2001, an increase in the number of authorized shares of Common Stock under the Plan from 1,700,000 to 2,200,000, and to reduce the vesting period for future options granted under the Plan from five years to three years (the "Amendments"). The stockholders of the Company approved the Amendments on June 1, 2001. NOW, THEREFORE, in consideration of the foregoing, effective June 1, 2001, Section 2 of the Plan is amended to read in its entirety as follows: "2. Stock Subject to Option. Subject to adjustment as provided in Sections 4(f) and 4(h) hereof, options under this Program ("Options") may be granted by the Company from time to time to purchase up to an aggregate of 2,200,000 shares of the Company's authorized but unissued Common Stock, provided that the number of shares that may be granted to any employee under this Program shall be reasonable in relation to the purpose of this Program. Shares that by reason of the expiration of an Option or otherwise are no longer subject to purchase pursuant to an Option granted under this Program may be re-Optioned under this Program. The Company shall not be required, upon the exercise of any such Option, to issue or deliver any shares of Common Stock prior to the completion of any such exemption, registration or other qualification of such shares under state or Federal law, rule or regulation as the Company shall determine to be necessary or desirable." Effective June 1, 2001, Section 4(c) of the Plan is amended to read in its entirety as follows: "4(c). Exercise of Option. Each Option shall be exercisable at any time during the term of the Option to the extent of the total number of shares covered by the Option multiplied by thirty-three and one-third percent (33 1/3 %) and by the number of years of service (as defined below) of the Optionee. The term "years of service" means the period from the Date of Grant (unless express provision is made otherwise in Optionee's Employment Agreement or in any other written agreement between the Company and the Optionee) through each anniversary thereafter of the Optionee's continuous employment with the Company. Notwithstanding the foregoing, an Optionee shall be entitled to exercise the total number of shares covered by an Option if (i) Optionee dies or becomes disabled while employed by the Company; (ii) the Company is dissolved or liquidated; (iii) the Company is merged, consolidated or reorganized, and the Company is not the surviving entity; (iv) substantially all property and assets of the Company are sold or otherwise disposed of in a context other than sale of contracts for financing purposes; (v) a "Fifty Percent Acquisition" (as defined below) occurs; (vi) if the Committee or the Company's Board of Directors (the "Board") approves otherwise; or (vii) if Optionee is terminated (but not for cause) and his Employment Agreement so provides. A "Fifty Percent Acquisition" means a purchase or other acquisition by any individuals or entity including, but not limited to corporations, partnerships or other business organizations, whereby such individual or entity owns, immediately after, but not before, such purchase or other acquisition, more than fifty percent (50%) of the total combined voting power of the outstanding stock of the Company." This Amendment No. 6 to the Plan was adopted by the Board on March 29, 2001, and approved by the stockholders of the Company on June 1, 2001, to be effective June 1, 2001. _______________________________________________ George K. Broady Chairman of the Board and Chief Executive Officer. _______________________________________________ Chris Sharng Senior Vice President, Chief Financial Officer, and Secretary EX-10.44 9 file008.txt EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of the 1st day of January, 2002 by and between Ultrak Operating, L.P., a Texas limited partnership, ("Ultrak") and Wendy S. Diddell, (the "Executive"). RECITALS A. The Employer desires that the Executive continue to provide services for the benefit of the Employer and its affiliates and the Executive desires to accept such employment with the Employer. B. The Employer and the Executive acknowledge that the Executive will be a member of the senior management team of the Employer and, as such, will participate in implementing the Employer's business plan. C. In the course of employment with the Employer, the Executive has had and will continue to have access to certain confidential information that relates to or will relate to the business of the Employer and its affiliates. D. The Employer desires that any such information not be disclosed to other parties or otherwise used for unauthorized purposes. NOW, THEREFORE, in consideration of the above premises and the following mutual covenants and conditions, the parties agree as follows: 1. Employment. The Employer shall employ the Executive as its Senior Vice President, Sales and Marketing and the Executive hereby accepts such employment on the following terms and conditions. 2. Duties. The Executive shall work for the Employer in a full-time capacity. The Executive shall, during the term of this Agreement, have the duties, responsibilities, powers, and authority of the position of Senior Vice President, Sales and Marketing. The Executive shall report to, and follow the direction of, the Chief Executive Officer or President of the Employer or any other employee designated by the Chief Executive Officer or President of the Employer. The Executive shall diligently, competently, and faithfully perform all duties, and shall devote his entire business time, energy, attention, and skill to the performance of duties for the Employer or its affiliates and will use his best efforts to promote the interests of the Employer. It shall not be considered a violation of the foregoing for the Executive to serve on corporate, industry, civic, religious or charitable boards or committees, so long as such activities do not significantly interfere with or present a conflict of interest with the performance of the Executive's responsibilities as an employee of the Employer in accordance with this Agreement. 3. Executive Loyalty. The Executive shall devote all of his time, attention, knowledge, and skill solely and exclusively to the business and interests of the Employer, and the Employer shall be entitled to all benefits and profits arising from or incident to any and all work, services, and advice of the Executive. The Executive expressly agrees that during the term of this Agreement, he shall not provide assistance to, as a partner, officer, director, member, manager, stockholder, advisor, agent, employee, or in any other form or capacity, any other business similar to that of the Employer. The foregoing notwithstanding, except as provided for in Paragraph 9.D.(2) below, nothing herein contained shall be deemed to prevent the Executive from investing his money in the capital stock or other securities of any corporation whose stock or securities are publicly-owned or are regularly traded on any public exchange. 4. Term of Employment. Unless sooner terminated as hereinafter provided, this Agreement shall be entered into for a period of twelve (12) month's (the "Initial Term"), commencing on January 1, 2002 (the "Effective Date"). The term of employment shall be renewed automatically for successive periods of twelve (12) month's each (a "Renewal Term") after the expiration of the Initial Term and any subsequent Renewal Term, unless the Employer provides the Executive, or the Executive provides the Employer, with written notice to the contrary at least sixty (60) days prior to the end of the Initial Term or any Renewal Term. 1 5. Compensation. A. Salary. The Employer shall pay the Executive an annual base salary of $183,000.00 (the "Base Salary"), payable in substantially equal installments, on a time schedule that is in accordance with the Employer's payroll policy for executives in effect at the time. The Executive's salary shall be subject to any payroll or other deductions as may be required to be made pursuant to law, government order, or by agreement with, or consent of, the Executive. The Employer will formally evaluate the Executive's performance and communicate the results to Executive no less than once a year. Executive will be eligible for performance-based increases in the Executive's base salary on the same terms and conditions normally afforded executive employees employed at Executive's level with Ultrak. The Executive's base salary will not be reduced during the Initial Term or any subsequent Renewal Term of the Agreement. Executive shall receive all regular costs of living and other standard raises or salary increases, if any, provided to other executive employees employed at Executive's level with Ultrak. B. Performance Bonus. The Executive shall be entitled to receive a bonus, if earned, to be determined according to the management bonus program established by Employer for each of Employer's fiscal years beginning January 1, 2002 and Executive shall be entitled to participate in the Ultrak Executive Management Stock Option Program. C. Retention Bonus. The Executive is to receive $28,667, to be paid out in January 2002, for the purpose of retention. Should the Executive terminate her employment with Ultrak prior to the end of 2002, the Retention Bonus is payable back to Ultrak on a pro rated basis. D. Other Benefits. During the term of this Agreement, the Employer shall: (1) include the Executive in any medical, dental or health insurance, disability or life insurance, retirement plans and other benefit plans or programs as partially funded and maintained by Ultrak for the benefit of its employees; (2) provide the Executive with three (3) weeks paid vacation in each year to be taken at a time or times reasonably agreeable to both the Executive and the Employer, in addition to Employer designated holidays and sick leave in accordance with the Ultrak policy; (3) provide a monthly car allowance of $300.00; (4) pay for reasonable professional associations, dues, educational seminars to maintain license status. E. Profit Sharing. The Executive shall not be entitled to participate in any profit sharing program of Employer, unless otherwise determined by Ultrak's CEO and/or Board of Directors, from time to time. 6. Expenses. The Employer shall reimburse the Executive for all reasonable and approved business expenses, provided the Executive submits paid receipts or other documentation acceptable to the Employer and as required by the Internal Revenue Service to qualify as ordinary and necessary business expenses under the Internal Revenue Code of 1986, as amended. 7. Termination. Notwithstanding anything in Paragraph 4 of this Agreement to the contrary, the Executive's services shall terminate upon the first to occur of the following events: A. At the end of the term of this Agreement, including any Renewal Terms, if notice of intent not to renew was provided in accordance with Paragraph 4. 2 B. Upon the Executive's date of death or the date the Executive becomes Disabled (as defined herein) . For purposes of this Agreement, the Executive is "Disabled" if the Executive, as a result of illness or incapacity, shall be unable to perform the essential functions of his job, with or without any reasonable accommodation required by law, for a period of three (3) consecutive months or for any aggregate period of six (6) months in any twelve (12) month period. A termination of the Executive's employment by the Employer for disability shall be communicated to the Executive by written notice and shall be effective on the tenth (10th) business day after receipt of such notice by the Executive, unless the Executive returns to full-time performance of his duties before such tenth (10th) business day. C. For "cause," on the date the Employer provides the Executive with written notice that he is being terminated for Cause (as defined herein). For purposes of this Agreement, "Cause" exists if the Executive: (1) commits any felony including, but not limited to, a felony involving fraud, theft, misappropriation, dishonesty, or embezzlement or commits any misdemeanor which in the sole discretion of Employer involves moral turpitude; (2) willfully engages in acts that he knew, or should have known in the exercise of reasonable care, would cause material harm to Employer's property, goodwill or existing business interests; provided, however, that no act on Executive's part shall be considered "willful" unless done by Executive, in Employer's sole discretion, without a good faith and reasonable belief that his actions were in the best interest of the Employer; (3) engages in any violation of any civil law, including but not limited to harassment (sexual and/or otherwise unlawful) and RICO laws. (4) continues to fail to substantially perform his previously identified duties, or refuses to substantially perform his previously identified duties, thirty (30) calendar days after written demand for substantial performance is delivered by the Employer specifically identifying the manner in which the Employer believes Executive has failed or refused to substantially perform his duties. (5) a material breach of any written Employer policies or procedures that are applicable to executives at Executive's level or higher within Ultrak, after written notice by the Employer to the Executive of such violation, and in the event of a procedural breach of any written Employer policies or procedures the failure by the Executive to undertake his best efforts to cure such procedural violation within a thirty (30) calendar day period where a cure within that time period is possible; provided, however, that "cause" will not exist if the policy violation would not normally be a dischargeable offense under the Employer's progressive discipline policies. D. On the date the Executive terminates his employment for any reason, provided that the Executive shall give the Employer thirty (30) days written notice prior to such date of his intention to terminate this Agreement. E. On the date the Employer terminates the Executive's employment for any reason, other than A-D set forth in this Paragraph 7. F. On the date the Executive terminates his employment for the following (1) a "Change of Control" of the Employer (as herein defined in paragraph 8A in conjunction with either (a) a material change in the Executive's job duties that is inconsistent with the scope of responsibilities described in the attached Job Description for Executive, (or) (b) a reduction in the Executive's total compensation package, during the Initial Term or any subsequent Renewal Term. 3 8. Compensation Upon Termination. A. If the Executive's services are terminated pursuant to any of the provisions of A, B, or E of Paragraph 7, the Executive, shall be entitled to the Base Salary through the later of: the Executive's final date of active employment; or the date of the Agreement's termination. The Executive shall also be entitled to any benefits mandated under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). If the Executive's services are terminated pursuant to Paragraph 7A, 7B and/or 7E, the Executive, upon agreement to and execution of a release of claims agreeable to Ultrak, shall be entitled to the continuation of the Base Salary plus benefits, exclusive of vacation accrual, at the rate as set forth in Paragraph 5A for an 18 month period (the "Severance Period"), payable on a time schedule that is in accordance with the Employer's payroll policy for executives in effect at the time. During the Severance Period, if the Executive becomes a full-time employee with any company or entity other than Employer or an affiliate of the Employer, the Employer shall only be responsible for payment to the Executive of the amount by which the Executive's Base Salary exceeds the Executive's Base Compensation from her new employer during the remainder of the Severance Period. Additionally, the Executive shall be entitled to the continuation of her Base Salary plus Other Benefits as set forth in this Paragraph for a period of 18 months if the Executive, pursuant to Paragraph 7F, terminates her employment following (1) a "Change of Control" of the Employer (as herein defined) in conjunction with either (a) a material change in the Executive's job duties that is inconsistent with the scope of responsibilities described in the attached Job Description for Executive, (or) (b) a reduction in the Executive's total compensation package, during the Initial Term or any subsequent Renewal Term. The occurrence of a "Change of Control" shall mean, for purposes of this Agreement: 1) an ownership change in which any person/individual or entity, excluding George K. Broady, his family members, affiliates or related parties, in one or more transactions or series of transactions, directly or indirectly, acquires more than 50% of the record and beneficial ownership in the voting stock of the Employer; or 2) the direct or indirect sale or exchange by the shareholders of the Employer of all or substantially all of the stock of the Employer; or 3) a merger or consolidation in which the Employer is a party; or 4) the sale, exchange, or transfer of all or substantially all of the assets of the Employer. B. If the Executive's services are terminated pursuant to B or F set forth in paragraph 7, all stock options granted to the Executive under the Ultrak 1988 Non-Qualified Stock Option Plan and Amendments thereto or the Ultrak Incentive Stock Option Plan will become immediately vested. 9. Protective Covenants. The Executive acknowledges and agrees that by virtue of his employment by, and relationship with Ultrak, he has acquired and will acquire "Confidential Information", as hereinafter defined, as well as special knowledge of the Employer's relationships with its customers and business brokers, and that, but for his association with the Employer, the Executive would not or will not have had access to said Confidential Information or knowledge of said relationships. The Executive further acknowledges and agrees (i) that the Employer has long term, near-permanent relationships with its customers, and that those relationships were developed at great expense and difficulty to the Employer over several years of close and continuing involvement; (ii) that the Employer's relationships with its customers are and will continue to be valuable, special and unique assets of the Employer and that the identity of its customers is kept under tight security with the Employer and cannot be readily ascertained from publicly available materials or from materials available to the Employer's competitors; and (iii) that the Employer has the following protectable interests that are critical to its competitive advantage in the industry and would be of demonstrable value in the hands of a competitor. 4 The Executive acknowledges and agrees that by virtue of his employment by and relationship with Ultrak that Ultrak agrees to provide the Executive with specialized training and instruction regarding Ultrak's operations, products sold and serviced by Ultrak, as well as marketing and operational techniques and strategies to the extent applicable to the Executive's employment with Ultrak. This training may be provided through direct experience or otherwise. The Executive acknowledges and agrees that by virtue of his employment by and relationship with Ultrak that Ultrak agrees to provide the Executive with an interest in the growth of the goodwill of Ultrak through his employment. Ultrak also agrees to provide expense reimbursements in accordance with Ultrak policy, access to confidential information, and contact with customers, contractors and vendors in order to help Ultrak develop goodwill for Ultrak. In return for the consideration described in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and as a condition precedent to the Employer entering into this Agreement, and as an inducement to the Employer to do so, the Executive hereby represents, warrants, and covenants as follows: A. The Executive has executed and delivered this Agreement as his free and voluntary act, after having determined that the provisions contained herein are of a material benefit to him, and that the duties and obligations imposed on him hereunder are fair and reasonable and will not prevent him from earning a comparable livelihood following the termination of his employment with the Employer; B. The Executive has read and fully understands the terms and conditions set forth herein, has had time to reflect on and consider the benefits and consequences of entering into this Agreement, and has had the opportunity to review the terms hereof with an attorney or other representative, if he so chooses; C. The execution and delivery of this Agreement by the Executive does not conflict with, or result in a breach of or constitute a default under, any agreement or contract, whether oral or written, to which the Executive is a party or by which the Executive may be bound; D. The Executive agrees that, during the time of his employment and for a period of one (1) year after the termination of the Executive's employment under Paragraph 7A, C, D, E or F, the Executive will not, except on behalf of Employer, assist a Competing Business (as defined below) by doing any of the following prohibited acts: (1) directly or indirectly, contact or solicit, or direct any one else to contact or solicit, any Covered Customer or Prospective Customer (as defined below) or Business Brokers (as defined below) for the purpose of selling or attempting to sell, any products and/or services that are the same or so similar to the products and services provided by the Employer to its customers that they would displace or reduce the volume of products or services sold by Employer to its customers during the term hereof. In addition, the Executive will not identify or disclose any such Covered Business Brokers, Covered Customers or Prospective Customers, or any part thereof, as being a business broker, customer or prospective customer of Employer to any person, firm, corporation, association, or other entity engaged in a Competing Business; or (2) participate in a Competing Business by supervising, or providing, directly or indirectly, services or assistance to a Competing Business in a position that involves (a) duties or functions that are the same or substantially similar in their purpose to those provided by Executive to Employer, (b) duties or functions that would involve input into or direction of the Competing Business' decisions regarding, but not limited to, marketing, product or service development, engineering or research and development, financial planning, organizational change or restructuring, customer solicitations, and (c) direction or control over 5 communications with Covered Customers and Prospective Customers, and Covered Brokers; provided, however, that nothing herein shall prevent Executive from directly owning less than one percent (1%) of the common stock of a publicly traded Competing Business or indirect ownership of an interest in a Competing Business through mutual funds or similar investment entities; or (3) solicit or otherwise induce, on his own behalf or on behalf of any other person or entity, any person who is any of the Employer's employees to terminate employment with the Employer; or (4) take any action as a consultant, advisor, officer, manager, agent, director, partner, independent contractor, owner, or employee for or on behalf of any of the Employer's business brokers, customers, or prospective customers to induce the Employer's business broker, customer or prospective customer at issue to terminate or reduce in any way any aspect of the Employer's ongoing sales or services, or other business activities with the customer, broker or prospective customer that the Executive is then working for; or (5) use any of the specialized training he has received from Ultrak; or (6) use the goodwill developed with Ultrak's customers, contractors and vendors. The foregoing restrictions in Paragraphs 9D(1)-(4) apply to activities by Executive anywhere within a fifty (50) mile radius of any office of Employer; and at the addresses or locations where Covered Customers and Prospective Customers and Covered Brokers are doing business at the time of the Executive's termination from employment or during a period of six (6) months prior to the Executive's termination from employment unless otherwise modified and agreed to in writing and authorized by the Employer's Chief Executive Officer. E. The Executive acknowledges and agrees that the scope described above is necessary and reasonable in order to protect the Employer in the conduct of its business and that, if the Executive becomes employed by another employer, he shall be required to disclose the existence of this Paragraph 9 to such employer and the Executive hereby consents to and the Employer is hereby given permission to disclose the existence of this Paragraph 9 to such employer; F. A "Competing Business," as referred to in Paragraph 9 and its subparts, means any person or entity engaged in the business of providing competing goods or services that are the same or similar to the goods or services sold by Employer to its customers that they would displace or reduce the volume of products or services sold by the Employer to its customers. A "Covered Customer or Prospective Customer," as referred to in Paragraph 9 and its subparts, means any person or entity that (a) hold a contract with Employer, or requested a contract proposal, or had a contract proposal made to it by Employer, within the previous six (6) months; and (b) that Executive either had contact with or received confidential information about during the last six (6) months of Executive's employment with Employer. A "Covered Broker," as referred to in Paragraph 9 and its subparts, refers to any person or entity who, within the preceding twelve (12) months in the ordinary course of business for that person or entity, (a) acted as an agent or intermediary to facilitate the sale of goods or services sold by Employer; and, (b) had contact with Executive or was the subject of confidential information handled by the Executive. G. The Executive agrees that both during his employment and for a period of one (1) year thereafter the Executive will not, for any reason whatsoever, use for himself or disclose to any person not employed by the Employer any "Confidential Information" of the Employer acquired by the Executive during his relationship with the Employer, both prior to and during the term of this Agreement, except as otherwise provided for below. The Executive further agrees to use Confidential Information solely for the purpose of performing duties with the Employer and further agrees not to use Confidential Information for his own private use or commercial purposes or in any way detrimental to the Employer, except as otherwise provided for below. The Executive agrees that "Confidential Information" means (1) information created or compiled by Employer in the course of its business, including a formula, pattern, compilation, program, product, device, method, technique, or process, that (i) derives 6 economic value (actual or potential) from not being generally known to, and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use, and (ii) is subject to efforts by the Employer that are reasonable under the circumstances to keep it secret; or (2) information that was first acquired by Executive from or through Executive's employment with Employer and that is information the Employer indicated to the Executive should be maintained as confidential and not disclosed to others outside the company without permission by designating or marking it as "confidential" or through some other reasonable means of communication. The Employer acknowledges and agrees that Confidential Information does not include (1) information properly in the public domain, or (2) information in the Executive's possession prior to the date of his original employment with the Employer. Nothing herein will be construed to preclude Executive from (i) disclosing Confidential Information to his personal accountants, tax advisors, or legal counsel, in confidence, where necessary for them to provide their professional services to Executive; or, (2) where compelled to do so by law (in response to a subpoena for example); provided, however, that if Executive believes he is compelled by law to make such a disclosure of Confidential Information he will provide Employer as much notice as practicable before making the disclosure. H. During and after the term of employment hereunder, the Executive will not remove from the Employer's premises any documents, records, files, notebooks, correspondence, computer printouts, computer programs, computer software and hardware, price lists, microfilm, or other similar documents containing Confidential Information, including copies thereof, whether prepared by him or others, except as his duty shall require, and in such cases, will promptly return such items to the Employer. Upon termination of his employment with the Employer, all such items including summaries or copies thereof, then in the Executive's possession, shall be returned to the Employer immediately. The Executive agrees to the return of such items, which shall be a requirement in order for the Executive to receive, at the time of such termination, or any time thereafter, any compensation due him pursuant to any paragraphs hereunder or otherwise; provided, however, that Employer will not make any withholdings or reduce the compensation due Executive under this agreement or otherwise without first identifying the item that has not been returned and providing Executive five (5) business days to return it. I. The Executive recognizes and agrees that all ideas, inventions, enhancements, plans, writings, and other developments or improvements (the "Inventions") conceived by the Executive, alone or with others, during the term of his employment, whether or not during working hours, that are within the scope of the Employer's business operations or that relate to any of the Employer's work or projects, are the sole and exclusive property of the Employer. The Executive further agrees that (1) he will promptly disclose all Inventions to the Employer and hereby assigns to the Employer all present and future rights he has or may have in those Inventions, including without limitation those relating to patent, copyright, trademark or trade secrets; and (2) all of the Inventions eligible under the copyright laws are "work made for hire." At the request of and without charge to the Employer, the Executive will do all things deemed by the Employer to be reasonably necessary to perfect title to the Inventions in the Employer and to assist in obtaining for the Employer such patents, copyrights or other protection as may be provided under law and desired by the Employer, including but not limited to executing and signing any and all relevant applications, assignments or other instruments. The Employer hereby notifies the Executive that the provisions of this Paragraph 9 shall not apply to any Inventions for which no equipment, supplies, facility or trade secret information of the Employer was used and which were developed entirely on the Executive's own time, unless (1) the Invention relates (i) to the business of the Employer, or (ii) to actual or demonstrably anticipated research or development of the Employer, or (2) the Invention results from any work performed by the Executive for the Employer; J. The Executive acknowledges and agrees that all customer lists, supplier lists, and customer and supplier information, including, without limitation, addresses and telephone numbers, are and shall remain the exclusive property of the Employer, regardless of whether such information was developed, purchased, acquired, or otherwise obtained by the Employer or the Executive. The Executive agrees to furnish to the Employer on demand at any time during the term of this Agreement, and upon termination of this Agreement, his complete list of the correct names and places of business and telephone numbers of all of its customers served by him and located within any or all of the territories to which he has been assigned, including all copies thereof wherever located. The Executive further agrees to promptly notify the Employer of the name and address of any new customer, and report all changes of a location of old customers, that are not otherwise already known to the Employer, so that upon the termination of this Agreement, the Employer will have a complete list of the correct names and addresses of all of its 7 customers with which the Executive has had dealings. The Executive also agrees to furnish to the Employer on demand at any time during the term of this Agreement, and upon the termination of this Agreement, any other records, notes, computer printouts, computer programs, computer software or hardware, price lists, microfilm, or any other documents related to the Employer's business that were maintained by Executive in the course of his employment, including originals and copies thereof; and K. It is agreed that any breach or anticipated or threatened breach of any of the Executive's covenants contained in this Paragraph 9 will result in irreparable harm and continuing damages to the Employer and its business and that the Employer's remedy at law for any such breach or anticipated or threatened breach will be inadequate and, accordingly, in addition to any and all other remedies that may be available to the Employer at law or in equity in such event, any court of competent jurisdiction may issue a decree of specific performance or issue a temporary and permanent injunction, enjoining and restricting the breach, or threatened breach, of any such covenant, including, but not limited to, any injunction restraining the Executive from disclosing, in whole or part, any Confidential Information. 10. Acknowledgement of Ancillary Agreements and Consideration. The Executive and Ultrak agree that the protective covenants set forth in this Agreement are reasonable and necessary for the protection and enforcement of their agreements on property rights set forth in Paragraph 9 above. The Executive acknowledges that the Executive's agreement to be bound by the protective covenants set forth in Paragraph 9 is a concurrent and material inducement for Ultrak (i) to enter into the ancillary terms of this Agreement, (ii) to initiate or continue the Executive's employment with Ultrak, and (iii) to provide the Executive with promises and consideration set forth in this Agreement. The Executive agrees that each agreement set forth in Paragraph 9 is an otherwise enforceable, ancillary agreement, and each is independently sufficient to support all of the protective covenants in Paragraph 9. The Executive agrees that these restrictions do not unreasonably restrict the Executive's ability to earn a living after termination of the Executive's employment. Ultrak agrees to provide the Executive the access to trade secrets, confidential and proprietary information, or specialized training and instruction, or the goodwill support, referred to in Paragraph 9 above within 30 days of the execution of this Agreement. This is not contingent upon Ultrak's employment with the Employer but it is contingent upon Ultrak complying with the protective covenants in Paragraph 9 and its subparts. 11. Indemnification. Ultrak shall indemnify the Executive to the full extent authorized by law in the event he is made or threatened to be made a party to any action, suit, or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he is or was a director, officer or employee of Ultrak or serves or served any other enterprise as a director, officer or employee at the request of Ultrak and in compliance with the corporate By-Laws. 12. Notices. Any and all notices required in connection with this Agreement shall be deemed adequately given only if in writing and (a) personally delivered, or sent by first class, registered or certified mail, postage prepaid, return receipt requested, or by recognized overnight courier, (b) sent by facsimile, provided a hard copy is sent with postage prepaid thereon via regular mail on that date to the party for whom such notices are intended, or (c) sent by other means at least as fast and reliable as first class mail. A written notice shall be deemed to have been given to the recipient party on the earlier of (a) the date it shall be delivered to the address required by this Agreement; (b) the date delivery shall have been refused at the address required by this Agreement; (c) with respect to notices sent by mail or overnight courier, the date as of which the Postal Service or overnight courier, as the case may be, shall have indicated such notice to be undeliverable at the address required by this Agreement; or (d) with respect to a facsimile, the date on which the facsimile is sent and receipt of which is confirmed. Any and all notices referred to in this Agreement, or which either party desires to give to the other, shall be addressed to his residence in the case of the Executive, or to its principal office in the case of the Employer. 13. Waiver of Breach. A waiver by either party hereto of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver or estoppel by the nonbreaching party of any subsequent breach , and no waiver shall be valid unless it is contained in a signed writing. 8 14. Right to Cure/Early Resolution Conference. If either party becomes aware of any breach of any material term of this Agreement, prior to taking any action based upon the alleged breach, the nonbreaching party will provide the other party written notice of the alleged breach within fourteen (14) days from the date on which the non-breaching party became aware of the alleged breach, and give the breaching party thirty (30) days from the date of the written notice to undertake best efforts to cure the alleged breach ("the right to cure period"). Failure by the nonbreaching party to provide written notice and an opportunity to cure will waive any right of the nonbreaching party to assert the alleged breach at a later time. Within fourteen (14) days after the expiration of the right to cure period, if the breaching party has not undertaken its best efforts to cure the alleged breach, the nonbreaching party will notify the breaching party of this failure and request, in writing, a meeting to discuss resolution of any disputes between the parties (the "Early Resolution Conference"). Provided, however, that Ultrak may at any time independently pursue the remedies specifically provided in Paragraph 9(K). 15. Resolution of Disputes. In the event there is a dispute between the parties arising from any breach or alleged breach of this Agreement or as to the Executive's termination or compensation or as to any allegation that Ultrak has violated any of the Executive's employment, civil or other rights under any laws, statutes or constitutional provisions, and the provisions of Paragraph 14 have been unsuccessful to resolve the dispute, the parties agree that the suit will be subject to the mediation and binding arbitration provisions set forth in Attachment A. The parties agree to execute the Policy for Resolution of Disputes set forth in Exhibit A in conjunction with and upon execution of this Agreement. 16. Assignment. The Executive acknowledges that the services to be rendered by him are unique and personal. Accordingly, the Executive may not assign any of his rights or delegate any of his duties or obligations under this Agreement. The rights and obligations of the Employer under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Employer so long as the successor or assign of the Employer provides Executive employment in a position that is the same, or reasonably similar, in its responsibilities, compensation, benefits, and other terms and conditions. 17. Entire Agreement. This Agreement sets forth the entire and final agreement and understanding of the parties and contains all of the agreements made between the parties with respect to the subject matter hereof. This Agreement supersedes any and all other agreements, either oral or in writing, between the parties hereto, with respect to the subject matter hereof. No change or modification of this Agreement shall be valid unless in writing and signed by the Employer and the Executive. 18. Severability. If any provision of this Agreement shall be found invalid or unenforceable for any reason, in whole or in part, then such provision shall be deemed modified, restricted, or reformulated to the extent and in the manner necessary to render the same valid and enforceable, or shall be deemed excised from this Agreement, as the case may require, and this Agreement shall be construed and enforced to the extent necessary to protect the interests of both parties hereto, as if such provision had been originally incorporated herein as so modified, restricted, or reformulated or as if such provision had not been originally incorporated herein, as the case may be. The parties further agree to seek a lawful substitute for any provision found to be unlawful; provided, that, if the parties are unable to agree upon a lawful substitute, the parties desire and request that a court or other authority called upon to decide the enforceability of this Agreement modify those restrictions in this Agreement that, once modified, will result in an agreement that is enforceable to the extent necessary to protect the interests of both parties hereto. 19. Headings. The headings in this Agreement are inserted for convenience only and are not to be considered a construction of the provisions hereof. 20. Execution of Agreement. This Agreement may be executed in several counterparts, each of which shall be considered an original, but which when taken together, shall constitute one agreement. 21: Recitals. The recitals to this Agreement are incorporated herein as an integral part hereof and shall be considered as substantive and not prefatory language. 9 22. Expenses. In any action brought by either the Executive or the Employer to enforce any of the provisions of this Agreement, all expenses incurred by the party in connection with such actions, including reasonable attorneys' fees, shall be borne by that party. 23. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas. 10 IN WITNESS WHEREOF, the parties have set their signatures on the date first written above. EMPLOYER: EXECUTIVE: By: _________________________ By:_________________________ Peter Beare Wendy S. Diddell Title: President ______________________________________ | | | WITNESS: | | | | | | By:________________________ | | | | Print Name: _________________ | | | | | |______________________________________| 11 EXHIBIT A POLICY FOR RESOLUTION OF DISPUTES --------------------------------- A. Agreement to Arbitrate. In the event that any employment dispute arises between Ultrak and the Executive, the parties involved will make all efforts to resolve any such dispute through informal means as outlined in Paragraph 14 of the Employment Agreement between Ultrak and the Executive. If these informal attempts at resolution fail and if the dispute arises out of or is related to the termination of employment, compensation of the Executive, or any alleged unlawful discrimination, or violation of any law, Ultrak and the Executive shall submit the dispute to final and binding arbitration. Provided, however, that Ultrak may at any time pursue the remedies specifically provided in Paragraph 9(K) of the Employment Agreement between Ultrak and the Executive. By accepting or continuing employment with Ultrak, the Executive agrees that arbitration is the exclusive remedy for all such arbitrable disputes other than the remedies specifically provided in Paragraph 9(K) of the Employment Agreement between Ultrak and the Executive; with respect to such disputes, no other action may be brought in court or any other forum (except actions to compel arbitration hereunder). THIS POLICY AND AGREEMENT TO ARBITRATE IS A FULL AND COMPLETE WAIVER OF THE PARTIES' RIGHTS TO A CIVIL COURT ACTION FOR ANY DISPUTES RELATING TO COMPENSATION, TERMINATION OF EMPLOYMENT, ANY CLAIMS WHATSOEVER RELATED TO ANY EMPLOYMENT AGREEMENT, ALLEGED OR ACTUAL VIOLATION OF ANY LAWS, RULES, REGULATIONS OR STATUTES RELATED TO THE EMPLOYMENT OF THE EXECUTIVE, OR ANY ALLEGED OR ACTUAL UNLAWFUL DISCRIMINATION, WHICH INCLUDES SEXUAL OR OTHER UNLAWFUL HARASSMENT. ONLY AN ARBITRATOR, NOT A JUDGE OR JURY, WILL DECIDE SUCH DISPUTES. Employment disputes arising out of or related to termination of employment or alleged unlawful discrimination, which includes sexual or other unlawful harassment, shall include, but not be limited to, the following: alleged violations of federal, state, and/or local constitutions, statutes, or regulations; claims based on any purported breach of contractual obligations; and claims based on any purported breach of duty arising in tort, including violations of public policy. Disputes related to injuries covered by workers' compensation and unemployment compensation and the Employee Retirement Income Security Act of 1974 (ERISA) are not arbitrable hereunder. B. Attempt at Informal Resolution of Disputes (Mediation). Prior to submission of any dispute to arbitration, Ultrak and the Executive shall attempt to resolve the dispute informally through mediation. Ultrak and the Executive will select a mediator from a list provided by the American Arbitration Association or other recognized dispute resolution provider that will assist the parties in attempting to reach a settlement or bind the parties. The mediator may make settlement suggestions to the parties but shall not have the power to impose a settlement upon them. If the dispute is resolved in mediation, the matter shall be deemed closed upon execution of a document memorializing the resolution and signed by both parties. If the dispute is not resolved in mediation and goes to the next step (binding arbitration), any proposals or compromises suggested by either of the parties or the mediator shall not be referred to or have any bearing on the arbitration procedure. The mediator cannot also serve as the arbitrator in the subsequent proceeding unless all parties expressly agree in writing. Ultrak shall bear the full costs of the mediator's fees and any reasonable costs associated with the mediation proceedings. C. Request for Arbitration. 1. Arbitration Procedures. 12 The Executive or his/her representative must submit a "Request for Arbitration" in writing to the President of Ultrak within one (1) year or the statutory period required under Federal and/or Texas State law of (i) the termination of employment (including resignation), (ii) the incident giving rise to the dispute or claim, or, (iii) in the case of unlawful discrimination, including sexual or other unlawful harassment, the alleged conduct. This time limitation will not be extended for any reason and shall not be subject to tolling, equitable or otherwise. If the "Request for Arbitration" is not submitted in accordance with the aforementioned time limitations, the Executive will not be able to bring his/her claim to this or any other forum. The Executive can obtain a "Request for Arbitration" form from the President of Ultrak or submit his/her own "Request for Arbitration" form, as long as it clearly states "Request for Arbitration" and includes the following information: a. A factual description of the dispute in sufficient detail to advise the parties of the nature of the dispute; b. The date when the dispute first arose; c. The names, work locations, telephone numbers of any co-workers or supervisors with knowledge of the dispute; and d. The relief requested by the party. Ultrak will respond in a timely manner to any "Request for Arbitration," initiated by the Executive so that the parties can begin the process of selecting an arbitrator. Such response may include any counterclaims that Ultrak chooses to bring against the Executive. 2. Selection of the Arbitrator. All disputes will be resolved by a single arbitrator. The arbitrator will be mutually selected by Ultrak and the Executive. If the parties cannot agree on an arbitrator, then a list of seven (7) arbitrators, experienced in employment matters, shall be provided by the American Arbitration Association. The arbitrator will be selected by the parties who will alternately strike names from the list. The last name remaining on the list will be the arbitrator selected to resolve the dispute. Upon selection, the arbitrator shall set an appropriate time, date and place for the arbitration, after conferring with the parties to the dispute. 3. Arbitrator's Authority. The arbitrator shall have the powers enumerated below: a. Ruling on motions regarding discovery, and ruling on procedural and evidentiary issues arising during the arbitration; b. Issuing protective orders on the motion of any party or third party witness (such protective orders may include, but not be limited to, sealing the record of the arbitration, in whole or in part (including discovery proceedings and motions, transcripts, and the decision and award), to protect the privacy or other constitutional or statutory rights of parties and/or witnesses); and c. Determining only the issue(s) submitted to him/her (the issue(s) must be identified in the "Request for Arbitration" or counterclaims, and any issue(s) not so identified in those documents shall be deemed to be and is/are outside the scope of the arbitrator's jurisdiction, and any award involving those issue(s) shall be subject to a motion to vacate). 4. Pleadings. a. A copy of the "Request for Arbitration" shall be forwarded to the arbitrator within five (5) calendar days of his/her selection. 13 b. Within ten (10) calendar days following submission of the Executive's "Request for Arbitration" to the arbitrator, Ultrak shall respond in writing to the "Request for Arbitration" to the arbitrator by answer and/or demurrer. The answer or demurrer shall be served on the arbitrator and the Executive. c. The answer to the "Request for Arbitration" shall include the following information: (1) A response, by admission or denial, to each claim set forth in the "Request for Arbitration"; (2) All affirmative defenses asserted by Ultrak to each claim; and (3) All counterclaims Ultrak asserts against the Executive and any related third party claims. d. If Ultrak contends that some or all of the Executive's claims set forth in the "Request for Arbitration" are barred as a matter of law, it may respond by demurrer setting forth the legal authorities in support of its position. If Ultrak demurs to less than the entire "Request for Arbitration," Ultrak must answer those claims to which it does not demur at the same time that it submits its demurrer. e. The Executive shall have twenty (20) calendar days to oppose Ultrak's demurrer. Any opposition must be in writing and served on the arbitrator and Ultrak. f. If Ultrak's answer alleges a counterclaim, within twenty (20) days of service of the answer, the Executive shall answer and/or demur to the counterclaim in writing and serve the answer and/or demurrer on the arbitrator and Ultrak. If the Executive demurs to any counterclaim, Ultrak shall have twenty (20) calendar days from its receipt of the demurrer to submit a written opposition to the demurrer to the Executive and the arbitrator. g. The arbitrator shall rule on demurrer(s) to any claims and/or counterclaims within fifteen (15) calendar days of service of the moving and opposition papers. h. If any demurrer is overruled, the moving party must answer those claims to which it demurred within five (5) calendar days of the arbitrator's ruling. The answer must be served on the arbitrator and the opposing party. i. When all claims and counterclaims have been answered, the arbitrator shall set a time and place for hearing which shall be no earlier than three (3) months from the day on which the parties are notified of the date of hearing and no late than twelve (12) months from the date on which the arbitrator sets the date of the hearing. j. The above rules apply whether the arbitration is initiated by the Executive or by Ultrak. Should arbitration be initiated by Ultrak, the Executive shall have all rights of response, demand and counterclaim, and otherwise as outlined above. 5. Discovery. The discovery process shall proceed and be governed as follows: 14 a. Parties may obtain discovery by any of the following methods: (1) Depositions upon oral examination, one (1) per side as of right, with more permitted if leave is obtained from the arbitrator; (2) Written interrogatories, up to a maximum combined total of (20), with the responding party having twenty (20) days to respond; (3) Request for production of documents or things or permission to enter upon land or other property for inspection, with the responding party having twenty (20) days to produce the documents and allow entry or to file objections to the request; and (4) Physical and mental examination, in accordance with the Federal Rule of Civil Procedure 35(a). b. Any motion to compel production, answers to interrogatories or entry onto land or property must be made to the arbitrator within fifteen (15) days of receipt of objections. c. All discovery requests shall be submitted no less than sixty (60) days before the hearing date. d. The scope of discoverable evidence shall be in accordance with Federal Rule of Civil Procedure 26(b)(1). e. The arbitrator shall have the power to enforce the aforementioned discovery rights and obligations by the imposition of the same terms, conditions, consequences, liabilities, sanctions, and penalties as can or may be imposed in like circumstances in a civil action by a federal court under the Federal Rules of Civil Procedure, except the power to order the arrest or imprisonment of a person. 6. Hearing Procedure. The hearing shall proceed according to the American Arbitration Association's Rules with the following amendments: a. The arbitrator shall rule at the outset of the arbitration on procedural issues that bear on whether the arbitration is allowed to proceed. b. Each party has the burden of proving each element of its claim or counterclaims, and each party has the burden of proving any of its affirmative defenses. c. In addition to, or in lieu of, closing arguments, either party shall have the right to present post-hearing briefs, and the due date for exchanging post-hearing briefs shall be mutually agreed on by the parties and the arbitrator. 7. Substantive Law. The applicable substantive law shall be the law of the State of Texas or federal law. If both federal and state law speak to a cause of action, the Executive shall have the right to elect his/her choice of law. However, choice of law in no way affects the procedural aspects of the arbitration, which are exclusively governed by the provisions of this Policy. 15 8. Opinion and Award. The arbitrator shall issue a written opinion and award, in conformance with the following requirements: a. The opinion and award must be signed and dated by the arbitrator. b. The arbitrator's opinion and award shall decide all issues submitted. c. The arbitrator's opinion and award shall set forth the legal principles supporting each part of the opinion. d. The arbitrator shall have the same authority to award remedies and damages as provided to a judge and/or jury under parallel circumstances. 9. Fees and Costs. Fees and costs shall be allocated in the following manner: a. Each party shall be responsible for its own attorneys' fees, except as provided by law; 16 b. Ultrak shall bear the full cost of the arbitrator's fees and any costs associated with the facilities for the arbitration. c. Ultrak and the Executive shall each bear an equal one-half of any court reporters' fees, assuming both parties want a transcript of the proceeding. If one party elects not to receive a transcript of the proceedings, the other party will bear all of the court reporters' fee. However, such an election must be made when the arrangements for the court reporter are being made. d. Each party shall be responsible for its costs associated with discovery. D. Severability. In the event that any provision of this Policy is determined by a court of competent jurisdiction to be illegal, invalid or unenforceable to any extent, such term or provision shall be enforced to the extent permissible under the law and all remaining terms and provisions of this Policy shall continue in full force and effect. IN WITNESS WHEREOF, the parties have set their signatures on the date first written above. EMPLOYER: EXECUTIVE: By:_______________________ By:_____________________ Peter Beare, Wendy S. Diddell Title: President 17 EX-10.45 10 file009.txt EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of the 22nd day of December , 2001 by and between Ultrak Operating, L.P., a Texas limited partnership, ("Ultrak") and Chris Sharng, (the "Executive"). RECITALS A. The Employer desires that the Executive continue to provide services for the benefit of the Employer and its affiliates and the Executive desires to accept such employment with the Employer. B. The Employer and the Executive acknowledge that the Executive will be a member of the senior management team of the Employer and, as such, will participate in implementing the Employer's business plan. C. In the course of employment with the Employer, the Executive has had and will continue to have access to certain confidential information that relates to or will relate to the business of the Employer and its affiliates. D. The Employer desires that any such information not be disclosed to other parties or otherwise used for unauthorized purposes. NOW, THEREFORE, in consideration of the above premises and the following mutual covenants and conditions, the parties agree as follows: 1. Employment. The Employer shall employ the Executive as its Senior Vice President, Chief Financial Officer and the Executive hereby accepts such employment on the following terms and conditions. 2. Duties. The Executive shall work for the Employer in a full-time capacity. The Executive shall, during the term of this Agreement, have the duties, responsibilities, powers, and authority of the position of Senior Vice President, Chief Financial Officer. The Executive shall report to, and follow the direction of, the Chief Executive Officer or President of the Employer or any other employee designated by the Chief Executive Officer or President of the Employer. The Executive shall diligently, competently, and faithfully perform all duties, and shall devote his entire business time, energy, attention, and skill to the performance of duties for the Employer or its affiliates and will use his best efforts to promote the interests of the Employer. It shall not be considered a violation of the foregoing for the Executive to serve on corporate, industry, civic, religious or charitable boards or committees, so long as such activities do not significantly interfere with or present a conflict of interest with the performance of the Executive's responsibilities as an employee of the Employer in accordance with this Agreement. 3. Executive Loyalty. The Executive shall devote all of his time, attention, knowledge, and skill solely and exclusively to the business and interests of the Employer, and the Employer shall be entitled to all benefits and profits arising from or incident to any and all work, services, and advice of the Executive. The Executive expressly agrees that during the term of this Agreement, he shall not provide assistance to, as a partner, officer, director, member, manager, stockholder, advisor, agent, employee, or in any other form or capacity, any other business similar to that of the Employer. The foregoing notwithstanding, except as provided for in Paragraph 9.D.(2) below, nothing herein contained shall be deemed to prevent the Executive from investing his money in the capital stock or other securities of any corporation whose stock or securities are publicly-owned or are regularly traded on any public exchange. 4. Term of Employment. Unless sooner terminated as hereinafter provided, this Agreement shall be entered into for a period of twelve (12) month's (the "Initial Term"), commencing on January 1, 2002 (the "Effective Date"). The term of employment shall be renewed automatically for successive periods of twelve (12) month's each (a "Renewal Term") after the expiration of the Initial Term and any subsequent Renewal Term, unless the Employer provides the Executive, or the Executive provides the Employer, with written notice to the contrary at least sixty (60) days prior to the end of the Initial Term or any Renewal Term. 1 5. Compensation. A. Salary. The Employer shall pay the Executive an annual base salary of $192,000.00 (the "Base Salary"), payable in substantially equal installments, on a time schedule that is in accordance with the Employer's payroll policy for executives in effect at the time. The Executive's salary shall be subject to any payroll or other deductions as may be required to be made pursuant to law, government order, or by agreement with, or consent of, the Executive. The Employer will formally evaluate the Executive's performance and communicate the results to Executive no less than once a year. Executive will be eligible for performance-based increases in the Executive's base salary on the same terms and conditions normally afforded executive employees employed at Executive's level with Ultrak. The Executive's base salary will not be reduced during the Initial Term of the Agreement. Executive shall receive all regular costs of living and other standard raises or salary increases, if any, provided to other executive employees employed at Executive's level with Ultrak. B. Performance Bonus. The Executive shall be entitled to receive a bonus, if earned, to be determined according to the management bonus program established by Employer for each of Employer's fiscal years beginning January 1, 2002 and Executive shall be entitled to participate in the Ultrak Executive Management Stock Option Program. The 2002 performance bonus will provide for the Executive a minimum guarantee of $76,800.00 or 40% of the current base salary, if the Executive does not terminate his employment with Ultrak prior to the filing of the 2002 10-K with the Security and Exchange Commission. C. Retention Bonus. The Executive is to receive $20,617.00, to be paid out in January 2002, for the purpose of retention. Should the Executive terminate his employment with Ultrak prior to the end of 2002, the Retention Bonus is payable back to Ultrak on a pro rated basis. D. Other Benefits. During the term of this Agreement, the Employer shall: (1) include the Executive in any medical, dental or health insurance, disability or life insurance, retirement plans and other benefit plans or programs as partially funded and maintained by Ultrak for the benefit of its employees; (2) provide the Executive with two (2) weeks paid vacation in each year to be taken at a time or times reasonably agreeable to both the Executive and the Employer, in addition to Employer designated holidays and sick leave in accordance with the Ultrak policy; (3) provide a monthly car allowance of $300.00; (4) pay for reasonable professional associations, dues, educational seminars to maintain license status. E. Profit Sharing. The Executive shall not be entitled to participate in any profit sharing program of Employer, unless otherwise determined by Ultrak's CEO and/or Board of Directors, from time to time. 6. Expenses. The Employer shall reimburse the Executive for all reasonable and approved business expenses, provided the Executive submits paid receipts or other documentation acceptable to the Employer and as required by the Internal Revenue Service to qualify as ordinary and necessary business expenses under the Internal Revenue Code of 1986, as amended. 7. Termination. Notwithstanding anything in Paragraph 4 of this Agreement to the contrary, the Executive's services shall terminate upon the first to occur of the following events: 2 A. At the end of the term of this Agreement, including any Renewal Terms, if notice of intent not to renew was provided in accordance with Paragraph 4. B. Upon the Executive's date of death or the date the Executive becomes Disabled (as defined herein) . For purposes of this Agreement, the Executive is "Disabled" if the Executive, as a result of illness or incapacity, shall be unable to perform the essential functions of his job, with or without any reasonable accommodation required by law, for a period of three (3) consecutive months or for any aggregate period of six (6) months in any twelve (12) month period. A termination of the Executive's employment by the Employer for disability shall be communicated to the Executive by written notice and shall be effective on the tenth (10th) business day after receipt of such notice by the Executive, unless the Executive returns to full-time performance of his duties before such tenth (10th) business day. C. For "cause," on the date the Employer provides the Executive with written notice that he is being terminated for Cause (as defined herein). For purposes of this Agreement, "Cause" exists if the Executive: (1) commits any felony including, but not limited to, a felony involving fraud, theft, misappropriation, dishonesty, or embezzlement or commits any misdemeanor which in the sole discretion of Employer involves moral turpitude; (2) willfully engages in acts that he knew, or should have known in the exercise of reasonable care, would cause material harm to Employer's property, goodwill or existing business interests; provided, however, that no act on Executive's part shall be considered "willful" unless done by Executive, in Employer's sole discretion, without a good faith and reasonable belief that his actions were in the best interest of the Employer; (3) engages in any violation of any civil law, including but not limited to harassment (sexual and/or otherwise unlawful) and RICO laws. (4) continues to fail to substantially perform his previously identified duties, or refuses to substantially perform his previously identified duties, thirty (30) calendar days after written demand for substantial performance is delivered by the Employer specifically identifying the manner in which the Employer believes Executive has failed or refused to substantially perform his duties. (5) a material breach of any written Employer policies or procedures that are applicable to executives at Executive's level or higher within Ultrak, after written notice by the Employer to the Executive of such violation, and in the event of a procedural breach of any written Employer policies or procedures the failure by the Executive to undertake his best efforts to cure such procedural violation within a thirty (30) calendar day period where a cure within that time period is possible; provided, however, that "cause" will not exist if the policy violation would not normally be a dischargeable offense under the Employer's progressive discipline policies. D. On the date the Executive terminates his employment for any reason, provided that the Executive shall give the Employer thirty (30) days written notice prior to such date of his intention to terminate this Agreement. E. On the date the Employer terminates the Executive's employment for any reason, other than A-D set forth in this Paragraph 7. F. On the date the Executive terminates his employment for the following (1) a "Change of Control" of the Employer (as herein defined in paragraph 8A in conjunction with either (a) a material change in the Executive's job duties that is inconsistent with the scope of responsibilities described in the attached Job Description for Executive, (or) (b) a reduction in the Executive's total compensation package, during the Initial Term. 3 8. Compensation Upon Termination. A. If the Executive's services are terminated pursuant to any of the provisions of A, B, or E of Paragraph 7, the Executive, shall be entitled to the Base Salary through the later of: the Executive's final date of active employment; or the date of the Agreement's termination. The Executive shall also be entitled to any benefits mandated under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). If the Executive's services are terminated pursuant to Paragraph 7A, 7B and/or 7E, the Executive, upon agreement to and execution of a release of claims agreeable to Ultrak, shall be entitled to the continuation of the Base Salary plus benefits, exclusive of vacation accrual, at the rate as set forth in Paragraph 5A for an 18 month period (the "Severance Period"), payable on a time schedule that is in accordance with the Employer's payroll policy for executives in effect at the time. During the Severance Period, if the Executive becomes an employee with or provides, consulting services for pay to any company or entity other than Employer or an affiliate of Employer, the Employer shall only be responsible for payment to the Executive of the amount by which the Executive's Base Salary exceeds the Executive's Base Compensation from his new employer during the remainder of the Severance Period. Additionally, the Executive shall be entitled to the continuation of his Base Salary plus Other Benefits as set forth in this Paragraph for a period of 18 months if the Executive, pursuant to Paragraph 7F, terminates his employment following (1) a "Change of Control" of the Employer (as herein defined) in conjunction with either (a) a material change in the Executive's job duties that is inconsistent with the scope of responsibilities described in the attached Job Description for Executive, (or) (b) a reduction in the Executive's total compensation package, during the Initial Term. The occurrence of a "Change of Control" shall mean, for purposes of this Agreement: 1) an ownership change in which any person/individual or entity, excluding George K. Broady, his family members, affiliates or related parties, in one or more transactions or series of transactions, directly or indirectly, acquires more than 50% of the record and beneficial ownership in the voting stock of the Employer; or 2) the direct or indirect sale or exchange by the shareholders of the Employer of all or substantially all of the stock of the Employer; or 3) a merger or consolidation in which the Employer is a party; or 4) the sale, exchange, or transfer of all or substantially all of the assets of the Employer. B. If the Executive's services are terminated pursuant to B or F set forth in paragraph 7, all stock options granted to the Executive under the Ultrak 1988 Non-Qualified Stock Option Plan and Amendments thereto or the Ultrak Incentive Stock Option Plan will become immediately vested. 9. Protective Covenants. The Executive acknowledges and agrees that by virtue of his employment by, and relationship with Ultrak, he has acquired and will acquire "Confidential Information", as hereinafter defined, as well as special knowledge of the Employer's relationships with its customers and business brokers, and that, but for his association with the Employer, the Executive would not or will not have had access to said Confidential Information or knowledge of said relationships. The Executive further acknowledges and agrees (i) that the Employer has long term, near-permanent relationships with its customers, and that those relationships were developed at great expense and difficulty to the Employer over several years of close and continuing involvement; (ii) that the Employer's relationships with its customers are and will continue to be valuable, special and unique assets of the Employer and that the identity of its customers is kept under tight security with the Employer and cannot be readily ascertained from publicly available materials or from materials available to the Employer's competitors; and (iii) that the Employer has the following protectable interests that are critical to its competitive advantage in the industry and would be of demonstrable value in the hands of a competitor. 4 The Executive acknowledges and agrees that by virtue of his employment by and relationship with Ultrak that Ultrak agrees to provide the Executive with specialized training and instruction regarding Ultrak's operations, products sold and serviced by Ultrak, as well as marketing and operational techniques and strategies to the extent applicable to the Executive's employment with Ultrak. This training may be provided through direct experience or otherwise. The Executive acknowledges and agrees that by virtue of his employment by and relationship with Ultrak that Ultrak agrees to provide the Executive with an interest in the growth of the goodwill of Ultrak through his employment. Ultrak also agrees to provide expense reimbursements in accordance with Ultrak policy, access to confidential information, and contact with customers, contractors and vendors in order to help Ultrak develop goodwill for Ultrak. In return for the consideration described in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and as a condition precedent to the Employer entering into this Agreement, and as an inducement to the Employer to do so, the Executive hereby represents, warrants, and covenants as follows: A. The Executive has executed and delivered this Agreement as his free and voluntary act, after having determined that the provisions contained herein are of a material benefit to him, and that the duties and obligations imposed on him hereunder are fair and reasonable and will not prevent him from earning a comparable livelihood following the termination of his employment with the Employer; B. The Executive has read and fully understands the terms and conditions set forth herein, has had time to reflect on and consider the benefits and consequences of entering into this Agreement, and has had the opportunity to review the terms hereof with an attorney or other representative, if he so chooses; C. The execution and delivery of this Agreement by the Executive does not conflict with, or result in a breach of or constitute a default under, any agreement or contract, whether oral or written, to which the Executive is a party or by which the Executive may be bound; D. The Executive agrees that, during the time of his employment and for a period of one (1) year after the termination of the Executive's employment under Paragraph 7A, C, D, E or F, the Executive will not, except on behalf of Employer, assist a Competing Business (as defined below) by doing any of the following prohibited acts: (1) directly or indirectly, contact or solicit, or direct any one else to contact or solicit, any Covered Customer or Prospective Customer (as defined below) or Business Brokers (as defined below) for the purpose of selling or attempting to sell, any products and/or services that are the same or so similar to the products and services provided by the Employer to its customers that they would displace or reduce the volume of products or services sold by Employer to its customers during the term hereof. In addition, the Executive will not identify or disclose any such Covered Business Brokers, Covered Customers or Prospective Customers, or any part thereof, as being a business broker, customer or prospective customer of Employer to any person, firm, corporation, association, or other entity engaged in a Competing Business; or (2) participate in a Competing Business by supervising, or providing, directly or indirectly, services or assistance to a Competing Business in a position that involves (a) duties or functions that are the same or substantially similar in their purpose to those provided by Executive to Employer, (b) duties or functions that would involve input into or direction of the Competing Business' decisions regarding, but not limited to, marketing, product or service development, engineering or research and development, financial planning, organizational change or restructuring, customer solicitations, and (c) direction or control over 5 communications with Covered Customers and Prospective Customers, and Covered Brokers; provided, however, that nothing herein shall prevent Executive from directly owning less than one percent (1%) of the common stock of a publicly traded Competing Business or indirect ownership of an interest in a Competing Business through mutual funds or similar investment entities; or (3) solicit or otherwise induce, on his own behalf or on behalf of any other person or entity, any person who is any of the Employer's employees to terminate employment with the Employer; or (4) take any action as a consultant, advisor, officer, manager, agent, director, partner, independent contractor, owner, or employee for or on behalf of any of the Employer's business brokers, customers, or prospective customers to induce the Employer's business broker, customer or prospective customer at issue to terminate or reduce in any way any aspect of the Employer's ongoing sales or services, or other business activities with the customer, broker or prospective customer that the Executive is then working for; or (5) use any of the specialized training he has received from Ultrak; or (6) use the goodwill developed with Ultrak's customers, contractors and vendors. The foregoing restrictions in Paragraphs 9D(1)-(4) apply to activities by Executive anywhere within a fifty (50) mile radius of any office of Employer; and at the addresses or locations where Covered Customers and Prospective Customers and Covered Brokers are doing business at the time of the Executive's termination from employment or during a period of six (6) months prior to the Executive's termination from employment unless otherwise modified and agreed to in writing and authorized by the Employer's Chief Executive Officer. E. The Executive acknowledges and agrees that the scope described above is necessary and reasonable in order to protect the Employer in the conduct of its business and that, if the Executive becomes employed by another employer, he shall be required to disclose the existence of this Paragraph 9 to such employer and the Executive hereby consents to and the Employer is hereby given permission to disclose the existence of this Paragraph 9 to such employer; F. A "Competing Business," as referred to in Paragraph 9 and its subparts, means any person or entity engaged in the business of providing competing goods or services that are the same or similar to the goods or services sold by Employer to its customers that they would displace or reduce the volume of products or services sold by the Employer to its customers. A "Covered Customer or Prospective Customer," as referred to in Paragraph 9 and its subparts, means any person or entity that (a) hold a contract with Employer, or requested a contract proposal, or had a contract proposal made to it by Employer, within the previous six (6) months; and (b) that Executive either had contact with or received confidential information about during the last six (6) months of Executive's employment with Employer. A "Covered Broker," as referred to in Paragraph 9 and its subparts, refers to any person or entity who, within the preceding twelve (12) months in the ordinary course of business for that person or entity, (a) acted as an agent or intermediary to facilitate the sale of goods or services sold by Employer; and, (b) had contact with Executive or was the subject of confidential information handled by the Executive. G. The Executive agrees that both during his employment and for a period of one (1) year thereafter the Executive will not, for any reason whatsoever, use for himself or disclose to any person not employed by the Employer any "Confidential Information" of the Employer acquired by the Executive during his relationship with the Employer, both prior to and during the term of this Agreement, except as otherwise provided for below. The Executive further agrees to use Confidential Information solely for the purpose of performing duties with the Employer and further agrees not to use Confidential Information for his own private use or commercial purposes or in any way detrimental to the Employer, except as otherwise provided for below. The Executive agrees that "Confidential Information" means (1) information created or compiled by Employer in the course of its business, including a formula, pattern, compilation, program, product, device, method, technique, or process, that (i) derives 6 economic value (actual or potential) from not being generally known to, and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use, and (ii) is subject to efforts by the Employer that are reasonable under the circumstances to keep it secret; or (2) information that was first acquired by Executive from or through Executive's employment with Employer and that is information the Employer indicated to the Executive should be maintained as confidential and not disclosed to others outside the company without permission by designating or marking it as "confidential" or through some other reasonable means of communication. The Employer acknowledges and agrees that Confidential Information does not include (1) information properly in the public domain, or (2) information in the Executive's possession prior to the date of his original employment with the Employer. Nothing herein will be construed to preclude Executive from (i) disclosing Confidential Information to his personal accountants, tax advisors, or legal counsel, in confidence, where necessary for them to provide their professional services to Executive; or, (2) where compelled to do so by law (in response to a subpoena for example); provided, however, that if Executive believes he is compelled by law to make such a disclosure of Confidential Information he will provide Employer as much notice as practicable before making the disclosure. H. During and after the term of employment hereunder, the Executive will not remove from the Employer's premises any documents, records, files, notebooks, correspondence, computer printouts, computer programs, computer software and hardware, price lists, microfilm, or other similar documents containing Confidential Information, including copies thereof, whether prepared by him or others, except as his duty shall require, and in such cases, will promptly return such items to the Employer. Upon termination of his employment with the Employer, all such items including summaries or copies thereof, then in the Executive's possession, shall be returned to the Employer immediately. The Executive agrees to the return of such items, which shall be a requirement in order for the Executive to receive, at the time of such termination, or any time thereafter, any compensation due him pursuant to any paragraphs hereunder or otherwise; provided, however, that Employer will not make any withholdings or reduce the compensation due Executive under this agreement or otherwise without first identifying the item that has not been returned and providing Executive five (5) business days to return it. I. The Executive recognizes and agrees that all ideas, inventions, enhancements, plans, writings, and other developments or improvements (the "Inventions") conceived by the Executive, alone or with others, during the term of his employment, whether or not during working hours, that are within the scope of the Employer's business operations or that relate to any of the Employer's work or projects, are the sole and exclusive property of the Employer. The Executive further agrees that (1) he will promptly disclose all Inventions to the Employer and hereby assigns to the Employer all present and future rights he has or may have in those Inventions, including without limitation those relating to patent, copyright, trademark or trade secrets; and (2) all of the Inventions eligible under the copyright laws are "work made for hire." At the request of and without charge to the Employer, the Executive will do all things deemed by the Employer to be reasonably necessary to perfect title to the Inventions in the Employer and to assist in obtaining for the Employer such patents, copyrights or other protection as may be provided under law and desired by the Employer, including but not limited to executing and signing any and all relevant applications, assignments or other instruments. The Employer hereby notifies the Executive that the provisions of this Paragraph 9 shall not apply to any Inventions for which no equipment, supplies, facility or trade secret information of the Employer was used and which were developed entirely on the Executive's own time, unless (1) the Invention relates (i) to the business of the Employer, or (ii) to actual or demonstrably anticipated research or development of the Employer, or (2) the Invention results from any work performed by the Executive for the Employer; J. The Executive acknowledges and agrees that all customer lists, supplier lists, and customer and supplier information, including, without limitation, addresses and telephone numbers, are and shall remain the exclusive property of the Employer, regardless of whether such information was developed, purchased, acquired, or otherwise obtained by the Employer or the Executive. The Executive agrees to furnish to the Employer on demand at any time during the term of this Agreement, and upon termination of this Agreement, his complete list of the correct names and places of business and telephone numbers of all of its customers served by him and located within any or all of the territories to which he has been assigned, including all copies thereof wherever located. The Executive further agrees to promptly notify the Employer of the name and address of any new customer, and report all changes of a location of old customers, that are not otherwise already known to the Employer, so that upon the termination of this Agreement, the Employer will have a complete list of the correct names and addresses of all of its 7 customers with which the Executive has had dealings. The Executive also agrees to furnish to the Employer on demand at any time during the term of this Agreement, and upon the termination of this Agreement, any other records, notes, computer printouts, computer programs, computer software or hardware, price lists, microfilm, or any other documents related to the Employer's business that were maintained by Executive in the course of his employment, including originals and copies thereof; and K. It is agreed that any breach or anticipated or threatened breach of any of the Executive's covenants contained in this Paragraph 9 will result in irreparable harm and continuing damages to the Employer and its business and that the Employer's remedy at law for any such breach or anticipated or threatened breach will be inadequate and, accordingly, in addition to any and all other remedies that may be available to the Employer at law or in equity in such event, any court of competent jurisdiction may issue a decree of specific performance or issue a temporary and permanent injunction, enjoining and restricting the breach, or threatened breach, of any such covenant, including, but not limited to, any injunction restraining the Executive from disclosing, in whole or part, any Confidential Information. 10. Acknowledgement of Ancillary Agreements and Consideration. The Executive and Ultrak agree that the protective covenants set forth in this Agreement are reasonable and necessary for the protection and enforcement of their agreements on property rights set forth in Paragraph 9 above. The Executive acknowledges that the Executive's agreement to be bound by the protective covenants set forth in Paragraph 9 is a concurrent and material inducement for Ultrak (i) to enter into the ancillary terms of this Agreement, (ii) to initiate or continue the Executive's employment with Ultrak, and (iii) to provide the Executive with promises and consideration set forth in this Agreement. The Executive agrees that each agreement set forth in Paragraph 9 is an otherwise enforceable, ancillary agreement, and each is independently sufficient to support all of the protective covenants in Paragraph 9. The Executive agrees that these restrictions do not unreasonably restrict the Executive's ability to earn a living after termination of the Executive's employment. Ultrak agrees to provide the Executive the access to trade secrets, confidential and proprietary information, or specialized training and instruction, or the goodwill support, referred to in Paragraph 9 above within 30 days of the execution of this Agreement. This is not contingent upon Ultrak's employment with the Employer but it is contingent upon Ultrak complying with the protective covenants in Paragraph 9 and its subparts. 11. Indemnification. Ultrak shall indemnify the Executive to the full extent authorized by law in the event he is made or threatened to be made a party to any action, suit, or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he is or was a director, officer or employee of Ultrak or serves or served any other enterprise as a director, officer or employee at the request of Ultrak and in compliance with the corporate By-Laws. 12. Notices. Any and all notices required in connection with this Agreement shall be deemed adequately given only if in writing and (a) personally delivered, or sent by first class, registered or certified mail, postage prepaid, return receipt requested, or by recognized overnight courier, (b) sent by facsimile, provided a hard copy is sent with postage prepaid thereon via regular mail on that date to the party for whom such notices are intended, or (c) sent by other means at least as fast and reliable as first class mail. A written notice shall be deemed to have been given to the recipient party on the earlier of (a) the date it shall be delivered to the address required by this Agreement; (b) the date delivery shall have been refused at the address required by this Agreement; (c) with respect to notices sent by mail or overnight courier, the date as of which the Postal Service or overnight courier, as the case may be, shall have indicated such notice to be undeliverable at the address required by this Agreement; or (d) with respect to a facsimile, the date on which the facsimile is sent and receipt of which is confirmed. Any and all notices referred to in this Agreement, or which either party desires to give to the other, shall be addressed to his residence in the case of the Executive, or to its principal office in the case of the Employer. 13. Waiver of Breach. A waiver by either party hereto of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver or estoppel by the nonbreaching party of any subsequent breach , and no waiver shall be valid unless it is contained in a signed writing. 8 14. Right to Cure/Early Resolution Conference. If either party becomes aware of any breach of any material term of this Agreement, prior to taking any action based upon the alleged breach, the nonbreaching party will provide the other party written notice of the alleged breach within fourteen (14) days from the date on which the non-breaching party became aware of the alleged breach, and give the breaching party thirty (30) days from the date of the written notice to undertake best efforts to cure the alleged breach ("the right to cure period"). Failure by the nonbreaching party to provide written notice and an opportunity to cure will waive any right of the nonbreaching party to assert the alleged breach at a later time. Within fourteen (14) days after the expiration of the right to cure period, if the breaching party has not undertaken its best efforts to cure the alleged breach, the nonbreaching party will notify the breaching party of this failure and request, in writing, a meeting to discuss resolution of any disputes between the parties (the "Early Resolution Conference"). Provided, however, that Ultrak may at any time independently pursue the remedies specifically provided in Paragraph 9(K). 15. Resolution of Disputes. In the event there is a dispute between the parties arising from any breach or alleged breach of this Agreement or as to the Executive's termination or compensation or as to any allegation that Ultrak has violated any of the Executive's employment, civil or other rights under any laws, statutes or constitutional provisions, and the provisions of Paragraph 14 have been unsuccessful to resolve the dispute, the parties agree that the suit will be subject to the mediation and binding arbitration provisions set forth in Attachment A. The parties agree to execute the Policy for Resolution of Disputes set forth in Exhibit A in conjunction with and upon execution of this Agreement. 16. Assignment. The Executive acknowledges that the services to be rendered by him are unique and personal. Accordingly, the Executive may not assign any of his rights or delegate any of his duties or obligations under this Agreement. The rights and obligations of the Employer under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Employer so long as the successor or assign of the Employer provides Executive employment in a position that is the same, or reasonably similar, in its responsibilities, compensation, benefits, and other terms and conditions. 17. Entire Agreement. This Agreement sets forth the entire and final agreement and understanding of the parties and contains all of the agreements made between the parties with respect to the subject matter hereof. This Agreement supersedes any and all other agreements, either oral or in writing, between the parties hereto, with respect to the subject matter hereof. No change or modification of this Agreement shall be valid unless in writing and signed by the Employer and the Executive. 18. Severability. If any provision of this Agreement shall be found invalid or unenforceable for any reason, in whole or in part, then such provision shall be deemed modified, restricted, or reformulated to the extent and in the manner necessary to render the same valid and enforceable, or shall be deemed excised from this Agreement, as the case may require, and this Agreement shall be construed and enforced to the extent necessary to protect the interests of both parties hereto, as if such provision had been originally incorporated herein as so modified, restricted, or reformulated or as if such provision had not been originally incorporated herein, as the case may be. The parties further agree to seek a lawful substitute for any provision found to be unlawful; provided, that, if the parties are unable to agree upon a lawful substitute, the parties desire and request that a court or other authority called upon to decide the enforceability of this Agreement modify those restrictions in this Agreement that, once modified, will result in an agreement that is enforceable to the extent necessary to protect the interests of both parties hereto. 19. Headings. The headings in this Agreement are inserted for convenience only and are not to be considered a construction of the provisions hereof. 20. Execution of Agreement. This Agreement may be executed in several counterparts, each of which shall be considered an original, but which when taken together, shall constitute one agreement. 21: Recitals. The recitals to this Agreement are incorporated herein as an integral part hereof and shall be considered as substantive and not prefatory language. 9 22. Expenses. In any action brought by either the Executive or the Employer to enforce any of the provisions of this Agreement, all expenses incurred by the party in connection with such actions, including reasonable attorneys' fees, shall be borne by that party. 23. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas. 10 IN WITNESS WHEREOF, the parties have set their signatures on the date first written above. EMPLOYER: EXECUTIVE: By: _________________________ By:_________________________ Peter Beare Chris Sharng Title: President ______________________________________ | | | WITNESS: | | | | | | By:________________________ | | | | Print Name: _________________ | | | | | |______________________________________| 11 EXHIBIT A POLICY FOR RESOLUTION OF DISPUTES A. Agreement to Arbitrate. In the event that any employment dispute arises between Ultrak and the Executive, the parties involved will make all efforts to resolve any such dispute through informal means as outlined in Paragraph 14 of the Employment Agreement between Ultrak and the Executive. If these informal attempts at resolution fail and if the dispute arises out of or is related to the termination of employment, compensation of the Executive, or any alleged unlawful discrimination, or violation of any law, Ultrak and the Executive shall submit the dispute to final and binding arbitration. Provided, however, that Ultrak may at any time pursue the remedies specifically provided in Paragraph 9(K) of the Employment Agreement between Ultrak and the Executive. By accepting or continuing employment with Ultrak, the Executive agrees that arbitration is the exclusive remedy for all such arbitrable disputes other than the remedies specifically provided in Paragraph 9(K) of the Employment Agreement between Ultrak and the Executive; with respect to such disputes, no other action may be brought in court or any other forum (except actions to compel arbitration hereunder). THIS POLICY AND AGREEMENT TO ARBITRATE IS A FULL AND COMPLETE WAIVER OF THE PARTIES' RIGHTS TO A CIVIL COURT ACTION FOR ANY DISPUTES RELATING TO COMPENSATION, TERMINATION OF EMPLOYMENT, ANY CLAIMS WHATSOEVER RELATED TO ANY EMPLOYMENT AGREEMENT, ALLEGED OR ACTUAL VIOLATION OF ANY LAWS, RULES, REGULATIONS OR STATUTES RELATED TO THE EMPLOYMENT OF THE EXECUTIVE, OR ANY ALLEGED OR ACTUAL UNLAWFUL DISCRIMINATION, WHICH INCLUDES SEXUAL OR OTHER UNLAWFUL HARASSMENT. ONLY AN ARBITRATOR, NOT A JUDGE OR JURY, WILL DECIDE SUCH DISPUTES. Employment disputes arising out of or related to termination of employment or alleged unlawful discrimination, which includes sexual or other unlawful harassment, shall include, but not be limited to, the following: alleged violations of federal, state, and/or local constitutions, statutes, or regulations; claims based on any purported breach of contractual obligations; and claims based on any purported breach of duty arising in tort, including violations of public policy. Disputes related to injuries covered by workers' compensation and unemployment compensation and the Employee Retirement Income Security Act of 1974 (ERISA) are not arbitrable hereunder. B. Attempt at Informal Resolution of Disputes (Mediation). Prior to submission of any dispute to arbitration, Ultrak and the Executive shall attempt to resolve the dispute informally through mediation. Ultrak and the Executive will select a mediator from a list provided by the American Arbitration Association or other recognized dispute resolution provider that will assist the parties in attempting to reach a settlement or bind the parties. The mediator may make settlement suggestions to the parties but shall not have the power to impose a settlement upon them. If the dispute is resolved in mediation, the matter shall be deemed closed upon execution of a document memorializing the resolution and signed by both parties. If the dispute is not resolved in mediation and goes to the next step (binding arbitration), any proposals or compromises suggested by either of the parties or the mediator shall not be referred to or have any bearing on the arbitration procedure. The mediator cannot also serve as the arbitrator in the subsequent proceeding unless all parties expressly agree in writing. Ultrak shall bear the full costs of the mediator's fees and any reasonable costs associated with the mediation proceedings. C. Request for Arbitration. 1. Arbitration Procedures. 12 The Executive or his/her representative must submit a "Request for Arbitration" in writing to the President of Ultrak within one (1) year or the statutory period required under Federal and/or Texas State law of (i) the termination of employment (including resignation), (ii) the incident giving rise to the dispute or claim, or, (iii) in the case of unlawful discrimination, including sexual or other unlawful harassment, the alleged conduct. This time limitation will not be extended for any reason and shall not be subject to tolling, equitable or otherwise. If the "Request for Arbitration" is not submitted in accordance with the aforementioned time limitations, the Executive will not be able to bring his/her claim to this or any other forum. The Executive can obtain a "Request for Arbitration" form from the President of Ultrak or submit his/her own "Request for Arbitration" form, as long as it clearly states "Request for Arbitration" and includes the following information: a. A factual description of the dispute in sufficient detail to advise the parties of the nature of the dispute; b. The date when the dispute first arose; c. The names, work locations, telephone numbers of any co-workers or supervisors with knowledge of the dispute; and d. The relief requested by the party. Ultrak will respond in a timely manner to any "Request for Arbitration," initiated by the Executive so that the parties can begin the process of selecting an arbitrator. Such response may include any counterclaims that Ultrak chooses to bring against the Executive. 2. Selection of the Arbitrator. All disputes will be resolved by a single arbitrator. The arbitrator will be mutually selected by Ultrak and the Executive. If the parties cannot agree on an arbitrator, then a list of seven (7) arbitrators, experienced in employment matters, shall be provided by the American Arbitration Association. The arbitrator will be selected by the parties who will alternately strike names from the list. The last name remaining on the list will be the arbitrator selected to resolve the dispute. Upon selection, the arbitrator shall set an appropriate time, date and place for the arbitration, after conferring with the parties to the dispute. 3. Arbitrator's Authority. The arbitrator shall have the powers enumerated below: a. Ruling on motions regarding discovery, and ruling on procedural and evidentiary issues arising during the arbitration; b. Issuing protective orders on the motion of any party or third party witness (such protective orders may include, but not be limited to, sealing the record of the arbitration, in whole or in part (including discovery proceedings and motions, transcripts, and the decision and award), to protect the privacy or other constitutional or statutory rights of parties and/or witnesses); and c. Determining only the issue(s) submitted to him/her (the issue(s) must be identified in the "Request for Arbitration" or counterclaims, and any issue(s) not so identified in those documents shall be deemed to be and is/are outside the scope of the arbitrator's jurisdiction, and any award involving those issue(s) shall be subject to a motion to vacate). 4. Pleadings. a. A copy of the "Request for Arbitration" shall be forwarded to the arbitrator within five (5) calendar days of his/her selection. 13 b. Within ten (10) calendar days following submission of the Executive's "Request for Arbitration" to the arbitrator, Ultrak shall respond in writing to the "Request for Arbitration" to the arbitrator by answer and/or demurrer. The answer or demurrer shall be served on the arbitrator and the Executive. c. The answer to the "Request for Arbitration" shall include the following information: (1) A response, by admission or denial, to each claim set forth in the "Request for Arbitration"; (2) All affirmative defenses asserted by Ultrak to each claim; and (3) All counterclaims Ultrak asserts against the Executive and any related third party claims. d. If Ultrak contends that some or all of the Executive's claims set forth in the "Request for Arbitration" are barred as a matter of law, it may respond by demurrer setting forth the legal authorities in support of its position. If Ultrak demurs to less than the entire "Request for Arbitration," Ultrak must answer those claims to which it does not demur at the same time that it submits its demurrer. e. The Executive shall have twenty (20) calendar days to oppose Ultrak's demurrer. Any opposition must be in writing and served on the arbitrator and Ultrak. f. If Ultrak's answer alleges a counterclaim, within twenty (20) days of service of the answer, the Executive shall answer and/or demur to the counterclaim in writing and serve the answer and/or demurrer on the arbitrator and Ultrak. If the Executive demurs to any counterclaim, Ultrak shall have twenty (20) calendar days from its receipt of the demurrer to submit a written opposition to the demurrer to the Executive and the arbitrator. g. The arbitrator shall rule on demurrer(s) to any claims and/or counterclaims within fifteen (15) calendar days of service of the moving and opposition papers. h. If any demurrer is overruled, the moving party must answer those claims to which it demurred within five (5) calendar days of the arbitrator's ruling. The answer must be served on the arbitrator and the opposing party. i. When all claims and counterclaims have been answered, the arbitrator shall set a time and place for hearing which shall be no earlier than three (3) months from the day on which the parties are notified of the date of hearing and no late than twelve (12) months from the date on which the arbitrator sets the date of the hearing. j. The above rules apply whether the arbitration is initiated by the Executive or by Ultrak. Should arbitration be initiated by Ultrak, the Executive shall have all rights of response, demand and counterclaim, and otherwise as outlined above. 5. Discovery. The discovery process shall proceed and be governed as follows: 14 a. Parties may obtain discovery by any of the following methods: (1) Depositions upon oral examination, one (1) per side as of right, with more permitted if leave is obtained from the arbitrator; (2) Written interrogatories, up to a maximum combined total of (20), with the responding party having twenty (20) days to respond; (3) Request for production of documents or things or permission to enter upon land or other property for inspection, with the responding party having twenty (20) days to produce the documents and allow entry or to file objections to the request; and (4) Physical and mental examination, in accordance with the Federal Rule of Civil Procedure 35(a). b. Any motion to compel production, answers to interrogatories or entry onto land or property must be made to the arbitrator within fifteen (15) days of receipt of objections. c. All discovery requests shall be submitted no less than sixty (60) days before the hearing date. d. The scope of discoverable evidence shall be in accordance with Federal Rule of Civil Procedure 26(b)(1). e. The arbitrator shall have the power to enforce the aforementioned discovery rights and obligations by the imposition of the same terms, conditions, consequences, liabilities, sanctions, and penalties as can or may be imposed in like circumstances in a civil action by a federal court under the Federal Rules of Civil Procedure, except the power to order the arrest or imprisonment of a person. 6. Hearing Procedure. The hearing shall proceed according to the American Arbitration Association's Rules with the following amendments: a. The arbitrator shall rule at the outset of the arbitration on procedural issues that bear on whether the arbitration is allowed to proceed. b. Each party has the burden of proving each element of its claim or counterclaims, and each party has the burden of proving any of its affirmative defenses. c. In addition to, or in lieu of, closing arguments, either party shall have the right to present post-hearing briefs, and the due date for exchanging post-hearing briefs shall be mutually agreed on by the parties and the arbitrator. 7. Substantive Law. The applicable substantive law shall be the law of the State of Texas or federal law. If both federal and state law speak to a cause of action, the Executive shall have the right to elect his/her choice of law. However, choice of law in no way affects the procedural aspects of the arbitration, which are exclusively governed by the provisions of this Policy. 15 8. Opinion and Award. The arbitrator shall issue a written opinion and award, in conformance with the following requirements: a. The opinion and award must be signed and dated by the arbitrator. b. The arbitrator's opinion and award shall decide all issues submitted. c. The arbitrator's opinion and award shall set forth the legal principles supporting each part of the opinion. d. The arbitrator shall have the same authority to award remedies and damages as provided to a judge and/or jury under parallel circumstances. 9. Fees and Costs. Fees and costs shall be allocated in the following manner: a. Each party shall be responsible for its own attorneys' fees, except as provided by law; 16 b. Ultrak shall bear the full cost of the arbitrator's fees and any costs associated with the facilities for the arbitration. c. Ultrak and the Executive shall each bear an equal one-half of any court reporters' fees, assuming both parties want a transcript of the proceeding. If one party elects not to receive a transcript of the proceedings, the other party will bear all of the court reporters' fee. However, such an election must be made when the arrangements for the court reporter are being made. d. Each party shall be responsible for its costs associated with discovery. D. Severability. In the event that any provision of this Policy is determined by a court of competent jurisdiction to be illegal, invalid or unenforceable to any extent, such term or provision shall be enforced to the extent permissible under the law and all remaining terms and provisions of this Policy shall continue in full force and effect. IN WITNESS WHEREOF, the parties have set their signatures on the date first written above. EMPLOYER: EXECUTIVE: By:_______________________________ By:_______________________________ Peter Beare, Chris Sharng Title: President 17 EX-10.46 11 file010.txt SEVERANCE AGREEMENT SEVERANCE AGREEMENT THIS SEVERANCE AGREEMENT (this "Agreement"), dated as of December 4, 2001, is among Ultrak Operating, L.P., a Texas limited partnership ("Ultrak" or the "Employer"), Ultrak, Inc., a publicly-held Delaware corporation (the "Parent"), and George K. Broady (the "Executive"). RECITALS A. The Employer is an affiliate of the Parent. B. The Employer desires that the Executive continue to provide services for the benefit of the Employer and the Parent and the Executive desires to continue to provide such services upon the execution of this Agreement by the Employer and the Parent. C. The parties are entering into this Agreement to assure severance benefits to the Executive since the Executive does not have an employment agreement with the Employer or the Parent. NOW, THEREFORE, in consideration of the above premises and the mutual covenants and conditions set forth below, the Employer and the Executive agree as follows: 1. Definitions. (a) "Affiliate" has the meaning ascribed to it in Rule 12b-2 of the Securities and Exchange Act of 1934, as amended. (b) "Disability" has the meaning ascribed to it in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended. (c) "Parent Affiliate" means any entity now or hereafter an Affiliate of the Parent and includes, without limitation, the Employer. (d) "Subsidiary" has the meaning ascribed to it in Rule 12b-2 of the Securities and Exchange Act of 1934, as amended. 2. Executive's Position. The Executive agrees to remain the Chief Executive Officer (CEO) of the Parent until the earlier of (a) the date the Parent hires a new CEO or (b) December 31, 2002; provided, however, if a new CEO is hired by the Parent before December 31, 2002, then the Executive agrees to serve as an advisor to the new CEO and assist in the new CEO's transition until December 31, 2002. 3. Compensation to Executive. If, at any time while the Executive is employed by the Parent or any Parent Affiliate (a) the Executive's employment is terminated by the Parent or the Employer (it being understood that neither the Parent nor the Employer can terminate the Executive before December 31, 2002), (b) the Executive resigns (but solely for purposes of this Agreement any such resignation shall be effective no earlier than December 31, 2002 and December 31, 2002 shall be the date of such resignation), (c) the Executive dies, or (d) the Executive suffers a permanent Disability (each of (a), (b), (c), and (d) is hereafter referred to as a "Triggering Event"), then upon the first to occur of a Triggering Event, the following compensation shall be due and payable to the Executive on the terms and conditions set forth below: (a) The Employer shall pay the Executive one-twelfth of his last annual base salary immediately preceding the date of the Triggering Event each month for a period of 36 months (the "Severance Period") with such amount to be payable on the same basis as the base compensation for all of the other executives of the Employer or the Parent (the "Severance Pay"). The Severance Pay shall be subject to all appropriate tax withholding. (b) During the Severance Period, the Executive shall be entitled to any dental insurance, health insurance, disability insurance, and/or life insurance benefit plans or programs as maintained by the Employer or the Parent for the benefit of its or their employees and the Executive's coverage under such plans during the Severance Period shall be at least equal to the coverage provided to the Executive at the time immediately preceding the commencement of the Severance Period; provided, however, if the Parent or the Employer terminates the participation of all participants in any benefit plan or program, then the Executive's participation in any such benefit plan or program may also be terminated without any violation of this Agreement. (c) Upon the occurrence of a Triggering Event, the Parent and the Employer hereby commit to promptly loan (the "Loan") the Executive sufficient funds to allow the Executive to exercise all unexercised stock options (but not warrants) to acquire the Parent's Common Stock. The Loan shall be for a term of three (3) years at an interest rate equal to the prime rate or base rate of Bank of America, N.A. on the date of the Loan. The principal amount of the Loan shall be due and payable at the end of the Loan period. Interest shall be due and payable on each anniversary of the date the Loan is made. The Loan shall be secured by all shares of Parent's Common Stock then owned or acquired by the Executive, but shall otherwise be a no personal liability loan to the Executive. 4. Waiver of Breach. A waiver in writing of a breach of any provision of this Agreement shall not operate or be construed as a waiver or estoppel by the waiving party of any subsequent breach, and no waiver shall be valid unless it is contained in a signed writing. 5. Resolution of Disputes. If there is a dispute arising from any breach or alleged breach of this Agreement, then the parties agree that the dispute will be subject to mediation and to binding arbitration under the rules of the American Arbitration Association. 2 6. Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their heirs, successors, and assigns. 7. Entire Agreement. This Agreement sets forth the entire and final agreement and understanding of the parties with respect to the subject matter hereof and contains all of the agreements made between the parties with respect to the subject matter hereof. This Agreement expressly supersedes any existing severance agreement between or among any of the Parent, any Parent Affiliate and the Executive and this Agreement supersedes any and all other agreements, either oral or in writing, between or among the parties hereto, with respect to the subject matter hereof. No change or modification of this Agreement shall be valid unless in writing and signed by the Employer, the Parent and the Executive. 8. Severability. If any provision of this Agreement shall be found invalid or unenforceable for any reason, in whole or in part, then such provision shall be deemed modified, restricted, or reformulated to the extent and in the manner necessary to render the same valid and enforceable, or shall be deemed excised from this Agreement, as the case may require, and this Agreement shall be construed and enforced to the extent necessary to protect the interests of all parties hereto, as if such provision had been originally incorporated herein as so modified, restricted, or reformulated or as if such provision had not been originally incorporated herein, as the case may be. The parties further agree to seek a lawful substitute for any provision found to be unlawful; provided, that, if the parties are unable to agree upon a lawful substitute, the parties desire and request that a court or other authority called upon to decide the enforceability of this Agreement modify those restrictions in this Agreement that, once modified, will result in an agreement that is enforceable to the extent necessary to protect the interests of all parties hereto. 9. Headings. The headings in this Agreement are inserted for convenience only and are not to be considered in construing the provisions hereof. 10. Counterparts. This Agreement may be executed in several counterparts, each of which shall be considered an original, but which when taken together, shall constitute one agreement. 11. Expenses. In any proceeding brought by the Executive, on the one hand, or the Employer and/or the Parent, on the other hand, to enforce any of the provisions of this Agreement, all expenses incurred by the party in connection with such actions, including reasonable attorneys' fees, shall be borne by that party. 12. Governing Law. This Agreement shall be governed by, and construed in accordance with, the internal laws (and not the conflicts laws) of the State of Texas. 13. Notices. All notices, requests, consents, directions, and other instruments and communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if (a) delivered by certified mail, return receipt requested, with postage prepaid or (b) sent by third party courier or overnight delivery service, to: 3 Employer or Parent: Ultrak, Inc. Executive: Mr. George K. Broady 1301 Water Ridge Drive 10050 Strait Lane Lewisville, Texas 75057 Dallas, Texas 75229 Attn: President General Counsel 14. Guarantee by the Parent. The Parent guarantees the obligations of the Employer in this Agreement. IN WITNESS WHEREOF, the parties have set their signatures as of the date first written above. EMPLOYER: EXECUTIVE: ULTRAK OPERATING, L.P. By: ULTRAK GP, INC. By: _________________________ _______________________________ Its:______________________ George K. Broady Address: Ultrak, Inc. Address: 10050 Strait Lane 1301 Waters Ridge Drive Dallas, Texas 75229 Lewisville, Texas 75057 Attn: President General Counsel PARENT: ULTRAK, INC. By:__________________________ Its:______________________ Address: Ultrak, Inc. 1301 Waters Ridge Drive Lewisville, Texas 75057 Attn: President General Counsel 4 EX-10.47 12 file011.txt 1988 NON-QUALIFIED STOCK OPTION PLAN EXHIBIT A AMENDMENT NO. 1 TO ULTRAK, INC. 1988 NON-QUALIFIED STOCK OPTION PLAN (As Amended and Restated Effective June 1, 2001) This Amendment No. 1 to the Ultrak, Inc. 1988 Non-Qualified Stock Option Plan (As Amended and Restated Effective June 1, 2001) (the "Plan") is adopted by Ultrak, Inc. (the "Company"), effective as of December 4, 2001. W I T N E S S E T H WHEREAS, the Board of Directors (the "Board") of the Company adopted the Plan on April 15, 1988 and has amended and restated the Plan from time to time; and WHEREAS, pursuant to Section 7 of the Plan, the Board desires to amend the Plan further to delegate to the President of the Company the authority to grant stock options under the Plan to certain employees of the Company upon the terms and subject to the conditions set forth in this Amendment No. 1; NOW THEREFORE, the Board hereby amends the Plan as follows: 1. The first sentence of Section 4 of the Plan hereby is amended by restatement in its entirety to read as follows: The Committee (as that term is defined in Section 5) may grant Options from time to time pursuant to this Program; provided, however, that the President of the Company in his sole discretion may grant Options pursuant to this Program if (i) the recipients of such Options are employees of the Company who are not considered to be "officers" of the Company under Rule 16a-1(f) adopted under Section 16 of the Securities Exchange Act of 1934, as amended, (ii) the aggregate number of shares of Common Stock subject to such Options does not exceed 100,000 shares in any one calendar quarter, and (iii) no individual may be granted an Option in any one calendar quarter to purchase more than 10,000 shares of Common Stock. 2. Paragraph (a) of Section 4 of the Plan hereby is amended by restatement in its entirety to read as follows: (a) Option Price. The Option Price for each Option Share shall be determined by the Committee from time to time and if applicable to this Section 4, by the Company's President. 3. Paragraphs (b), (c) and (d) of Section 5 of the Plan hereby are amended by restatement in their entirety to read as follows: (b) Subject to the express terms and conditions of this Program, the Committee and if applicable pursuant to Section 4, the Company's EXHIBIT A - Page 1 President, shall have full power to grant Options under this Program, and the Committee shall have full power to construe or interpret this Program, to prescribe, amend, rescind and waive rules and regulations relating to it and to make all other determination necessary or advisable for its administration. (c) Subject to the provisions of Sections 3 and 4 hereof, the Committee and if applicable pursuant to Section 4, the Company's President, may, from time to time, (1) determine (i) which employees of the Company shall be granted Options under this Program, (ii) the number and exercise price of Option Shares subject to each Option, and (iii) the time or times at which Options shall be granted, and (2) grant Options under this Program, and the Committee may, from time to time, waive any term or condition of an Option. (d) The Committee and if applicable pursuant to Section 4, the Company's President, shall report to the Board of Directors the names of employees granted Options and the number of Option Shares subject to, and the terms and conditions of, each Option. This Amendment No. 1 to the Plan was adopted by the Board effective as of the day and year first above written. ULTRAK, INC. BOARD OF DIRECTORS By:_____________________________ Chairman of the Board EXHIBIT A - Page 2 EX-10.48 13 file012.txt CONTRACT OF SALE CONTRACT OF SALE THIS CONTRACT OF SALE (this "Contract") is made by and between ULTRAK OPERATING, L.P., a Texas limited partnership ("Seller"), and BRIARWOOD CAPITAL CORPORATION, a Texas corporation, and/or its successors and/or assigns (subject to Section 11.6 below) ("Purchaser"). In consideration of the agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Purchaser agree as follows: ARTICLE I Sale and Purchase Subject to the terms and provisions of this Contract, Seller hereby sells and agrees to sell and convey to Purchaser, and Purchaser hereby buys and agrees to pay for all of the following described property (sometimes referred to herein in collectively as the "Property"): (a) A total of 14.002 acres of land being all of Lots 1R-A and 1R-B, Block C, of Water's Ridge-Phase I, an Addition to the City of Lewisville, Denton County, Texas, according to the Replat thereof recorded on May 10, 2001, under Document No. 2001-R0044819, Plat Records, Denton County, Texas, being a replat of Lot 1R Block C, of Water's Ridge-Phase I, an Addition to the City of Lewisville, Denton County, Texas, according to the Replat thereof recorded in Cabinet M, Page 66, Plat Records, Denton County, Texas (the "Land") and being described more fully on Exhibit "A" attached hereto and made a part hereof for all purposes, such description contained on Exhibit "A" being for the reasonable identification of the Land which is the subject hereof, and may be supplemented by the metes and bounds or other legal description of the Land to the extent provided for in Article IV hereinbelow; together with all of Seller's right, title and interest in and to the rights and appurtenances pertaining to the Land, including, any right, title and interest of Seller in and to adjacent roads, streets, alleys, easements or right-of-way; (b) the office, industrial and/or warehouse buildings and any and all other buildings, structures and improvements on the Land (collectively, and as applicable, the "Improvements"), commonly referred to as and with a street address of 1301 Waters Ridge Drive, Lewisville, Texas 75057: (c) all mechanical systems, fixtures and equipment (including, but not limited to, compressors, engines, elevators and escalators); electrical systems, fixtures and equipment; heating fixtures, systems and equipment; air conditioning fixtures, systems and equipment; plumbing fixtures, systems and equipment; all furniture, carpets, drapes and other furnishings; refrigerators, stoves and other appliances; maintenance equipment and tools; and all other machinery, equipment, fixtures and personal property of every kind and character, and all accessories and additions 1 thereto, owned by Seller and located in or on or in the area of the Property, or used in connection with the Land or the Improvements or the operations thereon, excluding, however, any such item(s) that is subject to an Equipment Lease (as hereinafter defined) (collectively, and as applicable, the "Personalty"); (d) all rights, titles and interests of Seller in and to any easements, rights-of-way, rights of ingress or egress or other interests in, on or to any land, highway, street, road or avenue, opened or proposed, in, on, across, in front of, abutting or adjoining the Land; (e) all goodwill, if any, relating to the Land and Improvements; all telephone exchanges, if any, related to the operation and management of the Property; (f) all rights, titles and interests of Seller in and to any condemnation award, if any, made or to be made, after the Closing Date, in respect of the Land and/or the interests described in the foregoing Paragraphs (a) and (e) of this Article and in and to any unpaid award for damage to the Land or Improvements and/or said interests by reason of change of grade of any street. Seller will execute and deliver to Purchaser, at the Closing (as hereinafter defined), or thereafter, on demand, but without recourse or warranty, all property instruments for the conveyance of such title and the assignment and collection of any such award; and (g) all other rights, privileges and appurtenances owned by Seller and in any way related to the properties described above in this Article I, including but not limited to all warranties, guarantees, plans, specifications, permits, maintenance contracts and other contracts pertaining to the Property (to the extent in Seller's possession, assignable and desired by Purchaser). ARTICLE II Earnest Money Deposit 2 2.1 Amount and Title Company. Purchaser shall, upon execution of this Contract by both Purchaser and Seller, deposit with Republic Title of Texas, Inc., whose address is 2626 Howell Street, 10th Floor, Dallas, Texas 75204, Attention: C. Richard White [Telephone: (214) 855-8868; Telecopy: (214) 855-8898] (hereinafter referred to as the "Title Company"), the sum of $100,000.00 (the "Earnest Money"). The Earnest Money shall be deposited by the Title Company in an interest-bearing account at a federally insured depository institution in Dallas County, Texas, acceptable to Purchaser. Any interest accruing on such account prior to the time such Earnest Money becomes the property of Seller or Seller gains the rights thereto, shall be reported for tax purposes under the tax identification number of Purchaser. After such time as Seller becomes entitled to the Earnest Money, the interest accruing or paid may be reported under Seller's tax identification number. In the event that this Contract is actually closed and consummated in accordance with the terms hereof, the Earnest Money shall be applied toward the cash payment due at Closing by the Purchaser to the Seller in accordance with the terms of Article III hereinbelow. In the event that this Contract does not actually close and consummate in accordance with the terms hereof, the Earnest Money shall be disbursed by the Title Company to Seller or Purchaser (as appropriate) in accordance with the terms of this Contract. In the event that the Purchaser shall fail to timely deposit the Earnest Money (or, if in the form of a check, the bank on whom such check is drawn refuses to fully honor such check when negotiated and presented for payment by the Title Company), this Contract shall by written notice from Seller to Purchaser terminate, whereupon neither party shall have any further obligations or liabilities hereunder. 2.2 Independent Contract Consideration. Seller and Purchaser hereby acknowledge that independent consideration for this Contract in the sum of $100.00 shall be delivered to Seller out of the Earnest Money should this Contract terminate for any reason whatsoever (excepting a default by Seller); and based on such consideration and the mutual covenants of Seller and Purchaser contained herein, Seller hereby agrees that Seller shall not terminate this Contract without the prior written consent of Purchaser except as may be expressly provided for in this Contract. This paragraph does not limit Seller's possible right to retain the Earnest Money under other provisions of the Contract. ARTICLE III Purchase Price 3.1 Amount. The total purchase price for the Property (the "Purchase Price") shall be SIX MILLION SIX HUNDRED THOUSAND AND NO/100 DOLLARS ($6,600,000.00). 3.2 Manner of Payment. The Purchase Price shall be paid to Seller and shall be payable in cash or other same-day immediately available funds at the Closing. 3 ARTICLE IV Title and Survey; Environmental 4.1 Title Commitment. As soon as is practicable following the date of this Contract (but in any event, within three (3) business days after the date of this Contract), the Title Company shall, at Seller's sole cost and expense, deliver to Purchaser and to the surveyor referred to in Section 4.2 below: (i) a current commitment for Owner's Policy of Title Insurance in favor of Purchaser (the "Title Commitment"), (ii) legible copies of all instruments shown as exceptions in Schedule B of the Commitment, and (iii) UCC searches, both from the Secretary of State of Texas, the Secretary of State of the state of incorporation of Seller and from Denton County, Texas (the "UCC Searches"). 4.2 Survey. As soon as is practicable following the date of this Contract (but in any event, within three (3) business days after delivery of the Title Commitment to Purchaser), Seller shall, at Seller's sole cost and expense, cause to be furnished to Purchaser and the Title Company a copy of the as-built survey plat of the Land and Improvements (the "Survey"), prepared by John Piburn of Brockette/Davis/Drake, Inc., or by another registered surveyor or engineer reasonably acceptable to Purchaser and in a form acceptable to the Title Company for it to delete the survey exception (other than area) from Schedule B of its Owner Policy of Title Insurance. The Survey shall also be certified to Purchaser and the Title Company, shall include a legal description of the Land, shall show the location and dimensions of all the improvements, encroachments, uses (including the location of all streets, roads, easements, alleys and right-of-way upon or adjacent to the Land) and encumbrances which are visible on the ground or listed on the Title Commitment (identifying each by volume and page reference, if applicable), shall recite an exact area of the Land, shall state whether or not applicable governmental maps show all or any portion of the Land to be within a flood plain, and shall otherwise be in accordance with the standards for a Category 1A, Condition II survey, as established and adopted by the Texas Society of Professional Surveyors. 4.3 Review Period. Purchaser shall have a period (the "Review Period") ending on the later of (a) seven (7) days after the date on which Purchaser has received the last of the Title Commitment, the UCC Searches, the Survey and the Submission Matters, or (b) ten (10) days following the execution of this Contract, to terminate this Contract if it is not satisfied with any one or more of the Review Items (as defined in Section 5.3 below). Any title encumbrances or exceptions which are set forth in Schedule B of the Title Commitment or on the Survey at the conclusion of the Review Period (but not including any mortgage lien, if any, which Seller agrees to remove at or prior to the Closing), shall be deemed to be permitted exceptions to the status of Seller's title (the "Permitted Exceptions"). 4.4 Environmental. As between Seller and Purchaser, Seller shall be responsible for taking such remedial action as may be required by applicable law in connection with any hazardous or toxic materials that are located on or under the Property as of the Closing (except with respect to any hazardous or toxic materials released onto or under the Property by Purchaser or its agents or invitees), and Seller shall indemnify and hold Purchaser harmless with respect to any costs, demands, claims or liabilities incurred by Purchaser in connection therewith, provided that Purchaser shall provide Seller written notice of any hazardous or toxic materials located on or under the Property that are discovered by Purchaser prior to the Closing. The term "hazardous or toxic materials" as used in this Contract shall mean (w) any "hazardous waste" as defined by the Resource Conservation and Recovery Act of 1976 (42 U.S.C. ss.6901 et.seq.), as amended from time to time, including 4 without limitation, as amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal Act Amendments of 1980, and the Hazardous and Solid Waste Amendments of 1984, and regulations promulgated thereunder, (x) any "hazardous substance", "pollutant" or "contaminant" as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. ss.9601 et. seq.), as amended from time to time, including without limitation, as amended by the Superfund Amendments and Reauthorization Act of 1986, and regulations promulgated thereunder, all as amended from time to time, and all rules and regulations applicable to each, (y) any toxic substance as defined under or regulated by the Toxic Substances Control Act, and (z) oil and petroleum products, chlorinated biphenyls, radioactive materials or waste containing lead. The provisions of this Section 4.4 shall survive the Closing. ARTICLE V Investigation by Purchaser 5.1 Matters Previously Submitted or to be Submitted. Purchaser acknowledges that Seller has previously delivered to Purchaser the items marked below with an (x). Seller hereby agrees that for those items below which are not marked with an (x), Seller will deliver (and/or cause to be delivered) such items to Purchaser within three (3) business days after the date of this Agreement. All items listed below, i.e., regardless of whether or not marked with an (x), are hereinafter referred to as the "Submission Matters": ( ) (a) copies of any structural, mechanical, electrical and environmental studies of the Property (if any) in the possession of Seller (and Seller agrees to either (i) cause such environmental studies (if any) to be addressed to Purchaser, or (ii) cause letters from the firms and/or engineers (as applicable) that prepared such environmental studies (if any) to be issued to Purchaser, stating that such environmental studies may be relied upon by Purchaser); ( ) (b) whatever site plans, plans, specifications and similar information may be in the possession of Seller; ( ) (c) copies of any Certificates of Occupancy in the possession of Seller; ( ) (d) copies of all equipment leases (as applicable, referred to herein singularly as an "Equipment Lease", and collectively as "Equipment Leases"), warranties, maintenance contracts and service contracts pertaining to the Property (to the extent in the possession of Seller); ( ) (e) copies of all paid utility bills for the most recent calendar month; ( ) (f) copies of 2000 and 2001 tax statements (and evidence of payment of 2000 taxes), and documentation relating to the 2002 valuation, as well as any valuation appeal (if any); ( ) (g) copies of operating statements (including revenues and expenses) for 2000 and year-to-date 2001; and 5 ( ) (h) a written certification signed by an authorized officer or agent of Seller, confirming that Seller has delivered (and/or caused to be delivered) all required Submission Matters which are in its possession and that to the best knowledge and belief of Seller, all copies delivered to Purchaser are true and correct copies of such Submission Matters; provided, however, that Seller does not warrant the accuracy of such Submission Matters. Purchaser agrees that (x) unless and until the Closing is consummated Purchaser will keep all Submission Matters strictly confidential and will not reveal any information therein except to Purchaser's professional counselors (i.e., engineers, property managers, attorneys, accountants, etc.) or to potential partners and/or financial sources for purchase-money financing (if any), and (y) in the event that the Closing is not consummated, Purchaser shall return such Submission Matters to Seller. 5.2 Inspection. During the Review Period, Seller shall, to the extent that it does not require Seller's expenditure of more than nominal funds, cooperate and assist Purchaser or its authorized representatives in any and all feasibility studies (physical, financial, legal or otherwise), audits, inspections and tests which Purchaser may choose to conduct. Within such period, Purchaser may also inspect the Property and may authorize its agents to conduct environmental, engineering, mechanical, roof and electrical inspections and tests to determine if the Property is in a condition satisfactory to the Purchaser; provided, however, that Purchaser must give advance telephone notice of such on-site inspections to a representative of Seller and must obtain the prior written consent of Seller (such consent not to be unreasonably withheld, conditioned or delayed) to conduct any invasive environmental tests on the Property. All inspections and tests by Purchaser or its representatives shall be at the sole cost and expense of Purchaser. Purchaser and its agents and representatives shall enter upon the Land and Improvements at their own risk and shall not unreasonably interfere with the operation of the Property. Purchaser shall repair at Purchaser's expense any damage to the Property caused by the inspections or tests. Purchaser agrees to indemnify and hold Seller harmless from any loss, cost or expense in connection with any such inspection, excluding Seller's negligence or willful misconduct, as a result of unpermitted activity. 5.3 Approval of Review Items. The obligations of Purchaser pursuant to this Contract are expressly conditioned and contingent upon Purchaser's satisfaction, in Purchaser's complete discretion, with the Title Commitment, the UCC Searches, the Survey, the Submission Matters and the results of all reviews, inspections and feasibility studies made by Purchaser pursuant to the provisions of Sections 5.1 and 5.2 within the Review Period (collectively, the "Review Items"). In the event Purchaser fails to notify Seller in writing on or before the end of the Review Period, of its approval of all such Review Items, then this Contract shall automatically terminate, which shall be a Permitted Termination as provided in Section 9.1 hereof. ARTICLE VI Warranties and Representations 6.1 Seller's Warranties and Representations. Seller represents and warrants to Purchaser as of the date hereof that to the best if Seller's knowledge all of the statements set out below are accurate: 6 (a) There are no parties in possession of any portion of the Property, as lessees (whether in possession or not), tenants at will, trespassers or otherwise, nor any licensees or other occupants of the Improvements other than Seller. (b) Seller is not prohibited from consummating the transactions contemplated in this Contract by any law, regulation, agreement, instrument, restriction, order or judgment; (c) There are no attachments, executions, assignments for the benefit of creditors, receiverships, conservatorships or voluntary or involuntary proceedings in bankruptcy or pursuant to any other debtor relief laws pending against Seller, or to Seller's knowledge threatened against Seller, or the Property; (d) Seller has not received any written notice of any pending condemnation or similar proceeding affecting the Land and Seller has not received any written notice and has no actual knowledge that any such proceeding is contemplated; (e) All ad valorem taxes applicable to the Property have been paid current through calendar year 2001; (f) No bills are outstanding which create -- or, after the Closing, may create -- a mechanics lien against all or any portion of the Property; (g) Seller has not received actual notice of any action, suit, proceeding or claim affecting the Property, or affecting Seller and relating to or arising out of any of any existing leases affecting the Property or the ownership, operation, use or occupancy of the Property by Seller pending or being prosecuted in any court or by or before any federal, state, county, or municipal department, commission, board, bureau or agency or other governmental instrumentality nor, to the actual knowledge of Seller, is any such action, suit, proceeding or claim threatened or being asserted; (h) Seller has no knowledge of any unrecorded instruments or agreements related to the Property, or its operation, which will survive the Closing, other than those which have been referred to in this Contract or have been or will be delivered to Purchaser with the Submission Matters or at Closing; (i) Seller has no knowledge that the Property has ever been used for the production, storage, deposit or disposal of any "hazardous or toxic materials" (as that term is defined in Section 4.4 above); (j) Seller has no knowledge that the Property or any part thereof is in violation of any law, ordinance or regulation of any governmental entity having jurisdiction over the Property; (k) To the best of Seller's knowledge, no portion of the Property has been designated by the U.S. Corps of Engineers, nor by the municipality in which the Property is located, as being in a "flood plain" or other flood-prone area; 7 (l) To the best of Seller's knowledge, the Property is not located within a "water district" or other similar utility district; (m) Neither Seller nor, to the best of Seller's knowledge, any of Seller's predecessors within the past five years, has claimed the benefit of any law permitting a special use valuation (such as agricultural" or "open space") for the purpose of obtaining an ad valorem tax rate lower than the nominal rate; (n) Seller is not a "foreign person" as that term is used in Section 1445 of the Internal Revenue Code of 1986, as amended; and (o) Assuming the truth and accuracy of Purchaser's representations contained in the Warrant Agreement (as defined in Section 11.17 below) that Purchaser is acquiring the Warrants (as defined in Section 11.17 below) as an investment and not with a view to the distribution thereof, the issuance and sale of the Warrants to Purchaser under the Warrant Agreement are exempt from the registration requirements of the Securities Act of 1933, as amended. It will be a condition to Purchaser's obligations to consummate the Closing that all above representations and warranties of Seller be accurate as of the Closing Date. The representations and warranties of Seller shall survive the Closing (but only as to facts as they exist at the Closing and only to the extent that the representations and warranties are not actually known by Purchaser to be incorrect at the Closing). References in this Section 6.1 to the "knowledge" of Seller shall be deemed to refer only to the actual knowledge (as opposed to constructive, deemed or imputed knowledge) of the Designated Employees (as hereinafter defined) of Ultrak, Inc., a Delaware corporation, and shall not be construed, by imputation or otherwise, (x) to refer to the knowledge of any party other than the Designated Employees, including, without limitation, Seller, Ultrak, Inc., or any affiliate of either of them, to any property manager, or to any other officer, agent, manager, representative or employee of Seller of Ultrak, Inc., or any affiliate thereof, or (y) to impose on such Designated Employees any duty to investigate the matter to which such actual knowledge, or the absence thereof, pertains. As used herein, the term "Designated Employees" shall refer collectively to (1) Karen Austin, Vice President and General Counsel of Ultrak, Inc., (2) Barry L. Lane, Treasurer of Ultrak, Inc., (3) George K. Broady, Chief Executive Officer of Ultrak, Inc. and (4) Jeff Cohan, Properties Facilities Manager of Ultrak, Inc. 6.2 Purchaser's Representations and Warranties. Purchaser hereby represents and warrants as of the date hereof and as of the Closing Date that: (a) Purchaser has the right, title and authority to enter into this Contract, to comply with all the terms and obligations hereof and to consummate the transactions provided for hereunder; (b) Purchaser has not been served with any notice of any suit, action or proceeding, nor to the knowledge of Purchaser threatened against or affecting Purchaser, before or by any court or administrative agency or officer, which seeks to prohibit or enjoin this Contract or the transactions provided for herein; 8 (c) To Purchaser's actual knowledge, no consent, approval or other action of, or filing or registration with, any governmental agency, commission or officer is required in connection with the execution or performance by Purchaser of this Contract; (d) To Purchaser's actual knowledge, the execution and delivery of this Contract and the transactions provided for herein will not result in a breach of any of the terms and provisions of or constitute a default under or conflict with any agreement, indenture, mortgage, lien, lease, consent, license, franchise or other instruments to which Purchaser is bound; and (e) Purchaser is not the subject of any bankruptcy, receivership, or reorganization proceeding and has not made any assignment for the benefit of creditors. ARTICLE VII Closing 7.1 Time and Place of Closing. Provided that all of the conditions of this Contract shall have been satisfied on or prior to the Closing Date (herein so called), the Closing (herein so called) of this transaction shall take place at the offices of the Title Company (or any other location in Dallas County, Texas, which may be mutually agreed by the parties) on the first business day following the ninth (9th) calendar day after the conclusion of the Review Period described in Section 4.3 of this Contract above. 7.2 Expenses. Seller shall pay (or cause to be paid) (a) the cost of the Survey, (b) any escrow fees charged by the Title Company, (c) any and all taxes, charges and assessments as set forth in Section 7.3 hereof (if any), and (d) the basic premium for the Owner's Policy of Title Insurance (the "Title Policy"), and, if desired by Purchaser, the premium for the modification of the survey exception for the Title Policy. Purchaser shall pay the recording fees on the Deed. Seller shall pay its own attorneys' fees and Purchaser's attorneys' fees; provided, however, in the event of any litigation arising hereunder, the prevailing party shall be entitled to recover, as part of any judgment rendered, reasonable attorneys' fees and cost of suit from the other party. Except as otherwise provided in this Section 7.2, all other expenses hereunder shall be paid by the party incurring such expenses. 7.3 Prorations and Post-Closing Obligations; Tax Escrow. Seller, under the effect of the Lease Agreement (as hereinafter defined) is responsible, and will continue to be responsible, for the payment of all real estate taxes, personal property taxes, assessments, property owner assessments and all other items of expense which relate to the Property, all of which is more specifically discussed in the Lease Agreement (as hereinafter defined). Therefore, no items of expense or income shall be prorated with respect to the Property at the Closing, and, if not sooner paid by Seller, Seller shall escrow with the Title Company at Closing an amount equal to the taxes and assessments due for the Property for calender year 2001 based upon the 2001 tax statements delivered to Purchaser as part of the Submission Matters, the Title Company shall cause such taxes and assessments to be paid directly to the applicable taxing authority(ies) pursuant to the terms of an escrow agreement to be executed at Closing, the form of which shall be 9 reasonably acceptable to Seller and the Title Company (the "Tax Escrow Agreement"). The provisions of this Section 7.3 shall survive Closing. 7.4 Interim Responsibilities of Seller. (a) Between the date of this Contract and the Closing Date, Seller will or will cause the manager of the Property to (i) continue to operate the Property in accordance with its present operating policy; (ii) keep and maintain the Property in at least as good condition and repair as it exists as of the date of this Contract, subject to normal wear and tear and to casualty losses; and (iii) maintain, in force and effect property and liability insurance with respect to damage or injury to person or property occurring on the Property in at least such amounts as are maintained by Seller as of the date of this Contract. (b) Between the date of this Contract and the Closing Date, Seller will not enter into any new contract, lease or agreement affecting the operation, management or leasing of the Property. 7.5 Deliveries at Closing. At the Closing: (a) Seller, at its sole expense, shall deliver to Purchaser (unless otherwise specified) the following: (1) a Special Warranty Deed (the "Deed") duly executed and acknowledged by Seller, conveying to Purchaser the Land and Improvements, as well as all fixtures owned by Seller, in indefeasible fee simple, free and clear of any lien, encumbrance or exception other than the Permitted Exceptions in form and substance as set forth on Exhibit "B" attached hereto and made a part hereof for all purposes. (2) a Blanket Conveyance, Bill of Sale and Assignment, duly executed by Seller, conveying to Purchaser the Personalty, free and clear of any lien and encumbrance other than the Permitted Exceptions, in form and substance as set forth on Exhibit "C" attached hereto and made a part hereof for all purposes; (3) the Title Policy issued by the Title Company, conforming to the requirements of Article IV above, insuring Purchaser's title in the amount of the Purchase Price and containing no exceptions other than (a) the standard printed exceptions (but with the survey exception being modified to read "shortages in area"); (b) the lien for current taxes, and subsequent assessments for prior years due to change in land usage or ownership; (c) the Permitted Exceptions; and (d) other exceptions, if any, which Purchaser may approve in writing in its sole discretion. (4) a non-foreign certificate executed by Seller, as required by the Foreign Investment in Real Property Tax Act, as amended; 10 (5) a restatement of the representations and warranties set out in Section 6.1 hereof (subject to the "knowledge" limitation set forth in Section 6.1); (6) possession of the Property (subject to the terms and provisions of the Lease Agreement (as hereinafter defined)); (7) such evidence of the authority and capacity of Seller and its representatives as Purchaser and/or the Title Company may reasonably require; (8) to the extent in Seller's possession, the original Service Contracts, Certificates of Occupancy (if not delivered pursuant to subsection 5.1(c) above), plans and specifications; (9) all licenses, permits, books, tenant records, plans, specifications and other items in Seller's possession related to the operation of the Property (i.e., not including Seller's internal records or income tax records); provided, however, Seller may elect to retain all or some of such items in accordance with the terms and provisions of the Lease Agreement (as hereinafter defined); (10) any and all instruments (in form and substance satisfactory to Purchaser) necessary and/or desirable to effect a full and complete release of any and all right, title, lien and/or interest(s) of Wells Fargo Bank (Texas), National Association (now known as Wells Fargo Bank Texas, National Association), as administrative agent for the Lenders reflecting record title as follows: FIRST SECURITY BANK, NATIONAL ASSOCIATION (now known as WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION), not individually, but solely as the Owner Trustee under the Ultrak Trust 1996-1 ("Wells Fargo"), in and/or to the Property (or any item or portion thereof); (11) the Lease Agreement, duly executed by Seller, leasing to Seller the property described therein, together with (a) the Guaranty Agreements attached to the Lease Agreement, duly executed by the guarantors named therein, and (b) the Memorandum of Lease Agreement and Purchase Option (the "Memorandum"), duly executed by Seller, all in form and substance as set forth on Exhibit "D" attached hereto and made a part hereof for all purposes (the Lease Agreement, the Guaranty Agreements and the Memorandum are sometimes referred to herein collectively as the "Lease Agreement"); (12) if taxes for calendar year 2001 are not paid by Seller at Closing, the Tax Escrow Agreement, duly executed on behalf of Seller, together with the amounts to be escrowed thereunder as described in Section 7.3 above; (13) the Warrant Agreement and the Warrant Certificate (each as defined in Section 11.17 below), duly executed on behalf of Ultrak, Inc., a Delaware corporation, in accordance with Section 11.17 below; (14) the cash payment for the Placement Fee payable to Briarwood Capital Corporation, a Texas corporation, due in accordance with the terms and provisions of Section 11.18 below; and 11 (15) such other instruments and documents as are in Seller's possession, and are reasonably appropriate, necessary and required by the Title Company or the Purchaser to complete and evidence the transactions contemplated hereby. (b) Purchaser shall deliver to Seller the following: (1) the cash payment for the Purchase Price due in accordance with the terms and provisions of this Contract; (2) such evidence of the authority and capacity of Purchaser and its representatives as Seller or the Title Company may reasonably require; (3) the Lease Agreement (including the Memorandum) duly executed by Purchaser, leasing to Seller the property described therein, in form and substance as set forth on Exhibit "D" attached hereto and made a part hereof for all purposes; (4) if taxes for calendar year 2001 are not paid by Seller at Closing, the Tax Escrow Agreement, duly executed on behalf of Purchaser; (5) the Warrant Agreement (as defined in Section 11.17 below), duly executed on behalf of Purchaser; and (6) such other instruments and documents as are reasonably appropriate, necessary and required by Seller or the Title Company in order to complete and evidence the transactions contemplated hereby. ARTICLE VIII Conditions Precedent to Purchaser's Obligations to Close Purchaser's obligation to consummate the transactions contemplated hereunder is conditioned upon satisfaction of each of the following conditions at or prior to the Closing (or such earlier date as is specified with respect to a particular condition): (a) Purchaser shall have approved (or be deemed to have approved by not terminating this Contract during the Review Period) all inspections and inquiries provided for in this Contract (including, without limitation, Article IV hereof); (b) None of the representations and warranties of Seller set forth in Article VI hereof shall be untrue or inaccurate in any material respect; and (c) All other conditions to Purchaser's obligations which are specifically expressed in this Contract shall be satisfied. 12 In the event that any of the above conditions are not satisfied at or prior to the Closing (or such earlier date as is specified with respect to a particular condition), Purchaser may terminate this Contract, which termination shall be a Permitted Termination as provided in Section 9.1 hereof. ARTICLE IX Termination, Default and Remedies 9.1 Permitted Termination. If this Contract is terminated by either Seller or Purchaser pursuant to a right expressly given it to do so by any other Section of this Contract (herein referred to as a "Permitted Termination"), except for a termination by Seller because of the default of Purchaser, the Earnest Money, together with any accrued interest thereon, shall immediately be returned to Purchaser and this Contract shall thereafter be null and void. 9.2 Default by Seller. Seller shall be in default hereunder upon the occurrence of any one or more of the following events: (a) Any of Seller's warranties or representations set forth herein are untrue or inaccurate in any material respect when made or at Closing; or (b) Seller shall fail to meet, comply with or perform any covenant, agreement, or obligation within the time limits and in the terms required in this Contract, for any reason other than a Permitted Termination or Purchaser's default; or (c) Seller shall fail to deliver at the Closing any of the items required of Seller in Section 7.5(a) hereof, for any reason other than a Permitted Termination or Purchaser's default, except for immaterial failures which Seller remedies promptly after notice from Purchaser. In the event of a default by Seller hereunder, Purchaser may, at Purchaser's sole option (and as its sole and exclusive remedies), do any of the following: (i) waive the default; or (ii) terminate this Contract by notice to Seller at or prior to the Closing and receive a refund of the Earnest Money and interest; or (iii) receive a refund of the Earnest Money and interest, and enforce specific performance of this Contract to cause Seller to deliver the items required of Seller at Closing pursuant to Section 7.5(a) hereof. In addition, and notwithstanding anything to the contrary contained above, if Seller voluntarily sells, mortgages or otherwise disposes of the Property to another party (i.e., other than Purchaser) during the term of this Contract, then Purchaser, at its sole option (and in addition to the above-listed remedies), may sue Seller for damages. 9.3 Default by Purchaser. Purchaser shall be in default hereunder if Purchaser shall fail to deliver at the Closing any of the items required of Purchaser in Section 7.5(b) and Section 7.5(c) 13 hereof, for any reason other than a Permitted Termination or Seller's default. In the event of a default by Purchaser hereunder, Seller, as Seller's sole and exclusive remedy for such default, shall be entitled to terminate this Contract by notice to Purchaser and retain Purchaser's Earnest Money, it being agreed between Purchaser and Seller that such sum is, in effect, an option fee and liquidated damages, inasmuch as Seller does not have the remedy of specific performance, nor the remedy of actual damages. ARTICLE X Indemnification Except as specifically stated to the contrary elsewhere in this Contract, Seller does hereby agree to indemnify and hold Purchaser harmless of, from and against all claims and causes of action, losses, damages (including attorneys fees) now existing or that may hereafter arise from or grow out of Seller's operation of the Property on or before the Closing Date, and for hazardous materials known to Seller on or under the Property on or before the Closing Date, and in accordance with the Lease Agreement. ARTICLE XI Miscellaneous 11.1 Condemnation and Casualty Loss. All risk of loss to the Property shall remain upon Seller prior to Closing. If prior to Closing, the Property shall be damaged or condemned to a material extent, Seller may terminate this Contract by written notice to Purchaser within the earlier to occur of (i) five (5) business days following discovery by Seller of such taking or damage, or (ii) the Closing Date; or Purchaser may either terminate this Contract by written notice to Seller within the earlier to occur of (a) five (5) business days following Seller's written notice to Purchaser disclosing such taking or damage, or (b) the Closing Date, or Purchaser shall be conclusively deemed to have accepted such taking or damage and waived any right to terminate this Contract as a result thereof. If Seller shall not have terminated this Contract, and if Purchaser elects (or is deemed to have elected) to accept such taking or damage and waive any right to terminate this Contract as a result thereof, despite said material damage or condemnation, there shall be no reduction in the Purchase Price (except as specifically prescribed below), and (i) Seller shall assign to Purchaser at Closing (or deliver to Purchaser at Closing, if already received by Seller and not utilized for restoration), without recourse or warranty, all of Seller's right, title and interest in and to all insurance and condemnation proceeds resulting or to result from said damage or condemnation, and (ii) Seller shall credit Purchaser at the Closing with the "deductible" applicable to Seller's insurance coverage. Unless otherwise provided herein, the term "material" shall mean damage or condemnation resulting in a loss equal in amount to $200,000.00 or more. If, prior to Closing, the Property shall be damaged or condemned to less than a material degree, Purchaser shall (despite such damage or condemnation) close and consummate the purchase of the portion of the Property still remaining (after any such condemnation or damage without any reduction in the Purchase Price (except as specifically prescribed below), and (i) Seller shall at Closing assign to Purchaser (or deliver to Purchaser at Closing, if already received by Seller and not utilized for restoration), without recourse or warranty, (A) any and all insurance proceeds theretofore received by Seller in connection with such damage and any and all rights of Seller in and to any claims therefor pursuant to any 14 insurance policies then existing in Seller's favor and applicable to such damage, and (B) any and all condemnation proceeds received by Seller in connection with such condemnation and any and all claims therefor existing on the part of Seller and applicable to such condemnation, and (ii) Seller shall credit Purchaser at the Closing with the "deductible" applicable to Seller's insurance coverage. 11.2 Brokerage. Each party hereto represents to the other that it has not authorized any broker or finder to act on its behalf in connection with the sale and purchase transaction contemplated hereby and that it has not dealt with any broker or finder purporting to act for any other party. Each party hereto agrees to indemnify and hold harmless the other party from and against any and all liabilities, costs, damages and expenses of any kind or character arising from any claims for brokerage or finder's fees, commissions or other similar fees in connection with the transactions covered by this Contract insofar as such claims shall be based upon alleged arrangements or agreements made by such party or on its behalf, which indemnity shall (notwithstanding anything to the contrary contained or implied elsewhere in this Contract) expressly survive any termination or Closing of this Contract. 11.3 Notices. Any notices, consents or other communications required or permitted to be given pursuant to this Contract must be in writing and shall be deemed to have been delivered (a) if delivered in person, via courier, or by facsimile when received at the address of the person to whom notice is given, (b) if sent by a nationally recognized overnight delivery service (e.g., Federal Express, UPS, Airborne Courier), on the first (1st) business day after receipt by such delivery service for overnight delivery, or (c) if sent by certified United States Mail (except where actual receipt is specified in this Contract), on the earlier of the date actually received or two (2) business days after deposited in a receptacle provided by the United States Post Office, addressed to the intended parties at the following respective addresses: If intended for Seller: Ultrak Operating, L.P. c/o Ultrak, Inc. 1301 Waters Ridge Drive Lewisville, Texas 75057 Attention: Chris Sharng, CFO Fax No.: (972) 353-6679 With a copy to: Stutzman & Bromberg, P.C. 2323 Bryan Street, Suite 2200 Dallas, Texas 75201-2689 Attention: John E. Bromberg, Esq. Fax No.: (214) 969-4999 If intended for Purchaser: Briarwood Capital Corporation 2911 Turtle Creek Boulevard, Suite 1240 Dallas, Texas 75219 Attention: H. Walker Royall Fax No.: (214) 520-2009 15 With a copy to: Jenkens & Gilchrist, P.C. 1445 Ross Avenue, Suite 3200 Dallas, Texas 75202-2799 Attention: Christopher I. Clark, Esq. Fax No.: (214) 855-4300 If intended for Title Company: Republic Title of Texas, Inc. 2626 Howell Street, 10th Floor Dallas, Texas 75204 Attention: C. Richard White Fax No.: (214) 855-8898 or to such other substitute address and/or addressee as any party hereto shall designate by written notice to the other party in accordance with the terms of this Section 11.3; provided, however, that no such notice of change of address and/or addressee shall be effective unless and until actually received by the party to whom such notice is sent. 11.4 Applicable Law. This Contract shall be governed by and construed in accordance with the laws of the State of Texas. This Contract is performable and venue for any action hereunder shall be in Dallas County, Texas. 11.5 Entire Agreement; Modifications. This Contract embodies and constitutes the entire understanding between the parties with respect to the transactions contemplated herein, and all prior or contemporaneous agreements, understandings, representations and statements (oral or written) are merged into this Contract. Neither this Contract nor any provision hereof may be waived, modified, amended, discharged or terminated except by an instrument in writing signed by the party against whom the enforcement of such waiver, modification, amendment, discharge or termination is sought, and then only to the extent set forth in such instrument. 11.6 Assignment. Purchaser may assign its rights under this Contract to any person(s) or entity(ies) of Purchaser's choosing, whether or not affiliated with Purchaser; provided, however, that (a) no assignment shall release Purchaser from its obligations under this Contract, and (b) if the assignee is not affiliated with Purchaser and/or H. Walker Royall, then such assignee shall be of recognized good business reputation, as determined by the parties in their reasonable discretion (respectively). 11.7 Captions; Construction. The captions which have been used throughout this Contract have been inserted for convenience of reference only and do not constitute matter to be construed in interpreting this Contract. Words of any gender used in this Contract shall be held and construed to include any other gender and words in the singular number shall be held to include the plural, and vice versa, unless the context requires otherwise. The words "herein," "hereof," "hereunder," and other similar compounds of the words "here" when used in this Contract shall refer to the entire Contract and not to any particular provision or section. 11.8 Time is of the Essence. With respect to all provisions of this Contract, time is of the essence. 11.9 Invalid Provisions. If any term, provision, condition or covenant of this Contract or the application thereof to any party or circumstance shall, to the extent, be held invalid or 16 unenforceable, the remainder of this Contract, or the application of such term, provision, condition or covenant to persons or circumstances other than those as to whom or which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Contract shall be valid and enforceable to the fullest extent permitted by law, and said invalid or unenforceable term, provision, condition or covenant shall be substituted by a term, provision, condition or covenant as near in substance as may be valid and enforceable. 11.10 Binding Effect. This Contract shall be binding upon and inure to the benefit of Seller and Purchaser, and their respective heirs, personal representatives, successors and assigns. Purchaser may, subject to the provisions of Section 11.6 hereof, assign its rights hereunder provided that Purchaser delivers to Seller a copy of the fully executed instrument pursuant to which Purchaser assigns Purchaser's rights hereunder and provided that Purchaser's assignee expressly assumes all of Purchaser's obligations under this Contract. Except as expressly provided herein, nothing in this Contract is intended to confer on any person, other than the parties hereto and their respective heirs, personal representatives, successors and assigns, any rights or remedies under or by reason of this Contract. 11.11 Counterpart Execution. This Contract may be executed in several counterparts, each of which shall be deemed an original, and all of which counterparts together shall constitute one and the same instrument. 11.12 Further Acts. In addition to the acts recited in this Contract to be performed by Seller and Purchaser, Seller and Purchaser agree to perform or cause to be performed at the Closing or after the Closing any and all such further acts as may be reasonably necessary to consummate the transactions contemplated hereby. 11.13 Exhibits. All references to Exhibits contained herein are references to Exhibits attached hereto, all of which are made a part hereof for all purposes the same as if set forth herein verbatim, it being expressly understood that if any Exhibit attached hereto which is to be executed and delivered at Closing contains blanks, the same shall be completed correctly and in accordance with the terms and provisions contained herein and as contemplated herein prior to or at the time of execution and delivery thereof. 11.14 Date of Contract. All references to the "date of this Contract" or similar references as used herein shall be deemed to mean the later of the two dates on which this Contract is signed by the Seller or Purchaser, as indicated by their signatures below, which later date shall be the date of final execution and agreement by the parties hereto. 11.15 Attorney's Fees. If either party shall be required to employ an attorney to enforce or define the rights of such party hereunder, the prevailing party shall be entitled to recover reasonable attorney's fees and costs of suit from the other party. 11.16 Offer and Acceptance. If this Contract is executed first by the Purchaser and then delivered to Seller, it shall be construed as an offer to purchase the Property from Seller by Purchaser on the terms and conditions, and for the Purchase Price stated herein. If executed first by Seller and then delivered to Purchaser, it shall constitute an offer to sell the Property to Purchaser by Seller on the terms and conditions and to the Purchase Price stated herein. In either event, the offer made herein, unless sooner terminated or withdrawn by notice in writing by the party making such offer, shall automatically lapse and terminate at 6:00 p.m., Central Daylight Savings time, on December 12, 2001, unless, prior to such time, the party receiving the offer has returned to the party making 17 the offer at least one fully executed counterpart of this Contract. Any modification of the original offer made herein shall constitute a counter-offer by the party initiating such modifications. 11.17 Stock Warrants. As a material inducement to Purchaser to enter into this Contract and the transactions contemplated herein, Seller shall cause Ultrak, Inc., a Delaware corporation, to execute and deliver to Purchaser at Closing (a) the Warrant Agreement (the "Warrant Agreement") which grants warrants for the purchase of 100,000 shares of common stock of Ultrak, Inc., a Delaware corporation, at an exercise price of $1.55 per share (collectively, the "Warrants"), in the form attached hereto as Exhibit "E" and made a part hereof for all purposes, and (b) the Warrant Certificate, in the form attached to the Warrant Agreement (the "Warrant Certificate"). 11.18 Placement Fee. If, and only if, the transaction contemplated by this Contract closes on or before the Closing Date, at Closing Seller shall pay to Briarwood Capital Corporation, a Texas corporation, a placement fee in cash in an amount equal to $25,000.00 (the "Placement Fee") for its role in this transaction. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 18 SELLER: ULTRAK OPERATING, L.P., a Texas limited partnership By: Ultrak GP, Inc., a Delaware corporation, its General Partner By:_________________________________________ Executed by Seller on Name:_______________________________________ December 11, 2001 Title:______________________________________ PURCHASER: BRIARWOOD CAPITAL CORPORATION, a Texas corporation Executed by Purchaser on By: _______________________________________ December 13, 2001 H. Walker Royall, President Ultrak, Inc., a Delaware corporation, joins in the execution of this Contract for sole the purpose of acknowledging and agreeing to the terms and provisions set forth in Sections 6.1(o), 7.5(a)(13) and 11.17 of this Contract. ULTRAK, INC., a Delaware corporation By:_________________________________________ Executed on Name:_______________________________________ December 11, 2001 Title:______________________________________ [CONTINUED ON FOLLOWING PAGE] 19 RECEIPT OF EARNEST MONEY AND AGREEMENT OF TITLE COMPANY Republic Title of Texas, Inc., a Texas corporation (the "Title Company") hereby acknowledges the receipt of the following: (i) one (1) fully signed and executed copy of this Contract; and (ii) Earnest Money in the amount of $100,000.00. The Title Company hereby agrees to hold the Earnest Money Deposit as contemplated by this Contract and to dispose of it in strict accordance with the terms and provisions of this Contract. REPUBLIC TITLE OF TEXAS, INC., a Texas corporation By:_________________________________________ C. Richard White Title:______________________________________ Date: December 14, 2001 20 EXHIBIT "A" LEGAL DESCRIPTION 21 EXHIBIT "B" SPECIAL WARRANTY DEED STATE OF TEXAS ss. ss. COUNTY OF DENTON ss. ULTRAK OPERATING, L.P., a Texas limited partnership ("Grantor"), for and in consideration of the Sum of Ten and No/100 Dollars ($10.00), and other good and valuable consideration paid in cash to Grantor by BRIARWOOD CAPITAL CORPORATION, a Texas corporation ("Grantee"), the receipt and sufficiency of which are hereby acknowledged and confessed, subject to the exceptions, liens, encumbrances, terms and provisions hereinafter set forth and described, has GRANTED, BARGAINED, SOLD and CONVEYED, and by these presents does hereby GRANT, BARGAIN, SELL and CONVEY, unto Grantee that certain real estate consisting of approximately 14.002 acres of land (the "Land") situated in Denton County, Texas, and being more particularly described in Exhibit "A" attached hereto and incorporated herein by reference for all purposes and all fixtures (to the extent owned by Grantor) and improvements situated thereon (the "Improvements"). TOGETHER WITH, all and singular, the rights, benefits, privileges, easements, rights-of-way, tenements, hereditaments, appurtenances and interests thereon or in anywise appertaining thereto including, without limitation, all of Grantor's right, title and interest in and to (i) strips or gores, if any, between the Land and any abutting properties; (ii) any land lying in or under the bed of any street, alley, road or right-of-way open or proposed, abutting or adjacent to the Land; (iii) rights-of-way; (iv) rights of ingress or egress or other interests in, on or to any land, highway, street, road or avenue, open or proposed in, on, across, in front of, abutting or adjoining the Land (the Land, Improvements, rights, benefits, privileges, easements, tenements, hereditaments, appurtenances, improvements and interests being hereinafter referred to collectively as the Property"). This conveyance is made subject and subordinate to the encumbrances and exceptions ("Permitted Exceptions") described in Exhibit "B" attached hereto and incorporated herein by reference for all purposes, but only to the extent they affect or relate to the Property, and without limitation or expansion of the scope of the special warranty herein contained. TO HAVE AND TO HOLD the Property, subject to the Permitted Exceptions as aforesaid, unto Grantee, and Grantee's successors and assigns, forever; and Grantor does hereby bind Grantor, and Grantor's successors, to WARRANT and FOREVER DEFEND, all and singular, the Property, subject to the Permitted Exceptions unto Grantee, and Grantee's successors and assigns, against every person whomsoever lawfully claiming or to claim the same or any part thereof by, through or under Grantor, but not otherwise. 22 EXECUTED as of the _____ day of December, 2001. GRANTOR: ULTRAK OPERATING, L.P., a Texas limited partnership By: Ultrak GP, Inc., a Delaware corporation, its General Partner By:_____________________________________ Name:___________________________________ Title:__________________________________ STATE OF TEXAS ss. ss. COUNTY OF _______________ss. This instrument was acknowledged before me on the ____ day of December, 2001, by _______________________________________, _____________________________ of Ultrak GP, Inc., a Delaware corporation, in its capacity as General Partner of ULTRAK OPERATING, L.P., a Texas limited partnership, on behalf of such corporation and limited partnership. ______________________________ Notary Public in and for the State of Texas 23 EXHIBIT "C" BLANKET ASSIGNMENT, BILL OF SALE AND ASSUMPTION AGREEMENT STATE OF TEXAS ss. ss. COUNTY OF DENTON ss. By a Special Warranty Deed (the "Deed") of even date herewith, ULTRAK OPERATING, L.P., a Texas limited partnership ("Seller") conveyed to BRIARWOOD CAPITAL CORPORATION, a Texas corporation ("Purchaser"), for the sum of Ten and No/100 Dollars ($10.00) and other good and valuable consideration, certain land and improvements located thereon (the "Property"), as described on Exhibit "A" attached hereto and made a part hereof for all purposes. NOW, THEREFORE, in connection with the above-described conveyance of the Property, and for the consideration above specified, the receipt and sufficiency of which is expressly confessed and acknowledged: The Seller has BARGAINED, SOLD, DELIVERED, ASSIGNED, SETOVER and CONVEYED, and by these presents does hereby BARGAIN, SELL, DELIVER, ASSIGN, SET OVER and CONVEY unto the Purchaser, all of Seller's right, title and interest in and to the following described personal property owned by Seller and relating to the Property (collectively, the "Personal Property"): (a) all mechanical systems, fixtures and equipment; electrical systems, fixtures and equipment; heating fixtures, systems and equipment; air conditioning fixtures, systems and equipment; furniture, carpets, drapes and other furnishings; refrigerators, stoves and other appliances; maintenance equipment and tools; and all other machinery, equipment, fixtures and personal property of every kind and character located in or on and used in connection with the ownership or operation of the Property; together with all of the Seller's right, title and interest as lessee under any lease or rental agreements covering any such personal property; (b) all of Seller's right, title and interest, if any, in and to any other intangible property owned by Seller, as the same pertains to the Property; (c) all of Seller's right, title and interest in and to the agreements, if any, relating to the Property (the "Service Contracts") listed on Exhibit "B" attached hereto; (d) all of Seller's right, title and interest in and to any and all (i) warranties, guarantees, indemnities and claims; (ii) licenses, permits or similar documents; (iii) telephone exchanges, tradenames, marks and other identifying materials; (iv) plans, drawings, specifications, surveys, engineering reports and other technical descriptions; (v) insurance contracts or policies to the extent Purchaser elects to take assignment thereof; and (vi) other property owned or held by Seller which relate in any way, to 24 the design, construction, ownership, use, maintenance, service or operation of the Property; and (e) all of Seller's right, title and interest in and to all promotional material, rental material and forms, records relating to the tenants and leases, and other materials of any kind in Seller's possession used in the continuing operation of the Property. To have and to hold, all and singular, the Personal Property unto the Purchaser forever so that neither Seller nor its successors or assigns (other than Purchaser and those claiming through Purchaser, including, without limitation, Seller under and by virtue of (and in accordance with the terms and provisions of) the Lease Agreement) shall at any time hereafter have, claim or demand any right or title thereto. THIS SALE IS MADE WITHOUT ANY WARRANTIES OR REPRESENTATIONS WHATSOEVER, WHETHER EXPRESS OR IMPLIED, EXCEPT AS MAY BE EXPRESSLY PROVIDED FOR IN THE CONTRACT OF SALE BETWEEN SELLER AND PURCHASER COVERING THE PROPERTY. SPECIFICALLY, THE PERSONAL PROPERTY IS OTHERWISE SOLD ON AN "AS IS, WHERE IS" BASIS, WITH ALL FAULTS. This Bill of Sale and the Contract of Sale between Seller and Purchaser covering the Property constitutes the entire agreement between the Seller and the Purchaser pertaining to the sale and assignment of the Personal Property to Purchaser, and supersedes all prior and contemporaneous agreements and understandings of the Seller and the Purchaser in connection therewith. No covenant, representation or condition not expressed herein shall be binding upon the Seller or the Purchaser or shall affect or be effective to interpret, change or restrict the provisions of this Bill of Sale. This Bill of Sale and the provisions herein contained is made for the benefit of the Purchaser, its successors and assigns. EXECUTED the _____ day of December, 2001. SELLER: ULTRAK OPERATING, L.P., a Texas limited partnership By: Ultrak GP, Inc., a Delaware corporation, its General Partner By:_____________________________________ Name:___________________________________ Title:__________________________________ 25 EXHIBIT "D" THE LEASE AGREEMENT [attached following this page] 1301 Waters Ridge Drive Lewisville, Denton County, Texas LEASE AGREEMENT by and between BRIARWOOD WATERS RIDGE LP and ULTRAK OPERATING, L.P. TABLE OF CONTENTS
Page ---- 1. Premises and Term.........................................................................................1 2. Construction; Reimbursement by Landlord...................................................................2 3. Minimum Rent; Security Deposit............................................................................3 4. Payments..................................................................................................4 5. Use.......................................................................................................4 6. Utility Charges...........................................................................................5 7. Taxes.....................................................................................................5 8. Insurance.................................................................................................8 9. Payment of Taxes and Insurance by Landlord...............................................................12 10. Repairs..................................................................................................12 11. Alterations..............................................................................................13 12. Equipment, Fixtures and Signs on Premises................................................................13 13. Damage by Fire or Other Casualty.........................................................................14 14. Condemnation.............................................................................................15 15. Liability and Indemnification............................................................................16 16. Assignment and Subletting................................................................................18 17. Default..................................................................................................20 18. Inspection by Landlord...................................................................................23 19. Covenant of Title and Quiet Enjoyment....................................................................23 20. Holding Over by Tenant...................................................................................23 21. Notice and Payments......................................................................................24 22. Net Lease................................................................................................26 23. Force Majeure............................................................................................27 24. Waiver of Subrogation....................................................................................27 25. Recording................................................................................................27 26. Purchase Option..........................................................................................27 27. Tenant's Information.....................................................................................28 28. Gender and Number........................................................................................29 29. Binding Effect...........................................................................................29 30. Entire Agreement.........................................................................................29 31. Captions.................................................................................................29 32. Terms Held Invalid.......................................................................................29 33. Attorney's Fees..........................................................................................29 34. Waiver of Repurchase Option..............................................................................29 35. Estoppels................................................................................................30 36. Mechanic's Liens.........................................................................................30 37. No Joint Venture.........................................................................................30 38. Broker...................................................................................................31 39. Date of Lease............................................................................................31 40. No Representations.......................................................................................31 41. Binding Effect...........................................................................................31 42. Counterparts.............................................................................................31 43. Rental Tax...............................................................................................32 44. Landlord's Lien..........................................................................................32 45. Limitation of Actions....................................................................................32 46. Waiver of Jury Trial.....................................................................................33 47. Execution and Approval of Lease..........................................................................33 48. Governing Law............................................................................................34 49. Hazardous Materials......................................................................................34 50. Intention of Parties; Contingent Security Interest.......................................................35
LEASE AGREEMENT THIS LEASE AGREEMENT (this "Lease") dated effective as of December _____, 2001, is by and between BRIARWOOD WATERS RIDGE LP, a Texas limited partnership (hereinafter called "Landlord"), and ULTRAK, OPERATING, L.P., a Texas limited partnership (hereinafter called the "Tenant"). 1. Premises and Term. Subject to the terms of this Lease, Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, that certain parcel of real property (the "Property") located in the City of Lewisville, County of Denton, State of Texas, the same being more particularly described by metes and bounds on Exhibit "A" attached hereto and made a part hereof for all purposes, and as shown on Exhibit "B" attached hereto and made a part hereof for all purposes, including all improvements now or hereafter to be constructed thereon (the same, as modified in accordance with Article 11 below is herein called the "Building") and all fixtures and accessory improvements now or hereafter thereon, including all roadway, parking areas and landscaped areas now or hereafter located thereon (collectively such Building, fixtures and improvements are hereinafter referred to either individually or collectively as the "Improvements"), and all mechanical systems, fixtures and equipment (including, but not limited to, compressors, engines, elevators and escalators), electrical systems, fixtures and equipment; heating fixtures, systems and equipment, air conditioning fixtures, systems and equipment; plumbing fixtures, systems and equipment, all furniture, carpets, drapes and other furnishings; refrigerators, stoves and other appliances, maintenance equipment and tools; and all other machinery, equipment, fixtures and personal property of every kind and character, and all accessories and additions thereto, located in or on or in the area of the Property and/or the Improvements, or used in connection with the Property or the Improvements or the operations thereon (collectively, and as applicable, the "Personalty") (the Improvements, the Personalty and the Property, together with all easements, rights, privileges and amenities otherwise appurtenant to such property are hereinafter referred to collectively as the "Premises"). Tenant shall lease the Premises for a term commencing on the Commencement Date (as defined below) and expiring on the last day of the thirtieth (30th) full calendar month following 1 the Commencement Date. The "Commencement Date" of this Lease, and Tenant's obligation to begin paying rent under this Lease, shall be the date of this Lease first above written (i.e., December _____, 2001). 2. Construction; Warranties. (a) As of the date of this Lease, there are no construction obligations with respect to the Premises. Landlord is not deemed to represent and/or warrant that the Premises comply with any and all laws, ordinances, orders, rules, and regulations of all governmental bodies (state, federal, and municipal) applicable to or having jurisdiction over the use, occupancy, operation, and maintenance of the Leased Premises and the Project, including without limitations the Access Laws (as hereinafter defined) (those laws, ordinances, orders, rules, decisions, and regulations being called "Applicable Laws"). The "Access Laws" are defined herein collectively as all applicable existing and future environmental laws and the provisions of the Americans With Disabilities Act of 1990 (as amended), the Texas Architectural Barriers Act (as amended) [Tex. Rev. Civ. Stat. Ann. Art. 9102], and any similar existing or future law, rule or regulation relating to access by disabled persons to the Premises. Tenant, at its sole cost and expense, is responsible for the Premises and Tenant's business operations at the Premises and the Property complying with Applicable Laws (including, without limitation, the Access Laws), and Tenant shall indemnify and hold harmless Landlord in connection with any failure of the Premises and/or Tenant's business operations to so comply. Tenant shall be responsible for (i) the payment or other release of all claims by contractors, subcontractors and/or other suppliers, and (ii) all maintenance, repair and replacements with respect to the Premises during the term of this Lease. Landlord shall have no financial obligation with respect to the Premises (including, without limitation, the Improvements), and any costs in connection therewith shall be borne by Tenant, from and against which Tenant shall indemnify and hold harmless Landlord. (b) Landlord hereby permits Tenant to retain, during the term of this Lease, all warranties and guarantees pertaining to Improvements and equipment erected or installed upon the Premises. In the event of termination of this Lease when any warranties or guarantees are still applicable, Tenant hereby assigns to Landlord effective as of the date of termination all such warranties and guaranties pertaining to the Improvements and equipment erected or installed upon the Premises 2 (including, without limitation, all heating and air conditioning equipment, and all equipment used in connection with Tenant's business operations, installed upon the Premises). 3. Minimum Rent; Security Deposit. (a) Commencing on the Commencement Date and continuing throughout the term of this Lease, Tenant shall pay to Landlord minimum rental (the "Minimum Rent") for the Premises at the rate of SEVEN HUNDRED TWENTY THOUSAND AND NO/100 DOLLARS ($720,000.00) per annum, payable in monthly installments, in advance, of SIXTY THOUSAND AND NO/100 DOLLARS ($60,000.00) per month. The first monthly installment of Minimum Rent and the last monthly installment of Minimum Rent (such installment of Minimum Rent to be applied to (i) the thirtieth (30th) full calendar month of the term of this Lease in the event this Lease expires on its own terms without the default of Tenant, or (ii) the twenty-fourth (24th) full calendar month in the event Tenant properly and validly exercises its Purchase Option pursuant to Section 26 below) shall be due and payable on or before the Commencement Date of this lease, and each subsequent monthly installment shall be due and payable on or before the first day of each succeeding calendar month during the term of this Lease. Rent for any fractional month at the beginning or the end of the term of this Lease, shall be prorated on a per diem basis. (b) Tenant shall pay a deposit in an amount equal to $60,000.00 (the "Security Deposit") to Landlord upon execution of this Lease as security for the performance by Tenant of its obligations under this Lease. The Security Deposit is not held in trust for Tenant, does not bear interest, and is not an advance payment of Rent or a measure of Landlord's damages for a default by Tenant. If Tenant defaults in the performance of any of its obligations under this Lease, Landlord may, without prejudice to any other remedy, use the Security Deposit to the extent necessary to make good any arrearages in Rent or any other sum for which Tenant is in default and any other damage, injury, expense, or liability caused to Landlord by the default. If Landlord so applies any part of the Security Deposit, Tenant shall pay to Landlord on demand the amount necessary to restore the Security Deposit to its original amount. If Tenant is not then in default under this Lease, Landlord shall return any remaining balance of the Security Deposit to Tenant within sixty (60) days after the later to occur of (1) the termination or expiration of this Lease or (2) surrender by Tenant of 3 possession of the Leased Premises to Landlord in accordance with this Lease. If Landlord assigns its interest in the Leased Premises, Landlord may assign the Security Deposit to the assignee, in which case Landlord has no further liability for the return of the Security Deposit after the assignment and Tenant shall look solely to the assignee for the return of the Security Deposit. Tenant may not assign or encumber or attempt to assign or encumber the Security Deposit. Landlord and its successors and assigns are not bound by any actual or attempted assignment or encumbrance of the Security Deposit by Tenant. 4. Payments. All payments of Minimum Rent and other sums due from Tenant to Landlord shall be made to Landlord as the same shall become due, without demand, reduction or set-off of any kind, by bank wire of immediately available good funds, at the address as is specified in Section 21(c) of this Lease, or to such other party or at such other place as hereinafter may be designated by Landlord by written notice to the Tenant at least ten (10) days prior to the next ensuing due date. 5. Use. (a) Tenant shall use the Premises only for purposes consistent with Tenant's current operations at the Premises, general warehouse, office, light assembling and manufacturing purposes and in accordance with all Applicable Laws, and with all Licenses (as hereinafter defined), and for no other use without the prior written consent of Landlord (which consent may be withheld in Landlord's sole, but reasonable, discretion). Tenant shall operate its business in an efficient and reputable manner and Tenant shall not at any time discontinue business operations from the Premises (except for legal holidays and periods of renovation and repair) for more than ten (10) consecutive business days, but shall in good faith continuously throughout the term of this Lease conduct and carry on from Premises the type of business for which the Premises are leased to Tenant. (b) In no event shall the use of the Premises, now or in the future, nor the design and construction (or any future alterations) of the Improvements be such to violate any Applicable Laws (including, without limitation, the Access Laws). Tenant shall, at its sole cost and expense, comply with (and be responsible for compliance with) all legal requirements and all Applicable Laws 4 (including, without limitation, the Access Laws) at all times during the term of this Lease. (c) Tenant shall not permit any objectionable noises or odors to emanate from the Building; nor place or permit any radio, television, loudspeaker or amplifier on the roof or outside the Building or where the same can be seen or heard from outside the Building; nor place any antenna, equipment, awning or other projection on the exterior of the Building; nor use the areas outside the Building for conducting any advertising or marketing program, or for the sale or distribution of goods; nor take any other action which would constitute a nuisance or would endanger other or unreasonably interfere with others; nor permit any unlawful or immoral practice to be carried on or committed on the Premises. (d) Tenant shall, at its sole cost and expense, maintain the Premises in a neat, attractive condition at all times during the term of this Lease. (e) Tenant shall procure, at its sole cost and expense, any and all permits and licenses necessary, required or desirable for the transaction of business in the Premises (collectively, the "Licenses") and shall otherwise comply with all Applicable Laws (including, without limitation, the Access Laws). Tenant may not, without the prior written consent of Landlord, which consent may be withheld by Landlord in its sole and absolute discretion, (1) assign or transfer the Licenses or any interest therein; (2) permit any assignment of the Licenses or any interest therein by operation of law; (3) grant any license, concession, or other right(s) in connection with the Licenses to a third party; (5) mortgage, pledge, or otherwise encumber its interest in the Licenses; or (6) permit the use of the Licenses by any parties other than Tenant and its employees. 6. Utility Charges. Tenant shall pay all charges incurred for any utility services used by Tenant on the Premises (including "hook-up" or "tie-in" charges). Landlord shall not be liable for any interruption whatsoever in any utility service(s). 7. Taxes. (a) Tenant agrees that after the Commencement Date of this Lease, Tenant shall pay as additional rent (and hold Landlord harmless from) before they become delinquent all taxes (both real 5 and personal), assessments (both general and special), and governmental charges of any nature whatsoever, levied upon or assessed against the Premises (including, without limitation, the Property). Tenant shall deliver to Landlord receipts or other reasonably satisfactory evidence of payment of all such taxes, assessments and governmental charges so paid by Tenant. It is agreed, however, that Tenant may, at its sole cost and expense, after giving prior written notice to Landlord, dispute and contest the same, and in such cases, such disputed item need not be paid until finally adjudged to be valid; provided, however, that Tenant must post an appropriate bond or take another measure necessary to keep the Premises free of tax liens. At the conclusion of such contest, Tenant shall pay the items contested to the extent that they are held valid, together with all terms, court costs, interest, penalties and other expenses relating thereto. Notwithstanding the foregoing and anything to the contrary contained herein, Tenant hereby agrees that until further notice from Landlord, Tenant shall prepay all such taxes, assessments and governmental charges in monthly installments of one-twelfth (1/12th) of the annual amount thereof; and Tenant shall make to Landlord, in addition to the rent reserved hereunder, monthly payments of one-twelfth (1/12th) of all such taxes, assessments and governmental charges. To the extent of the payments made by Tenant to Landlord pursuant to the immediately preceding sentence (but only to the extent of such payments), Tenant shall be deemed to have satisfied its obligations to pay such taxes, assessments and governmental charges and Tenant shall not be required to provide the evidence of payment described above and Landlord shall utilize such payments by Tenant in order to pay all such taxes, assessments and governmental charges to be timely paid (with Tenant agreeing to pay any difference upon demand by Landlord). If Landlord fails to timely pay or cause payment of any such taxes, assessments and governmental charges where Tenant has made monthly installments as provided in this Section, and provided the failure to pay the applicable taxes, assessments and governmental charges would constitute a lien upon Tenant's property or Tenant's leasehold interest in the Premises will be subordinate to the lien of such taxes, assessments and governmental charges, then Tenant may, but shall have no obligation (to the extent Tenant has already made monthly payments as provided in this section) to pay the applicable taxes, assessments and/or governmental charges. (b) Notwithstanding anything hereinabove to the contrary, if at any time during the term of this Lease any assessment (either general or special) is levied upon or assessed against the 6 Property or any part thereof, and such assessment is payable in installments (without special hearing or legal action), Landlord shall not be required to elect the manner of payment which provides for the greatest length of time to pay in installments; and in such case Tenant shall be liable only for those installments accruing during Tenant's tenancy under this Lease in the manner selected by Landlord. (c) If at any time during the term of this Lease, there shall be levied, assessed or imposed a tax, charge or capital levy or otherwise (other than a general gross receipts or income tax) on all or a portion of the rents prescribed in this Lease, then even if such tax may be imposed by the governmental authority upon Landlord, Tenant shall pay same in the same manner as is provided above in Section 7(a) for real estate taxes. (d) Tenant shall be liable for all taxes levied against personal property and trade fixtures placed by Tenant and/or located in the Premises, including, without limitation, the Personalty. If any such taxes are levied against Landlord or Landlord's property and if Landlord elects to pay the same or if the assessed value of Landlord's property is increased by inclusion of personal property and trade fixtures placed by Tenant and/or located in the Premises, including, without limitation, the Personalty, and Landlord elects to pay the taxes based on such increase, Tenant shall pay to Landlord upon demand that part of such taxes for which Tenant is primarily liable hereunder. (e) Tenant shall be liable for any and all dues and other costs and assessments levied by the Waters' Ridge Association, Inc., a Texas non-profit corporation (including, without limitation, all annual and special assessments under the Declaration (as defined below)) or any similar entity, and any charges assessed against the Premises pursuant to any contractual covenants or recorded declaration of covenants or the covenants, conditions and restrictions of any other similar instrument affecting the Premises (including, without limitation, that certain Master Declaration of Covenants, Restrictions and Development Standards Applicable to Waters' Ridge dated June 1, 1984, recorded in Volume 1423, Page 680, Deed Records of Denton County, Texas (as amended, the "Declaration")). 7 8. Insurance. (a) Tenant shall, at its expense, maintain at all times during the term of this Lease (and prior to the term of this Lease with respect to activities of Tenant under this Lease at the Premises) insurance as set forth below: (1) Commercial General Liability Insurance (1986 ISO Form or its equivalent) written on an "occurrence" basis with respect to the business carried on, in or from the Premises and Tenant's use and occupancy of the Premises (including a contractual liability) in an amount not less than $1,000,000 per occurrence and $2,000,000 general aggregate per location for bodily injury and property damages (or with increased limits as may be required from time to time by Landlord by giving notice to Tenant) and without any deductible; (2) Workers' Compensation Insurance in compliance with the Worker's Compensation Laws of the state in which the Premises is located and including at least 100/500/100 Employers Liability Insurance. (3) Excess/Umbrella Liability Insurance, with a "following form" endorsement attached, with a minimum limit of $3,000,000 each Occurrence and Aggregate, where applicable; and (4) Property insurance based on an "all risk" form acceptable to Landlord, including but not limited to, coverage for: (A) All office furniture, trade fixtures, office equipment, merchandise, and all other items of Tenant's property in, on, at, or about the Premises and the Building, including property installed by, for, or at the expense of Tenant; (B) The Improvements; and 8 (C) All other improvements, betterments, alterations, and additions to the Premises. Tenant's Property Insurance must also fulfill the following requirements: (AA) It must include Landlord and Landlord's property manager or mortgagee(s) (if any) as additional insureds and be written on the equivalent of an ISO "Special Form" Property Insurance Form or an equivalent form acceptable to Landlord; (BB) It must include perils of earthquake and flood as covered causes of losses; (CC) It must include an agreed amount endorsement (with coinsurance waived) for not less than one-hundred percent (100%) of the full replacement cost (new without deduction for depreciation) of the covered items and property; and (DD) It must have a deductible no greater than $1,000 for each loss. It is the parties' intent that Tenant structure its property insurance program so that no coinsurance penalty is imposed, there are no valuation disputes with any insurer or with Landlord, and valuation cost shall be based upon replacement value. The property insurance coverage must include vandalism and malicious mischief coverage. (b) Tenant's policies must be written by an insurance company or companies with a current A.M. Best's rating of A- IX or better and be admitted to do business in the State of Texas. 9 Landlord and any mortgagee of Landlord must be named as additional insureds without restriction under the liability, property and umbrella policies. Tenant shall obtain a written obligation on the part of each insurance company to notify Landlord at least thirty (30) days prior to cancellation, non-renewal, or material reduction of the coverage. (c) Tenant shall deliver copies of duly executed certificates of insurance to Landlord, together with a copy of the endorsement(s) to such policies of insurance evidencing that Landlord and Landlord's property manager (together with any other parties required under this Section 8, if applicable) have been included as additional insureds, in forms acceptable to Landlord, prior to occupying any part of the Premises, and on an annual basis thereafter. If Tenant fails to comply with these insurance requirements, Landlord may obtain the required insurance and Tenant shall pay to Landlord on demand as additional rent the premium cost thereof plus interest at the lower of 18% per annum or the maximum legal contract rate from the date of payment by Landlord until paid by Tenant. (d) During the term hereof, Tenant shall carry, or cause to be carried (with an insurer that satisfies the requirements set forth in Section 8(b) above) fire and extended coverage, commercial general liability, property insurance and other insurance as Landlord deems reasonably necessary covering all of the Premises for an amount not less than its full insurable value on a replacement cost basis, for the benefit of Tenant and Landlord as their interests may appear, by policies on such terms, in such form and for such periods as Landlord shall require or approve from time to time, insuring with all risk or special form coverage, and coverage insuring against loss of rents and other income (for no less than twelve (12) full months) and when and to the extent required by Landlord, against any other risks (the "Fire and Extended Coverage Insurance"), and in addition to the Minimum Rent specified in this Lease, Tenant shall pay the costs of the premiums for the Fire and Extended Coverage Insurance carried hereunder in each calendar year or partial calendar year during the term of this Lease. If Tenant fails to maintain the Fire and Extended Coverage Insurance in force, then Landlord at its option may effect such the Fire and Extended Coverage Insurance from year to year and pay the premiums therefor, and any such sums advanced by Landlord shall bear interest at the highest rate permitted by law, and shall be promptly reimbursed to Landlord upon 10 receipt of written demand therefor. Tenant shall assign and deliver to Landlord all policies of Fire and Extended Coverage Insurance which insure against any loss or damage to the Premises or any part thereof, as collateral and further security for the payment of the obligations under this Lease, with loss payable to Landlord pursuant to a clause acceptable to Landlord. Landlord is hereby authorized at its option to settle and adjust any claims arising out of any insurance coverage so maintained by Tenant. Any expense incurred by Landlord in the adjustment and collection of insurance proceeds shall be reimbursed to Landlord first out of any insurance proceeds. If any insurance proceeds under the Fire and Extended Coverage Insurance are received by Landlord for loss or damage to the Improvements or the Personalty which total less than $200,000.00, and provided Tenant is not then in default under this Lease (in which case Landlord at its option may retain such proceeds and apply them toward the payment of the obligations then due and owing under this Lease in any order of priority Landlord may deem appropriate in its sole discretion), then Landlord shall disburse said proceeds to Tenant in whole for the repair or restoration of the damaged Improvements or Personalty. If any insurance proceeds under the Fire and Extended Coverage Insurance are received for loss or damage to the Improvements or the Personalty which total $200,000.00 or more, and provided Tenant is not then in default under this Lease (in which case Landlord at its option may retain such proceeds and apply them toward the payment of the obligations then due and owing under this Lease in any order of priority Landlord may deem appropriate in its sole discretion), then Landlord shall disburse such proceeds to Tenant for the repair or restoration of the damaged Improvements or Personalty in the same manner as disbursements under a construction loan (i.e., with construction draws); Landlord shall not be obligated to see to the proper application by Tenant of any such disbursement. Not less than thirty (30) days prior to the expiration date of each Fire and Extended Coverage Insurance policy required under this Lease, Tenant shall deliver to Landlord a renewal policy or policies marked "premium paid" or accompanied by other evidence of payment satisfactory to Landlord. Each policy of insurance required hereunder shall be non-cancelable without at least thirty (30) days' advance written notice to Landlord. 9. Payment of Taxes by Landlord. If Tenant should fail to pay any taxes, assessments 11 or governmental charges required to be paid by Tenant hereunder, in addition to any other remedies provided herein, Landlord may, if it so elects (and after reasonable notice to Tenant), pay such taxes, assessments and governmental charges. Any sums so paid by Landlord shall bear interest at the lower of 18% per annum or the maximum legal contract rate, shall be deemed to be additional rental owing by Tenant to Landlord and shall be paid with the next due installment of rent. 10. Repairs. Tenant shall take good care of the Building (including but not limited to roof and structure), the parking areas, private drives, sidewalks (if any and as applicable) and all other Improvements on the Premises, throughout the term of this Lease, and shall keep them in an attractive and good condition and free from waste or nuisance of any kind. Tenant shall make repairs to the Building, parking areas, private drives, sidewalks (if any and as applicable) and the Improvements at its sole cost and expense; and Landlord shall not be called upon to make any improvements or repairs of any kind during the term of this Lease. Tenant further agrees that it shall care for the landscaping, if any, on the Property (including, to the extent applicable, the mowing of grass, care of shrubs, watering and other landscaping requirements) during the term of this Lease. The Premises shall not be maintained as, nor shall Tenant permit the Premises to become, a public or private nuisance; and Tenant shall not maintain any nuisance upon the Premises. Tenant shall, at its sole cost and expense and at all times during the term of this Lease, comply with and cause the Premises to comply with the terms of the Declaration (including, without limitation, Article IX thereof). Upon the expiration or other termination of this Lease, Tenant shall deliver up the Premises with the Building, parking areas, private drives, sidewalks (if any and as applicable) and improvements located thereon (including, without limitation, the Improvements), in good repair and condition, loss by fire or other casualty or act of God, and ordinary wear and tear excepted. 11. Alterations. Tenant shall have the right to make any reasonable interior alterations, additions, or improvements to the Building as may be necessary in connection with requirements of Tenant's business without the prior written consent of Landlord and without the payment of any additional rent, provided that such alterations, additions or improvements (x) shall not reduce the value of the Premises, and (y) shall not affect the Building's structure, or any of the mechanical, electrical, HVAC, plumbing systems or other Building systems (collectively and as applicable, the 12 "Building Systems"). All other changes must be submitted to Landlord for Landlord's prior written approval (not to be unreasonably withheld); and even with regard to changes permitted by the immediately preceding sentence, if the change either (i) costs more than $5,000.00 or (ii) is a structural change and/or affects any of the Building Systems, then in either such event Tenant will provide Landlord with written notice, accompanied by informational copies of the plans and specifications of all such change(s), and such change(s) shall be subject to Landlord's prior written approval (not to be unreasonably withheld). Except as provided in Section 12 below, all alterations, additions and improvements which may be made or installed upon the Premises shall remain upon and be surrendered with the Premises and become the property of Landlord upon the expiration or other termination of this Lease, unless (x) Landlord requests the removal of alterations or additions to which it did not consent, in which event Tenant shall remove the same and restore the Premises to their original condition at Tenant's expense, or (y) Tenant timely and effectively exercises its Purchase Option (as defined in and pursuant to Section 26 below). 12. Equipment, Fixtures and Signs on Premises. Tenant shall have the right to maintain equipment, trade business fixtures and signs existing at the Premises as of the Commencement Date of this Lease, and Tenant shall have the additional right(s), at Tenant's sole cost and with the prior consent of Landlord (such consent not to be unreasonably withheld), to erect, install, maintain, and operate on the Premises additional equipment, trade and business fixtures, and signs (exclusive of any signs on the roof), and all of such equipment, trade and business fixtures, and signs (exclusive of any signs on the roof) shall remain upon and be surrendered with the Premises and become the property of Landlord upon the expiration or other termination of this Lease, unless (x) Landlord requests the removal of such equipment, trade and business fixtures, and signs to which it did not consent, in which event Tenant shall remove the same and restore the Premises to their original condition at Tenant's expense, or (y) Tenant timely and effectively exercises its Purchase Option (as defined in and pursuant to Section 26 below). All such installation shall be effected in compliance with applicable governmental laws, ordinances and regulations and shall not materially injure or deface the building and other improvements. Except as provided in this Section 12, Tenant shall have no right to place any other signs on the Property or elsewhere on the Premises. 13 13. Damage by Fire or Other Casualty. (a) If the Improvements on the Property should be damaged or destroyed by fire, tornado, or other casualty, Tenant shall give immediate written notice thereof to Landlord. (b) If during the term of this Lease the building situated upon the Premises should be substantially or totally destroyed by fire, tornado, or other casualty, or if during such period it should be so damaged that rebuilding or repairs cannot be completed within one hundred eighty (180) days after the date of such damage, this Lease shall, at the option of Landlord (to be exercised by written notice delivered to Tenant within twenty (20) days after the occurrence of the casualty (the "Casualty Notice")), terminate and the rent shall be abated during the unexpired portion of this Lease, effective with the date of such damage. If Landlord elects to terminate this Lease in accordance with the immediately preceding sentence, then Tenant shall have the right to exercise its Purchase Option pursuant to the terms of Section 26 below by delivering its 30 days' written notice to Landlord within ten (10) days after receipt of the Casualty Notice, in which case Tenant shall be entitled to the proceeds of the Fire and Extended Coverage Insurance. (c) If the building situated upon the Premises should be damaged by fire, tornado, or other casualty but not under such circumstances as entitle Landlord to terminate pursuant to Section 13(b) above, or if under such circumstances but Landlord shall not have elected to terminate this Lease, this Lease shall not terminate, but Tenant shall, at Tenant's sole cost and expense, proceed with reasonable diligence to rebuild and repair such building to substantially the condition in which it existed prior to such damage, and Tenant may use the proceeds of the Fire and Extended Coverage Insurance for such purpose (in accordance with the terms and provisions of Section 8(d) above). The rent payable hereunder shall in no event abate during the period in which the Premises are untenantable. (d) Tenant shall not, without Landlord's prior written consent, keep anything within the Premises for any purpose which invalidates any insurance policy carried on the Premises. All property kept, stored or maintained within the Premises by Tenant shall be at Tenant's sole risk. 14 (e) Subject to Section 13(b) hereof, all insurance proceeds payable by reason of the occurrence of such fire or other casualty shall be paid to Landlord to be applied to the cost of repair or replacement of the Improvements and the Personalty (in accordance with the terms and provisions of Section 8(d) above). 14. Condemnation. (a) If all of the Property -- or if less than all, but Landlord reasonably determines the remaining portion cannot be utilized for the operation of Tenant's business -- shall be acquired by the right of condemnation or eminent domain for any public or quasi-public use or purpose or sold to a condemning authority under threat of condemnation, then the term of this Lease shall cease and terminate as of the date of title vesting in such proceeding (or sale) and all rentals, including percentage rentals, shall be paid up to that date. (b) In the event of a partial taking or condemnation which takes less than a substantial portion of the Property and Landlord reasonably determines the remaining portion can be utilized for the operation of Tenant's business, then Tenant, at Tenant's sole cost and expense, shall promptly restore the remaining portion to a condition comparable to its condition at the time of such condemnation less the portion lost in the taking; and in such event this Lease shall continue in full force and effect and all rentals will continue without abatement. (c) In the event of any condemnation, taking or sale as aforesaid, whether whole or partial, Landlord and Tenant shall each be entitled to receive and retain such separate awards and portions of lump sum awards as may be allocated to their respective interests in any condemnation proceedings, or as may be otherwise agreed; except that if the remaining portion shall be restored as herein provided, the Tenant shall first be entitled to recover its expenses incurred in such restoration out of any such award, and the balance shall be allocated as aforesaid. Termination of this Lease shall not affect the right of the respective parties to such awards. 15. Liability and Indemnification. (a) Landlord shall not be liable to Tenant or its directors, shareholders, partners, trustees, 15 members, agents, contractors, subcontractors, employees, licensees, servants, and invitees and all persons and entities claiming through any of these persons or entities (collectively and as applicable, "Tenant Party(ies)"), or any person whomsoever, for any injury to person or damage to property on or about the Premises caused by the negligence or willful misconduct of Tenant or any Tenant Party; and Tenant agrees to indemnify Landlord and hold it harmless from any loss, claim, damage, cost or expense suffered or incurred by Landlord by reason of any such damage or injury. (b) Landlord and Landlord's agents and employees shall not be liable to Tenant or any Tenant Party for any injury to person or damage to property caused by the Premises (or any portion thereof) becoming out of repair or by defect in or failure of equipment, pipes or wiring, or broken glass, or by the backing up of drains, or by gas, water, steam, electricity or oil leaking, escaping or flowing into the Premises, nor shall Landlord be liable to Tenant or any Tenant Party for any loss or damage that may be occasioned by or through the acts or omissions of any other persons whomsoever, excepting only duly authorized employees and agents of Landlord. (c) Tenant shall indemnify, defend, and hold Landlord and its authorized representatives and their respective officers, directors, shareholders, partners, trustees, members, agents, employees, property manager, contractors and all persons and entities through any of these persons or entities (collectively and as applicable, "Landlord Party(ies)") harmless from all fines, suits, losses, costs, liabilities, claims, demands, actions, and judgments of every kind and character (collectively, "Claims") INCLUDING THOSE CLAIMS RESULTING SOLELY OR IN PART FROM THE NEGLIGENCE OF ANY LANDLORD PARTY (BUT EXCEPTING THOSE CLAIMS RESULTING FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY LANDLORD PARTY) arising out of or relating (directly or indirectly) to this Lease, the tenancy created under this Lease or the Premises, including, without limitation: (1) any breach or default in performance of any obligation on Tenant's part to be performed under this Lease, whether before or during the term of this Lease or after its expiration or earlier termination; (2) any act, omission, negligence, or misconduct of any Tenant Party, or of any 16 other person entering upon the Premises under or with the express or implied invitation or permission of Tenant; (3) any alterations, activities, work, or things done, permitted, allowed, or suffered by Tenant Parties in, at, or about the Premises, including the violation by any Tenant Party of any Applicable Laws (including, without limitation, the Access Laws); and (4) the occupancy or use by any Tenant Party of the Premises. (d) Tenant shall indemnify, defend, and hold all Landlord Parties harmless from any Claim for damage to the Improvements or Tenant's personal property, fixtures, furniture, and equipment in the Premises (INCLUDING THOSE CLAIMS RESULTING SOLELY OR IN PART FROM THE NEGLIGENCE OF ANY LANDLORD PARTY (BUT EXCEPTING THOSE CLAIMS RESULTING FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY LANDLORD PARTY)), to the extent that the damage is covered by ISO Special Form Property Insurance (including any deductible) that Tenant is required to carry under this Lease (or would have been covered had Tenant carried the insurance required under the provisions of this Lease). (e) If any Landlord Party is made a party to any litigation commenced against any Tenant Party or relating to this Lease or to the Premises, then Tenant shall pay all costs and expenses, including attorneys' fees, court costs and expenses, incurred by or imposed upon the Landlord Party by virtue of the litigation. The amount of all costs and expenses, including attorneys' fees, court costs and expenses is a demand obligation payable by Tenant to Landlord as additional Rent bearing interest at the lower of 18% per annum or the maximum legal contract rate from the date of payment by Landlord until paid by Tenant. (f) If an employee (full-time, part-time, or temporary) of Tenant suffers an injury at the Premises, Tenant shall cause the injured employee to exhaust all rights under the applicable Workers' Compensation Laws before any claim arising from the injury is asserted against any other party. 17 Tenant shall indemnify, defend, and hold Landlord Parties harmless from any and all Claims suffered by Landlord Parties arising from any injury(ies) to any of Tenant's employees or any other Tenant Parties. (g) The provisions of this Section 15 survive the expiration or earlier termination of this Lease. The indemnification provisions of this Section 15 shall not be construed or interpreted as in any way restricting, limiting, or modifying Tenant's insurance or other obligations under this Lease and is independent of Tenant's insurance and other obligations under this Lease. 16. Assignment and Subletting. (a) Tenant may not, without the prior written consent of Landlord, which consent may be withheld by Landlord in its sole and absolute discretion, (1) assign or transfer this Lease or any interest therein; (2) permit any assignment of this Lease or any interest therein by operation of law; (3) sublet the Premises or any part thereof; (4) grant any license, concession, or other right of occupancy of any portion of the Premises; (5) mortgage, pledge, or otherwise encumber its interest in this Lease; (6) permit the use of the Premises by any parties other than Tenant and its employees; or (7) reorganize as a corporation, limited liability company or any other form of legal entity. Landlord's consent to any assignment, subletting, or reorganization is not a waiver of Landlord's right to approve or disapprove any subsequent assignment, subletting, or reorganization. Tenant and any guarantor of Tenant's obligations under this Lease ("Guarantor", whether one or more) shall remain jointly and severally liable for the payment of rent and performance of all other obligations under this Lease after any assignment or subletting. If Tenant is a partnership, Tenant, Guarantor, and the general partners of Tenant prior to its reorganization shall remain jointly and severally liable for the payment of rent and performance of all other obligations under this Lease after any reorganization. Landlord and Tenant hereby agree that the granting of consent by Landlord to any assignment or subletting, or reorganization shall be within the sole and absolute discretion of Landlord and shall, at a minimum, be preconditioned upon the fulfillment of the following requirements of Landlord, as well as any other requirements of Landlord: (i) that no Event of Default has occurred and is continuing at the time of the request for consent to the sublease or assignment, (ii) that the use to be made of the Premises by the assignee or sub-tenant is only as permitted in Section 5 hereof, (iii) that 18 the assignee or sub-tenant shall assume in writing the performance of all of the terms, covenants and conditions of this Lease on the part of the Tenant to be kept and performed, and (iv) that the Tenant shall deliver to the Landlord within fifteen (15) days prior to the assignment or subletting the proposed documents relating to such event, along with the proposed form of an assumption agreement, all such documents to be subject to Landlord's comments which shall be incorporated therein (with Tenant agreeing to deliver to Landlord within 15 days after the assignment or subletting, an executed duplicate thereof, together with a duly executed assumption agreement). Any assignment or subletting shall be subject to and upon all of the terms and provisions of this Lease. (b) If the Premises or any part thereof are assigned or sublet to a third party pursuant to Section 16(a) above, Landlord may at its option collect directly from the assignee or sublessee all rents payable to Tenant under the assignment or sublease and apply the rent against any sums due to Landlord under this Lease. Tenant authorizes and directs any assignee or sublessee to make payments of rent directly to Landlord upon receipt of notice from Landlord. No direct collection of rent by Landlord from any assignee or sublessee is a novation or a release of Tenant or Guarantor from the performance of their obligations under this Lease or under any guaranty executed by Guarantor, and Tenant and Guarantors shall continue to be liable under this Lease and any such guaranty, with the same force and effect as if no such assignment or sublease had been made. (c) Tenant shall not mortgage, pledge or otherwise encumber its interest in this Lease or in the Premises to any financial institution advancing purchase-money financing for Tenant's operations on the Premises, without the prior written consent of Landlord in Landlord's sole discretion. (d) Tenant may, without the prior consent of Landlord, assign this Lease to an Affiliate, so long as (i) Tenant provides Landlord a copy of the assignment within ten (10) days after its execution, (ii) the transaction was not entered into as a subterfuge to avoid the obligations and restrictions of this Lease, (iii) the assignee or sublessee is engaged in a business customarily acceptable for a tenant in projects similar to the Premises in the same geographic area, (iv) the assignee's proposed use of the Leased Premises does not violate the terms of this Lease, and (v) the 19 assignee's net worth, creditworthiness and financial standing is equal to or better than Tenant's as of the date of such assignment or sublease. Landlord has no obligation to recognize an Affiliate as the tenant under this Lease unless Landlord timely receives a complete copy of the assignment and Tenant pays Landlord its reasonable administrative and legal costs. Tenant and any Guarantors of this Lease remain jointly and severally liable for the payment of rent and performance of all other obligations under this Lease after any assignment to an Affiliate. The term "Affiliate" means any entity that acquires all or part of Tenant, or that is acquired in whole or in part by Tenant, or which entity controls, directly or indirectly, Tenant. For purposes of this subparagraph, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of an entity, whether through the ownership of voting securities or by contract or otherwise. 17. Default. (a) The following events shall be deemed to be "Events of Default" by Tenant under this Lease Agreement: (1) Tenant shall fail to pay any installment or amount of rent herein provided as and when the same shall become due and the failure continues for a period of five (5) days; (2) Tenant shall fail to comply with any term, provision or covenant of this Lease, other than the payment of rent, and shall not cure such failure within twenty (20) days after written notice thereof is given by Landlord to Tenant; provided, however, if the default is not reasonably curable within such 20-day period, Tenant shall have a reasonable additional time period (not to exceed an additional ninety (90) days) to cure such default so long as Tenant commenced such cure within the initial 20-day period and continuously and diligently prosecutes such cure to completion; (3) Tenant shall become insolvent, or shall make a transfer in fraud of creditors or shall make an assignment for the benefit of creditors; (4) Tenant shall file a petition under any section or chapter of the Federal Bankruptcy Code, as amended, or under any similar law or statute of the United States or any state thereof, or Tenant shall be adjudged bankrupt or insolvent in proceedings filed against Tenant thereunder; or 20 (5) A receiver or trustee shall be appointed for all or substantially all of the assets of Tenant. (6) Tenant, if a natural person, dies or becomes incapacitated or, if Tenant is not a natural person, Tenant is dissolved or ceases to exist (except as permitted pursuant to Section 16(d) above). (7) Tenant's leasehold estate is taken on execution or other process of law in any action against Tenant. (8) Tenant does not conduct its business in any substantial portion of the Premises for more than ten (10) consecutive business days. Notwithstanding the foregoing, and anything to the contrary contained in this Lease, in the event that (A) Landlord provides Tenant written notice relating to a failure by Tenant to comply with any term, provision or covenant of this Lease, other than the payment of rent, pursuant to Section 17(a)(2) above (a "17(a)(2) Notice"), (B) Tenant shall not cure such failure within twenty (20) days after the 17(a)(2) Notice is given by Landlord to Tenant, and (C) Tenant provides evidence acceptable to Landlord (in its sole, but reasonable, discretion) within thirty (30) days following the 17(a)(2) Notice that the failure(s) described in such 17(a)(2) Notice is not susceptible of cure at all, then Landlord shall deliver a written notice to Tenant, at Landlord's sole option, either (x) notifying Tenant that Landlord retracts the applicable 17(a)(2) Notice, in which case said 17(a)(2) Notice shall be null and void and of no force or effect, or (y) notifying Tenant that Tenant shall be permitted to either (1) pay all amounts due under this Lease and exercise its Purchase Option pursuant to the terms of Section 26 of this Lease by delivering its 30 days' written notice to Landlord within ten (10) days after receipt of Landlord' notice (time being of the essence), or (2) allow Landlord to exercise its remedies under this Lease, at law or in equity due to the Event of Default under Section 17(a)(2) of this Lease. (b) Upon the occurrence of any such Event of Default, in addition to any other remedy provided herein or at law or equity, Landlord shall have the option to pursue any one or more of the following remedies without any notice or demand whatsoever, and without terminating, invalidating or otherwise affecting Landlord's Option pursuant to Section 27 below: 21 (1) Pursue a claim for monetary relief; or (2) Enforce specific performance of Tenant's obligations; or (3) Enter upon the Premises, without being liable for prosecution or any claim for damages therefor, and do whatever Tenant is obligated to do under the terms of this Lease; and Tenant agrees to reimburse Landlord on demand for any expenses which Landlord may incur in thus effecting compliance with Tenant's obligations under this Lease; or (4) Without terminating this Lease, enter upon and take possession of the Premises and expel or remove Tenant and other persons who may be occupying the Premises or any part thereof, without being liable for prosecution of any claim for damages therefor, and relet the Premises, as Tenant's agent and receive the rent therefore; and Tenant agrees to pay Landlord on demand any deficiency that may arise by reason of such reletting; or (5) Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails so to do, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises, or any part thereof, without being liable for prosecution or any claim for damages thereof; and Tenant agrees to pay to Landlord on demand the amount of all loss and damage which Landlord may suffer by reason of such termination, whether through inability to relet the Premises on satisfactory terms or otherwise. Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies herein provided or any other remedies provided by law or equity, nor shall pursuit of any remedy herein provided constitute a forfeiture or waiver of any rent due to Landlord hereunder or of any damage accruing to Landlord by reason of the violation of any of the terms, provisions and covenants herein contained. Forbearance by Landlord to enforce one or more of the remedies herein provided upon the occurrence of an Event of Default shall not be deemed or construed to constitute a waiver 22 of such default. 18. Inspection by Landlord. Landlord and Landlord's agents and representatives shall have the right to enter upon and inspect the Premises at any time during normal business hours upon prior reasonable notice to Tenant. 19. Covenant of Title and Quiet Enjoyment. If Tenant pays rent when due and timely performs all other obligations of Tenant under this Lease, then Tenant may peaceably and quietly enjoy the Premises during the term of this Lease without any disturbance from Landlord or from any other person claiming by, through, or under Landlord, but not otherwise, subject to the terms of this Lease, Applicable Laws and matters affecting the Premises (including, without limitation, the Declaration) as set forth on Exhibit "B" to the Special Warranty Deed of even date hereof conveying the Premises from Tenant to Landlord. 20. Holding Over by Tenant. Should Tenant or any successor in interest of Tenant or any assignee, sublessee or licensee of Tenant hold over the Premises or any part hereof after the expiration of this Lease unless otherwise agreed in writing, such holdover shall constitute and be construed as a tenancy at sufferance at a monthly rental equal to one hundred fifty percent (150%) of the monthly Minimum Rent payable at the time of termination, plus the payment of all other rent payable under this Lease. While Tenant or its successor continues to hold the Premises after the termination of this Lease, the tenancy is subject to all terms of this Lease; provided, all expansion rights, first refusal rights, first notice rights, first offer rights, and renewal rights (if any) automatically terminate. Landlord shall have the right to terminate such tenancy at any time at will upon one (1) day prior notice to Tenant. No payments of money by Tenant to Landlord after the termination of this Lease reinstate, continue, or extend the term of this Lease and no extension of this Lease after the termination or expiration thereof is valid unless it is reduced to writing and signed by Landlord and Tenant. Nothing in this Section 20 may be construed to give Tenant the right to hold over beyond the scheduled expiration date of the term of this lease or any earlier termination of this Lease or preclude Landlord from having the right to dispossess or otherwise terminate Tenant's right of possession. Any month-to-month tenancy or tenancy at sufferance is terminable upon one (1) day 23 prior notice to Tenant. 21. Notice and Payments. Each provision of this Lease or of any applicable governmental laws, ordinances, regulations and other requirements with reference to the sending, mailing or delivery of any notice or the making of any payment by Tenant to Landlord shall be deemed to be complied with when and if the following steps are taken: (a) All rent and other payments required to be made by Tenant to Landlord hereunder shall be payable to Landlord at the address hereinbelow set forth or at such other address as Landlord may specify from time to time by written notice delivered in accordance herewith; (b) All payments (if any) required to be made by Landlord to Tenant hereunder shall be payable to Tenant at the address hereinbelow set forth, or at such address as Tenant may specify from time to time by written notice delivered in accordance herewith; (c) All notices, requests, approvals, and other communications required or permitted to be delivered under this Lease must be in writing and are effective: (i) on the business day sent if (1) sent by telecopier prior to 5:00 p.m., Central Standard time, (2) the sending telecopier generates a written confirmation of sending, and (3) a confirming copy is sent on the same business day by one of the other means specified below; (ii) the next business day after delivery on a business day to a nationally-recognized-overnight-courier service for prepaid overnight delivery; (iii) if orderly delivery of the mail is not then disrupted or threatened, in which event some method of delivery other than the mail must be used, 3 days after being deposited in the United States mail, certified, return receipt requested, postage prepaid; or 24 (iv) upon receipt if delivered personally or by any method other than by telecopier (with written confirmations nationally-recognized-overnight-courier service, or mail; in each instance addressed to Landlord or Tenant, as the case may be, at the address specified below, or to any other address either party may designate by ten (10) days' prior notice to the other party. If to Landlord: Briarwood Waters Ridge LP c/o Briarwood Capital Corporation 2911 Turtle Creek Boulevard, Suite 1240 Dallas, Texas 75219 Attention: H. Walker Royall Fax No.: (214) 520-2009 With a copy to: Jenkens & Gilchrist, P.C. 1445 Ross Avenue, Suite 3200 Dallas, Texas 75202-2799 Attention: Christopher I. Clark, Esq. Fax No.: (214) 855-4300 If to Tenant: Ultrak Operating, L.P. c/o Ultrak, Inc. 1301 Waters Ridge Drive Lewisville, Texas 75057 Attention: Chris Sharng, CFO Fax No.: (972) 353-6679 With a copy to: Stutzman & Bromberg, P.C. 2323 Bryan Street, Suite 2200 Dallas, Texas 75201-2689 Attention: John E. Bromberg, Esq. Fax No.: (214) 969-4999 25 If and when included within the term "Landlord", as used in this instrument, there is more than one person, firm or corporation, all shall jointly arrange among themselves for their joint execution of such a notice specifying some individual at some specific address for receipt of notice and payment to Landlord; if and when included within the term "Tenant", as used in this instrument, there is more than one person, firm or corporation, all shall jointly arrange among themselves for their joint execution of such a notice specifying some individual at some specific address for receipt of notices and payments to Tenant. All parties included within the terms "Landlord" and "Tenant", respectively, shall be bound by notices given in accordance with the provisions of this Section 21 as if each had received such notice. 22. Net Lease. It is understood and agreed that this is a "net" lease in the most absolute sense. It is the intention of the parties that Landlord shall receive the rentals herein reserved free from (a) all taxes or charges imposed upon or by reason of the Premises and (b) all expenses and charges required to be paid to maintain the Premises and continue the ownership of Landlord and Landlord's successors and assigns. 23. Force Majeure. When this Lease prescribes a period of time for action to be taken by Landlord or Tenant, Landlord or Tenant is not liable or responsible for, and there is excluded from the computation for the period of time, any delays due to strikes, acts of God, shortages of labor or materials, war, governmental laws, regulations, restrictions, or any other cause of any kind that is beyond the control of Landlord or Tenant. Notwithstanding the foregoing, the delays described in the preceding sentence shall not extend the time period for either the Commencement Date or the obligation of Tenant to pay rent under this Lease. 24. Waiver of Subrogation. Landlord and Tenant agree and covenant that neither shall be liable to the other for loss arising out of damage to or destruction of the Premises or contents thereof when such loss is caused by any perils included within the State of Texas standard fire and 26 extended coverage insurance policy. Inasmuch as the above mutual waivers will preclude the assignment of any aforesaid claim by way of subrogation (or otherwise) to an insurance company (or any other applicable person or entity), Landlord and Tenant severally agree immediately to give to each insurance company which has issued to it policies of insurance, written notice of the terms of said mutual waivers, and to have said insurance policies properly endorsed, if necessary, to prevent the invalidation of said insurance coverages by reason of said waivers. 25. Recording. A short-form memorandum of this Lease in the form attached hereto as Exhibit "D" and made a part hereof for all purposes, shall be executed and acknowledged by parties simultaneously with the execution and delivery of this Lease, and shall be recorded in the Real Property Records of Denton County, Texas, promptly following the Commencement Date at Tenant's sole cost and expense. 26. Purchase Option. Landlord and Tenant hereby acknowledge and agree that, provided that Tenant is not then in default under Section 17(a)(1) of this Lease, and further provided that the Tenant under this Lease is Ultrak Operating, L.P., a Texas limited partnership or an Affiliate, Tenant shall have the option (but not the obligation) to purchase the Premises (including the Improvements and the Personalty) (the "Purchase Option") on the terms and conditions hereinafter set forth in this Section 26. Tenant shall exercise its Purchase Option as herein granted by giving written notice (the "Option Notice") thereof to Landlord on or before November 30, 2003, time being of the essence. The date on which the Purchase Option, if exercised by Tenant, shall be consummated by Landlord and Tenant shall be the last day of the twenty-fourth (24th) full calendar month of the term of this Lease (the "Closing Date"). In the event that Tenant shall exercise its Purchase Option hereunder, the consideration to be paid by Tenant for the Premises (including the Improvements) (referred to herein as the "Purchase Price") shall be SIX MILLION NINE HUNDRED THOUSAND AND NO/100 DOLLARS ($6,900,000.00), and shall be payable in cash from Tenant to Landlord at the consummation of the Purchase Option on the Closing Date. If the Purchase Option is exercised, the Premises (including the Improvements) shall be conveyed to Tenant by special warranty deed (the "Deed") in form and content satisfactory to Landlord, and Landlord will, upon conveyance, deliver to Tenant, at Tenant's option and sole cost and expense, an owner's policy of title insurance insuring 27 Tenant's ownership of fee simple title to the Premises (including the Improvements), together with any applicable easements or restrictions appurtenant to or otherwise benefitting the Premises, subject to any applicable permitted exceptions and/or encumbrance. All closing costs, escrow charges, and attorneys' fees (of both Landlord and Tenant) shall be paid by Tenant. Upon consummation of the Purchase Option on the Closing Date, this Lease shall automatically terminate -- in which event Landlord and Tenant shall execute and deliver one to the other any reasonably required document(s) (in recordable form) as may be necessary to evidence such termination. In the event that Tenant has not properly and validly exercised its Purchase Option on or before November 30, 2003, time being of the essence, then Tenant shall have no right (and shall be deemed to have waived its right) to exercise the Purchase Option set forth in this Section 26. Tenant may not assign the Purchase Option set forth in this Section 26 to any assignee of this Lease, nor may any sublessee or assignee exercise the Purchase Option set forth in this Section 26. 27. Tenant's Information. Tenant's Organizational Identification Number issued by the Secretary of State of Texas is 85612-10. Tenant's Tax Identification Number is 75-2625985. 28. Gender and Number. Words of any gender used in this Lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, and vice versa, unless the context otherwise requires. 29. Binding Effect. The terms, provisions, covenants and conditions contained in this Lease shall apply to, inure to the benefit of and be binding upon the parties hereto and upon their respective heirs, legal representatives, successors in interest and assigns, except as otherwise herein expressly provided. 30. Entire Agreement; Amendments. This Lease is the entire agreement between the parties. All negotiations, considerations, representations, and understandings between Landlord and Tenant are incorporated in this Lease. No act or omission of any employee or agent of Landlord may alter, change, or modify any of the terms of this Lease. No amendment or modification of this Lease is binding unless expressed in a written instrument executed by Landlord and Tenant. 28 31. Captions. The captions used herein are for convenience only and shall not be deemed to amplify, limit or otherwise construe the terms hereof in any way. 32. Terms Held Invalid. If any provision of this Lease should be held to be invalid or unenforceable, the validity and enforceability of the remaining provisions of this Lease shall not be affected thereby. 33. Attorney's Fees. If on account of any breach or default in any of Tenant's obligations hereunder, Landlord shall employ an attorney to enforce or defend any of Landlord's rights or remedies hereunder, and Landlord is the prevailing party in such matter, Tenant shall pay on demand any reasonable attorney's fees incurred by Landlord in such connection. 34. Waiver of Repurchase Option. Notwithstanding anything to the contrary contained in this Lease (including, without limitation, the terms of Section 26 of this Lease), Tenant hereby acknowledges and agrees that it fully and completely waives any and all rights that Tenant may ever have (i.e., now and/or in the future) to exercise the option to repurchase the Premises (or any portion thereof) pursuant to the terms of Article XII of the Declaration. 35. Estoppels. Tenant agrees that it will from time to time upon request by Landlord execute and deliver to Landlord a written statement addressed to Landlord (or to a party designated by Landlord), which statement shall identify Tenant and this Lease, shall certify that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as so modified), shall confirm that Landlord is not in default as to any obligations of Landlord under this Lease (or if Landlord is in default, specifying any default), and shall contain such other information or confirmations as Landlord may require. Landlord is hereby irrevocably appointed and authorized as the agent and attorney-in-fact of Tenant to execute and deliver any such written statement on Tenant's behalf if Tenant fails to do so within seven (7) days after the delivery of a written request from Landlord to Tenant. 29 36. Mechanic's Liens. Tenant shall have no authority, express or implied, to create or place any lien or encumbrance of any kind or nature whatsoever upon, or in any manner to bind, the interest of Landlord in the Premises or to charge the rentals payable hereunder for any claim in favor of any person dealing with Tenant, including those who may furnish materials or perform labor for any construction or repairs, and each such claim shall affect and each lien shall attach to, if at all, only the leasehold interest granted to Tenant by this instrument. Tenant covenants and agrees that it will pay or cause to be paid all sums legally due and payable by it on account of any labor performed or materials furnished in connection with any work performed on the Premises on which any lien is or can be validly and legally asserted against its leasehold interest in the Premises or the improvements thereon and that it will save and hold Landlord harmless from any and all loss, cost or expense based on or arising out of asserted claims or liens against the leasehold estate or against the rights, title and interest of the Landlord in the Premises or under the terms of this Lease. 37. No Joint Venture. Nothing herein contained shall be deemed or construed by the parties hereto, nor by any third party, as creating the relationship of principal and agent or partnership or of joint venture between parties hereto, it being understood and agreed that neither the method of computation of rent, nor any other provisions contained herein, nor any acts of the parties hereto, shall be deemed to create any relationship between the parties hereto other than the relationship of landlord and tenant. 38. Broker. Tenant warrants that it has had no dealing with any broker or agent in connection with the negotiation or execution of this Lease. Tenant shall indemnify, defend, and hold Landlord harmless against all costs, expenses, attorneys' fees, or other liability for commissions or other compensation or charges claimed by any broker or agent other than Brokers claiming by, through, or under Tenant with respect to this Lease or any renewal or extension. 39. Date of Lease. This Lease shall be dated as of date first above written in this Lease. 40. No Representations. NO LANDLORD PARTY MADE ANY REPRESENTATIONS OR PROMISES WITH RESPECT TO THE PREMISES EXCEPT AS 30 EXPRESSLY SET FORTH IN THIS LEASE. NO RIGHTS, EASEMENTS, OR LICENSES ARE ACQUIRED BY TENANT BY IMPLICATION OR OTHERWISE EXCEPT AS EXPRESSLY SET FORTH IN THIS LEASE. Tenant acknowledges that neither Landlord nor any other Landlord Party has made, and Tenant waives, any representation or warranty with respect to the Premises including, without limitation, any representation or warranty with respect to the suitability or fitness of the Premises for the conduct of Tenant's business. 41. Binding Effect. All terms of this Lease are binding upon the respective heirs, personal representatives, successors, and, to the extent assignment is permitted, assigns of Landlord and Tenant. 42. Counterparts. This Lease may be executed in two or more counterparts, each of which is deemed an original and all of which together constitute one and the same instrument. 43. Rental Tax. Tenant shall pay as additional Rent all licenses, charges, and other fees of every kind and nature as and when they become due arising out of or in connection with Tenant's use and occupancy of the Premises, including but not limited to license fees, business license taxes, and privilege, sales, excise, or other taxes (other than income) imposed upon rent or upon services provided by Landlord or upon Landlord in an amount measured by rent received by Landlord. 44. Landlord's Lien. To secure payment of all Rent and any damages or losses Landlord suffers by reason of the breach by Tenant of this Lease, Tenant grants to Landlord a security interest in, and an express contractual lien on, all goods, wares, equipment, fixtures, furniture, improvements, and other personal property of Tenant presently or hereafter situated in the Premises (except parts of the property exchanged, replaced, or sold from time to time in the ordinary course of Tenant's operations) and all proceeds therefrom. The property may not be removed from the Premises without the consent of Landlord until all arrearages in Rent are paid and any other defaults cured by Tenant. This security interest is governed by Article 9 of the Texas Business & Commerce Code (the "Code"). Upon request by Landlord, Tenant shall execute and deliver to Landlord a financing statement in form sufficient to perfect the security interest of Landlord in the property and 31 proceeds under the provisions of the Code. The security interest granted in this Paragraph is in addition to Landlord's statutory and constitutional liens. Notwithstanding the foregoing provisions of this Section 44, Landlord agrees that it will subordinate its security interest(s) and landlord's lien(s) to the security interest of Tenant's supplier(s) or third-party, unaffiliated financial source(s) for as long as the rental account of Tenant under this Lease is current (or is brought current), provided that any such subordination shall be limited to a specified transaction and specified items of the fixtures, equipment or inventory involved in the transaction, and further provided that any such subordination is evidenced by a written agreement in form and content reasonably satisfactory to Landlord. 45. Limitation of Actions. Any claim, demand, right, or defense of Tenant arising out of this Lease is barred unless Tenant commences an action or asserts an affirmative defense within 6 months after the date of the event giving rise to Tenant's claim, demand, right, or defense. Tenant represents and warrants to Landlord that Tenant has consulted with legal counsel regarding the effect of this Paragraph. 46. Waiver of Jury Trial. LANDLORD AND TENANT HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM, COUNTERCLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING OUT OF OR IN ANY WAY PERTAINING OR RELATING TO THIS LEASE OR ANY OTHER DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION WITH THIS LEASE OR (B) IN ANY WAY CONNECTED WITH OR PERTAINING OR RELATED TO OR INCIDENTAL TO ANY DEALINGS OF THE PARTIES HERETO WITH RESPECT TO THIS LEASE OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR IN CONNECTION WITH THE TRANSACTIONS RELATED THERETO OR CONTEMPLATED THEREBY OR THE EXERCISE OF EITHER PARTIES RIGHTS AND REMEDIES THEREUNDER, IN ALL OF THE FOREGOING CASES WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. LANDLORD AND TENANT AGREE THAT EITHER OR BOTH OF THEM MAY FILE A COPY OF THIS PROVISION WITH ANY COURT AS WRITTEN EVIDENCE OF 32 THE KNOWING, VOLUNTARY AND BARGAINED AGREEMENT BETWEEN THE PARTIES IRREVOCABLY TO WAIVE TRIAL BY JURY, AND THAT ANY DISPUTE OR CONTROVERSY WHATSOEVER BETWEEN THEM SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY. 47. Execution and Approval of Lease. Employees and agents of Landlord have no authority to make or agree to make a lease or any other agreement or undertaking in connection herewith. The submission of this Lease for examination and negotiation is not an offer to lease, agreement to reserve, or option to lease the Premises. This Lease is effective and binding on Landlord only upon the execution and delivery of this Lease by Landlord and Tenant. 48. Governing Law. The parties hereto acknowledge and agree that it is their intention (respectively) that the laws of the State of Texas govern the validity, construction of terms and interpretation of the rights and duties of the parties with respect to this Lease. 49. Hazardous Materials. (a) Tenant may not: (1) cause or permit the escape, disposal, or release in or on the Premises of any biologically active, chemically active, or hazardous substances or materials (collectively, "hazardous substances"); or (2) bring, or permit any other Tenant Party to bring, any hazardous substances into or onto the Premises. The term "hazardous substances" includes, but is not limited to, those described in the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et seq., the Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901 et seq., the Texas Water Code, the Texas Solid Waste Disposal Act, and other applicable existing and future state or local environmental laws and the regulations adopted under those acts. (b) If Landlord, any lender or any governmental agency requires testing to ascertain whether or not a release of hazardous substances has occurred in or on the Premises based on 33 probable cause that a release occurred and was caused by any Tenant Party, then Tenant shall reimburse the reasonable costs of the testing to Landlord on demand as additional rent. (c) Tenant shall execute affidavits, representations, and the like from time to time at Landlord's request concerning Tenant's best knowledge and belief regarding the presence of hazardous substances in or on the Premises. (d) Tenant shall indemnify Landlord Parties in the manner elsewhere provided in this Lease from any release of hazardous substances in or on the Premises caused or permitted by any Tenant Party, including, but not limited to, any costs incurred by Landlord in connection with the removal or abatement of any such hazardous substances. (e) These covenants survive the expiration or earlier termination of this Lease. 50. Intention of Parties; Contingent Security Interest. Landlord and Tenant each hereby acknowledge and agree that the parties hereto fully intend that the transaction contemplated by this Lease be a lease transaction and establish only the relationship of landlord and tenant by and between Landlord and Tenant. Notwithstanding the foregoing, if, and only if, the transaction contemplated by this Lease is deemed by any court or other legal authority to be a loan or other category of financing transaction, and Landlord's fee simple ownership of the Premises (or any portion thereof) is in any way disputed or challenged, then the following provisions shall automatically be applicable: (a) To secure the payment of the obligations and the full and faithful performance of the covenants and agreements contained in this Lease, as well as the full payment to Landlord of the Purchase Price prescribed in the Purchase Option set forth in Section 26 of this Lease, Tenant hereby grants and conveys the Premises to Christopher I. Clark of Dallas County, Texas ("Trustee"), to have and to hold the Premises pursuant to the terms of this Section 50; moreover, Tenant hereby grants, conveys and pledges to Landlord a security interest in all of the Personalty. (b) Tenant shall forever warrant and defend the title and quiet possession of the Premises unto Trustee and Landlord, and the validity and priority of the lien of this Section 50, against the lawful claims and demands of all persons whomsoever, and this warranty of title shall survive the foreclosure of the lien of this Section 50 and shall inure to the benefit of and be enforceable by any person who may acquire the Premises pursuant to foreclosure, trustee's sale or other exercise by Landlord of the rights and remedies provided in this Section 50. 34 (c) All amounts due under this Lease, as well as full payment to Landlord of the Purchase Price prescribed in the Purchase Option set forth in Section 26 of this Lease, at the option of the Landlord, shall become at once due and payable without demand or notice other than the demand or notice provided for in this paragraph (c); and provided that all or any portion of all such amounts remain unpaid, then the Trustee when requested so to do so by Landlord, shall sell the Premises and the Personalty at public auction to the highest bidder for cash, between the hours of ten o'clock A.M. and four o'clock P.M. on the first Tuesday in any month, at the door of the Courthouse in the County in which the Premises, or any part thereof are situated, in accordance with the requirement specified in Section 51.002 if the Texas Property Code, and after advertising same in accordance with the requirements of Section 51.002 of the Texas Property Code. (d) If and to the extent that subsections (a), (b) and (c) become applicable to this transaction, Landlord may substitute any other Trustee for the above-mentioned Christopher I. Clark, with or without cause and with or without notice having been provided to Tenant. (e) Notwithstanding the foregoing, Landlord and Tenant hereby acknowledge and agree that commencing at the end of the last day on which Tenant is permitted under Section 26 above to properly and validly exercise its Purchase Option, the expiration of such Purchase Option shall be deemed to be a deed in lieu of foreclosure with respect to the Premises as consideration for the right of Tenant to remain in possession of the Premises for the balance of the term of this Lease; and in this regard, Tenant's remaining in the Premises beyond the end of the last day on which Tenant is permitted under Section 26 above to properly and validly exercise its Purchase Option will conclusively be deemed to constitute such deed in lieu of foreclosure to Landlord. [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK] 35 This Lease is executed in multiple originals as of the date first above set forth. LANDLORD: BRIARWOOD WATERS RIDGE LP, a Texas limited partnership By: Briarwood Capital Corporation, a Texas corporation, its General Partner By: _______________________________________ H. Walker Royall, President TENANT: ULTRAK OPERATING, L.P., a Texas limited partnership By: Ultrak GP, Inc., a Texas corporation, its General Partner By:_________________________________________ Name:_______________________________________ Title:______________________________________ 36 EXHIBIT "A" Legal Description of Property to be attached pursuant to Section 1 37 EXHIBIT "B" Site Plan 38 EXHIBIT "C-1" GUARANTY In order to induce BRIARWOOD WATERS RIDGE LP, a Texas limited partnership ("Landlord"), to execute the foregoing Lease Agreement (the "Lease") with ULTRAK OPERATING, L.P., a Texas limited partnership ("Tenant"), for a certain Premises (herein so called and as defined in the Lease) in the City of Lewisville, Denton County, Texas, the undersigned, ULTRAK, INC., a Delaware corporation, ULTRAK GP, INC., a Delaware corporation, ULTRAK LP, INC., a Delaware corporation, DIAMOND ELECTRONICS, INC., an Ohio corporation, MONITOR DYNAMICS, INC., a California corporation, ABM DATA SYSTEMS, INC., a Texas corporation, and SECURITY WARRANTY, INC., a Texas corporation (such undersigned parties being referred to herein collectively as the "undersigned") do hereby agree as follows: The undersigned hereby jointly and severally guarantee, the payment and performance of all liabilities, obligations and duties (including, but not limited to, payment of rent) imposed upon Tenant under the terms of the Lease, as if the undersigned had individually executed the Lease as Tenant hereunder. In addition, the undersigned further agree that if (but only if) any action is instituted by or on behalf of Tenant or any person or entity affiliated, directly or indirectly, with Tenant (including, without limitation, the undersigned) which challenges or seeks to challenge Landlord's ownership of fee simple title to the Premises or any portion thereof, then each of the undersigned, jointly and severally, hereby agree (a) that regardless of which party prevails in any such action, the undersigned, jointly and severally, shall indemnify and hold harmless Landlord and its successors and/or assigns from and against any and all expenses, fines, suits, losses, costs, liabilities, claims, demands, actions and judgments of every kind and character (including, without limitation, reasonable attorneys' fees) arising out of or relating, directly or indirectly, to such action; provided, however, that the counsel selected by Landlord in connection with any such proceeding(s) shall be reasonably acceptable to Landlord and the undersigned, and (b) that if as a result of any such action Landlord is divested of, or ordered to convey, all or any portion of the fee simple title to the Premises, then the undersigned, jointly and severally, shall either (i) pay to Landlord the Purchase Price prescribed in the Purchase Option set forth in Section 26 of the Lease with respect to the value of the portion of the Premises that Landlord is divested of or ordered to convey or (ii) pay the full amount of the Purchase Price prescribed in the Purchase Option set forth in Section 26 of the Lease and receive from Landlord a transfer of all title of Landlord to the Premises. Notwithstanding the foregoing, Landlord (by its acceptance hereof) hereby agrees that if Landlord is divested of, or ordered to convey, all or any portion of the fee simple title to the Premises as stated in the immediately preceding sentence, then Landlord shall be obligated to use commercially reasonable efforts to obtain recovery under the terms and conditions of the Owner's Policy of Title Insurance in the amount of $6,600,000.00 (the "Title Policy") obtained by Landlord when it acquired the Premises prior to enforcement against any of the undersigned of any liability, obligation or duty guaranteed pursuant to the immediately preceding sentence; provided, however, that to the extent Landlord is not successful in its commercially reasonable efforts to recover under the terms and conditions of the Title Policy (i.e., to the extent Landlord recovers amounts under the Title Policy, such amounts shall serve to offset the liability of the undersigned to Landlord pursuant to the immediately preceding sentence), upon the expiration of one (1) year following the date Landlord made a written claim under the Title Policy pursuant to the terms and conditions thereof, Landlord 39 shall then be permitted to enforce against the undersigned any liability, obligation or duty guaranteed pursuant to the immediately preceding sentence. As used in the immediately preceding sentence, "commercially reasonable efforts" shall be deemed to mean Landlord having made a written claim under the Title Policy pursuant to the terms and conditions thereof, and if Landlord's claim under the Title Policy is denied by the insurer thereunder, filing a lawsuit against said insurer (with counsel reasonably acceptable to Landlord and the undersigned); provided, however, that following the filing of such law suit, the undersigned shall be jointly and severally responsible (and shall promptly reimburse Landlord) for any and all expenses, fines, suits, losses, costs, liabilities, claims, demands, actions and judgments of every kind and character (including, without limitation, reasonable attorneys' fees) arising out of or relating, directly or indirectly, to such action against the insurer under the Title Policy. The undersigned hereby waives notice of acceptance of this Guaranty and all other notices in connection herewith or in connection with the liabilities, obligations and duties guaranteed hereby, including notices of default by Tenant under the Lease, and waives diligence, presentment and suit on the part of Landlord in the enforcement of any liability, obligation or duty guaranteed hereby. The undersigned further agrees that Landlord shall not be first required to enforce against Tenant or any other person any liability, obligation or duty guaranteed hereby before seeking enforcement thereof against the undersigned. Suit may be brought and maintained against the undersigned by Landlord to enforce any liability, obligation or duty guaranteed hereby without joinder of Tenant or any other person. The liability of the undersigned shall not be affected by any indulgence, compromise, settlement or variation of terms which may be extended to Tenant by Landlord or agreed upon by Landlord and Tenant, and shall not be impaired, modified, changed, released or limited in any manner whatsoever by any impairment, modification, change, release, or limitation of the liability of Tenant or its estate in bankruptcy, or if any remedy for the enforcement thereof, resulting from the operation of any present or future provision of the federal Bankruptcy act, or any similar law or statute of the United States or any state thereof. Landlord and Tenant, without notice to or consent by the undersigned, may at any time or times enter into such extensions, amendments, assignments, subleases, or other covenants with respect to the Lease as the may deem appropriate; and the undersigned shall not be released thereby, but shall continue to be fully liable for the payment and performance of all liabilities, obligations and duties of Tenant under the Lease as so extended, amended, assigned or otherwise modified. The undersigned acknowledges and agrees that the laws of the State of Texas govern the validity, construction of terms and interpretation of the rights and duties of the parties with respect to this Guaranty. It is understood that other agreements similar to this Guaranty may, at Landlord's sole option and discretion, be executed by other persons with respect to the Lease. This Guaranty shall be cumulative of any such agreements and the liabilities and obligations of the undersigned hereunder shall in no event be affected or diminished by reason of such other agreements. Moreover, in the event Landlord obtains another signature of more than one guarantor on this Guaranty or by obtaining additional guaranty agreements, or both, the undersigned agrees that Landlord, in Landlord's sole discretion, may (i) bring suit against all guarantors of the Lease jointly and severally or against any one or more of them, (ii) compound or settle with any one or more of the guarantors for such consideration as Landlord may deem proper, and (iii) release one or more of the guarantors 40 from liability. The undersigned further agrees that no such action shall impair the rights of Landlord to enforce the Lease against any remaining guarantor or guarantors, including the undersigned. If a party executing this Guaranty is a corporation, then the undersigned officer personally represents and warrants that the Board of Directors of such corporation, in a duly held meeting, has determined that this Guaranty may reasonably be expected to benefit the corporation. The undersigned agrees that if Landlord shall employ an attorney to present, enforce or defend all of Landlord's rights or remedies hereunder, the undersigned shall pay any reasonable attorney's fees incurred by Landlord in such connection. The undersigned represents and warrants to Landlord that Tenant is affiliated with the undersigned and that the undersigned has determined that this Guaranty reasonably may be expected to benefit the undersigned. This Guaranty shall be binding upon the undersigned and its successors and assigns and shall inure to the benefit of Landlord and Landlord's successors and assigns. EXECUTED in ______________ County, Texas, this ____ day of December, 2001, to be effective as of the same date as the effective date of execution of the Lease. ULTRAK, INC., a Delaware corporation Attest: ___________________________ By:___________________________________ Name:_________________________________ Title:________________________________ Address: 1301 Waters Ridge Drive Lewisville, Texas 75057 [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK] ULTRAK GP, INC., a Delaware corporation Attest: ___________________________ By:___________________________________ Name:_________________________________ Title:________________________________ Address: c/o Ultrak, Inc. 1301 Waters Ridge Drive Lewisville, Texas 75057 41 ULTRAK LP, INC., a Delaware corporation Attest: ___________________________ By:__________________________________ Name:________________________________ Title:_______________________________ Address: c/o Ultrak, Inc. 1301 Waters Ridge Drive Lewisville, Texas 75057 DIAMOND ELECTRONICS, INC., an Ohio corporation Attest: ___________________________ By:_________________________________ Name:_______________________________ Title:______________________________ Address: c/o Ultrak, Inc. 1301 Waters Ridge Drive Lewisville, Texas 75057 [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK] 42 MONITOR DYNAMICS, INC., a California corporation Attest: ___________________________ By:___________________________________ Name:_________________________________ Title:________________________________ Address: c/o Ultrak, Inc. 1301 Waters Ridge Drive Lewisville, Texas 75057 ABM DATA SYSTEMS, INC., a Texas corporation Attest: ___________________________ By:__________________________________ Name:________________________________ Title:_______________________________ Address: c/o Ultrak, Inc. 1301 Waters Ridge Drive Lewisville, Texas 75057 SECURITY WARRANTY, INC., a Texas corporation Attest: ___________________________ By:__________________________________ Name:________________________________ Title:_______________________________ Address: c/o Ultrak, Inc. 1301 Waters Ridge Drive Lewisville, Texas 75057 [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK] 43 THE STATE OF TEXAS ss. ss. COUNTY OF ______________ ss. This instrument was acknowledged before me on the ______ day of December, 2001, by _____________________________, as ___________________ of ULTRAK, INC., a Delaware corporation, for and on behalf of said corporation. ___________________________________________ Notary Public in and for the State of Texas My Commission Expires: THE STATE OF TEXAS ss. ss. COUNTY OF ______________ ss. This instrument was acknowledged before me on the ______ day of December, 2001, by _____________________________, as ___________________ of ULTRAK GP, INC., a Delaware corporation, for and on behalf of said corporation. ___________________________________________ Notary Public in and for the State of Texas My Commission Expires: [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK] 44 THE STATE OF TEXAS ss. ss. COUNTY OF ______________ ss. This instrument was acknowledged before me on the ______ day of December, 2001, by _____________________________, as ___________________ of ULTRAK LP, INC., a Delaware corporation, for and on behalf of said corporation. ___________________________________________ Notary Public in and for the State of Texas My Commission Expires: THE STATE OF TEXAS ss. ss. COUNTY OF ______________ ss. This instrument was acknowledged before me on the ______ day of December, 2001, by _____________________________, as ___________________ of DIAMOND ELECTRONICS, INC., an Ohio corporation, for and on behalf of said corporation. ___________________________________________ Notary Public in and for the State of Texas My Commission Expires: [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK] 45 THE STATE OF TEXAS ss. ss. COUNTY OF ______________ ss. This instrument was acknowledged before me on the ______ day of December, 2001, by _____________________________, as ___________________ of MONITOR DYNAMICS, INC., a California corporation, for and on behalf of said corporation. ___________________________________________ Notary Public in and for the State of Texas My Commission Expires: THE STATE OF TEXAS ss. ss. COUNTY OF ______________ ss. This instrument was acknowledged before me on the ______ day of December, 2001, by _____________________________, as ___________________ of ABM DATA SYSTEMS, INC., a Texas corporation, for and on behalf of said corporation. ___________________________________________ Notary Public in and for the State of Texas My Commission Expires: [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK] 46 THE STATE OF TEXAS ss. ss. COUNTY OF ______________ ss. This instrument was acknowledged before me on the ______ day of December, 2001, by _____________________________, as ___________________ of SECURITY WARRANTY, INC., a Texas corporation, for and on behalf of said corporation. ___________________________________________ Notary Public in and for the State of Texas My Commission Expires: 47 EXHIBIT "C-2" GUARANTY In order to induce BRIARWOOD WATERS RIDGE LP, a Texas limited partnership ("Landlord"), to execute the foregoing Lease Agreement (the "Lease") with ULTRAK OPERATING, L.P., a Texas limited partnership ("Tenant"), for a certain Premises (herein so called and as defined in the Lease) in the City of Lewisville, Denton County, Texas, the undersigned, GEORGE K. BROADY, an individual resident of Dallas County, Texas (being hereinafter referred to as the "undersigned") hereby agrees as follows: The undersigned hereby guarantees the payment of up to $720,000 of Minimum Rent (as defined in the Lease) payable by Tenant under the terms of the Lease, to the extent Landlord does not collect any such Minimum Rent from Tenant or Ultrak, Inc., a Delaware corporation, after exercising all available remedies against such parties. Notwithstanding anything to the contrary herein, the maximum liability of the undersigned under this Guaranty with respect to Minimum Rent (as defined in the Lease) payable by Tenant under the terms of the Lease shall be the sum of (i) $720,000 of the Minimum Rent and (ii) any reasonable attorneys' fees incurred by Landlord in enforcing this Guaranty. In addition, the undersigned hereby agrees that if (but only if) any action is instituted by or on behalf of Tenant or any person or entity affiliated, directly or indirectly, with Tenant (including, without limitation, the undersigned) which challenges or seeks to challenge Landlord's ownership of fee simple title to the Premises or any portion thereof, then the undersigned hereby agrees (a) that regardless of which party prevails in any such action, the undersigned shall indemnify and hold harmless Landlord and its successors and/or assigns from and against any and all expenses, fines, suits, losses, costs, liabilities, claims, demands, actions and judgments of every kind and character (including, without limitation, reasonable attorneys' fees) arising out of or relating, directly or indirectly, to such action; provided, however, that the counsel selected by Landlord in connection with any such proceeding(s) shall be reasonably acceptable to Landlord and the undersigned, and (b) that if as a result of any such action Landlord is divested of, or ordered to convey, all or any portion of the fee simple title to the Premises, then the undersigned shall either (i) pay to Landlord the Purchase Price prescribed in the Purchase Option set forth in Section 26 of the Lease with respect to the value of the portion of the Premises that Landlord is divested of or ordered to convey or (ii) pay the full amount of the Purchase Price prescribed in the Purchase Option set forth in Section 26 of the Lease and receive from Landlord a transfer of all title of Landlord to the Premises. Notwithstanding the foregoing, Landlord (by its acceptance hereof) hereby agrees that (A) prior to or concurrently with enforcement against the undersigned of any liability, obligation or duty guaranteed pursuant to the immediately preceding sentence, Landlord shall seek to recover such amounts from Tenant and Ultrak, Inc., and to the extent Landlord recovers amounts from Tenant and/or Ultrak, Inc. in any such prior or concurrent action, such amounts shall serve to offset the liability of the undersigned to Landlord pursuant to the immediately preceding sentence, and (B) if Landlord is divested of, or ordered to convey, all or any portion of the fee simple title to the Premises as stated in the immediately preceding sentence, then Landlord shall be obligated to use commercially reasonable efforts to obtain recovery under the terms and conditions of the Owner's Policy of Title Insurance in the amount of $6,600,000.00 (the "Title Policy") obtained by Landlord when it acquired the Premises prior to enforcement against the undersigned of any liability, obligation or duty guaranteed pursuant to the immediately preceding sentence; provided, however, 48 that to the extent Landlord is not successful in its commercially reasonable efforts to recover under the terms and conditions of the Title Policy (i.e., to the extent Landlord recovers amounts under the Title Policy, such amounts shall serve to offset the liability of the undersigned to Landlord pursuant to the immediately preceding sentence), upon the expiration of one (1) year following the date Landlord made a written claim under the Title Policy pursuant to the terms and conditions thereof, Landlord shall then be permitted to enforce against the undersigned any liability, obligation or duty guaranteed pursuant to the immediately preceding sentence. As used in the immediately preceding sentence, "commercially reasonable efforts" shall be deemed to mean Landlord having made a written claim under the Title Policy pursuant to the terms and conditions thereof, and if Landlord's claim under the Title Policy is denied by the insurer thereunder, filing a lawsuit against said insurer (with counsel selected by the undersigned, approved by Landlord in its reasonable discretion). Following the filing of such lawsuit and any recovery by Landlord of amounts from the undersigned under this Guaranty, upon the written request of the undersigned Landlord shall either (1) to the extent permitted by applicable law, assign the lawsuit to the undersigned, so that the undersigned my pursue such lawsuit at its sole cost and expense, or (2) if such assignment is not permitted by applicable law, and if the undersigned desires that Landlord continue diligently pursuing the lawsuit against the insurer under the Title Policy for the benefit of the undersigned, Landlord shall do so and the undersigned shall be solely responsible (and shall promptly reimburse Landlord) for any and all expenses, fines, suits, losses, costs, liabilities, claims, demands, actions and judgments of every kind and character (including, without limitation, reasonable attorneys' fees) arising out of or relating, directly or indirectly, to such action against the insurer under the Title Policy. The undersigned hereby waives notice of acceptance of this Guaranty and all other notices in connection herewith or in connection with the liabilities, obligations and duties guaranteed hereby, including notices of default by Tenant under the Lease, and waives diligence, presentment and suit on the part of Landlord in the enforcement of any liability, obligation or duty guaranteed hereby. The undersigned further agrees that Landlord shall be first (or concurrently) required to enforce against Tenant or any other person any liability, obligation or duty guaranteed hereby before and/or concurrently with seeking enforcement thereof against the undersigned. Suit may be brought and maintained against the undersigned by Landlord to enforce any liability, obligation or duty guaranteed hereby without joinder of Tenant or any other person. The liability of the undersigned shall not be impaired, modified, changed, released or limited in any manner whatsoever by any impairment, modification, change, release, or limitation of the liability of Tenant or its estate in bankruptcy, or if any remedy for the enforcement thereof, resulting from the operation of any present or future provision of the federal Bankruptcy act, or any similar law or statute of the United States or any state thereof. Landlord and Tenant, without notice to or consent by the undersigned, may at any time or times enter into such extensions, amendments, assignments, subleases, or other covenants with respect to the Lease as the may deem appropriate; and the undersigned shall not be released thereby, but shall continue to be fully liable hereunder with respect to the Lease as so extended, amended, assigned or otherwise modified. The undersigned acknowledges and agrees that the laws of the State of Texas govern the validity, construction of terms and interpretation of the rights and duties of the parties with respect to this Guaranty. It is understood that other agreements similar to this Guaranty may, at Landlord's sole option and discretion, be executed by other persons with respect to the Lease. This Guaranty shall be 49 cumulative of any such agreements and the liabilities and obligations of the undersigned hereunder shall in no event be affected or diminished by reason of such other agreements. Moreover, in the event Landlord obtains another signature of more than one guarantor on this Guaranty or by obtaining additional guaranty agreements, or both, the undersigned agrees that Landlord, in Landlord's sole discretion, may (i) bring suit against all guarantors of the Lease jointly and severally or against any one or more of them, (ii) compound or settle with any one or more of the guarantors for such consideration as Landlord may deem proper, and (iii) release one or more of the guarantors from liability. The undersigned further agrees that no such action shall impair the rights of Landlord to enforce the Lease against any remaining guarantor or guarantors, including the undersigned. If a party executing this Guaranty is a corporation, then the undersigned officer personally represents and warrants that the Board of Directors of such corporation, in a duly held meeting, has determined that this Guaranty may reasonably be expected to benefit the corporation. The undersigned agrees that if Landlord shall employ an attorney to present, enforce or defend all of Landlord's rights or remedies hereunder, the undersigned shall pay any reasonable attorney's fees incurred by Landlord in such connection. The undersigned represents and warrants to Landlord that Tenant is affiliated with the undersigned and that the undersigned has determined that this Guaranty reasonably may be expected to benefit the undersigned. This Guaranty shall be binding upon the undersigned and its successors and assigns and shall inure to the benefit of Landlord and Landlord's successors and assigns. EXECUTED in ______________ County, Texas, this ____ day of December, 2001, to be effective as of the same date as the effective date of execution of the Lease. ______________________________ George K. Broady, Individually Address:______________________ ______________________ CONSENT OF SPOUSE The undersigned is the spouse of George K. Broady, a guarantor under the terms of the above-executed Guaranty. By executing this Consent, the undersigned hereby acknowledges the terms and obligations of the above Guaranty and that the Guaranty is binding upon the marital community assets of George K. Broady and the undersigned spouse. ____________________________________ Name: ______________________________ 50 THE STATE OF TEXAS ss. ss. COUNTY OF ______________ ss. This instrument was acknowledged before me on the ______ day of December, 2001, by GEORGE K. BROADY. ___________________________________________ Notary Public in and for the State of Texas My Commission Expires: THE STATE OF TEXAS ss. ss. COUNTY OF ______________ ss. This instrument was acknowledged before me on the ______ day of December, 2001, by _______________. ___________________________________________ Notary Public in and for the State of Texas My Commission Expires: 51 EXHIBIT "D" MEMORANDUM OF LEASE AND PURCHASE OPTION THIS MEMORANDUM OF LEASE (this "Memorandum") is entered into by and between BRIARWOOD WATERS RIDGE LP, a Texas limited partnership ("Landlord"), as landlord, and ULTRAK OPERATING, L.P., a Texas limited partnership ("Tenant"), as tenant. WITNESSETH: 1. Premises. Landlord and Tenant have entered into a Lease Agreement (the "Lease") dated on or about the date hereof, for certain inproved real property in Lewisville, Denton County, Texas, which land is more particularly described on Exhibit "A" attached hereto and made a part hereof for all purposes. 2. Term. The Lease has an initial term of thirty (30) full calendar months expiring on June 30, 2004. 3. Purchase Option. The Lease also contains certain rights in favor of Tenant to purchase the Premises (as defined in the Lease). 4. Incorporation of Lease. This Memorandum is for information purposes only and nothing contained herein shall be deemed to in any way modify or otherwise affect any of the terms and conditions of the Lease, the terms of which are incorporated herein by reference. This instrument is merely a memorandum of the Lease and is subject to all of the terms, provisions and conditions of the Lease. In the event of any inconsistency between the terms of the Lease and this instrument, the terms of the Lease shall prevail. 5. Intention of Parties; Contingent Security Interest. Landlord and Tenant each hereby acknowledge and agree that the parties hereto fully intend that the transaction contemplated by the Lease be a lease transaction and establish only the relationship of landlord and tenant by and between Landlord and Tenant. Notwithstanding the foregoing, if, and only if, the transaction contemplated by the Lease is deemed by any court or other legal authority to be a loan or other category of financing transaction, and Landlord's fee simple ownership of the Premises (or any portion thereof) is in any way disputed or challenged, then the following provisions shall automatically be applicable: (a) to secure the payment of the obligations and the full and faithful performance of the covenants and agreements contained in the Lease, as well as the full payment to Landlord of the 52 Purchase Price prescribed in the Purchase Option set forth in Section 26 of the Lease, Tenant hereby grants and conveys the Premises to Christopher I. Clark of Dallas County, Texas ("Trustee"), to have and to hold the Premises pursuant to the terms of this Section 4; moreover, Tenant hereby grants, conveys and pledges to Landlord a security interest in all of the Personalty; (b) Tenant shall forever warrant and defend the title and quiet possession of the Premises unto Trustee and Landlord, and the validity and priority of the lien of this Section 4, against the lawful claims and demands of all persons whomsoever, and this warranty of title shall survive the foreclosure of the lien of this Section 4 and shall inure to the benefit of and be enforceable by any person who may acquire the Premises pursuant to foreclosure, trustee's sale or other exercise by Landlord of the rights and remedies provided in this Section 4; (c) All amounts due under the Lease, as well as full payment to Landlord of the Purchase Price prescribed in the Purchase Option set forth in Section 26 of the Lease, at the option of the Landlord, shall become at once due and payable without demand or notice other than the demand or notice provided for in this paragraph (c); and provided that all or any portion of all such amounts remain unpaid, and the Trustee when requested so to do so by Landlord, shall sell the Premises and the Personalty at public auction to the highest bidder for cash, between the hours of ten o'clock A.M. and four o'clock P.M. on the first Tuesday in any month, at the door of the Courthouse in the County in which the Premises, or any part thereof are situated, in accordance with the requirement specified in Section 51.002 if the Texas Property Code, and after advertising same in accordance with the requirements of Section 51.002 of the Texas Property Code. (d) If and to the extent that subsections (a), (b) and (c) become applicable to this transaction, Landlord may substitute any other Trustee for the above-mentioned Christopher I. Clark, with or without cause and with or without notice having been provided to Tenant. (e) Notwithstanding the foregoing, Landlord and Tenant hereby acknowledge and agree that commencing at the end of the last day on which Tenant is permitted under Section 26 of the Lease to properly and validly exercise its Purchase Option, the expiration of such Purchase Option shall be deemed to be a deed in lieu of foreclosure with respect to the Premises as consideration for the right of Tenant to remain in possession of the Premises for the balance of the term of this Lease; and in this regard, Tenant's remaining in the Premises beyond the end of the last day on which Tenant is permitted under Section 26 of the Lease to properly and validly exercise its Purchase Option will conclusively be deemed to constitute such deed in lieu of foreclosure to Landlord. 53 6. Tenant's Information. Tenant's Organizational Identification Number issued by the Secretary of State of Texas is 85612-10. Tenant's Tax Identification Number is 75-2625985. 7. Waiver of Repurchase Option. Notwithstanding anything to the contrary contained in the Lease (including, without limitation, the terms of Section 26 of the Lease), Tenant hereby acknowledges and agrees that it fully and completely waives any and all rights that Tenant may ever have (i.e., now and/or in the future) to exercise the option to repurchase the Premises (or any portion thereof) pursuant to the terms of Article XII of that certain Master Declaration of Covenants, Restrictions and Development Standards Applicable to Waters' Ridge dated June 1, 1984, recorded in Volume 1423, Page 680, Deed Records of Denton County, Texas, as amended. 8. Binding Effect. The rights and obligations set forth herein shall be binding upon and insure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns. Notwithstanding any contrary provision hereof, upon execution and recordation of an instrument in the Real Property Records of Denton County, Texas by the then owner of fee title to the land described on Exhibit "A" hereto which references this instrument and provides that the Lease has expired or been terminated or that certain rights of Tenant thereunder are no longer in force and effect, all persons shall be entitled to rely thereon without any duty of investigation or inquiry. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 54 The parties have executed this Memorandum of Lease to be effective as of the Effective Date. LANDLORD: BRIARWOOD WATERS RIDGE LP, a Texas limited partnership By: Briarwood Capital Corporation, a Texas corporation, its General Partner By:_________________________________________ H. Walker Royall, President TENANT: ULTRAK OPERATING, L.P., a Texas limited partnership By: Ultrak GP, Inc., a Texas corporation, its General Partner By:_________________________________________ Name:_______________________________________ Title:______________________________________ THE STATE OF TEXAS ss. ss. COUNTY OF ______________ ss. This instrument was acknowledged before me on the ______ day of December, 2001, by H. Walker Royall, in his capacity as President of Briarwood Capital Corporation, a Texas corporation, in its capacity as General Partner of BRIARWOOD WATERS RIDGE LP, a Texas limited partnership, for and on behalf of said corporation and limited partnership. ___________________________________________ Notary Public in and for the State of Texas My Commission Expires: 55 THE STATE OF TEXAS ss. ss. COUNTY OF ______________ ss. This instrument was acknowledged before me on the ______ day of December, 2001, by _____________________________, as ___________________ of Ultrak GP, Inc., a Delaware corporation, in its capacity = as General Partner of ULTRAK OPERATING, L.P., a Texas limited partnership, for and on behalf of said corporation and limited partnership. ___________________________________________ Notary Public in and for the State of Texas My Commission Expires: 56 Exhibit "A" to Memorandum of Lease Legal Description 57 EXHIBIT "E" THE WARRANT AGREEMENT [attached following this page] ULTRAK, INC. AND BRIARWOOD WATERS RIDGE LP --------------- WARRANT AGREEMENT Dated as of December _____, 2001 WARRANT AGREEMENT This WARRANT AGREEMENT (this "Agreement") is dated as of December _____, 2001, by and between ULTRAK, INC., a Delaware corporation (the "Company"), and BRIARWOOD WATERS RIDGE LP, a Texas limited partnership (the "Grantee"). W I T N E S S E T H: WHEREAS, in connection with that certain Contract of Sale dated as of December 13, 2001, by and between the Company and Grantee whereby Grantee has agreed to purchase certain property from the Company (the "Purchase Agreement") the Board of Directors of the Company desires to grant to Grantee warrants (the "Warrants") to purchase 100,000 shares of common stock of the Company (the "Common Stock"); WHEREAS, this Agreement is executed and the Warrants are granted pursuant to the Purchase Agreement; NOW, THEREFORE, in consideration of the premises, the agreements set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Grant. Subject to the terms and conditions hereof, Grantee is hereby granted Warrants by which Grantee has the right to purchase, at any time prior to the tenth anniversary of the date of this Agreement (the "Expiration Date"), at 5:00 p.m., Dallas, Texas time on such date, up to 100,000 shares of Common Stock (the "Shares"). One share of Common Stock is hereinafter referred to as a "Warrant Security" and more than one collectively referred to as the "Warrant Securities." 2. Warrant Certificates. The warrant certificates (the "Warrant Certificates") delivered and to be delivered pursuant to this Agreement shall be in the form set forth in Exhibit A, attached hereto and made a part hereof, with such appropriate insertions, omissions, substitutions, and other variations as required or permitted by this Agreement. 3. Exercise of Warrant. The Warrants initially are exercisable at an aggregate initial exercise price (subject to adjustment as provided in Section 8 hereof) per Warrant Security set forth in Section 6 hereof payable by certified or official bank check, subject to adjustment as provided in Section 8 hereof. In the alternative, each Holder may exercise its right to receive Warrant Securities on a net basis, such that without the exchange of any funds, the Holder receives that number of Warrant Securities otherwise issuable upon exercise of its Warrants less that number of Warrant Securities having a fair market value equal to the aggregate Exercise Price that would otherwise have been paid by the Holder for the Warrant Shares being issued. Upon surrender of a Warrant Certificate with the annexed Form of Election to Purchase duly executed, together with payment of the Exercise Price (as hereinafter defined) for the Warrant Securities purchased, at the Company's principal offices (presently located at 1301 Waters Ridge Drive, Lewisville, Texas 75057), the registered holder of a Warrant Certificate ("Holder" or "Holders") shall be entitled to receive a certificate or certificates for the shares of Common Stock so purchased. The purchase rights represented by each Warrant Certificate are exercisable at the option of the Holders thereof, in whole or part (but (i) not as to fractional shares of the Common Stock, and (ii) not in increments of less than the lesser of (x) 10,000 Shares or (y) the unexercised balance of all Warrant Securities). In the case of the purchase of less than all Warrant Securities purchasable under any Warrant Certificate, the Company shall cancel said Warrant Certificate upon the surrender thereof and shall execute and deliver a new Warrant Certificate of like tenor for the balance of the Warrant Securities purchasable thereunder. 4. Issuance of Certificates. Upon the exercise of the Warrants, the issuance of certificates for shares of Common Stock and/or other securities, properties or rights underlying such Warrants shall be made forthwith (and in any event within ten (10) business days thereafter) without charge to the Holder thereof including, without limitation, any tax which may be payable in respect of the issuance thereof, and such certificates shall (subject to the provisions of Sections 5 and 7 hereof) be issued in the name of, or in such names as may be directed by, the Holder thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any such certificates in a name other than that of the Holder and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Warrant Certificates and the certificates representing the Shares (and/or other securities, property or rights issuable upon the exercise of the Warrants) shall be executed on behalf of the Company by the manual or facsimile signature of the then present Chairman or Vice Chairman of the Board of Directors or Chief Executive Officer, President or Vice President of the Company under its corporate seal reproduced thereon, attested to by the manual or facsimile signature of the then present Secretary or Assistant Secretary of the Company. Warrant Certificates shall be dated the date of execution by the Company upon initial issuance, division, exchange, substitution or transfer. 5. Restriction On Transfer of Warrants. The Holder of a Warrant Certificate, by its acceptance thereof, covenants and agrees that the Warrants are being acquired as an investment and not with a view to the distribution thereof in violation of the Securities Act (as defined below). This Agreement is binding upon any Holder(s) of a Warrant Certificate and their respective heirs, successors, and permitted assigns. The Holder may assign interests granted by this Agreement in amounts equal to the lesser of (x) 10,000 Shares or (y) the unexercised balance of all Warrant Securities, provided that the transferee agrees to be bound by the terms of this Agreement as if such transferee were a Holder and, provided further, that the assignment is made pursuant to an effective registration statement under the Securities Act or a valid exemption from registration under the Securities Act of 1933, as amended (the "Securities Act"). If requested by the Company, the Holder must also furnish to the Company an opinion of counsel reasonably satisfactory to the Company to such effect. 6. Exercise Price. 6.1 Initial and Adjusted Exercise Price. Except as otherwise provided in Section 8 hereof, the initial exercise price of each Warrant shall be $1.55 per Warrant Security. The adjusted exercise price shall be the price which shall result from time to time from any and all adjustments of the initial exercise price in accordance with the provisions of Section 8 hereof. 6.2 Exercise Price. The term "Exercise Price" herein shall mean the initial exercise price or the adjusted exercise price, depending upon the context. 7. Restrictive Legends. The Warrant Certificates, any certificates representing the Shares underlying the Warrants and any of the other securities issuable upon exercise of the Warrants shall bear the following restrictive legend: The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act"), and may not be offered or sold except pursuant to (i) an effective registration statement under the Act, (ii) to the extent applicable, Rule 144 under the Act (or any similar rule under such Act relating to the disposition of securities), or (iii) an opinion of counsel, if such opinion shall be reasonably satisfactory to counsel to the issuer, that an exemption from registration under such Act is available. 8. Adjustments to Exercise Price and Number of Securities. 8.1 Adjustments for Change in Capital Stock. If at any time after the date of this Agreement, the Company: (a) pays a dividend or makes a distribution on its Common Stock exclusively in shares of its Common Stock; (b) subdivides its outstanding shares of Common Stock into a greater number of shares; (c) combines its outstanding shares of Common Stock into a smaller number of shares; (d) pays a dividend or makes a distribution on its Common Stock in shares of its capital stock other than Common Stock; or (e) issues by reclassification of its Common Stock any shares of its capital stock; then the Holders of the unexercised Warrants shall thereafter be entitled to receive, upon the exercise of such Warrants, the same shares of Common Stock and other securities that they would have owned or been entitled to receive immediately after such event as if the Warrants had been exercised immediately prior to such event. The adjustment pursuant to this Section 8.1 shall be made successively each time that any event listed in this Section 8.1 above shall occur. Upon each adjustment in the number of shares for which a Warrant is exercisable pursuant to this Section 8.1, the Exercise Price for such Warrants shall be adjusted to equal an amount per share of Common Stock equal to the Exercise Price before such adjustment multiplied by a fraction, of which the numerator is the number of shares of Common Stock for which a Warrant is exercisable immediately before giving effect to such adjustment, and the denominator of which is the number of shares of Common Stock for which a Warrant is exercisable immediately after giving effect to such adjustment. 8.2 Definition of Common Stock. For the purpose of this Agreement, the term "Common Stock" shall mean (i) the class of stock designated as Common Stock in the Certificate of Incorporation of the Company as amended as of the date hereof, or (ii) any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. 8.3 Merger or Consolidation. In case of any consolidation of the Company with, or merger of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger which does not result in any reclassification or change of the outstanding Common Stock), the corporation formed by such consolidation or merger shall execute and deliver to the Holder a supplemental warrant agreement providing that the holder of each Warrant then outstanding or to be outstanding shall have the right thereafter (until the expiration of such Warrant) to receive, upon exercise of such Warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation or merger, by a holder of the number of shares of Common Stock of the Company for which such Warrant might have been exercised immediately prior to such consolidation, merger, sale or transfer. Such supplemental warrant agreement shall provide for adjustments which shall be identical to the adjustments provided in Section 8. The above provision of this subsection shall similarly apply to successive consolidations or mergers. 8.4 No Adjustment of Exercise Price in Certain Cases. Notwithstanding anything to the contrary contained herein, no adjustment of the Exercise Price or number of shares of Common Stock shall be made: (a) If the amount of such adjustment shall be less than two cents ($.02) per Warrant Security, provided, however, that in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment so carried forward, shall amount to at least two cents ($.02) per Warrant Security; or (b) If the Exercise Price would be less than the par value per share of Common Stock. 8.5 Statement on Warrant Certificate. Irrespective of any adjustments in the Exercise Price or the number or kind of shares purchasable upon the exercise of the Warrants, the Warrant Certificate or certificates theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in the Warrants initially issuable pursuant to this Agreement. 9. Exchange and Replacement of Warrant Certificates. Each Warrant Certificate is exchangeable without expense, upon the surrender thereof by the registered Holder at the principal executive office of the Company, for a new Warrant Certificate of like tenor and date representing in the aggregate the right to purchase the same number of Warrant Securities in such denominations as shall be designed by the Holder thereof at the time of such surrender. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of any Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of the Warrants, if mutilated, the Company will make and deliver a new Warrant Certificate of like tenor, in lieu thereof. 10. Elimination of Fractional Interests. The Company shall not be required to issue fractional shares of Common Stock upon the exercise of Warrants. Warrants may only be exercised in such multiples as are required to permit the issuance by the Company of one or more whole shares of Common Stock. If one or more Warrants shall be presented for exercise in full at the same time by the same Holder, the number of whole shares of Common Stock which shall be issuable upon such exercise thereof shall be computed on the basis of the aggregate number of shares of Common Stock purchasable on exercise of the Warrants so presented. If any fraction of a share of Common Stock would, except for the provisions provided herein, be issuable on the exercise of any Warrant (or specified portion thereof), the Company shall pay an amount in cash equal to such fraction multiplied by the then current Market Price of a share of Common Stock. As used herein, the phrase "Market Price" at any date shall be deemed to be the last reported sale price, or, in case no such reported sale takes place on such day, the average of the last reported sale prices for the last three (3) trading days, in either case as officially reported by the principal securities exchange on which the Common Stock is listed or admitted to trading or by The Nasdaq Stock Market's National Market or SmallCap Market ("Nasdaq"), or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted by Nasdaq, the average closing bid price as furnished by the National Association of Securities Dealers, Inc. ("NASD") through Nasdaq or similar organization if Nasdaq is no longer reporting such information, or if the Common Stock is not quoted by the NASD or such similar organization, the fair market value of a share of Common Stock as determined in good faith by resolution of the Board of Directors of the Company, based on the best information available to it. 11. Reservation of Securities. The Company shall at all times reserve and keep available out of its authorized shares of Common Stock, solely for the purpose of issuance upon the exercise of the Warrants, such number of shares of Common Stock or other securities, properties or rights as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Warrants and payment of the Exercise Price therefor, all shares of Common Stock and other securities issuable upon such exercise shall be duly and validly issued, fully paid, non-assessable and not subject to the preemptive rights of any stockholder. 12. Notices to Warrant Holders. Nothing contained in this Agreement shall be construed as conferring upon the Holders the right to vote or to consent or to receive notice as a stockholder in respect of any meetings of stockholders for the election of directors or any other matter, or as having any rights whatsoever as a stockholder of the Company. If, however, at any time prior to the expiration of the Warrants and their exercise, any of the following events shall occur: (a) the Company shall take a record of the holders of its shares of Common Stock for the purpose of entitling them to receive a dividend or distribution payable other than in cash, or a cash dividend or distribution payable other than out of current or retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company; or (b) the Company shall offer to all the holders of its Common Stock any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor; or (c) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or merger) or a sale of all or substantially all of its property, assets and business as an entirety shall be proposed; then, in any one or more of such events, the Company shall give written notice of such event to the Holders at least fifteen (15) days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the stockholders entitled to such dividend, distribution, convertible or exchangeable securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of closing the transfer book, as the case may be. Failure to give such notice or any defect therein shall not affect the validity of any action taken in connection with the declaration or payment of any such dividend, or the issuance of any convertible or exchangeable securities, or subscription rights, options or warrants, or any proposed dissolution, liquidation, winding up or sale. 13. Notices. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly made and sent when delivered, or mailed by registered or certified mail, return receipt requested: (a) If to the registered Holder of the Warrants, to the address of such Holder as shown on the books of the Company; or (b) If to the Company, to the address set forth in Section 3 hereof or to such other address as the Company may designate by notice to the Holders. 14. Supplements and Amendments. The Company and Grantee may from time to time supplement or amend this Agreement without the approval of any Holders of the Warrant Certificates in order to cure any ambiguity, to correct or supplement any provision contained herein which may be defective or inconsistent with any provisions herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company and Grantee may deem necessary or desirable and which the Company and Grantee deem shall not adversely affect the interests of the Holders of the Warrant Certificates. If Grantee no longer owns any Warrants, then this Agreement may be amended by the Company and the Holders of a majority of the then outstanding Warrants. 15. Successors. All the covenants and provisions of this Agreement shall be binding upon and inure to the benefit of the Company, the Holders and their respective successors and assigns hereunder. 16. Governing Law; Submission to Jurisdiction. This Agreement and each Warrant Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Texas and for all purposes shall be construed in accordance with the laws of such State without giving effect to the rules of such State governing the conflicts of laws. 17. Entire Agreement; Modification. This Agreement contains the entire understanding between the parties hereto with respect to the subject matter hereof and may not be modified or amended except by a writing duly signed by the party against whom enforcement of the modification or amendment is sought. 18. Severability. If any provision of this Agreement shall be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of this Agreement. 19. Captions. The caption headings of the Sections of this Agreement are for convenience of reference only and are not intended, nor shall they be construed as, a part of this Agreement and shall be given no substantive effect. 20. Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company and Grantee and any other registered Holder(s) of the Warrant Certificates or Warrants Securities any legal or equitable right, remedy or claim under this Agreement; and this Agreement shall be for the sole benefit of the Company and Grantee and any other registered Holders of Warrant Certificates or Warrant Securities. 21. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. 22. Usury. It is the intention of the parties hereto to conform strictly to any usury laws in force that apply to this transaction or any transaction contemplated by the Purchase Agreement. Accordingly, all agreements among the parties hereto are hereby limited so that in no contingency shall the exercise of the Warrants plus any and all other monies received (if such sums are deemed to be interest) contracted for, charged or received by Grantee with respect to this Agreement or the Purchase Agreement, exceed the Highest Lawful Rate. The "Highest Lawful Rate" means the maximum non-usurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received under the laws of the United States and the laws of such states as may be applicable thereto which are presently in effect or, to the extent allowed under such applicable laws of the United States and the laws of such states, which may hereafter be in effect and which allow a higher maximum non-usurious interest rate than applicable laws now allow. If, from any circumstance whatsoever, interest under any agreement to which Grantee and Company or Grantee and Seller (as such term is defined in the Purchase Agreement) are parties would otherwise be payable in excess of the Highest Lawful Rate, and if from any circumstance Grantee shall ever receive anything of value deemed interest by applicable law in excess of the Highest Lawful Rate, then Grantee's receipt of such excess interest shall be deemed a mistake and the same shall be repaid to Seller or credited to any unpaid principal or any other amounts due Grantee. 23. Representations and Warranties. The Company represents and warrants as of the date hereof as follows: (i) the Company and each of its material Subsidiaries (including, without limitation, Ultrak Operating, L.P., a Texas limited partnership, and Ultrak GP, Inc., a Delaware corporation) (a) is duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation or organization, (b) has all requisite corporate or other power and authority to own its properties and carry on its business as now being and as proposed to be conducted, and (c) is qualified to do business in all jurisdictions in which the nature of its business or the ownership of its assets makes such qualification necessary and where the failure to be so qualified would have material adverse effect upon the Company and/or such material Subsidiary(ies); (ii) the Company has the power and authority and legal right to execute, deliver and perform its respective obligations under this Agreement; (iii) the execution, delivery, and performance by the Company of this Agreement and compliance with the terms and provisions hereof has been duly authorized by all requisite corporate or other entity action on the part of the Company and does not and will not violate or conflict with, or result in a breach (whether through notice or lapse of time) of or require any consent under the Certificate of Incorporation or bylaws of the Company or any amendments to any of the foregoing; and (iv) assuming the truth and accuracy of Grantee's representations contained in this Agreement that Grantee is acquiring the Warrants as an investment and not with a view to the distribution thereof, the issuance and sale of the Warrants to Grantee under the Warrant Agreement are exempt from the registration requirements of the Securities Act of 1933, as amended. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. ULTRAK, INC., a Delaware corporation By:___________________________________________ Name:_________________________________________ Title:________________________________________ BRIARWOOD WATERS RIDGE LP, a Texas limited partnership By: Briarwood Capital Corporation, a Texas corporation, its General Partner By: ___________________________________ H. Walker Royall, President EXHIBIT A [FORM OF WARRANT CERTIFICATE] THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL TO THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE. EXERCISABLE ON OR BEFORE 5:00 P.M., DALLAS, TEXAS TIME, DECEMBER ___, 2011 No. W-001 Warrants to Purchase 100,000 Shares of Common Stock WARRANT CERTIFICATE This Warrant Certificate certifies that BRIARWOOD WATERS RIDGE LP, a Texas limited partnership, or registered assigns, is the registered holder of Warrants to purchase, until the tenth anniversary of the Warrant Agreement (the "Warrant Agreement") by and between Ultrak, Inc., a Delaware corporation (the "Company"), and Briarwood Waters Ridge LP, a Texas limited partnership ("Grantee"), at 5:00 p.m. Dallas, Texas time on such date (the "Expiration Date"), fully-paid and non-assessable shares of common stock, $0.01 par value ("Common Stock") of the Company, at the initial exercise price, subject to adjustment in certain events (the "Exercise Price"), of $1.55 per share, of Common Stock upon surrender of this Warrant Certificate and payment of the Exercise Price at an office or agency of the Company, but subject to the conditions set forth herein and in the Warrant Agreement dated as of December _____, 2001, by and between the Company and Grantee. Payment of the Exercise Price shall be made by certified or official bank check payable to the order of the Company, or alternatively through other exercise as specified in the Warrant Agreement. No Warrant may be exercised after 5:00 p.m., Dallas, Texas time, on the Expiration Date, at which time all Warrants evidenced hereby, unless exercised prior thereto, hereby shall thereafter be void. The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants issued pursuant to the Warrant Agreement, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants. If any term of this Warrant Certificate conflicts with the terms of the Warrant Agreement, then the terms of the Warrant Agreement shall control and prevail. The Warrant Agreement provides that upon the occurrence of certain events the Exercise Price and the type and/or number of the Company's securities issuable thereupon may, subject to certain conditions, be adjusted. In such event, the Company will, at the request of the holder, issue a new Warrant Certificate evidencing the adjustment in the Exercise Price and the number and/or type of securities issuable upon the exercise of the Warrants; provided, however, that the failure of the Company to issue such new Warrant Certificates shall not in any way change, alter, or otherwise impair, the rights of the holder as set forth in the Warrant Agreement. Upon due presentment for registration of transfer of this Warrant Certificate at an office or agency of the Company, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided herein and in the Warrant Agreement, without any charge except for any tax or other governmental charge imposed in connection with such transfer. Upon the exercise of less than all of the Warrants evidenced by this Certificate, the Company shall forthwith issue to the holder hereof a new Warrant Certificate representing such numbered unexercised Warrants. The Company may deem and treat the registered holder(s) hereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, and of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. All terms used in this Warrant Certificate which are defined in the Warrant Agreement shall have the meanings assigned to them in the Warrant Agreement. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS] ----------------------- IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed under its corporate seal. Dated as of December __, 2001. ULTRAK, INC., a Delaware corporation By:_______________________________________ Name:_____________________________________ Title:____________________________________ [SEAL] Attest: _____________________________ Name:________________________ Title:_______________________ ELECTION TO PURCHASE The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase ___________ shares of Common Stock and herewith tenders in payment for such shares of Common Stock cash or a certified or official bank check payable to the order of ___________________________________ in the amount of $__________, all in accordance with the terms hereof. The undersigned requests that a certificate for such shares be registered in the name of _____________________________________, whose address is ___________________ _____________________________, and that such Certificate be delivered to whose address is _____________________________________________________. Dated:________________________ Signature:________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate) _______________________________________ _______________________________________ (Insert Social Security or Other Identifying Number of Holder) ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Warrant Certificate) FOR VALUE RECEIVED_____________________________________________________ hereby sells, assigns and transfers unto________________________________________ ________________________________________________________________________________ (Please print name and address of transferee) this Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint_____________________________, Attorney, to transfer the within Warrant Certificate on the books of the within-named Company, with full power of substitution. Dated:________________________ Signature:________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate) _______________________________________ _______________________________________ (Insert Social Security or Other Identifying Number of Assignee) EX-10.49 14 file013.txt GUARANTY REIMBURSEMENT AGREEMENT GUARANTY REIMBURSEMENT AGREEMENT THIS GUARANTY REIMBURSEMENT AGREEMENT (this "Agreement"), dated as of December 17, 2001, is between Ultrak, Inc., a Delaware corporation (the "Company"), and George K. Broady ("Broady"). RECITALS. The Company has been attempting to restructure the indebtedness related to its headquarters facility in Lewisville, Texas (the "Facility") for over a year. The Facility is owned by Ultrak Operating, L.P., a Texas limited partnership that is indirectly owned by the Company ("UOLP"). UOLP has negotiated the sale of the Facility to Briarwood Waters Ridge, L.P. ("Buyer/Lessor") pursuant to that certain Contract of Sale between UOLP and Buyer/Lessor. UOLP and Buyer/Lessor are also executing that certain Lease Agreement (herein so called) whereby UOLP will lease the Facility from Buyer/Lessor. In connection with the sale and leaseback, Buyer/Lessor has required that Broady execute that certain Guaranty attached hereto as Exhibit A (the "Guaranty"). The Guaranty creates a significant financial risk for Broady and the Company has agreed to execute this Agreement and the Warrant Agreement (as hereafter defined) in consideration of Broady executing the Guaranty. Broady would not have executed the Guaranty without the Company's execution of this Agreement and the Warrant Agreement. NOW, THEREFORE, in consideration of the premises and the respective covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby covenant and agree as follows: 1. Warrant Agreement. The Company agrees to deliver a Warrant Agreement (the "Warrant Agreement"), to Broady whereby the Company will grant Broady warrants (the "Warrants") to acquire 200,000 shares of the Company's Common Stock at a price per share of $1.64 for three (3) years. Because the issuance of the Warrants to Broady shall cause Broady to be subject to additional federal income taxes ("Taxes"), the Company shall, prior to the due date for Broady to pay such Taxes (including any quarterly estimated Tax payment date) resulting from the issuance of the Warrants to Broady, pay Broady additional amounts as are necessary so that after taking into account all Taxes on the issuance of the Warrants and all Taxes on such additional payments to Broady, Broady will be in the same after-Tax position that he would have been in if no Taxes were payable with respect to the Warrants. 2. Indemnification and Reimbursement. The Company hereby agrees to indemnify, hold harmless, defend and promptly reimburse Broady, against any losses, claims, damages, payments, or liabilities to which Broady may become subject under the Guaranty. 3. Payment of Expenses. All costs and expenses of Broady in connection with the Guaranty, this Agreement, and the Warrant Agreement, including (but not limited to) fees and disbursements of counsel shall be borne by the Company. 4. Affirmative and Negative Covenants. Guaranty Reimbursement Agreement-- Page 1 (a) So long as Broady has any liability or obligation under the Guaranty, unless Broady agrees otherwise in writing, the Company will: (i) Promptly inform Broady of (A) any and all material adverse changes in the Company's financial condition, and (B) all claims made against the Company or any direct or indirect subsidiary of the Company ("Subsidiary") which could materially adversely affect the financial condition of the Company or any Subsidiary. (ii) Promptly provide Broady with: (A) Monthly and quarterly unaudited financial statements as soon as available. (B) Annual audited financial statements as soon as available. (C) Copies of each filing by the Company with the Securities and Exchange Commission (the "SEC") promptly after each such filing is made with the SEC. (D) Notice of any event that has had, or could (with any other event or events) be reasonably expected to have a material adverse effect on the Company's assets, liabilities, operations, financial condition, or prospects. (E) Copies of any notice of default received from any lender. (F) Copies of any notice of default received by the Company or a Subsidiary with respect to any material agreement or document. (b) So long as Broady has any liability or obligation under the Guaranty, the Company will not, without the prior written consent of Broady (which consent shall not be unreasonably withheld or delayed): (i) sell or transfer ownership (by merger or otherwise) of any Subsidiary or assets with a sales price in excess of $500,000 (other than sales of inventory in the ordinary course of business); (ii) purchase or acquire the equity of any entity or assets from any person or entity for more than $2,000,000 (other than purchases of inventory in the ordinary course of business); or (iii) merge or consolidate the Company with another entity in a transaction with a value or contemplated value of more than $2,000,000. Guaranty Reimbursement Agreement-- Page 2 If Broady withholds consent to a proposed transaction covered by this Section 4(b) (a "Covered Transaction"), and a majority of the Company's Directors (excluding George Broady and any of his family members then serving as Directors) determines (at a meeting or by written consent) that they feel that Broady is being unreasonable in withholding his consent to a Covered Transaction, then Broady shall be notified and the parties hereto irrevocably agree that one individual (the "Arbitrator") shall determine if Broady is unreasonably withholding his consent to the Covered Transaction. The determination by the Arbitrator shall be final and binding and non-appealable. The Arbitrator need not provide a written opinion or other writing supporting the Arbitrator's decision. The only writing required from the Arbitrator shall be a writing setting forth the Arbitrator's decision. If the Arbitrator determines that Broady is unreasonably withholding Broady's consent to a Covered Transaction, then the Company shall be entitled to engage in such Covered Transaction without Broady's consent and without being in violation of this Agreement. If the Arbitrator determines that Broady is reasonably withholding Broady's consent to a Covered Transaction, then the Company shall not be entitled to engage in such Covered Transaction (unless Broady subsequently consents to such Covered Transaction). The parties agree that, on or before March 1, 2002, the parties shall execute a document agreeing to three (3) people (the "Available Arbitrators") whom the parties irrevocably agree can act as the Arbitrator. If the Directors determine that Broady is unreasonably withholding consent to a Covered Transaction, then the Company shall select the Arbitrator from among the Available Arbitrators. 5. Transfer of Option to Purchase. If Broady has to pay, on a cumulative basis, at least $180,000 (the "Trigger Amount") pursuant to the Guaranty and Broady has not been fully reimbursed all of such Trigger Amount within thirty (30) days after making the payment pursuant to the Guaranty that caused Broady to have cumulatively paid the Trigger Amount (such events are referred to as the "Triggering Event"), then the Company shall promptly assign to, or cause UOLP to assign to, Broady all rights under the Lease Agreement to purchase the Facility. On or before March 15, 2002, the parties agree to execute an assignment to Broady of the right to purchase the Facility and place the assignment in escrow with a third party and the assignment shall automatically be released to Broady upon the occurrence of the Triggering Event but shall remain fully exercisable by UOLP or the Company prior to the occurrence of the Triggering Event. 6. Escrow of Minimum Rent. On or before July 1, 2002, the Company will enter into an Escrow Agreement (the "Escrow Agreement") with a bank or other financial institution (the "Escrow Agent") selected by Broady and the Company will deposit $180,000 (the "Escrow Deposit") with the Escrow Agent. The Escrow Agreement will provide, among other things, that (a) the Escrow Deposit may be used only to pay Minimum Rent (as defined in the Lease Agreement) under the Lease Agreement as directed in writing by Broady if (and only if) UOLP does not timely pay such Minimum Rent and the Company does not pay or cause to be paid the amount of such Minimum Rent, (b) the Escrow Deposit shall bear interest and that all such interest shall be payable only to the Company, and (c) all costs, fees, and expenses of the Escrow Agent and its counsel (collectively, "Escrow Expenses") relating to the establishment, maintenance, and monitoring of the Escrow Agent shall be payable by the Company and not by Broady and the Company hereby agrees to indemnify and hold harmless Broady with respect to any Escrow Expenses. The requirements of this Section 6 are subject to the Company's lender(s) permitting the Escrow Agreement and the Escrow Deposit; provided, however, that the Company Guaranty Reimbursement Agreement-- Page 3 shall use all reasonable best efforts to cause such lender(s) to agree to the Escrow Agreement and the Escrow Deposit and the terms of this Section 6. 7. Release on Sale. In connection with (a) any sale of all or substantially all of the assets of the Company, (b) the merger of the Company with another company whereby the shareholders of the Company do not own at least 50.1% of the entity surviving the merger, or (c) the sale of Common Stock and/or preferred stock by the Company to a person or group who, following such sale, control in excess of 50% of the outstanding votes entitled to be cast by the shareholders of the Company (the events described in the foregoing clauses (a), (b), and (c) are collectively referenced to as the "Material Events"), then, unless Broady otherwise agrees in writing, the Company shall use all reasonable best efforts to cause the Guaranty to be fully released in writing as part of the consummation and closing of any Material Event. 8. Notices. Any notice or other communication required or permitted to be given under this Agreement must be in writing and given by (a) deposit in the United States mail, addressed to the party to be notified, postage prepaid and registered or certified with return receipt requested, (b) delivery in person, by courier service, or by overnight delivery service, or (c) transmission by telecopy. Each notice or communication that is mailed, delivered, or transmitted in the manner described above shall be deemed sufficiently given, served, sent, and received, in the case of mailed notices, on the third business day following the date on which it is mailed and, in the case of notices delivered by hand, courier service, overnight delivery service, or telecopy, at such time as it is delivered to the addressee (with the delivery receipt or the affidavit of the courier service or overnight delivery service being proof of delivery) or at such time as delivery is refused by the addressee upon presentation. For purposes of notice, the addresses of the parties shall be the addresses set forth beside the signatures of the parties hereto. Any party may change its address for notice by written notice given to the other parties hereto. 9. Binding Effect. This Agreement shall be binding upon and enforceable by the parties hereto and their respective executors, administrators, successors, personal representatives, heirs, and permitted assigns. Broady's rights hereunder are not assignable. 10. Governing Law Venue. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED, CONSTRUED, AND ENFORCED IN ACCORDANCE WITH TEXAS LAW AND THE INTERNAL LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES THEREOF. The parties agree that this Agreement is performable in Dallas County, Texas and that any litigation directly or indirectly relating to this Agreement must be brought before and determined by a court of competent jurisdiction within Dallas County, Texas, and the parties hereby agree to waive any rights to object to, and hereby agree to submit to, the jurisdiction of such courts. 11. Severability. If any provision of this Agreement is determined to be illegal, invalid, or unenforceable under present or future laws effective during the term hereof, such provision shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision never comprised a part hereof; and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such Guaranty Reimbursement Agreement-- Page 4 illegal, invalid, or unenforceable provision, there shall be added automatically as part of this Agreement, a provision as similar in its terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid, and enforceable. 12. Entire Agreement. This Agreement constitutes the entire agreement and understanding between the parties relating to the subject matter hereof and thereof and supersede all prior representations, endorsements, premises, agreements, memoranda, communications, negotiations, discussions, understandings, and arrangements, whether oral, written, or inferred, between the parties relating to the subject matter hereof. 13. Miscellaneous. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The parties intend that faxed signature pages to this Agreement will be enforceable without presentation of the manually executed signature pages. This Agreement may not be modified, amended, altered, or supplemented, in whole or in part, except upon the execution and delivery of a written instrument executed by the parties to this Agreement. The headings of this Agreement have been inserted for convenience of reference only and shall in no way restrict or otherwise modify any of the terms or provisions hereof or affect in any way the meaning or interpretation of this Agreement. The waiver of any breach of any term or condition of this Agreement shall not be deemed to constitute the waiver of any other breach of the same or any other term or condition. Except to the extent a third party is expressly given rights herein, any agreement contained, expressed, or implied in this Agreement shall be only for the benefit of the parties hereto and their respective executors, administrators, successors, personal representatives, heirs, and assigns and such agreements shall not inure to the benefit of the obligees of any indebtedness of any party hereto, it being the intention of the parties hereto that no person or entity shall be deemed a third party beneficiary of this Agreement except to the extent a third party is expressly given rights herein. The use of terms denoting masculine, feminine, or neuter gender shall include each other gender. The use of singular or plural references shall include the other where appropriate. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written above. ULTRAK, INC. Address: 1301 Waters Ridge Drive Lewisville, TX 75057 Telecopy No. 972-353-6679 By:_________________________________ Attn: President and General Counsel Its:________________________________ Address: 10050 Strait Lane Dallas, TX 75229 ________________________________ GEORGE K. BROADY Guaranty Reimbursement Agreement-- Page 5 EX-10.50 15 file014.txt WARRANT AGREEMENT WARRANT AGREEMENT This WARRANT AGREEMENT (this "Agreement"), dated as of January 14, 2002, is between ULTRAK, INC., a Delaware corporation (the "Company"), and GEORGE K. BROADY ("Grantee"). W I T N E S S E T H: WHEREAS, in connection with, and as partial consideration for, Grantee's execution of that certain Guaranty to Briarwood Waters Ridge LP for the benefit of the Company and Ultrak Operating, L.P., an affiliate of the Company, the Board of Directors of the Company desires to grant to Grantee warrants (the "Warrants") to purchase 200,000 shares of Common Stock of the Company ("Common Stock"); and WHEREAS, this Agreement is executed and the Warrants are granted pursuant to the Indemnification Agreement. NOW, THEREFORE, in consideration of the premises, the agreements set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Grant. Subject to the terms and conditions hereof, Grantee is hereby granted Warrants by which Grantee has the right to purchase, at any time prior to January 14, 2005 (the "Expiration Date"), at 5:00 p.m., Dallas, Texas time on such date, up to 200,000 shares of Common Stock (the "Shares"). One Share is hereinafter referred to as a "Warrant Security" and multiple Shares are collectively referred to as the "Warrant Securities." 2. Warrant Certificates. The warrant certificates (the "Warrant Certificates") delivered and to be delivered pursuant to this Agreement shall be in the form set forth in Exhibit A, attached hereto and made a part hereof, with such appropriate insertions, omissions, substitutions, and other variations as required or permitted by this Agreement. 3. Exercise of Warrant. The Warrants initially are exercisable at an aggregate initial exercise price (subject to adjustment as provided in Section 8 hereof) per Warrant Security set forth in Section 6 hereof payable by certified or official bank check, subject to adjustment as provided in Section 8 hereof. In the alternative, each Holder may exercise its right to receive Warrant Securities on a net basis, such that without the exchange of any funds, the Holder receives that number of Warrant Securities otherwise issuable upon exercise of its Warrants less that number of Warrant Securities having a fair market value equal to the aggregate Exercise Price that would otherwise have been paid by the Holder for the Warrant Shares being issued. Upon surrender of a Warrant Certificate with the annexed Form of Election to Purchase duly executed, together with payment of the Exercise Price (as hereinafter defined) for the Warrant Securities purchased, at the Company's principal offices (presently located at 1301 Waters Ridge Drive, Lewisville, Texas 75057), the registered holder of a Warrant Certificate ("Holder" or "Holders") shall be entitled to receive a certificate or certificates for the shares of Common Stock so purchased. The purchase rights represented by each Warrant Certificate are exercisable at the option of the Holders thereof, in whole or in increments of at least the lesser of 25,000 Shares or the unexercised balance of all Warrant Securities (but not as to fractional shares of the Common Stock). In the case of the purchase of less than all Warrant Securities purchasable under any Warrant Certificate, the Company shall cancel said Warrant Certificate upon the surrender thereof and shall execute and deliver a new Warrant Certificate of like tenor for the balance of the Warrant Securities purchasable thereunder. 4. Issuance of Certificates. Upon the exercise of the Warrants, the issuance of certificates for shares of Common Stock and/or other securities, properties or rights underlying such Warrants shall be made forthwith (and in any event within fifteen (15) business days thereafter) without charge to the Holder thereof including, without limitation, any tax which may be payable in respect of the issuance thereof, and such certificates shall (subject to the provisions of Sections 5 and 7 hereof) be issued in the name of, or in such names as may be directed by, the Holder thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any such certificates in a name other than that of the Holder and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. Warrant Certificates shall be dated the date of execution by the Company upon initial issuance, division, exchange, substitution or transfer. 5. Restriction On Transfer of Warrants. The Holder of a Warrant Certificate, by its acceptance thereof, covenants and agrees that the Warrants are being acquired as an investment and not with a view to the distribution thereof in violation of the Securities Act (as defined below). This Agreement is binding upon any Holder(s) of a Warrant Certificate and their respective heirs, successors, and permitted assigns. The Holder may assign interests granted by this Agreement in amounts of at least 25,000 Warrant Securities, provided that the transferee agrees to be bound by the terms of this Agreement as if such transferee were a Holder and, provided further, that the assignment is made pursuant to an effective registration statement under the Securities Act or a valid exemption from registration under the Securities Act of 1933, as amended (the "Securities Act"). If requested by the Company, the Holder must also furnish to the Company an opinion of counsel reasonably satisfactory to the Company to such effect. 6. Exercise Price. 6.1 Initial and Adjusted Exercise Price. Except as otherwise provided in Section 8 hereof, the initial exercise price of each Warrant shall be $1.64 per Warrant Security. The adjusted exercise price shall be the price which shall result from time to time from any and all adjustments of the initial exercise price in accordance with the provisions of Section 8 hereof. 6.2 Exercise Price. The term "Exercise Price" herein shall mean the initial exercise price or the adjusted exercise price, depending upon the context. -2- 7. Restrictive Legends. The Warrant Certificates, any certificates representing the Shares underlying the Warrants and any of the other securities issuable upon exercise of the Warrants shall bear substantially the following restrictive legend: The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act"), and may not be offered or sold except pursuant to (i) an effective registration statement under the Act, (ii) to the extent applicable, Rule 144 under the Act (or any similar rule under such Act relating to the disposition of securities), or (iii) an opinion of counsel, if such opinion shall be reasonably satisfactory to counsel to the issuer, that an exemption from registration under such Act is available. 8. Adjustments to Exercise Price and Number of Securities. 8.1 Adjustments for Change in Capital Stock. If at any time after the date of this Agreement, the Company: (a) pays a dividend or makes a distribution on its Common Stock exclusively in shares of its Common Stock; (b) subdivides its outstanding shares of Common Stock into a greater number of shares; (c) combines its outstanding shares of Common Stock into a smaller number of shares; (d) pays a dividend or makes a distribution on its Common Stock in shares of its capital stock other than Common Stock; or (e) issues by reclassification of its Common Stock any shares of its capital stock; then the Holders of the unexercised Warrants shall thereafter be entitled to receive, upon the exercise of such Warrants, the same shares of Common Stock and other securities that they would have owned or been entitled to receive immediately after such event as if the Warrants had been exercised immediately prior to such event. The adjustment pursuant to this Section 8.1 shall be made successively each time that any event listed in this Section 8.1 above shall occur. Upon each adjustment in the number of shares for which a Warrant is exercisable pursuant to this Section 8.1, the Exercise Price for such Warrants shall be adjusted to equal an amount per share of Common Stock equal to the Exercise Price before such adjustment multiplied by a fraction, of which the numerator is the number of shares of Common Stock for which a Warrant is exercisable immediately before giving effect to such adjustment, and the denominator of which is the number of shares of Common Stock for which a Warrant is exercisable immediately after giving effect to such adjustment. 8.2 Definition of Common Stock. For the purpose of this Agreement, the term "Common Stock" shall mean (i) the class of stock designated as Common Stock in the Certificate of Incorporation of the Company as amended as of the date hereof, or (ii) any other class of stock resulting from successive changes or reclassifications of such Common Stock -3- consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. 8.3 Merger or Consolidation. In case of any consolidation of the Company with, or merger of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger which does not result in any reclassification or change of the outstanding Common Stock), the corporation formed by such consolidation or merger shall execute and deliver to the Holder a supplemental warrant agreement providing that the holder of each Warrant then outstanding or to be outstanding shall have the right thereafter (until the expiration of such Warrant) to receive, upon exercise of such Warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation or merger, by a holder of the number of shares of Common Stock of the Company for which such Warrant might have been exercised immediately prior to such consolidation, merger, sale or transfer. Such supplemental warrant agreement shall provide for adjustments which shall be identical to the adjustments provided in Section 8. The above provision of this subsection shall similarly apply to successive consolidations or mergers. 8.4 No Adjustment of Exercise Price in Certain Cases. Notwithstanding anything to the contrary herein, no adjustment of the Exercise Price or number of shares of Common Stock shall be made: (a) If the amount of such adjustment shall be less than two cents ($.02) per Warrant Security, provided, however, that in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment so carried forward, shall amount to at least two cents ($.02) per Warrant Security; or (b) If the Exercise Price would be less than the par value per share of Common Stock. 8.5 Statement on Warrant Certificate. Irrespective of any adjustments in the Exercise Price or the number or kind of shares purchasable upon the exercise of the Warrants, the Warrant Certificate or certificates theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in the Warrants initially issuable pursuant to this Agreement. 9. Exchange and Replacement of Warrant Certificates. Each Warrant Certificate is exchangeable without expense, upon the surrender thereof by the registered Holder at the principal executive office of the Company, for a new Warrant Certificate of like tenor and date representing in the aggregate the right to purchase the same number of Warrant Securities in such denominations as shall be designed by the Holder thereof at the time of such surrender. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of any Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of the Warrants, if -4- mutilated, the Company will make and deliver a new Warrant Certificate of like tenor, in lieu thereof. 10. Elimination of Fractional Interests. The Company shall not be required to issue fractional shares of Common Stock upon the exercise of Warrants. Warrants may only be exercised in such multiples as are required to permit the issuance by the Company of one or more whole shares of Common Stock. If one or more Warrants shall be presented for exercise in full at the same time by the same Holder, the number of whole shares of Common Stock which shall be issuable upon such exercise thereof shall be computed on the basis of the aggregate number of shares of Common Stock purchasable on exercise of the Warrants so presented. If any fraction of a share of Common Stock would, except for the provisions provided herein, be issuable on the exercise of any Warrant (or specified portion thereof), the Company shall pay an amount in cash equal to such fraction multiplied by the then current Market Price of a share of Common Stock. As used herein, the phrase "Market Price" at any date shall be deemed to be the last reported sale price, or, in case no such reported sale takes place on such day, the average of the last reported sale prices for the last three (3) trading days, in either case as officially reported by the principal securities exchange on which the Common Stock is listed or admitted to trading or by The Nasdaq Stock Market's National Market or SmallCap Market ("Nasdaq"), or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted by Nasdaq, the average closing bid price as furnished by the National Association of Securities Dealers, Inc. ("NASD") through Nasdaq or similar organization if Nasdaq is no longer reporting such information, or if the Common Stock is not quoted by the NASD or such similar organization, the fair market value of a share of Common Stock as determined in good faith by resolution of the Board of Directors of the Company, based on the best information available to it. 11. Reservation of Securities. The Company shall at all times reserve and keep available out of its authorized shares of Common Stock, solely for the purpose of issuance upon the exercise of the Warrants, such number of shares of Common Stock or other securities, properties or rights as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Warrants and payment of the Exercise Price therefor, all shares of Common Stock and other securities issuable upon such exercise shall be duly and validly issued, fully paid, non-assessable and not subject to the preemptive rights of any stockholder. 12. Notices to Warrant Holders. Nothing contained in this Agreement shall be construed as conferring upon the Holders the right to vote or to consent or to receive notice as a stockholder in respect of any meetings of stockholders for the election of directors or any other matter, or as having any rights whatsoever as a stockholder of the Company. If, however, at any time prior to the expiration of the Warrants and their exercise, any of the following events shall occur: (a) the Company shall take a record of the holders of its shares of Common Stock for the purpose of entitling them to receive a dividend or distribution payable other than in cash, or a cash dividend or distribution payable other than out of current or retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company; or -5- (b) the Company shall offer to all the holders of its Common Stock any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor; or (c) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or merger) or a sale of all or substantially all of its property, assets and business as an entirety shall be proposed; then, in any one or more of such events, the Company shall give written notice of such event to the Holders at least fifteen (15) days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the stockholders entitled to such dividend, distribution, convertible or exchangeable securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of closing the transfer book, as the case may be. Failure to give such notice or any defect therein shall not affect the validity of any action taken in connection with the declaration or payment of any such dividend, or the issuance of any convertible or exchangeable securities, or subscription rights, options or warrants, or any proposed dissolution, liquidation, winding up or sale. 13. Registration Rights. The 200,000 Shares are, for purposes of this Section 13, referred to as the "Registrable Shares". (a) If written demand is made by a Holder or Holders requesting registration of at least 100,000 Registrable Shares, then the Company will use all reasonable best efforts to promptly file a registration statement under the Securities Act of 1933, as amended (the "Act"), to effect the registration under the Act of the Registrable Shares to be registered by the selling Holders, subject to the other provisions hereof. The Holders will have the right to only one demand registration pursuant to this Section 13(a). (b) If at any time the Company shall determine to register any shares of Common Stock under the Act, other than on a Form S-8 or Form S-4 or the then equivalent forms, then it shall promptly send each Holder written notice of such determination and, if within 15 days after receipt of such notice, Holders shall request in writing to include at least 100,000 Registrable Shares in the registration, then the Company shall use its reasonable best efforts to include in such registration the Registrable Shares so requested to be registered on the same terms and conditions as any other shares of Common Stock included therein, and to effect the registration of such Registrable Shares under the Act, subject to the other provisions hereof. (c) If a managing underwriter is participating in such registration and advises the Company in writing that marketing factors require a limitation on the number of Registrable Shares to be included in any registration statement filed pursuant to this Agreement or if the Board of Directors of the Company (the "Board") reasonably determines that the registration of such Registrable Shares would materially adversely affect an important business situation, transaction, or negotiation affecting the Company -6- at the time, then such Registrable Shares may be omitted from the registration statement to the extent necessary to consummate the offering on terms reasonably acceptable to the Company and the managing underwriter, and the Company shall so advise each Holder. Additionally, if the managing underwriter advises the Company in writing that market factors require that the registration of the Registrable Shares be deferred, or if the registration of any of the Registrable Shares, if not deferred, would, in the reasonable opinion of the Board, determined reasonably and in good faith, materially and adversely affect an important business situation, transaction, or negotiation affecting the Company at the time, then the Company may defer the filing of such registration statement for the minimum number of days necessary but in no event may the filing be deferred for more than 120 days. (d) If and whenever the Company is required by the provisions hereof to use all reasonable best efforts to effect the registration of Registrable Shares under the Act, the Company will: (i) Prepare and file with the United States Securities and Exchange Commission (the "SEC") the appropriate registration statement with respect to such securities and use its reasonable best efforts to cause such registration statement to become and remain effective for 90 days or until the intended distribution is completed, whichever first occurs; (ii) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for 90 days or until the intended distribution is completed, whichever first occurs, and to comply with the requirements of the Act and the rules and regulations promulgated by the SEC thereunder relating to the sale or other disposition of the securities covered by such registration statement; (iii) Furnish to each selling Holder copies of a prospectus, including a preliminary prospectus, complying with the requirements of the Act; (iv) Use its reasonable best efforts to register or qualify the Registrable Shares covered by such registration statement under such securities or blue sky laws as the managing underwriter for the offering designates; provided, however, that the Company shall not be required to qualify as a foreign Company in any such jurisdiction or be required to execute a consent to submit generally to the jurisdiction of the courts of such jurisdiction or to escrow any of its securities; (v) Supply the managing underwriter and each selling Holder with copies of all correspondence and communications between the Company and the SEC relating to all registration statements, notifications, or offering circulars provided for hereunder and covering any Registrable Shares; and (vi) Endeavor to cause the Company's counsel and accountants to furnish the managing underwriter with such documents, opinions, and confirmations as -7- may be called for by the managing underwriter and which are in the usual form incident to and as are normally required in an underwritten offering. (e) Notwithstanding anything to the contrary contained in this Agreement, the Company shall not be required by this Agreement to register any Registrable Shares under the Act or under any state securities law if, in the opinion of counsel for the Company, the proposed sale or transfer of the Registrable Shares as to which registration is requested is exempt from the registration provisions of the Act. (f) Each selling Holder shall indemnify and hold harmless the Company and its officers, directors, and each person (if any) who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Securities Exchange Act of 1934, and the Company shall indemnify and hold harmless each selling Holder, against any losses, claims, damages, or liabilities to which each selling Holder may become subject, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement under which shares of the Stock are registered under the Act, or in any preliminary prospectus, final prospectus, or amendment or supplement to any of the foregoing, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission is based upon information concerning such indemnifying party, furnished, in the case of each selling Holder, in writing, by or for the account of each selling Holder to the Company in connection with the preparation and filing of the registration statement. The indemnifying party will reimburse any legal and other expenses reasonably incurred by any indemnified party in connection with investigating or defending any such loss, claim, damage, liability, or action incurred by the indemnified party as a result of the misinformation furnished by the other party. (g) All costs and expenses of the Company in connection with any registration statement prepared and filed in accordance with this Agreement including (but not limited to) federal and state registration and filing fees, printing expenses, and the fees and disbursements of counsel and independent accountants and other experts of the Company, shall be borne by the Company to the fullest extent permitted by applicable law; provided, however, that the Company shall not be obligated to pay the fees and disbursements of separate counsel of each selling Holder, any underwriting commissions or discounts relating to each selling Holder's Registrable Shares, or any other costs and expenses separately incurred by each selling Holder. 14. Notices. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly made and sent when delivered, or mailed by registered or certified mail, return receipt requested: (a) If to a registered Holder of the Warrants, to the address of each such Holder as shown on the books of the Company; or -8- (b) If to the Company, to the address set forth in Section 3 hereof or to such other address as the Company may designate by notice to the Holders. 15. Supplements and Amendments. The Company and Grantee may from time to time supplement or amend this Agreement without the approval of any Holders of the Warrant Certificates in order to cure any ambiguity, to correct or supplement any provision contained herein which may be defective or inconsistent with any provisions herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company and Grantee may deem necessary or desirable and which the Company and Grantee deem shall not adversely affect the interests of the Holders of the Warrant Certificates. If Grantee no longer owns any Warrants, then this Agreement may be amended by the Company and the Holders of a majority of the then outstanding Warrants. 16. Successors. All the covenants and provisions of this Agreement shall be binding upon and inure to the benefit of the Company, the Holders and their respective successors and assigns hereunder. 17. Governing Law; Submission to Jurisdiction. This Agreement and each Warrant Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Texas and for all purposes shall be construed in accordance with the laws of such State without giving effect to the rules of such State governing the conflicts of laws. 18. Entire Agreement; Modification. This Agreement contains the entire understanding between the parties hereto with respect to the subject matter hereof and may not be modified or amended except by a writing duly signed by the party against whom enforcement of the modification or amendment is sought. 19. Severability. If any provision of this Agreement shall be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of this Agreement. 20. Captions. The caption headings of the Sections of this Agreement are for convenience of reference only and are not intended, nor shall they be construed as, a part of this Agreement and shall be given no substantive effect. 21. Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company and Grantee and any other registered Holder(s) of the Warrant Certificates or Warrants Securities any legal or equitable right, remedy or claim under this Agreement; and this Agreement shall be for the sole benefit of the Company and Grantee and any other registered Holders of Warrant Certificates or Warrant Securities. 22. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. 23. Representations and Warranties. The Company represents and warrants as of the date hereof as follows: (i) the Company and each of its material Subsidiaries (a) is duly organized, validly existing, and in good standing under the laws of the jurisdiction of its -9- incorporation or organization, (b) has all requisite corporate or other power and authority to own its properties and carry on its business as now being and as proposed to be conducted, and (c) is qualified to do business in all jurisdictions in which the nature of its business or the ownership of its assets makes such qualification necessary and where the failure to be so qualified would have a material adverse effect; (ii) the Company has the power and authority and legal right to execute, deliver and perform its respective obligations under this Agreement; and (iii) the execution, delivery, and performance by the Company of this Agreement and compliance with the terms and provisions hereof has been duly authorized by all requisite corporate action on the part of the Company and does not and will not violate or conflict with, or result in a breach (whether through notice or lapse of time) of or require any consent under the Certificate of Incorporation or bylaws of the Company or any amendments to any of the foregoing. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. ULTRAK, INC. By:___________________________________________ Name:_________________________________________ Title:________________________________________ ______________________________________________ GEORGE K. BROADY -10- EXHIBIT A [FORM OF WARRANT CERTIFICATE] THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL TO THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE. EXERCISABLE ON OR BEFORE 5:00 P.M., DALLAS, TEXAS TIME, JANUARY 14, 2005 No. W-002 Warrants to Purchase 200,000 Shares of Common Stock WARRANT CERTIFICATE This Warrant Certificate certifies that george k. broady, or registered assigns, is the registered holder of Warrants to purchase, until January 14, 2005 (the "Expiration Date") pursuant to that certain Warrant Agreement (the "Warrant Agreement") by and between Ultrak, Inc., a Delaware corporation (the "Company"), and George K. Broady ("Grantee"), at 5:00 p.m. Dallas, Texas time on the Expiration Date, 200,000 fully-paid and non-assessable shares of common stock, $0.01 par value ("Common Stock") of the Company, at the initial exercise price, subject to adjustment in certain events (the "Exercise Price"), of $1.64 per share, of Common Stock upon surrender of this Warrant Certificate and payment of the Exercise Price at an office or agency of the Company, but subject to the conditions set forth herein and in the Warrant Agreement dated as of January 14, 2002, by and between the Company and Grantee. Payment of the Exercise Price shall be made by certified or official bank check payable to the order of the Company, or alternatively through other exercise as specified in the Warrant Agreement. No Warrant may be exercised after 5:00 p.m., Dallas, Texas time, on the Expiration Date, at which time all Warrants evidenced hereby, unless exercised prior thereto, hereby shall thereafter be void. The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants issued pursuant to the Warrant Agreement, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants. If any term of this Warrant Certificate conflicts with the terms of the Warrant Agreement, then the terms of the Warrant Agreement shall control and prevail. Exhibit A - Page 1 The Warrant Agreement provides that upon the occurrence of certain events the Exercise Price and the type and/or number of the Company's securities issuable thereupon may, subject to certain conditions, be adjusted. In such event, the Company will, at the request of the holder, issue a new Warrant Certificate evidencing the adjustment in the Exercise Price and the number and/or type of securities issuable upon the exercise of the Warrants; provided, however, that the failure of the Company to issue such new Warrant Certificates shall not in any way change, alter, or otherwise impair, the rights of the holder as set forth in the Warrant Agreement. Upon due presentment for registration of transfer of this Warrant Certificate at an office or agency of the Company, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided herein and in the Warrant Agreement, without any charge except for any tax or other governmental charge imposed in connection with such transfer. Upon the exercise of less than all of the Warrants evidenced by this Certificate, the Company shall forthwith issue to the holder hereof a new Warrant Certificate representing such numbered unexercised Warrants. The Company may deem and treat the registered holder(s) hereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, and of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. All terms used in this Warrant Certificate which are defined in the Warrant Agreement shall have the meanings assigned to them in the Warrant Agreement. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed. Dated as of January 14, 2002. ULTRAK, INC., a Delaware corporation By:_________________________________ Name:_______________________________ Title:______________________________ Exhibit A - Page 2 ELECTION TO PURCHASE The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase ___________ shares of Common Stock and herewith tenders in payment for such shares of Common Stock cash or a certified or official bank check payable to the order of ___________________________________ in the amount of $__________, all in accordance with the terms hereof. The undersigned requests that a certificate for such shares be registered in the name of _____________________________________, whose address is ___________________ _____________________________, and that such Certificate be delivered to whose address is _____________________________________________________. Dated:____________________ Signature:____________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate) ____________________________________ ____________________________________ (Insert Social Security or Other Identifying Number of Holder) Election to Purchase - Page 1 ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Warrant Certificate) FOR VALUE RECEIVED_____________________________________________________ hereby sells, assigns and transfers unto________________________________________ ________________________________________________________________________________ (Please print name and address of transferee) this Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ___________________________, Attorney, to transfer the within Warrant Certificate on the books of the within-named Company, with full power of substitution. Dated:_________________________ Signature:_________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate) ____________________________________ ____________________________________ (Insert Social Security or Other Identifying Number of Assignee) Assignment -- Page 1 EX-10.51 16 file015.txt AMENDED AND RESTATED CREDIT AGREEMENT EIGHTH AMENDMENT AND WAIVER ULTRAK OPERATING, L.P. FIRST AMENDED AND RESTATED CREDIT AGREEMENT THIS EIGHTH AMENDMENT (this "Amendment") is executed on and effective as of February 6, 2002 ("Execution Date of Eighth Amendment"), among ULTRAK OPERATING, L.P., a Texas limited partnership ("Borrower"), Ultrak, Inc., a Delaware corporation ("Parent"), AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO (as a "Lender"), HARRIS TRUST AND SAVINGS BANK (as a "Lender"), and AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO (as "Administrative Agent" for present and future Lenders). RECITALS Borrower, Parent, Administrative Agent and Lenders are parties to that certain First Amended and Restated Credit Agreement dated as of May 17, 2000 (as previously, hereby or hereafter renewed, extended, modified, supplemented, amended and/or restated, the "Credit Agreement"), providing for, among other things, a secured revolving credit facility. The parties to this Amendment have agreed to amend the Credit Agreement as set forth herein. AGREEMENTS NOW THEREFORE, in consideration of the premises, and for other good, fair and valuable consideration, the receipt, adequacy and reasonable equivalency of which are hereby acknowledged, the parties hereto agree as follows: 1. Defined Terms; References. Unless otherwise stated in this Amendment, terms defined in the Credit Agreement have the same meanings when used in this Amendment. All references in the Credit Documents to the "Credit Agreement" refer to the Credit Agreement as heretofore amended and as amended by this Amendment. This Amendment is a "Credit Document" referred to in the Credit Agreement, and the provisions relating to Credit Documents in the Credit Agreement are incorporated by reference, the same as if set forth verbatim in this Amendment. 2. Amendments. The Credit Agreement is hereby amended as follows: (a) The phrases "the Eurocurrency Lending Installation", "or by the Eurocurrency Lending Installation", "and LIBOR Rate Borrowings", "or to the Eurocurrency Lending Installation and to Administrative Agent in the case of Eurocurrency Borrowings", "or the Eurocurrency Lending Installation and Administrative Agent in the case of Eurocurrency Borrowings", "or, alternatively, at the Eurocurrency Lending Installation in the case of Eurocurrency Borrowings", "or by the Eurocurrency Lending Installation, as the case may be, by 2:00 p.m. London time", "or the Eurocurrency Lending Installation, as the case may be", "or, in the case of Eurocurrency Borrowings, the Eurocurrency Lending Installation", Page 1 of 23 "or, alternatively, in the case of Eurocurrency Borrowings, the Eurocurrency Lending Installation's cost of funds for that amount and for the period stated above", "including the Dollar Equivalent of any Eurocurrency Borrowings" and any substantially similar phrases are hereby deleted wherever such phrases appear in the Credit Agreement. (b) The definition of "ACH Obligations" is deleted from the Credit Agreement and the following definitions are substituted instead: "Deposit Account" means any deposit account (as defined in Article 9 of the UCC) maintained by any Company with any Lender or any Affiliates of any Lender, including any demand deposit account, controlled disbursement account, lock box account or other deposit account of any nature. "Deposit Account Obligations" means any and all obligations of any Company owing to any Lender or any Affiliates of any Lender under any treasury management or commercial account services agreement, any service terms or other service agreements, including without limitation wire, electronic payments, automated clearing house, controlled disbursement, and/or zero balance service terms, and all overdrafts on any Deposit Account. (c) Wherever in the Credit Agreement the term "ACH Obligations" is used, such term is changed to read "Deposit Account Obligations". (d) The proviso in clause (b) of the definition of "Acquisition" (which reads "(provided that, formation or organization of any entity shall not constitute an "Acquisition" to the extent that the amount of the loan, advance, investment or capital contribution in such entity constitutes a permitted investment under Section 9.7))" is deleted. (e) The definition of "Applicable Margin" (including subparagraphs (a)-(e), inclusive, thereof) is amended and restated in its entirety to read as follows: "Applicable Margin" means three and one-fourth percent (3.25%). (f) The definitions of "Bank One London", "Base Eurocurrency Rate", "Conversion Notice", "Current Equipment Appraisal", "Current Real Property Appraisal", "Dollar Equivalent", "Domestic Borrowing", "EBITDA Rate Adjustment Effective Date", "EBITDA Rate Determination Date", "Equipment Sublimit", "Eurocurrency", "Eurocurrency Borrowing", "Eurocurrency Lending Installation", "Eurocurrency Rate", "Eurocurrency Sublimit", "Forced Liquidation Value", "LC Subfacility", "LIBOR Rate", "LIBOR Rate Borrowing", "Permitted Intercompany Guaranty", "Real Property Sublimit", "Reserve Requirement", "TARGET Settlement Date", "Type" are deleted. Page 2 of 23 (g) A new definition is added to the Credit Agreement: "Bank Deed of Trust" means that certain Leasehold Deed Of Trust, Security Agreement and Assignment of Rents and Leases and Fixture Filing dated February 6, 2002, from Borrower to Barbara D. Christian, as Trustee, for the benefit of Administrative Agent, acting on behalf of Lenders, securing payment of the Obligation, covering all of Grantor's rights, titles, interests, estates and options in and to real estate situated Denton County, Texas, including all rights, titles, interests, estates and options in and under the Briarwood Lease. (h) The definition of "Base Rate Borrowing" is amended to change "Domestic Borrowing" to "Borrowing". (i) The definition of "Borrowing Base" is amended by adding the following at the end thereof:: "Borrowing Base" means, at any time after December 31, 2001, the sum, without duplication, of (a) up to eighty five percent (85%) of the face amount (less maximum discounts, credits and allowances which may be taken by or granted to Account Debtors in connection therewith) then outstanding under existing Eligible Accounts, less such reserves as Administrative Agent in its sole discretion, exercised in a commercially reasonable manner, elects to establish, plus (b) the lesser of the Eligible Inventory Sublimit and an amount equal to up to fifty percent (50%) of existing Eligible Inventory, valued at average cost, less such reserves as Administrative Agent in its sole discretion, exercised in a commercially reasonable manner, elects to establish. (j) The definition of "Borrowing Base Deficiency" is amended and restated in its entirety to read as follows: "Borrowing Base Deficiency" means the amount, if any, by which the sum at any time of (i) the outstanding Principal Debt evidencing Base Rate Borrowings, plus (ii) the LC Exposure exceeds the lesser of (A) the total Commitments of all Lenders and (B) the Borrowing Base. (k) The following new definitions are added to the Credit Agreement: "Briarwood" means Briarwood Waters Ridge LP, a Texas limited partnership. Page 3 of 23 "Briarwood First Lien" means a first lien deed of trust for the benefit of the Entity providing financing to Briarwood for acquisition of the Lewisville Facility, securing indebtedness in the original principal amount not exceeding Six Million Six Hundred Thousand Dollars ($6,600,000). "Briarwood Lease" means a Lease Agreement between Briarwood, as lessor, and Borrower, as lessee, covering the Lewisville Facility in form and substance reasonably acceptable to Administrative Agent, with the material terms outlined on Addendum "A" to the Eighth Amendment of this Agreement, or a Lease Agreement with another lessor substantially similar thereto. "Briarwood Sale" means the sale of the Lewisville Facility to Briarwood on December 17, 2001 for cash consideration of not less than Six Million Six Hundred Thousand Dollars ($6,600,000). (l) The definition of "Business Day" is amended and restated in its entirety to read as follows: "Business Day" means any day other than Saturday, Sunday and any other day that commercial banks are authorized by applicable Laws to be closed in Texas or Illinois. (m) The definition of "Commitment" is amended and restated in its entirety to read as follows: "Commitment" means, (a) for all Lenders, the amount of Twenty Million Dollars ($20,000,000), and, (b) for each Lender, the amount stated beside that Lender's name on the most recently amended Schedule 2 (which amount is subject to reduction and cancellation as provided in this Amendment). (n) The definition of "Default Rate" is amended and restated in its entirety to read as follows: "Default Rate" means, for any day, an annual interest rate equal from day to day to the lesser of (a) the Base Rate plus the Applicable Margin plus four percent (4.0%) and (b) the Maximum Rate. (o) The definition of "Eligible Inventory Sublimit" is amended and restated in its entirety to read as follows: Page 4 of 23 "Eligible Inventory Sublimit" means Ten Million Dollars ($10,000,000). (p) A new definition is added to the Credit Agreement: "Execution Date of Eighth Amendment" means February 6, 2002. (q) The definition styled "First TROL Default Waiver", "Second TROL Default Waiver" and "Third TROL Default Waiver" is amended and restated in its entirety to read as follows: "First TROL Default Waiver", "Second TROL Default Waiver" "Third TROL Default Waiver", "Fourth TROL Default Waiver" and "Fifth TROL Default Waiver" means waivers by the same names granted pursuant to various amendments, including this Amendment, to this Agreement. (r) The definition of "Funding Loss" is amended and restated in its entirety to read as follows: "Funding Loss" means any loss, expense or reduction in yield (but not any Applicable Margin) that any Lender reasonably incurs because Borrower fails or refuses (for any reason whatsoever other than a default by Administrative Agent or the Lender claiming that loss, expense or reduction in yield) to take any Borrowing that it has requested under this Amendment. (s) The definition of "LC" is amended and restated in its entirety to read as follows: -- "LC" means a standby letter of credit issued by Administrative Agent under this Amendment pursuant to an LC Agreement. For the avoidance of doubt, no new LCs will be issued pursuant to this Amendment after November 1, 2001, and the existing LC outstanding in favor of Bhart Heavy Limited - India in the amount of $9,393 will not be renewed unless cash collateral in the form of a deposit with Bank One is pledged to Administrative Agent. (t) The second half (", and Lenders shall be deemed to be nominees for the Eurocurrency Lending Installation with respect to any Eurocurrency Borrowings for any period during which the Eurocurrency Lending Installation has not received fundings of a Lender's Commitment Percentage of a Eurocurrency Borrowing from such Lender") of the definition of "Lenders" is deleted. (u) A new definition is added to the Credit Agreement: Page 5 of 23 "Lewisville Facility" means all of the real estate (approximately 14 acres) and improvements thereon at 1301 Waters Ridge Dr., Lewisville, Texas 75057. (v) The definition of "Net Proceeds" is amended to change "other than a Permitted Asset Sale" to "other than a sale of Inventory in the ordinary course of business". (w) The definition of "Permitted Asset Sale" is amended and restated in its entirety to read as follows: "Permitted Asset Sale" means (a) any sale and disposition of Inventory in the ordinary course of business for fair and adequate consideration (other than sales of Inventory on credit to Foreign Subsidiaries in excess of the amount permitted by clause (e) of this definition), (b) any sale of assets which are obsolete or are no longer in use and which are not significant to the continuation of the business of the Companies, (c) upon prior written notice to, and completion of all actions necessary to confirm, reaffirm or re-establish Lender Liens to the satisfaction of Administrative Agent, any sale and disposition from any Domestic Company to any other Domestic Company provided, in all respects, such sale and disposition is otherwise subject to and complies with Section 9.5, (d) any transfer of assets in connection with mergers and consolidations permitted under this Agreement, (e) sales of Inventory by a Domestic Company to Foreign Subsidiaries at manufacturer's cost and consistent with past practice, not to exceed the amount outstanding as of December 31, 2001 ($_________), (f) any other sales and dispositions approved in advance by Administrative Agent and (g) the Briarwood Sale, provided that, on or before February 28, 2002, Briarwood and the holder of the Briarwood First Lien must execute and deliver a Landlord Waiver and Lienholder Joinder in form and substance substantially the same as that provided to Borrower by counsel to Administrative Agent on January 21, 2002, providing for (A) notice to Administrative Agent of a default under the Briarwood Lease or the Briarwood First Lien and a reasonable opportunity to cure the same and reinstate the Briarwood Lease or Briarwood First Lien, as the case may be, (B) the right of Administrative Agent or Lenders to enter the Lewisville Facility after any default under the Briarwood Lease or the Briarwood First Lien or after any Event of Default hereunder and to occupy the same for a period of one hundred twenty (120) days rent-free for the purpose of securing and selling and/or removing equipment, inventory and other goods in which Administrative Agent has been granted a security interest, (C) the subordination of the landlord's liens of Briarwood to the security interests of Page 6 of 23 Administrative Agent to secure the Obligation and (D) other customary provisions. (x) The definition of "Permitted Intercompany Advances" is amended and restated in its entirety to read as follows: "Permitted Intercompany Advances" means (a) loans, advances or extensions of credit ("advances") by any Domestic Company to any other Domestic Company so long as each such advance to a Domestic Company is carried by the Domestic Company making the advances as a written promissory note or account receivable subject to Lender Liens and no other Liens, (b) loans, advances and extensions of credit to third parties outstanding on December 31, 2001, described on Addendum "A" hereto and (c) sales of Inventory by a Domestic Company to Foreign Subsidiaries at manufacturer's cost and consistent with past practice, the sum of which, when combined with loans, advances and extensions of credit by Domestic Companies to Foreign Subsidiaries outstanding on December 31, 2001, described on Addendum "A" to the Eighth Amendment to this Agreement do not exceed Ten Million Dollars ($10,000,000) at any time outstanding. For the avoidance of doubt, except as permitted by clause (c) preceding, no loans, advances or extensions of credit may be made by Parent, Borrower or any other Company to any Foreign Subsidiary other than loans, advances and extensions of credit by Domestic Companies to Foreign Subsidiaries outstanding on December 31, 2001, described on Addendum "A" to the Eighth Amendment to this Agreement. (y) The definition of "Principal Debt" is amended by deleting the parenthetical expression ("(including the Dollar Equivalent of Eurocurrency Borrowings)"). (z) The definition of "Revolving Facility Termination Date" is amended and restated in its entirety to read as follows: "Revolving Facility Termination Date" means the earlier of (i) February 28, 2002 and (ii) the date on which all Principal Debt and interest thereon has been paid in full and all LC exposure has been terminated or fully cash collateralized". (aa) The definition of "UCC" is amended and restated in its entirety to read as follows: "UCC" means the Uniform Commercial Code, as adopted and amended from time to time and in force in the State of Texas and any other applicable jurisdiction at the time in question. Page 7 of 23 (bb) Sections 2.1(b), 2.1(f), 2.1(h), 2.4(b)(ii), 3.2(c)(iv), 3.13, 3.14, 3.19, 3.20(a), 3.21(a), 3.21(b), 4.6, 9.2(a)(iv), 9.2(a)(ix), 9.2(a)(x), 9.8(e), and 9.8(f) are deleted in their entirety. (cc) Section 2.1(c) is amended and restated in its entirety to read as follows: (c) Maximum Borrowings from All Lenders. The sum at any time of (i) the outstanding Principal Debt plus (ii) the LC Exposure may never exceed the lesser of (A) the total Commitments of all Lenders and (B) the Borrowing Base. (dd) Sections 2.1(d) is amended and restated in its entirety to read as follows: (d) Maximum Borrowings from Each Lender. The sum at any time of (i) the outstanding Principal Debt owed to any Lender, plus (ii) the LC Exposure of such Lender may never exceed such Lender's Commitment. (ee) Lenders have exercised their right pursuant to Section 2.1(g) to terminate their obligations and commitments to make Eurocurrency Borrowings available to Borrower, to permit future renewals of Borrowings as Eurocurrency Borrowings and to permit future conversions of Domestic Borrowings to Eurocurrency Borrowings, and Section 2.1(g) is deleted in its entirety. (ff) Section 2.2 is deleted, and Administrative Agent and Lenders have no further obligation or commitment to make Borrowings pursuant thereto. (gg) The parenthetical expression ("(compliance with the procedures set forth in Section 2.4 and elsewhere herein being required for LIBOR Rate Borrowings and Eurocurrency Borrowings)") in Section 2.3(a)(ii) is deleted. (hh) Section 2.4(a) is amended and restated in its entirety to read as follows: Borrowing Request. Borrower may request a Borrowing only by making or delivering a Borrowing Request to Administrative Agent, which is irrevocable and binding on Borrower, stating the amount for each Borrowing and which must be received by Administrative Agent no later than (i) 12:00 noon on the Business Day on which funds are requested (the "Borrowing Date"). Administrative Agent shall promptly notify each Lender of any Borrowing Request. (ii) The last two sentences of Section 2.4(b) ("Notwithstanding the foregoing, Harris will not be required to fund its Commitment Percentage of Eurocurrency Borrowings which are outstanding on the date of this Amendment, but Harris will have a contingent risk participation obligation therein pursuant to Section 2.4(b)(ii). If, at the end of the Interest Page 8 of 23 Period for each such outstanding Eurocurrency Borrowing, Borrower continues all or part thereof as a Eurocurrency Borrowing, Harris shall be obligated to fund its Commitment Percentage of each such continuation pursuant to the first sentence of this Section 2.4(b).") are deleted. (jj) The parenthetical expression, "(or, alternatively, in the case of Eurocurrency Borrowings, the Eurocurrency Lending Installation's cost of funds for that amount and for the period stated above)", appearing in Section 2.4(b)(i) is deleted. (kk) Section 2.5(a) is amended and restated in its entirety to read as follows: (a) Conditions. Subject to the terms and conditions of this Credit Agreement prior to the Eighth Amendment hereto and applicable Laws, Administrative Agent (itself or through one of its Affiliates, and references in this Section 2.5 to "Administrative Agent" include those Affiliates) has issued LCs upon the request of Borrower, and two of those LCs are outstanding as of November 1, 2001. No new LCs will be issued pursuant to this Amendment after November 1, 2001, and the existing LC outstanding in favor of Bhart Heavy Limited - India in the amount of $9,393 will not be renewed, and must be released and terminated on the Revolving Facility Termination Date, unless cash collateral in the form of a deposit in the amount of Ten Thousand Dollars ($10,000) with Bank One is pledged to Administrative Agent. (ll) The fourth sentence ("Any partial terminations shall reduce availability under the Eurocurrency Sublimit on a pro rata basis in the same proportion which the Eurocurrency Sublimit at the time bears to the total Commitments") of Section 2.7 is deleted. (mm) A new Section 2.8 is added to the Credit Agreement which shall read as follows: 2.8 Deposit Account Transfers and Obligations; Commitment from Qualified Lender; Treasury Management Services; Additional Fees. (a) From and after November 1, 2001, Bank One and its Affiliates will not accept and shall have no exposure with respect to transfers related to Deposit Accounts, ACH transfers or Deposit Account Obligations of any kind. In the event Borrower or any other Company initiates any transfer or transaction which anticipates transferring funds from or clearing items through a Deposit Account, all of such transfers, transactions and items must be fully pre-funded by one of the Companies, so that Bank One and its Affiliates have no Page 9 of 23 overdraft, ACH or other exposure when any items are presented to Bank One or one of its Affiliates. (b) Borrower agrees (i) to deliver to Administrative Agent on or before December 31, 2001, a commitment letter executed by a substantial and financially capable lending institution ("Qualified Lender") and accepted by Borrower and Parent, providing for a closing and funding on or before February 28, 2002, pursuant to which the Qualified Lender commits to make a loan in an amount sufficient to pay in full all of the Obligation (including a release or cash-collateralization of all LC Exposure), containing no conditions which Borrower cannot reasonably be expected to satisfy (a "Qualified Commitment") and (ii) to cause the Qualified Commitment to continue in full force and effect and to be funded and the Obligation to be paid in full on or before February 28, 2002 (including a release or cash-collateralization of all LC Exposure). (c) Bank One may be asked to continue to maintain treasury management services and controlled disbursement accounts for Borrower and other Companies after the Obligation has been paid in full, and Bank One is willing to do so for a limited period of time, but only if Bank One receives a letter of credit, indemnification or other credit support satisfactory to Bank One to protect and indemnify Bank One to its satisfaction against any possible exposure which may result if Bank One pays or honors a transfer of funds or item initiated by one of the Companies from any Deposit Account. (d) A waiver fee of Fifty Thousand Dollars ($50,000) shall be paid by Borrower to Administrative Agent for the account of Lenders on the Eighth Amendment Execution Date. An additional fee of Fifty Thousand Dollars ($50,000) shall be paid by Borrower to Administrative Agent for the account of Lenders on February 28, 2002 if the Obligation is not paid in full on or before February 28, 2002; provided that, all of such $50,000 additional fee will be promptly refunded by Lenders if the Obligation is paid in full on or before March 15, 2002, and half of such $50,000 additional fee will be promptly refunded by Lenders if the Obligation is paid in full after March 15, 2002 and on or before March 31, 2002. At any time after any payment is due under this Section or any other provision of the Credit Documents, Administrative Agent and each of its Affiliates shall be entitled to debit one or more Deposit Accounts for each such payment and distribute the same to Lenders. (nn) Section 3.1(b) is amended and restated in its entirety to read as follows: Page 10 of 23 (b) Payment. Except for payment made on Base Rate Borrowings by appropriate debits to Borrower's Loan Account pursuant to Section 2.3 and Section 3.4, Borrower must make each payment and prepayment on the Obligation to Administrative Agent's principal office in Chicago, Illinois in immediately available funds by 1:00 p.m.(local time) on the day due; otherwise, but subject to Section 3.8, those funds continue to accrue interest as if they were received on the next Business Day. Administrative Agent shall promptly pay to each Lender the part of any payment or prepayment to which that Lender is entitled under this Amendment on the same day Administrative Agent receives the funds from Borrower. (oo) Section 3.2(a) is amended and restated in its entirety to read as follows: (a) Interest. Accrued interest on each Borrowing is due and payable on the first day of each month, commencing on the first day of the month following the Initial Closing Date. Accrued interest is also due and payable on the Revolving Facility Termination Date. (pp) Section 3.2(b) is amended and restated in its entirety to read as follows: (b) Revolving Facility Principal. The Principal Debt is due and payable on the Revolving Facility Termination Date. Before that date, Borrower may at any time prepay, without penalty (except as provided in the Eighth Amendment to this Agreement) and in whole or in part, the Principal Debt. (qq) Section 3.3 is amended and restated in its entirety to read as follows: 3.3 Interest Rate on Borrowings. Except as otherwise provided in this Agreement, Borrowings bear interest at an annual rate equal to the lesser of (a) the Base Rate plus the Applicable Margin and (b) the Maximum Rate. Each change in the Base Rate or Maximum Rate is effective, without notice to Borrower or any other Person, upon the effective date of change. (rr) Section 3.6 is amended and restated in its entirety to read as follows: 3.6 Instruments and Chattel Paper. On the Eighth Amendment Execution Date (with respect to existing chattel paper and instruments) and immediately upon receipt of any chattel paper and instruments in the future by Borrower or any other Company, Borrower or such other Company shall deliver or cause to be delivered to Gardere Wynne Sewell LLP (attn: Steven S. Camp) in Page 11 of 23 trust for Administrative Agent, with appropriate endorsement and assignment to vest title (for collateral purposes) and possession in Administrative Agent, with full recourse to Borrower, all chattel paper and instruments which Borrower and each other Company now owns or may at any time or times hereafter acquire in order to permit Administrative Agent to perfect its security interest in such property. Prior to the close of business on February 28, 2002 (or earlier upon demand by Administrative Agent after the occurrence of an Event of Default or Potential Default after the Eighth Amendment Execution Date), the trustee shall deliver such chattel paper and instruments to Administrative Agent unless the Obligation has been paid in full. (ss) Section 3.9 is amended and restated in its entirety to read as follows: 3.9 Default Rate. All Principal Debt and, unless prohibited by applicable Government Requirements, all past-due interest accruing on the Principal Debt shall, at Administrative Agent's option, bear interest on the amount thereof from time to time outstanding from the earlier of the date due (stated or by acceleration) and the date of occurrence of an Event of Default or Potential Default at the Default Rate until paid (or, in the case of an occurrence of an Event of Default or Potential Default, until cured or until the actual date a waiver is granted), regardless whether payment is made before or after entry of a judgment. (tt) Section 3.11 is amended and restated in its entirety to read as follows: 3.11 Interest Calculations. Interest on all Borrowings will be calculated on the basis of actual number of days (including the first day but excluding the last day) elapsed but computed as if each calendar year consisted of 360 days (unless such calculation would result in the interest on the Borrowings exceeding the Maximum Rate in which event such interest shall be calculated on the basis of a year of 365 or 366 days, as the case may be). All interest rate determinations and calculations by Administrative Agent are conclusive and binding absent manifest error. (uu) The last sentence ("Unless otherwise notified to the contrary, all Eurocurrency Borrowings shall be made by the Lending Installations of each Lender designated on Schedule 2") of Section 3.18 is deleted. (vv) The lead paragraph of Section 8.1(b) is amended and restated in its entirety to read as follows: 12 of 23 (b) Collateral and Borrowing Base Reports. In addition, by the close of business each Tuesday, Borrower shall provide Administrative Agent with a written Collateral Report (herein so called), on a weekly basis after January 21, 2002, including a Borrowing Base Report as of the immediately preceding Friday, reflecting activity for the week ended on such Friday, unless reasonably requested more often by Administrative Agent, in form and substance, and with such specificity, as is satisfactory to Administrative Agent: (ww) Section 8.5 is amended to add the following as the next-to-last sentence thereof: Without limiting the foregoing, on or at any time after the earlier of (i) February 28, 2002, and (ii) the date on which the Frost Capital Group Commitment Letter dated December 21, 2001 is terminated or rescinded with no immediate replacement therefore acceptable to Administrative Agent being delivered by Borrower, Administrative Agent shall be entitled to commence a field inspection and audit of the Inventory, Accounts and other assets of the Companies, at the cost and expense of Borrower. (xx) Section 9.2(a)(vii) is amended and restated in its entirety to read as follows: (vii) Up to Nine Hundred Eight Thousand Dollars ($908,000) of overdraft facilities for French, Italian, South African and Belgian Subsidiaries, if (A) no Domestic Company has any liability or obligation for or with respect to such overdraft facilities and related overdrafts, and (B) such overdraft facilities and related overdrafts do not exceed at any time the amount owing on December 31, 2001 as set forth on Addendum "A" to the Eighth Amendment to this Agreement; (yy) Section 9.3(b) is amended and restated in its entirety to read as follows: (b) Limited Future Liens. Liens not otherwise permitted by this Section 9.3, so long as (i) such Liens or leases existed on November 1, 2001 and are described on Addendum "A" to the Eighth Amendment to this Agreement, (ii) such Liens or leases are granted on equipment or machinery on which no Lender Lien exists, to secure an Page 13 of 23 aggregate amount of Debt not exceeding at any time the amount reflected on such Addendum "A", and (iii) the Debt securing such additional Liens is subordinated to the Obligation on terms acceptable to Required Lenders; (zz) Section 9.5 is amended and restated in its entirety to read as follows: 9.5 Transactions with Affiliates. No Company may enter into any transaction with any of its Affiliates except (i) transactions permitted under Sections 9.7(h), (i) and (j) and Section 9.9, (ii) transactions between Domestic Companies (other than Investments) in the ordinary course of business and upon fair and reasonable terms not materially less favorable than it could obtain or could become entitled to in an arm's-length transaction with a Person that was not its Affiliate and (iii) sales of Inventory by a Domestic Company to Foreign Subsidiaries at manufacturer's cost and consistent with past practice, the sum of which, when combined with loans, advances and extensions of credit by Domestic Companies to Foreign Subsidiaries outstanding on the Execution Date of Eighth Amendment do not exceed the amount outstanding on December 31, 2001, as described on Addendum "A" to the Eighth Amendment to this Agreement. (aaa) Section 9.7(h) is amended to change "Company" to "Domestic Company" in each place it appears, except the first time it appears. (bbb) Section 9.10(a) is amended and restated in its entirety to read as follows: (a) if no Event of Default, Potential Default or Material Adverse Event exists or will exist as a result of it, any merger or consolidation between Domestic Companies so long as, if Borrower is involved, it is the survivor; (ccc) A new Section 9.17 is added to the Credit Agreement, which shall read as follows: 9.17 F/X Contracts; Hedging Agreements; Rate Management Transactions. From and after the Eighth Amendment Execution Date, neither Borrower nor any other Company shall enter into any F/X Contract, Hedging Agreement or other Rate Management Transaction. Any foreign exchange transactions or services needed by Borrower or any other Company may be accommodated by Bank One, but any credit exposure must be pre-funded in cash by Borrower in an amount acceptable to Bank One. Page 14 of 23 (ddd) Section 10.4 is amended and restated in its entirety to read as follows: 10.4 Capital Expenditures. From and after January 1, 2002, the Companies will not make Capital Expenditures in excess of an aggregate of Two Hundred Fifty Thousand Dollars ($250,000). (eee) Section 10.5 is amended and restated in its entirety to read as follows: 10.5 Minimum Excess Availability. Borrower will at all times maintain Excess Availability of at least Two Million Dollars ($2,000,000). (fff) A new Section 11.14 is added to the Credit Agreement, which shall read as follows: 11.14 Borrower does not deliver to Administrative Agent on or before December 31, 2001, a Qualified Commitment executed by a Qualified Lender and accepted by Borrower and Parent which is in full force and effect when delivered, providing for a closing and funding on or before February 28, 2002, pursuant to which the Qualified Lender commits to make a loan in an amount sufficient to pay in full all of the Obligation (including a release or cash-collateralization of all LC Exposure), containing no conditions which Borrower cannot reasonably be expected to satisfy. (ggg) In Section 14.13 of the Credit Agreement and in any similar provision in any of the other Credit Documents, "Chicago, Cook County, Illinois" is changed to "Dallas, Dallas County, Texas". (hhh) Section 14.14 of the Credit Agreement and any provisions in any of the other Credit Documents providing for arbitration of disputes are deleted. 3. Other Matters. (a) Schedule 2 to the Credit Agreement is hereby amended and replaced in its entirety by Schedule 2 to this Amendment. (b) If and to the extent not previously complied with, Borrower will, and will cause each other Company to, comply with the requirements of Section 3.6, as herein amended. (c) Bank One will refund to Borrower all NSF fees charged in December 2001 and January 2002 Page 15 of 23 4. Waivers. (a) Administrative Agent and Lenders hereby grant a temporary, revocable waiver of any Event of Default or Potential Default arising under Section 8.1(a) of the Credit Agreement with respect to the fact that Borrower failed to deliver, on or before the dates required by the Credit Agreement, the Monthly Report and compliance certificate for the months of September, October, November and December 2001. (b) Administrative Agent and Lenders hereby grant a temporary, revocable waiver of any Event of Default or Potential Default arising under Section 8.14(c) of the Credit Agreement with respect to the fact that Borrower and Parent did not execute and deliver a deed of trust within thirty (30) days after the date requested therefor by Administrative Agent. (c) Administrative Agent and Lenders hereby grant a temporary, revocable waiver of any Event of Default or Potential Default arising under Section 9.9 of the Credit Agreement with respect to Borrower making the Briarwood Sale without the consent of Administrative Agent. (d) Administrative Agent and Lenders hereby grant a temporary, revocable waiver of any Event of Default or Potential Default arising under Section 10.2 of the Credit Agreement with respect to the fact that the ratio of the consolidated Cash Flow Available for Debt Service to Debt Service Requirements for the three quarters ended September 30, 2001 was less than 1.25 to 1.00. (e) Administrative Agent and Lenders hereby grant a temporary, revocable waiver of any Event of Default or Potential Default arising under Section 10.3 of the Credit Agreement with respect to the fact that the Tangible Net Worth on October 31, 2001 and November 30, 2001 was less than the required amount. (f) Administrative Agent and Lenders hereby grant a temporary, revocable waiver of any Event of Default or Potential Default existing under Section 11.8 of the Credit Agreement with respect to (i) the fact that the sale in October 2001 by Parent of 2,337,700 shares of common stock to Zenger, when combined with the contract in October 2001 by Broady to sell his preferred stock in Parent to Zenger, exceeded the 25% limit in Section 11.8((ii) and (ii) the fact that, on January 17, 2002, Broady sold his shares of preferred stock to Zenger. (g) Administrative Agent and Lenders each hereby reserve the absolute and unconditional right to revoke the waivers granted by one or more of paragraphs 4(a), 4(b), 4(c), 4(d), 4(e) and 4(f) preceding at any time, in the sole discretion of Administrative Agent or either Lender, with or without cause, by giving verbal or written notice of such revocation to Borrower, effective immediately at the time such notice is given (with any verbal notice to be followed by written notice, but effective as of the time of the verbal notice). Such Page 16 of 23 waivers shall automatically expire and terminate on the date on which Administrative Agent or either Lender exercises its unconditional revocation right pursuant to the immediately preceding sentence. (h) Administrative Agent and Lenders hereby grant a temporary, revocable waiver (the "Fifth TROL Default Waiver") with respect to the Event of Default existing on the date hereof under Section 11.10 of the Credit Agreement as a result of the fact that a TROL Default has occurred because of the failure of the Companies to maintain as of June 30 and September 30, 2001 (i) the leverage ratio required by Section 6.01 of the Amended and Restated Guaranty dated as of March 22, 2000 given by Parent under the TROL Financing for the benefit of the TROL Lenders (the "TROL Guaranty"), (ii) the debt service coverage ratio required by Section 6.02 of the TROL Guaranty and (iii) the minimum net worth required by Section 6.03 of the TROL Guaranty. The Fifth TROL Default Waiver will automatically expire and terminate on the earlier of (1) the date on which Administrative Agent or either Lender exercises its unconditional revocation right pursuant to the next sentence hereof, (2) the date on which the TROL Lenders accelerate the maturity of the Lease Obligations (as defined in the TROL Guaranty) and (3) the date on which the TROL Lenders commence the exercise of any remedies under the TROL Financing Documents. Administrative Agent and each Lender hereby reserve the absolute and unconditional right to revoke the Fifth TROL Default Waiver at any time, in the sole discretion of Administrative Agent or either Lender, with or without cause, by giving verbal or written notice of such revocation to Borrower, effective immediately at the time such notice is given (with any verbal notice to be followed by written notice, but effective as of the time of the verbal notice). 5. Conditions Precedent. Unless one or more of the following conditions precedent is waived by Lenders, this Amendment is effective only if the following conditions are satisfied on the Execution Date of the Eighth Amendment: (a) Administrative Agent must receive counterparts of this Amendment executed by Parent, Borrower, Administrative Agent, each Lender and each Subsidiary whose name appears on the Subsidiary Joinder at the end of this Amendment (each, a "Ratifying Subsidiary"); (b) Borrower must pay in full all fees and expenses due and owing to Administrative Agent and to each Lender, including unpaid fees and expenses of counsel to Administrative Agent and counsel to each Lender, excluding only the disputed amount of $9,001.83 from the October, November and December 2001 billing statements of Fulbright & Jaworski L.L.P. (c) Borrower must deliver to Administrative Agent a letter from Gardere Wynne Sewell LLP to Administrative Agent acknowledging its responsibilities under Section 3.6, as amended and restated in this Amendment. Page 17 of 23 (d) Borrower must deliver to Administrative Agent the executed and acknowledged Bank Deed of Trust, which Administrative Agent will not record prior to February 28, 2002 unless an Event of Default or Potential Default other than those waived in this Amendment occurs. (e) Borrower must deliver to Administrative Agent a certificate of the Secretary of Borrower, the Secretary of Parent and the Secretary of each Ratifying Subsidiary certifying as to resolutions of the board of directors or executive committee of Borrower, Parent and each Ratifying Subsidiary authorizing and approving the execution of this Amendment. 6. Ratifications. Except as expressly modified and superseded by this Amendment, the Credit Documents are ratified and confirmed and continue in full force and effect. The Credit Documents, as amended by this Amendment, continue to be legal, valid, binding and enforceable in accordance with their respective terms. Without limiting the generality of the foregoing, Borrower and Parent, and each Ratifying Subsidiary, hereby ratify and confirm that all Liens heretofore granted to Administrative Agent for the benefit of Lenders were intended to, do and continue to secure the full payment and performance of the Obligation. Borrower and Parent agree to perform such acts and duly authorize, execute, acknowledge, deliver, file and record such additional assignments, security agreements, modifications or amendments to any of the foregoing, and such other agreements, documents and instruments as Administrative Agent may reasonably request in order to perfect and protect those Liens and preserve and protect the Rights of Administrative Agent and Lenders in respect of all present and future Collateral. 7. Representations, Warranties and Confirmations. Borrower and Parent hereby, jointly and severally, represent and warrant to Administrative Agent and Lenders that (a) this Amendment and any other Credit Documents to be delivered under this Amendment have been duly executed and delivered by or on behalf of Borrower and each other Company party to them, are valid and binding upon Borrower and the other Companies and are enforceable against Borrower and the other Companies in accordance with their respective terms, except as limited by any applicable Debtor Relief Laws, (b) no action of, or filing with, any Governmental Authority is required to authorize, or is otherwise required in connection with, the execution, delivery and performance by Borrower or any other Company of this Amendment or any other Credit Document to be delivered under this Amendment, (c) the execution, delivery and performance by Borrower and the other Companies of this Amendment and any other Credit Documents to be delivered under this Amendment do not require the consent of any other Person and do not and will not constitute a violation of any Laws, agreements or understandings to which Borrower or any other Company is a party or by which Borrower or any other Company is bound, (d) the representations and warranties contained in the Credit Agreement, as amended by this Amendment, and any other Credit Documents are true and correct in all material respects as of the date of this Amendment, (e) no Event of Default or Potential Default exists, other than the Events of Default and Potential Defaults to which the First, Second, Third, Fourth and Fifth TROL Default Waiver relate and the Events of Default referred to in paragraphs 4(a), 4(b), 4(c), 4(d), 4(e) and 4(f) of this Amendment, and (f) each Company has performed all of its obligations under the Credit Agreement and other Credit Documents. Borrower and Parent, jointly and severally, confirm and acknowledge that (i) all advances which have been Page 18 of 23 heretofore made by Administrative Agent and Lenders, even though Potential Defaults and Events of Default may have existed, were made in good faith by Administrative Agent and Lenders, and (ii) because Potential Defaults and Events of Default exist, Lenders have no obligation to make future advances, and any future advances by Lenders are totally discretionary. 8. Release of All Claims. Borrower, Parent and each Ratifying Subsidiary hereby, jointly and severally, unconditionally release and forever discharge Administrative Agent and each Lender and their respective successors, assigns, agents, directors, officers, employees, affiliates, accountants, consultants, contractors, advisors and attorneys (collectively, the "Benefited Parties") from all Claims (as defined below) and jointly and severally agree to indemnify the Benefited Parties, and hold them harmless from any and all claims, losses, causes of action, costs and expenses of every kind or character in connection with the Claims. As used in this Amendment, the term "Claims" means any and all possible claims, demands, actions, causes of actions, costs, expenses and liabilities whatsoever, known or unknown, at law or in equity, originating in whole or in part, which Borrower, Parent or any Ratifying Subsidiary, or any of their agents, employees or affiliates may now or hereafter have or claim against any of the Benefited Parties and irrespective of whether any such Claims arise out of contract, tort, violation of Law or otherwise in connection with any of the Credit Documents or the TROL Financing, including any contracting for, charging, taking, reserving, collecting or receiving interest in excess of the maximum rate on interest chargeable under applicable Law and any loss, cost or damage, of any kind or character, arising out of or in any way connected with or in any way resulting from the actions or omissions of the Benefited Parties, including any breach of fiduciary duty, breach of any duty of good faith or fair dealing, breach of confidence, breach of funding commitment other than the express funding commitments contained in the Credit Agreement, undue influence, duress, economic coercion, conflict of interest, negligence, bad faith, malpractice, violations of the Racketeer Influenced and Corrupt Organizations Act, intentional or negligent infliction of mental distress, tortious interference with contractual relations, tortious interference with corporate governance or prospective business advantage, breach of contract, deceptive trade practices, libel, slander, conspiracy or any claim for wrongfully accelerating any obligations or wrongfully attempting to foreclose on any collateral. Borrower, Parent and each Ratifying Subsidiary, jointly and severally, agree that none of the Benefited Parties have fiduciary or similar obligations to Borrower, Parent or any agents, employees or affiliates of Borrower or Parent and that their relationships are strictly that of creditor and debtor. This release is accepted by Administrative Agent and each Lender pursuant to this Amendment and shall not be construed as an admission of liability by Administrative Agent, any Lender or any other Benefited Party. 9. Reaffirmation of Liability Limitations by Harris Bank. Harris Bank hereby reaffirms and confirms to Administrative Agent all of Administrative Agent's Rights and all of Harris Bank's obligations under and pursuant to Section 13.5 of the Credit Agreement. 10. Counterparts. This Amendment may be executed in any number of counterparts with the same effect as if all signatories had signed the same document. Page 19 of 23 11. Parties Bound. This Amendment binds and inures to the benefit of Borrower, Lenders and Administrative Agent and, subject to Section 14.12 of the Credit Agreement, their respective successors and assigns. 12. ENTIRETY. THIS AMENDMENT, THE CREDIT AGREEMENT AS AMENDED BY THIS AMENDMENT, AND THE OTHER CREDIT DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES FOR THE TRANSACTIONS HEREIN AND THEREIN, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENT BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Executed as of and effective as of Execution Date of Eighth Amendment. ULTRAK, INC., as Parent By:_______________________________________ Chris T. Sharng, Senior Vice President and Chief Financial Officer ULTRAK OPERATING, L.P. as Borrower By: Ultrak GP, Inc. its General Partner By:_______________________________________ Chris T. Sharng, Senior Vice President and Chief Financial Officer AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO as Administrative Agent and a Lender By:________________________________________ Laurel Varney Mason, First Vice President HARRIS TRUST AND SAVINGS BANK, as a Lender By:________________________________________ William Robin, Vice President Page 20 of 23 SUBSIDIARY JOINDER To induce Administrative Agent and Lenders to enter into this Amendment, each Subsidiary named below (a) consents and agrees to this Amendment's execution and delivery, (b) ratifies and confirms that all guaranties, assurances and Liens granted, conveyed or assigned to Administrative Agent for the benefit of Lenders under the Credit Documents are not released, diminished, impaired, reduced or otherwise adversely affected by this or any prior amendment, and continue to guarantee, assure and secure the full payment and performance of the Obligation, (c) agrees to perform such acts and duly authorize, execute, acknowledge, deliver, file and record such additional guaranties, assignments, security agreements, deeds of trust, mortgages and other agreements, documents, instruments and certificates as Administrative Agent may reasonably deem necessary or appropriate in order to create, perfect, preserve and protect those guaranties, assurances and Liens, and (d) waives notice of acceptance of this consent and agreement, which consent and agreement binds each of the undersigned and their respective successors and permitted assigns and inures to the benefit of Administrative Agent and Lenders and their respective successors and permitted assigns. ULTRAK GP, INC. By:________________________________________ Chris T. Sharng, Senior Vice President and Chief Financial Officer ULTRAK, LP, INC. By:________________________________________ Chris T. Sharng, Senior Vice President and Chief Financial Officer DIAMOND ELECTRONICS, INC. By:________________________________________ Chris T. Sharng, Senior Vice President and Chief Financial Officer MONITOR DYNAMICS, INC. By:________________________________________ Chris T. Sharng, Senior Vice President and Chief Financial Officer ABM DATA SYSTEMS, INC. By:________________________________________ Chris T. Sharng, Senior Vice President and Chief Financial Officer SECURITY WARRANTY, INC. By:_________________________________________ Chris T. Sharng, Senior Vice President and Chief Financial Officer SECURITY WARRANTY (BVI) LTD. By:_________________________________________ Chris T. Sharng, Director Page 21 of 23 SCHEDULE 2 LENDERS AND COMMITMENTS
==================================================== ====================================== =========================== Name and Address of Lender Commitment Commitment Percentage ==================================================== ====================================== =========================== American National Bank and Trust Company of Chicago Eleven Million One Hundred Eleven 0.55555556 (55.555556%) c/o Bank One, N.A. Thousand One Hundred Eleven and Managed Assets Department 11/100 Dollars 1717 Main, 4th Floor ($11,111,111.11) Dallas, Texas 75201 Attention: Laurel Varney Mason, First Vice President Telephone: 214/290-2786 Facsimile: 214/290-2740 ==================================================== ====================================== =========================== Harris Trust and Savings Bank Eight Million Eight Hundred Eighty 0.44444444 (44.444444%) 111 West Monroe Street, Suite 5C Eight Thousand Eight Hundred Eighty Chicago, Illinois 60603 Eight and 89/100 Dollars Attn: William Robin, Vice President ($8,888,888.89) Telephone: 312/461-7534 Facsimile: 312/765-1641 ==================================================== ====================================== =========================== TOTAL Twenty Million Dollars ($20,000,000) ==================================================== ====================================== ===========================
Page 22 of 23 ADDENDUM "A" TO EIGHTH AMENDMENT TO ULTRAK FIRST AMENDED AND RESTATED CREDIT AGREEMENT Description of Briarwood Lease Terms Description of Existing Liens Permitted by Section 9.3(b) Description of Existing Loans, Advances and Extensions of Credit to Third Parties Outstanding on Execution Date of Eighth Amendment Description of Existing Loans, Advances and Extensions of Credit by Domestic Companies to Foreign Subsidiaries Outstanding on Execution Date of Eighth Amendment Page 23 of 23 EX-21.1 17 file016.txt SUBSIDIARIES OF ULTRAK, INC. Exhibit 21.1 Ultrak, Inc. SUBSIDIARIES OF ULTRAK, INC. 1. Ultrak Operating, L.P., a Texas limited partnership 2. Ultrak GP, Inc., a Delaware corporation 3. Ultrak LP, Inc., a Delaware corporation 4. Diamond Electronics, Inc., an Ohio corporation, dba Ultrak Ohio 5. Ultrak Holdings Limited, a United Kingdom private limited liability company 6. Ultrak France, SA (f/k/a Groupe Bisset, S.A.), a French limited liability company 7. Ultrak (Asia Pacific) Pty. Ltd., an Australian proprietary company 8. Ultrak Deutschland GmbH (f/k/a VideV GmbH), a German limited liability company, dba Ultrak Germany 9. Monitor Dynamics, Inc. a California corporation, dba Ultrak California 10. Ultrak (UK) Limited (f/k/a Intervision Express Limitd), a United Kingdom private limited liability company 11. Security Procurement, B.V., a Dutch private limited liability company 12. Ultrak (SA) (Proprietary) Limited (f/k/a Philtech Electronic Services), a South African corporation 13. Ultrak Italia, SpA (f/k/a Casarotto Security, SpA), an Italian company 14. Videosys Ltd., a United Kingdom private limited liability company 15. Ultrak (Asia) Pte. Ltd., a Singapore company 16. Ultrak Europe, N.V., a Belgium limited liability company 17. Ultrak Benelux, N.V., a Belgium limited liability company 18. Security Warranty, Inc., a Texas corporation 19. ABM Data Systems, Inc., a Texas corporation 20. Ultrak Polska, Sp.z. O.O (f/k/a Mach Security, Sp.z.O.O.), a Polish limited liability company 21. Ultrak (Switzerland), S.A. (f/k/a MCS Ultrak, S.A.), a Swiss company 22. Security Procurement France, S.A., a French limited liability company 23. Security Warranty BVI, Ltd., a British Virgin Islands company -----END PRIVACY-ENHANCED MESSAGE-----